A nasty day in the currencies yesterday, except Japan of course. The Dow jumped 290 points yesterday, maybe an Obama bounce? You all know that I subscribe to an Obama bounce for stocks and the dollar in the first part of this year… But given what I know about, and what you now know about, after I drew it all out yesterday, the additions to the deficit that Obama will make, the focus on the fundamentals should return by late spring, early summer… That’s my story and I’m stickin’ to it!

Well… As I said in the opening, the currencies led by the Big Dog, euro, suffered through a nasty trading day, with the euro touching below 1.29 for a good part of the day. The risk takers are nowhere to be found. Where have all the risk takers gone… Long time passing… A Reuters reporter asked me yesterday if I was still of the opinion that the yen had more to rally or was it overbought? I said, that as long as the risk takers are nowhere to be found, yen should continue on its path higher VS the dollar, euro and sterling. The RSI (Relative Strength Index) for yen, shows that it is a tad overbought, but that’s not enough to change my mind. Nor is it enough to change the mind of a currency trader at the Bank of New York (BONY), who believes yen may rise to 85 VS the dollar by midyear… Another currency trader at the Royal Bank of Scotland (RBS) believes the Bank of Japan will step in and intervene to stem the yen’s rise….

That may be, but there’s been no sign of the Bank of Japan (BOJ) to date… Of course that could be the kiss of death that I just bestowed on yen… But I somehow doubt it… Yen hasn’t been a moon shot since reaching 88… In fact it has bounced between 88 and 91…

In the overnight markets, the euro rallied all the way up to 1.3080, but since I’ve come in it has been falling and now is barely hanging on to 1.30… The rally just doesn’t seem to have legs and is fizzling out…

OK… Our long time friend, Jim Rogers, was talking again about the currencies… Let’s listen in to see what this very well respected analyst / investor was talking about…

“In a Bloomberg video interview, Jim Rogers said the U.K. is “finished.” According to Rogers, oil sales from the North Sea were the only thing supporting its economy, and the oil is running out. London, a global financial capital, is also a “disaster” because many of the current economic problems originated there. Bankers and money managers left the U.S. to operate with less regulation in London. Rogers has sold all of his pounds sterling.

And with the pound and U.S. dollar under scrutiny, where are currency traders putting their money? In the countries with the largest trade surpluses – Japan, Norway, and Switzerland. European banking giant BNP Paribas forecasts the yen will appreciate about 14% against the dollar by June. Norway’s krone is one of Goldman Sachs’ top picks for 2009 (it’s one of Jim Rogers’ top picks, too). And Bank of America says the Swiss franc will gain against every major currency.

Maybe as speculations, these are good ideas. Me? I prefer gold to any paper currency.”

Yes… Gold… The shiny metal broke its recent trend of rallying along side the dollar yesterday, but the sell off was small… Negligible at best… But a breaking of the trend nevertheless. I believe that Gold will get caught up with the currencies in the Obama bounce, but that will be a temporary thing…

OK… I’ve beaten the pound sterling sufficiently for some time now… But a U.K. reader sent me a note that he saw regarding Barclays Bank… He saw this on CNBC… “The Daily Telegraph and Times newspapers reported on Thursday that any attempt by Barclays to raise extra capital could trigger a clause that would deliver control of the bank to Middle Eastern investors. Barclays opted to raise funds privately last year rather than take part in the British government bailout. Qatar’s sovereign wealth fund and Sheikh Mansour Bin Zayed Al Nahyan, a brother of Abu Dhabi’s ruler, invested up to 5.3 billion pounds in the bank.

According to The Daily Telegraph, a clause in the agreement states that if at any time before the end of June Barclays raised more capital at a price lower than 153.276 pence per share, the Middle Eastern investors could take their stake at that lower level.”

Now that would throw a real spanner in the works for the U.K. if they truly want to go down the nationalization path for their banks… They already own majority stakes in Royal Bank of Scotland, and Lloyds… And they had to take over Northern Rock last year…

I don’t know what nationalizing the banks does to the pound sterling, but the image of this happening can’t be a good thing… Not in my opinion anyway…

So, did you see that China’s 4th QTR GDP grew at a 6.8% clip? Now, compared to the plus 10% growth rates China was posting for the past few years, 6.8% looks pretty measly… But! Let’s look around the world right now and see who has a GDP that even compares? Well, that roster would be pretty small… In fact, I can’t think of anyone other than China that has GDP of 6.8%! This 4th QTR drop puts the annual growth rate in China for 2008 at 9%… Again… I’m from Missouri, you’ll have to show me a country, other than China that posts a figure that strong!

In the whole scheme of things, this is pretty significant for China though. And all the reason I believe the Chinese officials will continue the slow appreciation of the renminbi… This is going to put a lot of people, investors, traders, into a lull regarding renminbi, as everything around the world slows down… But in China, inflation is still a problem, and that can be dealt with by allowing the renminbi to continue its slow appreciation…

Well, I came across something yesterday, I saw it, Kristin sent it to me, and then Chris sent it to me, so it hit a nerve with all three of us… Our friends over at Casey Research, did a chart, that I can’t put in the Pfennig, but I can tell you what is showed us…

Since August, banks have built their cash position in the form of Treasuries, agencies and deposits at the Fed by $865 Billion, while their loans and leases have increased by only $325 Billion. So you can imagine the chart with one line for cash position rising, and the other line for loans falling… Here are the people at Casey Research’s thoughts…

“In other words, rather than lending the billions of dollars received from the Treasury’s Troubled Asset Relief Program (TARP), as was originally intended, the recipient banks have squirreled away the bailout funds in order to shore up their balance sheets.

Concurrently, the Federal Reserve is exchanging its excess reserves for toxic waste from the financial institutions.

The combined affect is a “circular bailout” with the Treasury borrowing… in order to lend money to banks… that then lend it back by purchasing more Treasuries. Of course, the expense of this entire bailout scheme ultimately falls onto the back of the tax-paying public.”

>>>> back to me… We finally get a couple of data bones thrown to us today, as the data cupboard gets restocked with Housing Starts, and Building Permits for December, the House Price Index for Nov. and the Weekly Initial Jobless Claims… None of this will be good, bright, or even a warm and fuzzy, so prepare for more rot on the economy’s vine…

And don’t look now, but the price of Oil has pushed higher this week… Now trading at $44.50

Oh, and one more thing… Singapore officials have announced an economic stimulus package, which has been well received by the markets, and has allowed the sing dollar to bounce off the lows we’ve seen this week… Ok! Off to the Big Finish…

Currencies today: A$ .6565, kiwi .5275, C$ .7940, euro 1.30, sterling 1.3785, Swiss .8650, rand 10.0750, krone 6.9625, SEK 8.22, forint 217.85, zloty 3.3390, koruna 21.30, yen 88.80, sing 1.4950, HKD 7.7590, INR 49.16, China 6.8370, pesos 13.79, BRL 2.3190, dollar index 85.77, Oil $44.50, Silver $11.30, and Gold… $850.88.

Source: Euro Rally Fizzles Out

The dollar rose against the yen on Monday after the Bank of Japan followed last week’s interest rate cut with a warning that the health of Japan’s economy has deteriorated and is likely to get worse.

But investors’ equally dim view of the U.S. economy hurt the greenback against the euro, which rose broadly in holiday-thinned trade. Doubts about whether a U.S. automaker bailout would steer the economy out of recession also hit the dollar.

Traders said volumes were razor-thin in the lead-Up to the Christmas holidays, aggravating even the slightest moves in the currency markets. Still, many said demand for dollars remained low.

“The dollar view is so opaque at the moment, and the risk reward at this time of year is not worth it unless you really have to trade,” said Maurice Pomery, head of foreign exchange at IDEAglobal in London.

The dollar managed to rise above 90 yen for the first time in nearly a week after BoJ Governor Masaaki Shirakawa said yen strength and a global slowdown may force Japanese exports still lower even after a record plunge in November.

“All Asian exporters are at risk in this global economic slowdown, but Japan is at the top of the list,” said Dustin Reid, senior currency strategist at RBS Global Global Banking & Markets in Chicago. “The stronger yen has been playing havoc for Japanese exporters, and the auto companies in particular are likely to be significantly affected.”

So far this year, Japan’s currency is up nearly 20 percent against the dollar and more than 22 percent against the euro.

Early in New York, the dollar was changing hands at 89.85 yen , up 0.8 percent, after earlier rising to 90.23. The BoJ cut Japanese interest rates last week to near zero.

The euro also rose 1.3 percent to 125.79 yen after earlier hitting a session peak of $1.4123. Sterling fell 0.8 percent to $1.4814 , while the euro rose 1.1 percent to 94.35 pence , near a record high of 95.56 pence touched last week.

A move by China’s central bank to cut lending and deposit rates by 27 basis points — its fifth cut since September — shed more light on the scope of the global slump.

GRIM U.S. OUTLOOK

After coming under steady pressure in December, the dollar rallied on Friday after the Washington announced emergency loans for crippled General Motors and Chrysler.

But while the move averted a crisis for now, traders said uncertainty over the companies’ restructuring plans left many doubting the long-term effect it would have on the economy.

Last week, the Federal Reserve cut benchmark interest rates to near zero, underlining the severity of the economic crisis and undermining support for the dollar.

Investors are also looking for the European Central Bank to cut interest rates, currently at 2.5 percent, in January, though ECB executive board member Lorenzo Bini Smaghi warned about the risks of monetary policy being too lax, according to the Rome newspaper Il Messaggero.

Steven C. Johnson, Reuters 12/22/08

I have searched the news wires this morning and can’t find any good reasons for the dollar’s turn around other than it had simply gone too far too fast. Mike Meyer and I were talking about this yesterday morning, as we were looking at the trading screens in amazement. The dollar’s move down over the past two weeks was even faster than the move up earlier this year. Chuck had warned readers all during the dollar rally that the strength was only temporary, but the reversal was just too quick. This move back up is healthy for the markets, and will allow investors another opportunity to move back in.

The US jobless numbers were better than expected as they dropped to 554k from an adjusted 575k last week. The continuing claims also fell to 4,384,000 out of work. Leading indicators fell .4% during November, and Octobers number was revised to -.9%. So while all of these numbers could be spun as positive (not quite as bad as the last ones), they still reflect an economy which is continuing to falter.

Treasury Secretary Paulson will probably be heading back to Congress to claim the second half of his $700 billion bank rescue plan. I think he is probably hoping Congress is in a giving mood with the upcoming holidays and will go ahead and let loose of the additional funds. But Paulson may have some trouble securing the additional funds as lawmakers have warned the Bush administration it must come up with a new effort to aid homeowners and get aid directly to their constituents.

Paulson is also probably worried that congress may pull back some of the promised funds and earmark them for the new administration’s stimulus package. So now we have the present and future administrations fighting over who is going to get to spend the taxpayers money, with Paulson doing his best to get it all spent before heading off into the sunset. Chuck spent a tough day as the eye doctor yesterday, but still sent me the following note:

“As reported by the Wall Street Journal…

“Obama’s economic team is crafting a stimulus package to send to Congress of $675 billion to $775 billion over two years, according to transition officials. The transition team has conveyed the figures to Capitol Hill, where the package is likely to grow as it works its way through the House and Senate. Obama aides hope to keep the package below the trillion-dollar mark, as they fear being accused of adding too much to the country’s long-term budget deficit.”

I laugh! As if! As if $775 Billion “won’t add too much to the country’s long-term budget deficit”! I give up… I really do… The Gov’t thinks we are all BUFFOONS! They really do, folks… They are taking us as village idiots, thinking that if they keep it below $1 Trillion, we “won’t notice”! ”

Not to be outdone by the US, the Bank of Japan cut its benchmark interest rate to .01 from .3%. The move puts Japanese target rates back below the new target for US fed funds. The Japanese central bank also said it will continue using ‘quantitative measures’ to inject capital into the financial markets. The yen is unchanged on the day, but we saw a pretty large amount of selling by our investors yesterday.

The Chinese Renminbi headed for a second weekly gain as Chinese officials signaled they won’t pursue a weaker currency to help exporters. Many thought the slow and steady appreciation of the Renminbi had come to an end as Chinese officials let the Renminbi move lower during the first part of this month. China’s trade surplus which widened to a record $40.1 billion in November, continues to support a stronger Renminbi. Consumer prices in China rose just 2.4% in November from a year earlier, the smallest increase in almost two years. The easing of inflation pressures will allow China to lower interest rates to make sure growth stays above their 8% target. All indications support a further slow and steady appreciation of Renminbi.

Currencies today 12/19/08: A$ .6819, kiwi .5745, C$ .8155, euro 1.3982, sterling 1.5036, Swiss .9049, ISK 176.5, rand 9.7813, krone 7.0467, SEK 7.7980, forint 189.78, zloty 2.9152, koruna 18.8295, yen 89.24, baht 34.49, sing 1.466, HKD 7.75, INR 46.255, China 6.8457, pesos 13.17, BRL 2.3927, dollar index 80.869, Oil $34.39, Silver $10.67, and Gold… $835.34

Source: Dollar Bounces Back Up

I pulled a chart of year to date currency returns vs. the US$, and there are now 5 major currencies which have appreciated vs. the greenback: Yen +26.44%, Swiss + 8.07%, and Singapore, Danish Krone, & Euro + 1%. And with the recent big moves, our phones have been lighting up with investors moving back into currencies. I love the fact that all of these investors are diversifying, but the speed of this recent move demonstrates why we suggest keeping your investments spread across all asset classes. Trying to time into or out of a market can be frustrating, while keeping consistent asset allocations is the key.

The cut by the FOMC is putting pressure on other central banks to follow suit. Norway’s central bank cut its benchmark rate by 1.75%, a huge move meant to counter the growing global recession. The Norges bank said the rate could go even lower during 2009 as falling oil prices reduce the risk of inflation. The Czech central bank also cut rates yesterday, but kept its move at a relatively small 50 basis points.

Chuck sent me the following note last night, as he is feeling better and keeping an eye on the currency markets:

“So… I read to Dawn’s class on Wednesday, they were all so cute… They were completely convinced by the time I left that I WAS Santa Claus. I left to the sounds of “Merry Christmas Santa”… So cute!

What another day for the currencies, eh? 1.45 in euros? That’s a rise from 1.27 just a week ago. I read something that said this was the largest 1-week move higher EVER in the euro VS the dollar! I guess investors and traders don’t appreciate the Fed’s new ZIRP! (zero interest rate policy)

This is what the Japanese policy has been called for over a decade now, so why would the U.S.’s policy be any different? I’m turning Japanese… The stimulus packages are just like Japan’s of the 90’s I’m turning Japanese, I really think so… The bailouts, and everything in between is just like Japan of the 90’s!

The “other stars” right now are Gold and Silver… If you are a “believer” (and I’m not talking about whether I’m Santa Claus or not!) of the lofty prices for Gold that are being bandied about, then you have to think that these are bargain basement prices, and if these are bargain basement prices, then what we had just a month ago and all autumn long were dirt cheap prices! Dirty deeds, done dirt cheep! OK, I have no idea why I went into that AC/DC song! But see, I even do this at home! Which by the way, you should not try at home without an adult’s supervision! HA!

Now, most of you who are long time readers have probably been asking where Chuck’s take on the Bernie Madoff scandal is…. Well, I would be right there with my voice, if it wasn’t the SEC… The last thing I need is to get in a fight on a Saturday night in Jackson Mississippi, with the SEC! But, I don find it to be very sad that the SEC admits that the SEC had credible and specific allegations going back to at least 1999! Now investors are licking their wounds to the tune of at least $50 Billion in losses… I’ll steer clear of this one, and let those that have armored shields take their shots…

Have a great day! I’m off to the eye doctor, and not “looking” forward to it!”

I spoke to Jeff Opdyke at the Wall Street Journal yesterday about a story he was writing with regard to the Japanese yen. He was wondering why the BOJ hasn’t intervened yet. It is an excellent question, as the yen has continued on its assault on the US$ unabated. Finance Minister Shoichi Nakagawa has been trying some verbal intervention, letting currency traders know that they stand ready to intervene. But the BOJ is smart enough not to jump out in front of a freight train, and as Chuck points out above, the speed of the dollar’s recent fall has been unprecedented. Also, since Japan imports almost all of their oil, a stronger yen reduces the price of crude imports. So at least some of the pain felt by Japanese manufacturers/exporters is being mitigated by these lower oil prices.

If Japan does intervene, the thin markets during the holiday season would be an excellent opportunity. There is also a chance that the BOJ will lower their interest rates tomorrow, following their two day policy meeting. This would be another good opportunity for additional ‘verbal’ intervention. Holders of yen may want to book gains, and look toward the Singapore dollar or Chinese Renminbi to maintain their Asian exposure.

India’s rupee has climbed for a fourth day as the Indian stock exchange headed for the biggest advance in more than a week. Capital inflows across all of Asia have increased as the dollar continues to lose its status as a safe haven. India’s inflation rate, as reported today, fell to the lowest since March as crude oil prices have fallen. Prices increased 6.84% last week vs. an expected increase of 7.5%. The slight fall in inflation may allow officials to lower interest rates, which are currently some of the highest in Asia. The rupee has benefited from high interest rates as investors return to carry trades.

The Australian dollar will increase another 12% vs. the US$ according to a note by the head of currency strategy for National Australia Bank Ltd. The strategist believes the Aussie dollar hit a bottom of 60 cents in October, and says the currency will begin to outperform as growth in China starts to recover. He targets 79 cents as the top.

We agree with the report, and suggest the Aussie dollar will again begin to rally as the commodity prices recover. Raw materials account for 60 percent of Australia’s exports, with China being one of their biggest customers. Growth in China has slowed, but remains at a relatively strong level above 6%. The stimulus package announced by China will concentrate on infrastructure construction, which will increase demand for commodities.

Currencies today 12/18/08: A$ .7081, kiwi .6002, C$ .8432, euro 1.4675, sterling 1.5366, Swiss .9541, ISK 112.19, rand 9.7288, krone 6.6677, SEK 7.5780, forint 183.20, zloty 2.837, koruna 18.1062, yen 88.39, baht 34.39, sing 1.4279, HKD 7.75, INR 46.95, China 6.8292, pesos 13.18, BRL 2.3527, dollar index 77.822, Oil $40.68, Silver $11.39, and Gold… $875.98

Source: Santa Rally Continues

The dollar slipped to a two-week low against the euro while the yen fell broadly on Wednesday as a tentative agreement by U.S. lawmakers to rescue American automakers helped calm investor sentiment.

The White House and congressional Democrats reached a deal in principle on a $15 billion plan to bail out and restructure auto firms, with officials saying the House of Representatives could vote on it as early as Wednesday.

“The market is still feeding off hopes for mass fiscal stimulus in the U.S. once (President-elect Barack) Obama takes office,” said Stephen Malyon, chief currency strategist at Scotia Capital in Toronto.

Specific to the auto bailout, “in so far as how it is boosting equities, that is important for the foreign exchange market.”

U.S. stock futures rose on Wednesday, a sign of rising risk tolerance, due to bailout hopes. That led to an easing of the move to unwind carry trades, which use the yen — whose interest rate is near zero — to fund purchases of higher-yielding assets.

In early New York trade, the euro edged up 0.3 percent to $1.2948, having earlier hit a two-week high of $1.3004, according to Reuters data.

The dollar rose 0.7 percent to 92.78 yen , while the euro gained 1.1 percent to 120.28 yen. The yen was down 1.2 percent against the Canadian dollar , 0.7 percent against the Swiss franc and 1.1 percent against the pound , according to Reuters data.

Analysts said fears of Bank of Japan intervention to prevent too much yen strength also weighed on the currency after BoJ Governor Masaaki Shirakawa said on Wednesday he was watching forex moves carefully.

But few expected action any time soon.

“A comment from BoJ Governor Shirakawa that the Ministry of Finance has the option of intervening was a statement of fact to lawmakers rather than a hint that intervention is imminent,” said Brown Brothers Harriman in a note to clients.

Analysts said trading in recent days is less active than usual with little economic data to drive market moves and investors beginning to wind down for the year-end holidays.

“We’re seeing subdued days in foreign exchange markets,” said Scotia’s Malyon. “We are also in a week where there is not a lot of direction.”

US BAILOUT IN FOCUS

Analysts believe the falls in the yen are likely to be short-lived as global recession fears keep risk aversion high.

The prospect of interest rates in other developed countries falling towards the low rates in Japan will also keep the Japanese currency supported, they said.

Traders waited to see whether the House of Representatives would approve the automaker bailout, which includes conditions to provide low-interest loans to avert a threatened industry collapse if one of the three U.S. auto firms were to fail.

Some market participants are sceptical on whether such a plan, if passed, would actually save the struggling auto sector, while others argue that it would ultimately do little to cure the global recession.

“The market may yet reach a stage where interest in risk assets cannot be justified by the underlying conditions in the global economy,” analysts at UBS said in a research note.

Nick Olivari
NEW YORK, Dec 10 (Reuters)

Right out of the starters blocks this morning, the Reserve Bank of Australia (RBA) pulled the rug right out from under the “high yield status” of their economy, with another HUGE rate cut overnight… This time, the RBA cut 100 BPS, to an internal cash rate of 4.25%. This brings the total since September to 300 BPS! WOW! Talk about effectively unwinding seven years of tightening! The statement following the rate announcement leads me to believe that the RBA is probably finished cutting rates for now… It will be a wait-n-see what happens globally, before the RBA entertains any talk of further rate cuts… At least that’s my opinion!

Had a long talk with the legal beagles yesterday… The just don’t like what / how I say things. This all stems from complaints we’ve received that claim that, “I give investment advice”. Of course when the currencies were going up, up, up and away, in my beautiful balloon, for 6 years, we didn’t hear of any complaints or claims that I was “giving investment advice”… Any way… It is what it is… I call it “Market Commentary”… And everything I say is “Chuck’s opinion” not that of EverBank’s and the last time I looked… Opinion is: not to provide investment advice or to manage your money – THOSE ARE DECISIONS THAT YOU HAVE TO MAKE.

Well… Now that I’ve said all that… Guess what finally happened yesterday, that I’ve said was the case since January? Yes, the National Bureau of Economic Research (NBER) finally came clean and said that the U.S. has been in a recession since December, 2007. Here’s where I could go totally sophomoric on you and say, “I told you so!” but I won’t, no wait, I already did! But, that’s not my intention. I only carry on about his because recently I’ve had a few people tell me that I have no foresight, and that I merely react to things… Hmmm… I said this was a recession 11 months ago, long before the un-dynamic duo of Paulson and Bernanke would admit it, and long before your friendly neighborhood economist would admit it, and way before the NBER, the official arbiters of this call, admitted it.

The currencies remained in a very tight range yesterday with a bias to buy dollars, with the Huge stock sell off… The stock jockeys didn’t fall all over themselves on this news, and that surprised me… Here’s why… You see, most times, in the past, by the time the NBER gets around to calling a recession, the recession is either over or about to be over. So, knowing this, I figured the stock jockeys would be falling all over themselves, calling out that the light at the end of the tunnel could be seen…

The problem with that mentality is that not all recession calls by the NBER have signaled the end of the recession. Take… The recession that started in July 1981, which was announced in January 1982, and that recession ended 10 months later in November 1982. That’s the scenario I’m afraid that we are going to revisit this time. I’ve already said that I believe 4th QTR GDP will show a negative -5% figure, so that’s right now, and there’s no way, the economy rebounds from a negative -5% drop in a heartbeat… This is going to be a long, protracted recession, but then, the song remains the same here for me… I’ve said that for a long time now!

We heard from Federal Reserve Chairman Big Ben Bernanke yesterday… Big Ben said “further interest-rate cuts are “certainly feasible,” but he warned there are limits to how much such action would revive an economy likely to stay weak well into next year.”

Mr. Bernanke also said the “Fed’s powers don’t end with the federal funds rate, and its ability to inject liquidity into markets through its balance sheets “remains effective.”

I guess, that was the wink and nod that interest rates are going lower, and that… The Fed is going to continue to take in toxic securities on their balance sheet…

OK… There’s a story on the news wires this morning that according to the charts at the Bank of Tokyo, yen could push to 79.75 VS the dollar. WOW! I think these chartists should go back and check their angles again, because that’s a phenomenal move in yen, and I can’t believe the Bank of Japan (BOJ) wouldn’t be in the markets intervening (selling yen) to keep that from happening… But for what its worth… There you go!

Today, we’ll see U.S. Treasury Sec. Paulson speaking about the U.S. / China economic strategy… Hmmm… I wonder if old Hank, will ruffle a few Chinese feathers with his speech, or will he go quietly? I think that after yesterday’s .75% drop in renminbi, followed by a “regular” .30% drop last night, which puts renminbi at a 5-month low, that Paulson will be in a feather ruffling mood, especially, given the thought that he only has about a month left on his Treasury Sec. watch…

Remember about a month ago, I told you all about the early part of this decade, when the global economies were all fighting with recessions, and that the currencies were getting rewarded whenever a Central Bank cut rates to promote growth? I said then, that we could very well relive that scenario, and each time the RBA gives us one of those “mega rate cuts” I notice the A$ rallies… I guess, after we get through the next two weeks of Central Bank rate cuts, we’ll have a better idea if this is going to play out again, but for now, it sure is beginning to look like it will…

Looks like the airlines are “hurtin’ for certain” as I saw two different ads in the weekend paper for $49 flights… Southwest and American Airlines were promoting those discount flights… Of course there were tons of “terms and conditions” but the key here is the offer of discount flights…

I see from the U.K. Telegraph that AIG is beginning to sell off assets in an attempt to pay back the $153 Billion “loan” the Gov’t gave them. And I see where JP Morgan Chase is going to lay off 9,000 employees. And that there are rumors that Britain is entertaining thoughts about joining the euro again… They can forget about that! The people of Britain are NOT going to vote for that to happen… At least that’s how I see it from the cheap seats.

And yesterday… The piece of data that “told me” we were in a recession, the ISM (manufacturing) Index printed… And the index number fell by a greater margin than the “experts” forecast, and brought it to the lowest level (36.2) since 1982! Again, folks, this is a very “telling” piece of data, and confirms my belief that we’re in for a long, protracted recession, as this looks like the early 80’s recession and not those willy nilly ones of the 90’s and 2000’s!

The only data we’ll see today, is the vehicle sales, which is expected to fall again… I see where Ford is going to announce that they are going to change their focus to small, fuel efficient cars instead of Trucks and SUV’s, hoping that will “win over” Congress to give them a loan… I also see where Ford is offering “employee prices” plus a rebate for a select group of their cars… (that “employee pricing” is a bunch of bunk if my opinion any way!)

So, there’s a collection of some of the items that’s will drag on the U.S. economy… And eventually the dollar, once we get past this credit crisis…

Next on the rate cut block is the Reserve Bank of New Zealand, (RBNZ) who meets tonight… I think the RBNZ will play a game of poker with the RBA, and say…”I’ll see your 100 BPS, and raise you 50 BPS”… That’s right, I think we’ll see 150 BPS rate cut from the RBNZ… Like I’ve said a few times now, rates are going lower all over the world folks, we should all get ready for this!

I sure ruffled a few feathers yesterday when I printed a comment from someone else about the Energy Dept… Folks… The point was simply that we don’t need the Gov’t operating private businesses, like banking… That’s all it was…

The Retail folks are “happy” with the sales figures from the first weekend of Christmas sales… But, “happy” isn’t “giddy”… And that’s going to be a problem for the retailers this Christmas… They’ll see sales… But they won’t be “giddy”… And wasn’t that a shame in NY where a Wal-Mart worker lost his life in a store opening stampede? That’s a shame, it really is… It’s not like Wal-Mart was giving stuff away free! I’ll stop there, the story is sad enough…

Time to head to the Big Finish…

Currencies today 12/2/08: A$ .6480, kiwi .5345, C$ .8040, euro 1.2670, sterling 1.4940, Swiss .8290, ISK 230, rand 10.38, krone 7.0875, SEK 8.3175, forint 206.35, zloty 3.0160, koruna 20.2860, yen 92.20, baht 35.50, sing 1.5285, HKD 7.75, INR 50.14, China 6.8875, pesos 13.55, BRL 2.30, dollar index 86.85, Oil $49.23 ( I paid $1.84 for premium gas this morning, YAHOO!), Silver $9.44, and Gold… $778

That’s it for today… My little buddy, Alex, was writing a paper on the Revolutionary War last night, and we were talking about “taxation without representation”, and thought for a moment before going to bed, that, I kind of feel like that’s what we’re receiving now, today!

Source: The NBER Finally Says So!

After growing 2.8% in the second quarter of the year, U.S. gross domestic product (GDP) contracted 0.3% during the three months ended Sept. 30. Although investments by businesses dropped 1%, a consumer-spending cutback was the clear culprit: The 3.1% decline was the first such retreat in 17 years and was the biggest pullback in 28. And since consumer spending is the biggest component of GDP – accounting for as much as 70% of economic activity – there was no escape.

“We look at consumers being at 70% of growth and now they’re the engine of decline,” Jeoff Hall, chief U.S. economist for Thomson Reuters-IFR Markets, told CNNMoney.

Third-quarter spending fell 3.2% and shaved 2.25 percentage points off of GDP growth. Purchases of durable goods plummeted 14.1% in the quarter, and spending on non-durable goods dropped 6.4%. Services spending rose 0.6%.

Mounting job losses and shrinking incomes are expected to lead the country even deeper into recession in the New Year. The GDP report showed that disposable personal income dropped at a rate of 8.7% in the third quarter – the steepest decline since that component was first tracked in 1947.

At 479,000, the number of U.S. workers filing new claims for unemployment benefits stagnated last week, but remained above the average for the entire 2001 recession. The four-week average of new claims, a less volatile measure, fell for a second straight week, but a level of more than 400,000 is consistent with the country’s last two recessions.

“There can be no question that the labor market is deteriorating; the only issue is the speed of the decline and the eventual peak in unemployment,” Ian Shepherdson, economist at High Frequency Economics, wrote in a note to clients.

Shepherdson estimates that the national unemployment rate, which currently stands at 6.1%, could reach 8.5% next year.

“This is the first of a run of negative GDP numbers; the economy is in recession,” Shepherdson said.

With home prices caught in a downward spiral and foreclosure rates still near record highs, the deteriorating job market will put even more pressure on the American consumer – even if the government’s $700 billion financial bailout package and the U.S. Federal Reserve’s rate cuts restore some functionality to the battered credit markets.

“Given the scope of job losses seen thus far and still to come, sagging wage gains, restrictive credit conditions, and the ongoing housing market correction, consumer spending is on course for an even larger decline,” Richard Moody, chief economist at Mission Residential, told USA Today. Moody says the negative 0.3% GDP estimate will be subject to downward revisions in the months to come, meaning the economy won’t recover until the second half of 2009.

“The crisis really kicked up in late September,” Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. (ADR: BCS) in New York, said in a Bloomberg Television interview. “We’re going to be looking at a very unfriendly GDP number in the fourth quarter, with a drop of 2% to 4%.”

Swimming Against the Tide of Recession

The U.S. Federal Reserve cut its benchmark Federal Funds rate to 1% Wednesday, hoping the move would further unfreeze lending and also lessen the financial fallout wrought by the credit crisis. It marked the ninth time the central bank has lowered rates since September 2007.

The Fed has also loaned hundreds of billions of dollars to banks through a new lending program and earlier this week began loaning money directly to major businesses by purchasing commercial paper.

The People’s Bank of China also cut its key interest rate Wednesday, sending that lending benchmark from 6.93% down to 6.66%.  That was the third time China cut rates in the past two months.

China’s economy registered a solid GDP expansion of 9% in the third quarter – a noticeable step down from the torrid 11.9% pace set in 2007.

Japanese Prime Minister Taro Aso yesterday (Thursday) unveiled a $50 billion economic stimulus package, the nation’s second in as many months.

Roughly $20 billion will go to handouts, distributed evenly, with the average payout of $608 per family of four, The Financial Times reported. Tax breaks on mortgages will also be increased and highway tolls reduced. The package also includes more than $200 billion in government loan guarantees for small and medium-sized businesses.

The Bank of Japan (BOJ) is expected to reduce interest rates today (Friday), as well. And the European Central Bank (ECB) and Bank of England are expected to follow suit next week.

“A harsh storm seen only once in 100 years is raging,” Aso, the Japanese prime minister, said at a news conference detailing the moves.

The International Monetary Fund (IMF) predicts the world economy will expand just 3% next year – the slowest pace since 2002, and an average that the world body says borders on a global recession. Other forecasters, such as economists working for Morgan Stanley (MS), say that a worldwide recession is already under way.

Source: Third Quarter GDP Suggests U.S. Has Entered Into Recession

So… The euro reached a new record high overnight of 1.6038! WOW! This was reached based on the fears that credit problems in the U.S. are going to put the kyboshes on what little economic growth we now have. But the shine on the euro was rubbed out by a very weak ZEW… German Investor Confidence as measured by the think tank, ZEW, fell to a record low this month on the surging inflation problems, and rising interest rates. So for now, the euro is back below 1.60, but hear me now and listen to me later… This ZEW will soon be in the rear view mirror, and the euro won’t have that albatross around its neck as it revisits its overnight high…

And don’t look now, but the Aussie dollar is up to 98-cents! WOW! I’ve said for about 8 months that I wouldn’t be surprised to see the A$ at parity to the green/peachback… It certainly has that parity look about it does it not? The last time the A$ was 98-cents was 1983… 25-years ago… 1/4 of a century, and all that!

The U.K. pound sterling is back to $2, which seems totally unlikely an event as possible, but it has happened, so, go on and crow if you thought I was wrong to say the pound was going to have problems once the Bank of England (BOE) started its rate cut cycle…

And the Canadian dollar / loonie has crept back to parity! It’s been a long, time coming… It’s going to be a long, time gone… (a little CSNY)…

And, the poor, downtrodden, Japanese yen, is at the bottom of the 105 handle, and looking like it wants to trade with a 104 next to it! I had to laugh at a story I saw flash across the screen… The title was… “Yen may gain as Bank of Japan (BOJ) is more likely to raise rates than the Fed”. Now that’s funny! Ok, stay with me on this… A month ago, the dollar was getting bought like Pet Rocks because Fed Chairman, Big Ben Bernanke hinted that he was going to be an inflation fighter, thus interest rates would go higher… But here we are a month later, there’s been no sign of Big Ben the inflation fighter, and now it’s deemed that the BOJ could raise rates before the Fed!

And the dollar bulls wonder why their currency is getting sold like funnel cakes at a state fair? Why don’t the dollar bulls give Big Ben a call on the telly, and see if he can’t help them out? Oh… That’s right, Big Ben doesn’t take calls from just anyone… According to our friend, Jim Rogers, on his Bloomberg TV interview yesterday morning… “Ben Bernanke and Paulson only take calls from their Wall Street Buddies”… HA!

Speaking of Jim Rogers… He was full of you know what and vinegar yesterday morning… He didn’t pull any punches and said what was on his mind… You should have seen me here at the trading desk, Jim Rogers would say something, and I would clap and hoot and holler! At one point, Rogers said that the Gov’t’s plan to rescue Freddie and Fannie was “an unmitigated disaster”…

So… Remember early in the year when I kept telling you that there would be another “risk event” this year, and then we had the Bear Stearns meltdown, but that wasn’t it for the “risk events” , and I kept harping that there would be more? Well… It’s not like I was wishing, and hoping and thinkin’ and praying for these things to happen… I was simply pointing out that the world today has too many “risk events” all over, and with the credit woes in the U.S. and the housing and mortgage meltdowns, I just figure it would touch here a few times.

Anyway… What I’m trying to get at here is simply that these are the things I kept telling people to protect themselves from by diversifying into currencies and precious metals… I also, recall, the wink, wink, I gave you when Gold was trading below $900 about a month ago… Today, Gold is $983!

OK, enough with all the “I told you so” talk! Let’s talk about today… Well, today has “risk” written all over it! Big Ben goes to the “hill” to talk to lawmakers about the economy and Fed direction… You have to think that before the Meltdown last week of Freddie and Fannie (see more talk about them, I just can’t leave them on the side of the road!), that Big Ben would go to the “hill” and talk the inflation fighter talk… But now… Not now… Not with the financial sector in meltdown mode… So this is a double-edged sword… If he doesn’t go and sound hawkish, then the markets will take that as no rate hike is coming and take the dollar to the woodshed again… (you would think by now that the dollar would have gotten used to these beatings!)

Besides Big Ben, we get a ton-o-data today… PPI for June… Retail Sales for June… And Business Inventories for May… Retail Sales is the Big Kahuna of data today… And I would think that given the tax rebate checks that were still being mailed in June, Retail Sales would remain somewhat robust… Wait till July’s number, I saw all the shopping bags from my beautiful bride’s trip to Chicago this morning! But that’s for next month! For now, PPI poses a treat to future Consumer inflation, so this one plays big too…

If any of this stuff comes in worse than expected, we could see the dollar not only get taken to the woodshed, but told to go pick the switch that it will get beaten with.

Source: Credit Woes Sink The Dollar!

“Our judgment is that our current stance on monetary policy, under current conditions, is the best,” Bank of Japan (BOJ) Governor Masaaki Shirakawa told reporters at a press conference in Tokyo.

While President Jean-Claude Trichet of the European Central Bank (ECB) and U.S. Federal Reserve Chairman Ben S. Bernanke have taken a hawkish stance on inflation in recent days, Shirakawa felt it was not yet time for the BOJ to tighten its monetary policy. Trichet has even suggested the ECB could raise rates as early as July.

“People took it that he wasn’t joining on the hawkish axis that we’ve been hearing from the two other G3 central banks,” David Cohen, director of Asian economic forecasting at Action Economics in Singapore, told MarketWatch, referring to the recent anti-inflation rhetoric from central bank governors in the U.S. and Europe. “He didn’t appear to be shifting to a tightening bias just yet, still being focused on the weakening in the economy as their immediate concern.”

Shirakawa noted the effect high oil and commodity prices are having on the economy and said that Japan’s current expansion could be over as company earnings suffer under the current global economic environment.

“We must watch the downside risk that deteriorating terms of trade will erode incomes and hurt domestic demand,” Shirakawa said after today’s policy decision. “We need to monitor upside risks for prices relating to consumers’ inflationary expectations and companies’ price-setting actions.”

Derivatives are pricing in about a 95% chance of a Japanese rate hike by the end of this year, according to Reuters data, as the country is faced with the terrible prospect of stagflation caused by rampant inflation coupled with poor economic growth.

“The Bank of Japan has no choice but to take a wait-and-see stance,” Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo, told Bloomberg News. Economic conditions “rule out the possibility of raising rates, while a rate cut is difficult because the governor has repeatedly said monetary conditions are accommodative.”

Source: Bank of Japan Plays Down Inflation Concerns

Good day… Chuck will be a little late this morning, so he asked me to get the Pfennig out for him today. As usual, he sent me his thoughts on the big news of yesterday – the rate cut and announcement by the Fed. So here are Chuck’s thoughts on the FOMC move:

“Well… The Fed did cut 25 BPS to 2% on Wednesday, just as I thought they would… And they tried a back door curve ball to try and wiggle out of a basses loaded jam. You see, the Fed had loaded the bases with rate cuts, and the markets were at bat, looking for the Fed to pull a Roberto Duran and say ‘no mas’ with the rate cuts…

“The Fed decided to leave out some language that had the markets thinking they had figured out the Fed… But in reality they know nothing more than they did earlier in the day! You see… The Fed removed the ‘downside risks to growth’ clause as well as the statement that, ‘the committee will act in a timely manner as needed to promote economic growth and price stability.’

“OK… On the outside looking in, this looks like a wink and nod from the Fed that they are finished… But… I don’t think they are! And you know what? I don’t think everyone else will buy it either, once it sinks in to some of the hard heads on Wall Street.

“The currency participants didn’t go for the back door curve ball, and they took the hammer away from the dollar… But not a huge swing back in the currencies’ favor… Not yet…

“I explained yesterday that the Fed wouldn’t come out and say ‘no mas’ because they would have egg all over their collective faces when the jobs report for April prints on Friday… And the Fed didn’t… They removed some language, but left Pandora’s Box of interest rate cuts cracked open.

“A couple of months ago, I told you that I believed the Fed would cut rates down to 1.50% before stopping… They are now at 2%… And I’m not backing off that statement!

“Oh, and before I go and hand this back to Chris… (No there’s not a word from our sponsor!) I wanted to touch on the GDP preliminary printing for the first quarter yesterday… It came in at 0.6%… And you should have seen the media jumping all over this saying, “See we averted a recession!”. Yeah, right… Without a good dose of government spending, and a swing in inventories, GDP would have been negative…

“Household spending grew at the slowest pace since our last recession of 2001…

“So, hey! You dollar bulls… Keep propping up those dollars… There’s no risk in the economy or markets these days! NOT! Knuckleheads… The whole lot!”

Thanks to Chuck for making my job a whole lot easier this morning! So with the Fed cut ‘in the bag’, and no clear sign from them if in fact this is the last cut, the dollar held its ground. But overnight, Asia decided the recent dollar rally was a bit overdone, and took the dollar back down, moving the dollar index below 72.50, where it was trading at the beginning of the week. But Europe turned it back around again, and rallied the dollar back to where it was trading right after the FOMC announcement.

As Chuck suggested, the language of the FOMC statement isn’t clear, so everyone is trying to put their own spin on it. There are several stories out this morning that suggest we have avoided recession and are starting to move forward again, while others suggest we have several more quarters of negative growth before we see a turn around. Treasury Secretary Paulson seems to be right in the middle, suggesting that the credit crisis is probably about half over.

“We are closer to the end of this problem than we are to the beginning,” Paulson said in a Bloomberg interview. Even with “headwinds and despite some of the things that we’re going through, this economy is still growing, albeit modestly.” Sounds like Paulson is still pushing the Kool-Aid (and drinking some of it himself). The FOMC will meet next on June 24-25 and current expectations predict they will leave the overnight lending rate at 2% for the rest of the year.

But a pause in interest rate cuts doesn’t necessarily mean the dollar would rally over the next several months. Mike Meyer pointed out a research piece yesterday from Credit Suisse Group that showed the that dollar index fell 8% by the end of the year after the Fed stopped lowering the target lending rate in June 2003. So even if the Fed does decide to pause, which I don’t believe will happen, the dollar may still have some room to fall.

After all, even though the GDP figure was slightly positive, the fundamentals haven’t changed. “Economic activity remains weak,” the FOMC statement said. “Tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.” The gain in GDP reflected an increase in inventories as consumers retrenched and companies cut investment. Spending by households, the biggest part of the economy, grew last quarter at the slowest pace since 2001, amid mounting job losses and surging food and fuel prices. Data that will be released today will probably show further weakness in employment with the weekly jobless claims coming in above 365K.

We will also see the ISM Manufacturing number which will show a further weakening in the manufacturing sector. Finally, we will get the monthly construction spending and total vehicle sales, both of which will show continued weakness. On the drive in this morning, I heard a piece on the number of U.S. consumers who are getting behind on their car loans. Loan delinquencies in the auto sector are at 17-year highs. When you think about it, the two biggest loans U.S. consumers take out are on their home and car. We have all heard about the crisis in the housing market, and it looks like we will have a similar crisis in the automobile sector now. Several customers are ‘upside down’ in their car loans, as they paid too much for huge SUV’s, which are now worth substantially less with gas prices skyrocketing. Just another drag on our already over leveraged consumer, and further proof that we are still nowhere near the bottom of this economic downturn.

The FOMC wasn’t the only central bank meeting yesterday, as the Bank of Japan announced they would leave rates unchanged. This was again largely expected by the markets, but some of the accompanying language showed their concern with inflation. The BOJ predicted that inflation would accelerate but also cut its economic growth forecast. The report tried to downplay any predictions of interest rate moves, and the markets seem to think the BOJ will leave rates unchanged through the end of the year. The yen (JPY) didn’t really react to the news, as markets had already predicted the outcome.

The Japanese yen will continue to be at the mercy of the ‘carry trade’. When the markets are worried about risk, the carry trades will be reversed and the yen will rally, but when risk is no longer a worry, the carry trades will be put on and the yen will fall. Right now, the markets are putting carry trades back on, so the yen has been sold. But I believe there will be another ‘event’ similar to Bear Stearns, which will remind the markets that all is not well and these carry trades will again be reversed and the current 104 levels on the yen will look cheap.

With the Fed failing to raise concern on inflation, gold continued to drop. Investors move to gold as both an inflation hedge and as a safe haven during high-risk periods. Lately, investors have started moving back into riskier assets and away from the relative safety of gold. Again, I don’t share the rosy picture that these investors have, and believe we will soon be reminded of the risk that remains.

Currencies today 5/01/08: A$ .9386, kiwi .7792, C$ .9827, euro 1.5528, sterling 1.9867, Swiss .9558, ISK 75.07, rand 7.5793, krone 5.1122, SEK 6.0179, forint 162.72, zloty 2.22, koruna 16.295, yen 104.11, baht 31.65, sing 1.3582, HKD 7.7930, INR 40.59, China 6.9914, pesos 10.489, BRL 1.6622, dollar index 72.88, Oil $112.92, Silver $16.68, and Gold… $856.20

That’s it for today… We are all hoping and praying that things go well for Chuck this morning! He got to see a great game yesterday, and the weather helped out with temps staying in the ’70s. I can’t believe it is already May, this year is really flying by. Both Chuck and I will be traveling during May with the Las Vegas Money show and a Sovereign Society meeting in Panama. All the travel can be tough, especially on Chuck, but he loves ’spreading the word’ on EverBank and the benefits of portfolio diversification. Hope everyone has a Terrific Thursday!!

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