Tuesday, September 29, 2009

U.S. Dollar Losing Global Favor

World Bank president Robert Zoellick said recently that the U.S. can no longer assume its position as the economic superpower will remain unchallenged, and that the days of the U.S. dollar being the preferred global currency are coming to an end.

Zoellick also stated that it would be a mistake to think that the dollar be the major reserve currency in the world as well. Other currencies expected to gain more favor and global acceptance are the Chinese renminbi and the euro.

In other words in the mid-term future there will be more options as the U.S. dollar continues to be battered under the misguided policies of the Obama administration and the Federal Reserve printing press.

In remarks considered unusual for a World Bank president, Zoeller also criticized the Obama administration for attempts to make the Federal Reserve even more powerful, while saying the Treasury Department should be vested with more power because of the oversight Congress now has over it, which at this time the Federal Reserve doesn't have.

Sunday, September 27, 2009

The U.S. Dollar is the New Peso Not the New Yen Says Peter Schiff

In a recent converversation about the collapse of the U.S. dollar, Peter Schiff stated that the Federal Reserve is facing a dilemna that they'll have to make a decisions about, neither one which looks like it'll end in a good way for the U.S. dollar.

The first one is to continue on with close to zero interest rates where inexpensive dollars are the endless supply for carry traders, or they could stop the carry trade in its tracks by raising interest rates, which would cause a deeper recession "than anything we’ve experienced so far.”

Schiff added that the use of the yen for carry trade is now over, and it should continue strengthening, as the Japanese consider it a good move for their domestic economy for it to strengthen rather than be weak with low interest rates connected to it any longer.

When asked about the future of the U.S. dollar and carry trade, Schiff responed in a CNBC interview, “I don’t know when [the dollar] is going to strengthen. The dollar isn’t the new yen, it’s unfortunately the new peso.

Either way, as far as making money on the carry trade, Schiff said that because the U.S. dollar will continue to collapse, those using it to invest in higher yielding currencies and assets should make a fortune for some time to come.

Saturday, September 26, 2009

US Dollar Play | Invest in Commodities

One of the more obvious play with the U.S. dollar is to invest in commodities. That can be done through futures, funds and stocks linked to raw materials.

A commodity index fund is another great way to invest in commodities over the long haul, which will continue their bull run overall once the demand for infrastructure materials resume from countries and companies spending more money.

No matter what happens to the U.S. dollar though, which will obviously continue to lose its value, commodities will continue to rise based on the demand from growing middle classes in emerging markets.

So while commodities are a great play against the weakening U.S. dollar, they are also a terrific plays in and of themselves based on demand and supply; along with tight credit markets.

US Dollar Play | US Multinationals

Many investors concerned over the unknown risks of investing outside the U.S. instead will focus on U.S. multinational companies which have a significant percentage of their business outside the U.S.

Some large institutions are looking for U.S. multinationals that do over 50 percent of their business outside the U.S. which are large and obvious companies like General Electrice (GE) and Waters Corp. (WAT), among many others.

What should be looked for is companies with history and proven track records, most of which have been performing pretty well considering the difficult economic circumstances we're in.

Invest in Emerging Market Global Bonds Against Weak Dollar

We've been talking about ways to take advantage of the weakening U.S. dollar, and another one of those ways is through investing in global bonds, whereby retail investors can invest through mutual funds.

One thing to keep in mind here is to watch for mutual funds whose currency is denominated in U.S. dollars, and of course have been rising against it.

Over the last five years, according to Barclays Capital Global Aggregate bond index, global bonds have returned 6.11 percent on an annual basis; far better than the S&P 500 and U.S bonds.

In 2009, global bonds have been performing much better than even the last five years, depending of course on which ones you invest in.

Investing in ETFs to Take Advantage of Weak US Dollar

With the U.S. dollar continuing to collapse in value, one way to play that ongoing trend would be to invest in an Exchange-traded fund which provides you targeted exposure to foreign currencies.

Foreign exchange trading is nothing more or less than investiing in one currency versus another. Do your homework, find solid currency performers against the U.S. dollar, and invest in an ETF that caters to those circumstances and currencies.

One thing to understand about currencies in general; when one is going up another is coming down, and the U.S. dollar will be coming down for some time to come, so it'll be a good play for quite a while when choosing the opposite currencies correctly.

Friday, September 25, 2009

Sell Dollar Investments Fast

The warning is getting stronger as time goes on from about any credible investor in the world, that the U.S. dollar is on its way to crashing, and those heavily invested in dollar-denominated vehicles will be crushed if they don't get out of them as soon as possible.

At minimum, we should at least own something not denominated in U.S. dollars, and weight our investment portfolios in that direction.

Even today it was announced the Federal Reserve is going to continue to buy up mortgage-backed securities, to the tune of over $500 billion more through April 2010. That means even more dollars are going to be printed to pay for all of that, again, putting even more downward pressure on the U.S. dollar.

If you're overexposed, you'll sink along with the U.S. dollar collapse, don't let that happen to you while you still have time to change things.

Thursday, September 24, 2009

Julian Robertson: Betting on Inflation

One of the greatest hedge fund managers that has ever lived - Julian Robertson, said in a recent interview on CNBC that he was just about betting everything on the inevitable inflation, which will decimate the U.S. dollar.

He stated one of the key problems with the U.S. financial policy, and that is that it has led to complete dependence on China and Japan buying our debt if we are to economically survive, or at minimum, we'll face "severe economic problems."

"It's almost Armageddon if the Japanese and Chinese don't buy our debt,” Robertson said in the interview.

Concerning inflation, Robertson stated, “If the Chinese and Japanese stop buying our bonds, we could easily see [inflation] go to 15 to 20 percent. It's not a question of the economy. It's a question of who will lend us the money if they don't. Imagine us getting ourselves in a situation where we're totally dependent on those two countries. It's crazy.”

Roberston added that while the Chinese probably won't stop buying US bonds, it's quite possible the Japanese will, and sell their long-term bonds, which he said would be worse than someone not buying at all.

"The U.S. has to quit spending, cut back, start saving, and scale backward Robertson said. "Until that happens, I don't think we're anywhere near out of the woods.”

While Robertson said he thinks the recession is in a temporary lull, because so many of the financial problems haven't been dealt with, and the Federal Reserve hasn't stopped printing money, that could readily change.

He said it's impossible to pay back what we've borrowed, and the only change of that remotely happening is if the Chinese and Japanese continue to buy bonds from the U.S.

As a result, Robertson is betting a lot of his fortune on the fact that inflation will eventually come and soar, something all of us at minimum need to be financially defensive about.

Marc Faber: Ignore Ben Bernanke

Marc Faber

Marc Faber is advising people to not keep their investments in the U.S. dollar, and not to invest in things like US bonds.

As far as the assertion by Ben Bernanke that "We will keep inflation in check," Faber says to completely ignore that fantasy.

Why Faber says this is the inevitable need for the U.S. government, via the Federal Reserve, to print more money, which will continue to put downward pressure on the greenback. He said with someone like Bernanke running the Federal Reserve, we need to operaton under the assumption the U.S. dollar will be worth close to zero, if not zero. He reinforces what he has said in the past, that we shouldn't in any way trust the Federal Reserve.

Faber instead says investors should place their money in investments that will hold their value, using gold as one of the options investors need to have some of their money in.

Over the next 10 years, Faber points to the soon rush to retirement of Baby Boomers, who will put increasing demands on Medicare and Social Security, which, along with other areas, will force the government to print an enormous amount of money.

That will result in even more inflation, and the loss in buying power of the U.S. dollar, if not its complete collapse.

Marc Faber

Wednesday, September 23, 2009

US Dollar Carry Trade Currency?

The statement from the Federal Reserve that slow economic conditions "warrant exceptionally low levels of the federal funds rate for an extended period," caused great pause today for those understanding what this will mean for the U.S. dollar, as it will probably take the place of the yen as the currency used for carry trades.

A carry trade is when an investor borrows using a currency with low interest rates for the purpose of investing that capital in higher-yielding assets. The problem with that is it is bad for the currency used as the investment of choice to start the process, which looks to be the U.S. dollar through probably a minimum of 2010.

The Federal Reserve said these conditions will continue, essentially reinforcing the reality that the U.S. dollar will be the carry trade currency going forward, although obviously not stating that specifically.

Dollar Collapse G10 Economic Power

The collapse of the U.S. dollar will be accompanied by the further erosion of the fading G10 bloc countries and their economic power, preparing the way for an world which will eventually be completely changes in focus and power.

Even so, the U.S. dollar will fall the most of the currencies like the yen, euro, Swiss fran, British sterling, among others.

Some think the regional currencies of larger countries will be the new safety valve for smaller countries, while the U.S dollar will assume the role of Japan in "carry trade" status going forward. That's not a good thing.

While this was happening before the economic crisis, the crisis has actually temporarily hidden this reality, but when growth truly resumes, the growing disparity between emerging markets and old money will come to light even further as that chasm continues to grow.

The U.S. dollar is expected to be hit the hardest, and the misguided policies of the U.S government from administration to administration, culminating in the total lack of control of the Obama administration and the Federal Reserve, will only hasten the downfall and make it worse going forward.

Jim Rogers Selling U.S. Dollars

Jim Rogers has never been one to shy away from stating his mind, and in his chosen field of commodities, he is right far more than he is wrong, and with the U.S. dollar, he has been warning for years that people need to divest of it and put their money in other currencies and investments.

Rogers stated in at the China International Financial Services Conference (CIFSC) last week in Guangzhou that he is winding down his position in the U.S. dollar, and will sell all of U.S dollars before he's through.

Citing the non-stop growth of debt by the U.S. government from administration to administrations, Rogers has asserted for some time that it's a flawed currency, which it is.

Radically and truthfully, Rogers has said the "story of the United States is over. A new story belongs to China.”

Rogers also stated that he no longer has an interest in investing in U.S. Treasury bonds, “because the government is constantly printing more banknotes.”

This means that the inflationary pressures about to hit us would cause an investment in U.S. Treasuries to lose value, even if returns move up some. Even so, Rogers said more than likely bond prices will rise significantly from where they are today, but he will focus on raw materials and companies that do business with a "real economy."

Tuesday, September 22, 2009

U.S. Dollar Index Plunges to Yearly Low

Dollar Collapse
The U.S. dollar index plunged to its lowest level, as well as against the Euro. The U.S. dollar index tracks a basket of six currencies against the U.S. dollar.

This will continue because of the misguided steps of the government and the Federal Reserve to print money and bailout the banking industry, AIG and the auto industry; money it really doesn't have, and which our children and grandchildren will pay for for decades.

In response, commodity prices rose as investors looked for higher returns, starting to believe they can add a little more risk to their portfolios, possibly wading in too early, as there really isn't much data to justify the assertion by Federal Reserve Chairman Ben Bernanke that the recession is over.

Dollar Collapse

Monday, September 21, 2009

Printing Dollars: Commodities and Inflation

Even if the economic crisis hadn't hit and the U.S. government printed an outrageous amount of dollars, prices of commodities would have still went up, but add that to the eventual demand from the emerging middle classes in China and the rest of the BRIC countries, and you can see the commodity bull market will pick up where it left off, and even go further out than it would have without the temporary setback from the economy.

Jim Rogers talking recently said historically, whenever governments print money commodities will always rise in price, and that will be the consequences of an out of control Federal Reserve, probably far more than it would have been based on supply and demand for raw materials on their own.

The U.S. dollar will get crushed by these circumstances, and ultimately, could end up collapsing under the weight of trillions of new pieces of paper printed because the Federal Reserve refused to let the free market clean itself out, and had to interfere in attempts to garner favor and reinforce its image as a rescuer in the minds of the American people.

While that backfired and brought them out into the open for the first time since their unfortunate creation in 1913, we'll have to pay for the actions of the FED for a long time, as will our children and grandchildren.

Sunday, September 20, 2009

People Returning Solid Financial Planning

As the crisis has unfolded the folly of a debt-driven economy and personal finance lifestyle, people are returning to strategy of financial basics, and that's a really good thing.

When queried about their customers, financial planners say that their clients are getting back to saving more, using less credit, building up an emergency fund, understand how much risk they can be exposed to, and diversifying in safe investments.

Oh, and most importantly, they're now looking at long-term wealth building rather than wealth trappings created by the illusion that debt provides.

"Before the market chaos, there was a very low savings rate, inappropriate use of credit cards, too much risk in investments, excessive spending on residences," says Tom Warschauer, a finance professor. "Virtually every type of financial decision was being made in a kind of fairyland atmosphere, thinking 'This will lead me to be better off' when in fact that was never the case."

While some financial planners predict this may last for a decade, hopefully it will become the way of life for consumers around the world, who will have to go through it all over again if they never learn that excessive debt will inevitably always lead to these results.

FDIC Chairman Tapping Treasury Credit Line?

FDIC - Deposit Insurance Fund

Just three weeks after FDIC Chairman Sheila Bair said "Not at this point in time," when asked if she would need to tap into a Treasury credit line, she has changed her thinking and now says pretty much all options are on the table, implying a real crisis, which most of us probably know about.

At this time, the FDIC estimates that the agency will need somewhere around $70 billion through 2013 to be able to insure bank customers' deposits. The Deposit Insurance Fund now is at its lowest level since 1992.

The Deposit Insurance Fund has plunged to 0.22 percent of all insured deposits, below the mandated minimum level of 1.15 required by Congress. So far 94 banks have fallen in 2009 as of this writing.

Alt-A and commercial loans pretty much guarantee that 100s of more banks could collapse before it's over.

In May, Congress increased the FDIC credit line at the Treasury from $30 billion to $100 billion.

While Bair rightly said that the existing financial regulatory system should be changed in order to keep large banks from becoming too big to fail, she ignores that those provisions are already in place: it's called going out of business or declaring bankruptcy. This is why the Federal Reserve needs to be shut down so it can't pour taxpayers' money into the market to shore up banks and other businesses that are run poorly and can't compete.

FDIC - Deposit Insurance Fund

U.S. Dollar Drops Against Euro

U.S. Dollar drops to lowest level against Euro in a year

If your one of those that might have made investing decisions based upon the hapless Federal Reserve Chairman Ben Bernanke and his announcement that the recession is probably over, better take a step back and think things through.

With the drop of the U.S. dollar to its lowest level against the euro in a year, it means that a number of investors may have entered into riskier investments based on nothing but Bernanke's unsupportable conclusion. That's why he said it might be over, or it's "technically" over, i.e. from a technical perspective, which sounds to be me like he's covering his rearend for when it's discovered it's a fake recovery and not a real one.

“The dollar will come under further pressure,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. “This continuation of the quantitative-easing program will provide further asset-market support. That’s going to lead to dollar weakness as funds flow out of the U.S., seeking higher returns elsewhere.”

The point is, if you're going to make riskier investments, never do it based upon something a Federal Reserve Chairman like Ben Bernanke asserts, as he and others like him are attempting to shore up their reputations and make themselves feel important; a very poor reason to invest in something riskier.

U.S. Dollar drops to lowest level against Euro in a year

Saturday, September 19, 2009

What is a Municipal Bond?

A municipal bond is a bond that is issued by a government entity smaller than the state, so could be a city or smaller local government like those designated as a village. Others issuing municipal bonds could be school districts, counties, or a number of other government agencies. The key is they are below the level of a state government in definition and use.

The most powerful and attractive purpose for investing in a municipal bond is that they are in most instances exampt from Federal, State, and local taxes, although that needs to be confirmed, as there are exceptions to the rule, primarily based on what the money will be used for. Usually exemption from state taxes is based upon a resident in the state the municipal bond is issued.

With the subprime mortgage crisis, municipal bonds came under pressure and as a result dropped in value, as credit ratings plummeted in a number of circumstances.

Investors Flee Money Market Funds

With money market fund interest rates plummeting to close to zero, investors have been fleeing the poorly performing investment vehicle, and moving toward Treasurys as a better and higher yielding safer investment.

Just recently an extraordinary $55.23 billion was withdrawn from money market funds and placed in other investing sectors.

Some of this if from the huge amount of money being pushed into the system by central banks, causing the interbank borrowing rates to plummet close to zero.

This is the reason why Treasurys have rallied some when in these types of economic circumstances they wouldn't have.

Other areas people and institutions are investing in are corporate bonds and commercial mortgage-backed securities. Money market funds should continue to lose billions until interest rates start moving up again, which is doubtful in the near term.

Home Equity Mortgage Still Available

Although it is tougher to get a home equity mortgage than it was before the financial crisis, it's still not impossible, and in many cases, if you have a strong credit rating and balance sheet, isn't that much more difficult at all than it used to be, as banks don't make money if they're not lending out money; it's just that they're giving a lot more scrutiny to home equity mortgage loans than they have in the past.

One major consideration is how much you owe on your home, where you live, and how steeply the value has fallen. Assuming your financially qualified, the home value itself and what you owe on it is what will determine your success in getting a HELOC, and if those numbers are positive, your chances of getting a loan are obviously much better.

If you live in hard it states like California, Florida, Nevada and Arizona, where property values have plunged, and there's not sign they're going to rebound any time soon, it's really difficult to get a home equity mortgage, so you will need to manage expectations when you go seeking one there.

For those that have owned their homes for some time and have a positive balance after paying down the loan for awhile, have a decent chance of getting a home equity mortgage than those that haven't. Don't be afraid to ask, as the answer in many cases will be yes, but just not as many yes's are being said as they were in the past.

Friday, September 18, 2009

What is Commercial Paper?

Commercial Paper

Commercial paper is a tool of debt, or otherwise known as a 'debt instrument,' whereby a solid company will issue the debt for short-term capital needs. A lot of money market mutual funds will invest in commercial paper as part of their investing strategy for safe, solid returns over the short term.

When issuing the debt, a company will have to pay the money out at a specific day they've instituted as part of the investment, normally from between two to 270 days.

The general practice of commercial paper is to be sold at a discount, and so is used by companies to aid them in managing their short-term capital flows.

Similar to a money market fund, investors will use commercial paper to put their money they're not going to use in the immediate future, as it's very safe, and it's very easy to get your money out when you want or need it.

Not only is it very safe investment because the companies issuing the commercial paper have very high credit ratings, but also because it is backed up by lines of credit from banks, making it extremely safe. The result for investors is also low yields, which the safety of commercial paper offers.

Commercial Paper

What is a Money Market Fund?

Money Market Fund

A money market fund is a mutual fund that invests in short-term debt like Treasury bills, CDS, repurchase agreements and commercial paper, among other things.

While they are normally considered among the safest places to put your money, there are exceptions, like when Lehman Brothers collapsed a year ago and the net asset value of the money market funds they held fell below $1 (called breaking-the-buck), causing people to lose some of their initial investment. While that is a rare occasion, it has happened before in the past.

For the most part a money market fund is not FDIC insured, but there is the option of having it privately insured.

Another nice feature of a money market fund is their liquidity, whereby you can access your capital very quickly if you need to.

Because of the safety factor usually connected to money market funds, you will receive a much smaller return on your capital, and is normally used as a place to park cash when it's not being invested, or a place to put your money in case of economic emergencies where you can get at it quickly.

Money Market Fund

Money Market Fund Guarantee Program Now Over

Money Market Funds

In response to the collapse of Lehman Brothers last year, and the resultant fall of the net asset value of money market funds below $1, which is called breaking-the-buck, the Treasury Department put into place a temporary Money Market Fund Guarantee Program to help stabilize the money market funds in the country. Today that guarantee program will expire as planned.

The Money Market Fund Guarantee Program was put into place as investors in the money market mutual funds rushed to remove their capital from the funds, after the unusual experience of losing money on them. The temporary guarantee calmed things down, once it was understood their money wouldn't lose any of its value.

A money market fund is a mutual fund which invests primarily in short-term, high yielding US government bonds, commercial paper, and other short-term debt instruments. Very rarely has the net asset value of money market mutual funds fallen below $1, but it has happened, and while they aren't backed by the FDIC, overall they've been considered a very safe investment since they were instituted in 1970.

Money Market Funds