Revolution

According to Dictionary.com, Revolution means the following:

rev·o·lu·tion /ˌrɛvəˈluʃən/ Pronunciation Key - Show Spelled Pronunciation[rev-uh-loo-shuhn] Pronunciation Key - Show IPA Pronunciation –noun

1.	an overthrow or repudiation and the thorough replacement of an established government or political system by the people governed.

2.	Sociology. a radical and pervasive change in society and the social structure, esp. one made suddenly and often accompanied by violence. Compare social evolution.

No one can deny that we're going through a revolution; technological revolution to be more precise. But what does this mean? For one, I can understand why some have fought this change, but it's a force with which it is to be reckoned. This revolution has changed the WAY things are done. The internet has taken the power away from the media tycoons. This influence has gone to the people, like you and me.

I love music, especially those produced with the guitar. And to my amazement, I would've never been exposed to some of the exceptional guitar sounds out there (because the media geniuses tell me that I should listen to Britney Spears or Ashlee Simpson). Take for example, I doubt most of you haven't heard about Andy Mckee (I seriously suggest you watch the video). He's not the typical and marketable guitarist, but he has one gifted talent. I would've never found this out if it wasn't for YouTube. To those who YouTube may have noticed how he has been climbing the popularity chart. People like Andy will find recognition for their gifts because of this technological revolution. Talented people don't have to deal with media politics anymore... screw that. Normal people now get to have their say in things. Now, that's a revolution.

No Surprise

Here is the 10-yr monthly averages of the CPI data. Whether or not you have any faith in government statistics, you can see that inflation has been rather tame in the months of November and December. The recent CPI release for November should've been no surprise as we've been hearing about discounts, discounts, discounts. Retailers are just trying to unload inventories before the yearend.

Got the Dollar Jitters?

The Once Almighty Dollar has been falling against major currencies. Why, you ask? Well, where do we start... Trade deficit numbers in terms of GDP suggest that we've been consuming foreign goods well beyond sustainable levels. And why shouldn't we? Especially if someone is selling us goods cheaper than how much it would cost us to produce those goods and services. Oh, that's right... that whole comparative advantage thing and free trade have offered cheap stuff.

But things have been starting to change. Our greed fueled us to buy more and more, and we didn’t care about running up our credit bill. And our good friends Japan, China and the UK have been more than gracious in providing that credit by buying up Treasuries. Why not, our rates were relatively higher than what was offered elsewhere.

This excess flood of capital allowed many of us to buy homes that we couldn’t afford. In turn, we bought and bought because we could use homes to get even more credit. That’s awesome; only here, can we get credit upon credit. Now that we’ve bloated ourselves, we now have to settle our bill.

Given the not-so-grand outlook of the US economic health, our rates have fallen (you know… because the Fed would have to cut rates in case of a falling economy) below that of other nations like Australia and the UK. Furthermore, Japanese rates may go up, which would leave less room for carry-trade opportunities, especially with the lower US rates. So basically, nobody really wants to buy US assets (not to mention Paulson’s case about the restrictive Sarbanes-Oxley).

Au contraire, export-led countries like S. Korea would want the US Dollar to remain strong. That’s probably why their central bank has been trying to support the dollar. Then on the other corner, you have the Chinese, who also depend on exports to the US, who haven’t done much except indicate that they will start diversifying away from the US Dollar. Well… they’re in a predicament as well, given that they have much invested in the US Dollar and the protectionist-loving US democrats have taken over the house. Given the conditions, most will take tip-toe movements.

Either case, imported inflation looks like they will go up for US consumers... but then again, there is a Federal Reserve research paper that suggests real imports into the US haven't been significantly influenced by exchange rate movements. But that was "real" figures which get adjusted for inflation. That just tells me US consumers have been buying and buying despite higher prices of imports. No inflation… right… tell that to the economists who look ahead (and I didn’t even talk about the tight employment conditions). I don’t think Microsoft’s Vista will save the day with productivity improvements, but we'll see. Mr. Bernanke has a tough job ahead. Slower economy… higher inflation… hmmm… what’s a guy to do? My guess is nothing!

Anyways, this move away from the US Dollar has pushed US exchange rates lower. Follow the money… if you can. But what does this mean for the US? Tune in and find out…