Buying Buicks Instead Of Bonds...
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In This Issue..

* Currencies trade in a tight range...

* Another new plan to help homeowners...

* RBNZ and Riksbank slash interest rates!

* The Governorator speaks!

And Now... Today's Pfennig!

Buying Buicks Instead Of Bonds...

Good day... And a Tub Thumpin' Thursday to you! It's going to be a Tub Thumpin' Thursday in Europe for sure, given the Central Banks of England and the Eurozone are meeting and will probably cut interest rates to levels that haven't been seen in a while! The automakers are in deep dookie folks, according to them, and are in need of funds / bailout money right now! The head of Ford believes his company can withstand the recession, but fears for GM and Chrysler... The UAW has made some concessions to help the automakers, but it could be a case of too little, too late...

Well... Another day of doldrums in the currencies, with the bias, what little there is, to buy dollars. The stock jockeys received some manna from heaven yesterday when it was announced that the U.S. Treasury Department is considering a plan to halt the slide in home prices that would lower mortgage rates using Fannie Mae and Freddie Mac. The plan could reduce rates for newly issued loans to as low as 4.5%.

Here's a snippet of the story that ran in the Wall Street Journal yesterday..."Government officials are under pressure to stem foreclosures, which underpin much of the current financial crisis. Treasury has struggled for months to come up with a plan that would ease the market without appearing to bail out homeowners and lenders.

Under the plan, Treasury would buy securities underpinning loans guaranteed by the two mortgage giants, which are temporarily under the control of the government, as well as those guaranteed by the Federal Housing Administration. Fannie and Freddie guarantee a large proportion of all new home loans made in the U.S."

OK... So they came up with a plan... I have to think about this a bit, as I see the "good" it could do, but there's always a "bad" to these things too, and once again, I'm sure it circles around the fact that Gov't is going to be in the mortgage business... We inch closer and closer, all the time to socialism folks... It all began when they mandated that in a free country we HAVE to wear seat belts... Now don't get me wrong, I wear them because I believe it's the safe / right thing to do, but shouldn't that be MY choice and not the mandate of the Gov't? Any way, please don't flood my email box with notes telling me how wrong I am on this... It won't help, this is what I believe, period!

Whew! I really went off on a tangent there, eh? OK, before you begin to think I'm a nut case... Let's get back to currencies and economies!

The Reserve Bank of New Zealand (RBNZ) did cut rates, as I suspected, by 150 BPS yesterday... This brings the total of rate cuts by the RBNZ since September to 325 BPS! I think the RBNZ truly believes that global inflation is taking a major step backwards... And it probably is to a degree, but the RBNZ had better be ready to go the "other way" once this slide in inflation tips back... Of course I don't believe we'll see that for some time (6-months at least), so go ahead and frolic in the sun with rate cuts while you can RBNZ... Just be ready, that's all I'm saying...

Bond holders of New Zealand issues have to be frolicking in the sun for sure, and their "locked in yield to maturity" is now, at least 150 BPS, if not 325 BPS higher than new issues, which makes their bonds "more valuable"...

U.K. Prime Minister Gordon Brown unveiled a scheme to allow borrowers experiencing a temporary loss of income due to the downturn to defer mortgage interest payments for up to two years. The U.K. Gov't will guarantee the lenders against the risk of loss from the deferred payments... That's going to be quite interesting to see how that plays out... But shoot Rudy, if the Gov't is going to let you go Ollie, Ollie, oxen free on your mortgage payment for two years, with NO bad stuff happening to you and your credit, I can see the mortgage holders lining up on the right for this!

The U.S. Fed Reserve's Beige Book that usually gives us an indication of what to expect in the next FOMC meeting, which will take place December 16th, printed yesterday... And it could be probably listed on Amazon under "horror" books! Put away the sharp objects folks, for it's not just me ranting about these problems any longer, the Fed Reserve, your Central Bank, you know, the people that are supposed to be protecting the value of our currency, by providing price stability, and full employment (and are failing miserably at both!), now are ADMITTING that the problems are real... Here's a short review from the Beige Book...

Based on data collected prior to November 24th, the Beige Book painted a grim picture of the outlook for growth in the fourth quarter. Lenders tightened standards for loans and lending contracted over the period. Several districts noted increases in delinquencies and defaults.

Consumer spending, which played a lead role in the growth downturn in the third quarter, was reported to have weakened.

Hey, this little tidbit came across my screen yesterday... The number of days that the S&P 500 has moved up or down by more than 5% during the Trading Day...

1950 - 2006 34 days...

2008 44 days! With 22 of them coming since October 1st!

Talk about volatile! WOW!

OK... One of my fave economic writers, Caroline Baum, wrote a piece on Bloomberg that caught my eye... Hey! That makes sense now, since I really can only see good out of one eye! Anyway... Here's a snippet of the story by Caroline Baum, titled, "Bernanke should buy Buicks instead of bonds"...

"It tells you just how far we've come when the headline, "Fed May Buy Treasuries," gets a reaction.

Buying Treasuries is the age-old way of adding reserves to the banking system, setting in motion the money-creation process.

Historically, these so-called permanent open market operations were designed to have no impact on the shape of the yield curve. The goal was simply to satisfy the banking system's demand for reserves.

Treasury securities used to make up the lion's share of the Federal Reserve's balance sheet. No longer. As of Nov. 28, the Fed held $476 billion of securities carrying the full faith and credit of the U.S. government, less than a quarter of its balance sheet. One year ago, the comparable figures for the Fed's Treasury holdings were $780 billion and 90 percent.

When the banking system starts functioning again, and the Fed has to mop up all the excess reserves banks are holding instead of lending, the reality is "it doesn't have enough Treasuries," said Paul Kasriel, chief economist at the Northern Trust Corp. in Chicago.

Banks were holding $605 billion of reserves in excess of the amount required as of Nov. 19. "Maybe the Fed will have to raise reserve requirements," Kasriel says. "It'll be 1937 all over again."

Many Great Depression scholars, including the late Milton Friedman and Anna Schwartz, point to the Fed's doubling of reserve requirements in 1936-1937 as triggering the second leg down in the economy, which was recovering in the mid-1930s."

OK, back to me... All this talk today is causing me to search for something "fun" to talk about, because it's all been gloom and doom, eh?

Sweden's Riksbank announced a 175 BPS rate cut this morning. WOW! Another Huge cut, makes you think that the Bank of England and European Central Bank might have something up their sleeves too! And in Canada, their Central Bank doesn't meet until next week, but Canada has other problems going on, as there are rumblings about a suspension of Parliament...

The Governorator, Arnold Schwarzenegger, has called a Fiscal Emergency for the state of California... I feel like he won't be the only governor to do so... You see, the Federal Gov't is giving all it's McLovin' to Financial Institutions right now, and the States are hurtin' for certain... The states that have for decades told the Fed Gov't to "get out of their business", will now be knocking on the Gov't's door, and be the next in line to ask for bailouts...

And then, one final thought before going to the Big Finish... I saw this yesterday, and almost fell out of my chair! (now that would not be a good thing!) Let's see what your take is on this....

I know that sure seemed as though the Fed and Treasury had found every last way of pushing off debt from one generation to the next, BlackRock's Peter Fisher has thought of a clever new one: a 100-year treasury bond. That way, the government can keep borrowing money to finance today's bailouts, and won't really have to start bleeding cash until after most of us are dead and gone...

Let's hope that thought by Peter Fisher doesn't even cross the minds of Paulson and Bernanke!

Currencies today 12/4/08: A$ .6470, kiwi .5365, C$ .7945, euro 1.2640, sterling 1.46, Swiss .8245, ISK 261, rand 10.2585, krone 7.17, SEK 8.3430, forint 207, zloty 3.0650, koruna 20.3425, yen 92.55, baht 35.70, sing 1.5275, HKD 7.7510, INR 49.85, China 6.8820, pesos 13.62, BRL 2.4790, dollar index 87.22, Oil $47.16, Silver $9.57, and Gold... $769.35

That's it for today... The snow that was predicted for us yesterday failed to materialize... That's fine with me! Our office coordinator, Danielle, put up my little Christmas Tree by my desk yesterday after I left. My tree is decorated with Missouri Tigers stuff! It's beginning to look a lot like Christmas... (got you singing that song didn't I?) We've been in our office here for 4 years today (I believe)... And we already outgrew the space that seemed to be HUGE when we moved in... So, we'll be moving next door in 6 months... I sure hope we run out of space again in 4 years! I go to see my kidney doctor this afternoon. He's a delightful man, that I truly enjoy going to see... My darling daughter, Dawn, sent us pictures of Delaney Grace on Santa's lap... They were hilarious, as Delaney wanted no part of the Big Guy! I used to be the Santa at my older kids' school and in the neighborhood. (it's the one thing I DO have the body for! HA!) I kind of miss doing that, instead I just go and read The Night Before Christmas to Dawn's kindergarten class... The kids love it, I love it, and it's over in about 10 minutes! Sort of like the reading time for a Pfennig! Speaking of which... I need to go... I hope you have a Tub Thumpin' Thursday!

Chuck Butler


EverBank World Markets



Posted 12-04-2008 9:04 AM by Chuck Butler
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