patrick.net

stocks are rising because dollar is falling compared to other currencies. Its all the effect of inflation.

" I wonder why they do not fall " - Actually they have fallen many times. A couple things to consider, many investors are looking ahead which means some of bad news has already been priced in. There will be another fall any time but it probably wont be for the reasons you mentioned. As you say NODs and bankruptcies are on the rise but those are narrow pieces of the market being bailed out. Just six months ago I was wondering if stocks would ever go up .

So, you think my explanation 2. is correct, but it's still crazy. Consider this today's report:

Consumer credit fell by $12B in August instead of the forecast of $10B.

(http://www.bloomberg.com/apps/news?pid=20601087&sid=aO13jMuWf0M4)

Yet, MasterCard rose today by 5.13%, VISA by 3.81%.

And again number of private bankruptcies rise daily.

This is insane.

Because Fed & regulators gave all banks a free pass. Relaxed accounting rules so we can all pretend they are solvent.

In return the banks have slowed foreclosures and in some markets stopped them like Wells Fargo Atlanta recently. Of course they just suspend the process, so your DEBTS and FEES keep climbing.

I predict the head in the sand will be it for about a decade. So we have a stock market that mirrors all this fantasy and does whatever it wants. Stay out, the casino is more thoroughly rigged than it's ever been. You may run out in front of the steamroller and pick up a few nickels here and there, but the driver gets paid whether you get squished or not, so it's better not to take that risk.

Vicente says

Because Fed & regulators gave all banks a free pass. Relaxed accounting rules so we can all pretend they are solvent.

In return the banks have slowed foreclosures and in some markets stopped them like Wells Fargo Atlanta recently. Of course they just suspend the process, so your DEBTS and FEES keep climbing.

This fits with my explanation #1. However, in California there is a huge number of NODs, which means (I guess) the delayed foreclosures are on the way out. They are also in very expensive areas. Still nobody notices.

I predict the head in the sand will be it for about a decade. So we have a stock market that mirrors all this fantasy and does whatever it wants. Stay out, the casino is more thoroughly rigged than it’s ever been. You may run out in front of the steamroller and pick up a few nickels here and there, but the driver gets paid whether you get squished or not, so it’s better not to take that risk.

I still can't believe it gonna take a decade nor even more than a couple of years.

I also can't understand how US stock markets may benefit from dollar crash, since they are mostly based on US consumers.

It's still a riddle to me.

what other inflation hedges do you have ? I can't think of better inflation hedge for long term other than stocks of real good companies which produce something tangible.

Why assume inflation? It's pretty clear we've been in deflation for a couple of years. I cannot understand why people panic about inflation hedge as though it's a bomb that's ticking down to last few seconds. Japan has been in deflation since about 1990, so perhaps it's misplaced optimism that OBVIOUSLY the USA is different and things will turn around any second. I know the bankers love to scare you about inflation so you keep every dollar in circulation every second, why do people buy into this?

deflation !! US dollar can buy more tomorrow for what it can buy today...cannot believe it

Some very large items are cheaper this year than last, with houses being one very visible example. Craigslist and EBay are stuffed to the gills with people trying to get rid of stuff. Wages are stagant or dropping. Furloughs. Unemployment.

Believe it.

going by that theory ...dollar should become stonger not fall like crazy....have been following the news lately
Its hard to imagine that dollar buying power will go up...no way.. wait till all the printed money starts moving around. Stock market just got all the easy money wait till it hits the commodities and else where.

Do you buy Chinese or European goods? I spend very little these days but they are purchased with US dollars so it seems to matter little to me what the exchange rate is.

I don't know about you but most americans buy chinese made stuff from the stores.pretty soon when dollar sinks a lot, we americans need to get our ass off the couch and start producing goods for ourselves. which would mean more work for the same amount of goods in circulation or in other words more work for same pay and lower stadard of living. deflation story is now old.things are going to get expensive pretty soon.

Your reasoning boils down to "just because"

Fact is people with less money to spend CANNOT support higher prices.

For what it's worth, I think it would be a good thing if we got our asses off the couch and started producing goods for ourselves. Work is not a bad thing. Neither is self-sufficiency.

Vicente says

Your reasoning boils down to “just because”
Fact is people with less money to spend CANNOT support higher prices.

don't worry about money ...do you hear the humming sound from the printing press of FED. its late night and the press is so loud i can hear it all the way from another state to bay area :-)

Fake money propping up dead banks, none of it resulting in wage increases. This MIS-allocation of capital will lengthen the process. Without it we might be done next year but carrying a dead body we will stagger for a decade. Consumer-led economy will continue to contract.

For what it’s worth, I think it would be a good thing if we got our asses off the couch and started producing goods for ourselves. Work is not a bad thing. Neither is self-sufficiency.

Agreed. Work is all there is. If you love your work, you understand.

But a lot of people I know prefer easy street. That's what Vegas and Wall St are there for. Sadder still, is that anytime someone is fortunate enough to have made money in the stock market, equity, etc., all they talk about is early retirement or a big house or traveling the world. Same old tripe. Rarely evident is the entrepreneurial spirit that made America so great. No one wants to be uncomfortable or risk losing their ass funding an idea.

But even if every man in the US got his ass up off the couch and got busy out in his garage working on whatever great invention or concept he might have, it likely would not be made in his hometown or even in the United States. That's the rub. Manufacturing has become an anachronism in this country, and will likely remain so. We sold our empire up the river so we could have two for one.

Austinhousingbubble says

and got busy out in his garage working on whatever great invention or concept he might have

Or get your butt sued by patent trolls or corporations with vast portfolios of vague patents.....

That's where your financier comes in. You license the patents. Done all the time. It's actually probably cheaper than paying to patent something yourself, which is a heinously expensive and arduous process.

The "garage inventor" is so 1970's. Get with the now man, we "innovate" financial fraud and export that. We send all our older workers to compete for greeter jobs at WalMart.

…the “garage inventor” is so 1970’s. Get with the now man, we “innovate” financial fraud and export that.

Hehe…yeah, but once the credit crunch is the new reality, I'm hoping small-footprint businesses will outperform the mega-corporations, at least in some niche markets. From my vantage point, excessive liquidity had a terrible effect on long-term corporate strategy. More accurately put, there was no "long-term" with my company; they cannibalized product development budgets in favor of their CRE division. That "innovation" was not only a bad short move, but it ultimately undercut their core business. When execs suppose leverage is their key asset, people and ideas become "old school"--and they moved en-masse on this concept like lemmings. That's just my take on things, but I do wonder how many businesses have a parasitic relationship to leverage…that cannot continue?

michaelsch says

I also can’t understand how US stock markets may benefit from dollar crash, since they are mostly based on US consumers.

US consumers probably pay the same for US goods whether the dollar crashes against foreign currency or not.

But US goods get much cheaper abroad if the dollar crashes, which raises sales for US companies, so that raises profits. So the stock market rises, expecting better profits for US companies that export things. Not sure what companies those are anymore, since we outsourced all our manufacturing to China...

patrick : "US consumers probably pay the same for US goods whether the dollar crashes against foreign currency or not "

Most items we buy are NOT made in US. Most of the stuff we buy are IMPORTS. When dollar crashes..imports become expensive ! The plasma TV, the houshold items in walmart/sears ..etc are all IMPORTS.

its a double wammy...salaries are going down and people need to pay more for the made in china basic stuff in walmart.

There's a phrase about blood & turnips. You may decide you want to raise the price of
your widget and I'll decide not to buy it. My budget is not increasing it is DECREASING.

I believe it's a fantasy to assume that inflation is just a given, just as it's a fantasy for
my landlord to assume they can raise my rent just because that's what they are used
to doing every year. Oh you got used to doing that? Sorry but I won't just sit there
and take it, get used to an empty house or try to entice the next tenant with a
"free month" or other gimmicks which amount to price cut.

Assuming inflation is a GIVEN reminds me of people who just blithely assumed
that house prices NEVER EVER go down.

The foodstuffs you need to live are generally speaking made in USA and denominated in US dollars.

The oil on which we all live is a good question. When it went to $130 a barrel there was a marked drop in usage.

How much demand destruction will occur with rising prices is a good question.

We'll see who is right in a few years.

michaelsch says

I also can’t understand how US stock markets may benefit from dollar crash, since they are mostly based on US consumers.

US consumers probably pay the same for US goods whether the dollar crashes against foreign currency or not.
But US goods get much cheaper abroad if the dollar crashes, which raises sales for US companies, so that raises profits. So the stock market rises, expecting better profits for US companies that export things.

Here I wanted to ask the question you answer in the next sentence.

Not sure what companies those are anymore, since we outsourced all our manufacturing to China…

I hear the whole argument about "good for exporters", but the problem is there is very little we can actually export. If the price of this will actually fall it won't help the exporting companies too much, since their employees and shareholders will still consume a lot of imported goods and services. They will have no choice but raising the salaries and dividends.

Also, what rise the most are financial stocks that prey on consumer credit (like VISA and Mastercard), while consumer credit declines MORE than the forecast.

Actually the US does still export quite a lot. OK you want to raise the price on Chinese toys, we'll raise the price on wheat for export. Tit for tat. And US manufacturing is not dead. We have slipped into 3rd place but are still ahead of Japan, although behind EU & China.

Vicente says

Actually the US does still export quite a lot. OK you want to raise the price on Chinese toys, we’ll raise the price on wheat for export. Tit for tat. And US manufacturing is not dead. We have slipped into 3rd place but are still ahead of Japan, although behind EU & China.

Well, Japan population is less than half of US. Also Japan does not export weapons This is partially a US subsidized market: we sell weapons to let's say Israel or Georgia, but we provide them with military help they can use only for American weapons.

But the main issue is: US exports a lot of high tech/software intensive products. But the companies that create them heavily rely on imported labor. The only reason lots of foreign specialists were ready to come and work in US was the strong dollar. (Even more so when they are telecommuting to USA.)

This can't be fixed without fixing our education system (from middle schools all the way to colleges). Even if it may be done it will take generations.

Do weapons count in our exports? I do not know.

I did find that nearly 15% of our export is simple commodities: cotton, corn, soybeans, etc. According to Wikipedia the leading export is "electrical machinery" but I'm not sure what that constitutes. I envision big machine tools, generators and transfomers but don't actually know.

We export the raw materials that countries like China and Japan lack an abundance of, so that they can craft them into cheap products (in the case of China, anyway) and sell it back to us.

Japan, of course, is unique from China in that they make very high quality durable goods, and do not exploit their work force.

While I agree that we desperately need to improve our educational system, I don't think that lack of adequate education currently makes US-produced software/high tech a nonstarter. First, we still have a number of youngish people (mid-thirties and up) who were the beneficiaries of the great educational system which was set up in earlier times before being slowly dismantled. Secondly, I know plenty of programmers who went deep into high tech with less than a college degree, sometimes barely a high school diploma, though several of them have since managed to complete degrees while working. To an extent, software is something that people can learn quickly. Finally, I've had the impression that the tendency to import high-tech labor had more to do with relative cost than with a lack of skilled or trainable people here. If you can outsource for less, well, it does make business sense to do that. Sort of. It seems to me that there are a number of inefficiencies and hidden costs if the outsourcing relationship is not good. And it seems that some outsourcing firms are wise enough to use their US business as a training opportunity for their employees, so watch out for significant competition from other parts of the world in the next decade or less.

But, yes, better education, K - university, would be great. I'll sign that petition.

Oh, and it would be really great if our students could graduate from university without crushing debt. College debt can lead people do do what pays well rather than what they love or what they are good at. Usually, interest in what you are doing results in better work. I'd like to see a change such that people who love kids can afford to go to college and then work as elementary school teachers, as opposed to taking a better paying job doing something they don't care about at all. Etc, for every other underpaid profession. It would do wonders for the economy.

Vicente says

Do weapons count in our exports?

Sure why not?
General Dynamics, GE, HP, BEA, Microsoft, Lockheed, EMC, Dell, and of course Colt.

You may want to redefine what you mean by weapons.

"The only reason lots of foreign specialists were ready to come and work in US was the strong dollar. (Even more so when they are telecommuting to USA.)"

Dollar had very little to do with it since they are paid in dollars and not local currency. If they stay here too long as guest, they will be taxed as US residents, which then has an impact on employer portion of state payroll taxes, etc etc.
They were hired, because the are cheaper locally. One tenth of US counterpart.

Yes we can still grow our manufacturing/R&D in the US. There is plenty of space and low cost specialist with lots of corporate incentives coming from the Michigan, Southwest and Southern states. Your next boom wont be in California.

“electrical machinery”

also includes tech products like PCs, services, telecom equipment, to electric pencil sharpener etc etc ... pretty much anything needing juice.

Eliza,
they have education, we have education, they have SW engineers, we have SW engineers, they cost less, we cost more.
Do you see the issue here?
You can produce as many engineers as good as theirs, but how do you propose to reducing our expenses to break even ?
Do you want to wait some 50-60 years till their costs increase with inflation to catch up to our wages and salaries?

So, where you think the smart money should go?

michaelsch says

So, you think my explanation 2. is correct, but it’s still crazy. Consider this today’s report:
Consumer credit fell by $12B in August instead of the forecast of $10B.
(http://www.bloomberg.com/apps/news?pid=20601087&sid=aO13jMuWf0M4)
Yet, MasterCard rose today by 5.13%, VISA by 3.81%.
And again number of private bankruptcies rise daily.
This is insane.

Treasury secy has direct line to Wall St bankers
9 Oct 2009, 0203 hrs IST, AGENCIES

WASHINGTON: Even during his most frenzied days, when Congress is demanding answers or the president himself is calling, treasury secretary
Timothy Geithner makes time to talk to a select group of powerful Wall Street bankers.

They are a small cadre of businessmen who have known and worked with Geithner for years, whose multibillion-dollar companies all survived the economic crisis with help from US taxpayers.

When they call, Geithner answers. He has spoken with them immediately after hanging up with President Barack Obama and before heading up to Capitol Hill, between phone calls with senators and after talking with the Federal Reserve chairman, according to a review by The Associated Press of seven months of his appointment calendars.

The calendars, obtained by the AP under the Freedom of Information Act, offer a behind-the-scenes glimpse at the continued influence of three companies, Citigroup, JPMorgan Chase & Co and Goldman Sachs Group, whose executives can reach the nation’s most powerful economic official on the phone, sometimes several times a day.

There is nothing inherently wrong with senior treasury department officials speaking regularly with industry executives, or even with the secretary keeping tabs on the market’s biggest players, even though critics say Geithner risks succumbing too much to these bankers’ self-interested worldview.

“It’s appropriate for treasury officials to keep in touch with those who work in the markets every day, particularly when the economy and the markets are so fragile,” treasury spokesman Andrew Williams said. What the calendars show, however, is that only a select few can call the treasury secretary.

After one hectic week in May in which the US faced the looming bankruptcy of General Motors and the prospect that the government would take over the automaker, Geithner wrapped up his night with a series of phone calls. First he called Lloyd Blankfein, the chairman and CEO at Goldman.

Then he called Jamie Dimon, the boss at JPMorgan. Obama called next, and as soon as they hung up, Geithner was back on the phone with Dimon. While all this was going on, Geithner got a call from Xavier Becerra, a California Democrat who serves on committees that help set tax and budget policies. Becerra left a message.

In the first seven months of Geithner’ tenure, his calendars reflect at least 80 contacts with Blankfein, Dimon, Citigroup Chairman Richard Parsons or Citigroup CEO Vikram Pandit. Geithner had more contacts with Citigroup than he did with Rep. Barney Frank, the lawmaker leading the effort to approve Geithner’s overhaul of the financial system.

Geithner’s contacts with Blankfein alone outnumber his contacts with Sen. Christopher Dodd, D-Conn, chairman of the Senate Banking Committee. Partly this is explained by the extraordinary clout of these companies.

Eliza says

Oh, and it would be really great if our students could graduate from university without crushing debt. College debt can lead people do do what pays well rather than what they love or what they are good at. Usually, interest in what you are doing results in better work. I’d like to see a change such that people who love kids can afford to go to college and then work as elementary school teachers, as opposed to taking a better paying job doing something they don’t care about at all. Etc, for every other underpaid profession. It would do wonders for the economy.

Start by reducing the ridiculous expectations that students have when coming to school now. I hope I don't sound like too much of a crotchety old fart here, but when I went to college WAY back in the 80's the dorms I was stuck in were shared rooms with 2-4 people in bunks, and only steam heating. If it got hot you stuck a fan in the window. We had no cable TV and no ethernet and only a shared kitchen and bathroom PER FLOOR. Now when I look at dorm "suites" with private rooms per student and a kitchen and cable and internet I see where a lot of the money is going. Some of the dorms here at UCD actually have POOLS in the middle of the group of buildings. I helped with "Student Move-in Weekend" and was surprised how many times I was asked to help some freshman set up their TiVo or other gadget. It's ridiculous to me how many colleges seem to have turned themselves into playgrounds. They do this because the students WANT it of course and because Mom & Dad will do whatever little Suzie or Sam wants.

masayako says

So, where you think the smart money should go?
michaelsch says

So, you think my explanation 2. is correct, but it’s still crazy. Consider this today’s report:
Consumer credit fell by $12B in August instead of the forecast of $10B.
(http://www.bloomberg.com/apps/news?pid=20601087&sid=aO13jMuWf0M4)
Yet, MasterCard rose today by 5.13%, VISA by 3.81%.
And again number of private bankruptcies rise daily.
This is insane.

I don't know. In fact, I need to decide on the strategy about my own savings.
That's why I ask these questions.
If we expect very high inflation it's probably the best to buy some commodities. May be silver.
If we are still in deflationary phase - fixed income investments.
If we believe in the sustainable long term recovery within a couple of years - stocks.

Vicente says

Do weapons count in our exports? I do not know.
I did find that nearly 15% of our export is simple commodities: cotton, corn, soybeans, etc. According to Wikipedia the leading export is “electrical machinery” but I’m not sure what that constitutes. I envision big machine tools, generators and transfomers but don’t actually know.

Sure, they do.

Here is an example of these exports, note no Japan on the list:

http://en.wikipedia.org/wiki/Arms_industry#World.27s_largest_arms_exporters