And with good reason. The United States has a bigger and more-troubled financial sector than most countries. It also has a bigger overhang from the housing bubble, has a bigger balance-of-payments deficit and has a budget deficit that’s fat enough to stall the recovery.

It would be nice to have an economic recovery to invest in that didn’t have all of these problems.

Truth be told, such an investment play does exist. What’s more, the market I have in mind is advanced enough for us to invest in it without having to go through all the rigmarole of American Depository Receipt (ADR) investing. Nor will you have to make a potentially risky foray out onto some foreign stock exchange to buy the shares, because they are almost all listed here.

The country I’m talking about is Canada. Think of it as being like home – but without the problems that our home market (the United States) currently suffers from.

Our Healthy Neighbor to the North

When the recession struck, Canada was hit by it quite badly, but for different reasons from its southern neighbor. The Canadian housing market was nowhere near as overheated as its U.S. counterpart. So Canada’s housing downturn wasn’t as deep.

And what about the banking systems? To be sure, Canadian banks received a bailout, but it was less than $20 billion in total. Compare that to the veritable alphabet soup of U.S. bailout programs ranging from “TARP” and “TALF” that have injected more than $2 trillion into the U.S. financial system.

On the other hand, natural resources prices crashed last autumn, which had a major effect on Canada’s resource-based economy. A number of large projects in the Athabasca Tar Sands region were cancelled, for example – since this region has oil reserves around the size of the entire Middle East, its development is crucial to Canada’s future.

The “loonie,” Canada’s currency, declined from around “parity” to the U.S. dollar to an exchange ratio of C$1.30=$1 U.S. In effect, this was a “flight to safety” into the dollar and U.S. Treasuries. And it affected Canada as it did other countries.

In 2009, however, Canada and the United States have traveled down totally different paths. Canada did very little “stimulus,” so its state budget is in much better shape. The deficit for the 2009-2010 fiscal year $53 billion (C$56 billion) is only about 4% of gross domestic product (GDP). For the 2010-2011 fiscal year, the deficit is expected to be about $42 billion (C$45 billion), or 3.2% of GDP.

Energy Powers the Rally

The bounce in natural resources prices has really helped power up the rebound of Canada’s market.

Investment in the tar-sands region has picked up again, with a big merger between the two largest tar-sands-extraction companies: Suncor Energy Inc. (NYSE: SU) and Petro-Canada. The rising gold price hasn’t hurt either – mines are appearing all over the place! All this new activity has made the loonie bounce, so it’s back to about C$1.07=$1. While interest rates are as low as the United States, the Bank of Canada hasn’t done much “quantitative easing,” meaning that inflation isn’t too much of a worry.

The strong loonie helps here, too.

Canada seems to be recovering nicely. Its index of leading indicators jumped 1.1% in August, while manufacturing sales grew 5.5% in July. The country presently runs a modest current account deficit, but it’s only 2% of GDP. That’s much lower than even the current U.S. deficit, let alone that of 2007. It had a little more public debt than the United States in 2008, but given current U.S. deficits, those two lines almost certainly have crossed by now.

There are two caveats. The first is an obvious one: If commodity prices crash to earth, Canada will have some difficulty because commodities are a large part of its economy. Personally, I don’t see that happening. It’s notable that PetroChina Co. Ltd. (NYSE ADR: PTR) has just invested $1.7 billion in a Canadian tar sands project, so China must not think so, either.

The other risk is political. The current minority Conservative government of Stephen Harper has done a good job, but the opposition Liberals have withdrawn their parliamentary support. That means there may be an election this autumn. A Liberal majority government would be no disaster. They might be a bit sticky about oil-drilling permits, but would not otherwise rock the boat.

However, a Liberal coalition with the leftist New Democrats could push public spending and the deficit up, and there’s no guarantee against that. (One of the problems with multi-party systems like Canada’s is there is an almost infinite variety of possible governments after each election, some of which can be fairly alarming from a business perspective.)

However, Canadian elections are a much smaller risk than you get in most countries, and the commodity/oil price crash, if it happened, would help the U.S. economy and, presumably, your U.S. portfolio. So it’s worth having some Canadian exposure, perhaps with the Canadian market exchange traded fund (ETF) iShare MSCI Canada Index (NYSE: EWC).

For years it was almost fashionable to dismiss Canada from an economic standpoint. Now, however, that may well be where the smart money would like to go. As an economy, Canada is competent and stable.

It’s the kind of country that looks to be a good place for some of our money.

OK… A bad day a the office for the euro and other currencies on Friday, and then last night in the overnight markets… European Central Bank (ECB) President, Trichet, once again deep-sixed the euro with talk of further rate cuts. He did attempt to water down the message by saying that “any rate cuts would be measured 25 BPS cuts” Memo to Trichet… It doesn’t matter what the size of the debasing is, as long as you are going to debase your currency, the markets will make you pay for it!

So, the euro is at a one-month low VS the dollar this morning… Of course, remember what I told you over a week ago regarding the earnings season for U.S. Corporations, and how the currencies needed to break the link to stocks before those earnings began hitting the news wires. Unfortunately, besides the one day break that we saw, an earnest break hasn’t happened, and now the stocks are going to weigh heavily on the currencies… I know, I know, the couple of banks that have announced, have announced some very nice surprise earnings… But you must draw a line between those that have received billions in aid, and those that have not! As I’ve said before, look under the hood at these banks / financial institutions, and tell me their earnings would have been as good without the billions of stimulus…

The other thing the euro has to deal with right now, is what I talked about last week, and that is getting bogged down with the split among ECB ministers as to how monetary policy should be administered to combat the recession. There’s been no resolution to this disagreement, and so the euro suffers.

But don’t forget what I told you about the euro on Friday… If you keep that in mind, that the ECB is fully aware of what’s going on in the U.S. with the deficit spending and money creation, and what it’s going to do the dollar eventually. They don’t need the euro taking off VS the dollar too soon… So, this is all “noise”… As I said before, you may be spinning, sliding uncontrolled toward the guardrail on that icy road, you know you’re going to make impact, it’s just a matter of time before it happens… The dollar is spinning, sliding toward the guardrail too… It’s just a matter of time before it happens…

Well, we have a couple of Central Bank meetings this week… The first will be the Bank of Canada (BOC), which will meet and discuss rates. I believe they’ll be discussing something else at the meeting as well… Quantitative Easing (QE)… In fact, I think the BOC will leave rates unchanged, but announce how they will introduce QE to their markets… That means there’s another currency on the list of ones that have seen their respective countries take on QE… And you know what that means don’t you? It means that I cross them off my list of currencies that are eligible to be on Chuck’s Hit Parade!

Sweden’s Riksbank will also meet this week… I do expect them to cut rates. The krona has been a very disappointing currency in recent times, and the size of their rate cuts explains it all… When the Riksbank meets tomorrow, they will most likely cut 75 BPS to .25%, basically zero… And if they talk about “doing whatever is necessary to save the economy” then they will be setting the table for future QE…

Geez Louise! Doesn’t anybody want to have a strong currency any more? The Swiss National Bank (SNB) said last week that they don’t think that it’s a competition to see who can devalue their currency the quickest… Hmmm… Sure seems that way to me!

Gold had a very tough week along with the other non-dollar assets. I just look around at what’s going on in the U.S. and the world, with all the crack-pots running around acting like they’ve spent a day in the drug den, and think to myself, that Gold should be trading much higher, and not suffering through weeks like last week. I read a piece from my friend the Mogambo Guru over the weekend regarding this very topic, and thought it to be a good thing to add to the Pfennig this morning…

The Mogambo Guru — “Laurence Meyer, a former Fed governor (and so he ought to know) admitted to Bloomberg that the Federal Reserve “is ‘running a laboratory experiment’ on what drives inflation: the money supply or the output gap.”

The fact that we already know the answer to this experiment is what makes me stand at the window and shout at passersby that they should “Buy gold, silver and oil right now, you pedestrian morons, because your Congress is spending the ‘too much money’ that is being created by the Federal Reserve just for that sinister purpose, and which will burn you alive in the painful fires of inflationary hell!”

That Mogambo… He certainly has a way with words! HA! He’s one of my faves folks, and can be read every Monday on the Daily Reckoning: www.dailyreckoning.com along with the Pfennig!

There’s a whispering campaign going on among “those who know” or “think they know” that all this deficit spending and money creation should deep-six the dollar eventually. One of those people is another of my fave writers, William Pesek, who had this to say on Bloomberg. (this is just a snippet)

“It’s a bit rich for U.S. politicians to berate Treasury Secretary Timothy Geithner for not labeling China as a currency manipulator.

Perhaps Senator Lindsey Graham, a South Carolina Republican, hasn’t seen a newspaper in the last 12 months. With near-zero interest rates, the likely issuance of trillions of dollars of government debt and massive taxpayer-funded bailouts, the U.S. will soon make China look like a manipulation piker.

Memo to Graham and his ilk: Your economy has lost any moral high ground as it drags the world down with it. That will be even truer as the dollar eventually pays the price for ultra- loose monetary and fiscal policies. And it will.”

I do this from time to time, so that you’re not always just hearing from me on this stuff… I don’t want to look like the boy who cried wolf…

Chris Gaffney, who will be very bummed out this morning as his Blues lost again last night, sent me a story on Friday from the Economist. COM, regarding China… I thought that the story was very good in that it said quite a few of the things I’ve been saying about how China’s stimulus is working, and that China should be the first to come out of the global recession. (not that they’ve had a recession, but a slowdown)… There was one point the writer made that really hit home, and I hadn’t thought of… China’s stimulus is working because, the Chinese had complete control on where it went and how it was spent… Not the willy nilly spending going on here, and elsewhere like the U.K. and Japan…

OK… The data cupboard is relatively empty this week, with only Leading Indicators today, and Existing and New Home Sales along with Durable Goods later in the week. So… It appears that Corporate earnings will take center stage this week, and that’s not a good thing, in my opinion…

I’ll head to the Big Finish right after I mention that bank lending is just not happening… The Wall Street Journal reports that analysis of Treasury Department data, the biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February, the latest available data, than in October, the month the Treasury kicked off the Troubled Asset Relief Program. Hmmm… What they don’t mention is how many loan applications were denied! Look, it’s not just the banks fault for not lending right now… With 600,000 in job losses for 5 consecutive months, and unemployment running in the double digits (probably around 16%), and consumers leveraged up to their eyeballs, not many applying for loans are going to get approved given this scenario.

Currencies today 4/20/09: A$ .7075, kiwi .5615, C$ .8150, euro 1.2975, sterling 1.4580, Swiss .8550, rand 9.0440, krone 6.7834, SEK 8.57, forint 230.50, zloty 3.3750, koruna 20.85, yen 98.70, sing 1.5090, HKD 7.75, INR 50.25, China 6.8335, pesos 13.23, BRL 2.1930, dollar index 86.43, Oil $48.25, Silver $12.04, and Gold… $873.70

Source: More Dollar Strength

Now, having said all that… It doesn’t mean the RBA won’t cut rates again in the future… It just means that they were being prudent, and taking a step back to see what their previous rate cuts had done to the economy, and how the economy would be affected by them. So, the proverbial “pause for the cause”… But, I believe it to be warranted, given the RBA had cut 400 BPS away from their once lofty rate in 7 rate cuts…

Fundamentally speaking, the A$ represents an economy that has fared better than most of its G10 counterparts, with a growth outlook far exceeding that of the G10 nations. Australia’s 2009 GDP growth is expected to reach +1.0%, compared to -2.0%, -2.20%, -5.0%, -2.7% and -2.2% in the US, Eurozone, Japan, UK and Canada respectively. (and we all know that the U.S. growth outlook is a big fat joke! Instead of -2% it should be -4 or -5%!) Then, add in the fact that Australia’s current account deficit is seen at 4.4% of GDP in 2009, its lowest level since 2002. Recall, I kept telling you that their Current Account Deficit was narrowing? Its Budget SURPLUS is expected to hover at 1.0% of GDP–a far superior display than the deepening deficits of the US, Eurozone, Japan and the UK.

So… Like the spotlight that I directed to Norway last week… Here’s another example of a country that could be in the front of the race when this financial turmoil ends…

So… The A$ is stronger this morning, but I wouldn’t go racing to the currency kiosk to buy A$’s because you believe this to be a turn / reversal in the A$’s fortunes… There’s no end in sight to the financial turmoil that has a grip on the world right now, and knowing that, tells me that the risk takers are not participating in the markets right now, and without the risk takers, any run-up in A$ or any other currency for that matter, is not of the “reversal of trend” kind of run-up… But… There will come a day, when all these fundamentals will matter once again…

The Bank of Canada (BOC) will meet today, and they are expected to cut rates again… Don’t look for any RBA-style surprises here… Canada, just fell into a deficit status, and that came as a result of the slowing economy, which fell 3.4% in the 4th QTR… So, you can expect the BOC to cut rates this morning…

Yesterday, we saw everything under the sun trade heavily except U.S. Treasuries… Even Gold has faded in the past 5 days… Sort of like my beloved Missouri Tigers Basketball team did under the bright lights of national TV on Sunday! UGH! But, nonetheless, everything is trading heavy… Stocks, corporate bonds, muni bonds, commodities, and currencies… And I could even go further in that list and say real estate, and housing!

I’ve gone on record with my feelings about how I believe U.S. Treasuries are the next bubble… And I read a report from one of my fave economists, Brad Setser, yesterday that tells me I’m really on to something with that belief… Here’s a snippet… “That implies, if the Pandey/Setser estimates for official purchases are right, that private investors snapped up more Treasuries than the world’s central banks. Central bank demand accounted for a far smaller share of total issuance than in the past few years. In 2007, for example, central bank purchases easily exceeded total issuance. The big increase in demand for Treasuries in 2008 came from private investors in the US.”

Hmmm… Private investors buying Treasuries… Now that’s something I’ve been telling you for some time now, but Brad has all the facts and figures in his report to prove it, and knowing that Private investors have bought all the Treasuries, that Central Banks didn’t want, tells me that a bubble is in the making…

Speaking of Central Bank ownership of Treasuries… I read yesterday that China used to keep 100% of their dollar reserves in U.S. Treasuries. Today they keep only 70% of their reserves in Treasuries, with the difference in gold, euros, and other Asian currencies. Hmmm… What if they would decide to diversify more?

OK… The devastation the manufacturing sector has experienced in the past 14 months, looks like it might have found a bottom… The February ISM Index, which measures the pulse of manufacturing, registered a slight increase! The index rose slightly to 35.8 from a previous level of 35.6… The employment component of the index though continued to slide… Production was the biggest gainer of the report… So, something is producing a heart beat for the economy…

Speaking of producing a heart beat for the economy… I’m going to go in a different direction occasionally here in the Pfennig, and instead of always beating on the dolts in Gov’t, and the talking about the rot on the vine in the economy… And… I’m going to ask you dear readers to provide the input!

Here’s the skinny… I would like for readers that have businesses that might be doing well in these times, to fire me off an email and tell me of their successes, how they’ve done better than others, or any kind of information you would want to see printed about your company… One to two paragraphs… And if you don’t want to include the name of the company, don’t! But… This will be free advertising for you! But, I only want the “feel good stories”…

The other thing to think about with this offer is that the Pfennig gets picked up by news agencies all around the world… It’s circulation just keeps growing and growing… So… Come on! Send me your stories! pfennigreplies@everbank.com

I just received some “hate mail”… I opened it up, and the guy said he “hated me” because of my call for an “Obama bounce” after his inauguration, that obviously didn’t come to fruition… Yes, I was wrong… How was I to know that Obama would opt for a stimulus package that has more spending in it to produce short term jobs, and start nationalized health care, than shore up financial institutions? He said he was going to “fix the problem”… Unfortunately, his idea of a “fix” is create jobs, when the economists all agree that the banks and financial institutions need to fixed first… Maybe he’ll be right… But right now the markets don’t think so… Especially stocks…

So, the markets are tanking, with no Obama bounce… No reason to “hate” someone! And… I always say… “I’m not even your last choice as a stock jockey”… But, how could we NOT have an Obama bounce? This guy was so popular! Right?

Speaking of stocks… The DOW lost 300 points yesterday to trade below 7,000 at 6,763… The first time below 7,000 in 12 years! But how can the little guy make money in stocks when the greatest investor of all time lost money in 2008? Here’s the skinny as reported by the Wall Street Journal…

“Berkshire Hathaway, the holding company led by famed investor Warren Buffett, reported its worst year ever in 2008, with its net falling to $4.99 billion from $13.21 billion in 2007. Book value per share declined 9.6%, a performance far better than the S&P 500 stock index but only the second negative year suffered by the company since Buffett took over in 1965.

Berkshire predicted the economy “will be in shambles throughout 2009 — and, for that matter, probably well beyond.”

Today, we’ll see the color of the Pending Home Sales, and Vehicle Sales… In addition, we’ll get some verbiage from Fed Head Lockhart speaking on the economy in Tampa, Fed Chairman, Big Ben Bernanke goes before the Senate Budget Committee, and U.S. Treasury Sec. Geithner, goes before the House Panel on Federal Budget… So… Lots of opportunities for these guys to give us a sound bite that sends the markets one way or the other. So, keep your ears to the ground… Or, just turn on cable news!

Currencies today 3/3/09: A$ .6420, kiwi .4975, C$ .7750, euro 1.2605, sterling 1.4040, Swiss .8510, rand 10.4850, krone 7.1575, SEK 9.1375, forint 243.75, zloty 3.7675, koruna 22.2650, yen 97.80, sing 1.55, HKD 7.7575, INR 51.97, China 6.8410, pesos 15.32, BRL 2.4250, dollar index 88.88, Oil $40.75, Silver $12.72, and Gold… $924

Source:  RBA Surprises The Markets!

The single unit was higher within the 1.29 handle overnight than it is right now, as it has given back a bit of ground on the news that a European Union Commissioner, Buti, said that, “economic indicators point south very badly.” This is strictly, jawboning to keep the euro’s move VS the dollar in check, folks…

The Bank of Canada (BOC) did cut rates yesterday 75 BPS… You may recall me telling you yesterday that the “experts” thought the cut would be 50 BPS, but I thought it would be 75 BPS… Maybe, one day, these surveys of “experts” will include the Pfennig writer, as he seems to be more “on target” than the current “experts”! Now, Chuck, who would you be referring to here? HA!

I also said yesterday that I didn’t think the markets would care, and they didn’t, as the larger rate cut did little to hurt the loonie. In fact, the loonie rallied a bit on the news!

Again, I don’t understand the mentality here with these Central Bank rate cuts… It’s not the cost of the credit that’s keeping the credit crisis all locked up, it’s the availability of such credit / money! So… Here’s a memo to Central Banks around the world… “STOP ALREADY!” All you’re are doing is inviting inflation into your economy, and debasing your currency!

That glimmering light that I talked about the other day for the Credit Crisis is getting smaller all the time, as the Big 3 still don’t have their bailout from the Gov’t (read taxpayers)… It now looks as though it could get done today, but at a much smaller figure than previously discussed. It now looks as though the Big 3 will get $15 Billion and they had better smile and say “thank you very much” as they leave the room!

It also looks like the Big 3 will get the “Car Czar” that they so desperately fought to keep from looking over them. The “Car Czar” will have the power to call Chapter 11 on GM or Chrysler should they not deliver a sound plan by the end of March. Geez Louise, why do they get 4 months to some up with a sound plan? They should have had one to get the funds to begin with! OK, I had better stop there, I’m really pounding the keys right now… I think I’ll step away for a minute and cool off…

OK, I’m back now, hope you didn’t miss me, or that I was away too long! No wait, this is text, you have no idea how long I was gone! Silly me!

You know… I was thinking aloud in my car yesterday, and saying to myself that it sure looks like all those pundits that called for a breakup of the European Union by the end of the year, will have to put their tails between their collective legs, and fade away… You know, the European Union (EU) had more pressure on them in 2005, when the French voted no on the Constitution, and other things, and they held steadfast then, and if they could it then, then this little tiff with Spain and Italy will pass… These pundits like to point to the problems that Italy is experiencing… And I say…”What’s so new about that? Italy has had problems since I’ve been following currencies (1985 for those of you keeping score at home)! I truly believe that Italy and Spain like to complain about the European Union and the euro, but when they get behind closed doors, when they let their hair hang down, they thank their lucky stars that they were included in the Euro Club!

The boys and girls over at Bank of America (BOA) believe they are seeing the dollar repatriation flows waning… Now, I wonder how many research people they employ over at BOA, when all it would take is for one of them to read the Pfennig, to see that I said all that yesterday! Any way… Let’s listen to what BOA had to say about this… “The repatriation demand for the dollar may have run its course, we retain our core long euro-dollar exposure and add long euro-dollar exposure today”… Now… You would think that given the size of BOA that saying something like that could really “move the market”…

But, given the markets “don’t care” attitude until the credit crisis unlocks, I understand why it didn’t! The BIG POINT here is that we could very well be seeing all this dollar repatriation end. And… Like I said Monday, the risk takers were slowly dipping their toes back into the waters which is what it will take to get the currencies and precious metals on the rally tracks again. But, put these two things working together, and voila’ you’ve got the makings of what could very well be a Santa Rally…

The boys over at the Bank of Japan (BOJ) are at “it” again… Mom… He’s doing it again! He’s looking at me! Mom! He’s got his hand on my side of the car seat! OK, I’ll stop there… But the BOJ was “jawboning” again in an attempt to keep the yen from strengthening further VS the dollar. BOJ Gov Shirakawa reminded the markets last night that the Ministry of Finance has the option of intervening if necessary… The Ministry of Finance (MOF) are the signal callers for the BOJ, and they are the ones that determine if intervention is to come into play. For new readers… BOJ intervention means the Bank sells yen in the markets to keep it from getting too strong.

In the currency world, this is called a “dirty float”… And the MOF and BOJ like to keep it “dirty”…

OK, I was laughing when I wrote that last bit, but notice I didn’t carry on… Maybe I’m growing up! HA!

Down Under in the South Pacific, Australia saw a very nice rise in Consumer Confidence of 7.6%, adding on to November’s 4.3% gain. The index collapsed this summer, but with the rate cuts the Reserve Bank of Australia (RBA) have instituted, it seems to be rounding back into shape.

In New Zealand, Reserve Bank of New Zealand (RBNZ) Gov. Bollard, gave a speech titled “Everyone needs to play their part.” In the speech, Bollard, reminded everyone that New Zealand’s inflation rate is still very high (5.1%). Hmmm… Was that the “wink and nod” that interest rates are not going to go much lower? I think it was folks.. But I guess it all depends on if the rest of the world continues to think that by cutting rates they will unlock the credit crisis!

Both of these things for Aussie and kiwi could underpin the currencies at current levels…

And another “Commodity Currency” the Brazilian real really put on the Ritz yesterday with a very strong rally… Just another sign that the risk takers are dipping their toes again…

OK… I’ll slide away from the currencies for a minute to talk about a news article that one of my fave writers, William Pesek, provided to Bloomberg, titled: China Will Be Happy Geithner Isn’t a Goldman Guy… Here are some snippets of the article that can be read in its entirety HERE.

“Why does Goldman Sachs run your government?”

After seven-plus years in Asia, I’m no longer startled by this question. It was posed to me yet again recently — this time by Kuala Lumpur taxi driver Sumit Kotari.

“What’s wrong with America is that it’s run by investment bankers, mostly from the same bank,” the 49-year-old Malaysian said. “How can Americans stand for it? Is Barack Obama from Goldman Sachs, too?”

It has been reported in Asia that Neel Kashkari, assistant Treasury secretary in charge of the Troubled Asset Relief Program, worked for the same New York-based investment bank. President-elect Obama’s decision to seek advice from other former Goldman Sachs bigwigs, such as Robert Rubin, also grabbed attention.

Even the guy helping choose a replacement for Timothy Geithner at the Fed Bank of New York came from Goldman Sachs. It makes one breathe a sigh of relief that Geithner, who will be the next Treasury secretary, doesn’t have Goldman Sachs on his resume.

The point here isn’t to pick on Goldman Sachs. Yet it is seen by many in Asia as the gold standard of investment banks. Its name also is a byword for the perception of incestuous ties between Wall Street and Washington.”

OK, I’m back now… The point of the discussion is to acknowledge that to Asian, it appears that Goldman Sachs runs our country… Now, that may be perception, but as they teach you perception is reality. And you have to wonder if the Asian Central Banks are shaking their heads at what we’re doing, and how we’re doing it… Now, some might say, “Who cares what the Asian Central Banks think of what and how we’re doing it.?” Ahhh grasshopper… We all have to be very cognizant of what the Asian Central Banks think about us, because, you see… They hold most of our I.O.U.’s and they could make things very messy for us any time they wish!

So… How about the Illinois Gov. getting arrested yesterday? Could it be two Illinois Governors incarcerated? That whole story is pretty amazing that someone would do what he is alleged to have done, knowing that his phone was tapped!

Ok enough of that! We’ll see the Monthly Budget Statement / Deficit for November, today… Look for it to explode!

Currencies today 12/10/08: A$ .6590, kiwi .5465, C$ .7950, euro 1.2950, sterling 1.4830, Swiss .83, ISK 261, rand 10.21, krone 7.0475, SEK 8.1650, forint 203.50, zloty 3.05, koruna 19.99, yen 92.60, baht 35.50, sing 1.5010, HKD 7.75, INR 49.01, China 6.8835, pesos 13.50, BRL 2.4725, dollar index 85.71, Oil $43.80, Silver $10.02, and Gold… $792

Source: A Bailout For The Big 3

Yes… So, Obama’s call that the economy will get worse before it gets better, plays well with his pledge to spend more money…

This spending pledge really helped the currencies yesterday, otherwise I wouldn’t have spent 30-seconds talking about it! You see, the markets are slowly coming back to the fundamentals, the risk takers are slowly coming back too, and when that happens in earnest, we should see the end of this stupid Trading Theme that has gone on far too long for my taste! But back to the markets’ reaction to the announcement… Of course, you have to remember that we still have over a month before Obama takes office, and unless he’s going to pound this message in everyone’s heads every day until then, this could all be forgotten soon… And then we’ll be able to tell if the Trading Theme is a thing of the past, or if we have to continue to live with this for some time to come.

So, the currencies rallied throughout the day yesterday, but saw some consolidation overnight, and then very tight trading ranges this morning in Europe. The euro traded briefly with a 1.29 handle yesterday… This morning, German Investor Confidence as measured by the think tank, ZEW, unexpectedly rose for a second month. Apparently, Investors like the European Central Bank (ECB) rate cuts, eh? While this repot on the outside would appear to be positive for the euro, the markets are still focused on the Credit Crisis… So, it has had little to no impact.

The Bank of Canada (BOC) meets to discuss rates today… I’m sure they will cut them, why wouldn’t they follow the rest of the world’s Central Banks in a race to zero percent? The rate announcement will come around 9 am this morning, and the “experts” are forecasting a 50 BPS rate cut. But I say, why go so low? They can point to the rest of the world and say, see, we’re just keeping up with the Joneses… So… Yours truly expects 75 BPS… Canadian Housing Starts fell 22% last month! So… This, larger rate cut, won’t hurt or help the loonie, as the markets “just don’t care!” anymore… You can hear them singing… I don’t care anymore… I don’t care anymore… I don’t care, what you do…

OK, If I can’t play, then I’m taking my bat and ball and going home! Yes, the famous tantrum thrown by millions of kids over the years, looks like it’s being played out again over at the Brokerage that owns a bull… Yesterday, I told you about Merrill’s CEO John Thain, in a tiff over a $10 million bonus with the compensation committee. Well, yesterday Mr. Thain, according to the Wall Street Journal, said “no mas” , forget about it! He has announced that he will not accept a bonus this year. “That’s right, if I can’t have $10 million, I won’t take anything!” OK, the last quote was mine, but that’s what I hear him saying… Hey! Why not take the $10 million down to the Salvation Army!

Yes, I know, that’s all is “stuff” and not of currencies… So I digress…I couldn’t pass it by though, you know me!… So, I apologize! So, back to the currencies and economies, eh?

Well… It didn’t take the people that bought Anheuser Busch long to begin their cost cutting… The Anheuser-InBev people announced yesterday that 1,000 of my fellow St. Louisans will be cut from the payrolls… You can see them in the boardroom frothing at the mouth when the Jobs Jamboree was printed on Friday… This is how I see this going down… “Hey, did you see that 533K jobs were lost in November, Carlos? Yes, I did, and that gives us a chance to move up our job cutting to now, as we can point to the “economy” as the culprit in the job cuts.”

Hey, did you see the “Money and Politics Show” on TV last night? (I didn’t, as I’m sure I was in bed!) But, the former CEO of Bear Stearns, Alan Greenberg, was interviewed and he said that, “There’s no more Wall Street. That model doesn’t work because it’s at the mercy of rumors. The entire make-up of Wall Street has changed forever.”

Hmmm… Interesting take, don’t you think? Or could be just sour grapes, as his company was forced to sell at bargain basement prices to JP Morgan.

Are you following the hearing on the fall of Fannie and Freddie? Well, the Washington Post says that the House Committee on Oversight and Gov’t Reform will hear that… “Internal Freddie Mac documents show that senior executives at the company were warned years ago that they were offering mortgages that could pose dangers to the firm, hurt borrowers and generate more risky loans throughout the industry.”

There will also be a memo that circulated Freddie… “former Freddie chief enterprise risk officer David Andrukonis wrote that the company was buying mortgages that appear “to target borrowers who would have trouble qualifying for a mortgage if their financial position were adequately disclosed.”

I could really go into a tailspin right here, and head down the road that points fingers and calls for public hangings and that sort of thing, but I’ll stop right there! No need to rehash this stuff!

But doesn’t hearing that stuff just get your blood boiling!

The Tribune Company did indeed file for bankruptcy yesterday, as the rumors said they would.

OK… I was looking at a rate screen on the Bloomie yesterday, and noticed something that really struck me as interesting. The Fed Funds rate is 1/16th… But wait! Didn’t the Fed cut the Fed Funds rate to 1% at the last meeting? Yes, they did grasshopper, but… The people in the trenches are trading Fed Funds to each other at 1/16th… Does that tell you something? Well… It tells me that my inclinations that the Fed is going to move rates to near zero, are bang on! These daily transactions wouldn’t be trading this low, unless rates were going there! Bernanke-san… Just call him Bernanke-san, as you sing, I’m turning Japanese, yes, I turning Japanese, I really think so!

For new readers, that whole production is all about the fact that I believe that the U.S. is following Japan and Japan’s leaders in how they dealt with the decade of economic mess… If you go back to the mid-90’s you’ll find the Japanese economy circling the bowl, and the Japanese Gov’t and Central Bank, issuing stimulus package after stimulus package, building huge amounts of Gov’t debt, and cutting interest rates to zero… Now… Ask yourself, what country / Central Bank does that remind you of in 2008? By Joe, you’ve got it! You sank my battleship! It’s the U.S. / Fed!

Still no word on the Gov’t’s answer for the Big 3 automakers here in the U.S. We’re waiting for the final answers if you will on whether the Big 3 get bailout money, how much, and will they get a “Car Czar” to oversee them… The stock jockeys liked the news yesterday that it looked like a thumbs up for the Big 3… Until then… We wait.

The Chinese renminbi is back on the rally tracks VS the dollar after some hemming and hawing over the Paulson / China talks… I still don’t expect much from this, but slow positive moves are better than none!

Currencies today 12/9/08: A$ .6555, kiwi .5415, C$.7960, euro 1.2860, sterling 1.4775, Swiss .8245, ISK 261, rand 10.19, krone 7.12, SEK 8.17, forint 205, zloty 3.0590, koruna 20.03, yen 92.60, baht 35.45, sing 1.5040, HKD 7.75, INR 49.59, China 6.8734, pesos 13.46, BRL 2.4780, dollar index 86.16, Oil $43.45, Silver $9.88, and Gold… $770.50

Source: Spending More Money

Dangers of the State

How could a state – the American state – founded on the ideal of individual liberty become so powerful? How could a state embodying the idea of America become so anti-American? It is true that all Western states have followed the same route during the 20th century, and that their citizens have lost many of their traditional liberties. But how can we explain that this also happened in America? In many areas, the conditions of individual liberty and privacy have become even worse than in other countries.

Consider a related paradox. Canada remained a British dominion while America became an independent country. The Canadian state (federal and provincial governments) was in theory unlimited; the American state was trusted with the sacred mission of protecting liberty and was formally constrained by the Bill of Rights. Now, look what happened. At least during the 20th century, virtually all slippery slopes started in the U.S., many years, sometimes decades, before being imported into Canada. The U.S. federal income tax was established in 1913; in Canada, it started in 1917. The U.S. feds introduced unemployment insurance in 1935; the Canadian feds in 1940. The Federal Reserve System was created in 1913; the Bank of Canada in 1935. The American New Deal was imitated by a Canadian Conservative government after a lag of a few years, and much resistance. Born in 1934, the SEC predates its first Canadian sister by 11 years and, even then, securities regulation remains, to this day, a provincial jurisdiction north of the border. Money laundering legislation was introduced in American law in 1970, and plagiarized in Canada only in 1991; the more severe American laws of the 1980s and 1990s were imitated by the Canadian federal government only in 2000. Up to the 20th century, even the right to keep and bear arms was, in some respects, as well protected in Canada as in the U.S.

The creeping up of government ID papers, mainly the driver’s license with photograph, started in the U.S. a few decades ago, before being imitated in Canada, during the 1980s and 1990s. The ubiquitous use of the Social Security Number in the U.S. predated by ten years or so the proliferation of the Social Insurance Number in Canada. The war on drugs, the catch-all crime of domestic violence, the feminist legislative agenda, the environmental craze, the corporate governance witch-hunt, the prosecution of sexual harassment writ large, the anti-smoking jihad, the fat hunt – all these crusades started in the U.S. and were only later embraced by Canadian governments.

There are glorious exceptions where Americans remain freer, but it is seldom completely black and white. Taxes are lower in America than in Canada, but this is only since the 1960s. Self-defense, the right to keep and bear arms, and free speech have resisted better in America, but have also been under attack. Private health insurance is not prohibited in the U.S. as it has been for a few decades in Canada, but 40 per cent of health expenditures come from the taxpayer (compared to 70 per cent in Canada) and the industry is tightly regulated. At any rate, it is only since the ’60s that individual liberties have been under heavy attack in Canada. It is as if, in Canada, the state had simply forgotten to legislate, to regulate, to control, except for importing tyrannical fads from elsewhere, including from the Land of the Free.

How could a country founded on the ideal of individual liberty, with a state devoted to the mission of protecting it, slide down the road to tyranny as fast as, and sometimes faster than, other countries? The economic analysis of politics suggests some explanations. With hindsight, the Founders probably did not take seriously enough the danger of the state, as illustrated in Madison’s argument for a federal government that would be kept in check by the States and the will of the citizens. Perhaps the state is so dangerous that trusting it with any glorious mission is looking for trouble, even if this mission is the protection of liberty. Consider France and America. In both countries, the typical citizen thinks that his is the country of the rights of man, and that everywhere else in the world people are in chains. In both countries, the state has become an irresistible force for surveillance and control – more advanced in one country or the other depending on the people’s capacity for resistance and the vagaries of history and culture. Compared to these two monsters, the mission-less Canadian state remained humble for a long time, and protected individual liberty by its lack of ideas and initiative.

Failure and Hope

We must admit that the idea of America is, if not dead, in great danger. Can you imagine that any of the admirers of America I have cited, or any of the Founders, would see today’s America as a free society? It is certainly less unfree than many other countries in the world. It may or may not be less unfree than other Western countries, depending on which area of human activity is considered. But it is far from the idea of America.

Not all hope is lost. Some barriers to power remain in America, and some powerful symbols of the idea of America survive. The right to keep and bear arms seems to have recently regained some lost ground. Freedom of speech is still better protected in America than anywhere else. More importantly, it is in America that the advancing steamroller of the state is meeting the most resistance.

If liberty and civilization have any future, the world needs the idea of America.

Regards,

Pierre Lemieux
for The Daily Reckoning

Source: The Idea of America, Part II

Inflation is up significantly from the 1.7% increase reported in April, Statistics Canada reported yesterday (Thursday). And high gas prices are to blame as fuel costs rose 15.0% in May compared with the same month last year – that’s considerably faster than the 12-month change of 11.6% posted in April.

Excluding gasoline prices, 12-month inflation grew 1.6% in May.

Last week, the central bank voted to keep its overnight interest rate at 3%, warning that inflation risks have “shifted slightly to the upside.” But the bank quickly followed that up by saying global demand for Canadian goods and services remains strong despite a U.S. slowdown.

“This report will not push the bank to raise rates in 2008, but we do see 100 basis points of hikes coming in 2009 as Canada’s inflation problem heats up,” Meny Grauman, an economist with CIBC World Markets Inc. in Toronto, said in a note to clients, Bloomberg News reported.

With an end to the rate cuts, the Canadian dollar is on the rise. The loonie has gained 1% since the June 10 decision to hold rates steady, Bloomberg reported.

Recession Protection?

Earlier this month, Canada announced its gross domestic product (GDP) shrank 0.1% in the first quarter, marking the country’s first decline since the second quarter of 2003.

But this is where inflation could actually be a friend.

In today’s world, where interest rates are low and commodity prices are high, Canada’s in a very strong position for two reasons:

• It has oil reserves – somewhat larger than the Middle East – in the form of the Athabasca oil sands.

• And it’s the world’s largest producer of uranium, with 25% of the world market. (Australia is a close second, with about 23%.)

Since Canada is a chief oil exporter, its oil companies are on the receiving end of soaring prices. And in turn, that helps pad the economy’s pocket, becoming an unlikely protective barrier to another quarter of negative GDP growth.

Also working in the economy’s favor, month-to-month wholesale sales jumped 1.4% in April, more than doubling forecasts of 0.6%, Reuters reported. This suggests that domestic demand is able to wade through inflationary waters and lends credence to justifying a future interest rate hike.

The Bank of Canada’s next scheduled date for announcing the overnight rate target is July 15.

Source: Can Inflation Save Canada from Recession?

Declining exports are chiefly to blame, as spending power in the United States – Canada’s chief trading partner – has significantly contracted since the onset of the credit crunch and subprime mortgage crisis last summer.

Exports – and in turn, the Canadian economy – started losing momentum in the second half of 2007. Cutbacks in manufacturing hurt exports, most notably motor vehicles, Statistics Canada reported today (Friday).

The slowing economy gives the Bank of Canada more reason to further cut overnight interest rates again at its next meeting June 10. Last month, Bank Governor Mark Carney cut rates by half a point to 3.0% for the second consecutive month.

“Some further monetary stimulus will likely be required to achieve the inflation target over the medium term. Given the cumulative reduction in the target for the overnight rate of 150 basis points since December, the timing of any further monetary stimulus will depend on the evolution of the global economy and domestic demand, and their impact on inflation in Canada,” the Bank said in an April 22 statement announcing its last rate cut.

The Bank projects the Canadian economy to grow by 1.4% in 2008, 2.4% in 2009 and 3.3% in 2010.

Why Canada Shouldn’t Be Too Worried

All this is kind of tragic for Canada, where its domestic demand remains strong because of rising incomes and commodity prices. Yet, all this is more or less offset by weakening exports.

But there’s a happy ending.

In today’s world, where interest rates are low and commodity prices are high, Canada’s in a very strong position for two reasons:

• It has oil reserves – somewhat larger than the Middle East – in the form of the Athabasca tar sands.
• And it’s the world’s largest producer of uranium, with 25% of the world market. For purposes of comparison, Australia is second, with about 23%.

Canada’s wealth of resources protects the country from the rampant inflation spreading around the world. Its core and total consumer price index (CPI) inflation are projected to be slightly below 2% in 2009 and 2% in 2010.

However, as strong as domestic demand is, the health of the U.S. economy is the ultimate indicator of Canada’s economic health.

“The economy here has not only ground to a halt, but is contracting. It’s weaker than the U.S. economy, which I think is probably a surprise to a lot of people,” Ted Carmichael, chief economist at JPMorgan (JPM) Canada, told Reuters.

Source: Canada’s Negative GDP in the 1Q Doesn’t Spell Disaster

According to Bloomberg, the project aims to extract about 8,000 metric tons of uranium octaoxide from the central province of Quang Nam.

“If coal is the short-term solution to the world’s energy needs, uranium is the long-term play,” says Jason Simpkins in Money Morning.

“In a recent research note, analysts with the RBC Capital Markets Group of the Royal Bank of Canada (RY) said that the current spot price of uranium has been ‘driven to excessively low levels due to intense selling pressure and lack of buying demand, coupled with the typical illiquidity of the spot market.’

“The RBC analysts also said that ‘the long-term price, on the other hand, has not changed since May 2007 and we think this better reflects the market’s view of longer-term supply-demand fundamentals.’

“If you want a pure play on an increase in the price of uranium itself, Cameco Corp. (CCJ) is your best shot. It’s the largest producer of uranium in North America and – despite flooding at its Cigar Lake site last year – Cameco remains the world’s largest and most liquid uranium miner, making it vital to the global supply.

“The company’s profit more than doubled in the first three months of 2008, surging 125% on its uranium and gold mining operations.”

Read on here to find out which blue-chip mining companies Jason thinks have maximum profit potential.

Doug Casey in Casey Research has picked up on some other Canadian uranium mining companies: “Hathor Exploration tagged a radioactive one on its 90% owned Midwest NorthEast uranium property in Saskatchewan. The latest drill results included 15 metres running an impressive 10.02% U308 in one hole and 10.06% U308 over 9 metres in another. Nice. Hathor ended the day up C$0.27 at C$3.05, while 10% carried interest holder Terra Ventures closed flat at C$0.75.”

Potash is a mineral form of potassium, and a key ingredient in fertilizer. For the last 20 years, farmers have bought potash for about $125 a ton. But the BPC started the year selling potash for $270 a ton. It quickly raised the benchmark price to $450 a ton. In March, it raised the benchmark to $650 a ton. Last week, the BPC announced its latest price hike. On June 1, it will begin selling potash for $1,010 a ton. That’s a 274% price increase in six months… and a 709% leap from its 20-year norm.

Prices for potash are rising so fast, stock analysts can’t maintain their spreadsheets. They update their models on Monday. By Friday, the models are obsolete…

And the stock prices of potash producers are arcing into the sky like fireworks, too. Take the Potash Corporation of Saskatchewan, for example. The largest potash producer in the world, its stock price has risen 1,000% in the last five years and 620% since June 2006. It’s now the second-largest company in Canada, ahead of EnCana and the Royal Bank of Canada. It trades for 10 times book value and more than 46 times earnings.

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Uralkali, a large Russian producer, has seen its shares rise 1,984% in the last three years.

Intrepid Potash, the only American producer, floated shares on the stock market for the first time last week. Its shares rose 58% on the first day of trading.

You couldn’t make me invest in the big potash producers if you put a gun to my head. This is a classic investment mania. Commodity producers have huge capital expenses and nearly no competitive advantages. They should not sell for 46 times earnings.

Here’s the thing: While I wouldn’t touch the major potash stocks, I still think potash, the commodity, could go much higher.

China is the world’s largest consumer of potash. In 2007, it bought 2.5 million tons in a contract with the BPC. The supply crunch is so serious, this year the BPC could only sell China 1 million tons. My point is, even at $1,000 a ton, potash supplies still cannot meet demand.

So potash prices can keep rising. How far? Consider this: Before potash was discovered in New Mexico, Germany was the world’s only supplier. In December 1915, when World War I cut trade between the United States and Germany, potash prices jumped from $35 per ton to more than $500. In today’s money, that’s the equivalent of more than $10,571 per ton.

My advice: Don’t buy the major potash stocks. The upside is already “priced in.” If potash doesn’t rise, these stocks could collapse.

If you want to invest in potash, buy the potash “juniors” and use a stop loss to limit your exposure. These small potash companies are building mines in risky countries. They’re risky, but you get a big discount on the potash in the ground. If potash keeps rising, you’ll multiply your money. If it doesn’t, you’ll lose only as much as you’ve put at risk.

Good investing,

Tom

P.S. In my newsletter International Strategist, we’re getting into the potash business. I’ve found a potash mine that I think is worth $2 billion. And because it’s in a third-world country, you can buy this mine today for just $520 million. To learn about a trial subscription to International Strategist, click here.