The Dollar's "Uncool"

Good day… And a Happy Friday to one and all! A Fantastic Friday to boot! An end to a very hectic week for yours truly… I was up late again last night, as we got home late from my little buddy Alex’s football banquet. His team was undefeated this fall, it was fun watching the kids become a team.

Here we go again! Carry traders you need to pull your car in for a pit stop! Stocks got shaken but not stirred yesterday, as there were some shaky sales reports… J.C. Penney and Kohl’s predict that they will see coal in their stockings this Holiday season. There will be plenty more of these coming, in my opinion, so you had better be prepared for it. The carry trade funding currencies of Japanese yen (JPY), and Swiss francs (CHF) are rallying, while just about any high yielder gets clipped. Again… I have no idea when this back and forth, back and forth will end, but it will one day… And when it does… Yen and francs will be dancing… Dancing in the streets!

I’m not a stock guy… And I don’t play one on TV either! I like to leave that to the “professionals” and in kind I wish they didn’t act like they know what they’re doing with currencies! Having said that, I did want to report on something that I believe to be significant with regard to stocks.

Everyone knows who Richard Russell is, and his Dow Theory newsletter? Well… Yesterday, Richard got a sell signal on his PTI – Primary Trend Index. This is the first sell signal since June of 2006. I don’t know any more about this… But thought this to be important information to share.

OK… Last week, I told you about the “model behavior” that supermodel Gisele Bundchen decided to follow, and that was to kick sand in the dollar’s face… Well… This week, we see in a video clip, rapper Jay-Z flaunting euros instead of dollars. So… The dollar is now not only weak, it’s also uncool!

Folks… This is what happens when you live beyond your means for multiple years without any way of paying off the debt that you build. I read a story tonight that talks about how the dollar has been teetering for years, but was shoved off the cliff by the subprime mess… And that probably is true… But this would have eventually happened anyway, subprime just moved it along a little faster down the road to ruins.

After declining in five of the last six years, the weakest dollar in the era of floating currencies reflects a period of diminished U.S. political and economic hegemony. Whoever wins the White House next year will confront two unpopular choices: Accept the fall in U.S. clout and the rise of new rivals, or rein in record public and consumer debt that the rest of the world no longer wants to bankroll.

It’s that plain and simple… I did an interview last week, and at the end, they asked me to imagine my self being elected President, what would I do to correct our situation. Hmmm… First I wondered who I could pardon! But then came back to say that we need to reduce Government debt, and we need to make a big deal out of it… Talk to the public and tell them they lived beyond their means too long and these cuts needed to be made, etc.

Why tell the public? Ahhh grasshopper… Because we’ve been telling the public for so long now that “Deficits Don’t Matter”… The public has taken on the debt driven persona of the Government. So, if the Government is going to go on a diet, they need to get the public to go on one too!

Ok… I’ve really taken you all to class today, and since it is a Friday, let’s stop this part and go to other stuff, eh?

Today, we will see the color of the latest TIC’s report… Treasury International Capital… The net security purchases, the net inflows, and other stuff… The TIC’s has been on pretty shaky ground in recent months as the trend continues to show a general weakening of our ability to attract enough foreign investment on a monthly basis to finance the current account deficit.

I’ve told you for years that deficits DO matter, and this is one of the reasons why… If you don’t attract enough investment to finance your deficit that didn’t matter… It soon becomes a deficit that DOES matter! The only thing that’s left to fight this battle of under funding is a continued debasement/weakening of the dollar.

So… Look for the dollar’s performance today to hinge on this report. Did we cover our financing needs or did we hang the dollar out on a line?

Oh… And I think U.S. Treasury Secretary Paulson must know something ahead of time on this data, because he was out in force last night telling people that the dollar will rebound from record lows, reflecting the long-term strength of the world’s largest economy. Nothing like setting the table ahead of the turkey, eh, Hank?

Keeping on the theme of U.S. data… We’ll also see October industrial production, and capacity utilization today. Neither is expected to give the dollar any strength, and just add to the ever-growing list of bad or “muddle through” data for the economy.

The poor Canadian dollar/loonie (CAD)… One week it’s hitting on all eight, reaching a multi-decade high versus the green/peachback, and the next week it’s barely hanging onto parity. The loonie has gotten caught up in the high yielder sell off, and since most of those high yielders are also commodity driven economy currencies, the selling has spilled over to commodity currencies, and that’s where the loonie comes in.

Do I believe this will continue for the loonie? No! there are just too darn many good things going on in Canada to keep this currency down… But that’s just my opinion.

OK… Do you want a down to earth, real picture of the “spent” U.S. consumer? How about this one? Starbucks reported their first ever drop in traffic at their stores… For the first quarter in its history, the number of visits to its established U.S. stores fell. I guess that when gas is $3 a gallon, the house “ATM” no longer has cash, and wages haven’t risen in a long time, the first thing to cut back on is $4 coffee! Makes sense to me!

I was having a discussion with some high level EverBankers on Wednesday night before heading home, and the discussion centered around “disclosure”. The comment was made by my colleague Ed Bonawitz, that he wondered just how “bad” the balance sheets of these mortgage lenders, be they banks, brokerages, whatever, would be if “full disclosure” were made. In other words… Come out with everything now… Make it public and write it off!

Then the next morning, I saw where Barclays Bank announced a $2.7 billion write down, and I thought two things… 1. I wonder how many more loans they have in their bad loan basket that qualify for write down, and when will they tell us? Probably, long after we’ve forgotten this write down, for sure! And 2. Is this what we have to look forward to? Checking to see which lender is revealing billion-dollar losses in its portfolio every day… A new routine if you will… Geez Louise, I sure hope not!

Here’s the roster of writedowns this week, and this week alone… HSBC $3.4 billion, Bank of America $3.3 billion, Bear Stearns $1.2 billion, and Barclays $2.7 billion… UBS is rumored to announce a $7 billion writedown, when they do get around to announcing… And the beat goes on… The beat goes on.

Remember… I told you this about 10 days ago… I think that when the dust settles, and I mean all the dust settles, on the writedowns, they will probably total around $400 billion! That’s right $400 billion!

So… As we head into the weekend, Japanese yen is the winner again this week! That marks two consecutive weeks that Japanese yen has led the pack versus the dollar. Yen, renminbi (CNY), sing dollars they have all put in some great performances the past two weeks… Now, let’s see if they can keep the momentum going… Energizer Bunny going, so it lasts longer than the other rallies for these currencies!

Currencies today: A$ .8880, kiwi .7570, C$ 1.0170, euro 1.4610, sterling 2.0370, Swiss .8910, ISK 61, rand 6.7350, krone 5.4950, SEK 6.36, forint 174, zloty 2.5150, koruna 18.25, yen 110, baht 31.55, sing 1.4525, HKD 7.7850, INR 39.33, China 7.4240, pesos 10.9440, BRL 1.7370, dollar index 76.12, Oil $93.42, Silver $14.49, and Gold… $791.40

That’s it for today… I sure hope my beloved Missouri Tigers don’t fall into the same trap that the number two ranked Oregon Ducks fell into last night, when they were upset. My Tigers head to Manhattan Kansas for their last game before the big rivalry game with Kansas… This has been a magical season so far; I hope they continue eating their Lucky Charms! (They’re magically delicious!) And on a real bad note… It looks like the Feds have finally decided they have the goods on Barry Bonds… I’ll leave that one alone… We had everyone back on the desk yesterday, as Jen returned from jury duty. And… I received more good news yesterday… I don’t have to keep going back to the doctor for blood tests! I do, unfortunately, have to continue the nightly shots into my stomach though to keep the blood from clotting.

OK… Let’s get out of here and start the weekend, eh? Oh wait! It’s only 5:25 a.m! But you know what I mean… The last weekend before Thanksgiving… Did that notice just raise your stress level? Sorry… No need to stress… It should be nothing more than a day to be with family and give thanks… Nothing more… So… Forget the stress and have a Fantastic Friday, and Whirlwind Weekend!

Chuck Butler
November 16, 2007