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12/13/2011 FindLaw How MF Global Almost Got Away With Everything

12/13/2011 Forbes How MF Global Almost Got Away With Everything

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12/13/2011 Minyanville How MF Global Almost Got Away With Everything12/1/2011 99.1 FM Talk Univeral Value Advisors Radio Appearance

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8/17/2011 Yahoo FinanceWhy the Mortgage Market Is an Impediment to Economic Growth

8/16/2011 benzingaWhy the Mortgage Market Is an Impediment to Economic Growth

8/16/2011 ABC Channel 2 NewsWhy the Mortgage Market Is an Impediment to Economic Growth

8/16/2011 RSScockpit.comWhy the Mortgage Market Is an Impediment to Economic Growth

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8/16/2011 XYDO.comWhy the Mortgage Market Is an Impediment to Economic Growth

8/15/2011 LifeWhile.comWhy the Mortgage Market Is an Impediment to Economic Growth

8/15/2011 MinyanvilleWhy the Mortgage Market Is an Impediment to Economic Growth

8/15/2011 Morgage World OnlineWhy the Mortgage Market Is an Impediment to Economic Growth

8/15/2011 New Morgage ReviewsWhy the Mortgage Market Is an Impediment to Economic Growth

8/15/2011 Reoavenue.comWhy the Mortgage Market Is an Impediment to Economic Growth

8/15/2011 SquareMove.comWhy the Mortgage Market Is an Impediment to Economic Growth

8/15/2011 Ragator.comWhy the Mortgage Market Is an Impediment to Economic Growth

8/15/2011 Updown.comWhy the Mortgage Market Is an Impediment to Economic Growth

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8/15/2011 Financialcontent.comWhy the Mortgage Market Is an Impediment to Economic Growth

8/9/2011 MarketWatch QE3 is still Inevitable

8/8/2011 friily QE3 is still Inevitable

8/2/2011 KTVN Stocks Plunge 500 Points

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7/15/2011 ING Direct Investing Carries Risks‐‐Even for Gold

7/14/2011 Before It's NewsPeeking Into Ben Bernanke's Bag Of Unconventional Monetary Weapons

7/13/2011 Forbes.comPeeking Into Ben Bernanke's Bag Of Unconventional Monetary Weapons

7/13/2011 WSJ.comPeeking Into Ben Bernanke's Bag Of Unconventional Monetary Weapons

7/13/2011 MoneyWatchPeeking Into Ben Bernanke's Bag Of Unconventional Monetary Weapons

7/13/2011 www.silobreaker.comPeeking Into Ben Bernanke's Bag Of Unconventional Monetary Weapons

7/13/2011 www.bullfax.comPeeking Into Ben Bernanke's Bag Of Unconventional Monetary Weapons

7/13/2011 Yahoo! NewsPeeking Into Ben Bernanke's Bag Of Unconventional Monetary Weapons

6/9/2011 Minyanville The Concept of Inflation as a Measure of Standard of Living

6/1/2011 The Street Greek Euro Exit? More Pain Than Gain

5/26/2011 The Street Why Lagarde at IMF is Bad for U.S., World Economy: Opinion

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4/25/2011 Forbes Commodity Bubble Redux In Full Effect

4/15/2011 Market Watch Gold investing: what to do and how to do it

4/11/2011 NNBW Blogs bring national exposure to investment manager

3/28/2011 Minyanville The Fiscal Plight of the US: Three Scenarios

2/26/2011 Blog Talk Radio Robert Barone and Ryan Mack

2/25/2011 Forbes Yet Another Wall Street Bailout

2/23/2011 Forbes Another one Right in The Fannie for Taxpayers

1/18/2011 My Bank Tracker JPMorgan Shows Strong Financial Gains in Fourth Quarter

1/17/2011 RGJ Robert Barone: Expect internet rate

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Why the Mortgage Market Is an Impediment to Economic Growth

4 weeks agoBusiness & Finance / Investing : Minyanville

The lack of clarity surrounding U.S. and worldwide economic growth certainly played a big role in the recent Wall Street sell-off. In part itwas precipitated by the “debt ceiling” prank that was played upon the country and the world especially after the market dissected the dealand found that through the use of smoke and mirrors economic growth (and therefore tax revenues) was assumed to be 4% -- a growthrate that is hard to fathom at least for the U.READ FULL BLOG POST

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Why the Mortgage Market Is an Impediment to Economic Growth

Aug 16, 2011 - 12:22 PM EDT

By Robert Barone

The lack of clarity surrounding U.S. and worldwide economic growth certainly played a big role in the recent Wall Street sell-off.

Head over to Benzinga to read more

Source: Benzinga (Aug 16, 2011 - 12:22 PM EDT)

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Why the Mortgage Market Is an Impediment to Economic GrowthBy: Minyanville

The lack of clarity surrounding U.S. and worldwide economic growth certainly played a big role in the recent Wall Street sell-off. In part it was precipitated by the “debt ceiling” prank that was played upon the country and the world especially after the market dissected the deal and found that through the use of smoke and mirrors economic growth (and therefore tax revenues) was assumed to be 4% -- a growth rate that is hard to fathom at least for the U.S. and Europe given the financial landscapes in these two major consuming regions.Housing and GDPHousing is a case ...

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Investing carries risks -- even for goldMarkets are OPEN: July 15, 2011 12:01 AM ET - MarketWatch Databased News

SAN FRANCISCO (MarketWatch) -- Gold prices hit record highs this week and they're looking increasingly more bullish, but there

are a few things that can put a damper on the metal's party.

After all, there are risks in every investment, including gold -- even though few seem to think so.

"In any investment analysis, particularly one in which you've come to a bullish conclusion, an investor needs to constantly check

their premises," said Brien Lundin, editor of Gold Newsletter. "You need to ask, 'what can go wrong?' in your argument."

So I queried several analysts, asking them for a list of some of the factors that could potentially weigh on gold or cause a drop in

prices. Some refused to participate, some provided only the bullish case for gold and others offered scenarios that would pressure

prices, but said they're not likely to happen any time soon.

That's no surprise. Gold prices have experienced a steep climb over the past decade. On Thursday, gold logged a record settlement

price of $1,589.30 an ounce in New York. Read about Thursday's gold action.

"This year, investors have been engulfed by the perfect storm for gold, resulting from the Japanese earthquake and tsunami, Middle

East and North African turmoil, credit downgrade warnings in the U.S. and the exacerbation of euro-zone debt fears, amongst

others," said Jeb Handwerger, editor of GoldStockTrades.com.

"This chaos has had a positive effect on gold bullion and now investors are finally jumping on board," he said. "This may be a

significant move for several weeks."

So why should anyone even suggest the possibility for any sizable declines in gold prices?

If the market develops a "parabolic rise" it may encounter "severe downturns," said Handwerger, who's also a natural-resource

analyst. "Investors in any asset must grow cautious as a trade becomes crowded."

Tides can turn

Finding out just how much caution to take is a challenge in a market where, apparently, a bullish stance is most common and

supportive news for gold prices is plentiful.

But silver is a good example of just how quickly a tide can turn.

For the month of April, silver prices were up 28%, then posted a drop of 21% for the month of May following a series of margin

requirement increases that squeezed some investors out of the market. Read the May 31 story on gold and silver.

"The recent spike in silver, followed by a waterfall decline due to the raising of margin requirements, reminds long-term precious

metals investors that one must be prepared to accumulate products when there is a panic and sell them when there is euphoria,"

said Handwerger.

The story is, of course, different for gold, though it wasn't completely immune to silver's plunge. Gold was up 8.1% in April then fell

1.2% for May.

Investors "need to distinguish between the ups and downs of the gold price and the gold stocks -- the volatility over the hours, days,

weeks and maybe even a few months, and the underlying factors which have driven the prices of gold to all-time highs," said

Marshall Berol, co-manager of the Encompass Fund in San Francisco, stressing that he does not believe in a bear case for gold

over any reasonable period of time.

"It's not just the dollar, printing presses, storehouse of value, geopolitical issues, the euro, the interest of consumers and

governments in wanting to own gold, and supply issues, as the media points to any one of these on any given day," he said. "It's the

ongoing combination of all these factors."

For an investment that's driven by so many different factors, gold has been surprisingly predictable most of the time. Maybe that's

part of what makes it so attractive.

But given the unpredictable nature of all of those factors that have so far driven the price of gold higher, it wouldn't hurt to at least

consider the risk of a change in gold's trading environment.

Plausible risk

Although analysts were reluctant to offer potential scenarios that may hurt the price of gold, they still managed to come up with quite

a few of them.

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Jul. 13 2011 -Posted by Robert Barone

Helicopters are airborne

We saw the Fed liquefy the world in ’09 including non-member foreign banks over which they havelittle influence or authority. And now we have learned that they secretly loaned huge amounts tothe primary dealers in the aftermath of the financial crisis. Then we saw them intervene againwith the late August, 2010 announcement and subsequent June, 2011 completion of QE2. Duringthe latter intervention, the Fed essentially monetized much of the U.S. budget deficit.

Given the fact that the presidential election cycle has already begun, we strongly suspect that theweakening economy and upward pressure on interest rates due to oversupply will cause furtherFed intervention, even if it isn’t called QE3. Bernanke said as much today before Congress.

Earlier, at his post-Federal Open Market Committee (FOMC) press briefing, Bernanke indicatedthat if job growth falls below 80,000 per month, the Fed would likely intervene again. (Job growthhas now been below 80,000 for two consecutive months!) So, “when” it comes (not “if”), whatsort of intervention can we expect?

A look back at then Fed Governor Bernanke’s November 21, 2002 talk before the NationalEconomists Club of Washington, D.C. entitled ‘Deflation: Making Sure ‘It’ Doesn’t Happen Here,’

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Peeking Into Ben Bernanke’s Bag Of Unconventional Monetary WeaponsJul. 13 2011 - 5:10 pm | 830 views | 0 recommendations | 0 comments

posted by ROBERT BARONE

We saw the Fed liquefy the world in ’09 including non-member foreign banks over which they have little influence or authority. And now we have learned that they secretly loaned huge amounts to the primary dealers in the aftermath of the financial crisis. Then we saw them intervene again with the late August, 2010 announcement and subsequent June, 2011 completion of QE2. During the latter intervention, the Fed essentially monetized much of the U.S. budget deficit.

Given the fact that the presidential election cycle has already begun, we strongly suspect that the weakening economy and upward pressure on interest rates due to oversupply will cause further Fed intervention, even if it isn’t called QE3. Bernanke said as much today before Congress.

Earlier, at his post-Federal Open Market Committee (FOMC) press briefing, Bernanke indicated that if job growth falls below 80,000 per

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month, the Fed would likely intervene again. (Job growth has now been below 80,000 for two consecutive months!) So, “when” it comes (not “if”), what sort of intervention can we expect?

A look back at then Fed Governor Bernanke’s November 21, 2002 talk before the National Economists Club of Washington, D.C. entitled ‘Deflation: Making Sure ‘It’ Doesn’t Happen Here,’ gives us some clues. In that talk, he ostensibly outlined all of the tools available to the Fed if the overnight (Fed Funds) rate hit zero. After all, at the time of the speech, deflation wasn’t expected in the foreseeable future, so he would have no reason not to outline all the tools he could think of. I have outlined them below:

#1: Expand the scale of asset purchases;•

#2: Expand the menu of assets the Fed buys.•

Both QE1 and QE2 used these tools. In QE1, the Fed purchased non-traditional assets for its portfolio, including mortgage backed securities (MBS) and derivatives. In both QE1 and QE2, the “scale” of asset purchases was dramatically increased.

#3: A commitment to holding the overnight rate at zero for some specified period.

•

This tool is currently in practice with the Fed’s “extended period” language in the Federal Open Market Committee (FOMC) minutes.

#4: Announcement of explicit ceilings on longer-maturity Treasury debt.

•

This isn’t new. The Fed did this in the 1940s and a version of it again in the 1960s. During a period of approximately 10 years ending with the Federal Reserve-Treasury Accord of 1951, the Fed “pegged” the long-term Treasury bond yield at 2.5%. And, during the Kennedy Administration, the Fed sold T-bills and purchased an equal amount of longer dated T-Notes in order to reduce long-term rates. Bernanke believes that the announced policy of pegging will cause arbitrageurs to keep yields near the announced peg, especially if the Fed intervenes several times to prove its commitment.

#5: Directly influencing the yields on privately issued securities.•

“If the Treasury issued debt to purchase private assets and the Fed then purchased an equal amount of Treasury debt with newly created money, the whole operation would be the economic equivalent of direct open-market operations in private assets.” Think GM, Chrysler, AIG.

#6: Purchase foreign government debt.•

The Fed would do this, Bernanke explains, to influence the market for foreign exchange, i.e., to weaken the dollar. He points to the dollar devaluation of 1933-34 as an “effective weapon against deflation”. “The devaluation and the rapid increase in the money supply it permitted ended the U.S. deflation remarkably quickly … The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market.” (While this is true, a mere two years later, after the withdrawal of government stimulus, a second severe recession began, one that would last until the U.S. geared up for World War II. And the 1937 slump in stocks was one of the largest on record.)

#7: Tax cuts accommodated by a program of open market purchases.

•

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“A money-financed tax cut is essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money”, he said in the speech. (Hence his nickname – Helicopter Ben.) The extension of the Bush tax cuts along with the reduction in the social security payroll tax is a recent example of this policy.

These 7 tools are non-traditional, and Bernanke admits that by using them, the Fed “will be operating in less familiar territory” and will “introduce uncertainty in the size and timing of the economy’s response to policy actions”. Nevertheless, he says, “a central bank whose accustomed policy rate has been forced down to zero has most definitely not run out of ammunition … A central bank … retains considerable power to expand aggregate demand and economic activity even when its accustomed policy rate is zero.”

Today, any objective economist will tell you that, despite all of the monetary and fiscal stimulus, aggregate demand and economic activity has been minimally impacted. At the July post-FOMC press briefing, Bernanke admitted that he has no explanation as to why the economy has remained “soft”. Nevertheless, as stated above, in an election cycle, the Fed would be expected to do “something”.

Of the seven available tools, #1 appears to have been taken off the table, and #3 is presently employed. Tools #5 and #7 have been used, and may be employed again. #5 was heavily used in the financial crisis (GM, Chrysler, AIG), and #7 requires the cooperation of Congress (tax cuts). The Fed said that it won’t reduce the size of its balance sheet in the near future, holding it steady like a rock, but will invest or roll any maturities or payoffs back into the market. Hence, the Fed has already embarked upon a policy of what we will call Rock ‘N Roll. As part of Rock ‘N Roll, we also expect the Fed to change the composition of its balance sheet to attempt to impact yields on private sector bonds (#5).

Futility Of The Fed

Over the past 2 years, Fed actions appear to have had little impact on aggregate demand. In 2002, when he outlined these non-traditional tools, Bernanke said he had no idea of the magnitude of their effectiveness. Today, however, we have a couple of years of historical data on which to judge.

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Eric Swanson, an economist at the Fed of San Francisco, in a March, 2011 paper entitled “Let’s Twist Again: A High-Frequency Event-Study Analysis of Operation Twist and Its Implications for QE2″ concluded that the impact of QE2 on the Treasury yield curve was a statistically significant, but moderate 15 basis points. (That’s not much for $600 billion!) In addition, Swanson says that the effects “diminish substantially as one moves away from Treasury securities and toward private credit instruments”.

Thus, despite their demonstrated impotence, we expect that the Fed will use tools #4 and #5 in an effort to lower longer-term Treasury rates and simultaneously attempt to reduce private sector rates. The success of such moves is much in doubt, especially if their balance sheet is constrained. Tool #6, and other policies to weaken the dollar, however,



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will continue to be the primary and most effective thrust of Fed policy. That means inflation will continue to be fostered.

Robert Barone & Joshua Barone are principals and investment advisor representatives of Ancora West Advisors LLC,, an SEC Registered Investment Advisor: 8630 Technology Way, Suite A, Reno, NV 89511, Phone (775) 284-7778.

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First Reported 5 hours ago - Updated 2 hours ago -5 Documents

It's A Bird, It's A Plane, It's Ben

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U.S. Stocks Rebound: All Eyes On

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[caption id="" align="alignright" width="240"caption="Helicopters are airborne"] [/caption] We saw theFed liquefy the world in '09 including non-member foreign ...

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country from sliding back into recession.At the very least, the central ... [Published 1 hour ago by Inside Bay Area]

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Original articleAdd new comment

Wed, 07/13/2011 - 17:10 EDT story from Robert Barone

What sort of intervention can we expect? A look back at then Fed Governor Bernanke's November 21, 20

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'Possible' Fed will do more on joblessness: BernankeFurther Federal Reserve action to combat unemployment is "certainly possible," Fed chairman Ben Bernankesaid in an interview Sunday.Bernanke was asked on CBS television if the Fed might inject more than the 600billion dollars planned for the November-to-June time frame."It's certainly possible," he said."It depends on theefficacy of the program. It depends, on inflation. And finally it depends on how the economy looks," Bernankeadded.

Today Bernanke Plays His Hand. Are You Ready?Graham Summers submits: Today, all eyes, or rather ears, are on Bernanke’s speech in Jackson HoleWyoming. The “Big Picture” thinkers already know that regardless of what Bernanke says or promises, theEND GAME for Fed monetary intervention is at hand.

US Fed ramps up talk of intervention to salvage recoveryFederal Reserve chairman Ben Bernanke on Friday gave his strongest indication to date that the US centralbank will step in to help the fledgling recovery in the world's largest economy.At a keynote address in Boston,Bernanke said the bank was ready to ramp up extraordinary measures to prime the economy amid sky-highunemployment and the risk of crippling deflation.Ahead of a key meeting of the Fed's policy-setting panel nextmonth, Bernanke set out the case for intervention, saying "there would appear -- all else being equal -- to bea case for further action."

Bernanke hits back at criticsFederal Reserve Chairman Ben Bernanke took his defence of the U.S. central bank’s monetary stimulusabroad, saying it will aid the world economy, and implicitly criticized China for keeping its currency weak

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At First Fed Press Conference, Ben Bernanke Is No Wizard (ContributorNetwork)ContributorNetwork - COMMENTARY | Former Fed Chairman Alan Greenspan seemed like the Wizard of Oz tome -- all-powerful. Watching the first Federal Reserve press conference today felt like peeking behind Oz'scurtain and realizing Chairman Ben Bernanke is just a man. The man seemed sincere, but ultimately not up tothe challenge of fixing the world's economy.

I Think Bernanke Just Indicated a TighteningI think Fed Chair Ben Bernanke just sent a very clear sign that he is getting ready to start tighteningmonetary policy.

Would We Be Better Off With a Single Mandate of Fighting Inflation?Bob Mcteer submits: The question of the Fed’s mandate is back on the table. Chairman Bernanke has beenasked to address the question in his upcoming monetary policy report to the Congress. More specifically, inwhat can only be called a strange quirk of timing, the question is whether the country would be better off ifthe Fed had a single mandate of fighting inflation, as does the European Central Bank and the Bank ofEngland.

Bernanke back on Hill to discuss economyFederal Reserve Chairman Ben Bernanke is due back on Capitol Hill Wednesday to give his semiannual

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By Robert Barone | Forbes – Wed, Jul 13, 2011

We saw the Fed liquefy the world in '09 including non-member foreign banks over which they have little influence or

authority. And now we have learned that they secretly loaned huge amounts to the primary dealers in the aftermath o

financial crisis. Then we saw them intervene again with the late August, 2010 announcement and subsequent June, 2

completion of QE2. During the latter intervention, the Fed essentially monetized much of the U.S. budget deficit.

Given the fact that the presidential election cycle has already begun, we strongly suspect that the weakening economy

upward pressure on interest rates due to oversupply will cause further Fed intervention, even if it isn't called QE3.

Bernanke said as much today before Congress.

Earlier, at his post-Federal Open Market Committee (FOMC) press briefing, Bernanke indicated that if job growth fa

below 80,000 per month, the Fed would likely intervene again. (Job growth has now been below 80,000 for two

consecutive months!) So, "when" it comes (not "if"), what sort of intervention can we expect?

A look back at then Fed Governor Bernanke's November 21, 2002 talk before the National Economists Club of Washi

D.C. entitled 'Deflation: Making Sure 'It' Doesn't Happen Here,' gives us some clues. In that talk, he ostensibly outlin

of the tools available to the Fed if the overnight (Fed Funds) rate hit zero. After all, at the time of the speech, deflatio

wasn't expected in the foreseeable future, so he would have no reason not to outline all the tools he could think of. I h

outlined them below:

#1: Expand the scale of asset purchases;

#2: Expand the menu of assets the Fed buys.

Both QE1 and QE2 used these tools. In QE1, the Fed purchased non-traditional assets for its portfolio, including mor

backed securities (MBS) and derivatives. In both QE1 and QE2, the "scale" of asset purchases was dramatically incre

#3: A commitment to holding the overnight rate at zero for some specified period.

This tool is currently in practice with the Fed's "extended period" language in the Federal Open Market Committee

(FOMC) minutes.

#4: Announcement of explicit ceilings on longer-maturity Treasury debt.

This isn't new. The Fed did this in the 1940s and a version of it again in the 1960s. During a period of approximately

years ending with the Federal Reserve-Treasury Accord of 1951, the Fed "pegged" the long-term Treasury bond yield

2.5%. And, during the Kennedy Administration, the Fed sold T-bills and purchased an equal amount of longer dated

T-Notes in order to reduce long-term rates. Bernanke believes that the announced policy of pegging will cause

arbitrageurs to keep yields near the announced peg, especially if the Fed intervenes several times to prove its commit

#5: Directly influencing the yields on privately issued securities.

"If the Treasury issued debt to purchase private assets and the Fed then purchased an equal amount of Treasury debt

newly created money, the whole operation would be the economic equivalent of direct open-market operations in pri

Peeking Into Ben Bernanke's Bag Of Unconventional Monetary Weapons -... http://news.yahoo.com/peeking-ben-bernankes-bag-unconventional-monet...

1 of 3 8/9/2011 11:22 AM

assets." Think GM, Chrysler, AIG.

#6: Purchase foreign government debt.

The Fed would do this, Bernanke explains, to influence the market for foreign exchange, i.e., to weaken the dollar. He

points to the dollar devaluation of 1933-34 as an "effective weapon against deflation". "The devaluation and the rapid

increase in the money supply it permitted ended the U.S. deflation remarkably quickly … The economy grew strongly

by the way, 1934 was one of the best years of the century for the stock market." (While this is true, a mere two years l

after the withdrawal of government stimulus, a second severe recession began, one that would last until the U.S. gear

for World War II. And the 1937 slump in stocks was one of the largest on record.)

#7: Tax cuts accommodated by a program of open market purchases.

"A money-financed tax cut is essentially equivalent to Milton Friedman's famous 'helicopter drop' of money", he said

speech. (Hence his nickname – Helicopter Ben.) The extension of the Bush tax cuts along with the reduction in the s

security payroll tax is a recent example of this policy.

These 7 tools are non-traditional, and Bernanke admits that by using them, the Fed "will be operating in less familiar

territory" and will "introduce uncertainty in the size and timing of the economy's response to policy actions".

Nevertheless, he says, "a central bank whose accustomed policy rate has been forced down to zero has most definitely

run out of ammunition … A central bank … retains considerable power to expand aggregate demand and economic ac

even when its accustomed policy rate is zero."

Today, any objective economist will tell you that, despite all of the monetary and fiscal stimulus, aggregate demand an

economic activity has been minimally impacted. At the July post-FOMC press briefing, Bernanke admitted that he h

explanation as to why the economy has remained "soft". Nevertheless, as stated above, in an election cycle, the Fed w

be expected to do "something".

Of the seven available tools, #1 appears to have been taken off the table, and #3 is presently employed. Tools #5 and

have been used, and may be employed again. #5 was heavily used in the financial crisis (GM, Chrysler, AIG), and #7

requires the cooperation of Congress (tax cuts). The Fed said that it won't reduce the size of its balance sheet in the n

future, holding it steady like a rock, but will invest or roll any maturities or payoffs back into the market. Hence, the

has already embarked upon a policy of what we will call Rock 'N Roll. As part of Rock 'N Roll, we also expect the Fed t

change the composition of its balance sheet to attempt to impact yields on private sector bonds (#5).

Futility Of The Fed

Over the past 2 years, Fed actions appear to have had little impact on aggregate demand. In 2002, when he outlined

non-traditional tools, Bernanke said he had no idea of the magnitude of their effectiveness. Today, however, we have

couple of years of historical data on which to judge.

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Eric Swanson, an economist at the Fed of San Francisco, in a March, 2011 paper entitled "Let's Twist Again: A

High-Frequency Event-Study Analysis of Operation Twist and Its Implications for QE2" concluded that the impact of

on the Treasury yield curve was a statistically significant, but moderate 15 basis points. (That's not much for $600

billion!) In addition, Swanson says that the effects "diminish substantially as one moves away from Treasury securiti

toward private credit instruments".


2 of 3 8/9/2011 11:22 AM

Thus, despite their demonstrated impotence, we expect that the Fed will use tools #4 and #5 in an effort to lower

longer-term Treasury rates and simultaneously attempt to reduce private sector rates. The success of such moves is m

in doubt, especially if their balance sheet is constrained. Tool #6, and other policies to weaken the dollar, however, w

continue to be the primary and most effective thrust of Fed policy. That means inflation will continue to be fostered.

Robert Barone & Joshua Barone are principals and investment advisor representatives of Ancora West Advisors LL

SEC Registered Investment Advisor: 8630 Technology Way, Suite A, Reno, NV 89511, Phone (775) 284-7778.

Also Read

Copyright © 2011 Yahoo! Inc. All rights reserved. | Yahoo! News Network | /


3 of 3 8/9/2011 11:22 AM

PRINT

ROBERT BARONE JUN 09, 2011 10:45 AM

Inflation in the standard-of-living sense is a realproblem. Statements from Geithner, Bernankeproclaiming inflation is "temporary" are not exactlyfalse, but they're misleading.

The Concept Of Inflation As A Measure Of Standard Of Living | Markets |... http://www.minyanville.com/articles/print.php?a=35056

1 of 4 7/5/2011 11:00 AM

There is a debate in financial circles as to whether or not we even have inflation, and, if we do, should we even worry about it. As expected, the chief monetary

and fiscal officers of the federal government deny that inflation is a problem or that their policies have anything to do with it. This was reaffirmed by Chairman

Bernanke in his talk to The International Monetary Conference on June 7. St. Louis Federal Reserve Bank economists, Chen and Wen, in a recent paper (Mingyu

Chen and Yi Wen, Oil Price Shocks and Inflation Risk, Federal Reserve Bank of St. Louis, June, 2011) using data from prior oil shocks, conclude that while such

oil price shocks had significant "inflationary" impacts in the 1970s and in the early 1980s, today, rapidly rising oil prices appear "to have only transitory effects on

headline inflation and virtually no impact on measures of underlying inflation."

Statistical Proof

Much of the debate centers around semantics and the “meaning” of the word “inflation." If you adopt one meaning, as Chen and Wen do, then inflation is not an

issue. If you happen to believe that inflation in the US is actually measured by the “core” CPI numbers reported by the Bureau of Labor Statistics (BLS), then you,

like our government leaders, shouldn't be concerned. However, despite the fact that Chen and Wen conclude that inflation is not a problem (at least relative to the

price of oil), in a footnote there is an admission that their conclusions are based upon their definition of inflation. "Although the effect on inflation [of oil price

shocks] is transitory, the effect on the price level is not, because inflation is defined as the rate of change in the price level, not the price level itself" [emphasis

added]. An appropriate interpretation of this is that we can have high inflation in the sense of high permanent prices, but we shouldn't worry about it because it will

disappear as soon as the underlying cause disappears.

The Standard of Living Concept

On the other hand, if your definition of inflation is a concept that measures, not prices alone, but “standard of living," then the rest of this blog may be relevant to

you. Under the “standard of living” definition, the general price level can actually be falling but “inflation” can be an issue if incomes are falling faster than prices,

and, thus, the standard of living is declining.

In his 1937 book, Seven Kinds of Inflation – and What to do About Them, Richard Skinner identifies four kinds of “absolute” inflations and three kinds of “relative”

ones. Absolute inflations include:

1. Rising prices of fixed income securities

2. Rising prices of land, equity securities and business values

3. Rising short-term interest rates

4. Rising general prices and living costs.

Today’s definition of inflation as measured only by the CPI only captures item 4, but we all recognize items 1 and 2 and refer to these as “asset bubbles." Relative

inflations include:

5. Growth in debt compared to wealth

6. Growth in interest charges compared to income

7. Growth in living costs compared with income.

Everybody now recognizes that item 5 describes the last two decades, and it appears that, with rising costs of vital food and energy commodities, item 7 would

appear to apply today. As debt costs rise, like those in Greece, we know that item 6 is also real. So, of the seven kinds of inflation described by this 1937 work, we

easily recognize six of them. Of those six, two are commonly referred to as “asset bubbles” (items 1 and 2), and three are recognized as economic problems, but

not categorized as inflation (items 5, 6 and 7). Only one, rising general prices and living costs (item 4) is, today, actually called “inflation."

Who Is Right?

As could be expected and briefly described above, the government (Geithner, Bernanke) is in the camp that denies that inflation is a real issue. They will defend

this position as long as they have an argument that is even mildly credible. And there are a whole set of well-respected economists who believe that inflation isn’t

an issue to worry about. David Rosenberg (Gluskin Sheff), for example, believes that deflation is a bigger threat because of stagnant real incomes, high debt

levels, and significant balance sheet issues for America’s consumers due to the real estate depression. On the other hand, there are those pro-inflationists who

point to $4/gallon gasoline and rapidly rising food prices, which they blame on QE1 and QE2, as proof positive that inflation is rampant. So, who is right?

Actually, both are. Rosenberg’s “deflation” is a “standard of living” concept. One might categorize it as close to Skinner’s “relative” inflation concept (item 7 above

– incomes not keeping up with prices), while the pro-inflationists are referring to one of Skinner’s “absolute” inflation concepts (item 4 above – rising general prices

and living costs). Cost-Push Inflation

Cost-push inflation is the kind that some American’s may remember from the 1970s. Cost-push inflation is generally caused by input factor “shortages," usually

labor. These could be real shortages or contrived shortages. They are real if the economy is operating at full or near full employment. And the mild inflation we

experienced in the early part of the last decade could possibly be attributed to such shortages. In the 1970s, they were contrived. At that time, unions were much


2 of 4 7/5/2011 11:00 AM

stronger than today, and they could tie wage increases to an increase in the CPI measure. As companies raised prices to protect profit margins from increasing

wages, another round of wage increases resulted. A vicious cycle had been created, one that could occur even when the economy was not operating with full

employment. Thus, the term “stagflation” was born. We clearly do not have this type of inflation today. First, unions represent a much smaller percentage of the

employed labor force. And, the industries in which they are strong are all either struggling (e.g., autos, or government employees) or are highly cyclical

(construction and transportation). Unions, today, do well just to hold wages and benefits at current nominal levels, and, most are making concessions.

Asset Bubbles

The next type of inflation, asset bubbles, has little to do with capacity constraints or restricted production inputs. This generally occurs when a particular asset or

class of assets begins to rise in price usually due to some basic economic change (innovation, government policy etc.), and early players in the bubble make

“easy” money. A large swath of the public is attracted to the game and asset prices are bid up to a crescendo peak, with each player having little use for the asset

itself except to “flip” it for a quick profit. Such bubbles always end in disaster for the late entrants, and oftentimes for those who weren’t even playing. The recent

US housing bubble and the dot-com bubble are two good examples. Some say that QE1 and QE2 has turned the current equity market into another such bubble.

That remains to be seen.

Currency Depreciation

Depreciation of the currency relative to other currencies is another significant source of inflation. This source could be significant for a country that imports a large

amount of vital commodities and other goods and services. The US falls into this category with large importations of oil and manufactured goods. The work of

Raphael Auer (Raphael Auer, "Exchange Rate Pass-Through, Domestic Competition and Inflation: Evidence from the 2005/2008 Devaluation of the Renminbi",

Working Paper No. 8, Federal Reserve bank of Dallas, January, 2011) another Fed economist (Dallas), indicates that because of the volume of Chinese imports

and their resultant weight in American's inflation indexes, the appreciation of the yuan would "substantially alter the competitive environment on many US markets

and consequently lend to widespread inflationary dynamics." Thus, as the dollar falls in value, the dollar cost of imported goods rises. And, since the dollar is the

world’s reserve currency, and most international trade is done with dollar payments, dollar weakness is a significant source of inflation. With real wages stagnant

and median household income down to 1997 levels in real terms, the increases in the prices of energy and imported manufactured goods have lowered the

standard of living for most Americans.

Conclusion

In conclusion, "inflation" in the standard-of-living sense is clearly a problem today. Unlike cost-push inflation, this is not a self-feeding spiral. So, the statements of

government officials, like Geithner and Bernanke, that proclaim that the “inflation” is "temporary," are not exactly false, but they are misleading. This “temporary”

inflation will end when the dollar stops falling in value. But, when will that happen? That will happen when the financial repression of interest rates and money

printing by the Federal Reserve ends and a real solution to the structural fiscal deficit is crafted. Given the nature of politics in the US, those events may still be a

long way off. Unless there is some international disaster that causes a run to the dollar as a safe haven (a phenomenon that appears to be getting weaker and

weaker), the “temporary” time frame may be significantly longer than the rhetoric implies.

The price of gasoline can, and as of this writing, has moved downward from its $4/gallon level, due mainly to falling demand. But, because of dollar weakness, it is

unlikely to fall to where it was a year ago. And, even if the dollar’s value stabilizes, all this means is that prices stop rising, not that they return to their lower levels.

Clearly, without commensurate rises in wage and income levels, the standard of living will continue to fall.

It is a disservice to Americans to assure them that "inflation" is "temporary," and therefore not a policy issue when there is ample evidence that the very policies of

the government (money printing and uncontrollable deficit spending) are the root causes of the declining standard of living and are unlikely to be reversed anytime

soon.

Editor's Note: This article was written by Robert Barone, head of Ancora West. Barone currently serves on AAA's Finance and Investment Committee which

oversees $5 billion of investable assets.

No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities

and financial markets by the writers whose articles appear on the site. The views expressed by the writers are

not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the

website is intended to constitute a recommendation or advice addressed to an individual investor or category of

investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement

of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be

made by the reader either individually or in consultation with his or her investment professional. Minyanville

writers and staff may trade or hold positions in securities that are discussed in articles appearing on the


3 of 4 7/5/2011 11:00 AM

International Return to Article

Greek Euro Exit? More Pain Than Gain

Robert Barone06/01/11 - 07:00 AM EDT

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributorprogram, which is separate from the company's news coverage.

NEW YORK (TheStreet) -- In a recent blog post, we argued that, despite her credentials, Christine Lagarde may not be the bestchoice for heading the International Monetary Fund (IMF). This is because of her bias to protect the French, German andEuropean banks from the losses they will have to take in a Greek default. We also think she will pursue the same "extend andpretend" policies that were put in place a year ago rather than face up to the fact that we are dealing with insolvency, nottemporary illiquidity.

The Moral Hazard Expectation

It is clear that Greece will never be able to repay its debt in today's euros, and European banks are clearly in jeopardy. Yet themarket has yawned, and European bank equity values have been untouched. A comment received from a colleague regardingthat blog post read, in part:

If she [Lagarde] gets into position and kicks the ball down the road a ways, it will only be to give these big banks achance to off-load and write-off Greek credit over a few years which will make it more palatable when the timecomes to restructure.

The market appears to have much the same attitude expecting the governmental institutions to save the "systemically" importantfinancial institutions. Moral hazard is now the expectation. Not only are all depositors implicitly protected, but so are theshareholders, bondholders and the managements. We always thought that investing was a risk-reward business. Investmentsthat fail are supposed to penalize the investor through a monetary loss. There isn't supposed to be a floor of book or par valuesupported by public funds.

The Implications of Additional Austerity

We suspect the reason for the kid gloves treatment is that the alternatives inflict too much short-term pain. As mentioned above,a Greek default significantly impacts most large European banks. Rather than recognize the impairment of the investments inGreek debt, in exchange for additional monetary support, the European Central Bank (ECB) and IMF will likely impose even morestringent austerity measures on Greece than the ones that currently exist and cannot be met. What isn't factored in is the impactthis will continue to have on the Greek economy and its population.

It was only 10 years ago (2001) that the government of Argentina was compelled by the IMF and other large institutional debtholders to apply more and more austere measures on its economy in order to pay back debt. In December 2001, the austerityimposed was met by protests that quickly erupted into revolution, governmental overthrow, and eventually a tacit default. Is thiswhere we are heading again? Given the resistance of the Greek populous to the existing imposed austerity, additional austeritycould trigger a popular uprising and result in a Greek exit from the European Monetary Union (EMU), i.e., the euro, or from theEuropean Union (EU) itself.

The founding Maastricht Treaty (1992) and original amendments didn't discuss provisions for a member's exit from either theEMU or the EU. The Treaty of Lisbon (2009) does allow for an exit from the EMU, but that appears to be predicated on anegotiated rather than unilateral withdrawal. It is clear, however, that the EMU was meant to be an irreversible arrangement.

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1 of 3 7/5/2011 11:10 AM

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(For a detailed discussion, see P. Athanassiou's ECB working paper entitled "Withdrawal and Expulsion from the EU and EMU."

The "New Drachma"Putting aside the legal questions, an exit from the EMU and formation of a new Greek currency (call it the "New Drachma") hasits own set of troubling issues. Once again, a look at the recent Argentine experience is enlightening.

A decision to leave the EMU would need to be done quietly, as public knowledge would cause a run on the banks to acquireeuros causing nearly instant failures in the banking system. So, severe restrictions on euro withdrawals would have to beimposed, like the much hated "corralito" that was imposed in Argentina in 2001. That government imposed policy restrictedwithdrawals to a nominal amount per week. This was a key repression that led to the social unrest, riots, and the eventualtoppling of the government.

Next, Greece would need to decide what to do with its debt. Hard choices would have to be made on externally held debt. Anyattempt on the part of the Greek government to convert externally held debt to the new currency on a 1:1 basis would be metwith massive resistance.

Keeping external debt denominated in euros would become crippling as the value of the "New Drachma" would immediatelydevalue in the forex markets. And, all of the "extend and pretend" would be for naught, as the Greek sovereign assets on thebalance sheets of the banks would be repaid in a devalued currency.

Impairment is InevitableThus, the results of an imposed austerity likely leading to a Greek exit from the EMU are the same as a simple recognition on thepart of those banks that hold Greek sovereign debt that those assets are impaired. Facing up to this basic problem would seemto be a better than the current "extend and pretend" approach in which we ultimately end up in the same place, but without thesocial unrest and bloody carnage that accompanies it. Recognizing today's value of the Greek debt on financial institutionbalance sheets is called "transparency." Accounting standards, both in the U.S. and internationally, have been pushing fortransparency for two decades. Yet, now, governments are madly scrambling to cover up the true values of such assets on thebooks of their "systemically" important institutions.

There are also tens of billions of dollars of Credit Default Swaps (CDS) outstanding on Greek sovereign debt. Regulators failed todeal with the capital issue in the CDS marketplace in the aftermath of the 2008-2009 AIG meltdown, so it is impossible to predictthe effects of a Greek default on this marketplace because there is no information on CDS counterparties and their capitalpositions. But we suspect these markets, being unregulated, continue to be over-levered.

"Extend and Pretend" Causes StagnationThe interconnected nature of today's global financial system implies that many other banks around the world face assetimpairments and a need for more capital. Many banks could fail.

The stockholders and bondholders of these institutions should suffer losses, and not be recipients of the "moral hazard" ofgovernment protection. There will be terrible short-term pain. But, history shows that the pain of balance sheet depressions,while severe, is short-lived. The system returns to health with huge lessons learned about risk.

"Extend and pretend" only imposes a long-term period of economic stagnation as the cancers on bank balance sheets fester.Japan's is a 20-year example of the impact of unrecognized bank losses on the economy. In an interview given to InvestorsBusiness Daily ("Slow Growth Normal For Post-Fin'l Crisis Recoveries," Norm Alster, May 23, 2010) by Vincent Reinhart regardingthe paper he recently wrote with his wife, Carmen, concerning the aftermath of 18 financial crises (see After the Fall, Aug. 17,2010), in Japan, "the banks were allowed to carry bad assets on their books at inflated values." As a result, "property prices havedeclined for 20 years."

As an overview, Reinhart concluded that "the government's willingness to let banks carry bad debt rather than force them totake losses tends to stretch out the process of deleveraging. When you let banks carry their assets at high values relative to theirmarket values, it freezes that market." His prescription: "Recognize the losses ... take the hit." Since it appears that the inabilityto restart America's economic engine is partly due to bank balance sheet impairment, why is Europe about to go down the sameroad?

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3 of 3 7/5/2011 11:10 AM

Opinion Return to Article

Why Lagarde at IMF Is Bad for U.S., World Economy: Opinion



NEW YORK (TheStreet) -- One blog called it a "Battle Royale," as Christine Lagarde, France's Finance Minister, announced hercandidacy for the IMF's top job. That job has always been held by a European. But the heads of the emerging economies believethat they are the engine of the world's future economic growth, a very strong and convincing argument.

Christine Lagarde, France's Finance Minister

Yet, the most pressing issue for the IMF, and, many, including myself, believe for the world, is the European debt crisis. Europe'sfinancial system could very well collapse if a Greek default is followed by a default from Ireland, Portugal or Spain. This couldeasily trigger another worldwide financial panic if foreign financial institutions behave like they did in the 2009 crisis and refuse toprovide liquidity to their brethren.

Worse, any default could very well trigger a crisis that goes well beyond the banking system if the collection of bets on creditdefault swaps (CDS) causes liquidity and solvency problems with the issuing institutions. Because CDS are not well regulated, wesimply do not know what risk they carry in a financial meltdown. It seems then that managing Europe's debt crisis to the best ofa bad lot of solutions is the most important financial issue facing the world today.

There is an underlying assumption that a European, like Lagarde, would be best suited to head the IMF in such an environmentbecause only a European would be in a position to completely understand and address the problem. I question this assumption.

>> Lagarde Makes Sense for the IMF: Opinion

The French and German banks face liquidity and possible solvency issues if Greece defaults and dominos begin to fall. Will theformer French Finance Minister be able to make decisions that carry heavy short-term pain for European banks and economies ifthat is the best long-term solution? Or will she advocate continuing to treat this as a liquidity crisis (which it is not -- it is asolvency crisis) and kick the can further down the road like the IMF and ECB did a year ago with the original Greek debt crisis?

Perhaps a new approach would be best in the long-run. Perhaps an IMF head without ties to Europe would be able to advocatefor the best solution, no matter how painful.

While she has financial credentials, Lagarde is first and foremost a consummate politician. I doubt she would have announcedher candidacy without first enlisting support and assessing that she is the odds on favorite.

While the emerging nations have a very strong argument for their position, they are not united on a candidate. Within their owngroup, they appear to be regionalized. Mexico's candidate, Agustin Carstens, would appear to have Western Hemispheresupport. Russia has put forth its own candidate, Gregory Marchenko.

The table below shows IMF voting percentages by country. I have divided the table into three sections: those likely to supportLagarde, those likely to support Carstens, and unknown. Conspicuously, I have put the U.S., with the largest vote (16.74%) intothe "unknown" column. Like it has done so often since its assumption of power, the Obama administration is non-committal,

Why Lagarde at IMF Is Bad for U.S., World Economy: Opinion | Opinion... http://www.thestreet.com/print/story/11134672.html

1 of 3 7/5/2011 11:07 AM

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waiting to see which way the wind is blowing (Geithner: Both Lagarde and Carstens are "credible").

You can see from the table that the wind is clearly at Lagarde's back. She likely has 30% of the vote right out of the box withCarsten's a long shot with only 4%. If we take the U.S. out of the analysis, she only needs 42% of the remaining vote (i.e.,without the U.S.) to win. I suspect that, as the U.S. assesses the wind, it will align with her.

As a result, over the next few months, if she is the IMF's new head,as seems inevitable, the solution to Europe's debt crisis is likely tobe more of the same: treat the crisis as a liquidity crisis instead ofthe solvency crisis that it is, kick the can further down the road,and hope for a miracle.

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2 of 3 7/5/2011 11:07 AM

Opinion Return to Article

IMF Needs to Address EU Insolvency Issues



NEW YORK (TheStreet) -- The IMF is the key organization in the world's complex currency system. It was founded in theimmediate post-World War II period (Bretton Woods) and is an important regulator of the currency system now that the world'smajor currencies are all fiat (no real asset backing or restraints).

To date, the IMF has played a key role in dealing with the debt issues surrounding the EU's weak sisters. If Greece is allowed todefault, the Greek banks will all become insolvent, virtually guaranteeing a long-term depression in that country.

The European banks, which hold $72 billion of Greek debt and $165 billion of loans to Greece's private sector, could muddlethrough a Greek default, but most would be severely wounded -- with significant consequences for European growth in the nearterm.

Now, here is the crux of the issue. If Greece is allowed to restructure, what is to prevent Ireland from following suit?

Look at the exposure of the European banks to Ireland:

Germany: $215 billionFrance: $82 billionGreat Britain: $237 billionECB: $244 billion

If Greece were allowed to default, the European banks could not handle an Irish, Portuguese, or Spanish default. So, now theimportance of the IMF should be perfectly clear. Dominique Strauss-Kahn has been an important player for the IMF in dealingwith all of these debt issues, and, it remains to be seen if his absence will have an impact.

>> Time to End Europe's Hold on IMF Leadership?

My own personal view is that default and a restructuring of the debt of these weak nations is inevitable. The solutions offered, sofar, have treated these debt issues as if they were only liquidity problems instead of what they really are -- solvency issues.Eventually, the insolvencies need to be addressed, and with it, the very survival of the EU itself.


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http://www.thestreet.com/story/11111405/1/us‐policy‐hurts‐community‐banks‐opinion.html

U.S. Policy Hurts Community Banks: Opinion May 12, 2011

NEW YORK (TheStreet) -- Job creation remains the No. 1 economic and political

issue of today despite the better-than-expected April employment data.

No amount of fiscal stimulus and excess reserve creation appears to be stimulating

significant jobcreation. And most politicians are baffled as to why.

The monetary and fiscal medicine administered may have worked within the institutional structures of the

past, but those structures have radically changed.

Part of the jobs issue is right in front of our noses. Simply put, the rapid changes in U.S. financial

institutions over the past 25 years have been detrimental to job creation in the U.S., because capital is no

longer readily available to the entrepreneurial small business sector, widely acknowledged to be

America's engine of job creation.

The Changing Financial Landscape

From 1983 to 1989, the number of new community bank charters averaged 297 a year. In the 90s and

throughout much of the last decade, the average was more than 130 a year.

Since the financial meltdown, however, new charters have all but disappeared. There were 29 in 2009,

and only one last year. Meanwhile, community banks have been disappearing over the past 25 years

through consolidation, driven partly by over-regulation, and, lately, by outright failures. In 1984, there

were 14,507 commercial banks, and nearly all were community banks. At the end of 2009, that number

had fallen to 6,840. At the same time, the big have become gigantic. The table below shows the

percentage of U.S. deposits of the largest banks in

1994, and then for 2009.

Percentage of Total Bank Deposits

The 1994 Riegle-Neal law allowed banks to cross

state lines to build branches or purchase other

institutions without restrictions, but it put a 10% cap

on deposits for any single institution. There were

loopholes, one of which allowed banks to exceed the 10% limit doing so was caused by taking over a

failing institution.

So, the last few years have seen a feeding frenzy for the megabanks. For example, Bank of

America(BAC_) absorbed Merrill Lynch soon after it purchased Countrywide, whileJPMorgan

Chase(JPM_) acquired Washington Mutual, and Wells Fargo(WFC_) took on Wachovia. Clearly, what

was considered "large" in the 90s is now dwarfed by these whales.

http://www.marketwatch.com/story/gold‐investing‐what‐to‐do‐and‐how‐to‐do‐it‐2011‐04‐15

Gold investing: what to do and how to do it April 15, 2011

SAN FRANCISCO (MarketWatch) — Investors can still make a lot of money in the gold market — or prevent losing it, if they

do their homework before they wade through a sea of investment choices.

Gold has been in a volatile trading environment, to say the least, with prices repeatedly climbing to new heights since 2008, only to lose

big chunks of those gains in a single day. Deciding what to do with gold and how to do it has been a challenge even for seasoned

investors.

After all, gold investment choices come in many different forms: bars, coins, jewelry, futures and options contracts, exchange-traded

funds and gold mining shares.

“The good news for gold and silver is the ‘mother’ of all bull markets has further to go,” said Peter Grandich, editor of The Grandich

Letter. “The bad news is the opportunity to double or triple one’s money is behind us.”

So what’s an investor to do?

For one thing, don’t rush to sell. If you’re thinking of cashing out, carefully consider your options and have a good reason before you

do, say most experts.

“While gold and silver have been relatively volatile in recent weeks, they have remained solid long-term uptrends,” said Brien Lundin,

editor of Gold Newsletter. “These uptrends are based on fundamental economic and monetary issues — primarily too much currency

floating around the world, the continuance of accommodative monetary policies, and governmental debt concerns so large that they

cannot be addressed without higher levels of inflation to eat away at their values.”

That all means the long-term picture looks bullish for both gold and silver, “although the wiggly lines that make up the bigger uptrend

will provide better times to buy and sell the metals,” he said.

He wouldn’t recommend that investors sell their core holdings in the metals. He advises investors to “hold some gold and silver bullion

as financial ‘insurance’ — a core holding that they shouldn’t trade.”

That seems to be great advice, given the mostly upbeat outlook for higher gold prices.

Gold has reached record levels, but it “remains a long way from its real inflation-adjusted high of $2,400 an ounce seen 31 years ago,”

said Mark O’Byrne, executive director at international bullion dealer GoldCore. And “whether gold will fall or not, at some stage, is

irrelevant if one is buying for portfolio diversification, safe haven and store of value reasons.”

Big decision

So the best way to make the right decision to buy, sell or hold gold is to first fully understand investment goals.

Are you looking at gold as a short- or long-term investment and why?

“Sell out completely if you believe that gold is in a bubble and any slowdown in worldwide economic growth will cause commodity

prices, including gold, to tumble as inflationary expectations come down,” said Robert Barone, a partner and portfolio manager at

Ancora West Advisors in Reno, Nev. Or “stay completely in (or even add to your holdings) if you believe that the U.S. dollar will

continue to get weaker due to inflationary economic policies.”

“If you aren’t sure, take some off the table,” he said. “Sometimes, it is a good idea to take your investment out (or reduce it) and ‘play’

with the house’s money,” and you can do that by selling part of your holdings outright, setting stops underneath the current market

price or using options.

That gradual approach may be a good choice.

If you’re not so confident over where gold prices will head next, you can “average in,” said Edmond Bugos, director of mining finance

at Strategic Metals Research & Capital.

If you want to buy $100,000 worth of gold, but think gold prices are too high and aren’t sure prices will come down, you can buy

$20,000 today, $20,000 in a week and $20,000 in another week and so on, he explained.

“This lowers your risk a little … and can get you a good average price,” he said. So “averaging in” is “a good way to get your feet wet

if you don’t have the patience to wait out the dips and corrections.”

Selling with confidence

But some investors will feel they have no choice other than to sell their gold for some quick, much-needed cash.

“If you need cash, now is the time to take gold off the table,” said Tom O’Brien, chief executive officer of investor educational services

provider TFNN.com.

If you do decide to sell, getting a fair price won’t be easy.

“It is imperative that the investor do their homework when selling gold,” said O’Brien, who’s also editor of The Gold Report. “If the

investor owns an ETF, or gold company … they will get fair market value.”

Gold ETFs include the SPDR Gold Trust GLD +1.33% , ETFS Gold TrustSGOL +1.30% and iShares Comex Gold

Trust IAU +1.30% . Year to date, all three have gained nearly 4%, close to the rise seen in gold futures prices for the period.

John O’Donnell, chief knowledge officer at the Online Trading Academy, referred to ETFs as “safe,” but said he’d prefer to own coins

rather than gold mining shares. “Gold is money. A mine is a business [that] can suffer operating losses.”

Indeed, there’s a lot besides the actual price of gold that may move the stock price for gold mining companies, said Ancora’s Barone,

including the company’s financial condition, debt levels, the quality of its management and existing mines, its exploration outlook,

environmental issues and taxes.

Year to date, Barrick Gold ABX +0.48% , the world’s largest gold producer, has seen its shares climb about 0.5% compared with a

nearly 4% rise in gold futures GCM11 +1.40% .

The real thing

When it comes to physical representations of gold, selling and buying become trickier.

Selling an ETF is as simple as calling a broker. But “a little more research may be warranted if you have a coin,” said Mike Savage, a

chartered financial consultant and founder of Savage Financial Group in East Stroudsburg, Pa. “There are many different values for the

same coin based on the condition and scarcity of the coin. While buying and selling coins, the person with the most knowledge will

usually win the negotiation.”

A coin dealer has overhead and needs to make a profit, according to Barone, so investors would need to “pay anywhere from a 3% to a

20% (or more) premium to buy and suffer a similar discount when selling.”

David Beahm, a vice president at precious-metals retailer Blanchard & Co., says gold and silver bullion coins are “sold for only a small

margin above the spot price.”

Some dealers, however, advertise new bullion products as numismatic investments — in other words, they have special value to

collectors — and so charge a much higher premium than is typically charged for a bullion product, he said.

“The reality is that these new mint products should have a value that correlates close to their precious metal content.” Read more about

gold investment basics.

Melt value

Meanwhile, with gold prices at historic highs, consumers are starting to look at their old jewelry as a source of cash.

Cash4Gold, a Pompano Beach, Fla.-based mail-in refinery that buys precious metals directly from consumers, has become a popular,

sometimes criticized, means for consumers to monetize unwanted jewelry.

A company spokesperson said Cash4Gold “bases its offers to consumers on daily gold prices, the quality of gold being offered and the

quantity,” and consumers have 12 days from the date on the check to accept its offer or request their items back, promptly returned,

insured and free of charge. Read more about selling jewelry.

Gold Newsletter’s Lundin said consumers should not be tempted to simply cash the check they get from mail-in services, but take their

time and “check with a number of local dealers” to get the best price.

When it comes to selling that old jewelry for its gold, TFNN.com’s O’Brien said the client should be getting about 80% of the melt

value.

“The majority of dealers give way below that level because the public just doesn’t understand what they have is valuable,” he said. But

“a very small amount of gold is worth big dollars. It doesn’t matter what shape it’s in.”