Good day… And a Thunderin’ Thursday to you! It’s raining here in St. Louis, so, it must be Thursday! It’s a big night for yours truly, but I’ll talk about that at the end… We’ve got some big moves going on in the currencies and metals, so we had better get to it, and save the chit-chat for later, eh? But first, today is the funding deadline on our latest BRIC MarketSafe CD… We’ll have one more in November and then that’s it!

OK, front and center this morning, Gold has soared to another all-time high! When I turned on the screen this morning, Gold was flashing a great big $1,055 figure… WOW! But wait! OK, now that sounded like an infomercial… But wait! If you act now, you can get double the Ginsu knives! HA! OK, getting back to the original, but wait… Gold and Silver for that matter, aren’t the only risk assets moving higher this morning… All 16 of the countries that are deemed to be the biggest U.S. trading partners, have currencies that are taking liberties VS the dollar this morning…

Basically, it’s like this folks… We keep seeing signs that a global recovery is taking place, I mean, the Reserve Bank of Australia (RBA) even hiked rates this week for crying out loud! And… With those signs of recovery, come the feelings that global rates will be rising, as witnessed by the RBA this week, and with global rates rising, the yield differential to the dollar becomes even greater in favor of the non-dollar currencies.

This is quite evident, when you look out on the currency landscape and see that Aussie dollars (A$) are trading with a 90-cent handle… Brazilian reals are trading 36% higher VS the dollar since March 1st!

Why did I highlight those two currencies? Well, as has been well documented, the RBA already hiked rates and increased their rate differential to the dollar this week, with the thought that they would come back again in November for another rate hike… And Brazil? Yesterday, I saw a story flash across the screen that the Brazilian Central Bank Gov. is mentioning at least 200 BPS of rate hikes before he leaves office next year! Talk about increasing the rate / yield differential!

Yesterday, I talked to you about the euro, and explained why it had not participated with the other currencies’ assault on the dollar… Well, the Big Dog /euro got off the porch to stretch its legs and chase the dollar down the street a bit last night… The euro is trading with an eye toward 1.48…

I’m waiting for some data to print from Germany this morning before I go on… So let’s wait a bit… OK, I’m back now… Well, keeping with the theme that a global recovery is taking place, German Industrial Production rose in August 1.7% from a decline in July. As reported here about a month ago, Germany exited their recession in the 2nd QTR, posting a positive, albeit negligible, GDP… I expect their 3rd QTR to be a bit stronger, as they build on this nascent recovery.

The European Central Bank (ECB) meets this morning, in fact, they’re meeting as I write… I don’t expect the ECB to move rates, announce any quantitative easing, or anything like that… What I’m half expecting though is for ECB President, Trichet, to attempt to put a tourniquet around the dollar, to stop the bleeding… Hey! Nobody in the U.S. is fighting to keep the dollar strong, so somebody has to!

OK… I’ve explained this many times before, but for the new readers, it’s really something that needs to be understood… Look, the ECB and Trichet, know all too well that the U.S. has painted itself into a corner, and the dollar is getting punished for their actions… And, they understand that all they would have to do is talk glowingly about the euro and it would deep six the dollar in a heartbeat! But what good would that do? It’s far better to just keep the lips zipped shut, and watch a general, slow, depreciation of the dollar… So… The euro’s run to the high 1.47 handle this morning, could be at risk to what Trichet has to say… But remember folks, he’s just wrapping a tourniquet around the dollar, it’s not like he’s in love with the dollar and the fundamentals behind it!

Last night, I was doing some reading / research and came across a story that really piqued my interest… Here’s a snippet from the Bloomberg…

“Central banks are diversifying away from the dollar “more aggressively,” according to Barclays Plc, the world’s third-largest currency trader.
The dollar accounted for 37 percent of the $115 billion foreign reserves central banks amassed in the second quarter, after adjustment for exchange-rate changes during the period, compared with 52 percent in the euro, according to a Barclays analysis of data that the International Monetary Fund released on Sept. 30. That was the first time that the dollar’s share fell below 40 percent in the new accumulated foreign reserves of $100 billion or more since the euro’s 1999 debut.”

Remember, about a week or so ago, when I told you that the IMF’s currency report basically showed a move away from the dollar too…

HEY! IF CENTRAL BANKS ARE DIVERSIFYING, SHOULDN’T YOU BE DOING IT TOO?

OH! And there was this quote from Canada’s Finance Minister, Flaherty said…”We are all concerned about the U.S. dollar”…

And then there was this… Haven’t you heard about the guy, known as the Cheater? it seems every day now, you hear people say now, Look out for the cheater, make way for the fool-hearted clown, look out for the cheater, he’s gonna build you up just to let you down… Come on… We all know who I’m talking about, you know him, you love him… It’s U.S. Treasury Sec. Tim Geithner!

Yes, the man that was in charge the NY Fed, and oversaw the banks in that region, of which, most of them needed TARP money didn’t they? Any way… The thing I want to talk about is his latest statement about the dollar… Here’s Timmy! “officials recognize that the dollar’s important role in the system conveys special burdens and responsibilities on us, and we are going to do everything necessary to make sure we sustain confidence.”

Yeah, sure you are… How many Treasuries have you auctioned off this year? Something like $1.6 Trillion? Now, that will give everyone in the world a warm and fuzzy about the dollar’s future won’t it? NOT!

OK, I had better go on to something else before I get too wound up!

The Bank of England (BOE) is also meeting this morning… And after an awful set of economic reports in the past month, the BOE members are scratching their heads and wondering what to do next… They cut rates to the bone… They’ve bought toxic assets from financial institutions… They’ve nationalized a few companies that were about to go under… They spent money on stimulus packages… And they’ve implemented Quantitative Easing…

Sounds like the U.S. doesn’t it? I’ll tell you who else it sounds like… It sounds like Japan in the last decade… I hate to be the one to half to tell these dolts that none of this works! It just makes a laughing stock out of your Central Bank, and puts your currency on the slippery slope downward…

Oh, but not to worry, Tim Geithner is maintaining the confidence in the dollar… ( I guess no one told Canada’s Finance Minister, eh?)

Again, Chuck, go on to something else, and quit coming back to this!

Well… Earlier in the Pfennig this morning, I told you about the rise in the A$… I didn’t tell you that it was trading at a 14-month high, as it was reported that Australian employment surged 40,600 in September! With a print like this, I think that’s it’s almost a given now that the RBA comes back in November and hikes rates again!

Another currency at a 14-month high is the New Zealand dollar / kiwi… Remember how I’ve told you about the Reserve Bank of New Zealand (RBNZ) Gov. Bollard, and his penchant for jawboning kiwi lower? I despise him for these things, as a Central Banker, your job is to protect the value of your currency, not diss it!

Well, now Bollard has company… New Zealand Finance Minister, Bill English, has this to say… “We’re uncomfortable with it (kiwi) at this stage in the economic cycle.” You see, Mr. English is concerned that the economic recovery will be stamped out with a strong kiwi… Well, I’ve got a cure for you Mr. English… Tell Bollard and the boys over at the RBNZ not to raise interest rates, and that will do the trick! It’ll stop the speculation in its tracks! However, if the RBNZ does raise rates next month, then you have no one to blame but yourselves!

OK… Let’s get back to Gold, before we head to the recap and the Big Finish!

I did a video yesterday on Gold… And I talked about how you can go about your life without an inflation hedge in your back pocket and suffer the consequences of not only having your purchasing power reduced by the falling dollar, but having what dollars you have left eaten away by inflation… OR… you can get that inflation hedge… and put it away for a rainy day… or pull out to play it like a “Get Out of Jail Free Card” when inflation hits…

To recap… Gold has soared to another all-time high of $1,055 overnight. And the non-dollar currencies are all gaining VS the dollar on the thoughts that a global recovery will result in wider yield differentials in those currencies VS the dollar. A$ and kiwi have both traded at 14-month highs overnight… And… We could see some downside risk to the euro if ECB President Trichet decides to defend the dollar today after the ECB meeting this morning.

Currencies today 10/8/09: A$ .9050, kiwi .7398, C$ .9475, euro 1.4770, sterling 1.6060, Swiss .9745, rand 7.3440, krone 5.6545, SEK 6.9890, forint 182.75, zloty 2.8655, koruna 17.4375, RUB 29.60, yen 88.30, sing 1.39, HKD 7.75, INR 46.36, China 6.8260, pesos 13.31, BRL 1.7480, dollar index 76.03, Oil $70.23, 10-year 3.19%, Silver $17.84, and Gold… $1,055.08

That’s it for today… Have a Thunderin’ Thursday.

Chuck Butler

Source: Gold Soars To Another All-Time High!

Good day… And a Terrific Tuesday to you! A Tuesday morning that is seeing a HUGE currency rally VS the dollar on the news that the Reserve Bank of Australia (RBA) opted to go ahead and hike rates now, and not wait for November’s meeting, as I had thought they would do! WOW!

The first hike… It has opened Pandora’s Box of interest rate hikes around the world… For, if the RBA went this soon, then we can expect Norway’s Norges Bank to push their rate hike earlier on the calendar, maybe even later this month! And they won’t be the only ones! Look for New Zealand to hike rates this year, and who knows what other country (Brazil?) will follow after that… But I see them coming, and they’re marching the death march of the dollar!

OK, that was a little dramatic, while I don’t believe, although I have more doubts every day, that the dollar would collapse to nothing, I do believe it has a long way to go when it comes to weakening. How else will the U.S. pay pack their debts in the future? It sure won’t be because of a cut in Gov’t Spending! That is… Unless all this deficit spending can be reversed and Gov’t is cut (in size) to resemble something from 50 years ago! But, that’s like asking for the moon and sky, eh?

Let’s get back to the Aussie rate hike, that’s more exciting and upbeat than talking about what’s going to be needed in the future here in the U.S! The statement that followed the RBA rate hike, was very upbeat… So… I totally expect another rate hike next month from the RBA!

OK… The dollar’s weakness this morning isn’t all due to the Aussie rate hike, and prospects for other rate hikes around the world… In 2001 I wrote a white paper called, “The Demise of the Dollar”… This was the thesis for all the things I talk about almost daily regarding the reasons the dollar would got into a secular bear market… And this was one year, let me repeat that, one year, BEFORE the dollar entered into a weak dollar trend in Feb of 2002!

The reason I bring this up here in 2009, is that there is an article in the U.K. Independent that’s making the rounds, that’s called… “The Demise of the dollar”! This report though is about secret meetings with the Gulf Arabs along with China, Russia, Japan and France, and they are planning to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

Uh-Oh… That’s serious stuff folks… And that death march I talked about above? Well, if this story is true, that death march just became much louder!

Right now, however, the markets are not taking the story hook, line and sinker, just yet… Yes, the dollar has been sold, but not like you would think, if traders had taken the story to heart… I think some digestion time needs to be had first… I mean the currency traders had the first rate hike and then this story on their plates all at one meal… That’s a lot to digest! And Besides.. The Saudi Bank Gov. is denying that any of these meetings took place… Of course to conspiracy buffs like me, that’s akin to saying, “These meetings DID take place, and we’re just covering up the evidence” HA!

Now… Some might be cursing these countries right now, for dealing this rumored blow to the dollar… But, it’s not like the dollar didn’t have it coming! The Deficit Spending… For instance, is one thing that people that “know better” realize that the U.S. will not be able to climb out from under the deficit rock… And those knuckleheads who said “Deficits don’t matter”? Well… I’ve said this many times before, but I can’t talk about the Deficits don’t matter crowd without talking about how these people remind me of a guy… He’s standing on top of the Empire State Building, and decides to jump off… As he passes the 56th floor, he says… “So far… So good!”

Well, unfortunately for our “Deficits don’t matter” guy falling to the ground, the sidewalk is coming at him very quickly now…

And here’s another thing that should just tick you off to no end, but you have to think that the people that have loaned us money, are wondering if they’ll ever get paid back… What I’m talking about here is the story from yesterday, regarding the TARP funds… You might want to sit down for this one folks…

Neil Barofsky, the special inspector general for the Troubled Asset Relief Program (TARP), says that despite multiple statements on Oct. 14 of last year that these nine banks were healthy and only receiving government funds for the good of the country’s economy, federal officials knew otherwise. He went on to say that “the Treasury Dept. and the Federal Reserve lied to the American public last fall when they said the first nine banks to receive government bailout funds were healthy.”

That’s right… They LIED TO US! Now, doesn’t that just tick you off? It sure ticks me off!

So… You can see some of the reasons the countries mentioned above might be thinking about removing the dollar as the pricing mechanism when it comes to oil…

OK… We started up beat, then got brought down, let’s get back to upbeat! Hey! How about Gold? When I turned on the screen this morning, Gold was $1,020! You would think that even if the U.K. Independent story is just a rumor, that Gold would gain on the rumors…

I read a story last night, while waiting for the so-called “Epic Battle” between the Vikings and Packers on Monday Night Football, that one analyst was of the belief that Gold was about to return to its link to the price of Oil… Hmmm… Well, I personally hope that’s not the case, as I certainly don’t want to see the price of Oil rise to the levels I think Gold is going to rise to!

Yesterday, I did a presentation on the DTI network… (I had given you all the link to it last week) My power point presentation didn’t work, so I had to just “wing it” (yeah, like talking for 30 minutes on how we got here, what’s going on, and why one needs the power of portfolio diversification was difficult for me! HA!) I think they want me to come back next week… DTI educates investors / traders/ and people that just want to know how the markets work, so it’s all for a good cause, because… An educated investor, is a good investor!

OK… Let’s see… OH! I wanted to talk about this yesterday and totally forgot, but it’s not too late today to talk about it…

One thing that we’ll begin to see this month is the earnings season…
You might recall that in previous quarter ends I thought that stocks would get taken to the woodshed, because of lousy earnings, only to be surprised at the earnings that were posted… But trying not to be the boy who cried wolf, I’ll once again say that I just don’t see the earnings to support stock prices. This time I think we’ll see that the method used in previous quarters by Corporations to produce the earnings was cost cutting… One would have to think that the Corporations have cut to the bone… And now, we’ll get to the cheese that binds for earnings… A lack of revenue…

I really liked the reaction of the non-dollar currencies, led by the Aussie dollar, after the RBA rate hike… It was like “old days”… Uh-Oh, I have a song in my head… “Old days Good times I remember, Fun days, Filled with simple pleasures, Drive-in movies, Comic books and blue jeans, Howdy doody, Baseball cards and birthdays, Take me back, To a world gone away,
Memories, Seem like yesterday….

Yes, the “old days”… Well, in this case I was talking about currencies trading on “Fundamentals” not stupid trading themes, not flights to safety, not deleveraging, but plain and simple fundamentals, things that ordinary people, like me, can understand, and place a value on a currency based on the fundamentals!

But… We’ve not really seen a fundamental trend since July of 2008… However, if we begin to see the rate hikes that I think we’ll begin to see, it could be the harbinger of a return to fundamentals… And that, my friends, and dear readers would be like manna from heaven for your Pfennig writer!

Well… Since I came in this morning, Gold has gained $5 more, to $1,025! Looks like the all-time high of $1,033.90 that came in March of 2008, could be in jeopardy… My love’s in jeopardy, baby… Oooh, ooh, ooh, ooh…

Maybe Gold moving higher can get Silver going too! My friend, the Mogambo Guru, reported yesterday that silver analyst, Ted Butler, reports that in the last 10 months, “some 150 million ounces of silver can easily be documented to have been bought by investors.
Undocumented purchases would add tens of millions more ounces.”

In fact, when you add it all up, “Investment demand for silver this year is running at a full 25% of world mine production and over 20% of total production (including recycling). This is a remarkable historical turnabout.”

Chuck here… Back from a trip to the Mogambo’s letter… I just love the way the Mogambo ends his letter each week… He talks about how people should be buying Gold, Silver, and Oil, and then says… “Hey! This investing stuff is easy! Whee!”

OK… To recap… The RBA did raise rates 25 BPS last night, and sounded quite upbeat in their after rate hike statement. Look for other countries to follow now that Pandora’s Box of rate hikes has been opened. There’s a story going around about countries banding together to remove the dollar as the pricing mechanism for Oil trades… It’s being denied, but there’s smoke… And you know what I say when there’s smoke… And Gold is pushing the envelope on its all-time high of $1,033.90…

Currencies today 10/6/09: A$ .8875, kiwi .7355, C$ .9395, euro 1.4730, sterling 1.59, Swiss .9745, rand 7.4230, krone 5.6920, SEK 6.97, forint 181.15, zloty 2.8370, koruna 17.3360, RUB 29.81, yen 89, sing 1.4025, HKD 7.75, INR 46.99, China 6.8263, pesos 13.56, BRL 1.7593, dollar index 76.35, Oil $71.13, 10-year 3.22%, Silver $16.99, and Gold… $1,025.45

That’s it for today… Hope your Tuesday is Terrific!

Chuck Butler

Source: RBA Raises Rates!

Well… Friday’s Jobs Jamboree did disappoint as I had the feeling they would, printing a disappointing -263,000 jobs lost in September. The Unemployment Rate also rose to 9.8%… Now we all know that when all the people that are truly unemployed are counted, that the Unemployment Rate goes to 16%, but the Bureau of Labor Statistics (BLS) will have none of that so-called counting ACTUAL Unemployed people!

On a sidebar, a reader sent me a note and said that I need to remember that the difference between the weekly initial jobless claims, and the Jobs Jamboree is that the Jobs Jamboree “nets” out the jobs created to the ones lost, while the Weekly Claims only counts jobs lost… And that’s fair… I truly understand… The point I’ve tried to make and probably didn’t do such a good job at, was to say… The BLS could use the Weekly Claims as their starting point… But they don’t… They use a “survey” instead… Dolts all of them!

So, the non-dollar currencies acted a little strangely on Friday after the Jobs report… The trading pattern for 9 months now has been to reward the non-dollar currencies whenever the data was good for the U.S. (one realizes that this is the exact opposite of what currencies trading on fundamentals would do). However, on Friday… When the disappointing jobs report printed, the currencies reacted as they SHOULD! The rallied against the dollar! Holy Cow Batman, are we returning to Fundamentals? I don’t know, folks… But we did on Friday…

Then this past weekend the G-7 Finance Ministers met and left… Without a word about the currencies… So, the rumor going ’round on Friday morning that G-7 was going to hand over the currency watchdog duties to G-20, must be true… The thing that a lot of traders are looking at right now, is the fact that G-7 hasn’t said that they were handing over their currency watchdog duties, and they ended their meeting with no statement whatsoever that they were concerned with dollar weakness…

So… Traders not willing to believe the rumors, and still thinking that G-7 is the currency watchdog until otherwise stated, believe that G-7 was giving the green light to further dollar weakness… For, if it’s not a concern of the G-7 Finance Ministers, then why should it be a concern of those wanting to take the dollar lower?

And take it lower they have… But, not by leaps and bounds mind you… No, this has been a 1/2-cent move… It’s as though the traders are “testing the waters” to see if their thoughts on G-7 are correct or not…

The euro also breathed a sigh of relief when the results of the Lisbon Treaty vote in Ireland printed yesterday… In a substantially decided vote (67% to 33%) the Irish voted in favor of the Treaty, which now goes to Poland and Czech Republic, who are the only two left to ratify the Treaty… There are some rumors going around that the Czech Republic (CR) might hold it up, causing a delay, which could deep six the whole thing…

Speaking of the euro… The European Central Bank (ECB) meets this Thursday… Look for rates to remain unchanged…. However, recently, ECB President, Trichet has been propping up the dollar with statements about dollar strength here and there… Remember, he HAS TO DO THIS! He can not be seen banging the drum for a stronger euro… That could deep six the dollar in a heartbeat… So…on Thursday this week, the markets will be listening to Trichet’s statement following the rate announcement to see if he “props up the dollar” again…

And speaking of rate announcements… The BIG ONE tonight is the Reserve Bank of Australia’s (RBA) While I think that Rocktober is too early for a rate hike, what I’m looking for is any indication that November will be the month we see the first rate hike after the 2 years of rate cuts around the world. I’m going out on the limb here and saying that the RBA will hike rates 25 BPS next month! So… Put that in your calendar to see if I’m bang on or just plain whiffed at the pitch!

Recall, that at one time it looked as though Norway’s Norges Bank would be the first to raise rates, but the RBA has edged in front now… But, that’s not that bad of thing to be the first loser, or 2nd place as most people call it, as long as the Norges Bank comes through on the rate hike… Right now, it looks as though the Norges Bank will wait until December…

Rate differentials can and should go a very long way toward currency strength… It’s not the end-all, as the Japanese yen can attest to… But, for the most part, it carries a lot of weight in currency valuation… And that’s the reason I make such a big deal out of the RBA And Norges Bank being the first Central Banks to raise rates… They already enjoy a rate differential to the dollar… And rate hikes will simply widen that differential…

So, when investors around the world want to find yield… They will look for countries that have rate differentials to the base rate in their country… And the wider the better!

Well, that is, as long as we’re not talking about a country that is whacked out, corrupt, politically unstable, or unable to attract foreign investment, so they hike rates up to levels that stand out like a man with a hatchet in his head!

So… Back to Australia for a moment… The A$ really recovered nicely after the G-7 “no-statement” I’m sure some traders are taking a flyer that the RBA would spring a surprise rate hike tonight… So, the downside risk for the A$ tomorrow is there, slightly… But today, it’s all seashells and balloons for the A$!

Gold remained above $1,000 overnight… It sure looks to me, as though the price of Gold is simply forming a new base at $1,000, before moving on to higher levels… But, that’s just me… I don’t have a crystal ball, and I don’t read tea leaves! Just an opinion on what it looks like to me… Which is why I’ve changed my line… Remember, 6-9 months ago, when I would say that I thought it to be a good idea to look to buy on the dips below $900? Well, I’m changing that to look to buy on the dips below $1,000…

Not that I want to “jinx” the Indian rupee, but I’ve noticed the past couple of weeks, how the rupee has been gaining VS the dollar… Inch by inch, the moves aren’t anything to shake the earth, but they are positive moves VS the dollar nonetheless! So… Good show rupee!

You know… Over the past couple of years, you’ve got to have noticed how the once “fringe countries” like India, and Brazil, are the ones doing all the right things and pulling the right strings with their economies, while the U.S. continues to walk the plank of catastrophe!

Well, after last week’s data deluge, the data cupboard takes a break today and tomorrow, coming back on Wednesday with the Monthly Budget Statement… The Budget Deficit in the U.S. has become the focal point of dollar bears… The Budget Deficit continues to grow, as the deficit spending continues to go on and on, like the Energizer Bunny! The rest of the week is pretty low-key with regards to data. Friday, we’ll see the latest Trade Deficit… So, the “Twin Deficits” on display this week…

So… To recap, the Jobs Jamboree was very disappointing with job losses shooting up to 263,000 in September. G-7 did not make any statement about the currencies, so traders have taken that to mean they don’t care about how weak the dollar is… The RBA meets tonight, and I’m looking for them to raise rates next month, not tonight. And Gold is back above $1,000…

Currencies today 10/5/09: A$ .8745, kiwi .7205, C$ .9310, euro 1.4625, sterling 1.5940, Swiss .9675, rand 7.6090, krone 5.7770, SEK 7.04, forint 182.85, zloty 2.8840, koruna 17.3870, RUB 30.08, yen 89.90, sing 1.4105, HKD 7.75, INR 47.55, China 6.8264, pesos 13.60, BRL 1.7815, dollar index 76.86, Oil $69.16, 10-year 3.20%, Silver $16.23, and Gold… $1,004

That’s it for today…I hope yours is Marvelous!

Chuck Butler

Source: Jobs Disappoint…

Good day… And a Happy Friday to one and all! Yesterday, I welcomed you to October. I had been prepared to tell you about a famous radio station here in St. Louis, that has long called October… Rocktober… But forgot, as usual! But anyway… It’s the first Fantastico Friday of Rocktober!

Today is a Jobs Jamboree Friday too! And… I’m not getting a good feeling about today’s labor report at the Jobs Jamboree. The forecast is for jobs losses to fall from -216,000 to -175,000, but the unemployment rate to tick up to 9.8% from 9.7%… I got the feeling, baby, baby, I got the feeling… Oops, a little James Brown on Fantastico Friday never hurts! But what I was saying was I’m getting the feeling that there are risks to this forecast… And that the job losses could come in higher, which would really be a BAD thing for the recovery flag wavers and risk takers, I’m sorry to say…

You see, the recovery flag wavers and risk takers are wishing, and hoping, and thinking and praying that the data in the U.S. continues to show some sign of life. Any signs that the U.S. economy could be slipping backwards, would deep six stocks for sure, and if last year’s trading tells us anything, it would have an adverse affect on Commodities and Currencies too!

So… This is a BIGGIE, today, folks… So strap yourself in, and make sure you keep your arms and legs inside at all times during the ride!

Yesterday’s currency trading left a lot to be desired… There was little movement from the overnight sessions which tomahawked the non-dollar currencies. That’s a good thing… But the downside risk today is just too much for me right now… Maybe after 7:30 CT I’ll be able to breathe again, for that’s when the Jobs Jamboree prints… Again, Japanese yen enjoys the sun from both sides of their house… When the dollar is weak, yen rallies with the other non-dollar currencies… When the dollar is strong, yen rallies alongside the dollar! It’s good to be the yen! (that is before the Ministry of Finance in Japan begins to intervene!)

Hey! Remember when I bashed the Cars for Clunkers scheme, I mean program, and exposed it for what it was, and what it would do to future sales of automobiles? Well, as they say… The proof is in the pudding!

Yesterday, it was reported that General Motors (NYSE:GRM) had posted a 45% drop in September U.S. light-vehicle sales, while Chrysler’s sales fell 42%. Ford saw a much more modest drop of 5.1%. Among Japanese auto makers, Toyota said its September U.S. sales declined 16% from a year earlier, while Nissan saw its results fall 7% and Honda said its sales slid 23%. The auto industry was hurt by the expiration of the U.S. government’s “cash-for-clunkers” rebate program.

Yes… I told you this would happen… I also think that any Gov’t program to prop up the economy is just falling into the ghost of Japan’s hands… I’ve explained this before, about how when Japan experienced a HUGE market correction after their go-go 80’s, they panicked and began throwing money at the problem, instead of just letting the markets run their course… The Japanese introduced stimulus package after stimulus package, and Gov’t program after Gov’t program, like Quantitative Easing… And look how well that’s worked out for them!

So the ghost of Japanese recoveries that never panned out, is haunting the U.S. Gov’t now!

Today is also the start of a G-7 meeting in Istanbul… Istanbul was once Constantinople! Or so the song goes… Any way… The rumors coming out of the pre-meeting stuff is that G-7 will no longer make a statement or issue a communiqué’ regarding currencies, as they now feel that the only group that should have that responsibility is the G-20, which last week took the world economies watchdog title from G-8…

Currency traders have long used these G-7 communiqué statements as a tool that indicates direction for currencies… And while that has actually come to fruition a handful of times over the years, for the most part, G-7 was nothing but a boondoggle!

One thing that’s out there that you won’t see a lot of people talking about is the vote going on in Ireland today, on the Lisbon Treaty, which the Irish people voted down last year… This Lisbon Treaty changes the way the European Union works, and would amend the Maastricht Treaty… It was intended that all member European Union states would ratify this before now… So, this vote is like the Sword of Damocles hanging over the euro for Monday morning…

You see, the vote will be taken today, counted tomorrow, and announced Sunday, which will cause a knee-jerk reaction to the euro trading on Monday… Right now, the polls show the Treaty will be accepted this time by the Irish. If passed, it goes to Poland and the Czech Republic, and if they vote yes then it would lead to ratification, which would be a good thing for the euro… A no vote would be bad thing, just like it was in June of 2008, when Ireland voted no the first time around.

Yesterday, the IMF issued a report on Currency Composition of Global FX Reserves… And this is quite telling I believe, for the report showed a continued diversification away from the dollar, in the 2nd QTR of this year… I had to laugh last year, when I was on the FXU Currency Tours, and one of the guys there said that the fall of currency reserves allocation of dollars from over 80% to 64%, was nothing but currency appreciation by the euro… I would point to the these IMF reports, when I talked so that I didn’t make a big thing out of it…

Did you see the story in the Wall Street Journal (WSJ) regarding Lehman Brothers? This story has conspiracy stamped all over it, so you know me, I was all over this story like a cheap suit! Here’s the gist of the story from the WSJ… “An examiner is looking into how the Federal Reserve was promptly repaid billions of dollars in cash and securities it lent to Lehman Brothers before the bank filed for bankruptcy, while other creditors are still owed money. The court appointed Anton Valukas, chairman of Jenner & Block and a former U.S. attorney, to explore whether the Fed received improper preferential treatment.”

Chuck again… Now, you, me and the lamppost all know what went on here, just by that description in the WSJ… But, we’ll wait for the report, I guess…

The U.S. stocks really got taken to the woodshed at the close yesterday, and the futures in the overnight markets are weak… So… Guess where the money goes when they sell stocks? That’s right, U.S. Treasuries… So, just about the time you think that the mom and pop’s of the world that went to Treasuries last year in the so-called Flight to Safety, had taken on enough losses, and were going to get out… Here comes the stock correction that I’ve been talking about… Or maybe not… Maybe this is just a couple of days of selling… Or maybe it is the correction…

So, if dollars are flowing into Treasuries, the yields of those Treasuries are going down once again… UGH! This just doesn’t make any sense to me! Didn’t these people that went to the so-called Safety of Treasuries last year, but lost money, learn anything? Or did enough time pass and they’ve “forgotten the pain”?

Oh Heck! This just feeds more air into the Treasury Bubble… Which means that it grows larger and larger, and also means that when it does POP, the losses will be severe and all across the board… I mean, isn’t that what we’ve learned about what happens when a bubble POPS in the past?

Yesterday, the data cupboard was busy… We had the Weekly Initial Jobless Claims post a higher number than was expected, coming at 551,000, VS last week’s 534,000… I always love it when the Jobs Jamboree follows a Weekly Initial Jobless Claims repot… Because… The Weekly report shows that, in this case, that 551,000 jobs were potentially lost last week, and today’s monthly report by the BLS will show something far less…

We also saw that the U.S. Consumer continues to spend more than they make, as Personal Spending was up 1.3%, while Personal Income was only up .2%…

And then finally we saw the U.S. ISM Index (manufacturing) come in weaker than expected, but remain above 50, at 52.6… That’s a weaker number than the August figure which was 52.9… And I would think that someone would have noticed this… But we had the TV on all day, and I had it one when I got home, and never saw mention of this anywhere!

And then there was this… Colleague, Aaron Stevenson, called me yesterday morning, trying to beat the deadline for stuff to add to the Pfennig… He missed… So I have it for today… Remember yesterday morning, when I announced that BOA CEO Ken Lewis was retiring, and that I thought that to be strange?

Well, Aaron was all over this, telling me that he worked for BOA for a number of years, and sat in on meetings with Ken Lewis, and that Ken Lewis was not the kind of person to take “early retirement”… In fact, Aaron says, “that 4 months ago, I heard an interview with Ken Lewis, and he said I’m 62, I’m not ready to retire.” Aaron said that he was a “no surrender, no quit, kind of guy.” Hmmm… I wonder what changed in 4 months? Well, Aaron thinks, and I agree, that he was forced out by the Feds, for speaking his mind on the BOA / Merrill Lynch deal that was brokered by the Fed and Treasury…

OK… To recap… Today is a Jobs Jamboree Friday, and I’m getting the feeling that it will be disappointing VS the forecast of 175,000 job losses. G-7 meets this weekend, and there might be a change in the what they say after each meeting. The ghost of Japanese recoveries, is at work in the U.S. Ireland votes on the Lisbon Treaty today, and the dollar remains well bid VS the non-dollar currencies… Except yen!

And this… On Monday next week, I will be doing an educational presentation for the folks at DTI… You can find out more here: http://www.dtitrader.com/trading_education_MMM_everbank.htm

Currencies today 10/2/09: .8630, kiwi .7130, C$ .9175, euro 1.4550, sterling 1.5850, Swiss .9620, rand 7.72, krone 5.8250, SEK 7.0420, forint 186.20, zloty 2.9185, koruna 17.4750, RUB 30.20, yen 89.30, sing 1.4170, HKD 7.75, INR 47.75, China 6.8265, pesos 13.77, BRL 1.7860, dollar index 77.20, Oil $69.69, 10-year 3.15%, Silver $16.25, and Gold… $996.75

That’s it for today…Time to get working on making this Friday, Fantastico!

Chuck Butler

Source: A Jobs Jamboree Friday!

Good day… Welcome to October! And a Tub Thumpin’ Thursday to you! No real reason to get Tub Thumpin’, but I thought why not? The non-dollar currencies have given back their gains made yesterday to the dollar, in a game of what seems to be, give and take… A tennis match with the dollar, one day the ball is in the dollar’s court, and the next day it’s not! Really, kind of giving me a rash, watching this… I want some direction here!

So… When I turned on all my screens this morning, and then waited about 20 minutes for the new programs to be installed on them that the IT people left for the next time the computer started up… Hmmm, where was I? Oh! I was talking about when I first saw the currencies this morning… I saw that the euro had fallen back to 1.4560… And of course wanted to find out why…

Well, it seems that the G-7 Finance Ministers are going to meet this week, and there is already some discussion that the euro’s rise will be discussed… OK… Currencies traders took this to mean that these mental giants in the G-7 will do something to stem the rise of the euro… Of course, the G-7 Fin Mins might just be discussing how impressive the euro’s gains have been VS the dollar this year! HA!

This plays well with the thought I had and shared with you the other day, regarding Central Bankers from Japan and the Eurozone propping up the dollar… Trust me folks, these guys are smart puppies, and can see the writing on the wall for the dollar, just like you, me and the guy down the street that cuts his grass early in the morning… The last thing they want to happen is for everyone to get the idea that these Central Bankers won’t prop up the dollar, for if that were to happen, it would spring open Pandora’s Box of currency disasters for the dollar!

The Eurozone did receive some strong data this morning…. The latest Eurozone PMI printed. Eurozone PMI is just like here in the U.S. it’s a measurement of the manufacturing activity. But only in the Eurozone it takes in all 16 member countries. This activity is then put into an index so that it can be easily monitored. And just like here in the U.S. the line in the sand of whether manufacturing is contracting or expanding is 50…

Eurozone PMI rose for the 5 straight month, but remained under 50, posting a 49.3 in September… But the trend is manufacturing’s friend here, I would think, as it has risen steadily for the past 5 months.

Let’s talk about something other than the Eurozone… The other day, I was interviewed by Reuters about dollar / yen. I told them that the Japanese yen did not have the fundamentals to support an 88 figure, which it had hit on two occasions in the past week. Well… The Japanese Tankan report, which takes the pulse of the economic activity in Japan, backed up what I had said earlier, when it reported that “Japanese companies plan to deepen investment cuts as profits slump, inhibiting the recovery from the nation’s worst postwar recession.”

Speaking of interviews… I did a quick one in a chat room at DTI, which is an investment education company. This quick interview was just a “teaser” for a full fledged 30 minutes of “Chuck speak” that will happen next Monday at 1:30 CT… It will be a power point presentation that comes across on your computer, with me talking over it… Sounds like it will be tre’ cool… If you want to find out more click here… http://www.dtitrader.com/trading_education_MMM_everbank.htm

With the euro backing off this morning, the rest of the non-dollar currencies are doing the same. Aussie and kiwi have not been able to hold onto gains they made yesterday, and the rest of the currencies just fall in line. You know what I always say when this happens don’t you? That’s right… It gives everyone an opportunity to buy at cheaper levels than yesterday!

The other day, after the S&P/CaseShiller Home Price Index number printed and showed a month-to-month rise in home prices, I thought to myself, is this really something that can catch hold and continue to rise? I then began to put together a list of the “risks” to continued Home Price increases… The list as I have it:
1. 1.5 million homes on the dockets for foreclosure
2. 10% unemployment, with 39% unemployed for more than 6 months…
3. The potential stock market correction
4. The end of the 8% tax credit for first time home buyers, (that son, Andrew took advantage of this summer!)

Long Time Friend… Ed Bonawitz, agreed the list and added that if we just look at how the auto industry fell back into an abyss after the cash for clunkers program ended, imagine what the end of the 8% tax credit program will do…

I was talking with a customer yesterday that has traveled quite a bit over the years, and had businesses in China and Indonesia, etc. I asked him the question that everyone asks me all the time, regarding China’s data… When I’m asked whether this is good data or not, I usually reply that I don’t live there, so I have no other choice but to take it as printed… But, my customer, told me that he believed that, for instance, if China printed a 10% GDP, that it’s probably inflated by 50%! YIKES!

So, with that in mind, China printed their PMI for September last night, and, according to the Chinese, it rose .3% to 54.3%… Again, a number for a PMI above 50 indicates expansion… So… Even if the Chinese inflated the data, their manufacturing sector would still be performing in an expansion mode…

And… What’s good for the goose (China) is good for the gander (Australia)! I told you earlier that the Aussie dollar (A$) was not able to hold it’s gains made yesterday that brought the A$ to .8859, a 14-month high for the currency. China is now on holiday for the next week, so the A$ will have to find some traction from other areas… So, it’s not out of the realm of possibilities that the A$ drifts in the next week…

I see where Big Ben Bernanke will be giving some prepared remarks to lawmakers this morning about the need for strong consumer protection of financial services… Hmmm… This makes me laugh, and laugh hard! Isn’t this kind of like the fox telling the farmer the need to secure the hen house after it’s been raided?

I mean, the Fed had the control, the supervisory power, to protect consumers from the lending practices that went on but did they? NO! They turned their heads and looked the other way, while the mortgage mess grew and grew… Just like a child… If you look the other way when they misbehave, then the misbehaving will get worse, and worse…

Seems Big Ben was a little upset a couple of months ago, when it was proposed that there would be a new Consumer Protection Agency… He felt like the Fed was being knocked down a notch, and he criticized the proposal… I doubt he’ll go down that road again, as I’m certain, he received a “memo” from the powers to be, which told him to shut his trap and go with the President’s plan…

The data cupboard today yields the U.S. version of PMI, which we changed to ISM a few years ago… The ISM in the U.S. went back above 50 in August, and is expected to have gained a bit in September. This is good news for the economy… But one has to wonder about what happens after the all the build up for the cars for clunkers program filters through… But, with the dollar much weaker than 6 months ago, manufacturing certainly gets a lift.

We’ll also see Personal Income and Spending, which unfortunately has shifted back to the days of us spending more than we make… Didn’t we learn anything? It’s Thursday, so the Weekly Initial Jobless Claims will print… And then rounding out the data today are reports on Vehicle Sales, and Pending Home Sales… So a very busy day at the data cupboard!

OK… Before I go to the recap and the currency round-up, I just had a thought about today’s actions in the currencies VS the dollar. The Asian and European sessions sold the currencies and bought dollars… When the NY guys and girls arrive and see what has happened overnight, I suspect we’ll see more selling, as they will have orders to fill… So… The cheaper levels could be still to come today…

Then there was this… Bank of America’s CEO Ken Lewis announced his retirement… I find this to be somewhat strange… Very strange indeed…

To recap… The ball is back in the dollar’s court today, as G-7 gets set to meet this weekend and maybe discuss the euro’s rise… Japan’s Tankan supports my belief that there are no fundamentals that support a yen at 88, and the Eurozone posts its 5th consecutive gain in manufacturing…

Currencies today 10/1/09: A$ .8790, kiwi .7210, C$ .9315, euro 1.4555, sterling 1.5990, Swiss .9590, rand 7.6645, krone 5.80, SEK 6.99, forint 185.65, zloty 2.9050, koruna 17.45, RUB 30.09, yen 90, sing 1.4125, HKD 7.75, INR 47.76, China 6.8265, pesos 13.55, BRL 1.7665, dollar index 77.10, Oil $70.10, 10-year 3.30%, Silver $16.61, and Gold… $1,005.25

That’s it for today…

Chuck Butler

Source: G-7 to Discuss Currencies?

Good day… And a Wonderful Wednesday to you… Instead of a “turn around Tuesday”, we’re seeing a whiplash Wednesday! And for once in a month of Sundays, the Big Dog, euro didn’t lead the other little dogs (currencies) off the porch to chase the dollar down the street!

No… This time it was the currencies of Australia and New Zealand that led the charge VS the dollar… The euro has taken up the charge since opening the doors to a new day of trading in Europe, so… It looks like it’s a “take the dollar to the woodshed day”…

OK… Let’s start first with the goings on yesterday and then build to a big crescendo! Yeah, right, like I can do that! HA! Any way…

As a reminder, yesterday we had the Russian rate cut, and the Japanese Fin Min giving the dollar a boost… We then saw some data that at first glance seemed to be good, but a quick look under the hood told the markets otherwise… Home Prices fell in July VS June, but are still down 13.3% VS last year… And Consumer Confidence surprised everyone by falling this month. It was expected to gain. So… As the day went on, it just didn’t look like the U.S. data would be strong enough to cause dollar selling…

But then, overnight, we had a strong Retail Sales report in Australia, and a strong Business Confidence report in New Zealand, and the “global recovery thoughts” were back on! Game on, as Wayne and Garth would say! Yesterday morning, the Russian rate cut said “step back on the thoughts for a global recovery”… And then overnight, the reports from Australia and New Zealand said, “step forward on the thoughts for a global recovery”!

And so it is… We end the month, and quarter with the dollar on the losing end VS many currencies… This marks the second consecutive quarter of dollar losses… Does that sound like a trend to anyone? To me, I do not consider this to be a “new trend”, but instead, simply a return to the underlying weak dollar trend, that went dormant for 6 months while the world sorted out the financial meltdown.

This is where, when I go out on the road and speak to people, I say that trends are not One Way Streets… There can be volatility within the trend. And thus this explains the 6 months from August of 2008 trough Feb of 2009… For most people that got into diversification using currencies and precious metals, they saw it for what it was, and simply battened down the hatches, and looked for deep discounts to add to their diversification… For some people, who got in for all the wrong reasons, and never thought about diversification, then they panicked and sold out at losses… For those that battened down the hatches, they were rewarded with this latest 6-month move… And that’s all I’m going to say about that!

The boys and girls over at the IMF are trying really hard to keep the currencies in check and not let this become another rout on the dollar. The IMF issued a statement saying that there are still risks in the global recovery… Unfortunately, for the IMF, nobody is listening to them, judging from the dollar selling I’ve seen since I came in this morning!

Hey! I don’t give the French much credit for anything… But I did see last night that they are cutting taxes on business! WOW! What a novel idea! And one that I think would behoove the current U.S. administration to follow… This is really a great way to get real traction in the economy… Give Businesses more room to breathe, and they will hire people, expand capital purchases, etc. Good show!

Yesterday, I was interviewed by Reuters for a story on dollar / yen… I was then quoted in a story that ran later in the day. I had said when I hung up the phone, that it would have been easier if the writer had just read the Pfennig that day! All I did was tell them what I had already told you in the Pfennig much earlier in the day! But… It was great to see my name in a national story anyway, eh?

OK… Getting back to Aussie and Kiwi… The Aussie Retail Sales report for August climbed .9%, erasing the -.9% loss in July! This report plays well with the recovery story and the thoughts that the Reserve Bank of Australia (RBA) will raise rates before year-end…

New Zealand saw their Employment Confidence Index climb to 103 last quarter, from 96.1, the previous 3 months… The report showed that 32.2% of companies surveyed, expected sales and profits to rise over the next 12 months… I know that doesn’t sound like a resounding vote of confidence, but the previous number was 26%… So that’s quite a jump!

Of these two, I expect The RBA to lead with the rate hikes, while the Reserve Bank of New Zealand (RBNZ) will drag its feet… They don’t need the kiwi to start rising aggressively, as exporters in New Zealand are having a tough time now, with kiwi as strong as it is now!

Whenever the Commodity Currencies of Australia and New Zealand have good performances VS the dollar, the other Commodity Currencies get to play along… So that means the performances VS the dollar of Canada, South Africa, Norway, and Brazil have been good.

There is some risk in the currency markets today though… First, we have some data due, and second we have Fed Vice Chairman Donald Kohn, and European Central Bank (ECB) President, Trichet, due to speak today… Could this be more Central Bank parlance for propping up the dollar, that is seen as being on the skids again this morning? I think it just might… Especially, if Kohn doesn’t mention that the Fed is going to keep rates at near zero for some time to come. If we don’t hear that… Then I think the “con” is on to prop up the dollar…

But don’t let that bother you too much… These guys can only affect the currencies for short periods of time with their verbal jawboning… After that, they need to walk the walk with coordinated intervention, if they’re going to talk the talk!

Speaking of the data… We’ll see the color of the 2nd QTR GDP, and the wild and wacky ADP Employment Change reports… The Chicago PMI (manufacturing for that region) will also show its colors… All of these are expected to show improvement in the U.S. economy… And, if the trading pattern remains in place… Any signs of improvement in the U.S. economy normally results in more dollar weakness!

So… In the end, the data inducing dollar weakness, might be offset by the Central Bank jawboning… In which case, we’ll spend the day in a tight trading range for sure! But what happens if Kohn and Trichet, don’t support the dollar in their speeches? Then it will all be up to the data!

This morning, Canada will print their latest GDP report… The forecasts are for a very weak report… I’m going to go out on a limb, yes it will be a big fat one to support me, and say that I expect Canada’s GDP to surprise on the up-side… If so, the loonie would look to add to gains it already has booked this morning VS the dollar.

With the Commodity Currencies on the rise this morning, Gold has returned to $1,000! Gold remained below $1,000 for about 5 days, in which there were ample opportunities to buy the dips below $1,000…

And… As we close out the month and quarter, the Russian rate cut is all but forgotten about, which is exactly how I told you it would play out… The global recovery theme is back with a vengeance!

OK… I’m going to step up on the soap box now, so if you do not care to listen to another Chuck soap box rant, then skip ahead two paragraphs!

You know… We wouldn’t be having these discussions about dollar weakness every day, if the Budget Deficits weren’t piling up on top of other deficits… Hey! Remember when I used to take the previous administration to the woodshed for piling up $450 Billion dollar Budget Deficits? Well, that certainly seems to be but a drop in the bucket of the nearly $2 Trillion Budget Deficit that will post this year, and the forecast for $9 Trillion more in the next 9 years…

That all leads me to this… We need to express to our representatives in Washington D.C. that is very important, and the they should focus their attention on this first and foremost! I doubt that we’ll ever get there again, but, wouldn’t that be nice for our grand kids? I just don’t understand why we go around spending money on this that and the other things, and don’t ever stop to think about the immoral things we are doing to our future generations… I guess I mean to say that the “we” I’m talking about is not you and me! It’s the knuckleheads in D.C… That is, other than Ron Paul, who seems to be the only person in D.C. that understands all this deficit spending…

Ok, down from the soap box now… You’re free to move about the Pfennig!

To recap… Aussie and kiwi lead the currencies higher VS the dollar overnight, after each respective country printed a strong economic report, thus putting the global recovery thoughts back on track. We have data, and Central Bank speeches to navigate through today. The non-dollar currencies close a second consecutive quarter of gains VS the dollar, and Gold has returned to $1,000….

Currencies today 9/30/09: A$ .8835, kiwi .7220, C$ .9330, euro 1.4665, sterling 1.61, Swiss .9725, rand 7.4240, krone 5.7675, SEK 6.96, forint 183.90, zloty 2.88, koruna 17.1570, RUB 30, yen 89.50, sing 1.41, HKD 7.75, INR 48.11, China 6.8264, pesos 13.48, BRL 1.7870, dollar index 76.56, Oil $67.78, 10-year 3.31%, Silver $16.48, and Gold… $1,003.45

That’s it for today…Be sure to make today a Wonderful Wednesday!

Chuck Butler

Source: Whiplash Wednesday!

Good day… And a Marvelous Monday to you! My weekend turned out to be quite grand, as all the things I said that would make it special came to pass! My Cardinals clinched their division. My beloved Missouri Tigers won on Friday night, and my little buddy’s 8th grade Flyers won their game against their arch rival… WOW!

Well… Here we go with the last 3 days of September… A month that saw Gold return to $1,000, and the non-dollar currencies all return to levels they held a year ago, having withstood the onslaught of flight to safety trades that benefitted the dollar after the Lehman Bros collapse.

We’ve seen the Fed Chairman sound the “all clear horn” and me question, why anyone would still be listening to this guy! And our country is becoming quite divided over the health care issue… So… There we have it… September all rolled up in a nice package, to take out the trash!

Ok, we’re all caught up now… On Friday, the currencies gravitated toward weaker levels, as the dollar buying continued, with stocks leading the risk assets lower… But it hasn’t been a “taken to the woodshed event” for the currencies yet… So, the question remains if this is the correction we’ve been waiting for or not…

Last week I gave you some quotes by Nassim Taleb, but forgot to tell you that he was the author of the book, “The Black Swan”… Nassim Taleb was talking to a group of business people in Hong Kong this weekend, and asked the same question I’ve been asking, as he wanted to know why Big Ben Bernanke, and Treasury Sec. Tim Geithner kept their posts after failing to foresee the collapse in global credit markets. Taleb said, “Bernanke, Geithner, and Summers didn’t see the crisis coming so why are they still there? Bernanke is like a pilot who didn’t see a hurricane.”

Good stuff, eh? Especially, when you read the Washington Post and see that the Fed was ignoring pleas from Consumer Groups, as far back as 1999, that subprime lending was expanding… Turning a deaf ear on the Consumer Groups, the Fed left rates low, and accommodating… What the heck do we have these guys for any way! The Fed has been the root cause of every financial problem we’ve had in this country since they were created in 1913…

OK… Last week, the Financial Times ran a story regarding the dollar laying claims to being the top Carry Trade Currency… Let’s read a bit from the FT… “For years, the yen was the currency of choice to fund international Carry Trades. Analysts say negligible U.S. interest rates, its quantitative easing measures and little sing that the country is set to withdraw from its ultra-lose monetary policy anytime soon leaves it in a similar position to Japan at the start of the decade.”

Well… I had already told you all that, but when you see it in the FT, it obviously gives it more credence, eh?

But, let’s talk about that for a minute… If the dollar begins to become the new funding currency of the Carry Trade, that means that people will be selling the dollar short, and using the proceeds to buy a higher yielding asset… Well, in today’s markets, there aren’t what we would traditionally consider to be “high yielding assets”… For the Carry Trade is quite risky, therefore you need to have some cushion from the “buy side” asset… The only “real interest differential” in the world resides with Brazil… But the real is traded on a non-deliverable forward, which means it’s just as liquid as say Aussie or kiwi, which were the main beneficiaries when the yen was the funding currency.

So… This new Carry Trade, might have to wait a bit before getting into 4th gear. When the Reserve Bank of Australia (RBA) begins their rate hike cycle, probably by year-end, then it might begin to make sense… Which is just another thing in the gauntlet the dollar has to run through every day!

Speaking of the Japanese yen… The yen reached a 8-month high of 89.30 overnight. I told you last week that yen is getting a lot of love from Japanese exporters that are repatriating their profits in yen, ahead of the end of the month / quarter.

I had to laugh out loud when I read a story about the Japanese Finance Minister, Fujii, who apparently hadn’t gotten the memo about how Finance Ministers are supposed to jawbone the yen lower… Recall, I had told you that he said over and over again that he supported a strong yen… Well… That all changed once he got the “memo”… Fujii said last night that, “people were mistakenly saying he supported a strong yen.”

Hey Fujii, got the memo now? Is it clear?… Crystal… OK, now go out there and jawbone the yen weaker, or you’ll be falling on a sword!

This week is chock-full-o-data all over the globe… In the U.S. we’ll end the week with the Jobs Jamboree, while Japan will print their latest Tankan report (which checks the pulse of the economy), Canada will print their latest GDP, China will print their latest Manufacturing Index, and Australia will report on Retail Sales…

In the Eurozone, Germany re-elected Angela Merkel as chancellor… Now, she just needs to figure out how to deliver those tax-cuts she promised during the campaign!

The euro had climbed back to 1.4720, but the election results were not taken as “euro friendly”… Remember, I told you that there could be tax-cuts coming in Germany, which is the Eurozone’s largest economy. Tax-cuts are great, if you are in a fiscal position to do so… Germany has a nascent recovery at best going on right now, so the timing is not what traders are happy with… Therefore the euro dropped like a stone to 1.4570, but then bounced off that is back to 1.4635 as I write…

And the Reserve Bank of Australia, (RBA) which I mentioned earlier was in the news overnight, as the RBA Gov. Stevens gave a speech, that was hawkish… Stevens mentioned that the interest rates needed to move off their “unusually low levels”. He also pointed out something that should be quite recognizable by all Central Bankers now, but apparently not here in the U.S…. And that is that “imbalances build up when rates are left too low for too long.”

Well… The highly touted G-20 meeting last week ended not with a bang, but with some newfound strength as a group… Recall on Friday I told you that they would replace G-8 as the watchdog for the economies of the world. That news was announced later on Friday… G-20 ended with leaders from the G-20 nations saying that they plan to cooperate on an overhaul of financial regulations to prevent arbitrage in the global system. By the end of next year, banks will be required to hold more capital, and compensation policies will need to be linked to longer-term performance.

You know… When the media reports “Bankers compensation” they’re not talking about real Bankers, per se… They’re referring to the Merrills and Goldmans of the world that pay out Billions in bonuses, or did at least… Just thought I would clarify that point…

And then there was the British Pound sterling, which I kept saying over and over again, that this dance is gonna be a drag, no wait! I kept saying over and over again, that the pound sterling strength was a house of cards… Well, that house of cards is collapsing under the pound sterling… Even the speculators that were buying it because it was a part of the mix of currencies that made up the IMF’s SDR’s (Special Drawing Rights), are backing out now…

Data in the U.S. besides the Jobs Jamboree at the end of the week, include the S&P/ CaseShiller Home Price Index for July which will print tomorrow, along with Consumer Confidence, which is expected to be stronger… I guess the people they surveyed haven’t seen the Bernanke video collection of his statements that couldn’t be more wrong, and still believe him when he says it’s all OK! Wednesday brings us the final print of 2nd QTR GDP. Thursday has two of my faves, Personal Income and Spending, and then Friday’s Jobs Jamboree…

So, if the data continues to show some strength, but nothing to speak about… I would think that the risk takers will remain confused, and it could lead to further selling in stocks, and other risk assets… Don’t really know… Just an opinion on what might happen…

OK, to recap… The dollar has rebounded, but nothing too strong to speak of as of this morning. G-20 is the new world economic watchdog, there’s a ton o’ data to print this week, all over the globe, and Japanese yen continues to outperform the other currencies VS the dollar.

Currencies today 9/28/09: A$ .8665, kiwi .7135, C$ .9135, euro 1.4650, sterling 1.5870, Swiss .9695, rand 7.44, krone 5.82, SEK 6.9750, forint 184.20, zloty 2.88, koruna 17.22, RUB 30.11, yen 89.30, sing 1.4190, HKD 7.75, INR 47.98, China 6.8274, pesos 13.57, BRL 1.7890, dollar index 76.90, Oil $65.77, 10-year 3.32%, Silver $15.99, and Gold… $992.10

That’s it for today…I hope your Monday is Marvelous!

Chuck Butler

Source: A New Carry Trade Currency?

Good day… And a Happy Friday to one and all! It’s still raining here in St. Louis this morning, but I won’t that get me down, as it is a Friday! G-20 has gotten a bit ugly, folks… Seems everyone just can’t seem to get along! Imagine that! 20 different countries, and now they want to be able to watch another country’s finances and comment on them! Oh, I can see that working out real well! NOT!

So… Yesterday, we had the dollar gaining back the ground that it had lost the previous day, but at the end of the day, we’re looking very much like the currencies hadn’t moved from morning to morning… And overnight, didn’t bring about much movement… So… When you get to the currency round-up below, you’ll see the dollar’s gains were small, and short-lived.

The U.K. and France are a bit upset with the U.S. and the President’s plan to reduce the number of board members to the IMF, and guess who is on the chopping block? That’s right… The U.K. and France! I really don’t care about all this stuff, except to watch the saber rattling, and jockeying for “supreme leader”… I won’t say any more about that here…

I did notice thought that, just as I said months ago, regarding the BRIC countries, that they would have to be reckoned with, due to their HUGE Treasury Chests of reserves, and the fact that they have a good portion of the World’s population… Ok, where was I? Oh!, I noticed that it was going to be announced today that G-20 was going to take over as the main forum for global economic coordination. They will take that over from the G-8…

Well, guess who’s a part of G-20 that wasn’t a part of G-8? The BRIC countries! They will have more say in what goes on economically! Just like I said they would! This is a big deal, in that this shifts the power from the rich countries to the emerging markets… Yes, the rich countries are still in the Group of 20… But, the emerging markets outweigh them now!

And already, we can hear China taking shots at the U.S…. And, now that everyone can comment on other countries’ economies, the U.S. took a shot at Germany, saying that they haven’t done enough to spur Domestic Demand… Germany’s chancellor, Angela Merkel, who is up for election on Sunday, shot back at the U.S., and said… “We should also look at imbalances between currency regions and not pick on specific countries within the Eurozone.”

OK… Let’s talk about something else… I was reading the Financial Times last night, and came across a story that really said something… Here it is… The FT…

“Losses on loans at U.S. banks and other lenders rose to $53 Billion in the first quarter, almost triple the previous high, reached in 2002, said a group of regulators, including the Federal Reserve and the Federal Deposit Insurance Corp. Nonbank lenders, particularly hedge funds, hold $1 of every $3 in troubled loans and 47% of all distressed loans. Loans made to media and telecommunications companies were in the worst state. Lending to the financial-services sector was the next worst, followed by loans to property companies.”

But Hey! According to people in power that should know better, it’s time to sound the all-clear horn!

And that brings me to something I wrote about the other day, regarding the delayed foreclosures… A reader was kind enough to send me this that maybe explains the delays…

A landmark ruling in a recent Kansas Supreme Court case may have given millions of distressed homeowners the legal wedge they need to avoid foreclosure. In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. MERS is an acronym for Mortgage Electronic Registration Systems, a private company that registers mortgages electronically and tracks changes in ownership. The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose on 60 million mortgages. That is the number of American mortgages currently reported to be held by MERS. Over half of all new U.S. residential mortgage loans are registered with MERS and recorded in its name. Holdings of the Kansas Supreme Court are not binding on the rest of the country, but they are dicta of which other courts take note; and the reasoning behind the decision is sound.

And… As another reader pointed out to me… It sure doesn’t make the holder of the loan any richer to foreclose on it, given the state of the housing market today…

Ok… Enough of that! Yesterday, I talked about how Japanese yen was living right these days, rallying when the dollar is weak, and rallying alongside the dollar when it’s not! Well… One of the reasons this could be happening with regularity, is that it is believed that Japanese exporters are repatriating their profits, as their fiscal first half ends this month…

So, does that mean the rug gets pulled out from beneath yen next week? Hmmm… I don’t think so… I think that the one thing that’s really underpinning yen right now is this new found appreciation by the Bank of Japan for yen strength! Just last night, Japan’s Finance Minister Hirohisa Fujii reiterated his opposition to intervention in foreign- exchange markets.

Now, I don’t know how long the exporters in Japan are going to go along with this new found appreciation for yen strength… But for now… Yen is on the verge of gaining even more ground…

In New Zealand overnight… The string of good data prints ended with a thud! New Zealand’s Trade Deficit widened almost double what was expected! UGH! Remember, New Zealand has to import lots of things, and when the exports of wool, dairy, and lumber aren’t strong, their deficit gets whacked! So, New Zealand would always have a Trade Deficit… But, at times it gets completely out of hand, and this is one of those times… Kiwi, got taken to the woodshed after the report printed, as well it should!

The Swiss National Bank (SNB) had a board member giving an interview last night, and when asked about the SNB’s repeated jawboning to get the franc weaker, he had this to say… “with regards to the Swiss franc this means that we counter an appreciation of the franc against the euro decisively.”

Now, that’s a horse of a different color! All this time we were led to believe that the SNB would intervene to get the franc weaker VS the dollar! No wonder the franc has kicked some dollar tail lately, without a peep from the SNB… The franc was allowed to get stronger VS the dollar, as long as the euro was moving in the same direction, same general percentage move VS the dollar!

Our mortgage production guru, Stacy Blair, was talking the other day in a meeting, and mentioned that mortgage rates had edged down again, and production was picking up once more… Well, that plays well with a story I read last night… The average interest rate for U.S. home mortgages fell to less than 5%, and loan applications surged 13%, the Mortgage Bankers Association said. The nationwide average rate on a 30-year fixed-rate mortgage declined to 4.97%. The application surge amounted to a 50% increase compared with the end of June.

OK… So… I would guess that most of that stuff is re-financing loans, but hey! Like I told everyone on our desk 6 months ago, when the rates were in the 4% region… Go refinance your home loan! And then put the money you save each month in savings!

We get back to some data in the U.S. today, and I think that it could have a lot to do on whether the currencies rally or not VS the dollar. Durable Goods Orders for August prints first, and is expected to really fall back from July’s strong 4.9% print… August is expected to print just a .4% gain for Durable Goods… That won’t get the “strong recovery flag wavers” out, and that won’t be good for the non-dollar currencies…

Then later we get the U. of Michigan Consumer Confidence report, which could turns things around for the non-dollar currencies… As the Consumer Confidence report is expected to be strong… ????? Why? I have no idea… (besides the obvious, stock strength)

We’ll also see New Home Sales data for August…

Have you noticed the collapse of the Oil price? Pretty steep drop in just a couple of days! I told you the other day that the G-20 might put pressure on commodities… Oil is off, and Gold has fallen back below $1,000 wink, wink…

So… To recap, the dollar’s rally was stopped short. The G-20 is the new global economic monitor, and the U.S. is ticking the U.K. and France off, regarding seats on the IMF board. G-20 is getting hot and heavy… Japanese exporters are repatriating their profits thus propping up Yen… And, New Zealand’s Trade Deficit widens again…

Currencies today 9/25/09: A$ .8650, kiwi .7185, C$ .9175, euro 1.4685, sterling 1.6010, Swiss .9720, rand 7.4280, krone 5.7850, SEK 6.9170, forint 184.25, zloty 2.8550, koruna 17.15, RUB 30.09, yen 90.20, sing 1.4160, HKD 7.75, INR 47.98, China 6.8286, pesos 13.48, BRL 1.7995, dollar index 76.73, Oil $66.28, 10-year 3.36%, Silver 16.31, and Gold $997.32

That’s it for today… I hope you have a Fantastico Friday, and Wild and Wacky Weekend!

Chuck Butler

Source: G-20 Heats Up…

Good day… And a Thunderin’ Thursday to you! It’s Thundering and raining here, so I felt that naming today a “Thunderin’ Thursday” was bang on! We had a wild and wacky Wednesday yesterday, with the Fed Heads playing the part of the court jester… And… I want to know, right here, right now, why the media isn’t blasting Fed Head Honcho Big Ben Bernanke! I’ll tell you why they should be, in a minute…

OK… As I said, we had a wild and wacky Wednesday yesterday, as the non-dollar currencies went for a spin on Mr. Toad’s Wild Ride, with Big Ben Bernanke in the role of Mr. Toad! HA! That makes me chuckle! Here’s the skinny, and what everyone should be up in arms about…

The FOMC meeting concluded with interest rates remaining at near zero… But what happened next was, well, exactly as I said it would happen, but we’ll get back to that in a minute… What I’m talking about here is that the Big Ben’s band of merry men announced that the U.S. economy’s return to growth was insufficient to withdraw stimulus, and that quantitative easing would remain until March next year… WHAT!

HEY BIG BEN! I read in the Financial Times the other day, yes, the Financial Times, that you said the recession was likely over! I also read in another publication that you said basically the same thing… So! If what you told these fine publications is true… Why then do we need stimulus in place along with Quantitative Easing until next March? You could almost hear Big Ben saying… “Oops, did I say that out loud?” HA!

Doesn’t that just tick you off? Big Ben and the President going around telling people that it’s all clear and consumers can come out now and resume their spending, only to find out it was nothing but “feel good” stuff… Yes, stuff to make us “feel good”… So we would take our eye off the ball… But not me! You can’t fool a wiley old veteran like me, right Jack Milner? I’m not falling for that change-up… And it ticks me off that they thought I was so stupid to fall for that!

Ok… Let’s take a trip back to Monday of this week, when I was trying to explain why the dollar had reversed the negativity toward it… I said this in the Pfennig on Monday… “Seriously though, the markets are of the belief that the Fed will keep rates near zero, but will announce that they will begin to remove stimulus, as Head Fed Honcho, Big Ben Bernanke, believes the recession is over…

I think this is wishful thinking on the markets’ part, as I really don’t see the Fed Heads doing anything, but talking about doing this, that and the other thing. You see, the Fed Heads know all too well that the Commercial Real Estate problems are just beginning and with Unemployment.”

I’ve been more right about what the Fed Heads were going to do, for the last 2 years, than Big Ben!

OK… So, here’s where the wild and wacky comes in… The non-dollar currencies were hanging around on a corner trading in a tight range, when the announcement of further stimulus and Quantitative Easing was made… You should have seen the non-dollar currencies begin to run up VS the dollar… It was crazy, I mean in a manner of minutes the euro traded from 1.4765, to 1.4850, and Gold? It was soaring too! But then it was one of those a-ha minutes, and no, I’m not talking about the 80’s group singing Take Me On! No, it was one of those head slapping moments when you say… Wow, I could have had a V-8!

Basically, investors figured out that by leaving the stimulus in place longer than originally planned, the Cartel, I mean the Fed, is confirming that the U.S. economic recovery isn’t nearly as robust as Big Ben and his compatriots have led everyone to believe. Stock markets fell, and the Treasury rates rose.

With the stocks backing off, the risk assets of currencies and precious metals backed off VS the dollar… And, we ended the day, where we started it… A wild and wacky Wednesday for sure!

The overnight markets were very confused as to what direction they should take… So, as I turn on the screens this morning, the euro is 1.4775, and Gold is $1,014… About the same as yesterday morning… If you weren’t around for the spin on Mr. Toad’s Wild Ride, then you would think… “How boring these currencies and metals are”… HA!

The thing that keeps haunting me here with yesterday’s stock sell off… Could it be the next leg down that I keep warning you about? Could yesterday’s sell off be the harbinger of more selling? We’ll have to keep an eye on this, folks… If we see 3 or 4 days of consecutive selling, it could very well be the indication that the next leg down is here…

Well… The other day I mentioned that the dollar could very well be the last man standing when it comes to near zero interest rates, and that could lead to the dollar becoming the next funding currency for the Carry Trade…

Ty brought to my attention this fact that plays quite well with that thought… For the 1st time since 1933, 3 month LIBOR rates in the U.S. (.28563) are lower than Japanese Yen 3 month LIBOR rates (.34875)

And one wonders why, the dollar is getting beaten like a rented mule? (no animals were hurt!)

A reader called in yesterday and wanted to know what I thought regarding… how a new SDR would affect the currencies. (Specifically NOK, AUS, BRL, CHF)

Well… That’s a tough one! Because if we do end up with a new SDR, no one knows what the makeup of that SDR will be… So, I can’t say how it would affect any currency until we begin down that road to a new SDR… If the current makeup of an SDR is used, then euro, yen, sterling and dollars would benefit… But one has to think that if things come to pass and we start down that road of a new SDR (Special Drawing Rights) that the makeup would be quite different, and could possibly even have some Gold as a component!

So… Sorry, I can’t really answer the question, because it’s an unknown… I hope my beautiful bride reads this part, as she usually only reads the first and last paragraphs, because she always contends that if I don’t know the answer to a question that I just make something up… See, dear? I said I couldn’t answer the question!

Ok… G-20 begins today… Look for these knuckleheads to take a toughened stance on speculation, with Oil in mind… I think that all they will do is make things tough for the Commodity Currencies of Australia, New Zealand, Brazil, Canada, South Africa, and Norway… There’s also an outside chance that these knuckleheads will attempt to do something to limit the rise in currencies VS the dollar… In other words, prop up the dollar… I’m not convinced they could do that, and I am convinced they shouldn’t do that!

Speaking of Norway… The Norges Bank (Norway’s Central Bank) did as I thought they would with rates, and what I hoped they would do with their statement… Here’s the skinny… The Norges Bank left rates unchanged… But… Said after the rate announcement that “they were CONSIDERING a rate hike”… The Norwegian krone went on a moon shot immediately after that statement.

In the race between Norway and Australia as to which will be the first to hike rates, Norway takes the lead, with that announcement yesterday… But, it really doesn’t matter, as no one will get the checkered flag or anything… The thing that makes the difference is that the yield differentials to the U.S. will begin to grow wider… And that, my friends, will go a long way toward currency strength for the currency that rewards investors with higher yields!

Speaking of Australia… The Reserve Bank of Australia’s (RBA) semi-annual Financial Stability Review gave a generally clean bill of health to the banking system and noted sentiment among households and business had improved considerably in recent months… But… The RBA went on to caution that it was not strong enough yet… Which then puts the Aussie rate hike forecast further behind Norway’s…

In New Zealand overnight… It’s been a good week o’ data for the Kiwis… Last night, it was the latest Consumer Confidence Index which jumped to a 4 – year high of 120.3 (previous reading was 106)! WOW! So… The highest Consumer Confidence in 4 years! This news helped kiwi to remain above 72-cents… Even with the risk assets sell off…

In Germany this morning… The Business Climate Index, as reported by the think tank IFO, disappointed a bit, as it came in (91.3) lower than forecast (92), but… The 91.3 marked the 6th consecutive monthly increase for the data… So, the trend is still in place…

And it’s good to be the yen, eh? I mean, recently, we’ve seen yen rally when the other currencies rally VS the dollar… And before that, we’ve seen yen rally along with the dollar… Last night, yen rallied alongside the dollar, and is trading with a 90 handle this morning…

And then there was this… The Federal Reserve System has disclosed to the Gold Anti-Trust Action Committee Inc. (GATA) that it has gold swap arrangements with foreign banks that it does not want the public to know about. WOW! This is a BIG DEAL folks, as the Fed as recently as 2001 (Big Al Greenspan) denied that these swap arrangements existed…

GATA believes that this letter suggests that the Fed is indeed very much involved in the surreptitious international central bank manipulation of the gold price particularly and the currency markets generally.

So guess what I think regarding the Fed now? That Ron Paul’s bill to audit the Fed needs to get on a roll! Remember, it comes before a committee tomorrow, I believe, where it will be decided to forward the bill on or kill it… So, call your representative and tell them you believe they should back Ron Paul’s bill to audit the Fed! I’ve got a bag full of names to call these guys at the cartel, I mean Fed… But, those are verbally used only… Nothing in writing… Hey! This is a family safe letter!

OK… So, to recap… The Fed is leaving stimulus in place along with Quantitative Easing until next March. So much for Big Ben, and the President’s claim that the recession is over, eh? The currencies rallied at first on the Fed’s announcement, but later realized the rot on the economy’s vine has been exposed by the Fed, and then the currencies sold off VS the dollar to end the day unchanged…

Currencies today 9/24/09: .8745, kiwi .7235, C$ .93, euro 1.4775, sterling 1.6220, Swiss .9770, rand 7.3850, krone 5.7630, SEK 6.8380, forint 183.15, zloty 2.82, koruna 17.04, RUB 29.99, yen 90.60, sing 1.4110, HKD 7.75, INR 48.03, China 6.8273, pesos 13.37, BRL 1.7980, dollar index 76.25, Oil $68.36, 10-year 3.41%, Silver $16.81, and Gold… $1,014.10

That’s it for today…I hope everyone arrives to work dry, as it’s a Thunderin’ Thursday!

Chuck Butler

Source: Oops, Did I Say That Out Loud?

And par for the course in 2009, Washington will be crackin’ the whip:

First, the Federal Open Market Committee will reveal their latest interest rate decision today. Chances are they won’t even hint at raising rates for the foreseeable future, but the Street is in knots over whether they will extend quantitative easing plans. We care, but only a little… the damage has been done. More on that in a second.

Then after the Fed, we should start hearing whispers from the G-20 meeting in Pittsburg, which officially starts tomorrow. With world leaders mostly convinced the recovery is under way, we suspect talks of reform, regulation and exit strategies. Namely, they’ll be wondering what the hell to do about this:

The dollar — the money every G-20 nation holds in reserve — has quietly become little more than a carry trade currency. It’s lent at one of the lowest rates in the world. The biggest financial bailouts in modern history have made prospects for dollar inflation pretty high, to say the least. And with every day of this “recovery,” it’s worse.

More QE from the Fed or dollar reserve jitters from the G-20 should mark the next move for the dollar… we’ll keep an eye on it for you.

“The fact that the dollar has been the reserve currency of the world has allowed us to live beyond our means for a long enough period of time to get into trouble,” our executive publisher Addison Wiggin told the Pittsburg Post Gazette yesterday. “That’s what the crisis is. The deficit spending in Washington is the biggest threat to the dollar’s status as the reserve currency.”

“Most of our spending is financed through the credit market, which is heavily dependent on our ability to attract capital from the rest of the world. That ability is in serious jeopardy.”

“The popular explanation for dollar weakness is that investors have a fresh appetite for risk,” Chris Mayer adds. “But maybe there is more to it than that. As one analyst said, if the dollar is the new yen, ‘The greenback is in real danger.’ That’s because foreigners hold a lot of dollar assets, and selling them to swap into higher-yielding currencies could continue to keep fresh pressure on the dollar.

“This loss of purchasing power is like a subtle tax and eats away at your wealth. That’s why I’m bullish on gold and oil and other real assets. As the dollar weakens, these assets ought to reprice and hold their own.”

Source: The Dollar’s Next Move