In the past, Malta suffered enormous financial loss whenever there was a currency upheaval. This time round, financial loss is being compensated for by sagacious investing.
The Central Bank has learnt a lot from the Mintoff experience of handling Malta's foreign currency reserves in the eerie House of the Four Winds in 1985. At the time, Mintoff lost €600 million in one day betting that the dollar would not depreciate. Mintoff's investment failure is only paralleled by the recent one of Lee Kwan Yu of Singapore who believed he had discovered the bottom of the present banking downturn.
The Mintoff loss was caused by a sudden dollar depreciation which was widely expected. Some days earlier, it was forecast by The Economist which published a glossy caricature on its cover symbolising the dollar as Uncle Sam, and stating in bold type 'Uncle Sam overdoes it'.
Our country's official reserves seem to be exceptionally managed. This has not been the case in Singapore, where Lee Kwan Yu, the former prime minister, did a 'Mintoff' with his country's reserves, losing about a third of their total value. There is an obvious likelihood of a world currency collapse spearheaded by the dollar. Globalisation of the banking system is a proven failure.
Malta has been shielded by its extraordinarily successful Central Bank which has registered no significant losses. One would like to hope that the private sector is also doing so well.
The Central Bank has earned some well deserved chutzpah from its hard-gained financial acumen. Let us not forget that the bitter Mintoff dollar losses of the mid-1980s were an integral part of the Central Bank's learning curve and that a money man must be battered severely before he has a chance of doing a George Soros or a Warren Buffet.
Last Friday morning on Wall Street, there seemed to be what some brokers are calling a 'death cat bounce', while others are seeing Barack Obama's measures starting to work their way into Wall Street, which has this week rose by 13 per cent. The worst part of the present banking scenario is that, like the 1930s, ugly racial insults and even violence are rearing their heads. The President of Brazil has spoken of the corruption of 'white, blue-eyed bankers'.
The subprime mortgage-lending phenomenon, and not faulty financial regulation or Ponzi schemes, is at the very basis of the present catastrophe. This is a most important point which investors must grasp if they are to retain faith in the world banking system.
Soros believes the crisis is very different from other crises which have erupted in intervals since the end of World War II. "[It] marks the end of an era of credit expansion based on the dollar as an international reserve currency," he said. "As such, it signals the culmination of a super-boom that has existed more than 60 years."
Last Thursday's article by Nouriel Roubini entitled 'It is time to nationalise insolvent banks' carried in The Times contained the interesting statistic that the losses of US banks will probably peak at $3.6 trillion. Present bailouts will be insufficient. If Roubini, or anybody else, thinks that banks can be run by civil servants, they are completely wrong. A banker needs an entrepreneurial, not a bureaucratic, character. Nationalised banks will perform no better than Russian banks under communism. China went de facto capitalist and the Industrial and Commercial Bank of China has exploded. The fatally wounded big banks will soon be buried. Government intervention, like modern healthcare, can only prolong the inevitable - but only for so long.
President Obama and his Treasury Secretary Tim Geithner have held out a rather confused, but by no means negative, welcome to China's 'paper gold' idea. If this idea puts on flesh, we can possibly see the price of gold move into the stratosphere. The share prices of miners and especially of Anglo Gold Ashanti, into which Henry Paulson has moved, can be expected to move upwards.
Investors should not expect any movement in gold to be necessarily upward all the time. Obama can decide to fight for the survival of the dollar by selling a large part of his gold at Fort Knox, and on that day many a gold bug will burn his fingers.
Investors must take profits and not sit on a profitable investment forever, especially if it is in gold, whether bullion, coins, or shares.
Mr Azzopardi Vella, economic consultant with DBR Investments Ltd, has promoted the Malta Development Fund and advised S & P.
johnazzopardivella@hotmail.com