Wednesday, March 29, 2006

Issues in the News

I’ve been pretty busy lately (sick kids, work, honey-do’s, etc) and haven’t had much time to Blog, but enough about my life, that’s not why you are here…

Looks like much is going on in the world this week. Please allow me to share what I feel are some of the important issues:

Fed Rates
The Helicopter man raised interest rates again, and due to inflation concerns, it looks like further increases are in the works. Personally, I think these rate hikes have more to do with US Dollar support than inflation, but it probably wouldn’t be politically correct for the Fed to state this much. Anyway, Reuters is suggesting Choppy waters loom for dollar as we begin to near the end of this Fed tightening cycle.

Trade Protectionism
As I mentioned earlier in the week, trade tensions are rising between China and the US as protectionist sentiment increases on Capitol Hill. This issue is beginning to worry currency markets. Stephen Roach (a well-known Morgan Stanley Economist) even put his 2 cents in on the problem. While speaking in China, Mr. Roach stated it would be economic suicide for the US Congress to pass a proposed bill which will impose a 27% Tariff on Chinese imports. (Note: I’d have to agree, but either way we look at the issue we’ve got a mess on our hands. We can either pay the price now through imposing tariffs, possibly leading to a currency crisis & increasing anti-US sentiment, or we can continue to bleed slowly through ever increasing trade deficits and loss of US manufacturing competitiveness).

In other areas worth mentioning, Silver broke through $11oz today (1st time in 22 years), while gold is creeping back up to a 25 year high. Call me a Goldbug if you wish, but I feel these two are nowhere close to being done.

Oil, on the other hand rose to over $66 a barrel on the world market while US Gasoline supplies tumbled. Remember last week when I warned of $3 gas this summer. Well tomorrow, six world powers sit down to discuss their next step with IRAN. If this issue spirals out of control, mere $3 gas could be a blessing.

Delphi labor union talks are not going too well. From the looks of things, Delphi will most likely file a request (on the 31st of March) asking a Bankruptcy Judge to allow them to set aside Union Labor Contracts and pay substantially reduced wages. If the Labor Union calls for a strike, GM will be at a standstill, due to a lack of parts… GM shares fell 4% on this news.

Looks like the American Dream of homeownership is starting to develop cracks around the edges… Home foreclosures in January were 45% higher than 1 year ago. Even my little bubblicious state of Nevada was mentioned: Nevada came in second with 1,795 properties going into foreclosure; one for every 483 households and 2.5 times the number reported a year before.

Yield Curve
Inverted Yield Curve—Bernanke says it’s different this time and old rules need not apply, but when the last 5 out of 6 inversions were followed by a recession, I’d say Ben is way too full of hot, politically correct air… I believe he knows a slowdown is looming and is probably just as concerned (even more so) than the “doom & gloomers.”

The final issue I’d like to bring to light is this article concerning UAE and Saudi foreign Reserves (someone emailed it to me--thanks).

UAE, Saudi considering to move reserves out of dollar

WASHINGTON — A number of Middle Eastern central banks said on Tuesday they would seek to switch reserves from the US greenback to euros.

The United Arab Emirates said it was considering moving one-tenth of its dollar reserves to the euro, while the governor of the Saudi Arabian central bank condemned the decision by the United States to force Dubai Ports World to transfer its ownership to a ‘US entity,’ the UK Independent reported.

“Is it protectionism or discrimination? Is it okay for US companies to buy everywhere but it is not okay for other companies to buy the US?” said Hamad Saud Al Sayyari, the governor of the Saudi Arabian monetary authority.

The head of the United Arab Emirates central bank, Sultan Nasser Al Suweidi, said the bank was considering converting 10 per cent of its reserves from dollars to euros.

“They are contravening their own principles,” said Al Suweidi. “Investors are going to take this into consideration (and) will look at investment opportunities through new binoculars.”

The Commercial Bank of Syria has already switched the state’s foreign currency transactions from dollars to euros, Duraid Durgham head of the state-owned bank said. The decision by the bank of Syria follows the announcement by the White House calling on all US financial institutions to end correspondent accounts with Syria due to money-laundering concerns.


Anonymous said...

Great Blog! I saw on CNBC the other day a executive from Quicken loans ask why the rates are rising to fend off inflation when the fed numbers show very little inflation. He said that no one he talks to can give him a straight answer. Very interesting. Also I think it's interesting how we are going to crack down on immigration just as the housing market flops. Maybe the feds are worried about the lack of construction jobs for the millions of illegal aliens...Just my 2 cents..

David said...

Nice summary. :-)

Out at the peak said...

Real inflation has been rampant if you use the 1988 version of CPI. Using today's version of CPI, you won't see as much.

Similar problems arise if you use use the old version of unemployment versus current.

Anonymous said...

In 1913 an ounce of gold would buy a man a nice suit, which is almost what it will buy today.

Anonymous said...

Love your "news" sources.

Anonymous said...

Excellent summary.

Catch 22, how to reduce Chinese imports yet not antagonise the principle supply of credit to the USA.

Just a question, how much of the imports from China are from US owned firms, and do the profits return to the US?