Gold Puts on its Rally Cap

Good day… And a Thunderin’ Thursday to you! Well… Front and center this morning, I’m going to tell you something that will surprise a few, and make a few happy. I’ve had my say on the bailouts, TARP, stimulus, and spending. I’ve beaten them to a pulp, and some readers have expressed their contempt with me carrying on with this beating. So… Unless something cracks, I’ll just leave it all as it stands, and go on with life. This all has been too much for my blood pressure to take! I’ll report the facts on this stuff, and leave the commentary for people that think they “know better”…

For instance, it was reported the other day that the Treasury Department has overpaid for stock received from TARP recipients by $78 billion. You see, for every $100 given in TARP, the Treasury was to receive $100 in stock/assets, but when all the beans are counted, the Treasury is $78 billion short on stock/assets… But, what the heck, what’s $78 billion among friends?

I was totally amused at the lawmakers’ grilling of Bank CEO’s yesterday. In going along with the general practice that exists today… “It’s always someone else’s fault for it can’t be my own fault.” The lawmakers pointed fingers and blasted these CEO’s for “earning a living”. This is dangerous ground folks, as it speaks of doing away with the way businesses have been run for eons, and shakes the very foundation of Capitalism. If the lawmakers had stopped and thought about their TARP money before they began to hand it out with no accountability, and lending requirements, maybe things would be moving in the right direction by now… And I know… This is getting too opinionated, and I’m not going there anymore.

Oh! And one more thing… Please… No more emails blasting me for taking the new administration to the woodshed so early in their rein… It’s NOT A POLITICAL THING! For any reader that was around in 2001 when the then new administration had just taken over, and their first order of business was to place tariffs on steel imports, I came out with both guns a blazin’, saying that this was protectionism and had no place in free market capitalism. I ranted and raved on the (then) new president for this move. Funny, I don’t recall receiving the nasty emails I’m getting now for doing the same thing back then. Hmmm…

OK… The dollar was in the driver’s seat yesterday, as the risk takers have all gone home… A heading on Bloomberg this morning tells it all… “Stocks fall worldwide on concern stimulus plans may fail”. The stimulus they are talking about is the “new and improved” stimulus package that the Senate approved yesterday, which came in lower than the previous package. This version’s total comes in at $789 billion.

Yesterday’s potential market moving data didn’t materialize, as the trade deficit did not narrow as much as forecast, and last month’s number was revised upward. For the record – and for those of you keeping score at home – the trade deficit for December printed at $39.9 billion, and November’s deficit was revised from $40.4 billion to $41.6 billion. Exports have fallen off the cliff as, 1. Global demand is waning, and, 2. The dollar is overvalued and too strong to allow U.S. exports to be competitive.

Today, we’ll see retail sales for January. The BHI (Butler Household Index) tells me that we should look for a very disappointing number from January. We’ll also see the Weekly Initial Jobless Claims that continue to show more rot on labor’s vine. Last week, the Initial Claims showed a record of 626K filed. This week, the “experts” are looking for 610K… I’ll go out on the limb and say it will be even more disappointing. UGH!

Well… As I told the interviewer the other day… I believe that what we’re seeing right now is a generally increased concern regarding fiat currencies, which has gold on the rally tracks once again. Yesterday, gold soared upward and onward by $23… And it has already added $3 since the London Morning Fixing earlier. As my friend, the Mogambo Guru, tells his readers… Everyone should own gold… “See how easy this investing stuff is? Whee!” And let me repeat something I said before. My friend, Bill Bonner here at The Daily Reckoning, coined this saying for his “trade of the decade” at the turn of the century… “The trade of the decade is to sell stocks on rallies; buy gold on dips”… WOW…

And now that central banks all over the world are having a race to zero… Deposit rates no longer hold the hammer over gold’s non-interest bearing status. So… When gold is on one scale, and cash (like dollars!) is on the other side of the scale… Guess what happens! I was surprised that I didn’t get any comments yesterday from the media or readers about what I said gold was… “An uncertainty hedge”… Are you uncertain as to what all this will bring us?

An ECB minister, Papademos, was speaking overnight about how “a further easing of the Eurozone monetary policy may be appropriate as risks to growth and inflation are to the downside.” Then another ECB minister, Liikanen, said, “At the next meeting it is possible we could move.” No dookie, Sherlock! Your leader, Mr. Trichet, has all but told us to look for lower rates at the March 5 meeting.

Lower interest rates in the Eurozone won’t necessarily hurt the euro (EUR), as they sure haven’t hurt the dollar! There’s a whole trading pattern that deals with a currency not losing value even after a debasing rate cut… I’ll put that all together, and bring it to you probably next week, as we’ve got time before March 5 comes around anyway!

Instead, the market movers for euros this morning have been 1. Risk aversion in play 2. More flight to the safety of Treasuries, and 3. Recession type data – like this morning’s December print of Industrial Production for the Eurozone, which fell 2.6% for the month, and moved the annual year-on-year figure at -12%… OUCH! Now, that’s recession type data! And something that really brings home that thought I’ve made a few times now, about the move to gold…

Pound sterling (GBP) has gone back on the slippery slide downward, after a brief rally last week. I was getting a little hot under the collar with the sterling strength last week, but, as with all things, patience is a virtue. Sterling is showing its true colors again, and the folks over at BNP Paribas say that the “downside risks for pound sterling versus dollars have increased”. Hmmm… That’s a big time research department there… I could have – and in fact I already did so, all by my lonesome – told you that!

The Aussie dollar (AUD) just won’t go away quietly. Yes, I fully understand that it has fallen from the lofty level 98-cents to present day levels of around 65-cents… But since it got to this mid-65 cent range, it has held steady Eddie. Now, of course I realize that I just gave it the kiss of death, but really this is worth pointing out. And with yen (JPY) now stalled out around 90, it kind of makes you wonder if the carry trade unwind is over… Makes you stop to think doesn’t it? Australia keeps cutting interest rates, and it remains in the mid-65 cent range. Yen has had every opportunity under the sun to go further to 85, and can’t seem to find any terra firma below 90. Therefore, I’m pronouncing the unwinding of the carry trade as a done deal. This is where the munchkin coroner comes out and proclaims the carry trade as truly dead. As coroner, I thoroughly examined her, and she’s not only merely dead; she’s really most sincerely dead…

Well… At least we can hope so! This would be a good indication that risk aversion is dying out… Although I’m truly aware that this risk aversion has a ways to go, we have to get to this place before we can begin to make plans to send risk aversion to a state run home.

On a sidebar here… Whenever I used to sit around late into the night with my friends, they would invariably get me to do my imitation of the Lollipop Guild… HAHAHA! Of course, this is when they also would have me play my guitar, which I now haven’t picked up in some time.

OK… Enough of that silliness! Your Pfennig writer has really gone out on a limb this morning with the carry trade thingy, eh?

I’m out of ideas for today, so without further ado.

Currencies today 2/12/09: A$ .65, kiwi .5195, C$ .8045, euro 1.2855, sterling 1.4230, Swiss .8610, rand 10.0950, krone 6.8735, SEK 8.4050, forint 232, zloty 3.58, koruna 22.29, yen 90, sing 1.51, HKD 7.7515, INR 48.84, China 6.8340, pesos 14.59, BRL 2.2870, dollar index 86.14, Oil $35.53 (the price of oil just keeps falling!), Silver $13.45, and Gold… $944.44

That’s it for today… What a nice win, in awful conditions, for the U.S. men’s soccer team versus Mexico last night. My little buddy, Alex, and I watched the game together. Soccer was never “his” sport, but when I was a youngster growing up in South St. Louis – where everyone and their brother was Catholic, German, Irish, Italian, French, and any other European background – soccer was played all the time… Well, when we weren’t playing baseball, basketball, football, and hockey! We have two… Count ’em… Two, soccer greats, and members of the St. Louis Soccer Hall of Fame on this trading desk… Don Ries and Ty Keough. Both grew up on the South side of St. Louis, where so many athletes came from. Today would have been my oldest sister Brenda’s birthday. We lost her to cancer 20 years ago; she would have been 58 today… OK… It’s also Charles Darwin’s 200th birthday! Suzy Q. just arrived… I need to get this sent, so… I hope you have a Thunderin’ Thursday!

The Daily Reckoning