2012 January 26 | timiacono.com

Stocks More Volatile than Gold?

Here’s another gold chart that is sure to get under the skin of investment advisers who have refused to add a little of the yellow metal to their clients’ portfolios during its 11-year run that, based on the month of January, looks to be headed for number 12.

From the World Gold Council’s latest commentary on gold as an investment comes the chart below showing that U.S. stocks were much more volatile than gold in recent years.

This Commodity Online story about central bank bullion buying is worth a look as well. I remember hearing about Mexico buying a lot of the stuff last year but didn’t know they managed to garner the top spot with nearly a 100 tonne increase.

Of course, we’ll probably find out in a few years that China bought much more than that in 2011, central bank officials there wary about telling the rest of the world about their purchases lest the price rise too fast before they’re done buying.

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Bernanke in the Shower

Repercussions of yesterday’s Fed meeting continue to be felt as the gold price has now risen about $80 since the central bank announced an extension of its low interest rate forecast and more than a few columnists are taking issue with this approach. Bloomberg’s Caroline Baum chimes in with this commentary today.

What the Fed is saying, in essence, is that as the economy improves, it’s appropriate to provide as much stimulus, or support, as it did in late 2008, when the economy was contracting and the financial system was imploding.

This is a dramatic shift. Given the long and variable lags with which monetary policy operates, past Fed officials at least paid lip service to the notion of acting preemptively: withdrawing excess stimulus — a fancy way of saying they will raise interest rates — as the economy improved.

Not so the current committee, which is tilted toward doves after the annual rotation of voting members. This group seems to think it should “continue to ease as long as there is economic slack,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “It’s a classic, elemental mistake,” he said, one described by the late Nobel economist Milton Friedman as the “fool in the shower.”

The fool turns on the water in the shower, steps in and finds that it’s still cold. So he turns the knob all the way to hot, only to get scalded when the water heats up with a predictable lag.

Given the uber-dovish FOMC voting members this year we’ll probably start hearing discussion about “when the chain catches the sprocket” again in 2012, particularly if oil prices begin to rise. In the end, we are likely to look back at this period later in the decade and conclude that the Fed held rates “too low for too long”.

What’s that old saying? Those who don’t learn from history are doomed to repeat it.

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Bernanke’s Disingenuous Message to Savers

Skip to about the 28 minute mark in the video below of Federal Reserve Chief Ben Bernanke’s press conference yesterday and you’ll hear the confusing, not-very-helpful message the central bank has for savers in our super-low interest rate environment.

Basically, his answer to Gregg Robb of Marketwatch about the difficulties being experienced by fixed-income investors makes no sense as he confuses conservative investments with riskier ones in the rather disingenuous answer excerpted below:

In the case of savers, we think about all these issues and we certainly recognize that the low interest rates we’re using to try to stimulate investment and expansion of the economy also pose a cost on savers who have a lower return. And we do hear about that obviously and we do think about that.

I guess the response I would make is that the savers in our economy are dependent on a healthy economy in order to get adequate returns, in particular, people who own stocks, corporate bonds, as well as Treasury securities. And if our economy is in really bad shape, then they’re not going to get good returns on those investments.

So, I think what we need to do is, when the economy goes into a very weak situation, then low interest rates are needed to help restore the economy to something closer to full employment and increase growth and that, in turn, will lead ultimately to higher returns across all assets for savers and investors.

That’s little comfort for all the risk-averse savers out there just looking to get more than one percent on a certificate of deposit when the inflation rate is running at three or four times that amount (by government measure, your results may be much higher).

Thursday Morning Links

Gold Prices Soar as Fed Commits to Easy Money – The Street
Bernanke has “finger on trigger” for new bond buys – Reuters
‘Fool in the Shower’ to Give Fed a Good Scalding – Baum, Bloomberg
Market Pricing In $770B Increase In Fed Balance Sheet – Zero Hedge
Today it pays to owe money, while U.S. savers suffer – Reuters
Italy raises €5-billion at lower rates – Globe & Mail
Greek Debt Talks to Resume Amid Squabbles – Bloomberg
Why Europe’s crisis can’t be averted – Salmon, Reuters
Geithner: Obama won’t ask him to stay for second term – Washington Post
American workers spending $1,000 a year on coffee – Reuters
Gold for Iran oil? Govt declines any comment – Times of India
Newt Gingrich, Gold and Property Rights – NY Times

Crude oil edges above $100 a barrel – MarketWatch
Gold hits 6-1/2 week high as Fed boosts markets – Reuters
U.S. Stock Futures Rise; Dow May Extend High – Bloomberg
Iran embargo may shut down 70 EU refineries – Tehran Times
Gold Proves Safest as Goldman Forecasts Record – Bloomberg
Sprott sees gloomy year ahead, but not for gold – Reuters
Gold Commission – would it raise gold price or lead to confiscation? – Mineweb
Implications of a fiat currency meltdown for gold and silver – Mineweb
Gartman Starting To Turn Neutral On Gold – Hard Asset Investor
Fed To Markets: Buy Gold And Silver – Dollar Collapse

Fed Signals That a Full Recovery Is Years Away – NY Times
The Economic Philosophy Behind Newt Gingrich’s Populist Surge – Forbes
The Fed Role in the Economy: Now Bigger. Now Better? – A Dash of Insight
Italian Consumer Confidence at Lowest Level in 16 Years – Bloomberg
Banks Hoarding ECB Cash to Double Company Defaults: Euro Credit – Bloomberg
The World from Berlin: ‘The EU Will Pay Even If Greece Doesn’t Deliver’ – Spiegel
Canadian home prices slide for first time in a year – Financial Post
Why Home Prices Have Much Further To Fall – Street Talk Live
FHFA: Home Prices Fell 1.8% in From Prior Year – Businessweek
Dimon: Anti-Banking Sentiment ‘A Form Of Discrimination’ – HuffPost
Bernanke Goes All In – Bruce Krasting
Notes on the Fed Meeting – Fed Watch

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