Metals markets marked time overnight, trading ranges narrowed further, and participants appeared to be on hold pending a week's worth of official announcements that might set the course for the next stage of the imbroglio that is plaguing the global economy. Gold prices (at least in Asian trade) appeared comfortable with the $950 to $960 channel for the moment, although sizeable moves could be in the cards for the next week or so. Just do not ask for the direction of such moves, and do yourself a major favor, by not predicting them either.
New York spot bullion opened with a $5.20 loss this morning, quoted at $947.40 per ounce, against a background that showed US stock futures (the Nikkei already rose by 269 points overnight) stoked by the upcoming Tim Geithner monologue (no, it will have no jokes), a US dollar down to 83.39 on the index, and a crude oil price stalled near $52.50. Silver traded lower as well, starting the day at $13.69 an ounce, while the noble metals made some progress of their own - platinum rose to $1123 (a $10 gain) and palladium climbed to $208, up three bucks. So, what's the suspense all about?
Following last week's Fed announcement of its plans to buy Treasuries, the Obama administration aimed to turn up the heat intended to thaw the frozen credit markets a few more notches in coming days. Starting with this one. In a short while, we will hear from Treasury boss Tim Geither about the PPIP. Wait a minute! TARP, TALF, don't we have enough financial rescue acronyms clogging the news channels already?
PPIP stands for 'Public Private Investment Program' and despite the contradiction present in its very name, Mr. Geithner's PR this morning will likely not be nearly as his last public performance (one which cost him quite a bit with the ever-ready to pounce, but now-out-of-power right wing). In fact, the Treasury's head is likely to hail the program as the one ingredient without which a US economic recovery that is meaningful, is meaningless.
Mr. Geithner has support with all of this. Not just from his boss, President Obama, who said he would not accept any resignation letters from him, but also (symbolically) from the IMF, which, over the weekend declared that no global economic recovery is possible without first cleaning up the world's financial system. Although no acronyms were overtly offered by the IMF, talk of an emerging GEC (Global Economic Council) have started to make the rounds already. Goodbye G-20, hello GEC (and its as yet unknown members). Boy, does the world need more acronyms. Just look at Hungary. Then again, you may wish to avert a direct gaze. The country's economy is melting faster than a Dobos torte left in the midday sun. Prime Minister Ferenc Gyurcsany has tendered his resignation already. And, it was not on account of the pronunciation of his name.
The PPIP economic lifesaver to be offered by Mr. Geithner in a short while has already polarized the masses (as if they needed to be further divided). Politicians have already made a fair game of the economic mess and are jockeying for position as to who can lay claim to being the best instant economist.
If embattled U.S. Treasury Secretary Timothy Geithner can calm the AIG storm and convince investors that his plan for rehabilitating the banks will work, all may be forgiven. As brutal as the past week was for Geithner -- with lawmakers accusing him of doing nothing to stop bailout recipient AIG from paying fat bonuses, and some calling for his resignation -- the coming days will be even more crucial.
While the bonus fury rages in Washington, financial firms and investors are itching to know precisely how Geithner plans to rid banks of bad assets, and whether doing business with the government will subject them to uncomfortable scrutiny. Possibly as soon as Monday, Geithner is expected to roll out a three-part plan, including low-interest loans for private investors to buy bad assets from banks.
Geithner is also due this week to outline regulatory reform proposals to establish a clear process for unwinding troubled nonbank financial companies like AIG and an early-warning system to spot developments that could imperil the financial system, all with an eye toward preventing future crises. He cannot afford a repeat of February when a ballyhooed speech on his plan to fix the financial crisis offered little detail. That triggered a stock-market slump and raised questions about whether the government knew what it was doing.
He's lost a lot of credibility and a lot of political good will, but he can turn things around, said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts. If he can come up with a credible plan, fine. If not, then his days are numbered. The uproar over $165 million in bonuses paid to employees of American International Group Inc has opened Geithner up to attacks from all sides.
Not only was he blamed for allowing the bonuses but he also took heat from Wall Street firms, which saw AIG Chief Executive Edward Liddy grilled by angry lawmakers and wondered whether accepting government help would mean their CEO could be next.
Angry lawmakers. Are there any other type? Well, they have to act angry, as the seething masses are watching. But then, angry or not, they trot out their best and brightest to hit the media circuit and this (brought to you by 24/7 Wall Street) is what we're left with:
The members of The American Society of Half-Wits were out in force on the weekend Washington talk shows. The regular guests must have been off celebrating the holiday that falls just after the Vernal Equinox. Among the guests who did show up, the best comments on Sunday came from Sen. Judd Gregg of New Hampshire who had agreed to be the Administration’s Commerce Secretary and then pulled out at the last moment. Gregg remains the senior Republican on the Senate Budget Committee.
The odds are reasonable that Gregg came by his high office the same way that John Quincy Adams and George Bush did. Gregg’s father was the governor of New Hampshire in the mid-1950s. Judd held the same job little more than three decades later and then was elected to the US Senate. His own accomplishments are so modest that he lists the “Legislative Recognition Award” from the American Ambulance Association as an important milestone on his CV.
Gregg’s contribution to the debate about the federal budget is a statement he made on CNN’s “State of the Union” talk show. He observed that if Congress approves the budget as it has been proposed by the Administration and deficits consequently move up at the rate that the Congressional Budget Office has projected in its analysis of the budget, the nation will become bankrupt and people would stop buying American debt.
Greg’s actions over the last two months, moving in and out of the Commerce job and then immediately attacking Administration economic policy, appear to be the workings of a confused mind. His record as a member of the Senate may be unspectacular. However, it says a great deal about the state of the discourse regarding the budget that his observation is one of the few, by a ranking Senator in his party, which mentions the term “bankrupt” to refer to what could become of the American government.
Gregg may not be correct and his point of view may make him an outlier. But there is no denying the fact that there has been almost no time spent in the Congressional conversation about what could happen to the budget if either the revenue or expense assumptions at the core of the Administration or CBO analyses are wrong by a substantial margin.
The projections of GDP growth only have to be a percent or two too low for deficits to go up by hundreds of billions if not trillions of dollars over the next decade. Not a single page in the Administration or CBO documents describes how that might happen or what the financial results will be. Perhaps the reason is that no one wants to put in writing the possibility that the recession, compounded by inappropriate actions to correct it, could lead to financial mayhem.
One of the reasons, and probably the critical reason, that large banks have nearly failed is that the executives who ran them apparently never looked at their rapidly rising earnings and asked “what happens if the investments we are making now start to trade in the wrong direction?” “What happens if the assumptions that led us to make ludicrous amounts of money this year turn out to be wrong next year?” It turns out that there was no “Worst Case Scenario Handbook” for running big banks. It might have saved investors and the government a trillion dollars or more.
The odds that the American Treasury will not be able to sell debt are still relatively low. But, no one, except perhaps Senator Gregg, sitting in high office in the federal government has asked if there are any parachutes in the plane on the off chance that all four engines go out at the same time. That kind of question is the work of unstable or anarchistic minds.
No shortage of anarchic scenarios in the world of gold. Practically every pundit has thrown their name into the bullring odds hat as of last weekend. To be neutral today, is to attract the scorn and ire of untold throngs of fatalists. On the one hand we are now being guaranteed the biggest ever surge in gold values since...well, since we were being guaranteed the same a year, or two years ago. On the other, the hyper-price scenario does come with a few...strings attached.
These sine qua nons include predictions of armed unrest in the US, detention camps (also in the US), food for barter, and lawlessness that would put Russia's current Gangs of New York socio-political reality in the Bambi category on the world marquis. As we have repeatedly warned: be careful (very careful) what you wish for.
No doubt, gold is clawing its way back to reclaiming a portion of the prestige it lost during the go-go years. But, ponder if you wish for such a return to be replete with having to become a shut-in in order to see the light of the next morning.
Happy TV-watching. Everyone else will be.
PS - No post-mortem on the Geithner speech. Will be flying over at 37,000 feet, watching for bonfires across America. Back tomorrow morning, reporting from the Big Apple.