Flight from risk is fully booked
FREE email from MoneyWeek
Discover the latest profit opportunities and understand what’s really going on in the investment world with our punchy daily email. CLICK HERE
This genius investor does dizzying levels of research to uncover...Half Price Shares!
It’s a “worldwide sell-off”, says the International Herald Tribune, triggered by “disappearing liquidity”. The papers blamed poor Ben Bernanke. The new man on the job at the Fed let it be known that inflation was ‘unwelcome’. This is widely described as ‘tough talk’, though to us it seems rather gentlemanly. It is also, of course, a bare-faced lie.
What would really be unwelcome is the absence of the inflation, the lack of increases in consumer prices, the sudden stiffening of the usually pliant US dollar. The Japanese lived through such an era for the last ten years – with Ben Bernanke watching. The Fed chief made his academic reputation explaining it; he would sooner poke his eyes out than have to watch it develop in the US. He knows as well as anyone that the Japanese could afford it; Americans cannot. They are too deep in debt.
No, there’s no real danger of Ben Bernanke suddenly becoming Paul Volcker. Even with lifts in his shoes, he lacks the stature. And he’s 30 years too late. Volcker could turn off the money taps in the late 1970s, because America was still a healthy economy back then. It could take a little dry weather. Three decades later, his successor, plucked from Princeton’s towers like a sprig of ivy, will wilt quickly.
(Article continues below)Advertisement
But this week, the dollar looked good anyway. The ‘flight from risk’ was over¬booked, crowded with refugees from the Dubai Stock Exchange, with runaways from Bombay, escapees from copper – and even deserters from gold itself. Many of our favourite investments sold off – Japan, commodities, and gold. The poet in us was alarmed. But the accountant in us merely shrugged. If we sell now, we may feel like a genius next week, he reminded us. But we’re likely to feel like a moron a year from now.
Investors are a fickle lot – prone to take flight suddenly, from time to time… and often in the wrong direction. Faced with this sudden binge of sobriety among central bankers, their faces twitched. Their knees jerked. Their palms began to sweat. And what would you expect? They hightailed it away from the exotic, foreign and mysterious investments they so recently loved towards the old familiar dollar. They came back to mama.
Alas, the old girl ain’t what she used to be. Too many wild parties. Too much liquidity late at night. Too much smoke and mirrors. The years and abuse have taken their toll. She’s not as sharp or as solid as she was when Volcker ruled the Fed. In the dark night of panic, speculators may not notice the deep lines of debt on her face, the cheap makeup with which she covers up her deficits, and the hidden girders and padding that buff out her faded posture and swindle her viewers. Wait until they get a good look at her!
FREE! For all our latest advice on making profitable investments, claim your 3-week FREE trial of the MoneyWeek website and magazine now.
Money Morning is the FREE daily email from MoneyWeek
– a punchy round-up of the latest investment news and profit opportunities.
DON’T MISS IT!
