SDR's Signal the End of The Dollar
Research for Online Investors

by John Dalt

5/04/09

The International Monetary Fund is going to issue bonds, in Special Drawing Rights (SDR)’s. This is the beginning of the end of the U.S. dollar as the world’s Reserve Currency. We are such suckers. The IMF has always operated on funds provided by member nations. Since the U.S. provided over 15% of the funds and approval of any important decisions required 85% of the votes, we held a veto over the IMF agenda.

The U.S. is broke; China and Russia want to replace the dollar as the reserve currency used in World Commerce. Answer: IMF issues bonds, China buys bonds in SDR’s rather than dollars, directly offsetting purchases of U.S. Treasuries. China has also executed currency swaps with other countries, thus avoiding using dollars for trade. They are slowly enacting their stated goal of removing the dollar as the world’s Reserve Currency.

Eventually, this will take away our government’s ability to print money with impunity. Welcome to the third world.  The IMF has a press release on their sight, notice Boutros-Ghali in the picture.  What a mess, you get rid of one and they have spawn.

The Chrysler bankruptcy is not going exactly like OH! Bama had hoped.  According to the Associated Press, the secured creditors are objecting to the sale to Fiat, paying taxes, paying bills and any other expense that reduces the assets of Chrysler.  Tom Lauria, the lenders attorney said, “We're opposing at this point everything that the debtor is doing that is premised on the assumption that value would be preserved through the sale, because if we didn't have the sale, none of these actions make sense. What we're doing is spending money today that we're going to have to fight to get back later."   The judge delayed any decision until Tuesday to allow the lenders attorneys to review paperwork filed late Sunday night by Chrysler.  Tom Lauria is appearing on Fox Business News at 6 p.m EST, perhaps an interesting interview.

The stress tests of the nation’s 19 largest banks are scheduled for release after market close Thursday.  This is a story that may get more complicated every day.  Financials moved up today, but Treasury’s handling of these results has the potential to upset the apple cart.  The meetings with banks are still going on, originally the expectation was for a summary of all banks, now it appears the release may contain detailed information on each bank.  I talked to a friend that left Smith Barney last week (owned by Citi); he told me that many people were leaving.  New requirements are coming out weekly, making it impossible to do business.

Oh! Bama proposed a change in tax law this morning that seeks to tax overseas earnings of U.S. Corporations. He believes this is fair. The U.S. Chamber of Commerce challenged the President’s reasoning. Which begs the question, "Why did they suck up to him in the first place?"  I guess they just had a John Galt Moment.  Will they ever learn?  Companies can move, ask Halliburton, or Transocean. Turbo Tim stood at the President’s shoulder to emphasize his agreement with the importance to crack down on tax cheats. You could never sell a screen play with this much drama. The New York Times has a up to date story about the new tax proposal.

The market keeps rallying, while many predict a pullback.  Many investors are looking to the early 1930s for some insight into the current economic/stock market environment. While there are significant differences (global economy, credit default swaps, TARP, FDIC, etc.) between the current environment and that what occurred in the early 1930s, there are also many similarities (bank failures, bankruptcies, severe market declines, etc.). For some perspective on the current stock market rally that began on March 9th, today's chart illustrates the duration (calendar days) and magnitude (percent gain) of all significant Dow rallies that occurred during the 1929-1932 bear market (solid blue dots). For example, the bear market rally that began in October 1931 lasted 35 calendar days and resulted in a gain of 35%. As today's chart illustrates, the current Dow rally (hollow blue dot labeled you are here) is slightly below average in both duration and magnitude relative to the average 1929-1932 bear market rally (hollow red dot).

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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