Reading the Wall Street Journal and the Financial Times

Here are four things I learned about how the economy is presently doing, reading Wednesday's (Aug 6) WSJ and FT:

1. Recent evidence shows that the dollar is strengthening. Why is the dollar doing better? Surprisingly, one reason might be Pres. Bush's economic stimulus. Harvard economist Martin Feldstein, in an op-ed in the WSJ, writes:

Here are the facts. Tax rebates of $78 billion arrived in the second quarter of the year. The government's recent GDP figures show that the level of consumer outlays only rose by an extra $12 billion, or 15% of the lost revenue. The rest went into savings, including the paydown of the debt.

It is possible, according to Prof. Feldstein's numbers, that the stimulus package was money well spent in that it was actually money well saved, leading to an unexpected consequence: helping ease the pressures on the dollar through increased savings.

2. On the front page of WSJ's 'Money & Investing' section, we see that since July 7th, shares of Bank of America have improved 56%. Wachovia has improved 37%. Morgan Stanley, 23% and Citigroup, 21%. But I've got to say, beware thinking the recent rise in the value of financial stocks will sustain over time. Much of the strength of the financials is due to the Fed temporarily banning the naked short-selling of 19 major banks and brokerages (including Bank of America, Morgan Stanley, and Citigroup), a ten-day move that was supposed to expire July 31 but was extended on July 30 and will now last until the clock strikes August 13th. Meaning: it is now not possible to bet on banks to go down without arranging to borrow the securities at the time of the deal. Naked short-selling will be possible again at 12am edt on Aug 13. At this time, expect more downward pressure on financial shares and renewed concern about the credit crisis.

3. As financials have gone up, the price of oil has dropped. After months and a few years of building up the possibility of military engagement against Iran, mid July found the State Department shifting course and sending its third-ranked diplomat to talk with Iran. Since that July 19th meeting, a US-led bombing or invasion of Iran appears off the table and oil prices have fallen from their highs. What was the price of a barrel of crude the week before the meeting? And what is it trading at today? The week leading to the diplomatic meeting saw oil prices hovering open about $145. Today, just about three-and-a-half weeks later, the price of oil has dropped about 17% to $120.

4. Driving down oil prices is not only the diminished threat of war. According to the Financial Times, also contributing is an OPEC-led boost in supply to the world market. From the newspaper's report:

The surge in Opec production came thanks largely to Saudi Arabia, the world's largest oil producer, which ramped up its output to 9.7m barrels a day, its highest level since early 1981, up from just 9.1m b/d at the beginning of the year.

From these two newspapers and these four data points we can recognize two complex situations: a slight strengthening of the dollar, even as the continued tenousness of America's financial and credit system hold back the flow of credit. And a slight diminishment of energy prices, even as it becomes clearer that the US has increasingly limited power to shape the global oil market. Oil might be coming down at the moment, but the price mechanism seems fully independent of US interests.