Volcanic, and Political, Eruptions in Alaska

Steam rose from the top vent in the summit crater of Alaska’s Mount Redoubt on March 21, the day before it started erupting.

President Obama’s stimulus package might be creating a sandstorm in some states, but in Alaska, it was nearly volcanic.

Literally.

All last weekend, the Mount Redoubt volcano rumbled, and then blew early Monday, spewing ash more than nine miles into the air. It last blew in 1989 and 1990, and eruptions continued for four months.

The volcano, 103 miles southwest of Anchorage, west of the Cook inlet, is in a fairly remote location, with the nearest town of any size 50 miles away, and so the biggest concern is the ash spewing into the atmosphere, where it can clog airplane engines. Indeed, Alaska Airlines canceled 19 flights in and out of Anchorage on Monday. And that stranded several legislators in Anchorage, preventing them from reaching the capitol in Juneau, where a debate is brewing over the federal stimulus package.

Governor Sarah Palin, a Republican, had declared last week that she was turning down 31 percent of the estimated $930 million in stimulus money headed to Alaska. Like some other Republican governors who were rejecting at least some of the money, she said it came with strings.

Her decision provoked outrage throughout the state. Democrats quickly accused Ms. Palin, the 2008 Republican vice presidential nominee, of playing to conservative distrust of the stimulus and trying to gain an advantage in the 2012 presidential primaries. Even some fellow Republicans thought she might have made a misstep and prepared a resolution that would position the state to be able to accept all the stimulus money

There was considerable confusion, in Alaska and elsewhere, over the process for acquiring the money and the deadlines by which legislatures needed to act. In Alaska, State Senator Bert Stedman, a Republican and co-chairman of the finance committee, filed the resolution on Friday and prepared it for a vote on Monday because he believed that the legislature had to act by

At the same time, Ms. Palin’s office was backtracking on her earlier statements, saying she had not actually rejected the federal money, but had simply wanted a full airing on the consequences of accepting it

By the end of the day Friday, Mr. Stedman’s office said a review of federal guidelines determined that the legislature did not need to act by Monday. But whether the state will get all of its stimulus money is still up in the air. While an immediate confrontation with the governor was averted, another could lie ahead. And if the legislature votes to take all the stimulus money, the governor could veto part of that plan. It is not clear yet what Ms. Palin will do.

“We still have plenty of time to work through any differences between the Palin Administration and the legislature,” said Miles Baker, chief of staff to Senator Stedman, in an e-mail message. He said the resolution remains on the Senate secretary’s desk “for the time being.”

As the political volcano appeared to be simmering down, the physical one did too, at least for the moment

As we noted here on The Lede, when Gov. Bobby Jindal of Louisiana suggested that the stimulus package was wasteful, he cited “$140 million for something called volcano monitoring.” But on Monday, a television station in Alaska posted an article on its Web site noting that “volcano monitoring became a political football last month but Alaska’s system worked well when Mount Redoubt erupted” this week.

Ryan Bierma, a volcanologist with the Alaska Volcano Observatory, said that after the eruptions Monday morning, there had been earthquake tremors as well as “vibrating and unrest,” but no further eruptions.

“We’re still watching pretty closely,” he said. “It could ramp up pretty rapidly again. It’s tough to make any predictions.”

The eruption of a volcano in Alaska is fairly common, Mr. Bierma said. “We have over 40 active volcanoes in the state right now, and we have at least one significant ash-expelling eruption every year,” he said.

Just as there’s no predicting whether Redoubt might blow again, there is no predicting whether the matter of the stimulus money will erupt again either

By Katharine Q. Seelye

Special gold nanoparticles show promise for 'cooking' cancer cells

SALT LAKE CITY, March 22, 2009 — Researchers are describing a long-awaited advance toward applying the marvels of nanotechnology in the battle against cancer. They have developed the first hollow gold nanospheres — smaller than the finest flecks of dust — that search out and "cook" cancer cells. The cancer-destroying nanospheres show particular promise as a minimally invasive future treatment for malignant melanoma, the most serious form of skin cancer, the researchers say. Melanoma now causes more than 8,000 deaths annually in the United States alone and is on the increase globally.

The topic of a report presented here today at the American Chemical Society's 237th National Meeting, the hollow gold nanospheres are equipped with a special "peptide." That protein fragment draws the nanospheres directly to melanoma cells, while avoiding healthy skin cells. After collecting inside the cancer, the nanospheres heat up when exposed to near-infrared light, which penetrates deeply through the surface of the skin. In recent studies in mice, the hollow gold nanospheres did eight times more damage to skin tumors than the same nanospheres without the targeting peptides, the researchers say.

"This technique is very promising and exciting," explains study co-author Jin Zhang, Ph.D., a professor of chemistry and biochemistry at the University of California in Santa Cruz. "It's basically like putting a cancer cell in hot water and boiling it to death. The more heat the metal nanospheres generate, the better."

This form of cancer therapy is actually a variation of photothermal ablation, also known as photoablation therapy (PAT), a technique in which doctors use light to burn tumors. Since the technique can destroy healthy skin cells, doctors must carefully control the duration and intensity of treatment.

Researchers now know that PATs can be greatly enhanced by applying a light absorbing material, such as metal nanoparticles, to the tumor. Although researchers have developed various types of metal nanoparticles to help improve this technique, many materials show poor penetration into cancer cells and limited heat carrying-capacities. These particles include solid gold nanoparticles and nanorods that lack the desired combination of spherical shape and strong near-infrared light absorption for effective PAT, scientists say.

To develop more effective cancer-burning materials, Zhang and colleagues focused on hollow gold nanospheres — each about 1/50,000th the width of a single human hair. Previous studies by others suggest that gold "nanoshells" have the potential for strong near-infrared light absorption. However, scientists have been largely unable to produce them successfully in the lab, Zhang notes.

After years of research toward this goal, Zhang announced in 2006 that he had finally developed a nanoshell or hollow nanosphere with the "right stuff" for cancer therapy: Gold spheres with an optimal light absorption capacity in the near-infrared region, small size, and spherical shape, perfect for penetrating cancer cells and burning them up.

"Previously developed nanostructures such as nanorods were like chopsticks on the nanoscale," Zhang says. "They can go through the cell membrane, but only at certain angles. Our spheres allow a smoother, more efficient flow through the membranes."

The gold nanoshells, which are nearly perfect spheres, range in size from 30 to 50 nanometers — thousands of times smaller than the width of a human hair. The shells are also much smaller than other nanoparticles previously designed for photoablation therapy, he says. Another advantages is that gold is also safer and has fewer side effects in the body than other metal nanoparticles, Zhang notes.

In collaboration with Chun Li, Ph.D., a professor at the University of Texas M.D. Anderson Cancer Center in Houston, Zhang and his associates equipped the nanospheres with a peptide to a protein receptor that is abundant in melanoma cells, giving the nanospheres the ability to target and destroy skin cancer. In tests using mice, the resulting nanospheres were found to be significantly more effective than solid gold nanoparticles due to much stronger near infrared-light absorption of the hollow nanospheres, the researchers say.

The next step is to try the nanospheres in humans, Zhang says. This requires extensive preclinical toxicity studies. The mice study is the first step, and there is a long way to go before it can be put into clinical practice, Li says.
###
The U.S. Department of Defense and the National Science Foundation funded the research in Zhang's lab while the National Institutes of Health funded the work in Dr. Li's lab.

The American Chemical Society is a nonprofit organization chartered by the U.S. Congress. With more than 154,000 members, ACS is the world's largest scientific society and a global leader in providing access to chemistry-related research through its multiple databases, peer-reviewed journals and scientific conferences. Its main offices are in Washington, D.C., and Columbus, Ohio.

Will Oil and Gold Prices Rise Further on Fed's Latest Moves?

Last week’s surprise move by the Federal Reserve to buy $300 billion in long-dated bonds and effectively start printing money brought a sharp fall in the US dollar, and a strong bounce in oil and gold prices.

Is this the story of things to come? Pimco CEO Bill Gross, the bond king says the Fed may need to expand its balance sheet from a projected $2-3 trillion to $5-6 trillion to get the economy moving again.

This is a slow motion process. The more immediate impact, apart from lowering the cost of borrowing, is a lower dollar. Then by 2011 or so Mr. Gross sees the return of inflation, and is buying inflation-protected bonds called TIPS - which also jumped in price last week.

Oil market

For Middle Eastern investors in particular this scenario has important implications for the oil market: a lower US dollar generally means a higher oil price. Remember it was dollar weakness that helped to drive oil prices to $147 last July, and dollar strength popped that bubble (see graph above).

But hold on a moment, how are stock prices going to react to quantitative easing or money printing by any other name? Last week the 20 per cent rally in the Dow Jones stopped and reversed on news of the Fed’s action.

The US stock market will be nervously watching statements this week for more detail of the Fed and Treasury’s plans. However, if you look at share valuations then they are back to the lows of 2003 and that hardly appears low enough for the profit depression now certainly ahead for major companies.

Stock sell-off

Now what happens if shares sell-off again, perhaps in a probably not unjustified panic about the three-year outlook for profits? Then the dollar will rally, precisely as it did last autumn, because stocks will be sold for cash, increasing the demand for the dollar.

That would lower oil and gold prices, just like last autumn. So it might still be too early to go back into stocks, and even to abandon US Treasuries. For there is another down leg in the stock market to endure before such a shift should be considered.

All the same, with inflation definitely on the horizon - albeit at some distance - oil and gold will eventually come out on top, and may not suffer as much in the next bear market down shift.

Feds Shut Banks in Georgia, Colorado, Kansas

WASHINGTON (AP) -- Regulators on Friday shut down banks in Georgia, Colorado and Kansas, marking 20 failures of federally insured banks this year. More are expected to succumb to the prolonged recession.

The Federal Deposit Insurance Corp. was appointed receiver of the failed banks.
FirstCity Bank of Stockbridge, Ga., had about $297 million in assets and $278 million in deposits as of March 18. Colorado National Bank of Colorado Springs, Colo., had $123.5 million in assets and total deposits of $82.7 million as of Dec. 31. Paola, Kan.-based Teambank N.A. had assets of $669.8 million and total deposits of $492.8 million as of Dec. 31.

The FDIC said it will mail checks to depositors of FirstCity Bank for their insured funds on Monday morning. Direct deposits from the federal government, such as Social Security and veterans' benefits payments, will be transferred to SunTrust Bank.

At the time of closing, FirstCity Bank had an estimated $778,000 in deposits that exceeded the insurance limits, the FDIC said. Regular deposit accounts are insured up to $250,000.
Amarillo, Texas-based Herring Bank will assume all of the deposits of Colorado National, whose four branches will reopen as Herring Bank branches on Saturday.

In addition to assuming all of the deposits of the failed bank, Herring Bank agreed to

buy about $117.3 million in assets at a discount of $4.2 million. The bank agreed to pay a 1 percent premium on the deposits.

The FDIC said it will keep the bank's remaining assets for future sale. Additionally, Herring Bank entered into a loss sharing agreement with the FDIC, wherein the FDIC will assume 80 percent of the losses and Herring Bank 20 percent of the losses on $62 million in assets.
Teambank's 17 branches will reopen on Saturday as branches of Great Southern Bank. The Springfield, Mo.-based bank is assuming $474 million of Teambank's deposits for about $4.7 million, while the FDIC is paying out $18.8 million in deposits directly to brokers.

Great Southern Bank has also agreed to buy about $656.5 million in assets at a discount of $100 million. The remaining assets will be sold at a later date, the FDIC said. Additionally, the FDIC has agreed to cover 80 percent of the losses on about $450 million in assets, while Great Southern Bank will cover the remaining 20 percent of losses.
The FDIC said Teambank was affiliated with Colorado National Bank.

The FDIC estimates that the cost to the deposit insurance fund from the closings of the three banks will be about $207 million.

The last bank closing, two weeks ago, involved a Georgia bank, Freedom Bank of Georgia in Commerce, Ga.

As the economy sours, unemployment rises, home prices tumble and loan defaults soar, bank failures have cascaded and sapped billions out of the deposit insurance fund. It now stands at its lowest level in nearly a quarter-century, $18.9 billion as of Dec. 31, compared with $52.4 billion at the end of 2007.

The FDIC expects that bank failures will cost the insurance fund around $65 billion through 2013.

The agency said Friday that the nation's banks and thrifts lost $32.1 billion in the final quarter of last year, even worse than the $26.2 billion originally reported last month. "Significant" revisions also lowered the industry's net income for all of 2008 to $10.2 billion from $16.1 billion.
Rising losses on loans and eroding values of assets bit into the revenue of U.S. banks and thrifts in late 2008, causing them to post the first quarterly deficit in 18 years.

The $26.2 billion loss originally reported for the October-December period already was the largest in 25 years of FDIC records. It compared with a $575 million profit in the fourth quarter of 2007.

And the originally reported 2008 net income of $16.1 billion was the smallest annual profit since 1990, during the savings and loan crisis.

The 18 bank collapses this year follow 25 failures in 2008, which included two of the biggest savings and loans, Washington Mutual Inc. and IndyMac Bank. Last year's total was more than in the previous five years combined and up from only three failures in 2007.
The FDIC had 252 banks and thrifts on its list of troubled institutions at the end of 2008, up from 171 in the third quarter.

The agency recently raised the fees that U.S. banks and thrifts pay, and levied a hefty emergency premium in a bid to collect $27 billion this year to replenish the insurance fund.
President Barack Obama has outlined a federal budget proposal that calls for spending up to $750 billion for additional financial industry rescue efforts atop the $700 billion that Congress has already approved.

Citigroup Inc. and Bank of America Corp., for example, have had to go back to the government well for more cash amid continuing losses from toxic assets and soured consumer loans. They each have received $45 billion in bailout money, and the government recently agreed to exchange up to $25 billion of Citigroup's portion for as much as a 36 percent equity stake in the struggling banking giant.

AP Business Writer Sara Lepro contributed to this report from New York.

by AP / MARCY GORDON

Citigroup Plans Big Bonuses Despite Rules Against Them

By Stephen Gandel TIME

AIG isn't the only bailed-out financial firm paying big bucks to managers who helped steer their company to near collapse. Citigroup has pledged millions of dollars in bonuses to senior executives for the next few years, despite lawmakers efforts to eliminate such payments.
It's not clear whether the bonuses, which Citigroup says are for 2008 but won't start paying out until 2010, will be allowed. Under compensation rules passed by Congress in mid-February, cash bonuses are barred for top executives at bailed-out banks. (See pictures of the global financial crisis.)

But Citi finalized its bonus program shortly before the new rules were introduced. That might make the payments permissible, though they could be made almost worthless by new tax rules just passed by the House of Representatives and headed for consideration in the Senate. Even so, Citigroup's move in January to set in place bonus payments for years to come raises questions about whether it was trying to evade compensation rules it knew were coming.
"If an executive legitimately earns a bonus, then paying it out over a number of years makes a lot of sense,' says Paul Hodgson, a senior research associate at the Corporate Library, which examines issues of corporate governance. "But I find it hard to believe that any top executive at a bailed-out bank would have had the performance in 2008 to generate a multimillion-dollar bonus." (Read "Is Citibank Really Out of the Woods?")

Under Citi's proposed compensation plan, three of the company's top five executives would be paid a total of nearly $12.5 million in cash bonuses over the next five years. One of the executives, James Forese, is a co-head of Citi's Institutional Client Group, which lost $20 billion in 2008. Forese is rewarded $5 million under the plan. At least 15 other Citi executives are in line for multimillion-dollar payouts. Citi declined to say how much in total it has promised under the plan.

According to a proxy statement Citi filed with the Securities and Exchange Commission, the company finalized its bonus plan on Jan. 14. Twelve days later an amendment barring such payments was inserted by the House of Representatives into the $787 billion fiscal stimulus bill, which went into effect on Feb. 17.

The revelations about Citi's bonus plan come at a time when anger over executive pay, particularly in the troubled financial sector, is boiling over. On Thursday, the House overwhelmingly passed a bill that would impose a 90% income tax on all compensation over $250,000 earned by employees at banks that have received more than $5 billion in bailout funds. The Senate is working on its own bill to raise taxes on highly compensated bankers. President Barack Obama indicated he would sign legislation that curtails bonuses.
See 25 people to blame for the financial crisis.
See the top 10 financial collapses of 2008.

"In the end, this is a symptom of a larger problem, a bubble-and-bust economy that valued reckless speculation over responsibility and hard work," Obama said in a statement released by the White House. "That is what we must ultimately repair to build a lasting and widespread prosperity."

Citi has also been criticized this week for an estimated $10 million renovation of its executive offices, and reports that the firm was considering boosting salaries for its top executives.
The bonuses for top executives at Citi are particularly surprising because the company is typically seen as the most in danger of failing among the nation's largest banks. Citi has received more government assistance than any other bank: $45 billion in cash infusions and over $300 billion in loan guarantees since late October. By comparison, none of Bank of America's top five executives will receive a cash bonus for 2008.

"There is no question [Citigroup] is violating the spirit of executive-compensation rules,' says Heather Slavkin, who studies executive-pay issues for the AFL-CIO. "Hopefully by the time Citi tries to pay these out we will have gotten over this idea about the sacredness of contracts, and these bonuses won't be allowed either.'

A Citigroup spokesman denied that the company did anything wrong, noting the pay packages in question were set a month before the bonus ban became law. "Overall executive compensation [at Citigroup] substantially decreased from 2007 to 2008," the spokesman said. "CEO Vikram Pandit and CFO Gary Crittenden declined any bonus for last year as well. As always, we will comply with the new restrictions on compensation ... in addition to continued adherence to the substantial changes we already have made to our compensation structure.'
Citi has long deferred the payment of stock options that are granted at the end of the year. Cash bonuses, though, have always been paid at the time they were granted, typically in January for prior-year performance. But this year Citi decided to defer bonus payments for the first time. Instead of paying a lump sum in early 2009 for 2008 performance, payouts would be spread over four years, with the first payouts in January 2010.

For example, Forese, the Institutional Client Group executive, received a salary of $225,000 and was awarded a cash bonus of $5,265,000 for 2008. But he won't get any of his millions yet. Instead, he has a promise from Citi that he will get a check for $1.3 million in January 2010 and three checks for the same amount over the following three years.

On the surface, the plan looks like a good public relations move. At a time when people are angry about bonuses, Citi can say it isn't currently handing out bonuses to its top executives for work they did in 2008. What's more, the Citi bonuses include a provision that allows the bank to "claw back" the money if it is found that an executive made false statements to the company.

The problem is that Citi's payment plan is not consistent with executive-compensation rules put into place by the stimulus package. The American Recovery and Reinvestment Act signed by Obama on Feb. 17 says banks that have received money from the government's $700 billion Troubled Asset Relief Fund are barred from paying cash bonuses to their top executives. They can pay stock bonuses equal to as much as a third of an employee's salary, but the employee is not allowed to sell those shares until the government's money is paid back by their company.
The rub is that a provision was inserted into the stimulus package that says the rules do not apply to any bonuses contained in employment contracts signed before Feb. 11. (It is this provision that AIG has cited in defending its controversial bonuses to top executives.) Citi finalized its plan for paying 2008 bonuses in January. But it's unclear whether Citi's deferred-payout plan would be considered a valid employment contract under the rules set out in the stimulus package. The law leaves that up to Treasury Secretary Tim Geithner to decide.
Compensation experts say that as the government increases its efforts to curtail executive pay, companies will come up with more and more creative ways to keep their employees happy. "Citi may have bent the rules a bit,' says top compensation consultant Alan Johnson. "But if these firms don't come up with some way to pay their people, they are going to be out of business.'
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Don't Panic About the Economy

U.S. President Barack Obama

Unlike many of my colleagues in the mass media, I am suffering from outrage-deficit disorder. It's not that I'm not angry. I am, in fact, frustrated that we've civilized ourselves out of really satisfying scapegoat rituals: The ancients would have staged a mass immolation of the AIG casino pigs in their private jets or crucified Bernie Madoff on the 18th hole at the Palm Beach Country Club, preceded by a public show trial with Jon Stewart as chief magistrate. You probably need an over-the-top catharsis or two like that to get the popular rage under control. As it is, guilt and anger are being splashed about chaotically and inefficiently--and people like Barack Obama, who had nothing at all to do with the creation of this mess, are being blamed. That is very dangerous at a moment when there is a desperate need for patience and rationality.

Over the course of too many years in this business, I have discovered that my two worst sins are anger and impatience. Anger is a double-edged sword--sometimes it is entirely justified (as when directed against the shameless torture-enabler Dick Cheney, who persists in fouling our public airwaves). Impatience, though, is a subtler problem, and it is chronic in the mass media. Indeed, it comes with the territory. There are columns to fill, commentaries to spew even when a new Administration has just begun its work and it is way too early to make definitive judgments about its policies. The worst judgments I've made as a journalist were the result of impatience. In early 1993--a moment not unlike this one--I joined the mob jumping all over the unseemly sausage-making that attended Bill Clinton's economic plan. Firmly fixated on twigs and branches--not even trees!--I missed the forest: Clinton's budget discipline led to the economic boom of the 1990s.

And so, older and marginally wiser, I'm taking the path of least crankiness in the early days of this new Administration. Sure, I'm worried that Obama isn't dealing decisively enough with the banking crisis--but, on the other hand, this is uncharted territory and maybe a cautious, case-by-case strategy will prove to be the right one. And yes, I'm worried that Obama is deferring a bit too much to the snails and toads (of both parties) in the Congress--but, on the other hand, savvy aides like Joe Biden, Rahm Emanuel and congressional liaison Phil Schiliro will focus and massage the legislative packages that will be forthcoming. It is entirely possible, as this magazine surmised last week, that Obama has taken on too much, too soon. Or maybe not. The public hasn't even seen the benefits of the tax cuts that were embedded in the stimulus bill yet. The shovels are barely ready for the new infrastructure spending.

Patience requires a bit of distance, so let's stand back for a moment. Barack Obama was elected President because the governing philosophy of the last 30 years, arrant Reaganism, had proved itself bankrupt. Reaganism was distinguished by four characteristics--at least, according to its own mythology: the belief that government was "the problem" and so less of it was better, tax-cutting (for the wealthy), deregulation and an insistence on military strength as the primary projection of American authority overseas. These were, in some cases, fantasy attributes: After lowering taxes in 1981, Reagan raised them in 1982 and 1983. In many cases, especially deregulation--I'm talking about you, Lawrence Summers--Democrats were complicit in the excesses. In almost every case, a mild form of Reaganism was a plausible corrective for the Democratic excesses that had gone before. In a few cases, like Reagan's toughness toward the Soviet Union and in some forms of deregulation, it actually worked.

What Barack Obama pledged to do during the campaign--what he is trying to do now--is to change course on every one of these Reaganite assumptions. He believes that government must be part of the solution in areas like health insurance, education and energy policy. He will, eventually, restore Clinton-era levels of taxation on the wealthy. He will re-regulate the financial markets. Overseas, he has restored the primacy of diplomacy over the use or threat of military force.

Actually, Obama's foreign policy is illustrative of his overall philosophy. It is comprehensive and complicated. In the case of Pakistan, for example, it involves diplomatic suasion, economic aid, military aid and the discreet use of military force. It will not yield results overnight. It isn't as dramatic or easily judged as an invasion. It may not, in the end, prove the right course. But, as with Obama's economic policies, it will take time to assess fairly. And so, patience, please! We can feed Obama to the Limbaugh lions if he fails ... Or maybe not, should he succeed.

By Joe Klein

Source www.time.com

The Currency War May Have Just Gone Nuclear

The Daily Gold Report by Peter A. Grant

Mar 19 a.m. (USAGOLD) -- Gold rebounded sharply from intraday losses on Wednesday, spurred by unprecedented action from the Fed to monetize debt. The yellow metal surged from an intraday low of 883.72 to an intraday high of 948.12.

There had been talk for months that the Fed was considering quantitative easing -- printing money and buying Treasuries -- as a means to support the long end of the yield curve. Such talk ramped up last week when the Bank of England took the debt monetization plunge and had some success in driving down gilt yields. It was reported that the Fed had taken notice.

With interest rates effectively at 0% and the economy still struggling, there was no doubt that the Fed was going to grow its balance sheet. However, in advance of the announcement, the market seemed to think the Fed would simply buy more mortgage backed securities (MBS) and agencies, holding off on buying Treasuries for the time being.

The Fed did indeed announce that it would seek to buy up to an additional $750 bln in MBS, bringing the total projected purchases of such assets up to $1.25 trl. They also announced that they would buy up to an additional $100 bln in agency debt, bringing that total up to $200 bln.
On top of all that, the FOMC decided that late next week the Fed would begin purchasing up to $300 bln in longer-term Treasuries, with emphasis on the 2 to 10-year segment of the yield curve. Purchases will be conducted by primary dealers two to three times per week through competitive auctions.

If recent history is any indication, one might assume that this $300 bln is merely an opening salvo. The Fed's "non-standard" measures have had a tendency to escalate rather dramatically in both size and scope over fairly short periods of time during this financial crisis.
I don't see why this instance would be any different. You don't make a policy move of this magnitude to dabble and just see if it will work and then retreat. Quantitative easing is the A-bomb of monetary policy. Once it's unleashed, it becomes tough to de-escalate.
The FX market in particular seemed to be caught completely off guard and the dollar plunged in reaction to the FOMC announcement. A colleague that I used to trade currencies with back in Chicago said it was "near-panic" selling of dollars, particularly against euro although greenback losses were broad-based.

We have said all along that the recent dollar rally was tenuous at best, with no real fundamental underpinning. It wasn't so much dollar strength as more pronounced weakness in other currencies. Suddenly all that has changed and the dollar will likely play catch-up with the rest of the weak fiat currencies of the world.
In the dollar index, nearly 50% of the Dec to early-Mar rally has already been retraced. The DX -- which set a new 3-year high near 90.00 just two weeks ago -- suddenly seems destined to retreat to the 80.00 zone in fairly short order. An eventual break of the Dec-08 low at 77.68 would put the all-time dollar low from last Mar at 70.70 back in play.
So the world's largest economy has resorted to printing money and buying it's own debt. How do you suppose the rest of the world is going to react to that? The SNB just intervened last week to devalue the Swiss franc; how will they feel about USD-CHF suddenly being lower then where they intervened?

Will they intervene again to weaken CHF? How will the BOJ, ECB and BOE respond? Might the currency war just have been taken to a whole new level? Has the competitive currency devaluation that we all feared, now begun in earnest?

The truth is, as we discussed in our most recent USAGOLD RoundTable discussion, it is becoming increasingly difficult to predict just what might happen next. This uncertainty is just the circumstance that calls for a safe-haven asset. Something solid, something that has withstood the test of time. A place to store at least a portion of the wealth you have accumulated until the dust settles and some semblance of normalcy returns to global markets.

I surmised in my last report that SNB intervention effectively took the Swiss franc off the table as a viable safe-haven. I would now argue that the safe-haven appeal of the dollar has been severely eroded as well.

What's left? The yen? I think the BOJ is going to do whatever is necessary to prevent safe-haven flows into the yen in an all-out effort to protect their export market.
Gold. Gold is what's left.

Opinions expressed in commentary on the USAGOLD.com website do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. Centennial Precious Metals, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD - Centennial Precious Metals does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Pete Grant is the Senior Metals Analyst and an Account Executive with USAGOLD - Centennial Precious Metals. He has spent the majority of his career as a global markets analyst. He began trading IMM currency futures at the Chicago Mercantile Exchange in the mid-1980's. In 1988 Mr. Grant joined MMS International as a foreign exchange market analyst. MMS was acquired by Standard & Poor's a short time later. Pete spent twelve years with S&P - MMS, where he became the Senior Managing FX Strategist. As a manager of the award-winning Currency Market Insight product, he was responsible for the daily real-time forecasting of the world's major and emerging currency pairs, along with the precious metals, to a global institutional audience. Pete was consistently recognized for providing invaluable services to his clients in the areas of custom trading strategies and risk assessment. The financial press frequently reported his personal market insights, risk evaluations and forecasts. Prior to joining USAGOLD, Mr. Grant served as VP of Operations and Chief Metals Trader for a Denver based investment management firm.

Anglo breaks its links to gold

Sale of AngloGold Ashanti ends era

ANGLO American’s $1.28-billion (R12.6-billion) sales of its residual 11.3 percent holding in AngloGold Ashanti came sooner than some analysts had been expecting.

The group no longer has any interests in gold and the sale of its last-remaining interest in AngloGold means that its exposure to South African mining is largely in coal, platinum, iron ore and, indirectly through De Beers, diamonds.

The group has been reducing its exposure to gold, particularly as South Africa’s production of the metal is in an irreversible decline.

The AngloGold shareholding has been bought by Paulson & Co, a US investment firm that has been successful in hedge fund operations during the current recession.
Inevitably, perhaps, the sale to a leading hedge fund manager is seen by pro-gold commentators as a bet against currencies, particularly the dollar.

Mark Cutifani, AngloGold’s chief executive, has expressed his pleasure that a company of Paulson’s status has chosen AngloGold as a means of increasing its exposure to gold. As for Anglo , the group said the sale proceeds will be used for “general corporate purposes”.
The total amount will have to be repatriated to South Africa in terms of the country’s exchange control regulations, though this is a technicality as it means the future investments here will require less foreign funding.

At the end of 2008, Anglo had borrowings totalling $2.4-billion and an average interest rate of 12 percent in South Africa out of a total global net debt of $11-billion.
The debt was largely racked up in the purchase of Brazilian iron ore interests, whose prospects are currently less promising than at the time of acquisition.

As a result, Anglo has been scrambling to reduce its gearing, with the sale of AngloGold the only real immediate prospect. Dividend payments have been halted and capital spending projects deferred, underscoring the pressure on the group’s balance sheet.

Company insiders have insinuated that management would like to get rid of the currently cash-guzzling 45 percent interest in De Beers, but that presupposes a buyer with the cash and stomach for a diamond market that is falling rapidly as the recession bites.

Is Gold Really the Safest Investment?

Gold is on the move. As the price of gold threatens to push permanently above $1000 per ounce, it raises questions about why gold is becoming such a hot commodity and whether it truly is a safe harbor.

There is no question that gold's price run up is purely speculative. Since the beginning of 2009, the number of outstanding shares in the SPDR Gold Trust (NYSE: GLD), the most popular exchange-traded gold fund, has already climbed about 33%. Demand for gold has increased significantly.

But why? At such high prices, gold ceases to have much practical use. There is no theoretical rationale why anyone should even want to invest in it. Gold has value only because we believe that it is valuable. It is a collective hallucination.(See "What Sells in a Recession: Canned Goods and Condoms.")

There is something else which we use every day that, like gold, has no inherent value: cash.

Of course, there's a major difference between gold and cash: Unlike the dollar, the United States government is not going to impact the non-dollar value of gold significantly — only its price in dollars via the government's impact on the dollar.

And currency explains why gold has not yet made a clear jump above the historic high set a year ago — in U.S. dollars, that is. The dollar has appreciated enormously during the global economic slowdown. All else being equal, this lowers the price of gold for U.S. investors buying with dollars.

Independent of the dollar, gold has actually increased considerably in value. Indeed, the prices of gold in Euros, British pounds, and Canadian dollars set their all-time highs, by a large margin, in 2009.

The supply of gold is also a factor in pricing. Many investors holding gold reserves have faced losses in their other assets, which would have led them to sell their gold. Ordinary people, too, have motive to sell their gold jewelry during a recession, which should increase the supply of gold on the open market and impede a price hike.

As a parallel, much of oil's decline in prices since the summer arose from speculators' unwinding their positions, as they needed to liquidate to cover losses. But gold prices have not followed oil prices downhill. It is clear that new money has entered the gold market. Many who sold their stocks and other assets have reallocated into the gold market, instead of leaving it to cover losses.

In the face of appreciation of the dollar and a financial meltdown, dollar denominated gold has still managed to hang in there, near its high. Speculation remains rampant.

But the speculation in the gold market is nothing like speculation in other markets. Unlike oil, gold is not consumed, and even when it is used in products like jewelry, it is recoverable and thus maintains its value as the gold that went into it. In other words, the total supply of gold is increasing with gold mining.

Most speculation is motivated by the desire for profit. It seems that recent interest in gold is instead motivated by the desire to maintain value. After all, the price of gold in dollars has not shown a steady return. As the government continues to enact costly but what many believe to be inadequate solutions to the financial crisis, investors fear the worst for the future of the economy and the future of the dollar. Thus, the price of gold has become a measurement of confidence in the government to handle the crisis.

Traditionally, gold has been a store of value when citizens do not trust their government politically or economically. In Asia, ordinary people —not investors by any means — have historically held tremendous amounts of gold in jewelry. Now that same concept has extended to more sophisticated investors, who do not hold gold in jewelry, but instead in bars and derivative contracts.

Gold, then, can be considered a currency, unique in that it is not directly tied to any country's economy. With a global recession that is bound to continue to shake up the purchasing power of all foreign currencies, gold is safer than cash from political and economic instability.

So is it time to put all of your money into gold? That depends on your appetite for risk. The sheer amount of speculation in gold and uncertainty in the foreign exchange market will keep gold prices as volatile and unpredictable (i.e., risky") as ever. Like any financial market, the gold market is susceptible to manipulation.

But a small percentage of your assets in gold could serve as a hedge against an exacerbated crisis. At the very least, hold onto your jewelry .

Falling In Love with the Sucker Rally

The market rise of the last two weeks has been described as a "sucker" or a bear market rally. One means about the same as the other. The premise is that the long term trend of the indexes is down. Once in awhile, investors will stir from their depressions to watch the dead cat bounce. In this case, the Dow is up 10% since March 9.

The last long rally the market had ran from March of 2003, when the DJIA was 7,740 to almost 14,100 in October 2007. An investor in an index fund doubled his money and did even better if dividends were factored in. No one calls the long leg up in the market a sucker rally, but it was for those who did not sell their stocks until early this month when the Dow dropped below 6,600. (See pictures of the Top 10 scared traders.)

What defines a sucker rally is simply a matter of perspective, and, more importantly, when investors buy and sell. Someone with the fortitude or foresight to buy Citigroup (C) earlier this month at $1 would have had a return of two-and-a-half times in a matter of days. It is pointless to figure out what that would be on an annualized basis. Citi is not going to $5,000 in the next year, so doing the math doesn't matter. (See pictures of TIME's Wall Street covers.)

A well timed investment in GE (GE) could be worth a 71% return, also in less than a month. Sirius (SIRI) is up 7x from its low of $.05 which was set only a month ago. Even Apple (AAPL) has moved up 27% in a very short period of time. There really is not any such thing as a sucker rally. There are only suckers. In the long bull market that stretched over nearly four years, many investors who made five or six times their initial investment did not cash out in 2007. Some did not take even a small part of their gains and put them into CDs or yen futures. They just let the money ride which means that they assumed that the market was due to double again.

The last two weeks of explosive movement in the market will not continue. The market may have made a turn, and it may trade much higher in a year than it does now. But, a 10% return every two weeks is less probable than the Republic of Madagascar putting a man on the moon during the next decade.

People who give investment advice make their living getting other people to gamble their money away. These advisers want people to listen to predictions which could cause them to lose their life's savings. Owning a stock that is up by a factor of three or four times in less than a month is a blessing, perhaps not a celestial one, but it is a sign, at least, that fate has been kind. Even the most fabulously gifted investor in the world could not have predicted that Citigroup shares would rebound so far, so fast. (See the Top 10 TV feuds.)

Someone will sell Citigroup tomorrow, and someone else will hold it while it goes to $5 or back to $1.

— Douglas A. McIntyre

Source TIME