Rowebbiz

What America is doing today is creating a nominal increase in stocks/house prices/401k’s by pumping into the economy money from the future to create GDP growth. The money from the future lead to a devaluation of the currency.

I mention a nominal increase because if house prices/401k’s go up 20%, the average American will feel better, but the currency will most likely devalue 25%(more than 20% anyway), thus leaving everyone worse off than before. Inflation is due when you print Trillions worth of currency.

The cumulative deficit of the USA stands at over 9 Trillion( !!!!!) USD for the next decade. Compare this by adjusting to scale with Romania’s deficit of 60 Billion EUR, and you could only say that America is in a deeper mess than we are.

At this time, the current debt to GDP ratio for the United States stands little below 100% ( via TheDebtClock ), but within a decade, with the 9 Trillion estimated, will reach 150% around 2019. Anything above 200% ( the current debt to GDP of the Japanese) is uncharted territory, a place where no modern country has gone before.

Their only option at reducing this deficit seems to be the introduction of a consumption tax, similar to the European VAT. This is the first article in NYTimes about VAT( link here) , but I have read other commentaries from members of government as they are first “testing the waters”.

Some excerpts :

- Members of Congress, like their constituents, are squeamish about such ideas, instead suggesting spending cuts or higher taxes on the rich. But with a lack of political will to do the former, and a practical ceiling to how much revenue can be milked from the latter, economists across the political spectrum say a consumption tax may be inevitable.

- Like universal health care, every other industrialized country in the world already has a value-added tax (as do about 100 emerging countries). ( I see this as a tactic of getting people used to the idea first, I could bet good money that in a maximum of 6-8 years, we will have VAT in the States ).

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Given the obvious/hit you in the head risk of inflation mid-to-long term, I will try to exit part of my current USD holdings. I am waiting for a dip/scare in the market that will shortly drive the USD under the 1.4 boundary against the EUR.

At the time when I’m writing this article, we have 2 resistance points at 1.45 and 1.40. Time will tell.

If you’re an online entrepreneur( I don’t like the term entrepreneur actually), then you should watch the stock market and you should know what’s going on with the U.S. Dollar. Basically, everybody is betting against the dollar right now, everybody hates the U.S. Dollar. Honestly, I do too!

A nice ( stupid) correlation is taking place on the market: for over N consecutive days, the S&P goes up – the dollar goes down OR the S&P goes down, the dollar goes up. So, if you’re investing like I am, all you need to do is to look at the dollar. No fundamentals, no analysis, no IQ of over 140, no news other than news on the dollar.

Another very interesting pattern has been holding on for the last couple of months : the end of every month brings the Dollar UP and the market DOWN :

Now isn’t this great. A simple pattern that makes for an investment strategy. And quite a good one, so far I havem managed an annualized return of 12-15 % after taxes. K-cing!

Being that time of the month, I’ve cleared/reduces some positions with the purpose of taking profits.

Rackspace Hosting and Ford have been great, Oracle did ok, Citibank is sitting flat and I’ve decided to cut my stake as it’s doing nothing for my investing style.

Via Blomberg ( http://www.bloomberg.com/apps/news?pid=20601110&sid=aV9NDhhhtRLI), investors are rushing to Bear-Market Funds :

• So-called bear-market and long-short mutual funds, designed to protect against falling stock prices, attracted a record $10 billion this year through October, more than double the previous high in 2006, according to Morningstar Inc. Asset managers have opened 19 long-short funds, the most in one year.
• The S&P’s rebound this year may limit the growth of alternatives in the near term,says Burton Greenwald, an independent mutual-fund consultant in Philadelphia.  “As the public returns to the equity markets, they will be less interested in these somewhat exotic products,” Greenwald said. “Given a year or two of traditional stock-market returns, their memories might prove to be very short.” ( we’re all greedy, aren’t we ?!? )

I am going long on the dollar, this will provide some insurance and it will be easier to short than the S&P. I have opened a position with PowerShares DB US Dollar Index Bullish( UUP). Will see how this goes.

Playtime over.

In the meantime, I’ve launched a pretty massive AdWords campaign using dynamic keyword insertion and their client editor. I just noticed they opened up an API. This is great, I hadn’t used AdWords in some time now, but I’m really looking forward to some experiments with their new features.