January 06, 2006
A research call worth reading
We remain of the view that US manufacturers, who have long provided health care for their employees and retirees, are in a grim competitive struggle globally against companies whose employees' health care is paid by governments. To offset that structural disadvantage, the dollar should go to 1.45-1.55 on the euro, 85-90 on the yen and par to 1.05 on the Canadian dollar—and trade in those ranges for several years. There are no quick fixes—but there is certainly long-term disaster if the dollar remains overvalued. Blaming General Motors, Ford and Delphi for bad management and for agreeing to impossibly costly union contracts is easy recreation for pundits and parlor pinks. But these companies and their brethren cannot survive when their competitors aren't saddled with such costly benefits, and aren't pricing their costs in a currency whose valuation reflects a bygone era of American industrial dominance. If it were entirely the fault of auto companies' managements, then how can the critics explain the recently-published data that show that New York City and State employee health care costs, when calculated actuarially, are five to ten times the pay-as-you-go costs the state and city have been reporting—and having trouble paying? (State and local governments across the US will soon have to issue their financial reports under new rules in which health benefits have to be valued actuarially.) GM, Ford and Delphi have long had to report their health care costs on accrued bases, and those fast-rising actuarial costs are one big reason those big companies are in big trouble. We believe that the dollar will inevitably be devalued and that gold will perform inversely to the greenback. If the fall doesn't come in 2006, then the ultimate devaluation will have to be deeper. “...fast-rising actuarialcosts are one big reason those big companies are in big trouble.”
We believe that the dollar will inevitably be devalued and that gold will perform inversely to the greenback. If the fall doesn't come in 2006, then the ultimate devaluation will have to be deeper.