2012 January 16 | timiacono.com

Federal Government About to Downsize?

Though down slightly in 2011, federal government payrolls have been growing steadily in recent years, adding about a million new jobs since the financial crisis began in 2008, but, that looks as though its about to change according to this survey from Gallup.

In the public sector, state and local governments have born the brunt of the bad U.S. economy, due in large part to their lack of a printing press and the ability to keep piling on debt in amounts never witnessed before on planet earth. With a much larger workforce – a combined 19 million versus less than 3 million for the federal government – state government payrolls have declined by more that 125,000 since 2008 and local governments have seen net reductions of more than a half million.

But, still, it seems the federal government has some catching up to do.

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Is This the Year for a Bottom in Home Prices?

Not a day goes by, or so it seems, without someone writing another upbeat article about the U.S. housing market in 2012 (a refrain that has been heard at least a few other times before since the housing bubble burst a half-decade ago) and today’s entry comes via this story in USA Today that cites all the usual factors.

Optimism is building that the housing industry is nearing a bottom — finally.

Home sales and home building are forecast to rise this year after sliding steeply the past five years in housing’s worst downturn since the Great Depression.

Recovery is expected to be slow, and home prices are widely expected to fall this year. But investors are betting on the start of an upturn, bidding up home builder stocks and causing them to outperform the broader stock market.

Chief executives are more positive. JPMorgan Chase’s Jamie Dimon said last week that housing is near its bottom but could stay there a year. Stuart Miller, CEO of home builder Lennar, said the market has started to stabilize because of low prices and record-low interest rates.

Market researcher RBC Capital Markets has also turned from a “bearish” view on housing to saying that 2012 “will mark a step in the right direction.”

To me, one of the more surprising turnarounds came last week when the Orange County Register reported that early housing bubble-spotter Christopher Thornberg (those of you were around back in 2005-2006 should recognize the name) turned from bear to bull.

While home prices will probably continue to fall early in the year as the foreclosure pipeline begins to empty into the market again, there are still opportunities for the best mortgages since the Eisenhower Administration and, given all the optimistic press reports  in the New Year, buyers just might decide to return.

Of course, that’s the best case scenario and, given the disappointment seen in the U.S. and global economy in recent years, not something one should count on.

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All the Gold Bugs in China

[Following are excerpts from the current issue of the Weekend Update at Iacono Research.]

Many analysts thought a death knell sounded for the gold bull market last month. However, driven by surging investment demand in China, as evidenced by record-high imports from Hong Kong, and the recapturing of the 200-day moving average, the gold price added to its gains from the first week of the year, while silver mounted an even bigger surge.

All this occurred despite a stronger trade-weighted dollar (that normally moves opposite of metal prices). However, credit downgrades late on Friday and an expected further decline for the euro are sure to test the recent enthusiasm for precious metals in the days ahead.

For the week, the gold price rose 1.4%, from $1,616.60 an ounce to $1,639.70. Silver briefly topped the $30 an ounce mark for the first time in a month, before ending slightly below that mark. That’s up 3.5% from $28.75 an ounce to $29.77. Gold is now down 14.7% from its high last summer while the silver price remains 39.9% below its early-2011 peak.

Surging Chinese gold demand and soaring premiums in advance of the Lunar New Year were by far the dominant stories for precious metals last week. The Hong Kong Census and Statistics Department reported a record 103 tonnes of gold entered the mainland from Hong Kong in November, up from 86 tonnes in October as shown below via Reuters.

[To see the graphic associated with this story, continue reading at Seeking Alpha.]

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BofA Automated Teller Truth Machines

The Understory reported that the Rainforest Action Network transformed about 85 Bank of America ATMs in San Francisco into Automated “Truth” Machines the other day using the overlay sticker shown below, one more sign that, though still quite popular in Washington D.C., big banks are increasingly unpopular in the rest of the country.

On a related note, according to this McClatchy report, BofA and other too-big-to-fail banks have settled on their pick for President this fall – Mitt Romney. Employees at the big banks gave the Romney campaign $600,000 through September of last year, dwarfing the $200,000 sent to the bankers’ second choice – President Barack Obama – virtually ensuring that there will be little change to the status quo, big-bank-wise, until 2017 or later.

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MLK Day Morning Links

Euro Leaders Race to Salvage Rescue Plans – Bloomberg
European Markets Little Moved by Downgrades – NY Times
S&P’s downgrades spook Asian markets – Channel News Asia
Beleaguered France gets lift from Moody’s – Globe & Mail
Eye-catching ECB liquidity number du jour – FT Alphaville
Linde CEO says Germany should mull euro exit-paper – Reuters
As Reforms Flag in Greece, Europe Aims to Limit Damage – NY Times
Portuguese Bonds Lead Euro-Region Declines After Downgrades – Bloomberg
Analysis: Tax breaks on autopilot with little debate – Reuters
Activists Change San Francisco ATMs into Truth Machines – NBC Bay Area
Big banks have picked their candidate, and it’s Romney – McClatchy
Will printing more money solve our ills? – Telegraph
The Year of the Central Bank – Noland, Prudent Bear

Oil above $99 amid Middle East jitters – AP
Gold firms as stocks recover, euro up from lows – Reuters
Strike over Nigerian fuel subsidy ’suspended’ – BBC
On the Iranian oil embargo – EconBrowser
Why the Smart Money was So Dumb in 2011 – Time
Mutual fund industry under pressure from ETFs – Sober Look
Did China just overtake India as the world’s largest gold consumer? – Mineweb
India’s gold jewellery demand seen up 10-15% in 2012 – Reuters
Gartman: Gold to be higher in 2013 – Commodity Online
Gold and energy bull charges on – MarketWatch

Seven principles for arguing with economists – Noahpinion
UK ‘already back in recession’, warn forecasters – Guardian
Iran bans foreign currency trading on the street – AP
Why expect S&P, Moody’s, or Fitch to know it’s junk – voxeu
India Inflation Slows to Two-Year Low as Rate Pressure Eases – Businesseeek
Is real estate overheated? The bubble discussion rages on – Financial Post
Beware a slow cascade of additional foreclosures in 2012 – philly.com
U.S. Housing market outlook is more upbeat – USA Today
How’s That Austerity Working? – Fed Watch
When Did The Fed Screw Up? – Slate
Secrets of the Fed – NY Sun

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