An Important Message
"'I've become more sanguine toward currency fluctuations, I realize that there are forces which are at work in the markets that don't make sense to me, and I've quit trying to understand. I'm just making currency decisions for the long run.'"
by Chuck Butler In This Issue… - No jobs created…
- But the Jobless rate falls…
- The dollar trades in its hammer
- Why we do this….
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What I'm talking about is the fact that the total number of jobs created in October was a mere 56K. Now add that to the previous month's revised figure of -8k, and the U.S. economy has only created 48K jobs in the past two months. But - wonder of wonders, the jobless rate fell to 5%, and the spin doctors were all over that like a cheap suit! And the news headlines were spewing the news that the jobless rate fell! Of course, they don't ever take the time to think about the fact that this simply meant that more people's benefits ran out, and the Bureau of Labor Statistics doesn't count them as unemployed any longer! Well, the dollar went wild…and the currencies were sold like an 80's version of the Cabbage Patch doll! It was really ugly, and here I was looking at the number of jobs created, and wondering what in the world did dollar bulls see to make them push the dollar so high? I spent the morning worrying about this, that and the other thing, and trying to make sense of it all. And then, it hit me - and it came in the form of some wise words from a customer of ours, that is also one of our favorite rockers! "I've become more sanguine toward currency fluctuations, I realize that there are forces which are at work in the markets that don't make sense to me, and I've quit trying to understand. I'm just making currency decisions for the long run." That is the reason we got into this long ago, and far away in a galaxy known as Mark Twain Bank. We believed in the Markowitz portfolio theory that breaks down the need for a diversified portfolio, and the writings of Gary Bergstrom that took the Markowitz theory further, by adding foreign assets. Currencies, we believed then and now, were an asset class, just like a stock or bond, and therefore could be used to help diversify an investment portfolio. Yes, the empirical evidence was there, that over time, having a currency position in your investment portfolio reduced the overall risk of the portfolio, so in other words…it was a hedge… One that could be profitable at times, and one that could offset profits at other times. If a currency investor is looking for a quick shot of newfound glory, I'm afraid to say this isn't where he/she should be looking… So that was my important message for the day… But it still didn't make me feel better… And then over the weekend I read that Warren Buffett did cut Berkshire's currency investments to $16.5 billion from $21.5 billion back in June. Recall, back in the middle of summer there were rumors that Buffett was selling, but the markets kept saying no? Well, I guess he was… But that was 5 months ago… Water under the bridge now… So… The dollar quit swinging a hammer on Friday, and began wielding a sledgehammer, or maybe even a jack hammer! UGH! I just don't see the reasons… But then I'm blinded by the light… The light from the Twin Deficits… And you know… Something that is going to haunt the stock market, like I said it would back in 2003, and that is this shortfall in Corporate Pensions… I won't go into it big here, but this is a huge problem, especially with the Baby Boomers about ready to begin digging into those pensions… The reason I continue to believe that this is going to be a problem for the dollar is the fact that it will amount to another huge scandal in the U.S. markets, and will not give any foreign investor a warm and fuzzy about investing here… And if the foreigners aren't investing here, (and buying dollars to do so), who is going to finance our deficits? My friend, John Mauldin, has done a nice job of explaining the Pension problems, first in his book, "Bulls Eye Investing", and second in his weekly newsletter, which you can find at: http://frontlinethoughts.com… I see that John has a new book out too, called "Just One Thing"… Knowing John, I'm sure this too will be a great read. Did you see the quotes last week from former Fed Chairman, Paul Volcker? First of all I highly respect Paul Volcker, and the work he did to defeat inflation back in the early 80's… Volcker was talking about one of my favorite subjects, and said that the country was spending about 6% to 7% more each year than it earned. The difference is made up by those very nice people in Asia, who lend us money at low rates of interest without looking too hard at the collateral. You tell 'em Paul! On Thursday, we'll see The Trade deficit from September, which if you recall, was when the price of oil went so high. I have to believe that this will be the month it goes over $60 billion, which could be the worst monthly figure in history when it's all said and done! But unfortunately the markets aren't concerned with the deficit levels right now… But they will again… Sooner or later… Although it looks like its going to be later at this point! In Canada on Friday, the Canadian employment surged 68.7K (consensus 20K) in October, the highest gain since Oct. 2003. The unemployment rate ticked lower to 6.6% (consensus 6.7%) to its lowest level since 1975. And the loonie remained tough VS the greenback, but finally succumbed to the pressure of the jack hammer… Still though, loonies outperformed all the other currencies that got smashed to pieces by the jack hammer… So, loonie investors have that going for them… We'll also see the Monthly Trade Balance on Thursday, so the Twin Deficits staring us right in the face on Thursday… Until then, we see Consumer Credit today, which is no biggie, right? I mean who cares if Consumer Credit gains another $1 billion last month? The markets don't… Currencies today: A$ .7335, kiwi .6815, C$ .8430, euro 1.1820, sterling 1.7475, Swiss .7660, rand 6.75, krone 6.5875, forint 211.34, zloty 3.41, koruna 24.84, yen 117.70, baht 41.01, sing 1.70, China 8.0877, pesos 10.74, and gold…. $457.70 That's it for today. My most disliked month of November has had some decent weather so far, but in Missouri we have a saying… If you don't like the weather today, stick around it will change tomorrow! My Mizzou Tigers season is not going well… When do those pitchers and catchers report again? Have a great Monday and week! | 
