A thought to ponder Anyone?

More on China's economic power over US (Greenspan's 15 June comments etc.):

"At a commercial real-estate conference earlier this week, Alan Greenspan downplayed concerns that the Chinese might sell their significant holdings of U.S. Treasuries. The former Fed chairman based his opinion not on the inherent investment merits of Treasuries, but rather on their lack of them. His confidence stems simply from his belief that the Chinese have no one to whom they can sell. Furthermore, Greenspan sees this as a problem for the Chinese and not the U.S.

Although the performance of U.S. Treasuries has long been regarded as poor vis-à-vis other classes of sovereign debt, their overriding virtue has always been their supposed unrivalled "liquidity." As the most heavily traded asset in the world, it is argued, massive investors like the Chinese have few other markets in which they can operate. But if there are no significant buyers to whom the Chinese can sell, then there is no real liquidity at all.* If there is no performance or liquidity, why would they continue buying?

True to form, Greenspan is completely wrong. The Chinese are not the ones who are stuck, the Americans are. In order to exit their positions in U.S. Treasuries, the Chinese do not have to sell, they only need to stop buying and let their existing bonds mature. Then the U.S. government, not the Chinese, will be the one forced to find new buyers for its debt.

From: http://www.orbusinvestor.com/articles/gold-bonds-china/133

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*Another reason why China is already in the process of getting out and using part of its dollar earnings now for investments other than Treasury issues, either via funds, or directlly in Africa etc. For example, last week Chinese built 200 million dollar satellite was launched for Nigeria. Nigeria paid for it with 200e6 dollar loan from China. That loan will be "repaid" by sending oil to China. Effectively the dollars were just transfers on the books (Dollars are used all over the world as "book keeping / accounting" and probably will be for many years, even as they become worth much less.) In reality what happened was China exported a satellite for future oil supply. China is making these type of deals all over the world for raw materials for the next 30 to 50 years. Its factories will be hard pressed to supply the goods that will both (1) pay for these imports and (2)supply its rapidly expanding domestic market, which in about a decade will have more purchasing power than ALL Americans. The is when China will tell US : "Go to hell. We do not want your worthless paper anymore." It will then also be to China's economic advantage to collapse the US and EU economies so that they are buying little oil etc. in their deep depression state.

When this happens, don't say I did not warn you. I have been telling you how to protect your self (buy ADRs etc.) for a year now.
 
July 14 (Bloomberg) -- The dollar fell to a record low against the euro and the weakest in 26 years versus the pound on speculation declining consumer spending will weaken the economy and dim the allure of U.S. assets.

The U.S. currency dropped a fifth straight week against the euro and pound ... U.S. reports next week are forecast to show a slowdown in housing starts and manufacturing, which may fuel more dollar selling.

``The market sentiment is still to sell the dollar,'' said Jeff Gladstein, global head of currency trading at AIG Financial Products in Wilton, Connecticut. ``There is nothing fundamental to change that direction right now.''

The dollar fell 1.1 percent this week to $1.3782 per euro and reached $1.3814 per euro yesterday, the lowest since the European currency's debut in January 1999. The U.S. currency declined 1.2 percent to $2.0343 per pound and touched $2.0367 yesterday, the weakest since June 1981. Gladstein said the dollar will slide to $1.4 per euro next week.

The U.S. currency also dropped 1.2 percent to 121.93 yen this week and 1.5 percent against the Australian dollar. The Australian dollar rose above 87 U.S. cents yesterday for the first time since February 1989.
...
U.S. retail sales last month dropped 0.9 percent, the most in almost two years, after a 1.5 percent increase in May, the Commerce Department said yesterday. ``Retail sales is the piece of data to destroy the last standing hope of dollar bulls,'' said Boris Schlossberg, senior currency strategist at DailyFX.com in New York. ``We are going to see a consumer-led slowdown through the rest of the year, which doesn't bode well for the dollar.''

More at:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a78E0moWfGEo&refer=home

Also, as I have been predicting for last year or so, the DOW hits new high because in large part, the dollar is dropping and it takes more of them to buy the value of the shares in the DOW.
I stand firm on my prediction that DOW will hit 15000 by end of 2007 or early 2008 because the dollar will continue to drop in value. Again from Bloomberg:

July 14 (Bloomberg) -- "U.S. stocks climbed for a third straight week, sending the Standard & Poor's 500 Index and Dow Jones Industrial Average to records, ..."

More at:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a9SWFAyjbcMw&refer=home

Unfortunately, it is now too late to avoid the coming depression in US and EU.
 
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Nickelodeon said:
Too late? Surely not ./
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Of course, I may be wrong, but I can not see any way out now. sort of like a plane over the ocean with insufficient fuel to reach land. If you can suggest how he debt will be paid, except by inflation, please do so. All advanced governments now understand that inflation causes more damage than high interest rates that curb demand, so they are coming with the inflation. I.e. stagflation. Who in their right mind will finance more debt or even the claims of the retiring baby boomers for a nation in stagflation? Where does the current flight from the dollar end, and how? I hope you have some idea, I do not - it is now too late, I think.
 
Billy T said:
I disagree.
“Dumping the dollar” would be to sell their treasury bonds, REGARDLESS OF PRICE.
Getting rid of “dollar denominated assets” would be easy and is in already in progress.

Purchase of Blackstone group's new IPO at 5% discount as they are taking so large a share. They tried to buy SoCal (name is not quite right) oil about a year ago - that also would be "getting value out of dollars" and into oil without "dumping".* (SoCal has an unusually large fraction of its total worth in oil in the ground in contrast to "down stream" assets, like gas stations etc...

It is true that many of the REAL TANGABLE ASSETS they buy are quoted in dollars, but as the value of the dollar falls, these assets will tend to hold their real value - I.e. appreciate in dollars. IMHO, that is the main reason why stock market is frequently hitting all time highs (in dollars but not in reasonable basket of other currencies.) Also the reason why for more than a year, I have been predicting that the DOW will hit 1500 by end of 2007 or early 2008.
I.e. if one “owned the DOW” and it dose hit 1500, then the amount of material (including oil) that you could buy will be less than if you bought those materials today with the money required to “buy the DOW.” This prediction depends upon my other prediction -I.e. that China needs US to buy significant fraction of it goods for about 5 years still. Once China concludes it is economically attractive to dump its remaining treasury bonds in hope that others will follow - make a run to get out of dollars - to destroy the economies of US and EU, I don’t know what the DOW will do, and few will care. If US and EU do crash, then China will pay much less for the materials and oil it needs to keep factories "humming" - see post 270 for who will be buying their factory products.
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*China is also buying real goods all over the world, and paying with dollars. It is really hurting the manufactures in Brazil as the influx of dollars that few want, or need, has made the Brazilian Real much too strong. Causing Brazil's central bank to buy more than 10 billion surplus dollars every month. The Brazilian reserves have more than doubled. Brazil can pay off ALL of its external debts tomorrow and still have reserves! How long has it been since US could say that - I bet at least 75 years.
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I got to spend 3 hours today at a trading desk where I got to speak with a fixed income portfolio manager and an equity trader the entire time. I asked them both if they thought the declining dollar was a major driver of the DOW hitting 14000 this week. Both of them acknowledged that the weak dollar drives inflation, but they really didnt think that the DOW was overly inflated and they didnt see a declining dollar driver as the main reason the DOW is gaining ground so rapidly.
 
DubStyle said:
..didnt see a declining dollar driver as the main reason the DOW is gaining ground so rapidly.
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Back in october of 2006 I started thread called:

"Dow is not at all time high. - Dollar is dropping." -_I think the DOW was at about 11,500 then, but do not recall. I had already predicted that high and a 15000 DOW by "end of 2007 or early 2008" (Now looks like I can drop the "early 2008" part as the dollar is dropping faster than I expected it too.)

That thread is at:
http://www.sciforums.com/showpost.php?p=1166789&postcount=1
and contians:

" ... lets discount the current Dow peak by some other currencies:
In terms of the English pound: 13% below all time peak.
In terms of the Euro: 20% below all time peak.
In terms of the Swiss Frank: 22% below all time peak. etc. "

I have not redone these calculations, but assume again the Dow is only at all time high because the dollar is at 26 year low against the Pound and all time low against the Euro.

I do not care that your two experts think only in dollars - let them compute the value of the DOW stocks in term of real purchasing power. It probably has risen some as stocks are (on average) vehicles of real growth, but the stock markets of almost any country have greater gains that the DOW in terms of the real purchasing power.

In nominal terms in 2007 alone "Brazil's Dow" (BovSpa index) is up 29%. When this is coupled with the fact that, in contrast to the dollar, the Brazilian Real is INCREASING in value (by about 16% in 2007 alone), the real purchasing power gain of stocks in the "Brazilian DOW" is up about 45% !!! in 2007 alone.

Almost all of the main components of the DOW earn more of their income OUTSIDE of the USA and this rapid gain in the rest of the world is the other main reason why the DOW is hitting new highs. It is the grosses error and misunderstanding to think the new record of the DOW shows everything is going well for US econony when it really reflects exactly the opposite - Businesss OUTSIDE of the USA* is doing well and Dollar is doing badly - that is what the high DOW is telling you.
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*For example see today's Bloomberg article:

"Citigroup Profit Rises, Led by Gains Outside the U.S."
at:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a_83p0F.eygs&refer=home

Their internationa income up 34% etc. Most (if not all?) auto companies in US lose money domestically in US but profit abroad etc.etc.
 
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Looks like I am not alone in my POV anymore*:

" ... According to the Investment Company Institute (and reported by Jaclyne Badal in The Wall Street Journal), American investors withdrew nearly $10 billion from domestic stock funds in May and deposited nearly $12 billion into foreign stock funds. What's more "87% of the money invested in stock funds [in 2007] has gone into international products. ... "

From:
http://www.fool.com/investing/international/2007/07/12/the-best-markets-for-your-money.aspx

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*I just saw it coming 5+years ago and acted before the crowd.
 
The sub-prime mortgage problem is spreading to the next higher quality mortgages, which are called "Alt-A." I predicted this and explained why in earlier post. Basically it is the "food chain effect." The people who normally could "move up" from their "starter home" by selling it at a profit, are now finding that they can not sell at a profit. Many have negative equitiy in their "starter home," instead of profit. Some are going into default, and of course they do not rate an Alt-A mortage. In fact, their credit is sinking and they do no longer even rate (qualify for) a sub prime loan. Here is three pieces of supporting evidence*:

(1) "... Bear Stearns (BSC $121) fanned the flames of worries in the
credit market after announcing it has suspended redemptions in a
third troubled fund that is tied to Alt-A and prime mortgages. A
company spokesman said, "We believe the fund portfolio is well
positioned to wait out market uncertainty and we believe by
suspending redemption we can ensure the best long-term results
for our investors." Shares are sharply lower. ..."

{Billy T note: I think this is the Bear-Stearn's fund that was suspended (trading stopped) on monday, which was selling for about $15/share. It reopened for trading on Tuesday (yesterday) down more than 85%, trading below $1.55/share. I expect it will drop below $1.00/ sh today, if it is allowed to trade. If it trades below $1 for 30 days (I think) it will be "delisted" and trade only as a "pink sheet penny stock" - essentially a total loss to the invester, increasing the food chain effect as they can not invest money that has "evaporated."}
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*From C. Schwab's "Moring View" for 1 August07, but I can not give direct link as it was Email to me and at least 100,000 others early today.

(2) " ...Shares of American Home Mortgage Investment Corp. (NYSE: AHM) lost almost 90% today on news that the Melville, N.Y.-based mortgage real estate investment trust is now unable to borrow on its credit facilities and was unable to fund its lending obligations of about $300 million on Monday. The company said that its liquidity problems are “the result of the unprecedented disruption now occurring generally in the secondary mortgage market.” ..."

From:
http://www.smallcapinvestor.com/art...trading/07/31/2007/credit_worries_sink_stocks

(3) " ... Standard & Poor's said the U.S. corporate bond market was officially speculative grade. The big ratings agency said 50.7% of the corporate bond market is now rated speculative grade*, the first time this has happened, marking a decade-long shift toward more aggressive finance strategies and the evolution of the leveraged finance market. S&P calls anything below BBB- "speculative," but most people just call it junk. These days, the market calls it scary. ..."
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*That is their official name, but everyone calls them what they are: "Junk Bonds."

From Forbes:
http://www.forbes.com/2007/07/31/ma...x_lm_0801credit.html?partner=daily_newsletter

PS to Quadraphonics: (in support of my statements to the effect that one can not use the fact US production of ETOH is same as Brazil's to conclude that the potential production of Brazil is not more than a order of magnitude greater when markets are available.):

"... aproveitar as novas oportunidades de exportação que acreditamos surgirão no médio e longo prazos, em razão da liberalização das restrições ao comércio e importação que atualmente limitam o acesso a alguns grandes mercados sucroalcooleiros ..." Bold translates as: Currently limiting access to some large markets, and they expect this to change in the "medium to long term" (This because Japan is under contract to take a 1/3 of their new and largest plant for the next 30 years. There is a joint Brazil Japan company building the ocean tankers, etc. When US finally stops being so stupid, there will be little left to sell to US.)
From:
http://www.saomartinho.ind.br/
(I follow this company closely as I own 2500 shares of them, but currently I am showing a small loss as there is a glut of sugar (in India also). Again, the US's closed market, not land, is limiting Brazil's production to only about 3% of its potential.)
 
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I went back to first page of this thread and found:
Roman said:
...US has the world's biggest economy, and imports far more than it exports. Exports just aren't that important for us.
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which is (unintentionally?) a thought to ponder.

If true (and it is) then why does everyone (but me) assume that China, with a domestic market 4 times larger and only a small fraction (<1% surely) of the population owning things most Americans take for granted (Like TV, washing machine, Hi-Fi, CD collection, etc.) need to export to the US?

Why, given the above facts, can they not run a booming expanding economy without exports to US and EU?

Every time I have suggested that this is exactly what is going to happen soon now that their workers salaries are climbing rapidly most erroneously state that:
"China needs the US to buy, as much as the US needs China to finance it debts."

I note (again) that China will need to export to pay for the growing volume of imports (food stocks*, raw materials, and energy) but not to the US or EU.

I.e. China will soon be able to tell the US and EU to "Go to Hell - we do not need you."

However, China's factories will be very busy, while US and EU begin to sink into depression, hard pressed to:
(1) Met the rapidly growing domestic demand of four times the US population which currently has essentially nothing of the material goods Americans take for granted. - The world's largest consumer market is being born now, and they have yet to learn what credit cards are! (But US and EU banks are now teaching them.)
(2) Send finished goods and engineering services (to build roads, bridges, railroads, dams, airports, etc.) all over Africa and South America to pay for the items their factories need to import from their "economic colonies," many already under long term (30 year) contracts to supply these needed items.
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*US does have great agricultural potential, but cannot produce as cheaply as others with more favorable rain fall, growing seasons etc. now that they too are highly industrialized "agribusiness operations." (US agriculture survives today only with immense farm subsidies and tariff walls.)
 
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Another thought to ponder....


No Month Left at the End of the Money
Submitted by Isaiah J. Poole on August 15, 2007 - 6:09pm.

While President Bush continues to spread sunny optimism about the economy, we keep hearing discordant news from places where the sun doesn't shine.
"U.S. consumers continue to be under difficult pressure economically," Wal-Mart's chief executive said in widely reported remarks Tuesday as he reported that the mammoth discount retailer is going to miss its profit forecasts for the year. "It is no secret that many customers are running out of money toward the end of the month."

Look closely at today's inflation news and it is clear why.
While overall inflation is averaging 2.3 percent for the year, which economists agree is moderate, energy prices, which rose 2.9 percent for all of 2006, have been soaring at an annual rate of 21.3 percent through the first seven months of this year. Food costs have been rising at a rate of 5.7 percent this year, compared to an increase of 2.1 percent for all of last year.

What that means is that while the economy is sneezing, lower-income people are experiencing a very bad case of pneumonia. The Bureau of Labor Statistics reported that consumers in July were paying 9.5 percent more for dairy products than they were a year ago; 6.3 percent more for meat, poultry and eggs; and 4.1 percent more for cereal - the kinds of staples that dominate the budget of poor and working class people. They also paid on average 4.2 percent more for rent than they did a year earlier; falling property prices don't seem to be giving renters a break.

A more detailed picture of how hard inflation is hitting lower-income people was presented in a McClatchy Newspapers story on Tuesday: Year-over-year increases of almost 20 percent for eggs, 13 percent for milk, 12 percent for apples and 10 percent for whole chicken.

There are two economies, one for the people who can afford to revel in Bushian optimism —"I'm an optimistic person, particularly when it comes to the ability of Americans to create and dream and work hard," he said at an economic briefing last week—and one for those of us who live paycheck to paycheck, or pretty close to it.

It is to President Bush's advantage to conflate these two economies, as he did at a press conference last week:
"Since we began cutting taxes in 2001, our economy has expanded by more than $1.9 trillion. Since the tax cuts took full effect in 2003, our economy has added more than 8.3 million new jobs, and almost four years of uninterrupted growth. Inflation is low, unemployment is low, real after-tax income has grown by an average of more than $3,400 per person since I took office. The American economy is the envy of the world, and we need to keep it that way."
Such a statement blithely ignores facts (detailed in the Economic Policy Institute's State of Working America report) about the quality of the jobs that the economy has produced and how those jobs compare to the ones lost to outsourcing, and the actual loss of real income by the bottom 90 percent of the economy since 2000 while the top 1 percent enjoys double-digit percentage gains in real income, exacerbating income inequality.

The truth is the economy is still not working for working people, and President Bush and his supporters can't be allowed to ignore that reality.
 
Billy T said:
If true (and it is) then why does everyone (but me) assume that China, with a domestic market 4 times larger and only a small fraction (<1% surely) of the population owning things most Americans take for granted (Like TV, washing machine, Hi-Fi, CD collection, etc.) need to export to the US?
Click to expand...

Simple: your assumption is wrong. China's domestic market isn't 4 times larger than the US. China's *population* is 4 times larger than America's. China's market is less than 1/5 the size of America's (that the ratio of GDPs in exchange rate terms; the actual Chinese market is even smaller than that figure would suggest, since Chinese save so much more than Americans, and also must dedicate a larger share of income to basic necessities).
 
finance77 said:
If U.S. productivity growth does not keep up with that of its trading partners, the United States will quickly lose its international competitiveness and not be able to export any products, and its standard of living will fall. Evaluate this statement.
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America exports? I only thought is imported for looking at the debts to Japn , China and South Korea it couldn't pay them back in 100 years.
 
quadraphonics said:
Simple: your assumption is wrong. China's domestic market isn't 4 times larger than the US. China's *population* is 4 times larger than America's. China's market is less than 1/5 the size of America's (that the ratio of GDPs in exchange rate terms; the actual Chinese market is even smaller than that figure would suggest, since Chinese save so much more than Americans, and also must dedicate a larger share of income to basic necessities).
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You are speaking of today's conditions. (and I agree that is the case now.) I am speaking of the future conditions, at least a decade hence.

What do you think the difference in growth and savings rates will do in 20 years?

I have expressed my view on this in old thread "Do you think China will pass the US?" by answering "yes" and noting also that it will be in about 15 or 20 years and caused also by the US economy going down, especially in an EU/US deep depression.
 
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Billy T said:
You are speaking of today's conditions. (and I agree that is the case now.) I am speaking of the future conditions, at least a decade hence.
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Then you should write sentences in the future tense. Everything you said was in the present tense.

Billy T said:
What do you think the difference in growth and savings rates will do in 20 years?
Click to expand...

At current growth (and exchange) rates, China's economy will be about 60% the size of the US economy (in exchange rate terms) in 20 years' time. The savings rate is a secondary effect, but I expect the Chinese rate to fall and the American rate to rise, which will make the consumption figures somewhat closer. Even if the total ER GDP and savings rates were identical, though, China would still be a smaller market, since it has 4 times as many people, and so much more income must be expended on basic necessities. For China to actually have 4 times the domestic market would require them to have equal per-capita GDP. This will take many more decades to occur, barring serious revaluation of the yuan.
 
quadraphonics said:
Then you should write sentences in the future tense. Everything you said was in the present tense.
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I did all except for one, which I admit would have been better if I had said "future market" instead of just "market."

Someone also expected me to understand from context that "primary energy source" actually means a "secondary one." :D

For example I said:
"I note (again) that China WILL need to export to pay for the growing volume of imports (food stocks*, raw materials, and energy) but not to the US or EU.

I.e. China WILL SOON BE able to tell the US and EU to "Go to Hell - we do not need you."

However, China's factories WILL BE very busy, while US and EU BEGIN to sink into depression, hard pressed to:
(1) Met the rapidly growing domestic demand of four times the US population WHICH CURRENTLY has essentially nothing of the material goods Americans take for granted. - The world's largest consumer market IS BEING BORN now, and THEY HAVE YET TO LEARN what credit cards are! ...
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*...(US agriculture SURVIVES TODAY only with immense farm subsidies and tariff walls.)"

I.E IF YOU EXPECT ME TO UNDERSTAND FROM CONTEXT THAT "PRIMARY" MEANS "SECONDARY," THEN IN VIEW OF MY FREQUENT USE OF THE FUTURE TENSE (made all caps and bold above) I can certain expect the same of you, as I only omitted the word "future" but again I admit it would have been better it I had explicitly said "future market"
 
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Billy T said:
I did all except for one, which I admit would have been better if I had said "future market" instead of just "market."
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Take a look at the text I quoted in that post. It is in the present tense. I don't dispute that the remainder of your post, which you so speciously reproduced, was referring to the future. But the first part was written in the present tense and, despite your claims to the contrary, certainly seems to refer to the present situation.

Billy T said:
Someone also expected me to understand from context that "primary energy source" actually means a "secondary one." :D
Click to expand...

No, someone expects you to understand that "primary energy source" actually means "primary energy storage" in the context of a vehicle. But, hey, why let a little thing like accuracy mess up your rhetoric? It's certainly never slowed you down before...
 
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