Is it just a coincidence that the US treasury is planning to reintroduce the dollar coin just when the currency is beginning to feel very soft?

We British were brought up on many an American song referring to the silver dollar. But that particular hard currency was phased out well before the second world war.

News that the dollar coin is to be reintroduced came to Britain over a weekend when the financial markets decided to celebrate Thanksgiving by selling the US currency in a big way.

When I say big, I mean big in its impact: as every schoolboy son of American currency traders knows, there is not an awful lot of foreign exchange business conducted over the Thanksgiving weekend.

But the dollar has taken a dive, and the forces driving it lower are now being spotted on all fronts. Simultaneously, bookings for transatlantic flights have, if you will forgive the metaphor, soared, as people speculate about a return to the two-dollar pound, which makes holidays and shopping in the US incredibly cheap for the many intrepid Brits prepared to put up with the indignities of US security checks.

There is a famous saying, credited to Herb Stein, who was chairman of the presidential council of economic advisers under the former president Richard Nixon, to the effect that if something cannot go on for ever, it won’t.

The obvious modern example is the US current balance of payments deficit, recently running at some 7% of gross domestic product. Many a US official used to lecture Latin American countries during the 1980s and 1990s about the need to take action to reduce deficits of such proportions.

The US is different in that it is by far the world’s biggest, strongest economy, and the dollar is more than acceptable all over the world. Nevertheless, there comes a time when enough is enough – as at the end of September 1979, when confidence in the currency simply collapsed and the Federal Reserve chairman, Paul Volcker, had to fly back early from the annual meetings of the World Bank and International Monetary Fund in Belgrade to stop the rot via a series of dramatic increases in interest rates.

In September 1985, the dollar was seriously overvalued, the balance of payments was in heavy deficit and a major devaluation was necessary. On that occasion, the devaluation was in fact engineered because even though the dollar had weakened slightly in the summer, James Baker, the US treasury secretary, and his counterparts in what was then the group of five finance ministers tired of waiting for the markets to get the message and decided on a managed depreciation.

This time the writing has been on Wall Street for several years. Although there has been a gentle decline in the dollar, most serious economists argue that a major adjustment (estimates circulate of up to 20% or more) is necessary to put right a situation where the strongest economy in the world imports 50% more than it exports.

Apart from anything else, there is mounting evidence that the imports binge in which the US has indulged in recent years has seriously aggravated the protectionist pressures that are never far from the congressional surface.

While those of us who have consistently opposed the folly of the Bush/Cheney/Rumsfeld/Blair policy in the Middle East were delighted to see the recent midterm election results, one underappreciated aspect of this has been the chance for the Democratic protectionist tendency to reassert itself.

The devaluation of the dollar that now appears to be under way ought to assist policymakers to resist such protectionist pressures by making US imports more expensive and encouraging export industries.

Another underappreciated aspect of the present US economic conjuncture is that if the slide in the dollar threatens to get out of hand the Fed may have to raise interest rates simply to steady the ship.

For the modern breeds of traders and commentators, who think interest rates are altered only for reasons of inflation, this would be an event indeed – although, of course, a precipitate fall in the dollar would have obvious implications for prices as well.

For a long time now, everybody has been aware of the vulnerability of the dollar, but few wished to be out of line with a market that was seeming to defy Herb Stein’s precept, referred to above.

More recently, there have been strong indications from the Chinese monetary authorities and others that diversification of currency reserves is becoming a more active policy. Arithmetically, a simple decision to place fewer new reserves in dollar-denominated assets can have an appreciable impact on the currency.

In which context, I am much amused by the comment yesterday from Sergei Kamburov, the deputy director of the Russian central bank’s market operations, who said: “We don’t have plans about diversification of our reserve assets towards the euro from the US dollar. We don’t have any plans because we already have done it.”

Many others haven’t. And the implication, as the euro heads for new highs against the dollar, is that the export boom that has led the recent German and eurozone economic recovery will be threatened by further rises in the euro.

Eurozone policymakers may have to rethink their strategies, and we may well be in for a revival of what in the old days we used to call international economic policy coordination. It certainly looks as though there will be a need for such coordination.

c/o-: William Keegan; The Guardian

“First thing Monday morning I’m going to march into my boss’s office and demand a pay cut so that I’ll be in a lower tax bracket next year.”

Of course that’s ridiculous, but isn’t it about the same as the financial community’s “Conventional Wisdom” (CW) for year-end tax planning? What about the long-term nature of investing, or the merits of that investment they felt so strongly about in July? What are their motivations, and what discipline thought up these strategies in the first place?

Clearly there are many questions that require answers, but as investors, it should be crystal clear that the object of the investment exercise is to make money… just as much as possible, quickly, legally, and within a low risk environment. The faster it comes in, the more effectively it can be compounded. Otherwise, wouldn’t the “CW” be to find as many downers as uppers so that there are no tax consequences? Wouldn’t Zero Taxable Gain Investing be the only “smart” investment strategy? A December, 2004 New York Times Money Section article actually suggested that Investment Professionals had an obligation to lose money for clients in order to reduce the tax burden.

Your Financial Professional’s perspective may produce smart tax advice but only professional investors (not accountants, attorneys, stockbrokers, financial planners, advisors in general) should be called upon for acceptable investment advice. CPAs may look smarter if you have a lower tax liability, but many of them go too far with a calendar year focus that ignores the realities of an emotional and cyclical investment environment. Take last year’s Merck for example. It has nearly doubled in Market Value since you were told to sell it last November… who’da thunk it! Why didn’t you buy more (of this and many high quality losers) instead of selling? Fortunately, not all professionals are into losing money. In fact, in nearly thirty years of dealing with hundreds of Accountants and other advisors, not even a handful have suggested that clients should take losses on fundamentally sound securities, Equity or Fixed Income. Just think if you had taken your dot.com profits in ’99, purchased the downtrodden profit making companies of the time, and paid the ugly taxes. The value companies didn’t crash. They’ve rallied for nearly seven years!

The key issue in considering a capital loss is the economic viability of the investment… not your tax situation! A key element of The Working Capital Model (for investment portfolio management) is to eliminate the weakest security in a portfolio every time the Market Value of the portfolio establishes a significantly new “All Time High” profit level (an ATH). My definitions may be different than those you are used to: (1) Profit = Total Market Value – Net Portfolio Investment, (2) A “weak” security is a stock that is no longer rated Investment Grade by S & P, or no longer traded on the NYSE, or no longer dividend paying, or no longer profitable. Income securities whose payout has fallen to way below average (or risen to an unsustainable level) could also be culled at an ATH. Securities that have fallen considerably in Market Value for no apparent reason (other than recent news or changing interest rate expectations) are referred to lovingly as “Investment Opportunities”. This is what you look for while trying to reinvest your profits… like last year’s MRK. By the way, switching from the strong asset class to the weaker one as a “hedging strategy” or vice versa (as a greed motivated speculation) is simply an attempt at “market timing”, not a “sophisticated” or “savvy” adjustment to your asset allocation. Asset Allocation is always a function of personal factors and never a function of asset class (Equities and Income Generators) directional speculation.

So what happens if a new portfolio ATH is achieved in February or August instead of in November or December? (Note that the financial community only preaches tax loss strategies during the last calendar quarter.) Should you unload all the weak issues at the same time, even those purchased just a few months ago? Management of your portfolio requires the disciplined application of consistent rules and guidelines, and every manager will develop his or her own style. But in a high quality, properly diversified, income generating portfolio, (1) the number of weak issues will generally be small and (2) the probability of escaping with only a minimal loss very real. Keep in mind two basic investment axioms: There is no such thing as a bad profit, regardless of the tax implications; and no matter how you may rationalize, there’s no such thing as a good loss. So, sure, if a loss should be taken due to an ATH in February, bite the bullet on the one security (only one) with the declining fundamentals (A Merrill Lynch/CNN/CFP opinion is not a fundamental.) If there are none, good job!

Profits are the holy grail of investing. Few people will admit just how infrequently they have experienced them or, conversely, just how frequently they have watched them disappear beneath the waves of a correction. (Like gamblers retuning from Vegas… no one ever seems to lose!) Similarly, most financial professionals will counsel their charges to let their profits run, particularly around year-end. Surely, speaketh the CW prophets, these profits will hang around until next year, thus deferring those terrible taxes! (Worked real well at year-end ’99, you’ll recall.) Don’t think for a moment that anyone knows what will happen this time around the rally pole, particularly in those ridiculously priced ETFs, which are put together with the same kind of spit and duct tape used for the dot.coms. Always take your profits too soon, because you can’t get poor that way!

First thing Monday morning I’m going to: (1) Call my accountant to tell him that I’m going to help him reduce his tax burden by not paying him, (2) continue to view the Investment process in cyclical rather than calendar terms, (3) limit my tax liability by how I invest, not by taking unnecessary losses, (4) continue to make as much money as possible, as quickly and safely as possible, and (5) contact the media, my political representatives, and anyone else I can think of that will help in the fight to abolish the taxation of all investment and retirement income.

c/o-: Steve Selengut; SancoServices.com

While a number of topics are currently being discussed in the United States, one of the most controversial is that of the right to privacy. This hot button issue is made more complex in a post 9-11 environment. We struggle to find and maintain a balance between personal rights and public safety.

Most people would vigorously defend the right to privacy, feeling that the accessibility of too much personal information is not only an invasion, but morally wrong, and unconstitutional. After all, prior to September 11th, the United States had not been subjected to the overt terrorism that had plagued other countries.

The events of September 11th pervaded our false sense of security and caused us truly question if the enemy was in a far off country or our next door neighbor. In our post 09/11 world, the government’s responsibility to protect Americans has taken on new meaning. In an aggressive effort to protect us from the threat within, the government has adopted a “by any means necessary” approach even if that means listening in to phone calls, reading emails, reviewing library records or scouring through websites. The recent foiled plot of airline bombings in Britain is an example of how invasion of privacy can in fact keep us safe. The individuals stopped for this heinous crime were discovered first by a tip but second from police monitoring private activity which included phone calls.

In the instance where a terrorism plot is averted because of the invasion of privacy there can be no argument to the validity of the practice. Yet, we also know that innocent people have had their privacy invaded when they did not pose a threat to national security.

The national debate over privacy has repercussions on a smaller level as well. Corporations and employees struggle with privacy issues in the workplace. Companies also are seeking to protect themselves from a different kind of terrorism – that of legal and financial exposure caused by the actions of its employees, whether innocent or intentionally malicious.

Privacy is legally protected by the Constitution of the United States, and at the very core of America’s existence. As politicians, voters and special interest groups debate these constitutional issues, employees and employers seek to understand the rules of engagement within business.

Does an employee have privacy rights at work? How far can employers go in monitoring the activities of employees to ensure that they are protected from liability?

Employers not only have a right to monitor the activities of employees but a responsibility. Computer activity, including e-mails and phone calls can be monitored by the employer. In fact, some degree of monitoring is recommended. Emails are discoverable in legal action exposing employers to a great degree of risk. Even if the employer has a policy that expressly states that personal emails are allowable, the company still has a right to monitor individual emails.

Phone calls, except those placed on designated “for personal use” phones, can also be monitored. Call center and customer service employees are routinely monitored for quality assurance and training. There are however, federal and state regulations which must be adhered to which in many locations including notifying parties that the call is being monitored. Most employees will need to place or receive a personal call from work at some point in time. However, as a best practice, employees should use pay phones or cell phones when they must conduct personal business during the work day.

As we seek to balance privacy and protection on a national stage, we will undoubtedly make adjustments on a more personal level. We have already become accustomed to much of our lives being monitored through security cameras, electronic tracking and internet use so it is possible that what is now viewed as invasion will simply become normal. In the interim, it is wise to assume that what happens in Vegas, may not stay in Vegas!

c/o-: Richard Hall; Buzzle.com

Have you ever had a friend hit you with the classic word trap, “Have you stopped beating your wife?” Answer yes or answer no, and you incriminate yourself. This joke is based on the technique of using an implicit premise. While it may get a laugh, it is also used by politicians as more than a joke.

Political manipulation is most effectively accomplished when you control the framework in which others can argue and, ultimately, think. For example, if you want to get your viewpoint accepted without openly debating it, you make it an assumption, a premise for any other debates. Not only will you win the public over to your view, but you will effectively exclude the possibility of any serious opposition.

Suppose many years ago a government wanted to expand it’s power to by having control over what people put in their bodies. There may have been real debate among the populace as to whether this is an appropriate function of law or government. Many may not have wanted such a “war” on drugs, which, after all, is just a war on people who ingest certain plants or chemicals.

How, then, does the government get the public to accept such control? By simply presuming that all people want to see drug use controlled, and arguing only on the basis of the best way to do that. The politicians and the public can argue all they want about whether more treatment or stricter laws are needed. In fact, such argument only strengthens the underlying premise.

Soon anyone who questions whether there should be any government involvement in this area is on the “fringe.” They are not allowed in the “serious” debates, because they don’t share this now “obvious” premise. The control of government over what goes into a person’s body is assured, and it’s power to regulate peoples lives in other similar ways is easily expanded.

As I write this the U.S. government has held people in prisons for years without charges or access to attorneys. They claim this is okay because these prisoners are not citizens. The public accepts this, because the premise has been firmly established in their minds that “rights” are granted by governments.

The founders of this country explicitly stated that rights are inherent in all humans. They fought against the idea that rights are mere “privileges” bestowed by governments. However, this second idea has become the basis for all argument now, and so even the opposition is unable to make logical arguments against these current violations of human rights. Implicit premises are a powerful method of control. We should get in the habit of recognizing the premises hidden in political debate.

For further information, please visit: TheSecretInformationSite.com

Facing the prospect of a lame-duck last two years in office, President Bush has decided to focus on what he hopes will form the cornerstone of his legacy: the George W Bush Presidential Library.

The cost of this memorial to a leader not renowned for his love of literature has been estimated at $500m (£257m) – three times the sum spent on his predecessor Bill Clinton’s presidential library.

Although specific plans remain secret, some details are known. The library is likely to be built at the Southern Methodist University in Dallas, Texas, which is alma mater to the first lady Laura Bush, who is a trustee. The institution, next door to the couple’s church, recently gave the president an honorary doctorate.

The centrepiece of the library is expected to be a public policy centre, possibly called the Institute for Democracy, to espouse what Mr Bush hopes will be seen as the defining themes of his presidency: “compassionate conservatism, the spread of freedom and democracy throughout the world, and defeating terrorism”.

Two key questions remain: who will pay for it and what will it contain? Advisers on the project are reported to be seeking “mega-donations” of $10m to $20m. Arab leaders contributed to the cost of George Bush Sr’s library.

Regarding the content, the current president is not known for reading, but he has talked publicly about a few volumes, including a history of the civil war, The Case for Democracy by the Soviet dissident Natan Sharansky, and The Stranger, by Albert Camus. That leaves a lot of space for records of the presidency. The Clinton library has 75m documents but such voluminous paperwork is unlikely to emerge from the secretive Bush administration.

c/o-: Buzzle.com