Issue 2 - Swiss Francs, Anyone? (Or, how is the US dollar doing?)

from Christine Harvey

Judging from the emails in response to yesterday’s issue about the US dollar decline, many of you share our concern – others are starting to keep a keen watch about what’s going on around us.

Just to finish the scenario about my Swiss Franc bond purchase, I did execute the order today through my most favored broker – but the delay cost me some interest points. Had I bought it 3 days ago when I started my enquiries, I would have had 1.18% yield/ interest. Today the yield fell to .8%. That whopping interest rate probably brings tears to your eyes!

Obviously others are starting to flee in that direction assuming that bonds are safer than stocks, driving bond prices up and interest rates down. But as I said yesterday, who really cares about the interest rate when we compare it to returns on real estate and businesses. It’s the capitol preservation I care about.

Several of you wrote today to say how you noticed how little you can buy in London or Frankfurt with your dollars. I remember the first trip to Paris that Tom and I had, when we were able to buy 10 French Francs with one of our US dollars. When the Franc converted to the Euro a few years ago, you could buy only 4.5 Francs with each dollar. For a long time, the US has been blessed with low prices on homes, goods and services. A fax machine that costs $100 here would cost $250 –$300 in/Europe. I know, because I lived there for 23 years. I see us heading in that direction, here in the US.

The sinking of the value of the dollar will be very expensive for Americans. The lifestyle will change dramatically, EVEN IF you don’t want to travel outside this country. I’m NOT saying this for gloom and doom, I only want you to watch what’s really going on. How much money is the Fed printing? That’s the M1. (How will that affect inflation and housing prices and real estate investment, and business? We’re working in un-chartered waters here.) In fact they stopped publishing the M3 last year. HUM, wonder why? Lots to investigate and learn about once you start delving into this. Then the planning starts on how to preserve your hard earned capitol, and how to plan for appreciation.

Speaking of un-chartered waters, our Hard Money Loan Broker said to us today, “anyone under 38 years old has a hard time fathoming the downturn in the market.” That’s natural, because we all process things through our perspective, and our perspective is generally made up of our experiences. So now is the time to open up our eyes to what has been and what could be and stop assuming it will be as it has always been!

On that note, I’ll turn you over to our bond expert, Tom Harvey. Pay particular attention to the amount of money that the governments are injecting right now, and ask yourself “Why is that?”….

Market Summary, by US Bond Guru, Tom Harvey…

After yesterday’s amazing stock market and money market action, today was important in the way the Central Bankers continued to pour money in. The European Central Bank (ECB) after injecting $130B yesterday, added another $84B today.

The US FED after adding $24B yesterday, added another $38B today. And Fed Chairman Bernanke said that he would pump as much money as it takes to solve the illiquidity problem.

Now that’s what I call more inflation.

The more important fact was that yesterday, FOR THE FIRST TIME EVER, the ECB and FED and Japanese Central Bank worked TOGETHER to add liquidity. This has never happened before. Adding funds has been done on a single national basis, but not a global basis. Several other Central Banks joined in yesterday with this Big 3 Triumvirate too. This was a truly global action.

By the way, do you remember that one French bank started all this yesterday? That bank closed 3 funds totaling $3.8B, but the ECB added $130B liquidity. Kind of an overkill?? Well, no. It turns out that there are lots of European banks holding sub-prime mortgage portfolios, and their exposure is MUCH greater than that one French bank. Other European banks have also stopped trading on the sub-prime mortgage funds.

US banks started calling loans in from companies and hedge funds dealing in sub-prime mortgages a few days ago. Banks don’t want to be left holding the bag when this market implodes. These bank demands are what is causing the illiquidity in the market.

Oh, and by the way again, the SEC is auditing the big US banks and financial companies to see (1) how much sub-prime mortgage market exposure each one has, and (2) how each one values its portfolio. Logic 101 says that this means that the SEC DOESN’T KNOW what is going on in this huge sub-prime mortgage market. Hope that makes you feel uncomfortable – because it sure makes me feel uncomfortable.

You can learn more at the EconomyGuy.com blog, where Tom Harvey updates his thoughts on the world Economydaily.