Important News - Dec. 29

• 1) China becomes world’s biggest gold buyer in 2009

“World Gold Council (WGC) data reveals that for the first time in 21 years the world’s central banks have been net buyers of gold and China has been the biggest buyer this year, adding 454 tones to bring its central bank reserves to 1,054 tones.

Amid growing concern over the weakness of the dollar, about 28 billion U.S. dollars worth of bullion was bought by central banks this year, based on an average price of 978 U.S. dollars an ounce, according to the WGC.

The biggest buyers have been the emerging economies of China, Russia and India, but smaller countries such as the Philippines, Kazakhstan, Sri Lanka and Mexico have also been shifting their reserves into gold.

The value of the dollar, the default reserve currency for most countries, has fallen as investors have grown cautious about America’s huge debt burden and possible inflationary trends.”

• 2) Foreign central bank US debt holdings fell-Fed

“Foreign central banks’ holdings of U.S. Treasuries and agency debt at the Federal Reserve fell in the latest week, data from the U.S. central bank showed on Monday”

• 3) California Watch: Will California Default on Bond Debt in 2010? (A lot more info in the piece)

“LOS ANGELES (MNI) - As 2009 comes to a close, California’s economy remains severely weakened by the effects of almost two years of recession.

Economists predict that 2010 won’t be any better, as the state faces a $20.7 billion dollar budget deficit, some 60-plus legislators seek re-election or look to switch houses and talk of the state defaulting on its debt obligations has sent legislators and public officials behind closed doors to discuss the ramifications.

Not to mention, voters next year will chose a new governor to replace termed-out Gov. Arnold Schwarzenegger. In 2009, lawmakers and the governor labored for much of the year to close $60 billion in deficits, using budget tricks, cutting programs and raising some taxes.

With many of their ideas either having been exhausted, including borrowing local tax revenues, or state employee furloughs that have been challenged in court by labor unions, the pressure of the election will compound the process of approving a new state budget by June 30. ”

“”Lawmakers are looking for anything they can do as the recession has put a huge hole in their budget,” Jack Kyser, chief economist with the Los Angeles County Economic Development Corp., told Market News International. “The economic recovery in California will be a slow next year before getting better in 2011.”

Kyser cautioned that the threat of the state defaulting on its billions of dollars in bond debut has become a distinct possibility. ”

“He also warned that if the state defaults it would “freeze the market immediately for any government debt coming out of California.”

Bill Watkins, executive director the Center for Economic Research and Forecasting at California Lutheran University in Thousand Oaks, Calif., agreed and urged state officials to begin discussions with the Obama administration and the Federal Reserve in case California defaults on its debt.

“In my opinion, California is now more likely to default than it is to not default,” Watkins wrote in an economic forecast released Dec. 16. ”

• 4) Commercial real estate foreclosures more than double in Austin area

“A study of foreclosure postings by Foreclosure Listing Service Inc. indicated a 108 percent increase from 2008 in commercial real estate foreclosures in the Austin area.

The service reported that 851 postings were filed on commercial properties in 2009. Last year, there were 410 listings.

George Roddy Sr., president of Foreclosure Listing Service, said he expects commercial foreclosures to remain at the current level — or perhaps higher — throughout 2010.”

• 5) That Sinking Feeling: CRE Flood Set to Start in ‘10

“About $650 billion in banks’ boom-time CRE loans are coming due over the next four years, with more than $150 billion maturing in 2010. About 43% of the loans due next year exceed the current value of the properties they cover, Foresight said. The percentage of underwater loans due in 2011 is 60%, and the figure rises for each year thereafter.”

• 6) Moodys CRE Price Index Continues to Decline (Graphs)

“The Moody’s/REAL Commercial Property Price Index measured a 1.5 percent decline in prices in October. The National All Property Type Aggregate Index now stands 36.4 percent below the level seen one year ago. The peak in prices was reached two years ago, in October 2007, and prices have since fallen 43.7 percent.”

• 7) Gun sales boom in ‘09

“In a financial report to stockholders, Sturm, Ruger & Co., Inc., one of the nation’s leading gun manufacturers, stated production grew 69.3 percent when comparing the first quarter of the 2009 calendar year to the same time in 2008. The report says production also increased 25.6 percent in first quarter of 2009, compared to fourth quarter 2008.

“It was a very busy year,” said Ken Jorgensen, the company’s director of media relations. “We tried our hardest to keep up with demand.” ”

• 8) Fannie, Freddie exec pay suggests stock worth nothing

(Bose George, Keefe, Bruyette & Woods)

“”The more obvious reason is that the shares have no long-term value and that no executive would accept unvested shares of the companies as part of their compensation package,” the analyst said.

“This reinforces our view that the common shares will eventually trade to zero,” George concluded. “The companies will never be able to repay the government.” ”

• 9) U.S. may prop up housing further via Fannie, Freddie

“SAN FRANCISCO (MarketWatch) — The government’s decision to provide unlimited support to Fannie Mae and Freddie Mac probably presages more aggressive action to prop up the U.S. housing market.”

• 10) NUMMI suppliers face layoffs, shutdowns (Fremont)

“The loss of the 4,700-employee New United Motor Manufacturing Inc. plant might be only the vanguard of painful times. Without NUMMI, companies that provide products, supplies or services for the vehicle factory could be forced to shut their doors in turn or to scale back operations.

At least 1,000 jobs — primarily in the Bay Area and Central Valley — are expected to be erased because of cutbacks planned by NUMMI suppliers.

“Our whole family is going to be laid off if we can’t find something new,” said Deborah Anderson, co-owner of Lafayette-based Supplier Link Services, which provides on-site inspection services for NUMMI.”

• 11) US 2-yr debt sale meets underwhelming demand

“NEW YORK, Dec 28 (Reuters) - The U.S. government sold $44 billion in two-year debt on Monday in an auction that attracted tepid demand amid a year-end slowdown that may bode ill for the rest of this week’s bond sales.”

• 12) Falling Interest Rates To Drive Up US Pension Costs Next Year

“CHICAGO (Dow Jones)–Falling interest rates will force U.S. companies to spend more on their pension plans next year, eroding corporate profits already under pressure from an ailing economy.

What is known as the discount rate, which is applied to the present value of pension-plan assets to lower companies’ future pension obligations, is expected to decline by as much as 30% next year because of lower interest rates on the corporate bonds used as the benchmark for the rate.

“The lower the rate, the more you owe,” said Stephen Marshall, head of the asset-allocation group for consultancy Wilshire Associates.

The higher pension expenses are coming at a particularly bad time for companies that have been resorting to cost reductions to meet investors’ profit expectations amid sluggish customer demand.

On top of shrinking discount rates, most corporate pension plans are still saddled with severe losses on investments in 2008. Despite robust stock-market returns this year, the 340 companies in the Standard and Poor’s 500 Index with defined-benefit pensions are expected to finish the year with a combined pension-funding shortfall of about $250 billion. “