Investment Contrarians

U.S. debt


China Leads Campaign to Replace the Dollar as Reserve Currency

By for Investment Contrarians | Oct 17, 2013

China Leads CampaignA very interesting item appeared through the official Chinese news agency, Xinhua, in which the Chinese government is effectively calling for the end of the U.S. dollar as the world’s reserve currency, stating that the world should “…start considering building a de-Americanized world.” (Source: “Commentary: U.S. fiscal failure warrants a de-Americanized world,” Xinhua web site, October 13, 2013.)

In my view, the commentary was intended to voice the opinion of Chinese leaders that they are fed up with the political fighting in Washington, leaving China’s trillions of dollars in U.S. debt in the hands of ineffective leaders.

With the U.S. dollar as the reserve currency, there is very little recourse for many nations around the world. You have to remember that for countries to make large trades on an international scale, a reserve currency is required for transactions. Increasingly, China is looking to move away from the U.S. dollar as reserve currency to lessen its reliance on our nation. This is part of the reason why China’s leaders are looking to move away from an export-led economy and toward a more domestic-oriented economy.

However, much of the commentary was geared towards politics, rather than purely economics; one example: the U.S. is “meddling in the business of other countries,” a not-too-subtle hint that we should stay out of China’s affairs.

They are right in one aspect: we have abused our power as the reserve currency and have run up a massive amount of U.S. debt. At some point, countries around the world that depend on the U.S. dollar as the reserve currency as well as trillions of dollars in invested U.S. … Read More


Stock Market and Economy: What We Can Expect in 2013

By for Investment Contrarians | Jan 3, 2013

Stock Market and EconomyHappy New Year to all of our Investment Contrarians readers!

In 2012, small-cap stocks were the second-best performing group, following the technology sector. The Russell 2000 was the top performer in December and has been since the end of the first quarter. How the small-caps fare this year will, again, depend on the global economy.

My stock analysis tells me that what happens in January will be an important indicator for the year as far as performance. Historical records indicate that stocks have increased an average of 1.6% in January since 1969, according to the Stock Trader’s Almanac. In 2012, January was a strong month, so it was not a surprise to see the relatively good advance in stocks.

As we move into 2013, the focus will be on any remaining fiscal cliff fallout and the impact of the deal, along with the eurozone mess, the U.S. national debt, and jobs growth.

For 2013, my stock analysis is cautious to start the year, based on the high global risk.

The fact that the economy is triggering some jobs growth is encouraging. My analysis is that this will likely continue in 2013, although the unemployment rate is expected to remain relatively high at over seven percent.

My stock analysis shows that we need to see leadership from such areas as the financial and technology sectors. The big banks were strong in 2012, but we also need to see technology take a leadership role.

It definitely will be a tricky year, given the global and domestic issues, along with suspect earnings and revenue growth to start the first quarter.

Again, as I … Read More


More Cracks Appear for U.S. Dollar as Reserve Currency

By for Investment Contrarians | Dec 5, 2012

U.S. Dollar as Reserve CurrencyThe U.S. dollar has been the world’s reserve currency for decades, but that position might be under attack. With the rising level of U.S. debt, many countries around the world are questioning the position of the U.S. dollar as the reserve currency.

Cracks are beginning to appear; the latest sign is that China and South Korea have come to an agreement in which banks from either country are able to borrow funds from a swap line that makes loans available to companies for deals in local currencies. (Source: “China, South Korea to Boost use of Local Currencies in Trade,” Bloomberg, December 4, 2012.)

This swap line is currently set at $59.0 billion, and allows firms to settle deals in either the Chinese yuan or the South Korea won instead of the U.S. dollar. On the surface, this might not seem like a direct attack on the U.S. dollar’s status as reserve currency, because reducing transaction costs is inherently advantageous to corporations. However, the willingness by these nations to increasingly avoid the U.S. dollar is a problem.

Shifts in the reserve currency status take many years to develop. We’ve seen rising U.S. debt levels for years, and this is putting increasing pressure on countries to diversify away from the reserve currency nation that is becoming increasingly irresponsible in the way it handles fiscal and monetary policies.

Running up the U.S. debt levels over the short term might be seen as innocuous by American politicians; but over the long term, the sustained inability and ineptitude of politicians to properly manage government spending will lead to a lack of belief in the country … Read More


Many Wildcards That Could Throw a Wrench into the Economy

By for Investment Contrarians | Oct 30, 2012

Wildcards That Could Throw a WrenchIn a week’s time, we will know who the next President of the United States will be; this will be critical, giving us an indication of where America is heading as far as policy and the impact on the economic recovery. The latest poll by CNN has the race to the White House in a dead heat, with Governor Mitt Romney slightly ahead at 48% of the votes and President Obama at 47%. In the key Ohio race, support for Obama has fallen from 52% on October 2 to the current 48%, according to CNN.

At this point, based on my unbiased view, I don’t really care who wins, but I do want something to be done about job creation, the $16.2 trillion in U.S. debt, and the pending “fiscal cliff.”

Whether you are a Democrat or a Republican, there is a commonality: we need to get the country fixed and get it going on the correct path to the economic recovery and jobs for all. The unemployment rate fell below eight percent in September, but the reading is well below the four percent level we saw in 2006 and 2007. The unemployment rate has improved from the recession high of 10.0% in October 2009, but needs to work its way lower for a sustained economic recovery.

What concerns me is the current lack of focus on the pending fiscal cliff on January 1, when the terms of the Budget Control Act of 2011 are scheduled to go into effect, resulting in automatic spending cuts across the board and tax increases that will threaten the economic recovery.

Of course, there … Read More


Folks! We Have $16.0 Trillion in Debt

By for Investment Contrarians | Oct 17, 2012

national debtWhen you scroll through the pages of Investment Contrarians, you cannot help but notice the running U.S. national debt counter that sits at over $16.2 trillion and rapidly moves higher. With every passing second, America is growing poorer and will continue to unless major changes are made, but it will be difficult. At the core of the problem is the direction of the upcoming “fiscal cliff” and its impact on the economy and national debt.

Automatic and massive budget cuts are forthcoming in January, unless an extension is made. At first, this may sound like the correct strategy but, as many of you know, cutting government spending will impact the country’s already fragile economic recovery. And what concerns me more is where the cuts will be made.

The problem is that a significant cut in fiscal spending could make the economy worse, according to the Congressional Budget Office (CBO). The CBO predicts the U.S. economy could contract by 0.5% in 2013 if the spending is curtailed. (Source: www.CBO.gov.)

While there is no indication of what areas will be affected, my feeling is that the cuts will likely be from Medicare/Medicaid, Social Security, defense/wars, and federal pensions.

Whether President Obama extends his term in office or Mitt Romney takes over, the next government has major decisions to make, including what to do with the pending budget cuts.

The media continues to focus on the debt distress in Spain and the tough road ahead for Greece, but there is seldom any mention regarding the massive and runaway U.S. debt.

Spain has a national debt of around 758 billion euros, about US$988 billion, … Read More