Good day… And a Happy Friday to one and all! I’m going to go out on a limb and say it will be a Fantastico Friday! This has been a long week for yours truly, coming off a week of relaxation, and getting right back in the saddle… But… It’s Friday… YAHOO!

OK… There are a few things to discuss this morning, but none so important as the Jobs Jamboree that will happen in a couple of hours from now. I told you yesterday that the economists surveyed believe that the jobs lost number will make a big move downward from 476,000 in June to 325,000 in July… That’s a HUGE jump folks! Ty Keough responded to that note in the Pfennig yesterday by saying, “That’s because there are no more jobs to cut!” Now, that’s one way of looking at it… We have to hope that it’s not that, but instead be a reflection of jobs being added… Come on! We can hope!

Yesterday, the Weekly Initial Jobless Claims printed, what I think is a worse than expected number… The media however, looked at it differently… Here’s the skinny… The Claims filed last week hit 550,000, and were expected to be as bad as 580,000, which is why the media began firing off headlines about Jobless Claims falling… And that’s fine… But the thing that caught my eye was the rot on the Continuing Claims part of the data… This is the number of people who are unemployed and are currently receiving unemployment benefits, and that number jumped to 6,310,000… That’s over 6 million people that are still receiving unemployment benefits, it does not count those that have had their benefits expire… It’s not a pretty picture, folks…

And… This might give you an idea of the total unemployed… The number of Americans receiving food stamps pushed to a new record-high in May… 34.4 million people, or one in nine Americans received food stamps, and this was the 6th consecutive month on increases, so we have June and July to catch up with here… UGH!

OK… Enough of that labor talk! The currencies once again traded in a tight range yesterday, but this time the bias was to buy dollars, for the first time this week. But like I said, the trading range was tight… The euro, for instance, popped up to 1.4425, then down to 1.4335, then back to 1.44, only to spend the rest of the day in the 1.43 handle.

Pound Sterling was knocked off its perch as the star performer currency yesterday when the Bank of England (BOE) decided to EXPAND their bond buying. Recall, I had told you earlier this week that the recent stronger economic data had the market participants thinking the BOE would call off the bond buying / Quantitative Easing (QE)… But the BOE had other plans! And the currency got taken to the woodshed, and rightly so! QE is bad… Say that out loud… QE is bad… And more QE is even worse!

In the overnight market I noticed something that I’m sure most people will not even take the time to read… Here’s the skinny… I’ll give you the headline, and then you try to figure out how this plays well with what I’ve been writing about… “Australia to Resume Sales of Inflation-Indexed Bonds”

OK… If you said… Australian officials must see inflation pressures in the future, which plays well with what Chuck told us earlier this week about how the Reserve Bank of Australia (RBA) raised their bias for interest rates from accommodating to neutral. If you said that, then you get a Gold Star today! You’ve been paying attention in class! To the Head of the Class you go!

Seriously though… This is the first time in 6 years that Australia will issue inflation-indexed bonds… That’s a warning signal we just heard folks…

Did you happen to see the BIG BOSS, Frank Trotter on CNBC yesterday? Our PR people sent out a note last week and asked both Frank and myself if we wanted to do a shot on CNBC… Having been ambushed there twice in the past two years, I pleaded with Frank to do it, and he graciously accepted the mission. And he executed the mission to a “T”! He told people that they needed to diversify with currencies, and talked about Norway and Australia as key components of a diversified portfolio, and then added in Brazil for those with a speculative axe to grind. He even mentioned our new 100% principal protected MarketSafe BRIC CD! Way to go Boss! As it turns out, I should have done the piece, as no ambush took place, but who knew?

Speaking of Brazil… Our newest guy on the desk, Aaron, sent me a note yesterday afternoon, with Martin Weiss’s latest letter… It seems that even Martin Weiss believes that Brazil will be one of the first countries to recover from the global recession, and that it is a good place to invest… At least that’s what I got from the letter… When someone as well read and respected as Martin Weiss talks about Brazil, then we should take notice, eh?

In the Eurozone this morning, German industrial orders increased for the second consecutive month, rising 4.5% in June. The forecasts were for a 1% gain, so this move was unexpected to say the least! The data is old though, and did not give the euro any reason to move higher…

And the Swiss franc continues to move higher despite warning and warning about these moves by the Central Bank… I find this to be funny… Like funny , HA, HA… The Swiss Central Bank began warning the markets to not take the franc higher and for 5 consecutive weeks the franc has moved higher VS the dollar… You see, if the Central Bank doesn’t make the money talk, then their verbal warnings don’t amount to a hill of beans! My dad used to tell me… Money talks… B.S. walks… I think that plays well here in Switzerland!

Hmmm… Did you see the retailers’ sales data yesterday? The ICSC Chain Store Sales for July fell 5%… I guess the real problems for retailers will come this month, for if they are unable to push higher with the back-to-school sales, then I think the pundits and economists that are calling for an end of the recession now, will have to go back to their drawing boards!

And… You knew I would eventually get around to this… But the Cash for Clunkers or CARS program got $2 Billion more yesterday… This is being hailed as a great program to get Americans buying more fuel efficient cars, while euthanizing their old cars, and stimulating the economy… Apparently, dealers are running out of inventory… That sure seems to be strange to me… Here’s what I think is going on… People trade in cars for new cars all the time… According to Edmunds.com, Americans would have traded in about 200,000 clunker-type vehicles in a typical three-month period. So… Have we just taken that 3-month period and crammed it into two weeks to take advantage of the CARS program? For an industry that was expecting to sell about 10 million cars and trucks this year, that’s a 0.5 percent sales boost. I don’t see the euphoria… But then I’m not trading in a car right now!

Hey! Did you know that my friends, Addison Wiggin, and Bill Bonner have new books out? They have done updates to the best sellers, Financial Reckoning Day, and Empire of Debt. Addison sent me a note the other day to let me know that these brand spanking new updates are now available at Barnes & Noble, and Amazon… Financial Reckoning Day was a real eye-opening book, I can’t wait to get my hands on the 2nd edition! And Empire of Debt, is the book that spurred the I.O.U.S.A. movie and book… If you haven’t read the originals yet, here’s your chance to do that and get the 2nd edition at the same time! Everyone knows how to get books at Amazon… So what are you waiting for?

Currencies today 8/7/09: A$ .8360, kiwi .6725, C$ .9225, euro 1.4355, sterling 1.6740, Swiss .9390, rand 8.1420, krone 6.0750, SEK 7.1750, forint 190.10, zloty 2.90, koruna 18.06, yen 95.20, sing 1.4370, HKD 7.75, INR 47.90, China 6.8318, pesos 13.06, BRL 1.8415, dollar index 78.06, Oil $71.35, 10-yr 3.74%, Silver $14.68, and Gold… $961.55

That’s it for today…enjoy your weekend!

Chuck Butler

Source: A Jobs Jamboree Friday!

If you need a place to live and want to own a house, why not? Prices in some areas are fairly reasonable. But if you’re speculating, our guess is that you’ll get a better deal if you wait.

Why? For the many reasons we have given you in these Daily Reckonings. House prices may be firming in some areas – that’s what the Case-Shiller numbers seem to show. But nationwide, they are probably headed down for quite a while longer.

Herewith, four reasons why:

First, as you know, this is a depression. It will probably be long. And deep. You wouldn’t know it from looking at the stock market or reading the news. The Dow went up another 114 points yesterday. Oil rose to $71. And the dollar – anticipating inflation – fell to $1.44 per euro.

But that’s what bounces are supposed to look like. They look good enough so that people mistake them for the real thing… and get suckered into more losses.

Depressions drag down asset prices. Typically, prices become much more reasonable. And then they reach UNREASONABLE levels. House prices have become reasonable. Now they will become unreasonably cheap…

Second, waves of resets and foreclosures are still washing over the housing market. As Barry Ritholz told us in Vancouver, we’re only half way through the foreclosure process. There are more than 18 million empty houses in America. A news report yesterday told of a 32-storey apartment building in Florida with only one lonely tenant.

And still coming up are more refinancings… more drowning homeowners … and more people giving up on homeownership altogether. The bubble era created new households at the rate of 1.2 million per year. Practically every one of them wanted to get in on the housing boom. Now, there are only 500,000 new households per year. And few of them still believe that housing is the route to wealth. At the current rate, it will take many years to fill up all America’s empty houses.

Third, incomes are falling. Property crashed because people with average incomes could no longer afford to buy the average house. Now, they can afford even less. Ken Rogoff estimates that the consumer needs 6-8 years to pay his debts down to a more reasonable level. Part of that deleveraging process will mean getting rid of heavy mortgage debt – one way or another.

Fourth, there are too many houses that are too big… and in the wrong places.. Big houses were a status symbol in the bubble years. Now they’re a symbol of extravagance and error. Plus, they’re expensive to own. People will want to dump them – even if they can afford them. There was far too much building in the outlying suburbs of the sand states too – Arizona, Nevada, California and Florida. Those houses may have to be abandoned as people are forced to move closer to where the work is.

There are also a couple of more technical reasons why the Case-Shiller numbers may be erring on the bright side: seasonal adjustments and a changing mix of houses sold. But our guess is that real house prices – adjusted for inflation – will continue going down for many more years.

You want to see deflation? Go to Tokyo City in London. The restaurant chain says it is going to give its food away for free. Customers will pay for drinks plus 2 pounds 50 pence for service.

Meanwhile, in Tokyo itself prices are falling – again. The Japanese have had on-again, off-again deflation for the last 20 years… ever since their stock market crashed in 1989.

Hey, what’s the matter with those Japanese? Don’t they know about stimulus?

Hold on there, pilgrim. What the Japanese don’t know about stimulus ain’t worth knowing. They’ve stimulated their economy so much that their government debt now measures 200% of GDP. And what did they get for all that stimulus? Did it get their economy moving?

Are you kidding? Now, the latest news tells us that they also have the highest jobless rate in 6 years. And the latest figures show the inflation rate NEGATIVE. In fact, never has the inflation rate been lower.

*** Nissan announced an electric car. Shares soared.

*** Jobless benefits are running out for 1.5 million unemployed Americans, says a New York Times report.

*** And here a commentary by David Pauly on what Wall Street is doing about low earnings – lying!

“Stock analysts continue to promote corporate earnings lies, insisting that net income isn’t really what investors need to know… .

“In analyst speak, Intel Corp. (NASDAQ:INTC) wasn’t hit with a $1.45 billion fine from the European Union in the second quarter for anticompetitive practices.

“After setting aside funds to cover the fine, which Intel is appealing, the semiconductor-maker had a quarterly loss of $398 million, or 7 cents a share. Disregarding the fine altogether, analysts maintain the company earned 18 cents a share, beating their average estimate of 8 cents.

“As Wall Street tells it, the employee stock options Google Inc. granted in the second quarter didn’t cost its shareholders $293 million.
“Google (NASDAQ:GOOG), according to generally accepted accounting principles, earned $1.48 billion, or $4.66 a share, in the period. Not enough for Wall Street, which prefers to say the company earned $5.36 a share, leaving out the cost of stock options.

“Viacom Inc. (NYSE:VIA.B), an entertainment company, this week reported second-quarter net income of $277 million, or 46 cents a share. Analysts had estimated profit as if money Viacom paid out in severance in the period wasn’t the real thing. On that basis, Viacom earned 49 cents a share, beating the average estimate by 1 cent.

“Time Warner Inc. (NYSE:TWX), a rival of Viacom for entertainment dollars, said it earned $519 million, or 43 cents a share, in the quarter. Analysts insist Time Warner earned 45 cents, excluding, according to Bloomberg data, costs related to litigation and asset sales. Lawyers must work for nothing.

“By similar Wall Street reckoning, the expense of cutting jobs and selling an asset that reduced McGraw-Hill Cos. (NYSE:MHP) second quarter earnings per share by 10 percent was immaterial.

“Analysts also say investors should ignore $129 million that Textron Inc. (NYSE:TXT), maker of small airplanes, helicopters and golf carts, charged against net income in the latest quarter. Included was the cost of shutting a plant for an eight-seat jet Textron decided not to build.

“General Electric Co. (NYSE:GE), which makes jet engines and electric power equipment and has a financial services arm, had a second- quarter profit of 24 cents a share. GE and the analysts emphasized earnings from continuing operations, which at 26 cents a share, exceeded their estimate by 2 cents. A $194 million loss from discarded businesses was discarded.”

And so on… and so on…

*** “As You Like It” was as we liked it – lively, bawdy, and raucous. It is not Shakespeare’s finest play – or so the critics say. But it has some marvelous dialogue. “All the world is a stage… ” is the most memorable.

Our hostess had set up a stage on the lawn and put out a hundred or so chairs for guests. But by the time we sat down it had begun to rain. The chairs were wet. A Frenchman gallantly wiped off Elizabeth’s chair. Your editor sat down in a puddle… and the play began…

The rain continued throughout the performance. Some spectators – perhaps those who listened to the weather forecast – came equipped with parkas and anoraks. We had an umbrella, which we held over our heads throughout the performance.

Despite the drippy conditions in the bleachers, a good time was had by all. The English actors who performed the play were real pros. They enlivened the set with music and acrobatics, moving the story forward 4 centuries to the days of Peace & Love and strawberry fields forever. We never quite got the connection… but it seemed to work, somehow.

After the play was over, we retired to a stone barn for soup and dessert. There, we met neighbors whom we only see once a year – in August. Among them was a dear Daily Reckoning reader.

“I’m glad I bought gold when I did,” he said. “It was $600 or so at the time. So I made a gain on the gold. But the important thing was that I wasn’t caught in that sell-off in stocks last year.

“What do you think gold is going to do now?”

“Probably, it will go down,” we replied.

“So, you’re selling your gold?”

“No… we’re holding on… It’s too risky to sell it.”

*** “Of course, that’s the big question,” Elizabeth began on the drive home.

“What’s the big question?”

“About whether the world is just a stage. It’s really a question of free will. About whether we do things because we think them through ourselves, or whether we just play our roles.

“I suppose it’s related to the ‘Great Man’ theory of history… the idea that people actually determine history, rather than play their parts in it… ”

“It’s probably like all the great questions… that is, both true and untrue at the same time. I mean, Louis 14th couldn’t have been Louis 14th if there hadn’t been a Louis 13th… and if France hadn’t been the leading country of Europe… and if it hadn’t been the peak of the monarchic age.

“And Rommel couldn’t have led a Blitzkrieg in WWII if the tank hadn’t been invented in WWI… .

“In both cases, it appears that Shakespeare was right… that the roles were already there, just waiting for someone to play them… ”

“Yes, but I wonder if that is true… or as completely true as it looks. The fellow who took over from Lenin didn’t have to be a monster, did he?”

“I don’t know. If he hadn’t been so ruthless some other guy probably would have purged him out… sent him to the gulag. Once a revolution gets started, the most violent and ruthless groups seem to take over. So, I guess you could say that even there… the role must be played… ”

“Does that apply to our personal lives, too? Are we just playing roles? You are pretending to be my husband. I am pretending to be your wife. We are pretending to love each other. Is that all there is to it?”

“No… no… that’s very different… ”

“How so?”

“I don’t know… but when I say I love you, it comes out of my soul like smoke from a sacred volcano… ”

“What does that mean?”

“I don’t know… I just like the sound of it… ”

Source: More Empty Houses in America

May’s number establishes a trend for 2009, too. The jobs scene is far from rosy, but at least it doesn’t seem to be getting worse…not yet anyway.

So “Buy, buy, buy!” as they say in Cramerica, right? U.S. index futures jumped on the news and the Dow and S&P 500 opened up 1%. And if you aren’t the type to be bothered by the fine print, we suggest you slam the buy button too.

But the details of today’s jobs report aren’t quite as rosy as the headline number. The unemployment rate rose to 9.4%, notably higher than the expected 9.2%. In other words, the unemployed are not being rehired. While the rate of firings cooled off, the bread line is just getting longer and longer. 9.4% is the highest rate since 1983.

And it’s funny how the dark science of charting works. The chart above would lead you to believe the jobs scene has bottomed…but does this one inspire the same confidence?

More disturbing details:

· Over 6 million people have lost their job since the recession officially began in December 2007

· The “long-term unemployed” – those out of work for six months or more – now exceed a record 4 million. Many of these “discouraged” people are not counted toward the official unemployment rate

· 9.1 million people are working part time because they can’t find a full-time gig – also not counted as officially unemployed.

We don’t mean to rain on this parade. 345,000 lost jobs is certainly better than the half a million firings that have sadly become a monthly routine. But it sure ain’t a good number. Try to maintain some sense of perspective… this time last year, we reported a “horrid” job loss of 49,000 for the month of May, a number nasty enough to push the Dow down over 3%. 345,000 firings back then would have had CNBC correspondents recreating Lord of the Flies.

So today, forgive us for not dancing in the streets.

Source: Has the Unemployment Scene Bottomed?

Despite a few brief months of rational behavior last year, the markets are given to obeying only their own reality. Something that Cornelius Luca – Editor of The Money Trader – picked up on last week…

“The U.S. jobless data was worse than expected,” he said in reaction to last week’s unemployment news…

“The unemployment rate climbed to 8.9% in April, the highest since late 1983. That was as forecast. More importantly, if we include laid-off workers who have given up looking for new jobs or have settled for part-time work, then the unemployment rate would have been 15.8% in April! And the nonfarm payrolls were bad in April and MUCH worse in the previous three months due to massive revisions!”

“But still, the DJI is marching higher! And the European and commodity currencies are marching higher as well. Even the GBP, which was battered on Thursday, is recovering.”

“So, the U.S. Dollar should remain under pressure through the end of May. Any bounce early next week should be used to go short at better levels.”

But even if you’re using this heady rally to lock in some nice, quick gains…then there’s one particular asset you should be watching like a hawk…

Ten-Year Treasuries: A Rally-Stopper

You see, the housing bubble remains a ticking time bomb.

Mainly because – as you can see in the chart below – there are still tens of billions worth of mortgages waiting to reset. When these loans reset, they click over to a new interest rate and payment, depending on prevailing market rates.

And as we all remember from the subprime blowout in 2007/8, significantly higher mortgage rates can lead to a bloodbath on these loans.

Back in 2007 – when few saw this coming – that eventually led to a full-blown market crash, insolvent banks, a credit freeze, US$14 trillion in bailout spending, and a flight to safety like almost nothing we’ve seen in living memory.

Now, that mortgage implosion threatens to repeat itself. Why?

Well, you may or may not know that ten-year Treasuries serve as a kind of benchmark for determining mortgage rates. It makes sense…Treasuries are seen as one of the safest investments out there. So if Treasury rates start to rise, then you should be charging more for mortgages and other types of loans as well.

And that’s exactly why the Fed’s focusing so much energy on keeping Treasury yields as low as possible. As long as these mortgages reset at all-time lows, the threat of Option ARM mortgages going “subprime” is minimized.

But it’s one big Catch 22…

If Ben keeps Treasury yields low – in turn keeping mortgage rates low – then he can minimize the damage caused by the whole universe of Adjustable Rate mortgages. If he can do that, he can convince investors that it’s safe to get back in the water…to start investing again.

But if he succeeds there, then money comes flying out of Treasuries…driving prices down and yields up (exactly what we’ve seen since the rally started in March.). If those yields reach high enough, then we have another mortgage crisis on our hands.

That’s why Ben broke out the “Quantitative Easing” in March. Essentially so that he could have his cake and eat it too. But as you can see in the chart below, QE – as it’s called – isn’t quite having the desired effect.

Rates Creeping Up On Rally

Knowing is Half the Battle

So even if the rally continues – and it looks like smooth sailing on the horizon – you should be keeping a close eye on Treasury bonds. Simply put; Treasury yields over the coming months and years will determine whether we see another mortgage crisis in the near future.

What’s more, it won’t necessarily take another major mortgage crisis to push the markets back into a decline, “We’ve got a heavily leveraged economy that’s still in the process of unwinding credit and toxic securities that’s now facing a serious threat from rapidly rising longer-term interest rates,” our Investment Director, Eric Roseman, surmises, “This is not a normal bear market. Sharply higher rates are now in the process of derailing this fragile bear market bounce.”

But there could also be some opportunity in today’s Treasury prices…

“Though I’m certainly bearish on Treasury bonds, especially long-term T-bonds,” Eric goes on, “I’m starting to consider short-term Treasury paper up to five years. This segment of the yield curve offers yields up to 2.16% and selling around $98, or a modest 2% discount to par. Six months ago prices were rich and yields barely 1.5%.”

“In a world that’s gone hog-crazy for risk following the worst crash since 1937, I find myself hunting for conservative investments that pay regular dividends or income. The big decline in Treasury bonds should be viewed as an opportunity to park some money ahead of the next shock later this summer or fall. In that event, yields will come crashing down again and T-bonds will rally.”

Yours in Personal Sovereignty,
Matthew Collins

Source: Keep an Eye on This ‘Rally-Stopper’…

Good day… Hopefully this will reach everyone today. We have been having some computer problems causing some major delays in the delivery of your Pfennig. As Chuck always says, if you need your Pfennig, just go to www.dailypfennig.com where it is posted each morning as soon as I hit the send button. For those of you who feel the need, the website also has an archive, so you can all read what I had to say yesterday. But enough about our email problems, you all want to know what is happening in the markets.

The dollar began the day trading in a fairly tight range, but a fairly large jump in US consumer confidence sent the US$ tumbling. Yes, the old ‘opposite’ trading pattern has begun again. When we have good news regarding the US and global economies, the US$ gets sold. But when the data is bad, the dollar is purchased as a safe haven. Yesterday both pieces of data released in the US were more positive than most economists expected, so the dollar gave back some of its recent ’safe haven’ gains.

The currencies ended up with their best day in a week vs. the US$, as the commodity currencies of New Zealand, Australia, Norway, South Africa, and Canada led the way higher. Even the Mexican peso, which has been beat down as of late was able to claw back a 1% gain vs. the US$. Only the Japanese yen moved lower, (I wrote a few paragraphs on the my feeling regarding the yen in yesterday’s Pfennig which most of you probably missed).

A positive consumer confidence number has convinced traders that the US consumer is becoming optimistic again. It is believed that these higher confidence numbers will carry over to increased retail sales and a bottoming of the global recession. Yesterday’s consumer confidence numbers surprised even the most optimistic economists, coming in at a five month high of 39.2. The report paralleled figures from public opinion polls which have been indicating US consumers are feeling better about the economy, and the prospect of new jobs. A drop in mortgage rates and the bounce in equity markets during the month of March certainly helped to boost consumers feelings. But many (including myself) think the equity market bounce is probably a ’suckers rally’, and unemployment is nowhere near bottoming in the US. Not that I want to throw water on the US consumers new found confidence, but I think we will likely see reality set back in and confidence move back down in mid summer.

The other piece of data released yesterday showed housing prices declined at a slower rate in February than in the first month of 2009. The decline slowed to 18.63% from an adjusted 19% in January. The headlines mostly reported that the decline in home price slowed in February for the first time since 2007. Yes, we did see slowdown in the decline, but should we really be celebrating an 18.63% drop in housing prices? I think the optimists are being a bit too optimistic, as unemployment will continue to climb, keeping buyers from qualifying for new home loans. Unlike many in the popular media, I don’t see where we have hit a bottom in the housing market yet, and don’t expect us to find that bottom until late this year. Until then, the US economy will continue to struggle.

Kristin Kuchem, who made my day by bringing me a latte yesterday morning (THANKS KRISTIN!!), sent me the following quote regarding the housing data: “The number of vacant homes — including foreclosures, properties for sale and vacation properties — jumped to a record 19.1 million in the first quarter as the recession sapped demand for real estate, the U.S. Census Bureau said in a report Monday. The number of homes that stood unoccupied rose from 18.6 million a year earlier. The U.S. financial crisis and falling prices have shattered the confidence of homebuyers. The percentage of people who said they plan to buy a home in the next six months dropped to a 26-year low in March, according to the Conference Board in New York, Bloomberg reported.” Hardly a sign that the housing market has bottomed!

Data released later today will give us a picture of how the US economy did over the first quarter. 1st quarter US GDP is scheduled to be released later this morning, and is expected to show the economy plunged close to 5%. This would be better than the 6.3% contraction in the last three months of 2008, so I expect the media to spin it just like they did with the housing data yesterday. We will hear all about how the US economic slowdown is turning, and we will undoubtedly hear several predictions of a rebound by the end of 2009. But with another negative GDP number in the 1st quarter, the recession which began in December 2007 will be the longest since the Great Depression. And not to sound overly negative (which I seem today) but the employment data scheduled for release tomorrow morning will likely show further deterioration in the US job market – not a good sign for the near term future of the US economy.

One piece of data which would lend support to these predictions of a rebound is the personal consumption figure which will also be released this morning. Consumption is predicted to show a slight rebound during the first quarter, after dropping at an average of 4.1% in the last half of 2008. Consumption probably ticked up as mortgage rates and gasoline prices fell. US consumers were obviously in a positive mood during the first quarter, but will their optimism continue?

Later today the FOMC will be releasing their rate decision. Economists expect the US central bank to announce a move down of just .125% in the benchmark rate. But the Fed will have to walk a fine line with the accompanying announcement. They will want to try and relay confidence in the rebound of the US economy, but if they sound too positive, they could push up longer term inflation expectations. Bond traders are still nervous (as they should be) about all of the money supply the Fed has pushed out into the markets. If the Fed makes a case that the economy is starting to recover, bond yields will likely jump up as investors increase inflation expectations. This increase in rates is exactly what the FOMC wants to avoid, as they have been buying US Treasuries in an attempt to keep rates down.

The Fed surprised the markets in March by stating that it would buy longer-term Treasuries as part of their ‘quantitative easing’. The Fed’s purchase of mortgage backed securities has been credited with helping to manufacture another mortgage refinance boom, and hopefully beginning a rebound in the US housing market. But I don’t expect the Fed to drop any additional bombshells with today’s announcement. In fact, they will likely be happy to just have their announcement be a non event, as the markets seem to be moving in their desired direction.

The Euro bounced up a full 2 cents vs the US$ overnight, benefitting from the general sell off of the US$ and a bounce in European confidence. The stimulus spending by European governments, along with slowing inflation, have boosted the mood of Europeans. An index of executive and consumer sentiment rose for the first time in nearly a year, the EC reported this morning. Another report showed European retail sales declined the least in 11 months in April. European consumer spending has been resilient in the first quarter and is definitely being helped by government stimulus.

Finally, a report released by the German Economy Ministry predicted the German economy will return to growth in 2010, helped by fiscal stimulus spending. The report also predicted the German economy would contract by 6% this year, much more than the previous estimates. The Ministry is predicting a global recovery beginning at the end of 2009, which they say will help propel the Eurozone back out of recession in 2010.

The Mexican Peso gained slightly as the concerns over a global swine flu pandemic eased. Many now believe the swine flu will be contained in the next few weeks as governments across the globes have aggressively moved to stop the spread. But health officials in the US say the swine flu is likely to rear its head again this fall/winter which is the traditional flu season. Tourism to Mexico isn’t likely to recover quickly, as many vacationers have canceled plans and aren’t likely to change them again. I wouldn’t look for a sustained rally for the Mexican pesos, and wouldn’t suggest speculation in this currency.

As I stated in the opening section, both the Australian and New Zealand dollars rose overnight, ending two days of losses. Both currencies have moved back up fairly close to the levels they were trading at prior to the swine flu scare. While I would expect the Aussie dollar to hold on to these recent gains, the New Zealand dollar could be subject to additional selling pressures. New Zealand central bank Governor Alan Bollard will probably decide to cut rates by 50 basis points on Thursday, narrowing the interest rate differential of the kiwi vs. the US$ and euro.

Gold has moved back up along with all of the currencies, approaching the $900 level again. As I stated yesterday, these moves lower by the precious metals are, in my opinion, nothing more than excellent buying opportunities. Once the global recovery begins, inflation will spike and the price of these metals will likely spike up with it.

Running a bit long today, so I’ll end it there.

Currencies today 4/29/09: A$ .7196, kiwi .5703, C$ .8308, euro 1.3263, sterling 1.4751, Swiss .8798, rand 8.5424, krone 6.5851, SEK 8.1015, forint 218.14, zloty 3.3336, koruna 20.14, yen 96.88, sing 1.4856, HKD 7.7504, INR 50.09, China 6.8245, pesos 13.71, BRL 2.1846, dollar index 84.528, Oil $50.74, Silver $12.62, and Gold… $899.22

Hope everyone has a wonderful Wednesday!!

Source: Dollar Falls as U.S. Consumer Confidence Increases

Thursday brought some grim economic numbers.

As Marketwatch wrote: “Now that the books are closed on the fourth quarter’s performance, it’s fair to say that the final three months of 2008 will go down as the worst quarter for the U.S. economy since the 1930s.”

The Commerce Department reported revised fourth quarter GDP figures yesterday, showing that output fell at a 6.3% annualized rate. That’s the biggest drop since 1982 and the third worst gross domestic product figure in the past 50 years.”

In addition, real gross domestic income fell even faster than GDP, sinking at a 7.6% annual pace in the quarter, the worst showing since 1980 and the second worst in the past 50 years.

Underscoring those dismal numbers, the Labor Department released jobless claims data. For the week ended March 21, first-time claims for benefits rose 8,000 to 652,000, or 78% higher than the same period in 2008.

The number of people collecting state unemployment benefits also reached another new record, jumping 122,000 to a seasonally adjusted 5.56 million.

Source: Dollar Stable

The prevailing Wall Street wisdom – and I use that term loosely – thinks there’s a better chance that some other “boom” is going to get under way. And over $8 trillion is parked on the sidelines waiting for it.

I guess the thought is that this economic resurrection will come seemingly out of nowhere. And that will lead us out of the deepening morass we’re mired in. Right…

But we’re not the closed-minded type around here. We don’t judge, and we don’t turn down a chance for above average profits.

So in the interest of fairness, let’s look at the probability of “booms” in other sectors, in the hopes they could fuel a global economic recovery.

4 “Boom” Possibilities

• A Housing/Building Boom?

Sure, maybe in my kid’s lifetime, but not in yours or mine. Let’s face it – we’re still in the process of busting. Just look at this sobering statistic:

In “normal” real estate markets, the inventory of bank-owned foreclosed properties is usually around 160,000 or so. Last November, completed foreclosures hit 900,000. Another 72,694 were added in January. February tacked on another 121,756.

But it gets even worse. According to RealtyTrac, nearly 75% of the property in foreclosures have yet to be listed for sale. That means another 300,000 or so homes already in the foreclosure process will be added to the total.

And there’s more coming behind them… lots more. Foreclosure filings for February alone hit 207,703, up 24% from January. Sales of foreclosed homes rose 4.4% in 2008, but availability of homes for sale doubled.

All this has the effect of keeping home supply much greater than demand. Bottom-line: You can forget a housing/building boom anytime soon.

• A Consumer Spending Boom?

Spending with what? Most consumers who used their home’s equity as an ATM are finding it out of cash. And now they’re strapped with big payments they can’t afford.

With home values cut in half in some parts of the country, most couldn’t squeeze more out even if they wanted to. Some will lose their jobs and will have to give up their homes (adding to the foreclosure situation).

Another nail on the consumer spending boom coffin is that Americans are saving more than they have in over 14 years. After years of dismal savings, consumers have started to get the message of “saving for a rainy day.” Unfortunately, only because it’s raining.

• An Export Boom?

The last time this country had a trade surplus was in 1991. As Warren Buffett likes to quip, “Right now, the world owns $3 trillion more of us than we own of them.”

And that’s not going to get better anytime soon.

While imports are certainly down (see consumer spending boom), many of the industries that contribute to exports are being decimated, too. Take the recyclables industry for example: It exported $22 billion worth of recyclables in 2007, mostly to China. 2008’s numbers, while not finalized, are expected to be down 50% to 75%.

And that’s just one example. We aren’t even touching on the fact that the world’s economies are in worse shape than ours is. So you can forget about an export boom.

• A Manufacturing Boom?

Every day, we read about another company laying off workers, in response to a drop in its business. It’s not too surprising, given the slowdown in consumer spending, the virtual shutdown of automobile sales, and the lack of consumers and businesses buying “stuff.”

We can expect that to continue.

It’s very likely that unemployment percentages will reach double digits later this year nationally. In some regions it’s there already. And it’s not hard to see why. (See the last three boom reasons above.)

So where does that leave us? Well, we could talk about a health care boom, or a biotech boom or some other mini boom that might have an uplifting effect on some small area of the country or the population.

But none of them will have the desired effect. They can’t cast a wide net over the entire economy to pull the country up from the depths of the deep recession we’re stuck in. None of them are the economic panacea, if you will, that we need.

Except two…

Energy and Infrastructure – 2 More Boom Possibilities

History has repeatedly shown that cheap energy and modern, efficient infrastructure are the key building blocks of sustainable economic growth. The World Bank estimates that for every 1% increase in a country’s infrastructure equates to a 1% increase in its GDP.

And I can think of no other initiative that can match the wide-ranging boost that energy and infrastructure projects will give to an ailing economy:

• Employment: Hundreds of thousands, perhaps millions, of jobs would be created both in the United States and around the world. When people have jobs, they have income, and they’ll spend it on things like houses, cars and trucks, consumables and “toys.”

• Construction: nothing jumpstarts an economy better than huge, labor-intensive energy and infrastructure projects. Jobs, heavy and light equipment purchases, and material purchases will boost companies in those sectors, many of whom are hurting right now.

• Manufacturing: Many things will have to be made and entirely new industries will spring up to support solar, wind, geothermal and infrastructure initiatives.

I believe that this administration – similar to that of FDR’s – likes the idea. Bank balance sheets are well on their way to being stabilized enough to lend and extend credit to both individuals and businesses. Government-induced catalysts in the form of monetary stimulus and tax incentives are slowly being put into place.

They need to happen quickly though – and be large enough – to kickoff the energy and infrastructure build-out… the “EIBO Boom” as I like to call it.

It’s an acronym I’ve coined to describe what I believe will be the single best place to focus your investment dollars for the next 20 years.

I’ll be writing about those opportunities here, and speaking about them at the Investment U Conference in St. Petersburg, Florida in just a few weeks. I hope to see you there.

Source: Energy & Infrastructure: The Cure For Our Economy

Some analysts were surprised that, given the huge rally in equities, the dollar didn’t take more of a beating, especially given that the buck’s rally in recent months has been largely taken to be a flight to safety.

“The fact that the dollar held up despite the surge in optimism supports our view that it’s no longer just about the safe haven flows for the dollar,” said currency analysts at Brown Brothers Harriman.

Fed Chair Bernanke did his part to happy up faces by saying, in a speech to the Council on Foreign Relations, that major financial institutions will not be allowed to fail given the fragile state of financial markets and the global economy.

Other news of the day was not so pretty, as wholesale inventories slumped 0.7% in January, and wholesale sales fell 2.9%.

And hiring plans by U.S. employers for the second quarter dropped to a record low, according to a private survey by Manpower Inc. (NYSE:MAN), the world’s second-largest provider of temporary workers.

Manpower’s seasonally adjusted employment gauge for April through June plunged to minus 1 from 10 in the first quarter, the first time the measure has ever gone negative.

Source: Dollar Slips

• Dominique Strauss-Kahn, Managing Director of the International Monetary Fund yesterday (Tuesday) warned of a “Great Recession” taking place this year. “The IMF expects global growth to slow below zero this year, the worst performance in most of our lifetimes,” Strauss-Kahn told African political and financial leaders in the Tanzanian capital. He added his forecast may “even be too optimistic.”

• United Technologies Corp. (UTX), makers of Carrier air conditioners and Otis elevators, announced a $750 million restructuring plan that includes 11,600 job cuts. The plan is a response to expectations that 2009 revenues will fall $2.7 billion short of projections, Bloomberg reported.

• Brazil’s economy expanded 1.3% in the fourth quarter, and economic growth for 2008 clocked in at 5.1%. The fourth-quarter gross domestic product (GDP) growth is a drastic decline from the 6.8% year-over-year growth rate in the previous quarter, Reuters reported.

• Malaysia’s government yesterday (Tuesday) added $16 billion (60 billion ringgit) in tax incentives and spending to its stimulus plan, and predicted its economy would contract as much as 1.0% this year. That would be the first contraction in 10 years. The additional stimulus measures will take place over the next two years, Bloomberg reported.

• General Motors Corp. (GM) may sell at least half of its Opel unit to private investors with German government support.  GM’s European unit will still have to save $1.2 billion (784 million euros) annually under the plan. The plan could include closing an Antwerp, Belgium, factory and selling a plant in Eisenach, Germany, Bloomberg reported citing a person who didn’t want to be identified because the talks are private.  GM is seeking U.S. and foreign aid to survive the current economic downturn.

• Bankruptcies by publicly traded U.S. companies are running at twice their 2008 pace, fueled by large companies with assets of more than $1 billion, Reuters reported. There have been 46 bankruptcy filings in 2009 by public companies with assets of $74 billion. That’s nearly seven times more than the $11 billion in assets of the 21 companies that filed for bankruptcy by this date last year. Two of the more noteworthy companies were Nortel Networks (NT), and Smurfit-Stone Container Corp (SSCCQ), according to research firm BankruptcyData.com.

• Hedge funds may slash 20,000 jobs worldwide this year, as investment losses and client withdrawals erode fees. The dismissals account for a full 14% of the industry’s jobs, and come on top of the 10,000 jobs that disappeared last year. Employment peaked at 155,000 in 2007, and has since dropped to about 145,000, according to estimates by New York-based Options Group, an executive-search firm. About 920 hedge funds, or 12%, closed last year, Bloomberg reported.

• The Securities and Exchange Commission will restore the uptick rule in about a month, U.S. Rep. Barney Frank, chairman of the House Financial Services Committee, said yesterday (Tuesday). Bringing back the uptick rule, which would only allow short sales when the last sale price is higher than the previous one, could calm volatile markets, market-watchers said. The rule also could stem a stock’s decline by preventing short sellers from piling on one after another, Reuters reported.

Source: Global Investment News Briefs Wednesday, March 11, 2009

Well… Our Fantastico Friday was interrupted by that horrific Jobs Jamboree number that printed Friday morning… 651K jobs were lost in February, which let me remind you is a couple of days shorter than other months. So, it could have been worse! Hard to believe that could be the case, but it’s true. The unemployment rate rose to 8.1%, from 7.6% in January. The jobless rate is the highest since 1983. The economy has now shed 4.4 million jobs since the recession began in December 2007, with almost half of those losses occurring in the last three months alone.

Remember a year ago, when I kept harping that we had entered a recession, but the NBER hadn’t announced one yet, nor were the Un-dynamic duo of Paulson and Bernanke agreeing with me, as they kept denying what was right in front of them, for if little old me, could see that we had entered a recession, then why couldn’t these two? Oh, well, we now know that the recession began in December 2007… And now we know that 4.4 million jobs have been lost since that time. Of course if the Bureau of Labor Statistics (BLS) didn’t add jobs throughout the year that didn’t exist, we would be even more worse, so I don’t know whether to thank the BLS or curse them…

One thing to not let slip by you, is the fact that the previous months’ totals of -577K and -598K were revised upward by large amounts to -681K and -655K respectively… So, you’ve now got to ask yourself if the Feb figure will be revised to -700K… Of course it’s my opinion that the BLS would never dare print that figure on a first run printing, but only as a revision, that can be swept under the rug.

So… The currencies reacted a bit differently on Friday than we had seen recently when bad news printed in the U.S. Recall, that the Trading Theme that rewarded the dollar, whenever bad economic data printed, had held a grip on the markets for some time… But Friday morning, I mentioned that the trading looked different, with no Trading Theme in place, and that carried on even after the Jobs data printed.

The euro was stronger for most of the day on Friday, but as I left the office at the end of the day, it was beginning to look a little worn around the edges, and as I turn the currency screens on this morning, I see that the single unit has given back some ground.

I got a kick out a story that a reader sent me over the weekend… It was a story that appeared on the Bloomie regarding rate cuts… I told him, “yes, this is the stuff I keep harping on about how it’s not the cost of the credit that keeps banks from making loans, so why keep cutting interest rates?” So… Here’s a snippet of the report so you can see what it is that I’m talking about…

“European Central Bank Executive Board member Juergen Stark said cutting interest rates won’t remedy the financial crisis and pushing them too low may backfire. The financial crisis can’t be solved with rate cuts, Stark said in an interview to be published in Luxembourg’s Tageblatt newspaper on March 9. Too low a rate level can even be counter-productive.”

Hmmm… Finaly a Central Banker with the intestinal fortitude to stand up and say the right thing! Of course, that didn’t stop the European Central Bank (ECB) from cutting 50 BPS last week! UGH!

Recall last week I was talking about how fundamentally speaking, Australia was looking healthier than other countries, but then they posted a contraction in their GDP the next day… Some egg on my face with that one, but Hey! I still think they are poised to pull out of this global financil meltdown on the fast track. Apparently, I’m not the only person that thinks that… Derivatives show that the worst is over for the Aussie dollar… And the Royal Bank of Canada (RBC) is telling their customers to buy the Aussie dollar VS Canadian dollars / loonies… I read that this morning, you don’t think I make this stuff up do you? It was there in on the screen…

I mentioned to Chris Gaffney last week, that I had been seeing more yen selling coming across the trading desk than I had seen in a long time. I said that these people, if they had held it long enough, were probably taking profits. And why not? In this day an age with deflationary pricing pushing most assets downward, when you see a profit, you take it!

The guy known as “Mr. Yen”, Sakakibara, told the press last night that he believed yen may rise to a record 70 VS the dollar… WOW! He also said that it would range trade between 100 and 70… He believes that the yen will be afforded the same kind of love the dollar has received since the financial crisis began in the U.S. With Japan posting a large economic contraction last week, Mr. Yen, is of the opinion that it will help the currency gain to 70.

Hmmm… I just don’t know about all that… For one, I’m not convinced the flight to safety that has underpinned the dollar with buying of Treasuries, will be duplicated in Japan… And two… The only thing I saw pushing the yen stronger in 2008 was the unwinding of the Carry Trade, which I said had come to end about a month ago. So… There you have it… I don’t like yen’s chances to go to 70, but do agree that it could hold 100… It’s darn close to 99 as I type…

Recall last week I told you about my neighbor that stopped me in the driveway and was all concerned about what he had heard on the radio that day, regarding the FDIC going broke… I said then, not to worry about it, as the Fed will print more money and keep the FDIC from failing… If they kept AIG from failing, they certainly would do the same with the FDIC… Well, on Friday I saw this… “the FDIC wants a permanent increase in its line of credit with the Treasury Department to $100 billion from the current $30 billion. FDIC Chairwoman, Sheila Bair told key lawmakers in letters Thursday that such an increase “would leave no doubt that the FDIC will have the resources necessary to address future contingencies and seamlessly fulfill the government’s commitment to protect insured depositors against loss.”

OK… I told you on Friday morning about Gold’s rebound to $940, but it failed to add to that figure even after the horrific jobs data. I guess you would have to say that Gold traders had “priced in the jobs data already”, eh? Gold is off by about $4 this morning, as it gets pulled down by a report regarding global inflation… The Economic Cycle Research institute assesses that U.S. inflation pressures are at their lowest since 1958, and likely to decline further…

But for every report attempting to pull Gold down, there’s one attempting to push it higher… What I’m talking about here is the report that our friends, NOT! At OPEC are going to maintain their 13% cuts in production put in place since September 2008. They may consider more cuts. Oil is trading higher this morning at almost $47, and oil traders believe it will be back to $50 within two months…

Quietly making noise for the past 3 months has been the Brazilian real… The real has gained 4% in the past 3 months, as investors around the world look for yield… And Brazil’s interest rates have had the allure of the Sea Hag’s song to Pop-Eye! But… There’s word out of Brazil that the Central Bank will look to cut rates by 100 BPS / 1% when they meet, later this week. That’s too bad, but Shoot Rudy, Brazil’s rates will still remain higher than you can get in most ports of call… And… Their GDP will be positive…. And… If traders and investors reward the real for cutting rates aggressively like they did over currencies, then the real has nothing to worry about, eh?

OK… So, for the past month I’ve given you my ideas for the countries / currencies that could be on the fast track to recovery, given their ability to remain off the rosters of countries with failing banks. Norway leads the pack, with Canada, and Australia close behind… I even told you about how Paul Volcker thought we should shift to the way Canadian Banks operate. Well… It’s always nice to see someone else follow up on my ideas, not that they read the Pfennig and said, “Hey! Let’s write about what Chuck wrote about”… Nah… That wouldn’t happen… HA! But, seriously, BNP Paribas’ research team has issued a report advising their clients to buy… You guessed it… Norway, Canada and Australia…

BNP said, “we remain friendly on commodity currencies like Norway, Canada, and Australia, and view today’s oil price rally as an indication for other commodities to follow. We are bullish on the Canadian dollar, Norwegian krone, and Australian dollar, but unlike last week we like trading these currencies long against the dollar.”

So… There you go! It’s not just me!

There is no scheduled data to print today, but the rest of the week is chock-full-0-data. On Wednesday, when I board a plane to Florida, we’ll see the Monthly Budget Deficit… That should be a doozy! On Thursday, we get the usual Weekly Initial Jobless Claims, and Retail Sales for Feb… I can tell you right now, that the BHI (Butler Household Index) tells me this report for Retail Sales is going to be very disappointing! Friday the 13th, we’ll see the Trade Deficit, Import Prices, and U. of Michigan Confidence. There are other 2nd Tier reports sprinkled in all week…

I really do think that the Retail Sales for Feb, is going to be bad… And that may weigh on the dollar, that is, if the Trading Theme keeps to the back of the room!

OK, as I head to the Big Finish, I see the euro has lost more ground than when I first came in… It just can’t stand prosperity!

Currencies today 3/9/09: A$ .6360, kiwi .4980, C$ .7735, euro 1.2590, sterling 1.3890, Swiss .8595, rand 10.5930, krone 7.1125, SEK 9.2050, forint 247.90, zloty 3.77, koruna 22.02, yen 99.15, sing 1.5515, HKD 7.7550, INR 51.88, China 6.8410, pesos 15.28, BRL 2.3750, dollar index 89.20, Oil $46.74, Silver $13.22, and Gold… $937.90

Source: A Horrific Jobs Report!