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Good Morning,

Further advances were noted in bullion values overnight, as Indian buyers finally left some palpable footprints on the paths leading to their local jewelers. With one week to go before the window of auspiciousness closes for local buyers, relatively buoyant demand was finally seen in the country. Coming from zero and/or negative demand levels, any improvement in sales will be hailed as miraculous by the bulls. Of course, they also shouted (and loudly) that India does not matter to the market anymore...Anyway, careful with this rally say the pundits. India's newly reviving bauble demand is as fragile as the Antarctic Ice Shelf.

In the interim, the China/India IMF total gold sale story has resurfaced and appears not to have been questioned as to its veracity. Hmmm. In fact, the Commodity Online writer goes into details about how the proposed putative sale is a 'masterstroke' by India and China. Yes, we did say as much last week. Only, it's hard to believe that this kind of jawboning via the media is what will do the trick (price-wise) for them. We say, wait. June is not that far down the road. As to how far such sales might depress gold prices, your guess is as good as ours. However, the bidding starts below $600 on that piece of engineering. At a minimum. Gavels at the ready!

New York spot prices added another $6.50 per ounce this morning, starting the day off at $890. The $895 area still presents a tempting selling target, as little else aside from India is present on the scene to sustain a range in the $900-$920 zone (albeit a run towards that sunny beach may materialize- even this week). We see the market largely confined to this $850-$920 channel. Absent any 'stressed-out' news from the financial sector. Silver rose 12 cents to $12.22, while platinum recovered $4 after yesterday's swoon (it is still only at $1167). Palladium rose $1 to $225 an ounce. All quiet on the oil front, with black gold advancing a nickel (?!) to $49.93 per barrel. The greenback showed a bit of a slip after the euro climbed from 1-month lows, on the back of increases in German confidence.

Speaking of confidence, here is what Bloomberg's Amity Shlaes found on a recent investigative outing. A new metric for these troubled times. You might come to the NY Hard Assets Show in a couple of weeks to hear Amity in person. We sure will.

How much does consumer confidence matter?
A lot, you would think, if you listened to Washington or watched the news each week. The takeaway is that the consumer is an infant tyrant who must be jollied by politicians. With Washington’s cash in hand, that consumer will then spend, leading us all to recovery. This confidence in confidence derives partly from the established status of two confidence indexes, that of the University of Michigan and the Conference Board.
The confidence emphasis also comes from the economist John Maynard Keynes. Keynes wrote that market players act suddenly and not always rationally; sometimes, all it takes to restore confidence is new spending money. To Keynes, the market depended on “animal spirits -- a spontaneous urge to action rather than inaction.” Most of us sense that there’s more to revival than sudden desires for phones or cars, that the consumer isn’t always a mindless mall rat. Rational caution may be beneficial, tax breaks aimed at stimulating consumption, perverse.
“There is something inherently odd in telling people who have no money right now to shop,” says Paola Sapienza of Northwestern University’s Kellogg School. The emphasis on spending obscures other forces in the business cycle, like credit. The freeze in credit endured the warm oceans of cash that made this past winter disconcerting. Now Sapienza and Luigi Zingales of the University of Chicago are putting forward a new meter to join the old. Instead of measuring Americans’ confidence, this meter tries to capture trust.
The Chicago Booth/Kellogg School Financial Trust Index, launched this January and updated for March, asks more than 1,000 households how much they trust the big institutions or people that affect economic life -- banks, the equities market, the government, stock brokers. Grades range from 1, for “I do not trust the institution” at all, through 5, for “I trust the institution completely.”
While Sapienza and Zingales do use the word “confidence” at times in their poll, trust is their big theme. And trust is different from confidence because it is not instant or capricious -- trust is built over time -- and therefore relates more to contracts and credit. “Credit is suspicion asleep,” goes the old saying. The Financial Trust Index gives a mixed picture of the first part of 2009. The good news is that trust in the stock market has risen. Those polled in December 2008 rated their trust for the market at 2.13; that figure was up to 2.18 last month. This is a small change, but at least the right direction. Trust for the government, and by association for another Chicagoan, President Barack Obama, is likewise up slightly.
Still, the same Chicago trust-o-meter carries some negative messages. In December the pollsters asked: “Have the government interventions in financial markets over the last three months made you more or less confident in investment in the stock market?” A full 80 percent replied “less,” an annihilating mark for the performance of George W. Bush, then-Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke. Asked a similar question last month, 67 percent replied “less confident.”
Even a majority of Democrats, 61 percent, reported being less confident (compared with 79 percent in December). You would think the shift would have been more dramatic. This suggests that the early work of Obama and Treasury Secretary Timothy Geithner failed to persuade even their political supporters to invest -- or, perhaps, that the new administration’s work turned off significant numbers of political allies.
Why so dark? As Zingales suggested last fall, the trouble began with the Bush bailouts and the cynical premise that saving some Wall Street firms would prevent apocalypse or even benefit the rest. (No accident that the trust-o-meter was created in Chicago, not New York). As Zingales put it post-bailout, “Do we want to live in a system where profits are private but losses are socialized?” More recent Obama-era ideas like the pending Public - Private Investment Program sound friendly but, again, reward specific partners while leaving others out.
Worse, the very unpredictability of Washington’s actions is making investors hesitant to get back into the market. Keynes may refer to animal spirits. But Sapienza and Zingales argue that the average market player is like someone at the Monopoly board, who walks away when the rules, whether made by Democrat or Republican, change too often.
“You just don’t want to play anymore because you are not sure,” Sapienza put it last week. My own view is that “trust” work is important. By now everyone has noticed that uncertainty in the economy matters. We’ve also noticed that fiscal stimulus measures don’t seem to work as well as hoped, whether they are Bush’s infantilizing checks of last summer or Obama’s humongo outlays. The new Financial Trust Index may not yet be delivering particularly glowing news. Still, its very existence is another cause for market optimism.
Ah, so America has turned into a nation of cynics. Little wonder, this. Following 9/11 when certain vulnerabilities were exposed, and following too many years of a failed War on Terror (though some would dispute that by merely pointing to the lack of subsequent attacks on the country), and an amalgam of Katrina, political scandals, and the subprime mess (a mess that became the global economic mess) - what else would one expect them to be? Well, Irwin Kellner over at Marketwatch finds that perhaps the trust-o-scope should be turned towards the sun and fine-tuned...if just a bit:
Regardless of the results of the government's stress tests, you can be sure of one thing: Every bank will come in above average, just like all the children who live in Lake Wobegon. Like it or not, this is how the government will have to present the results. And guess what, if these are, indeed, the results, they will be essentially worthless. That said, the government plans to break it to us gently. This Friday, they will release a paper describing the stress test itself, including assumptions made regarding the different scenarios the banks might face in the future. On May 4th, the government expects to release the results of these tests. This promises to be a stressful day for the banks, their shareholders and their depositors. The markets will be on tenterhooks as well.
For you see, it would appear that the Treasury has gotten itself into a Catch-22. If every bank passes this test, what will the government have proven? And should the Treasury report that some banks failed this test, they will be gone quicker than you can say bailout. Clearly this is not what the Treasury had in mind when it devised these tests. But in doing so, it should have thought about the consequences to the banks and to the government of any outcome other than the one described in the first paragraph above.

Me, I think that these stress tests are an idea whose time should never have come. Look at it this way: If your doctor runs his treadmill fast enough, every one of his patients will eventually collapse -- no matter what shape they are in. The same is true for the banks: Assume a dire enough scenario, and no institution will survive. And here is the rub: The government is administering these what if tests just at a time when the economic outlook has stopped getting darker, and, if anything, has begun to brighten just a tad.

As I first pointed out in my column of Feb. 24 (and in virtually every column since), there are signs that the worst part of the recession appears to be over. In that column, I cited almost two dozen statistics and relationships that had begun pointing north. Since then, several have reversed course, but others have remained positive, while some new ones have joined the party. For example, retail sales now look like they turned in a solid gain in the first quarter after falling sharply in the previous period. Inventories have been chopped to a greater extent than expected. This means that business will have to ramp up output just to keep inventories from falling further.

Sentiment among consumers and homebuilders has risen by more than anyone thought, while exports jumped enough in February to bring our trade gap down to the lowest annual rate in 10 years. Don't take my word for it. People from President Obama to Federal Reserve Chairman Ben Bernanke have turned cautiously optimistic in the past few weeks. So have a number of pundits. Wall Street seems to agree. Even after Monday's drop, the major stock market averages are still up more than 20% from their early March lows.

Actually, we know (and would like to continue to know) Americans to be an optimistic bunch. True, we are dealing with a young -very young- nation here. One that has not seen really devastating (socio-economic) disruptions a la Europe, Asia, etc. Perhaps it is one of the reasons why, for the decades it has been legal for them to own and trade gold, only a paltry 5% of them (at best) have chose to do so. Remember, gold is all bout pessimism. At the moment. We have always dreamed of the day when gold shines for reasons of prosperity and confidence. That dream is alive.

No afternoon update; another aluminium sausage to ride in - over to NYC for the CME International Gold Dinner and Bloomberg Surveillance live on the radio.

Stay tuned.