Bill Jencks

Not a Sucker's Rally - It's a New Bull Market

Absent day traders, not only will medium and long term investors (if their is such a thing now) have to compete in a volatile market, but these investors will also have to carefully watch the perpetual erosion of the dollar's purchasing power in the future. If all investors care about is profit in terms of numeric quantity of dollars, this is surely an inadequate measure of profit when measured against the ongoing subtle and continuous erosion of dollar purchasing power at the moment.

Quantitative profit is certainly beguiling, but the true measure of dollar worth is the value of the items that can be purchased with your inflated dollars. That is the real measure of final profit.

How Long Can Rumors Keep the U.S. Dollar on the Decline?

In a recent article by Robert Fisk in the Independent(UK) newspaper, apparently China, Japan, Russia, France and all the Gulf States will be dumping the petro-dollar.

Read it here:

www.independent.co.uk/...

Not a Sucker's Rally - It's a New Bull Market

Another factor that no one seems to consider here is that most people regard dollar quantity as a measure of profit. In reality, if you factor in dollar inflation over the last 7 years, then the markets have been in a bear market in terms of the dollar's actual purchasing power.

For the last seven years the dollar has been devalued by inflation by at least 30%. So if you put, say, $100,000 in a US bank in 2002, then if you pull it out of that bank now and spend it, you would only be able to buy $70,000 in terms of purchasing power today.

The markets may well continue to go up. But to believe that this is due to market performance or market strength, particularly in this economic climate, is economically laughable. Markets will also rise because of a rapidly devaluing dollar, so take your pick.

Not a Sucker's Rally - It's a New Bull Market

Well said, Mr Gould.

Some other reasons to remain bearish on the dollar and the US economy:

* The US has lost control of dollar value - via the gold market -- to the Chinese.
* The Chinese are heavily pushing their populace to purchase gold and silver.
* The Chinese have just started to issue their own Yuan bonds -- to compete directly with US Treasuries.
* China has suddenly become the largest gold miner in the world.
* Recently announced that China, Russia, Japan, France, India etc. will abandon the petro-dollar for the euro. Other countries are bound to follow.

Evidence here:

slowsmile.hypocrisy.co.../

slowsmile.hypocrisy.co.../

slowsmile.hypocrisy.co.../

slowsmile.hypocrisy.co.../

Not a Sucker's Rally - It's a New Bull Market

What this article seems to express is that a bull market is about to burst out of the gates. Notably this author is an investor, not an economist. Therefore he doesn't argue from the point of view of micro- or macro economics or even economic world events(eg China's economic actions) that could so easily tip the dollar and the markets right into the trash can. Instead he argues from such as the Dow Theory, and these arguments are fine for a day trader I guess -- on a very short timescale, but hardly suitable for what will come for the dollar. Watch the next 2 years, it's going to be very messy for the dollar.

Most people miss it, don't understand it. The market appears to be heading upwards, Hooray !! we scream, but doesn't this always happen when the dollar inflates and asset value goes up? Stocks are an asset aren't they? So it's just another bubble, this time funded by the bailout money()and more debt) that will shortly burst horrifically.

Then consider that with US unemployment at 21%, GDP at -6%(see the real, untortured stats at shadowstats.com) and a total national debt, foreign debt and unfunded future fiscal debt(Health Care, Social Security, Pensions etc), the US has a total debt of $120 trillion, and perhaps your opinion might change wrt to US economy. This poor economic situation will, of course, eventually be realized and significantly expressed by the markets, probably to the amazement of all disbelieving investors.

Just like last time.

U.S. Dollar Now Testing $1.50 Per Euro

Howard,

Perceptive article this. Especially since Jean-Claude Trichet has been begging the Chinese to lighten up their policies, he even admitted that the Euro was never designed to be a strong world reserve currency.

My view, as you know from past comment, is that the Chinese are in charge of the gold price and therefore have full reign over the US dollar value now. They will let the dollar fall to a level that they want, not the US govt. After this they are likely to maintain a fairly stable dollar -- until they have slowly and sufficiently reached a point when the dollar no longer is a dependency. Then it's anybody's guess.

I don't think the Chinese will let the dollar fall yet, it just wouldn't benefit them.

Trade Protectionism Benefits No One

Glenn88...Thanks for your comment, but I think you misunderstand.

Your comment:
"You seriously misunderstand how the balance of payment system works. Brad Setser and Michael Pettis have done an admirable job of demonstrating how the trade deficit and the budget deficit are inextricably linked."

Maybe its better we just call it Total US Debt -- to encompass the National Debt, The Foreign Debt, the deficit and, of course, we must also incude the future unfunded, promisory fiscal obligations of the US government.

So the actual value of this total debt that is owed is now equivalent $1 million per US Household.

This figure can be verified from an article by Martin Weiss here:
www.marketoracle.co.uk...

Your infatuation with trade deficits is, perhaps, your own downfall because the US debt problem is a whole lot bigger than that. There is much more debt knocking around in the US government than just trade deficits as you can see from the above article.

Mish Shedlock's Inflation Scorecard: June 2009 Update

Your score above, I think will have to change. Since Martin Weiss has just defected to the inflationist camp -- after 27 years of being a staunch deflationist. See the artcle on Market Oracle here:

www.marketoracle.co.uk...

Personally, I think inflation is always a moving target that changes with economic circumstance. We have certainly been in a deflationary period over the last few years in this crisis, but it is always at the change-overs of deflation into inflation or vice versa that the greatest damage is done.

Most analyst also don't take China, the BRICs, or any other creditor nation seriously, which is a big mistake. The belief that China and other creditor nations are stuck in a Dollar Trap is apparently quite accurate. The Chinese have been very busy wrt gold against the dollar. The current activities on the gold markets by the Chinese are described here in my article, "The Beijing Economic Defense":

slowsmile.hypocrisy.co.../

All their activities seem to accumulate into very good reasons why dollar inflation will begin creeping up again, and that dollar devaluation is inevitable. To continue to believe that the 'Dollar Trap' is enough to prevent countries like China from slowly exiting from dollar influence is too convenient and bad economics. Because as you can see from my article, they haven't wasted any time at all.

So whenever the US govt tries manipulate and suppress the gold price by selling their gold, China does the opposite, buying gold in the dips. Thus, the US(and Europe) steadily spend all their gold(they have been doing this for about 30 years now), while China buys and accumulates gold -- seemingly moving to a partial gold standard. This war on the gold markets will continue until the US runs out of gold.

Then what nuclear, economic event must happen wrt the US Dollar?

Obama's Tire Tariff Could Help the U.S. Win a Trade War with China

mna...In answer to your question, the WTO, IMF etc are all covert, American run institutions with large offices in Washington. It has also been well argued that the WTO is not an impartial economic organization, through the influence of such as the Washington Consensus on its rules regs and policies.

I wrote an article on the Washington Consensus some time ago which might help to prove these points:
slowsmile.hypocrisy.co.../

For all these biased reasons, I very much doubt that the Chinese can win their current case at the WTO tribunal.

Obama's Tire Tariff Could Help the U.S. Win a Trade War with China

Howard,

I certainly agree with you on those three points. But, President Obama appears to be still spending rashly. Even notable economists like Krugman are saying that he should actually be spending more!! When will they admit that America has accrued ENOUGH debt?

My consternation lies in why have there been no plans laid, as yet, to balance the deficits and pay back the massive government debts. Surely this is one economic point which, if not adequately tended, could bust America. Currently there is no overt attempt by the US governemnt to balance its budget or to balance its money supply. As for balancing trade, how is getting into a painful trade war with China going to help this problem?

The current monetary policies of Obama are so economically illogical at the moment, I am seriously coming to believe that he actually wants to bust the dollar and, with it, the American economy.

After all, US Government planners aren't that dumb, are they?

Trade Protectionism Benefits No One

John Lewis...I think you are quite wrong in your assessment.

If America, whose GDP is currently at -6% GDP(from Shadowstata.com), were to get into a tariff war with China, this must hurt American Industry more because China will respond by applying equal tariffs on goods imported into China from America. China's GDP is somewhere between 7-8%. China will no doubt also reduce her rate of Treasury purchase as another consequence.

So, America suffers a reduction in exports, which increases her deficit and hurts her own manufacturing sector. Simultaneously, instead of now selling its IOUs to China, the FED is now forced to purchase its own excess Treasuries, thus further inflating and devaluing the dollar significantly. This action will not encourage sales of cheaper manufactured goods for export, because first, America must purchase or import raw materials for her manufactured goods which will become much more expensive with inflation.

With no other choice but to use of QE to sponsor her own debts, the American dollar approaches even closer to hyperinflation.

Meanwhile, although it might go down a bit, China's GDP will still remain positive, and China will be able to fall back on her own vast savings for support.

Trade Protectionism Benefits No One

I completely agree with this article, the author has proved his case from history well.

Another thing to consider in these tit-for-tat tariff wars is this: Virtually every article I read concerning this problem sides with the American case. But there is no assessment of its real economic effects(except for this article).

So I would also add the we have a large debtor nation(US) warring economically with a large creditor or saver nation(China) who are both mutually dependent on each other economically. So these tariff wars will only promote more financial problems for both nations. I also feel, with America's slim and fragile manufacturing sector that is so dependent on China, that America will come off far worse than China economically if these tariff wars persist.

And another thing that was not mentioned in the above article -- at the last G20 meeting in London, Obama strongly adhered to, promoted and advised anti-protectionist global policies across the board.

Plainly, President Obama has reneged on his own word and advice.

Good for America?

Trade Wars: Understanding Complicated U.S. / China Relations

I keep reading blogs and articles like this, written by western and American authors who can only ever see the harm that China's economic policies are doing to America. The fault is always China's, indeed China's insolent, self-serving economics must be taught a lesson....blah, blah. Your one-sided arguments just don't convince.

If you look at America's own very blemished economic history, if you take a long, hard and deep look at institutions such as the WTO, IMF, World Bank etc. -- all institutions touted to "help" under-developed countries, then you will be shocked at the one-sided, self-serving and protectionist rules and policies that they promote for only America. Try Googling the "Washington Consensus" for some confirmation of this.

So, simply put, if America has been so protectionist for the last quarter century, is there any surprise that China is now playing just as dirty economics as America, since America has indeed set the precedent and had the economic advantage for so many years? How can anyone argue with this, since America was the first to dirty its hands with its very own brand of longterm, protectionist, controlling economics?

Therefore, with this precedent already set by America, who can possibly complain that China is now playing dirty, since China has only learnt from The Master?

Or ist it to be one economic law for America and another law for the Rest of the World?

Obama's Tire Tariff Could Help the U.S. Win a Trade War with China

"The issue at stake between the United States and China is GDP, which as Adam Smith pointed out is the real "wealth of nations". Balanced trade would lead to investment in American production which would enhance America's GDP. Growing trade deficits would keep us in a state of perpetual depression. "

This statement is very peculiar. GDP is indeed the wealth of Nations, but is it good for that wealth to be wholly dependent on foreign credit feeding insatiable US debt, as compared with China, whose economy is wholly based on production with the reward of savings? Do you regard America's current deficits as no problem then? Do you regard America's national debt of $12 trillion OK? Do you regard America's Fiscal Debt of £65 trillion trivial and manageable? It is also mainly US govt. Keynesian policies that are creating all this unmanageable debt, not just trade with China.

Hardly a balanced economy, in fact Adam Smith's jaw would probalby bounce off the ground and hit the ceiling if he saw America's economic state today.

Obama's Tire Tariff Could Help the U.S. Win a Trade War with China

Howard,

Thanks for your comments. Your most telling argument was:

"I am not so pleased as you that the United States gains moral highground when it engages in unilateral free trade with China. I would rather see economic high ground."

Personally, I don't see how you can seperate them. But, in your case, what about the law of precedent?

If America has been actively protectionist for the last 25 or so years -- which she has, and well before China's moves -- discreetly applying its own self-serving economic rules and regs via institutions like the WTO and the IMF to "help under-developed countries" for decades via The Washington Consensus(Google it sometime -- it's harsh, blatantly protectionist regs and policies will surprise even you), then how can you blame China for adopting her own discreet protectionist policies in reply? If your still in doubt, a read of "Super Imperialism: The Economic Strategy of American Empire" by Michael Hudson would, perhaps, fullly clarify the one-sided economics of America's intent over the last quarter century.

After all, China has had plenty of time to learn and copy The Master here, right? Like I said, there's a precedent here that has been set a long time ago by the US.

Therefore, how can you complain about China's protectionist policies, when the American government has been protectionist for decades now?

Or is it to be one economic law for America and another for the Rest of the World?