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What's Wrong With THIS Picture?
by Professor von Braun
September 30th, 2000
The Commitment of Traders report for the S&P futures index currently has the largest commercial short position ever, coupled with the largest speculator long position. Remember that the "commercials" are the professionals and the "speculators" are those that speculate. Now why would the professionals, a group that includes fund managers and companies that advertise their fund managing abilities with a very bullish bias be so short? If the bull market was intact, the economy booming, inflation non-existent and "GDP" increasing at some 5% plus, what is the problem? What do the bulls know that we don't. Are they having a gender crisis? Is there a problem on Wall Street? Is there more than one rotten APPLE in the barrel?
Talking about Apples it seems that very few if any analysts (that's the group of people that get paid more for lying better and never visit the Gold Eagle website) had sell recommendations on the apparently over ripe fruit that suddenly fell from the money tree, with an accompanying thud. Don't they know harvest season is upon us?
Meanwhile back in the far distant past, well October of 1997 actually, which for most financial analysts and talking heads is the far distant past, we witnessed what was called the Asian currency debacle, which was smoothed over by the IMF in a very short time and the bull, the American bull, kept on keeping on.
Since October of 1997 most of these currencies have stayed at the levels they fell to or at best have slightly recovered. The Thai Baht fell 53% and today trades 40% off its 1997 high. The Phillipine peso has just made a new 32 month low, the Indonesian rupiah never really recovered although it is now only 75% off its high instead of the 85% level it reached. The Korean won did recover from a 55% fall and now trades at only a 25% discount from its all time high. It does look a tad shaky one must admit but it is still "hanging" in there.
We have been told that Asian and the Pacific Rim countries have recovered and all is well. Apart from a few 20% declines from the so called recovery highs of some Asian stock markets, the Nikkei included, the likes of the IMF & the World Bank continue to pat themselves on the back and somehow justify their existence.
What has happened in the Asian arena is that since late 1997 some other Pacific Rim countries have been suffering from the Asian contagion effect. The New Zealand dollar is now trading at a 43% discount from its peak in 1997 and the Australian dollar is off a mere 33% from its peak of 82 cents to the US dollar, currently 54 cents.
This was not supposed to happen. But it has!
Even the Australian reserve bank has made comment about the decline. They said they had no idea why the currency was so weak. No idea! Well I'm sure that if they spoke with the Malaysian prime minister he could assist them to gain an understanding of what is going on here. After all did not the currency malaise start in Malaysia, the home of the Malay's?
Now both Australia and New Zealand enjoy triple "A" credit ratings, something that has become quite scarce in that part of the world and one must wonder how long can that continue. If your balance of payments is negative and your debt levels are rising as was Thailand's in 1997, and as New Zealand's is now, when is the haircut due? The New Zealand banking industry is 99% Australian controlled and in some ways from a monetary point of view they are a bit like closely connected twins.
At some stage in the not too distant future one should see some hiccups in both the New Zealand and Australian bond markets as some of their more fancier debt issues like a Euro/Kiwi or Euro/Aussie issue begin to succumb to somebody's temptation to make a profit at the expense of the local populace. George Soros where are you?
After all if a credit worthy issuer had issued either Euro/Kiwis or Euro/Aussies in 1997, converted the proceeds to US dollars at the time and was now looking to repay, then a tidy profit is to be had. Providing of course that one can find an entity prepared to sell them the US dollars in what appears to be a falling market.
The buyers of these fancy debt instruments must be wondering what happened. Perhaps some Belgium dentist now has to work four days a week to try to recover the 40% loss on his high yielding Triple A rated piece of depreciating paper.
Gold bugs of course are always happy when they see a country that has sold its gold reserves suffer from a depreciating currency. Selling 2/3rds of its gold reserves is what Australia did in June of 1997. It seemed the attraction for the greenback was way too strong. Now if the Australian Reserve bank was smart they might give the Swiss a call and swap some of the contained profit in the acquired greenbacks for some of that no longer needed bullion the Swiss apparently have.
That might even put some zest back in their falling dullar (that's a new word that describes falling currencies - dull, dullar and dulled) and horror of horrors, some life into their gold mining industry, but they will have to be quick.
The Prof can be contacted by email at firstname.lastname@example.org
Copyright by Professor von Braun. All Rights Reserved. Reprinted at USAGOLD by permission.
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