The HS Dent Financial Blog

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Who’s Next?

“After Dubai, will Greece be next?” asks the Financial Times this morning.  They are speaking of sovereign default, of course.  The debt payment moratorium by Dubai World has investors asking these kinds of questions for the first time in nearly a year.

In late 2008, the question was “which bank is next?”  Today, the question is “which sovereign state?”  Might it be one of the usual suspects?  Perhaps Russia, Turkey, or one of the South American republics?  Or might it be someone new and exciting — like another Iceland!

Interestingly, one country is conspicuously off the list of candidates: the United States.  Yes, it appears that investors like to talk good game about dumping US dollars in favor of “safe” havens like gold (for our views on the barbarous relic, see here).  Yet somehow, when the world suddenly looks risky again, it is not gold that offers protection (gold fell sharply on the Dubai news, in fact).  It is the US dollar and US government debt that investors run to.

These are certainly interesting times.  We’ll refrain from attempting to call the exact top on the gold bubble.  We already tried that on the euro (see here), and thus far we’ve been wrong, or at least “early” on that call.

We continue to advise caution on both the euro and gold.  There is absolutely nothing wrong with attempting to earn a quick speculative buck on either, so long as you understand the risk being taken.  But both would appear to be very highly vulnerable, and their current bull markets are based on very questionable assumptions about the US dollar.

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy