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Friday, September 29, 2006

U Scratch Me, I Scratch U

Not Since FDR: It's beginning to look as if home prices might fall in 2007 on a YOY basis. This would be the 1st calendar year decline since the Great Depression.

Spend, spend, spend: 2006 trade deficit $68.04B, a record, in 2005, $717B more was spent on goods and services, than the US took in, a record. The 2006 deficit will easily exceed 2005.

Interest-ing: With rising interest rates, the closing of the gap between what overseas debtors get paid for holding dollar denominated debt and what U.S. investors get paid for holding overseas equities has pushed U.S. net investment income into the red for the 1st time.

Witness: Q2, the United States paid more to its foreign creditors than it took in from its overseas investments, a small $2.5B gap, the 1st time that's happened in 91 years.

America 4 Sale: By the end of 2005, overseas investors held $13.6T in U.S. stocks, bonds, real estate, businesses and other assets. Subtract the $11.1T in assets owned by U.S. residents and companies, and the U.S. had a net negative balance of $2.5T.

Frugal Savings or Futile Savings? China's foreign exchange reserves growing by $20B a month. In August, with reserves of $880B, China passed Japan as #1 in foreign exchange reserves.

Chinese Cook Books: Beijing suspended a new bankruptcy law for 2,116 of the country's worst performing state owned companies before it even went into effect in June 2007. These companies now have until August 2008 before they are covered by the new law.

China 4 Sale: The delay allows the Chinese time to either pump part of their savings into bailing out the businesse's and banks or find foreigners to invest in them.

Whether the bailout money comes from loans or savings, its going into supporting UNPROFITABLE endeavors and makes less money available for profitable or necessary projects.

Even with all our DEBT and all of China's SAVINGS, it seems that we still hold the key: our housing slows, our spending slows, global growth slows, we catch cold, they get flu. We are supporting our trading partners, and they are supporting us.

Thats why the dollars we spend and send overseas are recycled by foreign investors into U.S. government bonds, corporate bonds and mortgage backed securities, otherwise its game over.

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