Thursday, September 3, 2009

Thursday Items for Discussion

The New England Patriots have their final preseason game tonight and will not play any starters. I will check it out anyway to see who might be making the team. NFL opening day is only about a week away! The only thing about Fall that I like. I do plan on a Friday night entertainment post, so get your requests in.

Your Economic Policy Makers at Work
One of the first rules of leadership is to maintain a united front. You may well be totally wrong about an action, but there should be outward agreement on said action to be taken seriously. While certainly our own Federal Reserve has been wrong about plenty of things, it seems they are unable to maintain a united front while doing them.

Here is a perfect example of the bipolar nature of public comments by FED participants.

From August 22, 2009:
Fed official: rates to be kept low past upturn
JACKSON HOLE, Wyoming (Reuters) - Financial markets have not fully understood that the U.S. Federal Reserve's pledge to keep interest rates exceptionally low for an extended period means they will stay low beyond when officials normally would raise them, a top Fed official said on Friday.
"I don't think markets have really digested what that means," St Louis Fed President James Bullard said in an interview.
The Fed's strategy is aimed at promoting a future rise in inflation, which should provide an immediate boost in activity in anticipation of a future boom, but that hasn't happened, Bullard said.
The St. Louis Fed official's comments suggest the Fed will be in no hurry to raise rates when signs of an economic rebound take firmer hold and that the central bank will be willing to tolerate higher levels of inflation over the short term as it nurses the ailing economy back to health.

From September 3, 2009:
Fed President: Be Prepared For Aggressive Rate Hikes
Once we're back to growth, the Fed could be forced to hike rates rather quickly as per Philly Fed President Richard Plosser. This could feasibly happen as early as 2010;
"Our exit strategy is really quite simple: we have to begin to pull back from our extraordinary programs, we have to begin to shrink our balance sheet, otherwise we will feel inflation in the months and years ahead,"
"And that may mean raising interest rates very rapidly, at least as aggressively as we cut interest rates, if the time is right."

I think Bullard tells it like it is and Plosser is telling it as foreign creditors would like to hear it. Perhaps they can set up a friendly wager between them on when rates my rise.

Quote of the Year Candidate
A submission for quote of the year comes from The Big Picture author Barry Ritholtz in an interview for the NJ Star Ledger:
"But if you want to save the banking system, you don’t care about individual banks. The best example of that is Japan in 1989. They had zombie banks around for 10, 15 years. They didn't put any of their banks out of their misery, and they had a decade-long recession.

The idea of saying Citigroup is insolvent was unthinkable to them. They were a sacred cow. If the sacred cow gets mad cow disease, you’ve got to put it down. The problem with bailouts in general is when an industry or company goes bankrupt it typically means that there is a structural flaw in the setup of that company."

Mad Cow banks! Instant classic.

The Automatic Earth Makes it Simple
Sometimes I can be drawn into debates about monetary policy views (Austrian vs Keynesian), or about budget deficits (good or bad). Sometimes you have to boil things down and get to the common sense truth of it all, and nobody is better than Ilargi of The Automatic Earth. From today's missive (read the whole thing):
"You can't rise up from a recession or depression by shifting money around that you don't have in the first place. You'll have to take some sort of natural resources and add value to them though hard work and craftsmanship. And if you put it that way, it becomes glaringly clear how far America, as a society, is from being able to pull off anything of the kind. Against that backdrop, the idea of money as an abstract notion capable of miracles looks mighty tempting to a nation of 300 million obese burgerflippers."

A bit harsh, but hits the bulls eye. We rely on financial innovation and ever expanding credit to function as an economy, not real output of real goods.

Gold and Silver Observations
As I remarked last post, I would prefer gold and silver do their thing without so much attention. That said, I found at least 3 times the stories related to gold out today than yesterday which was a high news volume day by itself!

The most interesting news item (there were about 10 great technical indicator posts that I found great as well) was this small snippet about Hong Kong wanting to become a King Kong of bullion storage for Asia:
Hong Kong recalls gold reserves, touts high-security vault
In a challenge to London, Asian states invited to store bullion closer to home

It seems Asia would like to keep their gold a bit closer to home, as well as handle ETF's based on the gold (oh no!!). Let's hope London has the gold in their possession, otherwise they may have to go out and buy tons of the stuff on the open market to return to Hong Kong, which would push the price up. We have no indication of anything of the sort of course (except rising gold).

My only worry is this tidbit:
"The 3,660-square-foot depository, located at the city's main Chek Lap Kok Airport, will serve as a "storage facility for local and overseas government institutions," according to the government statement."

I would refer Hong Kong to the film "Goodfellas" as we all know all the big heists came from ripping off the airport!

All kidding aside, I was amazed at the reaction among more mainstream press over the past two days. When the S&P 500 goes up 10% in a week they argue the market MUST be pricing in some thing or another. They think the market is never wrong, never irrational. Upside movement is proof of the move up in and of itself. They ask no questions. Compare that with gold moving up 10% in a week and they want documented proof, supported by at least 17 fundamental indicators and published scientific papers, as to why in the world gold would be making such a move. It is really funny to see this happen.

My thoughts on today's action:
-Gold closed right near the highs of the day, which was strong. The mythical $1000 barrier looms large and in charge, and I was a little put off by the pause so close to that level. There is almost a physical barrier there. Still, a solid two days.
-Silver, my personal favorite, blew past $16 and closed over that level for the day. This is far more bullish in my view for silver.

Tomorrow's jobs number is going to clarify things quite a bit. A worse than expected number and we will see if the metals rise was a bet on a weaker economy. A better than expected number will be even more revealing in my opinion because it offer two possibilities:
-metals dive, the bet on a weaker economy is abandoned
-metals hold or climb, there is something else afoot

I can offer no predictions, but I think gold and silver have great appeal going forward.
Full disclosure: I own gold, silver, and miners of both metals so I am biased.

Have a good night.

9 comments:

getyourselfconnected said...

Gawains,
if you check the comments, I am glad you love the car. I may put in a Wankel engine section in tomorrow's post as I think rotary engines are awesome. I checked the specs for the RX-8, and it is impressive in two areas I find super important: skidpad and 60-0 braking. Our cars ar mirrors on those levels, so I can guess how excited you are to drive it.

getyourselfconnected said...

A 1,000 mph car? John Lingenfelter (RIP) would be impressed:
http://tinyurl.com/mectb3

watchtower said...

Mad cow banks...I like it, it has a nice ring to it.

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1,000 mph car!!!, looks like it is in reach.
I can't believe how far man has advanced within the last 100 years, reminds me of a bible quote:

"And the LORD said, Behold, the people is one, and they have all one language; and this they begin to do: and now nothing will be restrained from them, which they have imagined to do."

Genesis 11:6 concerning the 'Tower'.

-----------------------------------

I couldn't think of a song last week or this week either for 'Friday Night' entertainment but I wouldn't mind seeing this clip from the TV show Miami Vice from the 1980's:

http://tinyurl.com/mdhz8d

The Jim Zubiena guy is the real deal, a very skilled competitor in the IPSC (International Practical Shooting Confederation) world back in the day.

GawainsGhost said...

Oh, I love the Mazda, but I'm not driving it too much. Not right now anyway. Still waiting for my Cowboys accessories and custom license plate. I use the olde truck for work, mainly because some of the neighborhoods I have to go to and deliver foreclosure notices, you wouldn't want to leave a new car unattended for even one minute.

No, the RX-8 is purely for pleasure. In October, it's off to Dallas for a game, meet up with my brother and a bunch of friends. We do this once a year. I fly my brother down from Maine, one guy flies in from Shanghai, others come from Tennesse, New York, Florida, California, Arizona, California, Arkansas, Oklahoma, all over.

It's the annual Bloggers' Game. We all met a couple of years ago on the old Dallas Cowboys website, where we used to post, before the powers that be screwed the whole thing up. I don't even go there anymore, started my own blog.

Anyway, back in 07, everyone was talking about getting together for a game. I told them, well, my brother and I are going to the New England game. Next thing you know there were like 30 people signing up.

We did the whole thing. Stayed at the team hotel, met the players, took a guided tour of Texas Stadium, had a tailgate party. I of course was the star of the show, because when I go to Cowboys games I wear a silver tailored suit, royal blue silk tie and a grey fedora. I even have a Blue Star lapel pin and cuff links. They all freaked out because when we got to the stadium hundreds, literally hundreds of people, kept coming up and asking me to pose for pictures with them. At the Corral Club, the band introduced me to the crowd as the Ghost of Tom Landry and invited me up on the stage. Happens every time.

Once in 06, at the Indianapolis game, the cameraman for NFL Films asked me to pose by the bronze statue of Landry. I came out in the replay on NFL Network!

But of course the Cowboys lost the first Bloggers' Game. The Patriots beat them mercilessly. But we all still had a great time.

Last year we went to the Washington game. Of course, the Redskins won, spanked Dallas like nobody's bitch. So we're 0-2. But we have a lot of fun.

They're really going to freak when I show up in this spaceship of a sports car, tricked out with Cowboys accessories. Yeah, it is one smooth ride. I'm really impressed with it.

getyourselfconnected said...

Gawains,
I remember that game! It was undefeated vs undefeated and no offense, I knew the Pats would blow them out. It was so.
After last years trek through the wilderness (11 wins, no playoffs) I thought with Brady back all would be well.
I have to say the 1st unit defense of the Pats stinks. In honesty, its terrible. No progress at all. If Jeff is reading you may like to read me say I wish we were more "steeler" like.
Anyways,
glad you love the car.

Jeff said...

The 4-3 defense is the best Get.

You need the atheletes in order to pull it off though.

It also helps having a Dick Lebeau who has six rings as a defensive cooordinator.

I saw Brady get picked early in my fantasy league. I am curious if is a tad rusty. Didn't get a chance to see him tonight.

They should have kept Cassell IMO

GawainsGhost said...

Well, from what I've read, the Patriots are going to have problems with their defensive secondary. And eventually the league catches up with you. It's very difficult to keep winning consistently year in and year out. Opposing coordinators figure out your schemes and devise ways to beat you. And it's hard to keep a roster together in these days of free agency and the salary cap.

But if it makes you feel any better, Peter King over at SI.com picked New England to win it all this year.

I'm really not holding out much hope for Dallas this season. The Cowboys do have talent at several skill positions, but nothing behind them. They are one or two injuries, and there will be injuries, away from a total implosion. And I think Phillips is a weak coach and Garrett is an idiot coordinator. Plus, I truly believe Jerry Jones is possessed of a demon. So, there it is.

But we're going to the Atlanta game. Check out the new stadium, which I hear is really nice. Party like madmen, win or lose. It'll be fun.

Realistically, I see the Cowboys going 8-8, maybe 9-7 (fail to make the playoffs). The December schedule is tough, and Dallas hasn't played well at the end of the season for twelve consecutive years now. I haven't seen anything to make me believe that's going to change this year.

Janet Brown said...

Our leaders in Washington must seriously consider new and innovative policies that promote a better, more confident, prosperous, and secure America in the 21st century. One of the things I think we can do to help make that happen is support American businesses and the U.S. Chamber of Commerce (http://bit.ly/oanAT). They're doing things to reach out and show people that they can get involved, too.

getyourselfconnected said...

Watchtower,
Wow!! I just watched the Miami Vice clip and that is the fastest thing I have ever seen! No camera tricks either. That is going up tonight and maybe a coupe other related scenes I found. Thanks for the tip.