2010 August 13 | timiacono.com

Americans Not Optimistic About the Economy

Some rather surprising poll results from NBC the other day about how “Recovery Summer” is going so far, almost two-thirds of the respondents saying that we’ve yet to hit bottom (meaning that “Recovery Winter” or “Recovery Spring” might lie ahead).

Thinking back to the 2008 election season, the shock and awe in financial markets was probably a bit too much for voters to assimilate. But, now, with the passage of time and the lack of progress on the labor front, voters are clearly unhappy and ready to express their displeasure in November. It’s just too bad that they can’t vote for “None of the Above”.

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Writing for the Vangaurd Blog, John Ameriks offers these thoughts about how the world’s smartest investors are foolishly piling into gold and how some of the richest people in the world are deluding themselves if they think the metal will help preserve their wealth.

We’ve been hearing a lot about gold over the last few months, related to concerns about inflation, the creditworthiness of various governments, and fallout from the financial crisis—all against the backdrop of what is the most significant increase in inflation-adjusted gold prices since the early 1980s.

Over this entire 140-year period, the average price of one ounce of gold was $480 (in 2010 dollars). If the gold price remains stable through the end of this year—not a given by any means—there will have been only one other year in the last 140 (1980) in which the inflation-adjusted average daily price of an ounce of gold was higher than in 2010.

In other words, there was only one year in the last 140 when it would have cost you more in terms of foregone alternative goods and services to become the owner of an ounce of gold. These data show that during some periods of extreme inflationary or broader economic distress, gold prices have increased sharply, only to recede back to lower levels as things return to normal.

Of course, what is conveniently omitted from the discussion above is that gold was money during 100 of those 140 years – that’s kind of important.  As for the future, somehow, it’s not clear to me that, this time, the gold price is going “back to lower levels as things return to normal” – whatever “normal” is these days.

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Prices Rise, Deflation Takes a Holiday

The Labor Department reported that the rising cost of energy products pushed consumer prices 0.3 percent higher in July following three straight months of modest declines, most recently a dip of 0.1 percent in June.

With all of the big year-over-year energy price increases now wrung out of the system, the annual rate of inflation now stands at 1.3 percent, up from 1.1 percent a month ago. Last month, energy prices rose 2.6 percent and are now 5.2 percent higher than a year ago.


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FHA Financing for NY Luxury Condos

This Bloomberg report provides more evidence that the relationship between the U.S. government and the American housing market apparently knows no bounds, mortgage guarantees from Washington now being applied to New York condos with pet spas.

Whitney Gollinger, marketing chief for a Manhattan condo building with an outdoor movie theater and panoramic city views, is highlighting a different amenity to spur sales: the financial backing of the federal government.

The Federal Housing Administration agreed in March to insure mortgages for apartments at the 98-unit Gramercy Park development, known as Tempo. That enables buyers to make a down payment of as little as 3.5 percent in a building where apartments range from $820,000 to $3 million.

“It’s a government seal of approval,” said Gollinger, a director at the Developments Group of New York-based brokerage Prudential Douglas Elliman Real Estate. “We need as many sales tools as we can have these days, and it’s one more tool.”

The FHA, created in 1934 to make homeownership attainable for low- to moderate-income Americans, is providing a lifeline to new Manhattan luxury condominiums after sales stalled. Buildings featuring pet spas, concierges and rooftop lounges are applying for agency backing to unlock bank financing for purchasers. The FHA guarantees that if a homebuyer defaults on his mortgage, the agency will pay it.

I think it’s safe to say that government housing isn’t what it used to be.

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Retail Sales Up 0.4 Percent in July

The Commerce Department reported that retail sales rose for the first time in three months, however, the gains were less than expected as confidence in the economic recovery continued to wane and consumers were wary of spending amid a weak labor market.

A surge of 2.3 percent in gasoline station sales and a 1.6 percent boost in auto sales paced the advance. Overall retail sales rose 0.4 percent in July after an upwardly revised decline of 0.3 percent in June but, excluding autos, sales gained just 0.2 percent. Excluding both autos and gasoline, sales fell 0.1 percent, a clear sign that consumers have tightened their belts.

Clothing sales fell 0.7 percent while two categories closely linked to the nation’s troubled housing market – home furnishings and building materials – both declined 0.3 percent.

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