Where have we seen this before? Oil prices continue to drop against of backdrop of economic Armageddon and in Germany, people are paying banks to hold their money! The US yield curve flattens like a pancake as panic is around each and every turn. Trying to find safe harbor means more than returns as the globe looks like we are getting ready for a deflationary death spiral. Yikes, it's 2008 all over again! The start to summer 2012 has so many comparisons it is almost eerie. It is like we are living the same nightmare all over again. Of course if this is 2008, we should know how the story ends and that is a massive global shot of stimulus the likes of which the globe has never seen!
Now of course you can argue that the last shot of stimulus really did not fix anything because obviously we are almost back to where we started. Perhaps we shuffled the risk deck and kicked the can down the road, so you have to wonder whether this next shot of stimulus will also have a limited shelf life, but let’s face it, the global central banks really have no other choice.
Well, maybe they do. They could let the Eurozone fail and cause a world-wide financial panic. They could allow unemployment to soar to all time record highs and allow the global economic system to collapse. Now this of course would fix the problems once and for all but the collateral damage caused in the aftermath of the collapse would so panic the globe that government leaders would never dare go down that road.
Of course at some point after propping up the economy with ink and mirrors, their magic may wear off and the market forces may just on its own do what I am afraid at some point will have to be done. Yet in the meantime get ready for another massive global money printing party. With U.S. data being weak on ADP and much weaker than expected Chicago Purchasing Managers (despite the fact that that number may have been skewered lower due to the NATO summit) the U.S. looks as if it is slowing. In China a weaker than expected manufacturing number is almost screaming for stimulus. So if U.S. monthly jobs data disappoints, the odds for economic shock and awe will rise dramatically.
Looking back it’s weird because the U.S. is still the safe haven. In the beginning of this crisis, if you remember, everyone thought the U.S. was the problem. They thought the euro was the new global reserve currency as the geniuses in Europe with their awesome currency had decoupled from the U.S. and their failing sub-prime addled banks. Even Gisele the Super Model wanted to be paid in euros instead of worthless dollars. Oil producers and buyers like Russia and Iran were pushing to switch the pricing of oil into euros as they feared and celebrated the dollars demise. Dollar based commodities soared as the dollar sank and the globe wanted nothing to do with a failing greenback. Europe was raising rates and the late great United States was lowering them.
Now of course the U.S. Dollar Index in this latest crisis is the best performing currency. Once again King U.S. Dollar reigns at least until we start the printing presses and based on the yield curve, that could happen at any minute.