So the 2010 Christmas season has come and gone and (according to the data I have heard bantered about) it appears we had a pretty big holiday buying season. I am somewhat surprised as it seems (by the data) people are buying stuff and yet unemployment is still high and the people I know seemed to spend the same amount of dollars or (most likely) less.
I am not sure if this is just numbers beating skewed down expectations or real demand. Although Bakersfield stores seemed pretty crowded, I do not think it was more than years past. I wonder if people are still spending on credit or they really have excess disposable income to spend. Perhaps those workers who get paid in cash are much much larger than I ever imagined and that does not obviously show up on the employment data.
Maybe those home owners, (who were somewhat forced out of their over-priced mortgages) are now renting and spending the difference between the current rent and former mortgage. I hope not as this does not seem like a fiscal recipe for success. Since employment is usually a lagging indicator maybe the numbers do not represent the actual growth going on? I do not believe that to be the case, but things sure do not seem to be adding up to me. I wonder what will happen when the Federal Reserve stops providing liquidity to the system?
Speaking of debt, I realize that according to the US National Debt Clock, (usdebtclock.org) that we have passed the 14 trillion dollar mark. That is a pretty staggering number and keeps ticking up too darned fast. As I write this, the new Congress is starting the process of being sworn in and they are promising to cut spending. Sounds promising, but I will not hold my breath as any cuts made out of the House of Representatives will have to be agreed to by the senate and not vetoed by President Obama.
As I write this the dollar index is up approximately 1% so far today and this should somewhat (even if only in the short term) help alleviate some of the cost push inflation commodities are providing. I wonder if the dollar rally is related to the cost cutting agenda the Republicans are promising? Of course, some of the weather problems in Australia and China may cause a short term supply problem offsetting the effects of a stronger dollar. Longer term, I believe the direction of the dollar will determine the price trend of many commodities. By the way, I heard on the radio that the Global Warming believers are now stating that the process can actually cause colder weather in places. I know the weather is prone to cycles and has a tremendous amount of very intricate variables but this sounds too much like they are right if they are right and they are right if they are wrong.
There are many, many variables pushing the markets around right now. One of the biggest and most influential is the liquidity being provided by the Federal Reserve. Since banks do not appear to be lending that money it seems to be leaking into asset markets, including but definitely not limited to, the Stock Market and Commodities. I believe this is the reason speculators get blamed sometimes for commodity price increases. Balderdash, (if the banks and investment houses were not sitting on piles of free cash than there would be no excess liquidity finding its home in commodities.) 2011 is shaping up to be a very interesting year.
Written By: Daniel Petrey, CFO, MBA
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