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.
The Daily Reckoning Australia