The U.S. has already entered a recession…
… If the sharp drop in the U.S. Dollar is taken into consideration
The U.S. equity markets have showed a reasonable performance over the past few years but investors should take a closer look before joining the crowd which cheers that performance as a huge success and reconsider if any U.S. Dollar denominated investment really gave a boost to the overall portfolio or if it was a drag on the portfolio and actually decreased over-all performance.
For any U.S. based investor who needs U.S. Dollars it makes little or no sense to measure the performance of the U.S. equity markets in British Pound Sterling or Euros but if the performance of the U.S. equity markets is put in context to the global economy it will most likely show that the U.S. equity markets showed a decline rather then an advance to new all-time or multi-year highs.
The spending pattern of the U.S. consumer shows a clear appetite for foreign goods purchased with borrowed money which is one reason why imports outpace exports by a wide margin and the trade deficit is at current levels. The heavy debt load of the U.S. consumer is also a sign for a poor spending behavior.
Since the U.S. Dollar has severely depreciated while the U.S. equity markets have rallied the actual spending power of any U.S. Dollar denominated investment has decreased.
In other words, even if the actual investment has increased in U.S. Dollar terms the actual amount of goods or services which can be acquired has decreased. The investment has lost its value on the global market place.
Since there is a healthy appetite for foreign goods, the rise in the U.S. equity markets will have no positive impact on the investor and actually decreased the spending power of the consumer.
The rise in the U.S. equity markets has decreased the overall negative impact of the strong depreciation in the U.S. Dollar on the investor but overall the investor is still faced with a negative performance from the U.S. Dollar denominated investments.
Once again, the investment even though it rose in U.S. Dollar terms has lost its value in the global market place.
This is a fact which is too often ignored by investors.
A decrease in imports is another sign that the U.S. consumer has weakened as a complete change in a multi year-long spending pattern is very unlikely if not completely impossible to be reversed in just a few months.
Unfortunately the Federal Reserve under Ben Bernanke chooses to ignore this fact.
The Fed has cut rates twice in the past two months and in a global economy continues to weaken any consumer which holds a majority of the portfolio in U.S. Dollar denominated assets.
A rise in inflation is very likely to appear in all inflation reports to be released in the next few months.
Comments out of China to diversify its huge currency reserves away from the U.S. Dollar continue to add to the immense downward pressure of the U.S. Dollar which continues to hit all-time or multi-decade lows against a basket of major global currencies.
Commodity prices will see continued upward pressure, in part related to the weak U.S. Dollar and also add to inflationary pressures in the economic pipeline.