Capital Gold Group Report: Eve of Destruction: How the Financial Crisis Was Built Into the System

by Robert Kiyosaki, Author of ‘Why the Rich Get Richer’ and ‘Rich Dad, Poor Dad’

Posted on Monday, November 24, 2008, 12:00AM

How did we get into the current financial mess? Great question.

Turmoil in the Making

In 1910, seven men held a secret meeting on Jekyll Island off the coast of Georgia. It’s estimated that those seven men represented one-sixth of the world’s wealth. Six were Americans representing J.P. Morgan, John D. Rockefeller, and the U.S. government. One was a European representing the Rothschilds and Warburgs.

In 1913, the U.S. Federal Reserve Bank was created as a direct result of that secret meeting. Interestingly, the U.S. Federal Reserve Bank isn’t federal, there are no reserves, and it’s not a bank. Those seven men, some American and some European, created this new entity, commonly referred to as the Fed, to take control of the banking system and the money supply of the United States.

In 1944, a meeting in Bretton Woods, N.H., led to the creation of the International Monetary Fund and the World Bank. While the stated purposes for the two new organizations initially sounded admirable, the IMF and the World Bank were created to do to the world what the Federal Reserve Bank does to the United States.

In 1971, President Richard Nixon signed an executive order declaring that the United States no longer had to redeem its paper dollars for gold. With that, the first phase of the takeover of the world banking system and money supply was complete.

In 2008, the world is in economic turmoil. The rich are getting richer, but most people are becoming poorer. Much of this turmoil is directly related to those meetings that took place decades ago. In other words, much of this turmoil is by design.

Power and Domination

Some people say these events are part of a grand conspiracy, and that might well be. Some people say they represent the struggle between capitalists, communists and socialists, and that might be, too.

I personally don’t participate in the debate over a possible global conspiracy; it’s a waste of time. To me, the wider struggle is for power and domination. And while this struggle has done a lot of good — and a lot of bad — I just want to know how to avoid becoming its victim. I see no reason to be a mouse trying to stop a herd of elephants from fighting.

Currently, many people are suffering due to high oil price, the slowdown in the economy, loss of jobs, declines in home values, increased bankruptcies and businesses closings, savings being wiped out, the plummeting stock market, and rising inflation. These realities are all direct results of this financial power struggle, and millions of people are its victims today.

An Extreme Example

I was in South Africa in July of this year. During my television and radio interviews there, I was often asked my opinion on the world economy. Speaking bluntly, I said that South Africans had a better opportunity of comprehending the global turmoil because they’re neighbors to Zimbabwe, a country run by Robert Mugabe.

In my interviews, I said, “What Mugabe has done to Zimbabwe, the Federal Reserve Bank and the IMF are doing to the world.” Obviously, my statements disturbed many of the journalists. I did my best to comfort them and assure them I was not an anarchist. I explained, as best I could, that Zimbabwe was an extreme example of an out of control power struggle.

After they were assured I was only using Zimbabwe to illustrate my point, I said, “If you want to understand the world economy, take a refugee from Zimbabwe to lunch.” I advised them to ask the refugee these questions:

1. How fast did the economy turn?

2. When did you know that you were in financial trouble?

3. When did you finally decide to leave Zimbabwe?

4. If you could do things differently, what would you have done?

Three Approaches to a Crumbling Economy

I spoke to three young couples from Zimbabwe while I was in South Africa. Two couples were recent refugees now living in South Africa, and one couple still lives in Zimbabwe. All three couples had interesting stories to tell.

One couple said that they would have quit their jobs earlier. Instead, they hung on, hoping the economy would change. Then, virtually overnight, the value of the Zimbabwean dollar dropped and inflation went through the roof. Even though they received pay raises, the couple couldn’t survive and soon depleted their savings. They left Zimbabwe by car with almost nothing. If they could’ve done something differently, they told me, they would have started a business in Zimbabwe and began exporting products to South Africa, so that they would have had South African currency and a bank account there before they fled.

The second couple that fled the country said they saved money and paid off their house and other debts even as the Zimbabwean dollar fell in value. Looking back, they say they would’ve saved nothing and gotten deeply in debt in Zimbabwe, allowing them to pay off their debt with the cheaper dollars. Instead, they fled after they lost their jobs, leaving behind their house and owning $200,000 in nearly worthless Zimbabwean dollars.

The third couple still lives in Zimbabwe. When they saw the writing on the wall, they set up a business in South Africa and, with the profits, began acquiring tangible assets in Zimbabwe. Often, they’ll buy an asset in Zimbabwe and pay the seller in South African currency. They believe that once Mugabe is gone and order is restored, they’ll be in a strong financial position.

Many Problems, Few Solutions

There are three major problems with the events of 1913, 1944, and 1971. The first is that the Fed, the World Bank, and the IMF are allowed to create money out of nothing. This is the primary cause of global inflation. Global inflation devalues our work and our savings by raising the prices of necessities.

For example, when gas prices soared, many people said that the price of oil was going up. In reality, the main cause of the high price of oil is the decreasing value of the dollar. The Fed, the World Bank, and the IMF, like Zimbabwe, are mass-producing funny money, thereby increasing prices and devaluing our quality of life.

The second problem is that our economic crises are getting bigger. In the 1970s, the Fed faced and solved million-dollar crises. In the 1980s, it was billion-dollar crises. Today, we have trillion-dollar crises. Unfortunately, these bigger crises mean more funny money entering the system.

Apocalypse Soon

The third problem is that in 1913, the Fed only protected the large commercial banks such as Bank of America. After 1944, the Fed, the World Bank, and the IMF began bailing out Third World nations such as Tanzania and Mexico. Then, in 2008, the Fed began bailing out investment banks such as Bear Sterns, and its role in the Fannie Mae and Freddie Mac debacle is well known. By 2020, the biggest of bailout of all will probably occur: Social Security and Medicare, which will cost at least a $100 trillion.

Even if we find more oil and produce more food, prices will continue to rise because the value of the dollar will continue to decline. The dollar has lost over 90 percent of its value since the Fed was created. The U.S. dollar will continue to decline because of those seven men on Jekyll Island in 1910.

Granted, the funny-money system has done a lot of good — it has improved the world and made a lot of people rich. But it’s also done a lot of bad. I believe somewhere between today and 2020, the system will break. We’re on the eve of financial destruction, and that’s why it’s in gold I trust. I’d rather be a victor than a victim.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Capital Gold Group Report: Fed bets $800 billion on consumers

Central bank and Treasury announce a massive plan to jumpstart lending.

By Chris Isidore, CNNMoney.com senior writer

Last Updated: November 25, 2008: 12:23 PM ET

NEW YORK (CNNMoney.com) — The Federal Reserve and Treasury Department on Tuesday unveiled hundreds of billions more in money they are pumping into the struggling U.S. economy, trying to jumpstart lending by the nation’s banks for mortgages and consumer debt.

Together, the programs from the Federal Reserve and the New York Fed aim to dump $800 billion in additional funds into the struggling U.S. economy, more than Congress approved in October for a bailout of the nation’s banks and Wall Street firms.

By putting that money in the hands of holders of securities backed by consumer and mortgage loans, the government hopes more money will flow to consumers than has occured so far in previous bailout plans.

But the program to make $200 billion available for a range of consumer loans – including credit cards and car loans – likely won’t be up and running until February. Government officials briefing reporters couldn’t say how much additional credit the program might make available to consumers in time to feed purchases for the holiday shopping season.

That $200 billion aimed at spurring consumer borrowing will come from the Federal Reserve Bank of New York, which will lend that money to holders of securities backed by consumer debt, such as credit card debt.

The statement from Treasury said that while roughly $240 billion of those kinds of securities were issued by the nation’s financial institutions in 2007, the issuance of those securities essentially came to a halt in October.

“This lack of affordable consumer credit undermines consumer spending and, as a result, weakens our economy,” said Treasury Secretary Henry Paulson at a press conference.

Paulson described the $200 billion program as a first step, one that could be expanded later to include different kinds of debt, including assets backed by commercial real estate mortgages and business debt.

He said the fact that the Fed and Treasury had to work together to get an additional $800 billion into the system is not a sign that the $700 billion bailout of banks and Wall Street firms passed by Congress last month has been a failure. He said that, without that program, it is likely that the financial markets would be in even worse shape than they are today.

“I wish, and I know everybody wishes, that one piece of legislation, and then magically the credit markets would unfreeze,” he said. “That’s not the type of situation we’re dealing with.”

The fact that the New York Fed is taking the lead on the new program aimed at increasing consumer lending means that the man nominated by President-elect Obama to succeed Paulson, New York Fed President Timothy Geithner, played a central role in this new effort.

Paulson said this is not a sign that the Bush administration is letting the new administration call the shots on new efforts to revive a struggling economy.

“We’re continuing to work everyday,” he said. “I am going to run right to the end (of my term).”

Treasury will allocate $20 billion to back that lending by the New York Fed, an attempt to cover any losses that the New York Fed might suffer as a part of the program.

But the $200 billion under this program, and an additional $600 billion being made available to increase mortgage lending, will come from an increase in reserves by the Fed. Essentially, the central bank is creating more money to cover the programs announced Tuesday.

The Federal Reserve, the nation’s central bank, announced it will purchase up to $500 billion in mortgage backed securities that have been backed by Fannie Mae (FNM, Fortune 500), Freddie Mac (FRE, Fortune 500) and Ginnie Mae, the three government-sponsored mortgage finance firms set up to promote home ownership. It will also buy another $100 billion in direct debt issued by those firms.

“This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally,” said the statement from the Fed.

Unlike shareholder-owned Fannie and Freddie, which were placed under conservatorship by the federal government in September because of mounting losses on the trillions of mortgages they backed or owned, Ginnie Mae has always been a government-owned corporation.

The $700 billion bailout of banks and Wall Street passed by Congress in October was supposed to get money flowing to consumers and to help stabilize the housing markets through the purchase of mortgage-backed assets held by the nation’s financial institutions.

That plan, known as the Troubled Asset Relief Program, or TARP, was quickly dropped for one in which Treasury instead made direct capital investments in banks in return for the government receiving preferred shares in the institutions getting funds.

This new program is much closer to the original plans for TARP in that mortgage assets are being purchased. But government officials briefing reporters stressed that this new plan is different from TARP in that only mortgage securities backed by Fannie, Freddie and Ginnie will be in the new program.

Those loans, for the most part, are of better quality than many of the troubled assets that would have been purchased under the original TARP plan.

There is also limited additional risk for the federal government from the Fed buying that $600 billion in debt from the three firms, since the government is already on the hook for losses those firms suffer on the loans they back.

Despite that implicit government guarantee behind Fannie and Freddie’s debt, there continues to be a widening gap between rates demanded by investors to buy U.S. Treasurys and the rates they demand to buy mortgage assets. The hope is that – by the Fed buying such a large amount of assets directly – it will narrow that interest rate gap, drive down mortgage rates for consumers and support home prices and purchases.

The Treasury, which oversees the $700 billion in the TARP program, has been reluctant to expand the use of those funds beyond direct capital investments in banks, despite request to use the funds to help out insurance companies and even the nation’s automakers. Thus it allocated only $20 billion, or the same amount it invested in troubled banking giant Citigroup (C, Fortune 500) in a move announced Sunday.

So it was left to the Federal Reserve of New York, which is headed by Timothy Geithner, the man nominated by President-elect Obama to take Paulson’s place, to come up with the funds to try to restart consumer lending.

The moves came as the Commerce Department announced that gross domestic product, the broad measure of the nation’s economy, fell at an annual rate of 0.5% in the third quarter, the biggest drop in economic activity in seven years. Economists believe that the economy is likely to continue to contract in the current quarter and into early next year.

The financial crisis has frozen lending markets, making it nearly impossible for consumers and businesses to borrow money.

Treasury originally had planned to use the $700 billion bailout to buy troubled mortgage assets. But it has shifted gears and focused mostly on injecting capital into banks.

The last capital injection into Citigroup was part of a broader rescue package under which Treasury and another U.S. agency, the Federal Deposit Insurance Corp., announced it would guarantee losses on more than $300 billion of Citi’s troubled assets.

But once again, Treasury is not using the $700 billion in bailout funds for that guarantee, as it tries to keep those funds available for future capital needs by the nation’s financial institutions.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Capital Gold Group Report: SAVING CITI MAY CREATE MORE FEAR

By ERIC DASH

Published: November 24, 2008

One bailout was not enough for Citigroup. And it may not be enough for other big banks.

While Citigroup’s second multibillion-dollar rescue from Washington hit Wall Street like a shot of adrenaline on Monday, many analysts worried that the jolt would soon wear off. Citigroup has been stabilized, but the outlook for the financial industry as a whole is bleak.

With the red ink deepening, other banks may eventually turn to the government to soak up some of their losses. Taxpayers could end up guaranteeing hundreds of billions of dollars of banks’ toxic assets. Indeed, Treasury Secretary Henry M. Paulson Jr. is expected to announce a new plan on Tuesday to bolster the consumer-finance market.

“When all else fails, government does come in,” said David A. Moss, a public policy professor at Harvard Business School.

On Monday, Wall Street put aside its worries, at least for a day. Citigroup’s share price, which had plunged to a mere $3.77 on Friday, shot up to $5.95. Shares of its biggest rivals — banks which, with the government’s help, are emerging to dominate the industry — also soared. Bank of America jumped 27 percent, JPMorgan Chase leapt 21 percent and Wells Fargo gained nearly 20 percent.

In the short term, the latest effort to steady Citigroup has removed the risk that a sudden failure of the giant bank would send losses cascading through the financial industry.

But longer term, the new bailout could haunt regulators and taxpayers. The move ultimately may encourage banks to take more risks in the belief that the government will step in if they run into trouble.

With a recession looming, if not here already, banks big and small are bracing for more loans to sour, particularly those related to commercial real estate, autos and credit cards. Many are making fewer loans, even though the industry has received nearly $300 billion from the government.

Before long, anxious investors may start wondering which banks will be vulnerable next. If confidence fades, other big lenders will probably seek deals like Citigroup’s, in which the government has pledged to pick up potentially $290 billion in additional losses. Regulators drafted the plan with an eye to using it as a template for future bailouts.

There are other worries for Citigroup’s big rivals. Almost overnight, Citigroup went from being the sick man of the industry to an institution with an edge over its competitors. The government is guaranteeing $250 billion of risky assets and pumping an additional $20 billion into the bank.

With the government behind it, Citigroup may now be able to borrow money in the capital markets at lower interest rates than its peers.

“Citi has a decided advantage over them because of the loss-sharing agreement,” said John Kanas, the former chief executive of North Fork Bank of Long Island. While banks may hold out for now, it may be only a matter of time before they too line up, several analysts said.

Indeed, a big question is how Bank of America, JPMorgan Chase and Wells Fargo will respond. Spokesmen for Bank of America and JPMorgan Chase declined to comment on Monday. A Wells Fargo spokesman did not return telephone calls.

Each of these giant banks, like Citigroup, is sitting on piles of residential mortgages, credit card debt, and corporate and commercial real estate loans that are rapidly losing value. Each is trying to absorb new businesses that were recently acquired.

“Everyone is in the same soup,” said Meredith A. Whitney, a banking analyst with Oppenheimer who has been bearish on the industry for more than a year. “Citigroup has a host of problems, but Citi’s problem assets are not dissimilar from its rivals.”

Smaller banks could be even more disadvantaged. Depositors now have stronger incentives to put their money in bigger banks, given the government’s demonstrated willingness to intervene.

“It’s got to be frustrating for small banks. They don’t get special treatment,” said David Ellison, a mutual fund manager who specializes in financial companies. “If you are a big bank, you get special treatment. That is why everyone wants to be so big.”

To level the playing field, some analysts say, the government may be forced to guarantee hundreds of billions of dollars of assets on all banks’ balance sheets. That would be the third iteration of the government’s financial rescue.

“It looks like TARP 3.0,” Ms. Whitney said, referring to the Treasury Department’s $350 billion bailout fund known as the Troubled Asset Relief Program. “TARP 1.0 was buying illiquid assets from banks. Now, they are backstopping assets and really putting taxpayers on the line for much of this.”

While taxpayers are at risk for the payment, the latest government rescue plan may work out well for Citigroup, analysts said. The plan has given investors some certainty about the potential losses at the bank.
Most of the terms are relatively good for Citigroup and its existing shareholders. While the bank had to reduce its dividend to a penny, it is getting money from the government relatively cheaply. The preferred shares that the government is buying, for example, carry a relatively small 8 percent dividend payment and only slightly erode the value of shares held by existing investors.

Even though the American government can secure a nearly 8 percent stake, overtaking an Abu Dhabi investment fund and a Saudi prince as Citigroup’s largest shareholder, it will not have any seats on the board.

Other strings that the government attached are not onerous.

New limits on executive pay still leave Citigroup with room to maneuver, even though regulators must approve compensation. A required program to modify home mortgages is similar to an effort that Citigroup voluntarily announced earlier this month.

But Citigroup faces bigger problems down the road, especially if it needs additional capital. The company was forced to turn to the government again because it could not raise capital from private investors.

“If you look at the track record for raising equity, it has been a difficult exercise” for financial institutions, said Gary L. Crittenden, Citigroup’s chief financial officer, in an interview on Monday.

And Citigroup still has many problems. Vikram S. Pandit, the chief executive, is making some progress in controlling costs and managing its sprawling operations, but the environment is tough. Executives say they have no plans to change their strategy.

Mr. Crittenden said that the bank intended to keep itself intact and stay on the course it had been pursuing since at last spring and even longer under prior management, but that as a matter of practice the bank did not rule out any options.

But if the bank’s losses keep mounting, and Citigroup needs yet another lifeline, the government may not be so generous. It might, for example, demand common shares — a move that could wipe out existing stockholders.
Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Capital Gold Group Report: U.S. Stocks Plunge, Sending S&P to Lowest Level Since 1997

By Eric Martin

Nov. 20 (Bloomberg) — U.S. stocks slid and the Standard & Poor’s 500 Index plunged to its lowest level in 11 years after economic reports

depicted a deepening recession and lawmakers postponed a vote on a plan to salvage the auto industry.

The S&P 500 extended its 2008 tumble to 49 percent, poised for the worst annual decline in its 80-year history. Chesapeake Energy Corp. and National-Oilwell Varco Inc. sank more than 21 percent after crude fell to a three-year low on concern the slumping economy will crush demand. JPMorgan Chase & Co. lost 18 percent and Citigroup Inc. dropped 26 percent as concern the recession will trigger more bankruptcies pushed the cost of insurance against corporate defaults to an all-time high.

“We’re just trying to stay away from the window,” said James Paulsen, who helps oversee about $220 billion as chief investment strategist at Wells Capital Management Inc. in Minneapolis. “This isn’t about fundamentals, it’s not about bad balance sheets, it’s about fear and confidence.”

The S&P 500 slid 6.7 percent to 752.44, under the low of 776.76 reached during the bear market in 2002. The Dow Jones Industrial Average sank 444.99 points, or 5.6 percent, to 7,552.29. The Nasdaq Composite decreased 5.1 percent to 1,316.12. Twelve stocks retreated for each that rose on the New York Stock Exchange.

Global Rout

The S&P 500 extended its plunge from an October 2007 record to almost 52 percent in the worst bear market since the Great Depression. Concern the recession is worsening was spurred after jobless claims approached the highest level since 1982, the index of leading economic indicators fell for a third time in four months and the Federal Reserve said manufacturing in the Philadelphia area shrank at the fastest pace in 18 years.

Seventeen companies in the S&P 500 lost more than one-fifth of their market value today, as all 10 of the index’s main industry groups slid at least 3.5 percent.

More than 2.2 billion shares changed hands on the floor of the NYSE, its busiest trading session since Oct. 10.

Europe’s benchmark index slumped 3.6 percent, while Asia’s sank 5.1 percent. Both declined to the lowest levels in more than five years. The MSCI Emerging Markets Index of developing markets lost 5.4 percent.

Treasury yields declined to record lows, with two-year note rates dropping below 1 percent for the first time, as investors sought the safety of government debt.

`Ugly Mess’

“It’s an ugly mess out there,” said Randy Bateman, who oversees $15 billion as chief investment officer of the asset management unit of Huntington Bancshares Inc. in Columbus, Ohio. “The economy is confirming it is very, very weak.”

Chesapeake, a producer of oil and natural gas, lost $5.32 to $13.98. National-Oilwell, which makes energy production equipment, retreated $4.86 to $17.86.

Crude oil fell 7.5 percent to $49.62 a barrel, its lowest settlement since May 2005. Energy shares declined the most among 10 industries in the S&P 500, losing 11 percent collectively.

Exxon Mobil Corp., the largest U.S. energy company, fell the most in a month, losing $4.91, or 6.7 percent, to $68.51. Chevron Corp., the second-largest U.S. oil producer, plunged $6.21, or 8.8 percent, to $64.40.

JPMorgan Chase, the largest U.S. bank by market value, lost $5.09 to $23.38, its lowest price since March 2003. Citigroup sank $1.69 to $4.71, an almost 14-year low.

Citigroup, Goldman

Citigroup slumped even after Saudi billionaire Prince Alwaleed bin Talal said he would boost his stake in the New York-based company. The bank is urging the Securities and Exchange Commission to revive a prohibition on short-selling financial stocks, according to a person familiar with the matter.

SEC spokesman John Nester declined to comment. Citigroup spokesman Michael Hanretta didn’t return a phone call seeking comment.

Goldman Sachs Group Inc., once the biggest and most profitable U.S. securities firm, fell below its initial public offering price of $53, wiping out 10 years of gains. Goldman lost $3.18, or 5.8 percent, to $52.

Contracts to protect against corporate default rose to an all-time high. Credit-default swaps on the Markit CDX North America Investment-Grade index jumped 14 basis points to a record 261, according to broker Phoenix Partners Group.

Analyst Paul Miller at FBR Capital Markets in Arlington, Virginia, said as much as $1 trillion in capital may be needed to shore up the financial system.

Insurance Losses

Life insurance stocks slumped for a fifth straight day on concerns that falling equity markets will cause losses on retirement products.

Lincoln National Corp. plunged $2.24, or 31 percent, to $5.07. The company said yesterday it expects a charge of as much as $300 million from the stock market slump in October.

MetLife, the largest U.S. life insurer, slipped $2.52, or 13 percent, to $16.48.

Life insurers including Lincoln National, MetLife and No. 2 Prudential Financial Inc. have lost more than two-thirds of their market value this year as falling stock markets pressured results from annuities and raised concerns the companies will need to raise capital.

The S&P 500 Financials Index sank 11 percent to its lowest level since July 1995.

Benchmark indexes briefly erased declines in midday trading after a congressional aide said senators had agreed on a bipartisan plan to rescue the U.S. auto industry.

Stocks resumed their slide and automakers pared gains after Democratic congressional leaders blocked immediate action on a bailout for the cash-strapped companies and told the industry to come up with a workable plan to submit to lawmakers in December.

GM, Ford

General Motors Corp. added 9 cents, or 3.2 percent, to $2.88 after climbing as much as 43 percent to $4, while Ford added 13 cents to $1.39, paring a 48 percent rally.

Alcoa Inc., the largest U.S. aluminum producer, had the third-steepest decline in the Dow average after Citigroup and JPMorgan, losing 16 percent to $6.85. Aluminum dropped the most in three years and copper fell to a three-year low in London as consumption of industrial metals in the housing and auto industries tumbled.

Dell Inc. dropped 54 cents to $9.81. After the close of trading, the world’s second-largest personal-computer company reported profit that topped analysts’ forecasts thanks to cost cuts and cheaper production methods. Sales fell 3.1 percent. In after-hours trading, Dell climbed 5 percent to $10.30.

December futures on the S&P 500 added 0.3 percent at 4:36 p.m. in New York.

Earnings Slump

The S&P 500’s plunge from its October 2007 record came as earnings for companies in the index decreased for five straight quarters and worldwide writedowns and credit losses stemming from the collapse of the subprime mortgage market reached $965 billion.

The index rose or fell at least 1 percent in 86 percent of October’s trading days, making it the second-most volatile month in its 80-year history, according to S&P analyst Howard Silverblatt. Only November 1929 produced bigger swings, he said.

Profits slumped 17 percent on average at companies in the index that have reported third-quarter results, according to Bloomberg data. Analysts expect a 9.5 percent decline in full- year earnings, based on estimates compiled by Bloomberg.

“It’s probably going to take another year for things to calm down, for people to feel a little more comfortable with the economy,” said Russell Rolnick, senior vice president for Lenox Advisors Inc., which oversees more than $1 billion in New York. “People these days seem to be more interested in capital preservation than appreciation.”

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Capital Gold Group Report: Gold Demand Rose 18% in Quarter as Price Lured Buyers, WGC Says

By Nicholas Larkin and Pham-Duy Nguyen
Nov. 19 (Bloomberg) — Gold demand rose 18 percent in the third quarter as lower prices encouraged purchases by jewelers and as investors sought a haven from the credit crisis, the World Gold Council said.

“We live in pretty difficult times and that’s being reflected in the world of gold,” George Milling-Stanleya director at the London-based industry group, said in an interview. “More and more investors are seeing the long-term strategic benefits gold can have.”

Global demand rose to 1,133.4 metric tons from 963.3 tons a year earlier, the council said today in a statement. So-called identifiable investment, which includes purchases through exchange-traded funds and of bars and coins, climbed 56 percent to 382.1 tons during the quarter. Jewelry demand gained 7.6 percent and sales to India, the world’s largest gold consumer and jewelry buyer, advanced 29 percent.

Lehman Brothers Holdings Inc.’s bankruptcy filing in September, which triggered a $700 billion U.S. government bank- bailout package, spurred a record 150 tons of gold inflows into ETFs, the council said. ETF gold additions increased 7.5 percent from the second quarter and 31 percent from a year earlier.

“Gold is kind of an insurance policy for your portfolio,” Milling-Stanley said. “It’s the asset of last resort.”

Bullion averaged $870.93 an ounce in the three months through September, compared with $897.69 the previous quarter, and traded at $737.60 an ounce at 11 a.m. in London today. The metal has lost 29 percent since reaching a record $1,032.70 an ounce in March as investors liquidated their commodity holdings to raise cash.

`Back Into Gold’

“There was good deal of selling out of commodity indices,” Milling-Stanley said. “That’s why we saw a downturn in the price of gold even though demand grew. A lot of investors will go back into gold once they have the money to do so.”

The S&P GSCI Index of 24 raw materials slid 28 percent in the quarter, compared with a 5.9 percent decrease in gold prices.

Demand from India rose to 249.5 tons from 190.8 tons, the council said. The country accounted for 27 percent of gold demand in 2007. Indian purchases of the metal traditionally recover in the second half, spurred by the wedding season and Diwali, the festival of lights.

Demand increased by 15 percent in the Middle East and by 18 percent in China.

“If the price remains volatile, that’s going to act as a check on any jewelry growth,” Milling-Stanley said. “Investment demand is going to continue to lead the way in any consumption that we’re going to see.”

`Phenomenal Change’

[A bullion company], which allows customers to buy and sell physical gold held in secure vaults in Zurich, London and New York, last week said funded customer accounts almost tripled in the year through October.

“We have seen a phenomenal change in the demand for physical gold ownership,” said [the] head of research of their online service for private investors. “If people want to get money to safety, it’s a natural instinct.”

Gold supply fell 9.7 percent to 858 tons, the council said. Central bank sales plunged 87 percent to 23 tons. Banks covered by the Central Bank Gold Agreement sold 357 tons of gold through September this year, the lowest since 1999.

That year, several central banks signed a five-year accord limiting gold sales to help stabilize the market. A second agreement, which runs to Sept. 26, 2009, permitted a quota of 500 tons a year.

“You may find that some of those central banks are done with the selling,” Milling-Stanley said.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Capital Gold Group Report: Standard Chartered Bank Bullish on Gold

Reuters, Monday November 17 2008
by Frank Tang

. . . “We are quite bullish for gold in the long term, primarily because we see the dollar weakening substantially on all this liquidity being pumped into the system,” said Dan Smith, analyst at Standard Chartered. . . .

Capital Gold Group Report: Gold, Silver Rally on Inflation Expectations; Platinum Advances

Nov. 14 (Bloomberg) — Gold rose the most in eight weeks on speculation that central banks will add more liquidity to unfreeze credit markets, spurring inflation and boosting the appeal of the precious metal. Silver and platinum also gained.

Federal Reserve Chairman Ben S. Bernanke said the U.S. and other countries are ready to take more action to boost lending. The dollar declined against a basket of six major currencies after dropping 0.6 percent yesterday. More liquidity will devalue currencies and stoke inflation, said Frank McGhee, the head dealer of Integrated Brokerage Services LLC in Chicago.

“Basically, the government needs and wants an inflationary spurt to turn this economy around,” McGhee said. “Gold is probably $100 to $150 too cheap, based on the amount of liquidity that’s already been pumped into the system.”

Gold futures for December delivery rose $37.50, or 5.3 percent, to $742.50 an ounce on the Comex division of the New York Mercantile Exchange, the biggest gain for a most-active contract since Sept. 18. The metal is up 1.1 percent this week.

Silver futures for December delivery jumped 69 cents, or 7.8 percent, to $9.49 an ounce. The metal is down 4.7 percent this week.

Platinum futures for January delivery rose $32.10, or 3.9 percent, to $845.10 an ounce on the Nymex. Palladium for December delivery gained $2.70, or 1.3 percent, to $216.65 an ounce.

The Fed has cut its benchmark interest rate to 1 percent from 5.25 percent in September 2007 and provided more than $1 trillion in loans to financial institutions to help ease the worst credit crisis in seven decades.

The collapse of Lehman Brothers Holdings Inc. on Sept. 15 helped trigger passage of a $700 billion bailout plan by the U.S. Since then, gold traded as high as $936.30 on Oct. 10 and as low as $681 on Oct. 24.

`Awash With Dollars’

Gold may rise as the dollar begins to slide, said Walter Otstott, a senior broker at Dallas Commodity Co. in Dallas.

“Bargain hunters and investors are starting to appreciate gold for its diversification attributes,” Otstott said.

“Fundamentally, the world is awash with dollars, and we should see the greenback resume its long-term downward trend.”. . .

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Capital Gold Group Report: Why China’s Stimulus Plan Will Change the World

By Bill Mann and Tim Hanson

November 12, 2008

Brazil’s President Lula told his country in September, “People ask me about the [financial] crisis, and I answer, go ask Bush. It is his crisis, not mine.”

Fifty days later, British Treasury Secretary Stephen Timms told a conference of G-20 nations gathered in Sao Paulo, Brazil: “We are in extraordinary times, the global economy is facing shocks which are wholly without precedent and we need a new approach. … It is a global crisis. It therefore requires an international response.”

In other words, what goes around, comes around. Global schadenfreude toward a stupid and greedy United States and its subprime mortgage meltdown has rapidly become global concern about how to rescue the world from an all-encompassing financial disaster. Here’s just a smattering of companies large and small that recently announced lowered outlooks for the year: Under Armour (NYSE: UA), News Corp. (NYSE: NWS), Starbucks (Nasdaq: SBUX), Vodafone (NYSE: VOD), Electronic Arts (Nasdaq: ERTS), ADP (NYSE: ADP), and Hormel (NYSE: HRL). (Yes, in these tough times, even the outlook for Spam is grim.)

And if that were not enough, the International Monetary Fund (IMF) recently lowered its outlook for the entire global economy.

One country’s plan to step up
Against that backdrop, China announced a 4-trillion-yuan ($586 billion) stimulus package for its domestic economy this past Sunday. It plans to fund extensive infrastructure construction, aid poor farmers, and cut export taxes.

While China’s plan has clear beneficiaries, and should help keep more laborers in their jobs and prop up domestic consumer spending, the most important (and underreported) aspect of the plan is how it will fundamentally change the economic relationship between the U.S. and China.

Here’s how it was
One of the big debates over the past half-decade was whether China had reached a point in its economic development at which its internal economic gravity would allow it to “decouple” from the global economy. If so, it could continue along its fantastic growth trajectory, even as growth in the U.S. or Europe ceased or reversed.

That may sound like gobbledygook, but it’s important. The U.S. has a $20 billion monthly trade deficit with China. It’s funded by China’s willingness to hold U.S. treasuries in its Central Bank (essentially, we’re borrowing the money). China manages the arrangement by pegging its currency (the yuan) to the dollar at an artificially low rate, and by not worrying so much about certain niceties like environmental regulation and labor protection.

It’s a mutually beneficial arrangement — a weak yuan supports Chinese exporters, helping the country industrialize and quickly integrate rural migrants into its urban workforce, with the salutary effect of keeping inflation and potential political unrest low. For its part, the U.S. has gotten dirt cheap financing, by virtue of China parking more than a trillion dollars in U.S. government securities. That has supported the dollar and allowed the Federal Reserve to fuel consumer spending by keeping interest rates low.

China’s stimulus package heralds the unwinding of this relationship.

Here’s how it will be
This is why the decoupling argument matters. Many analysts have pointed to the thousands of factories that have shut down in China in these past few months as evidence that a slowdown in American spending will cause a depression in China — potentially even leading to regime change. But in fact, our trade imbalance with China is artificially preserved by the aforementioned currency peg, and by the decision of China’s state-run banks to make uneconomic loans to businesses it deemed worth propping up.

China has paid heavily for this relationship. Rather than invest its surplus cash in its own country, the Chinese poured money back into the U.S. to further spur our debt-fueled consumption. (Put less artfully, some poor Chinese guy in Shaanxi province was essentially helping you pay your mortgage.)

The announced stimulus package reverses that. Hundreds of billions of dollars that would have gone to propping up the greenback are now being reinvested in China, helping it to transition from its reliance on exports to a self-sustaining economy. So while China isn’t yet decoupled from its export markets, this new spending plan will help it along that path.

China’s huge currency reserves are about to be put to use, and while there will be some real and perhaps severe bumps along the way, the China that comes out on the other side will be a heck of a lot stronger, more independent, and more decoupled than the one we’ve seen up to now.

Chinese premier Wen Jiabao called his country’s stimulus the “biggest contribution to the world.” We don’t know whether that’s true, but we do know that China’s ability to reach deep into its huge coffers to finance further growth gives it a significant advantage over the rest of the world’s struggling economies.
Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Capital Gold Group Report: Jobless Rolls Reach 25-Year High, Exports Slump

By Bob Willis and Timothy R. Homan

Nov. 13 (Bloomberg) — The global economic slowdown is deepening, according to reports today that showed the number of Americans collecting jobless benefits jumped to a 25-year high and U.S. exports plunged.

The number of U.S. workers receiving unemployment benefits climbed to 3.9 million in the week ended Nov. 1, the Labor Department said today in Washington. Commerce Department figures showed that U.S. imports dropped by the most on record in September, and exports also slid as demand for American-made aircraft and computers declined.

“We are in a world economic downturn, there is no question about it, and it’s shaping up to be pretty significant,” said David Resler, chief economist at Nomura Securities International in New York. In the U.S., “it will be a very serious recession, rivaling the worst in the postwar period.”

The worst German recession in at least 12 years and shrinking economies in other parts of Europe and in Japan will hurt U.S. exports, while a lack of credit and rising unemployment will cause American consumers and businesses to keep retrenching. Even a second round of government stimulus will not promote a quick rebound, Resler said.

First-time claims for jobless benefits increased by 32,000 to 516,000 in the week ended Nov. 8, from 484,000 the week before, the Labor Department said. The median estimate of 40 economists in a Bloomberg News survey was for a reading of 480,000, compared with the originally reported 481,000 in the prior week.

Job Losses

Payroll losses at companies from Citigroup Inc. and Goldman Sachs Group Inc. to Ford Motor Co. and Circuit City Stores Inc., the consumer electronics chain that went bust this week, mean unemployment claims will probably rise further.

“When you start to see the downward pressure on wages as well as the credit crunch, that’s only going to make consumers much more nervous,” Linda Barrington, a labor economist at the New York-based Conference Board, said in a Bloomberg Television interview. “The labor market is only reinforcing a very pessimistic picture.”

U.S. stocks drifted between gains and losses as investors snapped up energy shares trading at their cheapest valuation on record, overshadowing today’s economic news. The Standard & Poor’s 500 Stock Index was up 0.1 percent at 853.3 at 11:25 a.m. in New York. Benchmark 10-year Treasury note yields rose to 3.75 percent from 3.65 percent late yesterday.

Highest Since 1991

The labor market is weakening as the economy appears to be in its first downturn since 2001. The jobless rate rose to 6.5 percent in October, the highest since 1994, the government said last week.

Employers cut 240,000 jobs last month, for a total so far this year of 1.2 million jobs lost, while the total number of unemployed Americans jumped to 10.1 million, the highest level in a quarter century, according to last week’s jobs report from the Labor Department.

A record decline in the cost of fuel helped the U.S. trade deficit narrow more than forecast in September, offsetting the impact of the drop in exports. The gap shrank 4.4 percent to $56.5 billion, the smallest in almost a year, from $59.1 billion in August, the Commerce Department said.

Excluding petroleum, the deficit widened as exports dropped 6 percent to $155.4 billion, led by a $3.3 billion slump in sales of commercial aircraft. Sales of fuel oil, drilling equipment, computers and food to foreign buyers also decreased.

The economy of the countries using the euro will shrink 0.5 percent in 2009 and Japan will drop 0.2 percent, according to revised growth forecasts by the International Monetary Fund this month. The German economy, Europe’s largest, contracted 0.5 percent in the third quarter after falling 0.4 percent in the second quarter, the government announced today.

Exports to the European Union were the lowest since December.

Imports dropped by a record 5.6 percent to $211.9 billion. The cost of a barrel of crude oil fell to $107.58, a decline of $12.41 from the prior month that was the biggest ever. The number of barrels bought was the fewest in more than five years.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold

Capital Gold Group Report: U.S. October Budget Deficit Swells to a Record $237.2 Billion

By John Brinsley

Nov. 13 (Bloomberg) — The U.S. budget deficit last month exceeded the shortfall for President George W. Bush’s first full year in office, spurred by purchases of stakes in a group of the nation’s largest banks.

The deficit in the first month of the 2009 fiscal year climbed to a record $237.2 billion, compared with a gap of $56.8 billion in October last year, the Treasury Department reported today in Washington. Revenue fell 7.5 percent, while spending soared 71 percent.

Treasury Secretary Henry Paulson spent $115 billion last month to buy shares in eight of the biggest U.S. banks as part of his $700 billion Troubled Asset Relief Program. Deteriorating credit conditions and the economic slump are straining the nation’s finances and will leave President-elect Barack Obama with a deficit worse than the record $455 billion of last year.

“The federal deficit appears to have risen sharply relative to the year-ago level in October, mostly reflected TARP bank capital infusions,” UBS economist Samuel Coffin wrote in a research note before the release of the report. “Uncertainty over scoring for TARP and other items adds to the challenge in forecasting the fiscal year budget deficit, but we project a rise to $1.175 trillion.”

The October deficit was forecast to widen to $200 billion, according to the median of 32 estimates in a Bloomberg News survey of economists. Today’s total exceeds the $232 billion gap predicted by the Congressional Budget Office on Nov. 10.

Corporate income tax receipts fell to $81 million in October, from $6 billion a year earlier, according to the Treasury.

Revenue Drops

Total revenue fell to $164.8 billion in October, compared with $178.2 billion a year ago, according to the Treasury report. Spending increased to $402 billion from $235 billion last year.

Outlays for the Social Security Administration rose by 13 percent from a year ago to $59.2 billion) from $52.6 billion, while Department of Defense spending rose 16 percent to $66.1 billion from $57 billion. Spending by the Department of Health and Human Services, which administers the Medicare and Medicaid health programs, totaled $76.5 billion, up 31 percent.

The Treasury this month said it will more than triple its planned debt sales this quarter to help finance this year’s shortfall.

Borrowing needs are expected to rise to $550 billion in the three months to Dec. 31, compared with the $142 billion predicted in July. Bond trading firms predicted the shortfall may rise to $988 billion in 2009.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA gold