Making the Federal Reserve Accountable

I really, heard a lot of people talking about the rumor/conspiracy story that there will be a bank holiday at the end of the month (this weekend) and the government will announce major changes to the currency… Now, before anyone begins to believe that I am on board with that rumor/conspiracy story… STOP! I am NOT! I’ve read all the theories, and I’ve heard all the information regarding this, but just do not understand why this would be done. So… I just wanted to throw it out there, and let you all know where I stand on this.

OK… Well… As always, Chris did a fabulous job in my absence… He helped the currencies rally, which again, plays along with the old theory we held that when Chuck’s away the currencies rally! As I sit down this morning and begin to write, the currencies, led by the euro (EUR), have backed off their lofty figures of yesterday. Stock futures must be down, eh?

It was all seashells and balloons for the currencies the last three trading days, but that seems to have all ended in the overnight markets. The euro has lost the 1.43 handle, and the Aussie dollar (AUD) has lost the 84-cent handle. In keeping with the trading pattern of some time now, we have Japanese yen (JPY) rallying.

You know, I had a long conversation with a customer in San Francisco and he wanted to know why Japanese yen was considered a “safe haven currency”… I told him, that other than the fact that the Japanese economy is the second largest in the world, I didn’t see any other reason for Japanese yen to be considered a “safe haven currency.” The Japanese economy recently saw a 3.7% gain in second quarter GDP… But come on… Do we really expect to see people follow through on this? I’ve been following the Japanese yen for over 12 years now, and I’ve seen this a dozen or so times, when everyone gets all giddy, with goose bumps, and chills down the back of their necks over a rise in Japanese GDP, only to have the rug pulled out from under them the following quarter… Safe haven currency? It makes me shake my head… But it is what the markets make it to be… So we carry on.

Hey! Did you see where a Manhattan Chief US District Judge ruled against the Fed Reserve? Way to go Loretta Preska, the judge, who has rejected the argument that the Federal Reserve was making about disclosing loan records. The Fed said that loan records aren’t covered by the law because their disclosure would harm borrowers’ competitive positions. The judge said that the Federal Reserve MUST identify the companies in its emergency lending programs.

This just makes me jump for joy, because the cartel, I mean the Federal Reserve System, (and notice I don’t call it a bank, because it’s not a bank!) has to be accountable, don’t you agree?

While I’m on the Federal Reserve… I see where the President is going to nominate Big Ben Bernanke for a second term… Why wouldn’t he? Big Ben has been playing along with the Goldmanites’… I mean the administration’s plans hasn’t he? He sure has… And for that, he gets a second term!

OK… Enough of the Fed, they make my stomach turn any way!

The word overnight is that China is attempting to throw cold water on stock valuations, telling investors that the values are overblown… I’ve also heard a few voices in the US state the same thing… Of course, long time readers of the Pfennig know that I’ve tried to throw cold water on the stocks for months now… I just don’t see how they are rallying, given the rot on the vine, including the unemployment problem. But… Who knows? I still believe there is market manipulation… And the people at CNBC can laugh at it all they want! If they don’t want to believe former Fed Head Big Al Greenspan, who admitted there was a Plunge Protection Team… And if they don’t believe that the government has had a hand in manipulating the markets, then that’s their problem! (I still get very mad when I think about them telling me I should take this thought to Hollywood!!)

Speaking of China… I read a story on Reuters that quoted Chinese Premier Wen Jiabao regarding keeping the stimulus for the economy going… Let’s listen in… “We must clearly see that the foundations of the recovery are not stable, not solidified and not balanced. We cannot be blindly optimistic,” Wen said. “Therefore, we must maintain continuity and consistency in macroeconomic policies, and maintaining stable and quite fast economic growth remains our top priority. This means we cannot afford the slightest relaxation or wavering.”

And here’s where I make sure you understand the difference between China adding economic stimulus, and the US adding economic stimulus…  China has the treasure chest of reserves to do so, and the US doesn’t! They are working from a position of monetary strength… The US on the other hand, has done a wonderful job of jacking up the national debt! And we still have 1 in 5 people unemployed! We still have banks failing left and right, 77 of them in 2009, and we still have an economy in depression.

Oh… And did you see the announcement the other day by the administration that they are forecasting that the budget deficit will continue for the next 10 years? OK… This is where I have to come out and talk about how badly these forecasts are! For instance 10 years ago, these forecasters said we would be enjoying a budget surplus right now. Buzz! Wrong! Thank you for playing, there’s a nice parting gift for you at the door! Johnny? Tell them what they won! How about a near $2 trillion (by government accountants’ figures) budget deficit instead? Which will be more than $500 billion more than these accountants forecast just a year ago!

OK… Enough of that… My blood pressure is rising right now!

Oil prices have fallen first yesterday and then overnight, and that news has weighed heavily on the Norwegian krone (NOK)… I would just hold tight here, because there are a number of reasons to hold krone, other than an “oil play”… A huge surplus is the number one reason in my book… A great fiscal position, a mildly strong central bank, and being a “euro” alternative, are added to the “oil play” story…

And in Germany this morning, we should see the final GDP figure that would re-confirm that the German economy pulled itself out of recession in the second quarter… I saw something that caught my eye this morning, that I think will amaze you… But, after the amazement has settled in, you’ll say… WOW! No wonder Germany’s economy is on the mend! What I’m talking about here is a report by the World Trade Organization that in the first half of this year… Germany and China were neck and neck for first place in the “exports by a country” category… WOW! I know that everyone and their brother believed that China was the Big Kahuna when it came to exports… But looky there! Germany is keeping up with the Big Kahuna!

I received a note from a reader last week regarding Germany… “We just returned from a trip to Germany and got the feeling that the recession has past. In short, everything we saw pointed to a healthy economy.”

That’s the kind of economics that work for me… It’s how I view economics – as a hands on kind of thing… How it affects you, me and the guy down the street. It’s how I believe we should all view economics… No need to get all “book smart” with all those technical descriptions… Just see it for what it is, and report on it!

Today… The data cupboard has a few economic reports to print… Leading off and playing second base is the S&P/CaseShiller Home Price Index, which I’ve heard more than one economist say that they think the index will show an improvement. In other words, home prices don’t fall as much! We’ll also see the color of the August consumer confidence report, which is forecast to be stronger in August… Then there will be few second tier reports that also print, but not market movers, so we’ll not spend time talking about them!

OK! Now that I’ve talked about the risk assets getting sold overnight, I’m sitting here watching the currencies rally right in front of my eyes! The euro has climbed back above 1.43, and so on…

The Daily Reckoning