Dr. Richebächer spricht Klar-Text:

verfasst von Emerald, 30.07.2003, 07:25

-->AN OPEN MOUTH

By Kurt Richebächer

The people who expect a double dip or worse in the United States certainly
represent a small minority. Among policymakers and economists in America, it
is a virtual consensus view that the Great Depression of the 1930s as well
as Japan's present, protracted economic quagmire have their decisive cause
in one crucial policy mistake: both central banks were much too slow in
lowering their interest rates when the economies began to weaken.
All this really boils down to one key question: When do central banks make
their decisive mistake? Is it during the boom and the bubble? Or is it in
their aftermath?

Convinced he had learned from history, Mr. Greenspan slashed the Fed's
federal funds rate with unprecedented speed from 6.5% to just 1%.
Establishing thereby a steeply sloped yield curve, his aggressive rate cuts
had sweeping effects also on long-term rates, as investors and speculators
stampeded into highly leveraged purchases of higher-yielding longer-term
bonds.

In principle, central banks have but two instruments at their disposal to
influence money and credit growth with the ultimate aim to curtail or to
stimulate economic activity: adjustments in bank reserves through open
market operations; and adjustments in its key short-term rate or rates.
Yet there is still a third, unconventional instrument of which central
bankers have made very different or no use of at all. It has sometimes been
called a central bank's open-mouth policy. Mr. Greenspan is definitely the
world's one central banker who has practiced this extraordinary tool with
unusual abundance and aggressiveness. He, apparently, regards it as
perfectly legitimate for a central banker to bend expectations in the
economy and the markets in a direction he wants.

During America's boom and bubble years, Greenspan was effectively the most
prominent and also the most pronounced New Era Apostle. In various speeches,
he developed arguments or"theories" plainly rationalizing and fanning the
euphoria in the stock market.
In his famous Boca Raton, Fla., speech on Oct. 28, 1999, just a few months
before the stock market's crash, he suggested that the unprecedented equity
valuations seemed to be the appropriate response of investors to the
economy's advanced information technology:

"The rise in the availability of real-time information has reduced the
uncertainties and thereby lowered the variances that we employ to guide
portfolio decisions. At least part of the observed fall in equity premiums
in our economy and others over the past years does not appear to be the
result of ephemeral changes in perceptions. It is presumably the result of a
permanent technology-driven increase in information availability, which by
definition reduces uncertainty and therefore risk premiums. The decline is
most evident in equity risk premiums.

"But how long can we expect this remarkable period of innovation to
continue? Many, if not most, of you will argue it is still in its early
stages. Lou Gerstner (IBM) testified before Congress a few months ago that
we are only five years into a thirty-year cycle of technological change. I
have no reason to dispute that."

Having learned nothing from his past blunders, Mr. Greenspan is at it again.
To quote Fed mandarin Vincent Reinhart:"The Federal Reserve has always
appreciated the importance of correctly aligning market expectations."
Putting it rather more bluntly, the Fed endeavors"to manipulate market
expectations in the direction that the Fed desires."

During the late 1990s, Mr. Greenspan was keen to foster the stock market
bubble by aggressively manipulating both market rates and market
perceptions. After the equity crash of 2000, he has become keen to foster
the three new bubbles he kindled in fighting the burst of the stock market
bubble - the house price bubble, the mortgage refinancing bubble and the
bond bubble.

Together, these bubbles are plainly indispensable for maintaining some zip
in consumer spending.

But among the three bubbles, one is of crucial importance because it drives
the other two. That is the (now hard-pressed) bond bubble. Refinancing
activity tends to pick up significantly whenever mortgage rates drop below
previous lows. Importantly, Treasury yields guide the movements of mortgage
rates. In essence, it was the sharp drop of Treasury yields over the past
two years that led the simultaneous, steep decline of mortgage rates. The
recent, renewed sharp drop in Treasury yields gave mortgage refinancing
another strong boost.

Within barely six weeks, 10-year Treasury yields plunged from close to 4% to
close to 3%. In sympathy, mortgage rates fell to 5.21%, the lowest rate in
more than four decades.

The astonishing thing about this sudden decline in market interest rates was
that it happened at a time when the stock market was, on the contrary, being
carried upward by spreading hopes for the economy's imminent recovery. What
happened to make this new, sharp decline of longer-term interest rates
possible?

In its May 29 editorial, The Wall Street Journal praised the Fed chairman
for his wily gamesmanship."Merely by talking about deflation, he's made the
markets anticipate easier money; long-term interest rates have fallen
accordingly, helping to keep housing prices afloat and to spur one more
round of home mortgage-refinancing. This in turn feeds consumer confidence
and helps keep the post-bubble economy growing. As a monetary gambit,
uttering the word deflation has so far been a great tactical success. We
suppose that's worth the price of scaring people about an economic threat
that isn't very likely."

In short, being assured by Mr. Greenspan and other Fed members that there
would be no interest rate hike as far as the eye can see, investors and
speculators, desperately hungry for big profits, stampeded into heavily
leveraged bond purchases, giving through the sliding yield a new strong
boost to mortgage refinancing.

Closer to the truth: In the guise of worrying about the evil of deflation,
Mr. Greenspan signaled to the marketplace his determination to accommodate
unlimited leveraged bond purchases. Investors and speculators complied with
enthusiasm, giving long-term rates another sharp downward tick. Implicitly,
in a country with negative national savings, any decline in market interest
rates can only come from financial leveraging.

In this way, the last bit of restraint on financial leverage and speculative
excess in the markets was effectively removed. Endless liquidity is
available for the taking by the speculating financial community. The obvious
result is a credit and bond bubble that meanwhile has vastly outpaced the
excesses of the equity bubble.

The fundamental dilemma today is that undefined by every method available -
the Greenspan Fed and Wall Street are making desperate efforts to sustain
unsustainable bubbles. Of these, the belabored bond bubble is now our
greatest fear. Its influences have pervaded the whole economy and the whole
financial system, and its bursting may have apocalyptic consequences.
Regards,

Kurt Richebächer
for the Daily Reckoning
....................................................................................................................................

Dear Russell,

A friend of mine who is a subscriber to your service sent me the following excerpt from a recent market commentary of yours:

"I'm not a fan of the South African government. These are good
mines, but the S. African mines are heading for a possible strike, and the S.
African government wants to be a"partner" in the gold mines. I have a
position in Harmony and Durban, but I'm not excited about these positions. I'm
thinking about switching these stocks to Newmont. But I haven't moved yet."

As a South Africa 'veteran' (i've lived 10 years in SA and spent several of those trading on the JSE), i feel compelled to briefly comment and perhaps help to clear up the issue a bit. i'm not a big fan of the SA government either - but it is the cream of the crop in Africa. its economic policies are by and large market-orientated, and its central bank is far more conservative than Greenspan's"print as much as you can" outfit. it is true that recent legislation aimed at addressing perceived economic wrongs dating from the apartheid era amounts to a bit of social engineering that SA would probably be better off without. but the government does NOT want to be a 'partner' in the mines as you put it. it merely mandated a racial quota w.r.t. to mine ownership, and gave the mines ample time to implement it. this sounds threatening, but in reality it isn't. in fact, the major producers have all already implemented the requisite transactions, and it is important to note that those t!

Transactions were all done at fair market prices. essentially, black-owned mining consortia have taken stakes in the major producers, or alternatively entered into joint ventures with them, but not on conditions that were any different from what comparable free market transactions sans compulsory legislation would have looked like. in other words, shareholders were not cheated, which is quite different from the way things are done in e.g. Zimbabwe and many other African nations. the big rally in the SA Rand over the past year speaks for itself: foreign investors have confidence in South Africa and its economic policies.

of course the strong Rand also hurts the earnings of SA based miners in the short term. but the fact remains that these mines harbor some of the biggest gold deposits in the world, and due to the marginal nature of many of their assets they have extraordinary leverage to the gold price. just to give you an example as to why serious gold investors simply can't overlook the South Africans: one of GFI's flagship mines, Kloof, has 20 million ounces of gold 'below works', i.e. right underneath the existing infrastructure of the mine. these ounces are not mentioned anywhere as resources or reserves, but they are there. i can name 10 mid tier NorthAm producers that don't have as much gold in the ground TOGETHER as Kloof has 'below works'.

as an aside, there are few things more overstated in the course of investment history than 'political risk' in South Africa. the fact is, SA's mines have paid dividends to their shareholders without interruption since the 1880's, even through the world wars, and all sorts of political upheavals, external as well as internal. the last miners strike was in the 1980's, almost 20 years ago. the recent strike threat once again proved to be nothing but brinkmanship by the NUM, a negotiation ploy basically (just as Durban Deep ALWAYS threatens to close down its mines when wage negotiations are underway).

in my opinion, although the SA gold producers are currently out of favor with the investing public, there can be no doubt that they will regain their leadership position if/when gold continues to rally (as both you and i expect it to). one should look at the current bargain basement prices as an opportunity rather than something to be feared. leadership in bull markets changes frequently, and my hunch is that the South African stocks will come into focus again once the coming quarterly earnings reports (which will be bad due to the strong Rand, but still better than those of 90% of their North American competitors aside from perhaps NEM) are out of the way. currently these stocks are discounting the end of the world, which is basically silly. but that's how markets often are...they exaggerate both on the upside and on the downside, and these inefficiencies are what allows us judicious investors to make money after all.

unquote:

Goldfields und Harmony (Durban) leiden gerade noch etwas unter den Lohnanpassungen, aber die jetzigen Kurse sind - a real bargain - meint
Emerald.

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gesamter Thread:

• Dr. Richebächer spricht Klar-Text: - Emerald, 30.07.2003, 07:25
  • Hoppla! da kam noch ein Fremd-Artikel dazu (Goldminen in SA) auch interessant! - Emerald, 30.07.2003, 07:51