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Dear Readers,
This past week may have borne out what I have written before. The numbers just don’t support the rhetoric. We all want the economy to rebound and we want to stay positive but the numbers just don’t support it. The stock market is a leading indicator. When the very smart people who run Billions of dollars are feeling bullish the market rises. They feel bullish when ever they can convince themselves that there is a reason, any reason. They are the eternal optimists.
This week the numbers suggest that there isn’t any reason whatsoever. Employment is dragging, oil consumption is dragging, and the Federal Reserve is nearly out of options to stimulate the economy. Pelosi and company screwed up the stimulus package by tail end weighting it with pork like projects that couldn’t be implemented for a year or more. What they should have done was focused on the housing market and stabilized it. That is where consumer confidence comes from and this economy is 70% consumer products driven. Without the consumer we are in very serious trouble. The consumer has lost confidence. The cultural icon of wealth, real estate, is under siege. Jobs seem precarious at best. Is it any wonder why reasonable and rational people aren’t spending unnecessarily?
The Fed can print more money to extend social programs like unemployment. But a quick glimpse of the exchange rates tell us that approach has already dropped the buying power of the dollar by nearly 20% over the past three years or so. Continuing to print money will continue to reduce its real value. When the Euro was introduced as a currency the exchange rate was $1 US dollar per Euro. Today it takes $1.46 US dollars to purchase one Euro. That is a decline in the US Dollar of 46% since the Euro’s introduction in 1995. Perhaps more obvious is the Brazilian Real. In June of 2006 it took 2.249 BRL to purchase $1 US dollar. Today it costs only 1.7742 BRL to purchase $1 US Dollar. That represents a 21% decline in the dollar’s value since June 2006. And Gold, the price per Troy ounce has risen from $530 in January of 2006 to $1004.70 today. Nearly double.
This recession is going to be with us for a long time. I don’t see a major recovery in employment before 2011. In the interim, we all need to hunker down and preserve and add to our assets. Assets that can be reasonably expected to increase in value once the economy recovers. Instant gratification just isn’t in the mix for the foreseeable future.
