Thursday, August 21, 2008

Securitization, Americanism, and the effects of baby boomer speculators...

Yep, this is a bit long, and it took a bit of effort to write. If you want to understand why we have a devalued dollar and rising gas prices, I’ve done my best to try and put it into perspective. Here are about 3100 words to attempt it, but it is very complicated indeed. Still, several times I said “Wow!”, while researching, and some ring true in spite of what is not being said in the media...

Securitization, Americanism, and the effects of baby-boomer speculators...
By Ken LaRive

Studs Terkel wrote a book that was required reading in my University history class. It was called ‘Hard Times.’ A thick book, he documented life in the great depression by interviews with both the average Joe and the decision makers from Government to Wall Street... A true Republican, Studs fought government intrusion into private life until the day he died.

In the middle of hundreds of interviews there was an emphatic inference that it was mostly negative speculation that caused the market to crash in the ‘30s. Amazingly, we are hearing the same thing today as speculators are being blamed as the determining factor for both the high cost of a bbl of oil, and the devalue of the US Dollar. No way can this be the whole story...

So before I get started here, I want to throw a couple of questions up in the air: Are we in fact loosing control? Or is all of this supposed negativity predetermined and planned? I propose the latter, mostly. Strange how we are, but now that the price of gas has come down a bit, we hardly collectively remember the lower price we had at the pumps just a few short weeks ago. That speaks volumes.

As with tangible markets, it seems the same reasoned logic is used for financial markets as well. Is a scientific method in operation? Could be. Surely, since the price of tangible oil has risen, so too has the financial markets around the world dropped with an even widening spread between the US dollar and the EURO. Why?

Some economists point out that it is also supply and demand that creates trends, and that most times speculation in financial markets actually shape our economy in a positive way. Non-the-less and some agree: with just a word at the proper moment speculators can also play havoc on the value of our currency, and our fragile and very tangible world markets as well.

Few know the mechanisms that swing, shake, and move the economy, and I flinch as I hear some saying they are tired of the EURO ‘kicking our butt’. What? It is amazing, but this couldn’t be farther from the truth. The widening spread between the US dollar and the EURO is negative for both, and though the EURO seems to be growing in value, it is the double digit inflation in the European Union, Germany hardest hit, that makes it seem so, and a weak US dollar only exacerbates the problem.

Here is what I see...

Credit is too lax for the US consumer, and has been for a decade. Credit Cards, home and car loans have little or no stops. We have been in a buyer’s market about 90 percent of the time since WW2, and little is being saved by our massive middle class, including our unbelievable amount of Government spending. This giant American working class machine not only bolsters this country, but has been the spark that spurs the entire financial world! There are several countries, however, who would like to see this change.

Note: This provoking monetary ability is morphing fast, and soon we may not be alone as a “super power”. Both China and India, and now Russia, has a fast-growing middle class, and this will change the dynamics of world markets on many unprecedented levels. India now has an estimated middle class between 250 and 300 million and China is quickly filling the gap.

Most European countries have ZPG, but there is a large population displacement, mostly from the Middle East, and though this is causing a major shift in Society norms, helps with population shortfalls where labor is concerned, there is a lot out of work and on welfare. Yep, in a socialistic Society they give welfare even to Illegal Aliens, something Obama wants to do.

Here in North America we are also dealing with this influx in the labor pool from Mexico, in spite of the amazing amount of opposition. Also, and I’m saving the best till last: Russia. Keep your eyes on them folks... They are savvy, and now have an abundance of oil we showed them how to drill for! They also have a large ego, have something to prove, and there is no love lost between us. American Oilmen have tried to do business with them for a decade, and in nearly every case lost their money by false and bogus promises.

Sorry, got ahead of myself. Let’s go back a bit...

Back at the bank: This trend may also be true for leveraged buyouts of big business, and also credit for commercial real estate. It seems difficult to tell how effected they are now because that domino will fall a bit later than the observable effects it has on the consumer. When we see that trend materialize in the banking industry, becoming evident in the market, we will be too far gone to do anything about it. The bank will be busted.

The global paper money system has created what some have called a ‘super bubble’, and as the US is the world’s monetary standard, the dollar has been purchased by world governments since 1973 with the hope of stimulating long term stability. According to Ron Paul, only two leaders have gone against this banking tool, Saddam Hussein in 2000, and Mahmoud Ahmadienejad of Iran. He opened the Iranian Oil Bourse and trades exclusively, and with much liquidity I might add, in non-US dollars. Another fine point is that since 9-11 and the ensuing Patriot Act, investor banks and oil producers alike have growing fear and real concerns that America might possibly freeze assets and blockade countries in the wake of terrorism.

Our intervention in international military conflicts and our relationship with Israel is another complication as tit for tat violence and threats of annihilation by nuclear bombs continues unabated. Memories of Afghanistan still ring true, as in times past we trained and armed resistance to help our interests, and it came back to haunt us. Many Americans have died there, not to mention many thousands of Russian boys, all with US and Russian-made weapons. It is in America’s best interest to have free trade with all, and have no tangled alliances. Instead we have self proclaimed go-betweens threaten others in our name, alienating and isolating us to choose sides, as we are about to do with Russia and Georgia.

World Bank knows all about this. They side with profit, and know well the concept of an original idea rehashed from the past. You see, a devalued dollar is the primary reason for the EU’s runaway inflation. What else could it be? Surely we have an abundance of accountants who could have foreseen our financial woes, based on past experience. Could there possibly be a connection between this and the US printing trillions in unsecured paper money, or I suppose it was all just a coincidence? Add a trillion to the treasury please, and oh lets pay on that loan, daa, from who? No, not the good old Bank of England. That would smack of conspiracy, and only a nut-case would believe that...! Read on...

Again, since the war in Iraq, our protective measures for the safety of Israel, and our needful assertions for oil, as I have suggested, we are printing unsecured dollars and flooding the market to new never before seen marks of dilution. This, more than anything else, is the cause of our financial woes. Some say that none of this would be possible if we had an international gold standard again. The EU, and other governments who have been artificially bolstering the US dollar in the past are now paying the piper with unchecked inflation with no relief in sight...

Note: Seems strange, but it seems the same countries who did not want to help us in the war effort, for supposed mostly economical reasons, are being affected the most. Perhaps if they might have belayed the cost by active participation, in the long run they would have been better off.
Some say the devalued dollar’s true nature is artificial to intentionally harm the EU, just as Reganomic misinformation was ultimately the downfall of the USSR. This idea is published throughout Europe and India. If this is actually true, it is a very dangerous game indeed. We are all tied to each other by economical strings, and what negativity one has or imposed, surly will affect the other as well.

And from the Wall Street Journal’s perspective:
Robert Lynch (HSBC, in an article in Wall Street Journal) wasn't far off the mark: the dollar's weakness fundamentally reflects the collapse in demand for securitized US credit. By far, the US’s biggest export in recent years has been the financial innovations such as SIV's, collateralized debt, and asset backed securities. European banks have been great customers. But, since the housing crisis of 2007, and the ensuing credit crunch, the foreign banks are no longer hungry buyers of US financial innovations. Rather, they are staying away... this lack of demand is driving down the demand for US dollars.
Speculators state that the economy cannot grow unless credit is on the rise. This has to be untrue. Credit may help stimulate growth, but it is the production and selling of goods and services that is the primary factor for a healthy economy, and in actuality, in a viable, forward moving economy, no credit is mandatory or necessary. A truly sound company borrows money from themselves, and attempts to become independent of the borrowing system, as it seems tax structures are more inclined to favor the company who collects self-induced revenue and in-house interest.

Government bailout, like most welfare, stimulates a lack of liability and accountability. Printing new money might seem the only solution, but it would take hundreds of billions, if not a trillion to accomplish this frightening scenario. Surely, this would bolster Fannie Mac and Freddie Mac and stave shareholders from floundering and disintegrating in the coming equity offerings. This bailout is called “securitization”, by some, and it would surely both impact and alter the global economy in ways never before seen. Negative? Most likely, because it is now thought that financial markets in and of themselves are shaping economic destines, and not economies shaping markets, as was the norm. With little or no understandable equilibrium, the confusion causes fear in the market, and speculators have a field day...

We baby boomers have a hand in this too! We play the market on line, and most, though we may be reluctant to admit it, play optimistic trends. Sounds iffy, but some of us old goats understand a segment or aspect of the market and can make a rational decision based on experience. Some brokers fresh from Utopia University have only economic theory to base a decision. Odds are a truly governed decision comes from both what is called an educated guess, or possibly an “intuition,” or “insight”, as to the most favorable monetary potentials by odds. We are considered speculators too, and in the broadest sense, when a company is spotlighted to have a potential for growth, wide eyed speculators, or day traders, like us, buy, buy and buy. Might not seem like much, but put them all together even with only a seven dollar trade and it is indeed formidable. With more capital that company has more options to grow and expand. Stimulated and promoted by speculation it is shaped by whims and trends, and the actual potential or potency of the company is seldom researched or considered.

Another very real negative of government intervention securitization is that the lender is separated from the borrower by proxy. Out of their control, issued and determined by a third party, i.e., the US Government, there is far more of a chance for borrower fraud and an indetermination of true risk by the lender. Responsibility is fragmented, and in trickle down Economics, surely this will sink to the very core of what we once called, free enterprise.

There may come a time when desperate economists might again speculate and push for an international gold standard as a prescription for new growth and a stable investment environment. Spectators who realize this are saying that the price of gold will at least double if they do. Surly, looking back it is quite evident that the gold standard was somewhat flawed. There were times of slow growth. These depressions were sometimes very harsh, and etched on the minds of those spectators who see those same trends present themselves today. The catch 22 is that they actually have a hand in its creation! Still, a gold standard may be a better scenario as paper money would again have something tangible to back it. It would seem that speculation wouldn’t carry as much weight, wouldn’t have as much of a punch if the currency actually had a tangible face value. What a concept! ...but that debate rolls on and on.

Know this, international markets and the world banks who fuel both sides to war and peace are not fools. Though some say it smacks of conspiracy, it seems evident that doing damage to the American dollar might be strategically needed for the long run good of America. If this trend continues we will probably see the destruction of the EU soon, and that won’t be good for us. Just as President Reagan contributed to the fall of Communist Russia, we as Americans did not understand the mechanics and implications at the time. What we saw was the devastation it had on the oilfield and our economy for eight years in the ‘80s. We suffered, so it seems, for a greater cause, but at the time we were truly ignorant. It is the same today. We are just too close to it to see the total picture, and it is indeed very complicated. In and of itself, these complications play havoc for investors who see little of no standards, and markets, though dependant on each other, seem also not to always have a reasoned bottom line. Decisions based on immediate gratification and not long term financial stabilization is never prudent.

A concerted effort or not, the effect is the same. When America seems to stumble, the entire world stumbles in our shadow. They had better hope we survive, because deny it or not, we hold their destiny is in our hands, as they do ours. In our shadow we have something this old world has never seen; a very large and powerful middle class far older and more stable than China or India. If we can protect that, America will stay strong, and remain an unparalleled world power. We affect the entire International Market not only as major consumers, but as producers of copious amounts of taxable money.

Either way, keep a bit of gold commodities in your portfolio for a rainy day... ya never know...

Robert Lynch continues: Many analysts have compared the US dollar to the Microsoft operating system: it’s most used and hard to live without...but no one really seems to like using it! For this reason, many foreigners are happy to have a way in which to avoid using the US dollar. If they are offered an opportunity to conduct business in Euros, for example, many foreigners are happy to do so. This incentive plays right into their natural "anti-Americanism" which is trendy around the world.

It is the bottom line that stimulates these decisions, and nothing else. I don’t care what feeling a person, company or government has deep inside about America, the Yen, or the EURO; if it seems stable in comparison, will be used.

Why is there such anti-Americanism? Surely that is a complicated question, but most will agree it hinges on several factors. American world interests sometimes clash with other countries. For instance, France, Germany, and Russia all had invested monetary interests in Iraq, and were actively doing business when the war started. There are also a growing number of secularists, who are actively opposed to religion’s influence in government and world affairs, and the problems associated with Christians, Muslims, and Jews for over 1600 years are growing tedious. The widening gulf between our left and right is a testament to this. In a shrinking global market these combative natures are affecting everyone. The supposed speculation that Christians and Jews are now uniting to fight Islam does not sit well with at least two-thirds of the world, and fear that a nuclear war will escalate from the constant threats, be they feigning or not, does little to galvanize, but divide and isolate. It is just plain bad for business.

It is more than monetary gain that motivates these sweeping changes, so it seems. Fear and desperation in the face of unsecured and unchecked human growth, compounded by fluid ideologies that pour through imaginary demarcation lines causes riffs in government involvement with the populous. There is also an evident weakening motivation of populations using socialism for economic stability. It just doesn’t work, unchecked government intervention into capitalism does not work. With finite energy and its associated costs, opportunistic aliens knocking at our door, along with myopic leaders without vision, we live in bubbles of very thin membranes.

In this election we had better choose a man who can reason America’s place in a world of dynamic changes, moving quietly but with confidence and optimism among nations who want what we have. In that jungle, one may indeed need to carry a big stick, but we will need more than speculation and securitization to carry us safely through without another World War... Courage, and winning conviction, comes to those who can see beyond immediate needs, and can focus on a broader, multilateral picture. As we reach out beyond our borders, we must lead by example.

Though it may seem that this is a comprehensive answer to the question of higher gas prices and a weak dollar, it isn’t the total picture. To understand this fully one must study international relationships. These ties that bind us internationally are complex and flux by such diverse catalysts as government regimes, changes in weather, or natural events like a flood or earthquake. Its complexity seems a perfect mask for a system predisposed to manipulate markets, and no better place would be World Banks. To say that they are not in communication for selfish reasons seem very naive. With such control it would appear that accountability would be little or non-existent, and world markets are not only manipulated, but at the mercy of a design more akin to a predetermined plan, though some might call it conspiracy.

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