I am a band wagon gold bug , but more recently have been turned into a hard core bug. The more I look at current world economics, the more I realize the instability of it all . Japans recent decesion to lower its Yen value further and likley BUY US treasuries has severe implications down the road for all involved. The cancelation of 30 Year bond was meant to lower long term yields , plain and simple, when that failed , plan 2 involved finding a buyer of long term tresuries to help PROP up the values and lower the yields, so in come Japan. If Japan devalues , we will be back to similar situation as in 96 when we had the Asian contagion with every one else following suit to stay competive. Any one Pegged to the US dollar will be further squeezed and will be forced to unlink themselves and devalue . The one country that could use devaluation is the one that will be forced up to higher valuations at exactly the time when corporations need a cheaper dollar to boost exports and sales. That country is the US , it will be very hard to get itself out of recession without an expansion in world exports. A high dollar only decreases competitiveness and reduces exports. These actions are all leaning in the wrong direction and will lead to some serious defaults by countries and large corporations. The only thing that survives this kind of activity are debt free Hard assets. The dollars in your wallet become worthless as they are no longer backed by debt free hard assets and are also at risk of default. What we are seeing now is big smoke screen being propped up to make it appear that all is better but i smell Panic in the governments actions that the actions of the past are not working.
This has me very concerned , the fed may have been able to avert a crisis in 96, but this one seems to be compounding in itself week after week. We still have serious deflation in the system even though the Fed has spent most of 2001 trying to reflate. Sales are still falling faster than inventories and with deep discounts, the sales that are currently experienced are no margin sales, meaning no earnings, and are also stealing sales in the future for today. The hope is that new sales will materailize in the future at a faster pace then they are stealing them from but I suspect that this will not happen and that the worst of the recession will now show up in Q1 and Q2 2002. Expect more heavy layoffs in manufacturing after Xmas, especially in automotive. They still account for 18% of the economic employment and will have a serious impact on sentiment.
This is why i fully expect the markets to come back down hard in the new year . The next hurdle will be the largest and toughest.
As i have said since the early part of this year, the Gold Index will be the best perfoming index in 2001 and now i say that it will be the best performing index for the next 3 years at least. |
