The latest employment report from the Department of Labor was a mixed bag of news. While the number of initial job loss claims last week declined by 4,000 from the preceding week, at 570,000, it was 10,000 more than expected. The number of people collecting unemployment insurance also rose by 92,000 and now totals more than 6.2 million. The unemployment rate crept closer to double digits to 9.7 percent in August after it had remained essentially unchanged in June and July. There are now 14.9 unemployed Americans, and that figure doesn’t include the more than 9 million people working part time involuntarily or the discouraged people who have given up job hunting. Although recent economic data have suggested slight improvement, the job market still remains bleak, reiterating the likelihood that Americans will not open their wallets wide enough to facilitate a smooth and speedy economic rebound.
Meanwhile, gold continues its impressive run. It eclipsed the $1,000 mark earlier today and has rallied some 5 percent since the start of last week. Investors are beginning to question whether the market, up some 50 percent since its March low has much upside left. Helping the bearish case is unusually low trading volume, as well as the last week’s performance. The U.S. dollar, once synonymous with safety, is no longer the safe haven as a direct result of the unprecedented amount of national debt and our loose monetary policies.
China and Russia, major holders of dollar reserves, have both made some rumblings about replacing the dollar as the world reserve currency. Actions speak louder than words: China recently announced that it will be the first buyer of special IMF notes denominated in Special Drawing Rights ($50 billion worth), a potential claim on various currencies of IMF members and a possible candidate to replace the dollar.
The uncertainties of paper currencies make gold all the more attractive as an alternative. China has steadily been increasing its gold reserves and is now the sixth largest gold holder in the world, with more than 1,000 tons as of the latest official figures dated June 2009. With the IMF set to sell some 400 tons of gold and China a likely buyer, China is poised to continue climbing up the ranks. It’s also known that China has also been stockpiling copper in addition to other commodities, making the case for commodities and gold increasingly stronger.
Through the first half of this year, we saw little merger and acquisition activity as difficulty in obtaining credit made financing a takeover difficult. With some signs that the economy is improving and credit easing a bit, we are seeing activity reemerging as companies look to take over their weaker competitors to position themselves for expected recovery. In the last couple weeks, we have seen Disney acquire Marvel for $4 billion, Baker Hughes take over BJ Services for $5.5 billion, and Kraft Foods has submitted a $16.7 billion bid for Cadbury. Tough economic times generally weed out the weak from the strong, and we are beginning to see some consolidation.
