02/25/09 St. Louis, Missouri Good day… And a Wonderful Wednesday to you! It’s Ash Wednesday, and the return of Tiger Wednesday too! I recently learned something new about Ash Wednesday… I learned that it was not just the Catholic Church’s practice of placing ashes on the forehead, but that in recent times it has also become the practice of Lutheran, Presbyterian, Methodist, and Episcopal Churches… OK, not trying to change the letter to a religious discussion, just passing along info on this day.
The stock market rose from the ashes here in the United States, yesterday, after I read on MarketWatch that Fed Chairman Big Ben Bernanke had this to say… “The Obama administration was on the right track with the approach it’s taken to reviving ailing banks during its first month in office.
“While that plan wasn’t well received by financial markets, Bernanke said it should work – given sufficient time.
“The Obama plan ‘has all the major components…of previous successful financial stabilization plans. So I think if it is well executed and forcefully executed, it is our best hope of stabilizing the system.’
“But what the final expense of the rescue plan will be to taxpayers remains unclear, he conceded, saying: ‘We don’t know what the costs will be.’
“‘It will take more time and money to work.’”
Well… To me, I would take away the fact that he’s grasping at straws, but the stock jockeys are too, so they “grabbed” together and pulled a 236-point rally out of their hats. I would imagine stocks would rebound even more this morning after President Obama’s speech last night. Obama did his best impression of Ronald Reagan and tried to “rally the troops around the flag”. Trust me, I didn’t stay up to watch all of this (when it’s bed time for yours truly, its bed time!) But, the thing he said that made me think of Reagan was this… “While our economy may be weakened and our confidence shaken; though we are living through difficult and uncertain times, tonight I want every American to know this: We will rebuild, we will recover, and the United States of America will emerge stronger than before.”
So, you go!
I had told a radio show last week that we needed “some cheerleading”… But it has to be followed up by “real action”, or else the “cheerleading” will become very hollow, and lose whatever good it had done to rally the markets.
So, that’s all that! A stock rally will bring the risk takers back out from under their rocks; but they really need some follow through before they really come out! Risk takers mean the currencies get some love too!
Did you see or hear about the rumor that was going around yesterday regarding Mark-to-Market? The rumor going around was that the government was seriously considering a suspension of the current Mark-to-Market rules… This rumor has circulated before, and I said at that time that while this could be good for the current economy, it could be disaster later on. Think about it for a minute… Do you trust these guys now? After all they’ve done to ruin “the dream”, do you really think they are properly marking their bonds and loans now? So, if they don’t have to at least make an attempt at marking these to the market, yes, it frees up some capital, but then we’ll never know, just what was on their books! And… Then some time down the road, one of these guys goes broke, and all their junk gets set free on the markets, and Pandora’s Box of bad things begins to be set free.
OK, that was long winded… So, as I said above, the currencies got some love, as the euro (EUR) led the little dogs off the porch to chase the dollar once again… The problem with these rallies is that they have had no, zero, zilch, nada, lasting power! So, it’s a day here and there just to keep us thinking there is a pulse.
The Japanese yen (JPY) continues to weaken with each day, but still remains below 100, and as long as that remains the scene, yen will be considered to be strong… I really don’t think that yen has lasting power now that the carry trade unwind is finished, or at least near the finish line… The fact that Japan’s exports in January plunged 46% didn’t help the yen out any either!
Yesterday, I waxed eloquently about Norway… I didn’t mean to leave out Canada… Their banking system is be admired, and even former Fed Chairman, Paul Volcker would like for us to move our banking system to mirror that used in Canada. The Canadian dollar/loonie (CAD) continues to hang tough around 80-cents, which is greatly reduced from their lofty levels of a year ago… But… It certainly looks like a tourniquet has been wrapped around the loonie. I’ve said all along that the loonie needed: 1. A commodities rally, and 2. A stabilized U.S. market… Gold and oil are two biggies for the loonie… Gold is doing its part. Oil, on the other hand, is not.
Speaking of gold… We watched a HUGE sell off of gold yesterday, with over $25 taken off the previous price of near $1,000… And further selling overnight has pushed gold to $959! The shiny metal was hit on a few fronts yesterday… First, we had the rumor about the suspending the Mark-to-Market, as market participants truly believed this would be the cure for everything that ails the U.S. economy. Then we had profit taking… Then add Big Ben blowing smoke toward the Congressmen about lower consumer prices (read inflation).
In our video clips, which Kristin and I are still working on, I say that we have been waiting for a pullback in the price of gold… Looks like we finally got one! If you liked gold and wanted to buy it at $995 the other day, you’ll LOVE it around $958 where it stands this morning!
I really thought that gold traders and participants would shrug off the Bernanke stuff yesterday, and instead focus on the fact that House prices continue to fall. Yes, the S&P/Case-Shiller Home Price Index fell more than expected to a figure of -18.55% for December. So… The housing meltdown hasn’t found a bottom yet. The regions hurt most were Phoenix and Las Vegas, where the meltdown registered losses of 34% and 33% for the two areas respectively.
Consumer confidence has really fallen out of bed in recent reports, and yesterday’s print was no exception, as U.S. consumers indicated that their level of confidence is now the lowest it has been since the survey began in 1967. Remember when I would rail on about how I didn’t understand why consumer confidence was as high as it was? Well, it has finally caught up to my expectations for the report.
So, given these two pieces of rot on the vine, I would have thought that gold would shrug off the Bernanke words, and then in the overnight markets, the Obama words… But that was not to be! But! This sell-off in gold certainly gives everyone reason to buy who wanted to buy at cheaper levels… So, you have that going for you!
Today, the data cupboard is fairly empty with only the Existing Home Sales from January to report… Given the way the stock jockeys ignored the Case-Shiller Home Price collapse yesterday, I doubt they will give two hoots about this report. Besides this Existing Home Sales data has got be somewhat misleading in that the foreclosures that are running at record pace, count as sales.
For the past couple of years now, I’ve written about how it looked like the United States was following the footsteps of Japan in the ’90s… I had even gone to using the lyrics of the ’80s band The Vapors: I’m turning Japanese, yes I’m turning Japanese, I really think so… I have a book at home about the whole ’90s decade in Japan written by Christopher Wood. A friend, and reader, sent me a note yesterday about a story they had read, by… Christopher Wood, so it immediately got my attention…
“The U.S. is facing a deflationary collapse more severe than the crash that hobbled Japan’s economy in the 1990’s, leaving Gold as the only defensive play for investors.” He went on to qualify that statement by saying… “The collapse of securitization is a much more deflationary situation in the U.S. than anything seen in Japan when the bubble collapsed in the early 1990’s.”
OK, back to me… Let’s hope that the fact that the United States began their stimulus circus earlier in the cycle than the Japanese did, might keep us from going even further down the same road as the Japanese. It’s important to study what happened in Japan during the ’90s, so we don’t make the same mistakes.
I saw this yesterday from an acquaintance and it made me laugh so hard, I just had to share it with everyone…
“Your income taxes are normally due on April 15th unless that date falls on a Saturday or Sunday in which case they are due on Monday the 16th or 17th. The good news is that I have learned of a recent change, and for the next 4 years, they will not be due until you are nominated to a cabinet position. Please check with your Tax adviser to confirm.”
Currencies today 2/25/09: A$ .65, kiwi .5150, C$ .8025, euro 1.2785, sterling 1.4390, Swiss .8605, rand 9.99, krone 6.8550, SEK 8.87, forint 235.10, zloty 3.6560, koruna 22.22, yen 96.75, sing 1.5275, HKD 7.7535, INR 49.95, China 6.8375, pesos 14.83, BRL 2.3825, dollar index 87.25, Oil $40.40, Silver $13.81, and Gold… $958.60
That’s it for today… Chris doesn’t know it yet, but he’ll have the conn on the Pfennig tomorrow morning, I’ll be back on Friday morning… Now he knows it! As I said at the top, today is the return of Tiger Woods… The one-man stimulus plan for Golf! And my beloved Cardinals play their first spring training game today! Grapefruit League games are starting earlier this year, for some reason… I’ll be there in two weeks, so they can play all those minor leaguers now, and send them back down before I get there! Baseball, and warm weather… It’ll be all seashells and balloons for your Pfennig writer, folks… Time to go now; I was swamped yesterday, and have to hope that today is of the lighter fare, as I’m dragging the line this morning, for sure! Now, go have a Wonderful Wednesday!
Chuck Butler
Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter, which is reposted here at The Daily Reckoning. With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News and World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune. Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.
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Aren’t the suspension of the mark-to-market, and other “off-balance sheet” stuff the antithesis of
“I want a doctor to take her picture so I could look at her from inside as well…”?
Come to think of it, the credit ratings agencies should have used that as a motto. Good to hear Mr. Volcker as one of the far-too-lonely voices calling them out.
The Stock Research Portal Blog says that rumors the U.S. government is planning to both convert government shares in banks to ordinary shares and modify the mark-to-market accounting rule are troubling. SRPB says that such a decision would be a “sleight of hand.” And it predicts that if this goes ahead, “The U.S. government likely will end up overpaying for those common [bank] shares if it simultaneously pushes for and gets revisions to the … ‘mark-to-market’ rules.”