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We have 9 guests online| February 20, 2010 Still Bearish & Look Out For Higher Interest Rates |
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| Written by Frank Lardino |
| Sunday, 21 February 2010 09:52 |
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The market over the past week rallied a bit, but we are still bearish. One of the worst pieces of news is that the Chinese have essentially stopped buying U.S. Treasuries securities. The United States is spending about $2 trillion more than it takes in, in taxes per year. This obviously cannot last. The last treasury auction was a flop and the U.S. Government bought most of the issue. States, state pensions, unemployment, medicaid and other funds are broke or going broke. The states are looking for a “bailout” but these bailouts will be fewer because the bailout scam never worked and is not believable. There is no more money. California is insolvent. Sadly for America, the chickens are coming home to roost. Politicians who believed that every American deserved to be a homeowner largely caused this nightmare. The problem is every American is not responsible and quite few could not really afford a home. Home ownership is a huge responsibility that requires careful budgeting. The government put a gun to banks heads to insure the banks did not turn down applicants plus allowed teaser loans starting with 1% interest rates. Most Americans have no clue what “moral hazard” is but we are now seeing it in spades. Sadly, the housing market is only getting worse. The same thing is happening in Greece, Spain, Italy, Ireland, Portugal, Austria, the UK and other countries. Green unions and other citizens are protesting any cuts. Germans are saying why should we work to a later age to pay for Greece’s early retirement. The mayor of London, Boris Johnson, was born in New York City. He is a writer and pundit by trade. He had an excellent column about Greece in the UK Telegraph. He talked about how Greece survived for 3,100 years using their currency the drachma. Boris laments that the Euro was a bad idea. Boris thinks, close to insolvent, Great Britain would be in even worse shape if they had dropped the pound for the Euro. The southern European countries could be competitive with northern countries when they had their own currencies because they could devalue their currencies and do deficit spending to remain competitive. The Euro and EU Monetary Union was supposed to cap spending as a percentage of GDP but the politicians just hid it with the help of Goldman Sachs. So Greece and the other PIIGS could keep a good credit rating, thanks to Germany, plus spend and spend. Essentially they ran around with their German credit card. Boris or another writer pointed out that the U.S. dollar is backed at least by the full faith and credit. No one knows exactly who or what backs the Euro. So now, the Chinese do not want Dollars or Euros along with out countries. So what will they buy? Gold and currencies of countries with lots of natural resources like Australia and Canada to name too. The joke is the USA has probably more natural resources than anyone but Al Gore will not allow access. Beware Bonds So if the Chinese do not want our Treasuries or dollars, what is going to happen? High interest rates and here they come. We would be wary of any longer term bonds. We would be worried about a lot of muni bonds in places like California. Other income securities like REITs, utilities, oil sands royalties, limited partnerships, ocean shipping companies that all pay will see their prices drop as interest rates rise. Higher interest rates are also bad for equities. One reason is investors will require a higher return from equities as rates go up. Companies will also have to pay more for capital. Members can go to the Special Reports area for more on this report plus EWS info. If you are not a member you can order at the ORDER button in the top right hand corner. We provide members with educational articles, research, investment software and coverage of stocks, ETF (exchange traded funds) and mutual funds. |