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In This Issue..
* The dollar bounces!
* ISM was simply awful!
* Oil rallies...
* Jobs Jamboree this Friday...
And Now... Today's Pfennig!
The Obama Bounce Begins...
Good day... And a Marvelous Monday to you! A weekend of football! And there's more this week with the College National Championship Game on Thursday, and then more playoff games next weekend. Crazy time of year for the sport, for sure! So... The Christmas Tree decorations came off yesterday, along with some of the house decorations. My beautiful bride doesn't like to leave that stuff up for long, but for me, I would leave it up all year long!
Well... Although, technically, it's still the Christmas season (it doesn't end until Jan. 11), the Santa rally that pushed the euro to 1.45, has gone away, and we're on to the next phase, which I drew out for you over a week ago... And that is... The Obama bounce... This is something we'll have to deal with for the next few months. It all began with a huge stock rally on Friday, and that won't be the last one during the Obama bounce.
The dollar is kicking up its heels once again, and this is to be expected during this Obama bounce... You see, the markets are swayed by the smooth talking President-elect's call for $300 Billion in Tax-cuts, a job creation program, and $1 Trillion economic stimulus package... And believe me, if this is what it takes, then I'm all for it... But, here's the spanner in the works, I believe... All these things cost money, lots of money, and money we don't have, unless... We just go and print more. This is why I believe that once all the euphoria of the Obama presidency has run its course, the markets will do a V-8 slap to the forehead and realize we've just dug ourselves a deeper hole!
I'll tell you one thing about the Obama bounce that we should see, and that is Risk Taking come back in a large way. And that, will underpin currencies like Brazilian real, Aussie dollars, and kiwi. We could even see South African rand strength. But like I tell people all the time, I don't trust rand, I don't trust the Gov't of South Africa, and I don't trust the Central Bank, therefore, I always say that I wouldn't touch rand with YOUR ten-foot pole... But, I do realize that investors in rand have made bundles of cash over the years... But unless they timed it good, they saw those bundles dissipate quickly. The swings in rand are so violent... So... Keep that in mind.
But, back to what I was talking about before I went off the "rand" road... This Risk Taking could bring back the Carry Trades, and that won't be good for Japanese yen, which has already given back 3 whole figures from last week's trading levels of 90, to trade this morning at 93. And Commodity prices are seeing some love for the first time in a month of Sundays! I know that doesn't sound like right, with the dollar rallying and Commodities also rallying... But, it's happening, right here, right now!
One Commodity that has really taken off, is Oil... I know this isn't something that everyone wants to see happen, but, when you have our friends (NOT!) at OPEC cutting production, and a return of risk taking, that's what you get with Oil... A quick look at last Monday's price shows that Oil was trading at $39 and change, and today it is trading at $47 and change! That's a HUGE jump in just a week...
The Obama bounce received some support from San Francisco Fed Head, Janet Yellen, this weekend. Let's listen in to Yellen... "It is increasingly likely that inflation will fall to undesirably low levels," Yellen said at the meeting in San Francisco.
She said the Fed would likely expand its raft of unconventional monetary policy measures now that its cycle of interest rate cuts has hit rock-bottom.
She also urged an aggressive spending program by the administration of President-elect Barack Obama, as she gave a dismal assessment of the economy."
Notice, she said that "the Fed would likely expand its raft of unconventional monetary policy measures now that its cycle of interest rate cuts has hit rock-bottom." So... If I were reading that, and I did, I would be asking "what unconventional monetary policy measures"? Ahhh Grasshopper... Have you ever heard of "Quantitative Easing"? It's a trick that the Japanese used in the 90's, oh, here we go again with the comparisons to what we're doing and what the Japanese did... But it's sooooooooo true!
Anyway... Quantitative Easing is, a way to flood the banking system with large amounts of money. It's a way to mimic below-zero rates and provide support to the economy. The process often involves buying up large quantities of assets from banks, such as the Fed's latest programs to buy mortgage-backed securities. So... Once again, should the Fed go down this road, and I don't see how they can resist going down it, they will be taking on more bad collateral...
One more thing that Ms Yellen said that hit a nerve with me, was that, "the Fed must have a "timely" plan for ending lending programs. The Fed must have an "exit strategy" to wind down the facilities when they are no longer needed."
Hmmm... Well, since she said that, and she's a Fed Head, we are left with the understanding that the Fed doesn't have a clue what to do with all these programs they've instituted... Now, that gives me a warm and fuzzy... NOT! I'm going to go yell at the walls for a minute, don't go away, I'll be right back!
OK, I'm back, see that didn't take long! HA! Well... The data cupboard gets restocked this week, with the Big Kahuna coming on Friday, with the Jobs Jamboree. Right now the early forecasts have December losing 500K more jobs... The thing to look for this Friday though is the previous month's revision... You may recall me going spastic on these revisions last month, when the previous two months numbers were revised, and not by small numbers, but by large, market moving type numbers.
Here's what I said on December 8th... "OK... Did you see the rot on labor's vine Friday? The Jobs Jamboree was very unkind to many, with a 533K jobs lost in November. That number was the worst figure since 1974! The tally of 1.9 million jobs lost this year surpasses the losses of the past two recessions, and according to the Wall Street Journal, signals that the current downturn could be the worst since the years immediately following World War II.
Now... The thing that really ticks me off folks, is the fact that the October figure saw a major revision. You might recall that the September figure which was bad enough, was revised up by over 100K... Then last month we saw a negative -240K figure, which was bad enough, but one month later the figure is revised up to -320K... So, in my mind, the -533K figure reported this month for November, will probably be revised upward to the -600K figure... UGH!"
So, it will be interesting to see the revision this Friday... But the scary thing that the markets seem to be forgetting about is the 500K in job losses... If that would happen the two month losses would be greater than 1 million! That's not good! In fact it's not even close to good! I told the crowed in Marco Island that the unemployment rate would reach 7.5% before this was over. And that was before the 533K job losses were printed! I'll have to redo that call... That's too bad too... That's a call I don't like making one iota! But... I have to do it, because the boys and girls on TV won't do it!
On Friday, just passed, we saw the color of the latest ISM (manufacturing) Index, which I reported to you as already bad... Well, my friend, John Mauldin, wrote about ISM this past week in his wonderful weekly letter. So... I thought I would just let him explain the report, as he does it better than I would!
"We got the US ISM numbers today, and they were just awful. The overall index is down to 32.4, down over 25% in the last three months. This is the lowest level since 1980, in what was a severe recession. The ISM survey points to one of the deepest contractions in industrial output in the post-World War II era, this quarter. The forward-looking details were weak and point toward further declines in the ISM manufacturing index. Businesses are cutting orders, inventories, and workers because of tight credit conditions, declining final demand, and shattered confidence. Manufacturers reported in December that their customers' inventories were too high, a bad omen for future production.
But when you look at the components, it gets even more sobering. New Orders are down over 50% from six months ago, to 22.7. This is the lowest number since they began keeping records in 1949. Production is down to 25.5. New Export Orders were way down (35.5), as was Order Backlog (23).
"Another standout in the December report was the decline in the prices-paid index [down to 18! -JM] which fell to its lowest level since 1949. The abrupt decline in energy and other commodity prices is driving the index lower. Lower input costs may entice manufacturers to pass on the savings via reducing their prices. If businesses broadly across industries cut prices to preserve some sales, it will heighten the threat of deflation." (www.economy.com)
This is all suggestive of an economy in serious decline. The GDP for the 4th quarter should be down somewhere between 4-5%. It is likely we are going to see even more earnings downgrades in the next few months, and as I outline below, we have probably not yet hit bottom. As long as the ISM numbers look like the ones we just analyzed, things are likely to be getting more difficult. And that goes for the world in general, not just the US economy."
Well... That's sobering news, eh?
OK... We'll also see Factory Orders tomorrow, ADP Employment on Wednesday, Weekly initial jobless claims on Thursday, and the big Jobs Jamboree on Friday. There are other second tier data reports printing, but for this discussion we'll keep it with the Big Kahunas...
None of these will give anyone a warm and fuzzy, folks, and if the dollar continues to rally through all of them, we can figure that the Trading Theme of rewarding the dollar for the deepest, darkest, dangerous economy will be back on the burner... But in any case, the Obama bounce looks to be ready to go...
Currencies today 1/5/09: A$ .71, kiwi .5835, C$ .8215, euro 1.3650, sterling 1.4520, Swiss .9055, rand 9.4550, krone 6.93, SEK 7.8575, forint 195.70, zloty 3.0250, koruna 19.59, yen 93.20, sing 1.4720, HKD 7.7540, INR 48.56, China 6.8310, pesos 13.71, BRL 2.32, dollar index 82.80, Oil $47, Silver $11.05, and Gold... $856.15
That's it for today... OK, on Friday, I reported that the Czech Republic would adopt the euro on Nov. 1st... Not so fast, Tim! The Czech Republic will begin discussing adopting the euro on Nov. 1st... My bad! Back to school today for my kids... Alex as a student and Dawn and Andrew as teachers. They had a nice long winter break for sure! Still no improvement in my left eye, I'm beginning to get frustrated with it, but not yet... I will be having my next round of scans this month, so that always raises the blood pressure until I get the results. And I go back to the eye doctor this month too, so a month chock-full-o-fun for yours truly! But once the month is over, I'll be heading to Florida for the Orlando Money Show... This ought to be an interesting Show this year, as we'll be in the middle of the Obama bounce, and the stock jockeys will be bouncing off the walls with forecasts of riches... Me? I'll just be there to remind everyone that they need to diversify their investment portfolios... OK, time to go... I hope you have a Marvelous Monday!
EverBank World Markets
01-05-2009 2:36 PM
Filed under: Employment, Dollar, Oil, ISM Index, The Fed, GDP, Jobs, Janet Yellen, OPEC, Barack Obama, Quantitative Easing