Peace, Market

I want to acknowledge President Obama for receiving the Nobel Peace Prize. What a tremendous responsibility publicly bestowed on his shoulders to monitor his progress towards meeting the expectations of those who chose him for this award.

This week I sold stock and brought my cash position to 40% of my portfolio. I am in the process of rethinking how I invest and also, the memory of the October 1987 crash when I was fully invested played a role in this action.

Gold has reached record highs as the dollar continues in the other direction with a few blips, now and then. Countries, like Australia, who recently raised their interest rate is financially solvent, and so has more freedom in taking this action. The U.S. with its debt level is limited in this direction, even for the purpose to counter inflation.

U.S. Dollar and Foreclosures

Gold is over $1000 an ounce and other commodities are going in the same direction. The U.S. dollar is down. For the first time since 1976 the Canadian dollar is equal to ours. The Euro has reached a new high against the dollar. Countries are diversifying out of the dollar. For example, Russia use to hold 90% in dollars and now it's 45%.

Today, the Treasury Department acknowledged that 'there are millions more in foreclosures.'

These facts are reconfirming what I have written about in this blog. Given the markets continued climb in the month of September when historically it has been different, it seems that psychologically investors will hang onto any piece of optimistic news and invest.

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.

Things Happen in Threes

North Korea has renounced that its truce. originally established in 1953 with South Korea. Within the past decade it also abandoned this truce in 2003 and 2006.  I'm observing that this is the third time, but also that about every three years, this intention occurs. Given that the leader is priming his son for the top spot, I think that he will take whatever steps he deems necessary to transfer that power to his son.  He does not seem to have any concern for the well-being of his people at the survival level, so he is unpredictable. 

Some tidbits:

*  The dollar has lost 96% of its value since 1913.  Keep an eye on it to gauge how we are doing creating and managing the escalating debt. The lower it goes, the less stable we appear to other countries who buy it.  Also Standard and Poor reaffirmed our AAA rating as a country. What else can they do? So goes the U.S. and the affect on the world will be devastating.

*  There were 616,000 foreclosures in the first three months of this year, a record high.  Fixed rate loans represented more than half, where in the past adjustable rate mortgages were in the lead.  

*  12% of the homeowners are behind or in foreclosure.

We are all in this together. The 'bump' that I referred to before has yet to arrive.  I call it a bump because it won't take much given the momentum of government spending.

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.

Cleaning Out The Financial Closet

The threads are surfacing more frequently now, reflecting the cracks in our financial foundation.  High profile New York figures like Bernard Madoff show us a great example of what is yet to come:  at least $50B in losses with his ponzi scheme.  France banks are exposed to at least $400M, Sweden $300M, Spain $3.1B, HSBC in Geneva at least $4.22B, hedge funds yet to be identified, and the beat goes on.  Contraction exposed this fraudulent setup.  And what blows my mind is that Madoff is a former chairman of the NASDAQ stock exchange.  A second example is Marc S. Dreier to the tune of hundreds of millions.  The ripple effect over the next few weeks, as the system continues to contract, will determine the extent of the tsunami.

Watch the dollar. As it goes down U.S. Treasuries become less appealing to foreign investors, and it leads to more inflation.  Bernanke is looking at reducing the discount rate again, to possibly zero.  This will affect the dollar in a huge way.  Again, what is the point of diminishing returns when the creditors say 'enough is enough' and no longer buy our bonds and treasuries?  I think it is closer than the horizon.  The best step each of us can take is keep paying down the personal debt.  That step gives us more freedom when the biggest tsunami we have ever experienced touches our shore.  I am not being pessimistic.  I think what is happening is for the highest good, especially now that the worms are coming out of the woodwork who used the expanded liquidity over the last decade or two to hide behind.  It does show a giant hole in the regulations are implemented.