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REMINDER: All investment, economics, and finance related material now appears at the new IaconoResearch.com. For the time being at least, this has become a personal blog covering a variety of mostly unrelated topics.

Ron Paul Wants to Audit Fort Knox

On June 22, 2011, in Banks, Commodities, by Tim

Today’s big Washington media event will be Fed Chief Ben Bernanke sharing his thoughts about the condition of the U.S. economy in his second post-FOMC press conference, during which viewers should expect a liberal use of the words “transitory” and/or “temporary” along with a phrase that keeps popping up everywhere – “second half rebound”.

But, a more intriguing event in the nation’s capital may come tomorrow, when Rep. Ron Paul (R-TX) chairs a meeting of the Domestic Monetary Policy subcommittee, during which the condition of the nation’s gold stash in Fort Knox (and elsewhere) is expected to be discussed. This Mineweb story provides a few of the details.

Rep. Ron Paul, R-Texas, may be yet again running for President, but he has not abandoned his quest for an independent audit of U.S. gold reserves.

A hearing is scheduled Thursday before Paul’s House Subcommittee on Domestic Monetary Policy on Paul’s bill demanding an audit of all gold in the United States.

The Gold Reserve Transparency Act of 2011 or H.R. 1495 is the manifestation of Paul’s long quest to force the U.S. Department of the Treasury to prove there is real gold bullion in the vault at Fort Knox in Kentucky.

While annual reviews of the facility are conducted by the Office of the Inspector General of the Treasury, no one has actually ever counted the number of 27-pound gold bars being held in the U.S. Bullion Depository.
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Eric M. Thorson, inspector general of the Department of Treasury, is one of two witnesses scheduled to testify at the hearing.  Thorson is the first outsider to be granted full access to the U.S. Bullion Depository in 37 years, Bloomberg recently reported. He is responsible for keeping track of the U.S. Mint’s deep storage gold and silver reserves.

An audit of the U.S. gold reserves would be very timely given this report yesterday that nearly half of Belgium’s gold has been leased out. And don’t forget that a couple years ago, per new rules from the IMF, the Treasury Department had to change the official reporting of its gold reserves to reflect that some portion of the U.S. stockpile had been leased.

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Grant vs. DeLong on Quantitative Easing

On June 17, 2011, in Bonds, Economy, by Tim

James Grant of Grant’s Interest Rate Observer and Brad DeLong of UC Berkeley debate the merits of Fed money printing, more politely known as “quantitative easing”.

DeLong argues that inflation is low, interest rates are low and that the Fed should “keep doing rounds of quantitative easing until the economy’s transactions, cash balances, and the flow of spending get back to normal trend levels, which they are now far below” and that more stimulus is essential to keep the economy growing and push down unemployment levels that have proved resistant to government efforts so far.

Grant replies that the Fed has created a zombie banking system while, at the same time, punishing risk averse savers and this policy has created unintended and unpredictable consequences such as the dangerous mis-pricing of assets. Referring to the support provided to big banks and hedge funds Grant notes, “I think we will have recession. I think one is looming and I think the reason, paradoxically, might be because of an excess of stimulus and the deficit of capitalist incentive”.

I think it’s safe to say that no progress was made in this exchange toward bridging the divide between those in favor or opposed to more quantitative easing…

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Big Miss for NY Manufacturing Index

On June 15, 2011, in Economy, by Tim

Manufacturing conditions in the Northeast have deteriorated rapidly over the last month, the New York Federal Reserve reporting that the Empire State manufacturing index dipped into negative territory for the first time since last November.

In a survey where readings above and below zero indicate expansion and contraction, respectively, and with a consensus estimate for a reading of +10, the general business conditions index fell almost 20 points, from +11.88 in May to -7.79, in June while the important new orders component fell even more sharply, from +17.19 to -3.61.

Shipments plunged from +25.75 to -8.02 and about the only good news in the report was that prices paid saw a modest decline, down from 69.89 in May to 56.12 in June, a reading that is still quite high by historical measure.

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Rosenberg: 99 Percent Chance of Recession

On June 14, 2011, in Economy, by Tim

Here’s that Bloomberg interview with Gluskin Sheff chief economist David Rosenberg who sees the chance of a recession by 2012 at about 99 percent.

Of course, eventually he’ll be right since, despite what people thought in the late-1990s, the business cycle hasn’t been abolished and, eventually, there will be another recession.

The only question is whether it happens sooner rather than later and with fiscal stimulus off the table and the threshold for more action by the Fed quite high, odds favor the former.

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“A Zombie Banking System Like Japan’s”

On June 13, 2011, in Banks, Debt, Housing, by Tim

Bad news for elderly, risk averse savers (who, for some time now, have been looking for something more than a one percent return on their money) comes via this assessment of the U.S. banking system by John Hussman in his latest weekly commentary.

Clearly, there are intense efforts underway to reduce the requirement for banks to carry more capital, and the FASB has now effectively abandoned even modified versions of mark-to-market, which could have included reasonable approaches such as 3-year averaging. From our perspective, the problem in the economy is not that banks are over-regulated, but that they are quietly holding a large amount of non-performing assets, and remain unlikely to expand their risk portfolio further. Either we subsidize these assets for years through interest rate spreads that are hostile to depositors, small savers and the elderly, or we initiate approaches to allow the existing debts – particularly mortgages – to be reasonably restructured. Policy makers seem to be on a fairly strong course in favor of the first option – essentially allowing a zombie banking system like Japan’s. It’s a choice, but it comes with the consequence of anemic economic prospects.

Given what’s happened over the last few years, you have to wonder how long Americans will continue to believe the conventional wisdom from both Wall Street and Washington that the banking system is the “lifeblood” of our advanced, highly sophisticated economy, rather than some metaphor that is far less healthy for the nation over the long term.

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Jim Rogers on Glenn Beck

On June 12, 2011, in Currencies, Our Culture, by Tim

Investment Biker/Adventure Capitalist Jim Rogers did a series of interviews in recent days as can be seen in this YouTube search. In the one below, he and Glenn Beck talk about what it’s like to be crazy and what the future might hold.

Though Rogers has been saying pretty much the same thing for the last ten years, after the events of the last few years, he sounds a lot less crazy now than he did back then.

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