A strange thing is happening in the currencies though… While currency investors have had to live with this Trading Theme that rewards the dollar with every deep, dark, dangerous data report, this time it appears to be different. The dollar is getting sold on all corners overnight, and the reason is traders have looked at the size of the forecast for job losses and have run for the hills. The euro is leading the way higher, with a huge gain overnight… As I walked out the door yesterday afternoon, the euro was barely holding onto the 1.25 handle… When I woke up this morning with a wine glass in my hand, what wine, who’s wine, where the hell did I dine? The euro was 1.2675! And we all know what happens when the BIG DOG gets off the porch to chase the dollar down the street… All the little dogs get to chase the dollar too!

And Japanese yen was one of the best performers, which tells me that the risk takers were back!

So… Is this a change in the Trading Theme? Well, one overnight rally doesn’t lend itself to a convincing argument of such, but… It certainly points out that the dollar is vulnerable at the margins, and it once we get back to fundamentals… Watch out!

I came across another story about Europeans repatriating euros ahead of their quarter end, March 31st… Now, that would be interesting… The report didn’t say “WHY” they would be repatriating their euros, but shoot Rudy, the Europeans are apparently doing it, so, again, don’t step in front of that bus either!

Gold had a great day yesterday, rebounding to $940, after barely holding on to $900 earlier this week… I said at the time that I thought $900 or $890 would provide resistance, and for now, at least, that’s held true. Of course having the auditors finally admit that General Motors (GM) is in trouble, didn’t hurt Gold. The safe haven buyers were out in force after this announcement by the GM auditors… In case you didn’t hear… The auditors at GM issued a report questioning GM’s ability to remain solvent, citing recurring losses from operations, stockholders’ deficit and an inability to generate enough cash to meet its obligations. GM already has received $13 Billion from the Gov’t, and is seeking an additional $30 Billion… Of course that $30 Billion isn’t even enough to cover GM’s loss last year of $30.9 Billion! You know me… I say, “stop throwing good money at bad businesses!”

While we’re on the subject of cars… Did you see where Sweden told the SAAB unit “no bailout for you!” Recall, I told you in a letter a week or so ago that SAAB wanted to break away from GM, but needed Billions to do so, and had asked the Swedish Gov’t for the money… And the Swedish Gov’t said NO! While it’s not funny to SAAB, or to GM, it’s kind of funny when you think about the fact that Sweden isn’t exactly your first choice when it comes to picking the democracies in the world… But, here they are holding the flag… And appear to be the only one’s holding the flag, and saying NO!

And I saw a quote yesterday that made me chuckle, not that the subject is funny, because it’s not, but the thought process to come up with the quote is! Let me begin with the backdrop of the subject… Yesterday, Citigroup’s stock fell to below $1… Which prompted the quote from a guy that said… “Now you can finally buy Citi’s stock at the dollar store”

OK… Back to the task at hand… Did you see, wait, of course you probably didn’t see, because I just happened to come across it… What am I babbling about? It’s the data from the Fed that there was a sharp drop in commercial paper issuance last week… Why is that so important, I hear you asking? Ahhh grasshopper, recall that after the initial meltdown of the markets in August of 2007, the issuance of commercial paper dried up, which was an important method of corporations to generate cash and for the buyers to generate above Treasury interest rates. So… A few months ago, the Fed took over facilitating the commercial paper market, to give it the backing of the Fed… And things were beginning to look brighter, until last week… Total commercial paper outstanding fell $44.2 Billion… I think this is another reason for the rally in Gold yesterday…

Yesterday, the Bank of England (BOE) left their rates unchanged, but announced they had adopted quantitative easing… And the European Central Bank (ECB) cut as we expected them to by 50 BPS, to an internal rate of 1.5%… ECB President, Trichet, was very strange in the press conference afterward, and mentioned “touching wood” when he was talking about inflation… Hmmm… Well, for all of you wondering what he meant by “touching wood”… Here in the U.S. we would say, “knock on wood”… You know for good luck!

I think Trichet was being tricky, and trying to tell us that inflation is not a problem right now, but I’m going to knock on wood, because I’m not so sure about the future! It’s like Thunder, and lightening, the way you love me frightening, you better knock, knock on wood, baby, you better knock! Now the horns come in! of course the Eddie Floyd version is in my head, not the re-make years later!

OK… I had a few emails yesterday asking me what “quantitative easing” was… I had explained this all a month or so ago, but for those of you who missed class that day, and are wondering just what the heck I’m talking about…

Quantitative easing is the creation of new money out of ‘thin air’ by a central bank, and its injection into the banking system. The aim is to increase the amount of deposits in private banks so that, by way of deposit multiplication, they can increase the money supply by increasing debt (lending).

‘Quantitative’ refers to the money supply; ‘easing’ refers to reducing the pressure on banks. A central bank can do this by using this new money to buy Treasuries in the open market, or by lending the new money to deposit-taking institutions, or by buying assets from banks in exchange for currency, or any combination of these actions. These have the effects of reducing interest yields on government bonds, and reducing inter-bank overnight interest rates, and thereby encourage banks to loan money to higher interest-paying bodies.

Wow! The Pfennig is chock-full-o-lessons today… Let’s recap… We’ve learned about Commercial Paper, touching wood, and Quantitative easing, all in one day! WOW!

OK, seriously folks… This Jobs report that will print later this morning is a scary thing right now… Sort of like those horror movies, when you’re screaming a the girl to not look in the closet, because you know what horror lurks behind the closet door! You’re screaming, “don’t open the door, don’t open the door”… But she does anyway, and well, you know the “rest of the story”…

Before I head to the Big Finish, I’ll talk about China for a minute… Yesterday, I told you about their leader and his thoughts of a return to 8% economic growth… Well, that was followed up last night by the Central Bank Gov. Zhou, who pledged fast and forceful policies to restore confidence and prevent the global financial crisis from deepening in China… Here’s what Zhou had to say… “If we act slowly and less decisively, we’re likely to see what happened in other countries: a slide in confidence.” and my final thought here is “it’s good to be China in situations like this”… You see, China can do whatever they want to do, and do it NOW! They don’t have to deal with earmarks, pork, and knucklehead lawmakers being directed by lobbyists! Now, I’m not saying that what China does do will be any more successful than our method, I’m just saying they can do what they want NOW! And one would have to think that would help things move along faster…

Currencies today 3/6/09: A$ .64, kiwi .5025, C$ .78, euro 1.2680, sterling 1.4230, Swiss .8670, rand 10.5350, krone 7.0575, SEK 9.2710, forint 249.55, zloty 3.7450, koruna 22.11, yen 96.70, sing 1.5475, HKD 7.7560, INR 51.66, China 6.84, pesos 15.34, BRL 2.39, dollar index 89.06, Oil $44.11, Silver $13.43, and Gold… $940.40

Source: Jobs Jamboree Friday!

So… Yesterday, we saw the euro lead the currencies higher all day, with the single unit finishing the day in the 1.3050 area… I turned on the currency screens this morning, and what did my wondering eyes did appear, but the euro trading at 1.3170, and others bringing up the rear!

The Swiss National Bank (SNB) cut rates further this morning, bringing their internal rate to 1/2%, 50 BPS, that’s it… So, one would think that bringing your interest rates to near zero, would NOT be a good thing for the currency, right? Well, in this day and age of rewarding a currency for lower interest rates to promote growth, that’s not the case. The franc has rallied on the news… Of course it’s probably just caught up in the euro’s move higher.

Looks like the U.S. House of Representatives approved a $14 Billion package for GM and Chrysler, but the Senate has put some roadblocks out on this deal, and that puts the whole deal in jeopardy… A Final Jeopardy if you will for the contestants Gm and Chrysler! Notice I didn’t include Ford. The people at Ford, backed out, and tried to put a 100 miles of desert between them and GM & Chrysler. Good for them!

Well, earlier in the week, the glimmering light of the bailout for the Big 3, helped the currencies… But now that the Trading Theme seems to be taking its last breaths, the news of the bailout in jeopardy, has helped the currencies, as this would mean that we could finally be back to focusing on fundamentals! Could we really? Is it possible? Well, maybe if you’re real good and take a nap… No wait, that’s what I used to tell the kids on Christmas Eve! It IS possible… But we need a few more days of what we’ve seen so far this week to confirm the Trading Theme to be a thing of the past.

Speaking of things of the past… A Bank of New York (BONY) strategist, issued a statement saying the, “Carry Trade is Dead and Buried.” Hmmm… I beg to differ with him on that, for if we get investors and traders focused on fundamentals again, and the risk takers come out of the woodwork again, the Carry Trade could very well be on the burners again… But then, I do see his thought here and that is (I think it is) that if every Central Bank is cutting interest rates to the bone, there won’t be any “high yielders” left to buy on the buy-side of the Carry Trade. Well, let’s see now… Aussie and New Zealand were the BIG WINNERS of the last Carry Trade craziness, and their rates are lower, but still 3 and 4 hundred basis points above those in Japan, Switzerland and the U.S.! But, the Carry Traders might have to look further, and do some additional leg work this time to find the “high yielders” like… Brazil, and India…

OK… I came across this story yesterday and really had my blood boiling… I wanted to talk to the Big Boss Frank Trotter about it and get his thoughts, but the poor guy was tied up on the phone all day, well, all day that is, until I left to go home! Anyway, here’s the base story, that the entire piece can be read here.

The U.S. Federal Reserve is considering issuing its own debt for the first time, the Wall Street Journal said, citing people familiar with the matter.

“Fed officials have approached Congress about the move, which could include issuing bills or some other form of debt and would provide the central bank with more flexibility to tackle the financial crisis.”

NOW WAIT JUST A MINUTE THERE BIG BEN! This is the bailiwick of the Treasury Dept, issuing debt! You’ve already got the printing press for currency, and now you want to issue your own Debt? This is complete madness I tell you, complete madness! I think the Fed is thinking of ways to deal with deflation…

Oh well, apparently, Big Ben can do whatever he pleases these days, the new President has named an “energy Czar” and the automakers might get a “Car Czar”, the new President had better think about naming a Fed Reserve and Treasury dept Czar!

OK, yesterday’s printing of the Monthly Budget Statement saw the monthly deficit not “as bad” as forecast, with the figure posting a $164.8 Billion deficit, instead of $171 Billion as forecast… That’s still really bad folks, let’s not get caught up in the media spin of talking about how it “wasn’t as bad as forecast”! Let’s focus on the fact that for the second consecutive month the Budget Deficit widened… And this month it went from $98 Billion in October to $164.8 Billion in November!

Of course you know why this is happening, right? No? Ahhh grasshopper… Recall the bailout money? Well, whenever any of it is spent, it will show up here! Want even further bad news here? Government revenue fell 4.2%, while spending soared 24%!

The Treasury Dept has written checks on all but $15 million of the first half of the $700 Billion allocated to help financial institutions.

So, as I said the other day when I mentioned that the President-elect’s plan to spend more money on infrastructure since 1950 might be the right thing to do at the wrong time… We’ve got the deep, dark recession going on, the Credit Crisis and this collapse of revenue… But don’t let that stop him! Why would we want to stop with the deficit spending here? I shake my head in disgust!

Today’s data cupboard has the Trade Deficit for November, which should narrow, given the collapse of the Oil price. That and the recession should allow the Trade Deficit to narrow… But, let’s not get caught up in the media spin on this too… You see, the Trade Deficit is still $53 Billion, which annually is $636 Billion… Which is probably right about where it will end out this year…

And… $53 Billion still needs to be financed! Let’s not forget that little ditty!

I just watched the euro gap up to 1.32… This is a rout like I’ve not seen since last summer! And wouldn’t you know it, here it is, and I’m going on vacation! Oh well, maybe the old adage that the currencies rally when Chuck’s away, will come back!

I just can’t pass up on this one though… And I know the legal beagles will be all over me on this, but here goes… This certainly looks like the Santa rally that I talked about earlier this week, eh?

I know, I know, it could all be reversed in a New York Minute, but you’ve seen these types of routs before…

Another currency on the rally tracks this week is the Chinese renminbi… After all the “bad talk” about China last week, the Chinese have said, “you’ll be sorry”! What I’m talking about here is the fact that everyone is dissing the renminbi right now, and selling it, and pushing forward contracts down in value… And the Chinese, because they can, have moved the renminbi higher VS the dollar this week! There! In Your Face, disgrace!

So… What’s everyone thinking these days buying Treasuries? I mean, the yield on a 3 month T-Bill is 1 BP! You have to go out 30 years in a Treasury Bond to get 3% yield! OUCH! But, investors keep buying! Well, I think what you’ve got going on here is simply the fact that all this repatriation of dollars has investors with tons of cash, that they don’t want to put into banks, (for a number of reasons, like FDIC insurance limits, shaky banks, etc.) So, they put the cash into Treasuries, realizing that they may not earn any interest, but it will be there when they want it at some point in the future. And this “point in the future” is what scares the bejeebers out of me! Because when the icing is off the cake here, there will be a swift exodus from Treasuries, as no one will want to be the last man standing here… UH-OH! Just be careful folks…

The weekly Initial Jobless Claims will also print this morning. We’ve seen a huge increase to average above 500K in the Weekly Initial Claims, and that should hold true today. This isn’t a good thing folks…

Well, the rally this week hasn’t been cornered by currencies… The Commodities have come back too! Oil is up $2, but the real meat here is the rally in Gold! Gold this morning is perched above $827, when it was sitting at $770 just a week ago!

Currencies today 12/11/08: A$ .6660, kiwi .5525, C$ .8015, euro 1.3235, sterling 1.49, Swiss .84, ISK 215.50, rand 10.13, krone 6.95, SEK 8, forint 199, zloty 3.01, koruna 19.64, yen 91.30, baht 35, sing 1.4890, HKD 7.75, INR 48.30, China 6.8515, pesos 13.30, BRL 2.3950, dollar index 84.33, Oil $45.50, Silver $10.46, and Gold… $832

Source: A Huge Currency Rally