Stocks lower on data, dollar dive, $82 oil, stalled jobs, "R" word, housing glut/price decline, subprime woes, China threat
By David Bradshaw ~ email ~ links ~ wisdom
Editor, Real Money Perspectives ~ Daily podcast ~ Weekly email
Sept 28, 2007 ~ *latest news*
Stories of interest ~ Special reports
* The Shaking Tower of Debt -Mises
* Understanding $750 gold -Editor
* Fund buying sweeps gold, oil near record -Reuters
* Oil Tops $82 on Supply Concerns, Iran -AP
* Another New Low for Dollar -AP
* New home sales -21.2%, no sign of bottom -MW
* Crouching Dollar, Golden Opportunity! -M&M
* Why worry about a weaker dollar? -NYT
* Fed Cut Leads to Dollar Rout, Potential Panic -MN
* Dollar Falls to Record Against Euro on Confidence, Fed Outlook -BL
* Commodities: Behind the Global Boom -BW
* Fears for global economy propels gold -LT
* Gold may surpass $1,000 in "new cycle," Citigr -NP
* Dollar plummets to parity with loonie -WND
* Central Banks May Sell Gold to Support Dollar -DR
* Gold still lacks broad investor appeal -Reuters
* Gold hits 28-year high on dollar weakness -FT
* Fears of dollar collapse as Saudis take fright -LT
* Crude Oil Could Hit $100 by Year End -CNBC (video)
* Fed bows to Wall St., sacrifices $, $100 oil -CRS
* CLSA predicts record gold run to $3,400 -LT
* Watch CNBC: $1,000 gold
* Gold rush phase II begins -Editor
* The #1 reason gold is rising -Gold101
* GOLD 101 TV RELEASED -BB
* Gold prices rose sharply Friday on fund buying as the dollar plunged to historic lows. Gold closed in NY up $10.60 to $743.10, a gain of 9% this month and up 18% since Jan. 5, 2007. Silver rose $.24 to $13.72 for a gain of 12% in September.
* "Gold scored a 28-year [nominal] high on Friday with fund buyers eyeing a weaker dollar and end-quarter window dressing. Fund buying also supported oil near record highs," reports Reuters.
* "There is the potential to see gold as high as $800. Despite the possibility of some profit-taking, gold looks set to test higher as the dollar remains under pressure and rising energy costs increase inflationary concerns," said James Moore, of TheBullionDesk.com.
* The relentless rise in debt relative to income in most western economies — a direct outcome of central banks' relentless increase in credit and money supply — can be expected to shift public preferences towards inflation. A growing concern about the soundness of the tower of debt the government-controlled money-supply regime has erected has the money price of gold trending upwards," reports Mises.org.
The dollar reached yet another low Friday, its seventh consecutive trading day searching for a new bottom against the euro. The dollar has hit a series of new lows against the euro since the Fed cut interest rates by a half percentage point last week.
"New home sales are down 21.2% in the past year, with no sign of a bottom in the crippled housing market. Sales of new homes dropped 8.3% in August to a seasonally adjusted annual rate of 795,000, the slowest sales since June 2000, the Commerce Department estimated Thursday, " reports MW.
* "U.S. stocks dropped, paring the biggest September advance since 1998, on concern that credit- market losses may worsen after a private group said more Americans are missing mortgage payments. The Dow ended the month up 4.5%," reports Bloomberg.
* Oil prices rose fell below $82 a barrel Friday after refining margins shrank to their smallest in almost 11 months. "Fears of a fundamental supply disruption are driving oil prices," reports AP.
"The fundamentals have not changed, and the buck probably has lower to go — perhaps much lower. There's about a 92% inverse correlation between gold and the dollar," reports Money&Markets.
"Why worry about a weaker dollar? The U.S. imported $2.2 trillion of goods and services in 2006. A sharp drop in the dollar makes those items considerably more expensive — the functional equivalent of a tax hike on consumers. It could also stoke fears of inflation — driving up long-term interest rates and putting more pressure on financial markets and the economy, exacerbating recession risks. History is clear: no nation has ever devalued its way into prosperity," reports NY Times.
"We believe this gold rally is still in its infancy with a ‘toe in the water’ ahead of the upcoming 4Q," according to Raymond James analyst Paul O’Brien. He attributes the gain for gold to the interest rate cut by the Federal Reserve and continued weakness for the greenback reports FP.
"After reaching their highest level since 1980, gold prices may be due for a correction, but that could help feed what many expect to be a long-term boom -- to $800 and then inflation-adjusted highs past $2,000 in the years to come," reports MW.
$730 gold is now one third of the way up toward reaching a true new high.
Gold prices have risen to a 28-year nominal high, but prices must top $2,100 an ounce to exceed the previous 1980 high of $850, after adjusting for nearly three decades of inflation.
Using the official CPI inflation adjuster $730 gold today equates to $291 gold back in 1980. Rather than being near a market top, gold remains the buy of a generation.
"Despite gains, gold is not a mainstream investment yet, because it's seen as volatile and difficult to understand, financial advisers and analysts say," reports Reuters.
"The sub-prime conflagration and a collapse of the dollar could send gold prices to more than $3,400 an ounce within the next three years," Christopher Wood, chief strategist at the broker CLSA told London Times.
The last time gold rose to $730 was in mid-May last year. A rise above that level will bring bullion to its highest since January 1980, when it hit an all-time high of $850 an ounce.
Oil prices fell below $80 a barrel Tuesday after a tropical depression in the Gulf of Mexico dissipated without causing damage to key oil and gas infrastructure.
The Fed cut its benchmark federal funds rate by a half percentage point to 4.75% last week, in an effort to ease the credit crunch.
The FED said the action "was necessary to forestall some of the adverse effects on the broad economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time."
The Fed bowed to pressure from Wall Street to cut rates dramatically and now Main Street must pay the price in the form of higher oil prices, and a falling dollar. The correlation between the dollar's decline and rising oil is striking. Since 2001 the dollar index has fallen 40%, helping to propel oil prices from $15 a barrel to $80 a barrel, a 400% increase," says Craig Smith. (See chart 1)
Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signaling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East," reports The London Telegraph.
Oil tycoon Boone Pickens told CNBC that the price of crude oil could hit $100 a barrel by next year. "The trend is up, demand is up and supply is flat, so it’s got to go on up," said Pickens, CEO of BP Capital.
"The Euro/Dollar is now 1.39 and that will look low in time. Gold will stay locked into its inverse relationship with the dollar. Gold is therefore headed higher as I can see a lower dollar," reports Jim Sinclair.
Interest rate cuts by Fed Chairman Ben Bernanke will spur inflation, cause the U.S. dollar to collapse and help push the world's largest economy into recession, investors Jim Rogers and Marc Faber said to Bloomberg.
"If gold starts to rise quickly, the added demand from the banks to buy gold can exacerbate the rally causing what amounts to a mad dash for the metal. The market will respond with steeply higher prices, pushing gold to $850 by the end of the year," said Kevin Schweitzer, senior vice president with Hudson Securities to Barrons.
"The dollar fell to a record low against the euro following the Federal Reserve cut its benchmark interest rate by a half-percentage point to 4.75 percent, the first reduction since 2003," reports Bloomberg.
"With oil prices headed into uncharted territory, gold will not be far behind -- especially now that the psychological $700-an-ounce ceiling has been lifted," says Swiss America CEO Craig Smith.
"While the world's analysts debate the complexities of gold... Gold is simply continuing its role as the "anti-dollar. As the U.S. dollar scrapes new lows, so gold goes to new highs," reports DailyWealth.
A sharp drop in foreign holdings of U.S. Treasury bonds has raised concerns that China is quietly withdrawing its funds from the U.S., leaving the dollar increasingly vulnerable. Foreign central banks have cut their stash of Treasuries by $48bn since late July, with falls of $32bn in the last two weeks alone," reports London Telegraph.
"The primary catalyst for the next leg up in gold is the dollar," said Matt Zeman, a trader at LaSalle Futures Group in Chicago. "In light of a potential interest-rate cut, people are expecting the dollar to head lower, and that's a reason to buy gold," reports Bloomberg.
The U.S. housing market showed signs of major disruption in July, with a 12.2% monthly decline in contract signings on existing homes -- the largest drop since the index started in 2001, the National Association of Realtors.
"Woes in the housing market will drag U.S. gross domestic product for 2007 to a modest 2 percent growth, compared with 3.3 percent last year," the U.N. Conference on Trade and Development said in its flagship annual report.
Fed Chairman Ben Bernanke recently pledged that the central bank will "act as needed" to keep the credit crisis that has unhinged Wall Street from hurting the national economy," reports AP.
"It is not the responsibility of the Federal Reserve... to protect lenders and investors from the consequences of their financial decisions," Ben Bernanke said. Bernanke spoke as President George W. Bush unveiled measures his administration plans to alleviate the crisis among 80,000 homeowners unable to pay their loans, reports Bloomberg.
"The White House is proposing to expand the role of the federal government to stem a wave of mortgage defaults, President Bush said Friday, unveiling a series of steps including allowing refinancing into government-insured mortgages," reports MW.
Gross domestic product rose at a 4 percent annual rate in the second quarter, the Commerce Department said in Washington, up from an initial estimate of 3.4 percent, reported Bloomberg.
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Recent stories of interest...
* Fed Powerless to Stop Recession -MN
* A Secret Time Bomb Made of Gold -Barrons
* $200 oil no longer absurd -24/7
* Greenspan: euro replace dollar -AP
* $80 oil on big inventory drop -CNN
* Four-digit gold ahead? -RMP
* Dollar Hits New All Time Low Against Euro -AP
* Navy SEAL's Three-Prong Approach to Win Iraq War -IIME
* Recession Odds Rising -WSJ (video)
* Greenspan in trouble for double bubbles -NYP
* Realtors slash forecasts for this year and next -MW
* Gold Regains Its Luster -TS
* Is China quietly dumping US Treasuries? -LT
* Greenspan Says Bubble As Bad as 1998 -MN
* How to ride the boom-panic cycle -MSN
* Gold at 16-Month High on Demand for Haven -Bloomberg
* Gold hits 2007 high on fund buying, strong demand -AFX
* U.S. Economy Slow to 2% -AP
* Markets Brace for Seismic September -NYP
* Financial crises: History lessons -BBC
* 10 Reasons To Own Gold -MV
* Bernanke Says Fed Will Do What's Needed -AP
* Stocks fall after Fed speaks -MW
* Glut of homes hits 16-year high -CNN
* Debt climbs, home values fall -FS
* Is it 1987 all over again? -Reuters
* UK: Personal Debt Exceeds GDP -LT
* Time to Buy Gold -UBS on CNBC (video)
* Possibility of terrorism adds to financial worries -WND
* Capitalism not to blame for debacle -LT
* Capital One shutters firm; to cut 1900 jobs -ND
* Economists: Fed must cut rates by Sept. 18 -MW
* Central banks stealing from the average citizen -MSN
* Look Out. This Crunch Is Serious -WP
* Fed cuts rate on "downside risk" -AP
* Wall Street Manages Late Turnaround -MN
* Only `Calamity' Would Justify Rate Cut -BL
* Investors seek refuge as credit worries snowball -Reuters
* Iran Guards may be labeled terrorists -WP
* Learn from the fall of Rome, US comptroller warns -FT
* Home Sales Slowest in 4 Years -AP
* BIS warns of Great Depression -LT
ABOUT THE EDITOR
David M. Bradshaw is Editor of Real Money Perspectives, a daily financial/market news digest. In 2001, he published REDISCOVERING GOLD IN THE 21ST CENTURY and has been an economic commentator since 1987, as producer/co-host of "World Economic Perspectives" radio show. In 2005, he released a new CD, "WHAT'S YOUR WORLDVIEW?" from his 24-hour series, "THE BIG PICTURE." MORE at MIF... Personal note: Youngest daughter Braida Zoe (age 3) swims, loves animals, music, dancing, reading, hiking, trampolining and collecting things. Shown with mom, Micki, and dad (me).
DISCLAIMER: All of the provided information is believed to be accurate, however errors are possible. The opinions in the Commentary section do not necessarily reflect the opinions of Swiss America. Past performance of any investment is no guarantee of future performance. All investments have risk.