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Don’t be fooled by Europe’s consistent demand that the U.S. support a stronger dollar. Or Russia’s threats to create a new reserve currency. Or President Obama’s insistence that China let the yuan strengthen. World leaders are all playing the same game: trying to have the weakest, most competitive currency. It’s a race to the bottom.
I kind of feel sorry for the European Union countries. They have the least ability to devalue. All they can do is gripe. And you have to hand it to the Chinese. Pegging the yuan to the dollar to keep it from rising is a smart move. The U.S. is the one country that can basically do what it wants with its currency.
*****Commodities are moving higher across the board today. Gold, copper, platinum, silver, oil – you name it, it’s up.
We’ve discussed the forces that are driving these raw materials higher: a weak US dollar, global growth expectations and no end in sight for low interest rates.
Inflation is not a concern due to industrial overcapacity and unemployment. The traditional definition of inflation – too much money chasing too few goods – simply doesn’t apply to the current situation.
My Global Commodity Investor advisory service is sporting some excellent gains (like 107%, 64%, and 37%) and there are more on the way…
*****The Consumer Price Index showed a bit different picture this morning than the Producer Price Index did yesterday. Prices at the consumer level came in stronger than expected, with a 0.3% rise. The Core number which excludes food and energy was up 0.2%.
Economists expected the CPI to be weaker than PPI, which suggests that companies would be unwilling to pass on a slight rise in costs to the consumer. On the surface, the fact that price gains on the wholesale and consumer level were comparable suggests that higher costs are being passed on. That, in turn, would seem to bode well for both the health of the consumer, and corporate profitability.
But the jump in consumer prices came solely from car prices, which rose 1.6%. Without that price jump, the CPI would have been negative. The reality seems to be that companies are actually not passing on costs to the consumer. And it’s clear why…
I know it sounds like a broken record, but unemployment is keeping a lid on spending. And I would further suggest that companies are simply unloading inventory, rather than responding to increased demand.
I hate to simply echo the Fed, but the U.S. economic recovery is vulnerable.
*****There is some very significant news concerning Mexico that was buried in a Bloomberg story about Japanese Samurai bonds.
Apparently Mexico, along with Colombia, Poland, and Singapore, is turning to Japanese investors to fund their budget deficits. Mexico will be selling Samurai bonds to help fund its widest budget deficit in 20 years.
A senior credit analyst at Mizuho Securities Co. in Tokyo told Bloomberg that "…[t]he demand for Samurais is strong while the supply is running short…These emerging economies with high profiles are a good buy."
A good buy? Wrong. At least in Mexico’s case. The reason for Mexico’s budget shortfall is oil. And it’s not the low prices, either. It’s the fact that Mexico’s mega-field, Cantrell, is drying up.
*****In 2006, Cantrell was producing 2 million barrels a day and oil exports accounted for 40% of Mexico’s revenue. Today, Cantrell is producing less than 500,000 barrels a day. Mexico will lose around $23 billion in revenue from lost oil exports.
And the thing is – there’s no way for Mexico to make up this loss. Sure, maybe the Japanese will subsidize Mexico. But Mexico is starting down a path from which there is no return.
Frankly, I don’t know why Mexico’s dire situation isn’t making headline news. But this is extremely important. And I will be discussing this more – and finding ways to profit form this situation – in future issues of Daily Profit.