Monkey with Money at Your Own Peril

Doug Nolan

With markets on the rather quiet side, I awoke Friday anticipating a more theoretical focus for this week’s CBB. But then May’s surprisingly dismal jobs report – 38,000 seasonally-adjusted jobs versus consensus expectations of 158,000 – threw the markets for a loop. Bond yields sank - at home and abroad. Currency markets went haywire, with the Japanese yen surging 2% versus the dollar. The U.S. dollar index ended Friday’s session down 1.75%, its biggest one-day decline since December.

June 3 – Bloomberg (Liz McCormick): “Bond traders have a message for the Federal Reserve: Don’t even think about raising interest rates this month. The world’s biggest debt market soared Friday, driving yields lower, after government data showed U.S. employers added the fewest workers in almost six years last month. For traders, the figures drove the final nail in the coffin as far as bets that the central bank would lift rates when it meets June 14-15. The probability of a June hike plunged to 4%, from about 22% before the report’s release. It was 30% a week ago…”
Two-year Treasury yields dropped 11 bps on Friday (“largest daily fall in 8 months”) – and were down 14 bps on the week (“largest weekly decline since October 2014”). Yet it wasn’t just Treasury yields on the decline. Friday trading saw German 10-year bund yields decline five bps to a record low 0.068%. Ten year U.K. gilt yields sank 16 bps this week to close at a record low 1.27%.

June 3 – Bloomberg (Jonathan Levin and Ye Xie): “Bond bears were licking their wounds after a weaker-than-forecast May jobs report sent Treasuries surging. Data released later Friday suggest the pain was widespread. Hedge funds and other speculative investors were net short Treasury two-year note futures in the week ended May 31 by the most since before the financial crisis, according to U.S. Commodity Futures Trading Commission data. Two-year notes surged Friday by the most since September…”
Global markets have not been cooperating with the leveraged sect. Just as market operators were becoming comfortably positioned for higher U.S. rates and a stronger dollar, the payroll data turned weak - and previous gains were revised lower. Basically, job creation has been on a steady downtrend for the past six months. Perceptions had of late swung in the direction that a general firming of U.S. economic data (and relatively stable global markets) provided a window for the Fed to bump rates a bit higher. The markets rather abruptly Friday morning shifted to the view that the Fed might have once again missed it’s timing for a rate rise. One and done.

So the yen currency short – a seemingly enticing trade with Japan in disarray and the Fed about to hike rates – suddenly turned into a wretched bear trap. The yen surged 3.4% this week, charging back to near 18-month highs. The commodity currencies, ostensibly tantalizing shorts with the dollar rally gaining momentum, rather abruptly ripped traders’ faces off. For the week, the South African rand surged 4.0% and the New Zealand dollar rose 3.8%. The Australian dollar rallied 2.6% this week. And speaking of “rip your face off” rallies, gold stocks (HUI) surged 13.9% this week. Again, with the dollar rallying and bullion under pressure, the gold equities short trade was attracting attention again. So many speculative macro trades bludgeoned this week.

Global financial stocks have turned hyper volatile. U.S. Banks (BKX) dropped 2.25% during Friday’s session, and the Broker/Dealers (XBD) fell 2.20%. It was quite a reversal from last week, when the banks gained 3.2% and the broker/dealers surged 4.5%. Yet the really big moves were, ominously enough, in Europe.

Europe’s STOXX 600 Banks Index sank 5.4% this week (down 2.17% Friday), increasing 2016 losses to 19.6%. Italian bank stocks were clobbered 8.4% (down 2.84% Friday), ending the week just off of early April’s three-year lows. Italy’s banks closed the week down 39% y-t-d. The Italian stock market (MIB) was down 3.8% this week, increasing y-t-d losses to 18.3%. Spanish stocks (IBEX) dropped 3.4%, increasing 2016 declines to 7.8%. Germany’s DAX fell 1.9% this week and France’s CAC 40 dropped 2.1%. European equities are quickly giving back what had been an unimpressive rally.

European bond markets have been confirming that all is not well. It was a week of record low German bund yields and widening periphery spreads. Portuguese 10-year bond spreads widened 20 bps this week, with Greek spreads 13 bps wider. Spanish and Italian 10-year spreads were five wider.

Analysts have been quick to note U.S. equity market resiliency. The S&P500 ended the week almost exactly unchanged, outperforming most developed markets. Below the surface there is ample volatility. While the financials were under heavy selling press, the Utilities jumped 2.4%. 

The small cap rally continued, with the Russell 2000 gaining 1.2%. The squeeze in the biotechs persevered, with the BTK up 2.7% this week. The bottom line is that market dynamics continue to be extraordinarily challenging.

It’s now been more than seven years since I first warned of a new “global government finance Bubble.” I had no idea that by 2016 the Fed’s balance sheet would have inflated to almost $4.5 TN. The thought that the BOJ and ECB would each be expanding their balance sheets by about $1.0 TN annually never came to mind. I did not at the time contemplate that the ETF and hedge fund industries would both balloon to $3.0 TN. I would have argued against the possibility for negative interest-rates and $10.0 TN of negative-yielding global debt securities. I expected a Bubble in China, but a $35 TN Chinese banking system and $8.0 TN of so-called “shadow banking” were inconceivable back in 2009. And clearly I expected this “Granddaddy of all Bubbles” to have succumbed before now.

I didn’t argue for a likely hyperinflation scenario. What was clear in my mind was that once the inflation of Central bank and sovereign Credit commenced it was going to be extremely difficult to control. Monkey with Money at Your Own Peril. I’ve always believed that using central bank Credit to inflate securities markets was both a trap and a monumental mistake. 

After the disastrous consequences of employing mortgage Credit for system reflation purposes, there was little possibility that inflating the securities markets would end any better. Yet after a few months of relative global market calm, the backdrop again has the appearance of sustainability. I’ll continue to chronicle why I believe it’s late in the game.

It’s become increasingly obvious that Japan’s QE and negative rate endeavor is floundering. A similar prognosis for ECB reflationary measures is at this point only somewhat less evident. Historic bond Bubbles proliferate. Meanwhile confidence in economic fundamentals, the course of policymaking and general banking system soundness wavers. There is little to indicate that either the BOJ or ECB will be capable of extricating themselves from flawed policies.

With the Federal Reserve having concluded QE, many present the U.S. as evidence that exit strategies are achievable and easily managed. It’s definitely not that straightforward. I would contend that ending QE was only possible because of the massive “money” printing operations being orchestrated in Tokyo and Frankfurt. I believe enormous amounts of finance have made their way into U.S. securities markets and the real economy, either directly or indirectly related to BOJ and ECB policymaking. Combined with historic Chinese “Terminal Phase” Credit excess, there was more than ample Credit and liquidity to propel the “global government finance Bubble” finale.

Yet there are today serious issues with BOJ and ECB policy measures as well as the Chinese Credit boom. I would argue that BOJ and ECB reflationary policies maintained the appearance of success only so long as the yen and euro were being devalued. For one, currency devaluation worked somewhat to mitigate domestic deflationary pressures. And, importantly, aggressive BOJ and ECB (QE and interest-rate) policies created extraordinary speculative opportunities for shorting the yen and euro. “Carry trades” and myriad leveraged strategies proliferated to profit from unusually conspicuous policy-orchestrated devaluations, in the process boosting securities market liquidity throughout global markets.

I tend to view yen and euro devaluations as part of last gasps in both policy experimentation and leveraged speculation. For a couple years, devaluation provided extraordinary speculative opportunities, in the process helping to mask the general deteriorating backdrop for leveraged speculation. Now, the yen is near 18-month highs against the dollar and the euro not far from one-year highs. Currency markets generally have turned volatile and uncertain. Slam dunk trades are a thing of the past. The backdrop is no longer conducive to leverage.

Integral to my bursting global Bubble thesis, I believe a monumental de-risking/de-leveraging cycle has commenced. This fledgling “risk off” backdrop helps to explain why BOJ and ECB QE measures have had such muted impact on global risk markets. At the same time, ongoing liquidity operations continue to bolster market sentiment in the face of a disconcerting fundamental global backdrop. Clearly, relative stability in China in concert with BOJ and ECB policy measures has been key to containing “risk off” over recent months.

China, commodities and EM have been the global markets’ weak links. The view has been that dollar weakness helps to ameliorate these fragilities. At the same time, there is the issue of how much speculative finance flowed into the U.S. in pursuit of king dollar returns. One more Crowded Trade to unravel? And there’s another issue worth pondering: confidence in QE has waned considerably over recent months. There’s increasing talk of “helicopter money” and central bank forgiveness of government debt obligations. Both would create serious issues in terms of the true underlying value of central bank Credit. And who holds the vast majority of central bank Credit? The major global commercial banks have accumulated Trillions of central bank obligations, as assets backing deposit liabilities. Perhaps waning confidence in central banking helps explain why the big global bank stocks trade as if something very serious is unfolding. It would also explain the seemingly insatiable appetite for safe haven assets.

June 2 – Bloomberg (Tracy Alloway): “Which fixed-income asset class is growing fast, outperforms similar debt issues, and rarely defaults? Emerging market 'quasi-sovereign' bonds, of course! At some $600 billion, debt sold by state-supported companies in emerging markets ranging from China to Oman has surpassed the amount of emerging market government debt outstanding, according to… Bank of America Merrill Lynch. Such quasi-sovereign debt issuance has helped propel the stunning growth of the overall bond market, with EM issuance accounting for 47% of the growth in global debt between 2007-14, compared to 22% in the previous seven years, according to S&P Global Ratings. But the surge in 'quasi' bonds is making some feel, well, queasy. ‘Quasi-sovereigns are effectively a 'contingent liability' for a country,’ write the BofAML analysts, led by Kay Hope. They note that quasi-sovereign issuance now makes up half of the $1.6 - 1.8 trillion euro- and dollar-denominated corporate bond market for emerging markets…”
May 31 – Wall Street Journal (Timothy J. Martin): “What it means to be a successful investor in 2016 can be summed up in four words: bigger gambles, lower returns. Thanks to rock-bottom interest rates in the U.S., negative rates in other parts of the world, and lackluster growth, investors are becoming increasingly creative—and embracing increasing risk—to bolster their performances. To even come close these days to what is considered a reasonably strong return of 7.5%, pension funds and other large endowments are reaching ever further into riskier investments: adding big dollops of global stocks, real estate and private-equity investments to the once-standard investment of high-grade bonds. Two decades ago, it was possible to make that kind of return just by buying and holding investment-grade bonds, according to new research.”
Again, Monkey with Money at Your Own Peril.

The Most Powerful Man in Banking

Fed governor Daniel Tarullo is known for his behind-the-scenes influence over everything from corporate strategy to capital rules

By Ryan Tracy and Emily Glazer

Daniel Tarullo is called the ‘Wizard of Oz’ by Wall Street financiers for his powerful sway over banks. Photo: Brooks Kraft for The Wall Street Journal

The most important person in the banking business isn’t a banker.

To most Wall Street executives, that title goes to Federal Reserve governor Daniel Tarullo, a brusque, white-haired former law professor who has come to personify Washington’s postcrisis influence over how banks do business.

Mr. Tarullo heads the Fed’s Committee on Bank Supervision. On paper—and in practice for most of the previous decades—the post isn’t a hugely powerful one. But the 63-year-old took office at the Fed in 2009 at a moment of broad public support for a more aggressive tack and has pressed that advantage ever since.

Financiers privately call Mr. Tarullo “the Wizard of Oz” for his behind-the-scenes sway over everything from corporate strategy to how many billions of dollars banks must maintain in capital.

Through the stress tests he championed to evaluate how banks might fare in another market shock, the Fed wields control over whether banks can raise the dividends they pay to shareholders.

For a big bank in 2016, getting a stamp of approval from Mr. Tarullo is an effort consuming thousands of employees. The industry’s lawyers pore over transcripts of Mr. Tarullo’s dense speeches to grasp the meaning of every word. When Citigroup Inc. C -0.02 % and Bank of America Corp. BAC -0.60 % stumbled on the stress tests in recent years, each bank said it spent at least $100 million to correct the problems the Fed had called out.

Peter Conti-Brown, a historian and author of “The Power and Independence of the Federal Reserve,” called Mr. Tarullo’s influence extraordinary. One former bank executive put a finer point on it: “He’s judge and jury and everything else,” he said.

Mr. Tarullo in an interview attributed his power to his longevity at the Fed and consensus with other regulators. And, he said, the full impact of the regulatory changes made on his watch have yet to be felt.

“I think it likely that firms are going to have to change in some cases their size, in some cases their business model, and in some cases their organization,” he said.

Mr. Tarullo’s influence illustrates the outsize role that government regulation now plays for banks.

For most of the modern era, regulators took a more hands-off approach, monitoring the industry for abuses but stopping short of injecting themselves into bank operations. But the near collapse of the financial system in 2008 brought widespread criticism of regulators for not being more vigilant and changed the equation.

Many in the industry said the pendulum has now swung too far, creating large banks that are ultrasafe but which shy away from healthy risk-taking. Banks change their behavior “even if it doesn’t make sense to do it because of the fear of the retribution,” said Richard Kovacevich, former chairman and CEO of Wells Fargo WFC -0.26 % & Co.

Mr. Tarullo’s defenders said the heightened regulatory environment is justified given the severity of the financial crisis. They said banks are safer and regulators more capable of curbing problems than they were before.

Mr. Tarullo, a liberal policy wonk who loves the TV show “Seinfeld,” the Boston Red Sox and writer William Faulkner, has spent most of his career in government and academia. He worked on and studied economic policy for decades, including at Harvard Law School, where he became embroiled in an ideological dispute over a legal theory that contended the law was biased toward powerful interests. Mr. Tarullo was denied tenure when some conservative professors pushed back against the theory’s adherents, though he said he was collateral damage rather than a central player in the debate.

He homed in on banking regulation while teaching at Georgetown University in the last decade, concluding regulators needed to create tougher rules and more powerful means of imposing them. As the financial crisis intensified in September 2008, he published a book called “Banking on Basel,” which argued capital requirements agreed to by the Basel committee of global regulators weren’t doing enough to limit banks’ borrowing and trading.

Federal Deposit Insurance Corp. Chairman Martin Gruenberg said Mr. Tarullo has a creative mind that both grasps esoteric financial concepts and “is very effective on how to make things happen.” He recalled a conversation with Mr. Tarullo in the early part of his tenure after the winter holidays, in which Mr. Tarullo said he had spent the previous weeks reading academic papers about banks’ use of short-term wholesale funding, a volatile type of loan central to the 2008 financial crisis.

The Fed has since tried to curb what it views as excessive reliance on those loans, including capital rules adopted in 2015 that have forced J.P. Morgan Chase JPM -0.24 % & Co., the nation’s largest bank by assets, to shrink both its size and its short-term borrowing.

Few bank executives knew him when he was appointed by President Barack Obama to the Fed’s Board of Governors. But he made an early impression. At one of his first meetings with financial CEOs, in March 2009, Mr. Tarullo said the administration was planning to allow their banks to continue to exist, according to people who were present or briefed.

“We have a problem,” one of those people said, describing the reaction by the bank executives, who read the remarks as a heavy-handed expression of authority.

Soon after taking office, Mr. Tarullo led the Fed’s negotiation with global regulators on capital rules. Previous Fed governors had left the job to staff, and his hawkish voice helped secure a series of global agreements on stricter rules for the largest banks.

Mr. Tarullo “understood the need to inject some social consciousness into the market in a way that doesn’t dent its efficiency,” said former Rep. Barney Frank (D., Mass.), who worked with him on financial policy and was one of the authors of the 2010 Dodd-Frank financial-overhaul law.

Yet even as Mr. Tarullo has helped engineer a broad regulatory overhaul, he also rejected what in 2009 he called “reform by nostalgia,” a return to Depression-era rules separating Main Street lending from Wall Street investment banking.

Instead, he has argued that large financial firms have a role in the economy, and the government should regulate them commensurate with the risks they pose. Mr. Tarullo has been less enthusiastic about liberal priorities such as the Volcker rule, a provision of the Dodd-Frank law named after former Fed Chairman Paul Volcker that bans banks from making bets with their own capital. Mr. Tarullo has publicly supported the goals, but worried privately the rule would be difficult to enforce, people familiar with the matter said.

Mr. Tarullo said he is open to the idea that more needs to be done to tamp down risks at big banks, but prefers to set tough capital requirements and let banks react rather than say, “Do it this way.”

At the Fed, Mr. Tarullo in his early years sometimes yelled or swore when staff produced what he viewed as substandard work or bankers disagreed with him, according to people familiar with the matter. Bank executives said they still feel he rarely budges when presented with data and arguments that support the industry’s perspective.

When the Fed was developing a proposal that would require Wells Fargo to raise about $40 billion in long-term debt to absorb losses and prevent bailouts, the bank argued the change was unnecessary and asked repeatedly about Mr. Tarullo’s reasoning. The bank felt that Mr. Tarullo and his aides listened but didn’t meaningfully consider alternative views, people familiar with the conversations said. Wells Fargo began issuing the debt last year.

“Sometimes when they don’t agree with you, they think that you’re not hearing them,” Mr. Tarullo said.

Mr. Tarullo’s influence will be felt on the campaign trail, as Democrat Hillary Clinton has drafted a platform deferring populist calls to break apart big banks yet imposing costs on firms that pose economic risks, in line with the formula Mr. Tarullo has long advocated.

Mr. Tarullo’s next move isn’t clear. His Fed term ends in 2022, but he is widely expected to depart when a new president picks the next Fed regulatory guru. Yet his imprimatur is likely to last well past his term in office, having steered what appears to be a long-lasting shift in the balance of power between Washington and Wall Street.

Later this year, the Fed is expected to incorporate still-stricter capital rules promoted by Mr. Tarullo into the annual stress tests. He has also discussed in speeches the need to turn more attention to shadow banking, a less regulated part of financial markets.

“Has what we have done been effective?” asked Mr. Tarullo. “If we say, ‘No,’ then maybe we need to return and do more. And, intellectually, I am totally open to that possibility.”

lunes, junio 06, 2016



The Gold Bull Market - Is it time yet?

By: Robert Alexander

The Gold Bull Market

Do you think the Gold Bull Market has returned? Obviously I do, and have been trading as if the Gold Bull Market has returned. You need to be aware of this opportunity and appreciate that another big move in this Gold Bull Market is again developing. If this next move is anything like the moves seen during past Gold Bull Market's, then you will not want to miss the next buying entry after this current correction winds down.

I was able to successfully guide Chart Freak members through the recent 100% rally in gold miners when we bought the lows back in the middle of January. Those gains were exceptional, to say the least. In some cases, junior miners rose up by 500% off the lows, and are now consolidating those gains in preparation for the next leg higher.

My recent weekend report (premium version) took a deeper look at Gold's recent correction and how the current action in the US Dollar may impact the precious metals market. However, it is again time to start paying closer attention to the Precious Metals markets, because after-all this is a Gold Bull Market. Let me take you through some of the premium content I shared recently and review what I believe is occurring.

Gold Weekly

Gold has finally started that correction, as seen on this weekly chart.

Weekly Gold Chart


Notice that Gold has rallied from the lows, to a peak, and back to the next low in roughly 4- 5 months lately. That was at the end of the Bear market. It has now entered almost 6 months. Is a Meaningful low due soon? Yes.

Weekly Gold Chart 2

Gold's selling has definitely picked up, as expected, as seen with eight straight days lower. Since it is sitting on the Bollinger Band and oversold, does that mean it is done selling and time to rally right now? No, I think there is more to it than that.

Daily Gold Chart

The $USD has signaled that it wants to Rally higher for a bit too.

Weekly US Dollar Index Chart

That presents an interesting conundrum. Gold should be ready to rally timing wise, since it will normally rally out of meaningful lows every 4-5 months. Now we see Gold dropping and we know it has already been 6 months since the Dec lows, making it due for the next meaningful low. Can it rally with the $USD set to go higher?

Daily Gold Chart 2

In my past weekend report, I cover my thoughts and analysis in this area. We are preparing to again take advantage of a big upcoming rally, just as we did between Jan and April in the first phase of this new Gold Bull Market. However, getting in too early could really hurt too, as the gold market can consolidate sharply near the lows.

For this reason, I will be focusing closely on this sector in all my future daily reports too. The first rally within this sector saw many precious metals miners double and triple, while now in the process of consolidating. I look forward to what I believe will be the next strong run in Precious Metals and anticipate being able to again identify great Chart setup's in real-time.

Global manufacturing has stalled

New survey data compiled by JPMorgan and Markit show global manufacturing activity is not looking great.

By Sam Ro

The world's economic engine has stalled. (Image: Wikimedia Commons)

New survey data signals a "broad stagnation" in global manufacturing.

The JPMorgan global manufacturing purchasing managers index (PMI), slipped to 50.0 in May from 50.1 in April. Any reading above 50 signals expansion, and any reading below signals contraction. This reading of 50.0 signals stagnation.

"Rates of expansion in production and new orders also eased to a near-stagnation, while the pace of contraction in new export business was one of the steepest during the past three years," Markit said in its report. "The muted performance of manufacturing was also reflected in the labour market, as staffing levels fell for the fourth straight month."

Global manufacturing is in stagnation. (Image: JPMorgan, Markit)

The largest component of the global index is the US (25% weight), where manufacturing activity continues to expand, albeit at a decelerating pace. The US manufacturing PMI fell to 50.7 in May from 50.8 in April. Unfortunately, the underlying details of the report were even less encouraging.

"The survey data indicate that factory output fell in May at its fastest rate since 2009, suggesting that manufacturing is acting as a severe drag on the economy in the second quarter," Markit's Chris Williamson said of the US report. "For those looking for a rebound in the economy after the lackluster start to the year, the deteriorating trend in manufacturing is not going to provide any comfort."

China, the world's second largest economy, also didn't have much good news to offer. The Caixin China manufacturing PMI fell to 49.2 in May from 49.4 in April. This signals contraction. The Chinese's government's official manufacturing PMI, which skews toward larger companies and state-owned enterprises, was unchanged at 50.1.

“We think the details in the survey are worse than what the headline numbers suggest, especially in new orders, export new orders, and inventories,” Credit Suisse’s Dong Tao said of the Chinese reports. “Looking forward, we expect the economy to hold up in the coming months with the lending in 1Q creating some investment activities, but without much further upward momentum. We think the economy will likely muddle through over the next 18 months.”

And then there's Europe.

"The euro area PMI slid to a three-month low in May, but nonetheless remained above the global average for the fifteenth month running," Markit said in its report. "Almost all of the eurozone nations for which data are collected registered expansions, the exceptions being France and Greece. Elsewhere in Europe, UK manufacturing stagnated, whereas growth remained solid in Poland and the Czech Republic."

"The whole world is effectively stalled because global demand growth is weak," IHS US economist Michael Montgomery said. At the center is the world's largest economy: the US.

"The US suffers at a short-term disadvantage because of the legacy of a strong dollar up until just a few months ago, and will continue to face dollar-drag for the rest of 2016," Montgomery continued. "With no engine of growth in world demand, losing exports to foreign competitors, and losing domestic market share to overseas suppliers, the moderate goods demand growth in the US is eaten away by drag. The manufacturing malaise continues with nothing but periodic spikes in one reading or another to disturb its torpor."

Sam Ro is managing editor at Yahoo Finance.

Donald the Destroyer

Simon Johnson
. Donald Trump

WASHINGTON, DC – Donald Trump, the Republican Party’s presumptive nominee to contest the United States’ presidential election in November, is clearly not a standard Republican. The party’s leaders and elected officials fought against him during the primary, and many are still reluctant to endorse him. Trump is now aligning some of his policy proposals with mainstream Republican ideas, but he is also clearly determined to retain his distinctive identity.
The resulting ideological mix comprises three main components: virulent anti-immigrant animus, ignorant anti-trade rhetoric, and extreme anti-government sentiment. Taken separately, any one of these would be damaging. Together, they would deal a major blow to US and global prosperity, while also weakening national and international security.
Without question, Trump is the most anti-immigrant presidential candidate the US has seen in modern times. His first idea and overriding catchphrase is to “build a wall” along the country’s southern border, which would supposedly keep out Mexican and other Latin immigrants. He also wants to deport 11 million people and keep out all Muslims.
This is a recipe for a police state – checking identities, raiding people’s houses, and encouraging neighbors to inform on one another. It is also fundamentally anti-American, in the sense of undermining everything that the country has achieved. The US is a nation of immigrants – the best in the world at integrating new arrivals. After one generation in the country, no one cares where your family came from.
Trump – and those who bring him to power – would throw all of this out of the window. The associated social disruption would by itself cause not just an economic slowdown, but a sustained decline in GDP and incomes.
The Trump campaign’s anti-trade stance is similarly shocking, including to the business community. Trump genuinely wants to confront China and other countries with a potential trade war, ignoring completely the impact on the US (where exports account for around 14% of total economic activity).
The US has spent the past 70 years helping to build a global system that, despite its flaws, for the most part enables countries to trade peacefully and across great distances. Trump’s vow to tear up the rules is a recipe for another Great Depression, with massive unemployment and millions of people unable to pay their mortgages, student loans, and other debts.
Trump has added some themes from the Republicans’ traditional anti-government agenda, but with his own grandiose twists. Financial reform would be repealed completely, regardless of the consequences. The US would return to the arrangements that brought the world’s financial system to the brink of complete collapse in 2008 – and caused the country to lose at least one year’s GDP (more than $20 trillion).
Moreover, Trump’s proposed tax cuts would be very large – thus increasing the federal budget deficit and driving up national debt substantially. Trump will rely on the standard Republican claim that the tax cuts will “pay for themselves” or lead to rapid growth. Such claims are completely at odds with modern American experience, including under George W. Bush.
This approach to economic policy is classic populism: Promise voters impossible things, particularly when the negative fallout from the promises becomes apparent only well down the road. If Trump were elected, Americans could expect the same sort of economic cycle seen repeatedly in places like Argentina over the past 100 years. Inequality would widen, with great wealth for the few and low wages for the many, followed by a traumatic bust – in which the wealthy again do fine, the middle class is ground down to poverty, and the social safety net is ripped to shreds.
In our book White House Burning, James Kwak and I emphasized that fiscal sustainability is important not just for economic prosperity but also for national security. In 1814, the British were able to burn down the White House (and most other official buildings in Washington, DC) because American politicians had almost completely undermined the central government’s fiscal capacity.
The US had no effective navy, a weak army, and insufficient ability to mobilize in the face of an obvious national emergency.
Trump’s promise to “Make America Great Again” is a political swindle. Populists will promise anything, including policies that are untenable or that will lead to certain disaster. Trump’s proposed policies are no different: They would undermine America’s security, depress its economy, and destroy the financial system.
The authoritarian populism that Trump embodies has challenged democracies at least since the end of the Roman Republic. Authoritarians have always beaten up their opponents – physically, in the courts, and now on Twitter – to make them keep quiet.
Trump’s opponents must not be intimidated. His rise represents the most profound challenge to American democracy since Germany invaded Poland in 1939. Rejection of his candidacy is necessary to keep America and the world safe.

A Rude Jobs Interruption

The labor market finally catches up with slower economic growth.

President Obama’s election-year campaign to make Americans feel great about the economy again was rudely interrupted Friday by the reality of the job market. The economy created a dismal 38,000 net new jobs in May, the worst monthly performance since 2010. Who are you going to believe: The President or the Bureau of Labor Statistics?

The lousy numbers surprised most economists, including those at the Federal Reserve who have been talking up a tight labor market and hinting at another interest-rate increase or two. The unemployment rate has been falling—it fell again in May to 4.7%—but maybe that’s because millions of people have left the job market in frustration.

The jobless rate declined largely because the labor force fell by some 458,000 in May. As for those still in the labor force, the number working part-time who would prefer to have full-time work but can’t find it increased by 468,000.

The nearby chart shows the trend in labor participation since the recession began at the end of 2007 when it was 66%. In February 2009 when Mr. Obama first visited Elkhart, Indiana as President to tout his economic stimulus, the rate was 65.8%. The astonishing reality is that this rate has continued to decline for most of this economic expansion. The last time the rate was steadily below 63% was 1977.

One likely explanation for the May slide is that the job market is finally catching up with the slowdown in overall growth. The U.S. economy clearly downshifted last fall from its 2%-2.5% range of the last few years, and it barely skirted recession through the end of 2015 and the first quarter of this year.

Labor markets are a lagging indicator, and the jobs slump may now reflect that slower growth.

The net jobs numbers were revised down for March and April by 59,000, and the average job creation across the last three months is 116,000. That’s a significant decline from the 200,000-plus average of the last few years. Fewer Americans were working in May than in February, and average weekly hours worked haven’t budged.

None of this presages an immediate recession, but it does raise the question of whether this already long expansion is nearing the end of its tether. The manufacturing economy has arguably been in recession for some time, and on Friday the ISM non-manufacturing index fell to 52.9 from 55.7 in April. Below 50 signals a contraction, so this is more evidence of a growth downshift.

Wages have finally begun to rise in the last year, albeit at a pace still slow (2.5%) for this stage of an expansion. Compensation is climbing as a share of national income, which is encouraging for worker well-being and consumer spending.

But because the economy is growing so slowly and business revenues therefore rise slowly, these wage gains are coming out of corporate profits. That hurts future business investment, which means slower future growth. The bottom line is that there’s little reason to suspect a sustained economic re-acceleration.

This puts added pressure on the Fed, which wants to believe it can finally start returning to more normal monetary policy but has been over-estimating economic growth every year of this expansion. Look for the liberal pundits to start yelling about a Fed “mistake” if it does raise rates in June or July.

Which brings us back to Mr. Obama’s magical economic recovery tour. He kicked it off this week with a return to Elkhart, Indiana, where he touted the area’s 4% jobless rate as the recreational-vehicle industry has recovered. He knows his legacy is on the line in November, and he can read the polls that show that Donald Trump is leading Hillary Clinton on who would do better for the economy.

Thus his economic pep talk and attempt to rebut what he called “myths” spread by Republicans and the “conservative” media about slow growth and mediocre incomes. But he doesn’t need to blame us. His bigger beef is with Mrs. Clinton and Bernie Sanders, who have spent the last year deploring the economic condition of America’s middle class. And as of Friday with his own Labor Department, which reported facts that are hard even for this President to spin away.

Why 99% of U.S. Corporations Could Go Bankrupt in the Coming Deflationary Depression

Justin Spittler

Corporate debt is getting out of control.

If you’ve been reading the Dispatch, this isn’t news to you. For months, we’ve been pointing out that U.S. corporations are borrowing massive sums of money.

They’ve borrowed almost $10 trillion in the bond market since 2008, including a record $1.5 trillion last year.

You may not think Corporate America’s debt addiction is your problem. After all, you aren’t the one who borrowed far more money than you can ever pay back.

But, as you’ll see, this debt is a huge threat to anyone with money in the stock market.

• Standard & Poor’s (S&P) issued a troubling warning this month…

S&P is one of America’s biggest credit agencies. It monitors the financial health of Corporate America.

Recently, S&P looked at the balance sheets of 2,000 U.S. corporations. It published the results of this study earlier this month. The findings are startling…

According to S&P, U.S. corporations have a record $1.84 trillion in cash on their books. That’s the good news. The bad news is that more than half of this cash belongs to just 25 companies, or about 1% of Corporate America. The group includes tech giants like Apple (AAPL) and Microsoft (MSFT).

• Meanwhile, the rest of Corporate America is racking up huge debts while having little cash on hand…

Fortune reported:

If you remove the top 25 cash holders, you’ll find that for most of Corporate America, cash on hand is declining even as these companies rack up more and more debt at historic rates. The bottom 99% of corporate borrowers have just $900 billion in cash on hand to back up $6 trillion in debt. “This resulted in a cash-to-debt ratio of 12%—the lowest recorded over the past decade, including the years preceding the Great Recession,” the report reads.

A cash-to-debt ratio compares how much cash a company has compared to debt. The higher the ratio, the better. A cash-to-debt ratio of 12% means companies have just $0.12 of cash for every dollar of debt.

You can see in the chart below that Corporate America’s cash-to-debt ratio has been falling since 2010. According to S&P, corporate balance sheets are the weakest they’ve been in at least a decade.

• The Federal Reserve encouraged U.S. corporations to borrow trillions of dollars…

As you likely know, the Fed has held its key interest rate near zero since 2008. It did this to encourage borrowing and spending. We were told this would “stimulate” the economy.

The plan backfired.

Companies didn’t borrow to buy machinery, equipment, or anything else that grows a business.

Instead, they borrowed to buy other companies and their own stock, also known as a “share buyback.”

Acquisitions and buybacks have made corporate profits appear bigger “on paper.” But they haven’t actually made companies stronger. Instead, they’ve made companies more vulnerable to the coming crisis…

• Dispatch readers know we think the global economy is on the cusp a major financial crisis…

Casey Research founder Doug Casey thinks the coming crisis “will in many ways dwarf the Great Depression of 1929–1946.” When it hits, Doug says “paper currencies will fall apart, as they have many times throughout history.”

E.B. Tucker, editor of The Casey Report, also thinks the dollar will eventually collapse. But he thinks we will first have a “deflationary depression.” He explains why in this short video.

• A deflationary depression could pop America’s corporate debt bubble…

Deflation is when prices for goods and services fall. It’s the opposite of inflation.

Deflation sounds like a good thing to a lot of people. After all, who doesn’t like paying less for food, clothing, and gasoline?

While deflation can be good for consumers, it can be disastrous for businesses, and therefore the stock market. It’s especially bad for companies that borrowed too much money.

If prices are falling, that means the dollar is getting stronger. And a stronger dollar makes it harder to pay back loans.

Let’s say we get 5% deflation. A company that borrowed $100,000 will effectively have to pay back $105,000. In other words, deflation makes a company’s debt more “expensive.”

That’s a big problem. As we said earlier, Corporate America has never had more debt.

• Companies are already struggling to pay their bills…

More than 70 corporations have defaulted this year. According to S&P, global corporate defaults are happening at the fastest pace since 2009.

Companies are defaulting for two main reasons. One, they have too much debt. Two, their profits are falling.

As we’ve been pointing out, profits for companies in the S&P 500 are on track to decline for a fourth straight quarter. That hasn’t happened since the 2009 financial crisis.

Last month, French bank Société Générale warned that falling profits and excessive debt would lead to many more U.S. defaults.

Whole economy profits never normally fall this deeply without a recession unfolding. And with the U.S. corporate sector up to its eyes in debt, the one asset class to be avoided — even more so than the ridiculously overvalued equity market — is U.S. corporate debt. The economy will surely be swept away by a tidal wave of corporate default.

• The U.S. manufacturing sector is acting like a recession has begun…

Last week, we told you U.S. capacity utilization is at the lowest level since the financial crisis. This important metric measures how many factories and plants are currently in use. A low number means a lot of factories are sitting idle, not producing godos.

You can see in the chart below that capacity utilization is below 75% for the first time since 2008. This means nearly three out of ten machines are sitting idle.

• When companies have a lot of unused capacity, it’s hard to raise prices…

E.B. Tucker explains:

You see, if demand picks up, there’s an idle machine nearby whose owner is willing to put it to use.

He’s just glad it’s being used. He’s definitely not in a position to charge more since there are several idle machines to choose from. In fact, it’s more likely he’ll undercut his competition just to have the work.

E.B. adds that companies with a lot of debt face the most pressure to cut prices:

If a company borrowed $100 million to build a new factory, it has to repay that cheap money over 10 years. But its competitors sit with idle factories willing to produce at any price to avoid bankruptcy.

To compete, it has to drop prices…so it has less money coming in to pay its debts…and forget about profits.

• These days, most companies have too much debt…

Hundreds of companies could slash prices if deflation takes hold.

Corporate profits could collapse. And that means companies would have even less money for dividends, buybacks, and acquisitions.

• U.S. stocks are very risky and have little upside right now…

You can protect yourself by holding cash and physical gold.

A cash reserve will help you avoid losses if stocks fall. It will also allow you to buy stocks when they get cheaper.

Holding physical gold is another simple way to avoid losses. Gold is money. It’s preserved wealth for centuries because it has a unique set of qualities: It’s durable, easily divisible, and portable. Its value is intrinsic and recognized around the world.

You could also make money by shorting (betting against) expensive stocks or weak companies.

In The Casey Report, E.B. is shorting one of America’s most vulnerable companies, a major airliner.

The airline industry has been booming since the 2008–2009 financial crisis. In fact, the stock E.B.’s shorting has soared an incredible 1,600% since March 2009. It’s beaten the S&P 500 eight-to-one.

But this airline boomed because it binged on cheap money. The company is still recklessly borrowing and spending money, even as the economy weakens. The worse the economy gets, the harder it will be for the company to pay off its debt. And that could cause the stock to plummet.

Readers of The Casey Report are up 15% on this short since February. But E.B. says the stock could fall 50% or more.

Chart of the Day

U.S. corporations are much weaker than they were twenty years ago…

Today’s chart shows the number of companies with triple-A credit ratings. This is the highest credit rating a company can receive.

In 1992, 98 U.S. companies had triple-A ratings. You can see the number of companies with this rating plunged after the 2008 financial crisis. Today, Johnson & Johnson (JNJ) and Microsoft are the only two American companies with triple-A credit.

U.S. corporations have loaded up on debt over the past eight years. According to the Financial Times, U.S. corporations have $4 trillion more debt on their balance sheets today than they did at the start of 2008.

Longtime Casey readers know we don’t put much stock in these ratings. Many companies that failed during the 2008 financial crisis had strong credit ratings right up until they went broke.

However, the near extinction of triple-A-rated companies shows you how fragile the market is today.

If you choose to own stocks, stick with companies with little to no debt. These companies have a much better chance of surviving the deflationary depression.

Muhammad Ali, the Greatest, Dies at 74

The legendary boxer leaves a legacy unmatched in sports—a charismatic champion of free speech and civil change

By Jonathan Eig

Muhammad Ali, one of the most influential athletes in American history and a three-time heavyweight champion who fought as well with his mouth and mind, has died. He was 74 years old.

The Associated Press, citing a statement from his family, said Ali died Friday. He was hospitalized in the Phoenix area with respiratory problems earlier this week.

His funeral is scheduled for Wednesday in his hometown of Louisville, Ky., and the city plans a memorial service Saturday, the AP reported.

Ali called himself “The Greatest,” and many agreed. Among boxers, he certainly ranked among the elite, having won the heavyweight title three times in his 21-year career. But it was his life outside the ring that inspired the strongest adjectives. He was the prettiest, the brashest, the baddest, the fastest, the loudest, the rashest.

He openly attacked American racism at a time when the nation’s black athletes and celebrities were expected to acquiesce, to thank the white power structure that gave them the opportunity to earn wealth and celebrity, and to otherwise keep their mouths shut. Ali’s mouth was seldom shut. He joined the Nation of Islam at a time when the FBI and many journalists labeled the Muslim group a dangerous cult bent on destroying America. He challenged the legitimacy of the Vietnam War and refused to enlist in the military at a time when few prominent Americans were protesting, an act of civil disobedience that led to his suspension from boxing for more than three years.

In a career full of seemingly magical feats, Ali’s greatest trick may have been his transformation—from one the nation’s most reviled characters to one of its most beloved. It was in that journey that the boxer left his marks—including welts, cuts and bruises—on American culture.

He was born Cassius Marcellus Clay Jr. on Jan. 17, 1942, in Louisville, Ky., the son of a sign painter and a domestic worker. His paternal grandfather, Herman Clay, was a convicted murderer. His paternal great-grandfather, in all likelihood, was a slave.

The young Cassius Clay was a poor student who struggled to read the printed word, probably as a result of dyslexia, according to his wife, Lonnie Ali. He discovered his talent for boxing by accident, at the age of 12, when he told a police officer that his bicycle had been stolen. The police officer invited Cassius to join a group of young boxers, black and white, who trained at a gymnasium in downtown Louisville.

Team sports held little interest for Cassius, according to his brother, Rahman Ali, who was born Rudolph Clay. Cassius couldn’t stand the notion of wearing a helmet where his face would be obscured or being one of only 10 men on a basketball court or 22 men on a football field.

Cassius wanted nothing more than to be famous, according to his childhood friend, Owen Sitgraves of Louisville, who remembered Ali jogging to Central High School every day beside the bus that carried his classmates.

“He did it for the attention,” not just the exercise, Sitgraves said in a recent interview. In 1960, while taking time off from high school, 18-year-old Cassius Clay won the gold medal as a light heavyweight at the Olympic Games in Rome. He turned professional soon after and won his first 19 fights before earning a chance to fight for the heavyweight championship against Charles “Sonny” Liston in 1964. Liston was the most feared fighter of his time, and reporters covering the fight predicted almost unanimously that Cassius Clay would lose.

Young boxer Cassius Clay is seen with his mother, Odessa Grady Clay, in 1963. Photo: Associated Press

When the fight began, however, reporters saw instantly that Cassius Clay was not only bigger than Liston, he was also much faster. Cassius attacked with relentless jabs and combinations until the sixth round, when Liston quit.

“I am the greatest!” the new champion shouted into the microphone of radio reporter Howard Cosell.

“I am the greatest! I am the king of the world!”

After the fight, Clay told reporters he had joined the Nation of Islam and embraced the teachings of its leader, Elijah Muhammad, as well the group’s most prominent minister, Malcolm X. At a time when civil-rights leaders such as Martin Luther King Jr. were leading the fight for integration, the Nation of Islam preached separatism, saying white Americans would never give black citizens true equality.

The boxer said he would abandon his so-called slave name and accept the name Muhammad Ali, which had been chosen for him by Elijah Muhammad. As Cassius Clay, the boxer had been deemed a loudmouth who didn’t know his place and didn’t comport himself with the dignity expected of sports heroes. Now, as Muhammad Ali, he was something more threatening. “I pity Clay and abhor what he represents,” wrote Jimmy Cannon, one of the most influential sportswriters of the time. “In the years of hunger during the Depression, the Communists used famous people the way the Black Muslims are exploiting Clay. This is a sect that deforms the beautiful purpose of religion.”

But many black Americans, even those who didn’t embrace the Nation of Islam, saw in Ali a man who was willing to fight outside the ring. “What white America demands in her black champions,” the Black Panther Eldridge Cleaver said, “is a brilliant, powerful body, and a dull, bestial mind—a tiger in the ring and a pussycat outside the ring.”

Muhammad Ali changed that. He became one of the most talked-about men in the world. He criticized Dr. King and other leaders of the civil-rights movement for their timidity. He traveled to Africa and the Middle East, where he was cheered not only for his boxing fame but also for his embrace of Islam. And, in 1967, he stood in opposition to the Vietnam War, refusing to be drafted.

On the one hand, he claimed his objection was political—a black man ought not fight for a country that continued to treat him as a second-class citizen. On the other hand, he claimed exemption as a minister in the Nation of Islam, saying his religious beliefs precluded him from fighting.

Courts rejected both arguments, judging him guilty of draft evasion. Boxing officials denied him licenses to fight for more than three years. By the time the U.S. Supreme Court overturned Ali’s conviction, the war in Vietnam had grown wildly unpopular, with protests erupting all over the country, and Ali’s bold anti-establishment stance made him a hero even among people who cared nothing for boxing.

“He was always very political and moral,” said Andrew Young, the former mayor of Atlanta and U.S. Ambassador to the United Nations. And while Elijah Muhammad preached separatism, Ali didn’t always adhere to that belief. He loved people and attention too much to ever dismiss anyone for their color or beliefs. The appetite for affection guided much of Ali’s life. It led him through four marriages and countless sexual affairs. It made him a political wild card, too. He offered praise for John F. Kennedy and endorsement for Ronald Reagan while he declined to support the presidential bid of his friend Jesse Jackson.

Ali was the rare man who enjoyed airports because there were so many people there to entertain. When limousine drivers arranged to pick him up on quiet side streets or in alleys, he would rebuff them, saying he wanted to come and go from the busiest spots possible, and he would often stand next to his car until people noticed him. Even at his most subversive, he spoke with a twinkle in his eye, offering poetry and magic tricks, eager to please and torment simultaneously.

In his return to boxing, he lost to Joe Frazier in his first attempt at reclaiming the heavyweight championship. He lost again two years later to Ken Norton, defeated Joe Frazier in a 1974 rematch, and then earned the chance to regain his championship in a fight against George Foreman, who was considered the most devastating puncher the sport had seen since Sonny Liston. In the fight against Foreman, which was held in Zaire, Ali was once again a heavy underdog. Once again, he defied expectations. But while he had been too fast for Sonny Liston in 1964, 10 years later Ali didn’t rely on speed. Instead, he let one of the most powerful punchers in boxing history pound away until Foreman’s arms grew weary and his hope of a quick knockout faded.

Muhammad Ali looks on after knocking down defending heavyweight champion George Foreman in the eighth round of their 1974 championship bout in Kinshasa, Zaire. Photo: Associated Press

“I thought I would knock him out,” Foreman recalled in a recent interview. “I creamed Ken Norton, and Joe Frazier with ease. I thought this would be the easiest of all of them. I had no idea that this guy would be competitive. I beat him up, beat him up, and he survived…Most guys you hit them and they fight back but he covered up. Smartest boxer I ever been in the ring with.”

Once, Ali had described his style as “float like a butterfly, sting like a bee.” Now he called his strategy “the rope-a-dope,” and he would rely on it in the late stage of his career, absorbing an increasing number of punches.

He lost his title to Leon Spinks in 1978, regained it in a rematch with Spinks later that same year and then announced his retirement.

In 1980, Ali emerged from retirement to fight Larry Holmes and suffered a brutal loss. He fought and lost one more time, in 1981, before truly retiring.

In 1984, Ali said he had been diagnosed with Parkinson’s, a degenerative neurological condition. In subsequent years, he traveled widely, raising money for many causes, including the Muhammad Ali Parkinson Center in Phoenix. He also traveled on behalf of the American government on diplomatic missions, including negotiations to win the release of hostages.

In 1996, his hands shaking, Ali lit the Olympic torch to launch the Summer Games in Atlanta.

In 2005, President George W. Bush awarded Ali the Presidential Medal of Freedom.

Will The Federal Reserve Give Foreign Exchange Markets What They Want?

by: John M. Mason

- The Federal Reserve is indicating that it will raise its policy rate soon and this possibility is getting a positive response in the foreign exchange markets.

- Since the end of the Fed's quantitative easing III, the Fed has indicated that it would raise rates and the value of the dollar has always strengthened on this possibility.

- If the Fed does raise rates in June/July and raises them once more this year, the value of the dollar could rise to where one euro costs less than $1.10.

Over the past several weeks, the value of the US dollar has risen again. I will focus on just the dollar/euro exchange rate since it seems to capture most of what is happening within the foreign exchange markets.

On May 2, 2016, it took slightly more than $1.15 to purchase one euro.

On Friday, May 27, it took only about $1.11 to buy one euro.

The reason? Over the past four weeks, it seems as if participants in the foreign exchange market are becoming more and more confident that the Federal Reserve is going to raise its short-term policy interest rate.

Supporting this belief, the Fed has seemingly tightened up on bank's reserve positions, something it did in the two months prior to its last policy rate increase in December.

The foreign exchange markets seem to support this possibility in that they have bid up the value of the US dollar in foreign exchange markets.

The foreign exchange markets have generally been supportive of the dollar since the last half of 2014, a time at which the Federal Reserve system indicated that it was going to end the third round of its quantitative easing.

Accompanying this expected Fed action was the fact that the European Central Bank proposed its own effort at quantitative easing in order to keep Europe from deteriorating into a period of deflation.

The combined efforts resulted in a massive rise in the value of the dollar. In April 2014, it took $1.40 to purchase one euro.

At the prospect of the Fed ending quantitative easing and the ECB starting out its own quantitative easing, the value of the dollar rose significantly.

When the Fed ceased its quantitative easing toward the end of October 2014, it also began to provide some "forward guidance" to the markets and the "forward guidance" indicated that officials at the Federal Reserve were thinking about raising its policy rate four times in 2015, moving the rate by a quarter of a point each time.

The first rate increase was expected in the Spring of 2015.

In February 2015, it took only $1.12 to buy one euro.

Since the late spring of 2015, the dollar/euro exchange rate moved into a range of around $1.15 for the euro to around $1.06 per euro.

The value of the dollar rose during times in which it appeared as if the Fed was going to raise its policy rate. The value of the dollar fell during times in which it appeared as if the Fed was not going to make any change.

The volatility in the foreign exchange markets rose as the uncertainty about any Fed rate moves grew.

Finally, in October, it seemed that the Fed what tightening up on commercial banks' excess reserves preparing for a policy rate increase and in December it finally made such a move.

The value of the US dollar strengthened.

But, along with the move came some further "forward guidance" from Fed officials. The "forward guidance" at this time indicated that it was likely for the Fed to raise its policy rate two times in 2016, each move expected to be by twenty-five basis points.

Yet, through early 2016, the Fed did nothing and participants in foreign exchange markets became frustrated. As postponement of any rate increase seemed to grow into the spring months, the value of the dollar fell, as reported above, where by early May it took slightly more than $1.15 to buy one euro.

However, in early May, some Fed officials, including Fed Chair Janet Yellen, began to provide "guidance" that the Fed might act at its June meeting… or soon after in July.

The market rallied.

Market participants grew more confident as the Fed seemed to be reducing excess reserves in the banking system, as I have reported, most recently in the post cited above.

It is my belief that the Fed will raise its policy rate soon, whether in June or July, and that this will be received positively by the markets and the value of the US dollar will remain strong.

It is also my belief that the Fed truly wants to raise its policy rate once again this year and I am in favor of this.

If the Fed does move in June (or July) and then moves once again this year, I believe that the value of the US dollar will become even stronger. Maybe we can look for the price of the euro to fall into the $1.05 to $1.10 range.

Furthermore, I believe that participants in the foreign exchange markets would not be uncomfortable with the dollar achieving parity with the euro so that one euro would cost only $1.00.

But, a lot of other things are going to have to fall into place for this to happen.