Weakness of UK M3 relative to gold

Relating total national money and credit to gold holdings, we've seen that the USA would price gold at around $45,000 an ounce, Germany at maybe $14,000 an ounce.

World Gold Council June 2007 figures say the UK has 310.3 tonnes of official gold, and Mike Hewitt's table shows UK M3 at $3,532.1 billion. Using the same gold value per kilo as with the other two countries, if the UK's M3 were entirely gold-related, this would imply a price of about $35,4046 per ounce.

From this perspective, although Britain's economy is much smaller than America's, its currency weakness is much closer to America's than to Germany's.

Dow and FTSE lows

The Dow had its lowest close yesterday since 19 April 2007; the FTSE is currently below 5,950 - the most recent lower closing figure was on 3 October 2006. Why we're suffering more, I have no idea.

More on gold and the money supply

At last, I've found something to help me see currencies in the context of official gold reserves - a brilliantly useful essay by Mike Hewitt in The Market Oracle (July 31).

The above chart (one of several in his exposition) shows that the Euro zone has a better ratio than the USA of gold to currency, and as I tried to demonstrate yesterday, within Europe Germany is particularly strong. And Europe's economy is also of a size to make it a possible reserve-currency contender.

As a footnote, my fellow Brits must be dismayed at the UK's pathetic weakness.

Sprechen Sie Gibberish?

Most days, I read something that reminds me how little I know. And then I read the financial pages.

Let's look at the UK's Daily Mail today, Money Mail section (pages 38-39). The headline is "Storm Warning" - anything from a week to seven years late, depending on your analysis of the underlying trends.

Sub-section: "Will it continue?" Answer: volatility "for the next few months", but "the markets are fundamentally sound in that that they are not over-priced". Yet we've only just heard from Marc Faber, saying that he expects "earnings disappointments" which will show up in the dividends and so alter the p/e ratio for the worse. And on page 66 of the same paper we see disappointments at UBS, Wal-Mart, Home Depot.

The chairman of a large financial advice firm is quoted saying, "You must put this sub-prime mortgage meltdown into perspective. We are talking about £100 billion of losses. [Wait for the punchline.] This sounds like a lot, but it is just one-tenth of the size of the public sector pension liability in this country." Very large, and mostly unfunded, pension liabilities.

Usually, I throw away the money sections of newspapers; I only read them today to see if they'd noticed what was going on. But then I remember that journalists told us for years not to bother with financial advisers, when we could buy our pensions direct from the six-figure wagemen at Equitable Life.

Could the German DM be stronger than the US dollar?

Another thought experiment. We've seen that if the US stock of gold (if it hasn't been replaced by IOUs) had to back all of its M3 money supply, then this would imply a gold price of something like $45,000 per ounce.

I've tried to find equivalent figures for Germany. The latest I can find is from May 1998, when M3 was then estimated at 3,243.70 billion DM. The Deutschmark is pegged at 0.51129 to the Euro, and the US dollar currently buys around 0.73581 Euros. So in dollar terms, German M3 is/was in the region of $1,559 billion.

The World Gold Council's June 2007 figures show Germany holding 3,442.5 tonnes of gold, and there are 31.1034768 grams to the troy ounce, so that's 110,678,945 ounces. If this gold covered all of Germany's M3 at the latter's 1998 estimate, it would imply a gold price of $14,085 per ounce.

Granted that German M3 must now be greater than in 1998, it still suggests that in terms of the ratio of gold to money supply, Germany's currency is around 3 times stronger than the USA's, or one-third as vulnerable in case of hyperinflation.

Silver to ride high?

Jason Hommel, in this 2 August report on SilverSeek.com, points out that, because of its industrial uses, silver is actually more scarce than gold.

He confirms my recent mathematical estimate that gold "ought" to equate to "$45,000/oz. to fully back all the M-3 created money supply", and repeats the market-manipulation theory:

...we have strong evidence of government manipulation in the gold market that has been going on since the 1990s. It is strongly suspected that the world's central banks have sold about one-half of their combined "reported" 33,000 tonnes (1 billion ozs.) of gold into the market to depress prices. Were it not for this selling, the gold price could well be $2,000 to $3,000 now!

He's predicting silver at $8,000 an ounce within 15 years - mostly because of hyperinflation, rather than real appreciation. In the nearer future, he thinks:

I see silver easily at $30 by early next year. Gold should be over $1,000 maybe $1,200.

That's something we'll be able to test more easily.

Gold going cold?

The gold price seems to have pretty much frozen, despite currency worries and stockmarket volatility. Peter Schiff is mystified, too though he expects "an explosive move for gold any day now". Yesterday's IHT article notes that "central banks in Europe have increased sales of reserves this year by 7.3 percent", continuing our theme of market manipulation, and a futures trader called Ron Goodis points out, "In times of a liquidity crunch, people want cash, and that's Treasuries, not speculative stuff like gold."

This is the problem for doomsters: the 'true' value of gold is most likely to be seen, not in moderately inflationary times, but when faith in paper currency has collapsed and hyperinflation is roaring through the system. It's not something one should wish for, even if it is needed to prove one's theory.

However, there's still the question of how much longer the market can be bought off with these gold stock sales. Eventually there will be nothing left to throw off the back of the troika at the pursuing wolves. And how much has been 'loaned' from stock already?

The article says, "Central banks are the biggest holders of gold, controlling about a fifth of all known supplies." So four-fifths is now in private hands, presumably. You may not feel the time is right to buy gold as a speculation or hedge, but if you had some already, would you sell it now?

Subprime update, plus Dow and gold

Here's iTulip's scathing video on the sub-prime lenders and special pleading from Jim Cramer; and according to this, it was $323 billion pumped into the banking system in 48 hours, not $266 billion.

The Dow closed down 207 points yesterday, anyway. Perhaps you can't pump up a burst balloon.

And gold, which one would think should have an inverse relation to the market, has lost $5 an ounce, too.

Things do look a little concerning.

Gold: a shell game without the pea?

If the gold bugs are right, why hasn't gold rocketed already? Maybe this presentation by Frank Veneroso, dated May 2001, explains it. It makes the case that there is more demand for gold than is officially recognised. This demand cannot be fully satisfied from the declining yields of gold mines, or reusing scrap.

Veneroso thinks that central banks have loaned out or sold much more gold than they admit. The World Gold Council states 30,374 tonnes in holdings (June 2007). This is down from the nearly 33,000 in mid-2001 when Veneroso was speaking, and even at that time he estimated 10,000 - 16,000 tonnes out on loan. Much of this will have ended up on ears, fingers and necks.

This theory of market intervention by surreptitious supply, implies that banks must eventually run down their stocks and be unable to continue with this tactic.

Veneroso speculated: "If the official sector is rational, it knows what will happen to the gold price when this large flow that is depressing the price abates and ultimately ends---the price will go up by a lot. Therefore, some rational central banks will not sell and lend down to the last ounce. Instead they will start to buy. So regardless of what has been happening in the gold market, if our data is correct, then, within a couple of years, whatever the official sector is doing, it will terminate and the gold price will rise."

His prediction was correct: gold has doubled in value since 2005. But as demand continues to grow over time, against a more limited supply, we should see further gold appreciation, which is what Marc Faber has predicted.

But some would go much further - Doug Casey, for instance. If we see the emergence of a very strong currency run by a country or cartel that controls a vital commodity like oil, the inflation in all fiat currencies will be cruelly exposed by contrast. Is it not possible that some might seek to use gold, in conjunction with other commodities, as an economic weapon?

And is it not interesting that the world's second largest gold hoarder, Germany, has disposed of hardly any of its stock in the last 7 years, when the average official reduction has been about 9%? Maybe Germany is taking a longer view and rather than buying gold, is being more discreet and simply not selling it. I wonder how much of its own stock Germany has loaned out?

UPDATE

Please see Monday's essay by James Turk, on Financial Sense. He thinks that the market must ultimately win against the official manipulators.

$42 gold: what is the future of the dollar, and central banks?

German 1,000 Mark note - overprinted to make it one billion Marks

I think I was right to puzzle over the footnote (in 6-point type!) to the US reserve accounts, which states that gold has been valued at $42 dollars an ounce and that certificates on that basis have been issued to the Federal Reserve.

It looked like dodgy accounting to me, and searching for some further clarification, I found this article in Gold-Eagle.com, dating from 2003. It's by Alex Wallenwein and the style hyperventilates somewhat, but here's some edited highlights:

[France and Germany's] new common currency, the euro, has taken on a characteristic that puts it into direct conflict with the US dollar.

The dollar is a purely debt based currency with an adverse relationship to gold. Gold is the dollar's nemesis. When the gold price goes up, confidence in the dollar decreases and people start selling dollars.. It's usually a sign of impending or prevailing inflation.

The euro, on the other hand, has a "positive" relationship to gold. The European Central Bank, and all the euro member's central banks, value their gold reserves quarterly at actual market prices. That means, as the price of gold goes up, the value of their currency goes up as well, and by signing the "Washington Accord" in 1999 they have announced to the world that the dollar's gold-suppression jig is up.

The dollar is still hamstrung by being tied to an artificial, government-decreed, quasi-official price of gold at the whopping rate of $42.222 per ounce. [See Title 31, United States Code, Section 5117(b).] Obviously, with the market price of gold currently above $330 (i.e. in 2003), that "official price" has nothing to do with the realities of the gold market. It is actually a remnant of the gold standard days when every dollar was immediately convertible into gold on demand, at a stated rate.

Being thus tied down, the US government and banking elite can never afford to let the price of gold float freely according to actual market forces...

This little difference in the valuation of gold makes the euro the undisputed, hands-down future winner of the euro vs dollar conflict... free market forces can never be violated with impunity for a very long time. They always reassert themselves - sooner or later.

The euro was constructed to take advantage of free market forces - especially the free market of gold. The dollar is anchored in a useless, repressive scheme that cannot allow market forces to prevail vis-a-vis gold.

Ergo, the dollar is doomed...

Once it is replaced as the world's reserve currency, the dollar - and with it the United States - will cease to be a world superpower... And all of America's current military might will [be laid to] waste when the international currency reserve dollars return home, causing hyper-inflation and economic havoc...

As the dollar crumbles and loses its control of the price of gold, the yellow metal will soar to heights heretofore unimagined. Nothing will stop it. All economic forces will aid it in its ascent... including... the world's most powerful central banks.

For then, a rising gold price will boost their collective reserves, and therefore their currencies' values, not undermine them as has been the case before the euro's advent.

Gold will be free, and the dollar will be dead: so be careful where you put your money !

The official US price above (still current) is about one-sixteenth what its gold would now fetch on the market. And as I figured late last month, even at open market prices, America's gold reserves only cover around 1.5% of the dollar money supply defined as M3.

In other words, the official price of Treasury bullion makes its total holding worth over 1,000 times less than the amount of money it has in circulation. If ever the world should divorce from the dollar standard, the results could indeed be chaotic.

Now, Iran wants yen from Japan in exchange for oil; the Chinese re-pegged the yuan in 2005 to a "basket of currencies" instead of exclusively to the dollar; the Euro has the potential to be backed by significant national holdings of gold, especially Germany's; an Islamic gold dinar is making its appearance (in Kelantan, Malaysia). I understand that Malaysia is even beginning to entertain the notion of doing away with central banks altogether and taking direct control of its own currency - a financial revolution could be brewing.

Before I get accused yet again of being a gold bug, let me say that I'm not - gold doesn't do anything much except look beautiful, same as our local stray cats. This is not about gold, but about the fiat currencies' potential for real catastrophe, on a Germany-in-1923 scale.

Marc Faber update

.............................................. Real growth: farmland

A most interesting and informative interview with Marc Faber on Bloomberg TV, last Friday. He thinks we've seen, not a correction, but the start of a bear market. In his opinion, the central banks intervention is inappropriate and will cause inflation. He thinks they "should let the crisis burn through the system, and eliminate some players". The Dow should correct by 20 - 30%; and as hedge funds "de-leverage", i.e. reduce their borrowings, the prices of most assets will drop.

In answer to the defence that p/e ratios are still good (i.e. the share price divided by the dividends, one way to test whether shares are over-valued), he says that at the peak of a market, there is a bubble. In 1999 it was a share price bubble, but now there is a bubble in earnings, and we will see "earnings disappointments" in the near future. So the p/e ratio is misleading and shares are not reasonably valued.

He points out that around the time of Dow peaks in July and August, we were also seeing several hundred shares hitting yearly lows, so underneath the surface a recession has already begun. The Dow has held up because of certain areas, such as oil stocks; but in present conditions, he thinks it will be "very difficult for the market to make new highs". Faber says that realism will return when we see a fall in popular stocks such as Research In Motion, Apple and Google.

The fundamentals of emerging markets are sound, and he foresees their economies de-coupling from the fortunes of the USA; but currently their stockmarkets are also over-valued and may correct when deleveraging causes money to flow back out of them.

As to the dollar, he thinks that if the Fed resists the temptation to cut interest rates, the dollar could strengthen against emerging market currencies. Against the Euro and the yen, he's not so sure. "I think against gold, all currencies will depreciate over time".

In relation to property, he says depressed areas like Detroit probably can't fall much further, unlike Miami and Southern California. Asian property looks promising - he mentions cities like Manila, Jakarta, Kuala Lumpur, Bangkok, Hanoi and Ho Chi Minh City. And relative to financial assets, farmland is depressed.

Accused of bearishness, Faber counters that to be bearish about assets is to be bullish about cash, which he has made plain for several months now. He even thinks that US Treasury notes and good-quality commercial bonds are a good investment.

I'm amazed how much valuable information this generous man gives away for nothing.

..................................................... Modern Manila

Which one's rich?

....................... Who's flying high now?

Let's see how we're doing.

America's reserve assets at April 2007 were $66.72 billion, of which about $11 bn in gold and $42 bn in foreign currency. The USA's estimated population is 301,139,947. So reserve assets per capita are $221.55.

China's foreign reserves minus gold were $1,202 billion in March. The World Gold Council says China has 600 tonnes of gold, and at today's price of $21,471.23 per kilo that's worth another $12.88 billion, making a total of $1,214.88 bn. China's population is estimated at 1,321,851,888. So China's reserves per capita are $919.07.

Using income statistics I quoted on August 9, an American's share of his/her country's reserve assets is worth 0.5% of per capita GDP; the equivalent value for a Chinese is 45.95% of nominal per capita GDP. But a dollar buys more in China: adjusted for purchasing power (PPP), Chinese reserve assets are worth around $5,254 per head.

So comparing national reserves only, China is 18.2 times richer than America in absolute terms, 4.15 times richer per capita in nominal terms, and 23.72 times richer per capita in terms of purchasing power

They worked for it. But, now what?

UPDATE

Here's a note to the US reserves statement that confuses me:

Treasury values its gold stock at $42.2222 per fine troy ounce and pursuant to 31 United States Code 5117 (b) issues gold certificates to the Federal Reserve at the same rate against all gold held.

Can I buy some at this price, please?

Don't get mad

Adrian Ash in the Daily Reckoning Australia today, passes on some facts about the drop in US mortgage underwriting standards:

...mortgage underwriting changed beyond recognition between 1998 and 2006, as First American Financial recently reported:

* Adjustable rate mortgages as a percentage of new mortgages rose from 0.7% to 69.5%;
* Negative Amortisation loans - where the principal owed actually increases over time - rose from 0% to 42.2% of the market;
* Interest Only home loans - where the borrower only has to cover the interest due, leaving the principal for repayment sometime in the far future - rose from 0.1% to 35.6%;
* Silent Seconds, issued on the back of outstanding loans to the most vaguely-related people, rose from 0.1% to 38.7%;
* Low Documentation - where the greater the lie, the greater the loan - rose from 57% to 79.8%.
In short, the US mortgage market switched from cautious Fixed-Rate borrowing to head-in-the-sand ARMs...while the underlying debt was left untouched or actually grew larger...as borrowers struggled to meet just the interest alone after fudging the numbers to bag a loan they could never repay.

Most shocking of all, as Robert Rodriguez of First Pacific Advisors has noted, "is that the origination volumes for the last two years, when the most egregious deterioration in underwriting standards occurred, total more than the previous seven years of originations combined."

And this poor-quality debt has been sold to pension funds, very carefully staying just under a crucial limit:

"24% of all the hyper-leveraged assets managed by large hedge funds (US$1 billion or more) internationally, belong to pension funds and endowments," says a June 18 report from Greenwich Associates, as quoted by Paul Gallagher in the Executive Intelligence Review. "This average is just below the 25% limit at which an individual hedge fund, under the [US] Employee Retirement Income Security Act (ERISA) as modified in 2006, becomes an investment advisor with fiduciary responsibility for the pension fund doing the investing - something hedge funds obviously do not want to do."

More than that, pension funds have also stumped up one-fifth of the money held in 'hedge funds of funds', the aggregating super-funds run by many large banks. In first-half 2007, around 40% of current flows into the hedge fund industry has come from pension funds. And "as pension fund money is coming in," says Gallagher, "it's allowing 'smart' money to get out."

...Numerous reports, including a new one from Chicago-based Hedge Fund Research, Inc., have shown 'high net-worth individuals' reducing their net hedge fund investments by half, between 2006 and 2007 - investing instead into real property and stocks. They now account for only about 20% of the assets of hedge funds, which were supposedly made for them."

Instead of high-net-worth billionaires, it's now Joe Public left holding this junk, thanks of course to his well-paid retirement fund managers...

Giving control of your money to a financial "expert" might indeed prove the most foolish decision of all.

To me, this is outrageous. I've written earlier about a brokers' meeting I attended in 1999, where a rep from a technology fund burbled enthusiastically about the "super-boom" to come, and how I felt that the smart money was looking to use us to sell their holdings to suckers. And I think the same happened with the Lloyds of London scandal - advisers were encouraged to help their clients get a seat on what they thought was the gravy train, when the insiders knew it was the vinegar bottle. Now it seems we've seen effectively a raid on pension funds.

I sometimes suspect that the money system is not for storing wealth, but for stealing it.

The authorities should be busting the offenders, not bailing them. We should pay off depositors so they can put their savings elsewhere, re-educate naive financial advisers and institutional fund managers, and bankrupt the swindlers.

Here in England, London's Central Criminal Court has a motto above the entrance:

"Defend the Children of the Poor & Punish the Wrongdoer"

If I were an American, I'd be asking questions about justice and the rule of law: does the nation still protect the weak against the strong? Meanwhile, now that you know how the game is played, find a way to win honourably.

.................... A South Sea Bubble playing card

Thirty donkeys and a boiled frog

The Mogambo Guru (Richard Daughty) says that a modern US dollar buys what you could have got for about 2 cents in 1913. The same is true of the UK.

The question is, can this go on indefinitely? Is it like slowly boiling a frog, or will the frog never die? Doomsters are looking for a final cataclysm, but there have been periodic bubbles and busts for a very long time.

Maybe inflation is simply a slow crime, openly and unendingly committed against savers. We worry about interest rates, market crashes, insolvencies and unemployment, and miss the big story because it's so obvious:

The smuggler

Every first of the month the Mullah would cross the border with thirty donkeys with two bales of straw on each. Each time the custom person would ask the Mullah's profession and the Mullah would reply, "I am an honest smuggler."

So each time The Mullah, his donkeys and the bales of straw would be searched from top to toe. Each time the custom folk would not find anything. Next week the Mullah would return without his donkeys or bales of straw.

Years went by and the Mullah prospered in his smuggling profession to the extent that he retired. Many years later the custom person too had retired. As it happened one day the two former adversaries met in a country far from home. The two hugged each other like old buddies and started talking.

After a while the custom person asked the question which had been bugging him over the years, "Mullah, please let me know what were you smuggling all those years ago?"

The mullah thought for a few seconds and finally revealed his open secret, "Donkeys."

From UKSufi.co.uk

I think the ultimate-crash predictions are an expression of the desire for Justice to arrive, like a deus ex machina. Perhaps it's better simply not to be the victim oneself.

Or saddle 'em up for the Gold Rush?

Illustration from THE GOLD RUSH DIARY OF FRANK McCREARY (1850)

More old news

Thomas Nast: "The Comet of Chinese Labour" (1870)

The use of cheap foreign labour to undercut unionised American workers and benefit big business, is not new. But as this cartoon shows, it is easy, perhaps politic, to focus on the foreigner, who after all is merely trying to earn a living like the rest of us, and deserves decent treatment, out of common humanity.

"Pacific Chivalry" (August 7 1869)

How do we get a balance between the advantages of international trade, and the obligation of each State to look after its own people?

Dow predictions revisited

I wondered recently about the growth of the Dow relative to the FTSE since 1987, and speculated that it could fall by anything up to 50%. David Tice of Prudent Bear thought the same back in May, so maybe I'm not crazy.

Robert McHugh in Safe Haven predicted on 9 July that the Dow could be heading for 9,000 points, "although if the PPT responds by hyperinflating the money supply, it could be 9,000 in real dollars (gold adjusted), not nominal." The London Gold fix on Friday 6 July 2007 was $661.25 and the Dow at close on that day was 13,649.97, i.e. 20.64 times the gold price per ounce. Dropping to 9,000 as defined would mean a "gold multiple" of 13.61 times, or a 34% relative reduction in share prices.

Perhaps it could happen as a combination of nominal share price reduction, and a devaluation of the dollar.

Not so funny money

"By inflation you will burst - let well enough alone, and don't make it worse" (Thomas Nast, 20 December 1873)

Captions: (1) UNCLE SAM-"You stupid Money-Bag! there is just so much Money in you; and you can not make it any more by blowing yourself up." (2) Money is tight, but let it recover itself naturally, and then it will stand on a sounder basis. (3) Stimulants or inflation only bring final collapse.

The Contrarian Investor reviews the central bank intervention figures from Thursday and Friday. Totting them up, I see that's over a quarter of a trillion dollars added to the system in two days.

I cannot imagine that kind of money. But if you now invested that two-day $266.65 billion spree in US Treasury 10-year bonds at the current yield of 4.51%, it would create a secure income of over $12 billion a year.

The world's most expensive house used to belong to the king of yellow journalism. Randolph Hearst's spread is now going for around $160 million dollars. The interest on this central bank splurge would buy six of these houses every month. (At least that would be a solid support for house prices, at the top end.)

But let's put it another way. According to Jerry Bowyer in National Review Online yesterday (reproduced by CBS), the average sub-prime mortgage is for $200,000 and there are 254,000 mortgages currently in foreclosure. This works out at $50.8 billion dollars. It also means that the latest central bank cash injection is sufficient to buy out all current US mortgage foreclosures - five times over! Seemingly, it would be far cheaper for the central banks to take over this housing and rent it out.

So the real damage has been caused by the insane, or maybe one could term it criminal, leverage and speculation. The money experts are responsible for this debacle and the authorities are rushing to save them (and us) from the full consequences of their actions. This is almost a perfect example of creating a moral hazard.

Doug Casey: sounding grim and clear

A trenchant interview with Doug Casey in Financial Sense today. Some highlights:

At some point there’s going to be a panic out of the dollar. When it happens, it’s likely to be the biggest financial upset since the 1930s. Part of the question is what they’ll panic into. The euro? As I have said many times, if the dollar is an “I owe you nothing,” the euro is a “Who owes you nothing?”...

If an American doesn’t get significant assets outside the U.S. now, it may be impossible in the future. The best thing to do is buy real estate abroad, since it’s currently not reportable, like bank and brokerage accounts, and they can’t very well make you repatriate it...

We’re now experiencing a lot of monetary inflation, which eventually will be reflected in price inflation. What’s really going to tip this over the edge, however, is the rest of the world deciding to get out of dollars. A lot of those $6 trillion abroad are going to come back to the U.S., and real goods are going to be packed up and shipped abroad. Inflation will explode...

Markets are about trade... At some point the Chinese will want payment in something other than dollars. In the meantime the yuan will go higher...

What do I think is likely? Certainly a depression, probably of the inflationary type. But if there are widespread defaults in the mortgage market because of a housing bust, hundreds of billions of dollars worth of buying would disappear, which is deflationary. You could have both things happening at once, in different parts of the economy...

I hate making predictions, but if things continue down this path, I think we could see gold going over $1,000 within the next 12 months, and maybe even before year-end. And then the mania starts for the mining stocks.

Funny money to the rescue

Stanley Berkeley's "Gordons and Greys to the front", also known as the Stirrup Charge at Waterloo; a deed to stir any man's heart. Apologies for the trivial use.

Friday: what looked like a hairy day on the Dow saw a rescue in the last hour of about 80 points. Was it the vast volumes of cash shovelled into the system by central banks, or the fabled Plunge Protection Team (aka Ronald Reagan's Working Group on Financial Markets? If only we all had such understanding bankers.

Could the Dow drop 50%?

"Two views make a market," goes the adage, so there's no "right" value for the Dow. But as I showed yesterday, the Dow has had an extraordinary rise in the last 20 years, about double what has happened with the FTSE.

It doesn't seem related to average income (American average earnings have grown more slowly than in the UK); if it relates to greater inequality of income, then presumably if the market turns, rich bears will be capable of pushing it down as fast as it rose. And I doubt that American multinationals have exploited subsidiaries in the Far East that much more than British-based multinationals - or have they?

Or is it money invested through the carry trade, borrowing cheaply from Japan? Then maybe it will unwind when Japanese interest rates rise. Is it the benefit of low American interest rates, thanks to huge foreign support for US Treasury securities? That love affair is coming to an end.

Let's do a thought experiment. 1987 seems a reasonable base year for our measurements, since the markets weathered the "Crash" of October and still ended up ahead by the end. From the end of 1986 to close of business this last Wednesday, the FTSE had grown by some 280%. That works out at around 6.7% capital growth compound per annum, for the whole period; add-in dividends and the reasonable investor should be satisfied.

If the Dow had done exactly the same as the FTSE, it would have grown from 1,895.95 to around 7,200. Instead, it closed on Wednesday last at 13,657.86.

Maybe there's still a lot of air in that balloon.