2012 January 12 | timiacono.com

Suki Cooper on Gold

Having come across the name Suki Cooper many times in the last year or so while reading what investment banks have to say about the gold price and, being a fan of HBO’s True Blood, it was kind of interesting to see what someone named “Suki” actually looked like.

The Barclay’s analyst makes the same points that gold market naysayers were ignoring last month – that none of the underlying factors that drove the gold price to its 2011 heights have gone away, most importantly strong physical demand from Asia and real short-term interest rates that will be negative for years to come.

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What Greenspan Should Have Done

In this story at Aljazeera(?), Dean Baker, co-director of the Center for Economic and Policy Research, looks back at the late, great housing boom that turned to bust and offers some suggestions for what Federal Reserve Chairman Alan Greenspan should have done.

First, the Fed has responsibility for maintaining the stability of the US economy. Alan Greenspan should have recognised the bubble and done everything in his power to burst it before it grew to such dangerous levels.

Step one in this process should have been to document its existence and show the harm its collapse would bring. This means using the Fed’s huge staff of economists to gather the overwhelming evidence of a bubble and to shoot down anyone who tried to argue otherwise.

Second, the Fed has enormous regulatory power beginning with setting guidelines for issuing mortgages. They first issued draft guidelines in December of 2007. It was not hard to find abusive and outright fraudulent practices in the mortgage industry, if anyone in a position of authority was looking for it.

Finally, the Fed could have used interest rate increases to rein in the bubble. This should have been a last resort, since higher rates would have slowed the economy at a time when it was still recovering from the collapse of the stock market bubble.

To maximise the impact of any rate increases, Greenspan could have announced that he was targeting the housing market. He could have said that he would continue to raise rates until house prices were brought back to a more normal level.

This surely would have gotten the attention of the mortgage industry and potential homebuyers. Would it have been an extraordinary action from a Fed chair? Sure, but so what? It might have prevented the devastation now ruining tens of millions of lives.

Well, if there’s one thing no one has ever accused Greenspan of it’s being a party-pooper.

All of these actions – though sensible – would have required the former Fed Chief to dramatically change his way of thinking that, at the time, saw markets as self-regulating, a view that he later, famously found a flaw in (see Greenspan finds a flaw from 2008).

Retail Sales Up 0.1%, Down 0.2% Ex-Autos

The Commerce Department reported(.pdf) that retail sales in the U.S. came in well below expectations last month, rising 0.1 percent in December following an upwardly revised increase of 0.4 percent in November. Excluding automobiles, sales fell 0.2 percent after a gain of 0.3 percent the month prior.

Apparently, American consumers bought nearly all of their iPads, iPhones, and big screen TVs in November as electronics & appliance stores saw sales plunge 3.9 percent in December, the largest decline amongst six of the 13 categories where sales were lower. Gasoline station sales fell 1.6 percent due to a plunging price at the pump and sales at general merchandise stores fell 0.8 percent.

Motor vehicle sales rose 1.7 percent last month and home improvement stores saw a 1.6 percent increase to lead the advancing categories as food and clothing sales both rose 0.7 percent. On a year-over-year basis, overall sales were up 6.5 percent and, for all of 2011, sales rose 7.7 percent, both fairly impressive increases given the slow economic recovery.

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Thursday Morning Links

MUST READS
Strong Italy, Spain bond auctions buoy stocks – AP
ECB holds rates while policy package takes effect – Reuters
Bank Of England Leaves Key Rate, QE Unchanged – Nasdaq
For Europe, Few Options in a Vicious Cycle of Debt – NY Times
China Snubs Geithner on Iran Oil, Japan May Cut – Bloomberg
China’s collapse ‘will bring economic crisis to climax in 2012′ – Guardian
Two versus ‘La Merkel’: Italy and France Team Up against Germany – Spiegel
The US housing bubble: What Greenspan should have done – Baker, Aljazeera
Revolving Door From Top Futures Regulator to Top Futures Lobbyist – Taibblog
Stratfor: ‘We neither know nor understand, but we’re back…’ – FT Alphaville
Jon Corzine – Lives Of The Rich And Famous – DOTE
California Looking Greece-ier – Daily Capitalist

MARKETS/INVESTING
Oil prices rally on Iran, Nigeria concerns – AP
Gold rises as Spanish bond sale lifts euro – Reuters
EIA: 2012 oil price to be $100 per barrel – xinhuanet
Pimco’s Bill Gross Buys Still More Treasurys – WSJ
David Rosenberg Explains What (If Anything) The Bulls Are Seeing – Zero Hedge
Goldman, Morgan Stanley both see much higher gold prices this year – Mineweb
PBOC buying may have boosted November gold imports in China – BullionStreet
China’s Gold Imports From Hong Kong Climb to Record – Bloomberg
Precious Metals Monitor: Gold On Cusp Of Upside Breakout – HAI

ECONOMY/WORLD/HOUSING/BANKING
Economists Scoff at Obama, Romney Myths – Bloomberg
Obama considers rewarding firms for returning jobs to U.S. – Washington Post
Losing Momentum: Germany Could Face Recession in 2012 – Spiegel
If no trade reversal now, then when? – China Financial Markets
China inflation eases to 15-month low – Globe & Mail
What Germans Really Think About the Greeks – NetNet
Poll: Don’t Tread on My Mortgage-Interest Deduction – WSJ
The fight over Bernanke REO rental plan shows political divide -Housing Wire
Kocherlakota Shines Light on Mechanics of Fed Meetings – WSJ
Fed’s Plosser: may need to raise rates before mid-2013 – Reuters
Fed’s Beige Book more upbeat about economy – MarketWatch
Fed risks inflation with talk of QE3 – MSN Money
Fed officials at odds over policy path – Reuters

 
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