Good day… And a Happy Friday to one and all! Looks like it could be a Fantastico Friday as traders are finally coming around to Chuck’s way of thinking regarding Fed rate hikes… And as traders remove their bets for aggressive Fed rate hikes, the luster begins to fade on the dollar rally. The meetings are over for this week (they start up again next week!), YAHOO! I get to spend the day on the trading desk… I’ve missed everyone!

OK… Front and center this morning, we have the euro (EUR) trading 1-cent higher, knock, knock knocking on Heaven’s Door, I mean, the 1.56 handle. As I said in the intro, it appears that traders don’t have the stomach to hold on to their bets that the Fed will aggressively raise interest rates this year. Recall, the other day, I told you that the bets were ratcheting up and had reached 75 BPS of rate hikes this year… I doubt we have any. In fact, as I told you the other day too, I believe that when the dust settles on the fact that the Fed isn’t going to raise rates, things will have gotten so bad here that the Fed will be entertaining thoughts of cutting rates again!

Japanese yen (JPY) had really been beaten about the head and shoulders this past week, as it re-visited the 108 handle… But with the stocks looking soft, it recovered a bit the past two days. The Royal Bank of Canada (RBC) says that the dollar is overbought versus the yen. Hmmm… I agree with that, but I think RBC’s call for a yen rally to 105.60 is not enough. That’s too conservative for me… But then, I get emotional about these things. I called for yen to rally to 100 this year, and while it got very close, it didn’t quite have the strength needed to reach that level. I based that call to 100 on the fact that we would have another “risk” event in the markets this year, which would lead to risk aversion, stock selling, carry trade reversal, and a yen rally! We still have half a year to go, but the year is moving fast!

Speaking of the carry trade… I receive dozens of emails each week from people asking me what the carry trade is… For long time readers, we’ve been through all this more times than you can count… But for new readers, well… It’s all new! So here you go! The carry trade is basically selling a low yielding currency (whose borrowing costs would be low) short, and taking the proceeds to buy a higher yielding asset. When the borrowing costs go up, or when the currency that was sold short rallies, it makes this trade very costly, and it then gets unwound/taken off.

OK… Back to currencies… Yesterday, I told you about Brazil’s Central Bank chief, and his calling out the Bank of England’s handling of inflation… Well, Mr. King of the Bank of England (BOE) heard that and came out with his own strong words… King said in an interview that the BOE needs to focus on rising inflation, not growth… OK… I’m with you there! The markets will take that to mean higher interest rates, considering the fact that inflation is well over the BOE’s 2% ceiling. And when that thought process enters the markets, the pound sterling (GBP) will be underpinned, and in fact it is rallying as I type my fat little finger to the bone here!

Here’s a story I doubt you saw on your news station yesterday… China said it will raise domestic gasoline and diesel prices by 17%-18%, as it responds to near-record crude-oil futures and criticism of its fuel subsidies. The surprise move is the largest increase in over four years, although local prices will still be below the international market. In case you weren’t aware… The Chinese government subsidizes fuel prices for their people… You see a country that has over $1 trillion in currency reserves can afford to do that! However, with the price of oil continuing to rise, even the Chinese had to say “no mas!”

I doubt this will be too heavy a load for the Chinese economy to bear… He ain’t heavy, he’s my brother! So… Expect the beat to go on in China, which means a slow, drip of currency appreciation at a time.

This news led oil prices lower for the day… And that’s OK in my books! And looky there! The euro just went back above the 1.56 handle! No more knocking… Someone’s knocking at the door, somebody’s ringing the bell; do me a favor, open the door and let them in… Why hello, Mr. Euro! How are you today? It’s good to see you back in the 1.56 neighborhood! Why thank you… It’s good to be back… I was lost in the 1.53 block for a long time, and people kept telling me I wasn’t worthy any longer, but I sure showed them, eh? HAHAHAHAHAHAHA!

OK, I’m back now, that was silly… But, you know me, once I get typing, I can’t stop, it’s simply a stream of consciousness!

Bank of Canada’s (BOC) Governor Carney gave a speech last night, that should be quite the underpin for the Canadian dollar/loonie (CAD). Carney indicated that the BOC was finished with their rate cuts and have moved to a neutral bias. He also talked about how a strong loonie would help exert a “dis-inflationary” influence. The loonie took notice and is rallying this morning.

Yesterday, we saw the color of the latest Philly Fed Index (manufacturing in that region), and it looked awful! The Index was “expected” to fall to negative -10, but instead it fell to negative -17… Uh-Oh! This leaves this index near the lows of earlier in the year. Significantly worse levels have occurred only in outright recessions. And you know me… I contend this to be a recession!

The data cupboard is bare today… No data, nothing, nada, zilch! And for the dollar, that’s probably a case of “no news is good news”!

Next week we’ll have the first Fed FOMC meeting since Big Ben began “fighting inflation”. The markets will be greatly disappointed when they leave rates unchanged, and leave the “downside growth risks” on the board… But don’t let that get in the way of dollar bulls still thinking they have the upper hand here… Too bad they’ll get that hand slapped next week (and the following weeks) when the Fed continues to do nothing, absolutely nothing, say it again!

Did you see that the ratings agency, Moody’s, announced that they were cutting the ratings of MBIA and Ambac, citing impaired ability to raise capital and write new business? Well… Just another item being swept under the rug! But you can depend on me to pull back the rug and expose these things!

And… Has anyone seen the warnings issued by the Royal Bank of Scotland (RBS)? Pretty scary stuff for a conservative bank to make this kind of a call, but they did, and I’m proud of them for going out on the limb! It gets lonely out on the limb all by yourself! Here’s the meat of the warning…

“The Royal Bank of Scotland, warned clients to be prepared for the biggest crash in stock and credit markets in the next three months as inflation and the dwindling fiscal growth continues to hit [the] world economy. The views were expressed in a report by the bank’s strategists Bob Janjuah, Kit Juckes, Tim Jagger and Richard Smith.

“The report stated, ‘Our macro economic road map is playing out – slow growth for longer, deep into 2009, with the pain spreading globally, gradually.’”

Well… That warning plays well with my warning that another “risk event” will play out in the United States this year… The liquidity/credit crunch losses booked so far will turn out to be merely the appetizer to this four course meal! Of course that’s my opinion… I could be wrong.

Good day… And a Thundering Thursday to you! Well… The markets are still “hooked” and flailing about in the water over the Big Ben comments Tuesday, which were then followed up on Wednesday. What did he say this time? We’ll get to that in a minute.

But, first… Front and center this morning, we need to talk about the dollar strength that is prevalent in the currency markets right now. This all started a couple of weeks ago after the euro (EUR) hit 1.60. OK, too far too fast, right? And after an initial weakening to 1.54, the single unit recovered and all was right on the night again as it approached 1.58. Then the Big Ben Bomb…

The euro is the Big Dog of currencies, so you can use it as a proxy for the rest of the currencies. Sure, there are times that other currencies outperform the euro, but they didn’t do it alone. It takes the size and offset to the dollar capabilities of the euro to get the ball rolling. I talk to a lot of people that still don’t believe the euro is a viable currency. Well, it is. It’s here to stay… No matter what the pundits will tell you about Italy and Spain. As I’ve aid at least a dozen times, Italy and Spain should be thanking their lucky stars every night that they were asked to join the euro!

OK… So, dollar buying is on the agenda these days. Let’s just go with that, and then talk about how that might continue. Well… More jawboning by the Fed would help… So would Fed rate hikes… But come on, do you really believe the Fed is going to raise rates now, or in the near future with the economy teetering on the edge of a deep dark recession? Not a snowball’s chance in you know where! So, that leaves us with jawboning, because the economy isn’t going to be a reason for people to buy dollars… And the jawboning is where we circle back to Big Ben.

Yesterday, Big Ben was talking about inflation, and how it was too high… Oh my gosh! Isn’t this what I’ve been screaming at the walls about? Anyway, folks… That’s jawboning the dollar higher, because the markets read any talk about high inflation as a wink and nod that interest rates are going higher. Well, that may be the case in countries that have central banks that really care about fighting inflation… But that’s not the case here! This central bank has no intention on fighting inflation. They look at inflation and thank their lucky stars that it’s not deflation! Big Ben is just jawboning.

And in my opinion, and that of one of my fave economics professors, Big Ben is doing all this jawboning in an attempt to lower oil prices. He has nothing else to work with here to accomplish lower oil prices, so let’s jawbone the dollar!

It’s working, Ben… The dollar is stronger, and oil prices are weaker. But, there’s a fly in the ointment here, Big Ben. Oil prices may be weaker, but gas prices aren’t budging! That’s right; gas prices aren’t budging. Uh-Oh… You forgot about that part didn’t you, Big Ben?

So… I have to follow up on the rant I gave yesterday regarding Big Ben, at this point. So again, if you don’t want anything to do with my soapbox antics, just skip ahead to the section marked “***”.

OK… After my rant yesterday, I came to a couple of conclusions (with the help of readers!) First of all… Tell me, dear reader, wasn’t Big Ben the guy who talked about the Fed having a printing press to print as many dollars as needed to avoid deflation? And wasn’t he the one that talked about throwing those printed dollars out of a helicopter? (Thus his nickname: Helicopter Ben) Now, I know that my college economics classes are not nearly on par with those at Princeton, but come on, you mean to tell me he didn’t think that printing all those dollars was going to cause inflation? I learned that in Econ 101! At Meramec Community College!

And then there’s this, and I’ll leave it alone (I promise!)… With the markets believing that his comment means the Fed will intervene in the currency markets, I think this leaves him exposed. What if the markets decide to test Big Ben’s will, and he doesn’t have the arrows in his quiver to back up the threat of intervention? Uh-Oh! And I don’t believe he has a “war chest” to defend the dollar, like the Bank of Japan has to defend the yen… Or sell it, like they did in 2003.

***

Unfortunately… Right now, all the momentum – along with the investors jumping off the bandwagon of the weak dollar trend – has the dollar in favor. Look… If the dollar had the fundamentals to back this up, I would be telling you so… But it doesn’t!

And the economy isn’t going to shine for the dollar either! Look… The economy has survived the past few years on consumer spending… But where is the consumer going to get money to spend now? The dotcom busted… The House ATM busted… The housing market busted… And now credit cards are maxed-out.

The Big Boss, Frank Trotter, and I were talking yesterday, trying to come up with something that would keep the consumer spending. We’ve gone through all that above… We’ve put two people to work in households… We’ve maxed-out hours worked… The gains from the technology phenomenon have hit the ceiling… It’s been a tough row to hoe folks… But you would think that it’s all seashells and balloons! And that’s exactly what the government wants you to think. Everything is beautiful in its own way, like a starry summer night, or a snow covered winter’s day.

Two recent surveys tell a lot about the U.S. consumer. One says that 9 out of 10 Americans are making lifestyle changes to cope with rising energy costs… And 4 out of 10 Americans are considering moving closer to their place of work.

Oh, United Airlines is cutting up to 1,600 jobs and cutting flights… But don’t look for those 1,600 job losses to show up in the Bureau of Labor Statistics Jobs Jamboree. They’ll just create some ghost jobs and everything will be beautiful, in its own way.

OK… The Bank of England (BOE) and European Central Bank (ECB) are meeting as I pound away at the keys. I don’t expect a move from either of these two central banks, but what I am looking for is some strong Hawkish statements from ECB President, Trichet… Let’s see if he can jawbone the euro back up.

The Reserve Bank of New Zealand (RBNZ) met last night, and left rates unchanged. Unfortunately for kiwi (NZD), RBNZ Governor Bollard had some damaging words in the press conference afterward. Bollard mentioned that the RBNZ would entertain a rate cut this year. That news hit kiwi hard, and before anyone had a chance to bail, kiwi was off 1%, and not looking very good.

Good day… And a Wonderful Wednesday to you! The landscape is very different this morning than when I signed off yesterday. The dollar has fought back and found a new person to back U.S. Treasury Secretary Paulson’s claim that he supports a strong dollar. That person is Fed Chairman Ben Bernanke, which is quite strange for a Fed Head to be talking about the dollar.

So… Here it is folks… I’m going to get on the soapbox now and give you my Pfennig’s worth of what I think of Big Ben Bernanke and his words yesterday, along with some general thoughts on reforming the Fed. If that’s not your bag, baby, then skip ahead to the section marked “***”… There I’ll take up an explanation of my thoughts yesterday toward China… So… If you’re ready, I am…

OK… Now I’ve heard just about everything when it comes to central bankers! Big Ben Bernanke threw a cat among the pigeons yesterday when he broke the long standing tradition of relative silence (for a Fed Chairman) on the dollar… (This is the U.S. Treasury’s baby!) But I guess since Big Ben has been so instrumental in the weakness of the dollar, he probably thought he was “qualified” to talk about it!

Big Ben signaled to the markets that he was “uncomfortable” with the weakness of the dollar, and the ramifications that a weak dollar has on inflation. He actually blamed the weak dollar on inflation! Whoa there partner! You’re barking up the wrong tree!

You see… Inflation as I’ve explained to you for a couple of years now is rising, even though the stupid CPI data doesn’t reflect what you and I feel has been going on with our cash. Well… Big Ben finally has admitted that there are rising inflation fears… (Sorry Ben, but inflation is eating us alive… These aren’t just inflation fears!)

Anyway… Big Ben sees inflation (good for him!), but wait… Blame inflation on the weak dollar? That’s putting the horse, and another horse, before the cart, Big Ben!

Now, I’m not saying that a weak dollar doesn’t play well with inflation… But I would think – and unfortunately the markets don’t see the trees in the forest on this one – that everyone would call this for what it is… Big Ben is blaming something else!

Inflation is more associated with low interest rates… And money supply… Things HE CONTROLS! So… Having low interest rates and money supply running at 16% isn’t causing inflation, Big Ben? I say… This has gone on long enough! Someone on Capitol Hill needs to stand up and call him out on this one! I’m seething with anger toward this right now! And anyone getting caught up in his attempt to scare the markets into thinking that the Fed is going to intervene to shore up the dollar, should be grabbing their pitch forks, rakes and shovels and heading to Capitol Hill!

Big Ben has now gone on record with jawboning the dollar higher… And placing blame on something other than himself for this inflation mess. Oh great! I shake my head in disgust… Pardon me, I’m going to go yell at the walls, I’ll be back in a minute!

OK, I’m back! But still angrier than a wet hen! The gall of this guy to try to deflect blame that should be directed at him… And what’s even worse is that the markets bought it all, hook, line, and sinker!

So… After two days of risk aversion, and dollar selling… It all went down the drain. The markets are so assured that the Fed will intervene (and long ago I learned that the markets are never wrong… But in this case, I’ll make an exception… And say, they’ve got it all wrong)… The Fed doesn’t even need to intervene – they just did so verbally!

First we had Big Al Greenspan making one BAD decision after another for 18 years! Now this! Something has to be done here folks… It’s time there was some reform of the Federal Reserve! Let’s review this… One man appoints another… The man that does the appointing has a term limit, but the new appointee does not… There’s no age limit… And – now this is the part that really needs to be reformed – no review of the appointee’s work. In other words… The Fed Chairman can send the economy into the abyss, and he has no one to answer to! It’s time voters told their elected officials that this has to stop!

And if you don’t believe me that Greenspan has a track record that’s longer than a country mile on bad decisions, then you need to pick up either William Rutherford’s book, Who Shot Goldilocks? or William Fleckenstein’s book, Greenspan’s Bubbles – The Age of Ignorance at the Federal Reserve…

***

OK… Enough of that… We saw the euro (EUR) lose one and a half cents yesterday after Big Ben threw the cat among the pigeons. Now, it will be interesting to see how long it takes to recover – or if it will. My guess is that it will because there will be someone out there besides little ole me (HA!) that will call Big Ben out on this.

Yesterday, I told you about China’s FX reserves and how they just set a new record in April… I said something that confused a few people, so let me try to explain… First and foremost, I truly believe that a strong currency helps fight inflation. I’m on record for many years saying that, and many times saying that about the Chinese renminbi (CNY)… Yesterday, I said that the Chinese officials might have to slow down the appreciation of the currency to fight inflation… Now, I know that’s counterintuitive to what I said earlier… But let me explain what I’m talking about…

The amount of Hot Money coming into China is fueling inflation faster than the Chinese can combat it. They could allow the currency to float and its increase would go a long way toward shutting down inflation from Hot Money… However, that’s NOT GOING TO HAPPEN! So… The Chinese have to think of a way to shut down the HOT MONEY, and if they make the renminbi have the appearance that it will be slow to appreciate, the thought here would be that the Hot Money would grow impatient and leave. I never said that China should STOP the appreciation of the renminbi… Just make it appear to slow down, to have the Hot Money leave.

So… It’s been a tumultuous 24 hours in the currencies… Stocks took one on the chin yesterday too, but for different reasons. Earnings reports and the report by Tyson Foods that said it is working with the U.S. Department of Agriculture to manage a flock of breeder hens exposed to a low-pathogen strain of avian influenza. Tyson says no chickens are affected, but the report was out there already.

That’s Bird Flu… Nothing is confirmed so I’m not trying to say anything about it except that the report threw stocks into a loop.

Good day… And a Wonderful Wednesday to you! I had a long time friend – once a colleague and teammate on the company softball team – send me a note from Credit Suisse yesterday, that called for an end to the European currency strength versus the dollar. I love getting this stuff because, as they said in the Godfather… Keep your friends close, but your enemies closer… Yes, I like to see “their” side of the story.

In this case, it’s not too far off… While I think the European currencies, led by the euro (EUR), have more room to gain versus the dollar, you have to admit that the bulk of the euro’s gains are in the rear view mirror. But before everyone picks up their phones to call and sell their euros… WAIT! Think about this for a minute… The euro is the second most liquid currency in the world. It has taken over as the offset currency to the dollar. So… If the dollar were still going to weaken (which C.S. admitted it would), then the euro would see the offset trade. And… If the Asian currencies take over as the next shoe to drop for the dollar, as I’ve said they would for two years now, then the euro would see strength on the flip side of cross trades.

I’ve explained these cross trades before, but for the new readers, let’s review… Class, get out your #2 pencils… Currencies are traded in “pairs”. You are always shorting one currency and going long another currency. As U.S. investors, your base currency is dollars, so when you buy euros or yen (JPY), you are shorting the dollar and buying euros or yen. But U.S. investors aren’t the only players in this arena. You have investors around the world that have a different base currency… So you end up with “cross” trades – currencies that cross each other in this arena. Clear as mud? Sorry… This is the way I know how to explain it.

So… Euros, for instance, could gain in value due to people buying yen… On the crosses… And so on…

Alrighty then… I’m sure this will all sink in as you sink your teeth into your morning Honey Bun!

This morning, the euro has added to its gains from yesterday, as the German Business Confidence – as measured by the think tank, IFO – unexpectedly increased this month. I was all set to talk about the IFO being the more important measure of the German economy this morning, so… Let me go ahead and do just that! Yesterday, we saw weakness in the ZEW report on economic expectations… But that didn’t hurt the euro too much. The reason? The markets put more stock in the IFO report because it measures “current conditions” and therefore can be used as proxy for the European Central Bank (ECB) and their interest rates projections.

I saw a report on the IFO’s correlation with the euro’s past moves to higher ground… Made sense to me, as strong IFO reports came out right before the euro moved past previous big figures… Could certainly be the case again for the euro, eh?

So… The 1.56 level was taken out overnight, and as I write, the euro is trading well above the 1.57 level. Again, it’s too soon to tell if this is a “true reversal” of the sell off the past few weeks, or a false dawn… But to me, it certainly looks like we’re heading higher once again, and the negativism toward the U.S. dollar is slowly creeping back into the mindset of the markets.

The commodity currencies of Aussie (AUD), Canada (CAD), and Brazil (BRL) all “have it going for them” these days. Shoot Rudy, the Canadian loonie doesn’t even have the high interest rate like Aussie and Brazil, but with oil hitting $129 yesterday, it doesn’t seem to matter. I think that the markets have fully priced in one more rate cut from the Bank of Canada. With that out of the way, and commodities booming, the loonie could shake loose the pull down from the Bank of Canada!

I’ve heard a lot of talk about how people believe this commodity bull market is the latest “bubble”. Hmmm… That may be… But historically speaking, we’ve got a ways to go (time wise) before this bubble pops! Remember a month ago, when I kept telling you that the mass media didn’t know what they were talking about when they kept saying the bull market for commodities was over? I don’t hear these guys spouting off now. I wonder where they went? To hide under a rock?

I’m not going to dwell on this… But it just didn’t make sense to me that the bull market in commodities was over… And, now, we know why it didn’t make sense! Because it wasn’t over!

Second in command, Fed Head Kohn spoke yesterday, and sounded quite upbeat about the economy. Singing Ray Stevens… Everything is beautiful… What else did you expect? These guys have backed us into a corner that has three roads out… And none of them are a road to prosperity! 1. Inflation 2. Deflation 3. Stagflation… Oh… And they all merge with the recession highway!

Anyway… Fed Vice Chairman Kohn, speaking about interest rates said, “[it] appears to be appropriately calibrated for now to promote both rising employment and moderating inflation over the medium term.” The markets took this statement to mean Kohn was telling us that the Fed is unlikely to lower rates further.

Well… Baby, baby, it’s a wild world… And it’s hard to get by on just a smile. Kohn should be reminded of these words when the Fed comes back to the rate cut table later.

Speaking of the Fed… We’ll see the color of their last meeting minutes this afternoon. This was the meeting that they cut rates from 2.25% to 2%. I wonder if these meeting minutes will be in line with the press conference that was held after the rate cut… The reason I say this, is the suspicion I have toward the Fed after reading Bill Fleckenstein’s book, Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve.

The Fed will also be releasing their new growth and inflation forecasts. This ought to be worth the price of admission folks. What yarn will they spin for us? I’ll bet they tell us the future is so bright we gotta wear shades! And inflation? Don’t worry about it! Yeah, when the Fed says, “Don’t worry about it” you had better run for the hills!

How about gold? Did you see that rise in gold yesterday? When I left it was up over $15 on the day. The London Exchange issued a report showing that demand for gold was down 16% in the first quarter. That makes abundant sense given the losses gold put on the books in the first quarter… But now that the markets are coming to their senses, and the dollar is weaker (while oil continues to set records every day), gold is back in demand.

And speaking of gold… Remember about a month or so ago, I told you about how the dollar’s weakness had caused so much loss of purchasing power for us, and illustrated it with this: If you purchased oil with euros instead of dollars, the price increase in oil would represent 92%, which sounds high right? Well, since you don’t purchase your oil in euros, but dollars instead, your price increase represents a 319% gain! Well… To take this exercise one step further… If you had purchased your oil with gold, your price increase would be 57%! Now tell me again, how gold isn’t doing its part to provide an inflation hedge?

Good day… And a Marvelous Monday to you! Man… Talk about hitting the wall! I got home on Friday afternoon, sat down in my recliner, and fell asleep for hours! The last few days on my four weeks of cancer meds, this last week has been awful for me… But… I carried on, and I doubt anyone at the Money Show noticed me being uncomfortable and in pain.

The Las Vegas Money Show was quite good I believe, one of the better ones with regards to people having interest in what we do. It’s still nice to receive the “good to see you” and well wishes from readers that stop by the booth.

OK… Well… Friday saw some chinks in the dollar’s armor, and the euro (EUR) was marked up as the day went on. The U. of Michigan consumer sentiment index dropped to 59.5 in early May, its lowest level since 1980, from 62.6 in April. The decline was below the experts’ expectations calling for a dip to 62.0.

There was also news that U.S. housing starts posted an unexpected increase… But, really folks, is that a good thing? Empty homes a.k.a “inventory” is the major problem in this housing glut, so should we really get excited about “more homes” being built? I don’t think so… And apparently neither did the currency players, as this news was largely ignored.

In the overnight market, the Asians have really taken the dollar to the woodshed, pushing the euro to 1.56. Wasn’t it just last Monday that the euro dropped to 1.5365? This overnight move is being pushed by the thought that home sales, the more important part of the housing data, will show another decline, thus dropping for the second consecutive month.

Then there was a subtle little statement by the U.S. Treasury Undersecretary that I believe helped usher the dollar on its way to the woodshed. U.S. Treasury Undersecretary, David McCormick urged China to quicken their currency reforms. Now, I know, you’re saying what’s new about that, Chuck? Ahhh grasshopper… The dollar had rallied lately and the calls for Chinese currency reforms were nowhere to be seen. This statement reminded the markets that in the end… The U.S. Government wants a weak dollar… And if that’s what they want, currency traders and participants are happy to oblige them!

I don’t know at this point if this is a true reversal of the dollar rally or a false dawn… But either way… Just to see some chinks in the dollar right about this time is probably a good thing to currency holders!

The key focus for the United States this week will likely be the release of April’s FOMC minutes on Wednesday, which should provide some indication as to who is winning at Battleship. No wait, we’re looking for indication on who is winning the battle for rate hikes or rate cuts. The rate hike hawks have dominated of late on speculation that the Fed has ended its easing cycle, and the next U.S. rate move will be a hike later this year.

Of course you know me… I’m still keeping the light on for another rate cut by the Fed this year, which should really throw a spanner in the rate hawks’ works.

And getting back to last month’s -20K job loss posting… I’ve already highlighted the BLS ghost jobs that totaled 260K… But now this… The sum of state payrolls just came out for April showing -151K jobs, versus the actual preliminary release earlier this month of -20K. This hints at a potentially large downward revision to April payrolls when the May data is released.

I’m currently reading a new book called, Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve written by William Fleckenstein. You know that name as the guy who writes financial columns on MSNBC. I met Bill Fleckenstein a few years ago… He told me I was bang on with my banging on the Fed. Well, his new book is awesome at pointing to the mistakes that Big Al Greenspan and the Fed Heads made over and over again… More on this in the future…

Today, we’ll see the color of the latest printing of leading indicators here in the United States. I suspect they will show no gains, thus leaving the people like me that believe the recession is already in place, with reinforced thoughts.

We won’t see the above-mentioned existing home sales report until Friday… So, we’ll probably drift around all week… But at least we’re drifting in the right direction!

I was writing our monthly newsletter to clients, The Review & Focus, last night (yes, on a Sunday night!) and highlighted the Aussie dollar (AUD)… Through all the dollar strength the past couple of weeks, there were a couple of currencies that remained resilient… Aussie dollars, Brazilian reals (BRL), and Canadian loonies (CAD)… That’s no coincidence either! As I kept telling people last week… Look at positive balance of payments currencies and currencies from countries that provide the world with something they need! Voila! Aussie, Brazil and Canada!

The Aussie dollar has pushed the door of 95-cents wide-open overnight, and Canadian loonies have passed the parity level to the green/peachback. Aussie is looking quite perky, which is good for my thought that Aussie too would reach parity to the green/peachback.

Aussie dollars have a central bank that will either keep rates unchanged or move them higher, while the loonie has to fight with a central bank that wants to keep in step with the Fed’s rate cuts… So… Look for Aussie to outperform loonies, kiwi (NZD), and reals going forward based on this rate outlook.

Now that was some great news that Chris brought to you regarding Iceland on Friday, eh? The poor krona (ISK) was in need of some good news, and when the Nordic Banks pledged to provide liquidity to the Icelandic Central Bank, it was just what the doctor ordered! But… Please do not take this as an endorsement to buy Iceland again. Instead, I believe that this news gives us better levels to sell when our CDs come due.

Someone asked me at the Money Show last week, what I would buy with the Icelandic krona proceeds… Well… I would either cross to Norway (NOK) or Aussie… There are two great economic stories right there, with little chance of going the way of Iceland.

And how about bold? The shiny metal enjoyed its best week in about two months it seems, and has come back to the $900 level and beyond. I have to admit that the $900 handle looks much better hanging on gold than the lower number it wore for too long!

Good day… And a Wonderful Wednesday to you! Well… My first day at the Las Vegas Money Show went well. This place (Mandalay Bay) is so big and spread out; there’s just too much walking for me. My presentation went well, I think; it’s just too difficult to tell anymore for me.

Front and center this morning we have the government telling us that inflation was less than forecast last month. Just who do they think they’re kidding here? I didn’t just fall off the turnip truck! CPI rose 0.2% versus 0.3% forecast, putting the annual rate at 3.9% versus the previous 4.0%… Just doesn’t sit well with you does it? Oh well… We carry on despite the dolts we have to work with!

Another piece of data already out this morning has foreclosures in the United States climbing 65% in April, and bank seizures more than doubling in the same period. RealtyTrac Inc. said this morning that there are more than 243,300 properties, or one in every 519 households, that were in some stage of foreclosure, which happens to be the highest monthly total since they began to keep the data!

Oh, but don’t worry about all of this folks… Fed Chairman Big Ben Bernanke says the worst of over! And before I get away from all this, Freddie Mac, the second largest mortgage finance company, posted a $151 million first quarter loss… And… I would bet they “fudged” the numbers to make them look “this good”!

I shake my head in disgust of the stuff we have to deal with… The lies, the cooked books… UGH!

Alright, I’m back now… I was away for a minute to yell at the walls!

The softer inflation data this morning is allowing the euro (EUR) to gain some ground versus the dollar, as the market puts the Fed warnings of rising inflation and eventual rate hikes in the United States on the back burner.

Yesterday, we saw the euro lose a little ground after Fed Head Janet Yellen was wishing, and hoping and thinking and praying that the economy would be strong enough to raise rates. Oh give me a break! She’s grasping at straws! Yellen stated that she “would be pleased” if the economy was strong enough to raise rates by year-end. That’s all nice and sweet, Ms. Yellen… But did you realize you would move the markets with that “wish upon a star”?

Our friend, Jim Rogers, is back in the news today talking about the dollar rally. Let’s listen in…

“The dollar is going up, which is useful for people who want to sell the dollar down the road. With things the way they are, I would rather buy the Swiss franc and Asian currencies.”

Jim Rogers was also of the thought that carry trades are going to be reduced…

I’m all about this, and agree with our friend… This is the stuff I pound out on the keyboard almost every day. The carry trade is a “risky trade”, and when risk enters the markets in a big way, like I believe it will this year, the carry trade will be unwound, thus benefiting Swiss francs (CHF) and the low yielding Asian currencies.

Last week I told you about the Chinese renminbi (CNY) and how it had stalled at 6.98. There was a report this morning that Central Bank Governor Zhou signaled that slowing exports would see an easing in the pace of renminbi gains. If you recall that talk last week that I gave, this is what I was talking about… Slowing gains in the renminbi, (as if they weren’t slow enough already!)

The Canadian loonie (CAD) is knocking on the door to parity with the dollar again this morning, as it swaps places with the Swiss franc, which was at parity last month but has fallen back.

The Japanese yen (JPY) is getting sold again. This is a back and forth tug-o-war with yen… But in the long run, I still see yen gaining versus the dollar… But we’ve got to get that stupid carry trade off the books first!

One currency that has remained pretty “steady Eddie” during this recent dollar strength is the Brazilian real (BRL)… Of course I just put the “Chuck’s kiss-o-death” on the real… Anyway… I was talking to a customer yesterday here at the show, and listed the positive balance of payment currencies from Norway (NOK), Sweden (SEK), Switzerland, euro, Japan, and Singapore (SGD) as currencies an investor should look to. But added that Brazil and Australia (AUD) have the “things” the world needs, and should keep these currencies underpinned…

Currencies today 5/14/08: A$ .9350, kiwi .7630, C$ .9995, euro 1.5470, sterling 1.9445, Swiss .9485, ISK 79, rand 7.6550, krone 5.07, SEK 6.0150, forint 161.50, zloty 2.1920, koruna 16.15, yen 105, baht 32.40, sing 1.38, HKD 7.8, INR 42.45, China 7, pesos 10.50, BRL 1.6665, dollar index 73.31, Oil $125.37, Silver $16.89, and Gold… $870.20

That’s it for today… The BIG GUYS from Jacksonville were in town and came to my presentation yesterday. That was pretty exciting for yours truly. Since I got sick last summer, I haven’t had much opportunity to be around the Big Guys from Jacksonville (the home office), and just talk to them, etc. So, that was good… We also have two of our NY Operations people here with us at the show… Rachel and Tom are doing great! And Kathy from Jacksonville is also here, so we’ve got plenty of help. I go back to the days when it would just be Chris Gaffney and I all day at the booth… Chris is on his way to Panama this morning… Better him than me, that’s all I can say! I hope you have a Wonderful Wednesday!

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Source: More Bad Data for the U.S. Economy

Good day… And a Wonderful Wednesday to you! Well… All the healing in the currencies we saw yesterday has been wiped out by one statement from a Fed Head. Imagine if you will that a Fed Head actually mentioned “inflation”! Well… One did! I feel like Tweedy Bird here… I saw a Fed Head mention inflation, I did, I did!

OK… Fed Head Hoenig has thrown a cat among the pigeons this morning by stating that “inflation pressures may spur a rate rise by the Fed.” Hmmm, is he serious, or just blabbering some currency intervention, seeing the dollar beginning to lose ground again? Well, that’s the question of the day.

To me… It’s the right thing to say for a Fed Head if it’s true. If he’s just trying to provide some verbal intervention for the dollar, then he should be stripped of his Fed Head Title and given the Title of court jester!

So, the dollar is back with the hammer in its hand again. The selling has been strong again too. The euro (EUR) has fallen 0.5 cents since I came in to the office about a half hour ago! UGH! I bet the writer from the Los Angeles Times is wondering why he printed that interview with me yesterday at this point…

Los Angeles Times writer Marty Zimmerman has a blog on the paper’s web site, and he writes about money. He called yesterday and said that he thought he saw the dollar getting sold again, and wanted my take on it. I told him that the markets had probably come to grips with the Fed’s statement last week, which ended up being quite “unsure” and vague, while the European Central Bank (ECB) would meet this week and keep rates unchanged, thus giving the euro the strong rate differential to the dollar.

But, then Hoenig came along and threw a cat among the pigeons!

Well… The euro had Hoenig’s comments going against it all night, and then ran into some weak data this morning, which really has the single unit selling like funnel cakes at a State Fair. Retail sales in the Eurozone fell 1.6% year-on-year, which was much larger than the forecast slide of 0.7%. Sales were off 0.4% from the previous month.

This is the first report that really slams the euro and shows a slowdown happening in the Eurozone. I’ve still got my colors pinned to the mast of “the Eurozone will pass the test of a U.S. recession”. But this report sure shakes my confidence. Oh, retail sales, you’re breaking my heart, you’re shaking my confidence daily.

OK… I’m back now, I was away for a moment…

The price of oil again set another new record level, moving to $122.73 yesterday. So, if Hoenig is sincere about his inflation talk, then he should be shaking in his Hugo Boss Patent leathers today… But there’s more to make him shake, and that’s all the market chatter surrounding the possibility of oil prices hitting $200 by the end of the year. OUCH! Our friends at OPEC (NOT!) have something to say about this, and OPEC’s President, Khelil, warned last week that oil prices could touch that level by the end of 2007.

For a while yesterday, it looked as though gold had gotten some wind in its sails, with the wind being oil prices… But that just couldn’t last, as the dollar strength overnight and this morning has gold running for the hills again with a $5 loss. Should $200 oil continue to dominate the markets’ discussions, I would think that gold would get some wind in its sails again.

The Canadian loonie (CAD) sure likes the look of oil prices. I was doing a trade yesterday in loonies, and looking at the daily graph I had a V-8 moment… Wow! The loonie had moved stealth-like back to near parity to the green/peachback. I know that I’ve said over and over again that this dance is gonna be a drag… In other words, the loonie will be pushed higher by commodity prices, and pulled lower by Bank of Canada rate cuts… But if $200 oil continues to dominate, it could push the loonie past parity once again.

Well… It looks like the Eurozone will have to set another place at the table, as the European Commission approved the Slovak bid to adopt the euro next year. You know, I find this strange that the Slovaks will move ahead of Poland, Hungary, and the Czech Republic, which were once thought to be on the euro “fast track”. That was in 2002! They still haven’t moved to the euro! But… Those three have done quite nicely moving along side the euro the past six years!

Pound sterling (GBP) is weaker this morning too, as it has absorbed the euro selling, and some weaker domestic data too. U.K. consumer confidence fell to a new record low in April, dropping from 77 to 70… OUCH! Now that’s going to leave a mark! Ever since the Bank of England started be weak kneed with the credit crunch like their friends on the other side of the Atlantic, I’ve not been a fan of sterling. We even moved it out of the World Energy Index!

The Reserve Bank of New Zealand (RBNZ) printed their Financial Stability Report last night, and contained a note that I thought was interesting. RBNZ Governor Bollard noted that “banks appear to be tightening the availability of credit” and that “there is a risk that if credit conditions are tightened too much, the slowdown in the economy will be exacerbated, putting additional pressure on households and businesses.” Governor Bollard also left out the word “significant” from his statement that rates would remain on hold for “a time yet”. It was just six weeks ago that he stated, “rates would remain at current levels for a ’significant’ time yet.” Hmmm…

I don’t think that means the RBNZ will run out and cut rates at their next meeting… But Bollard is greasing the tracks here folks. He’s making overtures of lower rates. I would look for additional follow up comments in the coming weeks for more indications of what he plans to do. If he continues to grease the tracks, kiwi (NZD) will not react favorably.

There’s a note on the Bloomie this morning that Greg Gibbs of ABN Amro Holding NV, said in an interview that “the commodity currencies is where the action is.”

I’ve never wavered on that thought. I keep telling anyone that will listen that we’ve been hearing the stories about how the commodity bull market has been over for five years now… And those calls have been wrong for five years now, and I still believe they will be wrong now too. For new readers to the Pfennig… Let me explain…

Famous and well respected (and a friend of ours) investment analyst Jim Rogers, explained a couple of years ago that in over 200 years, bull markets for commodities have averaged 17-22 years in length. This bull market has only been going for about seven years now.

I’m a true believer of trends… So… With that in mind… Commodity currencies should be “where the action is” or as the Dave Clark Five used to sing… Come on, let me show you where the action is!

And on that note… It’s time to head to the Big Finish! But first, the Big Boss, Frank Trotter has an announcement (no they didn’t name me employee of the year! HA!)

Here’s a note from Frank:

“We are looking forward to seeing EverBank customers next week while Chuck and Chris and I are at the MoneyShow in Las Vegas! Be sure to stop by our booth (#106) to say hello, attend the three talks Chuck is doing, and talk about adding more money to your EverBank accounts. I wanted to add to the excitement of the event by making a special invitation for you to join the EverBank team and some of the great financial editors attending the MoneyShow for an exclusive private dinner Monday night. This is an incredible opportunity to spend some one-on-one time with Chuck and enjoy dinner prepared by a Michelin-rated chef. We have a very limited number of slots for this dinner that will occur in one of the canyons north of Las Vegas on Monday night May 12th. We’ll depart the Mandalay at 4 PM, enjoy an evening of fine dining in the great outdoors, and return to the hotel by 10 PM. If you are interested please email me at EverBank-LasVegas@everbank.com – of course not everyone can come so we’ll let you know by Friday if we have space. Be sure you include an email address that you monitor and a phone number so we can provide you with the details.”

Alrighty then… It’s not every day that the Big Boss adds to the Pfennig, but I love it when he does!

Currencies today 5/7/08: A$ .9470, kiwi .7860, C$ .9965, euro 1.5440, sterling 1.9675, Swiss .9475, ISK 76.80, rand 7.5340, krone 5.0875, SEK 6.0175, forint 163.30, zloty 2.2180, koruna 16.29, yen 105.20, baht 31.70, sing 1.3640, HKD 7.7950, INR 41.37, China 6.9860, pesos 10.50, BRL 1.6580, dollar index 73.41, Oil $121.50, Silver $16.71, and Gold… $870.88

That’s it for today… So… As Frank said above, I’ll be in Las Vegas next week for the Money Show. Vegas is completely lost on me, as I’m not a gambler, and after working all day at a booth, I go out to eat dinner and return to my room. Pretty exciting guy, eh? I caught up with an old friend yesterday, Ellie, who was kind enough to mention my Pfennig in one of her books years ago. Ellie is a cancer survivor, so we have even more to talk about these days! My little buddy, Alex, got another baseball game in last night, this time it was a winner, winner, chicken dinner! However, the rain is back, and tonight’s game is going to be a washout I can tell already! Three inches of rain is forecast for our area in the next few days… Not a good thing for my little river town… But… That’s for another day… Today, I hope you have a Wonderful Wednesday!

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Good day… And a Terrific Tuesday to you! Front and Center this morning, we have the euro (EUR) attempting to reach 1.60 again. I know I gave the euro the Chuck Kiss of Death last week when I sang the praises of it reaching 1.60, so I’ll just let it fly under the radar this morning.

Yesterday when I signed off, the euro was pushing the envelope of 1.59. Later in the morning, ECB member Weber sounded off on inflation. Let’s listen in…

“EUROZONE INFLATION IS WELL ABOVE ECB’S TOLERANCE THRESHOLD”. WOW! And then he followed up with this… “ELEVATED INFLATION EXPECTATIONS COULD START WAGE-PRICE SPIRAL, CREATE SECOND ROUND EFFECTS, AND THE ECB WILL DECISIVELY AND ACTIVELY FIGHT RISK OF WIDESPREAD SECOND-ROUND EFFECTS”.

Now, that’s two consecutive days of ECB members talking hawkish… First Liebscher and now Weber, with Weber’s comments sounding more and more like there’s another rate hike up the ECB’s sleeve. At best, the ECB doesn’t sound like they are ready to CUT rates any time soon… So, the euro gets to hold on to its positive interest rate differential to the dollar… And so… The single unit heads higher.

You know… I really didn’t like the Fed bailout of Bear Stearns; I’ve chronicled that position here in the Pfennig… But the markets took the bait, hook, line and sinker… And for now, at least, there’s more calm in the markets and probably more since last August. I’ll tell you why I think that…

The stock market, seems to believe better times are ahead, and that risk aversion is no longer needed… (Yes, I’m aware that it sold off yesterday)… And then there was this story that flashed across the screen this morning… Interest in placing puts on Aussie dollars has dropped to the lowest level since last August. For those of you new to class… When someone places a put on an asset, they believe it will fall in price… They get to sell it at the price they placed the put on, and everyone’s happy, the peasants dance in the streets, and Marie Antoinette gets to eat cake.

Back to reality… So… With investors/traders no longer thinking that the Aussie dollar (AUD) had reached its high… Guess what? The Aussie dollar is going higher! Amazing! Truly amazing how that works! HAHAHAHAHA! And remember it was months ago, that I said that the Aussie dollar looked like it would reach parity, along with Swiss francs? Well, the Swiss franc (CHF) did it, and so can Aussie dollars!

However, the road to parity is full of potholes, much like the St. Louis roads after an awful winter! And the biggest pothole is the one that contains risk events. You know, risk events, like Bear Stearns… I’m still a believer of the thought that there will be more risk events this year. Look at these earnings that the Big Boys have been posting in the last week… Yesterday, Bank of America posted a gain in the last quarter, but it was down 77% from the previous quarter! I sure wouldn’t want to be the one responsible for explainin’ that to the shareholders!

The Wall Street Journal is reporting this morning that loan losses pose a potentially larger threat to more banks than the losses taken so far.

Today, we’ll see the color of the latest Existing Home Sales report here in the United States. The experts tell us that we should expect to see more rot on the vine here, with sales forecast to drop 2.3% to the $4.92 million annual rate, the lowest level since 1999. This is a pothole, and it could become an even bigger pothole, should the drop exceed the forecast. This housing meltdown has been something to behold… Most of the younger crowd has never seen this before; they were always told that their house would keep going up in value.

The Bank of Canada (BOC) meets today, and I’m expecting a large cut from them to keep pace with the U.S. Federal Reserve – 50 BPS, which should put some deep tissue pressure on the Canadian dollar/loonie (CAD). This is what I’ve been talking about with regard to the loonie…  Downward pressure applied from the BOC and their rate cuts, and upward pressure applied from commodity prices… Today, it looks like the rate cuts will have the upper hand, eh?

About a month or so ago, Goldman Sachs forecast a rate cut in Japan, which really hurt the yen (JPY) when it was trading around 100. Goldman Sachs has abandoned that call now… Hmmm… This sounds fishy to me. You don’t think that the Bank of Japan (BOJ) talked to Goldman… Nah… That’s too far fetched for even my conspiracy-laden mind! But maybe a screenwriter would like to make a movie from my thoughts? HA!

It will be interesting to see if Japanese yen can get back on the rally horse now… Of course we need for the carry trades to stop to see real gains here. And, as I said above, I still believe that we’ll see more risk events this year, which should put a real damper on the carry traders.

Two of my fave currencies keep pushin’, keep pushin’, keep pushin’ onnnnnn… There you go, a little REO Speed wagon to get your blood going this morning! OK, now back to the currencies of Norway (NOK) and Sweden (SEK)… Have you seen these two lately? WOW! The moves this year have been something to behold.

I have an acquaintance that’s an oil man. Every time I see him, he’s smiling like a Cheshire Cat… Well, I’m sure the oil people in Norway are smiling the same way! With oil hitting $117 and change yesterday, oil revenues are pouring into Norway, thus padding their positive balance of payments and removing their need for foreign capital. Notice, that we’ve not discussed any Norwegian Banks or Swedish Banks involved in the subprime write-downs?

Norway’s Norges Bank meets tomorrow, and I’m expecting the Norges Bank to hike rates 25 BPS tomorrow. This should help propel the krone even higher.

As I’ve told people for many years… When evaluating a currency, first look at its position in the world… Then think of the currency as the stock of that country, and evaluate it like you do a stock. What’s the yield? What’s the flow of investments? What’s the balance sheet look like? What’s the leadership like? Etc. etc. When doing so, you’ll find that it makes it an easier decision for you… And when you do this for Norway, or Sweden, you’ll find stocks that you would probably want in your investment portfolio.

Wouldn’t you know it? I come in, see the euro pushing the envelope of 1.60, and by the time I’m ready to go the Big Finish, it sells off, making what I wrote earlier look like I’m delirious! Oh well… I carry on, despite my challenges!

I’ll finish with the thought that what I explained about two years ago, regarding the Asian currencies is really taking hold these days. Japan, China, Singapore… All are seeing their currencies strengthen versus the dollar, and that’s good, and about time too!

You see… Inflation is really getting to these economies, and at least they understand that a stronger currency can help fight inflation. Ahhh… They Got The Inflation Memo!

Currencies today 4/22/08: A$ .9440, kiwi .7965, C$ .9930, euro 1.5940, sterling 1.9880, Swiss .9920, ISK 74.20, rand 7.6810, krone 4.9730, SEK 5.87, forint 158, zloty 2.14, koruna 15.72, yen 103.20, baht 31.48, sing 1.3510, HKD 7.7955, INR 39.95, China 6.9880, pesos 10.51, BRL 1.6640, Oil $116, Silver $17.61, and Gold… $921.45

That’s it for today… Hey! Did you see the nice story in the St. Petersburg Times this past weekend? The writer, Helen Huntley, came to see me when I was in St. Pete, and wrote a great piece! Now… The photo is a little old… I haven’t worn that tie in two years! Anyway… Great stuff! In case you missed it… Here’s the link…

The rain is back today. I’m guessing the water table here in the Mid-West is doing quite nicely! Time to eat my apple! I sure hope you have a Terrific Tuesday!

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Good day… Or should I say “Great Day” for currency investors! Several record levels were reached overnight as the dollar continued its slide. The euro (EUR) traded all the way up to $1.5911, the Chinese renminbi (CNY) traded below 7, and the Singapore dollar (SGD) climbed to a record high. The yen (JPY) also made a big move up in value, flirting with the psychological 100 yen/$ barrier.

The big moves by the U.S. dollar came after the IMF cut its U.S. growth forecast and said the dollar was “somewhat on the strong side.” This IMF report, combined with the minutes of last month’s FOMC meeting confirmed that U.S. interest rates will continue to fall, while the ECB and other central banks will likely hold the line on further cuts due to inflation.

Speaking of inflation, former Federal Reserve Chairman Paul Volcker, famous for helping whip sky high inflation in the early 1980s was in the news earlier this week criticizing the current FOMC’s failure to deal with rising prices. Volcker said today’s economic conditions are not as severe as they were during his tenure, but still suggested caution about the threat of inflation and warned that the weak dollar is a major problem. He also gave Ben and his boys trouble about the Bear Stearns bailout.

Chuck spotted the article also and had this to say from down in Florida:

“And now… Did you see/hear about former Fed Chairman, and a fave of mine, Paul Volcker questioning the Fed’s legal powers in rescuing Bear Stearns? Let’s listen in…

“‘The Federal Reserve has judged it necessary to take actions that extend to the very edge of its lawful and implied powers, transcending in the process certain long-embedded Central Banking principles and practices.’ the former Fed Chairman went on to say…

“‘The extension of lending directly to non-banking financial institutions, while under the authority of nominally ‘temporary’ emergency powers… Will surely be interpreted as an implied promise of similar action in times of future turmoil.’

“But wait! Here’s the best part… Volcker said the modern fiscal system has ‘failed the test of time’ of the marketplace. When asked whether he predicts a ‘dollar crisis’ he said, ‘YOU DON’T HAVE TO PREDICT IT, YOU’RE IN IT.’

“WOW! Pulling an Aaron Neville and telling it like it is! Just like I do every day! But who am I compared to the former Fed Chairman? Like the old E.F. Hutton commercials… When Paul Volcker talks… People listen…

“Somebody said to me yesterday that they thought I was not fair to Big Al. I wasn’t trying to beat on him… I was simply pointing out that he seems to think this whole mess isn’t his fault. Well, it’s not entirely his fault… But as you used to say when the teacher broke up the fist fight… ‘He started it!’”

I guess Chuck won’t be invited over to Alan Greenspan’s for dinner anytime soon!

Inflation concerns were on the front page of the Wall Street Journal this morning but unfortunately our Fed just doesn’t feel they are in a position to deal with it right now. They have decided to take a path similar to their immediate predecessors, and pursue economic growth in spite of rising inflation. The problem is, all of their attempts at economic stimulus will continue to put upward pressure on inflation, and downward pressure on the dollar.

While the euro was rising to another record versus the dollar, the pound sterling (GBP) continued to slump, as the BOE followed the Fed’s lead and cut interest rates by a quarter point. This cut was widely predicted, as they are dealing with many of the same factors as the United States: a slumping housing market, banking credit crisis, and negative consumer confidence. The economic slowdown in England has encouraged policy makers to keep up the pace of rate cuts and set aside concerns about inflation, which reached a nine-month high in February. As I said earlier, they are in the same unenviable position as the U.S., with an economy that is in recession while inflation rises (can you say STAGFLATION?). We encouraged investors to exit positions in the pound sterling a while ago, and continue to believe the pound will follow the U.S. dollar down.

Another currency that seems to be following the dollar lately is the Canadian dollar (CAD), which fell to the lowest level in a week yesterday after the IMF report. The Canadian economy is just too tied in with the U.S. economy. So in spite of their abundance of natural resources, the Canadian currency will likely stay in a tight range with the U.S. dollar. I don’t expect it to fall dramatically, but it won’t move very far above parity with the U.S. ollar either.

The Japanese yen gained 1.6% versus the dollar yesterday and the Singapore dollar was up 1.5%. Both currencies rallied as hedge funds and other highly leveraged traders scrambled to reduce debts. These latest moves will be chalked up to carry trade reversals, but I think they should instead be classified as leverage reductions. The Bank of Japan held interest rates stable earlier this week so the rise wasn’t due to any interest rate differentials. Just think what the yen will do once the BOJ does start raising rates!

The Singapore dollar hit a record high as their central bank set a stronger trading range for the currency. The Monetary Authority of Singapore uses exchange rates instead of interest rates to manage their economy, so they let the currency move up to combat record inflation. Singapore’s economy expanded in the first quarter at the fastest pace since 2003 and the inflation rate was near a 26-year high at 6.5% in February. The latest move puts the Singapore dollar up 5.9% versus the U.S. dollar this year, making it the second best performer in the region outside Japan.

The Chinese renminbi was another currency that moved into record territory overnight, trading under 7 for the first time since it was floated in 2005. Like Singapore, China’s central bank is using a stronger currency to try and combat inflation, which jumped 8.7% in February versus a year earlier. It looks like China will continue to keep accelerating the pace of renminbi appreciation ahead of the Olympics. A stronger renminbi will help to keep a lid on inflation and will also appease some of the critics of China’s monetary policies. Just last week U.S. Treasury Secretary Hank Paulson said it was ‘dangerous’ for the exchange rate not to reflect the fundamentals of the world’s fastest growing major economy. Forward contracts show that traders are betting on an 11.2% appreciation for the renminbi during the next 12 months.

Currencies today 4/10/08: A$ .9337, kiwi .8013, C$ .9812, euro 1.5880, sterling 1.9787, Swiss .9912, ISK 72.99, rand 7.9164, krone 4.9966, SEK 5.9162, forint 159.67, zloty 2.1728, koruna 15.83, yen 100.18, baht 31.53, sing 1.3559, HKD 7.7892, INR 39.947, China 6.9916, pesos 10.5716, BRL 1.6906, dollar index 71.57, Oil $111.48, Silver $18.30, and Gold… $937.38

That’s it for today…Another great Cardinal game last night as Albert hit two home runs to beat Astros. Another rainy day here, and I hear we will have a ‘wintry mix’ this weekend! Typical springtime in St. Louis! I took a short run this morning and my legs are finally starting to feel a bit better after the marathon on Sunday. Hope everyone has a Thunderous Thursday, I know we will here, as the sky looks pretty dark.

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Editor’s Note: Chris Gaffney is Vice President of EverBank World Markets and the alternate author of the popular “Daily Pfennig” newsletter. This valuable newsletter is delivered via email to tens of thousands of market watchers globally, and helps traders stay on top of the economic, currency, and market happenings.