A Stimulus Package in Our Future?

Good day… And a happy Friday to one and all! A Fantastico Friday I certainly hope! Well, we finally got off the adult roller coaster, and got onto the kiddie roller coaster. There was still volatility in the currencies, but far less than the previous two days. Big Ben was talking again yesterday – this time, about the need for a stimulus package for the U.S. economy. U.S. stocks really took one on the chin yesterday, and there were more Big Time Institutions posting fourth quarter losses.

So… Let’s get started!

First, I want to lay it all out on the line… I was wrong this week when I said the Fed would cut 50 BPS at an out of schedule meeting. I truly thought that all the ducks were in a row for them to do so… And before I go on, let me say that I in no way believe the Fed should be cutting rates. I’m just talking about what I think they will do. This is what I was doing when I told you all back in early August that the Fed would cut that month and at the next two meetings.

OK… So the Fed didn’t cut rates out of meeting… But Big Ben did call for a stimulus package. Isn’t that about the same thing? And before I go any further, I want to talk some sense into our government regarding stimulus packages…

It just all adds together doesn’t it? The government comes to the aid of this/that/and the other thing, and before you know it, you’ve got a society that can’t do anything for themselves without a helping hand. And once they get this money from the government, they’ll want more. It’s like a drug, folks… And all the while, the government goes deeper and deeper into debt. There’s more on my mind regarding a stimulus package, but I’ll stop here, I’ve made my point.

Big Ben says $150 billion ought to do the trick – a $150 billion stimulus package to add to the rest of all the debt we just keep piling up… A billion here, a billion there and pretty soon we’re talking real money folks!

And does Big Ben think that this $150 billion will do anything to help housing and the mortgage meltdown? Well, if he does, then he’s loonier than I imagined!

Speaking of housing… December housing starts fell to the lowest level since 1991! WOW! In 1991 I was having back surgery. That seems like a million years ago!

Today, we see the color of the U. of Michigan consumer sentiment survey, and the latest reading of leading indicators. If you go back a few months ago, you’ll find that I kept harping about how the leading indicators were telling us that a slowdown was coming, but the markets were not paying attention. I bet go-go stock jockeys wished they had listened like I did!

Leading indicators are still showing negative readings, and that means we’re in store for a prolonged slowdown in my book. I know the Fed, and Big Ben would love for this recession that I believe we’re already in to look like a “V” and not a “L”… (And all that time back in economics I thought, “I’ll never use this information in my life”!) And they might pull it off if they can place a chicken in every pot and money in the hands of people that will just go and spend it on things they have no reason to buy in the first place!

But then, they’ll just be prolonging the inevitable… And as my mentor (as I like to call him) Hy Minsky used to say… That’s not a good thing to do… Prolong the inevitable!

Gold and silver are still hanging around this town on a corner, waiting for the next move down in the dollar. This gives investors additional time to dig up those coffee cans in the back yard, rip open the mattress, and get those foil wrapped stacks of dollars out of the freezer, and get some gold! There’s inflation in them thar hills, Rudy! How do we hedge ourselves from inflation? Gold.

The other thing that gold is a good thing to have on hand during is event risks. It’s not like we have global peace… It’s not like we don’t have crazy people that own nukes… It’s not like… Well, you get the picture…

Speaking of safe haven investments, I bet some of the big financial institutions wished they had made some. The tally this week is awful, and should have stock people running for the hills, which I think they did yesterday. JP Morgan posted 34% loss in the fourth quarter, Wells Fargo 38%. We saw the carnage at Citigroup earlier this week, and now Washington Mutual posted a big loss, but nothing the size of the hickey that Merrill posted.

Recall that I told you earlier in the week that since Merrill decided to announce their cash infusion first, they must’ve been getting ready to announce some dreaded numbers… And they did. Fifteen billion dollars and change in subprime mortgage related writedowns led to the largest quarterly loss since the brokerage was founded 94 years ago. The final tally, after dividends was a $9.91 billion loss.

OK, people may think that I’m beating up on these guys… I’m not… I’m simply telling you the depth of the subprime mortgage meltdown. The “dynamic duo” of Paulson and Bernanke told you six months ago not to worry about it. They said it had bottomed, and that it wouldn’t extend into the rest of the economy…

I said they were wrong at the time, I’ve said it over and over again, and looks who was right and who was wrong! Little old me (that’s funny just saying that!) out witted the two men responsible for the largest economy in the world… Uh-Oh… Those two knuckleheads just got moved to the back of the class.

Seriously though, besides pointing that stuff out, all these losses lead to layoffs, which leads to a rising unemployment rate in the United States, which leads to slower consumer spending, and we all know that’s the engine for economic growth in the United States. So… It all plays well with my call that we’re staring straight down the nose of a recession. And none of that, and let me repeat, none of that, is good for the dollar!

My long time friend, and now colleague again, Ed Bonawitz, sent me a story yesterday that got us both thinking nostalgically. This is an excerpt of a full story that will run in Sunday’s NY Times Magazine. It’s about our fave Fed Chairman, Paul Volcker. Here was a Fed Chairman that didn’t give a hoot about what the President wanted. Both Ed and I wondered, about the question of when did the job become so political? Anyway… Here’s the excerpt.

“WASHINGTON (Reuters) – Former Federal Reserve Chairman Paul Volcker thinks the U.S. central bank is to blame for allowing bubbles to inflate asset markets, and says that current Fed chief Ben Bernanke is in a tough spot.

“‘I think Bernanke is in a very difficult situation,’ Volcker told the New York Times Magazine for a story it will run Sunday.

“Too many bubbles have been going on for too long… The Fed is not really in control of the situation,’ the Times quoted Volcker as saying, seemingly clear criticism of both Bernanke and his predecessor Alan Greenspan.

And finally this morning, U.K. retail sales dropped unexpectedly in December by 0.4%, offsetting November’s rise of 0.4%. As we’ve pointed out here on several occasions in the past two months, the United Kingdom has problems much like the United States (only on a smaller scale) and it won’t be long before interest rates here begin to come down. This all weighs on pound sterling (GBP), and will continue to do so going forward.

I hate to end the Pfriday Pfennig on such a sour note… But, that’s what I’ll have to do, as it’s time to head to the Big Finish!

Currencies today: A$ .8775, kiwi .7655, C$ .9740, euro 1.4630, sterling 1.9590, Swiss .9060, ISK 65.40, rand 7.0350, krone 5.4750, SEK 6.4430, forint 175.40, zloty 2.4750, koruna 17.91, yen 107.10, baht 30.70, sing 1.4350, HKD 7.8060, INR 39.33, China 7.2420, pesos 10.9350, BRL 1.7850, dollar index 76.38, Oil $90.25, Silver $15.82, and Gold… $875.10

That’s it for today… No snow yesterday… Can you believe the weather people got it wrong? I mean they are usually bang on, right? HA! This weekend is the NFL’s Conference Championship Games. I’ll be glued to the TV for those! My beloved Missouri Tigers take on Big Bad Kansas in basketball. I can only hope Kansas doesn’t beat us by 50! Today is our little Christine’s son’s birthday. Happy birthday Eddie! Both Jen and Chris are out today, so it will be crazy times on the desk again. It’s cold in my house; I can only imagine how cold it is outside… BRRRRR! Time to go… I sure hope you have a Fantastico Friday… And a great Football Championship Weekend!