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$14 TRILLION Debt Here We Come

Chuck Butler (April 13, 2009)

Issue #59: Monday, April 10, 2009

Also In Today’s Letter…

By Chuck Butler Good day… And a Marvelous Monday to you! And a Happy Easter Monday to those who get the day off!

I’m still battling this, whatever it is that I have, which means I spent the weekend in the sick bay, Ugh! Oh well, we carry on… But as it is, today is going to be short and sweet.

The lack of volume on Friday didn’t yield any wild swings in the Forex market, so that means the majority of foreign currencies pared their losses from the day before (when the trade deficit plunged and boosted the buck against the major currencies). This morning, the euro is leading as foreign currencies inch higher vs. the dollar, but it’s still baby steps at this point.

However, the bias to sell dollars hangs over the currencies. It seems to me that it’s very much like trying to hold a kid back from ripping open their Christmas presents. You know they’re going to dig into those presents; it’s just a question of when.

Selling Dollars Continues…

Unfortunately, in my opinion, the drop in the Trade Deficit does NOT even out the increase in the Budget Deficit. Not even close! We’re talking about US$10 billion drop for the Trade Deficit, but we’re talking about trillions over on the Budget Deficit side!

As I used to say in my presentations, imagine you’re driving a big old Ford down an icy country road. You start to spin out of control. You know you’re heading toward that guardrail, and your Ford will make impact with that guardrail, it’s just a matter of time….

Well, some water and time has passed under the bridge now and investors are dipping their toes back into the risk waters again.

Risk Taking Is Back in Vogue – So Are Foreign Currencies

Mr. Mayo’s comments really threw a spanner in the works for the risk takers. But, as I said, time has now passed, and the comments are in the rear view mirror as far as the market is concerned.
Since risk is back on the menu, traders are paying attention to the high yielders.

The Aussie dollar is soaring this morning, passing the 72-cent figure, and the Brazilian real has really taken some HUGE strides recently. In fact, in the past three months, the real is up over 6% vs. the dollar!

And do you know what currency is at the top of the heap with regard to performance vs. the dollar this year? That’s right! It’s the real!

Speaking of high yielders… The South African rand, which I’ve always said is too volatile for my liking, has been the best performer in the past three months. So, with the Aussie dollar, real, and rand all percolating, you can see that investors are growing tired of paltry yields, and are looking to higher yielding countries.

South African Rand: Best Performer for the Last 90 Days

Of course, whenever bad news throws the cold wet blanket of risk aversion over the markets, the risk takers head to the hills…

But, for now, traders are inching towards the riskier assets, and that means Happy Times Are Here Again for the High Yielders.

Of course, I laugh out loud whenever I say “high yielder,” as if they really have “high yield.” They’re really only high yields compared to the majors like the U.S., U.K., Japan, Canada, and even the European Union.

China Is Busy Buying Up Even More Reserves

Did you read the news, this morning? China’s currency reserves grew by 16% in the first quarter, vs. a year ago. This puts China’s currency reserves at US$1.9537 Trillion, at the end of March.

Hmmm… Makes you wonder why the rest of the world doesn’t treat China like E.F. Hutton.

Why don’t they listen to China when their officials complain about important stuff, like the safety of their holdings? Yes, China has complained recently about the U.S. monetary policies to keep the economy’s pulse pumping at any cost.

We’re Well On Our Way to a $3 TRILLION Budged Deficit This Year

Speaking of monetary policies…the Budget Deficit number printed on Friday. Right now, it’s tripled to US$957 billion (and that’s actually before a ton of the spending is booked).

That’s only the first six months of the fiscal year. So, let’s just say, we don’t spend any of the funds already allocated to revive the economy. That would put the annual deficit at almost US$2 Trillion!

Then, add in the spending already allocated. Remember, a couple of months ago, I told you that at first I calculated the deficit this year to be US$2.5 Trillion, but then raised it to over US$3 Trillion?

Well, it sure appears that we as a country are well on the way to a US$3 Trillion Budget Deficit this year, which should put our National Debt at around US$14 Trillion!

And, of course, that’s just a drop in the bucket when you add in all the future payments we will owe on the endowments like Social Security and Medicare. And, oh, by the way, just where are war expenses booked? Is that the proverbial “off balance sheet item?”

You bet it is folks…

Oh, I had better stop right there. I get all geeked up whenever I begin talking about our deficits. I begin to wonder… no, wait. I said I was going to stop! Okay, onward and upward to something else! I’m going to step away for a minute, be right back…

Okay, I’m back! I had to get up and walk around for a minute. That deficit talk just gets right under my skin from the get-go. Then you add in the consumer debt, and you just go crazy! Yes, maybe credit card debt is plunging, but mortgage foreclosures are soaring, according to Reuters.

Silver Is Outpacing Gold for Once

So, gold, which has had a difficult time pushing back to US$900, is up US$5 this morning. I was checking the best returns this morning, year-to-date, and I noticed that silver had pushed higher by over 9% so far this year.

This means silver is out-performing gold, right now… The real winners this year, so far, are platinum and palladium, up 32% and 27% respectively. Wow!

As I said at the top this morning, it’s Easter Monday, so it’s a holiday in parts of the world. That means we won’t be “fully staffed” in the markets again today. But the U.S. stock jockeys are back in the saddle, and that should add to the excitement of the day!

That’s it for today… A big weekend for St. Louis sports teams. Our Blues finally made it back to the playoffs after five years, but that doesn’t tell the whole story: Two months ago they were in last place (15th) and ended the season in sixth place! That’s quite a run! And my beloved Cardinals completed a sweep of the Astros.

You should have seen my little granddaughter, Delaney Grace, yesterday, all dressed up for Easter. So cute! All the kids were at home yesterday along with other members of the family. A nice day, even if the weather didn’t cooperate. My oldest son, Andrew, is in the process of buying his first home. He’s found a real nice one at a great price! Okay, I’m coughing my fool head off, so I’ll hit send and try to get this stopped before people come in the office this morning…

I hope your Monday is Marvelous!
Chuck

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