Signaling All-Clear?

Signaling The All-Clear Horn?

By Chuck Butler, President | 3 April 2008
Everbank World Markets

Good day... And a Tub Thumpin' Thursday to you! Well… You heard it! Big Ben B. says that everything is going to be all right! Man, do I feel better about that! Just when I was getting all nervous and out of whack because of the debt situation, the jobs situation, the war situation, the credit situation, the housing situation, and the awful state of financial institutions… Whew! Everybody back in the pool! Big Ben says the water is fine! Whoa! (in my best John Wayne)… Now, just wait a minute there, pa-ahdna… Haven't we heard these words of euphoria before from Big Ben? Hmmm… Seems to me that last July, he told us that the mortgage meltdown wouldn't filter out into the rest of the economy… And then he followed that gem up with the August all-clear sign that the housing meltdown had bottomed… Now… He expects us to believe him that the economy will be strong again in the second half of this year? Hmmmm… OK… But before I go on, I had better tell you what happened so you can catch up… I just realized I immediately went into level 4 on Big Ben… OK, so, yesterday, Big Ben was talking to Congress about the economy… He admitted that the economy would contract (notice the mass media didn't pick up much on that last). He also said that the there are "downside risks"… But then he put lipstick on the pig by quickly switching to statements about how the economy would be strong in the second half of this year…[[a-a-ah, the infamous second half of the year! : normxxx]] Well… You know my old saying, folks… You can dress up the pig… You can put lipstick on the pig… But in the end… You still have a… PIG! I want to know and I can't understand why the lawmakers don't ask him this stuff… But I want to know where this growth that he's spouting off about is going to come from? Or how about this one, B3… Why don't you SHARE with us what you feel the downsides risks are? Nah… You wouldn't want to do that, because it would expose the awful job you and your Fed Heads have done! I feel like Ricky Ricardo… Hey Lucy, you got some 'xplainin' to do! I could go on… But I've had it with this guy! He has begun to give me the same kind of rashes Big Al Greenspan gave me!

So… The currencies gyrated all over the place yesterday… First rallying on the Triple B words of a contracting economy, but then seeing the dollar rally on the "recovery" words. At the end of the day, the euro was back to rally mode, moving close to the 1.57 handle once again. Then came a report on Reuters that the Eurozone was going to voice concern at the euro's gains at the next G-7… That sent the euro back down.

This morning… The euro saw further selling when Eurozone Retail Sales unexpectedly declined in February, thus signaling to the markets that the U.S. recession is spreading to Europe… That news was followed by a German bank announcing a $6.7 billion write-down… So… The euro has taken on some water from the weakening of the economy… But, hey! We all knew the U.S. recession would spread to other parts of the world… What I kept thinking, though, was that it would not be as devastating to other parts of the world, especially the Eurozone, as it had in the past. So much for that…

I know, I know, I too dislike the saying, "But this time will be different…" That saying cost people trillions of dollars a few years ago… But my point here is that one of the reasons the Eurozone was created was to buffer the countries from suffering along with U.S. slowdowns… 80% of all Eurozone trade is amongst themselves… And let's face it, the exports of BMW's, Mercedes, and other high-end cars shouldn't see that much of a shift… Rich people don't suffer recessions!

So… We have the euro trading in the mid 1.55 handle… IT'S NOT A TREND REVERSAL! I said this the other day, but it's worth repeating… We've seen these "flash in the pan" dollar rallies several times over the past 6 years of the weak dollar trend… Nothing, fundamentally has changed… So, why would the dollar reverse the trend? OK… Another note on Iceland this morning… Yesterday, there was an OP-ED in the Wall Street Journal titled: Iceland Isn't Melting… Here's a snippet.

"But fears of a meltdown in my sub-arctic homeland are vastly overblown. True, the current account deficit was 16% of GDP last year, but that's an improvement from more than 25% in 2006. And while net private-sector debt is about 120% of GDP, there is virtually no public debt in Iceland. This is largely the result of unparalleled political stability and continuity."

That's all nice… But it was written by an insider… A board member of the central bank of Iceland… I detect a note of "homerism"… But… Soothing words nonetheless, eh? George Soros, a guy that I personally wouldn't have over for dinner, called the current financial crisis "the worst since the Great Depression"… He also noted that the "markets will fall more this year after a brief rebound." Well… I may not like the guy, but I agree with him on the second statement… Seems the markets are getting all pumped up on the kool-aid Big Ben is serving up… But these are just words, folks… We'll see who's right and who's wrong on this… His track record isn't so good!

The Carry Trade is back on the books after spending the month of March getting unwound… This is good news for Aussie and kiwi… And should be good news for South Africa and Iceland… But I think the "once bitten twice shy" campers have had enough of the volatility of these currencies and are sticking to Aussie and kiwi… So… Aussie and kiwi rallied yesterday, bucking the sell-off of euro, yen, francs, and sterling.

Remember what they taught you in 6th-grade science… A star burns brightest right before it burns out… And I think this can be applied to the Carry Trade… But we'll have to wait-n-see, eh? One of my fave currencies… The Norwegian krone has held strong during this euro weakness… And this morning, Norway reported that Retail Sales jumped 5.6% in February… Seems that the recent wage increases there, the largest in 5 years, spurred consumer spending… Hmmmm.

That would work here too… EXCEPT! Wages haven't increased in the U.S. in so long, people have forgotten what that looks like! My friend Bill Bonner of the Daily Reckoning had this to say about wages yesterday… "The part of the economy in worst shape now is the consumer. He’s the one whose salary has not gone up. He’s the one whose house is being foreclosed. And he’s the one who’s got to buy gas and food."

Here's another note Bill made that I believe is important to note: "Again, we see the sad evolution of the U.S. of A. since the end of the ’60s. Then, fewer than five million people received food stamps. Now, nearly six times that number are living on them… after what was supposed to be the biggest boom the world has ever seen."

But not to worry, Bill… Big Ben, or B³, as I like to call him, tells us that it will be alright on that night in the second half of this year… I sure hope he's right! That would certainly make things easier for me and my family! That's it for today… I found out yesterday that I will be doing a joint presentation with my friend Addison Wiggin at the Agora Vancouver Investment Conference in July… Addison, by the way, has done an update of his best seller, "Demise of the Dollar," and it should be available soon… I was honored to write the foreword for the book! You'll need to check that out when available! So… If you're interested in the Vancouver Investment Conference, check it out.

ߧ

Normxxx    
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