CAD now worth more than USD
- Thread starter Tornado
- 55 comments
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///M-Spec
Staff Emeritus
- 4,928
It depends on who you are, what you do and what you buy.
The weak dollar is just a symptom of other problems. The crisis in the lending and housing markets, some retail sectors (like auto) and high energy prices is having a more direct impact in the daily lives of Americans. Dollar values are simply reflecting this.
What we will probably see in the next months is a slight increase in consumer prices. Not huge.. just a few cents here and there. Most people won't notice.
On the other hand, if you're looking to buy a house or a car, you may notice some pretty good deals in some areas.
If you are trying to get or refinance a mortgage, you may have a harder time finding better terms, as banks tighten their standards.
M
Joey D
Premium
- 47,537
- Lakes of the North, MI
- GTP_Joey
- GTP Joey
If you are looking for a house, Michigan is the place to be. A buddy of mine bought a very nice home in a fairly good area for $90,000! That's almost unheard of in this day and age.
The only thing that's been going up as far as prices are concerned around here is gas, everything has stayed about the same or dropped. I can't imagine it's going to have a massive effect right now, but down the road who knows.
The only thing that's been going up as far as prices are concerned around here is gas, everything has stayed about the same or dropped. I can't imagine it's going to have a massive effect right now, but down the road who knows.
- 4,495
- Vancouver, BC
You guys must be getting a lot more tourists now. I'm sure Hawaii is going to be swamped with tourists when I go there in February!
Hmm, CAD dollar dropped to 1.07 US today.
Hmm, CAD dollar dropped to 1.07 US today.
- 24,553
- Frankfort, KY
- GTP_FoolKiller
- FoolKiller1979
Including myself.
- 457
I'm quoting from a recent economic report:
"Housing starts in the USA plunged a further 10% in September to a 1.191 million unit annual rate—the lowest monthly pace in 14 years." Since three of the last four similarly serious US housing recessions were followed by national business downturns, higher than normal recession risks are only natural as the current housing slump continues. Wall Street believes that Fed rate cuts will help to avert an outright recession, however, according to some Investment Banks, "the residential real estate decline means a 40% chance of an outright recession." Great! I can hear the stampeding herd now.
The key warning flags will be home prices (presumably across the US, not just geographic pockets), income formation (how you spend your money on goods & services and thereby provide the financial means for other businesses to pay wages to their employees), and upcoming data on small business lending standards (forget about your new business loan).
The good news, so far, is that the weaker US dollar is not passing through to core consumer prices. "Although total import prices have risen in line with the steep depreciation of the dollar, the import price gains have been centered in energy, food, and industrial supplies." How about those oil prices, huh? $97/barrel. My electric bill is about 50% higher this year compared to last year's. The report states that, "prices for imported capital goods and core consumer goods show only a modest pickup, and there has been little pass-through to domestic inflation for comparable goods." Translation: You can still shop at the market, just leave the car in the garage.
So - I can't expand my business, and thereby my earnings potential, because now I won't qualify for a new business loan. But, I should keep spending money because that's helping the economy by making a bigger paycheck possible for someone else, like my favorite waitress. If I decide to stay home, well, I still can afford to eat at home, but I can't afford to heat my home. I may need a second job - perhaps I should ask my waitress
ERacer
"Housing starts in the USA plunged a further 10% in September to a 1.191 million unit annual rate—the lowest monthly pace in 14 years." Since three of the last four similarly serious US housing recessions were followed by national business downturns, higher than normal recession risks are only natural as the current housing slump continues. Wall Street believes that Fed rate cuts will help to avert an outright recession, however, according to some Investment Banks, "the residential real estate decline means a 40% chance of an outright recession." Great! I can hear the stampeding herd now.
The key warning flags will be home prices (presumably across the US, not just geographic pockets), income formation (how you spend your money on goods & services and thereby provide the financial means for other businesses to pay wages to their employees), and upcoming data on small business lending standards (forget about your new business loan).
The good news, so far, is that the weaker US dollar is not passing through to core consumer prices. "Although total import prices have risen in line with the steep depreciation of the dollar, the import price gains have been centered in energy, food, and industrial supplies." How about those oil prices, huh? $97/barrel. My electric bill is about 50% higher this year compared to last year's. The report states that, "prices for imported capital goods and core consumer goods show only a modest pickup, and there has been little pass-through to domestic inflation for comparable goods." Translation: You can still shop at the market, just leave the car in the garage.
So - I can't expand my business, and thereby my earnings potential, because now I won't qualify for a new business loan. But, I should keep spending money because that's helping the economy by making a bigger paycheck possible for someone else, like my favorite waitress. If I decide to stay home, well, I still can afford to eat at home, but I can't afford to heat my home. I may need a second job - perhaps I should ask my waitress
ERacer
- 21,286
- GR-MI-USA
- YSSMAN
- YSSMAN
At least from my perspective, it makes my previously planned trips to Europe that more complicated. I was anticipating a trip to England possibly as early as next fall, but with the dollar being so weak, it probably won't happen.
I think other than that, its going to be a while before we really see anything major happen here in the US. Some markets are "painin'," and like Joey said, the housing market is pretty outrageous here in Michigan. A friend of mine is looking at a pretty decent house with a nice garage for $107K, which is pretty cheap, considering that the same house probably would have been $120K not that long ago.
...The big way things are likely going to change here in the US is the re-entry of automotive and other manufacturing jobs in our market. Current discussions are saying that we may end up building many more non-US market vehicles here because the labor is cheap, which certainly is an odd change in events...
We'll see what happens. God forbid that one author was right in saying that we're purposely damaging the value of the dollar to create the Canadian/American/Mexican "Amero."
///M-Spec
Staff Emeritus
- 4,928
So - I can't expand my business, and thereby my earnings potential, because now I won't qualify for a new business loan. But, I should keep spending money because that's helping the economy by making a bigger paycheck possible for someone else, like my favorite waitress. If I decide to stay home, well, I still can afford to eat at home, but I can't afford to heat my home. I may need a second job - perhaps I should ask my waitress
👍M
- 38,956
- Application hell
- MP-Omnis
The Florida housing market is in shambles as far as I can tell and people now have outrageous mortgages here. Most people won't even qualify for a mortgage anymore.
Basically, unless you can invest well to keep the value of your earnings, your dollars buy less and less. So most people in the lower 3 quintiles are having very difficult times as they can't afford to maintain the assets needed to offset the inflation.
Compound that with taxes and you have our mess.
Danoff
Premium
- 34,058
- Mile High City
Most people protect themselves from inflation by owning real estate. But I hadn't heard that inflation was bad. So far that's been the point of keeping the interest rates low (thus weakening the dollar), to stave off inflation.
Omnis
Of course, the lower 3 quintiles don't pay much of those.
- 15,494
- UK
Thanks for all your posts lads, I always like to know what life is like living Stateside.
Our housing market is going through something of a change too, not on the same scale mind, we're actually seeing a decrease. Even though you'd need a mortgage six times a decent salary to buy a house.
Official prices per litre in the UK for both Diesel and Unleaded are both over a pound now. Though interestingly, when on one of the BBC lunchtime things on BBC2 they said the British public actually pay less tax on fuel than when they did in 2000 when prices were a pound a litre. By about 14p iirc. I'd love to know just how much an impact pricewise the middle east situation has on the price of oil per barrel. It's about $98 a barrel now, I've heard estimates of that being triple should an invasion/bombing of Iran take place!
- 7,956
- BradleyH131
- 457
This is a huge find for Petrobras (Petroleo Brasileiro SA), Brazil's state-controlled oil company. There have been very few oil discoveries within the past 20 yrs that would rival this one.
Initial tests indicate as much as 8 billion barrels of oil and natural gas may be underneath the Tupi field. This would boost Brazil's oil & natural gas reserves by 62%. Huge find indeed. Especially since the oil at Tupi is a light grade which is more valuable and cheaper to refine than the heavy crude which Brazil normally pumps out. Plus, the Tupi field is near the company's main operations, so no major new installations need to be built.
Still, it will take some time to bring it to market. The Tupi field is located far off the coast of Rio de Janeiro in water as deep as 3km and the oil itself is estimated to be another 5 to 7km below the ocean floor. Production from Tupi would most likely not start until 5 or 6 years from now.
The find has already placed some pressure on Venezuela, a main supplier of oil to the US, as the Tupi find would clearly help reduce the US dependence on Venezuela.
Call me crazy, but I'm willing to bet I'll be pumping $4 a gallon gasoline summer '08 here in the US, and easily twice that by the time I get some Tupi gas in my truck.
ERacer
Initial tests indicate as much as 8 billion barrels of oil and natural gas may be underneath the Tupi field. This would boost Brazil's oil & natural gas reserves by 62%. Huge find indeed. Especially since the oil at Tupi is a light grade which is more valuable and cheaper to refine than the heavy crude which Brazil normally pumps out. Plus, the Tupi field is near the company's main operations, so no major new installations need to be built.
Still, it will take some time to bring it to market. The Tupi field is located far off the coast of Rio de Janeiro in water as deep as 3km and the oil itself is estimated to be another 5 to 7km below the ocean floor. Production from Tupi would most likely not start until 5 or 6 years from now.
The find has already placed some pressure on Venezuela, a main supplier of oil to the US, as the Tupi find would clearly help reduce the US dependence on Venezuela.
Call me crazy, but I'm willing to bet I'll be pumping $4 a gallon gasoline summer '08 here in the US, and easily twice that by the time I get some Tupi gas in my truck.
ERacer
- 38,956
- Application hell
- MP-Omnis
Perhaps, but they still are taking the hit on real estate and people on fixed incomes have both problems. Don't artificially low interest rates require an increase in the money supply? How do you solve inflation with more inflation?
Of state taxes they do. Property taxes are killer if you're not grandfathered in. Here, you either pay high taxes on your house or have taken a huge hit on your real estate value after the bubble burst. $100,000 hits. Don't low interest rates basically mimic the same situation that lead to all of the sub-prime housing problems?
- 457
Regarding interest rates and money supply. You are correct in that one typically follows the other. One of the most effective ways the Fed can increase the money supply is by creating cheap money by lowering the interest rate. In other words, by making the money which central banks and, eventually, businesses borrow less expensive to borrow, the supply does increase. This "loosening" of the money supply is often referred to as adding "liquidity" to the economy and is meant to boost the economy. So, simply put, you solve inflation by tightening the money supply (increase the Fed rate) and thereby slowing economic growth.
The sub-prime lending mess has little to do with low interest rates and everything to do with the 'securitization' of mortgages. Many years ago, it used to be that your mortgage was held by a bank (imagine that). The bank had strict lending guidelines. Then, early 1980's, along came a Salomon Brothers trader, Lewis Ranieri, who single-handedly created an industry which forever changed the way mortgages were processed. Ranieri recognized the value of holding and trading a mortgage note and Salomon Brothers was a Wall Street powerhouse which excelled at correctly valuing bonds when everyone else had such difficulty. But how do you trade Bob & Mary's 3 bedroom 2 bath home in Connecticut? You lobby the US Congress to create an association or agency which would be responsible for pooling and administering these loans. And so, today, we have GNMA, FNMA and a host of other mortgage pools thanks to Lewis Ranieri. He even managed to convince the US government to back these mortgage pools. Truly remarkable.
What does this have to do with the sub-prime debacle? Today, the bank does not hold your mortgage. Today, a mortgage broker will gladly qualify you for 3x what you should qualify for and collect a hefty fee for doing so. The fee, not surprisingly, is based upon the amount you qualify for. As you happily sign the paperwork and leave their offices, the mortgage broker quickly spins around in their swivel chair and sends your loan to Wall Street to become part of one of the mortgage pools (GNMA, FNMA, etc). It is now securitized - part of a quantifiable, tradeable approved asset class. GNMAs and FNMAs are commonly called Agency Bonds and are considered very creditworthy and very "safe" investments. Once in the market, your mortgage is, in effect, traded and used as collateral by large institutional investors (corporations, mutual funds, non-profit organizations) against their more risky investments within their portfolios. These Agency Bonds are considered so secure that investment banks will often allow the bond holders (corporations, mutual funds, etc) to leverage, or borrow cash, against their Agency Bond holdings in their investment portfolios. Up to 20x their face value!!
That's right - the loan which so many Americans should never have qualified for is being used as a hedge against larger, riskier asset classes. Billions of dollars worth of hedged investments are at stake here. I'm sure you can see where this is heading. It is the fundamental reason for this crisis. The very foundation upon which US corporations have built their investment portfolios, including their employee pension plans, is now crumbling. It is the primary reason why Congress is now being asked to intervene. Not because you lost your house, oh no, it's because major corporations are hemorrhaging cash.
The question is; who is now going to buy into a declining multi-billion dollar pool of assets? Who has pockets deep enough to bail out GNMA or FNMA? The US government is obligated to shore up the pools, but how to finance that? Increase taxes? Issue more debt in the form of government bonds? At what interest rate would someone be willing to buy our new debt issue? To whom, or to what country do we turn? Saudi Arabia. We'll pay you $100 a barrel for oil if you promise to buy our bonds at favorable interest rates so we can shore up our mess. Much easier than, say, a tax increase, for us American consumers to accept. This way, the focus turns to the Middle East as we fund our government debt load through yet another tax increase disguised in the form of higher oil & gasoline prices.
- 80
- vtec_da9
the reason is because the americans are in extreme debt over the war. canada isnt since we are only in the middle east as a peace keeping mission. and our economy is absolutely booming. people cant keep up with the demands. to many jobs, to little people to fill the positions. i cant drive down a street without seeing a sign infront of a nearby factory that says "NOW HIRING"
Danoff
Premium
- 34,058
- Mile High City
A) Last time we cut taxes we increased revenue - so a tax increase will cost money.
B) So oil companies are now trading bonds to Saudi Arabia to cover for other companies' leverage on home mortgages in exchange for buying oil above the market price??? Seriously, who believes this stuff? Besides you of course.
Continuing to repeat the mantra over and over doesn't make it any more economically sound. Our interest rates are directly to blame for the value of the dollar. The war will cause inflation sometime in the future. Right now that's not the problem.
Omnis
Yes, but the people responsible for the two are completely separate. Right now, low interest rates are the only thing preventing a rash of foreclosures from causing a major recession. Those foreclosures are not the fault of the Fed, but it's the Fed's job to try to do what is necessary to keep things floating.
Omnis
The goal is not to solve inflation (as I said earlier). The goal is to prevent foreclosures from causing recession.
- 457
You have misunderstood what I wrote. It is the US government that needs to sell the bonds. Not oil companies. Oil companies are doing very well and are probably retiring their debt.
There is a point at which buyers of debt, not sellers, will dictate the terms of that debt. My question was; who is going to step up and take a chunk of US debt and how much do we need to pay them, in interest, to do so.
Considering our economic imbalances, any taker of our debt would be in a position to set the terms. The fact that we are consuming more oil than we are producing, and the possibility that the US government could be seeking large-scale debt relief from Saudi Arabia, should not be difficult to contemplate. Oil has always been a bargaining chip in the geo-political landscape.
Incredible, isn't it? Very farfetched to say the least.
