Remember the 'Bear's behavior

China is now encouraging the idea of replacing the dollar.  As we lower the value of the dollar through our continued increasing debt, their investment in us reduces in value.  I don't blame them for their concern, but it is a signpost of what is to come if we continue on the path of spending that we are on.  A few years ago, Paul Volker said, "A nation's exchange rate is the single most important price in the economy." Our current actions are going in the opposite direction.  Keep an ear out to hear what other countries are saying about our financial direction.  The Czech prime minister, who's government just failed, and is the EU president has strong words against our behavior.  He's encourage the others in the G20 not to follow our actions.

Today, positive news with durable goods and new home sales.  In my opinion, this is one of those 'bear' upticks.  Home prices are still falling and we have reached a point with mortgage rates under 5% and with the reduced prices of foreclosed homes, buyers are increasing.  New home values also fall to compete with the foreclosed group.

About 2 weeks ago, I wrote to my two senators, the local representative, Republican Senator Spector from Alabama, and Lou Dobbs at CNN regarding my concern about China.  The only response I have received is an automated one from Spector.

For those of us who have lived through 'bear' markets, we need to remind ourselves of its erratic behavior.  For those who haven't and are invested in the market, I encourage you to look at history.  

Keeping the Historians Busy

The market is trying to hold after the treasury announced a $1.2 trillion investment; $300B in buying long-term U.S. government bonds, and the balance to purchase mortgage-related debt. The dollar fell around 4% against the euro and pound.  I think watching the dollar's value is one good measurement stick to recognize when we are reaching the 'bubble' with our government's debt creation.  The Consumer Price Index was up .4% in February, the largest since 7/08.  Remember one of my biggest concerns is inflation.  It can take time to gain momentum, but once it reaches a certain point, then it moves quickly, devaluing everything.  By the way, England and Japan are following our lead in buying debt.

I am quite vocal about how congress is now trying to back-peddle by going after AIG's bonus distribution.  That $700B bailout and that which has followed was done in a haste with no business forethought.  Congress should accept responsibility for these actions and let business get on with business.  Government is getting too far into the details of our financial system, and we history has shown that it is very inefficient.  It is during our darkest hours that we can lose our freedom, without realizing it.

Some other interesting notes:

*  60% of seniors over 60 are now postponing their retirement because of the losses in their retirement accounts.

*  5.47 million people are receiving unemployment benefits.  I wonder how many have used them up and are no longer being counted.

*  An recent article in BBC stated that in 2030 there will be about 8.3 billion people on the earth.  This will require 50% more food and energy and 30% more fresh water than what is produced today (we hear all the time about starvation and water shortages now).  Just imagine, lot of us will still be here. That is only 19 years from now.  

China in Action

Today, China's premier implied that  he is worried about the U.S. devaluing the dollar through 'reckless spending', thereby reducing their investment of $1 trillion in U.S. bonds.  We are counting on them to continue to buy more because if they don't we have to pay more interest on the treasury bills. The G20 meeting is April 2, and I think they are positioning themselves in the order of power.  The more indebted we become to China, the more power we give them to control us economically.  As that power increases, then they can move into other arenas with us.

I am going to write to my two senators and representative.  Even though my past submissions have been ruled against, I believe that there is a Universal consciousness that I can add my energy of concern to and perhaps it will affect the collective in speaking up to halt this spending spree that we are acting out.  Every person counts.

China and the Long Term View

I decided to write the next blog when the market went up, and today was a big uptick.  It is surprising the Citi is being credit for this, along with the intention of reinstating the uptick rule when shorting stocks.  I think today's gain is still the bear working, since these fluctuations are normal.  

My main focus for this blog is China.  Several recent significant events have occurred:

*  Ms. Clinton's visit to China did not include any discussion of 'human rights.'  The focus was on money.

*  The Dalai Lama  has publicly said how his people have been through 'hell on earth' under Chinese rule.

*  China's military said that our Navy 'broke the law' when they circled our ship with theirs.

China has a surplus of cash as we continue to dig a deeper hole of debt.  They are becoming stronger financially through our actions of borrowing. I am concerned that we may be 'naive' in thinking that China will continue to act as in the past since we have been the major buyer of their products.  With both Congress and the President being of the same party, I am concerned there is no one standing back and looking beyond the immediate to see the potential of what lies on the horizon as a result of our indiscriminate spending.  Yes, the Republicans are speaking, yet I think they are basically ineffective in  promoting a conservative agenda.  When I look at the other major players (countries), they are all weakened from lower oil prices, their debt, and the continue fallout of the banks from bad loans.

Housing values are expected to continue to fall for the rest of this year, knocking another 20% or more.   This will keep the current bank challenge in the forefront.  We will reach the 'law of diminishing returns' and then the question is 'what's next?'

Sign of the Times

The DOW has reached 6821 as I write this, exacerbated by AIG losing $61B, the largest company quarterly loss in history.  The company insures 30 million U.S. policy holders, operates in 130 countries, and provides insurance for 100,000 companies.  The federal reserve and treasury still maintain that they have to rescue them because of the 'systemic risk' to the global financial system.  In addition to the $150B invested, another $30B is on its way. This is a deja-vu with more to come.  The share price is $.48; last year it was close to $50.  This company should be broken up into several companies, giving it less power to disrupt the financial world when there are earthquakes like what is occurring at this time. Citi is trading at $1.40 as a result of the latest government intervention.  BAC is trading at $3.31.  Even though the president said the banks are going to remain private, the action taken with Citi still crucified the shareholder, also diluting his intention. 

Also, companies like GE who are part of the DOW 30 is being hammered with a price of $7.64 this morning, one that Mr. Buffet has invested heavily in.  It's a sign of the times; solid companies being traded at prices not imagined before.  And there are so many firms trading as penny stocks now that the SEC is looking at altering their procedures in terms of the requirements of companies falling into this group.

I do see a pinpoint of light.  We went to Redding yesterday, visiting 5 different stores, to look at big ticket items, and noticed  movement in this area.  In conversation with the employees, we heard that people are using their tax refund to purchase big ticket items.  This is a sign, in my opinion, that Mr. Bernanke may be right in saying that the worst will be over in 2009.  For those of us who are invested, I think the prudent action is to stay the course as long as the company or fund appears to be managing in a way to come out intact.