Is Gold Rally Finally Over? What History Tells Investors

Published: Monday, 26 Sep 2011 | 12:25 PM ET

Gold's toppling from record highs, culminating in Monday's huge price plunge, has investors asking whether a decade-long bull run is over. History would suggest that while gold has taken a beating, it is far from down and out.

Monday's tumble to around $1,535 an ounce dragged prices 20 percent below the record $1,920 reached this month. But since its rise from just over $250 in early 2001, gold [XAU=  1623.89    -2.96  (-0.18%)   ] has bounced back from bigger drops, having fallen 25 percent between May and June 2006, and 27 percent in October 2008. 

The 2008 episode saw gold treated like any other high risk asset when the collapse of Lehman Brothers sparked heavy selling across financial markets in a widely-documented "dash for cash"—after which it bounced back hard to record highs. 

"Gold and other real assets are not immune from global sell-offs, and this is a textbook example we are seeing now," said Bayram Dincer, an analyst at LGT Capital Management. 

"If you want to draw an analogy, look at 2008, when the Lehman fall saw gold collapsing around $250. The markets are in this 2008, global post-Lehman sell-off mode." 

In the short term, the sharply higher volatility in gold typified by Monday's trade will have battered its already tarnished reputation as a haven. Prices could have further to correct, given their hefty run-up of recent months. 

But expectations that, longer term, other asset classes could prove still more of a risk, coupled with the low interest rate environment, are likely to push prices higher when selling peters out. 

While gold may be seen as less of a haven than in the days before $50 daily price moves became a regular feature of the market, it is hardly alone in seeing heightened volatility. 

"Clearly any move like this is going to make people at least question the assumptions they had that any euro zone stress might be positive for gold," said David Jollie, an analyst at Mitsui Precious Metals. "General financial market volatility is a threat to any asset." 

Riskier assets

 

The euro, stock markets and raw materials such as oil and copper have all posted losses this month as investors sold these nominally riskier assets in response to growing concerns over the euro zone debt crisis. 

Gold seemed to have reached a tipping point as worsening financial market conditions forced some investors to realise fat profits in the metal to cover losses elsewhere, and on a rush to the greater liquidity of the dollar and Treasurys. 

"For now, investors are only finding comfort in the relative safety of cash," said UBS analyst Edel Tully. 

These kinds of fears usually benefit gold, so its switch in role from haven to source of funds shows not only how much stress the financial markets are under, but also how overstretched the metal had become. 

Signs that gold was ripe for a correction were rife after its sharp rally to record highs in early September—which saw it surge by 28 percent in just over two months—was followed by a period of intense volatility.

"The rise in volatility taking place in the gold price was clearly an indication that gold was no longer a low-risk asset," said Natixis analyst Nic Brown. 

"We are unwinding much of recent move over last two to three months. It's too early to say whether it's the big burst. It could be, but it's equally possible that it could be what allows the market to push over further highs over the next few months." 

Long-term investors hold on 

Holdings of gold-backed exchange-traded funds have remained relatively steady during recent sell-offs, suggesting they have been reasonably resilient to short-term moves. 

Analysts say recent sharp price moves are a likely result of repositioning by large institutional investors like hedge funds. But these are not the only, or even the main, buyers of gold. 

Small-scale retail investors, particularly Asian buyers looking for a store of wealth and a hedge against inflation, have also been key bullion buyers, and are likely to remain so. 

In the short term, investors are likely to be wary of "catching a falling knife," and buying into the market before the correction has fully run its course. But they may be swift to do so as prices stabilize, analysts predicted. 

While gold's retracement was sharp, spot prices are still up 7 percent this quarter, and nearly 14 percent on the year, despite the failure of a number of key risk factors, like fears of a U.S. default or fresh monetary easing, to materialize. 

"In Q4 2008... the gold price fell by 25 percent over a fairly short period," said VM Group analyst Carl Firman. "But it does tend to recover at significantly higher levels." 

"I think what you will see could be a gold recovery very similar to the one you saw in Q1 2009, when the gold price recovered long before other assets hit bottom," Firman said.

"We are still looking at a high inflationary environment, we are looking at negative real interest rates, there are all sorts of uncertainties out there," he said. "That has got to benefit gold, at some point." 

Copyright 2011 Thomson Reuters.

SOURCE: http://www.cnbc.com/id/44671131 

A Gold Rush Wanes as Hedge Funds Sell

By: Julie Creswell,
The New York Times

 

Is the smart money fleeing gold?  

For the better part of the last two years, some of the world’s biggest hedge funds have been piling into gold, betting the precious metal would provide an effective hedge against inflation or be a safer place to park cash as equity markets around the world stumbled. 

 

But to the surprise of many investors, when equity markets across the globe tumbled once again on Thursday, gold moved sharply lower as well.

Gold futures for September delivery fell $66.30, or 3.7 percent, to $1,739.20 an ounce in New York. It was quite a turnabout for the metal, which has been soaring in recent months amid the turbulent stock markets. 

Hedge funds, which have been ratcheting down their positions in gold futures since early August, were quickly named as the culprits in the latest sell-off. 

Some traders said that hedge funds were beginning to unwind, or close out, what has been a very popular and profitable trade for the last 18 months as they bet the dollar would fall and that gold would rise. In the last month alone, the euro has fallen nearly 4 percent against the dollar amid worries about the European debt crisis. 

The sell-off in gold was part of a broader move in the markets that had investors shifting away from perceived riskier assets, like commodities, and into the dollar in reaction to the Federal Reserve’s announcement on Wednesday of its new stimulus program. 

In addition, the Fed, said that there were “significant downside risks” to the United States economy, which sent several commodities, including crude oil and copper, tumbling on Thursday on fears of a global slowdown in demand. 

Other market participants said hedge funds were selling their positions in gold to raise cash to meet increased capital demands for their borrowings from Wall Street banks as the assets they have put up as collateral, like other commodities or stocks, have declined sharply in value. 

“On the one hand you have a lot of strength in the U.S. dollar, historically gold and the dollar do trade inversely,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research. “The hedge funds are long gold and they need to raise cash and it looks like they are definitely selling some gold.” 

Others say some hedge funds may be selling to meet redemption requests from investors who have been spooked by the recent market volatility and fear a repeat of the problems of late 2008. 

“A lot of investors are waking up to the realization that something is off. We’ve seen Goldman Sachs close its flagship fund, legendary hedge funds are down sharply, and I suspect we’re going to see significant withdrawals from some hedge funds this year,” said Michael A. Gayed, the chief investment strategist of the investment advisory firm Pension Partners. 

“The tendency for individual hedge funds or anybody is to sell winners before they sell losers. What’s been one of the few winners this year? It’s been gold,” Mr. Gayed added. 

Still, some are not yet ready to call the end of the gold rush. Even with the pullback, gold remains one of the most profitable investments this year with a gain of 22 percent. 

Some strategists have even predicted that gold will reach a record of above $2,300, which it hit during the early 1980s when adjusted for inflation and translated into current dollars. Likewise, the world’s largest exchange-traded gold fund, the SPDR Gold Shares [GLD  161.22    -7.83  (-4.63%)   ], fell 2.6 percent on Thursday, but remains up 22 percent for the year. 

Gold, whether through futures contracts or via exchange-traded funds, has been a popular investment among some of the world’s largest hedge funds. One of the best known “gold bugs” is John A. Paulson, whose firm, Paulson & Company, is the biggest shareholder in the SPDR Gold Shares ETF. But many other hedge funds have embraced the metal as well. 

After peaking in early August, hedge funds have been reducing their exposure in the gold futures market, according to Mary Ann Bartels, the head of United States technical analysis for Bank of America Merrill Lynch. 

“A lot of speculators were very long in July,” Ms. Bartels said. “But they’ve been taking it down ever since.”

SOURCE: http://www.cnbc.com/id/44638898

Soros: US Is Already in Double-Dip Recession

Published: Thursday, 22 Sep 2011 | 1:51 AM ET

By: Reporting by Maria Bartiromo, Writing by Antonya Allen, CNBC.com

Billionaire investor George Soros said he believed the United States was already experiencing the pain of a double dip recession and that Republican opposition to Obama's fiscal stimulus plans was to blame for sluggish growth.

Asked by CNBC if he believed the US risks falling into a double-dip recession , Soror said: "I think we are in it already."

"We have a slowdown and basically a conflict about whether the rich ought to pay taxes to create jobs or not and there was a deal in the making which would have balanced the budget over the long term, but would have allowed short-term fiscal stimulus, which would have been the right policy," Soros said in an interview late Wednesday.

"That was rejected, it fell apart… so it will come to the electorate next year to decide what they want," he added.

Euro zone policymakers have repeatedly followed the wrong policy shifts, creating a situation in Europe "more dangerous" to the global financial system than the collapse of Lehman Brothers in 2008, Soros said.

"It is a more dangerous situation [than Lehman Bros] and I think that the authorities, when push comes to shove, will do whatever it takes to hold the system together, because the alternative is just too terrible to contemplate," he added.

A number of smaller euro zone nations  could default andleave the single currency area, Soros said, but he warned if it happened on an ad hoc basis, there would be considerable risk to the global economy.

"I think that you could have two or three of the small countries default or leave the euro provided it is prepared and done in an orderly way," Soros said.

"If it were to happen unprepared it could actually disrupt the global financial system, but that's why it's important to allow for it to happen and then those countries have a genuine choice it doesn't mean they are being pushed out."

Soros said he believed the so-called 'Troika' of the EU, ECB and IMF would release the next tranche of aid to heavily indebted Greece, but he stressed the creation of a European bailout fund would determine whether Greece received another bailout in December.

Obama's jobs speech transcript

Obama's jobs speech transcript September 8, 2011 07:42 PM EDT

THE WHITE HOUSE Office of the Press Secretary September 8, 2011 Remarks of President Barack Obama in an Address to a Joint Session of Congress Mr. Speaker, Mr. Vice President, Members of Congress, and fellow Americans: Tonight we meet at an urgent time for our country. We continue to face an economic crisis that has left millions of our neighbors jobless, and a political crisis that has made things worse. This past week, reporters have been asking “What will this speech mean for the President? What will it mean for Congress? How will it affect their polls, and the next election?” But the millions of Americans who are watching right now: they don’t care about politics. They have real life concerns. Many have spent months looking for work. Others are doing their best just to scrape by – giving up nights out with the family to save on gas or make the mortgage; postponing retirement to send a kid to college. These men and women grew up with faith in an America where hard work and responsibility paid off. They believed in a country where everyone gets a fair shake and does their fair share – where if you stepped up, did your job, and were loyal to your company, that loyalty would be rewarded with a decent salary and good benefits; maybe a raise once in awhile. If you did the right thing, you could make it in America. But for decades now, Americans have watched that compact erode. They have seen the deck too often stacked against them. And they know that Washington hasn’t always put their interests first. The people of this country work hard to meet their responsibilities. The question tonight is whether we’ll meet ours. The question is whether, in the face of an ongoing national crisis, we can stop the political circus and actually do something to help the economy; whether we can restore some of the fairness and security that has defined this nation since our beginning. Those of us here tonight can’t solve all of our nation’s woes. Ultimately, our recovery will be driven not by Washington, but by our businesses and our workers. But we can help. We can make a difference. There are steps we can take right now to improve people’s lives. I am sending this Congress a plan that you should pass right away. It’s called the American Jobs Act. There should be nothing controversial about this piece of legislation. Everything in here is the kind of proposal that’s been supported by both Democrats and Republicans – including many who sit here tonight. And everything in this bill will be paid for. Everything. The purpose of the American Jobs Act is simple: to put more people back to work and more money in the pockets of those who are working. It will create more jobs for construction workers, more jobs for teachers, more jobs for veterans, and more jobs for the long-term unemployed. It will provide a tax break for companies who hire new workers, and it will cut payroll taxes in half for every working American and every small business. It will provide a jolt to an economy that has stalled, and give companies confidence that if they invest and hire, there will be customers for their products and services. You should pass this jobs plan right away. Everyone here knows that small businesses are where most new jobs begin. And you know that while corporate profits have come roaring back, smaller companies haven’t. So for everyone who speaks so passionately about making life easier for “job creators,” this plan is for you. Pass this jobs bill, and starting tomorrow, small businesses will get a tax cut if they hire new workers or raise workers’ wages. Pass this jobs bill, and all small business owners will also see their payroll taxes cut in half next year. If you have 50 employees making an average salary, that’s an $80,000 tax cut. And all businesses will be able to continue writing off the investments they make in 2012. It’s not just Democrats who have supported this kind of proposal. Fifty House Republicans have proposed the same payroll tax cut that’s in this plan. You should pass it right away. Pass this jobs bill, and we can put people to work rebuilding America. Everyone here knows that we have badly decaying roads and bridges all over this country. Our highways are clogged with traffic. Our skies are the most congested in the world. This is inexcusable. Building a world-class transportation system is part of what made us an economic superpower. And now we’re going to sit back and watch China build newer airports and faster railroads? At a time when millions of unemployed construction workers could build them right here in America? There are private construction companies all across America just waiting to get to work. There’s a bridge that needs repair between Ohio and Kentucky that’s on one of the busiest trucking routes in North America. A public transit project in Houston that will help clear up one of the worst areas of traffic in the country. And there are schools throughout this country that desperately need renovating. How can we expect our kids to do their best in places that are literally falling apart? This is America. Every child deserves a great school – and we can give it to them, if we act now. The American Jobs Act will repair and modernize at least 35,000 schools. It will put people to work right now fixing roofs and windows; installing science labs and high-speed internet in classrooms all across this country. It will rehabilitate homes and businesses in communities hit hardest by foreclosures. It will jumpstart thousands of transportation projects across the country. And to make sure the money is properly spent and for good purposes, we’re building on reforms we’ve already put in place. No more earmarks. No more boondoggles. No more bridges to nowhere. We’re cutting the red tape that prevents some of these projects from getting started as quickly as possible. And we’ll set up an independent fund to attract private dollars and issue loans based on two criteria: how badly a construction project is needed and how much good it would do for the economy. This idea came from a bill written by a Texas Republican and a Massachusetts Democrat. The idea for a big boost in construction is supported by America’s largest business organization and America’s largest labor organization. It’s the kind of proposal that’s been supported in the past by Democrats and Republicans alike. You should pass it right away. Pass this jobs bill, and thousands of teachers in every state will go back to work. These are the men and women charged with preparing our children for a world where the competition has never been tougher. But while they’re adding teachers in places like South Korea, we’re laying them off in droves. It’s unfair to our kids. It undermines their future and ours. And it has to stop. Pass this jobs bill, and put our teachers back in the classroom where they belong. Pass this jobs bill, and companies will get extra tax credits if they hire America’s veterans. We ask these men and women to leave their careers, leave their families, and risk their lives to fight for our country. The last thing they should have to do is fight for a job when they come home. Pass this bill, and hundreds of thousands of disadvantaged young people will have the hope and dignity of a summer job next year. And their parents, low-income Americans who desperately want to work, will have more ladders out of poverty. Pass this jobs bill, and companies will get a $4,000 tax credit if they hire anyone who has spent more than six months looking for a job. We have to do more to help the long-term unemployed in their search for work. This jobs plan builds on a program in Georgia that several Republican leaders have highlighted, where people who collect unemployment insurance participate in temporary work as a way to build their skills while they look for a permanent job. The plan also extends unemployment insurance for another year. If the millions of unemployed Americans stopped getting this insurance, and stopped using that money for basic necessities, it would be a devastating blow to this economy. Democrats and Republicans in this Chamber have supported unemployment insurance plenty of times in the past. At this time of prolonged hardship, you should pass it again – right away. Pass this jobs bill, and the typical working family will get a fifteen hundred dollar tax cut next year. Fifteen hundred dollars that would have been taken out of your paycheck will go right into your pocket. This expands on the tax cut that Democrats and Republicans already passed for this year. If we allow that tax cut to expire – if we refuse to act – middle-class families will get hit with a tax increase at the worst possible time. We cannot let that happen. I know some of you have sworn oaths to never raise any taxes on anyone for as long as you live. Now is not the time to carve out an exception and raise middle-class taxes, which is why you should pass this bill right away. This is the American Jobs Act. It will lead to new jobs for construction workers, teachers, veterans, first responders, young people and the long-term unemployed. It will provide tax credits to companies that hire new workers, tax relief for small business owners, and tax cuts for the middle-class. And here’s the other thing I want the American people to know: the American Jobs Act will not add to the deficit. It will be paid for. And here’s how: The agreement we passed in July will cut government spending by about $1 trillion over the next ten years. It also charges this Congress to come up with an additional $1.5 trillion in savings by Christmas. Tonight, I’m asking you to increase that amount so that it covers the full cost of the American Jobs Act. And a week from Monday, I’ll be releasing a more ambitious deficit plan – a plan that will not only cover the cost of this jobs bill, but stabilize our debt in the long run. This approach is basically the one I’ve been advocating for months. In addition to the trillion dollars of spending cuts I’ve already signed into law, it’s a balanced plan that would reduce the deficit by making additional spending cuts; by making modest adjustments to health care programs like Medicare and Medicaid; and by reforming our tax code in a way that asks the wealthiest Americans and biggest corporations to pay their fair share. What’s more, the spending cuts wouldn’t happen so abruptly that they’d be a drag on our economy, or prevent us from helping small business and middle-class families get back on their feet right away. Now, I realize there are some in my party who don’t think we should make any changes at all to Medicare and Medicaid, and I understand their concerns. But here’s the truth. Millions of Americans rely on Medicare in their retirement. And millions more will do so in the future. They pay for this benefit during their working years. They earn it. But with an aging population and rising health care costs, we are spending too fast to sustain the program. And if we don’t gradually reform the system while protecting current beneficiaries, it won’t be there when future retirees need it. We have to reform Medicare to strengthen it. I’m also well aware that there are many Republicans who don’t believe we should raise taxes on those who are most fortunate and can best afford it. But here is what every American knows. While most people in this country struggle to make ends meet, a few of the most affluent citizens and corporations enjoy tax breaks and loopholes that nobody else gets. Right now, Warren Buffet pays a lower tax rate than his secretary – an outrage he has asked us to fix. We need a tax code where everyone gets a fair shake, and everybody pays their fair share. And I believe the vast majority of wealthy Americans and CEOs are willing to do just that, if it helps the economy grow and gets our fiscal house in order. I’ll also offer ideas to reform a corporate tax code that stands as a monument to special interest influence in Washington. By eliminating pages of loopholes and deductions, we can lower one of the highest corporate tax rates in the world. Our tax code shouldn’t give an advantage to companies that can afford the best-connected lobbyists. It should give an advantage to companies that invest and create jobs here in America. So we can reduce this deficit, pay down our debt, and pay for this jobs plan in the process. But in order to do this, we have to decide what our priorities are. We have to ask ourselves, “What’s the best way to grow the economy and create jobs?” Should we keep tax loopholes for oil companies? Or should we use that money to give small business owners a tax credit when they hire new workers? Because we can’t afford to do both. Should we keep tax breaks for millionaires and billionaires? Or should we put teachers back to work so our kids can graduate ready for college and good jobs? Right now, we can’t afford to do both. This isn’t political grandstanding. This isn’t class warfare. This is simple math. These are real choices that we have to make. And I’m pretty sure I know what most Americans would choose. It’s not even close. And it’s time for us to do what’s right for our future. The American Jobs Act answers the urgent need to create jobs right away. But we can’t stop there. As I’ve argued since I ran for this office, we have to look beyond the immediate crisis and start building an economy that lasts into the future – an economy that creates good, middle-class jobs that pay well and offer security. We now live in a world where technology has made it possible for companies to take their business anywhere. If we want them to start here and stay here and hire here, we have to be able to out-build, out-educate, and out-innovate every other country on Earth. This task, of making America more competitive for the long haul, is a job for all of us. For government and for private companies. For states and for local communities – and for every American citizen. All of us will have to up our game. All of us will have to change the way we do business. My administration can and will take some steps to improve our competitiveness on our own. For example, if you’re a small business owner who has a contract with the federal government, we’re going to make sure you get paid a lot faster than you do now. We’re also planning to cut away the red tape that prevents too many rapidly-growing start-up companies from raising capital and going public. And to help responsible homeowners, we’re going to work with Federal housing agencies to help more people refinance their mortgages at interest rates that are now near 4% — a step that can put more than $2,000 a year in a family’s pocket, and give a lift to an economy still burdened by the drop in housing prices. Other steps will require Congressional action. Today you passed reform that will speed up the outdated patent process, so that entrepreneurs can turn a new idea into a new business as quickly as possible. That’s the kind of action we need. Now it’s time to clear the way for a series of trade agreements that would make it easier for American companies to sell their products in Panama, Colombia, and South Korea – while also helping the workers whose jobs have been affected by global competition. If Americans can buy Kias and Hyundais, I want to see folks in South Korea driving Fords and Chevys and Chryslers. I want to see more products sold around the world stamped with three proud words: “Made in America.” And on all of our efforts to strengthen competitiveness, we need to look for ways to work side-by-side with America’s businesses. That’s why I’ve brought together a Jobs Council of leaders from different industries who are developing a wide range of new ideas to help companies grow and create jobs. Already, we’ve mobilized business leaders to train 10,000 American engineers a year, by providing company internships and training. Other businesses are covering tuition for workers who learn new skills at community colleges. And we’re going to make sure the next generation of manufacturing takes root not in China or Europe, but right here, in the United States of America. If we provide the right incentives and support – and if we make sure our trading partners play by the rules – we can be the ones to build everything from fuel-efficient cars to advanced biofuels to semiconductors that are sold all over the world. That’s how America can be number one again. That’s how America will be number one again. Now, I realize that some of you have a different theory on how to grow the economy. Some of you sincerely believe that the only solution to our economic challenges is to simply cut most government spending and eliminate most government regulations. Well, I agree that we can’t afford wasteful spending, and I will continue to work with Congress to get rid of it. And I agree that there are some rules and regulations that put an unnecessary burden on businesses at a time when they can least afford it. That’s why I ordered a review of all government regulations. So far, we’ve identified over 500 reforms, which will save billions of dollars over the next few years. We should have no more regulation than the health, safety, and security of the American people require. Every rule should meet that common sense test. But what we can’t do – what I won’t do – is let this economic crisis be used as an excuse to wipe out the basic protections that Americans have counted on for decades. I reject the idea that we need to ask people to choose between their jobs and their safety. I reject the argument that says for the economy to grow, we have to roll back protections that ban hidden fees by credit card companies, or rules that keep our kids from being exposed to mercury, or laws that prevent the health insurance industry from shortchanging patients. I reject the idea that we have to strip away collective bargaining rights to compete in a global economy. We shouldn’t be in a race to the bottom, where we try to offer the cheapest labor and the worst pollution standards. America should be in a race to the top. And I believe that’s a race we can win. In fact, this larger notion that the only thing we can do to restore prosperity is just dismantle government, refund everyone’s money, let everyone write their own rules, and tell everyone they’re on their own – that’s not who we are. That’s not the story of America. Yes, we are rugged individualists. Yes, we are strong and self-reliant. And it has been the drive and initiative of our workers and entrepreneurs that has made this economy the engine and envy of the world. But there has always been another thread running throughout our history – a belief that we are all connected; and that there are some things we can only do together, as a nation. We all remember Abraham Lincoln as the leader who saved our Union. But in the middle of a Civil War, he was also a leader who looked to the future – a Republican president who mobilized government to build the transcontinental railroad; launch the National Academy of Sciences; and set up the first land grant colleges. And leaders of both parties have followed the example he set. Ask yourselves – where would we be right now if the people who sat here before us decided not to build our highways and our bridges; our dams and our airports? What would this country be like if we had chosen not to spend money on public high schools, or research universities, or community colleges? Millions of returning heroes, including my grandfather, had the opportunity to go to school because of the GI Bill. Where would we be if they hadn’t had that chance? How many jobs would it have cost us if past Congresses decided not to support the basic research that led to the Internet and the computer chip? What kind of country would this be if this Chamber had voted down Social Security or Medicare just because it violated some rigid idea about what government could or could not do? How many Americans would have suffered as a result? No single individual built America on their own. We built it together. We have been, and always will be, one nation, under God, indivisible, with liberty and justice for all; a nation with responsibilities to ourselves and with responsibilities to one another. Members of Congress, it is time for us to meet our responsibilities. Every proposal I’ve laid out tonight is the kind that’s been supported by Democrats and Republicans in the past. Every proposal I’ve laid out tonight will be paid for. And every proposal is designed to meet the urgent needs of our people and our communities. I know there’s been a lot of skepticism about whether the politics of the moment will allow us to pass this jobs plan – or any jobs plan. Already, we’re seeing the same old press releases and tweets flying back and forth. Already, the media has proclaimed that it’s impossible to bridge our differences. And maybe some of you have decided that those differences are so great that we can only resolve them at the ballot box. But know this: the next election is fourteen months away. And the people who sent us here – the people who hired us to work for them – they don’t have the luxury of waiting fourteen months. Some of them are living week to week; paycheck to paycheck; even day to day. They need help, and they need it now. I don’t pretend that this plan will solve all our problems. It shouldn’t be, nor will it be, the last plan of action we propose. What’s guided us from the start of this crisis hasn’t been the search for a silver bullet. It’s been a commitment to stay at it – to be persistent – to keep trying every new idea that works, and listen to every good proposal, no matter which party comes up with it. Regardless of the arguments we’ve had in the past, regardless of the arguments we’ll have in the future, this plan is the right thing to do right now. You should pass it. And I intend to take that message to every corner of this country. I also ask every American who agrees to lift your voice and tell the people who are gathered here tonight that you want action now. Tell Washington that doing nothing is not an option. Remind us that if we act as one nation, and one people, we have it within our power to meet this challenge. President Kennedy once said, “Our problems are man-made – therefore they can be solved by man. And man can be as big as he wants.” These are difficult years for our country. But we are Americans. We are tougher than the times that we live in, and we are bigger than our politics have been. So let’s meet the moment. Let’s get to work, and show the world once again why the United States of America remains the greatest nation on Earth. Thank you, God bless you, and may God bless the United States of America. SOURCE: http://dyn.politico.com/printstory.cfm?uuid=4B560AE8-0819-5D2E-D6E227091DB7DE5E ###

© 2011 POLITICO LLC

Obama's $300 Billion for Jobs: Where All the Money Goes

Published: Wednesday, 7 Sep 2011 | 4:00 PM ET

U.S. President Barack Obama, whose popularity has fallen to new lows amid fears the American economy could be headed for another recession, will unveil a jobs package in a speech to Congress on Thursday.

The plan is expected to total more than $300 billion, according to U.S. media reports.

Economic woes have clouded Obama's 2012 re-election prospects and he faces pressure from Democratic allies to offer a bold plan for reducing the 9.1 percent unemployment rate.

In the speech, which will take place at 7 p.m. EDT, Obama will unveil a mix of measures, some of which could clear the Senate as well as the Republican-controlled House, and others that might face greater resistance.

Here are elements likely to be part of the speech:

Extensions of payroll tax cuts

Extending a payroll tax cut for workers first enacted last December is the centerpiece of Obama's plan. Continuing the tax cut by another year would cost about $112 billion, according to the non-partisan Congressional Budget Office.

Congressional Republicans are lukewarm on the idea, with some saying the White House should focus on measures such as broad tax reform that would have a more lasting impact.

Macroeconomic Advisers, an economic consulting firm, estimates that extending the payroll tax holiday, emergency unemployment benefits and business expensing provisions through 2012 would boost employment by about 600,000 next year.

Infrastructure spending

Obama has said public-works projects, such as the repair of highways and school buildings, would be one way of putting unemployed construction workers back on the job while upgrading the country's infrastructure.

Republicans contend large-scale spending initiatives have not helped the economy and point as evidence to the economy's weakness despite the $800 billion stimulus package Obama and his fellow Democrats enacted in 2009.

But infrastructure spending is popular with voters and Republicans have indicated they might be willing to support some initiatives.

The CBO has said big construction projects often require years of planning and preparation. Many road, bridge and sewer projects financed by the 2009 stimulus got bogged down in red tape and took a year or more to start construction.

In comments often cited by Republicans, Obama said in a New York Times Magazine interview last October that infrastructure spending can take time to trickle through the economy because "there's no such thing as shovel-ready projects."

Aid to states to prevent teacher layoffs

Obama is likely to propose federal help to states to prevent layoffs of teachers and first responders.

Declines in government payrolls have put a damper on the job market in recent months, so economists say such aid could contribute to near-term improvement in the jobs picture.

Tax breaks for businesses

Obama is likely to propose extending the payroll tax cut to employers as a means of boosting hiring.

Another approach might be to reserve that tax cut for businesses that hire unemployed workers. Congress passed a similar measure last year that cost about $13 billion.

Critics say such tax breaks might have a limited effect on hiring because it might mostly reward firms already planning to add workers. But the incentive could accelerate some hiring decisions.

Extending unemployment aid

Congress has extended jobless aid several times to help people unemployed for more than six months. The extensions are due to lapse at the end of this year and Obama will call for their renewal, which would cost about $57 billion.

Economists say unemployment aid can stimulate the economy because those receiving it are likely to spend it quickly.

Training for the long-term unemployed

Obama is expected to unveil a training program targeted toward those who have been unemployed six months or more.

Modeled after a program in Georgia, called George Work$, it would provide on-the-job training for the unemployed at no cost to companies. The government would help with costs such as transportation but proponents say it could save money in the budget if the workers are eventually hired and no longer need federal unemployment benefits.

House of Representatives Republican leaders have expressed interest in it.

But before it translates into new jobs, the training program would have to be set up and participants would need to work through it, meaning its impact would not be immediate. Sixty percent of the participants in Georgia Work$, which started in 2003, have found jobs, although reportedly the program has not dented the state's unemployment rate.

Help for struggling homeowners

The administration has been working for weeks on a mortgage relief program to meet the needs of troubled borrowers.

Obama's speech could include a nod to efforts to strengthen the housing market by allowing more homeowners to refinance at the current low interest rates, according to sources familiar with the matter.

The refinancing initiative under consideration would broaden eligibility for refinancing for homeowners whose mortgages are backed by Fannie Mae, Freddie Mac and the Federal Housing Administration.

Republicans would likely oppose plans for broader refinancings that involve taxpayer subsidies, either directly from the government or through Fannie Mae and Freddie Mac but the administration might be able to take executive action on some aspects of the plan.

Changes involving the mortgage giants would require approval by their regulator. The direct jobs impact from homeowner help is expected to be less significant than the potential improvement in consumer sentiment.

Any extra spending from reduced mortgage costs could lead to increased hiring, though that could take months and may not happen at all if households choose to save instead.

Copyright 2011 Thomson Reuters. Click for restrictions.

SOURCE: http://www.cnbc.com/id/44429067

Eric Cantor: Congress will find the money for earthquake aid

August 24, 2011 3:59 PM By Lucy Madison, Tolleah Price

House Majority Leader Eric Cantor assured his constituents on Wednesday that Congress "will find the monies" to assist earthquake victims in Mineral, Virginia - but the Republican lawmaker noted that "those monies will be offset with appropriate savings or cost-cutting elsewhere."

Cantor and Virginia Governor Bob McDonnell, speaking together in a news conference, had previously toured Mineral to assess the amount of damage the city sustained in the wake of Tuesday's 5.8 magnitude earthquake. Mineral, which was at the epicenter of the quake, falls in Virginia's 7th district, which Cantor represents.

Cantor was in Israel when he heard news of the quake, but said he "quickly decided that I had to get home to ensure I could do anything I could."

When asked if the district would be receiving federal assistance from the government, McDonnell noted that the state had yet to do a thorough analysis determining "our own capacity through state and local resources and private and benevolent resources to be able to handle it," and had not yet determined whether it was "prudent" to request federal aid.

But, Cantor added, "the federal government does have a role in situations like this. When there's a disaster there's an appropriate federal role and we will find the monies. But we've had discussions about these things before and those monies will be offset with appropriate savings or cost-cutting elsewhere in order to meet the priority of the federal government's role in a situation like this."

Mineral residents experienced at least four aftershocks in the wake of Tuesday's earthquake, and more were expected to follow.

McDonnell described the damage to the district as "significant," but said it was a "blessing" there had been no reported deaths.

"The damage is more widespread and significant than the preliminary reports that we had gotten yesterday," McDonnell said. "The great blessing out of this seems to be that with an event of this proportion on the East Coast that there were virtually no significant injuries."

"This is obviously a time where the people of Virginia and hopefully beyond will need to rally together," he added. "The local government, the state government, the federal government, the churches the synagogues, the benevolent organizations to all find ways to be able to help these citizens in need."

Democratic Rep. Ed Markey of Massachusetts, the top Democrat in the House Natural Resources Committee and a senior member of the Energy and Commerce Committee, called for stronger nuclear safety standards in the wake of the quake, writing in a letter to the Nuclear Regulatory Commission that "the Virginia earthquake is now our local 911 call to stop delaying the implementation of stricter safety standards."

The Wall Street Journal reports that Central Virginia's North Anna power station issued an "alert" status Wednesday after losing power in the earthquake's aftermath.

Cantor said in Wednesday's press briefing that he and McDonnell were headed to the plant later that day.

"Obviously that's the first thing that crossed my mind when I heard the news," Cantor said, "Oh my goodness, what about the nuclear power plant? So I'm glad to hear and read the reports that what should have happened, happened."

He added: "As for the road forward, I'm here to work along with the governor and along with all the residents of the seventh district and the commonwealth to do what we do best in times of disaster: we pull together. We are a can-do people and we will get through this."

SOURCE: http://www.cbsnews.com/8301-503544_162-20096790-503544.html

Buffett's one-day win on Bank of America: $357 million

by Maureen Farrell August 26, 2011: 12:41 PM ET

NEW YORK (CNNMoney) -- Warren Buffett earned $357 million in paper profits on Thursday simply on warrants related to his $5 billion equity infusion into Bank of America. Not bad for a day's work.

In exchange for the Buffett brand name and $5 billion, the Charlotte, N.C. financial institution granted Warren Buffett the option to buy up to 700 million of its shares any time in the next 10 years for $7.14. Yesterday those warrants would've reaped the Omaha investor a nine-figure profit.

Such paper profits could be ephemeral should Bank of America (BAC, Fortune 500)'s stock drop dramatically and stay there.

For now, with the bank's stock trading at $7.67 by midmorning Friday, investors are betting that yet again Buffett correctly spotted a long-term safe haven for his and his investors' fortunes.

During the financial crisis, Buffett famously refused to loan money to Lehman Brothers, yet gave Goldman Sachs (GS, Fortune 500) a similar stamp of approval with a $5 billion investment during the financial crisis.

His bets were right: Lehman folded, and the Goldman Sachs investment reportedly generated a $3.7 billion profit for Berkshire Hathaway (BRKA, Fortune 500).

"The question is whether Bank of America gave too many of those warrants away to get Warren Buffett to put the $5 billion preferred investment in the company. In the end that will be the question," says Marty Mosby, a managing director at Guggenheim Securities. The warrants give Buffett the right to purchase up to 6.5% of the company's equity.

As part of the Buffett investment, Bank of America will also pay the famed investor $300 million -- a 6% annual dividend or $821,000 a day -- for a decade, on his $5 billion in preferred shares.

Buffett's dealmaking skills came into play in crafting the warrants on Bank of America, not the dividend, investors say.

Compared to 10-year Treasuries, which currently yield 2.2% annually, investors say this dividend is commensurate with the riskiness of the stock and financial sector. By contrast, Goldman Sachs offered Buffett a 10% dividend on his 2008 investment.

When the investment was announced Thursday, investors were quickly giddy on the news, sending shares up as high as 26% by midmorning. Exuberance subsided, but the stock still closed up 9.4% at $7.65.

SOURCE: http://money.cnn.com/2011/08/26/markets/warren_buffett_bofa_profit/index.htm?iid=Popular

A Major Opportunity for Oil Bulls

By LIAM DENNING

Sometimes, it's better to own the guy who makes stuff rather than the stuff itself. That's the case with oil right now.

Oil bulls bidding Brent crude back up on every rumor of a revival in Col. Moammar Gadhafi's fortunes are missing the bigger picture. U.S. economic data on everything from manufacturing to home sales remain weak—and gasoline demand is following suit. China is battling inflation and Europe is mired in its ongoing fiscal crisis.

Yet Brent crude, at about $110 a barrel, remains 15% above where it began the year. Moreover, Wall Street is forecasting an average price for 2011 of about $106 for the year, according to FactSet Research Systems. Given prices year to date, that implies Brent needs to average just under $95 for the rest of the year, 14% below today's level.

Brent prices clearly don't discount a recession. If they did, they would be closer to, or below, the marginal cost of supply, which Sanford C. Bernstein pegs at $80 to $90 per barrel. Perhaps they reflect hopes of another round of quantitative easing from the Federal Reserve. But a resort to QE3 would signify that the underlying economy—you know, the place where oil actually gets burned—is very weak.

Given the risks of a correction in oil prices, better value can be found in the stocks of major oil producers. They have fallen even more sharply in the recent selloff, with Exxon Mobil off about 10% since the end of June compared with Brent's fall of less than 4%. Remarkably, Exxon, Italy's Eni and France's Total are actually valued lower now than they were at the end of 2008, when the world really did look like it was ending. Since then, Brent has more than doubled.

The stocks of Europe's major oil companies are priced for a long-term Brent price of $75, according to Citi. That provides a cushion against further declines in the commodities markets. In addition, they offer investors high cash payouts in the form of dividend yields and share buybacks that commodities can't compete with. On average, Exxon, Chevron, ConocoPhillips, Royal Dutch Shell, BP, Eni and Total yield 5.5% on dividends and 9.3% including buybacks, according to Credit Suisse.

What's more, given strong balance sheets in general—Exxon now scores higher than Uncle Sam, at least in the eyes of Standard & Poor's—it would take a prolonged recession with Brent stuck at $70 or below for a year to endanger payouts, reckons brokerage Raymond James.

The cheapest stocks are Eni and Total, in part because of their Italian and French provenance, where sovereign-debt worries reign. Shell, meanwhile, is just exiting from a multiyear period of spending that will fuel output growth of about 3% per year to 2014, according to Credit Suisse. Yet its stock commands less than seven times 2012 earnings and yields 5.3%. That looks safer than relying on further explosions in the desert.

SOURCE: http://online.wsj.com/article/SB10001424053111904787404576528300279054730.html?mod=WSJ_hpp_MIDDLE_Video_Top

'Made in China' makes money for the U.S.A.

August 12, 2011: 5:00 AM ET By Sheridan Prasso, contributor

If you don't want your dollars going toward Chinese-made products, don't sweat it -- most of the cash you spend on them goes to U.S. companies and workers.

FORTUNE -- Worried about buying a $70 pair of sneakers that say "Made in China" this back-to-school season because you'd rather spend your dollars on "Made in U.S.A." products instead? Worry not, according to a new study.

More than half the amount you spend on products made in China actually stays here -- going to American companies, workers, marketers, retailers, and transport providers. The amount is least 55 cents per each $1 spent, says a report from the Federal Reserve Bank of San Francisco. So for that $70 pair of sneakers, $38.50 of it boosts bottom lines here in the U.S.

And despite what you may conclude from shopping at Wal-Mart (WMT) or other large stores -- or hearing big, scary figures about the trade deficit with China -- imports from China make up just a very small portion of our total economy: just 2.5% of gross domestic product in 2010. Overall, products from around the world accounted for only 16% of our GDP last year. "The vast majority of goods and services sold in the United States is produced here," according to FRBSF report authors Galina Hale and Bart Hobijn. The exceptions are furniture and household items, electronic goods, and clothing and shoes. A third of U.S. consumer purchases for clothing and shoes in 2010 carried a "Made in China" label. For furniture, it was one fifth.

But it's services that make up the overwhelming majority of the U.S. economy, according to the data, and no services at all came from China -- just manufactured products. 88.5% of U.S. consumer spending is for products and services originating here, the report says. "This is largely because services, which make up about two-thirds of spending, are produced locally," according to Hale and Hobjin.

The authors also point out that a large number of component parts -- like semiconductor chips and designs used in the iPhone -- originate in the U.S. They point to a 2009 Asian Development Bank Institute study reporting that it cost about $179 to produce an iPhone in China. The phone is then sold here for about $500. Thus, $179 of the U.S. retail cost consisted of Chinese imported content. But only $6.50 actually went to cover assembly costs in China. The other $172.50 was for parts produced in other countries, including $10.75 for parts made in the U.S.

The reason for the new FRBSF report is the red flag raised by China's growing inflation. The latest numbers from Beijing show a 6.5% annual rise across the country in July, up from 6.4% in June and breaking a three-year record. But with such low levels of Chinese content in products like iPhones, the report's authors conclude that recent increases in labor costs and inflation in China are not likely to translate into broad inflationary pressures in the U.S. "This suggests that Chinese inflation will have little direct effect on U.S. consumer prices," Hale and Hobjin say. Given the state of the U.S. economy these days, consumers can take that data and breathe a small sigh of relief.

SOURCE: http://finance.fortune.cnn.com/2011/08/12/made-in-china-makes-money-for-the-u-s-a/

Treasures in the Trash: 8 Stocks That Were Oversold

Published: Friday, 19 Aug 2011 | 2:32 PM ET

By: Lee Brodie

Investors get your shopping lists ready; the The Fast Money pros think it's about time to hit the buy button.

And yes, they're aware of the market swings - they know August has been the most violent month for stocks since the collapse of Lehman in 2008.

But the gang says some stocks have just gotten too cheap to pass up, even amid all the market the madness.What are they buying, right now? How are the pros positioning? Following you'll find the Fast Money treasures in the trash. That is, 8 stocks that appear oversold.

Instant Insights with the Fast Money traders

Pete Najarian sees opportunity in Starbucks [SBUX 35.10 0.349 (+1%)] and pulled the trigger at $34. Fast Money’s Pit Boss likes the same store sales growth as well as margins. And even with rivals lowering coffee prices, he thinks Starbucks remains attractive.

Najarian also likes the SLV [SLV 41.68 2.02 (+5.09%)]. He thinks the ETF that tracks silver found a base right around $37, which is a key technical level. “Ever since then it’s bounced and moved to the upside,” he says. Also Najarian likes the options action. “The SLV August 43 calls – a lot of activity.” Najarian thinks these influences all signal upside.

Trader Patty Edwards suggests a retailer. “I like Nordstrom [JWN 37.45 -0.85 (-2.22%)],” she tells us and she added to her position on the pullback. "It's down 15% just since the 15th of this month, that's too much." Edwards thinks the management team at the department store is reason enough for a long position. And if you’re worried about the high-end, she says don’t be. “If they thought the high-end was cracking they would have warned.”

Edwards also suggests a long position at Walter Energy [WLT 74.15 -1.05 (-1.4%)]. “It’s 45% off the highs – the world has not slowed down that much,” she says.

Trader Steve Cortes reaveals that he added to his position in Walmart [WMT 52.30 0.51 (+0.98%) ] during the sell-off. Fast Money’s El Capitan likes the recent price action, “it’s holding above $50,” he says. “And it’s a North America story – the company is relatively insulated from troubles in Europe,” he says. Cortes also thinks declining prices at the pump will give Walmart shoppers a little more cash to spend for back-to-school.

And Cortes also has another idea, “if you’re looking for a tech trade look at Intel [INTC 19.19 -0.58 (-2.93%)]. Unlike most tech names it provides a fantastic dividend yield.”

The concept of yield is something trader Dan Dicker also likes. “They’re boring but I’m moving into MLPs,” he says. The names he suggests include Enterprise [EPD 39.45 -1.28 (-3.14%)], and Kinder Morgan [KMP 66.25 -1.01 (-1.5%)].

SOURCE: http://www.cnbc.com/id/44204231