Inquiring minds want to know. Gold is certainly topical these days. A roaring bull market tends to have that effect. What does the Federal government plan on doing with its stash? Official U.S. reserves are by far the world’s largest. The combination of record prices and a massive 8,000-ton national nest egg inspire a number of questions, some of which I explore in a new article published in the November issue of The Atlantic magazine. Here’s the online version of Uncle Sam’s Mysterious Hoard.
THE NOBEL PRIZE IN ECONOMICS & A FED NOMINEE
It’s not often that an economist is nominated to the Fed, with Senate confirmation still up in the air, and the nominee becomes the co-recipient of the Nobel Prize for Economics. In fact, it’s never happened. It remains to be seen whether winning the Nobel helps or hurts in terms of joining the Fed. But there it is: MIT professor Peter Diamond is awaiting the Senate’s yea or nay. While he’s wondering if the government will be his next employer, he’s picked up what would appear to be a career-boosting prize. Diamond, along with Dale Mortensen (Northwestern University) and Christopher Pissarides (London School of Economics), yesterday were awarded the Nobel in economics for their research on the labor market.
Yesterday’s New York Times story about a huge Minneapolis Ponzi scheme involving currency trading provides some familiar lessons about investing and the finer points of protecting yourself against scams:
BOOK BITS FOR SATURDAY: 10.9.2010
● King of Capital: The Remarkable Rise, Fall, and Rise Again of Steve Schwarzman and Blackstone
by David Carey
Review via Basil and Spice
“King of Capital” describes how Blackstone went from two guys and a secretary to being one of Wall Street’s most powerful institutions, far outgrowing its much older rival KKR; and how Steve Schwarzman, with a pay packet one year of $398 million and $684 million from the Blackstone IPO (which came later in 2007), came to epitomize the spectacular new financial fortunes amassed in the 2000s. Along the way, private equity firms tried — and largely succeeded — in improving their image from predatory “grave dancers” that “stripped” — sold off the assets — of companies they bought and “flipped” — quickly resold the companies, often to foreign companies that closed plants, laid off workers and beggared whole communities.
PRIVATE JOB CREATION INCHES HIGHER AS GOV’T LAYOFFS CONTINUE
Nonfarm payrolls dropped 95,000 last month and the unemployment rate was unchanged at 9.6%, the Labor Department reports. That’s bad. But it’s not as bad as it seems because the trouble was due primarily to the government, which laid off workers—159,000 fewer government jobs overall last month. So much for employment stimulus from big brother. But if we focus on private-sector jobs, the net change in September reveals a rise of 64,000. That’s good. It’s not great, and in the grand scheme of the business cycle it’s disappointing. But it could be worse. In fact, it might turn worse in the months ahead for all we know. But the trend in job growth for corporate America is still up at the moment.
READING ROUNDUP FOR FRIDAY: 10.8.2010
►Unemployment claims drop, while job openings rise
Christopher Rugaber/AP
Applications for unemployment benefits fell last week for the fourth time in five weeks, a sign that layoffs are declining.
The Labor Department said Thursday that initial claims for jobless aid dropped by 11,000 to a seasonally adjusted 445,000. It’s the lowest level since the week ending July 10 and down from 504,000 initial claims in mid-August — the high point for the year.
Economists were mildly encouraged by the drop. But they also pointed out that claims remain at an elevated level consistent with weak job growth. Employers aren’t hiring enough to bring down the 9.6 percent unemployment rate.
►China must fix the global currency crisis
George Soros/Financial Times
I share the growing concern about the misalignment of currencies. Brazil’s finance minister speaks of a latent currency war, and he is not far off the mark. It is in the currency markets where different economic policies and different economic and political systems interact and clash.
The prevailing exchange rate system is lopsided. China has essentially pegged its currency to the dollar while most other currencies fluctuate more or less freely. China has a two-tier system in which the capital account is strictly controlled; most other currencies don’t distinguish between current and capital accounts. This makes the Chinese currency chronically undervalued and assures China of a persistent large trade surplus.
THE FINAL PHASE OF THE REFLATION TRADE IS NOW IN PROGRESS
The IMF’s new forecast for the world economy calls for 4.8% growth for all of 2010, or slightly higher from the July prediction. The outlook for the U.S. economy, however, was revised down for this year: 2.6% vs. the summer forecast of 3.3%.
IS RECESSION RISK FADING?
The first batch of September’s economic reports are out and they suggest that the economy continued expanding last month. The ISM manufacturing and services indices (released on Friday and yesterday, respectively) show an economy that’s still growing. It’s a mistake to read too much into these numbers, given the challenges that still confront the U.S. There are also several weeks of September reports to digest in the month ahead. But the early signs from the ISM benchmarks, at least, offer support for cautious optimism.
READING ROUNDUP FOR TUESDAY: 10.5.2010
►IIF warns of a dollar collapse, and rising capital flows to emerging markets
Euro Intelligence
“The Washington-based Institute for International Finance has warned of a crash in the dollar as a result of the Federal Reserve’s expected policy of further monetary stimulus, according to Frankfurter Allgemeine. In a report, the IIF calls on the Fed to pursue a monetary policy that supports foreign demand for US goods. Otherwise there is a threat of a significant spike in capital flows to emerging markets, which would rekindle global imbalances and financial instability. The managing director of the IIF is quoted as saying that market participants have to be persuade that the large economies comprehend their collective responsibility to achieve balanced and sustainable growth. The IIF also published its forecast for net capital flows into emerging markets, raising its previous 2010 estimate of $709bn to $825bn.”
►Yield Hunt Leads to Currency Debt
Alex Frangos and Mark Gongloff/Wall Street Journal
“The global rush for yield is driving investors to buy emerging-market debt issued in local currency, adding foreign-exchange fluctuations to the list of risks bondholders face.”
BUBBLES, REBALANCING & THE AVERAGE INVESTOR
Jason Zweig at The Wall Street Journal warns that the bond market is in a bubble. He may be right. Or not. It’s always hard to tell when bubbles are lurking. That doesn’t mean we shouldn’t try, but we need to be wary of going off the deep end too.