Big Ben Bernanke Talks Rate Hikes

OK… Well, the “experts” that thought the trade deficit was going to narrow in December got their lunch handed to them yesterday, when not only did the trade deficit NOT narrow, but widened from $35 billion to $40 billion! Now that stinks! And… I’ll tell you right now, it will deduct from the 5.7% GDP figure that was printed a couple of weeks ago. Yes, this increase in the trade deficit will probably reduce the GDP figure to at least 5%.

Now… In the old days (before the financial meltdown) a report like this would have deep-sixed the dollar in a New York Minute… And… You could see some traders attempt to get the ball rolling for the euro (EUR) after the report printed… But then along came a German in a black hat who put an end to that mini-rally for the euro. A German official threw cold water all over the euphoria that swept through the markets on Tuesday, when it was rumored that Germany was weighing a bailout for Greece… The German official basically said that Germany would not help Greece, and it was Greece’s problem to deal with.

Well, that sure pulled the plug on the mini-rally! The non-dollar currencies all took a nose dive lower, and brought gold down with them. But, then about an hour later, the non-dollar currencies and gold were inching their way higher once again.

So… Here’s what I see, folks… I see currencies and commodities champing at the bit to move higher versus the dollar, but there are too many forces going against this right now because of the stories coming out of the Eurozone… You know, the stories that I’m talking about, the debt problems of the so-called PIIGS… (Portugal, Italy, Ireland, Greece, Spain)

And… While I don’t agree with throwing Portugal and Spain in that mix, that’s what the market participants are doing right now… I tried, but I was unsuccessful in my attempt to come up with an acronym for California, Illinois, Michigan, New York… I did some research the other day, and while I don’t want to spill the beans for the article I wrote for our monthly customer newsletter, I can assure you that the US states’ problems are a bigger part of the US than the Eurozone states’ problems.

But, who’s getting whacked? And the whacking of the euro doesn’t bother me as much as the whacking of gold… For, what asset would you most want when the two largest contributors to world GDP are in such bad shape? For me, it would be gold… For some it would be silver… But for all it wouldn’t be the dollar!

So… Big Ben Bernanke was talking about his plan to remove/withdraw stimulus… He even mentioned that he may raise the discount rate at some time… Notice he didn’t say when… And he didn’t say that he would definitely raise the discount rate! He’s a knucklehead, folks… I still can’t believe he got re-confirmed for a second term!

The 10-year $25 billion auction didn’t exactly go off without a hitch yesterday, as buyers of the 10-year bonds demanded higher yields. The yield on the 10-year rose to 3.70% from 3.63%, yesterday morning. Like the guy in the movie Airplane, it was a bad day for Ben Bernanke to talk about raising rates, with a $25 billion auction to get off!

So… It wasn’t exactly a “bad” auction, but it didn’t inspire a ton of confidence either!

Again… Here’s the skinny on the thought that the Fed is going to raise rates soon… You have to remember that the Fed bought tons of adjustable mortgage backed bonds from dealers with the stated intention to sell them back to the markets once the “coast was clear”. Well, if the Fed raises interest rates, those bonds that they hold begin to lose value, and the Fed will be holding them at great losses should they decide to sell them back to the “street”… So, keep that little ditty in mind, when you hear the Fed Heads talking higher rates… They are just like me as a teenager with my friends, talking about how great it would be to own a GTO… Talking about it made us feel like we really owned one (I drove a 1963 Ford Falcon!) even though we knew we would never be behind the wheel of one!

And while the Fed Heads keep rates low… Inflation builds. My friend, the Mogambo Guru, is back to writing, not a moment too soon! Yesterday I was reading his article titled “Ignoring Inflation Won’t Make it Go Away”, where he goes on to talk about increasing prices everywhere… I pulled these two snippets to share with you on inflation…

Here he’s talking about The Wall Street Journal, which he says claims inflation doesn’t exist… “A subscription to the paper now costs $385 per year, whereas as early as the middle of 2004 it cost $338 for a TWO-year subscription. So The Wall Street Journal, as oblivious and clueless as ever, has seen its own prices more than double in 5 years, which comes out to a compounding of 14.87% increase per year, but yet they can’t see inflation in prices?

“When it comes to actual proof of a coming inflation that is going to destroy the world, instead of just me loudly running my mouth about it, where the only good news is that The Mogambo (me!) can rise from the ashes to assume full dictatorial powers and a huge salary-and-benefit package to re-establish the gold standard and real prosperity to America, one need only look at the last two pages of The Economist magazine, where we find, among the 40 biggest economies in the world, that all of them have inflation in consumer prices! Well, all of them except Singapore (where inflation is zero), Taiwan (negative 0.2%) and Japan, where prices are supposedly falling at 1.9% a year.”

All hail the Mogambo, for he has returned!

I read a story this morning about the upcoming European Union Summit, and how the groundwork will be put down for a Greek bailout… You know, while I like the fact that this would calm the markets down a bit… I’m not for bailouts… And the thing that scares me is that once the EU opens Pandora’s Box of bailouts, the line will begin at the door for handouts to whatever Eurozone state feels the need… And I don’t like that scenario!

In the South Pacific overnight… The Aussie dollar (AUD) received a boost when it was announced that Aussie employers added more than three times as many jobs in January as the “experts” had forecast! The Aussies added/created 52,700 jobs last month, the biggest monthly increase since December 2006! The unemployment rate fell to 5.3%… This print also marks 5 consecutive months of jobs gains in Australia!

I just don’t see how the Reserve Bank of Australia (RBA) can ignore all these strong data prints too much longer! The Aussie dollar shot up 1-cent on the news to 0.8880! So… I’m going out on a big fat limb here and saying that the RBA will hike rates on March 2nd, (their next scheduled meeting).

Moving to the North Sea area… Sweden’s Riksbank left their rates unchanged, as expected, but did sound a bit more hawkish in their after rate announcement statement. Reading the statement leaves me thinking that the Riksbank has their collective eyes on a late summer rate hike… That’s like throwing the krona (SEK) a bread crumb… But, the krona did react favorably to the bread crumb, so, maybe the Riksbank can get to throwing it loaves of bread!

Have you been following the rise of oil this week? We started the week with a $71 handle, and today we have a $75 handle… After briefly falling below 94-cents earlier this week, the Canadian dollar/loonie (CAD) is back above that figure on this rise in oil’s price… The Russian ruble (RUB) too is stronger on the rise in oil… Norway’s krone (NOK) is just a bit stronger versus the dollar this morning, as the oil price rise doesn’t seem to be helping it, just this minute…

Not that the krone needs a crutch like rising oil prices to reflect what a strong currency it is! But… Rising oil prices would go a long way toward boosting the krone.

The data cupboard is quite empty today, except it is a Tub Thumpin’ Thursday, which means the Weekly Initial Jobless Claims will print this morning, and is expected to remain well above the 450,000 figure…

I saw a headline go across the screen titled: Unemployment in US May Have Peaked As Economists Raise Growth Forecasts… Well, you knew that seeing that I would have to go check it out to see what kind of dolt mentality it was going to print… Yes, the economists, surveyed by Bloomberg, believe that Unemployment has peaked, and that as the economy strengthens, jobs will be added through 2011… Hmmm… I just don’t see it, folks… Just don’t see it… Unemployment is near 20% (don’t listen to those nilly willies that say it is just 9.7%!) and while they could be correct that unemployment has peaked… I just don’t see this recovery they are talking about that would be strong enough to reverse the job losses and add over 150,000 jobs a month, which is what a stable economy in the US needs…

Then there was this… The Obama administration has apparently come up with a creative way to deal with the increasingly bleak news with regard to the economic position of the United States in the world.

It proposes to eliminate the office in the Bureau of Labor Statistics that collects and publishes the comparative data on employment, unemployment, manufacturing productivity, and labor costs, among other things. You can find it here, among the various programs that it has marked for termination.

And I thought that Bush’s hiding of M3 was bad enough?

To recap… The currencies traded in a tight range yesterday and overnight, with bumps up and slides back down. The EU summit is supposed to be working on a bailout for Greece, which I don’t want to see. Aussie job growth was three times what the experts had forecast, and a return of the Mogambo Guru!

The Daily Reckoning