The Future Fund has sold more than a quarter of its Telstra shares, according to today's Age. That's interesting. The most underused word in investing is "sell." If you don't sell, you can't make a profit. We've been working with Swarm Trader Gabriel Andre to see if buying and selling the blue chips is more profitable than buying and holding.
Of course it's impossible to tell based on the results of a couple of months of testing if trading the big stocks is a better retirement strategy than simply buying them and forgetting them. We'll keep you posted on the results. In the meantime, the Fund is counting on it 1.3 billion remaining shares in Telstra to help fund the pensions of Australia's public sector. Good luck with that.
Not much happened overnight on the markets. We read in this morning's Australian Financial Review that the Swiss government has sold its stake in UBS. UBS, meanwhile, has begun cooperating with US authorities who are cracking down on what they call tax evasion. UBS will turn the accounts in question over to the Internal Revenue Service.
And so we begin the inevitable path toward capital controls in America. This first step is to crack down on tax evaders. The next is to prevent capital and currency from leaving the country. When the government is starved for revenue and refuses to cut spending, they have to prevent people from switching out of dollars and into other currencies or assets.
This highlights what many people are now saying openly: the end is near for the U.S. dollar as the world's preferred reserve currency. The dollar isn't going away, of course. But already the Chinese have set up currency swaps to conduct bi-lateral trade with larger trading partners. These transactions are outside the dollar.
There is more to say about this. But your editor is hard at work on the weekly update for Diggers and Drillers and will have to leave this week's notes here. Until next week.
Dan Denning
for The Daily Reckoning Australia
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About the Author
Dan Denning is the author of 2005's best-selling The Bull Hunter (John Wiley & Sons). He began his financial publishing career in 1997 and has covered financial markets form Baltimore, Paris, London and, beginning in 2005 Melbourne. He’s the editor of The Daily Reckoning Australia and the Publisher of Port Phillip Publishing.
Comment by Ross on 21 August 2009:
I can't see it happening unless we are approaching the equivalent of the last days of Rome at break neck speed. If they were to try capital controls in the US virtually every investment banker would immediately become an import-export trader or in real terms an undercover transfer price merchant or smuggler. It may sound like the old Brazil but the US has a greater supply of educated scam artists and the debilitating inflationary effect would be exaggerated.
The trouble too with that scenario is the liquidation of USD debt. To liquidate fixed rate financing (short or long) in a hyper inflationary event is to take profit or take ownership of the collateral from the banker. Any rush to liquidate USD debt is a market rush that cashes in its foreign USD debt funded (but converted into local currency) chips and that re-buys the USD. As the global reserve currency the USD has this short protection against inflationary devaluation and who or collectively what market has the wherewithall & political clout to go long against the US treasury?
This is why I still back the deflation event as the likely first event in any series that is led out of the US. Here we could have either the currency led inflation event or the deflation event if we are unhooked from the US hot money.
Comment by damian on 21 August 2009:
can someone tell me what will happen to australian interest rates if america collapses. [your opinion]thanks.... Damian
Comment by damian on 21 August 2009:
can any-one tell me what will happen to australian interest rates if america were to collapse.
Comment by Pete on 21 August 2009:
"And so we begin the inevitable path toward capital controls in America. This first step is to crack down on tax evaders. The next is to prevent capital and currency from leaving the country."
Spot on Dan.
Ross, I understand what you mean, but I don't think Dan means those extremes yet. You can put some basic capital controls in place that are deceptive (like targeting tax evasion) and others without causing too much initial fuss. The hard-line dictatorship style controls are the ones that turn up much later on. "Desperate times call for desperate measures". Look out for leaders that use that phrase.
But aside from timelines, I agree with you.
Comment by Novista on 21 August 2009:
The sheeple in America believe taxation funds the government to help them. Bwahahahaha!
Little do they know the double travesty of 1913 inevitably gave rise to everything that followed. The 16th amendment was sold to the ordinary people on the basis of "You'll never have to worry about it. (Yes, 'soak the rich' dates back that far.
That was Feb, 1913, a progressive tax,albeit modest. The other pincher came on Dec 23., 1913, the Federal Reserve Act. Despite their charter, they achieved a 95% devaluation of the US$ in 95 years. Surely they can do more in less time now. Capital controls assuredly sound fine when it's applied to 'the rich' but the foot is in the door for mission creep.
The Kahre case proved that 'tax evaders' are anathema, and yet the jury who convicted him, the majority were weeping at the outcome. A 296 year life sentence, it is to laugh. Essentially, he proved the legal tender rule was a lie.
And yet, the US gubmint took the opposite tack on the 'Liberty dollar'. "People might be confused between that and legal tender". Hahahahaha!
They only get away with such nonsense because too many don't connect the dots.
A small number of tax protestors have been successful in arguing "Show me the law!" The 16th amendment is not law. Form 1040 was a flyer to see who would get sucked in. If the American sheeple discover the whole thing has been a scam, there will be hell to pay.
Comment by Pete on 22 August 2009:
I had read that of which you speak Novista, but I think it would never get through court. Either that or they would just instantly bring in the same tax rules properly, retro-actively applied.
The people can only beat the Government by physical force. That takes a lot of organisation and arms (I guess they have the arms already).
Comment by Ross on 24 August 2009:
One for Dan on the USD, Why are China still buying beans?
http://www.profarmer.com.au/Content/13444
Comment by bob on 24 August 2009:
Novista, you are spot on. The third bank of the US is a great sham.