The following is a Market Insight comment that Jim Martens, Elliott Wave International’s Senior Currency Strategist, posted for subscribers of his Currency Specialty Service on September 14.
Posted On: Sun, 14 Sep 2008 22:17:00 GMT
Market Insight, Currency Specialty Service
As I write this, the talks about what to do with (or about) Lehman continue. With no purchase or bailout plans announced yet, and with Barclays apparently more interested in Merrill Lynch, it seems as though forex traders have lost confidence. As I’m watching my currency screens this Sunday evening, early Monday trading in Europe and Japan shows they want out of the U.S. dollars, with the euro up about a penny already.
The question is what have they lost confidence in? The idea that the U.S. was ahead of the rest of the world in regard to bad news – and now it’s leading the way back, away from the edge of recession? Or have traders lost faith in the way the U.S. does business? And if it’s the latter, does it mean they have lost faith in the capitalist way of life?
Hell, we here in the States stepped away from capitalism a long, long time ago. Don't even get me started. Every time I watch the news or open the newspaper these days, it seems my family is the only one not on the government payroll. Then I look at my pay stub and I think my taxes are the source for all of these freebies everyone else is receiving.
I'm sure many Americans feel the same way. I like to think about and take responsibility for my family’s financial well-being and future. That is capitalism. That is the American way – or, should I say, was the American way. Now even American corporations want a handout. These days, it’s Wall Street, of course – but the U.S. automakers are making their case, too! I can see the argument that the failure of a Wall Street firm could lead to larger problems, as Wall Street is the world’s financial center. But the U.S. automakers are a different story.
An executive for one of the auto manufacturers was on TV Friday morning, explaining just how expensive it is to retool plants, preparing them to produce smaller, fuel-efficient cars instead of SUVs. Of course, he didn't mention that they decided to build those SUVs. He didn't mention that they were more than willing to reap the profits from the sales of those SUVs to the American public and elsewhere. Nor did he mention the need for a business to look into the future, adjust their business to adapt to future events, and to reinvest some of those profits to ensure an ongoing venture.
No, he stated clearly that they gave the public exactly what the public wanted, and now that the public has changed their minds, the government – meaning, those of us that pay taxes – owe them something. Sorry, I – I mean, we – don't owe a thing. You didn't do your job, and now you and your shareholders and employees should live with the consequences.
For the record, I drive a 1993 Mazda Protégé, averaging just about 30 miles per gallon. The car was paid for many years ago. I bought it after comparing it to its competitors – both domestic and foreign. And let me tell you that there was no comparison: At that time, the Mazda beat the pants off everyone else. That, and the fact that it's still running, is a testament to its good engineering and construction.
Besides, these days U.S. cars are often built elsewhere – and, ironically, it's the foreign cars that are often built here in the U.S., by American workers. So, the bulk of the price we, the consumers, pay – even for cars with foreign names – stays here. I point to my other car, a Honda which calls Alabama its point of origin, as the proof of my argument.
But enough on that, I think you know where I stand. Back to the U.S. dollar.
Last week, I talked about the dollar “environment,” and why it was right for a dollar top and reversal. My weekly video last Friday explained what I meant by “environment.” What we are seeing regarding Lehman now, in the early market trading on Sunday evening, is a result of that environment. If the current events were occurring in different economic times – when people, collectively, felt better – a firm like Lehman would probably find plenty of help, from either the private or public sector.
But in this environment it's just not going to happen. Besides, after the way the deal for Bear Stearns’ “rescue” was structured back in March, the government would have to offer even greater incentives and guarantees to attract interest in Lehman. Ironically, it's the government’s lack of capitalistic-like actions in the past (more importantly, a very recent past) that complicates the buyout/bailout of Lehman Brothers, a very capitalistic enterprise with a 150-year history.
This is not what the U.S. dollar needed right now. This is exactly the environment where the dollar could suddenly appear less attractive. After its near vertical two-month long rally, the risk now is a sudden and drastic revaluation. ...JJM...