But don't worry too much. As long as money supply keeps its explosive expansion there is enough liquidity to keep markets propped up in the face of whatever desasters might hit the world this week.
While the US is fighting natural desasters, the political situation in Germany does not appear as being solvable in the next days. Add in this week's release of France's estimates for the budget deficit and the dollar and the Euro are likely remain to balanced against each other. Oil looks rather resilient after the big selloff on Friday which has slowed markedly in early trading.
GRAPH: Money supply M3 has grown a staggering 111 billion dollars over the 4 weeks leading up to September 13. The last time the Fed really tightened liquidity was in the first half of the 1990s.
Central Bank Gold Sales Agreement
A good question is the short-term direction of gold as the new Central Bank Gold Sales Agreement (CBGSA) is scheduled to kick in this week, allowing the member central banks of the Eurosystem to dump another 500 tons over the coming 12 months. In retrospective the central banks were always quite good to throw their best of all assets at short-term market highs on the market. What is missing until now is a formal announcement that the CBGSA will continue the pattern of past years.
Get Your Daily Dose Of Fedspeak
Following the indiscretion of Greenspan's obviously confidential remarks about the exploding US budget deficits the chairman himself will have two opportunities to calm the markets, the Fed calendar shows.
Today Greenspan will speak about "Mortgage Banking" to the American Bankers Association Conference and on Tuesday he will give a yet untitled speech to the National Association of Business Economists. As both events are televised newsgatherers will have no chance to ask Greenspan about his private view on the US budget deficit. The chairman has repeatedly warned about the exploding deficits and the political unwillingness to address them. His speech on mortgage banking can be expected to include yet more warnings on Fannie Mae and Freddie Mac, the latter currently undergoing a multi-year revision of its financial statements.
On Monday, governor Susan Schmidt Bies will talk about "Basel II" at the Institute of International Bankers Annual Dialogue with Government Officials. A quite interesting topic as minimum reserve requirements in the US banking perform like a cone of ice in the sun.
Vice chairman Roger W. Ferguson will unveil the new $10 bill on Wednesday. Expect some additional bits and pieces of information on Ferguson's current view on the state of the economy.
On Thursday governor Donald L. Kohn - always good for some stern warnings - will give a speech about "Inflation Modeling: A Policymaker's Perspective" to an academic audience.
What To Make Out Of It
Asked about the consequences for financial markets I assume that the political uncertainties in Germany and fears of unabatedly rising deficits in the USA will keep currencies in an equilibrium.
Stocks and bonds should head lower - that is if the printing press gets shifted at least two gears lower - in the face of new expectations that the Fed will stay on its measured path in the last 127 days of Greenspan's reign. Looking at the FOMC calendar this will translate into a Fed Funds rate of 4.50 % by the end of January. There has been no long-term period in history where stocks could successfully fend off higher interest rates. Bed prepared for rough times ahead.
The action in gold will be most interesting as there is heavy speculation that the central banks are keen to drive down the price of gold - the strongest reminder for inflation dangers - to levels below $450 an ounce. See silver trailing gold's performance.
My outlook for oil is unchanged since I had recommended a level of $63 per barrel as the last low-cost entry point. As the cooler season begins and most Europeans have not filled up their heating oil tanks yet the price pressure will certainly be on the upside over the coming months.