The Calm Before The Storm

The earth shook this week. For some, on the east coast, there was a 5.8 tremble. I didn't feel it because, like always, I missed the party for being upstate. For others, the tectonic shift was Steve Jobs resignation and/or Libya's Ghadafi firing....literally, even his traveling tent went up in smoke, poof! For me, it was seeing that my portfolio is actually in the green for once.

The markets ended the week happy as we await the next big natural disaster to hit our coast, Hurricane Irene. On one international business news web site, the top economic stories included the weather forecast and Burger King adding a new sandwich, the California Whopper. It’ll be interesting to see what kind of impact, if any, Irene will have on the markets come Monday. Disasters in the past, such as Japan’s earthquake and the tornadoes in the Midwest, have effected the markets only because of what those specific regions produced. Japan slowed down manufacturing and the Midwest bit into commodities. There may be a slight reactionary slip in the Dow, the workplace may close for a day and the MTA is taking off, but what does New York City really have to lose, as Wall Street prepares to work from home over the next few days.

The impending drama of a hurricane is giving investors a needed break to focus on, well, life. There has been little mention of global meltdowns, kicking cans or soft patches. Other than the Fed peeping out of his hole to tease the markets with the possibility of further action, and the IMF keeping the focus on banks, we’re all just taking in the calm before the storm.

Gold Digger

Women in India, collectively, hold more gold than the U.S. Federal Reserve, is what the World Gold Council’s Managing Director for Investment said on CNBC a couple of days ago. Of course, he meant to say the U.S. Treasury, but that's beside the point. Gold has been hitting record highs as of late. Even Venezuelan President Hugo Chavez is running for the pot at the end of the rainbow. He's said to be looking to nationalize his country's reserves. People buy gold for mainly two reasons: fashion and fear.

There has even been chatter about going back to the gold standard in order to solve the global debt crisis. The U.S. is the largest holder of physical gold, outside of the typical Indian household. We dropped the gold standard – dollar to gold – several decades ago out of fear that foreign holders of our currency would cash in for the metal and bankrupt the nation. Today, our biggest fear is that China will cash in their bonds and send us right down the river. It seems that we may be working our way to a debt standard.

So, why don't we bounce back to gold standard? Instead of holding and buying debt, banks would be dealing with something a bit more tangible than an IOU slip. First, we have to understand that gold does not have any intrinsic value, it's price is based on market sentiment. Gold is priced to how we feel. It's like a mood ring of sorts. Going back to the gold standard now would mean having to bring up the value of gold, which has been kept at artificially low levels even in the face of inflation. This would sink the dollar while making foreign reserves more viable. It's the us or them scenario.

On an individual level, Indian women may have the answer stockpiling their matching gold sets in their closets and banks vaults. While the gold necklace does make that sari look fetch, it also loosens the economic noose we have around our necks.

Finance & Famine

Two different shortages of capital: bank reserves in Europe and water in Somalia. 

For countries like Italy and Portugal, the catastrophe is man made. The situation is dire in that it's symptomatic of a global economic meltdown. We've come to realize how thin a wire our governments our walking when creating the illusion of fiscal responsibility. Whats at stake are jobs, houses, livelihoods. One slip could derail the rollercoaster ride our markets are currently riding.

In Somalia, the drought, and subsequent famine is natural, though a case can be made for it being our fault too. The capital is water and crops. There will be no bailouts or restructuring. Nations will not hold emergency meetings and presidents will not address the situation from their podiums. It's not the first time whole villages have starved, nor will it be the last. The loss will be in the thousands, not trillions; lives, not budgets. But, in the end, Somalia will subsist. The tragedy will be a headline buried with the bodies of so many.

Please help Somalia by contributing either through the link below or one of your own choice.

http://www.irusa.org/

On the one hand, we have the analysts, economists and editorials downgrading Standard and Poor's ability to rate anything above a used car. And on the other, investors are fleeing, and I don't use that term lightly, the stock market and sinking their reserves into the very thing that S&P is downgrading, bonds. So, it's pretty safe to say that today's market plunge is less about the downgrade and more about skiddish market sentiment running amuck on a possible recession. 

When S&P released the downgrade announcement on Friday, everyone must have rolled their eyes and continued their already frantic pace selling off stocks. That's how I pictured the scene. S&P's downgrade was expected, with Fitch and Moody's rating agencies still holding on to their cheerleader status on US debt. The chatter today is saying the downgrade is more a rip on U.S. politics, than the government's ability to pay. 

S&P's exact words were, "The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy"

Someone remind me, where exactly do the ratings agency fall in the whole check and balance scheme that we learned about in 8th grade social studies?

Regardless, the inevitable blame game ensues. Politicians point their fingers at each other and then at the rating agencies. Not that's its not deserved. The agencies' biggest sin to date is supporting the mortgages-backed-debt that pushed this economy off the ledge. So why are they still determining what's worth buying? And why are we still listening? If not them, than who will we listen to? China?


Next time, we're hopping back over the pond with France's possible downgrade on the horizon. Merci.

Four Walls and a Ceiling

Apartment hunting is a little bit like dealing with a trillion dollar deficit. One has to prioritize.

Can I afford to lift my rent ceiling in order to live close to work in an apartment where i don't trip over the heating plate in order to use the bathroom. I'd have to cut spending, live without internet, cable and eating out. I won't be saving much, but I'd enjoy my space.

Or should I try to save money this year? It would mean a much smaller space, but in the longterm, money saved means more space to maneuver next year. I could even splurge on  Internet. But, the claustrophobia now would limit my desire to stay home. I'd be miserable. The lack of a decent kitchen means I'm eating out more. So, am I really saving?

My apartment search and the U.S. debt crisis ended in the same way. It came down to the wire, but we decided to raise the ceiling. As a county, we save by spending. This is the cost of living the 'baller' life. 

Next week....downgrades and market volatility. 

Welcome back!!!