The Day After

Good day… And a Wonderful Wednesday to you! The day after… The day after all the election ads ended. What a beautiful day it is! Well, in January we’ll have a new president – one that had a call to “change”. I sure hope we can change… The problem is what I want changed hasn’t been on any candidate’s agenda. That’s because, as the Big Boss Frank Trotter so eloquently said the other day when I complained about the lack of talk on this subject, “They can’t get elected if they talk about that”.

The “that” is simply the national debt, and how we’ll deal with it as the baby boomers begin to draw on their entitlement programs. I think people now like to “live for today, and not worry about tomorrow” and that’s a real shame. As I said a month or so ago… I’m going to have to sit down and write a letter to my sweetheart granddaughter, Delaney Grace, and apologize to her for leaving her generation with a debt load that requires a huge tax burden that her grandfather didn’t have, and a loss of freedoms, and lifestyle, that her grandfather did have.

OK… Man that was a real somber way to get things rolling this morning, eh? Well, they’re things that have to be said, even if the people running our country won’t say them!

Alrighty then, let’s get the beat going here, and start to rock and roll! The currencies really put on a display yesterday, pounding out gains versus the dollar all day long. The euro (EUR) actually traded up and through the 1.30 handle at one point in the day. But profit taking took hold later in the day, and carried over to the overnight markets of Asia and Europe. But still, as I turn on the screens this morning, the euro is managing to hang around 1.2875.

Euros weren’t the only currency to see some lovin’ yesterday, as the Aussie dollar (AUD) added to its early morning gains after the rate cut by the Reserve Bank of Australia (RBA), and saw 70-cents at one point in the day! But as I said above, the profit taking set in as the day and night came, and it looked like the exit polls were pointing to an Obama win. These knuckleheads are thinking that an Obama win will speed an economic recovery… Ahhh grasshopper, if it were all as easy as simply changing the President!

U.S. stocks rallied all day, leading the “risk takers” back to the trading tables. That meant the yen and dollar were sold, and Aussie dollars and kiwi (NZD) were bought… That’s the carry trade in a nutshell for you there folks. Yen traded above 100 for the first time in a couple of weeks, but has settled back below the figure in overnight trading, as the profit taking took hold.

Oil prices also surged yesterday by over $6, and gold had a strong performance… But the commodities are going through the same thing the currencies are going through this morning… Profit taking.

Factory Orders for September printed yesterday and were weaker than expected. Posting a second consecutive month of weakness, Factory Orders decreased by over $11 billion, or 2.5%. Notice something here folks… Going back to yesterday’s report on the ISM (manufacturing index) and now this Factory Orders, which are simply new orders for manufactured goods, and you have some real rot on manufacturing’s vine. While there was rot before August, the real nasty stuff has been exposed since the end of July. And guess what else has gone on since the end of July? Come on, you don’t have to be Sherlock Holmes to figure this one out… It’s the dollar rally! The dollar has rallied strongly since the end of July, and has pushed Manufacturing to the edge of the cliff… And from the looks of the ISM the other day, (recall it fell to 38.5 from 53) Manufacturing is teetering over the edge.

Some good news on the LIBOR borrowing rate… It narrowed 21 BPS overnight. It’s still out of whack with what the markets believe it should be, but this is a good sign. Let’s hope it’s not a false dawn. If we can get borrowing costs lowered, to stop the currency swaps going on, and to apply some W-4 to the locked credit markets, then maybe, just maybe, you never know, we could get back to fundamentals! And those fundamentals have not been good lately. Speaking of fundamentals, there’s none bigger than jobs.

Friday is a Jobs Jamboree Friday, and right now, it doesn’t look good for the U.S. employment picture, as I think that it could show another loss of jobs and this time to the tune of at least 200K. We’ll get a “sneak peek” at the report this morning, as the ADP Employment Change for October will print. As I’ve explained before, this ADP report gives an indication of the direction of what the Jobs Jamboree will print. ADP is forecast to show -100K, which would not be a good sign for the Jobs Jamboree.

Some readers questioned my thought yesterday that deflation was winning the battle versus inflation, and one person even thought that my call was completely off base. I know it had been some time since I took those economics classes in college, so I looked up deflation just so I could get it exactly right… Webster’s says that deflation is a contraction in the volume of money and credit relative to available goods.

Hmmm… Maybe the jury’s still completely out on this, but in my mind this is a deflationary period we’re experiencing right now; but I still feel that soaring inflation is on the other side of this record… Yes, the “B” side has inflation in store for us… But then, that’s just my view from the cheap seats!

But! If I’m right – and Lord knows I can be just as wrong as the next guy writing a letter every day for 16 years at five in the morning – then the precious metals, like gold, will be big winners… And non-dollar investors will also wear smiles like a Cheshire Cat! And this dollar rally will have been proven to be the fraud it is… A bear market rally… But… If I’m wrong… Well, I think I’ll just retire and ride off into the sunset. OK, I can’t do that, I have a 13-year old that still needs to go to college in 5 years! But If I’m wrong, then I’ll take my lumps and admit it like a big boy.

Thought I would pass along some news from beleaguered Iceland… We were able to get our maturing CD’s this week (traded at a much better level this week), and the news is full of hope that this will continue. I was told that there is a semblance of a spot market taking shape for maturing forwards. There’s still no deliverability or forward markets, as the largest banks in Iceland are still trying to deal with being taken over by the government. I know that there is a lot of confusion with the price that’s being reported on the Internet for Icelandic krona. But believe me now and hear me later, that is NOT THE MARKET PRICE FOR KRONA! And if you think it is, call up the provider of the price and tell them you want to sell them krona at that price! OK… I’m getting a little upset right now, so I’ll stop there… Just wanted to give an update.

Well… As I opined here, the euro got back on the rally tracks, and is back above the 1.29 handle… I guess the profit taking has ended for now, eh?

With the major news circling around the Presidential Election results, there’s not much left for those of us that are trying to deal with the financial crisis going on… So… With that void, for today at least, I’ll head to the Big Finish!

Currencies today 11/5/08: A$ .6970, kiwi .6065, C$ .8675, euro 1.2955, sterling 1.5995, Swiss .8610, ISK (no quote), rand 9.5875, krone 6.6950, SEK 7.6825, forint 199, zloty 2.69, koruna 18.75, yen 99.10, baht 34.92, sing 1.4775, HKD 7.75, INR 47.44, China 6.8280, pesos 12.61, BRL 2.1120, dollar index 84.67, Oil $68.70, Silver $10.27, and Gold… $759.78

That’s it for today… My friend, Addison Wiggin, sent me a note the other day, letting me know that the I.O.U.S.A. movie is going to be released in 35 new cities, and that soon, a DVD will be available! I know I’ve banged on everyone regarding this movie and book, but it’s truly a must see/read! Football is over for my little buddy, Alex. Now it’s basketball time. I wonder if a coach will tell him what a coach told me when I got to high school and went out for basketball… “You should stick to football”… (And I thought I was pretty darn good! HA!) Time to hit the send button… It’s a great day; hope your Wednesday is Wonderful!

Chuck Butler — November 05, 2008