02 Jun 2009


All Posts, Potpourri No Comments

* Jérémie Rostan alerts us to this WSJ article discussing German Chancellor Merkel’s awesomeness:

“I view with great skepticism the powers of the Fed, for example, and also how, within Europe, the Bank of England has carved out its own small line,” Ms. Merkel said in a speech in Berlin. “We must return together to an independent central-bank policy and to a policy of reason, otherwise we will be in exactly the same situation in 10 years’ time.”

* MercedesRules passes along this Bloomberg article discussing an insurer who is buying gold for the first time in 152 years:

Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer by 2008 sales, has bought gold for the first time the company’s 152-year history to hedge against further asset declines.

“Gold just seems to make sense; it’s a store of value,” Chief Executive Officer Edward Zore said in an interview following his comments at a conference hosted by Standard & Poor’s in Brooklyn. “In the Depression, gold did very, very well.”

Northwestern Mutual has accumulated about $400 million in gold, and Zore said the price could double or even rise fivefold if the economy continues to weaken. Gold gained 10 percent last month, the most since November. The commodity has more than tripled since 2000, rising for eight straight years. Gold futures for August delivery slipped $4.80 to $975.50 at 4:03 p.m. in New York.

“The downside risk is limited, but the upside is large,” Zore said. “We have stocks in our portfolio that lost 95 percent.” Gold “is not going down to $90.”

However, we need to be careful about the price of gold during the Depression, what with FDR changing the peg from $20.67 an ounce to $35 in about 9 months. I think the basic principle still holds, but it’s a pretty significant institutional difference between then and now.

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