OK, front and center this morning, yesterday I printed a quote from Karl Marx. This had been sent to me from a source that I didn’t feel as though I needed to research first. Unfortunately, as MANY of you let me know… The quote had some major errors in it. So… I apologize… I hope I didn’t burn any confidence in me with that error… I’ll do much more due diligence in the future!

The euro saw a huge sell off yesterday, and it wasn’t a case of “lets buy the dollar and sell the euro” it was a case of “lets sell the euro”… I think the latter is the worse… Here are the reasons I saw that caused this selling of the euro, and further down the line with the other currencies as well.

1. Soros says euro may not survive crisis without global plan…
2. There’s a potential for a ‘buy American’ rider in the stimulus package sparking debate on the impact on global trade
3. There was a rumor going around that the four largest pension funds in Netherlands saw their assets drop by euro 72 Billion due to the credit crisis, all are allegedly under funded.
4. The Risk Takers are hiding under rocks again…

This is the Obama bounce I’ve been talking about folks… Stocks may still be taking it on the chin, but the dollar part of the bounce is front and center!

How many people follow Glenn Beck? As you know, last summer, I wrote an article for his website on the dollar, and the loss of purchasing power. He had heard about me, when reading Craig Karmin’s Biography of the dollar, which has a chapter on me! Well… I believe that Glenn has taken my stuff and run with it… Last night, he did a great job of showing everyone the money supply that has gone off the charts since last September. He got the data from the St. Louis Federal Reserve, so it’s not like he made the stuff up! I love what he’s calling our money supply and debt situation… “An Inconvenient Deficit” Obviously, it’s a spin-off of Al Gore’s movie…

The deficit and money supply is really getting out of hand folks… I know, I’ll have a few readers send me notes telling me that the money supply stuff is wrong… But, I’ll stick with the data from the St. Louis Fed…

This un-dynamic duo of deficit and money supply, only has one ending folks… And it ends up in tears for the dollar…

But in the meantime, the dollar bulls have the dollar moving higher once again, with the euro trading all the way down to trade with a 1.28 handle.

Well… In the data yesterday, the Weekly Initial Jobless Claims, which were forecast to be below 500K, repeated the previous week’s high of 585K, with an increase to 588K! UGH! I’ve never figured out why these figures don’t feed into the monthly Jobs Jamboree numbers… You would think that you take the weekly figures by 4, and voila! But, that’s not how it works, boys and girls… The Bureau of Labor Statistics (BLS) gets to put their hands in the cookie jar and act like they know what they’re doing!

In other data, New Home Sales fell 14.7% in December to 331,000. Now, that might not sound too bad on the outside…(apparently it wasn’t to the media, for they “forgot” to include this part when reporting the data yesterday) But, when you figure in the fact that the latest 15% plunge to 331K now takes New Home Sales to the lowest since the series began in 1963, breaking below the previous low of 338K in 1981. Add to that the fact that… Sales are down 75% from its peak in mid-2005. And to finish this data set off… Something that leads me to believe we have more suffering in housing to go… The month’s supply of homes reached a new record high of 12.9 months (the 20-year average is 5.7). Can you say… inventories remain too high?

And finally, durable-goods orders decreased by 2.6% in December… UGH! The economy just continues to show more rot on the vine… Even more than most economists had forecast, for sure… There was one economist that was the front runner to all this mess, forecasting it, and being cast as a doom and gloom guy. But now receiving vindication… That’s Nouriel Roubini, who’s in Davos Switzerland this week at the World Economic Forum… That’s where the great quotes from Jamie Dimon came from yesterday… Let’s see if Nouriel Roubini threw us a bone or two…

Roubini said yesterday, that “the worse lies ahead. Banks face bigger credit losses than they realize, more financial companies will require state takeovers and the world economy will keep shrinking throughout 2009, he says. The consensus is catching up with me, but it’s still behind,” Roubini said in an interview in Davos. I don’t know what some people are smoking.”

We’ll get some inkling of the depths the economy has fallen to this morning, when 4th QTR GDP prints… The forecast is for a negative -5.5% to print… And when we see the “makeup” of the growth, and see that without the Gov’t spending it would have been much worse… Somebody had better think twice about suggesting this recession will be “V” shaped…

Oh… And my friends over at Critical Factors research, (they track recessions, and confirmed my call last year at this time that we had moved into a recession) sent me a note about the Leading Indicators data that printed the other day. You may recall that I was surprised to see the Leading Indicators rise? Well, looks like there’s an explanation for that… And to that explanation I turn to my friends at Critical Factors…

“Yes, The Conference Board reported that the Leading Economic Indicators increased 0.3 percent, but note this quote from their press release: “The LEI rose modestly in December, mainly due to the continued and very large positive contribution from real money supply.”

>>>> yes, there’s that “money supply” thing again!

In Germany this morning, inflation bumped higher last month to 1.1%, but still below the European Central Bank’s (ECB) ceiling target of 2%… With Oil prices being pulled up from the ashes, I’m sure the ECB ministers are watching it closely. One thing to remember when thinking of the ECB, and the euro… The ECB has a MANDATE from the Maastricht Treaty, the document that formed the European Union, to provide price stability… That means they are inflation fighters in earnest… Not just guys that decide to become one when it becomes fashionable… Read Fed Reserve…

OK… I want to go back to the Soros statement above that ripped the euro yesterday… Don’t you just love the media? They report this, when Soros probably was dissing the dollar for an hour and casually mentioned that without a global plan the euro is in trouble… Of course he could have said any currency for that matter! I think you have to take what a George Soros says with trepidation… He’s a sly fox, and only says things to move markets that he’s trading in… He’s made millions with this practice… So… For all we know, he could have been short euros, and needed the price to get lower to cover the short! Nah… He wouldn’t do something like that would he? Hmmmm… Check out 1992, and the British pound…

Hey! Jimmy Mack! When are you coming back? Did you see the move in Gold yesterday? It soared $21 on the day… And in the overnight markets it has gained another $13, to $922! I was listening to our metals traders, Jen and Kristin, the other day, and they were quoting prices for minted coins that were so far above spot, I had to stop and ask what was going on…

They proceeded to tell me in so many words, that it wasn’t any of my business and to go back to the currencies! HAHAHAHAHAHAHA! No, not those two sweet ladies! They told me that the demand for coins is still at last fall’s highs, and that the dealers, and minters are charging outrageous fabrication fees… That thought was confirmed by HSBC, (Hong Kong Shanghai Banking Corp), one of the biggest metals dealers in the world… A trader friend of mine there sent me this note…

“One of HSBC’s bullion customers is a large coin manufacturer – we learned today that the demand for investment coins continues at an astonishing pace – the order book for Q109 has already surpassed C2008. The main order flow is European.”

So… There you have it! Gold is hot!

I had a reader send me a note yesterday telling me to be more professional, and compared me to Jim Cramer! ARRRRRGGGGGHHHHH! The horror! The humanity of it! Not Jim Cramer! The reader didn’t say how long they’ve been reading, and maybe yesterday’s rant was their first go at the Pfennig… I’ve got to hope so! I did get a little carried away yesterday, didn’t I? Well… That’s just me. I can’t sit idly by and watch this all unfolding before my eyes and not say something… Oh well… That’s the beauty of this newsletter, A Pfennig For Your Thoughts, It’s FREE! You can always just delete your subscription! But… You’ll be sorry…. HAHAHAHAHAHAHA!

Currencies today 1/30/09 (Christine’s birthday): A$ .64, kiwi .51, C$ .8125, euro 1.2860, sterling 1.43, Swiss .8655, rand 10.14, krone 6.9280, SEK 8.2525, forint 232, zloty 3.4750, koruna 21.72, yen 89.60, sing 1.5075, HKD 7.7555, INR 48.87, China 6.8615, pesos 14.43, BRL 2.30, dollar index 85.82, Oil $41.88, Silver $12.55, and Gold… $921.85

Source: The Dollar Comes Back!

Hey! What a day for the currencies yesterday! Geez Louise, it’s seems like it’s been a month of Sundays since I could say that! And there’s been follow up overnight, although, I do believe I’m seeing some profit taking right now… I went to radiation yesterday with the euro trading around 1.2965… I came back 2 hours later, and it was 1.31! And it didn’t stop there, trading up to 1.3175, but running into a wall of resistance there… But that was temporary, as the overnight market pushed the single unit higher to 1.3250… It did trade all the way up to 1.33 and change on news that the German Business Confidence, as measured by the think tank IFO, unexpectedly rose for the first time in 8 months. This improvement was a result of the European Central Bank (ECB) cutting interest rates…

Of course, you know me… And I always say that one swallow doesn’t make a summer… And that can be used here, as this IFO report is just one sliver of hope for the German economy… There needs to be more, or this will report will be put in the rear view mirror soon. So, I’m not pinning my colors to the mast of a German economic recovery, just yet! But, the data did “goose” the euro higher, and for taking part in that, I give the IFO kudos!

The Big Winner of the day though, was pound sterling… In a case of an asset “falling too far, too fast”… The pound sterling has done a Super Ball Bounce from Friday’s price, and has rebounded to 1.4190… Of course, that’s a rally from Friday’s figure of 1.3570… It certainly STILL shows the rot on the vine in the U.K. from last summer’s 2.00 for pound sterling. I would be very careful here, as the U.K. is in the same boat, smaller in size, but the same boat as the U.S….

I had a great lunch yesterday with the Big Boss, Frank Trotter, and we were discussing what we would talk about next week at the Orlando Money Show. I told Frank that I really believe in the prospects of a nice big rally in Norwegian krone… Let me tell you why… First and foremost, it remains a Surplus country… A positive balance of payments… And that surplus has allowed Norway to weather the storm that’s hit just about every other country in the world… See, why I believe the Surplus countries should always be considered when buying currencies? Anyway… The main reason it lost ground from last July’s levels is the drop in Oil prices… They like the other types of Commodity driven currencies like Aussie, Canada, Brazil, New Zealand, South Africa, just got hammered due to the selling in Commodities… But… You know my outlook for the inflation in this country, and that will be driving Commodity prices higher by year-end… But the leader in the forefront of all this move will, in my opinion, be Oil prices… And IF Oil prices rebound like I suspect they will, that will be a very nice underpin for Norwegian krone…

And Gold traded above $900 yesterday… It has seen some profit taking overnight, and fallen back to $896… But, again, these are stair steps to higher levels for the shiny metal… But then that’s just my opinion. You have to make your own investment decision…

OK, the data yesterday was not good, Yes, the Existing Home Sales moved higher, but only at the expense of a falling Home Price… The median home price was $175,400 in December, down 15.3% from $207,000 in December 2007, the National Association of Realtors said Monday. The median price in November this year was $180,300. Here’s the real indication that this rise in sales wasn’t at good levels… Of all sales in December, about 45% were distress sales at discounted prices. That’s foreclosures and auctions on foreclosed homes folks… I don’t think we want to get up on the fence and crow about this report…

And then, after all my harping about how the markets should pay closer attention to Leading Indicators data, the report for December showed an unexpected gain of .3%… Again, the one swallow doesn’t make a summer, applies here too… I’m from Missouri, and I’ll need to be shown more of this to believe it…

Today, we get the color of the S&P/CaseShiller Home Price Index, which will repeat what yesterday’s Realtors report showed… Expect more rot on the vine here though, with home prices showing an -18% drop…

And we’ll see Consumer Confidence, which I suspect will bump higher in December, although in reality I don’t know why… But it most likely will, based on the stock market’s head fake rally in December…

I see that “the cheater” a.k.a. Tim Geithner was confirmed as our U.S. Treasury Sec. I really didn’t think I would ever have another punching bag Treasury Sec. like I had with King Henry Paulson, but, then along came “the cheater”… I have to tell you that this is scary stuff folks… In his confirmation he said, not once, but twice, that “President Obama, backed by the conclusions of a broad range of economists, believes that China is manipulating its currency. President Obama has pledged as President to use aggressively all the diplomatic avenues open to him to seek change in China’s currency practices.”

OK folks, this is where the problems begin… If in his confirmation, he’s making statements like that, you can expect that Obama will push for legislature to put tariffs on Chinese goods… Protectionism… This is ALL GOING IN THE WRONG DIRECTION!!!!!!! And believe me now and hear me later… “the cheater” didn’t just make up this response! This was given to him by Obama, and “the cheater” made certain that everyone hear him, by repeating the answer!

I’ve told you before, folks, that Protectionism is to a currency, like kryptonite is to Superman… So… Not only is the Gov’t on the path to spending even more than the previous administration spent, they look as though they will go down this protectionism path… Add to that, the recession and zero interest rates, and you’ve got the ingredients for a huge swat at the dollar…

I read a report by Stephen Jen of Morgan Stanley, where he writes that he believes the euro will trade back to 1.20 in the coming months… Well, that may be, and would play well with my Obama bounce thing… But with this all happening so fast in the past couple of days, I might have to rethink that Obama bounce thing… We may get an Obama bounce, but it may be for the euro and other currencies!

Oh… And one more thing on China, before I go on… The IMF’s Managing Director, Strauss-Kahn, was talking yesterday, and said, “I have said repeatedly that the renminbi is undervalued” He went on to add, “What we need is for the Chinese to change their policy and shift to more domestic-led growth than to focus on exports. Most Chinese officials are convinced that this is in their own interest.”

So… The IMF believes the renminbi is undervalued, and that the Chinese should do something about it, and so does the Obama administration… And you say, “Trade wars”? I bet you can! And not a good time for them either! Not when the whole globe is suffering… Dolts, all of them, they can’t see the Big Picture… Shame, Shame, Shame!

OK… I could really get going on all that… But… I’ll shift gears and talk about the bailouts… Have you seen the Neil Young, you know THE Neil Young, video on YouTube? He’s singing about the bailouts… Here are the lyrics…

There’s a bailout coming but it’s not for me
It’s for all those creeps watching tickers on TV
There’s a bailout coming but it’s not for me
There’s a bailout coming but it’s not for you
It’s for all those creeps hiding what they do
There’s a bailout coming but it’s not for you
Bailout coming but it’s not for you

So… When guys like Neil Young know that these bailouts aren’t working, and they aren’t good… It should be very apparent to the likes of Pelosi, and Obama…

Oh… And Home Depot announced 7,000 layoffs yesterday, Sprint announced 8,000 layoffs, while Caterpillar announced 20,000…

I’ll get to the Big Finish here in a minute… But first, and finally I wanted to talk briefly about New Zealand… The Reserve Bank of New Zealand (RBNZ) meets this week, and I truly expect them to continue their interest rate cutting. 325 BPS have already been cut from their once highest interest rate in the industrialized world… Finance Minister Bill English was speaking last night and said that the “economic outlook had deteriorated since the government’s Dec forecasts, and that the economy now looked to be closer to the Treasury’s “worst case scenario”.” In that scenario, he suggested that recession would continue through to 2010, the current account deficit would balloon beyond 10% of GDP, and unemployment would rise sharply rising. These aren’t “good times” for kiwis… So… Look for the weakness in the kiwi-dollar to remain in place here…

Currencies today 1/27/09: A$ .6625, kiwi .5280, C$ .8160, euro 1.3250, sterling 1.41, Swiss .8790, rand krone 6.7325, SEK 7.9660, forint 215.90, zloty 3.2950, koruna 21, yen 89, sing 1.4990, HKD 7.7690, INR 48.93, China 6.8615, pesos 14.05, BRL 2.3120, dollar index 84.36, Oil $46.27, Silver $12, and Gold… $897.40

Source: ‘The Cheater’ Speaks

Front and Center this morning, I have two quotes from people I truly respect… first from Jimmy Rogers… second from Stephen Roach…

“If I were you, I would be worried about the U.S. dollar,” said Rogers, 66, in a speech at the Asia Financial Forum in Hong Kong today. “The Americans are printing U.S. dollars. The Americans are going to do whatever they can to revive their economy, even if it means destroying the U.S. dollar.”

And at the same Asian Forum… ” Stephen Roach, chairman of Morgan Stanley Asia Ltd., recommended investors buy “anything to do with the Asian consumer, infrastructure, alternative energy and technology.”

Now… these are people that “know better” and not ones that keep telling you that everything will be OK, if we just all come together, right now, over me… No wait, I mean if we all just come together, and forget about deficits, forget about 2.6 million unemployed in 2008, and another 2 million expected in 2009, forget about the fact that the Gov’t that our forefathers created over 200 years ago didn’t want the Gov’t to get involved in the “free markets”, or build up debts, or all the other things we now do that doesn’t follow the rule of the constitution… and…. go out and get a loan, spend some money, and get this economy going again!

Whoa there partner, you’re quite spry this morning! Must have been that kickin’ bitter cold wind blowing in my face as I walked to the door this morning that got me going!

OK… The Big news this morning is that the dollar has taken another mighty swing at the euro and other currencies overnight. All day yesterday, I watched the euro hold steady Eddie at 1.31, but when I came in this morning, and did NOT turn on the currency screens because somebody messed with them this weekend, and I can’t get logged onto them, but did check the internet, and saw the euro trading below the 1.30 handle at 1.2966… There had to be something I could find on my currency screens IF I only had them available! Geez Louise, why can’t people leave things alone that work?

Alright I’ll stop my whining… Doesn’t do any good any way! So, I see that the German Economic Sentiment, as measured by the think tank, ZEW, improved a bit last month, as seen in the print this morning… That has helped the euro off the mat this morning as it has fallen to 1.2920 before this report. But, this report won’t help the euro too much, as the ZEW think tank report isn’t on the same level of importance as the IFO think tank report…

I told you last week about the rumor that Ireland was seeking funds from the IMF, and that a resident reader there had told me things were getting bad. The rumors were denied at the time, but I told you then, that I truly believe that where’s there’s smoke there’s fire… And so it is with Ireland after all… Now there’s all kinds of rumors running about regarding Ireland and their ability to make debt payments. (Hey!, haven’t they learned anything from the U.S.? Just print the currency to make the debt payment!, but no, wait, they can’t they’re a part of the euro!) This, my friends has to be the reason the euro has sunk to below the 1.30 handle this morning. I’m reading a report from a trader friend in Europe that say there are nervous Nellies over in Euroland, regarding this debt payment… The Eurozone won’t like any debt defaults under their watch, and could slap Ireland pretty hard…

I have to say that this is real folks… And presents the Euroguard in Frankfurt a real problem to deal with… No more of a problem than France rejecting the Eurozone Constitution in 2005, but a real problem nonetheless.

And a real problem for dollar bears… Who would like to beat the dollar like a rented mule (no animals were really hurt here) but the offset currency to the dollar has its own problems at this time… So… What’s a dollar bear to do? Well… There’s always the old offset to the dollar, the Japanese yen, which continues to outperform all the other currencies, and has bouts of real strength followed by profit taking, so there’s opportunities to buy on dips when profit taking comes along… And this ties back to the Stephen Roach comment at the top of the page… To buy Asian… Well, he didn’t say it, but he did in a way… If you buy Asian, you have to convert your dollars to the Asian currency of the asset you’re buying… So, in a way, he’s saying buy Asian currencies…

Another hickey on the euro’s neck this morning is the report that Spain’s credit rating has been downgraded… S&P downgraded them from AAA to AA+… They’re credit rating should have never been that high to begin with, if you ask me… So this downgrade, just puts it where it should have been all along… Spain got “extra credit” for being a part of the Eurozone… My European trader friend said that the euro’s resistance doesn’t come into play until 1.27… So… There’s a gap down that could happen quickly…

Yesterday, the pound sterling was basking in the Trading Theme, after the Bank of England announced a bank bailout plan… That brought out the risk takers for just a brief moment… But they had no lasting power, and the pound began selling off, and didn’t stop until it reached a record low VS the yen, and VS the dollar it fell to below 1.40 for the first time since 2001! I’ve said since this credit crisis began that the U.K. was “into” this problem more than other countries (with the U.S. being the ring leader) and that it would take its toll on the pound… It has, and in a very strong manner…

And down under, the New Zealand dollar / kiwi keeps getting caught up in Commodity sell offs, Reserve Bank of New Zealand (RBNZ) rate cuts, and now… Talk of a downgrade to their credit rating… Commonwealth Bank of Australia (CBA) issued a report yesterday that points out that S&P already downgraded New Zealand’s foreign currency rating to AA+ last week, and that the credit rating “MAY” be cut should the current account deficit cut into growth.

Now, that’s all fine and good, as I’ve been harping about New Zealand’s Current Account Deficit for a couple of years now… But, what? S&P only looks at the “little guys” that they can handle? I mean, for crying out loud, have they taken a peak at the U.S. Current Account Deficit as a percentage of growth? OMG! What? Are they afraid of the Big Bad Wolf? I’m afraid so… They don’t have the cajones to take on the U.S. and their debt problem… So… They go around kicking sand in the face of the 90-lb weaklings around the world…

So… We start this week on a down leg for all currencies… Shoot Rudy, even the Japanese yen, is a bit weaker than it was last week, when it hit 88 at one point!

Gold had a very strong showing on Friday, going up $30… But is seeing a softer tone this morning…

All eyes will be focused on the inauguration of the new president here in the U.S. today, so don’t look for too much to happen… But, I’m reminded of the words I wrote a couple times a couple of weeks ago about an Obama bounce, which would help stocks, and the dollar… Could this be happening as the inauguration is about to happen? I’m sure a lot of investors and traders will be swayed today when President Obama talks about change and hope… He has a tough row to hoe, folks… He’s going to need more than words to get us out of this mess, and carrying on with the same policies as before with bailouts and stimulus packages isn’t change… I wish him good luck, as this is my country, and I sure don’t want to see us like this…

I have a good friend that gives me trouble all the time, (he reads the Pfennig) saying that I’m responsible for these problems because I “root for them” … (he’s kidding folks!) And I have my standard reply… I don’t “root for them”, I point them out, and try to warn people that these things will affect their investment portfolios… It’s all about diversification…

OK, on Friday, (seems like a long time ago but still important) we saw the color of the latest Industrial Production, Capacity Utilization, and the stupid CPI (consumer inflation)… Here we go with a recap…

Industrial Production for December printed much worse than expected, and it fell -2% (expected -1%) and the previous month was revised downward from -.6% to -1.3%… For the year, Industrial Production fell -7.8%, the worst performance since 1975… Capacity utilization also fell sharply from 75.2% to 73.6%, matching the low at the end of the 2001 recession. You can go back all the way to 1967, to see that this data has only dropped lower during the 1982-83 period…

Long time readers know my affection for the Capacity Utilization data, as it is one of the few pieces of data that is “forward looking”… And if this report is right… We don’t have much to look forward to in manufacturing…

The stupid CPI report showed that Consumer inflation came in at .01% for December… Which is pretty strange, as it was forecast to go into the negative. Annually CPI rose just 1.8%, an annual low since 2004… Of course if you believe that YOUR inflation experience only saw a 1.8% annual increase, then you don’t understand why I call this report names… If you’re like me, and 1.8% is a bunch of baloney… Then you know why! But… Given that my forecast has inflation rising rapidly next year, this report tells me that the inflation wolf is always at the door!

Not much on the data cupboard’s calendar this week… So, let’s go to the Big Finish!

Currencies today 1/20/09: A$ .66, kiwi .5280, C$ .7915, euro 1.2975, sterling 1.3960, Swiss .8775, rand 10.3350, krone 7.1030, SEK 8.3930, forint 221.87, zloty 3.3620, koruna 21.51, yen 90.25, sing 1.5080, HKD 7.7590, INR 49.22, China 6.8385, pesos 14, BRL 2.36, dollar index 85.92, Oil $39.78, Silver $11.08, and Gold… $831.90

Source: Inauguration Day 2009

For the first time in a long time, we can tell you today that the U.S. stock market is up year to date:

The major indexes rang in the new year with a 3% rally on Friday — the best first day of a new year in the last six. And a sharp contrast to 2008, when the Dow had its worst opening day since 1983.

To accomplish that feat, the market shrugged off the only piece of data worth noting… the Institute for Supply Management (ISM) manufacturing survey started off the new year at a new 28-year low.

We have to say we love the financial media chatter on this first business day of the penultimate year of the first decade of the new millennium. On the one hand, the president-elect is promising a $300 billion tax cut to accompany the now $775 billion stimulus package working its way through Congress.

On the other hand, a consortium of state governors are calling for Obama to expand his rescue package to over $1 trillion. Leaders of New York, New Jersey, Massachusetts, Ohio and Wisconsin petitioned the president-to-be Friday for around 300 billion extra bailout bucks, mostly to help offset state budget shortfalls.

Meanwhile, 40% of government debt held by public investors will mature in the next 12 months… roughly $2.5 trillion. Meaning they’ll have to roll it over at whatever rate the market will bear at the time.

“It’s curious,” one reader wrote, capturing our mystification over the weekend, “that full-grown adults are willing to bet their lives on a new medicine because it worked on 2-ounce mouse, yet they can’t believe that what happened in a ‘tiny’ economy such as a Zimbabwe or an Iceland can happen in a big economy like the United States.”

Happy New Year!

“Investors will initially welcome the promise of fiscal stimulus from the incoming administration,” writes Rob Parenteau, steward of The Richebacher Letter, “before realizing the nature of the challenge ahead. If Dr. Richebacher was correct in his assessment, nothing less than the entire global production structure needs to be reoriented.

“Asian production results point to a depression developing in that region. And the world is starting to realize it can no longer rely on serial asset bubbles and credit-financed consumption. But the apparent solution — so far — is for countries around the globe to reach for an increased public sector role in the economy. We are beginning to see hints of protectionism, as well. As the old regime breaks down, this is the solution developing before us… by accident.

“We sincerely doubt Dr. Richebacher would see public deficit spending and protectionism as a road back to sustainable economic growth. Rather, we would vastly prefer to see a rebalancing of the global production structure and a simplification of finance. Asian nations must become more domestic demand driven. And the Anglo-American nations, in particular, must save and reinvest earnings in tangible capital equipment, rather than mergers or stock buybacks. That is clearly a longer-term project requiring adequate changes in prices, incentives, income and capital, but it is a project he repeatedly championed for the length of his career.

“In the meantime, desperate fiscal and monetary measures around the globe during 2009 may help cushion the nightmarish blow wrought by the failure of the old global economic and financial arrangements. But they are unlikely to be a sound basis for the next leg of growth.”

“2009 should be a year,” Dan Amoss comments further, “when fundamental analysis should start to matter once more. That will be a welcome development, because 2008 was a year when the following strategy worked best:

1) Sell short any stock or ETF, without bothering to do any fundamental research
2) Invest the proceeds in Treasury bonds, preferably with as much margin as possible
3) Repeat Steps 1 and 2, over and over.

“Clearly, this ‘deflation trade’ strategy is not sustainable over longer time frames — not in an era of worldwide paper money standards. In fact, I’d expect that such a shotgun-based investment strategy of short S&P 500/long Treasuries could lead to big losses in 2009.

“The economy will remain weak, but I think the worst of the widespread market carnage is behind us. Future damage should be concentrated in sectors with horrible fundamentals.”

But for now, investors are happy to bid stocks up… AND buy the dollar. The dollar index is up a point and a half from Friday, to around 83 this morning, heading thus far in the direction of its credit crisis high of 88.4 set on Nov. 21, 2008.

“The dollar is kicking up its heels once again,” writes EverBank’s Chuck Butler, “and this is to be expected during this Obama bounce. The markets are swayed by the smooth-talking President-elect’s call for $300 billion in tax cuts, a job creation program and (possible) $1 trillion economic stimulus package.

“But all these things cost money, lots of money, and money we don’t have, unless… we just go and print more. This is why I believe that once all the euphoria of the Obama presidency has run its course, the markets will do a V8 slap to the forehead and realize we’ve just dug ourselves a deeper hole!”

Gold hasn’t been too pleased with the dollar’s uppityness. In fact, she’s downright depressed. The spot price fell $30 over the weekend… below $850 an ounce this morning.

“In 2009,” forecasts Ed Bugos, keeping his eye on her meds, “economic conditions will deteriorate. Unemployment will reach double-digit rates before the year is out.

“As the year wears on and investors sort out the fallout of 2008, I believe that there will be fewer plausible investment alternatives to gold, and that markets will begin to realize the errors of the government’s current policy. The big winners in all this will be gold shares, which will perform better than gold, as they have been absolutely cheapened beyond belief, and risk premiums fall.”

Despite dollar strength, oil has greeted the new year with glee. Light sweet crude jumped 23% last week. In dollar terms, that’s nearly a $9 leap, to $48 this morning.

Last week was the black goo’s biggest since August 1986, after… hmn… a global equity rally and strife in Gaza.

Mortgage rates have pickled to at least a 37-year low. The average 30-year fixed loan went for 5.1% last week, Freddie Mac reports, which is the lowest since the company started keeping track in 1971.

No surprise, then, mortgage applications are at a five-year high. Mortgage application activity stayed around 1,200 last week, the Mortgage Bankers Association said. That’s the most weekly apps since July 2003.

But these historically low rates and the surge in mortgage applications aren’t doing diddly for the housing market. 83% of all applications recorded last week were for existing homes. And why not? If you can lock in for 30 years at or near 5%… go for it.

Meanwhile, the next leg of the real estate bust is already coming down. In nearly every major city, 10% of office buildings are now vacant.

“Virtually every market in the country will see a rise in vacancy rates of between 2-5% by mid-2009,” Bill Goade, head of CresaPartners, told The New York Times this morning. According to a report by Real Capital Analytics, an estimated $400 billion worth of commercial real estate loans come due this year, $107 billion of which are already delinquent.

Of course, you can leave it to Wall Street to make matters worse. Approximately 60% of all commercial property loans made in 2006-2007 were securitized into the same kinds of debt tranches and CDOs that set the credit crisis in motion in July 2007.

The banks sitting on them now? They rank among the only firms to escape calamity in 2008. Bank of America, J.P. Morgan and Morgan Stanley hold “tens of billions of dollars” worth of the stuff — each.

Oy.

“Imagine my surprise,” writes a reader headlining a smattering of random e-mails we received over the weekend, “upon finding the following clue in the Sunday crossword puzzle of The Miami Herald: ‘2 down: 2008 documentary about the national debt’

“It has a lot of vowels, so I predict I.O.U.S.A. will be the answer to many crossword questions for years to come. Would you have predicted a development like this for your film in your wildest dreams? What a country!”

The 5: Amen. And… we have an ‘in.’ The Miami Herald picked up The New York Times crossword puzzle from the week before. Will Shortz, the editor of The New York Times puzzle, played the role of lead protagonists in Patrick and Christine’s first film, Wordplay.

By the way, the Critics’ Choice Awards will be announced this week. After we published the link for audience votes , we blew the survey to pieces. At one point, we had over 80% of the votes. The only other movie or actor to get reviews similar was Heath Ledger for Best Actor, who clocked in at about 84%. The Dark Knight was up there too.

It’s all absurd, of course, but kind of entertaining to check out. You can do so here. There are a bunch of reader comments on the site too.

“It seems to be going on under the radar,” writes another reader, on a completely unrelated subject, “but there has been some serious buying action in the uranium miners since Obama was elected. Maybe these people think (or know) that uranium will be the new Green in 2009?”

The 5: We suspected as much as well… on Wednesday.

Source: New Year Rally, Obama’s Plan, Shorting in 2009, The Second Wave of the Housing Bust, and More!