Thursday, April 10, 2008

Money to Burn: When the Fat Lady Sings.

As Good as Gold
In the old days it was said the the dollar is as good as gold. However, it is becoming more and more apparent that the dollar is more like a hot potato.

Paulson Visits China
On April 2nd our Secretary of Treasury went with hat in hand to Bejing to calm China's fear of the deflating dollar. While Paulson did his best to smooth over a tenuous situation, he also reminded our trade partner that there was still more economic pain to come. Since the Chinese are such large holders of U.S. debt, I wonder how they feel holding dollars that are depreciating by the minute???

The Fed stopped M3 reporting in 2006. This was a vital statistic showing any rises in money supply. While there was always expected to be "some" rise in the money supply, any unprecedented sign of spending would be a true sign of dollar weakness. At that point it was on its way off the charts. While the Fed is only a quasi-arm of the Federal government , and its spending machine, it also at some point in time was known as an inflation fighter. Continuing to report M3 would have thrown that theory right out of the window.

Click this link for the chart:

The United States is the largest debtor nation in world history. While there are plenty of people to point fingers at, two real causes can be cited as the problem: 1. Out of control government spending including wars and now the latest trend, bank bailouts. 2. An administration that purposely desires to drive the dollar down...for reasons that people like us can't quite figure out.

No country has ever truly brought economic prosperity to its people by debasing its currency. Currently, U.S. foreign debts are increasing at a rate of 1 trillion dollars every 15 months! Bernake's decision to bailout the mortgage industry (big banks) as in Bear Sterns has opened a new Pandaora's Box in spending. At least in Pandora's Box there was always appears that the United State's box may be empty as in BANKRUPT! And the government will hold a bunch of non-performing assets as collateral. Since the government is now in the mortgage industry, I wonder if Bernake would also find it wise for the government to enter the car and credit card business as well. Heck, I am sure if things got bad enough they may need to be bailed out as well.

As middle class type of guys, we have always understood that debt is should be used as a tool. You know, a method of extending leverage for purchasing power. Most of us have handled that responsibility well, and serviced our debts. After all, that is part of our middle class psyche. So we become concerned (justifiably so) when we see the government's spending go out of control. But that is rational thinking being applied to irrational times. Unfortunately, the rules in the money game have now changed. Common sense suggests that people who have saved...have bought dollar-based assets...are at risk in this environment.
1. There are a new set of rules that have been forged.
2. It is our responsibility to understand what is going on, and create a united front as to the best method of countering this paradigm shift in basic human logic.
3. Long-term we should all short the dollar...or find vehicles that beat the 20% mark on a consistent basis.
Remember this is the slippery slope first started under Greenpan. Bernake has simply accelerated the process. Let's beat the trend...before the fat lady sings.

Sources Cited:

In stock action, AKS is now at another 52 week high...still a buying opportunity for the three TITANS mentioned in my last blog entry! Look for BP to break out as it is closer to paying off all the Russians, and getting business done as true oil people have done for years. Will someone give me a kick on WGO!

Can anyone give me a rational explanation as to why the home builders are still seeing a positive movement in stock price?


1 comment:

AX said...

Great post, Bri. I responded to the Jim Rogers article thread on itulip just this morning. Kucinich's econ advisor says the Chinese have already found a dumping groung for our treasuries, the 3rd world. We'll have to figure out which stocks will benefit the most from these infrastructure investments.