Our Favorite Bartender, Gold Trade Reversal, The End of the Home Buyer Tax Credit and More!

by Addison Wiggin & Ian Mathias

• Time to vote: Baltimore’s Ultimate Bartender countdown ends today at 5 p.m.
• The gold world turned upside down: Key central bankers buying, Joe Six-pack couldn’t care less
• Homebuyer tax credit going out with a whimper: Four data points on housing, all lousy
• Knuckman on how far commodities can still bounce back
• The ultimate sign of fiscal distress: State prison populations falling

  So… your votes for Baltimore’s Ultimate Bartender yesterday got her past the 600 mark, as we set out to do. Trish is now vying for third place, with 11% of the total vote. We can do better!

Here’s how easy it is…

1. Click on this link.
2. Scroll down to “Mick O’Shea’s Irish Pub -- Tricia M.”
3. Dimple the chad.
4. Scroll further to the bottom and press “vote.”

That’s it. It’s free. It’s easy.

It will cost you nothing. You don’t have to “register” or give any personal information or anything like that. You’ll help a good kid out. You’ll enjoy the prestige of associating with Baltimore’s Ultimate Bartender and…

your editors might get some free pinot out of the deal. Heh.

It will only take 15 seconds. We’ll pause while you do it. Here’s the link again.

[pause]

Thanks.

Now back to our regularly scheduled forecast…

  The world is turning upside down when central bankers are accumulating gold and ordinary people are not.

Last year, central banks were net buyers of gold for the first time since 1988. In fact, they bought the most gold in any year since 1964. Total central bank holdings worldwide, according to the World Gold Council, grew by 425 metric tons last year.

True, that’s only 1.4% of the gold central banks already held. But it’s the trend that matters: China, India, and Russia all added to their reserves last year. And it fits into a bigger picture -- growing distrust of the world’s reserve currency.

"I think we already have a gold standard … created by the marketplace," says the inimitable Marc Faber. Not just the central banks, either: "We have the [exchange-traded funds] that have proliferated, and we have more and more physical buying of gold."

At least there’s more physical buying when it comes to the ultra-wealthy who can buy huge bars of the stuff. Retail investors who buy coins? Not so much.

  Sales of the popular Austrian Philharmonic gold coins have crashed 80% compared with a year ago. The numbers aren’t as dramatic in the United States, but still, sales of Gold Eagles in February fell 26% from year-ago figures.

“There’s no more upward surge in gold price to titillate buyers,” explains the Austrian mint’s veteran marketing director Kerry Tattersall. Plus, “a lot of people feel more relaxed about the economic crisis.”

  Then again, maybe most of the folks who have the means to buy gold have done so already… and those who don’t are buying silver. Sales of U.S Silver Eagles in the first two months of 2010 are up 40% compared with the same period in 2009, according to CPM Group. Many buyers are waiting up to three weeks for delivery.

We like silver, but we like a well-chosen silver miner even better. If you haven’t checked out Byron King’s report on the one he likes best, check this out. 

[Program note: We’ve also been conducting interviews with the world’s leading coin graders for a new seminar on the subject. The demand for reliable and accurate advice on collecting gold and silver coins among you is great and growing.]

After we get back from our Rancho Santana Reserve Chill Weekend next week, we’re going to be conducting the second of our educational ‘Webinars’ with our friend Nick Bruyer. This installment will focus on the exploding Chinese market for collectible coins. As with the last event, if you have specific questions you’d like us to pose to Nick, please send them ASAP.]

  Gold sits at $1,123 this morning, about where it sat at this time 24 hours ago. Oil has dropped back a tad below the $82 level.

  U.S. stocks opened flat this morning, traders bracing for “quadruple witching” options expiration. They were on tenterhooks yesterday too, itchy that the Federal Reserve might pull a repeat of its little trick last month -- raising the discount rate moments after the close, and a day before options expiration.

In the end, it didn’t happen, but Bloomberg dug up a few economists who ventured to say it may yet happen before the Federal Open Market Committee’s next meeting, in late April.

  “It’s important to understand the benefits of setting stop losses to protect your trades,” writes Greg Guenthner in a recent alert to Bulletin Board Elite readers. He was referring to a specific pick, but there’s a wider lesson here if you’re trading penny stocks and you already have a solid paper gain.

“You can revisit your stop loss if and when your stock moves up. That’s why you need to continue to monitor the position, updating your stop loss as the trade progresses. When the stock finds a new point of support, reset the stop loss directly below the new support. If it breaks the mark, sell and take your gains off the table.”

This is exactly the kind of strategic thinking Gunner has applied to bag gains of 50% and 65% just this week for readers of Bulletin Board Elite. We’re leaving access open one more day to fill the handful of available slots -- exactly 1.4% of the total -- before we reach BBE’s membership cap. For details, call my friend John Wilkinson at (866) 361-7662.

  The dollar index has jumped back past 80, to about 80.66. 

But the Canadian dollar has leapt even higher. The loonie reached parity with the greenback again this morning, thanks to the Canadian consumer price index coming in way higher than expected. It might be a momentary blip, though.

To our astonishment, lodging prices in the Vancouver area during the Olympics were one of the drivers behind the numbers. They’re already coming back to Earth, and if you register for the Agora Financial Investment Symposium, you can snag a room for a terrific rate. See here. Marc Faber, Doug Casey, Bill Bonner, Peter Schiff and David Walker are all among the speakers who’ve confirmed for the “can’t miss” event for the summer.

  The law of supply and demand is trumping the homebuyer tax credit. The glut of housing we mentioned on Tuesday is making itself evident with this news: The number of mortgage applications fell 1.9% last week. Both new purchases and refinances are down.

At this rate, Congress could repeal the homebuyer tax credit today, instead of allowing it to lapse on April 30, and no one would notice.

  Adding to the housing glut: An increase in the number of foreclosed homes that banks are looking to unload. That number was actually falling much of last year, as many homeowners were suspended in limbo, waiting to find out whether they qualified for permanent modifications under the HAMP program.

Now that HAMP has proven itself a miserable failure, some of those homes are coming to market. Thus, Barclays estimates the number of foreclosed homes held by banks and mortgage investors rose 4.6% between December and January.

Foreclosures now make up one out of every five homes listed for sale across the fruited plain.

  And don’t forget the “strategic default” phenomenon. Professor Luigi Zingales at the University of Chicago estimates 35% of home mortgage defaults in December were by folks who could keep up their payments, but decided it just wasn’t worth their while on an underwater property. Nine months earlier, it was only 23%.

And as more people do it, the stigma once attached to it falls away. “The risk that the number of people doing this might explode is significant,” says the professor.

  At this point, the housing glut appears to be self-reinforcing. The Census Bureau reports at least 6.6 million households had at least three generations under one roof in 2009. That was a 30% increase over 2000.

One in six Americans now lives in a home with at least two adult generations. Horror of horrors. What is becoming of the American Dream!?!

  Get set for another run-up in commodities, our resource man Alan Knuckman told CNBC yesterday.

“Commodities have not even retraced 50% from this last big drop. Whereas the stock market has already done so. And some stock indexes have retraced a full 100%. So I still see a 20% upside in commodities just to get back to that neutral 50% level where we’ve bounced off those lows and gotten back to more equilibrium.”

Of course, using Alan’s strategy, you can ride this 20% upside for gains of 56% or better. 56% was Alan’s average pick last year, including the losers. Check out Resource Trader Alert here.

(Oh, this just came in over the electronic transom as well. Alan’s in this MarketWatch article, commenting on the price of silver.)

  Now we really know state governments are in deep fiscal doo-doo: The state prison population fell last year for the first time since 1972. 1.4 million people were doing time in state prisons across the land at the end of 2009. That’s only 5,739 fewer than the previous year. But still, cash-strapped states like California and Michigan, forced to set priorities, are deciding nonviolent pot smokers aren’t worth the trouble to lock up.

Of course, unlike the states, the feds can print money… so the federal prison population grew by 6,838 last year, more than the state prison population fell. America retains its title of highest prison population in the world. Hooray!

  Doesn’t U.S. Customs have anything better to do than this? Our friends at Odyssey Marine tipped us off to this story: A while back, Customs seized 23 ancient coins here in Baltimore, valued at $275. (You read that figure right.) Seems a handful of the coins were minted in Cyprus during the reign of Alexander the Great.

And Cyprus has a “Memorandum of Understanding” with the United States to limit the sale of antiquities. Even when the antiquities are worth an average $12 each.

Customs is demanding the collectors track down the coins’ sale history before handing them over. Which is pretty hard to do when you’re talking about coins of such little relative value. The collectors are fighting back by suing both Customs and the State Department. They say State signed the memorandum with Cyprus against the advice of its own in-house experts, at the behest of do-gooder U.S. archaeologists.

We’ll keep our ear to the ground on this one…

  “As seen below,” a reader writes in response to yesterday’s report, “three financial indicators make up approximately 50% of Conference Board's Leading Economic Indicators (LEI), while the seven economic components make up the other 50%, with the M2 money supply alone making up 35.8% of the total.

“The more heavily the Fed pumps, the better things get -- or the worse they are?

“The LEI is more smoke and mirrors. This is not going to end well.”

The 5: Good point. We said LEI pointed toward a recovery. Not a healthy one. Or a lengthy one. Or a sound one. But a recovery all the same.

  “As to the reader who had to discontinue his Penny Sleuth subscription,” writes another, “why the inconsistency? Synthetic does not equal poison anymore than organic/natural equals beneficial.

“Just ask Socrates -- I'm certain the hemlock he swallowed was perfectly natural, without pesticides or preservatives and no factory alterations.”

  “To the reader who just cancelled a newsletter with Patrick Cox over the FDA criticisms:
 
“Don't cancel because you don't agree with the analyst's politics. The very fact that he's taking a stand on polarizing political issues tells you that you're not reading the typical media drivel, politically neutral, avoiding any feather ruffling of any powerful forces that you stand to loose money on. When you hear strong opinions, you can bet you’re actually getting an honest assessment.

“A year ago, I might have agreed with your faith in the FDA. I was a Clinton Democrat until this crisis forced me to reevaluate my faith in government. We have let the U.S. government get so enormously powerful to ostensibly protect us from every conceivable harm… while actually doing a surprising amount of harm.”

The 5: Patrick is about to recommend a company that’ll be taking advantage of a new “cut in line” pass at the FDA for a specific class of anti-viral drug. The new legislation allows for companies producing these drugs to save a significant amount of R&D loot by shortening the test period.

The passes will then be tradable on the open market… interesting concept… even more interesting investment. Details forthcoming.

Have a good weekend,

Addison Wiggin
The 5 Min. Forecast

P.S. The voting ends for Baltimore’s Ultimate Bartender at 5 p.m. EST today. If you didn’t take the opportunity to vote at the beginning of today’s episode, please do so now, here. “Mick O’Shea’s Irish Pub -- Tricia M.” 

G’head. It’s Friday. What else are you doing right now? Please vote. We never back politicians… but bartenders, you bet. Especially Trish. She’s great.

Thank you.

P.P.S. After a brief hiatus of several months, the Bonner Family Office is issuing new invitations for membership. If you missed out the first time, here’s another chance. Or look for more formal details in your inbox over the weekend.