World Markets

Helicopter Ben

Ben Bernanke took over as Fed chief in early February, replacing Alan Greenspan after his very long tenure. Let’s see how the US dollar index has fared since then, the index being a reflection of the dollar’s value relative to currencies in other large nations (as described here) and by extension, a snapshot of confidence in American financial instruments. The chart, starting in February:

US Dollar index

So the international markets are basically saying “fuck you” to Bernanke. I’m not sure what’s going on here, with gold hitting like 30-year highs and the dollar value plummeting while the US stock market indices hit new highs. Perhaps it’s because the market thinks Bernanke is going overboard with the rate hikes. Are they hostile towards his policy? Business is good right now, so why is the Fed raising rates still? So it’s not TOO good?

Since in theory a higher Fed funds interest rate is supposed to induce saving and conservatism in spending and investment, it is supposed to therefore curb the stock market’s growth (although a Fed chief would never admit to trying to affect the stock market) and combat inflation.

What of inflation? Obviously high gasoline prices affect all parts of the economy. But the Treasury has also been printing money regularly for decades. Liquidity, liquidity, liquidity. In economics, printing more and more money is supposed to devalue a currency because there’s fewer underlying valuables (gold, usually) to back up that new money. The benefit of printing more money is that there’s not a crunch to find any, naturally.

Now, do you know why Bernanke is called Helicopter Ben?

From Wikipedia:

In 2002, when the word “deflation” began appearing in the business news, Bernanke gave a speech about deflation. In that speech, he mentioned that the government owns the physical means of creating money, implying that the government can always avoid deflation by simply issuing more money. (He referred to a statement made by Milton Friedman about using “helicopter drop” of money into the economy to fight deflation.) Bernanke’s critics have since referred to him as “Helicopter Ben” or to his “helicopter printing press”. In a footnote to his speech, Bernanke noted that “people know that inflation erodes the real value of the government’s debt and, therefore, that it is in the interest of the government to create some inflation.”

So there’s a lot of contradictory things going on here. It doesn’t make sense to me. What I do know is that the US is adopting a lot of economically disadvantageous policies in order to defend traditional business practices, all happening while the rest of the world is growing rapidly and becoming incredibly more competitive.

Look at market returns. Say you’re investing American money into the Thrift Savings Plan’s common stock fund, made up of the US’s big established companies. According to TSP Corner, you would have made 5% on that investment after 2005. But the average rate of inflation in 2005 was about 2.5%. 2.5% cuts into the buying power of your original capital plus the measely 5% gain that you would’ve made. Then add in how much more you had to pay for gasoline last year, and how much more you had to pay for various other goods affected by increased logistical costs from higher gasoline prices.

THEN think about how much your money is worth relative to other countries. For example, let’s look at the US dollar vs. the Canadian dollar:

US dollar to Canadian dollar index

If you were to go to Canada on vacation using some of the money you made in your investment, it’d be worth considerably less than it did in 2001.

Now magnify this to the macroeconomic level. Yes, our stock market is rallying. But is that good for you? Not as good as you might have thought. Compared to the rest of the world, US stock market growth is pretty sad. In 2005, US stocks earned 5%, international stocks (this is all according to the TSP) earned 13.6%. In 2004, US stocks made 11%, international stocks made 20%. Even American small-caps can’t keep up with international growth.

China. A while ago I posted a chart of the Shanghai index in China. It’d been slipping for a while. Well, shortly afterwards it posted a double bottom and has rallied. This index is going to scream as money floods into the market (the business investment and infrastructure is already there, now comes the investors to capitalize).

Shanghai (China) index

Old Favorites

Some stocks I have liked are doing pretty well. Like Garmin, which sells GPS equipment:

Garmin (GRMN)

Garmin might be toppy here with those bearish candles.

Millicom seems to have a winner in investing in wifi and voip for countries with no communications infrastructure. When you see charts of cellphone usage in Iraq rivaling even the biggest countries, when Iraq only got cellphones shortly after the US invaded, then you know people want to talk. Millicom is filling a badly-needed niche in these countries. That equals $$$$$$$$$$$.

Millicom (MICC)

Steve Jobs is Fucking Rich

When Disney bought Pixar, it was negotiated that Steve Jobs, as part of the package, would receive 138 million shares of Disney, which apparently was calculated to be more than $4 billion. Jobs is now the top shareholder of Disney. I don’t know what price those shares were agreed at but here is Disney’s chart:

Disney (DIS)

Disney was down in the dumps a few years ago. It was a fire-sale. No one would buy. Now it’s challenging to break out of old highs. Perception is that Disney is getting smarter about its business, changing its old ways. Perhaps its failure to renew its agreement to package Disney toys in McDonald’s Happy Meals reflects more recent awareness of children’s health. Maybe Disney is being pro-active instead of protective, now.

The bottom line is that as Disney’s health and stock improve, Jobs will become even more disgustingly rich. Man, what a ride!

Nintendo

I know it’s early but E3 was pretty good for Nintendo. Its stock went up every day this week, 1-2% daily. New 52-week highs, and the sales numbers haven’t even begun to roll in for US DS Lite sales or pre-Wii analyst forecasts.