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U.S. Dollar In for Some Tough Months Ahead

By    |   Wednesday, 20 May 2009 02:09 PM

The more I read the headlines these days, the more I can see how the sentiment will turn more negative for the dollar in the coming months.

Here are some of the recent factors that are starting to sour things for the dollar.

GM is dumping 42 percent of its car dealers and Chrysler is dumping 25 percent of its dealers. Now, I’m sure Japan carmakers like Toyota, Honda, and Mazda love this.

Since our biggest American icons are having such difficulties, it encourages money to look elsewhere for investment. As each passing day goes by, investors are reminded about how bad things are. This really hurts the sentiment out there and encourages “dollar investors” to take their money elsewhere.

In addition, now that the fear is dying down and the stock markets of the world aren’t falling 400 points a day each day, money is inclined to pour out of the greenback in search of greener pastures.

Here’s another example of the negative sentiment that I’m talking about that is building for the dollar.

U.S. credit card defaults rose in April to record highs. Just one month earlier, credit card defaults were at 20-year highs. Citigroup and Wells Fargo posted double-digit loss rates. It’s probably not going to get better anytime soon either. After all, there have been more than 2 million jobs lost since the first of the year.

Citigroup is a big issuer of MasterCard. It reported an annualized charge-off rate of 10.21 percent. Wells Fargo is a big issuer of Visa cards and it reported a loss of 10.03 percent. These were even worse numbers than analysts expected.

As long as we are shedding 500,000 jobs a month, how can we expect this to get any better any time soon?

Also, credit card lenders are trying to protect themselves by tightening credit limits, raising standards, and closing accounts. They’re also slashing rewards, increasing interest rates, and boosting fees in order to cushion against further losses.

You have to remember, too, that credit cards are unsecured loans. So, this means the charge-offs are a direct hit to their bottom line. After all, they don’t have collateral to seize and recoup some of their losses.

Since the auto industry will likely still be bleeding for months to come and since credit card defaults and job losses will continue to mount, it’s going to bring on an increasing negative sentiment for the buck in the coming months ahead.

Dollars will be sold and money will run to other countries like Australia where they actually added jobs this past month and where they export commodities that have held up well, such as gold.

So, expect the dollar to come under pressure in the months ahead as other commodity currencies like the Aussie dollar flourish.

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SeanHyman
The more I read the headlines these days, the more I can see how the sentiment will turn more negative for the dollar in the coming months. Here are some of the recent factors that are starting to sour things for the dollar. GM is dumping 42 percent of its car dealers and...
dollar
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2009-09-20
Wednesday, 20 May 2009 02:09 PM
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