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#1
05-08-2007, 08:56 AM
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The Demise Of The Dollar And What To Do About It
NOTE: This is a econ post so it if you aren't into that sort of thing, it's not for you.
If your wallet feels a little light lately, you aren't alone. Nope 300 million of us have a currency that is decreasing and will continue to decrease over the course of the next few years. The dollar has dropped roughly 36% over the past 8 years against the EURO. Mind you the Euro includes "powerhouses" like France where their economy sputters along and unemployment is at 10%. So why is our money declining in value? Well the biggest reason is that Americans do nothing but spend and the big countries of the world finance our credit by buying dollars and trading with us. (In fact we have a -1% savings rate, the lowest in the world) Thus we run a current accounts deficit that is off the charts. Of course those of you with credit cards realize you can keep borrowing----until you can't anymore. That time is coming. The dollar is losing value b/c the realization among countries like China is that they need to diversify their holdings into other currencies and aren't buying them. Meanwhile the strong dollar policy that this country had for decades is gone as Bush became President. What does it mean for you? For one it means asset inflation which is what you are seeing right now in the Stock Market. The DOW has been up 24 of the past 27 days as I write this. That hasn't been seen since 1927. Ring a bell. Then as in now the liquidity of the money supply some 18% worldwide compounded year over year has to go somewhere. For a while it was housing which is now puking its guts up. Now it is in asset prices....Secondly if you haven't noticed the prices you pay for foreign goods are going up and will continue to do so. So putting off that vacation to Europe isn't a bad idea. So how can the FED reserve stop this? Easy by raising interest rates a lot and protecting the dollar. The problem is the economy is actually decreasing quarter over quarter and the housing market will get worse with a rate increase. So the FED is stuck.... What should you do. Well if inflation is going to get worse one of the main things you should do is lighten up on stock holdings for the foreseeable future. Contrary to the rah rah crowd on CNBC, they have a vested interest in seeing you fully invested...The best natural hedge against inflation is buying gold. Not easy to do but if you can buy the physical, 1 ounce Gold Eagles at 7 dollars over spot price(which currently is about 685$) you should do alright. Always buy in cash and find a safe place to store it...not in a safety deposit box. OR--if you do want to invest in the market, buy mining companines which mine precious metals. Tickers AU and GOLD are my two faves right now.....OR if you want to buy into gold but can't store it, its easy. They have a Gold ETF(exchange traded fund) which tracks the spot gold price in NY. Ticker is GLD. Either way, there are a bunch of bright people around here. Just realize what a declining dollar means and how its going to affect you. You'd think it was a great thing according to financial news b/c companies here selling overseas get a benefit.....But its a short lived benefit. And higher prices are on their way, from cars to the grocery store----just keep your eyes open. You will see it. Randall 
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#2
05-08-2007, 12:01 PM
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I'm way ahead of you. Good read.
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#3
05-08-2007, 12:38 PM
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Heavily invested in euro markets. Doing very well.
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#4
05-08-2007, 12:58 PM
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Don't forget to look at how you're planning, too. Since my stuff is almost entirely long-term retirement money, I'm a fan of dollar-cost averaging (putting in a fixed amount every month). When the market is doing poorly, at least I'm getting a better price on what I'm buying. I dread the idea of another huge depression, but since I'm still 30 years, minimum, away from retirement, the stock market taking a hit doesn't have me in a panic. Closer to retirement, yeah; I'd be worried.
And yeah, diversifying.  Apparently, the popularity of the President also affects the dollar's strength- check it out: http://www.slate.com/id/2165579/nav/tap2/ A loose correlation at best, but entertaining reading, anyway. Thanks for bringing this up, Randall. Short term things don't look good. Long term? Well, the Great Depression led to all kinds of changes in policy that created a strong middle class. Took a long time, but most worthwhile things do. Sometimes we need to get slapped pretty hard to start focusing on really changing things. Though I hope it won't come to that.
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Gentlemen! We're burning daylight! Riders up! -Bill Murray
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#5
05-08-2007, 01:22 PM
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GRisk,
That's an interesting chart....Bascially from the end of Clinton on the dollar has weakened. A rally here and there, but the decline is staright down....Notice the high popularity of Bush was b/c of September 11th. It makes sense that a terroist event would lead to an increase in strength in the dollar. It is a "safe haven." But less so than ever before. Last month when tensions between Iran and Britain were high the dollar did nothing at all. Oil went up, but the dollar just sat there.... Even more interesting is that some countries are starting to buy oil off the open markets in Euros. That's unheard of. If the world moves away from the U.S. as its currency of choice for things such as oil pricing, the spillover effect is fewer dollars held in foreign banks....The point to this whole thing is that the rest of the world is tired of our collective shopping spree in this country and can put an end to it in a heartbeat if they want to. If China sold 10% of their U.S. reserves, the dollar would drop another 15%....Keep taming that tiger Fed Reserve. B/c the rest of the world has us by the balls when it comes holding our debt.
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#6
05-08-2007, 01:50 PM
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Quote:
Interesting points you make. Do you have any idea what each penny increase per gallon in gasoline prices really costs? Or what the cost of a 2 trillion deficit war policy costs? Or what the collapse of the housing market costs? Some do. Some don't. After seeing Queen Liz and the Smirker at last night's "white tie affair"...shucks...."Let them eat cake." We're screwed! So are our kids, and theirs, and theirs. Good luck!
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#7
05-08-2007, 02:00 PM
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From Minyanville Today: (an excerpt)
"1. Give the Consumer Credit You have to give the consumer some credit. No, seriously, you have to. Because that's apparently how they're paying their bills. Consumer borrowing increased in March by the most in four months according to the Federal Reserve's Consumer Credit figures. Consumer credit (non-mortgage loans) to individuals increased $13.5 billion, or 6.7% at an annual rate, to $2.425 trillion, the Fed said. Economists were expecting a more modest increase of $4 billion. Use of revolving credit, primarily credit cards, rose at a 9.2% pace in March. That was up from a 2.9% growth rate in February and was the biggest increase since November. Perversely, this is good news for the economy because it shows consumers are willing to do whatever it takes to keep on paying their bills and buying stuff, even if it means turning to higher interest credit cards. According to the Associated Press, consumer borrowing is a sign of "resilience." "Consumers boosted their borrowing in March at the fastest pace in four months, showing resilience in the face of rising energy prices and a painful housing slump," the Associated Press reported. While using the term "resilience" to describe a jump in consumer borrowing largely made up of credit card debt itself violates most tenets of logic, that was only the beginning. "Consumer spending is indispensable to a healthy economy," the AP rightly said. Then the article followed the "consumer showing resilience by borrowing at the fastest pace in four months" observation with this: "The economy grew at an anemic 1.3 percent pace in the January-to-March quarter, the weakest in four years." So consumers "showed resilience" by borrowing at the fastest pace in four months... while the economy grew at its slowest pace in four years? Huh? We don't think this is resilience at all. It's desperation. " http://www.minyanville.com/articles/print.php?a=12773
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#8
05-10-2007, 06:42 AM
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Quote:
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#9
05-10-2007, 08:15 AM
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Quote:
You aren't wrong on stocks but realize that investing in the stock market isn't saving. The idea that stocks go up indefinitely is simply wrong. That's why buy and hold is a fallacy. Those who invested in Cisco in 2000 may get even in 2012 if they are lucky. Also consider that as the value of the dollar gets debased, you need to make a higher % stock gain to offset the decreasing currency. But if you are lucky enough to make money in the market---- most people end up spending their paper gains in stock. Heck, if your stocks are up 10 grand, you feel comfortable to spend 5 grand on a vacation. Meanwhile you haven't sold a thing or saved anything. The only years with a negative savings rate since '32 and '33 were 2005 and 2006. Part of this is unquestionably the wealth effect which in '05 made people spend based on the increased value of their homes. But as home prices have started to decline, you can't cash out on your home anymore and those with ARMs as loans are really feeling the pinch. I guess my point here is that rainy days do happen. So a negative savings rate is really rolling the dice.
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#10
01-04-2008, 08:26 PM
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A Bump
Yes, a Randall sighting. I post only on economic message boards as I've gone back to really what my background is. Love the ponies but I'm transfixed by what a cluster**** situation the economy is in.
This thread was started on May 8th of '07. Since then the dollar has weakened another 8.5%. Oil has gone from 65 to 100. And gold has gone from 680 to 870. The XHB, Homebuliders Index is down by half. All this has happened in the span of 7 months. The pundits like to point to an up market for '07 which is ridiculous. Use the gain against inflation+dollar decline and you'll see you lost money and purchasing power in '07. I have a deli I go to everyday to eat, one of the best in New Jersey. The owner is a close friend. In the span of 6 months his wheat prices doubled. This is unheard of, he's never seen anything like it in his entire life. Look at eggs, milk, etc... The grocery store story I used in my original post simply came about far faster than I ever thought was possible. And realize the rosey inflation figures they like to give you ex out food and energy. Why? Well who wants to hear what real inflation is. Plus, the cost of living increase in Social Security each year is partially based on government figures for inflation and wage earnings....Quite a nice reason to lowball the numbers, right? The rest of the world isn't stupid which is why they are selling the dollar like there is no tomorrow. So what's next? Well you saw unemployment tick to 5% this morning and the market tank. First let me say, I hate using the stock market as a proxy for the economy. Because it is figured in nominal terms, so much of economic weakness is hidden. Plus that unemployment rate is artifically low. Many people have stopped looking for jobs. The birth death model puts about 125,000 new jobs a month to keep up with population growth. Thus, when people get goosed by a decent jobs number they should take that into account. Where do you go from here? Well people scream for rate cuts, mainly to save housing, because people used it as an ATM machine and a negative savings rate with a declining home value = death....That bailout plan on subprime was laughable by the way. It will help very few and simply slow the process of foreclosures. It also makes banks not want to lend with the government able to fix rates whenever they feel like it. Now to the banks. Their balance sheets are an absolute joke. Back in August when TSHTF some of these banks chose to give writedowns in dribs and drabs. Citigroup for instance had an earnings report which literally looked like an Enron sheet, complete with a complete lack of transparency for the amount of derivatives tied to subprime loans. Since August they've gone down the shitter. And who knows what their writedowns will be going forward. I don't. You can hope that the Middle East guys flush with cash will keep cash infusions going to these banks. Give them a floor? Maybe, but its short term. And its not like they'll keep doing it when their investments continue to go down in value which they have. Bank of America gave Countrywide an infusion in August based on an 18 dollar share price. Seemed like a good deal at the time, right? Well now CFC is 8. Not a good return on investment is it. So going forward: The FED cuts but that's not the problem. It isn't a lack of money, its a lack of lending. Who wants to lend from bank to bank when you don't know if you'll get paid? Meanwhile the cheaper money floods the system and raises everything from wheat to meat to oil to gold to fertilizer etc. etc. Truthfully, I am bumping this(and making an appearance) because it is still so important that people realize what is going on in the economy...So if you feel like talking economics with me, I'm looking forward to doing so. It affects us all, no matter what you do for a living. Randall Last edited by randallscott35 : 01-04-2008 at 10:16 PM.
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#12
01-04-2008, 10:51 PM
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I regret that it took a while to find this thread because it is fascinating reading...even for an economic layman. The ticking time bomb in my World is the continuing devaluation of the RMB and the lack of focus that US retailers have given it. All major chains either refuse cost increases or hold "auctions" for low bids and keep assuming that Asia is a bottomless pit of yearly cost decreases. That is so over. The lead paint issues that surfaced this year are just the tip of the iceberg over what will happen in the next 3-5 years as China factories demand currency and labor cost equality. There are three supposedly "immoveable" parties here...the factory, the retailer and the consumer. One is about to give in a big way and everyone will feel the consequences.
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"but there's just no point in trying to predict when the narcissits finally figure out they aren't living in the most important time ever." hi im god quote
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