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Sunday, July 14, 2024

Weak Dollar Wednesday – Which Way Now?

SPY DAILY CHARTEverything is proceeding exactly as I have foreseenEmperor Palpatine

In Monday's post I said: "we really would like to see a little volume consolidation before we make another run at the 1,150 line on the S&P" and we zigged and we zagged until yesterday's close where "THEY" punched it up to EXACTLY the 1,150 line (see Dave Fry's chart) where we, of course, failed – because it's all a load of BS end-of-quarter window dressing but HEY – 1,150, how about that!?!  1,150 is the 7.5% line on the S&P (see Monday's chart) and that goes hand in hand with Dow 10,965 (not there yet), Nasdaq 2,365, NYSE 7,280 and Russell 672.

As I mentioned yesterday, our betting is still all over the place as we may go up on a technical breakout or we may go down and the fulcrum for the markets is currently the dollar, whose devaluation relative to the exchange value for a stock certificate is responsible for the vast majority of our recent market.  We're positioned bearish in that we have 10:1 bets made to the downside on some ultra hedges so we will be thrilled with a pullback but, on the whole, we're still really just protecting our bullish bets – even our review of the September Dozen this weekend couldn't find too many reasons to take the money and run as we just didn't look weak enough to quit on our most bullish trade ideas.  

Our overriding concern is that Japan makes good with their promise to intervene on the Yen, which will boost the buck, knock down commodities and tank the markets.  Why is that not happening?  Well our own Government is doing everything they can to de-value the dollar.  We talked out quantitative easing yesterday and GS issued a report yesterday saying there was NO CHANCE that the Fed would raise rates and, in fact, they may even lower rates to ZERO.  

Now, I don't know about you but I'm holding out for when the government PAYS ME to borrow money.  Maybe then I'll be willing to let them lend me $1Bn as long as they pay me $2.5M a year to hold onto it.  Our greedy little IBanksters couldn't wait though, and they rushed out and borrowed another $500M from the Fed yesterday (POMO) at the outrageous rate of 0.25%.  How are the poor little Banksters ever going to hide all the non-performing mortgages if we're going to charge them $1.25M for $500M in cash?  

Last year, the Fed created $1.5Tn for their banking buddies and charged them a whopping $3.75Bn in interest while those same banks often charge loan origination fees of 1%, which is $15Bn right there!  But, of course, the Banksters do not lend that money back to the citizens who pay for it – they lend it back to the government who lent it to them for about 10x the interest (2.5%) which has the neat side effect of creating a false demand for Treasuries that keep rates low for the banks and inflate the real estate assets they hold on their books.  They also buy lots and lots of commodities on the same premise.  

Sorry to keep hammering on this but it's very tempting to want to BUYBUYBUY here, especially with the MSM back in cheer leading mode but we are on the top of a huge run with very low volume backing the move up and a collapsing currency distorting all the numbers (see yesterday's chart) so now is the time for CAUTION and I want to make sure EVERYONE understands why, especially as exchange rates will color all of the major Q2 earnings reports on the S&P (as the dollar dropped 10% during the Quarter).  

That means we really can't afford to take anything at face value and we have to look deeply into the sub-text, which is all stuff I love to do, as I'm an old-time fundamentalist, but we're still in a very fast-moving market and that can be an explosive combination as the market can react very wrongly to data that all logic would suggest moves it the other way.  Take yesterdays TERRIBLE Consumer Confidence numbers.  Actually TERRIBLE is a wholly inadequate word to describe the carnage of that report.  

September Consumer Confidence was down to 48.5.  The benchmark of 100 is from 1985, which wasn't such a great year either.  That's down 10% from 53.2 in August and expectations were also down 10% from 72 in August to 65.4 in the current survey.

"September’s pull-back in confidence was due to less favorable business and labor market conditions, coupled with a more pessimistic short-term outlook. Overall, consumers’ confidence in the state of the economy remains quite grim. And, with so few expecting conditions to improve in the near term, the pace of economic growth is not likely to pick up in the coming months" said Lynn Franco, the Board's Director.    

Consumers’ assessment of current conditions weakened further in September. Those saying business conditions are “bad” increased to 46.1 percent from 42.3 percent, while those claiming business conditions are “good” declined to 8.1 percent from 8.4 percent. Consumers’ appraisal of the labor market was also less favorable. Those claiming jobs are “hard to get” rose to 46.1 percent from 45.5 percent, while those stating jobs are “plentiful” decreased to 3.8 percent from 4.0 percent.    

What's really amazing here is that 3.8% of the people in this country are so out of touch that they can use the word "plentiful" to describe the jobs situation.  One out of 25!  Keep that in mind next time you are on a bus or a plane because those people may be sitting near you – they may even be driving!  Do you really want to be in close contact with people who actually believe jobs are plentiful in America?  They are just as likely to believe YOU would taste good served with fava beans and a nice chianti


The Dow was dropping to 10,740 ahead of that number at 10am, a neat and expected test of our 5% line  (10,710) and you would think the CC news would have sent us even lower but nooooooooooooo – we took off like a rocket and ended up over 100 points higher by the end of the day, up 46 points from the open.  Why?  Because things are soooooooooooo BAD that the Fed's just gotta do more quantitative easing – they just gotta Auntie Em!  Oh sorry, having old black and white movie flashbacks…  

Anyway, so things are SO BAD that the gridlocked Congress is bound to extend tax cuts and the loosey-goosey Federal Reserve is bound to print up another $1.5Tn this year and the Treasury will remain silent even though, technically, only they are supposed to be able to create money.  Japan is either supposed to take this crap or their efforts to fight the tide of dollar devaluation are doomed to failure and the Euro will remain strong and commodities will keep going up and earnings will justify higher multiples and China will revalue their currency to accommodate us – ALL because US consumers are unhappy.  

Sure, that MIGHT happen.  You will have to forgive us if we hedge our bets, though – just in case it doesn't all work out!  

Speaking of things that are going wrong:  Irish banks continue to be a catastrophe (our #1 concern for the week) with CDS rates at a record – and don't forget Ireland already just missed going bust – this is now worse!  Still their 493 CDS rate is nothing compared to Greece, who have gotten used to 817 and Portugal may soon lap them after putting up 446 yesterday – "with a bullet" – as the DJ's used to say about a song zooming up the charts.  

Still an old favorite tune is the ballad of Spain, where Moody's is set to cut the credit rating once again (what is the Spanish word for junk).  Unlike Greece, Spain's economy is in the very exclusive Trillion Dollar Club, 4 times larger than Greece and 7 times larger than Ireland at $1.4Tn (ranked 13th in the World) so it's kind of a big deal if they, as Moody's predicts, are unable to grow.  It's even harder to grow when your whole country is on strike and that's what's happening in Spain today although not a mention of this very significant event on CNBC as it doesn't fit in with this week's bullish premise, does it?  France is also facing a shutdown over deficit measures.    

Fed Prez Lockhart says we don't need no stinkin' monetary easing and tells us that policy makers haven’t reached a consensus on whether to undertake a new round of buying Treasuries, and the need for further monetary easing isn’t clear. “For me personally it is not a foregone conclusion that more accommodation is required,” he told reporters after a speech today in Sewanee, Tennessee. “I am not yet of a firm mind of what exactly that problem is, and for that reason I’m not yet committed to a particular course of action that might involve further accommodation.”  Not a foregone conclusion – stop that madman!!!  

Overall, Europe is down slightly ahead of our open and Asia was all over the place with the BSE blowing the 20,000 line on a 148-point drop (0.74%) while the Shanghai held flat and the Nikkei climbed all the way to 9,559 (up 0.67%), giving us another nice exit on EWJ as it hits our $10 target.  The Hang Seng was the star of Asia with a 1.22% gain but the really big news out of Asia is Hugh Hendry making a $2Bn bet on Asia's failure.   

Hugh HendryHendry thinks that Asia will be the next global market to hit the skids after the subprime collapse in the U.S. and the sovereign crisis in Europe. He envisions severe problems for Japan, when currency strength will for the country to engage in another, more aggressive round of quantitative easing, debauching the country's currency (click here for whole interview).  
So he is making a bet worth $2 billion against Japanese credit, notably in corporations. He sees overconfidence and over reliance on the growth of China as a reason for this position.  He even compared China to Starbucks, noting that they are now investing money in manufacturing the same way Starbucks did in new stores: accepting a negative marginal return on invested capital.
On the subject of a bond bubble, Hendry says that there, "is one going on," and he thinks markets are experiencing a simultaneous "melt-up" in gold and U.S. treasuries.
Hmmm, listen to Hugh Hendry or the idiots on CNBC?


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