Harry Newton's In Search of The Perfect Investment
Newton's In Search Of The Perfect Investment. Technology Investor.
8:30 AM EST, Thursday, November 15, 2007: Currency.
That's today's focus. Currency is today's most important financial story. The
classic definition of currency is "any form of money issued by a government
or central bank and used as legal tender and a basis for trade."
the past 50 years, the U.S. Dollar has been the world's currency. Everyone and
every government trusted it. When you wanted a safe place to put your money,
you put it into U.S. dollars. And you held your assets in dollars. When you
spent it, everyone everywhere took it, often preferring the U.S. dollar to their
have changed. The U.S. dollar is no longer the world's currency. It's not necessary
to explain why. You can see that change everywhere. Small item: Turkish Airlines
quotes its duty-free in Turkish Lire and Euros, not dollars. Big item: the recent
explosive rise in the price of gold and silver. When economic times are squirrely
as they are now, people flock to gold and silver as a "safe haven"
for their money. They fear the eroding dollar.
Safety is the
key attribute for a currency you want to own. What else? Stay with me. What
about oil? If you were a middle-east nation with oodles of oil, . You're faced
with two decisions: What do you sell your oil for (dollars, Euros, etc.) and
what do you store your wealth in -- dollars, Euros or oil (i.e. leave it in
Where goes the
dollar now? Up or down? The primary key (trust me on this one) is what investors
can earn on short-term moneys. That does not presently favor the dollar. What
you can earn overseas -- in London, in Paris, in Sydney etc. -- is a lot more
than you can earn in New York. We have dropped our rates to stimulate our economy,
to save our housing industry, to give our exporters a boost -- a myriad of reasons.
But not one is to save the dollar, to maintain it as currency of the world.
For these reasons
alone (there are many others, including "peak oil"), many people believe
we're looking at a doubling (and more) of gold, silver and oil prices
in the next 18 months. In fact, most see doubling as conservative and fully
expect more. Like gold at $2,000 an ounce. And oil at $300 a barrel.
be organizing their portfolios with this in mind. International stocks. Mining
stocks in Australia. Even a smattering of American companies with large exposure
overseas. The most profitable vehicle is likely to be options on the
pure price of these commodities. Your local stockbroker will not be familiar
with these. You probably need a specialty options group. I'm doing more research
on this in the next couple of days. I'll be back.
I completed the above piece this morning, I happened across this story on Bloomberg.com.
I love Bloomberg. My bolding.
Gangster's Wad of Euros Signals U.S. Decline (Update1)
By James G.
Neuger and Simon Kennedy
Nov. 14 (Bloomberg)
-- ``It may be our currency, but it's your problem'' was Treasury Secretary
John Connally's taunt when the U.S. unhooked the dollar from the gold standard
in 1971, unilaterally rewriting the rules of world business in America's favor.
Now the world
is taunting back. Almost four decades after the U.S. tore up the monetary
arrangements that governed the post-World War II international economy, the
dollar's fall from grace amounts to a tectonic shift in the global hierarchy.
This time, the U.S. currency is on the losing side.
in five of the last six years, the weakest dollar in the era of floating currencies
reflects a period of diminished U.S. political and economic hegemony. Whoever
wins the White House next year will confront two unpopular choices: Accept
the fall in U.S. clout and the rise of new rivals, or rein in record public
and consumer debt that the rest of the world no longer wants to bankroll.
seeing is a very broad rebalancing of economic and political power in the
world,'' says Jeffrey Garten, a Yale School of Business professor who was
the Commerce Department's undersecretary for international trade in the Clinton
administration. ``The scales are moving, and they're moving quite fast.''
The dollar blues
have migrated from the halls of central banks to images of rap musicians.
In a video for
the movie ``American Gangster,'' hip-hop maestro Jay-Z thumbs through a wad
of 500-euro notes on a night of cruising through the concrete canyons of New
York, a city where the euro isn't legal tender. The euro gained against the
dollar today as European economic growth in the third quarter accelerated
more than forecast.
The latest tailspin
was triggered by the ascendance of China and India, growing confidence in
Europe's common currency, record American debt and trade gaps, London's challenge
to New York as a financial center and a two-year housing recession in the
U.S. For the first time, economists are raising the once-improbable specter
that the dollar's monopoly as the world's dominant reserve currency is under
Like the British
pound, its predecessor as the world currency, the dollar has fallen victim
to widening burdens overseas and economic stresses at home. The slippage began
in 1971 when President Richard Nixon, in a stopgap move to cope with the
inflationary financing of the Vietnam War, halted the exchange of dollars
currency markets have ebbed and flowed. High Federal Reserve interest rates
and a flood of Japanese capital to finance Ronald Reagan's deficits bred the
``superdollar'' of the mid-1980s. The Internet-led productivity boom lured
investment to the U.S. in the late 1990s. The most recent period reflects
a world awash in other options.
the depreciation is permanent,'' says Harvard University professor Kenneth
Froot, who has been a consultant to the Fed. "There is no doubt that
the dollar must sink against periphery currencies to reflect their increase
in competitiveness and productivity.''
The Fed's trade-weighted
major currency index bottomed at 71.11 on Nov. 7, the lowest since
the era of free-floating currencies started in 1971. Against the yen and European
currencies, the dollar is now worth about a third of what it was in the
days of fixed rates.
One of the main
U.S. exports since then has been the dollar itself, in exchange for foreign
capital to finance trade deficits and a national debt of more than $9 trillion.
While the current- account deficit is narrowing from last year's record $811.5
billion, the U.S. still requires $2.1 billion a day of other people's money.
getting into a very unstable situation,'' says Richard Duncan, a partner at
Blackhorse Asset Management in Singapore and author of the 2005 book "The
Dollar Crisis: Causes, Consequences, Cures.''
Such a prospect
unsettles U.S. allies, and concerns are mounting that the flight from the
dollar is feeding on itself and threatening a crisis of confidence that
the next president will have to address.
by the U.S. from Saddam Hussein's army in 1991, unhinged its currency from
the dollar in May, and pressure is building for Gulf Arab neighbors to follow
suit. Qatar's prime minister, Sheikh Hamad bin Jasim bin Jaber al-Thani, complained
Nov. 11 that the dollar's drop is cutting oil and gas income, leaving less
to invest abroad. The United Arab Emirates may drop the dirham's peg to the
dollar, analysts said.
bank in Iraq, a country the U.S. military has occupied since 2003, last month
said it, too, wants to diversify reserves away from mostly dollars.
bank this week urged shipbuilders to issue invoices in won, the Korean currency,
and take out more hedging policies to guard against a weakened dollar.
share of global central banks' currency portfolios slid to 64.8 percent
in the second quarter from 71 percent in 1999, the year the euro debuted,
the International Monetary Fund says. The euro, used in 13 countries, now
accounts for 25.6 percent.
reserve system is fraying; it's falling apart,'' said Joseph Stiglitz, a Nobel-laureate
economist at Columbia University, at a Bloomberg seminar last month in Tokyo.
"The change in mindset about the use of the dollar in reserves and
the movement of the dollar out of reserves will continue to exert downward
To be sure,
the latest slump -- 6.6 percent against the euro since the end of August,
4.7 percent against the yen --partly reflects an economic dry spell. Credit-market
turmoil led banks to cut consumer lending, bruising the U.S. economy's main
think this is a lasting phenomenon, but it will come to a halt especially
when America in a few months or at the start of next year gets over the financial
crisis,'' says Theo Waigel, Germany's finance minister in the 1990s and an
architect of the euro.
For now, the
U.S. economy is a drag on the rest of the world. When the IMF last month trimmed
its global growth prediction for 2008 to 4.8 percent from 5.2 percent, it
blamed the U.S., whose forecast was cut to 1.9 percent from 2.8 percent.
Two Fed rate
cuts, to 4.5 percent, have tilted the trading odds against the dollar
in the near term. While the European Central Bank has put a planned increase
in its benchmark 4 percent rate on hold, investors still see European rates
going up and U.S. rates going down.
bet against the U.S. as the world's reserve currency,'' says former Treasury
Secretary John Snow, now chairman of Cerberus Capital Management in New York.
``The dollar markets are so deep and so liquid and the American economy is
so fundamentally advanced.''
in Asia are hedging that bet. Buoyed by the fastest growth of any major economy
and putting tight limits on the appreciation of its exchange rate, China has
piled up the world's biggest stash of foreign currencies, worth $1.4 trillion
at the end of September.
are discovering the profit motive, adding to pressure on the dollar as they
comb the world's markets for investments that pay more than the current
4.25 percent return on 10-year U.S. Treasury bonds.
Merrill Lynch & Co. estimate as much as $1.2 trillion in dollar holdings
will shift to other currencies in the next five years.
A warning by
Cheng Siwei, vice chairman of the National People's Congress, that China will
invest in stronger currencies triggered a recent stampede out of the dollar.
China doesn't have to dump dollars to depress the U.S. currency, economists
at UBS AG say. Accumulating them at a slower pace will have the same effect.
if the dollar's swoon depresses U.S. stocks or threatens global growth, Group
of Seven major industrial nations may have to do more than issue communiqués.
The last concerted
international maneuver to rearrange currency rates was in September 2000,
when the G-7 sold dollars to prop up the then-stumbling euro in a U.S. presidential
For the moment,
policy makers are just talking. ECB President Jean-Claude Trichet last week
called the euro's record- setting rise "brutal.''
Henry Paulson trotted out the 1990s mantra that a ``strong dollar is in our
nation's interest'' --as long as markets determine its rate. For the first
time, Paulson had to rebut concerns about the dollar's supremacy as a reserve
moment I don't think that the Americans are very disturbed,'' says former
Dutch Finance Minister Gerrit Zalm, one of the euro's founding fathers. "Until
now, the developments are gradual with little effect on the stock exchange
or long term capital-market rates.''
is a loss of confidence in both the dollar and the U.S.,'' said Riordan Roett,
a professor at Johns Hopkins University in Baltimore. ``It may only reflect
the widespread dismay with the Bush administration, but it is obvious that
the next administration, of either party, will have a steep uphill struggle.''
To contact the
reporters on this story: James G. Neuger in Brussels at firstname.lastname@example.org
; Simon Kennedy in Paris at email@example.com
I fired my Secretary.
Last week was my birthday. I went downstairs for breakfast hoping
my wife would be pleasant and say, 'Happy Birthday!', and possibly have a small
present for me. As it turned out, she barely said good morning, let alone '
Happy Birthday.' I thought...Well, that's marriage for you, but the kids...They
will remember. My kids came bounding down stairs to breakfast and didn't say
a word. So when I left for the office, I felt pretty low and somewhat despondent.
As I walked into my office, my secretary Jane said, 'Good Morning Boss, and
by the way Happy Birthday ! ' It felt a little better that at least someone
I worked until
one o'clock , when Jane knocked on my door and said, 'You know, It's such a
beautiful day outside, and it is your Birthday, what do you say we go out to
lunch, just you and me.'
I said, 'Thanks, Jane, that's the greatest thing I've heard all day. Let's go.'
We went to lunch.
But we didn't go where we normally would go. She chose instead at a quiet bistro
with a private table. We had two martinis each and I enjoyed the meal tremendously.
On the way back
to the office, Jane said, 'You know, It's such a beautiful day...We don't need
to go straight back to the office, Do We ?'
I responded, 'I
guess not. What do you have in mind ?'
She said, 'Let's
drop by my apartment, it's just around the corner.'
at her apartment, Jane turned to me and said, ' Boss, if you don't mind, I'm
going to step into the bedroom for just a moment. I'll be right back.'
'Ok.' I nervously replied.
She went into
the bedroom and, after a couple of minutes, she came out carrying a huge birthday
cake ...Followed by my wife, my kids, and dozens of my friends and co-workers,
all singing 'Happy Birthday'.
And I just sat
there on the couch... Naked.
Men are so stupid.
This column is about my personal search for the perfect
investment. I don't give investment advice. For that you have to be registered
with regulatory authorities, which I am not. I am a reporter and an investor.
I make my daily column -- Monday through Friday -- freely available for three
reasons: Writing is good for sorting things out in my brain. Second, the column
is research for a book I'm writing called "In Search of the Perfect
Investment." Third, I encourage my readers to send me their ideas,
concerns and experiences. That way we can all learn together. My email address
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