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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (8200)	2/16/2004 5:55:21 PM
From: Jim Willie CB	Respond to of 110194

The 7 stages of a dollar crisis 'Experts' simplistically tout a weak dollar as good news. No wonder many regular folks are unaware that its dramatic decline could spell real trouble. by Bill Fleckenstein moneycentral.msn.com [ME: a bit simplistic, but a rough outline that makes sense experts simply fail to recognize that the business cycle is broken they fail to understand that reflation initiatives are pulling the world monetary system apart they welcome a US$ correction, but operate on pure blind faith that the monetary system will find equilibrium IT WILL NOT -- THE US$ DECLINE WILL BREAK THE SYSTEM] 7 small steps to crisis Here, then, is my outline of a 7-step process of creating a full-blown crisis. Step 1. Nobody notices or pays attention that the dollar is falling. Step 2. Folks wake up, but they either don't care or rationalize dollar weakness as a good thing. Step 3. The central banks now know they have a problem, but the bankers think the market will obey them. It will, for a while. (This is the step we have now reached and what emerged at the G7 meeting.) Step 4. The dollar now tests everyone's resolve by resuming its decline. The currency markets will not respond to jawboning by finance ministers. Step 5. In this step, the finance ministers are forced to take action. (Think about it. Even if they'd stated that they wanted the dollar to go up, nothing either explicit or implied indicates they'll do anything about what's happening. That will come next.) When they do take action, the market will do what they want -- but only for a while. Step 6. The ministers take some additional action, but it won't be enough, and the currency markets won't do what the ministers want. Step 7. Finally, we'll have a full-blown crisis, and that will be the end game. Along the way to a full-blown crisis, the steps leading up to it may either pass unnoticed or prompt insufficient concern. That is the story of the dollar. Its decline continues to strike many folks as good news. It is only a matter of time before that perception changes. The inevitable crisis will inflict damage, but those who see where we are headed can protect themselves beforehand. To this end, I'll explain where I believe we are in that process. G7's 'lingo limbo:' How low can the dollar go? Recently, the Group of Seven finance ministers met in Boca Raton, Fla., to hammer out a much-parsed currencies communiqué. Why folks take this exercise in semantics seriously beats me. The fact is, even the seven ministers, who are capable of speaking five languages, can't tell you what the heck they mean. Of course, one reason they can't tell you is that their differing agendas make it hard to pretend like they're all on the same page. That said, the foreign ministers probably agree on one point: The dollar is becoming a problem, which is why the gist of their communiqué stated that too much volatility (read: dollar weakness) is not a good thing. What we are witnessing is the unfolding of a dollar crisis. Though its external value seems to be a nebulous concept for many folks, as the dollar's ongoing decline builds to a crisis, it will have a significant impact on the workings of financial markets -- and affect everyone's financial well-being. (For review, please see my past columns: "The dollar's dramatic decline comes out of your wallet”; "The dollar: linchpin to stocks and the economy"; "Face up to the falling dollar"; “Fantasy, the Fed and the falling dollar: Oh my!"; and "The dollar is on borrowed time.") Pssst, Economist: It's Al (Greenspan), not Asia To buttress my claim that we are segueing from the initial stages where no one cares to the next and dicier stages, I'd like to share a few quotes from "Let the dollar drop," the lead editorial in last week's issue of The Economist. Though the writer first takes a why-worry attitude toward the decline, he seems to recognize that all this central-bank dithering can lead to real trouble. So, confusion of conclusions notwithstanding, it's worthwhile spending a minute on the article. Starting with the why-worry theme, the writer argues the nonsensical case that the dollar has, in fact, been too strong. (If that isn't an example of drinking 'em pretty, I don't know what is.) A weaker dollar, he says, "will help to reduce America's vast current-account deficit." Well, I've got news for him. The dollar's slide of nearly 30% from the peak of its valuation two years ago to where it is now hasn't done a whole heck of a lot to reduce the imbalances. A further slide may help some, but it's not going to do a lot, either. So much of our manufacturing has been wiped out as we ship jobs to Asia that we're exporting less and less of what the world wants. Thus, it's kind of hard to fix all these problems simply by having the dollar collapse. / jim

To: russwinter who wrote (8200)	2/16/2004 7:10:51 PM
From: Jim Willie CB	Read Replies (1) \| Respond to of 110194

Sanders hit Greeny hard at H-H, but didnt use my info / jim Representative Bernie Sanders, Independent from Vermont, questions Greenspan at the recent H-H hearing : "Wal-Mart has replaced General Motors as the largest employer in America with over 1 million employees where, instead of earning a middle-class wage, workers earn starvation wages of $13,861 a year - a salary that is below the poverty line. Meanwhile, 4 out of the top ten richest people in America are relatives of Sam Walton, Wal-Mart's founder, and are worth over $100 billion. Thanks to the Bush tax cuts which you supported, the Walton family will have their taxes reduced by more than $145 million. "Last year, you suggested to this Committee that manufacturing jobs in this country don't 'matter.' You said, 'Is it important for an economy to have manufacturing? There is a big dispute on this issue... If there is no concern about access to foreign producers of manufactured goods, then I think you can argue it does not really matter whether or not you produce them or not.' In other words, if we can buy goods from China where workers are paid slave wages to produce the same products that Americans manufacture at $20 an hour, it does not matter. To hell with the American worker. To hell with the middle class. If companies can hire workers in China for pennies an hour, we don't need a middle-class manufacturing sector. Let them work at Wal-Mart for poverty wages and no benefits. "Chairman Greenspan, since you made those comments in July of 2003, America has lost another 146,000 manufacturing jobs. It seems to me that you have the same contempt for the American manufacturing worker as Jeffrey Immelt, the CEO of General Electric, who said, 'When I'm talking to GE managers, I talk China, China, China, China, China. You need to be there. You need to change the way people talk about it and how they get there. I'm a nut on China... .Outsourcing from China is going to grow to $5 billion. Every discussion today has to center on China. The cost basis is extremely attractive.' "Supporters of unfettered free trade, like yourself, have told us, don't worry about the loss of manufacturing jobs. Those jobs will be replaced with high-skilled information technology jobs that pay better salaries, and the displaced workers just need to be re-trained. Wrong again, Mr. Greenspan. Over the past 3 years, we have lost over 540,000 information technology jobs as companies are shipping those jobs to low-wage countries like India and China. And, according to a recent study by the Haas School of Business, 14 million white-collar service jobs, representing 11 percent of the total U.S. workforce, are in danger of being outsourced overseas. U.S. workers who have been outsourced are not moving into better-paying jobs. In fact, industries that are creating jobs in the U.S. are paying salaries that are 21% less than industries that are downsizing and wages for all middle and lower income workers have gone down. But, just yesterday, according to the Seattle Times, the Bush Administration believes that 'The movement of American factory jobs and white-collar work to other countries is part of a positive transformation that will enrich the U.S. economy.' And, according to Bush's chief economic adviser N. Gregory Mankiw, 'Outsourcing is just a new way of doing international trade. More things are tradable than were tradable in the past. And that's a good thing.' "Chairman Greenspan, my question to you is this: do you agree with President Bush and the Chairman of the Council of Economic Advisors that it is a good thing for the U.S. economy to outsource American manufacturing and white- collar jobs overseas? "Chairman Greenspan, as more and more Americans are working longer hours for lower wages, are losing their jobs to cheap foreign labor, and exhausting their unemployment benefits, they are increasingly using their credit cards to pay the bills and put food on the table. This has led to a record-breaking $2 trillion consumer debt which has more than doubled in less than a decade, and a record-breaking 1.6 million bankruptcies, an increase of 125% since 1989. Even though the Federal Reserve has lowered the Federal Funds Rate to a mere 1 percent, the Prime Rate is the lowest level since 1958, and mortgage rates reached a 45- year low last year, average credit card interest rates have gone up since 2001 to 16.4%. In fact, at the same time the Federal Reserve was lowering the Federal Funds Rate, credit card issuers were increasing their average interest rates, resulting in obscene profits. The spread between the average credit card interest rate and the prime rate is now at its highest level in nearly 20 years. "Chairman Greenspan, you recently made the argument that because interest rates are low, the record-breaking $2 trillion consumer debt 'is not a significant cause of concern.' But, since the average credit card interest rate is above 16% with some consumers paying in excess of 25% interest, and credit card issuers are racking up a record- breaking $7.3 billion in revenue from late fees, how will lower and middle-class Americans ever be able to pay off their credit card bills? What happens when the Prime Rate and Federal Funds Rate go up? Won't this break the backs of lower and middle-class Americans?" (from Daily Reckoning)

To: russwinter who wrote (8200)	2/16/2004 7:38:33 PM
From: Haim R. Branisteanu	Read Replies (1) \| Respond to of 110194

Caterpillar, Eaton Exports Start to Ease U.S. Trade Deficit Feb. 16 (Bloomberg) -- Increased exports by companies such as Caterpillar Inc., Sealed Air Corp. and Eaton Corp. are starting to narrow the U.S. trade deficit even as the accelerating recovery spurs purchases of imported goods. ``It's been a real surprise,'' said Edward McKelvey, senior U.S. economist at Goldman, Sachs & Co. in New York. The trade deficit shrank in seven different months of 2003, compared with three months the previous year. The dollar's 25 percent, two-year drop against a basket of currencies of major trading partners made U.S. goods more competitive abroad, and exports jumped 4.6 percent last year to a record $1.01 trillion. McKelvey predicts the dollar will lose 10 percent to 15 percent more in coming months, further encouraging foreign sales. While a surge in oil prices helped widen the trade gap by $4.1 billion in December to a record $489 billion in 2003, economists say the gap will shrink this year. ``The trade deficit is likely to clearly improve'' over the coming year, predicted International Strategy & Investment Inc., a New York-based economic consulting group led by Chairman Edward S. Hyman, in a letter to clients Friday. A narrowing trade deficit may boost U.S. growth by several tenths of a percentage point, said Catherine L. Mann, a former Federal Reserve Board economist now at the Institute for International Economics, a research organization in Washington. An increase in exports means the U.S. is producing more at home, adding to total output and contributing to job growth. The dollar may weaken more against the euro, according to Deutsche Bank AG, the third-biggest dealer in the currency market and most accurate forecaster in the fourth quarter, according to Bloomberg data. Deutsche Bank sees the euro at $1.30 at the end of the second quarter and $1.35 at year-end, from about $1.27 currently. Aiding Caterpillar, Eaton At Caterpillar, the dollar's decline has ``significantly improved our competitiveness'' and aided its U.S. plants that build heavy equipment, Chief Executive Officer James Owens said in an interview Jan. 27. The Peoria, Illinois-based company is the world's largest maker of earthmoving equipment. Cleveland-based Eaton, the world's second-biggest maker of hydraulic equipment behind Parker Hannifin Corp., posted a $3 million gain on foreign exchange transactions in 2003 after an $8 million loss the year before. The U.S. economy may expand 4.6 percent this year, the fastest in two decades, after growing 3.1 percent in 2003, based on the median of 61 estimates in a Bloomberg News survey of economists Jan. 30 to Feb. 6. Turning the Ship The monthly U.S. trade deficit narrowed by $5 billion, or 11.6 percent, between March and November last year, Commerce Department figures show, as the economy grew at an average annual rate of 6.1 percent in the second half. The widening of the shortfall in December was largely because of higher prices for fuel imports, the government said Friday. For all of last year, the trade deficit grew 17 percent. ``Turning the trade deficit around is like trying to turn an aircraft carrier around -- it will take time,'' said Jay Bryson, global economist at Wachovia Corp. in Charlotte, North Carolina. ``By the middle of the year you will start to see smaller deficits as growth in exports outstrips growth in imports.'' Stephen S. Roach, chief economist for Morgan Stanley & Co., is among those who have said a continued widening of the trade deficit -- and of the U.S. current account shortfall, which measures the flow of traded goods plus the interest on investment income -- would make foreigners leery of investing in U.S. stocks and bonds. Eventually, they argue, that may force the Federal Reserve to raise interest rates to attract more money from abroad. Demand Overseas Foreign markets for U.S. goods are strengthening. France's economy expanded by 0.5 percent during the final three months last year, the fastest in six quarters, according to government figures released Thursday, and Germany's gross domestic product grew by 0.2 percent, held back as imports outpaced exports. Germany's shipments to the U.S., its biggest trading partner outside Europe, dropped 10 percent last year through November. Sealed Air, which makes Bubble Wrap and other types of packaging, reported Jan. 28 that its sales in Europe rose 3 percent in the fourth quarter last year while sales in Asia and Latin America rose 9 percent, excluding the effects of currency translation. The company is based in Saddle Brook, New Jersey. Caterpillar builds its largest equipment exclusively in the U.S., so demand in fast-growing regions such as China has helped, Owens said. ``We're still a significant net exporter from the United States, so certainly it improves our competitive position as we compete with manufacturers who are coming from the euro zone or the yen zone.'' `Clearly an Impact' Eaton said its earnings last year benefited from an increase in U.S. shipments abroad and the dollar's decline. The Cleveland-based company's fourth-quarter net income jumped 70 percent to $114 million on a 17 percent rise in sales to $2.08 billion. ``We have a weaker dollar, which is helping companies export, and that's been in place for over a year, and it's clearly having an impact,'' Chief Executive Alexander M. Cutler said in an interview Jan. 21. The sales growth of 17 percent last quarter included 7 percent from acquisitions, 4 percent on currency gains and 6 percent from higher demand. ``They reacted early to the downturn and put the pieces in place so a little bit of volume growth produced strong results,'' said Mark Koznarek, an analyst at FTN Midwest Research. Chicago-based Boeing Co., the world's second-biggest airplane maker after Airbus SAS, said it delivered 11 aircraft orders to foreign customers in December after shipping 15 the previous month. Semiconductors Companies including Cypress Semiconductor Corp. are stepping up production to keep pace with foreign demand. Cypress, a San Jose, California-based maker of chips used in video-game consoles and mobile phones, is shipping more than 60 percent of its products abroad, Chief Executive T. J. Rodgers said in a Dec. 26 interview. ``We used to aspire to ship 51 percent offshore,'' Rodgers said. ``The biggest growth area is Asia.'' The National Association of Manufacturers, a Washington-based U.S. industry trade group, said Friday its tally of manufacturing exports showed a surge to an annual rate of $581.1 billion during the final quarter of last year, a gain of $26.3 billion, or 4.7 percent, from the third quarter pace and the first significant rise in three years. The total U.S. trade deficit probably will ``improve noticeably by about the middle of this year,'' said Frank Vargo, a former acting assistant secretary of Commerce who serves as the group's vice president for international economic affairs. `Helping Our Customers' ``The weaker dollar has helped a lot of our customers,'' said Matthew Rose, chief executive of Burlington Northern Santa Fe Corp., the second-biggest U.S. railroad. In January, the Fort Worth, Texas-based company reported that its fourth-quarter profit increased by 12 percent. Tennant Co., a Minneapolis-based maker of industrial and janitorial floor maintenance equipment, reported increased exports to Europe and other foreign markets during the fourth quarter because of the dollar's decline and strengthening economies abroad, Janet M. Dolan, president and chief executive, said in a statement Feb. 5. Dolan said exports to Europe rose 21 percent from the fourth quarter of 2002 and shipments to other foreign markets gained 19 percent. While the dollar's decline against the euro accounted for an 18 percent jump in net sales, ``our expanded sales and service coverage is resulting in real volume growth,'' she said. Pain for Europe The drop in the dollar is hurting European companies that compete with U.S. businesses because it makes the prices of American goods more attractive in Europe. Lego A/S, Europe's largest toymaker, reported a record pretax loss in 2003 amid tougher competition and the dollar's decline. The Danish kroner is pegged to the euro. ThyssenKrupp AG, Germany's largest steelmaker, said Friday that earnings at its stainless steel division plunged 46 million euros to 3 million euros, hurt by higher nickel prices and the dollar's drop. ``Although the weakness of the U.S. dollar slowed the (raw material) cost increase, it also had a negative impact on the companies in the euro zone,'' the company said in a statements. ``The unfavorable currency parities caused a reduction in net revenues for exports and at the same time increased import pressure on our key European markets, Germany and Italy.'' quote.bloomberg.com