Fed Fallout: Dollar Disintermediation

imageDollar Disintermediation:  Traditional disintermediation is when consumers stop using an intermediary (like a bank or brokerage firm) and deal direct.  The intermediary is what is between the consumer and the supplier.

When the underlying dollar value, relative to the constellation of other things that are more useful (food and water come to mind), fall, then people go to other alternatives.  Gold, the Euro, Bitcoins ($419 when I looked this morning, BTW) and so on as intermediaries which are more interesting.

I should apologize to the few readers who are actually paying attention and don’t need our usual solution to mental sloth; namely a melatonin reset, L-Carnitine and Huperzine-A, and half a pot of Mrs. Folgers after 12-hours of sleep… It’s not like a line of blow, but it’s legal, safe (depending on the coffee) and won’t kill you.

To point:  Reader John has been paying attention and kindly posted the correct short essay answer:

Market up because USD is down 1%. Folks wanting a higher market may need to pay for it with a weaker dollar. Weaker dollar means higher costs of imports. I don’t entirely mind this because we do need to grow from within. We can’t just become a consumer-only economy.

George used to say “worry a lot if the USD goes below 80”. For now, the market is generally “normalizing”. Good call by George earlier in the year (on C2C and here) saying he thinks the market goes to a new high prior to falling out of bed on whatever is to come late 2016 into 2017. Elections maybe? President Trump or President Clinton getting aggressive and bothering other countries out of the box?

Besides getting a Green Star for attentiveness, John also brings us to this morning’s trip over to the mimeograph (which is getting hard to find fluid for, anymore).

Some of your copies are darn near invisible, so let me read them to you…

1.  The price of gold has gone up because:

A.  Kanye West did something interesting and worthwhile.

B.  Kim K went shopping.

C.  The value of the dollar has dropped fractionally because since the Fed DIDN’T  raise rates, “hot money” will be going to other countries where the yields are higher.   

2.  Therefore the value of the U.S. Dollar has fallen because:

A.  The U.S. is not seen as a sick joke by most of the rest of the world.

B.  Because Soros and MoveOn really are pressing for revolution so THEY can be in charge.

C.  The U.S. holding rates steady means that the robustness of the U.S. economic recovery is still somewhat suspect as evidenced by the Consumer Prices.  These will become evident in next month’s CPI report and at their next meeting the Fed will have to raise; and this notion is reinforced by the price of Oil popping over $40 on the West Texas Intermediate this morning.

3.  The goals of Fed is not raising rates are:

A.  To try and ignite another mini-frenzy in housing purchases.

B.  To increase the nominal gross domestic product by making it appear that GDP is going up.

C.  To import a bit of inflation because when the US dollar weakens, it takes move of them to buy things, like say a Lexus from Japan, and that eventually shows up in the CPI which then becomes slightly inflationary in a reinforcing way.

D.  To create low-end, but nevertheless reportable income for arriving immigrants that the socialists in Washington are loading the country with so they can have “fresh meat” to lord over.

E.  To attempt to keep the turd-in-a-punchbowl economy alive so that it will not become the overall dominating issue in the fall election contest.

F.  To make the specious claim that the “Fed is nonpartisan” which should assure the recently merged non-Trump faction of the formerly double-branded American Corporate Parties (Democrats and Republicans) that normalcy can be maintained.

G.  To set the stage for Washington insiders to promote treasonous turncoat Paul (I’m too good to waste may time running in primaries because I’m a “made man”) Ryan into a convention possibility for the Paul Ryan wing of the Democratic Party which is the surviving business entity with the GOP implosion. 

H.  All of the above.

Extra Credit Question:

Consider the following headline: Paul Ryan ‘Will Not Accept’ GOP Nod at Contested Convention.

Who made similar remarks in America’s historical past including this often cited quote:  “If nominated, I will not run; if elected, I will not serve”?

Since we’re all going to die someday (and money doesn’t matter, only love and memories) here is this morning’s answer key:

1.  C

2.  C

3.  H

Extra credit:  William Tecumseh Sherman.

At the Sign Post Up Ahead

The Philly Fed business outlook report is out (details here), but the main thing from their site seems to be?

Current Indicators Reflect a Pickup in Activity

The diffusion index for current activity increased from a reading of -2.8 in February to 12.4 this month, its first positive reading in seven months (see Chart 1). Both the current new orders and shipments indexes also showed improvement this month. The current new orders index returned to positive territory, increasing 21 points to 15.7. Nearly 37 percent of the firms reported an increase in new orders this month. The current shipments index rose 20 points, to 22.1. The unfilled orders and delivery time indexes showed notable improvement, increasing 11 points and 16 points, respectively. While the unfilled orders remained slightly negative, the delivery time index reached its first positive reading in 11 months. Firms continued to report overall declines in inventories.

So, as I was lecturing:  Gas prices will work through, inventory needs rebuilding, US product just went on sale globally…hell….what could go wrong?

Then we have the new Current Accounts report from the Bureau of Economic Analysis:

The U.S. current-account deficit—a net measure of transactions between the United States and the rest of the world in goods, services, primary income (investment income and compensation), and secondary income (current transfers)—decreased to $125.3 billion (preliminary) in the fourth quarter of 2015 from $129.9 billion (revised) in the third quarter. The deficit decreased to 2.8 percent of current-dollar gross domestic product (GDP) from 2.9 percent in the third quarter. The decrease in the current-account deficit was accounted for by decreases in the deficits on goods and secondary income and an increase in the surplus on services. These changes were partly offset by a decrease in the surplus on primary income.

Goods and services The deficit on goods and services decreased to $133.7 billion in the fourth quarter from $138.6 billion in the third quarter. Goods The deficit on goods decreased to $187.3 billion in the fourth quarter from $190.5 billion in the third quarter. Goods exports decreased to $366.7 billion from $379.4 billion.

Exports decreased in four of the six major general-merchandise end-use categories and in nonmonetary gold. The largest decrease was in industrial supplies and materials and was largely due to decreases in petroleum and products and in chemicals except medicinals.

Exports also decreased in foods, feeds, and beverages, in capital goods except automotive, and in automotive vehicles, parts, and engines. The decrease in foods, feeds, and beverages mostly reflected a decrease in grains and preparations, primarily corn. The decrease in capital goods except automotive mostly reflected the net effect of a decrease in machinery and equipment except consumer-type and an increase in civilian aircraft, engines, and parts. The decrease in automotive vehicles, parts, and engines was more than accounted for by a decrease in exports of passenger cars (ITA Table 2.1).

Goods imports decreased to $553.9 billion from $570.0 billion. Imports decreased in five of the six major general-merchandise end-use categories and in nonmonetary gold. The largest decrease— which accounted for more than two-thirds of the total decrease in goods imports—was in industrial supplies and materials; the decrease mostly reflected a decrease in petroleum and products.

Imports also decreased in consumer goods except food and automotive, reflecting decreases in both durable and nondurable goods. In nondurable goods, the largest decrease was in apparel, footwear, and household goods (ITA Table 2.1). Services The surplus on services increased to $53.5 billion in the fourth quarter from $51.9 billion in the third quarter. Services exports increased to $177.7 billion from $175.9 billion. Exports increased in seven of the nine major services categories. The largest increases were in financial services, in maintenance and repair services, and in other business services. The increase in financial services was largely due to an increase in financial management, financial advisory, and custody services. The increase in other business services was largely due to an increase in professional and management consulting services (ITA Table 3.1).

With all this to weigh, the Dow futures were down 36…

Woo-Hoo!

The Baltic Dry Index is at 393 and almost up to 400.  End of the world not here….ask next year.

A Terrible Day in the Newsroom

Sure, we have our police and fire scanners on, but nothing to report.  The foreign broadcasts are lame for the most part.  The overnight content from Radio Havana doesn’t even have much to say, although an ad popped up on Drudge this morning announcing Cruise ship service including 4 ports and 2 night sin Havana….

Which means, post-Fed, we are stuck reading filler stories like “SeaWorld to End Breeding Program for Killer Whales.”

That’s a real effin’ shame because here I was about to file an IPO to open a killer whale sperm bank to serve six counties here in East Texas.  Damn and double damn.

The flood stories are quickly drying up (a terrible pun, but we’re back to back winners are “septic roulette” again).  There goes my dry sense of humor.

Drop by tomorrow for our News Writing 502 Lecture:  Fine points of rewriting Hints from Heloise as well as the pop quiz on Ethical Issues Rewriting Obituaries. 

In Other News…

Reading how there’s a “King Tut’s tomb: ‘90%’ chance of hidden chambers…” brings us to an interesting question:  Is Hosni Mubarak in one of them?

In the Deep South…

Brazil Erupts in More Protests as Rousseff Names Lula Her Chief of Staff…”  By our calculations and advanced software that’s because whatever Lula wants, Lula gets…

(An explanation for people under 50 is here.  We will also remind our students of the Oriental Mystery School of Money that in the great timeline of life, yes, Sarah comes before Stevie Ray. And if you don’t know who Stevie Ray is, you’re in double-trouble so click here.)

I may have to invent a new style of infotainment called the NewsJay.  Part news, part analysis, part stand up, and part git-down-on it.  In today’s world, WTF, right?  Don Henley has already done the theme for the political segment…Dirty Laundry.

Another Ode to Ellison

Been over a decade since Elaine and I lived on our sailboat at Oyster Point Marina in San Francisco, but “back in the day” there was a go-fast boat there named “Thanks Larry.”  We speculated it was a bonus of some kind…

The boat comes to mind because of the story that “Larry Ellison Gains $1 Billion Overnight, Overtakes Zuckerberg As World’s Sixth Richest Person.”

So here’s the deal:  If he pays taxes at 35% on it, that’d be $350-million in taxes.

So it bears repeating because the screaming socialists in the street won’t get this:  “Thanks Larry.”  (If he pays a lower tax rate than us, well, then I reserve the right to withdraw the thank-you.)

Comments

Fed Fallout: Dollar Disintermediation — 13 Comments

  1. The accumulating forward looking evidence to the contrary and reader John’s endorsement as well; Do I hear chickens a-being counted before the eggs are a-hatched? The markets have not reached new highs … yet.

    I won’t relax until we actually see a firm close and successful retest above the highs on multiple indexes, especially the NYA. I must say, it does look like my expected capitulation before your highs, will not materialize.

    Hrmph!

  2. Larry’s got his own ‘big boat’ that I’ve seen docked at Kewalo in Honolulu… on his way to his private Hawaiian Island of Lanai. The boat is something like five stories above water and bigger than most Japanese fishing trawlers that visit here.

  3. What would George do?
    Pretend George just inherited a California oil well. It is not paying any royalties at this time. The estate is in Idaho, so to get the oil well it will cost at least $5,000 to hire a California attorney.
    The paperwork on the well shows it is in both your uncle and late fathers names. It says John Dow OR Jim Dow. So nobody knows if it even can even be transferred at this time.
    Would George save it for future generations or forget about it? Somebody even mentioned the possibility of having to pay into the oil well, if it is not making any money. Should George just give his half to his uncle?

  4. I was just reading about the store where prices are dropping to keep people buying.. yesterday I was going in for my lone can of beans to feed our family for the week when I noticed that not only had prices been slashed on a lot of luxury products that are only want items but so had the personnel. on a quick count I figured over forty percent fewer staff.. ( not everyone can be on break at the same time)
    When I was going through the budget to see what I could cut back to stretch the income that seems to be less than outgo I came up with right off the bat four hundred a month just on technology related products that we use as convenience but not absolutely necessary and with further checking could actually cut back a cool grand of spending and still keep the comfort of life I have now minus a few luxury items.. Ok.. here is my question I am an average home owner with an average for our area income level.. I am pretty sure I am not the only one that is seeing this issue of the stretched dollar.. what affect would it have if lets say twenty percent decide to cut back the luxury items in their life to maintain a quality of life affect the stability of the present economy.

  5. fwiw, I still think the reason for the gold rally is this crazy idea of negative interest rates. I don’t think anyone has a handle on this, especially if cash is made illegal, too. Gold is a default choice – nobody knows where gold prices will go but they know that physical gold will still be gold no matter what kind of scams the bankers and politicians pull on us.

  6. If you guys listened to the press conference with the little old lady on Wednesday after 2:15pm EST – she said that keeping the rates where they allow allow the fed to react in either direction depending on circumstances. This is a hint towards ZIRP and NIRP.

    • PS – I have a saying that I have used for a few years that I really want us all to eventually think about.

      “An economy that requires constant growth in order to survive will eventually do neither”.

      Also, “Get Long Amish” (ie. learn to be self-sufficient and a wise spender. Rather than go to Cheesecake Factory for another $110 family dinner, take the kids to a gardening class.

  7. I’m coming up on my 10th anniversary working for a certain department store chain. My store is located in a rather affluent suburb of Los Angeles, but still somewhat reflective of economic trends. The last couple of years my store has definitely showed symptoms of dollar deflation as we slash prices on merchandise so deeply even the customers are remarking, “It’s like you’re giving it away” and “Maybe next time you’ll be paying me to take it!” We have lately created large areas of permanent clearance areas as we slide our way down to remake ourselves into something like Kohl’s or TJMaxx. I just hope my job survives long enough for me to pay off my daughter’s wedding!

  8. I find myself feeling sorry for Trump. It must be hard to sleep in a bed without pillows.

    • Haha! No worries! I’m sure the old Trumpster has someone to sleep for him…