David Rosenberg comments on the latest turmoil:
Quite the turkey fest in the markets with the debt situation at Dubai World (not to
mention the devaluation in Vietnam — shades of Thailand circa 1997? — and the
Fitch credit downgrade of Mexico; and keep an eye on Greece as its bond spreads
default risks have surged too). After being clobbered more than 3% yesterday,
European equities are down another 0.7% so far today and Asia is in the red right
across the board — the Nikkei off 301 points, or 3.2%, to 9,081; the Hang Seng
lost 1,075 points, or 4.8%, to 21,134; China’s stock market is down 2.4% and
Korea shedding 4.7%. This is bad news for the financials (especially U.K. banks
who have the most exposure — $50bln of the total $87bln that Europe has on the
books with the UAE) — the group that led the rebound may well be the catalyst for
the long-awaited reversal.
Commodities are taking a hit too as are the commodity-based currencies (the New
Zealand Kiwi just sagged to a 4-month low) as a renewed shift to U.S. dollars, at
least for the time being, has taken the DXY index back from the abyss and is up
around 50bps today, to 75.34. (The yen is also on fire — classic signpost of risk
aversion.) Crude oil has traded down to a six-week low of below $73/bbl — we feel
that in several areas, including commodities and credit, a fresh buying opportunity
awaits (gold has corrected 4.0%, to $1,138, but it has so much technical support
that no trendline is broken until it tests $960/oz). Retail demand for bullion has
been so strong that the U.S. government has completely run out of American Eagle
gold coins (see the front page story on this in today’s FT).
We also see in today’s FT that even after the latest surge in gold, the fund
holdings in ETFs ballooned to a record 1,766 tons (up 48% for the year). We
have been gold bulls for about 90% of the time over the past decade (we
skipped the 2007 bubble period) but like many other risk assets, bullion is a
crowded trade for now. Don’t mistake this for a bearish call, but more like a
near-term tactical view: we still see gold approaching $3,000/oz before the
secular bull market runs its course.
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