Talking Stimulus

Good day… And a Terrific Tuesday to you! On the road again, I just can’t wait to get on the road again… Yes, all my bags are packed and I’m ready to go! Won’t be back until late Saturday night, and back in the saddle next Monday. And I’m leaving just in time, as yet another cold front has moved into St. Louis! UGH!

Well… Let’s see… What to talk about today? I could talk about the Aussie rate cut and stimulus package… I could talk about the “new and improved” stimulus package and all the “non-stimulus spending attached to it… I could talk about how it sure seems as though the euro (EUR ), and then the other currencies, are taking their cues to rally from equities. Now, this is certainly a short-term phenomenon because we all know that currencies have different pricing mechanisms than stocks, and a very low correlation to stocks, which is why they make excellent diversification assets, along with gold and silver.

Well… What’s it going to be, boy? Oh, Shoot Rudy, I’ll just talk about all of them, and probably more, you never know what’s going to come to me, as I start typing!

OK… Front and center this morning… The euro is a bit higher than yesterday, having climbed to 1.28 and change. But, actually, this figure is a bit lower than the high yesterday. At one point the euro was within spittin’ distance of 1.29… The trading range has been tight, like Tupperware! That reminds me of… No… Not today, Chuck!

The Reserve Bank of Australia (RBA) did cut rates 100 BPS last night, to the lowest internal rate of all time… (3.25%). The RBA issued a statement that said something about future rate cuts not being as aggressive as those across the last 4 months. Now, that’s a good sign, but it’s also a bad sign, as it suggests that the RBA isn’t finished cutting rates. Right before the rate announcement, the government announced a stimulus package. Now, I don’t like this, as it puts the RBA, which I’ve always held in high regard, in the same boat as all the other countries doing stimulus packages…birds do it, bees do it, Even educated fleas do it… And I’m not talking about falling in love… I’m talking about stimulus packages. The RBA believes that with a combination of fiscal and monetary stimulus, they can kick start their economy.

Memo to the RBA… While domestic demand is a good thing to have… You need China to grow again. Anyway… The news of the combination of fiscal and monetary stimulus, has lifted the Aussie dollar (AUD ) up off the mat… But I doubt it will have much follow through. Not without a euro rally to 1.30 and higher.

OK, speaking of stimulus… I’m very upset with the “new and improved” stimulus package. I’m sure you’ve figured this out already from previous rants. However, now… I’m even more ticked off! Oh, and the TV/Cable media are swallowing the propaganda from the White House, hook, line and sinker! Here’s what I’m talking about folks…

The package has a “buy American” portion in the package. This is protectionism, folks… And here’s what gets my goat the most about protectionism at this stage of the recession… Fed Chairman, Big Ben Bernanke, is supposedly a “U.S. depression guru”… Well, Big Ben, wasn’t the protectionism of the 1930s one of the reasons for the Great Depression? And it just so happens that now we’ve had “the cheater’s” confirmation, calling China “currency manipulators”, and that was followed up with the “buy American” portion of the package.

Look… There’s nothing wrong with the slogan, Buy American… In fact, I think it would be a great thing to go around saying and doing, based on our manufacturing prowess… But, that’s not what I’m talking about here… I’m talking about protectionism, at a time when the global economies are hurting and need to export to us. I’m really surprised that the currency traders haven’t seen this and taken the dollar to the woodshed… But then, maybe they’re getting the wool pulled over their eyes.

The other thing that ticks me off on the “new and improved” stimulus package is the fact that a very small piece of the $816 billion (before the Senate adds their pork!), is for the infrastructure projects that have been billed as a “major piece” of this plan! HOGWASH! Now, I’m not going to sit here and pass judgment on all the “items” that are being allocated – billions of dollars, like $1 billion to deal with the census problems, and $88 billion to help move the Public Health Service into a new building next year, and $650 million for TV converter boxes. The list of items like this goes on and on… And all worthy items, I’m sure… But none of these types of spending allocations – and I repeat this so you get the full force of this statement – none of these types of spending allocations are doing anything to create jobs. Oh… And just for those of you keeping score at home… $50 billion is allocated to bricks and mortar… Infrastructure… Which has had “top billing” on this package… Well, the truth is out… I sure hope someone takes their lawmakers to the woodshed for this!

And… One more thing that’s really ticking me off about how we’re going about “attempting to stop the correction” which in my mind should NEVER have been done in the first place, and that is this creation of a “bad bank”… Again… And I really want to stress this point… Why not focus on creating a “good bank”? Because creating a “bad bank” has all kinds of problems attached to it, and IT DOES NOTHING TO CREATE JOBS!

OK… Enough! You are quite full of you know what and vinegar this morning, Chuck… Yes, I know, maybe I’m excited about traveling to Orlando! And maybe not… Who knows?

The trading theme is back in place, big time, these days. And with the trading theme right now, and short-term I’m sure, is this connection between equities and currencies… And currencies had better break that connection in a New York Minute, because I don’t see any good times ahead for stocks. I really thought they would experience an Obama bounce, but not so… The DOW sold off to the tune of -9.5% in January! OUCH! But you never know with these markets… If they are left alone, they will work through good times and bad times, based on fundamentals… If they have the government sticking their hands in there, acting like they know what they’re doing, messing with the fundamentals gods… Then… We get bubbles…

But… Like I said above, currencies are a different bird than equities, and have different pricing mechanisms, so this association can’t last too long.

I saw this story, and had to talk about it… Well, everyone knows how I have beaten the U.K. pound sterling (GBP ) around the head and shoulders for months now… And the currency has responded losing 27% in the past 6 months. Well… There’s someone beating the drum for the pound sterling these days… Let’s listen in… Jim O’Neill, chief economist at Goldman Sachs Group, Inc. had this to say… “The U.K. is no Reykjavik-on-Thames” (referring of course to the meltdown/collapse of the Iceland economy, government, and currency) Mr. O’Neill, also had this to say… “The pound is very cheap for the first time in our professional history. You need to make sure that the U.K. is Reykjavik-on-Thames before you bet against the pound.”

Hmmm… I guess he means now… Don’t bet against it now… Because betting against it since August has been quite profitable!

The Swiss franc (CHF ) continues to get dragged through the mud by the bank scandal that I talked about last month, between UBS and Italian municipalities. There’s been some new rot found on UBS’s vine, and since UBS is such a large piece of Switzerland… The franc gets hammered. What the franc needs right now is a rally by the euro, so it can grab hold of the euro’s coattails!

Oh… And before I head to the Big Finish… I want to tell you that next week, we get “the plan”. Treasury Secretary Timothy Geithner will give a speech next week in which he will outline the Obama administration’s financial-rescue plans. Whew! I feel so much better now! NOT!

Oh, and one more thing… The count is now two tax cheaters found in the new administration… First we had “the cheater” Treasury Secretary Geithner, and now we have Tom Daschle… Oh brother! Now… Where’s the change? Wouldn’t it be a huge stance that this kind of scandal and bad press on his administration will not be tolerated, if Obama asked these two to fall on sword?

I know, I keep saying one more thing, but this time I really mean it! After talking up gold yesterday, it sold off $20! UGH! Profit taking, I have to believe, as there’s nothing to show me that gold should have been sold!

Currencies today 2/3/09: A$ .6390, kiwi .5055, C$ .8040, euro 1.2875, sterling 1.4260, Swiss .8640, rand 10.13, krone 7.0425, SEK 8.35, forint 232.65, zloty 3.5425, koruna 22.07, yen 89.50, sing 1.5150, HKD 7.7535, INR 48.82, China 6.8402, pesos 14.48, BRL 2.3175, dollar index 85.89, Oil $40.20, Silver $12.37, and Gold… $906

That’s it for today… I noticed the other day, as I passed by a gas station, that the price of gas had jumped 20-cents in one day, while the price of oil has remained constant, if not cheaper… Oh the games people play now, every night and every day, now… This will be my first trip with Chris, since last May. He’s a busy guy, and doesn’t have time for me to be dragging him around the country! Hey! This is exciting too! We’re currently working on a new way of bringing me to you! Each working day, (that I’m here, which won’t be very often in March!) Kristin will sit down with me, and do a quick overview of the Pfennig, and ask me to further explain a couple of things I talked about. This will all be in the form of a video (in our cool studio) and placed on our website. Now, how cool is that?! We’re practicing now, and hope to be “live from St. Louis”! No, wait… That would “taped from St. Louis” on the website soon. I will, of course, let you know more when we’re ready! Well, people are arriving; I must be late! I hope your Tuesday is terrific!

The Daily Reckoning