We’ve got a lot of catching up to do, eh? Mike and Chris did a Fantastico job of taking the conn on the Pfennig in my absence… So thanks to them… But it’s back to me, and besides a couple of days in San Francisco later this month, I’m all yours! (I bet that just makes you smile like a Cheshire Cat… NOT!)

OK… Rather than beat around the bush this morning, Chris left me this note from Friday’s price action, so let’s go to the Friday round up and then onto today! Here’s Chris!

The currency markets were fairly calm Friday morning, but at around 9:00 the dollar index fell off a cliff! The big data released this morning was 2nd Quarter GDP which showed only a 1% contraction vs. an expected 1.5% contraction. But the 1st quarters number was revised down to 6.4% from the original report of 5.5%. I guess traders needed some time to digest the information, as the report came out at 7:30 but the dollar didn’t start its freefall until just after 9:00. But when they finally decided to take the dollar lower, the move was pretty dramatic with the Euro moving up a 1.5 cents in about 2 1/2 hours. The markets settled down around noon, and traded sideways until the close.

So… My time away was much like the “old days” that you could almost make trades on the trading pattern of when Chuck was away, the currencies rallied…

OK… So as I turn on the currency screens this morning, I see that the euro is trading up towards 1.43, and the Aussie dollar is trading with an 84-cent handle! So, those are some good looking numbers for the currencies. The GDP data that Chris talks about above, was interesting in that it gives the risk takers some rope… Yes, that old saying about getting enough rope to hang yourself, comes to mind here. Not that the risk takers will hang themselves, but to illustrate that they have some room to take risk assets higher.

When you look at the proxy currency for commodities and global growth, the Aussie dollar, and it’s trading at the highest level we’ve seen this year, you’ve got to think that the traders, and others are thinking that the worst of the global recession is in the rear view mirror. Now, I think that’s putting a little like putting the horse before the cart, as we just don’t have enough data that hasn’t been massaged and cooked to prove that we’re coming out of the global recession… But hey! If the traders, hedge funds dudes, and currency participants want to play Sly Stone, and take currencies higher, then I suggest we not stand in front of that bus!

One of my fave economists, Nouriel Roubini, believes that “there is now potentially light a the end of the tunnel.” And… That “Commodity prices may extend their rally into 2010 as the global recession abates.”

Now… That’s a horse of a different color, eh? When someone like Nouriel Roubini, who was one of the first to call out the collapse of the global economies, sees a potential light, then the markets sit up and take notes… And begin to buy at cheaper levels, just in case that light is the sun… And not the light of a run-away train heading straight for us!

Well… Somehow, U.S. stocks essentially made it through the earnings reports season unscathed. Pretty amazing if you ask me, but I never claimed to be a stock jockey, so that pretty much explains my inaccurate prognostications that 2nd QTR earnings would be a real drag on stock values… Which scared the bejeebers out of me, for stocks, currencies and commodities have been all rolled up in a great big “risk assets” ball for months now, and if stock values were going to get taken to the woodshed then so would currencies and commodities… But that didn’t happen… Hmmmm….

OK, with the earnings season basically over, we can get back to watching regular data that makes more sense to me… And this WILL be a week that’s cock-full-o-data, beginning with the ISM Index (manufacturing) for July today, along with Vehicle Sales. Tomorrow we’ll see the color of two of my faves, Personal Income and Spending. Wednesday is the ADP Challenger employment report for July… Thursday, we’ll get Central Banks meetings in the U.K. and Eurozone. And Friday is the BIG KAHUNA, as the Jobs Jamboree for July gets printed. Right now, the economists surveyed are looking for a HUGE drop in job losses for July. June’s BLS massaged number of 467,000 job losses is being forecast to drop to 325,000..

I’ll believe that when I see it, although it would be nice if that was the “real” number, eh?

If job losses drop by that much in July, it would certainly keep the fire burning for thought that the global recession is recovering, and that would certainly keep the fire burning for currencies and commodities!

Well… Don’t look now (made you look, made you look! HA) but pound sterling is the best performing currency overnight! The pound is 1.6840, with a bullet! (yes, it had a good beat, and was easy to dance to) Stranger things have happened in currencies over the years, but this is one that really moves to the top 10… The U.K. with all their problems, and sterling posting a better than 15% gain VS the dollar in 2009… Like I said, stranger things have happened, but this one really is a puzzle… Riddle me this Batman… How can a currency from a country that is deep in debt, has interest rates near zero, has a housing problem not unlike that in the U.S., has political problems, and has implemented Quantitative Easing, post a +15% gain?

Ours is not to question why or how… Just know that the calls for the greater use of SDR’s (Special Drawing Rights) by China is probably a good reason, for the SDR’s would contain sterling….

Speaking of SDR’s, and the IMF issuing them… And recall when the current President called for greater authority for the IMF? Well, I’m reading a book right now, that will put shivers down your spine regarding all of this, and it was written about 10 years ago! The name of the book is: The Creature From Jekyll Island… The Creature is the Federal Reserve System, and what it was created to do… Not the stuff you learn in economics 101… What it was “really” created to do… This book is over 500 pages, so it’s a long one… But well worth the read, especially to those that don’t believe we’re being driven to socialism…

OK… Enough of that! I’m really trying to steer clear of that stuff, for I’ve had to deal with quite a few people that just want to shove stuff in front of me that I’m not going to read! Of course this in response to my direction before I went on vacation… But that’s all behind me now… It’s on to the perils of Deficit Spending, and… How to protect yourself from the eventual devaluing of the dollar due to the Deficit Spending!

Back to Australia… The Reserve Bank of Australia (RBA) meets tonight, and while I don’t expect the RBA to raise rates… I do expect them to move from an easing bias to neutral, which in essence would be very much like a rate hike! And… Would really stoke the fire burning for the A$… Especially if in their Monetary Policy statement, the RBA upgrades their growth forecasts… For if they do that, that’s just like telling the markets that rates are going higher here before they go back down…

I heard, but did not see obviously since I was not around any TV’s, laptops, or cell phones last week, that there was a woman that finally took the media to the wood shed for their mamby pamby ways of dealing with the news, and playing patsy with the politicians, etc. Michelle Malkin is her name… And I give her kudos for calling into question the credibility of the media and in this case NBC… (yes, I hold a grudge, BIG TIME, and NBC / CNBC)

I saw the euro hit 1.43 a minute or so ago, but immediately fall back below the figure… I would suspect this to repeat itself a few times before finally moving over 1.43… If not, then look for a fall back… But right now, the bias seems to be to sell dollars…

Currencies today 8/3/09: A$ .8390, kiwi .6655, C$ .9340, euro 1.4290, sterling 1.6826, Swiss .9375, rand 7.7415, krone 6.0825, SEK 7.20, forint 185.60, zloty 2.8725, koruna 17.93, yen 95, sing 1.4340, HKD 7.75, INR 47.67, China 6.8308, pesos 13.18, BRL 1.8645, dollar index 78.12, Oil $70.81, 10-year 3.55%, Silver $14.31, and Gold… $956.60

That’s it for today… Vancouver was great… The Agora Financial Wealth Symposium was very well attended, and I thought my presentation to them went quite well. The attendees were so kind to me, coming up and asking how my health was… And then asking to see a picture of Delaney Grace! Then on to vacation! A great time was had by all, but especially me, as I was surrounded by my kids all week. I know it will be difficult for me to not have little Delaney Grace around me all day this week! I just loved when I would ask, where’s Delaney, and she would pat her chest and say “I right here!” So cute! We dropped my little buddy, Alex, off at Camp where he’ll be the next two weeks. His Camp is just across the lake from our campsite! This will be a long week, settling back into the saddle and all, so I had better get this out the door and to your computer screens! I hope you have a Marvelous Monday!

Source: Data Cupboard Gets a Work out This Week

Good day… And a Tub Thumpin’ Thursday to you! I’m late, I’m late! I don’t believe I ever heard the alarm go off this morning! I overslept by more than an hour, and will still be here more than an hour before any sign of someone else! But! That puts me behind by more than an hour today… I’ve got to play catch-up! So, let’s get this Tub Thumpin’ Thursday going!

Well… Let’s see… G-8 never had the opportunity to shoot fireworks because China’s leader had to return home to deal with the street riots going on in his country. So… The call for a replacement for the dollar as the reserve currency will have to wait for another day! And, with that news, the dollar got to remain in the sunlight, and bask in the glory of being the reserve currency and so-called “safe haven” another day…

There was added Risk Aversion yesterday when it was reported that an Australian shipment of coal to China was cancelled… This sent bad vibes through the markets for the currencies and commodities with the thought that China was putting the brakes on their buying of raw materials, and that their recovery had not taken hold like many had believed…

But… Overnight, calmer heads have prevailed. You see, it was my opinion when I heard that news yesterday, that it was simply one bad shipment to a customer that was having difficulties… Not ALL OF CHINA! And then overnight the data came out… This was one shipment, maybe 150,000 tons of coal… Australian coal shipments to China on a monthly basis run about 3 million tons! I truly believe that Australia’s trade with China is on terra firma, and this was a one-off deal that went bad… I also believe that the sell-off of the Aussie dollar (A$) was completely overdone… Completely!

I don’t know this to be a fact… But, given the relationship of the Asian investors and the A$, I would think the Asian investors to be licking their chops to have the opportunity to buy the A$ at these lower levels! Buy on the dips, right? Don’t I always say that to be a prudent investment strategy?

Of course it didn’t hurt that U.S. stocks rebounded yesterday a bit on the news that Alcoa’s losses weren’t “as bad as expected”… Talk about setting the bar low! It’s not like ALCOA didn’t still have a LOSS! But, don’t get me started on this mental giant thought process that has a grip on stocks these days… “oh, don’t worry, you only burned down 1/2 of the house, I would have expected it to all burn down!”

I’ve got to leave that alone before I really burst! Let’s see, what can get my mind off of that subject… OH! The Bank of England (BOE) just announced that they would keep rates unchanged. Well, my goodness, what else would we expect them to do? Their base rate is .50!

Here in the U.S… The Obama administration is trying desperately to nip in the bud, the whispering campaign for another stimulus package… “No one in the administration is talking about a second stimulus at this point,” said Robert Nabors, deputy director of the Office of Management and Budget. However he also mumbled something about how the President is not “ruling anything out”…

I don’t care what they say… I’ll believe it when I see it… And I still believe that the Gov’t will believe that another stimulus is needed…

One of the discussions that I had with my fave economist the other day was about “delaying the inevitable”… I’ve talked about this before, but for new readers, I thought I would give them a dose of “Chuck’s Thoughts” this morning… (HA! As if they don’t get that every day!)

This “delaying the inevitable” is all about the TARP (troubled asset relief program) and how it all did was allow bad banks to continue to be bad banks longer, with toxic waste in their portfolio… This, even in the face of a suspension of the mark to market rules! Bad Banks should have been sent packing, then… And now, all we’ve done is let them hang on to cause even more collateral damage!

OK… I’ll get back to the daily discussion now…

It looks as though the auction of $35 Billion in 3-year Treasuries went smoothly, which is another reason the dollar was strong yesterday… Every time one of these auctions go smoothly, the “deficits don’t matter” crowd all point and say… “see, we told you, that foreigners will always come to the auction to buy Treasuries, so it doesn’t matter what we run the deficit up to”…

Right! You just keep thinking that, and see where it eventually gets you! Ty sent me a note yesterday from an article he was reading, that plays nicely with this discussion… So… Let’s play Marvin Gaye, and see what’s going on!

“For now, the Treasury continues to find takers for government savings bonds at low interest rates. But somewhere between here and infinity lies a point at which American debt reaches unsustainable proportions, at which investors will balk at continuing to finance the American expenditures absent a higher return on their investments. Then, everything could change quickly, with interest rates soaring and the value of the dollar plummeting, as foreign investors lose faith in its fundamental value.

“We’re running this $10 trillion gamble that interest rates aren’t going to rise,” said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund and now a professor at Harvard. “If they do, we could end up in a very difficult situation.”

Hey, you think so, Kenneth? My goodness, we have a new “Mr. Obvious!” I would think that we are already in a very difficult situation, given the fact that when the you know what hit the fan the U.S. had no war chest to use, like China did… Why? Because we didn’t think “deficits mattered”… Dealing with problems from a position of strength, it would have made a HUGE difference from the get-go!

However, having said that… I believe that a larger problem is still on the horizon for the U.S. and the “deficits don’t matter” flag wavers… And Hey! It’s not going to happen overnight… It’s going to be a slow, dragged out, problem that goes on for years, and then finally snaps! I’m talking about the entitlements and the retiring baby boomers… And more specifically when I’m talking about entitlements, I’m talking about Medicare!

The Big Boss, Frank Trotter, showed me a graph that he came across from the Concord Coalition the other day that illustrated this… While I wasn’t shocked, having seen this all in the movie I.O.U.S.A. and in the book of the same name, there it was again staring me in the face…

The reason I tell you all this, is that the Current Administration has no other choice but to allow the dollar to weaken considerably over the years so that these deficits that “didn’t matter” can be paid off with cheaper dollars… And it won’t be this administration that has to deal with it… That’s why this one and the previous one aren’t concerned about the size of the National Debt…

Ok, enough of all that… I didn’t mean for this to be gloom and doom! Let’s move on…

The data cupboard has the Initial Weekly Jobless Claims for us to view today… I expect for the weekly number to remain above 600,000, and the Continuing Claims to have risen… Though this all sounds bad, the markets have become comfortably numb with this unemployment data… It will take something really BIG to slap the markets in the face and say WAKE UP!

And then, finally… The Japanese yen has really been on a tear this week as the Risk Aversion crowd dominated the markets… I find it very strange that Japan is considered a “safe haven” currency, given their national debt problems… And their once “Ace in the hole” the Trade Surplus, is taking on water… But… This is what the markets do, and they are never wrong! However, there’s a road block ahead for the yen, as it trades with a 92 handle this morning… And the road block is in the form of the Bank of Japan. (BOJ).. It was reported that last night the Bank of Japan issued a statement to the markets that “they were checking FX levels”

That’s Central Bank parlance especially coming from the BOJ, for… We don’t want the currency to get any stronger, and we’re just letting you know that we’re ready to intervene if you don’t settle down. Sort of like when grandma would tell you that if you didn’t settle down she would send you to the woods to find your switch… Believe me you only didn’t settle down once!

And when the Risk Traders come back and push the Risk Aversion crowd to the back of the room… Again, we’ll see yen sell off again… So be careful here!

Currencies today 7/9/09: A$ .7845, kiwi .6305, C$ .8650, euro 1.3980, sterling 1.6260, Swiss .9250, rand 8.11, krone 6.4925, SEK 7.8590, forint 196.70, zloty 3.1150, koruna 18.55, yen 92.90, sing 1.4580, HKD 7.75, INR 48.71, China 6.8317, pesos 13.47, BRL 2.00, dollar index 80.21, Oil $61.29, 10-year 3.39%, Silver $12.95, and Gold… $915

That’s it for today… Well… I got the news from the eye specialist yesterday regarding my left eye… The tumor and the fluid on the eye is gone, they successfully shrunk it and removed it… Unfortunately it left a ring of “stuff” on my eye, and my eyesight from that eye will never get any better. Of course, I still have my right eye, so I’m not completely bummed… My cutie little granddaughter, Delaney Grace came by to see me yesterday, she wanted me to come “sit by her” She’s almost 2 now, and saying her ABC’s, and singing songs, and she showed me how she knew her right from left now… Such a little joy to be around… I’ll get to spend a whole week with her in about 10 days when we all go on vacation together… Can’t wait! Well, my lateness has put me way behind this morning, I had better get going… Don’t forget… Today is going to be a Tub Thumpin’ Thursday no matter what!

Source: Risk Returns… Slowly

Good day… And a Terrific Tuesday to you! Well… Let the Data flow begin! And let Big Ben Bernanke’s “green shoots” wilt under the bright summer sun! Not that I want to see the U.S. in economic muck, but come on! He was banging the drum for these “green shoots” when they simply looked like weeds to me, and I just think for him to say those things when I believe he knew better was wrong… Very Wrong!

I came in this morning, and turned on the currency screens to see that the dollar has taken a step back for the 4th consecutive day VS the euro. The single unit is up to 1.41 again, as it makes those probes out beyond the 1.35-1.40 trading range we’ve had in place now for some time. Yield demand is what’s driving the dollar downward, and while the euro doesn’t exactly have a “yield differential” to the dollar, the thing to remember, as I always tell you… The euro is the “offset currency” to the dollar. So, just by nature of the crosses to other currencies, the euro benefits whenever the dollar is sold.

So… If Yield Demand is what’s beating the dollar up like a rented mule (no animals were hurt here, just a saying… ) Then the “high yielders” should be doing the beating… And as I look at the currency screens, that’s what I see! The Aussie dollar is trading above 81-cents, kiwi above 65-cents, rand is 7.75, and the Brazilian real which has to fight with the Central Bank for every inch of gain VS the dollar, is holding its own right now… A month ago, I was telling you about the gains VS the dollar since March 1st… Well, an updated look at the 3-month gains tells us that the move against the dollar has continued… Albeit with several steps backward along the way!

Shoot Rudy! Even the beaten and left for dead Mexican peso has rebounded in recent days as the “other” high yielders drag the peso along for the ride.

4 months of gains VS the dollar doesn’t exactly qualify this move as a “trend”, which is normally associated with long sweeping moves. This does look as though it could become a “trend” though, as it has all the qualities of a long sweeping move, just concentrated in a 4-month span… Like, when a “trend” is in place, it’s not a One-Way street, there’s volatility within the trend… And we’ve certainly experienced that! Personally, even if this does turn into a long sweeping downward move for the dollar, I would just say that it’s a return to fundamentals, and not a new trend… Simply a return to the underlying weak dollar trend that began in 2002, and saw a pause in 2005, and then another one from July 2008 to March of 2009…

OK… Remember when I made such a BIG DEAL out of China and Argentina agreeing to swap currencies in trade settlement and remove dollars from the equation? I told you then that China was trying to gain a wider acceptance for their currency, the renminbi. And… That China had locked up Southeast Asia with similar agreements, which led me to believe that since they had traveled to South America, that Brazil could be next in line… And, the rumors began circulating…

Mom… He’s doing it again! Yes… China and Brazil have agreed in principle to remove dollars from trade settlement, and replace them with renminbi and reals respectively! This follows up what I told you about 10 days ago, and that is that China had become Brazil’s number one trading partner, knocking the U.S. down a notch. So… If that’s so, it’s not like we’re talking small sums of money folks… No, this is the BIG KAHUNA for China, and that not so big kahuna for the U.S. / dollar…

So, while China claims to be on the dollar’s side, and “see’s no alternative currency”… They are working to get their own currency in the mix… Looks like it’s all a “plan” to me, folks… Before we know what hit us, renminbi will be everywhere!

But… Still manipulated as to it’s value VS the dollar by Chinese officials. So… Don’t think, for now any way, it could all change though, that you should sell everything you own and go out and buy truck loads of renminbi… I think you would find yourself to be a bit disappointed… That is, unless you have time on your side… Time is on my side, yes it is…

I got a HUGE kick out of my friend, The Mogambo Guru, reading his weekly letter on the Daily Reckoning site (www.dailyreckoning.com) I’m looking forward to catching up with the Mogambo in Vancouver in 3 weeks time. We keep missing those opportunities to meet up, with first my cancer, and then his stroke… But, there we will be together, two of the biggest smart alecs you’ve ever met in your entire life… I need to see if he’s up to going on the road with me to do a two-man show! HA! Any way… The thing I was going to talk about was that the Mogambo, told his readers yesterday, that in his latest visit to John Williams’ web site: Shadow Stats, he was surprised to see that inflation is really running at 6%, which is quite different from the stupid CPI the Gov’t tries to shove in our faces of -1.3%! Here’s the Mogambo…

“As for inflation, his calculation of the Consumer Price Index “reflects the CPI as if it were calculated using the methodologies in place in 1980,” which I note is back when inflation was a measurement of the change in prices of things that you buy, and not, as it is now after the villainous Alan Greenspan and Michael Boskin came up with their ludicrous “hedonic” measurements of inflation with which to disguise it.”

And… He also found that unemployment, which I tell you all the time is very, very, very, and maybe one more very, understated by the BLS, is… At 20%… 1 in 5 are unemployed…

So… Thanks to the Mogambo, and John Williams for giving us data that backs up what I’ve been spouting off about!

This morning, Norway got the data flow going early with Norwegian retail sales surprising to the upside in May, rising 1.9%! The experts had forecast a -.2% decline… This rise in May gives brings the year-on-year figure to a negative -1%, which still sounds bad… But much better than what was forecast… -3.2%!

Norway seems to be just sailing along, out to sea, without any wind in its sails, not joining the other Commodity Currencies like Aussie, kiwi, and South Africa and Brazil… I think that won’t last too much longer… You see, Norway had a governor put in its currency when it’s neighbor, Sweden experienced bad times due to the Latvian banking crisis… So, as more and more miles of road get put between the thoughts of Latvia and Sweden, the better it will be for Norway… That… And… Getting Oil’s price back to the rally mode!

Canada is another currency that is not gaining along with the other Commodity Currencies, even with Oil moving higher again… Here’s the diff… Those other Commodity Currencies all have YIELD! While Norway and Canada do NOT! However, having said that, I just don’t see these two energy driven currencies wallowing around in the mud too much longer. Playing catch-up with Aussie and the rest of the bunch will be difficult though, and the “other” Commodity Currencies have such a big head-start!

OK… Time for the data set-up for today…

The S&P/ CaseShiller Home Price Index for April will print this morning, and is expected to show a decline of -18.6%, which those that wear rose colored glasses will say, “Hey, Chuck, that’s down from previous declines”… To which I will respond… Yes, it is… But, not much… And if you chart out the monthly prints you’ll see that it hit the low of -19.01% in Jan… February’s print was -18.67, and March’s print was -18.7%, you’ll have to agree with me that the move to “down from previous declines” has been quite slow, eh? And… At this pace it would take until 2011 before we got back to 0% YIKES! So… While you’re wearing those rose colored glasses you might, just might, want to dig deeper into the data before you start sounding the “all’s clear horn”!

We’ll also see Consumer Confidence, which, because of the better times in stocks, is expected to inch upward to an index number of 55.3 VS 54.9 in May… While this data is more like what I believe it should be, it’s still higher than I would think… But then, so are stocks!

And… Then there was this… Recall last week, when Big Ben Bernanke gave his impression of Sgt. Schultz, when asked about pressuring Bank of America (BOA) to take over Merrill Lynch, claimed he “knew nothing”! I thought that he had thrown former U.S. Treasury Sec. Paulson under the bus… Well, today, Paulson will appear before the same committee that’s looking into this mess, that BOA Chairman Ken Lewis claims to have happened. I wonder what Paulson’s thinking after hearing Big Ben last week? I guess we’ll find out today!

It’s the last day of June, my younger brother David’s birthday… David was born when I was nearly in high school, while my youngest brother, Mike was born while I was in high school! Anyway… What I was going for with the last day of June, before my mind wandered, was that it will close the books on the 2nd QTR… And soon enough, we’ll begin to see earnings reports for the quarter… Should be interesting…

Currencies today 6/30/09: A$ .8140, kiwi .6520, C$ .8675, euro 1.4125, sterling 1.66, Swiss .9255, rand 7.7435, krone 6.3955, SEK 7.6630, forint 193, zloty 3.1555, koruna 18.3360, yen 95.80, sing 1.4465, HKD 7.7499, INR 47.90, China 6.8305, pesos 13.12, BRL 1.9565, dollar index 79.64, Oil $71.67, 10-year 3.48%, Silver $14, and Gold… $940.75

That’s it for today… Whew! What spanking by the Giants last night! OUCH! It’s bad enough to get shut-out on two hits, but when the other team hangs 10 on you… Like I said, OUCH! Now that’s going to leave a mark! Tomorrow, we turn the page on the calendar to July, which means the All-Star Game is almost here! I’m as excited as a kid at Christmas for this… You’ll have to look for me at the Home-Run Derby, and All-Star Game… I’ve got some primo tickets right at the end of the visitor’s dug-out (3rd base line), 2nd row! Now, you know why I’m so excited! Well, that’s enough of that… Mary and Suzy Q are here, so that must mean that I’m late! So… Let’s make this Tuesday Terrific, eh?

Souce: A Week Dominated By Data

Front and center this morning, I’m as proud as a peacock this morning. I just read an email from good friend, and excellent market analyst, Mary Anne Aden… Mary Anne sent me a note letting me know that the one and only Richard Russell had quoted me in his letter June 10th… She said it went something like…”this is from Chuck Butler’s always terrific column…” WOW! Being quoted in Richard Russell’s letter is like the top of the list for me!

OK, Chuck, you have to come down from cloud 9… Hey You, get off of my cloud! Even the fact that the currencies and commodities have sold off in the overnight markets can’t stop me from this seashells and balloons feeling…

Yes… The currencies and commodities have sold off in the overnight markets… Even a good print by Germany’s think tank IFO on Business Confidence, hasn’t wrapped a tourniquet around this sell off… This wasn’t a “one and done” for Business Confidence in Germany either! This happens to be the third consecutive month of positive gains for this data. Now… One would think that this should signal something, right? I mean, if I walked up to you on the street and said, “Germany’s Business Confidence has posted positive gains for 3 consecutive months”… You would probably, no wait, definitely think (because I know you are very astute, and pay attention in class each day), that Germany’s economy must be coming out of their recession… Hmmm… Yes, that’s what I would think too! But… The euro isn’t showing any thoughts by traders like that!

I think that in the next print of GDP in Germany (the Eurozone’s largest economy), we’ll see a nice improvement from the previous quarter’s negative -6.7% decline! I’m not thinking that GDP will go to a positive print… But if it knocks out half of that decline, that would show that things are improving… And if things are improving in Germany, the rest of the Eurozone will grad on to the coat tails!

The U.S. Fed meets this week, in an otherwise quiet week data, and talks, and we’ll have to see what’s up Big Ben’s sleeve now… I would suspect that this week will be a non-event… But in August, the Fed will most likely be setting off some late fireworks, with an increase in their bond buying program… Quantitative Easing… UGH! And that thought leads me talk about the amount of supply hitting the markets in the near future… But I wont’ bore you with my description of the supply… Here are my friends, Addison Wiggin and Ian Mathias…

My friends, Ian Mathias and Addison Wiggin over at the 5-Minute Forecast, never cease to amaze me the way they describe things! Here’s a piece of their letter from Friday, June 19th…

“The U.S. government announced yesterday it will auction a record $104 billion in debt next week. Despite obvious warning signs that the world has had its fill of American paper, the Treasury will forge ahead: $40 billion in 2-years Tuesday, $37 billion in 5-year notes Wednesday and $27 billion in 7-year garbage on Thursday.

They must “get it.” Last week’s sharp rise in 10-year yields was as sure a sign as any that investors everywhere are getting cold feet. A prudent government would take a break… let things cool off. But there’s no rest for Uncle Sam, or his Treasury. They’ve got the mother of all Ponzi schemes to run:”

I’ll get to meet up with Ian and Addison next month in Vancouver… I’m looking forward to that!

So… Like I said, the data is pretty weak this week… So, we’ll be scratching and clawing for the markets to throw us bone.

Down Under… The Aussie dollar (A$) has taken on some water overnight after a story printed and quoted the Morning Herald’s economic editor… The quote went something like this… “the market was wrong in discounting little to no chance of another RBA cut this year, and a high chance of a hike in the first few months of next year” …

You might recall last week I told you that the market in Australia had basically decided that the Reserve Bank of Australia (RBA) had come to an end of their rate cut cycle… I then threw in my own 2-cents and said that the first rate hike would come in the 1st QTR next year… Well, the Economics Editor at the Morning Herald doesn’t agree… And the A$ has sold off big time since the paper hit the news stands! Come on! That’s just one person’s opinion, isn’t it? Last week, the market players were all about the end of rate cuts… And they are now going to be swayed by one opinion? Where’s the intestinal fortitude?

And then there was this… Not happy with having their heavy hand in just about everything these days… The Fed is reviewing the Repo market… Apparently, the poor old Repo market is getting blamed for exacerbating the financial turmoil that followed the collapse of Lehman Brothers last fall. For those of you not familiar with this market… It’s a utility for overnight funding… (some go longer than overnight, but the overnight repo and rev repo market is what is being reviewed) So… Look for more Gov’t. reforms in a market that has existed for many years just fine and dandy…

I’m going to stop there this morning, as I forgot to print a “Corporate feel good story” on Friday, I will do so today… So, look for that after the “that’s it for today” segment…

But… First, speaking of feel good stories… I saw this flash across the screens this morning… New York Times reporter David Rohde, who disappeared in Afghanistan in November 2008, has escaped from his Taliban kidnappers and is under U.S. military protection…. Cool, eh?

Currencies today 6/22/09: A$ .7960, kiwi .6350, C$ .8745, euro 1.3845, sterling 1.6440, Swiss .9190, rand 8.1575, krone 6.4950, SEK 8.00, forint 201.65, zloty 3.2575, koruna 18.80, yen 96, sing 1.4580, HKD 7.7503, INR 48.59, China 6.8355, pesos 13.42, BRL 1.9750, dollar index 80.75, Oil $68.30 (this has really backed off the past couple of days!), 10-year 3.73, Silver $13.88, and Gold… $925.35

That’s it for today… My little buddy, Alex, and I were on our own for part of the weekend, and we did just fine! Last week, I bought a used Bass Guitar, and now I can add some bass to Alex’s guitar playing… It’s fun! The two of us, “jamming” in the basement! All we need is drummer, so people can feel a beat, yeah….. HA! It’s alive! It’s alive! My beloved Cardinals actually had their offense come alive this past week… A nice weekend sweep of the cross state Royals, was sweet! I just heard on the radio that the “heat index” could hit 110 today here in St. Louis! My mind immediately flashes back to when I was a kid, and we didn’t have air conditioning! Then we got one that cooled one room… I had 6 siblings so the 9 of us would all sleep in that one room! We were NOT allowed to go in that room during the day! And look! We survived! HA! OK, thanks for going with me on the trip down memory lane… Time to go to the Corporate Feel Good Story… I hope you have a Marvelous Monday!

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I have my own business, working out of my home, representing a small agency called Markle & Associates here in the Pacific Northwest. We represent six wool carpeting mills and a bamboo and hardwood importer. And because our products are “green”, environmentally friendly, we do have an edge over the synthetic products and anything tied to petroleum. But nevertheless, we have still been affected by the economic downturn. What I’ve found to keep the business coming is a simple tool we all know about: networking. Years ago I heard a statement about the success of networking that said it was the single most powerful way to increase business. Faster results than advertising, and cheaper than any other marketing attempt.

So, I’ve made that my thrust over the years and make sure I stay involved in my industry organizations, participate in meetings on the chapter and national levels and volunteer for positions to help these organizations grow. In my industry, it meant remaining connected over the years with design organizations like NKBA (National Kitchen & Bath Association), NWSID, (Northwest Society of Interior Designers), American Society of Interior Designers (ASID) and International Interior Design Association (IIDA). The reason networking works is because people buy from people, rather than simply from businesses. Learning that key has helped my business to keep going in diverse economic climates, including this one.
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Source: Currencies and Commodities Sell Off

Good day… And a Wonderful Wednesday to you! A total reversal of Friday’s risk assets sell off was the soup du jour for Tuesday… This is beginning to remind me of a Wayne and Garth street hockey game… Here comes a car… Game off… Game on…

So, as I just said, Tuesday saw the currencies trade right back to the levels they enjoyed VS the dollar last Thursday, before risk assets began to sell off on Friday. These are the types of trading patterns you normally see when the assets involved are getting ready for a break out… A jail break… Tonight there’s going to be a jail break!

OK, I’m not saying that the jail break takes place tonight, I just broke out in a song from the 70’s… That’s all… Seriously though, I hope we’re seeing a return to fundamentals.

Speaking of fundamentals… I guess yesterday just shows me that I shouldn’t (and neither should you!) pay attention to the cable news, eh? OK, remember yesterday, I said this: “I saw a news story on the TV yesterday that said “Home Builders were seeing a pick-up of new homes being built”… Well… That should be our indication that Housing Starts for April will be stronger! See how easy this stuff is? HAHAHAHAHA!”

And what happened? The government reported that construction on new housing projects slowed to a record-low pace in April. Don’t expect Housing to lead us out of this recession / depression folks!

Stocks rebounded too along with currencies yesterday… Long time readers will recall that I’ve pointed my finger at the PPT a few times in the past… Well, I’m pointing it again! Don’t know what I’m talking about here? Well, you see the PPT (Plunge Protection Team) was created by President Reagan after the stock market crash of 1987. It consists of major players (financial institutions) and their job, when called on, is to provide support for a falling stock market. And, what’s the reason for me thinking this has happened now? Well, Friday you would have thought the stock rally was over, but an “Indian election result pulls U.S. stocks out of the fire?” I’m not buying it! This rally has somebody’s finger prints all over it…

A news story at the top of the screen this morning says, “U.S. said to consider stripping SEC of power, shifting duties to the Fed.” Hmmm… Doesn’t that bother you? We had this independent regulator (yes they dropped the ball with Madoff, among other gaffes), and the Gov’t is thinking about shifting it to the Fed? Yes, I know the Fed is not a Government division… But… I don’t like a regulator being directed by the institutions that own the Fed… It’s like giving the fox the keys to the hen house!

OK… A week or so ago I talked to you about the 200-day moving average… Explained it all, and told you how the dollar index had fallen through its 200-day moving average, which would indicate further declines for the dollar index. On May 8th, the euro moved higher through its 200-day moving average and then went on to gain almost 2%… There’s another currency that’s moving stealth-like up to its 200-day moving average… The pound sterling! Here’s the skinny as I see it… Pound sterling’s 200-day moving average is 1.5554, the current level of pound sterling is 1.5480… Within spittin’ distance!

And while we’re following price charts… I see where a new “player” has jumped on the Chuck, Mogambo, Bill Bonner, and others Gold Bandwagon! Gold has gained 6.8% since the last low on April 17th, and an analyst at BNP Paribas believes this is an indication that Gold will trade to $1,096 in the coming months, as long as it does NOT fall below key support at $880…

Charts people are interesting, in that they can come up with things that you can’t see with the naked eye!

All I know is that the fundamentals point to a higher Gold price, and fundamentals are what cause trends to happen, and together they are the straw that stirs the drink… Everything else is just an explanation of what happened or what they “believe” will happen. But none of it takes place without the fundamentals creating a trend…

And speaking of Gold and fundamentals… Recall, that I’ve coined Gold the “uncertainty hedge”… And this morning we have more “uncertainty” in the world… According to the Washington Post, Iran has fired a test missile overnight that has a range of 1,200 miles, enough to reach Israel or Southern Europe…

The data cupboard is empty today, so we’ll have to depend on a testimony by Treasury Sec. Geithner to the Senate Banking Committee on TARP… Speaking of TARP, I read a story last night, in between innings of a 3-0 shut-out victory by my Cardinals over the Cubs, that detailed how some Major Banks are discussing the repayment of TARP with the Treasury Dept. I see the Treasury Dept balking at this… Why? Because, the Gov’t wants control of these institutions, folks… And they can’t have control over them if their tentacles aren’t all intertwined in the banks…

I know that this is a touchy subject… But here’s another example of the Gov’t taking over control… The Senate overwhelmingly passed a bill that would sharply curtail credit card issuers’ ability to raise interest rates and charge fees… Yes, these institutions took advantage of people for years… But! They also provided credit to people that “signed the papers agreeing to the terms” I’m NOT talking about whether its right or wrong to raise interest rates on credit cards to “stupid” levels… I AM talking about the Gov’t dictating to the bank that issued the credit, and is on the hook for the credit, just how and how much interest rates will be raised…

OK… Let’s talk about something else, that stuff gets my blood pressure rising! How about…. Oh, yeah, the Aussie dollar (A$) saw a bit of selling overnight after Australia printed a less than stellar consumer confidence report. I guess all the money the Gov’t of Australia had sent out to consumers is gone, spent, put in coffee cans and buried in the back yard, and now the consumers are sad… You give money to people for no reason, and it’s like a drug, they want more and more… I like the A$ for the prospects related to China’s economic recovery… But beyond that, Australia seems to be struggling, and it will take a Chinese recover to overcome this struggle…

And, in India… The rupee has not been able to add to its gains that followed the election results this weekend… But, I think it’s more a case of stopping to catch its breath, and not a road block.

Last week, we heard about how China had passed the U.S. as the number one trade partner of Brazil… Now, I’m hearing about how Brazil and China are in discussions to form a currency swap line, just like the one China signed with Argentina two weeks ago. These currency swap lines are HUGE folks. Because, it allows the two parties doing trade with one another to eliminate the use of dollars, and only use their own respective currencies. That means, China reduces its exposure to the dollars! And if China has less dollars to spend on U.S. Treasuries, that’s not a good thing! But, almost important as that, is the thought that China is spreading the use of their currency… This thought plays well with the idea that China proposed last month… That the U.S. dollar be replaced as the world’s reserve currency.

China has now signed currency swap agreements with: Indonesia, Malaysia, Hong Kong, South Korea, Belarus, and Argentina, with Brazil waiting in the wings…

And then there was the price of Oil… I filled up the Pfennig-mobile this morning, and noticed gas prices had gone up… Well… When I came in and checked the screens, I saw the price of Oil had reached $60 again! Oil prices have been rising very slowly in recent weeks, and long side of those rising Oil prices, we have rising Canadian loonie prices! I’ve said this more than once over the years… The Canadian dollar / loonie is so energy driven, and recent moves are a prime example!

Currencies today 5/20/09: A$ .7720, kiwi .6035, C$ .8670, euro 1.3665, sterling 1.5480, Swiss .9040, rand 8.4350, krone 6.45, SEK 7.6775, forint 203.40, zloty 3.20, koruna 19.52, yen 95.70, sing 1.4610, HKD 7.7525, INR 47.48, China 6.8250, pesos 12.95, BRL 2.04, dollar index 81.91, Oil $60.69, Silver $14.34, and Gold… $932.40

Source: Game On!

But, NOOOOOOOOO! Let me tell you all about it now… First, we had what I called the potential White Knight for risk assets yesterday, the Indian election results, which pushed the Indian stock market to levels it hadn’t seen in some time. That carried over to the Japanese stocks, which carried over to Europe and finally the U.S. It took most of the day to really get things going, but by the time I was packing up to head home, the move was on… And risk assets all around, save for the safe haven Gold, kicked into gear, and were off to the races. And Currencies were in the pole position of this rally!

I just can’t get my arms around this stock rally folks… What are they rallying for? Corporate earnings are awful… And the prospects of future earnings are awful… Why do I say that? Well… Have you seen the rot on the labor market’s vine lately? “Real” unemployment is north of 16%… And with announcements like the one last night from American Express, where they say they will layoff 4,000 employees, hitting the news wires each day… There’s just no way that consumers are going to have the “juice” to support corporate earnings… Those that do have the “juice” will probably squirrel it away, and those that don’t, well… They don’t have any to squirrel away or spend!

But… I always think of things logically, right? This is logical that stocks would suffer going forward… But will it play out this way? Who knows? I’m certainly not even your last choice for a stock jockey! But… It just seems to me that this is just the way it is… Some things will never change… It’s just the way it is…

OK… The “other” news this morning that’s fueling a huge currency move overnight… German Investor Confidence, as measured by the think tank ZEW, rose more than the “experts” were forecasting, and reached a 3-year high this month! WOW! OK, I hate to throw cold water on this, but this “investor confidence” is all tied to the rally in stocks… And what’s good for the goose (the U.S.) in stocks, is good for the gander (EUROPE) in stocks…

But hey! Why step in front of this bus? If the stock jockeys want to take their assets higher, then I’m not going to throw myself under their bus! The ZEW report is “supposed” to predict economic developments 6 months ahead… Well… By the time we sit down to eat our Turkey on Thanksgiving, I’ll look back and see if the ZEW think tank predicted correctly!

The Huge currency rally is across the board, including the once beaten and battered pound sterling, which has really mounted a strong performance in recent weeks… Yes, things in the U.K. are still teetering… But the pound sterling has seemed to have weathered the storm… At least for now!

Of course, in this crazy mixed up world we live in with currencies, a Huge rally currently means that Japanese yen is back on the selling blocks. And… The high yielders are soaring…

The Aussie dollar (A$) seemed to ignore the news from China overnight that the Chinese had ordered an immediate 30% Steel production cut by all mills to address 25-30% over-capacity. Then it seemed for certain the A$ would back off when Reserve Bank of Australia (RBA) Gov. Stevens’ gave a speech and revealed his bias toward easing rates further. Watch… At some point in the near future, there will a story that hits the news wires that claims traders are selling the A$ because they believe the RBA will lower rates further… And they will all act as though they “just found this fact out!” But for now… The A$ is kicking tail and taking names later!

I keep seeing one story after another these days from people that claim they “know” the Bank Stress Tests were a “sham”… Well? Didn’t I tell you that first? Didn’t I tell you the Gov’t would not tell us the “real facts” because if they did, they would spook the markets, and even more important spook our foreign buyers of U.S. debt! And we can’t afford for that to happen!

But just for kicks… Here’s a sample of the stories I’m talking about… Put away the sharp objects before reading, we don’t want any injuries…. This is… Howard Davidowitz, Chairman of Davidowitz & Associates, talking… (NOT ME!) “The stress tests were a sham and part of a “con game to get private money to finance these institutions because [Treasury] can’t get more money from Congress. It’s the ‘greater fool’ theory. We’re now in Barack Obama’s world where money goes to those that should never receive a penny….we’re bailing everyone out. The bailout money is in the sewer and gone.”

OK… That’s just a sample of the things I read each day and night… Of course last night I didn’t do any reading, as I was glued to my TV for the final 2 hours of my fave show, 24!

And in a story that makes you wonder what the heck these people are thinking… Two economists, Gregory Mankiw, former White House advisor, and Ken Rogoff, former Chief Economist at the IMF, believe that the U.S. economy is in need of a dose of good old-fashioned inflation! WHAT? They believe the Fed should have a looser rein on inflation, to help debt-strapped consumers and governments to meet their obligations… Again… WHAT? I have to wonder just what else the Fed can do to create an inflationary environment! Come on! They’ve cut rates to near zero… The implemented Quantitative Easing… They’ve pushed Trillions into the system… And these two dunderheads want more? Did they stop, in the name of love, and think about what they were saying before they said it?

And… I can’t understand why they believe that running 6% inflation for “at least a couple of years” is a good thing! Talk about “spooking our foreign investors”! And talk about sending the dollar to the woodshed! Let’s hope these two go away… Don’t go away mad, just go away…

And then… It sure looks like the Bank of Canada (BOC) is doing everything they can to put a 100 miles of desert between them and Quantitative Easing… There will be a speech today by BOC Gov. Murray titled: “Unconventional Monetary Policy Measures and the Zero-Bound, Differing International Approaches and Critical Considerations”… Now, that looks like a speech title that his marketing team came up with… Why not say… “the rest of the world is doing Quantitative Easing, and we’re not!”

Of course… Should this be the “real” gist of his speech, the Canadian dollar / loonie should look to continue its recent strong performance!

The Swiss franc is nearing 90-cents again… Every time it gets to this level, the Swiss National Bank (SNB) makes a statement that “they are watching the currency gains closely” This is supposed to scare traders to not take the franc higher… Who’s afraid of the SNB? Of course “real traders” like the ones that were around when I began to deal in currencies, would take this message as a challenge, and push the franc to the point that the SNB had to intervene or lose credibility… And then they would attempt to push the franc higher! But today’s traders, are not your “father’s traders”… They are wimps! Every time a Central Bank jawbones their currency lower, traders just put their tails between their legs and go home… Give up, quit… Hey! Quitters don’t win, and winners don’t quit! You can’t quit here! When the Germans bombed Peal Harbor, did we quit? NO! (ok that’s a line from Animal House, I don’t want 100 emails telling me that the Germans didn’t bomb Pearl Harbor! HA!)

Today, the data cupboard yields Housing Starts for April… I saw a news story on the TV yesterday that said “Home Builders were seeing a pick-up of new homes being built”… Well… That should be our indication that Housing Starts for April will be stronger! See how easy this stuff is? HAHAHAHAHA!

I always get a kick out of my friend, The Mogambo Guru, and the ending each week of his newsletter… Each week he ends his letter with some message about buying Gold and Silver… And then this line… “Whee! This investing stuff is easy!”

The Mogambo always puts a smile on my face!

Currencies today 5/19/09: A$ .7760, kiwi .6050, C$ .8640, euro 1.3635, sterling 1.5480, Swiss .8990, rand 8.4620, krone 6.42, SEK 7.6675, forint 203.85, zloty 3.20, koruna 19.5660, yen 96.20, sing 1.4610, HKD 7.7510, INR 47.79, China 6.846, pesos 12.91, BRL 2.07, dollar index 82.12, Oil $59.89, Silver $13.94, and Gold…. $922.80

Source: Currencies Bounce Back!

The rumor going around this morning, is that the banks are all right on the night, and not in major deep dookie any longer. Hmmmm… Didn’t I tell you over a week ago that this was going to be the case? I said it because… I just don’t believe the Gov’t is going to “spook” the markets right now and release the “real results”… Of course I don’t know that to be a fact, it’s just my hunch. I could be all wet… But, at least I got the first part correct, if in fact the results print as rumored…

But then, Bloomberg printed a story last night that showed a handful of banks needing between $34 Billion and $2 Billion in additional capital… So… Let’s see which set of books the Gov’t reveals, eh?

OK… So the currencies all sold off on the news yesterday morning that the banks would need more capital, and then came back overnight on the latest rumor… As I said yesterday, the markets are all about the stress tests right now… Actually, I’m surprised the Gov’t didn’t delay them one more day so that the focus would be on the stress tests tomorrow, instead of the Jobs Jamboree!

Speaking of the Jobs Jamboree that will take place tomorrow… The ADP Challenger report printed yesterday and indicated that tomorrow’s Jobs data will show less jobs lost, and a number below 600K for the first time in 5 months! ADP says the jobs lost were 491K… And believe me now and hear me later on this, the media will eat this up, and be all ecstatic about the fall from 600K to 491K… As if… 491K is a “good number”! Well, yes, it’s better than 600K… But the reporting should all be balanced… Like… “Is this the turning point in job losses? Yes, their still almost 500,000 for the month, but that’s a fall of over 100,000. While one monthly report does not make a trend, just like one swallow doesn’t make a summer, this is good news, and we’ll be watching for signs of further improvement in May.”

I’m watching the Big Dog, euro, rally right now, from an overnight low of 1.3250, to its current level of 1.3330… As German March Manufacturing Orders surprised this morning with a rise of 3.3% in March. The European Central Bank (ECB) is meeting right now, and is expected to cut rates 25 BPS to 1.25%… I read a couple of stories yesterday regarding the ECB… The writers were saying how the Eurozone economy is in shambles and needs a larger than 25 BPS rate cut… But, I argue with that… The ECB wants to keep some rate cut arrows in their quiver, in case they need more rate cut stimulus in the coming months… They shouldn’t shoot them all now! That’s what the Fed did, and we know what that led to… Quantitative Easing!

But the Big Winner of yesterday and last night is the Aussie dollar (A$)… It’s on a moon shot, since the Reserve Bank of Australia (RBA) left rates unchanged the night before, and issued a balanced statement afterward, with emphasis on waiting to see the affects of the previous rate cuts. The A$ got an additional boost this morning when it was reported that the unemployment rate in Australia fell for the first time in 8 months! The A$ is 75-cents and change this morning, heading to 76-cents… A 7-month high!

Some commodities have been rising in price recently… I’ve chronicled the rise in the Oil price, but here’s one you don’t hear about every day, except of course if you listen to our friend, Jim Rogers, every day! I can hear Jim Rogers talking about sugar as if he’s sitting right here next to me… Sugar is heading to a 28-year high, as the crop in India fell short of expectations… And Wheat had gained 3 consecutive days now, on low yield estimates for the U.S. crop… I hear you Jim!

I would think that if the bank stress tests “somehow” show no insolvency risk, that risk taking will be back on the table, BIG TIME! So… I would think that if risk taking is back on the table, Gold, currencies and other commodities will be singing a different tune… A tune of 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… OK, admit it, you after singing along with this, you had a vision of Bugs Bunny dancing with a cane singing the song! HA!

Speaking of India… Yesterday, I told you about how the currency was rallying, and how my Currency Capitalist colleague, Ashish Advani, gave the currency the thumbs up in last month’s letter, and how Standard Chartered Plc was now bullish on rupees… Well, now add Society General (SOCGEN) to the list of rupee flag wavers! SOCGEN believes the rate cuts in India are a thing of the past, and it will be all seashells and balloons for the rupee going forward…

And while I’m talking about an Asian currency… I might as well head over to China and talk about how their stimulus continues to hit the nail on the head, and help to bring China’s economy out of their slowdown and doldrums. The Peoples Bank of China (PBOC) issued a report yesterday saying that the economy performed “better than expected” in the 1st QTR. This improved performance is helping the “managed currency” (renminbi) to gain ground VS the dollar once more…

I had a reporter follow up with me yesterday on my thoughts toward what China had on their minds… The reported asked me if I thought the Chinese would be under more pressure to allow the renminbi to float, if they are really pursuing a “wider use of the renminbi”… I said… I thought the Chinese would receive pressure to allow the renminbi to float, but no more than what they received in the past from the combo of Paulson, Schumer and Graham… (the U.S.!)

The Bank of England (BOE) is also meeting this morning to discuss rates… I would think it is almost inevitable that the BOE would leave rates unchanged… This has been the prevalent thought in the markets for a week now, and has led to the pound sterling making a very auspicious rally to 1.5170! What I think the BOE needs to do now, is to sit down with the markets and tell them what direction their Quantitative Easing (QE) is going… Will they limit the purchases, or increase them, etc… Not that any QE is good, but to be honest and transparent with the markets would be a step in the right direction for a central bank!

Yesterday, Norway’s Norges Bank lowered their internal rate 50 BPS to and internal rate of 1.5%. I was hoping they would only cut 25 BPS, but… This has all the makings of “the last rate cut”… You know, one big blow out to end the summer… Or… A star burns brightest right before it burns out… But, I now believe this will be the last cut in Norway…

Recall many moons ago I called this a “race to zero” regarding Central Banks around the world cutting interest rates? Well… It certainly has panned out that way, eh?

Have you ever heard of the book, “Black Swan”? The author Nassim Nicholas Taleb describes his theory of “Black Swan” as a large-impact, hard-to-predict, and rare event beyond the realm of normal expectations. Obviously we’ve had a few “Black Swans” in the past 2 years, eh? Any way, the thing I’m going for here is Mr. Taleb was speaking at a conference yesterday, and had this to say about commodities and Gold… “The global economy is heading into a big deflation though the risks of inflation are increasing as governments print more money. Gold and copper may rally massively as a result.”

Speaking of Gold… It has rallied the past two days, but could be just waiting in the wings for confirmation of two things… 1. the bank stress tests don’t show major problems… And 2. the Jobs Jamboree does show falling job losses… Silver has really gotten on the rally tracks too, outperforming Gold the past two days! Silver is back above $14… And that’s good news… That is unless you’ve dilly dallied your days away, and not taken advantage of the cheaper prices that have been available for some time now!

Hey! Remember last year, when I was involved in the Sovereign Society’s FX University and the Currency Tours? Well… We’re not going to go city to city this year… Instead, we’ll hold an FX University Currency Seminar for 3 days in Scottsdale AZ in Sept! So, if you missed the traveling troupe last year, we’ll be doing it even bigger and better this year! Mark your calendars for Sept. 24-27. You can find out more by visiting www.sovereignsociety.com

No word from the BOE or ECB, so I’ll just head to the Big Finish now… No wait! The BOE’s decision just flashed across the screens… Let’s see here… Oh, the BOE left rates unchanged (as expected, see above), and the announced that they will increase the size of their asset purchase program (Quantitative Easing) by 50 Billion sterling to 125 Billion sterling… Well… Let’s see here, the pound sterling is taking on some water after this announcement, as it should! Too bad for the sterling rally… But increasing QE is not healthy for a currency!

The ECB decision will come in about 45 minutes… I’ll be well on my way to figuring out my currency positions and trades needed by then… So, I’ll just go to the Big Finish now, for real this time!

Currencies today 5/7/09: A$ .7565, kiwi .5935, C$ .8575, euro 1.3330, sterling 1.5085, Swiss .88, rand 8.3440, krone 6.4875, SEK 7.8525, forint 208.75, zloty 3.2325, koruna 19.9250, yen 99.20, sing 1.4675, HKD 7.75, INR 49.27, China 6.8215, pesos 13, BRL 2.1130, dollar index 84, Oil $57.91, Silver $14.11, and Gold… $921.30

Source: It’s All About The Stress Test

The Silverton Bank was supposedly a key cog in the Southeast, according to the Wall Street Journal, and bankers in Georgia are saying that Silverton’s collapse could take down at least 8 to 12 other banks with ties to Silverton. Domino dancing…
(All day, all day) Watch them all fall down
(All day, all day) Domino dancing
(All day, all day) Watch them all fall down
(All day, all day, domino dancing)

I’m not being flippant about this folks… I’m trying to point out that the rot on the vine is deeper than the media and the leaders of this country would have you believe them to be. I keep coming back to that interview with Ron Paul that I saw in March, where he said, “people are saying that problems in other countries are worse than ours… Those people are wrong!”

Oh, and did you hear that Boston’s most storied newspaper, the Boston Globe, is going to be shut down? And one more item… Those “stress tests”? Well, wouldn’t you know it, the results are being delayed, due to the Banks debating the findings… Well, they have that right to do so… Maybe, the regulators didn’t understand something in their accounting methods, or something like that… Unfortunately, I believe the banks’ debating will be like arguing with an umpire over balls and strikes!

OK… Enough of the blood in the streets! Let’s talk about some good things… Like last week when the Bank of Canada (BOC) decided to do a Nancy Reagan, and just say “no” to Quantitative Easing… Let’s hope they don’t end up with egg on their collective faces should they need to implement Quantitative Easing at some point in the future… But I’m sure they have weighed all the facts to this point. Canada’s Banks are in tip top shape, compared to their neighbors to the south, and I’ll explain this about the Canadian dollar / loonie once more for those new to class… When Oil returns to higher levels, the loonie will follow… This currency is so juiced by energy prices, and Oil is the Big Kahuna…

And remember what you heard here first, last month, and that is that China would be the first to come out of the economic doldrums… I had someone ask me last week, why I thought China’s stimulus worked better than anyone else’s… Ahhh grasshopper, I’ve explained that before… But again, it’s very simple… With China being a Communist Country, they can dictate not only to whom the stimulus goes to, but HOW the stimulus is used… Imagine if you will the initial $150 Billion that was sent out last spring… If there were stipulations on how it was to be spent, maybe you’d have something, or better yet… The initial $700 Billion in TARP funds… They didn’t have strings attached, and the receivers didn’t use the funds to loan out, as “requested by the Treasury”, they threw it in the nearly empty treasure chest and sat on it… See the difference in the two methods?

It appears that the so-called “decoupling” is back on the table, as China and India seem to be coming out of the economic doldrums long before the U.S., Europe, and Japan will… Hmmmm…

OK… The Chinese renminbi has begun to move higher again, just when everyone thought the Chinese would batten down the hatches on currency appreciation. This is only happening because the Chinese economy is beginning to show signs of improvement.

Those signs of improvement in China are doing wonders for the Aussie dollar (A$)… Don’t look now, but the A$ has climbed past 73-cents! Aussie’s kissin’ cousin across the Tasman, New Zealand, is not seeing the same kind of McLovin the A$ is seeing… The Reserve Bank of New Zealand (RBNZ) left the door open to further rate cuts last week, while the Reserve Bank of Australia (RBA) is giving signals that the rate cuts may be nearing an end. The Tale of Two Central Banks…

A long time readers sent me a link to a story on Morningstar regarding our fave shiny metal… Gold… Here’s a snippet…

“Jon Nadler, a senior analyst at Kitco Bullion Dealers, points out that all of the world’s above-ground gold amounts to around 0.6% of total global wealth, so even if gold were at $10,000 per ounce, the metal would only amount to 6% of total global wealth.” (I know Jon, so I just had to use his quote!)

Here’s another snippet from someone else… “Singapore, Norway, Saudi Arabia and other member nations of the Organization of the Petroleum Exporting Countries are likely already increasing their allocation to gold, or likely to do so in the coming months. They would be somewhat ignorant and financially and economically illiterate not to do so.”

Everyone at the Total Wealth Symposium in Bermuda last week was talking about Gold… I see that it has slipped back below the $900 level, which I have taken as the line in the sand for buying opportunities… Could it go lower? Of course it could, but that wouldn’t change my mind as far as a sub $900 level being a buying opportunity to get it cheaper than where most people see it going…

Did you see that China announced last week that they had increased their holdings of Gold by 76% in the past 6 years? Hmmm… No wonder the last 6 years have been so kind to holders of the shiny metal, eh?

And… How about this for some “good news”… Ford outsold Toyota in April! Now, that’s something you don’t see every day! Well, maybe when Ford was selling their pick-em-up trucks like funnel cakes at a state fair… But not often, at least not to my recollection.

OK… The data cupboard is pretty feeble this week until we get to the end of the week, where the April Jobs Jamboree gets printed. We’ll see Pending Home Sales, Construction Spending today, and then not much, until later in the week… The initial forecast for jobs in April are showing a job loss of 606K… The weekly numbers show this forecast to be quite understated… But, as I’ve explained many times in the past, the Bureau of Labor Statistic (BLS) doesn’t use those Weekly Initial Jobless Claims… The BLS uses a survey of corporations, and then puts the survey in their witch’s caldron and stirs in the Birth / Death model, and comes out with “their number”…

Bad news for my little river town this past week, as Chrysler closed down the plant that had been operating in our city since the 60’s. Good thing we decided back in the late 90’s to diversify our income stream in the city! I was an alderman then, and recall this to be my greatest fear, that the city depended on one corporate entity so much… And the alderman at that time made great strides to diversify the city’s portfolio of income streams… So… That today, when the bad news hits, it doesn’t hit as hard as it would have if no diversification had taken place. You see… The overall risk to the portfolio was reduced!

Well, what does that lesson teach us? It should teach us the diversification is the most important monetary thing anyone should be thinking about! Diversification so that the asset classes in your portfolio have a low correlation to one another. That they have different pricing mechanisms. Currencies and metals represent the best diversifying assets to your already existing portfolio of stocks, bonds, mutual funds, and land… It is a proven fact that by adding currencies and metals to a portfolio, you will reduce the over risk in the portfolio! And…. Remember… 94% of a portfolio’s return is based on asset class selection…

Just thought I would give you an example of diversification in real life, and then apply it to the lesson for today… That’s how I always tried to explain things to my kids, and the older two are teachers today, and probably use the same methods for explanation!

The U.K. is on holiday today, as they decided to do May Day on the 4th! Either way, it was a 3-day weekend for those that celebrated May Day!

Currencies today 5/4/09: A$ .7330, kiwi .5720, C$ .8415, euro 1.3230, sterling 1.4845, Swiss .8770, rand 8.38, krone 6.5750, SEK 8.08, forint 218, zloty 3.33, koruna 20.14, yen 99.30, sing 1.4815, HKD 7.75, INR 49.90, China 6.8220, pesos 13.76, BRL 2.1725, dollar index 84.77, Oil $52.89, Silver $12.61, and Gold… $890.60

Source: The Rot On The Vine Goes Deeper

]]> http://www.contrarianprofits.com/articles/the-rot-on-the-vine-goes-deeper/16138/feed 0 http://www.contrarianprofits.com/articles/budget-deficit-triples/15496 http://www.contrarianprofits.com/articles/budget-deficit-triples/15496#comments Mon, 13 Apr 2009 15:00:12 +0000 Chuck Butler http://www.contrarianprofits.com/?p=15496 Currencies rebound …  Budget Deficit makes up for Trade data…  China’s currency reserves continue to grow…  High yielders are best performers… And Now… Today’s Pfennig!

The lack of volume on Friday didn’t yield any wild swings, and the currencies pared their losses from the day before (trade deficit plunges)… This morning, the currencies, led by the euro, are moving higher VS the dollar, but at this point it’s baby steps… The bias to sell dollars hangs over the currencies however… It seems to me that it’s very much like trying to hold a kid back from ripping open their Christmas presents… It sure seems inevitable, but when is the question… As I used to say in my presentations, imagine if you…

For instance, it was reported the other day that the Treasury Dept. has overpaid for stock received from TARP recipients by $78 Billion. You see, for every $100 given in TARP, the Treasury was to receive $100 in stock / assets, but when all the beans are counted, the Treasury is $78 Billion short on stock /assets… But, what the heck, what’s $78 Billion among friends?

I was totally amused at the lawmakers grilling of Bank CEO’s yesterday. In going along with the general practice that exists today… “It’s always someone else’s fault for it can’t be my own fault” The lawmakers pointed fingers and blasted these CEO’s for “earning a living”… This is dangerous ground folks, as it speaks of doing away with the way businesses have been run for eons, and shakes the very foundation of Capitalism… If the lawmakers had stopped and thought about their TARP money before they began to hand it out with no accountability, and lending requirements, maybe things would be moving in the right direction by now… And I know… This is getting to opinionated and I’m not going there anymore.

Oh! And one more thing… Please no more emails blasting me for taking the new administration to the woodshed so early in their rein… It’s NOT A POLITICAL THING! For any reader that was around in 2001 when the then new administration had just taken over, and their first order of business was to place tariffs on Steel imports, I came out with both guns a blazin’ that this was protectionism and had no place in free markets and Capitalism… I ranted and railed on this new president for this move. Funny, I don’t recall receiving the nasty emails I get now for doing the same thing to this new president back then.. Hmmm…

OK… The dollar was in the driver’s seat yesterday, as the risk takers have all gone home… A heading on Bloomberg this morning tells it all… “Stocks fall worldwide on concern stimulus plans may fail” The Stimulus they are talking about is the “new and improved” Stimulus package that the Senate approved yesterday, which came in lower than the previous package. This version’s total comes in at $789 Billion.

Yesterday’s potential market moving data didn’t materialize, as the Trade Deficit did not narrow as much as forecast, and last month’s number was revised upward. For the record and for those of you keeping score at home, the Trade Deficit for December printed at $39.9 Billion, and November’s Deficit was revised from $40.4 Billion to $41.6 Billion. Exports have fallen off the cliff as 1. Global demand is waning, and 2. the dollar is overvalued and too strong to allow U.S. exports to be competitive.

Today, we’ll see Retail Sales for January. The BHI (Butler Household Index) tells me that we should look for a very disappointing number from January. We’ll also see the Weekly Initial Jobless Claims that continue to show more rot on labor’s vine. Last week, the Initial Claims showed a record of 626K filed. This week, the “experts” are looking for 610K… I’ll go out on the limb and say it will be even more disappointing. UGH!

Well… As I told the interviewer the other day… I believe what we’re seeing right now is a general increased concern regarding fiat currencies, which has Gold on the rally tracks once again. Yesterday, Gold soared upward and onward by $23… And it has already added $3 since the London Morning Fixing earlier… As my friend, the Mogambo Guru, tells his readers… Everyone should own Gold… “see how easy this investing stuff is? Whee!” And let me repeat something I said before. My friend, Bill Bonner of the Daily Reckoning, www.dailyreckoning.com coined this saying for his “trade of the decade” at the turn of the century… “The trade of the decade is to sell the DOW and buy Gold on the dips”… WOW…

And now that Central Banks all over the world are having a race to zero… Deposit rates no longer hold the hammer over Gold’s non interest bearing status. So… When Gold is on one scale, and cash (like dollars!) is on the other side of the scale… Guess what happens! I was surprised that I didn’t get any comments yesterday from the media or readers about what I said Gold was… “An Uncertainty Hedge”… Are you uncertain as to what all this that’s going on is going to bring us?

An ECB minister, Papademos, was speaking overnight about how “a further easing of the Eurozone monetary policy may be appropriate as risks to growth and inflation are to the downside.” Then another ECB minister, Liikanen, said that “at the next meeting it is possible we could move.” No dookie Sherlock! Your leader, Mr. Trichet, has all but told us to look for lower rates at the March 5 meeting…

Lower interest rates in the Eurozone won’t necessarily hurt the euro, as they sure haven’t hurt the dollar! There’s a whole trading pattern that deals with a currency not losing value even after a debasing rate cut… I’ll put that all together, and bring it to you probably next week, as we’ve got time before March 5 comes around any way!

Instead, the market movers for euros this morning has been 1. risk aversion in play 2. more flight to the safety of Treasuries, and 3. recession type data, like this morning’s December print of Industrial Production for the Eurozone, which fell -2.6% for the month, and moved the annual year-o-year figure at -12% OUCH! Now, that’s recession type data! And something that really brings that thought I’ve made a few times now, about the move to Gold…

Pound sterling has gone back on the slippery slide downward, after a brief rally last week. I was getting a little hot under the collar with the sterling strength last week, but, as with all things, patience is a virtue… Sterling is showing its true colors again, and the folks over at BNP Paribas say that the “downside risks for pound sterling VS dollars have increased”… Hmmm… That’s big time research dept there… I could of, and in fact I already did all by my lonesome, tell you that!

The Aussie dollar (A$) just won’t go away quietly… Yes, I fully understand that it has fallen from the lofty level 98-cents to present day levels of around 65-cents… But since it got to this mid-65 cent range, it has held steady Eddie. Now, of course I realize that I just gave it the kiss of death, but really this is worth pointing out. And with yen now stalled out around 90, it kind of makes you wonder if the Carry Trade unwind is over… Makes you stop to think doesn’t it? Australia keeps cutting interest rates, and it remains in the mid-65 cent range… Yen has had every opportunity under the sun to go further to 85, and can’t seem to find any terra firma below 90… Therefore, I’m pronouncing the unwinding of the Carry Trade as a done deal… This is where the munchkin coroner comes out and proclaims the Carry Trade as truly dead… As Coroner , I thoroughly examined her And she’s not only merely dead She’s really most sincerely dead…

Well… At least we can hope so! This would be a good indication that risk aversion is dying out… Although I’m truly aware that this risk aversion has a ways to go, we have to get to this place before we can begin to make plans to send risk aversion to a state run home…

On a sidebar here… Whenever I used to sit around late into the night with my friends, they would invariably get me to do my imitation of the Lollipop Guild… HAHAHAHAHA! Of course this is when they also would have me play my guitar, which I now haven’t picked up in some time…

OK… Enough of that silliness! Your Pfennig writer has really gone out on a limb this morning with the Carry Trade thingy, eh?

I’m out of ideas for today, so with no further ado…

Currencies today 2/12/09: A$ .65, kiwi .5195, C$ .8045, euro 1.2855, sterling 1.4230, Swiss .8610, rand 10.0950, krone 6.8735, SEK 8.4050, forint 232, zloty 3.58, koruna 22.29, yen 90, sing 1.51, HKD 7.7515, INR 48.84, China 6.8340, pesos 14.59, BRL 2.2870, dollar index 86.14, Oil $35.53 (the price of oil just keeps falling!), Silver $13.45, and Gold… $944.44

Source: It’s Not My Fault, It Must Be Yours!

Chuck Butler