Today's Market WrapUp 03.23.2009 Mon Tue Wed Thu Fri Kirby Archive
A Date That Shall Live In Infamy
BY ROB KIRBY
Mark it on your calendar folks – Wednesday, March 18, 2009, the demarcation point - the date that the U.S. Federal Reserve publicly acknowledged that they will monetize the nation’s debt. While we suspect that the Fed has been doing so for quite some time – on the ‘Pirates of the Caribbean sly’ – the public disclosure that the Fed is resorting to quantitative easing [aka the printing press] has signaled a clear shift to the long predicted hyper inflationary end-game gyrations which historically have manifested themselves in virtually ALL irredeemable fiat money systems.
Fed Announces Plan to Buy More Than $1T in Assets
March 18, 2009
The Federal Reserve’s policy committee on Wednesday said that the Fed would buy more than $1 trillion in assets to revive credit markets, also leaving its target interest-rate range of 0% to 0.25% unchanged and signaling that the economy still has a long way to go before it recovers.
The Federal Open Market Committee said it would buy up to $300 billion in longer-term Treasuries over the next six months, up to an additional $750 billion in agency mortgage-backed securities (bringing the total this year to $1.25 trillion) and up to an additional $100 billion in agency debt (bringing the total up to $200 billion)…
Here’s how the foreign currency markets reacted to the Fed’s announcement:
One might assume that the true purpose of U.S. Secretary of State, Hillary Clinton’s February visit to China was to inform the Chinese of the their economic plight, and beg for their continued support despite their upcoming decision to monetize.
Hillary Clinton concludes China visit
BEIJING, Feb. 22 (Xinhua) -- U.S. Secretary of State Hillary Clinton concluded a three-day visit to China and left here for home Sunday afternoon, wrapping up her four-nation Asian tour…
... During her visit, the two sides agreed to enhance coordination on combating global economic crisis, advance bilateral cooperation in fields including finance, energy resources, environmental protection…
With Jan. [2009] recently published TIC report showing an increase in Chinese willingness to hold U.S. debt. – Clinton was no doubt offering soothing words so this might continue:
We can also assume this because just a few days prior to the Fed’s announcement, the New York Times reported that Chinese prime minister, Wen Jiabao, publicly stated his concern about the future of the U.S. currency;
China’s Leader Says He Is ‘Worried’ Over U.S. Treasuries
Published: March 13, 2009
BEIJING — The Chinese prime minister, Wen Jiabao, spoke in unusually blunt terms on Friday about the “safety” of China’s $1 trillion investment in American government debt, the world’s largest such holding, and urged the Obama administration to offer assurances that the securities would maintain their value…
The swift reaction in the global foreign exchange markets was emulated – perhaps fore tellingly – by lowly Zimbabwe:
JOHANNESBURG, SOUTH AFRICA Mar 20 2009 11:49
The Zimbabwe government has chosen the rand as the country's reference currency but will not "randify" the economy, the Herald reported on Friday.
"The multiple currency system adopted last month remains in force," it said.
Citing Finance Minister Tendai Biti, the report said the government had chosen the rand because South Africa was Zimbabwe's biggest trading partner and the most competitive country for assessing prices and wages.
"Given the United States dollar price structure we are starting with, and the impossibility of restoring competitiveness through currency devaluation when we are using foreign currencies, it is important that we link ourselves to a currency that is more proximate to us," Biti was quoted as saying…
That Zimbabwe has “dumped the dollar” should come as a wake-up call – yes – but a surprise to few. This is a “sobering” chronology-in-pictures of the descent of the Zimbabwe Dollar – literally - into the toilet, showing what happens when currency debasement gets too far out-of-hand. [compliments: Craig McCarty]:
Many market pundits recognize the seriousness of the U.S. economic and financial predicament; most are calling for a stock market crash with predictions of DOW 4000 or worse. We too recognize the seriousness of the U.S. financial and economic malaise and cannot help but draw parallels to the Zimbabwe experience:
We may very well get our stock market crash, but in nominal terms it might be UP instead of DOWN. An increase in nominal stock value terms – pictured above – looks great on paper.
What folks need to pay more attention to is the relative increase to other things that are also rising in price.
Historically, precious metals have maintained their purchasing power in the face of monetary debasement.
Got physical gold yet?
Today’s Market
Overseas equity markets began the week on a positive note with Japan’s Nikkei Index gaining 269 points to close at 8,215. North American markets also advanced with the DOW ahead 497.50 to 7,775.90, the NASDAQ gaining 98.50 to 1,555.77 and the S & P adding 54.35 to close at 822.90. NYMEX crude oil futures added 1.77 to close at 53.84 per barrel.
On foreign exchange markets the U.S. Dollar Index lost .12 to 83.38.
In the interest rate complex benchmark 5 yr. government bond ended the day at 1.70% while the 10 yr. bond ended the day at 2.68%.
Precious metals ended the day mixed with COMEX gold futures losing 14.90 to 938.70 per ounce while COMEX silver futures lost .01 to close at 13.74 per ounce. The XAU Index added 1.14 to 137.45 while the HUI Index gained 1.04 to 327.58.
Wishing you all a pleasant evening and a happy and prosperous tomorrow!
Rob Kirby
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