PDP- Pescod

Gold shines as it tops $1,000

Gold shines as it tops $1,000

HUMEYRA PAMUK
Thursday, March 13, 2008
To view this interactive, you need to upgrade your Flash PlayerDownload Flash Player from the Adobe website.
//
Gold hit a record high above $1,000 (U.S.) an ounce on Thursday and oil reached an all-time peak over $110 a barrel as a historically weak dollar and falling equities triggered a flight to commodity markets.

Soft commodities such as cocoa and coffee also rallied and industrial metals rose but were restrained by fears of a global economic slowdown.

The dollar sank to a 12-year low, and an all-time low versus the euro, while share markets lost ground as the investors fretted over the health of the U.S. economy and global financial sector.
U.S. gold futures rallied to a $1,000 an ounce while spot gold jumped to a fresh peak of $997.50 an ounce and was at 997.10 an ounce just after noon in London, up more than 2 per cent from $981.90/982.70 an ounce in New York on Wednesday.

“The environment of other asset classes has made commodities very attractive,” said Michael Lewis, global head of commodities at Deutsche Bank.

“They look very much like a safe-haven, because if you look at other asset classes there is a lot of risk associated with equities, carry trades and so on.”

Fears of a recession and expectations of aggressive rate cuts from the U.S. Federal Reserve to help shield the U.S. economy is piling pressure on dollar, while also boosting gold and oil as alternative investments.

A falling dollar makes dollar-denominated commodities cheaper for investors in other currencies. It has helped bullion gain 19 per cent and oil over 15 per cent so far this year.
“People have realized that the central banks are going to have to ignore the inflationary risks to rescue the banking system,” said Sean Corrigan, chief investment strategist at Diapason Commodities.

U.S. crude oil futures climbed to a record high of $110.70 a barrel as the weak dollar offset news of an increase in U.S. crude inventories.

“We're looking at the U.S. dollar, we're looking at speculation, we're looking at geopolitical. Those three things tying together are defying fundamentals,” said Peter McGuire, managing director of Commodity Warrants Australia.

The impact of the weakening dollar hit soft commodities too.

London robusta coffee futures rose on speculative buying, with London May arabica futures up $39 or 1.47 per cent to $2,691 a tonne while ICE cocoa futures ICE May up $96 or 3.5 per cent to $2,872 per tonne.

Wheat slid about 1 per cent after jumping on Wednesday amid concerns over tight global supplies.
In the long-run, analysts expect prices to be supported.

“Gold and agricultural commodities are the two we think should be bullet-proof to the problems in the U.S. economy and declining equity markets,” Mr. Lewis at Deutsche Bank said.
Of all commodities, industrial metals looked to be the weakest link. Copper for three-months delivery on the London Metal Exchange was flat at $8,400 per tonne, after falling as low as $8,315 per tonne earlier in the day.

“They're the ones you would be least likely to fancy because their underlying physical demand will possibly be in trouble for a year or so while we work out the western recession and see whether there's any knock-on on developing markets,” Mr. Corrigan said.

Copper has risen 23 per cent since the beginning of the year, driven largely by speculative money, while aluminum jumped by 35 per cent on the back of power shortages in South Africa.
That one though still remains as one of the favourites among base metals.
“We're still putting out bullish ideas on aluminum, we really like that one,” Mr. Lewis said.
© Copyright The Globe and Mail

Solana Resources One To Watch For Sure

The truth about government deficits

The truth about government deficits
NEIL REYNOLDS

Globe and Mail Update

March 12, 2008 at 6:00 AM EDT
In his 2004 book, The Price of Loyalty, former Wall Street Journal writer Ron Suskind described the rise and fall of Treasury Secretary Paul O'Neill in the first two years of President

George W. Bush's turbulent first term. Mr. O'Neill advised tax increases to avert deficits. (He calculated that a 60-per-cent increase in personal income taxes was needed.) His opposition to deficit spending made him a misfit in Mr. Bush's tax-cutting administration.

In one cabinet confrontation in 2002, Vice-President Dick Cheney lectured him bluntly. “Reagan proved,” he said, “that deficits don't matter.” Weeks later, Mr. Cheney fired him.
Set beside President Ronald Reagan's peacetime deficits in the 1980s, Mr. Bush's seven successive wartime deficits (beginning in fiscal 2002) look modest. Mr. Reagan ran deficits almost twice as large – relative to gross domestic product – as Mr. Bush.

The eight Reagan deficits averaged 4 per cent of GDP; the seven Bush deficits (thus far) have averaged 2.4 per cent.

Mr. Bush would need now to run a one-year deficit of $1-trillion (U.S.) to match Mr. Reagan's largest deficit in 1983, which hit 6 per cent of GDP (when GDP stood at $3.4-trillion). The largest of the Bush deficits – $412-billion in 2004 – hit 3.6 per cent of GDP (when GDP stood at $11.5-trillion).

At 6 per cent of GDP, incidentally, the largest of the Reagan deficits exceeded the largest of Franklin Delano Roosevelt's deficits during the Great Depression, which reached pinnacles of 5.9 per cent of GDP in 1934 and 5.8 per cent of GDP in 1936.

How destructive are government deficits? How wicked?
We can compare three recent two-term administrations, two of which (those of Republicans Reagan and Bush) became notorious for budgetary deficits, one of which (Democratic President Bill Clinton) became celebrated for budgetary surpluses. When Mr. Reagan took office in January, 1981, GDP stood at $3-trillion. When he left office in January, 1989, GDP stood at $5-trillion – an increase in these eight years of 65 per cent.

When Mr. Clinton assumed office in January, 1993, GDP stood at $6.5-trillion. When he left office in January, 2001, it stood at $9.7-trillion – an increase in these eight years of 50 per cent. (In his first term, Mr. Clinton ran four deficits, which averaged 2.6 per cent of GDP, slightly higher than Mr. Bush's deficits a decade later. In his second term, Mr. Clinton ran three surpluses, which averaged 1.2 per cent of GDP.)

When Mr. Bush became president in January, 2001, GDP stood at $9.7-trillion. When he leaves office in January, 2009, it will stand (as officially projected) at $15-trillion – an increase in these eight years of 54 per cent.

You can conclude from these numbers, rightly or wrongly, that Mr. Cheney was essentially correct, that deficits don't matter – provided you generate such vigorous economic growth that GDP grows at a faster rate. The deficits of the Reagan years were the largest in these three presidencies; the economic growth was the greatest.

The crucial lesson from the Reagan era, though, arises not so much from the deficits as from the tax cuts. Without lower tax rates, the Reagan deficits would have been merely archaic exercises in Keynesian tax-and-spend. By cutting tax rates the most, Mr. Reagan produced the most economic growth.

The U.S. Tax Foundation, by the way, has calculated that the greatest of the postwar tax-cutters was actually Democratic President John F. Kennedy, whose tax cuts represented 8.8 per cent of the 1962 budget. Mr. Reagan's tax cuts represented 5.5 per cent of the 1983 budget. Mr. Bush's tax cuts represented 3.8 per cent of the 2003 budget. Using a different measure, the Kennedy tax cuts represented 1.9 per cent of national income; the Reagan tax cuts represented 1.4 per cent; the Bush tax cuts represented 1 per cent.

Canadians can look at these deficits from a different perspective. In this space last week, we examined (and admired) the federal government's resolve in paying down the national debt. We noted that Canada now has the lowest debt (relative to GDP) of any of the Group of Seven countries. One reader responded with the observation that Canada also has the lowest per-capita GDP of the G7 countries.

This is not correct, of course. Measured on the basis of purchasing power and expressed in 2007 U.S. dollars, the deficit-spending United States has the highest GDP per capita in the G7: $46,000. But debt-paying Canada has the second highest: $38,200.
The only unequivocal conclusion from all of this is that Mr. Cheney was right to fire Mr. O'Neill. A 60-per-cent increase in personal income taxes would have shut down the U.S. economy – and the Canadian economy along with it.

You can take the high road. You can take the low road. Either way, though, you have to keep the toll as low as you can.