Quite a "blast from the past" you provided us there.
But I still hold, for the current moment, to part of my post:
Message 14860190
During economic hards times, those with the most financial unity have an ability to act more quickly than those who are based upon a consensus decision making process (Europe, and to a lesser extent Japan).
I think Bejing made a tremendously decisive move overnight, spending nearly 1/2 of their foreign reserves to spur their domestic economy (presumably consumption and infrastructure projects so they can sustain their employed labor base). As I understand it, China spent much of the past decade moving rural peasants into labor intensive construction and factory jobs in the cities and they cannot easily reverse that process. So if foreigners start cutting back on the purchase of Chinese manufactured goods (as they face their own unemployment issues), their primary markets must now be internal and the days of their mercantilist policies will wane (for the near future anyway). We may also see an impact on the US dollars and treasury yields, presumably due to China exchanging US held assets for Yuan. Would this not, in the current deflationary environment be seen as inflationary as yields on T-bills climb, with the result that "scared money" is forced out of low-yielding bonds to higher yielding equities (or perhaps even gold and inflation indexed bonds.
I think what the US needs now is a bit of inflation to nullify the fears of deflation. But it's also possible that money may be pulled out of equities to finance that shortfall as China withdraws it's US denominated assets and stagflation could result.
I'll tell you what I'm looking at, as a pseudo Technical Analyst and that's the quarterly chart for the DOW. We're at a real inflection point where if we go to new lows, we're REALLY going to new lows (probably back to DOW 4K:
bigcharts.marketwatch.com
I don't ignore, or poo-poo the problems with the US financial system, mind you.. But I see similar problems all around. I see where European banks are even more heavily "geared" than their US counter-parts and often less transparent. And this heavy gearing is compounded by a disunified Central Bank system that only focusing on stabilizing the currency and not promoting economic growth (which is the Fed's charter). They have the same problems with overpriced housing and they are behind the interest rate curve (thereby the 1 1/2% cut by the Bank of England).
In sum, the world's central bankers know they looking over the edge of a deflationary abyss and they are starting to recognize that drastic action, such as China's are going to be required. We're going to require a "demand side" resolution as well since we're basically to the point where lowering interest rates is no longer viable and equates to nothing more than "pushing on a string".
I don't see gold being a storehouse of value until the deflationary pressures are thwarted and replaced by inflation induced stimulus. THEN, it could truly resume an uptrend and I would watch oil prices closely. But then again, it could also be seen as a threat and those very same governments could act to prevent the hoarding of the metal.
Here in the US, we need to see a bottom to the housing market and that's only going to come from preserving demand (demographically and mitigating unemployment). And we MUST see better regulation of the banks, but more importantly rehabilitation of the financial surety industry (AIG and the other insurers) who mitigate and distribute risk, thereby encouraging lending.
And finally, we need to see the Picken's Plan (in some form) implemented to facilitate keeping that $700 Billion in energy related exported capital here at home creating jobs domestically.
Hawk |
