Liberty Grotto Blog

As experts debate the potential speed of the US recovery, one figure looms large but is often overlooked: nearly 1 in 5 Americans is either out of work or under-employed.

According to the government’s broadest measure of unemployment, some 17.5 percent are either without a job entirely or underemployed. The so-called U-6 number is at the highest rate since becoming an official labor statistic in 1994.

The number dwarfs the statistic most people pay attention to-the U-3 rate-which most recently showed unemployment at 10.2 percent for March, the highest it has been since June 1983.

The difference is that what is traditionally referred to as the “unemployment rate” only measures those out of work who are still looking for jobs. Discouraged workers who have quit trying to find a job, as well as those working part-time but looking for full-time work or who are otherwise underemployed, count in the U-6 rate.

With such a large portion of Americans experiencing employment struggles, economists worry that an extended period of slow or flat growth lies ahead.

“To me there’s no easy solution here,” says Michael Pento, chief economist at Delta Global Advisors. “Unless you create another bubble in which the economy can create jobs, then you’re not going to have growth. That’s the sad truth.”

Pento warns that forecasts of a double-dip (“W”) or a straight up (“V”) recovery both could be too optimistic given the jobs situation.

Instead, he believes the economy could flatline (or “L”) for an extended period as small businesses struggle to grow and consequently rehire the workers that have been furloughed as the U-3 unemployment rate has doubled since March 2008.

As that trend has happened, the U-6 rate has expanded at an even more dramatic pace. Economists cite several reasons for the phenomenon.

For one, more workers are becoming discouraged as real estate-the focal point for the expansion in the earlier part of the decade-has collapsed and taken millions of directly related and ancillary jobs with it.

Many workers believe those jobs aren’t coming back, and have thus quit looking and added themselves to the broader unemployment count.

“In the earlier part of this decade, 40 percent of all new jobs created were in real estate. Attorneys, mortgage brokers, agents, construction-they were all circled around housing,” Pento says. “We’ve had a jobless recovery in the last two recessions. This is going to be the third jobless recovery in a row.”

Another factor that may be leading people onto the rolls of those no longer looking for jobs is the government’s accommodative extensions of jobless benefits.

“Workers are unemployed for a much longer span than we’ve seen historically,” says David Resler, chief economist at Nomura Securities International in New York. “Part of that may be affected by the longer availability of benefits. It reduces the incentives for an urgent job search.”

Yahoo Finance

By Nicholas Larkin and Pham-Duy Nguyen

Nov. 23 (Bloomberg) — Gold jumped to a record price as the slumping dollar boosted bullion’s appeal as an alternative asset. Silver also gained.

Gold futures touched an all-time high of $1,174 an ounce in New York, after the dollar fell as much as 0.9 percent against the euro. Gold has posted records during nine sessions this month, and is up 32 percent this year as investors and central banks increased their holdings of the metal to preserve wealth. Russia’s central bank said it bought more bullion last month.

“All this buying shows no confidence in the dollar,” said Bernard Sin, the head of currency and metals trading at bullion refiner MKS Finance SA in Geneva.

Gold futures for December delivery rose $17.90, or 1.6 percent, to $1,164.70 an ounce on the New York Mercantile Exchange’s Comex division, the biggest gain in a week.

In London, bullion for immediate delivery climbed $13.73, or 1.2 percent, to $1,164.33 an ounce at 7:43 p.m. local time after earlier touching a record price of $1,174.

Gold may surge to $1,500 an ounce over the next 18 months, Bank of America Merrill Lynch analysts said today in a report.

The U.S. Dollar Index, a six-currency gauge of the greenback’s value, slid on speculation that the Federal Reserve will hold U.S. interest rates at historic lows indefinitely. The Fed cut the target range for its benchmark lending rate to zero percent to 0.25 percent in December. The dollar index is down 7.6 percent this year.

Russia’s central bank increased its gold holding to 19.5 million ounces last month from 19 million ounces in September, Bank Rossii said on its Web site.

Government Buying

Governments, the biggest holders of gold, have been expanding their bullion reserves, helping to spur an 8.3 percent rally in the metal’s price from Oct. 20 to Nov. 20. India’s central bank bought 200 metric tons from the International Monetary Fund in October. Mauritius and Sri Lanka also have been buying gold. The IMF still has about 200 tons left to sell.

“Any given emerging-market central bank cannot hedge against further U.S. dollar weakness by buying euros or sterling,” Bank of America Merrill Lynch said, citing the likelihood of rate moves by the European Central Bank and the Bank of England. “This is because there is a significant probability that the ECB and the BOE will have to follow any monetary policy moves by the Fed.”

The ECB’s benchmark lending rate is at 1 percent and the Bank of England’s main rate is at 0.5 percent.

Non-Dollar Purchases

Dennis Gartman, an economist and the editor of the Gartman Letter in Suffolk, Virginia, told investors to buy gold denominated in other currencies.

“Owning gold across the currency spectrum has effectively hedged the dollar exposure,” Gartman said in a note to clients.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, were unchanged for a second day at 1,117.49 tons as of Nov. 20, according to its Web site. The fund’s cache reached a record 1,134 tons on June 1.

Sales of American Eagle gold coins by the U.S. Mint jumped 88 percent this year through October, to 1.07 million ounces, from the first 10 months of last year, data on the mint’s Web site shows. The mint lists November sales at 99,500 ounces of the coins. The U.K.’s Royal Mint said last week that it quadrupled output of gold coins in the third quarter.

Gold is in the second stage of a rally to $1,500 that began with the credit crisis in August 2007, Bank of America Merrill Lynch said. The second stage is marked by dollar weakness. In the third stage, a recovery in energy and commodity prices will boost investment into precious metals, the bank said.

Silver futures for December delivery climbed 17 cents, or 0.9 percent, to $18.61 an ounce, after touching a 16-month high of $18.935 earlier. The metal is up 65 percent in 2009.

Bloomberg

WASHINGTON -(Dow Jones)- Former presidential candidate and notorious gadfly of the Republican party, Rep. Ron Paul (R., Texas), has called for abolishing the Federal Reserve for more than two decades with little success. That is, until the Democrats took over.

It was Paul’s moment of glory Thursday when the House Financial Services Committee approved his amendment to impose significant new audits on the Fed.

While committee chairman Barney Frank (D., Mass.) opposed Paul’s proposal, it didn’t stop him from crowing about its advancement.

“I do want to take credit as the chairman of the committee for being the first one in 26 years who gave the gentleman from Texas the chance to operate this legislation,” Frank said during a lengthy committee debate on a financial overhaul measure to mitigate systemic risk.

Frank didn’t mince words in pointing out just how estranged Paul has been from his GOP colleagues. In 2003, Frank noted, Paul was in line to chair a domestic monetary-policy subcommittee that “promptly disappeared…for the sole reason of denying the gentleman from Texas the chairmanship.”

Two years later, Republican leaders “dragooned” another lawmaker on leave from the panel to come back and assume another subcommittee chairmanship, Frank said.

This was done, “once again to preempt Dr. Paul, who said to me quite presciently at that time, ‘I guess I’ll have to wait for you to be chairman to get anywhere on this.’ Well, I am the chairman and he’s getting somewhere,” Frank said.

Rep. Spencer Bachus of Alabama, the committee’s ranking Republican, pointed out that Paul now has a leadership spot in the panel.

Paul is the ranking Republican of the subcommittee on domestic monetary policy, Frank acknowledged, a slot he was given “when there was no alternative.”

Frank opposes Paul’s proposal to open the Fed to auditing of its decisions about interest rates and lending to individual banks, saying the provision could be seen as “weakening the independence of monetary policy.”

Former Fed chairmen Alan Greenspan and Paul Volcker also have expressed opposition to Paul’s proposal, saying protection of the Fed’s internal deliberations is “indispensable” to the central bank’s conduct of monetary policy.

But Paul has garnered considerable support, with more than 300 House members signing on to a separate Fed auditing bill that he sponsors.

-By Fawn Johnson, Dow Jones Newswires; 202-862-9263; fawn.johnson@dowjones.com -0-

(MORE TO FOLLOW) Dow Jones Newswires
11-20-091508ET
Copyright (c) 2009 Dow Jones & Company, Inc.

NASDAQ

WASHINGTON — Political frustration over the rescue of Wall Street and high unemployment erupted in Congress Thursday, with one committee threatening to impose tighter scrutiny on the Federal Reserve and another excoriating Treasury Secretary Timothy Geithner.

The House Financial Services Committee voted, 43-26, to approve a measure sponsored by Texas Republican Ron Paul, vociferously opposed by the Fed, that would direct the congressional Government Accountability Office to expand its audits of the Fed to include decisions about interest rates and lending to individual banks. The Fed says the provision threatens its ability to make monetary policy without political interference.

The vote was the latest blow to the central bank, which has been become a lightning rod for politicians responding to popular anger that Wall Street was bailed out while the public was not. The Fed faces a stinging backlash from legislators from both parties who argue that has too much power and too little oversight. On Thursday, the Senate Banking Committee began debating legislation that would largely remove the Fed from bank supervision over the objections of both the Fed and the Obama administration.

The Fed audit provision was added to pending legislation on financial regulation that the committee’s chairman, Barney Frank, a Massachusetts Democrat, had planned to put to a vote Thursday. But he abruptly announced late in the afternoon that the bill wouldn’t move ahead until after Thanksgiving. The reason: Ten members of the Congressional Black Caucus on the committee said they would oppose the bill to protest a lack of action to address the economic pain borne by their constituents. Although the economy appears to be growing again, lawmakers face increasing pressure in their districts to do more to boost growth and address an unemployment rate now at 10.2% and expected to rise.

Glum views on the economy sparked a retreat from stocks and some commodities, as investors moved to the safety of government debt. The Dow Jones Industrial Average fell 93.87 points to 10332.44.

At the Joint Economic Committee, a band of House Republicans called for the resignation of Mr. Geithner, who, as president of the Federal Reserve Bank of New York, played a major role in last fall’s moves to prevent the collapse of the financial system. “The public has lost all confidence in your ability to do the job,” said Rep. Kevin Brady, Republican of Texas.

Mr. Geithner, in an unusual public display of pique, fired back. “What I can’t take responsibility is for the legacy of crises you’ve bequeathed this country,” he told Mr. Brady.

Although several Democrats defended Mr. Geithner at the hearing, some liberal Democrats have been complaining that the Obama administration isn’t doing enough to combat unemployment. Rep. Peter DeFazio (D., Ore.) called on Mr. Geithner to resign this week, and said in an interview that Mr. Geithner is too close to Wall Street.

“Quite frankly, all the gambling on Wall Street is doing nothing to put people back to work in America and rebuild our economy,” the Oregon Democrat said.

One issue that has dogged Mr. Geithner is the rescue of American International Group Inc. last fall. A government oversight report this week charged that the New York Fed caved into demands from Goldman Sachs Group Inc. and other big banks and paid them in full for deals they’d made with the insurer. Mr. Geithner said Thursday the government lacked powers it needed to handle the collapse of a financial company that wasn’t legally organized as a bank. “Coming into AIG we had, basically, duct tape and string,” he said. The legislation pending in Congress would give the government new powers to manage such a situation.

Mr. Paul, author of a new best-seller titled “End the Fed,” long has been a critic of the Fed. His economic views make him an outlier in Congress, but his attacks on the Fed have resonated in Congress and with the public.

The Paul provision, and the legislation to which it is attached, would have to clear the full House and Senate before becoming law. Though many lawmakers insist they won’t do anything to compromise the Fed’s independence on monetary policy, the provision’s momentum is substantial. It could, however, be diluted before any bill reaches the president.

Wall Street Journal

Sources: Gluskin Sheff, S&P, Bloomberg

ritholtz.com

The International Monetary Fund announced today the sale of 2 metric tons of gold to the Bank of Mauritius, the nation’s central bank. The sale was conducted on the basis of market prices prevailing on November 11, 2009 with proceeds equivalent to US$71.7 million (SDR 44.7 million). This transaction is part of the total sales of 403.3 metric tons approved by the Executive Board in September 2009 (see Press Release No. 09/310), and it adds to the 200 metric tons already sold to the Reserve Bank of India (see Press Release No. 09/381).

As previously announced (see Press Release No. 09/310), in accordance with the guiding principle of avoiding disruption of the gold market, the IMF’s Executive Board adopted modalities for the gold sales consistent with guidelines it had earlier established. In particular, the Fund is standing ready for an initial period to sell gold directly to central banks and other official holders that may be interested in such sales. Thereafter, on-market sales of any amounts remaining from the 403.3 tons would be conducted in a phased manner over time, following the approach adopted successfully by central banks participating in the Central Bank Gold Agreement.

As previously indicated, the Fund will inform markets before any on-market sales commence, and will report regularly to the public on progress with the gold sales.

IMF.org

Extending yesterday’s uptrend, the Singapore dollar showed strength against its US counterpart in early Asian trading on Tuesday. The Singapore dollar advanced to 1.3815 against the greenback around 7:25 pm ET, the highest level since September 7, 2008. The pair, which closed Monday’s North American deals at 1.3842, is presently quoted at 1.3833.

In economic news, Singapore will provide October numbers for non-oil domestic exports, with forecasts calling for an increase or 0.2 percent on year after the 7.2 percent annual contraction in September. Minus electronics, NODX is expected to drop an annual 11.7 percent following the 14.4 percent decline in the previous month.

rttnews.com

Nov. 16 (Bloomberg) — Gold rose to a record in London and New York as investors purchased the precious metal as an alternative to a slumping dollar.

The Dollar Index, a six-currency gauge of the greenback’s strength, fell for a second day as better-than-forecast economic growth in Japan added to signs of a world rebound from recession. Asian leaders pledged to maintain stimulus measures until growth is “durable,” reducing the dollar’s allure as a refuge. Bullion and the currency usually move inversely.

“The dollar has shifted so fast from looking fairly strong to looking so weak,” boosting gold prices, Walter de Wet, a London-based Standard Bank Ltd. analyst, said by phone today. “Nobody wants to short gold.”

Immediate-delivery bullion rose as much as $14.51, or 1.3 percent, to $1,133.20 an ounce and traded at $1,127.20 by 11:24 a.m. in London. The metal added 2.2 percent last week. December gold futures gained 1 percent to $1,127.50 an ounce on the New York Mercantile Exchange’s Comex division after earlier reaching $1,133.50.

The metal advanced to a record $1,128.75 an ounce in the morning “fixing” in London from $1,104 at the afternoon fixing on Nov. 13. Some mining companies use fixings to sell production.

‘Incredibly Powerful’

“The gold trend is incredibly powerful,” Evy Hambro, who helps to manage BlackRock Investment Management Ltd.’s $11.6 billion World Mining Fund, said in a Bloomberg Television interview today. “Production is declining and reserves are not being replaced.”

The dollar index slid as much as 0.6 percent today and is down 7.7 percent this year. Gold has climbed 28 percent in 2009 and is heading for a ninth annual gain. The metal has added 7.9 percent this month as the U.S. currency dropped 1.6 percent. Bullion will advance to $1,300 an ounce, said Wallace Ng, chief dealer with Fortis Bank in Hong Kong.

“It’s not an unreasonable call at all if you look at how the dollar behaves,” he said. “Investors are taking shelter in gold.”

The Federal Reserve has cut borrowing costs to an all-time low and the U.S. government boosted spending to a record to combat recession in the world’s biggest economy, fueling speculation that the dollar will be debased. The Reserve Bank of India bought 200 metric tons of gold from the International Monetary Fund last month, and Sri Lanka’s central bank said this month the country will continue buying the metal.

SPDR Holdings

“Investors of all levels, from retail investors to central banks, are really diversifying their portfolios,” said Toby Hassall, an analyst with CWA Global Markets Pty Ltd. in Sydney.

Holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, fell 0.61 metric tons to 1,113.83 tons on Nov. 13, its Web site showed. The holdings reached a record 1,134 tons on June 1.

Gold’s rally has pushed its 14-day relative-strength index, a gauge of whether a commodity or security may be set for a decline or gain, to more than 70, a level viewed by some investors as a signal for a retreat. Today’s index was 72.71, according to Bloomberg data.

“Though technically charts are hovering in the overbought zone, the tipping point seems to be far off and a short-term correction or retracement should not be considered a selloff,” Pradeep Unni, an analyst at Richcomm Global Services in Dubai, said in a report.

Platinum, Silver

Among other precious metals for immediate delivery in London, platinum gained as much as 2.7 percent to $1,430 an ounce, the highest price since Sept. 4, 2008, and was last at $1,417.50. Palladium climbed as much as 2.5 percent to a 15- month high of $365 an ounce and last traded at $363.25. Silver advanced 1.7 percent to $17.73 an ounce.

Carmakers are beginning to replenish platinum stocks and Chinese jewelry demand remains strong, Ian Farmer, chief executive officer of Lonmin Plc, said on a conference call today. Lonmin, the world’s third-largest platinum producer, cited signs of improvement in the industry and a possibility of supply shortages in the following two years.

Platinum and palladium are mainly used in automotive pollution-control gear.

Bloomberg

HANOI, Nov. 13 (Xinhua) — Vietnam will import gold after being halted since May 2008, said a report on the website of the State Bank of Vietnam on Friday.

The move aims to stabilize the gold price in the domestic market which has been pushed up at a record high in the past days, said the bank.

The move followed the gold price in the domestic market reaching a record high of about 1,622 U.S. dollars a gold bar, weighing 37.5 grams. The price is higher than the gold price in the international market which was hovering at 1,122 U.S. dollars an ounce.

According to the bank’s decision, six domestic gold trading companies will be granted permission to import gold at appropriate volume to stop the heat of the domestic gold price. However, names of these companies have not been identified yet.

The bank’s decision will not create negative impacts on the country’s trade balance this year which has seen a trade deficit of 8.8 billion U.S. dollars in the first ten months this year, said the governor of the bank Nguyen Van Giau.

The increase in the domestic gold price was driven by the domestic speculation triggered by the forecast of the rise of global gold prices, said industry insiders.

xinhuanet.com