The Reluctant CEOs.
John Bussey, John Fund, Mona Charen, Simon Constable, Kelsey Hubbard all together repeated on Sunday 22 that the failure of the stimulus package is not the whole story as to why there is no recovery in jobs. A major factor is that the big companies will not hire because they do not know what their costs will be with the pending social legislation in Congress such as healthcare reform, cap and trade, a second stimulus package and the inability or unwillingness of the Obama administration to defend or rally the dollar. CEOs of big caps told the WSJ CEO conference last week that they will more likely hire overseas before they will hire in the US because of the overhang of new taxes and mandates. The reluctant CEOs did not keep this opinion to themselves. The White House sent Christina Romer, Ron Emanuel, Peter Orszag to the conference, and they each heard the complaints from the audience about the uncertainty of costs suppressing immediate hiring. Romer, Emanuel and Orszag claimed the Obama administration is listening. But is it responding? The collective decision from my political panels is that the first stimulus package, if it is working at all, it is not producing private sector jobs. The fresh fear at the White House is the jobs number coming on December 4.
Jobs Down.
Sho Chandra, Bloomberg, told me Sunday 22, that a combination of metric over the last week in jobs, housing starts, foreclosures and unemployment claims all point to continuing negatives in the economy over the next six months. I pointed to the fact is is the eighth straight month of more than 300,000 foreclosures. Sho Chandra sighed. The jobless claims at 505k did not change form the previous month. Chandra summarized by saying that there was no reason to believe the unemployment number on December will go down significantly if at all from 10.2%. Always a guessing game, because the Commerce Department itself does a deal of estimating. The CEOs at the WSJ conference did not indicate there will be hiring through the winter. Add in this the metric today that restaurants and hotels nationwide expect no strength through the holiday -- removing the possibility that seasonal hiring will help the jobless number.
Gold Up.
Sunday 22, while I spoke to Mary Kissel, WSJ, gold went to an all time solar system high of 1164 per ounce. Mary Kissel confirmed that Asian observers, following POTUS visit, believe that the US will not act effectively to stabilize the dollar, despite the complaints of the Asian leaders at Singapore. I spoke to Simon Constable and Kelsey Hubbard, WSJ, who confirmed that the gold spike is an illustration of inflation. Gold is the agreed upon hedge from the weakening dollar and other currencies. The only other hedge apparent is US Treasuries. But the gold run, just beginning, is evidence that the world markets do not believe the dollar will recover.
USA.
The question is, how does the jobless number connect to the gold run? Round-aboutly, the dollar weakness is because of the dollar printing presses and the statements by the Bernanke that the US monetary policy will remain on hold for some time. Dollar weakness equals gold spike and stock market spike. But it does not lead to demand and corporate profits. Without demand, there is no new hiring. Without hiring the foreclosure rate remains grim. Without a housing recovery, there is no stability for the banks. Sho Chandra told me that we are stuck in a circle of negatives. Low jobs relates to high gold and no change from the joblessness in the USA. A less cynical way to summarize is to say we are setting a new normal for jobs. "Jobless Men. Keep Going. We Can't Take Care of Our Own."
WSJ:
1 in 4 Borrowers Under Water
By RUTH SIMON and JAMES R. HAGERTY
The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery.
Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif.
These so-called underwater mortgages pose a roadblock to a housing recovery because the properties are more likely to fall into bank foreclosure and get dumped into an already saturated market. Economists from J.P. Morgan Chase & Co. said Monday they didn't expect U.S. home prices to hit bottom until early 2011, citing the prospect of oversupply.
Home prices have fallen so far that 5.3 million U.S. households are tied to mortgages that are at least 20% higher than their home's value, the First American report said. More than 520,000 of these borrowers have received a notice of default, according to First American.
Most U.S. homeowners still have some equity, and nearly 24 million owner-occupied homes don't have any mortgage, according to the Census Bureau.
But negative equity "is an outstanding risk hanging over the mortgage market," said Mark Fleming, chief economist of First American Core Logic. "It lowers homeowners' mobility because they can't sell, even if they want to move to get a new job." Borrowers who owe more than 120% of their home's value, he said, were more likely to default.
Mortgage troubles are not limited to the unemployed. About 588,000 borrowers defaulted on mortgages last year even though they could afford to pay -- more than double the number in 2007, according to a study by Experian and consulting firm Oliver Wyman. "The American consumer has had a long-held taboo against walking away from the home, and this crisis seems to be eroding that," the study said.
Just months after showing signs of leveling off, the housing market has thrown off conflicting signals in recent weeks. Jittery home builders and bad weather led to a 10.6% drop in new home starts in October, and applications for home-purchase mortgages have dropped sharply in recent weeks.
These same falling prices have boosted home sales from the depressed levels of last year. The National Association of Realtors reported Monday that sales of previously occupied homes in October jumped 10.1% from September to a seasonally adjusted annual rate of 6.1 million, the highest since February 2007.
The bump in sales was ahead of forecasts, spurred by falling prices, low mortgage rates and a federal tax credits for buyers. Congress recently expanded and extended the tax credits.
The latest First American data aren't comparable to previous estimates because the company revised its methodology. First American now accounts for payments made by homeowners that reduce principal, and it no longer assumes that home-equity lines of credit have been completely drawn down.
The changes reduced the total number of borrowers under water -- although both old and new methodology show increases from the previous quarter. Using the old methodology, the portion of underwater borrowers would have increased to 33.8% in the third quarter.
Homeowners in Nevada, Arizona, Florida and California are more likely to be deeply under water, according to the analysis. In Nevada, for example, nearly 30% of borrowers owe 50% or more on their mortgage than their home is worth, said First American.
More than 40% of borrowers who took out a mortgage in 2006 -- when home prices peaked -- are under water. Prices have dropped so much in some parts of the U.S. that some borrowers who took out loans more than five years ago owe more than their home's value.
Even recent bargain hunters have been hit: 11% of borrowers who took out mortgages in 2009 already owe more than their home's value.
Andrew Lunsford put 20% down when he bought his home in Las Vegas for $530,000 in 2004. Now, he said, his home was worth less than $300,000.
"I'm to the point where I feel I will never get my head above water," said Mr. Lunsford, a retired state trooper who works for an insurance company. He said his bank won't modify his loan because he can afford his payments, and he's unwilling to walk away, he said: "We're too honest."
Borrowers with negative equity are more likely to default if they live in a state where the bank can't pursue their assets in court, according to a study by the Federal Reserve Bank of Richmond.
But borrowers who are less than 20% under water are likely to maintain their mortgage if their loan is modified and the payments reduced, said Sanjiv Das, head of Citigroup's mortgage unit. "Beyond 120%, the most effective modification is a complete loan restructuring, including a principal reduction."
Mortgage companies have been reluctant to reduce mortgage principal over worries about "moral contagion, with people not paying their mortgage or redefaulting because they believed the bank would reduce their principal," Mr. Das said.
Many borrowers are so deeply under water that they can't take advantage of lower rates and refinance their mortgage. "We're declining hundreds of loans each month," said Steve Walsh, a mortgage broker in Scottsdale, Ariz. "The only way we will make headway is if we allow for a streamlined refinance where the appraisal is irrelevant."
Realtors reported that home sales in October were up 24% from a year earlier. The number of homes listed for sale nationwide was 3.57 million at the end of October, down 3.7% from a month earlier, the trade group said. But that inventory could rebound next year as banks acquire more homes through foreclosure.
About 7.5 million households were 30 days or more behind on their mortgage payments or in foreclosure at the end of September, according to the Mortgage Bankers Association. Many of those homes will be lost to foreclosure, adding to the supply of homes for sale.
A recovery could pay off for the roughly 30% of underwater borrowers who owe 110% or less of their home's value and are able to endure the slump. "Most people prefer to stay in their home" even if the value of their property has declined, said John Burns, a real-estate consultant based in Irvine, Calif.
—Nick Timiraos contributed to this article.
Write to Ruth Simon at ruth.simon@wsj.com and James R. Hagerty at bob.hagerty@wsj.com
Printed in The Wall Street Journal, page A
WSJ
A Mad Rush as Gold Bugs Get the Boot
By CAROLYN CUI
Fleets of armored trucks piled with gold bars and coins have been streaming out of midtown Manhattan in one unexpected consequence of the gold craze.
Amid gold's rise -- it has gained 32% this year and reached a record on Monday -- investors have been loading up on bullion and coins. One big problem now is where to store it. The solution from HSBC, owner of one of the biggest vaults in the U.S.: somewhere else.
HSBC has told retail clients to remove their small holdings from its fortress beneath its tower on New York City's Fifth Avenue. The bank has decided retail customers aren't profitable enough and is demanding those clients remove their gold to make room for more lucrative institutional customers.
An HSBC spokeswoman said the firm doesn't comment on its vault due to "security concerns."
HSBC's decision has created a logistical nightmare for both the investors and the security teams in charge of relocating the gold, silver and platinum to new vaults across the country. Many of those vaults are also feeling pressure from the surge in demand for space from clients that have stocked up on metal.
Investors have been loading up on gold this year amid worries about inflation and the stability of the U.S. dollar. The metal gained $17.90, or 1.6%, to $1164.30 an ounce on Monday. As gold has continued to set new records, other investors have flooded in. Many of them are taking possession of the metal, rather than just trading financial contracts linked to it.
Demand for physical gold, including bars and coins, is projected to rise 21% this year to 52.3 million troy ounces, the highest in history, according to CPM Group. Based on today's price, the total value would amount to about $61 billion.
The movement of gold from HSBC has created a stir not only among the bank's clients, but also among owners of warehouses and vaults around the country.
"I have never seen any relocation like this," says Jonathan Potts, managing director of FideliTrade, the parent company of the Delaware Depository Service Co., which has two warehouses in Wilmington. FideliTrade's two vaults have been filling up at an unprecedented pace, in part because it is taking in metal that has been ejected by HSBC.
Dealing with the fallout from HSBC's decision has become a full-time job for David Norris, executive vice president of GoldStar Trust Co., a Canyon, Texas-based retirement-account trustee, which organizes metal storage for its clients.
Mr. Norris says HSBC told GoldStar in July to immediately cease sending coins for storage. GoldStar, which had sent clients' holdings to HSBC for at least 15 years, is now figuring out how to get the coins out of the HSBC vault and down to the Delaware facility. "I can jump up and down and scream all day long about how much I don't like it. But it's their business decision," Mr. Norris says.
Moving the metal is like "a big military operation," he says. Precious metals are typically shipped by insured carrier services or armored trucking companies. Carriers sometimes ship the metals in plain boxes so as not to attract attention. Trucks are guarded by a team of two or three armed personnel.
Bradley Beyer, a GoldStar customer in Kewaunee, Wis., has 50 100-ounce silver bars stored with HSBC waiting to be moved. "My only concern is that the bars will be moved safely," he says.
HSBC is telling clients to either move their metal, or prepare for it to be delivered to their doorsteps. In a July letter, seen by The Wall Street Journal, HSBC said the precious metal "will be returned to the address of record... at your expense," unless instructed otherwise. HSBC recommended clients move their holdings to Brink's Global Services USA Inc., which has a vault in Brooklyn, N.Y. Brink's didn't return calls and emails seeking comments.
Like Mr. Beyer, many investors have recently added precious metals to their retirement accounts. At GoldStar, more than 1,000 new accounts are opened each month to purchase coins in retirement plans, compared to about 100 a month in 2006. Sales of American Eagle gold coins jumped 65% so far this year, according to the U.S. Mint.
"Many facilities are overloaded," says Bob Coleman, director of customer relations at Gold Silver Vault, a depository in Nampa, Idaho. Mr. Coleman says his vault has taken in several HSBC customers, contributing to the 500% growth in new metal coming in over the past quarter.
Vault and warehouse owners say retail customers tend to be more expensive in part because of their diverse holdings. They usually buy American Eagle or Canadian Maple Leaf coins, and bars of various weights and sizes, all of which need to be categorized and stored separately. In contrast, institutions typically buy standardized bars of 100 or 400 ounces, making them easier to store. Institutions also tend to hold the metal for long periods.
Precious-metal storage isn't as lucrative as it may sound. Many vaults are run on thin margins. The Delaware depository, one of the five major ones in the country, charges $6 each month for a 1,000-ounce silver bar and $12 for a 100-ounce gold bar.
HSBC's vaults contain $6 billion of large gold and silver bars, according to records held by Comex, the metals division of CME Group. There are no data for smaller coins and bars held by individuals.
First Eagle Funds, which runs a family of mutual funds, has 2.2 million ounces of gold stored at HSBC's vault, and hasn't been told to vacate the premises. Physical bullion represents "insurance and the safest asset out there," says Rachel Benepe, who runs the First Eagle Gold Fund.
Typically, a vault is protected with a 27-inch thick steel reinforced wall, surrounded with a "man-trap" -- a series of doors, each of which opens only after the previous door is locked, Mr. Coleman says.
Write to Carolyn Cui at carolyn.cui@wsj.com
As the hungry, angry, armed hordes knock down your door, rest assured your booty of decorative metal is safely vaulted away.
Europe is currently coming out of recession, USA is not. Do we want a Roosevelt Recovery: 12+ years of Depression and a heavy handed socialist government? Or do we prefer a Kennedy/Reagan recovery with lower taxes and explosive growth?
*When* Health Care and Cap and trade fails: Obama could do a BJ Clinton and turn to the right. How bad does O want a second term?
What is it in the DNA of the human eye that sees gold the way it does? No other creature on earth sees gold in the same way. A proof, perhaps, that our vision of heaven is bogus might be that (for some reason) we’ve insisted on painting a picture of gilded columns with winged angels playing celestial music on gilded instruments; and there is actually very little to suggest that God views gold (or anything else in his creation) with special favor. The myth of gold seems to be entirely one of man’s creation. As such, it is subject to collapse, like currency or even, what we might call, ‘civilization’ itself.
Since mankind is given some leeway in these matters, it is understood that we are free to assign ‘value’ to whatever we want. Our assignments in this regard can be totally arbitrary. The trick, as always, is to get others to go along with it. The appropriate illusion is by no means impossible to construct. Recent examples show that it was quite successfully done culminating with our election of Barrack Hussein Obama. ‘Global warming’ is yet another such illusion. These two examples, however also show that illusions of this kind, especially ones that are designed to mask real malfeasance, will at some point blow up and vanish, leaving the perpetrators red-faced and stammering.
Gold, aside from some limited industrial applications, has little or no intrinsic value. It cannot be eaten, grown, or loved. We shall see how far its advocates are willing to carry its weight along the corpse-strewn path of ruin.
http://peterkoelliker.blogspot.com/
The value of gold lies in the universal understanding of its limited availability -- the fact that you can't print two trillion more ounces of it on a whim.
However, the same might be said of fertile farmland, too.
Peter, what kind of paper would you like to hold in preference to gold? I'd like to know. Bill Gross suggests utility stocks. And that's not a bad idea, really, if the utes in question are financially sound.
Eric - I agree that one of the factors applied to 'value' is relative rarity and that on this basis gold may be considered to be a useful hedge against routinely occurring minor economic disruptions. Where we seem to be headed, however, I feel not even gold can save us. My reasons are the following: The dollar has in effect become a global currency. This means that all other currencies are in some way pegged to it. It also means that when the dollar fails, all other currencies will fail as well. The social chaos this will entail will render the value of gold the least of our concerns. Read TftT's post above. There may well be more truth in those two lines than anything I could add.
Why are oil tankers built as a series of compartments? It's so that if one were to rupture, the others would still keep the boat afloat. The same principle applies to the world's economies. Should one of the lesser economies fail, we can all claw ourselves back. It also depends on the size of the economy that fails. Zimbabwe hardly had much of an impact outside of Africa. When the biggest economy in the world fails, however (with every other economy linked in some way with it), all bets are off. It'll be like the big bang; a starting over; a return to the beginning; square one. Anyone attempting to lug a suitcase or two of gold bars across the charred fields would look mighty ridiculous.
What blows my mind is that all this could yet be (barely) avoided by recognizing the problem (government spending) and, at the very least, proposing some sound fiscal policies going forward. But, no! We seem to be rushing headlong into it – which leads me to the unavoidable conclusion that it’s deliberate.
The people (Madeleine Albright, for one) who voiced concerns as far back as the Clinton administration that America cannot be trusted to be the only superpower were right. Under the leadership of George W. Bush and Barrack Hussein Obama we suddenly find ourselves to be the staggering capitalist version of the jihadi martyr sporting a suicide vest stuffed with exploding dollars bills.
http://peterkoelliker.blogspot.com/
JB - as you know Amity Schlaes book strongly suggests that the reason the Great Depression lasted as long as it did was the continued uncertainty of U.S. businessmen regarding FDR's experimentation. It makes a lot of sense to me now that I'm living through a recession and have my own business and watching the health care debate go on. I would have never believed it had I not witnessed it first hand, how a group of 60 otherwise intelligent men and women (U.S. Senate Democrats & Independents) could be STUPID enough to raise taxes and spending (non-stimulus spending at that) with unemployment well over 10%. If you look at Washington and see that kind of abject, mind-numbing stupidity in full force, you wonder what's next? Why should I risk any capital when the lunatics have taken over the asylum?
If I see any of that nonsense happening at my door I'm gonna hold you personally responsible for it, so you better go out and make sure everyone behaves.
Perhaps the Climategate revelations will eventually put paid to the "climate crisis" superstition in general and cap-and-tax in particular, thus removing one huge source of business cost uncertainties. Unfortunately, we should not hold our collective breath on this, even though that would reduce some of that nasty CO2 in the atmosphere. First, there too many cranks and zealots -- like Action for Climate Justice. for example -- who openly advocate returning our economy to Stone Age hunting-and-gathering, only without the hunting and with precious little gathering, who will never yield to rational discussion. Worse, certain large corporations (like GE), financial institutions (like Goldman Sachs), and influential fat cat players (like Al Gore) are making or expect to make billions on cap-and-trade and other aspects of the bogus "climate crisis." Worst of all, even more organizations (like SEIU) and individuals (like Benito Hoover Obama) see the climate chimera as their passport to irrevocable, absolute power over the peasants (like you and me). Can mere truth withstand these forces for "change?" Very doubtful. The eco-fascists desperately mean to "change the world," or at least America, into the real-life Mad Max movie they have always envisioned as the future, and they will not be deterred by mere facts to the contrary. For, as Andy Stern candidly reminds us, when the "power of persuasion" fails, they will resort to the "persuasion of power." So, Happy Thanksgiving, everybody -- let's enjoy a little human decency and wholesome pleasure in our lives while we still can.
Great show 11/22/09.
The 400 ouncers in the picture are pretty impressive up close.
As Kelsey Hubbard mentioned, credit is another worry. Depending on the size of your company's operations, obtaining credit is uncertain.
Just yesterday, as I called, the exahusted Citibank customer service girl said "you got a letter right". "A letter", not exactly good tidings, mentions how my outstanding and new credit card balances will have a rate going from 9% to 19% for no reason, never late in 10 years. So they get all this taxpayer assistance and scruu over the very same people who bailed them out. The zombie bites the hands that feed it.
Bailout schmailout, they should have burned like Lehman.
vsk
Peter--
great question. I own gold for the first time in my life and I'm a very active investor/trader.
I don't know a great deal about money, banking etc. In fact I'm now beginning Niall Furgeson's The Ascent of Money for that very reason. He is the smartest, most widely knowledgeable economist/historial I've come across. His PBS series is available on their site.
In my modest search to understand the gold puzzle, I've concluded that gold, an its predecessors (shells, salt...) are virtually as integral to human society as writing, supreme beings, and other near-universal human features. gold seems to be the ultimate item to serve this purpose of simplifying the complexity or human "commercial" exchange. You just can carry carcasses, leather, pot n pans, with you. humans need a concentrate form of something to use in every day exchange for goods and services. So even at our advanced level of evolution (?) we need and invent such an item--and enough people need to agree to that to make it work. gold works bec as others noted it is limited, hard to get at and purify, looks pretty, compact, does not oxidize, can be shaped, melted and formed--even cut with a knife into small pieces to buy small items; can't be created in spite of the alchemists and Rapunzel's efforts.
that's the best I've been able to figure it out. If you don't really want yours I'd happy to come by and retrieve it as a public service.