Silver +27%, Gold +10%, Dow +4%, S&P +5.3%, Dollar -6%
"We could be nearing the end-game for the US dollar ... Fed has little choice"
Best asset of 21st century! ~ 75 economists agree $2,200 gold ahead
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By David Bradshaw ~updated hourly~ email ~ links ~ wisdom
Editor, Real Money Perspectives ~ weekly email ~ daily podcast
May 29, 2009 ~ features ~ ((podcast)) ~ gold fraud alert!
Friday gold prices bolted to $980/oz. as dollar sunk below a key support level and stocks closed higher. Gold last traded up $20.60 to $979.60/oz., silver rose $.64 to $15.79/oz.
* For the week gold gained 2.5% and ended the month up 10%. Meanwhile silver prices lept up nearly 7% (or $1.05/oz.) this week for an amazing 27% gain in May.
* The dollar fell 6% in May hitting fresh five-month lows Friday amid fears over the impact of aggressive stimulus spending. "If the dollar continues to be sold, the next target for gold is $1,006/oz., the peak we had in February this year. That is feasible over the next week or so, if that trend in the dollar continues," said Tom Kendall, precious metals strategist with Mitsubishi to Reuters.
* "A combination of a weaker dollar and rising inflation expectations represent the perfect storm for gold. In the near term, the dominant theme behind moves in gold appears to be moves in the U.S. dollar rather than inflation expectations," said UBS analyst John Reade to Miningmx.
* Bond markets defy Fed as Treasury yields spike: "The US Federal Reserve may soon be forced to launch fresh blitz of quantitative easing whatever the consequences for the US dollar, or risk seeing economic recovery snuffed out by the latest surge in long-term borrowing costs. "The Fed is going to have to consider doubling its purchases of Treasuries. We could be nearing the end-game for the US dollar but the Fed has little choice at this point," said Ashraf Laidi, from CMC Capital Markets reports Telegraph.
* "Silver gained 26.6% in May, the biggest since April 1987. The metal has many industrial uses but is also seen as a hedge against a weaker dollar and inflation. Gold, which has limited industrial uses, has gained 10% in the month. "People think we are moving toward a recovery, and maybe we should be less pessimistic about the future of the metal, that may be factoring in the prices," said Jeffery Christian, managing director of CPM Group," reports MW.
* "Stocks jumped in the final half hour of trading Friday. The major indexes bounced late in the day after spending most of the final session of the month swaying from gains to losses. The DJIA jumped 96.53 points, or 1.2%, to 8500.33. It rose 4.1% on the month and has risen 20% over the last three months. The market's spring gains have been driven by a widening consensus on Wall Street that the worst fallout of the financial crisis and recession has passed," reports WSJ.
* Chinese investors are now rushing to hoard the yellow metal as fears over the global recession deepen. "China's gold reserves may serve as backing for the yuan as Beijing is stepping up the promotion of its use overseas," said Albert Cheng, director of the World Gold Council's Far East Division," reports ChinaDaily.
* "Gold may be the safest haven for investors as policy makers accelerate responses to the crisis, devaluing currencies versus hard assets such as gold in the process. Gold is likely to more than quadruple from the current level to $3,500/oz. in 2010," said Christopher Wood of CLSA Ltd. reports Bloomberg [Note: Read more by Christopher Wood and 74 other respected gold experts here].
* "The U.S. economy will enter hyperinflation approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said. Faber said he’s adding to his gold investments, advised buying the precious metal at the start of its eight-year rally, when it traded for less than $300 an ounce. 'There are some concerns of a risk from inflation from all the liquidity injected into the banking system but it’s not an immediate threat right now given all the excess capacity in the U.S. economy,' said David Cohen, head of Asian economic forecasting at Action Economics in Singapore," reports Bloomberg.
* "Total debt per household now stands at $668,621.00: "Taxpayers are on the hook for an extra $55,000 a household to cover rising federal commitments made just in the past year for retirement benefits, the national debt and other government promises, a USA TODAY analysis shows. The government took on $6.8 trillion in new obligations in 2008, pushing the total owed to a record $63.8 trillion.
May 28th Market News & Views ~ Dollar down commodities up
* "Gold may target a record $1,250 an ounce as a continuation head-and-shoulders pattern may be forming within a longer-term trend, Standard Bank Group Ltd. said, citing trading patterns. A break and close above $1,050.40 provides warning that an important breakout has occurred," reports Bloomberg.
"Inflation concerns stirred buying into the yellow metal after U.S. crude prices rose above $64 per barrel. Heightened military alert for the Korean peninsula by the United States and South Korea over a nuclear test by the North boosted the safe-haven appeal in gold," reports Reuters.
* "General Motors said on Thursday it reached a deal with some major bondholders that would give the Treasury a 72.5% stake in a reorganized automaker and could pave the way for a fast-track bankruptcy backed by the U.S. Treasury within days. The United Auto Workers union would own 17.5%, GM said in a filing with securities regulators. GM has so far taken $19.4 billion in emergency U.S. government loans," reports Reuters.
* "Stocks pushed higher Thursday as a better-than-feared auction of seven-year Treasury notes instilled increased confidence in an economic recovery. Major indexes had seesawed all morning as better-than-expected reports on jobless claims and durable-goods orders was followed by discouraging new home sales data," reports WSJ.
* New Investor Worry: Treasury Selloff Spiking Interest Rates: "The stock market is wary that a spike in interest rates will derail a fragile economic recovery and snuff the market's rally. Rising yields hurt stocks both because they create an attractive alternative investment and because they could potentially hurt the outlook for an economic recovery, which stocks have been trading on," reports CNBC.
May 27th Market News & Views ~ Fed money creation warnings
* China warns Federal Reserve over 'printing money': Richard Fisher, president of the Dallas Federal Reserve Bank, said: "Senior officials of the Chinese government grilled me about whether or not we are going to monetise the actions of our legislature." Mr. Fischer has been running a fervent campaign to alert Americans to the $99 trillion ("very big hole") in unfunded pension and health-care liabilities built up by a careless political class over the years," reports Telegraph.
* "Sales of pre-owned homes rose 2.9% to 4.68 million in April, boosted by bottom fishers snapping up foreclosures and by incentives for first-time buyers, a real estate trade group reported Wednesday. Sales of existing homes have been roughly unchanged for six months," reports MW.
* "U.S. stocks slid Wednesday afternoon as investors unwound recent bets on a U.S. recovery and Treasury yields jumped. "The equity market and Treasury market are reflecting the current concerns about increased Treasury issuance and the Fed's balance sheet," said Craig Peckham of Jefferies," reports WSJ.
* "The value of all the gold in existence since the time of Christ is currently worth about $2 trillion. Just the costs to bail out the economy so far going to be more than six times all of the gold that’s been produced over the past 2,000 years -- not including Social Security, military, infrastructure, etc. This is beyond shocking and it’s difficult to know what the full extent of the repercussions will be in the years ahead. Obviously, the dollar will fall sharply and gold will soar. Interest rates will eventually move much higher and bonds will plunge," report The Aden Sisters.
* Americans' credit scores fall: "In the first quarter of 2009, credit card delinquencies hit a record high of 6.5%, while charge-offs reached 7.5%, a near-record high, according to the Federal Reserve. Banks are closing a record number of credit card accounts and reducing millions of dollars in credit lines. Foreclosures also are ruining credit," reports USAToday.
May 25th Market News & Views ~ Consumers bounce back
* "The Conference Board Consumer Confidence Index posted another large gain in May, following considerable improvement in April. The Index now stands at 54.9, up from 40.8 in April. Those claiming business conditions are "good" increased to 8.7% from 7.9%. However, those claiming conditions are "bad" increased to 45.3% from 44.9%," reports CB.org.
* "Stocks bounced back from a lower open Tuesday as consumer confidence hit its highest level in eight months and a broker upgrade on Apple buoyed the Nasdaq. Getting the market off to a jittery start after the three-day weekend, the decline in housing prices showed no signs of letting up and there were reports of another missile launch by North Korea," reports CNBC.
* "Shares of General Motors crumpled Tuesday as efforts to win the support of enough bondholders to swing a last-ditch effort at restructuring the company outside of bankruptcy appeared stuck. If it comes to bankruptcy, it would be the biggest failure ever of an American manufacturer, likely wiping out all remaining shareholder value," reports MW.
* "U.S. home prices continued their multiyear tumble in March according to the S&P Case-Shiller home-price indexes, as the downdraft shows no near-term signs of abating. The monthly numbers showed 15 of 20 major metropolitan areas posted price declines of more than 10% from a year earlier, with the Sun Belt continuing to be hit hardest. Nationally, home prices are at levels similar to the fourth quarter of 2002," reports WSJ.
* "The dollar rose from a five-month low against a basket of currencies on Tuesday as investors booked profits on a spike in the euro and other higher-yielding currencies, while traders awaited U.S. Treasury auctions to test the strength of investor appetite for dollar assets," reports Reuters.
* China's Yuan: The Next Reserve Currency?: Are the Chinese finally getting serious about loosening their ties to the dollar and even replacing the greenback with the yuan as the global economy's reserve currency? The evidence is mounting that they are," reports BusWeek.
* "Two developments are causing excitement about gold. From a charting point of view, gold shares are generally agreed to have broken out, meaning that gold itself could well be about to do something very important. The second bullish gold development: general economic conditions. "The dollar does look vulnerable. ... Pushing government steadily leftward, the Obama administration has set up the possibility of a U.S. dollar rout" says the Gartman Letter, reports MW.
* Gold prices ended last week up 3%, while silver rose over 5%. The U.S. dollar index slid to the critical 80 level and a 2009 low against the euro on worries the U.S. could lose its triple-A credit rating.
* "The US dollar is in slow motion breakdown mode. Gold will rise from monetary inflation and price inflation, apart from currency factors. Numerous nations have stated publicly that they regard the dollar as inadequate and unqualified to serve any longer as the sole global reserve currency. The isolated revolt has turned into a uniformly global revolt. They are blaming the US$ for their internal crises," reports Jim Willie CB at GoldSeek.
* Gold prices climb to 2-month high: "The precious metal has moved steadily higher in recent weeks amid weakness in the dollar. Prices are up 6.7% for the month. Gold benefits from a falling dollar because investors use the yellow metal as a hedge against inflation and a weak currency," reports AP
May 22nd Market News & Views ~ Metals shine in '09
* "Concerns about a possible bankrupty of GM led stocks to a late drop on Friday, with all three main averages closing slightly lower in light volumes ahead of the Memorial Day holiday weekend. U.S. markets will be closed on Monday," reports MW... Dollar's doldrums deepen.
* GM bankruptcy as early as next week: "Shares of General Motors fell as much as 9% Friday as traders backed out of the stock on fresh reports the automaker was unlikely to keep itself out of bankruptcy. The move carves into gains the previous session made on news the federal government would pump another $7.5 billion of emergency loans into GMAC," reports MW.
* "The economy may be at greater risk of inflation than the conventional wisdom indicates," said Philadelphia Fed President Charles Plosser in a speech yesterday in New York. Prices may rise 2.5% (ha-ha-ha) in 2011, a rate well above central bankers’ preferred range, and cautioned against complacency on inflation, reports Bloomberg.
* The new global balance: "Perfectly at odds with the global imbalance premonitions of the early 2000s, the dollar’s weakness will likely be the best gauge of the turnaround of the global crisis. In a new financial landscape in which leverage is limited by worldwide regulation and the gradual digestion of toxic assets will weigh on bank’s balance sheets, the US will face tougher terms to finance its external imbalance," reports VOX.
* "The U.S. dollar's day of reckoning may be inching closer as its status as a safe-haven currency fades with every uptick in stocks and commodities and its potential risks - debt and inflation - are brought under a harsher spotlight. Economic recovery will weigh on the greenback as real demand for commodities, coupled with improved risk appetite, caused investors to seek higher yields in emerging markets and commodity currencies," reports FinPost
* New Dilemma for the Dollar: "Not since the breakdown of the Bretton Woods system with the suspension of the dollar's convertibility into gold in 1971, has the dollar's status been so threatened. The dollar has been the international reserve and trade currency despite its lack of any backing and the U.S. being the largest creditor nation. Today the greenback's status is being challenged for trade as well as financial transactions," reports Barrons.
* "Wednesday the dollar hit its lowest level against a basket of currencies in more than four months as recent gains in U.S. stocks prompted some investors toward perceived riskier assets, reports Reuters. (See "The Incredible Shrinking Dollar" Special Report)
* "The prospects for gold remain buoyant over the long-term as there are anticipations of dollar weakness and rising inflation.. Rather than looking at gold from the returns point of view, an investor should look at diversifying into it purely for its quality as a pure hedge against exposure to either debt or equity," said Sandesh Kirkire, CEO, Kotak AMC to IndiaTimes.
* "Gold, as one of the few assets that has held its value during the current economic crisis, has been sought out by investors who are drawn to its proven protective attributes as well as safeguarding themselves from the erosive effects of future inflation. We believe this trend will define investment behavior in the next decade," said Aram Shishmanian, CEO of World Gold Council to Telegraph.
* World Economies Plummet: "Steep declines in the economies of three of the U.S.'s biggest trading partners -- Mexico, Japan and Germany -- underscored the severity of the global recession and put pressure on major industrialized nations to revive moribund global trade talks," reports WSJ.
* "A decline in financial stocks helped pull the broader stock market lower on Wednesday, offsetting mild gains for energy and other commodities stocks as crude-oil prices pushed above $62 a barrel. The commodity has been on a tear amid a renewed round of speculation and optimism that the U.S. economy is due for a rebound that could bolster fuel demand. However, many traders say the rally is due for a correction," reports WSJ.
* "Crude-oil prices rose Wednesday to their highest level in more than six months, topping $61 a barrel as government data showed U.S. crude inventories fell more than expected during the last week," reports MW.
* "President Mahmoud Ahmadinejad said on Wednesday Iran had tested a missile that defense analysts say could hit Israel and U.S. bases in the Gulf, a move likely to fuel Western concern about Tehran's nuclear ambitions. The test was a further disappointment for the Obama administration, 'This is just a step in the wrong direction,'" reports Reuters.
* "California voters did more than just lash out at Gov. Arnold Schwarzenegger and the Legislature over the state's fiscal debacle on Tuesday. By rejecting five budget measures, Californians also share blame for the political dysfunction that has brought California to the brink of insolvency. Voters in the special election refused either to extend new tax hikes or to cap state spending," reports LATimes
* "Optimism that the housing slump had hit bottom was dampened Tuesday when the government reported that construction on new housing projects slowed to a record-low pace in April. New construction of single-family homes and apartments plunged 12.8% to a record-low annual rate of 458,000," reports MW.
* "Stocks ended a rocky session mixed on Tuesday as banks rallied but an unexpected drop in housing starts left investors a little shaky. Still, a gauge of fear dropped below a key level. This came after stocks jumped 2.8 percent Monday, reversing much of last week's slump, following bullish analyst comments on banks," reports CNBC.
* "Oil prices jumped to a six-month high above $60 a barrel Tuesday on growing signs of economic recovery amid concerns about unrest in African crude producer Nigeria, traders said. 'Gains in the stock market increased optimism that the global economy is recovering,' said BetOnMarkets analyst David Evans to AFP.
* U.S. Needs More Inflation to Speed Recovery: "So say economists including Gregory Mankiw, former White House adviser, and Kenneth Rogoff, who was chief economist at the International Monetary Fund. 'I’m advocating 6% inflation for at least a couple of years,' says Rogoff, who’s now a professor at Harvard University. 'Higher inflation is good for debtors but it’s bad for creditors. It’s dangerous and irresponsible,' says Axel Merk, president of Merk Investments LLC," reports Bloomberg.
* "Private investors should hold up to 15% of their wealth in physical gold, according to a German asset management company which plans to set up 500 "Gold-To-Go" ATMs in Germany, Switzerland and Austria this year. A one-gram piece of gold, the size of a child's little fingernail, cost $42.25 -- a 30% premium to the spot market price," reports Reuters.
* "Gold should continue to do well because of what governments are doing to PREVENT the natural flow of events from occurring. Desperate attempts are being made, and will continue to be made, to divert the economy from its natural course, and that these attempts will cause additional economic problems and prolong the agony. Consequently, people are driven to save in terms of a highly liquid money-like substance that cannot be depreciated by the government," reports SafeHaven.
* Audit the Fed, Then End It!: "The Federal Reserve has been given the power to create money, by the trillions, and to give it to their friends, under any terms they wish, with little or no meaningful oversight or accountability. HR 1207 calls for a complete audit of the Federal Reserve and removes many significant barriers towards transparency of our monetary system. This bill now has nearly 170 cosponsors, with support from both Republicans and Democrats," reports Cong. Ron Paul at LewRockwell.
* Netanyahu stands firm against demands from Obama: "Benjamin Netanyahu, the Israeli prime minister, in his first meeting with the US president, made it clear that while he welcomed Mr Obama's commitment to the region, he was more concerned about dealing with the threat of Iran than peace talks. Mr. Obama was unable to secure any commitments on ceasing the construction of Jewish settlements in the West Bank or embracing the "two-state solution" to achieving peace in the Middle East," reports Telegraph.
May 18th News & Views ~ Stocks rally on recovery hopes
* "Increasing China's gold holdings would provide China with a useful hedge as the dollar faced the possibility of depreciation. China's gold reserves may serve as backing for the yuan as Beijing promotes its use overseas," said Zheng Lianghao, managing director of the World Gold Council's Far East division reported to DowJones.
* "China is stockpiling commodities such as copper and iron ore as part of a reallocation of its sovereign wealth amid concern that the value of its dollar assets may decline, according to the Royal Bank of Canada," reports Bloomberg.
* "India’s benchmark stock index jumped a record 17%, bonds rose and the rupee gained the most in two decades after Prime Minister Manmohan Singh’s Congress Party won nationwide elections. 'Markets are euphoric,' said Rahul Chadha, the Hong Kong- based head of Indian equities at Mirae Asset Global Investment," reports Bloomberg.
* Vote in India Reshapes Landscape:"Cong Gets Free Hand," screamed the front-page banner headline in The Times of India on Sunday. Mrs. Gandhi, 62, is credited with having scored a stunning political coup. Her Indian National Congress party made its best performance in 25 years. For the sake of foreign and economic policy, we will no longer have to rely on India’s Communist parties to stay in power," reports NYTimes
* "Stocks rose Monday, boosted by strong performance in Indian stocks and US banks as well as some unexpected earnings news. Looking to rebound off a tough week, the major indexes moved higher ahead of housing news. Stocks in India gained more than 10 percent, and those companies that also trade in the US helped push domestic markets up more than 1 percent off the opening bell," reports CNBC.
* Last week gold prices gained 1.5% gain while the Dow declined by 2%. Consumer sentiment is on the rise along with consumer prices. As more signals of recovery in economic conditions emerge, bullion prices appear to be torn between reduced safe haven buying and increased inflation hedge buying.
* "The government's consumer-price index was unchanged in April from March, but the core CPI, which excludes food and energy prices, jumped 0.3% last month, the largest increase since June 2008. Many traders and analysts say that remains a risk over the long haul, since the government is essentially printing money to bolster the economy," reports WSJ.
* The 81% Tax Increase: "Federal income taxes for every taxpayer would have to rise by roughly 81% to pay all of the benefits promised by Social Security and Medicare under current law over and above the payroll tax. The total unfunded indebtedness of these government program comes to $106.4 trillion. Theoretically, benefits could be cut to prevent the necessity of a massive tax increase. But how likely is that? Benefits are never going to be cut enough to prevent the necessity of a massive tax increase in the not-too-distant future," reports Forbes.
* "House Democrats are weighing an expansion of the government’s role in health care that would include a mandate that employers provide coverage to all full- time workers or pay a percentage of their payroll to the Treasury,” reports Bloomberg News.
* "It sounds to me like the government is about to mandate participation in the biggest Ponzi scheme since The Social Security Act of 1935! “ says Swiss America CEO Craig R. Smith. WATCH: Craig Smith live on FOX Cavuto.
* "There seems little likelihood that quantitative easing will be replaced with quantitative tightening until well after inflation has accelerated to disturbingly high rates, with a consensus in Washington and around the country that the quickly expanding Federal government deficit should be financed by central bank purchases of Treasury securities," reports Telegraph.
* "Bailout Bubble" - The Bubble to End All Bubbles: "Phantom dollars, printed out of thin air, backed by nothing ... and producing next to nothing ... defines the "Bailout Bubble." Just as with the other bubbles, so too will this one burst. But unlike Dot-com and Real Estate, when the "Bailout Bubble" pops, neither the President nor the Federal Reserve will have the fiscal fixes or monetary policies available to inflate another," according to Gerald Celente of Trends Research Institute reports Tribune.
* "The number of U.S. workers filing new claims for jobless benefits rose to 637,000 last week, government data showed Thursday, pushed up by auto plant shutdowns related to Chrysler's bankruptcy. The Producer Price Index climbed 0.3% in April. Food prices rose 1.5%, the biggest increase since January 2008," reports CNBC.
* Yuan to 'usurp US dollar': "The decline of the dollar might take more than a decade, but it could happen even sooner if we do not get our financial house in order. The United States must rein in spending and borrowing, and pursue growth that is not based on asset and credit bubbles. The Chinese yuan, rather than the U.S. dollar, could eventually become a means of payment in trade and a unit of account in pricing imports and exports, as well as a store of value for wealth by international investors," reports NYTimes.
* Obama's 'Public' Health Plan Will Bankrupt the Nation: "Does anybody really believe that adding 50 million people to the public health-care rolls will not cost the government more money? About $1.5 trillion to $2 trillion more? At least. So let’s be serious when evaluating President Obama’s goal of universal health care, and the idea that it’s a cost-cutter. Can’t happen. Won’t happen. Costs are going to explode," reports CNBC.
* "The Federal Reserve Bank of New York bought $2.975 billion in Treasurys maturing between 2010 and 2011 on Thursday. The buyback is part of the central bank's program to keep borrowing costs lower and spur economic activity," reports MW.
* "In the current environment the bull points for gold outweigh the bearish ones, with policies which had not been with us before - like quantitative easing - being very positive. Looking at gold's cyclical pattern, gold should reach $2,300/oz. at some stage in the current cycle," said Martin Murenbeeld of Dundee Wealth Economics to N.Y. Hard Assets Investment Conference.
* "Gold has done remarkably well given that many experts are predicting the start of a new bull market in stocks. There has been little disinvestment from gold, which suggests there are many out there continuing to hedge their bets. Gold looks to have more upside potential than downside risk. Maybe one should sell one's stock market investments in May and go away, but it may be foolish to sell your gold!" reports Mineweb.
* MARKET ALERT: "For the first time since 2001 the gold market has triggered buy signals on the daily, weekly and monthly indicators. To have all three technical indicators line up to signal a "buy" is very rare in any market. The results of the last buy trigger was that gold rose for eight consecutive years. This represents an all out buy signal for both gold and silver," reports GoldIRAs.
* America’s triple A rating is at risk: "A warning from Moody's, a top credit rating agency, that the nation risks losing its triple A rating if it did not start putting its finances in order, is coming back to haunt us. That warning focused on the exploding healthcare and Social Security costs that threaten to engulf the federal government in debt over coming decades," writes former U.S. Comptroller General David Walker.
* "The Obama administration says it will use bailout money repaid by large U.S. banks to support additional capital infusions for smaller banks. Treasury Secretary Geithner says the repayment proceeds expected from some of the largest banks will be used to reopen the application window for banks with total assets under $500 million," reports AP.
* "If debt has become the chosen drug of the last generation, that makes Ben Bernanke and Tim Geitner the biggest money-pushers on the planet. The Fed's economic toolbox includes; 1) managing interest rates, 2) quantitative easing of loans requirement to banks, and 3) printing/creating money. The Fed has already cut interest rates to zero and eased loan requirements. They've been pushing on a string without success, so the only tool left in the toolbox is creating and pushing money into the system," writes Swiss America CEO Craig R. Smith.
* "The government is on a spending spree and the FED has flooded the system with money for banks to remain liquid. Some see this, as the light at the end of the tunnel, while others say this could be huge a train wreck. What wreck might that be? INFLATION. This is the ONE thing that most of Wall Street does agree on," reports GoldNewsDaily.
* "Stocks opened lower Wednesday as bank shares continued to struggle and retail sales unexpectedly fell for a second straight month. Retail sales dropped 0.4% in April amid weak gasoline and electronics sales. Mortgage applications showed a drop last week even as lending rates continued to fall," reports CNBC.
* "U.S. foreclosure filings in April rose to a record, affecting one in every 374 housing units, and bank repossessions in particular may spike in the next few months, RealtyTrac reported. Foreclosures were reported on 342,038 U.S. properties in April, up 32% from April 2008," reports MW.
* White House: Budget deficit to top $1.8 trillion, 4 times 2008's record: "Mirroring the unprecedented red ink flowing from America's deep recession, the deficit for the current budget. The developments come as the White House completes the official release of its $3.6 trillion budget for 2010, adding detail to some of its tax proposals and ideas for producing health care savings," reports AFP.
* Banks Won Concessions on Tests: "The Federal Reserve significantly scaled back the size of the capital hole facing some of the nation's biggest banks shortly before concluding its stress tests, following two weeks of intense bargaining. In addition, according to bank and government officials, the Fed used a different measurement of bank-capital levels than analysts and investors had been expecting, resulting in much smaller capital deficits," reports WSJ.
* "These bank stress tests were reverse engineered. They started with a conclusion and worked backwards. There was no pass or fail. What is this, a bank 'self-esteem' test? Why are we keeping insolvent banks afloat? We need to allow creative destruction and market discipline to function," Swiss America CEO Craig R. Smith told FOX Your World w/ Neil Cavuto - video.
May 11th Market News & Views ~ Stock rally runs out of steam
* Precious metals rose between 3-4% last week, as did major U.S. stock indexes. It appears that deflation worry is now falling and stagflation, inflation and hyper-inflation worry is rising. Unlike virtually any other popular asset or investment, precious metals are proving to be 'flation'-proof no matter what.
* "Stocks retreated Monday as investors took a breather after last week's run. On Monday, several institutions announced plans to sell shares to repay government funds through the TARP. 'We're going to run out of steam. We've had a fantastic 9-week run, nothing lasts forever,' Manus Cranny, market commentator from MF Global, said to CNBC.
* Enjoy the rally while it lasts: "Prolonged suckers' rallies tend to be especially vicious as they force everyone back into the market before cruelly dashing them on the rocks of despair yet again. Genuine bottoms tend to be "quiet affairs", carved slowly in a fog of investor gloom," reports Telegraph.
* "The inflation theme is coming back into the gold market. There is not so much safe-haven buying into the gold market, but on the other hand... inflation expectations are coming back," said Deutsche Bank trader Michael Blumenroth. While data shows little inflationary pressure at present, analysts say heavy interest rate cuts and the scope of quantitative easing measures could cause inflation to surge when the global economy recovers, reports Reuters.
* "The outlook for America is for hyper-stagflation, or continued economic recession accompanied by rapidly rising prices. This calls into question the continued role of the US dollar as the world's reserve. Surplus nations, particularly China, are voicing their growing concern. They are exploring other, less volatile arrangements. They may be considering a return to the bulwark of monetary stability: gold. Now the world's largest gold producer, China would benefit tremendously from a shift away from the US dollar and toward gold," reports AsiaTimes.
* Never a bad time to invest in gold: "A case could be made that investors generally are underexposed to gold. In 2007, on average, individuals and institutions held only about 0.5% of their portfolios in gold. If you're concerned about future inflation, you might want 8 to 10% of your portfolio in gold," said Natalie Dempster, head of North American investments for the World Gold Council, reports AZRepublic.
May 8th Market News & Views ~ Stocks rise on stress relief
* "U.S. employers cut 539,000 jobs in April, the smallest amount since October, according to government data on Friday. However, the unemployment rate soared to 8.9%, the highest since September 1983," reports CNBC.
* "Stocks advanced over 4% last week as traders absorbed April nonfarm payrolls and the banking sector's stress-test results. Major U.S. banks were generally stronger: Fifth Third rose 28%, Citi rose 7.5% and Bank of America rose 9.5%." reports MW.
* "The Federal Reserve determined that 10 U.S. banks need to raise a total of $74.6 billion in capital, a finding that Chairman Ben S. Bernanke said should reassure investors about the soundness of the financial system. 'The next question is, Is it enough?. Now they have to go about executing in the middle of a recession,' said Ralph Cole, a money manager at Ferguson Wellman Capital Management Inc., reports Bloomberg.
* "Yesterday's sell-off in the bonds is not only telling us that interest rates are going higher which will kill any economic recovery along with any hope the real estate will recover. Folks, is this bullish for the stock market? Those who are counting that 'generational lows' are behind us are making a giant leap of faith that higher interest rates will not interfere with the economy. That won't happen. Can the Fed just continue to run the printing press and buy up all the bonds the Far East is selling? Sure, it could, but any government that prints more and more money to buy up its own debt is setting up for a collapse of the currency and possibly the country as well," reports VRTrader.
* VRTrader continues, "We hold gold as a safe-haven asset, a portfolio diversifier, to protest against inflation and, most importantly, to protect against the debasement of our currency and all currencies (fiat money) will lead to their demise. This is why you own Gold. You also own Gold as the 'tea parties' in our country are a warning of more trouble ahead both in terms of a financial crisis but also in terms of impending social unrest. My immediate target for Gold is $1,200 and my big picture target is for $3,000." We agree.
* "China is expected to keep buying gold to diversify its vast foreign reserves after it recently revealed it had been secretively buying bullion. Hou Huimin of the China Gold Association, forecast that China’s gold reserves could rise in the long term to as much as 5,000 tons. One potential source of gold for China is the IMF’s expected sale of about 400 tons of bullion. Analysts said Beijing could try to purchase a block of that sale in an off-market agreement," reports FT.
* "Key currencies, including the dollar, could come under growing pressure because of extraordinary money-printing by central banks to counter the financial crisis, China's central bank said on Wednesday. Quantitative easing policies being pursued by the United States, Japan, Britain and Switzerland had increased the uncertainty surrounding key currency exchange rates," reports CNBC.
* "It is clear now that the ECB has set its sights on boosting inflation." The worry in the market is that central bank tools are notoriously blunt instruments. The central banks are trying to write book with can of spray paint. Investors are flocking to the soundness of gold in anticipation of a messy manuscript," said Brian Kelly, CEO of Kanundrum Research, a commodities and macroeconomic research firm reports MW.
May 7th Market News & Views ~ Stocks fall despite stress relief
* "Stocks closed lower as the results from the government stress test reveal 10 financial institutions have been ordered to raise $74 billion over the next seven months. Treasury says losses from bad loans could be $600 billion," reports MW.
* "The Federal Reserve directed at least seven of the nation's biggest banks to bolster their capital levels by $65 billion while effectively blessing the stability of six others, marking for the first time a bold line between some of the nation's stronger and weaker banks. Of the U.S.'s 19 largest financial institutions, at least half a dozen -- J.P. Morgan Chase & Co., Goldman Sachs Group Inc., MetLife Inc., American Express Co., Bank of New York Mellon Corp. and Capital One Financial Corp. -- won't be told to raise additional capital," reports WSJ.
* "Weaker institutions are going to find it very hard to raise money in the private sector because they're going to be further diluted by the government converting preferred into common shares. So eventually we may go into a creeping process of partial nationalization of some financial institutions," said Nouriel Roubini, co-founder and chairman at RGE Monito to CNBC.
* Crude prices passed $58 a barrel Thursday, a 6-month highwith new report showing falling crude inventory. "A U.S. government report on the levels of crude in storage is expected to decline after nearing 19-year highs recently," reports AP.
* "Investors increased their commodity holdings on speculation the worst of the global recession is over. The CRB Index of 19 raw materials yesterday reached the highest level in almost four months as economic data in the U.S. and China improved," reports Bloomberg.
* Congress: Cut the bailout cord!: "Now that the 'end of the world as we know it' fervor has subsided, it is time for the banks to stand on their own feet – no more government money. If they cannot survive with the billions that have been pumped in at our expense, it is time to allow creative destruction of the free markets to take us to the promised land of renewed prosperity. Allowing weak banks to be shut down or purchased by stronger, better managed banks is the way back to long-term growth and sustained prosperity. The strong will survive; the weak look for another business," writes Swiss America CEO Craig R. Smith at WND.
* "General Motors' financial woes continue as the automaker teetering on the edge of bankruptcy reported a $6 billion loss during the first three months of the year Thursday. GM burned through $10.2 billion in cash in the quarter, leaving it with only $11.6 billion in cash on hand at the end of the period. The company says it needs between $11 billion and $14 billion on hand to continue normal operations," reports CNN
* "Most disturbing is that the current global financial crisis has caused institutions and governments alike to violate their trust with investors. Agreements are being torn up and the Treasury Department isn't even keeping its word. With gold near $1,000 an ounce it has become the world's defacto currency. Gold has reached new highs in every major currency in the world except for the dollar and we believe it will soon achieve new highs, in dollars this time to $2,000 per ounce," reports SafeHaven.
May 6th Market News & Views ~ Tangible assets trustworthy
* "Stocks closed higher on Wednesday after a closely watched precursor to Friday's critical jobs report suggested a slowing of job losses last month. A report from ADP Macroeconomic Advisors said the U.S. private sector shed 491,000 jobs during April, better than the 650,000-job decline economists expected," reports WSJ.
* "A bill calling for the comptroller general of the United States to audit the private Federal Reserve is gaining widespread support in Congress, as 124 representatives have added their names to its growing list of co-sponsors. U.S. Rep. Ron Paul, R-Texas, introduced a bill in February H.R. 1207, the Federal Reserve Transparency Act of 2009, requiring that an audit of both the Fed's Board of Governors and the Federal Reserve Banks be completed and reported to Congress before the end of 2010," reports WND.
* "A spate of positive U.S. data Tuesday showed the economy could recover faster than expected, rekindled inflation worries and revived fund interest which supported gold prices," reports Reuters.
* "The U.S. economy is bottoming out and is likely to turn upward later this year, Federal Reserve Board Chairman Ben Bernanke said Tuesday. "We are hopeful that the very sharp decline we saw beginning last fall through early this year will moderate considerably in the near term and we will see positive growth by the end of the year," Bernanke said to the Joint Economic Committee, reports MW. [CNBC: Santelli rant to Liesman on Fed obeying the law]
* With TRILLIONS being thrown at the problems by government, many Americans want to know how to claim their share of the bailout money? Simple, buy gold! The more the government borrows and prints money, the higher gold prices will soar. Why? Because gold prices reflect the long-term realities of a weaker dollar and rising inflation, a fact which economists agree on. (more ... Finally, Your Bailout Arrives).
* "The faith of the Chinese in America’s power and responsibility, and the petrodollar holdings of the gulf countries that depend on US military protection, are the twin props for the dollar’s global status. If global stagflation takes hold, as I expect it to, it will force China to accelerate its reforms to float its currency and create a single, independent and market-based financial system. When that happens, the dollar will collapse," reports FT.
* "Gold may be 'off to the races' if prices break resistance levels at $950 to $960 an ounce. Prices may surpass $1,200 an ounce this year, more than the record $1,032.70 reached in March 2008, according to Jeffrey Rhodes, a Dubai-based trader with International Assets Holding Corp. reports Bloomberg.
May 5th Market News & Views ~ Fedspeak vs. Bank Stress
* "Stocks slipped Tuesday as investors parsed remarks from Fed Chairman Ben Bernanke and as the pending results for the government's bank stress test left the market a bit jittery. Ten of the 19 banks issued stress tests need fresh capital. The government is due to release the details of the tests on Thursday and the market is rife with speculation on what they will show, reports CNBC.
* "The exact number of banks affected remains under discussion. It could include Wells Fargo & Co., Bank of America, Citigroup Inc. and several regional banks. At one point, officials believed as many as 14 banks would need to raise more funds to create a stronger buffer against future losses, these people said, but that number has fallen in recent days," reports WSJ.
* Stock market rallies offer contrarian investors an opportunity to sell into the rally and then convert a portion of their paper profits into tangible assets, such as gold and silver for safety and growth.
* "The dollar recovered all its earlier losses against the euro Tuesday, bouncing back from a one-month low, as U.S. stocks declined. Dropping stocks usually support the U.S. currency as traders reverse riskier bets back into the major funding currency of those positions," reports DowJones.
* "The U.S. dollar has been under selling pressure on speculation the Fed will announce fresh measures of quantitative easing. The Federal Reserve has been actively purchasing large quantities of government debt, agency debt and mortgage-backed securities to provide support to the mortgage and housing markets," reports DailyFX.
* Banned by U.K., Savage hits back: "In an interview with the BBC, England's Home Secretary Jacqui Smith said Savage, the No. 3-rated radio host in the U.S., is "someone who has fallen into the category of fomenting hatred, of such extreme views and expressing them in such a way that it is actually likely to cause inter-community tension or even violence if that person were allowed into the country." Savage said his message for Smith and the people of the U.K. is, "Shame on you. Shame that you've fallen to such a low level. Here I am a talk show host, who does not advocate violence, who advocates patriotic traditional values – borders, language, culture – who is now on a list banned in England," Savage said reports WND.
* "Warren Buffett has rarely offered any good news on gold. Until now. The two key messages he delivered to 35,000 shareholders at Berkshire Hathaway's AGM in Omaha over the weekend were inflation is coming back; and the US Dollar is headed lower. Both predictions, if fulfilled, are powerfully positive for gold," reports Mineweb.
* Our Economy Needs A Golden Anchor, By Jack Kemp (1936-2009) WSJ, June 28, 2001 -- "Ronald Reagan once said he knew of no great nation in history that went off the gold standard and remained great. Since Aug. 15, 1971, when the U.S. ceased to redeem dollars held by foreign governments for gold, we have put that thesis to the test. For the first time in human history, not a single major currency in the world was linked to a commodity. Economist Milton Friedman called the situation "unprecedented" and said it is "not a long-term viable alternative." "The world," he said, "needs a long-term anchor of some kind," reports WSJ.
* "China, wary of the troubled US economy, has already 'canceled America's credit card' by cutting down purchases of debt, a US congressman said last week. China has the world's largest foreign reserves, believed to be mostly in dollars, along with around 800 billion dollars in US Treasury bonds, more than any other country," reports AFP.
* "Gold bugs are tantalized by the prospect of a third European central bank pact to limit sales of the precious metal, with the International Monetary Fund seen figuring heavily in a move that should underpin the investment case for bullion," reports Reuters.
* "Aristotle defined a good money as; 1.) Durable, 2.) Portable, 3.) Divisible, 4.) Store of value. What Aristotle described as good money 2,000 years ago has not changed, sound money must be a good medium of exchange as well as a store of value. Fiat money carries a hefty premium for being a good currency but bad store of value," reports Goldmau.
Gold prices fell 3.3% in April as U.S. stocks rallied 7%-12% on hopeful signs that the worst of the economic crisis may now be behind us. Silver prices slipped 4.8% this month. Ever since this bull market began in 2001, bargain-hunting long-term investors have consistently bought precious metals on the dips.
May 1st Market News & Views ~ May market fatigue
* "Stocks eked out a gain after a rocky session Friday as investors weighed some encouraging economic reports against gloomy earnings. For the week, all three indexes gained more than 1 percent as investors began to see glimmers of hope that an economic recovery is on the way," reports CNBC.
* CNBC commentator Art Cashin advises viewers "this is a trader's market, not an investor's market," referring to the nagging question; Is this a true new bull market or just another bear market rally on Wall St.
* "The Federal Reserve will postpone the release of stress tests on the biggest U.S. banks while executives debate preliminary findings with examiners, according to government and industry officials. The results, originally scheduled for publication on May 4, now may not be revealed until toward the end of next week," reports Bloomberg.
* "If the government releases the true results of the "stress tests" it could cause a run on the banks. This would further cripple the government's ability to borrow the massive amounts of money needed to finance Obama's agenda, while crushing confidence in the dollar," writes Swiss America CEO Craig R. Smith.
"After dropping almost 60% from its March 2008 peak of $21/oz, silver appears to be on the rebound: Silver gained 24% in the first quarter of 2009. "Silver is the best 'good-time' metal out there, because it's used in so many high-tech, high-end products. By late 2009 into first quarter 2010, I'm looking for silver to go beyond the $21 level, said David Morgan editor of "The Morgan Report," reports HAInvestor.
* "Chrysler will proceed with Chapter 11 bankruptcy protection to complete its restructuring after attempts to reach concessions with lenders faltered, an administration official said Thursday. The U.S. Treasury had been in tense negotiations with hedge funds to wash out its remaining debt and facilitate an alliance with Fiat SpA, a step considered essential to Chrysler's survival," reports CNBC.
April Recap ~ Wall St.'s Hopeful Month
* "Stocks retreated from a morning surge and closed roughly flat April 30th as the third largest U.S. auto maker moved into bankruptcy, with energy and financial companies pacing the move lower. New economic data offered mixed signals on the prospects for an economic recovery. The Labor Department said initial claims for state jobless benefits sank 14,000 to 631,000 in the week ended April 25. Consumer spending dropped in March as income fell and saving jumped," reports WSJ.
* "The economy shrank at a worse-than-expected 6.1% pace in the first three montshs of this year as sharp cutbacks by businesses and the biggest drop in U.S. exports in 40 years overwhelmed a rebound in consumer spending. The report dashed hopes that the recession's grip on the country loosened in the first quarter," reports AP.
* "At least six of the 19 largest U.S. banks require additional capital, according to preliminary results of government stress tests. Most of the capital is likely to come from converting preferred shares to common equity," reports Bloomberg.
* "With TARP money running out, the Treasury is trying to finesse the release of the stress test results, so as to give banks the best possible chance of attracting additional private capital. Treasury Secretary Timothy Geithner has begun suggesting U.S. banks begin converting federal bailout loans into common equity, but taxpayers would receive less protection in bankruptcy than if their loans were converted to preferred shares. The IMF concluded that if banks were to take all losses faced from toxic assets, the write-offs would wipe out altogether the common equity of banks in the United States, the EU and Japan," reports WND.
* "Regulators told Bank of America Corp. and Citigroup Inc. that the banks may need to raise more capital based on early results of the government's so-called stress tests. Executives at both banks are objecting to the preliminary findings, which emerged from the government's scrutiny of 19 large financial institutions," reports WSJ.
* 1 billion a day for stimulus: "The federal government has made available more than $75 billion for stimulus projects in the 10 weeks since President Obama signed the $787 billion recovery package into law. So far, $14.5 billion has been spent, nearly all of it to help states cope with rising Medicaid costs," reports CNN.
* "$10.5 Trillion out of the entire $14 Trillion U.S. economy is backstopped by the United States itself. Assuming the trading wheels come off and assets are priced without governmental guarantees, it could get ugly. 70% lower ugly," reports ZeroHedge.
* Europe's age crisis begins to bite: A new report by the European Commission said this financial crisis could turn into a "permanent shock to growth" from which Europe never fully recovers unless it moves fast to bring its public debts under control. The main danger is a "Lost Decade" akin to Japan's deflation slump," reports Telegraph.
* Obama reaches a mixed milestone: "Lingering challenges lay behind productive first 100 days, analysts say. While some positive signs on the U.S. economy have emerged, worries haven't dissipated. The U.S. unemployment rate was 8.5% in March, a month in which companies took the highest number of mass layoff actions on record. The DJIA is still off close to 40% in the past 12 months. Most economists don't expect the unemployment rate to peak until sometime in 2010. Home prices are still declining, albeit at a slower rate," reports MW.
* "The World Health Organization said on Wednesday it was moving closer to declaring a pandemic alert phase 5 for swine flu, the second highest level, if it were confirmed that infected people in at least two countries were spreading the disease to other people in a sustained way. Meanwhile, President Barack Obama said Wednesday that wider school closings in the U.S. may be necessary in an escalating global health emergency," reports CNBC.
* "U.S. consumers are considerably less gloomy about the economy, as a key gauge of consumer confidence remains relatively weak despite a large increase in April, a private research group said Tuesday. The consumer confidence index jumped to a reading of 39.2 in April from 26.9 in March. The 12.3-point month-to-month gain was the fourth-largest ever in the 32-year history of the survey," reports MW.
* Gold/Debt chart illustrates: "Each of the two previous highs in gold prices were associated with highs in inflationary U.S. monetary growth of twelve months before. Were no other factors operating on gold, this chart suggests a low by September 2009. It also suggests a new high by this time next year. Gold may be moving through the last great buying opportunity this summer," reports FinSense.
* "The confirmation of the Chinese move to place the gold in its official reserves indicates the extent to which gold is being rehabilitated as a monetary reserve asset, not only by the Chinese monetary authorities but by Central Bankers around the world and suggests that monetary authorities are looking at gold as a monetary asset with greater interest than at any time since the 1960s," reports IBtimes.