09/21/03
Eric Fry, a bit soggy in New York…
Good week for stocks, good week for bonds and great week for gold… thanks to a stumbling dollar.
The Dow Jones Industrial Average gained 173 points for the week to 9,471, while the Nasdaq jumped 2.7% to 1,855. The bond market also enjoyed steady buying interest, as the yield on the 10-year Treasury issue dipped to 4.16% from 4.27% the week before.
Unfortunately, while investors loaded up on American stocks and bonds, their American dollars were losing more of their global purchasing power. During the week, the greenback dropped 1% against the euro to $1.137, and tumbled to 113.9 Japanese yen. That’s the dollar’s lowest level against the yen since December, 2000.
Gold celebrated the dollar’s misery by jumping $6 during the week to $382.90 an ounce. Most of that gain occurred Friday, when gold surged $5.20. The yellow metal’s gains powered the Philadelphia Gold and Silver Index to a 3.7% advance and a new 6-year high.
Investors and speculators may have been scurrying to buy gold and sell dollars in advance of the bureaucrat-fest in Dubai this weekend. Both the G-7 ministers and officials from the IMF descended on the Middle Eastern emirate to eat filet mignon, drink Bordeaux and furrow their brows over various global economic "imbalances."
The approximate G-7 agenda features: 1) Scolding the Chinese - conveniently absent from the meeting – for systematically holding the value of their currency at the artificially low, export-friendly exchange rate of 8.28 Yuan to the dollar; 2) Brow-beating the U.S. for its trillion-dollar "twin deficits," and particularly for its outsized current account deficit. The none-too-subtle implication being that a devalued Yuan will help to reduce the American’s current account deficit, thereby taking pressure off of the mostly-European G-7 members to "correct" the problem on their own by boosting imports of American goods.
To conclude the G-7 meeting, the bureaucrats will pose for photos and issue a final communiquĂ© – expertly crafted to say nothing and to offend no one. "The G-7 is unlikely to call for an end to currency intervention, or to name names," the Lex column notes in today’s Financial Times. "Yet a statement in favouor of market-driven exchange rates, of concern about the U.S. current account deficit, and of collective responsibility in helping to manage the required global adjustment would justify the air fares [of the finance ministers]."
Perhaps, but we suspect that no amount of finger-wagging from officialdom will alter the dollar’s fate. On Monday, the dollar will be just as dangerous a currency to own as it is today. It will be no less reliable a store of value, and gold will be no less reliable a hedge against the dollar’s demise.
The U.S. current account deficit is 5% of GDP, and rising – an unpleasant fact that is worrying the U.S. credit agencies and should be terrifying dollar-holders from Beijing to Brussels. "The deficits leave you with an uncomfortable feeling about the future," says a tactful Moody’s Investors Service analyst, Steven Hess.
Consider us officially "uncomfortable."
Bon weekend…
Eric Fry,
The Daily Reckoning
September 20-21, 2003
———————
THIS WEEK in THE DAILY RECKONING
AS WE GO MARCHING (09/19/03)
by Bill Bonner
"… The romantic appeal of war… and the political pull of military spending… the economic delusion… the polished brass and boots… it was all too much to resist. Despite a disastrous experience in WWI, under Mussolini’s leadership, even the fun-loving Italians were soon marching around like popinjays and getting out maps of Abysinnia… As Flynn puts it: ‘Out of Italy [as out of America currently] had gone definitely any important party committed to the theory that the economic system should be free.’… "
ACCIDENTAL IMMIGRANTS (09/18/03)
by Bill Bonner
"… My thoughts drifted to experiences of the last 6 years - since we moved to France… and how, little by little, without ever really thinking about it, we became something we never intended. You’ve heard of the accidental tourist. Somehow, we became accidental immigrants. But that is how things actually happen in life, dear reader. Things happen that we intend to happen… and try to make happen… and other things just happen… "
HOMELAND (09/17/03)
by Doug Casey
"… I’m favorably inclined towards real estate as an investment class. But as a means of growing wealth, the party is over, for now at least. The way I see it, there are two ways to play real estate. Either sell, and do something better with the capital; or borrow heavily against it with a fixed-rate, long-term loan. Do something intelligent with the proceeds, and count on inflation to decrease the value of the loan faster than the market can decrease the value of the property… "
PACIFIC SYMBIOSIS (09/16/03)
by Brian Durrant
"… The Cold War is over and Europe’s economic star is in decline. According to the latest IMF forecasts, the U.S. is expected to grow by 2.4% this year, Japan by 2.0%, Britain by 1.7% and the eurozone by a measly 0.5%. But the really bright news is coming from Asia; China is expected to grow by 7.5% this year. Not surprisingly, then, the focus of U.S. financial diplomacy has shifted from the Atlantic to the Pacific… "
THE RISE OF THE DEMOPUBLICAN (09/15/03)
by the Mogambo Guru
"… Raising taxes will, as I said, reduce somebody’s income, but it will also increase somebody else’s income, namely the recipient of the taxes when the money is spent as part of some government program. The only difference is WHERE the money is going. If you spend it on things that you want, then the economy grows along those lines. If the government spends the money, then the economy grows along those lines. Now, all you have to do is figure out which is healthier in the long run… "
Addison Wiggin
Addison Wiggin is the executive publisher of Agora Financial, LLC, a fiercely independent economic forecasting and financial research firm. He’s the creator and editorial director of Agora Financial’s daily 5 Min. Forecast and editorial director of The Daily Reckoning. Wiggin is the founder of Agora Entertainment, executive producer and co-writer of I.O.U.S.A., which was nominated for the Grand Jury Prize at the 2008 Sundance Film Festival, the 2009 Critics Choice Award for Best Documentary Feature, and was also shortlisted for a 2009 Academy Award. He is the author of the companion book of the film I.O.U.S.A.and his second edition of The Demise of the Dollar… and Why it’s Even Better for Your Investments was just fully revised and updated. Wiggin is a three-time New York Times best-selling author whose work has been recognized by The New York Times Magazine, The Economist, Worth, The New York Times, The Washington Post as well as major network news programs. He also co-authored international bestsellers Financial Reckoning Day and Empire of Debt with Bill Bonner.
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