Skip to content

US Dollar Rallies

Telegraph:

The psychology of global markets has shifted hugely over recent days as it becomes clear that Europe, Australasia and parts of Asia are sliding into recession. The US dollar has launched its best rally in half a decade, reflecting a recognition that half the world is in even worse shape than the US. In fact, America is the only G7 country to eke out modest growth this summer.

Trackbacks

No Trackbacks

Comments

Display comments as Linear | Threaded

SC on :

Just a small observation: This past month I drove a circuit of over 2,000 miles from Missouri to the east coast in Virginia and back by way of Ohio. One of my own measures of economic activity over the years is to observe the level of container truck traffic on the interstate highways: Significant economic downturns, I've found over the years, are usually accompanied by a lessening of the truck traffic, in particular. Even with fuel prices at record highs, traffic of all kinds, but particularly that of trucks, was heavy on most highways I traveled. Lot's of stuff and people continue to move around.

Don S on :

Interesting point, SC. I remember that the financial trials of the independent trucker were a major theme during much of the 70's, but I haven't seen that this time around. I think the comparable theme of this downturn may hinge on the cost of the sipping container, specifically the cost of moving a standard shipping container between China and the West Coast of the US. And to every other destination of course...... I read somewhere that in 2001 the cost was $3000. This spring it was up to $15,000 (?), and some forecasts had it going to $25,000. This has certain implications for the structue of the global economy, if it persists. Good news for factory workers in Mexico, the US, the EU, and countries close to western markets. Bad news for low-cost Chinese manufactures. The Beijing Olympics are one big party, China's coming out party, some say. I think it may be their last party for some time....

SC on :

So far I've not read of any significant decline in traffic at the ports. Apparently the increase in fuel costs is being successfully absorbed or passed on; i.e. the recent inflationary uptick, probably reflects this in part. China also seems to have benefitted from expanding regional trade to augment its surplus with the US. Their increasing presence in Central and South America might mean that they're also following in the footsteps of others. They have a lot of capital to invest and the California housing market casino has closed for the time being.

Don S on :

I don't think traffic has been reduced necessarily, the adjustments will take place in the longer term I think. There may well be increased inflation although I think the impact will be like any bout of inflation - nonessentials will suffer compared to things which are more essential. Food will suffer less than Xmas ornaments, for example. But high oil prices impact the cost structures driving long-term planning. We were already seeing a trend toward onshoring of the kind of manufacturing which fled the US and the EU during the 70's and 80's - this will only reinforce the trend. Energy costs are not only higher, but are now seen as an enormous 'wild-card' factor. The kind of thing which can make a line of business uneconomic. That is why I wouldn't be surprised if corporate planners are plugging oil prices much higher than today's into their planning spreadsheets.

SC on :

More planned use of transportation by individuals and business resulted in the recent significant drops in oil usage that were reported. There's still a lot of slack to be taken in before the bite of higher energy prices is really felt. I've been waiting to hear that people are being forced to cut back on their cell-phone usage: when I hear that locally or see it reported in the news then I'll know that things are dire, and I'm not going worry too much until then. :) It's only prudent that business assume high fuel costs, the downward trend is pushed by the deflation of a short-term bubble and the strengthening of the dollar: that too will end. China and India and their need for growth and energy won't disappear. It's fascinating to watch as the public, even in the rural area I live in, adjusts. More and more Priuses, and believe it or not, more and more scooters are to be seen. I honestly think that the public, even here in pickup truck country, is more than ready for the various alternate fuel vehicles projected to come on line - even if fuel prices continue following the current downward trends. If adoption is as extensive as I suspect it will be, higher fuel costs will be one factor but not necessarily the most important. I won't surprised if it comes as much in reaction to the accumulation of events of the last decade or so. Folks in these parts are not particularly happy with the rest of the world at the moment. A bit surly, maybe?

Don S on :

SC, what I think I'm seeing is the effects of pessimism about oil prices. I think it will have a political impact, which is why I think Obama is 90% likely to take the oath of office come January. But the economic effect is that people and businesses are making their economic decisions as if the price of fuel was (say) $6 a gallon. No matter that the price today is probably closer to half that. That's why you are seeing the Priuses. I agree with you about the impact of fuel costs. They are small in my life. Admittedly I'm a pedestrian in London, a city with great pub trans. But I'm considering buying a used car & made the interesting discovery that a petrol model my make more sense than a diesel for the models I am considering. The marginal cost of the fuel is rather low, about a difference of £250 a year, so if a used diesel costs more than about £800 more (and they do, at least twice that) - the petrol model is the better buy, with the bonus that they are often more reliable and cheaper to service. If I expected to drive 20K miles a year things might be different - but I'm buying it as a convenience and maybe for short drives to work (< 30 miles one way). Expected usage is no more than 10K a year. So.... The proportion of fuel cost to the total costs of a car are surprisingly small, even today. And in London I always have the option of using the tube. I doubt if my car will ever see the inner boroughs - driving in inner London is a serious pain in the ass. Nope, the car will see a lot of the Cotswolds, Lake Country, Shropshire, Yorkshire, etc. Lots of pretty places which are hard to get to on pub trans. Maybe a weekly weekend commute to a remote job, but no long daily commutes - the roads are far to congested to make that atractive. If I work remotely I'll probably get a house share near work and drive out Sunday night, return Friday evening.

SC on :

Plenty of reason to be pessimistic on oil for the short term. I keep reading that the ECB is expected to lower interest rates in the face of the European slowdown. Also read somewhere that there remains some dirty laundry yet to be aired relative to the ongoing mortgage mess. Bears are lurking everywhere, I suppose. :) Speaking of petrol prices: Petrol today is $3.39/gal.US locally, and diesel, if I recall correctly, is more than $1 more. Diesel has been $4+ for at least 6 months or more. They are projecting petrol prices to dip below $3 by fall and into the winter months. Natural gas and fuel oil prices are expected to spike this winter. I will not be surprised to find petrol prices settling in at around the current price by spring and then slowly moving up. I'll be surprised if we see $6/US gal. anytime soon. I've long thought that the $5/US gal will be the psychological barrier that once broken will trigger the most change. We're away from that but getting closer and I get the sense that people are feeling it. Hybrids of all kinds, but particularly those by Toyota and Honda are very popular here, but supplies are limited. You have a situation where some used Priuses are selling for more than new ones: some people want them that badly. I'm surprised to hear that autos with diesel engines are so much more. I just assumed that diesel was more or less the standard in Britain and Europe as a whole. It certainly isn't here in the States. Diesel engines were such a bust in the 70's and 80's that they've never recovered here. I haven't really thought that much about the fuel costs relative to the total cost of ownership. Now I'm curious. However, I suppose I'm surprised that, even for used autos the relative cost of fuel is low; of course at fewer than 10K miles, maybe. But, London is an outlier in costs, I know. How people manage is beyond me. And, there is no way that I would drive into that city: Just too much traffic, too little parking, and public transport that is much too good. I've not seen the pretty places. I like the thought though. Best of luck in setting yourself up nicely.

Don S on :

List prices on nw deisels aren't that much higher, SC, about £1000 more. Well worth it over the life of the car. But my buying strategy depends on the fact that a 2 or 3 year old car is almost as nice as a new one, and the depreciation on certain models over that time can be 60% or more. Why buy something at £17000 when something very similar can be secured at £6000? Petrol cars hve been depreciating even faster than deisels because they burn more fuel. A typical Ford Focus deisel model gets about 50 mpg while the petrol version gets perhaps 35-40. But the used Focus costs perhaps £1500 more, pluys the fuel is higher as you mentioned. The petrol model pays a bit higher road tax. Plug the whole thing into your calculator and I quickly realized that for the mileage I visualize driving the petrol is the cheaper (and probably the better-driving) option. I also expect to save some money on my wanderjahrs in the UK, plus add a lot of flexibility. Instead of staying in city centres I can find cheap guesthouses (or even cheaper youth hostels) on the outskirts or in the boonies. I'll save money on groceries and be able to hit the 24-hour places, which makes things a LOT more convenient. Probably won't take the car on journies to the European mainland, except shopping runs to Northern France. Ferry fees can be quite a whack - it's almost cheaper to fly over and rent on the spot. Unless I'm planning on being a shopping machine over there. But the car will make getting to the airport a LOT easier and cheaper, so even there it helps.

SC on :

"(Leaded) Gasoline prices in 1960 averaged 31.1 cents per gallon. Median family income in 1960 was $5,620. In 2006 (the most recent year for which we have reliable data), median family income stood at $58,407. If the price per gallon were the same percent of median family income in 2006 as in 1960, the 1960 price would translate into $3.23 in 2006. Unfortunately, the (median family income) data aren’t yet available for calculations applying to 2007 or 2008." This was taken from an entry in the CATO-at-liberty blog. Very interesting! It explains to me why I see most people taking the current prices very much in stride, particularly when you consider the fact that the relative cost of nearly everything else, but in particular of essentials, has much declined since the 60's. This reinforces my suspicions that a price above $5/US gal. would be a break point.

Add Comment

E-Mail addresses will not be displayed and will only be used for E-Mail notifications.

To prevent automated Bots from commentspamming, please enter the string you see in the image below in the appropriate input box. Your comment will only be submitted if the strings match. Please ensure that your browser supports and accepts cookies, or your comment cannot be verified correctly.
CAPTCHA

Form options