By Phil Izzo
June 17 (WSJ blogs) – A double-dip recession is back on the minds of Web denizens.

Google searches for “double dip recession” have shot up in the past two weeks. “In the first two weeks of June the number of Google searches for ‘double dip recession’ by Americans has surged back towards the levels seen when such concerns were rife this time last year,” notes Paul Dales of Capital Economics. He suspects, as was the case in 2010 when the trend last appeared, it will prove temporary.

Though there are arguments for and against Google as an indicator, the rise in searches for “double dip recession” is just the latest in a host of datapoints indicating a growing gloom among consumers. Earlier today, a Reuters/University of Michigan survey showed a drop in consumer sentiment, following on the heels of more pessimistic outlooks from homebuilders and both small and large businesses.

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The Calm Before the Storm

The gold market has been relatively quiet of late, trading within a narrowing range (see Friday’s Morning Snapshot). This strikes me as somewhat incongruous given all of the financial and geopolitical turmoil that continues to unfold.

Renowned NYU economist Nouriel Roubini suggested early in the week that a “perfect storm” was brewing. Roubini cited an economic slowdown in China, trade disruptions associated with the earthquake/tsunami in Japan, the eurozone debt crisis and the US debt/fiscal crisis. “Everybody’s kicking the can down the road of too much public and private debt. The can is becoming heavier and heavier, and bigger on debt, and all these problems may come to a head by 2013 at the latest,” Roubini said.

Throw on top of that the escalating civil unrest in parts of the EU periphery associated with increasingly draconian austerity measures, ongoing populist uprising in the Middle East and North Africa, as well as several wars and the risks to global markets can not be dismissed. And yet gold, the traditional hedge against such risks, remains well contained.

It’s worth noting that gold is well within striking distance of its all-time high at 1574.60, at a time of year when we generally see seasonal weakness. As our Summer Doldrums piece clearly illustrates: Early-summer pullbacks should be viewed as buying opportunities, as “just better than 2/3 of all annual gains over the past ten years in gold have come in the last five months of the year.” That’s a pretty compelling fact. But what if those early-summer pullbacks fail to materialize?

Some are trusting their instincts and taking advantage of the calm before the storm to add to their gold holdings. Our high net worth clients have been especially active. In fact, while the total number of orders is down from the Spring, large individual orders have contributed to near record sales volume.

Some of this activity has to do with portfolio rebalancing; well-healed clients exiting the stock market on the recent weakness. The traditional move when you came out of equities was to simply hold cash, or perhaps move into bonds. That dated strategy simply doesn’t make sense to the smart-money any more: They see that bond yields are artificially suppressed by quantitative easing and they are very aware of the currency risk associated with holding dollars. Such savvy clients are increasingly turning to physical gold as their shelter from the brewing storm.

Many of our regular clientele — aware of the facts laid out in the summer doldrums analysis — simply buy as a matter of course in June and July, regardless of price. They appreciate the ability to spend time with their brokers; to have long conversations about the economy and global markets, or to discuss their specific strategies in great detail. We brokers benefit greatly from these conversations as well, gleaning valuable insights into what high net worth investors are thinking; what they’re concerned about.

Frequently they recall very recent history, when the market was running scared and getting a hold of their broker might have proved very difficult. When they did reach us, we didn’t have the time for expansive conversations and in some instances certain desirous products were simply no longer available. Some of those clients have vowed never to put themselves in that positions again, having to stampede and compete with the thundering herd. They now prefer to take advantage of the quiet times, when product availability is good and premiums are low. This puts them in a very desirable position of being able to focus on their businesses and family when the next market panic arises.

You may recall that Nouriel Roubini foresaw the housing bubble and correctly predicted “homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt.” So, perhaps the current calm is more accurately the eye of the hurricane, as the coming storm is arguably nothing more than a continuation of what began in 2008. Nonetheless, whether the dark clouds on the horizon are the trailing eyewall or a new storm entirely, now is the time to seek shelter. It is far better to be prepared well in advance than risk being caught out in the storm.

June 17 (HousingWire) – Today’s economy isn’t as depressing as that of the 1930s, but it is as bad as 1983.

The Misery Index, which adds the unemployment rate and level of inflation, rose for the fourth-straight in May to 12.7 and is now at the highest level in 28 years. Economist Arthur Okun launched the index in the ’70s in an attempt to gauge economic hardship.

Unemployment inched up to 9.1% in May, while annual rate of inflation rose to 3.6% as prices climbed across the board, in addition to elevated costs for energy and food. The number of initial jobless claims remained higher than 400,000 for about two months.

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Cabot Money Management’s President & CIO Rob Lutts

View from 3:30 on….

June 17 (Bloomberg) — The International Monetary Fund cut its forecast for U.S. growth in 2011 for the second time in two months, warning that further setbacks to a recovery pose growing threats to the world economy, along with potential contagion from the European debt crisis.

The U.S. economy will grow 2.5 percent this year, down from 2.8 percent projected in April, the IMF said today, citing higher commodity prices and bad weather in the first quarter and a weak housing market. The IMF forecasts 2.7 percent growth in 2012, slower than the previous estimate of 2.9 percent. The Washington-based IMF sees the world economy expanding 4.3 percent this year, down from 4.4 percent two months ago. It left a 4.5 percent forecast for next year unchanged.

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June 16 (Bloomberg) — Alan Greenspan, former Federal Reserve chairman, said a default by Greece is “almost certain” and could help drive the U.S. economy into recession.

“The problem you have is that it’s extremely unlikely the political system will work” in a way that solves Greece’s crisis, Greenspan, 85, said in an interview today with Charlie Rose in New York. “The chances of Greece not defaulting are very small.”

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Gold has firmed within the recent range, which is defined by the 1574.60 all-time high from 02-May and the 1462.25 corrective low from 05-May. These two extremes may form the base of a symmetrical triangle pattern. It’s not terribly-well formed, but the recent series of lower highs and higher lows is generally consistent with this very reliable technical pattern. The market consolidates or coils in a narrowing range before breaking out in the direction of the dominant trend. The dominant trend in gold remains decisively bullish.

Renewed optimism about a new bailout for Greece has lifted the euro today, prompting the dollar to retrace a good portion of the gains realized earlier in the week. This weakness in the dollar has helped buoy gold.

• US leading indicator +0.8% in May, above market expectations of +0.2%, vs -0.4% in Apr.
• US University of Michigan sentiment fell to 71.8 in June, below market expectations, vs 74.3 in May.
• Sarkozy and Merkel agree to Vienna-style rollover of Greek debt, but ECB remains opposed fearing such a deal would be deemed a credit event.
• Greek President Karolos Papoulias swears in Prime Minister George Papandreou’s new cabinet following a reshuffle.

By Kathleen Madigan
June 17 (WSJ blogs) – Will this Greek drama go out on a global tour?

That’s the fear as officials in Athens scramble to work out an austerity plan to avoid defaulting on the nation’s sovereign debt while some Greek voters riot in the streets.

Some market watchers worry Greece 2011 could be a replay of Lehman 2008 when it comes to market performance and economic growth. Greece defaults, markets tank, and the global economy spins into severe recession.

…Certainly, there are reasons to worry that Greece’s problems could be the last straw for the recovery, especially because a default could bring the unanticipated. And recent data show the U.S. economy has throttled back significantly in the second quarter.

…The biggest risk, however, isn’t Greece per se. It is the prospect of other peripheral euro members — Ireland, Spain, and Portugal — following Greece down the default path. That cascade effect has to be avoided.

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By JUDY DEMPSEY
June 17 (New York Times) – BERLIN — Germany backed away Friday from a confrontation with the European Central Bank over a new bailout package for Greece, agreeing under pressure from France not to force private investors to shoulder some of the burden.

The German government’s previous insistence on what the finance minister called “fair burden sharing” had renewed market jitters by threatening to derail negotiations on the second rescue, which will be needed to avert another financing crisis next year.

Chancellor Angela Merkel and the French President Nicolas Sarkozy announced the agreement after a two-hour meeting in Berlin.

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PG View: There remains considerable risk that the rating agencies will still view any rollover of Greek debt as a distressed debt exchange and a default.

June 17 (Bloomberg) — Greek Prime Minister George Papandreou fired his finance minister in a Cabinet overhaul aimed at fending off a party rebellion and ensuring the passage of austerity measures needed for a bailout.

Defense Minister Evangelos Venizelos was named to replace Finance Minister George Papaconstantinou, the target of ire among the ruling Socialists for deepening budget-deficit cuts, according to an announcement in Athens today by George Petalotis, a government spokesman. Papaconstantinou will move to the Environment and Energy Ministry.

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The History channel and Popular Mechanics recently teamed up to list the 101 Gadgets That Changed the World.

The smart phone topped the list!

Gold, though not in the gadget category, has become a new fixture in the contemporary portfolio. It represents solid value in a world of unstable contemporary national currencies.

So now the question often arises: “I wonder what gold is doing?”

You can always know where your gold savings stand by going to USAGOLD’s Mobile Page.

To find out what’s behind the gold price action, just scroll down and access Latest Gold News.

Both in easy-to-use, specially developed and adaptable smart phone format.

USAGOLD has teamed gold with the smart phone for the new era in portable online communications.

(Our Mobile page is the most-visited page at the USAGOLD website.)

Greek PM Vows to Stay Amid Calls for More Austerity

As yields in Greece and the reset of the EU periphery continue to climb, it would seem that the eurozone debt crisis is coming to a head. The FT heralded yesterday that Disunity deepens Greek debt crisis. That disunity is not just within the Greek government, but among the various stake-holders who can’t seem to agree on a path to solvency for Greece.

source: Business Insider

Yet another “new deal” was proffered by the EU and IMF today, but not surprisingly it comes with new austerity measures to be absorbed by the Greek people. The politically weakened PM George Papandreou is going to have a hard time selling even more austerity to the Greek people, who have already reacted violently to the already severe cuts they’ve had to endure. Rumors that Papandreou would step-down proved unfounded as the embattled PM vowed to fight on today, delaying a promised cabinet shake-up as well. That certainly is not going to do much to quell the civil unrest.

The euro fell to a new 3-week low today as hopes of a palatable resolution to the Greek crisis waned, driving investors into the perceived safety of dollars, yen and Swiss francs. Certainly gold is benefiting from safe-haven flows as well, but they have primarily had an underpinning effect rather than a truly bullish effect, as the dollar and gold tend to be inversely correlated.

Further evidence that the US economic recovery is faltering, along with rising concerns that China may be slowing as well, have tempered inflation expectations somewhat. This week’s sharp drop in oil prices is a good illustration of this, but in the face of diminished price risks and given that we’re in the midst of the summer doldrums, gold remains remarkably buoyant.

Americans should be paying attention to the events in Europe as they unfold, as our situation is not all that far removed from Greece’s. However, the big difference is that we in the US maintain or “exorbitant privilege” — a phrase coined by former French Finance Minster Valéry Giscard d’Estaing in the 1960s — of being the worlds reserve currency. We essentially have the ability to create as many dollars as is necessary to meet any obligation.

In joining the EMU, Greece gave up its ability to print and thereby devalue its currency. While this puts Greece in an untenable position now, the US should be aware that our “privilege” has some very real costs attached to it. Costs that should be every bit as troubling as the massive debt we have accumulated.

June 16 (Associated Press) – ATHENS, Greece — Prime Minister George Papandreou has vowed to stay on and fight to pull his country out of a crippling debt crisis, facing down a revolt in his Socialist party over new but widely unpopular austerity measures.

Papandreou told lawmakers Thursday at an emergency party meeting that he would keep seeking a consensus with opposition parties over the financial reforms that creditors have demanded as part of an international bailout.

Papandreou admitted his government had displayed “mistakes and weaknesses,” but promised a new, stronger Cabinet in a reshuffling.

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PG View: It would seem that recent rumors that Papandreou would step down were unfounded. That, along with a delay in the promised cabinet reshuffle, probably isn’t going to do much to quell the rising civil unrest in Greece.

June 15 (CNBC) –

Yesterday’s big negative miss on the Empire State index set the stage for this disappointment.

Gold is modestly higher within the recent range as debt turmoil in Europe and the US continues to support safe-haven trades. The euro has tumbled to a new record low against the Swiss franc amid rising concerns of a Greek default, raising the risk of SNB intervention to check the franc’s rise. Euro losses have also benefited the dollar, even though the US has its own massive debt problem, made worse by the government’s inability to continue borrowing because of a political impasse on raising the debt ceiling.

Stocks remain under pressure on rising worries about the health of the recovery, although some mildly more encouraging US data helped temper pre-open losses.

• US current account deficit widened to -$119.3 bln in Q1, on expectations of -$128.0 bln, vs $112.2 bln in Q4-10.
• US initial jobless claims -16k to 414k in the week ended 11-Jun, below market expectations, vs upward revised 430k in previous week.
• US housing starts +3.5% in May to 560k, above market expectations. Permits +8.7%.
• Eurozone HICP inflation confirmed at 2.7% in May, down slightly from 2.8% in April
• UK retail sales -1.4% m/m in May, well below market expectations, vs +1.1% in Apr; Just +0.2% y/y from negative revised +2.4%.
• SNB holds Libor target rate steady at 0.25%. Inflation forecast pared for 2012-13.

June 16 (GoldCore) – Central banks have already bought 129 metric tons in 2011 through April, exceeding last year’s total of 90 tons. This represents a sizeable 43% increase in demand when compared with the first four months of 2010.

The World Gold Council’s Managing Director Marcus Grubb told a conference in London today that central banks will be net buyers of gold this year and probably next year.

…Indeed, it is a very important development that Eurozone central banks have become net buyers of gold in 2011. This is the first time that this has happened since the inception of the euro in 1999.

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June 15 (The Globe and Mail) – It is the unwritten rule in the global corporate jungle that three beasts rarely get harmed: oil companies, defence contractors and banks.

Countries are invaded to make the market safe for Big Oil. Defence cutbacks, at least in the United States, are so rare as to be laughable. And banks? Just look at Europe, where the operating principle is to protect the banks and their bondholders at all costs, then bleed the taxpayer white to pay for the effort. No wonder Greece, Ireland and Portugal – the euro zone trio “rescued” by bailout loans – are still sinking.

In each of the three, but mostly in Greece and Ireland, there is no sense of shared sacrifice. Everyone – politicians, tax evaders, teachers, executives, bankers – is responsible for their countries’ financial and economic calamities. Yet it is the European Union banks and their senior creditors who are suffering the least. Their gain comes from everyone else’s pain.

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PG View: While the title of this op-ed was clearly chosen to evoke indignation among taxpayers, the general gist of the piece is spot-on: Raising the moral hazard issue once again of privatized gains and socialized losses.

By Madalene Pearson

June 15 (Bloomberg) Gold prices, rallying for an eleventh year, will extend gains as investors add bullion seeking a haven against currency debasement and inflation, according to India’s Quantum Asset Management Co.

“There will be more people moving towards the safety of gold which will take gold prices much higher,” Chirag Mehta, a commodity fund manager at Quantum, which manages about $1.5 billion in assets, said in an interview in Mumbai. “The gradual increase in gold price will continue.”

“The diversification to gold will continue, gold is still under-owned,” Mehta said yesterday. “Even if a small fraction of financial assets move to gold, I think the price will go much higher than what it is currently.”

“There’s a tidal wave of gold demand coming,” Jason Toussaint, the World Gold Council’s managing director of U.S. and Investment, said yesterday at the Bloomberg Link Money Managers Conference in Boston. “A key is the long-term fundamental change in emerging markets. The biggest markets of growth are China and India.”

“The market will increase, it’s nowhere near the potential,” Mehta said.

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By JONATHAN CHENG
June 15 (WSJ) – U.S. stocks tumbled as fears of contagion around a Greek default picked up, adding more pessimism to a foreboding mix of U.S. economic data.

The Dow Jones Industrial Average sank 177 points, or 1.5%, to 11900 in early afternoon trading, wiping out the week’s gains. The Standard & Poor’s 500-stock index fell 21 points, or 1.6%, to 1267 and the Nasdaq Composite shed 41 points, or 1.5%, to 2638.

Greek fears intensified after euro-zone officials failed to make progress on discussions about Greek aid and protests against austerity measures turned violent in Athens. Greek bonds were pummeled, sending yields to their highest levels since the inception of the euro.

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