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Falling Dollar: Finally Front-Page News

The cheap dollar is an essential strategy of both the FED and the WH to make US goods and services, well.., cheap so that they sell more; and conversely to make foreign goods and services more expensive so they don't sell like American product.

This was the strategy of the Bush and Obama administrations b/c it served the same goal, to create more jobs for Americans. In a free trade world, a governement can not throw up protective tariffs without bringing the whole global trade system down. So they use monetary policy to make their goods and services cheaper.

This works except for the Chinese who peg their currency to the USD. So for the foreign governments, their counter strategy must be to buy dollars to make the USD more expensive or at least counter the effects of the forces driving dollar down. Without zero interest rate and QE, we would have massive deflation. Even with it, there will be deflation, but nothing like the 1930's.

Has the Dollar Hit a Major Bottom?

It looks like a roll over is starting; as stated by someone above, Prechter was just early as are most market prognosticators. Timing, given all the variables, is probably the hardest thing to get. yeah, he was forecasting this bear market from 2003; not five years too early, but the Bush Administration and Greenspan kept propping up the economy with easy money. The easy money then imploded eventually which was the first wave down. Obama and Bernanke responded with infusions of megamoney to reflate the collapsed financial and real economy. Eventually, there will be a collapse of the recovery under the weight of the megamoney stimulus effects receding which will surpass the March lows. That will usher in the real reform that is needed in the financial and real economy, letting the bankrupt too big to fail companies fail so that they can reform into a efficient and profitable business, massive tax reform including a 10% flat Personal and Corporate Income tax and massive investment in infrastructure which seems to have taken a back seat in the Obama Administration.

Dollar Nearing a Critical Level

The biggest fallacy in this argument is that near zero interest rates and quantitative easing means that easy money is flooding the economy and it must result in inflation.

At the risk of using the discredited cliche "this time is different", this time is different! The reason that it is different is because the lion's share of the easy money is not going into the economy in the sense of buying goods and services and generating the so-called multiplier effect, but rather a large share of it is being hoarded by banks to rebuld their balance sheets, plus consumers are using it to pay down debt including mortgages they can't afford while others are just putting it in savings accounts. So banks are the ultimate recipients either directly or indirectly of a large share of the easy money and not the economy.

Of couse, some money is going into the economy but not enough to generate solid growth in money supply which is a precondition to inflation. So what is happening is either stagflation or deflation, only time will tell.

Economic Recovery: Determining the Undeterminable

The reckoning: This market is all about the reckoning, that is, after 20+ years of a market disconnected from the real economy and riding financial bubbles, this market will endear itself to those who are investing on the basis of the real economy. This I call the reckoning between the real economy and the financial economy.

Right now the real economy is in the pits trying to stay afloat and not get pulled under by the financial economy which is on life support. But the market (which is still dominated by financial economy types) is surging on the basis of falsely perceived economic recovery based on artificial stumuli that is not sustainable. This is round 1; we'll see who wins.

If I'm right, the reckoning which will be a multi-year process will transfer an enormous amount of wealth from the financial economy traders to the real economy traders. The real economy traders will be the next economy's investors capitalizing a sustainable 21st Century Economy. This is economic democracy in action.

How Low Can the Dollar Go?

The so-called fall of the Dollar is a head fake sucking in easy money who think that because of the huge deficits, the US will need to ratchet up interest rates to attract foreign purchases of US debt.

But that's not going to happen because the Japanese CB as well as other export-driven economies CB's (Germany, China, and other Asean Group exporters) upon looking over the precipice of continued falling exports (to the US) and unacceptable high unemployment, will intervene and buy up Treasury notes (thereby increasing exchange rates and strenghtening the USD) just to raise the buying power of US consumers which will raise their level of exports and keep people employed. It's a matter of politics and survival; and you can bet on it.

Just remember, the US consumer generates some 16% of global trade; if the Dollar remains weak and US consumers cut back on their buying (which has already happened) the economies of nations that export to the US are likewise affected. So given the choice of sitting on USD reserves and watching their employment rolls dramatically fall and pople on the streets demanding jobs and bailouts to pay mortgages, foreign governements will buy up US T Bills at low rates to keep the economy humming.

Conversely, the US government is delighted with a weak dollar as a natural barrier for US consumers to buy US goods rather than foreign goods. So the US is really in the catbird seat with a win win scenario going forward.

Are We Seeing Market Capitulation?

The markets are in unchartererd territory; to get any direction, a compass is needed.

Like, is stability the goal; or is it liquidity; or is it lending and the housing prices; or is it the banks; or the auto industry bailout.

The big question is: what's the problem. Until the Obama Administration figures that out and attempts to fix it, we're in for a world of hurt.

Three Solar and Wind Companies That Still Look Good

A subtle yet germaine point about the future of AMSC. Their products and proprietary technology are not just recession resistant but they will be in significant and continuous demand by several strands of the next economy: massive government spending (both China and USA) in energy efficiency, electrical infrastructure, and alternative energy.

Why Markets Dissed the Geithner Plan

Excellent thinking and a viable solution. Just a suggestion on the buy-out of toxic securities and debt. The governement should create a Clearance Exchange Bank (buyer of last resort) by guaranteeing its funding while it sells bonds to the private sector for funding. In a reverse auction, the banks with toxic securities and debt then post a sell price based on Net Present Value (NPV) rather than market price which the Clearance Bank must either accept or reject within 30 days (to enable due diligence). This gets rid of the Mark to Market rule which is the real deal killer. This NPV approach was originally crafted by Paul McWilliams of Next Inning. If rejected, they can either post a new price or write off. Here's the kicker: the banks have six months to either sell toxic assets or write it down based on NPV. The Clearance bank can either hold the assets until maturity or sell it at market price when the asset regains value. This approach of course assumes that in the long term, the economy and real estate will recover.

The Secret Villain Behind Our Economic Collapse

America has and always will be the great living experiment. The underlying notion is that anything can be done in this Country will always ring true.

In this case, the experiment was that low income and middle class income people who ordinarily would not have the opportunity to own a home perhaps through risk management (CDS's, etc.) can have that opportunity. For a time it worked because most of the folks who were subprimers paid their mortgage. Then the defaults started growing which were mainly the people who abused the system with multiple homes they couldn't afford and couldn't flip fast enough and the rent would not pay the mortgage.

The experiment was a good one and hopefully we don't throw out the baby with the bathwater. The problem was that greed got the better of the loan originators and the flippers and everyone up the chain to the loan bundlers who pedaled these exotic mortgage instruments on wall st.

The problem now is trying to see how to fix the system. My sense is that although these exotic packages became toxic, it was the fact that there was no institutionalized market for determining the value as distressed as it may be that was the culprit in caiuse log-jams that froze up liquidity. So IMHO, the cure is to create a CDS or similar type Derivative Instrument Exchange specializing in trading these exotic products so the means of valuing them is institututionized and there is always a market regardless if the instruments are in or out of favor.

As a starter, although it's being called a government bailout, in essence what the government is doing in buying up these troubled assets to unclog the system is setting up an exchange mechanism which it is funding as the first buyer. If seen in this light, others perhaps will see that buying these distressed assets at ridiculously cheap prices will be a good investment and a few years down the road can return 100% or more.

Towerstream: Cost Structure Is Too High

ditto; the analysis is shabby. These are typical ramp-up costs: hire a slew of sales people in multiple cities, build a call center, rent tower space, wire buildings, they're all associated with ramping up a business. The one flagrant lie in the analysis is that the Boston and Providence Market are not profitable; I don't think TWER breaks out those numbers bc it will tell the competition how profitable this business is once it does reach critical mass.

If the author wanted to do the analysis right, he should be taking a close look at the business model and the dynamics and risks of the business as well as the proverbial moat.

Microvision's No Show Hands the Pico Projector Market to TI

Competition is good; it keeps the process honest.

In this case the consumer will eventually decide the best product in terms of availability, quality and price. If TI's pico is first to market and is eventually eclipsed by MVIS' product, in terms of projection quality and focus wheel issues, the consumer will recognize that too. My sense is that picture quality is an acceptabe trade-off for mobility, compactness and cost.

What's not an acceptable trade-off is a cumbersome focus wheel. If we've learned anything from Apple, its that if a mobile device is going to be cool, it must be easy to operate. The focus wheel will be tolerable until MVIS' cooler pico is brought to market, then it crashes.

So thanks Liam for the good research and hopefully it'll bring the price of MVIS down so we can accululate more at a better price.

Mid-Year Picks and Pans From Barron's Roundtable Part III

dieuwer,

give it up...in 1982, oil was overpriced and the DJIA underpriced. Anyone who shorted oil and went long stocks in 1982 is a billionaire today. In 2008, the same is true, oil is overpriced and stocks are underpriced; short oil and go long stocks and in 25 years you'll be a billionaire

Retail, Consumer Electronics Spending: No Signs Yet of a Bottom

These surveys are by no stretch scientific. They're just a poll of Changewave membership which does not represent either a cross section or a critical mass of consumers!

In another bit of news which is verifiable, sales of computer game hardware and software continues to soar. Go figure.

Beware of the 2008 Sucker Rally

There's just too much fear being pervaded and its got legs because the story keeps turning and twisting which makes for great news drama and ratings: sub-prime mess turned into CDO black hole twisted into liquidity crisis now the credit crunch with all kinds of fallout: mass layoffs in the mortgage and housing sector, foreclosures at all time highs, housing prices falling, consumers cutting spending, slow growth. recession, aagh.

There's nothing better than drama that has a kernel of truth to it and that is what this story has going for it. The housing sector represents some 12% of the economy and its not going to come to a complete standstill. There's going to be significant reduction in GDP due to this cumulative mess, maybe a reduction of 25% of its sector so we're talking about an impact of 3%. In other words, its going to take down the US growth rate from 4-5% to 1-2%. But fear rules the day and that's when fortunes are made.

Friday's Outlook: Stick a Fork in Mr. Market

As usual, Mr Market is irrational (read overdone), and the more irrational the more myopic the street gets. This too shall pass and as the fog lifts, the market will slowly climb out of this morass and I'ld like to see all those analysts eat their recessionary and bear market hats. Its crisis like this in which fortunes are made and lost.