Capital Gold Group – Current Economic News

The Street
By Scott Pluschau
January 26, 2012

NEW YORK (ETF Digest) — With the Central Bank of the United States, better known as the Federal Reserve, making its announcement to keep interest rates low through 2014, gold is going to get some attention. Many people believe gold is a risky investment if interest rates start to rise, since the metal pays no dividends. In that school of thought, Wednesday’s actions by the Fed should be seen as bullish for fundamental reasons.

The way I look at it, anything that pays a dividend or makes an interest payment has risk. Some of those risks are reinvestment risk, default risk and purchasing power risk. In my opinion, the fundamental reasons for owning gold these days should be for preserving wealth. It should be looked at as insurance against a financial meltdown caused by excessive credit creation and not enough real assets to back up all of the worlds’ current paper debts.

On top of that there’s a terrible history for the value of fiat currencies over time. Gold is savings. Gold is money. These are arguments for another day. In the meantime, the current gold futures contract has broken out of a multipoint downward sloping trendline. Any trendline that is greater than three points of contact is significant. Gold also closed above $1,700.

Large round numbers have historically been significant areas of support and resistance. Why is that? In the example of resistance, if you are looking for a reason to sell something that has gone down in value; such as having bought gold above $1,700 a month or two ago, and you saw it drop down into the $1,500′s, the feeling can be “if it ever gets back to $1,700 I am selling out.”

It takes strong demand to get through that supply when the time comes. I imagine gold will have a tough time getting through the next couple of round numbers. You can see on the chart below, how $1,900 was a strong level of resistance in August and September of 2011: $1900.4 was the highest close on the COMEX.

The COMEX is located in New York and that is where the most action in gold futures takes place during the day. The hours of trading in the open outcry pits for the COMEX are 8:20 a.m. to 1:30 p.m. Eastern Standard Time. The COMEX is a division of the Chicago Mercantile Exchange (CME Group).

Notice after a strong selloff for gold in September 2011, the next major high was around $1,800. For any trader who uses charts to make decisions for entry, one of the worst things you can do is to base the decisions to exit solely on where you previously entered. For all technical analysts, the decisions for entry and exit should be based on the structure of the chart and not where a loss is “comfortable” or “breakeven.”

This major trendline being broken to the upside and gold closing above $1,700 is a major bullish development. I would think that the bears would do their best now in the coming days to throw the kitchen sink at gold and knock it back down below $1,700 before it starts to get some momentum to the upside.

Yahoo! Finance
By Matt Nesto
January 26, 2012

Social Security, Contribution Rates And More Need Fixes

MarketWatch
By Robert Powell
January 26, 2012

BOSTON (MarketWatch) — President Barack Obama, in his State of the Union speech, didn’t really touch on the subject near and dear to the hearts of millions of Americans — the State of Retirement in the U.S.

No doubt he had other pressing matters to address. So allow us the pleasure of issuing — thanks in large part to a many experts on the topic — our State of Retirement column.

In short: Things are bad and, in the absence of action or in the presence of the ill-advised action, could get much worse.

“I think the state of retirement in America is endangered as the ‘Great Recession’ has taken a toll on the financial status of many and as retirement savings were not adequate for many prior to the ‘Great Recession,’” said Matthew Greenwald, the president of Matthew Greenwald & Associates, a leading retirement research firm. “There are several things that need to be fixed, including addressing Social Security and helping people feel confident in the viability of the system, more effective defined-contribution plans that do a better job of encouraging participants to defer more of their income and more effective advice to retirees that helps them use their financial assets most effectively when they retire.”

Others are in the same camp. “There are many challenges,” said Anna Rappaport, the president of Anna Rappaport Consulting and chair of the Society of Actuary’s Committee on Post-Retirement Needs and Risks. But Rappaport also said there’s a lot of opportunity to fix those challenges.

Here’s a look at the challenges and some ways to respond.

Social Security

The combined Social Security trust funds will be exhausted in 2036 and at that point there will only be enough income coming in to pay for 77% of scheduled benefits.

Now 24 years might seem like plenty of time to fix that problem but there doesn’t seem to be the political will to do so. Elected officials are seemingly afraid to tackle the issue; they would rather a greater fool put their bid to be re-elected at risk than address an issue that will affect some 78.1 million Americans a generation from now, which we should note is twice the number of Americans age 65 and older today.

But the truth of the matter is that it’s time that President Obama (or someone) take a page from President Ronald Reagan’s book when, in 1981, he established a commission led by Alan Greenspan to reform Social Security.

Some two years later, as a result of that commission’s work, amendments to Social Security included a provision for raising the full retirement age from age 65 to 67, phased in over time. At the time, the Congress cited improvements in the health of older people and increases in average life expectancy as primary reasons for increasing the normal retirement age.

Given the current and predicted future state of Social Security, it’s time to once again raise the full retirement age, according to Bob Reynolds, the president and CEO of Putnam Investments. This time, Reynolds suggests, we might peg the full retirement age to life expectancy so as to adjust for improvements in the health of older people and increases in average life expectancy.

In 1940, for instance, the average 65-year-old male in the U.S. had a life expectancy of 77.7. In 1990, it was 80.3. And by 2006, it was 81.6. “You have to adjust for that,” Reynolds said. “It’s just too costly.”

FYI: Using 1940 as the benchmark ratio, the full retirement age could be raised, by my calculations, to 70¾.

Of course, you would phase the increase in over a period of time so that people have time to prepare for it, Reynolds said. And you might leave the full retirement age for people over age 55 as is, while adjusting it upward for those under age 55.

Reynolds also favors increasing the amount of earnings subject to taxation for a given year. For 2012, the annual limit, the contribution and benefit base for Social Security, is $110,100. He suggests that the contribution and benefit base be increased to “somewhere around” $150,000. “That would provide the base for a stable system long term,” Reynolds said. He noted, for instance that there’s no limit on the amount one’s taxed to pay for Medicare.

What’s more, Reynolds is in favor of examining a needs-based system that would reduce one’s Social Security benefit one based on income or assets. “It’s something that should be looked at,” he said.

Others also see the need to shore up Social Security. For instance, Cynthia Egan, president of T. Rowe Price Retirement Plan Services, said: “Lower income earners, those who are not covered by a defined contribution plan, as well as ‘weak savers’ are going to be highly reliant on Social Security. It is what it is. So we must ensure the stability and reliability of the Social Security program for the future.”

Contribution rates

On average, workers — at least those who have such a plan — contribute about 7% of their compensation into their 401(k) plan and that, many experts say, is too low. According to Reynolds, one would need to save at least 10% to replace, when combined with Social Security benefits, 80% of one’s final pay in retirement. Others say contributions rates have to be even higher the longer one waits to save and the less one has socked away.

Maybe the time has come to put in place plans that would automatically escalate the amount one contributes to a 401(k) to a minimum of 10%, not just the 3% which is the norm. Others agreed. “People need to save more — and we need to figure out how to make that happen,” Rappaport said.

To be fair, not all experts are worried about contribution rates or the shortcomings of 401(k) plans.

For instance, Kevin Crain, head of Institutional Retirement & Benefit Services for Bank of America Merrill Lynch, offered the following: “We believe that privately sponsored corporate retirement systems are structured to be successful, and can be even more successful with employer’s continued focus on enhancements to their financial benefit plans and services. More specifically, within 401(k)s, we continue to see significant increases in employee engagement and utilization of these plans through such tools as auto enrollment and advice services.”

And Linda Wolohan, a spokeswoman for the Vanguard Group, said: “The U.S. retirement system, while rocked like any investment-based program during the severe market downturn of a few years ago, has shown great resilience.”

For instance, she noted that retirement wealth for the typical 401(k) plan participant grew over the past five years even in the face of the substantial market and economic shocks. What’s more, she said, while account balances have sometimes been cited as too low to be helpful in retirement, it’s important to note that the typical participant is a 46-year-old male who is saving 8.8%, with 20 to 25 more years to work and grow his account. “His retirement plan assets will be complemented by Social Security benefits and other savings, perhaps assets in other employer plans or a spouse’s plan, or personal savings,” she said. “Even though we always encourage people to save more — ideally at least 12% to 15% of their income — the reality is that more participants than you think may be on target for retirement.”

Coverage

Another issue plaguing the U.S. today is this: Just half of the 150 million or so working Americans have an employer-sponsored retirement plan at work. And the 75 million workers who don’t have a retirement plan at work aren’t saving anything at all for their golden years. But studies suggest that those workers might save if they did have a plan at work. So, Reynolds is in favor of creating what’s been called a universal, or automatic, IRA.

According to the Heritage Foundation, universal or automatic IRAs would provide a relatively simple, cost-effective way to increase retirement security for the millions of workers without plan coverage. The universal or automatic IRA, said the Heritage Foundation, is a way that employees of smaller businesses can choose to save for retirement by allowing their employers regularly transfer an amount from their paycheck to an IRA.

For her part, Egan said there’s no need for another retirement plan, just incentives. “Small employers should be offered incentives to provide coverage,” she said. “We don’t need another vehicle. There are many, many providers who support small- and micro-plan services. We simply need to incent the smaller employer to make it happen and keep it simple for them.”

By the way, one big risk looming is the possibility that those folks who did the right thing and saved for retirement, might end up paying in one way or another for those who didn’t.

Literacy and confidence

Sometime in March, the Employee Benefit Research Institute will release the 22nd annual Retirement Confidence Survey and will likely show that only a few Americans are very confident about having enough money for retirement. In 2011, just 13% were very confident.

Reynolds suggests that there’s a correlation between financial literacy and confidence. To solve the confidence problem, we must solve the literacy problem. According to Reynolds, it’s time to provide the education and tools required to help people understand how much to save and how to invest, how much they will need to accumulate for retirement, and how to make their money last a lifetime once in retirement. Knowledge will lead to action, and action will lead to confidence.

Others agree. “Financial literacy and awareness are key components in helping Americans prepare for retirement,” said Suzanna de Baca, the vice president of wealth strategies at Ameriprise Financial. “Any American looking ahead to retirement can benefit from a written financial plan that will help them define their retirement goals and objectives, and guide them in creating a realistic plan to create a more confident financial future.”

Rachel McTague, a spokeswoman for the Investment Company Institute (ICI), also said education is needed. “ICI research finds that the system of saving for retirement in 401(k) plans and IRAs is a success, based on such survey data and modeling of potential savings over a full career with 401(k) plans,” she said. “Nonetheless, we believe there is room for improvement. Among other priorities, we support efforts to provide retirement savers with information and tools to help them use the system to accumulate assets and understand and navigate the distribution phase as well.”

In the absence of such education and planning, however, there are those who say policies that force people to save on their own for retirement hurt more than help. “Too much responsibility has been shifted to individuals, and they are not well prepared to handle them,” said Rappaport. “Financial literacy creates major challenges and we need systems that work without people having initiative.”

Outliving one’s assets

Right now, there’s much ado about outliving one’s assets. Experts are worried that average Americans don’t understand longevity risk and might draw down their assets too quickly during retirement. According to experts, many Americans should consider adding investments that insure against the risk of outliving one’s assets. But that’s unlikely to happen anytime soon. Most Americans are distrustful of such products. Nonetheless, it’s worth adding this opinion to the mix.

“Striking the right balance between growth and income to keep from outliving one’s retirement savings is an even more daunting task than it was before the current period of market volatility and low interest rates,” said Chris Winans, a spokesman for AXA Equitable. “The problem is that 401(k)s and plain-vanilla savings accounts without downside protection are exposed to the vagaries of the market. You wouldn’t think of not spending whatever it costs to insure from losing your house in a fire. Why wouldn’t you want protection on a portion of your retirement nest egg, too? Our challenge is to help people understand this value for themselves and their families. You hope your savings appreciate and nothing bad happens, but a lifetime income guarantee reduces some of the risk. That’s worth something.”

Tax breaks and retirement

Efforts to eliminate the so-called tax breaks Americans get for saving money in a 401(k) or other plans where they can to save on a pre-tax basis could affect adversely the state of retirement in the U.S.

According to Reynolds, 401(k) plans and the like are not tax breaks. Rather they are tax-deferred plans. At some point in the future, Americans will pay ordinary income taxes on the money distributed from those plans. Efforts to eliminate or reduce incentives to save might backfire and reduce further the poor state of retirement in the U.S., not improve it.

Egan is of the same opinion. “Tax incentives must be preserved for retirement savings,” she said. “Our defined contribution system reflects ‘the American way.’ There’s a balance among government endorsement and oversight, corporate and plan sponsor fiduciary responsibility, individual responsibility, and free market competition among service providers.”

The good news — sort of

“As more and more baby boomers retire, the discussion on retirement, on retirement income, will become a national topic,” said Reynolds. “And I think it will spark the interest of retirement to all age groups.”

Let’s hope that’s the case because the problem is real. “America is facing an unprecedented retirement challenge as the U.S. population undergoes a radical demographic shift,” said Michael Falcon, head of retirement at J.P. Morgan Asset Management. “Twenty percent of the population will be over 65 years old by 2020 and, despite impressive aggregate asset growth, many Americans are still significantly short of the savings they will need for a dignified retirement and are unprepared for the complex financial choices they will need to make.”

MarketWatch
By William L. Watts and Claudia Assis
January 26, 2012

SAN FRANCISCO (MarketWatch) — Gold prices climbed to levels unseen since early December on Thursday, extending a rally triggered the previous day after the U.S. Federal Reserve pledged to hold interest rates near zero until the end of 2014.

Gold futures for February delivery rose $28.50, or 1.6%, to trade at $1,727.40 on the Comex division of the New York Mercantile Exchange.

They earlier traded as high as $1,731.50 an ounce. Futures soared by more than $35 on Wednesday to break the $1,700 barrier on the heels of the Fed’s decision.

Prospects of inflationary pressures due to the low interest rates are supporting gold, George Gero, a vice president at RBC Wealth Management, said in e-mailed comments.

The Fed’s new commitment extends its previous statement that economic conditions were likely to keep rates in the historic low range of 0% to 0.25% until at least mid-2013.

And the central bank also appeared to leave the door open for a further round of quantitative easing if the economic recovery stalls.

The Fed decision was also credited with boosting oil and other commodities, lifting equities and undercutting the dollar.

“Although the Fed’s decision bolstered commodities prices across the board, the impact on precious-metals prices has been the most apparent,” wrote analysts at KBC Bank in Brussels.

“Generally, [a] low real-interest-rates environment has been historically favorable for the price of gold. Therefore, prolonged period of stable low interest rates (perhaps through late 2014) could play in favor of the price of the yellow metal in months ahead,” they said.

Kitco News
By Allen Sykora
January 26, 2012

(Kitco News) – The U.S. dollar remains weaker in response to a dovish Federal Reserve, successful Italian bond auction and reports of progress on private-sector-involvement talks for Greek debt, says FOREX.com. The market’s main focus late Wednesday and overnight was the Federal Open Market Committee’s pledge to keep interest rates low until late 2014. Meanwhile, says FOREX.com, Italy sold its maximum target of 5 billion euros at an auction of zero-coupon and inflation-linked bonds. “Italian borrowing costs fell, with the 10-year yield currently lower by about 13bps to 6.10%,” FOREX.com reports. “Sovereign-yields spreads for most of Europe also eased, with the exception of Portugal.” Meanwhile, there are reports that Greece’s private-sector credits are willing to accept a weighted average coupon of 3.75%, which is below the previously sought 4%. “The news that negotiations are progressing with a deal on the horizon supported the euro, as the common currency rose to session highs of around 1.3170/75,” says Forex.com. Metals traders tend to monitor foreign-exchange developments since moves in the dollar often affect precious and base metals alike.

REUTERS
By Jan Harvey
January 26, 2012

(Reuters) – Gold’s record-breaking rally of the last decade is set to extend into this year and next as monetary policy stays loose and central banks build reserves, a Reuters poll showed on Thursday.

Silver is expected to decline for a second year running after hefty price swings spooked investors last year.

The survey of 45 analysts carried out by Reuters in January predicted an average spot gold price of $1,765 an ounce in 2012, 14 percent higher than last year’s average of $1,544. This was itself 26 percent above 2010′s $1,228 an ounce.

The Federal Reserve’s pledge this week to keep U.S. interest rates at rock-bottom levels for a number of years and its hints of fresh monetary easing are set to fuel further gains in gold, keeping the opportunity cost of holding bullion low and the dollar in check.

“It takes out the major risk factor for most people investing in gold, which is of real interest rates going higher,” said Macquarie analyst Hayden Atkins. “That would be the major tipping point for gold, and it just seems to be getting pushed out and out.”

Several big banks, including UBS, Morgan Stanley and Societe Generale, forecast the average price would break above the $2,000 level, which would be well above last September’s record $1,920.30. Their predictions highlight the extreme nature of a rally that started in 2001 from an average level of $270.

But signs of strength in the U.S. currency late last year have unsettled investors, while rising appetite for other assets such as stocks could make trading conditions turbulent.

“If you look at gold’s performance up to mid-year 2011, it was almost a straight line higher,” said Tobias Merath, an analyst at Credit Suisse. “Then we had this period of funding stress and a stronger dollar, and we saw a correction.

“Now gold is tentatively recovering. It is probably resuming its upward trend, but what we believe will happen is that the straight line we are used to will turn into a zig-zag,” he added.

Central banks’ commitments to low interest rates are firmly underpinning prices, as is a move in official sector activity in the gold market from selling to buying. Central banks bought more bullion last year than at any time since 1964.

Concerns over sovereign risk in the euro zone, which have even extended to speculation the bloc may break up, sparked heavy gold buying in Europe and elsewhere in 2011 as investors diversified out of European assets. But the support offered by the crisis has faltered in recent months.

“If you are investing in gold because you believe the gold price will go up, you will keep on putting money into it,” said David Jollie, an analyst at Mitsui & Co Precious Metals.

“If you are buying it as an insurance policy for the rest of your portfolio, once you have a certain amount, do you really need to keep adding to that? I think the answer is, you don’t. Things will have to keep getting worse for you to think you need more gold.”

In 2013, gold is expected to extend its run higher, but the rate of appreciation will again be slower. The average forecast gold price for next year is $1,835 an ounce, just 4 percent above the forecast for this year.

SILVER

Average silver prices meanwhile are seen easing to an average $33.21 an ounce this year from last year’s median price level of $34.99 an ounce, little changed from current levels.

Investors remain shy of the white metal, which is used in electronics manufacturing and jewelry, after prices slumped by a third in the five sessions after they hit record highs last spring.

“Silver’s violent price moves last year have undermined its investor appeal for the time being,” said UBS strategist Edel Tully. “The market needs fresh catalysts to encourage more participation.”

“We still do not rule out another stab at $50 an ounce. Given our expectation for gold to make new highs in the coming year, we could very well see silver enjoying some spillover benefits. But for this to happen, silver needs to rebuild its investor base,” she added.

“With 50 percent of overall demand accounted for by industrial applications, this could be a drag on silver’s performance.”

Silver’s appeal has been undermined by the decline in the photography sector, which 10 years ago accounted for around a quarter of demand.

By 2010, silver offtake by that industry had dropped 64 percent in tonnage terms. Photography company Eastman Kodak filed for bankruptcy protection earlier this month after failing to embrace digital photography.

Silver mine supply has also hit record levels in recent years.

In 2013, the analysts polled see silver prices rising to $35 an ounce, up on their expectations for this year but still well below last year’s record high of $49.51 an ounce.

The Washington Post
By Glenn Kessler
January 25, 2012

A State of the Union address is often difficult to fact-check, no matter who is president. The speech is a product of many hands and is carefully vetted, so major errors of fact are so relatively rare that they sometimes can become big news (think of George W. Bush’s “sixteen little words” about Iraq seeking uranium in Niger). At the same time, State of the Union addresses are very political speeches, an argument for the president’s policies, so context (or the perspective of opponents) is often missing.

Here is a guide through some of President Obama’s more fact-challenged claims, in the order in which he made them. As is our practice with live events, we do not award Pinocchio rankings, which are reserved for complete columns.

“For the first time in nine years, there are no Americans fighting in Iraq. For the first time in two decades, Osama bin Laden is not a threat to this country. Most of al Qaeda’s top lieutenants have been defeated. The Taliban’s momentum has been broken, and some troops in Afghanistan have begun to come home.”

The killing of bin Laden, which Obama used to open and close his speech, is an achievement that few partisans would quibble with. But the story about Iraq and Afghanistan is much more muddled.

Yes, U.S. troops have left Iraq, in part because the Obama administration was unwilling or unable — take your pick — to extend a security agreement with Iraq. Since the U.S. departure, Iraq has descended into violence as the government of Prime Minister Nouri al-Maliki has targeted Sunni opposition figures. The country at times appears to teeter on the edge of a new outbreak of sectarian violence.

Meanwhile, the president’s claim that the Taliban’s “momentum has been broken” is a highly debatable claim. U.S. intelligence agencies, for instance, recently concluded in a secret assessment that the war in Afghanistan “is mired in stalemate” and that security gains from an increase in American troops “have been undercut by pervasive corruption, incompetent governance and Taliban fighters operating from neighboring Pakistan,” according to the Los Angeles Times. Other U.S. officials have dissented from the report’s conclusions, but the dispute is an indication of how fragile any momentum may be.

“In the six months before I took office, we lost nearly four million jobs. And we lost another four million before our policies were in full effect. Those are the facts. But so are these. In the last 22 months, businesses have created more than three million jobs. Last year, they created the most jobs since 2005. American manufacturers are hiring again, creating jobs for the first time since the late 1990s. Together, we’ve agreed to cut the deficit by more than $2 trillion. And we’ve put in place new rules to hold Wall Street accountable, so a crisis like that never happens again.”

Here, Obama tries to inoculate himself from the inevitable charge by the eventual GOP presidential nominee that he has the worst job-creation record of any president since World War II. (Let us stipulate that all of these job-creation claims are fairly bogus, given how every president is at the mercy of the business cycle, but it appears to be central to our politics.)

As Obama noted, some 4 million jobs were lost at the start of his administration, putting him in a deep hole if he wants to show positive job growth in his presidency. But the nearly $1 trillion stimulus was passed into law in February, and so the carefully phrased claim of “we lost another four million before our policies were in full effect” is a stretch.

That’s because it took a full nine months to run up 4 million in job losses, some eight months after the stimulus was passed into law — and some four months after the official end of the recession, according to Bureau of Labor Statistics data. (The 4 million in losses before Obama took office occurred in the previous nine months, not six months as the president stated.)

Trying to change the focus from his overall job-creation record, the president focuses on private-sector jobs created since the recession ended. Those numbers are largely right, but they are relatively anemic given the depths of the recession. (Note that he describes a loss of 8 million jobs and then mentions a gain of only three million.)

Obama does not mention that Republicans forced him to accept $2 trillion in budget cuts during the debt-ceiling impasse. And he says “we’ve put in place” new rules on Wall Street, glossing over the fact that it had little Republican support and the GOP candidates have all vowed to repeal the Dodd-Frank law.

“We will not go back to an economy weakened by outsourcing, bad debt, and phony financial profits. … It’s time to apply the same rules from top to bottom: No bailouts, no handouts and no copouts.”

These are clearly lines crafted by political operatives. Few economists would blame “outsourcing” for the economic crisis; it is also unclear how Obama has eliminated outsourcing during his presidency. “Bad debts” presumably would refer to irresponsible mortgage loans. “Phony financial profits” is also a bit puzzling. Perhaps it was not supposed to make sense.

The same goes for the other catch-phrase, uttered a bit later in the speech. The president, of course, supported massive bailouts before and after he took office, as will be demonstrated by the next quote.

“On the day I took office, our auto industry was on the verge of collapse. Some even said we should let it die. With a million jobs at stake, I refused to let that happen. In exchange for help, we demanded responsibility. We got workers and automakers to settle their differences. We got the industry to retool and restructure. Today, General Motors is back on top as the world’s number one automaker. Chrysler has grown faster in the U.S. than any major car company. Ford is investing billions in U.S. plants and factories. And together, the entire industry added nearly 160,000 jobs.”

Here the president appears to celebrate a bailout, which actually was started under his predecessor George W. Bush. The claim that “some” wanted the auto industry to die is a bit of a straw man, though Obama appears to be really aiming at Mitt Romney’s call at the time for the auto industry to go through a pre-packaged bankruptcy, which Democratic attack ads have turned into heartless-sounding proposal. (Ford, incidentally, did not accept a bailout.)

Some 200,000 auto workers were laid off during the recession, bringing the industry to a low of 550,000 workers; forecasts suggest it will climb back to the pre-recession level by 2015.

“A few weeks ago, the CEO of Master Lock told me that it now makes business sense for him to bring jobs back home. Today, for the first time in fifteen years, Master Lock’s unionized plant in Milwaukee is running at full capacity.”

This is true. An interesting article in the Milwaukee Journal Sentinel this month explains that costs in China have risen because of labor unrest, higher shipping rates — and weakening of the yuan against the dollar because of political pressure by the United States.

“Right now, American oil production is the highest that it’s been in eight years. That’s right — eight years. Not only that — last year, we relied less on foreign oil than in any of the past sixteen years.”

The first statement is a great statistic but not especially noteworthy because there has not been much change in the annual barrels produced in the United States since 2003; it essentially has been steady though it is slightly higher now than in previous years,according to the Energy Information Administration. Production is projected to increase in coming years.

The second claim made it into Obama’s first campaign ad, and as we have noted, it is lacking context. The Energy Department cited a host of reasons why foreign oil imports have declined, noting the main reason was “a significant contraction in consumption” because of the poor economy and changes in efficiency that began “two years before the 2008 crisis” — ie, before Obama took office.

“Take the money we’re no longer spending at war, use half of it to pay down our debt, and use the rest to do some nation-building right here at home.”

This is fanciful budget math. The wars in Iraq and Afghanistan were funded with borrowed money, so what Obama is really asking for is an increase in domestic spending relative to the Pentagon. The United States is still running huge deficits, so none of this imagined savings would “pay down the debt” until the United States once again began running surpluses. Instead, his proposal would continue to add to the debt.

“Right now, because of loopholes and shelters in the tax code, a quarter of all millionaires pay lower tax rates than millions of middle-class households.”

The president, making his case for higher taxes on the wealthy, framed this better than the line in his Kansas City speech that earned him Three Pinocchios, but he is still making a broad claim on a narrow set of facts.

Most wealthy people pay a higher tax rate than most less-wealthy Americans, but there are always going to be some exceptions. The Congressional Research Service found that among millionaires, the average tax rate is almost 30 percent. But some 94, 500 millionaires —one quarter — do face a tax rate that is lower than 10.4 million moderate-income tax payers.

“That’s why our health care law relies on a reformed private market, not a government program.”

Obama spent surprisingly little time in the speech defending his signature health care law, but he left out part of the story with this statement. About half of the 34 million people who will receive coverage under the new law will be placed on Medicaid, a federal-state government program for low-income Americans, according to Congressional Budget Office estimates. The rest of the newly insured would get coverage through private markets.

“Through the power of our diplomacy, a world that was once divided about how to deal with Iran’s nuclear program now stands as one.”

This is a more hopeful statement than the actual reality. The Obama administration has won U.N. approval for new sanctions, and just this week the European Union joined in an embargo of Iranian oil imports. But there are other key nations, in particular China, that have resisted a broad crackdown on trade with Tehran. There is also little evidence that the sanctions have had much effect in slowing Iranian nuclear ambitions.

“Our iron-clad commitment to Israel’s security has meant the closest military cooperation between our two countries in history.”

Obama has had tense relations with Israeli Prime Minister Benjamin Netanyahu, especially over peace talks with the Palestinians, but military cooperation has been one bright spot in the relationship. Still, the fact that the president could not even mention peace with the Palestinians in this speech suggests how much his dream of achieving a peace deal has faded.

“Anyone who tells you otherwise, anyone who tells you that America is in decline or that our influence has waned, doesn’t know what they’re talking about. That’s not the message we get from leaders around the world, all of whom are eager to work with us. That’s not how people feel from Tokyo to Berlin; from Cape Town to Rio; where opinions of America are higher than they’ve been in years.”

Obama’s self-congratulatory tone aside, the most striking thing about this list is that it does not include any cities in the Islamic world. Obama had made a high-profile speech in Cairo in 2009 designed to bolster the U.S. image; judging by recent polling, his effort has been a failure.

The Pew Research Center in May said that both the U.S. favorability rating and confidence in Obama had fallen sharply since 2009. In Turkey, a NATO ally, for instance, the confidence in Obama fell from 33 percent in 2009 to 11 percent in 2011; in Jordan, another key ally, the favorability rating for the United States fell from 25 percent in 2009 to 13 percent in 2011.

Numbers had even fallen in Indonesia, where Obama had lived for some years as a child. The survey said that Obama’s handling of the political change spawned by the Arab Spring was a key factor in the slumping numbers.

Reuters
By Pedro da Costa and Mark Felsenthal
January 25, 2012

(Reuters) – Federal Reserve Chairman Ben Bernanke signaled on Wednesday the central bank may consider further monetary easing, after the central bank announced interest rates would remain near zero until late 2014.

Bernanke also suggested the Fed might be willing to tolerate inflation above its newly unveiled official target of 2 percent if it means putting a dent in high unemployment.

Speaking at a press conference, Bernanke was cautious about recent improvement in the U.S. economy.

“I don’t think we’re ready to declare that we’ve entered a new, stronger phase at this point,” Bernanke told reporters.

He left the door open to further monetary easing through bond purchases if the economy deteriorates in 2012.

“We are prepared to take further steps in that direction if we see that the recovery is faltering or if inflation is not moving towards target,” Bernanke said. “It’s an option that’s certainly on the table.”

In a historic step that it has touted as an effort toward greater transparency, the Fed for the first time published individual policymakers’ forecasts for the federal funds rate, the benchmark overnight lending rate.

These showed quite a wide range of views, including three of 17 policymakers who expect rates will need to rise this year and two others who do not see any increase until 2016.

Still, the biggest concentration of estimates – five of 17 – was around 2014. The assurance that rates would remain near zero for at least some 18 months longer than previously believed was enough to spark a rally in U.S. government bonds and push stocks into positive territory.

The dollar lost ground against the euro, while gold prices surged over 2 percent.

The Fed, after a two-day policy meeting, repeated its view that the economy faces “significant downside risks” – an expression that has become code for the threat of Europe’s banking crisis hurting the United States – but it offered little to suggest it was close to launching another round of bond-buying to prop up growth.

Its forecasts pointed to somewhat weaker economic growth this year and next, compared with Fed estimates published in November.

It did say, however, that it would maintain a “highly accommodative” monetary policy stance. Economic conditions “are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014,” the Fed said in a statement.

Many investors had expected the Fed to push its expectations for the first rate hike into 2014, but few had thought it would be late in the year. After every previous policy meeting dating back to August, the Fed had said rates were not likely to rise until mid-2013.

The central bank also appeared more sanguine on the inflation outlook, suggesting prices were now rising at a pace consistent with policymakers’ goals. The statement also dropped a reference saying the Fed was monitoring inflation and inflation expectations.

Aside from the 2014 rate pledge, the Fed’s statement hewed closely to its last policy pronouncement in mid-December.

It described the unemployment rate as still elevated and said it expects inflation to remain at levels consistent with stable prices. In a slight shift, it acknowledged signs that business investment has slowed.

“I think what they are seeing is that the rate of growth is not sufficient to bring down the unemployment rate,” said Brian Dolan, chief strategist at FOREX.com in Bedminster, New Jersey.

Richmond Federal Reserve Bank President Jeffrey Lacker, an inflation hawk who rotated into a voting seat this year, dissented against the decision. He preferred to omit the description of the time period for ultra-low rates.

In response to the deepest recession in generations, the Fed slashed the overnight federal funds rate to near zero in December 2008. It has also more than tripled the size of its balance sheet to around $2.9 trillion through two separate bond purchase programs.

The policy is credited with having prevented an even more devastating downturn, but it has been insufficient to bring unemployment down to levels considered normal during good economic times.

In December, the U.S. jobless rate stood at 8.5 percent, and some 13 million Americans were still actively looking for work but could not find it.

While forecasters expect the U.S. economy grew at a 3 percent annual rate in the last three months of 2011, they look for growth of just around 2 percent this year.

Fed officials appear likely to bide their time in determining whether more monetary stimulus is needed. Many economists expect they will eventually decide on another spurt of Fed bond buying – probably one focused on mortgage debt.

CNBC.com
By Ted Kemp
January 25, 2012

Billionaire investor George Soros on Wednesday minced no words on the financial troubles faced by the Europe Union, as he addressed the future of the currency block before an audience in Davos.

Soros said that Europe is mired in a “spiral of decline” that reinforces itself, adding that, as things stand, “Weaker members of the euro zone are being left as Third World countries that borrowed in foreign currencies.”

“I’m not sure if authorities (in the EU) are deliberately prolonging the crisis, or if this is being driven by divergent views,” he said.

He pointed to Hungary, currently bogged down in its own financial crisis, as a “precursor of what is stake” if the EU continues its current policies.

Soros said, however, that it’s not to late to save the euro and the EU. But doing so requires a two-part plan: First the single currency block has to reform the way it is structured. Then it must provide economic stimulus. He dismissed structural austerity as something that merely reduces countries’ ability to service their debts.

What kind of stimulus? The American billionaire suggested a single eurobond that can be issued at 1 percent.

Turning to Barack Obama, who on Tuesday said in his State of the Union address that the richest Americans should pay more in taxes, Soros agreed with the president.

“I’m a rarity in the hedge fund community,” he said.

The Street
By Alix Steel
January 25, 2012

NEW YORK (TheStreet ) — Gold prices reversed earlier losses and popped higher Wednesday as the Federal Reserve stayed committed to an easy monetary policy for a longer period of time.

Gold for February delivery rallied $36.50 to close at $1,700.10 an ounce at the Comex division of the New York Mercantile Exchange. The gold price has traded as high as $1,704.50 and as low as $1,649.20 an ounce while the spot price was up $34, according to Kitco’s gold index.

Silver prices jumped $1.14 to settle at $33.12 an ounce while the U.S. dollar index was down 0.26% at $79.60.

Gold prices reversed directions Wednesday and popped higher after the Fed said it would maintain low interest rates until late 2014, a year longer than previously stated. The Fed also promised to stay accommodative. “That’s really really dovish and you are seeing a lot of people running into gold,” says Phil Streible, senior commodities broker at RJO Futures.

The Fed said that inflation remains subdued, which Streible said was a good thing for gold. “Inflation will be created … [the Fed is] artificially creating inflation for the next couple of years.” Chairman, Ben Bernanke, during his press conference also said the Fed was looking for an improvement in the pace of the recovery and that if inflation stays low and unemployment comes down slowly then the Fed will “look to do more.” P/>The Fed raised its inflation target to 2% but said it was prepared to go above that level if warranted by the bad employment situation, which is another sign more quantitative easing could be on the horizon. The Fed said “it would tolerate inflation above their preferred rate if lowering it back to the preferred rate would raise unemployment unacceptably,” says Larry White, Professor of Economics at George Mason University.

White thinks that policy is a mistake. “The problem with the Fed saying that is it is going to raise inflation expectations [is that it] will effect unemployment.” White says if people start to expect inflation they will hold out for higher wages leading to stagnation in the job market.

The U.S. dollar index sold off on the news as more easy money means a devalued dollar. When paper currencies lose value, gold becomes appealing as a safe haven asset. White says its just a question of which falls faster against other currencies the euro or the dollar with the later good for gold.

“The Fed telling us no rate increase to at least 2014 is a sharp rally promoter for gold,” says George Gero, senior vice president at RBC Capital Markets, who called gold’s jump breathtaking, “as low interest rates to continue will make gold a good alternative hold and not expensive to maintain” The rise in gold also triggered short covering where investors who had been betting against gold were forced to buy back positions.

A popular gold trade of late has been to short the metal — bet against higher prices — as prices reach $1,670 an ounce and then cover shorts — buy back positions — as the metal hits $1,650 an ounce. The result is a tight technical trading range for gold. Streible says if gold can break through $1,680 on a closing basis we are going to $1,720.”

Scott Redler, chief strategic office at T3Live.com, said that the rally happened on strong volume, which is bullish for gold despite the fact that much of it came from short covering. “A big move on heavy volume through a downtrend is bullish.” Redler is now looking for higher prices in gold.

Chuck Butler, president at EverBank World Markets, notes that the gold futures market has picked up 10,000 short contracts since the beginning of the year, suggesting that gold was being used primarily as a trading vehicle, but that might change if longer term investors pile back in.

Waverly Advisors wrote in a note this morning that they are holding a small short position in gold and are looking to add as prices consolidate. “Traders not holding short positions could initiate on such a breakdown, and traders holding longs could further reduce exposure on weakness.” Any pressure on these positions will help sustain a rally.

Butler acknowledges that in the short-term gold will stay volatile, but that later in 2012 gold will reach its previous high of $1,923 an ounce and maybe even touch $2,000.

As long as the focus is on the troubles in Europe gold will come under pressure as it moves with the euro and inversely to the U.S. dollar. “But later this year we are going to be going through an election process in the U.S.,” says Butler. “I think that process is going to be like last August, when we had the debt ceiling debacle and everyone just got out of dollars as fast as they could.” Gold prices soared almost 13% in August as Standard & Poor’s downgraded the U.S.’ triple-A credit rating after a deadlocked Congress almost triggered a debt default.

“When the focus shifts back to the U.S., that will push people to buy gold again.” The lynchpin, however, is stabilization in Europe. Butler thinks stabilization comes in the form of the European Central Bank taking a larger more obvious supportive role like the Fed, and that a Greece default must be taken off the table. Although the ECB’s balance sheet has grown 27% since September and it is offering unlimited 3 year dollar loans at a low rate to banks — effectively back stopping them — it hasn’t issued any grandiose statement regarding buying sovereign bonds. It currently is buying debt from banks and institutions but the ECB always says the purchases are limited in nature. If the ECB were to signal a longer commitment to its bond buying program, it could go a long way in stabilizing Europe.

“Any chance of that happening and [investors] feel calmer,” says Butler, “markets for the most part really want to see the euro hold on here … Stabilization, even if temporary, would shift the focus back to U.S.”

Gold mining stocks were soaring Wednesday. Kinross Gold was up 6.24% at $11.24 while Yamana Gold was 9.44% higher at $16.86.

Other gold stocks, Agnico-Eagle and Eldorado Gold were popping at $37.66 and $14.06, respectively.