The gold-bull bandwagon is a popular ride, and getting more so every day. The latest big-name investment newsletter writer to wax glowingly about gold’s prospects is Fred Hickey, editor of the High-Tech Strategist letter in Nashua, N.H.

What does gold have to do with tech, or vice-versa? Exactly the point: The metal -- which hit another record high on Friday, up $6.40 to $1,095.10 an ounce -- is finding fans among investment pros far afield from the corps of the eternal gold bugs.

Hickey actually has been bullish on gold since at least the start of this year (which means he benefits if he can talk up the price further), but in his latest letter he suggests that the groundswell of interest in the metal is just gaining steam. He believes that interest is being driven by "a loss of confidence in the U.S. dollar and U.S. government policies around the world."

ZeroHedge blog excerpts some of Hickey’s comments from his letter:

"The psychological barrier of $1,000 gold has been broken. That $1,000 number might as well be $100. There is no longer a limit to the upside. . . . I doubt that what we're seeing is the final blow off. I have no idea when it may come. It could be months or years from now. I just know that it hasn't yet occurred. In the meantime, prepare yourself for a lot more company (besides the smartest of the hedge fund managers) and more head-fakes. In the end, the public will come in en masse. They'll also be buying gold stocks with abandon. That is clearly not the case today.

"Gold is no longer being driven by jewelry demand, as in the recent past. It is investment demand that's wagging the yellow dog's tail. It's a loss of confidence in the U.S. dollar and U.S. government policies around the world that's driving gold to record levels. As it has been for thousands of years, gold is the safest store of wealth, not so much something to be fashioned into a necklace."

Because gold pays no dividends or interest, for many investors a bet on the metal is simply a momentum trade -- a bet that many other people will be willing to pay higher prices to own it.

That bet has worked for nine straight years, since gold traded at $274 at the end of 2000. Hickey and other bulls believe that, before this run is over, the ranks of gold investors worldwide will expand dramatically. It may not be early in this game, the bulls say, but they're also sure it's not too late.

-- Tom Petruno

John Reed, the co-founder of Citigroup, now wants to apologize for creating that monster -- which has become one of the biggest taxpayer-supported casualties of the financial-system crash.

In an interview with Bloomberg News, the 70-year-old Reed says he’s "sorry" for his role in forming Citi in 1998, when Reed’s Citicorp merged with Sanford Weill’s brokerage and insurance titan Travelers Group.

Reed, who has been publicly expressing regret about the merger since at least April 2008 (when he told the Financial Times that the deal was a "mistake"), also has joined former Federal Reserve Chairman Paul Volcker in calling for the restoration of the Glass-Steagall Act, which until its repeal in 1999 had restricted commercial banks’ forays into high-risk Wall Street businesses.

From Bloomberg:

"I would compartmentalize the [banking] industry for the same reason you compartmentalize ships," Reed said. "If you have a leak, the leak doesn’t spread and sink the whole vessel. So generally speaking you’d have consumer banking separate from trading bonds and equity."

Lawmakers were wrong to repeal the Depression-era Glass-Steagall Act in 1999, Reed said. At the time he supported the overturn of the law, which required the separation of institutions that engaged in traditional customer banking services from those involved in capital markets.

"We learn from our mistakes," said Reed. "When you’re running a company, you do what you think is right for the stockholders. Right now I’m looking at this as a citizen."

-- Tom Petruno

The government’s report today on worker productivity growth in the third quarter shows, yet again, the benefit businesses are reaping from slashing millions of jobs in the Great Recession.

Productivity -- output per hour worked -- rocketed at a 9.5% annualized rate in the latest quarter, well above the 6.5% growth Wall Street had expected.

Michael Darda, chief economist at investment firm MKM Partners in Greenwich, Conn., put the report in perspective in a research note today:

"Productivity growth has exploded upward at an 8.2% average annualized pace during the last two quarters, the fastest two-quarter surge off a recession trough since 1961. Unit labor costs, typically the flip side of the productivity numbers, collapsed at nearly a 6% annualized rate during the last two quarters -- the largest two-quarter decline off a recession trough on record. Since corporate profits are directly related to productivity growth and inversely related to unit cost growth, this data is good news for earnings.

"However, the recent productivity gains are not sustainable. At some point, hours worked and payrolls will have to rise in order to meet stepped-up production schedules. As this occurs, income growth should recover, allowing households to spend more even if they are setting aside a larger fraction of their income in savings."

Darda is an unabashed bull on the idea that the economic recovery can and will become self-sustaining -- and that job growth will follow.

Although a turn in the labor market may not be apparent in Friday’s report on October employment, Darda said, "We continue to believe that net job losses will end in the next three months and that net job growth will restart within the next six months."

But Steven Ricchiuto, chief economist at Mizuho Securities in New York, says the danger is that companies have fallen into a trap of "excessive cost cutting."

From a research note Ricchiuto wrote today:

"Specifically, the corporate sector’s single-minded focus on driving up next quarter’s earnings is resulting in an unsustainable shift in the share of national income accruing to the corporate sector at the expense of households. The more companies strive to cut cost, the more workers they fire and the lower the future demand for their product.

"The more household income is squeezed the more consumers will have to save in order to complete their required balance sheet adjustment. This in turn limits top-line revenue growth at companies and makes the turn back to cost cutting to boost earnings [create] a negative feedback loop that sets the stage for a double-dip scenario."

It’s understandable that companies remain fearful of spending money, but Ricchiuto’s concern is valid: Squeezing your remaining labor force to death isn’t a recipe for long-term business success.

Who wants to go first to expand their payroll?

-- Tom Petruno

Hyatt Hotels Corp. picked a good day to launch its initial public stock offering: With buyers jumping back into the market on surprisingly upbeat data on unemployment-benefit claims and worker productivity, Hyatt shares are being swept higher.

The stock, priced at $25 in the IPO late Wednesday, was up $3, or 12%, to $28 at about 11:30 a.m. PST.

The offering of 38 million Class A shares raised $950 million, making it the fourth-largest IPO of the year, according to ipohome.com.

But all of the proceeds are going to the Pritzker family, which controls the Chicago-based hotel giant. Bloomberg News takes a look at the company here.

Another IPO also is up in its debut today: Ancestry.com, an online family-history research firm. The Provo, Utah, company on Wednesday sold 7.4 million shares at $13.50 each.

The stock was up $1.29, or nearly 10%, to $14.79 at about 11:30 a.m. PST.

The receptions for the Hyatt and Ancestry.com deals could reinvigorate the IPO market, which has seen many deals bomb in recent weeks.

Dole Food Co., which went public at $12.50 a share on Oct. 22, has since slumped under $11.50. RailAmerica Inc., a short-line rail operator, went public at $15 a share on Oct. 12 and now trades under $12.50. Both of those offerings fell immediately on their first trading days, unlike the receptions Hyatt and Ancestry.com are getting.

A number of other planned IPOs have been pulled in recent weeks as the market has soured. Companies that have delayed deals include skilled-nursing-facility operator Avi REIT and Dallas-based bank Plains Capital Corp.

-- Tom Petruno

Photo: The Grand Hyatt in Washington. Credit: Karen Bleier / AFP / Getty Images

My column for Thursday raises the question of whether the newly minted candidate for U.S. Senate from California will fall prey to the same flaws often cited by critics of her management at Hewlett-Packard: too much Carly, too many fancy advisors and not enough deep thought.

The opening of the campaign was not auspicious. Much of Fiorina's presentation at the launch event came out of the tired GOP playbook. There was one new wrinkle. She announced that she had signed the read-my-lips-no-tax-hikes Taxpayer Protection Pledge concocted by the egregious Grover Norquist -- a brain-dead approach to governing that pleases the far right, and should disappoint everyone else.

Signs are that this was a preemptive counter-strike against an incipient attack by right-wing Tea Party activists, who are gearing up to undermine Fiorina as they did the moderate GOP candidate in this week's New York State congressional special election. The result there: A victory for the Democrat in the race, marking the first time a Democrat has held that seat since the Civil War.

It would be a shame if the same thing happens in California. Fiorina has enough self-inflicted problems to make a race against Democratic incumbent Barbara Boxer an uphill battle. She doesn't need sniping from the fringe of her own party.

The column begins below:

The most cherished American credo is that anyone can grow up and run for high office.

Carly Fiorina’s candidacy for the U.S. Senate, which she formally announced Wednesday, will put this notion to the test. Specifically: Can someone who has spent the last few years running from her checkered record as a big-business CEO, shown so little interest in politics that she consistently failed to vote and has at best a tenuous grasp of such major issues as health reform prevail in a statewide California election?

Fiorina launched her campaign with an op-ed in the Orange County Register and a kickoff rally at the Garden Grove plant of Earth Friendly Products, a maker of “green” detergents.

Even by California standards, this was a curious event. If nothing else, it may establish the Fiorina campaign as a pioneer in moving the art of product placement out of Hollywood and into politics, as it started with an introduction by Earth Friendly’s PR lady, Kelly Vlahakis-Hanks, who seemed to spend more time extolling her merchandise (“We deliver responsible sustainability in all of our products, including our bestsellers, Ecos Wave and Dishmate…”) than Fiorina’s candidacy.

Still, it did give Fiorina an aura of being the business-friendly Senate candidate. This plainly will be a major theme of her campaign against Democratic incumbent Barbara Boxer. (Assuming she beats state Assemblyman Chuck Devore of Irvine in the GOP primary.)

When I examined a Fiorina-Boxer matchup two months ago, I noted that few could argue that we wouldn’t benefit from seeing Boxer defend her 17-year record in the Senate, and asked whether Fiorina would make the race about us, the voters, rather than about the most frequent subject of her public appearances and her 2006 book, “Tough Choices,” herself.

Read the whole column.

-- Michael Hiltzik

The Federal Reserve made clear Wednesday that it isn’t planning to raise short-term interest rates soon.

But the central bank also got more specific about the conditions that would spur it to lift its key rate from the current zero-to-0.25% range.

Here’s how the critical paragraph in the Fed’s post-meeting statement reads:

"The Committee will maintain the target range for the federal funds rate at 0 to 0.25% and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period."

The bolded type is what was added to that paragraph since the Fed’s last meeting on Sept. 23.

"In citing these three conditions, the Federal Reserve has provided a road map by which market participants can gauge with greater precision the evolution of monetary policy, in particular the exit strategy for the Fed’s current stance," Tony Crescenzi, a bond market strategist at Pimco in Newport Beach, wrote in a note to clients.

"This will make the implementation of the Fed’s exit strategy more a process than event," Crescenzi said. "It will also give the Fed an ‘out’ because incoming data related to the three conditions mentioned will take on greater weight than the Fed’s own words, allowing the Fed to simply rubberstamp the conclusions drawn by market participants regarding the incoming data."

The first condition mentioned -- "resource utilization" -- could apply to both labor and factory capacity, both of which are severely underutilized at the moment. No debate there. Even if the economy keeps expanding, the Fed is saying that it wants to see labor and industrial slack taken up before it will think about tightening credit.

To measure whether inflation trends are "subdued," the Fed presumably would rely on the government’s major inflation gauges, including the consumer price index and the so-called personal consumption expenditures price index. The year-over-year gains in the "core" indexes of those gauges were 1.5% and 1.3%, respectively, in September, which in both cases would qualify as "subdued."

To measure whether inflation expectations are "stable," the Fed could look at future price increases implied by interest rates on Treasury inflation-protected bonds, and at trends in gold prices and the dollar.

Crescenzi noted that the Fed’s statement specifically referred to longer-term inflation expectations as being "stable" at the moment.

But are they?

"It is intriguing that the Fed would label inflation expectations ‘stable’ when the amount of inflation expectations embedded in 10-year inflation-protected Treasuries reached its highest point of the year -- 2.14%, indicating that 10-year inflation-protected Treasuries are priced for the consumer price index to increase at a 2.14% [annualized] rate over the next 10 years," Crescenzi said.

Gold, hitting record highs this week, also could be signaling rising inflation expectations. But gold’s new bull run also could be pointing to something more visceral -- increased distrust of all paper currencies -- rather than heightened concern about inflation.

-- Tom Petruno

Gold’s latest rally powered ahead Wednesday as the Federal Reserve maintained a dovish attitude toward interest rates.

Meanwhile, the dollar, the stock market and longer-term Treasury bonds all sold off after the Fed issued its post-meeting statement, which repeated that policymakers expected to keep short-term rates low "for an extended period."

Near-term gold futures gained $2.40 to $1,086.70 an ounce, a new record closing high that lifted the year-to-date price gain to about 23%. The metal traded as high as $1,098.50 for the day, after surging nearly $31 on Tuesday on word of the Indian central bank's big purchase.

Not surprisingly, the likelihood of the U.S. maintaining near-zero short-term interest rates was a negative for the dollar, which helped bolster the case for gold. The euro jumped to $1.487 from $1.472 on Tuesday.

The stock market, which rallied early in the day on some relatively upbeat economic data, surrendered most of its gains in the final 30 minutes of the session -- a decline some analysts blamed on the U.S. House’s vote to speed up new limits on credit card interest rates. That slammed bank stocks. The Dow industrials closed up 30.23 points, or 0.3%, to 9,802.14, after being up as much as 156 points.

Some investors also dumped longer-term Treasury bonds post-Fed. The 30-year T-bond yield jumped to 4.40%, up from 4.33% on Tuesday and the highest since Aug. 14.

On the face of it, the markets might seem to be worried about the Fed falling behind the curve in keeping inflation subdued -- except, where do you find inflation these days, other than in asset prices? (OK, oil is a problem again lately, that is true.)

Nicholas Colas, investment strategist at BNY ConvergEx Group in New York, thinks the stock market’s disappointing action is just another sign that "it’s definitely in need of a breather here." Stocks have been struggling since peaking in mid-October as more investors have turned cautious about the near-term economic outlook.

The Standard & Poor’s 500 index, which edged up 0.1% on Wednesday to 1,046.50, is down 4.7% from its one-year closing high of 1,097.91 on Oct. 19.

"The biggest single question is, how are consumers thinking about their prospects going into Christmas?" Colas said. People may think better about their prospects if they have more faith that job cuts are ebbing -- which is why the government’s report Friday on October employment trends will be key, as usual.

As for the sell-off in the bond market, traders noted that the Treasury on Wednesday gave more details about its plan to lengthen the average maturity of the government’s debt load, which of course means issuing more longer-term debt and fewer shorter-term securities. That may have triggered some knee-jerk selling of longer-term bonds.

As I noted in this post, the trend no one would want to see take hold this month (or any month) would be rising bond yields accompanied by falling stock prices. Just something to watch.

-- Tom Petruno

Photo credit: Genaro Molina / Los Angeles Times

Federal Reserve policymakers stayed with the status quo today, saying in their post-meeting statement that they expected to keep short-term interest rates low "for an extended period."

That had been the big mystery surrounding the Fed’s meeting -- whether Chairman Ben S. Bernanke and peers would feel compelled to signal that the improving economy would lead to tighter credit sooner rather than later.

By retaining the "extended period" pledge, the Fed is offering no incentive for markets to push up short-term rates on their own.

One change of note in the statement: The Fed will pare back on purchases of bonds issued by mortgage giants Fannie Mae and Freddie Mac, citing "the limited availability" of such debt. The change doesn’t affect the Fed’s larger purchase program of mortgage-backed securities, which is the direct way it is attempting to keep mortgage rates down.

Here is the text of today’s meeting statement, followed by the text of the statement from the Fed’s Sept. 23 meeting, for comparison:

Information received since the Federal Open Market Committee met in September suggests that economic activity has continued to pick up. Conditions in financial markets were roughly unchanged, on balance, over the intermeeting period. Activity in the housing sector has increased over recent months. Household spending appears to be expanding but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales.

Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. The amount of agency debt purchases, while somewhat less than the previously announced maximum of $200 billion, is consistent with the recent path of purchases and reflects the limited availability of agency debt. In order to promote a smooth transition in markets, the Committee will gradually slow the pace of its purchases of both agency debt and agency mortgage-backed securities and anticipates that these transactions will be executed by the end of the first quarter of 2010.

The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

The Sept. 23 meeting statement:

Information received since the Federal Open Market Committee met in August suggests that economic activity has picked up following its severe downturn. Conditions in financial markets have improved further, and activity in the housing sector has increased. Household spending seems to be stabilizing, but remains constrained by ongoing job losses, sluggish income growth, lower housing wealth, and tight credit. Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales.

Although economic activity is likely to remain weak for a time, the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability.

With substantial resource slack likely to continue to dampen cost pressures and with longer-term inflation expectations stable, the Committee expects that inflation will remain subdued for some time.

In these circumstances, the Federal Reserve will continue to employ a wide range of tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt. The Committee will gradually slow the pace of these purchases in order to promote a smooth transition in markets and anticipates that they will be executed by the end of the first quarter of 2010. As previously announced, the Federal Reserve’s purchases of $300 billion of Treasury securities will be completed by the end of October 2009.

The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

-- Tom Petruno

The so-called resolution fund is a key part of legislation that Frank introduced last week following negotiations with the Treasury Department to give the government new power to avoid future financial crises. The fund is designed to make the industry -- not taxpayers -- pay the cost of future bailouts.

Under the bill, the fund would be paid by financial institutions with total assets of at least $10 billion each only after a government intervention to repay the outlay of taxpayer money. The legislation would not place any limit on how much taxpayer money the government could use to seize a major financial firm and would give Congress no say in any decision to use the money.

After some lawmakers and regulators criticized the plans for the fund last week, Frank said he would make changes as his committee begins to wrap up the legislation this week. The Massachusetts Democrat said he expected the full House to vote during the first week of December on all components of the proposed overhaul of financial regulations, including creation of a new agency to protect consumers in the marketplace.

As for the resolution fund, Frank said he would require firms to pay into it ahead of any use, as is now done by banks with the Federal Deposit Insurance Corp. fund that helps insure customer deposits.

That way the money would be in place to cover the costs of seizing and dismantling a major financial firm, limiting the outlay of government money. Frank also said he favored “some congressional involvement” if the Treasury Department needed to lend any money to the fund to cover a shortfall before more money could be collected from the industry.

“It will not be an unfettered executive decision,” Frank said. He suggested allowing any member of Congress to request a vote to stop a disbursement of taxpayer money into the fund.

Rep. Brad Sherman (D-Sherman Oaks) has criticized the legislation for creating what he called a permanent, unlimited version of the $700-billion bailout fund. Though he said Frank was moving in the right direction with the proposed changes, he wants more details.

Sherman said there was a major difference between a congressional vote to prevent the disbursement of money and one authorizing it. Under the first option, a bill to prevent Treasury from lending money to the fund could be vetoed by the president, which would require a two-thirds majority of both houses to override.

Requiring Treasury to seek congressional approval for any disbursement would mean that only a simple majority of both Houses would be needed to stop it. He said the committee debate on the bill would be important in structuring that mechanism.

“The less support there is for unlimited permanent bailout authority, the better the bill will be,” Sherman said.

-- Jim Puzzanghera

Photo: Barney Frank sits in the East Room of the White House on Oct. 9. Credit: Gerald Herbert / Associated Press.  

Gold streaked to record highs today, nearing the $1,100-an-ounce mark, after India’s central bank bought a load of the metal from the International Monetary Fund.

For gold bulls, the purchase damped fears that long-planned IMF sales would drive bullion prices down sharply -- and threaten the now nine-year-long bull market in the metal.

Near-term gold futures in New York surged $31.70, or 3%, to $1,085.10 an ounce. Gold now is up nearly 23% year to date, compared with the 15.7% price gain for the Standard & Poor’s 500 stock index.

Silver also shot higher today, with November futures up 45 cents to $16.89 an ounce in New York.

From Reuters:

The International Monetary Fund has sold 200 tonnes of gold to the Reserve Bank of India for $6.8 billion, quietly executing half of a long-planned bullion sale that has threatened to slow gold's ascent.

The sale, which surprised traders who expected China to be the leading buyer, will relieve the gold market of some uncertainty over how and when the IMF would sell 403.3 tonnes of gold, about one-eighth of its total stock. The deal will increase India's gold holdings to the tenth largest among central banks.

It also fueled speculation that other governments -- including Beijing -- may be ready to diversify their reserves even at near-record gold prices, helping soak up IMF supply that the fund may otherwise be forced to sell on the open market.

Should average investors follow India's lead -- or stay away from gold at these levels? In this earlier post I spotlighted two opposing views of the metal's near-term prospects.

-- Tom Petruno

The unanimous decision came Monday in a lawsuit filed by David B. Schachter, who worked as a stockbroker for Smith Barney Inc. from April 1992 to March 1996.

Schachter and other key employees in the company had the option of receiving a portion of their pay in restricted company stock at a reduced price. The voluntary plan required employees to agree that they would lose the stock -- and the cash they gave up by entering the plan -- if they resigned or were fired before the stock vested in two years, the court said.

Schachter resigned and lost stock that had not vested. He brought a class action lawsuit in 1998, arguing that the plan violated several sections of California’s Labor Code.

Among the sections he cited was a requirement that employers must pay departing employees all earned wages.

Justice Carlos R. Moreno, writing for the high court, said Schacter chose to enter the plan and knew the risks as well as the potential reward. “Here, Schachter’s actions -- not the company’s -- resulted in the loss of Schachter’s contingent incentive compensation," Moreno wrote.

The U.S. Chamber of Commerce and the Financial Markets Assn. sided with Citigroup in the case.

The attorneys who argued the case could not be reached for comment.

Gold, which hit a record high of $1,072 an ounce in mid-October, made a run at that level in Asian trading on Tuesday, reaching $1,066.90 an ounce before pulling back.

The metal had jumped $13.70 to $1,053.40 in New York trading on Monday as its bitter rival, the U.S. dollar, slipped after rallying on Friday. UPDATE at 10 a.m. PST: Gold has reached a new high of $1,085 an ounce in New York.

Would you buy gold at these prices, after nine straight years of gains? And if so, what’s your motivation? Inflation? Deflation? Fear of global pandemonium?

Two Wall Street figures now well-known for warning of the financial mayhem of a year ago -- hedge fund manager David Einhorn of Greenlight Capital, and New York University Economics Prof. Nouriel Roubini -- have two very different views of gold, at least in the near term.

Einhorn, who began buying the metal itself and shares of gold-mining firms after the financial crisis unfolded last year, said in a speech last month that he’s still big on gold as an insurance policy and as an alternative to major currencies and "cash" accounts.

From the speech (link from zerohedge.com):

"I have seen many people debate whether gold is a bet on inflation or deflation. As I see it, it is neither. Gold does well when monetary and fiscal policies are poor and does poorly when they appear sensible. Gold did very well during the Great Depression when FDR debased the currency. It did well again in the money printing 1970s, but collapsed in response to Paul Volcker’s austerity. It ultimately made a bottom around 2001 when the excitement about our future budget surpluses peaked.

"Prospectively, gold should do fine unless our leaders implement much greater fiscal and monetary restraint than appears likely. Of course, gold should do very well if there is a sovereign debt default or currency crisis.

"When I watch Chairman Bernanke, Secretary Geithner and Mr. Summers on TV, read speeches written by the Fed Governors, observe the 'stimulus' black hole, and think about our short-termism and lack of fiscal discipline and political will, my instinct is to want to short the dollar. But then I look at the other major currencies. The euro, the yen, and the British pound might be worse.

"So, I conclude that picking one these currencies is like choosing my favorite dental procedure. And I decide holding gold is better than holding cash, especially now, where both earn no yield."

By contrast, Roubini thinks that anyone expecting significant appreciation in gold soon from this point is dreaming.

From an interview Roubini gave last month with IndexUniverse.com:

"I don’t believe in gold. Gold can go up for only two reasons. [One is] inflation, and we are in a world where there are massive amounts of deflation because of a glut of capacity, and demand is weak, and there’s slack in the labor markets with unemployment peeking above 10% in all the advanced economies. So there’s no inflation, and there’s not going to be for the time being.

"The only other case in which gold can go higher with deflation is if you have Armageddon, if you have another depression. But we’ve avoided that tail risk as well. So all the gold bugs who say gold is going to go to $1,500, $2,000, they’re just speaking nonsense. Without inflation, or without a depression, there’s nowhere for gold to go. Yeah, it can go above $1,000, but it can’t move up 20-30% unless we end up in a world of inflation or another depression. I don’t see either of those being likely for the time being. Maybe three or four years from now, yes. But not anytime soon."

Who makes the more convincing argument?

-- Tom Petruno

Photo credit: Frantzesco Kangaris / Bloomberg News

California, which has borrowed $16.4 billion via short- and long-term bonds since Sept. 23, this week comes back to the well once more despite the jump in market interest rates over the last month.

The state plans to borrow $2.25 billion by selling long-term general obligation bonds in the next two days, mostly aiming at institutional investors. It’s expected to be the last general-obligation bond sale this year.

The debt will be issued in three parts:

--- On Tuesday, the state’s brokerage underwriters will take orders from individuals for $100 million of 25-year bonds. The state has set a preliminary tax-free annualized yield of 5.5% on the securities.

--- On Wednesday, institutional investors will be offered what’s left of the 25-year bonds plus a total of $1.4 billion of tax-free securities maturing in either 26 or 30 years. Longer-term municipal bonds typically are purchased by big investors; individuals usually prefer to stick with shorter-term securities.

--- Unexpectedly, Treasurer Bill Lockyer also scheduled for Tuesday a sale of $750 million of taxable bonds under the so-called Build America Bonds program. Lockyer spokesman Tom Dresslar said the 30-year offering was spurred by an "inquiry" from an unnamed investor. Other institutional investors will be invited to join in the bidding for the bonds, he said.

Build America Bonds are subsidized by the federal government, which commits to making direct payments to state and local issuers to offset 35% of their interest cost on the bonds.

California sold $1.75 billion of 30-year Build America Bonds at a taxable yield of 7.23% on Oct. 8. The investor behind the "inquiry" about another such deal may be figuring to get at least that level of yield.

This week’s debt offerings will help Lockyer whittle down the backlog of bonds California voters have approved for infrastructure projects such as schools and water facilities in recent years. The backlog, now about $60 billion, also was reduced with the sale of $4.14 billion of general obligation bonds on Oct. 8.

But the lion’s share of the state’s recent $16.4-billion in borrowing isn’t funding infrastructure projects. The $8.8 billion of short-term debt issued on Sept. 23, for example, provided cash for state operations until tax revenue rolls in later in this fiscal year.

A sale of $3.5 billion of bonds last week refinanced a portion of the state’s so-called economic recovery bonds, first issued in 2004 to plug that year’s accumulated budget deficit.

-- Tom Petruno

Photo: California Treasurer Bill Lockyer

That was the issue today at the U.S. Supreme Court as the justices heard oral arguments in a case accusing a mutual fund manager of charging excessive fees.

Several investors have accused Harris Associates, which manages money for the Oakmark mutual fund group, of charging high fees in violation of the federal Investment Company Act.

A ruling for the plaintiffs could force fund companies to lower fees paid by millions of American investors.

Two justices seemed to side with the mutual fund industry, while three others seemed receptive to the plaintiffs.

But even if the justices ultimately were to side with the defendants, their ruling still could result in lower fund fees, said William Birdthistle, an assistant professor at the Chicago-Kent College of Law, who attended the hearing.

That’s because a central issue in the case is whether mutual fund boards should be required to compare the generally lower rates that managers charge pensions, endowments and other institutional investors with the higher rates they charge for mutual funds.

The plaintiffs say the lower fees on institutional accounts prove that mutual fund fees are too high. The industry disputes that logic, saying investors have lots of low-fee options and that, in any case, mutual fund fees have come down steadily over the years.

Three justices -- Ruth Bader Ginsburg, Stephen G. Breyer and Sonia Sotomayor -- seemed to support the idea that mutual fund boards should use institutional fees as a benchmark when setting mutual fund fees, Birdthistle said.

Existing law, which was set by a 1982 ruling, did not require a comparison with institutional fees.

Such a requirement would boost pressure on managers to justify mutual fund charges and could ultimately push fees down.

"The message would be heard loud and clear by boards and by future trial courts," Birdthistle said.

-- Walter Hamilton

The rebound in oil prices since March has had one beneficial side effect for savers: Interest rates will rise on Series I U.S. Savings Bonds, which earn returns adjusted for the inflation rate.

Series I bonds bought between Nov. 1 and May 1 will earn an annualized interest rate of 3.36% in their first six months, up from the zero earnings rate on newly issued bonds in the previous six months, the Treasury Department said today.

Series I bonds earn the combined total of their fixed annual rate, which is set for the 30-year life of the bonds, and the inflation rate as measured by the consumer price index. The inflation adjustment is recalculated every six months for new and outstanding bonds.

The new fixed rate on Series I bonds is 0.30%, an increase from the 0.10% fixed rate on bonds sold in the previous six months. So the government got a little more generous with the part of the return that it controls.

The inflation component will provide an annualized return of 3.06% on new I-bonds in their first six months after issuance, as well as on previously issued bonds as they adjust. Add the 0.30% fixed rate to 3.06% to get the total return of 3.36% on newly issued securities.

The surge in oil prices since mid-February pulled the consumer price index higher through Sept. 30. By contrast, plummeting oil prices had helped drive the CPI down in the six months through March. With the CPI negative for that period, Series I bond returns when adjusted May 1 paid no inflation adjustment -- the first time that had happened for any six-month period since I bonds were launched in 1998.

Still, I-bond investors are guaranteed that their returns can never fall below zero, even if the CPI were to decline again.

I bonds were far more attractive a decade ago, when the Treasury was offering fixed rates as high as 3.6%. Even so, if you think inflation will revive in the next few years thanks to the government’s massive effort to reflate the economy, I bonds still would offer a way to preserve your purchasing power by rising in line with the CPI.

Owners of previously issued I bonds can see their new earnings rates in a chart provided on savings-bond-advisor.com.

Also today, the Treasury said Series EE bonds issued in the next six months will earn 1.2% a year for the life of the security, up from 0.70% on EE bonds issued in the previous six months.

-- Tom Petruno

The health insurance industry's so-called "antitrust exemption," the subject of my column today, is something like that. Liberal members of Congress have spent the last couple of weeks decrying an exemption enacted back in 1945 and have moved to repeal it. This seems to be such an obvious crowd-pleaser that it even attracted a handful of Republican votes on the House Judiciary Committee, which moved the repeal effort to the House floor.

The real problem, as my column documents, is that federal antitrust regulators haven't taken their statutory authority seriously. They've waved through hundreds of mergers that have resulted in the elimination of competition across the nation and the disappearance of choice for millions of American consumers. And there lies the real rationale for the "public option" -- since the regulators have failed to preserve competition, it's up to Congress to reinstall it by fiat.

The column starts below:

I suspect I had the same reaction as many other Americans after hearing that Congress was planning to strip the health insurance industry of its antitrust exemption.

My question was: What idiots exempted health insurers from antitrust law in the first place?

The answer, of course, is Congress.

The antitrust exemption supposedly comes from the McCarran-Ferguson Act, which was passed in 1945 to protect state regulation of insurance companies, and also to allow insurers to share loss data with each other without being haled into federal court on antitrust or collusion charges.

It’s tempting to see McCarran-Ferguson as a giveaway to big business. What’s especially grating about it is that antitrust immunity should be grudgingly given. Major League Baseball has it — but it’s the national pastime, affording Americans months of pleasure every year (unless the Yankees win). Health insurers, by contrast, afford Americans endless frustration, and always seem to win, in the end. One would think the country needs antitrust immunity for health insurers like, well, the New York Yankees need another free-agent slugger.

Read the whole column.

-- Michael Hiltzik

Including Friday's slump, the Standard & Poor's 500 index is off 5.6% from its one-year high reached Oct. 19, and talk of a bigger drop is rampant (again).

But if institutional investors remain reluctant to sell equities, it's because they see that plenty of companies are looking better than the U.S. economy as a whole.

How is that possible? In my weekend column in the Times, I note how corporate balance sheets have improved this year thanks in part to the plunge in long-term borrowing costs -- which has been abetted by small investors' ravenous demand for bonds.

Wall Street also can't ignore the turnaround in corporate earnings, even though the bottom line has been fattened largely because of vicious cost-cutting at workers' expense.

Why is the U.S. still losing jobs? As economist Allen Sinai put it: Companies are "making good money without people."

That isn't a path to long-term prosperity, but remember: Many major American businesses (the kind you probably own in your 401[k]) are betting on faster growth abroad than at home, anyway. And their biggest investors, for the most part, don't care where in the world they make money, as long as they make it.

I also note in the column that, as long as doubts persist that the U.S. economic recovery can sustain itself, the Federal Reserve (which meets this week) will remain in a supporting role with near-zero short-term interest rates.

And with "cash" investments paying nothing, and long-term bond yields low, it's that much harder for investors to bail on stocks en masse.

So, could the market pull back further this month? No question. That would surprise virtually no one.

But could we face another crash that obliterates your 401(k)? Highly unlikely in the near term.

Read the full column here.

-- Tom Petruno

The bank, a unit of FBOP Corp., is expected to be acquired by the U.S. Bank unit of Minneapolis-based U.S. Bancorp, with no losses to be incurred by depositors, the sources said. The branches would reopen as usual Saturday or Monday as U.S. Bank branches.

Seven other banks owned by FBOP, a privately held Oak Park, Ill., company, are also expected to be seized by regulators and acquired by U.S. Bank. They include San Diego National Bank, with 28 offices, and San Francisco’s Pacific National Bank, which has 17.

FBOP's owner, billionaire Michael Kelly, didn't return a call seeking comment today.

California National, with $7.1 billion in assets and $5.6 billion in deposits as of June 30, is the fourth-largest commercial bank based in Los Angeles County. Only City National Corp., East West Bancorp and Cathay General Bancorp are larger.

The collapse of FBOP's banks would be the latest in a rash of financial failures that began last year with government takeovers of 25 banks. Before today, 106 banks had failed this year.

Blame the almighty dollar -- or, uh, the slightly less anemic dollar.

Friday’s big sell-off on Wall Street and in the commodity pits was accompanied by another rise in the greenback’s value against other major and minor currencies.

The DXY index, which measures the dollar against six other key currencies, rallied 0.5% to 76.3, the sixth increase in seven trading sessions.

The euro fell to $1.472, down from $1.501 a week ago. The dollar was worth 1.76 Brazilian reals, up from 1.72 a week ago.

The dollar had mostly been declining since late April, a reflection of global investors’ willingness to abandon the relative haven of the U.S. currency for riskier assets -- including emerging-market stocks and raw materials.

And with U.S. short-term interest rates near zero, investors also have taken to borrowing in dollars to fund purchases of investments worldwide. That’s the so-called carry trade.

But in the last two weeks, as worries have mounted about the strength of the U.S. economic recovery, the dollar has staged a modest comeback.

On the face of it, that’s counterintuitive: If the U.S. economy struggles, shouldn’t that mean a weaker dollar?

It should, over time. But in the short-term, concerns about the U.S. stoke fears about the global economy as well. And that is helping to drive some investors and traders out of the riskier assets that have been so popular since March, and into "safer" things -- including U.S. Treasury securities.

"It’s the unwinding of the carry trade," said Marc Pado, U.S. market strategist for brokerage Cantor Fitzgerald.

As long as that’s going on, it’s bullish for the dollar.

It’s no coincidence that the recent low for the DXY index -- 74.97 on Oct. 21 -- also marked the recent high for the Reuters/Jefferies CRB commodities index. The CRB index is down 4.8% since then, including Friday's 2.1% drop.

Crude oil futures fell $2.87 to $77 a barrel on Friday, the lowest price since Oct. 14.

The iShares Emerging Markets Index exchange-traded stock fund has tumbled 9.6% from its recent high reached Oct. 14, as stock markets in Brazil, South Korea, India and other emerging economies have tripped.

Why, though, should U.S. stocks fall just because the dollar rebounds? The fundamental reason is that a stronger dollar hurts U.S. exporters by potentially raising prices of their goods abroad.

But the knee-jerk reaction of traders may be a bigger factor kicking the U.S. market lower: If hedge funds and other traders are buying the dollar they’re automatically going to be selling U.S. stocks, just as they were simultaneously selling the dollar and buying stocks for much of the last seven months.

As long as the formula works, there are plenty of players for this game.

-- Tom Petruno