June 23, 2006

Are there any safe havens left?

For those that simply want to protect capital, it's getting tougher and tougher.

Any thoughts or recommendations?

Dollar is looking good right now vs. the British Pound - 1.815. Why? Fed keeps raising while the Bank of England stays put - and their notes said they didn't raise because the stock market dropped. Amazing. Inflation? Who cares? Making sure stocks don't drop - priority #1 for England's central bank. Making sure the Housing Ponzi Scheme doesn't end in England is priority #2 here too. Policy aimed at satisfying the voters versus keeping inflation tame will result in a financial disaster here.




Anonymous said...

Conservative, wealth preserving portfolio:

1. Physically held gold and silver bullion and coin (15% of cash)
2. Real estate in non-bubble region of country
3. Pay down all debts, in credit cards and LOCs.
4. Move 25% of stocks in hard asset-based holdings (metals, oil, natural resources, commodities).
5. 20% of net assets in short term cash-equivalent vehicles: 3 month CDs etc.
6. 20% of net cash in digital gold and Gold and Silver ETF shares.
7. 20% of assets invested in utility company stocks.

Metroplexual said...

All cash. If the Fed is going to pump up the dollar by raising rates, I'm there. If the run on banks happens it will be a few years out. In the meanwhile moneymarkets and CD's.

WE went through 3 bubbles all sequential.

1 Dot com
2 Dot condo
3 Dot commodity

Now cash is king, because noone has any. Robert Reich was on Marketplace the other day talking deflation. The Fed rate hikes in his opinion could create a deflationary spiral.

new 200 Mbps BROADBAND over POWER LINES said...

Beaten-up dollar unsettles investors in USA and abroad

By John Waggoner, USA TODAY
Rob Goreham is more sensitive to the price of gold than most of us. Goreham, who lives in Columbia, Calif., sells gold-mining supplies and leads chartered gold-hunting outings in the old California gold fields. He prospects for himself, too. Powered by a three-year bull market in gold, the supply business is roaring — and so are Goreham's returns.
"It's just wonderful," he says.

Not everyone is so giddy. As gold has soared, the value of the dollar has sunk on international markets, making imports and trips abroad more expensive. And in recent months, the rise in gold and fall of the dollar have begun to unsettle investors here and abroad, with potentially severe consequences.

STORY: Rising gold prices pique interest in panning

In the short term, a weak greenback means higher prices for imports and weekends in Paris. In the long run, though, the sliding dollar could dry up the world's appetite for the USA's oceans of debt. Were that to happen, some warn, we could see surging interest rates, a sinking economy and, perhaps, an end to the dollar's reign as the world's premier currency.

And something else, too: a possible return to 1970s-style "stagflation" — a miserable blend of a stagnant economy and inflation. With stagflation, prices continue to creep up even as joblessness keeps many of us out of work. "Ask any investment professional what his real absolute fear is, and he'll say a crash in the dollar," says Terry Connelly, dean of the Ageno School of Business at Golden Gate University in San Francisco.

You now need about $1.25 to buy a euro, the pan-European currency. Five years ago, a euro would have cost not even 90 cents. It costs more to buy Japanese yen, too: A dollar buys about 115 yen, 7% less than five years ago.

So it costs more to travel abroad. The Economist, for example, makes regular surveys of the cost of a McDonald's Big Mac hamburger around the world. As of May 22, the date of the survey, it was $3.10 in the USA. A Big Mac attack in Britain will set you back $3.65. Buy a Big Mac in euros, and you'll pay about $3.77.

The Economist uses the Big Mac Index to show which currencies are overvalued or undervalued, relative to the dollar. (By this gauge, the yen is cheap, euros expensive.) Multiply the currency differences in the Big Mac Index by the price of a hotel room, and you'll have a powerful reason to stay put in the USA.

Long-term worries

A weaker dollar also makes imports more expensive, which fuels inflation at home and strains relations with our trade partners, notably China. It's normal for currency markets to rise and fall. But the dollar's recent erosion is spooking people — and not just for the summer travel season. "Most people are long-term bearish on the dollar," says Richard Asplund, chief economist for the Commodity Research Bureau.

Soaring gold prices are one sign of how bearish investors have turned on the dollar. Gold tends to rise when the dollar falls, and vice versa. After all, if you fear that the mightiest currency on the planet will lose buying power, you buy gold, which has served as currency for as long as currency has existed.

An ounce of gold costs $587.50. Gold is way down from its recent high of more than $700. Still, it sold for as low as $255 an ounce in 2001, and it's up 130% from those lows and 49% over the past two years.

Investors in the USA buy gold when they fear inflation, which erodes the dollar's purchasing power. The consumer price index, the U.S. inflation gauge, has risen 4.2% for the 12 months that ended in May. Minus the volatile food and energy components, it's up 2.4%.

That might not seem like a big jump, but after 10 years of 4.2% inflation, $100 in today's dollars will have the buying power of just $65 — a 35% reduction. Federal Reserve officials have said a 2.4% core inflation rate is higher than they deem acceptable.

It's higher than many consumers would like, too. Which is why they've been buying gold. Michael Kosares of USA Gold in Denver says his upper-middle-class clients are buying gold in lots of $100,000 or more. "Our clientele is looking at the price of commodities going up around the world and seeing inflation coming down the pike," he says.

A symbol of safety

Foreign investors are buying gold, too. And that signals dwindling confidence in the dollar. As the USA rose in political and military power, the dollar symbolized safety. When the currencies of Russia, Thailand and other countries plunged in 1998, devastating their economies and sending world stock markets reeling, the trade-weighted dollar rose more than 5%. That was because investors sought shelter in ultrasafe U.S. Treasury bills. Gold rose to just $300.

But the dollar's reputation as a haven is eroding, thanks to the gargantuan U.S. trade and fiscal deficits. Economists and politicians have long wrung their hands over those deficits. And for years, the markets have averted their eyes.

Gold's rise and the dollar's fall could mean that, suddenly, deficits matter. The difference now? "The magnitude," says Mark Zandi, chief economist at Moody's Economy.com. The trade deficit is nearly twice as large as it was a decade ago. So is the budget deficit.

The federal debt weighs in at more than $8 trillion. It's estimated to be 67.5% of gross domestic product by 2007, up from 58% in 2000 and 35.8% in 1977. The trade deficit — the gap between the value of goods we import and those we export — was $63.4 billion in April. At those levels, foreign investors start to worry, despite the USA's economic might.

Once foreign investors lose confidence in the dollar, the consequences can be dire. They are, after all, financing a big chunk of the U.S. debt. Foreigners are big buyers of U.S. Treasuries at auction. They own nearly half of all publicly traded U.S. Treasury securities and 25% of U.S. corporate debt and mortgage-backed debt.

If foreign buyers lose interest in U.S. debt, the Treasury will have to offer higher interest rates to attract buyers. The dollar could fall further. Import prices would rise. Inflation would surge. Higher rates, in turn, would slow the economy.

"If there's a slowdown, we could see stagflation," says Neal Ryan, director of research at Blanchard & Co., a major gold dealer. Those fears are amplified by the holders of U.S. Treasuries. Japan holds $639 billion in Treasuries. China holds $323 billion, the Treasury says. Oil exporters own $99.1 billion. "It's one thing to have your financing from Japan," Connelly says. "It's another to get it from China." Japan has a democratic government. China is a Communist nuclear power, and its relations with the U.S. have often been strained.

Buying other currencies

But even with cordial international ties, foreign holdings of U.S. debt are problematic. Many foreign central banks are diversifying their holdings, which have traditionally been in dollars. Instead, they're buying euros and other currencies.

Russia's central bank has cut dollar holdings to about 50% of its portfolio. In February, South Korea's central bank said it planned to diversify out of dollars. That caused the dollar to plummet. At the moment, that seems to be fine with U.S. policymakers. Throughout the 1990s, the government promoted a strong dollar. But that may be changing. U.S. officials have been encouraging China to let the value of its currency, the yuan, float on international markets.

China and Japan have been keeping their currency low vs. the dollar by stockpiling dollars. If they eased that policy, they'd also have to stop buying so many dollars — which would cut the dollar's market value.

The nightmare scenario: a collapse in the dollar, which would send interest rates soaring and the economy plunging. Some, though, see that as unlikely.

"I'm not convinced that the trade deficit is a disaster in the making," says Art Steinmetz, portfolio manager at Oppenheimer funds.

To some extent, a drop in the dollar can help ease the trade deficit. Steinmetz notes that when the dollar drops, import prices rise. And that means fewer imports. Meantime, U.S. exports will eventually rise because U.S. goods and services will become cheaper abroad. "It will adjust as consumption adjusts," he says.

The USA still has a gold-plated credit rating, in part because all its debt is in dollars. Emerging-markets countries often run into trouble because they issue debt denominated in other currencies. As their currency drops, the payments get more onerous.

"There is a big risk of an adjustment in the dollar, but that doesn't affect U.S. creditworthiness," says Steven Hess, senior credit officer at Moody's Investor Services.

For U.S. investors, a long-term dollar slide means major portfolio adjustments:

•More international. As the dollar falls in value, U.S. investors benefit from converting overseas profits into dollars.

•More metal. Gold is one of the most volatile investments you can make. But a small investment in gold could protect some of your assets from inflation or a falling dollar.

•More cash. If rates rise because of a falling dollar, yields on money market funds and CDs will, too.

So long as investors think U.S. rates will keep rising, they should continue buying dollar-denominated U.S. debt. But what happens when investors figure the Fed is finished? That's where things get sticky.

Sooner or later, the Fed will have to stop raising its target for short-term rates or risk recession. Then, foreigners will have one less reason to buy dollars. The dollar's fall could resume. And so could the rise in gold.

One beneficiary would be Rob Goreham's prospecting business. But gains in the gold industry would hardly offset damage done if the dollar falls and the economy sputters. Financing the trade and fiscal deficits are hard enough with a robust economy.

"Try financing them with a slow-growth economy," says Golden Gate University's Connelly.

Mark in San Diego said...

Financial Times = 6% Fed Rate

The lead story in the second section of this morning's Financial Times quotes Barclay's Bank and others as saying they see a 6% Fed Rate by end of year. . .and possibly a .50 increase next week. . .even a 5.5% will protect the dollar short term. . . so I am in the "cash is king" camp here. . .maybe some Canadian investments, Swiss Funds, Utilities, etc. . .spread the risk, but keep most in cash. I can remember those early 1980 CD rates of 15%!!!. . .even then, it was enough to keep ahead of 11% inflation.

Anonymous said...

Toms River, NJ: Officials: New testing proves leak at Ciba site

Company denies link to pollution
Posted by the Asbury Park Press on 06/23/06

DOVER TOWNSHIP — Groundwater testing conducted at the former Ciba-Geigy Corp. Superfund site shows a lined landfill on the property is leaking, presenting a "substantial environmental health hazard," township officials said Thursday.

Mayor Paul C. Brush and Council President Gregory P. McGuckin contend that the test results will bolster Dover's efforts to force Ciba to remove more than 35,000 drums from the lined landfill.

"We've contended all along that there is a problem with Cell 1 out there," Brush said, referring to a lined landfill on the land now owned by Ciba Specialty Chemicals Corp. "Our two scientists have taken tests, and the tests confirm what we've said all along."

McGuckin said Ciba's contention that groundwater pollution in the area cannot be linked to the landfill is not viable.

"They admit there is a plume of contamination, and that plume just happens to be under, around and next to Cell 1. But it's not coming from Cell 1, according to Ciba," McGuckin said. "I say, "If it looks like a duck, walks like a duck and talks like a duck, it's a duck.' "

Carcinogens found

McGuckin and Brush, along with the rest of the Township Council, received a closed-session presentation Tuesday on the experts' findings. They said Thursday that the testing showed that several hazardous materials, including known carcinogens, were found in the water samples, which they plan to turn over to the state Department of Environmental Protection.

In their joint statement, McGuckin and Brush stressed that the contaminants they contend are leaking from Cell 1 do not appear to jeopardize the public water supply. They expressed concern, however, that the pollutants could pose a risk to irrigation wells in the neighborhood.

Ciba Specialty Chemicals spokeswoman Donna M. Jakubowski said the township still cannot prove that the pollutants come from the landfill.

"The existence of contaminants is not proof that the landfill is leaking," Jakubowski said. "We know that there is groundwater contamination at the site. That is why we have the pump-and-treat system."

Jakubowski was referring to the massive groundwater cleanup that is ongoing at the Ciba site, which includes pumping more than 2 million gallons of water from the ground each day, treating it to remove pollutants, and then depositing the water on the site's northeast corner.

Past problems

The pollution is the result of Ciba's former industrial-dye and resin-making operations. The 1,350-acre Ciba property has been on the federal Superfund list since 1982. All production work ceased on the site in December 1996.

Ciba is paying for the cleanup of pollution source areas on its property, and last year more than 40,000 drums were removed from an unlined landfill on the site. The drums were taken from the ground, opened to determine their contents, and then hauled off-site for disposal.

The company is also using the bioremediation process to remove contaminants from polluted soil on its property. The process relies on bacteria that already exist at the Ciba site to break down and remove pollutants.

But Ciba officials have contended for years that the lined landfill, which is thought to contain about 38,000 drums of waste, is functioning properly and should not be disturbed. Township officials contend that the landfill is leaking and will eventually present a health hazard to Dover residents.

Political squabbling

In 2003, the Township Committee, led by Mayor John F. Russo Jr., filed suit against Ciba Specialty Chemicals Corp. in an effort to have the drums removed. The lawsuit was criticized by Brush, who ran against and eventually defeated Russo in a bitter election campaign.

After his election, Brush, who had initially vowed to stop the lawsuit, said that after he received more information from the township's environmental attorney, he decided the suit should continue.

A court order stemming from the lawsuit allowed the township's experts onto the Ciba property in late April to perform the groundwater sampling.

"All that we said in 2003 has now been borne out by the expert report and the testing that has just been completed by the town," Russo said Thursday. "The landfill is leaking, and that was what we contended when we filed the suit."

The landfill, which receives a monitoring permit from the state Department of Environmental Protection, was never licensed to accept hazardous waste. But DEP officials have said it is clear that hazardous substances were dumped there while the landfill was operating, between 1977 and 1982.

A concerned community

Bruce Anderson, who is president of Toxic Environment Affects Children's Health, a group formed by families of children with cancer, said the groundwater testing results confirm what he has believed for almost a decade: that the lined landfill is leaking.

"I think it's very important for the community to have these drums removed to protect the children and the community as a whole," Anderson said. "These drums need to be removed because they contain highly toxic waste."

Anderson and his family have been demanding the removal of the Ciba drums for years and have occasionally picketed by the company's Oak Ridge Parkway entrance in an effort to draw attention to the issue.

Last year, then-DEP Commissioner Bradley M. Campbell sided with the township and threatened Ciba with litigation if the drums were not removed from the landfill. Dover officials are hopeful that Campbell's successor, Lisa P. Jackson, will take a similar stance.

Campbell noted in a letter to Ciba officials that the landfill's liner was not meant to resist the corrosive effects of some of the hazardous wastes dumped there. Ciba countered that the landfill's cap and containment system was improved in the early 1990s and that Campbell was relying on outdated data.

Brush said it is time for Ciba to work with the township to remove the drums.

"They have a legal and moral obligation to our residents to clean up Cell 1," the mayor said. "They've been a corporate resident of this town for more than 50 years and they've done a lot of damage to this town."

ecobuilder said...


Here we go again. Investments, investments, blah, blah, blah...

Stay away from marketing, change your occupation from white-collar job to something needed in case of Great Depression. Invest in your future job, create it. For example, run a private prison or security business.

Stay helthy, buy a piece of land and plant some trees there, so in 5-7 years you'll have some fruits and vegatebles to eat.

Don't forget about 3L: location, location, location.

1L: The land should be close to a water source (better your own well or spring)
2L: There should be enough sun and mild winter.
3L: The land shouldn't be poisoned by pesticides and fertile enough.

Gold will help a little bit when SHTF, but M-16 works better. Be optimistic, everything is going to be OK (if you're prepared).

John said...

Nothing wrong with T-bills here until things sort out. Energy is in a generational bull market. Take a look at the supply/demand fundementals of uranium for example. There are some excellent bargains out there for the astute investor.

Anonymous said...

A couple of suggestions:

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bear market junk bond funds, i.e. bet on credit derivatives widening junk versus treasury spread (that is a "pre-recession" trade)

Dogcrap Green said...

THe USA has the greatest means of all countries to pay down it's debt. Surging corporate profits means surging taxes.

All we need are Republicans in office instead o the Bush Administration to make things wok out.

Then the dollar will surge.

Anonymous said...

"Now cash is king, because noone has any. " metrosexual

Totally disagree on noone having it. Now a days every 24 year old kid makes enough money to drive a new car and live on his own. 15 years ago only a small portion of the twenty somethings could do that.

The USA is nigger rich.

Metroplexual said...

Anonymous said...
"Now cash is king, because noone has any. " metrosexual

Totally disagree on noone having it. Now a days every 24 year old kid makes enough money to drive a new car and live on his own. 15 years ago only a small portion of the twenty somethings could do that.

The USA is nigger rich.

Glad to see anonymous cut me down, but where's the money. The twenty year olds are extended on credit. 15 years ago I had my house and two new cars. Kids today are in debt up to their eyeballs. It is all an illusion.

Metroplexual said...

Oh yeah! Unless your black, I take umberage with the "N" word. Even if your black.

Anonymous said...

The dollar will crash after the fall election, republicans are desperate and trying like hell to pump it up.

I've moved all my assets out of the USA into covservative non USD investments.

If Hillary gets in then she may instill some good fiscal "republican" values and we may turn out ok in the long term.

If the radical religous redneck retards (GOP) get elected again then the USA become a 3rd world ecomony similar to latin america or russia with a small uber-rich class, non more middle class, and a huge dirt poor bunch of losers like most of you!.

Anonymous said...

Homebuilder 2008 puts will be worth 2-35x what they are today.

Anonymous said...

Are bonds good or bad?

what the heck are they?

Anonymous said...

The dollar will crash after the fall election.....

We have $$ in US bank - Is that safe there while we are waiting to buy a house?

If the $$ does crash - will that make US housing even more unaffordable? Thanks.

dumptherepublicans said...

stay liquid and be prepared to move it fast if the SHTF. Dollars for now until Fed stops raising.

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