Can You Handle the Truth?
Issue #62: Wednesday, April 15, 2009
Because Apparently the So-Called “Experts” Can’t
Also In Today’s Letter…
It’s Tax Day, and keeping with tradition, I’m opening with the Beatles today…
“(If you drive a car, car;) – I’ll tax the street; (if you try to sit, sit;) – I’ll tax your seat; (if you get too cold, cold;) – I’ll tax the heat; (if you take a walk, walk;) – I’ll tax your feet.
“Taxman!
“‘Cause I’m the taxman,
Yeah, I’m the taxman.”
Every April 15th, I always give my readers a different part of the taxman song. It’s even more prevalent in my mind today considering I wrote out my check to the taxman last night to mail my taxes…
So, foreign currencies remained in a very tight range yesterday, inching down vs. the dollar slightly. While the high yielders like the Aussie, real and rand have all sat on the sidelines the past two days, the Japanese yen moves higher vs. the dollar. In fact, the yen just moved back below 100.
The break of currencies and stocks only lasted one day, folks. So, no return to the fundamentals. Instead, what we have is all-out risk or no risk. Either the majority of riskier high-yielders rally with stocks, or the low-yielders rally.
It’s almost like watching a poker game, and one guy goes “all-in.” In this market, traders are either “all-in” for risky assets, or they’re not taking any risks at all. You can also look at it like the market is saying: “All risk takers… Out of the pool!” Strange days indeed.
When risk assets are off the table, the high yielding currencies, commodities, and stocks get sacked. And the low yielders like dollars and yen bask in the sun.
Last week I mentioned that I hoped this link between stocks and high-yielding currencies would soon disappear, especially since stocks are entering their quarterly earnings period.
I certainly didn’t think we would see good stock earnings, which would mean a stock sell-off. And if stocks are selling off, then as long as this tie exists between high-yielding currencies and stocks, then certain currencies will sell off, too.
British Sterling: Best Performer? Why?
The best performing currency overnight? The British pound sterling! It seems that pound bulls have had enough and they weren’t going to take the selling of their currency any more!
There’s a report out this morning that says pound traders are the most bullish they’ve been in years.
Hmmmm… Doesn’t make sense to me that this currency would rally, or that there would be reason to be bullish on it, given the economy, low interest rates, and the fact the Central Bank has taken on quantitative easing, but that’s how the market responded this morning.
Retail Sales Reveal Harsh Truth about This Economy
The Big News/Data yesterday was Retail Sales: All forecasters were projecting higher sales. In fact, most were expecting a .3% gain for Retail Sales in March. But they all got it completely wrong! Retail Sales actually printed a negative 1.1%. Most of that loss was at gasoline stations. But, hey, that’s part of the deal!
However, this negative report was tempered by the revisions to last month’s negative -.3% figure. They just revised that -.3% by +.3%, which makes February’s figure flat.
I have to say that while we keep seeing 600,000 job losses each month, and Retail Sales in the negative, the physical evidence of a major slowdown is still difficult to see. Every plane that I’ve been on recently is still packed with people… Every restaurant I go to is crowded… I don’t go to malls, so I have no idea what’s going on there.
I saw a report the other day that surveyed a group of economists. These economists believed the recession would end in the second half of this year, but job losses would continue on for several more months.
Hmmmm…. I’m curious, just what is going to happen to reverse the economy, without job growth? Sorry, I’m not buying it guys.
Brief Glance at the Numbers: What Are They Telling Us?
The data cupboard today will print a plethora of reports, beginning with the stupid CPI (consumer inflation).
Right now, the forecasters are calling for a decline in consumer inflation for March. The government accountants want us to believe that inflation is only running at 1.7% annualized. Hogwash. That’s why I say this report is stupid.
Okay, we’ll also get the TIC-net flows, which is usually a good show. February’s showing was a negative US$43 billion in net security purchases by foreigners. March is supposed to show a gain of US$14 billion.
But here’s the rub: Even if they forecasters are right, US$14 billion is NOT enough to cover our current account deficit. That means the deficit gets carried forward. Eventually, we’ll be so far in the future with these deficits that we’ll have to get that famous Delorean from Back to the Future to bring us back here!
Then finally, Industrial Production and Capacity Utilization… For new readers: Capacity Utilization is one of my favorite pieces of data, in that it is one of the few that is forward looking. Most data is old, stale, and backwards looking. But Capacity Utilization shows fresh data and actually looks ahead.
The Capacity Utilization rate reflects the limits to operating the nation’s factories, mines and utilities. In the past, supply bottlenecks created inflationary pressures as the utilization rate hit 84% – 85%. March’s CAP Utilization rate is forecast to be 69.6%. Far below the numbers hit in the glory days of the economy!
I’ll be back tomorrow to comment on all the latest data being released today…
That’s it for today… A tough loss for my beloved Cardinals last night, as our ACE pitcher, Chris Carpenter, is hurt yet again. Good luck to our Blues who begin their playoff series with Vancouver tonight. We had a visitor in the office here yesterday! My granddaughter, Little Delaney Grace came to visit us! She’s so darn cute! Okay, time to go…
I hope your Wednesday is Wonderful and your tax day isn’t too painful!
Chuck Butler
P.S. Will I see you in Bermuda later this month? I’ll be down there to speak with 17 other experts for The Sovereign Society’s Total Wealth Symposium April 26-29. While I’m there, I’m also heading up their closed-door currency boot camp – the first of its kind at this event. If you haven’t signed up yet, I hear there are still a few spots open. Click here for details.