The miasma ("fog" is much to innocent a metaphor in this context) of war has descended in thick choking clouds, successfully obliterating anything except the latest "report" on US progress towards Baghdad from the world's news media. Waiting impatiently for the "shock and awe" attacks which they were led to believe would be the opening act of the war, media in the US and elsewhere have little attention to spare to be either shocked or awed at what is going on away from Iraq. Now, of course, the "shock and awe" attack on Baghdad has taken place, since the Iraqis have not yet had the good sense to give up.
It is a very telling fact that neither shock nor awe attends the openly announced subsidiary efforts now being made to make all the right things go up and all the wrong things go down on global investment markets. Nobody is in the least surprised that this is happening. Some, however, are quite disconcerted that it has been so successful - so far at least.
We are not going to go into any kind of "war analysis" here. If you live anywhere that is within reach of US media - and EVERYWHERE is within reach of US media - you are being bombarded with "war news". Here in Australia, one of the charter members of the "coalition of the willing", one does not have to go to CNN etc - the local media can and are talking about nothing else. This is true, interestingly enough, even though today (March 22) is election day in the most populous state in Australia - New South Wales. Suffice it to say that it is all but impossible to find out what is ACTUALLY going on.
So, let us return to things economic, financial, and monetary. Here is a quote from Japanese Chief Cabinet Secretary Yasuo Fukoda:
"There was an agreement between Japan and the US to take action co-operatively in foreign exchange, stocks and other markets if the markets face a crisis."
This "deal" was made last week (March 10-14). Consider the level of various "foreign exchange, stock, and other markets" during that week and see if you think that the parties to the deal - the Fed and the Bank of Japan - would see a "crisis" looming.
Now, here is the performance of these three investment indexes updated to Friday, March 21 - just over a week after the Japanese Chief Cabinet Secretary openly announced a deal for co-operative action - "just in case"
It doesn't take an advanced degree in technical analysis to see just WHICH markets have been the prime beneficiaries, so far, of this "co-operative action". In any rebound, American investors would certainly have pushed their own indexes far higher far faster than would their Japanese counterparts. American investors, and those who still look to the US for their investment positions, STILL harbour a tenacious "faith" in their markets.
Indeed, there is no proof that any "manipulation" has occurred, although Mr Fukoda has assured anyone who doubted it that intervention would occur if "necessary". It is entirely possible that this HUGE bounce in US stock indexes and in the $US is market action - much of which is, of course, frantic short covering. Faith in US markets has been hung onto to an extent which, as far as we know, has few if any precedents in past financial history.
And Gold since Mr Fukoda made his remarks? Well, take a look at this chart. On March 10, spot future Gold closed at $US 354.80. On March 21, Gold closed at $US 326.10 - having fallen by $US 10.10 over the previous two days and having fallen below its 200-day moving average. See the line of "O"s at the right of the chart. That is what Gold has done since March 10.
If really doesn't matter whether the actions foreshadowed by Mr Fukoda have taken place, or if the huge rebound on the paper markets, and the swan dive in Gold (and silver) over the past two weeks are purely a result of deluded "market action". In either case, the fact remains that the actual economic, financial, and monetary condition of the US (and Japan for that matter) has NOT improved just because the US is at war. They have in fact become worse, and the outlook, especially after the US has to begin to "wage peace" will see them become worse still. This will remain the case whether the Fed and the Bank of Japan get together to intervene or not. And it will remain the case no matter how fervent their intervention becomes.
Now, consider this. The fact that the US (and the UK and Australia) have increased their chances of being hit by terrorist attacks by waging war on Iraq is so obvious that it has had to be denied on numerous occasions by the powers that be in those nations. In the US and in Australia, the mechanism chosen to "protect" the people from such attacks is to remove by main force that which they once thought of as their "freedom". In the US, the Patriot Act Mark II is on the table. In Australia, the second version of the ASIO bill is presently (and thankfully) stalled in the Senate. The fact is, of course, that there is NO WAY to "protect" against terrorist attack, no matter how draconian the government becomes.
Now, to see this "principle" of swapping freedom and independence for a nebulous "security" in action in the financial realm, consider again what has happened over the past two weeks on US and world "markets". Stock markets and the US Dollar have boomed. Gold, the only ultimate protection AGAINST government interference in markets, has dived. This too, is giving people a false sense of financial security, for which many are apparently willing to give up both their ability to control their own financial destiny and even, in many cases, their capacity for independent thought and action.
There are many casualties of every war. Truth is one, morality another, and of course there are the human lives lost and the property destroyed. All of these things are inevitable, there has never been a war in which they did not occur, to a greater or lesser extent. Tragic as all these things are, the most tragic consequence of war is the fact that too many people disconnect their critical and evaluative faculties for the duration. It has been well said that those who will not stand for something will fall for anything.
While the prospects of a war with Iraq were still cloudy, the influence of the dire state of the US financial and economic situation held sway. The Dollar dived and Gold rose and Rose and ROSE. Then, in early February, Secretary of State Powell was dispatched to the UN to make the case for war. This he did NOT succeed in doing. No matter, ever since that gauntlet was thrown down, Gold has been retreating. Once it became crystal clear that war was imminent over the week of March 10-14, Gold's descent accelerated.
Now, we have had the ultimatum for war, the start of war, and the delayed "shock and awe" phase of the war. In $US terms, Gold has given up nearly ALL its gains since early December. We are almost back to the $US 325 "ceiling" which confined the Gold price between mid 1997 and December 2002. The 200 day average has been penetrated. Given all that, the Gold bull market is intact with the uptrend still not having been penetrated. At this point, about the only escalation on the horizon would be a US military setback, and that would not be "bad" for Gold except with the most exceptional manipulation.
The possiblity for that manipulation exists. There is no doubt of the fact that the US will "win" this war. In 1991, the ground war took 100 hours. The present conflict is now approaching that duration and will have exceeded it by the end of this weekend.
How long the US can keep all the balls - geo-strategic, military, financial, economic, in mid air is impossible to predict. What CAN be predicted is that the longer the facade can be maintained, the worse the shock when it is finally ripped away. And ripped away it will be. As Bugs Bunny once said, after having sawn of the branch he was standing on and watching the tree fall down - "You can do anything in a cartoon".
It's easy to laugh at cartoons. It's easy, but requires a bit more knowledge and hardness of mind, to laugh at suited buffoons who prattle about such things as a "strong Dollar policy" while practicing monetary and fiscal policies which guarantee an ever weakening currency. It is hard, however, to maintain an overview and a devotion to reasoned analysis in the face of the kind of fantasy which is now being paraded before us. Hard, but necessary. The "price" of Gold has long been much more than just a measure of profit and loss. It has measured the desperation of those who want to block off any avenues of escape from the depradations of a state run amuck, That's what the "reverse Gold barometer" we have been talking about in recent commentaries actually measures. It is measuring it again, in spades.