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Harry Schultz Life Strategies
~ For THINKING humanoids ~ (in 80 nations)

He who leaps last loses his lolly

Harry Schultz
extracted from the Harry Schultz Letter [
HSL] #660, dated Jun 3, 2007 - DJIA 13,668
Posted Jun 29, 2007

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Big Picture

"We see what we want to see unless we make a conscious effort to see what is really there." -anon.

The current state of the world is unusually soaked in denial, illusion & deception (both self- & govt). Don't think U are immune. We're bombarded by images that suit others. It's hard work to force yourself to disbelieve til U verify (a la Reagan) & to analyze the PR/con spewed by govt/advertising & biz. Stock mkts are an example of deception that people want to believe. Eg, headlines scream daily about M&A (mergers/acquisitions) setting new records in size/number. People assume M&A are positive. Most are not. They result in firing staff & reducing services to the public (2 banks in a small town cut to 1 means 50% less service, as 1/2 staff, but same # of clients). Many mergers are reversed (a la Chrysler/Daimler). M&A often help bottom line, help CEO & execs, but at high cost to society. CEOs couldn't care less. Mergers shrink the stock supply available in the mkt. This creates a false upward bias (supply/demand). Stock buy-backs are another illusion. They blatantly create false profits (less shares, same income). CEOs win via stk options.

DJIA to new high. Fireworks go off. Wrong. DJIA merely rose above its 1999 high, at which point people who bought back then are now even, having been in the red for 8 years! Only a rise from here will be progress. S&P: same story. But 1999 $s are worth 25% less than 2007 $s, so it's a big net loss! It reflects the ongoing con game from Wall Street, Threadneedle St, & many other stock mkts. Politics can give us more samples of denial & deception, but U get my point. To justify your HSL Thinking Humanoid giraffe pin, U need to be on your guard, Reagan-style. Disbelieving is a safeguard 'til cases proven.

• The world is getting very nervous about currencies. Eg, Thai Finance Minister Chalongphob Sussangkarn said at recent meeting of Asian Development Bank in Kyoto:"Should financial markets lose confidence in the US dollar, huge capital outflows from the US could lead to a rapid depreciation of the US dollar, & thus dramatic appreciation of other currencies." That's pretty straight talk for a central banker - located where (Asia) most trade surplus US$s lie in wait. Someone said "US trade deficits are just one of far too many aerosol cans now roasting in the fire. When they start exploding, you'll want to be safely hiding behind a wall of gold & silver." I agree!

It strikes me that if investors, hedge funds & central banks are getting this nervous, as their necks are stuck out with excessive US$-denominated positions, they may be scheduling some sizeable switching from US$ to £ & euro, OZ$, C$, Spgr $, Thai Bhat, Indian rupee, etc, in cash or via investing in companies in those nations (as China has just done-buying a chunk of Blackstone!). It's sensible diversification. But my main point is: if they correctly try to do this switching when the US$ is into a rally (as it is now), will it not cut the rally short? If U are following me so far, it means U don't want to be the last to leap. He who leaps last loses his lolly.

$ P.S. Aside from a likely new US$ downturn, soon, let's face facts of the fall already in place, in case U are/were complacent: in last 6yrs -- in 2001, US$ 1.00 would buy 1.70 SwissFr. Now U get only 1.20 SFr. In 2001 it took only $1.40 to buy £1.00. Now it takes $1.99 to buy £1.00. Euro: US$.0.85 in 2001. Now $1.35. Oz$: rose from 50c to 80c per US$. U need damage control to avoid more loss of buying power, & in fact, turn from losing to making a profit on $-switching.

•••• Not far ahead (2-3 months?) the US$ will likely test the near 2 decade low of 80 in the $index. It seems fated to break that hoary barrier this time. If/when it does, it may be a dam-breaking flood. Note: it is "at the margin" that most action occurs, in all mkts, ie, it takes only 1-2% of US$ holders to switch-out for it to trigger a Niagara.

For non-US residents, this swap is easy. They already live outside the US$, though some have US$ exposure via US stocks; they can switch to other stocks, eg, Canadian gold mines (This will cool Wall Street). For US residents it's doable, but hard work. Americans live, dress, drive, insure, work, eat in US$s. To safeguard buying power (which is what it's all about -- & is your life security controller) they should buy foreign currencies via offshore banks (or a few onshore who deal) & foreign stocks/bonds denominated in non-$s.

Some can mortgage their US$ homes & put the money into another currency, eg, Canadian. Thus they'll be living in a Canadian-$ house. Some will open bank acnts in Canada or Switzerland or HongKong, etc, & hold local currencies there. Faster action: buy foreign currency futures or bank forward contracts. Safer: there's a new way to buy currencies without margin risk. There are now currency stocks! A great idea. U can today buy a yen-currency stock on the NYSE; symbol FXY. U can buy the euro via Euro Currency Trust that even pays interest; symbol FXE. Structured via Rydex Investments. U can also buy 6 other currencies: Oz$. ticker: FXA. British £: FXB. Canadian$: FXC. Mexican peso: FXM. Swedish Krona: FXS. Swiss franc: FXF. Amusingly, they don't offer a US$ fund/stock; guess no one would want it.

Into geopolitics now: the Iraq war has, as I have said for years, only one positive solution. IMO, if it isn't adopted quickly, it may be too late to try. Divide Iraq into 3 ethnic parts; divide the oil revenues into 3 parts. When done, withdraw some US troops to nearby nation bases; send the rest home. Many big league military & geo-strategists agree with me on this. Much blood/treasure could have been saved if done 3yrs ago. It's probably still doable.

•••••There's more to say, but will cover lots of topics in Titbits, inside. Vaya con Dios.

Tax Stuff

Tax guru Marshall Langer says Britain is a great tax haven for non-domiciled residents (non-doms). UK taxes, always high, have increased substantially since this Labour govt was elected due largely to stealth tax increases, rather than high rates. But, there's a secret shared by over 1-mil foreigners living in the UK. They don't pay UK taxes unless they want to! Reason: Non-doms don't pay taxes on their foreign-source income unless they remit that income to the UK. This isn't a new program. UK has used the remittance basis since it introduced the income tax in 1799. It originally applied to all taxpayers. Since 1914, it applied only to non-doms. Although some 1.7 million newcomers to the UK take advantage of these rules, many of them don't even have to file tax returns & are thus able to keep a very low profile.

UK tax dept published a green paper in 1988 in which they proposed big changes in non-dom taxes. If they had been adopted, those regularly spending over 4 months a year in the UK would have been taxed on their worldwide income. But due to strong protests from Greek shippers & others who threatened to close down their UK businesses, Margaret Thatcher's Tory govt abandoned the proposed changes in 1989.

At 1994 Labour party conference, 3 yrs before Labour came to power, Gordon Brown reaffirmed a Labour govt would tighten up residency rules for the rich, saying Labour would "rewrite the tax rules for the undeserving rich." Since Labour's 1997 election, Brown has been in charge of UK budget & taxes, but did nothing concrete to change the rules. Nor is he likely to change these rules when he becomes PM later this month, as Labour receives huge financial support from wealthy non-doms.

Bye from your Harry D (for Dusty cowboy) Schultz
written Jun 3, 2007


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