counter-balancing my urge to trade off the paper gold is the reality that could be, a more rapid disintegration of the usd standard and the resultant wobbling of all paper monies, and thus my fear of all fears, inexorable hyper inflation of all that we need and the stagnation wasting of all that we have
if the sum total of my fears are to come truer sooner, then why disengage with gold?
otoh, gold can easily go to 500 before going to 5,000, however momentary, should one or several governments act foolishly, alone or in concert, or some large and long speculator(s) blow up for whatever of the too many possible reasons, or crafty and consequential short speculator(s) double up, then triple up, then quadruple up, baiting for officialdom bailout
just in in-tray, per GREED n fear
· The hope and expectation is that the Oyu Tolgoi (OT) cooper project signed this week between the Mongolian government, Rio Tinto and Ivanhoe will become the template for other mining projects to exploit Mongolia’s massive resource potential. Mongolia, therefore, has the potential to be the ultimate high beta beneficiary of the investment story based on China’s rapacious demand for resources.
· Mongolia also has, aside from copper, enormous deposits of coal, gold and uranium. But to develop all this potential, in terms of the execution of actual mining projects, will also require a massive improvement in infrastructure.
· One issue is whether the richness in resources will turn into a curse for Mongolia’s overall macroeconomic and indeed political story. Politically, Mongolia has swung from extreme free market policies in the 1990s, when state-owned companies were privatised under a Russian-style voucher scheme, to a nationalist reaction against such policies with the passage of the now repealed windfall tax. The word is that a consensus has now been reached for a more middle of the road policy; an approach endorsed by the two main political parties.
· The macroeconomic context remains remarkably orthodox in the sense that there are no capital controls while the banking sector is completely private sector owned. The inflows from the OT project and other anticipated mining projects should also create the potential for the currency to appreciate.
· Like many other frontier markets before, the biggest problem for foreign institutional investors in the Mongolian stock market is a complete lack of liquidity. But there are no controls on foreign ownership and no restrictions on capital flows. The Mongolian stock market has been of late playing catch up with other world stock markets following the cancellation of the windfall tax.
· Mongolia also shares similar characteristics with Asia’s probably most widely followed “frontier” market, Vietnam. GREED & fear has a long-term belief in the Vietnam macro story. Still there are macro risks for the current liquidity-driven bull run while valuations in Vietnam are now becoming rather demanding again. By contrast, valuations in Mongolia seem much less demanding.
· A key issue for both stock markets over the next five years will be the ability to list major state-owned enterprises. Vietnam has so far disappointed in this respect. But the present Mongolian coalition government has a clear policy of accelerating privatisation. Investors with an interest in the emerging end of emerging markets should immediately bring Mongolia into their focus of reference.
· GREED & fear’s fundamental medium-term view, as argued in the new Asia Maxima – Suspended relief, is that by the first half of 2010 it should become apparent whether consumption and employment are really recovering in the US or not. GREED & fear’s view remains that both will not be recovering in a healthy fashion, which also seems to be the message being sent by the US government bond market.
· The more the US stock market rallies into year-end the more it will be set up for a significant correction in early 2010 to which all global markets will be correlated including Asia. The irony remains that the more anaemic the Western recovery proves to be, the longer it will take for Western interest rates to normalise and so the more likely it will be that Asia enters into an asset bubble.
· The situation in the West remains critical in terms of how the Asian cycle evolves. GREED & fear’s assumption for now is that Asian policy makers will not be aggressively pre-emptive in terms of moving to counter the risk of domestic asset bubbles if policy in the West remains super easy.
· The latest US employment data has highlighted the still dismal state of the job market. The unhealthy employment market also has negative implications for the trend in GDP per capita in America, which is yet another reason to invest in Asia and not in the US.
· The continued reliance on government for growth in America’s now increasingly command-driven economy is clear from the severe slump in car sales post the end of “cash for clunkers” and from the enormous share of US mortgage-backed securities market accounted for by government guaranteed paper.
· The gold price has made new highs this week helped not only by renewed US dollar weakness but also by a British press report about alleged secret discussions between China, Russia and other countries on settling up a new currency basket to replace the US dollar for dealings in oil. To GREED & fear, if such discussions have not yet taken place, it is only a matter of time before they will. Similarly, if the Chinese government has not yet increased its purchases on gold in the recent past, it is also only a matter of time before it will.
· The end game remains the same one that has been apparent for several years. That is the end of the US dollar paper standard. But GREED & fear still believes the dollar will have a big counter-trend rally whenever stock markets next have a decent correction. It is also the case that America is not without options if the world one day gives up completely on the US dollar. First it still has overwhelming military superiority. Second it has also the ability to impose exchange controls.
· Long-term investors should stick with gold and add to their positions on corrections. The same goes for equity investors in unhedged gold mining shares, though the tricky part here is working out which companies are really unhedged.
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