Its been awhile but I have been busy with more pressing matters, like watching the Bin Laden stories. Great result of a 10 year quest but the story keeps changing. I am positive we killed him but eventually it will come to light that some pastry chefs came in for revenge. Whatever...
Last weeks initial claims number came in rather high but the spin masters have qualified with several one time events. Even so, the jobs added (Non-farms payroll) was close to 200,000. We are slowly adding jobs but not at the right pace to bring the U-3 rate down which ticked up to 9%. This has been one long slog, hasn't it?
When is inflation temporary and when is it persistent? When I hear Bernanke talk about transitory inflation it drives me crazy. My gas and food bills have doubled of late. I guess once the job market starts to really ramp up and wages go through the roof is when the Fed gets worried about inflation. Frankly, $4.00 gas starts to take spending away as far as I am concerned.
I am buoyed by the fact that the commodities complex all crashed last week. There was quite a bit of speculation or "froth" in those markets especially silver. In certain cases though, the fundamentals didn't really support the decline. Demand remains for our grains and meats and the supply outlook for this growing season has some serious questions. Stay tuned as I suspect the weak hands were washed from the market and the bulls will return.
Good luck out there and keep an eye out for the economic reports this week.
Sunday, May 8, 2011
Thursday, November 11, 2010
Currency Wars
In my last post, I referred to the yuan. The U.S. has been quite critical of the currency controls imposed over the Chinese currency, the yuan or renminbi. The currency is not allowed to float in the free market. Some currency experts and our government believe that the currency is artificially low, hurts US product overseas and makes Chinese goods real attractive in terms of cost.
The argument has merits and does make sense as the Chinese has the largest foreign currency reserves in the world. The economy (China's) is primarily driven by exports. It is in their best interest to keep their currency low so their goods are cheap. While I support removing these restrictions, our lovely Fed decides to shoot holes in the ship. With the Fed's announcement of $600B in quantitative easing along with the trillon or so already, our dollar value has weakened significantly this year against most major currencies. Canadian dollar at parity? Yen approaching 80? English pound back up to 1.60? While this has helped our exports (shrinking trade balance), it is driving up the basic cost of commodities (inflation). When was the last time we saw corn at close to $6 a bushel? Now our President is forced to listen from G-20 ministers about our own currency manipulation this week. Their are other ways to work on free trade but this tit for tat isn't working. The Chinese will only respond to real threats like cheaper goods from Vietnam or India, loss of competitiveness to name a few items. Wake up! Have a great week and maybe we can revisit an old post I had about gold. Cheers.
The argument has merits and does make sense as the Chinese has the largest foreign currency reserves in the world. The economy (China's) is primarily driven by exports. It is in their best interest to keep their currency low so their goods are cheap. While I support removing these restrictions, our lovely Fed decides to shoot holes in the ship. With the Fed's announcement of $600B in quantitative easing along with the trillon or so already, our dollar value has weakened significantly this year against most major currencies. Canadian dollar at parity? Yen approaching 80? English pound back up to 1.60? While this has helped our exports (shrinking trade balance), it is driving up the basic cost of commodities (inflation). When was the last time we saw corn at close to $6 a bushel? Now our President is forced to listen from G-20 ministers about our own currency manipulation this week. Their are other ways to work on free trade but this tit for tat isn't working. The Chinese will only respond to real threats like cheaper goods from Vietnam or India, loss of competitiveness to name a few items. Wake up! Have a great week and maybe we can revisit an old post I had about gold. Cheers.
Friday, October 1, 2010
Class Warfare
Its been awhile since my last post in May. I wanted to enjoy the summer months with the family. There is so much to discuss but I wanted to touch upon the issue of taxes.
As everyone in the US knows, unless Congress acts, the lower tax brackets and rates on investment income will go up starting on January 1, 2011. What that means is your withholdings will go up in your first paycheck of the year. Now Congress decided to address this issue after the elections. This election cycle seems to be just as charged as the 2008 one. Normally, I don't get fired up about taxes until April 15th but the ire is raising again.
Tax debate always lands on the rich vs. the poor arguments. Wealth redistribution and how the rich soaks the poor always come up. I have grown tired of these arguments. Why do we demonize successful people in our country? The tax code is currently set up on a progressive scale. You make more, you pay more. A large majority of tax revenues are paid by the richest Americans. There is a large majority of Americans who pay zilch, zero, nada. I believe that one underlying issue that gets people like me upset is that our government has shown that they aren't good stewards of our tax dollars. The spending decisions have become free for alls and the issue of earmarks was a hot potato for awhile.
There have been many proposals to overhaul our tax code but no consensus has been reached. If they do come up with a more simplified version, the underlying issue remains. Over the last several years, many Americans took necessary actions to get their financial houses in order, let's have our government do the same. Next post, we'll talk about this silly China yuan issue.
As everyone in the US knows, unless Congress acts, the lower tax brackets and rates on investment income will go up starting on January 1, 2011. What that means is your withholdings will go up in your first paycheck of the year. Now Congress decided to address this issue after the elections. This election cycle seems to be just as charged as the 2008 one. Normally, I don't get fired up about taxes until April 15th but the ire is raising again.
Tax debate always lands on the rich vs. the poor arguments. Wealth redistribution and how the rich soaks the poor always come up. I have grown tired of these arguments. Why do we demonize successful people in our country? The tax code is currently set up on a progressive scale. You make more, you pay more. A large majority of tax revenues are paid by the richest Americans. There is a large majority of Americans who pay zilch, zero, nada. I believe that one underlying issue that gets people like me upset is that our government has shown that they aren't good stewards of our tax dollars. The spending decisions have become free for alls and the issue of earmarks was a hot potato for awhile.
There have been many proposals to overhaul our tax code but no consensus has been reached. If they do come up with a more simplified version, the underlying issue remains. Over the last several years, many Americans took necessary actions to get their financial houses in order, let's have our government do the same. Next post, we'll talk about this silly China yuan issue.
Wednesday, May 19, 2010
Greek Salad
Why is this situation with Greece such an issue? Greece is such a small player in the grand scheme of the Euro zone. Ignoramuses like me seem to think its a lot of hoohaa over nothing. Let's dive below the surface!
The euro zone is a compilation of countries in Western, Eastern, Northern Europe. All of them share the same currency and have a "central bank", the ECB. Unlike the U.S., when one of them gets in trouble, they can't just print money like we do, nor can randomly issue government debt. They have to approach the ECB or the finance ministers for help. What is spooking the market lately is the issue of debt and possible issues with the other problem children in the zone, which is cruelly called PIIGS. PIIGS is Portugal, Ireland, Italy, Greece and Spain. Another fear is that the U.S. could be subject to the same sort of panic and need of bailout.
While our debt (over $12 trillion and counting) and budget deficit ($1 trillion and counting) are at alarming levels, our economic fundamentals are different. The panic could be an excuse for a general correction in the market but I still think some of this uneasiness is warranted. What would be some red flags for us to keep an eye out for? Well, watch 10 year treasury rates and level of foreign investment. 10 year notes have plummeted in the last 2 weeks to 3.34% as people are snatching up the bonds as what we would call flight to safety. Foreign investment is the amount of government debt that is held by foreign investors including governments. Right now we are beholden to Japan and China to finance our government on a daily basis. Watch that percentage and keep an eye on what would be an alternate safe haven for each of these countries to park their money. With the euro a toxic option, the U.S. is still looking a whole lot better.
As a follow up to my previous posts, the labor market seems to be improving but I don't think 440,000 in initial claims (on an average) is anything to crow about. The jobs created number is a bit skewed due to the U.S. Census workers that will be eventually let go after June. In November, I predicted that Q310 would be my target for stable and sustainable job growth. I stand by it (for now!).
Keep your chin up and we'll come out of this.
The euro zone is a compilation of countries in Western, Eastern, Northern Europe. All of them share the same currency and have a "central bank", the ECB. Unlike the U.S., when one of them gets in trouble, they can't just print money like we do, nor can randomly issue government debt. They have to approach the ECB or the finance ministers for help. What is spooking the market lately is the issue of debt and possible issues with the other problem children in the zone, which is cruelly called PIIGS. PIIGS is Portugal, Ireland, Italy, Greece and Spain. Another fear is that the U.S. could be subject to the same sort of panic and need of bailout.
While our debt (over $12 trillion and counting) and budget deficit ($1 trillion and counting) are at alarming levels, our economic fundamentals are different. The panic could be an excuse for a general correction in the market but I still think some of this uneasiness is warranted. What would be some red flags for us to keep an eye out for? Well, watch 10 year treasury rates and level of foreign investment. 10 year notes have plummeted in the last 2 weeks to 3.34% as people are snatching up the bonds as what we would call flight to safety. Foreign investment is the amount of government debt that is held by foreign investors including governments. Right now we are beholden to Japan and China to finance our government on a daily basis. Watch that percentage and keep an eye on what would be an alternate safe haven for each of these countries to park their money. With the euro a toxic option, the U.S. is still looking a whole lot better.
As a follow up to my previous posts, the labor market seems to be improving but I don't think 440,000 in initial claims (on an average) is anything to crow about. The jobs created number is a bit skewed due to the U.S. Census workers that will be eventually let go after June. In November, I predicted that Q310 would be my target for stable and sustainable job growth. I stand by it (for now!).
Keep your chin up and we'll come out of this.
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