The Economy Guy

Mostly a dull day in all the markets as most of them went sideways and positioned themselves for the coming weekend.

In the news today…..

Japan at risk of Greek tragedy - Japan’s new prime minister, Naoto Kan, warned his country could face a debt crisis similar to Greece’s unless it urgently deals with its growing national debt. “Our finances could collapse if trust in national bonds is lost and growing national debt is left alone,” he said. The unusually blunt talk is likely meant to help push forward his agenda, which may involve raising taxes. (Yes, this is a political statement from a prime minister, but there must be some truth in it somewhere.  If Japan recognizes its debt problems, why doesn’t the US?)

Spain denies aid request – Spanish officials strongly denied a media report that the country had made a request for economic aid from the EU, or was planning to make such a request. “”This is lie. There’s no rescue. There’s nothing asked for, nor will there be, nothing, but nothing. I don’t know where they got this from,” said an economy ministry spokesperson.  (Now is the time to invoke one of the sage adages that I have learned over the years – “Never believe a government rumor until it is officially denied.’  Think about it.)

Geithner grows impatient on China – Testifying before lawmakers yesterday, Geithner signaled that the U.S. was running out of patience with China’s currency policy. “The distortions caused by China’s exchange rate spread far beyond China’s borders,” said Geithner, “and are an impediment to the global rebalancing we need.” Sen. Charles Grassley was far blunter: “The time is long past for any Treasury Department to admit publicly what everyone else already knows, that China is manipulating the value of its currency in order to gain an unfair advantage in international trade.” Lawmakers plan to move forward soon with anti-dumping penalties on goods from China.  (These words coming from Congress are the initiation of a possible trade war.  Trade wars always end badly for everyone involved, and was one of the outcomes that made our Great Depression so bad.)

30Year Mortgage Rates – are at 4.63% in my home town today.  These are approaching the all time decade lows, and if you are looking to refinance or buy, this is your time to do it.

George Soros Speaks – Billionaire investor George Soros said “we have just entered Act II” of the crisis as Europe’s fiscal woes worsen and governments are pressured to curb budget deficits that may push the global economy back into recession.  “The collapse of the financial system as we know it is real, and the crisis is far from over,” Soros said today at a conference in Vienna. “Indeed, we have just entered Act II of the drama.”  He went on to say that today’s European economy is eerily similar to Europe in the 1930’s – and we all know what came out of that mess.

Tonight’s Dinner Conversation……

Gold – what is being said by the US FED Chairman?  Here is what happened during Congressional Q&A’s with Representative Ryan Paul.  As a disclosure, I have a significant investment in gold, and have been recommending its purchase since it was around $750/ounce.  It hit a new high of $1252/ounce this week.  Gold has outperformed stocks, bonds and other commodities this year.

U.S. Federal Reserve Chairman Ben S. Bernanke said gold prices, which surged to a record yesterday, are sending a different signal on inflation than raw materials.  “Other commodity prices have fallen recently quite severely, including oil prices and food prices,” Bernanke said today in response to a question during testimony to a House Budget Committee hearing. “So gold is out there doing something different from the rest of the commodity group.”

“Bernanke is dispelling the argument that people are out there buying gold because of the threat of inflation,” said Matt Zeman, a metals trader at LaSalle Futures Group in Chicago. “Deflation is now more of a threat.”

“There is a great deal of uncertainty and anxiety in the financial markets right now,” Bernanke said. “Some people believe that holding gold will be a hedge against the fact that they view many other investments being risky and hard to predict at this point.”

“When there’s nowhere else to turn, people turn to gold,” Zeman said.

It’s a real mystery, that the gold price is rising – and this receives a collective “I Dunno” from the central bank and the mainstream financial media. In asking his question, Rep. Ryan went to where neither of these groups apparently felt comfortable, noting, “gold hit an all-time high yesterday which I think most people would view as a vote of no confidence against fiat currencies”.

In a strange admission, Ben Bernanke said that he didn’t “fully understand the movement in the gold price.” Bernanke admitted that “there’s a great deal of uncertainty and anxiety in financial markets right now.” He said that “some people believe that holding gold will be a hedge against the fact that they view many other investments as being risky and hard to predict at this point.” Bernanke was trying to allay growing concerns about the emergence of inflation and claimed that commodities had ” fallen quite severely recently.”

(My comment: Bernanke has exaggerated the fall in commodity prices – and I point to oil which hasn’t fallen significantly – so as to exaggerate deflation.  Why would he do this?  Perhaps because he knows all the money he’s printed has the potential of hyperinflation.  Keeping markets calm is one of his jobs – and not to tell the absolute truth at all times.)

Here are the last numbers for today:
Dow Jones 30 Industrial – 10,211 (up 39)
10 Year Treasury Bond – 3.22% (up 0.03%)
Euro – $1.2103
Gold – $1228 (up $7)
Oil – $74.21 (down $1.16)
Gasoline – $2.05  (down $0.02)