M. Ramsey King Securities, Inc. Tuesday Dec. 28, 2004 –
Issue 3065 "Independent View of the News"
A confluence of events, technical developments and seasonal pressures produced significant moves in various markets on Monday. The biblical-like disaster in Sumatra fostered concern that Asian capital would stay in Asia instead of flowing to support Americans’ conspicuous consumption.
This excited the big macro funds because it encouraged them to further bash the dollar. Because the short-dollar position is the grandest in the entire known universe, the big hedgies strongly desire to push it as low as possible for yearend. With the Dollar Index (80.72) within striking distance of the immensely critical 80 support, the big macro boys & girls are growing incontinent about pushing the buck lower.
The Dollar Index is now near the 1991, 1992 and 1995 lows. The dollar commenced a six-year rally in April 1995 when the BoJ instituted its zero-interest rate policy. When viewed over the last 18+ years, the current dollar collapse, which began in early 2002, is abjectly disturbing.
The latest available data shows that foreigners are no longer investing/recycling enough money in the US to cover the trade deficit…The NY Post’s John Crudele, in his column today, writes that the US Treasury released it report on US finances on 12/15. The report shows that the US budget on an accrual basis is well north of $600B, while debt and future obligation are up a few trillion. http://www.nypost.com/
Now that a historic winter storm that engulfed much of the US has passed and weather reports show unseasonably warm weather will hit much of the US in midweek, spasmodic traders rabidly sold energy products, felling oil by more than $3. Ain’t high finance grand?
As we mentioned last week, because most everyone knows that stocks will rally into yearend and into at least early January. Wall Street and the fin media have already commenced grandiose stock market projections for 2005. Ergo, bullish sentiment is so endemic that the day trading lemmings and wise guys have been pouring into stocks on the open the past few weeks. This manic action often produces the daily high within the first 45 minutes of trading…Monday’s high occurred 6 minutes after the open. Yesterday, those traders, plus those inculcated with bullish Monday modeling, were surprised that fundamentals and events could actually usurp alchemy.
Washington Post Christmas Eve editorial: "The Holiday Season has suffused the stock market, which has bubbled exuberantly to its highest level in 3 1/2 years. Americans who own stocks can count themselves a bit richer, which means they can spend a bit more freely, which means that corporate profits will brighten -- which means that the stock market might just keep heading up. But this perpetual motion machine has a flaw in its engine. The more it accelerates, the nastier the potential consequences if it seizes up. The flaw is that American consumption is based on borrowing: People are spending money that they don't actually have. The nation's net borrowing from foreigners has risen to a massive 6 percent or so of gross domestic product, up from 4 percent in 2000, a level that was then considered dangerously high." http://www.washingtonpost.com/wp-dyn/articles/A23571-2004Dec23.html?referrer=email
As we have been warning, the situation in Iraq is worsening and should continue to deteriorate as the 1/30 elections near. Two important articles concerning Iraq appeared over the Christmas break. Bob Novak writes that Bill Kristol and other ‘neocons’ are trying to pin the mess in Iraq on Rumsfeld. The neocons are reputedly the impetus that cajoled Bush into invading Iraq. Now, Kristol writes that the Iraq attack was the right thing to do but Rumsfeld is mismanaging the situation. This transparent attempt to salvage reputations and place blame by leading advocates of the Iraq operation strongly suggests that neocons are deeply concerned that Iraq problems could worsen significantly.
To bolster our deduction is a second report; this one in the Washington Post. Thomas E. Ricks and Robin Wright write, "Secretary of State Colin L. Powell told President Bush and British Prime Minister Tony Blair last month that there were too few troops in Iraq, according to people familiar with official records of the meeting." As we often mention, Powell is a copious leaker who tends to be very active just ahead of situations that he deems could tarnish his reputation. So he gets on the record in a manner that inoculates him. http://www.washingtonpost.com/wp-dyn/articles/A23381-2004Dec23.html?referrer%3Demail&sub=AR
The Washington Post’s Walter Pincus: "While insurgents in Iraq have placed informants inside the Iraqi government, the U.S. and Iraqi militaries, coalition contractors, and international news organizations, the United States is having serious intelligence problems in Iraq, according to sources inside and outside the U.S. government." http://www.washingtonpost.com/wp-dyn/articles/A23204-2004Dec23.html?referrer=email
"Energy shortages of every stripe bedevil this country, which sits atop the world's second-largest petroleum reserves. Electricity shuts off for whole days. Prices of scarce cooking fuel have risen nine-fold. And gas lines this month reached new lengths, creating yet another venue for violence. At least two men have been killed in Baghdad over places in line or allegations of watering down the goods." http://www.washingtonpost.com/wp-dyn/articles/A23297-2004Dec23.html?referrer=email
Tom Ricks: "The U.S. military invaded Iraq without a formal plan for occupying and stabilizing the country and this high-level failure continues to undercut what has been a "mediocre" Army effort there, an Army historian and strategist has concluded." http://www.washingtonpost.com/wp-dyn/articles/A24891-2004Dec24.html?referrer=email
The Washington Post’s Steve Wiesman: "The Bush administration is talking to Iraqi leaders about guaranteeing Sunni Arabs a certain number of ministries or high-level jobs in the future Iraqi government if, as is widely predicted, Sunni candidates fail to do well in Iraq's elections." http://www.nytimes.com/2004/12/26/international/middleeast/26diplo.html?th
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