Bailout Denied!
(Finally One Nation Shows Some Back Bone)
Also In Today’s Letter…
- GM’s Losses Are Gold’s Gain
- What’s Quantitative Easing Again?
- A 30-Second Lesson: The Long and the Short of Currencies
It’s supposed to be 70 degrees here today, so in my book that makes it a Fantastic Friday!
It’s also a Jobs Jamboree Friday, and just as expected the numbers were fantastically BAD. The experts forecasted the job loss in February to be 650,000! And it was EVEN worse – jobs numbers came in at 651,000 for the month. I’m sorry, was that 651,000 did I say? Yes, sir, may I have another, sir? Well, shiver me timbers, this is just downright awful! That’s the most jobs lost in a month since 1949!
This is horrific, just plain horrific folks. And in my opinion, does NOT signal the bottom of the barrel for labor just yet. This thing has momentum and I don’t think you’d want to step in front of this run-away bus.
A strange thing is happening in the currencies though. As you know, lately currency investors have dealt with the major Trading Theme that rewards the dollar for every deep, dark, dangerous data report here in the United States.
But this time it appears to be different. Traders were selling dollars on all corners overnight. The reason is traders have looked at the size of the forecast for job losses and have run for the hills. The euro is leading the way higher, with a huge gain overnight. As I walked out the door yesterday afternoon, the euro was barely holding onto the 1.25 handle.
When I woke up this morning with a wine glass in my hand, the euro had climbed to 1.2675! And we all know what happens when the BIG DOG gets off the porch to chase the dollar down the street… All the little dogs chase the dollar too!
And the Japanese yen was one of the best performers, which tells me that the risk takers are back in the market.
So, is this a change in the Trading Theme? Well, one overnight rally doesn’t lend itself to a convincing argument of such, but it certainly points out that the dollar is vulnerable at the margins. When the world starts to notice fundamentals again…Watch out dollar!
GM’s Losses Are Gold’s Gain
Gold had a great day yesterday, rebounding to US$940, after barely holding on to US$900 earlier this week. I said at the time that I thought US$900 or US$890 would provide resistance, and for now, at least, that’s held true.
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Bailout Request Denied!
While we’re on the subject of cars, did you see that SAAB story from Sweden? SAAB originally wanted to break away from GM, but they needed billions to make that happen. So they asked the Swedish government for the money.
And the Swedish government said “No bailout for you!” While it’s not funny to SAAB, or to GM, it’s kind of funny when you think about the fact that Sweden isn’t exactly your first choice when it comes to picking the democracies in the world.
But, here they are holding the democracy flag. And appear to be the only ones saying “no” to such requests. 
Did you see the latest data from the Fed? They just reported a sharp drop in commercial paper issuance last week.
Why is that so important, I hear you asking? Ahhh, grasshopper, recall that after the initial market meltdown in July 2007, commercial paper issuance started to dry up. Before the credit crunch, commercial paper issuance was an important method for corporations to generate cash. It was also important for buyers to generate above Treasury interest rates.
So, a few months ago, the Fed took over facilitating the commercial paper market, to give it the backing of the Fed. And things were beginning to look brighter, until last week. Total commercial paper outstanding fell US$44.2 Billion. I think this is another reason for the rally in gold yesterday.
What’s Quantitative Easing Again?
I had a few emails yesterday asking me what “quantitative easing” is. I explained all this a month or so ago, but I want to explain it again for any new students who are wondering just what the heck I’m talking about…
Quantitative easing is when a central bank creates new money out of ‘thin air’, and injects it into the banking system. The aim is to increase the deposits in private banks so that, by way of deposit multiplication, they can increase the money supply by increasing debt (lending).
Quantitative Easing = Growth in Money Supply
‘Quantitative’ refers to the money supply. ‘Easing’ refers to reducing the pressure on banks. A central bank can do this by using this new money to buy Treasuries in the open market, or by lending the new money to deposit-taking institutions, or by buying assets from banks in exchange for currency, or any combination of these actions.
These have the effects of reducing interest yields on government bonds, and reducing inter-bank overnight interest rates, and thereby encouraging banks to loan money to higher interest-paying bodies. So there you have it…
That’s it for today… Day two on our own… Done! My son Alex is attending Cotillion on Thursday nights, and he gets all duded up with a tie, and he actually combs his hair! Looking sharp, I must say.
In April, I’ll be in Bermuda to talk at The Sovereign Society’s Total Wealth Symposium. I’ve never been to Bermuda, so I’m as excited as a kid in December about that! If you’re interested in this symposium or want to know more about it…click here.
Have a Fantastic Friday and Wonderful Weekend!
Chuck
More From The Author
- Our Nation's Very Inconvenient Debt - July 29th, 2010
- Why the EU Stress Tests Were Worse Than Worthless - July 26th, 2010
- The Real Euro Rally Story - July 16th, 2010