Tuesday, November 9, 2010

In a tough economy, old stigmas fall away

(AP) -- The Goodwill store in this middle-class New York suburb is buzzing on a recent weekend afternoon. A steady flow of shoppers comb through racks filled with second-hand clothes, shoes, blankets and dishes.

A few years ago, opening a Goodwill store here wouldn't have made sense. Paramus is one of the biggest ZIP codes in the country for retail sales. Shoppers have their pick of hundreds of respected names like Macy's and Lord &Taylor along this busy highway strip.

But in the wake of the Great Recession, the stigma attached to certain consumer behavior has fallen away. What some people once thought of as lowbrow, they now accept -- even consider a frugal badge of honor.

EDITOR'S NOTE -- The Great Recession has been over for nearly a year and a half, and the economy is slowly growing again. But many of the drastic changes that Americans made in how they spend money have endured -- and may be here to stay, some economists think. In a three-part series, The Associated Press examines the state of the American consumer.

And it's not just about Goodwill. Americans, even those with jobs, are shopping for brands, buying at stores and eating at restaurants that they shunned before because they are trying to get more for their money.

At the supermarket, shoppers are buying more store-labeled products, like no-name detergents and cereal, and not returning to national brands. (more)

Timeline: Gold's history as a currency standard

1934: The Gold Reserve Act of 1934 gives the government the permanent title to all monetary gold and halts the minting of gold coins.

It also allows gold certificates to be held only by the Federal Reserve Banks, putting the U.S. on a limited gold bullion standard, under which redemption in gold is restricted to dollars held by foreign central banks and licensed private users.

President Roosevelt devalues the dollar by increasing the price of gold to $35 per ounce.

1933: To alleviate the banking panic, President Franklin D. Roosevelt prohibits private holdings of all gold coins, bullion and certificates.

1931: Great Britain abandons the gold bullion standard.

1929: Great Depression, Wall Street Crash. (more)

S&P 500 Breadth Hits a High For the Year

Whenever the equity market makes a major move in either direction, it is always useful to look at breadth readings for any confimation or divergence. With that in mind, it was encouraging to see last Thursday that on the same day that the S&P 500 hit a new high for the year, cumulative breadth for the index also hit its highest level of the year.

Given the high correlation between individual stocks, the case can be made that breadth readings are less important because stocks now are moving in the same direction than ever before. That being said, we'll take a breadth confirmation over a breadth divergence any day. Anyways, the same people who would use the correlation argument are probably the ones who would be first to point out a divergence in breadth if there ever was one.

World Bank chief surprises with gold standard idea

(Reuters) - Leading economies should consider adopting a modified global gold standard to guide currency rates, World Bank president Robert Zoellick said on Monday in a surprise proposal before a potentially acrimonious G20 summit.

Writing in the Financial Times, Zoellick called for a "Bretton Woods II" system of floating currencies as a successor to the Bretton Woods fixed-exchange rate regime that broke down in the early 1970s.

The former U.S. trade representative, who served in several Republican administrations, said such a move "is likely to need to involve the dollar, the euro, the yen, the pound and (a yuan) that moves toward internationalization and then an open capital account.

"The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values," he added.

Analysts were cautious. "Going forward that would be something that we could look toward, but it's not going to happen within a short period of time," said Ong Yi Ling, analyst at Phillip Futures in Singapore, adding that gold prices barely reacted to the comments. (more)

Is GLD Overdue To Buy Two Hundred Tons Of Actual Gold?

One of the completely unmentioned side effects of the recent surge in gold prices, has been the fact that one of the biggest holders of gold, the GLD ETF (presumably physical, even though it is kept in the cellars of HSBC in London, one of the two banks recently charged with a RICO suit for precious metal price manipulation) which as of close today held 1,294 tonnes, has not really bought any gold in over 5 months. The issue is that GLD's gold actual holdings, which feed right into its NAV, have been flat since June, peaking at 1,320.44 tonnes on June 29, and flat-lining and even declining through today. Since then, however, gold spot has risen by 14%. As the chart below shows, GLD tends to reindex its NAV in spurts, buying up gold during specific periods when gold goes up, notably in March of 2009, and between May and June of 2010. As of today, the trust's NAV per GLD in gold is at an all time low of 97.67. The bottom line is that GLD is now long overdue to replenish its actual gold holdings, net of redemptions. Assuming that GLD will increase its holdings in line with prior accumulations, when gold price surged, the ETF may soon be due to buy about 200 tonnes of gold. Should that happen, GLD will further increase its distance to 6th sovereign holder of gold, China, which as of September 2010 held "just" 1,040 tonnes. As to what would happen to the price gold if it is made known that there is a buyer for 200 tonnes of gold, we leave to our readers' imagination.

Citi: Central Banks Are Going To Start Dumping Dollars In The Coming Weeks

QE2 is likely to serve as a reminder to central bank reserve managers that they still have way too many dollars, and that they need to diversify away.

That's the argument from Citi's Steven Englander:

With FOMC out of the way and largely meeting expectations, investors are looking for what comes next. We think that reserve managers will contribute to the next stage of USD weakness as QE2 confirms their worst fears about the Fed’s intentions and the quality of their reserves portfolios. To exacerbate their concerns, Global reserves have been growing very rapidly, on a headline basis about 11% over the last year and now are close to USD9trn (Figure 1). While Chinese reserves growth gets a large amount of attention, other countries reserves are growing similarly rapidly.

We believe this growth is involuntary and the implication is that central banks have a very large overhang of USD reserves. We think it is likely that reserves growth has picked up sharply over the last month and will lead to renewed dollar selling. The Fed’s QE2 announcement, while not a shock, just serves to remind reserve managers that they will have even more dollars in their portfolio if they do not move aggressively.

The historical record suggests that under these circumstances they are very likely to be dollar sellers in coming weeks. Needless to say, all the analysis in this note is based on publically available data. Moreover, we find that our results are more robust when based on aggregates rather than data published by any individual central banks, so none our analysis refers to any one central bank. (more)

The Feds Biggest Fear

Last week’s decision by the Fed to start another round of Quantitative Easing was met with only one dissenting vote by the Federal Open Market Committee. That does not mean everybody in the rest of the world thinks this is a good idea. Any country holding dollars is faced with a decrease in buying power. Some of the most powerful members of the G-20 are highly critical of the Fed’s money printing. Germany, Brazil and China all made negative comments about the Fed’s latest round of QE in a Bloomberg article over the weekend. It reported, It’s our problem as well if the U.S. is no longer certain that the old recipes don’t work anymore,” German Finance Minister Wolfgang Schaeuble said yesterday in Berlin. The Fed’s injection of $600 billion was “clueless” and won’t revive growth, he said. Brazil’s central bank president, Henrique Meirelles, said “excess liquidity” in the U.S. economy is creating “risks for everyone.” In China, Vice Foreign Minister Cui Tiankai said “many countries are worried about the impact of the policy on their economies.” He also said the U.S. “owes us some explanation on their decision on quantitative easing.” (more)

Chart of the Day: Gold Currency Index

Thanks for the Silver: An Open Letter to JPMorgan and HSBC

Ted Butler, famous silver analyst and the guy who kept up the pressure about the corruption in the silver futures market for the last 15 years, is in the InvestmentRarities.com newsletter recently talking about silver, and notes dryly that “world silver inventories are at their lowest point in 200 years.”

Well, this kind of news is for silver very important, but for me it is overshadowed by the new report of the company’s new Employee Satisfaction Survey, a stack of lies put out by the lying morons in the Human Resources Department, reportedly showing that my popularity is at its lowest point in my career, including that time when the Accounting Department burned me in effigy.

The report now includes an anecdote that 2 mysteriously unnamed employees now have comedic license plates on their cars emblazoned with the phrase “Go To Hell Mogambo (GTHM).”

Naturally, these two “unnamed employees” have to be Carl and Porky, two of the biggest nitwits in the whole company whom I have every day – every day! – told to buy silver because neo-Keynesian econometric madmen have seized control of the Federal Reserve and are creating so much money, so unbelievably much money, so impossibly much money that guaranteed inflation in prices will destroy us. (more)

This Auto Maker Looks Like a No-Brainer Trade

There are many things to like about the world's fourth largest automaker.

For starters, it was the only major U.S. automaker able to skirt bankruptcy during the financial crisis. And due to aggressive cost cutting, it is on target to have one of its strongest years ever.

In the wake of Toyota's (NYSE: TM) ongoing vehicle recalls, customers are understandably attracted to this car company, which has an award-winning safety record.

As a result, October 2010 sales increased +15.4% compared with a year ago.

Of course, if you haven't already guessed, I'm talking about Ford Motor Co. (NYSE: F).

In addition to strong fundamentals and a compelling valuation, the technicals for Ford shares look very enticing.

Take a look at the chart below to see what I'm talking about... (more)

Stocks fall as rally runs out of steam; Dow off 37

(AP) -- Stocks pulled back Monday as traders retreated from a rally that brought indexes to their highest levels since the peak of the financial crisis in September 2008.

Gold crossed $1,400 an ounce to another record on Monday as traders looked for safe places to park money.

The Dow Jones industrial average fell 37.24, or 0.3 percent, to close at 11,406.84. It surged 2.9 percent last week after the Federal Reserved announced a $600 billion stimulus package for the U.S. economy.

The Standard and Poor's 500 index fell 2.60, or 0.2 percent, to 1,223.25.

The Nasdaq composite index continued to outperform other market measures, as it has done all year, edging up 1.07, or 0.04 percent, to 2,580.05. The technology-focused index is up 13.7 percent for the year, compared to a 9.4 percent gain for the Dow and a 9.7 gain for the S&P 500. (more)