Happy Tax Day!

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By Mike Conlon | April 15, 2011

OK, not really. Do you know where your money goes? Well I certainly don’t, and while I am not happy about having to write a big check, at least this means that my trading has been successful. Many Americans are in the same boat, and are disappointed by the lack of stewardship coming from our politicians.

Today the House will vote on the Republican budget plan, but it is DOA in the Senate so let the negotiations begin. Major reform is necessary but very unlikely to take place. I would advocate some sort of polling system, where taxpayers could “allocate” their tax dollars to areas that they feel are important. Take the corrupt politicians out of the equation.

One place where they don’t have to worry budget deficits is China, who reported overnight 9.7% GDP growth. This is an amazing figure considering the state of the global economy, however the reported 5.4% CPI data shows that inflation is still a problem there, which could mean further rate hikes which could potentially slow economic growth for the periphery that depends on Chinese growth. Perhaps it has something to do with the $3 Trillion dollars in currency reserves that China holds, all thanks to their currency peg.

In the Euro zone, Irish debt was downgraded, Greek debt may need to be restructured, and CPI came in a little hotter than expected.

Meanwhile the US Fed continues to deny that inflation exists here in the US, and today’s CPI data will likely prove their point. I guess if the price of things that nobody cares about continues to go down, then it is acceptable to have $4 gasoline. The intellectually dishonesty is sickening frankly.

So stock are set to open lower, and commodities have pulled back some as there is risk aversion to start the day.

In the forex market:

Aussie (AUD): The Aussie is lower as China is the largest importer of Australian raw materials and if the Chinese raise rates to slow inflation than that could affect Aussie exports negatively. (Click chart to enlarge)

Kiwi (NZD): The Kiwi is actually trading mostly higher as the expectation of rate hikes and a higher rate differential after the emergency cuts the RBNZ made to provide relief from the earthquake, may have stoked inflation.

Loonie (CAD): The Loonie is mostly lower as commodities are pulling back on the threat of a potential Chinese slowdown. It has long been rumored that China is the driver behind the recent oil price spike. More US Fed subterfuge if you ask me.

Euro (EUR): The Euro is lower across the board as the Irish debt downgrade and the possible Greek debt restructuring is being the debt crisis back into to focus. Ignoring this won’t make it go away, so some concrete plans could allay market fears, especially if the ECB is going to continue to raise rates.

Pound (GBP): The Pound is also lower as the UK’s close ties to Ireland are helping to weigh on Sterling. With no news out of the UK today, British prospects are looking up when compared to the others.

Dollar (USD): The Dollar is mostly higher on risk aversion and CPI data came in slightly higher than expected, showing inflation at 2.7%. I don’t want to get into the headline vs. core debate, but it is clear that the Fed is intentionally trying to avoid the reality. Stagflation, here we come!

Yen (JPY): The Yen is strengthening as carry-trades are being unwound due to the threat of a potential Chinese slowdown. (Click chart to enlarge)

When both monetary and fiscal policy in a country is deplorable, it makes no sense to invest there. Yes, I am talking about the USA. Politicians can debate the ideology back and forth, but at the end of the day the lack of leadership is truly striking.

Enter the Fed, who will some claim to just be stupid and not malevolent with regard to the way that they do things. In the meantime, hardworking Americans will continue to do their patriotic duty and send in their taxes, so politician/celebrities can fly around on private jets and make policies that nobody wants or needs.

So Happy Tax Day! I hope you are having as much fun as I am!

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