MarketVVizard's Market Thoughts

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Top 570. Nov 25, 2003 8:25 AM

» Austrian - Beggar thy Neighbor

I posted in the past regarding "Beggar thy Neighbor" policies. Which in essence is a 1930s depression term of trying to pawn off your problems by limiting cheap imports while maintaining strong exports. With out any reaction by other sovereigns would lead to stronger growth domestically at the expense of foreigners. This thinking is flawed, dangerous, and destructive where ever and when ever it is applied. The "Beggar thy Neighbor" policies of the US during the late 1920s and 1930s are deemed to be one of the four causes of the great depression (at least according to the Austrian perspective) see Murray Rothbard's "The Great Depression" for further clarification of this idea.

I bring this up now as our country has implemented import tariffs on steel, while considering new tariffs on Chinese clothing, and now TVs. In response Japan, Europe and various international entities are working on comparable tariffs as "payback". Historically, import tariffs have ALWAYS led to decreased economic activity. It seems to this writer that our country is following the script set out by the disastrous policies of the 1920s and 1930s. First inflate the money supply over several years causing a bubble, then blame foreigners for your problems, attempt to protect inefficient companies and industries, then implement collectivist government programs (social security, prescriptions for Medicare, etc).

I do not know how this will turn out and I am not forecasting a depression. As I have written in the past, I expect significant problems ahead, most likely a long recession, debt liquidation (according to Charles Kindleberger always a post bubble consequence see "Panics Manias and Crashes…" for further clarification ), dollar down, gold up and a secular shift away from paper assets into things. This reasoning along with previous posts are why I am very bullish on Gold, Silver, Natural Gas, and foreign currencies.

U.S. to impose duties on China TV sets

TOKYO (CBS.MW) -- In a move that may further intensify trade frictions between the United States and China, the U.S. Commerce Department has accused Chinese manufacturers of selling color television sets at below market value in the United States and will levy duties of as much as 46 percent on color TV imports.

The Commerce Department said in a preliminary ruling that it has "determined that there is a reasonable basis to believe or suspect" unfair trade action from all of China's color television exporters, Bloomberg reported.

Tennessee-based television assembler Five Rivers Electronic Innovations and labor unions had filed the complaint against Chinese and Malaysian firms though the latter escaped unscathed.

Shares of TCL International Holdings (HK:1070: news, chart, profile), one of the four companies targeted in the ruling, slipped 0.9 percent to HK$2.70 in Hong Kong.

The other companies are Sichuan Changhong Electronic Co., Shenzhen Konka Group and Xiamen Overseas Chinese Electronic.

China is the world's biggest manufacturer of television sets, producing some 19 million last year.

The duties, which could range from 28 percent to 46 percent, could boost the price of color TV sets sold by big American buyers such as retailer Wal-Mart (WMT: news, chart, profile).

Officials from the Commerce Department weren't immediately available to comment.

The U.S. government imposed preliminary import tariffs on Chinese textiles last week, infuriating the Chinese government, which in turn cancelled a soybean-buying mission to the United States.

Allen Wan is the Asia bureau chief for CBS MarketWatch, based in Tokyo.

-- posted by Austrian

Top 571. Nov 25, 2003 8:57 AM

» allancoleman - Re: Quick summary of where I stand

In response to message posted by MarketVVizard:

appreciate your work here mr. VVizard . and i agree with the good (? )captain kirk smile and the Austrian on your running this forum .

-- posted by allancoleman

http://news.ft.com/servlet/ContentServer...

Top 572. Nov 25, 2003 9:08 AM

» Austrian - US Debt Down Grade over the Horizon

Moody's turns spotlight on US debt levels

The US government will need to improve public finances over the next decade to retain its Triple-A debt rating, Moody's Investors Service said on Monday.

Moody's warned that "reduced spending, more taxes, or some combination of the two will likely be necessary at some point for the federal government to avoid debt levels not compatible with the AAA rating category".

The US government's debt is considered among the safest in the world, making it a popular option for many foreign investors. There is some $3,300bn of Treasury securities outstanding.

As the US government has started to run budget deficits in recent years rather than budget surpluses, some investors have started to worry whether the creditworthinessworthiness of the US could be under threat.

It is extremely rare for countries holding AAA debt ratings to lose them, although Japan lost its top rating in the late 1990s due to spiralling deficits. Yesterday, however, Moody's sought to reassure the markets. "The US Federal government will effectively deal with the budget deficit well before debt ratios are no longer compatible with AAA," sTrugliacent Truglia, co-head of the sovereign risk unit at Moody's.

The ratings agency said that if the government were to make no changes to its current tax regime or spending, it could at some stage run into fiscal proTrugliaBut Mr Truglia said the government was expected to deal with any fiscal strain before the problems become serious. "The budgetary pressures will be dealt with in atimeframeiate timeframe." Moody's has a stable outlook on its AAA-rating for the US.

The maintenance of a Triple-A rating on US government debt is important for global financial markets because its debt is so widely-held.

"Any hint of a downgrade in the US outlook could have negative implications on the dollar and add to short-term instability on world financiCiarankO'Haganaid Ciaran O'HagLehmanrategist at Lehman Brothers.

15/32

The US deficit ran at about 3.5 per cent of GDP in fiscal 2003, which is not high by recent historical standards. It is below the averages of the 1980s, when the deficit ran at about 3.9 per cent, and also below the first half of the 1990s, when it was 4 per cent. The deficit peaked at 6 per cent of GDP in 1983.

The deficit levels of the US are also not unusually high when compared with other countries. The ratio of the US government general gross financial liabilities to GDP runs at about 64 per cent, which is higher than the median level for all AAA-rated countries, according to Moody's. But this is below the levels reached in Canada and Austria, and roughly equal to debt levels in France and Canada.

Comments
This is a warning shot over the bow by Moody's to alert the government that they are on a slippery slope, adjust before we slam your credit rating. The references to "the next decade" is bunk. This is a one year to three year warning.

With debt downgrades, interest rates would rise, assisting the post bubble debt liquidation.

I believe this warning will be ignored for politicaGreenspan, read 2004 election. Greenspan and company have virtually assured very low interest rates and massive stimulus as has our current administratPres In short, the Fed and the Pres will do anything to eliminate post bubble pain regardless of tMoodysg term consequences.

IMO Moodys will down grade US debt before the end of 2006. This downgrade, along with US structurahegemonics will lead to continued hegemonic decay and problems for the US dollar as the world's reserve currency.

-- posted by Austrian

Top 573. Nov 25, 2003 9:14 AM

» F111Star - Re: Quick summary of where I stand

In response to message posted by MarketVVizard:

Wiz, I agree with your overall sense of the stock market, and have trimmed way back on my exposure to it. The diffusion of capital from the US to China has reached significant levels during the past three years despite the fact that there is still no firm rule of law in the "Peoples' Republic." The timing is anybody's guess, but when China's corruption and accounting tricks are finally exposed, watch out below.

-- posted by F111Star

http://online.wsj.com/article/0,,SB10697...

Top 574. Nov 25, 2003 11:26 AM

» Austrian - Untouchable

Or the more things change the more they stay the same. True GSE reform will only occur after a crisis not before. I am not predicting a crisis, but do find the growth rate of the GSEs and their lowering of criteria to purchase a home suspect at best.

Don't Mess With Fannie

It was a promising start. We mean the attempt to bring some serious oversight to Fannie Mae and Freddie Mac, the two mortgage-finance giants. The stars were in unusually favorable alignment: The companies have been guilty of financial hanky-panky or accounting errors, and the White House, Treasury and powerful Members of Congress want something done. Yet everyone agrees the effort is dead for this year.

What happened? Simple, really. Fannie and Freddie deployed their famously powerful lobbying machine all over Capitol Hill. Because they depend on an implicit government guarantee -- the promise of a taxpayer bailout -- the companies take their political risk very, very seriously. They gave lots of public lip-service to welcoming a stronger regulator, but their private lobbying was lethal.

No one supports more than we do the right of Americans, including business, to petition their government. But the cases of Fannie and Freddie are unique in both scope and kind. While "private" in their capital structure, the companies have been favored by government as a way to support housing for the poor. They have since used their government advantages to buy market share and expand their private mission. In a twinkling of the eye, they have come to dominate their industry and command such a large real-estate and financial constituency that they're able to fend off even standard regulatory scrutiny. Politics has created something politically unaccountable.

The breadth of Fannie and Fred's lobbying is truly remarkable. Dawn Kopecki of Dow Jones Newswires reports that Freddie's chief lobbyist, Mitch Delk, has held at least 50 fund-raisers for Congressional Republicans in recent years. Michael Oxley (R., Ohio), the chair of the House Financial Services Committee, was the featured guest at 19. Thirty of the 50 parties were for members of House and Senate committees that oversee Freddie.

While most private financial companies hire from elsewhere in the private sector, Fan and Fred specialize in hiring inside the Beltway. Last year, Fannie hired Michele Davis, a former Treasury spokeswoman who had been communications director for Dick Armey, the former GOP House majority leader.

Freddie has recently retained Terry Haines, former chief council to the House Financial Services Committee, and Dwight Fettig, the former legislative director for Senator Tim Johnson (D., S.D.), the ranking Democrat on the Banking Subcommittee on Financial Institutions. Most recently, Freddie hired Pat Cave, not only a former deputy assistant secretary at Treasury but also a former legislative aide for Richard Baker, the Louisiana Republican who is the most vocal advocate for stricter oversight of Fan and Fred.

Then there is the handy pot of cash provided by the charitable organizations funded by the pair. The Fannie Mae Foundation seems to favor groups active in the districts of friendly politicians. It also contributes to the favorite charities of key political constituencies, such as the National Urban League, and the nonprofit arms of the Congressional Black and Hispanic Caucuses. (Full disclosure: The Fannie Mae Foundation gave $25,000 this year to the Dow Jones Newspaper Fund in support of a high school journalism workshop at Howard University.)

One question in the financial marketplace is whether Fannie and Freddie let their political priorities influence their business practices. A couple of years ago, the chiefs of three prominent financial firms complained in Wall Street Journal interviews that Fan and Fred threatened to retaliate against them for criticisms the firms dared to make about the siblings' business practices.

And there have been rumors about similar hardball tactics used with Fan and Fred clients in setting guarantee fees. These fees, which are part of the mortgage-securitization process, are negotiated secretly with each mortgage originator. Firms friendly to Fan and Fred are said to receive discounts, while those less supportive pay full freight. The companies' spokespeople deny it.

But it's certainly notable that last month, while the bill to have Treasury regulate Fan and Fred was being discussed, key Members of Congress received faxes critical of the bill from firms that do mortgage business with the sibs. This letter-writing campaign was reminiscent of a tactic three years ago when, fighting off another bill to toughen oversight, Fannie sent bogus letters signed by consumers who were unaware their names were being used.

This year's faxes all followed advice outlined by a helpful e-mail from Coleen Maroon of Fannie's Chicago office. "Hi Everyone -- we are reaching out for your help!!" the message opens. It then says the oversight proposal would "severely restrict our ability to work with our lenders" and that fan opposes "unnecessarily increasing capital standards," which is a key White House and Treasury goal.

The e-mail goes on to request that its customers fax or e-mail Mr. Oxley and "additionally fax a copy of any letter you send to my attention." No overt threats for compliance with the request for support were made, but such threats are arguably unnecessary. Fannie's huge size and market dominance are so well understood that there's no need to directly pressure firms that depend on Fannie to purchase their mortgages.

All of this is reminiscent of the political clout the savings and loan industry once wielded in the 1980s. Its political favoritism was also justified by appeals to help "housing" and promote "thrift." But by the time the political class realized the danger it had created, it was too late. Well, this time around Congress has a chance to act before we have "deja vu all over again." We hope they take it.

-- posted by Austrian

Top 575. Nov 25, 2003 11:44 AM

» Austrian - Re: How would you buy/invest in Natural Gas?

In response to message posted by Kirk:

Kirk,

Sorry for the delay in my response. Playing Natural Gas is the most difficult out of my four themes. There are natural gas trusts paying very high dividends, but I don't trust them. The best way to play this theme is through the explorers and small producers. I am not emphasizing this as the other three areas are so juicy by comparison.

--Austrian

-- posted by Austrian

Top 576. Nov 25, 2003 12:06 PM

» Austrian - Re: Re: How would you buy/invest in Natural Gas?

In response to message posted by Normxxx:

Normxxx,

I think NG will stay high, at these levels or higher, permanently. I do not think supply will increase substantially for 5 to 7 years, which is what it usually takes to build new infrastructure, either LNG import facilities, or opening up Federal lands to new NG exploration.

My thinking on natural gas is very heavily influenced by http://www.eia.doe.gov/oil_gas/natural_g... this report suggests is existing US NG fields are producing at or very near their maximum.

The most telling is
Year - Production - Well Count
1973 - 24.0TCF - 124,000
2000 - 24.1TCF - 306,000

This indicates it takes virtually three times the well count to produce what we produced thirty years ago (previous peak), while demand is increasing on an annual basis.

Having said all that, the world has ample NG, as does North America. None of it is accessible without significant infrastructure build out or legislative change. This build out is at least 5 years away, by which time, the dollar will have depreciated significantly from current values leading to sustained higher prices.

I do agree with you that the easy profits are behind us.

-- posted by Austrian

Top 577. Nov 25, 2003 1:04 PM

» Kirk - Re: Untouchable

.
In response to message posted by Austrian:

Thanks for publishing that article. One value guy I like is David Dreman and he's liked Fannie for some time. He has been wrong quite a bit lately but I don't follow him enough to know his overall record.

Rather than resemble the S&L mess, it scares me that there is a house of cards using derivatives that could lead to Enron type collapse. I have NO CLUE if this is even in the cards, but when something becomes so complex AND they start to pay off politicians as a cost of doing business, I shudder to think of the risk.

I'm not invested in these other than my decent sized holding in XLF which is about 3.6% FNMA.... so I am well under 1% I think. I doubt my index funds and other mutual funds hold any larger positions.

Scarry market. I'm having my best year ever but I have been taking profits too...

-- posted by Kirk

Top 578. Nov 25, 2003 2:23 PM

» lcha - Re: Re: Re: How would you buy/invest in Natural Gas?

In response to message posted by Austrian:

Austrian,

Those NG stats tell almost the whole story. The other thing to note about current NG production is the production decline rate has increased significantly over the years. So, not only do we need more wells to produce the same amount of NG, but the wells play out much faster these days.

The U.S. has plenty of NG exploration potential but they are in areas like offshore CA, offshore FL, the rocky mountains and ANWAR(Alaska).

-- posted by lcha