Gold Frenzy

November 10, 2009

As the dollar has weakened, gold has become more interesting to U.S. investors. But it’s not just Americans who are concerned with the stability of the global financial system. As you read through this article on gold from the New York Times, you will see that even the British retailer Harrod’s is now selling gold coins and gold bars as part of their department store offerings! India’s central bank recently bought 220 tons of gold (worth $6.7 billion) for their reserve account instead of putting it into dollars.

The U.S. economy is no longer isolated or independent from the global economy. Asset classes are on the move everywhere, quite possibly in the midst of changing some of their traditional relationships. Your investment policy needs to adapt to the global changes as well.

P.S. When you can purchase gold bars at Wal-Mart, you might want to rethink the direction of the trade!

 

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Posted by Mike Moody

Peak Oil

November 10, 2009

If you are wondering how crude oil managed to rise from $35 to $80 during a recession, maybe you will find the answer in an article from the Manchester Guardian. According to the paper, ”the world is much closer to running out of oil than official estimates admit, according to a whistleblower at the International Energy Agency who claims it has been deliberately underplaying a looming shortage for fear of triggering panic buying.”

Conspiracy theories like this are generally impossible to prove since none of the sources will ever agree to reveal their names. Maybe it is true; maybe it isn’t. On the other hand, price is a pretty good guide to supply and demand. We use price as the input to our models because it is readily available and transparent to everyone. Price could be especially helpful if data is intentionally being withheld from the public, since the actual information tends to leak out over time and have an influence on price anyway.

If this story is accurate, what happens to the oil price as world economies recover and demand begins to expand more strongly?

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Posted by Mike Moody

Another Black Hole Discovered

November 10, 2009

According to the Washington Post, the Federal Housing Administration (FHA) has now dropped below its federally mandated 2% reserve level and will need to begin sucking money directly from the Treasury to keep afloat. The mortgage problem does not seem to be over and the more money that gets shoveled into that hole has additional implications for the budget deficit, interest rates, inflation, and the U.S. dollar.

In other words, lots of things are interlinked, sometimes in ways so intricate that they are impossible to figure out beforehand. Rather than trying to forecast what might happen, it is often best to let a flexible, adaptive approach deal with the environment as it changes.

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Posted by Mike Moody

We Are All Bankers Now

November 10, 2009

Back in May, the WSJ ran a piece about the “vanishing millionaires” of Maryland. In a nutshell, the state government of Maryland mandated an additional tax on households in the highest tax brackets, in an effort to raise state tax revenues. Surprise! There were a few thousand LESS millionaires living in the state come tax time, and tax revenues fell drastically.

And today we have “Praying for Big Bank Bonuses.”

File this under “I” for Irony. All those big, bad bonuses are actually good for something…tax revenues for state governments running massive deficits. The article approximates that “one in five New York state tax dollars come from Wall Street.” In New Jersey, the incumbent governor was just booted out, in part because of his inability to wrestle a deficit projected to reach $5 Billion by the next year. The numbers just aren’t adding up.

There are plenty of ways to spin this story. Here’s mine!

From Wikipedia: “Sometimes unintended consequences can far outweigh the intended effect.”

Leave a Comment » | Just for Fun, Markets, Non-partisan op-ed | Permalink
Posted by JP Lee