Chuck Butler (The Daily Reckoning):
As I checked the currencies throughout the day yesterday, I noticed that as the day went on, the non-dollar currencies were stronger, led by the Big Dog, euro (EUR)… But then late last night, and I mean late last night, I checked them, and those gains had been wiped out.

So, when I arrived here this morning, I had one thing on the top of my list of things to do, and that was to find out what happened… Come on, I said to myself, it had to be more than the “risk on, risk off” stuff that’s been hanging over the markets like the Sword of Damocles! But, when you get right down to the nitty gritty, that’s all it was… For once again, there was some data, or story, or rumor, that spooked the markets into believing the global recovery isn’t going to happen, and the “risk off” came into play.

So what was it that spooked the markets… Well… The only thing I can find was the report yesterday about falling Housing Starts that Chris told you about… Did you know that about 14% of US homeowners were either delinquent on their mortgage or in some stage of foreclosure? That is the highest rate since the group started collecting the data in 1972!

But there was something else that was announced as the day went on, that I think probably spooked the markets more than anything else… And that is a key House panel approved two amendments to a sweeping financial-overhaul bill that would give federal watchdogs new authority to audit the Federal Reserve, and would establish a fund of as much as $200 billion to help dissolve large, troubled institutions. Rep. Ron Paul (R., Texas) offered the amendment seeking to subject the Fed to audits.

The House Financial Services Committee voted 41-28 to approve the amendments, wrapping up weeks of debate but postponing a final vote on the bill until after Thanksgiving.

OK… More deficit spending for sure, and I’m positive that this was “hung on this bill” to audit the Fed as the only way it would get through the gauntlet.
Click here to finish Mr. Butler’s article at The Daily Reckoning.

Yesterday, we had a couple of Fed Heads talking, but the Big Kahuna stood out and moved the markets with his statements… Here’s the skinny…

Big Ben was giving a speech, and said, “The Fed will monitor closely the currencies, and the Fed’s policies will ensure that the dollar is strong.” Now, when he first uttered those words, the dollar got bought and the non-dollar currencies were sold… But then, a few of us had this feeling… It was a feeling that we had heard all this before… And there – in the archives, circa June 2008 – Bernanke said, “In collaboration with our colleagues at the Treasury, we continue to carefully monitor developments in foreign exchange markets.” Wait! We won’t get fooled again!

In June 2008, his statements spooked the markets into believing the Fed was really going to do something to bolster the dollar… But when nothing came along, the dollar REALLY got sold until the financial meltdown of August 2008… I mean… What has the Fed done in the past 1 1/2 years to “bolster the dollar”? Near zero interest rates that will remain in place for longer than they should… Quantitative easing… A bloated balance sheet of toxic bonds.

You could see the V-8 moments on traders’ faces when they realized, yesterday, that all this had been said before, and nothing came of it, so… We won’t get fooled again!

So, then traders reversed their buying of the dollar and sent the dollar to the woodshed. You should have seen the reversal… It was amazing…

Click here to read the rest of Mr. Butler’s article.

So gold is now publicly loved by armchair investors, famous hedge fund managers and central banks… even as we write, Erin Burnett is “squawking” about it on CNBC. Are your contrarian senses tingling yet?

“So many hedge fund managers and pundits are singing the same tune: long gold and short U.S. Treasuries,” our friend Dan Denning wrote in today’s Daily Reckoning. “The bond bubble could go on much longer than anyone expects. And when so many people agree on something, none of them are usually right. As a contrarian, you’d be worried about becoming a victim right about now.”

Finish reading this article on DailyReckoning.com.

Good day… And a Happy Friday to one and all! Today is Patriot Day in the U.S. and a day that brings back memories of cowardly attacks on our country 8 years ago. I remember the shock and horror on everyone’s faces, and that image will remain with me to the grave. I also remember trying to write the Pfennig the “day after”… It just didn’t seem that important of a thing to do, but a reader told me that to keep things as “normal” as possible was the best thing I could do… So… I wrote…

OK… The currencies, and this time I mean the majority of them not just euro and yen, added to their gains this week VS the dollar yesterday… The Big Dog, euro, is once again knocking at the door to 1.46… Who’s that knocking at the door, Who’s that ringing the bell? Do me a favor, open the door, and let ‘em in…

The dollar index has really tumbled this week… Recall when I told you how the dollar index was put together, that euros were really overweighed in the index, which means that even yesterday morning, when the dollar had rebounded a bit against the commodity currencies, the dollar index still lost ground, due to the euro strength… So, once again, I tell people that the dollar index isn’t a currency… To get real currency exposure, you must own the currency… And yes, you can buy all the ETF’s at Gary’s Stocks and Bonds you want, you can’t get the currency out of an ETF… So, if things come to push and shove, you may just want to have the ability to own the currency, eh?

Ok, I really went off on a tangent there… What I was working toward with the comment about the dollar index tumbling is that today marks the 6th consecutive day of the index falling in value, the longest such streak for the dollar index since March, when the dollar began going into the tank once again. And a lot of traders and such use the dollar index as an indicator… Well, fellas… That indicator is telling you something!

But I didn’t need the dollar index to tell me the negativity toward the dollar had begun growing again, and that risk assets are the king of the hill right now… And what is being used as the “funding currency” to purchase these risk assets? That’s right… The dollar!

The Japanese yen has joined its currency brothers and taken up the fight against the dollar… For the longest time, dollars and yen traded in tandem… But this week, things have changed, and yen is gaining VS the dollar… In fact, yen just went below 91! A stock company in Tokyo issued a report last night that said, “if the yen falls below 90 it may spark a downward spiral”… Hmmm…

The thing I pointed out to the boys and girls on the trading desk was that it was almost like “the old days”… The U.S. printed some bad data, and the dollar got sold! Now, that’s the way it used to be! The data I’m talking about is the Trade Deficit for July, which registered its biggest increase in more than 10 years in July, as surging purchases of oil caused an unprecedented jump in imports. The deficit widened by 16.3%, its largest percentage increase since February 1999, to $31.96 Billion. That’s up from the $27.49 Billion Deficit figure in June.

The trading pattern for a long time now was to buy dollars when bad data printed, (safe haven, they thought!) and the currencies would suffer… But, yesterday that changed, at least for that piece of data it did. Like I always say… One swallow doesn’t make a summer… In this case, one “fundamentals trading day” doesn’t make for a new trend… But it could be a start, and one that I would welcome with open arms!

We’ll see how that holds up today… On this Friday, the 11th of September, Patriot Day, we’ll see the Monthly Budget Statement, which should be quite a doozy, and the U. of Michigan Consumer Confidence… Probably split down the middle as far as negativity toward the dollar, unless that is, the Consumer Confidence surprises on the downside… But with the stock market kicking rear and taking names later, I would be shocked if Consumer Confidence was weak!

The Monthly Budget Statement, read Deficit! Is forecast to print a whopping addition to our already eye-popping Budget Deficit, of $140 Billion! Recall that we all thought last month’s deficit of $111 Billion was bad… Well, we’ll see your $111 Billion, and raise you $29 Billion!

That’s just shameful folks… We, as a country, continue to spend what we don’t have, and print money, and do all the stupid things that got us to this place to begin with! Pursuing the same stupid policy of excessive spending, debt expansion and monetary inflation can only compound the problems that prevent the required corrections. Doubling the money supply didn’t work, and neither will any amount of money supply!

I read this somewhere, forgive me but I don’t recall where, and it stuck in my head… “Buying up the bad debt of privileged institutions and dumping worthless assets on the American people is morally wrong and economically futile.”

The Chinese see what we’re doing folks… And they don’t like it one iota! Why does that matter, you may ask? Ahhh grasshopper… Come, sit… Did you ever borrow money from your parents, grandparents? (I didn’t, but I know how it works) Well, in the presence of the people you borrowed money from, you are thrifty, and show that you are doing what it takes to pay them back… Hmmm… Think of China as the parents that have lent money to the child, the U.S. They see us as doing harm to their money…

I know, that I’ve talked about this so many times before that you’re tired of hearing about it… But, China is the gate keeper folks… We were stupid enough to get to this place, with all our deficit spending, and now… As my mother used to say… You made your bed, now lay in it!

Well! Someone opened the door and let the euro in! The single unit just traded above 1.46! You, are my shining star! Well, wait a minute here, Chuck… There are a lot of shining stars in the sky for us to see, especially when you get out into the country away from the city lights! In the case of currencies being shining stars… Aussie, kiwi, real, loonies, Swissie, krone, are all up there in the sky to shine for us all!

I know that a lot of people do not believe in the Chinese economic growth story… That’s OK… But without it, we wouldn’t be having this rally in risk assets… So… I tend to go along with it, until somebody can prove to me that the Chinese data is bad… For instance, last night, China reported that their Industrial Production rose 12.3% in August VS a year ago. I told you long ago that China would be the first country to come out of the global recession… And they have proved that to be bang on!

I received a note yesterday that put a smile on my face… The note was from the “Audit The Fed Coalition”… I’ve made such a stink about the need to audit the Fed, and to support Ron Paul’s HR 1207, Bill that calls for such an audit, that these people have made me an honorary member of their coalition! Any way… The note said that House Financial Services Committee Chairman Barney Frank has officially agreed to hold hearings on HR 1207! The hearings are tentatively scheduled for Friday, September 25 at 9:00 am.

This doesn’t mean we’re home free here… It just means the Bill will take the next step toward giving the American people the ability to see the man behind the curtain, and where the money is going, etc. in other words, the Fed would have to defend itself to the American people…

And this has nothing to do with currencies and economies, but I have to get this off my chest… I read where U.S. Treasury Sec. Geithner, has proposed that bankers get paid in equity, something that can be “clawed back” if the bank doesn’t perform. This reminds me a Gov. we had here in Missouri years ago, he said he wouldn’t raise taxes without a vote of the people… But after being elected he raised the taxes without a vote by the people… But he also then put in place a law that prevented any other Gov. from ever doing that in the future… This is the same thing with Geithner… He would have stomped and whined for days years ago if they told him his pay would be in equity rather than cash…

OK… I’m back now… Hey! Gold is back above $1,000! Yesterday, it was $984, when I went through the currency round-up… And I had told you all that my new thing was to look to buy on the dips below $1,000… BTW… I wrote my Gold piece I told you about the other day, the Publisher rejected it! YIKES! Back to the drawing board!

OH! I almost forgot! The Bank of England (BOE), and the Bank of Canada (BOC) both kept rates unchanged as expected… The BOC, which I took to the woodshed yesterday morning, maintained their “conditional” commitment to keep rates at .25% until near the end of 2010… Again, I just don’t see how they can make that statement… The data in Canada lately has shown signs of a nascent recovery… I would think the BOC would have to move earlier should this recovery get legs…

And… Finally, I’ve complained for years about this guy and his jawboning and dissing his own currency, and he’s at it again… Reserve Bank of New Zealand’s (RBNZ) Gov. Bollard, said, “the currency’s gains are undesirable and unhelpful for an export-led recovery”… Now, that’s true in one sense… But, not completely true! Look at the euro! It’s strong, and Germany’s exports are rivaling China’s! I feel bad for kiwi… It’s just not right for a Central Banker to talk about wanting his country’s currency to be weaker! Where have you gone, Don Brash?

Don Brash, was the Gov. of the RBNZ years ago and understood the “perception” that a strong currency gives to a country! I met Don Brash years ago, and in fact have a picture of him with me! Oh well… A little history never hurts!

So… Let’s recap… We have a strong currency rally going on, after the U.S. printed an awful one month increase in the Trade Deficit. The euro has scratched and clawed its way back to 1.46 this morning, and we’re holding our breath for the Monthly Budget Statement today…And Gold is back to $1,000!

Currencies today 9/11/09: A$.8650, kiwi .7085, C$ .9295, euro 1.4615, sterling 1.67, Swiss .9655, rand 7.57, krone 5.91, SEK 6.98, forint 186.66, zloty 2.86, koruna 17.44, RUB 30.73, yen 90.80, sing 1.4210, HKD 7.75, INR 48.46, China 6.8290, pesos 13.41, BRL 1.81, dollar index 76.59, Oil $72, 10-year 3.35%, Silver $16.88, and Gold… $1,002

That’s it for today… American Flag on the house today for Patriot Day… And tomorrow, it gets changed to my BIG M Flag… M for Mizzou! Or for those of you out of the state… The University of Missouri! Tomorrow is my little buddy Alex’s first football game of the year… He’s in 8th grade now, and the size difference of these boys at this age is amazing! Alex is on the small side, but so was I when I was his age! I don’t worry about him out there, because he has a bulldog attitude, with a motor that doesn’t stop on the Football field… I wonder where he got that? HA! Speaking of which, I watched some of that football game last night, the first NFL game of the year, and Troy Polamalu was something! OK.. Gotta go.. Just one last cheer for Old Mizzou, and those Lindbergh Flyers 8th grade team! Now… Let’s get working on making this a Fantastico Friday!

Source: Patriot Day…

When I signed off on Friday morning, the currencies were enjoying a very nice rally, which remained in place the rest of the day. The Consumer Income and Spending data was very much as I describe it would be, and so there was no surprise for the markets to deal with. You may recall, that I told you that Spending would be greater than Income, as the “Cars for Clunkers” probably had something to do with the Spending be so much stronger than the Income piece…

The currencies ran into a speed bump in the overnight markets though… When I checked the Japanese market last night, stocks were rallying on the news of the election results. The ruling party was voted out, and a pro-consumer driven growth party was put in… But, I guess what turned this around overnight was the fact that while the opposition party in Japan ran on a platform that promised change, when the dust settled, there are many questions… And when there are questions about leadership, risk assets don’t fare too well… And thus, the reversal of the currency rally.

So, as we all know, the trading pattern of the last 9 months… When risk assets don’t fare well, the dollar and Japanese yen do… And vice-versa. Yes, even though Japanese stocks sold off overnight, the yen was in play. It’s just some strange phenomenon that has a grip over the markets for 9 months…

It will be interesting to see if the opposition party in Japan will actually change the way the Gov’t does business… And if it does, what kind of “change” will take place. One would hope for the Japanese economy that it lifts the economy from the doldrums that have hung over the Japanese like the Sword of Damocles for a very long time now… That’s right! We’re not talking 2-3 years, not 5-6 years, not even 9-10 years… Japan’s problems go back to the early 90’s… YIKES!

Every time, the economy would attempt to pull itself up by the bootstraps the Japanese Gov’t would introduce some sort of stimulus, and burden its Gov’t with more debt… I know it sounds familiar… And I long ago told you all that the U.S. was following Japan’s steps, but hoped that the U.S. would not take 15 years or more to reverse their steps… Unfortunately, those hopes and dreams are taking a beating!

Which is why I questioned the reappointment of Big Ben Bernanke last week. The leader of the Fed Heads, has really, in my opinion, stepped in the doggie dookie and followed the Japanese even though he said he wouldn’t! My friend Bill Bonner had an interesting thought about Bernanke’s reappointment… “Obama picked him to continue as head of America’s central bank, the Federal Reserve…even though his predecessor, a Republican, appointed him.”

I know, I know, the media is making Big Ben out to be the “savior of the world” right now… I suggest we all wait-n-see if all that he’s done really does “save the world” or if it just masks the problems, and they come back even worse in the near future… If I were a betting man, I would put money on the latter of those things.

I noticed a story on the Bloomie this morning that says “The Federal Reserve will be unable to prevent the Trillions of dollars in Government stimulus pumped in the U.S. economy from stoking inflation later this decade, according to a survey of business economists.”

They didn’t ask me… But I would have been all about that idea!

In fact, I think the cartel, I mean the Fed Reserve will have to accept the fact that inflation is growing at first, because they 1. won’t recognize its beginnings, and 2. won’t have the guts to raise interest rates, and remove quantitative easing at the first signs of inflation, because the economy’s recovery will be nascent at best. So, a higher level of inflation will have to be accepted by the Fed… And unfortunately, you and me!

OK… Let’s stop talking about the Fed, they make my stomach turn any way!

When I got home last night, I was reading a story that really got me thinking… The story was about how China has gone from Exporter to Importer. The story explains that the stimulus that the Chinese Gov’t put into the economy this year, has really spurred consumer demand, and exports from South Korea jumped 26.6%, Taiwan 41%, Japan 30.2%, and the European Union 23.5%…

The idea here was that the Chinese Gov’t wanted to reduce their dependence on the U.S. consumer… You see, from my vantage point, the Chinese Gov’t has done their part in curbing the global imbalances that used to exist, and I used to rant about almost every day! Now the trick is to see if the domestic demand can really take off from here now that the stimulus has, well, stimulated the economy! And did you see where China announced that they are going to begin to build light trucks? Putting people to work making things… Wow! What a concept! It’s what made the U.S. economy powerhouse that it once was…

The South China Morning Post had a very interesting story in it this morning regarding the Chinese renminbi becoming an international currency. Let’s go to the tape! “Vice-Premier Wang Qishan has been put in charge of a task force to make the renminbi (yuan) a currency for international trade. The recession has encouraged Chinese officials to speed up the currency programme. As the downturn erodes U.S. influence, China is losing faith in the dollar and sees the time coming for the renminbi to become a major world currency.

The renminbi is not convertible for purely financial purposes, ruling it out as a reserve currency for now, but China has started to carve out a bigger international role for it, beginning with the currency swap agreements China has put in place.”

SEE! I TOLD YOU! I TOLD YOU that was what China was doing when it signed those currency swap agreements with 6 different countries, and is currently working on ones with Brazil and Thailand! China was gaining a wider acceptance for their currency… Slowly but surely (who’s Shirley?) China was begin to provide convertibility to the renminbi, and then and only then will it be picked up by currency dealers all around the world! It’s all happening right before our eyes folks… Don’t close your eyes, this won’t go away by closing your eyes!

Staying in Asia… The Indian GDP surprised on the upside when it printed last night… A 2nd QTR 6.1% rise in economic growth VS last year, is a very good performance for India. The rupee has been hanging around a corner for the past couple of months, so maybe this kind of news will attract foreign investment once again, and drive that currency higher VS the dollar…

You know… The data that printed in the U.S. last week, wasn’t half bad! In fact, as long as you don’t want to turn it over to expose the rot on the underside, you might begin to feel as though the economy is recovering… Unfortunately, there is that rot on the underside to deal with… Therefore, I’m pinning my colors to the mast of a “W” shaped economic future… I know Chris talked about this while I was in San Francisco, and gave all his reasons for his thoughts… So I won’t go over them again… But just to say that the rot on the underside of the economy is what leads me to think this…

The data cupboards all over the globe will get a workout this week… There are 2nd QTR GDP’s to print, Manufacturing Indexes to print, Jobs Jamborees, and Central Bank meetings… So, the currencies won’t have to take their only direction from stocks! The currencies will bet taken in so many directions this week, which is why I’m saying right here, right now, that this will be a very volatile week… This Friday will be interesting in that, a lot of the “big boys” on currency trading desks will be gone to add a day to the Labor Day Holiday weekend, and volume will be thin, but Friday is also a Jobs Jamboree Friday…

The sell off that I saw going on in the currencies when I first began writing this morning, has picked up steam… But still, not a strong sell off just yet…

And on that note, I’ll head to the Big Finish! But for one more thought… The U.S. 10-year Treasury Note yield has fallen in the past week, which means there had to be some buying of the note to drive up the price (remember, with bonds, when the price goes up, the yield goes down, and vice-versa). You don’t think it could be more Fed buying do you? I have my suspicions for sure!

Currencies today 8/31/09: A$ .8380, kiwi .6815, C$ .9060, euro 1.4280, sterling 1.62, Swiss .9415, rand 7.7875, krone 6.0250, SEK 7.1550, forint 190.30, zloty 2.8750, koruna 17.77, RUB 31.8350, yen 93.25, sing 1.4435, HKD 7.7505, INR 48.82, China 6.8305, pesos 13.29, BRL 1.8810, dollar index 78.49, Oil $71.15, 10-year 3.41%, Silver $14.72, and Gold… $955.37

That’s it for today… It’s going to be a hectic week here, so I had better get my rest when I go home! Mike Meyer just walked in, and he had Lasik done on his eyes Friday, and he’s smiling from ear to ear! So… I guess it all went OK! A great weekend for the Cardinals, who are really on a roll, and probably hate to see August end! We were all sitting around a campfire on Friday night, listening to the ballgame, when Albert Pujols hit his “walk off” home run… High fives all around! This coming weekend will be a 3-day Labor Day Holiday weekend. College football begins this weekend, which means my beloved Missouri Tigers play Illinois at the Dome downtown. Go Tigers! It’s a rebuilding year for the Tigers, but I still expect them to be good! And congrats to the U.S. kids from California who won the Little League Championship yesterday… OK… Time to go… I hope your week starts off with a Marvelous Monday!

Source: Renminbi To Become An International Currency?

The euro has received some additional love this morning, as the Eurozone’s economic growth printed better than expected, albeit still negative… But… Germany and France showed growth, which I must say is very unexpected! That means that both Germany and France have exited the recession… Well, that is at least for now! For those of you keeping score at home, Eurozone GDP fell -.1%, which is far better than the -.5% that was expected… Oh! And this is for the 2nd QTR… You would have to think that data like this would be very good for the euro, and from the looks of it, that’s exactly what’s happening!

Whenever the Big Dog, (euro) gets off the porch to chase the dollar down the street, all the little dogs get to chase too… And so, the usual suspects have posted gains since yesterday morning, like Norway, Switzerland, Aussie and so on…

The BIG news yesterday was from the FOMC meeting, where the Fed Heads left rates at near zero, but were kind enough to tell us that their Quantitative Easing would remain in place through October… That’s all nice and sweet, eh? So… What, are they going to do here, Buy some Treasuries out in the open and say see we told you we were going to do this, and then go back to the dark, smokey room and buy some more from the Primary Dealers just for GP? That just ticks me off! But there’s not a darn thing I can do to stop them!

What I would like to do is to start a movement to abolish the Fed… OK, who’s with me? I just had a chuckle, because that reminded me of the Will Ferrell Old School movie when he’s trying to get people to streak to the commons… Come on now, if you’ve seen that movie, you know you’re laughing right now!

I had a guy one time tell me, I know of no one that can talk serious one minute and go right into some funny thought, sing a song, or whatever the opposite reaction would be to the serious thought, like you do, Chuck… I thanked him!

But getting back to the thought of abolishing the Fed… Think about this for a minute… What good are they? Have we not had dozens of recession and one Great Depression since they were created? Have we not seen a 95% loss of purchasing power for the dollar since they were created? Let me tell you something else, folks… If the markets set the interest rates based on activity, we would never experience inflation or deflation…

OK, I’ll stop there, I know that I’ve ticked off a few people that think the Fed walks on water, and is here to protect us financially…

Well… In news you won’t hear on radio or TV… The U.S. Budget Deficit swelled to $180.7 Billion in July, from $102.8 Billion in June… Hmmm… Think about that for a minute folks… In June, when quarterly tax receipts should be enough to cover the expenditures, they not only were not enough, but they fell short by $180.7 Billion dollars! This is a combination of slower tax receipts because of the depression were in, and… The unsustainable deficit spending by the Gov’t. Oh! And the Budget Deficit year to date is now $1.27 Trillion… But you don’t see the knuckleheads in Washington D.C. doing anything about it, except for coming up with new things to spend more money on… I say fire them all!

Speaking of tax receipts… My friend, and writer & Marketing genius extraordinaire, David Galland, had this to say recently in one of his most excellent news letters… Here’s David…

“I like the idea of also forcing the government to stop automatically withdrawing taxes from paychecks. Instead, wage earners would be responsible for sending out their tax payments on a monthly basis. By my back-of-the-envelope calculations, it would take about two months of writing out the big checks to Uncle Sam before people came to grips with just what government (or, in this case, one slice of government) is actually costing them… and out would come the pitchforks. We cannot afford our current level of government, and the sooner we get around to cutting it back, the better. Period.” — Thanks David… As always you think on a different level than the rest of us!

The Trade Deficit also grew larger in July as Oil prices rose… The Trade Deficit moved to $27 Billion from $26 Billion… Now, the Trade Deficit is much smaller than it used to be thanks to the depression, but, the fact remains that it is still nipping at the heals of the dollar like one of those small dogs, and whenever it is that the U.S. comes out of this depression, this figure will balloon once again…

Today’s data will be dominated by Retail Sales for July, which because of the CARS program, will be stronger than usual, probably getting quite close to a positive 1% for the month… Less Autos, the data would be quite disappointing at just .1%, but, you know me… I don’t like that taking this, that and the other thing out just so things look the way you want them to look!

It’s also a Thursday, so the Weekly Initial Jobless Claims will also print. Recall that on Monday of this week I told you the data would get going again this week? Well, we’ve got it going on today for sure!

Yesterday, Norway’s Norges Bank met, and while they left rates unchanged, they became the first Central Bank to move to a tightening bias! YAHOO! And the krone was the best performing currency yesterday and overnight on that news, as it should! Long time readers know my affection for the krone due to a number of reasons, but none so important than the fact that Norway has a financial surplus, has had one, has one, and will have one for as long as I can see… Norway didn’t get involved in the sub-prime bond buying game… And they have a very strong Central Bank in the Norges Bank… Last spring, the NY Times, which I don’t read for a number of reasons, but had this sent to me, called the Norwegian krone the safest currency in the world. Now… I like it when someone other than me climbs out on that limb, especially if your going to climb that far out!

Tonight, the Gov. of the Reserve Bank of Australia (RBA), Stevens will provide a testimony to the Parliament regarding the economy, etc. I think that the A$ traders are holding their breath until he speaks, as this could be a real market moving speech! But then it could also be as dull as watching paint dry…

The A$ is back above 84-cents after spending a couple of days down in the 82-cent handle…

OK… So… We had good news from Germany, France and Norway this morning… Not so good news from the U.S. though…

Realty Trac Inc. is reporting this morning that a total of 360,149 properties received a default or auction notice or were seized last month. UGH! Foreclosure filings in the U.S. climbed to a record for the third time in five months in July. All those jobs that were cut and still being cut, are having a real negative affect on this, and personally, I don’t see this getting any better any time soon! UGH!

There’s been a lot of talk about the news the other day that China’s loan growth had seen a huge fall last month… A lot of people think that this is the end of China’s growth… I see it differently… I see it as China just taking some air out of the balloon… They saw their economy moving ahead of the rest of the world at a very fast pace, and didn’t want it to: 1. overheat, and 2. Have nowhere to go with everyone else in recession… Now, I’m sure a lot of you will say, Chuck… Doesn’t China risk the chance of popping their economic bubble altogether? Well… Yes, they do… But, they knew how to administer stimulus to make the economy click, I assume they know how to pull some if back when they need to…

And… I just think about the fact that since 2003, I’ve seen story after story by writers that thought they knew what was happening in China, say the economic growth was going to slow down… And they were WRONG!

And with that thought… No wait! I’ve got another thing from David Galland… He said that Dan Ferris sent this to him… “Members of Congress should be compelled to wear uniforms just like NASCAR drivers, so we can identify their corporate sponsors.” yeah, right on! Now that’s change that’s really change!

Currencies today 8/13/09: A$ .8440, kiwi .6795, C$ .9245, euro 1.4275, sterling 1.6625, Swiss .9315, rand 7.9675, krone 6.0220, SEK 7.1475, forint 188, zloty 2.88, koruna 18, yen 96.20, sing 1.4415, HKD 7.7515, INR 48.10, China 6.8337, pesos 12.84, BRL 1.8385, dollar index 78.50, Oil $71.64, 10-yr 3.73%, Silver $15, and Gold… $957.15

That’s it for today… I had a long time reader send me a note yesterday and tell me that I have enough to worry about with the Fed, Treasury, deficits, etc. and shouldn’t get worked up when the Cardinals lose a game they should have won… HA! Yes, that’s correct! It is just a game… And yes, I’m talking about baseball, not the Fed, Treasury and deficits! HA! Well… I go to the knee doctor today, I’m afraid of what he’s going to find… All I know, is that the pain, swelling and stiffness is much worse in this knee than it was in the right knee that I had scoped in 2003! UGH! My little buddy, Alex is home. He seemed to have grown 6 inches while at camp! OK… I must really be running late, as Mike, Suzy Q, and Mary are all here! So… Get that Tub Thumpin’ Thursday going!

Source: Germany & France Exit The Recession

The biggest news to hit the markets yesterday was the Treasury Department’s report that the deficit in June totaled $94.3 billion. This monthly deficit pushed the deficit for the fiscal year to over $1 trillion dollars for the first time, and we still have another quarter to go until the fiscal year ends in September. It comes as no surprise to readers that the deficit is above $1 trillion, but what is a bit unnerving is the speed at which the red ink is flowing.

According to the Treasury department’s report, spending in June surged 37 percent to $309.7 billion while revenue fell 17 percent to $215.4 billion. June is typically a good month for revenues, and the reported deficit was the first since 1991. Individual and corporate tax receipts are falling while unemployment continues to rise. But the revenue picture isn’t nearly as bad as the other side of the ledger. The administration is just starting to ramp up the spending from the $787 billion stimulus package President Obama signed into law in February. And as Chuck has reported, the administration has already started to lay the groundwork for another big stimulus package.

Congress seems to be turning a blind eye to the deficit, why let some red ink keep them from accomplishing all they set out to do? Just this morning, the day after we surpassed the $1 trillion deficit mark for the first time, the democrats have unveiled their long awaited health care reform. The program, by most estimates will add another $1 trillion to the deficit over the next several years. Sure, I think we all would like to see an improvement on the current health care system, but what a time to try and shove it through congress! I’m sure you will start to hear a chorus of ‘deficits don’t matter’ by the media; as they try to convince all of us that these new programs are just too important to let a little thing like red ink keep them from passing.

But deficits do matter! Other than the fact that someone is eventually going to have to pay all of this debt off, financing this shortfall is going to continue to get more difficult. Interest rates will certainly rise from their current low levels, and for the fiscal year to date, the interest expense on the government’s outstanding debt was $320.7 billion. As rates rise, this interest component will also rise, chewing up a larger percentage of our overall spending. Rising interest payments will continue to push out spending for other, more productive programs and force either a reduction in government services, or a dramatic increase in government revenues. Look out for some dramatic tax increases!

The huge deficit continues to worry our foreign investors, who have thus far financed all of our free wheeling spending. China, Russia, and some of the oil rich Arab states have all expressed their concerns regarding the security of US debt and the stability of the US$. Japan’s opposition party, leading in polls ahead of next month’s election, is the latest country to question the long term viability of the US$ as the global reserve currency. Japanese investors are the biggest foreign holders of US Treasuries after China, so the talk of diversification away from the US$ could have a big impact on the currency markets. “In the medium to long term, we need to do what we can to avoid the risk of currency losses or economic turbulence that could result if the dollar were to swing,” said the opposition party’s finance minister in an interview. “Many countries are starting to diversify their reserves.”

The biggest currency gainers vs. the US$ yesterday were the commodity currencies of the Canadian dollar, Brazilian real, New Zealand dollar, and the Australian dollar. Yesterday Chuck let everyone know he had finally put the finishing touches on our latest index cd. It just so happens that the new index combines three of these top performers. The new index CD, named the Global Power Shift Index is a combination of the Australian dollar, Canadian dollar, Brazilian real, and the Norwegian krone. Chuck designed this new index CD to take advantage of commodity price increases which are bound to occur as the global economy starts to recover. Call the desk for more information on this newest addition to our stable of offerings.

The Australian dollar got a boost from the business sentiment which turned positive in June for the first time since December of 2007. This should help convince the central bank to keep interest rates stable as the Australian economy starts to show signs of a recovery. The kiwi also got a boost as Reserve Bank Governor Alan Bollard said “Early signs of a global recovery have now emerged.” Rates in New Zealand will likely remain stable as the commodity driven economies turn the corner.

Today and tomorrow will bring us a plethora of data, with PPI, Advance Retail sales, Business Inventories, and the ABC consumer confidence numbers today followed by the release of the CPI numbers, Empire manufacturing, Industrial production, Capacity utilization, and the minutes of the June 24 FOMC meeting to be released tomorrow. Thursday we will get the weekly jobs data along with the TIC flows and Philadelphia Fed index. We will close the week out on Friday with news on the US housing market with the release of Housing starts and Building permits. All of this data could bring some excitement to the currency markets, which have settled into a fairly stable summer trading pattern.

Currencies today 7/14/09: A$ .7878, kiwi .6336, C$ .8742, euro 1.3983, sterling 1.6317, Swiss .9227, rand 8.1989, krone 6.4653, SEK 7.8388, forint 197.26, zloty 3.1216, koruna 18.6183, yen 93.14, sing 1.4590, HKD 7.7505, INR 48.84, China 6.8328, pesos 13.654, BRL 1.9782, dollar index 79.97, Oil $61.10, 10-year 3.45%, Silver $12.935, and Gold… $926.19

That’s it for today…The home town favorites, Albert Pujols and Ryan Howard couldn’t quite get it done at the derby last night, but it sure looked like everyone had a great time. Three of the guys on the desk went down to the derby last night, and I actually saw both Mike Meyer and Tim Smith in the right field bleachers scrambling for one of Cecil Fielder’s 16 homers. My wife and I were lucky enough to get invited to tonight’s game by a good friend. I’ve heard we will have to be heading down a bit earlier than normal with President Obama in town to throw out the first pitch. Should be a great time; I just hope the rain holds off. Should turn out to be a Terrific Tuesday! Let’s go National League!!

Source: Blood in the Streets

Good day… And a Marvelous Monday to you! A Home Run Derby Monday to boot! I have no Idea what’s going on this morning, as I just woke up, and it’s very late in the morning! I was very careful to set my alarm last night, and I’ve never been one of those people that hit the snooze button when it goes off, but here I am, waking up late… UGH!

So… I’m writing from home, and then I’ll shoot in to work… We’re short handed this week, so, I’m sure everyone will be arriving to the office, not see my car, and be a little ticked… So, I’ve got a surprise for them, something they’ve never seen… Me come in late!

Well… It looks like Risk is under pressure once again… And the only thing I can see that’s causing this Risk Aversion, is the Corporate Earnings Season… For instance we get 4 banks reporting this week, Goldman (yes, remember they’re a bank holding company now… They ex-chief, and ex-Treasury Sec. Paulson, made sure that the change was made so that Goldman would qualify for TARP last year!) We also have JP Morgan, Bank of America, and Citi…

Data wise, there are a few top shelf reports out this week, and the thought of them showing more dandelions instead of green shoots, is probably wearing heavily on the risk assets this morning too.

So… The euro is sitting just below 1.40 this morning at 1.3985, so no real harm being done at this time, but still the bias is to sell the risk assets like currencies and commodities as we start the week.

You know, I’ve harped about this for so long now, that I sound like a broken record, OOOPS! For the younger crowd that would be a scratched CD! What I’m talking about is the fact that the risk assets like currencies and commodities being thrown into the same barrel has stocks… And how I was just wishin’ and hopin’ and thinkin’ and prayin’ that we would return to the fundamentals of these asset classes not having anything in common with the stocks! I just knew… No wait, I can’t say that… I just knew, not that I know anything on the inside, that is… That stocks were going to be under pressure from the Corporate earnings season, and with the “link” still in place… That wouldn’t be good for currencies and commodities… Let’s hope I’m wrong!

The one piece of data we get today is the Budget Statement… Last month, the Budget Statement printed an awful deficit of -$189.7 Billion (May)… Historically, June prints at a surplus… But Historically, so did April, and April was no where near a surplus this year! Year-to-date receipts for the Gov’t are down 18%, and Year-to-date outlays are up 19%… That doesn’t bode well for “history to come into play here”…

Last week, on Thursday, reported Friday in the Pfennig (thanks Chris!) was the Weekly Initial Jobless Claims, which printed the lowest level for this data series in more than 6 months, at less than 600K! But still, the number is still staggering, and one of the reasons that Commercial construction in the U.S. is set to decline 16% this year, followed by a 12% fall in 2010. No jobs… no need to build offices for the “ghost jobs’ that the BLS adds each month, because… THEY DON’T EXIST!

No need to get me started on the BLS (Bureau of Labor Statistics) this morning… I have to be clear and concise to get this out the door and me off to work!

Well… With the risk aversion back on the table… The two main beneficiaries remain to be Japanese yen and the U.S. dollar… Swiss francs are on the “kids table” but still a part of the beneficiary crowd…

The High Yielders like Aussie, kiwi, and South Africa get taken to the woodshed, when Risk Aversion comes to town… The Brazilian real is seeing a bias to sell, but for the most part has hung in there… Of course I remember saying that exact line early last fall, only to watch the real play catch up, until the turn-around in March of this year. So… I guess, what I’m saying is be careful!

So! Did you hear that Russian President Medvedev, showed off the “new world currency coin” at the G-8 meeting last week? He said.. “We are discussing both the use of other national currencies, including the ruble, as a reserve currency, as well as supranational currencies. So… Here it is! This is a symbol of our unity and our desire to settle such issues jointly.”

He then pulled a new coin out of his pocket and displayed to the attendees… Now… Don’t get all tied up and twisted over this at this point. This was simply a “symbolic” move, there aren’t mints all over the world rushing to get these coins minted and out the door… But, if you get the “symbolic” part, then you understand what Medvedev was attempting to do here… He was simply showing the G-8 attendees that if they really thought about it, they could see the need to move from a dollar reserve system, and to help them visualize it, he had a coin to pass around!

I can’t believe that right now, with the whispering campaign to get an alternative reserve currency, that the dollar isn’t getting sold, as I like to say, like funnel cakes at a State Fair! I guess the whispering will have to get louder, for this to make any real waves….

You know, I’m not for this “global currency”… I just wanted to make that clear! I’m not for removing the dollar as the reserve currency, for I know all of the “perks” that go along with it being the reserve currency! I’m just here to report the facts, and give my opinion / market commentary on how I think it will affect things…

I do believe, however, that given our deficit spending, and every growing to the moon National Debt, that the dollar deserves getting whacked, it’s how things are done! Treasuries will get their comeuppance too one day… You can’t just keep printing and printing and thinking that “buyers” will be there at the auction every time you print more… It’s not going to happen that way… At least in my thoughts it won’t!

OK… Time to go to the Big Finish… I know, I know, little shorter than usual this morning… But Hey! It was still chock-full-o-news!

Currencies today 7/13/09: A$ .7750, kiwi .6225, C$ .8605, euro 1.3980, sterling 1.61, Swiss .9240, rand 8.2930, krone 6.4830, SEK 7.9025, forint 198.10, zloty 3.1475, koruna 18.62, yen 92.10, sing 1.4650, HKD 7.75, INR 49.08, China 6.8328, pesos 13.71, BRL 1.9965, dollar index 80.16, Oil $59.96, 10-yr 3.30%, Silver $12.50, and Gold… $912.70

That’s it for today… Went to the Futures Game yesterday, to sit through a 4-hour rain delay… UGH! Let’s hope the rain stays away for the next two days! Home Run Derby tonight, All-Star Game tomorrow night. The family is all going to the Fan-Fest today, while I’m at work… Hey! Somebody has to work! HAHAHAHAHA! My beloved Cardinals went into the All-Star Game break on a good note, winning 6 of 10 on the road trip to end the 1st half of the season… This will be a very busy week for me, lots of writing to get done, and all the All-Star festivities… I go to my new oncologist this afternoon for the results of my scans on Friday, so all that and doctors stuff on top! UGH! Oh well, next Monday I head to Vancouver for the Agora Financial Wealth Symposium, their 10th year anniversary of the conference! And then I head off to vacation! So… Busy, busy, busy… Time to hit send, Hope your Monday is absolutely Marvelous I tell you!

Source:  Back To Risk Aversion!

Good day… And a Tub Thumpin’ Thursday to you! I’m late, I’m late! I don’t believe I ever heard the alarm go off this morning! I overslept by more than an hour, and will still be here more than an hour before any sign of someone else! But! That puts me behind by more than an hour today… I’ve got to play catch-up! So, let’s get this Tub Thumpin’ Thursday going!

Well… Let’s see… G-8 never had the opportunity to shoot fireworks because China’s leader had to return home to deal with the street riots going on in his country. So… The call for a replacement for the dollar as the reserve currency will have to wait for another day! And, with that news, the dollar got to remain in the sunlight, and bask in the glory of being the reserve currency and so-called “safe haven” another day…

There was added Risk Aversion yesterday when it was reported that an Australian shipment of coal to China was cancelled… This sent bad vibes through the markets for the currencies and commodities with the thought that China was putting the brakes on their buying of raw materials, and that their recovery had not taken hold like many had believed…

But… Overnight, calmer heads have prevailed. You see, it was my opinion when I heard that news yesterday, that it was simply one bad shipment to a customer that was having difficulties… Not ALL OF CHINA! And then overnight the data came out… This was one shipment, maybe 150,000 tons of coal… Australian coal shipments to China on a monthly basis run about 3 million tons! I truly believe that Australia’s trade with China is on terra firma, and this was a one-off deal that went bad… I also believe that the sell-off of the Aussie dollar (A$) was completely overdone… Completely!

I don’t know this to be a fact… But, given the relationship of the Asian investors and the A$, I would think the Asian investors to be licking their chops to have the opportunity to buy the A$ at these lower levels! Buy on the dips, right? Don’t I always say that to be a prudent investment strategy?

Of course it didn’t hurt that U.S. stocks rebounded yesterday a bit on the news that Alcoa’s losses weren’t “as bad as expected”… Talk about setting the bar low! It’s not like ALCOA didn’t still have a LOSS! But, don’t get me started on this mental giant thought process that has a grip on stocks these days… “oh, don’t worry, you only burned down 1/2 of the house, I would have expected it to all burn down!”

I’ve got to leave that alone before I really burst! Let’s see, what can get my mind off of that subject… OH! The Bank of England (BOE) just announced that they would keep rates unchanged. Well, my goodness, what else would we expect them to do? Their base rate is .50!

Here in the U.S… The Obama administration is trying desperately to nip in the bud, the whispering campaign for another stimulus package… “No one in the administration is talking about a second stimulus at this point,” said Robert Nabors, deputy director of the Office of Management and Budget. However he also mumbled something about how the President is not “ruling anything out”…

I don’t care what they say… I’ll believe it when I see it… And I still believe that the Gov’t will believe that another stimulus is needed…

One of the discussions that I had with my fave economist the other day was about “delaying the inevitable”… I’ve talked about this before, but for new readers, I thought I would give them a dose of “Chuck’s Thoughts” this morning… (HA! As if they don’t get that every day!)

This “delaying the inevitable” is all about the TARP (troubled asset relief program) and how it all did was allow bad banks to continue to be bad banks longer, with toxic waste in their portfolio… This, even in the face of a suspension of the mark to market rules! Bad Banks should have been sent packing, then… And now, all we’ve done is let them hang on to cause even more collateral damage!

OK… I’ll get back to the daily discussion now…

It looks as though the auction of $35 Billion in 3-year Treasuries went smoothly, which is another reason the dollar was strong yesterday… Every time one of these auctions go smoothly, the “deficits don’t matter” crowd all point and say… “see, we told you, that foreigners will always come to the auction to buy Treasuries, so it doesn’t matter what we run the deficit up to”…

Right! You just keep thinking that, and see where it eventually gets you! Ty sent me a note yesterday from an article he was reading, that plays nicely with this discussion… So… Let’s play Marvin Gaye, and see what’s going on!

“For now, the Treasury continues to find takers for government savings bonds at low interest rates. But somewhere between here and infinity lies a point at which American debt reaches unsustainable proportions, at which investors will balk at continuing to finance the American expenditures absent a higher return on their investments. Then, everything could change quickly, with interest rates soaring and the value of the dollar plummeting, as foreign investors lose faith in its fundamental value.

“We’re running this $10 trillion gamble that interest rates aren’t going to rise,” said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund and now a professor at Harvard. “If they do, we could end up in a very difficult situation.”

Hey, you think so, Kenneth? My goodness, we have a new “Mr. Obvious!” I would think that we are already in a very difficult situation, given the fact that when the you know what hit the fan the U.S. had no war chest to use, like China did… Why? Because we didn’t think “deficits mattered”… Dealing with problems from a position of strength, it would have made a HUGE difference from the get-go!

However, having said that… I believe that a larger problem is still on the horizon for the U.S. and the “deficits don’t matter” flag wavers… And Hey! It’s not going to happen overnight… It’s going to be a slow, dragged out, problem that goes on for years, and then finally snaps! I’m talking about the entitlements and the retiring baby boomers… And more specifically when I’m talking about entitlements, I’m talking about Medicare!

The Big Boss, Frank Trotter, showed me a graph that he came across from the Concord Coalition the other day that illustrated this… While I wasn’t shocked, having seen this all in the movie I.O.U.S.A. and in the book of the same name, there it was again staring me in the face…

The reason I tell you all this, is that the Current Administration has no other choice but to allow the dollar to weaken considerably over the years so that these deficits that “didn’t matter” can be paid off with cheaper dollars… And it won’t be this administration that has to deal with it… That’s why this one and the previous one aren’t concerned about the size of the National Debt…

Ok, enough of all that… I didn’t mean for this to be gloom and doom! Let’s move on…

The data cupboard has the Initial Weekly Jobless Claims for us to view today… I expect for the weekly number to remain above 600,000, and the Continuing Claims to have risen… Though this all sounds bad, the markets have become comfortably numb with this unemployment data… It will take something really BIG to slap the markets in the face and say WAKE UP!

And then, finally… The Japanese yen has really been on a tear this week as the Risk Aversion crowd dominated the markets… I find it very strange that Japan is considered a “safe haven” currency, given their national debt problems… And their once “Ace in the hole” the Trade Surplus, is taking on water… But… This is what the markets do, and they are never wrong! However, there’s a road block ahead for the yen, as it trades with a 92 handle this morning… And the road block is in the form of the Bank of Japan. (BOJ).. It was reported that last night the Bank of Japan issued a statement to the markets that “they were checking FX levels”

That’s Central Bank parlance especially coming from the BOJ, for… We don’t want the currency to get any stronger, and we’re just letting you know that we’re ready to intervene if you don’t settle down. Sort of like when grandma would tell you that if you didn’t settle down she would send you to the woods to find your switch… Believe me you only didn’t settle down once!

And when the Risk Traders come back and push the Risk Aversion crowd to the back of the room… Again, we’ll see yen sell off again… So be careful here!

Currencies today 7/9/09: A$ .7845, kiwi .6305, C$ .8650, euro 1.3980, sterling 1.6260, Swiss .9250, rand 8.11, krone 6.4925, SEK 7.8590, forint 196.70, zloty 3.1150, koruna 18.55, yen 92.90, sing 1.4580, HKD 7.75, INR 48.71, China 6.8317, pesos 13.47, BRL 2.00, dollar index 80.21, Oil $61.29, 10-year 3.39%, Silver $12.95, and Gold… $915

That’s it for today… Well… I got the news from the eye specialist yesterday regarding my left eye… The tumor and the fluid on the eye is gone, they successfully shrunk it and removed it… Unfortunately it left a ring of “stuff” on my eye, and my eyesight from that eye will never get any better. Of course, I still have my right eye, so I’m not completely bummed… My cutie little granddaughter, Delaney Grace came by to see me yesterday, she wanted me to come “sit by her” She’s almost 2 now, and saying her ABC’s, and singing songs, and she showed me how she knew her right from left now… Such a little joy to be around… I’ll get to spend a whole week with her in about 10 days when we all go on vacation together… Can’t wait! Well, my lateness has put me way behind this morning, I had better get going… Don’t forget… Today is going to be a Tub Thumpin’ Thursday no matter what!

Source: Risk Returns… Slowly

So… When I came in on Tuesday, the euro was 1.3920… When I came in this morning, the euro was trading 1.3925… Trading with yesterday’s clothes on. Back and forth, back and forth, the currencies seem to be in a rut… So, what happened to all the thoughts yesterday that China was making its first of many baby steps toward removing the dollar as the reserve currency? Well… They had the cold water of denial thrown on them… And the fact that apparently traders out there don’t believe the “China story” that I put on the table yesterday.

That, and the fact that U.S. stocks saw selling to the tune of -161 points in the DOW… I saw a story last night that came from a report by UBS, that said the euro will suffer in the coming weeks because of the U.S. earnings season putting pressure on stocks… Now, I agree with that statement sort of… I agree that right now, currencies are tied to risk assets like stocks, all thrown in the barrel like some college fraternity drinking party mix.. Not that I would know anything about that… But I’ve heard about it for sure! So, any way, back at the ranch… And I agree that the Corp earnings season in the U.S. is going to be very disappointing, causing stock prices to be weaker, and that will put pressure on the other risk assets, like currencies, and commodities…

But it doesn’t have to be that way! For as long as I could remember, well, back to 1992, when I began dealing currencies, I have not seen stocks, currencies and commodities all tied together for any long period of time… Whey they are thrown together now, has not been rationally explained to me by any one! But they are… The markets have done this, and the markets are “never wrong”… And once again, my thought that the markets always do what they are supposed to (which in this case would be a split of currencies and commodities from stocks), just not “when”!

So… Even though we’ve seen signs of the “break-up” the link / tie is still there, maybe not as strong, but still there…

So… I can hear you asking… “Hey Chuck, what’s it going to take to get these asset classes to break the link to each other?” Whoa there partner! You’ve learned well grasshopper, what a wonderfully crafted, and well thought out questions! Thank you sensei… You’ve trained me well!

OK, enough of all that! Let’s see… What’s it going to take?… Hmmm… Well, it will take a return to fundamentals… And I don’t think we’ll see that in earnest until the U.S. shows some life, and all the talk about additional stimulus goes away… The more we put 100 miles of desert between the financial meltdown and where we might be going, the better the chances of a return to fundamentals.

OK… There’s a BIG debate going on with the two sides in completely different colored corners… In the Blue corner we have those that fear the $1.1 Trillion in money supply that the Fed has put into the economy, and the fear that the Fed will leave rates too low for too long, thus creating inflation on the other side of this current phase of asset price deflation… In the Red corner, we have those that are true believers of the Fed and that they will be able to remove the stimulus of money supply and low interest rates without even a hint of inflation…

In the Blue corner is where you’ll find me… John Williams… And Morgan Stanley among other notables… In the red corner is where you’ll find a handful of economists, and Goldman Sachs… Speaking of Goldman, you wouldn’t expect them to say anything else but to support the Gov’t / Fed on this would you? I mean, it’s almost like they are related to each other! It gets a little creepy for me… But I think you get what I’m saying here…

And down south in Brazil, where one piece of good news from the country is followed by another, as witnessed by yesterday’s announcement that Moodys was going to review Brazil’s ratings for a possible upgrade, which was followed by a research report from Merrill Lynch. The brokerage that owns a bull, but is now owned by Bank of America, issued a research report saying that “Brazil’s real may gain the most among Latin American currencies in the 2nd half as a rebound in prices of the country’s commodity exports buoy the trade surplus.”

Well… The 1st half wasn’t so darn shabby for the real, as it gained over 16% VS the dollar in the 1st half of 2009… But we must temper this euphoria with the real with a dose of “reality” (get it?) This real is one volatile currency! The wild swings are enough to give the faint of heart a need to grab the heart pills! And… It IS AN EMERGING MARKET! And we all know that EMERGING MARKETS can be trying on one’s patience…

OK, having said that… You can’t deny that Brazil has really turned things around from 8 years ago… And now they’ve teamed up with heavyweights Russia and China, and brought along India, to form the BRIC’s, which have been giving dollar bulls major headaches in recent days as they demand to be a part of the world’s financial discussions, and work together to bring an alternative currency to the world’s stage…

The G-8 meeting that has been on most currency traders’ minds is going on as I write… At this point, China has not been allowed to speak, but they will be given that chance soon enough… Right now, the discussion is going on about how to make oil markets more stable… Hmmm… I’ve got the answer to that one… Find an oil reserve in your country, and then forget about everyone else’s oil problems! HAHAHAHAHAHA!

In Australia overnight, Consumer Confidence is on the rise, even if the currency has taken a step back… Consumer Confidence is up 9.3% in the recent month, following the 12.77% gain in June… Unfortunately, as I said the currency has taken a step back… The A$ has lost not only the 80-cent handle, but the 79-cent handle too, in the last two trading sessions…

All the March through June euphoria regarding a global recovery is getting dragged through the mud right now, and the U.S. earnings season won’t help matters any either… So, watch this currency as a proxy for world economic recovery… It will all be on the sleeve of the Aussie dollar…

Do you know what “shadow inventory” is? Well, it’s the new buzz-word that’s getting quite a bit of attention… Shadow inventory comes in several forms. It includes homes in or close to foreclosure but not yet put up for sale — a number that’s increasing. It also includes homes that owners want to sell but are waiting to put on the market until it improves.

Well… I told you a year ago that the housing problem was being made worse by all the inventory of houses that needed to be sold… And even our Mr. Magoo, former Fed Chairman, Big Al Greenspan, noticed the inventory as being a problem… Well, this shadow inventory could be adding to the already too big inventory… It’s like this “inventory” is hanging over the housing market like the Sword of Damocles!

So according to the data I saw… 3.5 million homes are now for sale… This Shadow Inventory is larger than that! The result, as this inventory comes into the market? Well… It will continue to put pressure on home prices downward… Oh boy! Just what house prices need, more downward pressure!

As this housing meltdown drags on… (and I might add, for those that were drinking the kool-aid, and wouldn’t listen to me when I kept harping about the housing bubble bursting, this has got to be very painful) you can see why there are those (and I’m one) that believe the housing recovery won’t come for some time… Maybe not until 2012! But probably 2011…

And then there was this… Google has announced that they will be selling an operating system to compete with Microsoft… I guess they didn’t take too kindly to Microsoft’s entry into the search engine arena! HA! I say that in jest, as these things take long periods of time before bringing them to the markets, obviously! I just found this story to be interesting…

And did you hear about how the Swiss government said Wednesday that it was prepared to seize UBS client data rather than allow the bank to hand it over to the United States to settle a tax case? Another interesting story…

And finally… The Eurozone printed 1st QTR final GDP results at a negative -2.5%… So… Again, we go back to the conversation regarding who’s car is uglier? The U.S. contraction in the first quarter was -5.7%… And in the Eurozone it was -2.5%…

Oh… And one more thing… I get people all the time telling me that China is fudging the numbers with their growth figures… Well, that may be, but it’s all we have to work from, we don’t live there, we don’t have any idea but what the Gov’t tells us! And the Gov’t told us in April that it was +6.1%, and I fully expect for them to tell us it will have risen to 8% in the 2nd QTR… Just go with it… It’s all we know… It’s not like here in the U.S. where we can see the difference from the reports the Gov’t tells us are true…

OK, on to the Big Finish… This has dragged, uh, I mean carried, no, I mean moved along so nicely that you don’t want it to end… Yeah, that’s the ticket!

Currencies today 7/8/09: A$ .7865, kiwi .6285, C$ .8590, euro 1.3920, sterling 1.6090, Swiss .9185, rand 8.1315, krone 6.5290, SEK 7.6575, forint 199.25, zloty 3.1780, koruna 18.68, yen 94.30, sing 1.4615, HKD 7.7505, INR 48.89, China 6.8325, pesos 13.42, BRL 1.9975, dollar index 80.63, Oil $62.47, 10-year 3.47%, Silver $13.07, and Gold… $921.65

That’s it for today… A crazy day in the currencies yesterday… Glad that’s behind us! Had a nice long talk with my economist friend yesterday. She is always so upbeat about stuff, and I’m always so reality based that we even out the conversation! I look forward to these conversations that take place about twice a year… I wish it were more, but she’s busy, and I’m busy, and there just aren’t enough hours in the day sometimes! I asked the question… If the Gov’t thought AIG was too big to fail, how can they sit there and watch what’s going on in California, the world’s 7th largest economy falling deeper and deeper into the abyss? We came to the conclusion that the Gov’t probably won’t watch it too much longer without reacting… So, there! You were a part of an economist discussion! Made your day, I’m sure! OK… Time to get to work… Let’s say this over and over again this morning… It’s going to be a Wonderful Wednesday!

Source: Back and Forth We Go!