I’m worried about my money

I’m concerned for our economy, for my financial well being and an apparent lack of concern from our government on the future health of the US economy. I’m not entirely sure where to start with this one, so I’ll just jump right in. Sure if you look at the stock market things are great, it’s rallied since March. In fact as of yesterday (11/24/09) the closing level of the DOW was the highest it has been since October of last year. I believe this is a bear market rally with a double dip coming, there is too much speculation in the market for it to continue to set new highs. 

I believe current events are making the venture capital investment process a bit more errr interesting. The majority of our investments to date have come from the US, but as changes in the economic market place take shape, my gut tells me that future investments will come from more emerging markets. Helping to make us a truly a global venture capital investor (I just spoke with a CFO of a company in Nigeria).

I’d like to address the current Healthcare reform from a financial/tax standpoint but I don’t really want to touch this one. All I can say is that with the country in a recession and huge amounts of debt hanging over our administration’s head why would we want to impose another tax? The majority of said universal health care tax is to be paid by the “wealthy”, the ones we depend on to create jobs, fuel private growth and stimulate the economy. If we continue to look for them to pay for universal healthcare there isn’t going to be much left over to fund their own employee’s healthcare, their sales and marketing support much less their overall business expansion. The Houses’ version of universal healthcare includes 5.4% surtax on high income individuals–From the The Tax Foundation. Read more from my friends at the Tax Foundation.

It’s pretty clear we are in the midst of a recession, unemployment is at 10% (yes unemployment is a lagging indicator but the other leading indicators don’t do much for me). Currently the FED has decided to keep interest rates stuck at around zero which has got investors essentially selling the dollar and using the proceeds to purchase other currencies with higher yields (http://www.businessinsider.com/where-the-wild-things-are-mauldin-2009-11) John Mauldin does a great job of covering currency carry trade in detail. Why is that bad? Well for one, it is killing the actual value as well as the perceived value of our almighty dollar which now stands at a 15 month low. http://www.bloomberg.com/apps/news?pid=20601087&sid=aje39bpey_hw&pos=6
The U.S Dollar Index which is a gauge of the Dollar’s health based on 6 other currencies looks like this…

Don’t take my word for it; Liu Mingkang, who is the chairman of the China Banking Regulatory Commission:”The decline of the dollar and decisions in the U.S. not to raise interest rates have caused “huge” speculation in foreign exchange trading and seriously affected global asset prices” In a Bloomberg article from Nov. 15 

Speculation in the greenback has caused a huge spike in the price of Gold (currently sitting close to its high of $1,189 an ounce). I actually love to hate gold as an investment, not that it isn’t currently a good place for extra cash but…A lot of talking heads push people to dump 401ks into bullion. It can be a risky bet without much reward (especially if inflation rises as it is set to do with such low interest rates). There is no income that is derived from gold as the real value is in its given market which is all speculation at any given time…I digress but this is my favorite reason to hate it: http://www.investorplace.com/experts/james_dlugosch/articles/gallery/five-reasons-to-avoid-gold-part5.html. Bloomberg, Nov. 25th—“The additional stimulus for gold is the increased demand emerging from central banks, who are now keen to diversify away from the falling value of dollar reserves,” This is coming from commodity strategist Mark Pervan in Sydney, Australia. http://www.bloomberg.com/apps/news?pid=20601087&sid=aje39bpey_hw&pos=6 

As India and other emerging countries continue to stockpile bricks of gold the dollar has an inverse trend, further pushing it down. And with no help from the FED to drive it back up, we are set to see a similar trend that emerged in Japan in the 1990s. From that same Bloomberg article on the 15th of Nov Donald Tsang, the chief executive of Hong Kong says: “‘I’m scared and leaders should look out,’ Tsang said in Singapore Nov. 13. ‘America is doing exactly what Japan did last time,’ he said, adding that Japan’s zero interest rate policy contributed to the 1997 Asian financial crisis and U.S. mortgage meltdown.”

As traders easy back on the gas for the holidays we are looking at a pretty stagnant end of the year in the financial markets, but hold onto your hats in Q1, things are going to be interesting.