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Weekday NEWS to Comfort the Disturbed and Disturb the Comfortable.

News Provided by the Free-Market News Network

01.31.2008

Gold Fields may close shafts due to power crisis
Gold Fields, the world's fourth-largest gold producer, on Thursday warned that it may be forced to close shafts and restructure as a result of Eskom's request that the mining industry reduce its power use by 10%. Gold Fields CEO Ian Cockerill warned that the power shortages in South Africa would affect production in the March quarter and into the foreseeable future. Subject to the availability of power, Gold Fields anticipates that production in the March quarter could be between 20% and 25% lower than the December quarter as a result of the power restrictions. The gold producer reported a 3% decline in attributable gold production to 960 000oz for the quarter.

Subprime, CDO Bank Losses May Exceed $265 Billion
Losses from securities linked to subprime mortgages may exceed $265 billion as regional U.S. banks, credit unions and overseas financial institutions write down the value of their holdings, according to Standard & Poor's. S&P cut or put on review yesterday the ratings on $534 billion of bonds and collateralized debt obligations tied to home loans made to people with poor credit, the most by the New York- based firm in response to rising mortgage delinquencies. While banks and securities firms such as Citigroup Inc. and Merrill Lynch & Co. accounted for most of the $90 billion in writedowns to date, S&P said the next round will be borne mainly by smaller financial institutions in Europe, Asia and the U.S. The ratings actions may create a ``ripple impact'' that further reduces prices of the securities, S&P said.

Jobless claims surge in latest week
First-time jobless claims rocketed higher last week. Initial claims for state unemployment benefits rose 69,000 in the week ended Jan. 26, reaching 375,000, the Labor Department reported Thursday. It marked the highest level since early October -- and the biggest weekly jump since September 2005 in the wake of Hurricane Katrina. Before this sharp rise, jobless claims had fallen by a net of 51,000 since late December, confounding economists who had expected claims to gradually rise as the nation's economy slowed. Analysts had been expecting an increase, but nothing nearly as large as last week's gain: The consensus forecast as compiled by MarketWatch had called for claims to rise to about 320,000.

Consumer spending flat in December
U.S. real consumer spending flattened out in December, further evidence that the economy was getting weaker as the fourth quarter sputtered to an end. Real consumer spending, adjusted for inflation, was unchanged in December following a 0.4% gain in November, the Commerce Department reported Thursday. The figures provide monthly detail to the quarterly data released Wednesday in the gross domestic product report, which showed consumer spending climbing at a 2% annual rate in the quarter. The report shows consumer spending weakening as the quarter progressed, giving the first quarter a weak starting point. 'Chain store reports for January have been weak," wrote Nigel Gault, an economist for Global Insight.

Expect more than a typical recession
Call this the perfect financial storm or what you will; Wall Street has made fools of financial institutions around the world with their CMOs, CDOs, and greedy boo-boos. At least they didn't lose as much as their customers. The stock market is in distress, bond insurers are looking for a $200 billion bailout, junk-bond markets are at risk of further losses and life-, home- and auto insurers' risk has not yet been fully assessed. We need real ready-to-go financial leadership and we need it now. Tell the presidential candidates, Congress and economists to stay home. We need regulators with clear priorities. Former Federal Reserve Chairman Paul Volcker, former FDIC Chairman Bill Isaacs and anyone they trust would be good choices. They beat inflation and presided over the savings and loan cleanup.

Bond insurer MBIA posts $2.3 billion loss
Troubled bond insurer MBIA Inc. on Thursday posted a loss of $2.3 billion during the fourth quarter, after absorbing a huge loss for the securities it guarantees due to the U.S. housing downturn. MBIA took a $3.5 billion loss before tax, which it had announced earlier this month, because of a downturn in the value of its insured credit derivatives portfolio. For the year, MBIA lost $1.9 billion. "We are disappointed in our operating results for the year, as the performance of our insured prime, second-lien mortgage portfolio and three insured CDO-squared transactions led to unprecedented loss reserving and impairment activity," said Chairman and CEO Gary Dunton in a statement released shortly after midnight.

Lou Dobbs alert: Illegal immigrants may get rebates
In their bipartisan zeal to quickly cut a deal on an economic stimulus bill, GOP lawmakers overlooked something that will certainly inflame the conservative base _ illegal immigrants could receive a tax rebate check from the government. But late Wednesday, the Senate Finance Committee was scrambling to fix the problem _ contained in the House bill _ by only allowing taxpayers using legitimate Social Security numbers to receive rebates. The text of the House passed bill contains language making "non resident aliens" _ illegal immigrants _ ineligible for the tax rebates. But every year, hundreds of thousands of undocumented immigrants use individual taxpayer identification numbers, known as ITINs, to file income tax returns with the IRS. These ID numbers are used instead of Social Security numbers.

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01.30.2008

Go GATA; Go Gold!
My gut tells me that the gold price has a good chance to go up by more than $25 in one day on Friday, February 1st, and again, another $25 in one day on Monday, February 4th, because a certain ad will come out in a Washington paper on Thursday, this week. Why do I make such a bold statement? Because it's not that bold when you know what GATA knows. "For the next few weeks or months, analysts will likely refer to the latest rise in the gold price, which started today, as the GATA RALLY." GATA has good information about gold, that, when shared, makes the gold price move up! Back in 2005, after GATA's Gold Rush 21 conference informed some 100 key people about gold, the gold price was at about $430/oz. and moved up more than $10/day for the next two days, and then launched a nearly parabolic rally that only stopped at $720/oz. in May, 2006.

National Bank Economist Gives 5 Reasons Why Gold Will Continue Its Tear
When you hear calls for US$1,500 gold within 12 to 18 months, you assume they're coming from the usual gold bugs. They do that kind of thing all the time. But in this case, it's coming from a much more objective source: National Bank Financial.Chief economist Clement Gignac, who has been bearish on the U.S. economy for ages, lays out five reasons why gold is making a comeback as an investment haven and why it should reach his lofty US$1,500 an ounce target: financial instability; massive injections of liquidity and a return to negative interest rates; the declining value and roll of the U.S. dollar; swelling U.S. budget deficits and inflation expectations; and increased financial demand for gold as a distinct asset class.

These days, nothing surprises me
Who is the world's largest miner of gold? The answer is enough to make old-timers do a double-take. The answer is China. Why is China so interested in mining gold? Why has China encouraged its citizens to buy gold? Why has China made it increasingly easy for its citizens to buy gold and gold futures? Why has China hinted that sometime in the future, China - not London and not the US futures market - could set the price for gold? My own thinking runs along the following lines. As the US dollar slowly loses its treasured reserve status, the Chinese renminbi becomes stronger.

GDP slows to 0.6% in fourth quarter
The U.S. economy slowed sharply in the fourth quarter, growing at the weakest pace since the economy was pulling out of recession in 2002, the Commerce Department reported Wednesday. The 0.6% annualized growth rate in gross domestic product was lower than the 1.1% expected by economists surveyed by MarketWatch. The drag from inventories was larger than expected. The economy grew at a 4.9% pace in the third quarter. "The GDP hit stall speed," wrote Joseph Brusuelas, chief U.S. economist at IDEAglobal. Consumer spending and business investments slowed slightly in the fourth quarter, while investments in houses fell at the fastest rate in 26 years. A reduction in inventories was also a major drag on growth in the quarter, with exports growing at a slower pace as well.

Strong dollar policy is useful fairy tale for U.S.
Once upon a time, America had a strong dollar policy. In his 1976 book, "The Uses of Enchantment," the psychologist Bruno Bettelheim argued that fairy tales, because their fantasy is rooted in real human emotions, offer children lessons with meaning and purpose. Bettelheim might well have been addressing currency markets when he wrote that adults who believed fairy tales are "only a bunch of lies had better not try telling them." In a similar way, Treasury Department officials aren't lying whenever they earnestly recite the familiar strong dollar message. While their words no longer give investors directional clues on trading levels, they continue to offer real assurance that the U. S. government stands behind the greenback.

UBS plunges into the red on $14bn sub-prime hit
UBS, the Swiss investment bank, announced its largest quarterly loss of SwFr 12.5 billion (£5.7 billion) today after a multibillion-dollar write-off on US sub-prime mortgage assets, as America's Federal Bureau of Investigation (FBI) opened an investigation into 14 companies, including banks, in connection with the US home loans debacle. In a statement released this morning, UBS said that its fourth-quarter figures would include a $12 billion (£6 billion) write-off of US sub-prime debt and a further $2 billion writedown of its US residential mortgage assets. The writedowns were 40 per cent higher than the $10 billion figure the bank highlighted at its profit warning in December.

Brace Yourselves
Make no mistake about it: the central economic problem facing the United States is out-of-control federal spending and the massive federal debt that continues to pile up. As welfare-state spending and warfare-state spending have continued to soar for the past seven years, U.S. officials have gone on a massive borrowing spree to finance their massive spending spree. Since 2000, the national debt has almost doubled – from $5.67 trillion to $9 trillion. It is out-of-control federal spending – and the massive borrowing that has accompanied it – that is at the core of the mortgage crisis. How could sucking all that money out of the capital markets to finance federal expenditures not have an effect on the availability of private capital in the home-loan market?

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01.29.2008

'Gata Gold Rally' - How High is Up?
For the next few weeks or months, analysts will likely refer to the latest rise in the gold price, which started today, as the GATA RALLY. As some of you know, this Thursday, the Wall Street Journal will carry a full-page advertisement paid for by GATA. The headline of the article will read: "Anybody seen our gold?" The inference is that some of the gold that is supposed to be stored at Fort Knox may not be there, or may belong to foreign governments. The last time this gold was officially audited was 1953. GATA has maintained for years, as originally reported by Frank Veneroso, and recently documented by John Embry, that the gold price has been manipulated by Central Banks and privileged bullion banks, along with some gold miners.

South African mines look for power shortages to end
South African mining companies said Monday that they hoped to resume production later this week, but there was no sign of an end to power shortages that have put jobs and economic growth at risk. The power shortage became a national emergency Friday, halting diamond, gold, platinum and other mines in the biggest African economy and helping send prices of precious metals to record highs while weakening the South African rand. "This is happening at a bad time because gold and platinum prices are at record highs," said Nick Goodwin, an analyst at a T-Sec. "Just when mining companies were beginning to smile, they get knocked down. What's the use of having such high prices if you have no product to sell?"

Prices down record 7.7% in the past year
The decline in U.S. home values accelerated in November, with prices falling for the third month in a row in all 20 cities tracked by the Case-Shiller home price index released Tuesday by Standard & Poor's. Among 20 cities, prices have fallen a record 7.7% in the past year. For the original 10-city index, which has a longer history, prices are down a record 8.4% in the past year, exceeding the drop recorded in 1991. Home prices fell in all 20 cities in November, led by a 3.6% drop in Los Angeles. For the 20 cities, prices fell a record 2.1% in November. "We reached another grim milestone in the housing market in November," said Robert J. Shiller, chief economist at MacroMarkets LLC and one of the developers of the index.

Countrywide swings to $422 mln loss
Countrywide Financial Corp., the troubled mortgage lender that's in a deal to be acquired by Bank of America Corp., reported Tuesday a sizable fourth-quarter loss as loan production fell sharply toward the end of 2007. In addition, the Countrywide board elected to maintain the company's 15-cent dividend paid on common shares. Quarterly results were "adversely impacted by further credit deterioration across the industry and continued illiquidity in the secondary mortgage markets," said Angelo Mozilo, chief executive, in the earnings release. Countrywide on Monday said Mozilo was giving up a severance package worth $37.5 million. Countrywide has reduced its headcount by about 11,000 since last July.

Nevada Had Top Foreclosure Rate in 2007
The number of U.S. homes that slipped into some stage of foreclosure in 2007 was 79 percent higher than in the previous year, a real estate tracking company said Tuesday. Many homeowners started to fall behind on mortgage payments in the last three months, setting the stage for more foreclosures this year. About 1.3 million homes received foreclosure-related warnings last year, up from 717,522 in 2006, Irvine-based RealtyTrac Inc. said. Foreclosure filings rose 75 percent from the previous year to 2.2 million. More than 1 percent of all U.S. households were in some phase of the foreclosure process last year, up from about half a percent in 2006, RealtyTrac said. Nevada, Florida, Michigan and California posted the highest foreclosure rates, the company said.

Fed May Cut Rate Below Inflation, Risking Bubbles
The Federal Reserve may push interest rates below the pace of inflation this year to avert the first simultaneous decline in U.S. household wealth and income since 1974. The threat of cascading stock and home values and a weakening labor market will spur the Fed to cut its benchmark rate by half a percentage point tomorrow, traders and economists forecast. That would bring the rate to 3 percent, approaching one measure of price increases monitored by the Fed. ``The Fed is going to have to keep slashing rates, probably below inflation,'' said Robert Shiller, the Yale University economist who co-founded an index of house prices. ``We are starting to see a change in consumer psychology.''

Ron Paul's Competing Currencies
OK, I admit it: I tend to be early. The idea of private money – often referred to as "competing currencies" – has always fascinated me. I persuaded Jim Michaels, the late, great editor of Forbes Magazine, to let me translate the little-known academic literature into journalese in this article, which he published under the title Do You Want To Be Paid In Rockefellers? In Wristons? Or How About A Hayek? almost (ahem!) exactly twenty years ago. (May 30, 1988). The Great Inflation of the 1970s was then still a live memory. For some years, my account was regularly assigned in college courses. Now, GOP Presidential candidate Ron Paul seems to have single-handedly revived the issue with his relentless criticisms of the Federal Reserve. (Click here for Google web search). I still think it’s going to happen – just as there will eventually be an immigration cut-off.

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01.28.2008

Is gold ready for a 'rocket shot'?
Gold, like every other asset market, turned in a terrifyingly volatile performance last week. But it managed to close up more than 3%, at a new record high of $910.50. And the gold bugs are still confident. The great $US 5x3 point and figure chart supplied to the public free by Australia's gold Web site The Privateer reversed a mid-week downturn and broke into new high ground. On the basis of the past eight years, gold looks like going a lot higher. This is very much the opinion of James Turk, a veteran gold bug, who in this weekend's issue of his Freemarket Gold&Money Report said: "Moves into new all-time high ground tend to be explosive, which describes gold's current position."

Commodities crime wave sweeps rural US
A wave of crime is sweeping rural America, with organized gangs and petty thieves heisting commodities ranging from wheat to almonds, copper wires to hardwood trees. Attracted by the prospect of making easy money, criminals steal onto private and state-owned forests to illegally fell timber, carry off entire shipping containers of almonds, and risk their lives to strip electricity transmitters of their copper wiring."As the price of a particular commodity increases, it becomes the target of crooks because they're opportunists who are looking to make money," said Bill Yoshimoto of the Agricultural Crime Task Force in California's rural Tulare County, where nearly two-thirds of its 311,000 residents live from farming.

Builders slash prices 10%, but sales fall anyway
U.S. builders slashed prices by more than 10% in December in a failed bid to boost sales, which dropped about 5% to the lowest level in nearly 13 years, the Commerce Department reported Monday. The grim figures show no relief in sight for a battered building sector and are certain to be a major item on the Federal Reserve's agenda for its two-day policy-setting meeting that begins Tuesday. Sales of new homes fell 4.7% to a seasonally adjusted annual rate of 604,000 in December, far below the 645,000 expected by economists surveyed by MarketWatch and the lowest sales pace since February 1995.

Broke homeowners linked to arsons
Authorities in economically stressed cities see an increase in torched houses. Is the nation's mortgage mess transforming more Americans into criminals? Arson is nothing new in Detroit. It's a time-honored weapon of the angry, vengeful, distressed and dispossessed in a city that gets hurt harder and sooner than others, making it a perfect place to spot early evidence of stress from the real-estate meltdown.The Detroit Fire Department can't draw a definitive link between its rising arson rate (151 arrest warrants in 2007), rising foreclosures (up more than 65% last year) and falling housing prices (the region's median house price dropped 17.3% in the past four years, to $145,173).

Countrywide Financial Corporation and the Failure of Mortgage Socialism
Angelo Mozilo is the Chairman, President, and Chief Executive Officer of the failed Countrywide Financial Corporation. Mr. Mozilo co-founded this company, nearly 40 years ago, in 1969. To be in business for almost forty years, and to become America’s top private home-mortgage lender, are testimonies to genuine business acumen. However, success can breed arrogance, and a sense of supreme power, to the point where a corporate chieftain believes his personal will can override the free market and reshape society according to a grand vision – which, for Angelo Mozilo, entailed making America a better country by bringing home ownership within reach of all and sundry. For Countrywide Financial, unfortunately, Mr. Mozilo’s dream of social engineering demanded that sound credit-underwriting principles be abandoned.

US recession will dwarf dotcom crash
The recession facing the United States is of a scale that dwarfs the dotcom slump. The slowdown will cause a damaging regulation backlash as governments attempt to compensate for the financial pain facing families. Britain faces a similar plight, though it may avoid as deep a slowdown as the US. The views of Stephen Roach, one of the world's leading economists, now heading the Asian wing of Morgan Stanley, would have seemed outrageous at last year's World Economic Forum. It is a sign of the times that they are now close to the consensus. This year's event has been dominated by discussions of the stock market slump on both sides of the Atlantic, the Federal Reserve's emergency interest rate cut and the SocGen fraud disaster.

Chavez Urges Withdrawals From U.S. Banks
Venezuelan President Hugo Chavez urged his Latin American allies on Saturday to begin withdrawing billions of dollars in international reserves from U.S. banks, warning of a looming U.S. economic crisis. Chavez made the suggestion as he hosted a summit aimed at boosting Latin American integration and rolling back U.S. influence."We should start to bring our reserves here," Chavez said. "Why does that money have to be in the north? ... You can't put all your eggs in one basket."Chavez noted that U.S. Secretary of State Condoleezza Rice visited Colombia in recent days, saying "that has to do with this summit." "The empire doesn't accept alternatives," Chavez told the gathering, attended by the presidents of Bolivia and Nicaragua and Cuban Vice President Carlos Lage.

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Fri 01.25.2008

South Africa turns off power to miners
South Africa's leading miners halted operations on Friday, sending gold futures into uncharted territory, after the companies agreed to curtail use of electricity as the state-run utility struggles to generate enough power to meet the country's growing needs. Eskom -- whose trouble keeping electricity running left tourists stuck on a cable car by famed Table Mountain earlier this week -- said late Thursday that the generation and distribution problems may last for two to four weeks. "Power is the life blood of these underground operations and is essential for both hoisting men and ores as well as providing adequate cooling at these extreme depths," said Ross Norman, managing director at Fast Markets in London.

3rd Phase of Gold Bull Market
With the financial system crisis looming around the world, the gold bull market is starting to enter into its third phase. On the chart below, we have broken down the gold bull market into three phases. The first phase began in 2001 and continued for 54 months with gold gaining 100% (avg. 1.85% per month). The second phase began in 2005, lasted for 24 months with gold gaining 60% (avg. 2.5% per month). The third phase is the most impressive yet. Its start coincided with the widespread recognition of a crisis in the western financial system, further exacerbated by the slowdown in the economy. It is difficult to predict the slope of the third phase, but the first few months have been promising.

Gold & Math on a Napkin
Bankers, Wall Street hucksters, financial network commentators, and floating analysts seem to have flunked basic arithmetic in grand fashion. Maybe they only expose the next link in a long chain of deception, their apparent expertise. One hears estimates of $200 billion on total mortgage bond losses from the Secy of Inflation Ben Bernanke. One witnesses the series of bond writedowns by Wall Street banks. One can read of Wall Street economists like Jan Hatzius of Goldman Sachs, who cites $400 billion in potential bond losses, a favorite figure cited by other bankers. One is subjected to press anchors and their simplistic echoes of bond losses. One is endlessly lectured by highbrow analysts of the extent of bond damage. The trouble is, they all cannot do simple arithmetic and observe the billboards on mortgage bond indexes, fully available.

The Large US Companies That May Disappear In 2008
Firestone. American Motors. Texaco. Pan Am. Worldcom. At one point or another these large American companies were at the top of their industries. Pan Am was the leading global airline for decades. All are gone. Some were sold off. Others went bankrupt. Who could have predicted it? There are several iconic US companies that may well not exist at the end of 2008. Some may not even make it halfway through the year. Not all will go out of business. Some may simply be auctioned off in pieces. Others may be bought. These companies will not exist in their current forms as they are known to their shareholders and consumers now. When a company ceases to exist as an independent entity, it is not necessarily bad for shareholders. Some may be worth more in parts. Often a bust-up or merger is what brings owners the most money.

Buddy, could you spare us $15 billion?
THIS has been a crisis of risk in unexpected places. Think of collateralised-debt obligations (CDOs), structured investment vehicles (SIVs), and now a £4.9 billion ($7.1 billion) loss due to fraud at Société Générale. One particular nastiness has been festering in an obscure industry which, until recently, enjoyed pristine credit ratings: the "monoline" bond insurers. Their plummeting fortunes (see chart) helped to spark the stockmarket sell-off that prompted the Federal Reserve to act this week ahead of its scheduled meeting. So perturbing was their plight that the prospect of a rescue caused a far bigger stockmarket rally than the Fed's biggest rate cut in a quarter of a century the day before.

Mortgage bond insurers 'need $200bn boost'
America's biggest mortgage bond insurers collectively need a $200 billion (£101 billion) capital injection if they are to maintain their key AAA credit ratings, a figure that dwarfs a plan by New York regulators to put together a capital infusion of up to $15 billion, a leading ratings expert said yesterday. The failure to maintain their AAA ratings will lead to a further round of multibillion-dollar writedowns among the Wall Street banks and other large owners of the bonds, Sean Egan, of Egan Jones Ratings Company, said. It would also push some of them into receivership, Mr Egan added. Egan Jones makes its money by selling its research to money managers, rather than through fees from the companies it rates.

Fed helpless in its own crisis
After months of denial to soothe a nervous market, the Federal Reserve, the US central bank, finally started to take increasingly desperate steps to try to inject more liquidity into distressed financial institutions to revive and stabilize credit markets that have been roiled by turmoil since August 2007 and to prevent the home mortgage credit crisis from infesting the whole economy. Yet more liquidity appears to be a counterproductive response to a credit crisis that has been caused by years of excess liquidity. A liquidity crisis is merely a symptom of the current financial malaise. The real disease is mounting insolvency resulting from excessive debt for which adding liquidity can only postpone the day of reckoning towards a bigger problem but cannot cure.

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Thur 01.24.2007

Gold futures soar 2% to trade above $900 an ounce
Gold futures surged 2% to trade above $900 an ounce early Thursday, as traders' appetite for commodities was boosted by a recovery in U.S. stocks and rising crude-oil prices. Gold for February delivery rose $18.50, or 2%, at $901.60 an ounce on the New York Mercantile Exchange. "Gold prices are higher on the back of firmer oil price and bargain hunting after the sell-off this week," said analysts at Action Economics. "Bullion was hit by investors selling gold to cover losses from the sale of equities, but with stock markets rebounding gold prices are firming again." "Given the turmoil across the financial markets, it's not surprising to see the precious metals remain extremely volatile as some investors cash in their positions to generate cash while others will look favorably upon gold as a safe-haven asset,"

Gold could go mainstream - and hit four figures
In December, the gold price raced off to record highs for the first time in almost three decades. Now it looks to be closing in on $1,000. That is four digits. It will also be four times the 1999 low.The market has added dollars to the gold price for seven consecutive years now, making it the longest-lasting such stretch in history without more than a 25% correction. Even in terms of magnitude, it is the best move since 1979-80. This suggests two things right off the bat. First, it is a bull market; second, the market needs to blow off more upside if it is to give the bears anything more than 25%. John Kaiser of the Kaiser Bottom-Fishing Report believes the market is nearing a flashpoint where the sceptical public finally turn into believers and come rushing in.

Forbes Says U.S. Dollar Policy Amounts to `Zimbabwe Economics'
Federal Reserve Chairman Ben S. Bernanke and U.S. Treasury Secretary Henry Paulson are guilty of ``Zimbabwe economics'' by failing to step in to support the dollar, said Forbes Inc.'s Chief Executive Officer Steve Forbes. Neither the Fed nor the Treasury has bought dollars since August 1995 and last stepped into foreign-exchange markets in September 2000 when they sold U.S. currency to buoy the euro. Paulson has said repeatedly the U.S. favors a ``strong dollar'' with its value set in free markets. ``I want to hear that Bernanke and Paulson are going to shore up the dollar,'' Forbes told reporters at the annual meeting of the World Economic Forum in Davos, Switzerland, today. ``Eventually the markets will force them to. If the Fed shored up its value, it would help bring interest rates down.''

Wall Street's recent successes will fade with recession
Until now, the big brokerages have been giving us a spoonful of sugar with our medicine. With each massive write-down at earnings time, a chief executive or chief financial officer deftly changes the subject and guides investors to a different part of the income statement. The basic business of Wall Street is in great shape, they say. Brokerages are booming, stock underwriting is rolling, asset management is growing, and merger-and-acquisition advice is selling like earplugs in South Carolina. ey, it was a phenomenal year for Roger Clemens, too, except for that drug-allegation thing. For instance, John Thain, the newly minted chief executive of Merrill Lynch & Co. "to emphasize the fact that the performance of the vast majority of Merrill's businesses were very strong in 2007

Tell Congress how you would spend $800 tax rebate
As President Bush and congressional leaders move closer to carving out an economic stimulus package, the debate grows louder over how much of a help it will be to consumers. MarketWatch wants to know what you think. The president has proposed a $145 billion package that would consist of tax rebates and breaks as well as extended unemployment benefits, food-stamp benefits and business-tax relief for investments in new equipment. On Wednesday, the talks circled around including a follow-up stimulus package that would be activated by such downbeat factors as rising unemployment or a bigger slowdown in job growth. There's also a movement afoot for a second stimulus package later in the year that would create jobs for major infrastructure projects throughout the U.S.

N.Y. Regulator Pushes Banks to Rescue Bond Insurers
New York regulators are pushing the biggest U.S. financial institutions to rescue bond insurers, led by MBIA Inc. and Ambac Financial Group Inc., and avert credit- rating downgrades that may further disrupt financial markets. Insurance Superintendent Eric Dinallo, who met with industry executives yesterday, is trying to bolster the bond insurers' ratings with help from banks and securities firms that posted $133 billion of writedowns and credit losses tied to mortgage securities. He's received encouragement from Federal Reserve Bank of New York President Timothy Geithner, said a person with knowledge of the matter. The insurers may get fresh capital of as much as $15 billion, the Financial Times said on its Web site yesterday. The figure may be smaller, said a person familiar with the talks. The infusion would help stave off credit rating downgrades of MBIA and Ambac, the industry's two largest companies, and the $2.4 trillion of debt they guarantee.

France's SocGen hit by $7.1 billion alleged fraud
Societe Generale has uncovered a massive 4.9 billion-euro ($7.1 billion) fraud linked to a single rogue futures trader, France's second-largest bank said Thursday. The company also said it will post additional write-downs of 2.05 billion euros in the fourth quarter, and it's planning a capital increase on the order of 5.5 billion euros in the next few weeks. The rogue trader, whose role at the bank was to make "plain vanilla" hedges on European stock-market indexes, used his knowledge of the bank's control procedures "to conceal these positions through a scheme of elaborate fictitious transactions," SocGen said in a statement. SocGen said it has begun dismissal proceedings against the trader. His direct supervisor will also leave the group.

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Wed 01.23.2008

Soros Sees End of Dollar as World's Reserve Currency
Billionaire investor George Soros said the fallout from the U.S. subprime crisis will bring about the end of the dollar's status as the world's reserve currency. ``The current crisis is not only the bust that follows the housing boom, it's basically the end of a 60-year period of continuing credit expansion based on the dollar as the reserve currency,'' Soros said in a debate today at the World Economic Forum in Davos, Switzerland. ``Now the rest of the world is increasingly unwilling to accumulate dollars.'' The dollar's share of global foreign-exchange reserves fell to a record low of 63.8 percent in the third quarter as demand for U.S. assets waned after the collapse of the U.S. housing market, according to International Monetary Fund data. It accounted for 65 percent three months earlier.

Merrill Lynch says U.S. nationwide home prices may fall 30%
Merrill Lynch forecasts nationwide U.S. home prices could decline 25% to 30% over the next three years, as new supply and weak demand weigh on the market. "This sounds dire... but would only reverse part of the unprecedented 130% price surge from 2000 to 2006," wrote economist David Rosenberg in a research note released Wednesday. Rosenberg added the S&P 500 may decline an additional 20% to 25% to breach the 1,100-point level if the market follows historical precedents at times when the U.S. economy is in recession.

Fed's big easing a 'once-in-a-generation' event
The U.S. Federal Reserve, responding to an international stock sell-off and fears about a possible U.S. recession, cut its benchmark interest rate by three-quarters of a percentage point Tuesday, an aggressive move that came a week ahead of a regularly scheduled meeting of the central bank. The Fed's policy making group, known as the Federal Open Market Committee, lowered its target for the federal funds rate, which regulates overnight loans between banks, to 3.5 percent from 4.25 percent. The move, unusual in both its scale and its timing, underscored the severity of the current strains facing the U.S. economy. "It's a once-in-a-generation event," Mark Zandi, chief economist at Moody's Economy.com, said. In recent years, the Fed has rarely acted between scheduled meetings of the committee, and almost always in increments of one-quarter or one-half point. It was the biggest single cut since October 1984.

U.S. Treasuries Rise on Speculation Fed Will Keep Cutting Rates
U.S. Treasury notes rose for a fourth day, reversing an earlier decline, on speculation the Federal Reserve will keep cutting interest rates to avert a recession in the world's largest economy. The advance pushed two-year yields to the lowest since April 2004 as European stocks and U.S. stock futures declined, prompting investors to seek safety in shorter-dated government debt. The Fed's decision yesterday to trim the target for overnight loans between banks to 3.5 percent pushed notes to the biggest rally since the aftermath of the Sept. 11, 2001, terrorist attacks. ``There'll be more rate cuts and we'll see further declines in yields,'' said Axel Blase, a fund manager at Invesco Asset Management in Frankfurt. ``The fundamentals haven't changed and investors are more keen to play it safe.''

In Washington, an urgent response as stocks plunge
Even though Monday was a holiday, Ben Bernanke showed up early at his office at the Federal Reserve. The next day, he was planning a trip to New York. But those plans quickly changed. He watched with growing concern as stock markets in Japan, China and Hong Kong started plummeting. Shortly after lunch, Bernanke called a quick meeting of the Fed officials who decide interest-rate policy. Meanwhile, the Treasury secretary, Henry Paulson Jr., watching the same market turmoil spread to Europe, was anxious enough that he called President George W. Bush at the White House at 3:15 p.m. At 6 p.m., Bernanke convened a videoconference with Fed governors and an hour and a half later, he orchestrated the biggest one-day cut ever in the benchmark interest rate, which the Fed would announce early Tuesday morning.

Business leaders criticize the Fed
Business leaders appealed for more leadership from U.S. and other central banks to head off an economic downturn on Wednesday, with some accusing policy makers of losing their grip and their nerve. As shares in Europe fell heavily again on Wednesday on deepening fears of a slowdown, a day after an emergency U.S. interest rate cut, top executives expressed alarm as they gathered for an annual retreat in the Swiss resort of Davos. "Central banks have lost control," said billionaire financier George Soros. Other executives attending the opening discussions of the annual meeting of the World Economic Forum in Davos said the surprise decision by the U.S. Federal Reserve on Tuesday to cut interest rates by 75 basis points looked like a panic move.

Startling jump in California foreclosures
The housing market's vicious downward cycle wreaked more havoc in 2007, as record numbers of people in California and the Bay Area lost their homes to foreclosure, according to a report released Tuesday. Coming on the heels of statistics showing home sales at record lows and prices slumping, the foreclosure information was a fresh reminder that the real estate malaise directly hurts many homeowners, particularly those with risky subprime mortgages. California, where home prices saw double-digit appreciation during the post-millennium real estate frenzy, is now seeing equally dramatic increases in foreclosures. The nation's foreclosure crisis has spread to the point where many analysts say the country is either in recession or on the brink. The Federal Reserve's major interest-rate cut on Tuesday underscored how seriously the government views the situation.

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Tues 01.22.2008

U.S. Stock Futures Fall Sharply
Wall Street was expected to plunge at the opening of trading Tuesday, extending its huge losses from last week and taking more cues from heavy selling that has spread throughout the world. Indicators showed the Dow Jones industrial average was set to fall by more than 500 points when trading begins. Fears of a recession in the United States that could pull down the global economy as well have infected markets around the world, and those declines further unnerved U.S. investors who were unable to trade Monday, when Wall Street was closed for Martin Luther King Jr. Day. Meanwhile, U.S. bond prices soared as investors fled the stock market, and the price of oil skidded as investors dumped futures in the belief that a recession would slash demand for energy.

Fed cuts rates 75 basis points in emergency move
Hoping to prevent a market meltdown and recession, the Federal Reserve lowered its overnight lending rate by three quarters of a percentage point to 3.50% on Tuesday in a rare move between formal meetings. The 75 basis-point cut came after global financial markets sold off in dramatic fashion on fears that bad bets in credit markets could spread further and drive the U.S. economy into recession. "The committee took this action in view of a weakening economic outlook and increasing downside risks to growth," the Federal Open Market Committee said in a statement. It was the largest cut in the federal funds rate since 1982.

Paulson calls for swiftness in stimulus plan
U.S. Treasury Secretary Hank Paulson said Tuesday he's moving to enact an economic stimulus plan "as soon as possible." He said he's optimistic that a plan can be carried out with Congress "long before winter turns to spring." Paulson called for swift, robust, broad-based and temporary fix for an immediate impact on the economy. Paulson said his team has been monitoring the global sell-off in stocks. Paulson said that looking ahead, unemployment remains low and that the "structure of our economy is sound and our long-term economic fundamentals are healthy."

Bank of America's quarterly profit falls 95%
Bank of America said Tuesday its fourth-quarter profit fell 95% as write-offs for subprime credit problems, big trading losses and a less confident consumer took their toll. Bank of America's fourth-quarter earnings sank to $268 million, or 5 cents a share, from $5.26 billion, or $1.16 a share, a year earlier, as its provision for credit losses climbed and it posted $1.99 billion in net charge-offs. "Our fourth-quarter results were severely impacted by ongoing dislocations in capital markets and the slowing economy," Ken Lewis, chairman and chief executive officer, said in a press release. The main culprit was a $5.44 billion loss to the bank's trading account, compared with profit of $460 million a year earlier, driven by write-downs of collateralized debt obligations (CDOs) and weaker trading results.

Odds are, U.S. is in a recession
It's much too soon for an official judgment on whether the U.S. economy has fallen into a recession, but early indications show that a recession may have already begun. Of the five monthly economic indicators used to judge whether the U.S. economy has fallen into a recession, three are declining and one other is flattening out. Three of the five numbers peaked in September. Only one has grown with any vigor over the past few months, but it's starting to look weaker. Calling a recession is as much art as science. The numbers now in hand are preliminary, subject to large revisions. What now seems very weak could be revised to show significant growth. That's why the academics who decide whether we've been in a recession wait a long time before making a judgment.

Bill Gross Calls it "Shadow Banking System"
And here’s something else to worry about. Bill Gross, head of PIMCO, the world’s biggest bond fund, calls it the "shadow banking system." He’s referring to the way money and credit fly around the globe, courtesy of the very same "sophisticated" and "free" institutions that created such prosperity for so many people in the financial industry. Banks recognize that not all their loans will be repaid. They operate on margins of safety, with reserves set aside for when things go wrong. But in the worlds of swaps, hedge funds and derivatives…slick operators can invest billions with no margins of safety…and no reserves. The result, Gross says, could be catastrophic:

Hundreds of Layoffs Expected at Yahoo
Yahoo is planning to lay off hundreds of employees in an effort to increase its profitability, prop up its deflated stock price and narrow the focus of its sprawling Internet portal to a smaller number of crucial areas, people close to the company said Monday. The final number of layoffs from Yahoo’s work force of about 14,000 is yet to be determined and is likely to be announced around the end of the month, perhaps during Yahoo’s conference call on Jan. 29 with analysts after it reports fourth-quarter results, these people said. Company executives are still trying to determine exactly which areas will be cut. One person close to the discussions said a final plan, or perhaps a few alternative plans, would be submitted to the board at a coming meeting. The plan’s final shape may be influenced by the company’s fourth-quarter performance, this person said.

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Fri 01.18.2008

Chinese gold output surpassed SA in '07
After more than a century on the throne, South Africa has been deposed as the world's biggest producer of gold, with its estimated 2007 output, of 272 t, falling just short of the 276 t of the yellow metal produced by the new number one, China. South Africa had held the accolade of the biggest gold producer since 1905, but its ouput has been in steady decline since a peak of 1 000 t in 1970, GFMS chairperson Philip Klapwijk said. GFMS partly attributed the sharper-than-expected decline in South African ouput to safety-related mine closures, and the one-day industry-wide strike, held by the country's biggest mining union in December, which had knocked almost a ton of output off the country's total yearly production. According to GFMS estimates, global mine production contracted by about 1% in 2007, to 2 444 t.

When governments print money, buy gold
"If you don't trust gold, do you trust the logic of taking a pine tree, worth $4,000-$5,000, cutting it up, turning it into pulp, putting some ink on it and then calling it one billion dollars?" The price of gold tells us a lot about ourselves. It holds up a mirror to the way we are governed, our economy and its prospects. It reflects not only the physical dangers of floods, famine, terrorism and war, but also the financial perils of systemic addiction to debt and budgetary incontinence. "The modern mind dislikes gold," said Joseph Schumpeter, "because it blurts out unpleasant truths." With gold trading at about $900 an ounce - more than 200 per cent higher than it was at the turn of the millennium - today's message from the bullion market is not comforting.

Bernanke endorses quick, temporary fiscal stimulus
Congress could help steer the economy away from recession if it adopted a quick, efficient and temporary fiscal stimulus plan, Federal Reserve Chairman Ben Bernanke told Congress on Thursday. Bernanke made it clear he wasn't forecasting a recession, but said action by Congress, along with more interest-rate cuts from the Fed, could help prevent one. "Fiscal action could be helpful in principle, as fiscal and monetary stimulus together may provide broader support for the economy than monetary policies alone," he said in prepared testimony to the House Budget Committee. Quick action would be necessary. "You know central bankers are concerned about the economy when they condone stimulative fiscal policy,"

MBIA, Ambac Bond Default Risk Exceeds 70%, Swaps Show
MBIA Inc. and Ambac Financial Group Inc., the two biggest bond insurers, have a more than 70 percent chance of going bankrupt, credit-default swaps show. Prices for contracts that pay investors if Armonk, New York- based MBIA or New York-based Ambac can't meet their debt obligations imply a 73 percent chance the companies will default in the next five years, according to a JPMorgan Chase & Co. valuation model. Ambac shares plunged 52 percent yesterday and rose 11 percent today to $6.94 in early trading on news the company was scrapping a plan to raise equity. MBIA dropped 31 percent yesterday and rose 0.9 percent in early trading today to $9.30. Credit-default swaps on the companies, which rise as confidence erodes, are trading at record highs.

Wall St execs collect $US33b bonuses
The Wall Street gurus who presided over the subprime mortgage crisis currently shredding global sharemarkets have awarded themselves bonuses totalling $US33.2 billion ($38 billion). In a concession to the crisis - which has forced America's largest banks to write off billions in bad investments and raise billions more to shore up their capital reserves - the bonuses were down nearly 5 per cent on the previous year. The average bonus of $US180,420 ($206,088) in 2007 dipped 4.7 per cent from the previous year, New York state Comptroller Thomas DiNapoli said in a statement today. The securities industry rewarded $US33.2 billion in bonuses to its New York City employees, two per cent less than the record $US33.9 billion ($38.7 billion) in 2006, he said.

Sprint Nextel to cut 4,000 jobs
Sprint Nextel Corp. on Friday said it would eliminate 4,000 jobs and close 8% of company-owned retail stores amid the loss of more key customers to rivals. The store closings and 6.7% reduction in Sprint's workforce represent the first major moves by new Chief Executive Dan Hesse, who was hired last month. The company has been hurt by a reliance on credit-risky subscribers mediocre customer service and a less attractive roster of handsets compared to competitors such as AT&T Inc., the exclusive provider of the iPhone. In the fourth quarter, Sprint said it lost 683,000 postpaid customers - even larger than Wall Street analysts expected. Postpaid customers sign up for annual plans and pay at the end of each month. They are considered the most valuable in the industry.

Zimbabwe bank to issue $10m bill
Zimbabwe's central bank is to introduce new higher-denomination banknotes in an effort to ease the critical shortage of cash in the country. Zimbabwe has been in economic decline for the past eight years, with annual inflation widely thought to be in excess of 50,000%. The highest value note that will go into circulation on Friday is worth 10m Zimbabwean dollars. But that is worth less than US$3.90 (£2; 2.60 euros) on the black market. The introduction of the new banknotes, or "bearer cheques" as they are officially called, is a further attempt to stabilise the Zimbabwean economy. There have been long queues every day at banks as people have struggled to withdraw cash.

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Thur 01.17.2008

2008 Investment Outlook for Precious Metals
Today, price forecasts for gold in 2008 range from $725 to $1,100 per ounce, but it still does not really matter. Over the long term, prices of precious metals - gold, silver and platinum - will rise to much higher levels, in all currencies. This is because the underlying factors causing the increases will not only continue, but will likely accelerate. Although precious metals and all other commodities are currently priced in US dollars, it is important to note that since the summer of 2005 gold has increased in every major currency. It has climbed by 101% in US dollars, 93% in British pounds, 82% in euros, 93% in Swiss francs, 111% in Japanese yen and 78% in Russian rubles.

Merrill writes off $11.5 bln
Wall Street titan Merrill Lynch & Co Inc was the latest financial-services firm humbled by the credit crisis on Thursday, writing off $11.5 billion of bad debt and derivatives, and reporting a loss of almost $10 billion. Merrill also made $2.6 billion in credit-valuation adjustments related to hedges on CDOs. The loss from continuing operations was $12.57 a share. "While the firm's earnings performance for the year is clearly unacceptable, over the last few weeks we have substantially strengthened the firm's liquidity and balance sheet," John Thain, chairman and chief executive officer, said in a press release. Earlier this week, Merrill, whose capital position has been weakened by heavy subprime-related write-downs in recent months, said it would issue preferred stock to long-term investors, with the bulk being taken up by Kuwait Investment Authority, Japan's Mizuho Corporate Bank and Korean Investment Corp.

Housing starts plunge 14% to 16-year low
Construction on new homes fell 14% in December to a seasonally adjusted annual rate of 1.01 million, the slowest building pace in more than 16 years, the Commerce Department reported Thursday. The gruesome figures show builders are cutting back on production at a furious pace to try to work off a large backload of unsold homes. The bad news is that housing is still contracting; the good news is that the sooner builders stop adding supply to overbuilt markets, the sooner the housing market can recover. Housing starts for single-family homes in the West fell 16% to the lowest level since the data were first collected in 1959.

$3 billion Cosmopolitan casino project faces foreclosure in Vegas
The developer of the $3 billion Cosmopolitan Resort & Casino says its lender, Deutsche Bank, filed a notice of foreclosure on the property for a construction loan of $760 million that just matured. Developer and owner Ian Bruce Eichner says in a statement that his company is working with Deutsche Bank and Merrill Lynch to find new investors. Eichner tells The Associated Press in the statement that, "This action by our lender comes as no surprise." He blames challenges in the real estate and capital markets for difficulty in raising capital for the project, which is now under construction. The 3,000-room high-rise casino and hotel is due to open in late 2009 between the Bellagio casino resort and the CityCenter casino complex on the Las Vegas Strip.

Wealthy may be next in line in U.S. home crisis
A house in this wealthy Chicago suburb is far beyond the reach of most Americans. Unfortunately, Hinsdale may also now be too expensive for some of the people who already live here. "There is a section of the population here that over-extended themselves to buy here and then keep up the facade of wealth," said Sharon Sodikoff, a broker associate at local real estate agency Prudential Homelife Realty. "In the next year or so they'll be forced out in dribs and drabs." With a picturesque little downtown area and large, expensive houses -- according to the Headrick-Wagner Consulting Group, the average home sale price here in the 12 months to September 30, 2007, was around $1.15 million -- Hinsdale seems a world away from the housing slowdown that may have brought the U.S. economy to the brink of a recession.

Bernanke is said to support stimulus measures
Ben Bernanke, chairman of the Federal Reserve, has told lawmakers that he can support short-term tax cuts or spending measures to stimulate the economy, even if they increase the budget deficit, as long as the measures are quick and temporary. Bernanke, who is scheduled to testify before the House Budget Committee on Thursday, has also told Democratic lawmakers that he will not comment on proposals linking a stimulus package with a permanent extension of President George W. Bush's tax cuts — a disappointment to Republicans who favor that. Faced with growing evidence that the economy is slipping into a recession, congressional Democrats and President George W. Bush are both trying to come up with a package that would put more money in people's hands within the next few months.

Americans pay for housing boom's excess
The bill for America's excessive borrowing during the housing boom has arrived, and more people are having trouble paying it. JPMorgan Chase & Co. and Wells Fargo & Co., two of the nation's biggest banks, on Wednesday joined a growing chorus warning that the subprime mortgage mess is just the start of a sweeping lending crisis. And some fear that consumers falling behind on all kinds of loan payments could tip the economy's scale toward recession. Strapped consumers are having a tough time making payments on credit cards, home-equity loans, and even for their cars. This has caused three of the top five U.S. commercial banks that have already reported damaging fourth-quarter results to set aside some $12.5 billion to cover future loan losses — and that number will likely grow as the year wears on.

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Wed 01.16.2008

Dollar Declines to 2 1/2-Year Low Against Yen on Credit Losses
The dollar fell to a 2 1/2-year low against the yen as losses in credit markets widened and the U.S. economy showed more signs of sinking into recession. The U.S. currency also dropped to a record low against the Swiss franc on analysts' expectations U.S. financial companies including Merrill Lynch & Co. will follow Citigroup Inc. in writing down the value of investments linked to U.S. mortgages. The yen climbed against the South African rand and the New Zealand dollar as a slump in global stocks prompted investors to reduce carry trades funded with cheap loans from Japan. ``Further weakness is in store for the dollar as financial companies underperform,'' said Kamal Sharma, a London-based currency strategist at Bank of America Corp., the second-largest U.S. bank. ``The equity markets are shaky and the yen should remain robust.''

Arab Nations May Coordinate to Revalue, Standard Chartered Says
Middle East central banks with fixed exchange rates to the dollar may opt for a ``coordinated'' revaluation to curb inflation should the U.S. currency weaken further, according to Standard Chartered Plc. The Saudi riyal and the United Arab Emirates dirham may strengthen 8 percent by the end of the first quarter, Standard Chartered said in a report today. Kuwait dropped its dollar peg in May last year, whilst the other five members of the Gulf Cooperation Council continued their links with the U.S. currency. ``If we see further dollar weakness against the majors a coordinated revaluation by the GCC is possible,'' wrote Callum Henderson, head of global currency strategy, and Marios Maratheftis, head of research for the Middle East.

Under the downgrade shadow
Rating firm Moody’s on January 10 signaled its belief that the long-term credit rating of US government debt might have to be cut - downgraded - below AAA. The firm was clearly neither downgrading nor about to downgrade in the foreseeable future. It was a warning about pension costs, healthcare costs and the track our government is on. I would urge you to take this announcement to heart for three reasons. First, this is a serious warning about the long-term health and standing of the US in the community of global economies. Second, Moody’s has provided us with another symbolically powerful milestone. Third, this warning foreshadows looming political battles.

Inflation Up by Largest Amount in 17 Years
Higher costs for energy and food last year pushed inflation up by the largest amount in 17 years, even though prices generally remained tame outside of those two areas. Meanwhile, industrial output was flat in December, more evidence of a significant slowdown in the economy. Consumer prices rose by 4.1 percent for all of 2007, up sharply from a 2.5 percent increase in 2006, the Labor Department said Wednesday. Consumers felt the pain when they filled up their gas tanks or shopped for groceries. Prices for both energy and food shot up by the largest amount since 1990. In a second report, the Federal Reserve said that output at the nation's factories, mines and utilities showed no growth in December, adding to a string of weak economic reports showing that the economy was slowing at the end of last year.

U.S. financial woes: More to come after Citigroup
Citigroup's announcement of a staggering fourth-quarter loss was a sobering reminder that the housing market and the broader economy still have not bottomed out. To shore up their financial condition, Citigroup and Merrill Lynch, which has also been rocked by the subprime mortgage debacle, both were forced again to go hat in hand for cash infusions from investors in the United States, Asia and the Middle East, for a combined total of nearly $19.1 billion. Citigroup's gloomy news will most likely add to the anxiety of consumers and workers already concerned that the housing crisis could plunge the economy into a recession. Adding to worries, the government reported that retail sales in December declined for the first time since 2002.

MBIA's Capital Need Grows, Credit-Default Swaps Show
The worst may still be ahead for the world's biggest financial companies, trading in credit-default swaps shows. Prices for contracts tied to the bonds of MBIA Inc., Bear Stearns Cos. and Washington Mutual Inc., which protect lenders and creditors against the possibility that debt payments won't be made, are higher for one year than for five, according to data compiled by Bloomberg. Longer-term protection is usually more expensive because the risk of nonpayment is greater. It still costs more to take out insurance against default for one year even after New York-based Citigroup Inc., the largest U.S. bank, obtained $14.5 billion yesterday to shore up depleted capital. Lenders hold more than $200 billion of bonds and loans used to finance leveraged buyouts that they can't sell and are falling in value, based on data compiled by JPMorgan Chase & Co.

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Tues 01.15.2008

Gold, platinum near historic highs; uptrend intact
Gold prices rose towards historic highs on Tuesday as the dollar stayed weak on expectations of a half-percentage-point cut in U.S. interest rates. The market looked ahead to a slew of U.S. bank results, which could intensify financial market uncertainty and influence the dollar. Any signs of further weakness in the U.S. currency might attract more investors into the precious metals market. Other key metals also advanced, with platinum near record highs and silver keeping within sight of a 27-year peak hit on Monday. Palladium eased but was near a two-month high. "Markets don't go in a straight line so I wouldn't be surprised to see some pullback, but medium term I am still very friendly to the gold market," said Jeremy East, head of metals trading at Standard Chartered Bank.

10 Predictions for 2008: Economy, Dollar & Gold
I can’t help but to think that I am setting myself up here. There are so many variables that could throw a wrench into my predictions and tarnish my flawless reputation (cough). Nevertheless, I can’t help but to jump into the 2008 forecasting game and give my readers some ideas for what I believe is in store for 2008. Without further adieu, here are my 10 predictions for 2008: Economic conditions in the U.S. will deteriorate further and we will finally get consensus that the dreaded "R" word is a reality. The fed will intervene and do everything possible to avert it, but it has been delayed for so long that the any fed plans to prop up the economy will ultimately fail.

Wholesale energy prices down, food prices up; 2007 rise largest since 1981
Producer prices fell 0.1% in December, as energy prices declined and food prices gained, the Labor Department reported Tuesday, after last month's gain had raised some concern about inflation. Excluding volatile food and energy, core producer prices grew 0.2%. Economists had expected a gain of 0.2% in December for both the producer price index and the core. "Overall this was a benign report, suggesting little inflationary pressure either at present or down the road," according to a note from Ried Thunberg ICAP. For the full year, producer prices were up 6.3% -- the largest calendar year rise since 7.1% in 1981. Core prices were up 2.0% in the past year.

Citigroup swings to loss on $18 bln write-down
Citigroup Inc., the nation's largest bank by assets, ended the suspense on Wall Street over just how bad its results would be, reporting its first quarterly loss since 1998 and slashing its dividend. At the same time, Citi raised more than $12 billion in new capital to bolster its balance sheet. Citigroup swung to a fourth-quarter loss of $9.83 billion, or $1.99 a share, from net income of $5.13 billion, or $1.03 a share, in the year-earlier period. Continued woes in the subprime-mortgage market caused the bank to book pretax write-downs and credit costs of about $18.1 billion. Results for the latest quarter also included a $4.1 billion increase in credit costs in Citigroup's U.S. consumer-loan portfolio.

Retail sales drop 0.4% in December
With sales of cars and gas slowing, retail sales fell 0.4% in December, the first decline in six months, the Commerce Department reported Tuesday. Most retail sectors reported falling seasonally adjusted sales in December. Sales of gasoline declined on lower prices, while sales of most kinds of durable goods slumped. Sales at general merchandise stores, furniture stores and food stores increased. Excluding autos, sales fell 0.4% in December. Excluding both autos and gasoline, sales fell 0.2%. The weaker-than-expected data clear the way for an emergency half-point rate cut by the Federal Reserve, to be followed by another quarter-point cut at the regularly scheduled meeting on Jan. 30, wrote Ashraf Laidi, chief foreign exchange analyst for CMC Markets US.

Free money to the rescue
Alan Abelson in his "Up and Down Wall Street" column in Barron's writes, "Talk about great entrances! For investors, anyway, they don't make them any better than the memorable one staged by that precocious calendrical infant, 2008. That is, if you're an investor who happens to have a portfolio chock full of gold and overflowing with oil." And if you have your investments aligned with the Fabulous Mogambo Portfolio (FMP), then he is talking about you! Gold! That's all you have! Gold! Lovely, lovely gold! And for the seventh year in a row, the FMP has beaten the piddly results of almost every other money manager in the world, but does The Mogambo get any credit, or even get somebody to make him up a lousy plate of nachos, like I'm asking so much of worthless kids laying around the house all the time? No!

NEW RECORD MONEY GROWTH THREATENS MONETARY INFLATION
Broad money supply growth is a strong indicator of pending inflation. The current 15%-plus level of annual growth in an ongoing estimate of M3 -- the broadest measure of the U.S. money supply -- has not been seen since August 1971, when President Richard Nixon closed the gold window. Such foreshadows increasing monetary inflation pressure in the U.S. economy, on top of existing pressures from oil and food prices and a weakening U.S. dollar. In contrast, recent slow growth in the monetary base is not uncommon under current circumstances and does not foreshadow consumer goods deflation. In 25-plus years of econometric modeling and economic forecasting, I found the broadest measure of liquidity in the system tended to be the most meaningful in predicting future inflation, and, under certain circumstances, economic activity.

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Mon 01.14.2008

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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Fri 01.11.2008

Moody’s says spending threatens US rating
The US is at risk of losing its top-notch triple-A credit rating within a decade unless it takes radical action to curb soaring healthcare and social security spending, Moody’s, the credit rating agency, said on Thursday. The warning over the future of the triple-A rating – granted to US government debt since it was first assessed in 1917 – reflects growing concerns over the country’s ability to retain its financial and economic supremacy. It could also put further pressure on candidates from both the Republican and Democratic parties to sharpen their focus on healthcare and pensions in the run-up to November’s presidential elections. Most analysts expect future governments to deal with the costs of healthcare and social security and there is no reflection of any long-term concern about the US financial health in the value of its debt.

Gold Bull - Alive And Well! Big Picture Reveals $2000+ Gold
It sure has been a week for gold and its shares this first week of 2008. Right from the start gold blasted through its 1980 all time high and the gold shares exploded to the upside as well thereby finally showing some signs of strength after failing to out perform gold for quite a while. Now what can we expect from gold and its shares this year? Is this bull market coming to an end as many of the gold bears want you to believe? Or are we nowhere to an end of this bull market yet? Yes, reading gold market analysis form many different sources can be quite disturbing and confusing for the average gold investor. Remember the gold pundits declaring the end of the gold bull market last year when gold hit $680? Gold was supposed to be overvalued then and bound to correct to $500. Well, obviously the bears were wrong since gold went exactly the opposite way and challenged its old all time high by end of last year.

Bernanke says more rate cuts coming
Federal Reserve Chairman Ben Bernanke said Thursday that more interest rate cuts are on the way, as the U.S. central bank wrestles with a deteriorating economy brought on by a struggling housing market, high energy prices and a weaker stock market. In an unusually blunt speech, Bernanke said the economic outlook has taken a turn for the worse in the early days of the new year and that the Fed stands ready to act aggressively to ward off further weakening. "In light of recent changes in the outlook for and the risks to growth, additional policy easing may be necessary," Bernanke said in a speech to a business group in Washington.

Bank of America to buy Countrywide Financial
Bank of America Corp. said on Friday it's purchasing Countrywide Financial Corp. for $4 billion, effectively doubling down on a previous investment in the troubled firm and catapulting the buyer into the top spot among mortgage lenders and loan servicers in the U.S. The stock-swap deal will put an end to the independence of the troubled California lender headed by Angelo Mozilo, and represents an increase from the Charlotte, N.C., bank's August investment of about $2 billion. "We believe this is the right decision for our shareholders, customers and employees," said Mozilo, Calabasas, Calif.-based Countrywide's chairman and chief executive, in a statement.

Merrill Lynch reportedly facing massive write-down
The nation's largest brokerage firm, Merrill Lynch & Co., is expected to report losses of $15 billion stemming from soured mortgage investments, according to a published report Friday. The New York Times, citing people who have been briefed on the broker's plans, said the losses would come in nearly double its original estimate, prompting the firm to raise additional capital from outside investors. The losses are expected to be disclosed when the brokerage reports earnings next week, those people said. Among estimates on Wall Street, Merrill expected to report losses of $10 billion to $12 billion. Merrill is likely to write down the value of its CDO and subprime mortgage-backed security exposures by $10 billion next week, Bernstein Research estimated.

American Express says credit crunch hits its bottom line
Credit-card company American Express Co. said Thursday it "is seeing signs of a weaker U.S. economy" that is impacting its cardholders' ability to make purchases and pay their bills. As a result, American Express said in a statement that it will take a pre-tax charge of approximately $440 million in its fourth quarter, due to a combination of lower spending and higher delinquencies and loan write-offs. American Express shares fell nearly 6% to $46.02 in after-hours trading. American Express is one of a number of credit-card companies suffering through the current credit crisis. Also on Thursday, Capital One Financial Corp. said it is lowering its earnings outlook for fiscal 2007, and raised its loan loss reserves.

US investigates sovereign funds as Wall Street hunts for capital
The US Senate has ordered an inquiry into "sovereign wealth" funds controlled by foreign governments as Citigroup and Merrill Lynch negotiate a second wave of capital injections from the funds. The Government Accountability Office, the US equivalent of the National Audit Office, this week began investigating the sovereign wealth funds, which in recent weeks have invested about $35 billion (£17.9 billion) in UBS, Bear Stearns, Morgan Stanley, Merrill Lynch and Citigroup. The office is charged with finding out how much money these opaque funds control, where it has been invested and how the investments have been treated. It is also examining what information the funds are required to disclose on their investments and what action can be taken to discipline them if they misuse their power.

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Thur 01.10.2008

Citigroup, Merrill seek fresh capital injections
Wall Street giants Citigroup and Merrill Lynch & Co. are both negotiating further capital injections from overseas investors as they continue to suffer from the credit market crisis, according to a published report Thursday. Citigroup could get as much as $10 billion from foreign governments and Merrill Lynch is expected to receive $3 billion to $4 billion, with much of the cash coming from a Middle Eastern government investment fund, The Wall Street Journal reported. Both firms are rushing to finalize the deals before they report earnings later in the month, which will likely include further losses stemming from their exposure to mortgage-related investments. The fresh capital would come just weeks after Citigroup, Merrill and others first tapped overseas investors.

Weak holiday sales spark profit warnings
U.S. retailers reported disappointing holiday sales in December, which in turn sparked some profit warnings, after promotions, last-minute shopping and gift-card redemptions failed to turn around lackluster performance in the largest sales month of the year. Concerns about higher gasoline prices and food costs as well as declines in the credit and housing markets have reduced shoppers' mall trips and made them tighten their purse strings, analysts said. A lack of must-have fashion items also hurt appetite for apparel buying, they said. Retailers, while trying to keep inventory lean at the start of the season, have been pressured to give more discounts to clear unsold merchandise, pressuring profit margins, investors said.

Tough to pump more oil, even at $100
Oil at $100 a barrel should give exporters every incentive to pump more, but their difficulty in doing so shows the world is struggling to sustain production. A growing number of leading industry figures -- the CEOs of Total and ConocoPhillips among them -- now question mainstream forecasts for supply, suggesting the era of "plateau oil" is nearer than many in the business have admitted. While global oil demand is projected to grow to more than 100-million barrels per day (bpd) later this century, some argue it may not be possible to boost flows beyond the current rate of some 86-million bpd. Supply still falls short even after so-called unconventional oils extracted from tar sands and converted from natural gas are taken into account, said Sadad al-Husseini, a former top official at state oil giant Saudi Aramco.

Corporate Default Risk Rises as Goldman Predicts U.S. Recession
The risk of companies defaulting on their debt rose to a record after Goldman Sachs Group Inc. said the U.S. economy is probably slipping into recession. Credit-default swaps tied to Armonk, New York-based MBIA Inc. and U.S. mortgage lender Countrywide Financial Corp. rose to all-time highs, while the Markit CDX North America Investment Grade Index and Markit iTraxx Hi Vol index both jumped to the widest since they were created in 2004. Bond risk soared as Goldman forecast today that the Federal Reserve will need to cut interest rates to 2.5 percent by the third quarter from 4.25 percent now. Contracts on MBIA, the largest bond insurer, widened to distressed levels, according to Phoenix Partners Group. The loss of MBIA's AAA stamp would jeopardize ratings on $652 billion of bonds and threaten its ability to guarantee securities.

Fears of a U.S. recession mount
Signs that the United States is facing a hard landing from a serious housing industry crisis multiplied Wednesday as forecasters at a prominent bank said that the world's largest economy was in or near a recession."Recession has now arrived or will very shortly," Jan Hatzius, the chief U.S. economist for the investment bank Goldman Sachs, wrote in a report Wednesday. Goldman is forecasting a "mild" recession contraction lasting two to three quarters.Sentiment has grown markedly in the last month that the U.S. economy is in more serious trouble than previously thought. These fears have taken on new significance politically as presidential candidates on the campaign trail hear voters express mounting concern about the health of the economy.Mindful of the political reality, President George W. Bush this week also acknowledged the United States had weakened considerably.

Fabricated documents raise questions about lender's practices
Countrywide Financial fabricated documents related to the bankruptcy case of a Pennsylvania homeowner, court records show, raising new questions about the business practices of the giant mortgage lender at the center of the subprime mess. The documents - three letters from Countrywide addressed to the homeowner - claimed that the borrower owed the company $4,700 because of discrepancies in escrow deductions. Countrywide's local counsel described the letters to the court as "re-created," raising concern from the federal bankruptcy judge overseeing the case, Thomas Agresti. "These letters are a smoking gun that something is not right in Denmark," Agresti said in a Dec. 20 hearing in Pittsburgh.

Will foreclosures spark an arson boom?
Faced with foreclosure on her Russellville, Indiana home, Christina Snyder allegedly concocted the kind of plan that now has insurance executives on edge. According to the county prosecutor, the 31-year-old Snyder allegedly offered to pay a neighbor $5,000 to help her burn down her house and make it look like a botched rape attempt - all in order to claim $80,000 in insurance money. Snyder wanted the neighbor to bind her hands in duct tape, write "whore" on her shirt, and then help her escape once the blaze was set, the prosecutor says. The neighbor demurred, instead reporting Snyder to police. With the national foreclosure rate zooming and the real estate market in a two-year funk,

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Wed 01.09.2008

Gold hits record above $890 as funds enter
Gold hit a historic high for a second straight day today as investment funds ploughed money into the market on the metal’s bullish trend, supported by a weak dollar and strong oil prices. Spot gold surged to a new record of $891,00 an ounce, surpassing the previous record of $881,10 reached yesterday, with the market gaining momentum after the key Japanese gold futures price hit its highest level since March 1984. The debut of gold futures on the Shanghai Futures Exchange helped boost the spot price to the high. Bullish gold prices also pushed up cash platinum to an all-time high of $1554 an ounce, $1 more than the previous record hit on Jan. 4.

Gold Prices Hit Record High Above $880
It's the stuff of western dramas where rugged men went looking for it in the mountains. It's the glittering metal used in fancy jewelry, the highest honors for sports and the bars tucked away in heavily secured safes. And these days, gold's appeal as a safe-haven investment has carried it to record prices. Gold futures surged above $880 Tuesday to their highest level ever, not accounting for inflation, propelled higher by rising oil prices and a weak U.S. dollar. An ounce of gold for February delivery climbed as high as $884 on the New York Mercantile Exchange, topping by almost $10 its previous record of $875 set in 1980, and later settled at $880.30, up $18.30. Market analysts who have watched gold's ascent weren't surprised that gold had reached a new high.

Goldman Sachs sees recession this year
Add Goldman Sachs' economists to the list of forecasters predicting a recession in the U.S. economy this year. Goldman Sachs chief economist Jan Hatzius said he now expects a mild recession lasting two or three quarters this year, with a cumulative drop in gross domestic product of about 0.5%. "The latest data suggest that recession has now arrived, or will very shortly," Hatzius wrote in a note to clients Wednesday. The Goldman economist expects the jobless rate to rise from 5% to 6.25% by the end of the year. The Federal Reserve is likely to cut its overnight lending rate target from 4.25% to 2.5%, Hatzius said. He expects consumer spending to decline for the first time since 1991.

Investment professionals blew it, Poole says
Investment professionals' short-sightedness led them to make fundamental errors that led to the mortgage and credit meltdown, St. Louis Federal Reserve President William Poole said Wednesday. In a speech to financial planners, Poole detailed five key mistakes borrowers and lenders made that have pushed the economy to the brink of recession. In brief remarks on the economy, Poole said he believed the economy would continue to grow this year, avoiding a recession. "The fundamentals of our economy remain strong ... and 2008 looks to be a year of rising growth," he said in his prepared remarks. Poole is seen as an influential member of the Federal Open Market Committee, but does not vote on monetary policy decisions this year. Last year, he voted for all the FOMC's rate cuts.

Retailers may face their weakest December in years
Shoppers rushing at the last minute to purchase Christmas presents or redeeming gift cards after the holiday season were likely not enough to help U.S. retailers cash in on a lackluster December, their largest sales months of the year. U.S. retailers on Thursday are forecast to report a gain of about 1% in December sales at stores open at least a year, compared with a 3.3% gain a year earlier, according to the International Council of Shopping Centers. ICSC lowered its forecast from an original estimate of 1.5% after witnessing "early month softness" in December, said Michael Niemira, its chief economist. A 1% gain would register the industry's weakest December since 2002, Niemira said.

US recession, oil shock and food shortages are biggest risks for 2008
A sharp downturn in the global economy is the most likely and the most serious threat to the world in 2008, according to a report released Wednesday by the World Economic Forum. Fears of a U.S. recession coupled with a sudden spike in oil prices replaced terrorism, pandemic disease outbreaks and short-term disasters resulting from climate change as the issues global busine

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