Lord William Rees-Mogg (Fleet Street Invest UK):
In the last six months there has been a rebound of 50% in the great majority of world stock markets.

There has also been a comparable rebound in the price of oil, with West Texas oil rising very close to $80 a barrel. In the oil market there has been heavy two-way trading in options. There could be a sharp spike in the oil price if speculators have to cover their positions.

At the same time the US dollar has remained weak, and now stands at $1.4886 to the euro and $1.66628 to the pound. This is close to a 14-month low on a trade-weighted basis. The poor performance of the dollar reflects the low US interest rates and the twin US fiscal and trade deficits.

The demise of the dollar

The dollar nevertheless remains the world’s leading reserve currency, with the euro in second place. Investors are naturally anxious to protect themselves against markets, including currency markets, which have shown such a high degree of volatility.

The Chinese, who have the greatest number of dollars in their currency reserves, have already suffered substantial losses.

In what amounts to a crisis of the dollar, the euro is in second place as a reserve currency, but there are potential threats to the future of the euro, due to the weak productivity of the Mediterranean economies. There is a big stretch in productivity growth between the German and the Southern European regions.

The fall in the dollar against other currencies includes a devaluation of the dollar in terms of gold, which now seems to have stabilized at a dollar price of $1,050 an ounce.

The circumstances do indeed appear to be uniquely favourable to gold.

Interest rates and therefore carrying costs are exceptionally low. The dollar is exceptionally weak. The technical market position is strong, including good demand for gold in terms of jewellery. The oil price – which is often linked to gold – is rising. Those who believe that oil is due for a further rise to $100 a barrel are likely also to be confident about holding a proportion of their investment . . .
Click here to read the rest of Lord Rees-Mogg’s article at Fleet Street Invest UK.

The distortions from reality are mind-boggling, yet all of us depend on the status of the simple fiat for our financial wellbeing.

The person with the most skin in the dollar game is, no doubt, President Obama. The nation’s economy hinges on the fate of the greenback and the White House knows it. That is why it is doing anything it can to slow the slide.

Even if it is entirely psychological.

Today, reports are flowing from Washington that show Obama may have plans to use up to $210 billion in TARP money to lower the nation’s ever-increasing deficit.

It is creative accounting at best and a $210 billion bribe at worst.

While the average Oprah-watching, Crocs-wearing American won’t take a second out of their do-nothing day to read below the feel-good headline, there is a handful of us that are actually paying attention.

With this idea of “paying down our debts,” it is vital to remember the Treasury didn’t pull the $700 billion in TARP funds out of some cavernous account.

We borrowed that cash. And now Obama wants to use the borrowed money to pay back our debts, minus a year’s worth of interest of course. It’s like taking out a loan to pay off your mortgage.

The timing of these rumors is more than suspicious.

Just yesterday, China slapped the currency markets in the rear by once again raising the notion of dumping the dollar and making a sudden change in its exchange-rate policy.

Ironically enough, less than 24 hours later, Obama has a $210 billion check in his hand ready to “repay” our debt.

It is money from one hand, around the back, and into the other.

But it gets better.

Obama is not the only one trying to mask Uncle Sam’s debt problems. Just about every exporting country in the world is desperate to keep the dollar strong.

They have to. Their economies depend on it.

Rumor has it countries like Russia and South Korea have been buying dollars on the open market over the past few weeks, in an effort to keep the greenback’s slide from gaining even more momentum.

The governments would rather risk devaluing their reserves than allow their economies to suffer from the effects of a weak dollar.

Looking forward, the question is how long can the manipulation last? How long can the dollar remain artificially inflated? And how long until the markets naturally take care of the situation?

While we may not know the exact answer to any of those questions, it does not take an economics scholar to realize the outcome will be horrific, at least for those of us with dollars in our pockets.

*** The solution? Buy gold. According to the top dog at Canada’s behemoth gold miner, Barrick, we have every reason to believe we surpassed “peak gold.”

That means all the easy gold has already been stripped from the ground and supplies are only going to shrink from here.

According to the CEO, Aaron Regent, global gold production peaked in 2000 and is expected to continue declining into the foreseeable future. So far, mine production is down by nearly 10%.

The news of increasing supply constraints comes at a time when demand is already surging. For those of you that were under the bleachers during Econ 101, it means prices will continue to rise.

There has been a lot of discussion about a sudden collapse in gold prices as many investors believe the current boom is merely a fear-induced bubble. Two or three months ago, I would have bought the story. But not now.

The dollar is simply too weak and foreign reserves are accumulating gold too quickly for prices to fall sharply.

China’s immense buying alone is enough to limit near-term fallout. The country has already doubled its gold reserves and Beijing continues to be a major buyer.

Just one more reason for bulls to send prices higher.

*** Just so you can’t say I don’t let you in on anything for free, I’m going to toss a freebie your way.

With gold prices reaching into record territory, it is a perfect week for Van Eck to release its Market Vectors Junior Gold Miners ETF (NYSE:GDXJ). The freshly created fund gives investors a stake in 38 small- to mid-sized gold miners.

For investors looking for a simple way to take advantage of the gold bull with some additional leverage, this is the ETF to do it.

Thanks to the speculative nature of junior miners, expect shares to beat the market when gold prices are surging and underperform when the bears return. For now, there is plenty of upside potential.

Major U.S. stock indexes <.DJI> <.SPX> <.IXIC> were down nearly 2 percent in afternoon U.S. trading as investors fretted that chatter from hedge funds on a bank failure could prove accurate.

The decline came despite upbeat economic news from the United States and euro zone as well as a stabilization in Chinese shares after a rout on Monday.

The hedge fund talk “is a huge driver” of currency markets, said Dan Cook, senior market analyst at IG Markets Inc in Chicago. “When you have data like we had but the Dow drops, people are running for that safe haven.”

In midafternoon trading in New York the dollar index <.DXY>, which tracks a basket of six major currencies, was up 0.8 percent at 78.786, rebounding from a session low of 77.944, according to Reuters data.

The dollar was little changed against the yen at 93.01 yen, slightly above Monday’s seven-week low of 92.53, according to Reuters data.

But the yen was up 0.9 percent against the Canadian dollar , 0.7 percent against the Swiss franc , 0.8 percent against the euro and 0.8 percent against the pound .

The euro was down 0.9 percent against the dollar at $1.4205 , well below a session high of $1.4377 .

WHAT RECESSION?

The U.S. manufacturing sector expanded in August for the first time in more than a year and a half. The Institute for Supply Management’s index of national factory activity rose to 52.9 from 48.9 in July. For more see

Separate data showed pending sales of previously owned U.S. homes raced to a two-year high in July, further evidence the housing market was on a steady recovery path.

“Clearly, the U.S. data is surprising to the upside,” said Jack Iles, senior portfolio manager who helps manage $2.5 billion assets at MFC Global Investment Management in Boston.

But despite a batch of upbeat U.S. economic numbers, major currencies remained in ranges as investors continued to debate about the outlook for the global economy, analysts said.

“At the end of the day, the market is still in wait-and-see mode,” said Firas Askari, head of currency trading at BMO Capital Markets in Toronto. “We’re getting jostled around by every piece of data that comes out and I don’t think there’s a consensus that this economy has legs.”

Data released earlier also showed euro zone purchasing managers’ index (PMI) rose to 48.2 in August against forecasts for a 47.9 reading while German unemployment unexpectedly fell in August.

The data comes before a European Central Bank policy meeting on Thursday widely expected to keep benchmark rates steady at a historic low of 1 percent, with the focus on policymakers’ outlook on the economy.

Sterling erased early gains against the dollar and the euro after an unexpected dip in UK manufacturing in August, stoking concerns about the pace of recovery in the British economy.

Sterling was down 0.9 percent at $1.6135 , after touching a six-week low, and was little changed against the euro at 88.02 pence .

In other trading, the Australian dollar fell 2.1 percent to US$0.8265. The Reserve Bank of Australia, holding its cash rate at 3.0 percent as expected, said the current low level of rates was appropriate, countering speculation it would adopt an explicit tightening bias.

Sept 1 (Reuters)

But prices remained rangebound as traders awaited clearer direction from the currency markets.

Spot gold was bid at $941.80 an ounce at 1523 GMT, against $943.55 an ounce late in New York on Tuesday. Earlier it rose as high as $949.85.

U.S. gold futures for December delivery on the COMEX division of the New York Mercantile Exchange were down $1.8 at $944.20 an ounce.

“We are probably going to stay fairly rangebound,” said Standard Bank analyst Walter de Wet. “We would have to see some decent dollar weakness for gold to move above $956-960.”

The dollar rose versus the euro and a currency basket, reversing early losses, after durable goods numbers from the United States.

The data showed June orders for durable goods, excluding transportation, rose less than forecast despite overall orders posting their largest advance since July 2007.

The report, however, was tempered by data showing a jump in U.S. new home sales last month that fuelled some selling in the dollar versus the euro.

U.S. stocks advanced after they July new home sales data, while European stocks gave up early gains to fall by early afternoon.

Demand from buyers of physical bullion remained sluggish as buyers awaited further price falls.

“Physical demand has dried up, but we are expecting more buying around $930-925,” said Commerzbank senior trader Michael Kempinski.

The world’s largest exchange-traded fund, the SPDR Gold Trust , said its holdings fell another 4.58 tonnes on Tuesday, bringing its total outflow to 21.4 tonnes in the last four weeks.

LONDON ETF HOLDINGS RISE

But London-based ETF Securities said it saw the biggest ever one-day inflow into its ETF Physical Gold product on Aug. 25. Its holdings rose 211,500 ounces to 3.190 million ounces on Tuesday.

On the supply side, the Russian Gold Industrialists’ Union reported a 21 percent rise in gold output from Russia, the world’s fifth largest producer of the yellow metal, in the first seven months of the year.

Platinum received an early fillip from a strike at Impala Platinum’s Rustenberg mine in South Africa, where workers rejected the company’s latest pay offer on Wednesday.

Prices rose as high as $1,249.50, but later eased to $1,233 an ounce from $1,239 as investors took profits. “The price of platinum reacted only marginally to the news,” said Commerzbank in a note.

An Implats spokesman said more than 20,000 workers were involved in the strike, ignoring a weekend call from the National Union of Mineworkers to suspend the action.

Separately, Aquarius Platinum said contract workers at its Kroondal and Marikana operations in South Africa had launched a strike.

Palladium was at $283 against $286. Silver was at $14.24 an ounce against $14.24.

Aug 26 (Reuters)

We’ve got a lot of catching up to do, eh? Mike and Chris did a Fantastico job of taking the conn on the Pfennig in my absence… So thanks to them… But it’s back to me, and besides a couple of days in San Francisco later this month, I’m all yours! (I bet that just makes you smile like a Cheshire Cat… NOT!)

OK… Rather than beat around the bush this morning, Chris left me this note from Friday’s price action, so let’s go to the Friday round up and then onto today! Here’s Chris!

The currency markets were fairly calm Friday morning, but at around 9:00 the dollar index fell off a cliff! The big data released this morning was 2nd Quarter GDP which showed only a 1% contraction vs. an expected 1.5% contraction. But the 1st quarters number was revised down to 6.4% from the original report of 5.5%. I guess traders needed some time to digest the information, as the report came out at 7:30 but the dollar didn’t start its freefall until just after 9:00. But when they finally decided to take the dollar lower, the move was pretty dramatic with the Euro moving up a 1.5 cents in about 2 1/2 hours. The markets settled down around noon, and traded sideways until the close.

So… My time away was much like the “old days” that you could almost make trades on the trading pattern of when Chuck was away, the currencies rallied…

OK… So as I turn on the currency screens this morning, I see that the euro is trading up towards 1.43, and the Aussie dollar is trading with an 84-cent handle! So, those are some good looking numbers for the currencies. The GDP data that Chris talks about above, was interesting in that it gives the risk takers some rope… Yes, that old saying about getting enough rope to hang yourself, comes to mind here. Not that the risk takers will hang themselves, but to illustrate that they have some room to take risk assets higher.

When you look at the proxy currency for commodities and global growth, the Aussie dollar, and it’s trading at the highest level we’ve seen this year, you’ve got to think that the traders, and others are thinking that the worst of the global recession is in the rear view mirror. Now, I think that’s putting a little like putting the horse before the cart, as we just don’t have enough data that hasn’t been massaged and cooked to prove that we’re coming out of the global recession… But hey! If the traders, hedge funds dudes, and currency participants want to play Sly Stone, and take currencies higher, then I suggest we not stand in front of that bus!

One of my fave economists, Nouriel Roubini, believes that “there is now potentially light a the end of the tunnel.” And… That “Commodity prices may extend their rally into 2010 as the global recession abates.”

Now… That’s a horse of a different color, eh? When someone like Nouriel Roubini, who was one of the first to call out the collapse of the global economies, sees a potential light, then the markets sit up and take notes… And begin to buy at cheaper levels, just in case that light is the sun… And not the light of a run-away train heading straight for us!

Well… Somehow, U.S. stocks essentially made it through the earnings reports season unscathed. Pretty amazing if you ask me, but I never claimed to be a stock jockey, so that pretty much explains my inaccurate prognostications that 2nd QTR earnings would be a real drag on stock values… Which scared the bejeebers out of me, for stocks, currencies and commodities have been all rolled up in a great big “risk assets” ball for months now, and if stock values were going to get taken to the woodshed then so would currencies and commodities… But that didn’t happen… Hmmmm….

OK, with the earnings season basically over, we can get back to watching regular data that makes more sense to me… And this WILL be a week that’s cock-full-o-data, beginning with the ISM Index (manufacturing) for July today, along with Vehicle Sales. Tomorrow we’ll see the color of two of my faves, Personal Income and Spending. Wednesday is the ADP Challenger employment report for July… Thursday, we’ll get Central Banks meetings in the U.K. and Eurozone. And Friday is the BIG KAHUNA, as the Jobs Jamboree for July gets printed. Right now, the economists surveyed are looking for a HUGE drop in job losses for July. June’s BLS massaged number of 467,000 job losses is being forecast to drop to 325,000..

I’ll believe that when I see it, although it would be nice if that was the “real” number, eh?

If job losses drop by that much in July, it would certainly keep the fire burning for thought that the global recession is recovering, and that would certainly keep the fire burning for currencies and commodities!

Well… Don’t look now (made you look, made you look! HA) but pound sterling is the best performing currency overnight! The pound is 1.6840, with a bullet! (yes, it had a good beat, and was easy to dance to) Stranger things have happened in currencies over the years, but this is one that really moves to the top 10… The U.K. with all their problems, and sterling posting a better than 15% gain VS the dollar in 2009… Like I said, stranger things have happened, but this one really is a puzzle… Riddle me this Batman… How can a currency from a country that is deep in debt, has interest rates near zero, has a housing problem not unlike that in the U.S., has political problems, and has implemented Quantitative Easing, post a +15% gain?

Ours is not to question why or how… Just know that the calls for the greater use of SDR’s (Special Drawing Rights) by China is probably a good reason, for the SDR’s would contain sterling….

Speaking of SDR’s, and the IMF issuing them… And recall when the current President called for greater authority for the IMF? Well, I’m reading a book right now, that will put shivers down your spine regarding all of this, and it was written about 10 years ago! The name of the book is: The Creature From Jekyll Island… The Creature is the Federal Reserve System, and what it was created to do… Not the stuff you learn in economics 101… What it was “really” created to do… This book is over 500 pages, so it’s a long one… But well worth the read, especially to those that don’t believe we’re being driven to socialism…

OK… Enough of that! I’m really trying to steer clear of that stuff, for I’ve had to deal with quite a few people that just want to shove stuff in front of me that I’m not going to read! Of course this in response to my direction before I went on vacation… But that’s all behind me now… It’s on to the perils of Deficit Spending, and… How to protect yourself from the eventual devaluing of the dollar due to the Deficit Spending!

Back to Australia… The Reserve Bank of Australia (RBA) meets tonight, and while I don’t expect the RBA to raise rates… I do expect them to move from an easing bias to neutral, which in essence would be very much like a rate hike! And… Would really stoke the fire burning for the A$… Especially if in their Monetary Policy statement, the RBA upgrades their growth forecasts… For if they do that, that’s just like telling the markets that rates are going higher here before they go back down…

I heard, but did not see obviously since I was not around any TV’s, laptops, or cell phones last week, that there was a woman that finally took the media to the wood shed for their mamby pamby ways of dealing with the news, and playing patsy with the politicians, etc. Michelle Malkin is her name… And I give her kudos for calling into question the credibility of the media and in this case NBC… (yes, I hold a grudge, BIG TIME, and NBC / CNBC)

I saw the euro hit 1.43 a minute or so ago, but immediately fall back below the figure… I would suspect this to repeat itself a few times before finally moving over 1.43… If not, then look for a fall back… But right now, the bias seems to be to sell dollars…

Currencies today 8/3/09: A$ .8390, kiwi .6655, C$ .9340, euro 1.4290, sterling 1.6826, Swiss .9375, rand 7.7415, krone 6.0825, SEK 7.20, forint 185.60, zloty 2.8725, koruna 17.93, yen 95, sing 1.4340, HKD 7.75, INR 47.67, China 6.8308, pesos 13.18, BRL 1.8645, dollar index 78.12, Oil $70.81, 10-year 3.55%, Silver $14.31, and Gold… $956.60

That’s it for today… Vancouver was great… The Agora Financial Wealth Symposium was very well attended, and I thought my presentation to them went quite well. The attendees were so kind to me, coming up and asking how my health was… And then asking to see a picture of Delaney Grace! Then on to vacation! A great time was had by all, but especially me, as I was surrounded by my kids all week. I know it will be difficult for me to not have little Delaney Grace around me all day this week! I just loved when I would ask, where’s Delaney, and she would pat her chest and say “I right here!” So cute! We dropped my little buddy, Alex, off at Camp where he’ll be the next two weeks. His Camp is just across the lake from our campsite! This will be a long week, settling back into the saddle and all, so I had better get this out the door and to your computer screens! I hope you have a Marvelous Monday!

Source: Data Cupboard Gets a Work out This Week

As Chris reported, its been a relatively quiet week in the economic report department here in the US but we did have some housing data as the MBA mortgage application and May’s home price index figures were released yesterday. Both measures were positive but obviously far from what would be considered knights in shining armor. Mortgage applications did rise for a third consecutive week, 2.8% over the previous, but was lower than last week’s figure of 4.3%. Falling prices are making properties more affordable, but record foreclosures and surging unemployment are impacting more and more Americans as the uncertain future is forcing those who can, refinance, instead of testing the real estate market. Economists expect prices will continue to keep falling as sales of distressed properties, which more than 1.5 million properties received a default/auction notice or were seized by the bank so far this year, act as an anchor preventing much in the way of improvement.

Speaking of home prices, May’s number showed the smallest annual drop in 10 months as prices declined 5.6% year over year and actually rose by 0.9% from April, but every region of the US still saw declines in May from a year earlier. Former Fannie Mae economist, Thomas Lawler, was quoted as saying “The distress in the housing market was not caused by unemployment, but now we are seeing a wave of delinquencies and foreclosures by people who, if they had kept their jobs, would be unlikely to default.” It appears that he shares our view in that as unemployment continues to rise, pressure on a sustained recovery will continue to mount. I agree with those that say the real estate market is improving…the numbers are not as bad as what we’ve seen in the past, but the bottom line is that prices are still falling…not exactly what I would consider a recovery just yet. Until we see unemployment fall to a sustainable number and the fear of layoffs along with job cuts subside, I just don’t see enough consumers rushing out and putting themselves on the line for their most expensive purchase…a home.

I guess this leads me to the reports due out today as we see the weekly jobless numbers and existing home sales for June. Although the initial jobless claims and the continuing claims are both expected to come in worse than last week, the existing home sales are estimated to show a bit of an increase. The trading pattern that has been in place for a while now, that being good news for the US causes dollar selling and bad new leads to buying of the dollar, shouldn’t see any deviation as risk aversion remains in control. Assuming my crystal ball is plugged in, any improvement in these numbers would send the dollar down today if investors get that warm and fuzzy but according to most economists, not much in the way of surprises one way or the other would be in the cards.

Chuck forwarded some comments made by Stephen Englander, chief currency strategist at Barclays, emphasizing that the dollar is expected to weaken as considerable skepticism about US monetary policy mounts from foreign investors. Without further ado, here’s Chuck…

“Here’s something I came across that plays well with what I’ve been telling you all for years now… Let’s listen in first, and then review what I’ve said over and over again…

“He (Bernanke) provided a very clear discussion as to what the mechanics of pulling out would be, but I don’t think that’s the question the market is asking,” Englander said. “Until there’s a clear path to withdrawing from the quantitative easing, we’re going to see foreign investors demanding a risk premium, if not on U.S. interest rates, then on a weaker dollar to equalize expected returns between U.S. assets and foreign assets.”

Sound familiar? Of course it does! I’ve said over and over again through the years that when a country has a financing problem it has two choices… It can raise interest rates on the bonds they sell, risking the awful affect on their economy… OR… They can devalue the currency, thus making it cheaper to buy the bonds used to finance the deficit… In this case… It’s the dollar… And any government would always choose the devaluation of the currency over wrecking the economy… Wrecking the economy doesn’t get them re-elected!”

Obviously, the broad expansion of the deficit has become a huge topic for not only foreign investors, but also those of us right here in the US. Here’s another note Chuck sent last night for me to share with you all:

“I have a friend who has been the leading doctor in the attempt to discredit the National Health Care Plan… I heard last night that the President said that if we didn’t implement National Health Care we wouldn’t be able to deal with our deficits…

That’s a bunch of malarkey! Here’s my good friend, Doc. Dave…
“The underlying method of cutting costs throughout the plan is based on rationing and denying care NOT PREVENTING health care need. The plan’s method is the most inhumane and unethical approach in cutting costs. The rationing of care is implemented through The National Health Care Board, according to the plan. This illustrious Board “will approve or reject treatment for patients based on the cost per treatment divided by the number of years the patient will benefit from the treatment.” Translation…..if you are over 65 or have been recently diagnosed as having an advanced form of cardiac disease or aggressive cancer…..dream on if you think you will get treated…..pick out your box. Oh you say…this could never happen……sorry….this is the same model they use in Britain.”

So… You can side with the President, speaker Pelosi, and others when they try to jam this down the throats of Americans… Or you can side with a doctor that has fought against this from the beginning because of the inhumane way it treats American citizens in need of health care!

I’m not one to make this letter political… But trust me on this, the gauntlet has been put before us, and we can decide if we want additional spending or not… Because no matter what the President says, once Congress gets a hold of a bill, the costs multiply by tens! If not hundreds! And we are in no position, as a country, to take on additional deficits!”

The foundation for a longer term weak dollar has been in construction for quite some time and the current fundamentals and now policies appear to be opening the eyes of many worldwide. The currency market seems to have taken notice as we have established a fairly strong base in many currencies. For instance, the euro has been comfortably trading close to the 1.40 handle, give or take a couple cents on either side, for a couple of months now. I look back to the end of 2004 when the euro was setting record highs at 1.35-1.36 and thinking then that prices at 1.40 would be a moon shot. Fast forward to today and 1.40 is kind of seen as ho-hum. I guess the point I’m trying to make here is even though we saw considerable dollar strength in the second half of last year, we have settled in a spot where if we do see another considerable selling run of the dollar, look out.

As I touched on earlier, the currency market was a non-event yesterday as most currencies traded within a range of .25% to the dollar but the rand was again the winner of the day. The rand gained another 1.25% as money is still flowing into the South African market from investors seeking higher yield. This is one of the more volatile currencies so extreme caution and an iron stomach are needed. There is not any middle ground for the currency so extreme movements up and down are the norm.

Speaking of another high yielder, Brazil’s central bank slowed the pace of rate cuts by only dropping .50% to a record low of 8.75%. They had cut rates by at least one full point following the four policy meetings so far this year and cited these reductions have had enough impact to warrant a smaller cut. This outcome has economists thinking rates may be at the bottom and some even see rates at 10.5% by next July if inflation begins to creep higher. Lower borrowing costs and taxes as well as increased government spending has supported domestic demand so far, causing the OECD to call for a 4% gain in GDP next year.

With not much else currency wise, I came across yet another story promoting the commodity currencies. As China’s demand for raw materials continues to feed infrastructure growth, currencies such as Australia and Canada would stand to be direct benefactors. The biggest provider of pension plans in Australia has called for the loonie to once again hit parity and the Aussie to float up to the 90 handle. I don’t disagree with that assessment as commodity rich countries and those with sound fundamentals will be in a much better starting position than most, but only time will tell. Interest rate differential should also come back into play, especially if the US keeps rates where they are for an extended period of time. Guess which countries are the ones discussing rates hikes for next year…yep, it’s several of the commodity currencies.

Before I head to the big finish, I’ll leave you with the second installment from our big boss, Frank Trotter. Let’s see what Frank has to say:

“It is still beautiful here in Vancouver. In the vertical downtown, with steel and concrete building, architects have gone to extreme lengths to add water follies – waterfalls, streams, pools and trickles to tie the outdoors into the bustling downtown. Fifteen minutes away by ferry and bus we entered the forest at the salmon hatchery and walked down along the stream, across the Lions Gate bridge and back to reality. While we walked the US dollar continued to trickle downhill as Mike surely will report. While the crystal ball is a bit clouded it’s hard for me to see anything but decline for the next 3 -5 years.”

Sounds like everyone is on the same page to me…

Currencies today 7/23/09: A$ .8182, kiwi .6598, C$ .9098, euro 1.4217, sterling 1.6507, Swiss .9350, rand 7.6961, krone 6.2728, SEK 7.5695, forint 190.73, zloty 2.9858, koruna 18.0164, yen 94.44, sing 1.4413, HKD 7.7500, INR 48.4637, China 6.8309, pesos 13.2362, BRL 1.9038, dollar index 78.80, Oil $65.25, Silver $13.7775, and Gold… 952.70

That’s it for today…It was another busy day yesterday as the MarketSafe BRIC CD continues to gain traction and today doesn’t look to be any different. We’re going to be a bit short on the desk today and I already have a stack of stuff to do, so I should probably be hitting the send button right about now. Thursdays have become breakfast sandwich day on the desk so I can’t wait for that bag of goodness to arrive in a little while. Anyway…have a great day and a Terrific Thursday…

Source: A Broken Record

Good day… Chuck got an early start on a two week hiatus from the desk, so you will be stuck with me writing the Pfennig for the next two weeks. But don’t worry, you will still get a small dose of Chuck over the next week as he typically emails me his thoughts while on the road (I call it Pfennig Pfodder). Risk aversion dominated the currency markets overnight, as terrorists set off two separate explosions in Jakarta and investors moved money back into the ’safe havens’ of the US$ and Japanese yen.

Chuck wrote about this move yesterday, believing the bad news regarding CIT would probably cause a risk reversal. But the US stock market shook off the CIT news and rallied higher after a big earnings report by JP Morgan and a somewhat positive statement by Nouriel Roubini. Roubini, the New York University economist who is credited with predicting the financial crisis, said in a speech yesterday that the US economy might be close to the bottom. The stock jockeys took this statement along with the positive earnings reports and ran stocks up. But Roubini later tried to caution these bulls against reading too much into his statement, and reminded everyone that he has not changed his thoughts on a US recovery: “I continue to see a shallow, below par and below trend recovery.”

Those looking for a quick v shaped recovery will be disappointed, as we continue to believe the recovery here in the US will be more of an L shape as our economy struggles to recover. After all, who is going to propel the US economy to recovery? In past recessions, we have been able to depend on the US consumer to pull us back out. But the poor consumer is now facing the highest unemployment rate post WWII combined with falling home prices and much stricter lending policies. And with the dire fiscal position of most states matching that of the federal government, the tax burden placed on almost all taxpayers will likely be rising, chewing up more of consumers disposable income. We are no longer be able to rely on US consumers to ‘borrow and spend’ our way to GDP growth (which is actually a good thing!!). Consumers are tightening their belts, and saving a larger percentage of their income; good news for the consumers, but bad news for the economy.

The administration has tried to take over where the US consumer left off by borrowing record amounts of money and injecting it into the economy through stimulus packages. But recent data bring into question whether or not this stimulus is having the desired effect, and many are now questioning whether any fiscal measures can pull the economy out of recession. With the credit markets still tight, and the negative outlook for consumer demand, no amount of government intervention seems able to stop the decline in jobs and quickly pull the US out of this recession/depression. The reason is that the ‘multiplier effect’ of the stimulus money is too low. Typically when the government injects funds into the economy, the effect of each dollar they spend is multiplied several times over as it moves through the lending / spending cycles. It works like this: $1,000,000 given to a bank by the Fed is lent out to consumers and business who then spend the funds on goods and services. The companies who sell the goods and services place a majority of these funds back into the bank who then turn around and lend them back out, starting the cycle all over again. But recently neither the banks or the consumers are acting ‘normal’. Banks who have received stimulus funds are using them to shore up balance sheets and keeping them in reserves. Consumers who have received stimulus funds, or are strong enough to qualify for loans have been doing the same thing; using the funds to pay down debts and saving a larger percentage. So the multiplier effect of each dollar injected by the administration has been much smaller than in years past. While some in the administration are calling for another stimulus package, others are now realizing the impact of government stimulus will continue to be decreased by the low multiplier. The government should probably just let the recession take its course, and avoid adding more debt to our already over burdened tax payers.

But ‘big government’ is back, and the current administration obviously feels it is their job to make government even bigger. Chuck had this to say about this weeks earlier announcement of a new government run health care program:

“The Big Debate right now is a National Health Care program… I’ll come right out front and center and say that I’m not for it, which shouldn’t surprise anyone that’s been reading this letter very long. But there’s someone else who should be more important a figure against this than I think the media is reporting…

I’m talking about Douglas Elmendorf, the Director of the Congressional Budget Office who, under questioning by members of the Senate Budget Committee, had this to say…
“Instead of saving the federal government from fiscal catastrophe, the health reform measures being drafted by congressional Democrats would worsen an already bleak budget outlook, increasing deficit projections and driving the nation more deeply into debt.”

He went on to say… That “bills crafted by House leaders and the Senate Health Committee do NOT propose the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount.”

But… I doubt they listen to him… For when it comes to spending and driving up the deficits.. They haven’t listened to former CBO director, Alice Rivlin… And they haven’t listened to former Comptroller General, David Walker… Why the current CBO director now?”

Data released yesterday showed the number of Americans filing claims for unemployment benefits fell last week to the lowest level since January. But like last week, these jobless claims were skewed by the Labor Department’s ‘adjustments’. As I explained last week, the automakers typically lay off workers during July, so the BLS adds back thousands of jobs in order to offset these seasonal layoffs. But this year, the auto plants laid off these workers months ago, so the seasonal adjustments are adjusting away actual job layoffs, not just temporary automobile layoffs. These distortions will likely continue for the next few weeks, with the weekly numbers climbing back over 600,000 in August when the seasonal adjustments end.

The TIC flows were also released yesterday and showed International demand for long term US financial assets weakened in May. Investors sold the most Treasury notes and bonds in six months, with the net Long-term TIC flows dropping almost $20 billion. The ‘experts’ had predicted a rise of $16.5 billion in purchases. But as investors dumped long term Treasuries, purchases of US stocks in May were the strongest since January of 2008. So the impact of these flows were minimal on the value of the US$. The administration has to be worrying about the direction of the TIC flows, as it continues to bring record amounts of Treasuries to the markets. If investors shy away from the new debt, interest rates will be driven higher putting further pressure on our ’stealth recovery’.

After reviewing the numbers, I spotted another item which should be cause for concern. The report showed foreign governments were moving from the longer term maturities of Treasury notes and bonds into shorter term bills which have a maturity of less than one year. Foreign governments continue to be worried about the future ability of the US to maintain our record deficits. The Chinese economy continues to grow, and is propelling them to a much more important status among global leaders. Chinese Premier Wen Jiabo continues to express concerns regarding his country’s US Treasury holdings, and officials in Japan, the second largest investor, have also begun to express concern. The administration is calling in the big guns to try and assuage China’s concerns. Federal Reserve Chairman Ben S. Bernanke will brief Chinese officials at a summit this month about how the US plans to keep inflation in check over the next few years. The summit is the first high-level gathering of its kind since President Obama took office.

China reported yesterday that their economy grew 7.9% in the 2nd QTR, which was greater than the 7.7% forecast by economists, and the 6.1% that was booked in the 1st QTR. This was the first acceleration in growth in more than two years, and comes on the heels of a $585 billion stimulus package which was targeted at increasing infrastructure and getting credit flowing again. The positive growth number will likely cause them to start raising rates in 2010 according to a Bloomberg news survey. Economists predict the one-year lending rate will climb over 50 basis points after remaining steady for the rest of the year. China is the only one of the 10 biggest economies that is expanding, and confirms what we have been saying for some time: China will be the engine which propels the global economy out of recession.

Chuck noticed the good numbers out of China before heading out yesterday, and sent me the following:

“This news must be manna from heaven for Australian commodity exporters… As I’ve said for some time now… China’s economic strength strong demand for raw materials, of which Australia is not only geographically positioned to supply China with raw materials, but has the raw materials to supply to China! And demand for Australian raw materials is a proxy for commodities as a whole… And, will underpin the A$!”

If you agree with what Chuck is saying regarding the A$, it may be a good time to buy some more as the AUD$ slid below .80 overnight due to risk aversion. Both the AUD$ and NZD$ fell against the dollar and the yen as investors shifted to safe haven currencies. The New Zealand dollar fell the most in two weeks after Fitch Ratings cut the nation’s long term sovereign credit rating outlook to negative. Fitch said the nation’s deficit is large and a “stronger fiscal adjustment than currently planned” may be needed. First, I think everyone should treat anything coming out of the rating agencies with caution. But I agree that the nation’s deficit is too large, but the news coming out of China should go a long way toward pushing these commodity exporting countries back into the black. As Chuck says above, as China expands the commodity currencies should stay well bid.

Before I head to the big finish, Chuck wanted me to make this announcement to all the Pfennig readers….

After 2 long years of looking for the next MarketSafe CD to issue, I decided to put together the countries that have been in the news lately. So… Introducing: The EverBank MarketSafe BRICK CD! This will be a 3-year CD that will have FDIC protection, 100% Principal Protection, and 100% of the upside of the combined values of the currencies from Brazil, Russia, India and China! If the combined values of these 4 currencies should go down in 3 years, you’ll get your principal back!

To invest in this new MarketSafe CD, you need to either go to: www.everbank.com where after reviewing the offering you will be able to apply for the CD right on line, or by calling the trading desk @ 1-800-926-4922 for the details.

Currencies today 7/17/09: A$ .8000, kiwi .6444, C$ .8945, euro 1.4100, sterling 1.6291, Swiss .9276, rand 8.102, krone 6.3926, SEK 7.8203, forint 194.08, zloty 3.0682, koruna 18.3992, yen 93.83, sing 1.4504, HKD 7.7501, INR 48.68, China 6.8316, pesos 13.58, BRL 1.9318, dollar index 79.49, Oil $61.93, 10-year 3.56%, Silver $13.19, and Gold… $934.45

That’s it for today… The EverBank kickball team pulled out another victory last night in a tightly contested match. Happily, none of our players were injured, but a player on the opposing team did a faceplant which still has everyone on the desk laughing. The weather here in St. Louis has turned fall like, and we are supposed to have record lows over the weekend. Should be perfect for a triathlon I am competing in Sunday morning. Hope everyone has a Fantastic Friday and a Wonderful Weekend!!

Source: Risk Aversion Returns

Spot gold was bid at $912.50 an ounce at 1417 GMT, against $908.45 an ounce late in New York on Wednesday. U.S. gold futures for August delivery on the COMEX division of the New York Mercantile Exchange rose $3.50 to $912.80 an ounce.

Gold sold off on Wednesday in line with other commodities, slipping to an eight-week low, after the U.S. Commodity Futures Trading Commission said it was considering a clampdown on excessive speculation in commodities.

Afshin Nabavi, head of trading at MKS Finance in Geneva, said the slip was met with some light physical buying in the Far East and Europe.

“We saw some small demand out of the Far East this morning,” he said. “But India and the Middle East is still very quiet.”

“Also, the U.S. dollar is a bit weaker today,” he added.

The dollar gave back some of the previous session’s gains on Thursday as equities firmed in Europe and U.S. stock futures rose, denting interest in the currency as a haven from risk.

A recovery in stock markets after a five-day losing streak, gains in industrial commodities such as oil and base metals and a less cautious tone to currency markets suggested recent sessions’ heavy risk aversion may be abating.

Oil’s tick higher also helped support gold, which can be bought as a hedge against oil-led inflation.

Demand for gold investment products such as exchange-traded funds — a major support of prices earlier in the year amid volatility in other markets — remained sluggish, however.

Holdings of the world’s largest gold ETF, the SPDR Gold Trust , declined more than 10 tonnes on Wednesday, while those of ETF Securities’ ETFS Physical Gold product slipped 12,500 ounces 0.4 percent.

OUTPUT FALLS

In supply news, South Africa, the world’s third largest gold miner after China and the United States, said its output of the metal fell 10.5 percent in May from a year ago.

Among other precious metals, platinum was at $1,104.50 an ounce against $1,096, while palladium was at $235 against $231.50. Both metals are primarily used in car manufacturing as a component in catalytic converters.

Traders of palladium in particular were cheering news from China that its passenger car sales rose 47.7 percent in June from a year earlier.

Chinese cars are usually petrol-fuelled, meaning they use a higher proportion of palladium than platinum, which is a primary component in diesel catalysts.

Dealers say as palladium is still relatively expensive, it is unlikely to immediately post significant new gains, although platinum has met some interest.

“Even though there is very little obvious buying taking place right now, platinum is still managing to hold its head above $1,100,” said one analyst, adding strong turnover in Shanghai suggests good Chinese buying at these levels.

Elsewhere silver was at $12.85 an ounce against $12.84.

LONDON, July 9 (Reuters)

Traders are awaiting fresh direction from the foreign exchange markets after a meeting of G8 leaders later this week.

Spot gold was bid at $922.65 an ounce at 1544 GMT, against $924.00 an ounce late in New York on Monday, having earlier touched a high of $931.55.

U.S. gold futures for August delivery on the COMEX division of the New York Mercantile Exchange eased $1.20 to $923.10 an ounce.

With physical demand sluggish despite a price dip, the gold market is largely being driven by currency moves, traders said.

The precious metal edged lower on Tuesday as the dollar  recovered earlier losses against a basket of currencies. The euro, which was earlier lifted by better-than-expected German factory orders, retreated to turn lower.

“The pick-up in the dollar has put some pressure on gold values today,” said David Wilson, metals analyst at Societe Generale. “All commodities are a little weaker, with oil off as well (and) base metals prices still slipping too.”

“Investment demand for gold has stalled, and that has been the key support for gold for much of the first half,” he added.

A stronger dollar reduces interest in gold as a currency hedge, and makes the metal more expensive for holders of other currencies.

The market is looking for any comments on the dollar’s role as the global reserve currency at the Group of Eight leaders’ meeting starting on Wednesday, which could impact on the foreign exchange markets and consequently on gold.

“We have the G8 this week where there is potential for some discussion about the reserve currency… which could have an impact on the currency markets and indirectly on the (gold) price,” said Simon Weeks, director of precious metals at the Bank of Nova Scotia.

WEAKER

Technically, the picture is looking weaker, with gold’s trade down through the 100-day moving average opening up the potential for a move down to $915, Weeks added.

Investment demand remained relatively soft, with holdings of the largest gold-backed exchange-traded fund, the SPDR Gold Trust , falling 0.36 tonnes on Monday.

Switzerland’s Zurich Cantonal Bank, however, reported modest inflows into its gold and silver ETFs last week.

Physical demand for bullion bars has improved slightly in the last week or so, dealers say, but is far from its peak.

Among other precious metals, silver was at $13.13 an ounce against $13.24. Platinum was at $1,131.50 an ounce against $1,143, while palladium stood at $238.50 against $239.

Both platinum group metals have suffered from the downturn in the car industry, their main consumer. Any sign of a recovery in the sector could trigger a turnaround, analysts said.

LONDON, July 7 (Reuters)

Gold was at $941.75 per ounce at 1256 GMT, up from $938.05 quoted late in New York on Friday. The precious metal earlier hit an intra-day high at $942.50 but is some way off a two week high of $948.20 hit last Friday.

A cautious approach to risk kept global stock market gains in check, while crude held under $70 per barrel following a bearish report on demand from the IEA, sapping gold’s appeal as a hedge against oil-induced inflation.

Analysts said the precious metal was holding onto gains but lacking upward momentum as currency markets would be indecisive until U.S. non-farm payroll data was released on Thursday.

“The dollar is going to be critical, and as long as it continues to weaken that tends to mean that gold will slowly grind higher,” said Dan Smith, an analyst at Standard Bank.

“We’re looking at more risk averse behaviour in coming weeks, which we think will push gold higher,” he added.

DOLLAR STEADIES

The dollar slipped after data from the Chicago Federal Reserve showed U.S. economic activity remained extremely weak in May, consistent with a continuing recession.

The currency was under pressure last week following Chinese calls for a super-sovereign global reserve currency.

But the case for a dollar alternative was undermined on Monday when the central bank governor of the United Arab Emirates told Reuters that the prospect was difficult to contemplate and plans to replace the dollar would not succeed.

U.S. gold futures for August delivery strengthened to $941.90 per ounce, up 0.7 percent on the day.

Analysts also said the precious metal could be due for a slight correction following last week’s rally.

“The price of crude oil is still below $70 per barrel, and that (crude) has been a key driver of inflation fears and also the gold price,” said Jesper Dannesboe, an analyst at Societe Generale.

“We had the correction from $1,000 down to around $910, and then another correction upwards. Now I think we’re heading down again,” he added.

Reflecting concern that gold may have lost some of its appeal to investors, the world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust , said its holdings remained at 1,125.74 tonnes as of June 26, when it fell 0.5 percent.

It is currently down 0.7 percent from a record volume of 1,134.03 tonnes, marked on June 1.

Further undermining physical demand, ETF Securities said the amount of gold it holds to back its Gold Bullion Securities exchange-traded commodity fund had declined 567 ounces on June 26.

Noncommercial net long U.S. gold futures positions fell 5.3 percent to 166,294 lots in the week to June 23 from 175,543 lots, a weekly report by the U.S. Commodity Futures Trading Commission showed.

In other precious metals markets, spot silver eased to $13.96 quoted late in New York on Friday, while platinumdropped to $1,185.50 and palladium rose slightly to $245.50.

LONDON, June 29 (Reuters)