Will the dollar re-test its lows?

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Will the dollar re-test its lows?

The US fiscal house has never looked weaker. A quick look at revenue and expenses would look something like this:

Expenses

$1 billion a day for the continuing wars in Iraq and Afghanistan. Not to mention the largest military in the world by far.
$700 billion to buy crap from financial institutions.
$85 billion to bailout AIG.
$250 billion for FFF (Freddie and Fannie Fiasco).
$150 billion in tax rebates to stimulate the economy.
$0 - $$53 trillion (depending on your math) funding legacy costs (medicare and pensions for future generations).
$200 billion to prop up the financial markets.

Oh what the heck, let's just say that liabilities are piling up at an alarming rate. Of course, as the recession deepens unemployment benefits, make work projects and other bail out projects will add to the above list.

Revenues

Corporate tax revenue will fall with earnings (down about 10% this year for large corporations).
Income tax revenue will also fall as the unemployed pay little tax.
Capital gains taxes will also fall as the economy (and stock market) continues to weaken.

We'll just say that revenues will fall over the next couple of years. So where is the money going to come from? Well, as usual the deficit will be paid by borrowing from the rest of the world. Ummm, except Hank and Ben just spent the equivilent of the rest of the world's savings in the last year!!!!

Realistically, who wouldn't want to lend to a country with falling revenues and a spending problem so bad they spent a trillion dollars in the last month?

I guess they could make it illegal to short the dollar and see if that props it up. Personally, I wish my American friends the best of luck, but I'm not lending them a dime.

I may buy some American assets when they become cheap enough. As for stocks, here's how some of the world's markets are faring this year:

S&P500 - down 14.5%
DAX - down 23.3%
Russia - down 43.4%
India -down 30%
China - down 60%

When the S&P falls as much as China or India has I may step in. I am buying China right now, but see nothing compelling in the US. I Know Vooch sees things differently, but we'll agree to disagree.

SunTzu

By Suntzu at 2008-09-20 19:37 | Stocks | Suntzu's blog

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Bad year

Add my portfolio to the list of casualties. I'm down 7 percent YTD. Beating the S&P feels like crap when you're still down. My anti-dollar bets got crushed in August. It looks like my boy Hank feels sorry for me. :D

By smtkr at Sun, 2008-09-21 07:49 | login or register to post comments

Yes

The debt was approximately 9 trillion, all the new fraud they added to the debt will make it 10 trillion. Thus they weakened the dollar 10% overnight. Which is a fact! However, stores, people, public take a long time to adjust so their may be a several year lag for this weakness to show. IMHO, the best place to be is in stocks or hard assets.

However, you must buy non-corrupt stocks. Which is very hard to do since many of the CEOs of the USA are corrupt.

By buybackking at Sun, 2008-09-21 14:50 | login or register to post comments

It's funny how people throw

It's funny how people throw trillions of dollars around... $5 trillion... $10 trillion... $50 trillion.... without knowing what the hell they are talking about.

People mistakenly treat this new debt as "$4 trillion debt and $0 trillion assets". People forget the U.S. government is taking over companies (which I don't agree with), and buying stuff 10-20 cents on the dollar.

This ain't really a bailout - the shareholders lost 80-90% of their money forever.

This is a shifting of assets, where the USA gets assets for pennies on the dollar, so the credit markets can get unfrozen, and banks can get back into meeting reserve ratio requirements.

Chances are good, the USA makes a profit on these transactions, and that investment reduces the debt.

People mistakenly call me a Pollyanna, as if I'm super-optimistic on the economy, but I'm not.

Even my last chart shows the Bear run, with the possibility of a reversal:
http://www.vooch.com/images/sp500-20080917.jpg

Last week, we hit an intermediate bottom, imo. There's plenty of time to profit on any reversal.

Things are going great for me because I've outmaneuvered the market in tough times. On Friday, I hit an all-time high in my portfolio and I'm long.

The big difference is I'm out there buying international quality. My portfolio is like a "Rock of Gilbralter". It will be very difficult to knock my portfolio out of business.

Over the next 7 years, it's quite possible for the S&P500 to drop -50% because people will become very pessimistic, and we should see the P/E ratio come down to 7 (the point of maximum pessimism). Currently, it's at 14.11. If that happens, I'll just collect my dividends, and buy quality all the way down.

- Vooch

P.S. SunTzu: congrats on passing me up on NAV now. You are rocking! Keep up the good work.

By Vooch at Mon, 2008-09-22 12:59 | login or register to post comments