They came. They talked and they talked some more. They decided to call for more “sustainable” current-account deficits. They came as close as we’ve seen so far to promising to stay away from the devaluation of each others’ currencies.
Of course, I’m talking about the G-20 meeting that wrapped up this weekend in South Korea. But it looks like it was all for naught if we look at the markets.
This morning, it is more of the same. Actually, it’s worse, with the U.S. dollar reaching a 15-year low against the yen. The markets do not believe that a halt to the devaluation of the U.S. dollar can happen, regardless of the assurances we have heard from the G-20 countries. (Too bad for me, I was hoping the greenback would rally here a little, so I could go gold bargain-hunting again.)
We need to face the facts.
No currency can sustain itself when the issuer is bankrupt. That is the case right now with the U.S. dollar. Who are we kidding? The U.S. government is spending about $125 billion more a month than it takes in and other world countries are naïve enough to believe they can halt the dollar’s demise.
When you own a bar of gold, you own it. You can take it to a bullion dealer and get what the market value is at that time, because there isn’t any debt related to that bar of gold. It is what it is: a store of wealth.
On the other hand, the debt load of the government that issues the greenback increases at the now ridiculous rate of $4.0 billion a day. Since 2002, the U.S. dollar has been in a free fall against a basket of other major world currencies.
The decline in the value of the U.S. dollar will only accelerate as time passes, unless the U.S. adopts some of the austerity measures other countries like France and Great Britain have late this year. The U.S. needs to do something about our over-the-top spending; otherwise, the risk to the U.S. currency will become a major problem for America in 2011.
Michael’s Personal Notes:
I consider Robert Appel to be one of the smartest market forecasters out there. Robert, one of our editors, had this to say about the stock market last week and I wanted to share it with all my readers, as these are predictions that could easily come to fruition:
The bond market and the gold market are now in conflict. The bond market, convinced that the Fed (which has failed at its main goal of fiscal stability for the last few decades) will miraculously keep rates low indefinitely, is still strong. Some would say in a bubble.
Yet gold is soaring, convinced that buck is going to tank and/or that inflation is coming back eventually. And yields are inching up. Someone has to be right and someone has to be wrong. The implications are serious. And we will likely know the answer by spring of 2011, one way or the other.
Either the gold market is coming down (which is what happened last spring, aided and abetted by a mysteriously convenient PIIGS crisis, which popped the buck and whacked the yellow metal) or interest rates will rise, nailing the fragile U.S. recovery in the butt and throwing the stock market and the buck also under the bus.
While we realize that most of you are making serious money this year, it is our job to flag for you that things could change very dramatically. For example, some of the sharpest minds in this game believe that the stock market is now being propped up by the “Boys in the Backroom,” while yields are being held artificially low by the Fed’s interventions. The Fed has said they want rates low until 2015, but their track record is such that I wouldn’t trust them to balance a checkbook, let alone run a nation’s economy.
If all this is correct, and if the power brokers in early 2011 are unable to come up with another “crisis” like last year’s to prop up the buck, then the “perfect storm” could create chaos next year — higher rates, falling bonds, falling stocks, inflation, high unemployment, and strong gold.
Where the Market Stands:
I’ve been bullish on stocks for the majority of 2010. While others were cynical on corporate earnings for this year, my loyal readers know that I have been predicting that earnings would surprise on the upside each passing quarter.
About 80% of the S&P500 companies that have reported their third-quarter 2010 profits have beat analyst expectations. On our web site, www.profitconfidential.com, we have increased our full-year earnings estimate for the Dow Jones Industrial stocks to a total of $770.00 per share for the year, upping it from our previous estimate of $740.00 per share.
The bear market rally in stocks that started in March 2009 continues.
What He Said:
“The year 2000 was a turning point of consumer confidence in high-tech stocks. The year 2006 will be remembered as the turning point of consumer confidence in the housing market. This means more for-sale signs going up, longer time periods to sell homes, bloated for-sale inventory, and eventually lower prices for homes. But, this time, the turnaround in consumer confidence will have a bigger impact on the economy. Hold onto your seats, this is going to be a nail biter.” Michael Lombardi in PROFIT CONFIDENTIAL, August 24, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.