For those of us who believe that inflation due to money printing is inevitable, take some hedges on those dollar shorts.I am in the camp that says the value of the dollar will fall, even the Oracle of Omaha has said that the dollar cannot maintain its value when it is being diluted. He said that way back before the 2008 crisis. Of course so far the charts say he is wrong. Both the Dollar Index and the Fed's Trade Weighted index, (Link available in the FAQ's and at the St. Louis Fed) have been surprisingly strong. Additionally, with demographics running against cheap labor world wide, a wage price spiral fed by the increasing velocity of money, (money that is currently is moving at glacial speeds) is possible if not probable.So, I am leveraged into real estate using the longest time frame possible, a 30 year fixed rate mortgage. However, my idea of leverage is not real leveraged, I have about 220,000 dollars worth of real estate and about 95,000 dollars worth of mortgages against it. I also hold about 30,000 dollars in cash against cash flow interruptions, so one could argue that I am not really leveraged at all. Which I suppose is a good thing, because, the dollar may never fall in value. If the oil production of the U.S. continues to increase and less dollars flow into the world market, they will become more precious. Additionally, if the battery technology moves ahead, then the demand for motor fuels will not increase with an increase in economic activity. Again, less dollars in the world market making the currency less vulnerable to failure. This is happening at the same time when the Asian game of manipulating currency for the sake of export is nearing its end. Japan is suffering with the wind down of its currency manipulation game, and China is about to enter the final phase of its currency manipulation. This will not show up on the Dollar Index, but it will show up on the Trade Weighted Index.And last, and possibly least, the Euro will find its true value, and for most of the Euro Zone, that value will be considerably lower than what it is today. The Dollar Index will show this.In all of these cases the pressure on the Dollar is not from the top, it is from the bottom. In this environment, I would be very cautious about inflation hedges, especially hedges that have no return.I mentioned AT&T the other day, it pays a dividend, it has large unreproducible assets, and it is leveraging up with super cheap debt.If the dollar remains strong and if interest rates stay low for the foreseeable future, AT&T is making 4 cents on the dollar per year for every dollar of debt it takes on to retire dividend paying stock. Additionally, if interest rates rise, the bond market will have a really, really bad day. At which time AT&T can retire that debt out of cash flow for much less than it was issued for. I think this is a brilliant move, even as I have serious doubts about the wisdom of the CEO of AT&T. (While I understand a lot of complicated things about AT&T, I still do not understand the 4 billion dollar disaster.)I was worried at one time that if interest rats rose, then the AT&T stock would behave like a bond and tank, but now I think not, I believe the evacuation of the bond market will be rapid and painful for the participants and if there is any wealth left it will make its way into the dividend champions, supporting the value of AT&T stock.This is not to say that AT&T is the only, or even best, hedge, it is just the one I am familiar with.CheersQazulight
I just did a bit of checking and it turns out that after my sell-off today, ATT makes up about 15% of my portfolio's value (those of you who have seen the composition of my portfolio know how rare an event it is for any stock to make up more than a couple of percent).Another idea in support of Qazulight's premise is Westpac Bank corporation stock. This ADR of one of Australia's major banks (or the original shares on the Sidney exchange if you have access). If I did the math right, it currently yields about 6% and is tied to the Aussie dollar's value as well their economy.As always, I want to point out that I am singularly unqualified to make recommendations, but in full disclosure I do own these shares.Jeff
Another idea in support of Qazulight's premise is Westpac Bank corporation stock. This ADR of one of Australia's major banks (or the original shares on the Sidney exchange if you have access). If I did the math right, it currently yields about 6% and is tied to the Aussie dollar's value as well their economy.To really think about how good a deal this ADR is, you are getting six percent, no work, and a dollar put for free. CheersQazulight
In all of these cases the pressure on the Dollar is not from the top, it is from the bottom. In this environment, I would be very cautious about inflation hedges, especially hedges that have no return.I agree with you, Q.Given what the rest of the world is doing in the universal "race to the bottom," it appears as if the US Dollar will strengthen rather than weaken by comparison with its "peers."With such upward pressure coming from outside forces, I can't understand for the life of me why the US doesn't just quit collecting taxes altogether, declare forgiveness of the excess principal on all underwater mortgages, let the Fed buy up all the related "crammed down" mortgage bonds at par, and borrow enough fiat cash from the Fed at 0% to cover all the unfunded entitlements and under-funded pensions for the next 100 years.I doubt that the US Dollar would suffer much when compared to the Japanese Yen or the Euro, since they will be or have been doing pretty much the same thing.We can always just keep "rolling the private and public debt" and kicking the can - so as to ensure that the real issue never comes to a head - the issue of bank insolvency.As clever as the Washington/New York establishment think they are, why in the world don't they figure out that a Federal Reserve that can provide $$ Trillions in anti-insolvency "papering-over" support for banks around the world should be able to just "paper over" the oh-so-frightening "Fiscal Cliff?"Let's just kick the can. It certainly works for the banks. What's good for the goose is good for the gander, after all.;-)
I am waiting until resolution of the "fiscal cliff" issue, specifically dividend taxation.If dividend tax rates rise, high earners may dump shares of dividend plays like T, decreasing the price. I currently own some T, but as a retired household with a relatively low income would buy more since the dividends would be taxed lower in our household.Wendy (wait and see at present)
Another possibility is to buy a "non-dividend paying mutual fund" like Berkshire Hathaway. Taxes would only be due when shares were sold (assuming they had appreciated). This requires a change in mindset from an income based on dividends which is deposited in a bank and income taken when needed from the "bank" upon sale of shares.While there is more risk involved as share prices fluctuate, there is a tax advantage which may compensate for the risk on an "expected value" basis.Jeff
Qaz If the oil production of the U.S. continues to increase and less dollars flow into the world market, they will become more precious. This would be a game changer.America’s oil boom is pumping up exports and driving down the trade deficit.The U.S. trade gap narrowed by $2.3 billion in September, to $41.5 billion, the Commerce Department said Thursday. Oil accounted for more than three quarters of the change, with a $2.2 billion surge in oil exports easily offsetting a small increase in imports.http://blogs.wsj.com/economics/2012/11/08/american-oil-boom-...The US trade gap was small and stable until the 1970s. http://www.data360.org/dsg.aspx?Data_Set_Group_Id=91What else happened in the seventies? US oil production peaked.http://petroleuminsights.blogspot.com/2011/04/us-crude-oil-p...Peter
Wendy,Just finished watching Randall Steven's town hall meeting. AT&T is putting in about 14 billion dollars over the next 3 years, this is known and is headline numbers. What is also known, but not headline, is that the total capital expenditure for the next 36 months is going to be about 66 billion dollars. Now that is serious money. Because the new infrastructure will tend to relieve the need to repair and replace the old infrastructure, the amount of money going into the new infrastructure will be greater than the additional 14 billion and the amount shifted should increase each year.Additionally, even without revenue enhancements, from my perspective as a maintenance person, the cost savings in repair of fiber, versus repair of copper will be significant. Further, the power savings from an IP network vice a dial tone networks is some serious money.I.E. The decrease in landlines today is such that we can shut down a quarter of our switch in one of our small rural offices. That shut down will save about a 100 amps of DC current at 50 volts, or 5 kilowatts or 120 kilowatt hours a day (Assuming 100 efficient rectifiers.) or 3600 kilowatt hours a month. This works out to about 360 dollars a month. Not much money, well OK, it is not much of an office, the standby generator there is only a 100 KW. We have offices in Houston that have 1.2 Megawatt generators. (Actually, three 400 kilowatt generators.) Extrapolating that out and you get a savings in electricity today of about 4000 dollars a month in the larger offices, minimum. These saving will double or triple once the switches are completely shut down and replaced with much more energy efficient IP switches.Additionally, fiber is immune to lightening and water. Today a rain storm almost guaranties overtime for the Customer Service Technicians. When you consider the cost of rolling a 1 ton truck fully equipped with tools and technician runs to over a 100 dollars an hour, the implications for savings by pushing fiber deeper into the network becomes apparent. As far as timing an entry, I am Dollar Cost Averaging in and planning to add at 31 and/or 29. If it gets down to 26 AT&T may well end up being my only equity position.CheersQazulight
I am waiting until resolution of the "fiscal cliff" issue, specifically dividend taxation.Divy stocks are falling now. Take a gander at some pipeline issues like PAA and utilities, like AEP.Somehow, I expect, after much posturing and drama, the "greatest deliberative body in the world" will talk about "protecting widows and orphans" while filling their pockets, and extend the tax status of dividends.Steve
<Westpac Bank corporation stock. This ADR>Would that be WBK? If so it is on quite a strong steady run. The chart looks like would have to chase it at these levels. Would have been a nice buy about 6 months ago........
http://stockcharts.com/freecharts/gallery.html?$USDQaz,it is what it is.......the buck is somewhat bullish.....but time is everything and timing can be profitable......I am not fully sure of what time periods you want to put on your ideas of the bearishness of the buck....Dave
Which I suppose is a good thing, because, the dollar may never fall in value. If the oil production of the U.S. continues to increase and less dollars flow into the world market, they will become more precious. The USA uses about 7 billion barrels of oil a year. We import about 20% of what we use. So, we import 1.4 billion barrels a year, or about $140 billion. So while it's true that we will (may) export $140 billion fewer dollars a year for oil, we still export about a trillion a year of government debt, so we won't quite be in balance anytime soon.
Markr33,The USA uses about 7 billion barrels of oil a year. We import about 20% of what we use. So, we import 1.4 billion barrels a year, or about $140 billion. So while it's true that we will (may) export $140 billion fewer dollars a year for oil, we still export about a trillion a year of government debt, so we won't quite be in balance anytime soon. If we are only importing 20 percent of what we use, we are already within striking distance of independence. I can see a 10 percent drop in motor fuel consumption just in energy efficiency from the GDI engine technology that is making its way into the fleet. I personally have gone from a small Cross Over SUV (VIBE GT) to a small SUV (Honda CRV) and picked up 10 percent fuel mileage increase while doing it. Also, I am seeing a lot of replacement, I.E. Chevy Traverse in place of Tahoe. The difference is huge, the Traverse has a 300 horse power engine, seats 8 and gets ab out 22 miles to the gallon, the Tahoe generally is equipped with a 5.3 liter V-8, with 285 HP and only seats five and gets about 17 MPG. This more than a 20 percent increase in fuel mileage. Now part of that is technology and part is response to high fuel prices, but if everything remains on track, we should see national fleet fuel consumption decline by 10 percent or more in the next five years. Also, while the number of gas rigs is declining, they are still finding shale oil. Not just in North Dakota and at Eagle Ford in Texas, but from an extension of the Eagle Ford called the EagleBine and I know of one oil play going on in the extreme southwest portion of the Haynesville shale in Deep East Texas. This is without a breakthrough in battery technology that allows product replacement. I.E. motor fuels from oil for electricity from NatGas.Finally, that 140 billion does not seem like much, but when you figure it will cycle through the economy several times, a big piece of it will end up in the tax mans hands.Finally, the Chinese and Japanese have a choice, they can buy our debt, or they can buy our goods. While selling and exporting of goods would have local price pressure effect, much like inflation, the dollar will not be collapsing. I personally do not mind waiting, so long as I am getting paid to wait.CheersQazulight
If we are only importing 20 percent of what we use, we are already within striking distance of independence.At least that's what the talking heads have been saying. I heard the 20% number on CNBC this morning. And I agree that we are within striking distance of energy independence, HOWEVER, if the risk of doing oil business in the USA goes up, companies will choose not to do so and that date will move to the right.
At least that's what the talking heads have been saying. I heard the 20% number on CNBC this morning. And I agree that we are within striking distance of energy independence, HOWEVER, if the risk of doing oil business in the USA goes up, companies will choose not to do so and that date will move to the right. I am actually more worried about tight gas and oil fields that may be found in India and China that would reduce demand enough to drop the price of Middle East Oil below 80 dollars a barrel.Regulations or no, sub 80 dollar oil shuts in the tight oil fields. CheersQazulight
http://www.eia.gov/energyexplained/index.cfm?page=oil_home#t...I pulled up this site. In 2011 we had a net dependance on imported oil of 45 percent. This sounds more reasonable. I think 20 percent would have been a lock. 45 percent is going to take some serious break though technology on the consumption side, as well a the most optimistic projections for production.CheersQazulight
I think 20 percent would have been a lock. 45 percent is going to take some serious break though technology on the consumption side, as well a the most optimistic projections for production.QazulightJust guessing but the 20 percent probably included your nice neighbours to the north? Tim <not really all that nice> 443
This is without a breakthrough in battery technology that allows product replacement. I.E. motor fuels from oil for electricity from NatGas.If the energy-density and recharge-time issues could be resolved, we would be better off if we were to replace oil poured into vehicle fuel tanks with oil poured into electrical generating facility tanks.The railroads did this long ago. The large majority of locomotives on the tracks are purely electric drive. They also have big batteries, and diesel-powered generators that can generate power faster than the drive-motors consume it - so they can charge the batteries even while going uphill. The diesel motors for these generators only have two speeds: on and off. They burn their fuel VERY efficiently.A car engine has to run slow enough to spin the generator to power the radio while the vehicle coasts downhill, and also has to run fast enough to go up a fairly steep hill at 60+ MPH, and everything in between. That variation in load is a serious efficiency-killer.But railroad locomotives don't have to deal with the same weight and space issues that cars do.
The problem with natural gas as a transportation fuel is that it doesn't have nearly the same energy density as oil. The solution is to compress or liquify the natural gas - requiring large, heavy containers and added weight for the vehicle to handle.It seems to me that railroads would be the "natural" market for natural gas as a replacement for diesel. While NG doesn't have the same energy density, the railroad's ability to handle and haul heavy loads at low cost would permit adding fuel storage with much less problems than large freight trucks which are also seen as a market for natural gas fuel. And railroads would need a far less complex refueling network than trucks. Autos would seem, by far, the hardest market to penetrate from both a weight and refueling complexity standpoint.Maybe what I'm missing is the relative comsumption of diesel by rails versus trucks as a total market size. I need to look into that.
QazIf the dollar remains strong and if interest rates stay low for the foreseeable future.... Is a dollar index at 80 strong? shortly after the 2000 election the index was 120. Now that's strong. I think the dollar is weak. As to low interest rates, remember no one knows how to get out of the Liquidity trap we are in. I think when we are done with deleveraging, then maybe. "Are we there yet," the child asks?brucedoe
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