Friday, November 19, 2010

Deceptive Dollars

This week (11/15/2010 - 11/19/2010) was an uneventful week. The major US indices were basically flat on the week. To be sure, Ireland was back on the front page fears of another debt meltdown. Bernanke embarked on a world tour to try to convince the rest of the world that his ‘village idiot dunce cap’ was on straight. The Germans said he was “clueless”. The Chinese seem to be in scramble mode due to Bernanke’s war on currencies. QE2 got off to a rough start because the world thinks the US is now run by Homer Simpson. The Fed started buying Treasuries and investors started selling stocks. But by the end of the week, everyone was sure that Ireland would get a bailout package from the ECB and Bernanke would sober up next week. I think it is a slam dunk that Ireland will get a bailout rammed up their rear end but there is no chance that Bernanke will sober up. He has been drinking the cool-aid far too long.
So let’s turn our attention to an interesting chart. The chart below is a chart of the Baltic Dry Index (BDI) in blue, Union Pacific Railroad  (UNP) in red, and West Texas Crude (WTIC) in black. The chart is interesting because it shows the deception of the dollar. The chart covers eight years and over that time span, the dollar has lost some 30% of its value versus a basket of currencies. Keep that in mind.
Union Pacific is the largest railroad operator in the US and its stock price has been moving higher over the last two years. One would expect that with an economy finding some strength from the depths of a recession. The same upward trajectory can be seen in the price of oil represented by the price of West Texas Intermediary Crude. Let’s bring the dollar back into the conversation. As stated, the US dollar has been in decline and one would expect the declining dollar to ‘inflate’ the price of things like oil and goods shipped via railroads. The same could be argued for stock prices period. I would argue that the Dow index is simply a reflection of inflation and is now completely disconnected from any relationship with reality or fundamentals. I would even extend that argument to the overall economy. It too can be ‘inflated’ with a falling currency. The Federal Reserve has orchestrated this scenario.
But here is where the dollar can be deceptive. Some analysts are pointing to the Baltic Dry Index as a sign that economies of the world are still very weak. Maybe, but here is the important part of the equation. The BDI is an index of shipping prices for dry goods priced in US dollars. As we can see from the chart, the BDI is up over the last eight years even with the dollar being down over the same time span. Thus, we can say that shipping rates, in terms of real dollars, has indeed increased over the last eight years. The chart indicates much more weakness in the BDI than the currency exchanges would confirm. Don’t let the charts fool you and don’t let the dollar deceive you either. 
Now, what is ruler Bernanke up to? He is trying to stoke the crushing effects of inflation. In particular, poor people are harmed most by inflation as they don’t generally have the investible assets to offset the damage of rising prices. The goal of the Fed is to redistribute all the wealth in the world into as few hands as possible. Ultimately, he wants to concentrate all the wealth into the shill banks that fence and launder the Fed’s weapons of debt destruction. They will point to the BDI and claim that there is deflation or that there is no danger of inflation. It is there. Relativity must be employed to see it.
Back to Ireland for a moment. I’m sure everyone has heard by now that the country is like every country. They are over indebted and are in danger of defaulting on their sovereign debt. Here is the sad part of all this. In US dollars, Ireland’s GDP is just a bit over $200 billion. Even if their debt was 50% of GDP, that would be $100 billion US dollars. Is that enough to sink the world’s markets as we were led to believe this week? Come on, now - let’s get real. Bernanke is pouring $110 billion or so into the US banking system every month for the next eight months through the QE2 program. Think about it. The real problem always turns out to be the derivatives and swaps tied to the debt. A default sinks the derivatives and only the big banks get hurt. That’s why a tiny debt like Ireland’s is a big deal. The elite bankers won’t stand for a loss so they showed up at Ireland’s central bank this week with a bailout proposal. No doubt, the proposal will not be ‘optional’. Ireland may try to fend of the sinister clutches of the ECB but they don’t have an Andrew Jackson to rally behind. The dollar deception rolls on. 
At some point very soon, I would expect to see yet another ‘bailout’ announced for Ireland. The casinos of the world will rejoice and all will be well for another month or so. Why can’t we stop it? You can read my article titled, America Surrenders for the answer.

8 yrs. weekly - BDI in blue, UNP in red, WTIC in black
Chart courtesy
Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented. BMF Investments, Inc. assumes no liability nor credit for any actions taken based on this article. 

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