Good day… Hola! And a Terrific Tuesday to you! Well, today is Cinco De Mayo… It’s a fun day so go have some fun! I few years ago, I talked about Cinco De Mayo, and some guy took exception to it, and called me a really nasty name… So, I won’t get all flowery about the day, except to say, go have some fun!

Of course, to me, the saying “go have some fun” is a staple of my being! Especially these days! I realize that I need to have “more fun”, but work, and all that gets in the way, darn it! HA!

OK, enough of that! Well! You should have seen that currency rally yesterday! WOW! The Big Dog, euro, traded all the way to 1.34 and change, saw profit taking, which caused it to drop back down, only to end the day moving past 1.34 again… Overnight, the euro hit 1.3438, but once again, profits and the fact that stock futures are showing weakness have brought the Big Dog back under 1.34… Before I left for Bermuda, Chris mentioned that the euro was having a problem getting past 1.31… Well, that’s in the rear view mirror now, eh? And I would like to think that eventually so would 1.34… Not that I’m rooting for the Big Dog… I say that, because then fundamentals would be in play once again… It’s been a long time, now I’m, coming back home, I’ve been away now, oh how, I’ve been alone…

The Aussie dollar (A$) also saw a nice bid all day long yesterday, and moved past 74-cents, and remained there overnight! The Reserve Bank of Australia (RBA) left rates unchanged last night, and delivered a fairly balanced statement afterward… I like their approach, as they keep reminding the markets that they need to see what’s in the pipeline after all the previous rate cuts! This non-move was very much what the A$ needed to continue its march higher!

Now… I don’t like having to say this, but these strong currency moves were helped along by the strong performance (+214 points) in stocks yesterday… As we’ve been discussing for some time now, it’s just like when one Emerging Markets currency gets whacked, all Emerging Markets end up getting whacked… Stocks and currencies are considered “risk assets”, and have only on occasion over the years, been lock-step, with each other. So… When “risk assets” are going good, all “risk assets” get going… And vice versa… And… Like I keep saying, this is rare to see this, but we’re seeing it anyway, and judging from the speakers at the Total Wealth Symposium in Bermuda last week, it had better end soon enough, for those speakers all believe this stock market rally is nothing more than a bear market rally, and doesn’t have the legs to make us all forget the rot on the vine here in the U.S….

Whew! That was long run-on sentence, that I should go back and fix… But, hey! People talk like that, why not write like that! HA!

It looks like the European Central Bank (ECB) will meet this week, and some of thoughts in the markets here, is that the ECB will move rates lower. Those thoughts are also responsible for the drag on the euro to bring it below 1.34 this morning… You know what gets me though? Everyone in the world that follows these things has known since the Central Bank meetings were announced in December that the ECB would be meeting this week. And do you think they just had a V-8 moment this morning, and remembered the ECB might cut rates? This is all crazy! Yes, they know, and they did know, all the time the euro was rising like the Phoenix bird from the ashes the last 4 days.

Remember, a month or so ago, I told you about the games that people play now, every night and every day now? They have to do things like this to keep the euro from going off on a moon shot VS the dollar… The dollar’s rally since July 2008, is looking very worn out… Shoot Rudy, even Treasury yields are rising, which indicates the unwinding of all those safe haven trades… Now, I’m not saying that this is in “full swing” but it sure is showing signs… So, as I’ve explained a few times in the past, if the “safe haven” buys get unwound, the pressure on the dollar will be fierce… So… If the ECB “remembers” to remind the media that they have a rate meeting this week, after it looks like the euro is going to the moon, then you can put that down to “managing the rise”…

So… Have you heard of the Chiang Mai Initiative? It’s an agreement by Asian nations that will create a $120 Billion fund to serve as a “liquidity pool” by the end of the year. This money will be used to promote growth in the region and to defend currencies and guard against financial ills arising from the economic crisis.

I yelled across the desk yesterday when this news was announced, and Ty Keough said, “They’ve come a long way from a decade ago”… This was in reference to the Asian Crisis that did happen a decade ago, when all Asian countries melted down, led by Thailand… It’s taken these Asian countries a decade to deal with this, but at least they have done so now! I like this idea… And on a side bar… About 5 years ago, the Big Boss, Frank Trotter, and I put our heads together on an idea for an Asian Currency Union (like the European Union) with a single currency we called the “pan”… Could this be the baby step in that direction?

Speaking of Ty… Did you know that he once played on the U.S. national team, and would have played in the Olympics, but President Carter boycotted those Olympics held in Russia because Russia had invaded Afghanistan?

OK… Ty also sent me a story from the Financial Times (FT) last night regarding China… You’ll want to read these snippets closely…

“China and Argentina in Currency Swap”… OK, so what does that mean? Well here’s the FT to explain… “China, which is pushing to end the dominance of the dollar as a worldwide reserve, has agreed a 70 Billion renminbi ($10.24 Billion worth in dollars) currency swap with Argentina that will allow it to receive renminbi instead of dollars for its exports to the Latin American country.”

Folks… The Chinese are serious about ending the dollar’s dominance as a reserve currency. They’ve proposed using a new SDR (Special Drawing Rights) basket consisting of a veritable Whitman’s sampler of currencies… And now this… You’ve got to think that they are working on more of these types of currency swap agreements…

And then there was this… Still no “official” word on the results of the stress tests… Just news that Bank of America (NYSE:BAC) and Citgroup (NYSE:C) will both have to raise $10 Billion in Capital… The Wall Street Journal reported that yesterday… The longer we wait, the more the rumors will circulate about the results… For instance, there’s a rumor going ’round, that someone’s underground, no wait! The rumor is that 10 of the 19 so-called Big Banks, that had to undergo the stress tests will be told they need to raise more capital… That number (10) has come down though, just yesterday the rumors had it at 14!

OK… The “winner” for yesterday’s currency run VS the dollar, was the Brazilian real! I looked at the currency screen late in the day yesterday and saw the real had gained 2.76% VS the dollar in one day! Ok… That’s a good day, but what about the recent performance of this once high flying currency (before the selling began in July last year)? Well… Not too shabby… The past 3 months has seen the real gain nearly 8% VS the dollar!

Another high yielder that had a strong performance yesterday was the Mexican peso… Just in time for Cinco De Mayo! Yes, the Mexican militia defeated the French… But it’s not, as most people think, Mexico’s Independence Day.. That’s September 16… Oh No! I did it, I talked about Mexico… I can see the emails now! UGH! But the peso did have a strong performance yesterday!

The data cupboard is pretty empty today, after yesterday’s second tier reports of Pending Home Sales, and Construction Spending printed, and left us guessing what really is happening in the economy… Today, though, we’ll get a clear, concise, view of the economy from our Fed Chairman, Big Ben Bernanke! OK… I can wish can’t I?

Norway’s Norges Bank meets today… I’m not expecting a rate move here… But then, you never know for sure these days!

And finally… The price of Oil has really moved up in the past week… It’s done this before a few times, only to fall back.

Currencies today 5/5/09: A$ .7455, kiwi .5820, C$ .8540, euro 1.3390, sterling 1.5090, Swiss .8855, rand 8.2875, krone 6.5050, SEK 7.9175, forint 212, zloty 3.25, koruna 19.82, yen 99, sing 1.47, HKD 7.75, INR 49.43, China 6.8192, pesos 13.21, BRL 2.1125, dollar index 83.80, Oil $54.50, Silver $13.07, and Gold… $902.55

That’s it for today… As if I don’t get up early enough… I woke up for some unexplained reason 20 minutes before my alarm was to go off this morning… No sense trying to go back to sleep for 20 minutes! UGH! It’s down to the last 3 hours for my fave show 24… We actually saw Chloe actually cry last night! (for 24 watchers you know that’s a big deal!) I was way off yesterday in my thought that I had two weeks before traveling again… The Las Vegas Money Show is next week! UGH! I’ll be doing a web-cast at that show on Gold… I’ve never done a talk strictly on Gold, so this should be interesting… Any way, I believe all you have to do is go to www.moneyshow.com and register for my web-cast, and then you’ll be able to watch it “live” from Las Vegas! I had better get to work on that Gold presentation, so I don’t look like a dork… No wait, no amount of work is going to help me with that! HA! Cardinals’ centerfielder, Rick Ankiel had to be carted off the field last night after running into the outfield wall… Sure hope Rick is OK… All righty then… I hope your Cinco De Mayo is fun, and you have a Terrific Tuesday!

Source: It’s Cinco de Mayo!

Well… Nothing has changed since I left you last Wednesday. The awful economic data just keeps piling on, and the dollar gets bid up on safe haven purchases. We did see the Eurozone and Japan announce that they are in a recession… Chris was kind enough to leave me the following, so here’s some more Chris….

“The dollar weakened slightly after the US Industrial production numbers showed a rebound in October. The 1.3% monthly gain sounds great, but it followed September’s drop of 3.7% due to the Gulf Coast hurricanes. After adjusting for the effect of the hurricanes and a strike at Boeing, output dropped .7 percent during each of the past two months. The trend continues to be very weak, and the recession which currently grips the US is now expected to last through 2010.

The US was rescued from the last two recessions by US consumers, who continued to borrow and spend right through the previous slowdowns. But we can’t count on consumers to pull us out of this one. Plummeting home values, dwindling incomes and the near disappearance of credit have proved a potent mixture for the US consumers. The number of personal bankruptcy filings jumped nearly 8 percent in October from September. Filings totaled 108,595, surpassing 100,000 for the first time since the bankruptcy laws were changed in 2005. The number of filings were up nearly 34 percent from October 2007, and are expected to total over 1.2 million for the year.

Not only are bankruptcy filings up, but most filers have much more credit card debt than in years past. A recent study found that the typical family who filed for bankruptcy in 2007 was carrying about 21 percent more in secured debt, and about 44 percent more in unsecured debts like credit cards than those that filed in 2001. Don’t count on US consumers to rescue us this time, so who will? Pelosi and President elect Obama are already talking about increasing government spending to try and borrow and spend our way out, but any stimulus or massive government projects will only add to the overall debt and increase the deficits. We are already being crushed by our debt load, and increasing it won’t be a long term positive for the US. The dollar continues to be propped up by safe haven purchases and the global deleveraging, but this dollar strength can’t continue. Once we return to the underlying fundamentals, the dollar will fall.”

OK… Thanks once again, Chris!

The BIG NEWS today should come in the form of a testimony by Treasury Sec. Paulson, regarding his TARP… This should be interesting folks… You see there is a whispering campaign to withdraw the “blank check” that lawmakers gave to Paulson and Fed Chairman, Big Ben Bernanke, and any attempt to not fully disclose the details of what has been given out to date, or… Any more changing of horses in the middle of the stream, could cause a ruckus. It could also cause the safe haven boys and girls to go “all in” on their safe haven purchases, because, it will be just like last week, when Paulson did change his course for the $700 Billion bailout money, and the blanket of “unknown” was cast upon the markets, and the risk takers ran for the hills.

In other words… The Trading Theme that is in place that rewards the dollar when things look darker in the U.S. will be working overtime, buying dollars…

For the sake of honesty… And not that I’m cheerleading the currencies (I get real tired of this… Recently I’ve had some readers turn on me and accuse me of “knowing nothing” and being nothing more than a “cheerleader”) Come on! Can’t you see the forest from the trees? This is simply telling it like it is… WE have a HUGE deficit problem, and unless you are willing to begin paying taxes that amount to about 75% of your income to pay the deficit down, then we need to get the dollar weaker now, for that’s the only way we’re going to be able to pay down the interest alone on these debt obligations is with a cheaper dollar! So, yes, I push for that dollar to get weaker now, so that the tax obligations of my kids and grand kids aren’t oppressive!

OK, sorry but I had to get that off my chest… So, for the sake of honesty, let’s hope Paulson comes to the lawmakers with a cup of honest, and let the chips fall where they will. Oh! And yesterday, the Wall Street Journal reported that Paulson is unlikely to launch new bailout (the used “rescue” but we all know what it is!) programs, saving his unused horde of cash to hand over to the new Treasury Sec. and say, “here you go, spend it wisely, but just between you and me, this isn’t enough to help anything”

Judging from happened in the overnight stock markets, with the risk takers nowhere to be found, the consensus being the overnight markets don’t believe Paulson will deliver the goods, and stocks sold off in Asia and early Europe… I suspect that the U.S. market will take a cue from those overnight markets as well, at least until Paulson talks… And the Dow only has 273.58 points to give before falling below 8,000… UGH!

All those “Safe Haven buyers” must really be “scaredy cats” because as I look at the bond screens, I see that you will get 13 basis points for a 3-month T-Bill, and 80 basis points for a 6-month T-Bill… By the time the broker takes his fee or commission you are left with nothing! So, that’s the same as putting the money under your mattress or stuffing it in coffee cans and burying it in the back yard! And, if you want to talk long notes and bonds… Well, you’ll have to go to the 30-year bond before you can get yield that comes near to covering the inflation rate! Uh-Oh! Negative real earnings for the “safe haven buyers”…

How long can that continue? How long… Can this be going on? How long… Can this be going on? How long are these guys and girls going to accept negative real earnings? That’s the $64 question… But, I have to believe that once these “safe haven buyers” decide that they’ve had enough, the unwinding will go very quickly, and the whiplash we’ll receive from watching yields turn around will hurt!

And, with the unwinding of the “safe haven buys” one would think that the dollar gets put on it ear once again… That is unless there’s a new “hoola-hoop” for investors to move into… But since there’s no “hoola-hoop” to speak of, and probably won’t be, given the fact that the regulators will be scrutinizing “new instruments” to make sure they “don’t get fooled again”…

Did you see the news yesterday that Citgroup plans to cut 50,000 jobs? That’s just awful! And if true, will be the latest jolt to Wall Street! Chief Executive Vikram Pandit addressed employees in a town hall-style meeting Monday morning, giving them the bad news. These job cuts won’t take place overnight… And that they plan to be finished with them by the 3rd QTR of 2009.

The data cupboard today will give us a look at the Producer Price Index (PPI) (wholesale inflation), which is expected to fall from previous printings, as Oil prices have fallen faster than anyone and I mean anyone could have imagined. We’ll also see the TIC Flows (net security purchase by foreigners) for September… This data should see some improvement, but remain well below the figure needed to finance the current account deficit.

Yesterday, Capacity Utilization printed for October, and improved (on first glance, wait for the revision) on September’s revised downward figure of 75.5%… Capacity Utilization has long been a fave piece of economic data of mine due to the fact that it is one of the very few / rare pieces of data that is forward looking. Capacity Utilization weakness was one of the factors I used in calling the recession in the U.S. back in January. Capacity Utilization and the ISM Index (manufacturing)…

So, how about that stirring communiqué’ from the G-20 crowd! I was moved! The chills went down my spine, my eyes filled with tears of joy, it was something to behold! Oh? They didn’t do all that? I must have been dreaming, eh?

What a joke! These leaders from around the world met and didn’t come up with anything other than rhetorical direction only? Fire them all! Throw the bums out! This is ridiculous! It just shows me that they are probably more interested in pointing fingers than actually agreeing to work together to deal with this global problem.

So… Look for more of the Trading Theme today, folks. The deeper, darker, more dangerous clouds are moving back in over the U.S. economy.

Currencies today 11/18/08: A$ .6465, kiwi .55, C$ .8115, euro 1.2635, sterling 1.5040, Swiss .8345, ISK 182, rand 10.2850, krone 7.0180, SEK 8.0425, forint 214.40, zloty 3.0475, koruna 20.4280, yen 96.10, baht 35, sing 1.5270, HKD 7.75, INR 49.65, China 6.8280, pesos 13.22, BRL 2.3215, dollar index 87.07, Oil $54.80, Silver $9.35, and Gold… $736.75

Source: TARP Testimony Today

As you know, the British government charitably stepped forward and, dipping into taxpayers’ pockets, made depositors whole.

Here is another photo of a bank run, this time in the U.S. from earlier this week, as depositors sit comfortably under an awning on chairs thoughtfully provided by the management of IndyMac (IMB).

Now, you have to ask yourself a question or two.

Are these two bank failures members of the species of “black swans” you hear so much of these days? You know, outliers that come from nowhere and are expected by no one until they splash down next to you… and bite your face?

Or are they the first wave in an evolutionary process that will soon darken the skies with flocks of the breed?

The answer to this question is of no small importance.

You see, while the great unwashed of investor-world – those that get their investment ideas from watching Jim Cramer’s Mad Money — can handle a couple of bank failures, even a modest-sized number of same will, almost more than anything else, trigger real panic.

And in times of panic, people run for cover… increasing savings and holding off on discretionary spending… just the sort of thing that can turn a faltering economy into one for the history books.

It is worth noting that, while everyone tends to focus on the stock market crash of Black Monday, 1929, the worst of the bank failures didn’t occur until late in 1930 through 1933, with the Roosevelts’ euphemistically labeled “bank holiday” coming only on March 5, 1933.

With the rally in the U.S. stock markets this week, the financial talkies were abuzz with much speculation that the worst might now be over… and that the skies were bright blue and clear of anything other than swans of the white variety, handsomely offset by a puffy cloud here and there.

It’s a classic bear market trap.

The problems facing the banks are still miles away from being resolved… with the $5.3 trillion commercial real estate market now hanging by its fingertips over the same abyss that residential real estate has already tumbled into, the Fed clinging on its back like a powerless version of Gandalf.

Then there is the darkening picture on credit card delinquencies, which you can see in the graph below.

It is thus clearly in the interest of the banks, desperate as they now are to replace their evaporated capital, that investors not look too closely lest they discover the degenerated conditions and bleak prospects of many of the institutions.

And so this week the banks were pulling out all stops with “news” that could be spun into tidy sound bites such as these…

Citigroup Gains After Posting Smaller-Than-Estimated Loss of $2.5 Billion

Citigroup Inc. (C) rose in New York trading after reporting a smaller-than-estimated loss on fewer mortgage-bond writedowns, lower borrowing costs and job cuts.Citigroup, the biggest U.S. bank by assets, said its second-quarter net loss was $2.5 billion, or 54 cents a share, because of $12 billion in writedowns and increased bad-loan reserves. Analysts estimated the New York-based bank’s loss at $3.67 billion. The shares rose as much as 14 percent.

And this… JPMorgan (JPM) posted earnings of 54 cents, vs. $1.20 a year ago, and revenue fell 2.7%. However, Wall Street was expecting earnings about 10 cents per share lower. The bank took a $540 million hit related to its acquisition of Bear Stearns.The JPMorgan report isn’t the only evidence that some financial firms are avoiding the full impact of the financial crisis. Also Thursday, PNC Financial Services (PNC), the largest bank in Pennsylvania, said its second-quarter profits rose 19%. Earnings of $1.45 per share beat analysts estimates by 29 cents.

On Wednesday, Wells Fargo (WFC) sparked a stock market rally when it raised its dividend and its second-quarter profits impressed investors.Just as I was preparing to let out a long bottled-up Hip! Hip! and all that, a couple of items came across my desk. The first was an article out of Bloomberg…

July 14 (Bloomberg) — At an investor presentation in May, Citigroup Inc. Chief Executive Officer Vikram Pandit said shrinking the bank’s $2.2 trillion balance sheet, the biggest in the U.S., was a cornerstone of his turnaround plan.Nowhere mentioned in the accompanying 66-page handout were the additional $1.1 trillion of assets that New York-based Citigroup keeps off its books: trusts to sell mortgage-backed securities, financing vehicles to issue short-term debt and collateralized debt obligations, or CDOs, to repackage bonds.

Hey, what’s $1.1 trillion between friends.