The dollar declined against most major currencies yesterday, losing ground as equity markets shifted to the black.

In economic news, it appears investors were encouraged by details of a government program designed to help as many as 9 million borrowers stay in their homes through refinanced mortgages or loans that are modified to lower monthly payments, as stocks broke a five-day losing streak.

“Virtually everyone was expecting some sort of a bounce, we just didn’t know exactly when that would occur,” said Randy Frederick, director of trading and derivatives at Charles Schwab. “You can’t go down forever.”

That’s a pretty stupid way to look at things in our view. Nothing has changed in the real world and this bounce is based not on fundamentals but lunacy.

Also reported on Wednesday (and not surprisingly) the U.S. labor market worsened in February, as private sector firms cut 697,000 jobs last month, according to the ADP employment index.

Another report from Challenger Gray & Christmas showed layoff plans rose 158% compared with a year earlier.

The reports come two days before the Labor Department reports its estimate for nonfarm payrolls. Economists are looking for the worst job loss in nearly 60 years.

This drop in the ADP index was the largest ever, dating back to 2001. Furthermore, January’s loss was revised sharply lower to 614,000 from 522,000 reported a month ago.

“The recession has spread aggressively to small-size businesses,” said Joel Prakken, chairman of Macroeconomics Advisers, the economic consulting firm that computes the ADP index from anonymous payroll data provided by ADP. Small businesses (those with less than 50 employees) cut 262,000 jobs in February.

FYI: Macroeconomic Advisers computes the index using anonymous payroll data collected by ADP. Automatic Data Processing Inc. (NASDAQ:ADP) provides payroll and human-resources services to about one in every six U.S. workers, serving more than 500,000 companies.

Source: Dollar Sinks Against The Euro

Amazon remains the proverbial 800-pound gorilla in the online retailing space. And business is both healthy and growing. But the company is counting on a whole new series of technology-based ventures that will provide the real fuel that will put this stock into orbit. Let’s take a closer look.

Just last Thursday, in yet another positive “surprise” that Wall Street missed predicting, Amazon annihilated analysts’ earnings estimates by announcing a big jump in fourth-quarter profits and told investors even better days are ahead.

Fourth-Quarter Fireworks

In a financial-crisis environment in which there is supposedly no financing available, in which massive job cuts and huge job worries are causing consumers to cut way back on their spending, in which all retailers – even vaunted discounter Wal-Mart Stores Inc. (NYSE: WMT) – face huge challenges, Amazon actually increased its sales and profits.

In fact, Amazon’s fourth-quarter net income rose a hefty 9%. And not only did its per-share earnings of 52 cents blast through the Wall Street consensus of 39 cents by a full 33%, the company actually boosted its first-quarter outlook, stating that it expected sales to be stronger than analysts were predicting.

For the fourth quarter, Amazon’s sales advanced 18%, beating analysts’ expectations by about 4%. Sales actually would have grown by 24%, were it not for the strengthening of the U.S. dollar.

International sales were even stronger, and now account for a full 45% of Amazon’s overall sales.  One notable category was electronics and general merchandize advanced 31%, and that category now accounts for 43% of worldwide sales.

One particularly noteworthy achievement was in the area of gross margins, which suffered almost no damage – in spite of a U.S. recession that’s forcing most retailers to discount heavily. Amazon’s gross margins barely budged, dropping from a fairly remarkable 20.6% to a still-enviable 20.1%.

Remember, this outlook and performance is taking place in a market environment where there’s very little “visibility” – meaning company executives have almost no ability to predict what the market will look like next month, let alone in the next quarter or for next year. That’s forced a lot of companies to discount heavily, and is a key reason that a large number of firms have stopped issuing “forward guidance.”

But not Amazon: It continues to provide guidance – and then to exceed those expectations.

How is the company making this happen? These results point to strong market-share gains for Amazon and to new lines of business being introduced, which are powering the stock higher.  But, before we go deeper into Amazon, let’s consider the economic backdrop, in order to fully appreciate magnitude of Amazon’s accomplishments.

Anatomy of a Meltdown

In my 25-year investment career, I have seen countrywide market meltdowns like the one we’re struggling through perhaps every two or three years.  The hallmark of these crises has been an implosion of the banking system, which has then brought the entire economy down, as well.

In an effort to provide some context – and perhaps some reassurance to U.S. investors – let me say that I’ve seen much worse than what we are seeing in the United States right now. For instance, there are actually cases where all of a country’s banking deposits are either frozen (Argentina 2002) or lost outright (Russia 1998).

In each of those cases, there were two constants:

• From a business standpoint, the strong got stronger as their weaker rivals foundered and failed, allowing them to pick up market share and sometimes to even buy those smaller or weaker rivals.
• From a stock-market-valuation standpoint, however, the strong were initially equally punished in terms of their market valuations as the broader equity markets blew up, meaning their valuations didn’t reflect the much-brighter outlooks for them as stronger market leaders. However, when the market outlook brightened, those stronger firms saw their valuations surge with a vengeance and soar to new heights.

The lesson from each of those crises – from Brazil and Argentina, to more than 10 countries in Asia and in Russia – was that every single country made it back.
This was even true for those countries shackled with inferior policy mixes.  Some might say that Japan – with its “lost decade” – never came back.  This would be an imprecise statement, since Japan’s gross domestic product (GDP) growth was above 2.0% for the two years prior to the crisis and unemployment for the last five years has been between 3.45 % and 4.5%
But what is true is that while even countries with inferior policy mixes eventually made it back, it took a lot longer for that to happen. The speed of their comebacks can be traced to the degree in which the policies implemented made them:

• Open-market oriented, especially with regards to foreign capital.
• A lower-taxation environment.
• Strongly fiscally disciplined – for the long term – because the governing body addressed such serious structural economic problems as imbalances in both the social security and health-care systems.
• Less constricted by regulation.
• More transparent, in both the private and public sectors, especially in cases where the public sector overhauls led to a more democratic governing process.
• More-consensus oriented, particularly when that consensus included support for all the changes I’ve listed here.

While we are not seeing an unequivocal embrace of these tried-and-true recipes by the newly installed Barack Obama administration, mainly because of a bias toward big government, we are seeing an open-minded attitude and some movement in this direction.  And we will have to monitor this closely, because history shows us repeatedly that there are no half measures when it comes to successful economic and financial reform – and because market investors know this and will therefore be watching closely.

Forewarned is Forearmed …and Other Axioms to Live By

This background is important, for we now know that we can expect to see some once-in-a-generation buying opportunities in companies that can navigate this slowdown and position themselves for a massive subsequent rebound.

We also have to remember that his rebound won’t be immediate. But when it does come, that rebound will be huge for the companies that have used this time to buttress their already-leading market position. They’ve capitalized on consolidations in their respective industries or market sectors, and have certainly grabbed market share away from their rivals. The maximum gains will be realized only if financial prudence prevails in the public sector.

Is that happening here in the U.S. market?

Well, we’re about to pass a huge stimulus – perhaps as much as $1 trillion or more, when all is said and done.

There’s an old axiom about government stimulus packages: When money is spent, the economy grows. The key, however, is at what cost and who pays for it. So the short-term “steroids” effect of the stimulus has to be measured against the long-term weight its costs will exert of future growth.  But, ahead of that steroids injection, investors need to invest in the beneficiaries.
A much-repeated market axiom states that  “no one buys at the bottom, and no one sells at the top.” Much like no one was – or will be – ringing a warning bell at the market bottom, no one was ringing a bell at the top a year and half ago.  And nobody will be letting you know which of these companies will be thriving and which will be vanishing – because the investors who understand all this are very busy accumulating them for themselves right now.

So it is no surprise that Wall Street missed by a mile on iconic companies that are thriving, including International Business Machines Corp. (NYSE: IBM), Apple Inc. (Nasdaq: AAPL), United States Steel (NYSE: X), PMC-Sierra Inc. (Nasdaq: PMCS), Level 3 Communications Inc. (Nasdaq: LVLT), 3M Corp. (NYSE: MMM), Colgate-Palmolive Co. (NYSE: CL), Automatic Data Processing Inc. (NYSE: ADP), United Parcel Service Inc. (NYSE: UPS), Merck & Co. Inc. (NYSE: MRK), and many others.  And Wall Street always seems to miss to the downside in its estimates in these superb companies.

In the same way, Wall Street missed it with Amazon.  You see, Amazon survived the dot-com bubble because, unlike most of the start-ups, Amazon actually had a strong-and-viable business model.  In addition, starting with founder and chairman, Jeffrey P. Bezos, and continuing down through the rest of the organization, Amazon has in place a superb management team that has continued to carefully refine and build upon the company’s original vision, and has continued to execute almost flawlessly.

It’s not just the great value, convenience and solid customer service that contribute to Amazon’s results – it’s also innovation.

Those “Killer Apps” – “Cloud Computing” and the Kindle

Amazon first revolutionized the bookstore business. Then it revolutionized overall retailing. Now it’s aiming at the book-publishing business with its super-lightweight electronic reading device – called the Kindle. The Kindle allows you to buy and download books in less than a minute – from almost anywhere – without the need to connect to a computer or any device. Lots of books are available.

This is all possible because you are using the fastest wireless standard and the service is included in the price of the book you downloaded. And Kindle can hold some 200 books, newspapers and blogs and has free wireless access to Wikipedia.  The newspapers and blogs are downloaded automatically and updated instantaneously.  Kindle recharges in less than two hours and you can also email your own Word documents and pictures.

With all these features, I am seriously considering buying one. Here’s why:

• It will eliminate the need to walk down my long driveway to grab my copy of The Wall Street Journal every morning.
• It will be much easier to read than in my PC.
• All my downloads will stored in Amazon’s servers, just in case I lose or damage my Kindle.
• And it will save me countless trips to the library to pick up books for myself, and for my avid-reader daughters.

However, I’m going to wait until after Monday (Feb. 9), because Amazon has invited the news media to an event it has planned for the Morgan Library & Museum in New York City. The scuttlebutt is that Amazon could be announcing the “Kindle 2.0.”

By saving trees (reducing the need for paper) and eliminating the costs for printing, storage and delivery, publishers can reduce their costs considerably and pass part of those savings on to the consumer.  Therefore, the typical book will cost you $10 or less.  And you can even get some steals, like all sixteen novels by Charles Dickens in a single file, with an active table of contents – all for only 99 cents!

It’s incredible.  No wonder Kindle is expanding sales and margins for Amazon.

But Amazon’s “miracle” performance is not due just to the Kindle.  Amazon has jumped in on the fast-growing trend of “cloud computing.”  Now that the Internet has become ultra-fast, and is getting even faster – thanks to such hyper-fast, high-speed fiber-optic networks as the Verizon Communications Inc. (NYSE: VZ) FiOS broadband system – the balance has shifted towards centralized computing.

What this means is that with a relatively cheap computer and fast Internet access, one can perform most of the computational activities in the servers of somebody else.  So, somebody else will host the applications, store the data and perform the computation – for a fee, as it is accessed via the Internet.

Therefore, the need to maintain the storage and back it up, to keep your systems up to date and even to help prevent viruses is essentially transferred to the supplier of the service. This is especially important for individual users and small- and medium-businesses, which look to minimize all these costs.  But it is also very useful for some large enterprises in services where Amazon’s scale and expertise can deliver superior cost-savings and reliability.

Amazon aims to be a major player in this realm. Indeed, some analysts believe this could one day be the “real” Amazon business, with books and other retail goods serving only to bring folks in the door.

Amazon already provides storage, virtual private servers, elastic cloud computing, which gives developers a resizable capacity, content delivery and a number of other functions through its fast-growing cloud-computing activities.

This cloud-computing trend has also been embraced by Google Inc. (Nasdaq: GOOG), though Google Apps, and Yahoo! Inc. (Nasdaq: YHOO), which has forced Microsoft Corp. (Nasdaq: MSFT), which is built on the premise of distributed computing, to hedge by planning to offer a cloud computing operating system.  The new operating system will enable net books (barebones notebooks), PDAs and other smartphones to take full advantage of sophisticated computing capabilities and massive storage located in the “cloud.”

Clearly, cloud computing will be an explosive business, especially in Amazon’s focus areas of storage, content distributions and scalable computational capacity.

So, with book sales, electronics and its international efforts already strong and accelerating, and the probability of a Kindle 2.0 announcement now imminent, we need to jump on Amazon, while planning to keep the stock for several years.

Rocking With Retailing

Is this consistent with a sound investment strategy for retailing stocks in the current weak-economy market environment?

I recently saw a noted short-seller, who runs a very successful hedge fund (and you have to be good to be still alive), who indicated that for the first time in a long time, he saw opportunities to make money both on the long and on the short side.  This is encouraging, since for the year and a half prior to last November, the opportunities on the long side have been overwhelmed by the financial meltdown and massive de-leveraging.

In addition, this hedge fund manager was asking a renowned investor in retail stocks what opportunities he saw for shorting these stocks.  The reply: You have to be very careful – even in retailers, which were experiencing big problems – because, in his opinion, valuations had fallen way too much.

I agree with both assessments. At this point, there are good opportunities to buy, and in retail you want to go with the winners.

For all the reasons we’ve detailed to you, Amazon is that “winner,” the strong company with a rock-solid business model that delivers value to customers, that innovates, that has a clear focus on expansion, and that is producing results even in one of the worst economic periods since the Great Depression.

Recommendation:  Buy Amazon.com Inc. (Nasdaq: AMZN) before Monday’s product announcement and ahead of the rollouts of the stimulus packages planned by both the United States and China (**).

Source: Buy, Sell or Hold: Amazon Stock is Positioned as a Long-Term Winner

Today is the day the Gov’t prints the December Jobs Jamboree, and if Wednesday’s ADP report did what they said it was going to, and that is change their methodology to mirror the BLS (Bureau of Labor Statistics) then this morning’s Jobs Jamboree will be a nightmare. Of course not the kind of nightmare that the over 2.5 million people that lost jobs in 2008 had! I was once in those numbers, as our old Bank, Mark Twain Bank, was bought by a bigger bank, Mercantile Bank, and Mercantile decided after a few months to perform ethnic cleansing of Mark Twain employees… I called it “my retirement” but with a 3 year old at home and on my lap most of the day, “retirement” couldn’t last too long! My point is that you don’t know the emptiness and failure you feel when they show you the door… So my thoughts are always with those that lose their jobs…

OK, back to the Jobs Jamboree… Earlier in the week the “experts” were forecasting a -500K in job losses… But as the week has gone on, that forecast has inched up to -515K and then -523K… It’s like the BLS is setting us up for a BIG number, but wants the media to carry on their charade of reporting the jobs numbers by saying they came in “just above the forecast” (as if the forecast wasn’t bad!)

The other thing to think about prior to the print is the shenanigans the BLS plays with the jobs numbers… I’ll tell you this… Given what we know about the state of the economy, should the Jobs Jamboree print lower than the -525K that’s now forecast, then you will know in your heart of hearts that the BLS “cooked the books”… That’s all I’ll say about that…

The Weekly Initial Jobless Claims came in under 500K for the second week in a row… I would put this down to the Holidays… I fully expect this to catch up next week! UGH!

So… The currencies yesterday rallied hard, sold off, rallied hard again, sold off, and this went on for the bulk of the day. As I signed off yesterday, the Bank of England (BOE) cut rates 50 BPS, and sent the pound sterling higher… I know, I know, that shouldn’t be, but it is, and the mental giants that are running these trading desks, reward countries that debase their currencies!

But in the end… The euro was higher on the day, along with yen, and Swiss francs… The high yielders took one to the chin, as risk takers have gone back under the covers to get warm, as the chill in the air got to them!

I had more than a few people send me a story that appeared in the NYT that played well with my screaming from the rooftops about the Budget Deficit announcement from the day before… Here is a snippet, of the story that can be read in its entirety here.

“In the last five years, China has spent as much as one-seventh of its entire economic output buying foreign debt, mostly American. In September, it surpassed Japan as the largest overseas holder of Treasuries.

But now Beijing is seeking to pay for its own $600 billion stimulus — just as tax revenue is falling sharply as the Chinese economy slows. Regulators have ordered banks to lend more money to small and medium-size enterprises, many of which are struggling with lower exports, and to local governments to build new roads and other projects.

All the key drivers of China’s Treasury purchases are disappearing — there’s a waning appetite for dollars and a waning appetite for Treasuries, and that complicates the outlook for interest rates, said Ben Simpfendorfer, an economist in the Hong Kong office of the Royal Bank of Scotland.”

OK… Back to me… So… If, what President-Elect Obama said regarding “expecting Trillion dollar Budget Deficits for several years” is to come to fruition, then what pray-tell will we do with all the Treasuries we issue to pay for the debt?

Uh-oh! Spaghetti-o’s! The Gov’t will have to ratchet the yield on these bonds up so high to attract investors… OR… Allow a general debasing of the dollar to allow those purchases of Treasuries to be made at a discounted clearing price. I’ve said this all along folks… Over and over again and over again until I’m blue in the face… Or was I holding my breath again? Both! I hold my breath in hopes that it is all a nightmare!

I have to tell you all, especially new readers that haven’t heard me screaming from the rooftops about the direction of this country, to socialism, that this is all getting completely out of hand! The Fed is well down the path to controlling the markets, taking the term “free markets” away for good… And do we expect anyone to stop them? Not unless it’s us… We The People…

Ty Keough sent me a note yesterday from James Quinn on investmentrarities.com… “As the politicians scurry to “save” capitalism through the use of communist measures, more Americans are becoming disheartened. The definition of communism according to Webster’s is:

A system in which goods are owned in common and are available to all as needed.

George Bush, Henry Paulson and Ben Bernanke have decided to seize money from the vast majority of Americans who lived within their means, utilized debt sparingly, and worked hard to get ahead, and give it to the most appalling failures in our society. They have shoveled billions to banks that operated their businesses like gambling parlors. They have shoveled hundreds of millions to people who bought houses with no money down, interest only mortgages and fraudulent loan applications. They are now rewarding automakers who made the wrong vehicles, pay 30,000 workers per year to not work, and have only been able to “sell” cars by giving them away with 0% financing to any schmuck who could sign on the dotted line. These acts fit the definition of communism. We are now more communist than China.”

I spent a long time with a Wall Street Journal reported yesterday… The reporter, who has interviewed me before, going back to 2002, was interested in my take on Gold as an inflation hedge… I know there are people out there that will dispute this, but if you go back to where Gold was issued when Nixon closed the Gold window in 1971 ($34), and not from it’s previous high in 1981, you can see it not only is an inflation hedge but a store of wealth, and as people that own dollars look at the loss in purchasing power of their dollars, and look at the store of wealth Gold has held… It makes abundant sense to have Gold… I wonder if this will get printed in the WSJ….

And Savers… I’m a saver, are you a saver? Yes, I spend money, just like a lot of people, but I also save… And that’s what ticks me off these days! The Fed has lowered rates to 0%, so there’s no incentive to save if you only look at yield… But, if you look at the fact that saving has to start somewhere, then maybe the Gov’t will get the hint / clue, and stop overspending! But doesn’t it tick you off that the Fed has lowered rates to 0% and have basically told you, the saver, to go out and seek risk to offset that loss of yield? They don’t want us to save, people… So… You know me! SAVE, SAVE, SAVE! And then SAVE some more!

And that… Leads me to a book, that a reader sent me, that he wrote! The title of the book is: Debt is Slavery… And 9 Other Things I Wish My Dad Had Taught Me About Money… The author is Michael Mihalik… I think most people don’t believe they have a debt problem… But… If this financial meltdown continues at its current pace, I think they’ve got a rude awakening coming. Just like the U.S. and their debt problem… It’s relatively the same ordeal…

So… The Bank of England (BOE) did cut rates 50 BPS yesterday, which puts their total of the last three rate cuts at 300 BPS… And what did the pound sterling do? It rallied! These are strange times, my dear reader friends… But in my humble opinion, I would view this rally as an opportunity to look to sell at these higher levels, because my view on the pound is not good… The U.K. has the same problems as here in the U.S. (not the deficit problems, but they could get there in heartbeat should they continue to bail out institutions) just on a smaller scale… And in the end, that will be enough to push pound sterling down… My long time friend, Joe Losos, asked me if he could write a piece for the next monthly newsletter to clients of EverBank World Markets. Of course I said yes… And he came back with a piece on the prospects for the pound… So look for that in the monthly Review & Focus at a newsstand near you, sometime in the future!

The Japanese yen is back on the rally tracks, as the risk takers have gone AWOL… Yen is back to below 91, trading with a 90 handle, and looking perky… Should the Jobs report in the U.S. today be rotten, yen should have a field day VS the dollar. Now there’s something to look for!

The Brokerage House that owns a Bull, issued a report that said, “Dollar would slide if U.S. loses more than 700,000 jobs”… They really went far out on the limb with that one, eh? HAHAHAHAHAHAHA! No, I’m not taking a shot at our friends there, just pointing out that even the Big Boys right now, don’t have a strong conviction on the direction of the markets right now… So, they tip-toe through the tulips…

Canada will also print their employment data this morning… About 1/2 hour before the Jobs Jamboree. I also didn’t like hearing what the Canadian Finance Minister had to say yesterday about Canada seeing a “substantial deficit later this year”… The Finance Minister, Flaherty will present his budget on April 1… Let’s hope he’s setting us up for an April Fool’s Day joke! Unfortunately, I don’t think these Gov’t people have a sense of humor, so I think it’s safe to rule that thought out right here, right now!

I’ll finish this up with a brief snippet from a report by one of my fave writers, William Pesek of Bloomberg… Mr. Pesek’s complete piece can be found here: http://www.bloomberg.com/apps/news?pid 601039&refer columnist_pesek&sid aHOuXTmCv61Y

Here’s William Pesek… “Beijing bookstores would be wise to stock up on Johann Wolfgang von Goethe. His work will help Chinese officials understand the “Faustian bargain” in which they are engaged with the U.S.

The reference here is to a compromise of principles for fleeting gains. In literature, Goethe’s Faust is a mythic German alchemist who made a deal with the devil. And that, in a nutshell, is where China, the biggest foreign holder of U.S. debt, finds itself as America re-inflates its economy.

Treasury Secretary Henry Paulson isn’t the devil, yet on his watch the U.S. has morphed into a huge debt-issuing machine. The Congressional Budget Office says the U.S. deficit will more than double this year to at least $1.18 trillion, the biggest since World War II.

Barack Obama has even bigger plans. The CBO’s estimates don’t include the cost of the president-elect’s stimulus package, which will probably add at least $750 billion to the total over the next two years. Last year’s shortfall totaled $455 billion. The U.S. needs China’s money more than ever.

“I spent most of the first two quarters of 2008 marveling at the pace of Chinese reserve accumulation,” Council on Foreign Relations economist Brad Setser in New York wrote on his Web log this week. “I expect to spend the first few quarters of 2009 marveling at the size of the U.S. fiscal deficit.”

Currencies today 1/9/09: A$ .7065, kiwi .5920, C$ .8435, euro 1.3710, sterling 1.5260, Swiss .9150, rand 9.69, krone 6.9350, SEK 7.8350, forint 201.70, zloty 2.9575, koruna 19.3150, yen 90.75, Sing 1.4790, HKD 7.7570, INR 48.25, China 6.8355, pesos 13.76, BRL 2.2980, dollar index 81.65, Oil $41, Silver $11.18, and Gold… $853.50

So… Hold on today… The Jobs Jamboree could be earth shattering as far as the markets are concerned.

Source: A Jobs Jamboree Friday

The CBO announced yesterday that they are forecasting a $1.2 Trillion Budget Deficit for 2009! Uh-oh! This is scary folks, and there’s plenty more where that came from! This “forecast” doesn’t even consider the stimulus package that the President-elect is about to put into place once he’s sworn in… And it doesn’t consider the auto bail out, and it doesn’t consider any of the next sectors that haven’t come to Washington with their hats and cups out asking for their bailout!

And here’s the thing that scares me even more… Obama said Tuesday he anticipates “trillion-dollar deficits for years to come.” Some one slap me! Am I having a nightmare? I thought President was the answer to all these deficits… OK, I’m not going to get into a discussion about all that, what I’m really scared of is the fact that it will be “business as usual” on the deficits, and by the end of the 4 years we’ll be looking at a National Debt of around $14 Trillion!

I received some notes from the Big Boss, Frank Trotter, last night regarding this announcement, and any time I get notes from Frank, they get front page billing in the Pfennig… So, let’s see what Frank thought about this announcement by the CBO yesterday… “I must have been on phone calls when the announcement came today about the projection for a $1.2 Trillion deficit for the government fiscal year 2009. That’s for things on the books right now. That’s before the rest of TARP is distributed. That’s before any stimulus program is enacted by the new congress or the new administration. If I had seen it come up I would have run through the office yelling for everyone to take cover. And I thought that a deficit of 5% of GDP was earth shattering – now the debt-dollars are going up and GDP is going down. Yikes.”

Frank went on to say that he heard a commentator say, “in today’s environment there are still a lot of people and institutions that think they need a bailout and there will be more to come. I was reminded of the trend to award trophies to everyone on the team – after all everyone contributed equally and should share equally right? Kurt Vonnegut’s Harrison Bergeron come to life. Here’s a reminder to the new administration now caught between the proverbial rock and a populous hard place – tax fairness is not leaving a debt disaster to the following generations.”

Folks… Don’t let this just pass you by, you need to do react to this, no, there’s nothing you can do about the deficit, except write your congressman or woman, and tell them to stop spending or you’ll gather up your friends with their rakes and pitchforks and come to Washington D.C.! But, think about this… It may not happen this year, and maybe not next year, and it could happen next month, but when it comes down to the cheese that binds, the debt issuance in this country is going to be off the charts! And too much of one thing is not a good thing, right? And when everyone runs to the exit door at the same time, somebody’s going to get hurt… Make sure that’s not you!

One thing that will get hurt no matter what when this mass exit takes place is the dollar, as people sell their treasuries and move to higher yielding assets abroad, the dollar will get sold too. So… As one of my all time fave music groups, Gypsy, used to sing… This is a warning… You better beware…

OK… Not that I want to cut this discussion short, but there is something else knocking on the door for front page notice, and that’s the ADP jobs report that printed yesterday… Up until this repot printed, the stock jockeys were feeling pretty cocky, and the risk takers were back in the drivers seat, as evidenced by the Aussie dollar rising to .7270! But then this ADP report printed and caused the DOW to sell off all it’s 2009 gains, and that reeled in the risk takers and this morning, the Aussie dollar is barely holding on to 70-cents!

I bet by now you’d like for me to tell you what the ADP report showed, eh? Well, good things come to those who wait, and for your patience you will now be rewarded with the results of the ADP jobs report! HA! According to ADP, private payrolls collapsed during December by 693K, far exceeding the expectations for a very poor report (-495K forecast). This report is NOT the Jobs Jamboree by the Bureau of Labor Statistics (BLS), that report prints tomorrow… But this report supposedly changed their methodology to mirror the BLS… So, if that’s true, we’re in for trouble tomorrow morning!

Roughly 2.5 million jobs were lost in 2008… Most likely the worst year for jobs since 1945…

We’ll have to wait-n-see tomorrow, but this isn’t a good indication of what to expect, eh?

So… The currencies rallied at first yesterday when the CBO made their announcement about the Budget Deficit, but then gave up their gains when the ADP Report caused the risk takers to take their bat and ball and go home, leaving the currencies to back off. Of course, in an opposite action of most currencies, the Japanese yen rallied yesterday and last night. Nothing new here, either the risk takers are in the market, causing yen to weaken, or they are not in the market causing yen to gain… Very simple…

This morning, the Eurozone is receiving some weak data and that’s putting some pressure on the euro… German Factory Orders took the Nestea plunge in November… You know, I’m always amazed at how the markets react to such old news / data… Oh well, things in Germany aren’t bright and sassy as they were a year ago, but that doesn’t mean the euro falters… For new readers… I’ve explained this many times in the past, but here we go again… You see… The euro is the offset currency to the dollar… In 2002 and 2003, things were pretty dark in Germany and the rest of the Eurozone, but that didn’t stop the euro from gaining 18 and 20% respectively those years… Why? Because things in the U.S. were worse, the Current Account Deficit was rising to eventually reach 6% of GDP, and so on… So people sold the dollar, and by way of the euro being the offset to the dollar it went up!

Well… I was driving down the wrong road the other day when I said that the European Central Bank (ECB) would meet this week… They don’t meet until next week… Those holidays still have me confused on schedules! The Bank of England (BOE) DOES meet today, so I wasn’t going down the wrong road there. The BOE cut rates 100 BPS a month ago bringing their internal rate to 2% I expect the BOE to cut rates at least another 75 BPS, and they could be like Bullwinkle and have another 100 BPS rate cut surprise up their sleeve!

If the mentality in the markets to reward currency debasers remains in place, then the pound sterling should look to rally on any large rate cut news… But, these are all short term moves by the pound… Be careful there…

The “great year” Brazilian reals were having in 2009, got placed in the rear view mirror yesterday… The risk takers went away, and took their profits in real with them! This currency has become quite volatile in recent months, which wasn’t the case for the last couple of years. Before that, yes, reals were volatile, but had seemed as though they had “matured”, “grown up” and left those wild days of volatile swings behind… Apparently not! One final soirée’? Let’s hope so… I really like what’s going on in Brazil, and would like to see this currency be stable…

Before I head to the Big Finish I have to point out that Oil is on the rise again… I’m sure all the fighting in Gaza is causing this, well, no wait, our friends (NOT!) at OPEC are cutting production. So add these together and the price of Oil is back to $43 this morning… That’s all we need (NOT!) here in the U.S. given our current economic condition, is rising gas prices…

Currencies today 1/8/09: A$ .7025, kiwi .5880, C$ .8315, euro 1.3565, sterling 1.5050, Swiss .9075, rand 9.60, krone 6.9950, SEK 7.90, forint 199.45, zloty 2.9680, koruna 19.32, yen 91.60, sing 1.4825, HKD 7.7540, INR 48.40, China 6.8345, pesos 13.48, BRL 2.26, dollar index 82.39, Oil $43.15, Silver $10.95, and Gold… $839.80

Source: Trillion Dollar Deficits For Years To Come

This from Money Morning:

There is no doubt that the global economic environment presents a very bleak outlook.  The National Bureau of Economic Research (NBER) last week announced that the U.S. economy has been in a recession since last December – a situation that appears to be getting worse, given that the economy lost half a million jobs lost half a million jobs in November. Interestingly, the market traded up both those announcements.

On Nov. 24, Hewlett-Packard Co. (NYSE:HPQ) reported a quarterly profit of $1.03 a share, exceeding analysts’ estimates of $1.01 a share.  Hewlett-Packard almost doubled its revenue from technology services from last year because of its acquisition of Electronic Data Systems Corp. earlier this year, and a 21% increase in quarterly sales of notebook computers and a 10% rise in personal computer sales.

You read that right: Hewlett-Packard recorded a big jump in three key business areas – during a recession.

These impressive results are due to Hewlett-Packard outperforming its peers with superior products and exemplary execution. What’s more, Hewlett-Packard has been an early adopter of some of the fastest chips for servers – the “Shanghai” chip by Advanced Micro Devices Inc. (NYSE:AMD), which just leapfrogged the offerings of arch-rival Intel Corp. (NASDAQ:INTC) in terms of both speed and market share.

In its core printer and server business units, Hewlett-Packard actually experienced a slight contraction in businesses.

The key to Hewlett-Packard’s better-than-expected results is the large proportion of recurring services and supplies, which are much less vulnerable to a contraction in economic activities.  You need to keep your systems running with the up-to-date software and maintenance services and you need to keep buying ink for your printers.  This recurrent income smoothes out earnings and is a blessing for companies like Hewlett-Packard, International Business Machines Corp. (NYSE:IBM), Automatic Data Processing (NASDAQ:ADP) and others, which benefit greatly from such sustainable income streams.

In this light, Hewlett-Packard’s management not only blew away its earnings estimates, but also came out with a much stronger-than-expected guidance.  Well, the market was overbought that day and the stock sold off the next day.  The word dropped by some was that the analyst community did not believe Hewlett-Packard’s rosy outlook.  But the reality is that the market had anticipated Hewlett-Packard’s strong results and bid up Hewlett-Packard’s stock ahead of the announcement.

So far so good, but what about the future?  Mark V. Hurd, Hewlett-Packard’s president, expects to be able to cut $1 billion in expenses in 2009 from redundancies from the EDS acquisition that he will be eliminating.  And Hurd has shown a strong track record in this sense since he took the helm in 2005.

So the question is how much faster Hurd can cut costs to compensate for the reduction in economic activity, in case things keep getting worse as they very likely will in the first quarter of 2009.  But there is some hope that the incoming Barack Obama Administration will add to the aggressive monetary and fiscal stimulus already approved and only partially implemented by the current administration.  In any case its positive effects are only starting to be seen.

And the other question is how much downside has the market already discounted in Hewlett-Packard’s shares, which are down 38% from their 52-week high of $52.90. Well, with a trailing Price/Earnings (P/E) ratio of only 10.0 and a P/E to Growth Rate (PEG) ratio of 0.7 for this very resilient profit stream in a company characterized for flawless execution, Hewlett-Packard is a steal.  This can also be said for most of the market, which is in panic state, taking refuge in government bonds yielding almost zero.

This last phenomenon has been referred to by Mohamed El Arian, co-Chief Executive Officer of PIMCO as a U.S. Treasury bubble. And in times of panic, it is a good idea to buy.  So I will unequivocally recommend buying HPQ in increments.  I would buy one-fifth of my position on weak days prior to year end – accumulating half our position – leaving the last half for purchase in the first quarter of 2009.

ACTION TO TAKE: BUY Hewlett-Packard Co. (NYSE: HPQ), but do so with some care. Purchase two-thirds of your position between now and year-end, and the final third during the first quarter of the New Year.

Source: Buy, Sell or Hold: Hewlett-Packard is Ready for Takeoff

This from Money Morning:

U.S. consumers are already losing their jobs at an accelerating rate.

The same thing is now set to happen to their credit lines.

But with so many Americans already losing their main source of income – their jobs – at an ever-spiraling rate, will an economy that derives two-thirds of its power from consumer spending end up mired in its worst funk in decades because those same consumers are now losing their charge accounts?

Before you dismiss the possibility, consider this: The U.S. economy weakened across all regions since the middle of October as it became tougher to get loans and demand for credit shrank, the U.S. Federal Reserve said in its regional economic survey report yesterday (Wednesday). The so-called “Beige Book” report – published just two weeks before central bank policymakers are to meet and consider interest-rate changes – said that retail sales, tourism spending and manufacturing declined in most places, labeled housing markets as “weak” and concluded that the commercial real estate sector “weakened broadly,” Bloomberg News reported.

“We are looking at an economy that is not only in a recession, but a recession that is deepening rapidly,” former Fed Governor Lyle Gramley, now senior economic adviser at Stanford Group Co.,
told Bloomberg Television. “It certainly is a gloomy report, but not, I guess, worse than what you would expect given the data [we’ve seen] coming in.”

The United States has already been in a recession for a year, the National Bureau of Economic Research (NBER) reported this week. This economic one-two punch could generate a much-bigger financial crisis “aftershock” than many experts realize. Only two of the last 10 recessions to take place since the Great Depression have lasted a full year. But this one could last well into 2010.

$2 Trillion in Credit Lines on the Chopping Block

More than $2 trillion in consumer credit could be cut in the next 18 months, as credit-card companies pull back credit lines in anticipation of credit funding problems and regulatory changes, said Meredith Whitney, an Oppenheimer Holdings Inc. (OPY) banking analyst who’s well-known for her gutsy and prescient (and ultimately correct) market calls.

Throughout the week, Whitney has warned that the entire mortgage market will contract for the first time ever in the months ahead. More importantly, however, Whitney says the credit card market will be 18 months behind, as credit-card companies pull back more than $2 trillion in credit lines, taking away consumers’ second major source of liquidity, following jobs.

“What you haven’t seen yet digested by the market is banks pulling lines from consumers,” Whitney said in an interview with CNBC. “And across the board you saw the big banks that command so much of the market share of key products like mortgages and credit cards start to pull lines in the third quarter and that’s going to continue in the fourth quarter. And that’s going to continue into 2009.”

Although some experts note that consumers reduce their spending during recessionary periods — and, needless to say, after they lose their jobs — it’s important to not confuse spending and credit. During dire times, many consumers can boost their use of credit even as they cut overall spending, using the credit cards, home-equity lines and other forms of borrowing as a lifeline to tide them over. For those consumers, a credit line cut can be disastrous personally, and can aggregate into an even-steeper downturn in spending.

Roughly 70% of U.S. households have access to credit cards, and 90% of those people use those credit cards as a cash-flow management vehicle, or revolve payments at least once a year, Whitney says.

A surprisingly small number of national companies dominate the major lending arteries – including credit lines, mortgages and credit cards – that have sustained the U.S. consumer for so long, including mortgages and credit cards. Mortgages have already hit a wall with the collapse of the U.S. housing market and wave of subprime defaults. But credit cards could be next as companies raise interest rates, tighten lending standards, cut credit lines, and even close millions of accounts in an effort to insulate themselves from consumer defaults.

Bank of America Corp. (NYSE:BAC), Citigroup Inc. (NYSE:C), and JPMorgan Chase & Co. (NYSE:JPM) – which controlled more than half of U.S. credit-card lines at the end of the third quarter – have all discussed reducing their credit-card exposure or scaling back growth, according to Whitney.

“You’re going to start to see the consumer get really strained on their credit card lines,” said Whitney. “People think the next shoe to drop is the credit card credit costs – the charges going up. No, it’s the credit card lines being pulled by bank lenders in anticipation of worsening credit funding problems, and then regulatory changes on the horizon.”

Whitney expects the credit-card market to begin to shrink by mid-2010, a time when the unemployment rate could be as high as 9.0%.

“Just when the consumer is losing their job that’s their first source of cash, their first source of liquidity, then they lose their second big source of liquidity, which is their credit card line,” she said.

Indeed, as unemployment rises, so too will credit-card delinquencies. David W. Nelms, chief executive of Discover Financial Services (DFS), told Reuters that card write-offs could be in the mid-5% range in the fourth quarter and near 6% in the first quarter of 2009.

Delinquencies “will tend to track with unemployment,” Nelms told Reuters after a speech to the Executives Club of Chicago. “Most agree that things will tend to get worse next year.”

Lenders, still reeling from losses tied to subprime mortgages, can’t afford another round of defaults on credit cards. So they’ve begun pulling lines of credit, leaving the consumer out in the cold. And it’s only going to get worse, Whitney says.

Crisis Expert Sees Change in Consumer Psychology

Investment expert R. Shah Gilani – a retired hedge fund manager who’s been chronicling the credit crisis as a Money Morning contributing editor – isn’t surprised by Whitney’s predictions.

“This is already happening in a big way,” Gilani said referring to Whitney’s assertion that credit lines have been put in jeopardy. “I have already talked to people who have had their credit lines reduced, even cut in half. So I wouldn’t be surprised if $2 trillion turns out to be an accurate figure.”

And according to Gilani, the evaporation of $2 trillion in credit could be the death knell for the American consumer.

“A number that high makes you gasp, just considering the quantitative effect on consumer spending,” Gilani said. “There’s a strong chance that the American consumer is not just down on the canvas, but has been knocked out of the ring.”

American consumers cut spending by 1% in October, the biggest drop since the last recession in 2001, the government said last week.

U.S. retail sales plunged 2.8% in October – the largest monthly drop since the Commerce Department began tallying monthly retail sales in 1992. The sales drop marked the fourth consecutive monthly decline and the first retrenchment since 1992. And few have any hope left for the Christmas season as consumer confidence is also waning. The Reuters/University of Michigan consumer sentiment index clocked in an ultra-low 55.3 for November, down from 57.6 the month before.

The reading fell well short of the projected 57.7, Reuters said, and – even worse – had deteriorated since the middle of the month, even though lower gasoline prices were seen as a bright spot for consumers. The University of Michigan confidence index dates back to 1952. Its record low was 51.7, which it hit in May 1980.

Once again, jobs, liquidity and confidence were the key issues, the survey report said.

“Consumer confidence fell in the last half of November due to mounting job losses, falling incomes and the evaporation of household wealth,” the report said. “Consumers were unanimous in their recognition that the economy was in recession, and nearly three-in-four expected the recession to deepen in the months ahead.”

However, Gilani, who is also editor of the Trigger Event Strategist – a trading service specifically designed to help investors maneuver through this economic malaise – also believes that what investors are witnessing is yet another “aftershock” of the ongoing global financial crisis.

“What is actually taking place is a shift in consumer psychology that has been driven by factors such as the socioeconomic climate – as well as the environment – and that’s now being compounded by credit conditions,” Gilani said. “This is about banks and credit companies de-leveraging and forcing the American consumer to do the same.”

The trouble is, he said, this can become a cycle that’s hard to stop once it takes hold.

“Whether Americans have lost confidence in the market or simply can’t afford to repay loans, money flows have simply dried up” Gilani said. “So banks have been forced to raise their lending standards to a point that many Americans are now unable to meet. It becomes a vicious cycle.”

PS. This is an excerpt from the latest installment in Money Morning series on the “financial aftershocks” of this crisis.

Source: Will the Loss of Consumer Credit Serve as the Next Economic Aftershock to Further Fuel the Financial Crisis?

Xinhua, China’s state-run news agency, said yesterday that the stimulus package represents “a shift long advocated by analysts of the Chinese economy and by some within the government. It comes amid indications that economic growth, exports and various industries are slowing.”

The decision was announced yesterday by the State Council after Premier Wen Jiabao presided over an executive meeting Wednesday. China reported in late October that its economy grew at a less-than-expected rate of 9% in the third quarter – the fifth straight quarter than growth has slowed, MarketWatch.com reported.

“As the global outlook deteriorates, we expect Chinese macro policy to turn increasingly aggressive,” Merrill Lynch & Co. Inc. (MER) economists T.J. Bond and Ting Lu wrote in a research report Friday. “This is a key theme for China and indeed, the entire Asian region.”

China becomes the latest major country to announce a stimulus package. Governments have been injecting billions of dollars into their economies, as central banks around the world slash interest rates, all in the hope of avoiding a whopper global recession. Just last week, researchers at the International Monetary Fund (IMF) said that world growth would slow to a tepid 2.2% next year, down from the 3.7% growth estimated for this year. The IMF forecast for China slashed the growth rate down to 8.5% next year, down from an earlier projection of 9.3%.

Reports are circulating that the U.S. government may be considering another infusion of its own. The urgency could escalate this week after retailers take center stage and announce their third-quarter earnings. Macy’s Inc. (M), Nordstrom’s Inc. (JWN), Abercrombie & Fitch Co. (ANF) and Wal-Mart Stores Inc. (WMT) all are expected to announce quarterly results.

The retail sales data for October will be released on Friday, though the recent weak sales numbers and earnings announcements should have provided more than fair foreshadowing of the actual monthly results.

Given that consumer spending accounts for 70% of the U.S. economy’s health, don’t anticipate great numbers. And don’t assume these are the worst we’ll see.

Market Matters

With traders predicting a victory by Democrat Barack Obama, the major markets jumped by more than 3% on election day and the Dow Jones Industrial Average closed at a four-week high. International stocks also climbed in anticipation of real “change” coming to the White House.

The euphoria was short-lived, however, as the economic realities returned “the morning after.”  Domestic indexes plunged 10% over the next two sessions in volatile trading.  Cisco Systems Inc. (CSCO), Time Warner Inc. (TWX), and News Corp. (NWS) became the latest companies to disappoint on quarterly earnings.  Likewise, General Motors Corp. (GM) and Ford Motor Co. (F) announced larger than expected losses and dismal sales results for October as execs presented a dire picture of the entire industry.  Circuit City Stores Inc. (CC) started closing stores; Goldman Sachs Group (GS) began handing out pink slips; JP Morgan Chase & Co. (JPM) announced plans to modify mortgage loans for delinquent borrowers.

Weak economic releases (see below) prompted oil prices to plummet again on enhanced recession concerns; the price of gasoline pushed below $2.40 per gallon – reaching its lowest level since early 2007.  For now, inflation does not appear to be a problem.  As for the President-elect, no one ever said it would be easy.  (Then again, optimists note, many of the same fears we face now were present back in 1992 when a relatively unknown Democratic president was elected and his party also controlled Congress. The Dow soared more than 200% during the President Bill Clinton years, the strongest performance in the post-World War II era. We also ended with a budget surplus – but that, at least, may be too much to ask for).

Weekly Market Data

Economic Matters

A hectic week on the economic calendar unfortunately brought little for investors (and the President-elect) to cheer about. The manufacturing sector appears to be in far worse shape than previously thought as the ISM index plunged to its lowest level in 26 years.  Two days later, that same Institute for Supply Management reported that the services sector was weakening, as well. Retailers remained very apprehensive about the holidays and the poorest October sales results since 1969 did nothing to relieve those fears.  JC Penney Co. Inc. (JCP) and Nordstrom’s reduced their earnings projections and only discounter Wal-Mart seemed to benefit from the uncertain times.

As for the highly anticipated unemployment releases, we found that during the month of October, the country shed another 240,000 jobs, its tenth straight month of labor contraction, bringing the year-to-date total losses to 1.2 million. Even worse, the losses appear to be accelerating.

Last month’s unemployment rate skyrocketed to 6.5% (from 6.1% in September) and now stands at its highest level since March 1994. Additionally, recruiting firm Challenger Gray & Christmas reported soaring layoffs (+79%) over the past 12-months, and payroll provider Automated Data Processing (ADP) revealed that the private sector suffered its largest monthly job contraction since December 2001. The dismal labor picture all but confirms a second consecutive quarter of negative growth (GDP), which translates into full-fledged recession. When individuals worry about their jobs, they don’t spend. Retailers suffer, manufacturers suffer, and the overall economy suffers.

We’re already seeing all of this – and there’s more to come.

Overseas, the world’s Central Banks followed in the Federal Reserves’ footsteps by dropping their key lending rates in attempts to jumpstart their respective economies. As Money Morning reported, the ECB (European Central Bank) cut its key interest rate by half a percentage point to 3.25%, while the Bank of England took surprising action by reducing its rate by one-and-a-half percentage points to take it down to 3.0% – an attempt at countering the impact of its rapidly falling housing prices and the ongoing credit crisis.

Weekly Economic Calendar

Source: China Stimulus, Troublesome Retail Earnings Point to Escalating Global Economic Woes

• Automatic Data Processing’s (ADP) National Employment Report, released yesterday (Wednesday) indicated that 40,000 U.S. private-sector jobs were added in May. “ADP hasn’t been a good forecaster of the job report lately. But if it’s right then the economy is stronger than we thought,” David Wyss, an economist with Standard & Poor’s told Forbes. “So far, this isn’t much of a recession.”

• MetLife Inc. (MET) announced it plans to purchase a home-mortgage business from First Horizon National Corp. (FHN) The deal includes the home loan unit of First Horizon’s Tennessee Bank National Association, with 230 offices in the U.S., the New York-based life insurance firm announced yesterday (Wednesday) in a statement, Bloomberg News reported.

• UAL Corp.’s (UAUA) United Airlines will ground 70 planes and cut 1,100 jobs in an ongoing effort to cut costs due in large part to skyrocketing jet fuel costs. This is the second round of cutbacks in two months for the nation’s second-largest air carrier as the price of jet fuel has increased 76% in the past year, adding $3 billion to United’s fuel expenses, Bloomberg News reported.

• The J.M. Smucker Co. (SJM) will acquire Folgers, from Procter & Gamble Co. (PG) for stock in a deal valued at $2.95 billion, the companies said yesterday (Wednesday). The deal will give P&G shareholders a 53.5% stake in Smucker, and Smucker will issue a one-time dividend of $5 per share to its shareholders prior to the deal, The Associated Press reported.

• The Institute for Supply Management said yesterday (Wednesday) that its service sector index was 51.7 in May, stronger than expected, but still a drop from April’s reading of 52. A reading above 50 indicates the sector, which comprises roughly 80 percent of the total economy, is growing, while a reading below 50 indicates contraction.

• Emerson Electric Co. (EMR) abandoned its pursuit of Chloride Group PLC, Europe’s largest maker of backup power supplies, after the company rejected a $1.36 billion takeover proposal. Emerson was hoping the deal would beef up its Network Power division, which produces equipment to protect hospitals, banks and airports from power failures, The Associated Press reported.

• Chain restaurant operator Bob Evans Farms Inc. (BOBE) posted strong fiscal fourth-quarter results yesterday (Wednesday), a sign one analyst says means isn’t economic health, but rather, a reallocation of value-minded assets. “We think there are an increasing number of value-conscious customers moving from bar-and-grill restaurants to Bob Evans,” analyst Stephen Anderson of MKM Partners told Reuters. The company reported fourth-quarter net income of $16.1 million, or 52 cents a share, on revenue of $436.4 million.

• Billionaire investor and vocal Yahoo Inc. (YHOO) critic Carl Icahn said in a letter to the board that he will move to replace Chief Executive Officer Jerry Yang and pursue a takeover by Microsoft Corp. (MSFT), Bloomberg reported. “It will be extremely difficult for Microsoft or other companies to trust, work with and negotiate with a company that would go to these lengths,” Icahn wrote, referring to Yang’s refusal of Microsoft’s $33-a-share offer.

Source: Global Investing Roundups Thursday, June 05, 2008