Almost everything is "on hold" while the "coundown" towards a US attack on Iraq reels endlessly onwards. Nobody knows when the count will reach zero and "liftoff", or even IF it will do so. Interestingly, the Chinese government is going out on a limb on this one. The Chinese national television station, quoting the "Egyptian Gazette", has informed the nation that the planned launch of the US war against Iraq will be sometime in the six days between February 23 - 28. This, according to national Chinese TV, is the time frame President Bush has set. According to the reports, Chairman of the Joint Chiefs of Staff Richard Myers, war commander Tommy Franks, and Secretary of Defense Donald Rumsfeld have assured Mr Bush that everything is in readiness and that everything has been done to ensure a war lasting no more than 100 hours.
A vintage joke which was very popular in the late and unlamented USSR went like this:
"In our nation, the future is always certain. It is only the past which keeps changing."
The USSR is no more. But China, which is also in the grip of a monolithic Communist party, is still very much intact. Leaders of a totalitarian dictatorship do not usually use their organs of communication to predict something in advance which cannot later be "fixed". Yet they have seen fit to predict the time frame for Mr Bush's war with Saddam. This does not for a second mean that the Chinese dictators actually ARE as infallible as they proclaim themselves to be. It is nonetheless an interesting development that they should put their "infallibility" on the line in such a manner. We will see.
Meanwhile, most economic markets have been frozen in aspic. US stock markets are running on the spot. The Dow has been playing "footsie" with the 8000 level. It closed the week just above 8000 at 8018 after a 106 point rise on February 21 brought about by "book squaring" as options on stocks and stock indexes expired. The $US index has closed the week at 100.25 - exactly the same level as it closed the previous week. And Gold on a spot future basis closed on February 21 ten cents lower than it had closed a week ago on February 14.
The US Treasury reports two separate debt levels. On Friday, February 21, their "debt to the penny" report put Treasury debt at $US 6,446 Billion. But their "debt subject to limit" report put the debt at $US 6,399.975 Billion. The "debt ceiling", as you probably know, is $US 6,400 Billion. As you can see, the Treasury's "debt subject to limit" is now $US 25 million below the ceiling. Not so coincidentally, this is precisely the level at which it was frozen back in June 2002 in the lead up to the last debt ceiling hike - $US 450 Billion to its present $US 6,400 Billion level.
The Treasury has been in urgent communication with Congress to tell them to quit stalling and raise the ceiling. This time, no "numbers" have been mentioned. The Treasury has simply told Congress to raise the ceiling by an "appropriate" amount. Meanwhile, Mr Greenspan has chimed in by suggesting that the ceiling should be done away with, since it does not seem to have served the purpose for which it was designed.
At any rate, the Treasury is about to start skimming government pensions and closing national parks again, while the Congress tries to decide whether to scrap the ceiling, to turn the raising of the ceiling into a political circus (not the greatest idea when the nations trembles on the brink of war), or just to lift it on the quiet and hope nobody notices.
If somebody DOES notice, the US might have a problem. Mr Bill Gross of Pimco has estimated that as of January 2003, "foreigners" held $US SEVEN TRILLION worth of US financial assets. This total includes 13% of the US stock markets, 14% direct ownership of US companies, 23% of US corporate bonds - AND - 35% of the US Treasury market!
Unlike Teddy Roosevelt, the current US President is walking as loudly as he possibly can, but on the other hand, Dubya carries a bigger stick than Teddy could have imagined in his wildest fantasies. Up until fairly recently (the $US only started falling in earnest in mid 2002), the "stick" was not necessary to keep foreigners from selling US financial assets. Quite the contrary, foreigners were falling all over each other to buy MORE US financial assets. But that is, sadly, no longer the case.
It has been calculated that, given the fall of the $US against the Euro last year, a European invested in the US S&P 500 in 2002 would have lost 38% of his capital while an American, who did not face the currency exchange risk, would have lost "only" 24%. This type of performance was typical of many US investment assets last year and it has been wearing on foreigners severely.
The flow of foreign investment into the US has indeed dried up, but that inflow has not yet turned into an outflow. It is a tragic fact that, just as it is the ultimate threat of force, confiscation, and imprisonment which allows the IRS to go on collecting taxes, it is the ultimate threat of Mr Bush's "big stick" which is "discouraging" foreign investors from fleeing from US investment markets en masse.
How long this can be prolonged is impossible to tell. But look at what is going on. There have been record monthly and annual trade deficits, a 13 year high in the US monthly producer price index, totally unsustainable budget deficits as outlined in Mr Bush's 2004 budget, and now another rise in the Treasury's debt ceiling less than eight months after the previous one. All this is adding up to a sum, and the total is a CERTAIN pratfall in the US Dollar and, as a result, in ALL classes of US financial assets. It is just a matter of time, even if foreign investors are "persuaded" to hang onto their US assets and are thereby dragged down with everyone else.
Gold was reflecting this situation until 2 1/2 weeks ago. Then, aided and abetted by margin requirements being boosted by 50% in both the US and Japan, the bottom fell out. As we said here last week, in the first stages of bull markets, the corrections are usually both faster and more violent than the previous upmoves. That is especially so in an investment which is NOT on the "approved" list of the US financial powers that be. It would be bad enough if foreigners abandoned US investment assets for assets denominated in their own fiat currency or somebody elses' fiat currency. It would be MUCH worse if investors, foreign and domestic, abandoned financial assets altogether, for Gold.
Because that "cannot" be allowed to happen, it will not happen until their is no conceivable way left to prevent or further postpone it. The problem (for the powers that be) is that given the present financial situation, inside and outside the US, there is no conceivable way to prevent it, it can only be postponed Gold is and remains in a PRIMARY bull market. It is now simply a question of whether this correction has already bottomed, if not, how deep it goes, and once it HAS bottomed, how long it lasts.