Good day… And a Terrific Tuesday to you! Thundering storms moved through here this morning, as I was preparing to leave home and drive to the office. As slow as I am with getting around these days, I got pretty wet from my car to the office building. But, I didn’t melt, as most would have thought! HA! And, I’ll dry out soon enough… Well before anyone else comes in!

OK… Well… When I left you yesterday, the dollar was on a rampage, from the comments by the Russian Finance Minister, Kudrin… Was it an overreaction, I asked? A resounding YES was my answer… I think the proof is in the pudding on that this morning, as the dollar buying has hit a roadblock, and reversed overnight, with the euro gaining back about 1%…

The euro also got a needed boost this morning, as German Investor Confidence jumped to a three-year high. Seems most investors believe the economic slump in Germany, the Eurozone’s largest economy, is easing… Of course, we know that while Investors believe the economic slump may be easing, it may, in reality, not be easing… It’s all about perception, right? Any old way, the currencies have rebounded from yesterday’s bloodbath… And now the currencies have a bid tone, and not the dollar!

And now a news flash just came across that these countries are “considering buying each other’s bonds, and swap currencies” to eliminate the dollar from those transactions… OK… Skip back to yesterday… Here’s what I said… Pfennig 6/15/09: “I would have to think that the Finance Ministers of these countries would be interested in knowing how they can avoid another downward spiral caused by dollar buying… And… This… Would be the key, folks… I don’t know what it would be, but if they did something like a currency swap / foreign exchange line between each other for trade, that would be colossal! Which is bigger than HUGE!”

The BRIC (Brazil, Russia, India, China) meeting I told you about yesterday, actually happens today. Sorry for the mix-up, as I thought it would happen later this week. There were already comments hitting the news wires that Russian President Medvedev, wants to talk about issue of the dollar as the reserve currency… Now, if he does, and I’m not saying that he will, but if he does talk about that, doesn’t that wipe out the Finance Minister, Kudrin’s, comments about Russia’s belief in the dollar? And… If he does, and again, I’m not saying that he will, but if he does, my thoughts yesterday, that this would happen at the BRIC meeting, would come to fruition…

There’s always been a clamoring for a basket of currencies consisting of the BRIC countries… The problem is that the Russian ruble just isn’t liquid enough to get this done, like EverBank World Markets does their other CD’s… So… How about dropping the “R” and doing a BIC? Well… Again, even though EverBank does offer these currencies of Brazil, India and China individually, it’s not easy… In fact it’s quite the ordeal to get them done… But, eventually, we’ll think of something!

OK… Now back to the goings on in the markets… This BRIC meeting today seems to have quite a hold on the markets’ attention today… And it is a BIG thing, IF they do discuss the alternative reserve currency talk… Talk the talk, and walk the walk… These countries can’t keep complaining about the need for a new reserve currency, and not do anything about it…

Looks like all the stimulus and money supply in the U.K. is beginning to show up in the inflation data… U.K. May CPI jumped .6%, thus pushing the year-on-year (YOY) figure to 2.2%! Now, this is important for a couple of reasons, folks… 1. it could signal an end of the easy money in the U.K. IF they are prudent in removing the stimulus, as they and their friends over at the Fed claim they will be… And 2. and more importantly… Is… The U.S. has actually been behind the events surrounding the financial meltdown in the U.K…. So… If the U.K. is beginning to see inflation rise, it stands to reason that it won’t be long before we see it happening here too…

Down Under… The currencies of Australia (A$) and New Zealand (kiwi) both fell flat on their respective faces with the dollar on the rampage yesterday… But were able to rebound a bit overnight. They were moved higher, when the minutes of the last Reserve Bank of Australia (RBA) hinted that the RBA was going to maintain their easing bias, but move to the sidelines for the foreseeable future… Folks… That’s Central Bank parlance for… This is it! Unless the sky falls! This is the bottom as far as rate cuts go! But… It will be awhile until they move up…

Well, that’s how I read their statement! And I’ve been reading Central Bank statement for 17 years now… I think the traders that cover A$’s think the same thing… And kiwi, just grabbed on to the coat tails of the A$…

Did you see the color of the TICs data yesterday? WOW! Or should I say, UGH? The net security purchases by foreigners for April showed a HUGE drop! The total net purchases were $11.2 Billion… VS $55 Billion in March! And… The ongoing holdings of Treasuries feel a net of $2.6 Billion… Now… Here’s where I get all ticked off folks… We’ve had Japan, China and Russia all say publicly that they have full faith in U.S. dollar denominated assets (read Treasuries)… But when it came to backing up the talk with the walk… They failed to show that they have full faith in these assets, didn’t they!

These countries and their Finance Ministers caused investors HUGE losses with their statements, but when it comes down to the cheese that binds, these Finance Ministers didn’t have the intestinal fortitude to back up the statements… Well, at least in April they didn’t!

And $11.2 Billion a month is not going to be enough to finance the Current Account Deficit… Which will print tomorrow, how convenient! But that’s for April, and we won’t get all that data for months! However…

Right now, the “experts” believe the Current Account Deficit, which consists of the Trade Deficit, and the Federal Direct Investment, will be a deficit of $85 Billion (recall that the Trade Deficit had come down in the 1st QTR) for the 1st QTR… And going back, which is exactly what the Gov. doesn’t want anyone to do, I see that the total purchases in the 1st QTR were a mere $40.63 Billion… There’s a $46 Billion gap there folks…

I’ve gone over this financing thing so many times in the past that it make my head spin (yes, you should see it spinning right now!) just thinking about explaining it again… But, for those new to class… When a country has a financing problem (like it looks we had one in the 1st QTR) the gap gets pushed to the next quarter and so on, until… The chickens come home to roost… And then, a country has only two choices… They can raise interest rates aggressively to make the assets more attractive to the foreigners, or… They can allow a general debasement / weakening of their currency, to make purchases of the assets cheaper by discounting the clearing mechanism… The dollar, in this case… So… Which one do you think a Gov., especially one like ours, will choose to use? Yeah, right, like they would choose number 1!

Ok… Some more depressing news about the housing sector came through yesterday in the National Association of Home Builders Home Price Index (NAHB) printed worse than expected yesterday… The “experts” forecast the NAHB would be a 17… And it printed at 15… Soon afterward, economist Robert Shiller, said that the housing downturn “was not over yet”… Economist Nouriel Roubini, said that “house prices will fall another 15-20%” and… Banking analyst Meredith Whitney said that “she is even more bearish than either Shiller or Roubini on housing.”

That’s not good news folks… Nouriel Roubini as been dubbed as a gloom and doomer by the media (I don’t think so… He just tells it like it is, he can’t help it that it’s not all seashells and balloons for the economy, like the media would have you believe!) and when another analyst, as prominent as Meredith Whitney says she’s even more bearish than Roubini, you’ve got to sit up and take notice!

I just can’t end the day’s letter with those two depressing stories back-to-back… Oh! Here’s an interesting story… The Japanese Finance Minister, believes the recession in Japan is nearing an end… Yeah, right… If I had a 1-oz Gold American Eagle Coin for each time a Japanese Finance Minister has said those words since 1990, I would be quite the “rich man”! But, the markets swallowed his statement hook, line and sinker, which is good for the yen! Japanese yen outperformed all the currencies overnight, and is trading with a 96 handle once again!

Speaking of Gold… It has rebounded by $8 this morning, as the sentiment to buy dollars has faded…

Currencies today 6/16/09: A$ .8020, kiwi .64, C$ .89, euro 1.39, sterling 1.6440, Swiss .9220, rand 8.00, krone 6.42, SEK 7.8070, forint 201.50, zloty 3.2550, koruna 19.2780, yen 96.83, sing 1.4575, HKD 7.75, INR 47.75, China 6.8335, pesos 13.36, BRL 1.95, dollar index 80.55, Oil $72, 10-year 3.72%, Silver $14.35, and Gold… $937

That’s it for today… The rain that came through this morning was very a “hard rain”… And no, I’m not going to go into Bob Dylan here… We’ve had our share of “hard rain” lately, and the low lying areas are seeing flooding. The river that runs through my little river town, is on the rise again… I thought I had a doctor’s appt today, but my calendar tells me it’s next Tuesday! Yahoo! OK… Not too much else to talk about this morning, so, I’ll just end it here, and send you on your way to a Hopefully Terrific Tuesday!

Source:  German Investor Confidence Is On The Rise

The dollar is kicking up its heels once again, and this is to be expected during this Obama bounce… You see, the markets are swayed by the smooth talking President-elect’s call for $300 Billion in Tax-cuts, a job creation program, and $1 Trillion economic stimulus package… And believe me, if this is what it takes, then I’m all for it… But, here’s the spanner in the works, I believe… All these things cost money, lots of money, and money we don’t have, unless… We just go and print more. This is why I believe that once all the euphoria of the Obama presidency has run its course, the markets will do a V-8 slap to the forehead and realize we’ve just dug ourselves a deeper hole!

I’ll tell you one thing about the Obama bounce that we should see, and that is Risk Taking come back in a large way. And that, will underpin currencies like Brazilian real, Aussie dollars, and kiwi. We could even see South African rand strength. But like I tell people all the time, I don’t trust rand, I don’t trust the Gov’t of South Africa, and I don’t trust the Central Bank, therefore, I always say that I wouldn’t touch rand with YOUR ten-foot pole… But, I do realize that investors in rand have made bundles of cash over the years… But unless they timed it good, they saw those bundles dissipate quickly. The swings in rand are so violent… So… Keep that in mind.

But, back to what I was talking about before I went off the “rand” road… This Risk Taking could bring back the Carry Trades, and that won’t be good for Japanese yen, which has already given back 3 whole figures from last week’s trading levels of 90, to trade this morning at 93. And Commodity prices are seeing some love for the first time in a month of Sundays! I know that doesn’t sound like right, with the dollar rallying and Commodities also rallying… But, it’s happening, right here, right now!

One Commodity that has really taken off, is Oil… I know this isn’t something that everyone wants to see happen, but, when you have our friends (NOT!) at OPEC cutting production, and a return of risk taking, that’s what you get with Oil… A quick look at last Monday’s price shows that Oil was trading at $39 and change, and today it is trading at $47 and change! That’s a HUGE jump in just a week…

The Obama bounce received some support from San Francisco Fed Head, Janet Yellen, this weekend. Let’s listen in to Yellen… “It is increasingly likely that inflation will fall to undesirably low levels,” Yellen said at the meeting in San Francisco. She said the Fed would likely expand its raft of unconventional monetary policy measures now that its cycle of interest rate cuts has hit rock-bottom. She also urged an aggressive spending program by the administration of President-elect Barack Obama, as she gave a dismal assessment of the economy.”

Notice, she said that “the Fed would likely expand its raft of unconventional monetary policy measures now that its cycle of interest rate cuts has hit rock-bottom.” So… If I were reading that, and I did, I would be asking “what unconventional monetary policy measures”? Ahhh Grasshopper… Have you ever heard of “Quantitative Easing”? It’s a trick that the Japanese used in the 90’s, oh, here we go again with the comparisons to what we’re doing and what the Japanese did… But it’s sooooooooo true!

Anyway… Quantitative Easing is, a way to flood the banking system with large amounts of money. It’s a way to mimic below-zero rates and provide support to the economy. The process often involves buying up large quantities of assets from banks, such as the Fed’s latest programs to buy mortgage-backed securities. So… Once again, should the Fed go down this road, and I don’t see how they can resist going down it, they will be taking on more bad collateral…

One more thing that Ms Yellen said that hit a nerve with me, was that, “the Fed must have a “timely” plan for ending lending programs. The Fed must have an “exit strategy” to wind down the facilities when they are no longer needed.”

Hmmm… Well, since she said that, and she’s a Fed Head, we are left with the understanding that the Fed doesn’t have a clue what to do with all these programs they’ve instituted… Now, that gives me a warm and fuzzy… NOT! I’m going to go yell at the walls for a minute, don’t go away, I’ll be right back!

OK, I’m back, see that didn’t take long! HA! Well… The data cupboard gets restocked this week, with the Big Kahuna coming on Friday, with the Jobs Jamboree. Right now the early forecasts have December losing 500K more jobs… The thing to look for this Friday though is the previous month’s revision… You may recall me going spastic on these revisions last month, when the previous two months numbers were revised, and not by small numbers, but by large, market moving type numbers.

Here’s what I said on December 8th… “OK… Did you see the rot on labor’s vine Friday? The Jobs Jamboree was very unkind to many, with a 533K jobs lost in November. That number was the worst figure since 1974! The tally of 1.9 million jobs lost this year surpasses the losses of the past two recessions, and according to the Wall Street Journal, signals that the current downturn could be the worst since the years immediately following World War II.

Now… The thing that really ticks me off folks, is the fact that the October figure saw a major revision. You might recall that the September figure which was bad enough, was revised up by over 100K… Then last month we saw a negative -240K figure, which was bad enough, but one month later the figure is revised up to -320K… So, in my mind, the -533K figure reported this month for November, will probably be revised upward to the -600K figure… UGH!”

So, it will be interesting to see the revision this Friday… But the scary thing that the markets seem to be forgetting about is the 500K in job losses… If that would happen the two month losses would be greater than 1 million! That’s not good! In fact it’s not even close to good! I told the crowed in Marco Island that the unemployment rate would reach 7.5% before this was over. And that was before the 533K job losses were printed! I’ll have to redo that call… That’s too bad too… That’s a call I don’t like making one iota! But… I have to do it, because the boys and girls on TV won’t do it!

On Friday, just passed, we saw the color of the latest ISM (manufacturing) Index, which I reported to you as already bad… Well, my friend, John Mauldin, wrote about ISM this past week in his wonderful weekly letter (www.2000wave.com). So… I thought I would just let him explain the report, as he does it better than I would!

“We got the US ISM numbers today, and they were just awful. The overall index is down to 32.4, down over 25% in the last three months. This is the lowest level since 1980, in what was a severe recession. The ISM survey points to one of the deepest contractions in industrial output in the post-World War II era, this quarter. The forward-looking details were weak and point toward further declines in the ISM manufacturing index. Businesses are cutting orders, inventories, and workers because of tight credit conditions, declining final demand, and shattered confidence. Manufacturers reported in December that their customers’ inventories were too high, a bad omen for future production.

But when you look at the components, it gets even more sobering. New Orders are down over 50% from six months ago, to 22.7. This is the lowest number since they began keeping records in 1949. Production is down to 25.5. New Export Orders were way down (35.5), as was Order Backlog (23).

“Another standout in the December report was the decline in the prices-paid index [down to 18! -JM] which fell to its lowest level since 1949. The abrupt decline in energy and other commodity prices is driving the index lower. Lower input costs may entice manufacturers to pass on the savings via reducing their prices. If businesses broadly across industries cut prices to preserve some sales, it will heighten the threat of deflation.” (www.economy.com)

This is all suggestive of an economy in serious decline. The GDP for the 4th quarter should be down somewhere between 4-5%. It is likely we are going to see even more earnings downgrades in the next few months, and as I outline below, we have probably not yet hit bottom. As long as the ISM numbers look like the ones we just analyzed, things are likely to be getting more difficult. And that goes for the world in general, not just the US economy.”

Well… That’s sobering news, eh?

OK… We’ll also see Factory Orders tomorrow, ADP Employment on Wednesday, Weekly initial jobless claims on Thursday, and the big Jobs Jamboree on Friday. There are other second tier data reports printing, but for this discussion we’ll keep it with the Big Kahunas…

None of these will give anyone a warm and fuzzy, folks, and if the dollar continues to rally through all of them, we can figure that the Trading Theme of rewarding the dollar for the deepest, darkest, dangerous economy will be back on the burner… But in any case, the Obama bounce looks to be ready to go…

Currencies today 1/5/09: A$ .71, kiwi .5835, C$ .8215, euro 1.3650, sterling 1.4520, Swiss .9055, rand 9.4550, krone 6.93, SEK 7.8575, forint 195.70, zloty 3.0250, koruna 19.59, yen 93.20, sing 1.4720, HKD 7.7540, INR 48.56, China 6.8310, pesos 13.71, BRL 2.32, dollar index 82.80, Oil $47, Silver $11.05, and Gold… $856.15

That’s it for today… OK, on Friday, I reported that the Czech Republic would adopt the euro on Nov. 1st… Not so fast, Tim! The Czech Republic will begin discussing adopting the euro on Nov. 1st… My bad! Once the month is over, I’ll be heading to Florida for the Orlando Money Show… This ought to be an interesting Show this year, as we’ll be in the middle of the Obama bounce, and the stock jockeys will be bouncing off the walls with forecasts of riches… Me? I’ll just be there to remind everyone that they need to diversify their investment portfolios… OK, time to go… I hope you have a Marvelous Monday!

Source:  The Obama Bounce Begins

The currencies were lifeless yesterday, with only a blip up in euros to 1.2740, only to give it back overnight. Aussie dollars (A$) rallied on the Huge 100 BPS rate cut news from the previous night, but at the end of the day, that was all but forgotten… It was as if the currencies did a Hans and Franz… Got all pumped up… But then turned into 100 lb weaklings again as the day turned to night.

Hey! I’ve written a bit about China this week, and the renminbi, and I must have scared quite a few holders of the currency, because, my trading screen is lit up with nothing but renminbi sell trades… Interesting… For the last couple of years, I tried to illustrate a picture that would show that owning Japanese yen, was a far better choice than Chinese renminbi… But, that fell on blind eyes… I see that UBS (Union Bank of Switzerland) believes that there “limited scope” for renminbi to drop much further, while Morgan Stanley believes we’ll see a 10% drop in renminbi…

I think I will pin my colors to the UBS mast on that one… I just can’t see why China would want all the negative press that would go along with allowing their currency to drop VS the dollar by 10%… The UBS research team said that, “Depreciation would likely invite criticism that china is a adopting a beggar-thy-neighbor type of policy, leading to possible protectionist responses from China’s major export markets.”

The NBER call on the recession brought out a lot of economists that are saying, “they knew it all along”… Yeah, right… However, there was one particular economist / analyst that has been saying the U.S. was in a recession for years! That’s our old friend, John Williams of Shadow Statistics (shadowstats.com) I would love to show you the chart, but the Pfennig template doesn’t allow me to do that… So, you’ll just have to read about it!

Shadowstats.com uses a methodology that calculates GDP “old school” and when using this methodology, Showstats.com says that beside a brief blip into positive growth in 2004, the U.S. economy has been in negative GDP growth since 2000! I guess, John Williams won’t be asked to be the keynote speaker at the NBER holiday party, eh? HA!

The U.S. data cupboard gets restocked today as we build to a crescendo on Friday with the Jobs Jamboree. Today, we’ll see the ADP employment report, which as I’ve explained in the past, is a good indicator as to what we can expect in the Jobs Jamboree numbers. ADP is forecast to show a negative -200K job loss in November. Right now, the Jobs Jamboree is forecast to show a negative -325K job loss in November, so the ADP report is no sight for sore eyes over at the Bureau of Labor Statistics (BLS), who count the beans on the Jobs Jamboree. (and quite poorly, I might add!)

The “stupid” Productivity data for the 3rd QTR will also print… The old Fed Chairman, Big Al Greenspan, used to think the world of Productivity… He thought is was the “end all” in the “new economy” and the reason inflation stayed low, and he could keep rates low… Well, it wasn’t the “end all”, and the “new economy” was a bust, inflation wasn’t really low, it was just “adjusted with changes to the CPI basket of goods to make inflation figures look low, and keeping interest rates so low, is the root of all evil for us today, now weren’t they…

The awful fundamentals continue to mount for the U.S. and the dollar… But, as I’ve said over and over and over again, this dance is gonna be a drag… No wait! I have no idea where that Dave Clark 5 song came from! But, as I’ve said before, and will say again… These fundamentals are being swept under the rug and ignored, as long as the Credit Crisis has a tight grip on the markets. But, in my heart of hearts, I truly believe that all this bad data will come back to haunt the dollar, if the Credit Crisis can get some WD-40 applied to it, and unlock it.

The Reserve Bank of New Zealand’s rate cut announcement should be coming forth this afternoon. Yesterday, I said I thought the RBNZ would cut 150 BPS… They very well could go more than 150 BPS, as their internal cash rate was the highest in the industrialized nations before all this rate cutting began in September.

I saw a piece of data that pointed out that Commodity Prices are down 18% YOY. OUCH! This is the worst performance for Commodity Prices since 1991. This is the main culprit in the poor currency performances of the Commodity Currencies like: A$, kiwi, loonies, rand, and real… (Australia, New Zealand, Canada, South Africa, and Brazil) This, and the unwinding of the Carry Trade, which hurt the high yielding Commodity Currencies, A$, kiwi, rand and real. So, a double whammy hitting these guys…

So… You have to ask yourself this question… Do you believe the Commodities are finished? Is this the end of their bull market that lasted only 7 years? Remember, our friend, Jim Rogers has documented that for over 200 years, Commodity Bull Markets averaged 17-22 years in length… And you might be saying but Chuck, you just said that Commodities were down 18% this year… Doesn’t that tell you that it came to an end? Ahhh… Grasshopper… This Bull Market is a Trend, and trends are not “One-Way Streets” they have volatility, and they can see losses… But in the end, the underlying fundamentals return and the trend continues.

This is exactly what I tell you about the currency trends all the time… We had dollar weakness from 2002 thru 2004, then dollar strength in 2005, only to return to the underlying fundamentals in 2006, 2007, and 1/2 of 2008. Was the dollar strength in 2005 the “end of the weak dollar trend”? No! it wasn’t… And I truly believe that the dollar strength since July this year will prove NOT to be the end of the weak dollar trend now!

You know, one of the things fueling dollar strength right now is the flight to safety in U.S. Treasuries… Oh by gosh, by golly, it’s time for mistletoe and holly, and some straight talk about Treasuries. Everyone and their brother is buying Treasuries, which pushes the prices of the asset higher, and the yield lower… Big Ben Bernanke must be getting a bonus at the end of the year, for the Treasuries he sells… I say this because he announced the other day that the Fed is “considering” to buy long term Treasuries. (when you see “considering” just figure that it’s a done deal!) Well, the Fed hasn’t bought long term Treasuries since I was a kid, the Beatles were new, and I had hair!

For your troubles… A 3-month T-Bill will pay you 6 BPS… Folks, after the broker takes his pound of flesh to do the trade, you are paying the Gov’t to hold your money! Want to go out further on the yield curve? OK… How about a 10-year Treasury? 2.70%, which again, will barely pay you anything by the time the broker charges you to do the trade. And those “long-term Treasuries” that Big Ben is “considering” buying? Where do I sign up for 3.2% yield in a 30-year Treasury… NOT!

It’s crazy! I don’t see the appeal… Especially considering the fact that when the Credit Crisis in unlocked, the unwinding in these “safe” Treasuries should be quite swift and push the price of those bonds down quickly, which will cause some investors to book losses, while paying the Gov’t to hold their money…

These are just my thoughts… Market commentary…

OK, before I head to the Big Finish, someone asked me to talk about Swiss francs, as they think that Swiss Banking is going to cause a Big problem for the franc. Hmmmm… Could be, but I would think the Swiss, being a rich nation, would be able to deal with the problems that UBS and others have without causing too much of a problem for them and the franc. I still think of Swiss francs as a very good alternative to euros… Along with Norway, Sweden and Denmark… All surplus / positive balance of payments countries…

Oh, and this one last thing… I saw where mortgage applications more than doubled last week. This is probably the result of the announcement that the Fed will begin to buy mortgage backed debt directly… Yes, that’s right folks… The Gov’t may very well own your mortgage in the future… Now, as inviting as having a Gov’t guaranteed loan might sound… Does anyone else find this arrangement to be creepy?

Currencies today 12/3/08: A$ .6435, kiwi .5295, C$ .7985, euro 1.2645, sterling 1.4735, Swiss .8265, ISK (no quote yesterday), rand 10.2825, krone 7.0850, SEK 8.2675, forint 207.25, zloty 3.03, koruna 20.18, yen 93.20, baht 35.55, sing 1.5290, HKD 7.7515, INR 50, China 6.8820, pesos 13.61, BRL 2.4190, dollar index 87.07, Oil $47.29, Silver $9.43, and Gold… $776.75

Source: Automakers Say They Need Funding Now

Good day… And a Terrific Tuesday to you! Front and Center this morning, we have the euro (EUR) attempting to reach 1.60 again. I know I gave the euro the Chuck Kiss of Death last week when I sang the praises of it reaching 1.60, so I’ll just let it fly under the radar this morning.

Yesterday when I signed off, the euro was pushing the envelope of 1.59. Later in the morning, ECB member Weber sounded off on inflation. Let’s listen in…

“EUROZONE INFLATION IS WELL ABOVE ECB’S TOLERANCE THRESHOLD”. WOW! And then he followed up with this… “ELEVATED INFLATION EXPECTATIONS COULD START WAGE-PRICE SPIRAL, CREATE SECOND ROUND EFFECTS, AND THE ECB WILL DECISIVELY AND ACTIVELY FIGHT RISK OF WIDESPREAD SECOND-ROUND EFFECTS”.

Now, that’s two consecutive days of ECB members talking hawkish… First Liebscher and now Weber, with Weber’s comments sounding more and more like there’s another rate hike up the ECB’s sleeve. At best, the ECB doesn’t sound like they are ready to CUT rates any time soon… So, the euro gets to hold on to its positive interest rate differential to the dollar… And so… The single unit heads higher.

You know… I really didn’t like the Fed bailout of Bear Stearns; I’ve chronicled that position here in the Pfennig… But the markets took the bait, hook, line and sinker… And for now, at least, there’s more calm in the markets and probably more since last August. I’ll tell you why I think that…

The stock market, seems to believe better times are ahead, and that risk aversion is no longer needed… (Yes, I’m aware that it sold off yesterday)… And then there was this story that flashed across the screen this morning… Interest in placing puts on Aussie dollars has dropped to the lowest level since last August. For those of you new to class… When someone places a put on an asset, they believe it will fall in price… They get to sell it at the price they placed the put on, and everyone’s happy, the peasants dance in the streets, and Marie Antoinette gets to eat cake.

Back to reality… So… With investors/traders no longer thinking that the Aussie dollar (AUD) had reached its high… Guess what? The Aussie dollar is going higher! Amazing! Truly amazing how that works! HAHAHAHAHA! And remember it was months ago, that I said that the Aussie dollar looked like it would reach parity, along with Swiss francs? Well, the Swiss franc (CHF) did it, and so can Aussie dollars!

However, the road to parity is full of potholes, much like the St. Louis roads after an awful winter! And the biggest pothole is the one that contains risk events. You know, risk events, like Bear Stearns… I’m still a believer of the thought that there will be more risk events this year. Look at these earnings that the Big Boys have been posting in the last week… Yesterday, Bank of America posted a gain in the last quarter, but it was down 77% from the previous quarter! I sure wouldn’t want to be the one responsible for explainin’ that to the shareholders!

The Wall Street Journal is reporting this morning that loan losses pose a potentially larger threat to more banks than the losses taken so far.

Today, we’ll see the color of the latest Existing Home Sales report here in the United States. The experts tell us that we should expect to see more rot on the vine here, with sales forecast to drop 2.3% to the $4.92 million annual rate, the lowest level since 1999. This is a pothole, and it could become an even bigger pothole, should the drop exceed the forecast. This housing meltdown has been something to behold… Most of the younger crowd has never seen this before; they were always told that their house would keep going up in value.

The Bank of Canada (BOC) meets today, and I’m expecting a large cut from them to keep pace with the U.S. Federal Reserve – 50 BPS, which should put some deep tissue pressure on the Canadian dollar/loonie (CAD). This is what I’ve been talking about with regard to the loonie…  Downward pressure applied from the BOC and their rate cuts, and upward pressure applied from commodity prices… Today, it looks like the rate cuts will have the upper hand, eh?

About a month or so ago, Goldman Sachs forecast a rate cut in Japan, which really hurt the yen (JPY) when it was trading around 100. Goldman Sachs has abandoned that call now… Hmmm… This sounds fishy to me. You don’t think that the Bank of Japan (BOJ) talked to Goldman… Nah… That’s too far fetched for even my conspiracy-laden mind! But maybe a screenwriter would like to make a movie from my thoughts? HA!

It will be interesting to see if Japanese yen can get back on the rally horse now… Of course we need for the carry trades to stop to see real gains here. And, as I said above, I still believe that we’ll see more risk events this year, which should put a real damper on the carry traders.

Two of my fave currencies keep pushin’, keep pushin’, keep pushin’ onnnnnn… There you go, a little REO Speed wagon to get your blood going this morning! OK, now back to the currencies of Norway (NOK) and Sweden (SEK)… Have you seen these two lately? WOW! The moves this year have been something to behold.

I have an acquaintance that’s an oil man. Every time I see him, he’s smiling like a Cheshire Cat… Well, I’m sure the oil people in Norway are smiling the same way! With oil hitting $117 and change yesterday, oil revenues are pouring into Norway, thus padding their positive balance of payments and removing their need for foreign capital. Notice, that we’ve not discussed any Norwegian Banks or Swedish Banks involved in the subprime write-downs?

Norway’s Norges Bank meets tomorrow, and I’m expecting the Norges Bank to hike rates 25 BPS tomorrow. This should help propel the krone even higher.

As I’ve told people for many years… When evaluating a currency, first look at its position in the world… Then think of the currency as the stock of that country, and evaluate it like you do a stock. What’s the yield? What’s the flow of investments? What’s the balance sheet look like? What’s the leadership like? Etc. etc. When doing so, you’ll find that it makes it an easier decision for you… And when you do this for Norway, or Sweden, you’ll find stocks that you would probably want in your investment portfolio.

Wouldn’t you know it? I come in, see the euro pushing the envelope of 1.60, and by the time I’m ready to go the Big Finish, it sells off, making what I wrote earlier look like I’m delirious! Oh well… I carry on, despite my challenges!

I’ll finish with the thought that what I explained about two years ago, regarding the Asian currencies is really taking hold these days. Japan, China, Singapore… All are seeing their currencies strengthen versus the dollar, and that’s good, and about time too!

You see… Inflation is really getting to these economies, and at least they understand that a stronger currency can help fight inflation. Ahhh… They Got The Inflation Memo!

Currencies today 4/22/08: A$ .9440, kiwi .7965, C$ .9930, euro 1.5940, sterling 1.9880, Swiss .9920, ISK 74.20, rand 7.6810, krone 4.9730, SEK 5.87, forint 158, zloty 2.14, koruna 15.72, yen 103.20, baht 31.48, sing 1.3510, HKD 7.7955, INR 39.95, China 6.9880, pesos 10.51, BRL 1.6640, Oil $116, Silver $17.61, and Gold… $921.45

That’s it for today… Hey! Did you see the nice story in the St. Petersburg Times this past weekend? The writer, Helen Huntley, came to see me when I was in St. Pete, and wrote a great piece! Now… The photo is a little old… I haven’t worn that tie in two years! Anyway… Great stuff! In case you missed it… Here’s the link…

The rain is back today. I’m guessing the water table here in the Mid-West is doing quite nicely! Time to eat my apple! I sure hope you have a Terrific Tuesday!

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