A Transparent Fed?

Good day… And a Terrific Tuesday to you! It sure has been the weirdest weather for April that I can recall… We had a frost warning last night! UGH! Oh well… Onward and upward, as the Big Boss, Frank Trotter likes to say!

As we draw closer to the Fed rate announcement tomorrow, (the meeting actually begins today) I’m seeing more and more talk/speculation of the Fed announcing an end to this rate cut cycle after cutting rates 25 BPS. Hmmm… Interesting, don’t you think? I mean, come on, when has the Fed ever been that transparent? I know that Big Ben Bernanke said he was going to have the Fed be transparent, but he’s been in the Big Chair for a couple of years now, and there’s been no transparency to my knowledge… And I’m a Fed watcher, I’m a Fed watcher, watching rates go down.

This thought has the dollar swinging the hammer again… And every currency has taken a hit from the hammer overnight… Except for Chinese renminbi (CNY)… But then the moves there are so darn minuscule that it’s difficult to determine if it went up or down! HA!

Anyway… That’s the skinny on the move in the currencies overnight to a stronger dollar. These knuckleheads are forgetting something very important… The dollar’s fundamentals are awful! Forget for a minute about the interest rates being at the second lowest level for any G-10 country. Think back to the financing of the deficit problem I keep talking about. The recession going on… The housing meltdown… The subprime meltdown for banks/lenders and bondholders… A war… And you get a different picture for the dollar don’t you? Alright, it’s OK to bring back interest rates into the picture now. What you’ve got is a currency with awful fundamentals, and interest rates at 2%.

But… The markets don’t see it that way this morning… And I learned something long ago about fighting the markets… You lose! We just have to hope that calmer heads get a hold of the markets before the dollar rallies too much and the trade deficit goes even higher!

We begin to empty out the data cupboard today as the Case Shiller Home Prices report for February (two months ago!), is expected to show more rot on the vine with a 12% decline in prices.

And for anyone thinking that the housing meltdown has bottomed… The number of U.S. homes standing vacant has reached a record of 18.6 million. This is due to rising foreclosures. The 2.9% vacancy rate (vacant and for sale) represents a record in data back to 1956. OUCH!

We’ll also see the consumer confidence report for April, and it’s expected to keep the recent trend of weak confidence reports going… The Confidence Index stood at 64.5 in March, and the “experts” believe it will fall to 61.1 in April, which would be the lowest reading since 1993.

OK… We had another European Central Bank (ECB) member out talking hawkish yesterday; only this time it was the Top Cat – ECB President, Trichet. Let’s listen in to a snippet of his talk…

“It’s crucial that the Governing Council sets the appropriate monetary policy stance on the basis of no other considerations than the delivery of price stability in the medium term. The bank’s current policy stance will contribute to achieving our objective.”

That’s Central Bank parlance for… Beating Inflation is the ECB’s sole aim.

I’ve had quite a few people send me the column that appeared in Forbes titled: The Demise of the Euro. I’ve said this before, but for anyone that missed it… Here’s my take… I believe that this article is much like all the others we’ve seen announcing the end of the euro… They are all regurgitated. They have the same stuff each time regarding how Spain and Italy don’t like the “one policy meets all”, and they will leave the euro, thus causing the collapse.

Listen to me now, and hear me later on this… Spain and Italy should be thanking their lucky stars that they were ever invited to join the euro (EUR)! For once, these two countries, which had been known to have shaky finances, have inflation that’s at least in this atmosphere. They have budgets that are somewhat in line with the attempt to balance, and they have 80% of their trade among the other members in the Eurozone. Tell me again why these two are going to leave the euro.

OK… Onto other things… My friend the Mogambo Guru is back in rare form, after suffering a heart attack earlier this month. Yesterday he posted some very interesting numbers regarding the stock market rally… Let’s listen in to the Mogambo…

“And another horror is that the stock market went up, which is Pretty Freaking Strange (PFS) since Barron’s reports that the earnings of the Dow Jones Industrials went down, dropping to $225.53 from $234.49. This has produced the unbelievable price-to-earnings ratio of 57! Earnings are going down, but the stocks are going up! To a P/E of 57!


“And not only that, but DJ Transportation index saw its earning drop, too, to $218.60 from $230.91, taking this index’s P/E to 23!

“And while the venerable S&P 500 has not yet shown any more deterioration in its earnings, the fact that the market went up made the P/E of this index go to a lofty 21! All of this in the face of deteriorating conditions and economic collapse! This is beyond incredible!

“How can you NOT run to gold in such crazy times? Ponder this question well, as a lot depends on your answering it correctly, much like when the minister asked you, ‘Do you take this woman to be your lawfully wedded wife?’, and you know how well that turned out. So, like I said, ponder it well!”

Ahhh… The Mogambo on a Tuesday! Folks it doesn’t get much better than that! You can read the entire article here.

Currencies today 4/29/08: A$ .9340, kiwi .7775, C$ .9875, euro 1.5575, sterling 1.9750, Swiss .9640, ISK 74, rand 7.5760, krone 5.1225, SEK 6, forint 162.15, zloty 2.2150, koruna 16.20, yen 104.10, baht 31.62, sing 1.36, HKD 7.7915, INR 40.40, China 6.9845, pesos 10.48, BRL 1.6865, dollar index 72.89, Oil $115.12, Silver $16.83, and Gold… $886.47

That’s it for today… Well… I began my last four weeks of cancer meds in my second phase yesterday. I don’t look forward to these four weeks, but I can’t dwell on it, so I’ll take it one day at a time. I go in for a scan this Thursday; they are still trying to figure out what that was that they saw on my rib two months ago. I’ve seen enough hospitals and imaging places in the past year to fill a lifetime. But hey! I’m here! And still full of you-know-what and vinegar every morning! In case you’re wondering why I’m telling you all of this… I receive a ton of emails from readers asking me to keep them up to date with my progress in fighting this cancer… So there you have it! And… I hope you have a Terrific Tuesday!

Chuck Butler
April 29, 2008