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Cacique's Recomended Reading List for week of November 12, 2007
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Posted on 11/17/2007 10:16:45 AM PST by shrinkermd
The euro's rise and dollar's slide are squeezing European exporters' profits or multiplying their losses, prompting layoffs and plant closings. Companies are not only curbing production of goods headed to U.S. buyers but also rethinking the way they do business.
The euro recently passed the record $1.47 mark, gaining 11.5% since the beginning of the year against the greenback. It closed Friday at $1.46; a dollar bought 0.68 euro.
Most emblematic of the problem has been the impact of the euro-dollar relationship on the aeronautics industry -- and particularly on France's Airbus, whose main rival is U.S.-based Boeing.
With a falling dollar making Boeing's products cheaper outside the U.S. and Airbus' more expensive, Louis Gallois, chief executive of Airbus' parent EADS, recently described the sinking U.S. currency as a "sword of Damocles" hanging over the company's future. He vowed to cut an additional 1 billion euros in operating costs by 2010 or 2011.
This would mean more layoffs at a company that is already purging 10,000 jobs, a decision made when one euro equaled $1.35.
Survival strategies
Less dramatic but no less crucial is the impact on other European companies that export sophisticated equipment, technology, cosmetics, cars and luxury goods. For firms that make a large portion of their sales in the United States or compete with firms that deal in dollars, survival depends on raising prices, cutting costs or hedging currencies.
The strong British pound, moribund Japanese yen and undervalued Chinese yuan also play roles in this tale of currency chaos, from a European exporter's perspective. Nearly every day, another company announces more lost earnings and job cuts and blames the currency commotion.
(Excerpt) Read more at latimes.com ...
I am told that upwards of 40% of the earnings of the S&P 500 result from our exports of goods and services. It is possible that we are on the verge of becoming the next great export machine.
A devalued dollar is not all bad. Unless your a tourist.
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Cacique's Recomended Reading List for week of November 12, 2007
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I was in the store just yesterday to have a watch battery replaced in a Swiss Breitling.
Yesterday that watch was being sold for just about twice (two times) its year 2000 price tag.
As a sidenote, the Swiss watch brands (Omega, Rolex, Breitling, Tag) seem to have done a good job combating the Chinese ripoffs (one of which I’m now wearing). Looks like they cuffed all the dealers selling to the Internet grey market, and at the same they have a very heavy campaign saying in no uncertain terms that “Watches bearing our trademarks are not sold on the Internet and such merchandise should be assumed to fraudulent and illegal. We will not honor the warranty of any watch not sold by one of our authorized dealers.”
Absolutely. This will break the Euro and the EU. Asian currencies (HK Dollar, Chinese RMB, Japan’s Yen, South Korea’s Won, Taiwan’s Dollar) are all pegged, or kept very close to the US Dollar. Meaning that our primary import sources - Asia - aren’t any more expensive than they were in the last few years.
Unfortunately, the EU is getting crushed. Germany was the only real exporter of note, and they’re getting whacked by the US. Sales and production of the German companies inside China is dropping like a rock, in favor of the US sources, because of the pricing. Exports of Germany are drying up worldwide.
A broken Euro, and a dissolved EU will ensure that the US stays the pre-eminent economic power for the next 100 years. And the Asian companies have hitched their wagons to our fortune, not the EU...
So he backed off, and now those imports are 40% more expensive just due to the exchange rate.
Pretty smart for being such a dumb President — and there hasn’t been peep about this until now.
If we could only adopt a fair tax so tourists to America could help with the tax base by having sales taxes and maybe even VATS on luxury items.
It is the strong dollar which over many years put a constant pressure on manufacturers to move abroad, which made exports expensive and imports cheap. The strong dollar made US made goods sold abroad more expensive even outside the Dollar/DM/Franc/etc zones. A weaker dollar is for us “long term” a good thing.
Currencies for a long time were fixed. Many nations played currency devaluation games for many years and even today China pins its currency at a low rate in order to stimulate exports and growth. The fact of the matter is that the dollar was and largely remains the international currency for exchange in oil, gold, cesium, and near all strategic resources etc. This inflates the value of the dollar, since currency itself like any other commodity on a market has a supply and demand. As the Euro rises in importance as an alternative to the US dollar in international trade, it too will experience the upward pressure in value as it becomes an internationally recognized trade and reserve currency.
Years ago during the oil crush, OPEC offered the then reigning Schmidt in Germany to switch to the Deutsche Mark as the exchange currency for oil. Schmidt declined, and this was very smart, since it would have bankrupted the German economy within a decade. For years the foreign conspiracy theorists and especially those on the left were full of envy and arguing that the US intentionally is overvaluing the currency and manipulating this and that in some grand conspiracy of course. It is ironic, since as so often when looking at leftist dogma, exactly the opposite is true. The dollars' extreme high value was hurting us. At one point the dollar spiked over DM3.60:1US. You had privates in the Army buying brand new top of the line Audi's. What such a situation does long term is cause foreign made cars, washing machines, kitchen appliances, TVs etc. to be extremely cheap in comparison to their US manufactured goods. Despite the US having one of the highest per capita productivities, favorable labor laws, a skilled labor force, sound infrastructure, political stability, a judeo-Christian work ethic/culture, transparent laws and low corruption, permissive legal framework, cheap resources (water, power etc), and a broad range of geographic, climate, etc. that may be necessary for certain activities; firms in Europe and Asia were so much cheaper to produce in that US manufacturers shut down shop in the US and moved abroad. A US TV manufacturer such as Zenith simply could not compete in such a world.
The creation of the Euro no longer allows nations like Italy to play the currency game. Something they did all the way into the early 90s. At the same time the US is clamping down more and more on those who do play these games, such as China. Under the Clinton administration there was no concern nor talk about the currency pinning of the Chinese, yet it was a reality. A free floating exchange rate, and a fair valued dollar only works in our advantage. More value is not always better. Some in the EU are beginning to figure this out now. I wonder how they will twist the conspiracy theory now?
Long term, having free floating exchange rates, many of those who for years were banking their economy on exports will find the US a much more competitive marketplace for their goods and services. Already today this reality is beginning to hit home and many foreign firms are feeling the crunch. Many years ago simply chose a path where they accept lowered profits in order to maintain market share in the hopes that the exchange rates are simply fluctuating. At this point it is near evident that the US dollar has readjusted lower and will remain there long term. Firms such as BMW which years ago set up shop in South Carolina were smart. They saw the hand writing on the wall, and they will deal well with the new era of a weaker dollar with little impact.
Long term what you’ll see is a trend that reduces trade deficits and increases US exports. You’ll see more firms targeting the US market, basing their production, or at least a greater share thereof, in the US. But this is all long term, very long term. As the dollar declines and the Euro rises you won’t see immediate changes, but already today you’re seeing some take this trend.
Those who are weathering the changes in exchange rates out well, are the the ones who years ago saw the handwriting on the wall, and began basing a large degree of production in the US.
Do they count cars that are made and sold here but owned by a foreign company as imports/exports?
The problem in not the loss of the American market for their products. The problem is loss of world markets for their products. American industry has loading docks overflowing with product to be containerized and shipped to Africa and Asia to customers with long relations to Euro vendors. Americans are being worked 7 days a week to keep up.
It is the main thing keeping the US out of recession right now. With our housing industry in a near stand still, companies that rely on exports are thriving and are reporting strong profits.
Vanderbuilt and Carolina???? eeewww!
My nephew, a fellow wolfpacker from Tennessee, works for BMW and will spend 18 months in Germany in training.
bttt
Vehicles made by BMW in South Carolina are not counted as imports. Some, in fact, are exports: I understand that the Z4s (2-seat roadsters and coupes), made only in South Carolina, are popular in Europe.
As the article notes, the X5 SUV is made only in SC, and the smaller X3 SUV will be transferred to SC soon. So, BMW, whether by luck or crafty planning, is offsetting the dollar's weakness by ramping up its US production. Still, I'm sure that a large majority of BMWs sold in the US are made in Germany. The large 7-series, the midsized 5-series, and the smaller 3-series sedans, coupes, and convertibles are made only in Germany, and I'd be surprised if that changes in the near future.
This is all nonsense. Comparative exchange rates are a market symptom and the drop in the dollar reflects declining demand for our products, services and currency with respect to our own demand to import the same from abroad. That an imbalance has existed is not a positive reflection on our economy.
My biggest gripe about American products is not cost, but the really junky quality, from prepared food, to daily table wine, to kitchen ware, to consumer electronics to passenger automobiles, a market that Detroit as for all intents abandoned. I often make decisions to pay much higher prices for imported goods because I believe they are of higher quality.
The only thing that I buy that is made in America is fresh food and computer equipment, and even then, scanners, etc. are Japanese.
The problem is that Americans long ago lost the talent for designing and producing products that: a. meet the needs for which they were designed b. are of a quality that they don't rust, bend or break in normal expected usage, c. are attractive in appearance d. provide any sort aesthetic enjoyment, such as having attractive lines, pleasing colors or pleasant and appealing taste. e. If food, tastes good.
I even find myself buying French butter because it tastes a whole lot better.
Apples - good old red delicious have been bred to the point that they are mushy and tasteless and our supermarkets now feature fuji and gala apples from New Zealand among others. When we are not even self-sufficient in apples we have taken a leap off of a high bridge with nothing but rocks underneath.
Ever compare Idaho lamb (so they call it, but I swear it is mutton) to New Zealand lamb. Not even close. My supermarket does not even bother trying to carry the former any more.
Well, I guess it’s not bad, unless you need to buy (or are forced to buy) goods mainly coming from overseas. And then, it’s not good if it gets to the point where the entire currency goes into collapse (supposedly — then — promoting the new “Amero” [out the window goes U.S. sovereignty])...
A collapse of the U.S. currency with everyone moving out of it and dumping it won’t be a pretty sight and won’t be helping too many people in this country — just the ones overseas who get to buy up all the businesses and other assets at bargain prices and then continually ship their money out of the country from then on...
I don’t think it bodes well...
A good read. You definitively state the case for a weak dollar. A little tackling of tariffs and government subsidies and the US could be the nexus of the global economy til the end of the century.
I was reading an article in the WSJ today that 90% of ‘new money’ being put into Mutual Funds are going into International Funds. Only 10% Domestic. 5 years ago it was reversed. Basically, it was saying that Americans putting money into overseas companies are one of the main reasons for the dollars decline.
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