Investors flock to precious metals, shunning bonds, stocks, currencies

Investors are using metals to preserve their buying power as the US dollar falls to a record low and inflation accelerates. Gold, platinum and palladium may gain at least 30% this year as Federal Reserve Chairman Ben S. Bernanke prioritizes cutting interest rates over controlling consumer prices, said Ron Goodis, a trader at Equidex Brokerage Group Inc. in Closter, New Jersey, who has been buying and selling gold since 1978.

“It is hard to see how the monetary environment is going to be anything but supportive of higher gold and commodity prices anytime this year,” said Chip Hanlon, who holds gold as manager of $US1.5 billion at Delta Global Advisors Inc. in Huntington Beach, California. “If currencies don’t carry a favorable interest over metals, then why not own gold or platinum?”

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“Everything is getting ‘marked to meltdown,’ says the Wall Street Journal . Lenders approach a new loan as they might come upon the rim of an active volcano…worried that it might blow up in their faces at any minute. Yields on auction rate financing for municipalities and hospitals have almost doubled. And when the auctions fail, they can really explode. That’s why the Port Authority found itself paying a 20% rate on money it needed. ” – Bill Bonner
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“Expressed in Euros or gold, the total wealth of the US has already shrunk by at least 40–50% since 2000. I don’t have a high regard for any government (except, possibly, that of Singapore), but the most destructive course a society can embark upon is to appoint academics to positions of responsibility. A problem of artificially low interest rates that is seldom discussed is that many individuals depend on interest income in order to meet their living expenses. Equally, pension funds depend on a certain annual income to meet their present and future liabilities. Moreover, high interest rates provide investors with a cash flow, which can cushion downturns in asset values. Say, an individual or a pension fund owns a balanced portfolio: 50% in equities and 50% in fixed income securities of various maturities. Let’s assume that, in a given year, the stock portfolio declines by 20%. If interest rates average 10% on the fixed income portfolio, the total loss on the portfolio will “only” be around 10%.” – Marc Faber
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“Of course, fantasies were behind the whole boom. For example, Americans lived beyond their means and thought they could do so indefinitely. This led to the curious situation in which fewer than 10% of the world’s people – in the U.S.A – were spending more than 80% of the entire world’s savings. The foreigners saved…and lent their money back to the United States, usually in the form of Treasury or government agency bonds (such as those from Fannie Mae. Americans took the money…and spent it, again, on things coming from overseas. Gradually, the foreigners built huge piles of U.S. dollars…some of which they’ve put into Sovereign Wealth Funds.” – Bill Bonner
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NEW YORK, Feb 26 (Reuters) – The dollar tumbled to record lows against the euro and a basket of key currencies on Tuesday after weak data added to worries over the ailing U.S. economy and a Federal Reserve top official signaled more interest rate cuts.

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“What the upcoming recession “will look like” has been the topic of a fierce debate on the Internet. Everyone seems to agree that this is not a typical economic downturn resulting from overproduction, under-consumption or malinvestment. Rather, it is the crashing of humongous equity bubbles that were generated by the Fed’s abusive expansion of credit and the unprecedented proliferation of opaque structured-debt instruments. Many believe that the unwinding of these bubbles will trigger a round of hyper-inflation which is already evident in soaring food, energy and health care costs. These prices are bound to increase substantially as the Fed continues to cut rates and further undermine the dollar.”-Mike Whitney

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Feb. 26 (Bloomberg) — Bank seizures of U.S. homes almost doubled in January as property owners failed to make higher payments on adjustable-rate mortgages.
Repossessions rose 90 percent to 45,327 last month from the same period a year ago, according to RealtyTrac Inc., a seller of foreclosure statistics that has a database of more than 1 million properties. Total foreclosure filings, which include default and auction notices as well as bank seizures, increased 57 percent.
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Feb. 26 (Bloomberg) — Consumer confidence in the U.S. fell more than forecast in February to the lowest level since the start of the Iraq war as the labor market cooled and the economy faltered.

Americans are worrying more about the economy because the housing market is in its third year of a slump, employment has dropped, and gasoline and food prices are elevated. That may threaten consumer spending, which already has slowed, and further push down economic growth.
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WASHINGTON (AP) — Profits at federally insured banks and thrifts plunged to a 16-year low in the fourth quarter as institutions set aside a record-high amount to cover losses from bad mortgages, data released Tuesday show.
The quarterly banking industry statistics, compiled by the Federal Deposit Insurance Corp., highlighted a dramatic deterioration in the fourth quarter as major Wall Street banks such as Citigroup Inc. took large write-downs in the value of their assets to reflect losses on mortgage-related investments.
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(Fortune Magazine) — “We are the champions – of the world” may be the verse that rings out in stadiums across the U.S., but in the great game of global trade, Americans are increasingly feeling like the losers. A large majority – 68% – of those surveyed in a new Fortune poll says America’s trading partners are benefiting the most from free trade, not the U.S. That sense of victimhood is changing America’s attitude about doing business with the world.

We are a nation crawling into a fetal position, cramped by fear that America has lost control of its destiny in a fiercely competitive global economy. The fear is mostly about jobs lost overseas and wages capped by foreign competition.

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Despite Costs, More People Raid 401(k)s for Cash

Financially stretched workers are increasingly breaking into their retirement accounts to get cash.

Over the past couple of decades, the 401(k) account and its brethren have become the main retirement savings vehicles for millions of Americans. But as the credit crunch and declining home values limit many types of consumer loans, a growing number of workers are tapping into these accounts as if they were piggy banks. -ELEANOR LAISE and CRAIG KARMIN

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Treasury Tells a Very Scary Story

The department’s “citizen’s guide” to the U.S. government’s official financial report — so full of weaknesses it can’t be audited — sees a long-term “fiscal train wreck” from runaway entitlements, for example.

When the U.S. government’s official 2007 financial report was released last December, the response could hardly have been worse. Not only were its ratios worrisome enough to make corporate shareholders blanche, but its results were so full of “serious material weaknesses” that the Government Accountability Office could not even audit it. -Alan Rappeport

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Wall Street Journal – FDIC to add staff as bank failures loom

WASHINGTON — The Federal Deposit Insurance Corp. is taking steps to brace for an increase in failed financial institutions as the nation’s housing and credit markets continue to worsen.

The FDIC is looking to bring back 25 retirees from its division of resolutions and receiverships. Many of these agency veterans likely worked for the FDIC during the late 1980s and early 1990s, when more than 1,000 financial institutions failed amid the savings-and-loan crisis.

“Regulators are bracing for well over 100 bank failures in the next 12 to 24 months, with concentrations in Rust Belt states like Michigan and Ohio, and the states that are suffering severe housing-market problems like California, Florida, and Georgia,” said Jaret Seiberg, Washington policy analyst for financial-services firm Stanford Group.

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Surging food prices put the world on high alert

Global population growth and a shift from grain-based diets are contributing to a sharp rise in the cost of food, which has already sparked riots in several African countries. Richard Wachman looks at the threats to developed and developing countries and the hurdles in the path of increased productivity

Scratch beneath the surface of major social or political upheaval – the French or Russian revolutions, Germany’s military collapse in 1918 or more recently China’s Tiananmen Square – and you will find that food shortages, brought about by crop failure, naval blockade or spiralling prices, lie at the heart of the matter. -Richard Wachman

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Reuters – Bankruptcy Filings Surge Among US Consumers

American consumers’ bankruptcy filings jumped 15 percent in February from the previous month and a steeper rise is looming because of the subprime mortgage crisis, the American Bankruptcy Institute said.

Consumer bankruptcy filings in February totaled 76,120, up from 66,050 recorded in January, the non-partisan bankruptcy research group said.

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Feb. 20 (Bloomberg) — Investors can’t afford to ignore food. As a hedge against a possible U.S. recession, and direct exposure to rising urbanization and wealth in Asia, it’s an asset class that’s tailor-made for the present times.

As Jim Rogers of New York-based investment firm Rogers Holdings puts it: “If you’re in agriculture, you don’t know that there is a recession, you don’t care.”

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