ISK finally went below 60 today. It seemed like it was destined to happen but still it is wild to see.The dollar just keeps eroding and no one seems to care.
It is possible it won't matter until it goes down much farther, if ever, but the action does put upward pressure on interest rates which doesn't have to hurt equities but it won't help.
2 comments:
Roger, I care . . .
The dollar just keeps eroding and no one seems to care.
I care as well. I think the reason many do not care is because it is easy to obfuscate and misdirect people away from the true impact of a weakening dollar.
I get the sense that now you even have people trying to sell the idea of a weaker dollar being good for the U.S. economy because it makes U.S. products more competitive to foreign consumers and boosts the earnings of U.S. companies. This is 100% true, but very few mention the negative impact a weakening dollar has on U.S. consumers.
Regardless of what the official U.S. inflation statistics are, the weakening dollar is significantly weakening the purchasing power of the U.S. consumer relative to our foreign counterparts.
I don't have the link, but I read recently that Buffett had made a comment about how oil was only up 20% or so to European consumers as priced in euros over the past couple of years while as we know oil has more then doubled to U.S. consumers as priced in dollars. That's the direct impact of a weakening dollar.
All commodities (oil, gasoline, natural gas, wheat, corn, etc.) trade based on worldwide supply/demand curves. To the degree the U.S. dollar continues to weaken, we will continue to see higher and higher dollar prices for all basic commodities which means food and energy prices will continue to go higher for U.S. consumers. Of course, food and energy don't matter to inflation (wink, wink) but the real world consumer still needs to plan for this potential outcome.
I continue to believe a core strategic allocation to commodities belongs in every portfolio (mine is 20% but reasonable people can disagree on the exact percentage) to offset this trend.
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