Cheeta Woods and the American Dollar

For much of 2009, the dollar has been the Tiger Woods of global currencies. There has been a relentless snowball of negative sentiment. And for a period of time, seemingly everyday something new, bigger and more shocking about the buck was being circulated through the media.

As Tiger can attest, when it rains, it pours ...

There was news that China was trimming its holdings of U.S. Treasury bonds because the weakening dollar posed a threat to the value of their reserves.

The dollar dropped to a 2009 low. And government bonds fell when worries over rising U.S. debt levels started circulating questions about the strength of our country's AAA credit rating.

Bernanke responded to dollar scrutiny with this statement following his speech in Jekyll Island:

"I think the issue at hand is whether or not the dollar will retain its value, and I think it will."

That was not exactly a resounding vote of support.

Then the BRIC countries (Brazil, Russia, India and China) got together and lobbied for the replacement of the dollar as the world reserve currency.

Gold charged back to $1,000 and broke-out to new record highs as global investors looked to gold as a hedge against a falling dollar, and the potential inflationary policies the U.S. had undertaken.

And because of rock bottom interest rates in the U.S. and the falling trajectory of the dollar, it has even been used as a new funding currency for another carry trade.

Still, How Low Did the Dollar Really Go in 2009?

The sentiment has been brutally negative for the dollar. So much so that even on days when there was no real news, the media couldn't resist running front page doom and gloom stories about the future path of the leading global currency.

But contrary to what many may think, the dollar didn't reach record lows. In fact, at its lowest point this past November, the buck was still 5 percent above its lows from 2008.

The dollar index surged 26 percent from the middle of 2008. Investors from around the world were running scared and found safety from the widespread economic crisis by plowing capital into the deepest, most liquid currency in the world â?? the U.S. dollar.

Subsequently, the dollar declined since March of this year, as fear abated and global investors gradually reversed the safe haven trade, putting capital back to work across the globe.

But even under the intense scrutiny of the past nine months, the dollar has managed only a gradual decline relative to its sharp rise of 2008.

And despite all of the doom and gloom stories over recent months, the weight of evidence is now working in the dollar's favor!

It Looks Like the Dollar Is Breaking Out ...

Americans love a comeback. And I suspect Tiger Woods will need to win at least a few golf tournaments to repair his iconic status in the golf world.

However, I don't think the dollar will have as tough a time redeeming itself. I believe that it'll only have to stage a sustained bounce for a couple of months to relieve the pressure valve from the dollar haters.

Already there has been a groundswell of positive news for the dollar that makes a comeback scenario look increasingly more likely ...

It kicked off with the latest employment data: A downtick in the unemployment rate and a positive surprise showing far fewer new job losses. This started shifting the market's focus toward the prospects that the Fed might start raising rates a little earlier than consensus expectations!

Then the recent retail sales report showed a much stronger number. That was a sign that the consumer might be coming back. Another data point that has encouraged market participants to consider improved growth and higher interest rate prospects in the U.S.

So we now have two developments on the economic recovery front that are positive for the dollar.

On the other side of the equation, global economic risk is soaring! And that's good for the dollar as a safe haven currency.

The potential for a sovereign debt crisis has surged since Dubai notified its creditors late last month that it wouldn't be making its next payment. Now it's Greece that's under the microscope regarding its ability to service large government debts. And a host of other European countries are looking increasingly riskier for similar reasons.

And finally, on Wednesday, the Fed announced that it would be closing its currency swap lines with foreign central banks by February 1, 2010. When they opened these massive swap lines in late 2008, the goal was to alleviate the dollar liquidity crunch at banks around the world. However, in the process they increased the supply of dollars around the globe â?? a negative consequence for the value of the dollar. But now that these lines will be closed, it's clearly a dollar-positive development. So the market scrutiny is starting to shift away from the dollar. And there are plenty of ugly currencies out there that will likely take the spotlight.

Most of us have been predicting doom and gloom on the economic front but just maybe we are beginning to see the signs of a turn around and a return to what we consider to be normalcy.

 

Why don't you think so? What do you have that causes you to think differently than what the economic data shows to already be happening? The only real problem with the economic indicators show is that it takes time for them to show up. Before they can tell us anything the data must be accumulated so the indicators are always at least 30 or more days behind what is actually happening on the streets. No data is gathered in real time so the stats are always behind the times.

For instance, while new unemployment figures are still very high the number of people applying is slowly dropping. The Dollar fell far less than it did in 07 and 08. It's worth on the world markets is actually rising just a tiny bit against other currencies. It is far too early to tell what the Xmas spending patterns are for all states. Some states such as Michigan will show a dismal pattern for the holiday spending and other states that have not been hit as hard by the downturn will probably show xmas spending to have been stable compared to other years or maybe even up a bit. So what you experience may be very different than what folks in other states are experiencing. I won't know until after Jan. 1 what my total December corporate income has been but it has been rising slowly for the last 4 or 5 months. Right now December looks better than any other month this year or last and certainly better than 07 or 08. Prices have remained pretty stable this year and gasoline is now even lower than it was last month and the month before that.

I certainly can't say I'm in tall cotton yet but things do seem to be improving a bit.

 

You folks are forgetting something called the wave theory when making such judgments. Everything is cyclical and what goes up will come down and what goes down will go back up.

These days the cycles change ever more rapidly due to our ability to communicate so much faster than ever before. Yesterday the Dollar and the American economy seemed doomed to go down the tubes. Today it seems likely to rebound. Tomorrow we will be filled with uncertainty about which way it might go and the day after we may be singing the blues again. The only thing certain is that things will always change.

 

Yes, but it is all money driven. At least economics are. If people have money they will spend it sooner or later. That is globally true. It is going to be spent for an almost unimaginable variety of products, services and of course taxes. People spending money creates jobs which creates more money and greater demand for money.

Today, as always, the Tiger is your bills and making money to feed the Tiger is always the problem. If you can make good money without selling anything to anybody or even looking for work or having a job then you are pretty well independent of whatever the economy does and can feed your Tiger without much trouble. Anybody can do it. It can be done whether someone is working at a job or not. It can even be done by those who are totally disabled so long as they have at least one finger and at least one eyeball.

As Rush Limbaugh says, you can do it with half your brain tied behind your back. (LOL)

 

Only when the American people go to the polls and revolt, taking out the old party hacks. The only way to do that is to do your voting during the primaries and picking on the candidate who seems to have the least chance of winning or even voting for Independents or Libertarians or don't vote at all.

Give them the answer to the age old question of What would happen if they held a war and nobody showed up to fight?

One of the problems we face is that we really don't have a choice about who to vote for even though we are led to believe that we do. That is because a few hundred people at most ever attend party functions or take part in party conventions at the county level. They are mostly attended by the wealthiest citizens who usually vote for the candidate(s) picked by the party headquarters in Washington. The party headquarters is controlled by the corporations and big money interests. They control who gets elected, not the average citizen.

If we are going to get into firefights all the time maybe we should be electing some private or corporal off the front lines instead of some general. While that might be a nutty idea indeed, at least we might not be bringing home so many body bags.

If we are going to fight economic wars maybe we ought to elect some hobo off the street corner or somebody who has been sued out of house and home and his credit wrecked or some bankrupt to be president. Yes, that would be a nutty thing to do also but it might at least bring about some radical change in the outcome of our economic wars.

There is an old joke in which Homer and Jethro were out coon hunting one night. Homer went up a tree to flush out the coon and a big fight ensued up in the tree. Homer had run into a treed bobcat instead of a coon. He hollered down to Jethro to shoot up into the tree. Jethro hollered back that he was afraid he would hit Homer instead of the coon. Homer hollered back saying "Shoot anyway. One of us has to get some relief up here somehow!" (LOL)

 

Company Picnic Speech

August 21, 2009

Transcript of remarks made by Leo Carrington (who doesn't exist) to a mandatory meeting of all employees of Carrington Automotive Enterprises, Inc. (which doesn't exist either) on August 17th, 2009 at the Royal Payne Hotel (a purely imaginary place) in Norfolk, Virginia (which does, in fact, exist).

I would like to start by thanking you for attending this meeting, though it's not like you had much of a choice. After all, attendance was mandatory. I'm also glad many of you accepted my invitation to your family members to be here as well. I have a few remarks to make to all of you, and then we'll retire to the ballroom for a great lunch and some employee awards.

I felt that this meeting was important enough to close all 12 of our tire and automotive shops today so that you could be here. To reassure you, everybody is being paid for the day --- except me. Since our stores are closed we're making no money. That economic loss is mine to sustain. Carrington Automotive has 157 full time employees and around 30 additional part-timers. All of you are here. I thank you for that.

When you walked into this auditorium you were handed a rather thick 78-page document. Many of you have already taken a peek. You were probably surprised to see that it's my personal tax return for 2008. Those of you who are adept at reading these tax returns will see that last year my taxable income was $534,000.00. Now I'm sure this seems rather high to many of you. So ... let's talk about this tax return.

Carrington Automotive Enterprises is what we call a Sub-S - a Subchapter S corporation. The name comes from a particular part of our tax code. Sub-S status means that the income from all 12 of our stores is reported on my personal tax return. Businesses that report their income on the owner's personal tax return are referred to as "small businesses." So, you see now that this $534,000 is really the total taxable income - the total combined profit from all 12 of our stores. That works out to an average of a bit over $44,000 per store.

Why did I feel it important for you to see my actual 2008 tax return? Well, there's a lot of rhetoric being thrown around today about taxes, small businesses and rich people. To the people in charge in Washington right now I'm a wealthy American making over a half-million dollars a year. Most Americans would agree: I'm just another rich guy; after all ... I had over a half-million in income last year, right? In this room we know that the reality is that I'm a small business owner who runs 12 retail establishments and employs 187 people. Now here's something that shouldn't surprise you, but it will: Just under 100 percent ... make that 99.7 percent of all employers in this countries are small businesses, just like ours. Every one of these businesses reports their income on a personal income tax return. You need to understand that small businesses like ours are responsible for about 80 percent of all private sector jobs in this country, and about 70 percent of all jobs that have been created over the past year. You also need to know that when you hear some politician talking about rich people who earn over $200,000 or $500,000 a year, they're talking about the people who create the jobs.

The people who are now running the show in Washington have been talking for months about raising taxes on wealthy Americans. I already know that in two years my federal income taxes are going to go up by about 4.5 percent. That happens when Obama and the Democrats allow the Bush tax cuts to expire. When my taxes climb by 4.5 percent the Democrats will be on television saying that this really isn't a tax increase. They'll explain that the Bush tax cuts have expired .. nothing more. Here at Carrington we'll know that almost 5% has been taken right off of our bottom line. And that means it will be coming off your bottom line.

Numbers are boring, I know ... but let's talk a bit more about that $534,000. That's the money that was left last year from company revenues after I paid all of the salaries and expenses of running this business. Now I could have kept every penny of that for myself, but that would have left us with nothing to grow our business, to attract new customers and to hire new employees. You're aware that we've been talking about opening new stores in Virginia Beach and Newport News. To do that I will have to buy or lease property, construct a building and purchase inventory. I also have to hire additional people to work in those stores. These people wouldn't immediately be earning their pay. So, where do you think the money for all of this comes from? Right out of our profits .. right out of that $534,000. I need to advertise to bring customers in, especially in these tough times. Where do you think that money comes from? Oh sure, I can count it as an expense when I file my next income tax return .. but for right now that comes from either current revenues or last year's profits. Revenues right now aren't all that hot ... so do the math. A good effective advertising campaign might cost us more than $300,000.

Is this all starting to come together for you now?

Right now the Democrats are pushing a nationalized health care plan that, depending on who's doing the talking, will add anywhere from another two percent to an additional 4.6 percent to my taxes. If I add a few more stores, which I would like to do, and if the economy improves, my taxable income ... our business income ... could go over one million dollars! If that happens the Democrats have yet another tax waiting, another five percent plus! I've really lost tract of all of the new government programs the Democrats and President Obama are proposing that they claim they will be able to finance with new taxes on what they call "wealthy Americans."

 

And while we're talking about health care, let me explain something else to you. I understand that possibly your biggest complaint with our company is that we don't provide you with health insurance. That is because as your employer I believe that it is my responsibility to provide you with a safe workplace and a fair wage and to do all that I can to preserve and grow this company that provides us all with income. I no more have a responsibility to provide you with health insurance than I do with life, auto or homeowner's insurance. As you know, I have periodically invited agents for health insurance companies here to provide you with information on private health insurance plans. The Democrats are proposing to levy yet another tax against Carrington in the amount of 8 percent of my payroll as a penalty for not providing you with health insurance. You should know that if they do this I will be reducing every person's salary or hourly wage by that same 8 percent. This will not be done to put any more money in my pocket. It will be done to make sure that I don't suffer financially from the Democrat's efforts to place our healthcare under the control of the federal government. It is your health, not mine. It is your healthcare, not mine. These are your expenses, not mine. If you think I'm wrong about all this, I would sure love to hear your reasoning.

Try to understand what I'm telling you here. Those people that Obama and the Democrats call "wealthy Americans" are, in very large part, America's small business owners. I'm one of them. You have the evidence, and surely you don't think that the owner of a bunch of tire stores is anything special. That $534,000 figure on my income tax return puts me squarely in Democrat crosshairs when it comes to tax increases.

Let's be clear about this ... crystal clear. Any federal tax increase on me is going to cost you money, not me. Any new taxes on Carrington Automotive will be new taxes that you, or the people I don't hire to staff the new stores I won't be building, will be paying. Do you understand what I'm telling you? You've heard about things rolling downhill, right? Fine .. then you need to know that taxes, like that other stuff, roll downhill. Now you and I may understand that you are not among those that the Democrats call "wealthy Americans," but when this "tax the rich" thing comes down you are going to be standing at the bottom of the mud slide, if you get my drift. That's life in the big city, my friends ... where elections have consequences.

You know our economy is very weak right now. I've pledged to get us through this without layoffs or cuts in your wages and benefits. It's too bad the politicians can't get us through this without attacking our profits. To insure our survival I have to take a substantial portion of that $534,000 and set it aside for unexpected expenses and a worsening economy. Trouble is, the government is eyeing that money too ... and they have the guns. If they want it, they can take it.

I don't want to make this too long. There's a great lunch waiting for us all. But you need to understand what's happening here. I've worked hard for 23 years to create this business. There were many years where I couldn't take a penny in income because every dollar was being dedicated to expanding the business. There were tough times when it took every dollar of revenues to replenish our inventory and cover your paychecks. During those times I earned nothing. If you want to see those tax returns, just let me know.

OK .. I know I'm repeating myself here. I don't hire stupid people, and you are probably getting it now. So let me just ramble for a few more minutes.

Most Americans don't realize that when the Democrats talk about raising taxes on people making more than $250 thousand a year, they're talking about raising taxes on small businesses. The U.S. Treasury Department says that six out of every ten individuals in this country with incomes of more than $280,000 are actually small business owners. About one-half of the income in this country that would be subject to these increased taxes is from small businesses like ours. Depending on how many of these wonderful new taxes the Democrats manage to pass, this company could see its tax burden increase by as much as $60,000. Perhaps more.

I know a lot of you voted for President Obama. A lot of you voted for Democrats across the board. Whether you voted out of support for some specific policies, or because you liked his slogans, you need to learn one very valuable lesson from this election. Elections have consequences. You might have thought it would be cool to have a president who looks like you; or a president who is young, has a buff bod, and speaks eloquently when there's a teleprompter in the neighborhood. Maybe you liked his promises to tax the rich. Maybe you believed his promise not to raise taxes on people earning less than a certain amount. Maybe you actually bought into his promise to cut taxes on millions of Americans who actually don't pay income taxes in the first place. Whatever the reason .. your vote had consequences; and here they are.

Bottom line? I'm not taking this hit alone. As soon as the Democrats manage to get their tax increases on the books, I'm going to take steps to make sure that my family isn't affected. When you own the business, that is what you're allowed to do. I built this business over a period of 23 years, and I'm not going to see my family suffer because we have a president and a congress who think that wealth is distributed rather than earned. Any additional taxes, of whatever description, that President Obama and the Democrats inflict on this business will come straight out of any funds I have set aside for expansion or pay and benefit increases. Any plans I might have had to hire additional employees for new stores will be put aside. Any plans for raises for the people I now have working for me will be shelved. Year-end bonuses might well be eliminated. That may sound rough, but that's the reality.

You're going to continue to hear a lot of anti-wealth rhetoric out there from the media and from the left. You can chose to believe what you wish .. .but when it comes to Carrington Automotive you will know the truth. The books are open to any of you at any time. I have nothing to hide. I would hope that other small business owners out there would hold meetings like this one, but I know it won't happen that often. One of the lessons to be learned here is that taxes ... all taxes ... and all regulatory costs that are placed on businesses anywhere in this country, will eventually be passed right on down to individuals; individuals such as yourself. This hasn't been about admonishing anyone and it hasn't been about issuing threats. This is part of the education you should have received in the government schools, but didn't. Class is now dismissed.

Let's eat.