Saver Nation

The trading week drew closer to a positive finish for gold prices on Friday, for the first time in two fortnights. The US dollar encountered difficulties with maintaining the 80 level on the index, while oil prices rose a tad following fresh reports of Nigerian pipeline-oriented violence. One would think those pesky rebels would have found some new/different targets by now. Such pranks hardly make the headlines now, and only keep repairmen's jobs secure…

Gold prices initially tried to advance to the $950 level but eased back to the low $940s as the Friday morning session wore on. New York spot gold dealings saw the yellow metal quoted at the $940.90 level at 9:30 NY time this morning, showing a near quarter-percent gain in early going. The dollar was trading at 79.82 on the index – basically, a full point lower than the levels seen on Thursday morning, while crude turned lower and gave up initial gains.

Black gold fell $108 cents to $69.15 per barrel – for a match of yesterday's morning values. Absence of demand versus speculative injections of money from various funds continues to define the market for black gold. At some point, values will return to ‘realistic' levels – say traders (like, $50 and under, for example). Silver added 16 cents in the morning, to rise to as many pennies above the $14.00 per ounce mark. Platinum gained $13 to trade at $1198 per ounce, palladium was ahead by $1 at $244 an ounce, and rhodium climbed $1.50 to $1287.50 an ounce.

The gold bullion price was coasting on leftover sentiment from the Fed announcement that rates will stay low for the time being. The dollar, on the other hand, took some dents this morning, following disquieting words from China about the putative need for a ‘supra-national' reserve currency. As if the country can afford to witness and then tally up the effects of a hasty replacement of the greenback in the global reserve system.

It may well be a “defect” –as the Chinese put it- of some kind to have one currency be the dominant player in that system, but the process (not to mention the choices to make) of adjusting such an imbalance would be years away in practical terms. At any rate, it appears that the PBOC waited just long enough for their US guests to leave Beijing before starting to jawbone about the dollar once again. We will see next week, whether or nor Russia joins the fray, and/or if Japan verbally defends the greenback again. It is, after all, the second largest holder of US debt out there.

The world's second largest currency trader, UBS AG, feels that the greenback will actually receive a boost from the Fed announcement and its views on inflation. Perma-bull gold bugs see a totally different Rorschach pattern in these developments, of course. To them, the negative real-interest rate environment still presents the prefect…golden opportunity.

The dollar may well come to be supported by the Federal Open Market Committee's view on inflation, according to UBS AG, the world's second-biggest currency trader. “The rising yields post-FOMC helped support the dollar as an improving yield advantage helps attract capital flows,” Brian Kim, a strategist in Stamford, Connecticut, wrote yesterday in a report.

“This was in response to the more hawkish FOMC wording on inflation and in the absence of sovereign concerns the dollar should continue to benefit with the European-U.S. two-year yield differentials having narrowed by 36 basis points alone since June 4.”

Thus, despite “we should buy more gold rather than US Treasuries” mutterings from yet another Chinese official, the dollar and its unwillingness to roll over and simply die, continues to be sufficiently in demand to at least remain around current levels and to possibly rise quite a bit more after rate hikes do start to materialize (we still think fourth quarter, or thereabouts).

In another “what is America coming to?” stunner, Mr. and Mrs. Mainstreet are apparently frustrating the US economic recovery, by turning into (gasp!)…active savers. The savings rate among Americans surged to a 15-year high. What timing! Go figure that household financial discipline and restrained spending are now seen as potentially derailing the ‘green shoots' scenario. Go figure that finally imitating the Japanese at something that has always been seen as prudent and responsible is having the opposite effect on the economic scene.

Well, it is all only a legacy of the era of excess, and carefree shopping, when every retailer (including those of big ticket items such as home and cars, etc.) had geared up for profligate spending and expected it to take place every single weeknight and weekend. Lesson learned. Perhaps. Bloomberg reports that –despite this morning's figures showing consumer spending increasing in May – the trend is not your (the retailer's) friend:

“Saks Fifth Avenue is cutting orders 20 percent after posting losses in the last four quarters. Kia Harris says some customers at the Washington shoe store where she works are buying one pair rather than three.

In the recession following a borrowing binge that sent consumer debt to the highest level ever, Americans are shutting their wallets and building their nest eggs at the fastest pace in 14 years.

While the trend will put the country's finances in better balance and reduce its dependence on Chinese investment, it may also restrain economic growth in 2010 and beyond, said Lyle Gramley, a senior economic adviser with New York-based Soleil Securities Corp. and a former Federal Reserve governor.

“There's been a fundamental change in people's behavior,” he said. “It will affect the economy for years.”

Government data today showed that the household savings rate rose to 6.9 percent in May, a 15-year high, as personal spending increased less than incomes. The rate in April 2008 was zero.

Americans' newfound frugality is pinching airlines such as Chicago-based UAL Corp., which is cutting staff amid dwindling demand for leisure travel. Donations to charities dropped last year for the first time since 1987, and they're in danger of declining further in 2009.

Banks are benefiting. Deposits grew 1.7 percent in May, the ninth-biggest monthly rise since 1973.

‘Not an Anchor'

Nouriel Roubini, an economics professor at New York University and chairman of RGE Monitor, forecasts that the savings rate will ultimately reach 10 percent to 11 percent. What's critical, he said in a Bloomberg Television interview on June 24, is how quickly it increases.

A rapid rise in the next year because of a collapse in consumption would push the economy, already in its deepest contraction in 50 years, further into recession, he said. If it occurs over a few years, the economy may grow.

Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York, bets the latter is more likely. “The saving rate will be a weight, not an anchor,” restraining expansion, not stopping it, he said. He sees the economy growing 2.8 percent next year after contracting 2.5 percent in 2009.

“The recovery is showing signs of life,” Chris McWilton, president of MasterCard Inc.'s U.S. markets, told a conference on June 4. McWilton, whose Purchase, New York-based company has the world's second-biggest electronic payments network, said the “freefall” in consumer spending has abated.

Revision Possible

Americans might already be putting away more than the official figures suggest, Maki said. He expects the government will revise the savings rate higher to reflect more up-to-date data on incomes and consumption when it releases its so-called benchmark economic revisions on July 31. The bigger cash reserves will lessen U.S. dependence on investment by China and other foreign countries to finance economic growth, Gramley said. The current-account deficit, which includes trade in goods, services and income transfers, narrowed in the first quarter to its lowest since 2001 as Americans saved more and brought fewer imports.

Banks are already gaining from American's thriftiness. Fed data show that deposits at commercial banks stood at $7.5 trillion in the week ended June 10 after recording the biggest monthly increase of this year in May. “They're getting cheap deposits,” said Allen Sinai, chief economist at Decision Economics in New York. “It's part of the healing process.”

Rebuilding Balance Sheets

From 1960 until 1990, households socked away an average of about 9 percent of their after-tax income, government figures show. Americans got out of the habit in the 1990s as they saw their wealth build up in other ways, first through surging stock prices and then soaring home values, Gramley said. That process has now gone into reverse. U.S. household wealth fell by $1.3 trillion in the first quarter of this year, with net worth for households and nonprofit groups reaching the lowest level since 2004, according to a Fed report. Wealth plunged by a record $4.9 trillion in the last quarter of 2008.

Edmund Phelps, winner of the Nobel Prize in economics in 2006 and a professor at Columbia University in New York, said it may take as long as 15 years for households to rebuild what they lost in the recession.

“The only way we're going to get a healthy, full recovery is over a long period of time, involving households rebuilding their balance sheets,” Phelps said in an interview on June 22 with Bloomberg TV. “There's no silver bullet that's going to get us into good shape quickly.”

‘Opportunity Corner'

Retailers are adjusting their strategies to reflect that new reality of a permanently higher savings rate. Saks Inc., Neiman Marcus Group Inc. of Dallas and other luxury businesses are reducing orders this year to limit supply and boost profitability. “Across the board you are going to find less of the sizes, less of the availability in almost all of the categories,” Saks Chief Executive Officer Stephen Sadove said in an interview on June 23. The company, which is based in New York and operates 53 Saks Fifth Avenue stores, is aiming to purchase at least 20 percent less from its vendors in 2009.

At her ECCO shoe store in Washington, Harris said more products are being discounted. There used to be only two sales per year. Now, the store has a section set aside for an “opportunity corner,” where something is always on sale, she said.

Travel and hospitality companies also are facing up to the change in consumer behavior. UAL's United Airlines wants to eliminate 600 flight attendant jobs on top of 1,550 cut in 2007.

Charities Cut Back

Marriott International Inc., the biggest U.S. hotel chain, plans to reduce debt by as much as $650 million this year to counter a decline in travel spending. “The economic conditions in the U.S. and in the world remain pretty difficult,” Carl Berquist, chief financial officer of the Bethesda, Maryland-based company, said on June 2. Charities are also cutting back, in some cases eliminating staff and programs, said Del Martin, chair of the Chicago-based Giving USA Foundation.

Without a surge in donations later this year, charitable giving may fall for the second year in a row after dropping to $307.7 billion in 2008 from $314.1 billion in 2007, she said.

Billionaire investor Warren Buffett said it will take time for the U.S. to rebuild its savings and work off debt.

“It's a slow process, de-leveraging an overleveraged economy, including the consumer,” Buffett, who is chairman and CEO of Omaha, Nebraska-based Berkshire Hathaway Inc., said in a Bloomberg TV interview on June 24. “It can take a while.”

We will need to watch such emerging trends with care, as they could surely affect investment behavior as well. No question, speculative assets will fall out of favor and squirreling away money into savings accounts will be all the rage under such conditions. But, first, the trend has to prove that it can hold. Sentiment has to prove that is does not turn on a dime and change direction as soon as the first ‘all-clear' signal is given for the US economy. We say, the jury is in the deliberations room. Still.

If it's Friday, it must be commercial time. This is one commercial we gladly make exceptions for. The Freedom Fest in Las Vegas, coming up in a very short time. Where else can you go this hot summer, and get what is effectively nine conferences rolled into one? The Las Vegas Freedom Fest, of course. The agenda for this year's big show, FreedomFest, is now available online at www.freedomfest.com . FreedomFest 2009, scheduled for July 9-11 at Bally's Events Center in Las Vegas, will smash all records, with over 1,000 expected to attend, including dozens of experts, authors, think tanks, and media. It's truly a Renaissance weekend for free thinkers, offering nine conferences in one. Here's the latest update:

Ø WORLD ECONOMIC SUMMIT: First, we offer a “World Economic Summit” with Larry Kudlow and Charles Gasparino, the CNBC top news team, on what's going on Wall Street today….. “Clear and Present Danger” is our theme. Keynote speakers include Steve Forbes, John Mackey (CEO, Whole Foods Market), Steve Moore and John Fund (Wall Street Journal), Congressman Ron Paul, and Tom Woods, author of the NY Times bestseller, “Meltdown.” Join us and emcee extraordinaire Chip Wood for the most important conference of the year.

Warren Coats (former IMF official) on “Modern Day Hyperinflations: After Zimbabwe, are we next?” Steve Forbes will also talk about his exciting new book “Power Ambition Glory” and NYTimes columnist and GMU Professor Tyler Cowen on “Does Capitalism Destroy Culture?”

Ø ALL STAR PREDICTION PANEL One of the highlights is the “All Star Prediction Panel” (Peter Schiff, Bert Dohmen, Alex Green, Fred Foldvary, Dennis Slothower) who warned attendees last year about the impending crisis. What are they predicting now, and how should you invest?

Ø TRIAL OF THE NEW CENTURY What caused the 2008 crisis, free-market capitalism or bad government policies? See defending attorney Steve Moore fight it out against prosecuting attorney Jeff Madrick (Emmy-award winning author of “The Case for Big Government”), with star witnesses Steve Forbes, Charles Gasparino, John Mackey, and Doug Casey. The audience will be the jury. This mock trial will be talked about for years. Expect C-SPAN and other media coverage.

Ø PLUS THESE BIG DEBATES “Wal-Mart, Good or Bad?” pits Ohio professor Richard Vedder against anti-Wal-Mart activist Al Norman….. “Immigration: Will Mexico Explode?,” with Roberto Salinas (Mexico Business Forum) vs. Dr. Eric Olsen (Tucson chiropractor)….Gene Epstein (Barron's economics editor) vs. Warren Coats on “Fed Up with the Fed?”….John Mackey (Whole Foods) and Michael Strong (FLOW) take on the Objectivists Ed Hudgins and Rob Bradley in “Randian vs. Conscious Capitalism.”

Ø 3-DAY INVESTMENT CONFERENCE FreedomFest offers a full 3-day investment seminar, with sessions on “best places to invest your money,” with Jon Nadler (Kitco), Frank Trotter (Everbank), Adrian Day, Martin Truax (MorganKeegan), Keith Fitz-Gerald (Money Morning), Joe Bradley (Investor's Hotline), Lou Petrossi, Van Simmons (rare coins and collectibles -- he's the world's best). Plus outlook for real estate (John Schaub) and energy (Rick Rule and top oil & gas experts). Plus the editors of Investors Business Daily.

Don't miss the Libertarian Entrepreneurs Panel, a perennial favorite. This year hear John Mackey (Whole Foods), Christopher Ruddy (Newsmax), Rick O'Donnell (Action ABA), and Charles Murray (AEI) discuss how to “make it, spend it, and give it away.” Plus Steve Mariotti (NFTE) on how creating profitable businesses changes the lives of inner city youth.

Ø GEO-POLITICAL FORUM What's the outlook for the Middle East and other hotspots? What's going on inside the Washington beltway? Get the latest update from Ed Feulner (Heritage), David Boaz, Dan Mitchell, Michael Tanner, and Richard Rahn (Cato), Al Regnery and R. Emmett Tyrrell (American Spectator), Jon Utley (American Conservative), Tom Palmer (Atlas),Christopher Ruddy (Newsmax), Wayne Allen Root (author of “Conscience of a Libertarian”), and David Nott, Matt Welch, and Brian Doherty (Reason).

Plus special session on “State Think Tanks: How Effective Are they?” with Lawrence Reed (FEE and the Mackinac Center), John Taylor (Virginia), Bryon Schlomach (Goldwater), and Holly Jackson (State Policy Network)….Nelson Hultberg on “The Need for a Third Party Revolution”…. “Education or Indoctrination?” with for-profit education presidents Dick Bishirjian (Yorktown) and John LaNear (Grantham), and Greg Lukianoff (FIRE).

Ø RON PAUL'S CAMPAIGN FOR LIBERTY Over 2000 people will jammed the Bally's Events Center Friday night, July 10, to hear Tom Woods and Congressman Ron Paul updates us on the machinations of Death Star (Doug Casey's name for Washington). Not to be missed.

Ø NEW MEDIA SERIES Conservative marketing guru Floyd Brown leads a 4-session series on powerful techniques in email, blogging, and other new media, with the world's most successful experts. Plus Richard Viguerie (American Target) on “Magnify Your Business or Resign!”, Craig Huey on 16 strategies for business owners, and Marsha Friedman on her new book, “Celebritize Yourself”…plus Nathan Tabor on “Building a Political Following on Twitter, Facebook and Blogosphere.”

Ø LIBERTY EDITORS CONFERENCE Held every year at FreedomFest, Liberty magazine editors (Stephen Cox, Doug Casey, Drew Ferguson, Jo Ann Skousen, Charles Murray, Randall O'Toole, David Friedman, David Boaz, Kathy Bradford) offer 10 sessions, including a big debate on “Anarchy vs. Limited Government” and “Liberty and Religion.”

Ø OFFSHORE TAX BOOT CAMP Beat the tax man with offshore planning, the benefits and risks of moving abroad, and legitimate tax shelters. Learn from the experts: Vern Jacobs, CPA, and Marshall Langer, the world's premier international tax attorney, who will speak on the advantages of moving to a low-tax state or a tax haven, and the advantages of a second passport. In addition, estate planning experts Jeff Verdon and David T. Phillips will offer solutions to higher taxes under Obama. Hear also financial experts Ron Holland, Jon Golding, Joe Gandolfo, Peter Zipper, and Michael Checkan.

Ø SACRED TEXT PROJECT Hear a Rabbi, a Christian, a Muslim, a Sikh and a Mormon defend their sacred scriptures, and debate the role of religion in a no-holds-bar roundtable with Michael Shermer, editor of Skeptic magazine and Scientific American. Gurucharan Khalsa will lead us in yoga exercises each morning.

Ø SCIENCE FICTION MINI-FESTIVAL Michigan Professor Eric Rabkin of the fantasy world of J. R. R. Tolkien, Brian Doherty on Robert Heinlein, Jo Ann Skousen on “Romance, Technology and Nature in Literature,” and Rollins Professor Socky O'Sullivan on “How to Write a Classic.”

Ø HEALTHY LIVING SERIES John Mackey on “Whole Foods Longevity Diet”….Harry King, MD, on “Living to be 120 and Enjoying it”….George and Mimi Murdock on “Health is Wealth”…and Sihk Gurucharan Khalsa on using yoga and meditation to live longer and better.

Ø POTPOURRI Always my favorite category. See Missouri history professor Steven Watts on “Fantasyland, Walt Disney, and the American Dream,” followed by “Playboy, Hugh Hefner, and the American Dream”…..plus Don Hauptman on Ayn Rand's Playboy interview…..French Canadians Julie Barlow and Jean-Benoit Nadeau on “Sixty Million Frenchmen Can't be Wrong” and “The Story of French”…..David Wang on strange connection between Confucius and America's Founding Fathers (especially Franklin and Jefferson)….Alex Green on “Spiritual Wealth: Money and the Meaning of Life”…..Michael Shermer on the 200th anniversary of Charles Darwin…and Hillsdale Professor Tom Krannawitter on the 200th anniversary of Abe Lincoln, “Vindicating Lincoln Against his Libertarian Critics”….and Santa Clara Professor Fred Foldvary defending Henry George and his single tax on land….Troy Dayton on “Should Drugs be Legalized?”….Harvey Mudd Professor Art Benjamin on “The Joys and Mysteries of Mathematics”….plus a Mystery Guest Speaker you won't want to miss!

Ø EXHIBIT HALL EXTRAORDINAIRE Over 100 exhibits, including all the major free-market think tanks and freedom organizations (Cato, Heritage, Reason, Fraser, Hillsdale, FEE, Goldwater, State Policy Network), major publications such as Liberty magazine, Human Events, American Spectator, Wall Street Journal, Forbes, and Investors Business Daily, and major investment firms. Laissez Faire Books is once again our official bookstore.

Ø GALA SATURDAY NIGHT BANQUET Attendees always love our grand finale, the Saturday night banquet. Last year's George Bush impersonator brought the house down--one attendee told us, “I haven't laughed this hard in ten years.” This year, enjoy another induction ceremony of the Free Market Hall of Fame, comments by Larry Kudlow, an unforgettable Beatles tribute band, Yesterday. Be sure to stick around for our version of Imagine

Ø PRE-CONFERENCE “ECONOPOWER” SEMINAR For those of you who arrive early Wednesday, July 8, I am holding a special 3-hour pre-conference seminar “EconoPower: Seven Power Tools for Managers, Investors and Policy-Makers.” It includes “The Ten Most Dangerous Economic Myths Today.” No extra charge.

For all the details, go to our newly designed website, www.freedomfest.com . (And while you're at it, listen to our new theme song, “Freedom and Gold.” It's intoxicating.) The conference agenda is now online.

Registration fee is only $495 per person, $795 per couple. Call Tami Holland, our conference coordinator, or register online:

1-866-266-5101

www.freedomfest.com

To paraphrase Ben Franklin, let's all hang out together in Vegas, or surely we shall all hang separately. Fly there, drive there, bike there, be there! I hope you will join us there. See you in Vegas in July 9 - 11, 2009

In the meantime, have yourself a wonderful weekend and stay tuned for Monday and whatever its trading day brings us.