Joseph Trevisani

The Dollar Coin: Two Sides of the Reserve Dollar

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The Fed will, sooner or later, and I believe much later, raise rates. I agree that the Fed will not do so until unemployment has peaked. Mr. Bernanke has said so more than one or twice there is no reason not to believe him. When the Fed does begin or the market thinks it has a horizon on the beginning it will boost the dollar, be that fourth quarter 2010 or later. I would make a large bet that wherever unemployment is the Fed will not raise rates before next year's election.

The Fed and rates are a different issue than the dollar reserve roll. It is true that there is no adequate or even passable current replacement for the dollar. But you only have to look at the increase of euro holdings since the creation of the currency to see the market desire for a choice.

In the context of the evolution of reserve currencies a Fed rate increase in a year is short term, I should have made that clearer.

China's Improbable Economic Growth Figures

Any government has an interest in presenting its best face to the world. This is true for Beijing and Washington, Paris and Brussels. But for Beijing the non governmental sources of information are few and that by itself should engender skepticism. Far Eastern Economic Review has this interesting article on the subject: (www.feer.com/essays/20...).

China's internal migration is not ended (www.stratfor.com/china...; www.feer.com/reviews/2...), and there is no reason to think that it will. Historically one of the primary effects of industrialization is the movement of rural population to the cities. China will be no different.

The fact that electricity consumption is higher for five months in a row is a sign that factories are running, not that anyone is buying their goods. Government stimulus on the scale of China or the US will produce economic action. My doubt is on the scale of reported economic growth in China and its sustainability.


Joseph Trevisani
FX Solutions

Oil Shocks, and What They Hold for the US Economy

Oil is the basic industrial commodity and will remain so for at least a generation. This is not a comment on the desirability of an oil based economy but a recognition of fact. It is the availability of cheap energy more than any other development that has enabled the industrial revolution and the rise in living standards, so we should be hesitant to consign oil to the past. It is the most potent transportable fuel known.

The era of inexpensive oil does appear to be ending, though we should be cautious because many prior shortages (food, light metals) have been declared only to vanish as new technologies appear and evolve.

Drilling for available oil also does not does not mean we should not pursue all alternative sources of energy. We should. Oil will be sold at the world market price, that is true. But the market price is determined by more than current supply and demand. The perception of future supply and demand, as we have seen this past year, can have an overriding impact. It is this perception of future supply that will be affected by current drilling. There is little doubt that oil is available and that at $100 and more a barrel it is profitable to extract. The idea that we should not drill because it will take five or ten years to see the product is not a serious objection. Doesn’t that objection also apply to every form of alternative energy? Should Toyota not have invested in hybrid technology ten years ago because it would not have been available immediately?

I thank you all for your comments. I very much enjoy hearing from readers.

For the question about Ossining N.Y. Yes I did grow up in that old river town.

Joseph Trevisani
Chief Market Analyst
FX Solutions
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The Dollar Holiday Blues

In July 2007 the average price of retail premium gas in six European countries (Belgium, France, Germany, Italy, Netherlands, UK) was $7.14 per gallon. At the end of June this year it was $9.06, a 26.9% increase. In the US the price rose from $3.17 to $4.31, a 36% increase. The difference being the decline in the dollar against the euro. Americans are paying more for their fuel relative to the Europeans than a year ago, but that does not mean the European are not paying more as well. Higher fuel prices have the same damaging effect in Europe that they have here. It is the differential price that matters to consumers and economic growth not the absolute level.