Stocks and Dollars

Paco Ahlgren submits:

“Inflation can be pursued only so long as the public still does not believe it will continue. Once the people generally realize that the inflation will be continued on and on and that the value of the monetary unit will decline more and more, then the fate of the money is sealed. Only the belief, that the inflation will come to a stop, maintains the value of the notes.”
– Ludwig von Mises

Somebody print this and stick it somewhere safe: this recession/depression will be the metric for all future crashes, economic collapses, and currency failures. It will create global unrest on a level never before seen, and the world order is going to transform as though the whole thing had been thrown in a blender. I predict that, within ten years, Austrian theory will be the basis of all economic and financial curricula in the world. And I believe Keynesian theory will be taught as an obscure history course.

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Cliff Wachtel submits:

I notice that many readers are confused about why the dollar is rallying despite the numerous chronic fundamental weaknesses in the US economy. These include:

• Continued job losses. Until recently, it appeared that at least the pace of these losses was slowing, but lately it has picked up again, casting doubt on the belief that the employment picture is turning around. That makes real recovery virtually impossible, because weak jobs and personal incomes in turn cripple recovery in:
  • Consumer spending, which comprises about 90% of US GDP.
  • The critical banking and housing sectors, which both depend om consumer spending and incomes for repayment of residential and commercial loans. Remember that these sectors led the US and the world into the current economic crisis, and are very likely to be key to a self-sustaining recovery.
  • Bank lending to small businesses, which are the typical job generator in a recession, remains depressed, limiting the ability of these businesses to hire and provide the solution to the very sectors that need them to produce jobs. US bank lending was down again in Q4 of 2009 by 7.5%. Small businesses tend to be last in line, suggesting the decrease for them was higher.

• A growing state and municipal debt crisis as local taxes fall (from falling incomes and housing prices) and a growing load on social services.

• Signs of weakening demand for US Treasury Bonds. At minimum, that suggests rising US borrowing costs. Of course, if the EU debt crisis continues to worsen (likely), US bonds could see good demand for lack of an alternative.

One could go on and on. So why is the US dollar rallying?

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Brian Dolan submits:

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Benjamin Mackovak submits:

Titan International (TWI) offers a compelling value even based on what are very likely to be trough earnings. Sales have evaporated across all of the business segments, however the agriculture segment (75% of sales) should rebound significantly from current levels given the recurring and nondiscretionary end demand for that industry. The stock has a free cash flow yield of over 10% for 2010 which is based on a revenue level that is still down -26% vs. the level seen in 2008. With a tangible book value of $7.43, the downside is limited here with upside potential of roughly $11.

Company overview

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Michael Johnston submits:

To this point in 2010, investors around the globe have paid close attention to every development in the euro zone, as crumbling public finances in the region have threatened to spark a wave of crippling defaults and have called into question the sustainability of the common currency. Most of the attention has focused on Greece, where a skyrocketing public deficit has set the stage for a downgrade of sovereign debt to below investment grade.

While Greece’s financial mess is less than ideal for the euro zone, the relative size of the country’s GDP and debt burden have put some investors at ease. While many wealthy EU members have expressed publicly their opposition to a Greek bailout, such a move would be very doable. The problem is that Greece isn’t the only trouble spot, and providing sufficient aid to other distressed economies would be much more of a challenge.

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Prieur du Plessis submits:

The video clips below provide a handy summary of the reports expected on the economic, financial and corporate front around the globe during the week ahead.

US: Jobs report on Friday
Manufacturing data, consumer-spending numbers and auto sales will be on tap next week. The big number comes at the end of the week with February’s payrolls report.

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Adam K White submits:

Aluminium used to be something that made aeroplanes and drinks cans. Now it is a financial instrument.

Between 75 and 90 per cent of the world’s physical aluminium stocks are tied up in financial arbitrage deals exploiting the difference between the spot and forward price, according to several industry insiders. In November Klaus Kleinfeld, chief executive of Alcoa, described the stocks tied up in financial deals as “almost all”.

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David Merkel submits:

When does a sovereign or semi-sovereign government default? I have seen three answers:

1) When debt is greater than future seniorage revenue (central bank profits) plus future debt repayments. (Kind of a tautology, but what is implied is that if future debt repayments are onerous, a government would default.)

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