By Chip Hanlon | December 03, 2008 | 2:57 PM | 7 Comments
"At a reading of 40.1, this morning's service sector PMI was desperate," said one strategist about the Purchasing Manager's Index this morning, and that about sums it up.
Thing is, he wasn't talking about our PMI, but about the just-released reading from the Euro-zone.
Europe's economy is slowing dramatically. It suffers from a bursting real estate bubble on par with ours. The continent's ongoing government bloat leads to its chronic coupling of below-trend growth and above-average unemployment. Meanwhile, its workers take to the streets in response to the smallest attempts to shrink government benefits while Europeans show literally no desire to work harder to overcome these baked-in challenges (annually, the average worker in Europe enjoys 400 more hours of vacation time than his American counterpart).
On top of all that, Western Europe is dying, literally. A birth rate of 2.1 maintains a population, yet Germany's today is 1.3, while the birth rates of Spain and Italy stand at 1.2. Thus, within a generation there will be approximately 75 million Europeans than there are today, meaning significantly fewer taxpayers to carry the continent's generally heavy entitlement burdens.
And yet, against this backdrop there are those who amazingly-hysterically-will still declare with a straight face that the U.S. dollar is destined to crumble to dust and that the Euro remains a better alternative.
Since aggressively patting one's self on the back is all the rage these days, allow me to cite my favorite source--myself--for a better summary of my own point here, "This isn't an over-arching case for the Dollar nor does it explain away the fact that we still spend too much and save too little, but our paper currency's attractiveness may just be ready to increase vs. that of other paper currencies (this highlights another area of frustration for me: these perma-doomers constantly decry the lack of a commodity backing such as gold to our currency, yet they have no problem falling in undying love with other fiat currencies)." Source: Don't Confuse Brains with a Bull Market, February, 2005
Brilliant. I should YouTube it somehow.
Now, obviously the November U.S. jobs estimate released today by ADP was abysmal, but the dollar rallied. There's a reason--a valid, sensible reason--for that: if one of today's two leading currencies is at some risk of vanishing, it's the Euro.
In a world of stinky currencies, the U.S. dollar simply smells less awful than does the Common Unit. Not hard to understand.
That all said, for now you can put me in the camp of the most ardent gold bugs--that based on the efforts we're witnessing from today's central banks, I expect gold to ultimately rise against all currencies. That said, analyzing currencies remains an ongoing process of comparing one to another. In that light, I still don't understand how one can hate the U.S. dollar but love the Euro.
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