Bear Market


Bucking trend, REOs show price gains: Clear Capital

April 30, 2012 by · Leave a Comment 

Investor demand could be a driving force behind increasing prices for REO properties, as measured on a median price per square foot, which is increasing at a much faster pace than non-REO sales.

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Big Employers Extorting States, Pocketing Employee Income Tax Withholding

April 30, 2012 by · Leave a Comment 

Wonder why states are broke? It isn’t just the global financial crisis induced knock-on effects of a plunge in tax receipts and a rise in social safety net payments. Nor is it just pension fund time bombs (note that despite the press hysteria, the problem is unmanageable only in a comparatively small number of states, with New Jersey way out in front, thanks to 15 years of the state stealing from the workers’ kitty, plus a decision to take big risk at exactly the wrong moment, in 2007, which resulted in large losses). A significant unrecognized culprit is companies managing to divert tax revenue from stressed states to their coffers. The device, in this case, is demanding the right to keep state income taxes withheld from employee paychecks

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Australian House Prices Fall for Fifth Straight Quarter

April 30, 2012 by · Leave a Comment 

Australian house prices declined in the three months through March in the longest losing streak in at least a decade as the central bank maintained the highest borrowing costs among major developed nations.

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CalPERS finds Vernon wrongly raised officials’ pay

April 30, 2012 by · Leave a Comment 

Vernon improperly classified some attorneys as public safety employees, incorrectly reported council members’ pay and failed to provide sufficient documentation on raises, report says.

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Ability-to-Repay Rule for Mortgages Nears CFPB Approval

April 30, 2012 by · Leave a Comment 

“Here’s what should be the least surprising lending advice you’ve ever heard: If you are going to lend money, you should probably care about getting paid back,”

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Our Loving Bankers: RBS Chief Opens His Gardens to the Public Who Bailed Him Out

April 30, 2012 by · Leave a Comment 

He has hired some of the best landscape gardeners in the country to turn Broughton Grange into ‘one of the most significant private contemporary gardens in Britain’, in the words of one expert.In rolling hills outside Banbury in Oxfordshire, the country pile boasts an outdoor heated swimming pool, two tennis courts and two horse paddocks.

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Weekly Forex Market Followup (April 23 – April 27th 2012)

April 30, 2012 by · Leave a Comment 

By Michael Trinkle, ForexTraders

Key Fundamental Forex Events for the Week of April 23rd through April 27th

The following table lists the key economic data and other events that came out during the week of April 23rd through April 27th, with release times displayed for the GMT time zone.

The list also indicates how much each release deviated from the market consensus forecast upon release, as well as what the affected major currency pair or pairs did after each event or set of events.

Monday, April 23rd

  • 1:30am AUD PPI -0.3% versus 0.6% expected. The currency fell.
  • 2:30am CNY HSBC Flash Manufacturing PMI 49.1 versus 48.3 expected.

Tuesday, April 24th

  • 1:30am AUD CPI 0.1% versus 0.8% expected. The currency fell.
  • 8:30am GBP Public Sector Net Borrowing 15.9B versus 15.6B expected. The currency rose.
  • Tentative ALL G7 Meetings
  • 12:30pm CAD Core Retail Sales 0.5% versus 0.8% expected. The currency rose.
  • 2:00pm USD CB Consumer Confidence 69.2 versus 70.1 expected. The currency fell.
  • 2:00pm USD New Home Sales 328K versus 321K expected.
  • 5:30pm CAD BOC Governor Carney said that, “The Bank projects that the economy will grow by 2.4 per cent in both 2012 and 2013 before moderating to 2.2 per cent in 2014. The degree of economic slack has been somewhat smaller than anticipated, and the economy is now expected to return to full capacity in the first half of 2013.” 

Wednesday, April 25th

  • 7:00am EUR ECB President Draghi said that, “Looking forward, in an environment of modest growth in the euro area and well-anchored inflation expectations, underlying price pressures should remain modest. Risks to the outlook for price developments are broadly balanced. Upside risks could stem from higher than expected oil prices and further indirect tax increases; downside risks could arise from weaker than expected economic activity. “ The currency rose.
  • 8:30am GBP Preliminary GDP -0.2% versus 0.1% expected. The currency rose.
  • 12:30pm USD Core Durable Goods Orders -1.1% versus 0.6% expected. The currency fell.
  • 4:30pm USD FOMC Statement noted that, “The Committee is maintaining its existing policies of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction.”
  • 6:00pm USD FOMC Economic Projections noted that, “Appropriate monetary policy, by definition, is the future path of policy that each participant deems most likely to foster outcomes for economic activity and inflation that best satisfy his or her interpretation of the Federal Reserve’s dual objectives of maximum employment and stable prices.”
  • 6:15pm USD FOMC Press Conference. Fed Chair Bernanke said that, “Incoming information suggests that the economy has been expanding moderately. Most Committee participants expect economic growth to remain moderate over coming quarters and then to pick up gradually. Among other factors, and not withstanding some signs of improvement, the ongoing weakness of the housing sector still represents a headwind for recovery. Strains in global financial markets, though less pronounced generally than last fall, continue to pose significant risk to the outlook.”
  • 8:15pm CAD BOC Governor Carney said that, “As a result of this reduced slack and higher gasoline prices, the profile for inflation is expected to be somewhat firmer. After moderating this quarter, both total and core inflation are expected to be around 2 per cent over the balance of the projection horizon as the economy reaches its production potential, the growth of labour compensation remains moderate, and inflation expectations stay well-anchored.” The currency rose.
  • 9:00pm NZD Official Cash Rate 2.50%, as expected. The currency fell.
  • 9:00pm NZD RBNZ Rate Statement noted that, “The New Zealand dollar has stayed elevated despite recent falls in commodity prices. Should the exchange rate remain strong without anything else changing, the Bank would need to reassess the outlook for monetary policy settings.”

Thursday, April 26th

  • 12:30pm USD Weekly Initial Jobless Claims 388K versus 378K expected. The currency fell.
  • 2:00pm USD Pending Home Sales 4.1% versus 1.4% expected.

Friday, April 27th

  • 4:46am JPY Monetary Policy Statement noted that, “Looking at economic developments overseas, a risk of the European debt problem causing financial market turmoil has decreased and the U.S. economy has continued to recover at a moderate pace. Against this background, although Japan’s economic activity has remained more or less flat, it has become increasingly evident that the economy is shifting toward a pick-up phase as positive developments have become widespread.” The currency rose.
  • 4:46am JPY Overnight Call Rate <0.10%, as expected.
  • 8:34am JPY BOJ Press Conference. BOJ Governor Shirakawa noted that, “Looking at economic developments overseas, a risk of the European debt problem causing financial market turmoil has decreased and the U.S. economy has continued to recover at a moderate pace. Against this background, although Japan’s economic activity has remained more or less flat, it has become increasingly evident that the economy is shifting toward a pick-up phase as positive developments have become widespread.”
  • 12:30pm USD Advance GDP 2.2% versus 2.6% expected. The currency fell.

Technical Recap for the Majors This Week

EURUSD:

Forecast: Lower
Actual: Mildly higher from a 1.3183 open to a 1.3249 close.

USDJPY:

Forecast: Lower
Actual: Lower from an 81.49 open to an 80.45 close.

GBPUSD:

Forecast: Mildly Lower
Actual: Higher from a 1.6119 open to a 1.6237 close.

AUDUSD:

Forecast: Higher
Actual: Mildly higher from a 1.0368 open to a 1.0442 close.

USDCAD:

Forecast: Lower
Actual: Lower from a 0.9915 open to a 0.9809 close.

NZDUSD:

Forecast: Higher
Actual: Mildly higher from a 0.8164 open to a 0.8191 close

More articles from ForexTraders….

When Data Is Spun, What Data Can We Trust?

April 30, 2012 by · Leave a Comment 

By Charles Hugh Smith, OFTWOMINDS


“Headline” government data is massaged, falsified or spun for the purpose of perception management: believe the headlines at your own risk.


Modern investing offers the promise that investors who “do their homework” and use data more intelligently than the herd can gain a valuable edge. But what if the underlying data available to the investing public is fundamentally flawed? 
The federal government agencies that issue headline data and the mainstream media that reprints the data without skeptical analysis would have us believe that these indicators — the unemployment rate and the consumer price index (CPI), for example — accurately reflect economic realities.
The other indicator that is implicitly or explicitly assumed to reflect the economy’s health is, of course, the stock market, generally represented by the S&P 500 index.
That the government indicators and the stock market are both suspect is now a given.
The chart below, one of many possible examples, proves this suspicion is well-founded.  This is a chart of a broad measure of employment in the U.S. published by the U.S. Department of Labor, Bureau of Labor Statistics (BLS). As we can see, when 140 million people had jobs in 2009, the official unemployment rate was 7.3%.
Yet when 140 million people had jobs in early 2012, the unemployment rate was 8.3%. How can the rate change when the number of jobs remain constant? The reason is that the unemployment rate is based not just on the number of jobs but on the number of people who are ready, willing and able to work—the labor force. The unemployment rate is based on the labor force minus the number of employed equals the number of people counted as unemployed. 
The government games the unemployment rate by keeping the labor force number artificially low.  Despite the working-age population rising by 9.4 million people since 2008, the official labor force has been 154 million since 2008. Where did the government put all those millions new workers? In the “not in the labor force” category, which rose by roughly 8 million since early 2009. In other words, dropping millions of people from the labor force artificially lowers the unemployment rate. 
It doesn’t take any fancy analysis to conclude that if the true labor force were counted, then the unemployment rate would be much higher — and that is, of course, politically unacceptable.
So the numbers are gamed, massaged, adjusted… However you choose to describe it, the “headline number” of unemployment reflects political expediency, not reality.
The same can be said of the CPI and a slew of other headline data points issued by the government and blithely accepted by a corporate mainstream media committed to presenting the “recovery” as real.

If We Can’t Trust Headline Indicators, What Can We Trust?

If these headline indicators are not a reliable reflection of economic reality, what is?
To the degree that any government statistic can be massaged, seasonally adjusted, or simply rejiggered behind the curtain, we must always be alert to the possibility that numbers have been gamed for political expediency.
But the farther we move away from headline numbers, the farther we also get from the political pressure to make the numbers either positive or benign. For example, relatively few people are going to study chart PRS85006173, showing labor’s share of the non-farm business sector (i.e., the vast majority of the economy).
This charts reveals that labor’s share of the economy has been falling sharply since the dot-com top in 2000, and has been in a downtrend of lower highs and lower lows since 1982. This suggests that the number of counted jobs (which includes part-time, temporary, and self-reported self-employed) may be less valuable as a metric of economic recovery than income and labor’s share of the economy.
Indeed, if income is adjusted for inflation, then real household mean incomes have been declining since the housing-credit bubble topped in 2006-7:
In the following chart, income is not adjusted, and so it appears to be resuming its decades-long ascent. But if we add household debt, then another picture emerges, one of household debt rising far faster than income. Debt must be serviced, and rapidly rising debt imposes a burden on household income. Income may be rising in nominal terms, but if it is declining in real terms and the debt that must be serviced out of that income is skyrocketing, then how meaningful is nominal income?
Rather than reflecting meaningful growth, the apparently rising nominal income deceptively masks the reality of declining real income and avoids the costs imposed by a stratospheric rise in debt.
Since income is taxed, then tax receipts are another measure of income. Obviously the amount collected depends on the tax rates that are in effect for that year, so tax receipts may decline if tax rates fall. Nonetheless, in aggregate, tax receipts are a metric that is difficult to game or “seasonally adjust” to serve political expediency.
Here is a graph of total federal tax receipts.
Note that the data is not adjusted for inflation; it is nominal. We can see the sharp declines in federal tax receipts after the dot-com and housing bubbles popped, along with the resurgence of tax receipts in the “recovery.”
According to the BLS, what cost $1 in 2008 now costs $1.07 — an absurd under-reporting of inflation by many analysts’ calculations. But the point here is that tax receipts remain well below 2006 peaks; they are also 7% less just from the loss of purchasing power. If official inflation is grossly underestimated, that loss might well be much greater. In other words, simply getting back to the previous peak in nominal terms still leaves tax receipts down 7%-10% (or more) in real terms.
The recent resurgence in tax receipts can be presented as evidence of “recovery.” But just as the financial health of households can only be measured by plotting both income and debt, we must look at government debt, not just its income. Here is a chart of federal debt held by the public — that is, all federal debt excluding “intergovernmental” debts that arise from the government “borrowing” (i.e., expropriating) Social Security funds.
Notice how the federal government borrowed/squandered $6 trillion from 2008 to the present. Once we understand the enormity of this unprecedented borrow-and-spend policy, it is underwhelming to find that $200 billion “trickled down” in increased federal taxes paid.
Since virtually all workers drawing a wage or salary and all self-employed people with a meaningful net income pay Social Security taxes, the next chart, ‘Contributions for Social Insurance,’ offers a reasonably accurate reflection of actual earnings.
This decline is at odds with nominal increases in income and supports the notion that earned income is actually declining regardless of how many jobs are being counted (or imagined) by government agencies.
How about all of those corporate profits, which are presumably the foundation of the stock market’s glorious double from March 2009 lows?  Corporate taxes have yet to recover pre-recession levels, too; perhaps this is the result of American corporations’ famous ability to lower tax liabilities, or perhaps the recovery in real corporate profits hasn’t been quite as spectacular as is broadly assumed.
No enterprise can be accurately assessed without understanding its profit and loss statement and balance sheet of assets and liabilities, and why should it be any different for households and government? In looking at the income and debts of both households and our government, we have a more balanced and accurate assessment of the “recovery” than that afforded by politically expedient headline numbers.
In Part II: The Three Key Indicators to Watch, we ask the question, what investment-actionable indicators of financial and economic reality can we rely on?
The “good” news is that the options of potential outcomes for the macroeconomic picture are narrowing, making the future a little easier to predict and plan for. The sobering truth is that the narrowing choices ahead of us each involve a magnitude of pain we’d rather avoid. Now more than ever, investors need reliable compass points by which to navigate.
Click here to access Part II of this report (free executive summary; enrollment required for full access).

This report was originally published on chrismartenson.com under the title What Data Can We Trust?


Resistance, Revolution, Liberation: A Model for Positive Change (print $25)
(Kindle eBook $9.95)
Read the Introduction (2,600 words) and Chapter One (7,600 words) for free.

We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.
The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution, and it combines cultural, technological, financial and political elements in a dynamic flux.
History is not fixed; it is in our hands. We cannot await a remote future transition to transform our lives. Revolution begins with our internal understanding and reaches fruition in our coherently directed daily actions in the lived-in world.

Thank you, David W. ($25), for your most-excellently generous contribution to this site–I am greatly honored by your support and readership. Thank you, Bill B. ($5/mo), for your splendidly generous re-subscription to this site–I am greatly honored by your ongoing support and readership.

Go to my main site at www.oftwominds.com/blog.html
for the full posts and archives.

More articles from Charles Hugh Smith….

Does Believing in the "Recovery" Make It Real?

April 30, 2012 by · Leave a Comment 

By Charles Hugh Smith, OFTWOMINDS


Basing a “virtuous cycle” on lies and propaganda is self-defeating.

Does believing in the “recovery” make it real? The propaganda policies of the Federal Reserve and the Federal government are based on the hope that you’ll answer “yes.” The entire “recovery” is founded on the idea that if the Fed and Federal agencies can persuade the citizenry that down is up then people will hurry into their friendly “too big to fail” bank and borrow scads of money to bid up housing, buy new vehicles, and generally spend money they don’t have in the delusional belief that inflation is low, wages are rising and the economy is growing.

In other words, the “virtuous cycle” of new debt feeding economic growth is based on conning (or brow-beating) the American public into believing that the “recovery” is real. Our “leaders” hope this baseless belief will spark a buying frenzy that then fuels a real recovery.

Perception may seem like everything to our Delusionol(tm)-soaked “leaders,” but reality still trumps the con. Real wages are declining and debt loads are still crushing, so the new cycle of borrowing and consumption the Fed and Central State want to create requires trillions of dollars of free money, either guarantees or subsidies from Federal agencies or trillions in monetary printing via “quantitative easing.”

Everybody loves free money, but once again reality trumps fantasy, for guaranteeing lenders from loss leads to moral hazard, and distributing free money leads people to gamble it on speculation or other forms of unproductive mal-investment.

So all the free money is squandered or gambled away, but the Federal government is left with the debt it took on to fund the trillions in give-aways. That means the cost of servicing all that new debt rises, which means either government spending on other programs has to be cut or taxes have to rise, reducing disposable income, savings and consumption.

Free money and guarantees incentivize speculation and mal-investment, so the money is squandered, leaving the immense debts behind to be serviced from now until Doomsday (December 21, 2021–the Mayan astronomer/sage was dyslexic.)

Here is precisely how the lies and propaganda are perpetrated. Rick Davis of theConsumer Metrics Institute pulls apart the massaged con-job of “official” GDP growth:

Once again the BEA has used “deflaters” that will strain the credibility of the public, especially if they buy gasoline. To correct the “nominal” data into “real” numbers the BEA assumed that the annualized inflation rate during 1Q-2012 was 1.54%. As a reminder, lower “deflaters” cause the reported “real” growth rates to increase — and once again very low seasonally adjusted BEA inflation “deflaters” have been the headline number’s best friend.If the raw “nominal” numbers were instead “deflated” by using the seasonally corrected CPI-U calculated by the Bureau of Labor Statistics (BLS) for the same time period, nearly the entire headline growth rate vanishes– and the resulting growth rate would have been a minuscule 0.08% with “real final sales” contracting. 

— Real per-capita disposable income shrank at an annualized -0.27% rate during the quarter (from $32,699 per capita to $32,677 per capita) — and it remains lower than it was five quarters ago. 

— “Real final sales” and factory production continued to be supported by inventory building — which is unsustainable and must ultimately reverse (even if the cost of carrying the inventories has been kept artificially low by the Fed).

So GDP really didn’t grow at all, disposable household income is declining and much of the “growth” was channel-stuffing inventory build. Yet this reality was spun into a headline 2.2% “growth” in GDP, in the hopes that would make us feel warm and fuzzy enough to go borrow a ton of money to blow on something or other (unless we’ve already borrowed tens of thousands of dollars in student loans, in which case we’re now debt-serfs and unable to borrow more.)

Something else happens in the real world when the government massages, mis-states and flat-out lies to twist reality into fantasy: people no longer trust their government or their institutions. This loss of faith is a social-fractal death-spiral, as every strained, frantic attempt to persuade us that “all is well, the economy is growing nicely, unemployment is down,” etc., only further strengthens the awareness that our government has lost the ability to report the truth, in matters large and small.

Our government is in effect a pathological liar–not just about wages, GDP and unemployment, but everything. Does any well-informed citizen believe anything the government claims is true, about Afghanistan, the budget, or future Federal liabilities?

Data is now massaged for political expediency, failure is spun into success, and consequences are shoved remorselessly onto the future generations. The entire policy of the Federal Reserve and the Federal government boils down to pushing propaganda in the hopes we’ll all swallow the con and believe that down is now up and our “leadership” is a swell bunch of guys and gals instead of sociopaths who will say anything to evade the consequences of their actions and policy choices.

Financial Survival network: Round Table with Charles Hugh Smith & Rick Ackerman(YouTube)


Resistance, Revolution, Liberation: A Model for Positive Change (print $25)
(Kindle eBook $9.95)

We are like passengers on the Titanic ten minutes after its fatal encounter with the iceberg: though our financial system seems unsinkable, its reliance on debt and financialization has already doomed it.We cannot know when the Central State and financial system will destabilize, we only know they will destabilize. We cannot know which of the State’s fast-rising debts and obligations will be renounced; we only know they will be renounced in one fashion or another.
The process of the unsustainable collapsing and a new, more sustainable model emerging is called revolution, and it combines cultural, technological, financial and political elements in a dynamic flux.
History is not fixed; it is in our hands. We cannot await a remote future transition to transform our lives. Revolution begins with our internal understanding and reaches fruition in our coherently directed daily actions in the lived-in world.


Thank you, Cudick A. ($50), for your supremely generous contribution to this site–I am greatly honored by your continuing support and readership. Thank you, Skip B. ($5/mo), for your stupendously generous re-subscription to this site–I am greatly honored by your ongoing support and readership.

Go to my main site at www.oftwominds.com/blog.html
for the full posts and archives.

More articles from Charles Hugh Smith….

Another Quick Fix For Credit Junkies

April 30, 2012 by · Leave a Comment 

The Daily Reckoning

It’s going to be a great week for interest rate fetishists. The Reserve Bank of Australia meets on Tuesday to decide what to fix the price of money at in Australia. The consensus view among economists, according to Bloomberg, is that the RBA will cut the cash rate from 4.25% to 4.00%. A lot of keystrokes will be wasted on keyboards explaining how this rate cut will ‘boost’ the economy and stock prices.

You can sometimes hear the desperation in the voices of credit addicts. When you need a hit, you need a hit. The people who make a living off perpetually expanding credit bubbles need a hit. The credit hit is what keeps financial asset markets expanding.

Two more notes about credit in the Australian economy. First, the RBA can cut rates all it wants, but it can’t make businesses borrow. This is a lesson learned by the Bank of Japan and the Federal Reserve over the last twenty years. Non-financial businesses (businesses other than banks, in other words) only borrow money if they’re confident they can use it to grow earnings and generate a return for shareholders. If they’re not confident about business conditions, they don’t borrow.

The Australian Bureau of Statistics (ABS) reported last week that businesses borrowed $29 billion in February. That was down from $36 billion in October. It was the fourth consecutive monthly decline in business borrowing. And on a month-over-month basis, commercial lending was down 8.4%.

There are only two ways to look at this. Either banks are being stingier with loans or businesses are more cautious with borrowing. It’s probably a bit of both. But our main point is that artificially lowering the price of credit doesn’t improve underlying business conditions. True, it might make a project easier to finance. But if your quarterly sales figures are telling you that the economy isn’t so hot, why would you borrow?

The final point about credit in the economy is more of a point about consumer price inflation (CPI). The hue and cry for a rate cut increased last week when the ABS reported that CPI rose just 0.1% in the first quarter of the year. On an annual basis, that’s just 1.6%.

If you’re a fan of higher prices, this is apparently bad news. Prices are not rising fast enough! They may even been falling! How do you know the RBA is in the business of undermining purchasing power? The bank targets annual inflation of 2-3%. That’s a true story. The Bank WANTS prices to rise a little bit each year.

In the end, the official CPI figures almost certainly bear no relation to the real world. Does your cost of living seem to be going down? The ‘trimmed mean’ method of calculating consumer price inflation routinely excludes items deemed volatile. This is a way of calculating inflation that excludes everything rising in price, which tells you pretty much everything you need to know about the calculation.

By the way, the volatile items usually include food and fuel. Though volatile, those items aren’t exactly discretionary. Excluding them because they ‘distort’ the picture of ‘real’ inflation doesn’t really measure ‘real inflation’.

What it DOES do is allow you to make the case that the RBA should cut interest rates. And THAT is exactly what people in the financial industry want. More free money to change your life! The more they can borrow, the more they can speculate with.

If you want an example of a market that’s on the life-support of low interest rates, take Japan. Over the weekend, the Bank of Japan (BoJ) announced it was expanding its government-bond buying program by ¥5 trillion, or $62 billion. The total budget for buying government bonds was also expanded to ¥40 trillion.

This is the kind of monetary stimulus only a drug dealer could love. It keeps the addict alive and delays his return to health, without provoking his actual death. Better an addicted borrower than a dead one. Central banks have turned investors into a bunch of junkies.

Both the Aussie and Kiwi dollars rallied on the Japanese news. Even if the RBA lowers the interest rate differential between the Yen and the Aussie tomorrow, official Japanese interest rates will remain low and the BoJ will keep pumping money into the financial system. This policy doesn’t promote ‘growth’. It prevents a further collapse in financial asset values, which is erroneously being called ‘deflation‘.

Lest you be under any illusions about the fundamental strength of the Aussie dollar, take a look at the ten-year chart below. This shows the Aussie versus the US dollar. What does it show you? It shows us that the US dollar is weak and that the Aussie dollar is the plaything of international speculators. It goes up. It goes down. It’s gone up. It will go down.

$XAD

Source: StockCharts

A weaker Aussie dollar would be welcome news to exporters and manufacturers. But a weaker Aussie would most likely be the result of another major episode in this rolling global debt crisis. More on that possible episode tomorrow.

In the meantime, investors have plenty of evidence to review. All of the evidence points to slower credit expansion in the Australian economy. Businesses that profited the most from double-digit credit rates aren’t going to like the new world. And businesses that rely on credit expansion to increase earnings won’t much like it either.

What does that leave? It leaves businesses that are able to generate consistently high returns on capital without leverage. To do THAT you need to be in a business where demand is fairly reliable and where your cost of capital and of goods sold is stable. Hmm. Stay tuned.

Regards,

Dan Denning
for The Daily Reckoning Australia

From the Archives…

How to Use Preference Shares to Become an Absolutist Investor
2012-04-27 – Nick Hubble

Why Politicians Can’t Solve Economic Problems
2012-04-26 – Bill Bonner

Pozieres
2012-04-25 – Greg Canavan

Investor Choices – Do You Have a Lifeboat or a Bottle of Brandy?
2012-04-24 – Tim Price

A Bankrupt Idea Whose Time Has Gone
2012-04-23 – Dan Denning

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More articles from The Daily Reckoning….

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