Wednesday, July 22, 2009

The Coming Devaluation

It looks like the stars are coming into alignment for a devaluation of the dollar. The first set of signs comes from then recent run-up in stock prices, and subsequent multi-billion dollar bonuses, involving the Wall Street banks. An excellent look at this is by Daniel Harrison, who points out that some of the bigger banks resorted to accounting tricks to post a good quarter.
But on closer inspection, these profits reveal little more than the return of risk appetite in the face of rising problems at the operating-level. For instance, in the case of JPMorgan, investment banking revenue helped offset rising defaults on consumer loans, while Citi masked its operating losses with a one-time asset sale.
They are not likely to post another good quarter which will add fire to another round of stimulus.

On top of that, both gold and the Euro are poised for an upturn. There is a great video that shows the analysis for a gold price increase. It also doubles as a good primer on how to analize a chart, if you've ever wondered how they do that. It runs about 7 minutes. There is also good video on the rising Euro versus the dollar. Currencies are more complicated than commodities, but it's the same idea.

The only good sign I can see on the horizon at this point, is the typical end of summer fall in gas prices. From a consumers point of view, we'll still be able to get around, we just may not be able to afford anything when we get where we're going. Whether it's inflating prices, or a deflating buying power of the dollar, the end result at the consumer level is the same. It's looking like it's about to get worse.

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