Yen trades to 98! Carry Trades unwinding hurt high yielders… Gold rallies back to $900! Central Bank rate cuts…. And Now… Today’s Pfennig!

Good day… And a Wonderful Wednesday to you! Well… There’s a ton of stuff to talk about today, one of which is the amazing run that Japanese yen has had in the past month, but particularly the last week! No need to sneak a peak at the currency round-up, Japanese yen is trading 98.80! WOW! I could be acting like a contortionist and trying to slap myself on the back, but that would unprofessional… And besides, the rest of the currencies are taking shots to the mid-section. Anyway… Blow the horn, the Carry Trade (for yen) is dead, may it rest in peace!

OK… The currencies tried like all get out yesterday to rally VS the dollar, the euro did end the day 1% higher on the day, which after the bloodshed of the past month, I’ll take that any old time! I would love to go back to 2005 (not really, but for this conversation’s sake I will) and pull out some old Pfennigs where I talked about all the naysayers talking about a break up of the euro… We had the NO votes from France and Denmark on accepting the European Union’s (EU) Constitution, we had riots in the streets of France, we had rising interest rates in the U.S. and dozens and dozens of naysayers called out the euro and said it would collapse under the weight. I said then, and I’ll say now… HOGWASH!

Shoot Rudy! If this had all played out like the EU Finance Minister bragged about just two weeks ago, the U.S. economy would be drowning without a life preserver, and Europe would be pointing their finger saying neener, neener, neener… But the Finance Minister misspoke and didn’t get the memo that Europe had toxic waste bonds too! So, the euro which should be basking in the sunlight is being tarred with same brush as was used on the dollar, when the markets thought it was just a “U.S. problem”…

Front and Center this morning, we have news that the U.K. Gov. has unveiled plans to partially nationalize major banks, with taxpayers taking a share stake in a bid to restore stability to the banking industry. Eight banks have signed up for the recapitalization plan, which isn’t a marker on who’s doing bad and who’s doing OK… These banks, Abbey, Barclays, HBOS, HSBC, Lloyds, Nationwide Building Society, Royal Bank of Scotland, and Standard Chartered, see a chance to shore up their balance sheets… Who wouldn’t sign up of that these days?

I don’t really know what to make of this plan, I like it because taxpayers get a share of what they paid for… But I don’t like it because once again the Gov. has gotten involved!

Well… The DOW fell another 500 points yesterday… I read something last night that reported U.S. retirement assets are down $2 Trillion dollars in the past 15 months! I guess the markets are calling for “more” from Big Ben Bernanke… The “more” they are asking for now is an interest rate cut, and not some measly 25 BPS… Hey, use the Reserve Bank of Australia (RBA) as your guide… They felt the need to jump start their economy with a rate cut and came out with a 100 BPS cut! No sense in messing around, eh? I mean, if you believe you will need to cut 100 BPS over a period of time, why not go for the gusto and get it over with?

That’s how I’ve always worked on things… If I had things to do at work or home, don’t stop until it’s done, and then take a break…

So, anyway, back at the ranch… Big Ben is getting pelted with requests for rate cuts… I wonder if he has the intestinal fortitude to do a Saturday Night Special? (a rate move, out of meeting, and on a Saturday night, like Paul Volcker did back in the 80’s) If Big Ben’s speech yesterday is any indication of what he might do, then the “fix” is in for a rate cut… You see, he gave a strong indication that interest rates may need to be lowered… He has this to say… “The combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased.”

WOW! He finally sees the downside risks to growth have increased! A round of Applause for the Fed Chairman! Don’t ask me what they heck he’s been looking at if he’s just now come around to seeing downside risks to growth increasing!

Even sadder new than the Fed Chairman just now waking up to smell the coffee, is the unwinding of the Carry Trades for Aussie, kiwi, Brazil, and any other high yielding currency that was purchased in the Carry Trade… Yes, it’s all seashells and balloons for Japanese yen, but the currencies of Australia, New Zealand, Brazil, South Africa and others are getting hammered with the unwind going on. The Aussie and kiwi currencies have fallen to 5-year lows VS the dollar… What took 5-years to build, has been knocked down… I can’t believe it with my own 4 eyes!

The Brazilian real, which had been the belle of the ball for the last two years, has really fallen on a sword… And it all comes back to the unwinding of Carry Trades folks… Should “risk” return to the markets, we could see these trades come back in a hurry… But I wouldn’t hang my hat on the thought that “risk” will return to the markets any time soon… This is the worst period of time in the financial markets that I have even seen… And just so you know… I began my career in the Brokerage business in 1973! So… That covers some time, eh? And I’m not just saying this because these currencies have fallen so badly… This IS the worst period of time that I have seen in the financial markets, period.

Shoot Rudy, the stock market crash of 1987 is like a part compared to this mess!

Stocks are circling the bowl, the high yielders are too, you are lucky if you can get 50 BPS yield on a 3 month T-Bill, and so on… But Gold… Gold is back above $900 this morning, and has rallied 3 days in a row, after dipping to $859 on Monday.

There’s been a lot said recently about Gold and Silver for that matter too, and the theories on why they have not soared to the moon, given the shortage of Gold and Silver… Swiss Asia Capital CEO Jurg Kiener was on CNBC the other day to talk about gold, and he noted the disparity between the explosive physical market price and the sluggish paper market price, blamed the speculation of Wall Street banks for the latter, and predicted the failure of the paper market and the quick doubling of the gold price.

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