Random Musings VIII
"If you realized how powerful your thoughts are, you would never think a negative thought." - Peace Pilgrim 1908-1981, American Peace Activist
Negative Savings rate
In 2004 the US borrowed the equivalent of 5% of its GDP; by the third quarter of 2006 this amount had soared to 6.5% of its GDP for a total of 860 billion dollars. If the current trend is maintained and there is no reason to see why it won't be, then the US is on course to reach the 1 trillion mark in the very near future. The main question then is how long will this outrageous all you can eat buffet last? This question takes on increased meaning when one considers that last December foreign capital inflows fell to a 5 year low of 15.6 billion dollars. Precisely when we need more money the pool appears to be showing signs of drying up. If outside capital continues to decline eventually the fed will have to monetize the debt then watch inflation go through the roof.
To make matters worse China has publicly announced the formation of the world's largest hedge fund with an initial capitalisation of 200 billion dollars. This fund has been specifically set up to help them diversify their investments. Note that China had to go on record to state that they had no interest in seeing a lower dollar and this fund was just set up to help them invest their money more efficiently. The fact that China had to go on record to state their views and intentions in regards to the dollar quite clearly illustrates the potent power this nation now possess. This fund could actually end up being a trigger for much larger moves; outside investors could start to mimic it and then as a result the entire move is over exaggerated due to the flood of new investors. Thus when this fund one day decides to publicly admit that they are diversifying out of the dollar; the US dollar is going to take a massive beating to say the least.
It appears that Americans are still living in the land of sunshine and dreams the place called la la land. Households actually spent more then they earned in the 3rd quarter of last year; they spent 111.7 billion more then they earned. The personal savings rate for 2006 once again was negative for the second year running something that has not occurred since the great depression. Hum perhaps this is a sign of impending bad times to come for those that are not prepared. We continue to issue the same advice we have been giving out for the last 3 years; live 1-2 standards below your means and invest this money wisely. Wise investments include putting some of this money into Bullion (Gold, Silver and of late there is another metal that looks extremely attractive; unfortunately for now we can only provide this info to our subscribers.) and some of it should also be diversified in other currencies (Japanese Yen and Swiss Franc and or Canadian dollar too) and finally have some if it invested in the natural gas and oil sectors.
The nonsensical assumption is that higher interests are not good for the markets and vice versa but the above charts reveal a different story. During one of the most insane periods in investment history the markets soared from 1996 to the beginning of 2000 in a rising rate environment. Rates were close to 6.5% several months before the markets put in their all time highs. Then as rates were lowered the market started to tank and broke down and fell apart till approximately 2003.
Note that as rates started to rise in 2003 in an upward direction the markets followed suite; rising rates indicate a strengthening economy and vice versa. However if rates are raised too fast then it does have the potential to choke growth but in general higher interest rates indicate a stronger economic environment and thus those who seek lower rates should be careful what they wish for.
Farmers and their bad timing
Farmers are running around scrambling looking for the best corn seeds to plant; they have also increased the amount of land allocated to corn by a significant amount. In fact they are going to plant 13% more corn this year then last year. It's interesting to note how these chaps think exactly like the masses who know nothing about farming; they are jumping onto the trend now when corn is actually correcting. What they should be doing instead is investing in the other sectors of the agricultural market that have yet to experience a big move up. As usual they always come to the party late. Note to that corn is of its highs and is most likely going to consolidate for sometime. In our opinion they would be far better off looking at Sugar Cotton and wheat. One other factor that is going to help other agricultural products is the fact that when more land is allocated to corn other agricultural products have less growing space.
"If you get hung up on everybody else's hang-ups, then the whole world's going to be nothing more than one huge gallows." - Richard Brautigan 1935-1984, American Artist
All charts were supplied courtesy of www.prophetfinace.com