Good day… And a Tub Thumpin’ Thursday to you! Well. I had a chance to go through the so-called “Budget Deal” (BD, or in my opinion NBD. no big deal!) yesterday, and what I found wasn’t pretty. For instance, did you know that it has been reported that the lawmakers had just 3 minutes to review the agreement before they had to vote on it? Does that remind you of some other law that was passed a couple of years ago? The more I read on this new BD the more I feel that those that voted for it, should take the next train out of Washington and not return! That includes the two Senators from Missouri!
Oh sure, the lawmakers found a way to reduce the budget deficit by raising the revenue. But where are the spending cuts to go along with the tax increases? Oh, that’s right, they were sequestered for two months. So, let’s see here. in the next two months, we’ll not only have the spending cuts being argued about, but those $110 Billion in automatic cuts that were supposed to be in place by now, and let’s not forget the debt ceiling being breached. These fiscal cliff talks are going to seem like a tea party. Oh, and that way, to reduce the budget deficit, is really only going to reduce the national debt by $650 Billion over 10 years. What happened to the grand idea of tying tax increases to spending cuts? Oh well. as far as I’m concerned this was a lot of nothing that the media is doing cartwheels over.
Well. the more I looked at the Fiscal Cliff aversion agreement, the more the song “the point of know return” kept playing in my mind. of course we would change the “know” to “no” for our purposes. how far to the point of no return? Oh sure the sugar-coaters would have you believe that these tax increases will reduce our budget deficits by 1.3% of GDP this year and 1.5% of GDP in two years. I always say that when people start quoting percentages instead of real dollars they are hiding something. So, are they hiding what the actual dollars in reduction will be? I think so.
As Popeye used to say. Heaven’s to Murgatroid! Well, the show must go on. so. let’s leave the BD talk on the table, and move on to other things. The currency and metals rally yesterday, held ground most of the day, but by late afternoon, the lofty levels of earlier in the morning had faded. Overnight, the rally stopped, and turned to dollar buying. I can’t tell you for what reason, because it makes no sense to me. I, at first, thought that it was simply profit taking, but when the euro slipped below 1.31 for the first time since December 14, it became apparent to me that it was more than profit taking.
The euro has since moved back to above 1.31 when a report printed showing that German unemployment rose less than forecast (3,000 VS 10,000), with the unemployment rate holding steady at 6.9%, which is close to a two-decade low! In addition, German Business Confidence increased for a second month in December, after reports showing that demand from outside the region gave a boost to factory orders and exports. So.. maybe this data can underpin the euro today. And don’t forget that all the bad stuff that I talked about above regarding what’s going to come at us all at once in two months, will begin to weigh on the currencies and metals.
There will be days that reflect the mood in the markets regarding the progress the U.S. is making toward averting a default. Of course, to me, this is where I draw a line with the markets, and say they are wrong! ( I know, I know the markets are never wrong). But why would you go long a currency from a country that’s teetering on the edge of the default cliff? I would run from that currency so fast (yeah, right, like I could run! HA!). OK.. hey. bet you didn’t know that NOK, SEK, NZD, GBP and MXN all gained at least 5% VS the U.S. dollar last year. NOK is Norwegian krone, SEK is Swedish krona, NZD is New Zealand dollar, GBP is British pound sterling, and MXN is Mexican pesos. I reported to you last week that 2012 was the first year that the NOK had gained VS the dollar since 2009. So, all in all a good year for those currencies.
I sure hope I don’t hear you saying, “but Chuck, that’s only 5%, that’s nothing to shout about”. Ahhh grasshopper. But that’s 5% less purchasing power that your dollars lost last year VS those currencies. And, let’s not forget that by diversifying into currencies you provide a hedge in your investment portfolio against the possibility of further dollar losses. So your hedge, so to speak, gained 5%… usually a “hedge” costs you money.. right? I rest my case. and now we return to our normal programming.
I see where a recent Bloomberg survey showed that those polled believe that China will return to +8% GDP in 2013. And that’s all good for China, but. they need to keep the foot on the accelerator and not sit back and pat themselves on the back.. The need to keep the momentum that they have created in domestic demand. For, the U.S. economy isn’t going to help China’s exports, and the Eurozone, China’s biggest customer for exports, is still not out of the woods. So, domestic demand needs to continue to grow and pick up more of the slack.
The U.S. Data cupboard will get a chance to show off today, with the usual Thursday fare of Weekly Initial Jobless Claims. Then add in the ADP jobs data, Vehicle Sales, and the FOMC meeting minutes from the December meeting. The focus might shift from the BD (fiscal cliff agreement) to jobs with the ADP report, which is supposed to be an indicator for tomorrow’s Jobs Jamboree. Right now, the forecasts for December job creation is that it increased by 150,000. I’m sure seasonal workers will be counted, and be a large piece of that increase. I would think that a 150,000 monthly increase would satisfy the markets. But in reality, it’s not a number that would be tied to a strong economy. So, we’ll all be tied to our desks tomorrow morning, waiting for the Jobs Jamboree to print. OK, maybe not. most Jobs Jamboree Fridays I’m off getting coffee or something when it prints! Because, I have lost all faith in the Gov’t reports. Especially this one!
Doucette’s song, Mama Let Him Play, is playing on the iPod. I have to stop now and sing along, and I’m sure there’s some air guitar that will be played. be back in a minute!
OK. I’m back now. sorry for the interruption! But, what’s a boy to do? OK. Gold is back on the selling blocks this morning, after its one-day move higher yesterday. The shiny metal is down $7 this morning, and it’s all about the failure of the U.S. lawmakers to come through with a grand plan. instead we got a deal that was reviewed for 3 minutes and then voted on. shame, shame, shame, as Gomer Pyle used to say.
Then There Was This. My friend, Doug Casey, sends out a blog each week of an interview between himself and Louis James, editor of Casey Research’s International Speculator. This week, Doug was talking about the eye of the storm still being over us (relative calm), but that the back side of the storm would be even more devastating to us when it finally hit. Mr. James said: “I understand but honestly, Doug, you’ve been saying that for a while. What makes you think this will be the year the bond balloon finds the pin it’s been searching for? And Doug replied: “You’re right – that particular bubble should have found its pin two or three years ago. I admit I thought it’d pop last year. It’s like watching a clown over-inflate a balloon; the longer he inflates it, the more you wince, because you know it’s going to blow up in his face. And the longer it takes, the closer the inevitable comes to being imminent – and the bigger the explosion becomes. It would have been so much better if the idiots who run the US government had allowed the market to fully liquidate past mistakes and distortions back in 2008. If they’d let all the big banks, brokers, hedge funds, and corporate welfare junkies fail, it would have been very unpleasant, but the country could have survived it, and come out stronger and with a healthier balance sheet as a result. The real wealth – buildings, farms, technologies, the skills of workers – would still be there. And the financial elite would have been wiped out – which would have been a good thing. But instead, they’ve ensured that the rich have gotten even richer, guaranteed by the government. They tried to drown a fire with a flood of gasoline, and it’s going to burn the country down. You know the old saw about not predicting both an event and its timing, but I don’t see how this thing can go beyond 2013.”
Chuck again. Leave it to Doug to “tell it like it is”. he and I have shared that “eye of the storm” description of what’s going on now for the past year, and I too believe that 2013, might be the year that the foreigners say “no mas” to Fed buying of Treasury auctions to prop up the bond market and keep yields low.
To recap. The currency and metals rally faded yesterday afternoon and then came to complete halt in the overnight markets. You see, the markets now share my view that the 2-month sequestration of the debt spending cuts, is going to prove to be a tough row to hoe. Then Chuck gets on his soapbox regarding the lawmakers inability to come up with a grand plan. It’s a Big day for the data cupboard, and tomorrow is the Jobs Jamboree.
Currencies today 1/3/13. American Style: A$ $1.0495, kiwi .8330, C$ $1.0135, euro 1.3105, sterling 1.6150, Swiss $1.0830, . European Style: rand 8.59, krone 5.5725, SEK 6.53, forint 222.45, zloty 3.12, koruna 19.3020, RUB 30.33, yen 86.80, sing 1.2230, HKD 7.7510, INR 54.48, China 6.2315, pesos 12.79, BRL 2.0480, Dollar Index 80.15, Oil $92.54, 10-year 1.83%, Silver $30.89, and Gold. $1,680.50
That’s it for today. Well, we started the year on the desk shorthanded, and call volume pretty steady Eddie. Our metals trader, Tim, has had to pick up risk management with the currencies too, so he’s been swamped. Ty Keough came in yesterday talking about a soccer game that he and the Big Boss, Frank Trotter, played in the previous day. reminded me of high school soccer, which was always played in the winter back then. (now it’s a fall sport). I played one year, and decided to find an indoor sport for the winter! We have two guys on the desk both named Mike, that have announced that their wives are expecting this summer. We’ll have to get all these kids together in a couple of years! And with that. I thank you for reading the Pfennig and hope you have a Tub Thumpin’ Thursday!
President EverBank World Markets