PediaWorld

Since the last G7 meeting about two weeks ago the price action of the US Dollar suggests that an important bottom may have been reached against the Euro. The Euro made an all time high against the Dollar at just above 1.6000 only three trading days ago. The 1.6000 level was a widely anticipated one by forex traders. Early Thursday morning on April 24, 2008 we are just under 1.5700, so a sharp reversal in underway at the moment.

The same type of price action can be seen in Dollar Yen. From a recent low of under 100.00 the Dollar is trading about 104.00 this morning and looks ready to move quickly to challenge the 105.00 level.

While a few day trading action does not make a trend the Dollar’s new strength must be respected. While the FED reserve will probably cut interest rates again at its’ April 28th and 29th meeting forex and bond traders expectations are now that the rate cut will be only by 0.25 basis points instead of the 0.50 basis point cut expected just a few days ago.

This change in sentiment is caused by the increased inflationary pressures that are occurring in the US and indeed around the world. With a lower Dollar helping to accelerate the increase of all imported goods into the US inflation has flared up in an alarming way, especially in crude oil prices and food prices.

The Fed has a tough decision to make at its next meeting. A 0.25 point rate cut would signal that the rate reduction business is over and that the Fed will begin to focus on fighting inflation even if it means that the economy slides further into a recessionary phase.

This is what the forex markets seem to be anticipating and would explain the sudden strength in the Dollar. Once the Fed actually increase rates you can expect to see the Dollar zoom to the upside. We could be back to 1.3500 Euros to the Dollar.

Interestingly enough once the Fed starts to increase interest rates the stock market will likely take a big hit and the tendency of the risk trades in Dollar/Yen to track movement in the stock market would be broken.
This means as stocks and bonds fall the Dollar would tend to rise.

Certainly, it is too early to tell if an important top against the Dollar has been reached by the Euro. The Eurozone economies have their inflation rate kicking to the upside too and seem to be willing to raise rates in an effort to bring the inflation rate down. It is therefore possible that the US will begin to increase rates but will be confronted with increased rates from the Eurozone as well.

It is the interest rate differentials between the Euro and Dollar that traders will be focused on. If the interest rate differential begins to widen in favor of the US currency you would expect that the Dollar will gain ground against the Euro.

One of the most significant trades that exist today is the carry trade on the Japanese yen. A basic description of the yen carry trade is that traders borrow yen in Japan at low interest rates, convert the yen into another currency, and invest the funds at a higher interest rate. The trader then earns the interest rate spread between the two currencies, but bears the risk that the yen will appreciate before the loan is repaid.

Though the risk from currency fluctuation is significant in relation to the interest rate spread, over time the interest spread earned on a carry trade can also be significant. While textbook carry trades involve risk free interest bearing assets, there is no reason why traders can’t use the borrowed yen to purchase other financial assets such as U.S. or European equities and corporate bonds. For many years Japan has been a major source of cheap leverage for international financial markets.

The derivatives instruments available today have enabled traders to synthetically create carry trades without engaging in loans with Japanese banks or handling actual yen currency. This has increased the ease with which traders can access this carry trade and has increased its magnitude and importance.

The global financial markets have become so integrated that individual central banks and governments no longer have control over their own financial markets. When a central bank raises interest rates to cool their financial markets some traders will simply access leverage through an alternative currency at cheaper rates. This can curb the impact that central bank interest rate hikes may have on local markets.

It is impossible to measure the total size of the yen carry trade, but it is clear that it is absolutely massive. This fact highlights the concern of what will happen if the Bank of Japan raises interest rates significantly. The Bank of Japan has been threatening to raise rates for years, but many see it as “crying wolf”.

If the Bank of Japan actually did significantly raise interest rates it could undermine the cheap leverage that has been available for so many years. The unraveling of these trades could no doubt have a remarkable impact on global financial markets. First, the yen could rally as traders are forced to purchase the currency and repay the yen based loans. Second, the proceeds used to purchase the yen would likely come from the sale of assets previously bought with yen based leverage.

Gone are the days when national economies could be examined in isolation. International financial markets have evolved into a single global economy and it is important to watch the Bank of Japan in addition to the local central bank.

Most economists blame the messy bursting of the housing bubble for the Great Recession, yet it’s jobs that are discussed the most on the news. So what is the relationship, if any, between jobs and housing when it comes to the future of the economic recovery? Is it one of those vicious cycles where people can’t get jobs until the housing market recovers, but with a shaky job market no one is buying houses to put an end to the decline in housing? Just reading that sentence is enough to cause a headache. Recently Mint.com, a personal finance website, had a map showing the future of job growth around the country. Then a couple of days after that there was a map depicting the current state of the housing market. The job growth map was based on information compiled by NPA Services, Inc, a statistics company In Washington, D.C. The map depicts job growth in the next 20 years in major cities all over the country. It neither indicates what sectors the future jobs will be in, nor does it give information for how NPA Services arrived at these numbers. The housing map was compiled with information from the National Association of Realtors. According to the jobs map, Denver job growth by 2030 is expected to be 1.3 million and the current housing market there has improved with sales up 1.8 percent. Colorado has gone from being down in home sales more than 11 percent in 2008. Colorado’s current unemployment rate is 7.5 percent. With an unemployment rate better than national average it’s perhaps not a stretch to see job growth in Colorado. Los Angeles is expected to increase jobs by 1.9 million in the next 20 years, but that area is still taking a hit in the housing market with prices down over 12 percent. Home sales have yet to come back statewide and California’s unemployment rate is 12.4 percent. It might take twenties years for California to hit its stride again. Atlanta is supposed to be the job Mecca over the next 20 years with 2.5 million jobs heading to that city, yet housing hasn’t rebounded there, with home prices down over 16 percent. Sales are starting to come back after being down 6-10 percent in the state of Georgia, but Georgia’s unemployment rate is 10.3 percent. With home values so low, it could take awhile for this area to be out of the recession. Texas, where the current unemployment rate is 8.3 percent, is expected to see significant job growth in most of its major cities in the next 20 years. The housing market in Texas also started to rebound at the end of last year. The housing news for January is not good. The winter is historically not a great time to sell a house, and this winter has been particularly tough. According to the Commerce Department, housing sales were down 11.2 percent last month. There was a small gain in sales in the Midwest, otherwise this drop was seen in housing markets across the country. It’s an interesting idea that the areas where housing is recovering will have jobs soon to follow, but at this point it’s just fancy graphics. As a special section in Time last year pointed out about the future of jobs in America, 20 years ago the Internet was hardly heard of, there was no blogosphere or Facebook. How can anyone know exactly what might happen to the job market in the next twenty years? We still have to get through this year.

When somebody offers me something free, I usually begin to tremble.
Because everytime I had something free I paid dearly for it…
Including a free lunch…

When you talk about free VoIP calling, we assume that it is just another internet application.
We assume that everybody already owns a computer and leases a DSL line.
Also when they talk about free speech we assume that everybody owns a body, a mouth and money enough to pay for his food.

How could he talk otherwise?

But what I was pointing out yesterday was something different.

When we find new technologies the most important issue is how to use them at their best.
An invention without a good application is worth nothing.

With VoIP the mistake is in that.

That most of the people do not understand the full potential of it, and in principle are underusing it.
Yes, it is a cheap way of making a telephone call, but that is just a small part of it.
The PCs, the Internet, VoIP, the full potential of a world on IP can really transform the way we live, we work, we entertain ourselves.

They have the potential to change the society and the players in it.

Cheap hardware, cheap communications, cheap broadcasting, global reach, mean that not only a few monopolistic, giant companies can rule the economic world, but that millions of small entrepreneurs can compete with them creating new services, new applications, a full new economic market.

Monopolies have to die,because the new economic reality doesn’t need and want them anymore.
They have to die because they proved to damage and block the progress, for the only purpose to defend their interests.

They are damaging the world because they put rules not in the sake of the customers, but in the sake of their revenues.

We have to share the revenues among ALL and not among a few.
If we will fail to do it, if 2% of the population will go on keeping 90% of the richness, the world will be a bomb that will explode very soon.

The greediness of the few cannot bring us to disaster.
I wouldn’t like to be one of the Cassandras of this century, but if nobody does anything, I am afraid I will be…

The media is doing their best to talk us into another recession. If they have their way we will find ourselves in a full-blown economic decline. I don’t know about you, but I refuse to let the people who report the news determine my destiny. In a nutshell – I can’t afford another recession. I have been through 3 since I started speaking and training full time in 1973.

So, what can we do to limit the impact of the economy on our success, lifestyle and income? We can wait and see! We can worry! We can whine and moan! We can settle for less! Or, we can use this time to get better, smarter, wiser, more effective and, yes, successful. There have been economic shifts in the US and the world for years. This is nothing new. However, I have observed the reactions of hundreds of salespeople and organizations during the past 25+ years, and generally, one of two things happen to salespeople and/or the organizations they work for.

They can do less, feel out of control, circle the wagons, cut back, and generally focus on how ‘bad’ everything is. These salespeople and organizations tend to get less of their share of the available business during these times and after.

The other groups work harder, smarter, more effectively and focus on what they can do. You guessed it – this group may not set sales records, but they emerge better equipped to take advantage of the increase in business when it comes. And it always comes. After every recession for the past 70 years, there have been economic booms.

So, what can you do regardless of what happens ‘out there’?

1. Focus on what is working.

2. Avoid naysayers.

3. Read instead of watching TV.

4. Get up earlier every day.

5. Make one or two extra calls every day.

6. Plan better and more frequently.

7. Look under every rock for new business.

8. Re-activate past clients.

9. Improve your after-sales service on existing customers.

10. Attend a sales seminar that can refine your skills. (Mine is 3/26 – 3/27 in Charlotte. A few seats remain.)

11. Go to bed an hour later (I am assuming by getting up earlier and/or going to bed later you will be using the time to beat the competition.)

12. Get focused.

13. Waste less time with poor prospects.

A dear friend dreams vividly. Sometimes she awakens wondering, “Did that happen, or was I dreaming?” Dreams pretend or they portend. You could say they link experience to truths or dares. Whether we study them or not, we know they mean something.

When reading The New York Times and The Wall Street Journal, I wish it were a dream. Symbols of economic uncertainty, cultural chaos, and ethnic frenzy prompt a longing for better days. What is happening to America?

A journalist’s writing awakens me with alarming clarity. When the story-line gets multiple headlines, themes emerge. My reading includes The New York Times (NYT) and The Wall Street Journal(WSJ). These story lines took up ink and column space last week. They offer historical and literary shape to economic by-lines.

What our government does wrong and its effect.

Lead editorials and above-the-fold stories undermine confidence in this government (ie. President George W. Bush, et. al.). While my doctor did his annual check, probe, and tap, he asked, “What do you think of this government?” I stared into his little light saying, “This may be the worst government in U.S. history.” Iraq sucks 5.1 billion a day off main streets and country roads. U.S. tax-payers gag on the third debt ceiling increase in four years (the highest in U.S. history).

Trade Surplus Reaches Historical Highs

“U.S. Trade Gap Hits 68.51 Billion” (WSJ) Too much money leaving with an infusion of foreign goods and dollars entering. China’s low-cost goods (cars coming in 2007) and India’s technological competition pressure U.S. output. During the 1950′s and the 1960′s, the U.S. led the world in exports. Since the 1970′s, the surplus became a deficit with the loss of manufacturing jobs and product innovation.

“Fed Official Warns of Rising Danger of Budget Deficits” (WSJ)

Foreigners, like Chinese investors acquire U.S. bonds while they maintain stable pricing of their country currencies. Since they purchase long-term U.S. Treasuries, long-term rates stay low (as short-term rates rise; this leads to a potential inverted yield curve, a predictor of recession). This may give U.S. investors a false impression that all is well (stock market goes up with fits and starts), and that long-term rates are low because of U.S. productivity. When or if the plug is pulled by foreign investors, U.S. markets will gasp.

“Now I do not know whether I was dreaming I was a butterfly, or whether I am a butterfly now dreaming I am a man.” – Chuang-tzu, fourth century Chinese philosopher

Time to dream about foreign investing. U.S. investment results may give way to foreign leadership, and U.S. investors should consider foreign markets in their portfolios. Commodity and equity investments offer value to portfolios. Of course, pendulums swing, so allocate wisely.

The other day my wife and I talked about summer camps. We want our children in busy learning spaces when school vacates. For some reason the subject reminds me of a New Hampshire camp where I worked during the summers of graduate school. Every morning at camp, the grounds crew would empty trash barrels. Driving the old, dented pick-up truck made this job fun. As they drove past, I noticed that someone changed the chrome letters to read “DORF” instead of Ford.

Dorf has no definition. It suggests goofy; for the camp pick-up truck, it described a poor-running, smokey, rusty, mechanical nuisance. Ford and GM have designed vehicles with mechanical panache. Corvette, Impala, and Country Squire were the cars of my youth. Their look made drivers proud when the price of gasoline did not matter.

As a high school senior, I drove a 1950 convertible Chevrolet with Dynaflow. I loved the smell of the interior, the sound of the automatic transmission, and the convertible top that needed pushing and pulling during sudden down pours. My grandfather drove a 1954 Cadillac as did my father. Long, sleek American cars lined lanes from New Haven to Newport Beach.

Now, time, technology, unions, and quality turned consumers toward safer, fuel efficient cars from Honda, Toyoto, KIA,Subaru, Isusu and Hyundai (once the brunt of comedic joking). Foreign labor-cost advantages offered consumers better vehicles dollar-for-dollar.

All of this spells doom for the dorfs of Detroit. For example, The Wall Street Journal’s headlines describe the tension in GM’s Boardroom.

*Foreign vehicles last longer with reliable performance.

*U.S. car-markers have a “worse-than-average” record.

*”Don’t come to work; we’ll still pay you as long as you stay here from 6AM to 2:30PM”: Cost $1.4billion to US automakers

*Malcolm Bricklin brings China’s Chery Automobile, Inc. to the U.S. in 2007 to “steal” GM customers.

*GM one year stock return: -48.4%

*GM ten year average stock return: -3.6%

U.S. companies once listed on the Dow Jones Industrial Average have disappeared; they are gone forever because of competition and poor management decisions.

My father had a Nash for a few months. In July of 1930, Nash Motors was removed from the Dow (and again in 1939).

Ever drive a Hudson (me neither)? In May of 1932, Hudson Motor was removed from the Dow. Chyrsler had its problems and was removed from the Dow in June of 1979.

Could GM be far behind? Detroit may soon become the American car industry’s museum, and an investor nightmare.

“Twas brillig, and the slithy toves Did gyre and gimble in the wabe; All mimsy were the borogoves, And the mome raths outgrabe.” Reading silently or aloud creates rhythmic nonsense, you might think. Humpty Dumpty explains, defines, and clarifies for Alice. Soon Alice sees meaning. As she does, the upside downs become the right-side ups.

Alan Greenspan often sounded like the Jabberwocky as much as Humpty Dumpty seems senatorial. Mr Greenspan’s economic-blab explained a lot without telling much. His Federal Reserve messages provide detailed economic data with vague nuanced economic outlook.

Many Federal Reserve watchers hope Mr. Bernanke (Alan Greenspan’s successor) tells us a lot so that senatorial Humpty Dumpty’s do not seek explanations for economics “…that haven’t been invented just yet.”

When the Federal Reserve Chairman presents the “Semiannual Monetary Policy Report to the Congress”, it is called the Chairman’s testimony. Testimony may be defined as “Evidence in support of a fact or assertion; proof.” Statements must be lucid and transparent to the hearers to prove assertions or claims.

Mr. Bernanke seems to do this with greater clarity than his prececessor. His sentences are brief, but not terse. According to a CNN Money.com poll, most respondents consider Ben Bernanke’s testimony (or shall we spell it “testimoney”?) the “Same as Alan Greenspan”. If transparency and clarity mean something, it is time for Mr. Bernanke to “explain” it to us.

* The new Fed Chairman used these phrases: “The U.S. economy performed impressively in 2005.”

* “…Energy prices rose substantially yet again.”

* “The Gulf Coast region suffered through severe hurricanes that inflicted a terrible loss of life”

* “Inflation pressures increased in 2005″

A friend of mine calls these “keen observations of the obvious.”

We should expect more from the Fed Chairman. Investors need to know if rates will go up rather than guess. Ratcheting interest rates slows the housing market (Greenspan mentioned this “bubble”), increases the cost of debt as credit card companies and mortgage companies leverage rates, and sends equity and bond markets into an economic vortex.

Rate increases may control inflation, but they do little or nothing, in my opinion, to encourage an economy. There is a greater likelihood that the Fed will overdue interest rate increases (up or down). This will push the economy into a recession or a bubbling boom.

Residents of econo-land, known as economists, worry that the Fed will overdo their inflation concerns. According to some, the Fed has managed inflation poorly since World War II. Nothing in this Federal Reserve Chairman’s testimony suggests otherwise.

Does the Fed move rates up or down, or do interest rates adjust coincident with inflation reports and other economic data? Watch the market before and after the Consumer Price Index reports. The January CPI shows a .7% inflation increase with 70% of that increase attributed to energy costs. You would expect the market to collapse on such news; it did not.

The markets go up sometimes and down others. Humpty Dumpty, would you make the upside downs become the right side ups?

“`Of all the unsatisfactory–’ (she (Alice) repeated this aloud, as it was a great comfort to have such a long word to say) `of all the unsatisfactory people I EVER met–’ She never finished the sentence, for at this moment a heavy crash shook the forest from end to end.”

My son slipped a penny in the slot, cranked the machine, and turned his (or was it mine?) penny flat. He can’t spend it now, but who uses pennies these days? We have drawers full of them. Watching him made me think of Thomas Friedman’s book, The World Is Flat: A Brief History Of The Twenty-First Century (an easy recollection since I was reading the book).

Friedman writes for the New York Times editorial department. He has written Longitudes and Attitudes and The Lexus and the Olive Tree. The World is Flat completes a trilogy that validates Marshall McLuan’s maxim, “We now live in a global village…a simultaneous happening.”

Friedman makes global observations with wise criticism and keen understanding. For example, listen here to Friedman talk about the Iraq War, “If you don’t visit a bad neighborhood in a flat world, it will visit you, ” and it did.

11/9 and 9/11

I won’t give away the entire content of Friedman’s book. I couldn’t do it justice, and it is too long (471 pages). I will tell you that two events hinge the world for Friedman. The fall of the Berlin Wall, the rise of Windows95, and the fall of Windows on the World. Oddly, the first happened 11/9/1989 and the last 9/11/2001.

Finding Flat Pennies

The world is flat because nothing is proprietary. What can be made, learned, constructed, and used in America can be made, learned, constructed, and used almost anywhere. Information and innovation are not constrained; the Internet, the cell-phone, and imagination have global instincts. Almost anyone can flatten a penny.

What a flat world means to your investment choices

Friedman does not address foreign investing. He emphasizes collaboration between scientist, analysts, researchers, academics, and corporations. I encourage you to read the many examples of outsourcing, insourcing, and infosourcing. If we are to maintain a viable international presence, we must involve ourselves with other nations, their betterment, and our mutual benefits.

We can make one keen observation. Investments are not ethnocentric. Intelligence is not either. Every investor must accept a future that involves opportunities in China, India, and Singapore (oriental not occidental). American companies scramble for this opportunity; the Congress and the President should avoid quasi-protectionist acts.

My Son Must Do More Than Flatten Pennies

Fortunately, he does! While doing homework, he types messages to his classmates (discovered girls recently). I told him, “When you spend time sending messages, a young man your age in China or India is working on his next math problem. He is your competition.” Americans are not entitled. Encourage and warn your children and grandchildren.

“The flattening of the world is moving ahead…nothing is going to stop it. But what can happen is a decline in our standard of living, if more Americans are not empowered and educated to participate…. This is not a test. This is a crisis, and as Paul Romer has so perceptively warned, ‘A crisis is a terrible thing to waste’” (The World Is Flat, page 305f).