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Riots Engulf Central London as Budget Cuts Come Into Effect

2011-03-28T08:03:00.000-07:00

Image via Wikipediaby Eric Hammer | FTMDaily Contributing Writer

TEL AVIV, Mar 28 - A largely peaceful demonstration which featured hundreds of thousands of people marching through Central London to protest planned cuts in the welfare state turned violent Saturday evening. While the mass rally passed peacefully if noisily through London, a small group of a few hundred protestors showed up later determined to do more to show their distaste for British policy than simply give speeches.
The main rally had been organized by a number of large labor unions with the intention of protesting the massive cuts that Prime Minister David Cameron has pushed through Parliament recently. Mr. Cameron had justified those cuts by explaining that Britain could no longer afford the so called welfare state. The cuts affected tens of thousands of working class Britons, sending many of them scurrying to the unemployment rolls and prompting a massive outcry on a scale similar to the protests that engulfed Madison, Wisconsin a few weeks ago.

The protestors also seemed to feel, as many Tea Party activists in the United States do, albeit from a completely different perspective, that their leaders did not go far enough in pressing their demands. Labor leader Ed Miliband was heckled by a number of protestors when he allowed during a speech to the main rally that “some cuts” were needed but that they still needed to “struggle to fight to preserve, protect and defend the best of the services we cherish.”

Interestingly, a number of the rioters seemed especially incensed by the recent deployment of British airmen to Libya to help in enforcing the now NATO led no-fly zone in that country. The feeling seemed to be that at a time when Britain couldn’t afford to keep her own people fed, they had no business getting involved in wars in other countries.

After the largely peaceful rally started to wind down, a group of what most mainstream labor organizers are describing as “hoodlums” came onto the scene, most of them masked and all determined to do as much damage as they could. They attacked the Ritz hotel and an upscale department store in an effort to strike at the rich.

According to local police reports, some 211 people were arrested in the melee that ensued after the main rally dispersed. They were charged with crimes ranging from vandalism and destruction of public property to setting off firecrackers in the middle of the street.

Speaking to reporters after the riots had been put down, Commander Bob Broadhurst of Scotland Yard, which had been in charge of security at the rally praised the protest organizers for having kept things largely peaceful throughout the event.

Regarding the rioters, he told the Guardian newspaper that, "Unfortunately we've had in the region of 500-plus criminals – people hiding under the pretence of the TUC march – who have caused considerable damage, attacked police officers, attacked police vehicles and scared the general public. Unfortunately, because of their mobility and the fact they are aware of some of our tactics, we have been unable to contain them and so we have had these groups wandering around the central London area."

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FTMDaily News Update - Goodbye "Cheap" Chinese Goods

2011-03-28T07:53:00.000-07:00

by Jerry Robinson

Good-Bye "Cheap" Chinese Goods...

When my daughter was younger, I used to offer her 25 cents for every item that she could find in our local Wal-Mart store that was not "made in China," or some other Asian nation. Needless to say, she rarely walked out of the store with any money. And while "made in China" used to be synonymous with "cheap and poorly made" goods, it now appears that the "cheap" part of that equation may be going away rather quickly. Last week, the sum of all consumer fears was confirmed. The cheap gadgets, apparel, and toys imported from China, that we Americans have come to love and treasure, may now no longer stay "cheap." This according to the Hong-Kong-based logistics and consumer-good sourcing company, Li & Fung, which is one of the largest suppliers of Chinese goods for Western retailers, especially Wal-Mart.

In a report released last week, the company stated:

“The world has basically been in a low-supply-cost era for the last 30 years. The change in wage policy in China in 2009 — and the subsequent significant higher export prices — brings this status quo to an end.”

Mainland China has been paying their employees unbelievably low wages for decades because 1) it could, and 2) to prop up its export-led strategy. However, a rash of employee suicides in recent years has forced a re-examination of Chinese labor rates and working conditions.

In 2011, wage rates are increasing in China and will continue to do so as the country continues to rapidly grow its overall economy and its middle class. In addition, prices for inputs, such as raw materials, have risen dramatically, leading to higher prices at the consumer level.

Translation: You might want to stock up on any of those "can't live without" imports from China soon as they will never be any cheaper than they are now... In other words, the era of cheap goods is over.

The Truth About the 401(k)...

As we have been telling you for years, maxing out your 401(k) (above the employer match) is just about one of the dumbest financial moves you could ever make. It seems the financial services business is just now finally beginning to figure out why. Learn more here...

(And will somebody please send the memo to Dave Ramsey and Suze Orman... Bless their hearts. Their mantra for years (until just recently) has been: 1) Max out your 401(k), 2) Buy a house because they always go up in value 3) Avoid gold and silver because they are terrible investments and 4) Put all your extra money into mutual funds. Ouch! Maybe this explains why 95% of American reach the age of 65 dead broke.)

British Protest of Budget Cuts Turn Violent...

An estimated 250,000 British public workers took to the streets of London over the weekend to protest new "brutal" spending cuts in government jobs and services. Teachers, nurses, firefighters, NHS workers, students and others spent the day in mass protests. While they were mostly peaceful, some violence did erupt. Over 200 were arrested and 66 were injured in the demonstrations.

And now... New research indicates that the average British worker is bringing home $1,600 less than two years ago due to the effects of inflation. The "official" inflation rate in the U.K is running at 4.4%. Many fear 5% or more is on the way soon.

News on Social Security Income...

The Federal government is projecting a COLA (cost-of-living adjustment) increase in Social Security benefits for 2012 - the first time since 2009. And while the hike in benefits may come as good news to many seniors who have lost money in both the stock market and the housing market, it will be overshadowed by a new hike in required Medicare premiums. For most, the net result will be no raise in income, despite the COLA increase. You can read more here.

In a recent interview, FTMDaily.com founder and economist, Jerry Robinson, stated: "Those who are dependent on only one or two fixed income streams are highly vulnerable to wave of U.S. inflation that lies ahead. Now more than ever, individuals need to begin cultivating multiple streams of income that can help them stay financially afloat amid times of economic turmoil."

Through our free monthly webinars and our subscription-based quarterly newsletter, FTMDaily.com is educating thousands of people on how to create financial freedom by diversifying their savings, their investments, and their income.

Also In The News...

1. FORECLOSURE NATION: The national vacancy rate crept up to just over 13% according to last week's decennial census report. That's up from 12.1% in 2007.

2. CURRENCY UPDATE: "Tough talk" from the Federal Reserve on the need for higher U.S. interest rates helped stabilize the dollar over the weekend. But the big news is the Australian dollar, which rose to its highest level against the U.S. dollar since 1983 last week.

3. CONSUMPTION TRAP: Real disposable income fell by 0.1% in February as consumer prices jumped by the largest amount since July 2008, the Commerce Department reported Monday.

4. U.S. SAVINGS RATE: The savings rate fell to 5.8% in February from 6.1% in January.

5. PORTUGAL RATINGS CUT: After lowering Portugal's credit rating by two levels last week following the government's resignation, Standard & Poor's is warning today that it could further downgrade the country's credit rating this week. Portuguese 10 year bond yields are currently at 8.16%.

Finally...

It's beginning to happen. After decades of funny money, the world is finally waking up and smell the coffee. Gold is finally beginning to replace fiat currency as the currency of choice. And who's buying its? The central bankers who sold us on the funny money. The irony is unreal.

Why So Serious?...

Its time to laugh a little. Here's a sampling from the some of the late-night jokers.

"President Obama had to use another door to get into the White House yesterday after he got home and the entrance to the Oval Office was locked. When he couldn’t get in, Obama said “Holy cow, is it 2012 already?” –Jimmy Fallon

"A man in Texas used his obituary to ask for donations to anyone running against Obama in 2012. And then his ghost was offered a nightly show on Fox News." –Jimmy Fallon

"Dennis Kucinich wants to impeach President Obama over Libya. There’s a very good case against impeachment. It’s called "Joe Biden." –Jay Leno

"I read about a three-year-old boy in China who weighs 132 pounds. In fact, he’s so overweight that he can barely walk to work in the morning." –Jimmy Fallon

Cartoon of the Day...

Until tomorrow,

Jerry Robinson - FTMDaily.com

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Jerry Robinson is an economist, published author, columnist, international conference speaker, and the editor of the financial website, FTMDaily.com. In addition, Robinson hosts a weekly radio program entitled Follow the Money Weekly, an hour long radio show dedicated to deciphering the week's economic news.

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The housing bubble hangover, part 2

2010-07-02T20:55:00.000-07:00

A booming 'shadow inventory' in the housing market is almost certain to bring another wave of falling prices and another round of Federal Reserve stimulus.

By Bill Fleckenstein

MSN Money

Economic and financial problems are now garnering more attention as the "Goldilocks" viewpoint that prevailed earlier this year has disappeared -- which isn't surprising, as that view was only a mirage anyway.

Thus it looks to me like we may be just a data point or two away from seeing the Federal Reserve launch a second round of stimulus, which is sometimes cloaked in the obfuscatory term "quantitative easing" -- or, as I've referred to it lately, "Q.E. II."

If I may mix nautical and aeronautical metaphors, our illustrious Federal Reserve chairman, Ben Bernanke, may already be getting long aviation-fuel futures for his next helicopter mission. I say that because of a Bloomberg TV interview June 23 by former Richmond Fed chief Al Broaddus, who is considered by many to be a tight-money "hawk." (Watch the video here.)

Among other things, Broaddus said that he had expected the language in the Fed's June 23 communiqué to be "markedly more pessimistic, less optimistic than the corresponding statement after the April meeting." Of course, it wasn't markedly different; it was just somewhat weaker. Perhaps the Fed is trying to avoid spooking folks. Broaddus also noted that weakness in the housing market "increases the probability" the Fed will be happy to let Q.E. II set sail.
Much of the blame for upcoming weakness can be laid at the feet of housing, although there are going to be additional culprits. As folks know, government incentives have mostly run out (though the time to close on a home and get a tax break was extended), and supply is building and liable to swamp demand. That should lead to lower prices, which will likely also impact psychology.

Scared of its own shadow

Recently mortgage banker Mark Hanson nicely laid out a handful of reasons for housing's excess supply, or "shadow inventory." Readers may recall from the real-estate bubble days that I used to refer to Mark as "Mr. Mortgage," before he revealed his identity. He understands the housing and mortgage markets better than anyone else I know, so I thought I would share some of the causes for pent-up supply mentioned in his recent report:

The 8 million loans in some stage of delinquency.

The 100,000 to 125,000 new notices of default being given out monthly.

Short sales, which are surging and are now government-endorsed through the Treasury Department's Home Affordable Foreclosure Alternatives Program, and may be the ultimate form of shadow inventory due to the fact the borrower does not have to be delinquent and the property never has to be listed on the Multiple Listing Service. With almost 30% of the 57 million homeowners who have mortgages owing 95% or more on their property, the pool of more than 15 million homes that are short-sale eligible is a mega-threat.

Modification re-defaults, which, according to Standard & Poor's, will occur at a 70% rate. Based on the national loan modification surge that began in earnest only in the third quarter of 2009, and the ultimate bubble we are experiencing now, we are seeing just the positive effects of modifications and not the negative re-default effects. But the leading edge of the re-default wave is upon us now, and before long it will produce a new and substantial channel of mortgage loan defaults and foreclosures that few are modeling at this time.

An improvement in sentiment and price stability in some regions that has encouraged homeowners to sell after holding off for three years as the market crashed. In fact, as sales surged last month, thanks to the taxpayers' gift (the homebuyer credit), inventories rose sharply, catching even National Association of Realtors economist Larry Yun off guard. He commented on it after last month's existing-home-sales report. This is the first evidence of pent-up supply having a negative impact on housing fundamentals.

I agree with Hanson that the effects of all this are only just beginning to be felt, but it seems to me that the second leg of falling home prices is probably under way. That, plus high unemployment, ought to force the Fed to swing into action.

We could be stuck here awhile

As for the stock market, I have shared my expectations for a somewhat "rangy" environment, in which the market neither crashes nor makes significant progress to the upside (versus the 2010 highs), supported on the one hand by money printing and stimulus but hampered on the other by immense fundamental problems. Thus far, the range on the Standard & Poor's 500 Index ($INX) has been roughly 10% or so -- i.e., from 1,020-ish on the downside, to 1,130 or so on the upside. I expect those "bookends" will probably widen over time, most likely on the downside, and I would not be at all surprised to look back in a few years to find out that the S&P traded between 850 and 1,150.

To me, the probability seems high that we could experience an extended period where the market averages essentially go nowhere (they've done that for a decade already), much as we saw in this country from 1966 to 1982. For reference, during that entire period, the Dow Jones Industrial Average ($INDU) traded in essentially a 300-point range, with around 1,000 on the high end and about 700 on the low.
In the past two weeks, the market has traded at both ends of the recent range, but prospectively, if a large, long-term trading range develops, I wouldn't expect both the upper and lower bounds to be touched every other week.

About Bill Fleckenstein: Bill Fleckenstein is president of Fleckenstein Capital, a money management firm based in Seattle. He writes a daily Market Rap column for his website, Fleckensteincapital.com, as well as the popular column Contrarian Chronicles for MSN Money.

Six Months to Go Until The Largest Tax Hikes in History

2010-07-02T20:49:00.000-07:00

In just six months, the largest tax hikes in the history of America will take effect. They will hit families and small businesses in three great waves on January 1, 2011:

First Wave: Expiration of 2001 and 2003 Tax Relief

In 2001 and 2003, the GOP Congress enacted several tax cuts for investors, small business owners, and families. These will all expire on January 1, 2011:

Personal income tax rates will rise. The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed). The lowest rate will rise from 10 to 15 percent. All the rates in between will also rise. Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates. The full list of marginal rate hikes is below:

- The 10% bracket rises to an expanded 15%
- The 25% bracket rises to 28%
- The 28% bracket rises to 31%
- The 33% bracket rises to 36%
- The 35% bracket rises to 39.6%

Higher taxes on marriage and family. The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income. The child tax credit will be cut in half from $1000 to $500 per child. The standard deduction will no longer be doubled for married couples relative to the single level. The dependent care and adoption tax credits will be cut.

The return of the Death Tax. This year, there is no death tax. For those dying on or after January 1 2011, there is a 55 percent top death tax rate on estates over $1 million. A person leaving behind two homes and a retirement account could easily pass along a death tax bill to their loved ones.

Higher tax rates on savers and investors. The capital gains tax will rise from 15 percent this year to 20 percent in 2011. The dividends tax will rise from 15 percent this year to 39.6 percent in 2011. These rates will rise another 3.8 percent in 2013.

Second Wave: Obamacare

There are over twenty new or higher taxes in Obamacare. Several will first go into effect on January 1, 2011. They include:

The “Medicine Cabinet Tax” Thanks to Obamacare, Americans will no longer be able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin).

The “Special Needs Kids Tax” This provision of Obamacare imposes a cap on flexible spending accounts (FSAs) of $2500 (Currently, there is no federal government limit). There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children. There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education. Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education.

The HSA Withdrawal Tax Hike. This provision of Obamacare increases the additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.

Third Wave: The Alternative Minimum Tax and Employer Tax Hikes

When Americans prepare to file their tax returns in January of 2011, they’ll be in for a nasty surprise—the AMT won’t be held harmless, and many tax relief provisions will have expired. The major items include:

The AMT will ensnare over 28 million families, up from 4 million last year. According to the left-leaning Tax Policy Center, Congress’ failure to index the AMT will lead to an explosion of AMT taxpaying families—rising from 4 million last year to 28.5 million. These families will have to calculate their tax burdens twice, and pay taxes at the higher level. The AMT was created in 1969 to ensnare a handful of taxpayers.

Small business expensing will be slashed and 50% expensing will disappear. Small businesses can normally expense (rather than slowly-deduct, or “depreciate”) equipment purchases up to $250,000. This will be cut all the way down to $25,000. Larger businesses can expense half of their purchases of equipment. In January of 2011, all of it will have to be “depreciated.”

Taxes will be raised on all types of businesses. There are literally scores of tax hikes on business that will take place. The biggest is the loss of the “research and experimentation tax credit,” but there are many, many others. Combining high marginal tax rates with the loss of this tax relief will cost jobs.

Tax Benefits for Education and Teaching Reduced. The deduction for tuition and fees will not be available. Tax credits for education will be limited. Teachers will no longer be able to deduct classroom expenses. Coverdell Education Savings Accounts will be cut. Employer-provided educational assistance is curtailed. The student loan interest deduction will be disallowed for hundreds of thousands of families.

Charitable Contributions from IRAs no longer allowed. Under current law, a retired person with an IRA can contribute up to $100,000 per year directly to a charity from their IRA. This contribution also counts toward an annual “required minimum distribution.” This ability will no longer be there.

Obama and the Fiscal 'Road to Hell' - Karl Rove

2010-07-01T14:19:00.000-07:00

Wall Street Journal | By KARL ROVE

At last week's G-20 meeting, President Barack Obama achieved a two-fer. He suffered a significant international defeat, and he increased the chances his party will suffer a major domestic one this fall.
Mr. Obama's international defeat was self-inflicted. He went to Toronto to press other major nations to do as he has done: Expand government spending, or suffer, in the president's words, "renewed economic hardship and recession."

Getty Images

President Barack Obama speaks at the G20 Summit in Toronto

Canada, Germany, Great Britain and most other countries declined Mr. Obama's invitation. The German economic minister "urgently" prodded America to cut spending at a press conference on June 21, prior to the G-20 meeting. The president of the European central bank took direct aim at Mr. Obama's argument, telling the Italian newspaper La Repubblica on June 16 that "the idea that austerity measures could trigger stagnation is incorrect."

The European Union president, Czech Prime Minister Mirek Topolanek, tore into Mr. Obama's stimulus and other spending policies in a stunning address to the European Parliament in March 2009, calling them "the road to hell" and saying "the United States did not take the right path."

If it sounds strange to have European leaders lecturing the U.S. about fiscal restraint, it should. But that is where America finds itself after Mr. Obama's 17-month fiscal orgy.

The other flaw in his G-20 appearance is domestic. The president's statements that more deficit spending was "necessary to keep economic growth strong" and his cautioning against "the consequential mistakes of the past" when stimulus spending "was too quickly withdrawn" puts his administration and party squarely in favor of policies unpopular with most Americans.

Since 2000, the Gallup organization has asked voters what they believe will be the most important problem for the U.S. in 25 years. This year Americans are saying the challenge will be the deficit. And last month, almost eight in 10 voters surveyed by the Associated Press called the federal budget deficit an "extremely" or "very important" issue.

There was more bad news Tuesday for Democrats from recent focus groups conducted in battleground congressional districts in Iowa, Ohio, New Jersey, Arkansas and Florida.
A report on these focus groups issued this week by Resurgent Republic (a group I helped found) showed that both political independents and tea party participants passionately denounced federal spending and deficits, using words like "reckless," "out of control," "unnecessary" and "unhelpful." The evidence suggests that both groups remain deeply skeptical of Mr. Obama's stimulus package and are unpersuaded by the administration's arguments in its favor.

The authors of the Resurgent Republic study concluded that both independents and tea party voters believe "nearly unanimously" that reckless government spending, not lack of tax revenues, is responsible for the deficits. This goes to the very heart of the modern Democratic agenda with its guiding philosophy of bigger government and higher taxes.

All of this negative news is wearing on the president. At the G-20's concluding news conference, Mr. Obama—brittle and petulant—attacked GOP critics "who are hollering about deficits," saying he would be "calling their bluff" next year by "presenting some very difficult choices." Then "we'll see how much of . . . the political arguments they're making right now are real, and how much of it was just politics."
The president's problem is largely a mess of his own making. Deficit spending did not begin when Mr. Obama took office. But he and his Democratic allies have supported, proposed, passed or signed and then spent every dime that's gone out the door since Jan. 20, 2009.

Voters know it is Mr. Obama and Democratic leaders who approved a $410 billion supplemental (complete with 8,500 earmarks) in the middle of the last fiscal year, and then passed a record-spending budget for this one. Mr. Obama and Democrats approved an $862 billion stimulus and a $1 trillion health-care overhaul, and they now are trying to add $266 billion in "temporary" stimulus spending to permanently raise the budget baseline.

It is the president and Congressional allies who refuse to return the $447 billion unspent stimulus dollars and want to use repayments of TARP loans for more spending rather than reducing the deficit. It is the president who gave Fannie and Freddie carte blanche to draw hundreds of billions from the Treasury. It is the Democrats' profligacy that raised the share of the GDP taken by the federal government to 24% this fiscal year.
This is indeed the road to fiscal hell, and it's been paved by the president and his party. Voters will have their chance this November to render their verdict on the Obama years. No wonder Republicans feel confident these days.

Mr. Rove, the former senior adviser and deputy chief of staff to President George W. Bush, is the author of "Courage and Consequence" (Threshold Editions, 2010).

Go back to Follow the Money Daily

Time runs out for 1.2 million on unemployment

2010-06-30T15:54:00.000-07:00

(Jerry's Comments: It is currently a sad state of affairs in our nation. The high unemployment that America has been suffering imparts extreme to our nation's economy. The time is counting down and Washington knows something must give. But the options are few when spending cuts are unacceptable and our monetary system remains corrupted by central banking schemes. America, this is your wake-up call.)

By Christina Zdanowicz, CNN
June 30, 2010 11:29 a.m. EDT

(CNN) -- With her unemployment benefits coming to a halt, Miriam Cintron is forced to make a difficult choice between health insurance and daily expenses.

Signing into her unemployment benefits account last week, the New Yorker was horrified to see she hadn't received any money for three weeks, she says.

What would the four-year cancer survivor do if she couldn't afford to pay her $650 monthly COBRA payment? Her health insurance helped pay for life-saving treatment before, so giving it up is not an option, she says.

When Cintron was laid off from her job as a case worker at a homeless shelter in late 2008, she never imagined she'd go on unemployment. But even with 17 years experience, she's been unable to land a new job.

Cintron isn't alone. Unemployment benefits are set to run dry for 1.2 million people nationwide Friday after the U.S. Senate decided not to extend a deadline to file for these benefits last week, according to the National Employment Law Project.

Come Saturday, the number of people cut from unemployment benefits will surge to 1.63 million, according to U.S. Department of Labor estimates. By mid-July, about 2 million unemployed Americans could lose their benefits.
It's very hard for me to get into this feeling sorry for myself. ... But I am getting there.
--Miriam Cintron, unemployed American

Before last month, out-of-work Americans were eligible for extensions once they maxed out at 26 weeks of state benefits. Depenging on the state, people could qualify for up to 73 weeks of federal benefits -- a total of 99 weeks. But, Senate Republicans blocked the extension with a 57-14 vote last week.

The House could vote again as soon as late Wednesday.

"The reality is that we have the worst job market on record going back to the Great Recession," says Maurice Emsellem, policy co-director at National Employment Law Project.

"There's only one job available for every five unemployed workers."

For people who are apt to say, "Go find a job," Emsellem says the predicament of the unemployed isn't easy to escape.

"For anybody that has a thought in their head that unemployed workers are to blame for their situation, the reality is that workers are struggling hard to find work, but the jobs are just not there."

National Employment Law Project resources for the unemployed

While Cintron has been struggling to make ends meet for the last year-and-a-half, she worries about other people in the same predicament.

"My story is one story and it's unique," she says. "But, there are so many people with children, other issues, that are in dire situations."

"I'm just shocked that more attention isn't being paid to this story."

She's thankful she doesn't have any children relying on her for support right now. But, she does care for her mother. Part of Cintron's unemployment checks have been going toward her mother's expenses since she moved in with her a few months before Cintron lost her job.

Cintron's $425 unemployment check each week -- or $1,700 each month -- has to stretch a long way. She pitches in for appliances, groceries and whatever else her mother needs. Health insurance payments burn a hole in her wallet at a whopping $650 per month. And then there's the storage fee of $300 she pays for all her excess furniture from her old apartment.

If Congress fails to pass the bill granting the unemployment benefit extensions this week, Cintron says she will only be able to stay afloat for a month. She will have to dip into her 401(k) retirement plan to continue to pay for health care, she says.

As to what happens after that, Cintron says she just doesn't know.

"I will try to survive and see what I can do for paying the health insurance for at least another few months with my 401(k)."

"I don't qualify for Medicaid, I make too much money. I have to pay the $650 to a private health insurer."

Finding the income to support her expensive health insurance hasn't been an easy task. For the last year-and-a-half, Cintron has been applying to jobs at homeless shelters in New York. Even though she has landed several interviews, they haven't amounted to anything.

"The agencies where I'm applying to, they're all cutting back too," she says, citing city funding cutbacks.

Cintron is considering part-time or customer service work as a last resort, but she's worried she may be worse off.

"I certainly don't want to live on unemployment," she says. "The customer service jobs don't pay well, don't have health insurance. I really need insurance because I'm a cancer survivor."

For now, Cintron keeps logging into the unemployment benefits website, typing in her account number and trying to claim benefits.

Cintron says the New York State Department of Labor has instructed her to keep logging in as normal, even though she's not getting a dime. Cintron says the website is confusing and she's unsure of how many extensions she's had.

With all the stress and lack of income, Cintron's been relying on hobbies to try to keep her spirits up.

Ever since she lost her job, she's been an active iReporter, scouting events and stories in her native New York. Videography and photography have become her focus. In this digital age, it's free for her to upload her images, so it's a cheap hobby.

Her other passion is music. She's sad she's had to nix going to concerts, but says she's lucky to live in a city where so many free shows are going on at any time.

Even though she's found ways to lead a semi-normal life, her time being unemployed is starting to wear her down.

"I'm a glass half-full kind of person. I'm a very positive person. It's very hard for me to get into this feeling sorry for myself, what-am-I-going-to-do mode," she says.

"But I am getting there."

UN report: Abandon the U.S. dollar

2010-06-30T09:37:00.001-07:00

REUTERS

A new United Nations report released on Tuesday calls for abandoning the U.S. dollar as the main global reserve currency, saying it has been unable to safeguard value.

"The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency," the U.N. World Economic and Social Survey 2010 said.

The report says that developing countries have been hit by the loss of value of the U.S. dollar in recent years.

"Motivated in part by needs for self-insurance against volatility in commodity markets and capital flows, many developing countries accumulated vast amounts of such (U.S. dollar) reserves during the 2000s," it said.

The report supports replacing the dollar with the International Monetary Fund's special drawing rights (SDRs), an international reserve asset that is used as a unit of payment on IMF loans and is made up of a basket of currencies.

"A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency," the U.N. report said.

It said a new reserve system "must not be based on a single currency or even multiple national currencies but, instead, should permit the emission of international liquidity (such as SDRs) to create a more stable global financial system."

"Such emissions of international liquidity could also underpin the financing of investment in long-term sustainable development," it said.

Nobel Prize winner Joseph Stiglitz, who previously chaired a U.N. expert commission that considered ways of overhauling the global financial system, is among the economists who have advocated the creation of a new reserve currency system, possibly based on SDRs.

© 2010 Reuters. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing or similar means, is expressly prohibited without the prior written consent of Reuters.

Consumer Confidence Index plummets to 52.9 in June; Lowest numbers since March

2010-06-29T12:40:00.000-07:00

U.S. consumer confidence plummets on job worries

By Ruth Mantell, MarketWatch

WASHINGTON (MarketWatch) -- U.S. consumers are increasingly worried about jobs and the economy, the Conference Board said Tuesday, as it reported that its consumer confidence index plummeted to 52.9 in June -- the lowest level since March -- from a downwardly revised 62.7 in May.

"Increasing uncertainty and apprehension about the future state of the economy and labor market, no doubt a result of the recent slowdown in job growth, are the primary reasons for the sharp reversal in confidence," said Lynn Franco, director of Conference Board's consumer research center. "Until the pace of job growth picks up, consumer confidence is not likely to pick up."

Earlier this month the government reported that nonfarm payrolls grew by a seasonally adjusted 431,000 in May, but most of the new jobs were temporary jobs at the U.S. Census, with very weak private-sector hiring. The government's next payrolls report is due out Friday, with economists polled by MarketWatch looking for a June contraction of 130,000.

Economists had expected a June reading for consumer confidence of 62.8. The Conference Board's prior reading for May was 63.3.

Consumers' view on the present situation and their expectations deteriorated in June, with both reaching the lowest levels since March, according to the Conference Board. Their view on the present situation fell to 25.5 in June from 29.8 in May, while the expectations barometer declined to 71.2 from 84.6.

Respondents saying current business conditions are "good" fell to 8% in June from 9.7% in May, while those saying jobs are "hard to get" rose to 44.8% from 43.9%.

Respondents saying they expect business conditions to be worse in six months rose to 14.9% in June from 11.9% in May, while the percentage of those expecting better business conditions fell to 17.2% from 22.8%. Those expecting fewer jobs rose to 20.8% from 17.8%, while those expecting more jobs fell to 16% from 20.2%.
Double dip?

While the confidence report could fuel fears of a "double-dip" recession undercutting U.S. gross domestic product, analysts at RDQ Economics said such worries may be misplaced.

"Confidence has double-dipped in the last two recoveries (in early 1992 and early 2003) without the economy falling back into recession and the June pullback in confidence is far less severe than either of those two episodes," according to an RDQ research note. "Furthermore, we think that the response to the oil leak in the Gulf of Mexico is depressing confidence."

Meanwhile, analysts at Barclays Capital Research said the confidence report contains volatility, and they expect a positive overall trend in confidence as the job market expands in the new few months.

"Despite the drop in today's report, the headline confidence index remains substantially higher than its recent trough," according to a Barclays research note. "Furthermore, this survey is usually conducted near the time of the release of the payroll report and places more emphasis on household reaction to labor market conditions, which may explain some of the pessimism in June since the May rise in private payrolls disappointed expectations."
Buying plans impacted

Consumers with plans to buy a home within six months fell to 1.9% in June - the lowest level since 1982 other than 1.7% in December, according to the Conference Board. In May 2.1% had plans to buy a home.

Those with plans to buy an automobile fell to a record low of 3.7% in June from 6% in May. The data go back to 1967.

Those with plans to buy major appliances fell to 22.9% in June from 26% in May.

"While the recession may have technically ended last summer, consumers remain skittish about job and income prospects and are refraining from consuming in a sufficient enough manner as to create substantial growth in GDP," wrote Dan Greenhaus, chief economic strategist with Miller Tabak, in a research note.

Expectations for the 12-month inflation rate fell to 5.2% in June from 5.3% in May.

Fannie-Freddie Bailout Could Cost Taxpayers $1 Trillion

2010-06-29T08:53:00.001-07:00

By: Reported by Steve Liesman, written by Michelle Lodge

For American taxpayers, now on the hook for some $145 billion in housing losses connected to Fannie Mae and Freddie Mac loans, that amount could be just the tip of the iceberg.

According to the Congressional Budget Office, the losses could balloon to $400 billion. And if housing prices fall further, some experts caution, the cost to the taxpayer could hit as much as $1 trillion.

Two things are clear: Taxpayers don’t want to foot the bill, and Fannie and Freddie, taken over by the government in 2008 to stanch the financial bloodletting, need a major overhaul.

“Some of us who don’t even own homes are paying to support others and their home ownership, and they ask ‘why?’ said Robert J. Shiller, a Yale University economics professor and co-creator of the S&P/Case-Shiller Home Price Indices.

The indices measure the US residential housing market by tracking changes in the value of residential real estate both nationally and in 20 metropolitan regions.

Shiller added that the mission of Fannie and Freddie should be severely cut back “so that they’re not helping middle-class homeowners, [but] they’re helping poor people get into the housing market.”

At the crux of the financial crisis, the government took over Fannie and Freddie to avert possible massive losses for banks, money-market funds and, perhaps, most importantly, foreign institutions that purchased billions of Fannie and Freddie debt because of its implied government guarantee.

The Chinese, for example, had invested heavily, and the US decided it didn’t want them to take a loss on their investment.

One possible scenario for the entities is to turn them into utilities, said Sean Dobson, CEO and chair of Amherst Securities, whose company trades as much as $50 billion in mortgages annually.

“Freddie and Fannie could be used to standardize the mortgage product,” Dobson said, “to completely describe what the risks are and then act as a conduit for the capital markets to take the risk.”

Secretive and Powerful BIS Annual Report Released

2010-06-29T08:51:00.000-07:00

The very fabric and the seams of the financial system are coming apart. Who knows what the timetable is for the implosion of the current monetary system? We are witnessing the greatest wealth transfer in history, and the horrors of the aftermath of this tragedy will not be forgotten for decades. Keep in mind that the stark warnings from today’s annual BIS (Bank for International Settlements) report are the very reason why it is so important for all readers globally to protect themselves and their families by owning gold.

This was from the annual report released today by the very secretive and extremely powerful BIS: “Three years after the onset of the crisis, expectations for recovery and reform are high but patience is wearing thin. Policymakers face a daunting legacy: the side effects of the ongoing financial and macroeconomic support measures, combined with the unresolved vulnerabilities of the financial sector, threaten to short-circuit the recovery; and the full suite of reforms necessary to improve the resilience of the financial system has yet to be completed.”

The BIS release continues: “When the transatlantic financial crisis began nearly three years ago, policymakers responded with emergency room treatment and strong medicine: large doses of direct support to the financial system, low interest rates, vastly expanded central bank balance sheets and massive fiscal stimulus. But such powerful measures have strong side effects, and their dangers are beginning to become apparent.”

“Here are the worst problems arising now from the continued use of the extraordinary programmes: Direct support is delaying vital post-crisis adjustment and runs the risk of creating zombie financial and non-financial firms. Low interest rates at the centre of the global economy are discouraging needed reductions in leverage, thereby adding to the distortions in the financial system and creating problems elsewhere.”

“The sustained bloat in their balance sheets means that central banks still dominate some segments of financial markets, thereby distorting the pricing of some important bonds and loans, discouraging necessary market-making by private individuals and institutions, and increasing moral hazard by making it clear that there is a buyer of last resort for some instruments. And the fiscal stimulus is spawning high and growing government debt that, in a number of countries, is now clearly on an unsustainable path.”

The first section of the BIS report concludes: “The financial disruptions in the first half of 2010 have brought the fragility of the industrial world’s financial system into stark relief: a shock of virtually any size risks a replay of the events we saw in late 2008 and early 2009. The sovereign debt crisis in Greece is clearly jeopardising Europe’s nascent recovery from the deep recession brought on by the earlier crisis.”

“Unlike then, however, we have hardly any room for manoeuvre. Policy rates are already at zero and central bank balance sheets are bloated. Although private sector debt has started to decline, public debt has taken its place, with sovereign fiscal positions already on an unsustainable path in a number of countries. In short, macro-economic policy is in a vastly worse position than it was three years ago, with little capacity to combat a new crisis – it will be difficult to find a source of further treatment should another emergency arise. Regaining the ability to react to economic and financial crises, by putting policies onto sustainable paths, is therefore a priority for macroeconomic policy.”

Notice the BIS report describes zombie banks and even zombie non-financial firms. They also describe the “high and growing government debt” as clearly unsustainable. They then go on to note the fragility of the financial system and the fact that another shock would be extraordinarily dangerous to the system because central banks are losing the ability to maneuver as interest rates are low and “central banks balance sheets are bloated.”

Gold is often referred to as an insurance policy, and it is one insurance policy you cannot be without when the financial system ultimately implodes. You must own gold to be on the right side of the greatest wealth transfer in history.

Eric King
KingWorldNews.com

The Third Depression

2010-06-28T07:39:00.000-07:00

By PAUL KRUGMAN
Published: June 27, 2010

Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

Recessions are common; depressions are rare. As far as I can tell, there were only two eras in economic history that were widely described as “depressions” at the time: the years of deflation and instability that followed the Panic of 1873 and the years of mass unemployment that followed the financial crisis of 1929-31.

Neither the Long Depression of the 19th century nor the Great Depression of the 20th was an era of nonstop decline — on the contrary, both included periods when the economy grew. But these episodes of improvement were never enough to undo the damage from the initial slump, and were followed by relapses.

We are now, I fear, in the early stages of a third depression. It will probably look more like the Long Depression than the much more severe Great Depression. But the cost — to the world economy and, above all, to the millions of lives blighted by the absence of jobs — will nonetheless be immense.

And this third depression will be primarily a failure of policy. Around the world — most recently at last weekend’s deeply discouraging G-20 meeting — governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.

In 2008 and 2009, it seemed as if we might have learned from history. Unlike their predecessors, who raised interest rates in the face of financial crisis, the current leaders of the Federal Reserve and the European Central Bank slashed rates and moved to support credit markets. Unlike governments of the past, which tried to balance budgets in the face of a plunging economy, today’s governments allowed deficits to rise. And better policies helped the world avoid complete collapse: the recession brought on by the financial crisis arguably ended last summer.

But future historians will tell us that this wasn’t the end of the third depression, just as the business upturn that began in 1933 wasn’t the end of the Great Depression. After all, unemployment — especially long-term unemployment — remains at levels that would have been considered catastrophic not long ago, and shows no sign of coming down rapidly. And both the United States and Europe are well on their way toward Japan-style deflationary traps.

In the face of this grim picture, you might have expected policy makers to realize that they haven’t yet done enough to promote recovery. But no: over the last few months there has been a stunning resurgence of hard-money and balanced-budget orthodoxy.

As far as rhetoric is concerned, the revival of the old-time religion is most evident in Europe, where officials seem to be getting their talking points from the collected speeches of Herbert Hoover, up to and including the claim that raising taxes and cutting spending will actually expand the economy, by improving business confidence. As a practical matter, however, America isn’t doing much better. The Fed seems aware of the deflationary risks — but what it proposes to do about these risks is, well, nothing. The Obama administration understands the dangers of premature fiscal austerity — but because Republicans and conservative Democrats in Congress won’t authorize additional aid to state governments, that austerity is coming anyway, in the form of budget cuts at the state and local levels.

Why the wrong turn in policy? The hard-liners often invoke the troubles facing Greece and other nations around the edges of Europe to justify their actions. And it’s true that bond investors have turned on governments with intractable deficits. But there is no evidence that short-run fiscal austerity in the face of a depressed economy reassures investors. On the contrary: Greece has agreed to harsh austerity, only to find its risk spreads growing ever wider; Ireland has imposed savage cuts in public spending, only to be treated by the markets as a worse risk than Spain, which has been far more reluctant to take the hard-liners’ medicine.

It’s almost as if the financial markets understand what policy makers seemingly don’t: that while long-term fiscal responsibility is important, slashing spending in the midst of a depression, which deepens that depression and paves the way for deflation, is actually self-defeating.

So I don’t think this is really about Greece, or indeed about any realistic appreciation of the tradeoffs between deficits and jobs. It is, instead, the victory of an orthodoxy that has little to do with rational analysis, whose main tenet is that imposing suffering on other people is how you show leadership in tough times.

And who will pay the price for this triumph of orthodoxy? The answer is, tens of millions of unemployed workers, many of whom will go jobless for years, and some of whom will never work again.

Derivative Monster: Alive and Kicking Despite Reforms

2010-06-28T07:30:00.000-07:00

by Martin D. Weiss, Ph.D. 06-28-10

Anyone who thinks the new financial reform law will save us from the next debt disaster must be dreaming. Here are the facts …

Fact: The U.S. derivatives that helped cause the last debt crisis are merely being shifted around like deck chairs on the Titanic.

Fact: Nothing whatsoever is being done about the derivatives monster overseas, which is more than TWICE as big.

Fact: Most important, despite months of debate and thousands of pages of legislation, the two biggest risk-mongers of all — the Treasury and the Fed — didn’t even get a slap on the wrist. They got more power.

Little has been done to address the huge derivatives risks that the Government Accountability Office (GAO) warned about 16 years ago in its landmark study, Financial Derivatives, Actions Needed to Protect the Financial System.

And nothing has been done to address the risks we warned Congress about 15 months ago in our white paper, “Dangerous Unintended Consequences.”

Need proof? Then read on …

Fact #1 Derivatives at U.S. Banks to Be Shifted Like Deck Chairs on the Titanic

In its latest update, the Comptroller of the Currency (OCC) reports that the national value of derivatives held by U.S. commercial banks is $216.5 trillion, or nearly FIFTEEN times the nation’s Gross Domestic Product.

Moreover, instead of diminishing, they’re getting larger, up by $3.6 trillion — the equivalent of one full quarter of GDP — in just the most recent three-month period.

Yes, regulatory reform takes some steps in the right direction, such as getting a piece of this monster off the street and under the roof of exchanges. But how far is that going to go toward protecting investors if the beast keeps growing bigger?

Despite the new reforms, derivatives will continue to grow in size. And they will continue to be highly leveraged investments that put financial institutions, their trading partners, individual investors, and the entire financial system at risk.

Congress knows — or should know — what these risks are; the GAO explicitly warned about them 16 years ago, long before the 2008 debt crisis began. Derivatives create massive exposure to:

(a) credit risk, defined as “the possibility of loss resulting from a counter party’s failure to meet its financial obligations”;

(b) market risk, “adverse movements in the price of a financial asset or commodity”;

(c) legal risk, “an action by a court or by a regulatory or legislative body that could invalidate a financial contract”;

(d) operations risk, “inadequate controls, deficient procedures, human error, system failure, or fraud”; and

(e) system risk, a chain reaction of financial failures that could threaten the national or global banking system.

Are these risks addressed in financial reform? Only marginally.

Moreover, the GAO warned that a handful of big players accounted for the overwhelming bulk of the derivatives trading — a dangerous concentration of risk.

Has this risk diminished since then? No, it is even more deeply entrenched today: The latest OCC tally of the largest 25 banks (Table 1, pdf page 23) shows that …

Just FOUR of the largest commercial banks — JPMorgan Chase, Bank of America, Citibank, and Goldman Sachs — control $205.3 trillion in derivatives, or 94.9 percent of the total held by all U.S. banks.
Only 25 of the top banks control $216.1 trillion in derivatives, or 99.82 percent of the total. In other words, for every $100 of derivatives, the big banks hold $99.82; while all the rest of the banks hold a meager 18 cents’ worth.

Does the new regulatory reform address this intense concentration of risk? Hardly. In fact, I fear it could have precisely the opposite effect, tacitly giving the government’s rubber stamp of approval to this dangerous oligopoly.

Fact #2 The Derivatives Monster Overseas Is Twice as Big. But Nothing Whatsoever Is Being Done to Tame It.

The Bank of International Settlements (BIS) reports that, at year-end 2009, the total notional amount of derivatives traded on the over-the-counter market globally was $614.7 trillion.

In addition, the total traded on organized exchanges was $21.7 trillion in futures contracts and another $51.4 trillion in options.

Grand total globally: $687.8 trillion.

Problem: At this juncture, strictly the portion held by U.S. banks (the $216.5 trillion tabulated by the OCC) has anything to do with the new legislation. The balance of $471.3 trillion — TWICE as much — remains outside the realm of any reforms.

Fact #3 Financial Reform Does Nothing to Curb The Two Biggest Risk-Mongers of All:The Treasury and the Fed

The financial reform bill grants both the U.S. Treasury Department and the Federal Reserve new powers and responsibilities to control and monitor the risk-taking of large financial institutions.

What’s ironic, however, is that these are precisely the agencies that have created — and continue to create — the greatest systemic risks of all:

The Treasury, by running the largest federal deficits of all time, exposes the U.S. bond market to the same kind of contagion risk that recently struck Greece, Spain, Portugal, and Hungary. And …
The Federal Reserve, by massively increasing the U.S. monetary base, helps create the same kind of speculative bubbles that caused the debt crisis in the first place.

Clearly, Congress has done little more than tinker — fighting the last war, even as it sits on the powder keg of the next one.

My recommendation: Stay safe. And if you have speculative fund available, start now to stake out positions that stand to profit from the consequences of our government’s failure to act decisively — higher interest rates and lower equity prices.

Good luck and God bless!

Martin

This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.

Top Global Bank tells clients to prepare for 'monster' money-printing by the Federal Reserve

2010-06-28T07:21:00.000-07:00

RBS tells clients to prepare for 'monster' money-printing by the Federal Reserve

As recovery starts to stall in the US and Europe with echoes of mid-1931, bond experts are once again dusting off a speech by Ben Bernanke given eight years ago as a freshman governor at the Federal Reserve.

By Ambrose Evans-Pritchard, International Business Editor
Published: 5:11PM BST 27 Jun 2010

Entitled "Deflation: Making Sure It Doesn’t Happen Here", it is a warfare manual for defeating economic slumps by use of extreme monetary stimulus once interest rates have dropped to zero, and implicitly once governments have spent themselves to near bankruptcy.

The speech is best known for its irreverent one-liner: "The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost."

Bernanke began putting the script into action after the credit system seized up in 2008, purchasing $1.75 trillion of Treasuries, mortgage securities, and agency bonds to shore up the US credit system. He stopped far short of the $5 trillion balance sheet quietly penciled in by the Fed Board as the upper limit for quantitative easing (QE).

Investors basking in Wall Street's V-shaped rally had assumed that this bizarre episode was over. So did the Fed, which has been shutting liquidity spigots one by one. But the latest batch of data is disturbing.

The ECRI leading indicator produced by the Economic Cycle Research Institute plummeted yet again last week to -6.9, pointing to contraction in the US by the end of the year. It is dropping faster that at any time in the post-War era.

The latest data from the CPB Netherlands Bureau shows that world trade slid 1.7pc in May, with the biggest fall in Asia. The Baltic Dry Index measuring freight rates on bulk goods has dropped 40pc in a month. This is a volatile index that can be distorted by the supply of new ships, but those who watch it as an early warning signal for China and commodities are nervous.

Andrew Roberts, credit chief at RBS, is advising clients to read the Bernanke text very closely because the Fed is soon going to have to the pull the lever on "monster" quantitative easing (QE)".

"We cannot stress enough how strongly we believe that a cliff-edge may be around the corner, for the global banking system (particularly in Europe) and for the global economy. Think the unthinkable," he said in a note to investors.

Roberts said the Fed will shift tack, resorting to the 1940s strategy of capping bond yields around 2pc by force majeure said this is the option "which I personally prefer".

A recent paper by the San Francisco Fed argues that interest rates should now be minus 5pc under the bank's "rule of thumb" measure of capacity use and unemployment. The rate is currently minus 2pc when QE is factored in. You could conclude, very crudely, that the Fed must therefore buy another $2 trillion of bonds, and even more if Europe's EMU debacle goes from bad to worse. I suspect that this hints at the Bernanke view, but it is anathema to hardliners at the Kansas, Richmond, Philadephia, and Dallas Feds.

Societe Generale's uber-bear Albert Edwards said the Fed and other central banks will be forced to print more money whatever they now say, given the "stinking fiscal mess" across the developed world. "The response to the coming deflationary maelstrom will be additional money printing that will make the recent QE seem insignificant," he said.

Despite the apparent rift with Europe, the US is arguably tightening fiscal policy just as hard. Congress has cut off benefits for those unemployed beyond six months, leaving 1.3m without support. California has to slash $19bn in spending this year, as much as Greece, Portugal, Ireland, Hungary, and Romania combined. The states together must cut $112bn to comply with state laws.

The Congressional Budget Office said federal stimulus from the Obama package peaked in the first quarter. The effect will turn sharply negative by next year as tax rises automatically kick in, a net swing of 4pc of GDP. This is happening as the US housing market tips into a double-dip. New homes sales crashed 33pc to a record low of 300,000 in May after subsidies expired.

It is sobering that zero rates, QE a l'outrance, and an $800bn fiscal blitz should should have delivered so little. Just as it is sobering that Club Med bond purchases by the European Central Bank and the creation of the EU's €750bn rescue "shield" have failed to stabilize Europe's debt markets. Greek default contracts reached an all-time high of 1,125 on Friday even though the €110bn EU-IMF rescue is up and running. Are investors questioning EU solvency itself, or making a judgment on German willingness to back pledges with real money?

Clearly we are nearing the end of the "Phoney War", that phase of the global crisis when it seemed as if governments could conjure away the Great Debt. The trauma has merely been displaced from banks, auto makers, and homeowners onto the taxpayer, lifting public debt in the OECD bloc from 70pc of GDP to 100pc by next year. As the Bank for International Settlements warns, sovereign debt crises are nearing "boiling point" in half the world economy.

Fiscal largesse had its place last year. It arrested the downward spiral at a crucial moment, but that moment has passed. There is a time to love and a time to hate, a time for war and a time for peace. The Krugman doctrine of perma-deficits is ruinous - and has in fact ruined Japan. The only plausible escape route for the West is a decade of fiscal austerity offset by helicopter drops of printed money, for as long as it takes.

Some say that the Fed's QE policies have failed. I profoundly disagree. The US property market - and therefore the banks - would have imploded if the Fed had not pulled down mortgage rates so aggressively, but you can never prove a counter-factual.

The case for fresh QE is not to inflate away the debt or default on Chinese creditors by stealth devaluation. It is to prevent deflation.

Bernanke warned in that speech eight years ago that "sustained deflation can be highly destructive to a modern economy" because it leads to slow death from a rising real burden of debt.

At the time, the broad money supply war growing at 6pc and the Dallas Fed's `trimmed mean' index of core inflation was 2.2pc.

We are much nearer the tipping today. The M3 money supply has contracted by 5.5pc over the last year, and the pace is accelerating: the 'trimmed mean' index is now 0.6pc on a six-month basis, the lowest ever. America is one twist shy of a debt-deflation trap.

There is no doubt that the Fed has the tools to stop this. "Sufficient injections of money will ultimately always reverse a deflation," said Bernanke. The question is whether he can muster support for such action in the face of massive popular disgust, a Republican Fronde in Congress, and resistance from the liquidationsists at the Kansas, Philadelphia, and Richmond Feds. If he cannot, we are in grave trouble.

President could get power to turn off Internet

2010-06-28T07:17:00.000-07:00

(Jerry's Comments: This new cybersecurity bill gives wide-ranging powers to the Executive branch of government to effectively turn off the internet for up to 4 months. We are still researching this new story and will discuss it in detail soon on our weekly radio show, Follow the Money Weekly.)

Obama 'Internet kill switch' plan approved by US Senate panel
President could get power to turn off Internet

By Grant Gross | TECHWORLD | Published: 11:02 GMT, 25 June 10

A US Senate committee has approved a wide-ranging cybersecurity bill that some critics have suggested would give the US president the authority to shut down parts of the Internet during a cyberattack.

Senator Joe Lieberman and other bill sponsors have refuted the charges that the Protecting Cyberspace as a National Asset Act gives the president an Internet "kill switch." Instead, the bill puts limits on the powers the president already has to cause "the closing of any facility or stations for wire communication" in a time of war, as described in the Communications Act of 1934, they said in a breakdown of the bill published on the Senate Homeland Security and Governmental Affairs Committee website.

The committee unanimously approved an amended version of the legislation by voice vote Thursday, a committee spokeswoman said. The bill next moves to the Senate floor for a vote, which has not yet been scheduled.

The bill, introduced earlier this month, would establish a White House Office for Cyberspace Policy and a National Center for Cybersecurity and Communications, which would work with private US companies to create cybersecurity requirements for the electrical grid, telecommunications networks and other critical infrastructure.

The bill also would allow the US president to take emergency actions to protect critical parts of the Internet, including ordering owners of critical infrastructure to implement emergency response plans, during a cyber-emergency. The president would need congressional approval to extend a national cyber-emergency beyond 120 days under an amendment to the legislation approved by the committee.

The legislation would give the US Department of Homeland Security authority that it does not now have to respond to cyber-attacks, Lieberman, a Connecticut independent, said earlier this month.

"Our responsibility for cyber defence goes well beyond the public sector because so much of cyberspace is owned and operated by the private sector," he said. "The Department of Homeland Security has actually shown that vulnerabilities in key private sector networks like utilities and communications could bring our economy down for a period of time if attacked or commandeered by a foreign power or cyber terrorists."

Other sponsors of the bill are Senators Susan Collins, a Maine Republican, and Tom Carper, a Delaware Democrat.

One critic said Thursday that the bill will hurt the nation's security, not help it. Security products operate in a competitive market that works best without heavy government intervention, said Wayne Crews, vice president for policy and director of technology studies at the Competitive Enterprise Institute, an anti-regulation think tank.

"Policymakers should reject such proposals to centralize cyber security risk management," Crews said in an e-mail. "The Internet that will evolve if government can resort to a 'kill switch' will be vastly different from, and inferior to, the safer one that will emerge otherwise."

Cybersecurity technologies and services thrive on competition, he added. "The unmistakable tenor of the cybersecurity discussion today is that of government steering while the market rows," he said. "To be sure, law enforcement has a crucial role in punishing intrusions on private networks and infrastructure. But government must coexist with, rather than crowd out, private sector security technologies."

On Wednesday, 24 privacy and civil liberties groups sent a letter raising concerns about the legislation to the sponsors. The bill gives the new National Center for Cybersecurity and Communications "significant authority" over critical infrastructure, but doesn't define what critical infrastructure is covered, the letter said.

Without a definition of critical infrastructure there are concerns that "it includes elements of the Internet that Americans rely on every day to engage in free speech and to access information," said the letter, signed by the Center for Democracy and Technology, the American Civil Liberties Union, the Electronic Frontier Foundation and other groups.

"Changes are needed to ensure that cybersecurity measures do not unnecessarily infringe on free speech, privacy, and other civil liberties interests," the letter added.

http://news.techworld.com/security/3228198/obama-internet-kill-switch-plan-approved-by-us-senate-panel/

G-20 World Leaders Agree to Cutting Deficits in Half by 2013

2010-06-28T07:06:00.000-07:00

By BOB DAVIS | WALL STREET JOURNAL

TORONTO—The wealthiest of the Group of 20 countries said they would halve their government deficits by the year 2013 and "stabilize" their debt loads by 2016, a signal to international markets and domestic political audiences they are taking seriously the need to wean themselves from stimulus spending.

The weekend G-20 meeting suggested the world economy has moved into a new phase since the financial crisis was in full flow. Then, these industrialized and developing nations focused heavily on promoting stimulus spending. Now, countries at least rhetorically are preoccupied by deficits and debts as a key to sustaining growth.

Expectations were limited for the Toronto session, largely because most of the issues of financial regulation weren't scheduled for completion until the end of the year at the Seoul summit. But the conference became a way for major nations to try to address fears in the market that government spending was spinning out of control.

The meeting's concluding statement, a compromise between two competing visions of the international economy, masked divisions between the U.S. and Europe evident in the run-up to the summit. The U.S. has warned that moving too fast to cut deficits and reduce stimulus spending could risk another global recession. European nations, especially Germany, have cautioned that moving too slowly could produce unsustainable debt loads, higher interest rates and even defaults.
More

* The G-20 Toronto Summit Declaration
* Divisions Remain on Financial Regulations
* Agenda: Bond Vigilantes Are in Charge
* Hu Urges Caution on Stimulus Exits
* Japan's Kan Makes Summit Debut
* G-8 Warns Recovery Remains Fragile
* Nearly 500 Protesters Arrested
* Read the full statement from G-8 leaders.
* Toronto Locks Down for G-20
* G-20 Dispatches | Photos | Full Coverage
* Video: To Get Attention, Be Creative
* Austerity on the Table Everywhere

With each side pushing, the U.S., and Europe cut what a U.S. official called a "combo deal." The U.S. agreed to make the goal of halving deficits a G-20 initiative, in exchange for G-20 support for language making growth the top priority, said a European official. President Barack Obama has already made similar deficit commitments back at home.

The statement characterized the recommended pace of deficit cutting as "growth friendly" — meaning it was supposed to demonstrate a will to reduce deficits, but didn't envision stepping too quickly off the accelerator. India, Brazil, China and other emerging countries were wary of undermining global growth especially in the U.S., the world's largest economy.

Chinese President Hu Jintao said, "We must act in a cautious and appropriate way concerning the timing, pace and intensity of an exit from the economic stimulus packages and consolidate the momentum of recovery of the world economy."

A G-20 statement called the global recovery "uneven and fragile" and said that to sustain growth, "we need to follow through on delivering existing stimulus plans, while working to create the conditions for robust private demand."

"The conversations were by and large pretty nuanced," said a senior U.S. official. "A variety of countries were saying, 'Let's be careful about the impact of synchronized withdrawal [of stimulus] but also be on the path of announcing to restoring strong public finances.'"

Germany, which has held itself out as the champion of austerity, took some potshots. German Finance Minister Wolfgang Schäuble used an interview in the French newspaper Le Monde to throw a jab at the U.S., saying Mr. Obama's giant stimulus spending has had little impact on the country's jobless rate, which remains well above 9%.

By Sunday, German Chancellor Angela Merkel was declaring solidarity with the U.S. and other nations.

French President Nicolas Sarkozy, meanwhile, seemed less than committed to the deficit-reduction goal, calling "a compromise, a point of equilibrium" rather than an "instruction from the G-20."

According to documents passed among G-20 countries, the U.S. and Germany, as well as France, Britain and Canada, are on similar paths of halving their deficits; the G-20 summit gave them a way of making those commitments more clear.

The U.S. estimates it will reduce its deficit to 4.2% of gross domestic product by 2013 from 10.1% currently, while Germany is looking at a 3% deficit in 2013, down from 5.5% in 2010. But the U.S. depends more on economic growth to reach its goal than does Germany, which is expected to grow at a slower pace.

They might have to make deeper cuts in deficits to comply with its pledge. A White House statement said that government debt in the fiscal year ending Sept. 30, 2015, would be at an "acceptable level." President Obama said that next year he would present "very difficult choices" to the country in an effort to meet deficit goals.

The president cited his disappointment with the U.S. tax code. "Next year, when I start presenting some very difficult choices to the country, I hope some of these folks who are hollering about deficits and debt step up, 'cause I'm calling their bluff," Mr. Obama said.

"Historically, summit commitments have helped countries to do what they wanted to do anyhow," said Ted Truman, a former Obama administration official who is now an economist at the Peterson Institute of International Economics. In the 1990s, he said, U.S. commitments in international forums to reduce its budget deficit "was widely viewed as maintaining the focus of deficit hawks on the issue," he said—although similar pressure didn't work in the 1980s.

The G-20 said it remained committed to the so-called rebalancing effort, started at the Pittsburgh G-20 summit in September 2009. In that exercise, countries with trade surpluses—especially China—were expected to commit to policy changes to reduce exports and boost domestic consumption, while trade-deficit countries—especially the U.S.—were expected to do the opposite in the so-called rebalancing initiative. The overall goal is to reduce dependence on recession-scarred U.S. consumers who are likely to spend less on imports than they did before the financial crisis.

In a economic simulation prepared for the G-20, the IMF estimated that if the U.S. and other wealthy countries slash budget deficits somewhat deeper than they are planning and China and other large emerging boost domestic consumption more strongly, global growth would expand 2.5% faster than it otherwise would in five years.

IMF Managing Director Dominique Strauss-Kahn praised the meeting's progress on Sunday, noting "I am encouraged by the conclusions of the G-20 Summit, including the active engagement of the leaders in developing the G-20 framework for strong, sustainable and balanced growth."

The Toronto summit was dogged by some of the largest demonstrations targeting an international economic meeting since the Seattle World Trade Organization riots of 1999. About 600 people were arrested in protests that started off peacefully but disintegrated into roving bands of violent youths. Some news briefings were interrupted by the violence, but the fights were far from where the leaders were meeting and didn't disrupt negotiations, as occurred in Seattle.

The G-20 session had remarkably little focus on problems or requirements of big developing countries. For China and India, the most significant part of the summit may have been that it was on the international calendar, allowing them to use it as a deadline to press for changes.

Both Washington and central bank officials in Beijing used the specter of the session to win Chinese government approval to let the its currency, the yuan, appreciate. In April, U.S. Treasury Secretary Timothy Geithner made clear that the U.S. expected a currency move by the G-20 summit when he delayed issuing Treasury's twice-yearly report on international currency practices. That could have used to accuse Beijing of manipulating the yuan to gain an edge in international trade.

In Beijing, says Eswar Prasad, a Cornell University economist who was the International Monetary Fund's chief China hand, the G-20 deadline helped officials in the central bank, who favored currency flexibility, in their fights with trade officials who wanted to keep the currency undervalued.

Indeed, there wasn't a specific mention in the G-20 statement pressing China to follow through on its commitment to let the currency appreciate. Rather it referred to the need for "greater exchange rate flexibility in some emerging markets."

The Indian government said Friday, just ahead of the summit, it would sharply reduce consumer subsidies for gasoline and kerosene. That would lower government spending and boost energy efficiency, complying with a longtime G-20 goal of reducing energy subsidies.

Much of the agenda, especially efforts to tighten capital and liquidity standards and other financial regulations won't be decided until the next G-20 leaders session in Seoul in November.

"What's left over for Seoul?" asked Hyun Song Shin, an adviser to South Korea's president. "Everything."

The G-20 toughened its ambitions, noting it wanted a level of capital that would enable banks to handle ""without extraordinary government support – stresses of a magnitude associated with the recent financial crisis." Previously, the G-20 hadn't set a qualitative goal.

But there remains hard bargaining ahead, particularly on setting a specific number as to how much capital is sufficient. A meeting in Basel, Switzerland, in July is aiming to make progress on that issue. Mario Draghi, chairman of the Financial Stability Board, which is working on the regulations, in a letter to G-20 leaders, noted that "good progress has been made in recent weeks towards new global standards to strengthen bank capital and liquidity, and limit leverage."

U.S. and European countries remain divided on an international leverage ratio and on whether to recommend taxes on banks. The U.S., Germany, U.K. and France back a levy to pay for the costs of bailouts while countries including Canada, Brazil and India, which didn't have to lay out public funds to recapitalize banks, oppose the idea.

President Obama added to the Seoul agenda when he said he wanted to rework parts of the Korean Free Trade Agreement during negotiations with South Korea and have a deal in hand by the Seoul summit.

—Nirmala Menon, Monica Gutschi and Ian Talley contributed to this article.

US state budget crises threaten social fabric

2010-06-28T07:00:00.000-07:00

(Jerry's Comments: According to the Center on Budget and Policy Priorities, America's total state budget shortfall equals $128 billion. 46 U.S. states are facing Greek-style deficits. This article points out things are just beginning to unravel.)

By Matthew Garrahan in Los Angeles

Published: June 27 2010 19:13 | Last updated: June 27 2010 19:13

The small southern California city of Maywood has hit on a unique solution to its budget crisis. Crushed by the recession and falling tax revenues, the city is disbanding its police force and firing all public sector employees.

Maywood has opted for an extreme solution, by contracting out all public services, including the most basic, to save cash. But it is not alone.

States around the US are cutting costs wherever possible as they prepare budgets for the fiscal year that starts this week for most of them. Their combined deficit is projected to reach $112bn by June 2011.

Local government activities, such as funding police, school buildings, fire departments, parks and social programmes, are in the line of fire.

“We are where the rubber meets the road,” said Sam Olivito of the California Contract Cities Association, which represents cities that outsource public services. “Local government is the fabric of our nation – it’s what keeps everything working properly.”

The biggest state deficit is in California, which has a $19bn hole in its finances. A series of contentious spending cuts is being debated in the state.

But for Maywood time has run out: the city’s insurance costs spiked because of long-running problems associated with its police department, while revenue from property and sales taxes declined. When city officials failed to respond to conditions imposed by its insurers, coverage was withdrawn.

Despite its problems, Maywood’s experience could be repeated elsewhere. “A lot of cities and municipalities are struggling to make ends meet,” said Mark Baldassare, president of the Public Policy Institute of California. “Local governments are so constrained by their budgets – they can’t raise taxes and they have rising pension obligations.”

While Californian cities and municipalities grapple with a drop in income – sales and property taxes have fallen by as much as 40 per cent, according to Mr Olivito – the state is considering a range of revenue-raising measures to tackle its deficit.

These include the legalisation of marijuana, which will be put to voters in November’s mid-term elections, and the possible introduction of digital car license plates, which will be capable of carrying moving advertisements.

But none of these initiatives will solve the short-term fiscal woes facing cities like Maywood. “There’s a real danger of a social fabric breaking down . . . all cities are trying to deal with the same thing,” said Mr Olivito.

There has been a sharp increase in the number of cities considering contracting out public services, he adds. “We’ve had 10 or 12 cities contact us recently. There have been three of four in Los Angeles County alone.” Outsourcing saves money because cities no longer have to finance the capital costs.

But it can change the dynamic of cities, Mr Baldassare points out, partly because local communities no longer have a direct link with the providers of those services. “Do people want public services that are accountable to them? How do you maintain a local community?”

Consumer spending, incomes edged up in May

2010-06-28T06:49:00.000-07:00

(Jerry's Comments: It's still scary out there for consumers as the global economy continues to teeter on the edge. The U.S. economic "recovery", which has been weak at best, has been exposed for what it is: a feeble attempt by the Federal government to stir confidence among consumers that the realities are not as bad as they seem. Consumers are "buying" it. Watch for the jobs report this Friday. We expect another round of bad news.)

Christopher S. Rugaber, AP Economics Writer, On Monday June 28, 2010, 9:29 am

WASHINGTON (AP) -- Americans spent a little more in May but not enough to speed along the economic recovery.

Consumer spending rose 0.2 percent last month after no change in April, the Commerce Department said Monday.

Incomes rose for the sixth time in seven months, boosting household finances and potentially providing fuel for greater future spending.

But money spent on goods declined. The increase came from spending on services -- much of that likely the result of Americans using more electricity as the weather warmed up.

Consumers "are still not setting this economic recovery alight, but nor are they rolling over in the face of ... high unemployment and lower (stock) prices," Paul Dales, an economist at Capital Economics, wrote in a note to clients.

Incomes rose 0.4 percent. The savings rate, or the percentage of income that wasn't spent, bumped up to 4 percent.

Consumer spending accounts for about 70 percent of economic activity.

The economy has grown for three straight quarters. Still, consumers are cautious, facing high unemployment, tight credit and a slumping housing market. If consumption remains sluggish, the economy may not grow fast enough to generate jobs and quickly bring down the 9.7 percent unemployment rate.

Wages and salaries rose 0.5 percent last month, the department said. Paychecks gained from recent increases in the average work week, as well as temporary census hiring.

Employers added 431,000 jobs in May, but the vast majority were temporary census positions. Private employers added only 41,000 jobs. About 250,000 of census jobs are expected to end this month.

Consumers haven't been driving the current recovery. Instead, it has depended more on business spending and exports. In the four quarters following the steep 1981-82 downturn, consumer spending rose by an average of 6.5 percent per quarter. By contrast, even as the economy has grown for the past three quarters, consumer spending rose an average of only 2.5 percent per quarter.

The government said earlier this month that retail sales fell sharply in May, a sign consumers were cutting back.

Department store J.C. Penney Co. and many teen merchants including Abercrombie & Fitch Co. and American Eagle Outfitters Inc. reported declines in revenue at stores open at least a year.

On Friday, the government said the economy grew at a 2.7 percent annual rate in the January-to-March quarter, lower than previously estimated. Consumer spending increased 3 percent, a decent pace, but below an earlier estimate of 3.5 percent.

Many analysts expect the economy will grow at about 3 percent in the current quarter. Still, some worry growth may slow in the second half of the year as the impact of government stimulus efforts fades.

(VIDEO) Geithner says US can 'no longer drive global growth'

2010-06-25T11:11:00.000-07:00

BBC

US Treasury Secretary Timothy Geithner has told the BBC that the world "cannot depend as much on the US as it did in the past".

He said that other major economies would have to grow more for the global economy to prosper.

He also played down any differences in policy between the US and Europe regarding deficit reduction.

Mr Geithner was speaking in Washington ahead of G8 and G20 meetings this weekend in Toronto.

He said all members of the group were "focused on the challenge of [building] growth and confidence", and would be working to this end at the meetings.

The Group of Eight and Group of 20 rich and developing nations are assembling on Friday for three days of talks on emerging from the worst financial crisis since the Great Depression.

UK Prime Minister David Cameron, who has arrived in Canada along with other leaders, said in an article for the Globe And Mail newspaper: "No-one can doubt the biggest promise we have to deliver: fixing the global economy."

"I believe we must each start by setting out plans for getting our national finances under control," he added.
Common goals

Many European governments have implemented severe austerity measures in recent weeks in order to cut debt levels.

In a letter to G20 leaders last week, US President Barack Obama warned against cutting national debts too quickly as it would put economic recovery at risk.
Continue reading the main story

We're in the very good position of being able to deliver relatively strong growth rates [compared] to what we're seeing in other major economies

Timothy Geithner US Treasury Secretary

But Mr Geithner said the US and Europe "have much more in common than we have differences".

"We all agree that we have to restore responsibility to our fiscal positions. Everyone agrees that those deficits have to come down over time to a level that's sustainable," he said.

But he said that the US and Europe would take "different paths, at a different pace" in order to reach the common goal.

"It's going to require different things as we have different strengths and weaknesses," he said.

Mr Geithner said the US was not in a position to work out what were the best policies for European countries to pursue.
'Strong growth'

The treasury secretary said the US had laid out "very ambitious plans as well" to cut its deficit.

But he said the US was in a stronger position than many other economies to cut its debt levels.

"We're in the very good position of being able to deliver relatively strong growth rates [compared] to what we're seeing in other major economies," he said.

Some commentators in Europe argue that austerity measures should only be introduced once strong growth has been secured in the wake of the global downturn.

This was a more widely held position until the Greek debt crisis focused policymakers' minds on cutting debt levels.

The Greek crisis showed that governments with high levels of debt find it very difficult to borrow money from international investors, money that they need to service existing debts.

FOR SALE: Greek Islands

2010-06-25T11:09:00.000-07:00

Elena Moya
guardian.co.uk, Thursday 24 June 2010 21.33 BST

There's little that shouts "seriously rich" as much as a little island in the sun to call your own. For Sir Richard Branson it is Neckar in the Caribbean, the billionaire Barclay brothers prefer Brecqhou in the Channel Islands, while Aristotle Onassis married Jackie Kennedy on Skorpios, his Greek hideway.

Now Greece is making it easier for the rich and famous to fulfill their dreams by preparing to sell, or offering long-term leases on, some of its 6,000 sunkissed islands in a desperate attempt to repay its mountainous debts.

The Guardian has learned that an area in Mykonos, one of Greece's top tourist destinations, is one of the sites for sale. The area is one-third owned by the government, which is looking for a buyer willing to inject capital and develop a luxury tourism complex, according to a source close to the negotiations.

Potential investors also looking at property on the island of Rhodes, are mostly Russian and Chinese. Investors in both countries are looking for a little bit of the Mediterranean as holiday destinations for their increasingly affluent populations. Roman Abramovich, the billionaire owner of Chelsea football club, is among those understood to be interested, although a spokesman denied he was about to invest.

Greece has embarked on the desperate measures after being pushed into a €110bn (£90bn) bailout by the EU and the IMF last month, following a decade of overspending and after jittery investors raised borrowing costs to unbearable levels.

The sale of an island – or convincing a member of the international jet-set to take on a long-term lease – would help to boost its coffers. The Private Islands website lists 1,235-acre Nafsika, in the Ionian sea, on sale by private interests for €15m. But others are on offer by private owners for less than €2m – less than a townhouse in Mayfair or Chelsea. Some of the country's numerous islands are tiny which could barely fit a single sunbed.

Only 227 Greek islands are populated and the decision to press ahead with potential sales has also been driven by the inability of the state to develop basic infrastructure, or police most of its islands. The hope is that the sale or long-term lease of some islands will attract investment that will generate jobs and taxable income.

Told by the Guardian that such sales or leases were in prospect, Makis Perdikaris, director of Greek Island Properties, said that he would be unhappy at the prospect of any outright sale of state land: "I am sad - selling off your islands or areas that belong to the people of Greece should be used as the last resort," he said. But he was not necessarily against long-term leases: "The first thing is to develop the economy and attract foreign domestic investment to create the -necessary infrastructure. The point is to get money."

In its battle to raise funds, the country is also planning to sell its rail and water companies. Chinese investors are understood to be interested in the Greek train system, as they already control some of the ports. In a deal announced earlier this month, the Greek government also agreed to export olive oil to China.

After the socialist government of prime minister Geórgios Papandreou responded to the IMF bailout with draconian budget cuts, rioters took to the streets, costing three lives in May.

In the midst of the crisis, the German chancellor, Angela Merkel, delayed her support as she faced local elections and popular opposition to any public-funded help to Greece.

As strikes almost paralysed the country and hedge funds bet against the economy, German politicians called for Greece to start selling islands, historic buildings and artworks. It now appears that the Greek government has heeded their demands.

The City, where investors are increasingly shunning Greek investments, welcomed any island sales. "It's a shame if it has come to this but it does at least demonstrate that Greece is prepared to take all actions necessary to try and meet its obligations," said Gary Jenkins, a credit analyst at Evolution Securities.

Property prices have fallen between 10% and 20% since the May riots in Athens, as bad publicity has drawn visitors away, Perdikaris said.

"We have experienced a very slow booking season. Most tour operators offer hugely discounted rates," he said. Britons account for more than 60% of his company's property sales.

• This article was amended on 25 June 2010. The original heading - Greece puts its islands up for sale to save economy - went beyond what the story said. This has been corrected. A reference to Natsika has been amended to make clear this sale offer is private. More context has been added to a quotation from Makis Perdikaris, director of Greek Island Properties, to make clear that he was not expressing knowledge of existing Greek government sales of islands or island land.

RUSSELL: THIS IS ONE OF THE LARGEST TOPS IN STOCK MARKET HISTORY

2010-06-24T07:32:00.000-07:00

Jerry's Comments: To say that Richard Russell is a precious metals bull is a great understatement. Russell has been one of the most influential voices among investors for years and he is now advocating that investors stockpile gold bullion. You know that I believe in diversification because you never know when the "rules of the game" will change. Enjoy the article.

RUSSELL: THIS IS ONE OF THE LARGEST TOPS IN STOCK MARKET HISTORY

23 June 2010 by TPC 74 Comments

Richard Russell has grown very vocally bearish in recent months. Earlier this year, Russell warned that the stock market was once again becoming grossly overvalued despite its relentless new highs. He has maintained that the bear market never ended and that the world is far too indebted to exit the bear market. He also believes the bear will not end until all fiat currencies have failed. Although I disagree with him on many aspects of the micro I agree with his larger macro outlook. This bear market is not over. The secular bear market lives on. Mr. Russell thinks we might be on the verge of a terrible collapse:

“We’re now in the process of building one of the largest tops in stock market history. The result, I think, will be the most disastrous bear market since the ‘30s, and maybe worse.

Question: “What could possibly be behind such a bear market?” you ask. “The stock market is stirring up optimism on a weekly, if not daily basis, by not falling apart.”

Answer: This is the “rest” or “dead zone” I was talking about. Bear markets don’t conclude in a day, a week or a month. Months will go by, often adding to the bulls’ optimism.
I think the key element behind this great bear market will be the complete destruction of all fiat currencies. This has been a long time coming. Fiat currencies are “wealth” created by man. They are created without sacrifice, without labor, without risk, and without sweat. Basically they are an immoral device, created by secretive bankers.
If you watch the figures carefully, you’ll note the subtle deterioration. For instance, the advance-decline ratio, although up slightly for the week, had a relatively weak performance with the Dow up several hundred points over the course of the week. And we broke the trendline in May (see the chart below showing the cumulative advance-decline line for NYSE Common Stock only, which is what we publish in our figures (courtesy of DecisionPoint — www.decisionpoint.com). The vertical lines are Jan 2008, Jan 2009 and Jan 2010 as you move to the right on the chart.

My old friend, Bob Prechter, is talking about Dow 400. I used to think this was an absurd joke. I no longer think it’s a joke. The ultimate result will be a primary bear market shocking in duration and extent.

Gold: As for gold, its stellar performance goes on. This in the face of ominous warnings of various worried experts. On Friday, August gold rose to a new record high. The next step will be into the 1300s — point&figure upside objective is now 1310.

Gold shares are lagging bullion in this last move, not yet showing the break-out seen in the yellow metal.

The world (minus the US) is loading up with the yellow metal with banks running out of vault space. The great 10-year primary bull market is moving into its 11th year. The bull market in gold attests to the systematic decline in the value of the dollar compared with real money – gold.
One of the greatest modern traders, John Paulson, who made billions on the housing collapse, has, I understand, all his personal money in gold-related items. Many of my subscribers have now built gold profits beyond anything they have ever achieved before. I know at this point one could get itchy fingers thinking of the profits achievable by switching gold for fiat currency. I warn subscribers, stay on the yellow brick road. The big profits, the astounding profits, will accrue when gold finally bursts loose of its prejudices and freely expresses itself.
My advice now is to put as much of your money as you’re comfortable with in bullion coins. Remember the simple phrase that’s been around through years of history – “There’s no fever like gold fever.” Fiat money is doomed. Act on it.”

Source: Dow Theory Letters

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New home sales plunge to lowest level on record

2010-06-24T06:32:00.000-07:00

Jerry's Comments: The housing market continues to go down due to a wide variety of factors. As we have predicted, the housing picture will not improve markedly until after 2012. This is due to the new waves of foreclosures and defaults thanks to the many Option Arm and Alt-A loans that were issued over the last several years. Get ready for the Sub-prime crisis, Part 2.

From Bloomberg

Purchases of new homes in the U.S. fell in May to a record low as a tax credit expired, showing the market remains dependent on government support.

Sales collapsed a record 33 percent to an annual pace of 300,000 last month from April, less than the median estimate of economists surveyed by Bloomberg News and the fewest in data going back to 1963, figures from the Commerce Department showed today in Washington. Demand in prior months was revised down.

Stocks dropped and Treasuries rose as the report added to signs of weakness in the economy after a decline in retail sales and a slowdown in private job growth. A lack of inflation and concern over jobs and housing are among reasons Federal Reserve policy makers today are likely to renew a pledge to keep interest rates near zero for an “extended period.”

“May was a bad month for the economy,” J. Alfred Broaddus, former Richmond Fed president, said in an interview on Bloomberg Television’s “In Business With Margaret Brennan.” When the Fed releases its policy statement today, its language on the economy will be “markedly more pessimistic,” he said.

The Standard & Poor’s 500 Index fell 0.6 percent to 1,089.27 at 10:39 a.m. in New York. The S&P Supercomposite Homebuilder Index decreased 0.4 percent. The yield on the 10- year Treasury note fell to 3.11 percent from 3.17 percent late yesterday.

Exceeds Drop Projected

Sales were projected to drop 19 percent to a 410,000 annual pace, according to median estimate of 76 economists surveyed by Bloomberg News. Forecasts ranged from 300,000 to 530,000. The government revised April’s purchase rate down to 446,000 from a previously reported 504,000.

The median sales price decreased 9.6 percent from the same month last year, to $200,900, today’s report showed.

Purchases dropped in all four U.S. regions last month, led by a record 53 percent drop in the West.

The supply of homes at the current sales rate jumped to 8.5 month’s worth, from 5.8 months in April. There were 213,000 new houses on the market at the end of May, the fewest since 1970.

A report yesterday showed sales of previously owned homes unexpectedly fell in May, adding to concern the retrenchment following the end of the tax incentive will be deeper than anticipated. Existing house purchases, calculated when a contract closes, dropped to a 5.66 million annual rate, the National Association of Realtors said.

New-home sales are considered a more timely barometer of the market than purchases of previously owned homes, which account for about 90 percent of the housing market.

Housing Slump

Other data show the market is starting to stumble. Housing starts in May declined by the most since March 2009, and building permits, a sign of future construction, fell to a one- year low, data from the Commerce Department showed. The National Association of Home Builders/Wells Fargo confidence index for June fell by the most since November 2008.

The number of mortgage applications filed to purchase houses dropped this month to the lowest level since 1997, according to data from the Mortgage Bankers Association.

The Standard & Poor’s Supercomposite Homebuilder Index, which includes Toll Brothers Inc. and Lennar Corp., has dropped 28 percent since reaching a 19-month high on May 3. The broader S&P 500 Index is down 10 percent from April 23’s 19-month peak.

Builders are also concerned that the Gulf oil spill and European debt crisis are hurting buyer confidence. Toll, the largest U.S. luxury homebuilder, said deposits have been running 20 percent behind the year-earlier period the past three weeks.

Consumer Outlook

“Concerns about the financial crisis in Europe and escalating regional political tensions, coupled with worries about the oil spill in the Gulf of Mexico and its effects on the economy and the environment have negatively impacted the outlook of American consumers,” Joel H. Rassman, chief financial officer at Horsham, Pennsylvania-based Toll, said in a June 16 statement.

Hovnanian Enterprises Inc., the largest homebuilder in New Jersey, said orders fell 17 percent in the quarter ended April 30 from a year earlier, and contract signings slowed in May, indicating the tax credit helped pull some sales forward.

To contact the reporters on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net; Timothy R. Homan in Washington at thoman1@bloomberg.net.

Merrill Lynch: "Gold Will Hit $1,400/oz by 2012"

2010-06-23T06:58:00.000-07:00

Jerry's Comments: While the mainstream financial commentators continue to live in denial over the global economy's state of affairs, governments and central banks are buying gold in droves. Always remember to ignore the hype and follow the money.

Mineweb.com
Author: Dorothy Kosich
Posted: Tuesday , 22 Jun 2010

RENO, NV - Merrill Lynch metals analysts maintain gold will hit a US$1,500 per ounce target by the end of next year as investor demand pushes gold prices higher.
In research published Monday, analysts Michael Widmer, Francisco Blanch, and Alex Tonks are predicting average gold price forecasts of US$1,200/oz this year, $1,350/oz in 2011, and $1,400/oz in 2012, up from $1110/oz, $1179/oz and $1109/oz. respectively.

"We also believe that silver has further upside and see prices averaging $18/oz, $20.25/oz and $21/oz in 2010, 2011 and 2012 respectively," they forecast.

"Our positive view on gold and silver prices is heavily influenced by the current macroeconomic environment and we believe that the following three developments will have a significant impact on these metals:

"Central banks have eased monetary policy reflected in sharp rises of money supply;
"Government debt has soared to make up for the private sector consumption short-fall;

"Potential GDP growth rates have come under pressure."

In their latest analysis, Merrill Lynch noted, "ETFs have been a decent proxy for the strength of retail investor demand and these vehicles have seen substantial inflows during the past years." Recent data has shown that investors have once again started to increase their ETF holdings.

"It is also worth noting that investment demand in emerging markets like China has remained at very high levels," the analysts said. "This is partially influenced by growing real incomes, the launch of gold investment products and some apprehension over the value of other investment alternatives, such as equity and property."
"The importance of investors for the gold market will not change significantly in the coming years, in our view. Hence, we believe that a substantial part of marginal gold demand will continue to emanate from these market participants."
The analysts also suggested the economic environment is bullish for gold as loose monetary policy tends to attract investors into gold. They asserted that concerns over inflation "could bring new buyers into the gold market in the medium-term."
Meanwhile, although deflation is not normally viewed as bullish for gold, "we believe that the metal could rise on the back of it in the coming quarters," they advised.

"Keeping in mind that recent rises in gold prices were almost exclusively driven by concerns over sovereign debt in the Eurozone, we especially believe that challenges to reduce public liabilities should bring new buyers into the gold market in the coming quarters," they added. "There is also a risk that government may ultimately try to inflate debt away, which should attract gold buyers, too."

Merrill Lynch-Australia analysts Stephen Gorenstein and Anthony Kuo said Tuesday that they believe continued macro uncertainty will drive investor demand for gold.
"We believe central banks may be net buyers of gold given concerns over valuations of their securities in their portfolios," they suggested.

Asian millionaires overtake Europeans

2010-06-23T06:18:00.000-07:00

Jerry's Comments: Here's more proof of the fact that global power shift is gaining speed. The West is suffering a slow and painful death. The Far East is the direct beneficiary. The Middle East can also benefit dramatically if they can learn how to better harness their immense oil wealth as well as to integrate economically and politically. In the meantime, China's rise to status of global empire is not surprising. They are no stranger in the history of empires.

By Ellen Kelleher in London

Published: June 22 2010 20:32 | Last updated: June 22 2010 20:32

The net wealth of Asian millionaires has eclipsed that of rich Europeans for the first time, largely because of the relative health of stock markets in Hong Kong, India and China last year, according to a new survey.

The annual Merrill Lynch Wealth Management /Capgemini analysis of investors with $1m or more in assets found that as of late last year, there were 3m millionaires in both the Asia-Pacific and Europe. The survey quantified the wealth held in Asia at $9,700bn, compared with $9,500bn in Europe.

Nick Tucker, head of Merrill Lynch Wealth Management’s operations for the UK and Ireland, said: “It’s not a bubble. Asia has caught up with Europe in terms of its high-net worth population and their wealth.”

The survey defines millionaires as people with net financial wealth of more than $1m, excluding their primary residence.

The rise of Asian millionaires is being tracked by the industry that manages the fortunes of rich individuals, with banks moving senior staff to Singapore and Hong Kong to chase new clients.

After taking a hit in 2008 during the financial crisis, the wealth of the world’s millionaires recovered last year with the upswing in stock markets, rising 19 per cent to $39,000bn.

North Americans are still the best-off. At the end of last year, the continent was home to 3.1m millionaires worth $10,700bn.

The US, Japan and Germany produce about half of all millionaires, who were numbered at 10m in 2009. China was ranked fourth, boasting 477,000 individuals with $1m or more in their accounts. India is catching up, having seen the number of millionaires rise more than 50 per cent to 126,756 in 2009.

Though the UK economy shrank, British millionaires swelled to 448,100, up 24 per cent from 2008. Russian millionaires also saw their ranks rise to 117,700.

The Middle East struggled, with the United Arab Emirates losing 19 per cent of its millionaires in 2009 as the Dubai property crisis took its toll.

Investments by the wealthy in fixed-income instruments crept up to 31 per cent from 29 per cent in 2008 and allocations to equities also increased slightly to 29 per cent from 25 per cent in the previous year.

Cash holdings dropped, meanwhile, as investors grew dissatisfied with the poor rates on high street banks’ savings accounts.

Demand for art, coins, antiques and wines picked up again toward the tail end of last year, as the wealthy sought out collectibles with “tangible, long-term” value, the study said.

Is U.S. Now On Slippery Slope To Tyranny? - Thomas Sowell

2010-06-22T06:12:00.000-07:00

Jerry's comments: For as long as I can remember I have looked forward to reading Thomas Sowell's columns for his acute insights. He is a former economics professor and has written some great books, including one called: Basic Economics. In my opinion, it is a must-read for anyone who wants to understand the way the U.S. economy works - and doesn't work.

Is U.S. Now On Slippery Slope To Tyranny?
By THOMAS SOWELL
Posted 06/21/2010 06:13 PM ET

When Adolf Hitler was building up the Nazi movement in the 1920s, leading up to his taking power in the 1930s, he deliberately sought to activate people who did not normally pay much attention to politics.

Such people were a valuable addition to his political base, since they were particularly susceptible to Hitler's rhetoric and had far less basis for questioning his assumptions or his conclusions.

"Useful idiots" was the term supposedly coined by V.I. Lenin to describe similarly unthinking supporters of his dictatorship in the Soviet Union.

Put differently, a democracy needs informed citizens if it is to thrive, or ultimately even survive.

In our times, American democracy is being dismantled, piece by piece, before our very eyes by the current administration in Washington, and few people seem to be concerned about it.

The president's poll numbers are going down because increasing numbers of people disagree with particular policies of his, but the damage being done to the fundamental structure of this nation goes far beyond particular counterproductive policies.

Just where in the Constitution of the United States does it say that a president has the authority to extract vast sums of money from a private enterprise and distribute it as he sees fit to whomever he deems worthy of compensation? Nowhere.

And yet that is precisely what is happening with a $20 billion fund to be provided by BP to compensate people harmed by their oil spill in the Gulf of Mexico.

Many among the public and in the media may think that the issue is simply whether BP's oil spill has damaged many people, who ought to be compensated.

But our government is supposed to be "a government of laws and not of men."

If our laws and our institutions determine that BP ought to pay $20 billion — or $50 billion or $100 billion — then so be it.

But the Constitution says that private property is not to be confiscated by the government without "due process of law."

Technically, it has not been confiscated by Barack Obama, but that is a distinction without a difference.

With vastly expanded powers of government available at the discretion of politicians and bureaucrats, private individuals and organizations can be forced into accepting the imposition of powers that were never granted to the government by the Constitution.

If you believe that the end justifies the means, then you don't believe in constitutional government.

Bank failure is 83rd in '10; pace more than double last year's

2010-06-22T06:07:00.000-07:00

WASHINGTON (AP) — Regulators on Friday shut down a Nevada bank, raising to 83 the number of U.S. bank failures this year.

The 83 closures so far this year is more than double the pace set in all of 2009, which was itself a brisk year for shutdowns. By this time last year, regulators had closed 40 banks. The pace has accelerated as banks' losses mount on loans made for commercial property and development.

The Federal Deposit Insurance Corp. took over Nevada Security Bank, based in Reno, with $480.3 million in assets and $479.8 million in deposits. Umpqua Bank, based in Roseburg, Ore., agreed to assume the assets and deposits of the failed bank.

In addition, the FDIC and Umpqua Bank agreed to share losses on $368.2 million of Nevada Security Bank's loans and other assets.

The number of bank failures is expected to peak this year and be slightly higher than the 140 that fell in 2009. That was the highest annual tally since 1992, at the height of the savings and loan crisis. The 2009 failures cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008, the year the financial crisis struck with force, and only three succumbed in 2007.

As losses have mounted on loans made for commercial property and development, the growing bank failures have sapped billions of dollars out of the deposit insurance fund. It fell into the red last year, and its deficit stood at $20.7 billion as of March 31.

The number of banks on the FDIC's confidential "problem" list jumped to 775 in the first quarter from 702 three months earlier, even as the industry as a whole had its best quarter in two years.

A majority of institutions posted profit gains in the January-March quarter. But many small and midsized banks are likely to continue to suffer distress in the coming months and years, especially from soured loans for office buildings and development projects.

The FDIC expects the cost of resolving failed banks to grow to about $100 billion over the next four years.

The agency mandated last year that banks prepay about $45 billion in premiums, for 2010 through 2012, to replenish the insurance fund.

Depositors' money — insured up to $250,000 per account — is not at risk, with the FDIC backed by the government.

China to Overtake U.S. as World's Top Manufacturer

2010-06-21T04:42:00.001-07:00

By Peter Marsh

Published: June 20 2010 17:43 | Last updated: June 20 2010 17:43

The US remained the world’s biggest manufacturing nation by output last year, but is poised to relinquish this slot in 2011 to China – thus ending a 110-year run as the number one country in factory production.

The figures are revealed in a league table being published on Monday by IHS Global Insight, a US-based economics consultancy.

Last year, the US created 19.9 per cent of world manufacturing output, compared with 18.6 per cent for China, with the US staying ahead despite a steep fall in factory production due to the global recession.

That the US is still top comes as a surprise, since in 2008 – before the slump of the past two years took hold – IHS predicted it would lose pole position in 2009.

However, a relatively resilient US performance kept China in second place, says IHS, which predicts that faster growth in China will deny the US the top spot next year.

The US became the world’s biggest manufacturer in the late 1890s, edging the then-incumbent – Britain – into the number two position.

Hal Sirkin, head of the global operations practice at Chicago-based Boston Consulting Group, said the US should not despair too much at the likelihood that it would lose the global crown in manufacturing to China.

“If you have a country with four times the population of the US and a tenth of the wages, it is fairly obvious they will pull ahead at some time in productive capabilities,“ he said.

Last year, according to IHS, goods output by the US totalled $1,717bn, ahead of China at $1,608bn.

However in 2011, on the basis of IHS’s estimates, China’s factory output will come to $1,870bn, a fraction ahead of the projected US figure for the year.

If China does become the world’s biggest manufacturer, it will be a return to the top slot for a nation which – according to economic historians – was the world’s leading country for goods production for more than 1,500 years up until the 1850s, when Britain took over for a brief spell, mainly due to the impetus of the industrial revolution.

The IHS figures are worked out on the basis of current-year output numbers, translated into dollars, with no adjustments for inflation. If the figures are calculated in inflation-adjusted, constant price terms, then I HS believes that the US will keep its top role in manufacturing for a little longer.

On an inflation-adjusted basis, which is based on a forecast that US inflation will be lower than that in China over the next few years, China is forecast to take over the number one position in manufacturing in 2013-14.

According to the IHS numbers, world manufacturing output last year came to $8,638bn (€6,979bn, £5,825bn) or 16.7 per cent of global gross domestic product.

Another Record High for Gold: $1265/oz

2010-06-21T04:40:00.000-07:00

By Nicholas Larkin and Kim Kyoungwha - Jun 21, 2010

Gold rose to a record in London and New York as other commodities gained on speculation demand for raw materials will increase and as investors bought the metal to protect wealth from Europe’s financial turbulence.

China, the world’s third-largest economy, said it may allow the yuan to move higher, making commodities priced in other currencies less expensive for Chinese consumers. Bullion gained in eight of the past nine weeks on speculation debt-cutting measures by European nations will slow expansions. Other precious metals rose to the highest levels in at least a month.

“Gold is benefiting from other commodities,” said Jesper Dannesboe, a senior commodity strategist at Societe Generale SA in London. The China news “is a catalyst, a trigger for buying today. People are still worried about sovereign debt levels.”

Gold, up 15 percent this year, is heading for its 10th consecutive annual gain, the longest winning streak since at least 1920. Bullion has outperformed other commodities as global equities slipped, and this month reached all-time highs in euros, sterling and Swiss francs. Holdings in exchange-traded funds backed by gold reached records, while coin sales from mints accelerated, tightening supplies.

Gold for immediate delivery added as much as $8.50, or 0.7 percent, to $1,265.30 an ounce and traded at $1,260 at 11:41 a.m. in London. It surpassed the previous all-time high of $1,262.50 set June 18. The metal for August delivery was 0.2 percent higher at $1,261.10 on the Comex in New York after reaching $1,266.50.

The metal rose to $1,259.50 an ounce in the morning “fixing” in London, used by some mining companies to sell output, from $1,256 at the afternoon fixing on June 18.

Stronger Yuan

A stronger yuan will help curb inflation in the world’s third-largest economy and shift investment toward service industries from export-manufacturing, the People’s Bank of China said yesterday. Chinese authorities had prevented the currency from strengthening against the dollar since July 2008 to help exporters cope with the global financial crisis.

“The impact on China in the short term will be neutral for gold prices,” Wallace Ng, executive director with Fortis Nederland NV in Hong Kong, said in an interview with Bloomberg Television. A stronger yuan will benefit gold prices in the longer term because it will increase the purchasing power of Chinese investors, he said.

The dollar was little changed against the euro today, rebounding from a loss of as much as 0.8 percent. All six main industrial metals on the London Metal Exchange rose and crude oil futures climbed in New York.

Russia Buying

The MSCI World Index of equities is down 3.8 percent this year, and raw materials as measured by the Reuters-Jefferies CRB Index have slid 7.2 percent. Returns on benchmark U.S. Treasuries have gained 4.5 percent this year.

Russia’s central bank bought 26.6 metric tons of gold in the past quarter, taking holdings to 668.6 tons, and the Philippines increased holdings by 9.5 tons in March to 164.7 tons, the World Gold Council said on June 18. The Saudi Arabian Monetary Authority reported last quarter that it “modified from first quarter 2008” its holdings to 322.9 tons, from 143 tons after adjusting accounts, the council said.

“This creates speculation that Asian and Middle Eastern central banks want to own more gold,” Societe Generale’s Dannesboe said. “It just adds to the bullish story.”

Bullion has advanced in 2010 even as the dollar, which usually moves inversely to gold, has strengthened as the euro slumped on concern about sovereign finances in Europe. The single European currency has dropped 13 percent against the dollar this year.

‘Strong Interest’

Gold reached a record 1,051.27 euros an ounce, 870.65 British pounds and 1,451.16 Swiss francs on June 8, Bloomberg data show.

“It is clear that there is extremely strong interest in gold,” said Gavin Wendt, senior resource analyst with MineLife Pty Ltd. in Sydney. “This is all a direct consequence of investors seeing gold as a more attractive investment class, and this trend will only continue to grow.”

Assets in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, were unchanged at a record 1,307.96 tons on June 18, according to the company’s website. Global holdings of the metal by ETFs increased 0.2 ton to an all-time high 2,044.87 tons on June 18, according to Bloomberg data tracking 10 providers.

Silver for immediate delivery in London climbed as much as 1.5 percent to a five-week high of $19.4575 an ounce and last traded at $19.3575. Platinum gained 0.7 percent to $1,599.30 an ounce, the highest price in a month, and palladium was up 2 percent at $500 an ounce.

Seven Big Mistakes People Make When Hiring a Financial Advisor

2010-06-21T04:25:00.000-07:00

by Chuck Jaffe
Friday, June 18, 2010

How to choose the right steward of your money.

I have given countless talks over the last 15 years to groups of people interested in hiring financial advisers or working better with the helpers they have, and I typically poll my audience to learn about their experiences.

I ask that people who are working with an adviser -- or who have had one they stopped using -- raise their hands. Then I ask them to keep them up if they hired the first financial adviser they met with or if they hired someone recommended by family or friends. Virtually all hands stay up.

Next, I ask them to keep their hands up if they did a background check on the adviser -- and talked to an independent reference -- before they agreed to work together. I have never had a single hand stay in the air.

Plenty of people do everything wrong in the hiring process and still wind up happy with the outcome, but you should still try to avoid the common mistakes. If you do, your chances of living happily ever after -- or at least until the adviser retires and you have to hire a replacement -- are infinitely higher than if you leave it up to fate to bring you someone you can work with.

Big Mistake #1: Interviewing Just One Candidate

You have come to a point in your life where you know you need help. Emotionally, that makes you like a man dying of thirst, unable to tell a mirage from reality and willing to drink sand if he can be convinced it will make him feel better.

The first adviser you meet could be a complete idiot, but almost certainly will sound great to you. That's because his spiel makes it sound like he can solve your problems, and you lack the know-how to tell if he can't and the comparison to any other adviser to establish how you truly feel about him. You have no clue if he is selling you a bill of goods, a one-size-fits-all plan that maximizes his take and minimizes your service, or if he truly is a cut above the other helpers in your area.

Another reason why investors hire the first person they meet is that they got the adviser's name from a friend or relative whom they trust. That colors their judgment, because of the way they feel about the person making the referral, or the way they envision this adviser helping them live the lifestyle they see their friend or relative enjoying.

Years ago, a leading financial planner in Boston told me her life was so busy with books and her radio show that she had stopped taking on new clients, and that when people inquired about her services she gave them the names of two young "up-and-coming financial planners" in the area. Alas, she had never worked with these men, had done no background checks, and had simply picked them because they were "bright, energetic, and asked good questions at the [Certified Financial Planners] group meetings." I'm sure the people she referred to them took her word as gospel; four years later, one of those advisers was under indictment for fraud.

Big Mistake #2: No Background or Reference Check

"He's got a fancy office, drives a nice car, and has a lot of rich clients," is not a background check; it's a fitting description of almost every financial adviser charged with fraud in the United States over the last two decades.

Your retirement nest egg, college savings, and more are the biggest, most important assets you will ever accumulate and try to grow, and yet most people spend more time trying to figure out which vacuum cleaner or microwave oven is the best value for their money than they do trying to determine if an adviser is safe to work with.

Moreover, they rely on shallow logic as a reason to avoid a few phone calls or a search online. The adviser is on the radio, so he must be good. He's been quoted in the newspaper by that columnist I like, so he's qualified. He works with someone I know, and she has a nice house.

Now I'll let you in on a few secrets that may change your opinion of the advisers you see in the media.

For starters, most journalists will call anyone to be a source when they are on deadline. They haven't done background checks or vetted the so-called expert; they just got someone who seemed right, and who could talk about the subject at hand.

The radio fallacy is another good one. Most financial advisers on the radio have paid for the time, meaning they bought their own show to use as a personal advertising vehicle. The information they give may be fine and dandy, but the radio station didn't vet their credentials or make sure they're solid advisers; it simply cashed their check and gave them access to the airwaves.

Background checks can't protect you completely. In 2007, I ran an adviser named Gregg Rennie of Quincy, Mass., through the full test and found everything on the up-and-up; Rennie was becoming a primary sponsor for my radio show, and I wanted to know if he was bad news. Alas, at some point over the next few months, Rennie's personal financial picture changed, and he wound up selling fraudulent investments, basically starting down the road of a Ponzi scheme in order to stay afloat himself, according to the Securities and Exchange Commission.

Big Mistake #3: Focusing the Search on Cost or Payment Style

Cost is an object, but it's not THE object.

The same goes for payment style, the various methods of working and compensating an adviser discussed in the last chapter.

Cheap advice is, well, cheaper, but not necessarily better, appropriate, or the elusive "right for you." If you save a few hundred dollars in fees to the adviser, but wind up with someone who is incompetent and whose decisions cost you thousands of dollars down the line, you did not get a bargain. Likewise, if you go for more expensive counsel but can't get the quality of service you desire, you'll be unhappy no matter how respected the adviser and how sound his advice.

Look at what you are getting for your money and determine a reasonable balance between services, costs, and method of compensation.

If all you are looking to do is add a mutual fund or two that you can throw some money into every month and hold for years, you shouldn't be paying a big fat fee for an overall asset-allocation plan. But if you require a needs analysis and a plan of action to get you from where you are now to your financial goals, you don't necessarily want to make your lifetime decision based on "I hate paying commissions" or "This planner charges less by the hour."

Big Mistake #4: Expecting Credentials and Designations to Make an Adviser "Good"

There are so many professional credentials and designations out there for financial advisers that you could drown in a sea of alphabet soup.

That said, every credential is different. Some are worthwhile, some are bogus. Within every credential, there are advisers who are good, and others who stink.

The real question about credentials boils down to "Does this adviser have the expertise I need?"

Credentials help to answer that but, on their own, they say nothing about the individual's personality, manner, disposition, or ability to inspire your "emotional discipline."

Your search for advisers is about finding "the right person," not "the person with the right credential," and there is a big difference. You don't just want a skilled doctor, you want one with the right bedside manner. I know plenty of Certified Financial Planners whose personal style is so strange, different, or off-putting that the only way I could work with them personally is if I was in a coma.

Hire a person, not a credential; when times get tough, it's going to be the human being --and not the letters after her name -- that you rely on.

Big Mistake #5: Setting Expectations and Viewing Results Based Entirely on Returns

People hire advisers because they need help and want to get their finances in order. They fire advisers because they don't earn a "big enough" return.

It's a recipe for disaster.

If you are an average investor, you're looking for a partner, someone who will help you develop strategies that enable you to reach your long-term goals. In most cases, achieving that success requires participating in stock market gains during good times without losing your shirt when the market sours. For most consumers, it's more about avoiding surprises and losses than it is about getting rich quick.

And yet, when push comes to shove, advisers get dumped because they "failed to beat the market" each and every year.

What most people want from their adviser is long-term performance that allows them to ride the market rollercoaster and get off at the end with a big smile on their face.

Alas, too many financial-services customers want to jump off mid-ride. Despite what they said when they signed up to work with an adviser, they want to change the criteria for judging their counselor mid-stream, typically at just the wrong moment.

Big Mistake #6: Letting the Adviser Control Everything

You may be looking for hired guns to help with your finances, but there is one key phrase to remember in all this: "It's my money."

Advisers are partners in your financial success, but you have the most at stake and, therefore, you run the show. With that in mind, you are entitled from the very beginning of the relationship to ask about anything you want, from why a recommendation was made to why something cost more than you expected.

You need to be treated like "the boss," too. Some advisers treat customers shabbily when the client doesn't take their advice or make a suggested move. That reaction is an instant warning sign that the adviser respects his position more than yours and may have put his interests first.

Big Mistake #7: Hiring Friends and Relatives

In the mid-1980s, my wife Susan -- the most patient and understanding woman in America -- was convinced by a friend that we needed some financial planning help. The friend just happened to be a new financial adviser, and she wanted to be the one to advise us, fresh out of college and newly married, as we started building our lives together.

I didn't think we needed help, but Susan sold me on the idea that Sandra, her friend, could help us find better financing options for our first new car. Sandra also could provide a second opinion to my judgment on mutual funds and asset allocation.

Best of all -- and Sandra gave us this in writing -- it was a money-back deal. If we weren't satisfied or Sandra did not provide us with ideas and information we didn't have on our own, we could get our money back.

So I signed the contract.

Obviously, the selection process was all wrong. No references, no background check, pretty much every mistake in the book (or at least this chapter).

The results were, sadly, predictable. The funds we owned were better; the bulk of her advice was about improving our cash flow so that we could purchase insurance products that, at the time, we had no need for and no real way to afford. Sandra advised us that the loan deal I had found was better than anything she could come up with.

We're still waiting for our money back.

Despite telling Sandra that I was disappointed, I never got -- nor did I pursue -- my refund. With the financial relationship going nowhere, Susan and Sandra grew distant.

So we lost a friend and $250. Frankly, I'm bothered more by the lost money, because I came to realize that Sandra valued the friendship differently than I did, or she never would have jeopardized it with a business proposition.

For years, industry surveys have found that more than 40% of all people take financial advice from friends, family, and business associates, and an AARP Financial study from 2009 confirmed that more than half rely on people with close ties when they're going through a life crisis.

Doing business with a friend or family member spells trouble for one big reason: You let your guard down.

Rogue advisers have no qualms about ripping off friends and relations. In the well-publicized case of Brad Bleidt, a Boston adviser/radio host who was busted in 2004 for running a longstanding Ponzi scheme, the victims included his mother and grandmother. Bleidt had sworn an oath that he would not "wrong, cheat, or defraud" his brother Masons or the lodge (ironically named the Golden Fleece Lodge) when he joined the group; it was there, however, that he started shearing his "brothers" of their life savings.

Likewise, many of Bernie Madoff's victims were folks he met at his country club, on the golf course, at charity functions, or through some personal affinity; he counted on those ties raising trust and lowering resistance.

Working with friends adds emotions on all sides. Ask your best childhood friend to provide a written history of his business experience and credentials, and he may take offense; fail to ask a full set of questions, and you can't be sure you have the right expert.

There is more than money at stake when you do business with friends and family. Factor the extra value of your friendship into your decision making; you'll lose a lot more than just money if a financial relationship with a friend or relative goes bad.

Gold to Jump to Record $1,300 as Investors Shun Euro

2010-06-21T04:21:00.001-07:00

By Aya Takada and Yasumasa Song - Jun 18, 2010

Gold may climb to a record $1,300 an ounce this year as investment demand shifts from the euro and the dollar, said Bruce Ikemizu at Standard Bank Plc.

The U.S. and European currencies may lose their appeal as developed economies underperform emerging markets such as China, said Ikemizu, the head of commodity trading and managing director at the bank’s Tokyo branch. As there is no immediate replacement for the dollar and euro, demand for gold will grow, he said in an interview yesterday.

Gold for immediate delivery traded at $1,243.80 an ounce today, near its record $1,252.11 on June 8, as the dollar weakened on signs the U.S. recovery was slowing and on concern the European sovereign-debt crisis will persist. “We have just entered Act II,” billionaire investor George Soros said June 10, as Europe’s fiscal woes worsen and governments are pressured to curb budget deficits that may push the economy into recession.

“The U.S. will never regain its dominance in the world economy” as growth is driven by emerging economies, said Ikemizu, who has spent 24 years trading gold since starting his career at Sumitomo Corp. “Gold is drawing attention” as it will take a long time for the dollar to be replaced by another currency in trade and investment, he added.

Initial U.S. jobless claims increased by 12,000 to 472,000 in the week ended June 12, according to Labor Department figures yesterday, signaling the labor market may not be improving and reducing prospects for a sustained recovery. Economists surveyed by Bloomberg News projected the number of applications would drop to 450,000, according to the median forecast.

Euro, Gold

The euro has slumped 14 percent against the dollar this year on concern Europe’s debt crisis may spread, while gold denominated in the U.S. currency has advanced 13 percent and is heading for its 10th annual gain.

Concern over the value of the U.S. and European currencies may spur central banks in China, Russia and India to add gold to their reserves as their holdings are small, Ikemizu said.

“It is risky for them to depend heavily on U.S. treasuries, given the possibility of a further decrease in the dollar,” he said. “Gold may be their option as it is nobody’s liability.”

Official sector sales of gold slumped by 82 percent to 41 tons last year from 232 tons in 2008, according to GFMS Ltd., a London-based research company. Central banks may turn to a net buyer of bullion this year, Ikemizu said. In November, India surprised markets with a $6.7 billion purchase from the International Monetary Fund’s bullion holdings.

Scrap Supply

An increase in prices may be gradual as scrap supply will grow, Ikemizu said. The metal may find support around $1,200 an ounce for the rest of the year as physical buying will increase below that level, he added.

Gold may drop to $1,180 an ounce this year if investment demand slows as rising prices curb consumption by jewelry makers and other fabricators, said Shuji Sugata, research manager at Mitsubishi Corp. Futures Ltd. in Tokyo.

Platinum is expected to trade between $1,500 and $1,800 an ounce for the remainder of the year as demand in vehicle emission-control devices will climb, he said.

“Car ownership in China and India will continue to expand,” he said. Demand for cars, sport-utility vehicles and multipurpose vehicles increased 26 percent from a year earlier to 1.04 million units in May on a wholesale basis, compared with a 33 percent jump in April, the China Association of Automobile Manufacturers said June 8.

Domestic sales of passenger cars in India rose 30.5 percent in May from a year ago, compared with a 39.5 percent growth in April, Society of Indian Automobile Manufacturers figures show. Platinum will be supported around $1,500 an ounce as a drop below that level will make about 80 percent of producers unprofitable, leading to output cuts, Ikemizu said.

Platinum for immediate delivery lost 0.3 percent to $1,573 an ounce at 4:07 p.m. in Tokyo.

Medvedev sees chance for new world order

2010-06-21T04:15:00.000-07:00

By Catherine Belton, Charles Clover and Courtney Weaver in St Petersburg

Published: June 18 2010 12:11 | Last updated: June 18 2010 12:11

Dmitry Medvedev, the Russian president, said Moscow was bidding to help lead efforts to build a new world economic order after the old system collapsed in the global financial crisis.

Opening Russia’s annual economic forum in St Petersburg where hundreds of global chief executives have flocked, Mr Medvedev said the renewed interest in Russia this year was a sign of a changing world in which the institutions of the western-dominated world order had had their day amid thousands of corporate defaults and the threat of sovereign defaults.

“What had seemed untouchable has collapsed. The bubbles that created the illusion of flourishing economies have burst,” Mr Medvedev said. “For Russia this situation is a challenge and an opportunity. We are living in a unique time. And we should use it to build a modern, flourishing and strong Russia ... which will be a co-founder of the new world economic order and a full participant in the collective political leadership of the post-crisis world.”

Mr Medvedev insisted “Russia has changed” in the past year as it sought to pursue a course of “smart politics” that would leverage its competitive advantages in the raw materials sector, while shifting emphasis towards modernising the economy and focusing on boosting innovation over resources.

Acknowledging that the country still had a great deal to do to meet these aims, Mr Medvedev laid out a series of new initiatives that aim to boost its attractiveness as an investment destination. “Russia needs a real investment boom”, in order to achieve its modernisation goals, he said. To stimulate that, Mr Medvedev announced Moscow would introduce zero taxation on capital gains for companies working on long-term investments starting from January next year and said Russia was improving the legal system to provide better protection for businesses against the long arm of bureaucracy.

He added Russia had already simplified migration procedures to help attract “highly-qualified specialists” working in investment and high-tech sectors into the country.

Responding to criticism that Russia’s approach to building an innovation economy was driven from the top down and state interference could hinder development, Mr Medvedev said the state would concentrate its efforts on fostering a good business climate. “No matter how many state-owned companies we have, modernization will happen, above all, through private business. And only if there is competition,” he said. “The state should not tear down the apples from the tree of economics. What the government should do is help grow our apple orchard, develop our economic environment.”

Mr Medvedev said he was cutting the list of strategic enterprises five fold in order to reduce the role of the state in the economy and foster more private initiatives.

Canada's economy is suddenly the envy of the world

2010-06-21T04:11:00.001-07:00

By ROB GILLIES (AP) – 16 hours ago

TORONTO — Canada thinks it can teach the world a thing or two about dodging financial meltdowns.
The 20 world leaders at an economic summit in Toronto next weekend will find themselves in a country that has avoided a banking crisis where others have floundered, and whose economy grew at a 6.1 percent annual rate in the first three months of this year. The housing market is hot and three-quarters of the 400,000 jobs lost during the recession have been recovered.

World leaders have noticed: President Barack Obama says the U.S. should take note of Canada's banking system, and Britain's Treasury chief is looking to emulate the Ottawa way on cutting deficits.

The land of a thousand stereotypes — from Mounties and ice hockey to language wars and lousy weather — is feeling entitled to do a bit of crowing as it hosts the G-20 summit of wealthy and developing nations.

"We should be proud of the performance of our financial system during the crisis," said Finance Minister Jim Flaherty in an interview with The Associated Press.

He recalled visiting China in 2007 and hearing suggestions "that the Canadian banks were perhaps boring and too risk-adverse. And when I was there two weeks ago some of my same counterparts were saying to me, 'You have a very solid, stable banking system in Canada,' and emphasizing that. There wasn't anything about being sufficiently risk-oriented."

The banks are stable because, in part, they're more regulated. As the U.S. and Europe loosened regulations on their financial industries over the last 15 years, Canada refused to do so. The banks also aren't as leveraged as their U.S. or European peers.

There was no mortgage meltdown or subprime crisis in Canada. Banks don't package mortgages and sell them to the private market, so they need to be sure their borrowers can pay back the loans.
In Canada's concentrated banking system, five major banks dominate the market and regulators know each of the top bank executives personally.

"Our banks were just better managed and we had better regulation," says former Prime Minister Paul Martin, the man credited with killing off a massive government deficit in the 1990s when he was finance minister, leading to 12 straight years of budget surpluses.

"I was absolutely amazed at senior bankers in the United States and Europe who didn't know the extent of the problem or they didn't know that people in some far-flung division were doing these kinds of things. It's just beyond belief," he told the AP.

The Conservative Party government of Stephen Harper that took over from Martin's Liberals in 2006 broadly stuck to his predecessor's approach, though he cut taxes and, when recession struck, pumped stimulus money into the economy, with the result that Canada again has a large deficit.

But it is recovering from the recession faster than others, and although its deficit is currently at a record high, the International Monetary Fund expects Canada to be the only one of the seven major industrialized democracies to return to surplus by 2015.
This month Canada became the first among them to raise interest rates since the global financial crisis began.

George Osborne, Britain's Treasury chief, has vowed to follow Canada's example on deficit reduction.

"They brought together the best brains both inside and outside government to carry out a fundamental reassessment of the role of the state," Osborne said in a speech.

It's a remarkable turnaround from 1993, when the Liberals took office facing a $30 billion deficit. Moody's downgraded Canada's credit rating twice. About 36 percent of the government's revenue went toward servicing debt.

"Our situation was dire. Canada was in a lot of trouble at that point," Martin said. "If we were going to preserve our health care and our education system we had to do it."

As finance minister, he slashed spending. A weak currency and a booming U.S. economy also helped Martin balance the books. In the 1998 budget the government estimated that about 55 percent of the deficit reduction came from economic growth and 35 percent from spending cuts.

"The rest of the world certainly thinks we're the model to follow," said Martin, who was prime minister from 2003 to 2006. "I've been asked by a lot of countries as to how to go about it."
Don Drummond, Martin's budget chief at the time, says the U.S. and Europe won't have it that easy, because the economic climate was better in the late 1990s than it is now, with large trade gains and falling interest rates.

"There's a lot to learn from Canada but their starting conditions are worse," he said. "Even though we were on the precipice of a crisis we weren't in as bad a shape as many of them are."

Copyright © 2010 The Associated Press. All rights reserved.

Central banks join gold rush

2010-06-18T08:30:00.000-07:00

Central banks join gold rush

Foreign banks and investors alike have been flocking to the precious metal over the last year, sending it soaring to record highs.
By Annalyn Censky, staff reporter June 18, 2010: 8:36 AM ET

NEW YORK (CNNMoney.com) -- Foreign governments have been getting in on the recent gold rush, driven by continued fears about Europe's debt crisis and the pace of the global economic recovery.
Those concerns have been propelling the precious metal to record highs over the past 18 months. In fact, gold posted a new intra-day high Friday, when it reached $1,260.90 an ounce. A day earlier, it reached a fresh record high closing price of $1,248.70 an ounce.
Last year, foreign central banks were net buyers of gold for the first time since 1997. India, China and Russia have been the biggest buyers. And more recently, the Philippines and Kazakhstan jumped into the fray with big purchases of the precious metal during the first quarter, according to data released by the World Gold Council Thursday.
What's behind the buying binge?
Each country has its own unique reasons, but there are a few broad trends that unite them all, said Natalie Dempster, director of government affairs for the World Gold Council.
Like many individual investors, foreign governments prefer to spread their wealth around to decrease their risk.
The U.S. dollar is typically the main reserve asset because it's considered to be more stable than other holdings, while the euro comes in as the second most popular reserve currency. But gold is not far behind. The precious metal plays an important role as a hedge against inflation, which could devalue paper currencies.
Unlike paper currencies, gold has a tangible value and that value is not dependent on any one country's economic policies.
When the financial crisis drove down the dollar's value in 2009, and Europe's debt woes pushed the euro to fresh four-year lows earlier this month, investors and foreign central banks flocked to safe-haven assets like gold.
Add rising deficits in both Europe and the United States to the mix, and currencies have become increasingly questionable assets, said Jeffrey Nichols, managing director of American Precious Metals Advisors and senior economic advisor to Rosland Capital.
That's why it's no surprise that foreign central banks overall have turned from sellers into buyers of gold in the last year, he said.
Who's buying gold?
Russia and Kazakhstan: As far as public records show, Russia appears to be the largest buyer of gold among central banks so far this year. In the first quarter of 2010, Russia's central bank increased its gold reserves by 26.6 metric tonnes, or about $1.2 billion at today's price, according to World Gold Council data. That's in addition to the 117.63 tonnes that Russia added in 2009.
Russia has been adding to its gold reserves steadily for more than three years, partly through buying its own domestic mine production. It considers gold both a symbol of prestige as well as a way to bolster the country's credit worthiness, Nichols said.
Kazakhstan, the third largest buyer so far in 2010, has a similar strategy, although at a much lesser level. The former Soviet-controlled country bought 3.1 tonnes, or $137 million, of the precious metal in the first quarter.
Philippines: After Russia, the Philippines falls a distant second as a buyer, after purchasing 9.6 tonnes, or about $424 million, of gold earlier this year.
The Philippines also buys its domestic production as a way of supporting local industry and as an inflation hedge, but its reserves usually fluctuate more than Russia's because the country often sells it at a later date on the open market.
India: While India has yet to publicly announce any major gold buys this year, the country bought a massive 200 tonnes, or what amounts to about $8.8 billion at current prices, from the International Monetary Fund in November.
The move, which multiplied India's reserves by 55%, was seen as a way for the country to diversify its reserves and reinforce the perception among Indian consumers that the metal is a reliable and safe asset, the World Gold Council said.
China: China is considered a stealth buyer of gold, said Boris Schlossberg, director of currency research at Global Forex Trading. As the world's largest producer of the metal, China often buys gold from its own mines and doesn't report those sales publicly. But in April 2009, China did admit to having added 454 tonnes, or a 76% increase, to its reserves since 2003.
Analysts suspect the country is continuing to buy gold and could in fact, be the world's largest buyer consistently. It simply doesn't reveal it's pro-gold stance proudly, however, because China is also the world's largest holder of U.S. Treasurys.
Announcing an aggressive gold buying spree is not in China's best interest because, for one, it might push gold prices higher. Secondly, it could devalue the U.S. dollar, which would subsequently lessen the worth of the country's portfolio of U.S. government bonds, Schlossberg said.

Greenspan Says U.S. May Soon Reach Borrowing Limit

2010-06-18T08:26:00.001-07:00

By Jacob Greber

June 18 (Bloomberg) -- Former Federal Reserve Chairman Alan Greenspan said the U.S. may soon face higher borrowing costs on its swelling debt and called for a “tectonic shift” in fiscal policy to contain borrowing.

“Perceptions of a large U.S. borrowing capacity are misleading,” and current long-term bond yields are masking America’s debt challenge, Greenspan wrote in an opinion piece posted on the Wall Street Journal’s website. “Long-term rate increases can emerge with unexpected suddenness,” such as the 4 percentage point surge over four months in 1979-80, he said.

Greenspan rebutted “misplaced” concern that reducing the deficit would put the economic recovery in danger, entering a debate among global policy makers about how quickly to exit from stimulus measures adopted during the financial crisis. U.S. Treasury Secretary Timothy F. Geithner said this month that while fiscal tightening is needed over the “medium term,” governments must reinforce the recovery in private demand.

“The United States, and most of the rest of the developed world, is in need of a tectonic shift in fiscal policy,” said Greenspan, 84, who served at the Fed’s helm from 1987 to 2006. “Incremental change will not be adequate.”

Rein in Debt

Pressure on capital markets would also be eased if the U.S. government “contained” the sale of Treasuries, he wrote.

“The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms,” Greenspan said. The “very severity of the pending crisis and growing analogies to Greece set the stage for a serious response.”

Yields on U.S. Treasuries have benefitted from safe-haven demand in recent months because of the European debt crisis, a circumstance that may not last, said Greenspan, who now consults for clients including Pacific Investment Management Co., which has the world’s biggest bond fund.

Benchmark 10-year Treasury notes yielded 3.20 percent as of 12:11 p.m. in Tokyo today, down from the year’s high of 4.01 percent in April and compared with as high as 5.32 percent in June 2007, before the crisis began. Yields have remained low “despite the surge in federal debt to the public during the past 18 months to $8.6 trillion from $5.5 trillion,” Greenspan said.

The swing in demand toward American government debt and away from euro-denominated bonds is “temporary,” he said.

“Our economy cannot afford a major mistake in underestimating the corrosive momentum of this fiscal crisis,” Greenspan said. “Our policy focus must therefore err significantly on the side of restraint.”

To contact the reporter for this story: Jacob Greber in Sydney atjgreber@bloomberg.net

Elliot Wave predicts triple-digit Dow in 2016

2010-06-17T07:14:00.001-07:00

By Peter Brimelow , MarketWatch

NEW YORK (MarketWatch) -- An investment letter that called the Crash of 2008 said that this would be a bad year -- and it now says it will get worse.

A whole generation of investors think that Robert Prechter and his Elliott Wave Theory letters, Elliott Wave Financial Forecasts and Elliott Wave Theorist, are permabears. And they've certainly seemed that way for the last decade -- although it should be noted that the stock market is now roughly back where it started. ( See April 26, 2002 column. )

But Prechter was very bullish after the 1974 low and, briefly, after being one of the very few services to make money in 2008. Then he announced that "2010 is the year when the bear market in stocks returns in full force." ( See Jan. 22 column. )

Elliott Wave Financial Forecasts (EWFF) makes recommendations specific enough to be tracked by the Hulbert Financial Digest. (The Elliott Wave Theorist is too, well, theoretical.)

Over the year to date, EWFF is up just 0.4% by Hulbert Financial Digest count through May vs. negative 0.3% for the dividend-reinvested Wilshire 5000 Total Stock Market Index.

Over the past 12 months, its bearishness did cause it to gain just 4.75% compared to 22.89% for the total return Wilshire 5000. But over the past three years, the letter's bearishness paid off handsomely. It's up an annualized 5.25% against negative 8.12% annualized for the total return Wilshire 5000.

And even over the past 10 years, so badly damaged have stocks been that the letter was up an annualized 1.05%, outperforming a mere 0.22% annualized gain for the Wilshire 5000.

The EWFF issue published in early May said flatly: "The topping process is over for the countertrend rally that started in the first quarter of 2009. The next leg lower that commenced in April should now deliver a decline that will ultimately be bigger than the 2007-2009 sell-off. ... Gold poked to a new high, but in doing so, likely completed a pattern in mid-May that will lead to a multi-month selloff. ... The U.S. dollar index /quotes/comstock/11j!i:dxy0 (DXY 85.60, -0.48, -0.56%) is fulfilling EWFF's forecast for a strong advance."

All of which fits right into Prechter's repeated predictions of a massive coming deflation.

In a rare comment on individual stocks, EWFF says: "Google Inc. /quotes/comstock/15*!goog/quotes/nls/goog (GOOG 502.40, +1.13, +0.22%) made its countertrend rally on Jan. 4, four months before the DJIA and Nasdaq, and appears to be locked in a decline the EWFF also forecast last August. Its early reversal is a bearish development for the broad market, as Google is an icon of the last great stock craze. The failure of its stock price to reignite is a clear sign that the animal spirits of the old bull market are all but gone."

How bad? The clearest statement comes from the Elliott Wave Theorist, discussing a numerological technical theory with which it supplements the Wave Theory's complex patterns: "The only way for the developing configuration to satisfy a perfect set of Fibonacci time relationships is for the stock market to fall over the next six years and bottom in 2016."

"Stock market bulls and most economists think that a new bull market and economic recovery are underway. Most bears are looking for either a long sideways bear market à la 1966-1982, or a hyperinflationary run to infinity. Our Elliott Wave outlook opposes both of these scenarios. The most likely profile is a stock market crash of historic proportions."

Elliott Wave Theorist offers several reasons, including: "This bear market is of Supercycle degree, the biggest since 1720-1784. It should therefore include a decline deeper that the 89% decline of 1929-1932. A decline of 91.5% or more would carry it below 1,000."

There will be a short-term rally at some point, thinks Prechter, but it will be a trap: "The 7.25-year and 20-year cycles are both scheduled to top in 2012, suggesting that 2012 will mark the last vestiges of self-destructive hope. Then the final years of decline will usher in capitulation and finally despair."

Over 90 Banks Miss Their Bailout Payments

2010-06-17T07:06:00.000-07:00

(Reuters)

More than 90 U.S. banks and thrifts missed making a May 17 payment to the U.S. government under its main bank bailout program, signaling a rising number of lenders are struggling to meet their obligations.

The SNL Financial statistics show 91 banks missed their dividend payment under the Troubled Asset Relief Program.

The statistics, compiled by SNL Financial from U.S. Treasury data, showed 91 banks and thrifts skipped the May dividend payment under the Troubled Asset Relief Program, or TARP. It was the first missed payment for 23 of the banks; for the others, it was at least their second miss.

The number of banks missing their TARP payments rose for the third straight quarter. In February, 74 banks deferred their payments; 55 deferred last November.

SNL Financial's analysis found 20 banks have missed four or more payments since the program began in 2008, while eight banks have missed five payments.

Under the TARP program, the U.S. Treasury invested in preferred shares issued banks looking for funds. The banks were to make regular dividend payments to the Treasury, and have the right to repurchase the shares at some point in the future.

While many of the largest U.S. banks easily repaid billions in TARP aid, more than 600 smaller banks still hold $130 billion from the program, created at the height of the financial crisis.

In some cases, small banks are renegotiating the repayment terms. Midwest Banc Holdings [MBHI 0.016 -0.004 (-20%) ], for example, agreed to swap $84.8 million in preferred shares issued under the TARP program in 2008 for $15.5 million in common shares. That would have meant an 80 percent loss for the government—and the U.S. taxpayer—on the initial investment. But the swap was contingent on the bank raising more private capital, which it failed to do. Regulators seized the bank in May.

The next quarterly TARP payments to the U.S. Treasury are due by August 16.

Jobless claims rise sharply to 472,000

2010-06-17T07:04:00.001-07:00

Alan Zibel, AP Business Writer, On Thursday June 17, 2010, 9:27 am

WASHINGTON (AP) -- The number of people filing new claims for jobless benefits jumped last week after three straight declines, another sign that the pace of layoffs has not slowed.

Initial claims for jobless benefits rose by 12,000 to a seasonally adjusted 472,000, the Labor Department said Thursday. It was the highest level in a month and overshadowed a report that consumer prices remain essentially flat.

First-time jobless claims have hovered near 450,000 since the beginning of the year after falling steadily in the second half of 2009. That has raised concerns that hiring is lackluster and could slow the recovery.

The four-week average for unemployment claims, which smooths volatility, dipped slightly to 463,500. That's down by 3,750 from the start of January.

"Most market economists have been expecting claims to fall below 450K for several weeks now," said Kevin Logan, an economist with HSBC Securities. "The wait is getting longer and longer. As each week goes by, doubts about the underlying strength of the economic expansion grow."

A separate Labor report said consumer prices fell for the second straight month. The 0.2 decline in the Consumer Price Index was pulled down falling energy prices -- most notably a 5.2 percent drop in gasoline prices. Declining energy bills were the main factor pulling down prices.

But core consumer prices, which strip out volatile energy and food, edged up 0.1 percent in May, after being flat in April. Core prices are up only 0.9 percent over the past year -- below the Fed's inflation target.

Additionally, the Commerce Department said Thursday that the broadest measure of U.S. trade rose during the first quarter to the highest point in more than a year. Much of the widening deficit was due to higher prices on imported oil during the first three months of the year.

Economists say they will feel more optimistic that the economy is creating jobs once initial jobless claims fall below 425,000 per week.

Just this week, casino owner Wynn Resorts laid off more than 260 workers in its two Las Vegas casino hotels in a move expected to save nearly $8 million.

The number of people continuing to claim benefits rose by 88,000 to 4.57 million. That doesn't include about 5.2 million people who receive extended benefits paid for by the federal government.

Congress has added 73 weeks of extra benefits on top of the 26 weeks typically provided by states. All told, about 9.7 million people received unemployment insurance in the week ending May 29, the most recent data available.

The extended benefit program expired this month. The House has approved an extension of the benefits through November. The Senate has yet to act.

On Wednesday, Senate Republicans and a dozen Democratic defectors rejected a catchall measure combining jobless aid for the long-term unemployed, aid to cash-strapped state governments and the renewal of dozens of popular tax breaks. Despite the loss, Democratic leaders predicted that a scaled-back version of the measure could pass, possibly later this week.

Adding to worries about the job market, the Labor Department said earlier this month that the economy generated only 41,000 private-sector jobs in May. That was down from 218,000 in April.

Temporary hiring by the Census Bureau added another 411,000 jobs. The unemployment rate fell to 9.7 percent from 9.9 percent.

Russia to Buy Canadian, Aussie Dollars for First Time

2010-06-16T07:40:00.000-07:00

By Paul Abelsky and Maria Levitov

June 16 (Bloomberg) -- Russia may add the Australian and Canadian dollars to its international reserves for the first time after fluctuations in the U.S. dollar and euro.

“Adding the Australian dollar is being discussed,” Alexei Ulyukayev, the central bank’s first deputy chairman, said in an interview at an event hosted by Bloomberg in Moscow last night. “There are pros and cons. We have added the Canadian dollar but haven’t yet begun operations” with the currency.

U.S. dollars account for 47 percent of Russia’s reserves, while euros make up 41 percent, British pounds 10 percent and Japanese yen 2 percent, Ulyukyaev said in November. The central bank has reduced dollars from 50 percent in 2006, when euros accounted for 40 percent and the remaining 10 percent was in yen and pounds. Russia’s international reserves, the world’s third biggest, reached $458.2 billion on June 4.

President Dmitry Medvedev last year suggested Russia would reduce its use of the U.S. dollar as a reserve currency after the greenback lost 34 percent of its value against the euro in 2 ½ years. The euro fell to a four-year low of $1.1877 on June 7 and has dropped 22 percent since Nov. 25 on investor concern policy makers may fail to contain Europe’s debt crisis.

Push to Diversify

Russia’s push to diversify reserves “is more a result of their desire to do something in response to the extreme volatility of the dollar and the euro,” said Elena Matrosova, a Moscow-based economist at BDO International, the financial consultancy that lists the central bank among its clients. The Canadian or Australian dollar “can’t be truly called international reserve currencies because of their very limited liquidity,” she said.

The Australian dollar traded near the strongest level since mid-May, at 86.43 U.S. cents as of 6:40 a.m. in London.

The Canadian and Australian dollars have been among the best performers in the past 12 months as investors speculated a recovering global economy would increase demand for the countries’ raw materials. The Canadian dollar has gained 10 percent against the U.S. currency and 23 percent versus the euro during that period. The Australian dollar is up 8.6 percent and 21 percent, respectively.

Ruble Gains

Medvedev has pushed for the creation of regional reserve currencies and in July produced a prototype coin for a “world currency,” which he said was needed to stabilize the global economy.

Central Bank Chairman Sergey Ignatiev said May 27 that Russia hadn’t changed the currency structure of its reserves after year-end figures showed Bank Rossii increased the portion held in dollars.

The U.S. dollar may account for more than half of Russia’s foreign currency reserves by the end of this year, Paris-based BNP Paribas estimated last month.

The ruble has gained almost 11 percent against the euro and 0.2 percent versus the dollar in the past 12 months. The Russian currency strengthened for a fifth day against the greenback, climbing 0.7 percent to 31.1450 for its longest winning streak in two months.

Russia had a net capital inflow of about $3 billion in May after an inflow of between $3 billion and $4 billion in the previous month, said Ulyukayev.

“There was a small capital inflow of about $3 billion in May, according to preliminary calculations,” he said.

The Russian government forecasts no net capital inflow this year after outflows of $52.4 billion in 2009.

Price increases fuel fears of food ‘crises’

2010-06-16T07:34:00.001-07:00

By Javier Blas in London | Financial Times

Published: June 15 2010 18:51 | Last updated: June 15 2010 18:51

Food commodity prices will increase more than previously expected in the next decade because of rising energy prices and developing countries’ rapid growth, two leading organisations said on Tuesday, worsening the outlook for global food security.

“A return to higher global economic growth . . . together with continuing population gains, are expected to increase demand and trade and underpin prices,” the United Nations’ Food and Agriculture Organisation and the Organisation for Economic Co-operation and Development said in their annual agricultural outlook.

Higher crude oil prices would add force to rising agricultural commodities prices, particularly in those regions – including Europe and the US – where energy inputs such as fertilisers were used intensively, said the report.

For the next 10 years the FAO and OECD forecast that significant food prices, with the exception of pork, would remain above the 1996-2007 average, in both nominal and real terms – adjusted for inflation. Although prices were unlikely to surge back to the record levels of early 2008, they warned that “if history is any guide, further episodes of strong price fluctuations . . . cannot be ruled out, nor can future short-lived crises”.

Angel Gurría, secretary-general of the OECD, said all indications pointed to a “period of high prices”, although these would be below the peaks of the 2007-08 food crisis when prices spiked to record levels, triggering riots in countries from Bangladesh to Haiti.

The forecast of high prices is likely to exacerbate concerns about global food security. Since the food crisis, and the number of chronically hungry people surging above the 1bn mark last year, agriculture has drawn more attention from policymakers – particularly in the US. The OECD earlier this year organised its first ministerial meeting on agriculture for 12 years.

The prospect of higher prices could prompt those nations dependent on food imports – such as Saudi Arabia and South Korea – to try to secure long-term food supplies by accelerating their investment in overseas agriculture in so-called “farmland grabs”. Mr Gurría said some food-importing nations felt “strategically vulnerable” about their agricultural commodities supplies, but added it was critical to avoid “a race for [food] self-sufficiency”.

Developing countries would provide the main source of growth for world agricultural production, consumption and trade, said the report.

“As incomes rise, diets are expected to slowly diversify away from staple foods towards increased meats and processed foods,” it said. In turn, with increasing affluence and an expanding middle class, food consumption in developing countries would become less responsive to price and income changes.

In real terms, the report projected cereal prices to rise around 15-40 per cent relative to the 1997-2006 average, up from last year’s forecast of 10-20 per cent. Vegetable oils are expected to be more than 40 per cent higher, against last year’s forecast of a 30 per cent increase. Meat and dairy products will also be more expensive in the next decade, reversing last year’s forecast that pointed to lower prices.

Gates, Buffet on mission to get billionaries to give half their wealth

2010-06-16T07:33:00.000-07:00

Bill Gates, Melinda Gates, and Warren Buffett are asking the nation's billionaires to pledge to give at least half their net worth to charity, in their lifetimes or at death. If their campaign succeeds, it could change the face of philanthropy.

By Carol J. Loomis, senior editor-at-large

FORTUNE -- Just over a year ago, in May 2009, word leaked to the press that the two richest men in America, Bill Gates and Warren Buffett, had organized and presided over a confidential dinner meeting of billionaires in New York City. David Rockefeller was said to have been a host, Mayor Michael Bloomberg and Oprah Winfrey to have been among those attending, and philanthropy to have been the main subject.

Pushed by the press to explain, Buffett and Gates declined. But that certainly didn't dim the media's interest in reaching for descriptions of the meeting: The Chronicle of Philanthropy called it "unprecedented"; both ABC News and the Houston Chronicle went for "clandestine"; a New York magazine parody gleefully imagined George Soros to have been starstruck in the presence of Oprah. One radio broadcaster painted a dark picture: "Ladies and gentlemen, there's mischief afoot and it does not bode well for the rest of us." No, no, rebutted the former CEO of the Bill & Melinda Gates Foundation, Patty Stonesifer, who had been at the meeting and had reluctantly emerged to combat the rumors. The event, she told the Seattle Times, was simply a group of friends and colleagues "discussing ideas" about philanthropy.

And so it was. But that discussion -- to be fully described for the first time in this article -- has the potential to dramatically change the philanthropic behavior of Americans, inducing them to step up the amounts they give. With that dinner meeting, Gates and Buffett started what can be called the biggest fundraising drive in history. They'd welcome donors of any kind. But their direct target is billionaires, whom the two men wish to see greatly raise the amounts they give to charities, of any and all kinds. That wish was not mathematically framed at the time of the New York meeting. But as two other U.S. dinners were held (though not leaked), Buffett and Gates and his wife, Melinda, set the goal: They are driving to get the super-rich, starting with the Forbes list of the 400 wealthiest Americans, to pledge -- literally pledge -- at least 50% of their net worth to charity during their lifetimes or at death.

Without a doubt, that plan could create a colossal jump in the dollars going to philanthropy, though of what size is a puzzle we'll get to. To begin with, a word about this article you are reading. It is the first public disclosure of what Buffett and Melinda and Bill Gates are trying to do. Over the past couple of months Fortune has interviewed the three principals as the project has unfolded, as well as a group of billionaires who have signed up to add their names to the Gates/Buffett campaign.

In a sense this article is also an echo of two other Fortune stories, both featuring Buffett on the cover. The first, published in 1986, was "Should you leave it all to the children?" To that query, Buffett emphatically said no. The second article, "Warren Buffett gives it away," which appeared in 2006, disclosed Buffett's intention to gradually give away his Berkshire Hathaway (BRK.A) fortune to five foundations, chief among them the world's largest, the Bill & Melinda Gates Foundation. (For Buffett's thinking on the disposition of his wealth, see "My philanthropic pledge.")

Since then, in four years of contributions, Buffett has given the foundation $6.4 billion, not counting the 2010 gift, to be made this summer. The foundation in turn has in that same period combined Buffett's money and its immense gifts from the Gateses to raise its level of giving to about $3 billion a year, much of it for world health. One small example: the Medicines for Malaria Venture, heavily funded by the Gates Foundation, has worked with pharmaceutical company Novartis (NVS) to develop good-tasting malaria pills and distribute them to millions of children -- the principal victims of the disease -- in 24 countries.

Another fact about the 2006 Buffett article is that it was written by yours truly, Carol Loomis, a senior editor-at-large of Fortune. Besides that, I am a longtime friend of Buffett's and editor of his annual letter to Berkshire's shareholders. Through him, my husband, John Loomis, and I have also come to know Melinda and Bill Gates socially. The Loomis team has even occasionally played bridge against Warren and Bill.
LOOK WHO CAME TO DINNER

LOOK WHO CAME TO DINNER: The crowd at the inaugural event added up to a list that would make any charity – or any conspiracy theorist – swoon. Left to right: Bill Gates, Oprah Winfrey, Warren Buffett, Eli and Edythe Broad, Ted Turner, David Rockefeller, Chuck Feeney, Michael Bloomberg, George Soros, Julian Robertson, John and Tashia Morgridge, Pete Peterson

All that said, the question of what philanthropy might gain from the Gates/Buffett drive rests, at its outset, on a mystery: what the wealthiest Americans are giving now. Most of them aren't telling, and outsiders can't pierce the veil. For that matter, the Forbes 400 list, while a valiant try, is a best-guess estimate both as to the cast of characters and as to their net worth. (Buffett says he knows of two Berkshire shareholders who should be on the list but have been missed.) As Bill Gates sums it up, "The list is imprecise."

Those qualifiers noted, the magazine stated the 2009 net worth of the Forbes 400 to be around $1.2 trillion. So if those 400 were to give 50% of that net worth away during their lifetimes or at death, that would be $600 billion. You can think of that colossal amount as what the Buffett and Gates team is stalking -- at a minimum.

Leaving aside the Forbes 400 and looking simply at Internal Revenue Service data for both annual giving and estate taxes, we can piece together a picture of how far the very rich might be from a figure like that $600 billion. Start with an admirable fact about Americans as a whole: The U.S. outdoes all other countries in philanthropic generosity, annually giving in the neighborhood of $300 billion.

Some of that gets reported as charitable deductions on the tax filings made by individuals. But taxpayers at low income levels don't tend to itemize, taking the standard deduction instead. At higher income levels, charitable gift data begin to mean something. To take one example for 2007 (the latest data available), the 18,394 individual taxpayers having adjusted gross income of $10 million or more reported charitable gifts equal to about $32.8 billion, or 5.84% of their $562 billion in income.

And billionaires? Here, the best picture -- though it's flawed -- emerges from statistics that the IRS has for almost two decades been releasing on each year's 400 largest individual taxpayers, a changing universe obviously. The decision of the government to track this particular number of citizens may or may not have been spurred by the annual publication of the Forbes list. In any case, the two 400 batches, though surely overlapping, cannot be identical -- for one reason because the IRS data deal with income, not net worth.

The IRS facts for 2007 show that the 400 biggest taxpayers had a total adjusted income of $138 billion, and just over $11 billion was taken as a charitable deduction, a proportion of about 8%. The amount deducted, we need quickly to add, must be adjusted upward because it would have been limited for certain gifts, among them very large ones such as Buffett's $1.8 billion donation that year to the Gates Foundation. Even so, it is hard to imagine the $11 billion rising, by any means, to more than $15 billion. If we accept $15 billion as a reasonable estimate, that would mean that the 400 biggest taxpayers gave 11% of their income to charity -- just a bit more than tithing.

Is it possible that annual giving misses the bigger picture? One could imagine that the very rich build their net worth during their lifetimes and then put large charitable bequests into their wills. Estate tax data, unfortunately, make hash of that scenario, as 2008 statistics show. The number of taxpayers making estate tax filings that year was 38,000, and these filers had gross estates totaling $229 billion. Four-fifths of those taxpayers made no charitable bequests at death. The 7,214 who did make bequests gave $28 billion. And that's only 12% of the $229 billion gross estate value posted by the entire 38,000.

All told, the data suggest that there is a huge gap between what the very rich are giving now and what the Gateses and Buffett would like to suggest is appropriate -- that 50%, or better, of net worth. The question is how many people of wealth will buy their argument.

Buffett, Gates, and Gates -- who have a combined net worth of around $100 billion -- have already committed most of their money to charity.

The seminal event in this campaign was that billionaires' gathering in May 2009 -- the First Supper, if you will. The Gateses credit Buffett with the basic idea: that a small group of dedicated philanthropists be somehow assembled to discuss strategies for spreading the gospel to others. The Gateses proceeded to arrange the event. Bill Gates says, with a grin, "If you had to depend on Warren to organize this dinner, it might never have happened." In his office, meanwhile, Buffett scrawled out a name for a new file, "Great Givers."

The first item filed was a copy of a March 4 letter that Buffett and Gates sent to the patriarch of philanthropy, David Rockefeller, to ask that he host the meeting. Rockefeller, now 95, told Fortune that the request was "a surprise but a pleasure." As a site for the event, he picked the elegant and very private President's House at Rockefeller University in New York City, whose board he has been on for 70 years. He also tapped his son David Jr., 68, to go with him to the meeting.

The event was scheduled for 3 p.m. on Tuesday, May 5 -- a day urgently desired by Bill Gates, who wanted to fit the meeting into a short U.S. break he'd be taking from a three-month European stay with his family. Because Melinda elected to remain in Europe with their three children, she did not attend the first dinner, but lined herself up for any that followed. (The Gateses have considered this campaign to be a personal matter for them, not in any way a project of the Gates Foundation.)

Melinda also insisted from the start that both husbands and wives be invited to the dinners, sure that both would be important to any discussion. Her reasoning: "Even if he's the one that made the money, she's going to be a real gatekeeper. And she's got to go along with any philanthropic plan, because it affects her and it affects their kids."

The letter of invitation, dated March 24, went to more people than could come. But the hosts and guests who arrived on May 5 certainly had enough economic tickets to be there: a combined net worth of maybe $130 billion and a serious history of having depleted that amount by giving money to charity. Leaving aside the semi-observers, Patty Stonesifer and David Rockefeller Jr., there were 14 people present, starting with the senior Rockefeller, Buffett, and Gates. The local guests included Mayor Bloomberg; three Wall Streeters, "Pete" Peterson, Julian Robertson, and George Soros; and Charles "Chuck" Feeney, who made his money as a major owner of Duty Free Shoppers and has so far given away $5 billion through his foundations, called Atlantic Philanthropies. When Feeney was dropped from the Forbes 400 in 1997, the magazine explained his departure in words not often hauled out for use: "Gave bulk of holdings to charity."

The out-of-towners included Oprah, Ted Turner, and two California couples, Los Angeles philanthropists Eli and Edythe Broad, and Silicon Valley's John and Tashia Morgridge, whose fortune came from Cisco Systems (CSCO). Both the Broads and the Morgridges had equivocated over whether to accept the invitation, regarding the trip as an inconvenience. But there were the signatures at the bottom of the letter -- from left to right, Rockefeller, Gates, Buffett. "Impressive," Eli Broad thought.

So on the appointed day the Broads found themselves seated with everyone else around a big conference table, wondering what came next. They mainly got that message from Buffett, whose quick sense of humor left him playing, says David Rockefeller Jr., "the enlivener role." He remembers Buffett as keeping the event from being "too somber" and "too self-congratulatory." Buffett set the ball rolling by talking about philanthropy, describing the meeting as "exploratory," and then asking each person, going around the table, to describe his or her philosophy of giving and how it had evolved.

The result was 12 stories, each taking around 15 minutes, for a total of nearly three hours. But most participants whom Fortune has talked to found the stories riveting, even when they were familiar. David Rockefeller Sr. described learning philanthropy at the knees of his father and grandfather. Ted Turner repeated the oft-told tale of how he had made a spur-of-the-moment decision to give $1 billion to the United Nations. Some people talked about the emotional difficulty of making the leap from small giving to large. Others worried that their robust philanthropy might alienate their children. (Later, recalling the meeting, Buffett laughed that it had made him feel like a psychiatrist.)

The charitable causes discussed in those stories covered the spectrum: education, again and again; culture; hospitals and health; the environment; public policy; the poor generally. Bill Gates, who found the whole event "amazing," regarded the range of causes as admirable: "The diversity of American giving," he says, "is part of its beauty."

At the dinner that followed, the conversation turned specifically to how giving by the rich could be increased. The ideas advanced included national recognition of great philanthropists (presidential medals, for example), or a film, or a philanthropy guidebook, or a conference of the rich. There was no talk of a pledge. Of the dinner, the junior Rockefeller says, "The most important thing my dad and I came away with was that increasing giving would take work by many in that room -- delicate, and probably prolonged, one-on-one work."

The dinner, of course, had its unexpected coda: the leak. The leaker, with little doubt, was Chuck Feeney, and the leakee was his longtime friend Niall O'Dowd, the New York publisher behind the grandly unknown IrishCentral.com. (Fortune did not succeed in reaching Feeney; of our account, O'Dowd said, "I can't confirm that.") On May 18, two weeks after the meeting, IrishCentral.com posted an article of 14 short paragraphs headlined "Secret meeting of world's richest people held in New York."With that, the fame of the website spiked, as the rest of the press picked up the news and ran with it.

The IrishCentral article exhibited some confusion about which Rockefeller starred at the dinner, or was even there, but otherwise provided the names of all the participants -- with the notable exception of Feeney, who apparently didn't realize he looked more conspicuous to the others by being left out. Feeney, however, appears to have been quoted anonymously in the piece, once as an "attendee" who thought Gates the most impressive speaker of the day, Turner the most outspoken (surprise!), and Buffett the most insistent on his agenda for change. In a second instance, Feeney was a good bet to have been the awed "participant" who extolled his fellow guests: "They were all there, the great and the good."

The main effect of the leak was to place a "cone of silence" -- that's a description from the Gates camp -- over everything that transpired in the giving campaign over the next year. But there was certainly action, including a few small dinners abroad. Bill and Melinda Gates hosted a dinner in London, and Bill held a few others in India and China. Raising the philanthropic bar in foreign countries is a special challenge: Dynastic wealth is widely taken for granted; tax laws do not commonly allow deductions for gifts to charity; a paucity of institutions and organizations ready for gifts makes knowing whom to give to just not that obvious. Nonetheless, were the Gateses and Buffett to succeed in their campaign in the U.S., they would probably take it overseas.

But as last summer and fall progressed, Buffett and the Gateses did not even have a plan for how the campaign was to be structured. In this vacuum the idea of a pledge took hold and gained strength. It helped that more dinners were to be held. At them, says Melinda, the three principals would "float the pledge idea to see if it would fly."

There then occurred the second and third U.S. dinners, most of whose guests have not been publicly outed because of the cone of silence. Secrecy, a Gates spokesman says, is partly a bow to moguls who have been exposed to the philanthropic sales pitch but would be embarrassed to have been identified in case they chose not to step up to the challenge.

In any event, the names of some of the participants are known. The noted philanthropists at the second dinner, held at the New York Public Library in November last year, included New York investment banker Kenneth Langone and his wife, Elaine, and H.F. "Gerry" Lenfest and his wife, Marguerite, from Philadelphia. Lenfest got rich when he sold his Pennsylvania cable television company to Comcast (CMCSA) in 2000, netting $1.2 billion for himself and his family. He promptly vowed that he would give most of it to charity in his lifetime. Now 80, he has so far meted out $800 million, a good part of it to schools he attended (Columbia Law School, Washington and Lee, Mercersburg Academy).

Lenfest's favorite moment at the November dinner was Buffett's declaration that Marguerite Lenfest had put forward the best idea of the evening when she said that the rich should sit down, decide how much money they and their progeny need, and figure out what to do with the rest of it. Says Lenfest: "The value of Buffett and Gates is that they're going to make people sit down and think these things through."

The Third Supper, held in December in Menlo Park, Calif., at the Rosewood Sand Hill hotel, is known as the Bay Area dinner but drew from all over the state, including its entertainment precincts. In attendance were some veteran philanthropists, including venture capitalist John Doerr of Kleiner Perkins and his wife, Ann, and the Morgridges, who had selected the meeting site. This dinner was somewhat different from the other two, says Melinda Gates, because a few people there were relatively new to huge wealth and were still forming their opinions about giving. Talk went on for hours, so long that the beef being prepared for dinner became somewhat overcooked. This is reported to have dismayed Rosewood's management, which may have noticed that the crowd in the Dogwood room was worth having back.

The dinner also brought out some of the fears that people have about philanthropy. What does going public with big gifts do to the peace in your life? Won't pleas from charities be unending? How do you deal with giving internationally, which too often seems like throwing money down a hole? These are valid concerns, say the Gateses, the kind raised by people who want to feel as smart about giving as they were about making their money. But the questions didn't stop the two from plugging the satisfactions of philanthropy. At those dinners, says Bill, "no one ever said to me, 'We gave more than we should have.'"

Nor did the idea of a pledge get shot down at those dinners. It "floated" nicely, in other words. So as 2010 arrived, a pledge became the strategy. The idea of aiming for a 50% slice of net worth was pragmatically pulled from the sky, being less than the principals would have liked to ask for but perhaps as much, at least initially, as they can get. The pledges, meanwhile, were never envisioned as legal contracts but rather moral obligations to be both memorialized in writing and taken very seriously. They are in fact to be posted on a new website, givingpledge.org, whose construction Melinda Gates oversaw. The 99% pledge that Buffett is making is likely to be the No. 1 document on the website, if he is not beaten out by his Seattle friends.

Enthusiastic about leading the search for Great Givers, the Gateses and Buffett nonetheless have wanted a phalanx of strong supporters. Already committed to at least a 50% pledge are the Broads, the Doerrs, the Lenfests, and the Morgridges. With the online publication of this article, moreover, the three principals will send e-mails and make calls to other billionaires judged likely prospects. A bit later, all of the pledgers may join in sending a letter to a large number of other billionaires, asking them to join the growing crowd. In the fall there may even be a Great Givers conference.

The definition of success in this venture may take years to figure out, but each of the principals has reflections about the matter. Buffett knows that everyone rich has thought about what to do with his or her money: "They may not have reached a decision about that, but they have for sure thought about it. The pledge that we're asking them to make will put them to thinking about the whole issue again." He warns, most of all, against the rich delaying the decision of what to do with their money: "If they wait until they're making a final will in their nineties, the chance of their brainpower and willpower being better than they are today is nil."

Bill Gates regards the 50% as a "low bar" encouraging high participation. People, he thinks, may be drawn in by that proportion and then surprise themselves and find they are giving at higher levels. "This is about moving to a different realm," he thinks, and it will take time for everything to sort out.

Melinda Gates separates the near-term from the far. There are so many reasons that rich people don't give, she says: They don't want to plan for their death; they worry that they'll need to hire someone to help with the work; they just don't want to take the time to think about it all. So the initial goal of the pledge campaign, she thinks, must be simply to cut through that and get them moving in the direction of giving. And eventually? "Three to five years down the road, we need to have a significant number of billionaires signed up. That would be success."

Society cannot help but be a beneficiary here, by virtue of at least some dollars and perhaps many. Nor will it be just the very rich who will perhaps bend their minds to what a pledge of this kind means. It could also be others with less to give but suddenly more reason to think about the rightness of what they do.

Reporter associate: Doris Burke

Treasury Dept: China's US govt debt holdings hit 2010 high

2010-06-16T07:28:00.001-07:00

By Agence France-Presse, Updated: 6/15/2010

China's holdings of US debt climbed to the highest level this year, the US Treasury said Tuesday even as Beijing stepped up attacks on the United States for its burgeoning debt.

The cash-rich Chinese government raised its US Treasury bond holdings to 900.2 billion dollars in April, its highest level since November 2009, while posting the second consecutive monthly rise, according to a report on international capital flows.

China remained far ahead as the top foreign debt holder, followed by Japan, which held 795.5 billion dollars in April, and third-placed Britain at 239.3 billion dollars, according to the figures.

The monthly gain in April and the previous month came after six straight months in which China appeared to reduce its Treasury holdings, or keep them flat.

While that triggered concerns Beijing was diversifying away from US bonds, some analysts said Beijing was secretly buying bonds via third countries to mask its importance as a creditor -- a role which had attracted considerable scrutiny.

Globally there has been an influx of investments in recent months into US Treasury bonds -- a channel used by the government to borrow from the public to finance its burgeoning deficit -- amid the mounting European debt crisis.

The crisis, which sent the euro to four-year lows, also deterred China and several other countries with massive foreign reserves from diversifying away from US bonds and other long-term US securities, analysts said.

"Threats of reserve diversification over the last two years by China and Russia have ended since the breakout of the European sovereign debt crisis and the euro's (sharp) decline against the US dollar," said analyst Michael Woolfolk of Bank of New York Mellon.

The data Tuesday indicated that China remains "a steadfast buyer" of Treasuries, averaging 10.3 billion dollars per month in 2009 and 8.2 billion dollars per month for the first four months of 2010, he said.

China, the world's largest holder of foreign-exchange reserves, has been constantly criticizing Washington for its snowballing debt levels, fearing that Beijing's investment in US government bonds could turn sour if a debt crisis overwhelms America.

Analysts cited the latest criticism from the Chinese national pension fund chief last week, saying it had also helped the euro recover against the greenback, including on Tuesday.

"The Euro was bought up quite aggressively on comments from the head of the Chinese pension Fund that the euro will survive the crisis and that he was more concerned about their US debt holdings," said Tony Darvall of Easy Forex.

The latest Treasury data showed that net foreign purchases of US securities rose in April but at a slower pace than record-setting March levels.

Net long-term foreign purchases fell to 83 billion dollars from 140.5 billion dollars in March.

"Despite falling from their record-high March level, net long-term capital inflows to the United States remained solid," said Gregory Daco, US economist at IHS Global Insight.

"Foreign investors' confidence in the US recovery was illustrated by the increased holdings of all three largest foreign holders of US Treasuries: China, Japan, and the UK," he said.

American on mission to kill bin Laden arrested

2010-06-16T07:27:00.000-07:00

By RIAZ KHAN and MUNIR AHMED

PESHAWAR, Pakistan (AP) - An American armed with a pistol and a 40-inch sword was detained in northern Pakistan and told investigators he was on a solo mission to kill Osama bin Laden, a police officer said Tuesday.

The man was identified as 52-year-old Californian construction worker Gary Brooks Faulkner, said officer Mumtaz Ahmad Khan.

He was picked up in a forest in the Chitral region late on Sunday, he said.

"We initially laughed when he told us that he wanted to kill Osama bin Laden," said Khan. But he said when officers seized the pistol, the sword and night-vision equipment, "our suspicion grew."

He was questioned Tuesday by intelligence officials in Peshawar, the main northwestern city.

Faulkner told police he visited Pakistan seven times, and this was his third trip to Chitral.

Police alleged the American intended to travel to the eastern Afghan region of Nuristan, just across the border from Chitral.

The area is among several rumored hiding places for the al-Qaida leader, who has evaded a massive U.S. effort to capture him since 2001. Bin Laden is accused of being behind the Sept. 11 attacks on the United States, as well other terrorist acts.

Khan said Faulkner was also carrying a book containing Christian verses and teachings.

When asked why he thought he had a chance of tracing bin Laden, Faulkner replied, "God is with me, and I am confident I will be successful in killing him," said Khan.

Faulkner arrived in the Chitrali town of Bumburate on June 3 and stayed in a hotel there.

He was assigned a police guard, as is quite common for foreigners visiting remote parts of Pakistan. When he checked out without informing police, officers began hunting for him, said Khan.

U.S. Embassy spokesman Richard Snelsire said the mission had received notification from Pakistani officials that an American citizen had been arrested. He said embassy officials were trying to meet the man and confirm his identity.

Nightmare vision for Europe as EU chief warns 'democracy could disappear' in Greece, Spain and Portugal

2010-06-16T07:24:00.000-07:00

By Jason Groves | Daily Mail UK
Last updated at 8:24 AM on 15th June 2010

EU begin emergency billion-pound bailout of Spain
Countries in debt may fall to dictators, EC chief warns
'Apocalyptic' vision as some states run out of money

Democracy could ‘collapse’ in Greece, Spain and Portugal unless urgent action is taken to tackle the debt crisis, the head of the European Commission has warned.

In an extraordinary briefing to trade union chiefs last week, Commission President Jose Manuel Barroso set out an ‘apocalyptic’ vision in which crisis-hit countries in southern Europe could fall victim to military coups or popular uprisings as interest rates soar and public services collapse because their governments run out of money.

The stark warning came as it emerged that EU chiefs have begun work on an emergency bailout package for Spain which is likely to run into hundreds of billions of pounds.

Crisis point: Demonstrators protest cuts announced by the Government in Malaga last week in an echo of the Greek crisis

A £650 billion bailout for Greece has already been agreed.

John Monks, former head of the TUC, said he had been ‘shocked’ by the severity of the warning from Mr Barroso, who is a former prime minister of Portugal.

Mr Monks, now head of the European TUC, said: ‘I had a discussion with Barroso last Friday about what can be done for Greece, Spain, Portugal and the rest and his message was blunt: “Look, if they do not carry out these austerity packages, these countries could virtually disappear in the way that we know them as democracies. They've got no choice, this is it.”

‘He's very, very worried. He shocked us with an apocalyptic vision of democracies in Europe collapsing because of the state of indebtedness.’

Greece, Spain and Portugal, which only became democracies in the 1970s, are all facing dire problems with their public finances. All three countries have a history of military coups.

Greece has been rocked by a series of national strikes and riots this year following the announcement of swingeing cuts to public spending designed to curb Britain’s deficit.

Spain and Portugal have also announced austerity measures in recent weeks amid growing signs that the international markets are increasingly worried they could default on their debts.

Dictatorships: An end to democracy in Europe could see a return of figures ruling dictatorships. General Franco was dictator of Spain until 1975; Georgios Papadopoulos led a military junta until 1973; and Antonio de Oliveira Salazar ruled as Portugese president until 1968.

Other EU countries seeing public protests over austerity plans include Hungary, Italy and Romania, where public sector pay is to be slashed by 25 per cent.

Deputy Prime Minister Nick Clegg, who visited Madrid last week, said the situation in Spain should serve as a warning to Britain of the perils of failing to tackle the deficit quickly.

He said the collapse of confidence in Spain had seen interest rates soar, adding: ‘As the nation with the highest deficit in Europe in 2010, we simply cannot afford to let that happen to us too.’

Mr Barroso’s warning lays bare the concern at the highest level in Brussels that the economic crisis could lead to the collapse of not only the beleaguered euro, but the EU itself, along with a string of fragile democracies.

DICTATORSHIPS

GREECE: Georgios Papadopoulos was dictator from 1967 to 1974.
The Colonel led the military coup d'etat in 1967 against King Constantine II amid political instability. He was leader of the junta which ruled until 1974.

Papadopoulos was overthrown by Brigadier Dimitrios Ioannidis in 1973. Democracy was restored in 1975.
SPAIN: General Francisco Franco led Spain from 1936 until his death in 1975. At the end of the Spanish Civil War he dissolved the Spanish Parliament and established a right-wing authoritarian regime that lasted until 1978. After his death Spain gradually began its transition to democracy.

PORTUGAL: Antonio de Oliveira Salazar's regime and its secret police ruled the country from 1932 to 1968. He founded and led the Estado Novo, the authoriatan, right-wing government that controlled Portugal from 1932 to 1974. After Salazar's death in 1970, his regime persisted until it eventually fell after the Carnation Revolution.

But it risks infuriating governments in southern Europe which are already struggling to contain public anger as they drive through tax rises and spending cuts in a bid to avoid disaster.
Mr Monks yesterday warned that the new austerity measures themselves could take the continent ‘back to the 1930s’.
In an interview with the Brussels-based magazine EU Observer he said: ‘This is extremely dangerous.
'This is 1931, we're heading back to the 1930s, with the Great Depression and we ended up with militarist dictatorship.

‘I'm not saying we're there yet, but it's potentially very serious, not just economically, but politically as well.’
Mr Monks said union barons across Europe were planning a co-ordinated ‘day of action’ against the cuts on 29 September, involving national strikes and protests.

David Cameron will travel to Brussels on Thursday for his first summit of EU leaders since the election.
Leaders are expected to thrash out a rescue package for Spain’s teetering economy. Spain is expected to ask for an initial guarantee of at least £100 billion, although this figure could rise sharply if the crisis deepens.
News of the behind-the-scenes scramble in Brussels spells bad news for the British economy as many of our major banks have loaned Spain vast sums of money in recent years.

Germany’s authoritative Frankfurter Allgemeine Newspaper reported that Spain is poised to ask for multi-billion pound credits.

Mr Barroso and Jean-Claude Trichet of the European Central Bank are united on the need for a rescue plan.
The looming bankruptcy of Spain, one of the foremost economies in Europe, poses far more of a threat to European unity and the euro project than Greece.

Greece contributes 2.5 percent of GDP to Europe, Spain nearly 12 percent.

Yesterday’s report quoted German government sources saying: ‘We will lead discussions this week in Brussels concerning the crisis. It has intensified to the point that the states do not want to wait until the EU summit on Thursday in Brussels.”’

At the end of last month the credit rating agency Fitch downgraded Spain, triggering sharp falls on stock markets.

On Friday the administration in Madrid continued to insist no rescue package was necessary. But Greece said the same thing before it came close to disaster.

Yesterday the European Commission and the statistics authority Eurostat met to consider Spain‘s plight as many EU countries consider the austerity package proposed by the Madrid administration insufficient to deal with the country‘s problems.

8 Traits for Financial Success

2010-06-15T07:05:00.000-07:00

Featured in USAA Magazine

Did you know that when you look at the top 30% of the population of America in terms of wealth and success, nine out of 10 of those folks weren't there a decade ago? That's one of the things I learned in conducting a study of 5,000 Americans for my book "The Difference." I also discovered that there are eight traits and habits that separate those successful folks from those who haven't found their financial mojo — and that these are not traits or habits you have to be born with. They're especially helpful in tough economic times, which is why they are especially pertinent to many of us. Pick two or three of the items on the list below and make them your own — they'll show you the way to financial success.

1. Optimism

People who understand the keys to success have a sunnier outlook. When they rank their own happiness, they're an eight out of 10, which makes them cynical enough to purchase life insurance and have emergency funds, but bright-sided enough to get more job interviews, land jobs and get solid performance evaluations.

2. Resilience

As with optimism, we're born with about 50 percent of the resilience we'll ever get, according to research from the University of Pennsylvania. The rest is up to us. And in these uncertain times we've never needed it more. To up your resilience, when comparing yourself to others (we all do this), put yourself in a good light rather than a poor one. For example, I'm not the least flexible person in yoga class. I am among the most flexible of the beginners.

3. Passion

There are jobs that you do for money. There are careers, which offer money plus advancement. And there are callings, which are those things you have to do. Americans on average have 12 different jobs and four different careers over their lifetimes. The wealthy have fewer, and I believe it's because they've found their callings, their passions, and are sticking to them — and there's a great financial advantage to that path. To find your passion, ask yourself: What is it people say I do well? What am I doing with my time? And if that doesn't work: What turned me on as a child — and does it have a corollary in the adult world?

4. Connectedness

People who live paycheck to paycheck keep close ranks socially. They tend to stick to family and close friends. The wealthy open their circles to anyone — neighbors, colleagues, friends of friends — who might be an ally financially or in business. That means not only joining the appropriate groups, but putting yourself out there as a leader.

5. Intuition

Our brain stores information that tells us if something happens, something else could follow. When it senses a pattern, it sends signals we often feel in our guts. We call them hunches. What they are is intuition, a sense that's usually well developed in the wealthy. To make yours work for you, figure out what it's saying. Not sure? Try this: When faced with a tough yes-or-no decision, flip a coin. Assign the yes and no to head or tail. While the coin is in the air, you'll hope that it lands one way or the other. That hope is your intuition.

6. Saving Habitually

The wealthy credit their financial success to saving habitually (even more than to investing). This isn't the easiest habit to learn, because your brain is hard-wired to value today's purchases more than those put off until tomorrow. That's why saving is best accomplished automatically. Whenever you get paid, make sure money automatically moves into your retirement account, as well as into discretionary savings. Then watch your savings grow. Your brain will learn to take pleasure in that.

7. Investing in Stocks

Even in tumultuous markets, the wealthy invest in stocks. They understand the need to take risks with their money in order to give it the ability to work as hard as they do. But this shouldn't be done blindly. You need an asset allocation that's in sync with your age and risk tolerance. If you don't feel comfortable developing this yourself, a target-date fund tied to the approximate year you expect to retire can keep you in balance.

8. Gratitude

Finally, the wealthy understand the importance of giving back — and being thankful for what they have — to tie it all together. Gratitude is the antidote to materialism. Materialism is obsessing on what you desire. Gratitude is appreciating what you have. To get more of it into your life, use these words daily: grateful, thankful, gift, lucky, fortunate. You'll start feeling richer in no time.

About the Author

Jean Chatzky, award-winning journalist, best-selling author and motivational speaker, is helping millions of men and women battle debt. That's why we've tapped her to write a personal finance column just for our readers in each issue of USAA Magazine. Chatzky's newest book, "The Difference: How Anyone Can Prosper in Even the Toughest Times" (Crown Business), debuted in March.

U.S. Identifies Vast Riches of Minerals in Afghanistan

2010-06-15T06:57:00.000-07:00

By JAMES RISEN | New York Times
Published: June 13, 2010

WASHINGTON — The United States has discovered nearly $1 trillion in untapped mineral deposits in Afghanistan, far beyond any previously known reserves and enough to fundamentally alter the Afghan economy and perhaps the Afghan war itself, according to senior American government officials.

The previously unknown deposits — including huge veins of iron, copper, cobalt, gold and critical industrial metals like lithium — are so big and include so many minerals that are essential to modern industry that Afghanistan could eventually be transformed into one of the most important mining centers in the world, the United States officials believe.

An internal Pentagon memo, for example, states that Afghanistan could become the “Saudi Arabia of lithium,” a key raw material in the manufacture of batteries for laptops and BlackBerrys.

The vast scale of Afghanistan’s mineral wealth was discovered by a small team of Pentagon officials and American geologists. The Afghan government and President Hamid Karzai were recently briefed, American officials said.

While it could take many years to develop a mining industry, the potential is so great that officials and executives in the industry believe it could attract heavy investment even before mines are profitable, providing the possibility of jobs that could distract from generations of war.

“There is stunning potential here,” Gen. David H. Petraeus, commander of the United States Central Command, said in an interview on Saturday. “There are a lot of ifs, of course, but I think potentially it is hugely significant.”

The value of the newly discovered mineral deposits dwarfs the size of Afghanistan’s existing war-bedraggled economy, which is based largely on opium production and narcotics trafficking as well as aid from the United States and other industrialized countries. Afghanistan’s gross domestic product is only about $12 billion.

“This will become the backbone of the Afghan economy,” said Jalil Jumriany, an adviser to the Afghan minister of mines.

American and Afghan officials agreed to discuss the mineral discoveries at a difficult moment in the war in Afghanistan. The American-led offensive in Marja in southern Afghanistan has achieved only limited gains. Meanwhile, charges of corruption and favoritism continue to plague the Karzai government, and Mr. Karzai seems increasingly embittered toward the White House.

So the Obama administration is hungry for some positive news to come out of Afghanistan. Yet the American officials also recognize that the mineral discoveries will almost certainly have a double-edged impact.

Instead of bringing peace, the newfound mineral wealth could lead the Taliban to battle even more fiercely to regain control of the country.

The corruption that is already rampant in the Karzai government could also be amplified by the new wealth, particularly if a handful of well-connected oligarchs, some with personal ties to the president, gain control of the resources. Just last year, Afghanistan’s minister of mines was accused by American officials of accepting a $30 million bribe to award China the rights to develop its copper mine. The minister has since been replaced.
Endless fights could erupt between the central government in Kabul and provincial and tribal leaders in mineral-rich districts. Afghanistan has a national mining law, written with the help of advisers from the World Bank, but it has never faced a serious challenge.

“No one has tested that law; no one knows how it will stand up in a fight between the central government and the provinces,” observed Paul A. Brinkley, deputy undersecretary of defense for business and leader of the Pentagon team that discovered the deposits.

At the same time, American officials fear resource-hungry China will try to dominate the development of Afghanistan’s mineral wealth, which could upset the United States, given its heavy investment in the region. After winning the bid for its Aynak copper mine in Logar Province, China clearly wants more, American officials said.

Another complication is that because Afghanistan has never had much heavy industry before, it has little or no history of environmental protection either. “The big question is, can this be developed in a responsible way, in a way that is environmentally and socially responsible?” Mr. Brinkley said. “No one knows how this will work.”

With virtually no mining industry or infrastructure in place today, it will take decades for Afghanistan to exploit its mineral wealth fully. “This is a country that has no mining culture,” said Jack Medlin, a geologist in the United States Geological Survey’s international affairs program. “They’ve had some small artisanal mines, but now there could be some very, very large mines that will require more than just a gold pan.”

The mineral deposits are scattered throughout the country, including in the southern and eastern regions along the border with Pakistan that have had some of the most intense combat in the American-led war against the Taliban insurgency.

The Pentagon task force has already started trying to help the Afghans set up a system to deal with mineral development. International accounting firms that have expertise in mining contracts have been hired to consult with the Afghan Ministry of Mines, and technical data is being prepared to turn over to multinational mining companies and other potential foreign investors. The Pentagon is helping Afghan officials arrange to start seeking bids on mineral rights by next fall, officials said.

“The Ministry of Mines is not ready to handle this,” Mr. Brinkley said. “We are trying to help them get ready.”
Like much of the recent history of the country, the story of the discovery of Afghanistan’s mineral wealth is one of missed opportunities and the distractions of war.

In 2004, American geologists, sent to Afghanistan as part of a broader reconstruction effort, stumbled across an intriguing series of old charts and data at the library of the Afghan Geological Survey in Kabul that hinted at major mineral deposits in the country. They soon learned that the data had been collected by Soviet mining experts during the Soviet occupation of Afghanistan in the 1980s, but cast aside when the Soviets withdrew in 1989.

During the chaos of the 1990s, when Afghanistan was mired in civil war and later ruled by the Taliban, a small group of Afghan geologists protected the charts by taking them home, and returned them to the Geological Survey’s library only after the American invasion and the ouster of the Taliban in 2001.

“There were maps, but the development did not take place, because you had 30 to 35 years of war,” said Ahmad Hujabre, an Afghan engineer who worked for the Ministry of Mines in the 1970s.

Armed with the old Russian charts, the United States Geological Survey began a series of aerial surveys of Afghanistan’s mineral resources in 2006, using advanced gravity and magnetic measuring equipment attached to an old Navy Orion P-3 aircraft that flew over about 70 percent of the country.

The data from those flights was so promising that in 2007, the geologists returned for an even more sophisticated study, using an old British bomber equipped with instruments that offered a three-dimensional profile of mineral deposits below the earth’s surface. It was the most comprehensive geologic survey of Afghanistan ever conducted.

The handful of American geologists who pored over the new data said the results were astonishing.
But the results gathered dust for two more years, ignored by officials in both the American and Afghan governments. In 2009, a Pentagon task force that had created business development programs in Iraq was transferred to Afghanistan, and came upon the geological data. Until then, no one besides the geologists had bothered to look at the information — and no one had sought to translate the technical data to measure the potential economic value of the mineral deposits.

Soon, the Pentagon business development task force brought in teams of American mining experts to validate the survey’s findings, and then briefed Defense Secretary Robert M. Gates and Mr. Karzai.
So far, the biggest mineral deposits discovered are of iron and copper, and the quantities are large enough to make Afghanistan a major world producer of both, United States officials said. Other finds include large deposits of niobium, a soft metal used in producing superconducting steel, rare earth elements and large gold deposits in Pashtun areas of southern Afghanistan.

Just this month, American geologists working with the Pentagon team have been conducting ground surveys on dry salt lakes in western Afghanistan where they believe there are large deposits of lithium. Pentagon officials said that their initial analysis at one location in Ghazni Province showed the potential for lithium deposits as large of those of Bolivia, which now has the world’s largest known lithium reserves.
For the geologists who are now scouring some of the most remote stretches of Afghanistan to complete the technical studies necessary before the international bidding process is begun, there is a growing sense that they are in the midst of one of the great discoveries of their careers.

“On the ground, it’s very, very, promising,” Mr. Medlin said. “Actually, it’s pretty amazing.”

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2010-06-14T18:23:00.000-07:00

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Martin Weiss: Glimpses of the End Game

2010-06-14T06:33:00.000-07:00

by Martin D. Weiss, Ph.D. 06-14-10

Anyone not blinded by greed can plainly see the sick cycle we’re in:

First, the government helps create a great asset bubble.

Next, the government-created bubble bursts under a dark cloud of hardship for millions of Americans, and …

Last, the government responds by creating still ANOTHER bubble, often far more dangerous than the previous.
A rare sequence of events? Hardly.

Just in the past dozen years, we’ve already seen three — the tech bubble and wreck … the housing bubble and bust … and now the sovereign debt explosion and implosion.

So by this time, millions of investors already know the drill. What they don’t know is the answer to the biggest question of all: What’s the End Game?

Will the world’s money printing presses inevitably run amuck, trashing any remaining value in paper currencies?

Will major governments ultimately default on their debts, destroying the global credit system?

Will our entire civilization crumble?

My answer: The threats are certainly real. But the final outcome could be very different indeed.

In fact, no matter how many tricks governments may play and no matter how wild this 21st century roller-coaster ride may get, there will also be another possible end game: Austerity.

Austerity can come in many forms: Governments may impose austerity strictly in reaction to market-driven forces … or by pro-actively taking the lead. Austerity may come with wild inflation … or without. It could trigger deep social upheaval … or merely sporadic protests.

But regardless of how austerity finally arrives, it cannot happen without across-the-board cutbacks in government payrolls, severe reductions in unemployment benefits, massive cuts in pensions, big hits to social welfare programs, and invariably, NO MORE ECONOMIC STIMULUS!

New Austerity Measures Sweep The Globe

Hard to believe? Then take a closer look at the sudden rush to austerity announced just in the past few weeks …

Greece has finally bowed to unrelenting attacks from global investors and is slashing 30 billion euros from its budget in three years.

Spain, also under massive pressure from investors, has announced spending cuts of 15 billion euros, plus a 5 percent reduction in public worker wages.

Portugal is getting ready to embark on a program to cut 2 billion euros this year alone.

Italy is slashing 25 billion euros from its budget over the next two years.

Germany, supposedly the most robust of all euro-zone countries, has no choice but to follow a similar path — cutbacks of 85 billion euros by 2014.
But this is just the beginning.

In the UK, newly elected Prime Minister David Cameron has wasted no time in confessing that Britain’s financial situation is “even worse than we thought.” He has blatantly declared how sharply he’s going to break with his predecessors on stimulus programs … how hard he’s going to slam down on the brakes, and … how quickly he’s going to prescribe a harsh regimen of spending cuts.

Expect cutbacks of at least 6.2 billion pounds this year alone.

In Japan — where newly installed leadership is also trying to make a clean break with the past — we see the same pattern: Late last week, Prime Minister Naoto Kan pulled no punches in declaring that …
Japan’s “outstanding public debt is huge” …
Its “public finances have become the worst of any developed country” …
And the entire country is at “risk of collapse.”

Even in Washington, voices advocating a second round of stimulus have suddenly gone silent. According to the New York Times,

“At a moment when many economists warn that the American economic recovery is likely to be imperiled by prolonged high unemployment and slow growth, President Obama is discovering that the tools available to him last year — a big economic stimulus and action by the Federal Reserve — are both now politically untenable.
“The mood in both parties of Congress has turned decidedly anti-deficit, meaning that the job-creation programs once favored by the White House and Democratic leaders in Congress have been cut back, then cut again.
“It is a measure of the mood that Mr. Obama on Tuesday hailed an initiative by his administration to cut the budgets of most major government agencies by 5 percent, at a time when conventional theory would call for more government spending to lift the economy.”

Will politicians in Washington, Tokyo, London, Berlin, Rome, Lisbon, Madrid, or Greece cut enough to restore fiscal balance? I doubt it.

But never forget:

These governments are the ones that injected the mega doses of stimulants into the bloodstream of their economies last year. And these governments are also the ones that everyone hoped would provide the NEXT big fix.
Now, even if they don’t cut their budgets by a penny — even if they simply fail to renew their stimulus programs — the impact could be severe.
This isn’t rocket science.

The U.S., Europe and Japan are addicted to stimulus. But instead of more injections, governments are now prescribing cold turkey.
Even if they don’t cut very much, instead of more economic recovery, we will inevitably see severe withdrawal pains and another major slump.

My recommendation:
Don’t wait. for the Biggest Shock of All.
Don’t delay while debt façades crack around the globe.
Heed our multiple warnings of the dangers ahead and follow our calls to action.

VIDEO: World Collapse Explained in 3 Minutes

2010-06-14T06:17:00.000-07:00

Fannie-Freddie Fix at $160 Billion With $1 Trillion Worst Case

2010-06-14T06:10:00.000-07:00

By Lorraine Woellert and John Gittelsohn

June 14 (Bloomberg) -- The cost of fixing Fannie Mae and Freddie Mac, the mortgage companies that last year bought or guaranteed three-quarters of all U.S. home loans, will be at least $160 billion and could grow to as much as $1 trillion after the biggest bailout in American history.

Fannie and Freddie, now 80 percent owned by U.S. taxpayers, already have drawn $145 billion from an unlimited line of government credit granted to ensure that home buyers can get loans while the private housing-finance industry is moribund. That surpasses the amount spent on rescues of American International Group Inc., General Motors Co. or Citigroup Inc., which have begun repaying their debts.
“It is the mother of all bailouts,” said Edward Pinto, a former chief credit officer at Fannie Mae, who is now a consultant to the mortgage-finance industry.

Fannie, based in Washington, and Freddie in McLean, Virginia, own or guarantee 53 percent of the nation’s $10.7 trillion in residential mortgages, according to a June 10 Federal Reserve report. Millions of bad loans issued during the housing bubble remain on their books, and delinquencies continue to rise. How deep in the hole Fannie and Freddie go depends on unemployment, interest rates and other drivers of home prices, according to the companies and economists who study them.

‘Worst-Case Scenario’

The Congressional Budget Office calculated in August 2009 that the companies would need $389 billion in federal subsidies through 2019, based on assumptions about delinquency rates of loans in their securities pools. The White House’s Office of Management and Budget estimated in February that aid could total as little as $160 billion if the economy strengthens.

If housing prices drop further, the companies may need more. Barclays Capital Inc. analysts put the price tag as high as $500 billion in a December report on mortgage-backed securities, assuming home prices decline another 20 percent and default rates triple.

Sean Egan, president of Egan-Jones Ratings Co. in Haverford, Pennsylvania, said that a 20 percent loss on the companies’ loans and guarantees, along the lines of other large market players such as Countrywide Financial Corp., now owned by Bank of America Corp., could cause even more damage.

“One trillion dollars is a reasonable worst-case scenario for the companies,” said Egan, whose firm warned customers away from municipal bond insurers in 2002 and downgraded Enron Corp. a month before its 2001 collapse.

Unfinished Business

A 20 percent decline in housing prices is possible, said David Rosenberg, chief economist for Gluskin Sheff & Associates Inc. in Toronto. Rosenberg, whose forecasts are more pessimistic than those of other economists, predicts a 15 percent drop.

“Worst case is probably 25 percent,” he said.

The median price of a home in the U.S. was $173,100 in April, down 25 percent from the July 2006 peak, according to the National Association of Realtors.

Fannie and Freddie are deeply wired into the U.S. and global financial systems. Figuring out how to stanch the losses and turn them into sustainable businesses is the biggest piece of unfinished business as Congress negotiates a Wall Street overhaul that could reach President Barack Obama’s desk by July.

Neither political party wants to risk damaging the mortgage market, said Douglas Holtz-Eakin, a former director of the Congressional Budget Office and White House economic adviser under President George W. Bush.

“Republicans and Democrats love putting Americans in houses, and there’s no getting around that,” Holtz-Eakin said.

‘Safest Place’

With no solution in sight, the companies may need billions of dollars from the Treasury Department each quarter. The alternative -- cutting the federal lifeline and letting the companies default on their debts -- would produce global economic tremors akin to the U.S. decision to go off the gold standard in the 1930s, said Robert J. Shiller, a professor of economics at Yale University in New Haven, Connecticut, who helped create the S&P/Case-Shiller indexes of property values.

“People all over the world think, ‘Where is the safest place I could possibly put my money?’ and that’s the U.S.,” Shiller said in an interview. “We can’t let Fannie and Freddie go. We have to stand up for them.”

Congress created the Federal National Mortgage Association, known as Fannie Mae, in 1938 to expand home ownership by buying mortgages from banks and other lenders and bundling them into bonds for investors. It set up the Federal Home Loan Mortgage Corp., Freddie Mac, in 1970 to compete with Fannie.

Lower Standards

The companies’ liabilities stem in large part from loans and mortgage-backed securities issued between 2005 and 2007. Directed by Congress to encourage lending to minorities and low- income borrowers at the same time private companies were gaining market share by pushing into subprime loans, Fannie and Freddie lowered their standards to take on high-risk mortgages.

Many of those went to borrowers with poor credit or little equity in their homes, according to company filings. By early 2008, more than $500 billion of loans guaranteed or held by Fannie and Freddie, about 10 percent of the total, were in subprime mortgages, according to Fed reports.

Fannie and Freddie also raised billions of dollars by selling their own corporate debt to investors around the world. The bonds are seen as safe because of an implicit government guarantee against default. Foreign governments, including China’s and Japan’s, hold $908 billion of such bonds, according to Fed data.

‘Debt Trap’

“Do we really want to go to the central bank of China and say, ‘Tough luck, boys’? That’s part of the problem,” said Karen Petrou, managing partner of Federal Financial Analytics Inc., a Washington-based research firm.

The terms of the 2008 Treasury bailout create further complications. Fannie and Freddie are required to pay a 10 percent annual dividend on the shares owned by taxpayers. So far, they owe $14.5 billion, more than the companies reported in income in their most profitable years.

“It’s like a debt trap,” said Qumber Hassan, a mortgage strategist at Credit Suisse Group AG in New York. “The more they draw, the more they have to pay.”

Fannie and Freddie also benefited by selling $1.4 trillion in mortgage-backed securities to the Fed and the Treasury since September 2008, bonds that otherwise would have weighed on their balance sheets. While the government bought only the lowest-risk securities, it could incur additional losses.

‘Hard to Judge’

Treasury Secretary Timothy F. Geithner has vowed to keep Fannie and Freddie operating.

“It’s very hard to judge what the scale of losses is,” Geithner told Congress in March.

One idea being weighed by the Obama administration involves reconstituting Fannie and Freddie into a “good bank” with performing loans and a “bad bank” to absorb the rest. That could cost taxpayers as much as $290 billion because of all the bad loans, according to a May estimate by Credit Suisse analysts.

At the end of March, borrowers were late making payments on $338.4 billion worth of Fannie and Freddie loans, up from $206.1 billion a year earlier, according to the companies’ first- quarter filings at the Securities and Exchange Commission.

The number of loans more than three months past due has risen every quarter for more than a year, hitting 5.5 percent at Fannie as of the end of March and 4.1 percent at Freddie, according to the filings.

Surge in Delinquencies

The composition of the $5.5 trillion of loans guaranteed by Fannie and Freddie suggests that the surge in delinquencies may continue. About $1.98 trillion of the loans were made in states with the nation’s highest foreclosure rates -- California, Florida, Nevada and Arizona -- and $1.13 trillion were issued in 2006 and 2007, when real estate values peaked. Mortgages on which borrowers owe more than 90 percent of a property’s value total $402 billion.

Fannie and Freddie may suffer additional losses as a result of the Treasury’s effort to prevent foreclosures. Under the program, banks with mortgages owned or guaranteed by the companies must rewrite loan terms to make them easier for borrowers to pay.

The Treasury program is budgeted to cost Fannie and Freddie $20 billion. The companies have already modified about 600,000 delinquent loans and refinanced almost 300,000 more, in some cases for an amount greater than the houses are worth.

The government is using Fannie and Freddie “for a public- policy purpose that may well increase the ultimate cost of the taxpayer rescue,” said Petrou of Federal Financial Analytics. “Treasury is rolling the dice.”

Republican Phase-Out

If the plan works and foreclosures fall, that could help stabilize Fannie’s and Freddie’s balance sheets and ultimately protect taxpayers.

“Avoiding foreclosures can be a route to reducing loss severity,” said Sarah Rosen Wartell, executive vice president of the Center for American Progress, a Washington research group with ties to the Obama administration.

Loans issued since 2008, when the companies raised standards for borrowers, should be profitable and help offset prior losses, Wartell said.

Republicans attempted to include a phase-out of the mortgage companies in the financial reform bill. Democratic lawmakers and the Obama administration opted for further study, and the Treasury began soliciting ideas in April.

Representative Scott Garrett, a New Jersey Republican and co-sponsor of the phase-out amendment, said eliminating Fannie and Freddie would force the government and the housing market to confront the issue.
“It’s somewhat impossible to predict the magnitude of their impact if they continue to be the primary source of lending,” Garrett said in an interview.

Caught in ‘Quandary’

Democrats dismissed the phase-out idea as simplistic.

“We need to have a housing-financing system in place,” Senate Banking Committee Chairman Christopher Dodd said last month. “If you pull that rug out at this particular juncture, I don’t know what the particular result would be. We’re caught in this quandary.”

By delaying action, the Obama administration keeps losses off the government’s books while building a floor under housing prices during a congressional election year.

Keeping Fannie and Freddie functioning could also support an overall economic recovery. Residential real estate -- the money spent on rent, mortgage payments, construction, remodeling, utilities and brokers’ fees -- accounted for about 17 percent of gross domestic product in 2009, according to the National Association of Home Builders.

‘Already Lost’

Allowing the companies to go under and hoping that private financing will fill the gap isn’t realistic, analysts say. It would require at least two years of rising property values for private companies to return to the mortgage-securitization market, said Robert Van Order, Freddie’s former chief international economist and a professor of finance at George Washington University in Washington.

The price tag of supporting Fannie and Freddie “needs to be evaluated against the cost of not having a mortgage market,” said Phyllis Caldwell, chief of the Treasury’s Homeownership Preservation Office.
Whatever the fix, the money spent will not be recovered, said Alex Pollock, a former president of the Federal Home Loan Bank of Chicago who is now a fellow at the Washington-based American Enterprise Institute.
“It doesn’t matter what you do or don’t do, Fannie and Freddie will cost a lot of money,” Pollock said. “The money is already lost. There’s an attempt to try to avert your eyes.”

Obama Requests Another $50 Billion in State and Local Aid

2010-06-14T06:02:00.000-07:00

By JEFF BATER

Concern over the nation's mounting debt could snarl the passage of President Barack Obama's proposal to provide more aid to state and local governments hit by the economic downturn.

Mr. Obama on Saturday sent a letter to lawmakers calling for swift action to help U.S. small businesses and state and local governments facing budget cuts, as the country grapples with the after-effects of the global financial crisis. He didn't specify in the letter where funds would come from, but he said he had called for a three-year freeze in non-security discretionary spending.

"It is essential that we continue to explore additional measures to spur job creation and build momentum toward recovery, even as we establish a path to long-term fiscal discipline," Mr. Obama said in the letter to congressional leaders, a copy of which was seen by The Wall Street Journal. "At this critical moment, we cannot afford to slide backwards just as our recovery is taking hold."

States in the Red

Most states have addressed or still face gaps in their budgets, while tax revenue declined in the final quarter of 2009.

The letter said the economic impact of budget cuts at the state and local levels were leading to "massive layoffs of teachers, police and firefighters," and that 84,000 jobs in state and local governments had already been lost so far this year. Mr. Obama said "hundreds of thousands of additional jobs" could be lost if further action is not taken, according to the letter.

House Minority Leader John Boehner, in a Sunday talk show discussion about Mr. Obama's letter, criticized the "spending spree" in Washington. "It's just putting more debt on the backs of our kids and our grandkids," Mr. Boehner (R., Ohio) told ABC News's "This Week." "The American people want spending cut now," he added.

The White House didn't respond to a request for comment on Sunday. In response to steep declines in sales and income taxes, states have reduced spending and lifted taxes and fees during the past two budget years. Unlike the federal government, all U.S. states except Vermont have at least a limited requirement to balance their budgets.

Thirty-nine states say they expect lower general-fund spending for the coming fiscal year, which begins July 1 for most states, than for the fiscal year ended June 30, 2008, according to a report released last week by the National Governors Association and National Association of State Budget Officers.

Most states passed their budgets assuming Congress would come through with additional funding for Medicaid, the joint federal-state health program for the poor and disabled. But the aid hasn't been approved, and its passage is uncertain. Without the supplemental Medicaid funds, states will have to cut their budgets further.

Some large states are still grappling with gaping deficits. The New York state legislature plans to vote Monday on an emergency spending bill, proposed Friday by Democratic Gov. David Paterson, that calls for more than $300 million in cuts to state mental-health and social services. New Jersey Gov. Chris Christie, a Republican, wants cuts in state aid to local governments, schools and others, as the state tries to close an $11 billion deficit. In California, Gov. Arnold Schwarzenegger, a Republican, has proposed eliminating the state's welfare program and making other deep cuts to eliminate a $19 billion deficit.

The issue poses a quandary for policymakers, who want to boost the economy and create more jobs ahead of midterm elections in November, but worry about increasing the federal government's record budget deficits. Polls have suggested that voters are concerned about both issues.
The U.S. has run 20 straight monthly budget deficits.

So far this fiscal year, the federal government has spent $935.61 billion more than it made, with four months left to go. The U.S. ran a record $1.42 trillion deficit in fiscal year 2009, which began Oct. 1, 2008.

Rep. Steny Hoyer (D., Md.) acknowledged that there was spending fatigue around the country. "People are concerned about the debt level, and we are, as well," he said on "This Week." "But clearly, you cannot not continue to stimulate an economy that is still struggling to get out of the deep ditch that we found it in about 18 months ago.

—Amy Merrick contributed to this article.

Follow the Money Weekly Radio Show w/ Jerry Robinson - June 11, 2010

2010-06-12T08:07:00.000-07:00

CLICK HERE TO LISTEN NOW

Time to Buy the Euro?: On this week's program, Jerry Robinson provides his insights concerning the U.S. National Debt, the price of gold, along with an in-depth look at the other important headlines of the week. Our special guest interview is with Tim W. Wood, CPA (Cycles News and Views newsletter). Mr. Wood discusses his unique approach to investing using technical analysis, market cycles, and Dow Theory. Also, precious metals expert, Tom Cloud gives his Precious Metals Market Update and your Question of the Week..

Special Guest Interview: Overview of Cycles and Dow Theory

Tim Wood, Certified Public Accountant
(Cycles News and Views newsletter) Tim W. Wood, CPA is author of the newsletter Cycles News and Views. His website, http://www.cyclesman.info, provides investors with a place where they can obtain truthful, non-biased, factual information about the financial markets. The information presented in his website is based on technical analysis and not on the Hope and Hype heard by the so-called mainstream "analysts.".

Precious Metals Market Update

Tom Cloud, Precious Metals Expert
(Turamali, Inc., President)
Thomas Cloud is the Chairman of the Board of Turamali, Inc. and has a long and successful advisory track record in both financial planning and tangible assets. His expertise as an financial counselor and thorough knowledge of the products he recommends has attracted an impressive list of individuals and major institutions from across the United States. Since 1977, Mr. Cloud has devoted his attention to all areas of tangible asset investing offering a "hands on" approach to each and every Turamali, Inc. client..

Jim Rogers: Now May Be the Time to Buy the Euro

2010-06-11T07:25:00.000-07:00

By: Antonia Oprita
Web Producer, CNBC.com

Everybody is so bearish about the euro that it looks like now is a good time to buy the single European currency, famous investor Jim Rogers told CNBC Thursday.

Rogers' long-term bet is on commodities, as he predicts that governments will keep printing money to get out of their debt problems and this will flare up inflation.

Getty Images

Jim Rogers

"I'm as confused as anybody else… I'm basically short stocks and long commodities and trying to figure out whether to add to the euro yet," Rogers told CNBC.

"Everybody is terribly negative on the euro right now, it's unbelievable how many bears there are and usually that indicates a rally," he said.

Other contrarian traders are considering buying the single European currency.

"The euro is failing to rally on good news — whether of an economic or a political nature," wrote Audrey Childe-Freeman, senior currency strategist for Brown Brothers Harriman, in a note to clients.

"In this context, it is rather controversial to be anything but a euro bear, but this may be the time to identify a few constructive developments and to get prepared for a potential correction" to the upside, Childe-Freeman wrote.

The euro [EUR=X 1.2118 0.0012 (+0.1%) ] was trading higher versus the dollar Thursday, ahead of the European Central Bank's monthly meeting on monetary policy.

But Rogers said his decision to buy the euro would not be based on the soundness of euro zone policies to contain debt.

"Basically it's a technical rally," he said. "Once a technical rally starts, who knows where it can go from that."

But the only big bull market he sees over the next decade will be in commodities.

Shorting One American Bank?

Central banks will start printing money again "because that's all they know to do, they don't have more sense than that" and inflation will rise, so owning any hard assets will be good, he predicted.

But investing in commodities is not a safe game and those who are thinking about getting into debt to take advantage of a bull market should always know very well the market they are buying into, Rogers warned.

"If you cannot spell commodities I wouldn't suggest buying commodities. Please, you'd better know what you're doing if you're going to use a lot of leverage," he said.

He does not own stocks of companies linked to commodities, because there are lots of risks associated with stocks.

- Watch the full interview with Jim Rogers above.

"I actually own some Australian mining shares but I own them for 10-12 years and I'm not buying them now," he said. "Unless you're very, very good at stock picking, you should own the commodities themselves."

Rogers said he is shorting the technology sector, emerging markets and the US stock market.

In the financial sector, he said he was short "one major Western financial institution" with headquarters in North America. He was not short other banks, because their prices had not risen enough, he said.

His views on the financial sector are not optimistic and he believes Wall Street and the City are going to lose their appeal in the coming years as the economy turns more towards tangible goods.

"You should become a farmer, you should become a miner, go into the production of real goods," Rogers said.

The price of oil is likely to rise further because, following the Gulf of Mexico oil spill, there will be more restrictions on offshore drilling in the US and maybe elsewhere, he said.

BP [BP-LN 384.15 18.65 (+5.1%)] is on Rogers' radar screen but he is not buying it yet and he does not have a price target where it would be a good buy. "I wouldn't judge it on price, I would judge it on time," he said.

If there is a slowdown in the US and in the euro zone, it is also going to affect China, he predicted.

As Gold Hits Record, Central Banks in Focus

2010-06-11T07:17:00.000-07:00

(WSJ) By CAROLYN CUI And MARK GONGLOFF

Gold's surge to a record sparked speculation that central banks may be stepping up purchases of the precious metal.

Tuesday, gold contracts for June delivery rose $4.70, or 0.4%, to $1,244 a troy ounce, a record settlement price on the Comex division of the New York Mercantile Exchange. Gold also hit an intraday record, surging to $1,252.10. In euro terms, the metal also hit a record of €1,042.94 ($1,242.87) in the London market, a gain of 2.5%.

The metal has surged over worries about Europe's debt woes and the slumping value of the euro. Investors in metals and currency markets have been on alert for any sign that the world's central banks, and China in particular, are shifting reserves out of the euro and into gold.

Though central banks typically are coy about investment decisions, there have been signs lately that they might be shifting out of euros and into gold.

Russia's central bank, one of the world's largest holders of foreign-currency reserves, trimmed its currency reserves by $6.6 billion in May, according to data on the bank's Web site, but increased its gold reserves by $1.8 billion.

Last week, an Iranian news agency said the country had begun switching €45 billion of its foreign-currency reserves into gold and dollars, a report that was unconfirmed.

"You won't see major players be blatant about increasing their gold exposure and reducing their euro exposure, but it is a trend we've been witnessing in the past few months," said Kathy Lien, director of currency research at GFT Forex in New York. "For the most part, whether they openly admit it or not, central banks are increasingly worried about their exposure to euros."

Central banks would be joining a buying binge by individual investors who have piled into coins and exchange-traded funds.

Central banks were net buyers of gold in 2009, according to the World Gold Council. India alone purchased 200 tons of gold from the International Monetary Fund. But appetite appeared to wane as gold traded at record levels.

What has changed recently is that gold has shown its "relatively attractiveness" against other assets, particularly for central banks in emerging markets, said Natalie Dempster, director of the World Gold Council.

Central banks and other large investors also are buying Treasury bonds and Swiss francs, other signs of an effort to preserve capital, Ms. Lien said.

Some European investments, such as German bunds, are relatively secure, arguably safer havens than gold or Treasurys. But the range of safe European options has dwindled in recent months as debt turmoil has spread, and the size of the German bond market isn't large enough to accommodate the rising global demand for safe assets, forcing central banks and large investors to look elsewhere, according to Alan Ruskin, global head of currency strategy for RBS Securities in Stamford, Conn.

"This is a beginning, I am afraid," said Andy Smith, a senior metals strategist at Bache Commodities Group in London. "Gold is reflecting so many things that could possibly go wrong."

George Soros: ‘We Have Just Entered Act II’ of Financial Crisis

2010-06-11T07:07:00.000-07:00

June 10 (Bloomberg) -- Billionaire investor George Soros said “we have just entered Act II” of the crisis as Europe’s fiscal woes worsen and governments are pressured to curb budget deficits that may push the global economy back into recession.

“The collapse of the financial system as we know it is real, and the crisis is far from over,” Soros said today at a conference in Vienna. “Indeed, we have just entered Act II of the drama.”

Soros, 79, said the current situation in the world economy is “eerily” reminiscent of the 1930s with governments under pressure to narrow their budget deficits at a time when the economic recovery is weak.

Concern that Europe’s sovereign-debt crisis may spread sent the euro to a four-year low against the dollar on June 7 and has wiped out more than $4 trillion from global stock markets this year. Europe’s debt-ridden nations have to raise almost 2 trillion euros ($2.4 trillion) within the next three years to refinance, according to Bank of America Corp.

“When the financial markets started losing confidence in the credibility of sovereign debt, Greece and the euro have taken center stage, but the effects are liable to be felt worldwide,” Soros said.

http://ftmdaily.com/preciousmetals.php

Soros gained fame in the 1990s when he reportedly made $1 billion correctly betting against the British pound. He also wagered that Germany’s mark would appreciate after the collapse of the Berlin Wall in 1989 and that Japanese stocks would start to fall in the same year. His firm, Soros Fund Management LLC, manages about $25 billion.

Credit default swaps, which aim to protect bondholders against the risk of a default, are dangerous and a “license to kill,” Soros said today. CDSs should only be allowed if there is an insurable interest, he said.

UBS Forecasts: Gold, the ‘ultimate currency,’ to hit $1,500

2010-06-10T08:26:00.000-07:00

Gold price to rise, UBS forecasts

Gold has become the “ultimate currency,” UBS AG said today in a report that projects prices will hit $1,500 (U.S.) an ounce in the next 12 months and says anything below $1,200 represents a buying opportunity. “Since 2001 the price of gold has been on a relentless ascent against all major currencies,” UBS said. “With confidence in paper currency systems badly shaken in the financial crisis, gold, it seems, is reasserting its old role as the ultimate debt-free money ... Our gold model also indicates that concerns over the future of major monetary systems are becoming visible in the price of gold.”

Home repossessions hit record high in May

2010-06-10T07:10:00.000-07:00

By Lynn Adler

NEW YORK May 13 (Reuters) - U.S. foreclosure activity fell in April as lenders repossessed homes at a record pace but started far fewer new actions against struggling homeowners, signaling a plateau in loan failures, RealtyTrac said on Thursday.

No meaningful improvement is likely this year, however, with mortgage modifications and high unemployment only delaying the inevitable for most of these borrowers, the Irvine, California-based real estate data company said.

But nationwide April foreclosure filings -- notice of default, scheduled auction and bank repossession -- fell 9 percent from March and 2 percent from a year ago.

This was the first year-over-year drop since RealtyTrac started tracking annual foreclosure rates in January 2006.

"What we're really seeing is the effect of lenders slowing down the initial notices of default while they are processing what's already in the pipeline," Rick Sharga, senior vice president at RealtyTrac, said in an interview.

Lenders filed default notices on 103,762 properties in April, down 12 percent in the month and 27 from a record 142,000 one year ago.

Banks, meantime, took control of 92,432 properties in the month, a record, up 1 percent from March and 45 percent from a year earlier.

With notices on 333,837 properties, one in every 387 U.S. housing units got a foreclosure filing in April.

"The housing market is still in critical condition but is stable," Sharga said.

Borrowers are increasingly tapping federal programs that encourage lenders to alter loan terms to help owners stay in their homes. Still, the overwhelming majority will wind up in foreclosure, he said.

A record 2.8 million U.S. properties got a foreclosure notice in 2009, according to RealtyTrac.

"We still have over a million properties in foreclosure, we still have about 5 million seriously delinquent loans and we're ultimately going to have to work through all of those, so we're not out of this yet," Sharga added.

Foreclosure auctions were scheduled for the first time on 137,643 properties in April, a 13 percent drop from a record 158,000 in March but a 1 percent rise from a year ago.

RealtyTrac sees "overall numbers staying at a high level and ripples of activity hitting the various stages of the foreclosure process as lenders systematically work through the backlog of distressed properties" most of the year, James J. Saccacio, chief executive, said in a statement.

METRO AREA IMPROVEMENT

Foreclosure actions fell in nine of the top 10 metro areas from a year ago.

Cities with populations of at least 200,000 in Nevada, Florida, California and Arizona still dominated the list.

Las Vegas had the highest metro foreclosure rate, with one in every 60 housing units getting a filing, but actions fell 3 percent from April 2009. Modesto, California, was in second place, with activity sinking 32 percent in the year.

FIVE MAIN TROUBLE STATES

Foreclosure activity in fives states -- California, Florida, Michigan, Illinois and Nevada -- accounted for 52 percent of the reduced total foreclosure actions in April.

California led the way, with 69,725 properties getting a filing. That was down 25 percent in the month and almost 28 percent in the year.

Arizona, Georgia, Texas, Ohio and Virginia were the other states with the highest foreclosure activity.

Nevada, Arizona and Florida also posted the top state foreclosure rates last month. These were among states with the most overbuilding and inflated prices during the boom and the most pain during the bust. Unemployment later swept up other states into the foreclosure tidal wave.

Nevada had the highest rate for the 40th straight month, with one in every 69 housing units getting a filing.

Other states with foreclosure rates among the top 10 in April were Idaho, Michigan, Illinois, Georgia and Colorado.

Ten Benefits of Expatriation

2010-06-09T13:22:00.000-07:00

The following is an excerpt from the free 29-page American Expatriation Guide, written by a former U.S. citizen who wants to remain anonymous. Read what he has to say – from a “been there, done that” perspective – and maybe take your own first steps to move to greener pastures.

Everybody has their own personal reasons for expatriating, but here are some of the benefits:

1) Freedom from the global U.S. tax net. Taxing you no matter where you breathe on this earth is wanton American exceptionalism. What other nations don't dare do to their citizens, the U.S. government doesn't think twice about. Once you renounce, it's your choice either to live the rest of your life free of any tax net, or to pick a place you want to be year-round and opt into the tax system (assuming it’s not a tax-free jurisdiction). If you do, you'll at least know you have the freedom to walk away from it by simply moving elsewhere.

Taxes in the U.S. are already high, and rates are set to increase across the board. To gain some perspective, it’s clarifying to calculate the number of months per year you work for the government. How many months did it take to pay all the federal, state, and local income taxes, capital gains taxes, FICA taxes, property taxes, and AMT – plus the raft of permitting, licensing and accounting costs you incur over the course of a year? Add corporate taxes if you’re a business owner. And don’t forget the new 3.8% health care surcharge tax on all investment income, including dividends. Be honest and add it all up. You’ll then have a decent idea of how much it costs you in time and money to be a U.S. citizen every year. That cost will rise dramatically going forward.

Here’s the take-away: The biggest guaranteed return on your capital that you’ll ever have is investing your money free of taxes. Do some long-run compounding calculations with and without taxes to see what I mean. I’ll wager John Templeton did.

2) Freedom from the death tax. Its political label is the “estate tax,” but the fact is the tax is based solely on your demise. I used to think the death tax only applied to gains on assets that had not been taxed already. How naïve I was! It grabs half of all your assets, regardless of the fact that you've paid taxes on them.

If you have over a few million dollars net worth, your heirs will be writing a heart-stopping check to the IRS. They also may be forced to liquidate your assets to raise cash. This has happened to countless small businesses and family farms. And if you’re a young, talented entrepreneur who goes on to earn substantial wealth over the course of your life, the death tax has you in its crosshairs too.

The death tax is 45% now and is scheduled to jump to 55% in 2011. Either way, the amount is staggering. Expatriation lifts the death tax burden from your children and other heirs.

3) Freedom from the U.S. government’s War on Solvency. Washington's crazed debt addiction is uncontrollable and endemic. U.S. politicians have strapped an inconceivably large debt burden on the backs of their subjects. It pays to spend some time on www.usdebtclock.org. The multi-trillion dollar debt avalanche roars on, headed straight towards economic hell. After “Debt Per Taxpayer” and “Liability Per Citizen,” check out “U.S. Unfunded Liabilities” to see a number that’s suited to astronomical calculations – not economics.

Don't be tricked into thinking this is a partisan issue. It's sobering to review the debt records of both Democratic and Republican administrations…to behold what politicians do when given trillions of dollars of other people's money. They spend it all – and then borrow trillions more! Of course, the burden of servicing that debt is on you, not them. Their six-figure salaries are guaranteed, along with their uber-perks and fully funded pension plans.

While often described as “the richest nation in the world,” the reality is that the U.S. is the most indebted nation, by a country mile. No other government comes close to matching the debt burden that has been dumped onto every taxpayer. The U.S. government is rampantly incurring debt in your name, and you have no way to stop it or slow it down. Standing in free speech zones with protest signs didn't work when it came to war and crony bailouts, and it won't work for the debt burden either.

Besides, it's already too late. The interest alone on the debt is trillions of dollars. Trillions...as in thousands upon thousands of billions. Google “interest due on U.S. debt” if you think I've veered into the realm of fiction. Once you’ve returned, I think you'll agree: The one truly meaningful act you can take as an individual is to opt out. Unload the government’s debt burden off your back. Don’t let yourself or your family be a casualty of the government’s War on Solvency.

4) Freedom from being treated like a “toxic citizen.” When traveling abroad, being a U.S. passport holder used to be a positive thing. Now it's an albatross. The New York Times article I cited earlier explains it plainly: Americans abroad are being treated like “toxic citizens.” They’re cut off from banking and other business and investing opportunities solely because of their U.S. citizenship.

Typical currency controls don't permit you to take money out of a country. The U.S. doesn't have that (yet). Instead, and this is quite clever, the government enacts laws and regulations that function as indirect currency controls. There are so many Patriot Act and other costly impositions forced on foreign banks that handle U.S. customers that they’re simply refusing to put up with the harassment. Here’s the upshot: Your money isn’t fenced in; it’s fenced out.

If you seek firsthand evidence, visit a major banking center outside the U.S. and try to open a bank account. Odds are you’ll be turned away when the bank finds out you're a U.S. citizen. Reports abound of U.S. citizens’ long-held accounts at foreign banks being summarily terminated. The U.S. government has made its subjects, along with their money, persona non grata.

I've read that some foreign banks are now setting up, in essence, holding pens designed to handle U.S. citizens who want to bank offshore. But, really, what's the point? You're burdened with having to file extra IRS paperwork, along with FBAR forms to the Treasury Department. And even if you don't file all the extra papers (not a smart move), new laws force foreign banks who accept U.S. customers to report on you anyway. They are pressured to sign “information reporting agreements” to have U.S. citizens as customers. Google “FATCA” and “qualified intermediary agreements” if you want details.

Now for the most extreme instance of liability. Being a U.S. passport holder can mean life or death in the context of a terrorist attack. The U.S. government's never-ending War on Terror makes the world more dangerous for Americans. After so many years of bombing and military occupation in the Middle East, how can the hundreds of thousands of civilians who’ve been maimed and killed by the U.S. government NOT be the source of enduring resentment and blowback? Needless to say, the U.S. passport is on the short list of ones you least want to have if somebody sticks a gun in your face and says, “Passport.” Unfortunately, this has happened on more than one occasion, and it would be unreasonable to assume it won’t happen in the future.

5) Freedom from the paperwork prison. Millions of Americans are plagued every year by days, sometimes weeks, of preparing tax documents and paying thousands of dollars to accountants to decipher the IRS tax code. There are, literally, hundreds of different IRS forms. The tornado of rules and regulations in the tax code fills roughly 70,000 pages. And then you have to save boxes and boxes of papers for years in fear of someday being audited and not being able to produce the demanded documents. If you're unfamiliar with audits, here's how they work: You're guilty of whatever the IRS claims, unless you prove yourself innocent. If that sounds preposterous, I encourage you to ask a tax lawyer. “Innocent until proven guilty” does not apply. Freedom from spending days of tedium on mind-numbing paperwork and thousands on accounting fees has been an absolute joy. Highly recommended.

6) Freedom to invest without tax distortions that encourage capital misallocation. The U.S. tax system encourages misallocation of your investment capital. It obscures the act of buying and selling securities based on a rational assessment of their value. For instance, you end up not selling a security you otherwise would simply because you don’t want to trigger taxes yet. Or you hold on longer than you might otherwise to get long-term capital gains treatment. Or you sell securities you normally would keep – for “tax loss harvesting.”

Moreover, you're incented to give an artificial value premium to municipal bonds simply because they aren't taxed, despite their negative real return after inflation. And your assessment of real estate’s value is warped too, by mortgage interest deductions and capital gains exemptions. The phrase “letting the tax tail wag the dog” encapsulates these distortions. Expatriation instantly liberates you from them.

7) Freedom from being crushed by the fiat currency landslide. If you pay attention to the world's major currencies, you'll notice they fluctuate, often dramatically, against each other. In a year's time, the price of an item can increase or decrease 20%, 30% – sometimes more – solely based on which currency you use to pay for it. The same item! The reasons for this are beyond the scope of this guide. Suffice to say, it has to do with government central banks manipulating their currencies by price-fixing interest rates and continually printing money.

Regardless of the reason for the volatile swings in the value of currencies, there it is. Reality. So what's the risk for you? For one thing, you can have all your money in one currency, earn a positive investment return on paper (that you’re taxed on), but actually lose purchasing power. Think about it this way. The U.S. imports goods from all over the world. When the U.S. dollar drops in value, it takes more of them to buy those goods. That makes you functionally poorer, no matter what your account statement says. It's that simple.

Every time the dollar drops, you get the short end of the stick. The value of your savings erodes. Your money is like ice cubes. The longer you wait to use them, the more they melt. According to the government’s official “inflation calculator,” the dollar has lost 95% of its purchasing power since 1913. See for yourself here: www.bls.gov/data/inflation_calculator.htm

When you’re out of the global U.S. tax net, you can freely diversify the currencies you own to protect your purchasing power from being diluted. If you do this as a U.S. citizen and the dollar drops, you’re taxed on the paper gains from those other currencies. In other words, you’re taxed for simply preserving your purchasing power. And if you choose the monetary metal, gold, as a fiat currency hedge, you’re taxed even more heavily. No matter what you do to try and preserve the purchasing power of your dollars, one way or another you’re slowly being bled. That ends on the day you expatriate.

8) Freedom from the accountability for how the U.S. government spends your money. I sleep much better knowing I no longer fund the military-industrial-banking complex. Anybody can get mugged, but every U.S. taxpayer is a constant patsy for the political establishment. The rip-offs are so unthinkably big and endemic, there's nothing an individual can do to stop them.

If you step back and take an honest look, you’ll see that the unfortunate state of affairs in America has resulted from the reign of both political parties. Don’t fall for the divide and conquer strategy that politicians use to corral people into “red” and “blue” sports teams. Donkeys and elephants are sold as team mascots pretending to be in mortal conflict. In reality both parties work together to advance their agendas in lockstep…logrolling…and when necessary, one side “takes the hit” whenever the illusion of accountability is needed. The system depends on the delusion that people can “vote the bums out.”

Meanwhile, every government failure becomes the pretext for more government growth. If you don’t get distracted by the spectacle, it’s impossible not to notice the pattern: Every political solution to any problem involves more regulation of your life and more taking of your money.

What are the consequences of this vicious cycle of growth through failure? Most Americans are familiar with the oft-chanted phrase, “We're #1!” Humor me for a minute and try this exercise. Mentally separate yourself from the government you're paying trillions of dollars to fund. Then, consider that the U.S. is: · #1 in government debt and deficits · #1 in unfunded liabilities, most importantly Medicare and Social Security · #1 in building and maintaining the biggestWMD stockpile in the world · #1 in weapon sales to foreign governments · #1 in bombs dropped and missiles fired on other nations · #1 in causing civilian casualties and property destruction · #1 in “defense” spending – about as much as all other countries combined · #1 in lawyers per capita, with over 1.1 million total · #1 in law suits filed – millions and millions every year · #1 in political lobbyists, special interest groups and campaign donations · #1 in taxpayer bailouts of the politically connected “too big to fail” corporations · #1 in people imprisoned – “The United States has 4% of the world's population and 25% of the world's incarcerated population.” -Wikipedia

I've avoided citing sources for these claims (save the last one) because I'm hoping you'll be moved to verify them for yourself. The process is eye-opening. If you fall for the political fallacy that “the government is the people,” you end up with the faulty conclusion that America must be overrun by war-crazed, lawsuit-happy, debt-addicted criminals. How could anybody buy this after even a moment of clear thought? There’s certainly no resemblance to the American people I know. These problems stem from the military-industrial-banking complex, the dark heart of the U.S. political machine. Why continue being the stooge that supplies the money to run it?

Looking at the world with fresh, open eyes isn't easy. One of the great benefits of liberating yourself from the grip of the U.S. political system is that the world becomes your oyster. You’re free to embrace places that welcome individuals who seek to live peaceful and prosperous lives.

9) Freedom to radically increase your charitable giving. Individual liberty sparks our charitable instincts. If you care deeply about philanthropy, expatriation frees up vastly more of your capital to give away. Also, your philanthropic impulses are no longer distorted by the IRS. You can give to any charitable cause worldwide without being penalized if it's not anointed as a tax-deductible entity.

The human impulse to help another in need is older than any government. Your judgment about how to contribute your capital to best help others will forever be superior to that of bureaucrats. Expatriation opens up new possibilities for you to reach out and help others in need.

10) Freedom from the risk of getting trapped. Politicians don't like it when the people who pay their salaries, fund their pensions, and fuel their jets close their wallets and walk away. As the number of renunciations continues to rise, it inevitably will turn into a political hot-button. The media will set the stage for politicians to denounce renunciation, paving the way to make exercising the right more difficult and costly. Wealthy people who renounce will be called greedy and unpatriotic. “Turning their backs on their fellow Americans” will be the sound bite wielded by politicians to conjure up the demand to “do something.” When that happens, I expect the exit tax to become dramatically worse. Instead of taxing unrealized gains at their regular rates, it may function more like the death tax. Add up everything you own – then cough up half. Otherwise sit down and shut up.

The other timing consideration is that getting a second passport is becoming more difficult, more lengthy and more costly. You need a second passport to expatriate, and countries are increasing the number of years it takes to gain citizenship. There are only two countries left in the world that have an economic citizenship program, which is by far the fastest way to get a second passport. If these two programs are pressured to fold, escaping the U.S. political combine will take most people five or more years, instead of less than one. You can bet on this: No matter what happens, it won’t get any easier.

----

[The full 29-page FREE report American Expatriation Guide – How to Divorce the U.S. Government is a virtual treasure trove of information for anyone thinking of leaving the US… including in-depth, practical advice, and links to useful websites and forms you’ll need for expatriation. Read and download it here. ]

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