March 05, 2004

Supply Outpacing Demand, Mind the Gap

If HGX is enjoying a money-market fund juiced blow off, it's happening despite the fundamentals in the housing market, which ought to be a source of unease to traders, but of course, are not. Just what do the supply/demand fundamentals look like right now? We turn to our favorite off-shore macro magician Greg Weldon for some numbers. Greg tells us: *Median Existing Home Sales Prices were down 3.5% in January. Weldon adds, "prices have risen in only ONE month out of the last six months, over which time existing home sales prices have posted a cumulative nominal decline of 7.1% *"In other words, (median) Prices of Existing homes sold since July (of last year) have plummeted at more than a -15% annualized pace, falling from a peak of $181,600 in July to the current level of $168,700 (January) *"Sales are down since September, cumulatively, and are FALLING one a year-year basis in one-half the country, while prices have fallen on cumulative basis since July, and are below the full-year 2003 average. It's not much better in the new home sales category, as Greg reports. *"New home sales down 1.7% in January, marking the fourth month of cumulative decline in the last seven months, during which time the cumulative decline is a STEEP minus 7.4%, or a nearly 15% annualized pace." The demand side is clearly slowing. Yet the supply side is building. The supply of new homes available for sale has risen for six consecutive months, from 3.5 months available supply in August of '03 (based on robust demand mind you) to 4.1 months in Jan. of '04. Greg says, "Bottom line: DESPITE a rabid pace of home sales, sales are now FALLING over the last six months, and in some regions, are falling on a year-year basis. Against this, the ever more rabid pace of starts and completions is driving supply higher, at a double digit rate on a year-year fact, we could say that the yr-yr rate of UNSOLD HOME SUPPLY is breaking out the upside." Greg says the U.S. housing market in both its technicals and fundamentals is "rolling over." I agree. What will be interesting, and imperative to our trading strategy, is what the effect of a docile Fed is on the mortgage and homebuilding market. Based on these numbers, even low interest rates--historically at that--might not be enough to keep the big engine that could chugging along. Then again, there's the simple issue of a liquidity driven bull market. It doesn't have to make sense. In fact, in can even defy the fundamentals. And homebuilders may rise. But you can't spit in the fundamental wind forever, without getting plastered in the face.

Chart of the Day: Homebuilding to the Sky

You wonder where all that money market mutual fund cash is going don't you? You know it's domestic equity funds, but which ones? Try homebuilders, tech, and small caps. And try homebuilders the most. More supply demand data to follow, and not such good news. But for now, check out the Philly Housing Index (HGX, an index of homebuilders) moving up and over its 50-day moving average and the STRATOSPHERE!

Quote of the Day: More than a Whiskey Rebellion

From one of my favorite books, "O America, When You and I Were Young," by Luigi Barzini: "We all knew we were passengers on history's roller coaster, and that our car was climbing higher and higher. We were also thrilled and proud of the privilege. There were pessimists too, of course. Some of them, wise and dyspeptic, reminded us that what had gone up in the past had, sooner or later, to come down. But, curiously enough, nobody foresaw the catastrophic collapse of everything which would follow in a few weeks, the following October, and the real revolution that would sweep and transform the country, more subversive that the whiskey distillers' occasional riots against revenue men which Jefferson had praised."

A Counterfeit Roosevelt

The folks over at the DR (Bill and Addison) may cherry pick from this next week. But I figued I'd give you a sneak peek, for some weekend reading. Believe those who are seeking the truth. Doubt those who find it.-- Andre Gide Maybe Ben Bernanke doesn’t like gold because you can’t drop it out of helicopters without clouting people on the head. They might not even find it, much less spend it. The Kruggerands, St. Gaudens, and Loonies might lie there in the dirt, at home in the earth they came from. They could lie for years, neglected, losing no intrinsic value. And should they be found by some fortunate passerby, he might have a good head on his shoulders and choose to keep the thing, rather than going out post haste and trading it for a TiVo and a bagel toaster. Dropping money from helicopters is definitely easier, although it’s not a sure-fire guarantee for creating inflation. Left to its own devices, paper money blows away, or gets soiled, weathered, and destroyed. It’s only useful if it’s rescued quickly, taken seriously, and passed on to the next unsuspecting person before he has time to think about it. This problem of how to get people to take paper seriously when there’s gold in the world is keeping Ben Bernanke up at night. And he’s sharing his night visions with us now, although I can’t guarantee you’re going to like them. In case you missed it, Bernanke gave a speech titled “Money, Gold and the Great Depression” on Monday. The speech was a revelation, and an admission. It reveals how seriously the Fed takes itself. But in the nature of its topic, it’s an admission that the Fed finds itself in a period of extreme monetary distress. Let’s take a look at a few key passages and, in the French tradition, deconstruct. Bernanke says: “The gold standard appeared to be highly successful from about 1870 to the beginning of World War I in 1914. During the so-called “classical” gold standard period, international trade and capital flows expanded markedly, and central banks experienced relatively few problems ensuring that their currencies retained their legal value. The gold standard was suspended during World War I, however, because of disruptions to trade and international capital flows and because countries needed more financial flexibility to finance their war efforts.” We deconstruct: There was nothing “so-called” about the classical era. Gold was the foundation of sound money, money that didn’t just have “legal” value but “real” value. The gold standard was “suspended” because with it, a government cannot finance a war with deficit spending. Gold does not allow for “financial flexibility.” It demands fiscal responsibility from politicians and imperialists, which is like demanding the truth from a lawyer. The classical era was shucked because gold made it convenient to fight wars, and if there’s one thing human beings like more than getting rich, it’s killing one another over abstract ideas. Gold provides a kind of “rule of monetary law” for the world. It is impartial and caters to no one ethnic group or bogus political ideology. It doesn’t require a brilliant idea to defend it or a stupid politician to support it. This lack of dependency on the vanity of man appears to offend Bernanke. Bernanke says: “..the new system {the gold standard after Word War I } lacked effective international leadership…. Unfortunately, the fledgling Federal Reserve, with its decentralized structure and its inexperienced and domestically focused leadership, did not prove up to the task of managing the international gold standard…With the lack of effective international leadership, most central banks of the 1920s and 1930s devoted little effort to supporting the overall stability of the international system and focused instead on conditions within their own countries.” We recoil: Our hubris detectors are going off the charts. But then, there’s always been a certain amount of unseemly pride in central bankers. They believe in free markets for everything but money. And they believe it takes men, not markets, to determine the appropriate price and supply of money. I include this excerpt because it reveals the Fed’s ambition more than anything, a dangerous ambition at that. It’s also an ambition that flies in the face of past failures. This Fed is thinking locally, but prepared to act globally, and that has nearly always been to the detriment of the American taxpayer. He sees his money wasted and his purchasing power eroded. The central beef against the ‘90s Fed, at least according to our friend Hugh Hendry, is that the Fed changed monetary policy in reaction to foreign events, i.e. the Mexican revaluation, the Russian default, the Asian Crisis, and the Argentine crisis. It wasn’t enough for Greenspan to solve America’s monetary problems. He wanted to solve the world’s. Bernanke appears to share this ambition. The Fed is telling us it’s willing to make the same mistakes it made in the ‘90s, as many times as it has to. You can’t say you weren’t warned. Bernanke says: “The existence of the gold standard helps to explain why the world economic decline was both deep and broadly international. Under the gold standard, the need to maintain a fixed exchange rate among currencies forces countries to adopt similar monetary policies. In particular, a central bank with limited gold reserves has no option but to raise its own interest rates when interest rates are being raised abroad; if it did not do so, it would quickly lose gold reserves as financial investors transferred their funds to countries where returns were higher. Hence, when the Federal Reserve raised interest rates in 1928 to fight stock market speculation, it inadvertently forced tightening of monetary policy in many other countries as well. This tightening abroad weakened the global economy, with effects that fed back to the U.S. economy and financial system.” We say: Fair enough. But a system which facilitates global commerce, requires fiscal responsibility at the national government level, and punishes attempts to debase the purchasing power of the currency seems like a pretty good deal, at least if you want peace, price stability, and purchasing power. The villain here is centralized control of the money supply and the ability to raise or lower borrowing costs on a whim, not gold. Also, notice his indirect defense of the Fed’s current policy concerning asset bubbles, namely: “Not our problem. And besides, look what happened last time we popped an asset bubble.” No mention is made of the Fed’s culpability in causing the bubble in the first place. There’s some irony here, too, and how can we resist that? The chief complaint against the gold standard is that it tied the hands of policy makers in each country. And the dollar standard is different how? The world’s major central banks are currently engaged in attempts to rig the value of their currencies against the dollar. The only difference is that the dollar, unlike gold, is a moving target, making it harder and more complicated to maintain the desired inferior relationship. In its essentials, the dollar standard is worse because, at bottom, there IS NO fixed value. Only relative. The current round of competitive currency devaluations is exactly the same dynamic at work years later. With gold, you couldn’t debase without getting punished. Gold was a harsh master. With the dollar, you can’t debase quickly enough period. The U.S. is constantly making more of them, or borrowing through the bond market. The world is just as locked into the dollar standard as it was the gold standard. The chief difference is that adherence to the dollar standard is going to bankrupt a lot of people, and there won’t be much gold left to fall back on, at least if not-so-gentle Ben gets his way. Bernanke says: “Perhaps the most fascinating discovery arising from researchers' broader international focus is that the extent to which a country adhered to the gold standard and the severity of its depression were closely linked. In particular, the longer that a country remained committed to gold, the deeper its depression and the later its recovery (Choudhri and Kochin, 1980; Eichengreen and Sachs, 1985).” We say: Perhaps the most fascinating thing about this statement is how you could replace the word “dollar” for “gold” and not alter the meaning (or the warning) of the statement for modern investors. Our prediction: the country that abandons the dollar first loses least. The longer you hold those billions in U.S. bonds, the less you’re going to get for them. Panic now and avoid the rush. You’ll also avoid having to deal with any Fed mischievousness, which Bernanke hints may be on the way. Ben says: “Finally, perhaps the most important lesson of all is that price stability should be a key objective of monetary policy. By allowing persistent declines in the money supply and in the price level, the Federal Reserve of the late 1920s and 1930s greatly destabilized the U.S. economy and, through the workings of the gold standard, the economies of many other nations as well.” We say: Try not to laugh at the first line. And if you can contain yourself, the whole statement is pretty sobering. What word lingers over that paragraph without being uttered? Deflation. Bernanke blames the depression on declines in the money supply, aka deflation. It’s clear he has no intention of allowing “consistent declines in the money supply.” But he’s still having trouble pumping up the price level. He just can’t seem to get consumer prices to rise fast enough, although if he looked at financial asset prices, he’d see all the inflation a man could want. All joking aside, this Fed is afraid of deflation. Profoundly, genetically afraid. It has become Ben Bernanke’s white whale. When Greenspan says the Fed can be “patient” about raising rates, he’s really saying the Fed will do just about anything to avoid repeat of the Depression, even if it means inflating to infinity, and beyond. And in fact, Bernanke gives a glimpse of the great monetary beyond, with a wink, a nod, and a bow to the past. He says: “The finding that leaving the gold standard was the key to recovery from the Great Depression was certainly confirmed by the U.S. experience. One of the first actions of President Roosevelt was to eliminate the constraint on U.S. monetary policy created by the gold standard, first by allowing the dollar to float and then by resetting its value at a significantly lower level. The new President also addressed another major source of monetary contraction, the ongoing banking crisis. Within days of his inauguration, Roosevelt declared a "bank holiday," shutting down all the banks in the country. Banks were allowed to reopen only when certified to be in sound financial condition. Roosevelt pursued other measures to stabilize the banking system as well, such as the creation of a deposit insurance program. With the gold standard constraint removed and the banking system stabilized, the money supply and the price level began to rise.” Yes indeed, the money supply and price level began to rise. But what will it take this time around? What unorthodox measure will the Fed take once it’s “zero bound” and can’t cut rates? Buy goldmines? Why not? But commodities wholesale and give them to manufacturers? Why not, it’s already happening in Asia? Declare a moratorium on home foreclosures, or better yet, buy up all the mortgages in default? Why not? Confiscate gold again? Why not? Why wait to find out, dear reader? Our finding is that leaving the dollar standard (getting your investment portfolio hedged against the dollar) will be the key to surviving this long, soft, slow motion depression. That, and of course, buying gold, unless Ben Bernanke thinks its so worthless he starts giving it away. In that case, if there are any helicopters around, duck.

March 04, 2004

The Heart Attack Formation

I'm not a doctor. But I do have subscribers who are. Got this note in reference to yesterday's OEX bullish percentage chart. Thought you might...enjoy. To: Dan Denning From: Dr. Fred B.(subscriber). Dan, In your most recent lead article in S.I. you show a chart of the S & P 100 Bullish Percent Index. That chart, if it were a electrocardiogram (and it looks like one), would be showing ventricular tachycardia. V-tac is what you get when you have a massive coronary and are about to die. In fact, everybody with that condition does die without immediate treatment, which includes shocking the heart with a massive jolt of electricity, called defibrillation. Looks like these bulls are about to die. Thought you would be interested in this observation. You have my permission to use it if you wish. Keep up the good work. God Bless You.

Savers Driven to Slaughter in the Equity Pen: Quote of the Day

From the Dalla's Feds contribution to the Beige Book we ge more evidence that savers are giving up on low rates and headed into equity markets. It's a different kind of capitulation, giving up on cash in favor of stocks. Short-term could mean higher stock prices. Long term, poorer Americans. FRB: Beige Book - Full report"Financial Services Contacts say that deposit growth has slowed, which they attribute to money flowing back into equity markets. Several respondents commented that CDs and other instruments are being liquidated. "

Investors Asleep at the Wheel...of a Speeding Tractor Trailer

Here's a two-month daily chart of the VIX, in bar chart format. Think of it like a stereo display showing spikes in volume. The spikes are amplifications of investor concern. Right now, the VIX is on the verge of making a new all-time low.

March 03, 2004

And I thought I was a big bear...

Check out the pictures at the link below. I'll avoid the obvious pun. And don't, repeat don't click on the link to the third photo unless you have a stout stomach. Here's the link.

Quote of the Day: Bernanke, a modern day FDR?

Ben Bernanke, giving credence to all the ideas that gold could be confiscated, arbitrarily priced, or outlawed. Bernanke blames gold for the Depression. It's probably to blame for the housing bubble, too. FRB: Speech, Bernanke--Money, Gold, and the Great Depression --March 2, 2004: "The finding that leaving the gold standard was the key to recovery from the Great Depression was certainly confirmed by the U.S. experience. One of the first actions of President Roosevelt was to eliminate the constraint on U.S. monetary policy created by the gold standard, first by allowing the dollar to float and then by resetting its value at a significantly lower level. The new President also addressed another major source of monetary contraction, the ongoing banking crisis. Within days of his inauguration, Roosevelt declared a 'bank holiday,' shutting down all the banks in the country. Banks were allowed to reopen only when certified to be in sound financial condition. Roosevelt pursued other measures to stabilize the banking system as well, such as the creation of a deposit insurance program. With the gold standard constraint removed and the banking system stabilized, the money supply and the price level began to rise. Between Roosevelt's coming to power in 1933 and the recession of 1937-38, the economy grew strongly."

Chart of the Day: More Bad Breadth

Working on an update of my "Five Signs of Financial Reckoning Day" for the weekly e-mail. Should be out later today or early tomorrow. For now, I've updated the OEX bullish % chart I mentioned in the March issue. The chart is a measure of breadth on the S&P 100, specifically, how many OEX stocks are in bullish point and figure patterns. As you can see from the chart, it's still "walking the plank." You can also see the average is close to converging with the 50-day moving average. And you can also see that, in the past, that hasn't been good for the index average. And since the OEX contains some of the biggest stocks in America (especially financials and techs) it may be a clue about the kind of correction that's in the cards.

Rampaging Dollar

The dollar is back, like the freak from a horror movie who just won't die, or so it would seem gauging the press reports from yesterday. Don't get me wrong, as an expat, I'm all for a strong dollar. It makes my rent cheaper. But there's a difference between what I want and what's "fair value" on the dollar. For the record, I give you a two-year dollar/euro chart below. The chart speaks for itself. But if you can't hear it, I'll merely say the firm two-year trend of weaker dollar versus the euro still holds. You could even see the dollar move back to under $1.20 to the euro and not violate what is fundamentally a negative trend. So why is the dollar kicking currency tail and taking names right now? Well, every central bank in the world has been pushing for a stronger dollar, whether actively (Japan) or verbally (the ECB.) Traders know better than being on the wrong side of a central bank, at least in the short term. THE DOLLAR/EURO TREND IS FIRMLY DOWNWARD You also have the remergence of the traditional hammer with which U.S.-centric investors beat Europe: growth. That is, the jobs and ISM data support the thesis (yet to be confirmed by the Fed's Beige book and the labor market report on Friday) that job growth in the U.S. is back. This would be the final piece of the "recovery" argument and undeniably dollar bullish if, and this is a big if, growth was all that mattered. On the other hand, the European economy slugs along, plagued with its own systemic problems, and without the vaunted "growth" story you hear in the U.S. Is growth all that matters? Of course not. Job growth (and more importantly, income growth) is an absolute must in the U.S. economy. But it's a must because of the high levels of U.S. debt, consumer, Federal, current account, you name it. The dollar bullish argument now is that U.S. economic growth can somehow, some way, render this enormous debt irrelevant. Fundamentally, there's not much substance to this argument. You can inflate debt away, making it less costly by paying back in dollars worth less. Or you can simply forgive it...a giant, politically motivated debt amnesty (possible in the housing market.) Growing out of it--at these levels...would require both an increase in incomes and a huge decrease in spending, which would have a whole other set of economic consquences. When the market has spoken on the dollar, it's sold it. Right now, the market is being shouted down by monetary authorities. These authorities are desperately trying to extricate them from a trap of their own making. They're going to fail. But in the short term, if it makes my beer a little cheaper, I won't complain. The ECB speaks tomorrow and should leave rates unchanged. The job market report on Friday may even drive the dollar to new strength. But there's $7 trillion in government debt and a badly damaged consumer balance sheet weighing against the dollar. And on that issue, the currency market has already spoken with a bearish voice. Don't be surprised if by the end of the year, you again see dollar euro 1.30 or more, and dollar British pound of 2.0 or more. In fact, this bullish foray buy the dollar makes the next few weeks an even better time to get into dollar bear positions for gains, once the short-term dollar bull runs out of gas.

March 02, 2004

Floating Yuan, Bullish Dollar?

Several months back, I discussed the possibility that letting the Chinese currency rise to its perceived level of "strength" versus the U.S. dollar could, just could, actually be dollar bullish. How? Right now, Chinese capital is locked up in yuan. Yet give Chinese savers a choice, let them choose what currency they want to own, and is it possible they could bolt, en masse, out of their own currency and into dollars? Well, yes, it IS possible. It would reflect a general lack of confidence in the Chinese banking system. The currency would gain in purchasing power overnight, but that might not be enough to correct a local perception that it's still just paper, plagued by bad debts. Of course, I don't know what the local perception is. And that's one reason I'm going to China, to see just what the Chinese think of the dollar and gold. For now, the Chairman (Alan Greenspan) recognizes that a floating yuan might not be all good for China. In a written response to questions from Senator Richard Shelby, published in yesterday's WSJ, Greenspan articulated the threat. You can find another brief article on it in the Asia Business Times. Click here. "With a US presidential election looming, outsourcing by US companies to manufacturers in China is a politically sensitive issue, as is the general problem of the US balance of payments deficit. "Mr Shelby had asked Mr Greenspan to elaborate on a speech he had made in December arguing that the Chinese policy of pegging the yuan against the dollar risked causing inflation and eventually a recession in China. "Mr Greenspan said in his reply that China, before floating the yuan, had to tighten regulation of the banking system and its accounting practices and also had to provide them with government capital so that they had reserves for bad loans. 'More important, however, are steps that eliminate state interference in bank lending decisions and that create the financial discipline and incentives that are a crucial part of a viable credit system. " One of the underappreciated--and more boring--aspects of the balance of payments deficit is what a foreign central bank does with all the dollars it accumulates. It's understood that a central bank, like Japan's for instance, sells its own currency, and then buys dollars--effectively keeping a lid on its own currency's strength. But once its got those dollars, it can either keep buying U.S. bonds...or start to seek other outlets. After all, if you're buying billions of dollars worth of're taking on a lot of risk owning, and beginning to control, a large corner of the U.S. bond market. Asian central banks are looking for other things to do with their dollars, and those things may finally be causing inflation...creating mini asset bubbles wherever excess capital flows get directed. Two weeks ago, I asked my friend Greg Weldon about this and he said: More interesting, going forward ... is the recent SPIKE in official FX reserves in places like Korea and China, who have recently loosened regulations related to 'active-management' by privately owned firms, OF those reserve pools. Indeed, today ... Korea followed the 'lead' of China, using USD reserves (up HUGE in first two weeks of Feb) to directly purchase USD-priced commodities, as raw materials for local manufacturers, to help reduce the pressure on export margins !!!! Copper is specifically higher today, in my view, on this little noted story. Danger is all around, the land mines are active and the field is strewn !!! Interesting new relationship to watch for: foreign currency reserves and sudden changes in commodity prices. The inflation trade is on...although through perverse back channels...driven by too many dollars chasing too few assets to invest it. Obviously, what the world needs are more assets to invest it. That way, the boom in dollars can go on forever, and not cause any single bubble to get unsustainable.

The Inflation Zone

Your editor has just rolled into Paris after a thirteen hour flight from sunny-and-warm Mexico to sunny and not-as-warm France. I'm putting together an ambitious weekly edition for tomorrow. Today, I'll answer a few questions. But first, a missive from the good Lord (Rees-Mogg), sent late last week. I'll be seeing him next week in London, incidentally, where I'm going to be based for a bit. Today, LRM says the American political season is a prescription for higher inflation. Judging by yesterday's ISM numbers he may be right. Up until recently, higher prices in raw materials have not shown up in higher prices for finished goods. But as the prices manufacturers pay go up, so too might pricing power. ISM reports that February was the 24th consecutive month the Prices index has registered higher prices. The release stated, "February's index is at 81.5 percent, 6 percentage points higher than January's reading of 75.5 percent. The last time the index registered higher than February's index was in February 1995, when it registered 81.7 percent. In February, 65 percent of supply executives reported paying higher prices and 2 percent reported paying lower prices, while 33 percent reported that prices were unchanged from the preceding month." There were eighteen industries that reported paying higher prices in February. They included: Tobacco; Leather; Fabricated Metals; Textiles; Wood & Wood Products; Primary Metals; Industrial & Commercial Equipment & Computers; Rubber & Plastic Products; Food; Chemicals; Transportation & Equipment; Furniture; Apparel; Miscellaneous*; Electronic Components & Equipment; Instruments & Photographic Equipment; Paper; and Printing & Publishing. The market, of course, focused on the jobs data, which grew for the fourth consecutive month. And it IS a good sign. But higher inflation in consumer prices (finished goods) will put a dent into already thinly stretched consumer incomes. Employment and income growth need to grow much faster than incomes to take pressure of consumer balance sheets. Rising prices won't help. Strategic Insider – 25 February 2004 – William Rees-Mogg Alan Greenspan uses the language of the Fed., that is the language of bankers and economists, to warn the American public of the rocks ahead. I wonder whether the public has heard the message. He has recently been giving evidence to Congress on the state of the U.S. economy. He referred to a study by the Congressional Budget Office, a non-partisan body, so he was quoting a Congressional study to Congress. He observed that “the budget scenarios considered by the CBO in its December assessment of the long term budget outlook offer a vivid and sobering illustration of the challenges we face.” The Financial Times observed that the Chairman of the Fed “yesterday ratcheted up his warning about using budget deficits in the U.S.” What the Budget scenarios show is that the U.S. budget deficit, currently running at half a trillion dollars a year, is out of control, and that the looming deficit on social security pensions could add another half trillion dollars in the next generation. Things are very bad, and they are destined, on unchanged policies, to get worse. This will require higher taxes or lower spending or both. Higher taxes will reduce the expected rate of growth of the U.S. economy, and thereby add their own weight to the scale of future Budget deficits. The consequences are already apparent in the foreign deficit and in foreign borrowing, which are both running at the same level of half a trillion dollars, and are both out of control. The dollar has fallen to $1.25 to the euro, and is massively supported by Japan and China. Nobody in the early stages of the Presidential campaign is even beginning to offer useful policies to put this right. No politician can even begin to discuss higher taxes, for fear of losing votes. The Democrats are competing with protectionist sound bites, though Senator Kerry, who sometimes sounds almost as protectionist as Senator Edwards, has given some insight into what is probably his real opinion. “I don’t want to be protectionist because I think that’s the wrong thing to do for America.” President Bush believes that he can balance the budget by making his tax cuts permanent and raising public expenditure. George Bush will find he is mistaken. I never feel much sympathy for Gerhard Schröder, the German Chancellor. He has visited Washington with a request to the President to do something about the weakness of the dollar. He does not say what ought to be done. Even if the President did want a stronger dollar, he does not control U.S. interest rates – they are the Fed’s decision. He would not want to have them rise in a President election year. Nothing much could be done before November, even if anyone knew what to do. I doubt if this will play well with the electorate in the presidential campaign. A Budget deficit, a trade deficit, growing foreign debt and a falling dollar are bad for confidence, whether one is talking about the stock market – despite rising earnings – or the election itself. What is the name of the rocks ahead? They are called the “inflation zone” on the charts.