Gold breaks the $900 barrier Gold broke sharply above $900 an ounce Monday, as equities struggled for gains and the dollar fell. Worries about the slowing global economy and the chances of recession in the United States dominated markets, with focus on a likely interest rate cut from the U.S. Federal Reserve and the start of fourth quarter earnings seasons for U.S. companies. The Federal Open Markets Committee is widely expected to cut rates by 50 basis points to 3.75 percent when it meets Jan. 29-30, although some analysts have suggested an emergency rate cut could come earlier. Poor economic data and lingering worries about inflation, meanwhile, have driven investors into gold and other precious metals. Spot gold hit a record high of $908.15 an ounce.
As gold traders eye $1,000, inflation stirs the pot Global inflation, stock volatility, the upcoming Chinese New Year holiday -- you name it, there's a reason out there for gold's rapid rise and the likelihood it will hit a new eyeball-popping level of $1,000 an ounce. When they're all taken together, however, the big lure to gold continues to be its tendency to hold value when the rest of the investment picture turns septic. As it's done of late, with U.S. inflation measures hitting multi-decade highs, U.S. stocks starting off the year with their biggest drop in 30 years and the global outlook looking both inflationary and at risk of a slowdown. "It's pretty much an investment story," said Neil Meader, research director at GFMS Ltd., a London precious metals consultancy that tracks global supply and demand data for gold. "We're not really seeing supply constraints pushing the price higher; it's not really driven by fabrication demand," he said.
Citigroup write-offs could reach $24 billion Citigroup may write off up to $24 billion over subprime- and credit-related losses, putting as many as 20,000 jobs at risk, according to a published report on Monday. Citi also may cut its dividend payment, CNBC reported, without attribution. Citigroup may raise as much as $15 billion from selling stakes to foreign and domestic investors, the report said. The CNBC report, as well as one from The Wall Street Journal, pointed to some of those shares being sold to Saudi Arabia Prince Alwaleed bin Talal, already Citi's largest shareholder. The Journal report added the China Development Bank may invest about $2 billion. Meanwhile, the Financial Times reported that the Kuwait Investment Authority may invest as much as $3 billion in Citigroup.
Bank earnings to be hit as mortgage woes spread And now for the next wave of bank blues. Mortgage woes are spreading to other types of loans as the economy weakens and unemployment rises, producing a secondary pressure trend hitting bank earnings, experts said this week, ahead of closely watched results due soon from industry giants including Citigroup Inc. , J.P. Morgan Chase and Wells Fargo & Co. Higher provisions to cover rising losses on consumer loans will likely eat into bank profits in the fourth quarter and beyond. That may squeeze the capital cushions of some banks that already have taken write-downs in the tens of billions of dollars because of exposure to mortgage-related securities.
It's Inflation Stupid Holding onto its "all is well" bias like a terrified cowboy on an enraged bull, Wall Street has managed to convince itself, and much of the world, that inflation is a non-issue. When confronted with facts to the contrary, their rationalizations come fast and thick. Nowhere is this spin more pronounced than in their dismissal of the surging price of gold as a relevant indicator. Rather than favoring the logical conclusion that the rise in gold prices results from an inflationary expansion of money supplies around the world, Wall Street has credited its rise to other factors. The most common explanations include strong economic growth, rising jewelry demand, speculative buying, higher oil prices, the weak dollar, terrorism, uncertainly, middle east tensions, volatility, supply and demand, etc.
Mortgage crisis to corporate debt crisis The financial system fell under intense stress on Wednesday. The epicenter of the crisis was in the credit default swap, or CDS, market, and contagion fears were building quite a head of steam. The pricing for Countrywide Financial default protection (five-year CDS) surged a huge 469 basis points (bps)to a record 1,610 bps (it would cost US$16,100 annually for five years to insure $100,000 of Countrywide debt against default). For perspective, Countrywide default protection was priced at a mere 30 bps one year ago and didn't even trade above 600 during the subprime crisis this past summer and autumn. Rescap CDS surged an astounding 1,360 bps on Wednesday to 3,746. This was up from the year earlier 95 bps. MBIA CDS increased 85bps to 849 (year ago 87) and Ambac 89 bps to 841 (year ago 70 bps). Washington Mutual CDS increased 61 bps to 611 (year ago 54 bps). Many indices of corporate debt spreads rose to their widest levels in years.
N.Y., Connecticut Probe Wall Street Loan Disclosures New York and Connecticut are investigating whether Wall Street banks failed to disclose sufficient information about risks involved in investments linked to subprime loans, Connecticut's attorney general said. The new focus in existing probes of the mortgage industry is whether banks left out material details in their disclosures about the risks posed by extremely high-risk loans, deceiving credit-rating agencies and investors, Connecticut Attorney General Richard Blumenthal said today in a interview. The states are also investigating lax underwriting standards, he said. ``The point is whether the banks knowingly withheld information so the disclosures may have been deceptive or misleading,'' Blumenthal said. ``These questions are front and center in an ongoing investigation that has reached no conclusions.''
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