The Geithner Plan Day

Good day… And a Terrific Tuesday to you! The President talked to us last night regarding the “new and improved” stimulus package. He sounded a bit defensive, don’t you think? But, I will say this; he did try to stay on the high road when defending the package. He really ripped people like me – who oppose the package, and see it as spending only. But I think he forgot to mention that people like me, oppose it because we can’t afford it! But the President firmly believes our economy could completely collapse without this, so I can see where he feels the urgency to get this bill signed.

OK… Enough of that! I don’t like talking about stuff like that, because I’ll have 100 people writing me nasty emails about politics, and 100 other people writing to tell me that I was bang on!

Well… Things around the world just don’t seem to be anything to write home about. This morning, the euro (EUR) has lost all the ground it gained yesterday and more, before climbing back. The euro led the other currencies (minus yen) to higher ground yesterday, and the rally lasted most of the day. It then climbed to near 1.31, before profit taking set in, bringing it to just above 1.30. However, in the overnight market, the euro has been sold again down to 1.2894 before rallying back to 1.2970 as I write… Here’s the skinny.

Russia owes the European Union and other countries a boatload of money on loans made to Russia. This has been a “known” thing for years now. But… Russia is now asking the European Union to moderate talks with foreign creditors on $400 billion of loans. This obviously shows that the credit crisis is still in play, and now affecting governments from obtaining needed credit. This news has caused the euro to take a shot to the mid-section.

OK… The President was very clear last night that U.S. Treasury Secretary Geithner will explain his “new and improved” plan for dealing with the remaining $350 billion from the TARP (troubled assets relief program). Now, I have no idea what Geithner is going to say, but I know what he had better say, or else the risk takers are going to go back under their rocks and stay for awhile. I expect Geithner to talk about how the remaining $350 billion will come with some major strings attached, like: a provision that any of the funds taken are to be used to clear up funds for lending.

And here’s where the cheese binds folks… Without the credit markets operating in a near-normal capacity, the “new and improved” stimulus package that’s going through Capitol Hill now, won’t stand a chance! Businesses need to get credit to expand and hire workers, individuals need to get credit to buy homes, etc.

I was talking to a banker that I’ve known for a very long time last week, and one that was a lender for many years, and he thinks that even if the credit markets unlock, who’s going to have a “sound” balance sheet to obtain a loan? His thought was, “why would any lending institution make a loan when 500K jobs losses are posted each month, and bankruptcies are at record levels, and regulators are breathing down their necks to make certain we don’t slip back into past lending practices…” Just imagine, if you will… A return to the old adage that a lender looks at the borrower’s ABILITY TO REPAY THE LOAN…

OK… So now, after having said all that… I need to say, that we HAVE to find a way to get past all this… The credit markets need to unlock! Or else… We’ll be stuck in Jimmy Carter’s “malaise” for years to come! We don’t even want to slip into anything resembling “Japan’s lost decade”.

So, I’ve spent the morning talking about stimulus and TARP, and the credit crisis… Time to skip over to something else!

Yesterday, the Aussie dollar (AUD) had it all going on, rising to well above 68-cents. Overnight, however, with the euro getting sold, the Aussie dollar has seen selling. Add to the euro’s plight, the fact that Aussie Business Confidence dropped to a record low last month, and we’ve got Aussie dollars selling down below 67-cents… But hey! At 0.6670, the Aussie dollar is still quite a bit higher than it was just a week ago.

With the risk takers on the run yesterday afternoon and overnight, the Japanese yen is back on the rally tracks after a couple of days off of them.

Union Bank of Switzerland (UBS) announced more layoffs along with more losses last night, but assured everyone that they would return to profit next year.

A couple of weeks ago, I talked about how I believed U.S. Treasuries were the next bubble to burst. I spent a ton of time explaining how this would work in my presentations last week at the Orlando Money Show. Well… A quick look at the Merrill Lynch Treasury Master Index, shows that Treasuries have lost 3.6% so far this year. That’s the worst start in any year since 1980!

I remember what was going on in the early ’80s in bonds… I was running the bond operations at Mark Twain Bank, and this is nothing like that… But… I think the thing that resembles this move in bonds the most is what happened in the ’90s. Back then, the bond markets’ participants made sure the President’s spending plans were put aside and a balanced budget was pursued instead. The bond market participants drove up borrowing costs then… And it looks like they have plans on doing that again, which would really throw a spanner in the works for President Obama’s plans.

I’m so bummed about all of this… If the lawmakers in Washington had just read their Empire of Debt books that were sent to them six years ago, or their I.O.U.S.A. books that were sent to them last year, maybe we could have done something about this before it got so dire. By the way… Bill Bonner and Addison Wiggin wrote Empire of Debt, and Addison Wiggin and Kate Incontrerra wrote I.O.U.S.A.

And to add to my/our misery this morning… Fannie Mae and Freddie Mac… (Remember these two? They kick started all these losses.) Now they say they need more bailout funding. Well, let me clarify that… They say they will need $200 billion more if the housing market continues to deteriorate. Well… They might as well get in line for that $200 billion now, folks… That’s how I see it.

And then there was gold… My friend, the Mogambo Guru, had this to say in his daily letter that posts right here at The Daily Reckoning, (along side my Pfennig!) So, here’s the Mogambo talking about buying gold…

“Well, since you asked, the point is that ‘At the end of 2007, above-ground privately held gold bullion amounted to less than $650 billion, and the total amount of silver and platinum bullion was less than $5 billion. Put together, this is less than 1/3 of 1 percent of the estimated $187 trillion of global financial assets’ which doesn’t even start to address the implications that ‘China, Russia and the OPEC countries are considering substantial increases to their gold allocations in order to diversify their US dollar risk’ which means that ‘Any reallocation by these countries will drive prices much higher.’”

I get asked all the time about the government confiscating our gold like they did in the ’30s… I tell people that times are different. Back then, gold was a part of our money. Dollars were backed by gold, and therefore the government had a “need” for the gold… But that’s no more! Therefore, I just don’t see the government getting involved in a confiscation… Besides, as I told the crowds last week, I’ve got a rake, you’ve probably got a pitchfork, and if they want to take my gold, they will face the rake and pitchfork! Ha!

But, I think the Mogambo nailed it even better, so back to my friend, the Mogambo Guru…

“And in that regard, people keep asking me if the government is going to confiscate gold, and I tell them, ‘Why don’t you ask the government?’ Hahaha! As if they would tell you the truth! Hahaha!

“But not even mentioning that the Federal Reserve can print up all the money it wants, so they would not confiscate gold for the money, or the fact that all the gold held at the Federal Reserve is chump change; if the Fed still has all of its reported 261 million ounces, then at even $1,000 an ounce, all the gold would only be worth a lousy $261 billion dollars!

“Less than a quarter of the Federal budget deficit for this year alone! Hahaha!

“And then the government has to store the gold someplace and start absorbing all of the expenses of guarding it, which doesn’t even address that the ‘takings clause’ of the Constitution which prevents the government from taking anything away from you, including gold, without paying full market value to you, the owner.

“So will the government confiscate gold? Why in the hell would they want to do that?”

Ahhh… The Mogambo on a Tuesday; there’s not a better way to start a Tuesday! (Except of course if you won the lottery and asked for gold instead of dollars!)

OK… So to sum up today… U.S. Treasury Secretary Geithner will give his “new and improved” plan for TARP money. But before he speaks, the Fed Chairman, Big Ben Bernanke, will speak on lending programs at the Fed. The markets will wait for Geithner, to see if the risk takers are coming back. Let’s hope he can do a Bullwinkle, and pull a rabbit out of his hat!

Currencies today 2/10/09: A$ .6670, kiwi .5335, C$ .8165, euro 1.2970, sterling 1.48, Swiss .8625, rand 9.6960, krone 6.6760, SEK 8.1250, forint 222.25, zloty 3.4410, koruna 21.6375, yen 91, sing 1.4975, HKD 7.7510, INR 48.74, China 6.8325, pesos 14.20, BRL 2.2545, dollar index 86.10, Oil $40.59, Silver $12.95, and Gold… $895.78

That’s it for today… Hey! How about those Missouri Tigers! My beloved Tigers came back from a double-digit deficit against the reigning National Champion Kansas Jayhawks, and beat them on a last second shot! WOW! Not only was the victory sweet before a home crowd, but it was against rival Kansas! Alex Rodriguez admitted to using steroids yesterday, which works out well, since he was exposed for using them the day before! The NY papers are calling him A-Roid… Isn’t this sad? He was supposed to be the anti-Barry Bonds… And now he’s on Barry’s team. We’re just a few days away from pitchers and catchers reporting for spring training; maybe we can forget about A-Rod then… I’m one month away from leaving for Florida, where I will remain for the rest of the month! I’ll be speaking at the Investment U. Conference in St. Petersburg at a tre cool hotel down the street from now-demolished, Al Lang Stadium! You have to be a member of the Oxford Club to attend, so if you are a member, get signed up and go where it’s warm! See you there! Whew! Enough typing today! I sure hope your Tuesday is Terrific! (I also hope that Timothy Geithner’s Tuesday is Terrific, too!)

The Daily Reckoning