Good day… And a Happy Friday to one and all! The end of the week… It’s been a tough week for yours truly, as I’ve hobble around in pain all week. But, as I recall, I promised 2 years ago that I would not complain about these things in the future… So! I carry on!

Well… Front and center this morning… The currencies are trading near levels they were when I signed off yesterday morning. They did have a brief rally, after the U.S. Retail Sales data showed some real rot on the “recover is here” vine… But that rally was snuffed out, as the risk aversion campers came back to the markets…

Overnight, the Reserve Bank of Australia’s (RBA) Gov. Stevens, game his semi-annual report on the Australian economy to Parliament, and he was quite upbeat… And not just about the Australian economy. Stevens was quite upbeat about most of Asia, including Australia’s largest export country… Japan. I bet you thought I was going to say China! I thought that Stevens did a fantastic job of putting his thoughts out there for all to hear. Like, talking about how future quarters could show softer growth as the RBA removes “fiscal candy”… Good Show!

One thing is clear, at least to me, from this upbeat report, and that is I believe we can look for the RBA to hike rates aggressively in the first QTR of next year… And, if the future quarters are stronger than Stevens now forecasts, we could very well see a rate hike before we turn the calendar page on 2009!

Speaking of future rate hikes… Since Norway’s Norges Bank moved to a tightening bias on Wednesday morning the Norwegian krone has gained 3.2%! Go krone, Go krone… I’m dancing in my seat. Carlos Santana is playing, dance, sister dance on the radio… It’s all good… OK, I’m sure that’s a sight you didn’t want flashing before your eyes!

OK… So… Here in the U.S. we saw Retail Sales for July, which I told you yesterday was expected to be stronger because of the Gov’t’s cash for clunkers program… U.S. retail sales unexpectedly fell -.1% in July despite the debut of the government’s “cash for clunkers” program meant to jump-start the auto business and help turn around the economy. So… Here we go again… The Gov’t promises something, and it falls short of expectations… Looks like “cash for clunkers” is a Clunker!

That Retail Sales shocker yesterday really makes one stop to think about all the euphoria being exhibited about the end of the recession… So… When Retail Sales printed, you can understand the return of the risk aversion campers, eh? I wonder how this report fits into the Fed’s view that the economy is “leveling”?

Today, we’ll see the stupid CPI report… Just what we need on a Friday! A reminder of how the Gov’t cheats those that are on fixed payments, and those that buy TIPS… Don’t know what I’m talking about here? That’s OK… You must be new to class! No worries! You see the Gov’t began making changes to the way we calculate consumer inflation back in the mid 90’s, and it’s been a huge mess ever since! I’ll just say this… Consumer inflation in this country has been grossly understated for 15 years… It was all done as part of a plan to allow interest rates to remain low, so that housing would become affordable for everyone… Now, that plan sure worked out well, eh? NOT!

So, enough of that! Let’s talk about Brazil! Before I get into this, I must make this perfectly clear… Brazil is an emerging market, and with that moniker, they should be viewed as a speculation investment only, that is unless it’s got principal protection like our BRIC MarketSafe CD! WOW, did you see how I segued right into that? Man… I are so smart!

OK, back to Brazil… I was reading a story on the Bloomie this morning about how a currency strategist at Standard Chartered Bank in New York, has forecast a level of 1.80 for the real by the end of this year, and 155 by the end of 2010… WOW! That would mean that on top of this year’s already top performance of +27%, the real would add another 15% next year… That’s all nice and sweet… But it is just a forecast by someone I’ve never hear of, so take that with how ever many grains of salt you wish!

Now that I have you all pumped up… OK, for a second there the old Hans and Franz Saturday Night skit, “were going to pump you up” flashed before my eyes… OK, were was I? Oh, now that you’re all pumped up, I will remind you of what I said on Wednesday of this week… And that is, that I’m becoming very scared of this stock market run, and if it runs out of steam, the resulting sell off of stocks could adversely affect the currencies, since these two asset classes are being hog tied together, along with commodities!

Oh, and this just in this morning… Brazilian Retail Sales rose 1.7% in June beating the forecasts of a 1.2% gain. You would have to think that given the strength of this report that Brazilian domestic demand is growing and will contribute further to the thoughts that the Brazilian economy is going to rebound faster than most other countries. And when you have some of the highest yields in the world, and an economy rebounding faster than others, you get a ton of foreign investment into the country, which… Will drive up the value of a currency, which in this case is the real!

It’s been a while since I last talked about Gold & Silver… And then I was reading a report written Sean Hyman about Gold, and decided to share with you some of Sean’s thoughts… Sean believes that we’ll see $1,300 Gold by the end of this year, and $2,500 Gold in 2010… He bases this on a number of things, but mostly on the fact that the IMF announced sales of Gold made earlier this year, is being completely offset by Chinese buying. With all the demand for Gold, having this huge IMF selling of Gold offset by the Chinese if HUGE! So… I thank Sean for his thoughts here…

Sean is a regular contributor to the FX University Daily newsletter that the Sovereign Society publishes… I’m a part of FX University, along with Sean. Speaking of FX University… Many of you know how the FX University did what we called “currency tours” last year, visiting 8 different cities to hold one-day classes on Foreign Exchange (FX)… That format is going to change… In February 2010, we’ll hold a 3-day event in Scottsdale Arizona… So… The number of people able to attend these classes will be greatly reduced! I suggest that you visit http://www.worldcurrencywatchfxu.com/main/

OK… Thanks for all the positive notes about abolishing the Fed yesterday… I did receive a few that thought I had lost my marbles, and didn’t have any problem telling me so! But that’s OK… I didn’t think it was going to be met with 100% approval / participation! Quite a few told me to join Ron Paul’s bandwagon… I’ve been on his bandwagon for some time now! But for those skeptics to my call to abolish the cartel, I mean the Fed, I simply suggest you read the book: The Creature From Jekyll Island… But for an appetizer, I suggest you first read William Fleckenstein’s book, The Age of Ignorance at the Fed, Greenspan’s Bubbles…

And… Let me make something perfectly clear… This letter is Chuck’s letter… And therefore it is Chuck’s opinions, not those of the Bank! While I’m sure that I’m loved by one and all at EverBank, they do not influence my opinions, this is all me, folks… Just imagine what my poor beautiful bride has had to put up with for 33 years!

OK… We had some housecleaning to do this morning, I sorry about that, but just some things to get off my chest and out the door…

Before I head to the Big Finish, I wanted to talk a bit about Canada… While the U.S. was posting an increase in their Trade Deficit, Canada printed a narrowing Trade Deficit! Rising exports and falling imports resulted in a HUGE narrowing in Canada’s trade deficit in June which came in at C$55 million, which was much smaller than May’s revised C$1.1 billion trade shortfall… This is a nice piece of data for Canada, and I would love to see this deficit narrow further next month, and get back to the days of surpluses in Canada!

One would think this data to be a feather in the loonies’ cap!

Currencies today 8/14/09: A$ .8435, kiwi .6820, C$ .9205, euro 1.4290, sterling 1.6565, Swiss .9360, rand 8.0550, krone 6.0250, SEK 7.1250, forint 188.50, zloty 2.8875, koruna 18.51, yen 95, sing 1.4425, HKD 7.7505, INR 48.25, China 6.8344, pesos 12.84, BRL 1.8230, dollar index 78.35, Oil $70.75, 10-yr 3.60%, Silver $15.10, and Gold… $958.70

That’s it for today… hope you have a Happy Friday!

Chuck Butler

Source: Cash for Clunkers Is a Clunker!

Good day… And a Terrific Tuesday to you! Well, no data yesterday left the markets drifting about the open waters. Stocks rebounded, which gave the risk assets a bias to be bought, but for the most part, the day was much like being a drift in the ocean, with no direction or cares!

That will all change beginning today with the Nonfarm Productivity report for the 2nd QTR… Long time readers know my dislike for this data, as I believe it simply shows that one person works longer hours! The Fed Heads used to be all over this data like a cheap suit, and probably still trip over themselves to see the data when it prints… But to me, it’s not what Big Al Greenspan made it out to be…

Tomorrow is the big data day this week with both the Trade & Monthly Budget Balances printing for July… The Trade Deficit should tick up some, as Oil prices have gained in recent weeks, and the Monthly Budget Deficit? Oh my! It is forecast to be $180 Billion in the red! Which annualized would be more than $2.1 Trillion! But don’t worry about it folks, no biggie according to the folks in Washington D.C. The Treasury will just issue more bonds, and the Fed will buy up any that don’t get bought, and pay for them with money they printed up fresh that day!

You know that I’m be facetious with the “don’t worry” talk… I’ve been talking about this deficit spending for quite a few years now… I like the fact that others have joined in now that the numbers have gotten so large they are as obvious as a man with a hatchet in his forehead, but at least they’ve joined the “stop the deficit spending movement”…

Speaking of The Treasury issuing Bonds… This week alone the Treasury will auction $37 Billion of 3-year Notes, $23 Billion of 10-year notes, and $15 Billion of 30-year bonds… Even using “new math” that brings this week’s issuance to $75 Billion! That sound? That sound you hear is foreigners choking on all this issuance! Does anyone know how to apply the Heimlich maneuver?

The “got yield” scenario I talked about yesterday, didn’t play out yesterday, as stocks came back… The A$ saw some selling along with kiwi, reals, and any other “high yielder”… The selling wasn’t bad, so we can probably put it down to profit taking.

I’m doing some research on the years around the depression, looking at market movements, and confidence levels… It’s amazing the things that were being said right up and to the stock market crash about how everything was fine… Then skip ahead to the 80’s and you had the same things going on with lofty praises for the S&L industry, especially one by Big Al Greenspan, and then the S&L industry circled the bowl… Makes you wonder, and I’m not talking about wondering who wrote the book of love… No, I’m talking about how this should make you wonder, or question, what’s being said about how great stocks are right now… When the President makes comments about “a good time to buy stocks”, you’ve got to stop and think folks… Just stop!

OK… I wanted to give everyone an update on the popularity of the BRIC MarketSafe CD we introduced last month… With over a week to go until we reach the funding deadline, this CD has received a ton of newsletter writer coverage, and interest… The funding has gone quite well, and we expect to open this CD with a very large amount of cash… That’s exciting for me, as I saw this as an opportunity to deal in “speculative” investments, without market risk, and jumped on getting this available to our customers…

I also wanted to follow up on the Jobs Jamboree data we talked about yesterday morning… I had a very nice reader tell me that I “hadn’t fallen off turnip truck” as the participation rate fell! That’s right! As she said to me… “So, all those poor men and women that were hit at the beginning of the recession have the great pleasure of no longer being counted as either employed or unemployed.”

I also wanted to follow up on last week’s talk on the Weekly Initial Jobless Claims that fell for the previous week… I had a reader who recently became unemployed in California tell me the problems with trying to file as unemployed! Let’s listen in to him explain his attempt to file as unemployed…

“Filled out the unemployment application on-line the day I was laid off.
About four days latter they send you another form to fill out and return. If not returned immediately, you lose your benefits.

Received a letter indicating they would call me 7 weeks after applying, to determine eligibility. It is scheduled for September 27th at 1 PM to 3 PM.

About two weeks afterwards, found there is no way to reach a human. The only way to reach them is EMAIL, which takes a couple of days to respond. EMAIL has a canned response, we will contact you on Sept 27th.”

OK… Enough of that! China came out with some data today… While exports continue to suffer the stimulus that the Gov’t put into the economy, which made sense due to the fact that the Gov’t had a war chest of cash to put into the economy, which is the exact opposite of the situation in most countries including the U.S. Chinese Industrial Production growth was strong, marking three consecutive months of improvement in Industrial Production. The ongoing recovery of domestic demand is good, while consumer demand keeps holding up well with July retail sales growth up 15.2% year-on-year…

Now, I fully understand how there can be questions about the validity of Chinese data… But come on! We don’t live there, we have no idea! And they don’t have a John Williams (Shadow Stats) to show everyone that the Gov’t’s official data prints are misleading and most times inaccurate!

I saw this report on the Bloomie this morning from Zillow… “Almost one-quarter of U.S. mortgage holders owed more than their homes were worth in the second quarter and that figure may rise to as much as 30 percent by mid-2010 as job losses and foreclosures climb.”

That’s depressing stuff… Very depressing… So! Before I go to the Big Finish, I’ve got to find a “feel good” story… Of course if I were the Gov’t I would have a pocket full of those, to pull out whenever the consumers needed one! HA! But, I’m not the Gov’t! thank goodness! Whenever I think of the Gov’t, I think of those words that Ronald Reagan spoke regarding the scariest words a person can hear… “I’m from the Gov’t and I’m here to help”

OK… The euro looks to be catching some wind in its sails this morning, as it has gained 1/4 euro since I came in… I know that’s chicken feed, but Hey! You’ve got to start somewhere, and after Friday’s bloodletting, the tourniquet was applied on Monday, and today maybe we’ll see it gain back lost ground… For… It is “Turn-around Tuesday!” (well hopefully it will be!)

And if the risk assets (like stocks) are rebounding, Gold and Silver should be on the docket to rally too… And a quick look at the Bloomie tells me they are indeed, rebounding… So, now, let’s go to the Big Finish!

Currencies today 8/11/09: A$ .8365, kiwi .6715, C$ .9125, euro 1.4170, sterling 1.6475, Swiss .9250, rand 8.13, krone 6.2125, SEK 7.28, forint 191.80, zloty 2.9370, koruna 18.19, yen 96.50, sing 1.4460, HKD 7.7505, INR 48.02, China 6.8350, pesos 12.96, BRL 1.84, dollar index 79.12, Oil $70.73, 10-yr 3.78%, Silver $14.43, and Gold… $947.60

That’s it for today…Try to make your Tuesday Terrific!

Chuck Butler

Source: $75 Billion in New Treasuries this Week

With retail losses continuing to accelerate and vacancy rates skyrocketing, malls are going to be one of the biggest losers from the consumer spending slowdown…

Here’s why our shopping malls, and by extension the commercial real estate market, aren’t going to be moving anywhere but down over the next few months – and what you can do about it in the meantime.

Don’t Be Fooled By Housing Starts Recent Uptick…

Much has been made of the recent uptick in housing starts in May, but don’t be fooled – this is simply seasonal. In the northern half of the country, foundations can’t be dug during the winter months, so there is always a “spring surge” in housing starts.

The Obama administration predicted that without the recovery plan, unemployment would peak around 9% in 2010. With the plan in place, the estimate was 8%, and that we’d hit it this year…

• The official Bureau of Labor Statistics number is at 9.4%. But even though unemployment rates are easing slightly, the overall number of unemployed is still rising.
• And it gets even worse when you throw in the 2.2 million additional people that are so discouraged they’ve quit looking for work, and today’s number jumps to 10.8%. These individuals haven’t even shown up on the rolls yet.
• With few companies announcing even minimal hiring plans, it’s highly likely that the ranks of the unemployed will continue to swell to 11% to 12% sometime in 2010.

What does this have to do with commercial real estate and shopping malls? Plenty. As I’ve said before, it all starts with the consumer.

• In America, the consumer’s long-term contribution to our Gross Domestic Product (GDP) is around 65%.
• But for the last five years or so, it’s been over 70%.
• That is, until the fourth quarter of 2008, when it dropped off a cliff.

And therein lies the problem: Less employed workers means less discretionary spending, less homes being built, bought and sold, less trips (or none) to the local mall, less warehouses needed, less manufacturing, less transportation… all resulting in a big pullback in GDP.

Consumers are spending less, not more. When they do spend, it’s on staples: food, gas and clothing.

The normally big-spending teenage segment is currently experiencing a 22.7% unemployment rate. So instead of going to their former favorite hangouts – the shopping malls – they’re hanging out at each other’s houses. (I know this to be true, as my son is entertaining a group of friends at our house as I write this.)

Are Fears of Commercial Real Estate Fallouts Overblown?

Many so-called “experts” in the commercial real estate field have said the fear of commercial real estate fallouts and failures are overblown… that it won’t be as nearly as bad as people like myself are predicting.

They’re dead wrong.

They’re ignoring the fact that there’s always a lag between when the economy heads south and when commercial real estate does. Let’s face it: Some stores can coast for a few months – or even a year – while they wait for a pickup in business. But that pickup isn’t coming anytime soon.

The reality is that many mall-based stores haven’t renewed their leases – their lack of income is forcing their hand. Many others are underwater financially, and only months away from closing.

When national chain Ritz Camera filed for Chapter 11 bankruptcy protection, 300 stores in malls all across the country immediately closed. The result isn’t hard to picture.

• A report from the New York-based research firm Ries, Inc. indicates that retail tenants vacated a 10-year high 8.7 million square feet of retail space in just the first quarter of 2009.
• That compares to 8.6 million square feet… for all of 2008.
• Kyle McLaughlin, an analyst at Ries, says that vacancy rates at strip malls, neighborhood centers and regional malls are increasing at rates not seen in 30 years. “We’ve never really seen deterioration of this order in occupied space since 1980. We don’t see much in expectations for improvement throughout the rest of this year and next year.”

Reis indicated that their forecast assumes positive job growth and an increase in consumer spending starting in 2010.

Say what?

Here’s the problem with that assessment: It’s ignoring what’s really going on outside their offices – unemployment is still rising, and that means fewer consumers spending less money.

Don’t look to the emerging markets to bail us out, either. The Chinese, Brazilians, Russians and Indians can’t just run down to our local malls to shop.

The problem is made worse by vacant storefronts, which hurt the few remaining stores. When the stores on either side of a remaining store closes, less traffic comes by and, well, you get the picture.

All this puts shopping mall owners and landlords in a big financial squeeze play: They’re forced to drop rents at a time when less money is coming in due to rising vacancies.

Commercial Real Estate Loans Mature - Bigger Problems Arise

The problem is about to get very, very big: Between now and 2011, as much as $814 billion in commercial real estate loans will mature – and need to be refinanced. The problem is that the credit markets are still too tight for most commercial projects.

Most banks have tightened their lending standards, reduced the amount they are willing to lend and significantly reduced the value of the collateral (malls). This leaves many owners with little choice but to turn to the Feds.

Back in May – and with much fanfare – the Federal government announced it would soon be expanding its Term Asset-Backed Securities Loan Facility (TALF). It now plans to include existing securities backed by loans for apartment buildings, office complexes, shopping centers and other commercial property.

But these programs aren’t an industry panacea. If you read the fine print, they provide backing only if the securities are rated AAA by major rating agencies. This excludes just about all the needy real estate – and the REITs that own it – from participating in the program.

How to Play the Commercial Real Estate Fallout

So, how do we play the commercial real estate fallout? The bottom-line is this: Many shopping malls in this country are simply going to disappear. Supply and demand will ultimately determine how many. All this bodes well for really big operators like Kimco Realty (NYSE: KIM) and Simon Property Group (NYSE: SPG), long-term plays that are large enough to weather the lengthy storm.

But for short-term investors looking to pick up some companies on the bottom, beware of going long just yet: While the market has already baked in a lot of bad news, uncertainties surrounding any additional big chain bankruptcies persist.

That means many REITs still have further to fall.

If you’re looking for an investment option that plays this angle, a dropping real estate market bodes well for ProShares UltraShort Real Estate (NYSE: SRS). It seeks investment results equal to twice the inverse of the daily performance of the Dow Jones U.S. Real Estate Index.

In the coming weeks, I’ll take a look at the office and industrial property side of commercial real estate that, unfortunately, isn’t much better off than the malls.

Good investing,

David Fessler

Source: The Commercial Real Estate Fallout: Profiting From the Death of the Shopping Mall

Long-time readers know I never shy away from this topic.

In fact, last year, when everyone else believed the world’s reserve currency was about to be usurped by the euro, I predicted it would rally and we would see the end of the weak dollar. And rally it did. After the impressive move, of course, I changed my stance on the falling dollar.

And since that time I’ve only become more convinced the U.S. dollar is doomed to lose value over the long term. Here’s why we need a weak dollar…

Why We Need A Weak Dollar: A Dramatic Shift in Power

One of the first reasons why we need a weak dollar is that we are witnessing a dramatic shift in the balance of power. For decades, the U.S. dollar garnered strength from our big spending ways. After all, we were the world’s largest economy and the buyers of last resort. But now we’re getting serious competition from emerging economies.

“The emerging world is not just a source of supply [anymore] but also a source of demand,” says Robert Sinche, head of strategy for currencies, global rates and commodities for Bank of America (NYSE:BAC).

For instance, Brazil, Russia, India and China alone now account for 15% of global GDP, up from 8.7% in 2004.

As time elapses, the relative size of the U.S. economy will only continue shrinking, bringing its significance and, ultimately, the value of the U.S. dollar down with it.

Second, U.S. policymakers want and actually NEED a weak dollar. It’s the only way to make our goods cheaper to foreign buyers and in turn, start shrinking our massive, and record, current account deficit.

As it stands now, the U.S. budget deficit to GDP ratio rests at 13.1% – one of the highest among G-10 nations and up from 3.2% in 2008. In 2010, it will stay in double-digit territory, around 10% – this all but ensures we’ll keep issuing new Treasury securities, which every investor knows weakens a currency.

The last reason the dollar will falter is because we don’t have any control over it. Our fate lies in foreigner’s hands. With countries like China and Russia particularly, buying so much U.S. debt they can easily influence the value of the dollar.

And it won’t take drastic measures like selling their current holdings or refusing to buy any more Treasuries. All they have to do is stop buying so much of our debt, which recent statements from foreign governments suggests is becoming a strong possibility.

Three Ways to Insulate Your Portfolio From a Dollar Decline

If a long-term dollar decline is imminent, how do we protect our portfolios? One obvious way is to buy an ETF that gives us short exposure. However, I don’t think that’s adequate. We need a more comprehensive approach. I would recommend tactically adjusting your asset allocation to make sure it includes the following:

• Commodities. Real assets will appreciate in value as the dollar weakens. Look no further than the recent rise in oil for proof.

• International companies doing a majority of business outside the United States. Such companies provide a hedge against a weakening dollar, as well as a way to capitalize on the growing significance of international consumers. In other words, they offer us two ways to profit.

• U.S. companies doing significant amounts of business overseas. By focusing on U.S. companies with at least 25% of business overseas, we can diminish the impact of a weak dollar. As the U.S. dollar falls in value these foreign profits will become more valuable.

In the end, I’m not about to join the camp of pundits proclaiming the U.S. dollar will lose its status as the world’s reserve currency. That’s not going to happen, just like a prisoner with a life sentence is never going to get out of jail. There are just no alternatives.

That being said, I am convinced the dollar will struggle mightily in the years ahead while we try to rid ourselves of a crushing deficit and emerging economies become even bigger consumers. So make sure you invest accordingly.

Good investing,

Louis Basenese

Source: Why We Need a Weak Dollar

However you will carefully note that although the dollar did a round trip in value between early Monday morning and Tuesday afternoon…neither gold nor silver were allowed to get a sniff of their Monday highs that occurred in early Far East trading. On Monday, both gold and silver got lots of down-side help during Comex hours as the dollar rose…but all there was on Tuesday was more down-side help during Comex hours as the US$ fell back to where it was on Monday. Funny how that works…isn’t it?

The silver chart shows that phenomenon better than the gold chart, and it’s shown below.

Open interest changes for Monday’s big down day were more in line with my expectations. Gold open interest fell a chunky 9,018 contracts…cutting total o.i. to 387,585 contracts. As reported yesterday, volume wasn’t large…only 98,398 contracts. Silver o.i. had a great fall as well…down 2,881 contracts to a total o.i. of 106,351 contracts. Volume was largish once again…37,842 contracts. These numbers look right, and I’m happy they were big numbers too. Because of the trading range yesterday, I don’t have a feel for Tuesday’s open interest numbers…but we’ll find out in a few hours.

The Comex delivery report showed only 14 gold contracts delivered. The report also showed that as of yesterday, there were still 1,140 gold contracts left to be delivered in June. But the big surprise was in silver. For the second time this month…and totally out of the blue…200 contracts of silver were delivered again. So far this month 785 silver contracts have been delivered. That’s a tad over 3.9 million ounces. Not too shabby for a non-delivery month. There were no changes in GLD yesterday…but finally there was some activity in SLV…with the inventory rising by 3.85 million ounces. No changes either at the U.S. Mint…and Comex-approved warehouse silver stocks rose 602,093 ounces.

In other gold news, I saw a story posted at Kitco from foxreno.com. The headline read “Nevada Gold Production Down in 2008″…”A fact sheet from the Nevada Division of Minerals says Nevada gold mines produced fewer ounces of gold in 2008, 5.7 million ounces compared with 6 million ounces in 2007.” And in another story of note…coin market watcher Michael Zielinski, proprietor of the Mint News Blog, reported that the U.S. Mint has ended its rationing of gold and silver coin sales, an indication that supply and demand are moving toward some balance. The story…entitled “Gold and Silver Eagle Bullion Allocation Programs End”…is well worth the read, and the link is here.

The usual N.Y. commentator had the following yesterday…”The European Central Bank’s weekly statement of condition indicates a fall in ‘gold and gold receivables’ of €21 million [0.945 tonnes], attributed to a gold sale by one captive central bank. Last week, sales by two central banks totaled 0.81 tonnes. Obviously far behind schedule if the Second Washington Agreement on Gold quota is to be met. The Gartman Letter went long one ‘unit’ of gold this morning, citing technical factors. As noted, TGL’s buy record on pullbacks is quite reasonable….Maybe the storm has passed.” [We'll see. - Ed]

Today’s first new item is from Yekaterinburg, Russia. It’s a Reuters story bearing the headline “BRIC demands more clout, steer clear of dollar talk”. And surprise, surprise…the word gold showed up! “Medvedev’s chief economic aide, Arkady Dvorkovich, called on the IMF to expand the basket of SDRs to include the Chinese yuan, commodity currencies such as the Russian rouble, Australian and Canadian dollars as well as gold.” The link is here.

Today’s next story is from Ambrose Evans-Pritchard from The Telegraph in London. It’s three days old, but still very much worth reading. The headline says “German credit crunch deepens”….”Germany’s top industrial group has warned that credit conditions are going from bad to worse across much of the country’s manufacturing base, dashing hopes for a swift recovery.” The link is here.

To add to the world’s litany of woes, comes this story from the Chicago Tribune. I thought that any of you that eat bread at least once a day, might be interested. Any wheat farmer can tell you what rust is…and being a farm boy from Manitoba in the 1950s and 60s…I’ve seen it [and its results] first hand. Apparently there’s a new strain out known as Ug99. I know it sounds like it belongs in a version of the X-Files…but it could become a reality in all our lives some day…and it’s worth spending the one minute it will take to digest this story. The headline reads “Fungus called ‘time bomb’ for world wide wheat crop” and the link is here.

And lastly is silver analyst Ted Butler’s latest commentary. For all of you who can’t [or won't] acknowledge the dominating presence of ‘3 or less’ U.S. bullion banks that control silver and gold prices, the two graphs contained in this commentary just might change your mind. I urge all of you to print off a full-colour copy of each, and pin them up where you can see them every day. Staring you in the face is 100% of the reason why there’s been a lid on the price of gold and silver…the concentrated short position of these ‘3 or less’ U.S. bullion banks. Ted’s commentary is entitled “Making the Case”…and that it does. The link is here.

There ain’t no rules around here! We’re trying to accomplish something. – Thomas Edison

The following was posted over at lemetropolecafe.com yesterday. It’s an interesting post card mailed back in June of 1929. This is a postcard with the stamp already printed on it. The parts and labour list on the back shows what currency debasement has done in eighty years. True, parts are more complicated today, but that’s not the point. If the parts and labour list don’t do a thing for you, just find out what it costs to mail a postcard in 2009 [not including the card]…and then compare it to the price on this one. You’ll be shocked.

As you can tell, some pundits are hoping that we’ve seen the bottom for gold at the moment. The N.Y. commentator for one…and Dennis Gartman with his long ‘unit’ of gold he placed yesterday…for another. Have we? Don’t know…but we’re not below the important 50-day moving average in either gold or silver yet. Could gold [and silver] rise from here? Absolutely…provided that the ‘3 or less’ U.S. bullion banks refrain from going short against any new longs that are placed. If you grasp the meaning of Ted Butler’s graphs…you’ll understand why I personally feel that the jury is still out.

Let’s see what today brings…and I’ll see you here bright and early on Thursday.

Source: And Then There’s This…Wednesday, June 17th, 2009

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Chuck Butler

Source: German Investor Confidence Is On The Rise…

Alexei Kudrin, Russia’s finance minister, told reporters Saturday on the sidelines of the G8 meeting in Italy that there was no near-term alternative to the U.S. dollar as the world’s leading reserve currency.

Thus, despite tomorrow’s closed-door BRIC meeting, Kudrin seemed to presage an effort by Russia, China and other major holders of dollar reserves to squash talk that could weaken the U.S. currency — and thereby the value of their reserves.

“Confirmation from Russia that the U.S. remains the world’s major reserve currency just one day ahead of the BRIC meeting acted as a catalyst for a market well long of euros,” said strategists at Brown Brothers Harriman.

Kudrin was not alone. In remarks prior to the G8 meeting, Japanese Finance Minister Kaoru Yosano expressed faith in U.S. Treasurys, while IMF Managing Director Dominique Strauss-Kahn said on Saturday that the dollar wasn’t weak and that he didn’t expect to see a drop in its value.

In sum, these remarks appeared to be part of a “concerted effort to not dollar bash,” said Daragh Maher, currency strategist at Calyon Bank.

Maher also noted that the lack of an agreement by the G8 to publish bank stress tests appeared to be putting added pressure on the euro. European officials seem willing to ignore calls by the U.S., Great Britain and Canada to provide more details about the health of the banking sector in the zone, he said.

Source: Dollar Soars

Platinum was off in the overseas markets, took a big hit between mid-morning and noon in New York, then went dead flat from there through the Globex, ending at $1205/oz., down $45. Overnight, platinum is sharply higher.

Silver sold off from the far East to the London open, leveled off to the late morning, but then resumed its decline, finally closing near its intraday low at $14.02/oz., down 81 cents. Overnight, silver is trending higher. (Click here for charts)

With the dollar up again, commodities including the precious metals and oil were off sharply yesterday. All in all, it was just a broadly negative day. Little was spared, including equities, which also took a serious hit.

Even perennial bull James Moore, of TheBullionDesk.com, was forced to write that, “Short-term the metal could extend lower as a result of the dollar.”

John Reade, of UBS in London, concurred, writing that, “We would not be surprised to see further short-term declines, especially in the absence of any material jewelry, physical-investment or ETF demand.”

How do you put a happy face on that? Easy. “However, the current correction is likely to prove beneficial longer-term with the pullback offering investors a chance to enter the market,” Moore said.

Meanwhile, “The market focus this week will be on the summit of BRIC countries tomorrow,” Barclay’s Capital analysts wrote, referring to Brazil, Russia, India and China by the common acronym.

The meeting in Russia, to which the US was pointedly not invited, is expected to focus on the world monetary crisis and the dollar’s role in it. Some think the countries may be preparing a call for a new international reserve currency, although whether they would have enough economic clout to push that remains to be seen.

Source: Precious Metals Take a Pounding

But how about those powerful idealists on U.S. markets? Both the S&P 500 and the Dow were up nearly three percent. If you can believe it, they were led by financial stocks and retailers. Bank of America (NYSE:BAC) finished up 9.9% after Goldman Sachs (NYSE:GS) put it on its “conviction buy” list. Home hardware retailer Lowes was up 8.1% after a survey of U.S. homebuilder confidence surged.

By the way, what the hell is a “conviction buy” list? Does that mean you can only recommend stocks in which the executives have been convicted of a crime? And if it means a share you can buy with conviction, is there a “non conviction buy?”

Can you see yourself calling your broker to say, “Hey Bob. I don’t much like stock XYZ. Earnings suck. It’s got heaps of debt. Management is incompetent. But stocks are rallying…so yeah…let’s do this baby. Buy. Just… you know…don’t do it with any conviction.”

Does anyone still take broker recommendations seriously?

Still, the rally in U.S shares-based on whatever it is based-is giving some investors the impression that demand for commodities will increase if the U.S. and world economies begin to grow again later this year. We think this is the dying convulsions of the “green shoots” theory/sucker’s rally. You know, the one that ignores another $1.5 to $3 trillion bank losses from residential and commercial real estate.

But if you’re a market neutral trader, why complain? Crude oil prices surged 4.8% in New York. Part of that rise stems from a shooting war between Nigeria’s government and rebels who operate in the Niger delta. It’s another reason to be bullish on oil. Not only has capital investment in new supply crashed, existing supply comes from national oil companies who are likely to use oil as a strategic and political weapon. Or it comes from countries like Mexico, Nigeria, and Venezuela that have fiscal stability issues.

Incidentally, Nigeria supplies 2.1% of the world’s oil each day, or about 1.76mbpd. It would be more if about 500,000 barrels of capacity weren’t idled because of the ongoing guerrilla conflict. The slack in global oil demand from the worldwide recession has made people forget about how slim the margin in is between daily global supply and daily global demand. Any combination of even more reduced supply (inevitable with the cap ex collapse of 2008) and increased demand will put oil right back into the red zone.

What about metals? Copper was up too. It closed up 2.7% in New York trading. And hey, what’s this? In late April we reported that China’s State Reserves Bureau was stock-piling metals at low prices. Bloomberg reports today that, “China is stockpiling commodities such as copper and iron ore as part of a reallocation of its sovereign wealth amid concern that the value of its dollar assets may decline.”

The report cites a Royal Bank of Canada report on China’s strategy to hedge its risk of owning US$796 billion worth of U.S. government bonds and notes. “Increased spending on commodities represents a reallocation of China’s sovereign wealth away from the accumulation of financial assets,” said Royal Bank analyst Brian Jackson.

China, by the way, increased crude oil imports by 14% in May and imported a record 57 million tonnes of iron ore. In fact, the China Iron and Steel Association (CSIA) is trying to blame the import surge on speculators who are front-running what they think will be an increase in demand, according to an article in today’s Australian.

Remember, the annual iron ore negotiations are part of this public hemming and hawing. Chinese buyers of Aussie ore want to talk down demand growth, which would suggest a lower contract price. The CSIA says six of the top ten Chinese ore importers in the first quarter were traders, not steel-makers. But www.steelguru.com is reporting that Chinese steel-maker Baosteel said earlier this week that, “orders from auto sector hit a new monthly record of 937,000 tonnes in May up 317,000 tonnes or 50% over April.”

Hmm. China has a current steel-making capacity of 650 million tonnes per annum (mtpa) according to Boatel chairman Xu Lejiang. That sounds like too much.

Meanwhile, we can’t go into it in great detail, but could the great U.S. dollar exodus be happening right under our noses? China has been busy setting up bi-later currency swaps with its trading partners. The purpose is to settle cross-border transactions in currencies that are not the U.S. dollar.

Today’s Financial Times reports that, “Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil’s central bank and aides to Luiz Inácio Lula da Silva, Brazil’s president. The move follows recent Chinese challenges to the status of the dollar as the world’s leading international currency.”

China’s government has set up currency swaps with Hong Kong, South Korea, Indonesia, Malaysia, Argentina, and now Brazil. The purpose of the swaps varies from county to country. But the main benefit is that China can conduct more of its trade using its own currency and not the U.S. dollar. It also is a kind of vendor financing deal in which China supplies currency to countries from which it buys a huge amount of commodities (Argentina and Brazil, not yet Australia.)

Does it mean the remnimbi is the next world reserve currency? Nope. But it does mean that the Chinese are not looking to accumulate large financial reserves held in U.S. dollars any longer. They believe it’s better, judging by these actions, to accumulate real assets that will be needed in the future by Chinese industry and Chinese consumers.

And what about all those dollars? Well, most of China’s dollar reserves are held via U.S. Treasuries. And it’s possible China has been performing a kind of financial alchemy, turning financial reserve assets into tangible commodity stockpiles. As this article points out, you’d think it’d be easy enough for Chinese holders of USTs to loan them to U.S. banks (who just love that sort of collateral at the moment) in exchange for cash which can be used to stockpile real stuff. It would be a clever trade.

Australia, of course, would stand to benefit from that trade. As Glenn Stevens pointed out in his speech to the Canadian Australian Chamber of Commerce, Australia’s exports are biased towards commodities rather than manufactured goods. He says this has cushioned Australia from the world-wide slump, without damaging the huge improvement in terms of trade.

Why have Australia’s export volumes not weakened. Stevens says that, “One reason is that the slump in global trade was initially concentrated heavily in manufactures, which is a smaller share of exports for Australia than others. Another is the stronger linkage of key commodity exports to China, which appears to have seen a pick up in growth this year.”

“Chinese industrial output fell for four months between July and November, but has since recovered all those losses. A similar pattern has been seen in Korea, where industrial output suffered a sharp decline around year end but apparently made up about half of that over February and March.

Getting More and Paying Less: The Terms of Trade Improve and Correct

“Looking ahead, with commodity prices at present levels, Canada’s terms of trade look like they are still somewhat above the average for the preceding couple of decades. Australian resource producers have accepted lower prices for the year ahead, and this is likely to contribute to a decline in the terms of trade by the end of 2009 of about 25 per cent from the peak, as shown in the chart [above] Yet even with that, at this stage Australia’s terms of trade over the coming year look like they will still be around 40 per cent above the two decade average up to 2000.”

Hmm. Well, Stevens is right that the terms of trade are still well above the two-decade average. And when you are paying less for your imports but receiving more for your exports, that is not a bad position to be in. But where will they go from here? Would Australia benefit or suffer from a bi-lateral currency swap with China? More on this subject later.

Finally, we feel compelled to point out that Housing Industry Association Chris Lamont has said, “There has never been a better time to enter into home ownership,” in Australia. Someday he’s going to regret saying that.

Dan Denning

Source: China Performs a Kind of Financial Alchemy

It is something that has never happened before. Trading at India’s stock market was halted early this morning after surging ahead by 17%. Thanks to a surprising electoral victory, regulators closed the market and told investors to come back tomorrow when jubilation calms.

India’s Congress Party alliance unexpectedly won 261 seats out of a total of 543 inside its Parliament. It means the country’s once-powerful communist parties are back in the minority and a pro-business, pro-growth government is taking the reins.

While restrictions currently remain on foreign investments and the government still owns large stakes in the country’s oil and banking industry, the election paves the way to a less-regulated economy and future growth.

The region’s analysts are predicting strong infrastructure spending and plenty of reforms. Add the spending and the capital-friendly reforms to a market that now has significantly less political risk to discount and you have a recipe for a strong, sustained bull run.

Investors are paying attention to the situation. Not only did the country’s equity markets surge, so did the value of the nation’s currency. The rupee made its biggest gain in over 23 years.  The action is trickling across the investing world today.

Is it wedding season already?

The Blackstone Group’s India Fund (NYSE:IFN) is up by close to 20% on the news. Rediff.com (NASDAQ:REDF), an Indian Internet provider, is soaring by over 35%. And just to show the gains are across almost all sectors, Sterlite Industries (NYSE:SLT), an Indian mining company, is up by over 20% as well.

Even with the today’s jubilation, investors must be cautious, especially if they believe the action will spread to all BRIC countries. Brazil, Russia and China were grouped with India during the recent economic boom, but now that things have soured the countries have great financial worries of their own.

Today’s news is purely political and will benefit companies working within India’s borders. It will do very little to change the fundamental economic problems facing the rest of the world’s moderate-growth markets.

Investors must remain cautious, but have every reason to be optimistic about India’s long-term success. This weekend’s political moves could be the start of sustainable pro-business growth. If capital begins to flow back into India as many investors are guessing it will today, the country could be set for several years of bullishness.

Now, if only the positive political action would shift to the Middle East.

Source: India’s Political Fog Begins To Rise