Stocks mixed day, week & month...
inflation eats at income & sentiment
By David Bradshaw ~ links ~ oilsolution.org ~ wisdom
Editor, Real Money Perspectives ~ weekly email ~ daily email
May 30, 2008 ~ *breaking* ~ features ~ (podcast)
* Friday gold rose over 1% on higher oil prices and a weaker dollar. Gold closed in NY up $9.10 to $886.10/oz., silver rose $.27 to $16.87/oz. For the week gold slipped 4.2% while silver shed 7.8% on profit taking, but both metals ended up for the month.
* Oil prices rose above $127 a barrel Friday as traders looked towards the start of hurricane season next week. Thursday oil prices zig-zagged above $132 then pulling back to $126, despite a surprise decline in U.S. inventory data.
* "Inflation erased gains in disposable personal income in April, while U.S. consumer spending was flat after adjusting for higher prices, the government estimated Friday. Meanwhile, U.S. consumer sentiment dropped in May to the lowest level in 28 years as worries about inflation grew," reports MW.
* "U.S. stocks on Friday ended the day, week and month mixed, but with a largely positive showing, as personal computer giant Dell Inc. reported profits that exceeded forecasts and the government said a key gauge of inflation was 'temperate' in April," reports MW.
* "We have predicted the Fed will discover they are locked into a very large box that will be very difficult to escape.The stock market has resumed the major bear market trend... when the market and economy continue unraveling, the Fed will find it very difficult to turn things around," reports Comstock.
"Unsurprisingly the latest media speculation is that gold, oil and other commodities have now reached a 'top' in 2008. The fundamentals of this secular bull market in commodities indicates recent market declines are both healthy and further proof that metals and energy remain the buy of a generation," said Swiss America CEO Craig Smith. Here's why.
"Nearly every natural resource under the sun is about to enter the second, most powerful phase of their bull markets, eventually reaching dizzying heights that make today's record prices seem tame by comparison," reports Money&Markets.
"By rapidly increasing the money supply and thereby decreasing the value of the dollar, the Federal Reserve is solely responsible for the increase in the oil price," writes Paul van Eeden, president of Cranberry Capital," reports Barrons.
"At $130 a barrel, the price has doubled in around a year, causing misery for motorists and businesses. However, George Soros warned that the oil bubble would not burst until both the US and Britain were in recession," reports Telegraph.
"U.S. home prices dropped at the sharpest rate in two decades during the first quarter, a somber indication that the housing slump continues to deepen. Sales of new homes rose in April although still near 17 year lows," reports AP
"Consumer confidence dropped in May to the lowest level in 16 years, as Americans grew more concerned about their jobs and more pessimistic about business conditions," reports CNN.
"Volatility looks set to remain high in the coming days with the dollar and oil to continue providing much of gold's direction, while inflation pressures and ongoing credit market issues provide support," said TheBullionDesk.Com analyst James Moore.
Investor and fund speculation in the energy markets has grown twenty-fold, from $13b to $260b over the last five years, says CNBC. Speculators are betting there will be no substantial increase of supply from domestic drilling or new refineries built.
"It is again time We the People offer Capitol Hill a clear solution on exactly how to ease the pain at the pump – short term and long term," says Swiss America CEO and co-author of Black Gold Stranglehold, Craig R. Smith.
"If government wants to bring the price of fuel down they should fast track legislation to open up our domestic sources of oil such as ANWR, the Great Basin, the Outer Continental Shelf, and the deep waters of the gulf," Swiss America CEO Craig R. Smith told WND.
"Buying oil is draining $600 billion a year from the United States," says Texas oil billionaire Boone Pickens, who expects the price of oil to reach $150 a barrel this year, reports CNBC.
"Each time the dollar falls 1 per cent, the price of the barrel rises by $4. Oil prices are high due to the recession in the United States and the economic crisis, which has touched several countries, a situation that has an effect on the value of the dollar," said Opec’s president, Chakib Khelil to FT.
"President Bush said he was 'pleased' with a Saudi decision taken on May 10 to increase its oil production by 300,000 barrels per day in response to customers, but said that he was 'also realistic' about what the Americans should do," reports AFP.
"Our problem in America gets solved when we aggressively go for domestic exploration. Our problem in America gets solved if we expand our refining capacity, promote nuclear energy and continue our strategy for the advancing of alternative energies as well as conservation," said President Bush.
"We would not be surprised to see gold double from current levels as the global policy prescriptions for the credit crunch remain powerfully and uniformly re-flationary," said John Hill, Citigroup metals analyst.
"Demand for gold exchange-traded funds doubled from the first quarter of last year. "Continuing instability in the equities markets, ongoing fears over the dollar and rising inflation and increased understanding of gold's investment attributes helped spur demand for ETFs," said GFMS.
"You're seeing some new buying come back into gold. The dollar has stopped its immediate-term rally. Gold is still $200 too cheap, given where oil is," said Frank McGhee, head metals trader at Integrated Brokerage in Chicago to Bloomberg
"The average U.S. gasoline price rose about 3 cents to $3.79 a gallon last week, according to AAA. The cost of gasoline has risen 22% from its year-ago price of $3.10 a gallon," reports MW.
Gas prices are actually cheaper today than they were forty years ago in relation to silver prices. A gallon of gas cost three 90% silver dimes back in 1964, today it costs just two 90% silver dimes, which equates to about $3.40 a gallon with silver prices near $17/oz.
"Goldman Sachs predicts that oil prices could rise to $150 to $200 within two years," reports AP.
"By owning gold instead of US dollars, you can today purchase basically the same amount of crude oil as at any other time since 1945," reports James Turk.
"Today it takes about 10 U.S. dollars to pay for a gallon of gas in Europe. Gas is not only in a different currency that is doing much better than our dollar, it is also sold by the liter," reports Londoner.
"Rampant inflation is starting to damage business confidence. "The latest data point to a potential downturn in Brazil, China, and India," said the OECD, the club of rich nations," reports London Telegraph.
"The Federal Reserve does not have the tools to deal with the U.S. housing crisis and rapidly rising consumer prices, leaving it to lawmakers to avert a severe recession, said Pimco's Mohamed El-Erian," reports Reuters.
"Food inflation could double this year, lifted by the rising costs of fuel, corn and soybeans, some analysts predict. Food inflation hit 4 percent last year, up from 2.4 percent in 2006," reports AP.
"Former Fed Chairman Paul Volcker warned Wednesday the U.S. could face a 1970s-style period of skyrocketing inflation if investors lose confidence in the buying power of the U.S. dollar," reports CNBC.
"Inflation pressures eased a bit in April despite the biggest jump in food prices in 18 years. The Labor Department reported Wednesday that consumer prices edged up 0.2 percent last month, compared to a 0.3 percent rise in March," reports AP.
"We who eat and drive suspect government stats are rotten at the core. Worse yet, the real world rate of inflation is likely TWICE as high as reported," said Swiss America CEO Craig R. Smith.
"Inflationary pressure is building globally, and consumers' expectations of future price rises are growing in a way reminiscent of the 1970s, pushed by rising commodity and energy prices and at least partly underwritten by U.S. interest rates adjusted to rescue a country experiencing a popping debt bubble," reports Reuters.
"Gold is a 'green' metal for the 21st century. The chemical properties of gold are important for the future...these include catalysts for pollution control and energy generation, along with use of gold compounds and nanotechnology for medical diagnostics and treatment," reports Mineweb.
"Turmoil in financial markets has eased somewhat, but the situation is still "far from normal," Federal Reserve Chairman Ben Bernanke said Tuesday," reports AP.
"Fed Chairman Ben Bernanke lunched on March 11 with a Who's Who of Wall Street leaders, including JPMorgan Chase & Co.'s Jamie Dimon, three days before the central bank rescued Bear Stearns Cos. from bankruptcy," reports Bloomberg.
"U.S. consumers are juggling plastic to put off their day of reckoning. The Fed survey said credit card debt had jumped 6.7% in the first quarter to $957bn. "My guess is that many Americans continue to run up massive credit card debt because they have little intention of paying it off," said Peter Schiff at Euro Pacific Capital to London Telegraph.
"The dollar weakened further against the euro Monday as markets waited for statements from Fed Chairman Ben Bernanke and economic data expected Tuesday," reports AP.
"Only a month ago the dollar slumped to an all-time low against the euro. Could ‘the rope slip’ and the world's pivotal currency still go into freefall? A plummeting US currency would cause chaos globally, as central banks sought to protect the value of their reserves,” reports London Telegraph.
"The dollar is in a major bear market, and is losing purchasing power day after day because of debasement and inflation. Continue to avoid it. Hold gold and/or silver instead, which remain in clear uptrends," reports James Turk at Goldmoney.
"The great strength of gold throughout history has not been that you make money by holding it, but rather you do not lose. That ought to remain its best credential," says Timothy Green, International gold expert.
"We've seen some positive signs from the ETFs, this is helping gold. Our view as a bank is that economic conditions are likely to deteriorate. Some money will come out of equities and go back into gold," said Dan Smith, a metals analyst at Standard Chartered to Bloomberg.
"Gold is in a 'win-win' situation. If the Fed is successful at turning the U.S. economy and credit crisis around, it will only be because it flooded the system with hundreds of billions of paper dollars. If not, the plunging dollar would cause investors to flock to gold sending prices above $2,270 an ounce," reports Money&Markets.
"The House passed legislation recently to allow for the minting of pennies made primarily of steel but coated with a copper-colored dye so they appear similar. It also would require the production of 5-cent coins made primarily of steel, with a coating of nickel," reports CQpolitics.
"Israel now believes Iran will master centrifuge technology and be able to begin enriching uranium on a military scale this year. The nuclear ambitions of Iran and North Korea threaten to set in motion a domino effect that will be difficult to contain," reports The Jerusalem Post.
"Iran's standoff with the West over its nuclear program added geopolitical concerns and fundamental tightness that sent crude oil prices to new highs," reports Reuters.
"The price of aluminum, gold, copper and platinum will keep climbing as the lights go out in the world's biggest mines following Chile's worst drought in five decades and power rationing from South Africa to China," reports Bloomberg.
"Gold’s downturn and the corresponding easing of worries about the financial system are temporary. Events always trump psychology at some point. First we will see investors return to gold – and then we’ll see newcomers fleeing toward it," reports DailyReckoning.
"JPMorgan Chase & Co does not expect the U.S. financial crisis to end soon and will remain very cautious... we are not done with the crisis for a long time," reports Reuters.
"The twilight of irredeemable debt is upon us. The sign is that banks are reluctant to take the promissory notes of one another. The way out is to open the U.S. Mint to gold and silver," reports ATimes.
"For the fourth month in a row, the economy lost jobs, the Labor Department reported Friday. But in April the losses totaled 20,000, an improvement from the 81,000 reductions in payrolls logged in March," reports AP.
"Overall I think that the U.S. continues to follow policies that will make the dollar weaken against other major currencies... I feel no need to hedge purchases of multinational companies that earn profits in other currencies, " said billionaire Warren Buffett to CNN.
"Gulf states are considering dropping their pegs to the dollar after the U.S. currency's decline stoked inflation across the region, Kuwaiti Finance Minister Mustafa al-Shimali said to Bloomberg.
Gold prices gave back 4.5% in April, slipping from $915/oz. to $876/oz. while silver retreated 6%, falling from $17.88/oz. to $16.84/oz.
John Reade at UBS noted substantial selling from ETFs has driven the gold downturn. The analyst has cut his one-month forecast to $850/oz from $900/oz," reports Platts.
"This pullback in gold will produce the same result as the previous five major corrections since 2001; a great buying opportunity. If you haven't participated in the greatest gold bull ever, it is not too late," said Swiss America CEO Craig R. Smith.
"Gold will keep its luster amid uncertainty," says South African precious metals specialist Markus Bachmann."The fundamental laws of supply and demand as well as gold's natural role as an inflation hedge are major factors," reports Citywire.
"The Federal Reserve cut Fed Fund rates by .25% to 2% as the downside market risks outweighed their inflation concerns. The Fed appears to be concerned about housing and further sub-prime problems so I think they will keep rates low until those markets improve," said Mr. Smith.
"The Fed opened up the old playbook and cut rates aggressively when subprime loans blew up. This cemented higher inflation into place, crushed the dollar, pushed commodity prices up sharply. The answer is for the Fed to lift rates somewhere north of 5%. Tax-rate reductions and interest-rate hikes cured the world of its ills in the early 1980s. They can do so again," reports WSJ.
Last Wednesday's .25% rate cut takes real interest rates down to minus 1.8%, the worst rate of return for dollar savers since June 2004.
"The bruised economy limped through the first quarter of this year at only 0.6 percent as housing and credit problems forced people and businesses alike to hunker down," reports AP.
Conflict Securities Advisory Group and Overlap Inc. officially launched terrorfreecalculator.com on Wednesday, a new website dedicated to equipping investors to determine whether their mutual funds invest in companies that do business in countries that sponsor terror, reports WND.
* "The surprise since 9/11 is that more money has not flowed into terror-free investing considering that 'socially responsible' and 'green' funds have prospered in recent years... it is a nonviolent way for Americans to confront terrorism and maybe even profit from the fight," reports TIME.
“Swiss America is a proud sponsor of terrorfreecalculator.com which is committed to propelling this vital message out to millions of concerned investors,” said Swiss America CEO Craig R. Smith.
"The Consumer Confidence Index, which had declined sharply in March, fell to a 5-year low in April. The Index now stands at 62.3 (1985=100), down from 65.9 in March. The Consumer Confidence Survey is based on a representative sample of 5,000 U.S. households," reports CBC.
US households will start receiving more than $110 billion in emergency tax rebates, approved by Congress in an attempt to revive consumer spending.
Swiss America CEO Craig Smith told FOX's Neil Cavuto, "This is election year feel-good legislation. A recent survey stated only 17% of the public is planning to spend their rebate, while 29% plan to save it and 54% plan to pay down debt." Watch it
High prices for food and fuel, weak income growth and falling home values pulled down consumer sentiment in April, according to a government report released Friday.
"Demand for precious metals in self-directed U.S. Individual Retirement Accounts is growing for many of the reasons other investors have been drawn to the metal - a hedge against inflation, dollar weakness and credit-market worries," reports DowJones.
"Sales of new homes plunged in March to the lowest level in 16 1/2 years as housing slumped at the start of the spring sales season. The median price of a new home in March, fell by 8.5%, the largest amount in nearly four decades," reports AP.
$200 oil, $2,000 gold ahead
"Surging crude prices, which could surpass $200 a barrel in four years on tight supplies, could push gasoline prices to as high as $7 a gallon, CIBC World Markets analysts said Thursday," reports MW.
"Crude-oil prices rose to a new high of $119.86 a barrel this week as lingering worries over oil-supply disruptions and the dollar's new low against the euro provided support for prices," reports MW.
Recently many analysts have jumped onto the $1,000/oz. plus gold bandwagon -- most of whom were not considered "gold bugs" in the past, like Citibank and JP Morgan & Co. We've collected over fifty prominent analysts, authors and gold expert statements about why their combined gold price expectation is $2,200/oz.
"The price of gold is up 35% in the past 12 months. The question is whether they will keep rising. Odds are, if inflation moves higher, they will too. Is it too late to get in? "I think we're in a long-term bull market for commodities," says Matthew Tuttle, a financial planner in Stamford, Conn to WSJ.
"Don’t sell your investments in commodities yet. Billionaire George Soros says the boom in commodities is still in a 'growth phase.' In fact, prices for commodities like oil, wheat and gold continue to rise to new records, defying the paradigm that commodity prices should fall as the U.S. economy slows," reports MoneyNews.
* "Scholars speculate that the Wizard of Oz was at once a children’s fantasy and a timely political allegory, and that the silver slippers, yellow brick road, and Emerald City were intended as symbols for the gold and silver standards and paper money," reports Columbia. [Ed. Note: Watch: Hugo Salinas Price explain "Dorothy's Silver Slippers" from recent GATA conference].