Hi Marek,
I had a relatively light day, getting up unusually late at 6:30am, drove in with the wife, did some banking, bought more physical gold, came home early with wife at 3:30pm, napped in an environment of aircon-chilled teak wood aroma, sunshine, and cicadas chirp. I just finished a light course of steamed fish, stir fried veggies and boiled rice over at the in-laws across the street, and returned to my favorite spot in own apartment. I feel the Ghz pulsing away at my feet. The rest of the family is eagerly anticipating the CNN Inside Asia show at 9:30pm.
I am thinking (or drinking Snapple Peach Tea and pretending to think) as I write, and I may sound hesitant.
I am concerned about the USD. I will set down the context first to what I write. My base currency is the USD, my spending is now and will likely continue to be in all different currencies, mostly pegged to the USD. I do not have any debt to speak of, and I do have an experimental Yen loan outstanding.
To me, USD is money, an asset, and not an investment or speculation. The key to good money vs. bad, for me, is “purchasing power maintenance, worldwide”.
In my mind, I treat the USD (base currency) differently than I treat the Yen or Euro (alternatives 1 and 2), for four important reasons, and for simply “choice” and “convenience”. I can use gold or even platinum value as score keeping points, but it would be inconvenient (possible but messy to set up MS Money program). I can also use “amount of points to live in the Philippines for one year in a particular defined style” as score keeping points, and that would be really inconvenient. So, the USD it is.
I will list those four important reasons. The USD has two good attributes that are important to score keeping points:
(a) Recognized the world over, because the US is a modern empire, real and virtual; and
(b) The empire will not disappear any time fast, unlike USSR.
The USD had two other good attributes that are eroding fast, namely:
(c) US Central Bank inflation (debasement) stance; and
(d) US Economic Growth.
Of the above four attributes, I prioritize for myself this way (not surprisingly), a, b, c, and d.
As (c) and (d) are eroding fast, I ask myself what my options are with regard to (a) and (b). Europe is socialist, and Euro is untested. Japan is feudal, and Yen is garbage. I have few options. I then look at US foreign policy, and see that US has consistently wanted both an obedient Japan and a compliant Europe, militarily and economically. I say to myself, “that figures” as it is nice to be the boss. As I had repeatedly stated, money has no nationality and wealth has no loyalty, and so USD it is, for the moment.
I watch the world and make adjustments in my NAV allocation to best preserve, and then to grow my purchasing power. I am not going to sit on my thumbs and watch my NAV debased more rapidly than I can grow it, and so I have to hedge by settling for a lower rate of NAV growth in exchange for a more certain level of purchasing power maintenance. I exchange interest-earning cash for non-interest earning physical metals, and I exchange SUNW, CSCO and ORCL shares for dividend earning AU, AAPTY, IMPAY shares, and I write puts on NEM and SWC shares, and I shorten the average duration of the bond portfolio. These are the easy to make adjustments, as the rest of the NAV (real estate) is not amenable to real-time adjustment.
On the cash and bond portion NAV, I ask myself whether I can make an allocation to Euro, and then I do, gradually. Euro will not disappear, whatever the US may wish, and if the world gets a bit wobbly on the geo-political and military front, my gold and platinum should do OK, partially offsetting Euro losses.
Thus hedged, I can then concentrate on seeking growth opportunities, as otherwise there is no point making gains on investment, if only to give back the gains via base currency debasement.
On debasement of currency, it is an old game played by politicians who want to maintain control of their power. They debase when they need to go to war, and they debase when they make economic mistakes. A mistake has been made in the US.
Japan made the same mistake earlier, but is cushioned by its domestic savings discipline. Imagine what would have happened to Japan had Japan in 1982 embraced the US discipline of personal credit cards, auto loans, home equity loans and fire-at-will management culture. Scary. Japanese government does what they do, because the alternative is bank failure. I think about bank failure, and realize they do fail, turn cold, and quickly give my platinum paperweight a grope.
So, just what is it I think the US did, and where do I think we are going?
(a) US insist on playing global policeman, and are happy to be compensated for the service only by being the acknowledged world economic and political leader, and able to print pieces of paper, USD, that it alone controls, and having some crucial commodities trade in USD terms. This is a cheap and necessary price for the world to pay until it gets expensive;
(b) US act as an education and innovation hub for the world, as its largest customer, and its last refuge for the refugee-ed. This is great, required, and noble;
(c) US encourage free trade, thus spreading the drive for wealth creation, income equality, and co-dependent peace. Fantastic;
In order to do all of the above, what you stated wonderfully …
<<Hard to imagine working them harder or longer hours. In millions of cases bankruptcy is matter of time, unless feds will find miracle>>
Americans have been working hard to innovate, benefiting themselves and the world, but they have also worked hard to consume, benefiting the world while having hedonic fun with SUVs.
I believe you are right in …
<<I strongly believe all other countries are interested in keeping dollar high as possible because it means easy market for their products>>
While keeping the USD high is good for the US consumers, if the consumers are able to continue buying (credit, economy and demographics allowing). But keeping the USD high is not good for America’s long-term interest, as it drives manufacturing out of the country, even as other countries even the playing field in education, innovation, and income, and therefore, yes, other countries want a strong USD. What they want is not necessarily good for you in the short or long term, unless we can all eventually step into that promised land of global peace, prosperity, equality, freedom, believing in one god, speaking one language and using one currency.
<<Is China able soon to take Japan role in the world?>>
China is becoming a manufacturing center for many things, of increasing value-add sophistication, while keeping pricing down (purchasing power up); as Peter Drucker had said, “what China can make, China will, and what China makes, China will export”, or words to that effect. This is the good and, I believe, inevitable part, as China makes, exports, gets wealthy, improves, and takes care of the world’s old.
I therefore believe the US ought to "engage China and nudge China to view the world as benign" as opposed to forcing China to act in the role of a strategic/economic competitor.
Competing against China, given its scale, cannot be wise, unless the world can continue to be dominated by conventional weapons, which it cannot. US interest in nuclear non-proliferation, serving only the US interest, is simply too strategically transparent.
The questionable part of a China in place of Japan scenario is, due to China’s continental scale, what happens to other smaller countries' manufacturers? Some would say SE Asia and Korea will go niche, and Japan will move up the value chain. Others would say “Competitive Devaluation!”
I do not know the answer. I hope for the former, and I am afraid of the latter. China’s transformation, given its 180-degree turn from most of its modern history, its scale, speed, and building momentum, will have a major impact on the world, more so than USSR, Japan, and in fact, probably second only to the US, and maybe even besting the US.
Remember, I use the word “besting” as in its eventual impact, success or failurre, as opposed to passing any political or philosophically qualitative judgment.
Well, golly, I do not know the future, and therefore better hedge, and then play.
<<Demographics always played crucial role. Isn't for China one child policy soon to be a burden?>>
The single child policy is, IMO, a distraction and cannot be the main event. The main event is demographic profile and economic income structure, growth, etc, and on those, China is I believe still OK, or at least going the right way, as it takes little to make the newly aged folks happy, given their experiences to date. Should China fail, the world will, to put it simply, fail.
<<My bets are on gold if you remember, since there is a growing trend between nations to keep their own currency lower and lower. Too easy to loose balance.>>
I have written much, and our conclusion is the same.
Chugs, Jay |
