Euro Bailout: Saying "NO" to Eastern Europe

Good day… And a Marvelous Monday to you! Welcome to March, too! A lot of the country saw March come in like a lion, which means it should go out like a lamb, right? Let’s hope it begins turning in that direction before month-end! Nine days before I leave for Florida, the countdown begins!

Well… The currencies continue to trade heavy under the pressure of the dollar, and the “flight to safety” in Treasuries. The euro (EUR) has lost the 1.26 handle and continues to look weaker and weaker all the time. The latest move down came as a result of news that Eurozone leaders rejected a request for Eastern European aid… Here’s the skinny on that…

Hungary had proposed that Eastern European countries like themselves, Poland and the Czech Republic, receive loans totaling 180 billion euros ($227 billion dollars worth) from the Eurozone. Shot down….. I don’t want to be… Shot down! Ahhh, a little April Wine this morning… But getting back to this latest development… This news of a rejection, leaves the Eastern European countries hanging, and trading this week, or until something changes outside the euro. In other words, the Eastern European Countries, like Hungary, and the other two mentioned above, normally trade partially on their own, and partially with the backing of the euro, since these three particularly were once considered to be on the “fast track” to euro conversion.

So… Not only do the Eastern European currencies get taken to the woodshed, but in today’s environment with bailouts being the norm, the euro gets taken to the woodshed too for not “bailing out” their brothers.

This is what we’ve come to, folks… If you’re not going deeper in debt, and bailing out everyone and their brother, nobody likes you any more! I read one person’s thought on the Eurozone rejection, and they immediately stuck a knife in the Eurozone, saying, “this shows European countries are behind the curve. They are acting against a global crisis with national measures.”  Hmmm… Ward… You were a little hard on the Beaver last night, weren’t you?

The other BIG NEWS this morning was a report from John Taylor, who manages $11.4 billion as chairman of New York-based FX Concepts, Inc. Let’s listen in… “Whenever a banking system realizes it’s in big trouble, it says, I have to take care of my next door neighbors and the businesses down the block. Then the currency of that country, if its banks are big in international lending like the U.S., will strengthen.”

Needless to say, but, it certainly sounds like Mr. Taylor, has drunk the Kool-Aid, and is buying dollars along with the others seeking a “safe haven”.

I tell you this because someone wrote me recently, and said that I only print commentaries that agree with my stance… So there! This guy is HUGE, and he’s buying dollars!

Well, the revision to fourth quarter GDP printed much worse than forecast on Friday… Let’s see what the Wall Street Journal had to say about it…

“Gross domestic product decreased at a seasonally adjusted 6.2% annual rate October through December, the Commerce Department reported in a new, revised estimate of fourth-quarter GDP. The sharply lower revision reflected adjustments downward of inventory investment, exports and consumer spending.

“The 6.2% decline meant the worst quarterly showing for GDP since a 6.4% decrease in first-quarter 1982 GDP.”

But… With like all “bad data” in recent times, the traders flocked to the dollar and U.S. Treasuries. It makes no sense to me, but then, I think logically… Not like some Ivy Leaguer who’s never spent time in the mail room, learning the business from the bottom up… Wait! How did that thought go into my feelings about one of the reasons this mess is so bad? I was saving those thoughts for a “rainy day”… Oh well, there’s a hint as to where that discussion might go, when I decide to really “let loose”!

Obviously, a decline of 6.2% is pretty dis-heartening for those that believe the recession will be V-shaped… Buzzzzzzzz! Thank you for playing, there’s a nice parting gift for you at the door!

The data cupboard is stocked and ready to yield a plethora of data this week! We start today with Personal Income and Spending, and end the week with the Jobs Jamboree, in between we’ll see the ISM Index (manufacturing), Pending Homes Sales, the Fed’s Beige Book, and more! So, we won’t be void of data to talk about this week.

It looks like January will be the month that sees jobs losses greater than 600K, as the “experts” have forecast the total job loss for January at 650K! Aye, yey yey… That’s just awful! The unemployment rate is expected to hit 7.9%, but don’t be surprised if it prints a snowman… That’s an 8 for you non-golfers – bad golfers I should say! I still believe that the unemployment rate will reach 8.5% before this is all over, and that’s even taking into consideration that Obama’s stimulus is a smashing success! (Here’s the kicker, though, that no one’s talking about regarding these jobs that will be created by the Obama stimulus… For the most part, they will all be “short-term jobs”. What happens when those “short-term jobs” end?)

OK… Enough! The data will print when it prints, so I’ll just leave it there.

Back to Treasuries for a minute… A reader sent me a note that the 5-year Treasury auction priced at 1.92% yield… So, why the attraction to Treasuries? 1.92% for a 5-year Treasury? That’s pitiful! And if the continued buying at that level doesn’t represent an “overbought” situation than I’m not bald, overweight and short!

The Canadian dollar/loonie (CAD) had a rough go of it on Friday after their Current Account printed as a deficit for the first time since 1999! So… After nine years of surpluses, Canada is dealing with a deficit… The Current Account Deficit totaled a seasonally adjusted C$ 7.486 billion in the fourth quarter, bigger than the consensus forecast for a C$ 5.1 billion shortfall. A slump in the goods trade account combined with a widening investment income deficit resulted in the largest Current Account Deficit since 1993.

Japanese yen (JPY) continues to weaken from it’s lofty levels of just a couple of weeks ago… I tried to point this out to everyone when I said that the unwinding of the carry trade looked as though it had come to an end. If the unwinding involved buying yen, then the end of the unwinding would involve not buying yen… Then when it stops getting stronger, profit taking begins, and… Well, that’s where we are today with yen.

Remember last week when I mentioned that AIG could post the largest loss in U.S. corporate history at $60 billion? Well, they bettered that number posting a loss of $61.66 billion! So… Guess who stepped in again to make sure they didn’t fail? That’s right! The U.S. government… Here’s the skinny as reported by the Wall Street Journal…

“The federal government has revamped its rescue package to American International Group and will provide the troubled company another $30 billion, with the Treasury saying AIG continues ‘to face significant challenges.’ The announcement comes as the insurance giant posted a $61.66 billion net loss for the fourth quarter.

“The new package comes as the company has burned through cash and has been unable to find buyers for pieces of its company that it hoped to sells to repay the government on its existing loan package, which totals some $150 billion.”

I tell you this, folks… I truly believe that the government might as well find a big black hole and throw the $30 billion into it, because now AIG is at $150 billion in total loans, and still burning through cash… I hope I’m wrong, because as a taxpayer, I would hate to see this, but… I think we’ll hear about more tens of billions being put into this company in the future…

Speaking of taxes… I met my guy on Friday to begin the tax accounting process. The time is slipping by pretty quickly folks, and April 15th will be here before we know it!

I’ve talked about how much I enjoy reading Caroline Baum’s articles on Bloomberg before… And she has one now that really strikes a nerve with me, in that for once I have someone agreeing with me that the latest stimulus isn’t addressing the problem with the banks. Here’s a snippet…

“Fed Chairman Ben Bernanke said in congressional testimony last week that key to stabilizing the economy is stabilizing the financial system.

“If that’s the case – and policy makers of all stripes seem to agree that it is – why a $787 billion fiscal stimulus bill filled with political priorities and a budget that increases domestic spending by 8 percent?

“As an economist friend of mine says, you can’t force-feed someone who’s in the middle of coronary thrombosis.

“Better to make the treatment fit the disease. Revamping the health-care system won’t fix the banks. Raising the price of carbon-based fuels and force feeding the nation alternative sources of energy won’t loosen up lending. And higher taxes on the wealthy, and inevitably the not-so-wealthy, won’t enhance bank solvency.

“Doing so many things at once means a reduced focus on the root of the problem. There’s a reason the tortoise beats the hare in Aesop’s fable.”

Currencies today 3/2/09: A$ .6325, kiwi .4935, C$ .7785, euro 1.2580, sterling 1.4150, Swiss .85, rand 10.3685, krone 7.20, SEK 9.22, forint 243.50, zloty 3.78, koruna 22.62, yen 97.10, sing 1.5540, HKD 7.7565, INR 51.94, China 6.8450, pesos 15.40, BRL 2.4120, Dollar index 88.72, Oil $42.38, Silver $13.10, and Gold… $946.55

That’s it for today… Well, March is here, which means the NCAA Basketball tournament gets underway, which is always a great couple of weeks. It also means spring training games… Isn’t it great to see baseball highlights on ESPN again? And on Saturday, I listened to our Mike Shannon announce the Cardinals’ spring training game. There’s nothing like baseball on the radio! Oh, you can watch it on TV, but you don’t use your mind like you do when you listen to it on the radio. My little buddy, Alex, had his basketball season come to an end this past weekend. His coach told him yesterday that he had “played like a warrior”.  Our little Christine gets her husband, Matt, back. Matt is a high-school basketball coach, and his season ended last week too! Time to go… Hope everyone has a Marvelous Monday!