Wednesday, July 13, 2011

Bernanke Thinks Gold is Not Money as it Soars to Record Highs

Before launching into my daily monologue on what's wrong with the global financial system (almost everything), here's a short video clip of Federal Reserve Chairman Ben Bernanke's answer to Texas representative (and presidential candidate, though you wouldn't know it from watching TV) Ron Paul's question as to whether the Chairman of the world's largest central bank thinks gold is money.

Watch the latest iteration of "what's wrong with this picture" below.

Well, there you have it. The Chairman thinks funny-looking pieces of paper with pictures of dead presidents on them are money, but gold, which has been used as a medium of exchange and a store of value, is not. Is there any wonder then, why the global economic system is on the verge of a grand mal seizure?

Bernanke's comments came at a time at which gold was breaking out to record highs, making his remarks seem not only ignorant and ridiculous, but also contrived, disingenuous and bordering on being an outright lie.

If one were to follow Bernanke's train of thought, then, no, gold is not money, land is not real estate, the moon is not a satellite and the sun is not a star. Rubbish, pure, stinking trash.

In addition to making profoundly absurd statements like the one above, the Chairman, in testimony before the House Financial Services Committee, also signaled that he and the Fed were prepared to provide more stimulus should the US economy continue to falter, though he held steadfast to the curious position that the economy was improving.

With that, stocks and commodities took that as a cue to ramp higher, with the Dow gaining more than 160 points just before 11:00 am.

However, the euphoria over the potential for QE3 was fleeting and stocks drifted lower throughout the session, with selling accelerating in the final hour. Equity markets lost about 2/3rds of their earlier gains, as traders left the floor moribund and still confused over fiscal as well as monetary policy.

Elsewhere in Washington, the President and leaders of congress met for a fifth straight day to try to work out a compromise on the budget and raising the debt ceiling. The late-afternoon meeting (3:45 pm) offers little chance of reaching any kind of agreement right away as both sides seem entrenched on their particular set of issues. Republicans are resistant to any kind of tax increase, even if only on the very top earners, while Democrats and the President have been more accommodative, though seem reluctant to make any modifications to Medicare or Social Security without some bending by Republicans. The result is a standstill, with the good faith and credit of the USA hanging in the balance.

So, while it was a winner for the bulls overall, the feeling of failure was pervasive at the end of the day.

Dow 12,491.61, +44.73 (0.36%)
NASDAQ 2,796.92, +15.01 (0.54%)
S&P 500 1,317.72, +4.08 (0.31%)
NYSE Composite 8,246.80, +54.05 (0.66%)

Advancing issues still managed to defeat decliners by a healthy margin, 4557-1978. On the NASDAQ, there were 87 new highs, and 26 new lows. The NYSE had 61 new highs, 24 new lows, putting the combined total for the day at 148 new highs and just 50 new lows. Volume was fairly dull, though the broader NYSE outgained the Dow, which happens rarely and is a sign that assets are shifting from traditional safe havens to more riskier investments, not at all surprising given Bernanke's comments.

NASDAQ Volume 1,874,432,000
NYSE Volume 4,033,702,250

Commodities, especially the precious metals, had a field day. Oil was up 62 cents, to $98.05, but was a laggard by comparison. Gold made another new all-time high at $1,585.50, up $23.20, while silver was a 7% gainer, up $2.52, to $38.15.

The slate of economic data for Thursday is chock-full of interesting readings, beginning with weekly unemployment claims along with retail sales and June PPI at 8:30 am.

After the bell, Yum! Brands (YUM) beat expectations by five cents, posting 66 cents per share for the second quarter, though most of the profits were driven by overseas performance and a favorable shift in its tax rate. US same store sales slipped 4% in the quarter, which was a discouraging sign for the global fast food company.

Mariott International (MAR) posted diluted EPS of $0.37, roughly in line with estimates.

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