The Ides of March

Good day… Well… Today is the Ides of March, and no, I’m not talking about that 70’s band that had a Norman Greenbaum (one hit wonder) with the song: Vehicle. Instead, I’m talking about the events of 44 BC… The assassination of Caesar on March 15th. On a sidebar, did you know that back then the “ides” were regular calendar events to mark lunar stuff? However, the word took on a whole new life when the term was used to mark Caesar’s death.

OK… How about that? A little history lesson with today’s Pfennig! Who says I’m a one trick pony, eh? Anyway… The reason I always think of the Ides of March is because I always wonder whether or not it will be an Ides of March for the dollar!

This year, I’ll have to change that a bit, and wonder if this will be an Ides of March for the housing market, with the subprime meltdown as housing’s Brutus. Ahhh, yes… Once a close friend of the housing market boom, but now the thing that brings it down. OK… I’m having fun with this in case you couldn’t tell, so I’ll stop now and spare you the boredom of my little association here!

Currencies yesterday had an up and down day, as the euro traded as high as 1.3240, only to see it back off overnight. The Japanese yen, which had been on a two-day roll, was stopped in its tracks and reversed direction. But in the end, all the movement was really contained within a tight range.

The current account deficit for the fourth quarter did narrow, coming in below $200 billion for the first time since the third of 2005. But when you look at the drop in oil prices during the fourth quarter, you get a good idea why this deficit narrowed more than expected. But there’s more…

Think about the dollar here… Around Thanksgiving it hit the skids hard, and the damage to the dollar didn’t end with the Turkey and gravy… It went on until year-end. So, doesn’t this illustrate what I’ve been preaching for years and years now? If the dollar adjusts, the exports can out perform imports… And that’s exactly what happened in the fourth quarter.

The dollar rallied briefly on this report, but soon turned back around and headed down on the day. You really have to wonder just what goes through a dollar bull’s mind. He/she sees that the current account corrects a bit with the dollar weaker… And what do they do? They go out and buy dollars! DOLTS! Hello… McFly? Is anyone home?

OK… I’ll stop before I really get going there. There’s news overnight that Thailand is going to remove a lot of the currency controls they put in place in December – and led to me losing a ton of hair! However, these moves by the Thai Governor won’t help us with regards to buying Thai baht going forward. So, the status remains the same… Besides, at this point, with a military government in place, I don’t think I would touch Thai baht with your 10-foot pole! Once bitten, twice shy babe!

Silver and gold continue to get caught up in the global volatility in stocks… There certainly seems to be a risk aversion trend going on, which has been caused by the subprime meltdown. You know… Yesterday I saw an article that quoted some dudes saying that the subprime problems are being overblown. Hmmm… That’s interesting… I guess they haven’t done all their research of the facts. Here’s one they should have researched…

Housing accounted for 40% of the jobs created during the past four years (recovery). Or how about this one… Mortgage Equity Withdrawals (MEWs) accounted for over 2% of last year’s GDP growth. So… I’m not suggesting that MEWs will go away altogether… But with all the delinquencies (as I reported on yesterday), and all the foreclosures, I don’t see MEWs supporting the economy as they did in the past.

But don’t let that and all the other stuff I could pull out of my hat like Bullwinkle, get in the way of a “feel good” story… And that’s exactly what that article was all about. Too much negativity going on… We were in need of a “feel good” story… NOT ME! I’m not in need of any such bunk!

Speaking of the subprime meltdown… Did you see this story?… It looks to me like a witch-hunt has begun. You know, someone has to be to blame for this mess, right? Well… Look who’s getting tied to the stake… Here’s the story, in case you missed it:

“The Federal Reserve and the Office of the Comptroller of the Currency took little action in public to police the $2.8-trillion boom in the U.S. mortgage market – whose bust now risks worsening the housing recession.

“The Fed, which is responsible for the stability of the banking system, didn’t publicly rebuke any firm for failing to follow up warnings on home-lending practices between 2004 and 2006. The OCC, which supervises 1,793 national banks, took only three public mortgage-related consumer-protection enforcement actions over the same period.

“Consumer advocates and former government officials say the regulators, by acting behind the scenes rather than openly advertising the shortcomings of some firms, failed to discipline an industry that loaned too much money to borrowers who couldn’t repay it.

“Now, more lenders are being forced to shut and foreclosures are rising, threatening to scuttle any chance of an early recovery in housing.

“‘There was tension between the responsibilities not to mess up some banks’ businesses and the responsibility to consumers,’ said Edward Gramlich, a Fed governor from 1997 to 2005 who is writing a book about the mortgage market at the Urban Institute in Washington. The result, he said, is that ‘we could have real carnage for low-income borrowers.'”

So… The Comptroller of the Currency was supposed to police all this, eh? HAHAHAHA! No way, that was going to happen, and it didn’t! Of course, if Big Al Greenspan hadn’t cut rates to 1% and then left them there so long, along with pumping the money supply pipeline creating tons of easy credit, I have to wonder if this would have turned out so ugly.

It all ties back to the possibility of a recession in the United States, and what that will do to interest rates (probably lower them) and then what it will do to the dollar (probably much lower).

Waiting for word from the Norges Bank on their rates… As I said on Monday, I fully expect them to be hiked today. While I wait, I’ll head to the Big Finish!

Currencies today: A$ .7885, kiwi .6935, C$ .8510, euro 1.3215, sterling 1.9360, Swiss .82, ISK 67.25, rand 7.44, krone 6.12, SEK 7.02, forint 189.50, zloty 2.95, koruna 21.31, yen 117.25, baht 33, sing 1.5325, HKD 7.8120, INR 44.21, China 7.74, pesos 11.15, dollar index 83.75, Silver $12.94, and Gold… $647

That’s it for today… I received some good news yesterday regarding our Metals Select product… On May 20th, I’m told holder of Metals with EverBank will finally be able to view their holdings through our award winning EverOne Financial Center! YAHOO! We drew our teams for the NCAA Tournament yesterday, and I drew two HUGE BASKETBALL POWERS… NOT! VCU and Old Dominion are my teams… Looks like I’ll be out of the tournament today! UGH! Have a great Thursday!

Chuck Butler — March 15, 2007

The Daily Reckoning