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Saturday, February 28, 2009

Waffen Buffet says USA Economy is in Shambles ?

Following Berkshire Hathaway Inc.'s worst year on record, Chairman Warren Buffett told shareholders Saturday that the economy would remain in "shambles" during 2009 and beyond, offering no prediction about the future may hold for U.S. stocks.
In his annual letter to shareholders -- eagerly anticipated by investors for the insights it may hold into his thinking -- Buffett said neither he nor Charlie Munger, his long-time partner in running Omaha-based Berkshire (BRKB:
Berkshire Hathaway Inc

"We're certain, for example, that the economy will be in shambles throughout 2009 -- and, for that matter, probably well beyond -- but that conclusion does not tell us whether the stock market will rise or fall," Buffett wrote.
Buffett, known as the "Oracle of Omaha," admitted to mistakes last year. "During 2008 I did some dumb things in investments," he said. One such error, he said, was the purchase of a large amount of Conoco Phillips Inc. (COP:

COP 37.35, -1.10, -2.9%) stock when oil and gas prices were nearing peak levels.
"I in no way anticipated the dramatic fall in energy prices that occurred in the last half of the year," he said. "I still believe the odds are good that oil sells far higher in the future than the current $40-to-$50 price. But so far I have been dead wrong. Even if prices should rise, moreover, the terrible timing of my purchase has cost Berkshire several billion dollars."
Buffett also said his acquisition of shares in two Irish banks have turned out badly -- with losses of more than 89%.
On the positive side, the investor is pleased with buys totaling $14.5 million in fixed-income securities issued by General Electric Co. (GE:
General Electric Company

GS 91.08, -1.07, -1.2%) and William Wrigley Co. "We very much like these commitments, which carry high current yields that, in themselves, make the investments more than satisfactory. But in each of these three purchases, we also acquired a substantial equity participation as a bonus."
The per-share book value of both Class A and Class B shares of Berkshire fell 9.6%, Buffett said.
The company's net income fell to $4.99 billion from $13.21 billion in 2007.
The 78-year-old billionaire said that although the market value of bonds and stocks the company still holds have dropped dramatically along with the broader market, Berkshire is not bothered by those decreases. "Indeed, we enjoy such price declines if we have funds available to increase our positions. ... Whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down."
On the lookout for inflation
'Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown. Had that occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.'
— Warren Buffett
Commenting on the federal government's actions to resolve the economic crisis, Buffett said: "Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects."
Inflation is likely to be one such effect, Buffett said.
"Moreover, major industries have become dependent on federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won't leave willingly."
However, said Buffett, the U.S. government did need to take "strong and immediate action" to avoid a "total breakdown" of the economy.
With regard to the subprime mortgage crisis, Buffett said lenders and buyers have to get back to a basic equation. "The present housing debacle should teach home buyers, lenders, brokers and government some simple lessons that will ensure stability in the future. Home purchases should involve an honest-to-God down payment of at least 10% and monthly payments that can be comfortably handled by the borrower's income. That income should be carefully verified."
He pointed out that the U.S. has overcome much worse obstacles in the past. "Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead."
With sizable interests in many of the largest publicly held U.S. corporations, Berkshire's book value was likely hit by the falling price of investments in banks and other financial-services companies including Well Fargo & Co. (WFC:
Wells Fargo & Company

MTB 36.60, -3.15, -7.9%)
Those stocks dropped 34% on average during the fourth quarter. Such losses aren't realized, so they won't affect Berkshire's quarterly earnings.
Buffett cops to mistakes, likes longer-term horizon
However, Buffett prefers to be judged on Berkshire's book value, which measures the company's assets minus liabilities. Gary Ransom, an analyst at Fox-Pitt Kelton, expected the company's book value to decline by 8% in the fourth quarter.
"He's really getting hit because he has a lot of credit-sensitive businesses," said Jeff Auxier, manager of the Auxier Focus Fund, who owns Berkshire shares.
Berkshire's Class A shares have dropped 44% in the past year and hit a 5 1/2-year low of $73,500 earlier this week. The Class B shares carry 1/30th the economic value of the Class A shares.
The last time Berkshire stock slumped to multiyear lows was about nine yeard ago, when Buffett was famously scorned for missing out on the dot-com boom. He shunned technology stocks in the late 1990s, missing out on huge gains, but when the sector crashed from 2000 through 2002, Berkshire shares almost doubled, vindicating the investor.
However, as the housing and credit markets boomed later on in the decade, Berkshire's stakes in financial-services companies like American Express and Wells Fargo remained large, even as he warned that the bubble might burst. See full story.
"He's the best out there, but it's amazing to see how Berkshire was so concentrated in financials," Auxier said.
'Too fast'
Berkshire waded further into the financial sector during the fourth quarter ,when Buffett bought $5 billion in the preferred stock of investment bank Goldman Sachs.
He also invested $3 billion in preferred shares issued by GE, which has a large, struggling financial-services unit called GE Capital. Blue chip GE announced a sizable dividend cut on its common shares on Friday. See full story.
The deals came with warrants that give Berkshire the right to buy 43.5 million Goldman shares at $115 each and 134.8 million shares of GE at $22.25 each. These contracts expire in October 2013.
Both Goldman and GE shares currently trade below these levels, battered by the financial crisis. Specifically, Goldman dropped 27% since Buffett's investment in the firm was announced Sept. 23, while GE plunged fully 65% since Berkshire unveiled its investment in the industrial conglomerate on Oct. 1.
'He dove in too fast and probably wishes he had waited a few months. ... No one, not even Buffett, can call the bottom.'
— Mark Sellers, Sellers Capital
Soon after, Buffett wrote in a New York Times editorial that he'd been buying U.S. stocks for his personal account and recommended that other long-term investors do so too.
Since that Oct. 17 article, the S&P 500 Index ($SPX:
S&P 500 Index
$SPX 735.09, -17.74, -2.4%) has slumped 22%.
"He dove in too fast and probably wishes he had waited a few months," said Mark Sellers, managing partner of hedge fund Sellers Capital LLC. "He hoarded cash for years, waiting, waiting, and then used a lot of it very quickly. No one, not even Buffett, can call the bottom."
Indeed, Buffett was clear in his Oct. 17 editorial that he can't predict the short-term movements of the stock market and has no idea whether stocks will be higher a year from now. However, he stressed that "major" U.S. companies will be generating record profits in five to 20 years' time.
Buying some protection
Many of Buffett's recent investments also have been made further up the capital structure of companies, giving him more protection, commented Sellers.
Preferred shares are senior to common stock and also pay large dividends. Goldman and GE are paying Berkshire 10% a year in dividends for five years.

Monday, February 23, 2009

Dow 4,000 ?

There are few steadfast investing principles. Dynamic markets constantly change and investors must be willing to adapt their strategies. However, one rule we should always follow is to trade with the primary trend. Trying to trade against the underlying current of the market will surely result in losses. Those doing so think of themselves as contrarians. In reality, they are foolish.
For months in my weekly newsletter EPIC Insights, I have repeatedly stated that the primary trend is bearish. When stock markets worldwide hit synchronized lows in November 2008, we were given notice. During the subsequent rally, markets began diverging and raised hopes that the primary trend was changing. This week that hope was crushed. As the chart shows, last week markets pushed to synchronized 2009 lows, on many occasions violated their 2008 lows, and have reinforced the primary trend as bearish:
Index Prior Low Date of Low Recent Low Date of Low New Low?
Dow Jones Industrial 7,552 11/20/2008 7,366 2/20/2009 Yes
Dow Jones Transport 2,989 11/20/2008 2,699 2/20/2009 Yes
NASDAQ 1,316 11/20/2008 1,440 1/20/2009 No
S&P 500 752 11/20/2008 770 2/20/2009 No
Wilshire 5000 7,451 11/20/2008 7,750 2/20/2009 No

FTSE 100 3,781 11/21/2008 3,889 2/20/2009 No
DAX Index 4,127 11/21/2008 4,015 2/20/2009 Yes
CAC 40 2,881 11/21/2008 2,751 2/20/2009 Yes
NIKKEI 225 7,163 10/27/2008 7,416 2/20/2009 No

With a primary bear market, we are unable to predict either the duration or severity of price declines. Instead, we turn to past experiences to guide us. Unfortunately, nothing in the past indicates promise for the immediate future.
For the economy, the current downtrend has already reached levels of prior deep recessions. However, as the storm clouds continue gathering we should expect this downturn to be more severe than any since the Great Depression. With indecisive policymakers who have used all traditional stimulative actions (i.e., interest rate reductions from the Federal Reserve and increased spending from the Federal government), we face an uncertain world with few concrete answers. Having used debt to finance our lifestyles for nearly 60 years, Americans are being forced to reduce debt and curtail spending. This combination should result in more economic malaise over the coming months.
Looking at stock market performance over prior bear markets, as shown in the following table, the picture this time around is equally bleak.
Bear Market Date of Market Date of Value
Market Peak Peak Bottom Bottom Lost Duration
1929 Crash 381 9/3/1929 41 7/8/1932 -89% 714 days
1968-1970 985 12/3/1968 631 5/26/1970 -36% 368 days
1973 -1974 1,052 1/11/1973 578 12/6/1974 -45% 482 days
2001-2002 11,338 5/21/2001 7,286 10/9/2002 -36% 347 days
NASDAQ 5,049 3/10/2000 1,114 10/9/2002 -78% 648 days
Current 14,165 10/9/2007 7,366 2/20/2009 -48% 344 days

While the current bear market has erased 48%, in line with the declines seen in most bear markets, the duration of 344 days is the shortest on record. If you follow the belief that this bear market is unwinding 60 years of excess spending, we should expect the Dow to lose at least 70% from peak to trough and the bear market to last in excess of 600 days. Combining these data points, the market may not bottom until the Dow approaches 4,000 sometime in the next 9 to 12 months.
Finally, most major bear markets do not end until prices have reached bargain levels. This often equaled a P/E multiple near 6-7 and a dividend yield in the same area. Currently the Dow sports an estimated P/E of 11 and a dividend yield of 4.3%. In order to achieve bargain levels, the Dow would need to trade near 4,000.
The picture painted here is very ugly. Most investors have a great deal of difficulty accepting the belief that the Dow could trade to such levels. I hope I am being overly cautious, but fear my analysis will prove correct. With such a drastic selloff predicted, earning meaningful returns will be difficult. Becoming excessively short stocks will provide the opportunity to be forced from your position by unexpected bear market rallies, while going long stocks that seem cheap will lead to losses and frustration as those cheap stocks become cheaper. Instead, I will stick to my core competencies as a value investor and search for cheap stocks that offer limited risk and outstanding return potential. However, I will not buy these shares blindly but will look to use index exposure to hedge all my risks.
Continuing a theme used in last week’s fundamental trade, I advise readers to become more short of the broad market. Last week, we shorted SPDR Trust (SPY) and iShares MSCI EAFE Index Fund (EFA) with excellent results. This week’s trade entails using options on SPY as a means to profit. Using a September 2009 expiration, I recommend shorting the SPY 77 calls (ROQ+IY) and using the proceeds to buy the SPY 77 puts (ROQ+UY) as this week’s fundamental trade. Cover 5% of your portfolio with this trade (six contracts for my portfolio).
By EpicAdv

Tuesday, February 17, 2009

Sirius Is Saved ?

won’t have to file for bankruptcy today after Liberty Media Corp. agreed to invest $530 million to rescue the satellite radio broadcaster, the companies announced Tuesday.

Engelwood-based Liberty, the media and entertainment company founded by John Malone, will immediately loan Sirius $280 million, about $171 million of which will to pay off debt Sirius had coming due this week.

A second round of $250 million from Liberty (NASDAQ: LCAPA) will also be available to Sirius XM to help it pay its debts and ward off a potential takeover of Sirius by Charlie Ergen’s Dish Network Corp., the Englewood-based satellite TV company.

In return for the investment in Sirius, Liberty Media will own 12.5 million shares of preferred stock in Sirius XM (NASDAQ: SIRI) that Liberty can convert into common stock.

That would give Liberty a 40 percent ownership stake in the radio company.

Malone and Liberty Media CEO Greg Maffei are expected to join the Sirius XM board of directors.

"We are excited to be investing in Sirius XM. We have been impressed with the company, its operations and management team," said Greg Maffei, president and CEO of Liberty, in a written statement. "Sirius XM's ability to grow subscribers and revenue in a difficult financial and auto market is indicative of how listeners view this as a 'must have' service."

Mel Karmazin, CEO of Sirius XM, called the deal with Liberty remarkable given today’s capital market’s, and validation of what the company envisioned when it merged the nation’s two satellite radio companies last year.

“This agreement enables Sirius XM to continue to develop the opportunities first outlined in the merger of Sirius and XM,” Karmazin said. “By strengthening our capital structure and enhancing our financial flexibility, this investment allows us to continue providing the great content and innovative programming our subscribers know and love.”

Monday, February 9, 2009

15 companies , are going out of bussiness ?

15 Companies That Might Not Survive 2009
R. Newman

With consumers shutting their wallets and corporate revenues plunging, the business landscape may start to resemble a graveyard in 2009. Household names like Circuit City and Linens 'n Things have already perished. And chances are, those bankruptcies were just an early warning sign of a much broader epidemic.

Moody's Investors Service, for instance, predicts that the default rate on corporate bonds - which foretells bankruptcies - will be three times higher in 2009 than in 2008, and 15 times higher than in 2007. That could equate to 25 significant bankruptcies per month.

We examined ratings from Moody's and data from other sources to develop a short list of potential victims that ought to be familiar to most consumers. Many of these firms are in industries directly hit by the slowdown in consumer spending, such as retail, automotive, housing and entertainment.

But there are other common threads. Most of these firms have limited cash for a rainy day, and a lot of debt, with large interest payments due over the next year. In ordinary times, it might not be so hard to refinance loans, or get new ones, to help keep the cash flowing. But in an acute credit crunch it's a different story, and at companies where sales are down and going lower, skittish lenders may refuse to grant any more credit. It's a terrible time to be cash-poor.

[See how Wall Street continues to doom itself.]

That's why Moody's assigns most of these firms its lowest rating for short-term liquidity. And all the firms on this list have long-term debt that Moody's rates Caa or lower, which means the borrower is considered at least a "very high" credit risk.

Once a company defaults on its debt, or fails to make a payment, the next step is usually a Chapter 11 bankruptcy filing. Some firms continue to operate while in Chapter 11, retaining many of their employees. Those firms often shed debt, restructure, and emerge from bankruptcy as healthier companies.

But it takes fresh financing to do that, and with money scarce, more bankrupt firms than usual are likely to liquidate - like Circuit City. That's why corporate failures are likely to be a major drag on the economy in 2009: In a liquidation, the entire workforce often gets axed, with little or no severance. That will only add to unemployment, which could hit 9 or even 10 percent by the end of the year.

[Want to land a plum job without paying taxes? Here's how.]

It's possible that none of the firms on this list will liquidate, or even declare Chapter 11. Some may come up with unexpected revenue or creative financing that helps avert bankruptcy, while others could be purchased in whole or in part by creditors or other investors. But one way or another, the following 15 firms will probably look a lot different a year from now than they do today:

Rite Aid. (Ticker symbol: RAD; about 100,000 employees; 1-year stock-price decline: 92%). This drugstore chain tried to boost its performance by acquiring competitors Brooks and Eckerd in 2007. But there have been some nasty side effects, like a huge debt load that makes it the most leveraged drugstore chain in the U.S., according to Zacks Equity Research. That big retail investment came just as megadiscounter Wal-Mart was starting to sell prescription drugs, and consumers were starting to cut bank on spending. Management has twice lowered its outlook for 2009. Prognosis: Mounting losses, with no turnaround in sight.

Claire's Stores. (Privately owned; about 18,000 employees.) Leon Black's once-renowned private-equity firm, the Apollo Group, paid $3.1 billion for this trendy teen-focused accessory store in 2007, when buyout funds were bulging. But cash flow has been negative for much of the past year and analysts believe Claire's is close to defaulting on its debt. A horrible retail outlook for 2009 offers no relief, suggesting Claire's could follow Linens 'n Things - another Apollo purchase - and declare Chapter 11, possibly shuttering all of its 3,000-plus stores.

[See 5 pieces missing from Obama's stimulus plan.]

Chrysler. (Privately owned; about 55,000 employees). It's never a good sign when management insists the company is not going out of business, which is what CEO Bob Nardelli has been doing lately. Of the three Detroit automakers, Chrysler is the most endangered, with a product portfolio that's overreliant on gas-guzzling trucks and SUVs and almost totally devoid of compelling small cars. A recent deal with Fiat seems dubious, since the Italian automaker doesn't have to pony up any money, and Chrysler desperately needs cash. The company is quickly burning through $4 billion in government bailout money, and with car sales down 40 percent from recent peaks, Chrysler may be the weakling that can't cut it in tough times.

Dollar Thrifty Automotive Group. (DTG; about 7,000 employees; stock down 95%). This car-rental company is a small player compared to Enterprise, Hertz, and Avis Budget. It's also more reliant on leisure travelers, and therefore more susceptible to a downturn as consumers cut spending. Dollar Thrifty is also closely tied to Chrysler, which supplies 80 percent of its fleet. Moody's predicts that if Chrysler declares Chapter 11, Dollar Thrifty would suffer deeply as well.

Realogy Corp. (Privately owned; about 13,000 employees). It's the biggest real-estate brokerage firm in the country, but that's a bad thing when there are double-digit declines in both sales and prices, as there were in 2009. Realogy, which includes the Coldwell Banker, ERA, and Sotheby's franchises, also carries a high debt load, dating to its purchase by the Apollo Group in 2007 - the very moment when the housing market was starting to invert from a soaring ride into a sickening nosedive. Realogy has been trying to refinance much of its debt, prompting lawsuits. One deal was denied by a judge in December, reducing the firm's already tight wiggle room.

[See why "Wall Street talent" is an oxymoron.]

Station Casinos. (Privately owned, about 14,000 employees). Las Vegas has already been creamed by a biblical real-estate bust, and now it may face the loss of its home-grown gambling joints, too. Station - which runs 15 casinos off the strip that cater to locals - recently failed to make a key interest payment, which is often one of the last steps before a Chapter 11 filing. For once, the house seems likely to lose.

Loehmann's Capital Corp. (Privately owned; about 1,500 employees). This clothing chain has the right formula for lean times, offering women's clothing at discount prices. But the consumer pullback is hitting just about every retailer, and Loehmann's has a lot less cash to ride out a drought than competitors like Nordstrom Rack and TJ Maxx. If Loehmann's doesn't get additional financing in 2009 - a dicey proposition, given skyrocketing unemployment and plunging spending - the chain could run out of cash.

Sbarro. (Privately owned; about 5,500 employees). It's not the pizza that's the problem. Many of this chain's 1,100 storefronts are in malls, which is a double whammy: Traffic is down, since consumers have put away their wallets. Sbarro can't really boost revenue by adding a breakfast or late-night menu, like other chains have done. And competitors like Domino's and Pizza Hut have less debt and stronger cash flow, which could intensify pressure on Sbarro as key debt payments come due in 2009.

Six Flags. (SIX; about 30,000 employees; stock down 84%). This theme-park operator has been losing money for several years, and selling off properties to try to pay down debt and get back into the black. But the ride may end prematurely. Moody's expects cash flow to be negative in 2009, and if consumers aren't spending during the peak summer season, that could imperil the company's ability to pay debts coming due later this year and in 2010.

Blockbuster. (BBI; about 60,000 employees; stock down 57%). The video-rental chain has burned cash while trying to figure out how to maximize fees without alienating customers. Its operating income has started to improve just as consumers are cutting back, even on movies. Video stores in general are under pressure as they compete with cable and Internet operators offering the same titles. A key test of Blockbuster's viability will come when two credit lines expire in August. One possible outcome, according to Valueline, is that investors take the company private and then go public again when market conditions are better.

Krispy Kreme. (KKD; about 4,000 employees; stock down 50%). The donuts might be good, but Krispy Kreme overestimated Americans' appetite - and that's saying something. This chain overexpanded during the donut heyday of the 1990s - taking on a lot of debt - and now requires high volumes to meet expenses and interest payments. The company has cut costs and closed underperforming stores, but still hasn't earned an operating profit in three years. And now that consumers are cutting back on everything, such improvements may fail to offset top-line declines, leading Krispy Kreme to seek some kind of relief from lenders over the next year.

Landry's Restaurants. (LNY; about 17,000 employees; stock down 66%). This restaurant chain, which operates Chart House, Rainforest Café, and other eateries, needs $400 million in new financing to finalize a buyout deal dating to last June. If lenders come through, the company should have enough cash to ride out the recession. But at least two banks have already balked, leading to downgrades of the company's debt and the prospect of a cash-flow crunch.

Sirius Satellite Radio. (SIRI - parent company; about 1,000 employees; stock down 96%). The music rocks, but satellite radio has yet to be profitable, and huge contracts for performers like Howard Stern are looking unsustainable. Sirius is one of two satellite-radio services owned by parent company Sirius XM, which was formed when Sirius and XM merged last year. So far, the merger hasn't generated the savings needed to make the company profitable, and Moody's thinks there's a "high likelihood" that Sirius will fail to repay or refinance its debt in 2009. One outcome could be a takeover, at distressed prices, by other firms active in the satellite business.

Trump Entertainment Resorts Holdings. (TRMP; about 9,500 employees; stock down 94%). The casino company made famous by The Donald has received several extensions on interest payments, while it tries to sell at least one of its Atlantic City properties and pay down a stack of debt. But with casino buyers scarce, competition circling, and gamblers nursing their losses from the recession, Trump Entertainment may face long odds of skirting bankruptcy.

BearingPoint. (BGPT; about 16,000 employees; stock down 21%). This Virginia-based consulting firm, spun out of KPMG in 2001, is struggling to solve its own operating problems. The firm has consistently lost money, revenue has been falling, and management stopped issuing earnings guidance in 2008. Stable government contracts generate about 30 percent of the firm's business, but the firm may sell other divisions to help pay off debt. With a key interest payment due in April, management needs to hustle - or devise its own exit strategy.

Tuesday, February 3, 2009

Chapter 11 for Sirius Satellite Radio ?

Sirius XM (NASDAQ: SIRI) is up against debt payments that its management has been saying would not be a problem.

According to The Wall Street Journal, "Sirius XM Satellite Radio Inc. is facing an important test of its viability this month: how it handles $174.6 million in debt coming due Feb. 17." Since the company has not reported its fourth quarter, no one knows for certain how much cash Sirius has. More debt payments are due later in the year.

Could the debt problem this month push Sirius into Chapter 11? It is impossible to tell, but the obligation has not been renegotiated or replaced with new debt.

Sirius may be best off in Chapter 11, given its huge debt load. Without that anchor it could operate more freely. The company's core business may be attractive enough to attract debtor-in-possession financing to get Sirius through the process.

At $0.12 a share, Sirius already trades like it is bankrupt. It ought to look at the airline industry and see how well Chapter 11 can work.

Monday, February 2, 2009

Buy Gold ?? Info why and why not !

Gold Falls ?

(Bloomberg) -- Gold fell for the first time in three sessions as some investors sold the metal after a rally to the highest price since July. Silver also declined.

The seven-day relative strength index for gold futures topped 70 on Jan. 30, a signal that prices may drop in the near term. Gold gained 5 percent last month, driving investment in the SPDR Gold Trust, the biggest exchange-traded fund, or ETF, backed by bullion, to a record 843.6 metric tons on Jan. 29.

“Gold is overextended to the upside and we’ve sold some calls against our gold ETF,” said Dennis Gartman, an economist and editor of the Gartman Letter in Suffolk, Virginia. “There is growing interest in gold and we remain bullish of it. We were a bit concerned at the overbought nature of the market.”

Gold futures for April delivery fell $11.30, or 1.2 percent, to $917.10 an ounce at 12:17 p.m. on the New York Mercantile Exchange’s Comex division. The contract gained 4.3 percent in the previous two sessions to settle at $928.40 on Jan. 30. The most-active contract last closed higher on July 28.

Silver futures for March delivery slid 6 cents, or 0.5 percent, to $12.505 an ounce. The metal slumped 24 percent in 2008 while gold gained 5.5 percent.

Investment in Barclays Plc’s IShares Silver Trust, the biggest ETF backed by silver, also rose to a record last week, topping 7,453.2 metric tons on Jan. 27.

Buying Opportunity

Still, a drop in prices may be a buying opportunity for investors seeking a store of value in precious metals, analysts said. The Standard & Poor’s 500 Index fell 8.6 percent last month, the steepest January decline on record, while the Reuters/Jefferies CRB Index of 19 raw materials lost 4 percent.

“The search for safe havens is still a major factor driving investor decisions,” said James Turk, founder of, which held $548 million in gold and silver for investors at the end of January. “Gold is the safest haven of all. Gold will continue to benefit from all the monetary turmoil and worries about insolvent banks.”

USA Spending Falls ?

U.S. Consumer Spending Falls for Sixth Straight Month

By T. Homan

(Bloomberg) -- Consumer spending in the U.S. fell in December for a record sixth consecutive month, capping the worst year since 1961, a slump that is likely to persist as companies slash payrolls.

The 1 percent drop in purchases was larger than forecast and followed a 0.8 percent decrease in November, the Commerce Department said today in Washington. The Federal Reserve’s preferred measure of inflation was little changed for a third month.

The loss of almost 2.6 million jobs last year and record declines in home values have shaken confidence, indicating sales and prices are likely to keep retreating. President Barack Obama is pushing Congress to approve a stimulus package that includes tax cuts intended to boost consumer spending.

“Consumers continue to be pulling back, and the pace of that does not appear to be easing,” said Julia Coronado, a senior economist at Barclays Capital Inc. in New York, which accurately forecast the drop in spending. “Consumers are not going to be spending anytime soon.”

Economists forecast spending would fall 0.9 percent, according to the median of 61 estimates in a Bloomberg News survey. Projections ranged from declines of 0.6 percent to 1.7 percent.

Incomes Drop

Today’s report also showed incomes fell 0.2 percent in December, the third straight decline, after a 0.4 percent decrease the prior month. It was the longest stretch of decreases since the three months ended in January 1954.

The figures raise more concerns about deflation as prices cool. The price gauge tied to spending patterns increased 0.6 percent from December 2007. The Fed’s preferred gauge of prices, which excludes food and fuel, was up 1.7 percent from December 2007, the smallest gain in almost five years.

Consumer spending rose 3.6 percent for all of 2008, the smallest gain since 1961.

Companies are slashing prices to attract shoppers during the recession, a move that is dragging down profits. EBay Inc., the world’s biggest Internet auctioneer, reported its first quarterly decline on Jan. 22. Revenue fell 6.6 percent to $2.04 billion as sellers cut prices and the company boosted promotions to lure more holiday customers.

The decrease in spending pushed the savings rate up to 3.6 percent from 2.8 percent in November. A positive rate suggests consumers are earning more than they are spending.

Disposable Income

Disposable income, or the money left over after taxes, increased 0.3 percent after adjusting for inflation.

Today’s report showed inflation-adjusted total spending dropped 0.5 percent following a 0.3 percent gain in November. Price-adjusted purchases of durable goods, such as autos, furniture, and other long-lasting items, decreased 0.8 percent. Purchases of non-durable goods decreased 1.8 percent, partly reflecting the slump in gasoline, and spending on services, which account for almost 60 percent of all outlays, climbed 0.1 percent.

Consumer spending dropped at a 3.5 percent annual pace in the fourth quarter after decreasing at a 3.8 percent pace in the previous three months, the Commerce Department said Jan. 30. It was the first time since records began in 1947 that declines in spending exceeded 3 percent in consecutive quarters. The economy shrank 3.8 percent, the most since 1982

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