Monday, December 15, 2008

The U.S. Dollar has biggest One Week Decline in 25 years - Did you know that?

Here is an interesting article I read on SeekingAlpha.com this weekend

"The U.S. Dollar ....its largest one week drop in percentage terms in at least 25 years."

"Historically, a falling dollar has generally not been positive for stocks. It will, however, provide some support for exporters and enhance demand for commodities that are quoted in dollars across the globe."

"Now with the mushrooming U.S. debt on top of an already severe economic crisis, the prospects for the U.S. economy relative to that of some of other global economies is being reevaluated from one of the strongest to perhaps only slightly better than average.
The dollar appreciated approximately 23% from July to November. This week the dollar moved below its 50 day moving average for the first time since the July bullish move again. "




My take: I've been commenting on this blog that we, as a country, can't print our way out of this problem without inflationary concerns creeping back into the economy. I didn't expect the U.S. dollar to begin collapsing this quickly. Then again, this is only a pullback, not a collapse :) But it does get me worried how quickly the dollar has fallen. I look for commodity prices to begin rebounding as most are denominated in U.S. dollars. Oil should start to creep back into the $50 price per barrel area and maybe even hit $60 if the trend continues. I expect cuts from OPEC to actually start happening at some point although, from what I have read, so far only 800k of the 2 million barrel cuts have actually started to happen. Countries continue to overproduce to pay for their committed government spending this year.....and likely next :) As a result, I think that market volatility for commodities and equity prices will be around for awhile :)

Oh, by the way, you see the 60 minutes show that had the head of Saudi Arabia's oil industry talking about the price of oil? Saudi Arabia is INCREASING their production capacity, giving them more control over the oil industry and volatility of prices (in theory.) Production will go from 10 million barrels per day to 12 million barrels per day once the project is done. By early 2009 their capacity will be up and oil prices will remain down. Talk about taking hybrid autos on. With oil in the sub 50s do hybrids ever get market acceptance? Will consumers, in an economic downturn, pay the premium price for a hybrid vs. a gas guzzling SUV? I think we are ADDICTED to oil and these guys are going to enable us to be that way for quite awhile. O, by the way, the Saudis publicly say that they would like oil to be at around $75 per barrel and their break-even price is $55 (where the country actually spends more $$$ than they make from oil sales, 75% of their economy.)


Watch CBS Videos Online

Here is Part 2 of that interview.

Watch CBS Videos Online

Dan Ross

1 comment:

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