Chesapeake Bay Candle Struggles to Open U.S. Factory

Chesapeake Bay Candle is a major player in the multibillion dollar scented candle industry.  In spite of its name, all its candles are made in Vietnam and China.  Recently, due to increasing wages in those countries and high shipping costs, the company decided the time was right to start making candles in the U.S.  What the company did not account for was how much more expensive it is to build a factory in the U.S., with many laws and codes to comply with.  The factory is now over budget and delayed, and the founders are wondering whether the U.S. is ready to compete with Asia for manufacturing business.

Chesapeake Bay Candle Struggles to Open U.S. Factory

Dollar's Fall Rocks Far-Flung Families

The U.S. dollar is struggling.  Against all major world currencies, a dollar buys less currency today than it used to.  Within the U.S., this makes imports more expensive but also helps the export competitiveness of U.S. companies by making U.S.-produced goods cheaper overseas.  Outside the U.S., however, the dollar's fall is having dire consequences for many economies that rely on the exchange rate.  One such economy is the Philippines, where the exchange rate has strengthened the Philippine peso 15% against the dollar in the last year.  Over 10% of the Philippines GDP is made of remittances, where Overseas Filipino Workers (OFW) send money back to the Philippines.  These workers typically earn U.S. dollars, which means their remittances are now worth less in the Philippines.  This had led some in the Philippines to argue that the time has come to stop depending on these remittances and to start creating job opportunities at home.

Dollar's Fall Rocks Far-Flung Families - WSJ.com

Auto Maker Nissan to 'Significantly' Reduce Exports From Japan

At Nissan, a move in the value of the dollar versus the yen by one yen in either direction is worth around 18 billion yen, or $219 million, of Nissan's operating profit on an annualized basis.  That's why the carmaker announced recently plans to dramatically reduce the number of exports from Japan and production increases in plants outside Japan.  Nissan joins Toyota and Honda, as all Japanese automakers have said it is difficult to export cars from Japan profitably when the Yen falls below 90 to the dollar (it is currently at 82).  Production of the Micra (above) will shift to India, the Micra to Thailand, the Juke to U.K., and the Rogue to Tennessee.

Auto Maker Nissan to 'Significantly' Reduce Exports From Japan - WSJ.com

Volvo Mulls China-Made Cars for U.S.

Volvo is a Swedish car company with a Chinese shareholder and a German CEO.  The company already builds a small number of cars in China for the Chinese market, but is now considering a major ramp-up in production in a new assembly plant (in Chengdu, where it's owner Geely has a major new plant), not just for the Chinese market, but also for the export market including the U.S.  Currently, American consumers readily purchase made-in-China consumer goods, but no one is selling a made-in-China automobile yet, and there is some concern that Volvo's customers may shy away from a Chinese-made vehicle.  This strategy is being driven partly by the desire to reduce currency risk.  Volvos produced in Sweden and Belgium are priced in Euros, and the exchange rate has eaten into Volvo's profitability.  The Chinese currency, the yuan, is pegged to the dollar and would provide Volvo with more protection from exchange rate swings.


Volvo Mulls China-Made Cars for U.S. - WSJ.com

Euro Zone Is Imperiled by North-South Divide

When economies run into trouble and start slowing down, governments often turn to devaluing their currencies to make exports cheaper, and therefore more competitive.  The U.S. is in effect doing this now, by printing more money and engage in quantitative easing, driving down the value of the U.S. dollar worldwide.  In the Euro zone, however, individual countries do not control the value of the Euro.  The Euro zone makes sense when countries have similar economic profiles, but recently economists have realized that southern European countries like Portugal, Spain and Greece have uncompetitive economies, with high social benefit costs, high budget deficits, and high wages.  Unlike bigger and more competitive economies in France and Germany, however, they lack strict work habits, innovation, and suffer from inefficient labor markets and tax systems.  This divide is causing a crisis in the Euro zone, a crisis some believe may result in the ultimate embarrassment: the abandonment of the Euro experiment altogether.
 
Euro Zone Is Imperiled by North-South Divide - NYTimes.com

India’s Soaring Currency Attracts Foreign Investors, but Exports Suffer

The Indian rupee has climbed 9% against the dollar in the last 16 months.  That has taken a toll on a key Indian export -- textiles -- because it makes exporting more expensive.  Instead of fighting the appreciation like Brazil, however, India is letting the currency strengthen for now.  A stronger currency is helping the country to develop a modern consumer economy, and is fueling a boom in inward investment from giant shopping malls to new car dealerships.

India’s Soaring Currency Attracts Foreign Investors, but Exports Suffer

U.S. Steps Up Criticism of China’s Practices

China spends $1 billion a day to maintain the value of its currency against the US Dollar.  By buying its own currency, it artificially maintains the currency at around 6.7 RMB to the USD, allowing its exporters an advantage in important foreign markets.  Now, the Obama administration, led by Treasury Secretary Tim Geithner (above), is stepping up attacks on China and its trade practices, including currency manipulation, theft of intellectual property, and continued market restrictions for U.S. products and services.

U.S. Steps Up Criticism of China’s Practices - NYTimes.com

Toyota Feels Exchange-Rate Pinch as Rivals Gain

The Japanese Yen is at a 15-year high against the US dollar, and a 9 year high against the Euro.  While this makes it a nice time to be a Japanese tourist going to the U.S. or Europe, it's killing Japanese manufacturers like Canon and Sony.  For a large industrial powerhouse like Toyota, it's a real crisis.  Toyota, which imports 35% of its American-sold vehicles from Japan (Honda only imports 10%), is going to lose more money with currency losses than the massive recall it recently conducted to fix accelerator pedals.

For every yen that the Japanese currency gains in value against its assumed dollar rate of ¥90, Toyota says, it loses ¥30 billion, or $357 million, in operating profit. If the exchange rate stays at the current ¥84 to a dollar, Toyota’s operating profit for its financial year ending next March, which the company forecasts will reach ¥330 billion, could fall by half.

Toyota Feels Exchange-Rate Pinch as Rivals Gain - NYTimes.com

Currency Trading Hits $4 Trillion

Currency trading volume has hit a whopping $4 trillion worldwide, a 20% gain from the $3.3 trillion last recorded in 2007.

Currency Trading Hits $4 Trillion - WSJ.com

Sears Canada Cuts Payments to Suppliers Due to Strong Loonie

The Canadian dollar (aka the Loonie) is on a tear, nearing parity with the U.S. dollar. At the beginning of 2009 it was worth 80 cents, but this week it's been trading at around 96 cents. Theoretically, with the currencies so closely aligned that should mean Canadians pay roughly the same as Americans for goods and services right? Not so fast. A pair of jeans at Sears U.S. is $29.99, but at Sears in Canada the same pair is C$70 (about $67.50). The WSJ explores what's going on in Canada at the retail front.


Sears Canada Cuts Payments to Suppliers Due to Strong Loonie - WSJ.com

Europe’s Debt Crisis Casts a Shadow Over China

The falling Euro is making Chinese companies less competitive in Europe, one of China's most important export markets. While the falling Euro makes European exporters like Dior happy (above, a grand opening for a Dior in Shanghai), it is complicating moves by Beijing to de-couple the yuan from the U.S. Dollar, meaning that any weakening of the yuan (which in turn would help U.S. companies hoping to sell in China and make Chinese imports in the U.S. more expensive) will likely to have to wait a little longer.

Europe’s Debt Crisis Casts a Shadow Over China - NYTimes.com

Hedge Funds Try 'Career Trade' Against Euro - WSJ.com

If you've been thinking about going to Europe you may want to wait just a few more weeks if you can. The Euro, which has been as high as 1.50 against the dollar in the last year, is currently trading at 1.35. There is now talk about the Euro achieving parity with the US Dollar, something absolutely no one could have predicted. Part of the reason for the movement is the role of currency traders, who are looking at the battering the Euro is taking as an opportunity to make lots and lots of money. Good for tourists, good for European exporters (Airbus and French wine), probably bad for European carmakers who locked in hedges at a stronger rate, good for European companies that can take advantage of the low rates to lock in future hedges (no one expects the dollar to become stronger than the Euro), and bad for European companies buying oil priced in US dollars. Isn't currency fun?

Hedge Funds Try 'Career Trade' Against Euro - WSJ.com

Spain Stresses the Euro

Could Spain leave the Euro zone? That's certainly the subtle implication in this morning's Wall Street Journal. A combination of factors is stressing Spain's economy to the breaking point, and being in the Euro zone means the government's ability to respond is very limited. A brief recap: unemployment is at 20%. A housing bubble has burst, leaving many homeowners feeling poor and upside down on mortgages. The GDP contracted nearly 4% in 2009 and is expected to shrink again this year. The country is in its worst recession in 50 years. As a result, holders of Spanish debt are demanding higher interest rates, requiring the government to go even deeper into debt. Unlike the current crisis in Greece, though, Spain is a lot bigger -- it's the fourth largest economy in the Euro-zone, and a debt crisis in Spain would be a lot more disruptive than what we've seen so far from Greece.

Spain has three options: do nothing and live with years of economic stagnation, launch an "austerity program" to cut back on government spending including generous government benefits for the unemployed, or leave the Euro zone. Leaving the Euro would immediately allow the government to devalue its currency, allowing exports to become cheaper and the economy to grow again. While that seems like a dramatic step, the first two options are politically unappealing. In either of the first two options, richer European countries may have to step in with a bailout -- to the tune of more than 250 Billion Euros -- to maintain confidence in the Euro.

Bottom line: anyone or any company contemplating doing business in Spain is going to have to look very closely at any proposition, because the economy seems to be headed for some really rough waters and no one knows when things will become calm again.


The Euro's Final Battleground: Spain - WSJ.com

How Annoying to Have Elections

Venezuela's Chavez is facing quite the pickle. The country's main export, oil, isn't generating as much cash as before due to lower prices. There's an election around the corner, and his main constituency, the poor, are increasingly unhappy about the poor economy. Inflation is soaring at 27% and the government can't do much to tame it as any steps would further weaken the economy already mired in recession.

The solution? Devalue the currency. Chavez has decreed that the bolivar will now be worth 4.3 per USD, down from 2.15. Since the devaluation will immediately make imports twice as expensive, the government has established a separate exchange rate -- 2.6 per USD, for imports of food, medicine and other "essential goods" (I'm sure iPods and plasma TV's for government officials count as essential).

The result? Immediate chaos. People rushed to spend their money this past weekend, fearful that their purchasing power for imported goods will plummet (it will). The black market rate for the bolivar (what you'll actually get on the street) plummeted to 6.25 bolivar per USD. The government estimates devaluation will add a further 5 points to inflation (likely a gross underestimate). Imports will become very expensive and the domestic economy will suffer as people and companies grapple with the meaning of the dual-tiered devaluation and spiraling inflation.

For the government, these risks are outweighed by the benefit of immediately having more bolivars to spend for every barrel of oil sold. Those bolivars go into government programs to help win elections. The slowdown of imports also acts as a kind of trade barrier to protect and stimulate local manufacturing. And many banks, which hold US dollars, will benefit too. Time will tell if this is a shrewd move to maintain power, or the desperate move of a madman pushing his country further into economic oblivion.

Devaluation Sparks Chaos in Caracas - WSJ.com