Tuesday Recap

The Saints win again even though they turn the ball over 4 times and the Falcons played their Superbowl last night. Injuries are starting to add up for the Saints now and that is a potential trouble spot.

Home a bit late, so just some quick takes.

Gold Observations
It certainly was a strange day in the gold world. A stronger dollar resulted in a flat stock market but a higher run for gold. The big news was of course the IMF gold sale to India. Jesse's Cafe had this article spotlighted:

RBI to buy 200 tonnes of IMF gold
Mumbai: The Reserve Bank of India, or RBI, is buying 200 tonnes of gold from the International Monetary Fund (IMF), nearly half of what the fund plans to sell.

In 1991, when India faced its worst ever balance of payment crisis, the country had to pledge 67 tonnes of gold to Union Bank of Switzerland and Bank of England to raise $605 million (Rs2,843.5 crore today) to shore up its dwindling foreign exchange reserves, which were then barely enough to buy two weeks of imports. India’s foreign exchange reserves were at $1.2 billion in January 1991 and by June, they were depleted by half. Currently, the Indian central bank’s foreign exchange reserves stand at $285.5 billion.

RBI’s decision to shore up its gold reserves needs to be seen in the context of other central banks across the globe increasing their gold reserves. Among them are the central banks of China, Russia and a few countries in the European Union.

In the last one year, China has increased its gold holdings, by weight, by 75.69%, Russia by 18.78%, the Philippines by 18.50% and Mexico by 108.91%...

...RBI’s foreign currency assets consist mainly of sovereign bonds, mainly US treasurys. So, buying more gold will help the Indian central bank diversify its assets.

“Gold as a proportion of our reserves is relatively small,” said R.H. Patil, chairman of National Securities Depository Ltd and Clearing Corp. of India Ltd.

“Gold is the ultimate currency. In fact, only gold came to our rescue during (the) 1991 crisis, so it makes sense that RBI should try to increase its gold holdings,” Patil said.

Very interesting.

The 400 ton dump by the IMF was viewed as a drag on gold prices, but it is clear that central banks are looking to buy gold. China would like the other IMF 200 tons.

While gold was hitting new highs, silver has not been participating in the party. Certainly gold is, as mentioned in the article, "the ultimate currency" but I am a little worried that silver has not followed gold higher.

Signs of a Healthy Banking Sector
Your daily "the banks are in much better shape" reminder:
RBS And Lloyds Get Staggering $51 Billion Second Bailout From UK Government
I think I might have mentioned that the banking/credit crisis is alive and well, but then again I am crazy.

Unintended Consequences
I have always argued that the more government tries to be involved in anything, the more messed up things become. Today's example:
-Not happy enough with the favorable tax breaks homeowners get opposed to renters and not happy with a still falling housing market the government has expanded FHA loans and also (will) renew the home buyer tax credit. This has the effect of inspiring the low end buyers (only the low end would be motivated by $8k, as they have NO down payment!) to buy homes and stop renting. So far so good.

Wrong.

You see the largest contributor to government inflation statistics (CPI, etc) is owners equivalent rents. This of course allowed inflation to stay low while the home price bubble was roaring (rents stayed about the same), but now will contribute to a deflationary CPI print! As less people rent, rents will fall. All this effort to spur inflation and the very efforts being done will promise a negative inflation number! Great job! Clusterstock chart of the day shows the ginormous jump in first time home buyers:

Classic!

Bloggers Invade the Treasury
Late word came out last night that several bloggers were invited to a round table discussion with Treasury officials. I was happy to hear this news and I was hopeful the returns would be somewhat encouraging.

I cannot offer any input on something I had nothing to do with, so I would point to the writers pages that were in attendance:
-Across the Curve
-Accrued Interest
-Financial Armageddon
-Naked Capitalism
-Marginal Revolution
-Interfluidity
-Kid Dynamite's World
-The Aleph Blog

Of course this was not the march on the Treasury that Economic Disconnect had in mind. In my version we march armed with lightsabers, the darkside of the force, and with the backing of the 501st Stormtrooper Legion:


and


But thats just me!

Have a good night.