A Look At The Budget

Good day. And a Happy Friday to one and all! This has been a very strange week, with no data to view or use as direction. That all changes today, with the December trade deficit report, and then, we really turn on the data spigot next week.

The currencies remained range bound again yesterday, with little or no movement. However, overnight, the Japanese yen has really caught a flyer and has moved back below the 118 level. The yen has moved higher on the news that Japanese machine orders grew four times faster than forecast for December. Yes, December orders rose 6.8%, and were expected to grow 1.5%.

The Bank of Japan (BOJ) just ended a two-day meeting that left traders that had bet they might see some tough words from the bank, holding the bag. The BOJ just didn’t have the intestinal fortitude to do that. But they will soon enough now, because this report adds to the reports we continually see from Japan showing very nice economic recovery. Oh, I always brush over these things too, but actually remembered to say something here.

For those of you who missed economics classes on the days of the week that end in ‘Y,’ machine orders typically point to capital spending, which when added to rising consumer spending, usually spells r-e-l-i-e-f for an economy!

OK. This move by the yen has all the Asian currencies looking quite perky this morning. The Chinese renminbi has reached yet another post-dollar peg high. The Thai baht is moving stronger again, along with Sing dollars. Oh, and we can’t deal in this currency, but it is a player in the Asian markets: South Korea raised their benchmark interest rate 25 BPS. I find this news very encouraging for the region. It now means that Thai baht isn’t the only Asian currency that has some yield to it. Now, if we could just get Japan to get off that zero-rate policy!

You know, if you look at the price of gold recently, it really is a roller coaster ride that my little buddy would love! The sentiment toward gold was really strong yesterday as it recovered lost ground earlier this week. But then, when the Japanese machine orders were printed, gold gave back some gains.

In addition to the trade deficit report, we’ll also see the January budget statement, which leads me to a press release I saw from my friend, Addison Wiggin of The Daily Reckoning, and author of three books!

We all have heard that the governor has said that the budget deficit will be cut in half. I’ve argued that this is a bunch of baloney. Well, Addison really goes through this in his new book, co-authored with Bill Bonner, Empire of Debt. I told you about this book the other day, but wanted to come back with some snippets that should wet your whistle!

Addison states, “When Bush talks about cutting the deficit in half, he’s not talking about dollar amounts. Instead, the plan calls for a reduction in the deficit to half of the current percentage of the nation’s GDP.”

That means the deficit doesn’t actually have to decline for the president to declare he met his goal of cutting it in half. “To hit their target,” says Wiggin, “the economy just has to grow by 3.3% a year for the next four years.

“Instead of truly solving the budget deficit, Washington is trying to mask it. They will focus on keeping the GDP up with tax cuts and other incentives instead of trying to control debt by keeping government spending under control.”

Great stuff, Addison! Keep up the good work! Oh, and for EverBank World Markets clients, we’ve got a special treat in next month’s Review & Focus. Addison has graciously agreed to be my “guest writer.” If you lost that link to Empire of Debt, here it is again: https://www.dailyreckoning.com/Empire.html

Next Wednesday, Big Ben Bernanke, or Triple B, which is what I might decide to call him, will speak to Congress. This is the old Humphrey Hawkins Act that required the Fed chairman to come to the “Hill” and give a testimony on the economy. The act expired years ago, but Big Al Greenspan kept in the spirit of the act by continuing the “walk.”

I find next weeks testimony to be very intriguing, since it’s Triple B’s first one. I think he’ll paint a picture to the lawmakers of a strong economy that’s feeling inflation pressures that will be met with rate hikes. The dollar will find solace in those words, but as I said yesterday, the charts say short-term dollar strength will finally give way to a long-term decline. So, the dollar bulls can bask in the sun a while longer, but then it gets quite dark!

There’s good strong economic news printing right now in Canada. I see that the labor force rose in January by 26,300, but the unemployment rate unexpectedly rose to 6.6% from 6.5%, in December. The thing that the Bank of Canada is probably look at though, is the same thing I harp on here in the United States. Hourly wages rose 3.4% on the year. That creates some real wage-push inflation, and should give the Bank of Canada plenty of reasons to keep hiking interest rates.

The G-8 meeting this weekend should yield no revelations toward global imbalances. These guys wouldn’t know a global imbalance if it walked up and smacked a G-8 minister in the face! So, G-8…schmee-8!

Currencies today: A$ .7425, kiwi .6830, C$ .8715, euro 1.1975, sterling 1.7485, Swiss .77, ISK 63.25, rand 6.12, krone 6.74, forint 209.325, zloty 3.1575, koruna 23.56, yen 117.50, baht 39.15, sing 1.6245, China 8.0505, pesos 10.46, dollar index 90.10, silver $9.58, and gold $558.90

That’s it for today. Some of the guys on the trading desk, and some friends from the neighborhood, went out last night to see the Blue Collar Comedy Tour Live. I laughed until I cried. Yes, I laughed last night, and I cried this morning when the alarm went off! UGH! So, my latte’ buddy, Michelle, had better get here quick! Have a great Friday, and weekend!

The Daily Reckoning