A Day of Currency Healing

Good day… And a Thunderin’ Thursday to you! It was a Tub Thumpin’ Wednesday yesterday for the currencies and gold, after seeing them back off earlier this week! I’m in Jacksonville for a company event, and then on Friday morning, I head south to start my spring vacation! But first, some work to do here, and then on to the south!

It was 29 degrees when I got in the car to leave for the airport yesterday morning… And it was 77 degrees when I finally arrived in Jacksonville! YAHOO! But even as loud as I can say YAHOO for the warm weather – which I’ve said over and over again; I’ve got to go where it’s warm – it wasn’t as loud as a the YAHOO yelped by currency owners as the euro (EUR) led the currencies higher and higher all day long!

And the gold holders weren’t far behind, as the shiny metal got back to $900, after seeing three days of selling in a row! A lot of the people here asked me about gold, and I had to tell them about the same thing I’ve told you dear readers for some time… These are uncertain times, and in uncertain times, it calls for the “uncertainty hedge”! And that’s what happened today… Stocks, which had rallied on the Citicorp news the day before, failed to follow that up… So, what’s a stock jockey to think? I’ll give you my two cents here, which I told the Vice-Chairman last night… And that is… Do you believe that Citicorp really had a profitable first two months? I mean, just a couple of weeks ago they were begging for more TARP money! Keep this in mind… Liars figure, and figures lie… Not that it wasn’t true, but come on! They were begging for money just a couple of weeks ago when they supposedly were booking profits? OR… Maybe they DID book the profits; good for them! But if they were booking profits, why were they knocking on TARP’s door looking for more handouts?

I had better go on record and say that’s just my opinion and not that of EverBank’s… Even though the disclosures all spell that out!

So… For once in the past few months, the currencies broke from the stocks… Yes, I know they gained a tiny bit on the day, but not the kind of gain that would match the rally in the currencies! But… And here’s where things get unwound… In the overnight markets, traders and investors just couldn’t stand to see the euro at 1.2850, so they took the profits they had, and brought the single unit back below 1.28. It’s trading about at the same level as yesterday morning… So… All that hoopla yesterday has gone down the drain overnight… The Spinners had a great song titled “It’s A Shame”… Appropriate here…

China’s trade surplus for February came in at $4.84 billion down from January’s $39.1 billion… That’s a HUGE decrease, eh? But still… A surplus in today’s economic environment? That’s something to be proud of, eh?

German manufacturing orders fell 8% from a year earlier. So face it, folks… Everything around the world is slowing down!

And in something you may have missed, because it certainly wasn’t covered in the mass media… U.S. Treasury Secretary Geithner said that the Obama administration will press Congress for legislation to allow the IMF to sell part of its stockpile of gold… UH-OH! If the IMF is going to resort to selling gold… Then the you-know-what is about to hit the fan!

Speaking of Geithner… Those who threatened me with physical harm if I kept calling him “the cheater” have won, since I stopped… But trust me, I’m an old crippled, cancer-fighting man now, but if someone had threatened me in my earlier life, I don’t know anyone that would want to deal with me, because I didn’t know the word, “give up”/or “stop”… But, I’m a big, de-clawed pussycat now, so threats do get to me!

But, I digress… What I wanted to say was… Speaking of Geithner… Here’s what the Wall Street Journal had to report yesterday…

“Obama and Geithner are failing in their efforts to revive the economy, according to participants in the latest Wall Street Journal forecasting survey.

“A majority of the 49 economists polled is dissatisfied with the administration’s economic policies. On average, they gave the president a mark of 59 out of 100, and although there was a broad range of marks, 42% of respondents graded Mr. Obama below 60.”

The Reserve Bank of New Zealand (RBNZ), reduced their Official Cash Rate (OCR) by 50 BPS the other day… RBNZ Governor Bollard had this to say…. “The world economy deteriorated very rapidly late last year, amid ongoing losses and extreme volatility in international financial markets. While monetary and fiscal policy responses in many countries have been substantial we still expect the adverse economic forces generated by the crisis to remain dominant throughout 2009. The timing and extent of global recovery remain highly uncertain.”

I’ve had my differences with Governor Bollard in the past, as he once openly talked about the need for currency weakness… So, different from my one-time acquaintance, and a “hero” of mine when he was Governor of the RBNZ, Don Brash! But at least this time Bollard is bang on with his observance!

The Japanese yen (JPY), which a few days ago looked like it was on shaky ground, has put in two days of stellar performances, which makes one wonder if what “Mr. Yen” had to say the other day is working its magic with yen… Recall, I told you that the former currency guru of Japan, Sakakibara – who is known as “Mr. Yen” – said that yen could rise to 70 versus the dollar, and trade in a range between 70 and 100… I disagreed with the 70, but thought 100 might hold.

But I’m not going to wonder too long here on this subject, because I know in my heart of hearts that yen does not have the intestinal fortitude to climb past 85… (Remember, yen is a European priced currency, so as the price goes down, the more value it returns in dollars.)

On Data-Watch today, we have the usual Weekly Initial Jobless Claims, which continue to be horrific week after week, and retail sales for February… Retail sales unexpectedly rebounded in January with a 1.0% gain, after a 3.0% drop in December. But the stronger number, which came off a low baseline in December, was likely due to heavy discounting to move inventories sitting on store shelves. The chain stores seem to be reporting decent sales, but everyone else’s sales are in the dumpster. And then I do the quick check of the Butler Household Index (BHI), and I’m convinced that today’s printing of retail sales for February are going to be disappointing!

And finally, we’ll see the Business Inventories data for February. Last month when I reported the Business Inventories data, a reader asked me what was up with reporting this data, as they didn’t know what it was about… So, I promised them that this month, I would hold class on Business Inventories; so get out your pads of paper, and a sharpened #2 pencil, to take notes…

Business inventories are the dollar amount of inventories held by manufacturers, wholesalers, and retailers. The level of inventories in relation to sales is an important indicator of the near-term direction of production activity. This is called the “Inventory to Sales Ratio” or I-S ratio…

Business Inventories tend to rise when economic conditions are strong; since sales are rising at the same time, the inventory-to-sales ratio may remain stable, or rise at a very slow pace. Inventories tend to drop when economic conditions are weak; since sales are falling at the same time, the inventory-to-sales ratio may remain relatively stable. The I-S ratio then begins to rise as sales fall more quickly than inventory growth.

So… If things play out the way I think they will, recall I’ve said over and over again that soaring inflation is going to be on the other side of this current asset price deflation… And one of the reasons will be buyers wanting to buy and spend again, and businesses that don’t have the products on their shelves because of the depression… Money chasing too few goods… And we’ll see the proof in the pudding right here in Business Inventories and the I-S ratio!

OK, that’s enough, put your pads of paper and #2 pencils away, as we’re finished for the day! Let’s go to the Big Finish!

Currencies today 3/12/09: A$.6455, kiwi .5130, C$ .7760, euro 1.2780, sterling 1.3770, Swiss .8650, rand 10.26, krone 6.9620, SEK 8.8320, forint 239.80, zloty 3.6225, koruna 21.21, yen 96.30, sing 1.53, HKD 7.7545, INR 51.80, China 6.8388, pesos 15.16, BRL 2.35, dollar index 87.93, Oil $42.79, Silver $12.86, and Gold…. $912.80

That’s it for today… Thanks to Mike for Pfilling in on the Pfennig yesterday. Great job! He doesn’t know it, but I’m going to back out of writing from my hotel room tomorrow… Mike, you did such a great job, you get to do more! Yeah for you! Our little Christine loves to say, “Yeah for whomever” so… We have that going for us! The trip here was somewhat uneventful; I didn’t have anyone drop their hard case luggage on my head or anything! The plane out of St. Louis was delayed, as there was a “maintenance issue”. I told Kristin, when I got here, that I wish they wouldn’t tell me these things! Just say, “We’re waiting for a passenger to board, or something.” One time, years ago, the Big Boss, Frank Trotter, and I were looking out the window of a plane, and saw what appeared to be oil pouring out of the plane’s wing… We were just about to get up and get off the plane, when a maintenance truck pulled up to stop the bleeding… Things you wish you didn’t know about, for sure! OK, I give a presentation on World Markets this morning, so I have to look sharp… No wait, that won’t happen… I have to feel sharp, no wait, that won’t happen either… OK, I just have to get up there and do it! HAHAHA! Time go… I hope you have a Thunderin’ Thursday!

The Daily Reckoning