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Futures Trade Desk- Think Of a Number, Any Number

Client Note

Think Of a Number, Any Number

It is generally accepted that the human brain has a challenge in dealing with large numbers, and not massive numbers; just large numbers create an issue. Try to imagine thirteen apples on a table. Should not be that hard, but it still creates a challenge, just thirteen apples. What about thirteen grapes, or thirteen oranges; harder than it should be? 

To get things into context, now think of a massive number, a really, really big one, and maybe think of what $175B of deficit looks like. Now, that is really hard to do, but to help out, $175 billion one-dollar bills stacked together would create a structure that replicated the size of most football arenas, or the average office block. 

The stack of bills would be 500 feet long, 100 feet tall and 125 feet wide, and if stacked one on top of the other would be 10,500 miles high. $175b equates to $600 for every person in America; man, woman, and child. 

When written out, $175B looks like this; $175,000, 000, 000

However, when compared to the total National Debt $175b is absolutely nothing at all to worry about. The National Debt, as issued by the Treasury Department, stands at $15 trillion.

When written out, $15T looks like this; $15,000,000,000,000

What were we worried about? So long as the rest of the world keeps buying dollars, and adds to the deficit numbers there is nothing at all to be concerned about. What are a few zeros between friends. After all, these friends are so far into this debt mountain they may never get off it.

Usd Strength

It certainly puts the administration’s jawboning of a "Strong Dollar Policy", and "Usd Strength" into perspective. This is a debt mountain like no other, and unless the US consumer starts consuming, it will continue to build. Tax cuts and balancing budget are not going to cut it, and why should anybody worry; if you cannot create thirteen apples in your mind, what chance is there of getting a grasp of trillions. 

And that is exactly why the deficits have been allowed to get so large; they are completely incomprehensible.

Creating more debt, to lend out to already debt-ridden consumers, is what happened in 2002 when the previous stimulus packages were issued; cut taxes, create credit, print dollars, increase the debt mountain, so that interest payments on the debt can be paid. Sound familiar? That got the U.S. economy five years of expansion and in 2007 it all started to unravel, again.

Dollar Conundrum

The debt continues to grow, and until the credit-based consumer junkies are drip fed more lines of credit, the mountain will get bigger. Dollar strength? It is all relative, and as overseas holders of U.S. debt know, a weaker dollar is what is required to keep the credit addicted U.S. consumer alive.

The credit crisis has created a new financial rule-book that is yet to be completed, and in the mean-time dollar weakness is what is required for the economy to recover, along with positive equity trade. On the days of dollar strength it will be understood that the trade is out of market necessity, and not out of desire.

Long-dollar positions are hedges against global risk, whereas short-dollar plays are where global growth will come from. Dollar strength? It is all relative.



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