America's Fastest Growing Export...

Written by Ron Barrow on Mar 8, 2009 7:18 am

Read More: Mindset | Personal Development

America's Fastest Growing Export: Denial

(Our Leaders Had It, Now China Wants It)

Also In Today’s Letter…

The Mark-to-Market "Rumor" Isn't a Rumor Anymore...
The New "Worst Currency of 2009"
Traders Said "Down" But Volatility Said "No!"

By Chuck Butler

Good day... And a Tub Thumpin' Thursday to you!

It's a Tub Thumpin' Thursday, because I woke up to see that my beloved Missouri Tigers beat the #3 ranked Oklahoma last night! Yahoo!

I had to hit the sack at half-time, so the outcome was in question when I went to bed. Great stuff! This was HUGE after being not ready for prime-time last Sunday against Kansas. Be gone you demons! We just beat YOU!

Okay, onto currencies...The currencies all had a day to bounce yesterday, but the day on the trampoline ended in the overnight market as participants took a look at the rate cut meetings and decided to sell. So, last night when I went to bed, the euro was 1.2645. And right now it's 1.2585. Not a huge change, but one that's going the wrong way for euro holders.

Yesterday, the currencies all rallied on the news that China was going to introduce a new stimulus package and their leader Wen Jaibao said he believed there would be a return to 8% growth for the Chinese economy. This news got commodities rolling, and risk takers dipped their toes back into the water.

But then Stephen Green, head of China research at Standard Chartered Bank in Shanghai had a rebuttal for Wen...

"Every day the world economy gets worse and they've probably got two years of very slow global growth to get through."

So either Wen was saying what he truly believed was going to happen. Or he has taken a page out of the Bernanke / Paulson, un-dynamic duo's book on how to deceive the public as to how bad things are.

Oh, I know the un-dynamic duo eventually said things were bad too. But they seemed to be in constant denial for over a year. In fact, all you have to do is go back to the last part of 2007, and the first part of 2008, to find all the quotes you need to fill your bag with quotes about how things weren't that bad. According to this optimistic pair...

"It wasn't a recession..." and, "Subprime won't filter out into the economy..."

The “Undynamic Duo” in the flesh.

What I believe is taking place in China is a move away from a dependence on U.S. consumers. Of course, that won't happen overnight. But, if I'm correct in my thinking, it would eventually lead to a HUGE problem for the United States. For, if China can make this move, they won't need to keep buying U.S. Treasuries... Uh-Oh!

Remember that Mark-to-Market Rumor? It's Not a Rumor Anymore

There was other news that goosed the risk takers yesterday, and that came from the U.S. As reported by Reuters...

"A U.S. House Financial Services subcommittee is expected to hold a hearing on mark-to-market accounting rules, which have been blamed for forcing banks to record billions of dollars in write-downs...The congressional subcommittee on capital markets has tentatively scheduled the hearing for March 12, the source said.

The U.S. Securities and Exchange Commission's chief accountant and the chairman of accounting rule maker, the Financial Accounting Standards Board, will be asked to testify, the source said."

So, recall last week, I told you there was a rumor going around, that someone's underground, and she will rock you in the...(Man, I'm really going off on song lyrics today, must be because it's a Tub Thumpin' Thursday!).

Anyway, I told you about the rumor that they were considering dropping the mark-to-market rules.

Well, I smelled smoke when I first heard this rumor. And as I often say, where there's smoke there's a fire. And here's the proof in the pudding folks... The congressional subcommittee will talk about this next week!

I can't believe that they will go through the effort of talking about his, dragging everyone up to Capitol Hill to testify, without suspending the mark-to-market.

Now, talk about unlocking the credit crisis. All those reserves being held to cover the mark-to-markets could be released on the economy. (Read: Massive liquidity hitting the markets.) But of course, as I told you last week, suspending such rules could lead to a disaster later.

And wait! With over 500,000 hitting the unemployment rosters every month these days, and most likely a number of 600,000 placed on the roster last month, who in their right mind would make loans to consumers in an economy like that?

Well, that will be the next hurdle. But don't tell the markets now, as stocks really liked this news about the mark-to-market, and rallied on the day!

Gold Still Has a Long Way to Climb Before It's Done

So, commodities had a day in the sun, much like I will be doing in about a week from now, when I'm down in Florida watching my beloved St. Louis Cardinals with my family at my side. It doesn't get any better than that!

Okay, back to commodities...The commodities that rallied didn't include gold, as the shiny metal has seen better days this past week after hitting US$1,002. I would have to think it will hold at the US$900 or US$890 level.. Consider if you will, the fact that there's so much uncertainty in the world today.

And...surrounding that uncertainty is the fact that so many Central Banks are near zero with their rates, and have announced quantitative easing as their next move.

Recall, I told you that the Bank of Canada has joined the ranks of those employing the quantitative easing measures. The list is getting longer all the time, and now includes the Fed, the BOE, the Bank of Japan, and Bank of Canada. There'll be more, as we go along. What else can a Central Bank do, after they've cut rates to the bone?

So, as I said the other day... I truly believe that gold is trading at a discount right now. Of course, that's just my opinion. I could be wrong. I certainly was wrong about the Obama bounce, eh? I wasn't wrong about calling the end of the Great Unwind of the Carry Trade, though! Nailed that one to the wall!

The NEW "Worst Currency of 2009"

Speaking of the end of the unwinding of the Carry Trade, the Japanese yen continues to weaken, after being the best performing currency of 2008, it is now the worst performing currency of 2009!

And there doesn't seem to be any change in that selling pattern for the yen. In fact, there was a story yesterday on Bloomberg that caught my eye. "Scottish Widows Investment Partnership, which oversees 42 billion pounds (US$59 billion) in bonds and currencies, cut its yen-denominated holdings by a fifth because of Japan's worsening economic situation."

That's it for today... Day one for the Butler Boys being bachelors went well. Day two is about to begin with Alex waking up, so I had better put a bow on all this and get it sent, so I can get his breakfast going!

You know, I thought about something the other day... I talk a lot about the people that send me nasty emails. But, those are very small compared to the people who send me some of the nicest, thoughtful, some even tear jerking emails.

I once heard that people will forget what you said, people will forget what you did, but people will never forget how you made them feel. I think that about sums it up.

Okay, I hope your Thursday is Tub Thumpin' as mine is already!

Chuck Butler