Ben Franklin Report: Warning Signs

Parroting the same policy as many previous Treasury Secretaries before him, Sec. Henry Paulson has come in favor of a 'strong dollar.' Of much more interest, though, is his sound byte saying that the government will not step in to intervene in the market on behalf of investors who made poor decisions and took on way too much of the worst kind of risk. Federal Reserve Chairman Ben Bernanke, in some of the most constructive testimony of his tenure thus far, indicated without words that the U.S. economy is probably already in a recession, that there will be bank failures in the near future, and yet he does not anticipate stagflation in the near-term.

In other pressures on the U.S. Dollar, OPEC has agreed to not lift output, which has pushed crude oil to a new record close, even further exasperating the oil standard. Pricing barrels of oil in euros is undoubtedly just around the corner. Expect to see oil ministers from the various OPEC countries begin speaking about it openly before their next production meeting.

As municipal bond markets continued to deteriorate, forcing yields up on long-term bonds, the city of Vallejo becomes the largest city in California to look bankruptcy square in the eye. This probably is the beginning of the trend, rather than the end of it, especially as houses will continue to have their values reappraised downward.

As an interesting aside, Fannie Mae paid $200K to lobby those who decide upon its workings. FNM's $2.1 billion loss on the year announced yesterday could put pressure on the ability of the mortgage giant to tap into credit pools, as Moody's announced that Fannie Mae's B+ rating is under review.

If you're wondering tomorrow morning why your wallet feels lighter, it's because it probably is. As of publishing the dollar was at a new record low against the Euro, weaker than the Canadian Dollar, and near a 4-year low with the Yen.

Ben Franklin Report: Consequences

Observable in most economic aggregates of data, there is a form of statistical lag, which is how long it takes those who count to count the count that they choose to count. This phenomenon is acutely visible in the most recent jobs report, which is accompanied by a downward revision of data from December, to the tune of 376,000 jobs in the level of employment. According to the latest figures, the economy lost about 17,000 jobs in January. There is a large disparity, according to the aforementioned story, in the number of jobs expected and those that actually were, wherein lies the statistical lag. If one can assume that there is a two month lag in the system when it comes to employment figures, how will they look two months from now? In my opinion, the stock market could come to reflect the 2003 levels of the job market, depending on the fundamental strength of the U.S. Dollar, because it is all about the Benjamins. The reporter, Rex Nutting, Washington Bureau Chief for MarketWatch, covering the jobs report also says hard times are coming, starting, "The last pillar to hide behind has fallen. Jobs are being lost in the U.S. economy."

Speaking of, the dollar isn't seen to be in the best shape, having lost ground against most of the major currencies since the beginning of the year, such as the Euro and the Yen. Canada's Dollar is enjoying the benefits of a difference in interest rates, again stronger than the American greenback. Of course, the U.S. Dollar is continuing it's increasingly not so gradual slide against the Chinese Yuan (RMB).

In a minor aside, the subprime crisis is continuing to develop in an international way. The latest casualty of the curious lending practices is Mizuho Financial Group, to the tune of $3.2 Billion. In a sign that the subprime crisis is going to spread into other sectors of the economy, pharmaceutical giants like Bristol-Myers Squibb and IT tech companies like Ciena Corp. are posting writedowns on subprime investments. Moody's is predicting that the subprime loss could amount to 85% of all such loans made, their CEO blames flawed models. It looks like the State of Florida is going to blame Countrywide Financial Corp, and the FBI is looking at 14 companies and counting. Alan Greenspan is trying to deflect blame from his time in office. In an exercise of States' Rights, states are refusing to take on the burden of refinancing subprime mortgages, a primary part of Bush's economic crisis recovery plan. And, also, there's video goodness, as Jon Stewart talks about the economy.

That Sucking Noise

Apparently, the confluence of record oil prices, a financial fallout in our primary sector for economic growth for the past decade or so, and creeping inflation is too much for the U.S. Economy to bear. The main indicator of the turbulence, the poor dollar has in the past day tumbled to a new record low against the Euro, as well as for the most part falling back to pre-Clinton exchange rates against other world currencies, notably the Canadian dollar. The Chairman of the Federal Reserve, Ben Bernake, one of the masterminds behind this rapid currency devaluation, has signaled that he expect the economy to slow for the rest of the year, and regain momentum in the beginning of 2008. What might be slightly worrisome is that he mentioned that they have not even calculated for even the possibility of a recession. The European Central Bank, for their part, are worried about the potential impact of cheap American exports on the world market, with Bush's new best friend Nicholas Sarkozy going so far as to mention the phrase "trade war." All of this makes me wish that the Fed still published statistics about the growth of money supply.

Oil, on the other hand, is not nearly as interesting, it only hit an amazing high just over $96 per barrel, as opposed to actually eclipsing the $100 price range. Between the price of oil being up 42% since August and "I think the market is due for a correction," I would say that we need to start car pooling more, or perhaps look into public transportation.

In other news, the primary builder for expensive homes in the U.S., Toll Brothers announced that their sales are going into tailspin, bringing up the question of whether the leg that is consumer spending is wobbling... Hopefully, it's only wobbling.

The New York Stock Exchange and most other world indices were pushed down today by poor results in the tech sector.

By far the most worrying aspect of all of this is the mention by Cheng Siwei, Vice Chairman of the Standing Committee of the National People's Congress and the other mastermind, that the American dollar is losing its status as a world currency.

I hope the managers at brokerages are telling their people to lay off the coke.