Larry Kudlow Sets the Record Straight

 

Wondering why they seem to pull all of the stops out of the dollar value?

 

I sit here in Europe watching the “early’ market in the dollar and see it freefalling to nearly $1.22 per Euro on Bloomberg’s European satellite channel and can’t help but wonder what the problem is.  But to sooth my battered instincts, I was helped to the real scoop by a quote from Lawrence Kudlow, thanks to the help of J. Christoph Amberger of the 247profits-e-dispatch.  Kudlow, surprise of surprises, has stuck his finger in the wind and felt nothing but warm, tropical breezes from here on in:

 

"The cheapest currency in the world right now is the US dollar.

Watch the greenback strengthen significantly in the years ahead.

High after-tax investment returns, breathtaking productivity

gains, totally awesome profitability, virtually no inflation and

historically low interest rates tell this tale. So do falling

unemployment claims and rebounding manufacturing indexes. A

University of Michigan think tank just predicted a 5.4 percent

unemployment rate for 2004, a 4.8 percent rate for 2005 and 5.2

million new jobs over the next two years.

 

"Of course, inflation worriers point to today's high gold price

(gold is a proven inflation metric). But gold, now near US$400

an ounce, is US$50 too high. Money is not all that loose: The

Federal Reserve is in a mild excess-reserve position, exactly

where it should be as we turn from deflationary recession to

reflationary recovery."

 

I am grateful to dear old Larry for these pearls, first for his confidence in a quick dollar turnaround and second, for having set me straight on what the real price of gold is –or better, should be, since the last I looked it was trading at $3 over the magic $400 mark.  Of course, I don’t know what a mild excess-reserve position is but I trust it has something to do with the money supply.

 

Being the paranoid gold investor that I am and being fully aware that there is always a chance we will see Greenspan wave his magic pinky thereby setting off a major seller of the yellow stuff (it wouldn’t be the first time, according to some very knowledgeable players).  And maybe Kudlow is in on the info.  After all, he is a loyal soldier who has profited mightily in the past from his connections inside the Beltway.

 

As I’ve said before, investing in gold is a little like pissing into a virtual wind.  Most economists will tell you it is just another commodity and an anachronistic one at that since the amount of demand for industrial gold is quite small and even much of that gets recycled when the gadget its non-corrosive characteristics protect, gets thrown into the ashcan.

 

But somehow Ludlow worries about the price of gold, and even goes so far as to say it is a proven inflation metric.  If it was, BTW, it would not have gone into its 20 year swoon in the 89’s and 90’s unless, and you can correct me, that was an inflation free period.  No, gold is something else.  It’s money!  Bring any gold gee-gaw into a jewelry shop that buys old gold and the jeweler will weigh it and base his price on the purity and weight of the object.  Gold stores value, as they used to say.

 

So when the dollar goes down gold goes up.  Even Kudlow contradicts himself by noting that we are experiencing “virtually no inflation” (his words, not mine).  Yep, maybe gold demand will rise in the coming years as China and India step up their economies and new consumers are born.  India is by far the highest gold consuming country in the world and with all those back-office IT jobs moving there some of that wealth is bound to turn into gold bangles and bauds. 

 

My guess is that we are still in the early stages of a secular gold bull market but I do believe that the powers that be in Washington are whispering more than sweet nothings in Kudlow’s well-scrubbed ears.  We might have to get ready for an attack on the price of gold as it approaches its last historical high point of $416.  That was the high water mark back then and it may turn out to be where the line in the sand has been drawn by the invisible hand of the Fed.

 

You can be sure we will be watching closely and looking for signs of manipulation.  On the bullish side, the chairman of one of the largest gold mine holding companies in the world, Peter Munk of Barrick Gold, has announced that henceforth he will stop forward hedging –something that has protected his holdings over the long dips.  In the past the large hedge books, as they are called, of the major gold miners like Barrick, have been seen as a damper on the market.

 

Watch out for fun and games ahead.

 

Still reporting from Rome, where the US markets don’t open until 3:30 PM my time and bemoaning the falling dollar every time I look at my Amex statement,

 

Regards,

 

rmb

 

dymaxionweb@verizon.net

 

Copyright 2003 Richard Mendel-Black All Rights Reserved

 

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