Re: Birchtree's account talk
There won't be any bullish uplift today because the bears are trying to push the Dow below 12,845.78 to trigger a Primary Dow Theory sell signal - and will I sell - of course not. There is just too much common sense out there to keep me creative - and I'm staying long as a result.
From TWSJ by Sudeep Reddy 11/19. Weak Dollar Isn't the Inflation Driver It Once Was.
"Inflation warnings are sounding in the U.S. because of the plunging dollar. But they may be false alarms. Evidence has been building that a weak dollar doesn't fuel inflation like it used to.
A key reason: Foreign exporters are so keen to keep U.S. market share that when the dollar weakens they often lower their prices to keep them steady in dollar terms. That's especially true when the economy is slowing and American consumers are less willing to pay higher prices.
A 10% decline in the dollar's value - the drop seen over the past year - might be expected to raise the price of imports by 10%. But the actual increase has been much less. Studies have found that only one-quarter to one-tenth of a currency depreciation gets passed through as higher prices for foreign made goods.
That makes the Federal Reserve's job a bit easier. If the nation's economy slows sharply, the Fed could give it a boost by lowering interest rates - a move that tends to weaken the dollar even more - without worrying as much about inflation.
The dollar's five-year decline hasn't raised inflation expectations, as expressed by the bond market. Prices of gold, oil and other commodities have surged, but much of the cause has been growing demand and speculation in financial markets.
A recent study by Fed staffers found that many foreign companies sending goods to the U.S. have given the American consumer special treatment. As the dollar has fallen, those companies have accepted thinner profit margins, especially since 2002. They haven't given consumers elsewhere a similar break. That reflects the dollar's dominance and concerns about losing ground in a key market.
A weakening dollar used to have a bigger impact on import prices. From the mid-1970s through the 1990s, the pass through rate was a high as 50% - meaning a 10% drop in the value of the dollar would raise import prices by 5%. This decade the pass-through rate has been less than 25%. For the overall economy, that's still a small increase because imports are a fraction of the goods consumed."
