Goldman Takes A Stab At Gold Bugs And 'Oil-Peak'ers, Says Dollar Will Flourish
Several observations out of Goldman's Investment Strategy Group which seek to allay fears that even if the Fed were to print another few trillion dollars, the greenback would still reign supreme, never mind that all the currency in circulation now (secondary Fed liability after excess reserves), one could argue, is more than 100% backed by MBS on the asset side of the equation (or in other words, diluted by more than half from solid, and real AAA-rated securities). Goldman is also taking a stab at gold-bugs, claiming that all reports of the dollar's demise are not only premature, but borne out undue fatalism, and in fact are deja vu. Yet is this time really not different?
GS highlights the ever increasing dollar denominated FX reserves. One thing missing on the chart is the Fed and the GSE's intervention, whose public onboarding of assets (through direct purchases and explicit guarantees) far in excess of the $4.6 trillion in estimated global FX reserves is a glaring hole in Goldman's analysis which claims that "the dollar is unlikely to lose its reserve status in the foreseeable future." Every day, it seems, a sucker who underestimates Ben Bernanke, is born.
Blankfein's people point out that panics over the dollar's viability tends to break out regularly. One thing they don't point out is that on none of the previous occasions mentioned, did the Federal Reserve have to expend trillions (at least $2.5 by the time QE 1.0 is over) to transfer the bulk of private risk to the public balance sheet. Maybe, just maybe, this time it is not only different... it is also much, much worse.
Amusingly, Goldman does not miss the opportunity to ridicule those who believe that gold is increasingly more valuable.
Not only that, but "ISG’s view on the dollar, today’s valuation and extended investor interest all imply meaningful potential downside as well. Clients who have a bearish view on the dollar are better off diversifying some equity exposure away from US assets. For clients seeking direct exposure to gold, we recommend structured notes and public or private equity that can manage the downside."
Lastly, Goldman takes on the topic of "peak" oil - in summary, the firm claims, it is not a concern. All you who believe commodities are the safe haven from fiat FRN destruction, well - you are simply naive. Goldman said so.
Goldman's desire of status quo perpetuation is evident and for obvious reasons. Yet, things are now different, because while the financial system did not collapse in September 2008 as it should have in order to get a fresh start, the moment of reckoning has been delayed for as long as the US can churn auction after non-failed treasury auction. In that sense, yes, it is different this time. And with that one can easily assume that all of Goldman's assumptions about a linear future are incorrect. The only question is how long into the future will the current "adjustment" period of pretend reality extend, and what happens when the emperor can not issue another $40 billion in 3 Year Bonds to buy some more non-existent clothing.