الخميس، 9 أغسطس، 2012

Leo Melamed: If it’s good enough for Milton

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Although I did not know it at the time, my first introduction to Milton Friedman occurred in 1940 when I was but seven years old. We were on the first leg of our escape from the Nazis at the outset of World War II and arrived from Bialystok, the city of my birth, to Vilna—that’s Vilnius, for those who don’t know the Yiddish name of this venerable Lithuanian city. My father, who was first and foremost a mathematics teacher, sat me down to provide my first lesson in economics. The circumstances made the moment historic and memorable. Years later, I had the privilege of relating this story to Milton and Rose.
In one hand my father held up a Polish zloty, in the other a Lithuanian lit. “Do you know what these are?” he asked? “Money,” I answered, proud to show off my deep understanding of such matters. “Yes,” he agreed. “And do you know how much each of them is worth?” I shrugged my shoulders, having exhausted my expertise in high finance.
My father then carefully explained that the value of those two units of currency could only be determined by what they can buy in the marketplace. What followed was my first exposure to the logic of Milton Friedman. I learned that while the official rate of exchange between the zloty and the lit was one for one, in fact it would take two zlotys to buy a loaf of bread but only one lit. “The government’s official rate doesn’t mean a thing,” my father admonished.
It was the start of our two-year odyssey, as my parents, with me at their side, miraculously outwitted the Gestapo and KGB in a danger filled escapade that spanned three continents, six languages, Japan, and happily concluded in the United States. The lessons in Milton Friedman’s free-market economics continued as we chased around the world, and as the lit changed to a ruble, the ruble to a yen, and finally a yen to a dollar. It left an indelible impression, one that resonated some thirty years later when I became chairman of the Chicago Mercantile exchange.
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Euro weakens on speculation sovereign-debt crisis is spreading

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Aug. 8 (Bloomberg) -- The euro weakened against its most-traded counterparts as a drop in German industrial production, lower U.K. growth forecasts and ratings cuts for Spain and Italy raised concern Europe’s sovereign-debt crisis is worsening.
The pound strengthened by the most in more than a month against the euro after Bank of England Governor Mervyn King said cutting U.K. interest rates may be counterproductive, damping speculation the central bank will reduce borrowing costs to spur growth. The currencies of Sweden and Norway strengthened to 12- and nine-year highs against the euro on haven demand.
“When we look at the euro from a medium-term perspective, I think we’ve been looking for some economic divergence between Europe and the rest of the world,” Brian Kim, a currency strategist at Royal Bank of Scotland Group Plc’s RBS Securities unit in Stamford, Connecticut, said on Bloomberg Television’s “Lunch Money” in an interview with Sara Eisen. “It’s still keeping us negative on the euro over the next two or three quarters.”
The euro fell 0.3 percent to $1.2357 at 3:24 p.m. New York time after rising to $1.2444 on Aug. 6, the strongest level since July 5. The shared currency dropped 0.5 percent to 96.95 yen. Japan’s currency climbed 0.2 percent to 78.48 per dollar.
The 17-nation euro may drop to as low as $1.2280 in the next week, said Kathleen Brooks, a research director in London at Forex.com, a unit of online currency-trading company Gain Capital Holdings Inc.
‘To Parity’
“Structurally, I’m looking for the euro to go to parity,” Neil Jones, head of European hedge-fund sales at Mizuho Corporate Bank Ltd., said in a television interview on “Countdown” with Linzie Janis. “It will take about a year, but we are heading in that direction.”
The Swedish krona appreciated 1 percent to 8.2546 against the euro, its highest level since 2000, before trading at 8.2663. Norway’s krone rose to its highest level since 2003 against the shared currency, gaining as much as 1.1 percent to 7.2585.
“There’s a lot of focus on these currencies as safe havens with strong fundamentals,” Niels Christensen, chief currency strategist at Nordea Bank AB in Copenhagen, said in a telephone interview. “There’s a double effect of demand for these currencies and a weak euro. A lot of investors are favoring these currencies.
The krona will reach 8.0480 per euro as long as it stays below the area from 8.4635 to 8.5052, research analysts wrote today in a client note. The Swedish currency’s strongest level since the shared currency’s 1999 inception is 8.0469, reached in May 2000.
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Gold prices jump on global easing expectations

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Gold futures had a big turnabout in the past 48 hours. From last Friday to this Wednesday, gold futures surged 4.6%. On Thursday, prices slumped 2.8% to $1,588, the biggest one-day drop since early April. This week, gold futures have dropped 2.1%, compared to last week's rise of 3.4%. In the past two days, the S&P climbed 2.3% while the Stoxx went up 2.7%. The EUR/USD rebounded 1% this week while the Dollar Index fell 1%.
Gold prices have jumped in anticipation of more easing from the U.S., Europe and China. Real GDP growth in the U.S. has dropped from a recent peak of 3% in Q4 2011 to 1.9% in Q1 2012. In Q1 2011, the Euro Area grew by 2.4%; it contracted by 0.1% in Q1 2012. Chinese GDP growth went from 9.7% in Q1 2011 to 8.1% in Q1 this year, and the expected Q2 growth may drop to 7.9% or lower.
On June 5, Australia cut its interest rates by 25bp, the first cut in three years. On June 7, the PBOC (the Central Bank of China) announced they would cut the one-year lending rate and the deposit rate by 25bp. This move signals the beginning of China's rate cut cycle to help investment and consumption. China last cut its interest rates in December 2008. The ECB, though kept interest rates unchanged, revealed that several Council members voted for an interest rate deduction. In today's testimony to the Congress, Ben Bernanke did not announce any new actions, though he said the Fed still has easing options, citing that Europe is the biggest threat to the U.S. economy and financial system.
In the short-term, gold price will continue to be pushed around by traders' speculations on easing. The fundamental issues remain that global growth has entered a soft patch, sovereign funding costs in many European countries have continued to rise, the U.S. fiscal policy has been tightened, and China's excess capacity has jumped. The world may well come to a loosely-coordinated monetary easing. With such low real interest rate and bond yield, gold stands out as a cheaper alternative asset.
The most important events to anticipate this month will be the June 17 Greek re-election, June 18-19 G20 meeting and the June 19-20 FOMC meeting.
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Gold Price Lower on Europe Expectations

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Gold Price Reflects Dampened Expectations in Europe
Gold prices fell to four-week lows, and it seems unlikely that additional stimulus will result from this week’s European summit in Brussels. European finance officials are now working on critical measures to ease financial pressure on Spain and Italy.
Gold rallied to the range of $1,585 per troy ounce earlier in the week, awaiting clarity on how Eurozone leaders will tackle ongoing debt issues. Spot market gold prices are currently trading in the range of $1,552.90 per troy ounce, a slight decline of approximately 1 percent from the previous week.
Warren Gilman, CEO of CEF Holdings, is a long-term believer in gold, but is cautious in the short term. He stated, “gold is having a bit of a paranoia experience at the moment. It can’t quite figure out whether it is a ‘risk-on’ trade or a ‘risk-off’ trade. Traders are frankly missing the point on gold. Gold is a ‘must have’ in the current environment. In the long run, I think gold will ‘come to the floor’ in terms of a risk-on trade and a risk-off trade. Ultimately in this environment, where you have negative real interest rates and you have central banks acquiring gold at historic levels over the last few years, the gold price will eventually rise.”
Company news
Barrick Gold’s (TSX:ABX,NYSE:ABX) claim that Goldcorp‘s (TSX:G,NYSE:GG) acquisition of 70 percent of the Chilean El Morro copper-gold project was “unlawful and ineffective” was dismissedby the Ontario Superior Court of Justice. While Goldcorp is understandably pleased with the ruling, Barrick said in a statement that it will fully evaluate the results and consider its options, including a possible appeal.
Site construction and development activities at El Morro were suspended at the end of April; the suspension is in effect until the Chilean environmental permitting authority corrects certain deficiencies. El Morro, located in the Huasco province in the Atacama region of Northern Chile, holds proven and probable reserves of approximately 5.8 million troy ounces of gold and 4.4 billion pounds of copper.
Barrick Gold appointed Ammar Al-Joundi, former senior vice president for finance at Agnico-Eagle Mines (TSX:AEM), as its chief financial officer, effective July 10. Barrick’s incumbent chief financial officer, Jamie Sokalsky, replaced Aaron Regent as CEO following a surprise management change earlier this month.
Newmont Mining (TSX:NMC,NYSE:NEM) accepted stricter environmental guidelines for its $4.8 billion Conga gold mine in Peru. Peru is the second-largest producer of copper and the sixth-largest gold producer; however, some mining communities suffer from widespread poverty and feel they have not benefited from the country’s economic boom. The Conga mine is the largest mining project ever proposed in Peru.
Conga is partly owned by local miner Buenaventura (NYSE:BVN), and is expected to produce between 580,000 and 680,000 troy ounces of gold per year. The project has been stalled since November because of ongoing protests by community groups concerned about water resources and industrial pollution from the mine.
Investors may note that the influence of courts and governments on material issues for mining companies seems to be increasing. Legal challenges and stricter environmental policies will result in higher costs and time delays that can significantly impact productivity and marginal profitability.
Junior company news
Midas Gold (TSX:MAXannounced the completion of the updated gold resource estimate for its Idaho-based Golden Meadows project.
Terraco Gold (TSXV:TENreported assay results from the first ten core holes of the 2012 drill program at its Almaden project in Washington County, Idaho.
Goldgroup Mining (TSX:GGAreceived final assay results from its Caballo Blanco project. The company has stockpiled a supply of mineralized material for any remaining metallurgical test work for the project.
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