“It is critically important that Congress act before the [debt] limit is reached,” Tim Geithner wrote over the weekend in a letter to lawmakers, “so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations.”

Sounds like our Treasury Secretary is finally putting his foot down, insisting that Congress pull back its lavish spending programs and start addressing our incredible $11.6 trillion national debt.

Wait… what’s that? Oh, Geithner’s actually asking for Congress to raise the debt ceiling. If Congress authorizes our government to dig deeper than $12.1 trillion in debt (our current glass ceiling) our partners here and abroad will somehow “remain confident.” How perverse is that?
The U.S. budget deficit rose $181 billion in July, to a record $1.3 trillion, the Congressional Budget Office reported over the weekend. You know the drill by now… tax receipts are plunging while bailout spending is soaring. In budget parlance, revenues in this fiscal year are down 17% while outlays are up 21%.

That’s a $530 billion increase in spending from fiscal 2008.

The CBO still projects the government budget deficit to exceed $1.8 trillion, about four times 2008’s record $455 deficit. More to come tomorrow, when the Treasury unveils official budget numbers.
Sounds like a great time for the government to buy a bunch of fancy jets! Congress recently earmarked $550 million in a defense funding bill to buy themselves eight private passenger jets. That would be the same Congress that went out of their way to publicly embarrass Big Three execs for jet setting from Detroit to D.C.

Prepared for a public backlash, Congress has a several lame talking points at the ready… that the current fleet of private jets is outdated… that having new high-tech planes will be better for the environment and ultimately lower cost… and that these planes will be used mostly by the Pentagon and only about 15% of the time for lawmakers.

But here’s our favorite: Legislators are eager complete the transaction so that they can have a new fleet in time for the busiest congressional travel period of the year… August, when they are all on holiday!

Here’s the crucial difference between 2009 and 2007: While the government is still spending with reckless abandon, the consumer is rapidly deleveraging. Consumer credit fell for the fifth consecutive month in June, the Fed announced Friday. Credit outstanding fell by $10.3 billion in the month, to a total of $2.5 trillion. That’s more than double what the Street expected. Revolving credit, namely credit cards, fell by $5.2 billion — a record 10th month in a row of decline.

Now in a state of contraction since February, the average American is embarking on the longest credit pullback since 1991.
“We are clearly in an economy-wide deleveraging process that will last for years,” writes Strategic Short Report’s Dan Amoss. “We are not in a typical inventory-led recession. Sure, the next few years will not mirror the 1930s, because the government and central bank are debasing the currency to prevent a dreaded debt deflation spiral. We probably won’t have 1930s-style bank runs (although the FDIC is running dangerously close to needing to tap its line of credit with the Treasury to replenish its Deposit Insurance Fund).

“But make no mistake: We will pay for the inflationary bailouts at some point down the road with a currency crisis. Central banks cannot keep abusing savers and the bond market to this extent without eventually provoking a collapse in demand for paper money.

“A collapse in demand for paper money, not a decline in the ‘output gap,’ will eventually bring about inflation. We’ll see signs of it as real Treasury bond investors keep balking at these low rates at Treasury auctions, leaving the Fed to step in and monetize the debt. Eventually, there’s a risk that the Fed will lose the tiny bit of independence it has left and the printing press could come under the control of Congress, which would accelerate the endgame for the U.S. dollar. The market for gold-related assets will look ahead to this possibility.”

Dan’s Strategic Short Report readers own calls on GDX, and recently took on a short position in a very well-known bank. We’ll be telling you much more about this fishy financial soon… keep an eye out tomorrow.
The benchmark 10-year Treasury bond just suffered its worst week since 2003. Investors forced yields up 38 basis points last week, to as high as 3.88%.
But the stock market continues to climb. Friday’s better-than-expected jobs report (more on that in a minute) bumped the major indexes up about 1.3%, to their highest levels since October. The Dow and S&P 500 finished up over 2% for the week.

The market looks a bit timid today. After opening down, the Dow and S&P are near break-even as we write
“It’s been a rough year for dividends,” says our income analyst Jim Nelson, “but if you know where to look, your income will be just fine. Below is a breakdown of S&P 500 yields by sectors:

“As you can see, the biggest loser on the list is financials, which shouldn’t be a surprise. The segment’s dividend yield fell 300 basis points (right-hand column) from last year to now.

“The sector that pays the most is doing so under the radar: telecommunication services. This is a favorite of ours. That 14 basis point increase is primarily due to AT&T and Verizon — both paying out around 6%.

“These dividends aren’t nearly as safe as we’d like, though. Instead of gunning for the U.S. telecom industry, we like to play that game in emerging markets. We already have a Pacific Rim telecom in the Lifetime Income Report portfolio, and we’ll be adding another this week. Even after that, we’ll continue to keep our eyes peeled and noses to the ground in case something else pops up in that industry.

“Going back to that table, you can see the next two best-paying sectors are utilities and consumer staples. Our portfolio is already loaded with these, and we’ll continue looking in these directions as well.”

If you seek stable, dividend yielding stocks with serious upside potential, Jim’s Lifetime Income Report is where it’s at… details here.
It’s Monday… time to check in on the annual bank failure tally: Two in Florida and one in Oregon bit the dust over the weekend. That brings the 2009 running total to 72. The three took a $185 million chunk from the FDIC’s war chest. So far this year, the agency has lost over $15 billion from its bank insurance fund.
The dollar is holding onto its surprise Friday rally today.As we mentioned then, we were taken aback when the dollar index jumped from 78 to 79 after the better-than-expected jobs report.

“For months now,” explains Bill Jenkins, “every time there was good news for the economy (like Friday’s jobs report), it was bad news for the U.S. dollar. But not on Friday. The initial reaction to the good U.S. news was to sell the dollar. Then suddenly, the market reversed its course and began selling the other currencies with both hands, and buying the U.S. dollar, instead. In other words, the tide shifted, and good news for the U.S. economy also became good news for the U.S. dollar.

“So has the U.S. dollar put in a bottom here? Are we about to see a knee-jerk reaction favoring the greenback to other currencies? Only time will tell. But FX traders better be on alert. My readers saw a 42% profit in the Swiss franc on Friday’s move.”

42% in one day? Nice. There’s plenty more where that came from… just check out Bill’s Master FX Options Trader.
Since the dollar remains strong, gold is still under pressure. The spot price is down about $20 from Friday’s high, to $945 an ounce.
“Why is every analyst, yourselves included,” a reader asks, “so quick to believe the government’s unemployment and GDP figures, when the political interests of the White House are at stake in the numbers and the White House controls the executive departments that generate these figures? We know from past unhappy experiences (e.g., weapons of mass destruction in Iraq) that the White House is capable of lying when it suits political purposes. Not to mention that GE, Murdoch and the other oligopolists who control the news we get are politically and financially motivated to play along and hype the figures.”

The 5: We’ve talked about the dubious nature of the jobs report so many times (like here, here or here) that we thought we had gotten our point across. Guess not.

Uncle Sam — though the power of statistical ploys like the birth/death model, seasonal adjustments and margin of error — can put the jobs numbers just about wherever he wants. We follow ’em because they can greatly affect the prices of your investments, they influence policy and public opinion and there are very few viable alternatives. We quote folks like John Williams often so you get a worthy alternative point of view. We could only be more contrarian by ignoring government stats altogether, which would be a disservice to you, whom we promise to inform, enrich and entertain.

And speaking of Mr. Williams:

“Heavily distorted seasonal adjustments have artificially reduced the levels of new claims for unemployment insurance,” writes John in his latest Shadowstats alert. “They appear to have flowed through not only to July unemployment and payroll reporting, but also to the July purchasing managers manufacturing survey.

“July usually sees a regular pattern of planned automobile production line shutdowns to accommodate retooling for the new model year, but recent disruptions to the auto industry have changed the pattern this year. Without the usual pattern of shutdowns, the government’s computers nonetheless responded by creating the usual offsetting boost in jobs, not only in the auto industry, but in supporting industries, as well. The auto industry itself was alone among durable goods manufacturing industries in showing a reported seasonally adjusted monthly gain in July, up by 28,000 jobs…

“The severity of the ongoing economic contraction has started to generate other distortions in data reporting:

• Year-to-year comparisons will begin to see a flattening in annual declines, as year-ago numbers used in comparisons were in severe contraction.
• Extreme economic disruptions have distorted patterns of regular activity and related seasonal-adjustment processes.
• The birth-death model overstates payroll levels during recessions.
• Short-term discouraged workers begin to disappear from the broader BLS unemployment measures as their “discouragement” extends beyond one year…

“While Wall Street likely will hype the July employment results as confirmation that the economy has turned the corner, such hype and resulting overly optimistic expectations should be slammed in the months ahead, when the positive reporting distortions reverse out in a normal catch-up process.”

Source:  The Debt Ceiling, Dividend Plays, A Currency Sea Change and More!

Well… The dollar came back with some vengeance yesterday pushing the Big Dog, euro, back well within the 1.38 handle, and all the other little dogs, other currencies, followed. There wasn’t data to speak of yesterday to push the dollar higher, it was simply a case of fright, as safe haven flows went the dollar’s way after the news of a N. Korea attack warning spread throughout the markets.

Funny thing… I get a daily email from a news source that gives the highlights at mid-day… And yesterday, the email said, well, the email didn’t really “say” anything, it can’t talk! Any way, the email contained these two headline stories… 1. Crude rises for third session… And 2. Gold down for second day… I then glanced at the screen, and saw Crude Oil trading down on the day, and Gold up $5.80 on the day… So much for that news source, eh?

Yesterday, I talked about the high yielders, highlighting Brazil’s return to a Current Account Surplus… But the high yielders have more to say about the dollar’s future value… You see, it’s more than the Commodity Currencies… It’s also the Emerging Markets currencies, which seem to have a life of their own. There was a lot of talk last year about how the Emerging Markets economies had decoupled from the U.S. and a U.S. slowdown would no longer affect them negatively as a U.S. slowdown would have in the past. For a few months there, the decouple story was laughed at, as the Emerging Markets sold off just like everyone else. But then, like the Phoenix Bird, they rose from the ashes… And it’s these Emerging Markets currencies that have taken the biggest bite out of the dollar this year!

OK… This is not an endorsement to run out and buy Chilean pesos! You’ve got to be very careful with these Emerging Markets currencies, as they are smallish, they are illiquid in most cases, and they have wild swings. Take for instance two more “mature” Emerging Markets, Brazil and South Africa… These two do NOT fall into the illiquid category… But currencies like S. Korean won, and Chilean pesos definitely do!

The real point here was to talk about the decoupling… It’s happening just as those that saw that it could, said it would. It just took some time to get legs underneath themselves. Remember last year they called the action from July to December, “De-Leveraging”… This simply meant people were selling everything non-dollar and buying dollars… You might recall me questioning this thinking, but who am I to say this was wrong! Well, I read yesterday that this price action in Emerging Markets is being called the “Re-Leveraging”!

Speaking of an Emerging Markets Country / currency… The Russian ruble (illiquid!) was in the news yesterday… And here’s where, I just didn’t get the dollar strength yesterday… Here’s the skinny… Rumors were flying around yesterday that Russia is planning to revise the weightings in their basket of currencies they use to value the ruble… The rumor had the weighting in euros for the basket, changed from 45% now, to 55% in October, and 60% in December….

Now… If true… This would be HUGE for the euro! Now we just need to all be Sherlocks and find out what’s going on here… The Truth is Out There!

OK… Back to the majors!

The euro has recovered a bit this morning on the news from the European Commission, who, this morning said that European Confidence in the economic outlook increased to a 6-month high this month… The people surveyed repeated the thought that record-low interest rates, and the Government spending plans may be starting to work, and the economy may have bottomed… Hmmmm… I hate to be the bearer of bad news to these people, but I don’t think their economy has bottomed…

I say this because I truly believe there’s another hic-cup for not only the European economy, but the U.S. economy. I see where quite a few economists are now saying that the U.S. recession will in this year… Hmmm… Here’s what I think… I do think that we’ll see a quarter later this year with positive growth… But then I think it’s followed by a negative growth quarter, thus… A bump…

And… Yesterday, I talked about how we might be seeing the end of the link between stocks and currencies, and stocks had gained the previous day, and currencies had not… Well, yesterday stocks sold off, and so did currencies… But this time, I think it had more to do with the N. Korea news than any “link” between the two… I really do think we’re beginning to see a break… Let’s hope so, because that would mean that we’re taking baby steps toward getting back to “fundamentals”…

And these fundamentals include the fact that stocks and currencies have a low correlation to each other, and different pricing mechanisms…

U.S. Treasury yields continue to climb with the 10-year Treasury gaining 19 Basis points in yield yesterday… That pushes the annual climb in yield for this note to 148 Basis points… Hey! You can’t say I didn’t bring this to your attention before it happened!

My friend, Bill Bonner, had this to say about Treasuries yesterday in the Daily Reckoning (www.dailyreckoning.com) “The US Treasury market is in a bubble. Like all bubbles, it will pop. And as always, when bubbles pop, there are those who get hurt – and those who profit. The difference is how well you’re prepared for it.”

Oh, and one more thing… With Treasury yields rising… Mortgage rates will HAVE to follow… And that’s not going to make Messrs Obama, Bernanke, Geithner and anyone else involved in artificially keeping mortgage rates low, happy… But, that’s fine with me! I don’t really care if they are happy with this development or not! They are responsible for this rise in yields, so they can only be unhappy with themselves!

In New Zealand overnight… The 2009-2010 Budget printed, and showed remarkable restraint (for New Zealand!) The Finance Minister, Mr. English, then spoke about how near term deficits are high, he believes that they are at a “peak”… Which is Finance Minister parlance for: We’ll see our debt to GDP ratio shrink from here on out! That kind of talk is manna from heaven for kiwi investors, and the folks over at S&P liked it too, as they immediately raised the outlook for New Zealand’s debt from negative to stable…

Last week, we had S&P lower the U.K.’s debt outlook and the pound sterling took off for higher ground… Sort of backwards thinking, eh? Any way… Kiwi has responded favorably for the time being, but without the Big Dog, euro, off the porch chasing the dollar down the street, kiwi will have a difficult time adding to these gains…

Someone asked me yesterday why I hadn’t mentioned the Canadian dollar / loonie lately, given my statement that crude oil was rising yesterday… OK… The reader was right! I should have been all over the loonie like a cheap suit! The Loonie has gained 13% since March 1st, and Crude Oil has moved from $40.15 to $63.40 since March 1st…

It was a year ago, that the loonie was basking in the sun of parity with the U.S. dollar… All the talk then was that the loonie could go into uncharted waters VS the dollar… We all know that didn’t happen… And the reason? Oil fell and commodities like Gold fell… But guess what’s happening again? Oil and Gold are rising again… Hmmmm…

I saw something yesterday that hit me as strange… Forbes Magazine had a lead story titled: “Make A Buck On The Rising Euro”… The reason I found this strange, is that I’ve heard Steve Forbes talk the past few years and each time he emphasizes that the dollar is strong and will remain strong… But now his magazine had a story on how to make money buying the euro… Which means, to make money in the euro, (for dollar based investors) the dollar would have be weak! Strange, eh?

Anyway, the writer, Ryan Campbell, goes on to talk about how the euro has risen VS the dollar since March (something I told you weeks ago!), but also adds that the “charts sound the all-clear for euro bulls.” Interesting… I hadn’t heard from my charts guy lately, maybe this will wake him from his slumber!

And Swiss francs continue to defy the Swiss National Bank (SNB)… Francs have pushed to near 92-cents… Recall that the SNB issued verbal warnings pre- 90-cents that they were not happy with franc strength… Well, apparently that’s all the SNB has… Verbal warnings, because they have not stepped in front of this franc fueled bus!

And Swedish krone is seeing some selling pressure this morning, as the old story regarding the Eastern European Banking woes, was brought up again… This is old news! Wrap it up in newspaper and carry it out with the other trash!

So… As I get ready to head to the Big Finish, I see that the currencies, led by the Big Dog, euro, are getting off the porch once again to chase the dollar. One currency that’s not participating is the Japanese yen, which has taken a big spill overnight to near 97… However, that bad performance in yen hasn’t spilled over to other currencies…

Currencies today 5/28/09: A$ .7840, kiwi .6255, C$ .8955, euro 1.3895, sterling 1.5960, Swiss .9195, rand 8.0425, krone 6.4730, SEK 7.7690, forint 204.30, zloty 3.2250, koruna 19.2450, yen 96.90, sing 1.4525, HKD 7.7530, INR 47.66, China 6.8289, pesos 13.24, BRL 2.04, dollar index 80.75, Oil $63.43, Silver $14.94, and Gold… $952.10

Source: Russian Rumors

OK… Well, the currencies took a breather VS the dollar yesterday, and basically traded right around the currency round-up levels most of the day. Overnight, things were pretty quiet too… The markets are trying to figure out which way they are going to go with the dollar… The Deficit is growing, which SHOULD be bad for the dollar, but in recent times, fundamentals get a little hazy at times. So… Let’s go to the tape on the Office of Budget Management (OMB)

The OMB reported yesterday that they were revising the Budget Deficit for this fiscal year, which ends Sept. 30th. Get this folks… The OMB says that this year’s deficit will be 12.9% of GDP, and next year’s deficit will be 8.5% of GDP… OUCH! Now… Let me put these figures into some framework… First of all, back in 1985, finance ministers of the world met at the Plaza Hotel in New York, and were scared to death that the U.S. deficit was out of control… At that time it was 2.5% of GDP! The Plaza Accord called for a weaker dollar to deal with this, what was called out of control, deficit.

In 2001, the U.S. Deficit reached 4.5% of GDP, which historically meant that a country experiencing debt levels at 4.5% of GDP would experience a currency crisis, or at the very least a major debasing of the currency….

Now skip forward to today… 8.5% of GDP? Where the heck are the finance ministers of the world now, and why are they scared to death regarding this out of control deficit? The only country crying wolf at these figures is China! Oh… And one more thing about the 8.5% of GDP… This is the highest level our debt has been in 60 years, since the end of World War II…

I shake my head in disgust… What has become of our republic… Oh… And to add injury to insult… This morning, the Trade Deficit, which had fallen recently due to the recession, actually gapped up 5.5% in March… That makes sense to me, actually… You see, the dollar was still “stronger” in the first part of the year, thus eliminating the ability for exports to make a dent in this Deficit… The sharp narrowing of this deficit looks to be leveling off, and once again, that does not bode well for the dollar… The return of the Twin Deficits could be in cards once again, and that could be devastating once again for the dollar.

Oh…. And one more thing on the Jobs Jamboree from Friday, that I completely forgot to talk about yesterday… The jobs created were “ghost jobs”! The totally insane Bureau of Labor Statistics (BLS) added… 226,000 jobs from what they believe was “business creation”… WHAT? Are you kidding me? What a bunch of dolts! Business creation during a recession like this, that would add 226,000 jobs! I’ll tell you what happened here… The Gov’t needed this report to show some sunshine… And voila! The BLS came through! But here’s the rub… It will lead people back into the markets artificially… If losses come, then the BLS should be held responsible for this artificial attempt to make us feel good! OH… And don’t forget, in a future month, the BLS will have to take these out because they won’t materialize… And when they do… That month’s jobs data will suffer… But hey! I can hear the dolts over at the BLS now… Just push it down the road for somebody else to deal with….

I’m watching, the best I can that is, from the road, the euro go on a run here this morning, and 1.37 looks like it could very well be its next stop. The flight to safety (read Treasuries) seems to be wearing off, and I’ve told you time and time again in the past, right here, right now, that when the “BIG GUYS” grew tired of the paltry yields in Treasuries, they would unload them as swiftly as they bought them, and that would cause the dollar to be under severe pressure… I’m not saying that this is what’s happening right now… But it sure has the smell of it… Yields on Treasuries have been rising, which indicates selling, as the prices of the bond goes down with the sales… And the dollar has been teetering…

Our long-time friend, Jim Rogers, was interviewed on Bloomberg TV yesterday… And it’s always of importance what Mr. Rogers has to say… So let’s listen in to Jim Rogers!

“The dollar’s rally is set to end in a currency crisis,” said Jim Rogers on Bloomberg TV… He went on to say… “We’re going to have a currency crisis, probably this fall or the fall of 2010. It’s been building up for a long time. We’ve had a huge rally in the dollar, and artificial rally in the dollar, so it’s time for a currency crisis.”

I’m with you Jimmy! This artificial dollar rally has lasted way too long! But, if you look at the move in the currencies since March 1st, that I put in the Pfennig yesterday, then we may be on to something here… My problem is the link with stocks that currencies have held onto for a few months… I just can’t get my arms around the fact that “all’s right on the night” in the financial markets, that the recession is nearing an end, and stocks will continue to rally… I just don’t see it that way, and if the currencies hang on to this link, then that wouldn’t be a good thing… BUT! This is a runaway bus at this time folks, and you won’t see me stepping in front of that bus! So… Let’s just go with the flow!

Good news this morning from Canada, as their Trade Surplus increased to $1.1 Billion in March. The March figure was larger than expected… This is another in the list of things that have gone right for the Canadian dollar / loonie, recently… The news is tempered with the fact that imports saw big decline, which would be a representation of a slow economy. But, again, this bus is moving…

I’ve got to get going here, I speak in a couple of hours… I seem to be coughing a lot this morning, that’s got to stop before I go on stage! So… This will be a bit shorter than usual this morning… I am… On the road!

Currencies today 5/12/09: A$ .7655, kiwi .6075, C$ .8615, euro 1.3660, sterling 1.5275, Swiss .9050, rand 8.44, krone 6.4270, SEK 7.7870, forint 204.65, zloty 3.2190, koruna 19.6180, yen 96.70, sing 1.4570, HKD 7.75, INR 49.32, China 6.8221, pesos 13.16, BRL 2.0590, dollar index 82.33, Oil $59.33, Silver $14.17, and Gold… 917.20

Source: OMB Makes New Deficit Forecast

Good day… Not sure when all of you will be receiving this today, as it took nearly over a half hour for my computer to boot up this morning. But its all good news for currency investors, so I’ll get it written and out to you as quickly as I can. The dollar slowed its decent overnight, but continued to fall vs. most of the major currencies as the US Senate rejected the $14 billion bailout for the auto industry.

The big winner in the Senate rejection of the bailout plan was the Japanese yen, as Japanese car makers are predicted to grab an even bigger piece of the US auto market. The yen, which has been rallying due to global deleveraging and carry trade reversals, suddenly had another reason to rally. The yen rose to a 13 year high, trading below 90 yen per dollar, and some are now predicting a rise to 80. Finance Minister Shoichi Nakagawa boosted the yen further after telling reporters in Tokyo that Japan isn’t considering intervening in the currency markets.

But even before the automakers got the bad news from the Senate, the dollar was falling faster than we’ve seen in the past few weeks. Chuck shouted out across the trade desk around noon yesterday that the dollar index, which tracks the greenback against the euro, yen, pound, Canadian dollar, Swedish krona, and Swiss franc, had fallen below the 55 day moving average. This is a major level for technical traders, and signaled the dollar could be headed for a further fall.

The data released yesterday showed initial jobless claims in the US surged to a 26 year high as the recession deepened. Claims increased to 573,000 last week, an increase of 58,000 from a revised 515,000 the previous week. The total number of workers staying on the benefit rolls jumped to just below 4.5 million, the most since November 1982.

While the markets had predicted another increase in the jobless claims, the trade deficit numbers were a big surprise. US exports slid to a seven month low causing the trade deficit to widen to $57.2 billion in October. No one I read was predicting a widening deficit. The worsening trade balance removes what has been the sole source of support for the economy during this recession.

A separate report issued by the Federal Reserve showed US household wealth fell by the most on record in the third quarter. Net worth for households and non-profit groups decreased by $2.81 trillion, the most since records began in 1952. So we have record unemployment, a widening trade deficit, and falling consumer net worth; not a good picture for the incoming President. But President Elect Obama has a plan, we can just spend our way out of this problem!! Chuck sent me the following comments yesterday afternoon:

“So… All this week I’ve talked about the President-elect’s plan to spend more money since 1950 on infrastructure, which is fine in good times, but these are faaaaaaaaarrrrrrrr from “good times” for the economy… Well… Yesterday the P/E said this, “We understand that we’ve got to provide a blood infusion to the patient right now to make sure that the patient is stabilized. And that means that we can’t worry about the deficit.”

Can’t worry about the deficit? Did I hear that correctly? Geez Louise, here we go again, sliding down the same old slippery slope of “deficits don’t matter”! Aye, yi, yi! What is everyone smoking? I’ve said this before many times at presentations, and here in the Pfennig, but I can’t pass this up… These people, who should know better, that claim that deficits don’t matter, remind me of the guy standing on top of the Empire State Building, and decides to jump off… As he passes the 56th floor he says… “So far… So good!”

Well, that’s right, so far he hasn’t hit the ground! And… So far deficits have only bruised us, but they haven’t hit the ground yet either! A quick look at my fave book on deficits, I.O.U.S.A. tells me that we’ve passed the $10 Trillion mark for Federal Debt… “today’s deficits reduce national savings, which dramatically decreases productive investment and wealth-creating activities. Increased indebtedness to foreign lenders puts future financial decisions in the hands of people who may or may not have our interests in mind when they make them. Further, interest payments that have historically stayed home now provide more and more income to investors abroad.”

“At the current rate, with existing laws, by 2040 the federal government will be spending twice as much as it takes in from taxes. Our children and grandchildren already face a more competitive, challenging, and uncertain world than most Americans have grown accustomed to.”

Failure to recognize this by our leaders is the biggest mistake we can make… And comments like the one above from the new PE lead me to believe we’ll have more of the same old “deficits don’t matter” and that, my friends will eventually weigh heavily on the dollar…

Sorry to be so gloom and doom on a Friday… But that comment by the new PE just sent me reeling! Now, back to Chris…”

I’ve known Chuck for nearly 20 years now, and nothing gets his blood boiling as quick as the saying ‘deficts don’t matter’! The leaders of Europe sure think they matter, as the EU decided to trim down a proposed stimulus package, as Germany warded off calls by France and Britain for deficit-boosting programs. This announcement, combined with a statement by ECB council member and Bundesbank head Axel Weber caused the Euro to jump vs. the US$. ECB member Weber cautioned against reducing interest rates below 2 percent, suggesting the bank is probably near the end of its rate-cutting cycle. “If the benchmark rate sinks below 2 percent when medium to long term inflation expectations are just below 2 percent, that implies negative real interest rates,” Weber said in an interview. “I would like to avoid that.”

Weber knows the long term impacts of negative real interest rates, they are very inflationary. The generation before his lived through the German hyper inflation of the early 1920’s which helps explain why financial leaders from Germany are such inflation hawks. So the 75 basis point cut by the ECB last week, which was the biggest in ECB history, will likely be the last cut for some time. The Euro has benefited from this perceived change in attitude. As of this morning, the Euro has risen over 5 percent vs. the US$ this week.

We have been suggesting that the recent dollar rally was not a change in the long term trend for the dollar, and some big name currency traders are starting to jump on our bandwagon. Goldman Sachs Group lowered its forecast for the dollar against the euro and the yen for 2009, saying the repatriation of overseas assets by US investors and demand for the greenback for funding are ‘diminishing’. Goldman is now predicting the Euro will rally to $1.45 per euro by the end of next year, up from their previous prediction of $1.30. “We are at a turning point,” Goldman’s Jens Nordvig wrote in a research report. “We expect the dollar support from temporary deleveraging and funding flows to diminish, and, in that scenario, the underlying pressure from more standard sources should once again become more important.” Sounds like he has been reading the Pfennig, as Chuck has been calling for a return to underlying fundamentals for a while now!

The folks at Citigroup are also jumping on the dollar bear bandwagon. “There are good indications that the US dollar is likely to weaken against many Asian currencies into year-end,” wrote Tom Fitzpatrick and Shyam Devani, analysts at Citigroup. They went on to say the dollar will retreat from a two year high against an index of Asian currencies after breaching levels where orders to buy the greenback are clustered. They believe the dollar will fall vs. the Singapore dollar, Chinese Renminbi, and the Indian rupee.

The Chinese Renminbi continued to rally for a seventh day in a row, the longest winning streak since June. Assistant Finance Minister Zhu Guangyao vowed to keep the currency at a ‘reasonable and balanced’ level after the Chinese let it drop sharply on Dec. 1. China stalled the Renminbi’s appreciation in July to aid exporters after letting it rise 6.6% in the first half of 2008. I think China will continue to slowly let the Renminbi appreciate, but will keep the pace of the appreciation at a manageable rate of 6 to 7 percent per year. China’s economy is slowing, but Asia will continue to be the growth engine of the global economy. I still suggest investors allocate at least a portion of their investments into the Asian currencies of Singapore, Japan, or China.

Currencies today 12/12/08: A$ .6586, kiwi .5453, C$ .8038, euro 1.3363, sterling 1.4962, Swiss .8473, ISK 218, rand 10.2214 krone 6.8858, SEK 7.9616, forint 197.96, zloty 2.9621, koruna 19.488, yen 90.35, baht 35.01, sing 1.4918, HKD 7.75, INR 48.577, China 6.8433, pesos 13.3266, BRL 2.3684, dollar index 83.68, Oil $44.97, Silver $10.10, and Gold… $817.05

That’s it for today… Drove the side streets in to work for the last time today. The highway department shut down a 5 mile stretch of interstate which runs from the front door of our office to my house. After a full year of taking side roads to and from work, I will be able to take the newly refurbished highway on Monday. This will drop my commute big time, and is great news for yours truly!! Chuck is off on his annual Christmas shopping trip with his buddies today. They start first thing in the morning and spend the entire day spreading Christmas cheer around town. Hopefully I will be able to meet up with them this evening, as they typically end their trip at a local restaurant/bar not too far from my home. Hope everyone has a Fantastic Friday, and a Wonderful Weekend!!!

Source: Bailout Failure Accelerates Dollars Decline

Good day… And a Wonderful Wednesday to you! Well, the Junk Yard Dog got a hold of the euro yesterday, and even though the U.S. Banks, thus the majority of currency desks, were observing Veteran’s Day, the move down in currencies VS the dollar, led by the euro, was drastic!

The Junk Yard Dog I’m talking about is Jean-Claude Juncker, chairman of the Euro group… I stopped the euro in its tracks from its nascent rise in the past month, by saying the “euro’s recent rise was undesirable”… He also deep sixed the euro, and thus all the currencies save yen, by saying he “didn’t see any reason there couldn’t be more rate cuts by the ECB”… (the ECB is of course the European Central Bank) Well… These two comments tore through any gains the currencies had mounted VS the dollar in recent weeks, like a Junk Yard Dog tears though some raw meat! It was a knife to the euro’s heart…

And so it was to be, a massive dollar rally, on Veteran’s Day. And it didn’t get any better in the overnight markets, as Japan, and then early European trading has taken the dollar even higher and the euro drops to the 1.25 handle… A handle it thought it had left in the rear view mirror back in October… Boy! If comments from a guy that’s not even the President of a Central Bank in the Eurozone, can deep six the euro like that, you have to sit back and wonder what’s going on… Was it simply a case of watching the euro rally in recent weeks, and even get within spittin’ distance of 1.31 last week, and needed to stem the rise? Well, if that’s the case, the plan worked! And like Col. John “Hannibal” Smith used to say… “I love it when a plan comes together!”

And it just so happens that Bank of England (BOE) head Gov. Mervyn King added to the currencies’ worries by announcing that the BOE policy makers are “prepared to cut interest rates again to prevent a recession pushing inflation below its target.” All this on a day when most U.S. currency desks were absent… Hmmm… Sure seems to me as though this was a “planned” jawbone intervention to support the dollar…

So… Like I said above, the currencies, save yen, got whacked yesterday… But not Japanese yen! When things get really dark in the U.S. and with all the investment choices except U.S. Treasuries getting sold, that’s when the dollar and Japanese yen shine… Which to me is still a strange phenomenon, that the dollar can be strong VS almost every currency on the face of the earth, but losing ground to yen. You would think that the other currencies would get some love just based on the dollar / yen cross!

Recall, I’ve explained the currency pairs and crosses before, and how one major pair’s (like dollar / yen) usually carries over to the other currencies… But since the dollar and yen were the two major currencies used to fund the Carry Trade, they are getting bought at the same time, causing all kinds of ripples in the currency karma…

Looks like the good folks over at Bank of America, have been reading their Pfennigs each and every day! I say that because, there is a report out this morning that Bank of America (BOA) issued a report that; “U.S. dollar gains are increasingly at risk toward year-end as declining credit market rates switch investors’ focus to the slowing economy.”

WOW! If that’s not just rewording what I’ve been saying in the Pfennig almost daily for a couple of months now, then I’m a monkey’s uncle! The go on to say that, “A weak economy and declining stock prices are not a solid foundation for any currency over time. Persistent strength in the dollar is more related to the unwinding of long positions in the euro and pound and not a sign of optimism about U.S. economic prospects.”

It’s nice to see someone other than me, keeping my eye on the ball here… OK, I know all too well that it’s not just me, but it sounds good, eh?

Well.. There’s another “bailout” plan, although the media now calls them “rescue plans”, being talked about… This one is for the automakers… The Speaker of the House wants the bailout package NOW! Unfortunately, for her, and the automakers, it doesn’t look like a bailout package will be passed with this “lame duck” Congress… The “new guys” don’t come into office until January 6th. Maybe, just maybe, this thought that every freaking business that runs into trouble because they didn’t run their business correctly, and therefore “deserves” a bailout from the Government, which will mean in the end, taxpayers, will go away… I doubt it… But there’s always a chance, somebody, someone, somewhere, at sometime, comes up with a hoola-hoop, and we don’t have to go down this bailout road any more!

Hey! What ever happened to U.S. Treasury Sec. Paulson’s “bazooka” that he threatened to aim at the U.S. credit crisis back in July? A quick check of the financial scorecard since then, shows that stocks are circling the bowl, the Fed has had to step in to conduct commercial paper operations, U.S. Consumer Confidence is at 1982 low levels, and loans are still difficult to get on the books… I’d say his bazooka was much like the bubble gum I used to chew as a kid, with the Bazooka Joe comic inside the wrapper… Sweet and satisfying at first, but soon petered out and the taste was gone, soon to be disposed of properly!

Speaking of Treasury Sec. Paulson, or King Henry, as I so named him during his ascent to the top of decision making with regard to the financial crisis, will be speaking today! King Henry will be giving an update on the Bailout packages… Should be interesting…

Our friends down under in New Zealand think they are far removed from the financial mess going on in the U.S. and Europe… But then, the European thought they were far removed from it too before the walls began crumbling down on top of them with bad debt! But, in New Zealand’s case, I think they are on top of it… Mainly because the strong Central Bank… The Reserve Bank of New Zealand, (RBNZ) is big on fiscal discipline, and stated in their quarterly Financial Stability Review, that… “we are far from seeing the final impact of the financial and economic disruption. However, Kiwi banks and the Australian parents of the majors, are well positioned to withstand the economic downturn.”

It would a HUGE feather in the RBNZ’s cap, and further the kiwi’s cap should the financial meltdown pass them by without causing major problems… The Kiwis get a glimpse at the state of their economy tonight when Sept Retail sales are printed.

Well… The euro is creeping back up as I get ready to head to the Big Finish this morning…

You know… On Monday I talked about the Chinese announcement to provide $586 Billion worth of renminbi liquidity to their economy, and how that had gotten the currencies around the world excited… And yesterday I talked about how that excitement dissipated… But there’s one more thing to discuss here… And that’s the fact that if the Chinese are going to focusing on keeping their economy going and their billions of citizens happy, they won’t be focusing on buying U.S. Treasuries… And the funding problem that still exists, even though its not the markets’ focus right now, will get even trickier for the U.S. and the U.S. dollar…

And… One more thing before I head to the Big Finish… Oil has fallen below $60 for the first time since March 2007! WOW!

Currencies today 11/12/08: A$ .6610, kiwi .5755, C$ .8260, euro 1.2590, sterling 1.5285, Swiss .8450, ISK 182, rand 10.45, krone 6.9830, SEK 8.0150, forint 215.50, zloty 2.9920, koruna 20.21, yen 97.30, baht 34.98, sing 1.5050, HKD 7.75, INR 49.25, China 6.8298, pesos 13.06, BRL 2.2665, dollar index 86.93, Oil $58.40, Silver $9.70, and Gold… $732.42

That’s it for today… Mervyn King also said… “we are living in unprecedented times” Oh, thanks! Like we didn’t already know that!

Source: The Junk Yard Dog Bites!

The report is just the latest in a series of Big Media stories on the death of the six-year commodities bull run, aka “the commodities bubble.”

Eric Roseman in The Sovereign Society says the mainstream press have got it wrong on commodities. What we are seeing is a correction in prices, not a trend reversal. And it’s creating the best entry point for new investors in more than three years. 

Right now most companies trade at or near their 52-week lows and pay dividends higher than both the broader market and Treasury bonds. More from Eric…

The majority of energy stocks have struggled this year as oil prices raced to a record high of US $147 a barrel. Stocks simply couldn’t rally as the bear market in global stocks applied downward pressure on the entire complex.

Oil futures tell a completely different story. While major U.S. and international oil companies rose only 3.5% from January 1 to July 11, oil futures rose an astounding 63%. Over the same period, the S&P 500 Index tanked more than 10%.

Admittedly, the recent peak in oil prices was extreme and indicated a short-term “bubble.”

Commodities have been the prime beneficiaries of the global institutional boom. Industry players have already created a flurry of exchange traded funds to take advantage of this commodity bull market.

Also, hedge funds have turned to commodities to gain exposure to one of the few remaining profitable segments of the market. In fact, hedge funds “big trade” over the last 12 months has been riding the wave in commodities, including oil and shorting or betting against financial stocks. That trade violently reversed last month.

Another dose of bad news for commodities lately is the dollar’s rapid recovery. With the dollar in a freefall over the last few years investors had scrambled to hedge their portfolios against rising inflation and a decaying currency. But that trend is over, at least for now.

Bear Market or Correction?

From its high in early July the benchmark Reuters-CRB Index has declined 19% while crude oil prices have tanked 23%. Other commodities have declined even more.

Oil stocks, as measured by the Spiders XLE Index (XLE) are down 22.5% from their highs while the Dow Jones Oil Equipment and Services Index is off 21% from its best level.

Commodities, including oil, are in a correction. But don’t be mistaken: We’re definitely not at the cusp of a bear market for oil or commodities.

The market is right to discount a slowing global economy this year as credit problems and stagflation spread to overseas economies. It’s wrong to assume that the bull market in oil and most other commodities is over. Short-term cash rates still below the rate of inflation and global money-supply is still growing in excess of almost 20% year over year, according to Grant’s Interest Rate Observer.

In its fight to control deflation in housing and bank credit, the Federal Reserve will continue to pump the financial system with more money. Massive government bailouts don’t come cheap. Over time, inflation, which is now moderating, will make a comeback.

And what about the dollar?

Just because the dollar is soaring doesn’t imply that trend will last, either. The Fed is not going to hike lending rates for at least another 12 months and foreign central banks won’t start cutting rates until inflation eases.

The dollar may be in a bear market rally now, but the buck simply doesn’t have interest rate support from the Fed. Plus, the economy remains mired in a severe slowdown or recession across several important industries.

At the very least I expect the rate of dollar appreciation to slow over the next few weeks as profit-taking arrives and more signs of credit contraction plague the domestic economy. If anything, I’m expecting the Fed to cut, not raise, interest rates in 2009. That won’t be bullish for the dollar.

Tune in tomorrow, and I’ll tell you how to take advantage of this dollar strength and short-term oil correction.

Source: This Is a Correction, Not the End of the Commodity Bull Market, Part I

Friday, we saw some data that had mixed reviews. The TICs data showed once again that the US is having a difficult time attracting enough foreign investment to finance the Current Account Deficit. The Net Security Purchases by foreigners in June totaled only $51 Billion… Shoot, that doesn’t even cover the Trade Deficit, much less the foreign direct investment and interest that is added to get the Current Account!

On the good side of the US ledger, we saw Industrial Production post a 0.2% gain in July, adding to June’s 0.4% gain.

This is a good sign for the economy, but one that gets overlooked by the markets. In addition, Capacity Utilization inched up to 79.9%… If you went by these two pieces of data alone, you would think the U.S. economy is doing well… Unfortunately, that’s not true.

The NAHG Housing Market Index is the only piece of data we have printing today, but get ready for PPI, Housing Starts, and Building Permits tomorrow!

According to The Wall Street Journal: “Uncertainty continues to permeate the economists’ forecasts, as they remain almost evenly split for the third month in a row on whether the U.S. is currently in a recession. They expect the economy to slow to a crawl in the second half of this year, registering just 0.6% growth at an annual rate in the fourth quarter. At the same time, the forecasts call for continued job losses and elevated inflation, with oil prices above $100 a barrel well into next year, though down from current levels.”

Source: Falling Short On Financing…

To better understand what I mean here, let’s look at the greenback’s recent performance against the euro. After bottoming at an all-time low of $1.6019 versus the euro on April 22, the dollar has soared nearly 4% and was trading at $1.5428 per euro early yesterday (Wednesday).

Now many of the Wall Street types expect that rally to continue. Just yesterday, UBS AG (UBS) predicted the greenback would rise to  $1.47 in three months. That would be a jump of 5.0% from where the dollar is trading now, and would represent a total rebound of about 8.0%.

I mention this forecast because UBS is the world’s second-biggest currency trader, meaning the Swiss banking giant’s projection is certain to get lots of play.

Here’s my advice on this forecast: Ignore it.

Out of Touch With Reality

The so-called “dollar rally” is illogical, irrational and is unfolding at precisely the wrong moment – which means that many investors who are long on the dollar could get a nasty surprise if they don’t temper their enthusiasm a bit in the months to come.

Granted, there are a lot of things that happen at the wrong time when it comes to the financial markets. But the prospect of watching the dollar rise at the same time that oil and gold are advancing (a scenario that’s entirely possible, given current conditions) is downright disconcerting – if for no other reason than the history books show a pronounced negative correlation over time between these assets.

Couple that concern with the reality that the Bush Administration’s policy for the dollar has been one of benign neglect and you can come to only one conclusion: Absent an increase in interest rates by the U.S. Federal Reserve, any increase in the value of the dollar must be viewed as an anomaly.

And anomalies merit scrutiny.

One possible set of answers comes from an unusual source – the London Interbank Offer Rate (LIBOR) system of setting interest rates.

The LIBOR Lambada: The “Forbidden Dance.”

LIBOR, in case you’re not familiar with it, is the rate banks charge each other to lend money. It’s the net result of data on loan duration calculations ranging from overnight funds to as much as a year in 10 different currencies submitted by 16 major international banks and published each morning by Reuters.

Even though most investors focus on the U.S. Federal Funds rate, which is the benchmark for such key U.S. financial measures as the Prime Rate, LIBOR drives global calculations involving trillions of dollars of corporate debt, mortgages, financial derivatives and other financial instruments. And that makes LIBOR one of the single-most-important daily interest-rate calculations in the global financial markets. And it may actually be the most important benchmark.

And that brings us back to what’s happening with the dollar.

Because LIBOR represents the rates banks charge each other as part of the lending process, and because interest rates are an assessment of risk, rising LIBOR rates could be interpreted as an indicator of escalating risk, particularly if rates associated with it increase at a time when central banks the world over seem                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                to be completely committed to lowering rates.

This is immensely troubling, because it                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          appears as if the dollar rally is nothing more than the powerful head fake I mentioned a moment ago.

You see, when banks submit their LIBOR rate-related data, they’re supposed to submit their true borrowing costs honestly and without bias. The entire LIBOR-submission system works on the honor system – meaning there’s no regulatory agency reviewing the information to ensure its accuracy and truthfulness.

Yet, the rates that come from that data serve as the basis for worldwide valuations.

If that doesn’t sound familiar, it should. The same “Old Boys Club” responsible for the global credit crisis is responsible for self-policing its LIBOR data submissions. And we all know where that led when the “true” costs of the credit crisis and the off-balance-sheet transactions began to surface last summer.

And it wasn’t pretty.

In very real terms, no bank wants to submit data that reveals it is having trouble borrowing money or making loans. Not only would such data invite more scrutiny, but it also would potentially raise new valuation questions related to liquidity, bad-loan levels and the remaining levels of off-balance-sheet derivatives exposure at a time when the financial sector least needs it and doesn’t want it.

The upshot: As Money Morning reported to you several weeks ago, there’s no incentive for any member in the LIBOR-submission group to submit data that, while accurate, reveals its weakened state. That means that rising LIBOR rates – instead of signaling a newfound strength in the greenback – are actually demonstrating that the banks don’t trust one another, and are charging a premium for their money in a global-markets game of blind man’s bluff.

Think of it this way. It could well be that the same coterie of global bankers who brought us the global credit crunch could collectively now be manipulating LIBOR – and by extension – the U.S. dollar.

With this crew at the controls, it means that the dollar is gaining altitude, and not because it’s worth more, or because the outlook for the U.S. economy is more upbeat. The dollar is rallying on nothing but increased risk.

Two pieces of evidence back up my theory.

First, the British Banker’s Association has already launched an investigation into some of these LIBOR-related machinations. And when the BBA then announced that it was accelerating its probe, former professional bond trader and private investor R. Shah Gilani pointed out that “LIBOR jumped.”

And so did the dollar.

Platinum also traded narrowly, within a $15 range and with a bias to the upside, ending at $1975/oz., up $18. Overnight, platinum is off sharply.

Silver spiked in New York morning trading, peaking at $17.14, but was unable to hold above the $17 level, sliding back to close at $16.99, up 15 cents. Overnight, silver has been trending lower.
(Click here for charts)

Lack of volatility was the order of the day on Monday in the precious metals markets, which probably came as a relief to traders jolted by recent sharp price swings. And most analysts expect trading to remain thin ahead of the Fed’s interest rate decision, due out on Wednesday.

Gold yesterday received support from the energy sector, which saw oil prices rising, but not much from the dollar, which was little changed.

Silver took its cue in part from copper, which was firm on supply worries.

If “Gold is holding up on oil and because of the threat of inflation,” according to Miguel Perez-Santalla, of Heraeus Precious Metals Management in New York, then what’s the likely outcome this week?

The Fed’s decision could have significant ramifications for gold. A rate cut of another 25 basis points, once thought all but certain, has picked up a bit of doubt in the face of increasing inflation.

Should the Fed go ahead with that quarter-point cut, that of course is negative the dollar and positive gold and, if the cut isn’t already factored into the current price, then “look for the bull trend to reassert itself,” says Ralph Preston, of HeritageWestFutures.com in San Diego, California.

However, “We expect the dollar’s rally to pick up steam if the Federal Reserve decides to stand pat on interest rates,” said Edward Meir of MF Global. “This could set off another potentially heavy round of profit-taking in commodities.”

So the easy call is that, “Gold will trade cautiously in the next couple of sessions” ahead of the Fed, said analysts at Action Economics.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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