Daily Archives: March 4, 2008

Gold and Oil – Straight to the Moon as the FED fumbles

Dollar Dropping like an AnvilWhat rational person would sell oil for $100 a barrel today if they can get $120 in two months or less??

So whether it’s Gold or Oil; if you own it, it’s better to leave it in the ground and watch the FED work their magic on your inventory.  And of course, leaving it in the ground will result in lower available supplies and further accelerate the rise in prices.

And don’t believe the canard that at least our exports will be more attractive with the weakening dollar. As the following example demonstrates:

Widget costs $100 when Euro is worth $ 1.40 = 71.43

Widget costs $100 when Euro is worth $ 1.50 = 66.67

But, this assumes it still costs $100 to make the widget. Now lets add the that 7.14% dollar depreciation bank into the cost of the widget. Don’t forget that the widget’s raw materials all cost more with inflation.

Widget now costs $107.14 when Euro is worth $ 1.50 = 71.43

Exactly the same cost in Euros, NOT LESS, as is assumed by those who state a weakening dollar leads to lower costs for foreign consumers.   It’s even worse if the costs to make a widget are going up faster then our currency is dropping.

Now, we all know there are many people smarter than me.   I also grant that some of them actually work in D.C. as well.   One more reason to ask; why is FED the lowering rates??