The Mess That Greenspan Made - Part 414

Tuesday Morning Links

MUST READS
Gold cracks $1,600 level – USA Today
AP Exclusive: Mortgage ‘robo-signing’ goes on – AP
China’s Treasury Holdings Make U.S. Woes Its Own – NY Times
Debt-ceiling crisis still eludes compromise – Washington Post
Congress Bickers as Bond Markets Brace for Total Panic – Bloomberg
Stress Tests Do Little to Dispel Fears of Sovereign Default – WSJ
Chancellor Merkel’s Dangerous Lack of Passion For Europe – Spiegel
The charade of EU bank stress tests – Whalen, Reuters
U.S. AAA Credit Rating Downgraded By Egan-Jones – Examiner
The Man Who Wasn’t Elizabeth Warren – HuffPost
Ending the debt ceiling stand-off – EconBrowser
Central Falls Leads the Field – aucontrarian

MARKETS/INVESTING
Oil above $96 as crude supply drop expected – AP
Gold eases from record highs, eyes euro summit – Reuters
Soros’s Quantum Leads Hedge Funds Cutting Risk – Bloomberg
Ask Eric Sprott: Why Won’t He Buy More Silver For PSLV? – Kid Dynamite
Head Of World’s Biggest Hedge Fund Sees “Economic Collapse” – Zero Hedge
US Debt Accord Could Slow Gold Rally, but Not for Long – CNBC
Speculators Take Big Long Positions In Gold – CFTC – Kitco
The perfect hedge for this crisis – MarketWatch
Why are market bears so sleepy? – CNN/Money

ECONOMY/WORLD/HOUSING/BANKING
Borders liquidates: 10,700 jobs lost – CNN/Money
Cisco Cuts 6,500 Workers, Record $1.3B in Costs – Bloomberg
Spain’s borrowing costs increase on debt fears – BBC
Portugal Loses Patience With Europe – Telegraph
Brazil’s boom teeters on personal credit bubble – AP
Italy’s Downward Spiral Accelerates – Spiegel
Home remodeling up to highest level since 2004 – Housing Wire
Study: Tax Credit Had ‘Fleeting’ Effect on Housing Markets – WSJ
Freddie Mac: Housing Market Unlikely To Experience Double Dip – iMarketNews
Geithner: Banks’ Interests ‘Not Aligned’ With U.S. Economy – HuffPost
The Confidence Trick of Fiat Currency – Credit Writedowns

 

Poll: Will you buy gold now?

Another 15 tonnes were added to the holdings of the SPDR Gold Trust ETF (NYSE:GLD) earlier today, so, apparently the results of this CNBC poll that began on Friday and now has over 2,000 votes is an accurate reflection of investor mood. But, as an indication of how un-popular the metal still is in the U.S., when I first looked at the results on Friday morning, after it had been up for five or six hours, it only had less than a hundred votes cast…

This comes despite the best efforts by some in the financial media to discourage more gold buying, Jason Zweig in this WSJ story and  Dan Burrows in this MoneyWatch commentary offering their best “earns no interest, not a good inflation hedge” arguments to deter investors. It doesn’t seem to be working.

Of course, as noted in the CNBC story accompanying the poll, it’s not just investors who have been buying the metal lately as central banks around the world have now bought more gold during the first half of 2011 than in all of 2010, a year during which this group went from net sellers to net buyers for the first time in more than two decades.

Apparently, they don’t care that gold doesn’t earn any interest either…

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There are No Models for Common Sense

In this story at Fortune on Goldman Sachs chief economist Jan Hatzius downgrading his forecast for U.S. economic growth to just a 1.5 percent rate in the second quarter, just six months after gushing over the prospects of that same economy growing at a multiple of that rate, Colin Barr provides some astute observations about the dismal set.

But if good news for job seekers is hard to come by, consider for a moment how hard this year has been for economists. One bit of frustration shared by Bernanke and Hatzius is that their models aren’t saying what exactly is sapping the demand that they expected to pick up. Common sense might well dictate that a credit bubble that took the better part of a decade to build up wouldn’t necessarily be squared away in just three or four years, but apparently there is no formula that says this is so. This is what passes for mystery among dismal scientists.

“The ‘bugbear’ is that we are still unsure about the precise reasons for the slowdown in 2011 to date, which is sharply at odds with our expectation at the end of last year that growth would accelerate in 2011,” Hatzius writes. “Logically, the explanation presumably has to involve a combination of a) unforeseen shocks from the Japan earthquake and the oil market, coupled with b) more vulnerability to these shocks, because c) the housing and credit market downturn is weighing on private-sector balance sheets for even longer than we thought. But the relative importance of these issues is exceptionally difficult to sort out, and it makes a great deal of difference for the outlook.”

Or rather, it makes no difference to the outlook. What makes a difference there is that lots of people have no money and even more lack confidence they will be employed a year from now, so no one is spending. One day economists may decide to open their eyes to these obvious truths, but not just yet. Even with the economy at stall speed and Europe on the verge of collapse, wishful thinking carries the day.

The U.S. economy might be a lot better off if we fired most of the economists…

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Ross Perot Was Right

Spotted over at Patrick.net this morning, 1992 Presidential candidate Ross Perot’s warning about a steady decline in U.S. wages from almost 20 years ago sounds quite prophetic. All you have to do is substitute “China” for “Mexico” when you hear about wages converging at six dollars an hour – ours going down, theirs going up.

Sadly, no one talks about his much – instead, you get a political debate about taxes and spending. And, of course, monetary policy at the Federal Reserve that is largely based on a consumer price index that doesn’t distinguish between imported goods and goods that are produced domestically only exacerbates the problem.

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