The dollar has found a reprieve in the last three months, in part due to the stillness that has characterized the monetary policy of the European Central Bank. The ECB has kept the Continent’s benchmark rate at 2% for the last 30 months while the Fed has incessantly raised the price of money since June 2004 to the current 4.0%, thereby creating a tidy premium in dollar assets over euro-based counterparts. Although that premium isn’t about to evaporate any time soon, the ECB may start lifting rates, giving dollar bulls new reason to worry.
Monthly Archives: November 2005
IN CORE WE TRUST?
The divergence between core and headline inflation has divided pundits for some time, on the one hand giving hope and rationalizing low interest rates, and on the other giving cause for buying gold and selling bonds. The optimists say that the relatively low core rate of inflation, which excludes energy prices, is the true measure of price trends. The pessimists say otherwise, claiming that the higher headline rate of inflation, which factors in energy, more accurately depicts the real world.
GOING FOR THE GOLD
Gold is poised to break the $500-an-ounce barrier for the first time in 18 years. But you don’t need a new price milestone to realize that the surging price of the precious metal has raised questions anew about the integrity of paper currencies, the dollar in particular.
PETRODOLLAR BONANZA
There’s a lot of cash sloshing around in the global economy, and a fair chunk of it’s coming to America. That’s hardly news, of course. Indeed, it’s getting easier to take all the liquidity for granted. And why not? For all we know, the river of cash may keep flowing indefinitely to these United States.
SAILING ALONG…
Hurricanes, terrorism, budget deficits, and any number of other threats haven’t pulled the U.S. economy off track. And if recent momentum is any indication, continued if moderate growth looks like the path of least resistance for the foreseeable future.
THE NORWEGIAN FACTOR
Norway is on the frontline of non-Opec oil production, and the front is under attack.
Norway is the world’s third-largest oil exporter, after Saudi Arabia and Russia, according to the Energy Information Administration. The Saudis are the number-one exporters, and Russia is number two. That leaves Norway as the planet’s largest reliable source of crude outside of Opec.
SECTOR SCORECARD
Energy’s hot and telecom’s not. That’s the unambiguous and consistent message in year-to-date total returns for equity sectors across Standard & Poor’s three main capitalization spectrums.
In the large-, mid- and small-cap stock indices, otherwise known as S&P 500, S&P 400 and S&P 600, energy remains the clear winner this year through November 17.
SHOW ME THE MONEY
Yesterday’s Treasury release of international capital flows for September was a warning sign that foreigners may be losing their appetite for U.S. government bonds. But if such data is inherently frightening, you wouldn’t know it by watching Treasuries of late. Indeed, the 10-year Treasury bond’s yield in late-morning trading today was 4.47%, down from nearly 4.7% back on November 4.
DOES M3 MATTER?
Conspiracy theories shadow the Federal Reserve like moths to a flame. That’s the price an institution pays for life at the top of the monetary feeding chain, or so one might conclude after reading William Greider’s Secrets of the Temple: How the Federal Reserve Runs the Country, a dense tome that does the central bank no favors on downplaying the notion of conspiracies and the Fed.
PAPER ASSETS
The S&P 500’s materials sector has been one of the worst performers this year, posting a 6.5% loss for the year through last Thursday vs. a 0.7% gain for the market generally, as measured by the S&P 500. But with news that Koch Industries will buy the paper maker Georgia-Pacific Corp., the materials sector is getting a fresh look from Wall Street.