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When too many people lean on one side of the boat it will tip.
- Ed Carr |
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Today's Featured Article
We find ourselves in one of the busier weeks for the release of economic data. I will explain just what data is to be released and what this information may mean for the U.S. economy.
Monday brought us the Treasury's budget data for the month of June. Tuesday, brought us Retail Sales, Producer Price Index and Business Inventories.
While today is the Consumer Price Index, Capacity Utilization, the Empire State Manufacturing Survey, the IEA petroleum state reports coupled with the API weekly petroleum inventories and the always-anticipated release of the minutes of the FOMC meeting. Thursday brings us the release of the Jobless Claim Figures as well as the Philadelphia Fed Survey. Friday brings us one report, but a big one at that, the Housing Start Numbers.
Monday's numbers should have been an eye opener for even the most near sighted economist. The average budget surplus for the month of June for the last five years has been just under $22 billion. You read that correctly a surplus. June is a quarterly tax payment month and accordingly is always a surplus month for the treasury. However, with the massive spending of this administration we have another record setting number: A DEFICIT of $94.3 billion. For the entire fiscal year of October 1st 2007 to September 30, 2008 the deficit was $286 billion already from October 1st 2008 to June 30th the deficit is $1.1 trillion and climbing.
Tuesday's Retail Sales number came in at an anticipated rise of .6%. The increase in the price of gasoline and all petroleum derivatives, save natural gas, can be attributed for the rise. Producer Price Index rose 1.8%, the largest rise since November 2007. This again can be attributed to a 6.6% rise of the energy index, not a growing economy. The business inventory index fell for the ninth consecutive month off 1%. This in itself shows not only the lack of product demand but also a lessening of the supply.
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This morning's release of the Consumer Price Index was a jump of .7%. This one-month jump can be attributed to the biggest percentage rise in gasoline prices in four years. However, in the start of July, gasoline prices are down over ten cents, postponing any immediate inflationary fears.
Capacity utilization declined to 68%. This report began in 1967. Prior to the current recession the low had been 70.9% in December of 1982. The Empire State Manufacturing Survey indicates that New York manufacturing conditions were flat.
As of this writing the rest of the week's reports have yet to be released. With the myriad of data that has been released and is around the corner what does it all mean?
The most obvious effect is on the U.S. dollar. Relative to history the dollar remains weak and should get weaker, significantly weaker.
Recent talk has surfaced of replacing the United States Dollars as the world's reserve currency. From the days of the Roman Empire to the British Empire the reserve currency of the world was always that of the politically mighty of its time. Political might has three components: the production capacity of that nation, its widely accepted international trade and most importantly its military power. The United States has lost ground on all three fronts.
The current administration has repeatedly not placed the strength of the dollar as a priority. More attention should be paid to the United States dollar maintaining its status as the reserve currency. The advantages are immeasurable. We are able to float an enormous amount of debt through our Treasury auctions that other nations simply cannot. All trade and major commodities are priced in terms of U.S. dollars. When we trade with other nations, goods and services are quoted in U.S. dollars. They must convert from their currency to ours to facilitate a trade.
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As the dollar weakens commodity prices in real terms become more expensive. It takes more cheap dollars to buy the same goods. As we continue to crank up the printing presses at a record pace, the amount of downward pressure it places on our nation's currency is over whelming. Granted all nations of the industrial world have revved up their printing presses, but we are the reserve currency, the country that expects and needs all others to assume its debt.
We have two ways of repaying our debt. We can have an economically efficient and productive nation. This would dramatically increase corporate America's and individual's tax basis providing much needed revenue for our government. Or we can have high levels of inflation; allowing us to pay off our debt in terms of inflated dollars.
As the dollar weakens capital leaves and seeks a stronger home. Corporate America as well as individuals flee to a more business friendly community that is not stymieing growth with new and increased taxes. One only needs to read "Atlas Shrugged" by Ayn Rand to see what happened to business in a society that is hell bent on taxing the productive and showering the unproductive with handouts. At the current rate the U.S. Dollar will not gain strength from a more productive community. To help pay back our debt we can lessen government spending but this seems not even an option that is to be considered in Washington.
This leaves us one way to pay back our debt. Leave interest rates low. Let the economy grow unabated with little regard for inflation. Perhaps double-digit inflation is on the horizon in five to ten years. The debt will be much easier to pay back with inflated dollars. The classic definition of inflation is too much money chasing too few goods. Although capacity utilization is at record lows the amount of money in the system (with one stimulus plan just starting and a second one beginning shortly) is increasing at an alarming rate.
Trade accordingly; as the dollar weakens expect gold to increase. Both may set records yet to be seen. Many ways exist to take advantage of the path we are about to embark on. Have a professional guide you through the exceptional opportunities presenting themselves.
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About the Author
Mr. Ed Carr
graduated from Allegheny College with a Bachelor of Science in Economics. He continued his education by obtaining a Masters in Business Administration in Finance from Fairleigh Dickinson University. His initial career foray was as an account executive of a large commodities brokerage firm. In five years he was ranked as a top producer and was promoted to management. Shortly thereafter he was recruited by a major brokerage firm and became their Vice President.
In 1987 he put his experience to use and founded Carr Investments Incorporated. Carr Investments had professionally handled thousands of clients worldwide for ten years. In 1998 the assets of Carr Investments were acquired by Trader's Edge Inc. Mr. Carr took over the role of President and Jonathan Lubow as Vice President.
His vast experience has enabled him to market four unique ways of trading options that have been utilized by many firms, as well as individuals. Mr. Carr has appeared as a guest on several investment shows and given numerous seminars and lectures to professional investors, corporations and individuals throughout North and South America. Mr. Carr has been married for over twenty-five years, has four children and resides in Morris County New Jersey.
Ed is also a contributor to Optionsscholar. |
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Special Message from Our Author
Get Your Complimentary Booklet!
For a limited time, Trader's Edge is offering a complimentary booklet, "Smart Trading Techniques: How to Profit from Time Value Decay Writing S&P 500 Credit Spreads". John Summa, a well-known options trader and advisor, shares his time-value-friendly strategy for trading options on the S&P 500 futures. Why not put his experience to work in your portfolio? Get your complimentary booklet from Trader's Edge now!
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