Sunday, August 28, 2005

International Flow of Funds

The US dollar index has been rallying since it made a bottom at around 80 at the end of 2004. Then at the beginning of July it topped out and has since developed a head and shoulders pattern with a break down below the neckline. The dollar then went back up to the neckline (resistance to the upside) and retreated. The retreat from the neckline could be another lower shoulder forming. Prices going below a second lower neckline will be a second incredibly loud confirmation of the first pattern.

According to the US Fed foreign private investors have turned into net sellers of US Treasuries (read sellers of USD) and bought a miniscule $US 100,000 of US equities in June (read buying less USD than before), while Private Americans sent $US 7.9 Billion outside of the US into foreign equities (read selling of USD to buy the required foriegn currency to buy the foreign equity). No wonder the USD chart has topped and is heading down. Wait till the momentum picks up.

On bankrupt America:

A very good series of depressing charts on America's house hold surpluses and deficits from the The Northern Trust Company Economic Research Department:
A 9 page .pdf file

The US and state governments are lying like crazy with official economic stats. Both inflation and unemployment are officially low but when a new Wal Mart stored advertised for 400 new job openings for its new Oakland, California store, it got 11,000 applicants. The San Francisco Chronicle article

A July AP/Ipsos poll asked some Americans if they were concerned with the US budget deficit. 70% said "some" or "a lot". Only 35% favoured cutting government spending. Only 18% favored higher taxes. And, only 1% favored both. It's a safe bet that government will not cut spending nor raise taxes. That leaves issuing more debt for as long as it can, and then simply having the Fed create US dollar tokens out of thin air for the US Treasury to spend.

This "Give me, lend me, send me, can I borrow" mentality of Americans is going to turn America into an ugly scene.

The most important thing to watch is:
The chart of the US dollar.

"The natural right to be free of the debts of a previous generation is a salutary curb on the spirit of war and indebtment, which, since the modern theory of the perpetuation of debt, has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating." - Thomas Jefferson to John Wayles Eppes, 1813

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