The U.S. Dollar Fundamentals Stink

The following two articles highlight the poor fundamentals of the U.S. Dollar.  What are you doing to protect your wealth?  

Countries and Industries with Tailwinds
by Monty Guild, Tony Danaheur

The authors use a scoring system to measure the fundamentals of the U.S. Dollar and break it into its short-term, intermediate-term and long-term components. 

Short-term currency valuation indicator: Real interest rates (current short term interest rates less the current inflation rate).

U.S. interest rates are flat, British Pound rates are rising, Japanese Yen rates are close to rising, and Euro rates are steady.

Impact: neutral to bearish for the U.S. currency. Score: -1 for the U.S. Dollar.

Intermediate term currency valuation factor: Relative economic growth (relative to the economic growth rate in competing countries).

The U.S. economic growth outlook is improving slightly due to lower oil prices and the impact of global demand for U.S. goods and services.  This is offset by economic growth in Europe, Asia and Latin America.  The latter two are growing much faster than the U.S.

Impact: neutral to bearish for the dollar. Score: -1 for the dollar.

Long term currency valuation factor: Deficit versus surplus (Budget, Balance of Trade, and Balance of Payments)

The U.S. is running triple deficits, and they are getting bigger and bigger with each passing day. Nothing is being done to deal with them, except in the case of the Budget deficit the plan appears to be to make it larger by spending more on Afghanistan, more on Iraq, and to bring in a bunch of new pork barrel projects.

Impact: bearish for the dollar. Score: -2 for the dollar.

Adding up the Score
If the total score were to total +2 or higher, the dollar should rise. If the total were +1 to -1, then we would expect a neutral dollar. If the total were -2 or lower, then declining dollar would be the expected outcome.

The evidence favors a declining U.S. dollar as it scored a -4.

The second article is by Jim Jubak of MSN Money – “State of the nation? Broke.”   I will simply quote the headlines in his article.

  • Truth and the budget numbers
  • By the way, Iraq expenses are ‘off budget’
  • It’s a hazy horizon
  • The upcoming crisis is absolutely predictable
  • Don’t forget Medicare and Medicaid
  • The government is digging a huge hole
  • More of the same lies

I think by the headlines you get the drift of the article.  Jubak states,” When President Bush gives his State of the Union address tonight, don’t expect accurate numbers on the budget. What you can count on is that the deficit is disastrous and the debt is piling up.”

The short, intermediate and long term fundamentals of the U.S. Dollar stink.  Money has been and will continue flowing out of the U.S. Dollar and into gold as investors seek alternatives to the depreciating currency. 

Got Gold!

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