Investing
Is investor confidence gone? You bet it is! Ned Goodman is President and Chief Executive Officer of Dundee Corporation
By Ned Goodman
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ast June the CFA (Chartered Financial Analyst) Institute – of which I have been a member since 1967 – published a brochure entitled “Currency Wars III” in which there was an article that asked the question: ”Does the world risk a chaotic, catastrophic collapse of investor confidence?” Today, more than a year later, I can answer that question with a very positive – Yes! The article started with a quote from German Chancellor Angela Merkel: “The primacy of politics over markets must be enforced.” I (Ned, not Angela) find currency wars in history very interesting. There have been two previous currency wars in my world: One during the Great Depression, which I only know about from reading history, and the other during the inflationary spiral of the 1970s which, when it raged, I was witness to some of the worst and most interesting economic episodes for my newly started career. The bond mavens at PIMCO (a global investments solution provider) today are saying: “And now it begins again. Look around the world,” says Scott Mather – head of global bonds at PIMCO. “Is there any country that wants a strong currency?” Yes, the US says it does, but when you watch what American Economist Ben Bernanke does behind the scenes, you can see that the US is included in Angela Merkel’s above quote. Some of you may remember from my Dundee Annual Report message of last year (2011) where I wrote, “We are currently living through a new time of economic and financial events which are related to a new global currency war.” “A war which emanates directly from the financial crisis of 2008, which – as I have stated many times – will remain in the
memory of investors for a long time.” I thought then that the current global currency war started in 2010, which may have been a little early forecast. James Rickards, an American lawyer, economist, investment banker, and the author of the book I was quoting at that time, told us that, “currency wars are one of the most destructive and feared outcomes in international economics.” At best they offer the sorry spectacle of countries continuous stealing of growth from their trading partners. At worst, they degenerate into sequential bouts of inflation, recession and, yes, sometimes (such as Greece today and likely Spain soon) actual violence as the austerity programs recommended by Angela Merkel hit home to the poor unemployed populations of these countries. Currency wars always end economically badly. The one saving grace that used to be talked about in the 1970s was that the US dollar was regarded as an acceptable world reserve currency. It took former Federal Reserve Chairman Paul Volcker’s 18% interest rates to protect that position in the 1970s. Today, US interest rates are historically extremely low because Mr. Bernanke is not trying to protect the dollar. He is trying to protect the US from going bankrupt. As it is today, and was for me in the 1970s, the US has:
President Obama has moved to a pre1916 election program. He is playing off the rich (he says Republicans) against the poor (he says liberal Democrats). It is a wellknown fact that if you keep taking from the rich to give to the poor, it’s pretty soon that you have only poor. And if you keep spending money you do not have and must borrow or print it in order to spend, you pretty soon either go bankrupt and/or devalue your currency so that everything you must buy and pay for will cost much more. But if the poor are the ones who vote for you, obviously there are many more of them to do so. By 2015 the Obama family, with nine dollar inflation-adjusted minimum wage and a flock of people looking to work for that salary, should have no problem getting Michelle Obama to win the right to stand for President in the year 2016 election.
• Too much debt • Too much unemployment • A dysfunctional political system • A Presidential family that wishes to tax, borrow and spend, spend, while working to • eliminating the powers of his competitive political party – the Republicans.
The United States and its Presidential family, after studying at the best schools the US could provide, have not learned anything in 2067 years. The only positive outlook they could have for the spend, spend, spend, program is to get Michelle Obama elected in 2016 as the first woman US President. CMJ
Two thousand and sixty-seven years ago a man by the name of Cicero (in 55BC) said: • The budget should be balanced • The Treasury refilled • The public debt reduced • The arrogance of officialdom should be lessened and controlled • The assistance to foreign lands to be curtailed • Rome should be left to go bankrupt • People must again learn to work instead of living on public assistance
June/July 2013 • Canadian Mining Journal |
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