6 trillion hot potatoes

[c1ue]

Interview of Doug Casey by Stanlie Hunt

http://www.smartstox.com/analyst/doug_casey/

Mostly familiar to iTulipers, but one particular item of information which was interesting:

Doug Casey's assertion is that given that there are 6 trillion US dollars outside of the US economy, that the present US economic policy is causing all of the present holders of these dollars to feel like they are holding hot potatoes - with 'waterfall' consequences for the US dollar.

Bart's M3b chart is showing present supply is around $12.5T. Assuming the two numbers represent the same buckets, having half your holders dump holdings spells out a very ugly outcome.

[GRG55]

Re: 6 trillion hot potatoes

Interview of Doug Casey by Stanlie Hunt

http://www.smartstox.com/analyst/doug_casey/

Mostly familiar to iTulipers, but one particular item of information which was interesting:

Doug Casey's assertion is that given that there are 6 trillion US dollars outside of the US economy, that the present US economic policy is causing all of the present holders of these dollars to feel like they are holding hot potatoes - with 'waterfall' consequences for the US dollar.

Bart's M3b chart is showing present supply is around $12.5T. Assuming the two numbers represent the same buckets, having half your holders dump holdings spells out a very ugly outcome.

Euro-Dollars aren't coming back onshore USA. Let's not forget that nobody can "dump dollars" (or Tbills/bonds) unless there is a willing buyer for them.

[jk]

Re: 6 trillion hot potatoes

Euro-Dollars aren't coming back onshore USA. Let's not forget that nobody can "dump dollars" (or Tbills/bonds) unless there is a willing buyer for them.

dollars can be dumped by buying things in the u.s.a., where they are legal tender.

[Guest]

Re: 6 trillion hot potatoes

Eurodollars will save us! :rolleyes:

[Jim Nickerson]

Re: 6 trillion hot potatoes

There was a time when if one's country's currency was highly valued, it was the wise thing to do to look around for markets that were down and the currency was cheap. A double-whammy would be to buy a market thats down and the currency in which it trades is cheap. At some point perhaps from a foreigner's perspective whose currency is highly valued, buying US stocks will be seen as the ripe thing to pick.

[GRG55]

Re: 6 trillion hot potatoes

dollars can be dumped by buying things in the u.s.a., where they are legal tender.

You may be right jk, but here's my reasoning: Eurodollars are needed for US$ denominated transactions outside the USA. For example, as long as oil is traded in US$ a non-US buyer of oil, purchasing from a non-US seller of oil, still needs US$ to make the transaction. With the way the price of commodities is rising, the amount of Eurodollars needed is rising too. There will not be any material repatriation of this currency onshore US unless, and until, the US$ ceases to be the currency in which the majority of international transactions are conducted. Although the US$ may no longer be seen as a sound store of value, as I opined in another posting on another thread, in all my travels I see no evidence that the US$ is going to be displaced any time soon as the preferred monetary unit for trade transactions. I was at an expatriate function last night; was chatting with another expat acquaintance who is in senior management with the national air carrier. He mentioned that Airbus quotes their airplanes to them in...yep...US$.

Finally, the US doesn't want Eurodollars being repatriated for obvious reasons, and I think the resistance to allowing US assets to be sold to Chinese and Arab interests is a foreshadowing of how difficult they will make it for anyone to use that tactic on any kind of large scale to "dump" their currency - "fortress America" so to speak.

There was a time when if one's country's currency was highly valued, it was the wise thing to do to look around for markets that were down and the currency was cheap. A double-whammy would be to buy a market thats down and the currency in which it trades is cheap. At some point perhaps from a foreigner's perspective whose currency is highly valued, buying US stocks will be seen as the ripe thing to pick.

From what I get from the European financial media the flavour of the day is BRIC, and most of the investment managers being interviewed are avoiding the USA like the plague, having been burnt by the currency losses. But you are correct Jim, these things go in cycles, none of them can afford to be completely out of the USA capital markets, and eventually they will overweight again when it looks very cheap and the currency risk is lower.

[jk]

Re: 6 trillion hot potatoes

Finally, the US doesn't want Eurodollars being repatriated for obvious reasons, and I think the resistance to allowing US assets to be sold to Chinese and Arab interests is a foreshadowing of how difficult they will make it for anyone to use that tactic on any kind of large scale to "dump" their currency - "fortress America" so to speak.

potential chinese and middle eastern purchasers of "strategic assets" have surely been frustrated so far. purchases of non-strategic companies, real estate, etc, as well as smaller stakes, possibly routed through london and caribbean centers, will not attract so much attention. also purchases by european "allies" will not get the same resistance.

[c1ue]

Re: 6 trillion hot potatoes

GRG, JK,

Another item to consider:

Given that the US needs $5B/day of additional financing to pay interest on existing debt - outside holders of dollars would not need to actually 'dump' their holding in order to crater the dollar.

All they'd have to do is stop buying dollar denominated bonds.

And this seems to be happening.

In fact it could be argued that the very fact that the US is not allowing foreigners to purchase the really juicy companies/assets is what is preventing the offshore dollar repatriation.

While the U.K. is one of the largest shareholders of this offshore dollar stash, it is the Asian countries who overall have the lion's share.

Japan and Taiwan are linked to the US for geopolitical reasons as I've asserted before, but China and the rest of Asia is not.

Thus all $6T hot potatoes won't be moving, but really only $1T or $2T would need to move in order to cause calamity.

[Jim Nickerson]

Re: 6 trillion hot potatoes

You may be right jk, but here's my reasoning: Eurodollars are needed for US$ denominated transactions outside the USA. For example, as long as oil is traded in US$ a non-US buyer of oil, purchasing from a non-US seller of oil, still needs US$ to make the transaction. With the way the price of commodities is rising, the amount of Eurodollars needed is rising too. There will not be any material repatriation of this currency onshore US unless, and until, the US$ ceases to be the currency in which the majority of international transactions are conducted. Although the US$ may no longer be seen as a sound store of value, as I opined in another posting on another thread, in all my travels I see no evidence that the US$ is going to be displaced any time soon as the preferred monetary unit for trade transactions. I was at an expatriate function last night; was chatting with another expat acquaintance who is in senior management with the national air carrier. He mentioned that Airbus quotes their airplanes to them in...yep...US$.

Finally, the US doesn't want Eurodollars being repatriated for obvious reasons, and I think the resistance to allowing US assets to be sold to Chinese and Arab interests is a foreshadowing of how difficult they will make it for anyone to use that tactic on any kind of large scale to "dump" their currency - "fortress America" so to speak.



From what I get from the European financial media the flavour of the day is BRIC, and most of the investment managers being interviewed are avoiding the USA like the plague, having been burnt by the currency losses. But you are correct Jim, these things go in cycles, none of them can afford to be completely out of the USA capital markets, and eventually they will overweight again when it looks very cheap and the currency risk is lower.

GR,

I think you subscribe to the online.wsj.com, so look at the Market Center Data, International Markets, and look at BRIC charts for 5 years--Yahoo may be even better--I seldom use it.

I don't care how good your currency in now, these markets are at historical highs. Buying into them now assumes there is no limit to further appreciation, and at some point--at least during my last 20 years of wandering around in the markets--there are limits to appreciation. I'm no good at imagining things, but if I were a European with highly appreciated Euro's I would be worried about what I should be doing to insure I didn't lose the value of the EURO's appreciation.

I think if I looked at the US market as valued in Euro's, it might be the cheapest thing around, and I would have to ask is the mother of a market in the US never going down even in bonars? I guess if a European thinks the US dollar is going to lose 50% more from where it is now, he/she would be hesitant. IF the Bonar continue down, and the US markets correct, things are going to be cheaper than dirt here if one has a strong currency.

[GRG55]

Re: 6 trillion hot potatoes

GR,

I think you subscribe to the online.wsj.com, so look at the Market Center Data, International Markets, and look at BRIC charts for 5 years--Yahoo may be even better--I seldom use it.

I don't care how good your currency in now, these markets are at historical highs. Buying into them now assumes there is no limit to further appreciation, and at some point--at least during my last 20 years of wandering around in the markets--there are limits to appreciation. I'm no good at imagining things, but if I were a European with highly appreciated Euro's I would be worried about what I should be doing to insure I didn't lose the value of the EURO's appreciation.

I think if I looked at the US market as valued in Euro's, it might be the cheapest thing around, and I would have to ask is the mother of a market in the US never going down even in bonars? I guess if a European thinks the US dollar is going to lose 50% more from where it is now, he/she would be hesitant. IF the Bonar continue down, and the US markets correct, things are going to be cheaper than dirt here if one has a strong currency.

Jim: I agree that the BRIC markets (and many others) look much like Naz in late 1999 or Jan 2000 - I won't touch them. Just passing on for the community the chatter over the Euro based financial media from interviews with fund managers (and they all talk their book, on both sides of the Atlantic).

I made the comment last week that maybe it was time to hold one's nose and buy the US$ as it looks very oversold and sentiment is so negative. I am not a chartist, use them only in the most rudimentary fashion, but looking at the $ index chart as of close Friday this week, looked to me there's some risk of a waterfall slide down the cliff face if "they" lose control of this thing now. That's enough to keep me out of (most) US$ denominated stocks for now. You are absolutely right that these things go in cycles and it may be the US may go on a "cheap as dirt" steeply discounted asset sale to foreigners at some point. Those that can hedge currency risk are no doubt in the US equity markets already.

[c1ue]

Re: 6 trillion hot potatoes

Jim, GRG,

It is true that there are some Europeans who are investing in US securities, but you should also keep in mind that most 'core' Europeans (i.e. French, German) have a fundamentally different mind set than Americans (and Brits, Spanish, etc).

These 'core' types still remember the Y2K fiasco - many got burned then and will probably never put money into the US again.

The daily reminders of subprime CDO/MBS bull doo doo doesn't help either.

On the other hand, the 'new' Europeans: Spanish, Irish, etc are definitely pushing money in. Brits are still in lackey mode and thus are also somewhat contributing - although more on the Treasury side.

As for US$ rebound - some type of rebound will occur.

However, I am 100% confident that any rebound will be a dead cat bounce. There is too much ugliness both already out and also still hidden, plus there are plenty of better places to invest.

Lastly the BRIC countries: definitely a bubble, but there are some differences:

1) BRIC economies by and large are growing in production. While this is much slower than the stock markets, it historically has meant that the run up lasts much longer than even remotely thought possible, and the eventual crashes will be ugly but not devastating.

2) BRIC countries are not borrowing money. Capital flight has historically been the biggest reason why emerging economies get killed.

Absolutely a large amount of money in the BRIC markets is from abroad, but the combination of positive currency accounts and overall absolute per capita wealth increases will likely significantly moderate the effects.

3) BRIC countries need 2 things: markets to sell to and resources to grow on. The US is the biggest market, but unfortunately will soon discover the difference between being the biggest boy on the block and being the most solvent. On the resource side, the US is a net resource consumer so a slowdown in the US might actually moderate the negative US purchasing effects as commodity demand across the board drops.

[Jim Nickerson]

Re: 6 trillion hot potatoes

Jim: I agree that the BRIC markets (and many others) look much like Naz in late 1999 or Jan 2000 - I won't touch them. Just passing on for the community the chatter over the Euro based financial media from interviews with fund managers (and they all talk their book, on both sides of the Atlantic).

I made the comment last week that maybe it was time to hold one's nose and buy the US$ as it looks very oversold and sentiment is so negative. I am not a chartist, use them only in the most rudimentary fashion, but looking at the $ index chart as of close Friday this week, looked to me there's some risk of a waterfall slide down the cliff face if "they" lose control of this thing now. That's enough to keep me out of (most) US$ denominated stocks for now. You are absolutely right that these things go in cycles and it may be the US may go on a "cheap as dirt" steeply discounted asset sale to foreigners at some point. Those that can hedge currency risk are no doubt in the US equity markets already.

GR,

With regard to charts, I look at them all the time, but often get excited and make buys or sells without looking at the current chart. :confused:

Regarding $USD (stockcharts.com symbol) if you can put in an RSI and MACD, I read both those indicators as positively diverging from the recent price action of the bonar index, especially that interpretation may hold up if the bonar index reverses its current downtrend. I started to write that I'm not long the dollar, but with a lot of cash, I guess I am long the bonar. I'm not convinced enough or interested enough to go long something like RYSBX--though perhaps I should consider it to offset my position on rising interest rates on the 30-year bond--RRPIX.

I think an important question to be answered here is whether there is going to be an identifiable Ka? Personally I am Ka-ish.

[Jim Nickerson]

Re: 6 trillion hot potatoes

Jim, GRG,

It is true that there are some Europeans who are investing in US securities, but you should also keep in mind that most 'core' Europeans (i.e. French, German) have a fundamentally different mind set than Americans (and Brits, Spanish, etc).

These 'core' types still remember the Y2K fiasco - many got burned then and will probably never put money into the US again.

The daily reminders of subprime CDO/MBS bull doo doo doesn't help either.

On the other hand, the 'new' Europeans: Spanish, Irish, etc are definitely pushing money in. Brits are still in lackey mode and thus are also somewhat contributing - although more on the Treasury side.

As for US$ rebound - some type of rebound will occur.

However, I am 100% confident that any rebound will be a dead cat bounce. There is too much ugliness both already out and also still hidden, plus there are plenty of better places to invest.

Lastly the BRIC countries: definitely a bubble, but there are some differences:

1) BRIC economies by and large are growing in production. While this is much slower than the stock markets, it historically has meant that the run up lasts much longer than even remotely thought possible, and the eventual crashes will be ugly but not devastating.

2) BRIC countries are not borrowing money. Capital flight has historically been the biggest reason why emerging economies get killed.

Absolutely a large amount of money in the BRIC markets is from abroad, but the combination of positive currency accounts and overall absolute per capita wealth increases will likely significantly moderate the effects.

3) BRIC countries need 2 things: markets to sell to and resources to grow on. The US is the biggest market, but unfortunately will soon discover the difference between being the biggest boy on the block and being the most solvent. On the resource side, the US is a net resource consumer so a slowdown in the US might actually moderate the negative US purchasing effects as commodity demand across the board drops.

c1ue,

How does a fellow, I guess you are, get a grip on things as you wrote above or is it your surmise?

[GRG55]

Re: 6 trillion hot potatoes

GR,

With regard to charts, I look at them all the time, but often get excited and make buys or sells without looking at the current chart. :confused:

Regarding $USD (stockcharts.com symbol) if you can put in an RSI and MACD, I read both those indicators as positively diverging from the recent price action of the bonar index, especially that interpretation may hold up if the bonar index reverses its current downtrend. I started to write that I'm not long the dollar, but with a lot of cash, I guess I am long the bonar. I'm not convinced enough or interested enough to go long something like RYSBX--though perhaps I should consider it to offset my position on rising interest rates on the 30-year bond--RRPIX.

I think an important question to be answered here is whether there is going to be an identifiable Ka? Personally I am Ka-ish.

I have same view. The credit contraction appears in early stages, is anything but contained (to subprime, or just the US economy) and therefore my simple logic suggests we have a ways to go before the dis-inflation phase is over. But then what the hell do I know? :confused:

Thanks for the pointer and understandable interpretation of the US$ chart Jim. Other than simple trendline stuff, the rest of those squigly lines are Greek to me.

[c1ue]

Re: 6 trillion hot potatoes

How does a fellow, I guess you are, get a grip on things as you wrote above or is it your surmise?

I'm not sure which part you are referring to, or all of what is quoted?

BRIC growth: This is pretty well documented. I like first hand verification of 'common knowledge'; India I've only visited once, but I've been to Brazil several times (and again in December), Russia at least once a year for the past 7 years, and China every other year.

The question is whether the production growth equals financial growth.

Russia has a big bubble in construction/real estate and a related bubble in banks (from money borrowed abroad using oil money base), but since the starting point was so low it isn't completely ridiculous yet.

China real estate is absolutely past unsustainable territory. When I am told how cheap Shanghai property is (actually house + land lease since the government still owns all actual property), the talk is now like what Japanese in the '80s were saying about Manhattan and Californians in Y2K were saying about Tokyo.

Brazil - haven't spent much time in the cities - this will be remedied in December.

As for borrowing money - this is also fairly well documented and verified.

Item 3) is my synthesis of what I've seen combined with net resource in-/out-flow reports.