What IS the Value of Money?: Sunday Morning Thoughts 15 August 2010

What is the value of money these days?  According to the latest currency market close, the euro has been pushed down to its lowest in three weeks, to the equivalent of $1.27 in US dollars.  The yen is also down against the dollar.

The dollar on the other hand is up higher than it has been in the last two years.  But that may change in the coming weeks.

When looking at the dollar compared to the Yuan, one Yuan is the equivalent to 14cents US, so it would take 7.15yuan to equal $1.  One Yen equals 0.0116 dollars.  This is good for an exporting country. It would be cheaper for importers to buy goods than to make the same comparable goods in their homeland.

In the world of exporting keeping your currency down will aid in domination of a particular good/item.  As of Friday August 13, 2010 the Bank of Japan is reevaluating the yen to weaken its value against the dollar.

August 6, 2010 President Obama pushed for “made in America”, another way to help strengthen the dollar by backing with what the Federal Reserve Note was intended to be backed with, the hard work of the American people.

But this may not actually work with the weakening of the yuan and the yen.

The euro on the other hand is also a note much like the US dollar.  Issued by the European Central Bank, and is representative of the collective work, such as good produced, consumed, and exported, along with the addition of the government spending of the countries in the European Union.

So the original question, what is the value of money?  Zero, until you spend it which in effect gives it its value.  For tourist in a foreign country the exchange rate at the time they spend the money is the value.

In watching the stock market one can see the value of currency fluctuates.  In our current Global economy, the heads of the dominating G20 governments are watching and calculating how to best end the recession, or at least bring economic stability to their own countries.

With paper currency having an unstable future, many investors are moving toward tangible assets, gold, silver, and oil have been consistently up or only experienced slight downs, unlike many stocks which have seen skyrocketing and plummeting days.

In the background of all the issues with the DOWJIA, NASDAQ, and the S&P, real estate is slowly rebounding, with appreciation to follow.

The Consumers and Investors are Not at the Gates:Sunday Morning Thoughts 18 July 2010

The DOW, NASDAQ, and the S & P all ended the week in the red.  Friday’s down turn of the stock market hinged on a few factors, one being the banks such as Bank of America, Wells Fargo, JP Morgan Chase all reported less than anticipated second quarter revenues.  This falling short of expectations for the banks coupled with sub par consumerism mixed with the New Reform bill to soon take place has made many investors nervous.

The new rumor, we may slip back into another recession, but at this point even with the skepticism we are poised to maintain a slow and steady recovery.  The strides we are making now are small little hops, which when we look back a year from now, when all totaled will equal a big leap.

For some investors, government securities have become the new safe haven, but with so much interest in the government bonds the prices rose as the yield went down, paying more to earn less is not a great strategy.

America is not the only country at this point feeling the struggle of growth out of a bad economy.  United Kingdom announced it is the equivalent to 5 billion dollars in debt.  The Nikkei this Friday was much like the DOWJIA closing down by over two hundred and fifty points.

When we look at all the factors for our recovery, the stalling is mostly due to the reaction banks had to the outcome of the sub prime lending.  They tightened the reigns of credit with only a 30 day notice of severely increasing consumer’s interest rates.  Some consumers became bad credit risks due to the banks drastically cutting their credit limit to just above the amount owed.

Basically, if a person had a credit card for $12,000 and owed $3,000 towards the balance, this would only be 25% usage of the credit.  In our current economic times, the banks have been cutting those higher limits down to just above what is owed.  So what was once a $12,000 credit limit with $3,000 owing, it becomes $4,000 credit limit still with $3,000 owing.  This radical decrease causes the credit usage to shoot up overnight to 75%, this would make the person appear as though they were irresponsible with credit.

There should not be a wondering why consumers have fallen off of purchasing.  With credit dwindling and interest rates sky rocketing, buying anything above the necessities would be a frivolity.  Many consumers have moved towards making purchases with cash or debt cards instead of with credit cards.  People feel more in control with keeping themselves and their transactions liquid.  All things tangible are driving the stock market while all things cash will help keep consumers from sinking into deeper debt.

The G20 Summit and the New Reform Bill: Sunday Morning thoughts 27 June 2010

The G20 summit turned into talks about the global economy and how it may actually fall.  To keep this fall from happening the G20 talked about measures to take to avoid a Global depression.  Granted the leaders of wealthy countries just joined the summit in 2008, but talks while in a depression, qualifies for 20/20 hindsight.  We are now in the Shouda, coulda, woulda zone.

Should not have made bad loans nor spent money needlessly.  We could have taken a position to not be in the Middle East.  Would have improved the home economy if we just regulated banks and placed a ban on the average American trying to own a home with a loan intended for investors.

It seems as though our governments do not plan for financial crises until they are in full swing.  We should have a plan in place to counter or avoid this type of catastrophe.

First a little background on the G20 and why it is important to know what they are doing.  G20 is the Group of Twenty Finance Ministers and Central Bank Governors from twenty economies, comprising of 19 countries plus the European Union.    They formed in 1999 but the Heads of States began Summits in 2008.

The G20 was a direct outcome of the 1997 Asian Financial Crisis; the goal was to bring together advanced and emerging economies to stabilize the global financial market.

The twenty participants in alphabetical order are Argentina, Australia, Brazil, Canada, China, France, European Union, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, United Kingdom, and the United States of America.  The G20 represents 85% of global gross national product, 80% of world trade and two-thirds of the world population.

The G8 members are the wealthier nations of the G20.  Their membership consists of Canada, France, Germany, Italy, Japan, Russia, United Kingdom, and The United States of America.

This master mind group does meet with opposition from liberals, conservatives and even an anarchist group called the “Black Bloc”, no one wants the G20 to meet because it seems to be moving towards a one World economy.  I think the internet has already started a one World Economy.

The hot button with the G20 and the G8 is how to create a responsible banking system.  Each of the G20’s home economy is suffering from not having a tighter reign over the banks in their perspective countries.

The G8, feeling the slump of the economy fell 18 billion dollars short of the 2005 pledge of 50 billion dollars in financial assistance to third world countries; with an extra 25 billion a year for Africa as a part of the overall 50 billion dollar increase in financial assistance by 2010.  Only 11 billion was provided.  Our recent bailouts are the reason for the lacking of the financial assistance.

Our economy in 2005 was brisk to say the least.  New housing projects almost everywhere and sellers were so equity rich they would get more than five or six offers to sell, each offer edging the price higher and higher.  Although at that time, many analysts could foresee this current down economy on the horizon.

One of the other topics of discussion was the Yuan.  The G8 still are asking China to reevaluate the Yuan to make it stronger.  This strengthening of the Yuan will make it easier for other exporting countries to compete with China.

The other hot button for the G20, creating the framework to impose a tax on banks, which will probably move levy on to consumers in the form of more fees.  Angela Merkel, German Chancellor stated that there isn’t a common position in the G20, neither on a bank levy nor on a financial –transaction-tax.  Of course everyone agreed that the countries that are most indebted and with the biggest deficits should reduce deficits.

There is a common position in the G8 that the time of expenditure programs has ended.  They are now looking to introduce exit strategies.  Before beginning any venture it is always wise to have at least three exit strategies planned.

On the Wall Street front although the New Reform Bill has made its way through Congress it will be awhile before implementation.  What we will have is a new financial consumer watch dog, creation of a protocol for dismantling troubled financial firms and a mandate to have higher bank capital standards.  This means they will have to have more money in the bank before they can loan money.

The New Reform will restrict derivatives dealing by banks and curb their proprietary trading to shield taxpayer backed deposits from more risky activities.  The banks will be able to keep most swaps dealing activity in-house, although the riskiest trading would be pushed out into an affiliate.  They will also be permitted small investments in hedge funds and private equity funds.

This new reform will bring about needed changes but with change there will also be problems created.  The reform is to strengthen the banking system from the 1930’s to perform in our new millennium without choking off credit creation in the near future.

What does all this mean for stock market investors?  Choppy waters ahead.

Market Watch: Sunday Morning Thoughts 23 May 2010

With the stock market semi rebounding on Friday one would wonder what the coming week has in store for investors.  Wall Street, the gambling hall of the elite, has seen a very rough ride this past week.  Most would be optimistic to say that it s turning around due to Friday’s DOW closing up by 125.38 points for a DOW of 10,193.39  the NASDAQ and the SNP also had a gain at closing.  But conversely, Thursday’s DOW close had a loss of 376 points.  The NASDAQ and the SNP were also off by a significant amount.

But what will happen in the weeks to come?  There aren’t any accurate predictions until we come to that particular bridge.  Could the stock market fall below 10,000 some time next week?  Don’t start dusting off the crystal and magic 8 ball just yet.

The ten percent correction to our current bull market is normal, but this may become a twenty percent down turn in the weeks to come, which puts us in a bear market.  Consumerism during a bull market tends to be spend a lot save a little, during a bear market we all become more frugal with our expenditures, opting for Target’s best bargains and the racks of Marshall’s than the new arrivals of Macy’s, Nordstrom’s, and Bloomingdales.

The influencers of the stock market are all around us.  The global economy is seeing a lot of suffering, such as the issues with Greece, China, and the European Union.  There seems to be a lot of “market corrections” going on of late, with more on the horizon.

These tough economic times we are currently experiencing does not make this a time to run and hide.  Don’t bury your head in the sand thinking it will all pass.  This is time to make sound plans for the future.  The present may look bleak but the future will only improve.  Times of Great Depression are always followed by times of milk and honey.  Ford did not listen to people when he tried to make the first horseless carriage.  With persistence, innovation, and a positive attitude about the future, Ford went on to make the horseless carriage which gave rise to the assembly line, employing many people.  Well we all know how the story continues.

Yes the American dollar and the euro aren’t what they use to be.  Yes the housing market is due for another landslide of foreclosures in the commercial sector.  But we can look forward to the future holding a lot more stability due to current actions by our government with the new financial reform bill.   Although it is now unclear how bumpy the transition will be in this bold new reform, it is a step in fixing the problem of those who find the little holes in the system to get rich at the expense of rendering others broke.

Believe in persistence, innovation, and a positive attitude to facilitate growth, prosperity, and achievement.