Good day… Welcome to October! And a Tub Thumpin’ Thursday to you! No real reason to get Tub Thumpin’, but I thought why not? The non-dollar currencies have given back their gains made yesterday to the dollar, in a game of what seems to be, give and take… A tennis match with the dollar, one day the ball is in the dollar’s court, and the next day it’s not! Really, kind of giving me a rash, watching this… I want some direction here!

So… When I turned on all my screens this morning, and then waited about 20 minutes for the new programs to be installed on them that the IT people left for the next time the computer started up… Hmmm, where was I? Oh! I was talking about when I first saw the currencies this morning… I saw that the euro had fallen back to 1.4560… And of course wanted to find out why…

Well, it seems that the G-7 Finance Ministers are going to meet this week, and there is already some discussion that the euro’s rise will be discussed… OK… Currencies traders took this to mean that these mental giants in the G-7 will do something to stem the rise of the euro… Of course, the G-7 Fin Mins might just be discussing how impressive the euro’s gains have been VS the dollar this year! HA!

This plays well with the thought I had and shared with you the other day, regarding Central Bankers from Japan and the Eurozone propping up the dollar… Trust me folks, these guys are smart puppies, and can see the writing on the wall for the dollar, just like you, me and the guy down the street that cuts his grass early in the morning… The last thing they want to happen is for everyone to get the idea that these Central Bankers won’t prop up the dollar, for if that were to happen, it would spring open Pandora’s Box of currency disasters for the dollar!

The Eurozone did receive some strong data this morning…. The latest Eurozone PMI printed. Eurozone PMI is just like here in the U.S. it’s a measurement of the manufacturing activity. But only in the Eurozone it takes in all 16 member countries. This activity is then put into an index so that it can be easily monitored. And just like here in the U.S. the line in the sand of whether manufacturing is contracting or expanding is 50…

Eurozone PMI rose for the 5 straight month, but remained under 50, posting a 49.3 in September… But the trend is manufacturing’s friend here, I would think, as it has risen steadily for the past 5 months.

Let’s talk about something other than the Eurozone… The other day, I was interviewed by Reuters about dollar / yen. I told them that the Japanese yen did not have the fundamentals to support an 88 figure, which it had hit on two occasions in the past week. Well… The Japanese Tankan report, which takes the pulse of the economic activity in Japan, backed up what I had said earlier, when it reported that “Japanese companies plan to deepen investment cuts as profits slump, inhibiting the recovery from the nation’s worst postwar recession.”

Speaking of interviews… I did a quick one in a chat room at DTI, which is an investment education company. This quick interview was just a “teaser” for a full fledged 30 minutes of “Chuck speak” that will happen next Monday at 1:30 CT… It will be a power point presentation that comes across on your computer, with me talking over it… Sounds like it will be tre’ cool… If you want to find out more click here… http://www.dtitrader.com/trading_education_MMM_everbank.htm

With the euro backing off this morning, the rest of the non-dollar currencies are doing the same. Aussie and kiwi have not been able to hold onto gains they made yesterday, and the rest of the currencies just fall in line. You know what I always say when this happens don’t you? That’s right… It gives everyone an opportunity to buy at cheaper levels than yesterday!

The other day, after the S&P/CaseShiller Home Price Index number printed and showed a month-to-month rise in home prices, I thought to myself, is this really something that can catch hold and continue to rise? I then began to put together a list of the “risks” to continued Home Price increases… The list as I have it:
1. 1.5 million homes on the dockets for foreclosure
2. 10% unemployment, with 39% unemployed for more than 6 months…
3. The potential stock market correction
4. The end of the 8% tax credit for first time home buyers, (that son, Andrew took advantage of this summer!)

Long Time Friend… Ed Bonawitz, agreed the list and added that if we just look at how the auto industry fell back into an abyss after the cash for clunkers program ended, imagine what the end of the 8% tax credit program will do…

I was talking with a customer yesterday that has traveled quite a bit over the years, and had businesses in China and Indonesia, etc. I asked him the question that everyone asks me all the time, regarding China’s data… When I’m asked whether this is good data or not, I usually reply that I don’t live there, so I have no other choice but to take it as printed… But, my customer, told me that he believed that, for instance, if China printed a 10% GDP, that it’s probably inflated by 50%! YIKES!

So, with that in mind, China printed their PMI for September last night, and, according to the Chinese, it rose .3% to 54.3%… Again, a number for a PMI above 50 indicates expansion… So… Even if the Chinese inflated the data, their manufacturing sector would still be performing in an expansion mode…

And… What’s good for the goose (China) is good for the gander (Australia)! I told you earlier that the Aussie dollar (A$) was not able to hold it’s gains made yesterday that brought the A$ to .8859, a 14-month high for the currency. China is now on holiday for the next week, so the A$ will have to find some traction from other areas… So, it’s not out of the realm of possibilities that the A$ drifts in the next week…

I see where Big Ben Bernanke will be giving some prepared remarks to lawmakers this morning about the need for strong consumer protection of financial services… Hmmm… This makes me laugh, and laugh hard! Isn’t this kind of like the fox telling the farmer the need to secure the hen house after it’s been raided?

I mean, the Fed had the control, the supervisory power, to protect consumers from the lending practices that went on but did they? NO! They turned their heads and looked the other way, while the mortgage mess grew and grew… Just like a child… If you look the other way when they misbehave, then the misbehaving will get worse, and worse…

Seems Big Ben was a little upset a couple of months ago, when it was proposed that there would be a new Consumer Protection Agency… He felt like the Fed was being knocked down a notch, and he criticized the proposal… I doubt he’ll go down that road again, as I’m certain, he received a “memo” from the powers to be, which told him to shut his trap and go with the President’s plan…

The data cupboard today yields the U.S. version of PMI, which we changed to ISM a few years ago… The ISM in the U.S. went back above 50 in August, and is expected to have gained a bit in September. This is good news for the economy… But one has to wonder about what happens after the all the build up for the cars for clunkers program filters through… But, with the dollar much weaker than 6 months ago, manufacturing certainly gets a lift.

We’ll also see Personal Income and Spending, which unfortunately has shifted back to the days of us spending more than we make… Didn’t we learn anything? It’s Thursday, so the Weekly Initial Jobless Claims will print… And then rounding out the data today are reports on Vehicle Sales, and Pending Home Sales… So a very busy day at the data cupboard!

OK… Before I go to the recap and the currency round-up, I just had a thought about today’s actions in the currencies VS the dollar. The Asian and European sessions sold the currencies and bought dollars… When the NY guys and girls arrive and see what has happened overnight, I suspect we’ll see more selling, as they will have orders to fill… So… The cheaper levels could be still to come today…

Then there was this… Bank of America’s CEO Ken Lewis announced his retirement… I find this to be somewhat strange… Very strange indeed…

To recap… The ball is back in the dollar’s court today, as G-7 gets set to meet this weekend and maybe discuss the euro’s rise… Japan’s Tankan supports my belief that there are no fundamentals that support a yen at 88, and the Eurozone posts its 5th consecutive gain in manufacturing…

Currencies today 10/1/09: A$ .8790, kiwi .7210, C$ .9315, euro 1.4555, sterling 1.5990, Swiss .9590, rand 7.6645, krone 5.80, SEK 6.99, forint 185.65, zloty 2.9050, koruna 17.45, RUB 30.09, yen 90, sing 1.4125, HKD 7.75, INR 47.76, China 6.8265, pesos 13.55, BRL 1.7665, dollar index 77.10, Oil $70.10, 10-year 3.30%, Silver $16.61, and Gold… $1,005.25

That’s it for today…

Chuck Butler

Source: G-7 to Discuss Currencies?

Now, if you think like me, no wait, most people don’t want that burden! But… We think in similar circles, you probably chuckled a bit when you heard that G-7 “praised” China for their continued flexibility with the renminbi… Doesn’t that almost sound like an Eddie Haskell? “Why, Mrs. Cleaver, you sure look nice today” Is G-7 “kissing up” to China? It sure sounded that way to me, for China hasn’t allowed the renminbi to move higher VS the dollar with any kind of consistency for some time now!

So, G-7, Schmee 7! I just don’t think they can deal with these things in a macro environment… In other words, each finance minister, Treasury Sec. or other official needs to go home and take care of their own house! There was one thing that came out of the G-7 meeting… Each country “promised” to not resort to protectionism to help their economy… I’m sure that while they promised they had their fingers crossed behind their respective backs!

The shot across the euro’s bow this time is coming from the rot on the vine of the Eastern European countries… These Eastern European countries are taking on water from bad loans, or loans gone bad, and you know who the lender of last resort is on these loans don’t you? Yes, Eurozone banks… This opens a whole new can of worms folks… The euro has taken hits from Spain, Italy, and Italy in this round, and previously took a major hit from France in 2005, and survived all of them. And it will survive this round… But not until it sees more weakness VS the dollar. I would look for the euro to revisit its previous low of a few months ago in the 1.23 handle… This could get ugly, as this Eastern European bad loans scenario has just popped up, and we’ve got to work through all the rubble to get to a base, before the euro can come back even stronger.

This will obviously represent some cheaper levels to buy, and diversify… Or average cost in… Or anything other reason you might have for taking advantage of this soon to be cheaper opportunity.

So, with the Big Dog, euro getting taken to the woodshed for its indiscretions with Eastern European loans… BUT REMEMBER I TOLD YOU THIS… The European bank losses are NOTHING compared to those in the U.S. My friend, John Mauldin, said that they “Dwarf those in the U.S.” And… Remember, The Eurozone began this meltdown in a position of strength! The U.S. was on its knees begging for foreign investment to finance their IOU’s… The rest of the dog pound is getting taken to the woodshed too! Shoot Rudy, even Japanese yen, which didn’t get mentioned by G-7 for its strength, is losing ground to the dollar this morning. There’s not a currency anywhere on the scorecard that’s not going 0-for 4 against the dollar today… UGH!

OK… I take that back! Not a fiat currency that is! But the currency that a lot of people don’t consider a currency, but I do, Gold… Is kicking some dollar rear this morning and taking names later! Gold is up $24 this morning to $965! And why do you think Gold is on the rally tracks this morning? Well… Things are uncertain these days aren’t they? Then if you answered yes, then you know that the “uncertainty Hedge” is here to save the day! Gold is the “uncertainty Hedge” … Oh, and Silver is like the Super hero’s sidekick… Like Robin to Batman, Silver to Gold… Silver is trading within spittin’ distance of $14…

When will traders and risk takers stop and look at all the debt the U.S. is taking on? That’s the question I keep asking myself… The massive amount of debt that just keeps going on the books, is crazy stuff folks… It’s gotten to be so massive, that I believe it has pushed everyone to become “comfortably numb” That’s got to be the answer, because if it isn’t, then I think we would see people screaming bloody murder at the Gov’t! They are amassing these massive debts and we’re paying for it! Don’t believe me? Well… Let’s listen to former U.S. Treasury Sec. Paul O’Neil, who quit because he didn’t believe in the tax cuts without cuts in Government spending… “The federal government doesn’t have any money that it doesn’t first take away from the people.”

But, as long as no one complains to their Senators, and Representatives, then they believe they have Carte Blanche to spend your money, your kids’ money, and your grandchildren’s money… Sometime in the future, someone will find a year’s worth of these Pfennig’s, and they’ll say… “Hey! Why didn’t we listen to this guy?” OK, I’ve gone too far there… That’s crazy imaginary stuff there, and has no place in this “professional letter” HAHAHAHAHA!

Well, we get a look at the how well the foreigners are keeping up with the financing of these debts this morning, as the December TIC Flows will print. Keep in mind that this is a fancy name for simply stating that this is the “net security purchases by foreigners”… Also, keep in mind that we need about $40 Billion per month (yes, it has fallen, but that’s long before we calculate the budget deficits that will be mounting this year)… In November the net was a negative of $21 Billion… Whoa! December’s total is forecast to be a positive $20 Billion… Which is better than a negative $21 Billion, but still doesn’t meet the required amount to finance the deficit… So, we just keep pushing that forward, and forward, and forward, until someone “calls” us on it, much like De Gaul called the U.S. on the debt, back in 1971, and demanded to be paid in Gold for the IOU’s he held… So… Now, we wait for the time when foreigners say “no mas”… And you now see why this is not a good idea for a country to be at the mercy of outsiders…

That’s when Nixon closed the Gold window… August 1971… And the world that we knew with a Gold standard was to be no more… Sort of like Puff the Magic Dragon when Jackie Paper came no more, and Puff that mighty dragon, he ceased his fearless roar!

Ok… Enough of that! The Japanese Finance Minister Nakagawa, is going to resign after Japan posted an economic report that showed Japan’s economy contracted at the its fastest pace in almost 35 years during the 4th QTR of 2008. Of course it didn’t help that he was reported to have been under the influence of alcohol during the G-7 meeting… He denied that his behavior was due to “being drunk”, and instead blamed a combination of alcohol and cold medicine…

So… Not only did Nagakawa have to deal with the bad economic report upon returning home, he had the press all over him about his behavior… So, he announced that he will resign… In Japan, this is called, falling on a sword…

The economic report has caused some slippage in the Japanese yen. This is the first real slippage we’ve seen in yen in some time… There are no reports of intervention by the Bank of Japan and the finance ministry, so one has to believe that this is simply profit taking after seeing the rot on the economic performance’s vine…

But, as long as the Bank of Japan and finance ministry keeps their finger off the intervention trigger, Yen should not succumb to heavy selling, and losses VS the dollar… Not yet…

The “new and improved” $787 Billion Stimulus Bill is on the President’s desk for his signature today… The markets will get all tingly, especially stocks… So, let’s hope for at least a day or two, the connection between stocks and currencies remains… But it can drop soon after, and go back to the way things have always been!

I see the time, and realize that I’ve been typing for far too long this morning, I have a ton of stuff to do, since yesterday was a holiday, so off to the Big Finish we go!

Currencies today 2/17/09: A$ .6405, kiwi .51, C$ .7920, euro 1.2640, sterling 1.4260, Swiss .8550, rand 10.20, krone 6.99, SEK 8.70, forint 242.30, zloty 3.86, koruna 23.38, yen 91.75, sing 1.5260, HKD 7.7540, INR 49.66, China 6.8414, pesos 14.61, BRL 2.3050, dollar index 87.38, Oil $37.06, Silver $13.96, and Gold… $963.80

Source: When Will Foreigners say “No Mas”?

OK… Let’s get this ball rolling, eh? The currencies had a nice rally on Friday, as the Jobs Jamboree turned out to be a horror show… But I don’t think it was the Jobs Jamboree horror show that pushed the euro and other currencies higher. I think it was the stock market rally. Recall, last week, when I told you that the stocks and currencies had been trading side by side, which wasn’t something we normally see, as they have different pricing mechanisms, and a low correlation to each other. But they were trading in tandem, and that carried through on Friday…

So… The currencies, other than yen, rallied on Friday… Euro, Swiss, Norway, Aussie, kiwi, Brazil, they all had it going for them… And of course when stocks do well, the risk takers are back on the board, and that spells yen selling… It’s one big circle folks…

Then someone has to ask why then would stocks rally when 598K jobs were lost in January? Ahhh, grasshopper, you’ll want to sit down for this one… You see, the stock jockeys were all about the 598K jobs lost in January, because they were “sure” the lawmakers would get off their duffs and get to pushing the “new and improved” stimulus package through… And… The lawmakers rewarded them, announcing later Friday that they had reached an agreement on the package.

So… Let’s skip back to Friday morning, and revisit the Jobs Jamboree Horror Show… Brought to you by the Bureau of Labor Statistics (BLS). The BLS printed one horrible Jobs number on Friday, thus showing that the U.S. continues to shed jobs in January posting jobs losses of 598K, and revising the previous month’s number from -524K to -577K… And the unemployment rate jumped from 7.2% to 7.6%… Recall on Friday, I said that the report would be more disappointing than forecast and that the unemployment rate would jump to 7.5%… So, I was “dialed in” on that one, eh? That’s too bad though, because no one, and I mean no one, wants to see this kind of blood in the streets. Of all the sectors that lost jobs (service, construction, etc.) one sector eked out a gain of +6,000 for the month… Yes, you got it! I’m talking about Government jobs!

This was the worst month of job losses since 1974! I was telling Chris at breakfast the other day, that I was working at Stifel Nicolaus in 1974 in the margin dept, and I just don’t remember it being that bad… But, as a qualifier, I was still living at home with my mom and dad, and I wasn’t married yet! Wait, that didn’t sound right! Oh well, I think you know what I mean…

So… This has really gotten out of hand folks. I’m going to have to go back to the drawing board, and revise my time table for when the U.S. begins to dig itself out of this mess… Previously, I thought it would be this year, by the end of summer… But, as I said, this monthly bloodletting in jobs is making me re-think this… More later…

When the Jobs losses were announced the lawmakers got “busy” on their “new and improved” Stimulus Package. I see where they announced that they had (my words not theirs) cut some of the fat out of the package, and it would be around $780 Billion… Well… In my opinion, they need to go back to the cutting room and cut some more! That is… Unless this is all targeted for job creation… And then, I want to see a plan for how it will be paid back!

I checked the stock futures this morning to see if there will be follow through today, and it doesn’t look like that will happen, as stock futures are pointing toward a soft open… The fact that the lawmakers didn’t send the “new and Improved” Stimulus Package to the President to sign yet, has probably caused some consternation in the stock jockeys… Don’t worry boys and girls in the stock jockey pits, the President can’t wait to get his signature on this spending bill, no matter how much pork and craziness besides job creation is in it!

Well… The G-7 ministers will meet this coming weekend… I guess they told their sweethearts that they’ll make it up having missed Valentine’s Day! I was reading a story at home yesterday, that discussed what the G-7 ministers might be talking about this weekend… The writer believed that foreign exchange would be high on the G-7 agenda… The dollar’s rise in the past 6 months, the U.S.’s position on China’s renminbi, the pound sterling’s fall from grace, and Japanese yen strength… Everyone will have their own agenda on these items, so it ought to make for a lively meeting, instead of the boring boondoggles G-7 normally holds…

But then, I wouldn’t put too much stock into anything you think might come out of G-7, for they have been known to disappoint!

My friend, and wonderful writer, David Galland, wrote a great weekly letter “The Room” this past week… And since I was getting all riled up about the “Buy American” and protectionist stuff in the “new and Improved” Stimulus Package, I thought his letter hit a home run! Here are a few snippets. (David’s letter, is a subscriber letter, so if you want to know more about this great letter, click here: www.caseyresearch.com )

“If you have read this weekly missive for any length of time, it might surprise you to learn that even my skepticism about the intelligence of the political class has limits.

That’s because even I can get to the point where, wondering at how the politicians will react to this or that challenge, say to myself, “Nah, they can’t be that stupid! They wouldn’t dream of doing something so obviously misguided and potentially disastrous!”

But invariably, as they have done again this week, they prove me wrong.

I am referring, of course, to the pending passage of Smoot-Hawley II… otherwise known as the “Buy American” provision interjected by members of the Senate into the new stimulus bill.

Back in 1930, when Smoot-Hawley was passed, it wasn’t as if the potential blow-back effect of the bill weren’t understood: over 1,000 economists signed a petition begging Congress not to pass the bill that layered tariffs on over 20,000 foreign-produced goods.

But, following tradition, they passed it anyway.

The record on the consequences of that action is unequivocal: between 1929 and 1934 – when trade was again liberalized – world trade declined by 66%.

I’ve got a better idea, though you might disagree. Just call the whole stimulus plan off; regardless of what it allocates spending to is made in America or by a foreign trading partner, we can’t afford it.”

David is a great writer, and you should subscribe to his letter, as he talks about all things related to the economy, and resources…

OK… This is getting a bit long today, but I still have some thoughts on Gold to share with you this morning. As I explained about a month ago, Gold continues to probe higher, and then sell off, but each time it sells off the low is higher than the previous sell off low. This trading pattern has long been know as an indication that an asset was forming a strong base and preparing to move higher… Recall, when I told you about this a month ago, Gold was about $860 or so, and I said then that I thought it looked as though Gold would move back to $900, based on this trading pattern.

Well, the pattern still exists, as Gold sold off of last week’s high of $927, and is just above $900 this morning… The sell off low is higher than the previous sell off low… I think you have to credit this strong performance in Gold to a change in investors’ feelings about hard assets VS fiat currencies, and a hedge VS the eventual deep slide in the dollar…

Currencies today 2/9/09: A$ .6745, kiwi .5340, C$ .8150, euro 1.2960, sterling 1.49, Swiss .8610, rand 9.6275, krone 6.6930, SEK 8.0650, forint 223.40, zloty 3.4970, koruna 21.4610, yen 91.60, sing 1.4950, HKD 7.7535, INR 48.57, China 6.8335, pesos 14.08, BRL 2.2450, dollar index 85.15, Oil $40.37, Silver $13.03, and Gold… $902.14

Source: Jobs Jamboree / Horror Show!

So, keeping the trading theme in mind… Stocks around the world are getting sold in the overnight markets, and that has the U.S. stock market on the teeter totter again this morning… Things are looking darker, LIBOR is inching back up, and the Carry Trade gets unwound… That means the dollar is rallying once again, and the Japanese yen is too.

G-7 made an unscheduled statement after a request from Japan’s Finance Minister, regarding the yen… Apparently, the strength of the yen is bothering Japanese officials. G-7 tried to stem the move higher by yen, but the strength of unwinding Carry Trades is just too much for such a watered down communiqué’ that simply said that G-7 was concerned with the “excessive volatility” …

So, one has to sit down and attempt to figure out the depth of the Carry Trades… In other words, How many more of those buggers are there?! Well… I asked around on Friday (yes, I was at home, but still working, with two interviews, one radio and one Wall Street Journal, a long conference call, and this work on the Carry Trade!) and found that most traders that follow Japan seem to believe that this unwinding has much more to go, which means the yen should have more to go, right?

Well… Who knows these days? But in keeping with the trading theme, I would say that one should look to additional yen strength if Carry Trades have more unwinding to go. You have to think further into this too… It’s not just plain old vanilla Carry Trades unwinding, it’s years and years of Uridashi Bonds getting sold. For the new kids to class… The Uridashi Bonds are Japanese Corp bonds that are issued in New Zealand dollars, which gives them a huge yield advantage over Japanese denominated bonds… And Uridashi Bonds have been issued for years, which was a huge reason for the gains in New Zealand dollars. (this was chronicled in this letter several times over the years, going back to the 90’s!)

There was a report by the Minister of Finance in Japan last week that showed the Japanese investors was unloading the Uridashi Bonds for the first time in years! And all this risk in the markets that has the Carry Trades unwinding is causing Japanese investors to stop their constant looking elsewhere but home to invest… So, no selling of yen, etc. Tutor Turtle learned there’s no place like home… Dorothy learned there was no place like home… And Scarlet O’Hara did too! So, it’s about time the Japanese did! So… Unless the Bank of Japan (BOJ) is willing to intervene, and trust me it’s not beyond them to do so, and you should also believe me that they have a war chest the size of Rhode Island of yen reserves to sell, then we should continue to see yen strength… But there’s always that BOJ with their war chest of yen reserves hanging out that should put a governor on yen…. In other words… Yen can gain, but if the gain becomes too excessive, we could see the BOJ intervene…

With the Uridashi Bonds getting sold… The weakness in New Zealand dollars is magnified… I know that I didn’t see the current Trading Theme coming, causing weakness in euros, etc. but I know that I must have sounded like the Boy Who Cried Wolf over the years, warning about an unwinding of Carry Trades and what it might do to the high yielders…

Just what should one do here with the U.S. economy sinking further and further into the abyss, causing dollar strength… Hold tight and believe that the fundamentals will come back to the front of the class on the other side of all this bad stuff going on in the markets? Sell into this weakness? I heard from Jen last week that she had a record number of CD breaks for one day… Apparently, selling into the weakness was in vogue that day! I have to say that selling now is a lot like try to catch a falling knife… But… I truly understand, as this has gotten completely out of hand. Me? I’m a fundamentals guy, with my investments too… So, I’ll hold, and wait to see what happens on the other side of all this… Take me to the other side… Please, and soon!

I don’t wish for us to get to the other side of all this just because of the currencies… I want to see the U.S. get through this credit crunch before we begin to spiral down into a deep dark recession, that could become a depression… I don’t want to see that… But, as you all know, these are the things I’ve written about that could happen should we not correct the course we were, as a country, headed down.

And it all starts with the deficits… But I’m not going to go through all of the history and what’s brought us to this edge of the cliff… Someone sent me a note and told me that I wasn’t worth a damn because all I did was point out things that didn’t work or wouldn’t work, and not submit a solution… Well… I take exception to that, because I have submitted solutions, but does any one in the Government listen to my solutions? Crazy… Absolutely Crazy!

OK… Crude Oil continues to weigh heavily on the Canadian dollar / loonie… I have to admit that I did not see Oil prices collapsing like they have done… Weakening from $145, yes… Weakening to the current level of $62.66? Never! Shoot Rudy, we didn’t even see Oil prices rise after our friends (NOT!) over at OPEC announced a daily production cut of 1.5 Million barrels of Oil! Now, that makes no sense whatsoever! But that’s the markets these days… Gas for our cars is now an average of less than $2.80 per gallon! WOW! I have to say that I love the sound of that! But… As I said above, oil’s plunge has been a shot to the heart, and Oil’s to blame for the loonie…

I see where it has been reported that the Reserve Bank of Australia (RBA) intervened on Friday, buying A$’s to stem the slide in the currency… Of course had they done this when it was in the 90-cent range it might have stopped some of the selling then… I would have to put this down as too little, too late… But they did buy A$’s on Friday, and that did keep the A$ above 60-cents in the overnight markets.

Gold staged a nice rally on Friday, only to see that fade into selling this morning… No adding on to the one day rally for Gold! I got asked at every stop on the Currency Tour about why Gold wasn’t higher in price? Well… 2 things… 1. Gold has gotten caught up in the “sell everything to come back to dollars” mentality that’s going on in the markets these days… And 2. there’s an invisible hand manipulating this metal… But then, as I got home and began to think about that, I have to say it’s 90% #1… And just a small piece of #2… You know…. That with the dollar’s rally and the currencies’ decline, that Gold is really high when priced in Aussie, kiwi, euros, etc. Hmmm…

The Emerging markets have seen all this melting down in the currencies and have not been able to avoid melting themselves. In fact, the Emerging Markets are usually at the head of the class when it comes to selling. I tell you this, because we could very well be seeing something in Hungary that would remind many of what happened to the British pound sterling in 1992. And once again, I’ll mention something that I said to everyone a good time ago, that has come to fruition… It just took a couple of years, and that is, that once the Euro Wanna Be countries of Hungary, Poland and Czech Republic got closer to the ERM (exchange rate mechanism), the precursor to converting to the euro, they would face speculation… Well… Speculators have gone after Hungarian forints, and smell blood…

And finally… The Wall Street Journal reported on Friday that: “The Treasury Department has decided to let banks individually announce that the government will invest in each firm, scrapping an earlier plan to release the names of multiple banks receiving federal money all at once. The decision came after concerns that banks left off any group list would appear too weak for government assistance, spooking investors and depositors and potentially making troubled banks’ situations more dire.”

And… The Treasury’s funds that are being placed into the Big Banks, are already being used to purchase the smaller banks… PNC announced that they would purchase National City Bank.

OH… And one more thing… U.S. Existing Home Sales rose in September… Is that a sign of good things to come? Unfortunately, remember that I previously researched that these sales include foreclosures… And then there also this… The median home price has fallen 9% from a year ago, and is now the lowest prices since April 2004…

Currencies today 10/27/08: A$ .6075, kiwi .5415, C$ .7785, euro 1.2465, sterling 1.5444, Swiss .8650, ISK (no quote), rand 11.12, krone 7.0825, SEK 8.0920, forint 217.68, zloty 3.0620, koruna 19.6850, yen 92.80, baht 34.75, sing 1.51, HKD 7.7505, INR 49.87, China 6.8520, pesos 13.33, BRL 2.2975, dollar index 87.28, Oil $62.66, Silver $9.03, and Gold… $729.45

Source: The Trading Theme Remains In Place

A new world order is arising… and coming with it is the opportunity to invest in a “corporation” that will dominate the world (literally) by the year 2035.

Investors and politicians who fail to grasp the sheer scale of the change we’re about to witness are going to find themselves consigned to the dustbin of history.

The foreign ministers of the four largest emerging economies will meet in the Russian city of Yekaterinburg tomorrow. They’re meeting to talk about forming a political alliance. Apart from Russia itself, the foreign ministers of India, China and Brazil are going to be attending… the so-called BRIC countries.

Now, you might think that the foreign ministers of these big countries meet-up often enough, so what’s one more meeting in a small city in the middle of nowhere? In fact, this is the first time the foreign ministers of the BRIC countries are getting together outside the venue of the United Nations.

On the agenda tomorrow are issues like: weapons proliferation, counter-terrorism, energy and climate change. Russia says it wants the BRIC’s to become a “notable factor in multilateral diplomacy,” to help strengthen “multi-polarity.” In other words, what they want is to break “Western”/ American hegemony in economic and political affairs.

What’s given them the audacity to come-up with this world-changing agenda right now, is how quickly economic power is shifting to the emerging economies. As Brazil’s foreign minister, Celso Amorim, said, “The meeting is recognition of the fact that we are four big economies with a large influence in the world.”

Investing in BRICs has been wildly profitable… and this is just the beginning…

And he’s spot-on. Just look at the facts.

China is expected to overtake Germany as the third-largest economy this year, according to the IMF. Russia has had 10 straight years of economic growth and is now the world’s biggest energy exporter. Brazil is the second biggest food producer globally, after the U.S. And it is now producing so much oil that it is talking about joining the OPEC oil cartel. The Bush administration is ripping its hair out at the thought – because it practically guarantees that higher oil prices are here to stay. (I’ll say more about that some other time…)

The combined gross domestic product of the four BRIC nations made up 12 per cent of global GDP last year. That’s up from just 8 per cent in 2000. That’s impressive enough, but these countries still have a long way to go. Goldman Sachs predicts that the BRIC economies, as a whole, could overtake the G-7 countries by 2035. Most of us will be around to see that happen. And, here at Profit Hunter, we are positioning our portfolio to profit from that shift.

The rapid rise of the BRICs has been fantastic news for early investors in those markets. In the past two years, shares in the BRIC nations have risen by 70 percent – and that’s after the recent declines. The average increase in emerging markets overall was 42 per cent.

How Goldman Sachs destroyed American hegemony.

The irony of this is that the idea of the BRIC countries as a unified group didn’t start with the politicians. The term was coined in 2001 by Jim O’Neill, the London-based chief global economist at American merchant bank Goldman Sachs. It was a catchy label for the biggest emerging markets at that time. But it has taken on a life of its own since then…

Brazil’s Foreign Minister Celso Amorim observed in a recent interview, “It’s really a group that first existed as a concept in the minds of analysts and subsequently came to exist as a practice between the countries.”

The BRICS alone aren’t big enough to dominate global affairs, though. But they probably won’t be acting alone. The new group will probably evolve into the core of a new alliance of emerging countries.

Frontier markets are riding on their coat tails and they’re about to rake it in…

So we can already see the emergence of the new world order taking shape. But, in many ways, it isn’t really the BRICs that excite me. It’s the spillover effect that these economic giants are having on the countries that surround them that we are focused. Countries like Vietnam, or a whole continent like Africa.

These are the new economic frontier. They’re riding on the coat-tails of the BRICs. But they’re in the very earliest stages of their economic booms. Getting in now is like getting into a lift on the ground floor and riding it all the way to the top. That’s why I get so excited when I talk about opportunities like Vietnam or Africa.

There isn’t much point in talking about the rise of the BRICs or the frontier economies if you aren’t in a position to profit from it though. Fortunately, regular Profit Hunter readers will be. At Profit Hunter we are invested in one of the most promising of the frontier markets, Vietnam. And we are playing Africa’s economic awakening through a great pan-African conglomerate. We recently claimed a fat 58% profit on our investment in Brazilian bank, Bacno Itau and are in Russia’s fast-growing economy through a cunning Russian conglomerate.

In fact I’m spoilt for choice regarding which of these emerging market opportunities I’d like to tell you about.

Let me start off with Africa… and how we’ve invested in one small British company that’s holding America to ransom over $135 billion dollars worth of African oil.

Oh… and the share price of this small British company is currently trading for pennies… Learn more about this amazing story here…

Regards,

Manraaj Singh
Editor
Profit Hunter

Source: BRIC -Brazil, Russia, India, China- Get In ‘Now’ For a 30 Year Boom

While the buck rallied early, along with the Dow, it gave it all back, and then some.

Traders may have responded in a positive manner, initially, to a weekend report in the Wall Street Journal which said the Bush administration was leading an international effort to put a floor under the currency.

The Journal was reporting on a shift in the interpretation of the statement that followed last month’s meeting of Group of Seven finance ministers and central bankers, which highlighted concerns over excess volatility in currency markets. That was a nuance traders saw at the time as coming at the behest of European officials worried about the weak dollar’s impact on euro-zone exporters.

However, an unnamed U.S. Treasury official, told the Journal that it was actually pushed by the U.S. as part of an international effort to halt the dollar’s slide.

“The G-7 language was meant to direct attention beyond the short-term U.S. financial-market turmoil,” the official was quoted as saying. He noted that the administration expects faster growth in the U.S. and slower growth in euro-zone countries in coming months, which would be expected to allow the dollar to gain against the euro.

Good day… And a Tremendous Thursday to you! Well… Euro 1.60 (EUR) didn’t last long. More on that in a minute… But first we need to address the question of whether or not the euro hitting 1.60 was a flash in the pan. I certainly don’t think so, but it sure looks as though that could be the case given how the single unit has tumbled since reaching that level on Tuesday.

So… There were lots of reasons for the euro’s decline yesterday… But the infamous straw for the euro seemed to be the German Business Confidence report as measured by the think tank, IFO, this morning. German Business Confidence – which had surprised on the upside the past three months – came out softer than expected in April, falling from 104.8 in March to 102.4. That was quite a tumble in business confidence, and apparently wipes out the previous three months of stronger confidence. It’s a “what have you done for me lately” world out there folks.

So, is this the mini-sell off I’ve been talking about since January? Could be… I had a sneaky feeling yesterday, so I asked my chartist friend what he was seeing. Here’s what he had to say…

“As far as the euro, I’m not seeing anything too exciting. There are some signs that it may be overbought in the short term. The weekly chart is absolutely beautiful (movement from lower left to upper right), but it is also showing that we may be due for a slight pullback (buying opportunity.)”

Risk appetite is really taking flight again in the markets, but I just can’t get my arms around this willingness to take on risk. There are just too many “risk events” out there (like Bear Stearns) but, that’s just me, apparently, the markets don’t think this way. And with the risk appetite on the rise, the fortunes of Japanese yen (JPY) and Swiss francs (CHF) are on the opposite side of that rise.

Here we go again… Investors taking on risk like there’s no tomorrow. I sure hope, for them, it doesn’t end up in smoke… But I have to think that it will. My chartist friend also had this to say about risk right now…

“What I am more excited to share with you is what is going on in the whole Risk vs. Risk Aversion Arena. As you have pointed out many times, the stock market and the high yielding currencies represent Risk. The Yen and Franc represent Risk Aversion. So, what does that mean?

“If you look at the stock market (S&P 500), there is major overhead resistance in the 1380-1400 area. We are currently in our fourth retest of this 1380-1400 area and we appear to be failing yet again. Each failure drains the confidence levels of investors, so we could be setting up for some dramatic downside movement. If this happens, then Risk will be on the run, which will mean Risk Aversion (Yen and Francs) could see some much needed love. Both of these low yielders look to be primed for strong moves upward.”

Theswoop.net had this to say about what’s going on with the Fed, their collateral for loans, and everything else that I’ve yelled at the walls about recently…

“The issue here is uncertainty. Despite some signs that the worst of the banking crisis may be past, officials from the Treasury and Federal Reserve concede in private that, with regard to certain complex financial products and relationships, their knowledge is imperfect. ‘The truth is,’ one Treasury official told us, ‘we don’t have a clue.’”

Oh my gosh! Did shivers just go down your spine when you read that? “We don’t have a clue”? The old saying about the inmates have taken over the jailhouse, comes to mind right now.

Are you keeping on top of the news of the rationing of rice? Brazil suspended their rice exports to protect their supply for domestic demand. I saw on the TV yesterday, a news story flash across that Wal-Mart and Sam’s Club are rationing rice. Yesterday, Chicago rice futures hit a record price above $25 (per hundredweight). And in Thailand, the world’s top exporter of rice, the price surged to $1000 a ton.

Right here, right now, in the U.S. of A. we’re rationing rice. Can you believe that? There are underlying stories woven into this that I won’t get into, but for now… We have this to think about… We have rationing in the United States.

So… The dollar is on the rise… The only good thing about that right now is the fact that when the dollar rebounds, the price of oil goes down. This all looks as though it’s a house of cards to me… But, give the dollar it’s due… I’ll bet a fiddle of gold, against your soul, ’cause I think I’m better than you! I have no idea where that came from, but Charlie Daniels in the morning ain’t too shabby!

You know all this talk lately by G-7 ministers claiming that the markets didn’t understand their Forex message? Well… The Bank of Canada’s (BOC) Flaherty said yesterday that G-7 did NOT have discussions about currency intervention.

See! I told you so! I told you that the markets wouldn’t take G-7’s message seriously, unless there was a threat of coordinated intervention… And that, I just didn’t see coordinated intervention in the cards, not as long as the United States is still banging on China to let their currency gain versus the dollar. And now, we know! There was no discussion of intervention!

That’s an “all clear” horn for currency participants… I guess they are now waiting for the bargains to appear.

The Reserve Bank of New Zealand (RBNZ) left rates unchanged last night. I didn’t expect any movement, and quite frankly had forgotten all about the meeting. Good thing they didn’t spring any surprises on me/us, eh? Here’s RBNZ Governor Bollard…

“Economic activity has weakened more markedly than expected in the Bank’s March Monetary Policy Statement. There have been sharp falls in consumer and business sentiment, exacerbated by tighter credit conditions, a further decline in the housing market and weaker prospects for world growth. Financial market turbulence around the world continues to add to an uncertain economic environment. Further, the very dry summer is also weakening short-term growth prospects.

“However, the labor market is still strong and New Zealand’s key international commodity prices remain high. Government spending plans and the possibility of personal tax cuts can also be expected to limit the economic slowdown.”

Nine months later, that same indicator correctly predicted a U.S. economic slowdown that morphed into the sub-prime mortgage monster by July 2007. What was the indicator? Bond yield inversion.

Historically, bond-yield inversion is an anomaly associated with an impending recession in the major industrialized economies. It occurs when short-term government bond yields trade higher than long-term interest rates. That usually suggests an economic recession or slowdown lies ahead.

More often than not, this indicator has accurately forecasted a U.S. recession in the post WW II period. And this indicator was right on the money predicting a bear market in U.S. stocks and credit starting last July.

What an Inverted Bond Yield Looks Like…

Starting in September 2006 until March 2007, benchmark two-year U.S. Treasury bonds started to yield more than respective 10-year Treasury bonds. That’s a classic inverted yield curve where short rates yield more than longer term rates.

At the time, no one seemed to be concerned about it (except me). In fact, many pundits on Wall Street dismissed this bond anomaly as a short-term phenomenon. They said this it was driven mainly by foreigners buying up quality short-term U.S. Treasury paper and thereby reducing the available supply in the marketplace. But they were wrong.

The Father of Yield-Curve Inversion

Professor Campbell Harvey of Duke University was one of the first to point out the relationship between yield inversion and economic recession. He published his dissertation in 1988 in the Journal of Financial Economics. In 1989, he published a follow up article in the Financial Analysts Journal.

Harvey’s prediction about the usefulness of the yield-curve was right on target. In 1991, after the 1990 recession, he noted that inversions of the yield-curve have preceded the last five U.S. recessions. That suggests the curve can accurately forecast the turning points of the business cycle.

Indeed, the yield-curve turned negative or inverted in late 2006 and successfully predicted the current U.S. economic slowdown. In some respects, the current slowdown has ballooned into the worst credit crisis since the Great Depression. I say that because not one, but several segments of the mortgage-backed market and other synthetic derivatives have clogged the financial system since last July.

Eight Countries Approaching or in
Actual Yield-Inversion

It’s true that no in-depth analysis or research has been conducted on the universality of yield-curve inversion abroad. But recent evidence suggests that once it hits the United States – the world’s largest credit market – it does spread to other industrialized economies.

As of mid-April, eight foreign markets are currently dogged by yield-curve inversion or approaching yield inversion.

Last year, the United Kingdom became the first G-7 economy after the United States to suffer yield-curve inversion for the better part of the year until last fall. For the record, the U.K. is now slowing sharply in 2008. Several British banks have come under pressure, one mortgage bank has failed and the housing market is unraveling.

Currently, six industrialized markets are mired in yield-curve inversion. These include Australia, New Zealand, Austria, Norway, Portugal and Switzerland. Two other markets now sport the same interest rates along the short and long end of the yield curve, including Denmark and Italy. This strongly suggests that an increasing number of mature economies are gradually being infected by America’s sub-prime slowdown as interest rates narrow.

Historically, the Anglo-Saxon economies have typically followed similar economic cycles. Expansions or contractions in economic activity have been simultaneous events that happen within months of each another.

This was the case in 1989-1990 when the United States suffered a recession and the United Kingdom, Australia and New Zealand soon followed suit. In the early 1980s, all three countries suffered the same economic hardships as the United States following a period of surging interest rates and inflation in the late 1970s. The same was true for most developed economies.

Decoupling or Re-coupling?

In the late 2000s, analysts have been quick to surmise that emerging markets and other economies in Europe have finally decoupled from the U.S. economic cycle. Although the emerging markets have shown incredible resilience since last July when sub-prime first bombed credit markets, other major or mature economies have not been as fortunate.

It looks like the United Kingdom is heading into a recession or a severe slowdown. The country’s credit markets have been bottled up for months, mortgages are turning sour and a leading mortgage bank collapsed last September (later rescued by The Bank of England).

British real estate is now contracting, especially in overheated London. The pound, though still relatively firm versus the beleaguered dollar, trades at an all-time low against the euro. The United Kingdom, in all likelihood, will join the United States and suffer a slowdown in 2008 or worse, a recession.

The majority of industrialized countries, including the European Union and Scandinavia, will increasingly share the same bond-yield inversion phenomenon that occurred in the United States 18 months ago. Over this period, benchmark 10-year Treasury yields have plummeted from 5.25% in late 2006 to 3.42% recently – a sizable gain for investors.

I expect yield-curve inversion and economic re-coupling to occur this year as the majority of mature economies suffer the same fate as the United States. Bond yields in Europe are poised to decline sharply despite the European Central Bank’s (ECB) adamant stand against inflation.

With more Eurozone bond markets inverting, it’s only a matter of time before central banks across the continent start hacking interest rates and the ECB abandons its inflation fight.

Bond-yield inversion is spreading. For European bond investors, this marks a good entry point to buy long-term government debt and investment-grade corporate paper ahead of a steeper yield curve by 2009 or 2010.

ERIC ROSEMAN, Investment Director

EDITOR’S NOTE: Bond yields continue to spread around the world. Mortgages are turning sour. But in the face of global crisis, a few well-placed opportunities are rising in the one asset class that even non-investors have to buy – whether they want to or not. Find out how to invest in this one asset class for a possible triple-digit gain this fall. Click here for details.

Good day… And a Happy Friday to one and all! An All Shook Up Friday for us here in the St. Louis region, as we experienced an earthquake this morning registering 5.4 on the Richter Scale. My house started shaking, and kept shaking, which led me to believe it was more than wind. The house was shaking so bad, it woke up my beautiful bride… Which isn’t something that’s easily done! Especially at 4:30 AM!

But, it looks as though all is right on the night, the earthquake was centered 127 miles east of St. Louis. As you all probably know, here in St. Louis, we keep the New Madrid Fault in the backs of our minds, and drag it out whenever we feel the earth move under our feet.

Well… European Central Banker, Juncker tried to “shake” up the currency markets yesterday with some comments about G-7. As I’ve said two times this week, I was afraid the markets didn’t understand the G-7’s comments about the currencies, and that thought was repeated by Juncker yesterday, as he said, “the markets did not correctly understand the G-7 message on FX”.

So, that was what put a bug in the bonnet of the euro (EUR) yesterday morning as I was signing off. And that carried through to the Asian markets last night… But, we’ve seen this before, right? Just a few weeks ago, we experienced euro weakness, but that bad “air” soon dissipated… And I would think this would too.

It all depends on the market participants and their will to push the envelope with G-7. If it were me… I would push the envelope and call their bluff. I truly do not believe a coordinated intervention will take place, for to do so, would require the United States to join in… And here’s where the oil in this machine gets all sticky. How can the United States intervene and buy dollars, when they keep harping that the Chinese renminbi (CNY) needs to get stronger versus the dollar? They can’t… If they did, the markets would take them to the woodshed… And the U.S. officials know that.

We had Fed Head Fisher our on the speaking circuit yesterday, and his comments also helped the dollar rebound. Fisher was talking “some sense” (believe or not!) on the subject of “attempting to inflate away the Financial System’s woes”, saying, “there’s danger of a wing-and-prayer promise to rein in inflation later” and then the fateful, “I maintain a strong reluctance to further interest rate cuts”.

Well… The problem here is that Fed Head Fisher is a Lone Ranger. Big Ben doesn’t share his thoughts, and when the Fed meets later this month and cuts rates, Fisher will probably be the lone wolf on dissenting.

So… After all this, the euro still has the dollar by the tail, as it maintains a strong base above 1.58… Of course, now that I’ve said that, we’ll probably see it fall further! UGH! The Chuck Kiss of Death or as in honor of my friend the Mogambo (TCKOD).

Well… The U.S. data yesterday showed more signs of recession, with the Weekly Jobless Claims jumping up to 372K from 355K the previous week. But the piece of data that really barked like a recession was the Philly Fed Index (manufacturing), which collapsed this month and fell from -17.4 to -24.9. This is the lowest level since January and February 2001, as we entered the last recession. Data back to 1968 shows that declines in the index below current levels has been consistent with recessions.

Of course you, a Pfennig reader, knew we were in a recession months ago, because I told you so! I bet you used that information as “cocktail trivia” to sound smart! Good for you! That’s they way more people see the “light”.

Alright, I went off on a tangent there… I’m just kidding you know… It’s just my nature to have fun!

So… The fundamentals haven’t changed. The U.S. deficit is soaring higher and higher, requiring us to attract more and more foreign investment… The economy is in a recession… Jobs are hard to find… House prices are falling… And we’re still fighting a war! Does this sound like the stuff that a stronger currency is made of? I don’t think so! So… If this isn’t a trend reversal, what is it? Ahhh grasshopper, it’s simply profit taking and the scared Nervous Nellies who are selling. It sure does give us some cheaper levels to buy euros, eh?

Not just euros… The whole cellblock is dancing to this jailhouse rock… So, if you can’t find a partner to dance with, grab a wooden chair! In other words… Find your fave currency and most likely it has been dancing to the jailhouse rock, and is now at cheaper levels than even earlier this week!

One currency that sat out the dance overnight was pound sterling (GBP). In fact, pound sterling has rallied on comments from the Bank of England (BOE). BOE member, Bean, tried to calm the fears of a huge sell off of pound sterling. Bean commented that the stimulus from GBP’s fall from the peak is roughly equivalent to a rate cut of 3% points and that GBP’s fall since August was “of the same order” as the fall after the ERM crisis in 1992.

All a bunch of rubbish to me… But it calmed the fears for a day at least!

Man… Did you see the awful earnings report by the brokerage that owns a Bull? In case you missed it… $1.96 billion net loss, with $9 billion more of mortgage-related write downs. I’m not picking on Merrill here, just posting what I believe will be more damage to the economy… This morning, Citigroup, posted an even bigger loss. Citigroup Inc. reported a net loss of $5.1 billion, and more than $10 billion in write-downs.

And… These reports lead one to believe they should buy dollars? Hmmm… If so, I’ve got some land.

Stocks were no great shakes yesterday, but at least they didn’t sell-off. So, that means the carry trade remains in place, and the weakness of Japanese yen (JPY) and Swiss francs (CHF) remain in place, while Aussie (AUD) and kiwi (NZD) are looking good! And always I tell you that it is better to look good than it is to feel good my friend!

There’s no data today in the United States so… It would appear that the dollar will end the week on an upbeat note. That’s OK… Even a blind squirrel can find an acorn!

Currencies today 4/18/08: A$ .9375, kiwi .7905, C$ .9925, euro 1.5845, sterling 1.9975, Swiss .9835, ISK 75.65, rand 7.76, krone 5.01, SEK 5.9285, forint 159.75, zloty 2.1560, koruna 15.81, yen 103.25, baht 31.44, sing 1.3530, HKD 7.7925, INR 39.93, China 6.9935, pesos 10.46, BRL 1.6540, dollar index 71.80, Oil $114.15, Silver $18.05, and Gold… $934.50

That’s it for today… So… Shake me, wake me, when it’s over… I thought of that great old Four Tops song, on my way to work this morning. Geez Louise, my poor face got fried yesterday at the ballgame… Good thing I had a ball cap on to protect my bald head! I was hoping last night that the red on my face would fade… But as I looked in the mirror this morning, my face is even redder! OUCH!

HEY! Sunday is the Big Boss, Frank Trotter’s birthday! Frank and I have worked together so long, that he was a young man when we started! In fact… The Dead Sea wasn’t even sick yet! That’s how long we’ve worked together! His beautiful daughters are all grown up now, I held them as babies! So… Happy Birthday, you youngster! (Frank’s 1 year older than me, so as long as I keep calling him young, I’m younger!) I hope you have a Fantastico Friday!

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Editor’s Note: Chuck Butler is the senior vice president of EverBank World Markets. He oversees the trading desk and operations for over 12,000 individual and corporate clients, both in the United States and abroad, who look to EverBank for FDIC-insured World Currency Deposit Accounts, and Single-Currency and Index CDs .

Good day… And a Terrific Tuesday to you! Thanks for the notes regarding my son Andrew. I believe he’ll be fine… Shaken, beaten a bit, but fine… Well… It’s Tax Day… A day hated by many, including yours truly. I always like to bring out the Beatles on Tax Day…

Should five per cent appear too small,
Be thankful I don’t take it all.
‘Cause I’m the taxman,
Yeah, I’m the taxman.

If you drive a car, I’ll tax the street
If you try to sit, I’ll tax your seat
If you get too cold, I’ll tax the heat
If you take a walk, I’ll tax your feet

OK… Well… I think the currency guys are all spittin’ raspberries at the G-7 ministers and saying G-7, Schmee Seven! NEENERNEENERNEENER! What the heck am I talking about? Well… As I left you yesterday (in the middle of the night) the G-7 ministers had issued a communiqué that – for all intents and purposes – was a warning for the dollar bears… And those who were scaredy-cats ran for the hills, with the dollar rallying.

But, the last thought I had before signing off was that I believed the G-7 warning would probably need to see some actual intervention by the Fed and the ECB to really scare the dollar bears. And… By the time I made it in to the office yesterday morning, that thought was prevalent in the markets, and the euro (EUR) was off to the races versus the dollar once again.

So… All the worries about battening down the hatches were ditched on the roadside. I sure hope I don’t begin to sound like the boy who cried wolf, always pointing out short-term risks, but I guess that’s the chance I take, writing every single workday! But… One thing to keep in mind is this: Have the markets misunderstood G-7’s shift in exchange rate thinking? Or, did G-7 simply try to “call it in” with the statement?

And the euro is even higher versus the dollar this morning, as it received two pieces of data, with one outweighing the other. Here’s the skinny… First the damaging data to the euro… German investor confidence, as measured by the think tank ZEW, printed a negative -40.7 versus -32 in March. That whipsawed the euro a bit… But then France printed an inflation report that showed inflation rising at the fastest pace in at least 12 years! OUCH!

With the European Central Bank (ECB) focused on inflation (as well they should be!), and not growth, this report all but keeps interest rates at their current levels. I say “all but” because, you never know what kind of smokey back room deal the Fed is trying to work with central banks around the world to help them in their attempt to drive off a credit meltdown…

Did you see the announcement by Wachovia yesterday? They posted a huge loss, slashed their dividend, and had to raise $7 billion to make their capital position look better. I’m not picking on Wachovia here… I think we’ll see more of this kind of stuff as we move along… And that just weighs on the economy folks.

I just had to take a break from writing, as one of my all time fave songs just played on the radio, and I had to stop and sing along… There’s A Kind of Hush… I used to sing it to my little buddy Alex, when I rocked him to sleep at night. OK… I’m sorry, I got really sappy there… Let’s get back to the markets!

Even a surprising retail sales number yesterday couldn’t help the dollar. Retail sales for March, surprised to the upside at +0.2%, and February’s negative -0.6% was revised to only -0.4%… So, the rumors of the U.S. consumer being dead have been greatly exaggerated! But… In my mind, this is just the faint heartbeat of a consumer driven economy. The breathing is shallow… And it looks like it’s on its last legs.

The thing that really kept retail sales going, though, was gas sales – up 1.1%. I can vouch for that! I won’t tell you what it cost me 10 days ago to fill my gas tank, but it was roughly twice was it used to cost me when I bought the car two years ago! OUCH! Whoa, I think that’s going to leave a mark! Oh… And this little ditty just came across my screen… Our friends (NOT!) at OPEC have decided to cut production… Interesting.

Swiss francs (CHF) are back to parity with the dollar, and even beyond! Japanese yen (JPY) is flirting with a sub-100 figure too! I believe someone (me!) used the term “blue light specials” a couple of weeks ago to describe the cheaper levels to buy these currencies. I love it when a plan comes together!

Every once in a while I like to drag out the “euro wanna be” currencies of Czech, Poland and Hungary to talk about them. These currencies have been stealth like in their ability to fly below the radar while they move higher and higher versus the dollar. The Czech Republic just announced that their February current account surplus more than doubled from January! The February figure was the third-biggest surplus ever for the Czech Republic.

Looking back over the past three months, one would see that the Czech koruna gaining 3.2% versus the dollar. I know for the BIG TIME oil traders, that figure is small… But… I think it’s better than a wedgie!

You know… When I normally talk about the current account surplus, or positive balance of payments countries, I totally draw a blank on the Czech Republic. That will have to change!

And you all know how I feel about current account/positive balance of payments countries… They are at the top of my “hit parade” of currencies that investors should look to when diversifying into currencies.

Chris mentioned last week the HUGE move by the Singapore dollar (SGD)… I’m surprised at the size of the move, given that the currency is managed by the Monetary Authority of Singapore. I think the Monetary Authority saw the writing on the wall with regards to inflation, and decided to let the currency “go to work!” The move in the Sing dollar has really been impressive, and should go a long way toward helping inflation, along with padding the pocket books of sing dollar holders!

While I’m on currencies that I forget to talk about… The Mexican peso has quietly moved higher versus the dollar. Normally, the peso needs the U.S. dollar to get going first… So… This is interesting, in that even the peso is beating up on the dollar! And the peso rally comes just in time for the Cinco de Mayo celebration!

Today, we’ll see the color of the U.S. PPI for March. The Producer Price Index is expected to jump to 0.6% from 0.3% in February. I don’t get caught all up in the PPI and CPI because of all the cooks in the kitchen on these reports… But… Inflation, no matter what PPI and CPI say, is rising faster than you can sell funnel cakes at a State Fair!

The really important piece of data this morning is the TIC Flow. I’ve explained this before… But, here is a refresher course… TIC is Treasury International Capital, and measures the net flows of foreign investment into the United States, which is very important, due to the fact that foreign investment is what we used to finance our ever-growing deficit…

In my last four or five presentations, I highlight the fact that last year we only averaged $51 billion each month in net TIC flows… The problem here is that we need $80-85 billion each month to finance the deficit!

For some reason or another, the markets and media sweep this data under a rug each month. And I just don’t get it! This is important stuff folks! But then, the media keeps telling us, “deficits don’t matter”… So, why would they get concerned when we can’t finance the deficit? Dolts… The whole lot!

Currencies today 4/15/08: A$ .9245, kiwi .7840, C$ .9795, euro 1.5840, sterling 1.9680, Swiss 1.0009, ISK 74.30, rand 7.90, krone 5.0030, SEK 5.9440, forint 159.10, zloty 2.15, koruna 15.68, yen 100.90, baht 31.55, sing 1.3550, HKD 7.7935, INR 39.97, China 6.9929, pesos 10.45, BRL 1.6855, Oil $112.80, Silver $17.83, and Gold… $934.06

That’s it for today… It’s the 50th anniversary of the “stealing of Buddy Holly’s guitar”, which happened right here in St. Louis! The guitar has never surfaced… Can you imagine what it would be worth today if it did surface? It’s also Tax Day… UGH! I got home last night, ate dinner, checked email, and went to bed! So… Hopefully, I’ll be able to get through today better than I did yesterday! We’re finally supposed to get some sun and warmer weather today. I don’t know if my little buddy Alex will get a baseball season this year, given all the rain and flooding in our little river town… But the sun’s coming out! YAHOO! I hope you have a Terrific Tuesday!

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Editor’s Note: Chuck Butler is the senior vice president of EverBank World Markets. He oversees the trading desk and operations for over 12,000 individual and corporate clients, both in the United States and abroad, who look to EverBank for FDIC-insured World Currency Deposit Accounts, and Single-Currency and Index CDs .