Friday, December 19, 2008

Mass. investor saw inside Madoff scam

BOSTON – His repeated warnings that Wall Street money manager Bernard Madoff was running a giant Ponzi scheme have cast Harry Markopolos as an unheeded prophet.

But people who know or worked with Markopolos say it wasn't prescience that helped him foresee the collapse of Madoff's alleged $50 billion fraud. Instead, they say diligence and a strong moral sense drove his quixotic, nine-year quest to alert regulators about Madoff.

"He followed through on everything he ever did. He never let up," said his mother, Georgia Markopolos, in an interview Thursday. "Some kids just let it go if it's too hard, but he wouldn't do that."

"He feels very sorry for these people that got taken," she added. "It wouldn't have happened if they would have listened to him long ago."

Markopolos waged a remarkable battle to uncover fraud at Madoff's operation, sounding the alarm back in 1999 and continuing with his warnings all through this decade. The government never acted, Madoff continued his ways, and people lost billions.

Markopolos reached his conclusion with the help of mathematicians like Dan diBartolomeo, whose analysis of the Madoff's methods in 1999 helped fuel Markopolos' suspicions.

"People should have seen the writing on the wall," diBartolomeo said.

Markopolos did not respond to multiple e-mail or phone requests for an interview.

The 52-year-old resident of Whitman, about 20 miles south of Boston, grew up in Erie, Pa., the oldest of three siblings.

His mother said her son was a little nerdy as a child, as well as occasionally mischievous and unfailingly honest. She recalled an incident where he pelted his elementary school with eggs in the middle of winter, but no one saw him. Time passed with no confession from anyone, until Markopolos stepped forward, admitted he did it, and cleaned the school himself.

Markopolos became an adept hunter and fisherman as he grew up, like many from the rural area, but also showed early aptitude at academics, as well as a willingness to question authority.

"He used to challenge the teachers," his mother said with a laugh. "He'd tell them he had the right answers, but they had the wrong questions."

Markopolos graduated from Cathedral Prep in Erie in 1974, then in 1981 from Loyola College in Maryland, which his mother said he paid for on his own. After time in the Army and in the financial services field, he earned a graduate management degree from Boston College in 1997.

By 1999, he was working for Rampart Investment Management Co. and charged with doing competitive research on Bernard L. Madoff Investment Securities, which was using a similar investment strategy as his company, but far outperforming it. Part of Markopolos's research included a visit to diBartolomeo, whom he knew from his professional circle.

"I think he was curious about how his competitor was doing so much better than they were," diBartolomeo recalled.

Researching Madoff's numbers, using data the firm distributed to prospective investors, diBartolomeo concluded within hours that it was impossible for Madoff to get the returns he reported while using the strategy he said he used.

"As the market goes up and down, this strategy should have done a little better or a little worse, just like everybody else," he said. "Instead, it appeared to be indifferent as to whether the market went up or down. They made money all the time."

Markopolos complained to the SEC's Boston office in May 1999, saying it was impossible for the kind of profit Madoff was reporting to have been gained legally.

But Madoff continued to thrive, even as Markopolos continued to pursue the case.

In 2005, he submitted a report to the SEC saying it was "highly likely" that "Madoff Securities is the world's largest Ponzi scheme." In the report, he says he knew his research could ruin people's careers and asked the SEC be discreet about circulating the report and his name.

"I am worried about the personal safety of myself and my family," he wrote.

The report highlights 29 "red flags" about Madoff's business, among them the returns of a third-party hedge fund managed by Madoff's firm which had negative returns in just seven on the 174 months Markopolos analyzed.

"No major league baseball hitter bats .960, no NFL team has ever gone 96 wins and only 4 losses over a 100 game span, and you can bet everything you own that no money manager is up 96% of the months either," he said.

His warnings were heard too late, and he's become a symbol of a botched oversight of Madoff by the SEC. His mother says the father of three boys under 5 has been bombarded by media requests. Now, a man who tried to be heard for years is going to lay low for a bit, she said.

"Right now, he's out relaxing some place," he said. "I can't even get in touch with him."

http://news.yahoo.com/s/ap/20081219/ap_on_bi_ge/madoff_scandal_whistleblower

Wednesday, December 17, 2008

Swiss gold bullion in huge demand as trust in banks dives

Sealed off by grey concrete walls and barbed wire, the workmen in protective glasses and steel-toed boots at this smelter cannot work fast enough to meet demand from the nervous rich for gold.

This refinery near Lake Lugano in the Alps is running day and night as people worried about recession rush to switch their assets into something that may hold its value.

"I have been in the gold business for 30 years and I have never experienced anything like this," said Bernhard Schnellmann, director for precious metal services at the refiner Argor-Heraeus, one of the world's three largest.

"Production has dramatically increased since the middle of the year. We cannot cope with demand," said Schnellman, wearing a gold watch on his wrist.

Spot gold hit a record $1,030.80 an ounce on March 17. It fell below $700 in late October, partly because investors sold their holdings to cover losses in equity and bond markets hit by the credit crisis, and is now around $830 an ounce.

The trigger for the price to rise again could come from a much weaker dollar, making gold cheaper for holders of other currencies, and a renewed aversion to paper assets as governments and central banks pump large amounts of cash into the economy, stoking inflation.

Smoke billows as the molten gold, like glowing butter, is poured. To cool it, the worker drops it into water. It hisses as it hits. Once hardened in moulds, the gold bars are embossed with the refinery's seal. Workers wearing white gloves stack them into boxes like domino pieces.

Though Switzerland is not a gold miner, it is home to some of the world's largest refineries, which process an estimated 40 percent of all newly mined gold.

Argor-Heraeus is part-owned by the Austrian Mint and a subsidiary of Germany's Commerzbank. Commercial and central banks are its chief customers and it says it processes some 350-400 tonnes of gold and 350 tonnes of silver per year.

Customers buying gold bars, which can weigh more than 10 kg each, have to wait roughly a month, taking into account the year-end holiday season.

For those buying coins or ingots, which can fit into the palm of a hand, the delay is six to eight weeks. A year ago, these small products could be had within a couple of days.

Worries about the banking system globally have boosted worldwide demand for physical gold, the Gold Council said.

"Many (people) are afraid of leaving their money in banks," said Sandra Conway, managing director at ATS Bullion in London, which sells bullion and gold coins to institutions and the retail market.

"It's difficult to quantify, but I would say our turnover over the last three months has certainly doubled compared to the previous three months," she said.

FULL CAPACITY

Other Swiss gold refiners also say business is booming.

"Since the summer we have experienced a sharp rise in demand for certain gold products. The one-kilo bar has become very popular," said Fiorenzo Arbini, in charge of health and safety at Pamp, another large Swiss refiner.

"People used to buy certificates, now they want physical gold."

Schnellmann said the Argor-Heraeus smelter is operating at full capacity, three eight-hour shifts a day. Conquering the backlog by hiring is difficult, because each candidate has to undergo a security check.

Gold refiners were established in Switzerland to supply the watch industry and, later, jewellery-makers in Italy.

Switzerland's largest banks stepped in to replace a void in gold trading while the London gold market was shut after World War Two and again during a brief closure in 1968.

The former Soviet Union, another top gold producer, chose Zurich banks to handle most of its gold sales in the 1970s and 1980s.

"Gold has an image of being the asset of last resort. This could be viewed as old-fashioned but this is how enough people with enough money to matter think," said Stephen Briggs, a metals strategist at RBS Global Banking & Markets.

GOLD TOUCH

India, China and the Middle East remain the biggest gold importers, particularly for jewellery. But demand for physical gold has exploded also in Europe, the Gold Council said.

In Switzerland, home to the world's largest private banking industry, demand for gold bars and coins shot up six-fold to 21 tonnes in the third quarter of 2008, more than in any other European country.

Retail investment in gold rose 121 percent in the third quarter of 2008, an important contributor to the overall increase in global demand, the Gold Council said.

In that period purchases of gold bars by retail investors, who often buy through commercial banks, rose nearly 60 percent, notably in Switzerland, Germany, and the United States.

There was a surge of interest among professional investors shortly after the collapse of Lehman Brothers in September.

Private bank Julius Baer in October launched a fund to invest exclusively in gold bars stored in highly secured vaults in Switzerland.

"The fascination with gold has been there since the beginning of civilisation," said Schnellmann. "It cannot be explained: you can't eat gold, you cannot build anything resistant with it and yet people want to hoard it." (Additional reporting by Pratima Desai in London; Editing by Catherine Bosley and Sara Ledwith)

http://www.mineweb.co.za/mineweb/view/mineweb/en/page34?oid=75294&sn=Detail

Thursday, December 4, 2008

Nowhere To Hide

By Joe Average

December 2008

"I've been in the market 50 years...(back in 1974) there were 40 people in the (London) office...I had to take it to half a dozen...there was a very severe downturn in equity markets but credit markets were still working. That's what is different this time. There's nowhere to hide."

Terry Campbell, senior chairman Goldman Sachs JB Were.
(by Ingrid Mansell, Australian Financial Review 21 Nov. 2008).

In a world where economies are inter-connected as never before (thanks to globalization and the internet) the speed and viciousness of the recent global stock market collapse and credit freeze has caught most financial advisors and investors by surprise. Those few who can remember back to 1974 and 1987 are adamant that the present situation is worse with some calling it the worst market meltdown since the Great Depression of '29.

Being invested over a broad range of asset classes hasn't this time protected against horrific losses. Many stock markets around the globe have plummeted by 50 percent or more. The share prices of some blue chip companies have been decimated...Leheman Bros bankrupt; Citigroup down 94% from $54.67 in June 2007 to $3.20; General Motors down 93% from $38.31 in November 2007 to $2.63.

The "Global Property Guide" records "The End of the Property Boom" with house prices down up to almost 35 per cent in some areas and "World Property Market Slide Worsens".
www.globalpropertyguide.com/investment-analysis/The-end-of-the-global-house-price-boom
www.globalpropertyguide.com/investment-analysis/World-property-market-slide-worsens

Meanwhile, commercial property prices have fallen 30 to 40 per cent already in some parts of London with many other areas around the world set to follow.

The commodities boom has hit the wall in the face of a looming global recession with prices of oil, copper, silver, wheat, corn, cotton and platinum all dropping more than 50 per cent.

Many investors who have seen their savings or retirement nest eggs savaged by these losses, or had savings frozen as funds blocked redemptions, must be right now wishing they'd had the foresight to pull their money out and park it at (at least temporarily) in boring but safe cash...which actually was a place to hide over the past several months.

The Dreaded "D" Word

Suddenly, with prices of many asset groups dropping rapidly, the dreaded "Deflation" word is popping up everywhere. Google "deflation" and you'll find 3,570,000 results.
The prospect of Deflation strikes fear into the hearts of Central Bankers because once it becomes entrenched and prices start falling across a broad range of assets, products and services, nervous consumers pull back on spending in anticipation of lower prices in the future. This in turn sends the economy into a deadly downward spiral that sees businesses close down and unemployment skyrocket which in turn drives prices of most things relentlessly lower in a series of vicious feedback loops.

Robert Prechter (who has long been warning that deflation was inevitable rather than hyperinflation...which will likely come later) is more confident than ever that "DEFLATION IS WINNING".

In his November edition of Elliott Wave Theorist he goes on to say... "cash is soaring in value, as creditors demand dollars and debtors sell everything they can to come up with them. Cash now buys 1.7 times as much stock and real estate, twice as much silver, and 2.5 times as much oil as it did a short time ago. Is that a bull market, or what? This trend is far from over. The longer you hold onto your money, the more it will be worth, until deflation ends"

In his "Deflation Speech" of January 1998 former Federal Reserve Chairman Alan Greenspan remarked that "The severe economic contraction of the early 1930s, and the associated persistent declines in product prices, could probably not have occurred apart from the steep asset price deflation that started in 1929... the onset of deflation involves a flight from goods to money."

In December 2002 Greenspan warned that "Deflation is more of a threat to economic growth than is inflation... It is a pretty scary prospect.", but reassured everyone that "Options for aggressive monetary policy response are available" to the Fed which could flood the economy with money even if nominal interest rates fell to zero.

Only a month before that Governor Ben Bernanke had given his famous "helicopter drop of money" speech entitled "Deflation: Making Sure "It" Doesn't Happen Here". He too had come to "The conclusion that deflation is always reversible under a fiat money system... (because) the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost... (so it) can always generate higher spending and hence positive inflation".
Now was that a light bulb moment or what?

What everyone seems to have overlooked is the next sentence Bernanke uttered directly after those words;

"Of course, the U.S. government is not going to print money and distribute it willy-nilly".

Of course not! (This is pure double-speak... "Trust me. Would I lie to you?... No, not much!)

Most U.S. economist are now resigned that America will suffer a deep recession over the next two to three quarters, while the International Monetary Fund has warned that the world's other major developed economies will also be hit by recession in 2009 with no quick recovery in sight.

So what's a poor, confused schmuck supposed to do now with his life's savings? Does he listen to his financial advisor who tells him "Sit tight! Don't panic! Now's not the time to sell. You'll only crystallize your losses. You'll miss the inevitable bounce-back that comes within 6-12 months. Buy in now...stocks are cheap...you won't get another buying opportunity like this again. Stop reading the newspapers...they only peddle that doom & gloom stuff to sell papers."

Or does he cut his losses and rush to the safety of cash and gold just in case the deflationary forces overwhelm the Central Banker's best efforts to reinflate the economy and the situation spirals back down in an all out collapse of prices and confidence?

That's what Storm Financial, an Australian financial planning firm with $4.5 billion under management, recommended to its 13,000 clients last month calling it a "stabilisation action". In selling their heavily geared portfolios and switching to cash many investors would sustain heavy losses but they were advised "Our recommended strategy keeps you in the game and still standing through this crisis - whilst not perfect, nor without risk, we believe it contains less risk than leaving you open to this potential situation". Storm explains that this same strategy proved successful following the financial turmoil caused by the terrorist bombings in the U.S. on September 11, 2001.

What if the massive government bail-outs finally stop working and no longer boost investor's confidence, but instead have the reverse effect and become alarming indicators of just how serious the situation is becoming?

And what about the Cassandras and their dire predictions that we might eventually plunge deeper into depression? ... Is that even remotely possible?

The Other Dreaded "D" Word

Nobel laureate economist Paul Krugman recently stated there were very strong parallels between the Great Depression of '29 and the present financial crisis.... "What we learned 70 years ago, and then kind of forgot, was that capitalism needs regulation and management...This is not your father's recession, this is your grandfather's recession".

Even president-elect Barack Obama is aware of the problems that lie ahead when he warns that the financial situation is "likely to get worse before it get better." Perhaps a lot worse.

Google in "Economic Depression" ... you'll get 10,700,000 results.

www.lifetoday.com.au

What’s Going On With Gold, Gold Stocks, Euro & USD?

With all of the chaos in financial markets, and also commodities, how are the USD and the Euro affected and also the precious metals?

Well, first of all, we need the proper context of this world market situation. We are in the middle of a super world crash. These take a year to get into full swing. They develop over time. Minding that, realize that we may not see the worst for another year for the world stock markets. We are in the midst of a crash.

This situation is no ordinary financial crash, this is definitely on par with what happened in the Great Depression. If you look at that, you find the US did not go into a full depression until a year or two after the first stock crashes. Then by 1933, the Dow had lost about 90%. So, the point is, if I am right and the world is heading into a real depression and not just a recession, we won’t see bottom for several years.

CNBC for example is so fast paced that they are constantly looking for a bottom now, but that seems way too premature. Then again, they seem to see themselves as stock market cheerleaders. It’s kind of hard to be cheerleaders when your team is losing badly. But, the point is you need to keep from getting caught up in the instant news viewpoint looking for something to happen right now that is a ways down the pike.

Scope of this financial crisis

Just take a look at this partial list of nations in big currency trouble as of now, all due to the rapidly deteriorating world financial/economic situation:

Argentina – Just nationalized the pension funds to help with their ongoing financial deficits, their stock and bonds are falling drastically – again.

Russia – Russian stocks collapse in recent weeks causing weekly market shut downs. The Ruble severely falls. Russian Oligarchs lose hundreds of $billions in the stock crashes. The Russian central bank is using a great deal of foreign reserves to prop up Russian banks. There is actually talk of another Russian default in the future by credible media. Oligarchs have to repay $47 Billion in the next two months in various ways, and it’s doubtful they will be able to.

Iceland – In the midst of a drastically falling currency and literal bankruptcy as they guarantee all deposits in banks that had lent out many times the GDP of the entire country. They now cannot even import food without paying in advance in foreign currency.

China – Said to be a ‘house of cards’ by Andy Xie, former chief economist for Asia of Morgan Stanley. China has supported its economic growth by excessive lending to its industries over the last ten years and hidden non performing loans. China has acted to prop its stock markets. China has a huge hidden banking crisis about to unfold. 50% of China toy manufactures out of business as an example.

Hungary – In the middle of a currency speculative attack as they try to deal with foreign exchange and the collapsing financial/credit markets.

Korea – Won falls 9% in a day as companies lose $billons apiece in foreign exchange losses when their hedges against the USD turn south. Korea has foreign exchange problems amidst the disastrous credit markets. Doubts are now floating about how many developing and even developed trade partners of the West have enough foreign exchange reserves to defend their currencies.

And last but not least in this sampler – the US – and unmitigated banking disaster, and it’s said that if the US did not take the huge steps to quasi nationalize the banks here, the entire US banking industry would have totally collapsed. US corporations are having to hoard cash to operate, whereas normally they use short term credit to fund payrolls, operations, etc. This lack of short term credit is a huge constriction on US and all Western economies right now. These same problems are now spilling over into Asia, once thought to be relatively immune.

EU- Said to have even worse exposure to the credit crisis than the US if that can be believed. They bought heavily of all the bad financial paper emitted from the US, and had their own credit bubble as well. Major EU banks have lent heavily to the developing Easter European regions, and now are on the hook for trillions. Etc, Etc, I’m just glossing over this. There is lots to say. EU employment, especially in the Club Med (southern EU) nations in the tank, and so are their economies.

Japan – Again falling into deflation which they never really exited since 1995.

That’s for a very brief sampler of the economic chaos out there worldwide.

The USD, Gold, oil, commodities, Euro

So that’s a view of the world economic situation. In short, it’s a total unmitigated disaster. The only question is when all the layoffs appear everywhere. If we go back to the last great world depression in the 1930’s, all the layoffs started in earnest about a year after the financial crashes. By 1933, the US had over 25% unemployment, and stocks had fallen 90%.

Ironically, the USD is benefiting from these crises. Since the resource correction this year, all the BRIC nations and commodity economies have taken big hits. That is causing sell offs in emerging markets, which drives demand for USD that repatriates back to the US. Everyone worldwide wants dollars as markets deleverage.

Hedge funds and big money market funds are having huge redemptions. That drives demand for dollars, and stocks are falling and will continue to fall. In short, as markets deleverage worldwide, and there is flight to US Treasuries by all, (and other good sovereign bonds) and demand for the USD rises.

The Euro falls as it becomes clear they cannot coordinate policy to deal with the collapsing credit markets there, as well as bailing out their failing banks. As the USD rises, the Euro/USD falls and it’s said the Euro may be headed to par with the USD! That also seems to be happening faster than many people thought.

Commodities fall drastically. Copper, the quintessential economic barometer, is way down for example. The resource investing mantra is old hat, last year’s story. If we have a real world depression (and it sure looks like it) then demand for the bubbled commodity sector falls drastically. The shipping indexes which indicate demand worldwide have halved or more. US trucking is way down. The Baltic Dry index, a world shipping measure, is way way down. World economic demand is, well, collapsing.

And that collapsing demand is scaring the hell out of China and the rest of the Asian exporters.

As it becomes clear that the resource sector is collapsing because of falling world demand, hedge funds are bailout out in a big way, and that is driving the bubbly commodities down further. The commodity sectors is heavily deleveraging and spilling off the speculative froth.

As funds of all types get massive redemptions, all the bubble sectors they were recently in fall (what was hot in the last 5 years?). That includes resource stocks, commodity futures and so on. Oil also is falling due to this bailing out by funds.

The Fund redemptions are so bad that the US just stated this week they will back them with an astonishing $540 billion to help them deal with redemptions so they don’t have to crash the markets!

In short, every hot sector in the last 5 years is deleveraging and funds are being forced to liquidate due to redemptions.

Everyone is going to cash.

Gold and gold stocks are taking a hit as funds desperately sell it to help them with liquidity. Even though the Fed and ECB alone have now infused close to $7 trillion worth of financial help to markets, the deleveraging is continuing. The deflation in all markets is so severe that those infusions pale compared to the $25 trillion wiped from world markets in the last year.

Because deflation is outrunning the actual cash going out to combat it, there is a huge loss of wealth/money out there. That is classic deflation. So, deflationary forces are winning out, and the USD strengthens, (classic demand for cash in deflation). Gold falls accordingly.

Gold stocks, hit by massive fund liquidation and redemptions, also are being negatively correlated to the general commodity sell offs. And in the near future, that does not look to change.

The arguments that gold will react primarily to the inflationary central bank bailouts makes sense, but they do not take into account the depression developing, which is highly deflationary.

Now, as the credit crisis developed over the first year, we found that gold reacted immediately to any major developments in the credit crisis. For example, gold rose drastically when new credit crisis emergencies developed after Aug 07, but then fell dramatically when the Bear bailout was announced in the Spring of 08.

Now, gold is getting caught up in huge deleveraging of world stock and commodity markets. So, even though gold still reacts strongly in flight to safety in ongoing credit problems, it’s being overwhelmed by the stock and commodity deleveraging.

Also, the gigantic efforts of the central banks to loosen the credit markets (remember gold reacts to any major credit developments) has made a case for a lower gold price as the credit markets have eased a bit recently (albeit a miniscule amount).

Now world economic crisis and not just credit

However, I expect things to worsen in the world going into 09. Economically, employment will fall, the recession develops progressively worse worldwide. All the basic economic stats that drive stock markets will be worse and worse. If the credit markets continue to worsen and there is a Russian default, or other currencies collapse, or Korea loses control of its falling currency, etc, then gold may easily regain much of its losses due to more deterioration in the credit markets. That remains to be seen. But gold will always have strong flight to quality.

Flight to quality going to Sovereign bonds

But flight to quality is primarily going into the major sovereign bonds, the US, Germany, even Japan. And as long as that continues, gold will be held lower than it would otherwise if things were more normal, but merely a credit crisis. Now we are adding the emerging economic crisis to the credit crisis and deflation.

Fund redemptions

It has been said recently that the gold stocks are anticipating lower gold prices, but what I really think is happening to gold stocks is the Fund redemptions are finally coming in a big way. That, and the general commodity sell off as that bubble bursts. Around April of this year, we warned subscribers that there would likely be a general commodity sell-off as the world economy slows, which has happened. That’s because all the funds had piled into commodities in the last years and, as they slow, the funds bail out.

Now, with redemptions finally happening in a big way (just look at the US attempts to slow redemption selling with the $540 billion this week to back the funds!) the gold stocks have gotten hammered two ways. First, gold had been bubbly earlier this year, and then, that corrects itself, then on top of that, funds sell gold to help meet margin calls. So, the fund liquidations are really hitting the metal stocks, and gold itself too.

We were waiting all year to see when there would finally be a stampede out of all kinds of funds as redemptions pile in. Well, exactly a year after the credit crisis exploded in Aug of 07, those chickens finally came home to roost. And more of this is coming.

What happened is people finally realized a year after the first big problems emerged in 07 that they need to get out – get liquid. So, for example, all the fund redemptions now, and also for the same reason the USD rises.

At PrudentSquirrel, we have emphasized for years that the best way to have metal is in coins or bullion. That way when the exasperating stock swings happen, you always have the same number of coins when you started. Yes, the prices fluctuate, but whatever number of coins you have remains static.

But with stocks, you always have the issue of stock dilution and mines that are costly to operate.. So, with metal stocks, you are subject to their operational cost issues and so on. Therefore, we felt that metal stocks are a second best way to have metal positions. In any case, they do fluctuate a lot.

Metals are still one of the safest ways to save money – coins in particular. And never forget that when the next phase of the world economic crisis hits – then you will definitely want metal coins. The next big shoe to drop will be a USD crisis most likely, (although that may be preceded by other currency crises and defaults like Russia for example).

But, when the USD shoe drops we are talking world financial Armageddon. That is not indefinitely postponed just because the USD happens to be rallying right now in flight to cash.

As far as the prospects for gold and the USD and the Euro going to the end of the year

By the end of the year we have the following:

There is massive flight to cash in general. Also flight to US Treasury bonds. That is USD bullish. The Euro is weakening and may even get to par with the USD soon, possibly even by early 09. This is gold and oil bearish. There is also a lot of flight to cash and USD as the end of the year approaches. And also, many businesses and financial institutions are being forced to hoard cash just to operate, as they cannot get their normal short term credit facilities to cover operations/payrolls etc. That is USD bullish too.

So, going into 09, the USD is likely to continue to strengthen and the Euro to weaken.

But, the next question going into 09 won’t be only the credit crisis, or what is now the credit crisis combined with economic contraction and layoffs and falling profits. The next big question in 09 will be will the USD hold together. That’s the next shoe to drop.

The economic mess has developed as follows since Aug 07:

First, Credit/bank crisis in the US and West.

Then Credit crisis combined with economic recession/coming layoffs and lower profits, and that is now starting to include Asia.

The Next big phase will be Credit crisis plus severe economic recession worldwide plus a possible USD crisis in 09.

So, no matter how painful having metal is now with all the forces causing it to sell off, everyone is still going to have to be prepared in whatever way for a possible USD crisis sometime in 09. This is very counterintuitive with the USD rising now.

Also, as I mentioned, we need to be alert now for possible Russian, Korean and other big economies having a currency and or default crisis. It’s one thing for Iceland with a total of 300,000 people to have one. But if Russia or Korea has one, then the markets will get totally hit in everything.

Stay liquid and stay loose.

The Prudent Squirrel newsletter is our financial and gold commentary. Subscribers get 44 newsletters a year on Sundays, and also mid week email alerts as needed. We alerted our subscribers April 20 that the USD was bottoming. We also warned before Summer that a general commodity sell off was coming due to slowing economies and the speculative froth. The alerts include quick notification of important financial news developments by email. Subscribers tell us that the alerts alone are worth subscribing for.

I had one potential subscriber ask me if the newsletter has much more content than these public articles, ie, if it was worth subscribing. The answer is that the public articles have less than 10% of our research and conclusions that subscribers see, not to mention the subscriber email alerts of important breaking financial news. We have anticipated many significant market moves in the last year, such as imminent drops in world stock markets within days of them happening, and big swings in the gold markets within days of them occurring. We have also made a number of good calls on big currency swings, such as with the USD, the Euro and the Yen.

www.PrudentSquirrel.com

Central Bankers Open The Floodgates To Fight Deflation

In the early 1980's, the Federal Reserve's headlines figures for the M1, M2, and M3 money supply aggregates flashed at the top of trader's radar screens, and jolted US T-bill rates by 50-basis points or bond yields by 30-points within minutes. Inflation was raging at a 10.7% annualized rate, and repeated attempts to cure it had failed. Former Fed chief Paul A. Volcker was doggedly pursuing a radical monetary policy that led to skyrocketing interest rates and two back-to-back recessions.

Volcker's strategy was designed to curb inflation by controlling the growth rate of the money supply, within established target ranges for M1, M2, M3, and bank credit. However, if one money supply measure grew faster than its targeted range, while another measure grew slower than its targeted range, it was difficult to predict if the Fed would lift the fed-funds rate to slow the growth rate of the rapidly growing aggregate, or instead, lower interest rates, to speed-up the lagging one.

When Volcker became Fed chief in August 1979, M1 was growing at an annualized +9% clip, compared to the Fed's target range of 1.5% to 4.5-percent. M2 was expanding at a +12% rate, compared with its target range of 5% to 8-percent. With Volcker's focus on monetary control, the federal funds rate was immediately hiked 50-basis points to 11.75%, and by April 1980, the fed-funds rate averaged 17.5-percent. Three months later, the fed funds rate tumbled to 10-percent.

But the rollercoaster ride did not end there. By November 1980, the fed funds rate was pushed back-up to 17%, destroying Jimmy Carter's re-election bid. During Ronald Reagan's first year in the White House, interest rates the fed-funds rate reached a record 20% in June 1981. A new recession began in July, one that saw the unemployment rate reach 11% by the end of 1982, the highest since the Great Depression. The devastation was particularly acute in the industrial Midwest, - where steel mills, auto plants, and coal mines were shut down.

Volcker's tough-medicine untangled "Stagflation," the dreaded combination of stagnant economic growth and high inflation that persisted through the late 1970's and early 1980's. Inflation, which averaged 14.6% in the year from May 1979 to April 1980, had fallen to below 4-percent. During Reagan's first term, the stage was set for strong growth and the bullish stock market of the 1980's. Volcker stepped down from the Fed in August 1987, with the Dow climbing to record highs, but just two-months before the October "Black Monday" stock market crash.

Once again, Volcker is summoned to rescue Wall Street, tapped by President-elect Barack Obama on Nov 25th, to lead a new advisory panel, dedicated to stabilizing the markets. Volcker will be a key figure in Obama's inner circle of economic advisors, including his Treasury chief Timothy Geithner, White House chief Economist Larry Summers, - forming the next "Plunge Protection Team," (PPT).

While government commentators are still trying to assure the public that there will be no repeat of the 1930's Depression, the financial markets are telling a different story. So-far, every government intervention and G-20 central bank rate-cuts have failed to stem the economic meltdown. The American, Chinese, and European leadership are crafting stimulus packages of a combined $1.2-trillion, but that's only a small fraction of the $30-trillion that's been lost in global stock markets.

Whereas Volcker pursued "Monetarism," to defeat double-digit inflation, Fed chief Benjamin Bernanke is signaling a diametrically opposite strategy, - "Quantitative Easing," (QE) to head-off deflation in the US-economy, which if left unchecked, can generate a downward spiral of corporate earnings, production cuts, mass layoffs, and greater difficulty for companies to pay-off debts. Yields on speculative-grade US corporate junk bonds surpassed 20% in November on speculation the recession will leave a glut of companies unable to meet their debt payments.

"Our nation's economic policy must vigorously address the substantial risks to financial stability and economic growth that we face," Bernanke declared on Dec 1st. Bernanke said a further reduction in the federal funds rate, now pegged at 1%, is "certainly feasible," and telegraphed the Fed's intention to use more unorthodox measures to flood the markets with ultra-cheap money.

"Although conventional interest rate policy is constrained by the fact that nominal interest rates cannot fall below zero, the second arrow in the Fed's quiver remains effective," he said. The Fed will purchase long-term US Treasury and government-sponsored agencies notes, in order to manhandle the credit markets, and force bond yields lower. US Treasury prices rose sharply on his remarks, pushing yields to their lowest in five-decades, on expectations that a long period of ultra-low interest rates, similar to Japan's, lies on the horizon for the United States.

"The Fed can backstop liquidity not only to financial institutions but also directly to financial markets, as we have recently done for the commercial paper market," he said, referring to recent Fed moves to act as a market maker, or buyer of last resort, for securities that no one-else wants to buy. The Fed is widely expected to lower the fed funds rate by a half-point to 0.50% at its next scheduled meeting on December 15-16, while simultaneously engaging in "Quantitative Easing" (QE).

The Fed's money-printing operations are showing-up in the explosive growth of the monetary base, which includes banknotes and coins in circulation, plus commercial banks' reserves held at the Fed. The monetary base has soared by $630-billion in the past three-months, or +76% higher from a year ago. Between August 1987 and November 2005, under "Easy" Al Greenspan, the monetary base rose from $233-billion towards $782-billion, or an annualized +6.8% rate of expansion.

The Fed's portfolio of securities has expanded by $1.2-trillion over the past seven weeks, to a record $2.1-trillion. Banks are on the receiving end of the Fed's money injections, but are afraid to lend to the private sector. Instead, banks are hoarding the excess cash to fix their balance sheets, or depositing the excess funds with the Fed itself, or buying Treasury bills and notes, at the lowest yields in history.

Under a new law, the Fed is allowed to pay interest on excess bank reserves, currently offered at 1.15-percent. That's higher than the 1% fed funds target rate, and higher than the 0.01% one-month T-bill rate. The Fed's ability to pay interest on bank reserves, allows it to flood the banking system with unlimited amounts of money, without pushing the fed funds rate to zero-percent. The Fed might avoid a Zero-Interest-Rate-Policy (ZIRP), in order to prevent money market yields from turning negative, after deductions are levied for annual operating expenses.

The Fed has signaled a historic shift to "Quantitative Easing," in a desperate bid to stop the unrelenting slide in the US-housing and stock markets, which have lost a combined $12-trillion of value, over the past 13-months. A common estimate is that every dollar's change in wealth causes people to change their spending by 5-cents. If so, the hit to consumer spending could be $600-billion ($12-trillion times .05). Even this might be too optimistic, if leveraged households decide to pay down debts.

Home prices have been on a steep decline, with 20 major markets plunging a record 17.4% in September from a year earlier, according to the S&P Case-Shiller Home Price Index, after tumbling for 26 consecutive months. A total of 936,000 homes have been lost to foreclosure since the housing crisis flared-up in August 2007. Furthermore, the inventory of unsold homes has risen to 11-months, and a record 2.9-million vacant homes are up for sale.

On Nov 26th, the Fed and the Treasury unveiled the next step into the murky world of "quantitative easing," - a plan to purchase $200 billion of asset backed securities (ABS) secured by risky credit cards, car loans and student loans. The Fed will also purchase $500 billion in mortgage backed securities (MBS's), and another $100 billion in direct debt issued by Fannie Mae and Freddie Mac. The Fed succeeded in driving the 30-year mortgage rate a half-point lower to 5.50% last week, enabling millions of homeowners to re-finance their monthly payments.

The latest gambit - "Quantitative Easing," is designed to force yields on two, ten, and 30-year Treasury debt to the lowest since 1955. Fed chief Ben "Helicopter" Bernanke confirmed on Dec 1st, that the central bank will target long-term interest rates to combat the deepening recession, knocking the 10-year yield to 2.65%, and the 30-year bond yield to 3.18 percent. Just like the Bank of Japan, the Fed is expected to target the 10-year yield in a tight range next year.

The mechanics of "QE" has turned conventional logic upside down. Treasury yields are plunging to record lows, even at a time when the supply of marketable US federal debt outstanding has soared to $10.6-trillion in October, up from $9.3-trillion in February. During the lifetime of the Bush administration, the federal debt has mushroomed by nearly $5-trillion, yet 10-year T-note yields have moved sharply lower, from around 5.50% in January 2001, to 2.70% today.

This year's fiscal budget deficit could easily top $2-trillion, due to the regular operating deficit, TARP and other bailouts, and a $500-billion stimulus package. That would far exceed the previous record deficit of $450-billion. But with the Fed printing unlimited quantities of US-dollars out of thin-air under the QE framework, so far, Washington has been able to issue massive amounts of debt with impunity.

The Fed learns from Japan's Deflation Experience

The Fed has slashed the fed funds rate 425-basis points to 1% in response, yet the housing and stock markets continue to slump. The US-economy is thought to have contracted at a -5% annual rate in the fourth quarter, highlighted by the plunge in the ISM's factory index to 36.2 in November, the lowest level since 1982. US retail sales have contracted for four straight months, and more than 10-million Americans are out of work and cannot find jobs.

The unfolding events are reminiscent of Japan's descent from giddy economic prosperity in the late 1980's into a deflationary spiral in the 1990's, which Japan's central bank couldn't reverse. In the last few-weeks, a growing number of Fed policymakers also have fretted about the threat of deflation, hinting the central bank should act quickly to fight deflation before it becomes entrenched.

A Fed study, written by 13-economists in 2001, said central bankers can learn from Japan's experience with deflation. In the late-1980s, Japan's economy grew so rapidly that the Bank of Japan (BoJ) worried that inflation might overheat. The BoJ hiked its discount rate from 1989 thru May 1991, to curb the danger of inflation and pricked the Nikkei-225 bubble. Stock prices soon plummeted by 50% in 1990, and the economy and land prices began to deteriorate a year later.

Belatedly, Japan's central bank began a series of interest rate-cuts, lowering its discount rate by 500-basis points to 1% by 1995. But the Japanese economy never recovered, despite $1-trillion in fiscal stimulus programs. In hindsight, the Fed study concluded that if the Bank of Japan cut its discount rate to 1%, much sooner than early-1995, the scourge of deflation could have been avoided.

"The window of opportunity was closed in the second quarter of 1995." By then, the Fed study says, "inflation had already fallen below zero. The BoJ also didn't recognize that deflation would be harder to control than inflation. Accordingly, the BoJ may have worried too much that lowering interest rates might engender conditions leading to the emergence of a new bubble in equity and land prices. The Japanese government cut taxes and increased government spending - but couldn't engineer an economic recovery," the Fed study said.

Since 2001, the Bank of Japan has locked the government's 10-year bond yield into a tight range of 1.20% to 2.00%, forcing yield starved Japanese citizens to search abroad for better returns on their savings. The BoJ's ultra-low interest rate policy spawned the infamous "yen carry" trade, its size estimated at $1.5 trillion to $6-trillion, which inflated bubbles in stock markets worldwide.

Since the BoJ adopted QE in March 2001, the mother-of-all "carry trades" has been to sell the yen and convert the proceeds into the higher yielding currencies of Australia and New Zealand. For a long-time, the "yen-carry" trade paid off, as the central banks of Australia and New Zealand hiked their interest rates over a six-year period to 7.25% and 8.25% respectively, and investments in Aussie and kiwi bonds paid significantly more than 0.50% offered for Japanese bank deposits.

Japan's legions of individual investors emerged as a global financial force to be reckoned with, directing $6.2-trillion dollars of the nation's $14 trillion in personal savings overseas. They were joined by other "Yen carry" traders such as institutions, hedge funds, and other big-time players, leveraging more than $1.2-trillion in global financial markets. Over a seven-year period beginning in late 2001, the Aussie dollar rose by two-thirds to above 100-yen, its highest level in 17-years.

But with Australia's economy now facing its first recession in 17-years, and plummeting global demand for commodities drying-up a five-year boom of export earnings, the Aussie's bull-run versus the yen quickly unraveled in just five-months. Hammering the nails into the coffin of the Aussie /yen "carry trade," Australia's central bank slashed its overnight cash-rate target by 100-basis points on Dec 2nd, to a three-year low of 4.25%, from a high of 7.25% in September.

Japan's ultra-low interest rates encouraged local investors to plunge into foreign markets, with volatile currency risk, and American fixed-income investors could soon face the same dilemma, under Bernanke's QE. Ironically, the Bank of Japan now refuses to go back to a Zero-Interest-Rate-Policy, and for the second month in a row, left its overnight target rate unchanged at 0.30%. Meanwhile, the mother of all bubbles - the Tokyo bond market, has refused to burst for 10-years.

Bank of England in Panic Mode

In April 2008, the BoE's leading dove, David Branchflower, warned that UK house prices could tumble by as much as a third in the next two years and called for swift rate cuts to stave off a crash. Blanchflower warned, "In my view, a correction of approximately one-third in house prices does not seem implausible in the UK over a period of two to three years if house price-to-earnings ratios are to be restored to more sustainable levels," he said.

"Cutting interest rates now may help to prevent such a dramatic fall. Monetary policy, in my view, still remains restrictive, and we need to take action to loosen policy sooner rather than later. The slower rates fall, the further they will eventually have to go down, in order to boost the economy," Branchflower added. Since then, the typical UK home price has fallen to £158,400, or 15% below the 2007 peak.

An Oct 24th report issued by S&P indicated that 335,000 households in Britain now find themselves in negative equity, meaning that the value of their homes has fallen below their mortgage. This was an increase of 250,000 in only four months, and by 2010, S&P predicts that 2-million UK-households could be mired in negative equity, with home prices tumbling a further 10% in 2009. Housing sales were 53% lower in September, compared with the same month in 2007.

On Nov 29th, the British government handed a check for £20-billion to the Royal Bank of Scotland, (RBS) and will also buy about £17-billion of stock in Lloyds TSB and Halifax Bank of Scotland, that would leave three of the country's biggest lenders are under quasi-state control. The British government now controls nearly 3-trillion pounds in bank assets, and almost half the mortgage market, which would suffer further losses as economic conditions continue to deteriorate. Already, the UK is holding a paper loss of £2.3-billion in shares of RBS.

Job losses in the UK soared by 164,000 in the third quarter, the biggest surge in 17-years. Now at 1.79-million, or 5.7% of the workforce, unemployment is widely predicted to reach two-million by December, possibly rising to three-million by December 2010. To cushion the blow, the BoE opened the floodgates on Nov 6th, unleashing a stunning 150-basis point rate cut to 3%, the lowest level in more than half a century, to rescue the badly shaken housing market.

The BoE rate cuts triggered a massive 25% devaluation of the British pound vs the US$, and a 45% slide against the Japanese yen, to UK multinational earnings, and increase the competitiveness of exporters. However, factory activity in the UK plunged -15% in November, putting the BoE under heavy political pressure to slash interest rates by a half-point or more on Dec 4th. Manufacturing accounts for 14% of the British economy, and is suffering its longest streak of contraction since 1980.

On Nov 12th, BoE chief King gave a stark warning of the difficulties that lie ahead for the UK economy and said, "We are prepared when the world changes to make big changes to the bank rate in response. Consumer spending faltered in the third quarter under the weight of tighter credit and the squeeze on household budgets," Asked if interest rates could fall all the way to zero, Mr King said the BoE would set rates at "whatever level is necessary."

In London, the two-year British yield tumbled 24 basis points to 1.78%, as traders bet the BoE would slash its base lending rate by a full-point to 2% on Dec 4th, and as low as 1% next year. Central bank interest rates have never fallen below 2% since the BoE was created in 1694. Yields on 10-year gilts slid 17-basis points to 3.48%, their lowest level since records began 30-years ago.

Most fascinating, long-term gilt yields are plunging to record lows, even as the supply of British budget deficit is mounting to record highs. The UK Exchequer will auction £146.4 billion of gilts this fiscal year, compared with £80 billion originally projected in the March Budget. The UK national debt is expected to zoom past £1trillion by 2012, equal to 57% of gross domestic product.

Yet the BoE is in the driver's seat for now, with near total control over both short and long-term British interest rates. UK banks are hoarding the high powered money that the BoE is pumping into the credit markets, or channeling the cash into safe haven gilts, amid fears of deflation and corporate defaults. In this environment, the M4 money supply was skyrocketing at +15.3% rate of expansion in October. "I care not what puppet is placed upon the throne of England to rule the Empire on which the sun never sets. The man that controls Britain's money supply controls the British Empire," observed Baron Nathan Rothschild.

While the BoE is busy monetizing whatever amount of debt the Exchequer needs to sell, British investors in ` are the biggest winners, with the yellow metal soaring to 550-pounds /oz, up 130% from four-years ago. The explosive surge of the UK's M4 money supply, and the sharp devaluation of the British ounce against all major currencies, reminds us, "If you have to choose between trusting the natural stability of gold, and the honesty and intelligence of members of the government, with due respect for these gentlemen, I advise you, as long as the capitalist system lasts, to vote for Gold," - George Bernard Shaw, 1928.

This article is just the Tip of the Iceberg of what's available in the Global Money Trends newsletter. Subscribe to the Global Money Trends newsletter, for insightful analysis and predictions of (1) top stock markets around the world, (2) Commodities such as crude oil, copper, gold, silver, and grains, (3) Foreign currencies (4) Libor interest rates and global bond markets (5) Central banker "Jawboning" and Intervention techniques that move markets.

GMT filters important news and information into (1) bullet-point, easy to understand analysis, (2) featuring "Inter-Market Technical Analysis" that visually displays the dynamic inter-relationships between foreign currencies, commodities, interest rates and the stock markets from a dozen key countries around the world. Also included are (3) charts of key economic statistics of foreign countries that move markets.

www.sirchartsalot.com/newsletters.php

Sunday, June 29, 2008

Gold futures end with strong gains

Gold futures closed with strong gains Friday as a new record high in crude oil, persistent weakness in the U.S. dollar and a decline in the U.S. stock market encouraged investment demand for the precious metal. Gold for August delivery rallied $16.20 to end at $931.30 an ounce on the New York Mercantile Exchange. The precious metal posted a weekly gain of $27.60 from last Friday's closing level of $903.70.

http://www.marketwatch.com/news/story/gold-futures-end-strong-gains/story.aspx?guid=%7B24E83C5E-04C1-4430-B8D1-4591D9BB4794%7D&dist=msr_1

Wednesday, June 4, 2008

American Gold Eagle Coins are popular among people who desire to guard against inflation.

Gold has been the standard of value or simply a base against which to measure currency. Expressed in a more colorful way: It is the "Ancient Metal of Kings".

American Eagle Gold, Silver (and Platinum) Bullion Coins are a manageable way to invest in assets that are both tangible and liquid. You can buy and sell them in sizes and quantities to fit any investment strategy.

Which leads us to introduce you to a convenient way for the ordinary person to do this: You can invest or even earn gold or silver coins by clicking the link below.

American Eagle gold coins have a high liquidity, that is, they can readily be converted to cash.

You can take any of your standard size eagle gold coins to a coin dealer or precious metal dealer and cash it instantly. Thouth that may not be the reason you bought them in the first place. A more logical reason would be to avoid the constantly declining value of the “almighty dollar”.

American Gold Eagle Coins provide you with a convenient and cost effective way to add a small amounts of physical gold to your gold investment portfolio. They also allow you to turn small amounts of your investment portfolio into cash as required at any time.

American Eagle gold coins are valuable not only for their lovely appearance, but also because they are the only bullion coin whose gold content is guaranteed by the United States government. Each American Gold Eagle is stamped with its exact gold weight, as well as its face value.

Silver Eagles are .999 fine silver, the finest silver coins ever issued by the United States.

Silver coins may become tarnished, but they do not deteriorate and can easily be restored to their original shine.

Bullion coins do not carry additional collectors value, to some this is an advantage, their value is dictated by their troy weight and the current market price of the precious metal.

Bullion coins are highly refined precious metal products that are round in shape (as opposed the rectangular shape of a bullion bar), and produced to exacting specifications by numerous federal governments, though on this page we are primarily concerned with the U.S. Eagle Coins, specifically for investment purposes.

Bullion coins are also legal tender in their respective issuing countries. For example, in the U.S. the 1 oz Gold Eagle Coin is a $50 legal tender, although it would be quite crazy to use it as such.

http://www.fundednfree.com/goldeaglecoins.html

Saturday, May 17, 2008

The Long Tail

Why It Is Important For Small Businesses

An Interview With Chris Anderson

"The long tail" is a phrase that has been buzzed into our consciousness by Chris Anderson, executive editor of WIRED magazine. His book, The Long Tail, is an "impact book" -- the most important book in years. Read it.

If you understand The Long Tail (and you must -- this is why The Long Tail is the only "must-read" recommendation I have ever made), you understand the future of small business, how you fit in, and how to capitalize upon it.

So... understand it. Profoundly. If you skip this book, you do yourself and your small business a disservice. The capsule summary...

Site Build It! In the physical world, there isn't enough shelf space "to carry everything for everyone." As a result, the industrial business era has been mostly about a small number of mass-produced-and-sold products, the "head of the long tail" (red part of the graph).

The digital era turns the tables on traditional thinking about supply and demand. We are moving into the (yellow) long tail of the curve. That is the world of infinite niches.

As a small business person, it is your world. You both live in it and you market to it. The Long Tail describes the "three driving forces" that you must understand to master it...

http://longtail.sitesell.com/ivaldo.html

Tuesday, May 13, 2008

Gold & Silver - The Fuse Is Lit!

Much discussion has taken place in recent weeks, regarding the possibility that gold and silver might continue to sink to lower levels, as the summer doldrums set in.

Investors soon become shell-shocked with negative market analysis that looks at a half-full glass of water and refers to is as ‘half empty’.

They read about a member of the Federal Reserve Board who is quoted as saying that he is worried about inflation, and they interpret this to mean that the dollar is going to rise, and gold might fall, just because of that single comment. If the man was serious about his worry, he and his pals would be raising rates, not lowering them! Of course we know that their hands are tied, as the Fed cannot raise rates until the economy, especially the housing market, can handle higher rates.

The fact of the matter is that gold and silver are becoming more of a bargain on a daily basis. The reason is very simple: Every day, the central bank money spigots are spewing out at least ten times as much money, as miners are able to produce gold and silver!

Until this situation is reversed, the fundamentals will support higher prices.

Pull-backs or corrections usually swing too far in the opposite direction to the main trend, thereby providing opportunities for us to ‘buy the bargains’. This is the situation today.

For some examples of price increases:

* Platinum has gone from 400.00 to 2,000.00, an increase of 400%

* Copper from 0.75 to 4.00, an increase of 470%

* Uranium from 0.63 to 63.00, an increase of 530%

* Crude oil from 12.00 to 124.00, an increase of 900%

* Molybdenum from 2.50 to 32.50, an increase of 1300%

* Rhodium from 400.00 to 9,400.00, an increase of 2200%

Many of these commodities are trading at all-time high prices!

By comparison, gold has crawled, from 260.00 to 880.00, for an increase of 338%. Gold is currently trading at 1/3 rd of its inflation adjusted previous high price.

Silver from 4.00 – 18.00 has increased by 350%

Silver is currently trading at 1/8th of its inflation adjusted previous high price. That’s right, silver has to increase by a factor of 8 times to reach 135.00, which is its 1980 price, when adjusted for inflation. And that’s if you use the official CPI numbers. By using actual inflation data, the number is even higher.

Gold and silver are still bargains!

To quote Richard Russell: “He who buys the dips, and rides the waves, wins in the end.”

http://www.gold-eagle.com/editorials_08/degraaf050808pv.html

Friday, March 14, 2008

U.S. gold surges to record on Bear Stearns, dollar

U.S. gold futures rose 1 percent to a record high on Friday, trading firmly above the

$1,000 an ounce, lifted by a record low dollar and as investors

fled to bullion as a safe haven due to a worsening financial

market crisis.

Bear Stearns Chief Executive Alan Schwartz said that the

U.S. investment bank's liquidity position in the last 24 hours

had significantly deteriorated, and that JPMorgan Chase and the

Federal Reserve Bank of New York agreed to provide secured

funding to Bear as necessary. [ID:ID:nN14389680\]

"It is indicative of how serious the financial crisis is,

and the impact that it has on financial firms in the whole

financial arena," said Bill O'Neill, managing partner of LOGIC

Advisors in Upper Saddle River in New Jersey.

"This is not a positive thing in my view. This is indicative

of the kind of crisis that we are in. I do view this as bullish

for hard assets," O'Neill said.

At 10:33 a.m. EDT (1433 GMT), the active gold contract for

April delivery GCJ8 on the COMEX division of the New York

Mercantile Exchange jumped $10.40 or 1.1 percent to $1,004.30 an

ounce. It traded between a bottom of $991.70 overnight and a

record high of $1,007.30.

Investors often turn to gold as insurance in times of

financial market jitters and economic uncertainties.

U.S. stocks had dropped as much as 2 percent, while Bear

Stearns stock had nosedived as much as 50 percent. The U.S.

stock market trimmed losses and was down about 1 percent.

The dollar fell to a fresh 12-1/2-year low against the yen

and a record low against the euro on the Bear Stearns liquidity

news, increasing fear of a deep U.S. recession.

Returns on U.S. holdings are eroding for foreign investors

and many see precious metals as hard assets that can protect

portfolios.

Spot gold firmly breached the historic $1,000 level

on Friday, after U.S. gold contracts burst through the

psychological barrier on Thursday due to a struggling dollar

and inflation fears.

Spot gold was quoted at $1,001.55/1,002.25, up from

$991.00/991.80 at the close Thursday. London bullion dealers

fixed the morning spot price at $997.00 an ounce.

George Gero, vice president of RBC Capital Markets Global

Futures in New York, said that investors continued to favor

hard assets as gold was trading at all-time highs.

"Thousand-dollar gold may have legs now with media attention

bringing new investors to the market, while palladium and silver

are catching up as well," Gero said.

Gold is up 20 percent this year. In January it surpassed

the historic milestone from January 1980. That year, bullion

peaked at $850 an ounce against a backdrop of high inflation

linked to strong oil prices, the Soviet intervention in

Afghanistan and the Iranian revolution.

http://www.reuters.com/article/oilRpt/idUSN1439998920080314

Thursday, January 3, 2008

Scaling new peaks

Gold opened the 2008 trading year by breaking over, and then rising beyond the pinnacle it achieved last year, indeed in any year. A massive surge in crude oil (sparked by the latest violence in Nigeria) to its own record of $100 a barrel and a markedly softer US dollar (last seen at 75.93 on the index) on the heels of the ISM data for last month's industrial activity (read: anemic) contributed to the metal's successful attempt at planting the flag on this market's Mt. Everest. Although conditions remained on the thin side as part of the trading crowd will not return until Monday, the move today suggests that funds may have made additional moves into bullion with Pakistan's situation remaining on edge and global investors obviously still nervous about financial markets as we begin the new year. The stock market certainly did not start 2008 on a reassuring note...(but, see below). No market was going to ignore triple-digit oil and weak industrial activity. Thus, the construction spending news got buried today, despite showing there is life remaining in the sector.

New York spot bullion closed substantially higher, finally fulfilling the 27 year old dream of gold bugs everywhere. The metal rose $23.40 to $856.70 bid, after ticking as high as $861.80 on the offer side intra-day, this, as market participants made the expectations they had expressed last month a reality. We can expect additional gains if the financial media disseminates the news and trend-followers pile into the market on speculative emotion. Silver gained 38 cents to $15.15 but remains under the threat of underperforming gold as demand for industrial uses hangs in the balance should an economic contraction become deeper than expected. Today's ISM data did not bode well for the silver camp as far as strong industrial offtake is concerned, and the metal will need fresh inflows of investment money to maintain here and try for more. Platinum on the other hand, showed no worries about users substituting it with palladium and rose an additional $11 to $1539.00 per ounce.

As the market replays the events that gave it notoriety back in January of 1980, we can certainly expect to hear ultra-bullish chatter pick up significantly and argue that this is 'only the beginning' of...something. The news clippings we saved from the era are also rife with confident predictions (some of them, by the same writers still in circulation today) of four-digit prices and more. For 1980 and 1981, that is. While there is no debate that price moves may now become highly unpredictable (in either direction) since we have waded into basically uncharted waters, the mere fact that speculative positions are approaching a quarter of a million contracts and that the addition of not too many more of them would tilt the market into heavily overbought (as opposed to just simply overbought) territory should also be in the back of the minds of latecomers to this party. Tread with utmost care. Or, as a classic (and continuing) gold bull (Ned Schmidt) just said: "Buy low, don't buy high." Hope he doesn't get labeled a 'bear' for merely stating the obvious.

We, on the other hand, will continue to bring you all sides of the gold story, pleasant reading, or not. It has been our task from the beginning to cover the less often publicized aspects and stories of the market. The rest is (as always) up to you, the individual reader/investor. With this in mind, let's take a look at what Marketwatch's Mark Hulbert sees in the contrarian catacombs these days:

"Consider the latest readings of the Hulbert Gold Newsletter Sentiment Index (HGNSI), which reflects the average gold-market exposure among a group of short-term gold timing newsletters. As of Monday night, the HGNSI stood at 66.1%. That's 25 percentage points higher than where this gold sentiment index stood one year ago.

To be sure, given gold bullion's strength during calendar 2007, during which a price of an ounce rose by more than $200, an increase in bullishness is entirely normal. Still, at 66.1%, the HGNSI is getting within shouting distance of levels that would indicate a lot of optimism and euphoria among the gold timers.

On the contrarian grounds that markets like to climb walls of worry, the stock market would appear to have a lot more upside potential than gold.

Note carefully that this forecast focuses on relative performance, and thus does not mean that gold will necessarily have a terrible year. The contrarian forecast for 2008 could turn out to be correct with both stocks and gold rising, for example, but with stocks rising even more.

And, by the same token, this forecast does not mean that stocks will necessarily have a great year. It could also turn out to be correct with stocks having a mediocre year, or worse, but with gold have an even worse year."

Wonder if Mr. Hulbert is vying for the MOTY award himself, by bringing his readers such potentially 'disturbing' news on the very day that gold makes a new high...

In the interim, watch the spectacle unfold. Such events do not appear to come by very often.

You might wish to visit www.kereport.com for and interview I did today with host al Korelin about gold and China. I hope you will find it informative. Thanks.

http://www.kitco.com/ind/Nadler/jan012008B.html



Wednesday, January 2, 2008

Gold price breaks 28-year record to hit new peak


Unrest in Pakistan, a faltering dollar and surging oil futures sent the price of gold soaring to a record high on Wednesday, beating its previous highest level set 28 years ago.

The precious metal rose to 859 US dollars, smashing its peak of 850 US dollars an ounce reached on January 21, 1980.

It later slipped back to 855.28 US dollars on profit-taking.

Price movements were slightly exaggerated by the lightness of holiday trade, which meant large transactions could influence the market more than usual, analysts said.

"Although conditions remain on the thin side ... (gold's) move suggests that funds may have made additional moves into bullion with Pakistan remaining on edge and investors nervous about financial markets," said Kitco Bullion Dealers' analyst Jon Nadler.

"A sharp rise in crude oil ... and a softer US dollar" contributed to gold's rally, he added.

Political unrest in Pakistan has led to interest in gold because the precious metal is regarded as a haven in troubled times.

Gold rallied "as the dollar remained in negative territory while safe-haven related buying continued to be seen in reaction to violence in Pakistan," said James Moore of thebulliondesk.com.

Gold prices were also winning support from a weak dollar, which fell against the euro on Wednesday in the wake of disappointing US manufacturing data, dealers said.

A falling US unit encourages demand for dollar-priced commodities such as gold because it makes them cheaper for buyers using stronger currencies. Higher oil prices also encourage the buying of gold.

Gold is seen as a defence against inflation, which is being driven in many countries by higher oil prices.

http://news.smh.com.au/gold-price-breaks-28year-record-to-hit-new-peak/20080103-1jxx.html

Tuesday, January 1, 2008

GOLD BULLION - A BELATED CHRISTMAS GIFT

I am spending a few days of the Christmas break at a village along the coastline of the Cape Town Peninsula. It is quaint, picturesque and simply an ideal location for enjoying quality time with the family. The only drawback is that it does become quite windy on occasion - at best not a highly predictable event. This reminds me of the erratic behavior of gold bullion - you just never know with what action the yellow metal is going to surprise you next, making it infamously difficult to predict short-term movements.

And true to form, just as traders were bargaining on a quiet Christmas period, gold again startled with a $15 jump, taking the price well clear of the $800-level. Interestingly, gold has never in its history recorded a month-end price above $800 and only closed above this level on two days during its 1980 surge, namely: $830 on January 18, 1980, and $850 on January 21, 1980. That, however, represented a blow-off with the price plunging to $737.50 a day later and falling further to $659 by the end of January.

It would seem that gold bulls may very well have reason next week to toast bullion saying good-bye to 2007 having achieved the $800 month-end milestone. There is, however, quite an important difference between 1980 and the present situation. In 1980 gold was in a parabolic rise, whereas since the low of $250 in 2001 gold has been rising methodically, mapping out consistently higher lows.

The gold price has not only strengthened in US dollar terms, but has in fact been appreciating in most currencies - an indication of increased investment demand. The following graph and table (not yet reflecting the post-Christmas rally) clearly illustrate this phenomenon.

The pressing question is how sustainable bullion's uptrend is. Although the technical picture indicates a primary bull market, the fundamental situation offers both bullish and bearish arguments.

The arguments in favor of a rising gold price have been well documented and include: the possibility of ongoing pressure on the US dollar, increasing global inflationary expectations, a surging oil price, minimal new mine production, and the fact that central bank sales are capped through the Central Bank Gold Agreement (CBGA II).

The bears, on the other hand, point to: record long speculator positions that have in the past been strongly correlated with gold price corrections, potentially lower fabrication demand from India (as a result of the higher price), and a slowdown in producer de-hedging as the global hedge book diminishes. Additionally, a seasonally weak period is approaching from February to April as illustrated by the graph below.

I have over the past few months often conveyed my bullish stance on gold bullion and gold-mining stocks. Examples of these articles include: "Gold: forwards and upwards" (September 14, 2007) and "Smart money bets on surging gold price" (September 4, 2007). I see no reason to change this position - from both an absolute and safe-haven point of view. I would, however, caution that one should not chase a rising gold price in an attempt to stock up on the various gold-related instruments. Rather bide your time and wait for the short-term corrections that occur regularly, perhaps coinciding with the advent of seasonal weakness in a few weeks' time.

The final word goes to George Bernard Shaw who said: "The most important thing about money is to maintain its stability… You have to choose between trusting the natural stability of gold and the honesty and intelligence of members of the government. With due respect for these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold."

http://www.gold-eagle.com/editorials_05/duplessis122907.html