Ozs GOLD 2010 Maple Leafs .9999 Pure U.S. Canada – USD 6,250.00

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Terrifying New Central Bankers

Yikes! The Fed's new nominee sparks an MHOA...

I KNEW THE INSTANT that I read the article's title, "Fed Nominees Seek Economic Boost", in the Wall Street Journal, that I was probably going to be outraged and end up screaming a fearful and angry Mogambo Howl Of Anger (MHOA), says the Mogambo Guru in Tampa, Florida, writing for The Daily Reckoning.

It was, alas, a feeling of doom that soon gave way to stark fear when I saw that the accompanying photo was captioned "Fed nominees – Janet Yellen, Peter Diamond and Sarah Bloom Raskin – at a Senate hearing Thursday."

I am already petrified of this Yellen woman and the horrifying things that she has said over the years, and probably done, for all I know, and maybe far worse than even I expect. In fact, I am so distrustful of the "sacrificing the minority to benefit the majority" insanity that I am sure that they would have no qualms about killing all the first-born sons if it meant a higher standard of living for the remaining population, a proud tradition she perpetuates when she embarrasses herself by testifying:

"Over the next few years, the Fed must craft policies that ensure that our economy accelerates its progress along the recovery path it has begun to trace."

Yikes!

Because I was paying so much attention to my sudden crushing chest pains and my left arm going numb at what she said, and the fearful inflationary implications thereof, I was not sure if my hands were shaking at the prospect of the Fed creating enough money to "ensure that our economy accelerates."

So I stood up, raised my hands and loudly asked, "Hey! Are my hands shaking?"

Well, almost everyone said something rude along the lines of, "Shut up, you creepy little weirdo" or, "Hey! I'm on the phone here, moron!" but a few acknowledged that, yes, my hands were shaking. So I said:

"Of course my hands are shaking, you morons! Yours should be, too, when you read about the staggering amount of money and credit that the Federal Reserve is willing to create, according to this horrid woman, which is sufficient to be deemed 'all the help that the Fed can provide over the coming year,' which is a truly terrifying thing for those of us who fear the terrible miseries of inflation in consumer prices that such monstrous inflation in the money supply will bring!"

Well, everyone went back to work, most of them shaking their heads and muttering under their breath, so I went back to reading the article, and saw that Ms. Yellen apparently mentioned something along the lines of, "the Fed achieved price stability for a generation," which made me want to laugh, and would have, too, if I wasn't so angry that I was grinding my teeth together so hard that sparks were flying out of my mouth.

So, to distract myself, I looked up the definition of "generation" and found that a "generation" is 30 years, which really, REALLY makes me want to laugh that Ms. Yellen would be so boldly, so brazenly, so bereft of brains that she would DARE say that the Fed has achieved price stability for 30 years!

Even the Bureau of Labor Statistics calculator shows that $1 in 1980, 30 years ago, had the buying power of $2.65 today! That's 3.3% a year, compounding for 30 years, for crying out loud!

As Exhibit A in my persecution of Ms. Yellen, according to thepeoplehistory.com, "In 1980 the average cost of new car was $7,210.00," and now the average cost of a new car in the United States is $28,400, according to the National Automobile Dealers Association.

I apologize for bringing up the cost of cars because you and I both know that the car we really, really want is not an "average car" that costs $28,400, but one that costs at least $75,000, and usually more, lots more. Of course, we can't afford either of them, like we are some kind of big-shots who could even afford the insurance on a snazzy ride like that, which we find, after careful research, that we could actually swing if the spouse left and took all the kids, vowing never to return, but who kept paying the mortgage!

Then you realize that THAT sure ain't gonna happen, either, and this is just one MORE thing to be angry about, as if you didn't already have enough heavy crosses to bear.

Well, peoplehistory.com also notes, probably as Exhibit B, that "From Our 80s Price of Food Section," milk was 85 cents a 1/2 gallon, while I easily find that the average price for a half-gallon today is $2.06.

So, Ms. Yellen, price stability? Hahaha! A stable currency? Hahahaha! Isn't the expressed mission of the Federal Reserve to provide a stable currency? Hahaha! I laugh at you! This is outrageous inflation!

Again, the more frightened and enlightened among us scream in dismay in the dark, dank dismay of doom and destruction, where all we have is a depreciating currency and gratuitous use of alliteration, meaning higher prices day after day, and month after month, and year after year, and decade after decade, each of them filled with people suffering because their incomes did not rise as much as inflation in prices because they were old, young, infirm, ignorant or just plain lazy, or otherwise had nothing to offer with which to bargain for higher incomes to offset inflation in prices.

So congratulations to the horrid Federal Reserve, and congratulations Ms. Yellen, for inflicting continuous financial pain on the population, despite the fact that the freaking mission of the Federal Reserve is to preserve the stability of the buying power of the Dollar. Hahaha! Failures all!

So while everything else was a crappy investment that barely broke even in nominal terms, they were dismal failures when adjusting for inflation, although you might happily note that buying gold and silver were fabulous investment decisions over the last 30 years, and for the 2,500 years before that, too!

And, I might add, just like right now. This amazing, wonderful consistency of precious metals makes investing so easy that you cannot stop yourself from happily laughing and clapping your hands together, saying, "Whee! This investing stuff is easy!

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New York restaurant launches gold dessert

A restaurant in New York has unveiled the world's most expensive dessert, which features a coating of edible gold leaf. The pudding, available at Serendipity 3 in the Big Apple, is called the Frrrozen Haute Chocolate and is valued at £15,730, the Metro reports.
The news feeds on this site are independently provided by Adfero Limited © and do not represent the views or opinions of the World Gold Council.

Gold pendants unveiled for Ramadan

A jewellers has unveiled a series of gold and diamond pendants designed especially for gifts at Ramadan. According to Al Bawaba, Pure Gold Jewellers has created two pendants for the festival, both of which are engraved with the word Allah in Arabic.
The news feeds on this site are independently provided by Adfero Limited © and do not represent the views or opinions of the World Gold Council.

Woman reunited with gold ring after 43 years

A woman who lost her gold class ring 43 years ago has at last been reunited with it. Elizabeth Gable had been celebrating her graduation in June 1967 with classmates from the Park School of Buffalo by relaxing on the shores of Lake Erie Beach in Canada when she lost the gold band.
The news feeds on this site are independently provided by Adfero Limited © and do not represent the views or opinions of the World Gold Council.

Gold artefacts to feature in Asian ancestral art exhibition

An upcoming exhibition of ancestral art from south-east Asia is set to feature a number of gold items. The Life, Death and Magic: 2,000 Years of Southeast Asian Ancestral Art display at the National Gallery of Australia in Canberra will open on August 13th and run until October 31st.
The news feeds on this site are independently provided by Adfero Limited © and do not represent the views or opinions of the World Gold Council.

Post office gold-selling scheme proving popular in Bangalore

Gold products sold by post offices in the Indian city of Bangalore are proving popular among consumers. This is according to the Deccan Herald, which reports that the general post office in the area sells 150 g of gold on average every month. Gold coins can be bought at nine post offices across the city.
The news feeds on this site are independently provided by Adfero Limited © and do not represent the views or opinions of the World Gold Council.

Rare pre-Islamic gold coins donated to Iranian museum

A collection of rare pre-Islamic coins - including numerous gold pieces - has been donated to a museum in Iran. The coins were given to the Astan-e Qods Razavi Museum in Mashhad by a private collector and include 59 gold coins dating back to periods ranging from the Abbasid to the Qajar dynasties, the Tehran Times reports.
The news feeds on this site are independently provided by Adfero Limited © and do not represent the views or opinions of the World Gold Council.

Gold Melbourne Cup arrives in NSW on worldwide tour

The gold Melbourne Cup has arrived in New South Wales as part of a tour of the globe. It entered Broken Hill today (August 9th) after first returning the country to tour the state of South Australia last week.
The news feeds on this site are independently provided by Adfero Limited © and do not represent the views or opinions of the World Gold Council.

China’s Rating Revenge

China's Dagong ratings agency is shaking up the West's 19th-century model...

THERE'S A NEW NAME in the credit-rating-agency business these days, writes Martin Hutchinson at Money Morning.

It's Dagong Global Credit Rating Co. Ltd. – a Beijing-backed business that represents China's bid for a spot in the global-credit-rating oligopoly.

Dagong's Chairman Guan Jianzhong doesn't think much of his long-established US competitors.

"The Western rating agencies are politicized and highly ideological and they do not adhere to objective standards," Jianzhong told the Financial Times earlier this month.

Is he right? And does the newly passed Wall Street Reform and Consumer Protection Act correct their flaws, or does it make matters worse? It's a question that affects all investors – even those of us that don't invest in bonds, as we'll soon see.

The credit-rating-agency system we have today grew up in the 19th Century. It was supposed to provide a way for bond investors to get information about credit quality of the corporate bonds they held or were interested in buying or selling – a bit of data that was very hard to get in those days, given the almost invisible standards of disclosure.

As regulators took over such industries as the insurance sector following the Great Depression, it appeared to make sense to use credit ratings as investment guidelines for the insurance companies' bond portfolios. When securitization came along after 1980, credit-rating agencies were naturally used to provide assurances about the underlying pools of assets that investors had no hope of assessing independently.

With corporate debt, the credit-rating system worked reasonably well. The rating agencies were paid by the issuer, which was theoretically a conflict of interest. However, investors were protected by the fact that the rating agencies needed to preserve their reputations: If too many AAA-rated companies went belly-up, the rating-agency system would have fallen into disrepute.

Internationally, there were always problems. Just take Venezuela. For decades, the rating agencies – blinded by the beauty of that country's oil reserves – rated Venezuela as a "triple-A" investment. We saw how badly that ended. But domestically the system worked pretty well. The rating agencies got pretty good at corporate credit assessment, preserving themselves from trial lawyers by stating firmly that they were only expressing an opinion on the value and quality of securities – like journalists, really.

The problem arose with securitization. It is now clear that neither the originating banks nor the rating agencies really understood securitization credit risk. They took a portfolio of assets being securitized, looked at historical default rates and applied so-called"binominal distribution analysis" to calculate the probability of the bonds defaulting.

If the portfolio consisted only of prime home mortgages, this approach wasn't all that inaccurate.

The problem came with assets of less-than-prime quality, and tranched securitizations, in which the top tranche would be issued as AAA-rated bonds and lower tranches as lower-rated bonds.

According to modern financial theory, the probability of default of the top tranche of even subprime mortgages was very small, indeed. However, the theory failed to take account of the possibility that the defaults might be correlated. If underwriting standards deteriorated, all the mortgages written during a bubble might be of extra-poor quality. If house prices declined nationwide, all the riskier subprime mortgages would be in trouble.

The theory underlying the calculations of default risk was rubbish, so the ratings were rubbish. Yes, rating agencies were in a conflict of interest, and allowed the investment-bank quants to "help" them in their analysis. But the investment bank quants – who were paid only if deals got done – also did not think hard enough about possible flaws in the theory.

That was the catalyst for the collapse of the U.S. housing market. From late 2007, AAA-rated tranches of subprime mortgages started defaulting. Double securitizations, in which securitized assets were re-securitized (for example, BBB-rated tranches of mortgage bonds were packaged together and tranched again) were even more screwy than ordinary securitizations, because the errors in the calculation were doubled.

Needless to say, rating agencies became pretty discredited. But they haven't been successfully sued, because they were able to claim that their ratings were just like a novel really – artistically elegant, but pure fiction.

The new Wall Street Reform and Consumer Protection Act attacks the rating-agency problem, but misidentifies it. It assumes that the rating agencies were seduced by the issuers into issuing misleading ratings, and that their integrity was at fault.

But that's not really correct: There has been no great epidemic of mis-rated corporate debt defaults. The rating agencies simply did not understand the characteristics of what they were rating in the securitization area – they were stupid rather than venal.

However, the Democrat Congress being what it is, its solution has been to force the rating agencies to take firm legal responsibility for the ratings that they issued – thereby handing them over to the tender mercies of America's trial lawyers when things go wrong.

In the short period since the law passed, the rating agencies have essentially refused to issue public ratings (they'll tell a bond buyer what his bonds should be rated, but only secretly). If this continues, of course, the agencies will soon have no business at all. So it won't continue forever.

In the corporate-credit arena, the market will probably re-establish itself – after some heavy work by the rating agencies' lawyers and a massive increase in costs. After all, the rating agencies really are quite good at rating corporations. However, given modern standards of disclosure, investors are also competent in this area. So the involvement of the rating agencies won't be absolutely essential.

A problem remains with securitizations. For anything but the most standard assets, investors have no way of accurately assessing the credit risk of a pool of miscellaneous assets. Given the legal liability they now face, the rating agencies will be extremely cautious in granting ratings to anything that isn't rock-solid.

There are two possibilities. The legal advisors may tell the rating agencies that the risks of rating securitizations is simply too great – in which case securitization will disappear altogether, and banks will be forced to hold the home mortgages, credit-card debts and auto loans they originate. That might work in the long run, but would cause huge disruption for several years, and probably a very deep recession.

The most likely outcome will be for the rating agencies to continue to rate securitizations, but very cautiously. In that case, mortgages, auto loans and credit cards will be more difficult to get, but not impossible, and the junk issued during the bubble of 2002-07 will not reappear. On balance – given the tendency of the U.S. consumer to take on too much debt – this could be a very good thing.

For investors who buy bonds, credit ratings in 2011 may be somewhat more conservative than they have been. So a 2011 ‘AA' may be equivalent to a 2010 ‘AAA.' For investors who as consumers want a mortgage, credit cards or an auto loan, the future does not appear so bright.

Of course, we could always get our credit ratings from Dagong – which, incidentally, is backed by Beijing. If that's the route we travel, allow me to wish the US trial lawyer community the best of luck going forward. When the time does come to sue, they'll not find it so simple to navigate China's legal system.

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