October 15, 2010

Good Afternoon:

Bernanke Speech Today, Gold Price Survey, Foreclosuregate

Bernanke Speech Today

An article this morning titled 'Here It Is: Ben Bernanke Makes His Case For More Action' reproduces the full test of Mr. Bernanke's speech made this morning in Boston at the so-called 'Revisiting Monetary Policy in a Low-Inflation Environment Conference' being held today and tomorrow. I suggest you read the speech in full - reading time 10 minutes - and see if you agree with my conclusion.

Following from Mr. Bernanke's stated conclusion that: "In short, there are clearly many challenges in communicating and conducting monetary policy in a low-inflation environment, including the uncertainties associated with the use of nonconventional policy tools. Despite these challenges, the Federal Reserve remains committed to pursuing policies that promote our dual objectives of maximum employment and price stability. In particular, the FOMC (Federal Open Market Committee) is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation over time to levels consistent with our mandate (stated in the speech as I read it to be 2% per annum). Of course, in considering possible further actions, the FOMC will take account of the potential costs and risks of nonconventional policies, and, as always, the Committee's actions are contingent on incoming information about the economic outlook and financial conditions", I have concluded:

· the U.S. Government and hence the U.S. Federal Reserve Board (the Fed) are far from 'throwing in the towel', and acknowledging the U.S. economy cannot and will not return to its generally perceived pre-September, 2008 dominant position on the world economic stage. I use the term 'generally perceived' because in reality I believe based on manufacturing job losses and net trade deficits the U.S. economic position had seriously eroded before mid-2008;

· the U.S. Government and hence the Fed is unwilling to allow the U.S. economy to operate as a free enterprise system and find its own level of equilibrium; and,

· the Fed sees no alternative in the face of current unemployment rates to do other than attempt by currently undisclosed ways to stimulate the U.S. economy, but will take steps to do so in circumstances where every week it encounters new unforeseen events (such as last week's residential foreclosure debacle announcement), and where the Fed is piloting the 'U.S.S. Economy' through (as I see it) uncharted, deep and dangerous waters.

I recommend you take the time to read Mr. Bernanke's speech, and as you do recall if you have read my prior e-mails that from my perspective one ought not to see Bernanke as a 'badly motivated person' or an 'incompetent one'. From my perspective when he was appointed Fed Chairman he was the one that lost the game of musical chairs - the game pieces hadn't yet broken apart and fallen on the floor, but it was inevitable (at least so I thought at the time) they were going to. The best thing that happened to Mr. Bernanke is that when those game pieces did fall on the floor, none of them hit him on the head and killed him. The worst thing that happened to Mr. Bernanke is that he was the one left with job of picking those game pieces up and reassembling them as best he could (and can).

Addendum: The Wall Street Journal 'Real Time Economics' Blog just published a brief article titled 'Parsing Bernanke: Takeaways From Boston Speech'. I suggest you read it - reading time 2 minutes.

Gold Price Survey

You will recall that I embedded a 'one question' Gold Price Survey in my October 7 e-mail asking respondents for their buy/sell/hold physical gold strategy at the then price of U.S.$1,350, and promised to report the results earlier this week. I apologize for my reporting delay, but have been largely bedridden with a flu-bug since Monday.

In summary 52 people, all of who presumably own physical gold, responded. As shown in the following table only one person said they would sell some of their holding at U.S.$1,350. Every other respondent, including the 5 who checked the 'Other' category, said they would not sell but would hold or 'hold and buy' more. Typically 52 responses to a question could not be considered to gererate statistically valid results. However, where all but 1 of 52 respondents answer in consistent fashion (in this case, wouldn't sell - with some but not all saying they would buy more) I suspect such a response may have an element of statistical validity. In any event, one week later the gold price (as I write this) stands at U.S.$1,363 having retreated in the last 24 hours from its new high of U.S.$1,380.

Foreclosuregate

An article last weekend titled 'Foreclosuregate' is a good summary of the mortgage foreclosure debacal that came to the fore last Friday when when JP Morgan Chase, GMAC Mortgage and PNC Financial suspended foreclosures in 23 U.S. States where a judge must approve foreclosures. All weekend I was reading snippets of information, but not gaining a 'real grasp' of either the facts or the implications of what is going on. I recommend you read this article - reading time 4 minutes. I commented on the article yesterday as follows:

Very useful summary article. It is hard to imagine that things will not get worse if the U.S. Government and Legal System both are focused on this problem. All this will do is lead to more inefficiency in the U.S. economy, and the elevation of the hill up which 'recovery' molasses is flowing has just achieved a more acute upward angle.