Currencies try to rally…  Stevens hints at no more cuts…  Japan posts a deficit!  Gold… To buy on the dips?
And Now… Today’s Pfennig!

OK, front and center this morning, the currencies tried to rally almost all day yesterday, only to find themselves weaker on the day at day’s end, due to the drop in stocks (risk assets) I said a month or so ago that I hoped the currencies would break their tie with stocks, which wasn’t the normal way these two asset classes are priced. I said that, because I was convinced that stocks were simply going through the motions of a bear market rally, and would turn south at some time… Of course, the time could be now, as U.S. Corporations begin announcing earnings for the 1st QTR 2009… If the first Corporation to announce is any indication of the earnings season we’re about to venture through, then you had better run for the hills! Alcoa reported a 59-cent per share loss, which was worse than projected at 56-cents…

So… For now, currencies are lock-step in tune with stocks, which as I said isn’t the norm… But, it what’s happening now…

Yesterday, I told you that the Reserve Bank of Australia (RBA) had cut rates 25 BPS, and the A$ was recovering from the blow of a rate cut, but one that wasn’t as big as traders thought… Well, there was more news from the RBA, and their Gov. Mr. Stevens, who said that “the recession in Australia is much milder than those in Europe and the U.S.” Hmmm, I think he was preparing to leave the rate cut table, don’t you? To me, that’s Central Bank parlance for “This is it, no more rate cuts!” Which, if it’s the case, the A$ should begin to see some real activity…

And… The news from China continues to point to their stimulus working and that economy pulling out of the doldrums faster than the rest of the world. (see what happens when you deal from a position of strength?) Of course that remains to be seen… But like I said, I read at least one story a day about how China’s economic activity is stirring… So… Let’s just play along with those thoughts for a minute… What does that mean for Australia? It would mean that happy days are here again, The skies above are clear again. So let’s sing a song of cheer again. Happy days are here again. Or least something like that… Why you may ask? It all has to do with the need that China has for raw materials, which in the past they received the majority of those needed from Australia… So, now, you can see the tie-in, eh?

Oh… But… If currencies don’t break this trading pattern with stocks, we won’t have any Happy Days in Australia or any other country for that matter, except Japan, which is a counter trade these days…

OK… And now for Mr. Mayo… Yesterday, I told you all about this bank analyst from Caylon Securities, and how he threw a cat among the pigeons with his call that bank losses will exceed those in the depression… The Risk takers headed for the hills, and the safe haven flows into Treasuries were once again the trade du jour… Well… Ty Keough was the first to tell me yesterday that Jim Cramer was pointing out all of Mr. Mayo’s past errors… That’s good, I’ll leave all that to Jim Cramer, because… I’m not here to bash Mr. Mayo… What I’m here to question is why the markets were so moved by the statements of one man? Oh well… I carry on, despite the markets’ indiscretions!

I watched two videos yesterday of interviews with currency analysts, of which both said they believed the dollar’s rally was just about to reach an end… Hmmm… They didn’t say why they thought that, but they said it…

Japan posted a very interesting number last night… Japan’s Current Account Surplus shrunk 56% in Feb. In January of this year, Japan posted their first deficit in 13 years… Interesting, eh? Exports have plunged… But, with the weakness in the Japanese domestic economy, I would suspect that imports too will plunge soon, thus leveling this out…

Yesterday I talked about Ireland and their problems briefly… Well, this morning there’s a story regarding Ireland and what they are attempting to do to cut this problem off at the pass. Finance Minister, Lenihan is mirroring the tactics Sweden took in the 1990’s when their financial system teetered on the cliff of disaster. That’s a good thing in my book… I talked about the “Nordic way to deal with financial disaster” months ago… I’ve never cared for the way we are going about dealing with this here in the U.S. and preferred the Nordic way of dealing with “bad banks”…

If you would allow me to go off on a tangent here… (if not skip to the next paragraph!) But, why did Paulson, and now Geithner, along with Bernanke believe that throwing Billions / Trillions of dollars at this problem was the correct thing to do? I mean, we got into this mess because there was too much money in the system and it wasn’t regulated… So… The answer is to throw even more money at this problem? I just don’t get it, folks! I have a cartoon that I cut out of the paper a month ago, that just cracks me up… It has a character watching TV… And from the TV you see this quote… “And as President, I can assure you… That the ERA of tax cuts and wasteful spending is over”… And in the next box/ quote… “Get ready for the ERA of NO Tax Cuts, and REALLY Wasteful Spending”… That just about tells it all, eh?

Remember what I told you on Monday about what Richard Russell had to say when he was asked what he would do now… He simply stated… “nothing”… “I would let the bear markets run their course”

I saw this in the WSJ this morning… “The Treasury Department plans to extend the Troubled Asset Relief Program to certain eligible life insurers. Several life insurers have been burdened lately by capital constraints amid ailing markets.”

Oh great! The Treasury Dept. is bound and determined to spend all the TARP money even if it goes toward things / companies that it wasn’t created for! Records show that there is about $130 Billion left to spend… Come on Mr. Treasury Sec. this isn’t a re-run of the movie Brewster’s Millions! (you might recall that movie, as Richard Pryor inherited a million dollars, but had to spend it all to receive it, or something like that….)

Gold held onto those gains I talked about yesterday morning, and has added another $5.25 this morning… The shiny metal is back to $887… A reader asked me yesterday about Gold dipping below $900… Hmmm… It’s my feeling that buying Gold on the dips is a good practice… But then, who’s to say that Gold doesn’t fall even further before turning around? I don’t think anyone would bet against that happening… My point is, if you can buy it cheaper today than you could yesterday or last week it’s a bargain! If it falls further… It’s an even better bargain!

The euro has been gaining ground since I turned on the screens this morning, rising from 1.32 to 1.3255 as I type my fat fingers to the bone! You know… Eventually, the chickens will come home to roost on all the debt and money supply and treasury issuance and failed corporations and the depression in the U.S. and when they do… One would have to think that the dollar will get punished severely… And I mean severely! But all that remains to be seen… The best thing to do though is to give your investment portfolio a hedge… And make certain that you don’t have all “dollar denominated” asset classes / investments! A diversification that does NOT require a 100% move out of the dollar! Currencies and metals are asset classes just like stocks, bonds, mutual funds… Add them to your portfolio and reduce the overall risk of that portfolio!

Not much in the data cupboard today… The FOMC meeting minutes from March 17-18, when the Fed announced that they were buying Treasuries, thus monetizing the debt… It will be interesting to see what led to that decision, or who came up with that idea… The Treasury has another auction to get through the system today, this time of 3-year notes. The yield on those notes will probably be around 1.25%… Ooooohhhhh, where do I sign up? NOT!

Currencies today 4/8/09: A$ .71, kiwi .5760, C$ .81, euro 1.3255, sterling 1.4710, Swiss .8725, rand 9.20, krone 6.72, SEK 8.22, forint 223.80, zloty 3.3850, koruna 20.06, yen 100, sing 1.5150, HKD 7.75, INR 50.19, China 6.8470, pesos 13.52, BRL 2.2150, dollar index 85.30, Oil $47.78, Silver $12.29, and Gold… $885

Source:  Needing To Break The Pattern