I know there are a number of CI subs here. Like to comment on recent writings and interested in hearing responses. CI references prior support levels for the USD and also prior behavior of the financial markets vs slides in the USD. I think there are a number of reasons to discount this type of a comparison -- even to periods as recent as the late 80's.
First and foremost, is the much larger foreign ownership of the dollar as a percentage of total reserves, US treasuries and US agency debt.
Second, is the size of our current trade and current account deficits.
Third, we have an unprecendented housing bubble which is supported by a much higher nominal level of debt as well as a much higher rate of debt growth required to support appreciating prices.
Because of this, I think the fall of the dollar to-date is already something to be feared and will continue to work great damage, despite any bounce we might encounter.
Also, I don't think we should look to the trade-weighted value of the dollar to be some kind of indicator as to the tipping pt of US financial markets. It is clear that foreign holders and buyers have no "stops." We are in the same boat with the Japanese, and the Chinese, to some extent. It is not a question of how low the dollar goes or how much Yen or any other currency is printed to buy USDs -- it is only a question of when "global printing" fails to mask the real world economic situation -- one of a massive mis-allocation of resources -- that and not a particular level for the dollar is what is key.
I think it will be quite easy to simply watch government debt issuance here, housing prices, employment and consumer spending. Early indications of a turn down in any of these means doom is near.
I think right now, there is already building pressure on the administration to slow fiscal stimulus. War is always a convenient excuse for major fiscal stimulus. 9-11 was a wonderful excuse as well. Absent a new conflict, even before the election there may be some move on the part of this admin to slow spending growth (yeah, yeah, I know -- slow down from what??!! I know, it is pathetic and any slowdown will not be enough -- but it is the perception).
I think consumers have already slowed down. The increase of the ratio of ARMs to fixed rate mortgages and the slowdown in refis will be reflected in consumer spending -- increase in ARMs (i.e. ARM only way to afford the house -- regradless of risk of higher rates down the line) is a sign that mortgages are slowing down permanently, regardless of the direction of rates, IMO.
Even at 0% financing -- take a look at the number of late model cars around you on the highway next time you are out. Only growth in real income can boost spending on autos and where can that come from??
Doesn't mean today is the top, but the early signs of the things to look for are here.
That Benson fellow may be right, that it is global money expansion that counts, but it is also the efficacy of it, too. It must produce more or maintain a given level of consumption and bidding up of financial assets here -- or it will be worthless, no matter what the rate of growth is or how it is measured. |
