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February 19, 2009 | By: J.D. Steinhilber |
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Shareholder capital continues to be decimated in the financial sector. The Dow Jones U.S. Financial Index has plunged an additional 35% in 2009, after dropping 50% in 2008. There is still no clarity about how the U.S. will "fix" its broken banking system. This is the number one issue for Wall Street, but the Administration does not appear to share the sense of urgency, or be able to agree on a policy.
In this dangerous environment characterized by (1) a banking system collapse, (2) a vicious private sector debt deflation, and (3) a massive inflationary response of money printing and deficit spending from governments around the world, it is not surprising that investors have been buying gold as a safe haven (see Chart 2).
Chart 1. Bank Stocks Continue to Plunge
Chart 2. Relative Performance Q4 2008 to Present: Bank Stocks versus Gold Bullion
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