Thursday, November 30, 2006

Jittery Stats Day Today

The PMI (Purchasing Managers' Index) is troublesome today (Source: kingbiz.com), making gold go up and the dollar go down. Yesterday, we had a somewhat confidence-inspiring GDP (gross domestic product) report at the same time as a disappointing employment report.

Markets are jittery at this juncture, because they know the Fed is watching all of these stats and will act according to their interpretation of them, by adjusting their the discount rate and/or the Fed funds target rate.

It is these adjustments that have helped to cause the recent real estate boom, in my unscientific opinion, and they will also cause the coming sticky situation when the Fed cannot decide whether to support the American economy by lowering rates, or to support the US dollar by raising rates.

Iraq isn't the only rocky hard place the US finds itself caught up against.

This gives me an oblique chance to poke some fun at a Federal Reserve booklet called "The Story of the Federal Reserve System," put out by the Federal Reserve Bank of New York in 2004. Some of these booklets are well done, and some are full of baloney. Here's one objectionable frame (click on it for a larger version):

Federal Reserve System booklet extract

And here's what I say it should read (click on it for a larger version):

Parody of Federal Reserve System booklet

More next time. (Let me know if you can't read the text in the bubbles.)

Wednesday, November 29, 2006

Golden Words Out Of India

Even the Indians understand that gold has a place in any monetary system. S.S. Tarapore, former deputy reserve governor of the Reserve Bank of India, is recommending that "the government allow the RBI to increase the share of gold in the country's foreign exchange reserves in order to diversify risks arising from volatility in global currencies," as reported in the Business Standard. (Source: myiris.com)

beadslrg
[Thanks to jewelofthelotus.com for the photo.]

This is another voice among those we've already heard coming out of Russia, the Middle East, and China. All of these countries have huge stocks of US dollars in their accounts, and they are increasingly afraid that the US dollar's long-standing reputation as a store of value may be waning.

Do I have to keep repeating myself? You can take gold out of the standard, but you can't take the standard out of gold.

Tuesday, November 28, 2006

Dollar/Euro Race To The Bottom

The Financial Times focuses in on the French reaction to the US dollar's recent weakness.

It scares them, you see, because dollar weakness means less exports to the US in the short term, which in turn affects GDP and hence people's optimism or lack of same regarding their economy.

I did some calculations last night, and for the first time I realized that today's exchange rate is about the same as it was back in the 1970's. That surprised me, because at that time I was living in France and getting about five French francs per dollar. Today, at $1 = Euro 0.76, that makes the dollar worth about FF5 again. I was expecting to see something more like FF3 on my calculator, but I momentarily forgot that the Europeans are inflating their currency just as fast as we are.

Yeah, I guess it's indeed a race to the bottom.

downhill_domination_race_online
[Thanks to ridefree.fi for the photo.]

Everyone's doing it, even the Swiss, albeit less quickly. I used to buy Sw.F.4 for one dollar, and now it's Sw.1.20 per dollar -- which I guess makes the Swiss franc the tallest midget, in fact, and not the dollar, as is widely believed; but because Switzerland is so small in geopolitical importance, and probably because they are so discrete, no one is taking notice. Doesn't seem like there'd be enough of those feisty little francs to go around, does it?

Just for info, here's the gold situation, so you can get a more precise idea of how fast these currencies are being devalued by their keepers, i.e. the central banks. Let's take an ounce of gold, for example.

One ounce of gold in 1971 versus 2006:

US dollars: $35 vs. $640

Euro: E.85 vs. E500 (figures based on the use of German mark for 1971 value)
(Source: gold.org)

Sw.F.130? (just a guess) vs. Sw.F.700

Sunday, November 26, 2006

French 2007 Presidential Elections: Hello Again, Monsieur Le Pen

The slate is just beginning to warm up for the April 22, 2007 Presidential first round. The results will be very important in determining the future of France's republican democracy, and hence of its economy, its social stability, and its adhesion to the European Union, or at least to the EU's stated goals and principles.

The Left

segolene royal
[Thanks to 20minutes.fr for the photo.]

The socialist left is united behind the Lady in White, Segolene Royal. Ms. Royal loves to address her constituency as "les militants." She has yet to define her platform in great detail, but we can glean what her party intends in the following sentence from the Socialist Party website (my translation):

"In deference to the values of democratic socialism, we want to rely on the power of government, the State, local associations, but even more on the citizens and social forces, to reign in capitalism and delimit the market to the economic sphere, combat inequality, redistribute wealth, preserve ecological balance -- in one word, transform society."

Hm. No small ambition.

On the economic front, which I believe to be the foundation of any successful society, they do not bring much specificity to their economic platform, either on their site or anywhere else that I've seen or heard to date. It seems these petty details will be ironed out in 2007 (before or after the elections?) through a "National Conference" of the various social partners, "to define general orientation and specific proposals concerning employment, salaries, work conditions and the nature of the social safety net, in both the private and public sectors." This vagueness is not very reassuring to me, but perhaps it will suffice for the fervent and religiously faithful militant leftist voter base.

Basically, we can assume what they want to do is re-nationalize the privatized industries and re-instate job and salary guarantees, i.e. undo all the hard work of the present government to disassemble these corporate and labor straightjackets. French businesses need to become more competitive, so they can hire more freely and get all those unemployed "hooligans" off the street; but the left doesn't agree with the present administration's free-market policies. The details of the left's alternative top-down cure-all will be debated in the above-mentioned national conferences. (More haze, at least up to this point.)

The Right

The right (or what the French call the right, which is more like the cent... no, actually in France it's just a little right of left) is less unified. You have (1) President Chirac, who may run for a third term (some say to avoid prosecution for a few alleged criminal dealings while he was mayor of Paris, but in fact Chirac has already covered that base by appointing an important and friendly judge to the pertinent position); (2) Nicolas Sarkozy, Chirac's feisty and well-spoken Minister of the Interior, who seems to have outshined Chirac's Prime Minister De Villepin through his aggressive national security measures and more open and hip marketing to France's younger voters; and (3) Francois Bayrou, running for a more centrist party and trying to capitalize on government corruption on both left and right. (My sentimental favorite, Edouard Fillias of the "Alternative Liberale" -- "liberale" in the classic-economic sense, i.e. an equivalent of our Libertarian Party -- doesn't have a chance in hell, in spite of their youth, enthusiasm, amazing lucidity, and courage.)

Monsieur Sarkozy seems to be the frontrunner.

nicolas sarkozy
[Thanks to i.esmas.com for the photo.]

The Others (of which there are many)

There are in all thirty-something candidates so far, all over the spectrum. The dark horse will probably be the delightful and scary Monsieur Le Pen of the controversial and allegedly fascist-leaning National Front Party, who surprised everyone last time by coming in second in the first round, in front of the then-ruling socialists.

This year, there is a concerted effort by the powers that be to keep him off the ballot through pretty murky methods, in order to avoid another such surprise. This time, Mr. Le Pen will probably be required to obtain 500 official government dignitaries' signatures to sanction his candidacy, and the present administration is threatening to make these signatures public. He claims that few officials now in office will dare to sign openly for him in view of the obvious conflict of interest.

jean-marie le pen
[Thanks to cafebabel.com for the photo.]

In spite of a lack of visibility, due to the media's self-imposed censorship, Monsieur Le Pen is already at something like 17% in the polls according to a LeFigaro.fr story. The effort to silence him has backfired, of course, and his popularity is rising. In the 2002 elections, his poll figure was around 9% at this juncture, so he's off to a good start.

Even though the other two frontrunners are ahead of him in the polls so far, I would not underestimate him; he's an eloquent, witty, astute politician, albeit a bit decrepit at 78. He zeros in on the other candidates' weaknesses. His verb is acute and his reflexes alive and well, in spite of a minor hearing deficiency. He also has a daughter who has inherited his qualities and his politics.

The progression of his popularity over the years, probably paralleling the public's increasing perception of what we could label a xenophobically fused "crime/immigration problem," can be visualized nicely here.

This will be a fun ride.

For an interesting expose of why socialism is not a good thing, readers can refer to the Austrian economist von Hayek's work, The Road to Serfdom. A simplified Reader's Digest version can be found here. You can also download a longer RD excerpted version, complete with cartoon illustrations, here.

Saturday, November 25, 2006

China's Dilemma

Guan Tao, deputy director-general of the general affairs department of the Chinese State Administration of Foreign Exchange (SAFE), has spoken the truth like a child.

chinese-child4
[Thanks to selasskoli.is for the picture.]

Reuters reports a few of his statements:

"The U.S. buys cargo, and countries with a trade surplus buy U.S. treasuries -- they actually have no other choice. ... If I have a surplus on the trade account, if I have foreign exchange income, I can certainly invest part of it in non-dollar assets, but the size of the market for non-dollar assets is very limited so the great majority of foreign exchange reserve assets has to be invested [in] U.S. financial markets."

Otherwise stated: "They've got us by the ying-yang." [My words.]

May I suggest gold to Monsieur Guan Tao? And May I also suggest they stop the pegging? (For an explanation of this maneuver, read the last part of my March 1, 2006 PrudentBear.com article "Trade Deficit Bubble or Credit Bubble".)

Either that, or stop complaining.

You can't have it both ways. You can't give an artificial boost to your own manufacturing sector by pegging your currency to the dollar, and also have a diversified reserve account.

I also read that Paulson and Bernanke will be traveling together to China to make their case, which is strengthened by the fact that trade-barrier Democrats are now in power in the US.

Present and Future Uses for Gold

Gold is not only used for jewelry, teeth and coins. (See my previous post for an interesting photo of what they call "grills.") It has many more uses and is the center of some very interesting research, which you can read about at the Mining Journal Online.

Saincap_chips
[Thanks to americas.kyocera.com for the image.]

As most people know, it is used in catalytic converters and computers, but it is also showing promise as a catalyst in other technologies that may give us a cleaner environment. Other research is progressing on the use of gold to fight cancer.

At the end of their list, don't forget to add gold's capacity to retain its underlying value better than any piece of green paper. That's because (all together now):

You can take gold out of the standard, but you can't take the standard out of gold.

Inflationary Hot Air

For a more detailed discussion of some ideas concerning the potential origins of the current asset bubble hot air (if indeed that is what it is), read my published article at PrudentBear.com.

Friday, November 24, 2006

LA City Union To Strut Their Stuff At LAX Sunday

They don't know a good thing when they see one, to wit:

"This summer, after EAA [Engineers & Architects Association] members had worked two years without a contract, the City Council implemented its final offer to the union: a 6.25% pay increase over three years, from 2004 to 2007." (Source: LA Times.)

eaa
[Thanks to the EAA for the logo, which I tweaked.]

Now, how many of you wage earners have seen your pay go up in the last three years? My calculations show that from December 2003 to November 2006, the average paycheck has increased from $535.34 a week to $589.95 in nominal dollars, meaning a nominal increase of 10% over a three-year period. If you take inflation into account, the figures become $280.76 and $282.11 respectively in 1982 dollars (that's what they use in the stats), or an increase of 1%.

I continue.

"The union had sought increases ... matching those granted Department of Water and Power workers."

Oh I see. So how much do you suppose the DWP workers have managed to obtain? That's scary. In case you didn't know, government workers' salaries were some of the few that actually increased over the last three years. That's because it's easy for City and Federal wage negotiators to be generous with your and my money.

"Union officials said that they reduced their financial demands in recent discussions with the city, but that the city was not willing to compromise [and raise their 6.25% retroactive offer]."

Good grief.

More reassuring is this note:

"EAA's leaders have a record of failing to deliver on threatened disruptions in the city. Before a two-day strike at all city offices on Aug. 22 and 23, the union suggested its walkout would force the closing of runways at LAX, send sewage from the Hyperion sewage treatment plant into Santa Monica Bay, and create gridlock in downtown Los Angeles. None of those problems materialized."

Nice guys, aren't they? Sounds like mafia bully tactics straight out of the Bronx.

And for all you out there in Rush's Rio Linda who are earning $20,000 to $30,000 a year, here's the punch line:

"The union represents accountants, chemists, forensic scientists and other technical professionals making from $36,000 to $126,000 annually, with an average income of $74,500."

Poor fellows. I guess they can't meet their house-flipping adjustable-rate mortgage payments.

Mexican Free-Market Banking May Soon Outshine the US Sector (If Corruption Doesn't Get There First)

Wal-Mart has been trying unsuccessfully to open up banking services in the US for quite a while now. I'm all for it. It's high time the US banking industry felt some competitive pain.

Below are some interesting excerpts from an article at the NY Times. (You may need to register in order to read the original.)

mexpiggybank
[Thanks to nccbi.org for the photo, which I have tweaked.]

"In the United States, Wal-Mart’s application for an industrial bank — to process credit card transactions, the company said — is frozen. Community banks as well as larger ones have joined Wal-Mart’s more usual detractors among unions, small merchants and community activists to oppose the bank."

Yes, monopoly does have a way of spoiling market participants.

Okay, so if the US banks don't have the courage to face some competition, we all suspect the Mexican banking industry might need some, which is confirmed by the following:

"About nine years ago, [a Mexican citizen] put $80 into a Mexican bank. When she went to withdraw it, only $23 was left, the rest eaten up by commissions."

And today things are only modestly better:

"Banco Azteca’s figures suggest that given the chance, working-class Mexicans will use banking services, even when interest rates are high. It charges 45 to 50 percent for personal and consumer loans, but it grants them without fuss and makes payment easy."

Boy, those rates suck. But Mexican banks aren't alone in the gouging arena, because even US banks are raking it in:

"Citigroup’s Mexican subsidiary charges an effective annual rate around 62 percent on its Classic credit card, almost three times the rate for a comparable card in the United States."

Now we know that the private property situation in Mexico isn't stellar, and that is probably fundamental in creating this situation for reasons I won't go into here. But even so, let's say the banks could use a few more incentives to treat their customers better. Wal-Mart's presence would surely help, but:

"Some analysts question whether Wal-Mart will do much to lower prices. There is already competition among banks, yet their profits keep rising, said Clemente Ruiz Durán, an economist at the National Autonomous University of Mexico. 'Wal-Mart is going to come in under the same conditions,' he said. 'And it is not going to change those conditions.'"

I hope the Mexican government lets them in and gives them free rein to charge what they want. And if they do, Senor Ruiz Duran, I have a tiny piece of advice for you: Do not, repeat do not, underestimate Wal-Mart.

American bankers sure don't. In fact I'm curious: I wonder how many pretty pennies they've spent lobby-elbowing them out here in the US.

Fear For The Dollar: A Different Kind of Trade Deficit

It may be true that the trade deficit and current account deficit are not "deficits" in the accounting sense of the word, as I have tried to explain in an earlier post and more at length in this article over at Prudentbear.com.

However, as I also pointed out in those pieces, there is a factor propping up these deficits that America must guard carefully, and it is the world's faith in our dollar and in our management of its role in global monetary policy.

stilts
[Thanks to sevenseven.com for the photo.]

When it comes to the dollar's worldwide status, we're pretty cocky. You just have to listen to one of our Fed governers crowing about it in Germany the other day. I especially liked the passage where he says something like, "... and I note in passing that we're speaking English at this reunion, aren't we?" As though that were somehow proof of America's fiscal leadership.

But we must be humble and vigilant. Faith can move mountains, but it can also be a delicate thing. Goodness knows that confidence in our judgment is waning on a number of fronts, and that our hubris has gotten us into trouble more than once.

In our defense, the dollar is so dispersed around the world today, that every holder of them has an interest in propping it up. But this interest is a double-edged sword. There could come a time when they can no longer afford to sustain it. Uncertainty is a catchy virus. (See previous posts here and here.)

And it continues:

"People's Bank of China Vice-Governor Wu Xiaoling said East Asia needs to reduce its reliance on dollar inflows because of the risk of a further slump in the currency. China's foreign- exchange reserves exceed $1 trillion, the world's largest." (Source)

Yup, as I've said many a time, the Fed is between a rock and a hard place. If they lower rates, the dollar holders and speculators may panic and take it and themselves down for a ride, with repercussions for the economy. If the Fed raises rates, the US stockholders and speculators may panic and take workers, their pensions, and the short-term dollar down for the ride. Which will it be? Maybe neither; maybe everyone can hold steady indefinitely. But that doesn't seem to describe today's touchy market dynamics.

On the other hand, maybe a good panic would force central banks out of the monetary policy business. Now that would be good news.

Wednesday, November 22, 2006

Here Are Some Answers For Al Gore

An Englishman named Monckton has responded play-by-play to Al Gore's playbook. We climate and Kyoto skeptics can use a lot of this material for ammunition at the next dinner party.

To download a copy, look at the junkscience.com website in the post for November 22, and use your "find" feature to locate "Moncton of Brenchley replies". This will be a download of a lengthy piece with a tit-for-tat dialogue between the two.

I always enjoy a gentlemanly fist fight.

cat_play
[Thanks to petvets.com for the photo.]

Bernanke's New Monetary Policy Tinker Toy

How comforting to read that Federal Reserve Chairman Ben Bernanke is working on a new computer "factor model" program to determine monetary policy. Lanman's Bloomberg article doesn't go into the details, which is probably a good thing, being as econometrics is not amusing unless you're a mathematics geek.

In the same article, we read this:

'Bernanke, 52, also found that computers have their limits. As part of his research at Princeton, he ran a program to see what would have happened if a computer had set monetary policy from 1987 to '98. Forecasts from Bernanke's factor model were fed into the program, which adjusted rates based on certain rules. The result: Inflation and unemployment fluctuated by larger amounts than in real life, proof that Fed officials are better than software at making calls on interest rates. "We find this evidence for human superiority comforting,'' Bernanke wrote.'

Wait a minute. I thought he was playing around with another such computer model. Is he forging ahead with this idea in spite of his own research? Hmm.

If we thought Greenspan was difficult to understand, wait until we get their interpretation of the Tinker Toy From Econometric Hell.

Tinker Toy
[Thanks to baileysteppe.com for this one.]

Tuesday, November 21, 2006

Warsh on the Fed's (Surprising) Sources of Input for Policy

Federal Reserve Governor Kevin Warsh speaks plainly and clearly on this audio/video report at Bloomberg.

You will hear some surprisingly transparent admissions of humility on his part (speaking only for himself, of course.) He is aware of what he has called the Fed's "mirror problem," i.e. the fact that the Fed looks at the markets for information about business-related expectations, but that the markets reflect back an opaque mix of dynamic financials and muddy Fed-watching.

narcissus
[Thanks to students.sbc.edu/mckinney03 for the image.]

He admits that the Fed just doesn't know that much about inflation, money, liquidity, and financial markets. His candor is refreshing. Has the Fed turned over a new, more transparent communication leaf?

He seems also to be saying to his listeners that the Fed intends to make sure that markets realize the US government does not intend to play the role of lender of last resort for speculators, i.e. that given the current level of risk-taking, the securitization and risk-derivative markets had better get their act together. This statement is long overdue, and it may be the Fed's attempt to warn the markets that any moral hazard will accrue unto themselves, and not to the public, i.e. the US government.

Makes me wonder if the hazards haven't already been assumed, if the risks haven't already been underestimated by market participants, and if the Fed isn't trying to effect preemptive damage control.

Too bad the public won't be watching and learning from this very informative piece, but such openness is shuttered behind closed doors.

French Unrest: This Time the Demonstrators Happen to Have The Right Gear

Thousands of French firemen paraded today, and the fight between them and the "forces de l'ordre" police were violent. Things got a little out of hand: Fifteen policemen were wounded, and one police car went up in flames. (See the Liberation.fr article and another at Lemonde.fr, in the original French.)

French firemen on strike
[Thanks to liberation.fr and Angel Herrero Lucas, photographer.]

Firemen with protective gear threw distress missiles, iron rods, work site material and signs at police, who responded with tear gas. One policeman's leg was fractured from having been hit by a sledgehammer. In spite of police barrages, demonstrators were able to bring freeway traffic to a standstill.

Reading their literature, one wants to sympathize with the firemen: "More you're under fire, the less you earn! Firemen are enraged. Why?"

Cutting a fireman's pay just seems cold, if not immoral.

Well, wait a minute. Why are they mad? They are enraged because the government wants to take away the possibility of retirement at the age of 55 (like everyone else in French government service), plus full pay and some bonuses.

Now don't get me wrong; I can see their point: Why should they be treated unlike everyone else? And if anyone deserves this kind of benefits, surely it is the firemen.

But remember that one quarter of the French working population is employed by the government. That's a lot of people retiring at age 55. The French economy surely cannot finance these perks much longer and stay competitive -- oops, I mean regain their competitiveness.

The French slightly-right government is very aware of the problem; but perhaps they should start with other government employees, not the firemen.

Monday, November 20, 2006

Here's a Bubble That We Could All Use

Wages. Finally. Although I wouldn't yet call it a wage bubble, they're finally catching up with inflation. They're gaining, after five years of molasses moves. (See Christian Science Monitor article.)

Wait_For_Me
[Thanks to cottagearts.net for the photo.]

As usual, the little guy is the last one to get on the bandwagon of inflating numbers. Assets have swooned upward; corporate profits have climaxed; credit has exploded. Isn't it only fair that the guy at the bottom of the totem pole get a few crumbs.

wages since 1997
[Thanks to the Labor Dept - Clabaugh for the graph.]

Greenspan the "DBCB" - Double Bubble Central Banker

That line is from Caroline Baum of Bloomberg. She and the Cato Institute, no less, seem to agree with me that the Fed is responsible for our current bubbles. (See the Bloomberg article here; Cato hasn't yet released the summary of their 24th monetary conference entitled "Federal Reserve Policy in the Face of Crises," but she cites passages that agree.)

Double Bubble GumBall machine
[Thanks to oldtimeconfection.com for the image.]

In other words, the Fed can release all the "research" to the contrary that it would like, but they're just not credible. (See their feeble attempt to defend themselves in my previous post.)

Sunday, November 19, 2006

Treasury To Tighten Fannie and Freddie's Faucets?

AP's Marcy Gordon writes that the Treasury Department wants to increase it's oversight of the two mortgage GSE's mortgage origination capacity.

My comment is, you can turn the faucet all you wish, but that won't reduce the source of the water. Fannie and Freddie are just the messengers (albeit messengers that deserve a bit of sanctioning, if their bookkeeping skills are a reason to judge.)

These mortgage packages are being marketed to Wall Street, as the article points out. As long as there is money on the Street, there will be places to put it. What is the classic adage? Supply creates its own demand? If Freddie and Fannie weren't there to soak it all up, it would just find another outlet. (Don't forget your classics, now.)

As usual, government is barking up the wrong tree. They'd do better to examine the process behind the creation of the monetary wherewithal to buy all of these marvelous 21st century products.

WrongTree
[Thanks to joe-ks.com for this great photo.]

Central Bankers Preaching: "Do As We Say, Not As We Do"

The Group of 20 are meeting in Sydney, and here's the gist:

'"Faced with potential inflationary pressures, the normalization of monetary policy underway in many G-20 countries will need to continue,'' the Group of 20 central bankers and finance ministers said in a statement in Melbourne.'

(Bloomberg article)

jim bakker
[Thanks to aburriss.tripod.com for the photo of another preacher in the "Do As I Say And Not As I Do" School.]

Why didn't they think of that *before* they started their rampage of liquidity? It's a little late now that they've blown the world's economies into overdrive.

You can't have your cake and eat it, too. You can't pump up a slowing economy with hot air and then expect to be able to recapture that hot air afterwards. Hot air is hot air, i.e. it rises to the top and blows off into speculative space before you can say "Whoosh."

Now we must deal with the excess liquidity the Group of 20 has created. When I say "we" I mean the little guys, the guys and gals left holding the bag, the ones who don't speculate in Wall Street hedge funds, the ones who don't flip houses but who may have bought one way above his/her means through lender greed and deception, the ones who aren't borrowing money in Japan to buy American Treasuries but who think they have a 401K that is relatively safe because their employers are handling it.

I mean the ones who live paycheck to paycheck with 0.00% to 0.10% interest on their checking account and a savings account paying 0.10% interest as of 11/19/06 on up to $9,999.99 (and all of 0.65% on $10,000 to $24,999.99.)

G-20: You should be ashamed of yourselves.

Saturday, November 18, 2006

Recycled Petrodollars Holding Up European GDP?

So claims Erik Izraelewicz in a blog at lesechos.fr.

rec_bin
[Thanks to epa.gov for the image.]

Here's a translation of the pertinent sentences:

"The price of petroleum has tripled in three years, [Dubai's] purchasing power too. At this moment they are bringing in two billion euros a day -- enough to buy all the businesses of the CAC40 [French stock market] in less than a year."

[Translator's note: interesting to think that Europe must first buy petrodollars in order to purchase petroleum; therefore, the "petromonarchies" as he calls them must then invest those dollars, and apparently they have decided to buy back euros with at least some of it.]

"...for their economies, they have learned the lessons of the past. They used to invest in real estate or loan money to countries that were unable to pay them back. They got their fingers burned. Out of the question this time to make the same mistake."

"China and Russia are not the only ones interested in our large companies. So are, and we might say most particularly are, all these petromonarchies. For the last few months, they have been caught up in a veritable buying frenzy."

"Dubai, for example, has paid one billion euros for the 300 Travelodge hotels, 1.5 billion for Tussauds, ... five billion for the management unit of P&O ports. The next stage is this weekend. The target, this time, is Germany, the great German enterprises, the Lufthansas, Siemens, BASF and still others.... No real shock, therefore, to hear via the grapevine that Dubai wants to buy a participation in EADS."

"This recycling of petrodollars is, up to a point, good news for us. It maintains the good health of our stock market. It explains cheap money. In the end, it is one of the sources of our present growth rate. If these monarchies didn't recycle their petrodollars, the world would be in danger of falling into a state of paralysis. Let's remember: that's what happened after the petroleum shocks of 1973 and 1979."

See my own post regarding today's recycling of inflationary purchasing media back into the US and other economies, and how it effects our bubbles.

Could I Have That Again In English, Please?

Read an intriguing transcript of part of a conversation among analysts and a Citigroup representative, published in a Wallstreetexaminer.com blog post entitled "Conference Calls: Like Catching a Snake in the Grass." (Thanks to reader Idaho_Spud.)

I understand this blogger's confusion and paranoia. Too bad the big players can't speak more plainly. No wonder the ordinary investor doesn't trust 'em.

Speaker
[Thanks to presentationteam.com for the image.]

The blog also has a link to this amusing video at Youtube on the real estate market. I happen to know a fellow who is contemplating bankruptcy because he got caught in the mortgage rate and equity squeeze, so perhaps this pessimism is catching on.

Diverted Profits Distorting the CPI?

Sears just revealed that one-third of their before-tax and minority-interest profit "came from investments as sales fell." According to an article by Coleman-Lochner at Bloomberg, Sears is no longer just a retailer, they are now the "Lampert Hedge Fund." This is tongue in check, but there's some truth to it.

sears
[Thanks to Sears for the logo.]

If Sears's and other large companies' profits are not coming 90% from sales but rather from investment activities, and because investments are not included in the CPI, obviously the CPI cannot reflect excessive monetary supply to the degree that money is taken out of the normal production cycle.

Hedging and derivative investing are activities that may be useful to some degree, but they also explode in times of excessive monetary supply. Somehow the excess seems to know how to work its way through the system and make some people very rich for a while, alighting on a few asset sectors, and then much of it just disappears into thin (hot) air -- which seems normal. Could this be because the market senses the hot-air money (Fama's Efficient Market Hypothesis) and channels it directly into speculation, most of it completely bypassing the normal production channels, and thus the CPI remains relatively unaffected? In the Great Depression, general prices were not rising; nor are they rising now.

This Sears example shows how production can take a back seat to profit from other activities, i.e. how capital can be diverted into less productive profit not reflected in the CPI. To take this one step further, this could confirm that the push-the-string Keynesian policies of the Fed may be causing the bubbles after all without their knowledge, because the statistics on which they judge the performance of their policy understate money creation and deform reality. The Fed has become a bunch of mathematicians who believe firmly in the accuracy of their statistical tools. They forget the old rule: "Garbage in, garbage out."

Sears is most likely not the only one doing this. Profits have been huge all over the business spectrum, and the GDP and wage increases seem only moderate in comparison. This could constitute a third source of the "hot bubble money" I've posted about here and here.

Friday, November 17, 2006

Fed's Fisher Hails The Dollar As World's Best Currency

Bloomberg has a great section of Audio/Video Reports. One of them is Fisher of Fed Says Replacing Dollar as Reserve 'Very Difficult'".

He has great faith in the Fed's capacity to control the store-of-value aspect of the dollar. Although I really like his sense of humor, I get a sense that America has a bit of hubris when it comes to seeing itself with historical perspective.

Currencies come and currencies go. As he says himself, there is nothing new under the sun. Every great nation in history has lost its superiority through debasement of its currency. We may be debasing it less than most, but we are debasing it all the same. I guess in Fisher's mind it's a race to the bottom where the last one wins.

tortoise and hare
[Thanks to barney.gonzaga.edu/~chongls for the image.]

Thursday, November 16, 2006

Boeing Counterattacks

The fur will soon be flying over in Belgium once American defenders of Boeing arrive with their arsenal of arguments against the French government's recent move to help Airbus. (See my recent post).

cat_fight
[Thanks to parkviewdrama.com for the photo.]

Get the American viewpoint here at The Seattle Times in July of 2004. I guess this is a repeat.

The French vision admits that Airbus has profited from several billion of aide, whether directly or indirectly; but they accuse Boeing of having received $30 billion since 1992 when the US and Europe signed an agreement about such things.

Boeing claims that this is not true, that the billions Boeing has received from the US government were payments for military aircraft. You'd have to admit that is hardly a gift, assuming they paid market price.

Fed "Govna" Kroszner Believes Worldwide Inflation Has Been Conquered

FOMC Member Professor Randall S. Kroszner gave a great speech at Cato, in which he points out that on a global basis the inflation picture has never looked so good. I have to hand it to him in the sense that he makes undeniable points, like this:

"In the United States and in virtually every country around the world, inflation has declined, and in most countries dramatically so."

kroszner_randall
[Thanks to the Federal Reserve website for the photo.]

I will have to agree. The stats are there to prove it:

"In the advanced economies, for instance, the median inflation rate has fallen from 7 percent in the 1980s to 2 percent in the current decade. In emerging markets, the median inflation rate has fallen from 9 percent to 4 percent over the same period."

And why is that? Here is his answer:

"In a nutshell, I believe that the factors of globalization, deregulation, and financial innovation, arising partly in response to episodes of high inflation, have effectively eroded the central bank monopoly on the provision of monetary services and have enhanced global competition among currencies."

Okay, agreed.

In fact, I have very few qualms with his statements, but more with his omissions.

He calls inflation a tax imposed by government. I would expand his recrimination of the government to include the Federal Reserve. Let's call this tax an extra expense that business must pay to adapt to Federal Reserve meddling, with or without government encouragement.

He says citizens of the world can now sidestep their government's efforts to slap them with this additional burden:

"Globalization, deregulation, and innovation make it easier for citizens to move their wealth out of nominal assets in the local currency should their government resort to an inflation tax."

I would rephrase that. I would say:

"Globalization, deregulation, and innovation have allowed the world's businesses and individuals to survive in spite of the fact that they must deal in fiat currencies that have no standardization and that are at the mercy of central bankers' whims, experiments, and efforts to make it look like they're in control."

At no time does he mention the other alternative: A free market banking system with government-maintained standards of exchange for purchasing media based at least in part on gold.

He believes that "these changes experienced around the globe [represent] the conquest of worldwide inflation." I get his point, but I might not go that far. My more modest position centers around the fact that a debasement of our currency from $100 to $48 in 35 years is not okay, especially in these times of technological advancement -- and that's with inflation at 2% on average. At 3% it's $100 to $35 in as many years.

He may respond that the market has incorporated an expected inflation rate into their calculations and therefore no damage is done. I would disagree to the extent that this may be true of the people who understand the situation, but it penalizes those who are the worst off and who don't even know they should protect themselves from monetary erosion, i.e. the little guy, the holders of money market funds and the little old ladies on fixed incomes. We owe it to them to iron out all the kinks, not just the big ones.

And the solution may be in less Fed meddling, not more, but the Professor has no incentive to think this. He's better off defending his job by saying this:

"The increased competition among currencies has changed the ability and the incentives of governments and central banks to pursue high-inflation policies. As I will argue, such changes have allowed improvements in central bank independence, governance and credibility, thereby leading to better inflation outcomes."

I would change that to read:

"The increased competition among currencies has changed the ability and the incentives of governments and central banks to pursue high-inflation policies. Such changes have rendered central banks irrelevant, except to the degree that their meddling increases business cycle irregularities and maintains inflation above zero."

Wednesday, November 15, 2006

The "Peoples Central Bank"? Now We're Talkin'

Metalspace has some interesting comments on the future of gold, and most particularly how the dehedging might affect it.

Here are some extracts from their post:

"Investment demand is likely to continue to increase significantly through bullion-backed securities (Exchange Traded Funds ETFs) and through Comex and Tocom. ETFs are now acting as a 'Peoples Central Bank,' buying gold, thereby taking gold out of the system and countering Official Sector sales. The total investment in ETFs, bench-marked against Central Bank holdings, now ranks No. 11 – at 585 tonnes."

PCB
[Thanks to CNN for the original image that I tweaked.]

I really, really like that phrase "Peoples Central Bank." And he's not talking about China. He's paralleling my own catchphrase: "You can take gold out of the standard, but you can't take the standard out of gold." He's speaking of a People's Jury of Monetary Policy. That's exactly what we need. I could have said, "You can take power away from the people, but you can't destroy people power."

Here's some more:

"For the record, Credit Suisse has dropped their gold price forecast (made in May) for 4Q06 from $690 to $630 (which is obvious since half the quarter is now gone), and from $700 to $665 for 2007, from $725 to $700 for 2008. and from $767 to $751 for 2009. But for 2010, they kept the forecast at $800."

Did you say "$800"?

And this:

"Credit Suisse is reporting that goldminer producers have de-hedged 10.24 million ounces (318 tonnes) YTD, and that already is twice greater than the 131 tonnes de-hedged for the whole of 2005. That statement tells anybody who can read that gold mining companies expect the price to ramp up from here."

I agree with the gold mining companies.

He also has some astute comments about the conjuncture of dehedging requirements, declining mine quality, and -- counterintuitively -- an increase in the gold price, and what it might be doing to those gold producing companies who didn't believe in this turn of events a few years ago.

Tuesday, November 14, 2006

France Bails Out Airbus

How does 145 million euros sound? France's Airbus (EADS) is in trouble as everyone knows. "Not to worry," says Dominique de Villepin, "Daddy's here."

de villepin
[Thanks to lemonde.fr for the photo.]

(Read the original at lemonde.fr.)

But we expect this kind of market intervention from the socialists. We'd never do anything like that here in the good old US of A, right? .... Right???

Monday, November 13, 2006

How Low Will The Mad GW Scientists Go?

Matt Drudge and the US Senate Committee on Environment & Public Works bring us the news that the UN Environment Programme has published a scare-mongering book for kids called “Tore and the Town on Thin Ice.” Get your own copy here.

I am disgusted at how low these vermin will go. This is the equivalent of propaganda, and to pick children as the victims is a typical tactic for these unscrupulous doomsday madmen in white coats.

Here is my version of the booklet (click to get a larger version):



Democratic Legislators Spell Stronger Unions Spell Bigger Government

The unions must be licking their chops at this point. The political process is now sitting on the table nice and hot, and all they have to do is plunge in. And believe me, they will.

Little_Red_Riding_Hoodtiny
[Thanks to summitcds.org for the image.]

To wit:

"Before union bosses started shelling out millions of their members' dues this political season, many made their top priority clear to would-be recipients: Pass the misnamed Employee Free Choice Act (EFCA). The bill, which would end secret ballots for employees deciding whether to join a union, is ironic given that the politicians who would make such a law were ushered in by a secret ballot vote. Unfortunately, EFCA is closer than ever to passage with the recent victory by union-beholden politicians."

Read more here

And this:

"Government employees are more than four times likelier to be unionized than their private-sector counterparts. Taxpayer-funded jobs are the only sector of the economy where unions have consistently grown for several years. And taxpayers are left with the check, rung up by government employee union officials and the politicians all too eager to appease them."

See more here.

I've read statistics that say federal employees are making twice as much as the private sector employees. Other sources say that "the median public employee netted $39,416 in 2005, compared with $32,500 for the typical private-sector employee." [Source: unionfact.com]

More On Hot-Air Money

Another source of the money fueling the US bubbling-asset economy may be coming from outside the US. It could simply be the cumulative effect of the whole world's loose monetary policy.

Don't forget that: (1) Half of American Treasury debt is held in the hands of foreigners; (2) a third of that is held by the Japanese alone; and (3) using the Japanese example, Japan has been pumping yen full throttle into their economy for several years now. In fact, who hasn't, to some degree or another; but Japan is particularly egregious.

There is a dispute going on between the Bank of Japan and the Japanese Treasury Department. The Bank would like to continue raising rates and destroying all those excess yen, and the treasury doesn't want that to happen, even going so far as changing the statistics the Bank uses to calculate inflation, undermining the Bank's argument. [Changes were made in August 2006.]

Why isn't that money "benefiting" the Japanese economy? For two reasons. First, because push-the-string Keynesian economics doesn't work; and second because it's no surprise that the Japanese investor loves American debt. Who wouldn't under those circumstances? Hey, just think about it. They can borrow at next to nothing, and buy American Treasuries yielding 4.something. It's called the Japanese carry trade. And it's going on like there's no tomorrow.

But this game only works as long as the dollar holds its value next to the yen, and everything I've been saying recently points to a weaker dollar. So why do they continue?

It's all a question of timing. If America and the dollar can hold onto their "tallest dwarf" status in the mid-term and only allow a smooth slip instead of a sudden drop, maybe foreign investors can continue holding onto our assets with impunity "until things get better" (or at least until the foreign speculator can pull out his marbles and go home.) That's what they're saying to themselves. But keep in mind that this kind of Keynesian mob thinking led us up to 1980.

gold dollar price
[Thanks to kitco.com for the chart.]

Maybe central banks will come to their senses and begin to realize the value of holding some percentage of gold in their reserves. Maybe. But until the majority do, gold has been so undervalued for so long, and its role as barometer of the world's currencies so underestimated, that it must find a new level. Remember my old dictum: You can take gold out of the standard, but you can't take the standard out of gold.

I'm betting that level is up, at least in the mid-term, although long-mid-term it may ultimately settle around where it is now in the $500-600 range, barring a total dollar collapse (in which case the sky's the limit.) Until then, to what degree will the dollar-gold price fluctuate until its new equilibrium is found? That's anyone's guess.

China's Gold Reserves

China has been rattling its central vault door recently, declaring it will diversify its reserves away from the dollar and towards other currencies and gold. Here's an excerpt from an AFX News Ltd. article on the subject appearing on the forbes.com website:

"China's International Finance News quoted Zhou as saying the country has a very clear plan to diversify its reserves, though he later denied that China has any plans to accelerate this diversification.

"'If assuming China's economy were to remain flat and the one trln usd of reserves were to include five pct gold, then this would require gold reserves worth 50 bln usd. At today's pricing this would mean that over a 15-year period China would need to purchase 1,857 tons of gold, or around 124 tons per year,' Numis said.

"China's gold production has risen rapidly over the past few years and it now ranks in fourth place having produced 224 tons of gold last year, behind South Africa, Australia and the US."

The next question is, does China intend to "purchase" it, or does the government already own most of it outright? My research tends to make me believe that China is truly attempting to attract knowledgeable western companies to their gold production potential. They have opened the doors for exploration, simplified the permit process, and done everything they can to reduce skepticism about their long-term intentions. Australia has been the first to take up the challenge and has already established joint ventures with Chinese partners. Other companies are beginning to follow.

I suppose the remaining hesitancy westerners might feel stems from the fact that we don't know who the next generation of Chinese leaders will be and in what direction they'll steer their politics. In fact, even the Chinese must be asking themselves this question and making rice while the sun shines.

chiangmai ricefield
[Thanks to lostinthailand.com for the photo -- oops, well, it could have been in China.]


Saturday, November 11, 2006

If These Are Bubbles, Where Is All That Hot-Air Money Coming From?

Most people and even most economists believe it is the Fed that controls the money supply, and that it is Fed know-how that is maintaining our CPI within historically "reasonable" limits. A minority, however, think our present economy is in a falsely optimistic booming phase of a bubble-and-burst cycle started over ten years ago by excessive credit and money creation, and that the excess dollars are camouflaging themselves in assets rather than in the CPI.

bubbles
[Thanks to memorykeepsakes.co.uk for the image.]

There's plenty of evidence to support this idea, starting with the dot com and stock market bubbles that burst in 2001, the global real estate bubble that has started to turn in the US, and now the still growing corporate bond, finance industry, credit derivative, and developing country asset bubbles.

If the theory were to be true, statisticians might search deep inside the Fed and other central bank stats for corroboration; but those figures don't seem to justify the size of the bubbles we think we're observing. Some other money and credit-creation mechanisms must be at work.

Doug Noland is one of my favorite bubble theorists. He maintains that money creation is outside the Fed's control at this point, and that it is now manipulated in great part by a pyramid-scheme-like banking game involving the mishandling of a good thing called the securitization of risk. His latest commentary (Monetary Developments vs. Monetary Aggregates of November 10, 2006) paints a gaudy credit bubble that I will try to describe in layman's terms.

He explains how the creation of money could have gotten away from the Federal Reserve's monopoly over the last couple of decades through the financial industry's invention of a tool that at first had great potential as a safety net to insure healthy lender risk. Unfortunately, it has evolved into a monster money-making machine. Here's how it works.

1. A bank receives deposits, and its function is to lend that money out at a profit. (We won't go into fractional reserve banking here. Let's just assume it lends a fixed multiple of what it receives.)

2. The bank (or other type of financial institution) finds good borrowers with at least a decent credit score to whom they lend the money for purchases, say for a house, a car, or whatever the borrower fancies.

3. Instead of following up on the repayments through their own loan department, the bank now transfers those loans to an agency that will fulfill this task, but that also will package the loans according to the degree of risk, and sell the loans to the general marketplace.

4. The buyers of these packaged loans then buy insurance to cover the risk from individuals and companies who want to assume it for a price and who are supposedly able to come up with the cash should a default occur. So far so good.

4. The bank now no longer has any loans on the books, so it is free to make a second set of loans based on the same multiple of the deposits it holds -- in effect, using the loan-package buyers' funds to do so.

5. As you can imagine, this allows for an expansion of the lending, and the market pool of good borrowers (and the good borrowers' credit appetite) eventually maxes out. However, since the bank is no longer shouldering the risk from its own loans, the bank now lowers the bar for borrowing so that those with a lower credit score may take out loans. This expansion has presently extended into what some believe is dangerous territory; but this is only half of the problem.

6. The other half occurs when the buyers of these packaged loans either do so with what is called leveraging, i.e. they buy on credit themselves, or they sell these loans to others who do the leveraging. Hedge funds, for example, have sometimes been a source of unwisely leveraged funds that up to now are not under industry control.

Furthermore, according to Doug, much of the credit risk involved at this higher level is also "insured" in the same manner, only this time the insurers never actually pay for the loans they are "insuring;" they only need to pay in case of default. This so-called "credit derivative" process is repeated over and over again, in effect allowing the loan-package insurers to borrow ad infinitum.

The fundamental unknown here is that because this type of risk insuring (called "securitization") is a new industry, there are few standards such as those found in the ordinary insurance industry or in banking. Therefore, the loan and credit insurers in Stage 6, above, who do not have to come up with the principal of an insured loan unless there is a default, are leveraged beyond reason. It's true, when things are booming in the economy, defaults are rare. But what happens if things start to turn sour?

These two industries, loan risk securitization and leveraging risk securitization, are booming at a pace that is off the charts. No one really knows to what degree the "leveraging insurers" are capable of covering their positions, i.e. whether or not they could actually come up with the dough in a pinch. Obviously, a normal economic downward cycle could become violent if there has been distorted and excess credit creation beyond what these new industries can stand to lose; and in that case, our figurative house of cards become real and would fall.

As Doug puts it:

'When current perceptions change – when $ trillions of Credit instruments are reclassified and revalued as risky instruments as opposed to today’s coveted “money” – Dr. Bernanke will learn why a central bank’s monetary focus must be in restraining “money” and Credit excesses during the boom. And the longer this destabilizing period of transforming risky Credits into perceived “money” is allowed to run unchecked, the more impotent his little “mop-up” operations will appear in the face of widespread financial and economic dislocation – on a global scale.'

Scary stuff. Melodramatic? Maybe. But only maybe.

For a good understanding of money, the Great Depression, and the business cycle, I highly recommend a book written by Edward C. Harwood called "Cause and Control of the Business Cycle," published by the American Institute for Economic Research. It's out of print, but they may still have a copy available if you ask. Tell them I sent you.

Friday, November 10, 2006

Europe and China Wonder About The Strength Of The Dollar

Boursorama.com, a popular website in Europe (equivalent to our Yahoo Finance, I guess), declares that the dollar has been penalized by general uncertainty concerning the health of the American economy. Foreign exchange specialists are wondering again about the possibility of a Fed rate dip as soon as the first trimester of 2007.... The dollar is also under pressure after the declarations of the Chinese central bank governor, Zhou Xiaochuan, who said yesterday that China was thinking about diversifying its reserves away from the dollar in the coming years. [Translation]

Euro vs Dollar
[Thanks to synd.org for this Matt Carmody cartoon.]

The original text:

"Le billet vert a ete penalise par les incertitudes entourant la sante de l'economie americaine. Les cambistes s'interrogent a nouveau sur l'eventualite d'une baisse des taux de la Reserve Federale americaine des le premier trimestre 2007.... Le dollar est egalement sous pression apres les declarations du gouverneur de la banque centrale chinoise, Zhou Xiaochuan, qui a explique hier que la Chine reflechissait a une politique de diversification de ses reserves de changes dans les prochaines annees au detriment du billet vert."

Read more here.

This pretty much parallels my last post.

Thursday, November 09, 2006

Democrats vs. the Dollar

Democrats in control usually spells trouble for the economy, because they like to impose rules, regulations and taxes so they can redistribute income. They will increase the minimum wage, they will "tax the rich" (we must all learn to share), and of course they will block oil exploration off the US coasts and in Alaska, and maybe even try to find other ways to make life difficult for the oil companies and other big business.

Felicity sharing her popsickle with Erin
[Thanks to kurthfamily.com for the adorable photo.]

If the economy panics a bit and starts to show signs of real sputtering, instead of the slight stagflation it's now performing under the best regulatory conditions we've had in decades, you'd think that eventually the Fed will be forced to lower interest rates and start to pump more money into circulation (in spite of Mr. Lacker.) Treasuries would probably follow suit interest-wise, at least as long as there remains a demand for them.

Then we'll find ourselves awash in more money, and if the CPI still remains relatively immune to it all and we get more bubbles instead, this should at some point turn into more dollar drop. But -- how far can it drop and not cause a collapse of the Treasury market? Remember, about 45% or more of the outstanding debt is in the hands of foreigners who would be the first hit.

Yep, these will be interesting times. If the Fed can't squeeze the excess liquidity out of the system under the Republicans, just imagine what they'll do with a Democrat-tightened economy.

All this is good for gold. (Just talking to myself.)

Wednesday, November 08, 2006

The Economics of Politics: Libertarians Helped Republicans Lose A Few Elections

Or at least that's the gist of an article at The Economist.

"Hope springs eternal among third party afficionadoes, but the nature of the American electoral system, which directly elects representatives in a first-past-the-post system, makes it nearly impossible for third parties to gain traction."

loner
[Thanks to suescornerweb.com and topica.com for this photo.]

It's true that our system discourages third parties. It's the economics of "incentives matter," i.e. if there's no point to voting for third party candidates because they can't possibly win, most third-party enthusiasts put their party loyalty aside to see that their second choice doesn't lose. Only occasionally is a vote so close that a few third-party incurably-hopefuls can take away just enough support to sway the election.

On the other hand, sometimes good things can result from third party tenacity. For example, the Ohio Libertarian Party's candidate for Governor, Bill Peirce (running as an Independent) had enough clout to accuse Ohio's election process of being unconstitutional. And guess what? They won. The US 6th Circuit Court of Appeals agreed.

That's no small victory.

Also, the fear of letting a few third-party votes affect an election forces the major parties to sit up and listen. Perhaps this is better than the European model where third parties are legion and minority candidates can get very close to winning, like Presidential candidate Monsieur LePen of France's "Front National" Party, who is known for his fascist leanings and who almost won in 2002 and may again in 2007.

Tuesday, November 07, 2006

The Latest Global Bubble: Asian Commercial Real Estate

Asian rents in Singapore, Hong Kong, Japan, and China are rising rapidly, and REIT's (Real Estate Investment Trusts) are turning to these as a profitable investment. (See here for Ismail's take.)

Singapore
[Thanks to trillamar.com for the photo of Singapore.]

I guess Asian real estate is one of our current bubbles (along with US corporate profits, corporate bonds and corporate borrowing.)

That clicks with the excess global liquidity hypothesis -- and I do think there is a worldwide inflationary bubble, because for about a decade now (and at their own admission) the US and Japan have been pumping credit into the international system like there's no tomorrow. And let's admit it, any attempts to withdraw the liquidity are feeble.

This inflationary credit (mostly in dollars and yen but there's also some Euros in there) is looking desperately for a place to park. The stock markets are full, gold and commodities are high and holding, US and the Western World's real estate is chockablock, and personal consumption -- well, the whole of America has mortgaged its own grandchildren.

So where else is there to go? I guess some in the investment world believe you should get rid of those excess dollars and yen by getting into some Asian real estate.

Monday, November 06, 2006

You Can Take Gold Out Of The Standard, But You Can't Take the Standard Out Of Gold

I've been screaming that phrase so loud that apparently even the Wall Street Journal heard me.

According to the Club for Growth, this morning's WSJ editorial deplored the Fed's handling of our money and endorsed a "price rule." CFG believes the WSJ's recommended durable commodities for the basket would "almost certainly" include gold.

Basket of Gold
[Thanks to jackshainman.com for the photo.]

Could it be that I'm becoming mainstream? I must be dreaming. The Wall Street Journal touting a standard?

Do you suppose our tiny voices are being heard? That would be too good to be true.

Saturday, November 04, 2006

Professor Snow, Please Finish Your Sentence

Professor John Snow, now chairman of hedge fund Cerberus Capital, thinks government regulation of the hedge fund industry is not wise. Prudent Bear quotes Bloomberg:

'October 31 - Bloomberg (Kevin Carmichael): “John Snow, the former U.S. Treasury secretary named chairman of Cerberus Capital…said investors, not policy makers, are the best regulators of hedge funds. Snow…said he came to favor a ‘lighter’ touch for hedge funds because the industry, which oversees $1.3 trillion in assets, was too big for the government to monitor effectively. ‘The real policing of these pools of capital are the investors,’ Snow said… Any government promise to increase scrutiny would create ‘a real risk of moral hazard that implies, ‘Don’t worry. Now the government is watching over you and there aren’t any problems.’”'

[Original text here.]

I agree with him so far. Now if only the honorable Professor Snow would guarantee us, the people, that we will not be bailing these guys out through the FDIC or some other Fed liquidity-pumping mechanisms, should things turn sour for any of the Professor's friends. No regulation, fine; but don't come crying to us for help down the line.

Titanic
[Thanks to jasonrumney.net for the photo.]

PS: And what's a former Treasury Secretary doing in the hedge fund business anyway? I thought hedge funds were known for their wild and speculative -- and sometimes even noxious -- behavior. I guess the much more conservative occupation of public service must have had him chafing at the bit.

Friday, November 03, 2006

Bernanke's Quandary

Cartoon time again. My vision of things Fed, as of today.

Bernanke's Quandary

Unemployment: Could Lacker be Right?

To hike or not to hike? That is the question that the Fed must be asking themselves this morning. The latest BIS employment stats show a new low (4.4%) in the unemployment rate. This contrasts with the recent lows in production and the housing slowdown, so the Fed board must be gathering their soothsayers to reflect on the appropriate weight to give these seeming opposite messages. The stats gods seem to be having fun playing with us, don't they?

h43
[Thanks to web.uvic.ca/grs/bowman/myth/gods for the image.]

Interestingly enough, this new surprise wasn't enough to reverse the direction of gold this morning. We'll see how it all washes out next week and in the months to come.

What interesting times we live in.

Listen to Common Sense about Global Warming

Here's an excellent lecture from Nigel Lawson about the realities of today's global warming debate. Fascinating stuff, and I'm behind him. It's called, "The Economics and Politics of Climate Change." You can either hear it or read it.

Ice sheet melting Hansen
[thanks to whiskeyandgunpowder.com for the photo.]