Volatility was basically non-existent during Friday trading with less than a .50% difference between the high and the low of the dollar index. The overall bias, however, was a weaker dollar and the euro held onto 1.29 for a majority of the day and was near 1.2920 as I left the desk. The pound and Swiss franc were the only two currencies left on the bench last week with losses of about 1% and 2.5% against the dollar respectively. The rest were able to turn in a decent week with the Swedish krona on top of the pile posting a 6.5% gain.

The SEK got beat up last month on concern of its lending exposure to the Baltic states but traders have come in not only on thoughts of it being oversold but also as risk aversion has eased a bit. We saw Swedish inflation fall to a 3 year low of .9% as rising unemployment and slower demand are keeping prices contained. Their central bank, the Riksbank, will meet on Friday and most are looking for a .25% cut to .75%, so we’ll see if there are any surprises. The bottom line, not only with this currency but all of the other small European currencies, is that the euro needs to appreciate in order to provide any type of sustained traction.

I saw a report where Citigroup’s technical analysis team said that if the euro trades above 1.2992, we could see sharp appreciation and a break out of this range bound trading pattern we have seen for a while now. They didn’t provide any estimates as to how much but we did see he euro snap out of its 4 week decline last week. Its nice to see that we aren’t the only ones out there taking notice that a turn in the currency market could be inching closer.

As I came in this morning, we had a sizable sell off in the dollar during overnight trading with the euro shooting up to 1.3040. It looks as though investors in Asia were feeling better after the results of the G-20 meeting. The Asian stock markets were up on the day as the G-20 finance ministers vowed to combat the global recession by working together to clean up the toxic assets and OPEC refraining from cutting output. We blew right past that 1.2992 figure here this morning so we should get a better idea of its staying power as the day progresses.

China threw a cat among the pigeons as they voiced concerns about their holdings of US Treasuries and wanted assurances their investments are safe. Premier Jiaboa said “We have lent a huge amount of money to the US and I request the US to maintain its good credit, to honor its promises, and to guarantee the safety of China’s assets.” A Chinese analyst commented that they are worried the US may solve its problems by printing money which would stoke inflation and if the US can make sure this won’t happen, then China should continue to invest.

President Obama quickly responded to ease those concerns by saying in a press conference “Not just the Chinese government, but every investor can have absolute confidence in the soundness of investments in the US.” Continued Chinese investment in Treasuries are crucial in financing the stimulus packages. I wouldn’t think any type of a major sell off is likely but I could see them backing off a bit if they don’t feel comfortable. It will be interesting to see if anything changes going forward, but I don’t blame them for wanting some type of re-assurance.

With not much to report on from Friday, we can look at what is due out here in the US this week. This morning we have Empire manufacturing, TIC flows data from January, and February industrial production along with capacity utilization. The TIC figures are going to be a big one, which are supposed to show an increase, and will tell us for sure if foreigners were still buying up US financial assets. The rest of the data out today is expected to disappoint.

Tuesday brings us supply side inflation with the producer price index and Wednesday will give us CPI along with the 4th quarter current account balance. The Fed meets on Wednesday as well and are expected to keep rates unchanged but any comments or statements that result could be market movers. We round out the week with jobs numbers and leading indicators, both of which are expected to be worse than previous figures.

All in all, the data out this week points toward a continuation of the recessionary pressures and not much in the way of good news. Lawrence Summers cautioned that monthly job losses of 600k+ are unlikely to end soon and job cuts are probably not going to stop imminently. Consumer spending is the back bone of our economy so as job losses continue to mount, its difficult to see any type of sustained improvement.

I’ll finish up with gold today as it continues to quickly bounce off of the minor sell offs we have seen. The actions taken by the Swiss National Bank last week have tarnished its view as a safe haven investment in some eyes, so gold would seem to be one of the few assets left classified as such. UBS said a couple of weeks ago they see gold trading as high as $1,100 within the next three months, which doesn’t seem too far fetched especially as support levels continue ratcheting upward. We’ve seen a small pullback so far with the risk takers out in the markets this morning but its still holding onto $920 as I write. Until tomorrow…

Currencies today 3/16/09: A$ .66.19, kiwi .5309, C$ .7900, euro 1.3027, sterling 1.4221, Swiss .8452, rand 9.9158, krone 6.7672, SEK 8.4452, forint 227.89, zloty 3.4308, koruna 20.4326, yen 98.26, sing 1.5329, HKD 7.7528, INR 51.3350, China 6.8382, pesos 14.5153, BRL 2.3051, dollar index 86.667, Oil $44.24, Silver $13.0750, and Gold… 924.52.

Source: A Building Block

Well… The currencies continue to trade heavy under the pressure of the dollar, and the “flight to safety” in Treasuries… The euro has lost the 1.26 handle and continues to look weaker and weaker all the time. The latest move down came as a result of new that Eurozone leaders rejected a request for Eastern Europe aid… Here’s the skinny on that…

Hungary had proposed that Eastern European countries like themselves, Poland and the Czech Republic, receive loans totaling 180 Billion euros ($227 Billion dollars worth) from the Eurozone… Shot down….. I don’t want to be… Shot down! Ahhh, a little April Wine this morning… But getting back to this latest development, this news of a rejection, leaves the Eastern European countries hanging, and trading this week, or until something changes, outside the euro… In other words, the Eastern European Countries, like Hungary, and the other two mentioned above, normally trade partially on their own, and partially with the backing of the euro, since these three particularly were once considered to be on the “fast track” to euro conversion.

So… Not only do the Eastern European currencies get taken to the woodshed, in today’s environment with bailouts being the norm, the euro gets taken to the woodshed too for not “bailing out” their brothers…

This is what we’ve come to folks… If you’re not going deeper in debt, and bailing everyone and their brother, nobody likes you any more! I read one person’s thought on the Eurozone rejection, and they immediately stuck a knife in the Eurozone, saying “this shows European countries are behind the curve. They are acting against a global crisis with national measures.” Hmmm… Ward… You were a little hard on the Beaver last night, weren’t you?

The other BIG NEWS this morning was a report that John Taylor, who manages $11.4 Billion as chairman of New York-based FX Concepts, Inc. Let’s listen in… “Whenever a banking system realizes it’s in big trouble, it says, I have to take care of my next door neighbors and the businesses down the block. Then the currency of that country, it its banks are big in international lending like the U.S., will strengthen.”

Needless to say, but, it certainly sounds like Mr. Taylor, has drunk the kool-aid, and is buying dollars along with the others seeking a “safe haven”…

I tell you this, because, someone wrote me recently, and said that I only print commentaries that agree with my stance… So there! This guy is HUGE, and he’s buying dollars!

Well, the revision to 4th QTR GDP printed much worse than forecast on Friday… Let’s see what the Wall Street Journal had to say about it… “Gross domestic product decreased at a seasonally adjusted 6.2% annual rate October through December, the Commerce Department reported in a new, revised estimate of fourth-quarter GDP. The sharply lower revision reflected adjustments downward of inventory investment, exports and consumer spending.

The 6.2% decline meant the worst quarterly showing for GDP since a 6.4% decrease in first-quarter 1982 GDP.

But… With like all “bad data” in recent times, the traders flocked to the dollar and U.S. Treasuries… Makes no sense to me, but then, I think logically… Not like some Ivy leaguer that never spent time in the mail room, learning the business from the bottom up… Wait! How did that thought go into my feelings about one of the reasons this mess is so bad? I was saving those thoughts for a “rainy day”… Oh well, there’s a hint as to where that discussion might go, when I decide to really “let loose”!

Obviously, a decline of 6.2% is pretty dis-heartening for those that believe the recession will be V-shaped… Buzzzzzzzz! Thank you for playing, there’s a nice parting gift for you at the door!

The data cupboard is stocked and ready to yield a plethora of data this week! We start today with Personal Income and Spending, and end the week with the Jobs Jamboree, in between we’ll see the ISM Index (manufacturing), Pending Homes Sales, the Fed’s Beige Book, and more! So, we won’t be void of data to talk about this week.

It looks like January will be the month that sees jobs losses greater than 600K, as the “experts” have forecast the total job loss for January at 650K! Aye, Yay, Yay… That’s just awful! The unemployment rate is expected to hit 7.9%, but don’t be surprised if it prints a snowman… That’s an 8 for you non-golfers, bad golfers I should say! I still believe that the unemployment rate will reach 8.5% before this is all over, and that’s even taking into consideration that Obama’s Stimulus is a smashing success! (here’s the kicker though, that no one’s talking about regarding these jobs that will be created by the Obama stimulus… For the most part, they will all be “short-term jobs”. What happens when those “short-term jobs” end?)

OK… Enough! The data will print when it prints, so I’ll just leave it there…

Back to Treasuries for a minute… A reader sent me a note that the 5-year Treasury auction priced at 1.92% yield… So, why the attraction to Treasuries? 1.92% for a 5-year Treasury? That’s pitiful! And if the continued buying at that level doesn’t represent an “overbought” situation than I’m not bald, overweight and short!

The Canadian dollar / loonie had a rough go of it on Friday after their Current Account printed as a deficit for the first time since 1999! So… After 9 years of surpluses, Canada is dealing with a deficit… The Current Account deficit totaled a seasonally adjusted C$ 7.486 Billion in the fourth quarter, bigger than the consensus forecast for a C$ 5.1 Billion shortfall. A slump in the goods trade account combined with a widening investment income deficit resulted in the largest Current Account deficit since 1993.

Japanese yen continues to weaken from it’s lofty levels of just a couple of weeks ago… I tried to point this out to everyone when I said that the Unwinding of the Carry Trade looked as though it had come to an end… If the unwinding involved buying yen, then the end of the unwinding would involve not buying yen… Then when it stops getting stronger, profit taking begins, and… Well, that’s where we are today with yen…

Remember last week when I mentioned that AIG could post the largest loss in U.S. Corporate history at $60 Billion? Well, they bettered that number posting a loss of $61.66 Billion! So… Guess who stepped in again to make sure they didn’t fail? That’s right! The U.S. Gov’t… Here’s the skinny as reported by the Wall Street Journal… “The federal government has revamped its rescue package to American International Group and will provide the troubled company another $30 billion, with the Treasury saying AIG continues “to face significant challenges.” The announcement comes as the insurance giant posted a $61.66 billion net loss for the fourth quarter.

The new package comes as the company has burned through cash and has been unable to find buyers for pieces of its company that it hoped to sells to repay the government on its existing loan package, which totals some $150 billion.

>>>> back to me… I tell you this folks… I truly believe that the Gov’t might as well find a big black hole and throw the $30 Billion into it, because now AIG is at $150 Billion in total loans, and still burning through cash… I hope I’m wrong, because as a taxpayer, I would hate to see this, but… I think we’ll hear about more Tens of Billions being put into this company in the future…

Speaking of taxes… I met my guy on Friday to begin the tax accounting process… The time is slipping by pretty quickly folks, and April 15th will be here before we know it!

I’ve talked about how much I enjoy reading Caroline Baum’s articles on Bloomberg before… And she has one now that really strikes a nerve with me, in that for once I have someone agreeing with me that the latest stimulus isn’t addressing the problem with the banks… Here’s a snippet…

“Fed Chairman Ben Bernanke said in congressional testimony last week that key to stabilizing the economy is stabilizing the financial system.

If that’s the case — and policy makers of all stripes seem to agree that it is — why a $787 billion fiscal stimulus bill filled with political priorities and a budget that increases domestic spending by 8 percent?

As an economist friend of mine says, you can’t force-feed someone who’s in the middle of coronary thrombosis.

Better to make the treatment fit the disease. Revamping the health-care system won’t fix the banks. Raising the price of carbon-based fuels and force feeding the nation alternative sources of energy won’t loosen up lending. And higher taxes on the wealthy, and inevitably the not-so-wealthy, won’t enhance bank solvency.

Doing so many things at once means a reduced focus on the root of the problem. There’s a reason the tortoise beats the hare in Aesop’s fable.”

The entire story can be read here, and I highly recommend that you do… http://www.bloomberg.com/apps/news?pid 601039&sid aoKaIpGop7No&refer columnist_baum

Currencies today 3/2/09: A$ .6325, kiwi .4935, C$ .7785, euro 1.2580, sterling 1.4150, Swiss .85, rand 10.3685, krone 7.20, SEK 9.22, forint 243.50, zloty 3.78, koruna 22.62, yen 97.10, sing 1.5540, HKD 7.7565, INR 51.94, China 6.8450, pesos 15.40, BRL 2.4120, Dollar index 88.72, Oil $42.38, Silver $13.10, and Gold… $946.55

Source: Saying “NO” To Eastern Europe