"The Cheater" Speaks

Good day… And a Terrific Tuesday to you! We received the snow and ice they forecast, but the drive in to the office was no biggie, so the street crews did a fair job, I would say… We’ll see when I head into the city for my radiation this morning…

Hey! What a day for the currencies yesterday! Geez Louise, it’s seems like it’s been a month of Sundays since I could say that! And there’s been follow up overnight, although, I do believe I’m seeing some profit taking right now. I went to radiation yesterday with the euro (EUR ) trading around 1.2965… I came back 2 hours later, and it was 1.31! And it didn’t stop there, trading up to 1.3175, but running into a wall of resistance there… But that was temporary, as the overnight market pushed the single unit higher to 1.3250. It did trade all the way up to 1.33 and change on news that the German Business Confidence, as measured by the think tank IFO, unexpectedly rose for the first time in eight months. This improvement was a result of the European Central Bank (ECB) cutting interest rates.

Of course, you know me… And I always say that one swallow doesn’t make a summer… And that can be used here, as this IFO report is just one sliver of hope for the German economy. There needs to be more, or this report will be put in the rear view mirror soon. So, I’m not pinning my colors to the mast of a German economic recovery, just yet! But, the data did “goose” the euro higher, and for taking part in that, I give the IFO kudos!

The Big Winner of the day though, was pound sterling (GBP ), in a case of an asset “falling too far, too fast”. The pound sterling has done a Super Ball Bounce from Friday’s price, and has rebounded to 1.4190. Of course, that’s a rally from Friday’s figure of 1.3570… It certainly STILL shows the rot on the vine in the U.K. from last summer’s 2.00 for pound sterling. I would be very careful here, as the U.K. is in the same boat – smaller in size, but the same boat as the United States…

I had a great lunch yesterday with the Big Boss, Frank Trotter, and we were discussing what we would talk about next week at the Orlando Money Show. I told Frank that I really believe in the prospects of a nice big rally in Norwegian krone (NOK )… Let me tell you why… First and foremost, it remains a surplus country – a positive balance of payments – and that surplus has allowed Norway to weather the storm that’s hit just about every other country in the world… See why I believe the surplus countries should always be considered when buying currencies? Anyway… The main reason it lost ground from last July’s levels is the drop in oil prices… They – like the other types of commodity driven currencies like Aussie (AUD ), Canada (CAD ), Brazil (BRL ), New Zealand (NZD ), and South Africa (ZAR ), – just got hammered due to the selling in commodities. But… You know my outlook for the inflation in this country, and that will be driving commodity prices higher by year-end… But the leader in the forefront of this entire move will, in my opinion, be oil prices… And IF oil prices rebound like I suspect they will, that will be a very nice underpin for Norwegian krone.

And gold traded above $900 yesterday… It has seen some profit taking overnight, and fallen back to $896… But, again, these are stair steps to higher levels for the shiny metal. But then that’s just my opinion… You have to make your own investment decision.

OK, the data yesterday was not good… Yes, the Existing Home Sales moved higher, but only at the expense of a falling Home Prices… The median home price was $175,400 in December, down 15.3% from $207,000 in December 2007, the National Association of REALTORS said Monday. The median price in November this year was $180,300. Here’s the real indication that this rise in sales wasn’t at good levels… Of all sales in December, about 45% were distress sales at discounted prices. That’s foreclosures and auctions on foreclosed homes, folks… I don’t think we want to get up on the fence and crow about this report.

And then, after all my harping about how the markets should pay closer attention to Leading Indicators data, the report for December showed an unexpected gain of 0.3%. Again, the “one swallow doesn’t make a summer”, applies here too… I’m from Missouri, and I’ll need to be shown more of this to believe it.

Today, we get the color of the S&P/CaseShiller Home Price Index, which will repeat what yesterday’s REALTORS report showed… Expect more rot on the vine here though, with home prices showing an 18% drop.

And we’ll see Consumer Confidence, which I suspect will bump higher in December, although in reality I don’t know why… But it most likely will, based on the stock market’s head-fake rally in December…

I see that “the cheater” a.k.a. Tim Geithner was confirmed as our U.S. Treasury Secretary. I really didn’t think I would ever have another punching bag Treasury Secretary like I had with King Henry Paulson, but then along came “the cheater”. I have to tell you that this is scary stuff, folks. In his confirmation he said – not once, but twice – that “President Obama, backed by the conclusions of a broad range of economists, believes that China is manipulating its currency. President Obama has pledged as President to use aggressively all the diplomatic avenues open to him to seek change in China’s currency practices.”

OK folks, this is where the problems begin… If in his confirmation, he’s making statements like that, you can expect that Obama will push for legislature to put tariffs on Chinese goods… Protectionism… This is ALL GOING IN THE WRONG DIRECTION!!!!!!! And believe me now and hear me later… “The cheater” didn’t just make up this response! This was given to him by Obama, and “the cheater” made certain that everyone heard him by repeating the answer!

I’ve told you before, folks, that protectionism is to a currency what kryptonite is to Superman. So… Not only is the government on the path to spending even more than the previous administration spent, they look as though they will go down this protectionism path… Add to that, the recession and zero interest rates, and you’ve got the ingredients for a huge swat at the dollar.

I read a report by Stephen Jen of Morgan Stanley, where he writes that he believes the euro will trade back to 1.20 in the coming months… Well, that may be, and would play well with my Obama bounce thing… But with this all happening so fast in the past couple of days, I might have to rethink that Obama bounce thing… We may get an Obama bounce, but it may be for the euro and other currencies!

Oh… And one more thing on China, before I go on… The IMF’s Managing Director, Strauss-Kahn, was talking yesterday, and said, “I have said repeatedly that the renminbi is undervalued.” He went on to add, “What we need is for the Chinese to change their policy and shift to more domestic-led growth than to focus on exports. Most Chinese officials are convinced that this is in their own interest.”

So… The IMF believes the renminbi (CNY ) is undervalued, and that the Chinese should do something about it, and so does the Obama administration… Can you say, “trade wars”? I bet you can! And not a good time for them either! Not when the whole globe is suffering… Dolts, all of them, they can’t see the Big Picture… Shame, Shame, Shame!

OK… I could really get going on all that… But… I’ll shift gears and talk about the bailouts. Have you seen the Neil Young (you know THE Neil Young), video on YouTube? He’s singing about the bailouts… Here are the lyrics…

There’s a bailout coming but it’s not for me
It’s for all those creeps watching tickers on TV
There’s a bailout coming but it’s not for me
There’s a bailout coming but it’s not for you
It’s for all those creeps hiding what they do
There’s a bailout coming but it’s not for you
Bailout coming but it’s not for you

So… When guys like Neil Young know that these bailouts aren’t working, and they aren’t good… It should be very apparent to the likes of Pelosi, and Obama…

Oh… And Home Depot announced 7,000 layoffs yesterday; Sprint announced 8,000 layoffs; and Caterpillar announced 20,000…

I’ll get to the Big Finish here in a minute… But first, and finally I wanted to talk briefly about New Zealand… The Reserve Bank of New Zealand (RBNZ) meets this week, and I truly expect them to continue their interest rate cutting. 325 BPS have already been cut from their once highest interest rate in the industrialized world… Finance Minister Bill English was speaking last night and said that the “economic outlook had deteriorated since the government’s December forecasts, and that the economy now looked to be closer to the Treasury’s ‘worst case scenario’.” In that scenario, he suggested that recession would continue through to 2010, the current account deficit would balloon beyond 10% of GDP, and unemployment would rise sharply. These aren’t “good times” for kiwis… So… Look for the weakness in the kiwi-dollar to remain in place here.

Currencies today 1/27/09: A$ .6625, kiwi .5280, C$ .8160, euro 1.3250, sterling 1.41, Swiss .8790, rand krone 6.7325, SEK 7.9660, forint 215.90, zloty 3.2950, koruna 21, yen 89, sing 1.4990, HKD 7.7690, INR 48.93, China 6.8615, pesos 14.05, BRL 2.3120, dollar index 84.36, Oil $46.27, Silver $12, and Gold… $897.40

That’s it for today… Well… Only 6 more weeks until pitchers and catchers report for Spring training… I think I can hold out! HA! The euro has just sold off while I was typing by half a cent… The selling is fast and furious in the past half hour. My little buddy, Alex, wore his pajamas inside out last night, as a “rally” tool for a “snow day” today. It worked! He’ll be sliding down the hills today… (Lucky dog!) Well… It’s like “old times” in the office this morning, as Suzy-Q, is here! Sue used to be here in the early morning all the time, so this morning it was a special treat! Well… I guess I had better get going to radiation, as the roads aren’t good, and it will take me a bit longer to get there! I hope your Tuesday is Terrific!

The Daily Reckoning