Good day… And a Happy Friday to one and all! The end of the week… It’s been a tough week for yours truly, as I’ve hobble around in pain all week. But, as I recall, I promised 2 years ago that I would not complain about these things in the future… So! I carry on!

Well… Front and center this morning… The currencies are trading near levels they were when I signed off yesterday morning. They did have a brief rally, after the U.S. Retail Sales data showed some real rot on the “recover is here” vine… But that rally was snuffed out, as the risk aversion campers came back to the markets…

Overnight, the Reserve Bank of Australia’s (RBA) Gov. Stevens, game his semi-annual report on the Australian economy to Parliament, and he was quite upbeat… And not just about the Australian economy. Stevens was quite upbeat about most of Asia, including Australia’s largest export country… Japan. I bet you thought I was going to say China! I thought that Stevens did a fantastic job of putting his thoughts out there for all to hear. Like, talking about how future quarters could show softer growth as the RBA removes “fiscal candy”… Good Show!

One thing is clear, at least to me, from this upbeat report, and that is I believe we can look for the RBA to hike rates aggressively in the first QTR of next year… And, if the future quarters are stronger than Stevens now forecasts, we could very well see a rate hike before we turn the calendar page on 2009!

Speaking of future rate hikes… Since Norway’s Norges Bank moved to a tightening bias on Wednesday morning the Norwegian krone has gained 3.2%! Go krone, Go krone… I’m dancing in my seat. Carlos Santana is playing, dance, sister dance on the radio… It’s all good… OK, I’m sure that’s a sight you didn’t want flashing before your eyes!

OK… So… Here in the U.S. we saw Retail Sales for July, which I told you yesterday was expected to be stronger because of the Gov’t’s cash for clunkers program… U.S. retail sales unexpectedly fell -.1% in July despite the debut of the government’s “cash for clunkers” program meant to jump-start the auto business and help turn around the economy. So… Here we go again… The Gov’t promises something, and it falls short of expectations… Looks like “cash for clunkers” is a Clunker!

That Retail Sales shocker yesterday really makes one stop to think about all the euphoria being exhibited about the end of the recession… So… When Retail Sales printed, you can understand the return of the risk aversion campers, eh? I wonder how this report fits into the Fed’s view that the economy is “leveling”?

Today, we’ll see the stupid CPI report… Just what we need on a Friday! A reminder of how the Gov’t cheats those that are on fixed payments, and those that buy TIPS… Don’t know what I’m talking about here? That’s OK… You must be new to class! No worries! You see the Gov’t began making changes to the way we calculate consumer inflation back in the mid 90’s, and it’s been a huge mess ever since! I’ll just say this… Consumer inflation in this country has been grossly understated for 15 years… It was all done as part of a plan to allow interest rates to remain low, so that housing would become affordable for everyone… Now, that plan sure worked out well, eh? NOT!

So, enough of that! Let’s talk about Brazil! Before I get into this, I must make this perfectly clear… Brazil is an emerging market, and with that moniker, they should be viewed as a speculation investment only, that is unless it’s got principal protection like our BRIC MarketSafe CD! WOW, did you see how I segued right into that? Man… I are so smart!

OK, back to Brazil… I was reading a story on the Bloomie this morning about how a currency strategist at Standard Chartered Bank in New York, has forecast a level of 1.80 for the real by the end of this year, and 155 by the end of 2010… WOW! That would mean that on top of this year’s already top performance of +27%, the real would add another 15% next year… That’s all nice and sweet… But it is just a forecast by someone I’ve never hear of, so take that with how ever many grains of salt you wish!

Now that I have you all pumped up… OK, for a second there the old Hans and Franz Saturday Night skit, “were going to pump you up” flashed before my eyes… OK, were was I? Oh, now that you’re all pumped up, I will remind you of what I said on Wednesday of this week… And that is, that I’m becoming very scared of this stock market run, and if it runs out of steam, the resulting sell off of stocks could adversely affect the currencies, since these two asset classes are being hog tied together, along with commodities!

Oh, and this just in this morning… Brazilian Retail Sales rose 1.7% in June beating the forecasts of a 1.2% gain. You would have to think that given the strength of this report that Brazilian domestic demand is growing and will contribute further to the thoughts that the Brazilian economy is going to rebound faster than most other countries. And when you have some of the highest yields in the world, and an economy rebounding faster than others, you get a ton of foreign investment into the country, which… Will drive up the value of a currency, which in this case is the real!

It’s been a while since I last talked about Gold & Silver… And then I was reading a report written Sean Hyman about Gold, and decided to share with you some of Sean’s thoughts… Sean believes that we’ll see $1,300 Gold by the end of this year, and $2,500 Gold in 2010… He bases this on a number of things, but mostly on the fact that the IMF announced sales of Gold made earlier this year, is being completely offset by Chinese buying. With all the demand for Gold, having this huge IMF selling of Gold offset by the Chinese if HUGE! So… I thank Sean for his thoughts here…

Sean is a regular contributor to the FX University Daily newsletter that the Sovereign Society publishes… I’m a part of FX University, along with Sean. Speaking of FX University… Many of you know how the FX University did what we called “currency tours” last year, visiting 8 different cities to hold one-day classes on Foreign Exchange (FX)… That format is going to change… In February 2010, we’ll hold a 3-day event in Scottsdale Arizona… So… The number of people able to attend these classes will be greatly reduced! I suggest that you visit http://www.worldcurrencywatchfxu.com/main/

OK… Thanks for all the positive notes about abolishing the Fed yesterday… I did receive a few that thought I had lost my marbles, and didn’t have any problem telling me so! But that’s OK… I didn’t think it was going to be met with 100% approval / participation! Quite a few told me to join Ron Paul’s bandwagon… I’ve been on his bandwagon for some time now! But for those skeptics to my call to abolish the cartel, I mean the Fed, I simply suggest you read the book: The Creature From Jekyll Island… But for an appetizer, I suggest you first read William Fleckenstein’s book, The Age of Ignorance at the Fed, Greenspan’s Bubbles…

And… Let me make something perfectly clear… This letter is Chuck’s letter… And therefore it is Chuck’s opinions, not those of the Bank! While I’m sure that I’m loved by one and all at EverBank, they do not influence my opinions, this is all me, folks… Just imagine what my poor beautiful bride has had to put up with for 33 years!

OK… We had some housecleaning to do this morning, I sorry about that, but just some things to get off my chest and out the door…

Before I head to the Big Finish, I wanted to talk a bit about Canada… While the U.S. was posting an increase in their Trade Deficit, Canada printed a narrowing Trade Deficit! Rising exports and falling imports resulted in a HUGE narrowing in Canada’s trade deficit in June which came in at C$55 million, which was much smaller than May’s revised C$1.1 billion trade shortfall… This is a nice piece of data for Canada, and I would love to see this deficit narrow further next month, and get back to the days of surpluses in Canada!

One would think this data to be a feather in the loonies’ cap!

Currencies today 8/14/09: A$ .8435, kiwi .6820, C$ .9205, euro 1.4290, sterling 1.6565, Swiss .9360, rand 8.0550, krone 6.0250, SEK 7.1250, forint 188.50, zloty 2.8875, koruna 18.51, yen 95, sing 1.4425, HKD 7.7505, INR 48.25, China 6.8344, pesos 12.84, BRL 1.8230, dollar index 78.35, Oil $70.75, 10-yr 3.60%, Silver $15.10, and Gold… $958.70

That’s it for today… hope you have a Happy Friday!

Chuck Butler

Source: Cash for Clunkers Is a Clunker!

Front and center to talk about this morning, was the Jobs Jamboree… The mass media would have you believe that the recession has ended, and there are no longer any problems with the credit markets, and liquidity, not to mention the sorry state of financial institutions… Why? Because after the previous month’s job losses were revised up from 663,000 to 699,000 (nobody cared about that!) the April figures came in at, according to the media, “just” 539,000… YAHOO! Let’s have a party, according to what I kept seeing on the TV!

Well… Before we go and buy the party favors and balloons, let’s take a closer look at the number, to see where the jobs were created… Something an old-time journalist would do, before claiming it to be party time! Well, what to my wondering eyes did appear? 72,000 jobs created by the Gov’t. That’s right… Add those back and the civilian job market did add / create some jobs… But not the lofty number of jobs the media would have you to believe. It’s not that I want to see jobs lost, folks… I just want things to be reported correctly, so that investment decisions can be made on facts, not fiction.

So… Here’s how I would have reported it… “April’s job losses finally put a tourniquet around the labor market and created jobs for the first time in 6 months. The “absolute” number of jobs lost remained above 600,000, but, April’s figures do give hope that we will see further gains in future months.”

OK, enough of that! The hoopla over the labor data kick started the risk assets, as, if you recall, I said they would on Friday. Currencies led the way, with commodities in second, and stocks finally getting a clue later in the day. The Big Dog, euro, led the little dogs (the rest of the currencies) off the porch to really chase the dollar down the street. This chase lasted all day, and by late afternoon, I yelled across the desk that the dollar index has moved to the downside of its 200-day moving average! This move really lit a fire under the dollar bears, and they came out to play for the first time in a month of Sundays.

So, the risk assets were kicking some tail and taking names later… What was hurting? U.S. Treasuries! As I’ve said over and over again in the past, holders of Treasuries are growing tired of the paltry yields… And now, the currency the Treasuries were denominated in was getting hammered… The move out of Treasuries drove down the price, and pushed the yield higher… I doubt the Fed and Treasury are happy about that! The Fed will have to start buying more Treasuries to get the yield under control…

Another entity that wasn’t happy about watching their $750 Billion or so, of dollar denominated Treasuries get double whacked like that in one day… The Chinese! How would you like to take on losses like that?

But really folks, yes, the price action in the currencies and Treasuries were violent on Friday, but… This has been happening for about 2 months now… Yes, we’ve seen the back and forth of these assets, but when you put a line on the 2-month performances, you’ll see this wasn’t just a one-and-done!

OK, so the Chinese watched all this and thought they were in a horror picture show! I saw a Chinese official try to wipe out China’s harping about “the need for a replacement reserve currency”… Shoot Rudy, wouldn’t you do the same thing?

So… The “backing off” by the Chinese, has everyone re-thinking Friday’s price action… For if the Chinese are going to balk, the rest of the world needs to stop and take a breather. Again, folks, this is one of the very bad things that I’ve tried to explain to you over the years regarding the imbalances between the U.S. and China… With China doing the “rope-a-dope” regarding their call on the dollar, the euro and other currencies have backed off their lofty figures of Friday… The Big Dog, euro was nearing 1.37 on Friday afternoon, when I left for home… It’s back down to 1.36 this morning…

The move on Friday proved to be just too fast… And the currencies are coming back to fill the gaps they passed up on Friday.

Did you hear that the Fed used a “different” method of valuing the banks? The Fed’s “yardstick” Tier 1 Capital surprised quite a few observers… Many analysts thought that the Fed would use what’s called “tangible common equity”, which would look at the assets and make them accountable for unrealized losses… But NOOOOOOOOO! Had the Fed used “tangible common equity” the total hole the banks would be in would be $68 Billion deeper!

My dad used to tell me… Chuck, figures lie, and liars figure…

Not that I’m accusing the Fed & Treasury of just going through the motions on this… No wait, I guess that IS what I’m doing!

Let’s go back to the mention above regarding the dollar index moving downward through its 200-day moving average… The dollar index is a measure of the value of the dollar relative to a basket of foreign currencies. It is a weighted geometric mean of the dollar’s value compared to the euro (EUR), Japanese yen (JPY), Pound sterling (GBP), Canadian dollar (CAD), Swedish krona (SEK) and Swiss franc (CHF).

It was started in March 1973, soon after the dismantling of the Bretton Woods system. At that time, the value of the Dollar Index was 100.000 and has since traded as high as the mid-160s but also into the low 70s. It currently stands at 82.63…

The dollar index is heavily weighted toward euros…

Many institutional investors use the dollar index as their means of trading the dollar… And to see it fall through its 200-day moving average, was enough proof for them that the dollar is heading south.

The 200-day moving average, for those of you unfamiliar with this term, is a long-term moving average that helps determine the overall health of the asset, which in this case we’re talking about the dollar. It is for all practical purposes a dividing line, if you will, between as asset being healthy and one that is not.

OK, enough of the lessons! I mentioned at the top that the price of Oil was on the rise Friday, and although it has backed off now, with the Chinese comments, for a while there on Friday, you could see the bubbling crude, black gold, Texas Tea, spouting off toward $100 again… Yes, Oil saw a $60 handle briefly on Friday… It’s back down to $57.42 this morning… Now, that’s one thing we DON’T need is a rising Oil price!

The Canadian dollar / loonie on the other hand, loves a rising Oil price! Recall, I told you a few times in the past that the loonie needs a stronger Oil price to really go a tear higher… But even with the move in Oil recently, the loonie has been moving steadily higher VS the dollar. When I say recently for Oil’s move, I’m talking about the last 2 months… In the last two months crude oil is up +31% (since March 1st)… WOW! No wonder the loonie has gained almost 12% since that same March 1st date…

In fact, I just ran a currency scorecard using March 1, 2009 as my beginning date, and the currency moves since that date have been phenomenal! Except for yen, which is flat during the past two months. How do these sound? Kiwi +22%, Sweden +19%, Norway +12%, and so on…

The U.S. data cupboard is empty today, but gets restocked tomorrow with the latest Trade Deficit report… The way the Trade Deficit has been falling in the past 6 months, I might have to say Trade Balance, and not assume it will be a deficit some day! Well, the fall in the Trade Deficit is a direct result of the U.S. recession. U.S. consumers “finally”, taking a breather on spending… The reduction in the Trade Deficit however, has NOT been a result of improving exports, which would be the preferable method of reducing the Trade Deficit. If exports were leading the way, it would mean that U.S. manufacturing was hitting on at least 6 of 8, and that would be good for the economy! But… Instead, we get a reduction from a lack of consumer spending… A combo of both would be great! But that’s pie in the sky stuff!

We’ll also see April’s Retail Sales on Wednesday. March’s Retail Sales were awful (-.9%)… I do expect to see April’s figures to be stronger, according to the BHI… (Butler household index)…

At least all the rate cuts are over for this month. The Bank Stress Tests are a thing of the past, and we can maybe… Just maybe, return to the fundamentals!

Currencies today 5/11/09: A$ .7620, kiwi .6025, C$ .8655, euro 1.3580, sterling 1.5115, Swiss .9020, rand 8.3650, krone 6.4120, SEK 7.7375, forint 205.50, zloty 3.2280, koruna 19.6520, yen 97.80, sing 1.46, HKD 7.75, INR 49.50, China 6.8239, (see when China got spooked on Friday, they weakened the renminbi!) pesos 13.12, BRL 2.06, dollar index 82.63, Oil $57.42, Silver $13.83, and Gold… $912.50

Source: A Huge Rally Gets Stopped!

The U.S. treasury broke two bond sale records this week: Uncle Sam sold $21 billion in 10-year notes Tuesday and another $14 billion in 30-year bonds yesterday — both all-time daily highs.

Both are just small pieces of the expected $2 trillion in U.S. debt sales this year… at least.

But bond investors are finally starting to see the forest for the trees. The yield on those 10 years climbed above 3% this week, the highest level in more than three months.

“Except for U.S. Treasuries, what can you hold?” lamented Luo Ping, the director of China’s Banking Regulatory Commision.

In a speech in New York yesterday, Luo said China will continue to buy and hold U.S. Treasuries. With a giant tone of reservation: “You don’t hold Japanese government bonds or U.K. bonds. U.S. Treasuries are the safe haven. For everyone, including China, it is the only option.

“We hate you guys,” Mr. Luo said, half kidding after his speech. “Once you start issuing $1-2 trillion… we know the dollar is going to depreciate, so we hate you guys, but there is nothing much we can do.”

Maybe they should buy gold. The spot price is up $50 since Tuesday, to $950 an ounce. Considering fleeting investor confidence in U.S. paper and all the stock suffering Tuesday, can’t say we’re surprised.

“We are bearish on U.S. government paper in all its forms,” says Bill Bonner. “And here’s why. The latest estimate from Goldman Sachs puts U.S. government borrowing for this fiscal year at $2.5 trillion. Meanwhile, foreigners are showing less and less interest in U.S. debt. They’re switching to short-term paper — bills and notes, which are less vulnerable to inflation and currency declines. And they’re pulling out of U.S. Treasury market generally. The total percentage of U.S. debt owned by foreigners is falling from 60% down to about 40%… a huge drop.

“Either one of two things will happen. If the government funds its deficits honestly — by borrowing from willing lenders — this huge extra demand for credit will force up yields… thereby lowering bond prices. Or if the government resorts to “monetizing the debt” — that is, funding its debt with printing press money — investors will flee bonds, in fear of higher inflation.

“Either way, it will be bad news for bond prices.”

At the same time, the U.S. budget deficit has risen to a record $569 billion in just four months. With the $83 billion January deficit the Treasury reported yesterday, I.O.U.S.A. has already topped its own annual budget deficit record, despite being just four months into the fiscal year.

At the current rate, the 2009 annual budget deficit will exceed $1.7 trillion, almost four times 2008’s record deficit and $500 billion over the Congressional Budget Office’s latest projection.

Stocks managed small gains yesterday after the Geithner debacle on Tuesday. Falling oil prices mired the energy sector, while a lack of data and even fewer earnings surprises gave traders little reason to bounce back from Tuesday’s big loss.

In the end, most major indexes inched up less than 1%. The Dow ended the day at 7,939. The S&P settled in around 833.

“I’m looking for a break above the intermediate range on the S&P at 878” notes options trader Wayne Burritt. “That should signal a move to the upside of the range. That means a run to 944 — the very top of this large trading channel — could easily be in the cards.

“In spite of a ton of terrible fundamental news, the stock market is holding onto its base. That shows uncommon resilience and, in the near term, is bullish for stocks.

“That said, it’s also not time to kid ourselves. While the market should continue to bottom out in the 800 area for some time, it’s not going to really break out to the upside until some solid fundamental data begin to show improvement.

“Remember, the stock market tends to be a leading indicator of where the economy is headed. So we’re not looking for every data point to turn to the upside. We just need a few here and there, and then investors should begin buying with more conviction.

“Specifically, I’d like to see some good news out of the housing and jobs front.”

Maybe we can find some good news in the mortgage market.

Ummn… no. Despite historically low mortgage rates, mortgages applications have plummeted to an eight-year low.

Applications fell 25% last week alone, the Mortgage Bankers Association reports. According to the group, the recent acceleration in unemployment is partially to blame. But mostly, consumers know the government is going to keep pushing rates lower.

Today, the national average for a 30-year fixed is 5.19%. But the Fed and Treasury have vowed to keep defibrillating until the rate hits 4.5%.

OK, how about on the foreclosure front? The U.S. foreclosure rate improved in January. “Only” 274,399 foreclosure filings hit the books in January, down 10% from the month before.

Wait… what’s this? According to RealtyTrac, most of decline was due to a moratorium on foreclosures at Fannie Mae and Freddie Mac. Ah, we see the logic. If you don’t allow foreclosures to take place, the problem will just go away. Impeccable.

Bummer. Foreclosures were still up 18% annually. The trend remains.

Jobs? Any good news there?

The number of continuing claims for unemployment insurance hit another record high today, says the Labor Department. A record 4.8 million people were sucking the government teat in the last week of January. New claims did come off their recent 26-year high, down 8,000 to 623,000 claims.

U.S. retail sales perked up 1%, the first increase in retail activity in six months. That’s good news, right? Darn. Still no… the majority of the retail bump was due to higher gas prices throughout January.

Geez. Can’t a brother catch a break?

Well, at least the IPO dry spell may be over. Thanks to:

Baby formula…?

Bristol-Myers Squibb spun off its infant formula maker Mead Johnson Nutrition in a surprisingly successful IPO yesterday. The company raised $720 million and sold 5 million more shares than it anticipated in the first successful float since November… the most lucrative since April 2008.

Three other companies are set to go public this week. Mead’s float is hardly an all-clear signal to the IPO world… so we’ll see how it goes.

Even good news is bad news today. A better-than-expected supply report from the U.S. Energy Dept. sent crude oil straight to the woodshed yesterday. At $35 this morning, the light sweet stuff is down to a three-week low.

Elsewhere in the resource world, China’s state-owned aluminum producer has closed its $19 billion deal with Rio Tinto (RTP). The company, Chinalco, could control as much as 18% of Rio as a result.

Here’s an interesting detail of imploding economy: Over 3,000 cars currently sitting abandoned in the Dubai Airport.

Apparently, thousands more rest ownerless in garages across the city.

Foreign workers make up 90% of Dubai’s population. But the government, says The New York Times, is canceling 1,500 work visas every day. Over 50,000 were nixed in January alone — up 86% from January 2008.

It’s a crime in Dubai to not pay your bills… so fearing imprisonment, leagues of unemployed are buying one-way tickets out of Dubai and leaving everything they can’t fit in a suitcase — cars included.

(Side note: The Dubai government is trying to save face by passing a law forbidding the media to report anything damaging to its reputation, punishable with fines up to $272,000.)

“You guys are really getting out of touch,” insists a reader. “Why not ask Rush to comment? Either that or state clearly that you are RNC minions! That would be about as stupid as some of Tuesday’s comments. Did any of you guys ever work a real labor job in your lives?

“Let’s try an experiment. Have any of you ever talked to your grandfathers or great-grandfathers about why so many of them voted Democrat from 1932-1952? Geez, guys, give them a break. If the New Deal was such a great failure, as you allege, why did the vast majority of Americans vote Democrat for so many years? And why did America go into such mourning when FDR died? And why did the standard of living for the average American make its greatest increases ever during the Democratic administrations since 1929.

“Another fact you keep overlooking: Since 1945, annual gains during Democratic administrations: 10.6%; average gains during Republican administrations: about 6% (Fidelity Investments quarterly, January 2009). Being the economic and investment geniuses that you are supposed to be, why do you keep spouting such RNC drivel?”

The 5: Huh? The quote we ran Tuesday about the New Deal amounting to futile spending, massive debt accumulation and no impact on unemployment was testimony of one of its chief architects before the House Ways and Means Committee in 1939.

But more power to you, eh? If you’re investing according to which party is occupying the Oval Office and citing Fidelity as your source… good luck. You don’t need The 5 Min. Forecast.

“All the reckless spending your government is doing,” writes a Canadian reader, “and the inflation it’s going to create is going to have dire consequences on the rest of the world too. Just like the dire consequences the rest of the world is suffering now due to the U.S. housing and mortgage debacle.

“Seems the underlying cause of these problems is the political games that go on to win popular support. Your politicians and, in fact, all politicians in democratic countries will do anything, say anything and destroy anything to get into office and stay there.

“Almost makes you wonder if we would all be better off being ruled by a benevolent dictator who could just do the right thing and not worry about what the average voter thinks about it.”

The 5: Hmmn… benevolent dictator. Honest politician. Military intelligence. We’re fans of oxymorons too. (Emphasis on “moron.”)

Cheers, eh?

Source: Bond Bubble, Deficit Record, Trading Signals, Dubai in Danger and More!

And the bad economic data just keeps rolling in. U.S. foreclosure filings spiked by more than 81% in 2008, a record, according to a report released Thursday, and they’re up 225% compared with 2006. The total foreclosure filings in 2008 topped 3 million and showed no signs of slowing down in spite of the efforts of both the government and banking industry to slow them down. Foreclosure filings actually accelerated in the 2nd half of the year, increasing 17% in December over November of 2008.

The Fed gave us a glimpse of their view on the markets yesterday with the release of their Beige Book. Nothing in the report was a surprise, as respondents from the 12 Fed districts portrayed a gloomy economic scene. The report suggests the Fed may need to implement further measures to restore credit markets. The Fed districts reported more job losses, hiring freezes, and reduced hours. The New York district reported that ’substantial’ job reductions have yet to show up in payrolls data. Doesn’t sound good for the US economy in 2009.

Today we will continue to get negative news on the US economy with the release of Producer Prices and the weekly jobs numbers. Producer prices will bbe down and initial jobless claims will probably top 500k. We will also get the very volatile Empire Manufacturing and Philadelphia Fed numbers showing further rot on the manufacturing vine.

The dollar actually rallied with these numbers, as investors turned back to it as a ’safe haven’. This move is similar to the moves we saw in the latter half of 2008 as the dollar rallied in the face of poor US economic data. Chuck sent me his thoughts on this latest ’safe haven rally’ and wanted me to share them with you all:

“Reuters reported Wednesday night that the U.S. is close to extending Billions of more aid to Bank of America… Citigroup, as reported yesterday, is selling off units to raise capital… I wonder if Big Ben Bernanke and Hank Paulson drink more than 7 cups of coffee a day… Researchers show that drinking more than 7 cups of coffee a day may trigger delusions…

What does the rot on the vine at BOA and Citi have in common with delusions? Well… I think that Big Ben and King Henry are drinking more than 7 cups of coffee a day, if they believe their “stimulus” / TARP is going to get these two ginormous banks back on terra firma!

Remember the Lone Ranger? Remember a couple of years ago, when the dollar was propped up by Fed rate increases, and the tax amnesty for U.S. Corporations doing business overseas? Those props were pulled away one at a time, and for the next 2 1/2 years the green/peachback fell flat on its face… Well, it came up with another prop this summer… However, this time… There’s only one prop… The Lone Prop, I’m going to call it from here on out… It’s called the “Safe Haven” prop… And it has done the dollar well since July…

But just like in early December when I smelled a Santa rally to year end, and it happened… I’m seeing chinks in the dollar’s Lone Prop’s armor… The Fed has just about run the course of things it can do to get this economic engine revved up again, to no avail… And just like I said a couple of weeks ago, Paulson and Bernanke are like the King’s men, who tried to put Humpty Dumpty back together again! Their stimulus plans, their money supply injections, their guarantees on debt, their taking over the Commercial Paper biz, to their putting their hands in bank’s cookie jars… Nothing has worked… And why? Because, it’s not nature’s way to interfere! One of my all time fave songs, by Spirit (Randy California) called, “It’s Nature’s Way”… It’s nature’s way of telling, something’s wrong… It’s nature’s way of telling you in a song…. It’s nature’s way of receiving you… It’s nature’s way of retrieving you… It’s nature’s way of telling something’s wrong…

It’s obvious they were singing about something else… But I would say if sung today, it would be sung to the economy… One of these days, these mental giants will figure out to leave well enough alone, and let markets take their course… But that’s not happening now, and I’m sure it’s not going to happen any time soon, given the news that President-elect Obama wants control of the remaining $250 Billion in TARP money, and then wants to push through a stimulus package that will be anywhere between $800 Billion and $1 Trillion as soon as he takes office!”

Chuck is pretty amazing, he had another tough day at the doctor’s office yesterday, but still found the time to send me his thoughts on this recent move by the dollar.

The Euro sold off a bit yesterday as currency traders were waiting on the ECB which will likely cut 50 basis points this morning. Some actually began predicting a 75 basis point cut, but the noise on the street is confirming a 1/2% cut. But the markets will focus more closely on the press conference following the rate announcement. Many are expecting the ECB to signal more cuts are on the horizon, but I disagree. The leaders of the ECB have a hawkish tilt, and Trichet has continued to illustrate his desire to not follow the US Fed’s ZIRP (Zero Interest Rate Policy). A 50 basis point move would put interest rates at the lowest levels since 1999, and a further move would be unprecedented. Trichet said last month that there is a limit on how far the ECB can cut rates and will likely push for a pause after today’s cut.

But recent data out of Europe shows their economy continues to contract, and inflation is being held down so Trichet will face mounting pressure to drop rates further. If Trichet can hold the line, the euro will likely benefit vs. the US$. The euro rose 10 percent vs. the dollar in December, after Trichet said he wouldn’t be trapped with borrowing costs too low. The European economy is slowing, but will likely be able to weather the financial tsunami better than the US.

The emerging market currencies of Brazil and South Africa slid yesterday with ‘risk aversion’ back in vogue. The Brazilian real sold off to a two week low on concern over a further deterioration of the US economy. The South African rand sold off in concert with a drop in the price of gold and commodities. The higher yielding currencies of New Zealand and Australia also fell vs. the US$ as investors turned back toward the ’safe haven’ of the US$. But don’t expect this dollar strength to last, as this lone prop of ’safe haven’ will be kicked out from under the dollar.

On to the currency wrap up:

Currencies today 1/15/09: A$ .6632, kiwi .5379, C$ .8033, euro 1.3170, sterling 1.4602, Swiss .8928, rand 10.1408, krone 7.2099, SEK 8.3956, forint 212.64, zloty 3.2109, koruna 20.6965, yen 89.11, sing 1.4957, HKD 7.7598, INR 49.0175, China 6.8365, pesos 14.1862, BRL 2.3841, dollar index 84.253, Oil $37.80, Silver $10.50, and Gold… 812.35

That’s it for today… I see where the ECB did cut 50 basis points, which was widely expected. I can look forward to another full day of meetings on the new computer system we are looking to install later this year. I’ll be heading out to Colorado tomorrow for a ‘guy’s weekend’ of skiing. Hope everyone has a Terrific Thursday!!

Source: Retail Sales Disappoint

Considered to be a beneficiary of the tightened household budgets, the company reported a paltry 1.7% increase in same-store sales. As a result, it cut its earnings outlook.

Thomson-Reuters was right about one thing, though: Higher-end retailers got spanked – some of them quite dramatically. For example, Saks (NYSE: SKS) posted a 20% decline in same-store sales, while Gap (NYSE: GPS) sales sank by 14%.

So how can investors play this? If you’re like me, when bad news hits, you look to snap up quality companies on the cheap. But retail stocks are just too dangerous right now. While taking the opposite approach of the main sentiment often pays off, I expect retail to head lower for the next few months.

If you’re looking for bargains, buy the retailers’ goods, not their stocks.

A New Cold War

No progress.

That’s the verdict from the latest round of talks aimed at solving the increasing crisis over Russia’s decision to cut off gas supplies to the Ukraine – one that is affecting gas supplies throughout Europe in the depths of winter.

European Union officials, plus those from Russia and the Ukraine were set for more negotiation in Brussels today, but those talks were cancelled, despite a meeting between Russia’s Gazprom CEO Alexei Miller and Oleg Dubyna of Ukrainian firm Naftogaz in Moscow on Wednesday evening.

The dispute stems from a disagreement over prices, contracts, unpaid bills from the Ukraine to Russia in 2008, and Russia’s accusations that the Ukraine has stolen gas from pipelines that pass through the country. And as tensions have risen, Russia shut the taps off a week ago – a move that has resulted in some EU nations (mostly in eastern and central Europe) seeing their gas supplies dramatically curtailed, or cut off entirely, because Russia accounts for about 25% of EU gas supplies – 80% of which are pumped through the Ukraine, according to the BBC.

Countries not receiving any gas at all from the Ukraine include the Czech Republic, Romania, Greece, Austria, Bulgaria, Hungary and Croatia.

Flash back two years and you’ll find a mirror image of the situation today, when Gazprom and Ukraine battled over gas supplies and caused shortages in several EU nations.

This dispute will eventually be resolved, but with much of the EU in the midst of a brutal cold spell, it can’t come soon enough. Meantime, Gazprom has vowed to pump extra supplies to the EU through other non-Ukrainian pipelines.

Source: Retailers Battle Sales Slump… Bank Of England Battles Recession… Russia And Ukraine Battle Each Other

Judging by reports, this will be the worst holiday shopping season in almost 40 years. This means that after the next round of corporate earnings reports that start next week, a wave of bankruptcy filings could follow. On a recent Bloomberg radio interview, Burt Flickinger of Strategic Resource Group said “You’ll see department stores, specialty stores, discount stores, grocery stores, drugstores, major chains either multi- regionally or nationally go out.”

So what does this mean to you? A few things: for one, it means now it is time to buy big, national chains that aren’t in any danger of closing. Companies such as Wal-Mart (WMT), Target, and Best Buy will gain market share as smaller competitors go out of business. This will also mean increased revenue from the growing customer base.

Secondly, if you have gift cards or after-holiday returns to some stores that are already in bankruptcy (Circuit City, Linen’s and Things) or on the verge of closing, hurry up and use the gift cards or return the merchandise.

It also means that if you are willing to roll the dice a bit, you may be able to get incredible deals as retailers blowout their inventories before closing. Electronics could be especially appealing, although getting warranty claims could be near impossible without a storefront to take the product back. Like everything in life, it’s risk versus reward.

Finally, it reinforces that commercial REITs should be avoided. Commercial REITs have been getting hammered lately, and soon face rising vacancies as more and more storefronts are shuttered.

Source: A Big Shakeout In Retail Is Coming In 2009

Unless we see a big bounce today, the yen will end the day with the first weekly loss vs. the US$ in two months. With a majority of markets closed, most news stories centered around the Japanese yen. Japanese industrial production fell the most in 55 years as reported on Wednesday. Factory output plunged 8.1% from October, more than 6.8% estimated by economists. Other data released in Japan showed the jobless rate climbed to 3.9% from 3.7%, and household spending slid .5%, a ninth drop.

Markets are now counting on the Bank of Japan to follow the FOMC’s lead and begin ‘quantitative easing’. Bank of Japan policy board member Hidetoshi Kamezaki said policy members would consider ‘extraordinary steps’ to help the economy. Japan’s central bank already countered the drop in US interest rates with a drop of their own, and again have the industrialized world’s lowest interest rates. Now they will turn to other means designed to pump liquidity into the financial markets. Kamezaki told reporters that the bank’s next policy steps should focus on improving funding for companies and influencing long-term borrowing costs. The bank will likely start buying corporate bonds and could actually go into the equity markets purchasing stocks to support Japanese industry.

If Japanese policy makers do adopt aggressive quantitative easing, the yen could see a fall in value. These measures pump large amounts of cash into the markets, and the laws of supply and demand tell me that these tremendous increases in money supply will eventually drive down the value of the currencies. The values of both the yen and the dollar will be challenged by these ‘quantitative easing’ measures over the next few years.

But some in the Japanese administration want a more cautious approach. Prime Minister Taro Aso has yet to implement two announced stimulus packages. He believes the Asian economies are better positioned than those of the west to endure the global recession. Instead of using all of their ammunition at once, the Prime Minister wants to take a more gradual approach to combating the economic slowdown.

One thing helping Japan weather the economic downturn is the falling price of crude oil. Since hitting a high of 147.27 on July 10 of this year, the price of oil has fallen 75%. OPEC has cut production in an attempt to slow the drop, but these announced cuts have yet to have an impact on crude prices.

The lower oil prices have kept a lid on global inflation, and several countries are taking advantage of these lower numbers to bring their interest rates down. India’s inflation slowed to a nine month low, with wholesale prices increasing 6.61% from a year earlier, down from 6.84% the prior week. Inflation in India has fallen below the central bank’s target of 7% largely due to lower fuel costs. I would expect India to continue cutting rates, which could reverse some of the rupees recent gains.

But the fall in oil prices haven’t helped all economies. Russia’s central bank devalued the ruble for the third time in a week, sending the currency to its lowest level against the dollar in two years. The Norwegian krone had also fallen as oil retreated from its highs. But the recent dollar weakness has steadied the krone, and it has been trading in a fairly tight range vs. the US$.

No data will be released in the US today, and the markets will likely be very light. Most will be heading out to the malls to try and take advantage of all of the year end closeout sales. Retailers have been dropping prices dramatically to try and salvage a tough holiday shopping season. US retail sales fell between 6 and 8% this season according to predictions by the credit card companies. This was one of the most challenging holiday seasons on record, and with a falling US economy, I would expect next year’s to be even worse.

The dollar strength we saw during 2008 will not spill over to 2009. I would think the recent dollar weakness will be the rule for next year, as the tremendous increase in money supply here in the US will help drive the value of the dollar lower. On that note I will move on to the currency scorecard:

Currencies today 12/26/08: A$ .6851, kiwi .5765, C$ .8209, euro 1.4097, sterling 1.4747, Swiss .9321, ISK 145, rand 9.74, krone 7.1259, SEK 8.022, forint 189.79, zloty 2.9163, koruna 18.728, yen 90.43, baht 34.99, sing 1.4469, HKD 7.75, INR 48.4437, China 6.8413, pesos 13.3125, BRL 2.3764, dollar index 81.214, Oil $36.37, Silver $10.38, and Gold… $848.55

Source: It’s All About the Yen

More from Bloomberg:

The dimming outlook signals consumer spending, which accounts for more than two-thirds of the economy, will deteriorate further, deepening the U.S. slump.

“The economy feels like it is contracting at a rapid pace,” Lewis Alexander, chief economist at Citigroup Global Markets Inc. in New York, said in a Bloomberg Television interview. “It’s clear that consumers have really been affected by the volatility we’ve seen in the last six weeks.”

The report underscores voter discontent with the country’s direction heading into the Nov. 4 presidential election. A majority of voters think Illinois Senator Barack Obama, the Democrat, will be better able to handle the economic turmoil than Republican rival John McCain, according to polls.

The Daily Reckoning’s Bill Bonner warned yesterday how the crisis that started on Wall Street was rapidly spreading to businesses and consumers all across America.

The next stage will come when consumers go on a rampage of thrift. Credit cards will go in the trash. Malls will be silent. Sales clerks will fall asleep on the job – and then be fired. Higher unemployment. More foreclosures. More bankruptcies.

And when Americans don’t shop, it will be products Made in China that they aren’t shopping for. That’s why the depression will be worldwide – the first ever.

“China, India, Brazil and Russia (the BRICs), the biggest emerging economies, export most of their products either to each other… or to the developed economies [mainly, the USA],” continues La Prensa.

Yes, Dear Reader… our “Crash Alert” flag is still up – even though the stock market, the housing market, the financial market, and the commodities market have already crashed. But now, there’s another flag up on our mast, a black flag. On it is a white duck laying on its back with its feet up in the air.

It is our way of warning you: “Global Depression Alert” it says at the bottom.

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“The economic stimulus package is flawed policy in the first place”, says MoneyWeek magazine’s Richard Benson.

The US government hopes to revive its ailing economy with tax rebates. But with the cost of living soaring and consumers deep in debt, this will have little effect.
There is a mountain of consumer debt out there, and debt collectors are hoping for a big chunk, if not all, of that little rebate check. For every check issued, there are 10 or more people holding their hand out for it. This year you will get butchered at the butcher shop because of the price of beef, and burned at the bakery. Grain is so expensive, even the French middle class can’t afford a baguette any more.

For the average American, this rebate check represents only one car, credit card, or partial mortgage payment. When you consider it cost well over $60 now to fill up the gas tank for a mid-sized car, and a lot more to go out to eat, it won’t go very far.

On the household front, millions of homeowners haven’t even finished paying their heating bills from last winter, and over six million Americans asked for energy assistance funds so their power wouldn’t be shut off. (In California alone, 1.7 million households are behind on their utility payments.)

“The good news is that the Federal government is sending a little tax-free money back to us in the form of stimulus checks. Never look a gift horse in the mouth, especially when it’s coming from the horse thief who stole it from you,” says Gary North of the Daily Reckoning.

The bad news is that this money will be borrowed. Every penny will be added to the on-budget debt of the United States government.

What is the estimated deficit today for fiscal 2008? This figure is buried in the recently released report, “The Cyclically Adjusted and Standardized Budget Estimates” (April 2008). The figure is $361 billion. A year ago, it was $162 billion Next year, the CBO estimates, the deficit will be a mere $133 billion. Write that figure down in your diary of accounting illusions. (The phrase “Arthur Andersen” comes to mind.)

On March 12, the Treasury made its estimate: $410 billion. This was the same as in February. These are large figures. We are only in the early stage of a recession. It has barely begun to raise the unemployment rate. Yet consumer confidence is at the lowest level since the recession of 1982 (Reuters/University of Michigan Surveys of Consumers). Recall that 1982 was the year of the low point of the Dow: 777 (August).

Today’s loss of confidence has not yet affected the stock market significantly. Optimism still reigns among most stock market investors.

As the deficit soars, which it will, the government will absorb more resources that would have gone into the private sector.  In a recession, investors seek safety. They want to protect themselves against falling stocks and bankrupt corporations. They buy Federal government-issued debt on the assumption that the Federal government will not default in a recession. This money does not go to fund private capital.

This is bad for the economy but good — in the short run — for investors