Dow slips into bear market
Commodities: best 6 mo. in 50 years
By David Bradshaw ~ links ~ offers ~ oilsolution ~ wisdom
Editor, Real Money Perspectives ~ weekly email ~ daily email
June 30, 2008 ~ *breaking* ~ features ~ (podcast)
* Monday gold prices held near $925/oz. on a stronger dollar and $140 oil prices. Gold closed in NY down $1.90 to $924.90/oz., silver fell $.08 to $17.40/oz.
* "Commodities have achieved their best first-half performance in more than 50 years, while equities and fixed-rate bonds had a miserable six months," reports FT.
* "We believe that gold is capable of doubling or tripling from current levels over the long term. Secular and seasonal factors favor gold during the second half of this year," says Citigroup metals analysts John H. Hill and Graham Wark reports IBH.
* "Crude oil prices surged to a record high above $143 a barrel on Monday as tensions simmered between Israel and Iran over Tehran's nuclear program and the dollar hit three-week lows against the euro then closed lower at $140," reports Reuters.
* "Stocks closed mixed in volatile trade Monday, the last trading session of the month, as oil prices eased back from $143 and fund managers bought high-performing stocks, along with defensive issues, to embellish their portfolios on the last day of the second quarter," reports MW.
* The Dow quietly slipped into bear market territory, falling about 20% from the October 2007 high of 14,200 to 11,350 on Monday. Meanwhile, gold prices are now up 43% year-over-year, with 11% growth so far in 2008.
* "If there were any confrontation over Iran's nuclear program, Iran would try to hurt Western economies by targeting oil. Iran's Major-General Mohammad Ali Jafari warned, 'Iran will definitely act to impose control on the Persian Gulf and Strait of Hormuz,' through which 17 million barrels of oil pass each day," reports SMH.
* "Israel has 12 months in which to destroy Iran's nuclear program or risk coming under nuclear attack itself," a former head of Mossad has warned. He also hinted that Israel might have to act sooner if Barack Obama wins the presidential election," reports Telegraph.
* "The US dollar is now standing on the edge of the precipice. In fact, it is already peering over the edge as we can see in the US Dollar Index chart. Get ready for whatever the central banks throw at us by their mismanagement of national currencies. Own gold and silver," writes James Turk.
* "Avoid the dollar at all costs. The best investments in 2008 are commodities and natural resources. Agricultural prices have much higher to go over the next decade. We have a shortage of everything, including seeds," said Jim Rogers, chairman of Rogers Holdings to Bloomberg.
* "The dollar recovered slightly on Monday from a slide last week after renewed worries about the U.S. economy sent the Dow skidding to a 21-month low. A fresh all-time high for U.S. crude also kept investors worried that rising energy costs will hurt global economic growth," reports Reuters.
* "In his latest book, "The New Paradigm for Financial Markets: The Credit Crash of 2008 and What It Means," George Soros makes the case that we are witnessing the end of a 25-year superbubble. I certainly agree with his observation and would note that the time frame of this superbubble roughly approximates the career of Alan Greenspan, who in my opinion was responsible for its creation -- and the enormous pain caused by its collapse," reports MSN.
"The specter of inflation and a bear market in equities is a powerful formula to rekindle investor interest in gold, which looks to be staging a catch-up rally after lagging other commodities in 2008," reports Reuters.
"Financial flows were leaving the equity markets breaking below their support levels," said analysts at Petromatrix in Switzerland. "When money has nowhere to go, it is parked in commodities as it is one of the few investment instruments that actually rises the more money you pour into it."
"Barclays Capital has advised clients to batten down the hatches for a worldwide financial storm, warning that the Federal Reserve has allowed the inflation genie out of the bottle and let its credibility fall 'below zero'," reports Telegraph.
"The Federal Reserve should let the big investment banks go bust if they made unwise investment decisions while investors should take refuge into gold as the central bank has been 'misleading' the markets, Marc Faber, editor and publisher of "The Gloom, Boom & Doom Report," told "Worldwide Exchange."
"The key to keeping your money safe is to discern the changing seasons in life and in the economy before it's too late. By swallowing the popular, but misguided 'debt-based' worldview we fuel the pernicious credit cycle which leads to both booms and busts!" (special report).
"Gold is telling the world inflation is back. In recent years investors relied on real estate to serve as their primary inflation hedge, but now that housing is in decline, they're turning instead to precious metals," said Swiss America CEO Craig R. Smith
* "Oil has become the 'anti-dollar' of modern times. Oil is now serving as the source of global monetary discipline that gold used to perform. $137 oil means that the reign of the dollar is coming to a close," reports W&G.
"The Dow Jones Industrial Average to its worst June since the Great Depression, as record oil prices, credit-market writedowns and a slowing economy threatened to extend a yearlong profit slump," reports Bloomberg.
"General Motors, the largest U.S. automaker, was cut to 'sell' at Goldman, Sachs & Co., saying the shares will continue to slide on a worsening sales outlook. GM fell as much as 11 percent," reports Bloomberg.
"Citigroup shares fell 5.5%, their lowest level in nearly a decade after a Goldman Sachs analyst said investors should sell the largest U.S. bank's stock short as losses mount from troubled debt," reports Reuters.
"Be prepared for another 15% correction in stocks taking the Dow below 10,000," warns Swiss America CEO Craig R. Smith.
In July 2007 Mr. Smith warned investors "Dow 14,000 was not a milestone, but rather a mirage concocted of smoke and mirrors."
Recent Market News...
"Oil rallied above $139 a barrel Thursday following reports that Libya may cut production and an OPEC official said crude could hit $170 a barrel this summer. Meanwhile, the dollar's decline added further upward price pressure on oil," reports CNN.
The Federal Reserve held interest rates steady at 2% as expected, but in Wednesday's policy statement said the upside risks to inflation have increased. "Inflation expectations remain well contained, but pressures on inflation have stayed elevated."
"Gold will take its short-term lumps this week and will then start its run north to the $1,500 - $2,000 range before the year is up. Gold is forming a beautiful triangle pattern from which it will probably break out by July 4th, or shortly thereafter," reports MarketOracle.
"This month's Consumer Confidence Index is the fifth lowest reading ever. Consumers' assessment of present-day conditions continues to grow more negative and suggests the economy remains stuck in low gear," reports CCB.
"The U.S. Treasury Department this week answered GATA's request for access to any records of the department involving gold swaps. The department's answer reveals that Treasury has at least contemplated gold swaps... The Fed's answer confirmed that the Fed does have secrets about the U.S. gold reserve," reports GATA.
Gold prices today are cheap compared to oil, given a historical ratio of 10-15 to 1. The oil-to-gold ratio is presently 6.5 to 1. Investors should expect oil prices to ease back below $100 a barrel or for gold prices to rise to between $1,300/oz. and $1,950/oz. based on $130 oil prices. (chart)
"Treasury Secretary Paulson plans to call for the Federal Reserve to be given new, explicit powers to intervene in the workings of Wall Street firms to protect the financial system," reports WPost.
"Regulators threaten crackdown on the so-called shadow banking system. A network of lenders, brokers and opaque financing vehicles outside traditional banking that ballooned during the bull market now is under siege. Big brokerage firms like Goldman Sachs may have the most to lose from stricter regulation," reports MW.
"You could easily see gold prices rise not to $1,000 an ounce, but to $5,000 an ounce or beyond over the next several years as inflation psychology becomes more embedded and people become desperate to have a source of value," said Christopher Wyke, commodities manager at Schroder Investment Mgmt Ltd., which oversees $277B in assets, reports Bloomberg.
"The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks. "A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist to Telegraph.
"U.S. consumers and businesses alike are facing a massive squeeze, caught between rising prices for food and fuel and an inability to command better wages or maintain profit margins," reports Reuters.
"U.S. producer prices soared 1.4% in May at their fastest pace in six months, a government report showed, led by higher energy and food prices while pressures accelerated in the production pipeline, a sign inflation remains a threat," reports WSJ.
"With gasoline topping $4 a gallon, President Bush urged Congress on Wednesday to lift its long-standing ban on offshore oil and gas drilling, saying the United States needs to increase its energy production," reports AP.
"Gold is in a 20-year cycle that began in 2001. My research indicates gold will top near $2,800/oz. and may rise above $5,000/oz. which could prompt a switch back to the gold standard for the U.S.," said Mark Leibovit, Chief Market Strategist for VRTrader.com to MSN's MoneyShow. (Mark is #1 market cycle timer since 1997).
U.S. consumer prices rose .6% in May, the fastest pace in six months on surging energy and commodity prices the government reported last Friday.
The official CPI has risen 4.2% in the last year, while so-called "core" inflation is up only 2.3%. (Real inflation: 7%+).
Meanwhile, U.S. consumer sentiment in June dropped fell to 56.7 from 59.8 in May, the lowest level in three decades as worries about inflation and declining home values grew.
"Central banks across much of Asia, Latin America, and Eastern Europe will soon have to jam on the breaks or risk a serious crisis as inflation spirals into the danger zone. 'The inflation genie is out of the bottle: easy money is the culprit,' said Joachim Fels, chief economist at Morgan Stanley," reports Telegraph.
"The Saudis have to increase by north of 1 million barrels per day (in order to have an impact on prices), and the market doesn't think they have it," said James Cordier, president of Liberty Trading Group and OptionSellers.com," reports AP.
"The oil price surge to almost $140 per barrel is not just about geopolitical risks -- the supply situation remains tight," said IEA reports AFP.
"The price of crude oil may nearly double by 2009, taking gas prices with it. 'We think oil will reach $250/bbl in the foreseeable future,' said Alexei Miller, CEO of Gazprom, the supplier of a quarter of Europe's natural gas," reports CNBC.
"Morgan Stanley said oil prices may reach $150 within a month because of accelerating Asian consumption," reports Bloomberg.
"Gold market analysts seem almost unanimous that the second half of the year will see a rising gold price trend again. In the meantime, the downside risk is probably limited and probably the majority of gold investors will be hanging in for better times ahead," reports Mineweb.
"The notional value of all outstanding derivatives now totals approximately $1.144 QUADRILLION. Monetary inflation proceeds price inflation. Nothing can stop the juggernaut of price inflation heading towards every nation like a runaway freight train down a mountain," reports JSMineset.
"If Iran closes the Strait of Hormuz we will likely be looking at $200 oil overnight. In 1979/80 gold surged to $850/oz or $2200 when adjusted for inflation after Iran threatened to close this strategic Straight that has 35% of the world's oil supply running through it daily," said Swiss America CEO Craig R. Smith.
Gold IRA's Cut Taxes!
Four-digit gold ahead
"Gold is poised to climb back above $1,000 per ounce this year, as inflationary pressures and financial turmoil prompt investors to seek shelter in the metal used as a store of value," reports Reuters.
"Japan's largest bourse plans to launch the nation's first bullion-backed, gold exchange-traded fund on June 30, in a bid to draw more investors and help enhance Tokyo as a financial center," report Reuters.
"More gold will be purchased between $1000 and $1500 than was purchased between $500 and $1000. Investors do not buy low and sell high, most wait until things are well underway and then gain the confidence to invest accordingly," reports David Morgan at Silver-investor.com.
"The bull market in commodities will last for another decade," says Ned Goodman of Dundee Wealth. The outlook for gold is a steady annual increase of $100 an ounce indefinitely because of supply-demand factors.
"In what is being widely seen as a major step toward globalizing China's gold market, HSBC last week became the first overseas bank to start trading gold," reports ChinaDaily.
"Fund managers are switching to cash and commodities such as gold for asset allocation after profits on managed funds lost a median of 7.9% in the first quarter, Standard & Poor's Fund Services said," reports Bloomberg.
"Ongoing confusion about the current state of our markets tells me one simple thing – that I should hang on to my gold. In uncertain environments, what we all need most is insurance. And gold is the best financial insurance you can get over the long term," says Merryn Somerset Webb editor of Moneyweek.
"The U.S. Federal Reserve is hoping tough talk on inflation will do the job of moderating recent price increases, giving it room to avoid raising interest rates as the economy remains fragile. The problem is that investors may try to determine whether the central bank is bluffing," reports Reuters.
"Despite the recent rebound of the greenback, there is not a rosy picture for shoring up of the currency. The Bush administration has limited options for propping up the dollar amid rising unemployment, slumping consumer confidence and the worst housing market in decades," reports ChinaNews.
"Talk is always cheap when it comes to government policy on the dollar, but with Bush, Paulson and Bernanke all chattering on the issue, currency speculators at least have to be prepared that the White House could actually be serious," reports LATimes.
"U.S. households lost $1.7 trillion in wealth (11.7%) during the first quarter, as the collapse in the housing market and a weak stock market took their toll, the Federal Reserve reported to MW.
"CEOs of some major consumer-products companies said they had to start to recoup higher energy costs. "Through the retailer, they have to pass on to consumers their higher costs. The price increases are ranging from 4 to 6 to 10 percent," says Ali Dibadj, a securities analyst at Sanford C. Bernstein and Co. to CSMon.
"Gold is cheap. The real price of gold is a little higher than its average since 1970, but for many years it was below the average. The $850/oz. high of 1980, translated into today’s money, would be $2,300," reports Dr. Martin Murenbeeld at ResInv.
Far from being an oil crisis, it is not even a dollar crisis. It is a gold crisis. It is preying on American and other banks, punishing them for their failure to hedge paper assets with gold," says professor A. E. Fekete, reports Goldseek.
A U.S. government probe into whether speculators manipulated oil prices up to more than $135 a barrel is a 'waste of time,' said oil tycone Boone Pickens to Bloomberg.
"U.S. Treasury Secretary Henry Paulson said there was no quick fix to high oil prices, which he called an issue of supply and demand. Inflation in the Gulf is "significant" but he suggested that countries pegging their currencies to the weak dollar was not the only reason for it," reports AP.
"Inflation erased gains in disposable personal income in April, while U.S. consumer spending was flat after adjusting for higher prices, the government estimated Friday. Meanwhile, U.S. consumer sentiment dropped in May to the lowest level in 28 years as worries about inflation grew," reports MW.
"Inflation concerns in particular are keeping the gold market underpinned. We've seen short-term price movements dominated by oil and currency movements and we expect that to continue," said Barclays Capital analyst Suki Copper to AFX.
"We have predicted the Fed will discover they are locked into a very large box that will be very difficult to escape.The stock market has resumed the major bear market trend... when the market and economy continue unraveling, the Fed will find it very difficult to turn things around," reports Comstock.
"Unsurprisingly the latest media speculation is that gold, oil and other commodities have now reached a 'top' in 2008. The fundamentals of this secular bull market in commodities indicates recent market declines are both healthy and further proof that metals and energy remain the buy of a generation," said Swiss America CEO Craig Smith. Here's why.
"Nearly every natural resource under the sun is about to enter the second, most powerful phase of their bull markets, eventually reaching dizzying heights that make today's record prices seem tame by comparison," reports Money&Markets.
"By rapidly increasing the money supply and thereby decreasing the value of the dollar, the Federal Reserve is solely responsible for the increase in the oil price," writes Paul van Eeden, president of Cranberry Capital," reports Barrons.
"At $130 a barrel, the price has doubled in around a year, causing misery for motorists and businesses. However, George Soros warned that the oil bubble would not burst until both the US and Britain were in recession," reports Telegraph.
Investor and fund speculation in the energy markets has grown twenty-fold, from $13b to $260b over the last five years, says CNBC. Speculators are betting there will be no substantial increase of supply from domestic drilling or new refineries built.
"It is again time We the People offer Capitol Hill a clear solution on exactly how to ease the pain at the pump – short term and long term," says Swiss America CEO and co-author of Black Gold Stranglehold, Craig R. Smith.
"If government wants to bring the price of fuel down they should fast track legislation to open up our domestic sources of oil such as ANWR, the Great Basin, the Outer Continental Shelf, and the deep waters of the gulf," Swiss America CEO Craig R. Smith told WND.
"Our problem in America gets solved when we aggressively go for domestic exploration. Our problem in America gets solved if we expand our refining capacity, promote nuclear energy and continue our strategy for the advancing of alternative energies as well as conservation," said President Bush.
"We would not be surprised to see gold double from current levels as the global policy prescriptions for the credit crunch remain powerfully and uniformly re-flationary," said John Hill, Citigroup metals analyst.
"Demand for gold exchange-traded funds doubled from the first quarter of last year. "Continuing instability in the equities markets, ongoing fears over the dollar and rising inflation and increased understanding of gold's investment attributes helped spur demand for ETFs," said GFMS.
"You're seeing some new buying come back into gold. The dollar has stopped its immediate-term rally. Gold is still $200 too cheap, given where oil is," said Frank McGhee, head metals trader at Integrated Brokerage in Chicago to Bloomberg
Gas prices are actually cheaper today than they were forty years ago in relation to silver prices. A gallon of gas cost three 90% silver dimes back in 1964, today it costs just two 90% silver dimes, which equates to about $3.40 a gallon with silver prices near $17/oz.
"Goldman Sachs predicts that oil prices could rise to $150 to $200 within two years," reports AP.
"By owning gold instead of US dollars, you can today purchase basically the same amount of crude oil as at any other time since 1945," reports James Turk.
"Today it takes about 10 U.S. dollars to pay for a gallon of gas in Europe. Gas is not only in a different currency that is doing much better than our dollar, it is also sold by the liter," reports Londoner.
"Rampant inflation is starting to damage business confidence. "The latest data point to a potential downturn in Brazil, China, and India," said the OECD, the club of rich nations," reports London Telegraph.
"The Federal Reserve does not have the tools to deal with the U.S. housing crisis and rapidly rising consumer prices, leaving it to lawmakers to avert a severe recession, said Pimco's Mohamed El-Erian," reports Reuters.
"Food inflation could double this year, lifted by the rising costs of fuel, corn and soybeans, some analysts predict. Food inflation hit 4 percent last year, up from 2.4 percent in 2006," reports AP.
"Former Fed Chairman Paul Volcker warned the U.S. could face a 1970s-style period of skyrocketing inflation if investors lose confidence in the buying power of the U.S. dollar," reports CNBC.
"We who eat and drive suspect government stats are rotten at the core. Worse yet, the real world rate of inflation is likely TWICE as high as reported," said Swiss America CEO Craig R. Smith.
"Inflationary pressure is building globally, and consumers' expectations of future price rises are growing in a way reminiscent of the 1970s, pushed by rising commodity and energy prices and at least partly underwritten by U.S. interest rates adjusted to rescue a country experiencing a popping debt bubble," reports Reuters.
"Gold is a 'green' metal for the 21st century. The chemical properties of gold are important for the future...these include catalysts for pollution control and energy generation, along with use of gold compounds and nanotechnology for medical diagnostics and treatment," reports Mineweb.
"Turmoil in financial markets has eased somewhat, but the situation is still "far from normal," Federal Reserve Chairman Ben Bernanke said," reports AP.
"U.S. consumers are juggling plastic to put off their day of reckoning. The Fed survey said credit card debt had jumped 6.7% in the first quarter to $957bn. "My guess is that many Americans continue to run up massive credit card debt because they have little intention of paying it off," said Peter Schiff at Euro Pacific Capital to London Telegraph.
"Only a month ago the dollar slumped to an all-time low against the euro. Could ‘the rope slip’ and the world's pivotal currency still go into freefall? A plummeting US currency would cause chaos globally, as central banks sought to protect the value of their reserves,” reports London Telegraph.
"The dollar is in a major bear market, and is losing purchasing power day after day because of debasement and inflation. Continue to avoid it. Hold gold and/or silver instead, which remain in clear uptrends," reports James Turk at Goldmoney.
"The great strength of gold throughout history has not been that you make money by holding it, but rather you do not lose. That ought to remain its best credential," says Timothy Green, International gold expert.
"We've seen some positive signs from the ETFs, this is helping gold. Our view as a bank is that economic conditions are likely to deteriorate. Some money will come out of equities and go back into gold," said Dan Smith, a metals analyst at Standard Chartered to Bloomberg.
"Gold is in a 'win-win' situation. If the Fed is successful at turning the U.S. economy and credit crisis around, it will only be because it flooded the system with hundreds of billions of paper dollars. If not, the plunging dollar would cause investors to flock to gold sending prices above $2,270 an ounce," reports Money&Markets.
"The House passed legislation recently to allow for the minting of pennies made primarily of steel but coated with a copper-colored dye so they appear similar. It also would require the production of 5-cent coins made primarily of steel, with a coating of nickel," reports CQpolitics.
"Israel now believes Iran will master centrifuge technology and be able to begin enriching uranium on a military scale this year. The nuclear ambitions of Iran and North Korea threaten to set in motion a domino effect that will be difficult to contain," reports The Jerusalem Post.
"Iran's standoff with the West over its nuclear program added geopolitical concerns and fundamental tightness that sent crude oil prices to new highs," reports Reuters.
"The price of aluminum, gold, copper and platinum will keep climbing as the lights go out in the world's biggest mines following Chile's worst drought in five decades and power rationing from South Africa to China," reports Bloomberg.
"Gold’s downturn and the corresponding easing of worries about the financial system are temporary. Events always trump psychology at some point. First we will see investors return to gold – and then we’ll see newcomers fleeing toward it," reports DailyReckoning.
"JPMorgan Chase & Co does not expect the U.S. financial crisis to end soon and will remain very cautious... we are not done with the crisis for a long time," reports Reuters.
"The twilight of irredeemable debt is upon us. The sign is that banks are reluctant to take the promissory notes of one another. The way out is to open the U.S. Mint to gold and silver," reports ATimes.
"Overall I think that the U.S. continues to follow policies that will make the dollar weaken against other major currencies... I feel no need to hedge purchases of multinational companies that earn profits in other currencies, " said billionaire Warren Buffett to CNN.
"Gulf states are considering dropping their pegs to the dollar after the U.S. currency's decline stoked inflation across the region, Kuwaiti Finance Minister Mustafa al-Shimali said to Bloomberg.
"The recent pullback in gold will produce the same result as the previous five major corrections since 2001; a great buying opportunity. If you haven't participated in the greatest gold bull ever, it is not too late," said Swiss America CEO Craig R. Smith.
"Gold will keep its luster amid uncertainty," says South African precious metals specialist Markus Bachmann."The fundamental laws of supply and demand as well as gold's natural role as an inflation hedge are major factors," reports Citywire.
"The Fed opened up the old playbook and cut rates aggressively when subprime loans blew up. This cemented higher inflation into place, crushed the dollar, pushed commodity prices up sharply. The answer is for the Fed to lift rates somewhere north of 5%. Tax-rate reductions and interest-rate hikes cured the world of its ills in the early 1980s. They can do so again," reports WSJ.
"The bruised economy limped through the first quarter of this year at only 0.6 percent as housing and credit problems forced people and businesses alike to hunker down," reports AP.
Conflict Securities Advisory Group and Overlap Inc. officially launched terrorfreecalculator.com on Wednesday, a new website dedicated to equipping investors to determine whether their mutual funds invest in companies that do business in countries that sponsor terror, reports WND.
* "The surprise since 9/11 is that more money has not flowed into terror-free investing considering that 'socially responsible' and 'green' funds have prospered in recent years... it is a nonviolent way for Americans to confront terrorism and maybe even profit from the fight," reports TIME.
* "In state capitals all across America, the movement to divest public funds from shares of companies that choose to do business with state sponsors of terrorism continues to make major headway," reports HumEvents.
“Swiss America is a proud sponsor of terrorfreecalculator.com which is committed to propelling this vital message out to millions of concerned investors,” said Swiss America CEO Craig R. Smith.