Monday, March 18, 2013

Major Market Changes

Well as you will see I haven't had much to write about for a while, the same mistakes have been repeated and the inevitable outcomes have been reached. However once again we are about to see a significant market/ economic event that merits discussion.

Towards the end of 2013 early 2014 (certainly prior to 2016 no matter what choices the government makes) the US government will no longer collect enough tax revenue to meet its interest payments. (They may artificially continue to print money built this will devalue everything and make matters worse) In other words it will be in the same financial position as Greece. (This could be fixed instantly by removing all double taxation treaties and making any company who makes money/ sales in the US pay taxes on all monies in the US without repatriating profits overseas in the guise of management fees etc)

China and other major US dollar bond purchasers are not interested in assuming US government debt, it is no longer a good investment. Aside from US potential default there is also the added factor of reduced US dollar value. As they US dollars falls in value and the government backing it is not trusted by global communities it should be expected that the US dollar is no longer the world reserve currency.

With these factors coming together expect to see increases in inflation that the Federal Reserve cannot stop and will actually be unable to control. It will not be able to print worthless money to keep the stock market rising. Fiscal easing will have proven as disastrous for America as it proved for Japan... Why could our economists not look at historic solutions that have failed and not make the same mistakes. I am sure they tell themselves it was all different here, but it wasn't.

Regan took strong measures in the early 80's that were successful in the long term. We need to start vesting and looking at the long term picture instead of short term games.

If companies gave employees stock options with 5 year vesting periods as they used to people would be tied and loyal to the company. They wouldn't look at short term bad decisions that can give them a great end of year bonus and then move to a new company before the long term ramifications are felt.

This fear can be seen among Americas smartest investors. Buffet, Soros etc are all shorting the dollar, using the UDN bundle to hedge against the Dollar and divesting themselves of all US consumer revenue driven companies such as Johnson and Johnson.

The time has come to sell up and move on. Renting a property, gold mining stocks, Brazilian and other emerging country government bonds (especially those without significant sales to US), Indian based companies.

Copyright Jonathan Rose 2013 - Creative Commons License Creative Commons License
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