The Gold Standard | Straws in the wind

There are quite a few straws in the wind that need to be connected. When connected, they give a good idea of the nature of risks that the world faces today. Needless to add – and in the personal opinion of this author – financial markets have not priced in these risks adequately.

One is the shoot-out in Norway. The ramifications require reflection. At one level, it might push back popular parties that espouse mild-to-strong anti-immigration line. They might tone down their rhetoric. Per contra, centrist and liberal parties might become fearful and become less liberal, in the process.

This morning, the FT features a news-item on Chinese fighter aircrafts repelling a US reconnaissance plane, briefly entering Taiwan airspace. With the US still unable to come to an agreement on its debt ceiling increase and with China holding huge amounts of US Treasuries, this US domestic issue has the full potential to become a geo-political flashpoint.

I have tried to address this in some detail in my latest MINT column today. One glaring omission in my piece is that I have forgotten to mention that Gold would be a big winner in the event of any default – no matter how low the probability is, currently. Conversely, gold would shed some of its recent strength if an agreement is reached. I view any setback for Gold to be short-lived, given the current geopolitical environment.

In fact, I should have also added that India too would, on balance, be a relative beneficiary. It has very little US dollar assets in its reserve holdings. The drop in oil price – even if temporary – that would ensue would help India’s balance of payments and fiscal deficit.

While I am not too concerned by the job cuts in investment banks, it is a signal, nonetheless, of waning global economic activity. If capital spending were firing on all cylinders, investment banks would not be cutting back on jobs.

A sign of hubris at Apple Computers. Time to shun them and look for the next innovator. From an innovation engine they are now turning predators.

This news item in Bloomberg on the demand for the so-called commodity currencies – at the expense of correlations with underlying commodities themselves breaking down – is an interesting one.

Another Bloomberg news story on hedge funds struggling to maintain performance and George Soros’ quantum fund raising its cash holdings has two interesting observations on ‘governments’ influence’ on markets. I doubt if they are made in a positive sense:

Part of the uncertainty stems from the fact that so much of what happens in global markets is dependent on government actions, which can distort prices and affect supplies.

“Most of our funds are in an uncomfortable position in that the fundamentals are bearish, but the governments are intervening,” said Harold Yoon, chief investment officer at Hong Kong-based SAIL Advisors Ltd., which invests in hedge funds on behalf of clients.


DISCLAIMER: This is an archived post from the Indian National Interest blogroll. Views expressed are those of the blogger's and do not represent The Takshashila Institution’s view.