December 22, 2003

Reader Mail: A Democracy of Savers, Action on the BED Spread?

Hoping to add a letters page here in a few weeks so you can view more of what your fellow readers are saying. In a few weeks, the Insider goes out to all the paying readers of Strategic Investment. I want to thank all of you who've spent your time and thought helping me refine what I'm doing so that it's more useful, interesting, and hopefully, profitable for you. And you should know that it's quite a distinguished group of readers that's been beta testing the new format. Professional money managers, brokers, high net-worth investors, doctors, lawyers, retired name it. A formidable group. My hope is that it's just the beginning of a high-caliber exchange of ideas. We won't always agree. But the level of investment analysis and thinking should remain high. Here are a e-mails from readers this week. By the way, if you do NOT want me to include your name when I post a letter of yours, please let me know when you send it. Dan: You asked in a recent article about what would replace the dollar. a) WHY does it have to be another currency, and ... b) WHY does it have to be just one thing? My answer ( for you to ponder): I believe what we are headed for is a basket of things. 1) People will store their wealth in gold (and other metals on deposit) which is, of course a form of currency. 2) People will store their wealth in contracts with other businessmen - since businessmen, who have to live by providing true value for value in a free exchange arena where no one is compelled to buy, are the only true honest people left on earth. .... Well, maybe they are not always honest people, but they exist in the most honest forum. 3) People will crate their own currencies. An example of a currency is stock in a new technology. If you list it, lets say on Nasdaq or on the OTCBB, the founders create a kind of currency. This "kind of currency" runs just like a paper currency does. Create too much and its relative value drops. Exchangeable, via the stock market, for other currencies including government issued fiat currency. The company can buy thins (like other companies) by issuing its own currency (stock). The trick of course, is to have a great underlying technology that people will value. 4) and so on. The implications of the world shifting to a basket of values from the current dollar standard is that people have to start thinking again. Isn't it funny that the unsophisticated people of 1830 knew intuitively how to value the hundreds of currencies that were floating around. People today have lost that ability because the almighty dollar was, through the Fed Reserve, established as the ONLY standard. People didn't have to know anything other than they needed dollars. Now that this is changing, my submission is that people will go back to a "basket case" approach, each human being with his own prejudice as to value, reflected in the composition of his basket. Curiously, the very existence of this basket will encourage democracy, sort of back in the days when 1,000's of banks issued their own currency. There was no ONE standard, and therefore no Alan Greenspan who cold misuse the standard for his own ends (or those of his friends). When no politician can manipulate the standard, he will be forced to issue policies that he can afford, and no others. The "one standard" has been the greatest impediment to true, direct democracy, for the last 90 years. We were freer in 1912, then we are in 2004. I believe we will head back there. Every movement needs a socio-economic driver. The driver in this case will be a mass movement of the savers to establish their own basket. They understand the need and have the ability. They will scurry to protect themselves from those who would want to latch on to their savings. Such a basket would include holdings in places where people normally can't reach. The non savers will have a greater problem. For all of the character flaws which this exposes, non -savers like to rely on other people's saving to survive. When the crunch comes, and the savers disassociate themselves from the non saves by storing their holdings in baskets that are out of reach, it is h non saves who will suffer. I am not an editorial write and, as such, my explanation may lack the right stuff to be a complete argument. But .. perhaps you can bat this around your crew and comment in your articles as and when you see fit. I believe my point f view has merit and with sufficient close argument might be capable of peeking into tomorrow's newspaper. regards Carl Wimmer AND THIS EXCERPT FROM A READER ABOUT THE BED SPREAD.... Like yourself, I sense a change coming, and soon, very soon. So I am positioned, I think, for a drop in the dollar, a drop in the markets, a forced increase in interest rates, or all three. Somebody's bluffing and we'll soon find out who. I like your BED spread and am wondering why you haven't or will you suggest a long or short position of the components which make up your unique indicator. I will always be a subscriber of yours, if for no other reason than I enjoy your writing. Thank you again for your time and attention as well as your dedication to your subscribers. Sincerely and with Best Wishes for a Happy New Year, Mark Richardson Illinois, USA DENNING COMMENT: Since the BED spread is an analysis of interest rates, with the presumption that as risk rises, rates will rise...the most obvious way to directly trade on it is through interest-rate related investments (IEF, TLT, TNX, AGG, and LQD). I've proposed doing just this with my new reco in the January print issue. I'm aiming to make this available on line late this week or early next. And by the way, once all SI subscribers are aware of the Insider, I plan publishing the new issue on-line as soon as it's you won't wait long for new ideas when I have them.


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