MONEY 55 - CURRENICIES

THIS IS MY 55^TH BLOG ON UNDERSTANDING MONEY TOOLS

I thought I would write a blog as a summary of my readings of economic reports on current world financial events.  (12/1/14)

As you might already realize there is a waning of economic stability and growth in the world.  Central banks have for several years been pumping money into emerging countries, that are now debt burdened. Let’s recap on the larger countries slowdowns. These countries in South America include Chile, which surprises me, Argentina, Brazil, and Venezuela. Venezuela relies a lot on oil production and current prices are down. In Europe Germany, the strongest by far holds that together, although the EU has almost no growth. Russia relies on commodities including oil and gas and those prices are down. As I write oil settled in at about $68/barrel. China has been producing goods and exporting sustaining economic growth in the 10% range. Now, it is predicted that they may be slightly over 7% growth, and with a lot of debt major financial decisions will need to be made. India is similar relying on exportation of goods, but the world buying market is soft.  Japan’s Yen, (currency) has strengthened, exports weakening and about a week ago announced that the country is now in recession.

With countries in the Middle East in turmoil a lot of money has come into the US stock markets and buying of our currency, the dollar. This has driven up the price of the dollar to recent highs compared to other world currencies. As oil is mainly bought and sold in US dollars this is one reason oil has dropped from the $100/barrel pricing. As the dollar strengthens oil will drop, at some point that will turn. The lower price for oil is hurting the profitability of oil companies here in the US, with possible layoffs in the industry occurring in the near future. Our break-even on a barrel of oil is currently about $57. The lower price of oil will benefit more people and countries than will be hurt by lower pricing. Saudi Arabia has a lot of cash available and can sustain low prices for a long time; I have heard this amount to be just under $1 trillion. Many believe it will be years before we see oil at $100/barrel or above. There currently is an oversupply of the commodity and more efficiencies in production have lowered costs. In the US the smaller, leveraged companies will find it difficult. Currencies of oil producing countries like Norway, Russia and the Middle Eastern countries have seen a significant drop in value.

Countries are trying to improve their exportation of goods, and building their weakened economies. Interest rates are at all time lows, so there is no room for manipulation of rates. The only option that these countries have, including the US, is to print money and weaken their currencies. The problem here lies with everyone following suit.  This will not help as currencies will be in parity with one another.

Many of the supposed “gurus” are predicting that the US will also start round 4 of Quantitative Easing, printing more money.  The reason here relates to all countries weakening economies and exports. Our recent rise in the dollar will have a negative effect on exports, thus corporate earnings will be lower, and the stock markets “should” trend lower. On the other hand, if we start QE 4 more money will go into the US stock markets, and possibly offset lower corporate earnings.  Another important note is that there are few safer havens for investments in the world than our stock market.

I just read an article by a well reputed person that adjusted for inflation the stock markets haven’t seen such highs since 1871 with the exception of about 3 years, 1998-2001, the “dot com” years.

Here’s some fun trivia. Ben Franklin was instrumental in starting one of the US’s first stock markets. The New York Stock Exchange began on March 8, 1817 at 11 Wall Street in Manhattan, NY.  The first governing/regulating of stock trading came about in 1792 with the Buttonwood Agreement. Ben Franklin, what a guy. Amongst many things he started the University of Pennsylvania in 1740. I went back to the University in 1990, with my now ex-wife who had a couple of degrees from there, to celebrate the 250^th anniversary.

Again, it is really “kick the can” down the road, trying to create good economies with leverage, but it is quite artificial. Interesting times ahead.