Detroit's mood grim as automakers face the brink

By Poornima Gupta

DETROIT (Reuters) - After three decades at work in a GM factory, John Martinez has reached a crossroads.

Martinez, 50, must choose between retiring and making a long and expensive commute across state lines to stay with General Motors Corp. Any future he can imagine is going to be costly and tough.

"My whole family is under stress," he said.

The same can be said of the embattled U.S. auto industry and its recession-hardened hometown, Detroit. GM, once an emblem of U.S. post-war economic might, is being driven to the brink by dwindling sales that are expected to test cash reserves and the nerves of investors in the months ahead.

Crosstown rivals Ford Motor Co and privately held Chrysler LLC face similar pressures. As the automakers weigh their options to ride out the industry's most-trying slump in 25 years, thousands of Detroit families are doing the same.

For many, the choices line up from bad to worse.

With four kids, retirement is not an option for Martinez. But driving more than 100 miles daily between home in the Detroit suburb of Lincoln Park and Toledo, Ohio -- where GM has a job for him -- is going to hurt with gas over $4 a gallon.

Moving from Detroit, one of the markets hit hardest by the ongoing housing slump, could prove impossible.

"I can't probably sell my home for what it's worth," said Martinez. "I will owe more than I sell it for."

When Martinez joined GM in the late 1970s, it controlled 46 percent of the U.S. vehicle market. A union job in the U.S. auto industry was seen as steady work with good wages and rock-solid benefits -- for life.

But last week, GM shares skidded to their lowest level since 1955. The stock had its worst week since trading in the wake of the September 11, 2001 attacks, with Wall Street analysts handicapping when and how it will raise new capital.

GM's sales have dropped 15 percent so far this year, and its share of the U.S. market is down to just 21 percent.

When major automakers report sales for June on Tuesday, there is a chance that GM will be overtaken by Toyota Motor Co as the monthly sales leader, a reversal that points to the popularity of small cars like the Yaris and the abandonment of SUVs and trucks like the Yukon and Silverado.

CUTS, CUTS, AND THEN MORE CUTS

GM has responded by slashing costs, cutting truck production and slashing its factory work force to less than half of the 118,000 it employed four years ago.

When Martinez joined GM, it was near its peak factory payroll of 468,000 with a new factory in Oklahoma City set to start up. Now it is rolling back, shuttering plants and cutting jobs. On Friday, 17,000 more GM workers took buyouts to leave.

On a combined basis, GM, Ford and Chrysler have cut more than 100,000 factory jobs since sales began to slow in 2006.

For Detroit, the downturn has been brutal. Michigan's jobless rate jumped to a 16-year high of 8.5 percent for May. Detroit led the nation with its home foreclosure rate in 2007.

In nearby Inkster, hometown of Motown's Marvelettes, businesses on either side of the Picture Perfect beauty salon are boarded-up.

Tasha Shaw, the salon owner, is considering giving up too. Sales have dropped 60 percent over the last year as clients in the auto industry been forced to cut back.

"I have never seen it this bad," she said.

Inkster is tied to the fortunes of Ford, headquartered in nearby Dearborn. In the industry's boom days, jobs were plentiful, drawing workers from around the country. Civil rights activist Malcolm X lived in Inkster in the early 1950s and worked briefly in a local Ford plant.

But now, for many left in Inkster, a haircut is no longer an affordable luxury, Shaw said. "They have so many bills. People have lost their cars, homes... It's terrible," she said.

Across town in the suburb of Oak Park, Lauri Kopack's husband, an electrician, has been forced to take a job in West Virginia. He comes home on weekends when he can, but gas is expensive for his Ford F-150 pickup truck.

"There are no jobs here," Kopack said, adding that about 1,400 in her husband's union local are out of work.

"It's tough," she said. "When he comes home, he is like a visitor."

(Editing by Braden Reddall)

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The Mini-Laptop Changing the Game

Shih is focusing on design to differentiate Asustek's laptops David Hartung

While computer makers have pushed to build faster, more powerful laptops in recent years, the executives at Taiwan's Asustek Computer decided to try something different. They thought some people wanted a simpler computer. And they were right. Since its introduction last October, Asustek's Eee PC—a mini-laptop that retails for as little as $300—has become a huge hit around the world. The company expects to sell 5 million units this year. "We changed the concept," says Chief Executive Officer Jerry Shen.

He's changing the public's perception of Asustek, too. The Taipei-based company has long operated in the obscurity that characterizes the manufacturers of computer components for Western tech vendors. Asustek has never built a brand name that could approach those of such Asian rivals as Lenovo (LNVGY) or Acer. Now, thanks to the success of the little Eee PC and some other innovative designs, Asustek has a chance to break into tech's big leagues. The company, which sells the mini-laptop in the U.S. through retailers such as Amazon.com (AMZN) and Best Buy (BBY), is already the world's No. 6 producer of notebook computers and aims to crack the top three by 2013. Those spots are currently held by Hewlett-Packard (HPQ), Dell (DELL), and Acer.

To differentiate Asustek from other Taiwanese electronics companies, Shen and his boss, Chairman Jonney Shih, have been focusing on design. In January the company spun off its contract manufacturing division, and it's beefing up Asustek's design team. Last year Shih appointed Lee Kuo-kun, a professor from a local fine arts school, to be a consultant. The two meet every month at Shih's office for coffee, green tea, and long discussions about aesthetics, philosophy, and technology. "All of life is art," Lee explains.

Many of Asustek's designs adorn niche products. The company works with Lamborghini on a line of flashy computers that feature the same materials used in the Italian automaker's sports cars. Asustek's designers boast that they were first to introduce leather-covered notebooks, and in March they unveiled computers with a bamboo exterior to appeal to green-conscious consumers. The goal, says senior designer Jimmy Chu, is "to transform the notebook from a production tool into a more personal item."

Asustek still faces some big challenges before it can join the tech industry's elite. Some caution that the mini-laptop's success could erode profitability at Asustek, which made $910 million last year on sales of $24.9billion. Daiwa Institute of Research analyst Calvin Huang estimates the Eee PC's margins are 10% to 15%, compared with gross margins of 21.5% for the whole company. With Hewlett-Packard, Acer, and Dell gearing up to start selling similar machines, margin pressure is likely to grow. "The Eee PC is a significant innovation in the PC industry," Huang wrote in a report last month, but "its success is unlikely to be sustained."

Analysts also question whether mainstream consumers will see mini-laptops as too limited. The Eee PC allows users to chat, check e-mail, and surf the Net, but not to play the latest online games or upload videos. "It may be just a passing fad," says analyst Bryan Ma of researcher IDC (IDC).

Shen and the rest of Asustek's top brass understand these concerns. The company has just unveiled a souped-up version of the Eee PC, with a wider screen and additional bells and whistles. And faced with the growing competition, the Taiwanese plan to use artful design and technological innovation to stay ahead. Says Shen: "We can lead in the market."

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A Not-So-Widespread Downturn

by James Cooper

When the business-cycle experts at the National Bureau of Economic Research define a recession, they say the depth of the decline in economic activity must be "significant" and that it must last "more than a few months." They also say the downturn must be "spread across the economy," and that may turn out to be the most crucial factor in whether or not the current period of weakness ends up being called a recession.

So far, the slump has been unusually narrow, confined mainly to housing and autos. That may explain why broad indicators, such as employment and household income, have not posted typical recession-size declines, and why overall growth has been so resilient in the face of stiff headwinds.

The economy may have more hidden strength than the puny top-line numbers for gross domestic product growth imply. The latest report says the economy grew at annual rates of 0.6% and 0.9%, in the fourth and first quarters, respectively. Help from tax rebates, foreign demand, and lean inventories raise the chances for another small plus in GDP this quarter.

Strong Service Sector

Digging deeper into the GDP data reveals that recent weakness is sharply skewed toward housing and autos. In the past two quarters, home construction has sunk 25% and 26%, while auto output has dropped 26% and 12%. Excluding these two categories, which make up only 7% of GDP and only 3% of payroll employment, the economy grew 2.8% and 2.5% during the past two quarters. That means 93% of the economy is still motoring along faster than the U.S.'s long-run growth rate, a pattern that was clearly absent in the early stages of the 2001 recession.

One source of that underlying strength is the service sector, which accounts for nearly 60% of GDP. Service GDP rose 3.1% in the fourth quarter and 3.5% in the first quarter. The resulting resilience in service employment, compared with past recessions, explains why overall job losses since the December peak in payrolls have been half the size of declines in the past two recessions.

The lopsided look of economic growth stems from the disproportionate impact of tight credit and soaring gas prices on the demand for homes and cars. Auto makers are taking hits from both. May sales of light vehicles fell to an annual rate of 14.3 million, the lowest in a decade. The 1% rise in consumer spending in the first quarter would have been nearly double that if not for the drop in auto sales, and car buying will be a big drag on second-quarter spending, too.

Also, the fall in auto output has accounted for more than half of the decline in industrial production since January's peak, with construction supplies contributing some, but not all, of the rest.

A Production Pickup?

The factory sector is genuinely weak, partly reflecting efforts by businesses to reduce excess inventories. Businesses liquidated stockpiles in the fourth and first quarters at the fastest two-quarter rate in six years, and a big chunk of that reduction was autos. April data on output, sales, and factory inventories suggest stock levels shrank further early in the second quarter.

However, those cuts have left inventories very lean relative to demand, which will help to prevent big output losses later on. Low stock levels could even generate a pickup in production, depending on the lift consumer spending gets from the tax rebates.

Industrial production is already getting major support from foreign demand. The Institute for Supply Management's May survey of manufacturing activity shows surprising buoyance, and its measure of export orders jumped to a four-year high. Over the past two quarters, foreign trade has offset about half of the drag on overall economic growth coming from the declines in housing and autos.

The current soft patch may yet qualify as a recession. Annual revisions to GDP data, due in July, could give growth a different look. For now, though, it appears the weakness has not spread widely enough to generate a sufficiently significant and lasting decline in economic activity.

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Embrace the Internet Ad Monster: Middle Man Marketing

In the money circus we call the global economy; there are a lot of big, successful consumer market businesses. However, there are only a select few that have really excellent and powerful brands. The truth of the matter is whenever somebody is trying to sell you something; it is human nature to become skeptical. It is natural to fear that you may pay too much, or be tricked into buying a poor product.

It is truly remarkable then how some big businesses such as Toyota or Coca-Cola have built exceptional brands with years of product consistency and quality marketing. I still can’t even begin to stress the importance of quality marketing. See here what it did for Apple.

I had all of this in the back of my mind as I was beginning work on a new project for one of my clients. I decided to search for a list of powerful brands to see if I could find some inspiration.

Before I even typed my search keywords, I realized I was staring inspiration right in the face.

Without a doubt in my mind, Google has one of the strongest brands in the world. The term “Google it” has become an official part of the English language. Yahoo may currently sit at #1 in Alexa’s page rank, but Alexa counts each of Google’s country specific pages separately. Google is the biggest thing on the Internet.

There are a couple reasons for this. The big one, the one that makes Google’s huge success and $16 billion revenues possible, is that the factors that drive Google’s brand image are completely separated from its advertising derived source of income.

Google’s actual product is high quality advertising space, which is opened to the highest bidder, creating a market where advertisers bid up the price, which in turn maximizes revenue. Advertising based businesses, whether they have been newspapers, magazines, or television networks have always been about creating the best possible content to create impressions which can be sold to advertisers.

Google’s unique and powerful branding exists because the company has changed the traditional model of creating impressions with content, such as information or entertainment. Google creates their impressions by offering free high quality services. Here is a video that demonstrates Google’s strong brand image of the website that has “ridiculously innovative useful free stuff.”

One point I am trying to make with all of this, is that the Internet and its slew of advertising based web businesses, are much easier to market than businesses that follow a traditional sales model. These businesses don’t have to worry about pricing, only creating high quality products. This is turn has created what I believe is only the very beginning of a new era. The future will bring us countless new and innovative free web based services.

Before there was YouTube, Digg, and Twitter, the Internet had already changed the world. Now, it’s in the process of changing our economy as we know it. As we find new ways to use the Internet to improve human communications and the quality of life, we will get to watch as companies try to figure out their place in a highly interactive digital world. Marketers pushing conventional products are already adapting to the possibilities offered by online video and social networking.

Perhaps my overall message is one of encouragement. The opportunity exists for literally anybody can create a strong branded Internet company. This is the primary reason that I am tired of negative speculation regarding the upcoming election and bleak outlook on the global economy. The Internet has gone a long way into providing entrepreneurs with the opportunity to equalize income inequality.

Even if you ignore the Internet, I still can’t understand the bleak economic outlook.

While the price of oil may be high, which will make a short term dent in our wallets; it will also serve to drive long term investment into alternative sources of energy. Anybody who thinks in a few years it still won’t be profitable to mass market solar panels is nuts. From where I sit, I see an economically prosperous future where technology dramatically improves the quality of life.

Did I gradually drift off topic? Yes. Do I think the Internet is going to save the world? Yes.

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Greenspan: Higher inflation to warrant double-digit rates in future

By Barbara Hagenbaugh, USA TODAY
WASHINGTON

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Former Fed Chairman Alan Greenspan predicts in a new book out Monday that the Fed will have to raise interest rates to double-digit levels in coming years to thwart inflation.

(Getty Images)

Greenspan, 81, says in The Age of Turbulence that the inflation-damping effect of globalization, which has led to lower wage pressures, inflation and interest rates worldwide, will recede.

At some point, the flow of people into the workforce in developing countries such as China, which has seen a movement of workers from farms into factories, will slow, leading to stronger wage pressures and prices, he says. The impact will be global.

And the shift "may be upon us sooner rather than later," he says. Evidence: Prices of Chinese imports coming into the USA started rising earlier this year. That suggests that in the "next few years," inflation will build unless action is taken.

The Wall Street Journal first reported details of the book on its website Friday night, saying it had bought a copy of the book in a New York City-area bookstore. USA TODAY had received a copy of the book to review in advance and was given permission to run its story ahead of the official publication Monday.

Greenspan's prediction comes shortly before Fed officials are widely expected to cut interest rates for the first time in more than four years following turmoil in mortgage markets that has rippled through the entire financial sector, leading to concerns about a credit crunch and a slowdown in the overall economy.

Fed Chairman Ben Bernanke and his colleagues, who meet in Washington Tuesday, have kept their target for short-term interest rates, which influence borrowing costs economywide, at 5.25% for more than a year. Greenspan's assertion that the Fed may have to double rates from current levels suggests the Fed may put itself in a bind by cutting rates now.

Criticism of Bush over spending

In his 531-page book, the former Fed chairman sharply criticizes President Bush for not vetoing bloated spending bills and for continuing to focus on issues, such as adding prescription drug benefits to Medicare even though the budget surplus of just a few years ago had disappeared and deficits were mounting.

"In the revised world of growing deficits, the goals were no longer entirely appropriate," Greenspan says. "He continued to pursue his presidential campaign promises nonetheless."

Greenspan, a libertarian Republican, as he calls himself, was also disappointed that his former colleagues from the Ford administration who were working for Bush, including Vice President Dick Cheney, didn't show greater fiscal discipline.

"People's ideas — and sometimes their ideals — change over the years," Greenspan writes. "I was a different person than I had been when first exposed to the glitter of the White House a quarter of a century before. So were my old friends: not in personality or character, but in opinions about how the world works and, therefore, what is important."

The Bush administration has often attributed the deficits to the impact of the 2001 recession, September 11, the war on terror and corporate scandals.

"We are not going to apologize for spending that was required for national security and fighting the war on terror," White House spokesman Tony Fratto says.

"We respect the work that Chairman Greenspan did," Fratto says. "We always respect his opinion. We share his views on limiting fiscal deficits. Once we were able to help the economy recover, it's clear that growth and limited spending are resulting in diminished deficits that will lead us to surpluses."

Greenspan also doesn't spare Republicans in Congress, who he says were "feeding at the trough," passing expensive pet projects for their home districts. For this, he says, they "deserved to lose" control of Congress to the Democrats in 2006.

"The Republicans in Congress lost their way," he says. "They swapped principle for power. They ended up with neither."

Greenspan covers a number of his pet topics, many of them familiar to those who have been following the former chairman's speeches and testimony. He argues U.S. primary and secondary education is slipping and must be reformed quickly to reduce income disparities between the skilled and unskilled, says trade protectionism can only hurt the economy and advocates looser immigration policies to provide more skilled workers.

He also frets about probably his biggest concern: The retirement of the baby boomers and the impending fiscal problems caused by the draws on Social Security and Medicare. He considers it an urgent problem that needs to be addressed soon.

A personal look at his life

Greenspan starts the book out on September 11, 2001, winding back to his childhood and eventually going into detail about his time at the Fed.

He includes details of his relationship with wife, Andrea Mitchell. After their first date he invited her back to his apartment to read an economics paper he had written. And they've been together ever since.

"I'm not threatened by a powerful woman; in fact, I'm now married to one," Greenspan says, when discussing TV newswoman Barbara Walters, whom he dated after meeting in 1975. "The most boring activity I could imagine was going out with a vacuous date — something I learned the hard way over my years as a bachelor."

Greenspan gives readers a look into a man everyone knows but few know a lot about. One million copies of the book have been made in the initial printing.

Although he delves into a variety of economic topics, it is the personal part that is likely to be the most interesting, even for those who have followed the former Fed chief for decades.

He discusses how his parents' divorce "left a big hole" in his life, even though he remained in touch with his dad, Herbert, who was a broker on Wall Street. Later, of his divorce to his first wife, Joan Mitchell, Greenspan says, "I was the main problem," arguing he married a good woman for the wrong reasons.

Greenspan describes how his mathematical abilities shone through at a young age. His mom, Rose Goldsmith, used to show off to relatives how he could do addition and multiplication in his head, a likely uncomfortable feat for someone who as a boy was "more inclined to sit in the corner." As an avid baseball fan, he developed his own technique of keeping baseball box scores during the 1936 World Series.

"To this day, I can recite the lineup of Yankees starting players, complete with their positions and batting averages, for that World Series," he says.

Such skills helped him succeed in later years, starting in his first job as an economist making $45 a week analyzing obscure, industrial data, later building up a successful consulting firm and then joining the government.

After leading the Fed for more than 18 years, Greenspan today runs his own consulting firm, Greenspan and Associates. He continues to make speeches for six-figure fees, mainly at private gatherings. But occasionally he has roiled stock markets when his comments have hit the press, drawing criticism from those who say the guy just doesn't know how to retire.

That criticism will likely grow louder, with Greenspan releasing a book the day before the Fed meets to discuss interest rates.

Greenspan started writing The Age of Turbulence a day after he retired in January 2006. He wrote the book as he did his speeches at the Fed — in longhand and mainly while sitting in the bathtub, which he does every day since starting the practice after a back injury in the 1960s. He says the invention of a pen that can write in water has made it easier for his assistants to make out the sometimes soggy papers.

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The Best Countries For Business

What do LEGOs, Nokia and 18th century political economist Adam Smith have in common? All three show why Denmark has become the best country in the world for business.

Speaking two decades before The Wealth of Nations was published in 1776, Smith said, "Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things."

If ever there was a system that made following Smith's recipe look easy, it's the Danish economy's mix of low inflation and low unemployment, emphasis on entrepreneurship and lower taxes. These qualities combined with high marks for innovation and technological savvy lift Denmark to the top of our third annual ranking of the Best Countries for Business (formerly the Forbes Capital Hospitality Index).

In Pictures: The Best Countries for Business

To find the best, we analyze business climates in each of more than 120 national economies, focusing on degrees of personal freedoms, like the right to participate in free and fair elections, or freedom of expression and organization.

Investor protection examines the recourse held by minority shareholders in cases of corporate misdeeds, while corruption looks at the number and frequency of similar misuse of corporate assets for personal gain. Together with economic policies supportive of free trade and low inflation, these key points form a snapshot of countries' suitability for capital investment.

Topping the list for 2008: Denmark, which rose three slots from last year, Ireland (up 19 places to No. 2), Finland (up four to third place), the U.S. (down three to fourth) and U.K. (up five to fifth). Big movers like Ireland, Estonia (No. 10, up 24 spots) and Saudi Arabia (No. 47, up 37) have limited bureaucracy standing in the way of entrepreneurs hoping to do business within their borders.

Ireland continued to see businesses take advantage of its low levy on corporate profits as pharmaceutical company Shire (nasdaq: SHPGY - news - people ) became the latest to relocate from the U.K. in April of this year. EBay subsidiary and telecommunications company Skype calls Estonia home, thanks to its emerging profile as a technology center in the Baltics.

Saudi Arabia, despite higher inflation from booming oil exports, has tackled inequities in its markets, expanding investor rights as it evolves from an oil state to a center for investment in the Middle East.

India (No. 64, down 13) and China (No. 79, down two) fell in this year's ranking as political instability demonstrated resistance to increasing personal freedoms. Higher inflation from food and other commodity costs, as well as increased burdens on entrepreneurs also held the world's most populous nations back as business destinations.

In developed nations like Germany (No. 21, down nine) and France (No. 25, down nine), scandals in the banking sector and tougher barriers for entrepreneurs led to declines. Meanwhile, anti-bureaucrat leaders like president Lech Kaczynski and prime minister Mirek Topolanek are succeeding in introducing more business friendly reforms to Europe's smaller participants in Poland (No. 33, up six) and the Czech Republic (No. 29, unchanged), respectively.

One of the biggest declines came from Japan (No. 24, down 21), where a Council on Economic and Fiscal Policy spelled out problems with the world's second-largest economy earlier this year. Among others, the committee's report cites the nation's 40% corporate tax rate as uncompetitive compared with regional rivals like Hong Kong at 17.5% and South Korea at 25%.

Antiquated restrictions on foreign investment are also a concern. So-called cross-shareholdings that limit the ability of foreign investors to take controlling stakes in Japanese companies is just one example of why foreign direct investment totaled a paltry 2.5% of GDP in 2006. That compares to 13.5% in the U.S. and 40% in Britain.

Expertise, research and published reports from the Heritage Foundation, World Economic Forum, World Bank, Transparency International, Freedom House, Deloitte Tax, the U.S. Chamber of Commerce and Central Intelligence Agency all contributed vital analyses of various socioeconomic indicators on the countries included.

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8 Countries With Weak Pesos But Hot Women

The peso is often criticized as being an internationally weak currency. Many countries all over the world use a form of 'the peso' as their unit of currency, each holding its own value and exchange rate compared to the American dollar. And, quite coincidentally as it turns out, some of the world's hottest women use these cute little bank notes in their home country.

Here at WallStreetFighter we are on a relentless pursuit for money and hot babes. So after doing some research and teaming up with our boys over at Chickipedia, we present to you the perfect unity of currency exchange rates and smoking hot chicks.

For further reading, additional pictures, and other random info the numbered links above the hotties will direct you to each fine lady's Chickipedia page, the best source on the internet for hot chick info.

Without further ado here are the world's weakest pesos and the women who love them:

8.) Carolina Ardohain, Argentina


3.021 Argentine pesos (ARS) = 1 US Dollar

Here at the start of our list you'll find the 'strongest' of the pesos. If you go down to Argentina with a shiny US greenback, you'll only be able to trade it in for 3.02 Argentine pesos. This is usually a sign that the economy is doing relatively well there. It also looks like the television media is doing relatively well in Argentina, with this selected Argentine hottie, Carolina Ardohain dominating the airwaves.

Carolina hosts her own variety show in addition to being a well known supermodel. She was also dubbed the national soccer team's 'Godmother' in their bid to win the 2002 World Cup. Hottest Godmother we've ever seen.


7.) Salma Hayek, Mexico


10.272 Mexican pesos (MXN) = 1 US Dollar

Mexico, our lovely neighbor to the South, has struggled with a weak peso for decades, but it is relatively strong compared to some other pesos on this list. And so it sits way up here at #7. Who better to represent 'America's beard' (Mexico), than the muy caliente Salma Hayek. Just saying her name makes our lives that much sexier.

Salma has been in tons of movies and you may also recognize her as being one of the hottest women on the planet. She's also been getting a lot of attention lately for her pregnancy boobs, which are quite impressive.


6.) Vida Guerra, Cuba


23.148 Cuban pesos (CUP) = 1 US Dollar

Cuba gets a bad rap in the United States. Not sure if it's because of that missile crisis, or the communism thing, or because of Fidel Castro falling off that stage. Either way, everyone loves their forbidden cigars and their beautiful women. The Cuban peso situation is a little strange. They actually have two pesos, the standard Cuban peso and the Cuban convertible peso. It seems kind of bizarre to us, but Cubans use separate currencies at different stores. Groceries get convertible pesos while other shops use standard pesos. Strange.

Anyway, let's not forget about Cuba's #1 export to the United States, Vida Guerra. You may recognize her from the Chapelle's Show sketch where Dave satirizes R. Kelly with an 'I Wanna Piss On You' song. Yup, that's right- smokin' hot Vida got 'pissed on'. She's also graced the covers of Maxim, FHM, and Playboy. But like every celebrity in the modern age, somehow private naked pictures of her were leaked onto the internet when her cell phone was hacked. Doesn't the internet suck?


5.) Natalia Oreiro, Uruguay


19.827 Uruguayan pesos (UYU) = 1 US Dollar

This Uruguayan peso note looks like a pink ripoff of our American dollar bill. Is that 10th president of the USA, John Tyler, they put on their 100 peso note?

I am willing to forgive these Uruguayan transgressions for offering us the chance to see Natalia Oreiro. Natalia is a model and Latin Grammy nominated singer from Uruguay who has been in commercials and magazines since the age of 12. She was the face of several Coca-Cola, Pepsi, and Johnson & Johnson ads in her youth. Seeing her now really makes me hate all those polar bear and artistic bubbly coke ads we have here in America. Is there a shortage of hot babes in the US to feature in soda ads?


4.) Dania Ramirez, Dominican Republic


34.609 Dominican Republic pesos (DOP) = 1 US Dollar

Not too far east from our Cuban neighbors, lie the lovely islands of the Dominican Republic. As we get closer to the #1 spot on our list, you'll see how far the American dollar translates into these local pesos. In the Dominican Republic you could probably live like a king for a weekend for the same price as a tank of gas in the US. You've gotta love those currency exchange rates.

The Dominican Republic's own Dania Ramirez seems to have hit it big stateside with her recurring role in NBC's Heroes (which better come back on the air soon). If you're a bunch of nerds like us you'll recognize her as the girl who kills everyone in the immediate vicinity with her bizarre super power of bleeding some black chocolaty substance out of her eyes. So delicious.


3.) Christine Mendoza, Philippines


44.631 Philippine pesos (PHP) = 1 US Dollar

The Philippines, the only Asian country to make our list, does not pronounce their peso the same as most. And although it sounds more like "pee-so" rather than the traditional "pay-so", they can't fool us into thinking it should be valued any higher.

The islands of the Philippines might be best known for showing us that large groups of men in prison can do 'Thriller' pretty well. But we're equally impressed with Christine Mendoza. Even though her family moved her to California when she was young, she still speaks her native Tagalog fluently. And thank god for the "Import Tuner" auto magazine talent scout who saw her at a local car show and signed her up to a lifetime of public hotness. Give that man a medal.


2.) Leonor Varela, Chile


509.820 Chilean pesos (CLP) = 1 US Dollar

We could make lame jokes all day about the irony of incredibly hot women coming from a country whose very name is a homophone for cold, but we're classier than that. We can't overlook the 509 Chilean pesos you would get with each American dollar though. Keep in mind that doesn't speak to 'the buying power' of that dollar, but needless to say it must get annoying carrying around 5,000 dollar bills to pay for small items. How do they keep track of all those zeros?

You've probably seen this Chilean beauty on the big screen in her role in Blade II. You were one of the handful of people that saw Blade II, right? If not, maybe you've seen the beautiful Leonor Varela on the Stargate TV series? Wow, I'm really not impressed with her acting experience, I'm sorry. But she is definitely hot, so hopefully she'll start making barrel loads of Chilean pesos when she lands that big role. 4 wheelbarrows full of pesos should be enough to buy something nice in Chile, right?


1.) Catalina Sandino Moreno, Colombia


1,772.620 Colombian pesos (COP) = 1 US Dollar

Congratulations to Colombia for having both the weakest peso and some of the hottest women! Hooray! I'm sure they prefer that arrangement to what they've got in England - women with horrible accents, screwed up teeth, and a strong currency (the pound).

Colombia, despite its incredibly weak peso, has a plethora of hotness radiating from its gene pool. The land that gave us Shakira (who ranked #2 on our Highest Earning Hotties list) has also graced us with Catalina Sandino Moreno. She is an actress nominated for an Academy Award for her work in the 2004 film Maria Full of Grace. And although it appears that she's dating or hooking up with 'lame-as-hell' Wilmer Valderrama, she's still pretty hot in our book.

Hope you enjoyed the list, please let us know in the comments section if there is anyone we left out. And with that, we say peace out to the peso.

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Battling the online bullies

Cyber-bullying used to involve sending threatening texts or e-mails, but the class of 2008 are finding social networks to be a fertile, and occasionally dangerous breeding ground, as Ian Hardy found out.

Cyber-bullies can hide their identity on the internet

It does not take much for a teenager's cyber universe to spin out of control.

A fight at school, an online misunderstanding, and within minutes he or she can become the victim of a cyber-bully campaign, thanks to the fact that millions of children are connected by computers and gadgets.

"Cyber-bullying is when one child or teen targets another for embarrassment, humiliation, fear, blackmail. Something designed to hurt the other using an interactive technology," said security, privacy and cyberspace lawyer and executive director of WiredSafety, Parry Aftab.

"That's made a big difference because kids have learned that they can use the internet as a weapon."

It's more harsh over the internet because they don't have to see your reaction when they say those mean words to your face Abby, cyber-bully victim

Cyber-bullies can hide behind anonymous internet accounts, and they do not need big muscles, just the ability to type.

Yet the consequences can be far reaching.

"It's more harsh over the internet because they don't have to see your reaction when they say those mean words to your face. So over the internet you're more likely to say the meanest possible things you can say, and then you don't even regret it, " said cyber-bully victim Abby.

"I would get messages on IM [Instant Messenger] and they would be 'you're really mean' or 'you're ugly', until I just couldn't take it any more," says Ralph who was also a victim of cyber-bullying.

Vicious attack

Social networking sites are the new cyber playgrounds, where fact and fiction carry equal importance.

Video is often a cyber-bully's ultimate form of humiliation.

There needs to be a system in place where a parent would log a child in using a parent's credit card Sheriff Grady Judd

A group of Florida teenagers filmed the beating of Victoria Lindsay on mobile phones to post on to the internet.

The attack was so vicious it shocked America. Sheriff Grady Judd is handling the case in Polk County, Florida. He said that websites need to be more proactive: "There are no checks and balances by our internet providers such as MySpace or Facebook. They say 'you can't come in until you're 14', [but] how do you know they're 14?

"There needs to be a system in place where a parent would log a child in using a parent's credit card."

Self-contained browsing

While some social networking sites have shown limited interest in policing their users, educators hope that they can teach teens and children about the perils of the internet using a comic book featuring Spider Girl and the Hulk, who both learn how to handle online aggression and provocation.

KidZui only allows children to view approved content

Meanwhile, some companies have been creating online worlds that are safe and self-contained.

KidZui is a lockable browser that gives access to 600,000 pages of content all verified by 200 parents and teachers.

There is no danger of being harassed there because there is no e-mail, no instant messenger and no chat rooms.

"When kids have friends they can share KidZui approved content. There is no risk of any open communication in our environment," says founder and CEO of KidZui Clifford Boro.

Guardians

Ultimately the best solution might be organisations such as TeenAngels, a collection of older kids who teach younger ones all about cyber-bullying and the importance of privacy, a concept that the newest generation of computer users has not quite grasped.

"Kids need to realise that as much as you talk to someone online you will never, ever, ever know for sure who that person is," said TeenAngel volunteer Casi.

"There will always be that anonymity that there is no possible way to know who the person is on the other side of the screen," she said.

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U.S. diplomat now a music star in Paraguay

BENJAMIN N. GEDAN / FOR THE MIAMI HERALD

U.S. Ambassador to Paraguay James C. Cason is interviewed by a Paraguyan television reporter at the Centro Cultural Paraguayo Americano in Encarnación, Paraguay, on Saturday, June 14, 2008. Cason visited the center to celebrate its grand opening and promote his CD. The proceeds from CD sales support scholarships for Paraguayans to study English.
By BENJAMIN N. GEDAN

ENCARNACION, Paraguay --

Becoming famous in this poor and isolated nation would not seem like a huge challenge. But even here, U.S. Ambassador James C. Cason seemed an unlikely candidate for national celebrity.

That was before he learned the obscure Paraguayan Guaraní language, recorded a music album of indigenous folk songs and sold 1,000 tickets to a concert in a downtown theater. Now, in the final year of his four-decade diplomatic career, Cason has suddenly become the toast of Paraguay, or at least the country's most unusual pop star.

''He's been on TV and in all the newspapers,'' said Nelson Viveros, 16, who traveled to meet the ambassador recently in Encarnación, by the Argentina border. ``It's strange, but people love it.''

Until January, it appeared Cason, 63, would go quietly into retirement in Miami, whose Cuban-American community he knows and where he was considering running for office or seeking a job related to Latin America.

Paraguay is the last foreign service posting for the New Jersey native, following assignments in Jamaica, Honduras, El Salvador, Bolivia, Panama, Uruguay, Italy, Venezuela and Portugal. Before moving to the capital city of Asunción in 2005, he spent three years as chief of mission at the U.S. Interests Section in Havana.

Cason made a name for himself in Cuba, too, earning a reputation as an aggressive critic of the Castro government. He organized workshops for dissidents, distributed short-wave radios across the island and once displayed a mock jail cell to bring attention to the plight of political prisoners.

Cason had little on his resume to suggest a career in show biz. He never sang professionally, played no instruments and understood no Guaraní, spoken by 96 percent of Paraguayans.

He did not begin studying Guaraní until his last month in Havana, hiring a Paraguayan medical student to tutor him for three hours a day. In Washington, awaiting Senate confirmation, the State Department located a replacement instructor, a Paraguayan who once taught Peace Corps volunteers.

Using a pair of out-of-print text books, Cason, already fluent in Spanish, Portuguese and Italian, arranged three months of private lessons.

''I've never been to a country where I couldn't speak the language,'' Cason told The Miami Herald. ``These words are very hard to retain. It's pure consonants. You've got to just bang them into your head.''

In low-key Paraguay, the new ambassador showed hints of showmanship on his first hour on the job.

Upon arriving in December 2005, he stepped off the plane wearing the traditional hand-embroidered Paraguayan ao poi dress shirt and greeted local reporters in Guaraní, delivering a three-page speech. Not even embassy staff knew he had studied the language.

In Asunción, he recruited his third tutor and began watching Guaraní TV and filling his iPod with vocabulary lessons that shared time with the Beatles, Buddy Holly and Whitney Houston on his playlist. He soon discovered Guaraní music, translating 1920s songs about emigrants longing for Paraguay and Paraguayan soldiers who march into battle afraid their girlfriends will stray in their absence.

Singing in Guaraní did not occur to Cason until a few months ago, when his wife Carmen, an admirer of the ambassador's Peter, Paul & Mary renditions around the house, recommended that he hire her piano teacher for voice lessons.

As Cason tells it, his hidden talent was soon discovered.

CONNECTIONS HELP

But even in little Asunción, it seems being ambassador helped in navigating the music scene. The piano teacher, for example, turned out to be Benito Román, the choral director for the UniNorte opera. After only a month of lessons, Román mentioned his new protégé to the country's most celebrated soprano, Rebecca Arramendi.

Before long a duet had been scheduled for a 10,000-seat amphitheater in Itá.On stage in a straw hat, Cason warned the audience that he was an amateur vocalist, before joining in four songs.

''I'd never sang in my life in front of anybody, in any language,'' Cason recalled. 'But when I sang the first line of the first song, they all started screaming and cheering. I said, `OK, I can do this.' ''

Not all reactions have been as positive.

BAD REVIEWS

In a review of the CD release show in the Ultima Hora newspaper, a critic noted that Cason ''sat on a stool with the lyrics in front of him'' during the entire performance, appearing ''nervous or unsure about the tune and pronunciation of Guaraní.'' The newspaper La Nación was more direct: The ambassador, it said, ``sang in the monotone of a tired bird.''

Following the show in Itá, Cason said, fan mail poured into the embassy -- as did invitations to festivals and for a (nonsinging) cameo as a cardinal in the opera Tosca. The songs he had performed in Itá went into heavy rotation on local radio stations.

A short time later, after a government tour of the Itaipú dam, Cason surprised the band at a local restaurant by leading a group of ambassadors in a sing-along. Then, at a rural festival and cattle auction, he gave another impromptu gig.

Though he does not leave his post until the fall, he is already planning his life in Miami, where he hopes to sell his album and perform with visiting Paraguayan musicians, possibly inviting local Cuban bands to jam.

Cason insists that he decided to record the album as a souvenir, a gift for his two sons and proof that he had once spoken Guaraní. Still, in April, he recruited a platoon of professional violinists, guitarists and accordion players, some urged out of retirement, to join him in the studio. He spent $2,500, logged 32 hours of recording sessions and even wrote a song, Campo Jurado, the album's opening track.

''Paraguayans cry when they hear it,'' Cason said.

To generate buzz for the CD release, Cason did the Paraguayan interview circuit, giving more than 15 interviews to magazines, newspapers, TV and radio shows. The Gran Teatro del Banco Central sold out; outside, tickets sold for 50 percent above face value.

FUNDS FOR STUDY

Between the ticket and CD sales, Cason has raised more than $20,000 for scholarships for English language classes in Paraguay, according to Livia Melgarejo, spokeswoman for the Centro Cultural Paraguayo Americano.

It is not as clear if he has succeeded in his other mission: improving the U.S. image here. Just two months ago, Paraguayans elected Fernando Lugo to be the country's first leftist president in more than six decades.

On a recent tour of Encarnación, however, it was clear that Cason himself has become a popular figure.

At one stop, the opening of a rural English language center, the ambassador's voice filled a lobby crowded with fans.

''He recorded a CD in our language. That was something,'' Juan Horacio Duré, secretary of health for the regional government, said after meeting the ambassador.

``I've never before met any U.S. representative who could speak Guaraní.''

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300 Internet death threats since Tokyo killing spree

AFP/Jiji Press/File Photo: An undated recent picture shows Tomohiro Kato. As many as 300 In

TOKYO (AFP) - As many as 300 Internet warnings of mass murder and other death threats have been posted online in Japan after a knifing rampage in Tokyo left seven people dead, media said Saturday.

Tokyo police said 200-300 death threats appeared on Internet message boards since 25-year-old Tomohiro Kato went on a killing spree on June 8 in the popular Akihabara district, Kyodo News and the Sankei Shimbun said.

Kato, who rammed a truck into a crowd of pedestrians and randomly slashed shoppers with a knife, had posted Internet messages about his anger and loneliness, and foretold of his deadly plans.

While most postings appeared to be pranks, police have so far arrested 20 people on charges of extortion and public nuisance, the press reports said quoting police.

Authorities identified and arrested a 29-year-old man in Shizuoka prefecture after he posted online: "I'm going to Ikebukuro (in Tokyo) now and will kill 100 people" just one day after the massacre, media said.

A Tokyo Metropolitan Police spokesman was unable to confirm the figures, saying police do not keep a daily tally of web postings. But he confirmed that the 20 arrests were made nation-wide and were not exclusive to Tokyo.

Tokyo police earlier this week sent a 16-year-old girl to a family court for posting messages on the Internet threatening to kill people in Tokyo's Shibuya district, where young people flock.

"I'll kill them all and I'll die too," the girl said in one message sent from a cellphone to a bulletin board, as quoted by a police spokesman.

"I adore suspect Kato," she wrote, adding: "You're so cool, Mr Kato."

The girl, whose name was withheld as she is a minor, posted a total of 28 messages two days after the Akihabara killing, according to police.

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The Art of Ousting Mugabe

Zimbabwe's President Robert Mugabe casts his ballot at a polling station in Harare on June 27, 2008

Alexander Joe / AFP / Getty

By proceeding with his one-candidate election on Friday, Zimbabwe's President Robert Mugabe has thumbed his nose at the international community. So what is the international community going to do to ensure compliance with democratic norms by the leader of a landlocked country whose economy is in free fall and its people increasingly dependent on food aid? Not too much, it seemed on Friday, when U.S. Secretary of State Condoleezza Rice, speaking at the G8 foreign ministers conclave in Kyoto, vowed to bring the matter up at the U.N. Security Council. No decisive action ought to be expected from that forum, in which China has long shown itself willing to wield its veto to prevent economic sanctions against its African trading partners (of which Zimbabwe is one). Statements of outrage from European governments were scarcely more specific, although British officials said they planned to expand the number of Mugabe cronies on travel-ban lists, and to press the European Union to tighten sanctions.

The contrast is stark between the world's response to the plight of the Zimbabweans and its engagement in southern Africa's last great battle against tyranny — the struggle against apartheid in South Africa. From campuses and civil society groups to the corridors of power throughout the Western world, the pressure was on for divestment and economic sanctions against the white-minority regime. And that pressure paid dividends when financial sanctions at a critical moment denied the regime access to credit and loans it desperately needed, helping nudge it to concede to the principle of majority rule and a handover of power to the democratically elected government of President Nelson Mandela in 1994.

The integration of the world's economy over the past two decades has made imposing sanctions a far more daunting challenge today than it had been during the anti-apartheid era. Whereas most of the major foreign investors in South Africa during the 1980s had been U.S. and European corporations, effective sanctions today would require support from the world's emerging economies, particularly in Asia, where the tactic is unpopular. "The appetite for international sanctions has decreased massively in the last 10 or 15 years because it's seen as much more difficult to enforce," says Thomas Cargill of the London-based think tank Chatham House. And since millions of Zimbabweans are struggling simply to survive, Western officials fear that sanctions could render them totally desperate — and more dependent than ever on Mugabe's regime. That's one reason why South Africa — where 1.5 million Zimbabweans are currently seeking refuge, their presence raising the recently violent ire of many poor South Africans — has held off from putting a chokehold on Zimbabwe, to which it supplies massive amounts of electricity. And if oil companies withdrew from Zimbabwe, for example, government officials would likely smuggle in enough fuel to keep the regime running, says Cargill, while "ordinary people would either have none or would have to request it from the government."

Some European governments have recently moved to cut business ties. German officials on Friday ordered a Munich company, Giesecke and Devrient, to stop supplying Zimbabwe with the paper on which it prints its near-worthless banknotes — with Zimbabwe's estimated annual inflation rate at about 165,000%, the printers of Zimbabwe dollars have been a regular client of Giesecke and Devrient.

But there's been no rush for the exits by the corporate giants that have helped keep Zimbabwe ticking along, including Royal Dutch Shell, British American Tobacco, and the Anglo American Corporation, which owns a platinum mine in the country. Many of the 79 companies listed on the Harare Stock Exchange are, in fact, earning solid returns, despite the daily misery of most Zimbabweans amid severe shortages of food, electricity and fuel. Last year the London-based commodities firm Lonrho began an investment fund called LonZim, aiming to snap up investments before the collapse of Zimbabwe's government. Zimbabwe's immense mineral wealth was "cheap as chips" and going for "fire-sale prices," Lonrho Africa's chairman David Lenigas told reporters when the fund launched. Investors willing to take the risk now could be well positioned to take advantage of the immense opportunities of a post-Mugabe economy being rebuilt from scratch.

Western governments have been slow to try political negotiations, or even to enact cost-free sanctions against Mugabe. In part, this is because European and U.S. officials believe that the African Union — whose summit is underway in Egypt — should spearhead negotiations on Zimbabwe. Yet the West has so far balked at the solution which South Africa, the most important player, has in mind: a deal for Mugabe to share power with his enemies in exchange for amnesty from prosecution in an international tribunal. It was only last week that Britain stripped Mugabe of the honorary knighthood conferred on him by Queen Elizabeth II in 1994, and canceled a planned cricket series between England and Zimbabwe. The country's athletes are headed to next month's Olympics in Beijing; among them is Kirsty Coventry, who won a swimming gold medal at the Athens Olympics in 2004, earning her the affectionate nickname "golden girl" from Zimbabwe. By contrast, South Africa's athletes were banned from Olympic competitions for three decades, and being barred from international competition in rugby and cricket was a psychological blow to the white minority.

"There has been an element in Britain and elsewhere which sees these sports teams as victims," says Cargill, "There is an uneasiness with making them suffer."

Yet even long-suffering Zimbabweans know that no regime is forever. Back in 1965 the country's white ruler Ian Smith — who declared unilateral independence from Britain of what was then called Rhodesia — vowed that "not in one thousand years, not in my lifetime" would black majority rule come to the country. Fifteen years later he retired to his farm, after being ousted from power — by a liberation movement led by Robert Mugabe.

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C4 pays £150,000 to free kidnapped film maker from terror camp

Langan, a father of two from west London, and his interpreter were freed last Sunday

Jerome Starkey and Dipesh Gadher

Channel 4 paid a £150,000 ransom to secure the release of a documentary film maker who was held hostage for three months after trying to make contact with Al-Qaeda’s second in command.

Sean Langan, 43, was held by criminals linked to the Taliban at a terrorist training camp in a lawless border region of Pakistan.

His kidnappers threatened to shoot the journalist and his interpreter if a ransom was not paid.

The two men, who were working for Channel 4’s Dispatches programme, were released after an Afghan go-between hired by the broadcaster delivered a briefcase full of cash to their kidnappers. The Foreign Office is believed to have warned Channel 4 against paying any money, fearing that it could inspire copy-cat abductions of westerners.

Langan’s family and the broadcaster learnt he was being held hostage eight weeks after he disappeared in March. They hired well-connected Afghan journalists to negotiate his release.

Langan, a father of two from west London, and his interpreter were freed last Sunday. The film maker is now back in Britain.

“I thought it would be a miracle if I got out of there alive,” he said this weekend. “Death was at my door every night. It makes you see your life like never before.”

Langan, who has made two previous Dispatches films in Afghanistan, lost three stone to a bout of dysentery during his time in captivity at a mountain compound in Pakistan’s Federally Administered Tribal Area (FATA), close to the Afghan border. He and his Afghan interpreter were kept in a darkened cell, measuring 8ft by 8ft, within earshot of a Taliban firing range.

“It was a constant barrage,” a close friend in Kabul said. “They could hear machineguns, antiaircraft guns and rocket-propelled grenades going off the whole time. But they weren’t being shot in a contact [firefight] – it sounded like training.”

The two hostages were given access to a radio tuned to the BBC World Service, but this only added to their despair when they failed to hear any news about their plight. “I reasoned that if I wasn’t on the news, then no one was even looking for me,” Langan said. “And yet, bizarrely, I never gave up.”

His captors eventually made Langan call a friend in Kabul and explain that he was a hostage and that he would be killed if their demands were not met.

British intelligence was immediately called in to investigate, but sources claim that Channel 4 executives were loath to cooperate with the Foreign Office because they feared the government would try to stop them paying a ransom.

At one point MI6 officers – acting on the orders of Cobra, the top-level government security committee – raided the hotel room in Kabul where Langan stayed before the fateful assignment. They were searching for clues that they suspected Channel 4 was refusing to share.

Langan had travelled through the Khyber Pass in March to meet a group of men in Peshawar who promised to introduce him to Siraj Haqqani, leader of the Taliban in eastern Afghanistan, and get him answers on video from Ayman al-Zawahiri, Al-Qaeda’s deputy leader.

The men claimed to be members of the Taliban, but security sources in Kabul dismissed them as “two-bit criminals” interested only in money. “They had very close links to the Taliban and they were based in a Taliban area but they weren’t the real deal,” one official said.

The men blindfolded Langan and his interpreter and drove them beyond the safety of Peshawar on March 28 to Bajaur Agency, the northernmost district of FATA, which is known to be a Taliban stronghold.

“They’d given the men their cameras to take up separately, so they could check they weren’t bugs or bombs,” a friend of Langan said, “but after three days the cameras didn’t show up and they knew something was wrong.”

Langan and his interpreter were held in a spartan cell, which had a hole in the ground for a toilet, and were brought two meals a day of bread and “stringy” meat.

Four days after their arrival at the mountain compound, they were told they had been kidnapped. “They said to my translator, ‘You are working for foreigners, so you are a spy’,” Langan said. “And they said to me, ‘You are a foreigner, so you are a spy.’ I thought we were dead for sure because the Taliban usually execute spies summarily.”

Langan’s captors are thought initially to have demanded more than £1.5m and the release of high-ranking Taliban prisoners in return for his freedom.

They apparently dropped their price after senior Taliban commanders turned on them for abducting a journalist in their name inside Pakistan at a time when the international community was heaping pressure on Islamabad to drive out insurgents.

“Sean could hear the Pakistani authorities denying the very existence of Taliban safe havens on the radio, but he could hear them training every day,” a friend said. “He was terrified his kidnappers would just kill him if it got too political and dump his body back in Afghanistan.”

Langan, who was allowed to write a journal during his ordeal, kept a candle burning at night so that he could see the face of his killer if someone entered his cell to slit his throat.

Friends said he came to terms with the idea of being shot but was afraid that he might be beheaded. He was plagued by the thought that his two sons, Luke, five, and four-year-old Gabriel, would think he had abandoned them.

Sources close to the negotiations revealed that Channel 4 agreed to pay a ransom of $300,000 (£150,000) for his freedom. Langan had refused to leave without his interpreter.

Channel 4 said: “This was a very complex and delicate negotiation and Channel 4 provided Sean’s family with support and expert advice. We don’t think it is appropriate to go into the detail of the dialogue that was necessary to secure Sean’s release. We shared information with the Foreign Office throughout this process.”

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Gold revs its engine and squeals down the track

Myra Saefong's Commodities Corner

Prices were stuck in a $50 trading range until the Fed sent the dollar reeling

By Myra P. Saefong, MarketWatch

SAN FRANCISCO (MarketWatch) -- The U.S. Federal Reserve gave gold the fuel it needed to restart its engine and the precious metal has already driven through the trading range barrier it's been stuck in for the past month.

old futures had been trapped in a $50 trading range between $860 and $910 an ounce on the New York Mercantile Exchange since May 28. It climbed past $920 in electronic trading Thursday evening as the U.S. dollar slumped in reaction to the Fed's failure to signal urgency to raise rates to curb inflation.

On Wednesday, the Fed decided to hold short-term interest rates steady at 2%, but sharpened its focus on inflation, saying that the risks posed to the economy by upward pressure on prices have increased. See full story.

"Gold broke decisively out of the trading range that had constrained it as investors came to realize that the Federal Reserve won't be able to begin a rate-hike campaign until 2009," said Brien Lundin, editor of Gold Newsletter.

'Buy gold! Buy silver! Buy them because they're the only defense against what's happening in all the other markets.' — Dale Doelling, Trends In Commodities

The Fed's policy statement essentially acknowledged the "trick box" the central bank is in -- "facing growing inflationary pressures, but unable to raise rates while economic conditions are so weak and with a national election so near," he said.

That combined with growing expectations that the European central bank will begin its own rate hikes well before the Fed can act to create a bearish environment for the U.S. dollar which in turn, provided a very bullish outlook for gold, he said.

"People are finally coming out of the fog and realizing that we're in a world of hurt and people are plain scared," said Dale Doelling, chief market technician at Trends In Commodities.

"Stocks are in the toilet, the dollar is getting hammered, oil is going through the roof, food commodities are in the stratosphere [so] there's only one solution," he said. "Buy gold! Buy silver! Buy them because they're the only defense against what's happening in all the other markets."

Fed muck

The Fed's in quite a predicament as it tries to help improve the economy and most scenarios point to higher prices for gold, analysts said.

Video: Rally in gold futures

James Steel of HSBC says that record-high crude oil and dollar weakness are boosting gold prices. (June 27)

Fed Chairman Ben Bernanke is "caught between wilting growth and rising inflation," said Julian Phillips, an analyst at GoldForecaster.com. "With such toothless words against inflation, their rate-holding action told [everyone] that they can expect no interest rate support for the dollar in the foreseeable future."

"This is positive for precious metals," he said.

Gold's value as a hedge against inflation -- especially as it pertains to a weakening dollar and rising oil prices -- helped lift prices for the metal to nearly $1,034 an ounce in mid-March, the highest futures price level ever recorded.

'Inflation is a lot like toothpaste -- once it is out, it is very hard to get back into the tube.' — David Beahm, Blanchard and Co. Inc.

And with ongoing concerns about inflation and a slowing economy, gold may be poised to return to record territory, analysts said.

"Inflation is a lot like toothpaste -- once it is out, it is very hard to get back into the tube," said David Beahm, a vice president at coin and precious metals retailer Blanchard and Co. Inc. And gold is a "tremendous hedge to both protect wealth during these inflationary periods and also generate positive investment returns when other asset classes decline in value."

The Fed's policy statement noted "two situations weighing on the economy: tight credit and the housing contraction -- that could be best addressed by an accommodative monetary stance," said Lundin. But at the same time, it noted just one, high energy prices that could be combated by a tighter monetary policy.

Crude prices climbed near a record $140 a barrel earlier this month and U.S. retail prices for regular gasoline stand near an all-time high above $4 a gallon.

"In short, they're damned if they do and damned if they don't," said Lundin. The Fed can only talk inflation down and talk the dollar up for now. "It won't be able to take any real, substantive action until after the fall elections."

Dollar doom is gold's boom

Of course, at the root of the issue for gold is the dollar, Lundin said.

"Whatever developments drive the greenback will send gold in the opposite direction," he said.

The Fed can protect the U.S. dollar by sharply increasing rates, but that would sink the economy and make servicing our huge debt loads unmanageable, said Peter Spina, an analyst at GoldSeek.com. So the Fed "must keep rates low and keep liquidity in the system, which will ultimately lead to further debasement of the dollar's value," he said.

Protection for the dollar can really only come in the form of confidence or perception and then capital controls, he said.

Spina said he senses "increasing desperation" on the Fed's part and if the economy hasn't recovered as we enter 2009, "the confidence game could unwind quickly."

The Fed is "in a corner and the U.S. dollar is going to be a victim of their policies," Spina said. "It already has been punished harshly." See full story.

No all-clear flag quite yet

Still, the market hasn't yet set out the all-clear flag for gold to move up.

August gold futures need to close above $940 before we have a technically significant breakout, said Trends In Commodities' Doelling.

Erik Gebhard, an analyst at Altavest Worldwide Trading, said the metal needs two consecutive price closes over the $920 area to "signify a lasting break to the upside."

But a break through the downside support near $864 would likely send prices below $800, he warned.

That's not impossible. If one of the central banks -- be it the European Central Bank of the Fed -- move on rates, the "currency logjam would break at that point too," said Jon Nadler, a senior analyst at Kitco Bullion Dealers.

"Or it could be that crude oil finally breaks down and comes down to reality -- either one of these events are enough to get gold down to $800 (or $770), and we better hope that bargain hunters step in at that time," he said.

Beahm admits there are quite a few things that could send gold prices below $850 -- including a strengthening economy, a slowdown in emerging markets, a rise in mining production and a fall in demand, inflation, oil prices and global tension. But he said none of those are likely.

Doelling said he'll stick with his prediction of gold above $1,350 by the year's end and silver at $25.

"I think you and I both have a better chance of winning the Lotto than metals prices have of falling at this juncture," said Doelling.

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