SYDNEY AUSTRALIA, 28 November 2006 – Gold up, oil up, dollar down, stocks down, bonds… uncertain. That’s today’s rapid reckoning, as your editor rushes to make a flight back to Melbourne.
A pause, though, for more detail. Bloomberg reports that, “Benchmark U.S. crude oil is likely to average $70 a barrel next year, according to Dallas hedge fund manager Boone Pickens. Economist Ed Morse at Lehman Brothers Inc., the fourth-largest U.S. securities firm, predicts $72. Either would top the average price for New York oil futures so far this year, $66.73 a barrel, and set a record.
“I keep thinking we’re right at the bottom on oil,’ Pickens, who has correctly predicted rising energy prices for the past three years, said in a Nov. 22 interview. ‘I don’t see why the run is over if the global economy continues to grow.'”
But isn’t it the concern that U.S. growth is slowing which has hammered global share markets the last few days and driven investors into, ye gads, U.S. bonds? Trying to track the movements of the markets through headlines usually leads to this kind of confusion.
We’ll keep it simple and return to first financial principles: the dollar is doomed because it is the unbacked liability of a bankrupt government. The whole world cares what happens to the dollar because the whole world owns it, trades with it, and borrows in it. When the dollar falls even more, it will be bullish for tangible assets and destructive for financial assets. Inflation is rising and uncontainable by central bankers.
The simple investment approach? But “stuff,” sell “paper.” Practically speaking, this means keep your eye on Aussie resource stocks. Though a sell-off in dollar-denominated assets will drag down other global equities with it, we are still keenly interested in resources and would look for sell-offs in resource stocks as golden opportunities to take new positions or ad to them.
And we have to leave it at that as our time has run out. We’ve also just learned that Airbus’ giant A380 will be making an appearance in the skies above Sydney as we approach the airport. We will be taking notes on how abnormally large and bloated things descend from the heights without crashing.