Thursday January 21, 2010 - 13:53:25 GMT
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Too Much Fun for Just One Government
Key News & Comments
China Losing to U.S. Among Investments of Choice in Global Poll (Bloomberg)
LONDON, Jan 21 (Reuters) - The euro zone's dominant services sector continued to expand in January, although at a much slower pace than expected, while the manufacturing sector grew at its fastest pace in nearly two years, key surveys showed on Thursday.
Hong Kong remains world's freest economy (Breitbart) Hong Kong remains the world's freest place to do business while the United States has lost its claim to an unrestricted economy, according to an annual report published Wednesday.
... Canada pushed the US from the top seven economies deemed to have an entirely free economy due to "notable decreases in financial freedom, monetary freedom, and property rights," the report said.
Black Swan Events:
Friday January 22nd: Black Swan Capital Presentation at the 2010 World Outlook Conference, Vancouver. The topic of the talk: The US$ Holds the Key. If you wish to learn more about the World Outlook Conference click here.
â€śGreeceâ€™s debt to European banks is 300 billion â€“ more than double the combined Argentinean and Russian foreign debt at the time of the 1998 Russian crisis and the 2001 Argentinean crisis.â€ť
Leto Market Insight
FX Trading â€“ Too Much Fun for Just One Government
The Heritage Foundation convened again and published their most recent annual report that ranks the economic freedom of 183 countries around the globe. As mentioned in the Key News section above, Hong Kong claimed the top spot ... followed by Singapore, Australia, New Zealand, Ireland and Switzerland.
Canada jumped into the seven hole as the United States fell a notch lower to the eight spot. The reason for the US downgrade:
â€ś... notable decreases in financial freedom, monetary freedom, and property rights.
â€śThe US governmentâ€™s interventionist responses to the financial and economic crisis that began in 2008 have significantly undermined economic freedom and long-term prospects for economic growth.â€ť
Well, I guess I canâ€™t really argue with that.
The US, as with most of the rest of the world, entered into a nasty recession. Yes, yes â€“ itâ€™s typical for governments to not waste a good crisis; itâ€™s almost a given that fiscal spending will seek to compensate for the disappearance of private spending when citizens begin the deleveraging process. The goal: stimulate economic activity until natural economic activity returns on its own.
Unfortunately itâ€™s not as easy has hitting a button and the right amount of money is doled out to the right places for the right amount of time until we see the right way to recovery. No, itâ€™s not like that at all. Fiscal policy requires judgment.
And thatâ€™s where current and recent US government officials have gone awfully wrong.
I acknowledge there have been several consecutive years of poor judgment that have put the US under the economic microscope thatâ€™s found â€śnotable decreases in financial freedom, monetary freedom, and property rights.â€ť But Iâ€™m only going to discuss a few recent items ...
The American Recovery and Reinvestment Act â€“ stimulus bill, for short â€“ was sold as vital to keeping the US economy from total depression-like collapse. And for the benefit of the doubt, maybe it did; but not because of its actual effectiveness on stimulating activity, but rather stabilizing sentiment.
If you really dig into it the money dished out to some programs labeled as â€śinfrastructureâ€ť and â€śsocial welfare provisionsâ€ť went to some ridiculous places where its impact could be extremely questionable, at best.
In fact, I think I remember reading many months ago about how a Hawaiian kayak tours company received an unnecessarily large amount of money to keep afloat (sorry, couldnâ€™t resist).
And then thereâ€™s this from the Wall Street Journal: Michael Mann's Climate Stimulusâ€Ž. If you donâ€™t feel like reading it, the story amounts to millions of dollars towards grants et al for indicting society on the crimes of forced climate change ... all straight from the pocketbook of the American Recovery and Reinvestment Act.
Iâ€™ve always been onboard with the fact that â€śman-made global warmingâ€ť was all a faĂ§ade for a perverse political/power agenda. But I ask you, in hindsight: is the Michael Mann Climate Stimulus another instance of bad judgment?
The more you dig, the more it seems that money is promised to places where itâ€™s of little help to the whole, which is what proponents of big government and fiscal spending tend to promise, no?
But maybe Iâ€™ve got it wrong: maybe the whole doesnâ€™t mean the whole US; maybe it instead means the whole world.
Also from the Wall Street Journal: President Obama Finances Offshore Drilling in Brazil. Basically, $2 billion to help one of the largest companies in the Americas finance a project that should yield a considerable amount of new oil. The amount of US access to this newfound oil is suspect.
Two obvious questions: 1) why canâ€™t we drill offshore in our own country, since we all agree that reducing our dependence on foreign oil is a must? And 2) would the US not be better served if the money was kept in the US, assuming it wasnâ€™t spent to keep Hawaiian tour guides in business?
After all, this morning new discussion has resurfaced regarding raising the US governmentâ€™s $12.4 trillion debt limit again.
And there it is ladies and gentlemen. It is what investors around the world continue to struggle with. The US government is digging us a grave.
Weâ€™re expecting a potential multi-year bull market for the US dollar. We have been for a couple months now; we think the bottom is in. We recently laid out our reasoning in our newsletters and webinars.
Without a doubt, the biggest question we get when we propose a strengthening US dollar is: what about US debt? There is no question it is at a place where it cannot be sustained for much longer. It will simply deter capital flow and undermine long-term US growth potential.
Now, many people believe the US dollar can rally â€“ based on risk, relative currency valuations, or whatever. But few can get their heads around a lasting dollar bull market. If pre-crisis demand does not return, if stimulative policies donâ€™t resurrect boom times, then the US will be faced with sparking economic activity at a time when the US consumer is no longer driving sufficient amounts of growth.
What can be done?
Well, perhaps investment in productive activities, perhaps those that promote manufacturing and exports. Currently the environment is not conducive to such investments. But with a seas change, as we see it, in US consumer sentiment, it may well be time to shift our focus and make the changes and investments necessary to solidify the USâ€™s long-term position as leader of the global economic superpowers.
Wasted money on buying forced climate change evidence or seafaring tourism is not the answer.
John Ross Crooks III
Black Swan Capital LLC
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