Outside of the earthquake rescue efforts in Chile and the Greek-rescue efforts in Brussels, the big news in the world economy last week occurred in currencies.
As you can see in the chart below, the plummeting British pound sterling has dropped even more than the beleaguered euro in the past month and a half, while the good old U.S. dollar has been as good as gold. (That last bit was a bit of currency irony; the dollar has actually been much better than gold, which has flat-lined in the past six weeks.)
This rapid deterioration in the pound is very important: It demonstrates investors' lack of confidence in the economy of the British Isles, as well as an expectation that Britain's interest rates will remain lower than in any market anywhere else in the world for an extended stretch.
Famed currency speculator and investing icon Jim Rogers said just a few weeks ago that he thought the pound was ripe for a big dive. It's a forecast worth taking seriously. Don't forget: It was Rogers who made the fantastic forecasts back in 2007 – when both were riding high – that Fannie Mae (NYSE: FNM) and Citigroup Inc. (NYSE: C) faced ruin.
The pound has been the subject of attack before. For instance, in an incident still remembered as "Black Wednesday," billionaire investor George Soros – Rogers' former Quantum Fund partner – made a cool billion selling short a massive quantity of sterling in September 1992.
This could happen again. And while it might be welcomed by exporters and anyone traveling to the United Kingdom on spring break – how about a quick 20% discount on rooms and food? – it would be disastrous in other ways.
Watch this, as it is inherently destabilizing for world trade, commodities and stocks. The Bank of England (BOE) and its allies would have to step in at some point to prop up the pound. And if that currency coalition proved unable to stem the tide against speculators, the loss of credibility would be devastating.
[Editor's Note: As this currency-market analysis demonstrates, Money Morning Contributing Writer Jon D. Markman has a unique view of both the world economy and the global financial markets. With uncertainty the watchword and volatility the norm in today's markets, low-risk/high-profit investments will be tougher than ever to find.
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News and Related Story Links:
- Money Morning News Archive:
Jim Rogers News Stories - Wikipedia:
Black Wednesday - Money Morning News Analysis:
Billonaire Investor George Soros Questions the Euro's Future - Wikipedia:
British Pound Sterling - Bank of England:
Official Web Site - Money Morning Week Ahead Column:
Which Stocks and Sectors Will Shine as Market Fear Subsides?
All great stuff, but don't forget the 'Monster from the Id', i.e.; the debt monster. This unstoppable force controls all of this economic stuff and fuels the ongoing spend, pretend and extend policies of the world. Also, don't bet on the most indebted and fastest growing debt monster in the world, the good old US of A. The USA, through the common use of economic smoke and mirrors, unreal accounting practices, hide and seek mark-to-market of assests, off-the-books accounting, the Fed buying its bonds/printing money, manipulative lies about CPI, GDP, Unemployment and all of its 'for-public-consumption' information, is doomed. There isn't enough money on the planet nor can it be created fast enough to service the Monster from the Id!!! 0% interest rates aren't working – raising them will just implode this system of debt. The dollar is the 'Last-Train-to-Clarksville' and its destination is the end-of-the-line for all fiat currencies. The very visible solution to the current fiscal crisis is the ongoing creation of more money by all involved. This is just a bad movie with a horrific ending. The only question now is how bad can it get before everyone heads for the exits.
Gold – At its current value: There is not enough of it anywhere to pay the Monster-from-the- ID what it is owed and continuously creating at light-speed. Gold at $ 1,100 has lost its 'juju' to solve the debt problem of any country on the planet. The US of A suppossedly has about 8,300 tonnes of the stuff, the most in the world, Sounds like a lot, doesn't it; however, don't let tonnes-of-gold fool you. If the US of A could liquidate it all at today's market price; it would pay for just 1/5th of its deficit for 2010, which doesn't include such off-the-books-accounting as the wars in Iraq and Afganistan, plus a whole bunch more stuff. Please also note that also not included are fiscal disasters facing its many bankrupt States. This should be a wake-up call for those that think the current unbacked-by-anything fiat money of the world will have any real value in the future.
The more we become involved with a global economy, the more we are affected by what happens in other countries. In our present state, while we appear to be at the top of the World currencies, a major break by England or Europe could trigger a world wide crash.
State deficits could also have the same effect, especially California.
To top it all off, Congress seems to be ignoring the danger.
In the same newsletter you advise to invest in Germany = €-zone and in this article you applaud the "strong $" and don't mention a thing on the imho fundamentally weak health of the $ itself.
I think a lot of EU companies and Gvts are happy the € is weakening a bit due to the fraud that the EU discovered regarding the Greek politicians haveing to covered up the bad debt situation they are in. Fortunately the EU found it out.