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HomeConnecting the Dots: Our Dollar Continues Multi-Year Decline as Both Political Parties Are “On the Take”
Posted by Larry Doyle on February 15th, 2011 8:55 AM |
In the course of my regular early morning reading (thank you to the regular readers who feed me these resources), I came across some fabulous work.
1. The Dallas Federal Reserve puts forth an enlightening piece entitled Global Economic Conditions. The 43 page treatise covers a wealth of information but my attention was grabbed primarily by the graph highlighting the continued decline in the core rate of inflation on page 11, and the ~20% decline in the value of our U.S. dollar over the last decade versus other major currencies on page 38.
While skyrocketing food and energy costs globally will likely continue to foment civil unrest in selected nations, Fed chair Bernanke is assuredly singularly focused on that continued decline in the core rate of inflation. How will he respond? Many individuals whom I respect believe Bernanke will continue to flood our economy with more and more dollars via quantitative easing. What does that portend for the value of our greenback? It ain’t good. What do others think of our Federal Reserve and fiscal fiascos? Let’s navigate further. (more…)
Nouriel Roubini Agrees with Jeff Gundlach
Posted by Larry Doyle on October 27th, 2009 11:18 AM |
Dr. Doom agrees with Wall Street’s top fixed income manger? Who are these individuals and on what do they agree?
Both these individuals are Economic All-Stars here at Sense on Cents (see left sidebar). Nouriel Roubini (aka Dr. Doom) and Jeff Gundlach (aka Wall Street’s top fixed income manger) possess a contrarian view on the future of the U.S. dollar. While most analysts, economists, traders, investors, and speculators call for ongoing weakness in the greenback, Roubini and Gundlach believe the dollar will rebound and risk-based assets will retreat.
I addressed Gundlach’s views on this market driving principle on September 10th when I wrote “Jeff Gundlach of TCW Calling for Deflation and Dollar Rally”: (more…)
It’s the Economy, Stupid!!
Posted by Larry Doyle on October 16th, 2009 9:05 AM |
The American public is becoming increasingly wise to the ways of Wall Street and Washington.
Many Americans were duped by financial practices and products emanating from Wall Street. Where was Washington? I would assess Washington’s involvement and responses in the following fashion:
1. At worst, Washington was complicit given a wide array of failed public policy programs, especially in housing. These public policies were largely ‘greased’ by lobbying dollars and campaign contributions.
2. To a large extent, Washington was negligent in terms of oversight, especially on the financial regulatory front.
3. At best, Washington was naive given a general lack of understanding of markets and finance.
The American public is now responding in appropriate fashion. How so? In increasing numbers, they are choosing not to play the Wall Street game. What game is that? Active trading and investing. While the numbers of pure day traders may have increased, the American population at large is focused elsewhere. Where is that focus? On the economy at large and on their individual pocket books.
Washington’s focus on Wall Street and its selling of the market rebound as reflective of a return towards prosperity is a product that will not fly . . . try as they might. Why?
It’s the economy, stupid! Reports this morning indicate that wages will likely show the greatest decline since 1991. Even in the face of declining wages, consumers’ purchasing power is being further eroded by the continuing decline in the value of the dollar. That decline is inflationary which hurts consumers but it continues to present a very cheap funding vehicle for those who want to use the greenback to employ leverage in the markets. Who has the advantage in that process? The large banks. Do they spread that wealth in terms of increased credit and higher savings rates? Now why would they do that?
The American saver and consumer shouldered the cost of the bank bailouts in 2008. They are now shouldering the cost of the wealth transfer to the banks in 2009. While Washington would like to sell this dynamic differently, the American public gets it.
Washington will continue to sell this dynamic at its peril.
LD
Can We Add Some Inflation to Some Deflation and Claim Overall Prices Are Stable?
Posted by Larry Doyle on October 15th, 2009 11:03 AM |
Inflation? Deflation? What is it going to be? As we continue to navigate the economic landscape, that question – perhaps more than any other – is of paramount concern. As I assess the economy and the markets, I envision the following:
> Ongoing deflationary pressures in real estate. Foreclosures hit a record level based on a report this morning.
> A likely increase in deflationary pressures from wages as unemployment continues to increase, hours worked do not pick up, and average hourly earnings are stagnant. How are corporations reporting earnings? Not from growth in top line revenue, but from cutting costs, including headcount.
I firmly believe these two overriding forces most concern the Fed and the threat that the deflationary forces could grow if not counteracted. How does the Fed counteract these pressures? Keep the liquidity pump running via a 0-.25% Fed Funds rate and now increased speculation of perhaps more quantitative easing in the form of purchasing more mortgage-backed securities.
What has been the result of all this liquidity running into the system? A significant decline in the value of our dollar. What does that create? Inflation. That’s good, right? A little inflation will provide some pricing power which supports our equity market. Not so fast. The inflation is not directly addressing the deflationary pressures in real estate and likely deflationary pressure in wages. The inflation is being generated primarily in commodities. What does that mean? Prices for food, gas, oil, and other raw material inputs will increase. As those prices increase, the cost of living in America will increase. Regrettably, that increase in cost of living will not be offset by an increase in wages.
Daily Finance provides a preview of the coming rise in food prices in writing, Sticker Shock at the Supermarket: Food Prices Poised to Rise:
If there’s any silver lining to a recession — albeit a thin one — it’s that consumer prices typically go down. Make no mistake, deflation is a sign of a sick economy, but at least the net effect of cheaper prices for the basic necessities — food, clothing and shelter — helps folks get by when they are struggling to make ends meet.
But consumers should brace themselves for things to change, especially at the supermarket. As the global and U.S. economies emerge from the downturn, economists predict that there is going to be some sticker shock at the checkout line. Food prices, they say, are heading higher and when you combine that with an unemployment rate that’s expected to linger near a three-decade high for at least another year, it’s even more unwelcome news.
The U.S. Department of Agriculture expects overall food prices to rise as much as 4 percent in the U.S. by the end of 2010. Yet, some economists think they could climb by as much as 5 percent. Even using the government’s more conservative numbers, the price for eggs is forecast to rise 3 percent and beef is seen increasing 2 percent. Lamb, seafood and fish? All three categories are expected to jump as much as 5 percent.A 5 percent boost in your grocery bill may not seem terribly devastating, but consider this: If you spend $300 a week on groceries now, you’ll need to squeeze a raise of about a thousand dollars a year out of your boss (don’t forget withholding tax) just to keep up with higher chicken, beef, pork and dairy prices. Good luck accomplishing that little feat with a 9.8 percent unemployment rate and companies looking into every nook and cranny in order to cut costs.
Why again are these prices poised to increase?
the weak U.S. dollar means we will be exporting more of our homegrown food overseas, causing prices to rise at home.
The consumer will continue to get squeezed, but the wizards in Washington will be able to pronounce that the overall level of inflation is stable. Really?
-3 + 3 = 0 is not the same as 0 + 0 = 0 !!!
What a world.
LD
