RBA Surprises the Markets
Good day… And a Terrific Tuesday to you! Well… The BIG NEWS this morning comes to us from down under, where the Reserve Bank of Australia (RBA) surprised the markets and left rates unchanged for the first time in seven months… Now, that’s the horse of a different color! How dare they? How could they? Everybody else is doing it; where do they get off thinking that they don’t have to? Ahhh, grasshopper… The RBA continues to shine in my eyes as the best-run central bank in the world, and this is one of the reasons why. Yes, they could have gone with the rest of the crowd, and cut rates to the bone, but why stoke inflation?
Now, having said all that… It doesn’t mean the RBA won’t cut rates again in the future. It just means that they are being prudent, and taking a step back to see what their previous rate cuts have done to the economy. So, the proverbial “pause for the cause”… But, I believe it to be warranted, given that the RBA had cut 400 BPS away from their once lofty rate in seven rate cuts.
Fundamentally speaking, the Aussie dollar (AUD) represents an economy that has fared better than most of its G10 counterparts, with a growth outlook far exceeding that of the G10 nations. Australia’s 2009 GDP growth is expected to reach +1.0%, compared to -2.0%, -2.20%, -5.0%, -2.7% and -2.2% in the United States, Eurozone, Japan, UK and Canada respectively. (And we all know that the U.S. growth outlook is a big fat joke! Instead of -2% it should be -4 or -5%!) Then, add in the fact that Australia’s current account deficit is seen at 4.4% of GDP in 2009, its lowest level since 2002. Recall, I kept telling you that their Current Account Deficit was narrowing? Its budget SURPLUS is expected to hover at 1.0% of GDP – a far superior display than the deepening deficits of the United States, Eurozone, Japan and the UK.
So… Like the spotlight that I directed to Norway last week… Here’s another example of a country that could be in the front of the race when this financial turmoil ends.
So… The Aussie dollar is stronger this morning, but I wouldn’t go racing to the currency kiosk to buy Aussie dollar’s because you believe this to be a turn/reversal in its fortunes. There’s no end in sight to the financial turmoil that has a grip on the world right now, and knowing that, tells me that the risk takers are not participating in the markets right now, and without the risk takers, any run-up in Aussie dollars – or any other currency for that matter – is not of the “reversal of trend” kind of run-up. But… There will come a day, when all these fundamentals will matter once again.
The Bank of Canada (BOC) will meet today, and they are expected to cut rates again. Don’t look for any RBA-style surprises here. Canada just fell into a deficit status, and that came as a result of the slowing economy, which fell 3.4% in the fourth quarter. So, you can expect the BOC to cut rates this morning.
Yesterday, we saw everything under the sun trade heavily except U.S. Treasuries… Even gold has faded in the past five days… Sort of like my beloved Missouri Tigers Basketball team, under the bright lights of national TV on Sunday! UGH! But, nonetheless, everything is trading heavy… Stocks, corporate bonds, muni bonds, commodities, and currencies… And I could even go further in that list and say real estate, and housing!
I’ve gone on record with my feelings about how I believe U.S. Treasuries are the next bubble… And I read a report from one of my fave economists, Brad Setser, yesterday that tells me I’m really on to something with that belief… Here’s a snippet…
“That implies, if the Pandey/Setser estimates for official purchases are right, that private investors snapped up more Treasuries than the world’s central banks. Central bank demand accounted for a far smaller share of total issuance than in the past few years. In 2007, for example, central bank purchases easily exceeded total issuance. The big increase in demand for Treasuries in 2008 came from private investors in the US.”
Hmmm… Private investors buying Treasuries… Now that’s something I’ve been telling you for some time now, but Brad has all the facts and figures in his report to prove it… And knowing that private investors have bought all the Treasuries that central banks didn’t want, tells me that a bubble is in the making…
Speaking of central bank ownership of Treasuries… I read yesterday that China used to keep 100% of their dollar reserves in U.S. Treasuries. Today they keep only 70% of their reserves in Treasuries, with the difference in gold, euros (EUR), and other Asian currencies. Hmmm… What if they would decide to diversify more?
OK… The devastation that the manufacturing sector has experienced in the past 14 months looks like it might have found a bottom. The February ISM Index – which measures the pulse of manufacturing – registered a slight increase! The index rose slightly to 35.8 from a previous level of 35.6. The employment component of the index, though, continued to slide… Production was the biggest gainer of the report… So, something is producing a heartbeat for the economy…
And speaking of producing a heart beat for the economy… I’m going to go in a different direction occasionally here in the Pfennig, instead of always beating on the dolts in the government, and then talking about the rot on the vine in the economy… And… I’m going to ask you dear readers to provide the input!
Here’s the skinny… I would like for readers who have businesses that might be doing well in these times, to fire me off an email and tell me of their successes, how they’ve done better than others, or any kind of information you would want to see printed about your company… One to two paragraphs… And if you don’t want to include the name of the company, don’t! Of course… This will be free advertising for you! But, I only want the “feel good stories”.
The other thing to think about with this offer is that the Pfennig gets picked up by news agencies all around the world… It’s circulation just keeps growing and growing… So… Come on! Send me your stories!
I just received some “hate mail”… I opened it up, and the guy said he “hated me” because of my call for an “Obama bounce” after his inauguration, which obviously didn’t come to fruition. Yes, I was wrong… How was I to know that Obama would opt for a stimulus package that has more spending in it to produce short-term jobs and start nationalized health care, than shore up financial institutions? He said he was going to “fix the problem”… Unfortunately, his idea of a “fix” is to create jobs, when the economists all agree that the banks and financial institutions need to be fixed first… Maybe he’ll be right… But right now the markets don’t think so… Especially stocks.
So, the markets are tanking, with no Obama bounce… No reason to “hate” someone! And… I always say… “I’m not even your last choice as a stock jockey”… But, how could we NOT have an Obama bounce? This guy was so popular! Right?
Speaking of stocks… The DOW lost 300 points yesterday to trade below 7,000 at 6,763… The first time below 7,000 in 12 years! But how can the little guy make money in stocks when the greatest investor of all time lost money in 2008? Here’s the skinny as reported by the Wall Street Journal…
“Berkshire Hathaway, the holding company led by famed investor Warren Buffett, reported its worst year ever in 2008, with its net falling to $4.99 billion from $13.21 billion in 2007. Book value per share declined 9.6%, a performance far better than the S&P 500 stock index but only the second negative year suffered by the company since Buffett took over in 1965.
“Berkshire predicted the economy ‘will be in shambles throughout 2009 – and, for that matter, probably well beyond.’”
Today, we’ll see the color of the Pending Home Sales, and Vehicle Sales… In addition, we’ll get some verbiage from Fed Head Lockhart speaking on the economy in Tampa. Fed Chairman, Big Ben Bernanke goes before the Senate Budget Committee, today, and U.S. Treasury Secretary Geithner, goes before the House Panel on Federal Budget… So… Lots of opportunities for these guys to give us a sound bite that sends the markets one way or the other. So, keep your ears to the ground… Or, just turn on cable news!
Currencies today 3/3/09: A$ .6420, kiwi .4975, C$ .7750, euro 1.2605, sterling 1.4040, Swiss .8510, rand 10.4850, krone 7.1575, SEK 9.1375, forint 243.75, zloty 3.7675, koruna 22.2650, yen 97.80, sing 1.55, HKD 7.7575, INR 51.97, China 6.8410, pesos 15.32, BRL 2.4250, dollar index 88.88, Oil $40.75, Silver $12.72, and Gold… $924
That’s it for today… A very busy, long day yesterday, capped by two hours of very intense stuff on 24! My beautiful bride takes off tomorrow morning, with her friends, to Florida, leaving me and my little buddy, Alex, to fend for ourselves… No biggie, we’ve done this before… Lots of pizza, eating out, and not doing dishes is in our future! Jen takes off for Colorado tomorrow, and some skiing, which means, I’ll be flying solo on the currency trading the rest of the week… But, again, no biggie, I’ve done that for years! And besides, after March 10th, Jen will be flying solo the rest of the month! My trip to the radiologist yesterday yielded very little in the way of new information, except that I “might need to be patient a little longer.” OK… I’m patient… The time has come for me to hit the send button, so I hope you have a Terrific Tuesday!