Thursday, 20 September 2007

In the Black With Red

Hopefully the fine folks at Sram are set up to pay all of their vendor and manufacturing contracts in dollars because, no surprise, the dollar is in virtual freefall against other currencies today. A shiny new Euro costs about $1.40, and it takes two Clams to buy a Pound. Not that this is too terrible a thing, except for those who were looking forward to new goodies from Campag or Shimano. Imports and travel abroad get more expensive. Hopefully this will help us help ourselves shore up the trade balance.

Two negatives which happen in this scenario are that inflation becomes even harder to contain (especially since the Fed can’t raise interest rates without locking up the economy), and the Dollar is likely to be supplanted by the Euro as the de facto world currency. Matters of national pride and self-determination aside, I wonder what the effects would be of an actual worldwide, or at least very supra-regional common currency. A very academic exercise, I know, but for anyone who’s been able to stay awake though either of Thomas Friedman’s latest two books it is an interesting thought. I think he would (or does argue) that currency markets are so liquid and arbitrage so widespread that it doesn’t really matter. Probably as evidenced by today’s news of the dollar weakening following lowered interest rates (yields on dollar investments drop, ergo the dollar drops, in a very fluid and internationally based motion).

Also, all the US indices are down today, raising the issue I touched on yesterday - what if this huge rate cut fails to acheive the desired effect? Where do we go then? One thing that seems obvious to me is that the markets are becoming at best a proxy for the nation's economy, if ever they were indeed anything else.

So back to the important stuff, yeah, Sram will probably enjoy a pretty significant pricing advantage over their more established competitors in the road gruppo business. I am guessing that Campag and Shimano distributors pay in Euros and Yen when I say this.

Today’s riddle: What drops faster than the dollar’s value following a big rate cut? My ability to ride a bike fast. Last night I went out for a couple of hours around the Espresso/10am ride loops and man was I not fast. I am spending a month riding without any feedback other than my own – no HRM, no PowerTap, no speedometer, nothing – but when you are going up South Glen Road in the 39-23, you pretty much know you aren’t getting anywhere quick. All it took was two weeks off the bike to turn into an absolute slug! The next time someone says of something you haven’t done in a while “it’s just like riding a bike,” I’ll know that they mean “yeah, you may be able to do it without falling over, but you’re going to be so hideously slow that you’ll wish you fell over so you’d have an excuse.”

And to thank you for reading all the way today here is a picture that I know I'm going to get guff for when I get home, but sometimes you gotta play that way, you know?


fabsroman said...

Good post about the economy. My wife and I are going to be in the market for a single family house pretty soon, and this entire thing scares the hell out of me. I knew the nation was going to be in trouble when house prices went through the roof, no pun intended, and they became completely unaffordable.

By the way, nice pic of Liz Hatch. Exactly what it has to do with the economy, I have no idea.

Chuck Wagon said...

10 points for knowing the name there. I had no idea that this was an identified rider. The picture has to do with the economy because when you are feeling down about the economy, it will make you feel better.

We were offered an INSANE amount of mortgage dough when we moved to DC 3 years ago. Totally beyond reasonable. You just had to look at it and wonder WTF?

$55,000 in mortgage interest, huh? So they have a brand new $1mm mortgage at 5%. On $180k gross income. In a down market. That's a REAL WTF!

fabsroman said...

Trust me, I am still trying to figure out what the hell those clients did to get themselves into that problem. On top of that, I know the wife pays at least $500 a month in credit card interest. However, they do take more vacations than I do, so something must be going well.