The currency and metals markets began the day rallying versus the dollar, as it seemed yet another huge financial firm was circling the bowl. But late in the afternoon the dollar came charging back, and gold fell back below $850 after surpassing $900, ARRGH! So what caused this quick reversal? Senator Schumer was credited with turning the markets around. He announced, mid-afternoon, that the Federal Reserve and Treasury were going to create a new government institution that would purchase all of the toxic debt instruments being held by Wall Street. Wall Street obviously thought this was just a fantastic idea, and the stock market immediately rallied, taking the dollar with it.

The details of the plan still aren’t available, but the markets have been desperately searching for a hero to come and rescue them, so even the hint of a rescue was enough to shoot stocks back up. The proposal currently being discussed in congress involves moving troubled assets from the balance sheets of American financial companies into a new government backed institution. The SEC also instituted a ban on short selling of financial stocks, copying a similar ban that was instituted yesterday in London. Chuck had a travel day yesterday as the FXU moved from San Diego to Dallas, but he was keeping an eye on the markets and sent me this last night:

“The SEC is contemplating a ban on naked short selling… WHAT? OK… So… This is a free country, and a free market, as long as you follow the government’s rules? Oh Geez Louise, I give up! Not that this has anything to do with currencies, but it does have something to do with the overall direction of this country, which in my opinion is socialist!

“All of you know that I’m a person that is usually happy… But I’m telling you now… These things that the government is trying to do to plug up the leaking damn, are useless! I’m really upset with all this… And I thank my lucky stars that I thought to sell every stock I owned last October! I’m tired of all this junk (read what you want here, because I can’t say it) and I’m not going to take it any more!

“I’m with well-respected investment analyst, Marc Faber, when he says that the hopes for the return of a Bull Market is in ‘fantasyland’…

“So go ahead and lock us down like a police state! I’ll guarantee you it won’t solve a darn thing!

“I had better stop now, because I feel my blood boiling…”

You can always count on Chuck to tell it like it is! He will be back in the saddle on Monday morning with plenty more to say about all of this week’s shenanigans in D.C. and Wall Street.

Bernanke and Paulson have been worn down from the one-off situations they have been dealing with, and finally came to the realization that the problem is much more pervasive than previously thought. Options that U.S. officials are considering include establishing an $800 billion fund to purchase so-called failed assets and a separate $400 billion pool at the FDIC to insure money-market funds. What’s next? Maybe the government will buy all of the Icelandic krona (ISK) that our customers still own. Nope, you and I are just ‘investors’ and have to live with the bad investments we make. That is why this gets me so angry. The folks on Wall Street who made all of these very poor investment decisions using huge amounts of leverage aren’t being held accountable for their actions. These guys should be made to walk the plank, but instead they are skipping away with nice severance packages.

And what does this do to the balance sheet of our federal government? You have to remember, Paulson made his name on Wall Street – where leverage is king and the short term is all that matters. Do you really think he is worried about the billions of debt he has saddled the U.S. taxpayers with? It is almost hard to keep track of all the obligations Paulson and Bernanke have transferred from Wall Street to Main Street. The Treasury has pledged to buy up to $200 billion of Fannie (NYSE:FNM) and Freddie (NYSE:FRE) stock to keep them solvent, while the Fed agreed on September 16 to an $85 billion bridge loan to AIG (NYSE:AIG).

The Treasury also plans to buy $5 billion of mortgage-backed debt this month under an emergency program and the Fed has begun to accept just about any collateral the banks want to pledge at the lending windows. Yes, these two scoundrels have turned the federal government into a giant dumpster for any illiquid assets which Wall Street needs to get rid of.

The question is just how much debt can the United States take on? We are already running deficits that blow my mind; and interest on all of this debt will squeeze out spending for ‘good’ governmental programs. Yesterday the Treasury announced $200 billion in special Treasury bill sales to help the Fed expand its balance sheet. Senator Richard Shelby of Alabama – along with some others in congress – are critical of these takeovers. “We cannot protect all risk in the market, and we shouldn’t do it at the risk of the taxpayer,” Shelby, the ranking Republican on the Senate Banking Committee, said in an interview on Bloomberg this week. But Shelby and others in opposition to more debt won’t be able to combat Schumer and the powerful lobbies of Wall Street firms. The rescue plan will go through.

But where does that leave currency and metal investors? The dollar rallied on the rescue news, with the euro (EUR) falling back below $1.4350. The yen (JPY) got sold off as the Wall Street investors actually started moving back into leveraged carry trade positions. And why not? When the U.S. government will be there to bail out your worst investments!! The carry trade moves actually helped investors in the high yielding currencies of South African rand (ZAR), Brazilian real (BRL), Aussie dollar (AUD), Mexican peso (MXN), and the New Zealand dollar (NZD).

Several readers have asked me to write about what has been happening to the Brazilian real, which has been one of the best performing currencies up until the last two months. The sell-off in Brazil has been due to the ‘deleveraging’ of carry trades. Some investors borrowed funds at a low interest rate to invest into the higher yields of Brazil. With the turmoil on Wall Street, these investors have had to reverse their leveraged positions, selling the Brazilian real and converting back into the Japanese yen or Swiss franc to pay back their loans.

So the sell-off has had nothing to do with the Brazilian economy. Brazil still has an abundance of commodities, including large deposits of minerals and oil, which will continue to be in demand. The stability of their political system is also not in question. The question now is just how much of the appreciation of the Brazilian real was due to the ‘carry trade’ investors, and just how far it will fall due to these reversals. I believe the proposed ’solution’ on Wall Street will not end the recent market volatility. With higher volatility, these carry trades will continue their on-again off-again pattern. Look for further volatility in the carry trade currencies over the short-term. Longer-term holders should be protected by the commodity resources of Brazil.

The South African rand rose against the dollar for a second day as demand for higher-yielding assets and a rally in gold stoked demand for the currency. The rand was the best performer versus the U.S. dollar yesterday and rose as much as 1.4% to 8.0632 per dollar paring its weekly decline against the U.S. currency to 1.3%. As I stated above, the Aussie dollar also rose close to 2% versus the U.S. dollar overnight and the kiwi rose just over 1%.

When the carry trades get put back on, the big loser is the Japanese yen. Financial firms who are having problem borrowing U.S. dollars have turned to the Japanese banks where they borrow yen and then sell them into dollars. The yen dropped over 2% versus the U.S. dollar overnight due to this borrowing.

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! 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 Terrific Tuesday to you! It sure has been the weirdest weather for April that I can recall… We had a frost warning last night! UGH! Oh well… Onward and upward, as the Big Boss, Frank Trotter likes to say!

As we draw closer to the Fed rate announcement tomorrow, (the meeting actually begins today) I’m seeing more and more talk/speculation of the Fed announcing an end to this rate cut cycle after cutting rates 25 BPS. Hmmm… Interesting, don’t you think? I mean, come on, when has the Fed ever been that transparent? I know that Big Ben Bernanke said he was going to have the Fed be transparent, but he’s been in the Big Chair for a couple of years now, and there’s been no transparency to my knowledge… And I’m a Fed watcher, I’m a Fed watcher, watching rates go down.

This thought has the dollar swinging the hammer again… And every currency has taken a hit from the hammer overnight… Except for Chinese renminbi (CNY)… But then the moves there are so darn minuscule that it’s difficult to determine if it went up or down! HA!

Anyway… That’s the skinny on the move in the currencies overnight to a stronger dollar. These knuckleheads are forgetting something very important… The dollar’s fundamentals are awful! Forget for a minute about the interest rates being at the second lowest level for any G-10 country. Think back to the financing of the deficit problem I keep talking about. The recession going on… The housing meltdown… The subprime meltdown for banks/lenders and bondholders… A war… And you get a different picture for the dollar don’t you? Alright, it’s OK to bring back interest rates into the picture now. What you’ve got is a currency with awful fundamentals, and interest rates at 2%.

But… The markets don’t see it that way this morning… And I learned something long ago about fighting the markets… You lose! We just have to hope that calmer heads get a hold of the markets before the dollar rallies too much and the trade deficit goes even higher!

We begin to empty out the data cupboard today as the Case Shiller Home Prices report for February (two months ago!), is expected to show more rot on the vine with a 12% decline in prices.

And for anyone thinking that the housing meltdown has bottomed… The number of U.S. homes standing vacant has reached a record of 18.6 million. This is due to rising foreclosures. The 2.9% vacancy rate (vacant and for sale) represents a record in data back to 1956. OUCH!

We’ll also see the consumer confidence report for April, and it’s expected to keep the recent trend of weak confidence reports going… The Confidence Index stood at 64.5 in March, and the “experts” believe it will fall to 61.1 in April, which would be the lowest reading since 1993.

OK… We had another European Central Bank (ECB) member out talking hawkish yesterday; only this time it was the Top Cat – ECB President, Trichet. Let’s listen in to a snippet of his talk…

“It’s crucial that the Governing Council sets the appropriate monetary policy stance on the basis of no other considerations than the delivery of price stability in the medium term. The bank’s current policy stance will contribute to achieving our objective.”

That’s Central Bank parlance for… Beating Inflation is the ECB’s sole aim.

I’ve had quite a few people send me the column that appeared in Forbes titled: The Demise of the Euro. I’ve said this before, but for anyone that missed it… Here’s my take… I believe that this article is much like all the others we’ve seen announcing the end of the euro… They are all regurgitated. They have the same stuff each time regarding how Spain and Italy don’t like the “one policy meets all”, and they will leave the euro, thus causing the collapse.

Listen to me now, and hear me later on this… Spain and Italy should be thanking their lucky stars that they were ever invited to join the euro (EUR)! For once, these two countries, which had been known to have shaky finances, have inflation that’s at least in this atmosphere. They have budgets that are somewhat in line with the attempt to balance, and they have 80% of their trade among the other members in the Eurozone. Tell me again why these two are going to leave the euro.

OK… Onto other things… My friend the Mogambo Guru is back in rare form, after suffering a heart attack earlier this month. Yesterday he posted some very interesting numbers regarding the stock market rally… Let’s listen in to the Mogambo…

“And another horror is that the stock market went up, which is Pretty Freaking Strange (PFS) since Barron’s reports that the earnings of the Dow Jones Industrials went down, dropping to $225.53 from $234.49. This has produced the unbelievable price-to-earnings ratio of 57! Earnings are going down, but the stocks are going up! To a P/E of 57!

Un-freaking-believable!

“And not only that, but DJ Transportation index saw its earning drop, too, to $218.60 from $230.91, taking this index’s P/E to 23!

“And while the venerable S&P 500 has not yet shown any more deterioration in its earnings, the fact that the market went up made the P/E of this index go to a lofty 21! All of this in the face of deteriorating conditions and economic collapse! This is beyond incredible!

“How can you NOT run to gold in such crazy times? Ponder this question well, as a lot depends on your answering it correctly, much like when the minister asked you, ‘Do you take this woman to be your lawfully wedded wife?’, and you know how well that turned out. So, like I said, ponder it well!”

Ahhh… The Mogambo on a Tuesday! Folks it doesn’t get much better than that! You can read the entire article here.

Currencies today 4/29/08: A$ .9340, kiwi .7775, C$ .9875, euro 1.5575, sterling 1.9750, Swiss .9640, ISK 74, rand 7.5760, krone 5.1225, SEK 6, forint 162.15, zloty 2.2150, koruna 16.20, yen 104.10, baht 31.62, sing 1.36, HKD 7.7915, INR 40.40, China 6.9845, pesos 10.48, BRL 1.6865, dollar index 72.89, Oil $115.12, Silver $16.83, and Gold… $886.47

That’s it for today… Well… I began my last four weeks of cancer meds in my second phase yesterday. I don’t look forward to these four weeks, but I can’t dwell on it, so I’ll take it one day at a time. I go in for a scan this Thursday; they are still trying to figure out what that was that they saw on my rib two months ago. I’ve seen enough hospitals and imaging places in the past year to fill a lifetime. But hey! I’m here! And still full of you-know-what and vinegar every morning! In case you’re wondering why I’m telling you all of this… I receive a ton of emails from readers asking me to keep them up to date with my progress in fighting this cancer… So there you have it! And… I hope you have a Terrific Tuesday!

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Good day… And a Happy Friday to one and all! This weekend can’t get here fast enough for me. I’ve just been beat to all get-out this week, going home in the afternoon to sleep, waking up for a few hours, and then going right back to sleep at night. Much like last summer when I was recovering from those surgeries… Just a difficult week for yours truly.

It was made even more difficult with this dollar buying that’s going on, even if there isn’t any strong fundamental reason to do so! I’m still thinking that the Fed will cut 25 or maybe even 50 BPS next week. The markets seem to think that this will be the last rate cut by the Fed in this cycle, but I’m not in agreement with them on that. I still believe that rates will bottom out at 1.50%, which is 75 BPS from where we are now.

The dollar rallied most of the day yesterday but found a high late in the day and stopped rallying… But then in the overnight market, the dollar was bought again, with the dollar index rising to a one-month high – so it gained against all of the majors. We’ve seen this type of dollar frenzy before, but calmer heads have always come back to the table to point out the awful fundamentals that the dollar carries around like an albatross around its neck.

Last night was a holiday in Australia and New Zealand to celebrate ANZAC Day, which led to some of the dollar bull’s brashness. Without those two high yielders in play, the focus was on Japanese yen (JPY), and that didn’t prove to be good for yen, as the dollar pushed hard against yen, which then carried over to the euro (EUR), once London opened this morning.

Euros are more than 3 cents lower than there were on Tuesday. Shoot Rudy! Even the Chinese renminbi (CNY) has lost ground to the dollar this week, falling back to 7. I don’t think Mssrs. Schumer and Graham will like that!

The data in the U.S. yesterday wasn’t responsible for the dollar rally, as it once again just didn’t have the stuff that a strong currency can build on. March Durable Goods fell 0.3% (versus +0.1% forecast), but the previous month’s -1.7% decline was revised up to -0.9% – as if -0.9% is “good!” Durables weren’t exactly a great picture for the economy.

New home sales were atrocious, sinking 8.5% to a 17-year low in March. That’s absolutely crazy folks! And this guy, Richard Moody, chief economist for Mission Residential said, “There is little to support any claims that the housing market is stabilizing, let alone forming a bottom.” That’s right! And it’s about time somebody besides me was banging this drum and trying to get the government’s attention on this! But hey! We’ve got Big Ben Bernanke with his “What me, worry?” look, telling us this housing meltdown bottomed last August.

With this dollar strength, the price of oil has come down a bit, as if $116 is anything to get excited about… However, it is better than the $119 it traded at earlier this week. Then I saw something on TV last night that made me sit up and take notes. (And believe me that rarely happens.) There was an oil analyst talking, and when it got down to the cheese that binds, he blamed the high price of oil on the dollar debasement… WOW! Finally! Somebody besides me, talking about dollar debasing!

Here’s the thing that made me sit up and take notes… The price of oil when measured in dollars is up 319% in the past couple of years… But, against the euro it is only up 92%… (OK, 92% is a lot, I’m not sweeping that under the rug.) The point here is that look at the difference!

There are a lot of directions I can take here… Like… So much for those that keep spouting off that deficits don’t matter… Well… If we didn’t have the monstrous deficit that we do have, that requires over $2 billion per day in foreign investment to finance it, we wouldn’t have to allow this debasement to happen. OK, follow me on this…

As I’ve explained before, the deficit has to be financed… Either now or later, print money, bonds to sell, whatever, it HAS to be financed. The United States has had difficulty attracting enough foreign investment to finance the deficit in the past year… So… They could either raise interest rates aggressively to attract foreign investment, risking bringing the economy to a screeching halt, or… Allow a debasement of the currency, which would allow the foreigners to buy U.S. assets at a discount.

This debasement has been going on for six years now. It started slowly, gained momentum in 2004, only to see a dollar rally (because of props to slow the decline) in 2005, then the debasement picked up again in 2006 and 2007, and the first quarter of 2008. So… If you want to blame somebody or something for this mess… Blame the debasement of the dollar, which is needed because DEFICITS DO MATTER!

Whew! I’m tired after writing that; you should have seen my fat fingers flying (how about that alliteration?) across the keyboard! I was loaded for bear with that one!

So… Where do we go from here? Well… I for one, believe we’ll see this dollar rally last until the Fed meets next week. Once the markets get a strong dose of “Chuck was right” and the Fed cuts rates, the dollar rally will end. At least that’s how I see if from the cheap seats!

Today… We only get to see the color of the latest U. of Michigan Confidence report for the second half of April. You may recall that earlier this month this confidence index fell to 63.2, which was a low last seen in 1982… This second half of the month report is expected to remain at that low… I would think it would show more weakness, but then the stock market has recovered a bit in the past two weeks.

Bill Bonner here at The Daily Reckoning yesterday, called this “Noisy Markets” and that description fits what’s going on right not very nicely!

Yesterday, I talked about the rationing going on with rice… A reader in Kuwait, (yes, I have a reader or two in Kuwait, in fact I have readers all over the world!) sent me a note to tell me that “in Kuwait you can’t buy Indian rice for love nor money because India has put a total ban on all rice exports!! This happened in early April.”

But yesterday, we saw a story on the telly that said that there was no shortage of rice in the United States and that it was simply media hype… Hmmm, those are the same people that tell us that deficits don’t matter, and that we have little or no inflation too!

Good day… And a Happy Friday to one and all! An All Shook Up Friday for us here in the St. Louis region, as we experienced an earthquake this morning registering 5.4 on the Richter Scale. My house started shaking, and kept shaking, which led me to believe it was more than wind. The house was shaking so bad, it woke up my beautiful bride… Which isn’t something that’s easily done! Especially at 4:30 AM!

But, it looks as though all is right on the night, the earthquake was centered 127 miles east of St. Louis. As you all probably know, here in St. Louis, we keep the New Madrid Fault in the backs of our minds, and drag it out whenever we feel the earth move under our feet.

Well… European Central Banker, Juncker tried to “shake” up the currency markets yesterday with some comments about G-7. As I’ve said two times this week, I was afraid the markets didn’t understand the G-7’s comments about the currencies, and that thought was repeated by Juncker yesterday, as he said, “the markets did not correctly understand the G-7 message on FX”.

So, that was what put a bug in the bonnet of the euro (EUR) yesterday morning as I was signing off. And that carried through to the Asian markets last night… But, we’ve seen this before, right? Just a few weeks ago, we experienced euro weakness, but that bad “air” soon dissipated… And I would think this would too.

It all depends on the market participants and their will to push the envelope with G-7. If it were me… I would push the envelope and call their bluff. I truly do not believe a coordinated intervention will take place, for to do so, would require the United States to join in… And here’s where the oil in this machine gets all sticky. How can the United States intervene and buy dollars, when they keep harping that the Chinese renminbi (CNY) needs to get stronger versus the dollar? They can’t… If they did, the markets would take them to the woodshed… And the U.S. officials know that.

We had Fed Head Fisher our on the speaking circuit yesterday, and his comments also helped the dollar rebound. Fisher was talking “some sense” (believe or not!) on the subject of “attempting to inflate away the Financial System’s woes”, saying, “there’s danger of a wing-and-prayer promise to rein in inflation later” and then the fateful, “I maintain a strong reluctance to further interest rate cuts”.

Well… The problem here is that Fed Head Fisher is a Lone Ranger. Big Ben doesn’t share his thoughts, and when the Fed meets later this month and cuts rates, Fisher will probably be the lone wolf on dissenting.

So… After all this, the euro still has the dollar by the tail, as it maintains a strong base above 1.58… Of course, now that I’ve said that, we’ll probably see it fall further! UGH! The Chuck Kiss of Death or as in honor of my friend the Mogambo (TCKOD).

Well… The U.S. data yesterday showed more signs of recession, with the Weekly Jobless Claims jumping up to 372K from 355K the previous week. But the piece of data that really barked like a recession was the Philly Fed Index (manufacturing), which collapsed this month and fell from -17.4 to -24.9. This is the lowest level since January and February 2001, as we entered the last recession. Data back to 1968 shows that declines in the index below current levels has been consistent with recessions.

Of course you, a Pfennig reader, knew we were in a recession months ago, because I told you so! I bet you used that information as “cocktail trivia” to sound smart! Good for you! That’s they way more people see the “light”.

Alright, I went off on a tangent there… I’m just kidding you know… It’s just my nature to have fun!

So… The fundamentals haven’t changed. The U.S. deficit is soaring higher and higher, requiring us to attract more and more foreign investment… The economy is in a recession… Jobs are hard to find… House prices are falling… And we’re still fighting a war! Does this sound like the stuff that a stronger currency is made of? I don’t think so! So… If this isn’t a trend reversal, what is it? Ahhh grasshopper, it’s simply profit taking and the scared Nervous Nellies who are selling. It sure does give us some cheaper levels to buy euros, eh?

Not just euros… The whole cellblock is dancing to this jailhouse rock… So, if you can’t find a partner to dance with, grab a wooden chair! In other words… Find your fave currency and most likely it has been dancing to the jailhouse rock, and is now at cheaper levels than even earlier this week!

One currency that sat out the dance overnight was pound sterling (GBP). In fact, pound sterling has rallied on comments from the Bank of England (BOE). BOE member, Bean, tried to calm the fears of a huge sell off of pound sterling. Bean commented that the stimulus from GBP’s fall from the peak is roughly equivalent to a rate cut of 3% points and that GBP’s fall since August was “of the same order” as the fall after the ERM crisis in 1992.

All a bunch of rubbish to me… But it calmed the fears for a day at least!

Man… Did you see the awful earnings report by the brokerage that owns a Bull? In case you missed it… $1.96 billion net loss, with $9 billion more of mortgage-related write downs. I’m not picking on Merrill here, just posting what I believe will be more damage to the economy… This morning, Citigroup, posted an even bigger loss. Citigroup Inc. reported a net loss of $5.1 billion, and more than $10 billion in write-downs.

And… These reports lead one to believe they should buy dollars? Hmmm… If so, I’ve got some land.

Stocks were no great shakes yesterday, but at least they didn’t sell-off. So, that means the carry trade remains in place, and the weakness of Japanese yen (JPY) and Swiss francs (CHF) remain in place, while Aussie (AUD) and kiwi (NZD) are looking good! And always I tell you that it is better to look good than it is to feel good my friend!

There’s no data today in the United States so… It would appear that the dollar will end the week on an upbeat note. That’s OK… Even a blind squirrel can find an acorn!

Currencies today 4/18/08: A$ .9375, kiwi .7905, C$ .9925, euro 1.5845, sterling 1.9975, Swiss .9835, ISK 75.65, rand 7.76, krone 5.01, SEK 5.9285, forint 159.75, zloty 2.1560, koruna 15.81, yen 103.25, baht 31.44, sing 1.3530, HKD 7.7925, INR 39.93, China 6.9935, pesos 10.46, BRL 1.6540, dollar index 71.80, Oil $114.15, Silver $18.05, and Gold… $934.50

That’s it for today… So… Shake me, wake me, when it’s over… I thought of that great old Four Tops song, on my way to work this morning. Geez Louise, my poor face got fried yesterday at the ballgame… Good thing I had a ball cap on to protect my bald head! I was hoping last night that the red on my face would fade… But as I looked in the mirror this morning, my face is even redder! OUCH!

HEY! Sunday is the Big Boss, Frank Trotter’s birthday! Frank and I have worked together so long, that he was a young man when we started! In fact… The Dead Sea wasn’t even sick yet! That’s how long we’ve worked together! His beautiful daughters are all grown up now, I held them as babies! So… Happy Birthday, you youngster! (Frank’s 1 year older than me, so as long as I keep calling him young, I’m younger!) I hope you have a Fantastico Friday!

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Editor’s Note: Chuck Butler is the senior vice president of EverBank World Markets. He oversees the trading desk and operations for over 12,000 individual and corporate clients, both in the United States and abroad, who look to EverBank for FDIC-insured World Currency Deposit Accounts, and Single-Currency and Index CDs .

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.

Well… The dollar extended its mini-rally again yesterday. You know, I’ve just got to chuckle at some of these guys that write for the media. The dollar has a two-day rally, and you would think, by their writings, that the weak dollar trend is a thing of the past! I would argue quite differently, as you would expect!

We’ve seen these “flash in the pan” dollar rallies before; we’ve seen quite a few of them during the six-year weak dollar trend. As I always try to emphasize in my presentations… A trend is NOT a one-way street. There is always volatility, and this is what we’re seeing right now… This is NOT a trend reversal, as far as I’m concerned. It’s not a crying time… It’s a buying time… Well, it’s buying time again… WOW, even Engelbert Humperdinck gets some airtime in the Pfennig!

Yesterday, I told you about how there’s a chance that Iceland’s banks could see a financial crisis… Well… Iceland’s central banker, Fridriksson, says that Iceland’s economy and banks are “sound”. He cited the strong performance of the aluminum smelters, the fishing industry, and his budget surplus. He also cited the banks as “sound” and noted that “they are affected by the same situation in the global financial markets like banks everywhere, but we have no subprime exposure.”

OK… That’s a warm and fuzzy… Maybe he’s throwing up a smokescreen and maybe he’s bang on… I just have to question the “soundness”. One of my fave economists, Nouriel Roubini recently wrote, “Doubts over the health of its highly-leveraged banks came to the fore this week. The fear is that the government will be unable to support the banks if the banks run into trouble.”

WOW! You should have seen the email that a reader sent me yesterday from a very well respected analyst, Jim Sinclair. I’ve followed Jim Sinclair’s writings for some time, and he is usually bang on with his stuff. Well… He has issued a challenge to anyone questioning his call for a much higher gold price for the next three years… Bloomberg, CNN, CNBC, anyone willing?

So… If Jim’s formula for calculating gold prices is correct, and I have no reason to believe it wouldn’t be, gold has got to be at bargain basement prices right now, eh?

Well… It seems that the Fed is willing throw any dollar they can get their hands on at the current financial crisis… At what cost though? Money supply is surging and was even higher in March than the record level of February… So, it seems to me that with their decision last week to accept mortgage backed securities from brokers as collateral, interest rates being cut to the bone, and money supply surging, that the Fed has decided to throw caution to the wind of inflation.

I know I must sound like a broken record (or scratched CD for the younger people) regarding the Fed’s lack of attention to inflation… But mark my word, we’ll all regret the fact that the Fed allowed inflation to eat away at our wallets, while they went about “saving the world”. They are throwing us to the inflation wolves.

OK… So… I’ll get down off my soapbox now. Big Ben Bernanke will speak to Congress this morning on the economy. I wonder what he has up his sleeve… Speak the truth Big Ben… You’ll be remembered in a kinder light in the future if you just come clean.

We’ll see the color of this month’s ADP Employer Service’s report today… This ADP report used to give us an indication of the monthly Jobs Jamboree, but recently, it has been all over the board. Anyway, the ADP report is expected to show a loss of 45K jobs last month… Sounds about right to me.

As I look at the dollar the past two days, I see a currency that probably rose by default. What else could it do? The data from Japan and Germany wasn’t good, and the Reserve Bank of Australia kept rates unchanged for the first time in three months… So… I really don’t expect this dollar rally to last too long… About as long as it takes to read my book… No wait! I haven’t written a book! Oh, well… I should have… But there are only so many hours in a day.

Back to the dollar for a minute… The currency rallied yesterday, when U.S. Treasury Secretary Paulson announced a new plan to deal with financial institutions, Lehman secured $4 billion in a stock sale, and the ISM Index (manufacturing) didn’t fall as much as expected, although it remained well below the 50 level. Doesn’t sound like the fundamentals here are any better… In fact they just keep getting worse, but the mass media doesn’t see it that way… Too bad.

So… Soon… I suspect we’ll be singing the old Cyrkle Song… Red Rubber Ball…

And I think it’s gonna be alright

Yeah, the worst is over now

The mornin’ sun is shinin’ like a red rubber ball

With the stock market bounce yesterday, the high yielders got a boost… So nothing’s changed here. Stocks rally… Carry trades get put on… Japanese yen (JPY) and Swiss francs (CHF) go down, Aussie (AUD), kiwi (NZD), Iceland (c), and other high yielders go up. I find this to be quite interesting, given the fact that just last week, carry trades were being unwound faster than a speeding bullet!

That’s right… These carry traders can bask in the stock market’s sunshine for a day or two… But I can’t see this ending any other way than like a house of cards crashing down in a heap.

I read a story yesterday afternoon from HSBC that China’s net FX flows have topped $6 million dollars per minute. With the Fed’s rate cut last month, China now enjoys a positive rate differential to the dollar! Say it ain’t so Joe! We’ve recently seen some greater appreciation of the daily movements in renminbi (CNY)… So, that’s fueled expectations for even greater appreciation this year in the renminbi.

So, here’s the scenario in China… Overseas Chinese are pouring their dollars into China. Want proof? It was reported that there was an 80% year-on-year surge in retail demand for renminbi in Hong Kong in the first two months this year.

Have you noticed the nice rally in rupees (INR) lately? The Indian rupee had seen some profit taking and central bank actions have pushed it into the 40.80 region… But in the past couple of weeks it has rebounded nicely.

Currencies today: A$ .9130, kiwi .7910, C$ .9845, euro 1.5665, sterling 1.9840, Swiss .99, ISK 74.80, rand 7.8670, krone 5.1550, SEK 5.9850, forint 164.15, zloty 2.2275, koruna 15.98, yen 102, baht 31.50, sing 1.3790, HKD 7.79, INR 39.98, China 7.0180, pesos 10.55, BRL 1.7450, dollar index 72.38, Oil $102.03, Silver $16.92, and Gold… $891.29

That’s it for today… I got a call from a writer for the NY Times Magazine yesterday… He had read about me in Craig Karmin’s Biography of the Dollar. (It’s available on Amazon, should you be interested.) It was a cold one at the baseball stadium last night… Isn’t this supposed to be spring? I think I’ll go back to Florida! Wait! I am going back next week! Good! OK… I sure hope you have a Wonderful Wednesday!

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Editor’s Note: Chuck Butler is the senior vice president of EverBank World Markets. He oversees the trading desk and operations for over 12,000 individual and corporate clients, both in the United States and abroad, who look to EverBank for FDIC-insured World Currency Deposit Accounts, and Single-Currency and Index CDs .

Chuck is the author of The Daily Pfennig, which is reposted here at The Daily Reckoning. His respected analysis is frequently quoted in or referenced by: the Wall Street Journal, U.S. News and World Report, CBS Market Watch, USA Today, CNNfn, the Chicago Tribune and many other publications.