The End of The Beginning

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A slew of injections that would put this season's flu vaccination centres to shame continued around the world. Various banks were force-fed fresh capital whether they wanted/needed it or not. The process of shoring up and laying a new foundation for the badly damaged global financial system was well under way, just two days after the summit of national leaders finally resulted in the recognition that enough was enough - thus a new word found its way into the various communiques.

Don't gloss over this word as it pops up in many a plan and its description. The word is "unlimited" - and whether it refers to the amounts of money that officials stand ready to pour into this foundation, or the willingness to try every tool at their disposal in order to ensure success, it all comes down to the same thing. No effort will be spared to pull this global system out of its worst nosedive in decades. Market players will surely tune in today when Mr. Trichet speaks on the global crisis at noon NY time. Ditto, tomorrow, when Mr. Bernanke gets a chance to describe that which his thesis was about - updated for 2008.

Some stability returned to a very tired gold market following many days of volatile conditions that sent investors and analysts into an assortment of happy and/or despondent emotional fits. Bullion traded in a narrower range overnight (from $839 to $856) but market participants remained unsure as to near and medium-term prospects for the precious metal. Thus, Indian pre-festival buyers remain in avoidance mode until a clearer trend emerges or until they see lower price tags in the local shops.

Western investors are in a similar mode to some extent. Some are wondering whether the $930 showing by gold in the middle of the worst crisis ever fathomed by doomsday newsletters was 'it' - and if so, why such a 'poor' performance. Others, (as always) remain convinced that the worst is yet to come, and that once the tiny shoots of hope start to wither and the world resumes its descent into total chaos, then the metal of ages will make a triumphant return. Return to what? A smoldering pile of rubble, no doubt.

Tuesday's New York spot dealings opened with a 1.5% gain, and gold was quoted at $845 (a familiar number to those who were in the trenches with us back in the middle of January of 1980). Silver drew strength from dollar weakness and expectations of a global industrial demand bounce and added 31 cents to rise to $10.98 per ounce. Platinum benefited from similar hopes and gained $54 to reach $1041 per ounce, while palladium climbed $4 to $201 on perceptions of better days ahead for carmakers.

Relief rallies could become the theme across various markets this week, as hope ignites and as the need to raise cash for margin calls abates. Oil is already showing signs of speculative life (rising $3.15 to $83.33) and other commodities may follow. Spec funds may yet have to show that they have learned something from the near-40% decline in the commodities niche and try not to get ahead of themselves during this go-round. In any case, oversold conditions may make for a midweek bounce of nice proportions - just do not get carried away with the idea of one-way streets. Switzerland's Zuercher Kantonalbank expects gold to trade near $800 by year-end as investment demand abates on the back of growing perceptions that the trough has been seen in global finance.

And now, it is Q & A time with Bloomberg's Jane Bryant Quinn - a familiar name to many. Playing devils advocate with herself, Ms. Quinn debunks some of the more popular fatalism-infused notions floating around these days.

"There's a lot of sloganeering around the Treasury's $700 billion financial rescue package, the Federal Reserve's $900 billion-plus lending authority, plus whatever else happens in the days ahead. Taxpayers need some clarification, so they don't hate the rescue any more than is, well, reasonable.

Is the U.S. taxpayer losing $700 billion?

No. We're bailing Wall Street out of bad mortgage-related loans and other assets that no one else wants to buy. The Treasury will buy them at something more than their current, depressed market value. That adds some capital to struggling banks, which they sorely need. At some point, the government will resell the assets to private investors. The ultimate cost to the taxpayer depends on when the bleeding in home values stops and these assets rise in price. Peter Orszag, director of the Congressional Budget Office, expects the cost to be ``substantially less than $700 billion but more likely than not to be greater than zero.''

Will taxpayers make money by taking debt or equity stakes in the banks that sell the distressed assets to the government? Orszag pours cold water on this idea. That's because the Treasury would have to pay more for assets that include a stake in the company than it would for the assets alone.

Where is the Treasury getting $700 billion?