Good day… And a Tub Thumpin’ Thursday to you! Day One at the Orlando World Money Show (WMS) went well. My room for the presentation was packed! It was standing room only, and the good part was the fact that there were only about 30 Pfennig readers in the crowd. I say that not because I have something against Pfennig readers, oh Lord, they are dear readers! The reason I say that is I like to know how many of the non-readers I can convert to Pfennig readers!

Well… As you know, when I’m on the road like this, I’m not sitting in the saddle back home, and watching the markets all day long, and reading stories about what’s happening, etc. So, the “road Pfennigs” tend to be a bit shorter. But as my friend, and once editor of our monthly newsletter, David Galland, used to tell me… “you’ve got to get it out every day, no matter what!”

So… From what I can tell this morning, the currencies traded in a very tight range after the sell-off from the previous night that I told you about yesterday. Japanese yen is a bit weaker, from yesterday morning’s currency round-up, but other than that small move in yen, the levels look like they are wearing the same clothes as yesterday!

Today we have the Central Banks of England and the Eurozone meeting to discuss rates. As I said earlier in the week, I truly believe the Bank of England (BOE) to cut rates aggressively once more to bring their internal rate to 1/2% or 50 BPS, just like here in the U.S. The forecast is for the BOE to cut to 1%… But I’ll go out on that limb and say they’ll be even more aggressive. Here’s the thing that just gets my goat though… The more aggressive the BOE is in cutting rates, the better pound sterling will trade. Now this should be the opposite, as a rate cut is a true debasing of one’s currency. But the mental giants in today’s trading world don’t see it that way. They see it as a plus for the economy and so for the currency.

I could really go off on a tangent now about how trading desks are run by Ivy leaguers that got that job right out of grad school and don’t carry the same “valuation tools” as old timers… And quite frankly could very well be one of the reasons we’re in this mess today… But I won’t go there, as that’s too touchy of a subject!

The European Central Bank (ECB) will also meet today, but ECB President, Trichet, has pounded it into everyone’s heads that the ECB will NOT cut rates today, and to look to the March 5th ECB meeting as the next “chance” for a rate cut.

Here’s another example of not carrying the same “valuation tools”… The ECB is being prudent and waiting to see the results of previous rate cuts, so as to not “over cut” and get in trouble with spiraling inflation, etc. Why debase the currency when you don’t have to? But…. NOOOOOOO! The mental giants these days are punishing the euro because they believe the ECB is now “behind the curve” with regard to rate cuts. See how crazy this has all become? Crazy… I’m crazy for thinking about you… I’m Crazy… Crazy for feeling so blue… Ahhh, the soothing voice of Patsy Cline… Now, I can get back to writing without carrying on about “valuation tools”… Or as the kids say nowadays those guys are “tools”… HAHAHAHAHAHAHAHAHAHA!

Yesterday, I told you about the surprise Pending Home Sales report, and how maybe it’s a sign of better times, but I needed to be shown more before I would commit to saying that it’s a true sign. Well, my friend, Bill Bonner, author, and Daily Reckoning fame (www.dailyreckoning.com) had this to say yesterday about this very subject…

“Our guess is that the little light investors thought they saw will turn out to be another torpedo blowing up. Millions of homeowners and stock market investors have gone down already…but there are many still afloat.
And many torpedoes that still haven’t found their marks.

In Japan, for example, property prices began falling in 1991. They fell for the next 13 years…reaching a low in 2004 equal to where they had been in 1973!

If that pattern plays out in the United States, the housing market won’t hit bottom until 2020…when you’ll be able to sell your house for what you paid for it in 1989.”

Our old Fed Chairman, who is highly regarded for his inflation fighting in the early 80’s, Paul Volcker, spoke last night and he’s none too happy with the delay in starting the economic advisory group that the new President, Obama, set up. Obama picked Volcker, but Volcker isn’t seeing any moving forward with this advisory panel. Volcker wants to help, and I believe we need his voice, but no one wants to “include” him… Hmmmm… I wonder what’s going on there… Does the new administration believe they don’t need Volcker’s voice? I sure hope that’s not true!

In another sign that the German economy has fallen into a recession, German Factory Orders for December fell -6.9% bringing the annual number to a staggering decline of -25%, according to the report I saw this morning… This is just another reason why the euro no longer trades at 1.60…

I saw a report this morning regarding India and the rupee… I don’t talk about India very often, because not much in the way of market moving news comes out of India… But, this report is talking about black clouds hovering over India, so I thought I had better fill you in… An advisor to the Prime Minister said last night that the 2009 Budget “may” reach 7.5% of GDP! The forecast is for 2.5% of GDP. If this is true, the writer believes that the rupee could sell off from today’s level of 48 and change to 52… If that all holds true, then holders of rupees will be thankful for the above market interest rates to cushion that blow… But again, this is all based on a “may” and could turn out to be a boy crying wolf!

I’ll end today’s letter with a “feel good story”… Gold rallied to $915 yesterday… Gold traders say that they believe Government spending will spur inflation, the dollar will weaken, and gold will take off on the strength of its inflation fighting make up.

Goldman Sachs Group, Inc. (which probably has so many research people you can’t count them with stick) said that they believe Gold will reach $1,000 within three months. And a commodity analyst at Dresdner Bank said this, “expectations of future inflation and dollar depreciation are driving the market right now.”

I told the crowd at my presentation yesterday that Gold IS an excellent inflation fighter… And not to listen to those that preach otherwise, as they use the high of the 80’s at $800 and say Gold hasn’t done a very good job of fighting inflation since then! But! Not so fast Tim! I say you have to go back to when President Nixon closed the Gold window, and took the dollar off the gold standard. Gold was trading then at $35 an ounce… Now follow Gold’s price through the years to the present at $915… Now… That’s what I call an inflation hedge!

And finally on Gold… Kristin sent me this note that she came across… “Short term, said Tom Pawlicki, of MF Global in Chicago, “Investment has been a key supporting factor for gold,” and thus “Passage of the stimulus package in its current form would likely be inflationary and bullish for gold while a Senate filibuster would be bearish.”

On to the Big Finish! Wait! There’s been a nice move up in the currencies since I got up this morning! WOW! Alrighty then, let’s go to the currency round-up!

Currencies today 2/5/09: A$ .6485, kiwi .5130, C$ .8125, euro 1.2875, sterling 1.4515, Swiss .8615, rand 9.9765, krone 6.83, SEK 8.2625, forint 230.32, zloty 3.62, koruna 21.98, yen 89.70, sing 1.5050, HKD 7.7540, INR 48.77, China 6.8367, pesos 14.44, BRL 2.3075, dollar index 85.60, Oil $40.44, Silver $12.71, and Gold… $915.80

Source: Gold As An Inflation Fighter!

As part of its stimulus plan, the government eased inflation controls and raised the overseas investment limit to $15 billion from $6 billion. India’s federal government also green-lighted state-level initiatives to raise an additional $6.18 billion (300 billion rupees) in the year to March 31 for infrastructure projects such as roads, schools and hospitals.

The government will also offer $4.12 billion (200 billion) rupees to state-run banks and $5.15 billion (250 billion rupees) to non-bank finance companies to raise capital, The Wall Street Journal reported.

To make this possible, India lowered the cash reserve ratio – the proportion of deposits banks are required to set aside as cash – by a half percentage point to 5%, effective Jan. 17.

“It is expected that the reduction in the policy interest rates and the CRR [cash reserve ratio] will further enable banks to provide credit for productive purposes at appropriate interest rates,” the Reserve Bank said in a statement.

Though India isn’t likely to sink into recession, the global financial crisis has no doubt blunted that country’s growth prospects – as its currency, stock market, consumer demand and production have all taken sharp losses in 2008.

“There’s still scope for rate cuts as the economic picture is quite bleak,” K. Ramanathan, who manages the equivalent of $2.2 billion in Indian debt at ING Investment Management in Mumbai, told Bloomberg. “The policy response to the unfolding economic slowdown is quite satisfying.”

Anticipation of the news of the rate cut and stimulus sent India’s benchmark Sensex 30 Index to a two-week high. The country’s benchmark 10-year bond yield dropped to 5.10%, down from 5.39% the day before.

The Sensex fell 52% in 2008, its biggest drop since data became available in 1980, and possibly its largest drop ever.

In the quarter ended Sept. 30, India’s economy grew at a 7.6% pace, better than expected but also its slowest pace in almost four years. The World Economic Forum (WEF) and Confederation of Indian Industry predict India will grow at a rate of 7.4% to 7.8% in the 2008-2009 fiscal year.

A recession is “not going to happen,” said Karim Rahemtulla, a Money Morning guest columnist Karim Rahemtulla who observed firsthand India’s prospects last year when he led an investor’s field trip around the country.

But Rahemtulla was just as quick to credit the Reserve Bank of India for taking action as the global financial crisis spread across the world.

“They have explicitly stated they will aggressively promote fiscal and monetary stimulus to promote growth,” Rahemtulla said.

India’s current fiscal year ends March 31, 2009. This is the fourth time since October the government has lowered its primary interest rate.

“The fundamentals of our economy continue to be strong,” the Reserve Bank said. “Once the crisis is behind us, and calm and confidence are restored in the global markets, economic activity in India would recover sharply. But a period of painful adjustment is inevitable.”

India Starts 2009 With More Rate Cuts and Stimuli

Eight bombs are set off in Jaipur in a terrorist attack that reminds us of the dangers we face every day. “There is no reason to panic”, a senior city official is quoted as saying, “everything is under control”.

Oil was USD 26 a barrel when the US vowed to go into Iraq and secure oil supplies. It is now trading at USD 126 a barrel.

And while the price of oil is soaring, the Indian government continues to fool around with what the price of oil should be to the end consumers.

And how much of the “oil subsidy burden” must be shared between the government, the oil producing companies, the oil refinery companies, and the oil marketing companies.

And they change the formula when they want – for any reason. So now the focus is on changing the name of Bombay to Mumbai – everywhere. Bombay Stock Exchange will be Mumbai Stock Exchange. Bombay Dyeing will be Mumbai Dyeing.

Meanwhile the local trains will still kill some 3,500 people every year. The total number of deaths due to terrorist attacks all over India is estimated at 2,500 every year. A normal 9-bogey train is supposed to carry 1,700 people but – at peak times – there are 4,500 people at any time. But how to make Bombay a better place to live does not occupy that much time for our leaders. A name change must be the correct answer.

Presidential candidate Obama may end up being the candidate for the Democratic Party but he cannot win the votes from people who are white, not educated, and earn less than USD 30,000 a year. That sounds like a lot of people. This mass of people has said that, if Obama is the candidate, they will vote for the other side – the Republicans. Meanwhile, Presidential candidate Clinton cannot win votes from the blacks in America and from those who are educated. The “melting pot” that was America is at risk: it looks more like a “thali” now. Rich food is served in silver bowls and the other food in plastic cups.

On Tuesday, May 13th the Indian stock markets opened strong but, by the end of the day, they closed in negative territory. On Wednesday, May 14th it was the reverse – the markets opened weak and closed strong. We don’t know what it will do tomorrow. Or next week. Or next month.

In fact, we don’t know what the “news” will highlight tomorrow. All that we read is actually “olds”, not news. The actions of the past have set in motion a series of events that will crop up at random times but with predictable results.

When India drifted towards Asia millions of years ago, an earthquake in China was a guarantee. The timing was uncertain.

When a government steals land from the poor to give it to the rich, naxalites are born. When a government uses religion to win votes and determine policy, terrorists are born. Yesterday’s citizens are today’s terrorists – disenfranchised from the mainstream. Creating earthquakes they hurt innocent bystanders in a shameful way.

When India fumbled on what to do when oil prices rose from USD 26 to USD 50, it was a given that it would fumble even more when oil is at USD 126.

When the US became a country of the rich, for the rich, and by the rich the split votes of the elite v/s the blue collar were a given.

When India opened the doors to foreign punters under the P Note policy, it invited earthquakes, terrorist attacks, and plain stupidity to play a part in funding the country’s long term economic development. Every day about USD 2 billion worth of shares are bought and sold by FIIs. At the end of the day the net flow into India is sometimes plus USD 40 million, or sometimes negative USD 40 million, at an average.

So these P Note folks trade USD 2 billion and then end up buying or selling, on a net basis, about 2% of that total.

So 98% of their trades are “noise”. They make the brokers rich for sure, but what do they do to India’s long term standing in the global capital markets?

India is a joke amongst the long term investors. India has taken a massive “tenure” risk: we have taken capital from short term folks to fund our long term plans. And everyone is carrying on with policy making in complete bliss. But somewhere in this mess, somewhere in this drift, we need to find our anchors.

We need to look for answers that make sense. Changing the name of the Bombay Stock Exchange to Mumbai Casino or the National Stock Exchange to Bharat Casino may be a good start.

At least then we will know who we really are and then try to work out what we want to become.

Source: Adrift