Wednesday morning links. TOP STORIES
Fed, ECB and Bank of England make emergency interest rate cuts - Telegraph
Interest rates cut to 4.5% as Brown unveils £500bn bank bail-out - Guardian
OPEC may need to cut if oil under $90: Iraq - Reuters
Investor Jim Rogers predicts lost decade to USA - Pravda
Central banks all but stop lending bullion($) - Financial Times
For the New Contagion, the Same Old Prescriptions - Wash. Post

MARKETS/INVESTING
Oil Falls, Giving Up Rebound That Followed Interest Rate Cuts - Bloomberg
Gold rallies over $20 after Fed cuts rate - MarketWatch
Markets Need More Than Random Acts of Congress - Bloomberg
US Mint halts some American Eagle coin production - Reuters
Is it safe to invest in gold, silver & crude oil? - Commodity Online

ECONOMY
Retailers' September sales forebode a tough holiday - MarketWatch
Slowing economy hitting state tax revenues - MSNBC
Cheaper Gas Prices, but Less Demand - AP
Consumer borrowing hits a 10-year low - MSNBC

HOUSING
Subprime Suspects - NewsWeek
Critics say bailout offers little help for homeowners - MSN
Mortgage Losses to Top $1.4 Trillion: IMF - HousingWire
Why We Should Let Housing Prices Keep Falling - NY Times

FED/TREASURY/BANKING
Fed, ECB, Central Banks Cut Rates in Coordinated Move - Bloomberg
Central Banks Coordinate Cut in Rates - NY Times
Fed Tries to Find What Works in Mess - Bloomberg
Bankers Might Need 50 Years to Regain Credibility - Bloomberg

INTERNATIONAL
Europe's Economy Shrinks as Investment, Spending Fall - Bloomberg
Bank of England goes nuclear with interest rate cut - Telegraph
Global economy needs more than rate cuts - MarketWatch
Financial crisis: UK bank bail-out: The key points - Bloomberg
IMF Says World Economy Heading for `Major Downturn' - Telegraph

INTERESTING
CNBC Confirms Lehman CEO Punched at Gym - Business & Media Inst.
After bailout, AIG sent executives to the spa - MSNBC

By noreply@blogger.com (Tim).

A coordinated global rate cut. Well, you could see this one coming and, after an initial lackluster response, it looks like equity markets have gotten the message. In a coordinated action, banks in the U.S., Europe, U.K., Canada, Sweden, Switzerland, and China cut short-term lending rates this morning. This is what it looks like in the U.S. with the Fed funds rate now at 1.5 percent.
Here's a summary of the before and after lending rates:

• US: from 2.0% to 1.5%
• ECB: from 4.25% to 3.75%
• BOE: from 5.0% to 4.5%
• Canada: from 3.0% to 2.5%
• Sweden: from 4.75% to 4.25%
• Switzerland: from 3.0% to 2.5%
  
• China: from 7.2% to 6.9%

The Bank of Japan would have cut rates also, but they're still stuck at just 0.5 percent - they lent moral support instead.

Somehow, it seems like this is just the beginning and, if this Bloomberg report is any indication, it surely is.

After an initial rally, European shares and U.S. stock indexes headed lower. Some analysts said the central banks should have lowered rates by more, and predicted further reductions. Economists at Goldman Sachs Group Inc. and Morgan Stanley now project another half-point move by the Fed at its Oct. 28-29 meeting.

Futures on the Standard & Poor's 500 Stock Index dropped 3.7 percent at 9:19 a.m. in New York, after plummeting 15 percent in the past five trading days. Europe's Dow Jones Stoxx 600 Index slumped 3.9 percent. Japan's Nikkei 225 Stock Average lost 9.4 percent to 9,203.32 earlier today, before the announcement.

``It should have been 1 percent to have a real impact,'' said Robert Leonardi, a senior lecturer on European Union politics at the London School of Economics.

The British government separately announced an enormous £500B rescue package for its banking sector, a plan that will partly nationalize the banking system.

According to this report in the Guardian, the rescue comes in three parts:

• £50bn of taxpayers' money will be offered to banks to rebuild their capital reserves
• £200bn of liquidity is being made available as short-term loans in an attempt to thaw the frozen interbank lending markets. This is twice as much as was previouly offered under the Special Liquidity Scheme
• A further £250bn will underwrite lending between banks - another attempt to shore up their balance sheets.

The plan is expected to cost British taxpayers £2,000 each.

By noreply@blogger.com (Tim).

U.S. mint halts gold coin production/sales. There have been a number of reports over the last 24-hours about the U.S. Mint halting the production and/or sale of gold coins. There doesn't appear to be anything available at the U.S. Mint website at the moment - in the past, they've been rather slow to make formal announcements.

Here's what appeared yesterday at Reuters:

US Mint halts some American Eagle coin production
Tue Oct 7, 2008 10:14am EDT
By Frank Tang

NEW YORK, Oct 7 (Reuters) - Unprecedented demand for precious metals and volatile markets forced the U.S. Mint to cease production for the half-ounce and quarter-ounce popular American Eagle gold coins for the rest of this year and to supply other bullion coins on an allocation basis.

"Due to the extreme fluctuating market conditions for 2008, as well as current market conditions, gold and silver demand is unprecedented and the demand for platinum is unusually high," the U.S. Mint said Monday in a memorandum to its authorized coin dealers.

"The U.S. Mint has worked diligently to attempt to meet demand, however, blank supplies are very limited and it is necessary for the U.S. Mint to focus remaining bullion production primarily on American Eagle Gold one-ounce and Silver one-ounce coins," the Mint said.

The Mint said it would continue to supply one-ounce American Eagle gold coins and one-ounce American Eagle silver coins on an allocation basis to coin dealers.

For half-ounce and quarter-ounce American Eagles, the Mint said that inventory was depleted last week and no more coins would be produced for the rest of 2008.

In addition, the Mint said it would produce 1-10th ounce Eagles based on current coin blank supplies, but would cease production for the rest of this year once the remaining inventory was depleted.

Produced from gold mined in the United States, the 22-karat American Eagles have been novel items among collectors and investors since their introduction in 1986. Each coin has a face value of $50 but it is sold by authorized dealers at a premium to the price of gold.

AMERICAN BUFFALO, AMERICAN EAGLE PLATINUM

The Mint said it would continue to supply 24-karat American Buffalo one-ounce gold coins based on current blank supplies, but would halt production once the remaining inventory was out.

The Mint had suspended sales of the Buffalos in late September due to strong demand and inventory depletion.

Similarly, the Mint said that all denominations for American Eagle platinum bullion coins were depleted last week, and it would halt production for the rest of the year once the remaining inventory was depleted.

Coin dealers from the United States to Canada have recently reported a surge in buying of bullion coins.

Gold has soared as much as $200 in the last 30 days as panic investors flocked to gold as a worsening global financial crisis prompted people to seek a safe haven.

Spot gold traded at about $884 an ounce on Tuesday, while the gold contract for December delivery GCZ8 on the COMEX division of the New York Stock Exchange was at $886 an ounce.

And here's what appeared in the Wall Street Journal this morning:

Mint Widens Freeze on Gold Coin Sales

NEW YORK -- Citing extraordinary demand, the U.S. Mint has broadened its freeze on sales of gold bullion coins, as individual investors who are priced out of the futures markets have been piling up their holdings of the metal as a hedge against market uncertainty.

"Due to the extreme fluctuating market conditions for 2008, as well as current market conditions, gold and silver demand is unprecedented and the demand for platinum is unusually high," the Mint said in a memorandum late Monday, released to its authorized purchasers.

The Mint added in the memo that it's halting the production and sales of several gold and platinum coins while putting a few other coins under allocation sales. The move came after the Mint halted sales of two other coins in September and August.

While the bulk of the 160,000-ton above-ground gold stock (about 5.1 billion ounces) is used in jewelry and the electronics industry, about 16% is held by investors for pure investment purposes, according to the World Gold Council. The gold investment market is dominated by big institutions, which trade with one another directly in large orders through over-the-counter markets.

There's more at the Mint News Blog.

By noreply@blogger.com (Tim).

It would be much funnier if it weren't so true. From Tom Toles at the Washington Post:
By noreply@blogger.com (Tim).

Where do you go from here?. You have to wonder what's going through the minds of central bankers around the world these days as their remedies do not seem to be having the desired effect.
U.S. markets are bravely trying to lead an advance out of the morass, but conviction is lacking (that is, with the exception of the gold market and mining stocks).

The report in the Telegraph from which the picture above was culled tells of the difficulty encountered across the pond after bold announcements from the government.

After a volatile day of trading, stock prices ended the day markedly lower in the U.K., the FTSE recovering almost two percent from its lows but still managing to lose another five percent on the day.

Apparently, the men above would be better advised to look upward rather than horizontally as, just the other day, Pope Benedict noted the world financial system is "built on sand" and that only the works of God have "solid reality".

Of course, gold bugs will surely interpret this to be a call hard money which, after reading the full report, is really not much of a stretch.

''We are now seeing, in the collapse of major banks, that money vanishes, it is nothing. All these things that appear to be real are in fact secondary. Only God's words are a solid reality''.

He was referring to Jesus's words in Matthew Chapter 7, beginning "Beware of false prophets, which come to you in sheep's clothing, but inwardly they are ravening wolves."

Jesus adds: "Whosoever heareth these sayings of mine, and doeth them, I will liken him unto a wise man, which built his house upon a rock …but everyone that heareth these sayings of mine, and doeth them not, shall be likened unto a foolish man, which built his house upon the sand.”

As if central bankers and Wall Street types don't have enough to worry about, they have one more thing to add to their list - "the Wrath of God".

By noreply@blogger.com (Tim).

Surprise! Nouriel Roubini predicts a long recession. The world's most accurate economic forecaster (if not its most popular economist) is now predicting a recession of at least two years.

This interview at Yahoo! Finance contains a few more observations of just what is happening today in both the economy and in financial markets, providing little hope of any improvement anytime soon.

Nouriel believes the recession began in the first quarter of this year and will stretch into early 2010 - at least.

When asked if he had perhaps become too bearish recently and whether there's a possibility that he'll "miss the turn", the following response came:

I worry that things will actually get worse than I expect rather than the alternative. Look what's happened to the stock market for the last few days, the inter-bank market, credit spreads, the financial system is even worse than I predicted a few months ago.

I knew there was a systemic financial risk but the speed at which things have been unraveling has been worse than I expected. I don't think right now that any miracle is going to change things.

It's going to be ugly and if we manage it right, we're probably going to have a recession that is severe but not terrible. We'll have a financial crisis that is manageable, but, at this point, I don't think there is much reason to be optimistic I'm afraid.

The interviewer chuckled briefly and said, "All right, thanks very much."

By noreply@blogger.com (Tim).

Anyone want to buy some one-ounce gold coins?. I've got ten American Eagle one-ounce gold coins that I was thinking about exchanging for a little walking around money and I was going to take that long drive down to the nearest coin shop, but, when I called to find out what they'd pay, the poor guy sounded so desperate to get some sort of inventory into his shop to sell, I thought maybe I could get an even better price through the magic of the internet.

Comments have been turned off for this post as I don't want this turned into some sort of a spectacle - please send mail (tliacono at yahoo.com) if you are interested and tell me how much over spot (per ounce) you're offering.

If this produces any sort of an interesting result, I'll post a follow-up. By noreply@blogger.com (Tim).

Thursday morning links. TOP STORIES
US warns of further bank failures - BBC
Trichet Engineers ECB `Regime Change' as Banks Totter - Bloomberg
Taking Hard New Look at a Greenspan Legacy - NY Times
Easy Money Causes Bubble; Easy Money Cures Bust - Bloomberg
U.S. May Take Ownership Stake in Banks - NY Times
Will Britain's rescue plan work? - Christian Science Monitor

MARKETS/INVESTING
Gold falls 2 percent as shares surge on rate cuts - Reuters
Oil Falls as U.S. Stockpiles Swell, Global Crisis Curbs Demand - Bloomberg
Shares climb after intervention - BBC

ECONOMY
U.S. weekly jobless claims fall 20,000 to 478,000 - MarketWatch

U.S. in Midst of Recession as Credit Shrinks, Spending Sinks - Bloomberg
Pending Home Sales Surge - Housing Wire
Retailers’ Sales Fall Sharply at Both High End and Low - NY Times
Is California too big to fail? - Economy

HOUSING
Home Asking Prices Fall: September Report - HousingWire
The home-staging cheat sheet - U.S. News & World Report
Manhattan's Luxury Bubble Pricked - NY Observer

FED/TREASURY/BANKING
Libor Holds Central Banks Hostage as London Makes World Freeze - Bloomberg
Why the $700 Billion Isn't Helping - Time Magazine
Paulson Signals U.S. May Invest in Banks to Shore Up Confidence - Bloomberg

INTERNATIONAL
BOE May Follow Rate Cut With `Another Big One,' Allsopp Says - Bloomberg
South Korea, Taiwan central banks cut interest rates - MarketWatch
China Cuts Rate to Protect Economy That's Now `Big Enchilada' - Bloomberg
Japan's core machinery orders plunge in August - AP
Icelandic Regulator Takes Control of Kaupthing Bank - Bloomberg

INTERESTING
Man Doing Well After Double Arm Transplant - LiveScience
Man's 'Viva Viagra' missile misfires in NYC court - AP

By noreply@blogger.com (Tim).

More hits to the Greenspan legacy. Former Fed Chairman Alan Greenspan gets both barrels from a big shotgun on the East Coast today with scathing commentaries in the New York Times and at Bloomberg, this photo from the Times piece harkening back to an era when "The Maestro" could do no wrong.
Now that the bursting housing bubble and imploding derivatives market have settled into a steady-state of extreme panic, it seems that more enlightened individuals are looking beyond "falling home prices" for a root cause of the current mess.

In this NY Times report, Peter S. Goodman reviews two decades of a "hands off" approach to Wall Street derivatives, what Warren Buffet once called "financial weapons of mass destruction".

Taking Hard New Look at a Greenspan Legacy

“Not only have individual financial institutions become less vulnerable to shocks from underlying risk factors, but also the financial system as a whole has become more resilient.” — Alan Greenspan in 2004
...
For more than a decade, the former Federal Reserve Chairman Alan Greenspan has fiercely objected whenever derivatives have come under scrutiny in Congress or on Wall Street. “What we have found over the years in the marketplace is that derivatives have been an extraordinarily useful vehicle to transfer risk from those who shouldn’t be taking it to those who are willing to and are capable of doing so,” Mr. Greenspan told the Senate Banking Committee in 2003. “We think it would be a mistake” to more deeply regulate the contracts, he added.

Today, with the world caught in an economic tempest that Mr. Greenspan recently described as “the type of wrenching financial crisis that comes along only once in a century,” his faith in derivatives remains unshaken.

The problem is not that the contracts failed, he says. Rather, the people using them got greedy. A lack of integrity spawned the crisis, he argued in a speech a week ago at Georgetown University, intimating that those peddling derivatives were not as reliable as “the pharmacist who fills the prescription ordered by our physician.”

But others hold a starkly different view of how global markets unwound, and the role that Mr. Greenspan played in setting up this unrest.

“Clearly, derivatives are a centerpiece of the crisis, and he was the leading proponent of the deregulation of derivatives,” said Frank Partnoy, a law professor at the University of San Diego and an expert on financial regulation.

If Mr. Greenspan had acted differently during his tenure as Federal Reserve chairman from 1987 to 2006, many economists say, the current crisis might have been averted or muted.

This is a lengthy commentary, full of details about who said what over the last twenty some years with some none-too-kind words for former Treasury Secretary Robert Rubin who, without a doubt, retired from his government job at the right time.

Clearly, the highlight has to be more damning comments from erstwhile Greenspan sycophant Alan S. Blinder, a former Federal Reserve Board member, who opined "I think of him as consistently cheerleading on derivatives."

It is well worth reading in its entirety.

The other New York buckshot comes in this commentary at Bloomberg by Caroline Baum who asks the same question that a lot of people have started to ask now that the housing bubble has gone bust, "How can problems caused by easy money be solved with more easy money?"

Easy Money Causes Bubble; Easy Money Cures Bust
Haven't we seen this movie before?

Central bank runs easy monetary policy.

Easy money inflates asset bubble.

Central bank tightens monetary policy.

Asset bubble bursts.

Central bank runs easy monetary policy to offset effects of burst bubble.

Easy money inflates bubble.

This movie played in first-run houses and in rerun during Alan Greenspan's 18-year tenure as Federal Reserve chairman.
...
Having studied the Great Depression, Fed Chief Ben Bernanke knows the risks associated with doing nothing and doing too much. Having inherited the downside of Greenspan's bubble, he knows the temporary cure of easy money can quickly morph into the next bubble.

At this point, with what markets have done over the last few weeks, most people are proabably desperately hoping for another bubble to somehow get inflated - the alternative would be most unpleasant.

By noreply@blogger.com (Tim).

Comments, questions about the new layout?. Here's your chance - fire away. At least I didn't try to change the name this time ;> By noreply@blogger.com (Tim).

Gold parties!!. There was a segment on ABC News last night about Gold Parties, which are apparently quite popular these days as housewives all across the country scour their dresser drawers for jewelry and then meet up with their friends to make some quick cash.

Since the ABC News piece wasn't embeddable, the YouTube clip above was about the best that could be done here - the video at ABC is worth viewing as well.

What's a little disturbing about all this is that these party-goers have the same looks in their eyes and giggles in their throats as when they were, maybe, talking about investment property back in 2005 and perhaps stocks in 2000.

This time, however, the mood is similar, but somehow very different.

By noreply@blogger.com (Tim).

Guess the year-end price of oil and gold!. Welcome to the fifth semi-annual "Guess the price of oil and gold contest" where readers can enter a friendly competition to win a free one-year subscription to the companion investment website Iacono Research. Past contests have produced the following results:
That was quite a break in the trend since the end of the last contest in June - with almost three months left until this contest ends, who knows where prices will end up.

Last time around, it was TP who snagged the prize as shown below. Presumably, he is now enjoying the benefits of the subscription site.
The rules remain the same - only the dates have changed.

The contest is based on the combined percentage differences between the guessed values and the closing prices on December June 31st, 2008 using the near-month (February) Nymex futures contract for WTI crude oil and the COMEX closing price for gold bullion.

Entries may be made either by posting them in the comments section of this post or sending mail to either tim-at-iaconoresearch.com or tliacono-at-yahoo.com. All entries must be received no later than October 23rd, two weeks from today - there will be two more notices such as this one as reminders and current subscribers can win a free one-year extension to their existing subscription.

The winner will be announced on December 31st - good luck to all!

By noreply@blogger.com (Tim).

Down the rabbit hole. Hmmm... maybe I should've hung onto those gold coins...

Rex Nutting at MarketWatch had it right for about half the day today after noting the lack of central bank and government action early this morning and wondering if we'd make it until 4 PM, setting the bar ridiculously low per Dylan Ratigan of CNBC who figured, "Not down 500 is the new up."

It was a down day.

Stocks plunged late in the day sending the Dow Jones industrials down 679 points, the lowest level in five years, based largely on fears of a ratings cut for General Motors Corp. Retirement plan investors are said to be furiously exchanging their stock mutual funds for cash - that didn't help.

It's not clear where we go from here.

The G7 meets tomorrow and the world's economic powers will attempt to stop the bleeding, if that's possible at this point. Credit markets are getting worse, not better, and U.S. stocks have lost more than 20 percent over the last seven days of trading. Foreign stocks are down 30 percent over the same period.

There doesn't seem to be any good news today.

The inventory at the SPDR Gold Shares ETF (NYSEArca:GLD) rose by a couple of tonnes this afternoon enabling the world's most popular gold ETF to finally pass Japan which had previously occupied the number 7 spot in the official world gold holdings - 765.74 tonnes for the ETF versus 765.2 tonnes for the Bank of Japan.

That hardly seems like it's worth crowing about, but it makes for nice upward sloping chart, something that is in short supply these days.

By noreply@blogger.com (Tim).

Friday morning links. TOP STORIES
Policy makers scramble for answers - MarketWatch
Fearful investors dump stocks, bonds for cash - Reuters
Who We Should Blame for This Crisis - Seeking Alpha
Treasury Weighs Investing In Banks - Washington Post
World at risk of a global systemic meltdown and severe depression - RGE Monitor
Oil prices slump as energy watchdog drops demand forcecast - Guardian
FTSE 100 heads for worst week - Telegraph
Cost of U.S. Crisis Action Grows, Along With Debt - Bloomberg

MARKETS/INVESTING
Investors, bankers have lost their faith - USA Today
Gold up as falling stocks spur flight to safety - Reuters
Oil plummets below $83 on global slowdown fears - AP
How to rescue your retirement - MSN Money
Cash crunch may dent commodities boom - Commodity Online
Bank hoarding pushes up gold borrowing costs - Vancouver Sun

ECONOMY
August trade deficit falls to $59.1B - AP
September retail sales plummet: SpendingPulse - Reuters
The Auto Credit Crisis: It's Real - BusinessWeek

HOUSING
Nearly 1 in 6 homeowners 'underwater' - MSN Money
ML-Implode Sued by FHA Seller-Funded Downpayment Outfit - Implode-O-Meter
Illinois Sheriff Suspends All Evictions - HousingWire

FED/TREASURY/BANKING
Roubini Urges 1.5 Point Rate Cut to Avert Disaster - Bloomberg
Lehman to Spark Record Payout for Credit Swap Sellers - Bloomberg
Plan B: Flood Banks With Cash - Norris, NY Times
Paulson borrowing a page from Buffett - MarketWatch
Libor for Three-Month Dollars Rises as Cash Injections Misfire - Bloomberg

INTERNATIONAL
European markets plunge again; Nikkei plummets - AP
Fears of 1930s Redux Are Pushing Asia to Action - Bloomberg
Ottawa buying $25-billion in mortgage pools - Globe & Mail
HBOS, RBS, European Banks Slide on Lehman Concern - Bloomberg
Financial crisis: Panic selling piles pressure on G7 leaders - Guardian
Russia Approves Loan Plan to Ease Credit Crunch - NY Times

INTERESTING
Russia's Putin gets tiger cub for his birthday - AP
US debt clock runs out of digits - BBC

By noreply@blogger.com (Tim).

What would Jim Rogers do?. Jim Rogers was on Bloomberg this morning. When pressed for solutions to the current crisis (rather than critiques of its handling so far), he had some interesting comments.

Click to play in a new window

This discussion really strikes at the heart of the current dilemma - do you try to lessen the impact of the current meltdown in an attempt to insure you'll avoid another Great Depression, or, do you just let markets do what they want to do and then pick up the pieces and start over?

Slower with less pain or fast and painful? Obviously, Rogers favors the latter:

I would tell you what has always worked throughout history and I'll tell you what has always not worked.

The Japanese tried this in the 90s, they kept putting band-aids on and they wouldn't let people fail. You remember the term "zombie" companies, "zombie" banks? Well it's eighteen years later and the Japanese stock market is still down over 75 percent. They talk about the 90s as a lost decade.

America tried it in the 70s - they wouldn't let anybody fail. We had one of the worst economic decades in American history - high interest rates, high inflation, a collapsing currency. It didn't work.

Korea in the 90s, took a hit. They had a horrible two or three years but, since then, they've been one of the most rapidly growing economies in the world. The Russians took a horrible hit - since then, they've been one of the most rapidly growing economies in the world.

This is not politics, this is not philosophy. I'm telling you what has worked throughout history and what has not worked throughout history.

Look it up.

When asked about letting banks collapse one by one, this reply came:

Let 'em fail two by two or three by three. I mean, what is this? Banks have been failing since the beginning of time and they're probably going to fail again until the end of time.

The way it's always worked successfully has been, let the incompetent fail and the competent people - banks, mainly in this case - take over the incompetent banks and everybody starts over.

Yeah, you have a very bad year or two but we've had the worst excesses in the credit market we've had in world history. Never before in world history have people been able to buy a house with no money down, and many of them bought four or five houses with no money down and no jobs, and then the bankers were saying, "This is fun, let's do it with car loans, student loans, credit card loans".

We've had horrible excesses -this has to be cleaned out.

He also noted that the current recession is going to be the worst since World War II.

The video is in high demand at the moment, so good luck getting it to play.

By noreply@blogger.com (Tim).

Yahoo! Finance goes a little kerflooey. This is what it looked like at Yahoo! Finance shortly after markets opened this morning. By noreply@blogger.com (Tim).

"We'll come through this together". From About.com: By noreply@blogger.com (Tim).

"Solutions" from Roubini, Volcker, and Roach. Earlier today, Jim Rogers' suggested course of action to help cure what ails financial markets was made clear in this Bloomberg interview where he channeled Andrew William Mellon, the Secretary of the U.S. Treasury from 1921 to 1932.

This "liquidationist" thesis, while considered an outdated concept today, may well be the most prudent course or action given where we are now, but it would certainly be quite unpopular and politically unacceptable.

Allowing everything to come tumbling down quickly so that it can be rebuilt in a more sturdy fashion and thus minimize the total quantity of pain that is delivered just doesn't seem to be a popular idea, likely due to the sad reality that most still believe that the financial system now crumbling around us was fundamentally sound.

It wasn't - hasn't been for decades.

Economists and policy makers these days - even the most bearish ones - seem to be unanimous in their proposed solutions, nearly all of which contain the same critical element of requiring a "bigger bucket" to bail the water now gushing quickly into the ship.

In commentary last night, Nouriel Roubini suggested the following:

- another rapid round of policy rate cuts of the order of at least 150 basis points on average globally;

- a temporary blanket guarantee of all deposits while a triage between insolvent financial institutions that need to be shut down and distressed but solvent institutions that need to be partially nationalized with injections of public capital is made;

- a rapid reduction of the debt burden of insolvent households preceded by a temporary freeze on all foreclosures;

- massive and unlimited provision of liquidity to solvent financial institutions;

- public provision of credit to the solvent parts of the corporate sector to avoid a short-term debt refinancing crisis for solvent but illiquid corporations and small businesses;

It seems the old analogy about firemen not worrying too much about water damage while putting out a fire would be appropriate here - better not to worry about what exactly is coming out of the fire hose.

In an op-ed piece in today's Wall Street Journal, former Federal Reserve Chairman Paul Volcker argued the tools are already in place to counter the current slide:

First of all, there is now clear recognition that the problem is international, and international coordination and cooperation is both necessary and underway. The days of finger pointing and schadenfreude are over. The concerted reduction in central bank interest rates is one concrete manifestation of that fact.

More important in existing circumstances is the clear determination of our Treasury, of European finance ministries, and of central banks to support and defend the stability of major international banks. That approach extends to providing fresh capital to supplement private funds if necessary.

In the U.S., with higher limits of deposit insurance in place, the FDIC has demonstrated its ability to protect depositors, to arrange mergers, and to provide capital for troubled banks. Most other countries now have a comparable capacity.

Recent U.S. legislation has provided authority for large-scale direct intervention by the Treasury in the mortgage and other troubled markets. Along with increased purchases by Fannie Mae and Freddie Mac, now under government control, means of restoring needed liquidity are at hand.

Here too, the thinking seems to be that if we just do much, much more of what we've been doing, somehow, things will turn out OK.

And Stephen Roach writes in the Financial Times from his perch in China:

Yesterday's rare co-ordinated easing by the world's leading central banks was an important step in the right direction. The risk is it may not have been enough.

This crisis is so grave and so threatening that it is critical that policy err on the side of overkill - not underkill. That is true of both monetary and fiscal policy alike.

I would have preferred to have seen rate cuts of twice the magnitude that were announced yesterday - leaving no mistake as to the power of the weapons being deployed as well as the collective resolve of the stewards of the global economy.

I would also have preferred a blanket statement to have been issued by the world's leading central banks that they are collectively prepared to backstop global liquidity in the broadest sense. This endorsement should also include the cash (but not derivatives) markets of counterparty risk.

If things do somehow stabilize in the period ahead and some sense of normalcy returns to markets next year, the inflationary impact of all the present and future "bailing" could be tremendous.

You thought $4 gasoline and $1,000 gold was bad?

The arguments of Jim Rogers and Andrew Mellon are starting to look smarter every day.

What's also looking like an excellent idea (in hindsight) is to have "pricked" a few of these asset bubbles over the last twenty-some years so their bursting wouldn't lead to what is unfolding today.

By noreply@blogger.com (Tim).

Gold prices getting fishier and fishier. Michael Zielinski at the Mint News Blog sent me a note the other day regarding this item he recently published, an item that seems to be making the rounds on the internet over the last 24-hours and for good reason.
Michael wrote:

There’s one aspect to this entire situation that many people haven’t been discussing. The Mint is always citing “unprecedented demand” as the reason for suspensions, production halts, and allocation programs, but in 1999 gold sales were more than 4 times higher and none of these measures were necessary.

The story is not that the Mint is unable to produce enough gold coins, it’s that they are unable to obtain enough gold on the open market. This all plays into the puzzling situation of physical scarcity and high demand for gold, while the market price of gold remains stagnant.

Well, the price of gold wasn't exactly stagnant today - it was down $63!

Naturally, coin dealers are still desperate for inventory (check out the CNI bullion page which now shows American Eagles available at $80 over spot after having been "Out of Stock" for most of the week and probably "Out of Stock" again by the time you call).

Oh yeah, and the SPDR Gold Shares ETF (NYSEArca:GLD) added another five tonnes today after the price plummeted.

You know, I get the part about investment demand only accounting for about 20 percent of overall demand for gold bullion, but the deal with coin shop shortages really is smelling fishier with each passing day, particularly in light of this data assembled by Michael:

The following table shows the ounces of gold sold by the United States Mint in the form of American Eagle Gold bullion coins. These figures are taken from the US Mint website. You can visit the link for monthly data, as well as the figures for Silver and Platinum Eagles.

American Gold Eagle Bullion Sales (ounces)

1986	1,787,750
1987	1,253,000
1988	851,000
1989	839,000
1990	715,000
1991	472,000
1992	638,600
1993	796,000
1994	559,500
1995	600,500
1996	729,500
1997	1,317,000
1998	1,839,500
1999	2,055,500
2000	164,500
2001	325,000
2002	315,000
2003	484,500
2004	536,000
2005	449,000
2006	261,000
2007	198,500
2008	492,000*

*through October 2008

The demand for American Gold Eagles is clearly not unprecedented. What's actually unprecedented is the suspension and allocation of Gold Eagle coins. Even amidst the booming demand of the pre-Y2K years, the US Mint never resorted to suspensions or allocation programs. Why is the US Mint having so much trouble keeping pace with demand this year?
...
With unfulfilled physical demand, why has the market price of gold remained stagnant? I think we will see this situation play out with some interesting consequences during the remainder of the year.

Yes, the consequences could be quite interesting...

By noreply@blogger.com (Tim).

Doug Noland is hopeful. Doug Noland of Prudent Bear, author of the long-running Credit Bubble Bulletin weekly commentary that has foretold of the events now unfolding for many years, reflects on the future of the world and his four-month old child while Hoping There's Hope.

This is the first all-encompassing global dislocation of contemporary finance, impacting virtually all economies, markets and asset classes. The media is now all over the “Wall Street” and “banking” crisis. I am of the view, however, that the collapse of the hedge fund industry has moved to the forefront – that it is now at the epicenter of global market upheaval. To watch silver lose more than 20% of its value today in intraday trading; to see the collapse in energy prices; to see the entire commodities complex absolutely routed; to view global currency markets in complete disarray, with double-digit intraday drops in the Brazilian real and Mexican peso; to witness major currencies such as the Australian and Canadian dollars suffer precipitous declines; for benchmark Fannie Mae MBS yields to surge 62 bps in three days; to see Brazilian dollar bond yields jump almost 200 bps in four sessions; for global equities indices to suffer rapid double-digit drops throughout both the developed and “emerging” markets; to witness a 1,000 point intraday swing in the DJIA. All the favorite trades are blowing up, and the leveraged speculating community is in a panic de-leveraging.

There is no doubt that markets are in the midst of an unprecedented liquidation of positions across virtually all asset classes and a vicious unwind of a multitude of investment and trading strategies. The Massive Pool of Global Speculative Finance is being drained. Investors and speculators alike are desperate to flee risk. Having watched the ballooning of the hedge fund industry over the past few years in absolute awe, I can say today that an industry collapse would entail the sale (voluntary and forced by the margin clerk) and unwind of literally Trillions of positions. It has been history’s most spectacular speculative Bubble and, especially over the past few years, it became very much global in nature and infiltrated virtually all asset classes. This Bubble is in a full-fledged collapse – entailing unprecedented liquidations - and it’s taking global markets down with it.

The situation is dire, as is now commonly recognized. The media is in a tizzy, and Wall Street makes for an easy and generally deserving villain. I fear the rapidly mounting anger. But I guess for this evening there is something about coming home after a distressing week and spending time with my little four month old baby. My wife and I gave our smiling and laughing little guy a bath and I just kissed them goodnight. I just don’t have it in me right now to analyze and to write gloom. I’d rather Hope there is Hope.

Perhaps things will stabilize once the hedge fund liquidations run their course. Treasury (TARP) purchases will commence soon. Fannie and Freddie will be aggressively expanding their market purchases. The Fed is now buying commercial paper, and the Fed and Treasury are working to resolve the dislocation in the “repo” market. Across the globe, governments are in full crisis management mode. There appears universal resolve to bolster financial sectors and stem the collapse. And there were actually some positive indications of stabilization in our Credit system late in the week.

I also hold out Hope that the Trillions of reserves held by global central bankers will provide some buffer to stem financial system collapse. In particular, I am Hoping that China, India, Russia, Brazil and the Middle East have today sufficient reserves to somehow avoid a ‘90s style financial and economic meltdown. I am Hoping that demand from China, India, Asia and Latin America will help offset inevitable economic downturns in the U.S. and Britain and, hopefully to a lesser extent, Europe. I am hoping that the collapse in energy and commodities prices is more a reflection of acute financial market dislocation rather than a harbinger of synchronized global economic upheaval. I am hoping there is more substance to the dollar’s rally than simply an unwind of bearish dollar bets. And I am hoping that with large capital infusions our deeply impaired banking system will retain the capacity to finance a much less robust but at least functioning U.S. economy. I really Hope everything is not as dire as it appears.

Try to have a nice weekend Doug...

By noreply@blogger.com (Tim).

Sunday morning links. TOP STORIES
IMF chief warns of global financial meltdown - MSNBC
Illinois, Michigan Banks Shut by Regulators; Toll Climbs to 15 - Bloomberg
Financial troubles spread to credit unions - LA Times
Paulson Indicates Need to Purchase Bank Equity `Soon as We Can' - Bloomberg
The Depression's history lessons - Globe & Mail
G.M. Said to Seek Merger With Ford Before Chrysler - NY Times
Financial crisis: Government to take majority stake in RBS - Telegraph

MARKETS/INVESTING
Retirement Wreck - Washington Post
All that money you've lost — where did it go? - AP
Oil prices fall to less than $80 per barrel - SF Gate
Experts' guidelines to surviving the freefall - Globe & Mail
Silver Rush as bullion market gets tight on bailout - Commodity Online

ECONOMY
Retail Sales Probably Fell in September: U.S. Economy Preview - Bloomberg
Democrats Discuss a Post-Election Stimulus Bill - WSJ
Economic Uncertainty Spreads - NY Times
Across the Country, Fear About Savings, the Job Market and Retirement - NY Times

HOUSING
Foreclosures and Their Trickle-Down Effect - ZillowBlog
Investor Report: Investing by December 1st - Realty Times
Fannie, Freddie to Buy $40 Billion a Month of Troubled Assets - Bloomberg

FED/TREASURY/BANKING
White House Overhauling Rescue Plan - NY Times
Credit Bubble Bulletin: Hoping There's Hope - Noland, Prudent Bear
The Bernanke conundrum - Interfluidity

INTERNATIONAL
Europe's Leaders Race to Find Financial Solution - Bloomberg
Report: Germany readies its own bank bailout plan - MarketWatch
Financial crisis: 'Spooked’ rich withdraw savings - Telegraph
Gulf Stocks Extend Global Equities Slump After G-7, Oil Decline - Bloomberg
G-7 Commit to `All Necessary Steps' to Stem Meltdown - Bloomberg
Countries at risk of bankruptcy from Pakistan to Baltics - Telegraph
Slump in exports turns Asian tiger into pussycat - LA Times

INTERESTING
Cruel end for an L.A. homeless man - LA Times
Kenya's elephants send text messages to rangers - AP

By noreply@blogger.com (Tim).

A final obituary for the 401k?. The new buzzword is "statement shock", a term being tossed around with casual abandon these days in personal finance columns on the internet as 401k investors across the country open up their quarterly statements and gape in disbelief.

Reports of a precipitous decline in participation rates over the last year after the results produced by the conventional wisdom that has aspiring retirees continuing to plow more money into declining stock mutual funds seem to be well founded and set to accelerate.

Some are calling this the "death knell" for 401k plans or, as is the case below, the "final obituary" for these plans as an entire generation comes to grips with the reality of being a stock investor in the middle of a stock bear market.

This Wall Street Journal article($) that also conveniently appears at Yahoo! Finance has all the details:

The market downturn has wreaked havoc on workers' retirement savings and raised more questions about 401(k) plans, which were already under intense scrutiny.

This year through Thursday, the average 401(k) account balance dropped roughly 19% to 25%, depending on the participant's age and tenure with the plan, according to Employee Benefit Research Institute.
The downturn comes at a time when regulators and lawmakers were already taking a hard look at 401(k) plans. Major pension legislation passed in 2006 encouraged employers to automatically enroll workers in 401(k)s to help get retirement savings on track.
...
Some retirement-plan experts see current market conditions dealing a decisive blow to 401(k)s. Teresa Ghilarducci, professor of economic policy at the New School for Social Research, calls the downturn "a final obituary" for these plans. She adds, "Even with all the financial education in the world, [workers] can't control how old they'll be when there's a financial downturn."

There's a bit more detail in the WSJ story about the dire consequences of poor choices made by plan participants and this report in the Washington Post is worth a look as well (actually, the WaPo article is quite good and comes with a photo of a distraught Homer Simpson doll on the floor of a stock exchange).

The 2006 legislation that resulted in automatic enrollment wasn't such a bad idea, but legislators may rue they day they made the default option stocks instead of stable value funds or money market funds.

I suppose this is all just part of the "ownership society" that has been in the process of tumbling down all around us over the last year or two.

The whole concept of having individuals manage their own retirement accounts always seemed to be fundamentally flawed except in rare cases where individuals choose to spend about half of their waking hours reading and writing about these things.

Even then you don't always get the results you desire.

ooo

This week's cartoon from The Economist:

By noreply@blogger.com (Tim).

A prozac nation in decline. The contest for editorial of the week was no contest at all last week as Elizabeth Wurtzel, author of Prozac Nation: Young and Depressed in America, shook up the editorial pages of the Wall Street Journal with The World Will Miss Our Heyday, a melancholy contemplation of a post-American world where some may look back longingly at this period.

It's almost like nothing has changed. We don't talk about it unless someone brings it up -- but even then everyone would prefer to discuss the latest on Sarah Palin, or laugh about Tina Fey's portrayal of her, or to speculate about whether the movie "W" will be accurate or merely comical. So while the economy is hardly an unmentionable, it still is discussed in hushed tones or worse, with forced smiles, like this isn't really happening. We can't really be in freefall. Capitalism, at least as we know it, can't be over.
...
But the scary thing is not what will happen to individuals -- although a jobless, miserable mass is a very sullen thought -- but what this economic crash says about America. Anyone who is not too drunk with despair (or drink) right now knows that this all signals a bigger realignment, that our place -- our significance -- in the world is diminishing. Eight years of this wastrel, spendthrift administration has bankrupted us of our standing and our capital -- it's all gone. Apparently on Wall Street, the bankers now have a saying: "Dubai, Shanghai, Mumbai or goodbye." The future is no longer here.

This is a state of affairs that ought to leave not just us, but the entire world, deeply stricken with grief. In the history of empire -- or superpower or hyperpower -- no country has ever wielded its dominance as gently and judiciously as the United States has. Even those abroad and afar who feel they suffered as a result of American foreign policy ought to know that this planet as a whole will fare far worse under China or whatever country comes next, and would have suffered greatly had the Soviets won the Cold War. The American century from World War II on -- really only about 60 years old -- has been a very good time for everybody. The world is about to be a much sorrier place.

It is well worth reading in its entirety.

By noreply@blogger.com (Tim).

Software engineers and Everclear 190 vodka.

By noreply@blogger.com (Tim).

Some disturbing news from the Fed. When asked by reporters last week, Federal Reserve Chairman Ben Bernanke indicates the total dollar value of all "untainted" assets currently on the central bank's balance sheet.

By noreply@blogger.com (Tim).