Oil Diller, Oil Dollar
If you arrived here from Blogcritics, welcome! Read on for the supporting quotes.
All of you 12 o’clock scholars out there are probably still celebrating the rise of the Dow to 14,000 recently. If you were watching Fox “News” that day, you would think that we were back to prosperity with no end in sight! Two Mercedes in every garage! Two chickens in every pot!
But you would be well advised, based on yesterday’s drop, not to count your chickens before they hatch.
There are many people out there pointing to many signs that everything isn’t rosy in the economic world. Anyone who has bothered to hear what the rest of the world is saying and doing would abandon all the party celebrating Bush’s economic wreckage and begin to head to the life rafts, for the iceberg is dead ahead of the Bushtanic and the lookouts see it. But no matter how loudly they shout, the revelry from the Wealth Party drowns out the warnings to the helm. For those of you who aren’t enraptured revelers, I’ll relate what is being said.
Mere citizen Ronald Blais of Center Barnstead, NH, wrote a July 20, 2007 letter to The Concord Monitor editor which asks the pertinent questions:
Do these people realize that part of the reason for this [$3 per gallon cost for gasoline] has been the steady devaluation of the U.S. dollar versus the Euro, U.K. pound and Canadian dollar? Since the cost of a barrel of oil is priced in U.S. dollars, the Saudis, Brits, Canadians and Norse need to charge a higher price in order to just stay even.
Those with deeper economics educations see that lesson being learned by some, as Nick Raich, director of research at National City Private Client Group, reports: “As people start to absorb the numbers and start to see the second-quarter numbers aren’t good as the first quarter, that starts to create some pullback a bit.”
And who are these people who will be absorbing those numbers? Martin D. Weiss, chairman of The Weiss Group, notes:
“The world’s biggest owners of U.S. bonds are not American residents. They’re in Japan, China or Germany. And every time the dollar falls, those investors lose money.”
There may well be a move underway toward the exits. The Sydney Morning Herald opined this morning:
“Yes, we have a US dollar rout. The markets have begun to discount a nasty crunch in the US as the subprime debacle spreads through the credit markets. The prospect of rate cuts by the Federal Reserve is knocking away the US dollar’s yield prop. Investors have switched to the euro as the default currency.”
Needless for those who are in the know to discover, the Euro soared to a new record high against the dollar yesterday, followed by the U.K. Pound and the New Zealand dollar. Another Anglophonic nation’s currency didn’t reach new highs, but is still in that neighborhood.
Dr Weiss adds: “The dollar has plunged to a 26-year low against the pound, a 30-year low against the Canadian dollar, and an all-time low against the euro. The dollar is falling against the Brazilian real, the Mexican peso and even the currencies of smaller, previously impoverished countries.”
Dr. Weiss also points out in this article that of 194 nations in the world (192 UN member nations and 2 non-members), 102 of them have trade surpluses with the United States. These include such economic powerhouses as Bangladesh, Nicaragua, Botswana, Swaziland, Malawi, Zimbabwe - and even the small French outpost in Antarctica.
As Dr. Weiss recalls in another recent article:
Years ago, if we suffered a dollar decline of this breadth and depth, policymakers in Washington could quickly come to its rescue. They could dig into a rich stash of foreign reserves. They could consistently buy up dollars in foreign exchange markets. And they could make a solid effort to support its value.
But now, that option is virtually out of the question. America’s reserves are too slim; its foreign debts, too large. The U.S. Treasury Department simply cannot afford it.
So, as militarily muscle-bound as the United States is, we are an economic pushover, a ripe target for the world’s beach bullies to kick oil sand in our faces. All of those foreign investors aren’t as stupid as too many Americans, so they will be heeding the advice of one of Dr. Weiss’ colleagues at Money and Markets, Larry Edelson, who advises, “Go East, Young Money!”
I can’t understand why anyone would want to invest heavily in the U.S economy right now.
In my opinion, most U.S. stocks are overvalued right now. They’re trading at the kind of price-to-earnings ratios we saw back in the heyday of the bull market, just before the 2001 collapse. Even though U.S. stocks appear strong, I don’t like the downside risk. At best, I think the Dow can get as high as 14,500, for an additional 700-point gain. On the other hand, I put the downside at 11,000, a whopping 2,800-point fall.
Put another way, the Dow’s downside risk is now four times greater than the upside potential. That’s not the kind of market you want to be in!
There is much to support Edelson’s contention. The Chinese renminbi reached a new post-revaluation high versus the US dollar on Thursday, and the Turkish lira was up, although not to record levels. But the hits just keep on comin’!
The Philippine peso reached a seven-year high against the dollar, the Indian rupee on Friday ended trading at a nine-year high against the dollar, and the Thai baht remained at a 10-year high against the US dollar despite the central bank’s interest rate cut aimed at curbing the local unit’s too-rapid rise.
In addition, the Malaysian Ringgit is up versus the dollar, and the South Korean won reached its highest exchange rate of the year against the US dollar Friday. The won has gained about one percent against the greenback this month alone, leading to observations that the won-dollar pair may test levels last seen prior to the 1997 Asian financial crisis as early as next week.
But the best indicator of the lack of international investor confidence in the dollar comes from this article:
Gold prices in dollars were up sharply in London, Zurich, and Hong Kong.
Do you notice that there is a slant to the deck that wasn’t there before?