GM’s Swedish unit Saab is filing for protection from creditors, so that it can reorganize into a business independent of GM… Hmmm… Everyone is jumping the GM ship…

Well, it’s Friday, and that means yesterday we saw the print of the Weekly Initial Jobless Claims… And once again, the rot on labor’s vine was exposed… The total Claims files last week was 627K, the experts had forecast 600K… But here’s the thing that really hits home… The number of Americans collecting unemployment benefits has jumped to 4.99 Million, and each week and new record number is established… It certainly tells me that the labor market is still deteriorating…

At this rate… Obama’s hope that his $787 Stimulus would create 3.5 million jobs, might fall well short even if it’s a Smashing Success!

There was a boat-load of other data yesterday, of which none of it was good, except the Leading Indicators, which again will be goosed up by stuff that ends up being no good to the economy!

Today, we end the week with the “stupid” CPI data for January… Long Time readers know my dislike for CPI and what it does to people who depend on checks each month, and to our pocketbooks… WE all Know inflation is higher than CPI says it is, but the Gov’t, and the markets go with CPI as the “official” inflation gauge… Dolts… All of them!

Well… The euro had a day in the sun, and today the clouds are forming over the single unit once again. Yesterday, I left you with a rallying euro, based on a rumor that Germany would step in to ease the financial turmoil in Europe (Eastern & Western)… Well, Germany’s Chancellor Angela Merkel left the markets “wanting” more… She acknowledged that Germany “could” help… But didn’t have a plan, didn’t have an idea of what to do, didn’t do squat! Why have the stupid press conference if that’s all you’re going to do! Get up there, have your plan, and act like you know what you’re doing… People will follow! Geez Louise! Now I have to rip on the dolts overseas too? I’m getting too old for this stuff!

So… The euro is back to 1.26 and change this morning, and the other currencies are following along… Risk Aversion has plopped right down, smack dab in the middle of what appeared to be a Risk Takers “sighting”…

Gold even saw selling as the day went along and the Risk Aversion crowd won the battle… That is until the overnight markets saw the lower prices in Gold, and you should have seen the “rush” into buy Gold! The shiny metal is up $13 this morning to $988.30… I heard one our sales people talking to a prospective buyer on the phone… The prospective buyer admitted wanting to buy Gold below $900, and was very upset to learn it had leaped over $900 a couple of weeks ago, and not looked back. Shoot Rudy! You never know, it could fall back there again… But the view from the cheap seats, where I sit, is a changing landscape, where fiat currencies are traded in for hard assets, like Gold… I’ve mentioned this for the past couple of weeks now, so this shouldn’t come as any shock to you dear reader… That is unless… You just “delete” the Pfennig each day! OH! The Shock! The Horror! The Humanity!

On a sidebar… I mention that, because one day about 4 years ago, Chris Gaffney and I were meeting with some investment advisors that we knew from Mark Twain Bank days… And I told them they should sign up for the Pfennig… Chris, then said, “if you don’t want to read it you can always just delete it”… Of course he didn’t mean it the way it sounded, but I give him a very difficult time still today… As evidenced by the above!

One currency that had moved stealth-like to higher ground VS the dollar since the beginning of 2009, was Indian rupees… Notice, I said “was”… As all that stealth-like move to higher ground VS the dollar was wiped out this week… I saw a headline last night that said this was the worst performance week by the rupee… OUCH! Time for the Central Bank to get back on the intervention horse, and repair this damage…

While I wrote those last two paragraphs, Gold has moved up another $2!

There was more selling in stocks yesterday as the Dow fell 1.2% to a new five-and-a-half year low, breaking through the previous bear-market closing low of 7552.29 hit on November 20, 2008.

And during my radio interview yesterday, I was asked about the comments from former Fed Chairman, Greenspan, that he “favored nationalization of banks”… I had seen that comment a day earlier and even commented to the Big Boss, Frank Trotter, that he sure didn’t make comments like that when he was the Fed Chairman… And referred to as the “Maestro” and “Mr. Free Markets” But now that he is retired and looking at the mess he created, and yes folks, he wasn’t the sole culprit, but he was the “provider”… And now that he’s looking at the mess he created, he thinks we’re in a huge pile of dookie, and had better do something, fast!

My friend, Bill Bonner, of the Daily Reckoning, (www.dailyreckoning) had this to say about Greenspan’s comments… “Greenspan backs nationalization,” says a headline.

Well, that does it for us here at The Daily Reckoning. If Greenspan is in favor of it, we’re against it. No one man bears more responsibility for the present worldwide financial crisis and coming depression that Alan Greenspan.

The Fed’s job is to take the punchbowl away when the party gets too wild, said former Fed chairman William McChesney Martin. Greenspan did no such thing. As soon as the party began to quiet down and people began fumbling for their car keys, Greenspan added more rum to the punch and turned up the music. By the time the credit cops finally shut it down, people were dancing on tabletops all over the world.”

This “nationalization” cry is a very bad idea folks… Very bad… How bad? Very Bad! Did I say that it was a Very Bad idea? OK… Is that clear? … Crystal… I hope!

Ty Keough sent me a note on something he saw while watching Jay Leno the other night. So, let me set the stage for this note… It’s Monday night, the country had celebrated President’s Day… And President Obama celebrated Past President’s Day by signing the $787 Billion Stimulus Bill… OK.. Here’s what Jay Leno had to say…

“Today was Presidents Day. Congress commemorated George Washington’s throwing a dollar across the Potomac by throwing $780 billion down a rat hole.”

I see where the New York State Attorney is taking a run at the Bank of America / Merrill Lynch merger that took place last year… NY State Attorney, Mr. Cuomo’s office is trying to determine if investors were misled about the depth of Merrill’s losses in late 2008 and whether details of the bonuses to Merrill employees, contained in a nonpublic document, should have been disclosed to investors. Now… I’m not saying that there was anything misleading or scandalous here… But it reminds me of about 8 years ago… Remember?

Remember about 8 years ago, when the tech-bubble burst, and we had one Corporate Scandal after another? Well, we’re not doing too well these days either… Madoff… Stanford… And there will be more… I shake my head in disgust…

Time to head to the Big Finish…

Currencies today 2/20/09: A$ .6415, kiwi .5075, C$ .7950, euro 1.2640, sterling 1.4350, Swiss .8450, rand 10.1650, krone 6.9125, SEK 8.7365, forint 241.50, zloty 3.76, koruna 22.8825, yen 94, sing 1.5360, HKD 7.7540, INR 49.77, China 6.8370, pesos 14.77, BRL 2.3850, dollar index 87.63, Oil $37.75, Silver $14.36, and Gold… $993.65 (still moving higher this morning!)

Source: Labor Market Continues To Deteriorate

Thus, always nervous and paranoid, it is not surprising that I see inflation in prices everywhere I look, which is not surprising since I also see inflation in money supplies everywhere I look, which causes inflation in prices, and so I was surprised when the Labor Department said that consumer prices fell 0.7% in December – falling for the third straight month! – and prices were up only 0.1% for the year, which is “the smallest increase since 1954”!

In fact, this is not exactly true, as at bls.gov we learn that, as we already know, “The Consumer Price Index for All Urban Consumers (CPI-U) decreased 1.0 percent in December, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The December level of 210.228 (1982-84=100) was 0.1 percent higher than in December 2007.”

However, when you look closer, you will see that the price of energy going down accounted for most of the lack of inflation, or, if you don’t want to look closer, you can just read where the Labor Department itself said, “Declining energy prices, particularly for gasoline, again drove most of the decline.”

To prove it, they go on “The energy index declined 8.3 percent in December. Within energy, the gasoline index fell 17.2 percent and accounted for almost 90 percent of the decrease in the all items index.” 90 percent! Almost all!

In fact, excluding food and energy, overall prices increased 1.8% “for all of 2008”, which is almost 2%, and as such is VERY worrisome when inflation should be zero.

There was bad news for those of us that eat food, however, as the food index rose 5.9% in 2008, as compared to 4.9% in 2007, “with grocery store food prices rising 6.6 percent in 2008 compared to 5.6 percent in 2007.” Yikes!

“In both cases,” the Department reports, “the 2008 increases were the largest since 1980” which is certainly NOT consistent with the headline news that prices were up 0.1% for the year, and reports of no inflation are a Hell Of A Long, Long Way (HOALLW) from the real news that “Among the grocery store food groups, the 2008 increases ranged from a low of 2.7 percent for dairy and related products to a high of 11.7 percent for cereals and bakery products.” A low of almost 3% increase in prices to almost 12% higher prices!

And if that is not bad enough, the index for medical care, which is a huge part of GDP, was up 2.6% over the past year, too! Inflation is everywhere!

And if inflation is actually so low, then why did NYTimes.com have the headline “Cost of Borrowing Zooms Up for Corporations”, which is apparently understating it, as “Even companies with strong credit ratings are paying about 5 percentage points more than the federal government to borrow money, according to Standard & Poor’s. That is more than double the premium they paid last January. Companies with so-called junk credit ratings are paying a 15 percent premium.”

This is, according to Diane Vazza at Standard & Poor’s, “an extraordinary spread” that is “unprecedented in the speculative-grade market.”

So don’t look to me for answers as to what any of this means or how to take advantage of “unprecedented” spreads, as I am far, far too stupid to make any sense of it, if, indeed, there is any sense to be made from it, and that is why I mindlessly, almost mechanically, buy gold, silver and oil, and why I suggest that you do, too, and spend your time productively engaged in downloading porn from the internet and making yourself a drink every time your glass is empty!

Which, now that I think about it, sounds like a very good idea right about now!

Source: Bad News For Those Who Like Food

The latest move probably comes as traders read the inflation tea leaves and do not see the Reserve Bank cutting rates this year. If today’s CPI data don’t confirm Monday’s PPI date, look for the Aussie to retreat.

However, if the CPI data show official prices growing above the 3-4% range, then for the rest of 2008 the Australian dollar is going to enjoy a significant yield advantage over most major currencies in the world. The Fed won’t be raising rates any time soon, and may cut them again. We believe that parity with the greenback is still a possibility this year.

It sounds extreme, especially since the Aussie has nearly doubled from its lows against the greenback in 2001. But if something grows at 7% a year, through the magic of compound interest, it will double in ten years. It’s not a big ask to grow another five percent in the next twelve months.

Heck, the Australian dollar is near parity with the Canadian dollar, another commodity currency with favorable fundamentals. Canada’s central bank cut its benchmark to three percent earlier this week, the fourth cut since December. Canada’s biggest liability these days could be its location.

Canada, as you might know, shares a rather larger border with the United States, and is America’s largest trading partner. America, as you might know, is in a recession. What’s bad for America is not good for Canada, nor, apparently its economic growth and thus, its currency.

Meanwhile, the U.S. dollar trades at US$1.60 to the euro, another new high (or new low, depending on your perspective). It’s astonishing isn’t it?

There are two ways to inquire about the U.S. dollar’s prospects. One is to ask: what would make it stronger? Higher interest rates, a lower deficit, reduced government spending, contraction in the money supply. None of those measures seem likely when foreclosures in California are up 327% from last year’s level. So that brings us to the other way of putting the dollar’s dilemma: what would make the euro weaker?

The obvious answer is: lower interest rates. But the old guard of the European Central Bank is dead set against lower rates. Europe’s dual Jean-Claudes (Trichet and Juncker) have an old fashioned view of a Central Bank’s mission: to combat inflation. “Inflation is a concern for all governments,” Juncker said earlier this month.

Correction. Inflation “should” be a concern of all governments. But central banks in Japan and the U.S. have expanded their fictional mandates to include employment, economic growth, and managing the deflation of asset bubbles. By contrast, Europe’s old-fashioned focus on price stability and money supply seems pretty single-minded and downright humble.

But then, Trichet and Juncker come from that generation of European money men who lived with the social and economic consequences of post-war inflation (both World Wars. ). They have real experience with the real world consequences of manipulating the value of the currency.

Wim Duisenberg, the first head of the ECB, once told politicians who told him to cut rates in order to promote growth, “I hear you. But I do not listen.” The ECB is deaf, and it’s not because it’s run by old men. It’s run by men, like our late mentor in these matters, Dr. Kurt Richebacher, who understand that stable prices mean a stable society. Unstable prices…and you have rice riots.

Mind you the euro has many critical problems of its own. Growth in the Eurozone occurs at different speeds in the North and the South. You have one price of money for twelve very different economies. The euro experiment may not last much longer than the dollar experiment. But relatively speaking, only some external shock (think bad things) can weaken the euro against the greenback this year.

Dan Denning
The Daily Reckoning Australia