30-Mar (Yahoo Finance) — [I]f it weren’t for Apple’s (AAPL) record results, fourth quarter profit growth for the S&P 500 would go from 6.1% to 3.0% Factset data shows. And similar ex-Apple stats will cloud the first quarter too, where profit growth at the maker of iProducts has put estimates at break-even, instead of a 1.6% decline without it.

“Apple is just a juggernaut,” says David Steinberg, founder of DLS Capital in the attached video. “But you need to take that and set it aside because it’s not representative of the average consumer.”

[source]

30-Mar (USAGOLD) — An early modest rally in gold withered, despite a softer dollar tone, as the yellow metal remains well contained within its recent range. However, we’ve had a string of pretty decent price performance on recent Fridays, so we’ll see if a firmer tone prevails later in the session.

Richmond Fed hawk Lacker, offered further discouragement for those breathlessly awaiting QE3. Lacker was the lone dissenter at the last two FOMC meetings, opposed to the message that the Fed would keep interest rates near 0% into late-2014. Today he suggested that his growth expectations of 2-3% this year and “maybe” 3% next year might prompt tightening by mid-2013. I would suggest that the moderates and doves on the FOMC are unlikely to be swayed by 2-3% GDP and start ratcheting rates higher.

Personal income rose a mere 0.2% in Feb, half of expectations. Meanwhile, PCE jumped 0.8% in Feb, above market expectations of +0.6% compared to an upward revised 0.4% (from +0.2%) in Jan. The personal savings rate fell from 4.3% in Jan to 3.7%, a level not seen since August 2009.

The higher spending rate may be partially attributable to higher gasoline prices; consumers are saving less because a greater portion of their take-home pay is being burned in their automobiles. However, one might also read into the data that Fed efforts to discourage saving — by fostering a negative real interest rate environment and advocating for inflation — are finally having the desired impact. Spend your income now, because you lose purchasing power by putting it in the bank and prices are likely to be higher tomorrow anyway.

As I noted in commentary earlier in the week, inflation concerns seem to be mounting. This has been confirmed in conversations with clients and perspective clients in the last two weeks. Gold tends to perform extremely well in an inflationary environment, as it is the classic hedge against price risks. When you consider the performance of gold over the last several years when deflation was the bigger threat, if the central banks get their wish and inflation takes hold, we may not have seen anything yet…

• University of Michigan Sentiment-final revised up to 76.2 for Mar, above expectations of 75.0, from 74.3 initial read and 75.3 in Feb.
• Chicago ISM slipped to 62.2 in Mar, below expectations of 63.0, vs 64.0 in Feb.
• US PCE chain price +0.3% m/m in Feb, largest jump since Aug; 2.3% y/y. Core-PCE +0.1% m/m; 1.9% y/y.
• US personal income +0.2% in Feb, below expectations of +0.4%, vs negative revised +0.2% in Jan; PCE +0.8%, on expectations of +0.6%.
• Canada GDP +0.1% in Jan, in-line with expectations, vs +0.4% in Dec.
• Germany retail sales -1.1% m/m in Feb, well below market expectations of +1.2%, vs positive revised -1.2% in Jan; 1.7% y/y.
• Switzerland KOF Leading Indicator 0.08 in Mar, above expectations of 0.05, vs positive revised -0.11 in Feb.
• Eurozone CPI – Flash Estimate 2.6% y/y in Mar, in-line with expectations, vs 2.7% y/y in Feb.
• South Korea Q4 GDP revised lower to 3.3% y/y, from 3.4% previously.
• South Korea industrial production +14.4% y/y in Feb, vs negative revised -2.1% y/y in Jan.
• Japan Markit/JMMA PMI rose to 51.1 in Mar, vs 50.5 in Feb.
• Japan CPI +0.3% y/y in Feb, vs 0.1% y/y in Jan.
• Japan unemployment rate ticked lower in Feb to 4.5%, vs 4.6% in Jan.
• Japan personal income +2.9% y/y in Feb, vs -2.8% y/y in Dec.
• Japan PCE – overall households 2.3% y/y in Feb, vs -2.3% y/y in Jan.
• Japan industrial production – preliminary (sa) -1.2% m/m in Feb, vs negative revised +1.9% in Jan.

29-Mar (Bloomberg) — South Korea, Asia’s fourth-largest economy, pared the share of dollars in its foreign-exchange reserves to the lowest level since the global financial crisis erupted in 2007.

Dollar holdings dropped to 60.5 percent of foreign- exchange reserves at the end of last year from 63.7 percent in 2010, the central bank said in its annual report for 2011 released today.
Enlarge image BOK Says Dollar Holdings Fell to 60.5% of FX Assets in 2011

…“The move to diversify reserves away from U.S. dollars and the euro accelerated last year, largely on weaker fiscal fundamentals and subdued economic conditions in developed markets,” Wai Ho Leong, a senior regional economist at Barclays Capital in Singapore, said in an e-mail. “At the same time, it marked a move into gold, and bonds of stable emerging-market economies, particularly those with better longer-term prospects and currency appreciation potential.”

[source]

30-Mar (Reuters) — Prime Minister Lucas Papademos said on Friday Greece may need a third bailout package if the sweeping austerity measures demanded by its international creditors fail to stabilize its shattered economy and restore market confidence.

It was the first time Papademos publicly confronted his people with the risk, already mooted by wary EU, IMF and German officials, that the austerity program might fall through if they don’t try hard enough.

[source]

PG View: Further evidence that Bundesbank President Jens Weidmann was spot-on when he said, “Just like the ‘Tower of Babel,’ the ‘Wall of Money’ will never reach heaven.”

U.S. consumers stepped up their spending in February even as incomes rose only modestly, partly reflecting higher energy costs and lower savings.

Personal spending jumped 0.8% last month, the best gain since July, while incomes increased 0.2%, the Commerce Department said Friday. In January, expenditures rose 0.4%, and incomes were up 0.2%, according to newly revised figures.

…The price index for personal consumption expenditures increased 2.3% on a year-over-year basis in February. That’s above the Federal Reserve’s long-term annual inflation target of 2.0%.

On a monthly basis, the PCE price gauge rose 0.3%, the largest gain since August. In January, the index rose 0.2%.

…Meanwhile, the personal savings rate fell to 3.7% in February, it’s lowest level since August 2009. The rate was 4.3% the prior month.

[source]

PG View: The jump in consumption and reduction in the savings rate may also be reflective of rising inflation expectations; spend now in anticipation of higher prices tomorrow, which is a mindset the Fed has been trying to foster ever since the recession.

By Matthew Lynn
28-Mar (MarketWatch) — Has the great bull run in gold run its course?

On the surface it looks as if it might have. After running up close to $2,000 an ounce during the market panic of last autumn, it has slipped below $1,700. And it shows little sign of reclaiming its highs.

But here’s one reason why it could have a lot further to go.

The big, developed world central banks will start buying again. And if they do, it would put real rocket fuel into the price of the precious metal.

…foreign exchange reserves are critical if you face a financial crisis. If the banking system needs to be propped up, then you need some assets to play with. Of course, the central bank can always print some money. But in a crisis, the markets may demand something more solid – and that means having reserves.

…[Reserves] give you the ability to intervene in the currency markets…But you can’t manipulate the markets without anything to sell, and that means holding reserves.

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29-Mar (USAGOLD) — Gold has slipped to a new low for the week, weighed by a firmer dollar, softer oil prices and further evidence that the Chinese government is worried about an economic slowdown. More than 61.8% of the recent rebound has been retraced.

The Chinese government raised its long-term foreign-debt quota amid rising concerns about the pace of foreign capital outflows. Speculative capital is retreating from China on heightened growth concerns. A slow down in China could have significant global implications, but the gold market is particularly worried about the economy contracting and sapping the countries voracious appetite for the yellow metal.

Subtle policy changes in China such as looser reserve requirements and boosting the amount of borrowed foreign money allowed into the country are reflective of the Chinese governments efforts to orchestrate a soft landing. However, I would surmise that more overt and expansive policy accommodations would be forthcoming if the threat of a hard landing becomes more pronounced. Such measures would actually be positive for gold.

US Q4 GDP was confirmed at 3.0%, in-line with expectations, but some analysts were expecting an upside surprise. They were disappointed.

While initial jobless claims fell in the week ended 25-Mar, they fell from a big upward revised 364k in the previous week, vs 348k initially. In other words, while claims fell 5k last week, the previous week was revised +16k. Not exactly a positive turn of events.

• US initial jobless claims -5k to 359k for the week ended 25-Mar, above expectations of 350k, vs upward revised 364k (frm 348k) in prev week.
• US Q4 final GDP confirmed at 3.0%, in-line with expectations.
• Canada industrial product prices +0.2% in Feb, below expectations of +0.4%; RMPI -0.5%.
• UK Nationwide House Prices (sa) -1.0% m/m in Mar, vs negative revised +0.4% in Feb; -0.9% y/y (nsa), vs +0.9% y/y in Feb.
• Germany unemployment change (sa) -18k in Mar, well below market expectations of -10k, vs unch in Feb; rate falls to 6.7%.
• Eurozone economic confidence ticks lower to 94.4 in Mar, below expectations of 94.6, vs upward revised 94.5 in Feb.
• Eurozone consumer confidence edged lower in Mar to -19.1, industrial confidence erodes to -7.2, services better at -0.3.
• South Korea current account (nsa) $4.10 bln in Feb, vs downward revised $1.59 bln in Jan.
• Japan total retail sales +3.5% y/y in Feb, vs +1.9% in Jan; large retailers +0.2%.
• Japan trade balance 1st 10 (nsa) ¥53.8 bln in Mar, vs ¥7.6 bln in Feb.

29-Mar (The Wall Street Journal) — China will allow foreign banks this year to bring in a total of $24 billion in foreign borrowed funds—a sharp increase from last year’s limit, bankers say—in an apparent effort to usher in more foreign investment as a slowing economy prompts capital outflows.

Inbound foreign direct investment declined for the fourth consecutive month in February, and a recent bout of yuan-selling indicates accelerating capital flight amid concerns about China’s slowing economic growth.

[source]

By John B. Taylor
29-Mar (The Wall Street Journal) — America has now had nearly a century of decision-making experience under the Federal Reserve Act, first passed in 1913. Thanks to careful empirical research by Milton Friedman, Anna Schwartz and Allan Meltzer, we have plenty of evidence that rules-based monetary policies work and unpredictable discretionary policies don’t. Now is the time to act on that evidence.

…It is difficult to overstate the extraordinary nature of the recent interventions, even if you ignore actions during the 2008 panic, including the Bear Stearns and AIG bailouts, and consider only the subsequent two rounds of “quantitative easing” (QE1 and QE2)—the large-scale purchases of mortgage-backed securities and longer-term Treasurys.

The Fed’s discretion is now virtually unlimited.

…Before the 2008 panic, reserve balances were about $10 billion. By the end of 2011 they were about $1,600 billion.

…This large expansion of bank money creates risks. If it is not undone, then the bank money will eventually pour out into the economy, causing inflation.

[source]

28-Mar (USAGOLD) — Gold is modestly defensive after regaining the 200-day moving average earlier in the week, but failing to regain $1700. However, momentum on this downtick is lackluster and the 1669.45/00 zone now offering support.

The dollar seems to have found a little support as well, curtailing the greenbacks’s recent slide. Yet the dovish tenor of Fed chairman Bernanke this week, if nothing else is likely to limit the dollar’s upside. Of course a weaker dollar is going to net the Fed the inflation that it longs for. Unfortunately, that is already resulting in ever-higher energy prices. The AAA’s daily survey now shows the average price of a gallon of gasoline in the US reached $3.911 and is on track to exceed $4.00 well before cyclical pressures associated with the peak summer driving season (and the need for multiple summer blends) kick in.

Higher inflation expectations weighed on the March consumer confidence number released yesterday and price risks in general seem to be creeping back into the consciousness of our client base. If inflation does indeed take root, gold should shine as the classic hedge against a debased currency and the higher prices for goods and services that result.

• US durable goods orders +2.2% in Feb, below market expectations of +2.7%, vs -3.6% in Jan.
• France Q4 GDP – Final confirmed at +0.2%; y/y pace revised lower to 1.3%.
• Eurozone M3 (sa) growth accelerated to +2.8% y/y in Feb, above market expectations of +2.3%, vs +2.5% in Jan.
• Italy business confidence rose to 92.1 in Mar, vs upward revised 91.7 in Feb.
• UK Q4 GDP (3rd Release) revised lower to -0.3% q/q, vs -0.2% previously; y/y pace revised lower to 0.5% from 0.7%.
• UK current account -£8.45 bln in Q4, near expectations, vs -£10.51 bln in Q3.
• Germany CPI (preliminary) moderates to 0.3% m/m in Mar, below expectations of 0.4%, vs 0.7% in Feb; 2.1% y/y, vs 2.3% in Feb.
• Thailand manufacturing production -3.4% y/y in Feb, vs -15.03 y/y in Jan.

Gold Underpinned as Inflation Concerns Mount

27-Mar (USAGOLD) — Gold started out the week with a positive showing, regaining the 200-day moving average on Monday. The yellow metal was underpinned by comments from Fed chief Ben Bernanke before the NABE that certainly favored the central bank’s current über-easy policy stance, but the market interpreted his speech as a very strong hint at QE3. Not surprisingly, in the face of the recent retreat in the stock market, investors are very eager to jump on anything that smacks even remotely of further Fed accommodations. And true to form, the stock market — along with gold — rallied smartly on Monday.

While gold remains generally well bid today, some less than encouraging economic data has sapped a bit of the euphoria from shares. The Case-Shiller home price index posted its ninth consecutive monthly decline, returning the average home to a valuation not seen since early-2003. Additionally, the recent rise in consumer confidence faltered in March, suggesting that just maybe Americans are beginning to realize that every confidence inspiring gain in their stock portfolio is being offset by another decline in their home’s value.

In my opinion, the recent string of disappointing housing market data are probably more likely to result in further Fed asset purchases (in the form of mortgage backed securities) than any modest retreat in stocks. Nonetheless, the decline in consumer confidence is partially attributable to rising inflation expectations, which reached their highest level since May of last year. The Conference Board reported that 12-month inflation expectations jumped from 5.5% in February to 6.3% in March.

So even as talk of QE3 is escalating once again, so are inflation fears. Yet, inflation is exactly what the Fed tells us we need, because they view deflation as a far greater risk. So if it’s inflation the Fed wants…inflation we shall have…

In PIMCO’s April Investment Outlook released today, entitled The Great Escape: Delivering in a Delevering World, bond guru Bill Gross once again took note of inflation’s bite into the real returns of the more traditional asset classes. Gross pointed out that, “Unless you want to earn an inflation adjusted return of minus 2-3% as offered by Treasury bills, then you must take risk in some form.”

As we’ve pointed out on numerous occasions, as long as real interest rates remain negative, the outlook for gold will remain positive. Among Gross’ favored asset classes for a “delevering world” are “inflation sensitive, supply constrained products.” There aren’t too many assets more “inflation sensitive” than gold.

• US Richmond Fed Index tumbles to 7 in Mar, well below market expectations of 18, vs 20 in Feb.
• US consumer confidence fell to 70.2 in Mar, just above market expectations of 70.0, vs upward revised 71.6 in Feb.
• US S&P/Case-Shiller home prices -0.8% (nsa) in Jan for 20-cities, 9th consecutive monthly decline.
• Germany GfK consumer confidence ticks lower to 5.9 in Apr, below expectations of 6.1, vs 6.0 in Mar.
• Germany import price index +1.0% m/m in Feb, in-line with expectations, vs +1.3% in Jan; +3.5% y/y, also in-line.
• Taiwan LEI +0.9% m/m in Feb, vs negative revised +0.8% in Jan.
• Hong Kong trade balance -HK$45.8 bln in Feb, vs -HK$8.9 bln in Jan.

27-Mar (Dow Jones) — Turkey’s central bank Tuesday doubled the amount of lira reserve requirements lenders could hold in gold, in a technical move that could give breathing space to banks as Ankara moved to tighten rates to shore up the lira.

In a statement accompanying the bank’s move to hold its key policy rates steady, the monetary policy committee said banks would now be allowed to hold up to 20% of lira deposits in gold. Banks would no longer need to keep any foreign currency deposits in gold, the lender said, abandoning a previous 10% limit.

…Tuesday’s move also tallies with recent efforts by the Turkish government to persuade Turks to transfer their vast personal holdings of gold into the country’s banking system.

[source]

Turkey Once Again Proves That Gold Is First And Foremost Money

27-Mar (ZeroHedge) — The Turkish central bank has doubled the amount of gold that lenders can hold in reserves (as opposed to paper money – Lira) as part of their reserve requirement changes. As the WSJ reports, this shift from 10% to 20% means that Turkish banks can use their shiny yellow metal as fungible money reserves against foreign currency deposits.

27-Mar (Reuters) — Consumer confidence dipped in March, while Americans ratcheted up their inflation expectations to the highest level in 10 months, according to a private sector report released on Tuesday.

The Conference Board, an industry group, said its index of consumer attitudes eased to 70.2 from an upwardly revised 71.6 the month before. Economists had expected a reading of 70.3, according to a Reuters poll.

…Expectations for inflation in the coming 12 months jumped to 6.3 percent from 5.5 percent. It was the highest level since May 2011.

[source]

PG View: Because if the Fed says inflation is what we need…inflation is what we shall have…

27-Mar (The Hill) — House Democrats on Monday night introduced their 2013 budget plan to compete with the Republicans’ proposal on the chamber floor this week.

Sponsored by Rep. Chris Van Hollen (Md.), senior Democrat on the House Budget Committee, the $3.6 trillion proposal is not expected to pass, but nonetheless provides the Democrats with a comprehensive plan from which to distinguish their policy priorities from those of Republicans this election year.

The proposal adopts much of President Obama’s job-creation agenda, including tens of billions of dollars for near-term stimulus spending on infrastructure and other federal programs, while keeping Medicare and other entitlement benefits largely intact. The budget adds $6 trillion to deficits over 10 years, compared to $6.4 trillion for the president. It contains $643 billion less in spending, and $219 billion less in revenue.

[source]