Well, front and center this morning is a rally in the currencies that began yesterday mid-morning, and has carried through the Asian and European markets. I’d tell you why the euro is 2.5 figures above yesterday morning’s level, but you’d laugh at me… No wait! That’s what you’re supposed to do, Chuck, tell the people what’s going on! HA! Seriously though… I don’t think you’d laugh at me, maybe the dolts that run trading floors around the world, or the pundits that write stories about the markets, but not me!

Here’s the skinny… Yesterday, I told you about how the markets were convinced the European Central Bank (ECB) was going to follow the Fed and reduce interest rates this week on Thursday. I also told you that I DID NOT believe the ECB would cut rates, right? OK… Well, yesterday, and I don’t believe for one minute that these guys read the Pfennig and said, “Hey, that Chuck Butler says the ECB won’t cut rates, we had better change gears”… But, yesterday, the thought that the ECB would lag the Fed with interest rate cuts began a whispering campaign, and before you know, there’s a headline story on the Bloomberg, say just that!

Fickle dudes, eh? One day they think this, the next day they think that. To think it is one thing but to spew it all out for everyone to read, is another! I know, I know, I change my mind sometimes, and I’m always reminded of the saying by John Maynard Keynes…”When the facts change, I change my mind. What do you do, sir?”

So… Anyway, back at the ranch, the euro is rising again, and the Aussie dollar is trading above 72-cents for the first time in three months! I’ve explained why this is going on, but in case you missed class that day… The Obama bounce, is giving a warm and fuzzy to the risk takers, and when risk comes back on board, the high yielders get a huge boost… Aussie, kiwi, reals, rands, they, even though their interest rates have been cut off at the knees, are still considered “high yielders”, and therefore, get all the love and attention, when the risk takers come on board…

U.S. stimulus spending is all the rage in the high yielders and the emerging markets, who have been beaten about the head and shoulders for far too long now! Yes, stimulus spending could be the key master to all that ails the world’s economic engine here in the U.S…. But at what cost?

I know, I know, you don’t want me getting on my soapbox and carrying on about the rising debt in the U.S. and our national debt going into the stratosphere, so I won’t… Not today…

There’s been a particular pattern going on in Gold that I think is worthy of mention. You see, yesterday a saw a story about Gold, and I decided to run a graph on what I thought had been happening, and the chart confirmed my thoughts… You see, Gold has been in a pattern of rising to fresh highs, and then falling back, but the falling back sees the lows at higher levels each time… A stair step if you will… Here’s a look at what I’m talking about…

In the past 3 months… Gold hit a low of $712.30 on Nov. 12, and rose to $821 to Nov 25
Then fell to $$756 on Dec 5, and rose to $852 on Dec 18.
Then fell to $846 on Dec 25, and rose to $882 on Dec 31.
The fell to $859 on Jan 5…

Where will it rise to this time? $900? Difficult to call, but this type of pattern usually indicates that each fall back in price (but to a higher low) creates a new base from which an asset can move higher. So, with that in mind, the outlook for a higher price in Gold in this pattern is possible.

Of course, $900, is a far cry from those that believe that Gold will get to $2500. But, I like small steps in assets, that way, it allows investors to still jump in without the asset getting away from them and then they chase the price higher and higher. Again, though, I shiver at $2500 Gold, because, if Gold is $2500, I can’t imagine the condition of the U.S. economy and the dollar…

The data yesterday in the U.S. was a mixed bag of bad stuff for the economy… The most important print was the ISM (non-manufacturing) Index. Recall yesterday I told you that the most important component of this report is the Employment component, which is my “secret” indicator of the National Jobs report (Jobs Jamboree). So… A quick look at the employment component indicates that the Jobs Jamboree, on Friday, will be close to negative -500K… This is what the “experts” are forecasting right now, and for once in a Blue Moon, I agree with them… Although, to me, I want to see the color of the November revision, which I explained all about the other day… Will it be -600K?

Factory Orders printed worse than expected yesterday… Factory Orders for November, collapsed 4.6% (remember the “experts” forecast -2.3%), and the prior was revised lower from -5.1% to -6.0%. I think that the back to back decline represents the biggest since data began in 1992.

The mixed bag part came in the form of the ISM (non-manufacturing) Index which measures the pulse of the Services industry, and for the first time in 4 months it did not contract. The index rose to 40.6… However, this is the 3rd month of below 45, which I’ve explained in the manufacturing side of this report indicates recession…

The Labor picture in Germany took a hit this morning, as the unemployment rate ticked up to 7.6% in December. You see, the Germans don’t have the Bureau of Labor Statistics (BLS) to help them out each month with “cooked books”… If the U.S. unemployment rate was accurately calculated it would be much higher than the 6.7% the BLS gives us, and wants us to believe…

Anyway… I didn’t mean to have that turn into a discussion about the BLS, I wanted to point out that even with a sour report like that in Germany this morning, the euro is rallying…

Speaking of unemployment… Did you see that ALCOA announced that they would cut its work force by about 15,000, or roughly 14.5% of its current employees and contractors. It also plans salary and hiring freezes, more plant closures and production cuts, and a 50% cut in capital expenditures? I did, and if that right there doesn’t illustrate the dark clouds over the global economic picture, nothing does!

One currency in Europe that rallied like there was no tomorrow, yesterday was the British pound… Before I knew it, the pound was taking names and pushing higher. This has to be a “cross thing”, because there’s nothing, nada, zero, zilch, in the way of good news from the U.K. economic and financial problems… So, when I talk about a “cross thing” I’m simply talking about how the currency “pairs” get crossed against other currencies, and in the end, a particular currency, which is a part of a lot of “pairs” gets marked up… Or down… It can go both ways… But in the pound’s circle, it got marked up yesterday… But, I just don’t think the pound can hold these gains… The Bank of England (BOE) WILL cut rates tomorrow, and before you know it… Voila! A weaker pound once again.

Here lately, it seems that I’ve highlighted a “Currency of the day”… I don’t want to keep going with that, because it could become a real pain to come up with a “currency of the day”… For now, I’m highlighting currencies that have BIG moves in a day… If I carried on with a “Currency of the day” I could be stuck highlighting a currency that moved .1%! UGH! So, I’ll steer clear of that one…

So, the latest on the Madoff scandal as reported by the Wall Street Journal… “Ten days before his arrest, Bernard Madoff received $250 million from a man who helped give him his start on Wall Street, a move that shows how the investment manager tried to raise cash to stave off his firm’s collapse.”

Geez Louise, how’d you like to be the guy that gave Madoff $250 Million and watch it go away, and the guy get carted off to jail? (well not yet) I guess if you have $250 Million to “give away” there’s more where that came from, eh?

Currencies today 1/7/08: A$ .7210, kiwi .5965, C$ .8455, euro 1.3630, sterling 1.4955, Swiss .9090, rand 9.40, krone 6.9350, SEK 7.7975, forint 195.50, zloty 2.9120, koruna 19.25, yen 93.20, sing 1.4715, HKD 7.7525, INR 48.76, China 6.8335, pesos 13.35, BRL 2.2070, dollar index 82.29, Oil $48.29, Silver $11.38, and Gold… $864.25

Source: A Trading Pattern For Gold

Good day… And a Happy Friday to one and all! No 3-day weekend this week, Shoot Rudy! Today is a “food day” in the office as we celebrate our cake maker, Cheryl’s birthday. I brought Krispy Kremes for the crew, as they truly eat them up whenever I bring them in.

Well… It wasn’t a Tub Thumpin’ Day for the currencies on Thursday, as the dollar was in the driver’s seat doing the Tub Thumpin’! There was a bias to buy dollars all day long and that carried over into the Asian and European markets. The euro is now looking up at 1.55…

The dollar bulls were all dancing in the streets when the 2nd revision to 1st QTR GDP was revised up to .09%, which was bang on expectations. Now, I would have one question for the dollar bulls, if I could just get them to stop with the dancing in the streets, and that is… What’s so good about GDP at .09%? Let’s say, for instance that we didn’t get a preliminary of .06%, and this was the first print… Most observers would gasp for air and turn into Chicken Littles, all screaming that the sky was falling!

Another thing giving the dollar some love these days is the falling Oil prices… Oil dropped to $125.75 yesterday…

But that’s the story Larry… Oh, and the dollar is hogging all of the spotlight these days that dollar bulls failed to see the problems with an interview that took place that doesn’t shed any sunlight on the financial problems in the U.S. Let’s listen in…

“MARGARET POPPER, BLOOMBERG NEWS: It could be huge. You’re talking about the securitization issue and how that market drying up drives up the ability of consumers to shift their debt around. So they’re in essence, facing a liquidity crisis just like Wall Street did in the capital markets is that -

WHITNEY: No doubt. Margaret, there are two things that are going on here, number one, there’s been an over reliance on consumer liquidity coming from the securitization market. So, for example for ever $1 of mortgages that was put on bank balance sheets since 2007, $7 of mortgages, or seven times that rate has been securitized in the broader market.

So, most people think when the securitization market shuts down, oh lets look at the revenue decrease, revenue declines in investment banks. The bigger deal is it constrains consumer liquidity.

Now, the second issue is that regulators that have clearly gaffed on the housing bubble are now going to make up for lost time and are going to make it so prohibitive for credit card lenders to make profits, maybe that’s a good thing long term, but what’s it’s going to do is extract, I think, over $2 trillion of liquidity from the consumer balance sheet. So the consumer is going to get it from all sides, consumer spending is going to decline and I think consumer defaults are really going to pick up.”

OK… Back to me… And… So it’s not just me that thinks we are far from being out of the woods with this whole mortgage mess… Sometimes I feel like I’m all alone on this island shouting to the wind all these thoughts, but obviously no one can hear me… But then I wake up and realize that I have tons of readers that know what’s going on… Too bad the markets aren’t waking up to smell the coffee!

You know, within the past 10 days I’ve mentioned the fact that Treasury yields seem to be on the rise… The fact is they are rising… The 10 year yield moved over 4% to 4.08%… This increase in Treasury yields began in April, albeit slowly… I just don’t see how this helps the mortgage mess… Or the consumer…

Nor would a rate increase from the Fed help the economy / consumer… It might take a small chunk at inflation’s armor, but to stomp our inflation the Fed would have to aggressively go after rates to move them much higher… And… Turn off the Money Supply spigot! But, they can’t do that… It’s like a drug for the Fed Heads… And getting them off the drug will be a tough row to hoe!

OK… So Fed Head Kohn, was speaking yesterday and thought it was important to give the audience a wink and nod that the Fed window would remain open for business… Again, this is one of the things that has the markets all revved up and ready to roll. The removal of “risk”… If a financial institution gets in trouble with the junk they have on their books, no worries, just take it down to the Fed Window, the Fed will take it as collateral and lend money to keep the financial institution going…

My friends over at the 5-Minute Forecast, Addison and Ian, talked about this “collateral” in their newsletter the other day… Addison and Ian do a GREAT job with the 5-Minute Forecast, it’s a must read each day! Anyway, here’s what they printed the other day…

“Illiquid collateralized debt obligations — including mortgage-backed securities,” says our government stats watchdog John Williams, “now total in excess of 20% of the collateral backing the Federal Reserve Notes.”

Yikes. One-fifth of the U.S. currency is backed by fetid CDOs. Think about that.

“According to the Fed,” John explains, “U.S. dollar currency in circulation is estimated at $818 billion, the better portion of which circulates outside the geographic confines of the United States. While the U.S. currency has been a fiat currency for decades, the Federal Reserve Notes presently in circulation are collateralized by securities held by the Fed.

“Those securities traditionally are U.S. Treasury securities.

“Since the onset of the banking solvency crisis and the establishment of various new lending facilities by the U.S. central bank, however, an increasing portion of the U.S. Treasury securities held as collateral has been lent to troubled financial institutions in exchange for largely illiquid collateralized debt obligations.”

OK… Enough of that… But really these are the storm clouds that are brewing, and the markets are ignoring them… I sure hope they get to the storm cellar before the twister touches down… They don’t want to get caught outside the cellar like Dorothy!

One currency bucking the trend to weaken VS the dollar is the Brazilian real… Brazil received some more good news yesterday, when the rating agency Fitch, announced that they were upgrading Brazil to “investment grade”…

This is a huge deal folks… You see, there are pension funds, etc. that DO have investment criteria (unlike our Federal Reserve Bank) of which, buying bonds with investment grade is a standard… So, all these “buyers” that have been shut out of the Brazilian market, are now able to join the rest of the world that has seen Brazil as an investment choice…

So, obviously, the news helped push the real stronger VS the dollar… The real’s performance year-to-date is +8.63%… Not too shabby, eh?

OK… As I’ve been writing, the euro has turned around, and is back above the 1.55 level, so maybe, just maybe, you-never-know (Joaquin Andujar’s favorite word) (a St. Louis joke), someone has said “enough”!

Today, we’ll see Personal Income and Spending data from April… We’ve been spending more than we make for so long now, I just can’t see this changing. We’ll also see the color of the last reading to the U. of Michigan Consumer Confidence for May… I would expect this to remain near the 59.50 index level it hit at the last print, which is its weakest level since 1980.

We’ll pay the devil his due with inflation data in the form of the PCE Deflator, which measures U.S. Personal Consumption Expenditures. This data is expected to fall, which means U.S. Consumer spending slowed… Of course one would think that with higher food and energy prices, they would easily make up any slow down in spending… So, we’ll have to see, eh?

I just think that the U.S. Consumer has been backed into a corner (OK, the Consumer did some backing of its own!) and there are only a few paths out of that corner… One path leads to run-away inflation, one path leads to deflation, one path leads to recession, and another leads to bankruptcy and foreclosures… That’s dire straights right there folks… Whenever I say “dire straights” I think of Mark Knopfler (dire straits), and the song… Money for nothing…. That cracked me up!

Currencies today 5/30/08: A$ .9570, kiwi .7825, C$ 1.0110, euro 1.5520, sterling 1.9745, Swiss .9540, ISK 74.55, rand 7.59, krone 5.1025, SEK 6.0175, forint 155.50, zloty 2.1750, koruna 16.20, yen 105.50, baht 32.50, sing 1.3650, HKD 7.8050, INR 42.50, China 6.9410, pesos 10.33, BRL 1.6370, dollar index 73, Oil $125.85, Silver $16.85, and Gold… $883.15

That’s it for today… So, a Happy Birthday to Cheryl, who has been with us almost since the beginning of EverBank World Markets. My little buddy, Alex, broke out of his slump and got the game winning RBI hit last night… I was holding my breath as he strolled to the plate. His swing had gotten all messed up and I tried to help him (as best I can given my immobility)… But a nice soft liner over the 3rd baseman’s head brought home the winner! Another game tonight and one on Sunday! I just heard on the radio that Harvey Korman died… He was great in Blazing Saddles and High Anxiety!

Cards take two of three from the rival Astros… Now that’s a good thing! Any time you can beat that team! My long time neighbors, Kevin and Lisa, moved out of the “hood” yesterday… I must be running the neighbors away, that’s the second good neighbor that has moved in the past year! UGH! OK… I could go on, but it’s time to go! I hope you have a fabulous Friday!

Chuck Butler

Source: An Upgrade For Brazil!