“Make no mistake — the problems in Greece are mirrored in places like Portugal and Spain — this is not about liquidity, like Bear Stearns and Lehman, it is a crisis in confidence (Banco Santander, widely seen as a barometer of financial health in Spain, cratered 7% yesterday). The FT reports today that there has been some market chatter that Spain has been “negotiating” with the IMF for assistance (€280bln) too. History shows that crises over confidence are tougher to repair over the near-term than liquidity crunches. The fact that Greek short-term bonds have collapsed in price even more — even though the country does not have to come to the market for the next few years so long as Germany comes through after the vote — is a case in point,” he writes.
“When investors lose confidence in currencies, because the pool of gold is so much smaller than the pool of currencies, demand for gold can effectively become unlimited,” said JP Morgan’s John Bridges.
And from James Melcher, Balestra Capital: We view gold as potentially the best currency; an ongoing portfolio theme based on the probability that central bankers in the U.S., Europe and Japan will continue their efforts to stimulate their economies with excessive monetary easing (printing money), while ignoring for the time being the dangerous fiscal ramifications. While deflation is the current problem, these policies increase the risk of a sudden turn to inflation. Without the return of significant global growth it is possible that we get the worst outcome in the form of stagflation. For example, oil and other commodity producers may start to demand higher prices in debasing currencies even though unemployment remains high and wages are stagnant or falling. Our analysis of commodities markets indicates that this effect has already begun.
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