When dollar falls, European exporters count their bruises

LA Times ^ | 17 November 2007 | Geraldine Baum

[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.

[Unassuaged]

I always wondered why ALL lamb I have ever seen for sale is from NZ. NOt like there is a shortage of lambs in the US, is there?

[expat_panama]

--and you'll continue to get nowhere in life as long as you think that saying "not in a recession" is pretty much saying "in a recession".

This conversation is going nowhere too.

[Toddsterpatriot]

Toddster - how’s that BAC looking now?

Up $7 since you asked.

[dollarbull]

Wait until the next phase of the credit crunch kicks in.

Joe sixpack is tapped out, and structured finance products based on credit cards and car loans are going to tank just as hard as the real estate products did.

Credits card debt makes up 19% of BAC loan portfolio.

BAC will be wearing a “2” handle before year end.

[Toddsterpatriot]

BAC will be wearing a “2” handle before year end.

Please keep us current on your call writing and put buying. Thanks.

[dollarbull]

Up $7 since you asked.

Easy come easy go as they say. My target is still sub 30, at which point the yield will be about where it was at the bottom of the S&L crisis, and I may look to pick some up.

[dollarbull]

You said "Bernanke and Paulson are pretty much saying we’re in a recession." I said that's not true, and now you want to change the subject. That's probably a good idea.

What do you say now?

[dollarbull]

Please keep us current on your call writing and put buying. Thanks.

Todd - we're about 50 cents away now on my BAC target...just keeping you posted as you asked. Changed your mind about the dangers of fractional reserve banking yet? LMAO. How do you like $139 oil? Are you making the connection yet? I know it takes some longer than others.

Follow this thread to where I said "BAC will be wearing a “2” handle before year end.". I guess I was a little early. You better hope they don't cut the divy.

[Toddsterpatriot]

It's paid $1.28 since you made your prediction. Just wanted to keep you posted. How did your put buying and call selling work out?

Changed your mind about the dangers of fractional reserve banking yet?

Yeah, the gold standard is much safer. LOL!

[dollarbull]

It's paid $1.28 since you made your prediction. Just wanted to keep you posted. How did your put buying and call selling work out?

Since February, you got a 3% dividend (on $42) and a 27% capital loss? Can you manage my money for me?

I did not end up putting on any shorts in the financials. But 0% since February does beat -24%.

[Toddsterpatriot]

I did not end up putting on any shorts in the financials.

So right and yet no profit. :^(

But 0% since February does beat -24%.

But my portfolio is up since February.

[dollarbull]

But my portfolio is up since February.

How's it doing now? "Up since Feb 2006?"

Don't forget you are measuring your returns in $US - and that measuring stick has shrunk quite a bit.

This entire meltdown in the financial sector proves my point since the beginning that fractional reserve lending is not a viable framework on which to run an economy (works great if you are in the non-productive finance sector). All it does is create boom and bust cycles. The banking sector gets rich on the way up, and then gets bailed out on the way down. Joe sixpack pays the bill. This has been going on for a few centuries now.

[Toddsterpatriot]

How's it doing now?

It's doing okay.

"Up since Feb 2006?"

Yes. Up since Feb 2000. Up since Feb 1990.

Don't forget you are measuring your returns in $US - and that measuring stick has shrunk quite a bit.

The vast majority of my expenses are in dollars. And a chunk of my portfolio is denominated in Euros and other currencies.

This entire meltdown in the financial sector proves my point since the beginning that fractional reserve lending is not a viable framework on which to run an economy

That's why our economy is so much smaller than in 1913, before the Fed? And didn't we have fractional reserve lending, even before the Fed? Even when we were on a pure gold standard?

All it does is create boom and bust cycles.

Like when we were on the gold standard? Got it.

This has been going on for a few centuries now.

We're doomed.

[dollarbull]

Like when we were on the gold standard? Got it.

Fractional reserve banking was practiced during the gold standard years. That artificial credit expansion is what caused the boom and bust cycles back then - same as today.

Not understanding this is what caused you to stay long BAC and other financials into this meltdown. Things are pretty much unstoppable at this point. The limits to exponential growth that always take down credit/debt based systems will not be denied. After things completely meltdown and the $US has been replaced by the Amero, it will be a good time to buy financials again for the long super cycle up the new debt curve.

[Toddsterpatriot]

Fractional reserve banking was practiced during the gold standard years.

Exactly. So banks should hold 100% of their deposits as reserves. It's the only thing that can save us.

Not understanding this is what caused you to stay long BAC and other financials into this meltdown. Things are pretty much unstoppable at this point.

Because fractional reserve banking will cause these stocks to go to zero. Got it.

After things completely meltdown and the $US has been replaced by the Amero,

LOL!

And if they don't meltdown?

[dollarbull]

Exactly. So banks should hold 100% of their deposits as reserves. It's the only thing that can save us.

straw man

Because fractional reserve banking will cause these stocks to go to zero. Got it.

straw man

And if they don't meltdown?

Then you'd be correct, but that would be a 1st. I'm not betting on it.

[Toddsterpatriot]

Exactly. So banks should hold 100% of their deposits as reserves. It's the only thing that can save us.

straw man

What is your alternative to fractional reserve banking? Please spell it out.

[dollarbull]

It's the only thing that can save us.

That was the only part that was a straw man argument.

The 100% reserves requirement is correct. The Bank of Amsterdam was successful doing this for 100s of years. They only fell when they started doing fractional reserve lending.

Of course this means that the role and profits of banks will necessarily shrink. They'll essentially be warehouse, checkbook/bookkeeping services. But that also means they'll not be leaching off the rest of society by creating credit out of thin air and loaning it at interest.

[Toddsterpatriot]

But that also means they'll not be leaching off the rest of society by creating credit out of thin air and loaning it at interest.

Borrowing money and lending it out doesn't sound evil to me. Why does it bother you? And how do you figure they create anything out of thin air? They have to "reserve" a portion of their deposits, they can loan out the rest. At interest.

If you don't want a bank to have your money, don't deposit it there. It you don't want to pay them interest, don't borrow their money. Pretty simple.

[dollarbull]

Borrowing and lending (or lending your own capital) isn't evil.

From previous discussions, I know that you know how fractional reserve lending works - i.e. that the banking system creates money out of thin air and then lends it out to "earn" interest. By creating credit and then charging interest on it, they are extracting wealth from society in the exact same way that a counterfeiter would. The injected credit also has the side effect of fooling entrepreneurs into thinking there are more savings available than there really are. This generates malinvestment - i.e. boom and bust.

If you don't want a bank to have your money, don't deposit it there

A modern day example of the bank of amsterdam (100% reserve) would be goldmoney.com. You can hold $US, CAD, CHF, Euros, gold and silver there. There is no fractional reserve lending. That is where