by Addison Wiggin & Ian Mathias
- Fed sets cat among the pigeons by resetting discount rate… Impact everywhere
- Dollar-euro parity? Bill Jenkins on the prospect of a Greek bailout
- An object lesson in debt… Olympic mountain on verge of foreclosure
- How to steer clear of counterfeit collector coins from China
- After we respond to a reader’s “cry for help,” he writes back…
All for show, not for go. The Federal Reserve has raised the discount rate — the rate it charges banks for short-term loans — by 25 points, to 0.75%.
“It used to be a sin,” our friend Chuck Butler commented this morning in the Daily Pfennig, “to have to go to the ‘discount window’ and borrow from the Fed. But these days, it’s like a walk in the park… nobody watches, and nobody cares!”
The Fed’s move was expected. The timing was not. Rather than wait till its regular meeting next month, the Fed pulled the trigger after the market close yesterday… and before options expiration today.
It’s the first increase in the discount rate since the Fed entered Bear Stearns panic mode by cutting the rate on Aug. 16, 2007 — also outside a regular Fed meeting, also on a Thursday before options expiration.
Anyone with call options on the indexes is hurting this morning.
Still, “this move is more cosmetic than anything,” cautions Dan Amoss. “It’s a drop in the bucket compared with the flood of new money the Fed created for quantitative easing programs. Yesterday’s announcement seems designed to silence the critics who say the Fed will never tighten again, and is engaged in backdoor monetization of the national debt.
“The Fed and Treasury Department are involved in a poorly disclosed, conniving plan to recapitalize Fannie Mae and Freddie Mac without going to Congress for funding authorization. They are doing this through the quantitative easing program and Treasury’s Dec. 24 announcement of unlimited capital support for Fannie and Freddie.
“Quantitative easing is the more important policy tool being employed by the Fed right now. The Fed will maintain focus on quantitative easing until the bond market revolts by selling off Treasuries. The more important development later in 2010 might be the bond market forcing the Fed to follow it into raising the cost of borrowing for both the government and the private sector.”
That would create a whole new realm of opportunities for readers of Dan’s Strategic Short Report. We’re offering access at more than 60% off the regular price. Check it out here.
“The Fed statement was pretty adamant,” says Dave “Dollar Bear” Gonigam who perused the document on your behalf this morning, “about the discount rate not being an indicator of anything else to come, for what it’s worth.”
Meaningless as it is long term, markets everywhere are reacting. The major U.S. stock indexes opened down 0.3%, traders fearing an end to the easy-money gravy train. The dollar index has blasted through 81… territory it hasn’t seen since last June.
But the rising dollar hasn’t done its customary number on the gold price — which stands firm around $1,115. Like yesterday, when the IMF decided to sell another 191 tons of gold on the open market, gold is demonstrating resilience in the face of news that traders would ordinarily see as bearish.
"I’m very encouraged by the way that the gold market and crude market has reacted” to the Fed, Resource Trader Alert’s Alan Knuckman told CNBC after an early wake-up call. “They haven’t pulled the plug yet, and they aren’t as dollar dependent as some people thought." You can watch Alan’s interview here.
Oil is holding firm above $79 a barrel.
The stock market is holding up better than you’d expect given the Fed’s announcement, and here’s why: The consumer price index just clocked in lower than expected, rising 0.2% in January. Most of that can be blamed on rising fuel costs.
“Core” CPI — the number used for people who don’t eat or drive — actually fell 0.1%. Curiously, that’s the first month-to-month drop since December 1982.
Americans polled by Gallup say they cut back their spending in January to the same levels as January 2009. Hmmm… We seem to recall people still feared the world was coming to an end back then. The response was uniform across all income levels and all regions of the country.
Couple this with Wal-Mart’s same store sales and we’re still not seeing the celebrated American consumer getting back on his feet.
“If the European Union allows fiscal support for Greece,” ponders our FX specialist Bill Jenkins, “does that mean carte blanche permission for others to run to the EU money window and collect assistance for their carefree spending days?
“It certainly seems to me, dear trader, that if the European Union makes this decision, it will lose all credibility. And that may be the only thing that stands between it and ruination of the union. It may end up collapsing on itself, even if no members ever leave, and its downfall will be the loss of confidence in the currency.
“So then, how much further could the euro fall? Could it go all the way to parity with the dollar? Most certainly. But before that point, we will likely see many waxing and wanes of each side of the currency pair.”
Bill’s call for euro-dollar parity is not new; he made it during one of our editorial meetings last summer. Since that time, the euro has melted down from $1.50 to $1.35. A move to $1.30 will position his Master FX Options Trader subscribers for some handsome gains very soon.
If you want to profit from the “waxing and waning” of the euro and the dollar, Master FX Options Trader is just the thing. Here’s where you can join.
The mountain where U.S. Olympic skier Lindsey Vonn won gold on Wednesday may well go into foreclosure next week. The Whistler Blackcomb resort is owned by Intrawest, a firm bought by the private equity outfit Fortress Investments in 2006.
Intrawest’s lenders have set a deadline of a week from today to cough up a $500 million interest payment due two months ago. (The original deadline was today, but yesterday the lenders agreed to an extension.)
|
|
Standing on shaky ground…
“Debt can make good investments bad investments,” observes Chris Mayer. “Save for the debt issues, Intrawest could probably just ride out this cycle and wait for better days. Not now.
“The lesson is also that investments make sense only in the context of a full cycle. The private equity deal for Intrawest only worked if Intrawest could sell condos at then market rates. As we all know now — and some of us knew then — it was a frothy real estate market. No deal should’ve depended on that continuing.
“I remember Intrawest fondly… It was one of those situations where in Capital & Crisis we had a clearly undervalued asset. Fortress agreed and bought us out. We made 71% in 490 days, from April 2005-August 2006.”
This morning, Chris issued his Capital & Crisis readers a four-part action plan for how to invest in a world that looks a whole lot different than it did back then. For access, go here.
“Anecdotal reports seem to show the Chinese Panda as one of the most counterfeited modern coins,” a reader writes in response to our exclusive offer on government-certified first-strike 2010 Silver Pandas.
“While beautiful, perhaps striking, even the ‘good’ Pandas will come under suspicion by any buyer. That’s why I have avoided buying them, though I find the designs very nice. I just don’t want to buy something that might be hard to get rid of when the time comes, because of all the fakes around.
“Given the aspersions on the coin, and the widespread availability of the fakes, I think it’s irresponsible to promote them.
“Since you are undoubtedly getting a piece of the action for promoting them, perhaps you won’t want to run this letter. I just hope you aren’t enticing your readers into making a mistake. A delightfully attractive mistake, given the design of the Pandas, but from an investment perspective, a mistake, nonetheless.”
The 5: We brought up this issue with First Federal before we agreed to offer these coins. And after looking into it ourselves, we’re convinced this is old news.
The counterfeit scandal dates back to 2006, and the whole coin landscape has changed since then. For instance, demand for collector-grade coins in China has become so intense, the major coin-grading agencies have opened Chinese offices. That’s a huge check and balance on the counterfeit problem right there.
Further, we’re not talking about the garden-variety issue here. We’re talking only 2 ½ percent of the entire mintage that’s government-certified as first strike. The Chinese government has never — repeat never — done that before.
Our friends at First Federal obtained the worldwide exclusive rights to these government-certified first strikes and submitted them to PCGS, one of the two major grading firms. (Want to avoid counterfeits? Make sure the coins are graded by one of them.) The coins that came back flawless – MS 70 – are the ones we’re talking about here.
So that’s a number of layers of protection you have. PCGS stands behind the coins. And First Federal’s been in business for 25 years. It’s not some fly-by-night “Power Seller” on eBay. We only want to do business with the best, and we looked long and hard for a reliable partner to present you with offers like these.
Again, First Federal has set aside these government-certified first strike Silver Pandas exclusively for Agora Financial readers through next Wednesday, February 24. We expect them to go fast. So it pays to move fast.
Late-Breaking Update: Last we checked, 40% of the entire inventory has already been sold. We had to double-check those figures – after all, it’s just 24 hours since we sent out our first invitation to readers. But the numbers all check out. So we expect the rest to sell out long before the offer expires next week. To make sure you get yours, here’s where to go.
“Thank you for taking notice of my cry for help in my ‘I don’t get it…’ post,” writes a reader following up from yesterday. “I agree with your reply. I must confess that I do get a bit overwhelmed by all the opinions, and in all the noise, I do miss some of the details.
“But I must correct you about my not being a Agora customer. I am an EXTREMELY HAPPY Resource Trader Alert customer, auto trading the RTA alerts via one of your preferred brokers. Riding the RTA train has been bit like riding the Polar Express with the wild swing of the commodity markets. But with Alan Knuckman driving the train, all is well!
“Alan’s trades have saved one of my accounts from utter peril under the guidance of others to amazing profits in just a few months that are worth bragging about to anyone that will listen.
“I’m also a new Lifetime Income Report and Penny Stock Fortunes subscriber and am in the process of moving funds around to take advantage of some of the tempting opportunities that fit my long-term investment needs.
“Lastly, I’m taking advantage of the 30-day trials of Strategic Short Report and Mayer’s Special Situations.
“Bottom line: I’m blown away… I’ve never had access to such timely, detailed and insightful research. THANK YOU!
“In the end, my cry for help comes from the contrast between the detailed, motivating weekly news letters, alerts and reports and the paralyzing, game-changing, daily news coming from The Daily Reckoning, The 5 Min. Forecast and Whiskey & Gunpowder.”
The 5: Thank you for the compliments. Although we’re going to leave it to a longtime reader for the final word:
“Read the ‘depressing’ comment by a reader, who didn’t know what to do or why to invest since the world is falling apart.
“LOL. As you guys have described me earlier in an e-mail about a year ago, I’m a ‘fatalistic optimist’; yes, the world is falling apart, yes I’m going to die, yes countries will crumble, yes markets will crash… but that doesn’t stop me from living my life, making more money and creating more wealth… rather, knowing that its all going to end gives me a real boost to have a blast!
“Why Agora Financial? One, they are funny. Two, they are nutty. Three, they are dotty. Overall speaking, they are honestly funny (honest and funny people).
“And I forgot, Bill Bonner is probably the best in giving the global governments ‘poetic, artistic and intellectual frosty-nosers.’ So Agora offers a different perspective of economics, relative truth, art and more than a bit of fun… what’s not to like?
“But if you take Agora’s investment advice at face value and expect things to work out, then you’ve probably been making the same mistake for the past decade… take responsibility for your investments!”
Have a good weekend,
Addison Wiggin
The 5 Min. Forecast
P.S. To help you do that, for a brief time, you can snag six months of free access to our most expensive service. Its picks are already up 18% on the year. Here’s where you can check it out