A Stock Tip from the Top Guy

Good day… And a Wonderful Wednesday to you! My beautiful bride is getting ready to leave this morning. I’m not used to “talking” to someone when I get up at my usual early hour! She’ll be gone in a few, as I write, and then it will be my little buddy, Alex, and your Pfennig writer on their own for 5 days! YAHOO!

Well… After a day of waxing eloquently about the how well the Aussie economy was doing compared to the rest of the world, they go and post a contraction in their economic growth! UGH! That’s the way to show me up! The Aussie economy shrank in the fourth quarter by 0.5% versus the forecast of 0.2% growth. The news scared the markets into believing the Asian problem will be worse off than previously thought. Oh come on! Australia is STILL doing better than most countries, especially those that I listed in yesterday’s Pfennig!

Hey! It must be “time to buy stocks” as the President made his statement yesterday that “buying stocks may be a ‘good deal.’” So… There you have it! The Obama endorsement. I wonder if the guy who said he “hated me” because I said I thought there would be an Obama bounce and one didn’t occur, will send off any “hate mail” to the Prez, if stocks continue to melt away – as I suspect they will!

The “Obama bounce” never materialized, and in fact this showing in the first two months has been atrocious! On January 2, 2009, the DOW stood at 9,034; since that time the Dow has seen an overall decline of 25%! I would say that instead of an Obama bounce, we’re getting clear signals that the markets don’t like our “new” direction.

This all plays into what my friend Bill Bonner here at The Daily Reckoning, calls the “meddlers” getting in there and interfering with what should – and let me repeat that so you get the full meaning of this – WHAT SHOULD be a normal process of cleaning out the excesses of the previous boom. A recession… Where some businesses die, and those that remain standing are stronger… I have a saying that I use in all kinds of situations… “What doesn’t kill you, makes you stronger”.

I’m going to stop there, otherwise I’ll get a mail box full of emails telling me that I’m being too “hard on the Beaver” so early in the process. I’m not being “hard on the Beaver.” I’m just reporting what’s happening!

Well… The dollar is stronger again this morning, with the Japanese yen (JPY) pushing back toward 100. The euro (EUR) is looking as though it will not hold on to the 1.25 handle, and everything else is just rotten looking. Even gold got smacked for another $10 loss yesterday! I have this feeling regarding the gold price in the past week… I have no confirmation of this, but we’ve seen this before when stocks get hammered like they have in the past week. And that is… Selling the one asset that’s making them a profit (read gold!) and using the proceeds to pay for margin calls. So… That’s my story and I’m sticking to it!

I get asked all the time about “how long this dollar strength will last.” Hmmm… You know, I said some time ago that I believed that by late summer, early spring, the credit markets might be showing signs of unlocking, and that could bring the risk takers back out from under their respective rocks, and that a return to the “fundamentals” would bring about an end to the dollar strength. The end of July marks one year of dollar strength, when the you-know-what hit the fan with subprime loans, and this whole lockdown of credit and liquidity caused a huge deleveraging in the markets..

While I still believe this thought has merit, I also have to figure in the fact that the previous stimulus plans didn’t work; the money was wasted on Wall Street buddies, and cronies… And now we need another one, but only this new one is centered on the wrong things. So, I’ll be watching for signs… If none appear, then I’ll have to go back to the drawing board.

So… In an environment when “bad news” rewards the dollar – and the “bad news” just keeps coming along – that’s not a good sign for a reversal of dollar strength right now. When what used to be called 100-year events, now happen almost weekly… You get my drift…

The Bank of Canada (BOC) did lower rates yesterday, as expected. The BOC cut 50 BPS down to 0.50%, just like their neighbors to the south, and talked about “quantitative easing” going forward. Hmmm.. That sounds like their neighbors to the south too! The BOC had to attempt to do something given the fact that the economy contracted by 3.4% in the fourth quarter!

Tomorrow, the European Central Bank (ECB) will meet, and most likely cut rates, after “pausing” at the last meeting. ECB President, Trichet, told us after the last meeting that the rate cut had been shifted to the March meeting. So… Now it’s March, so expect the ECB to cut rates tomorrow.

The markets have been quite strange with their reactions to easings since this financial meltdown began, and I don’t expect this time to be any different. What I’m talking about here is this environment where markets reward early policy easing with currency strength.

OK… Yesterday’s data… Well… Some had thought (not me!) that the ISM Index (manufacturing) slight bump in February offered some hope that the worst for the manufacturing sector may be over. The jury’s still out on that one… But, even if it is over, the economy won’t improve until this housing meltdown gets corrected… And yesterday’s data on Pending Home Sales did little to change someone’s mind about the direction of the economy! The Pending Home Sales index fell 7.7% in January. The Pending Home Sales data is a good indicator of housing activity, and given the steep fall in January, you would have to believe that the housing meltdown is still occurring, and doesn’t have any sign of correcting any time soon!

And Vehicle Sales for Jan were an awful looking 6.4 million. To give you an idea of just how deep the slide in Vehicle Sales has been… A year ago, the sales data showed 11.6 million Vehicle Sales for January 2008! OUCH!

In all the “speeches” that were going on yesterday, with Fed Head Lockhart, Fed Chairman Bernanke, and Treasury Secretary Geithner, one would have though that a good sound bite would have materialized… But NOOOOOOO! The only sound bite on the day was the Obama “stock tip”!

Treasury Secretary Geithner did report on TALF, and say that it would begin March 25th. So… I thought for class today, we would review what the heck TALF is!

TALF stands for Term Asset-Backed Securities Loan Facility… Basically, TALF will expand the Fed’s balance sheet, and if the Fed wants to moderate that expansion, it has to withdraw bank reserves from the system. The Fed usually does this by selling Treasury bills.

I guess the question would be… What happens if the Fed runs out of T-Bills to sell? Hmmmm… I guess we’ll cross that bridge when we get there, eh?

I received quite a few responses to my call for “feel good stories” in today’s environment from businesses doing well… That’s a good sign! I hope these businesses will continue to do well! The Big Boss, Frank Trotter, and I will review all the entries, and probably print one each Friday, since I like to have Fantastico Fridays, and finish the week with a smile! So, if your note doesn’t appear this Friday, don’t despair, we’ve got quite a few Fridays left in 2009!

Currencies today 3/4/09: A$ .6395, kiwi .4995, C$ .7735, euro 1.2525, sterling 1.4110, Swiss .8470, rand 10.4950, krone 7.1650, SEK 9.2050, forint 247.50, zloty 3.78, koruna 22.18, yen 99.30, sing 1.5490, HKD 7.7590, INR 51.53, China 6.8430, pesos 15.30, BRL 2.4160, dollar index 89.20, Oil $43.30, Silver $12.75, and Gold… $910.50

That’s it for today… I have to go upstairs and start some breakfast for my little buddy, Alex, as he’ll be getting up soon, and his first words in the morning are, “I’m hungry”… Spoken like a true teenage boy! I was listening to him play his guitar yesterday, and he’s getting soooooooo good! Writing from home this morning wasn’t that bad, as long time readers know my dislike for writing away from my desk and in the saddle at work… I could get used to this… NOT! Well… It’s 28 degrees outside, but by Friday, we’re supposed to be getting warmer… I can only hope! Because I’ve told you many times before, I’m just like Jimmy Buffett in that “I’ve gotta go where it’s warm”! I hope your Wednesday is Wonderful!

The Daily Reckoning