Monday, January 9, 2012

Back to the Future


The "Back to the Future" Trilogy are among my favourite movies.

Somehow, if I had managed to jump in a DeLorean at the beginning of 2012 and time travelled back to January 2011 and looked at a Bloomberg screen and then headed back to January 2012 and again looked at a Bloomberg screen, what would I see? Surprisingly, the numbers on the screen would look similar. The market went nowhere over twelve months. Hmm.

Strange times indeed. Does this mean that we are in for a similar ride this year? Who knows. No one really predicted such a wild ride up and down last year, so the commentators all got it wrong. Some of the predictions for this year are for the end of the current financial system, war with Iran, gold prices at $2500 per ounce and silver at $60 per ounce (David Morgan). Well, perhaps, but who can tell in this volatile world where a true measure of value is difficult to find.

You see, the sovereign debt crises around the globe have caused currencies to devalue against each other. I read Jim Rickards "Currency Wars" over the holiday break. Currencies are in a mess. Each sovereign currency must devalue against it's main competitors in order to maintain an edge in it's balance of payments. Receiving more for exports and paying less for imports. But Rickards main thesis is that the US must maintain it's currency edge over the rest of us and that it will be willing to do so at any cost.

Is the move by Iran a number of years ago to use euros instead of dollars for oil transactions the real reason the US is destroying the Iranian economy. Perhaps Iran's more recent move to trade with China and Russia in their own currencies caused the latest move from President Obama in December to sideline the Iranian Central Bank. Perhaps the same threat by Saddam Hussein was the reason why the coalition of the willing invaded Iraq in 2003? I don't particularly think so, but it's worth pondering in the context that the US needs the dollar to remain number one in order for it's powerful status quo to remain.

But one thing we all have to admit for 2012 is that debt is too large to manage and simply papering over the problem will only make it get worse. I don't have any specific predictions for 2012, but what I do know is that unless a global plan is put in place to deal with debt, the crisis will get worse.


Gold in New Zealand dollars: $2069.44 per oz
Previous all-time high: $2311.02 per oz (15 Nov, 2011)

Silver in New Zealand dollars: $37.03 per oz
Previous all-time high: $59.19
per oz (30 Apr, 2011)
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