Maybe you can get a solid-gold "spade" bit.
Blade shown here in plebeian "steel."
Posted on 11/25/2006 6:00:55 AM PST by hubbubhubbub
While Americans were busy digesting their Thanksgiving feasts, the rest of the world was barfing up dollars. As a result of our massive trade deficits, foreigners certainly have their bellies full of them. This week’s action in the Forex markets indicates that they may have finally eaten their fill. Unfortunately, the bad taste will likely linger as the dollar’s rout has only just begun.
As American consumers hit the stores this black Friday, few will have noticed that the most significant mark-down occurred in the value of their currency. If anything can be said to have been blackened this Friday it’s the U.S. dollar. While the media remains focused on the dollars Americans are irresponsibly spending, the real story lies in the loss in value of those dollars that foreigners are foolishly saving. The losses are particularly more pronounced among foreign central banks, most notably China, whose foreign exchange reserves, the vast majority being U.S. dollars, recently eclipsed 1 trillion. When foreigners finally decide that they have had enough, their reluctance to accumulate additional dollars will mean that America’s perpetual shopping spree will finally come to a screeching halt.
This week the U.S. dollar was carved up like a Thanksgiving turkey. Against the Swiss franc, Euro, British pound, and Japanese yen, the dollar lost 3%, 2.2%, 2% and 1.8% of its value respectively. To put those declines into perspective, in terms of the Euro the Dow Jones’s 60 point plus decline this week translates into the equivalent of a 320 point decline when measured in euros. In fact, year to date the Dow is only up by about 3.5% when priced in Euros, compared to its 14.5 % advance when measured in depreciating U.S. dollars. From its high in 2000, the Euro price of the Dow is down by over 27%. In terms of gold, the world’s only legitimate money, the picture is even worse. Priced in gold the Dow is off better than 50% from its 2000 peak, and actually down over 7% thus far this year. So much for Wall Street’s phony rally!
At the risk of over using the term, one conundrum is the relative strength in the bond market given the dollar’s recent weakness. From our creditors’ perspectives, the only thing worse than holding dollars is holding future claims to dollars, which is what bonds in fact represent. When foreigners begin factoring ten percent plus annual dollar declines into U.S. bond yields, bond prices will head south fast.
It also never ceases to amaze me how U.S. investors can be so fixated on stock prices yet remain oblivious to what those prices actually denote. Stock prices of course represent quantities of dollars. Therefore, true stock market values actually depend on the purchasing power of the dollar. Concentrating on the former while ignoring the latter is one of the biggest mistakes most investors make.
Unfortunately the technical outlook for the dollar, and by extension that of the entire U.S. economy and the financial markets it supports, is rapidly deteriorating. The dollar Index, now trading near 83.5, has broken though some key support levels and the next test will likely be its all time record lows of just under 80. If that test fails, as it most likely will, look out below. Once the dollar moves into uncharted territory, the selling could intensify, with the dollar index trading below 70 in short order. My ultimate target for that index is 40, which would literally cut the dollar’s value in half. I think the entire move could occur in just two years. Again, putting that decline into perspective, it is the equivalent of over a 6,600 point decline in the Dow. Of course this assumes the Fed finally gets religion and Congress and the President heed its sermon. If not, and hyperinflation ensues, the dollar index could fall far lower, perhaps even breaking into the single digits before bottoming out.
Don’t make the mistake of thinking that this is somehow a problem for foreigners. It is Americans who will feel the losses the greatest, as it will result in substantial increases in both consumer prices and interest rates, and in declining assets prices, particularly for residential real estate. In the other words, what we own will be worth a lot less and what we need to buy will cost a lot more.
Gooooooollllllllllld!
Can't even get a mortgage these days for less than 10% interest.
/S/
Anybody out there who doesn't like their dollars can give them to me.
I'll trust the bond market before I trust anyone from Financial Sense University.
Plastics.
Plastics?
Do you mean Mastercharge and Bankamericard?
LOL
Talk about names from the past.
I foolishly spent money yesterday on a great cordless drill - nearly 50% off.
So when everyone is broke and digging for grubs and gold with sticks, I'll be digging with my rechargable new cordless drill.
WOW! Wadja do? Read a history book?
"As a result of our massive trade deficits, foreigners certainly have their bellies full of them."
Awwwwwww come on,it's just the trade deficit.Nobody really cares about that.It's never been an issue before so why worry about it now? Excuse me I hear there's a new boatload of tv's coming in from China and I want to get to the store before they're all sold out,Christmas is only a month away !!!
"Moichandizng", "Moichandizng"!
Maybe you can get a solid-gold "spade" bit.
I just came back from about a month in China. They have the same philosophy as you. They are willing to take it if you got it and if no one was watching. American greenback still seems to be the king.
The people at Financial Sense make some interesting points sometimes, and there are some sharp individuals ... but they allow their politics to guide them around; they're hide-bound democrats.
There is only one reason for the trade deficit. We have more money to buy their goods than they have to buy ours. You could, of course change than by doubling taxes and taking away our money.
Contrary to conventional wisdom, the Chinese yuan is a very over-valued currency, not under-valued.
The irony of the U.S./China currency situation should be clear to everyone who reads this article. By pegging the yuan to the dollar, the Chinese government has basically hitched its wagon to the U.S. economy -- and the yuan will rise and fall against all other currencies in the world based entirely on the strength and weakness of the U.S. dollar.
Your insight is astounding. Where would we be without you?
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