Forex

Thursday morning the U.S. Retail Sales numbers came out and showed that the consumer has slammed their wallets shut. The overall Retail Sales number came in at -0.6% vs. +0.2% expected. The Core Retail Sales came in at -0.2% vs. +0.2% expected. So you can see that it’s not looking good.

But why should it? We’ve had two back to back monthly losses of jobs (-22,000 and -63,000 respectively). So the jobs situation is getting worse. So even those that still have their jobs are leery that their “necks may be on the chopping block” next. So who spends more when jobs are being lost all around them and desks and cubicles all around them are emptying out.

Now back to the Retail Sales data….

As Gas and other Energy prices soar, consumers retreat to the “needs” of life and away from the “wants” of life.

Losses were particularly noted in automobile sales and in restaurants. Of course when, gas prices just hit an all time high the consumer feels a “tax” that they can’t get away from. Ever increasing fuel costs means “ever lessening” money in their pockets for other things. You have to “trim the fat” somewhere. So you start with the extras of life…like restaurants.

Just months ago when I frequented restaurants, the lines were still long and the places were packed out. Now as I go out to eat, I’m noticing the lines aren’t that long (if there’s a line at all). Now that’s bad when you live in a metroplex of 5.5 million people.

So the biggest job losses in five years and “never seen before” record highs in fuel costs are eroding consumer spending…not to mention the consumer confidence.

In fact, Consumer Confidence figures are at “recessionary levels” too. So the consumer is not feeling good about the economy. So this has put them in “defensive” mode (to save and cut back) rather than “offensive” mode which would be to spend.

As the recession steam rolls over the dollar, commodities soar and stocks plummet.
So as result of all of this, it has thrown the dollar into recent lows not seen in well over 30 years. The dollar hit parity (100) to the yen overnight on Thursday. The slumping dollar pushed practically everything up against it that’s priced in dollars.

Gold hit a “never seen before high” that day of $1,000 an ounce. Wow! Oil just hit $111 a barrel. The euro hit yet another all time high of 1.5624. Food prices continue to soar as well.
Now where’s that crowd that says “the falling dollar doesn’t affect me if I just live in America and don’t go outside of America to exchange currencies”? They’d better take a look at the gas pump or take a trip to the grocery store or take a glance at $1,000 an ounce gold. I think any of these would affect an American that never even left its borders. They were all brought on by a falling dollar (among other things).
As I’m writing, the Dow can’t even seem to hold 12,000. The Nikkei in Japan plunged over 400 points overnight. So you can see that the world is being hurt by a slumping U.S. economy too.
The Fed will cut rates this month, but it still takes time for an economy to recover.
So you can bet the Federal Reserve will cut rates on March the 18th probably by 75 basis points. They see the stock market slumping and their latest “tactics” didn’t seem to do the job. In fact, banks aren’t convinced either. They’re still tightening credit as they cope with their losses. This very same day data came out that shows that bank repossessions DOUBLED over just last month.
So it’s going to be chaotic for a bit longer to say the least. Economies don’t turn around on a dime. I wish they did. They are like slow turning ships and not like speed boats. These things take time no matter what “rabbit” the Fed pulls out of its hat.

Carry Trades and the Buck will continue to bite the dust in the near term.

So in the mean time, the carry trades will continue to suffer…predominately EUR/JPY, EUR/CHF, GBP/JPY, etc. Also, the dollar will more than likely continue to slump until the “pain threshold” gets great enough that central banks around the world want to collectively join together and sell their home currency and buy dollars to support it and turn it around.

These ‘collective” interventions have happened occasionally though the years and it may be time for yet another one.
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