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New Year, Same Old Mistakes

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New Year, Same Old Mistakes

Post by Sean on Sat Jan 03, 2009 11:12 pm

Happy New Year and a Happy Friday to one and all!

I hope your New Year's celebration went well. Mine did. I rang in the New Year with good friends, after a scrumptious dinner!

In the Forex market this week, the currencies traded in a very tight range on Wednesday, and I expect more of that today.

The bias has been to buy dollars going into the year-end. It looks as though that might be the case today because we're not seeing any new data in the U.S., while the Eurozone printed a very weak manufacturing index report. Weak manufacturing numbers tell me that the Eurozone's recession is deepening.

Of course if we compared apples to apples the bias would be to buy euros. But there hasn't been any "real" economic data in a couple of days from the U.S., so this report from the Eurozone is stealing all the attention.
Okay, Seriously - This Is NOTHING to Smile about Media

Normally, the first Friday of a month is Jobs Jamboree Friday, but most government workers are still on holiday today so the Jobs report won't print until next Friday.

But we did see the initial numbers. The Weekly Initial Jobless Claims dipped below 500,000 last week to 492,000. Personally, I believe that dip had more to do with the holidays and offices being closed than any reversal of the job loss trend.

But you know the mass media - they couldn't wait to report on this "upbeat" jobs report to make U.S. consumers feel good about spending.

They were smiling like Cheshire Cats, as if losing 492,000 jobs was something to smile about! UGH! These media types, I tell you: Either they're completely brainwashed, or they must go home and vomit every night!

Risk Aversion is Back - But Currencies Aren't Acting the Part

This week, we watched risk aversion creep back into the markets once again. Usually when that happens, the safe haven currencies like the Japanese yen and Swiss franc tend to rally. But we're seeing a different effect on the currencies this week.

This time, Japanese yen has not blossomed / rallied on the Risk Aversion. (Remember that risk aversion causes carry trades to be unwound, thus supporting the yen.) The Yen has traded back to 91 and change this morning.

But keep in mind: We're still trading with pretty thin volume. This could all change next week when everyone returns to their trading desks with bright shining faces.
The EU Grows Larger and Larger - But What Will Happen Next?

So, it looks like the EU keeps growing. The Czech Republic, which was once on the fast track to adopting the euro, will finally get around to carrying euros on November 1 this year. It's about time!

The other two countries that are supposedly on the fast track to euro adoption, Hungary and Poland, are still waiting but they'll get there eventually.

In fact, I still believe the Eurozone will grow to 25 members in the next 10 years. Sure, the EU will experience problems this year, but I still see the country, and its currency flourishing in the long-term (I'm talking for years to come - even beyond 2009).
The First Rate Cut of the Year

It didn't take long for another central bank to cut rates in 2009.

This morning, India's Central Bank cut 50 BPS to 5%. With a lot of Central Banks around the globe slashing rates to the bone, I don't know that we'll continue to see rate cut after rate cut in 2009. For instance, the Reserve Bank of Australia (RBA) could very well be finished with rate cutting.

I guess the real question on everyone's mind is how long will the U.S. Fed keep rates close to zero? I would only hope that the answer to that question is "not very long." But you know the Fed. They will most likely leave rates too low for too long, and fuel the next bubble, whatever that might be...

Of course, I see the U.S. Treasuries bubble popping next. Just think how many Treasuries the government will have to issue in 2009 to finance all that the government has going on.

Bernanke Wants to Go Down in History - But At What Price?

Speaking of the government goings on: My friend, Bill Bonner, always has a unique way, of explaining things... And here is Bill's take on the current recession and what the government has been doing about it from his newsletter, The Daily Reckoning.

"The bad news is that government meddlers all over the world are making the situation much worse. They don't have any choice. They have to react. And the only things they can do are the usual claptrap remedies.

"More government spending. More giveaways. More bailouts. All they are doing is trying to avoid the 'creative destruction' that a real economy needs...and postponing the inevitable adjustments and corrections that must be made.

"But it gets worse. Because the world's main debtor - the USA - is also the custodian of the currency that most of the world's debts are denominated in.

"And Ben Bernanke is hell-bent on making sure that the U.S. does not follow the Japanese example...or the example from the U.S. in the '30s. He won't stand for deflation. He wants to fight it in the worst possible way, because he wants to go down in history as the first and only central banker to beat it. What's the worst possible way to fight deflation? Print money."

I couldn't agree more Bill. Brace yourself for a New Year, filled with the same old mistakes. I'll be right here to give you updates as they come.

Until then...

Have a Fantastic Friday and Wonderful Weekend!

Sean

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