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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Chispas who wrote (105831)	10/19/2009 10:44:05 AM
From: Chispas	Read Replies (1) \| Respond to of 110194

"The market could engineer a dollar rally before a fall" . Bill Bonner - Mon 19 Oct, 2009 ............................................................................................................................................................ This morning the price of oil rose over $79. Gold is trading at $1,051... about one-tenth the price of the Dow. The Dow fell 67 points on Friday. Investors began to wonder if the news coming from the banks was as good as the first reports indicated. For example, the Bank of America reported losing a billion dollars on its consumer accounts. It is all very well for JP Morgan and Goldman to make money. They’re investment banks. And they’re making money thanks to the US government’s generous bailouts. They pay almost nothing for borrowed funds... in dollars, of course. And then they take the money and bet against the dollar. So far, those bets are doing pretty well. Meanwhile, the Bank of America is a real bank. With real mom and pop customers. And the poor moms and the poor pops are going bust. They can’t pay their bills. Or, at least so many of them can’t pay their bills that it cost BofA $1 billion in loans write-offs. The LA Times reports that “ California job losses keep climbing”. The unemployment rate in LA County has reached 12.7%. Also, from LA comes news that millions of square feet of office space remain vacant. Between LA County, Orange County and the Inland Empire, there are some 51 million square feet of empty offices. We don’t know who owns all this vacant space. But we can imagine who lent the money to build it – the big banks. But lending money to customers is a tough way to earn a living. The more you lend, the more you make... until you lend too much. Then, you don’t make anything. Of course, speculating is a tough business too. But it’s a lot easier when you can borrow from the feds at practically zero interest and the government also guarantees your debts. How can you lose? Don’t worry, dear reader. Bankers will find a way. They always do. Want an investment strategy that really works? Just figure out what the big banks are doing and do the opposite. What are the big banks doing now? Mortgage lending? Nope. Credit cards? Nope. Business expansion? Are you kidding? How about mergers and acquisitions? Not really. According to the news reports, the banks are making money by “trading”. Trading what? Trading the dollar for things that are going up. Look at the price of oil – over $79. And the gold price today – over $1,050. Compared with each other, their prices are stable. But against the dollar both are rising. In other words, people with dollars are trading them for oil and gold. And not just oil and gold. While US stocks have gone up 50% or so in the last seven months, emerging markets are up twice as much. Argentine stocks – who would have believed it? – have doubled. Indian stocks are up about 80%. Well, let’s see... if the big banks are getting rid of dollars... hmmmm... do we want to get rid of dollars too? Maybe not quite yet. When speculators unwind all these short dollar/long oil, gold, stocks positions it will send the dollar flying. Could the dollar surprise the speculators? Yes it could. This weekend Tim Geithner told the world that the “US must live within its means”. There was no word on how his audience reacted. Surely some of his listeners must have giggled. Maybe at least one guffawed. A few must have rolled their eyes. Here was the man in charge of the Treasury – the world’s biggest spendthrift. The papers announced this weekend that his deficit had reached a new record, over $1.4 trillion. In other words, no nation ever lived as far beyond its means as the US. In the ten years from ’97 to ’07, consumers lived beyond their means. Then, suddenly, the shock of ’07-’08 brought consumers to their senses. Now, they’re saving... now it’s the government that is living beyond its means. The New York Times tells us that the turnaround in household accounts has been breathtaking. This year, the average household is expected to save $4,643. As usual, the NYT misses the point all together. It asks whether this is good for the economy and comes to the predictable conclusion that it is not. If consumers don’t spend, the consumer economy won’t grow. At least you know, dear reader, what nonsense this is. An economy only appears to grow from consumer spending. When consumers spend money – especially when it’s money they never earned – it triggers a phony boom. The economy gears up to produce more stuff. Then, when consumers have to repay their debts, the economy shrinks again. That is the story of the US economy 2001-2009. A real boom, on the other hand, is one that results from increased earnings, not from debt. When people earn more they can spend more – without going further into debt and without having to stop in order to pay back the money they borrowed. But you don’t get that kind of boom from consumer spending. You get it from saving money... which is then invested in new tools that increase output. More output = more earnings = more spending power = real economic growth. Simple enough, right? ................................................................................................................................................ dailyreckoning.co.uk