Got to get rid of this strong dollar......
Got to get rid of the strong dollar!!!
The 1849 gold rush and the 1920's, 1990's bubble have one thing in common--the era of the tycoon. Notice each period is separated by roughly 70-75 years. So the settling news is stocks will be out of favor for the rest of the lives of Baby Boomers. The cycle is over, the buyers strike in stocks is for real. My analysis for DOW 6000 and NASDAQ 850 stands firm. Going forward there will be fewer and fewer Mike Milken's, but more importantly even less of the Henry Blodget's. Another factor will be the unwinding of the strong dollar policy set in place by Rob Rubin. This policy reflected the pure weaknesses in our political and economic system. Economically, the Goldman Sacks veteran Rubin and another Wall Street veteran, Alan Greenspan were under intense political pressure by Bill Clinton looking to revise his political fortune after the huge 1994 landslide loss of power to Republicans. The task was too much or not sound enough for an old conservative from Texas name Lloyd Bentson Baby Boomers wanted stocks to keep rolling in the era of downsizing, and the public wanted a budget surplus. Clinton, ready to lose in 1996 needed whatever Rubin could do as fast as possible. Hence the strong dollar policy.
The strong dollar policy inflates the value of the dollar, creating a pull for foreign investment, inflating asset values at home, and eventually reaching the tax revenue base. The flip side is it hurts exports and ultimately puts competing economies under intense pressure. During the strong dollar years we faced the Mexican Peso crises, the Thai Baht crises that spread across Asia, the Russian currency collapse, and the derivative meltdown at home in Long Term Capital. As foreign investment found the US more attractive, this gave stimulus to offer more and more risky credit within these less powerful economies. A strong dollar policy is created when productivity in the home economy can out pace those abroad. Part of the Clinton plan was technology made affordable through easy credit. It would seem the 1980's S&L crises meant nothing to this former administration, instead the victim became stock investors in the 'new economy'. Rubin's expertise with Wall Street helped influence the era of financing large numbers of software and chip companies-- giving way to the Goldilocks economy since the long term viability of these companies was always an issue.
In the short run we got what we wanted as voters and retiring Baby Boomers had two good years of surplus. But now the productivity numbers are declining as the economy contracts and companies refuse to buy anymore technology. Hence, foreign investment is repatriating to Europe and Japan, deflating the bubble. Just like there became too many miners for the supply of gold in California in 1849, there was too many tech companies chasing a short term political and economic dream of a single but significantly large and influential generation of Americans. The danger of another Great Depression now looms if this failed strong dollar policy stays in place. the 1930's were the result of bad investment policy and bad trade policy. The strong dollar hurts trade, just look at the record trade deficit. We need to export our way out of this recession, given our investment credibility is now shot on Wall Street. No foreign investor burned by the technology bubble will get fooled again. Privately, I believe Greenspan is attempting to influence the unwinding of the dollar , but given his leadership weaknesses not helped by the sideshow fame, I have doubts he can manage it. And he is the Fed Chief for three more years |
