The Canadian dollar - aka the “Loonie” has recently achieved parity with the US dollar for the first time in over 30 years. It’s getting a little tiring to keep providing all these anecdotal comparisons to the 70’s period of stagflation, but you can add this one to the pile. No offense to my Canadian friends, but this situation is Loonie.

And to make it worse, my favorite Canadian couple told me this story today:

Andy and Sharon visited the Washington coastline this past week and were short on greenbacks when they came across an historic lighthouse they wanted to visit. Apparently, the fee was $2.50 USD per person and they asked whether the cashier would accept Canadian dollars. Not only was the answer no, but the American cashier had no clue what the exchange rate was. Remember - Washington state is very close to Canada so it’s not like it is unreasonable to expect we might get a few Canadian tourists there. But no, it was just too confusing. One more thing, Andy and Sharon offered to pay $10 (CAD) in which case the lighthouse would have made a 100% profit over a couple paying with greenbacks. So how much did the lighthouse operator make from Andy and Sharon? Zero.

Okay - so it’s just a little story. But we need to start thinking a little more about our pompous attitudes in this country. If you’ve ever traveled abroad and in Canada or Mexico for that matter, it’s always been easy to pay for things in US dollars. In fact, you can visit many countries around the globe and slip them a buck and they are happy to take it. But when it comes to our merchants having enough sense to do it, it’s beneath us to even take the time to come up with a policy, even if we are located near to Canada.

It’s a bit funny actually. I can still remember feeling like I was ripped off as a kid when I got a Canadian coin as change. The dime looked like a dime, but it was not worth a dime. Same with the nickels, pennies and quarters. Too bad I didn’t hold onto those coins, they would actually be worth more today than my own currency.

Our currency is in trouble and the Fed’s actions are making it worse. But that is a complex topic being handled by complex people and I am but a simple person looking at small stories about lighthouse tours. Sorry, but I feel like I am in a Loonie Bin.

Last week, there was massive and broad-based technical damage done to many interest rate sensitive stocks.  I saw a bunch of 5% to 10% declines in individual stocks while the associated ETFs had only minor moves.  This divergence is very troubling.

I rarely comment on things like this unless a situation is so dramatic that it biases my signal work. As I go through the technicals and can recognize what industry a stock is in solely because of a familiar chart pattern, it’s very rare and it’s worth mentioning. By the end, it becomes a game for me to see how many I can guess correctly before even looking at their symbol.

But losing money is no fun and it’s not a game, so please pay special attention to the banks, REITs and Utilities. I was a bit surprised to see the weakness given the Fed’s reduction to rates and the market’s supposed belief that they are committed to more cuts.  The media keeps suggesting that the financials have bottomed and there is an abundance of investment managers who support that view.  However, last week’s action was highly inconsistent with optimism for financials and I strongly recommend that you pay close attention to what is happening rather than what people want to happen.

For the past week, I have received several text messages to my phone from a publicly-traded corporation that dominates its industry. The message informed me that someone named McIntosh “has an overdue (insert company name here) rental. Please contact 317-897-XXXX and reference contract #223205.” Obviously, my last name is not McIntosh and for the record, I have not rented anything from this company for a few years.

So, I thought I would call the phone number in the message and do my good deed for the day to notify them that they have a wrong number and might need to track down their overdue equipment by some other method. Additionally, I wanted to ask them to stop sending me their messages. The phone rang an unbelievable number of times, the worker who answered the phone was incapable of understanding their error, the assistant manager told me I was unprofessional and apparently offended by my request to not receive any more messages, he said he would not guarantee the messages would stop, he refused to allow me to speak to his manager, to give me his name, to give me his manager’s name or contact info.

Overall, this one goes down in the “No Good Deed Goes Unpunished” category. So why the rant? I just wanted to point out how poor customer service has become in America. When someone who is not even a customer can be treated as poorly as I was this afternoon it is beyond bad. One of the longstanding business maxim’s used to be “The customer is always right.” I guess since I wasn’t the customer who has failed to return their equipment, this organization didn’t need to treat me well even though I was going out of my way to do them a favor. With service like this becoming more common, it should be no wonder that America’s businesses have become less competitive.

I am not naming the company because I don’t want to give the impression that you should not do business with them. In fact, I have a very favorable opinion of this organization. However, the bigger issue is this: CONSUMERS SHOULD NOT TOLERATE BEING TREATED POORLY BY SERVICE PROVIDERS. If you have a bad experience, you should take the time to communicate with senior management so they have the opportunity to address organizational behavior that is not consistent with their culture.

As for text messaging, if companies are going to use technology to improve their operations, they have an obligation to make sure they get the phone number correct. Moreover, if they fail to stop the messages after being told of their error, I consider that intentional harassment.

While I was researching for my previous post, Were Private Equity Deals Overpriced? I typed “Private Equity” into the search tool (left margin at the bottom) and read through all my previous comments on the subject. There’s a bunch of good stuff in there if you are interested in looking back. But this one really stood out and I wanted to repeat it in its entirety. Note that I wrote this in mid-January when it wasn’t so nice to question Private Equity deals or LBO financing. Here’s what I wrote back then in a post called:

Barbarians at the Turnstile

Private Equity this, Private Equity that…it’s a slow news day in the markets unless we can overload it with talk about firms like Carlyle, Blackstone, Bain, KKR, et al. I think every angle has been covered to the point of overkill about the equity side of these transactions. But one thing that I want to see a show or print story on is the debt side of the buyout mania. After all, access to cheap debt is the fuel that is feeding this fire. You can talk all you want about the hundreds of billions in cash that has been raised by Private Equity firms but since many of these deals rely upon loading the company with debt at 3-to-1 ratios, I want to hear about the lenders. So I am challenging the tv and print guys that read my stuff to do this part of the story some justice. I don’t want to see another puff piece about how wonderful these deals are for the market. I want to hear some tough questions about the exposure of banks, pension funds, insurance companies, state agencies, etc. that are holding this paper. Are underwriting standards being maintained or is the money too easy? What are the yields, maturities, covenants, and other terms of financing the debt? What are the risks associated with rising interest rates? When and if these companies start to have difficulty meeting their debt obligations, I expect there will be a lot of whining from the same crowd that is desperate to get in on the action today. After the LBO craze of the 80’s, it was real easy to blame things on Milken and the barbarians at the gate. But unlike a gate which opens and closes, this story is more like a turnstile… it just keeps coming around. Hopefully we are getting it right and it will be different this time!

Before July, there was a lot of discussion about whether Private Equity was paying too much for the deals that were largely responsible for pushing the market higher.

• Of course, the targets holding out for higher competitive bids said “NO.”
• Of course, holders of the shares who were not previously willing to pay the takeout price in the open market but got a 30% bump on the deal said “NO.”
• Of course, the companies in the same industry whose stock benefited from the speculative premium said “NO.”
• Of course, the Permabulls who saw the markets rise on this liquidity said “NO.”
• Of course, the banks who were financing these deals and collecting huge fees said “NO.”
• Of course, the legal advisors who were charging by the hour said “NO.”
• Of course, financial analysts and investment managers who were called on for their opinion sounded smart and said “NO.”
• Of course, the Private Equity firms said “NO.”

Back then, I took some criticism for suggesting that they were overpriced, but it really didn’t matter as long as the deals could be repackaged and sold by PE for an even higher price. So much for being a realist!! It was almost sacrilegious to criticize Private Equity deals. Most financial “journalists” were falling all over themselves to praise how smart Private Equity was. I guess they were afraid they might not get invited to the lavish parties or miss out on getting interviews. For whatever reason, almost everyone was convinced the pricing was not only fair, but it wasn’t too much. Often times, they went so far as to say that the Private Equity firms were just so great at operational improvement that they could fix these companies and optimize their capital structure to prove that the deals were not overpriced. Whatever!

So now that we see these same deals having trouble getting closed, what do we know about the pricing? Home Depot? Harman? Etc. Etc. It was a farce to say there was not excessive pricing going on in most of these transactions. Many of these people were either lying or stupid. Now that liquidity has reduced and the banks are struggling to sell this debt, suddenly the bargains aren’t so bargainish. And yet, if and when Private Equity deals come back, we’ll once again be told that they are not overpriced. Chances are the same people will be asked to comment again and even better yet, the market will agree with them.

At least at HEDGEfolios, FREE means FREE! A new subscriber asked me whether the trial was free or whether a paid subscription gets you one month free. I appreciate hearing from you when I am not clear enough on these issues or anything else. So the answer is:

The trial is free. Unlike some other sites, I do NOT expect that you should pay to try out the HEDGEfolios database. When you register here, you are not required to provide any payment or any credit card information. At the end of the free month, if you like it then you are asked to pay for subsequent months. If you don’t like it, you are not out any membership fees. To me, that’s free. And one more thing, if you decide to pay before the end of the free trial, any unused days are not lost. Your first payment lasts until the end of your second month following the registration.

I find Greenspan and his book tour to be entertaining, but not encouraging. To be honest, I really don’t care what he says one way or the other about the economy or his successor or what Ben should do or not do. There is so very little difference between what Ben has done and what Greenspan used to do that I don’t know why it matters. On the other hand, I wonder what Paul Volcker has to say about all this mess. At least he has a relevant perspective on not being a tool during tough challenges for monetary policy. I’d love to hear him comment about the need to protect the dollar, fight inflation, deal with credit crises, etc. Here is a Bloomberg piece from 2 years ago. Reading that you might think Paul knew what challenges Ben would face, but I’d much rather hear what he has to say now.

Please click on this link of the 30-Year Mortgage Rates. When I look at that chart, I wonder how bad our economy really is. If we have so many borrowers in trouble of defaulting on their mortgages and going into foreclosure when rates are at these historically low levels, things must be really bad. I could see if we had 30-year mortgage rates at 10% or above 15% like several of the other recessions (shaded areas), but it’s tough to imagine having trouble at 6.42%. It’s easy to get focused on the subprime problem or general mortgage crisis and limit the concerns to just housing. But when I look at the historical chart, I worry more about what this means for consumers. You cannot have it both ways and say the spending data suggests the consumer is still strong while we have so many homeowners who cannot afford a 30-year mortgage at 6.42% much less a 15-year at 6.1% or a 5-year ARM at 6.15% or even a 1-year ARM 5.6%. The reality is that homeowners are in trouble with their mortgage because they are in trouble with all other aspects of their consumption. Millions of people are living from paycheck-to-paycheck and credit card-to-credit card in this economy. It’s not just the mortgage.

Usually, someone is ridiculed in a gentle way by saying “they aren’t the sharpest tool in the shed.”

You cannot say that about Chairman Bernanke. He is extremely intelligent. So, in this case, I am going to call him “The Sharpest Tool In The Shed.” But after reviewing the entirety of his actions lately, his leadership of the Fed and the response of the markets - it is clear, he is a “TOOL.”

That’s a harsh statement. I know. Calling someone a “Tool” is a derogatory term. Without a doubt. Don’t confuse me. I am not being sarcastic. I mean this in a very disrespectful way. I rarely call people names, but in this case, I feel it’s warranted and accurate.

He allowed himself to be used as a TOOL of the politicians like Sen. Schumer (D-NY) and Sen. Dodd (D-CT) et al.

He allowed himself to be used as a TOOL of the equity markets.

That’s the way I see it. The Fed’s independence from political and equity market pressure is critical for the confidence of financial markets and true free market capitalism. I had great respect for the institution despite the Greenspan era and had hopes that Chairman Bernanke would not become a TOOL.  I have lost the admiration.

The Discount Window is still open, but then again, it always is open. Banks just hesitate to use it. In the month and a half following the Fed’s first drop in the Discount Rate, the actual borrowing has been much less meaningful than the hype. I guess Ben has learned from the stock market guys how to manipulate market psychology.

The new H.4.1 report shows that average borrowing for last week was only $88 million and Wednesday’s ending balance is back to zero. To some commentators, this decline has implied that the credit market crisis is over. So why the hell do I keep doing these monthly updates? I don’t believe it’s over.

Using the Discount Window activity as a measure of banking trouble is useless. There were zero borrowings before the Fed acted in mid-August. Except for ceremonial support of the Fed by the four biggies, there were zero borrowings at the peak of the crisis. When the discount window was finally tapped in the week before the second rate cut on September 18th, the loans quickly went away. Now, that we are back to zero it’s a challenge to figure out what all those zero’s mean. What did 0,000.00 mean before we knew there was a crisis and DOW was 14,000? Answer: Zero. What did 0,000.00 mean when the crisis was so extreme that Ben needed to screw the shorts with his well-timed dramatic cut to the Discount Rate? Answer: Zero. What does 0,000.00 mean today? Answer: Zero.

So now that the real financial journalists have decided this story is not exciting enough to waste their time trying to confuse the issue or spin what it means, I will continue. However, unless there is something meaningful to say, I will just have a one line summary that says, “The Discount Window had Zero borrowings again this week” and a link to the report. Just remember, it means ….Zero. I point this out so the next time the media decides to overemphasize what this report tells us, you’ll know they have no clue.