Darrell

Thoughts on the S&P 500 Going to 325

It seems to me that most people fail to realize that the American debt held by foreign investors, foreign institutions, and foreign governments are dominated in dollars.

The Federal Reserve policy wonks have a process called quantitative easing which allows them to simply issues more dollars to pay off the debt.

This means that if you hold a bag of dollar dominated debt and suddenly become fearful about the solvency of the dollar, thus demand that our government buy back your bag of debt, the Federal Reserve Federal Reserve will comply with your demand. You may have to pay an early withdrawal penalty, but buyback they will.

All the Federal Reserve has to do is invoke the quantitative easing policy and print as many dollars as needed to buy back your debt. This is a neat situation for any debt holder to be in! But, unfortunately for most debt holders, they have to pay off their debt through earnings.

Remember that the dollar, or any other currency, has three uses: invest it, spend it or save it. And because the dollar is one of the few currencies that are accepted as legal tender in most countries, the dollar holder has the legal right to buy goods, services, and/or assets with their dollars rather than the currency of that country.

So, debt holders who switched their dollar dominated debt bags to bags of dollars will be spending their dollars or investing their dollars, not buying more debt.

In this situation, how can S&P go to 350?

Banking on Energy (Rather than Currency or Gold)

The dollar gained legal tender status throughout the capitalist world at the beginning of the cold war; and at that time, only France, objected. The focus was fighting the communist's cold-blooded ideology and not on global currency standards. Since that time the dollar became the prime currency for conducting international trade and most of the world’s central bankers have accepted the dollar as legal tender in their country.

Central banks are the black hole for storing excess dollars; they reinvest their dollar holdings in US debt or other debt securities. Some countries have set up wealth funds to invest their excess dollars in wealth producing activities within their own country and other countries.

In a non-digital world, the case could be made for one nation to regulate the distribution of an international currency. Now, the world has changed and the currency system must change with it. As one can see, we have entered into the transition stage, so the question now is: how can investors, companies, and national economy’s thrive in the new era?

As an investor my focus is on wealth making opportunities in North America.

U.S. Debt Burden: Negotiate, Inflate or Repudiate?

Our government debt is dominated in dollars so all the Federal Reserve has to do is issue more dollars and use them to buy back the debt; for sure, if the dollar holders decide to spend their dollars holdings rather than save or invest it, then we will experience hyperinflation.

I think the FR calls this buyback procedure qualitative easing.

For the Corporation with too much debt, they simply declare bankruptcy, and the stockholders loses, while the debt holders wins; the debt holders has several options: they can exchange their debt for new shares in the company; they can liquidate the company and collect the proceeds. Or whatever other options they can think up.

The debt holders are making the decisions, and they will select the option that will make them whole. In any outcome they select, the debt holders comes first, the shareholder comes last.

For the individual with more debt that their income can support, they simply declare bankruptcy. Their first action, once they decide on bankruptcy, is to visit a bankruptcy lawyer and empower the lawyer to take control of their bankruptcy.

In any excess debt situation, our laws have evolve in a manner that resolves excess debt problems in a rational manner; I would not worry about excess debt burdens destroying the ability of our economy to function effectively.

Much of our current debt problems is the result of our brokerage firms being able to securitize debt, have rating agencies give it a high rating, and then sell it to unsuspecting buyers. Most of these buyers were retirees, institutions and others that wanted an ongoing income stream.

Did these buyers of securitized debt, understand that they would lose their income stream and their capital that created the income stream?

If any thing our bankruptcy laws should be expanded so that these debt holders have the right to sue the sellers of securitized debt and take what ever profits they gained.

Ford: Positioned to Lead Growth Segments of Auto Industry

Not to be prideful, but in October 2008 I purchased a 2009 Ford Focus and prior to that I owned a Ford Explorer for 19 years. I live in San Francisco and I move around the city via public transit.

I get my ford serviced at the local dealership, and with my Ford Explorer I was told to come back every 3.000 miles. With my ford focus I am told to come back every 6,000 miles; progress, for sure.

So not only is Ford increasing the reliability of their vehicles but they are decreasing the ongoing upkeep cost; for years, Ford has, as one of their core values, quality of vehicles.

It seems that their values are working through the system and finally coming to fruitarian.

China Wants to Ditch the Dollar

Foreign holders of the dollar have no choice but to continue to accept the dollar as legal tender for commercial transactions; the dollar has three uses: one can save it in a deposit taking institution and receive interest income in return, one can invest it in producing assets with the opportunity to earn capital gains, or one can spend it to acquire goods and/or services for their pleasure or for their wealth building activities.

We are in a free society and the Federal Reserve’s Board every policy decision can and will be critiqued by every one who has interest in such matters. The critiques will come from congress through their policy hearings to written responses and written commentary on blogs such as this one.

And I think that this is the advantage that we have over China’s, Russia, or any other currency change proposals, the ability to freely respond to policy decisions made by our Federal Reserve.

Currently they are printing way too much currency for current and future economic needs, but, because of our freedom of expression, the end result will not be hyperinflation, but higher than normal interest rates on savings for an extended period of time.



On Mar 24 12:54 PM krisandi wrote:

>
> Asybytec: IMF will eventually create a new world reserve currency.
> No choice. USD will drop value as the US start spending all bailout
> money. Expect DJI hit below 1000 and stop bickering other country
> and stick to find answers to our problem.
>

U.S. Debt Surpasses $11 Trillion But Day of Reckoning Is Still Ahead

The fallout will begin once central bankers no longer accept the dollar as legal tender in their country. Right now central banks are the black hole for storing excess dollars, but the black hole is stretching like a rubber band. Once it snaps then the fun begins.


On Mar 20 10:50 AM Rolfe Winkler wrote:

> Buddy, don't get me wrong. The Bush administration deserves an equal
> share of blame. Along with credit rating agencies, banks, over-levered
> funds (of the hedge and LBO variety), unscrupulous lenders, irresponsible
> borrowers, the list goes on...
>
> Can't make every post a catalog of all the folks at fault, it would
> bore the shit out of y'all!

Roger Wiegand: After Bitter Winter, Brace for Spring Meltdown

Yellowhoard, you are correct about China, they are putting their cash hoard to productive use; China intent is to create a sustaining wealth creating society that can support itself. China may make incorrect invest decisions during this transition process, but they are steadfast in their goals and I expect them to rebuild their society in the manner they choose, and not in the manner of think tank policy makers.

It is unfortunate for us that our leadership thinks, since our dollar is accepted as legal tender in most countries in the world, we are a wealth producing society that is so prosperous that it is producing excess capital. The exact opposite is the truth.

Best to you.

On March 18 Yellowhoard wrote:
I suspect China will spend their dollars on dams, highways, airports, water projects, etc...the kinds of things that we should be doing.

They will buy fewer US bonds and more natural resource assets.

This will result in higher prices here for raw materials and higher interest rates here as well.

Then, we will get the bill for this spendfest.

With big time inflation, higher interest rates and massively higher taxes, at best, we will have massive unemployment and the food riots won't be too destuctive to civil order.



On Mar 18 11:01 AM Darrell wrote:

> Yellowhoard, don’t you know that all the debt that our government
> owes to the rest of the world is dominated in dollars? If China,
> Russia, or any other country wants us to pay off our debt, all the
> Federal Reserve has to do is issue more dollars. So instead of holding
> a bag of debt one will be holding a bag of dollars.
>
> And forget about foreign dollar holders not buying any more treasuries;
> what are they going to do with their dollar holdings? One can do
> one of three things with their dollars or any other currency: spend
> it, invest it, or save it.
>
> If your goal is to preserve your capital, then invest it in wealth
> creating opportunities. Best to you!

Roger Wiegand: After Bitter Winter, Brace for Spring Meltdown

Yellowhoard, don’t you know that all the debt that our government owes to the rest of the world is dominated in dollars? If China, Russia, or any other country wants us to pay off our debt, all the Federal Reserve has to do is issue more dollars. So instead of holding a bag of debt one will be holding a bag of dollars.

And forget about foreign dollar holders not buying any more treasuries; what are they going to do with their dollar holdings? One can do one of three things with their dollars or any other currency: spend it, invest it, or save it.

If your goal is to preserve your capital, then invest it in wealth creating opportunities. Best to you!

What's Left for Foreigners to Do with Dollars, But Spend Them in the U.S.?

The dollar is accepted as legal tender in most countries in this world. The world has gone capitalist. Allowing the individual and/or institutional capitalist to drive the creation of goods, services and other things needed to keep the economy moving.

The only problem with the dollar being used as international legal tender is that our federal reserve has sole authority to determine how many dollars should be produced; China, European Union, Swaziland, Switzerland, Russia or any other nation are welcome to use their currency as international legal tender and try to replace the Federal Reserves leadership role.

If we want to pay off our debt all our Federal Reserve leaders have to do is produce more dollars and use these dollars to buy the debt; after all the US debt is denominated in dollars.

The dollar has been used as international legal tender since the beginning of the cold war; more than 50% of all dollars are held by foreign investors, foreign institutions, foreign central banks, and the list continues. I doubt very seriously that these dollar holders will replace their dollars with some other currency; as long as they can continue to make profits from the use of the dollar.

As Max so well put, we are in the drivers seat. So don’t sweet the small stuff.

The Great American Hole Gets Deeper by the Day

It should be remembered that most of the public pension benefits are voter approved. The voters are taxpayers and as such, when they approved the pension benefits for their public employees, they also gave their consent to pay for the benefits.

Thus, why not simply raise the taxes until public pension funds are fully funded?

And to follow through on the hyperinflation economy, let’s put on the ballot an inflation adjustment clause for our public pensioned employees so that they will be protected from the coming hyperinflationary economic environment.

I have heard that Federal employees already have that clause built into their pension plan.

Venezuela: Chavez's Control of Oil and Agriculture

You don't tug on Superman's cape

You don't spit into the wind

You don't pull the mask off the Lone Ranger

You don't ask where the gold is hidden

You don’t say that Chavez is cool

2 Top Energy Sector Bets

It is amazing that no one is mentioning FTE NLR. This where one begins if they want to invest in the nuclear industry.

Is a Coffee Price Breakout Imminent?

When I retired, I stop going to coffee shop for my moring fix. Instead I drink coffee at home; I do have a $3 off with coupon for Yuban and/or Maxwell coffee.

No item limit, so I will stock up. Does anyone know shelf life for ground coffee?

Russia: Beware the Bear

Yuri gas made some valid points, but what he did not discuss is the fact that Russia, like the US, started an unjust war; when they allowed Georgia to become an independent country they gave up their rights to impose their will on a free country.

They should have used diplomacy, not violence, to address the concerns of the minority populations in Georgia.

Economically, I think Russia will thrive and become an economic power; but it remains to be seen if they will become a moral force in a globilized economy. Over the years Russia has produced some great spiritual leaders, including Father Arseny, and I pray that a new generation of spiritual leadership will take control; it is obvious that the current leadership has not taken up the touch.

The End of U.S. Financial Domination

The question should be: who holds dollars? My understanding is that over 50% of the dollar supply is held by foreign central banks, foreign savers and investors and foreign institutions.

The dollar is accepted as legal tender is most countries. In this content the dollar has value. I can go to almost any country in the world and use my dollars to buy goods, services and/or assets; the seller in turn will exchange their dollars for their own currency.

The country’s central bank is left holding the dollar, which they reinvest in incoming producing assets. Sovereign Wealth Funds are simply a national vehicle for investing surplus dollars and other currencies into wealth producing assets. These wealth producing assets will generate goods, services and/or assets that will be exchanged for currencies.

If one listens to our policy makers one thinks that this is a never ending circle that is raising the standard of living of the poor and downtrodden. The argument that one is exchanging something (goods, services, assets) for nothing (currencies) doesn’t hold water with them.

They respond that economies are operating in a globalized economic environment and currencies are simply a medium of exchange to make the process work effectively. Currencies are governed by treaties and treaties can be changed to accommodate changing conditions.

Because globalization is a new economic force, market forces have not yet worked through the system. These market forces will correct and strengthen the globalize economy not ruined it.

The policy makers say that people of economic doom are simply ignoramus’s who don’t understand how the system works.