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Volatility dulls gold's shine, investors security Volatility dulls gold's shine, investors security Why the Mortgage Market Is an Impediment to Economic  Growth Why the Mortgage Market Is an Impediment to Economic  Growth Why the Mortgage Market Is an Impediment to Economic  Growth Why the Mortgage Market Is an Impediment to Economic  Growth Why the Mortgage Market Is an Impediment to Economic  Growth Why the Mortgage Market Is an Impediment to Economic  Growth Why the Mortgage Market Is an Impediment to Economic  Growth Why the Mortgage Market Is an Impediment to Economic  Growth Why the Mortgage Market Is an Impediment to Economic  Growth Why the Mortgage Market Is an Impediment to Economic  Growth Why the Mortgage Market Is an Impediment to Economic  Growth Why the Mortgage Market Is an Impediment to Economic  Growth Why the Mortgage Market Is an Impediment to Economic  Growth Why the Mortgage Market Is an Impediment to Economic  Growth


Universal Value Advisors Table of Contents Date

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8/15/2011

Financialcontent.com

8/9/2011

MarketWatch

8/8/2011 8/2/2011 8/2/2011 7/15/2011

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Forbes.com

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The Street

5/26/2011

The Street

5/19/2011 5/12/2011 4/25/2011 4/15/2011 4/11/2011

The Street The Street Forbes Market Watch NNBW Minyanville Blog Talk Radio Forbes Forbes My Bank Tracker RGJ

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Title Why the Mortgage Market Is an Impediment to Economic  Growth QE3 is still Inevitable QE3 is still Inevitable Stocks Plunge 500 Points Stocks Plunge 500 Points Investing Carries Risks‐‐Even for Gold Peeking Into Ben Bernanke's Bag Of Unconventional Monetary  Weapons Peeking Into Ben Bernanke's Bag Of Unconventional Monetary  Weapons Peeking Into Ben Bernanke's Bag Of Unconventional Monetary  Weapons Peeking Into Ben Bernanke's Bag Of Unconventional Monetary  Weapons Peeking Into Ben Bernanke's Bag Of Unconventional Monetary  Weapons Peeking Into Ben Bernanke's Bag Of Unconventional Monetary  Weapons Peeking Into Ben Bernanke's Bag Of Unconventional Monetary  Weapons The Concept of Inflation as a Measure of Standard of Living Greek Euro Exit? More Pain Than Gain Why Lagarde at IMF is Bad for U.S., World Economy: Opinion IMF Needs to Address EU Insolvency Issues U.S. Policy Hurts Community Banks: Opinion Commodity Bubble Redux In Full Effect Gold investing: what to do and how to do it Blogs bring national exposure to investment manager The Fiscal Plight of the US: Three Scenarios  Robert Barone and Ryan Mack Yet Another Wall Street Bailout Another one Right in The Fannie for Taxpayers JPMorgan Shows Strong Financial Gains in Fourth Quarter Robert Barone: Expect internet rate


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Why the Mortgage Market Is an Impediment to Economic Growth 4 weeks agoBusiness & Finance / Investing : Minyanville The lack of clarity surrounding U.S. and worldwide economic growth certainly played a big role in the recent Wall Street sell-off. In part it was precipitated by the “debt ceiling� prank that was played upon the country and the world especially after the market dissected the deal and found that through the use of smoke and mirrors economic growth (and therefore tax revenues) was assumed to be 4% -- a growth rate that is hard to fathom at least for the U. READ FULL BLOG POST share read the full post

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More blog coverage There's A Big Problem With All These Wall Streeters Warning About The Debt Ceiling Business & Finance : Business Insider: Clusterstock (5 months ago) Earlier this week it emerged that John Boehner had reached out to Wall Street executives to get a sense of how far the GOP could push the debt ceiling issue without causing a major market problem. POLITICO's Ben White notes that the... Post Profile

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Business & Finance : Business Insider: Clusterstock (2 months ago) We keep hearing about this big disconnect between the debt ceiling (which looks increasingly less likely to be raised by August 2) and the Treasury market, where rates remain at lock bottom. The typical answer: Well, Wall Street fig... Post Profile

World markets sink on debt, growth fears; U.S. holds up better than most Business & Finance : Money & Co (4 months ago) It’s a brutal day for stock markets worldwide as Europe’s debt crisis worsens and fresh data point to slowing growth in China. The U.S. is looking better than most other markets, a sign that Wall Street is viewed as a... Post Profile

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Trade AIG Stock Add AIG Stock to Watch List Write a Stock Analysis for AIG Overview Trade AIG Stock Picks Tweets Comments Activity News Chart Company Info Write Analysis Why the Mortgage Market Is an Impediment to Economic Growth Aug 16, 2011 - 12:22 PM EDT By Robert Barone The lack of clarity surrounding U.S. and worldwide economic growth certainly played a big role in the recent Wall Street sell-off.

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Why the Mortgage Market Is an Impediment to Economic Growth By: Minyanville Like

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The lack of clarity surrounding U.S. and worldwide economic growth certainly played a big role in the recent Wall Street sell-off. In part it was precipitated by the “debt ceiling� prank that was played upon the country and the world especially after the market dissected the deal and found that through the use of smoke and mirrors economic growth (and therefore tax revenues) was assumed to be 4% -- a growth rate that is hard to fathom at least for the U.S. and Europe given the financial landscapes in these two major consuming regions.Housing and GDPHousing is a case ...

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Investing carries risks -- even for gold Markets are OPEN: July 15, 2011 12:01 AM ET - MarketWatch Databased News

Name or symbol SAN FRANCISCO (MarketWatch) -- Gold prices hit record highs this week and they're looking increasingly more bullish, but there are a few things that can put a damper on the metal's party. After all, there are risks in every investment, including gold -- even though few seem to think so. "In any investment analysis, particularly one in which you've come to a bullish conclusion, an investor needs to constantly check their premises," said Brien Lundin, editor of Gold Newsletter. "You need to ask, 'what can go wrong?' in your argument."

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So I queried several analysts, asking them for a list of some of the factors that could potentially weigh on gold or cause a drop in prices. Some refused to participate, some provided only the bullish case for gold and others offered scenarios that would pressure prices, but said they're not likely to happen any time soon. That's no surprise. Gold prices have experienced a steep climb over the past decade. On Thursday, gold logged a record settlement price of $1,589.30 an ounce in New York. Read about Thursday's gold action. "This year, investors have been engulfed by the perfect storm for gold, resulting from the Japanese earthquake and tsunami, Middle East and North African turmoil, credit downgrade warnings in the U.S. and the exacerbation of euro-zone debt fears, amongst others," said Jeb Handwerger, editor of GoldStockTrades.com. "This chaos has had a positive effect on gold bullion and now investors are finally jumping on board," he said. "This may be a significant move for several weeks." So why should anyone even suggest the possibility for any sizable declines in gold prices? If the market develops a "parabolic rise" it may encounter "severe downturns," said Handwerger, who's also a natural-resource analyst. "Investors in any asset must grow cautious as a trade becomes crowded." Tides can turn Finding out just how much caution to take is a challenge in a market where, apparently, a bullish stance is most common and supportive news for gold prices is plentiful. But silver is a good example of just how quickly a tide can turn. For the month of April, silver prices were up 28%, then posted a drop of 21% for the month of May following a series of margin requirement increases that squeezed some investors out of the market. Read the May 31 story on gold and silver. "The recent spike in silver, followed by a waterfall decline due to the raising of margin requirements, reminds long-term precious metals investors that one must be prepared to accumulate products when there is a panic and sell them when there is euphoria," said Handwerger. The story is, of course, different for gold, though it wasn't completely immune to silver's plunge. Gold was up 8.1% in April then fell 1.2% for May. Investors "need to distinguish between the ups and downs of the gold price and the gold stocks -- the volatility over the hours, days, weeks and maybe even a few months, and the underlying factors which have driven the prices of gold to all-time highs," said Marshall Berol, co-manager of the Encompass Fund in San Francisco, stressing that he does not believe in a bear case for gold over any reasonable period of time. "It's not just the dollar, printing presses, storehouse of value, geopolitical issues, the euro, the interest of consumers and governments in wanting to own gold, and supply issues, as the media points to any one of these on any given day," he said. "It's the ongoing combination of all these factors." For an investment that's driven by so many different factors, gold has been surprisingly predictable most of the time. Maybe that's part of what makes it so attractive. But given the unpredictable nature of all of those factors that have so far driven the price of gold higher, it wouldn't hurt to at least consider the risk of a change in gold's trading environment. Plausible risk Although analysts were reluctant to offer potential scenarios that may hurt the price of gold, they still managed to come up with quite a few of them.

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Helicopters are airborne We saw the Fed liquefy the world in ’09 including non-member foreign banks over which they have little influence or authority. And now we have learned that they secretly loaned huge amounts to the primary dealers in the aftermath of the financial crisis. Then we saw them intervene again with the late August, 2010 announcement and subsequent June, 2011 completion of QE2. During the latter intervention, the Fed essentially monetized much of the U.S. budget deficit. Given the fact that the presidential election cycle has already begun, we strongly suspect that the weakening economy and upward pressure on interest rates due to oversupply will cause further Fed intervention, even if it isn’t called QE3. Bernanke said as much today before Congress. Earlier, at his post-Federal Open Market Committee (FOMC) press briefing, Bernanke indicated that if job growth falls below 80,000 per month, the Fed would likely intervene again. (Job growth has now been below 80,000 for two consecutive months!) So, “when” it comes (not “if”), what sort of intervention can we expect? A look back at then Fed Governor Bernanke’s November 21, 2002 talk before the National Economists Club of Washington, D.C. entitled ‘Deflation: Making Sure ‘It’ Doesn’t Happen Here,’

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Peeking Into Ben Bernanke’s Bag Of Unconventional Monetary Weapons Jul.

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posted by ROBERT BARONE

We saw the Fed liquefy the world in ’09 including non-member foreign banks over which they have little influence or authority. And now we have learned that they secretly loaned huge Helicopters are airborne amounts to the primary dealers in the aftermath of the financial crisis. Then we saw them intervene again with the late August, 2010 announcement and subsequent June, 2011 completion of QE2. During the latter intervention, the Fed essentially monetized much of the U.S. budget deficit.

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Given the fact that the presidential election cycle has already begun, we strongly suspect that the weakening economy and upward pressure on interest rates due to oversupply will cause further Fed intervention, even if it isn’t called QE3. Bernanke said as much today before Congress.

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Earlier, at his post-Federal Open Market Committee (FOMC) press briefing, Bernanke indicated that if job growth falls below 80,000 per

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month, the Fed would likely intervene again. (Job growth has now been below 80,000 for two consecutive months!) So, “when” it comes (not “if”), what sort of intervention can we expect? A look back at then Fed Governor Bernanke’s November 21, 2002 talk before the National Economists Club of Washington, D.C. entitled ‘Deflation: Making Sure ‘It’ Doesn’t Happen Here,’ gives us some clues. In that talk, he ostensibly outlined all of the tools available to the Fed if the overnight (Fed Funds) rate hit zero. After all, at the time of the speech, deflation wasn’t expected in the foreseeable future, so he would have no reason not to outline all the tools he could think of. I have outlined them below:

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• #3: A commitment to holding the overnight rate at zero for some specified period.

This isn’t new. The Fed did this in the 1940s and a version of it again in the 1960s. During a period of approximately 10 years ending with the Federal Reserve-Treasury Accord of 1951, the Fed “pegged” the long-term Treasury bond yield at 2.5%. And, during the Kennedy Administration, the Fed sold T-bills and purchased an equal amount of longer dated TNotes in order to reduce long-term rates. Bernanke believes that the announced policy of pegging will cause arbitrageurs to keep yields near the announced peg, especially if the Fed intervenes several times to prove its commitment.

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Both QE1 and QE2 used these tools. In QE1, the Fed purchased nontraditional assets for its portfolio, including mortgage backed securities (MBS) and derivatives. In both QE1 and QE2, the “scale” of asset purchases was dramatically increased.

• #4: Announcement of explicit ceilings on longer-maturity Treasury debt.

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• #1: Expand the scale of asset purchases;

This tool is currently in practice with the Fed’s “extended period” language in the Federal Open Market Committee (FOMC) minutes.

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• #5: Directly influencing the yields on privately issued securities. “If the Treasury issued debt to purchase private assets and the Fed then purchased an equal amount of Treasury debt with newly created money, the whole operation would be the economic equivalent of direct openmarket operations in private assets.” Think GM, Chrysler, AIG. • #6: Purchase foreign government debt. The Fed would do this, Bernanke explains, to influence the market for foreign exchange, i.e., to weaken the dollar. He points to the dollar devaluation of 1933-34 as an “effective weapon against deflation”. “The devaluation and the rapid increase in the money supply it permitted ended the U.S. deflation remarkably quickly … The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market.” (While this is true, a mere two years later, after the withdrawal of government stimulus, a second severe recession began, one that would last until the U.S. geared up for World War II. And the 1937 slump in stocks was one of the largest on record.) • #7: Tax cuts accommodated by a program of open market purchases.

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“A money-financed tax cut is essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money”, he said in the speech. (Hence his nickname – Helicopter Ben.) The extension of the Bush tax cuts along with the reduction in the social security payroll tax is a recent example of this policy. These 7 tools are non-traditional, and Bernanke admits that by using them, the Fed “will be operating in less familiar territory” and will “introduce uncertainty in the size and timing of the economy’s response to policy actions”. Nevertheless, he says, “a central bank whose accustomed policy rate has been forced down to zero has most definitely not run out of ammunition … A central bank … retains considerable power to expand aggregate demand and economic activity even when its accustomed policy rate is zero.” Today, any objective economist will tell you that, despite all of the monetary and fiscal stimulus, aggregate demand and economic activity has been minimally impacted. At the July post-FOMC press briefing, Bernanke admitted that he has no explanation as to why the economy has remained “soft”. Nevertheless, as stated above, in an election cycle, the Fed would be expected to do “something”. Of the seven available tools, #1 appears to have been taken off the table, and #3 is presently employed. Tools #5 and #7 have been used, and may be employed again. #5 was heavily used in the financial crisis (GM, Chrysler, AIG), and #7 requires the cooperation of Congress (tax cuts). The Fed said that it won’t reduce the size of its balance sheet in the near future, holding it steady like a rock, but will invest or roll any maturities or payoffs back into the market. Hence, the Fed has already embarked upon a policy of what we will call Rock ‘N Roll. As part of Rock ‘N Roll, we also expect the Fed to change the composition of its balance sheet to attempt to impact yields on private sector bonds (#5). Futility Of The Fed Over the past 2 years, Fed actions appear to have had little impact on aggregate demand. In 2002, when he outlined these non-traditional tools, Bernanke said he had no idea of the magnitude of their effectiveness. Today, however, we have a couple of years of historical data on which to judge. Special Offer: Overall, from mid-July 2010 when Forbes Low-Priced Stock Report debuted, through mid-June 2011, its model portfolio rose 72%, compared to the Russell 2000, which rose 20% and the S&P 500, which rose 25%. Click here to see Marc Gerstein’s latest picks. Eric Swanson, an economist at the Fed of San Francisco, in a March, 2011 paper entitled “Let’s Twist Again: A High-Frequency Event-Study Analysis of Operation Twist and Its Implications for QE2″ concluded that the impact of QE2 on the Treasury yield curve was a statistically significant, but moderate 15 basis points. (That’s not much for $600 billion!) In addition, Swanson says that the effects “diminish substantially as one moves away from Treasury securities and toward private credit instruments”. Thus, despite their demonstrated impotence, we expect that the Fed will use tools #4 and #5 in an effort to lower longer-term Treasury rates and simultaneously attempt to reduce private sector rates. The success of such moves is much in doubt, especially if their balance sheet is constrained. Tool #6, and other policies to weaken the dollar, however,

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will continue to be the primary and most effective thrust of Fed policy. That means inflation will continue to be fostered. Robert Barone & Joshua Barone are principals and investment advisor representatives of Ancora West Advisors LLC,, an SEC Registered Investment Advisor: 8630 Technology Way, Suite A, Reno, NV 89511, Phone (775) 284-7778.

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Peeking Into Ben Bernanke's Bag Of Unconventional Monetary Weapons By: Forbes.com: News Posted on July 13, 2011 at 17:10 PM EDT

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Published Jul 13 2011 by Yahoo! Singapore

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[caption id="" align="alignright" width="240" caption="Helicopters are airborne"] [/caption] We saw the Fed liquefy the world in '09 including non-member foreign ... READ FULL ARTICLE Share this

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Wed, 07/13/2011 - 17:10 EDT story from Robert Barone

What sort of intervention can we expect? A look back at then Fed Governor Bernanke's November 21, 20 Add new comment

Original article

R ELATED 'Possible' Fed will do more on joblessness: Bernanke Further Federal Reserve action to combat unemployment is "certainly possible," Fed chairman Ben Bernanke said in an interview Sunday.Bernanke was asked on CBS television if the Fed might inject more than the 600 billion dollars planned for the November-to-June time frame."It's certainly possible," he said."It depends on the efficacy of the program. It depends, on inflation. And finally it depends on how the economy looks," Bernanke added.

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8/9/2011 11:28 AM


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By Robert Barone | Forbes – Wed, Jul 13, 2011

We saw the Fed liquefy the world in '09 including non-member foreign banks over which they have little influence or authority. And now we have learned that they secretly loaned huge amounts to the primary dealers in the aftermath o financial crisis. Then we saw them intervene again with the late August, 2010 announcement and subsequent June, 2 completion of QE2. During the latter intervention, the Fed essentially monetized much of the U.S. budget deficit. Given the fact that the presidential election cycle has already begun, we strongly suspect that the weakening economy upward pressure on interest rates due to oversupply will cause further Fed intervention, even if it isn't called QE3. Bernanke said as much today before Congress. Earlier, at his post-Federal Open Market Committee (FOMC) press briefing, Bernanke indicated that if job growth fa below 80,000 per month, the Fed would likely intervene again. (Job growth has now been below 80,000 for two consecutive months!) So, "when" it comes (not "if"), what sort of intervention can we expect? A look back at then Fed Governor Bernanke's November 21, 2002 talk before the National Economists Club of Washi D.C. entitled 'Deflation: Making Sure 'It' Doesn't Happen Here,' gives us some clues. In that talk, he ostensibly outlin of the tools available to the Fed if the overnight (Fed Funds) rate hit zero. After all, at the time of the speech, deflatio wasn't expected in the foreseeable future, so he would have no reason not to outline all the tools he could think of. I h outlined them below: #1: Expand the scale of asset purchases; #2: Expand the menu of assets the Fed buys. Both QE1 and QE2 used these tools. In QE1, the Fed purchased non-traditional assets for its portfolio, including mor backed securities (MBS) and derivatives. In both QE1 and QE2, the "scale" of asset purchases was dramatically incre #3: A commitment to holding the overnight rate at zero for some specified period. This tool is currently in practice with the Fed's "extended period" language in the Federal Open Market Committee (FOMC) minutes. #4: Announcement of explicit ceilings on longer-maturity Treasury debt. This isn't new. The Fed did this in the 1940s and a version of it again in the 1960s. During a period of approximately years ending with the Federal Reserve-Treasury Accord of 1951, the Fed "pegged" the long-term Treasury bond yield 2.5%. And, during the Kennedy Administration, the Fed sold T-bills and purchased an equal amount of longer dated T-Notes in order to reduce long-term rates. Bernanke believes that the announced policy of pegging will cause arbitrageurs to keep yields near the announced peg, especially if the Fed intervenes several times to prove its commit #5: Directly influencing the yields on privately issued securities. "If the Treasury issued debt to purchase private assets and the Fed then purchased an equal amount of Treasury debt newly created money, the whole operation would be the economic equivalent of direct open-market operations in pri

8/9/2011 11:22 AM


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assets." Think GM, Chrysler, AIG. #6: Purchase foreign government debt. The Fed would do this, Bernanke explains, to influence the market for foreign exchange, i.e., to weaken the dollar. He points to the dollar devaluation of 1933-34 as an "effective weapon against deflation". "The devaluation and the rapid increase in the money supply it permitted ended the U.S. deflation remarkably quickly … The economy grew strongly by the way, 1934 was one of the best years of the century for the stock market." (While this is true, a mere two years l after the withdrawal of government stimulus, a second severe recession began, one that would last until the U.S. gear for World War II. And the 1937 slump in stocks was one of the largest on record.) #7: Tax cuts accommodated by a program of open market purchases. "A money-financed tax cut is essentially equivalent to Milton Friedman's famous 'helicopter drop' of money", he said speech. (Hence his nickname – Helicopter Ben.) The extension of the Bush tax cuts along with the reduction in the s security payroll tax is a recent example of this policy. These 7 tools are non-traditional, and Bernanke admits that by using them, the Fed "will be operating in less familiar territory" and will "introduce uncertainty in the size and timing of the economy's response to policy actions". Nevertheless, he says, "a central bank whose accustomed policy rate has been forced down to zero has most definitely run out of ammunition … A central bank … retains considerable power to expand aggregate demand and economic ac even when its accustomed policy rate is zero." Today, any objective economist will tell you that, despite all of the monetary and fiscal stimulus, aggregate demand an economic activity has been minimally impacted. At the July post-FOMC press briefing, Bernanke admitted that he h explanation as to why the economy has remained "soft". Nevertheless, as stated above, in an election cycle, the Fed w be expected to do "something". Of the seven available tools, #1 appears to have been taken off the table, and #3 is presently employed. Tools #5 and have been used, and may be employed again. #5 was heavily used in the financial crisis (GM, Chrysler, AIG), and #7 requires the cooperation of Congress (tax cuts). The Fed said that it won't reduce the size of its balance sheet in the n future, holding it steady like a rock, but will invest or roll any maturities or payoffs back into the market. Hence, the has already embarked upon a policy of what we will call Rock 'N Roll. As part of Rock 'N Roll, we also expect the Fed t change the composition of its balance sheet to attempt to impact yields on private sector bonds (#5). Futility Of The Fed Over the past 2 years, Fed actions appear to have had little impact on aggregate demand. In 2002, when he outlined non-traditional tools, Bernanke said he had no idea of the magnitude of their effectiveness. Today, however, we have couple of years of historical data on which to judge. Special Offer: Overall, from mid-July 2010 when Forbes Low-Priced Stock Report debuted, through mid-June 2011, model portfolio rose 72%, compared to the Russell 2000, which rose 20% and the S&P 500, which rose 25%. Click he see Marc Gerstein’s latest picks. Eric Swanson, an economist at the Fed of San Francisco, in a March, 2011 paper entitled "Let's Twist Again: A High-Frequency Event-Study Analysis of Operation Twist and Its Implications for QE2" concluded that the impact of on the Treasury yield curve was a statistically significant, but moderate 15 basis points. (That's not much for $600 billion!) In addition, Swanson says that the effects "diminish substantially as one moves away from Treasury securiti toward private credit instruments".

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Thus, despite their demonstrated impotence, we expect that the Fed will use tools #4 and #5 in an effort to lower longer-term Treasury rates and simultaneously attempt to reduce private sector rates. The success of such moves is m in doubt, especially if their balance sheet is constrained. Tool #6, and other policies to weaken the dollar, however, w continue to be the primary and most effective thrust of Fed policy. That means inflation will continue to be fostered. Robert Barone & Joshua Barone are principals and investment advisor representatives of Ancora West Advisors LL SEC Registered Investment Advisor: 8630 Technology Way, Suite A, Reno, NV 89511, Phone (775) 284-7778. Also Read

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8/9/2011 11:22 AM


The Concept Of Inflation As A Measure Of Standard Of Living | Markets |...

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ROBERT BARONE JUN 09, 2011 10:45 AM

Inflation in the standard-of-living sense is a real problem. Statements from Geithner, Bernanke proclaiming inflation is "temporary" are not exactly false, but they're misleading.

7/5/2011 11:00 AM


The Concept Of Inflation As A Measure Of Standard Of Living | Markets |...

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http://www.minyanville.com/articles/print.php?a=35056

There is a debate in financial circles as to whether or not we even have inflation, and, if we do, should we even worry about it. As expected, the chief monetary and fiscal officers of the federal government deny that inflation is a problem or that their policies have anything to do with it. This was reaffirmed by Chairman Bernanke in his talk to The International Monetary Conference on June 7. St. Louis Federal Reserve Bank economists, Chen and Wen, in a recent paper (Mingyu Chen and Yi Wen, Oil Price Shocks and Inflation Risk, Federal Reserve Bank of St. Louis, June, 2011) using data from prior oil shocks, conclude that while such oil price shocks had significant "inflationary" impacts in the 1970s and in the early 1980s, today, rapidly rising oil prices appear "to have only transitory effects on headline inflation and virtually no impact on measures of underlying inflation." Statistical Proof Much of the debate centers around semantics and the “meaning” of the word “inflation." If you adopt one meaning, as Chen and Wen do, then inflation is not an issue. If you happen to believe that inflation in the US is actually measured by the “core” CPI numbers reported by the Bureau of Labor Statistics (BLS), then you, like our government leaders, shouldn't be concerned. However, despite the fact that Chen and Wen conclude that inflation is not a problem (at least relative to the price of oil), in a footnote there is an admission that their conclusions are based upon their definition of inflation. "Although the effect on inflation [of oil price shocks] is transitory, the effect on the price level is not, because inflation is defined as the rate of change in the price level, not the price level itself" [emphasis added]. An appropriate interpretation of this is that we can have high inflation in the sense of high permanent prices, but we shouldn't worry about it because it will disappear as soon as the underlying cause disappears. The Standard of Living Concept On the other hand, if your definition of inflation is a concept that measures, not prices alone, but “standard of living," then the rest of this blog may be relevant to you. Under the “standard of living” definition, the general price level can actually be falling but “inflation” can be an issue if incomes are falling faster than prices, and, thus, the standard of living is declining. In his 1937 book, Seven Kinds of Inflation – and What to do About Them, Richard Skinner identifies four kinds of “absolute” inflations and three kinds of “relative” ones. Absolute inflations include: 1. Rising prices of fixed income securities 2. Rising prices of land, equity securities and business values 3. Rising short-term interest rates 4. Rising general prices and living costs. Today’s definition of inflation as measured only by the CPI only captures item 4, but we all recognize items 1 and 2 and refer to these as “asset bubbles." Relative inflations include: 5. Growth in debt compared to wealth 6. Growth in interest charges compared to income 7. Growth in living costs compared with income. Everybody now recognizes that item 5 describes the last two decades, and it appears that, with rising costs of vital food and energy commodities, item 7 would appear to apply today. As debt costs rise, like those in Greece, we know that item 6 is also real. So, of the seven kinds of inflation described by this 1937 work, we easily recognize six of them. Of those six, two are commonly referred to as “asset bubbles” (items 1 and 2), and three are recognized as economic problems, but not categorized as inflation (items 5, 6 and 7). Only one, rising general prices and living costs (item 4) is, today, actually called “inflation." Who Is Right? As could be expected and briefly described above, the government (Geithner, Bernanke) is in the camp that denies that inflation is a real issue. They will defend this position as long as they have an argument that is even mildly credible. And there are a whole set of well-respected economists who believe that inflation isn’t an issue to worry about. David Rosenberg (Gluskin Sheff), for example, believes that deflation is a bigger threat because of stagnant real incomes, high debt levels, and significant balance sheet issues for America’s consumers due to the real estate depression. On the other hand, there are those pro-inflationists who point to $4/gallon gasoline and rapidly rising food prices, which they blame on QE1 and QE2, as proof positive that inflation is rampant. So, who is right? Actually, both are. Rosenberg’s “deflation” is a “standard of living” concept. One might categorize it as close to Skinner’s “relative” inflation concept (item 7 above – incomes not keeping up with prices), while the pro-inflationists are referring to one of Skinner’s “absolute” inflation concepts (item 4 above – rising general prices and living costs). Cost-Push Inflation Cost-push inflation is the kind that some American’s may remember from the 1970s. Cost-push inflation is generally caused by input factor “shortages," usually labor. These could be real shortages or contrived shortages. They are real if the economy is operating at full or near full employment. And the mild inflation we experienced in the early part of the last decade could possibly be attributed to such shortages. In the 1970s, they were contrived. At that time, unions were much

7/5/2011 11:00 AM


The Concept Of Inflation As A Measure Of Standard Of Living | Markets |...

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http://www.minyanville.com/articles/print.php?a=35056

stronger than today, and they could tie wage increases to an increase in the CPI measure. As companies raised prices to protect profit margins from increasing wages, another round of wage increases resulted. A vicious cycle had been created, one that could occur even when the economy was not operating with full employment. Thus, the term “stagflation” was born. We clearly do not have this type of inflation today. First, unions represent a much smaller percentage of the employed labor force. And, the industries in which they are strong are all either struggling (e.g., autos, or government employees) or are highly cyclical (construction and transportation). Unions, today, do well just to hold wages and benefits at current nominal levels, and, most are making concessions. Asset Bubbles The next type of inflation, asset bubbles, has little to do with capacity constraints or restricted production inputs. This generally occurs when a particular asset or class of assets begins to rise in price usually due to some basic economic change (innovation, government policy etc.), and early players in the bubble make “easy” money. A large swath of the public is attracted to the game and asset prices are bid up to a crescendo peak, with each player having little use for the asset itself except to “flip” it for a quick profit. Such bubbles always end in disaster for the late entrants, and oftentimes for those who weren’t even playing. The recent US housing bubble and the dot-com bubble are two good examples. Some say that QE1 and QE2 has turned the current equity market into another such bubble. That remains to be seen. Currency Depreciation Depreciation of the currency relative to other currencies is another significant source of inflation. This source could be significant for a country that imports a large amount of vital commodities and other goods and services. The US falls into this category with large importations of oil and manufactured goods. The work of Raphael Auer (Raphael Auer, "Exchange Rate Pass-Through, Domestic Competition and Inflation: Evidence from the 2005/2008 Devaluation of the Renminbi", Working Paper No. 8, Federal Reserve bank of Dallas, January, 2011) another Fed economist (Dallas), indicates that because of the volume of Chinese imports and their resultant weight in American's inflation indexes, the appreciation of the yuan would "substantially alter the competitive environment on many US markets and consequently lend to widespread inflationary dynamics." Thus, as the dollar falls in value, the dollar cost of imported goods rises. And, since the dollar is the world’s reserve currency, and most international trade is done with dollar payments, dollar weakness is a significant source of inflation. With real wages stagnant and median household income down to 1997 levels in real terms, the increases in the prices of energy and imported manufactured goods have lowered the standard of living for most Americans. Conclusion In conclusion, "inflation" in the standard-of-living sense is clearly a problem today. Unlike cost-push inflation, this is not a self-feeding spiral. So, the statements of government officials, like Geithner and Bernanke, that proclaim that the “inflation” is "temporary," are not exactly false, but they are misleading. This “temporary” inflation will end when the dollar stops falling in value. But, when will that happen? That will happen when the financial repression of interest rates and money printing by the Federal Reserve ends and a real solution to the structural fiscal deficit is crafted. Given the nature of politics in the US, those events may still be a long way off. Unless there is some international disaster that causes a run to the dollar as a safe haven (a phenomenon that appears to be getting weaker and weaker), the “temporary” time frame may be significantly longer than the rhetoric implies. The price of gasoline can, and as of this writing, has moved downward from its $4/gallon level, due mainly to falling demand. But, because of dollar weakness, it is unlikely to fall to where it was a year ago. And, even if the dollar’s value stabilizes, all this means is that prices stop rising, not that they return to their lower levels. Clearly, without commensurate rises in wage and income levels, the standard of living will continue to fall. It is a disservice to Americans to assure them that "inflation" is "temporary," and therefore not a policy issue when there is ample evidence that the very policies of the government (money printing and uncontrollable deficit spending) are the root causes of the declining standard of living and are unlikely to be reversed anytime soon.

Editor's Note: This article was written by Robert Barone, head of Ancora West. Barone currently serves on AAA's Finance and Investment Committee which oversees $5 billion of investable assets.

No positions in stocks mentioned. The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the

7/5/2011 11:00 AM


Greek Euro Exit? More Pain Than Gain | International News | Print Financi...

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International

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Greek Euro Exit? More Pain Than Gain Robert Barone 06/01/11 - 07:00 AM EDT

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. NEW YORK (TheStreet) -- In a recent blog post, we argued that, despite her credentials, Christine Lagarde may not be the best choice for heading the International Monetary Fund (IMF). This is because of her bias to protect the French, German and European banks from the losses they will have to take in a Greek default. We also think she will pursue the same "extend and pretend" policies that were put in place a year ago rather than face up to the fact that we are dealing with insolvency, not temporary illiquidity.

The Moral Hazard Expectation It is clear that Greece will never be able to repay its debt in today's euros, and European banks are clearly in jeopardy. Yet the market has yawned, and European bank equity values have been untouched. A comment received from a colleague regarding that blog post read, in part: If she [Lagarde] gets into position and kicks the ball down the road a ways, it will only be to give these big banks a chance to off-load and write-off Greek credit over a few years which will make it more palatable when the time comes to restructure. The market appears to have much the same attitude expecting the governmental institutions to save the "systemically" important financial institutions. Moral hazard is now the expectation. Not only are all depositors implicitly protected, but so are the shareholders, bondholders and the managements. We always thought that investing was a risk-reward business. Investments that fail are supposed to penalize the investor through a monetary loss. There isn't supposed to be a floor of book or par value supported by public funds. The Implications of Additional Austerity We suspect the reason for the kid gloves treatment is that the alternatives inflict too much short-term pain. As mentioned above, a Greek default significantly impacts most large European banks. Rather than recognize the impairment of the investments in Greek debt, in exchange for additional monetary support, the European Central Bank (ECB) and IMF will likely impose even more stringent austerity measures on Greece than the ones that currently exist and cannot be met. What isn't factored in is the impact this will continue to have on the Greek economy and its population. It was only 10 years ago (2001) that the government of Argentina was compelled by the IMF and other large institutional debt holders to apply more and more austere measures on its economy in order to pay back debt. In December 2001, the austerity imposed was met by protests that quickly erupted into revolution, governmental overthrow, and eventually a tacit default. Is this where we are heading again? Given the resistance of the Greek populous to the existing imposed austerity, additional austerity could trigger a popular uprising and result in a Greek exit from the European Monetary Union (EMU), i.e., the euro, or from the European Union (EU) itself. The founding Maastricht Treaty (1992) and original amendments didn't discuss provisions for a member's exit from either the EMU or the EU. The Treaty of Lisbon (2009) does allow for an exit from the EMU, but that appears to be predicated on a negotiated rather than unilateral withdrawal. It is clear, however, that the EMU was meant to be an irreversible arrangement.

7/5/2011 11:10 AM


Greek Euro Exit? More Pain Than Gain | International News | Print Financi...

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(For a detailed discussion, see P. Athanassiou's ECB working paper entitled "Withdrawal and Expulsion from the EU and EMU." The "New Drachma" Putting aside the legal questions, an exit from the EMU and formation of a new Greek currency (call it the "New Drachma") has its own set of troubling issues. Once again, a look at the recent Argentine experience is enlightening. A decision to leave the EMU would need to be done quietly, as public knowledge would cause a run on the banks to acquire euros causing nearly instant failures in the banking system. So, severe restrictions on euro withdrawals would have to be imposed, like the much hated "corralito" that was imposed in Argentina in 2001. That government imposed policy restricted withdrawals to a nominal amount per week. This was a key repression that led to the social unrest, riots, and the eventual toppling of the government. Next, Greece would need to decide what to do with its debt. Hard choices would have to be made on externally held debt. Any attempt on the part of the Greek government to convert externally held debt to the new currency on a 1:1 basis would be met with massive resistance. Keeping external debt denominated in euros would become crippling as the value of the "New Drachma" would immediately devalue in the forex markets. And, all of the "extend and pretend" would be for naught, as the Greek sovereign assets on the balance sheets of the banks would be repaid in a devalued currency. Impairment is Inevitable Thus, the results of an imposed austerity likely leading to a Greek exit from the EMU are the same as a simple recognition on the part of those banks that hold Greek sovereign debt that those assets are impaired. Facing up to this basic problem would seem to be a better than the current "extend and pretend" approach in which we ultimately end up in the same place, but without the social unrest and bloody carnage that accompanies it. Recognizing today's value of the Greek debt on financial institution balance sheets is called "transparency." Accounting standards, both in the U.S. and internationally, have been pushing for transparency for two decades. Yet, now, governments are madly scrambling to cover up the true values of such assets on the books of their "systemically" important institutions. There are also tens of billions of dollars of Credit Default Swaps (CDS) outstanding on Greek sovereign debt. Regulators failed to deal with the capital issue in the CDS marketplace in the aftermath of the 2008-2009 AIG meltdown, so it is impossible to predict the effects of a Greek default on this marketplace because there is no information on CDS counterparties and their capital positions. But we suspect these markets, being unregulated, continue to be over-levered. "Extend and Pretend" Causes Stagnation The interconnected nature of today's global financial system implies that many other banks around the world face asset impairments and a need for more capital. Many banks could fail. The stockholders and bondholders of these institutions should suffer losses, and not be recipients of the "moral hazard" of government protection. There will be terrible short-term pain. But, history shows that the pain of balance sheet depressions, while severe, is short-lived. The system returns to health with huge lessons learned about risk. "Extend and pretend" only imposes a long-term period of economic stagnation as the cancers on bank balance sheets fester. Japan's is a 20-year example of the impact of unrecognized bank losses on the economy. In an interview given to Investors Business Daily ("Slow Growth Normal For Post-Fin'l Crisis Recoveries," Norm Alster, May 23, 2010) by Vincent Reinhart regarding the paper he recently wrote with his wife, Carmen, concerning the aftermath of 18 financial crises (see After the Fall, Aug. 17, 2010), in Japan, "the banks were allowed to carry bad assets on their books at inflated values." As a result, "property prices have declined for 20 years." As an overview, Reinhart concluded that "the government's willingness to let banks carry bad debt rather than force them to take losses tends to stretch out the process of deleveraging. When you let banks carry their assets at high values relative to their market values, it freezes that market." His prescription: "Recognize the losses ... take the hit." Since it appears that the inability to restart America's economic engine is partly due to bank balance sheet impairment, why is Europe about to go down the same road? Readers Also Like: Savor Cheap Gas Prices While You Can The Eurozone's Lessons for the U.S.

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7/5/2011 11:10 AM


Greek Euro Exit? More Pain Than Gain | International News | Print Financi...

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7/5/2011 11:10 AM


Why Lagarde at IMF Is Bad for U.S., World Economy: Opinion | Opinion...

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http://www.thestreet.com/print/story/11134672.html

Opinion

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Why Lagarde at IMF Is Bad for U.S., World Economy: Opinion Robert Barone 05/26/11 - 10:15 AM EDT

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. NEW YORK (TheStreet) -- One blog called it a "Battle Royale," as Christine Lagarde, France's Finance Minister, announced her candidacy for the IMF's top job. That job has always been held by a European. But the heads of the emerging economies believe that they are the engine of the world's future economic growth, a very strong and convincing argument.

Christine Lagarde, France's Finance Minister Yet, the most pressing issue for the IMF, and, many, including myself, believe for the world, is the European debt crisis. Europe's financial system could very well collapse if a Greek default is followed by a default from Ireland, Portugal or Spain. This could easily trigger another worldwide financial panic if foreign financial institutions behave like they did in the 2009 crisis and refuse to provide liquidity to their brethren. Worse, any default could very well trigger a crisis that goes well beyond the banking system if the collection of bets on credit default swaps (CDS) causes liquidity and solvency problems with the issuing institutions. Because CDS are not well regulated, we simply do not know what risk they carry in a financial meltdown. It seems then that managing Europe's debt crisis to the best of a bad lot of solutions is the most important financial issue facing the world today. There is an underlying assumption that a European, like Lagarde, would be best suited to head the IMF in such an environment because only a European would be in a position to completely understand and address the problem. I question this assumption. >> Lagarde Makes Sense for the IMF: Opinion The French and German banks face liquidity and possible solvency issues if Greece defaults and dominos begin to fall. Will the former French Finance Minister be able to make decisions that carry heavy short-term pain for European banks and economies if that is the best long-term solution? Or will she advocate continuing to treat this as a liquidity crisis (which it is not -- it is a solvency crisis) and kick the can further down the road like the IMF and ECB did a year ago with the original Greek debt crisis? Perhaps a new approach would be best in the long-run. Perhaps an IMF head without ties to Europe would be able to advocate for the best solution, no matter how painful. While she has financial credentials, Lagarde is first and foremost a consummate politician. I doubt she would have announced her candidacy without first enlisting support and assessing that she is the odds on favorite. While the emerging nations have a very strong argument for their position, they are not united on a candidate. Within their own group, they appear to be regionalized. Mexico's candidate, Agustin Carstens, would appear to have Western Hemisphere support. Russia has put forth its own candidate, Gregory Marchenko. The table below shows IMF voting percentages by country. I have divided the table into three sections: those likely to support Lagarde, those likely to support Carstens, and unknown. Conspicuously, I have put the U.S., with the largest vote (16.74%) into the "unknown" column. Like it has done so often since its assumption of power, the Obama administration is non-committal,

7/5/2011 11:07 AM


Why Lagarde at IMF Is Bad for U.S., World Economy: Opinion | Opinion...

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waiting to see which way the wind is blowing (Geithner: Both Lagarde and Carstens are "credible"). You can see from the table that the wind is clearly at Lagarde's back. She likely has 30% of the vote right out of the box with Carsten's a long shot with only 4%. If we take the U.S. out of the analysis, she only needs 42% of the remaining vote (i.e., without the U.S.) to win. I suspect that, as the U.S. assesses the wind, it will align with her. As a result, over the next few months, if she is the IMF's new head, as seems inevitable, the solution to Europe's debt crisis is likely to be more of the same: treat the crisis as a liquidity crisis instead of the solvency crisis that it is, kick the can further down the road, and hope for a miracle. Readers Also Like: >> Chevy Volt and the Art of Driving for Free

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7/5/2011 11:07 AM


IMF Needs to Address EU Insolvency Issues | Opinion News | Print Financ...

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Opinion

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IMF Needs to Address EU Insolvency Issues Robert Barone 05/19/11 - 09:52 AM EDT

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage. NEW YORK (TheStreet) -- The IMF is the key organization in the world's complex currency system. It was founded in the immediate post-World War II period (Bretton Woods) and is an important regulator of the currency system now that the world's major currencies are all fiat (no real asset backing or restraints).

To date, the IMF has played a key role in dealing with the debt issues surrounding the EU's weak sisters. If Greece is allowed to default, the Greek banks will all become insolvent, virtually guaranteeing a long-term depression in that country. The European banks, which hold $72 billion of Greek debt and $165 billion of loans to Greece's private sector, could muddle through a Greek default, but most would be severely wounded -- with significant consequences for European growth in the near term. Now, here is the crux of the issue. If Greece is allowed to restructure, what is to prevent Ireland from following suit? Look at the exposure of the European banks to Ireland: Germany: $215 billion France: $82 billion Great Britain: $237 billion ECB: $244 billion If Greece were allowed to default, the European banks could not handle an Irish, Portuguese, or Spanish default. So, now the importance of the IMF should be perfectly clear. Dominique Strauss-Kahn has been an important player for the IMF in dealing with all of these debt issues, and, it remains to be seen if his absence will have an impact. >> Time to End Europe's Hold on IMF Leadership? My own personal view is that default and a restructuring of the debt of these weak nations is inevitable. The solutions offered, so far, have treated these debt issues as if they were only liquidity problems instead of what they really are -- solvency issues. Eventually, the insolvencies need to be addressed, and with it, the very survival of the EU itself.

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7/5/2011 10:51 AM


IMF Needs to Address EU Insolvency Issues | Opinion News | Print Financ...

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7/5/2011 10:51 AM


http://www.thestreet.com/story/11111405/1/us‐policy‐hurts‐community‐banks‐opinion.html    

U.S. Policy Hurts Community Banks: Opinion May 12, 2011 NEW YORK (TheStreet) -- Job creation remains the No. 1 economic and political issue of today despite the better-than-expected April employment data. No amount of fiscal stimulus and excess reserve creation appears to be stimulating significant jobcreation. And most politicians are baffled as to why. The monetary and fiscal medicine administered may have worked within the institutional structures of the past, but those structures have radically changed. Part of the jobs issue is right in front of our noses. Simply put, the rapid changes in U.S. financial institutions over the past 25 years have been detrimental to job creation in the U.S., because capital is no longer readily available to the entrepreneurial small business sector, widely acknowledged to be America's engine of job creation. The Changing Financial Landscape From 1983 to 1989, the number of new community bank charters averaged 297 a year. In the 90s and throughout much of the last decade, the average was more than 130 a year. Since the financial meltdown, however, new charters have all but disappeared. There were 29 in 2009, and only one last year. Meanwhile, community banks have been disappearing over the past 25 years through consolidation, driven partly by over-regulation, and, lately, by outright failures. In 1984, there were 14,507 commercial banks, and nearly all were community banks. At the end of 2009, that number had fallen to 6,840. At the same time, the big have become gigantic. The table below shows the percentage of U.S. deposits of the largest banks in 1994, and then for 2009. Percentage of Total Bank Deposits The 1994 Riegle-Neal law allowed banks to cross state lines to build branches or purchase other institutions without restrictions, but it put a 10% cap on deposits for any single institution. There were loopholes, one of which allowed banks to exceed the 10% limit doing so was caused by taking over a failing institution. So, the last few years have seen a feeding frenzy for the megabanks. For example, Bank of America(BAC_) absorbed Merrill Lynch soon after it purchased Countrywide, whileJPMorgan Chase(JPM_) acquired Washington Mutual, and Wells Fargo(WFC_) took on Wachovia. Clearly, what was considered "large" in the 90s is now dwarfed by these whales.


http://www.marketwatch.com/story/gold‐investing‐what‐to‐do‐and‐how‐to‐do‐it‐2011‐04‐15      

Gold investing: what to do and how to do it April 15, 2011

SAN FRANCISCO (MarketWatch) — Investors can still make a lot of money in the gold market — or prevent losing it, if they do their homework before they wade through a sea of investment choices. Gold has been in a volatile trading environment, to say the least, with prices repeatedly climbing to new heights since 2008, only to lose big chunks of those gains in a single day. Deciding what to do with gold and how to do it has been a challenge even for seasoned investors. After all, gold investment choices come in many different forms: bars, coins, jewelry, futures and options contracts, exchange-traded funds and gold mining shares. “The good news for gold and silver is the ‘mother’ of all bull markets has further to go,” said Peter Grandich, editor of The Grandich Letter. “The bad news is the opportunity to double or triple one’s money is behind us.” So what’s an investor to do? For one thing, don’t rush to sell. If you’re thinking of cashing out, carefully consider your options and have a good reason before you do, say most experts. “While gold and silver have been relatively volatile in recent weeks, they have remained solid long-term uptrends,” said Brien Lundin, editor of Gold Newsletter. “These uptrends are based on fundamental economic and monetary issues — primarily too much currency floating around the world, the continuance of accommodative monetary policies, and governmental debt concerns so large that they cannot be addressed without higher levels of inflation to eat away at their values.” That all means the long-term picture looks bullish for both gold and silver, “although the wiggly lines that make up the bigger uptrend will provide better times to buy and sell the metals,” he said. He wouldn’t recommend that investors sell their core holdings in the metals. He advises investors to “hold some gold and silver bullion as financial ‘insurance’ — a core holding that they shouldn’t trade.” That seems to be great advice, given the mostly upbeat outlook for higher gold prices. Gold has reached record levels, but it “remains a long way from its real inflation-adjusted high of $2,400 an ounce seen 31 years ago,” said Mark O’Byrne, executive director at international bullion dealer GoldCore. And “whether gold will fall or not, at some stage, is irrelevant if one is buying for portfolio diversification, safe haven and store of value reasons.”


Big decision So the best way to make the right decision to buy, sell or hold gold is to first fully understand investment goals. Are you looking at gold as a short- or long-term investment and why? “Sell out completely if you believe that gold is in a bubble and any slowdown in worldwide economic growth will cause commodity prices, including gold, to tumble as inflationary expectations come down,” said Robert Barone, a partner and portfolio manager at Ancora West Advisors in Reno, Nev. Or “stay completely in (or even add to your holdings) if you believe that the U.S. dollar will continue to get weaker due to inflationary economic policies.” “If you aren’t sure, take some off the table,” he said. “Sometimes, it is a good idea to take your investment out (or reduce it) and ‘play’ with the house’s money,” and you can do that by selling part of your holdings outright, setting stops underneath the current market price or using options. That gradual approach may be a good choice. If you’re not so confident over where gold prices will head next, you can “average in,” said Edmond Bugos, director of mining finance at Strategic Metals Research & Capital. If you want to buy $100,000 worth of gold, but think gold prices are too high and aren’t sure prices will come down, you can buy $20,000 today, $20,000 in a week and $20,000 in another week and so on, he explained. “This lowers your risk a little … and can get you a good average price,” he said. So “averaging in” is “a good way to get your feet wet if you don’t have the patience to wait out the dips and corrections.” Selling with confidence But some investors will feel they have no choice other than to sell their gold for some quick, much-needed cash. “If you need cash, now is the time to take gold off the table,” said Tom O’Brien, chief executive officer of investor educational services provider TFNN.com. If you do decide to sell, getting a fair price won’t be easy. “It is imperative that the investor do their homework when selling gold,” said O’Brien, who’s also editor of The Gold Report. “If the investor owns an ETF, or gold company … they will get fair market value.” Gold ETFs include the SPDR Gold Trust GLD +1.33% , ETFS Gold TrustSGOL +1.30% and iShares Comex Gold Trust IAU +1.30% . Year to date, all three have gained nearly 4%, close to the rise seen in gold futures prices for the period. John O’Donnell, chief knowledge officer at the Online Trading Academy, referred to ETFs as “safe,” but said he’d prefer to own coins rather than gold mining shares. “Gold is money. A mine is a business [that] can suffer operating losses.” Indeed, there’s a lot besides the actual price of gold that may move the stock price for gold mining companies, said Ancora’s Barone, including the company’s financial condition, debt levels, the quality of its management and existing mines, its exploration outlook, environmental issues and taxes.


Year to date, Barrick Gold ABX +0.48% , the world’s largest gold producer, has seen its shares climb about 0.5% compared with a nearly 4% rise in gold futures GCM11 +1.40% . The real thing When it comes to physical representations of gold, selling and buying become trickier. Selling an ETF is as simple as calling a broker. But “a little more research may be warranted if you have a coin,” said Mike Savage, a chartered financial consultant and founder of Savage Financial Group in East Stroudsburg, Pa. “There are many different values for the same coin based on the condition and scarcity of the coin. While buying and selling coins, the person with the most knowledge will usually win the negotiation.” A coin dealer has overhead and needs to make a profit, according to Barone, so investors would need to “pay anywhere from a 3% to a 20% (or more) premium to buy and suffer a similar discount when selling.” David Beahm, a vice president at precious-metals retailer Blanchard & Co., says gold and silver bullion coins are “sold for only a small margin above the spot price.” Some dealers, however, advertise new bullion products as numismatic investments — in other words, they have special value to collectors — and so charge a much higher premium than is typically charged for a bullion product, he said. “The reality is that these new mint products should have a value that correlates close to their precious metal content.” Read more about gold investment basics. Melt value Meanwhile, with gold prices at historic highs, consumers are starting to look at their old jewelry as a source of cash. Cash4Gold, a Pompano Beach, Fla.-based mail-in refinery that buys precious metals directly from consumers, has become a popular, sometimes criticized, means for consumers to monetize unwanted jewelry. A company spokesperson said Cash4Gold “bases its offers to consumers on daily gold prices, the quality of gold being offered and the quantity,” and consumers have 12 days from the date on the check to accept its offer or request their items back, promptly returned, insured and free of charge. Read more about selling jewelry. Gold Newsletter’s Lundin said consumers should not be tempted to simply cash the check they get from mail-in services, but take their time and “check with a number of local dealers” to get the best price. When it comes to selling that old jewelry for its gold, TFNN.com’s O’Brien said the client should be getting about 80% of the melt value. “The majority of dealers give way below that level because the public just doesn’t understand what they have is valuable,” he said. But “a very small amount of gold is worth big dollars. It doesn’t matter what shape it’s in.”


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