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All that glitters ... Capital Economics raises this intriguing question today: Is gold heading for a replay of 1980?
Gold is an "obvious beneficiary" of the troubles in the Middle East and North Africa, and there are many parellels with the highs of early 1980 after the second global price shock, when bullion hit $850 (U.S.) an ounce, said chief international economist Julian Jessop in London.
Adjusted for inflation levels in the United States, that level of January, 1980 is equivalent to about $2,400 today, which "suggests there could still be plenty of upside," Mr. Jessop said in a research note.
The Soviet invasion of Afghanistan marked the biggest geopolitical risk of January 1980, Mr. Jessop said, but noted that gold's peak at that point was "sandwiched" between Iran's revolution and the start of the war with Iraq. The hostage crisis in Iran was also in its infancy, and oil prices doubled in a year.
There are some distinctions between the two eras, notably that in 1980 gold surged amid sharply higher inflation, but also pumped up by a decline in South African output, which then represented 70 per cent of the world's production. And after that peak, gold fell into a 20-year bear market.
"Nonetheless, in some other respects the conditions are now more favourable for gold than they were in 1980," Mr. Jessop said, projecting gold to surge to $1,600 an ounce by the end of this year and as high as $2,000 in 2012. Not exactly a replay of 1980, but close.
"The global financial crisis has left serious doubts about the creditworthiness of governments and financial institutions that underwrite paper assets. At the very least, interest rates are likely to remain very low in the advanced economies, thus minimizing the opportunity cost of holding an asset like gold that does not pay any income. We do not expect the major central banks to start to reverse their quantitative easing any time soon either.
"Gold is also now firmly established as a mainstream financial assets, exemplified in the fact that central banks were net buyers in 2010 for the first time in 21 years. The continued rapid growth in emerging economies, including China and India, means that fundamental demand for gold is now stronger too."
Even if the troubles that have raged for weeks in the Middle East ease, Mr. Jessop sees other "economic and financial shocks" that could boost gold, including the fallout from a debt crisis in Japan, the threat of a U.S.-China trade war, and uncertainty over the fate of the embattled euro.
"And even if inflation is unlikely to take off, the havoc that deflation would bring to heavily-indebted economists might prove to be just as supportive for gold."
Oil fears mount The world is fretting again over high oil prices , and with good reason. The double whammy of high food prices and, now, higher crude costs does not bode well for what has been a tentative recovery from the great crash.
Several companies have suspended operations, and, according to The Financial Times, which cited the estimates of industry officials, half of Libya's oil production is now shut down. Brent crude futures topped $110 (U.S.) a barrel, while the benchmark U.S. price hit $100.
Morgan Stanley's chief Asia and emerging markets strategist, for example, warns the world could plunge back into recession if crude hits $120 a barrel, pushed up by the turmoil in the Middle East and North Africa.
"If you go above $120 on a sustainable basis, you will have a meaningful shortfall in global growth relative to what the current consensus expects," Jonathan Garner told Bloomberg Television.
There was also another warning today from Scotia Capital economists Derek Holt and Gorica Djeric, who say the "commodity shock" to American consumers is almost as bad as it was in 2008.
While crude is not yet anywhere near its 2008 peak, they said, food prices are.
"One must simultaneously account for the fact that food prices are at an all-time peak when evaluating the impact of a twin commodity shock upon U.S. household incomes," they said. "The combined largely non-discretionary spending categories compete for share of wallet against discretionary spending ... what American consumers are spending on food and energy as a share of their comes is not far off 2008 levels."
U.S. consumers, the economists said, now spend an additional $225-billion on food and energy, compared to late 2008 when prices collapsed. As a share of income, spending on food and energy is running at 12.6 per cent, not as high as the 13.5 per cent at the mid-2008 peak. But key is that credit is still constrained by little growth in employment and incomes.
"Without income growth or credit to back into, a commodity shock still crowds out discretionary spending and in our opinion is disinflationary for much of the rest of the consumer basket."
Added David Rosenberg, the chief economist at Gluskin Sheff + Associates: "The two-year change in the oil price does sharply raise recession odds, and it is no surprise that nobody is talking about that prospect since nobody was talking about it in 2007 or 2008 either when we were already in one (though we are seeing some analysts say they draw the line at $120 a barrel).
- Global economy threatened by 'dual price shock'
- Libyan crisis pushes oil higher
- Libyan unrest rattles oil markets
- Jittery investors run for safety
- Oil pressured even without shortage
Saudi Arabia acts While Libya is the focus of the oil story, given it accounts for about 2 per cent of global output, there are jitters surrounding Saudi Arabia, the world's biggest exporter.
Saudi Arabia is an entirely different story from Libya, Egypt and the other countries in the region where protests have raged, but it is not immune and some reformers are calling for change.
This is not lost on Saudi Arabia, whose King Abdullah today unveiled a series of measures aimed at helping his masses. State TV announced that the king will pump the equivalent of almost $11-billion (U.S.) into a development fund, offer jobless help for young people, and bring in a 15-per-cent cost of living adjustment for public sector workers.
Today's measures, according to reports, will help people struggling with inflation and housing.
Rich despots There's a renewed focus today on the wealth accumulated by despots in the world's trouble spots.
Last week, Switzerland said it had frozen assets of the Mubarak family and former officials of his Egyptian regime.
Today, reports focus on the riches built up by Libya's Moammar Gadhafi and Tunisia's ex-president Zine al-Abidine Ben Ali.
The Financial Times reports today on how the Libyan leader's family has accumulated huge holdings in industries such as oil and hotels, citing U.S. diplomatic cables from WikiLeaks and other sources.
In one such cable from mid-2006, for example, titled 'Gadhafi Incorporated,' noted that the Libyan chief frequently speaks out publicly against corruption while at the same time allowing those in the elite, notably his family, "direct access to lucrative business deals."
According to the newspaper report, diplomats detail how Col. Gadhafi's second son had connections to the oil industry, his daughter to energy and construction, and his oldest son to telecommunications.
A third son was involved in planning a new city as a tourist site.
Separately today, The Wall Street Journal notes how Switzerland has frozen assets of the former Tunisian leader, while Swiss banks report allegations of money laundering.
Strike cripples Greece Strikes in Greece aren't really news any longer - they're so frequent you can almost set your clock by them - but violence flared today as thousands protested in Athens and the country was crippled by a walkout.
It's the latest 24-hour strike against the government's harsh austerity measures. There have been clashes before, but today's involved young people throwing Molotov cocktails and authorities using tear gas and stun grenades, according to reports.
Hoenig calls for break-up of big institutions The outspoken chief of the Federal Reserve Bank of Kansas called today for the break-up of the the largest U.S. banks, warning that institutions deemed too big to fil pose the biggest risk to the economy.
"Today, I am convinced that the existence of too big to fail financial institutions poses the greatest risk to the U.S. economy," Thomas Hoenig said the text of a speech he was delivering in Washington, and posted on the bank's website.
"The incentives for risk-taking have not changed post-crisis and the regulatory factors that helped create the crisis remain in place," said Mr. Hoenig, a frequent dissenter at recent meetings of the Federal Reserve.
"We must make the largest institutions more manageable, more competitive, and more accountable. We must break up the largest banks, and could do so by expanding the Volcker Rule and significantly narrowing the scope of institutions that are now more powerful and more of a threat to our capitalistic system than prior to the crisis."
Hurdles mount in LSE-TMX deal The Ontario Securities Commission will hold its own public hearings on the proposed deal between TMX Group Inc. and London Stock Exchange Group PLC, The Globe and Mail's Janet McFarland reports today.
OSC chairman Howard Wetston says the commission will also publish the merger application for public comment and encourage written submissions.
"Let me make it clear that we will review all aspects of the transaction - including the proposed structure - to ensure that we are satisfied that any changes are in the public interest," Mr. Wetston said.
His announcement is the latest in a series of reviews to which the deal will be subjected. Notable are Ontario Finance Minister Dwight Duncan's comments as he puts on his Brad Wall suit.
- OSC vows hearings on LSE-TMX deal
- Nasdaq mulls NYSE bid
- Read our complete coverage of the LSE-TMX deal
Apple shareholders vote down proposal Shareholders of Apple Inc. have rejected a proposal that would have seen the company disclosing its plans for succession at the tech giant.
One of the major shareholders, the Laborers' International Union, had wanted the company to report annually on how it is plotting succession. The issue has been heightened since chief executive officer Steve Jobs took another medical leave, which follows a liver transplant in 2009.
Tim Hortons boosts dividend Tim Hortons Inc. today boosted its quarterly dividend by 31 per cent to 17 cents, and unveiled a new stock buyback program for up to $445-million.
The chain's profits in the quarter blimbed to $377.1-million or $2.19 a share, from $91-million or 51 cents, pumped by a hefty gain on its sale of Maidstone Bakeries. Revenue fell to $643.5-million.
Same-store sales, a key measure for retailers, rose, and the company projected an increase in that measure of 3 per cent to 5 per cent this year. It also projected earnings per share of $2.30 to $2.40 this year.
Loblaw eyes New York Joe Fresh Style stores will begin to appear in New York City later this year in a U.S. test of the cheap-chic fashion concept, Globe and Mail retailing writer Marina Strauss reports today.
Allan Leighton, president of Loblaw Cos. Ltd. , said the giant grocer will move cautiously in the ultra-competitive U.S. market but sees it as a potential area of growth.
The research that Loblaw has done on launching Joe Fresh in the United States has been favourable, Mr. Leighton told a CIBC World Markets investor conference in Toronto.
Home prices rise House prices in Canada rose 0.3 per cent in December from November, according to the Teranet-National Bank house price index, ending three consecutive monthly declines.
Prices were up in five of the six cities covered by the index, rising 0.5 per cent in Montreal and Vancouver, 0.2 per cent in Toronto, and 0.1 per cent in Calgary. They dipped in Ottawa.
"December's price increases in most metropolitan areas confirm our call that the previous monthly declines did not herald a long-lasting correction," said senior economist Marc Pinsonneault of National Bank Financial.
"At the national level, even if prices in December were below their June level, they were still 5.1 per cent above their pre-recession peak, in sharp contrast to the U.S. where prices are down 30 per cent from the peak of four years ago."
Labour market hasn't healed Employment rebounded more quickly in Canada following the last recession than after prior downturns, but scars still linger in the labour market, Globe and Mail writer Tavia Grant reports today.
A new analysis by Statistics Canada found employment levels took 27 months to fully recover from its level in October 2008. By contrast, it took 39 months to return to its pre-recession level in the early 1980s, and 52 months in the early 1990s.
More people remain out of work than before the downturn, with the number of jobless people rising by 800,000 between October, 2008 and October, 2010. And long-term unemployment has surged - to nearly a quarter of jobless people from 15 per cent before the downturn.
U.S. lawyers billing more One wonders whether some of the lawyers who turned to crime writing might have struck it richer had they remained practising and billing. Aside from John Grisham, of course.
The Wall Street Journal reports that some of the big lawyers in the United States are now seeking up to $1,250 (U.S.) an hour, much more than they had been, as the recession and financial crisis fades.
Some, the newspaper says, had topped $1,000 several years ago but many didn't want to go beyond $990 during the crisis. Some companies, despite cutbacks, are willing to pay higher rates, though, for certain types of legal representation.
One bankruptcy lawyer at Weil, Gotshal & Manges told the Journal the firm used to have a cap but found others eclipsing it to the tune of about $50.
Millionaires more bullish Forget about the rest of us, American millionaires are a happier lot.
The Spectrem Millionaire Investor Conference Index released today entered "mildly bullish territory" for the first time since October 2007. The Spectrem Affluent Investor Confidence Index also rose.
"These encouraging signs of investor confidence were somewhat tempered by a decline after five months of growth in the overall Spectrem Affluent Household Outlook," the Chicago-based research and consulting group said.
"Millionaires and non-millionaires had an attitudinal switch this month. Millionaires exhibited much stronger confidence in the economy despite an increase in the percentage of millionaires - 21.7 per cent, up from 16 per cent last month - who chose to not invest. Millionaire investments in cash, on the other hand, decreased 11.3 per cent. Millionaires drove increases in almost all investment categories from stocks to bond mutual funds."
The non-millionaire outlook - that would include me - fell, plunged, in fact, though levels remain high compared to the fall of 2007.
Boyd Erman's Morning Meeting If TMX Group Inc. and London Stock Exchange Group PLC complete their combination, the company will look for more assets to buy as it becomes an "offensive player," TMX chief Tom Kloet says, Streetwise columnist Boyd Erman reports today.
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From today's Report on Business