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The Dow Chemical Company Message Board

  • the_nervous_resistor the_nervous_resistor Dec 13, 2004 6:06 PM Flag

    Barrons...and cheeseburgers

    A provocative article on trade balance, the dollar, interest rates, and the American consumer in Barron's 12/6 issue has re-kindled my concern about asset levels, again. There were some strong words about us eating our own seed corn, after outsourcing everything, including, now, the financing of our economy.

    One senses that the most favorable outcome is a long, gradual slow revaluation in $US and corresponding ramp up in interest rates, which hopefully coaxes the consumer to increase their household savings rate from 0.2% back up to the 8%, or so, of the early 1990's, among other things.

    Alan Abelson, the humorous fear-monger that he is, posted a couple charts showing that the fraction of variable-note mortgages tripled in one-year to 30% of new loans. He called into question how these obligations will be met if rates rise and newjobs continue to not appear. The concern is who are the bag holders of all that paper underwriting McMansions throughout the States. To me, it sounds alittle like the banks in Japan in the late 1980's.

    Remember at Dow, when they were feeding us that BS about "Quality" in Japan, etc., when it actually was the government-sponsored low interest rates that not only reduced cost-of-capital for companies, but also sent assets like real estate through the moon. Then the banks collapsed, when the notes had to be written off. At one of our R&D meetings back then, I asked our Quality-manager-d'jour if we were just chasing a redherring, i.e., "quality" instead of finance, and you can predict his dribble. Even I laughed at myself for stupidly asking such a question. Anyway, I still have that nasty feeling about who is holding the notes. (Yes, our reporting standards offer better transparency, of course. But then again, ... Enron, pro forma earnings, ...)

    Anyway, anti-rubbernecking away from this slow motion train wreck, this observer senses a bouyancy to assets priced in Asian currencies. And particularly, if those assets might be in the production of nondurable goods in Asia. Like, who is the Krogers over there?

    And, does anyone have thoughts how Dow responds to a US slowdown, and a Chinese slowdown in 2005-6?

    One-half of me thinks there is a merit to this dollar concern. The second-half of me thinks that the US economy is too big to sink, as all go with it. And the third-half of me thinks it's time for a cheeseburger, because I always order the cheesburger.


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    • "A provocative article on trade balance, the dollar, interest rates, and the American consumer in Barron's 12/6 issue has re-kindled my concern about asset levels, again."

      • 2 Replies to harry_clamm
      • Clam,

        I hope the President is successful in pressuring China to float the yuan, as mentioned below.


        U.S. Trade Gap Swelled to a Record $55.5 Billion

        Published: December 14, 2004

        Filed at 9:34 a.m. ET

        WASHINGTON (AP) -- America's trade deficit swelled to an all-time high of $55.5 billion in October as imports -- including those from China -- surged to the loftiest levels on record. Skyrocketing crude-oil prices also contributed to the yawning trade gap.

        The latest snapshot of trade activity, reported by the Commerce Department on Tuesday, showed the country's trade imbalance widening by a sizable 8.9 percent in October from the previous month -- despite the fact that U.S. exports registered their best month on record.

        The growth in imports, however, dwarfed the pace of exports in October, producing another bloated trade gap. The trade deficit was much bigger than the $52.4 billion imbalance economists were forecasting.

        Imports of goods and services climbed to a record high of $153.5 billion in October, representing a 3.4 percent increase from September.

        The United States' politically sensitive trade deficit with China clocked a record $16.8 billion as imports flowing from the country posted all-time highs.

        The Bush administration has been pressing China to let its currency, the yuan, be set in open markets. U.S. manufacturers claims Beijing's currency policies give Chinese companies a big competitive advantage over U.S. companies.

        Another factor in October's trade deficit was surging prices for imported crude oil. The average price of crude oil soared to a record $41.79 a barrel -- a whopping 11.1 percent increase from September's price.

        U.S. exports, meanwhile, rose by 0.6 percent in October from the previous month to a record $98.1 billion. Sales of U.S.-made industrial supplies to other countries totaled a record high of $18 billion. Exports of capital goods, including drilling equipment and airplanes, also gained ground.

      • harry,

        please post your picture in your profile.

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