And Now, the Hard Part
By Jon Nadler
Change came to Washington on this cold January Tuesday. As the noon hour ticked over to 12:01 pm, the "Under New Management" sign might as well have been unfurled above the White House's main entrance in Washington. The first such sign came from the www.whitehouse.gov website, which underwent an instant transformation and today's agenda section was led by a simple but bold entry titled: "Economy." America's new leader appears to be fully cognizant of the priorities facing him at this juncture. A tough road lies ahead. Confidence and unity will be indispensable.
This is not to say that the stock market greeted the changing of the guard with a display of confident fireworks. In fact, the Dow sank to under 8,000 and shed 315+ points - mainly on concerns about the global recession and the difficulties manifest in the banking sector. Then again, looking at the US dollar's 1.34 point rise on the index as well as against the pound and the euro, one might likely conclude that perhaps the greenback's rivals have larger hurdles ahead of them. Cutting rates is fast-approaching a dead-end and the next step will be the acquisition of assets by various central banks. Welcome to global(national)ization.
Showing signs that its problems are more severe than those of the US dollar, the British pound took a pounding that left it at a seven and a half year low of $1.3915 against the greenback, and at a record low of 125,62 versus the yen. Worries about the state of the financial sector and that of the domestic economy helped drive the currency lower overnight, amid indications that a second bank bailout and the quasi-nationalization of the Royal Bank of Scotland were in the works. The Bank of Canada joined the race towards zero, offering up an interest rate cut of its own, easing to 1% with (possibly) more to follow. That's as low a rate as we've had since the creation of the BoC in 1934, and it is now in place obviously because the economy is doing just plain lousy.
Risk aversion was therefore manifest among investors once again. Guru Jim Rogers urged them to sell "any sterling they might have left." Apparently, the pound can be broken without any Mr. Soros trades, of late. Investors are leaning towards the few currencies that have trade surpluses acting as a cushion underneath them: the Swiss Franc, Japanese yen, and the Norwegian Kroner are the prime beneficiaries of such a quest.
Crude oil prices initially slipped to under $33 per barrel, on a combination of another surge in the US dollar, evaporating demand, rising inventories, and the upcoming expiration of the February contract. The latter subsequently turned into a short-covering stampede as participants danced the 'contango tango' and loaded up on the contract before expiration. Black gold popped much higher during the afternoon hours, reaching back towards $39 per barrel. This comeback helped gold prices maintain a good part of their early gains and it, in turn, reached highs at near $858 per ounce as uncertain participants tried to gauge near-term direction for the precious metal in the wake of the dollar's surge and darting oil prices.
At the end of the day, economic worries continue to dominate the investment scene globally, and many a trader and investor will be looking to Mr. Obama for clues to the future, as he now takes the helm of the severely listing US ship. Will he be better able to unite the country and to lead it on a stable course, following the 42 white men who came before him? Expectations are running high (at least) on the economic front following the Bush administration's worst jobs record since WW II.
More nervousness in gold as well as in other markets will surely be on tap for the next several sessions, and perhaps for months. While it was encouraging to record a day on which gold rose in tandem with its main rival (the dollar), the very long-term bear signal given in the wake of last October's decline to $736 per ounce is (at least in the view of market technician Merv Burak) very much in place, so long as gold struggles under $925 per ounce. Silver, platinum, and palladium were not quite as fortunate as gold was today, shedding 6 cents, $10 and $2 respectively, and they were quoted at $11.16, $939 and $183 per ounce. News that FIAT will take a 35% ownership stake in moribund Chrysler (for no cash!) was offset by Toyota's first decline in annual sales in nearly a decade and weighed heavily on the automotive demand-dependent noble metals.
In case you did not have a chance to watch or listen to Mr. Obama's inaugural speech, we have isolated several statements that our readers may be specifically interested in. While we (and history) will only be able to judge these words as having been prophetic or naive some five or ten years from now, the time to read them dispassionately is today - the day when differences are supposed to be set aside and the man that America elected given a chance to do the job he signed up to do:
"...Our economy is badly weakened, a consequence of greed and irresponsibility on the part of some, but also our collective failure to make hard choices and prepare the nation for a new age. Homes have been lost; jobs shed; businesses shuttered. Our health care is too costly; our schools fail too many; and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet. These are the indicators of crisis, subject to data and statistics. Less measurable but no less profound is a sapping of confidence across our land — a nagging fear that America's decline is inevitable, and that the next generation must lower its sights.
Today I say to you that the challenges we face are real. They are serious and they are many. They will not be met easily or in a short span of time. But know this, America — they will be met.
...We remain the most prosperous, powerful nation on Earth. Our workers are no less productive than when this crisis began. Our minds are no less inventive, our goods and services no less needed than they were last week or last month or last year. Our capacity remains undiminished. But our time of standing pat, of protecting narrow interests and putting off unpleasant decisions — that time has surely passed.
Starting today, we must pick ourselves up, dust ourselves off, and begin again the work of remaking America.
For everywhere we look, there is work to be done. The state of the economy calls for action, bold and swift, and we will act — not only to create new jobs, but to lay a new foundation for growth. We will build the roads and bridges, the electric grids and digital lines that feed our commerce and bind us together. We will restore science to its rightful place, and wield technology's wonders to raise health care's quality and lower its cost. We will harness the sun and the winds and the soil to fuel our cars and run our factories. And we will transform our schools and colleges and universities to meet the demands of a new age. All this we can do. And all this we will do.
...Now, there are some who question the scale of our ambitions — who suggest that our system cannot tolerate too many big plans. Their memories are short. For they have forgotten what this country has already done; what free men and women can achieve when imagination is joined to common purpose, and necessity to courage.
What the cynics fail to understand is that the ground has shifted beneath them — that the stale political arguments that have consumed us for so long no longer apply. The question we ask today is not whether our government is too big or too small, but whether it works — whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified. Where the answer is yes, we intend to move forward. Where the answer is no, programs will end. And those of us who manage the public's dollars will be held to account — to spend wisely, reform bad habits, and do our business in the light of day — because only then can we restore the vital trust between a people and their government.
Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched, but this crisis has reminded us that without a watchful eye, the market can spin out of control — and that a nation cannot prosper long when it favors only the prosperous. The success of our economy has always depended not just on the size of our Gross Domestic Product, but on the reach of our prosperity; on our ability to extend opportunity to every willing heart — not out of charity, but because it is the surest route to our common good.
...In the year of America's birth, in the coldest of months, a small band of patriots huddled by dying campfires on the shores of an icy river. The capital was abandoned. The enemy was advancing. The snow was stained with blood. At a moment when the outcome of our revolution was most in doubt, the father of our nation ordered these words be read to the people: "Let it be told to the future world ... that in the depth of winter, when nothing but hope and virtue could survive ... that the city and the country, alarmed at one common danger, came forth to meet [it]."
America. In the face of our common dangers, in this winter of our hardship, let us remember these timeless words. With hope and virtue, let us brave once more the icy currents, and endure what storms may come. Let it be said by our children's children that when we were tested we refused to let this journey end, that we did not turn back nor did we falter; and with eyes fixed on the horizon and God's grace upon us, we carried forth that great gift of freedom and delivered it safely to future generations."
The work beings tonight.
