Unemployment Fake-Out

At first blush, it appears as though we got some good news today, with continuing unemployment claims having fallen by 148,000. I don't think this is indicative of people getting jobs, I'm sorry to say. Unemployment runs out after 9 months (Congress extended the period because of the recession), so in June their unemployment benefits run out. Hence, the reduction in continuing claims. Ouch.

Dollar? I barely even know 'er!

The US fiscal situation and the Fed's expansion of the money supply have spurred some here on Wall Street to question the dollar's status as a reserve currency.

Rodin thinks that's overblown to say the least -- to paraphrase Winston Churchill, the dollar may be the least secure currency out there, except for all the other ones. Are you going to trust the Euro, whose value is not even backed by a national government? Or the yuan, which even if you could freely trade it would still be the currency of a country that has had two revolutions in the last century, deep social fissures, and a government without legitimacy? No, there's no other currency in the world that even comes close to meeting the requirements for a global reserve currency.

I put a little more stock (though still not much) in the theory that wealth will be held in commodities, which in the case of central banks means precious metals and gems. Remember that if you don't have access to a whole lot of storage space, you can't actually buy most commodities, you can only buy the right to receive them. That right has credit risk attached.

One Equation, Two Unknowns

Check out Asian deflation -- it is the alternative to a rising dollar in the presence of managed exchange rates. Note that while we'd usually expect deflation abroad to lead to dollar weakness, this deflation is actually the result of a sharp drop-off in demand for East Asian exports that also exerts downward pressure on those currencies. We are getting deflation instead of currency depreciation because exchange rates are managed. Possibly soon we will get both.

Presented Without Comment

In 2007, 12% of new auto sales nationwide were financed by home equity loans. In California, it was 30%.