RESEARCH:Fisher Capital Management Strategies: Glittering Gold Need Not Set Off a Panic Over Inflation

Have you been asked about gold lately? Has someone tried to explain to you that the precious metal’s 27 percent increase in dollar terms during the past year signals ominous things? Runaway inflation… economic panic… infinite instability…

Well, instead of wasting your breath, or giving up and walking away, direct the concerned party to a corner of the report released this month by the World Gold Council, the gold- mining industry’s main trade group.

Buried amid the standard reportese is a statistical review of worldwide gold demand in 2011’s first quarter. The data show that gold’s ascent is being driven by extraordinary demand fromIndia and China, where rising prosperity is making it easier for millions of people to buy gold in all its forms, particularly jewelry.

The WGC estimates that Indian households own more than 18,000 metric tons of gold, the largest holding on the planet. (By contrast, U.S. official gold reserves total about 8,100 metric tons.) Indian consumers aren’t done buying. In this year’s first quarter, they purchased an additional 206 tons of gold jewelry and 85 tons of gold bars and coins. China’s appetite is growing rapidly and could soon overtake India’s.

Or come at it another way: Strip out Chinese and Indian purchases, and the rest of the world isn’t nearly so vibrant. Some new buyers have shown up; some prior speculators are cashing out.

Price Prediction

This is not the company line. Earlier this month, Sun Zhaoxue, the president of China National Gold Group Corp., the country’s largest gold mine, predicted that gold prices will stay high because of the dollar’s depreciation and “intensifying geopolitical risks.” His measured version of the safe-refuge thesis can be heard in much shriller tones on late-night advertisements for gold coins.

Yes, price surges for gold don’t always reflect genuine fears and the need for disaster-proof investments.

And, yes, gold’s price may continue to climb this year. A recent Bloomberg News survey of 31 analysts, investors and gold- mine operators found respondents, on average, predicting a year- end price of $1,750 an ounce, up significantly from recent levels of about $1,530.

If such a rise occurs, however, it’s likely to reflect normal public demand for a shiny commodity, rather than a far- sighted warning to the world’s central bankers.

RESEARCH:Fisher Capital Management Strategies: Greek Day of Reckoning Looms in Ponzi Europe: Mario I. Blejer

May 31, 2011 — Dirk Faltin, a senior economist at UBS AG, talks about Greece’s debt crisis and bond yields. He speaks from Zurich with Francine Lacqua on Bloomberg Television’s “The Pulse.” (Source: Bloomberg)

One of the undeniable features of the European debt crisis is the tendency to obscure, verbally and politically, the real issues at play. Euphemisms, statistical gimmicks, meaningless institutional squabbling, undecipherable acronyms, and plain double talk proliferate as part of the debate.

In my experience as central-bank governor in Argentina during the worst financial crisis in our history, at the beginning of this century, I learned how useful it is to cut through the fog in order to rebuild credibility and to allow a more lucid evaluation of the outlook. While there are few similarities between Greece’s present debt situation and Argentina’s in 2002, it is possible to reduce the recent talk of a default to four basic issues and make some predictions.

The nature of the debt problem in peripheral Europe is structural. Since it doesn’t reflect a temporary liquidity squeeze, the approach adopted so far can’t resolve it. The strategy in progress has been to pile new debt upon the existing stock. New loans are used to pay old debt, in addition to financing remaining fiscal gaps. This is why the Ponzi scheme analogy is appropriate. And while the pyramid is growing, the share of peripheral debt held by state-owned institutions also keeps getting bigger. This means that when it all finally collapses, it is the taxpayers of Europe, and the world, that will bear the full cost.

Growing Pyramid

The pyramid may continue to grow for a while, particularly if the cement used is public funds. But it is an unstable construction because European bailouts are becoming politically questionable and because throwing International Monetary Fund money into the Ponzi scheme is raising objections. This strategy is only making the situation worse.

The IMF has performed badly in this crisis. Its programs are bound to fail because their design is profoundly flawed. They contain two basic blunders. First, they have wrongly assumed that peripheral countries could return to the voluntary capital market next year. Today we know that Greece’s ability to borrow 30 billion euros ($43 billion) in 2012 is nothing but a fantasy. The programs, therefore, remain unfinanced. And the situation promises to be even more difficult in 2013 if the perverse permanent-bailout mechanism being designed is adopted.

Second, programs have been based on dreamy debt sustainability scenarios in which countries outgrow their debt under severe fiscal tightening. But since these austerity plans cause deep recessions, the debt/gross-domestic-product ratios increase over time in all peripheral nations. How this squares with sustainability, and how the macroeconomics add up, is hard to comprehend.

RESEARCH:Fisher Capital Management News: Steve Jobs pitches new Apple ‘spaceship’ campus to Cupertino City Council

The new facility, as Apple envisions it, would be built on about 150 acres of land that the tech giant owns down the street from its current headquarters.

Jobs said Apple’s plan would involve demolishing buildings now on the site and constructing a new ring-shaped building that would be four stories tall, with four floors of parking underneath.

In the process, the project would increase landscaping to make up about 80% of the site, which is only about 20% trees, plants and grass now, he said.

On Monday, Jobs was on stage in San Francisco, revealing Apple’s new iCloud service at the company’s Worldwide Developer Conference. Public appearances such as the two Jobs has made this week have been rare this year as the Apple co-founder has been on a leave of absence for medical concerns since January. He also announced the iPad 2 in March at an Apple event.

“It’s a little like a spaceship landed,” Jobs said of the planned facility. “It’s a circle, and so it’s curved all the way around. As you know if you build things, this is not the cheapest way to build something. There’s not a straight piece of glass on this building, it’s all curved.

“And we’ve used our experience in making retail buildings all over the world now, and we know how to make the biggest pieces of glass in the world for architectural use.”

The proposed campus wouldn’t rely on Cupertino’s power grid for energy. Instead, it would run from an on-site power facility.

“I think what we’re going to end up doing is making the energy center our primary source of power, because we can generate power with natural gas and other ways that can be cleaner and cheaper, and use the grid as our backup,” Jobs said. “We think that makes more sense.”

Mayor Gilbert Wong said in a statement that Cupertino is excited that Apple is moving forward with a new campus, an idea first mentioned to the city in 2006.

“When Apple submits their building plans later this year, we know that we will be looking at a state-of-the-art facility and all the challenges and opportunities that go along with that,” Wong said.

The review process for the new Apple campus will be the same as any other construction project, with evaluations of environmental impacts, air quality, traffic and other matters, he said.

“The project will come to the City Council for approval in the fall of 2012,” Wong said. “Following approval, Apple can submit building permits. Construction will follow, and Apple and the city expect the new campus to be completed by 2015.”

RESEARCH:Fisher Capital Management Warning: Kellogg Gets Second FDA Warning on Listeria in 2 Years

A Kellogg Co. (K) cookie plant in Augusta, Georgia, was found to have a “persistent strain” of listeria during a February inspection, including on food-contact surfaces, according to a warning letter from U.S. regulators.

The Food and Drug Administration letter, dated June 7, was sent less than two years after a Kellogg Eggo waffle plant in the same state was shut for similar reasons.

The inspection found flies and pools of water, the FDA said. The letter from District Director John Gridley didn’t say that any products were tainted with listeria, yet said they were “adulterated” and “may have become contaminated with filth.” The Augusta plant makes Keebler and Famous Amos cookies, and is one of five cookie bakeries Kellogg operates in North America.

“While the FDA did not identify specific concerns with the food, we take this situation very seriously,” Kris Charles, a spokeswoman for Battle Creek, Michigan-based Kellogg, said in an e-mail. “We have undertaken a number of aggressive actions to address their concerns including comprehensive cleaning and extensive testing.”

Kellogg’s response didn’t include dates for taking action at the plant, the FDA said. The regulator gave Kellogg 15 days to outline specific remedies to avoid injunction or product seizure.

Eggo Production

Kellogg’s cookies are baked at a temperature high enough to kill any listeria present, according to Robert Gravani, a food science professor at Cornell University in Ithaca, New York. The lack of an FDA product recall suggests that listeria was not found in the cookies, he said. FDA spokeswoman Tamara Ward declined to comment on a potential recall.

Listeria is a bacterium found in prepared foods and soil that can cause a serious infection in humans called listeriosis. It is particularly harmful to pregnant women, the young, the elderly, and people with weak immune systems, according to the FDA’s website.

Kellogg, the largest U.S. maker of breakfast cereals, fell 45 cents to $54.96 at 4 p.m. in New York Stock Exchange composite trading. The shares have gained 7.6 percent this year.

The FDA in January 2010 ordered Kellogg to improve sanitation controls at the different Georgia plant after Eggo buttermilk waffles were found contaminated with listeria bacteria. That, along with flooding and equipment changes at another waffle factory in 2009, slowed production for months and caused Eggo’s market share to drop.

Kellogg in June 2010 voluntarily recalled about 28 million boxes of cereal including Froot Loops and Honey Smacks, citing unusual taste and odor coming from the liner of packages. The recalled boxes were made at an Omaha, Nebraska, facility. North American cereal sales dropped 5 percent in 2010, partly because of the recall.

RESEARCH:Fisher Capital Management News: Fraud warning for craigslist users, scammers seek financial info

Staff Reports

Posted: 06/10/2011 12:38:16 AM PDT

SACRAMENTO — A scam targeting users of craigslist continues to be reported to the Better Business Bureau of Northeast California.

The scam, first reported months ago, involves the intended target getting an email shortly after posting an ad with craigslist, the online classified advertisement website.

The person sending the email claims to be the CEO of craigslist and states the consumer has won a computer.

The scammer asks the target to go to a website, where personal financial information is required before the free computer can be claimed.

Officials said the emails are a blatant and somewhat clumsy attempt to commit identity theft.

Names usually associated with the emails, Amy Sanders and Angel Thompson, have no connection with craigslist.

People who feel they are being targeted by fraud should contact the BBB at 1-916-443-6668.

RESEARCH:Fisher Capital Management News:Will China’s Economy Stumble?

China, along with other emerging countries, is the great hope for global economic growth.

The developed economies, bruised and aching, are pulling themselves slowly back to their feet after the Great Recession.

As Western consumers and governments struggle to get on top of their debts, they are not going to be the source of booming demand for goods and services they were in the last decade.

China by contrast slowed down a bit in the recession and then rapidly got back to something like full speed.

From 2007 to 2011 China accounted for as much of global economic growth as the G7 leading industrial countries combined.

Essential goodsChina is a very important market for suppliers of commodities; Australian coal and iron ore and Brazilian soy beans for example.

It must be said China is also a big exporter, with a hefty trade surplus. That means in terms of global demand for goods and services overall it takes more than it gives.

But imports are growing so China is providing an increasingly important market for some.

But will the powerful performance be sustained?

There are some of sceptics.

The Wall Street Journal recently declared “after years of housing prices gone wild, China’s property bubble is starting to deflate”.

The result is usually painful. Just look at the US, Ireland, Britain, Spain where bad property market loans have been a central feature in the financial crisis.

Rising pricesThe Chinese authorities are getting increasingly uneasy about inflation.

They have repeatedly raised bank reserve requirements, a measure intended to curb the growth of credit.

And then there is Dr Doom himself, Nouriel Roubini, the New York University Professor, prophet of the financial crisis, warning about China slightly further into the future. He says China could face a “hard landing”.

He thinks the economy is too dependent on investment. Very high rates of investment create excess capacity and they can’t be sustained.

They can leave debt problems in their wake as borrowers who built housing or commercial buildings don’t get the income from them that they anticipated.