Buffett predicts dollar stumble

[Ernesto]

(snip) "It's the consumer's action in the end that is doing it, but we have no governmental policy that counters the fact we are sending a couple of billion dollars a day abroad. We are trading -- we are buying goods and we are selling capital," he said.

http://money.cnn.com/2006/03/20/news/newsmakers/buffett_dollar.reut/index.htm?cnn=yes

[Warpy]

1. Easy bet. We don't sell anything because we don't MAKE anything

that the rest of the world wants to buy, other than raw materials.

Offshoring is killing this country. It has to stop.

[area51]

8. "Offshoring is killing this country. It has to stop."

Amen!

If this insane/treasonous govt. expects to keep running its nazi wars & pay for infrastructure improvements, people have to be employed so they can pay taxes.

As usual, logic escapes the nazi party.

[hogwyld]

20. Easier said than done

A LOT of my liberal friends have no problem whatsoever of selling out our labor brethren by buying non union made toyotas and volvos. As long as people are willing to slit their own throats to save $1 on tube socks, we will only pass on to our children jobs a Burger King. Simple supply and demand. Demand American products, be willing to pay a few cents extra, and the stores will carry those items. The solution is looking you in the mirror.

[pdurod1]

21. I've heard the argument that if you buy a Japanese car

the profits flow outside of the country even thought the car is made or assembled here in the states. Just recently Microsoft invested $1.7B in India even though the products that made him that wealth were made in the US. Buying an American car doesn't guarantee the profits will stay here in the US. Bottom line, we're being sold out by the corporations while they enjoy doing business in a secure country, protected by the greatest military payed for by you and me: Joe Taxpayer.

[Mithras61]

23. "American" made products...

I haven't actually looked in quite some time, but the last time I checked most goods are made overseas. Take those "union made" auto from Detroit... most of them are built from parts manufactured in other countries. If we're lucky, they're assembled here with union labor. According to Federal laws, it is perfectly acceptable to call something "Made in the U.S.A." if it is assembled in the USA, and without regard to where the parts were originally manufactured. So that "Detroit" auto that was assembled in Fort Worth might be 80% or more made of parts manufactured overseas (Mexico, most likely) and merely ASSEMBLED here.

Heck, even consumables are imported as often as not (think fresh fruit... from Argentina, Honduras, Guatemala, etc.).

The fact is that the way our tax laws are structured gives companies a HUGE incentive to move jobs and headquarters overseas. We need to change that as much as anything. We're better off saying "keep American jobs in America" than saying "Buy American Made" because that will keep SOME of the money here and will keep an American employed and help improve the velocity of money. Even better would be "give me back those old-fashioned corporate taxes of the 1950s & 1960s" because corporations actually paid their fare share of the taxes in this country (it seems to me that I read that in 1969 corporations paid about 70% of the Federal budget, and in 2000 it was down to under 20%... guess where that difference was made up...).

I'm not saying that buying American made is a bad thing, just that in the reality that faces us right now, that may not be possible.

[auagroach]

34. Not Necessarily

Yes any freshman Econ student would agree with your statement but we are not living in normal times. The United States federal gov't is in debt by at least $9,000,000,000 and some say up to $48,000,000,000 and yet the gangsters in Tokyo keep buying are debt, the gangsters in Beijing keep buying our debt, and now even a little Caribean island is mysteriouly buying our debt. Unitl this fantasy currency carousel ends, which is anybody's guess, its war we shall have.

[AngryAmish]

2. This is the trouble

If everyone thought that the dollar would decline, wouldn't it decline already?

[UpInArms]

3. it's a tricky little dance that is going on with the central banks

hedge funds, derivative traders and then... toss in some smoke and mirrors.

:hi:

[HereSince1628]

5. What is the deal with the hedge funds and Carribean Banks?

Seems to be something going on their with the US debt that sounds like recycling our own debt. Do you know about that?

[AngryAmish]

10. Which hedge funds?

Just being a hedge fund does not make one automatically part of the conspiracy. A friend of mine runs a hedge fund. He is not doing anything untoward.

That said, there have been hedge funds in the past that have manipulated currencies and essentially stolen vast sums of foreign taxpayer money.

[HereSince1628]

11. Ok, this is something I am confused about so it may come out all bolluxed

It is my understanding that the US is now somehow selling/trading low interest treasury bills thru hedge funds in Carribean banks in order to provide a mechanism to make them more likely to yield something like a reasonable return on investment.

I really don't understand this, which is why I asked about it. And I know I really don't understand how the sale and resale of Treasury notes to make them competitive on the market actually works.

[AngryAmish]

12. Oh, OK

Maybe you could give me a link.

When a T-Bill is sold by the US gov't the gov't wants the yield (the interest paid) as little as possible. This is so we pay less for our debt.

I am really have a hard time following you and maybe that is because of my own lack of reading skills or lack of intelligence. I am not a professional in this field but I have some knowledge. A link could help me find out and it would be a great help.

[HereSince1628]

14. Here is a link to a report of the large amount held by Caribbean Bank Ctrs

The amount seems rather large for Caribbean Banks compared to places like China doesn't it?

http://www.treas.gov/tic/mfh.txt


I'm still looking for a story link.

Here is one though it isn't the one I read that suggested that gave the impression the US was somehow manipulating the Caribbean Banking Center holdings.

http://www.theleftcoaster.com/archives/003245.php

[HereSince1628]

15. A link that likens this to a Ponzi scheme...

http://www.econstrat.org/blog/?p=23

[AngryAmish]

17. If it is a Ponzi scheme

then it is the most successful Ponzi scheme ever. Obviously, I disagree with the article.

[pscot]

27. Of course it's a Ponzi scheme.

The whole structure is based on the notion of endless growth. If the world economy stops growing, for even one quarter, the howls of pain go up from every boardroom on the planet. Jobs start disappearing, profits shrink, investment slows. As Keynes once said, we make the economy go by taking in one anothers washing.

[AngryAmish]

16. Caribbean Banking Centers

They have extremely strong bank secrecy laws -- Bermuda, Cayman Islands, etc.

A lot of the world's funny money ends up there - drug lords, dictators, OPEC folks who want their assets off-shore, etc. For those people buying T-Bills makes a lot of sense for reasons of stability and liquidity.


China is buying dollars for other, domestic reasons. They are manipulating both our and their own currencies. Heck, they have a fixed exchange rate. However, please realize, per capita, China is still a poor country and have a long way to go before they can challenge the US. I think folks freak out about China too much.

[UpInArms]

22. here's something on that subject

Hedge Funds Finance 80% of Trade Deficit

Net foreign capital flows into the US slipped 1.4% to $89.1 bln billion in November from a revised $104.2 billion in October (initial was $106.8 bln). Although the $107 billion comfortably exceeded the $64 billion record trade deficit for the corresponding month.

KEY POINT: Despite the 41% and 74% declines in net foreign purchases of US stocks and US Agency securities respectively, and despite the 176% increase in net US purchases of foreign stocks, total net capital inflows increased because private institutions' purchases of US treasury bonds and notes DOUBLED to $50.8 bln, making up 93% of the increase in total purchase of US Treasuries and financing up to 79% of the Nov trade deficit.

POSITIVES

• Total net foreign purchases into US Treasury bonds and notes soared 82% to a record $54.6 bln, 93% of which emerged from nonoffical interest (private organizations usually hedge funds).

<snip>

• Purchases of US treasuries by foreign official accounts (central banks and supra nationals) fell 24% to $3.7 bln, making up for a mere 7% of the total increase in foreign purchases of treasuries. More strikingly, official purchases made up less than 50% of the increase for the 5 th straight month.

While the contrasting interest between official and private accounts raises immediate concerns about the trade deficit being at the mercy of speculators, it may well be argued that central banks are snapping up US treasuries via hedge funds and currency overlay managers which fall under the "private" portion. Nonetheless, the fact that a significant share of the US trade imbalance has been increasingly financed by volatile sources such as hedge funds reflects the certain nature of the financing of the external imbalance, whose increase is anything but uncertain.





...more...

The untangling of these instruments will hit every segment of every market in the world. :(

[depakid]

24. That it is-

but the fundamentals are becoming so shakey that it won't take much to tip the system toward an "adjustment" or maybe even a panic.

The current disequilibrium won't continue indefinately.

[AX10]

4. KICK and recomended!

[napi21]

6. The dollar has been doing poorly against the Euro for a while.

My son works in Sicily for an American Co. and is paid in Dollars. He's been complaining about the 20% - 25% exchange rate for well over two years.

The big problem I see is Iran switching it's oil payments to the Euro. If other Countries do that too, the US dollar is in DEEP TROUBLE!

Do you remember Bill Gates switched his cash investmenets to the Euro a few months ago? I think now we know why.

[Ernesto]

7. "The big problem I see is Iran switching it's oil payments to the Euro. "

As I recall, Iraq did the same just prior to the envasion.......

[napi21]

9. Yes, Saddam said he was going to do that, but I don't think

he ever got the chance to do it. Someone mentioned that the other day on one of the TV shows. Said they thought that was one of the reasons Shrub invaded!

[dipsydoodle]

18. He did do it

years before the invasion. He converted the entire UN reserve which related to the oil for food program into euros and lost a fortune in doing so. However , eventually the dollar fell against the euro and he then made a truly massive windfall profit. If you search Irag and euros you'll find all of the details. It is regarded by some as being the true background to the war in Iraq.

[AngryAmish]

13. The dollar getting weaker is not necessarily a bad thing

In fact, it is a good thing. It helps the US manufacturing and exports. It may force the gov't to stop spending so much money.

[dipsydoodle]

19. It's a matter of degree

A rapid tumble of the dollar would shove up your interest rates to quite a dramatic level. Anyone with a variable rate mortgage would not find that to be in the least bit funny.

[Kolesar]

25. I can afford one share of Berkshire-Hathaway at $89,000

With cash and when a CD matures. Should I buy it? It would be less than half of my portfolio

[Buck Rabbit]

28. YES/NO

Buffet is the best bet in the market. Solid returns without speculation.

BUT !!!

Don't be surprised by a big drop in the stock when Buffet steps down. In many ways Berkshire-Hathaway is like a mutual fund with Buffet managing the portfolio. A big part of the price of the stock is the value of Buffet's genius and leadership. When he is gone that premium will be gone. The stock price will likely adjust to the value of the holdings.

I suspect you already know all this and just wanted to point out you could afford a share! Huh Huh?

[Kolesar]

36. Remember when Vinick moved Fidelity Magellan to bonds...

...in anticipation of an equities market adjustment? It did not happen.

I am somewhat aware that Buffet has been buying silver with his B-H earnings. I suppose I could trust Buffet to manage my equity assets for a period during my preretirement savings years.

[Buck Rabbit]

37. If he or I were younger I would go that route.

But like I said I think part of the price for share in B-K is a "Buffet Bubble". You are paying to have your portfolio managed by the wizard and how soon before he retires? Its kind of ironic because Buffet avoids bubbles like the plaque in his investing.

Missed that Vinick stuff and frankly have not been paying much attention to the market as I have nothing left in equities for over two years now. The "safe" part of my portfolio is in cash equivalents (in case I need to leave the country in a hurry) and bonds in my 401K. The speculative part is now all in the Portland real estate market. I am speculating on California real estate speculators. So far so good, but it is all in knowing when enough is enough and getting out in time.

Best of luck!

[Kolesar]

38. Take me with you

Zero equities: that's brave. I was kidding about going along, but then again, is it somewhere I would like?

[Buck Rabbit]

39. Not necessarily.

In my case, I own a small/medium size business. And I am invested in the Portland real estate market which may or may not be riding a big bubble. Between these two things I have all the risk I want to handle at my mid-boomer age. Thus everything else I keep as close to cash as possible.

Housing prices to income level and the absurd interest rates of the last few years argue it is a bubble. But the fuel from still higher values in California and Seattle are still exerting big upward pressure on Portland prices.

[Kolesar]

40. With the electronics industry having wound down since 2000,

The housing prices in Portland have likely had deflationary pressures. Hence, the Portland housing market would be "fairly" priced. Thanks for writing.

[Viva_La_Revolution]

43. just so you know, Tigard is busting

3 years ago, bought a house for 158,000
now worth 280,000 according to appraiser.

1 year ago, every house in the neighborhood was getting snapped up at ridiculously large prices, now I'm seeing for sale signs in front yards for months, they aren't selling any more.

[Canuckistanian]

26. Buying goods and selling capital

Excellent description. And what do you have left? A need to buy more goods.

[Sgent]

29. US Bond prices are set

by auction with the exception of some very, very short term fed window issues (less than a week total), and those make up very little of our debt.

Large hedge funds can definately manipulate currencies, but the liquidity in the Dollar and Euro makes those two very unlikely to be targets. In most cases, its smaller currencies that can come under fire (see latin america, asia).

[billbuckhead]

30. The falling dollar is tribute from Imperial America's subject nations

As long as we control the price of oil, we can get away with it.

[ljaycox]

31. Look at dollar denominated paper assets...

priced in hard commodities and you will see that the dollar has already crashed. Most paper assets are getting greased right now. Do not let the sideshow going on in the major stock indices's fool you. The Euro and the Yen both have some long term problems--the money is not going there. The yuan is fixed for the foreseeable future. The Rupee is not ready either. The dollar is the reserve currency right now by default--nothing else there in paper. Hard commodities my friends--take a good look--it is probably secular for some time to come.

[Kolesar]

35. Technical writing

I know equity investing well, but currency and bond matters make my head spin. I think I know what these terms mean from context, etc, but I really don't know the whole dynamics of them:

hard commodities
paper assets
reserve currency

[SoCalDem]

32. $4 plastic shoes & $10 jeans...is it really worth it??

I guess our children's generation will fiind out..the hard way

[JCMach1]

42. Not only they, they are royally screwing you with those prices

We get the stuff here without Walmart as middleman...

Those same shoes are two AED here... or about 50cents.

[nolabels]

33. Reporting on how BAD things is not contingent in the facts of reality

The whole structure of our economic system if built on models that functions on ownership rather than producer and consumer. Well yea, duh already and frankly I am looking forward to that large and growing social conscience movement that will eventually eclipse the faulty corporate engineered economy we have now.

[alfredo]

41. Joel Pett has a good

illustration of our destructive spending