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Strategies & Market Trends : Ride the Tiger with CD -- Ignore unavailable to you. Want to Upgrade?

To: Rocket Red who wrote (131423)	9/22/2008 8:57:13 PM
From: LoneClone	Read Replies (1) \| Respond to of 313856

I'm not saying it isn't ugly, but it could have been a lot worse. The USA’s Budget Deficit Is Now Close To That Of Italy, But Luckily The USA Isn’t The Force In Metals It Once Was By Rob Davies minesite.com[pS]=1219539301&cHash=b74641696a The bull case for investing in gold has always been emotional, rather than being founded in adamsmithian supply and demand. Proponents argued that at some point the house of cards that represented the US financial markets would come crashing down, that the US Government would be powerless to intervene and the dollar would collapse. This writer always found those views rather far fetched. After the last two weeks he is not so sure. It was certainly a better week for precious metals than base metals. That said, one gets the impression that most market participants are so shell-shocked by recent events that rational decision making has been side-lined in favour of a naked survival instinctl. Moreover, the net implications of the multitude of financial catastrophes that has occurred will take some time to make themselves fully felt. Many investors and traders simply will not know for some time to come exactly how much cash they will be able to extract from the wreckage of Lehman Brothers, so it will be hard to determine their net position. Even for entities like AIG that have survived, big questions were raised during the week about counter-party risk on products like commodity ETFs. It makes sense to invest in gold if you are worried about financial Armageddon. It makes less sense to hold that gold via a badly managed, over-leveraged company that could fail at exactly the time you want the security and leaving you 765th in a queue of creditors trying to get your money back. No one is yet able to determine what effects the implosion that took place on 8th September will have on economies, wealth, and growth rates. It will be some time before anyone has a clear idea. The fact that the USA has suddenly become a socialist state with a budget deficit close to that of Italy will surely have an impact on the dollar. Bonds will be placed under even more scrutiny as they have demonstrated their ability to go from investment grade to junk overnight. How do you value US Treasuries knowing that a third of them are backed by a suburban semi in Nowheresville, Middle America? All these impacts have yet to be assessed and the answers may not be known for years or decades to come. What is clear, though, is that last two decades of US growth funded by pixie dust from Wall Street has stopped. Fortunately for miners that won’t impact metal prices too much because the USA is no longer the dominant force in metal consumption. That mantle is now held by China which will probably contribute the bulk of the 2.8 per cent growth in global GDP that is forecast for 2009. And a mid-week interest rate cut by the Chinese seems to indicate it will do all it can to maintain that growth. And if China is growing that fast, metal consumption is likely to be positive as well. So the muted reaction from base metals over the week is probably not a bad assessment of the outlook for the asset class. Copper at US$6,931 a tonne is US$40 more than the week before. Lead and zinc are little changed at US$1,804 and US$1,703 a tonne, though nickel took a hit down to US$16,800 from US$18,425 a tonne, and aluminium fell US$86 to US$2,475 a tonne. The merits of investing in companies that produce something tangible, and with a firm end market, have never looked better.