Gold and Dollar Market Summary
Author: Jim Sinclair
Thursday, May 05, 2005, 5:49:00 PM EST
Although expected, it’s still shocking to witness the downgrade of the creditworthiness of the largest corporation in US History. Both GM and Ford Motor Company’s debt were officially labeled as JUNK! If conditions present today remain intact for the next 42 months GM will be out of cash!
To rationalize this development without looking at the long term consequences is to ignore:
1. The trickle down impact of the cash flow problems of both these companies on their many suppliers.
2. The negative impact on the many employees of GM and Ford and the buyers of their products.
3. The potential expense that will passed along to all US taxpayers should these companies be unable to fund employee entitlements.
4. The impact on the cost of financing for the many companies now occupying the awful distinction of JUNK as borrowers.
5. The fact that one level of debt always impacts the level of debt above it and so on until you reach government paper.
You have to admit that managing investor perceptions is akin to a choreographic performance of academy award status.
The spin is that this is nothing new at all and has been expected for many months and, as a result, is not a negative for equity investment overall. The Financial TV stations are pounding this out across the airwaves.
Like the Federal Reserve's fortuitous mistake that healed the impact on the equity markets of its hawkish statement earlier this week, congratulations are in order for those whose job it is to manage public perception which as well all know is a keystone of those that support the new economics of Authoritarian Free Enterprise.
There is however a cost to maintaining perspective which is the application of form over substance. That cost was clearly demonstrated yesterday. It can be defined as the “Dollar be Damned” if it is a choice is between maintaining confidence in the equity market and maintaining positive perspective in the dollar market.
The system of Authoritarian Free Enterprise in terms of Federal Reserve management of economic activity is defined as:
1. Maintaining a positive perspective by ensuring the continuation of a positive equity environment which is the most potent perspective engine for the US and world business community.
2. By maintaining a positive feeling and outlook for business, decision makers are likely to be expansive in their business thinking.
3. Expansive decisions by managers will result in maintaining the general level of business conditions and employment expectations.
The management of liquidity in today’s world is a global concept and no longer the insular mechanism it has been since the inception of the Federal Reserve System. Therefore, more hangs on perception than a simple concept of a national economy.
The world will move in tandem, breaking itself down into the Western economy and the Asian economy in the same direction relative to each other. The dance then is all in unison with differences only in the energy level of the participants world wide.
To be able to explain away the junk bond status of GM and Ford is to make it OK for the largest corporation and its nearest rival to run out of cash in 42 months. Now there is an accomplishment that has to get your attention.
The Market that CANNOT be Controlled
The crack in the dyke is this: There is no way that you can talk into the largest market on earth a trend that does not qualify itself fundamentally. The international market in the US dollar turns over $1.6 trillion dollars per day. Yes, you can cause a short term counter-trend rally by catching the short side in an overpopulated condition. But what you cannot do is turn a bear into a bull or a bull into a bear by spin on that great green blob that will in time eat the entire planet.
Conclusion:
The fundamental constitution of the US dollar is putrid. In time, US long debt of ten years and now to thirty years will itself be declared JUNK by interest rates, not Standard and Poors' rating service.
Those of you who have gone long the US dollar and short currencies like the Cando are in for a skinning. Those that have followed the Gold Community advisors who have actually said not to own anything gold have followed false profits.
Those of you who have been run out of your gold shares by professional short sellers - both legal and illegal - are investors and traders whose decisions have been purely emotional and lacking in any common sense.
Here is Kenny Adams take on the markets:
"Gold, silver, and the USDX are still holding fairly well to expectations, as to time and pattern. I continue to think that we are on the very edge of a major move upside for the metals and downside for the dollar.
Rogue
