The biblical parable of the talents contains a timely warning for the gold market. In the story the master distributes his wealth between three servants. The first and the second put their capital to work in businesses and generate healthy profits. The third, scared of losses, buries his share in the ground.
Sovereign downgrade? Been there, done that, got the T-shirt. Such is likely to be the response of any investor in Japan to the news that Standard and Poors has removed its triple A rating on US
The world has come to think of Japan as the economic equivalent of Duran Duran – an over-hyped 1980s phenomenon that has fallen into justly deserved obscurity.
How much more “emerging” have the emerging markets left to do? Probably not much, given the vast amount of capital and hope invested in the asset class already.
The earthquake which struck Japan on Friday with such devastating human cost was powerful enough to shift the earth’s on its axis and move the Japanese land mass six feet. It is human nature to assume that an event of such destructive force must have powerful lasting effects on stock markets too, but that is not necessarily the case.
“What most likely happened was pedal misapplication.” So concluded an official of the National Highway Traffic Safety Administration, the US body which has just published its report on the spate of accidents involving Toyota cars.
Who has survived the global credit crisis in the best shape? As Chou En Lai said about the impact of the French Revolution, it’s still too early to judge. The snap verdict that China is the big winner and the US and rest of the old G7 are big losers is already looking questionable.
Emerging markets used to be known as markets you couldn’t emerge from in an emergency. History is littered with examples of financial disasters in young fast-growing countries, from the Argentinian default of the 1890s to the Asian crisis of the mid-1990s.
By orchestrating a massive appreciation of the yen in the mid 1980s, the US condemned Japan to decades of stagnation and ended the challenge to its own economic hegemony. Effectively Japan was forced to commit financial hara-kiri.
There are not many financial assets that are priced higher today than before the Lehman shock in September 2008. Two that have done investors proud are the yen and gold bullion.