Well, on Friday I left you with the story of a currency rally for the ages… And it didn’t let up there! Although the rest of the day on Friday the bias was to sell dollars, the real chunk of the dollar wasn’t taken until last night in Asia… Here’s the deal folks, and this won’t be the first time you’ve heard this from me either!

Fundamentals! The fundamentals are coming home to roost, and the rot on vine is being exposed… Just an example of what I’m talking about… G.M. will file for bankruptcy today… Soon, they will become the new GM… And not Government Motors… (a reader gave me that line!)

But more importantly is simply the fact that the thing that drove up the dollar’s value beginning last July until March of this year, is simply Treasury buying… And now those Treasury purchases are showing HUGE losses for those holders that “thought” they were “safe”! And… As I kept telling you, once holders grew weary of paltry yields, or the losses, the reversal of those Treasury purchases would be as swift as the move to Treasuries last summer…

So… The move in the Big Dog, euro, overnight in Asia and now in the European session has produced yet another move through a line of resistance at 1.42… And we all know that when the Big Dog leaves the porch, all the other smaller dogs get to stretch their legs too… And so it is that Swiss francs are 94-cents, Aussie 81-cents, and so on…

And, as Hannibal Smith used to say… I Love It When A Plan Comes Together! Not that I’m cheering on the losses in Treasuries… I’m patting myself on the back for telling you over and over again that it would happen!

OK, so I see the our esteemed, diligent tax payer (NOT!), U.S. Treasury Sec. Geithner, was promising the Chinese that the U.S. “wants to shrink the budget deficit”… Hmmm… I doubt the Chinese believed him… Of course I’m not a Chinese official, so I don’t really know what they are thinking… But having watched them smile and tell former U.S. Treasury Sec. (Mr. Bailout) Paulson that they were going to allow greater currency flexibility, and after he would board his plane, it would business as usual… Same thing for Graham and Schumer who thought their prestigious status as lawmakers would get them some place with the Chinese…

It all comes down to the fact that the U.S. needs China, more than the other way around… Sure it would have been sweet for China if the previous boom went on forever and ever… But that’s not the way of the markets… Booms are followed by busts… And for all you youngsters out there, that didn’t believe this could really happen, even though you might have spent 5-minutes on it in college… Booms really are followed by busts… The secret to not having them end up like this one, is to not allow the Boom to get out of control… Irrational exuberance, eh Big Al? I’m choking on that, because he’s at the root of this problem!

And China? Well… As I boldly told you months ago, that the Chinese would be the first to come out of this economic malaise… The rest of the world has caught up and now the optimism for China is spreading… This is perception folks… And you are what you are perceived to be… And in China’s case, they are perceived to be an economy on the mend, which means their strong growth might return… Well, when China’s growth is strong, they have outrageous demands for commodities, raw materials, and the rest of the lot.

That’s manna from heaven for Australia… And to a lesser degree, New Zealand and Canada… But when commodities get to rising, all the commodity currencies get to rise, because, besides Canada, they have higher than the average bear interest rates… And yield demand becomes the pet rock of the 70’s, the cabbage patch doll of the 80’s, and the tickle me Elmo of the 90’s, everyone has just got to have it!

Aussie and kiwi currencies are approaching 8-month highs… The difference here is that 8-months ago, these two were on the slippery slope down, and now their on the escalator going higher, and higher…

And the euro… The Big Dog’s 3-month rally (recall I pointed out weeks ago that the turn happened around March 1st), is the steepest rally for a 3-month period in the last 7 years… The thing though that’s really stuck out for everyone to see, is how the move in the past week has been really swift, and the momentum seems to be picking up steam… I made a bold forecast to the people on the desk the other day… And NO I can’t share it with you, because that would be making a call on a currency, and the legal beagles won’t let me do that any more! Let’s just say the move to 1.42 and change is a move in the right direction!

And this rise in the euro, comes with the Eurozone economy in a recession… But for all those out there that think this “can’t happen”… There is precedence here… Back in 2002-2003, German, the Eurozone’s largest economy, was in a recession, and yet the euro posted large gains in those years of: 17.96% and 19.59% in those respective years… So there you go! And… As long as the euro is the “offset” currency to the dollar, it will retain this ability to gain in value even with the Eurozone’s economy in a recession… The other title, besides “offset currency to the dollar” that the euro has picked up, is the one people are using currently, calling the euro the “anti-dollar”…

We have several Central Bank meetings this week… The Reserve Bank of Australia (RBA), Bank of England (BOE), European Central Bank (ECB), and Bank of Canada (BOC) all meet this week to discuss rates… I read this note and found it to be funny… OK, the BOC is meeting this week… And when asked about the recent rise in the Canadian dollar / loonie, the Finance Minister, Mr. Flaherty had this to say… “We’re always concerned when there are fluctuations in the value of the Canadian dollar, and it has been relatively rapid in the past few weeks, and I know that the governor of the Bank of Canada is monitoring that as it’s his job.”

What’s so funny about that? Well… I find it funny when people in power give ultimatums to others, in “not so many words”… In this case, Flaherty is telling Mark Carney (the Gov. of the BOC) that he needs to do something to halt the loonie’s rise… Cut rates, would be his choice, but interest rates already near zero, I think he’s giving Carney the “high sign” to implement Quantitative Easing… As you can see what that’s done for the U.S. dollar!

The RBA is the only Central Bank that has “fat to cut”… It will be interesting to see if the RBA keeps their interest rate arrows in their quiver… I tend to believe they will hold on to them… But that’s just a hunch…

The data cupboard will get a real work-out this week beginning today with two of my faves… Personal Income and Spending. The Big Banana today is the ISM Index (manufacturing)… Given the rot on the Chicago ISM’s vine last week, one would think that the national (ISM) index would take a hit… But… I tend to think that the Chicago one was pushed lower by the goings on in Detroit, and that the national index will, while still being recessionary, be a bit stronger… And if it is stronger (42 is forecast VS 40 previously), I think the currencies will continue to take liberties with the dollar, as risk assets will ride on!

We end the week with the May Jobs Jamboree… After last month’s hefty addition to jobs by the Bureau of Labor Statistics (BLS), it will be interesting to see how the BLS monkeys with the May number… One thing all their playing around with the numbers can’t do is change the unemployment rate, which is expected to go to 9.2% in May…

I’m seeing what is probably profit taking as the NY trading desks come in and see the 1.42 handle in euros… The euro has backed off its level of 1.4235 from when I came in and turned on the screens… A couple of years ago, we had this game of give and take going on between the U.S. players and Asian players… Overnight, Asia would push the currencies higher and sell dollars, only to see that wiped out by the U.S. players… I sure hope we don’t see a return bout of that game of give and take… It sure gave me a rash watching that each day!

Well… Before I head to the Big Finish… Gold & Silver have really jumped on the risk assets rally’s bandwagon. Gold is $985 this morning… A mere hop, skip and a jump from $1,000… You know, maybe we’ll get to talking about how buying Gold on the dips below $1,000, like I used to do with the dips below $900!

Currencies today 6/1/09: A$ .81, kiwi .6485, C$ .9230, euro 1.4215, sterling 1.6370, Swiss .94, rand 7.9660, krone 6.1880, SEK 7.4575, forint 197.40, zloty 3.1370, koruna 18.85, yen 94.80, sing 1.4370, HKD 7.7514, INR 46.96, China 6.8267, pesos 13.02, BRL 1.97, dollar index 78.79, Oil $67.85, Silver $15.90, and Gold… $985.35

That’s it for today… An absolutely fabulous day yesterday here in St. Louis, the sky was so blue, and the sun was warm! And I had the pleasure of cooking for a family birthday party for my darling daughter’s husband, Jerry… (he’ll get a big kick out of being mentioned!) My beloved Cardinals had a not-so-good trip to one of my fave cities, San Francisco this past weekend. The Stanley Cup Finals are going on, and the Basketball Finals will start this week… So It’s not like there’s nothing on TV to watch! HA! Come on… It’s gotta be better than watching a cable financial news station that I refuse to name! OK… Mike and Mary are here, so that means all good things must come to an end, and so I bid you farewell for today… I hope your Monday is absolutely Marvelous!

Source: The Currency Rally Continues!

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 that Eurozone leaders rejected a request for Eastern Europe aid… Here’s the skinny on that…

Hungary had proposed that Eastern European countries like themselves, Poland and the Czech Republic, receive loans totaling 180 Billion euros ($227 Billion dollars worth) from the Eurozone… Shot down….. I don’t want to be… Shot down! Ahhh, a little April Wine this morning… But getting back to this latest development, this news of a rejection, leaves the Eastern European countries hanging, and trading this week, or until something changes, outside the euro… In other words, the Eastern European Countries, like Hungary, and the other two mentioned above, normally trade partially on their own, and partially with the backing of the euro, since these three particularly were once considered to be on the “fast track” to euro conversion.

So… Not only do the Eastern European currencies get taken to the woodshed, in today’s environment with bailouts being the norm, the euro gets taken to the woodshed too for not “bailing out” their brothers…

This is what we’ve come to folks… If you’re not going deeper in debt, and bailing everyone and their brother, nobody likes you any more! I read one person’s thought on the Eurozone rejection, and they immediately stuck a knife in the Eurozone, saying “this shows European countries are behind the curve. They are acting against a global crisis with national measures.” Hmmm… Ward… You were a little hard on the Beaver last night, weren’t you?

The other BIG NEWS this morning was a report that John Taylor, who manages $11.4 Billion as chairman of New York-based FX Concepts, Inc. Let’s listen in… “Whenever a banking system realizes it’s in big trouble, it says, I have to take care of my next door neighbors and the businesses down the block. Then the currency of that country, it its banks are big in international lending like the U.S., will strengthen.”

Needless to say, but, it certainly sounds like Mr. Taylor, has drunk the kool-aid, and is buying dollars along with the others seeking a “safe haven”…

I tell you this, because, someone wrote me recently, and said that I only print commentaries that agree with my stance… So there! This guy is HUGE, and he’s buying dollars!

Well, the revision to 4th QTR GDP printed much worse than forecast on Friday… Let’s see what the Wall Street Journal had to say about it… “Gross domestic product decreased at a seasonally adjusted 6.2% annual rate October through December, the Commerce Department reported in a new, revised estimate of fourth-quarter GDP. The sharply lower revision reflected adjustments downward of inventory investment, exports and consumer spending.

The 6.2% decline meant the worst quarterly showing for GDP since a 6.4% decrease in first-quarter 1982 GDP.

But… With like all “bad data” in recent times, the traders flocked to the dollar and U.S. Treasuries… Makes no sense to me, but then, I think logically… Not like some Ivy leaguer that never spent time in the mail room, learning the business from the bottom up… Wait! How did that thought go into my feelings about one of the reasons this mess is so bad? I was saving those thoughts for a “rainy day”… Oh well, there’s a hint as to where that discussion might go, when I decide to really “let loose”!

Obviously, a decline of 6.2% is pretty dis-heartening for those that believe the recession will be V-shaped… Buzzzzzzzz! Thank you for playing, there’s a nice parting gift for you at the door!

The data cupboard is stocked and ready to yield a plethora of data this week! We start today with Personal Income and Spending, and end the week with the Jobs Jamboree, in between we’ll see the ISM Index (manufacturing), Pending Homes Sales, the Fed’s Beige Book, and more! So, we won’t be void of data to talk about this week.

It looks like January will be the month that sees jobs losses greater than 600K, as the “experts” have forecast the total job loss for January at 650K! Aye, Yay, Yay… That’s just awful! The unemployment rate is expected to hit 7.9%, but don’t be surprised if it prints a snowman… That’s an 8 for you non-golfers, bad golfers I should say! I still believe that the unemployment rate will reach 8.5% before this is all over, and that’s even taking into consideration that Obama’s Stimulus is a smashing success! (here’s the kicker though, that no one’s talking about regarding these jobs that will be created by the Obama stimulus… For the most part, they will all be “short-term jobs”. What happens when those “short-term jobs” end?)

OK… Enough! The data will print when it prints, so I’ll just leave it there…

Back to Treasuries for a minute… A reader sent me a note that the 5-year Treasury auction priced at 1.92% yield… So, why the attraction to Treasuries? 1.92% for a 5-year Treasury? That’s pitiful! And if the continued buying at that level doesn’t represent an “overbought” situation than I’m not bald, overweight and short!

The Canadian dollar / loonie had a rough go of it on Friday after their Current Account printed as a deficit for the first time since 1999! So… After 9 years of surpluses, Canada is dealing with a deficit… The Current Account deficit totaled a seasonally adjusted C$ 7.486 Billion in the fourth quarter, bigger than the consensus forecast for a C$ 5.1 Billion shortfall. A slump in the goods trade account combined with a widening investment income deficit resulted in the largest Current Account deficit since 1993.

Japanese yen continues to weaken from it’s lofty levels of just a couple of weeks ago… I tried to point this out to everyone when I said that the Unwinding of the Carry Trade looked as though it had come to an end… If the unwinding involved buying yen, then the end of the unwinding would involve not buying yen… Then when it stops getting stronger, profit taking begins, and… Well, that’s where we are today with yen…

Remember last week when I mentioned that AIG could post the largest loss in U.S. Corporate history at $60 Billion? Well, they bettered that number posting a loss of $61.66 Billion! So… Guess who stepped in again to make sure they didn’t fail? That’s right! The U.S. Gov’t… Here’s the skinny as reported by the Wall Street Journal… “The federal government has revamped its rescue package to American International Group and will provide the troubled company another $30 billion, with the Treasury saying AIG continues “to face significant challenges.” The announcement comes as the insurance giant posted a $61.66 billion net loss for the fourth quarter.

The new package comes as the company has burned through cash and has been unable to find buyers for pieces of its company that it hoped to sells to repay the government on its existing loan package, which totals some $150 billion.

>>>> back to me… I tell you this folks… I truly believe that the Gov’t might as well find a big black hole and throw the $30 Billion into it, because now AIG is at $150 Billion in total loans, and still burning through cash… I hope I’m wrong, because as a taxpayer, I would hate to see this, but… I think we’ll hear about more Tens of Billions being put into this company in the future…

Speaking of taxes… I met my guy on Friday to begin the tax accounting process… The time is slipping by pretty quickly folks, and April 15th will be here before we know it!

I’ve talked about how much I enjoy reading Caroline Baum’s articles on Bloomberg before… And she has one now that really strikes a nerve with me, in that for once I have someone agreeing with me that the latest stimulus isn’t addressing the problem with the banks… Here’s a snippet…

“Fed Chairman Ben Bernanke said in congressional testimony last week that key to stabilizing the economy is stabilizing the financial system.

If that’s the case — and policy makers of all stripes seem to agree that it is — why a $787 billion fiscal stimulus bill filled with political priorities and a budget that increases domestic spending by 8 percent?

As an economist friend of mine says, you can’t force-feed someone who’s in the middle of coronary thrombosis.

Better to make the treatment fit the disease. Revamping the health-care system won’t fix the banks. Raising the price of carbon-based fuels and force feeding the nation alternative sources of energy won’t loosen up lending. And higher taxes on the wealthy, and inevitably the not-so-wealthy, won’t enhance bank solvency.

Doing so many things at once means a reduced focus on the root of the problem. There’s a reason the tortoise beats the hare in Aesop’s fable.”

The entire story can be read here, and I highly recommend that you do… http://www.bloomberg.com/apps/news?pid 601039&sid aoKaIpGop7No&refer columnist_baum

Currencies today 3/2/09: A$ .6325, kiwi .4935, C$ .7785, euro 1.2580, sterling 1.4150, Swiss .85, rand 10.3685, krone 7.20, SEK 9.22, forint 243.50, zloty 3.78, koruna 22.62, yen 97.10, sing 1.5540, HKD 7.7565, INR 51.94, China 6.8450, pesos 15.40, BRL 2.4120, Dollar index 88.72, Oil $42.38, Silver $13.10, and Gold… $946.55

Source: Saying “NO” To Eastern Europe