Commentaries
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from Rolfe Winkler:
Rickards: You can’t print your way out of debt
Reader note: This is Jim's second piece in an ongoing debate with Warren Mosler about the economy. Here are links to previous posts in the series: Writer biographies / Mosler #1 / Rickards #1 / Mosler #2. There will be one more post from each writer.
Before I lay siege to Warren Mosler's remedies, let me say he's a brilliant guy I've admired for 25 years going back to his days at AVM. I got reacquainted in 2004 when I lived in St. Croix and Warren ran for Congress from the Virgin Islands. His campaign ads were 5-minute infomercials; tutorials on economics and gems of sound fiscal advice. But this is a debate, so let's begin.
Warren makes eleven points and I agree with two - the elimination of payroll taxes and converting banks into utilities. Payroll tax elimination spurs consumption and stimulates job creation. As for banks, we need them, we just don't need casinos that call themselves banks. Bring back Glass-Steagall, separate deposit and loan functions from proprietary trading and banish the latter to hedge funds. Speculation should survive on its own dime.
I don't need to take the rest point-by-point because they're the same thing - an unlimited belief in the Fed's power to print money. Warren calls for a $500 per capita state rebate, a federal job for all takers, direct Treasury funding of housing, unlimited deposit insurance, no debt ceiling, Treasury overdrafts at the Fed and federal purchase of foreclosed homes. He doesn't propose free ice cream for children but I don't see why not; just print some money and go for it!
from Rolfe Winkler:
Gold hits $1,100
Methinks gold is rising because investors are anticipating a big second stimulus to counter the rising unemployment rate.
I'm a fan of gold as insurance, especially for high net worth individuals who want some of their wealth "out of the system." It protects against violent deflationary or inflationary episodes, both of which can wipe out the value of paper wealth very quickly. That said, the premiums to buy that insurance are getting pretty expensive...
from Rolfe Winkler:
Gold jumps to record on purchase by India
From Surojit Gupta and Lesley Wroughton, Reuters:
The International Monetary Fund has sold 200 tonnes of gold to the Reserve Bank of India for $6.7 billion, quietly executing half of a long-planned bullion sale that has threatened to slow gold's ascent....
...Although the IMF's plan to sell a share of its gold holdings in order to increase low-cost lending to poor countries had been flagged for a year before it was formally approved in September, the speed, scale and identity of the buyer were a surprise....
from Rolfe Winkler:
Be wary of the gold trade…
Looking out a few years, I'm as bearish as anyone, I admit. But I'm a little worried that suckers could get caught in this gold rally. A hedge-funder I spoke with at the Value Investing Congress said half of the sessions were devoted to doomsday scenarios, precious metals, etc. Today there was a keynote from Eric Sprott of Sprott Asset Mgmt. Fully 70% of his assets under management are in precious metals, silver and gold.
But he's been in the trade for 10 years. And Einhorn built up his gold position long before it leaped past $1000.
from Rolfe Winkler:
Einhorn on gold, sovereign risk, and more
Two years ago, when he spoke at the Value Investing Congress, David Einhorn said Lehman was in deep trouble. Turned out it was a good call. Today he gave another keynote at the conference in which he argued the policies of the administration have put us on a very dangerous path, one which has encouraged him to buy physical gold as insurance against sovereign default(s).
Here's a pdf of the speech. A few highlights below.
On Bernanke and Geithner:
Presently, Ben Bernanke and Tim Geithner have become the quintessential short-term decision makers. They explicitly “do whatever it takes” to “solve one problem at a time” and deal with the unintended consequences later. It is too soon for history to evaluate their work, because there hasn’t been time for the unintended consequences of the “do whatever it takes” decision-making to materialize.
from Rolfe Winkler:
Talking gold
Chatting about this blog post from last week.
UPDATE: gold hits record high today. BTW, be careful of chasing this momentum. While I remain a long-term bull on gold relative to the dollar based on fiscal/monetary policies in Washington, I think the price could be quite volatile and investors may have future opportunities below $1,000.
from Rolfe Winkler:
Why gold if deflation is the threat?
Alice Schroeder wrote a great column for Bloomberg yesterday that I'm just getting to. The best stuff comes at the end, where she describes why some people are buying gold even though inflation doesn't seem to be a big risk. (Apologies in advance for block-quoting lots of stuff in this post, but I think it's worth it...)
In a nutshell: They aren't playing a conventional inflation trade. They're buying currency crisis insurance.
Gold’s run impressively up
All the goldbug fever, not withstanding today’s pullback in the yellow metal’s price, got me thinking about just how well has gold stacked up against say stocks and oil over the longer term. I picked 2004 as a starting point for no other reason than it gives enough distance from the mania of the credit bubble and the distortion of its popping.
Gold’s trajectory is pretty impressive. Now whether you think that means it’s bubble that never fully burst or whether it’s indicating a longer term trend in which enough investors want a hedge against inflation further down the line is another matter. But, since 2004, it’s been mostly up.
Financial markets fall into Monday rut
If things continue like this, investors will have to start calling the start of the week “mopey Monday.”
Financial markets are once again heavy with worry as concerns that the U.S. economy will take longer to emerge from the current doldrums are front and center. Even the stronger-than-expected activity in the U.S. services sector couldn’t lift investor spirits. The terrible U.S. jobs report released last Thursday is most likely still contributing to the market blues as is the end of the July 4th holiday weekend in the U.S., but I have to think that there’s a deeper ennui afflicting investors.
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The Wall
