The Mess That Greenspan Made - Part 415

Just Another Day at the Office for Gold

There’s been lots of gold news already this morning, not the least of which was the $70 plunge in price that the mainstream media says is due to profit taking, a rotation back into equities, and the looming margin rate hike by the Shanghai metals exchange that many think will be followed by a similar move at CME Group here in the U.S.

Of course, the Swiss pegging their currency to the euro (or, more properly, putting a limit on how high it will be allowed to rise versus the euro by printing up however much local currency is necessary to buy euros) has complicated matters for investors as one reliable safe have has now been removed from the market.

You’d think this might buoy the gold price, but apparently not.

The Chinese are probably eying the the developing correction as are Indian festival buyers, confident that buying opportunities have been short and shallow, that is, since the world’s paper money began what, increasingly, appears to be a death spiral a few years ago.

But, the most interesting gold news today comes from Kazakhstan, where, according to this Reuters report via Mineweb, the government just announced it will buy all domestic gold production for at least the next three or four years.

Kazakhstan’s central bank said on Wednesday it would be buying up the Central Asian nation’s entire gold bullion output until at least 2014-15 to ease its exposure to the sagging dollar.

The bank decided last month that it would start buying up the entire gold bullion output from domestic producers on Jan. 1, 2012 to augment its gold reserves.

“In the next two or three years we will certainly be buying up the entire (gold output) volume,” National Bank Governor Grigory Marchenko told a news conference.

The gold assets of Kazakhstan’s central bank have grown by 29.5 percent since the end of last year to stand at $4.0 billion as of August 31, amounting to 11.1 percent of the country’s net gold and foreign currency reserves.

Kazakhstan, Central Asia’s largest economy and oil producer, produced 21.4 tonnes of gold, including 9.7 tonnes of refined gold, in January-July of this year. It plans to boost gold output to 33 tonnes this year from 20 tonnes in 2010.

Given the dim prospects for policymakers to extricate the world from its current financial difficulties, many of which are rooted in the excess creation of money and credit for about the last 30 years, it’s hard to view the current correction in the gold price as anything other than a buying opportunity, even at these currently loft prices.

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The Euro Crisis, JPMorgan, and Legos

Via this item from Felix Salmon at Reuters comes a JP Morgan description(.pdf) of the  European sovereign debt crisis as seen by a nine-year old,  in Lego terms.

Here’s the legend:

[1] Spain, Italy and the rest of the Euro Periphery__ [7] The European Central Bank
[2] The CDU, CSU and FDP ______________________[8] Poland
[3] Finland ____________________________________[9] France
[4] The Social Democrats and Greens___________ [10] EU taxpayers in Core countries
[5] The Bundesbank __________________________[11] EU Commission and Finance Ministers
[6] The IMF__________________________________ [12] EU bondholders

As for what they’re doing to each other and why, see either of the links above.

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Wednesday Morning Links

Obama Said to Plan $300B Jobs Package – Bloomberg
Obama and Jobs: Why I Don’t Believe Him Anymore – Taibblog
Stocks Soar as Italy and Greece Act on Austerity – CNBC
Court curbs German ability to act fast on debt crisis – Reuters
New York prosecutors widen Goldman probe – Economic Times
Swiss Open Fresh Round in Currency War Ignited by Global Slowdown – Bloomberg
Swiss abandon floating exchange rate in dramatic ‘currency war’ twist – Telegraph
Beijing embassy cables show China sees gold as central in currency war – GATA
Occupy Wall Street will lay siege to U.S. greed – MarketWatch
No chief for the consumer bureau any time soon – CNN/Money
Treasuries, TIPS, and Gold (Wonkish) – Krubman, NY Times

Oil rises to near $87 as Obama speech awaited – AP
Gold drops further from record as stocks rally – Reuters
Hedge Funds Increase Bets on Bear Market This Fall – CNBC
Kazakh central bank to buy local output until 2014/15 – Reuters
Swiss move sparks search for safe-haven currencies – MarketWatch
Analyst sees inflation risk for gold mining stocks – AP
The Swiss Peg: Super QE, or beggar-thy-neighbour – Economist
How much is China looking to add to its gold reserves? – Mineweb
Swiss franc peg may unleash gold rally to $2,000/oz – Reuters
Where’s our oil price collapse? – The Burning Platform

Are we doomed to suffer another Depression? – Telegraph
The Beautiful Minds That Created Modern Economics – Bloomberg
Brazil’s 12-month inflation rate reaches six-year high – xinhuanet
Swiss Central Bank Move ‘Huge Mistake’: Jim Rogers – CNBC
In Euro Zone, Banking Fear Feeds on Itself – NY Times
Ten Questions on the FHFA Mortgage Lawsuits – WSJ
No consensus on fixing housing woes – Politico
A Dangerous War Against U.S. Banks – RCM
Fed urges coordinated mortgage, unemployment aid – Housing Wire
‘Helicopter Ben’ risks destroying credit creation ($) – Financial Times
Fed considers buying more long-term Treasury bonds – Washington Post


Well, At Least It’s Not 100 Percent

John Hussman’s weekly commentary this morning contained the following chart that should be cause for concern for economists who think we’ll avoid another recession and equity markets that generally respond poorly to economic slowdowns.

I don’t seem to recall seeing this chart last year when a lot of people were talking about a double-dip recession, that is, right up until around mid-summer when the Federal Reserve starting talking very seriously about QE2 and whether it would be better to print up another couple hundred billion dollars or a half a trillion.

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The Public Pension Problem Grows

Today’s news brings word that public and private pensions are having more problems, the one-two punch of an increasingly volatile stock market and the Fed’s two-year freakishly low interest rate guarantee making a bad situation even worse.

Reuters provides details on the perils of fund manager “de-risking” in this report and the dismal options for Rhode Island retirees are laid out in this Washington Post story.

State Treasurer Gina M. Raimondo (D) said that per capita, Rhode Island has the nation’s largest unfunded pension liability. But if the Ocean State’s pension problem is among the country’s most severe, so are the remedies being considered to solve it.

An ongoing pension reform effort is likely to result in reduced benefits for 51,000 public workers and retirees. Officials are pondering lowering retirement payments, replacing part of the guaranteed pensions with 401(k)-type accounts, and sharply reducing generous cost-of-living increases enjoyed by retirees. The Rhode Island legislature is expected to consider changes next month during a special session.

Until recently, most states, including Virginia and Maryland, have attacked their pension problems by cutting benefits for new hires while preserving retirement packages for current employees. Others have rolled over their pension debt by taking out loans or papering them over with what some have called unrealistic projections about investment earning and life expectancy.

But with states facing, by one estimate, a combined $3 trillion in unfunded pension liabilities and the economic downturn continuing to dampen government tax revenue, states are beginning to make changes once considered unthinkable — such as cutting pensions for people in retirement.

The “pension envy” felt by many people in the country should begin to lessen in the years ahead as early-retirees from the public sector are slowly squeezed in a multitude of different ways, none of which will be fun. Then, again, what they have will still be far better than that which is available to most retirees and aspiring retirees in the private sector.

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