Why the US dollar is the best place to hide in the short term from a gathering storm in global financial marketsPosted on 03 March 2013 with 1 comment from readers
The US dollar, its bonds and linked currencies like the UAE dirham are almost certainly the best places to hide this week from a gathering storm in global financial markets. At the end of last week the US Congress failed to come up with an alternative to $85 billion in spending cuts that were supposed to be too frightening to allow to happen. President Obama has signed them into law.
This is the US version of the austerity crisis that has wreaked havoc in many eurozone economies, although Germany and its satellites like Austria are still holding up. Perhaps the hope is that if you live in the right state in the US then you won’t be so badly affected by these government spending cuts.
Indeed we fully agree with the notion that the US has to start living without borrowing so much each year. Deficit spending is another way to oblivion as it undermines a currency with inflation. Has the US finally taken away the punch bowl and turned party pooper?
The warnings from Washington and even the powerful Fed chairman Ben Bernanke himself have been loud and clear. This austerity package will not be fully offset by QE monetary expansion. Besides there is more coming by the end of the month that Congress seems in no mind to stop.
The public and investors seem to have their heads in the sand. They seem as ill prepared for what is coming as ever.
It looks as though a corrrection in financial markets from a ridiculously elevated state is inevitable, and the inevitable does often happen. The US dollar and bonds are the usual beneficiary. Sell-offs turn electronic assets into greenbacks and give it a kick.
After the dollar?
However, that is the short term impact. If Mr. Bernanke’s inevitable reaction is to print yet more dough then this is not the stuff to be holding for long. That’s why ArabianMoney and a rather special gold bug like Jim Sinclair reckon the next best haven will be gold and silver bullion, a money that nobody can print.
The problem is that short term the correction is not good news for precious metal prices either, although we think most of the correction is already done for gold and silver. Not so for the stock markets we must say that are perfectly poised for a major plunge downwards.
Are we not on the cusp of a new bull market with the global economy set to surge upwards? It is much easier to see us at the end of a small cyclical bounce and ready for a fresh plunge downwards. The folks on Wall Street are the only ones who have not gotten there yet.