Fire Sale of the Century
Is the dollar's recent strength justified? Or a sign of increasing desperation...
What a time for our Head of Research –
Adrian Ash - to take a well earned holiday!
After a torrid week for oil and gold it
seems the dollar is off the resuscitation table and bouncing back to
vigour at the expense of most of the rest of the world.
But is this a voluntary vote of
confidence in the world's reserve currency?
Are the world's investors really
clamouring to buy dollars yielding 2% and inflating at 15%?
Or to buy up bargain U.S. assets just as the U.S. enters recession?
Or ... are they being forced to
liquidate any and all leveraged or long-term investments in order to
pay their immediate debts back at home?
Somewhere, somehow the continuing
billions of losses reported by the likes of Freddie Mac, Fannie Mae
and all too many banks need to be accounted for – but where to
First they went cap in hand to
sovereign wealth funds, investment banks and private equity houses
for quiet assistance in exchange for cheap shares. These monster
funds thought they had a bargain, but the shares weren't cheap enough
to earn a profit for long.
Then - taking a cue from Ben Bernanke –
they tried to print their way out of trouble by force feeding new
shares to their existing investors. UBS started this mini fashion, with its share price actually rising as a result, to some surprise. But the stock markets have
swallowed all they can handle – as seen with the UK's HBOS take-up of only 8% of new shares.
So, what's left? Major stock markets
are only just off recent lows, so perhaps they've reached the time to
start selling the real assets as a last, desperate attempt to stay
afloat. Reluctantly pawning off their best performing investments
over the past 5 years.
Then, as they liquidate everything to
hand, prices drop and the resulting dollars flood home. But like any
closing down sale the results may be one-off and rather final.
Keep an eye open for bargains...