But, NOOOOOOOOO! Let me tell you all about it now… First, we had what I called the potential White Knight for risk assets yesterday, the Indian election results, which pushed the Indian stock market to levels it hadn’t seen in some time. That carried over to the Japanese stocks, which carried over to Europe and finally the U.S. It took most of the day to really get things going, but by the time I was packing up to head home, the move was on… And risk assets all around, save for the safe haven Gold, kicked into gear, and were off to the races. And Currencies were in the pole position of this rally!

I just can’t get my arms around this stock rally folks… What are they rallying for? Corporate earnings are awful… And the prospects of future earnings are awful… Why do I say that? Well… Have you seen the rot on the labor market’s vine lately? “Real” unemployment is north of 16%… And with announcements like the one last night from American Express, where they say they will layoff 4,000 employees, hitting the news wires each day… There’s just no way that consumers are going to have the “juice” to support corporate earnings… Those that do have the “juice” will probably squirrel it away, and those that don’t, well… They don’t have any to squirrel away or spend!

But… I always think of things logically, right? This is logical that stocks would suffer going forward… But will it play out this way? Who knows? I’m certainly not even your last choice for a stock jockey! But… It just seems to me that this is just the way it is… Some things will never change… It’s just the way it is…

OK… The “other” news this morning that’s fueling a huge currency move overnight… German Investor Confidence, as measured by the think tank ZEW, rose more than the “experts” were forecasting, and reached a 3-year high this month! WOW! OK, I hate to throw cold water on this, but this “investor confidence” is all tied to the rally in stocks… And what’s good for the goose (the U.S.) in stocks, is good for the gander (EUROPE) in stocks…

But hey! Why step in front of this bus? If the stock jockeys want to take their assets higher, then I’m not going to throw myself under their bus! The ZEW report is “supposed” to predict economic developments 6 months ahead… Well… By the time we sit down to eat our Turkey on Thanksgiving, I’ll look back and see if the ZEW think tank predicted correctly!

The Huge currency rally is across the board, including the once beaten and battered pound sterling, which has really mounted a strong performance in recent weeks… Yes, things in the U.K. are still teetering… But the pound sterling has seemed to have weathered the storm… At least for now!

Of course, in this crazy mixed up world we live in with currencies, a Huge rally currently means that Japanese yen is back on the selling blocks. And… The high yielders are soaring…

The Aussie dollar (A$) seemed to ignore the news from China overnight that the Chinese had ordered an immediate 30% Steel production cut by all mills to address 25-30% over-capacity. Then it seemed for certain the A$ would back off when Reserve Bank of Australia (RBA) Gov. Stevens’ gave a speech and revealed his bias toward easing rates further. Watch… At some point in the near future, there will a story that hits the news wires that claims traders are selling the A$ because they believe the RBA will lower rates further… And they will all act as though they “just found this fact out!” But for now… The A$ is kicking tail and taking names later!

I keep seeing one story after another these days from people that claim they “know” the Bank Stress Tests were a “sham”… Well? Didn’t I tell you that first? Didn’t I tell you the Gov’t would not tell us the “real facts” because if they did, they would spook the markets, and even more important spook our foreign buyers of U.S. debt! And we can’t afford for that to happen!

But just for kicks… Here’s a sample of the stories I’m talking about… Put away the sharp objects before reading, we don’t want any injuries…. This is… Howard Davidowitz, Chairman of Davidowitz & Associates, talking… (NOT ME!) “The stress tests were a sham and part of a “con game to get private money to finance these institutions because [Treasury] can’t get more money from Congress. It’s the ‘greater fool’ theory. We’re now in Barack Obama’s world where money goes to those that should never receive a penny….we’re bailing everyone out. The bailout money is in the sewer and gone.”

OK… That’s just a sample of the things I read each day and night… Of course last night I didn’t do any reading, as I was glued to my TV for the final 2 hours of my fave show, 24!

And in a story that makes you wonder what the heck these people are thinking… Two economists, Gregory Mankiw, former White House advisor, and Ken Rogoff, former Chief Economist at the IMF, believe that the U.S. economy is in need of a dose of good old-fashioned inflation! WHAT? They believe the Fed should have a looser rein on inflation, to help debt-strapped consumers and governments to meet their obligations… Again… WHAT? I have to wonder just what else the Fed can do to create an inflationary environment! Come on! They’ve cut rates to near zero… The implemented Quantitative Easing… They’ve pushed Trillions into the system… And these two dunderheads want more? Did they stop, in the name of love, and think about what they were saying before they said it?

And… I can’t understand why they believe that running 6% inflation for “at least a couple of years” is a good thing! Talk about “spooking our foreign investors”! And talk about sending the dollar to the woodshed! Let’s hope these two go away… Don’t go away mad, just go away…

And then… It sure looks like the Bank of Canada (BOC) is doing everything they can to put a 100 miles of desert between them and Quantitative Easing… There will be a speech today by BOC Gov. Murray titled: “Unconventional Monetary Policy Measures and the Zero-Bound, Differing International Approaches and Critical Considerations”… Now, that looks like a speech title that his marketing team came up with… Why not say… “the rest of the world is doing Quantitative Easing, and we’re not!”

Of course… Should this be the “real” gist of his speech, the Canadian dollar / loonie should look to continue its recent strong performance!

The Swiss franc is nearing 90-cents again… Every time it gets to this level, the Swiss National Bank (SNB) makes a statement that “they are watching the currency gains closely” This is supposed to scare traders to not take the franc higher… Who’s afraid of the SNB? Of course “real traders” like the ones that were around when I began to deal in currencies, would take this message as a challenge, and push the franc to the point that the SNB had to intervene or lose credibility… And then they would attempt to push the franc higher! But today’s traders, are not your “father’s traders”… They are wimps! Every time a Central Bank jawbones their currency lower, traders just put their tails between their legs and go home… Give up, quit… Hey! Quitters don’t win, and winners don’t quit! You can’t quit here! When the Germans bombed Peal Harbor, did we quit? NO! (ok that’s a line from Animal House, I don’t want 100 emails telling me that the Germans didn’t bomb Pearl Harbor! HA!)

Today, the data cupboard yields Housing Starts for April… I saw a news story on the TV yesterday that said “Home Builders were seeing a pick-up of new homes being built”… Well… That should be our indication that Housing Starts for April will be stronger! See how easy this stuff is? HAHAHAHAHA!

I always get a kick out of my friend, The Mogambo Guru, and the ending each week of his newsletter… Each week he ends his letter with some message about buying Gold and Silver… And then this line… “Whee! This investing stuff is easy!”

The Mogambo always puts a smile on my face!

Currencies today 5/19/09: A$ .7760, kiwi .6050, C$ .8640, euro 1.3635, sterling 1.5480, Swiss .8990, rand 8.4620, krone 6.42, SEK 7.6675, forint 203.85, zloty 3.20, koruna 19.5660, yen 96.20, sing 1.4610, HKD 7.7510, INR 47.79, China 6.846, pesos 12.91, BRL 2.07, dollar index 82.12, Oil $59.89, Silver $13.94, and Gold…. $922.80

Source: Currencies Bounce Back!

• U.S. Federal Reserve Chairman Ben Bernanke said the U.S. economy will begin to “turn up later this year,” contingent upon the financial sector’s continued improvement, Reuters reported. Speaking to a congressional committee, Bernanke said the housing market may be bottoming out and pointed to improving consumer spending.

• The Canadian dollar hit its highest point since November. “The market is now willing to embrace risk and move clean of the safety associated with the U.S. dollar,” Stewart Hall, an economist in Toronto at HSBC Securities, told Bloomberg. “The Canadian dollar has the potential to be a high-yielding currency if the commodity story once again gains traction and moves forward.”

• Price increases and cost-cutting measures helped Kraft Foods Inc. (NYSE: KFT) post higher-than-expected first-quarter profit. The food company also reaffirmed its 2009 earnings and revenue forecast, Reuters reported.

• South Africa’s unemployment rate jumped to 23.5% in the first quarter, as Africa’s largest economy likely slipped into recession for the first time in 17 years, Bloomberg reported. “Manufacturing and mining are under strain, and we can expect these numbers to worsen,” Fanie Joubert, an economist at Efficient Group, told Bloomberg. “We’re unlikely to see a recovery until the fourth quarter.”

• The U.S. service sector is beginning to show signs that the worst may be behind it as the Institute for Supply Management’s index of non- manufacturing businesses contracted less than forecast in April.  The index of service businesses, which make up almost 90% of the economy, rose to 43.7 from 40.8 the prior month, according to the Tempe, Arizona-based group. Readings below 50 signal contraction. Separately, a survey of chief executives found the highest level of confidence in three years, as home purchases and retail sales rose, another signal that the economic slump is abating, Bloomberg reported.

• Shares of American International Group Inc. (NYSE: AIG), once the world’s largest insurer, rallied in New York trading yesterday (Tuesday), on speculation the insurer’s first quarter loss narrowed from its record $61.7 billion net loss in the fourth quarter, Reuters reported. AIG, was rescued with a taxpayer lifeline last year after severe mortgage losses left it unable to meet collateral postings with counterparties. It currently needs to pay back about $80 billion in borrowings from the U.S. Treasury and Federal Reserve.

• Several Wall Street traders and mutual funds, including Fidelity Investments and General Electric Co. (NYSE: GE), oppose bringing back the so-called “uptick rule,” which may deter U.S. regulators from resurrecting the provision, Bloomberg reported.  At a public meeting in Washington, several executives from companies that blame short-sellers for driving down share prices said they prefer an alternative to the uptick. The Securities and Exchange Commission scrapped the almost 70-year-old uptick provision in July 2007 after studies determined it wasn’t relevant in markets dominated by fast-paced electronic trading. SEC Chairman Mary Schapiro said any new rules will uphold the benefits of short-selling while restricting market abuses.

• Chile’s peso firmed to a seven-month high yesterday (Tuesday) on dollar weakness and better-than-expected domestic growth data. “The main elements that influenced the peso…were the fall of the dollar against the euro, and also the economic data, which was negative, but better-than-expected,” one currency trader in Santiago told Reuters. The peso is now up 12.2% against the dollar year to date after slumping 22.3% in 2008.

Source: Investment News Briefs Wednesday, May 6, 2009

]]> http://www.contrarianprofits.com/articles/investment-news-briefs-wednesday-may-6-2009/16296/feed 0 http://www.contrarianprofits.com/articles/saying-no-to-eastern-europe/14373 http://www.contrarianprofits.com/articles/saying-no-to-eastern-europe/14373#comments Mon, 02 Mar 2009 14:15:59 +0000 Chuck Butler http://www.contrarianprofits.com/?p=14373 Dollar continues to rally…  John Taylor buys dollars…  Canada sees a deficit!  More bailout funding…  And Now… Today’s Pfennig!
Good day… And a Marvelous Monday to you! Welcome to March too! Here and a lot of the country saw March come in like a lion, which means it should go out like a lamb, right? Let’s hope it begins turning in that direction before month-end! 9 days before I leave for Florida, the countdown begins!

Well… The currencies continue to trade heavy under the pressure of the dollar, and the “flight to safety” in Treasuries… The euro has lost the 1.26 handle and continues to look weaker and weaker all the time. The latest move down came as a result of new…

Another rally day in the currencies yesterday… One that wasn’t as pronounced as Monday’s 3-cent rally… But a rally just the same, and at one point, the euro was trading above 1.30… Hadn’t seen that level in a while, so welcome back to the 1.30 level, Mr. euro…

Someone sent me a note the other day, and said, why don’t you talk about Australia, Canada, and Swiss more? Hmmmm… Maybe they don’t read the Pfennig “every day”… But those currencies are in my notes most days, and if they are not, they are a part of the overall direction in currencies that are being pushed down by the Trading Theme… But in the spirit of the season…

Aussie dollars have rebounded nicely the last three days, but this is really putting a band-aid on a bullet wound, for the A$ has suffered a shot to the heart, and you’re to blame, no wait! They’ve gotten bashed, beaten and left for dead, by the unwinding Carry Trades, and Commodities price collapse. Large interest rate cuts by the Reserve Bank of Australia (RBA) haven’t helped the A$… And so… Until risk is back in the markets, driving commodities higher and bringing the battered Carry Traders back, the A$ will not be on the short list of currencies that can mount a rally VS the dollar… Should those two items come back with vengeance? Now that’s a horse of a different color!

The Canadian dollar is getting tarred with the same brush as the A$, only the main commodity pushing the C$ down is the price of oil… Now, this is a case of: Torn between two lovers, feeling like a fool… I would love to see the C$ rebound, but it needs a higher oil price to do so, and I’m not about to turn my back on lower oil prices! I love less than $2 gas!

Now there are those that would tell you that this current level of the price of oil is just a fleeting moment price, and that we’re still in store for $8 gas down the road… OK, I’m not sure I can get my arms around that, unless… We as a country do what we’ve done about gas driven automobiles for the last 35 years… Nothing, absolutely nothing! Then $8 gas is probably in our future… But it’s not now, and won’t be next week or next month, or even next year… Let’s all hope it’s not in our future at all!

The Swiss franc… Oh, where to start? The Swiss National Bank (SNB) shot an arrow into the heart of the franc last week, when they cut interest rates 100 BPS… Who would have thought that the SNB had 100 BPS of rate cut arrows in their quiver? But they did, and now francs are back on the block…. The “block” I’m talking about is the selling short block to fund Carry Trades, where they held court with Japanese yen, until the SNB began raising rates in 2007… Then the U.S. dollar took over, and that’s where we are now… Good thing for francs that the Carry Trade and risk Aversion is hanging over the markets like the Sword of Damocles right now…

You know… We’ve been stuck in this Trading Theme of investors buying dollars whenever the economic Tsunami looks deeper, darker and more dangerous, for so long now, I had to sit back and examine this current currency rally further for what it was… At first, I thought this was simply a case of the currencies rallying because the “light at the end of the tunnel was brighter” as witnessed by the large rallies in stocks, caused by the bailout of Citicorp… But, then if that was the “true case” we would have seen the yen get sold along with the dollar… And guess what? Japanese yen was rallying too, while the dollar got sold!

In short- it seems like the market is starting to realize that all the various stimulus packages and bailouts our “leaders are throwing at the problems our economy faces and recognizing that while they may or may not lead us to the promised land of no deep, dark, dangerous recession, one thing that is a certainty is they will need to be financed. And isn’t this the Big Problem for the dollar that I’ve talked about for over a year now? In the end, the reality will be that this is all negative for the dollar… And well, in the end, our fiscal well being.

Yes, I completely understand that Europe faces a similar challenge, but let’s face the facts here, Europe has a surplus, right now at least, and does not have the funding requirements that the U.S. does…

And finally, there’s the “other” thought… The dollar has gone a long way in a very short time erasing 5 years of gains from some currencies… It was about time that it paused for the cause…

So… In keeping with the thought about the stimulus packages and bailouts… The Fed and Treasury announced another round yesterday… You might want to sit down, and reach for your wallet, just to make sure it’s still there!

Here’s how the Wall Street Journal reported the news… “The U.S. on Tuesday stepped up its efforts to support strained credit markets through new programs aimed at boosting consumer credit and the market for mortgage-backed securities.

Under the Term Asset-Backed Securities Loan Facility, or TALF, the Federal Reserve will extend up to $200 billion in non-recourse loans to holders of asset-backed securities backed by consumer and small-business loans.

The Fed also said it will purchase up to $100 billion in GSE debt through a series of competitive auctions starting next week. It will also purchase up to $500 billion in mortgage-backed securities backed by GSEs, with the goal of starting that program by the end of the year.”

For those of you that didn’t experience “new math”… (HAHAHAHAHAHA 2+2 is still 4!) the tote board shows us that yesterday’s announcement totals $800 Billion in addition to what they already have in the hopper! Geez Louise, when will this all stop? The Fed’s balance sheet has grown by over $1.3 Trillion so far this year and could very well be turning Japanese once again! What am I talking about here? Well… You all know how I’ve been saying that the U.S. if following Japan’s model of the 90’s? Well… The Japanese added debt on to debt creating stimulus packages and bailouts too, and then lowered interest rates to zero, and the only thing left was targeting the quantity of money rather than its price. By that I’m trying to say that they didn’t care what happened to the yen’s value, they printed and printed… Oh brother! Here we go again! Are we doomed to experience a decade of deflation like the Japanese did?

I don’t think so… I think our deflationary period will be much shorter, and then on the other side of that, we’ll see inflation that will cause you to reach for your wallet again to see if it’s still there! This inflation will push commodities back into the limelight, and once again the dollar will be punished…

That’s my story, and I’m sticking to it!

OK… The data yesterday was more of the same-o, same-o, awful looking stuff… U.S. preliminary 3rd QTR GDP printed at negative -.5%, and Personal Consumption (which the Fed used to look at closely, but doubt they do any longer) fell to negative -3.7% from -3.2% in the 3rd QTR. And, the S&P/CaseShiller House Price Index fell another 17.4% in September from a year ago. The rot on the Housing price vine still has some additional deterioration to go, unfortunately…

The Data Cupboard continues to yield plenty for us to look at each day with a heaping helping of Personal Income and Spending for October today. In addition, we’ll see Durable Goods Orders for October, the Weekly Initial Jobless Claims, Chicago Purchasing Managers Index (manufacturing for that region), U of Michigan Consumer Confidence, and New Home Sales for October… Whew! My fingers are worn out after all that! HA!

But there’s more… I’ve been wanting to have a brief discussion about this for some time now, and each day I experience a loss of memory and forget to do so! What am I talking about, I hear you asking? Well… It’s Gold… And not just the price of Gold in dollars, which has rebounded nicely this past week… But to point out that Gold has been rising VS all the currencies. Which makes sense right? The dollar has pounded the currencies for 4 months, and Gold gets stronger in those currencies… It’s an interesting situation… So, Gold hasn’t sunk VS the other currencies like it has VS the dollar.

OK… Here’s the dilemma for the currency traders today… We’ve got all this data to deal with, and everyone is going to be trying to leave early today to get a head start on getting home for Thanksgiving… Will the lack of volume this afternoon cause wild swings? It has a history of doing so…

China has cut their internal interest rate to help stimulate their economy, which the OED lowered their forecast for China’s economic growth from 9% to 7.5%… Well… 7.5% still sounds pretty darn good, doesn’t it? Especially, when you consider that by the time the 4th QTR U.S. GDP numbers are printed (not until probably Fed 2009), they will show U.S. GDP to be a negative -5.0%!!!!!!

OK… Now that was a lot for the day before Thanksgiving, eh? I had better stop here, as I don’t want to get you stuffed before your Thanksgiving meal!

Currencies today 11/26/08: A$ .6480, kiwi .55, C$ .8175, euro 1.2960, sterling 1.5340, Swiss .8375, ISK 235 (really, this is the quote we received Monday!) rand 9.8880, krone 6.9530, SEK 7.9260, forint 201.30, zloty 2.9180, koruna 19.48, yen 95.40, baht 35.20, sing 1.5080, HKD 7.7550, INR 49.43, China 6.8285, pesos 13.37, BRL 2.3370, dollar index 85.38, Oil $51.60, Silver $10.29, and Gold… $816.84

Source: Maybe It’s Time For A Change?

This will be the end of another of the things that’s keeping the fundamentals in the back of the classroom. All we’ll have left is the credit squeeze… Unfortunately though I feel like we’re going to have to live with that one for some time to come! There are signs that things are loosening up, but it’s a far cry from what should be considered as “normal” in the lending arena! As long as the credit squeeze remains in place and on the minds of traders & investors everywhere, we’re stuck with the Trading Theme of 2008… Well, let’s see, it didn’t come into play until late July, so it should be called the Trading Theme of late 2008 and 2009.

That’s right folks… When I first saw this all unfolding in July and August, I told you in this letter that this dollar strength could very well last through the elections and through to year-end… That was before the rot on the vine was exposed in September and October… Now, I fear that this will be the Trading Theme for most of 2009 too… As the Credit squeeze continues to hang over the markets like the Sword of Damocles. And… Someone told me that in 6 out of the last 7 elections, regardless of whether the Democrats or Republicans won, the dollar rallied in the 6 months following the election. So…. That takes us into 2009, with the Trading Theme and credit market squeeze… It all adds up…

And as long as I’m going down this road of bad news… I have come to a conclusion that the deflation wolf has won… For months I wrote about how inflation was winning but the deflation wolf was always at the door… Well… After viewing the landscape of falling stock prices, falling commodity prices, and falling home prices, I have to think that inflation is no longer the king of the hill… Deflation is all around us folks… The only things you don’t see falling are Consumer prices and bond prices… But those bond prices are sure to fall given the glut of Treasury issuance coming down the pipeline… And Consumer prices? Well, if Consumer Spending keeps falling off the cliff, then you can expect Consumer Prices to fall too…

But inflation isn’t going away… And in my opinion, it will hide out on the other side of this deflationary period… And at first it will look much like 1976 all over… 1976 was a great year, right Christine? But it wasn’t a great year for stagflation…

So… What does this mean for the currencies and precious metals? I don’t think it spells a Happy Days while the deflation is going on… But… On the other side of the deflation, it could very well spell rallies in currencies and metals that will be huge! You see, the Trading Theme remains in place for most of 2009, as we work through the deflation… And then as the Trading Theme is removed slowly, inch by inch, step by step, there will be an unwinding of “Safe Haven” trades (read U.S. Treasuries) and the race to the bottom for the dollar will be on…

That’s how I see it from my seat here on the Trading Desk in St. Louis Mo. Home of the 10-time World Champion St. Louis Cardinals! It’s not a pretty picture, near term, that I’m painting this morning, but even an artist paints some ugly pictures now and then… I know of one, no never mind, no need to go into that.

OK… You’ve been very patient, waiting for the update in currencies… So, here we go!

The currencies played the Trading Theme to a “T” once again yesterday… When I left you yesterday morning, the euro was trading 1.2845… But then, more deep, dark, dangerous data printed for the U.S. and the dollar slapped down the single unit and every other currency that got in its path. The data came in the form of the latest reading of Manufacturing in the U.S. The ISM Index fell from 43.5 to 38.9, a low since September 1982! OMG! For the new kids to class, the ISM Index draws a line in the sand at a 50 level… Any number above 50 equals expansion… Any number below 50 equals contraction… We haven’t seen manufacturing contract at this level since September 1982… And the NBER still hasn’t put the “recession sign” on the economy’s door? Geez Louise, what do these guys need to prove to them that we’re so deep in recession right now?

So… With that bad data in the books… The dollar rallied and pushed the single unit to below 1.27 for most of the day… We’re seeing some recovery this morning, and the euro has popped back up above 1.27… This morning, they are reporting from Europe that borrowing costs (LIBOR) have fallen a bit, thus loosening the purse strings… Recall, this was another of the things knocking the stuffing out of the euro and other currencies, as Financial Institutions in Europe stopped borrowing in LIBOR because the rate had gotten totally out of control on the high side. Instead, the Financial Institutions used the currency swaps market, selling their reserve currency (read euro) to raise the capital needed as reserves against the toxic waste they had on their books…

It was my assumption when hearing about this change to currency swaps to generate cash, that this would come crumbling down once LIBOR got back to what would be considered a “fair rate” for borrowing, and the swaps would get unwound, meaning the currency sold in the swap would be re-purchased. It will be interesting to see if this plays out, even with the Trading Theme in place.

The Reserve Bank of Australia (RBA) cut interest rates last night by a larger margin than I expected… I had thought the RBA would cut 50 BPS… Instead, the RBA followed up last month’s 100 BPS cut, with a 75 BPS cut! WOW! They aren’t messing around, eh? Before you skip down to the Currency roundup to see what the A$ is doing after a 75-BPS rate cut, no need… The A$ has rallied since the rate cut news! Talk about perverse! Currencies these days are just strange… Well, I guess it’s not the “currency” but the Currency Trader! But, who am I to look a gift horse in the mouth? The A$ is rallied…

The Canadian dollar / loonie rallied last night too… Hmmm… I’m sitting here thinking about these rallies and started humming the great song by the Who… Won’t Get Fooled Again! For I know that the Trading Theme is in play… Yes, it’s the Same Old Song… Ahhh the Four Tops too!

So, one down, two more to go… That is Central Bank rate cuts this week… Still to come… The Bank of England (BOE) and the European Central Bank (ECB)… The performance of the A$ after the rate cut is promising for these two currencies; pound sterling and euros respectively… But remember the Who!

Recall last week, when I was talking about having the fear that the Bank of Japan’s (BOJ) Ministry of Finance would intervene to stem the yen’s rise… Well, unless they’re lying… And we have no reason to believe they are… The BOJ announced last night that there was no currency intervention last week… Hmmm… Just wondering why then, did yen fall from 92 to 99? I doubt the rate cut on Friday had anything to do with it… Must have been all the jawboning…

Well, that, and… The fact that as things in the credit markets loosen up a bit, those cocky Carry Traders get back on their feet… And we all know that Carry Trades to yen are like kryptonite to Superman!

The data cupboard is pretty bare today, with only September Factory Orders on the docket, which are expected to drop -.8%… And Fed Head Fisher, will be speaking in Texas on economic challenges in Texas… Fed Head Fisher is always good for a quote… But this is election day, and most likely he will be a forgotten man today.

I’ll finish up today and head to the Big Finish right after I tell you about this little ditty that the Wall Street Journal reported this morning… “The Treasury Department is considering using more of its $700 billion rescue fund to buy stakes in a broad range of financial companies, not just banks and insurers. In focus are companies that provide financing to the broad economy, including bond insurers and specialty finance firms such as General Electric’s GE Capital unit, CIT Group and others.”

Hmmm… Is it not bad enough that now these finance companies are going to get bail out money too? But… What’s with the “others”? I sure hope they mean “other” finance companies, and not just “others” that need a bail out… Like, say, Joe’s Bar and Grill! YIKES! The Treasury Dept is out of control folks, and there’s no reining them in now… We’ve given them too much rope! UGH!

Currencies today 11/4/08: A$ .6875, kiwi .60, C$ .8525, euro 1.2785, sterling 1.5865, Swiss .8565, ISK (no live quote), rand 9.8910, krone 6.6950, SEK 7.73, forint 202.90, zloty 2.77, koruna 18.915, yen 99.50, baht 34.90, sing 1.4740, HKD 7.75, INR 47.72, China 6.8360, pesos 12.70, BRL 2.1410, dollar index 85.77, Oil $63.85, Silver $10, and Gold… $737.40

Source: Election Day!

Over in New York, shares of Freeport-McMoRan Copper & Gold got slammed after the company announced that third quarter profit fell to $523 million or $1.31 per share from $775 million or $1.87 per share in the year ago period. Lower copper prices resulted in a 9% drop in revenue to $4.62 billion. Freeport ended the day down $3.98 at $32.74.

Once again the low price of nickel prompted a mine shut down. This time FNX Mining (FNX) suspended commercial production at its Levack nickel contact deposits in Sudbury. FNX ended the day down C$0.94 at C$5.86.

Shares of VMS Ventures lost C$0.05 to close at C$0.28 after the junior tabled 14.47 metres grading 3.27% copper at its Reed Lake discovery zone in Manitoba.

On the merger front, Nemi Northern Energy & Mining (NNE.A) and Aviva inked a deal that would see Aviva shareholders get 0.59 of a Nemi share. The move would create an international coal and energy firm. Nemi ended the session up C$0.02 at C$0.265.

The Bank of Canada cut interest rates by a less than expected 0.25% and went on to cite that the United States is already in recession with a global recession nipping on its heals. The move failed to rally the beaten down Canadian dollar with investors taking the cue from commodity prices and not interest rate policy. We will see what Wednesday trading has in store.

Source: Resource Stock Roundup Wednesday, October 22nd, 2008

]]> http://www.contrarianprofits.com/articles/resource-stock-roundup-wednesday-october-22nd-2008/6890/feed 0 http://www.contrarianprofits.com/articles/credit-woes-sink-the-dollarmr/3806 http://www.contrarianprofits.com/articles/credit-woes-sink-the-dollarmr/3806#comments Tue, 15 Jul 2008 18:10:33 +0000 Chuck Butler http://www.contrarianprofits.com/articles/credit-woes-sink-the-dollarmr/3806 The Daily Reckoning’s currency expert Chuck Butler says the dollar is being taken to the woodshed. The greenback is losing ground against all major currencies as the credit crisis continues to wreak havoc in the U.S economy. Chuck says disappointing inflation or retail sales data this week will send the dollar to new depths…

So… The euro reached a new record high overnight of 1.6038! WOW! This was reached based on the fears that credit problems in the U.S. are going to put the kyboshes on what little economic growth we now have. But the shine on the euro was rubbed out by a very weak ZEW… German Investor Confidence as measured by the think tank, ZEW, fell to a record…

Yesterday, I told you how the Aussie dollar’s recent economic data had softened and the thoughts that the Reserve Bank of Australia (RBA) would end their rate hike cycle. These thoughts had stopped the Aussie dollar’s potential rise to parity on the back burner… But, not anymore!

Last week, the Swedish Central Bank, Riksbank, raised interest rates 25 BPS… This was lost in the shuffle of the U.S. Holiday, and all the stuff that happened on Thursday. Well, this morning, Sweden announced that the CPI had risen again to 3.2%, matching a 15-year high. Thus, we could see the Riksbank back at the rate hike table in the future… The Swedish krona has had a very nice performance so far this year, as it is up slightly right now, but was up much more before last week’s sell off of the euro, which took the “little dogs” along for the ride… I would continue to look for Sweden to push the envelope VS the dollar, along with its kissin’ cousin Norway.

Speaking of Norway, their inflation rate pushed to a 6-year high at 2.4%… I would think Norway’s Central Bank, Norges Bank, will also revisit the rate hike table this year… But, these two might be too closely aligned with the euro right now, and thus, as the euro goes, so goes these two…

The Canadian dollar / loonie, pushed even higher yesterday, as is now knocking on the door to 99-cents… This is such a strange move by the loonie, in that it couldn’t buy a bid when Gold was $935 and Oil $145… But now that these two commodities have softened, the loonie catches a bid… Strange, but true…

U.K. pound sterling has really seen the dark side of all the bright lights that shined on the currency about two weeks ago… Recall, that then, traders believed the Bank of England (BOE) would reverse their rate cut, and pound sterling traded at $2 again… Ever since then it has been in sell off mode, and last night was no different as House prices keep tumbling… It was reported that U.K. house prices fell by 2.0% during June, and were down 6.1% in the last quarter. As I said the other day, the BOE has painted themselves into the same type of corner as their brothers-in-arms at the Fed… The BOE can’t raise rates to fight inflation, and they can’t drop them either as the economy teeters…

Source: Aussie Job Creation Soars!

As food and energy inflation climb to their highest levels since 1990 worldwide, central banks in Latin America, the Baltics, Balkans and South Africa are raising interest rates. And if the U.S. was fighting a toxic cocktail of both inflation and deflation, the U.S. would probably raising rates too.

But now that commodities are hitting all-time highs, investors are losing confidence that central banks can arrest inflation.

Gold hit an all-time intraday high of US$1,033 an ounce in March. And now gold is heading to breach that level over the next few weeks, if not sooner.

Gold continues to blast past all currencies since 2005 – including the mighty euro, Brazilian real and the Canadian dollar. This tells me that despite big gains for most currencies against the dollar this decade, they pale in comparison to gold and other hard assets.

Monetary reflation is now alive and kicking just about everywhere. Central bank broader monetary aggregates continue to post high single or double-digit gains over the last 12 months. Authorities are growing desperate to revive sagging growth caused by the U.S. slowdown.

The U.S. dollar is probably one of the most undervalued currencies in the world at this point following a severe decline since 2002. I would not dump dollars now. Most U.S. assets from a foreign currency perspective are absolutely dirt cheap!

But if you expect a “muddle through” economic recovery to persist over the next 12 months – and I do – then the Fed will have to stay on guard as housing attempts to establish a bottom. This doesn’t imply the dollar must fall further. But it does suggest commodities and gold will continue to rally because most central banks will continue to print credit while they try to look concerned about inflation.

The majority of central banks raising rates in 2008 are only gradually draining liquidity from the financial system. These banks are also the smaller players on the global stage. The banks that matter most in creating inflation – the Fed and the ECB, however, continue to print credit and inject funds.

Inflation is trying to win and overcome deflation. In time, I’m betting on inflation.

ERIC ROSEMAN, Investment Director

Source: The Central Bank Mirage, Part II

They’ve watched as oil prices continued to set new records, understanding that global turmoil and rising demand from China means that “black gold” won’t be getting cheaper anytime soon.

They’ve stared as global food prices continued to soar, touching off riots overseas and bringing U.S. lawmakers to the brink of fisticuffs because of debates over whether corn now earmarked for ethanol should be used to fill empty gas tanks, or empty stomachs.

And they’ve waited expectantly as the good old U.S. greenback – whose historic swoon against key global currencies has been exacerbated by an epic rate-cutting campaign by the U.S. Federal Reserve – suddenly reversed course and mounted a two-week rally (despite last Wednesday’s rate reduction, the central bank’s seventh since September).

When they occur separately, each of these developments – increasing oil prices, soaring food and commodity prices, and a plummeting greenback – are highly inflationary. But when they happen in tandem, the ascent in prices can be almost vertical. In such an environment, investors scramble to find a so-called “safe haven” for their money. And the best safe haven has generally been gold.

Until now, that is.

Gold dropped below $850 an ounce last week – representing a decline of more than $182 an ounce, or nearly 17%, from the yellow metal’s March 17 record of $1,032.

The main culprit: The resurgent U.S. dollar. Since mid-to-late April, the U.S. greenback has gained ground against several major currencies, such as the European euro, the Japanese yen, the British pound, the Swiss franc and the Canadian dollar. And that rally could continue, especially now that the U.S. Federal Reserve has all-but-promised to end the ambitious rate-cutting campaign that it’s been operating since mid-September.

But Money Morning contributing editor Martin Hutchinson thinks other forces are at play, too.

“Credit conditions have eased since March because of the Bear Stearns (BSC) bailout and so investors’ fear level is less. [The] stock market is up too, which suggests the same,” Hutchinson said.

Moreover, gold’s meteoric rise from $654 to $1,032 an ounce in a year (a 57.8% gain) attracted a lot of bulls and speculators whose demand helped push prices further skyward. When gold started to slip, gold bulls sold off their holdings, nudging the yellow metal into its current tailspin.

Such a slippery slope is unusual for gold, but those very conditions could be strong drivers of gold’s next rally.

“The gold market is quite illiquid, which is why I think a real speculator panic about inflation could send it zooming,” Hutchinson said.

And inflation could be the catalyst for such a speculative panic.

Inflation, Interest Rates and Gold

Gold may be down from its high, but it’s not out.

“It still looks heavy at this point. The downtrend that we are seeing at the moment is probably going to start slowing down soon,” Taso Anastasiou, technical strategist at UBS Investment Bank (UBS), told Reuters.

In fact, gold’s current price could be seen as a “discounted” entry considering three catalysts – worldwide monetary policy, global supply-and-demand, and past performance – have already ignited a powerful rally that’s virtually certain to carry gold past $1,500 this year.

And, as Money Morning has chronicled, some experts have even predicted that gold prices would reach the $2,000-an-ounce level within the next year or so.

Global inflation will be a key -if not the key – factor. Interest rates have been significantly reduced around the world, with many countries following the Fed’s lead.

To fight inflation, central banks will have to raise rates. But central bankers – including the U.S. Fed – won’t make those moves without a great deal of thought beforehand, Hutchinson said.

“And during that period, expect speculative demand for gold to intensify and its price to increase steeply. The longer the period before the Fed is forced to increase interest rates, the higher gold will go,” he said.

How to Play and Profit from $1,500 Gold

Until the Fed reverses its monetary policy strategy and increases interest rates, gold is one of the best investment bets available in an uncertain economic climate.

Money Morning suggests six gold plays to consider while gold is priced down:

• The simplest way to play gold is through the StreetTracks Gold ETF (GLD), which tracks the gold price directly. And with a $17 billion-plus market cap, it has ample liquidity.

• Barrick Gold Corp. (ABX) is a Toronto-based company with mostly North American production, as well as properties in South America and Africa, and some copper and zinc add-ons. It has a $38 billion market capitalization, so there’s plenty of liquidity. It has a trailing Price/Earnings ratio of 29.65, but a forward P/E of 13.69. By gold-mining standards, this company has a substantial presence, is reasonably valued, and has little political risk. The company also recently sent some very bullish signals to the market and recently reasserted its confidence in meeting its 2008 output target of up to 8.1 million ounces of gold. [For more details, read a related story about Barrick Gold]. Barrick is scheduled to report its first-quarter earnings results tomorrow (Tuesday).

• Yamana Gold Inc. (AUY) is another U.S.-listed Canada-based company, but this one does its mining in Brazil, Argentina, Chile, Honduras and Nicaragua. It has a market cap of $9.7 billion and a trailing P/E of 40, but its forward P/E is only 14. Despite its geographic reach, it faces only a medium geopolitical risk. Expect the company to double production to 2.2 million ounces per year by 2012, primarily in Brazil and Argentina. 

• Gold Fields Ltd. (GFI) is a South African company that mines in South Africa, Ghana, Australia and Venezuela (where it just sold control to a local company, reducing its exposure to an arguably risky market). The company’s market cap is $9 billion, its trailing P/E is 20.98, and its forward P/E is 10.41. It faces a somewhat upper-medium political risk, depending on what you think of South Africa, where the electricity supply to the gold mines is currently unreliable and there’s a good chance of Jacob Zuma winning the presidency in April 2009. Given his record as an anti-Western leftist, and the corruption charges he faces, his potential return can only be viewed as a major negative.

• Kinross Gold Corp. (KGC), another U.S.-listed Canadian company, engages in gold and silver mining, with primary operations in Canada, the United States, Brazil, Chile and Russia. In February, Kinross issued shares to buy a large Brazilian/Russian company. Political risk is low-medium. It has a market cap of $14 billion, a trailing P/E of 32.32, and a forward P/E of 16.03. It looks somewhat expensive. 

• Royal Gold Inc. (RGLD) is a U.S.-based company with mines in Nevada, Mexico and Argentina. It faces low political risk. But with a market cap of $905 million, a trailing P/E of 40.56, and a forward P/E of 22.38, the stock looks expensive.