Bernanke's words, China, Note of Self-Understanding

Bernanke's words last Friday did wonders to provide buoyancy to the markets. I still think we are in a bear market rally and when the hot air deflates, it will be sudden. Enjoy the ride as long as the helium lasts. Then I hope you are out when it is used up. The statistics I have been pointing out in my previous blogs are facts versus just words. And to repeat myself, he should be replaced.

As you know I have been following tidbits on China. Today, I saw a quote from Henry Kissinger, the man who helped establish ties with China under President Nixon. He said, "I think the center of gravity of the economic world is beginning to shift towards Asia." That is confirmation of what I see as the trend too. We'll need a big couch for all of us to sit together :) i.e. U.S. squeezing in with China. He also mentioned the new alternative or companion currency to the dollar that China brought up a while ago. He see the dollar built around the Chinese currency once it is convertible in approximately 5-15 years.

What is interesting and I found surprising is the leader on producing manufactured goods sold worldwide. It is the U.S. at 20% with farm equipment, airplanes, military weapons, chemicals, shipbuilding and so on. Notice these are big ticket items versus what China sells. They produce 12% and Japan follows with 11%. This information doesn't seem to be mentioned in the mainstream news, and as a result people think we have sent everything out of the country except pizza and beer. :) I am half serious on that statement.

As you can see I am feeling lighthearted writing this article. I discovered something about myself last week. I decide that treating myself as I would have others treat me makes life kinder. Notice the twist on the biblical quote, "Do unto others as you would do unto yourself." That doesn't work well if the self is being mistreated. Any comments or thoughts on this?

China, Healthcare, Fed Chairman, Housing Sales

A formal summit between China and us started today. They are concerned about the devaluation of the dollar given the amount of our debt they hold. The Treasury Secretary reassures them that the U.S. is committed to a higher savings and lower deficit. These words sound good, but I have yet to see action taken that reflect it. We are still spending like there is no tomorrow, and I have concerns about the 'healthcare' push. Too much haste means much more waste that we cannot afford. I am for everyone having access to care. In 2006, I signed up with Blue Cross as an individual and had to pay $300 a month for a $5000 deductible plan. I was in the 'healthy' group. After a year was up, they sent me a notice raising the monthly premium although I had not used their insurance. Their response was to cover their costs. I cancelled my policy and continued uninsured as I had for the 10 years previous. During that time when I needed medical assistance, I told the doctor I was a self-payer and negotiated a smaller fee by paying cash. I think one step that would help our system is having more competition amongst the insurance providers. Second, as has been acknowledge, keeping people out of the emergency room when it is used for what a clinic or doctor's office could handle would create immense savings. Setting up a government program will not do that because the government does not have to make a profit and these are for profit companies. Also, history shows that the government collectively does not have a business mind and therefore the waste is immense with no one there to cut it away as a private or public company is forced to do.

The words of Fed Chairman Bernanke seem to be carrying less weight now. He said he is for a stronger dollar policy yet the dollar keeps falling overall. And he continues to justify his behavior in rescuing the banks because he did not want to be in his position with a 'second Great Depression'. I think that concern colored his lens on doing what would have helped this country in the long run. It seems time to replace him.

June new home sales are up 11%. That is good news yet remember the price of homes continue to decline. Based on this statistic, it seems that the lower housing prices are reaching the level where buyers are beginning to see it as a good deal. When the number of foreclosures start to turn around, then the bottom will be reached.

North Korea, China, and Tidbits

Fingers are pointing at North Korea for the recent cyber attack on South Korea and several different U.S. agencies; National Security, Homeland Security, the State Department, Pentagon, White House, and New York Stock Exchange. The news is that the software attack was successful with the Treasury Department and the Federal Trade Commission. I don't think we will be told the depth of the other successful penetrations because of national security. I am surprised that North Korea has this kind of enterprising ingenuity. The picture by the mainstream is that it is an impoverished nation and using the threat of nuclear missiles to get attention. Perhaps this country is doing a lot more behind the scenes while it keeps our attention with the surface threats.

China's behavior with its citizens is consistent with their communist system. It's a good reminder for those who only focus on the economic interdependent relationship we have. China has been around for thousands of years and our country only 233 years. We need to learn to look far ahead, economically, like they do and act accordingly. This is the biggest benefit that I see they can teach us.

51% of all foreclosed homes have had prime loans, not subprime. Yet all the news for the last couples years have blamed this on subprime and the associated actions from banks, mortgage brokers and so on. This statistic shows that as home prices continue to fall, more people who are underwater are going to walk again from their mortgage.

The market is getting close to testing the 8000 mark again. Watch the patterns that show us repeated cycles and invest accordingly.

China and Underwater

China had a net outflow of U.S. Treasuries in April 2009. In the past they have been one of the biggest buyers. Their motto is now 'liquidity, safety, and returns.' This is a trend that we need to be alert to. Without foreign borrowers our ability to keep printing money and expanding debt will be curbed. It seems that we as a country have no self-control around money, so it does make sense that the outside would control us.

Also, a disturbing new action has come from Washington regarding refinancing mortgages that are underwater. The loan value will be raised to 125% of the value of the home. This is an example of how far off the business path we are headed. Would a prudent business person act in this way when the values of houses are still in decline? I don't think the government can keep acting in such a pervasive contrary way to our capitalistic system and not have it backfire.

The Dollar

Yesterday, the dollar was at 78.63, the lowest since 1971 when President Nixon abandoned the gold standard. This creates losses for those who hold Treasury bills, like China. They have lost an estimated $90 billion so far this year. 

Today, the Federal Reserve Chairman emphasized the need to 'begin planning now for the restoration of fiscal balance.'  He is concerned that about our long-term situation.  Our actions or lack of actions will have a direct effect on the confidence of financial markets.  Also, our total debt has contributed to a spike in long term interest rates. I wonder if these words are meant to help raise the dollar. One would argue that everyone is in the same boat as us and so the dollar will be okay.  My thought is that China is not in the same boat and has the opportunity through investing in their infrastructure to have a strong financial foundation.  The strongest financially will have the most influence on the world.

The Wheel of Evolution

Several noteworthy articles that I want to share:

*  One of our most influential science advisors (advises the Secretary of State office), Ms. Federoff said that the population now at 6.8 billion exceeds Earth's 'limits of sustainability', especially with fresh drinking water. The net daily population growth is 218k with a forecast of 9 billion 2040.  

*  Scientists predict that by September 2037, nearly all the sea-free-ice in Arctica will be gone.

*  By 2048, stocks of currently fished wild seafood species will collapse.

*  There is intense discussion as to whether oil has peaked; notable experts say that it did in 2005.  With India coming out with an affordable car for their people in July, and China becoming a major player in vehicle production, the U.S. is headed for a radical change given that we consume about 26% of the daily oil extracted.

These are a few examples of what comprises our full plate as a country and world.  We're looking at a span of almost 40 years here. For those of you who are less than age 50, you will mostly likely be living through these events or situations. I see this period as an intense time for change that is necessary for all of us.  If we incorporate our soul view with the personality view in how we relate to humanity and the use of the earth's resources, we will see the benefit of all that occurs.  I trust that our collective consciousness will expand to meet the challenge of what is necessary in order to benefit not only humans, but all inhabitants living here.  

My mother-in-law's son, my ex-husband, will be arriving today to visit her in Hawaii.

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.  

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?'

Look Behind the Scenes

The market plunges almost 8% today and the consensus is that the recession has 'officially' been announced and it started a year ago.  I don't agree with this since we all new that we have been in a recession long before it became official and the market has reflected this psychological impact.  I think something else is winding its way through the system that even the experts are unaware of. 

Look at Russia and Putin trying to convince the residents not to withdraw their money and send it to other countries for safety.  As a result of this action, the leaders are forced to spend less on military.  As I have said before, Russia will be reined in from spending aggressively on the military because the economic concerns will always take precedence.

The leaders of China are saying that they aren't keeping up technologically.  What are they really telling us?

What is the truth ?  I think the example given here plus other countries and what they are saying and doing lead a direct path to us to see why this market  fluctuates in the extreme.  It goes beyond the Bear having its way.  When I see it, I'll post it here.  If you see it, please let me know.