Gold soars on news of disappointing job numbers

June 1, 2012

Just as the employment numbers have had a reversal in fortunes, gold has seen a reversal as well. Gold is up sharply this morning on the news…

US economy added 69K jobs in May, fewest in a year

US economy added 69,000 jobs in May, fewest in a year; unemployment rate rose to 8.2 percent

http://finance.yahoo.com/news/us-economy-added-69k-jobs-123227249.html

WASHINGTON (AP) — The U.S. economy suddenly looks a lot weaker.

U.S. employers created only 69,000 jobs in May, the fewest in a year, and the unemployment rate ticked up.

The dismal jobs data will fan fears that the economy is sputtering. It could also damage President Barack Obama’s re-election prospects. And it could lead the Federal Reserve to take further steps to help the economy.

The Labor Department also said Friday that the economy created far fewer jobs in the previous two months than first thought. It revised those figures down to show 49,000 fewer jobs created. The unemployment rate rose to 8.2 percent from 8.1 percent in April, the first increase in 11 months.

Dow Jones industrial average futures, which were already down 100 points before the report, fell an additional 100 points within minutes of its release.

The yield on the benchmark on the 10-year Treasury note plunged to
1.46 percent, the lowest on record, suggesting investors are flocking to the safety of U.S. government bonds.

The price of gold, which was trading at about $1,550 an ounce before the report, shot up $30. For much of the past three years, investors have seen gold as a safe place to put their money during turbulent economic times.

Josh Feinman, global chief economist with DB Advisors, said the report raises the likelihood that the Federal Reserve will do more — perhaps start another round of bond purchases to further lower long-term interest rates.

Still, he noted that the rate on 10-year Treasury notes is already at a record low 1.46 percent.

“How much lower can long-term rates go?” Feinman said.

The economy is averaging just 73,000 jobs per month over the past two months — roughly a third of 226,000 jobs created per month in the January-March quarter.

Mitt Romney, Obama’s Republican challenger, has made the economy the central theme of his campaign. No president since the Great Depression has sought re-election with unemployment as high as 8.2 percent, and past incumbents have lost when the unemployment rate was on the rise.

Republicans wasted little time seizing on the bleak report.

“Today’s extremely troubling jobs report proves yet again that President Obama’s policies simply are not working and that he has failed to live up to the promise of his presidency,” said Republican National Committee Chairman Reince Priebus.

There are signs business confidence is waning. Companies have cut their spending on computers and machinery for two straight months, goods that signal investment plans. And some regional surveys suggest the factory activity is expanding at a slower pace.

Consumers are also more downbeat about the economy, according to a May survey from the Conference Board. That could lead more Americans to cut back on spending, which drives 70 percent of economic growth.

Construction firms cut 28,000 jobs, the steepest drop in two years.
Professional services, government, hotels, restaurants and other leisure industries also lost jobs.

Not all industries cut jobs. Manufacturers added 12,000 jobs.
Transportation and warehousing created nearly 36,000.

Businesses are facing a growing threat from Europe’s financial crisis, which has worsened in recent weeks. The crisis is driving up borrowing costs for Spain and Italy and spreading to the banking system. Greece could be forced to exit the euro, which could push the region into a sharp recession. That could limit U.S. growth.

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Daily Reckoning: Musings on the Work of Harry Browne

April 27, 2012

By Eric Fry

04/26/12 Denver, Colorado – After a quick whistle-stop tour through Chicago and Atlanta, your California editor’s Pullman screeched to a halt in Denver, Colorado last night. Upon arrival, he stepped down from his Pullman, which bore an uncanny resemblance to a Boeing 757, hailed a porter, which bore an uncanny resemblance to a conveyor belt, climbed into his awaiting Packard Phaeton, which bore an uncanny resemblance to a Ford Fiesta rental car…and rolled down the motorway to his father’s house.

Your California editor’s father turns 88 years old in one week, so your editor took the occasion to stop in and wish Dad an early Happy Birthday! But let’s not let these modest festivities stand in the way of our daily reckonings…

A few weeks back, your team here at The Daily Reckoning highlighted the groundbreaking work of Harry Browne, creator of the Permanent Portfolio.

“A few decades ago,” we remarked, “a guy named Harry Browne devised an investment strategy he dubbed the ‘Permanent Portfolio.’ The idea was so simple it seemed almost moronic. And yet, with the passage of time we have discovered that his idea was pure genius.

“He suggested building an investment portfolio out of only four components: gold, bonds, stocks and cash.

The Permanent Portfolio

“The idea was that at any given time, two or three of these four components might underperform — but the other portfolio components would perform so strongly, you’d get an overall gain that would outpace any increase in the cost of living. Incredibly, this simple strategy has delivered some surprisingly strong investment results.”

After providing more detail about the history and underlying philosophy of the Permanent Portfolio, we invited our Dear Readers to ask themselves the following questions:

1) Is Harry Browne’s original allocation still ideal for today’s macro-economic environment?
2) If not, how would you revise his original allocation for the next 30 years?

We called this little exercise the Daily Reckoning Group Research Project and as usual, our Dear Readers responded with some fascinating suggestions.

Several readers struggled to comply with the rules of the Group Project. For example, some readers could not stop themselves from recommending specific companies; others argued that some of the very best Permanent Portfolio allocations do trade on a public exchange.

One such reader suggested buying grazing land as part of his Permanent Portfolio. Another recommended buying a house. And a third named potash as one of his allocations. We sympathize with these readers who “drew outside the lines.” The financial markets do not possess a monopoly on attractive investment opportunities. We also sympathize with those readers who could no longer stomach the idea of buying Treasury bonds as a “risk free” allocation.

“Mr. Browne’s formula was based on the idea of a functioning and fair government and not a criminal enterprise,” writes a reader named Kent. “I would bet he would eliminate most government bonds since today they really are nothing more than counterfeit and would substitute ammunition, food or fuel.”

A reader from Buenos Aires (not Joel) offers a similar observation. He points out that the Permanent Portfolio mutual fund (PRPFX) has held a large position in both US Treasuries and Swiss bonds. “[This allocation] has been great so far in this über bond bubble. But will it stand the test of time?… I looked at the permanent portfolio’s performance in this century, which yields an increase of about 130%… However, looking at its performance from 1996 to 2002 is quite disappointing. Moving around like a cork on the water’s surface, just bouncing around in the waves. It takes off in 2002, when Greenspan lit the fuse beneath the bond bubble. What will happen when the bond bubble ruptures?”

Not surprisingly, most of the folks who had no use for Treasuries had plenty of use for hard assets.

“Dear Harry (RIP). Things are different now while the dollar is dying,” writes a reader named Susan. “It’s all ‘risk on’ as the world hangs in the balance… You must have your own grocery store at home… I want to be able to put my hands on at least a few of the things I need. All the clouds out there storing my stuff for me make me very nervous and I hope to end up with more than vapor and fumes at the end of the day.”

“There might have been a time when the permanent portfolio idea may have worked,” writes a reader named Ken, “but I believe that time has passed, which is why we avoid most bonds and buy gold and silver.”

A reader named Carl concurs. “I do not believe in a ‘permanent’ portfolio,” he writes, “because things work in cycles as you surely know… We are in our sixties and plan to stay conservative and just continue to buy silver bullion each month (dollar cost average). We have had more than a few of our stocks go to zero but we know that gold and silver, especially today, will never even approach that point… Mundus vult decipi, ergo decipiatur. (‘The world wants to be deceived, so let it be deceived’)”

Hard assets were not the only crowd favorites, however. Many readers suggested investing in real estate investment trusts (REITs) and other types of high-dividend-paying stocks. Biotech stocks also seemed to be a favorite.

So without further ado, here is a sampling of the Permanent Portfolios you submitted in response to the latest Daily Reckoning Group Research Project…

Eric Fry
for The Daily Reckoning

 


Munis & The Coming Crisis

February 10, 2011

Meredith Whitney sounded an alarm on the Municipal Bond market back in December 2010.  Yesterday, Jim Chanos of  Kynikos Associates sounded off stating the state situation is ominous, and that in a sense they are insolvent.

Munis have long been the safe-haven for the diversified investor but with the impending failure of the Muni Markets, Gold and its current bull run can fill the  safe-haven gap a Muni collapse would create.

 

from CNBC: Fund Manager Jim Chanos, advid Cheeshead, at this years Superbowl.

Read more: Jim Chanos: The Muni Situation IS Ominous, And These States Are Basically Insolvent