Chinese yuan, Walmart, home prices and economy
As I mentioned in December 2010 in Economy is improving? I don’t think so, any economy two-thirds of which based on consumer spending has problems and big ones. And the US consumers will buy much less now as Chinese-made goods will get more expensive and gas prices are about to reach $5 per gallon. Both charts clearly show the Chinese yuan rising drastically in value against the US dollar in the last two to three weeks. The price of everything made in China will be going higher. And Walmart which caters to a huge number of US consumers and sells more of Chinese made goods than other retailers, seeing the problem.
CEO of Walmart, Mike Duke noticed something rather unsettling – Walmart shoppers, most of whom live quite literally paycheck to paycheck and shop in bulk at the beginning of the month when the paychecks come in, frequent the stores less and buying less. Mr. Duke blames high gas prices for claiming much bigger portion of his shoppers’ paychecks, and he is right. And while the obvious bad news for Walmart and overall US economy are rising yuan and falling dollar, today’s almost unnoticed prediction by Goldman Sachs that oil could surpass its recent highs by 2012 because of lower global oil supplies, is the last thing you want to hear.
How high the gas prices can go if oil price hits $150 USD? Yesterday and the day before with oil prices going from around $112 to $100, the cheapest gas prices in my area were $4.45 per gallon. Today, I saw $4.35 at Mobile gas station. That is 10 cents cheaper on just over $10 drop. So reversing this proportion, you are looking at 50 cents increase if the price of crude goes from $100 to $150. Where I am, it means $4.85 to $4.95 per gallon of regular unleaded and that is in deep suburbs. City prices are often by 20 to 25 cents per gallon higher.
And now just imagine if the dollar will be falling further. How low the dollar can go will depend on a several things. But looking at this chart, I can clearly imagine it going much lower, in spite of a 2-day bounce.
The home prices went down again, and smart people call it what it is – an official nationwide double dip. Sales of bank-owned properties known as REO were smashing 34.5% of the housing market. A national price drop stood at 4.9% quarterly and 5% year-over-year. All said, national home prices went south 11.5% in the past 9 months. That means more bad news for economy based on consumer spending.
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