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Consumers Fall Off the Map and
Give the Yen Another Boost

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Today's commentary is by Sean Hyman, Currency Director and Editor of The Money Trader.

Good Day Currency Traders!

It seems U.S. consumers can't hold up their end of the economy forever.

Yesterday, the latest retail sales numbers revealed that consumers just didn't spend as much as they "should" during this past holiday shopping season. The retail sales for December were the weakest they've been since 2002. Sales dropped to -0.4% vs. 0% expected. Even worse, retail sales from the previous month were also revised downward to a new reading of 1%.

I've been predicting for some time that consumers would start tightening their wallets. It was only a matter of time before the economic pains reached consumers. But that's bad news for the economy overall, because consumer spending is the "fuel to the fire" for the rest of the economy. (Remember that about 70% of the Gross Domestic Product comes from the consumer.)

Major Retailers Are Singin' the Blues
Here's another way that we know that consumers are tightening up on spending. Look at which retailers are "crying the blues" and which ones are speaking positively about their sales. Most retailers that I can find are "crying the blues."

Just one retailer has been spared. That would be...drum roll please...Wal-Mart. Why? Two reasons: 1. Wall-Mart sells cheaper items than most other retailers. 2. They sell the "staples" of life.

Let me further illustrate this point. Check out the chart of the Retail Index below. It's headed south in a major way.

Retail Sales Show Proof of an Ailing Consumer



On the other hand, while every other retailer looks like the above chart, Wal-Mart is holding its own. In fact, Wall-Mart is actually drawing business from individuals who usually go to Wall-Mart's more expensive competitors. Check out the Wal-Mart chart below.
Wal-Mart: The Arkansas Retailer
Reigns Supreme in Tough Times



Wal-Mart's stock price has actually improved since September while every other retailer has headed into fresh 52-week lows.

Main Street Gets Hit Where It Hurts
So investors realize that U.S. consumers are forsaking life's "extras" for life's "necessities." The consumer is being forced to become "bargain minded" because consumers are losing their jobs and the housing market has already slowed to a snail pace. Both of these hit them where they live...literally.

While these poor individuals may or may not own stocks...one thing is for sure. They need to have a job and a place to live. When these are both heading south, you can be sure that their spending will be drying up all the more.

The Good News in all of this is that the
Yen will Flourish
Unfortunately, look for more of this to come. It will continue to drag stocks lower which will, in turn, drag the "carry-trades" lower. So EUR/JPY, GBP/JPY, EUR/CHF, GBP/CHF, NZD/JPY and others will all head lower in the coming weeks and months due to the falling of the dominoes: employment, housing, consumer spending, etc.

The euro against the Japanese yen exchange rate has somewhat mirrored the fall of the Dow Jones Industrial Average and the S&P 500. It recently broke a trend line and is headed further south as of this writing. So look for the yen to be "King of the Hill" in 2008.

Making 'Cents' of the Headlines
Gold Blows Through the US$900 Mark to Hit a New All-Time High

From our Currency Director: Sean Hyman

What Happened:


Gold has climbed furiously over the past six months. Why?


What I Say:

Investors run towards gold during uncertain economic times...and right now investors are running scared as stocks crumble, housing prices crash, retail sales fall, unemployment rises, etc.


Gold is also a hedge against inflation. Commodity prices as a whole have been skyrocketing, showing an increase in the "cost of living." So inflation is rampant. This also causes investors to run to gold. They "hide away" their assets in gold to protect their assets' value because gold tends to go up in price as inflation increases.


Gold is priced in U.S. dollars so when the dollar goes down, it takes more "bucks" to buy the same amount of gold as before. So generally, these two trade inversely.

Gold has never been this high. So why isn't it all over the T.V. stations like a broken record? It was this way in 1979-1980 when gold had its last bull run like this. However, when you adjust this gold run for inflation, then you get gold prices that should be over US$2.200 an ounce. So that could be the reason why there isn't as much of a "rage" now as there was back in the late 70's. US$900 back in 1979 and US$900 today are two different things.
Gold Shoots Off the Charts!


As the U.S. Fed cuts interest rates further, it could add downward pressure on the U.S. dollar in the near term. If the dollar goes down, then it could push gold even higher over time.

So while gold is overdue for a near-term correction, it could power higher on the back of the Fed rate cuts.