Bank of Canada “Just Says No” to Quantitative Easing

I’m Back! Once again, the traveling troubadour returns to the saddle. I’m here for two weeks, then gone again for the Las Vegas Money Show; then I get a nice reprieve in June before heading to Vancouver in July. There’s a day game at Busch this Thursday, and I’ve already been invited to go, so I’m already getting in the frame of mind for that!

OK… Chris did a great job bringing you the Pfennig each day last week… I was still writing each day, giving daily updates to the FXU people. Chris will be traveling with me to “lost wages”… I mean, Las Vegas… So I’ll be writing from the road, which long time readers know I just absolutely love… NOT!

The currencies rallied for most of the week, after the Swine Flu scare filtered through the markets. On Friday, the currencies were range bound, as it was May Day across the globe, and many countries were on holiday. So… We start this week with the news that Citigroup may need $10 billion to keep afloat, and news that Federal regulators shut down Silverton Bank in Atlanta, along with another smaller bank in New Jersey, bringing the total count of banks closed in the United States this year to 31! The FDIC estimated that the cost to the insurance fund would be $1.3 billion.

The Silverton Bank was supposedly a key cog in the Southeast, according to the Wall Street Journal, and bankers in Georgia are saying that Silverton’s collapse could take down at least 8 to 12 other banks with ties to Silverton. It’s like dominoes…

I’m not being flippant about this folks… I’m trying to point out that the rot on the vine is deeper than the media and the leaders of this country would have you believe them to be. I keep coming back to that interview with Ron Paul that I saw in March, where he said, “people are saying that problems in other countries are worse than ours… Those people are wrong!”

Oh, and did you hear that Boston’s most storied newspaper, the Boston Globe, is going to be shut down? And one more item… Those “stress tests”? Well, wouldn’t you know it, the results are being delayed, due to the Banks debating the findings. Well, they have that right to do so… Maybe, the regulators didn’t understand something in their accounting methods, or something like that. Unfortunately, I believe the banks’ debating will be like arguing with an umpire over balls and strikes!

OK… Enough of the blood in the streets! Let’s talk about some good things… Like last week when the Bank of Canada (BOC) decided to do a Nancy Reagan, and just say “no” to quantitative easing… Let’s hope they don’t end up with egg on their collective faces should they need to implement quantitative easing at some point in the future. But I’m sure they have weighed all the facts to this point. Canada’s Banks are in tip top shape, compared to their neighbors to the south, and I’ll explain this about the Canadian dollar/loonie (CAD) once more for those new to class… When oil returns to higher levels, the loonie will follow. This currency is so juiced by energy prices, and oil is the Big Kahuna…

And remember what you heard here first, last month, and that is that China would be the first to come out of the economic doldrums. I had someone ask me last week, why I thought China’s stimulus worked better than anyone else’s… Ahhh grasshopper, I’ve explained that before… But again, it’s very simple… With China being a Communist Country, they can dictate not only whom the stimulus goes to, but HOW the stimulus is used. Imagine if you will the initial $150 billion that was sent out last spring… If there were stipulations on how it was to be spent, maybe you’d have something, or better yet… The initial $700 billion in TARP funds… They didn’t have strings attached, and the receivers didn’t use the funds to loan out, as “requested by the Treasury”; they threw it in their nearly empty treasure chests and sat on it… See the difference in the two methods?

It appears that the so-called “decoupling” is back on the table, as China and India seem to be coming out of the economic doldrums long before the U.S., Europe, and Japan will… Hmmmm…

OK… The Chinese renminbi (CNY) has begun to move higher again, just when everyone thought the Chinese would batten down the hatches on currency appreciation. This is only happening because the Chinese economy is beginning to show signs of improvement.

Those signs of improvement in China are doing wonders for the Aussie dollar (AUD)… Don’t look now, but the Aussie dollar has climbed past 73-cents!

Aussie’s kissin’ cousin across the Tasman, New Zealand (NZD), is not seeing the same kind of McLovin’ the Aussie dollar is seeing… The Reserve Bank of New Zealand (RBNZ) left the door open for further rate cuts last week, while the Reserve Bank of Australia (RBA) is giving signals that the rate cuts may be nearing an end. The Tale of Two Central Banks…

A long-time reader sent me a link to a story on Morningstar regarding our fave shiny metal… Gold… Here’s a snippet…

“Jon Nadler, a senior analyst at Kitco Bullion Dealers, points out that all of the world’s above-ground gold amounts to around 0.6% of total global wealth, so even if gold were at $10,000 per ounce, the metal would only amount to 6% of total global wealth.” (I know Jon, so I just had to use his quote!)

Here’s another snippet from someone else… “Singapore, Norway, Saudi Arabia and other member nations of the Organization of the Petroleum Exporting Countries are likely already increasing their allocation to gold, or likely to do so in the coming months. They would be somewhat ignorant and financially and economically illiterate not to do so.”

Everyone at the Total Wealth Symposium in Bermuda last week was talking about gold… I see that it has slipped back below the $900 level, which I have taken as the line in the sand for buying opportunities… Could it go lower? Of course it could, but that wouldn’t change my mind as far as a sub $900 level being a buying opportunity to get it cheaper than where most people see it going.

Did you see that China announced last week that they had increased their holdings of gold by 76% in the past six years? Hmmm… No wonder the last six years have been so kind to holders of the shiny metal, eh?

And… How about this for some “good news”… Ford outsold Toyota in April! Now, that’s something you don’t see every day!

OK… The data cupboard is pretty feeble this week until we get to the end of the week, when the April Jobs Jamboree gets printed. We’ll see Pending Home Sales, Construction Spending today, and then not much until later in the week. The initial forecast for jobs in April are showing a job loss of 606K… The weekly numbers show this forecast to be quite understated… But, as I’ve explained many times in the past, the Bureau of Labor Statistic (BLS) doesn’t use those Weekly Initial Jobless Claims. The BLS uses a survey of corporations, and then puts the survey in their witch’s caldron and stirs in the Birth/Death model, and comes out with “their number.”

Bad news for my little river town this past week, as Chrysler closed down the plant that had been operating in our city since the ’60s. Good thing we decided back in the late ’90s to diversify our income stream in the city! I was an alderman then, and recall this to be my greatest fear, that the city depended on one corporate entity so much… And the alderman at that time made great strides to diversify the city’s portfolio of income streams… So that today, when the bad news hits, it doesn’t hit as hard as it would have if no diversification had taken place. You see… The overall risk to the portfolio was reduced!

Well, what does that lesson teach us? It should teach us that diversification is the most important monetary thing anyone should be thinking about! Diversification so that the asset classes in your portfolio have a low correlation to one another; that they have different pricing mechanisms. Currencies and metals represent the best diversifying assets to your already existing portfolio of stocks, bonds, mutual funds, and land… It is a proven fact that by adding currencies and metals to a portfolio, you will reduce the over risk in the portfolio! And…. Remember… 94% of a portfolio’s return is based on asset class selection.

Just thought I would give you an example of diversification in real life, and then apply it to the lesson for today… That’s how I always tried to explain things to my kids, and the older two are teachers today, and probably use the same methods for explanation!

The U.K. is on holiday today, as they decided to do May Day on the 4th! Either way, it was a 3-day weekend for those that celebrated May Day!

Currencies today 5/4/09: A$ .7330, kiwi .5720, C$ .8415, euro 1.3230, sterling 1.4845, Swiss .8770, rand 8.38, krone 6.5750, SEK 8.08, forint 218, zloty 3.33, koruna 20.14, yen 99.30, sing 1.4815, HKD 7.75, INR 49.90, China 6.8220, pesos 13.76, BRL 2.1725, dollar index 84.77, Oil $52.89, Silver $12.61, and Gold… $890.60

That’s it for today… A very good road trip for yours truly last week, and my beloved Cardinals! My little granddaughter, Delaney Grace, came by to see me on Saturday. She sings songs now… She is so darn cute! She tips her head from side to side while singing! Too much work in the yard yesterday, has my hip and leg quite sore this morning, but that’s a good thing! My little buddy, Alex, can cut the grass now, so that’s a good thing for my beautiful bride, who had to take that over after my surgeries two years ago… Speaking of my beautiful bride… She and I walked into a restaurant last week, and a long time reader saw us and said, “Hey Chuck, she really is your beautiful bride”… Now how nice was that?