Global: The Economic Clock and profits
The dollar is weak for a couple of reasons. On a trend basis, it is weak because it is a reserve currency. All reserve currency head south because they are issued by super powers, ones which run out of money by virtue of having to defend their empire. We have discussed this phenomenon plenty of times.
The other reason for a weak dollar is of more recent nature: with the excess supply of money driving down U.S. interest rates, this has made the dollar a cheaper currency off which to finance carry trades than, say, the yen. So when the carry trade is "put on", people borrow dollars and immediately sell them in order to finance the trade. By selling the dollar and buying, for instance, the Euro, they drive the dollar's exchange rate down. This is but one reason why the yen has risen - and why our earlier recommendation to go long yen/short Australian dollar is paying off.
Those low U.S. interest rates, that excess supply of money, is because there is a very pronounced excess supply of goods, as we all know.
And when there is an excess supply of goods, there is NO way that profits possibly can rise. Indeed, the last round of profits "rose" only because they were measured off a very weak base - and most certainly NOT because of rising turnover or margins.
So all that we can proffer is that the intensifying excess supply of goods may keep an excess supply of money in place - but it also will drain revenues as well as margins of most companies. That is the link to the Economic Clock®.
