13 October 2009

Around the traps... Rogers, Economics Nobel, Dollar down on "grotesque money-printing antics"

I remember when in 2002 Jim recommended copper over gold. He was dead right!

"The supply of everything continues to decline," he said, adding: "If the world economy recovers, commodities will do the best, because supply is being restricted. If the world economy does not recover, commodities will still be the best place to be, because governments are printing huge amounts of money." Rogers, an author whose books include “Investment Biker” and “Adventure Capitalist,” predicted the start of a global commodities rally in 1999. The Reuters/Jefferies CRB Index of 19 raw materials is up 36 percent from Jan. 4, 1999. Rogers said it’s hard for him to predict the timing of market moves.

Gold will surpass its inflation-adjusted all-time high of more than $2,300 an ounce, Rogers said. He said that the timing will depend on many factors, including global politics. Some investors buy gold as a hedge against political instability and to preserve assets.

Favored Materials

Agricultural commodities are among his favorites, because demand for food, including grain and sugar, is rising in countries such as India and China. Rogers said cotton may gain as farmers produce less fiber in favor of growing biofuel crops such as corn.

“I own some cotton,” Rogers said. “I own some sugar,” he said. “Sugar will go much, much higher over the course of the bull market.”

Now, all hail the return of political economy and therefore reality to economics....

Economics Nobel

Ostrom, in work that links the economy with the environment, has shown that informal groups can sometimes manage natural resources such as forests and lakes better than private companies or the government. Her doctorate is in political science rather than economics.

Williamson, who is professor emeritus at the University of California at Berkeley, is considered one of the founders of organizational economics -- the study of how institutions are created and developed and what impact they have on economic growth. In research that may apply to the financial crisis, he suggested that it is better to regulate large companies than to try to break them up or limit their size.

“Over the last three decades these seminal contributions have advanced economic governance research from the fringe to the forefront of scientific attention,” the Royal Swedish Academy of Sciences said today in Stockholm.

Ostrom and Williamson will share 10 million Swedish kronor ($1.4 million) in prize money.

“What you have here is a bow from the academy to those economists who study organization from the inside, and that’s an exciting, interesting field,” said Robert Solow, winner of the Nobel Economics Prize in 1987 and professor emeritus at the Massachusetts Institute of Technology.

Large Companies

Williamson found that large corporations exist primarily because they are efficient and benefit owners, workers, suppliers and customers, the academy said. They can abuse their power and may need to be regulated.

“You could and should interpret Ollie Williamson’s work as a way of getting into the question of how the large investment banks operate and how that led to what looks in retrospect to be very stupid and risky behavior,” Solow said

Dollar stressed..
Oct. 12 (Bloomberg) -- Central banks flush with record reserves are increasingly snubbing dollars in favor of euros and yen, further pressuring the greenback after its biggest two- quarter rout in almost two decades.

Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That’s the highest percentage in any quarter with more than an $80 billion increase.


There are broader reasons for the dollar's demise – not least that the sun is now setting on its reserve currency status, as the world's commercial centre of gravity shifts towards the emerging giants of the East. That's a much longer-term trend, though. In the here and now, the dollar is tumbling due to America's ultra-low interest rates, monetary incontinence and fiscal irresponsibility.

The decline became so steep last week that central banks in Asia – including China – spent their own reserves propping up the US currency, so worried were they about the impact of the falling dollar on their all-important exports. Future historians will shake their heads in disbelief.

Keep in mind, though, that the arguments pointing to a weaker dollar also apply to the pound – but even more so. Last week sterling hit a trade-weighted five-month low. Over the last year, the pound has, well, been pounded – losing significant ground against the yen and euro, as well as the ailing dollar.

Like the US, Britain has indulged in grotesque money-printing antics. The two countries might be dubbed the QE2. But the Bank of England's printing presses really have been in overdrive, with the UK's monetary base now equal to almost a fifth of GDP, up a head-spinning 169pc in a single year.


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