Archive - Feb 17, 2011

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Why I love Gold

Investors have dozens of reasons for loving Gold. Some love it because it’s a great inflation hedge. Others love it because it can’t be devalued. Others love it because it’s a storehouse of wealth. Personally I like Gold for all of these reasons too. But my favorite reason for liking Gold is because it calls “BS” on this stupid stock market rally.

Phoenix Capital Research's picture

Here in the US we prefer BS numbers to no numbers at all. The US ALWAYS reports data (unless it’s regarding someone on Wall Street or our Fed Chairman breaking the law). And if the real numbers are too ugly we use seasonal adjustments, birth/death ratios, survivor biases, and other ridiculous adjustments to make the data just palatable for publications.

In 2011, Non-farm Payrolls Have To Grow By 121,000 Per Month Just To Keep Up With Population Growth

Until now, in our Non Farm Payroll growth forecasts, Zero Hedge had been using 90,000 as the number of monthly jobs the US should be creating each month just to keep up with population growth. However, per the CBO budget released in January, it may be time to revise this estimate. As the chart below shows, according to the traditionally optimistic Congressional Budget Office, the US has to create 121,000 jobs per month in 2011 just to keep pace with population growth. This number declines modestly over the next several years, but still averages 106,000 per month over the next 5 years. And the kicker is that this number does not account for the 3 million people who are not currently in the workforce that the CBO defines as Potential Workforce. Assuming the inflow of this portion of the population into the workforce over the next three years, it adds an additional 83,000 people that have to be incorporated in the work force. This means that in 2011, in the "best" case scenario, the monthly NFP number has to be over 200,000 before the unemployment rate is reduced by even one basis point excluding the impact of the BLS' favorite trick of fudging the labor force participation rate, which we have discussed extensively in the past.

Guest Post: Bottleneck Or Supply Deficit?

There have been numerous reports of bullion shortages in many parts around the world, along with rising premiums. And the two explanations – we’re running out of gold! and, it’s just a manufacturing bottleneck – are at odds with one another. So, who’s right? Yes, there is a bottleneck. But with this recent spike in demand, it appears some mints still aren’t equipped to keep up. Are we nearing a tipping point where in spite of the increased efficiency and preparedness, requests from buyers will outweigh available supply? Imagine demand continuing to accelerate, and you can see where this might be headed. I think this is the side of the equation to watch. Andy Schectman of bullion dealer Miles Franklin told me last summer that, “Based on what I know, it’s my opinion that if 5% of this country put 5% of their money into gold, there would be nothing left tomorrow morning.”

As Egypt Decides Whether To Allow Iran Warships To Pass Suez, Here Is An Update Of US Naval Deployments

While last week the focus of US naval deployment in the Middle East emphasized securing the Suez Canal in the midst of the Egyptian revolution, this week the developing story is the passage of two Iranian warships through this very canal. Not surprisingly, two US naval groups - an aircraft carrier and a big-deck amphibious warfare ship - are now situated at either end of the Red Sea, where the Iranian flotilla is supposedly located. Will the US presence be enough to prevent escalation? Since we believe that Iran has few alternatives to pulling a "wag the dog" scenario with increasing domestic protests, and an increasingly more troubled ruling class, perhaps the increased US presence in the area is geared more toward dissuading a preemptive engagement by Israel. Regardless, expect posturing to increase as Iran is now stuck in a position from which it can only lose face if it does not at least pursue the symbolic passage of the Suez canal. What happens after is unclear.

Guest Post: The State Is A Tragedy Of The Commons

Some of you may already be familiar with the economic law called “the tragedy of the commons,” but for those of you who are not, I shall explain it to you. The tragedy of the commons refers to a dilemma arising from the situation in which multiple individuals, acting independently and rationally consulting their own self-interest, will ultimately deplete a shared limited resource even when it is clear that it is not in anyone’s long-term interest for this to happen. I would argue the tragedy of the commons receives far too little attention as a rational explanation for the cancerous expansion of the State. For what is the State other than people looting each others’ private property in a zero sum game of resource redistribution? The tragedy of the commons gives us a rational basis for the consistent and constant expansion of the coercively funded democratic State and why that expansion always leads to the destruction of society.

Egypt: Next Steps

The following chart from a research report by EFG Hermes lays out what Egypt's future would and/or should look like on paper. In flow chart format it presents how the authors' view on the future of the country that recently underwent a military coup for the next 2/3 years. Of course, as flow charts tend to generally misrepresent complex non-linear and chaotic systems, and furthermore is created by an investment bank, the probability of events panning out as expected is minimal. Nonetheless, for those who wonder what the broad economic development pattern of Egypt may look like, or at least how the consensus perceives it, this chart is for you.

Wisconsin Democrats Boycott Anti-Union Vote By Fleeing State

The farce over the Wisconsin anti-union vote has just passed into the surreal. According to the AP, democrat lawmakers, who are firmly opposed to voting on the bill which is said to already have majority support, and who have been boycotting the vote by being absent from the state capitol, have now escalated and patriotically left the state. The reason is that while the vote can not take place without at least one Democrat being present, the police had been sent out earlier, with orders to sequester the democrats. The democrat response: run away. As the AP reports: "Senate Republicans can't vote on the bill unless at least one Democrat
is present. Police could be dispatched to retrieve them, but it was
unclear if they would have the authority to cross state lines.
" So to all who were expecting the latest iteration of members of the executive class to run away (with or without gold) to come from Africa or the Middle East, will be disappointed: it was in America's very own back yard.

Muddy Water Replies To China MediaExpress (CCME), Reiterates Strong Sell

The war of words between Muddy Waters and alleged Chinese fraud company, China MediaExpress Holdings escalates as the company that exposed RINO for the fraud it is, issues its latest update on the situation. Bottom line: "We reiterate our Strong Sell rating on CCME, and stand by our conclusion that CCME management is significantly inflating its revenue and earnings in order to generate management earn-outs and inflate the stock price so insiders can sell."

First Invoice To US Taxpayers From Post-Revolutionary Egypt Received: Bottom Line - $150 Million

As if the US did not have its hands full with convincing the rest of the world it does not support corrupt dictatorial regimes, not to mention providing trillions in backstop capital to insolvent continents, it has once again decided to offer US taxpayer funds in an attempt to buy the love and admiration of a society in transition. According to AFP, "The United States gave Egypt $150 million in crucial economic assistance on Thursday to help the key US ally transition towards democracy following the overthrow of longtime president Hosni Mubarak." We are not sure if this falls under the definition of throwing good money after bad, especially since nobody knows where the "bad" money (according to some estimates up to $30 trillion of it) that had been collected by the Mubarak regime for three decades is. But it is refreshing that with tens of trillions in our own budget deficits, the US once again harbors an illusion that it is its, or rather its taxpayers', sworn duty to encourage the creation of "open societies" no matter just how insolvent this country itself is.