Tuesday Morning

Hillary Clinton is keeping the dollar down.

The ongoing, unresolved battle between Clinton and Obama has gotten global currency traders to think McCain is less of a sacrificial lamb being thrown a bone by a hopeless Republican party (a la Bob Dole) and more of a viable candidate who will continue the disastrous American policies of the past 7 years.  This has caused the dollar to languish at it’s all-time lows as both Bush and McCain keep pushing their Iraq Forever rhetoric.

We can’t afford this war people, we NEED to move on, not redouble our efforts in order to win whatever it is we are in there for this week (I think now it’s got something to do with Al-Queda, who Saddam used to keep out of the country with great efficiency for MUCH less than $5Bn a week).  It had been assumed by our creditors that the Republicans would be out the door in January and that the Bush tax cuts would fall by the wayside and the $250Bn a year war would wind down and America could get back on its feet but the still-unresolved primaries have put the spotlight on McCain’s insane "MORE TAX CUTS" proposals and are spooking international investors away from the dollar.

When somebody already owes you $10Tn (our current debt) and is running their business with a $200Bn annual deficit and running another $250Bn annual war expense "off budget" you tend to get concerned about their ability to pay.  Then you hear they are giving away $168Bn, which translates to $600 a person to "fix" the economy and the first question an intelligent creditor will ask is "Is there perhaps someone else I can talk to?" 

Fortunately our elections give our creditors some hope that we can get our fiscal house in order but (and I wish I were joking) John McCain is not beaten yet and he is proposing (drum roll please) $650Bn PER YEAR in ADDITIONAL tax cuts "much of it benefiting corporations and upper-income families."

I try not to discuss politics during the week but THIS is the most important thing happening in the markets folks.  In other countries this headline reads – US to plunge another $2.6Tn in debt by 2012 if McCain is elected – that’s not what we need right now.  The dollar bears are seizing on this looking to break us down below 70, which will add another leg to the commodity "boom," possibly pushing oil over $120 a barrel if nothing is done about  it.  With Obama and Clinton fighting each other and splitting loyalties, McCain looks like a viable candidate in the polls, no matter what kind of crazy things he says.

We have to keep a close eye on the dollar and the price of oil as we are reaching a tipping point which poses the danger of making our recession a very firm reality, no matter what happens in Q1 earnings.  It does not do US corporations any good to make 10% more than last year when the dollars they earn are worth 15% less than last year!

The markets were mixed over in Asia, with the Nikkei giving back 148 points but holding 13,500 while the Hang Seng came back from an early sell off to gain over 400 points after lunch, finishing up 217 on the day.  The Shanghai Composite held the line at 50% off their highs with a 1% gain today with PTR (who I mentioned yesterday and is up 8% today) and banks leading the charge.  Asian banks have been relatively unaffected by the mortgage crisis that is killing the US an Europe and have begun to assert themselves in the global markets.  And, with 2.86% mortgages, I say – Let them come!

"We have more than 100 trillion yen in deposits but only 70 trillion yen is lent out," says Mr. Nagayasu, 61 years old, who was appointed president of Bank of Tokyo-Mitsubishi April 1. "We have a surplus of 30 trillion yen that we could use to respond to significant fund needs" from overseas.

Europe is flat ahead of our open, shaking of news that RBS is raising an additional $24Bn to help them swallow the very bitter pill that was ABN Amro.  Meanwhile, over at UBS, they are trying to blame their entire $37Bn in write-downs on a single guy while Societe Generale’s "rogue trader" is filing suit in a Paris court claiming he is the victim in this scandal – such fun!

Our markets are looking mixed at the open.  In keeping with my last night’s theme that analyst is just another way to spell "clueless,"  MCD, anoher company that is followed by over a dozen "professionals" managed to sneak an 11-cent beat (16%) and modesty prevents me from mentioning how perfectly I hit this one in yesterday’s comments and our LTP position is right on the money as well…

Fuel prices are, of course, hitting the airline stocks but T turned in a nice quarter and I’m still liking the overall markets but we still need to hold the levels we were watching yesterday so let’s be careful out  there!