Monday, August 4, 2008

The Ides of March and beyond

A lot has been written about the economy lately, and most of it very negative. Some reactionaries, Phil Gramm being only the loudest, have taken the contrarian view, that if people perceived as liberals are saying x, it falls upon them to say not x as loud as they can.

The news is not mistaken. Some parts of the economy are in bad shape with no end in sight. When we will see the bottom of the housing market slump or a return to near full employment or the end of the inflationary cycle is anybody's guess. But there are some fundamentals that are not being widely reported that can be seen as good news.

Over the past few years, the dollar took a free fall. Analysts always have their speculation as to why the market shows favor or not to a particular currency or commodity, but whatever it was from 2006 to about mid-March of 2008, there was about a two year worldwide hate fest for the greenback. In mid-March, the Swiss Franc and Japanese Yen reached their high marks against the dollar, as did the prices of an ounce of gold and an ounce of silver.

And then it stopped.

Everyone has their theories. Mine is that important round number barriers were crossed and people who had bought into the appreciating currencies and commodities found the number at which they were happy to sell. $20 for an ounce of silver, $1000 for an ounce of gold, a dollar for a Swiss franc and a penny for a yen. Nice round numbers all of them and all of them the high water marks from which these commodities and currencies retreated and have not yet returned. Good news or bad news for the U.S. economy makes very little difference right now. The investor class is no longer holding big negative positions on the U.S. dollar.

Of course, this doesn't mean everything is completely stable and there haven't been winners and losers in the last four plus months. What follows is a list of currencies, commodities and market indexes followed by three numbers. Each of the numbers is an amortization rate of how the investment would do if it continued to grow at a given rate for all of 2008. The first number is the growth rate if it continued the growth seen from Jan. 1 to Aug. 3, the second number is the rate if the growth from Jan. 1 to April 15 had continued, and the third number is what the growth rate would have been if the markets continued the wild ride of Jan. 1 to March 15 for the entire year.

Crazy to relatively calm growth
Japanese Yen ____ 8.3% 27.3% 87.7%
Gold __________ 16.1% 21.3% 146.6%
Silver _________ 32.9% 51.2% 413.9%
Swiss Franc _____ 13.0% 30.4% 80.9%

Silver grew last year, but much more slowly than gold or crude oil. It did what it could to make up for that at the beginning of 2008, and is still outperforming gold by percentage growth for this year, but not at the ridiculous rates it was growing at in the first 80 days of 2008. After a penny a yen in March, the Japanese currency retreated significantly.

Calming down, still positive growth
Aussie $ _______ 11.1% 23.0% 41.6%
Euro __________ 9.9% 20.2% 35.7%
Russian Ruble ___ 7.2% 11.3% 19.5%
Chinese Yuan ___ 11.6% 13.7% 15.2%

The euro and Aussie dollar were going great guns early this year, but have fallen back to earth since. The yuan has grown calmly all year long, though not quite as well as it did in those first 80 days.

Crazy to relatively calm downward trends
NASDAQ ________ -20.8% -25.0% -58.7%
South African Rand _ -9.4% -30.0% -52.5%

Having your money in the dollar wasn't the worst choice, just one of the bad ones. The NASDAQ has shrunk in value since the beginning of the year, and so has the rand.

Negative and unpredictable
Canadian $ _____ -7.5% -10.6% -4.0%
Dow Jones _____ -23.5% -8.7% -39.9%
Indian Rupee ___ -11.3% -5.3% -12.2%

On March 15, the NASDAQ looked much worse than the Dow. As of now, the Dow has taken a larger percentage hit than the NASDAQ this year. The Canadian dollar actually hit its high water mark in late 2007 and has been losing value for most of the year, never too much but it looks like the loonie equals greenback threshold is where the market is happy.

The slow leak
British Pound ___ -1.6% -1.4% 6.9%

Sterling continued to grow in the beginning of 2008, then the market decided that two bucks a pound was just a little too much to pay, and that appears to be the psychological threshold for the time being.

Doing better now than March
Brazilian Real ___ 23.9% 20.8% 16.6%
Mexican Peso ___ 16.6% 13.8% 5.7%

Not everything has calmed down completely. If you got your money out of Canadian dollars in March and decided to put it into Mexican or Brazilian currency, you could have come out like a bandit. I have no idea the reason why, but those are the numbers.

Matty Boy, you scamp! This so-called economic post is just a ruse for a picture of las chicas lindas from south of the border, isn't it?

Well, hypothetical question asker, I will admit that I decided to put the picture in as a reward for those who read this far, but I categorically deny that it constitutes a ruse. I have my standards.

The worldwide wild card
Crude Oil 58.0% 94.4% 93.6%

We have to get off the black tar heroin of our economy sometime, and now is as good a time as any. The modern world does not exist without petroleum, but we don't have to be such pigs about it. It appears that $150 a barrel is now a psychological barrier, and the public started paying attention when the price went over $140 a barrel, and breathed a sigh of relief when is fell back to its current level around $120 a barrel. But recall that it crossed $100 a barrel as a week ending price for the first time in history earlier this year, and that was no psychological barrier. This has been the modus operandi of the price of crude for a while. A threshold gets crossed, people howl, it falls back. Early on in the war, economic guys like Larry Kudlow and Jim Cramer were acting like $50 a barrel oil was the start of the Mad Max movies coming true. But the second time the threshold is crossed, people don't howl as much. If I were to gamble, I would guess the price at the end of the year will be closer to $150 than it is to $100, and I don't just mean $125.01.

It's just a guess, but it's an educated guess.


FranIAm said...

Outstanding my man, simply outstanding.

You splained really really good today.

Some cable network ought to hire you to speak da truts. Oh noes, dey do not like da truts on tv.


namastenancy said...

Great great essay - you ARE ready for prime time (IMHO). And I like the photo of las chicas lindas. Pretty Latino women (and redheads and Gibson girls) are always a nice artistic addition to the essay du jour.

dguzman said...

Nice pics I mean stats!

And I must agree--oil may not be breaking records just now, but once the thermometer starts dropping again, look out. Our heating oil bill just DOUBLED over last year's. We went from $2.12 a gallon to $4.39. Fortunately, we have a capped price, but if it goes lower than 4.39 we get money back. I'm just glad we can (probably) afford to pay the extra hundred and change per month; what if we couldn't? Would we just freeze? I think some people up here in the Northeast may just be headed for that. I know we'll sure be wearing a lot more layers indoors come winter.