[GJM] out of the dollar -- addendum to CITS Debt Watch Alert

[W. Curtiss Priest]

Subject: out of the dollar -- addendum to CITS Debt Watch Alert

Dear folk, concerned,


Regarding our alert, "John Williams' hyperinflation view of US -
reaffirms Batra's "Crash of the Millennium" [CITS Debt Watch Alert]
of Mon, 02 Jun 2008 13:03:18, there are two additional details
to grasp:

#1.  What does it mean to be "out of the dollar?

Let's take a very conservative 62 year old investor with a KEOGH
or IRA.  Let's say the money is in the Fidelity Spartan Fund, which
places the money into US government issues, such as 90 day
Treasuries.

This investor is doing one thing right -- as retirement 
approaches the soon-retiree is out of "the market" (a.k.a.
stock market) as a long-time rule is to never subject
your retirement portfolio to the vagaries of the market,
around 5-10 years before retirement.  (Many Boomers are in
this category -- I wonder how many are still "in the market?)

Meanwhile, this investor gets monthly statements and sees the
portfolio growing by around 3% per year (probably losing
ground to the actual inflation rate -- the one that includes
food and fuel).

But, as the gain shown is not "real" (i.e., inflation adjusted),
the investor feels comforted to see that, even being careful
to preserve these precious funds, they are still rising.

But, are they?  They are rising when viewed as denominated
in US dollars.  But not long ago the US dollar was at
parity with the Euro.  One dollar bought one Euro.  Now?
To purchase a Euro, the cost is $1.55 dollars.

Let's look at this in terms of the investor's -- supposedly --
"wise," "safe" choice to be in the Spartan Fund.  Over the
last few years our investor has actually been subject to
a decline in the "value" of the investment of 100 - ($1/$1.55) ==
35%.  And, partly due to bazarre behavior of a US "Federal
Bank" -- the measley return on interest is vastly less than
35%.

So, with this illustration in mind, to be "out of the dollar"
means making many, unfamiliar choices:

	1.  If in the (US) market, viewing the "value" of those
		stocks in (say) Euros, not US dollars

	2.  If having, say, a TIAA/CREF pension, viewing
		that value by the 35% reduction (above)
		[it is possible via this pension's administrator
		to hold "mutual funds" and therefore, if there
		is a decent "foreign fund" (I often find that
		these are "international funds" where upwards
		to half the holdings are still US denominated
		instruments], it is possible to shift these
		holdings, at only 10% changeover per year, out
		of the dollar

	3.  Purchasing, not a US bank CD, but a Euro CD.  And
		Everbank remains one of the few ways to
		easily do this (and the Euro CD is still
		FDIC insured -- for whatever that may or may
		not be worth)

	4.  Purchasing "high end" collectibles.  Truly,
		one-of-a-kind items such as paintings or
		limited production, highly regarded 
		furniture, say from the 17 or 1800's are
		denominated, not in US dollars, but by
		the world-wide market basket of all
		currencies

	5.  Purchasing other rarities including gold, silver,
		platinum, palladium, maybe beryllium (but
		not copper, lithium, etc. -- too dependent
		on industrial demand to set their prices)

	6.  Maybe, by owning an oil field or a coal mine
		As we know, one reason the price of oil
		has risen so fast for the US is because
		of that 35% decline in the dollar (re the
		Euro)

	7.  Selling your house and then renting it back
		from the new owner -- letting the owner
		incure its decline in dollars

	8.  (and, vastly, many others)

Are some of these choices truly unfamiliar and are many
disturbing?  Yes.  But, this is what one must do to be
"out of the dollar."  Can everyone be out of the dollar?
Of course not -- unless there is hyperinflation, and then
those holding "the dollar" is "out of them" -- but not
in a nice or pleasant way.

#2  Related to #1, but having a "life of its own" is to
view, say, the DOW Industrials valued in other currencies.

What currencies?

I make illustrations with the Euro.  I do this knowing
that the EU is not without financial problems, but, as
a colleague said to me several years ago, having lived
in Denmark for a while, "the Europeans are not acting
as unwisely about debt as many [US] Americans."

Alternatively, one might compare against the Japenese Yen
or, say, the Singapore dollar.  Which currency depends
on mostly two factors:

	1.  has that country's economy and its people
		been "more sensible" than US Americans?

	2.  are its people more educated and/or more
		hard working than US Americans, or producing
		tangibles (rather than creating illusory
		financial clouds)?

	3.  what natural resources does the country own?
		And, how will the value of those resources
		fare in a worldwide recession?  For example,
		while Hubbert's curve (which some of us
		contemplated in 1973) was correct about "peak
		oil," the current price of oil is largely
		sustained by huge industrial demands, from
		the US to China.  So, while the general
		trend for oil prices must be up, as it
		becomes a depleted resource, it may actually
		dip substantially with a worldwide recession.

Finally, what does the DOW look like when viewed in Euros?

Thanks to Reuters, we need only click our browsers:

http://www.reuters.com/finance/stocks/chart?symbol=FEZ.P

for the "Dow Jones Euro STOXX 50 ETF (NYSE Arca)"

And the default chart is for one year.

If you change the chart to a two year chart in the "Time
Frame" box, you will have a reasonable, visual sense
of viewing our DOW "out of the dollar."

Chartists or Technicians (those who make investment
decisions wholely or partly based on patterns in market
price movements) will immediately see the "head and
shoulders formation" (which is taught to everyone taking
an investment course) as portending the switch from a
bull market to a bear market.

And, those who have felt wealthier about the DOW "going
sideways" must now grasp the reality of having also
lost 27% in the last four years.

See the Yahoo Euro/Dollar chart for the source of the 27%:

http://finance.yahoo.com/currency/convert?from=EUR&to=USD&amt=1&t=5y

showing a graph covering the last five years.

WCP
Editor, CITS Capital & Debt Watch

These two figures, archived here as:
DEBDOW68.PNG & DEBEXC68.PNG

Previous issues of the CITS DEBT WATCH:                     
    http://groups.google.com/groups/search?q=cits+debt+watch
    http://www.google.com/search?q=cits+debt+watch          
-- 

	   W. Curtiss Priest, Director, CKL&S
	 Center for Knowledge, Learning & Progress
    (formerly the Center for Information, Technology & Society)
	 466 Pleasant St., Melrose, MA  02176
   781-662-4044  BMSLIB at MIT.EDU http://Cybertrails.org