Good day… And a Thunderin’ Thursday to you! The “Day After” Tax Day… It still hurts! And to think, one of these days, I’ll be paying even more, thanks to the direction of our country… And you will be too! There’s no two ways about it, the Deficit in funding in Washington D.C. which will be a result of all the spending, is going to require greater revenue… Where does the Gov’t get the revenue? From taxes… Of course if it wasn’t a debtor nation, it would not have to pay out the large sums of interest on the Treasuries it issues… But, that… Is a discussion for another day.

The currencies saw more dollar strength yesterday, but it wasn’t a result of anything the dollar had going for it… In fact, the results of the data yesterday was all dollar negative… No, this time it came from the Eurozone. Right about the time I was hitting the send button yesterday, European Central Bank (ECB) minister, Axel Weber Opened Pandora’s Box of questions regarding future direction of the ECB… Let’s go to the tape!

Weber was so kind to mention that the ECB will announce a package of “non-standard” monetary measures at their next meeting in May… Brother, you should have seen all the different angles that were taken by the pundits after this announcement! Some believe he was telling the markets to get ready for Quantitative Easing. (not sure why he would do that, the ECB still has room to cut rates lower) Some believe he was telling the markets to get ready for rate cuts down to 0%. (not sure why they would need to go to 0%, or why he would make that announcement now, when rates are 150 BPS away from 0%)

Either way, the euro took the brunt of the message, and got sold, leading the other currencies to a day of dollar strength across the board… The board that stops in Japan that is! The Japanese yen continues to get back in the good graces of currency traders.

So… What about the data prints yesterday? ZOWIE! Talk about negativity! First, let’s look at Capacity Utilization, since I talked so much about it yesterday. Capacity Utilization fell to 69.3%, a new all-time low for the series. And, the manufacturing component of the data fell to a new all-time low! Recall, I told you this was a “forward looking” piece of data… So the future doesn’t look so bright, eh? Guess I won’t have to wear those shades!

Industrial Production also posted a negative number for the month of March posting a -1.5% decline. And… CPI? Well… Consumer inflation posted the first year-over-year decline in the headline rate in over 50 years! 1955 (it was a great year!) was the year… Prices were 0.1% lower in March than in February, contrary to the “experts” that thought prices would increase by .1% This resulted in the annual inflation rate falling to -0.4%, the first negative number since 1955!

So… Don’t look for interest rates in the U.S. to be going anywhere for some time… The one thing you can look for though is more Quantitative Easing…

And… Leave it to the media to spin the TIC Flows in a positive manner… TIC Flows (net security purchases by foreigners) posted a figure of $22 Billion in February, which is below the amount needed to finance the Current Account Deficit. However, the media spun it like this: “International demand for long-term Treasuries rose in February as China and Japan added to their holdings.” Hmmm… Well, it’s a true statement… But, not complete!

OK, enough on the data yesterday… Talk about putting someone to sleep! ZZZZZZZZZZ!

Did you hear about the U.S. Treasury turning yellow belly? OK, let me first set this up… During the Presidential campaign, Obama indicated that China had indeed manipulated their currency… But when it comes down to the cheese that binds, the Treasury Dept declined to name China as a currency manipulator… Bawk, Bawk, Bawk… Chic-ken!

Well, the Fed’s Beige Book printed yesterday, and believe it or don’t, half of the Fed Districts are seeing a moderation in the pace of the economy’s decline. That plays well with the mental note I made yesterday about full planes and restaurants. But is this just U.S. consumers refusing to batten down the hatches and save for a rainy day? You know, denying the recession and maintaining their spending habits? I mean, you know, the generation that comes after me, has never experienced a major slowdown… Maybe they don’t know how to act? HA!

China posted at GDP for the 1st QTR of 6.1% Pretty darn good for an economy that was slowing down so much the Gov’t had to implement a stimulus package. While it’s a far cry from the 11 and 12% growth rates of a couple of years ago, it’s still better than a sharp stick in the eye! I still believe that China will be the first economy to come out of the global recession.

Japanese yen got bought on the China GDP number, as traders were disappointed with the figure… I believe this all to be overdone, a little to much drama for my taste… I would be careful with this kind of trade, for you never know what the Chinese (a communist country) will do…

So… If yen is getting bought, that means the high yielders are getting sold, and so it is for the once high flying currencies of Australia, New Zealand, Brazil and South Africa. I still believe that eventually hedge funds, and investors are going to grow tired of the paltry yields on U.S. assets, and look to go elsewhere… Therefore, I like to be ahead of the crowd, if you get my drift…

Indian rupees are stealth like these days in gaining ground once again… I’ve had my foot stepped on plenty of times by the Indian Central Bank and their intervention whenever the currency gets stronger… But much like most things, I forget the pain, and talk glowingly about rupees once again… Talk about a country that is least likely to implement Quantitative Easing!

And finally, Gold… It just hasn’t been a good week for Gold. Every morning the shiny metal posts a gain at the London Morning Fixing, but gives it all back by the end of the day. Today, Gold posted a loss at the Fixing, so maybe, it gains all day! A reversal of fortune if you will! The Uncertainty Hedge is still just that folks… And in these days of uncertainty you have to wonder, just what’s going on in the minds of investors without Gold… But that’s just my opinion…

Currencies today 4/16/09: A$ .7195, kiwi .57, C$ .8285, euro 1.3165, sterling 1.4850, Swiss .8710, rand 9.0250, krone 6.7150, SEK 8.3075, forint 222, zloty 3.2550, koruna 20.44, yen 98.70, sing 1.4975, HKD 7.75, INR 49.75, China 6.8325, pesos 13.08, BRL 2.1835, dollar index 85.23, Oil $49.71, Silver $12.66, and Gold… $889

Source: Awful Data!

OK, front and center this morning, the currencies tried to rally almost all day yesterday, only to find themselves weaker on the day at day’s end, due to the drop in stocks (risk assets) I said a month or so ago that I hoped the currencies would break their tie with stocks, which wasn’t the normal way these two asset classes are priced. I said that, because I was convinced that stocks were simply going through the motions of a bear market rally, and would turn south at some time… Of course, the time could be now, as U.S. Corporations begin announcing earnings for the 1st QTR 2009… If the first Corporation to announce is any indication of the earnings season we’re about to venture through, then you had better run for the hills! Alcoa reported a 59-cent per share loss, which was worse than projected at 56-cents…

So… For now, currencies are lock-step in tune with stocks, which as I said isn’t the norm… But, it what’s happening now…

Yesterday, I told you that the Reserve Bank of Australia (RBA) had cut rates 25 BPS, and the A$ was recovering from the blow of a rate cut, but one that wasn’t as big as traders thought… Well, there was more news from the RBA, and their Gov. Mr. Stevens, who said that “the recession in Australia is much milder than those in Europe and the U.S.” Hmmm, I think he was preparing to leave the rate cut table, don’t you? To me, that’s Central Bank parlance for “This is it, no more rate cuts!” Which, if it’s the case, the A$ should begin to see some real activity…

And… The news from China continues to point to their stimulus working and that economy pulling out of the doldrums faster than the rest of the world. (see what happens when you deal from a position of strength?) Of course that remains to be seen… But like I said, I read at least one story a day about how China’s economic activity is stirring… So… Let’s just play along with those thoughts for a minute… What does that mean for Australia? It would mean that 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. Or least something like that… Why you may ask? It all has to do with the need that China has for raw materials, which in the past they received the majority of those needed from Australia… So, now, you can see the tie-in, eh?

Oh… But… If currencies don’t break this trading pattern with stocks, we won’t have any Happy Days in Australia or any other country for that matter, except Japan, which is a counter trade these days…

OK… And now for Mr. Mayo… Yesterday, I told you all about this bank analyst from Caylon Securities, and how he threw a cat among the pigeons with his call that bank losses will exceed those in the depression… The Risk takers headed for the hills, and the safe haven flows into Treasuries were once again the trade du jour… Well… Ty Keough was the first to tell me yesterday that Jim Cramer was pointing out all of Mr. Mayo’s past errors… That’s good, I’ll leave all that to Jim Cramer, because… I’m not here to bash Mr. Mayo… What I’m here to question is why the markets were so moved by the statements of one man? Oh well… I carry on, despite the markets’ indiscretions!

I watched two videos yesterday of interviews with currency analysts, of which both said they believed the dollar’s rally was just about to reach an end… Hmmm… They didn’t say why they thought that, but they said it…

Japan posted a very interesting number last night… Japan’s Current Account Surplus shrunk 56% in Feb. In January of this year, Japan posted their first deficit in 13 years… Interesting, eh? Exports have plunged… But, with the weakness in the Japanese domestic economy, I would suspect that imports too will plunge soon, thus leveling this out…

Yesterday I talked about Ireland and their problems briefly… Well, this morning there’s a story regarding Ireland and what they are attempting to do to cut this problem off at the pass. Finance Minister, Lenihan is mirroring the tactics Sweden took in the 1990’s when their financial system teetered on the cliff of disaster. That’s a good thing in my book… I talked about the “Nordic way to deal with financial disaster” months ago… I’ve never cared for the way we are going about dealing with this here in the U.S. and preferred the Nordic way of dealing with “bad banks”…

If you would allow me to go off on a tangent here… (if not skip to the next paragraph!) But, why did Paulson, and now Geithner, along with Bernanke believe that throwing Billions / Trillions of dollars at this problem was the correct thing to do? I mean, we got into this mess because there was too much money in the system and it wasn’t regulated… So… The answer is to throw even more money at this problem? I just don’t get it, folks! I have a cartoon that I cut out of the paper a month ago, that just cracks me up… It has a character watching TV… And from the TV you see this quote… “And as President, I can assure you… That the ERA of tax cuts and wasteful spending is over”… And in the next box/ quote… “Get ready for the ERA of NO Tax Cuts, and REALLY Wasteful Spending”… That just about tells it all, eh?

Remember what I told you on Monday about what Richard Russell had to say when he was asked what he would do now… He simply stated… “nothing”… “I would let the bear markets run their course”

I saw this in the WSJ this morning… “The Treasury Department plans to extend the Troubled Asset Relief Program to certain eligible life insurers. Several life insurers have been burdened lately by capital constraints amid ailing markets.”

Oh great! The Treasury Dept. is bound and determined to spend all the TARP money even if it goes toward things / companies that it wasn’t created for! Records show that there is about $130 Billion left to spend… Come on Mr. Treasury Sec. this isn’t a re-run of the movie Brewster’s Millions! (you might recall that movie, as Richard Pryor inherited a million dollars, but had to spend it all to receive it, or something like that….)

Gold held onto those gains I talked about yesterday morning, and has added another $5.25 this morning… The shiny metal is back to $887… A reader asked me yesterday about Gold dipping below $900… Hmmm… It’s my feeling that buying Gold on the dips is a good practice… But then, who’s to say that Gold doesn’t fall even further before turning around? I don’t think anyone would bet against that happening… My point is, if you can buy it cheaper today than you could yesterday or last week it’s a bargain! If it falls further… It’s an even better bargain!

The euro has been gaining ground since I turned on the screens this morning, rising from 1.32 to 1.3255 as I type my fat fingers to the bone! You know… Eventually, the chickens will come home to roost on all the debt and money supply and treasury issuance and failed corporations and the depression in the U.S. and when they do… One would have to think that the dollar will get punished severely… And I mean severely! But all that remains to be seen… The best thing to do though is to give your investment portfolio a hedge… And make certain that you don’t have all “dollar denominated” asset classes / investments! A diversification that does NOT require a 100% move out of the dollar! Currencies and metals are asset classes just like stocks, bonds, mutual funds… Add them to your portfolio and reduce the overall risk of that portfolio!

Not much in the data cupboard today… The FOMC meeting minutes from March 17-18, when the Fed announced that they were buying Treasuries, thus monetizing the debt… It will be interesting to see what led to that decision, or who came up with that idea… The Treasury has another auction to get through the system today, this time of 3-year notes. The yield on those notes will probably be around 1.25%… Ooooohhhhh, where do I sign up? NOT!

Currencies today 4/8/09: A$ .71, kiwi .5760, C$ .81, euro 1.3255, sterling 1.4710, Swiss .8725, rand 9.20, krone 6.72, SEK 8.22, forint 223.80, zloty 3.3850, koruna 20.06, yen 100, sing 1.5150, HKD 7.75, INR 50.19, China 6.8470, pesos 13.52, BRL 2.2150, dollar index 85.30, Oil $47.78, Silver $12.29, and Gold… $885

Source:  Needing To Break The Pattern

A strange thing is happening in the currencies though… While currency investors have had to live with this Trading Theme that rewards the dollar with every deep, dark, dangerous data report, this time it appears to be different. The dollar is getting sold on all corners overnight, and the reason is traders have looked at the size of the forecast for job losses and have run for the hills. The euro is leading the way higher, with a huge gain overnight… As I walked out the door yesterday afternoon, the euro was barely holding onto the 1.25 handle… When I woke up this morning with a wine glass in my hand, what wine, who’s wine, where the hell did I dine? The euro was 1.2675! And we all know what happens when the BIG DOG gets off the porch to chase the dollar down the street… All the little dogs get to chase the dollar too!

And Japanese yen was one of the best performers, which tells me that the risk takers were back!

So… Is this a change in the Trading Theme? Well, one overnight rally doesn’t lend itself to a convincing argument of such, but… It certainly points out that the dollar is vulnerable at the margins, and it once we get back to fundamentals… Watch out!

I came across another story about Europeans repatriating euros ahead of their quarter end, March 31st… Now, that would be interesting… The report didn’t say “WHY” they would be repatriating their euros, but shoot Rudy, the Europeans are apparently doing it, so, again, don’t step in front of that bus either!

Gold had a great day yesterday, rebounding to $940, after barely holding on to $900 earlier this week… I said at the time that I thought $900 or $890 would provide resistance, and for now, at least, that’s held true. Of course having the auditors finally admit that General Motors (GM) is in trouble, didn’t hurt Gold. The safe haven buyers were out in force after this announcement by the GM auditors… In case you didn’t hear… The auditors at GM issued a report questioning GM’s ability to remain solvent, citing recurring losses from operations, stockholders’ deficit and an inability to generate enough cash to meet its obligations. GM already has received $13 Billion from the Gov’t, and is seeking an additional $30 Billion… Of course that $30 Billion isn’t even enough to cover GM’s loss last year of $30.9 Billion! You know me… I say, “stop throwing good money at bad businesses!”

While we’re on the subject of cars… Did you see where Sweden told the SAAB unit “no bailout for you!” Recall, I told you in a letter a week or so ago that SAAB wanted to break away from GM, but needed Billions to do so, and had asked the Swedish Gov’t for the money… And the Swedish Gov’t said NO! While it’s not funny to SAAB, or to GM, it’s kind of funny when you think about the fact that Sweden isn’t exactly your first choice when it comes to picking the democracies in the world… But, here they are holding the flag… And appear to be the only one’s holding the flag, and saying NO!

And I saw a quote yesterday that made me chuckle, not that the subject is funny, because it’s not, but the thought process to come up with the quote is! Let me begin with the backdrop of the subject… Yesterday, Citigroup’s stock fell to below $1… Which prompted the quote from a guy that said… “Now you can finally buy Citi’s stock at the dollar store”

OK… Back to the task at hand… Did you see, wait, of course you probably didn’t see, because I just happened to come across it… What am I babbling about? It’s the data from the Fed that there was a sharp drop in commercial paper issuance last week… Why is that so important, I hear you asking? Ahhh grasshopper, recall that after the initial meltdown of the markets in August of 2007, the issuance of commercial paper dried up, which was an important method of corporations to generate cash and for the buyers to generate above Treasury interest rates. So… A few months ago, the Fed took over facilitating the commercial paper market, to give it the backing of the Fed… And things were beginning to look brighter, until last week… Total commercial paper outstanding fell $44.2 Billion… I think this is another reason for the rally in Gold yesterday…

Yesterday, the Bank of England (BOE) left their rates unchanged, but announced they had adopted quantitative easing… And the European Central Bank (ECB) cut as we expected them to by 50 BPS, to an internal rate of 1.5%… ECB President, Trichet, was very strange in the press conference afterward, and mentioned “touching wood” when he was talking about inflation… Hmmm… Well, for all of you wondering what he meant by “touching wood”… Here in the U.S. we would say, “knock on wood”… You know for good luck!

I think Trichet was being tricky, and trying to tell us that inflation is not a problem right now, but I’m going to knock on wood, because I’m not so sure about the future! It’s like Thunder, and lightening, the way you love me frightening, you better knock, knock on wood, baby, you better knock! Now the horns come in! of course the Eddie Floyd version is in my head, not the re-make years later!

OK… I had a few emails yesterday asking me what “quantitative easing” was… I had explained this all a month or so ago, but for those of you who missed class that day, and are wondering just what the heck I’m talking about…

Quantitative easing is the creation of new money out of ‘thin air’ by a central bank, and its injection into the banking system. The aim is to increase the amount of deposits in private banks so that, by way of deposit multiplication, they can increase the money supply by increasing debt (lending).

‘Quantitative’ refers to the money supply; ‘easing’ refers to reducing the pressure on banks. A central bank can do this by using this new money to buy Treasuries in the open market, or by lending the new money to deposit-taking institutions, or by buying assets from banks in exchange for currency, or any combination of these actions. These have the effects of reducing interest yields on government bonds, and reducing inter-bank overnight interest rates, and thereby encourage banks to loan money to higher interest-paying bodies.

Wow! The Pfennig is chock-full-o-lessons today… Let’s recap… We’ve learned about Commercial Paper, touching wood, and Quantitative easing, all in one day! WOW!

OK, seriously folks… This Jobs report that will print later this morning is a scary thing right now… Sort of like those horror movies, when you’re screaming a the girl to not look in the closet, because you know what horror lurks behind the closet door! You’re screaming, “don’t open the door, don’t open the door”… But she does anyway, and well, you know the “rest of the story”…

Before I head to the Big Finish, I’ll talk about China for a minute… Yesterday, I told you about their leader and his thoughts of a return to 8% economic growth… Well, that was followed up last night by the Central Bank Gov. Zhou, who pledged fast and forceful policies to restore confidence and prevent the global financial crisis from deepening in China… Here’s what Zhou had to say… “If we act slowly and less decisively, we’re likely to see what happened in other countries: a slide in confidence.” and my final thought here is “it’s good to be China in situations like this”… You see, China can do whatever they want to do, and do it NOW! They don’t have to deal with earmarks, pork, and knucklehead lawmakers being directed by lobbyists! Now, I’m not saying that what China does do will be any more successful than our method, I’m just saying they can do what they want NOW! And one would have to think that would help things move along faster…

Currencies today 3/6/09: A$ .64, kiwi .5025, C$ .78, euro 1.2680, sterling 1.4230, Swiss .8670, rand 10.5350, krone 7.0575, SEK 9.2710, forint 249.55, zloty 3.7450, koruna 22.11, yen 96.70, sing 1.5475, HKD 7.7560, INR 51.66, China 6.84, pesos 15.34, BRL 2.39, dollar index 89.06, Oil $44.11, Silver $13.43, and Gold… $940.40

Source: Jobs Jamboree Friday!

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!

Front and Center this morning, we have some data that could potentially move the currencies today. I’m talking about the Trade Deficit for December. The “experts” have forecast a narrowing of the December Trade Deficit from $40.4 Billion in November, to $35.7 Billion. Now, that all sounds wonderful, as this is one of the twin deficits that I have banged on for years now. But the resolution is completely different than what I wanted to see. I wanted to see U.S. exports bring the Trade Deficit down… Instead we have a complete collapse of demand for imports… And with the dollar stronger than it was 7 months ago, exports are falling like a house of cards.

Now, here’s the potential market moving piece of this data… Last month (January) when the November $40.4 Billion Deficit printed, it was more narrow than forecast, and sparked the dollar to a 1.5% gain in one day. But that’s not all, the rest of that week the dollar gained 2.5% (in the dollar index)… So… While this isn’t the path I would have liked to see the Trade Deficit narrow, it is narrowing…

Unfortunately, for the Twin Deficits, the other Deficit, that resides in the Budget, is taking up the slack… I now figure that the Budget Deficit could very well hit $3 Trillion this year… We already have $1.2 Trillion from the Congressional Budget Office, $838 Billion in the “new and improved” stimulus package the Senate passed yesterday, and don’t forget the $350 Billion in TARP money that was carried over from last year, that will be spent this year… And you know, there will be “another” spending package coming in the future, because people like you and me are calling out this “new and improved” stimulus package…

A recent poll by Pew Research Center found that a narrow majority of Americans, just 51%, support the stimulus. And that’s down from 57% in January. Even worse for the administration, support seems to be dropping among people who say they’ve learned more about the stimulus:
Notably, support for the proposal is now much lower than it was in January among those who have heard a lot about the economic stimulus. By 49% to 41%…

And here’s something in the plan that I bet you didn’t know was a part of it. I thank a dear reader for bringing this to my attention. He’s a doctor, so I believe he knows what he’s talking about here folks…

“This past weekend and Monday I took the time to read “The Obama Stimulus Plan.” I will leave politics to the side and will leave my interpretation from an Economic perspective aside ( I double majored at Bucknell in Chemistry and Economics ). What I will NOT leave to the side is what is buried in “The Bill” from a health care standpoint. YOU NEED TO KNOW…..the “stimulus bill” is a Trojan Horse…..hidden in “this horse” is the legislation to NATIONALIZE HEALTH CARE.”

So… Do I have your attention now? Here’s a link to the story by Betsy McCaughey on Bloomberg…

OK… I won’t carry on about that… I’ve given you the information to do with as you please.

Back to the task at hand… The Geithner Plan was a bust according to the markets… Here’s what the Wall Street Journal had to say about the stock sell off… “Financial stocks led a broad move down in the market on the heels of Geithner’s unveiling of the Treasury’s bank-rescue plan and Senate passage of the stimulus measure. The Dow Jones Industrial Average dropped by roughly 350 points, or 4.2%, reaching its worst levels of the day in mid-afternoon trading. Bank of America and Citigroup experienced double-digit percentage losses.”

Currencies followed along with stocks, like they have for a couple of weeks now. The euro, which had traded up to near 1.31, fell back to yesterday morning’s figure of 1.2975, as if nothing had happened. The high yielders like Aussie, kiwi, and Brazil, had all been trading higher this week on hopes that the Geithner Plan would bring the risk takers back to the markets. But that didn’t happen, as Geithner really disappointed the markets with his plan…

It was reported yesterday that economic advisors for Obama were in a tug-o-war with Geithner on this Plan, and that Geithner had won… Given the reaction by the markets, I think I would like to see what the Advisors had planned, to make a choice between the two! Maybe Geithner is swayed by the old regime at the Treasury, given he had his hands in there helping the old Treasury Sec. Paulson, with his bailouts and TARP last year… Hmmmm… Makes you wonder…

I read the text of the Geithner Plan… And was very disappointed… I will say that the Treasury’s plan to make this all transparent is good… In fact you can follow the money trail at this website: www.finacialstability.gov But, the rest of it was the same old, spending taxpayer funds on shoring up financial institutions… Could go up to $1 Trillion!

You all know where I stand on this spending that we can’t afford, and placing the burden of paying it off on our grandchildren… It’s downright immoral! Let the financial institutions that can’t cut the mustard sell themselves to someone who can, or close, and when all the dust settles, we’ll be left with the financial institutions that are strong and ready to grow! But that won’t happen, as my friend Bill Bonner (www.dailyreckoning.com) says about the Fed and Treasury propping up these institutions… He calls them “the meddlers”… Great term!

So… As I said above, the Geithner Plan rubbed the markets the wrong way, and stocks and currencies hit the skids… Bonds had a banner day… Of course you knew they would after I talked about how they had started the year off with the worst performance since 1980! UGH! And… As always, well for the past 6 months… As the risk takers took their high yielders rally and went home… Japanese yen, rallied… There was another currency that rallied along side yen yesterday… Swiss francs… But that didn’t last through the night…

One of the biggest losers (to use the name of the TV show my beautiful bride can’t miss each week), was the Swedish Krone, as the Swedish Central Bank, the Riksbank, made a larger than expected rate cut of 100 BPS (50 BPS was forecast). The Riksbank also basically outlined their plan to cut rates further in future meetings.

British pound sterling lost ground too, when the Bank of England’s (BOE) Gov. Mervyn King made some statements about the U.K. being in a “deep recession” and that it will “probably require lower interest rates and an increase of money supply”….

Now, the lower interest rates aren’t what put the kyboshes on the pound’s recent strength… It was the comment about increasing money supply… Which in my book of how to value a currency is one of the top valuation indicators. You see, inflation in the U.K. has fallen to .05%, 1.5% below the ceiling target for inflation, and lowering the interest rate is one thing, but increasing money supply? I truly believe that increasing money supply places the velocity of money rule in place, and inflation can spiral when that happens… It’s akin to “playing with fire”… Somebody is going to get burned!

And here’s a sign that a country’s currency is on the downward slope… Mexico’s Central Bank said that it will “continue to intervene to support the peso”… UH-OH! Let’s see what this intervention has gotten the Central Bank so far this year… The peso is down 4.7% this year, and lost 2.3% of that yesterday! The Central Bank bought $1.1 Billion worth of pesos last week to prop up the currency… Their foreign reserves now stand at $82 Billion worth, so they could play this game for some time… But, in the end, the markets have deeper pockets, and if they smell blood in the water, like I think they do now with pesos, they will test the Central Bank’s willingness to spend those foreign reserves!

The folks over at Citigroup (NYSE:C), issued a report on China yesterday, and they are bucking the trend to downplay China in 2009… Citigroup believes China will surprise on the upside, and their currency, the renminbi, will continue to gain VS the dollar in 2009 to 6.6, from current levels of 6.83… So… This is one of the few reports that follow along with my general feeling of China…

The Geithner Plan was good for Gold, as the shiny metal gained $20 yesterday, and is up another $10 this morning, and is trading at $924.69… I gave a long interview yesterday regarding deflation and inflation. I tried to explain how the deflation we are seeing right now is asset deflation, not your ordinary monetary deflation, for that would require a contraction of money supply… I was asked what assets perform well in a deflationary cycle… Cash… And while Gold is the same as cash… Gold! I have a new term that I came up with for Gold… An “uncertainty hedge”… How do you like that one? Everyone is uncertain as to what’s going on and what will happen with all this spending going on, and what performs well? The “uncertainty hedge”!

And on that note… I think I’ll head to the Big Finish! And don’t look now but the price of Oil is falling again….

Currencies today 2/11/09: A$ .6530, kiwi .5230, C$ .8025, euro 1.2950, sterling 1.4360, Swiss .8655, rand 9.8980, krone 6.7175, SEK 8.2430, forint 227.50, zloty 3.5140, koruna 22.0850, yen 89.90, sing 1.5060, HKD 7.7510, INR 48.69, China 6.8330, pesos 14.60, BRL 2.2890, dollar index 85.60, Oil $37.84, Silver $13.39, and Gold… $924.69

That’s it for today… I tried and tried to get “something” out of the Geithner Plan last night, but it totally lacked specifics, and I understand why the markets began to circle the bowl.

Source: Geithner’s Plan Disappoints

Good day… And a Tub Thumpin’ Thursday to you! Day One at the Orlando World Money Show (WMS) went well. My room for the presentation was packed! It was standing room only, and the good part was the fact that there were only about 30 Pfennig readers in the crowd. I say that not because I have something against Pfennig readers, oh Lord, they are dear readers! The reason I say that is I like to know how many of the non-readers I can convert to Pfennig readers!

Well… As you know, when I’m on the road like this, I’m not sitting in the saddle back home, and watching the markets all day long, and reading stories about what’s happening, etc. So, the “road Pfennigs” tend to be a bit shorter. But as my friend, and once editor of our monthly newsletter, David Galland, used to tell me… “you’ve got to get it out every day, no matter what!”

So… From what I can tell this morning, the currencies traded in a very tight range after the sell-off from the previous night that I told you about yesterday. Japanese yen is a bit weaker, from yesterday morning’s currency round-up, but other than that small move in yen, the levels look like they are wearing the same clothes as yesterday!

Today we have the Central Banks of England and the Eurozone meeting to discuss rates. As I said earlier in the week, I truly believe the Bank of England (BOE) to cut rates aggressively once more to bring their internal rate to 1/2% or 50 BPS, just like here in the U.S. The forecast is for the BOE to cut to 1%… But I’ll go out on that limb and say they’ll be even more aggressive. Here’s the thing that just gets my goat though… The more aggressive the BOE is in cutting rates, the better pound sterling will trade. Now this should be the opposite, as a rate cut is a true debasing of one’s currency. But the mental giants in today’s trading world don’t see it that way. They see it as a plus for the economy and so for the currency.

I could really go off on a tangent now about how trading desks are run by Ivy leaguers that got that job right out of grad school and don’t carry the same “valuation tools” as old timers… And quite frankly could very well be one of the reasons we’re in this mess today… But I won’t go there, as that’s too touchy of a subject!

The European Central Bank (ECB) will also meet today, but ECB President, Trichet, has pounded it into everyone’s heads that the ECB will NOT cut rates today, and to look to the March 5th ECB meeting as the next “chance” for a rate cut.

Here’s another example of not carrying the same “valuation tools”… The ECB is being prudent and waiting to see the results of previous rate cuts, so as to not “over cut” and get in trouble with spiraling inflation, etc. Why debase the currency when you don’t have to? But…. NOOOOOOO! The mental giants these days are punishing the euro because they believe the ECB is now “behind the curve” with regard to rate cuts. See how crazy this has all become? Crazy… I’m crazy for thinking about you… I’m Crazy… Crazy for feeling so blue… Ahhh, the soothing voice of Patsy Cline… Now, I can get back to writing without carrying on about “valuation tools”… Or as the kids say nowadays those guys are “tools”… HAHAHAHAHAHAHAHAHAHA!

Yesterday, I told you about the surprise Pending Home Sales report, and how maybe it’s a sign of better times, but I needed to be shown more before I would commit to saying that it’s a true sign. Well, my friend, Bill Bonner, author, and Daily Reckoning fame (www.dailyreckoning.com) had this to say yesterday about this very subject…

“Our guess is that the little light investors thought they saw will turn out to be another torpedo blowing up. Millions of homeowners and stock market investors have gone down already…but there are many still afloat.
And many torpedoes that still haven’t found their marks.

In Japan, for example, property prices began falling in 1991. They fell for the next 13 years…reaching a low in 2004 equal to where they had been in 1973!

If that pattern plays out in the United States, the housing market won’t hit bottom until 2020…when you’ll be able to sell your house for what you paid for it in 1989.”

Our old Fed Chairman, who is highly regarded for his inflation fighting in the early 80’s, Paul Volcker, spoke last night and he’s none too happy with the delay in starting the economic advisory group that the new President, Obama, set up. Obama picked Volcker, but Volcker isn’t seeing any moving forward with this advisory panel. Volcker wants to help, and I believe we need his voice, but no one wants to “include” him… Hmmmm… I wonder what’s going on there… Does the new administration believe they don’t need Volcker’s voice? I sure hope that’s not true!

In another sign that the German economy has fallen into a recession, German Factory Orders for December fell -6.9% bringing the annual number to a staggering decline of -25%, according to the report I saw this morning… This is just another reason why the euro no longer trades at 1.60…

I saw a report this morning regarding India and the rupee… I don’t talk about India very often, because not much in the way of market moving news comes out of India… But, this report is talking about black clouds hovering over India, so I thought I had better fill you in… An advisor to the Prime Minister said last night that the 2009 Budget “may” reach 7.5% of GDP! The forecast is for 2.5% of GDP. If this is true, the writer believes that the rupee could sell off from today’s level of 48 and change to 52… If that all holds true, then holders of rupees will be thankful for the above market interest rates to cushion that blow… But again, this is all based on a “may” and could turn out to be a boy crying wolf!

I’ll end today’s letter with a “feel good story”… Gold rallied to $915 yesterday… Gold traders say that they believe Government spending will spur inflation, the dollar will weaken, and gold will take off on the strength of its inflation fighting make up.

Goldman Sachs Group, Inc. (which probably has so many research people you can’t count them with stick) said that they believe Gold will reach $1,000 within three months. And a commodity analyst at Dresdner Bank said this, “expectations of future inflation and dollar depreciation are driving the market right now.”

I told the crowd at my presentation yesterday that Gold IS an excellent inflation fighter… And not to listen to those that preach otherwise, as they use the high of the 80’s at $800 and say Gold hasn’t done a very good job of fighting inflation since then! But! Not so fast Tim! I say you have to go back to when President Nixon closed the Gold window, and took the dollar off the gold standard. Gold was trading then at $35 an ounce… Now follow Gold’s price through the years to the present at $915… Now… That’s what I call an inflation hedge!

And finally on Gold… Kristin sent me this note that she came across… “Short term, said Tom Pawlicki, of MF Global in Chicago, “Investment has been a key supporting factor for gold,” and thus “Passage of the stimulus package in its current form would likely be inflationary and bullish for gold while a Senate filibuster would be bearish.”

On to the Big Finish! Wait! There’s been a nice move up in the currencies since I got up this morning! WOW! Alrighty then, let’s go to the currency round-up!

Currencies today 2/5/09: A$ .6485, kiwi .5130, C$ .8125, euro 1.2875, sterling 1.4515, Swiss .8615, rand 9.9765, krone 6.83, SEK 8.2625, forint 230.32, zloty 3.62, koruna 21.98, yen 89.70, sing 1.5050, HKD 7.7540, INR 48.77, China 6.8367, pesos 14.44, BRL 2.3075, dollar index 85.60, Oil $40.44, Silver $12.71, and Gold… $915.80

Source: Gold As An Inflation Fighter!

Good day… And a Wonderful Wednesday to you! The first full day of the new regime… I will say this, it makes one proud to be an American when you can watch a peaceful, even extravaganza, handing over of leadership… It really rips me up when I read that the Wall Street Boys really contributed cash to the inauguration proceedings… Making certain the new President knows who contributed cash to his party… Probably cash they received from the Gov’t in bailout payments! Nah… That couldn’t happen… Could it?

Well… The currencies didn’t really trade outside of a very tight range yesterday, except for the pound sterling, which continues to fall VS the dollar, euro, yen, and probably even the Zimbabwe currency! OK, that’s harsh! But I wanted to paint the picture, so that everyone understood the grave situation the pound sterling is in… The Bank of England has decided to take 70% control of the Royal Bank of Scotland, and nationalization isn’t far behind for that bank, and a few others…

Yesterday, the Bank of Canada (BOC) lowered their official interest rate by 100 BPS or 1%… I told you long ago that the BOC would follow in the Fed’s footsteps, and they have… Canada had it all going for them last year, with gold rising, Commodities like Oil, natural gas, and metals all rising, but that curtain came down hard on Canada and their dollar / loonie. It will be some time before the loonie can recover… but… if my scenario of soaring inflation for the U.S. and rising Commodities again comes to fruition, then it won’t be that long, not in the scheme of things…

There was word yesterday that the Monetary Authority of Singapore (MAS) stepped in to support the Sing dollar after it had fallen to a 6-week low. This kind of intervention works in this case, as the Sing dollar is relatively small in circulation, and the intervention doesn’t have to be of size to stabilize a market… But, they (the MAS) need to know when to get out, and let the markets be… They gotta know when to hold ‘em, know when to fold ‘em….

Gold put in another strong performance yesterday adding $21 as I left for the day. Jennifer asked me during the day if this was a first, with Gold and the dollar rising… I said that I had seen it before, but it certainly doesn’t normally go that way… For Gold is another offset currency to the dollar… Which leads me to believe that it wasn’t so much dollar buying as it was euro selling yesterday…

The Boys and Girls at Morgan Stanley issued a report on Gold recently that called for Gold to reach a new record within the next 3 years. They call for the Gold to “average” higher each of the next three years through 2012, with the average this year to be $900, next year $1,000, the following year $1,050, and $1,075 in 2012… Personally, I believe their call to be quite conservative, something that we’re going to see a lot of in the next few years, as these research teams, back off the “hyper-calls” for assets, as they walk gently over eggshells in an attempt to not garner the spotlight…

At least they’re calling for higher Gold prices… You normally don’t see Wall Street firms going out of their way to talk up Gold… For that thought, you normally don’t see Bankers talking about Gold either… That’s where I’m different! I talk to one radio station quite often and they call me the “un-banker”! That’s right, baby! I’m not even your last choice as a “banker”… I’m a markets guy…

OK, enough of that self-promotion! HAHAHAHAHAHA!

Back to the markets… Well, the Obama bounce didn’t come in the first day of his Presidency, as the Dow sold off by 332 points! UGH! OUCH! That’s going to leave a mark! So far, one piece of the Obama bounce, the dollar, has rallied… But the other, stocks, have fallen on their face…. We’ll have to see what stocks think about the $850 Billion stimulus package that the Obama team is working on…

Here’s the skinny on the package, that could still grow… It certainly isn’t going to narrow! The stimulus plan covers 5 areas of spending and tax breaks… Health, education, infrastructure, energy, and support for the unemployed and the poor. All worthy areas… Unfortunately, we (the U.S.) don’t have the funds to pay for this… Now… If we weren’t already in a huge deficit hole, then a stimulus package to get the economy going might be the answer… But, that’s not the case! I told a radio station a week ago that the Roosevelt plan worked back in 1933, but it could have just as well failed, it was that touch and go, and if it weren’t for the war it might not have… This time, we’re starting in a deep, dark deficit hole… I sure hope it works… I just can’t get my arms around how adding $2 Trillion to our national debt this year helps…

How did I get to the $2 Trillion? Well… The Congressional Budget Office (CBO) has already told us the deficit in 2009 would be $1.2 Trillion. Recall I had a cow over that announcement! Well, the CBO’s budget forecast does NOT include the new stimulus plan of $850 Billion… I’ll tell you what it also doesn’t include… Any new military expenses… And the remaining TARP money that the Obama team just came into…

I just heard, and sang along with, out loud, good thing no one else is here!, one of my all-time face Chicago songs… Hard Habit To Break… Yes, the habit of deficit spending is a Hard Habit to Break apparently… So, where’s the change?

OK, Whew! I really went off on a tangent there, eh? Oh, some of that was from my radio interview, and some of it was from my good friend, David Galland, who recently put out a piece on the spending… David used to take my Review & Focus draft, and make music with it… What a writer!

I see where Christopher Cox, resigned from his leadership role at the SEC… I think back to the election process when John McCain was asked what he would do about the financial mess, and his first response was to say that he would fire Cox… McCain got all kinds of flak for that… But in hindsight, given the failure of the SEC to spot Madoff’s alleged ponzi scheme, that call doesn’t look so bad now, eh? So… According to Harvey Goldschmid, a former Democratic SEC Commissioner, the SEC was “passive” under Cox… Well, you can expect that pendulum to swing swiftly to the other side… As with all things in life… They go too far one way, and when somebody notices, they swing too far the other way… Never finding a “happy medium”…

Someone sent me a note yesterday and said I hadn’t mentioned the Swiss franc and why it had fallen on hard times, after posting a great 3-month return… I pointed back to a previous Pfennig that pointed out that UBS was involved in a bond scandal in Italy, and it reverberated all the way to the franc… Of course since then the euro has fallen from 1.34 to 1.29, and that has even more to do with the recent movement in francs… Remember… The euro is the Big Dog of currencies…

I’m currently reading a research report on China, in my “spare” time I might add! The research plays well with what I’ve been harping about for some time… And that is rising inflation in China, and how the Chinese officials should use a stronger renminbi to combat that inflation… There are a lot of people, researchers, pundits, out there calling for China to slow down their renminbi appreciation VS the dollar… I’m on the other side of that fence, as usual, right? I think the Chinese WILL use the renminbi as an inflation fighting tool… More later, when I have some “spare” time!

For readers of our monthly client newsletter, Review & Focus, you’re in for a special treat in February… The Big Boss, Frank Trotter, submitted a special report called “The March of the Presidents” which goes back to Nixon, and gives grades based on raw data, not sentimental, of “soft stuff” … Strictly numbers… Inflation, unemployment, etc. Look for it at a news stand near you!

Currencies today 1/21/09: A$ .6510, kiwi .5210, C$ .7925, euro 1.2925, sterling 1.3770, Swiss .8750, rand 10.2725, krone 7.04, SEK 8.3250, forint 220, zloty 3.3660, koruna 21.42, yen 89.80, sing 1.5025, HKD 7.7580, INR 49.11, China 6.8375, pesos 13.95, BRL 2.36, dollar index 86.20, Oil $41.29, Silver $11.40, and Gold… $860.70

Source: Gold Moves Higher With The Dollar

So… Yesterday, we saw the euro lead the currencies higher all day, with the single unit finishing the day in the 1.3050 area… I turned on the currency screens this morning, and what did my wondering eyes did appear, but the euro trading at 1.3170, and others bringing up the rear!

The Swiss National Bank (SNB) cut rates further this morning, bringing their internal rate to 1/2%, 50 BPS, that’s it… So, one would think that bringing your interest rates to near zero, would NOT be a good thing for the currency, right? Well, in this day and age of rewarding a currency for lower interest rates to promote growth, that’s not the case. The franc has rallied on the news… Of course it’s probably just caught up in the euro’s move higher.

Looks like the U.S. House of Representatives approved a $14 Billion package for GM and Chrysler, but the Senate has put some roadblocks out on this deal, and that puts the whole deal in jeopardy… A Final Jeopardy if you will for the contestants Gm and Chrysler! Notice I didn’t include Ford. The people at Ford, backed out, and tried to put a 100 miles of desert between them and GM & Chrysler. Good for them!

Well, earlier in the week, the glimmering light of the bailout for the Big 3, helped the currencies… But now that the Trading Theme seems to be taking its last breaths, the news of the bailout in jeopardy, has helped the currencies, as this would mean that we could finally be back to focusing on fundamentals! Could we really? Is it possible? Well, maybe if you’re real good and take a nap… No wait, that’s what I used to tell the kids on Christmas Eve! It IS possible… But we need a few more days of what we’ve seen so far this week to confirm the Trading Theme to be a thing of the past.

Speaking of things of the past… A Bank of New York (BONY) strategist, issued a statement saying the, “Carry Trade is Dead and Buried.” Hmmm… I beg to differ with him on that, for if we get investors and traders focused on fundamentals again, and the risk takers come out of the woodwork again, the Carry Trade could very well be on the burners again… But then, I do see his thought here and that is (I think it is) that if every Central Bank is cutting interest rates to the bone, there won’t be any “high yielders” left to buy on the buy-side of the Carry Trade. Well, let’s see now… Aussie and New Zealand were the BIG WINNERS of the last Carry Trade craziness, and their rates are lower, but still 3 and 4 hundred basis points above those in Japan, Switzerland and the U.S.! But, the Carry Traders might have to look further, and do some additional leg work this time to find the “high yielders” like… Brazil, and India…

OK… I came across this story yesterday and really had my blood boiling… I wanted to talk to the Big Boss Frank Trotter about it and get his thoughts, but the poor guy was tied up on the phone all day, well, all day that is, until I left to go home! Anyway, here’s the base story, that the entire piece can be read here.

The U.S. Federal Reserve is considering issuing its own debt for the first time, the Wall Street Journal said, citing people familiar with the matter.

“Fed officials have approached Congress about the move, which could include issuing bills or some other form of debt and would provide the central bank with more flexibility to tackle the financial crisis.”

NOW WAIT JUST A MINUTE THERE BIG BEN! This is the bailiwick of the Treasury Dept, issuing debt! You’ve already got the printing press for currency, and now you want to issue your own Debt? This is complete madness I tell you, complete madness! I think the Fed is thinking of ways to deal with deflation…

Oh well, apparently, Big Ben can do whatever he pleases these days, the new President has named an “energy Czar” and the automakers might get a “Car Czar”, the new President had better think about naming a Fed Reserve and Treasury dept Czar!

OK, yesterday’s printing of the Monthly Budget Statement saw the monthly deficit not “as bad” as forecast, with the figure posting a $164.8 Billion deficit, instead of $171 Billion as forecast… That’s still really bad folks, let’s not get caught up in the media spin of talking about how it “wasn’t as bad as forecast”! Let’s focus on the fact that for the second consecutive month the Budget Deficit widened… And this month it went from $98 Billion in October to $164.8 Billion in November!

Of course you know why this is happening, right? No? Ahhh grasshopper… Recall the bailout money? Well, whenever any of it is spent, it will show up here! Want even further bad news here? Government revenue fell 4.2%, while spending soared 24%!

The Treasury Dept has written checks on all but $15 million of the first half of the $700 Billion allocated to help financial institutions.

So, as I said the other day when I mentioned that the President-elect’s plan to spend more money on infrastructure since 1950 might be the right thing to do at the wrong time… We’ve got the deep, dark recession going on, the Credit Crisis and this collapse of revenue… But don’t let that stop him! Why would we want to stop with the deficit spending here? I shake my head in disgust!

Today’s data cupboard has the Trade Deficit for November, which should narrow, given the collapse of the Oil price. That and the recession should allow the Trade Deficit to narrow… But, let’s not get caught up in the media spin on this too… You see, the Trade Deficit is still $53 Billion, which annually is $636 Billion… Which is probably right about where it will end out this year…

And… $53 Billion still needs to be financed! Let’s not forget that little ditty!

I just watched the euro gap up to 1.32… This is a rout like I’ve not seen since last summer! And wouldn’t you know it, here it is, and I’m going on vacation! Oh well, maybe the old adage that the currencies rally when Chuck’s away, will come back!

I just can’t pass up on this one though… And I know the legal beagles will be all over me on this, but here goes… This certainly looks like the Santa rally that I talked about earlier this week, eh?

I know, I know, it could all be reversed in a New York Minute, but you’ve seen these types of routs before…

Another currency on the rally tracks this week is the Chinese renminbi… After all the “bad talk” about China last week, the Chinese have said, “you’ll be sorry”! What I’m talking about here is the fact that everyone is dissing the renminbi right now, and selling it, and pushing forward contracts down in value… And the Chinese, because they can, have moved the renminbi higher VS the dollar this week! There! In Your Face, disgrace!

So… What’s everyone thinking these days buying Treasuries? I mean, the yield on a 3 month T-Bill is 1 BP! You have to go out 30 years in a Treasury Bond to get 3% yield! OUCH! But, investors keep buying! Well, I think what you’ve got going on here is simply the fact that all this repatriation of dollars has investors with tons of cash, that they don’t want to put into banks, (for a number of reasons, like FDIC insurance limits, shaky banks, etc.) So, they put the cash into Treasuries, realizing that they may not earn any interest, but it will be there when they want it at some point in the future. And this “point in the future” is what scares the bejeebers out of me! Because when the icing is off the cake here, there will be a swift exodus from Treasuries, as no one will want to be the last man standing here… UH-OH! Just be careful folks…

The weekly Initial Jobless Claims will also print this morning. We’ve seen a huge increase to average above 500K in the Weekly Initial Claims, and that should hold true today. This isn’t a good thing folks…

Well, the rally this week hasn’t been cornered by currencies… The Commodities have come back too! Oil is up $2, but the real meat here is the rally in Gold! Gold this morning is perched above $827, when it was sitting at $770 just a week ago!

Currencies today 12/11/08: A$ .6660, kiwi .5525, C$ .8015, euro 1.3235, sterling 1.49, Swiss .84, ISK 215.50, rand 10.13, krone 6.95, SEK 8, forint 199, zloty 3.01, koruna 19.64, yen 91.30, baht 35, sing 1.4890, HKD 7.75, INR 48.30, China 6.8515, pesos 13.30, BRL 2.3950, dollar index 84.33, Oil $45.50, Silver $10.46, and Gold… $832

Source: A Huge Currency Rally

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!

Good day…The dollar rallied a bit yesterday on some very poor economic data which illustrated just how bad things are getting here in the US. As Chuck has repeatedly told everyone, in the current trade pattern the dollar rallies whenever we get negative data for the US economy. Investors get spooked by this negative data, and run scared into the ’safety’ of US treasuries.

Ty sent me a quote from respected newsletter owner/author Bill Bonner yesterday: “Misguided risk aversion, anyone? A few months ago, investors stretched for yields. Now, it’s safety they reach for…and grab U.S. Treasury debt with both hands. Investors now seem to have an unqualified trust in the full faith and credit of the world’s largest debtor. Yields on 91-day T-bills have fallen to 0.11% – scarcely a tenth of one percent!”

And when you adjust these yields for US inflation, the real yields on US treasuries are negative (even the 10 yr treasury real yield is -.43%!!). These investors won’t be parked in US Treasuries for long, but while fear continues to drive the markets, the US dollar will remain strong.

The data which sent shivers down investors spines yesterday was a one two punch of weekly jobless claims and leading indicators. The number of Americans filing for unemployment benefits approached a 26-year high of 542,000 last week. The Unemployment rate will likely increase another 100 bps by this time next year, and stay at these elevated levels for an extended period of time.

The second blow came shortly after the jobs data was released, as the index of leading US economic indicators fell in October for the third time in four months. The Conference Board’s gauge dropped .8%, more than forecast, after rising .1% in September. This index points to the direction of the economy over the next three to six months. Consumers and companies are cutting back as job losses mount and housing and manufacturing sink deeper into a slump. These two pieces of data indicate just how quickly the US economy is falling into recession.

Investors fled stocks and moved back into dollars throughout the trading day yesterday, rallying the dollar index back to the highest level since April 2006. We moved above 88 on the dollar index a week ago, but it was unable to maintain the higher level.

The same thing occurred last night, as equity markets in Asia rebounded, bringing the dollar index back below the 88 handle. Apparently there was speculation that a sale of Citigroup Inc. will reduce risk in the financial system, slightly increasing the confidence of investors. This is how perverse these markets have become; the possible sale of one of the largest financial firms in the US actually rallies the markets.

The European Union announced that is crafting a coordinated economic stimulus package to spur its 27 nation economy. European Commission President Jose Barroso told reporters in Brussels today that the commission will announce a fiscal stimulus plan next week. The plan will be based on member states taking measures suited to their own economic situation. I like the approach the EU is taking to the crisis, as they will design the stimulus to try and meet the differing needs by each country. According to the EC president, “Everyone is suffering from the crisis and everyone needs treatment, but not everyone needs the same pill.”

According to Barclay’s Capital, the euro will strengthen 16 percent against the dollar in the next 12 months as Chinese demand drives up prices for oil, reducing the US currencies attractiveness. Two-thirds of the euro’s 22 percent slide since the July peak of $1.6038 can be accounted for by plunging oil prices, Barclays said. China is the second largest oil consumer after the US, and “Contrary to current received wisdom, oil prices are much more important for the euro-dollar cross than either the stock market or interest rate differential right now,” wrote London-based David Woo, global head of currency strategy at Barclay’s. Declining oil prices have helped the greenback by narrowing the US current account deficit, reducing the US’s need for overseas funding, Woo said. He forecasts the euro will trade in a range around $1.24 in the next three months, but then rally to $1.45 over the next year as accelerating growth in China helps oil prices retrace their recent fall.

I agree with Barclay’s analysis of global commodity prices. China and the rest of Asia will continue to be the world’s growth engine, and demand for commodities will increase. The stimulus packages which are being pushed will put additional upward pressure on raw material prices. The commodity rally will not only help the Euro, but will help push up prices of the Norwegian krone, Australian dollar, and Brazilian real.

Switzerland’s central bank surprised the market yesterday, dropping its benchmark interest rate by 100 basis points. The Swiss National Bank reduced its target for the three month Libor to 1 percent and promised a ‘generous and flexible’ supply of Swiss Francs. It’s the third unscheduled move by the SNB since the beginning of October. I would expect the SNB to keep rates on hold at their meeting next month given the extent of yesterday’s move. The Swiss Franc fell as the dollar strengthened yesterday, but rallied overnight and is now trading close to where it was prior to the SNB move.

In other interest rate news, the Bank of Japan kept its benchmark rate at .3 percent today and said it will consider pumping more money into the financial system to prop up an economy that fell into recession last quarter. Japanese banks are in a much better financial position that banks in the Eurozone or the US, and the Japanese consumers are flush with cash. Japan went through a long deflationary period, and consumers there are less leveraged than here in the US. The stronger position of Japanese banks, and the more solid consumer base will enable the Japanese economy to weather the global slowdown much better than most other economies. The yen will retain its attractiveness as the world faces a long, long recession.

Technical analysts predict the yen may rally to 92.50 in the short term, and could move above the 13 year high of 90.93 which it hit on October 24. According to the analysts, the so-called support level is near the bottom line of a trend channel that tracks the dollar’s decline from a two week high of 100.55 yen on Nov. 4. The US currency is poised to extend a 3.5% loss this month as it failed to rise above the 20 day moving average and the down trend is still very clear.

The Australian dollar approached a five year low against the dollar in late US trading and the New Zealand dollar traded near a six year low as investors moved out of the carry trades after the negative US data yesterday. But the Australian dollar bounced back overnight as the Reserve Bank of Australia announced it had bought a record 3.15 billion Australian dollars in October. The RBA continued to purchase its own currency this morning, “providing liquidity as on previous occasions,” said a spokesman for the Sydney-based central bank. The Australian dollar has posted a record monthly drop in October and the RBA has been purchasing the AUD$ in an attempt to slow the drop. Commodity prices continue to fall, dragging down the exchange rates of commodity exporting countries. Falling interest rates have also put pressure on the higher yielding currencies of NZD and AUD.

Iceland finally got the long promised bailout from the IMF and four Nordic countries yesterday. The IMF and four Nordic countries gave Iceland a $4.6 billion bailout. The Icelandic government will also borrow about $6.3 billion from the UK, Germany, and the Netherlands to cover foreign deposit guarantees at failed lenders. While the rescue was desperately needed, it will heap almost $11 billion of debt on the shoulders of the islands population of just 320,000. “This is an extraordinary scale of problem related to the size of the economy,” IMF Mission Chief to Iceland Poul Tomsen told reporters. “Iceland is in an unprecedented situation.” GDP in Iceland is predicted to shrink about 10 percent next year, the IMF says. The island had the fifth-highest per capita income in the world in 2007, but the collapse of their financial system has caused the Icelandic krona to lose two thirds of its value this year. The rescue may start to add some liquidity back into the banking system, but the massive amount of debt will likely keep the Icelandic economy from rebounding for a number of years.

Currencies today 11/21/08: A$ .6212, kiwi .5272, C$ .7817, euro 1.258, sterling 1.4982, Swiss .8194, ISK (No Quote), rand 10.46, krone 7.0831, SEK 7.2031, forint 211.78, zloty 3.046, koruna 20.405, yen 94.87, baht 35.22, sing 1.5304, HKD 7.7513, INR 50.02, China 6.8311, pesos 13.8031, BRL 2.457, dollar index 87.56, Oil $50.38, Silver $9.17, and Gold… $756.88

Source: Misguided Risk Aversion