It seems like only yesterday that people were saying, What downgrade?—the market is back! And then today’s headlines came along (from The Wall Street Journal):
- Europe Moves to Halt Crisis
- Banks Lead Stocks’ Fall
- Gold Rises on Growth Fears
The Dow opened lower today and struggled all day to make it above water before ending down 76 points. Why?
Currency. That’s the word of the day.
There is a real problem in Europe. Seventeen countries participate in the euro but only a handful contribute to the region’s growth and stability. Germany, the largest and most vibrant market in the area, grew a pitiful .1% in the second quarter. With lackluster growth like that: How long can Germany continue to bail out the rest of the Union?
Or better yet: How long will German taxpayers continue to fund irresponsible governments (Italy, Spain, Portugal, and Greece) that entitle beyond their means?
The word “crisis” in the first WSJ article mentioned today refers to a crisis in currency, a crisis in central governance and monetary policy.
Today in America, and in the face of breakout earnings from Wal-Mart and Home Depot, banks led the Dow down. Why?
Currency is their product of trade.
Lenders are skittish, the economy is soft, and banks are sitting on stockpiles of cash. They’re scared to lend it, and with the signs of inflation appearing on the horizon, only the likes of Johnson & Johnson, Google, and Texas Instruments can get their hands on it. This limits market potential — and bank profits.
This, not to mention, that it’s extremely difficult to make money when your main product of trade consistently depreciates. Bad monetary policy is what caused banks to lead the Dow down. There’s simply no money in money right now.
And that’s why gold continues to soar, now trading around $1,790 and ounce. It’s a money hedge. So as long as monetary policy remains irresponsible, expect gold to keep rolling.