Whatever the question, the answer is one, writes the FT’s John Authers in Friday’s Short View column.
Among other landmarks reached in the past 24 hours, gold futures have reached $1,000 for the first time and the Japanese yen is worth one US cent for the first time in more than a decade. Oil is already worth more than $100 per barrel, also for the first time, and the Swiss franc has almost made it to $1.
The unifying theme for this oneness is a collapse in global confidence in the US and its financial system. So perhaps a more obscure “one” now on the horizon may be important.
The multiple of US banks’ market value to their book value (the value left on their books once liabilities have been subtracted from their assets) has now dropped almost to one.
The Philadelphia Stock Exchange/Keefe Bruyette & Woods banking index, covering the biggest US banks, has hit 1.08 times book. This is the lowest since it started in 1992. It used to trade at more than three times book, while in the late 1990s, banks would change hands for even higher multiples.
Why are banks so cheap? Either because investors have no faith that they can grow or because they do not believe the values placed on their assets. This explains the intensity of the concerns over the scale of asset writedowns that will be needed in the wake of the credit crisis.
The fall in confidence in the US banking system has correlated with, and probably driven, the fall in the dollar and the gain in commodity prices. Commodities are priced in dollars, so their price must rise as the dollar falls.
For now, the future of the dollar rests on the scale of the damage to the US financial sector. And the chief hope for the US economy, where figures on Thursday showed that consumer spending is now unmistakably slowing down, may be in the stimulus that comes from a cheap dollar.