By STEVEN RUSSOLILLO
NEW YORK—Stocks plunged Wednesday, suffering their biggest drop in almost a year, as a slew of downbeat reports prompted fears the economic recovery was running out of steam.

The Dow Jones Industrial Average closed down 279.65 points, or 2.2%, to 12290.14, the biggest point drop since June 4, 2010. All 30 of the blue-chip components finished in negative territory.

…Investors kicked off June on a negative note after several economic data points weighed on sentiment. Concerns about unemployment arose after a reading on private-sector job growth came in well below economists’ expectations, fueling anxiety on Wall Street about the government’s monthly jobs report Friday.

…Pessimism continued to mount after the Institute for Supply Management said the manufacturing sector slowed sharply in May. U.S. auto sales also dropped in May from a month earlier, the auto industry’s first significant setback in more than 18 months.

…The selling accelerated in the late afternoon after Moody’s Investors Service again cut the rating of Greek government debt.

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(Reuters) – Moody’s on Wednesday cut Greece’s credit rating by three notches to an extremely speculative level on debt restructuring worries and warned that more downgrades could come.

Citing a growing risk that the government will fail to stabilize its debt position without a debt restructuring, Moody’s cut Greece’s rating to Caa1 from the previous level of B1, bringing it seven notches into junk territory.

The outlook on the new rating is negative, in a sign that another downgrade is likely in the short- to medium-term.

[source]

PG View: Seems like at least one credit rating company is viewing the possibility of a Greek restructuring as a “credit event,” despite what Olli Rehn says.

June 1 (Bloomberg) — The European Central Bank may back a plan encouraging investors to buy new Greek bonds to replace maturing securities, said two officials familiar with the situation, softening the ECB’s opposition to any restructuring to fix the country’s debt crisis.

The ECB is examining that step because it could ease Greece’s funding squeeze without technically constituting a default, the officials said on condition of anonymity. The Frankfurt-based Executive Board is still opposed to any extension of maturities, said one of the officials.

…European Union Economic and Monetary Commissioner Olli Rehn said yesterday that the rollover plan was being examined, as it “would not create a credit event” and ECB Executive Board member Juergen Stark told Il Sole 24 Ore newspaper in an interview published today that such an arrangement would not constitute a default.

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Wall Street is having a hard time figuring out what to do now that the U.S. economy appears to be sputtering and yields are so low, Peter Yastrow, market strategist for Yastrow Origer, told CNBC.

“What we’ve got right now is almost near panic going on with money managers and people who are responsible for money,” he said. “They can not find a yield and you just don’t want to be putting your money into commodities or things that are punts that might work out or they might not depending on what happens with the economy.

…”Interest rates are amazingly low and that, thanks to Ben Bernanke, is driving everything,” Yastrow said. “We’re on the verge of a great, great depression. The [Federal Reserve] knows it.

[source]

Today’s data releases confirm that the US economy has undoubtedly hit another soft patch.

It is not the only one.

Other economies are also slowing or contracting—some as a result of budget austerity (such as the UK and the struggling European peripheral economies) and others because they are tapping their monetary policy brakes to counter mounting inflationary pressures (China and other emerging economies).

With such broad-based economic slowing, and with unemployment stuck at very high levels and becoming more structural (and therefore protracted) in nature, market participants are asking whether the US authorities will again try to turbo-charge the economy. And with additional fiscal stimulus off the table due to deficit and debt concerns, the spotlight is fully on the Fed’s reaction function.

…As Chairman Bernanke noted in his August Jackson Hole speech, and reiterated in his first press conference a few weeks ago, policy measures should be judged in terms of the expected balance of benefits, costs and risks.

…I suspect that there is now broad agreement that, in the case of QE, this balance has shifted: lowering the potential gains and increasing the probability of collateral damage and adverse unintended consequences.

[source]

Investors should prepare themselves for a third round of quantitative easing, Simon Maughn, co-head of European equities at MF Global, told CNBC Wednesday.

“The bond market is going in one direction which is up-falling yields which is telling you quite clearly the direction of economic travel is downwards. Downgrades. QE3 (a third round of quantitative easing) is coming,” said Maughn. “The bond markets are all smarter than us, and that’s exactly what the bond markets are telling me.”

“What’s interesting in the bond markets over the last couple of sessions is, you’ve seen human traders trying to step in and call this turn in the market the same way that equities have done … and they have just been mowed down by the quant funds which are all about leverage, all about momentum and are betting on bond prices going up,” added Maughn.

Once again, the United States will step up as the marginal buyer of bonds, said Maughn.

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President Barack Obama invited U.S. House Republicans to the White House today to resume talks on a political compromise to raise the nation’s debt ceiling in exchange for reductions in spending.

The private meeting in the East Room followed the House’s 97-318 vote yesterday defeating a measure that would have raised the $14.3 trillion debt limit by $2.4 trillion without spending reductions.

“I think it was important to clear the air that we cannot have an unconditional increase in the debt without any sort of spending cuts or budget reforms,” Representative David Camp, chairman of the tax-writing Ways and Means Committee, said today on CNBC. “That was important to send that signal.”

[source]

By Robert Reich
The US economy was supposed to be in bloom by late spring, but it is hardly growing at all. Expectations for second-quarter growth are not much better than the measly 1.8 per cent annualised rate of the first quarter. That is not nearly fast enough to reduce America’s ferociously high level of unemployment. The labour department will tell us on Friday whether the jobs situation improved in May, but there has been no sign of a surge in hiring. Nor in wages. Average hourly earnings of production and non-supervisory employees – who make up 80 per cent of non-government workers – dropped to $8.76 in April. Adjusted for inflation, that’s lower than they were in the depths of the recession.

Meanwhile, housing prices continue to fall. They are now 33 per cent below their 2006 peak. That is a bigger drop than recorded in the Great Depression. Homes are the largest single asset of the American middle class, so as housing prices drop many Americans feel poorer. All of this is contributing to a general gloominess. Not surprisingly, consumer confidence is also down.

The recovery has stalled.

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Swiss Franc and Gold Supported by EU and US Debt Woes

Gold pushed to a new 4-week high above 1540.00 as the dollar remains defensive on weak economic data and persistent concerns over the massive US debt. US ADP private payrolls for May came in much weaker than expectations today at just +38k. The market had been looking for a number closer to +180k. Not surprisingly this has prompted a bunch of negative revisions to forecasts for Friday’s release of May nonfarm payrolls. US May ISM missed expectations too, coming in at 53.5. The market was expecting a modest dip to 57.8 from 60.4 in Apr.

On the heels of yesterday’s raft of grim economic data, there will undoubtedly be more defectors from the ‘no QE3′ camp. Those that still maintain there will not be a QE3 are probably at least tempering their Fed tightening expectation. That should add further weight to the dollar, and offer further support to gold.

In an FT op-ed today, former US Secretary of Labor Robert Reich states definitively: “The recovery has stalled.” He goes on to warn that the “possibility of a double dip cannot be dismissed” and that the current anemic economic growth “is not nearly fast enough to reduce America’s ferociously high level of unemployment.”

The euro remains supported by ongoing speculation about a new deal for Greece. The FT Deutschland, reported that the ECB is warming to the notion of a “soft-restructuring” of Greek debt, even though the central bank has been consistently opposed to restructuring, soft or otherwise. The ECB’s Christian Noyer said just last week, “If we restructure Greek debt, that means Greece defaults.” That in turn would make Greek debt unacceptable to the ECB as collateral. Sort of makes one wonder why there would be this sudden change of heart. The obvious answer is; there simply are no other options. Noyer had suggested that more austerity and asset sales were the only available path, but such measures would likely result in resurrection of talk about a Greek exit from the EMU.

While the euro is relatively firm against the dollar, it has fallen to new all-time lows against the Swiss franc. Similarly, the USD-CHF has set new all-time lows, as the swissy continues to benefit from safe-haven interest. Safe-haven flows are expected to continue supporting gold as well.

Yesterday the House resoundingly defeated a bill that would have raised the debt ceiling by $2.4 trillion, an amount that was said to sufficient to cover additional government borrowing through the end of 2012. The so called “clean vote,” with no spending cuts attached, was seen as largely symbolic and was rejected by all the Republicans and nearly half of the Democrats in the house.

Today, House Republicans will troop to the White House in the hope of hashing out a deal with President Obama on spending cuts in exchange for a debt ceiling hike. The Republican position is that if you want a $2.4 trillion hike to the debt ceiling, there needs to be a corresponding $2.4 trillion in spending cuts. The President is likely to push for a mix of spending cuts and tax hikes, but Republicans have stated that tax hikes are a non-starter.

Treasury Secretary Geithner has pegged the drop-dead date for a debt ceiling hike as 02-Aug, just about 2-months away. Markets are likely to become increasingly skittish the closer we get to that date without some kind of deal. The CDS market is already showing signs of unease with the current contentious tone of negotiations.

Nice overview of the current drivers in the gold market. Video

http://finance.yahoo.com/video/cnbc-22844419/gold-a-currency-not-commodity-25396652

By Cecile Vannucci
May 31, 2011 (Bloomberg) — A breach of the U.S. debt ceiling may affect the dollar more than Treasuries because international holders of the debt may view the risk of permanent losses greater than domestic investors, according to Citigroup Inc.

“The foreign exchange reaction to a debt ceiling breach would be sharper and probably more permanent,” Steven Englander, the head of Group of 10 foreign-exchange strategy in New York at Citigroup, wrote in a note today. “It would legitimately tax foreign investor patience and lead to further dollar dumping whenever the opportunity arises.”

… “If it’s a U.S.-based sovereign crisis, the dollar will ultimately lose value,” said Greg Anderson, a senior currency strategist at Citigroup. “If there’s a parallel crisis in Europe, then probably the better alternative currencies are those that are not fiscally challenged: Canada, Australia, New Zealand, Norway, Sweden. They didn’t have the same fiscal problems.”

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RS View: Adieu, my friends and fellow travelers! Over these past dozen years I hope I’ve succeeded in helping you to embrace a new thought or two, not least of them being this most basic premise: Any given national currency can indeed serve well enough for standard banking practices in our fast-paced modern lives (think here in terms of financing/borrowing requirements, checking accounts, and various cash/credit/debit transactions). Don’t sweat the small stuff — it’s here today and gone tomorrow. However, and this is vital, when your needs turn instead toward consolidating those various nondimensional incomes and/or bank accounts into true wealth suitable for mid- to long- term savings, for reliability and soundness nothing beats financially-unencumbered unfractionalized/nonderivatized physical gold. Get you some. — Randal

By Virginia Harrison
May 31, 2011 (MarketWatch) — Gold futures ended a seesawing day in the red as hopes Greece’s sovereign-debt woes may be closer to a solution took away the metal’s shine but a falling dollar provided some support for prices.

Gold for August delivery, the most active contract, declined 50 cents to $1,536.80 an ounce on the Comex division of the New York Mercantile Exchange.

Gold lost 1.2% in the month. Gold and other commodities suffered as renewed concerns about the euro propped up the U.S. dollar and prompted investors to unwind trades that linked a falling U.S. currency to higher commodities.

Silver and other metals more closely tied to industrial uses gained on the day, but sustained heavy monthly losses. Silver for July delivery gained 44 cents, or 1.2%, to settle at $38.31 an ounce.

On the month, however, silver lost 21%.

Silver futures got hit by a series of margin requirement increases earlier in the month that squeezed some investors out of the market, unchaining a steep selloff for silver and other commodities. Margin requirements are the money needed to trade futures contracts.

[source]

by Geoff Candy
31 May 2011 (Mineweb) — … the events within the euro zone have done well to take people’s attention away from the two other big macro economic stories ongoing in the world – the terrifying growth of U.S. debt and the continued growth of China and India.

Speaking to Mineweb’s Metals Weekly podcast, Michael Power, Investec investment strategist, said of the ongoing crisis, “The sentiment effect is that it probably acts as a bit of a dampener especially to traders who are often coming out of the west. They tend to pay a lot of attention – indeed I would argue too much attention – to the macro data that’s coming out of the US and Europe, somewhat underestimating the power of the macro data that continues to come out of Asia.”

For commodities investors, the big question would have to be whether or not demand from Asia is able to continue to support growth as the West continues to flounder in a morass of debt. According to Power, for the time being anyway, Asia seems to be doing just that, despite a very little bit of softness raising its head in China.

But, he adds, that the pattern is a well established one where China does indeed touch the brakes to slow itself down somewhat before accelerating again. And, he says, “If they do have to accelerate, if they’ve over touched the brakes and things carry on getting even soggier, they have an enormous amount of capability to actually start speeding things up again. They could lower interest rates, lower reserve ratios and even, because their budget is in such good shape, increase fiscal spending. So I’m not too worried about the Asian story.”

… According to Power, the biggest question in the global economy at the moment, albeit not the most immediate one is what is likely to happen to U.S. debt. … “At the moment most members of Congress generally speaking, don’t see it as a particular problem – they’re in denial. They think: ‘we’re the United States so we can afford to get away with big numbers’. And when we see now that China is no longer the main owner of US treasury bills, a far more frightening person is – and that is the Federal Reserve itself – you start to realise that this dog isn’t just chasing its tail – it’s starting to eat its tail. Eventually this is going to end up in tears. We’ve seen with austerity in Greece over the weekend what the electorate thinks of that. Well we ain’t seen nothing yet, because the Americans I suspect are going to be even more vocal than their Greek friends.”

But, if one looks at what has been happening to precious metals prices during this latest crisis, one can only imagine what will happen if the US takes to the streets.

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by David Levenstein
Tuesday, 31 May 2011 (Mineweb) — Luckily for US financial officials, the Greek debt crisis and Eurozone has taken center stage. It was not long ago when the United States hit their $14.3 trillion borrowing limit. The government now has until about August 2, before it begins to default on its loans, which have ballooned as the country spends more than it takes in. Now back to the crisis in Greece…

If Greece does default, something that I personally can’t see, several large financial institutions that purchased the high yield debt will lose billions. Frankly, while I have no sympathy towards these greedy financial institutions that were enticed by the high yields without any consideration of potential risk, I am concerned about the average individual who has little idea about the impact political mismanagement can have on the value of these fiat currencies. Suddenly, they will wake up and find that the money they have worked so hard all their lives for will become worthless.

While Greece’s financial situation remains perilous, there is very little mention about Belarus where a sharp devaluation of the Belarusian rubble has spread panic across the country, with people rushing to buy dollars, euros, toasters and canned goods – anything that will not lose its value as quickly as the national currency.

… If I did not know better, this could have been Zimbabwe where a similar scenario played out a few years ago where the government printed so much money, it eventually was not even worth the paper it was printed on. … People holding Zimbabwe dollars lost their entire savings overnight. And, pensioners who had saved their entire lives suddenly found that the money they had in the bank was not worth a dime.

Argentina’s devaluation in 2002 sent its peso from 1:1 vs the dollar to roughly 4 pesos to the dollar. Banks closed, taking depositors’ savings with them. Those with any cash savings were paying four times as much for goods, practically overnight. Unemployment soared. Even now, over ten years later, the economy has yet to fully recover.

… These scenarios are very real, yet most individuals believe that this could never happen to them and that their respective government leaders have things under control. This is their first big mistake.

… it is absolutely essential to take precautionary measures to preserve your wealth. In times like these it is important to own tangible assets such property, gold and silver. In the event of a global monetary melt-down, your paper assets will become worthless while your gold…. is a long-term store of value, and a highly liquid, internationally recognized asset of last resort.

… I suggest that you simply accumulate the physical metal as if it was a savings account.

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By Daniel Dicker
Tuesday May 31, 2011 (TheStreet) — Memorial Day has come and gone, signaling the start of the summer — and the summer driving season. After the wild gyrations of the crude oil market this spring, what should we expect for gas prices? The outlook actually looks pretty good for the next several months.

Summer brings thoughts of vacations with the family in the car, and that means that gas prices are a big part of those plans. There’s been a big run-up in gas prices over the past year, from an average price of $2.76 last Memorial day to $3.81 yesterday.

… after Brent crude traded in London surged to close to $125 a barrel last month, bringing national average gas prices close to $4 a gallon, prices have moderated somewhat.

…It takes several weeks normally for prices in the futures markets to find their way out to the streets for consumers, but crude’s recent $15 fall should translate into an almost 40-cent retreat in the price of gas at the pumps.

… That would be a great relief for summer vacationers, but the question is, will it?

… Goldman Sachs and Morgan Stanley, the two strongest and most influential oil traders in the world, have put positive, bullish research notes out on crude oil in the past two weeks. They both call for higher prices in the next 12 months, with the proviso that, near term, there could still be more moderating that could take place.

So if they’re right, this really is a summer to savor — even with pump prices that will likely hover more than 70 cents higher than last year. Compared to what’s to come in the summers ahead, according to the trading “experts,” this summer’s gas prices are going to look relatively cheap.

[source]

by Andrew Taylor
Tuesday May 31, 2011 (AP) — The GOP-led House is poised to reject a bill Tuesday to increase the nation’s debt limit without the big spending cuts that Republicans are demanding. The move is intended as an embarrassing reminder to Democrats that increasing the government’s ability to borrow is tied to such reductions.

Tuesday’s vote would also allow tea party-backed Republicans to go on record against an increase in the debt ceiling, especially since it won’t be accompanied by big spending cuts that GOP leaders are demanding.

… On Tuesday, the No. 2 Democrat in the House, Rep. Steny Hoyer of Maryland, said that GOP leaders were holding the vote to give GOP lawmakers “cover” in advance of the real vote this summer — a chance to record a “no” vote before facing the must-pass measure.

“This will not be an adult moment on the floor of the House,” Hoyer said.

… Some Democrats, like Treasury Secretary Timothy Geithner and Rep. Peter Welch of Vermont, have called for a so-called clean increase in the debt limit.

“Republicans are playing with fire by voting against an extension of the debt limit today. I hope that the markets understand a political stunt when they see one,” said Rep. Anthony Weiner, D-N.Y. “Because, to much of the world, putting the full faith and credit of our nation at risk understandably seems like playing Russian roulette.”

The real, serious effort to increase the borrowing cap will come this summer and will be paired with spending cuts of $1 trillion or more, according to Vice President Joe Biden, who’s leading negotiations with top lawmakers in an effort to come up with the cuts.

[source]

By Debbie Carlson
May 31, 2011 (Forbes) — Speculative buyers returned to the U.S. gold futures and options market, buoyed by a rise in prices. According to data released Friday by the Commodity Futures Trading Commission, the net-long position held by speculators increased in both the legacy and the disaggregated weekly commitment of traders’ reports. The data included futures and options combined and are current as of May 24. The reports for other markets were mixed regarding speculative action.

Managed-money accounts returned as buyers in gold, as shown in the disaggregated report. They added 17,191 gross long contracts and 4,062 gross shorts, pushing up their net-long position to 198,515 contracts. Producers and swap dealers both increased their net-short position with producers adding both gross longs and shorts and swap dealers cutting gross longs and adding gross shorts.

In the legacy report, non-commercials added 20,597 gross longs and 2,062 gross shorts, increasing their net-long to 213,515 contracts. Non-commercial also added both gross longs and shorts, lifting their net-short position.

Barclays Capital noted the rise in speculative gold positions and said they, too, favor the yellow metal. “We remain positive on gold over the forthcoming months as inflation expectations remain high and European sovereign debt worries have heightened significantly drawing investor interest,” the bank said.

[source]

Gold Supported by Continued Uncertainty About Greece and the US Economy

The euro is rebounding in renewed optimism about another bailout for Greece. EU officials are scheduled to meet in Vienna on Wednesday with the hope of hashing out another deal to prevent a Greek default. Eurogroup chief Jean-Claude Juncker has promised a plan by the end of June, while maintaining his position that a restructuring of Greek debt is not an option. He is however in favor of “reprofiling” Greece’s debt: but how that wouldn’t be a restructuring remains beyond me. My guess is that the EU will provide just enough of a plan to give the IMF the necessary political cover to release their next tranche of bailout funds to Greece, providing another kick of the can. Euro gains are weighing on the dollar, which is already reeling from last week’s warning by the UN economic division of a crisis of confidence and a potential “collapse”. That in turn is underpinning gold.

US investors returning from the long holiday weekend were met with a pretty dismal round of economic data; negative misses all around this morning:

US S&P/Case-Shiller home price index [PDF] for 20-cities fell 0.8% (nsa) in March, below market expectations. This was the eighth consecutive monthly decline. The index is off 5.1% from a year ago. Prices fell in 18 of the 20 cities in the index in March, with only Washington DC and Seattle seeing appreciation. The m/m rise in Seattle was a mere 0.1%.

“This month’s report is marked by the confirmation of a double-dip in home prices across much of the nation. The National Index, the 20-City Composite and 12 MSAs all hit new lows with data reported through March 2011. The National Index fell 4.2% over the first quarter alone, and is down 5.1% compared to its year-ago level. Home prices continue on their downward spiral with no relief in sight.” says David M. Blitzer, Chairman of the Index Committee at S&P Indices.

US Chicago ISM plunges to 56.6 in May, well below market expectations, versus 67.6 in April. That’s the biggest monthly drop since the collapse of Lehman. US consumer confidence also came in below expectations, falling to 60.8 in May, versus 66.0 in April. On top of all that, even things in comparatively robust Texas may be faltering: The Dallas Fed’s general business activity index tumbled to -7.4 in May, well below market expectations, versus 10.5 in April.

All of this lends further credence to rising expectations that the Fed won’t be tightening any time soon. While QE2 may officially conclude at the end of June, reinvestment of maturing debt on the Fed’s balance sheet will continue. However, if the bad data continue rolling in, the quantitative easing hiatus for new bond purchases may indeed be short-lived. As speculation about QE3 heats up, the dollar will suffer and gold is therefore likely to maintain its bid.

by Tom Jennemann
Tuesday May 13, 2011 (Fastmarkets) — Gold on the Comex division of the New York Mercantile Exchange ticked slightly higher on Tuesday when a weaker dollar and disappointing macroeconomic news were offset by some modest profit-taking.

Gold futures for August delivery were recently up 70 cents at $1,538.00 per ounce. Trade has ranged from $1,533.10 to $1,541.80, which is a four-week peak.

The euro hit a three-week high at 1.4423 against the dollar after speculation that European policymakers could soon extend the bailout package offered to Greece. “This is a somewhat mixed bag for gold,” a US-based gold trader said. “Sure, a softer dollar is going to support commodity prices but there’s now a feeling that [eurozone] leaders are closer to agreeing to a strategy on how to deal with Greece’s debt problems.”

The correlation between flare-ups in Europe’s sovereign debt crisis and rising gold prices has been quite strong over the past two years, the trader noted. “If they’re able to put together a package [for Greece] that allows the country to avoid a default then we could see some short-term [downward] pressure on gold, even if there is a weaker dollar environment,” he added.

Gold also found some support on Tuesday after a slew of new data pointed to a possible soft patch in the US economy.

[source]

via Pravda
A day is coming when the rest of the world will decide that it no longer has faith in U.S. dollars or in U.S. debt. When that day arrives, the game will be over. Traditionally, two of the biggest things that the U.S. economy has had going for it were the U.S. dollar and U.S. Treasuries. The U.S. dollar has been the default reserve currency of the world for decades. All over the globe it was seen as a strong, stable currency that was desirable for international trade. U.S. government debt has long been considered the “safest debt” in the entire world. Whenever there was a major crisis, investors would flock to U.S. Treasuries because they were considered a rock. Sadly, all of this is now changing.

Today the rest of the world is losing faith in the U.S. financial system. In fact, even the United Nations is now warning of the collapse of the dollar. But if the U.S. dollar and U.S. Treasuries collapse, that will be an absolute nightmare for the U.S. economy. If the rest of the world does not want our dollars someday, then what are we going to give them in exchange for all of the oil and all of the cheap imported goods they send us? If the rest of the world does not want our debt someday, then how in the world are we going to be able to continue to consume far, far more wealth than we produce?

[source]

PG View: Last week’s warning by the UN economics division that the dollar faced “collapse,” was just the latest in a series warning of the potential demise of the dollar as the world’s reserve currency. The UN is concerned about the implications for the global economic system, as a disorderly collapse of the world’s reserve currency may indeed result in ‘game over.’

By Bloomberg News
May 30 (Bloomberg) — China National Gold Group Corp., the state-owned company that controls the nation’s largest gold deposits, wants to invest in projects in Africa as it expects bullion to trade near record levels for the next three years.

“We aim at large-scale mines with good potential in countries that have close ties with China and domestic stability,” President Sun Zhaoxue, 48, said in an interview in Shanghai. “Gold prices will foreseeably fluctuate at historically high levels for another three years.”

…China National, owner of the Yangshan deposit in Gansu province, may also invest in Southeast Asia and Central Asia, Sun said.

[source]

By Greg Robb
WASHINGTON (MarketWatch) — The prices of single-family homes in 20 major cities fell for the eighth straight month and confirmed that there is a double-dip in the housing market, according to the S&P/Case-Shiller home price index released Tuesday by Standard & Poor’s. Home prices fell a non-seasonally adjusted 0.8% in March. Prices have moved down 3.6% in the past year. Home prices declined in 18 of the 20 metropolitan areas tracked by Case-Shiller in March compared with February. Washington D.C. and Seattle were the only markets where home prices increased in March.

[source]

Gold remains well bid, less than $40 off the all-time high, as the dollar weakens once again. Last week’s UN report that warned of a potential “collapse” of the dollar, and the peril to the global economic system that would result, is weighing on the greenback. While uncertainty about Greece and the broader implications for Europe prevail, talk of a new deal has bolstered the euro.

Japan industrial production rebounded 1.0% in Apr. Unemployment ticked higher to 4.7%. Moody’s warns of possible downgrade of Japan’s debt.

British Chamber of Commerce lowers UK growth forecast and raises inflation expectations. Growth estimates were lowered to 1.3% this year and 2.2% in 2012. Inflation forecast were raised to 4.5% in 2011 and 2.7% in 2012, from 4.2% and 2.3% respectively.

German retail sales +0.6% m/m in Apr, below expectations, versus downward revised -2.7% m/m in Mar. German unemployment eases to 7.0%.

Eurozone HICP eased to 2.7% y/y in May, meeting expectations, versus 2.8% y/y in Apr.

BoC holds steady on rates, says policy stimulus will eventually be withdrawn.

US S&P/Case-Shiller home price index for 20-cities -0.8% (nsa) in Mar, below market expectations. Prices -3.6% y/y. This was the eighth consecutive monthly decline. Prices fell in 18 of the 20 cities in the index, with only Washington DC and Seattle seeing appreciation.

US Chicago ISM plunges to 56.6 in May, well below market expetations, vs 67.6 in Apr.

The market is looking for an uptick in May US consumer confidence at 10:00ET.

By Robin Harding
May 27 2011 (FT) — China is not a currency manipulator but its real exchange rate “remains substantially undervalued”, the US Treasury said on Friday in its semi-annual currency report to Congress.

… The measured tone of the report and its low key release just before a holiday weekend show how the heat has gone out of the US dispute over China’s currency policy.

… it argued that letting the renminbi rise is now in China’s self-interest. “By trying to limit the pace of appreciation, China is not allowing the exchange rate to serve as a tool to counter inflation in its own economy,” the Treasury said.

The rise in the renminbi against the dollar – and a belief that China will allow that rise to continue for domestic economic reasons – underlie the fall in tensions over what had become the leading bilateral issue between the world’s two largest economies.

[source]

ALSO . . .

China Must Let Yuan Rise Faster, Treasury Tells Congress
By Ian Katz
May 27 (Bloomberg) — The U.S. said China has made “insufficient” progress on letting the yuan rise and urged quicker appreciation, without branding the world’s fastest- growing major economy a currency manipulator.

The U.S. “believes that progress thus far is insufficient and that more rapid progress is needed,” the Treasury Department said today in a report to Congress on foreign- exchange markets. The yuan’s real exchange rate remains “substantially undervalued” and the department “will continue to closely monitor the pace” of appreciation.

… “We have differences on the degree of appreciation,” Deputy Finance Minister Zhu Guangyao said May 10 in Washington. China’s economy will expand 9.6 percent in 2011 and 9.5 percent next year, according to International Monetary Fund projections released last month.

The Treasury Department backed away from the “nuclear option” of calling China a currency manipulator, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. The Group of 20 nations “is going to have something to say on the global imbalances later this year, so it is better to decide these matters in a world forum rather than for the U.S. to take unilateral action.”

… Rupkey said in e-mailed comments the “late afternoon release before Memorial Day weekend appears well timed in order to miss congressional criticism. Nice timing, as a war of words helps no one.” The report was released at 4 p.m.

Today’s report said “no major trading partner” of the U.S. met the legal standard of improperly manipulating its currency.

… If China fails to let its currency rise, it faces the risk of higher inflation, an “excessively rapid expansion of domestic credit, and upward pressure on property and equity prices, all of which could threaten future economic growth,” according to the report.

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Currency Collapse

Early in the week, Belarus devalued their currency. Headlines in the financial press stated the devaluation was 36%, but the zerohedge blog, citing The National Bank of Belarus‘ own website showed the Belarus ruble (BYR) had been devalued in dollar terms from 3155 to 4930. That’s a startling 56.3% devaluation! Devaluations similar in scope were reported against the euro and the Russian ruble.

Imagine for a moment, waking up one morning to find that more than half (or even a third) of your savings had been wiped out in one fell-swoop. Amid worries that the Belarus ruble would devalue further, citizens rushed out to buy things, anything, before more purchasing power was eroded. There were reports of store shelves being swept bare and many citizens stood in line for days at currency exchanges hoping to swap their rubles for some other currency — any other currency; dollars, euros, Russian rubles — anything to protect what little they had left. Of course, governments that devalue generally have the foresight to implement capital controls to impeded flight from the currency being devalued. Not surprisingly, other currencies were in short supply across the country, further fueling the desire to trade currency for goods.

Of course the world has seen devaluations before: Germany, Russia, Venezuela, Argentina, Mexico, Great Britain…um the United States, among many others. Devaluation is generally used as a means of inflating away debt. While savers in Belarus rubles may have seen their savings evaporate dramatically, those that had debt valued in BYR saw more than half of that debt disappear. It is in every way a transfer of wealth from savers to debtors. It is punishment for saving and a moral hazard, as such measures reward indebtedness. That reality should give everyone with a dime in the bank pause.

The time honored tradition of alleviating sovereign debt burdens via currency devaluation is the primary reason there is an element in Greece that would love nothing more that to exit the EMU and revert back to the drachma. As the sovereign debt crisis in Greece continues to deteriorate, savers are keen to get their money out of Greece. There has been significant erosion of the household savings rate in Greece over recent weeks. The wealthy have the means and the knowledge to protect themselves, so it is the working class savers that invariably end up baring the brunt of the burden. Greek officials continue to assure the people that their savings are secure, just as I’m sure Belarus officials did…

Certainly our very own government and the Fed have been actively discouraging saving right here in America. By driving interest rates to near 0% and offering tax incentives for home, automobile and other durable goods, the message is clear: In an economy that is primarily driven by consumption, ‘we want you to spend your money, not save it.’ In sending that message though, consumers must be reasonably sure that the government will take care of them if they dutifully spend all of their income. That is why any proposed changes to entitlement programs like Social Security and Medicare are so contentious.

Recently, Zimbabwe’s central bank chief, Dr. Gideon Gono talked about backing their currency with gold, adding that “the inflationary effects of United States’ deficit financing of its budget was likely to impact other countries, leading to a resistance of the greenback as a base currency.” That’s Zimbabwe –a country that experienced the worst hyper-inflationary period in recent history — busting on us for our fiscal and monetary policy. Okay, he’s spot-on correct, but he’s the head of the Reserve Bank of Zimbabwe for cryin’ out loud!

While the US and Europe are arguably a far cry from Belarus or Zimbabwe, as our own debt loads grow increasingly oppressive, so grows the temptation to devalue. The take away here is that you save exclusively in fiat currency at your own peril. And while there are some currencies that are arguably safer than others, there is one that has stood the test of time, for thousands of years in fact. There is an ever-growing number of people across the globe that are increasingly looking to physical gold as an alternative means of saving.

By Claudia Assis and Sarah Turner
May 27, 2011 (MarketWatch) — Gold and silver futures climbed Friday, helped by a weaker dollar and renewed concerns about unrest in the Middle East and North Africa as well as about euro-zone sovereign debt.

Gold for August delivery, the most-active contract, advanced $13.60, or 0.9%, to $1,537.30 an ounce on the Comex division of the New York Mercantile Exchange. For the week, gold gained 1.8%.

…The dollar index, which measures the greenback against a basket of six currencies, fell to 74.936, compared with 75.598 late Thursday.

Traders also focused on unrest in the Middle East and North Africa, with Yemen on the brink of civil war and with world leaders reiterating calls for the ouster of Libya’s Col. Moammar Gadhafi.

In addition, leaders at the Group of Eight meeting “have not reported any progress on any fronts” regarding euro-zone debt concerns, said George Gero, a vice president with RBC Wealth Management, in emailed comments. “No one wants to be short for the extended holiday,” he added.

— U.S. markets will be closed Monday in observance of Memorial Day. U.K. markets will also be closed Monday.

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by Robert Powell
May 27, 2011 (MarketWatch) — As someone whose family was affected personally by the Bernie Madoff scheme, and as someone who knew Brad Bleidt, a Boston-based scam artist who misdeeds preceded Madoff’s, I’m deeply concerned about the issue of investment fraud.

So, too, is John Gannon, the president of the Education Foundation at the Financial Industry Regulatory Authority… among those who spoke this week at Boston University’s Future of Lifecycle Saving & Investing Conference to talk about the state of financial literacy in the U.S.

Gannon didn’t come to talk specifically about financial education, but rather the state of investment fraud in the U.S., who’s at risk of being defrauded, the tactics being used to separate honest hard-working American investors from their money, and what individuals can do to prevent themselves from being fleeced by the likes of a Madoff or Bleidt.

Not surprisingly, the research shows that the people most at risk of being separated from their money are males, ages 55-65, who are largely self-directed or do-it-yourself investors, and who are risk-takers. What’s more, those at risk have a tendency to be overly optimistic about their knowledge of all things finance and investing.

… It can be especially hard for those who are at risk of being defrauded because these folks tend to “make emotional rather than logical decisions,” Gannon said.

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by Ned Schmidt
May 27, 2011 (MarketOracle) — Recent firing of a football coach in my hometown was cause for considerable reflection. Why does someone fire a winning coach? A few years ago the college I attended for graduate work fired their football coach, one with a winning record. In fact, it was a winning record such that most only dream of achieving.

… While we might ponder why a winning coach is abruptly dispatched, even greater wonder is why a losing coach is retained. Why would any team persist with a coach that cannot win games? Who wants to be managed by a loser? For the answer to that question we need look no further that the United States, and their losing monetary coach. Money coach Bernanke’s record is portrayed in the graph below.
…
Thus far, one would have to grade the Bernanke Federal Reserve at no higher than D-. Grade could be lower, but he has made Gold investors much richer. Since we have been recommending for more than a decade investors shed paper equities in order to invest in Gold, we do appreciate the losing record of the U.S. Federal Reserve. Since we see no hope of enlightenment at this bastion of Keynesian ideology, retaining Gold seems like a wise move.

… That the value of the U.S. dollar has suffered during the era of QE-2 is unarguable, as shown in chart below. But like all undesirable experiences created by bad policy, it too may come to an end. Only the Federal Reserve has been able to discover imaginary benefits from QE-2. In reality, all QE-2 accomplished was a distortion of asset values all around the world.

… If the demise of QE-2 does bring about a reversal in the course of the dollar… $Gold may complete the consolidation in which it now trades. Great Silver Collapse of 2011 should continue due to the implosion of the bubble, over valuation and collapsing fundamentals.

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by Alex Richardson
Friday May 27, 2011 (Reuters) – Ratings agency Fitch on Friday cut its outlook on Japan’s sovereign debt to negative from stable, warning that the massive cost of a March earthquake and tsunami would put added strain on the country’s already shaky public finances.

… “Japan’s sovereign credit-worthiness is under negative pressure from rising government indebtedness,” said Andrew Colquhoun, head of Fitch’s Asia-Pacific Sovereigns team in a statement.

“A stronger fiscal consolidation strategy is necessary to buffer the sustainability of the public finances against the adverse structural trend of population aging.”

Japan’s public debt, already twice the size of the $5 trillion economy, is set to swell as the country faces reconstruction costs following the March 11 earthquake and tsunami… However, the country’s deepest crisis since World War Two has not healed rifts between the government and the opposition, whose majority in the upper house stands in the way of fiscal reform.

Fitch said Japan’s public indebtedness was also rising sharply, at a pace trailing only Ireland and Iceland, “both of which have experienced systemic banking crises.”

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by David Galland
May 27 2011 (MarketOracle) — While there are many reasons that gold and silver are going to keep moving higher as the fiat currencies trend lower, at our recent Casey Research Summit in Boca Raton, faculty member Mike Maloney pointed out a fact that, while obvious in hindsight, I had never heard mentioned previously.

Namely that during the last major precious metals bull market in the 1970s, only about 10% of the world could own gold – either due to legal restrictions or a lack of liquid capital.

Today, few countries prohibit gold ownership, and a far higher percentage of the world’s population has transitioned out of poverty.

China provides the most germane example, having legalized gold and silver ownership for private citizens in 2004, and through the explosive growth in national GDP that has caused Chinese gold purchases to skyrocket.

… “I think people will be surprised by the strength in the Chinese demand, but we think this is a trend that is set to continue,” said Eily Ong, an investment research manager at the gold council.

Notoriously active savers, stashing away on the order of 50% of their income, the Chinese are increasingly opting for gold over the renminbi to stash their wealth.

… India is no longer the only elephant in the gold vault. And they are not alone – investors around the world are now able, and willing, to buy gold as a way of protecting their wealth from the inevitable decline of the fading fiat currencies.

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