22-Mar (Bloomberg) — U.S. student-loan debt reached the $1 trillion mark, as young borrowers struggle to keep up with soaring tuition costs, according to the initial findings of a government study.

The figure, which is higher than the country’s credit-card debt, was probably reached “several months ago,” Rohit Chopra of the Consumer Financial Protection Bureau, said in a posting yesterday, excerpted from a speech he made at the Consumer Bankers Association meeting in Austin, Texas.

…The New York Fed also said this month about 10 percent of the outstanding student loan balance was delinquent in the third quarter.

[source]

PG View: More current data suggest the delinquency rate on student loans is now over 20%.

22-Mar (USAGOLD) — Gold fell to new 10-week lows following further troubling signs of an economic slowdown in China. HSBC/Markit Flash manufacturing PMI fell to a 4-month low of 48.1 in Mar, tempering expectations that China will experience a “soft landing”. Given China’s voracious appetite for commodities, heightened growth risks tend to weigh on the complex. While gold is unquestionably seen more as money in China, rather than a commodity, lower commodity prices diminish inflation expectations and therefore the yellow metal’s appeal as a hedge.

Recent PMI data also suggests Europe has fallen back into recession. Big misses in eurozone industrial orders and UK retail sales, lend additional weight to a broad retreat in commodity prices. However, at the same time, the greater risk of deflation increases the likelihood of further accommodative measures on the part of global central banks.

As we’ve discussed many times in the past, central banks — most certainly the Fed — view deflation as a far greater threat than inflation. Many central banks in the developed world have pledged to create inflation in order to keep deflation at bay. That means that they will pump additional liquidity into the system, likely via quantitative measures, to accomplish their goal. You may recall a couple weeks ago, the Fed restarted dropping hints about QE3 when the stock market fell by a mere 1.5% in a single day. Well, rising global growth worries are once again weighing on shares.

• US leading indicators +0.7% in Feb, above market expectations of +0.4%, vs negative revised +0.2% in Jan.
• US initial jobless claims -5k to 348k in the week ended 17-Mar, below expectations of 350k, vs upward revised 353k in previous week.
• Canada retail sales +0.5% in Jan, well below market expectations of +1.6%, vs upward revised unch in Dec; ex-autos -0.5%.
• Eurozone Markit PMI – Composite – Flash falls to 48.7 in Mar, below expectations of 49.5, vs 49.3 in Feb; manufacturing 47.7, services 48.7.
• UK retail sales -0.8% m/m in Feb, below expectations of -0.4%, vs negative revised 0.3% in Jan; 1.0% y/y, vs negative revised 1.4%.
• Eurozone industrial orders (sa) -2.3% m/m in Jan, vs positive revised 3.5% in Dec; -3.3% y/y, vs -0.4% in Dec.
• Eurozone flash consumer confidence -20 in Mar, in-line with expectations.
• China HSBC/Markit Flash Manufacturing PMI falls to 48.1 in Mar, vs 49.7 in Feb.
• Taiwan Central Bank holds discount rate steady at 1.875%, in-line with expectations.
• Taiwan unemployment rate (sa) eases to 4.15% in Feb, vs 4.19% in Jan.
• Hong Kong CPI (Composite) moderates to 4.7% y/y in Feb, vs 6.1% y/y in Jan.

22-Mar (The Wall Street Journal) — The Turkish government, facing a bloated current-account deficit that threatens to derail the country’s rapid expansion, is trying to persuade Turks to transfer their vast personal holdings of gold into the country’s banking system.

The push to tap into the individual gold reserves—the traditional form of savings here—is part of Ankara’s efforts to reduce a finance gap that is currently about 10% of gross domestic product.

Government officials say the banking regulator will soon publish a plan to boost incentives for consumers to park their household wealth inside the financial system. Banking executives said they are considering new interest-yielding gold-deposit accounts that would allow savers to withdraw gold bars from specially designed automated teller machines.

The moves come after the central bank in November announced that lenders could hold up to 10% of their local-currency reserves in gold, in part to tempt Turkey’s gold hoarders to deposit their jewelry, coins or bullion at banks.

Economists say the policy shift is designed to change Turks’ historic preference for storing a high percentage of personal wealth outside the banking system as a way to protect themselves against the economic volatility that has periodically hit Turkey in recent decades.

[source]

PG View: If I were a Turk, I’d worry that I deposit my gold in the bank, my only withdrawal option at some point would be devalued Turkish lira.

22-Mar (Financial Times) — Weak economic activity this month across the eurozone has almost certainly pushed the 17-country bloc into a recession, according to a closely watched survey.

Eurozone purchasing managers’ indices showed private sector economic activity fell firmly back into contraction territory in March. The unexpected drop undermines hopes of a steady recovery after the weak end to 2011, when the eurozone crisis was its most intense.

[source]

PG View: Eurozone PMI is double-dipping without ever having regained expansionary levels.

22-Mar (News24) — Groundless rumours of a coup that have swept Beijing in recent days are a sign of nervousness after the sacking of political star Bo Xilai exposed rifts in China’s ruling Communist Party, analysts say.

Bo had been tipped to join an elite group of leaders who effectively run China later this year, and his downfall – announced last week in a brief official dispatch – is the biggest drama to hit the Communist Party in years.

…rumours – all of them unverifiable and most of them highly implausible – have emerged to fill the void of official information.

[source]

22-Mar (Dow Jones) — St. Louis Federal Reserve Bank President James Bullard said Thursday he sees further inflationary risks for the U.S. and the rest of the world this year, as key central banks in developed countries continue to pursue looser monetary policies.

Bullard noted that the U.S. and Europe have been running very loose monetary policies for some time, while Japan has embraced quantitative easing. “So that sounds like a very easy global monetary policy to me, and that’s why I think there’s a bit of upward inflation risk,” he told Dow Jones Newswires in an interview.

[source]

21-Mar (MarketWatch) — U.S. Federal Reserve Chairman Ben Bernanke’s rejection of a return to the gold standard this week got some analysts at Brown Brothers Harriman thinking.

They asked how much gold would have to rise to back up the U.S. money supply as well as supplies in the euro zone and Japan.

The answer? It would take “at least a 10-fold increase in gold prices,” the analysts said. “Less than that would risk triggering a depression and deflation,” they added.

[source]

21-Mar (Bloomberg) — Gold rose on speculation that demand will increase when jewelry shops end a five-day shutdown tomorrow in India, the world’s largest buyer, and as Federal Reserve Chairman said higher oil prices may stoke inflation.

Jewelers are protesting tax increases the government announced last week that may raise retail-gold prices by 6.3 percent. There may be pent-up demand from the closures, Edel Tully, an analyst at UBS AG in London, wrote today in a report. Rising fuel prices “create at least short-term inflation pressures,” Federal Reserve Chairman Ben S. Bernanke said today during congressional testimony.
Enlarge image Gold May Advance as a Weaker Dollar Prompts Demand

Bullion for immediate delivery gained 0.4 percent to $1,657.35 an ounce by 9:05 a.m. in London. Photographer: Chris Ratcliffe/Bloomberg

“We will see a rise in demand in the short term because of India coming back to the market,” Frank McGhee, the head dealer at Integrated Brokerage Services LLC in Chicago, said in a telephone interview. “Bernanke’s statements were gold friendly.”

[source]

21-Mar (USAGOLD) — Gold is maintaining a generally consolidative tone at the low end of the recent range as ongoing strength in the stock market continues to diminish the appeal of the yellow metal as a safe-haven. However, the downside has been limited by persistent physical interest, which includes central bank interest.

UK Chancellor of the Exchequer George Osborne, in outlining a new budget said, “We are also taking the opportunity to rebuild Britain’s reserves, which had fallen to historically low levels. I can confirm our gold holdings have risen in value to 11 billion pounds.” Some immediately thought that Osborne intended to finally start undoing some of the damage done to Britain’s balance sheet when Gordon Brown famously sold more than half of the UK’s gold reserves below $300, just before the current decade-long bull market commenced. Alas, the UK Treasury quickly came out with a statement clarifying that Osborne’s comment on reserves was “not gold-specific”.

Osborne expects UK growth to be a mere 0.8% this year and climb to 2.0% in 2013. Hardly a booming economy, but he seems committed to debt reduction via austerity. I’m not quite sure how they start rebuilding reserves in such an environment, even if they’re only talking about fiat currency.

• US existing home sales -0.9% in Feb to 4.59M, below market expectations of 4.61M, vs upward revised 4.63M in Jan.
• US MBA mortgage applications -7.4% in the week ended 16-Mar, the sixth consecutive weekly decline; purchases -1.0%, refis -9.3%.
• Canada leading indicator +0.6% in Feb, on expectations of +0.7%, vs +0.4% in Jan.
• UK Public Sector Net Cash Requirement -£7.8 bln in Feb, vs -£32.0 bln in Jan.
• UK Public Sector Net Borrowing rebounds to £12.9 bln in Feb, vs upward revised -£10.2 bln in Jan.
• New Zealand Q4 Current Account Balance -NZ$2,763M, vs negative revised -NZ$4,751M in Q3.
• Japan All-Industry Index (sa) -1.0% m/m in Jan, vs upward revised 1.6% in Dec.
• Bank of Thailand holds overnight repo rate steady at 3.00%, in-line with expectations.

21-Mar (Reuters) — The UK Treasury said on Wednesday there were no plans to add to Britain’s gold reserves, after finance minister George Osborne said in a presentation of the budget that he would take the opportunity to rebuild the country’s reserves.

“What the Chancellor (finance minister) is talking about here is rebuilding the official reserves, so it’s not gold-specific. It’s just over financing the deficit this year by 6 billion pounds ($9.51 billion) in 2012-13 to build up the official reserves,” a Treasury spokesman said.

Osborne said in presenting the country’s budget for fiscal 2012-2013: “We are also taking the opportunity to rebuild Britain’s reserves, which had fallen to historically low levels. I can confirm our gold holdings have risen in value to 11 billion pounds.”

[source]

PG View: Apparently what they are going to be increasing is reserves of fiat; more dollars and euros probably. Quite frankly, buying gold at these levels would likely serve the UK better over the long-run.

21-Mar (USAGOLD) — Here’s the entire quote:

“We are also taking the opportunity to rebuild Britain’s reserves, which had fallen to historically low levels. I can confirm our gold holdings have risen in value to 11 billion pounds.”

PG View: And why wouldn’t you buy up here when one of your predecessors sold most of Britain’s gold reserves right on the lows? Beats the heck out of more fiat.

19-Mar (Forbes) — Do you know why oil and prices are moving sharply higher? Some blame the oil companies, charging they are manipulating prices. Others cite U.S. sanctions on Iran and the threat of a military encounter that would disrupt the flow of oil from the Middle East.

Speculators, too are blamed for ostensibly bidding up the price of oil. In the political arena, President Obama is taking credit for increased domestic oil production even as his critics point out the slow pace of drilling permits issued by his Administration soon will hamper additional increases in the U.S. oil production.

Yet, the basic reason for higher energy prices is being overlooked, even though it is right before our eyes: Oil prices are up because the value of the dollar is down. Our common sense hides this source of higher prices because we view the dollar as fixed, and prices as moving. News reports explain the sharp rise in consumer prices in February were caused by higher energy and food prices, implying that higher prices cause inflation. Of course, higher prices do not cause inflation. Higher prices are inflation.

…Even these results miss the full decline in the dollar’s value because the value of all of these currencies, too, have fallen over the past decade. If the dollar had been as good as gold, the price of oil today would be about $20 a barrel, and the price of gasoline would be down near $1 a gallon. That’s right, the lower prices produced by the increase in oil and natural gas production have been disguised by the fall in the value of the dollar.

[source]

19-Mar (Bloomberg) — A widely held assumption about a pre-emptive strike on Iran’s nuclear facilities is that it would spur Iranian citizens — many of whom appear to despise their rulers — to rally around the regime. But Netanyahu, I’m told, believes a successful raid could unclothe the emperor, emboldening Iran’s citizens to overthrow the regime (as they tried to do, unsuccessfully, in 2009).

You might call this the Museveni Paradigm. It’s one of several arguments I’ve heard in the past week, as I’ve shuttled between Tel Aviv and Jerusalem, that have convinced me that Israeli national-security officials are considering a pre- emptive strike in the near future.

[source]

PG View: The threat of a preemptive strike against Iran, and a possible war as a result, trumps any promise of increased oil output on the part of the Saudis. Should also be viewed as an underpinning for gold.

20-Mar (Bloomberg) — Greece’s bonds and credit ratings are factoring in a third bailout for the nation that analysts and investors say will require greater concessions from its international creditors.

Within a week of euro-area member states giving their formal approval to a second bailout package for Greece, the International Monetary Fund said the country may require additional funding or a further debt restructuring. Pacific Investment Management Co., which runs the world’s biggest bond fund, said it remains “cautious” on euro-area government debt even after the largest-ever sovereign refinancing because the risk remains that Greece will leave the single-currency area.

Greece’s ratio of debt to gross domestic product will fall to 116 percent in 2020 from 165 percent in 2011 if the nation’s “ambitious” program to overhaul the economy is implemented. Photographer: Kostas Tsironis/Bloomberg
HSBC’s Bloom Discusses FX Strategy

“It’s still a very steep mountain to climb,” said Harvinder Sian, a senior fixed-income strategist at Royal Bank of Scotland Group Plc in London. The restructuring deal “doesn’t do anything to put Greece on a sustainable path,” he said. “A third bailout will become necessary.”

[source]

20-Mar (USAGOLD) — Gold is back on the defensive within the range as fresh worries about Chinese growth sap risk appetite and promises from Saudi Arabia of increased oil supplies diminish inflation concerns somewhat.

BHP Billiton, the world’s biggest mining company, reported today that Chinese steel production is slowing, adding to recent concerns about economic growth both in China and globally. Asian stocks swooned and European and US shares have subsequently followed suit. Diminished risk appetite lifted the dollar and Treasuries, which has weighed on gold.

Saudi Arabia has pledged to bring down the high price of oil by increasing their output. Oil prices did indeed fall on the news, putting additional pressure on gold. Energy inflation has been a major theme underpinning the yellow metal.

• US housing starts -1.1% in Feb to 698k, near expectations, vs upward revised 706k in Jan.
• Germany PPI decelerated to +0.4% m/m in Feb, below market expectations of +0.7%, vs +0.6% in Jan; 3.2% y/y.
• UK Core CPI moderates in Feb to 2.4% y/y, vs 2.6% in Jan.
• UK RPI rebounds to +0.8% m/m in Feb, vs -0.6% in Jan; 3.7% y/y, above expectations of 3.5%.
• UK CBI Industrial Trends Monthly – Total Orders -8 in Mar, below expectations of -5, vs -3 in Feb.
• UK CBI Industrial Trends Monthly – Export Orders -11 in Mar, below expectations of -3, vs -2 in Feb.
• Taiwan Export Orders rebound to 17.6% y/y in Feb, vs -8.6% y/y in Jan.

by Amity Shlaes
14-Mar (Bloomberg) — A little is all right. That’s the message Federal Reserve Chairman Ben S. Bernanke has been giving out recently when asked about the evidence of inflation in the U.S. recovery.

Sometimes Bernanke doesn’t even go that far. He simply says he doesn’t see inflation. The Fed chairman recently described the prospects for price increases across the board as “subdued.”

“Sudden” is more like it. The thing about inflation is that it comes out of nowhere and hits you. Monetary policy is like sailing. You’re gliding along, passing the peninsula, and you come about. Nothing. Then the wind fills the sail so fast it knocks you into the sea. Right now, the U.S. is a sailboat that has just made open water, and has already come about. That wind is coming. The sailor just doesn’t know it.

[source]

19-Mar (VOX) — The patterns of gold holding remain a debatable topic at times when the relative price of gold has appreciated while the global economy has experienced recessionary effects. This column studies the curious patterns of gold holding and trading by central banks from 1979 to 2010. It suggests that a central bank’s gold position signals economic might, and gold retains the stature of a ‘safe haven’ asset at times of global turbulence.

…While we focus on the OECD countries, we include also the two emerging ‘super countries’, China and India, noting that their recent gold holdings increased in tandem with the sharp rise in their economic power (Figure 4). As of November 2011, China is the 6th largest gold holder in the world, Russia is the 8th, and India is the 11th largest. These patterns are consistent with the desire of ‘super emerging markets’ to signal their economic might, to diversify their reserves, and to insure themselves during the global turbulence.

…To conclude, gold retains its unique stature of a ‘safe haven’ asset at times of global turbulence, where large central banks’ gold position signals economic might.

[source]

16-Mar (Financial Times) — A sharp fall in gold prices has triggered large purchases of bullion by central banks in recent weeks, according to several traders with knowledge of the transactions.

The buying activity highlights the trend among central banks in emerging economies to buy gold, even as some western investors are losing patience with the metal. Gold prices have dropped 13.8 per cent from a nominal record high of $1,920 a troy ounce reached in September, and on Friday were trading at $1,655.60.
More

The Bank for International Settlements, which acts on behalf of central banks, has been buying significant quantities of gold on the international market amid falling prices, traders said.

[source]

16-Mar (Reuters) — An apparent economic recovery and a recent tumble in the price of gold has investors wondering if the precious metal has lost its place in a portfolio.

Gold, having soared higher since the onset of the financial crisis, is down about 17 percent from its September peak, and has fallen 7.5 percent in less than a month. In large part, gold’s comeuppance is attributable to improving economic data and a sense that – terrible as things may be in Europe – the banking system will not implode.

So, then, if the world’s not ending why own gold?

…Gold, Buffett correctly points out, has benefited first from a fear trade, bought up by investors who worry that central banks and governments will engineer a raging inflation in order to erode away the debts they struggle under.

…Gold is a kind of anti-investment, an insurance policy against the bad actions of other people.

…But it is important to remember that the impact of QE isn’t over simply if the Fed no longer prints money. There is still the issue of how to retract the huge amount of liquidity from a recovering economy.

…the correct comparison is not between stocks and gold but between cash and gold.

[source]

19-Mar (Bloomberg) — Sellers of credit-default swaps on Greece may have to pay 78.25 cents on the euro to settle contracts triggered by the nation’s debt restructuring.

Dealers set an initial value of 21.75 percent at an auction for Greek bonds today, according to administrators Markit Group Ltd. and Creditex Group Inc., in line with where the notes have been trading. The auction is being held under the rules of the International Swaps & Derivatives Association and a final rate will be determined at 3:30 p.m. in London.

[source]

By Martin Wolf
19-Mar (Financial Times) — The real interest rate on US and UK government debt is currently near to zero (see chart 1). This is a remarkable fact. True, real interest rates were negative in the 1970s. But it is extremely unlikely that anybody bought bonds expecting this to be the case.

Now, however, the position is quite different. Both of these governments sell index-linked debt that delivers zero real returns. That is a demonstration of the fact that the world has a huge “savings glut”. Indeed, since savings must equal investment at the global level, it is only by its price – the rate of interest – that one can assess whether such a glut exists.

…When will we know that the world economy has recovered from the extraordinary conditions of today. My answer would be that this will be when the real rate of interest on safe securities (if any are indeed left by then) is around 3 per cent. Until that happens, policy is trying to stave off disaster.

[source]

PG View: We have maintained that gold will remain a solid investment as long as real rates remain negative. Wolf asserts that the global economy remains on shaky ground as long as real rates are below 3%. I think it’s going to be many years before we see anything close to 3% real rates.