Preface:
This is a look back in the form of a double-take of sorts.
I originally wrote the letter below …sending it to my financial advisor late in 2008.
And in hunting for it today, I discovered that I also previously posted this earlier this year.
And if I am correct, it was posted in my January 2011 archives.
However, today …I believe that it has as much …if not more to say today as when I first wrote it.
Note the original date’s year and consider the international timely nature of the affects of debt.
The implications do not bode well for sovereign strength and independence.
Then consider the following adage; “…what goes around; comes around.â€
I would rather say; “Scheisse passiert.â€
Be careful and watch your step …especially when it comes time to take out the trash …primarily in the form of Redemption Rushes.
The Body of the Letter:
Saturday, November 22, 2008
How do you take advantage of the following here-to-fore unprecedented out of phase global economic cycles? Check out the following hypothetical scenario in which the actual question might be more aptly worded; “…How do you avoid becoming crushed by the affects of this out of phase cyclical phenomenon?
Let me set the stage, but let me say first …I am really concerned for the well being of our sovereignty.
The scenario is an international story. And it’s a global play.
Are we not, domestically …well into a recessionary cycle …well ahead of most all the other world economies? Sure we are!
Remember when we (Greenspan) were (was) lowering rates over a considerable period of time during which the rest of our global partners were raising theirs?
Remember oil prices during this time …rising to + $ 155 per barrel?
Now, consider the continuing flight to safety argument in which I mentioned to you last week. Its premises revolved around the ongoing continued flight to safety. This is part of our evolving global environment.
The argument’s central premise was centered around the plays that the other central banks and other institutional players may be intentionally making to strategically set up the potential to leverage …sometime in the future …their well positioned early moves into a stable dollar …before yields rise and strengthen the dollar against other foreign currencies.
My argument posed the question as to whether or not this play was made by reason of a flight to safety as compared to one …a gambit which intentionally made the move into the U.S. dollar a speculative move …one which is anticipating a future exit strategy to be triggered in some future time in which anticipates a strengthening of the dollar.
Well, now that the stage is set, ask yourself what these global players stand to gain in view of the fact that the two sets of global recessionary trends are (still?) mutually out of phase with one another.
In other words, when we do actually find the necessary (political …and or monetary) will to move rates higher to counter inflation, the strength of the dollar might just give these global players a relatively stronger case and reason to head for the exit …taking an anticipated, more opportune …more calculated …more attractive impulse to flee and to jump ship abandoning the dollar in favor of other markets and other currency plays …when the time and price is right.
This would be dependant upon …I would think …the relative strength of the respective spreads between any number of a variety of other currencies
Regardless, there is only so much one can do to make a sinking ship attractive to rats these days. Even printing money has its draw backs from a more domestic political perspective …the will of the public electorate not withstanding.
Never the less …try and put on your long-range thinking cap and shades …you know …the ones that give you a view of the pros and cons of a weak dollar vs. a strong dollar argument.
Try and get your head around this historic unprecedented flight to safety in terms the shear magnitude of the gargantuan size of this influx. Now, consider the affects of any outflow …the flux of which …howbeit ever so small a change such an event this might be.
After all …when treasury related debt instruments are sold to foreign creditors …there comes a time when these bills come due or are called, turned and or cashed out and redeemed.
Add to this perspective, the global fluctuations of a balancing of the in flow and outflow of foreign currencies and you may be seeing the sort of global speculation that is now just one component and one aspect of what is being called …flight to safety.
My comment poses an argument which asks the question whether or not …flight to safety is actually just another oxymoron …waiting to happen …one which may …more likely add to the need to raise the debt ceiling at a time when that is not in our best interest to do so.
But what other choice do we have. We have all but painted ourselves into a corner-like monetary quandary because we lack the will to tackle fiscal responsibility in all of the generic sense of what it would take for the private sector to grow us (in terms of real tax revenues) in terms of sheer economic velocity out of the doll drums of our economic ho-hum slump’s debt-riddled rut.
I wonder how this aspect of the global economy’s state of flux …how its motion might compare to how the recent hedge fund redemption activities which have raised the VIX to such high levels of volatility.
After all, we are where we are because of our addiction to and reliance upon unhealthy plays involving excessive debt.
Is this valid? Is it worth consideration or what?
Do you have any in your organization who might be able to weigh in on this?
All the best,
Bill
