Crisis over, the old crisis returns – MoneyWeek


Andthepriceofgold–thatlong-termindicatoroffinancialstress–hasslumped,forcingwealthoutofdeadmetalintowealth-generatinglendingandbusinessatlast。

Oh,hangonthatwas1982。

Hereinspring2008,ontheotherhand,themarketsaregiving[BenBernanke]creditforhavingturnedthecornerandbringingstabilityback,cheersKennethHackel,amanagingdirectoratRBSGreenwichCapitalMarketsinConnecticut。

Ourviewisthingsareinabottomingphase,agreesaportfoliomanagertotheAssociatedPress。

Why?

Becausethelatestdata–showingtheslowestUSeconomicgrowthsincespring2001–wasmodestlybetterthanexpected。

Betterthanexpectedsitsasneartobrilliantasanyonesgotinthelast12months。

Soitmustsignalgoodtimesahead。

Ohsure,notquitethegoodtimesthatfollowedtheemergencyFedrate-cutsof2001to2003;housingcantdoubleagainyouknow!

Norshouldyouexpecttoshootfishinabarrellikestockholdersdidinthe80sand90s,either。

LasttimeabullmarketinGoldfizzledout,theFedfundsratewasheadingsouthfrom19%,theDollarwasrisingontheforexmarkets,andthelongboomlayahead–ratherthanbehindus。

Butevenso,weareclosertotheendthantothebeginningofthiscrisis,agreesCitigroupsnewCEO,VikramPandit。

AndwithPanditaskingshareholderstocoughupamere$3billionontopofthe$40bnalreadylaidoutbyMiddleEasternandAsianwealthfunds,theendoftheendisgettingsoclose,weguesshecansmellit。

Notsoldontheendoftheendyet?

WellhowaboutmorethanhalfwaythroughasJamieDimon,theheadofJ。

P。

Morgan,saidofthebankingcrisisinmid-April?

Bothoursalesdesksandclientvisitsreportasignificantswitchbyreal,long-onlyinvestors–suchaspensionfundsandinsurancecompanies–towardsinvestment-gradedebtsecurities,claimsJanLoeysofthesamebank,nowtheproudownerofBearStearnsalongwitha$29bnguaranteeofBearsnastiestassetsfromtheUStaxpayerhimself。

TheCEOofGoldmanSachs,LloydBlankfein,alsoreckonswereclosertotheendthanthebeginning;hereinEurope,thesignsareencouragingsaidJosefAckermanonTuesday,evenashereportedDeutscheBanksfirstquarterlylossinfiveyears。

Howeveryoulookat,infact,thecreditcrisiswillonlyrunonforacoupleofquartersfromhere,inthewordsofJohnMackatMorganStanley。

ByChristmas,youllbarelyrememberithappened。

Exceptforallthoseemptyhousesandtheirweed-riddengardensdownthestreet。

Besidesallthepositionwantednotespiledontothelocalstoresnoticeboard。

Otherthantherelentlessriseinthecostoflivingeverytimeyougoshopping。

Discountingthoselittleniggles,thiscrisisisfinished。

Andtheyvegotmoretodowithawhollydifferentproblemanyway。

Aproblemtheworldcangetbacktonowthecreditcrisisissoclearlydone。

AmericareliesonforeigninvestorswhoownmorethanhalftheUSgovernmentdebtoutstanding,asBloombergreports,tofinanceadeficitthatNewYork-basedGoldmanSachsGroupInc。

predictswillexpandtoarecord$500billionfortheyearendingSept。

30,aftera$163billiongaplastyear。

Withouttheirsupport,thenewswiresays,long-terminterestrates[onUSdebt]wouldbe0。

9percentagepointhigher,a2006FederalReservestudyfound。

Long-timeDollarbearswillrecallthisiswherewecamein。

ThehistoricdebtsbuiltupbyWashingtonmadetheUScurrencyalong-termselllongago。

AndsinceBearStearnsenhancedleveragefundsfirstblewuplastJune–distractingtheworldwithacrisisininvestmentbanking–thetotaloutstandingdebtowedbyUncleSamhasballoonedbyanother$1trillion。

Openthedoortothatotherterribletwin–the$258bntradedeficitfor2008todate–andyoumightwonderwhytheDollarjustrecordeditsfirstmonthlygainvs。

theEurosinceNewYearsDay。

LikeushereatBullionVault,however,youdbemissingthepoint。

Itwillbeagreatideatostopcuttingrates,saysAndrewBusch,astrategistfocusingoncurrenciesfortheBankofMontrealinChicago。

ItllhelptheDollarstabilizeanddampencommodityprices。

Sofar,allthistalkaboutpausingtheFedsmostaggressiverate-cuttingcampaignsincewellsincethelastonehasindeedputafloorbeneaththeDollaronthecurrency,commodityandpreciousmetalsmarkets。

Indeed,thetriplewhammyofoil,Euroandgold-denominateddoomjustpeakedout。

Firstgold,thentheEuroandnowcrudeoilhavestoppedrisingandfallenback–Goldmostobviouslylosing16。

3%fromitslastrecordhighabove$1,032perounce。

Sofornow,allisquietonourinvestmentfrontandthewarappearstobewindingdown,saysBillGross,founderandbossofPimco,theworldsbiggestbondfundmanager。

Andforanaddedbonus,theslumpintheDollarstartingwhenthecreditcrunchbeganlastsummermeansthevalueofAmericasdebtshasalsowounddown。

ThatscostAmericasforeigncreditorsrealmoneyaswellassleep。

AnyonedumbenoughtoinvestinUSTreasurybondsbutliveinJapan,forinstance,nowownsjust¥85forevery¥100theyspentonT-bondslastAugust。

Andguesswhat?

JapanownsmoreTreasuriesthananyothernation,asBloombergrelates。

Butafterraisingtheirholdingsby$9。

2billionto$620。

6billionbetweenMarchandJuly2007,Japaneseinvestorstrimmedthatstakeby$34billionthroughFebruary,theTreasurysaidApril15th。

SomaybeabiggercrisisisdevelopingonBenBernankeswatch;maybethemuch-neededforeignbond-buyerisgoingonstrike,justwhentheTreasuryneedshimmost–toponyupfortaxrebates,investmentbankbail-outs,andthefirstraftofpost-Electionhousingaid。

Explodingfiscaldeficits,thehousingcorrection,protectionistthreatsand$200billionintaxhikesscheduledfor2011arefuelinglossofconfidenceintheUSDollar,asJohnChapman,aresearchfellowattheAmericanEnterpriseInstitute,notesfortheWallStreetJournal。

IfforeignholdersofDollarsorDollar-denominatedassetssellthem,allthegoodeffectsofbeingthedefactointernationalreservecurrencystartoperatinginreverse。

Untilfiscalandmonetarypolicieschange,allthisimpliesfutureinflationandhigherinterestrates。

WhocanblameJapaneseinvestorsfordoingwhatChapmancallsanifandrefusingtobuygreenbacksanymore?

TheplungingDollarliterallydestroysthevalueofDollar-denominateddebt。

SadlyfortheUnitedStatestaxpayer,however,itonlydestroysitforoverseaslenders。

Onlyasurgeinoverseasearningswillreducetheburdenofdomesticdebt,becausetheonlythingAmericacanotherwiseusetorepayitsdebtsaretheDollarsitearns。

Whichbringsustogold,theanti-Dollarandalsotheveryoppositeofdebt。

Noonestocreateandnoonestodefaulton,GoldjustclosedoutitssecondlosingmonthonthetrotinApril。

Italsorecordeditssharpestdropinaveragedailypricessincethe10%plungeofJune2006。

ButgiventhebounceintheDollar,onlyleveragedgoldtraderswhackedbybigmargincallsshouldactsurprised。

Andgivenwhatsdriventhisbounceinthegreenback–anearly(orfalse)dawnincredit,plusthebizarrenotionthatBenBernankesdonecuttingrates,andwantstostartdefendingtheDollar–itmightyetproveagoodchancetoswapalittlepaperformetal。

TheUStwindeficitsonlygrewbiggerastheworldsfinancemarketsfrozestartinginJune2007。

Theinvestmentimperativetohedgeagainsttheirimplosiondidnotgetanysmaller。

AdrianAshiseditorofGoldNewsandheadofresearchatwww。

bullionvault。

com

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