Good day… And a Happy Friday to one and all! The end of what seemed to be a very long week… The last weekend in June, can you believe that? Next week, we’ll be getting ready for the 4th of July celebrations! WOW!

Well… What a volatile week it has been in the currencies! Up, down, all around, and settling back to levels that we saw before the Fed’s FOMC meeting earlier this week. Suddenly, investors are looking for yield again… Looks like they are “Desperately Seeking (not Susan) Yield! And why not? The Fed, and the Bank of Canada (BOC) have come out and said that there will be no interest rate hikes until we’ve turned quite a few pages on the 2010 calendar.

So, with investors clamoring for yield, the dollar gets taken to the woodshed… As I said earlier this week, one of these probes above 1.40, need to take hold of the figure and build on it, otherwise we’re doomed to remain in the 1.35-1.40 range, and range trading is for the birds! Talk about counting flowers on the wall, and watching paint dry! UGH!

I was shocked yesterday to see but a few emails asking me more about the SDR’s story that I talked about… Men, women, boys and girls, all… This is important stuff! Don’t take it lightly! There’s a movement underway that could end up costing you dearly, if you do not take the diversification steps…

I think it is important to know that the BRIC countries (Brazil, Russia, India, and China) are serious about replacing the dollar with a “global currency” i.e. the IMF’s SDR’s… And… That the BRIC’s want more power on the World’s stage… And why not? These countries currently have almost 3 Trillion in foreign reserves… And… A very large piece of the world’s population… (Thanks for that fodder, Kevin!)

OH! And guess who was banging the drum for a “super-sovereign” currency overnight? China, that’s who! So… They’re Baaaaaaaaccccckkkkk! OK… This was the People’s Bank of China (the Central Bank), that made this statement, along with a call for the IMF to manage part of member’s foreign exchange reserves… Hmmm… OK, I just said that China wants more power on the world stage, and here they are saying that their puppet will be the IMF! OK, I took some liberty with that, but it’s the way I see it!

OK… Back to what’s going on in the currencies today… Hmmm… The dollar is getting taken to the woodshed to end the week, that’s what’s happening! And the currency leading the pack with regards to performance VS the dollar, drum roll please…. The Brazilian real… A 3 day “winning streak” has the real back to levels it saw before the Brazilian Central Bank (BCB) cut rates about 10 days ago…

The way I see it, and long time readers know this will be interesting in the least, is that investors want to invest in the BRIC countries, but there’s very little liquidity there in each of those currencies, along with very little yield, except… In Brazil… Liquidity isn’t what the majors enjoy, in fact it’s still traded on what’s called a “non-deliverable forward”, which means it can only settle in dollars, with no deliverability, but… It’s traded easier and less costly than the other BRIC’s and… It has the highest interest rate available… So… You can see why investors are buying reals…

Having said that though… You must know about the volatility… Look at what happened this week… On Monday, we started the week with the real at 1.9750, only to see it rocket to 2.0326 in one day’s trading, a near 3% move / loss in one day! Then we saw it rally back to 1.9795 the next day, and after 3 days of gains the real sits at 1.9420 this morning, thus generating a “gain” for the week! And… The other thing, is that Brazil is considered an Emerging Market… And long time readers have learned over the years that when one Emerging Market gets slammed, they all get taken to the woodshed… So… Be careful out there!

A high yield currency that far removed from the early days of trading like Brazil, but offers yield, is the New Zealand dollar / kiwi… And kiwi has been held back, although still posting a gain VS the dollar, overnight as 1st QTR GDP printed at a negative -1%, thus marking the 5th consecutive quarter of negative growth in New Zealand…

I’m probably out there on the big fat limb (to hold me up, of course!) by myself on this one, but… I personally believe that both the Reserve Bank of New Zealand (RBNZ) and the Reserve Bank of Australia (RBA) have seen the lows in their interest rates, and no further rate cuts will come from these respective Central Banks. I know, that last week, we were all hyped up about future rate hikes from the RBA in 2010, and we probably got a little ahead of ourselves with that thought… I’m probably ahead of the curve on the “end of rate cuts” talk… But that’s where I like to be!

So… When the world’s investors are looking for yield, they don’t have to go to Brazil, or India… They can go to the old reliables… Australia and New Zealand, with a reduced fear of further rate cuts… At least that’s they way I see it! And yes, I could be wrong…

And how about Gold and Silver this week? What a week on Mr. Toad’s Wild Ride for precious metals… The main thing though is that they are finishing the week with a rally, and Gold which was trading at $922 on Monday, is $944.85!

And how about that grilling that Big Ben Bernanke received yesterday by legislators over the Fed’s conduct in the Bank of America (BOA) takeover of Merrill Lynch… You may recall that BOA’s CEO, Ken Lewis said he was “bullied” into taking over Merrill and not disclosing to his shareholder all of Merrill’s losses that were on the books… Big Ben denies that he participated in any bullying… (doesn’t that lead to Paulson then? Did Big Ben just throw Paulson under the bus?)… Any way… Big Ben did little to convince the legislators that the Fed didn’t keep their hands out of the cookie jar… And that, my friends, may be the foot in the door that we’ve been looking for… Maybe, just maybe, because you never know, but with the legislators having questions about the Fed and Big Ben, they probably aren’t in any mood to hand over the regulatory powers that the President wants to give them…

And… My old fave Central Banker, NOT! Big Al Greenspan was back in the news last night… I’m trying to figure out how he and I got on the same side of the ship… But, here was Big Al, my nemesis for years, talking about inflation being a concern… Let’s listen in to Big Al… Alan Greenspan, former chairman of the Federal Reserve, said the threat of inflation needs to be confronted because it poses a threat to economic recovery. “Excess capacity is temporarily suppressing global prices. But I see inflation as the greater future challenge,” Greenspan said. “If political pressures prevent central banks from reining in their inflated balance sheets in a timely manner, statistical analysis suggests the emergence of inflation by 2012.”

Of course, I think inflation will be showing its ugly face next year, not 3 years from now!

And on the data front… The Weekly Initial Jobless Claims “surprised” economists by moving back up, after falling last week… 627,000 unemployed Americans filed for unemployment claims last week… No “green shoots” here! In fact… We need to see if we can use these so-called Green Shoots that the President and Big Ben keep talking about, for ethanol… They’ve got to be good for something! HAHAHAHAHAHAHAHA! I must say that a reader gave me that line!

And here’s Warren Buffett on Green Shoots… “I had a cataract operation on my left eye about a month ago and I thought maybe now I’ll be able to see green shoots. We’re not seeing them. Whether it’s retailing, manufacturing, wherever. We have a big utility operation. Industrial demand is down like we’ve never seen it for a simple thing like electricity. So it hasn’t happened yet. It will happen. I want to emphasize that. But it hasn’t happened yet.”

And… Then… There was this… A good story to end the week and head to the Big Finish with…

Barclays Capital Inc. (Barclays) the world’s third largest currency trader, have lowered their one-year forecast for the dollar, saying foreign investors will reduce their purchases of U.S. assets… Barclays referred to the dollar’s status as “safe-haven paradise lost”, due to the ballooning fiscal deficit and the printing of money by the Central Bank… Barclays believes that the euro will be trading at 1.50 in a year…

Hmmm… Nothing new there for Pfennig readers, but, I always find it to be good to see others with their BIG research departments, no divisions, yeah, divisions, that’s bigger than a department! Wait, get back on track, here Chuck! Yes, the Big research divisions, that finally come around to what little old me has been saying for months now… Oh! And that “little old me” has just got to crack up any one that knows me, and have seen me lately!

And one more thing… Oil is back to $71 this morning, as there has been more problems in Nigeria… Let’s hope these problems go away!

Currencies today 6/26/09: A$ .8055, kiwi .6450, C$ .8710, euro 1.4085, sterling 1.6490, Swiss .9210, rand 7.9680, krone 6.4250, SEK 7.8125, forint 196.20, zloty 3.1975, koruna 18.50, yen 95.40, sing 1.4540, HKD 7.75, INR 48.21, China 6.8338, pesos 13.18, BRL 1.9420, dollar index 79.86, Oil $71.07, 10-year 3.55%, Silver $14.25, and Gold… $945.65

That’s it for today… Well… Today marks the 2-year anniversary of the surgery that removed my cancer ridden femur, and replaced it with a prosthetic. Quite an ordeal, but… Here I am! Rock you like a hurricane! Oops, sorry, got carried away there! I’m so happy that’s behind me now! Well… Michael Jackson has died at 50 years old… When I think of Michael Jackson, I just remember my two oldest kids, playing that Thriller album over and over again. The heat wave over us continues, but is expected to back off next week… My little buddy, Alex, turns 14 on Sunday. WOW! We began a tradition when he was quite young, of the two of us going to breakfast on his birthday. Two years ago, when I was in the hospital, my darling daughter, Dawn, brought Alex to the hospital with breakfast, so we could continue the tradition. I hope I can continue celebrating with him for many years to come. So… Happy Birthday Alex! Real long time readers might recall when Alex was 3, and would sit on my lap as I wrote the Pfennig from home, and every once in awhile the text would look like this… 9087lkndy7, and I would say, “sorry, Alex is helping me again”… Alex has already made me aware that he can get his drivers permit next year… YIKES! OK, time to head off into the sunrise… (not sunset, as I’m writing at daybreak, HAHAHAHA) The currencies are having a Fantastico Friday, so why don’t we joining them?

Source: Desperately Seeking Yield

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

Good day… And a Wonderful Wednesday to you! Well, the Junk Yard Dog got a hold of the euro yesterday, and even though the U.S. Banks, thus the majority of currency desks, were observing Veteran’s Day, the move down in currencies VS the dollar, led by the euro, was drastic!

The Junk Yard Dog I’m talking about is Jean-Claude Juncker, chairman of the Euro group… I stopped the euro in its tracks from its nascent rise in the past month, by saying the “euro’s recent rise was undesirable”… He also deep sixed the euro, and thus all the currencies save yen, by saying he “didn’t see any reason there couldn’t be more rate cuts by the ECB”… (the ECB is of course the European Central Bank) Well… These two comments tore through any gains the currencies had mounted VS the dollar in recent weeks, like a Junk Yard Dog tears though some raw meat! It was a knife to the euro’s heart…

And so it was to be, a massive dollar rally, on Veteran’s Day. And it didn’t get any better in the overnight markets, as Japan, and then early European trading has taken the dollar even higher and the euro drops to the 1.25 handle… A handle it thought it had left in the rear view mirror back in October… Boy! If comments from a guy that’s not even the President of a Central Bank in the Eurozone, can deep six the euro like that, you have to sit back and wonder what’s going on… Was it simply a case of watching the euro rally in recent weeks, and even get within spittin’ distance of 1.31 last week, and needed to stem the rise? Well, if that’s the case, the plan worked! And like Col. John “Hannibal” Smith used to say… “I love it when a plan comes together!”

And it just so happens that Bank of England (BOE) head Gov. Mervyn King added to the currencies’ worries by announcing that the BOE policy makers are “prepared to cut interest rates again to prevent a recession pushing inflation below its target.” All this on a day when most U.S. currency desks were absent… Hmmm… Sure seems to me as though this was a “planned” jawbone intervention to support the dollar…

So… Like I said above, the currencies, save yen, got whacked yesterday… But not Japanese yen! When things get really dark in the U.S. and with all the investment choices except U.S. Treasuries getting sold, that’s when the dollar and Japanese yen shine… Which to me is still a strange phenomenon, that the dollar can be strong VS almost every currency on the face of the earth, but losing ground to yen. You would think that the other currencies would get some love just based on the dollar / yen cross!

Recall, I’ve explained the currency pairs and crosses before, and how one major pair’s (like dollar / yen) usually carries over to the other currencies… But since the dollar and yen were the two major currencies used to fund the Carry Trade, they are getting bought at the same time, causing all kinds of ripples in the currency karma…

Looks like the good folks over at Bank of America, have been reading their Pfennigs each and every day! I say that because, there is a report out this morning that Bank of America (BOA) issued a report that; “U.S. dollar gains are increasingly at risk toward year-end as declining credit market rates switch investors’ focus to the slowing economy.”

WOW! If that’s not just rewording what I’ve been saying in the Pfennig almost daily for a couple of months now, then I’m a monkey’s uncle! The go on to say that, “A weak economy and declining stock prices are not a solid foundation for any currency over time. Persistent strength in the dollar is more related to the unwinding of long positions in the euro and pound and not a sign of optimism about U.S. economic prospects.”

It’s nice to see someone other than me, keeping my eye on the ball here… OK, I know all too well that it’s not just me, but it sounds good, eh?

Well.. There’s another “bailout” plan, although the media now calls them “rescue plans”, being talked about… This one is for the automakers… The Speaker of the House wants the bailout package NOW! Unfortunately, for her, and the automakers, it doesn’t look like a bailout package will be passed with this “lame duck” Congress… The “new guys” don’t come into office until January 6th. Maybe, just maybe, this thought that every freaking business that runs into trouble because they didn’t run their business correctly, and therefore “deserves” a bailout from the Government, which will mean in the end, taxpayers, will go away… I doubt it… But there’s always a chance, somebody, someone, somewhere, at sometime, comes up with a hoola-hoop, and we don’t have to go down this bailout road any more!

Hey! What ever happened to U.S. Treasury Sec. Paulson’s “bazooka” that he threatened to aim at the U.S. credit crisis back in July? A quick check of the financial scorecard since then, shows that stocks are circling the bowl, the Fed has had to step in to conduct commercial paper operations, U.S. Consumer Confidence is at 1982 low levels, and loans are still difficult to get on the books… I’d say his bazooka was much like the bubble gum I used to chew as a kid, with the Bazooka Joe comic inside the wrapper… Sweet and satisfying at first, but soon petered out and the taste was gone, soon to be disposed of properly!

Speaking of Treasury Sec. Paulson, or King Henry, as I so named him during his ascent to the top of decision making with regard to the financial crisis, will be speaking today! King Henry will be giving an update on the Bailout packages… Should be interesting…

Our friends down under in New Zealand think they are far removed from the financial mess going on in the U.S. and Europe… But then, the European thought they were far removed from it too before the walls began crumbling down on top of them with bad debt! But, in New Zealand’s case, I think they are on top of it… Mainly because the strong Central Bank… The Reserve Bank of New Zealand, (RBNZ) is big on fiscal discipline, and stated in their quarterly Financial Stability Review, that… “we are far from seeing the final impact of the financial and economic disruption. However, Kiwi banks and the Australian parents of the majors, are well positioned to withstand the economic downturn.”

It would a HUGE feather in the RBNZ’s cap, and further the kiwi’s cap should the financial meltdown pass them by without causing major problems… The Kiwis get a glimpse at the state of their economy tonight when Sept Retail sales are printed.

Well… The euro is creeping back up as I get ready to head to the Big Finish this morning…

You know… On Monday I talked about the Chinese announcement to provide $586 Billion worth of renminbi liquidity to their economy, and how that had gotten the currencies around the world excited… And yesterday I talked about how that excitement dissipated… But there’s one more thing to discuss here… And that’s the fact that if the Chinese are going to focusing on keeping their economy going and their billions of citizens happy, they won’t be focusing on buying U.S. Treasuries… And the funding problem that still exists, even though its not the markets’ focus right now, will get even trickier for the U.S. and the U.S. dollar…

And… One more thing before I head to the Big Finish… Oil has fallen below $60 for the first time since March 2007! WOW!

Currencies today 11/12/08: A$ .6610, kiwi .5755, C$ .8260, euro 1.2590, sterling 1.5285, Swiss .8450, ISK 182, rand 10.45, krone 6.9830, SEK 8.0150, forint 215.50, zloty 2.9920, koruna 20.21, yen 97.30, baht 34.98, sing 1.5050, HKD 7.75, INR 49.25, China 6.8298, pesos 13.06, BRL 2.2665, dollar index 86.93, Oil $58.40, Silver $9.70, and Gold… $732.42

That’s it for today… Mervyn King also said… “we are living in unprecedented times” Oh, thanks! Like we didn’t already know that!

Source: The Junk Yard Dog Bites!