Yesterday, the Dow dropped 207 points. Investors are beginning to get nervous. What if the stock market continues to go down? What if it stays down for years? What if more hedge funds go broke? What if the housing market stays like this for years...or worse; what if house prices go down 20% or more? What’s Ben Bernanke going to do about this?
The question mark was invented in a bear market, we conclude. When people are feeling fat and sassy, they have no need for it. It is the old fellow, under pressure, who finds it useful.
“Why should I pay such a high commission?” he asks his broker.
“What if prices don’t come back up?” he asks no one in particular.
“What does this new beau of yours do?” he asks his daughter.
Meanwhile, the dollar has gone up! People are asking themselves about that too. But that’s what happens in a credit crunch. Investors, speculators and householders need dollars to pay their bills. Dollars are what people owe. So dollars is what they must have. When dollars are not so readily forthcoming, they go up in price.
Many analysts believe, too, that the dollar is still a ‘safe haven’ for wealth. After posing nervous interrogatories, an investor is likely to take his money out of risky speculations and move it to dollars. Looking around at the great universe of paper currencies, we see that the Chinese are increasing their money supply (CNY) at an astounding 20% annual rate (according to Goldman). The Indians are adding rupees (INR) at a 24% rate. And the Russkies, (what are they thinking...?) are adding to the world’s supply of rubles (RUB) at a 51% rate! Alongside those numbers, the dollar does look safe. But why the euro - easily as safe as the dollar - should fall against the greenback is another thing that calls for a question mark. The euro has lost 1.5% of its value, compared to dollars, over the last two weeks. Why?
Our guess is still that the dollar is doomed...maybe not in the short-run credit crunch. Definitely in the long run. But when will the long run arrive?
What’s happening? Where will it all lead? We don’t know dear reader. We’ll just sit tight with our gold and wait and see.
So many questions, dear reader...and on a holiday no less!
As an aside, any credit crunch bashes the good with the bad. Our guess: There are probably a few good mortgage companies selling at reasonable prices.
Bill Bonner
The Daily Reckoning Australia
P.S. to get The Daily Reckoning direct to your inbox sign up to our free e-mail newsletter or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.
Related Articles:
- None Found
About the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Comment by Coffee Addict on 16 August 2007:
The "credit crunch" will I guess take a month (or so) to do its thing. The repricing of risk, by contrast, is here to stay.
More expensive credit means less profit and growth in the longer term. This in turn means no quick recovery. The big end of town may be starting to realise this despite the apparent group myopia and ongoing attention to contrived pseudo historic cost profit lies (corporate earnings).
Assuming a worst case scenario, quality long equity investments made in a few weeks time should realise an OK return. Resource prices will fall but volumes delivered by some companies will increase. Unfortunately its not an asset class I can select with my super. There won't be any supernormal profits and speculators will probably get what they deserve.
Every bust like every boom has a beginning and an end.
Bill, if you are saying that it is not wise to hold currency at the moment then I agree.
Comment by kage on 16 August 2007:
I love the smell of burnt yank in the morning ! They are fleeing the ASX in droves - look at 'em go. Fleeing to safety ? Time for bargains very soon.
Comment by kage on 16 August 2007:
Gold in AUD terms is up 9% in about four weeks. Not bad. Could it be that gold is a good at retaining its value ? It's a pity the super funds don't include a precious metals option. I asked my super funds whether they would consider it, but alas, no reply.