Show Me the Money
Bani Arora, M.Eng. (Fin. Engg.) '05
Issue date: 12/6/04 Section: Viewpoints
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Humorist Will Rogers once said, "I'm more concerned with the return of my money than the return on my money."
Is oil cheap now? Will it climb above $50 again? We've seen oil reach $55/barrel and the markets seem to go up and down like a cheetah after a gazelle. Oil is priced in dollars, but the dollar keeps getting cheaper. So, should we simply expect that the market for oil will meander in the high $40s-$50s range, or will it skyrocket again?
If it does rise, does that mean inflation is also just around the corner? As Pierre Vilar noted in his book, History of Gold and Money, "This is all 'fiduciary' money....if its buying power declines, but the money cannot officially be refused, attempts are made to get more of it for all commodities. Prices then rise, and the vicious circle of inflation has begun." After listening to Greenspan, I would be willing to bet that the interest rates will be raised once again in December.
Is there a global effect? Will we be surprised if the euro crosses the $1.50 level? It's quite likely, so does that mean that gone are the days of cheap vacations to Europe? I think we should consider vacation plans to China instead: how soon do we think they will un-peg their currency? If they do, will it be free-floating or will it be pegged to a basket of currencies?!
Ultimately, does it really require intellectual dynamite to comprehend the dynamics of global economics, or does one just try to fit all the pieces together in some coherent, long-term market view? I think it's a combination of the two, because if we didn't take these bets with an insatiable enthusiasm, perhaps gold will never lose its glitter as a safe haven!
Is oil cheap now? Will it climb above $50 again? We've seen oil reach $55/barrel and the markets seem to go up and down like a cheetah after a gazelle. Oil is priced in dollars, but the dollar keeps getting cheaper. So, should we simply expect that the market for oil will meander in the high $40s-$50s range, or will it skyrocket again?
If it does rise, does that mean inflation is also just around the corner? As Pierre Vilar noted in his book, History of Gold and Money, "This is all 'fiduciary' money....if its buying power declines, but the money cannot officially be refused, attempts are made to get more of it for all commodities. Prices then rise, and the vicious circle of inflation has begun." After listening to Greenspan, I would be willing to bet that the interest rates will be raised once again in December.
Is there a global effect? Will we be surprised if the euro crosses the $1.50 level? It's quite likely, so does that mean that gone are the days of cheap vacations to Europe? I think we should consider vacation plans to China instead: how soon do we think they will un-peg their currency? If they do, will it be free-floating or will it be pegged to a basket of currencies?!
Ultimately, does it really require intellectual dynamite to comprehend the dynamics of global economics, or does one just try to fit all the pieces together in some coherent, long-term market view? I think it's a combination of the two, because if we didn't take these bets with an insatiable enthusiasm, perhaps gold will never lose its glitter as a safe haven!