Even Harley Davidson is against the “strong dollar” at this point, which I think says a lot about how financialism has destroyed even this most basic sense of “money.” For the record, Harley’s profit was down “slightly” with the company of course blaming the “dollar.”
The toothpaste business has also been seriously affected, afflicting Colgate where Latin America is a big part of the revenue stream. The company is making an effort to proclaim that if you take out currency everything is, if not fine, then less troubling.
The consumer products maker, which controls nearly 45 percent of the global toothpaste business, said fourth-quarter organic sales, which exclude the effects of foreign exchange, acquisitions and divestments, rose 6 percent because of higher volumes and better pricing.
That’s one way of looking at the problem and is consistent with an industry (finance, especially equity trading) that no longer adheres much with stringent rules about harmonizing earnings reports. When the “dollar” was “falling” you never heard much about its impact boosting both the top and bottom lines, but now that it hurts so much it “needs” to be taken into consideration. Apples to apples, if it is “in” when it’s good, then it is “in” when it’s bad.
For Colgate, that is a big deal since Latin American sales were actually down 6% in the fourth quarter. As much as the company wants to use last year’s “dollar” rate for comparison purposes, it just doesn’t work like that in any meaningful way except earnings presentations. Europe was down 7.5% and Africa -10%, but Asia was positive at 4.5%. Overall company sales were off by 3% despite that +6% “organic” fakery.
Again, this isn’t just numbers on a paper. These companies as multinational firms have to buy materials and pay labor in and across many locations and currency systems. Cash is cash and the “dollar” will impact actual operations. Procter & Gamble, a Colgate competitor, is generating very real concerns about cash flow, actual not “organic”, given its relatively high dividend payout ratio.
Out of operating earnings of $4.4 billion over the past six months, P&G has paid out $3.6 billion in dividends. In addition, management has spent about $4 billion in share repurchases, meaning that financial activities are more than operating profits. However, free cash flow has been $7 billion over those same six months, with all that “improvement” as a matter of cost reductions and efficiency. The more the “dollar” suppresses results the more the company will have to reevaluate its financialism, or whether more “cost reductions” are necessary. No wonder they react so harshly against the “strong dollar.”
The behavior of the “dollar” currency over the past seven months or so has united not just US corporate opposition but almost every other currency in not quite devaluation but diminished standing as an economic indication. That is an uncomfortable position for some nations as they seek to gain advantages over others at a moment when the global economy is, at best, uncertain.
To that end, it was very curious that the Reserve Bank of Australia “unexpectedly” cut its main refinancing rate last night.
The Australian dollar has declined noticeably against a rising US dollar over recent months, though less so against a basket of currencies. It remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices. A lower exchange rate is likely to be needed to achieve balanced growth in the economy.
They readily admit that their dollar has already fallen against the global “dollar” but now act to keep that going? What is really at issue here is that Australia’s central bank doesn’t like that the Aussie dollar has competition toward the “bottom.” Again, the tightening “dollar” has simply homogenized any currency not directly related to funding “markets”, and for Australia as a commodity supplier that means projecting a calculated (as opposed to real) imbalance in what they feel is “fundamental value” given the rapid and severe decline in commodity prices.
It sounds economic-y enough, but it really speaks to further and unspecified worries about the global economy and how their currency no longer stands out as “weak enough” as pretty much all their competitors have the same feature. Rather than concentrate on volumes and actual business, the business of central banks is to “appreciate” the “dollar” and attenuate it with orthodox methods – the same kinds of programs that have killed off growth by engineering devastating redistributions in the first place.
All of this relates back to something I mentioned last week, namely that nobody seems to have any idea of what a “strong dollar” actually means anymore. It used to be something that related to the ability of the US economy to maintain convertibility, in some form of actual money. In other words, a “strong dollar” was not its rise against other currencies or all other currencies, but rather a financial stability that produced a stable currency; which led to greater economic stability, and so on. Everything described here speaks to instability and how that creates counterproductive elements deep within economic processes. Central banks are dedicated all over the world to creating such instability with the preposterous idea that it can be harnessed directly to command those very economic processes.
The rising or falling “dollar” does not matter in the long run in real economic terms as they both amount to different sides of the same financialism that simply didn’t exist when the dollar could be “strong.” Milton Friedman got his wish about floating currencies, but he failed to foresee, as none of his Chicago compatriots did either, the logical extension of that, namely the current domination of financialism not just in theoretical considerations but actual activity. Business and even global banking has made itself a product of this instability, thus we should not wonder why the global economy, especially the US, is as well.