How about those wily veteran central bankers? They all got together and decided to cut rates. The Reserve Bank of Australia (RBA) went first with their 100 BPS cut, and opened the rate cut sea for the rest of the central banks around the world. The European Central Bank, The Riksbank (Sweden), Swiss National Bank, Bank of Canada, Bank of England, and the Bank of China all lined up at the rate cut table. The Bank of Japan, The Norges Bank (Norway), and Reserve Bank of New Zealand did not participate.

The Bank of Japan doesn’t have any rate to cut, The Norges Bank will wait until their regularly scheduled meeting on 10/15, and the RBNZ believes that they have taken their toxic waste bond flu shot.

RBNZ Governor Bollard said last night… “New Zealand banks have high-quality assets.  Fortunately they do not have the poor quality assets that have proved so damaging overseas.” Boy… Given what happened after the European Union’s Finance Minister put his foot in his mouth, pointing a blaming finger at the U.S. and putting the EU’s fortunes above those of the U.S., only to see the walls crumble down all around him, RBNZ Gov. Bollard, might want to talk low, talk slow, and don’t talk much at all!

That’s a famous John Wayne line… Just had to use that when I saw it on the Bloomie this morning!

So… The currency traders around the world, stopped when the rate announcements were made, to check the pulse of the markets. At first, we saw calm… But then, traders and investors began to say, “Uh-oh! Maybe things are worse than we imagined if central banks around the world are cutting rates”… So, getting back to the theme I talked about yesterday – where if it looks bad for the United States, buy the dollar, and if it looks good, sell the dollar – we saw the currencies go back and forth… But overnight, calm seems to have settled in, and keeping with the “theme”, that means a weaker dollar.

The stock markets of Asia and Europe have generally been stronger, which could lead to a tourniquet being applied to the U.S. stocks… And again – keeping with the “theme” – that would spell a further weakening of the dollar.

This isn’t rocket science; it’s just what I see happening in the currencies right now. It’s like looking into the mirror, as everything is opposite; but that’s what’s happening right here, right now!

G-7 ministers meet this week, starting tomorrow, I believe. U.S. Treasury Secretary King Henry Paulson, held a press conference yesterday afternoon, and in my opinion, effectively kicked off the G-7 meeting. King Henry was particularly focusing on the coordinated policy moves. I would think we could expect more of these kinds of global policy maneuvers going forward.

I’ll tell you this… It’s my opinion that the coordinated rate cut didn’t do what the central bankers had hoped it would do. And that is, unlock the seized up credit markets… But, you can’t blame them; the central bankers are using whatever they have at their disposal to deal with this global mess.

Speaking of messes… It was reported this morning that Kaupthing Bank, the largest Bank in Iceland, has fallen, as the government seized control. The currency CAN’T EVEN TRADE AT SPOT! That means immediate cash isn’t available, folks! This is very serious stuff! Somebody expressed dissatisfaction with the price we received in the market the other day at 171. Yesterday, the last spot trades were done at 259! UGH! A foreign exchange dealer at Nordea in Copenhagen said, “Effectively the krona can’t be traded at the moment because there are no banks to clear the trade.”

Hopefully, that situation will be fixed quickly, and currency transactions can be cleared again, at least for spot… Oh… And that peg to the euro (EUR) that the Governor announced on Tuesday? It was dropped yesterday, because the peg to the euro at 131 could not be defended. Trades were going off at 340 krona per euro. It’s a bad situation. Hopefully, a white knight will step in to help here… Unfortunately, banks around the world (except the few mentioned above) have their own problems to deal with right now. Russia made a big loan the other day, and with Russia swimming in cash from oil, maybe they could be the white knight.

Aussie (AUD) and New Zealand dollars (NZD) saw some love last night for the first time in what seems to be a month of Sundays. I wouldn’t put too much into a one-night stand for these two. Yes, it’s true that they have been beaten up too much and look oversold to me, but that doesn’t mean the markets see it that way. We’ll have to see if more than a one-night stand is in the cards for these two.

One thing keeping a lid on any big time rally for these two, especially New Zealand, is the fact that the Japanese appetite for anything offshore has gone away. Recall that I told you several times over the years that the Japanese loved to sell their currency and buy kiwi (and Aussie)? Shoot Rudy, they would even issue Japanese bonds issued in kiwi!

With the Japanese appetite for anything offshore going away (at least for now) the financing of the U.S. Current Account Deficit comes back into the worry picture. Recall, that the Current Account Deficit needs about $2 billion per day in foreign investments to keep it properly financed. And if the Japanese are slowing their offshore investments, that means the United States, too – not just New Zealand and Australia!

Pages: 1 2

Pages: 1 2