The currency and metals markets began the day rallying versus the dollar, as it seemed yet another huge financial firm was circling the bowl. But late in the afternoon the dollar came charging back, and gold fell back below $850 after surpassing $900, ARRGH! So what caused this quick reversal? Senator Schumer was credited with turning the markets around. He announced, mid-afternoon, that the Federal Reserve and Treasury were going to create a new government institution that would purchase all of the toxic debt instruments being held by Wall Street. Wall Street obviously thought this was just a fantastic idea, and the stock market immediately rallied, taking the dollar with it.

The details of the plan still aren’t available, but the markets have been desperately searching for a hero to come and rescue them, so even the hint of a rescue was enough to shoot stocks back up. The proposal currently being discussed in congress involves moving troubled assets from the balance sheets of American financial companies into a new government backed institution. The SEC also instituted a ban on short selling of financial stocks, copying a similar ban that was instituted yesterday in London. Chuck had a travel day yesterday as the FXU moved from San Diego to Dallas, but he was keeping an eye on the markets and sent me this last night:

“The SEC is contemplating a ban on naked short selling… WHAT? OK… So… This is a free country, and a free market, as long as you follow the government’s rules? Oh Geez Louise, I give up! Not that this has anything to do with currencies, but it does have something to do with the overall direction of this country, which in my opinion is socialist!

“All of you know that I’m a person that is usually happy… But I’m telling you now… These things that the government is trying to do to plug up the leaking damn, are useless! I’m really upset with all this… And I thank my lucky stars that I thought to sell every stock I owned last October! I’m tired of all this junk (read what you want here, because I can’t say it) and I’m not going to take it any more!

“I’m with well-respected investment analyst, Marc Faber, when he says that the hopes for the return of a Bull Market is in ‘fantasyland’…

“So go ahead and lock us down like a police state! I’ll guarantee you it won’t solve a darn thing!

“I had better stop now, because I feel my blood boiling…”

You can always count on Chuck to tell it like it is! He will be back in the saddle on Monday morning with plenty more to say about all of this week’s shenanigans in D.C. and Wall Street.

Bernanke and Paulson have been worn down from the one-off situations they have been dealing with, and finally came to the realization that the problem is much more pervasive than previously thought. Options that U.S. officials are considering include establishing an $800 billion fund to purchase so-called failed assets and a separate $400 billion pool at the FDIC to insure money-market funds. What’s next? Maybe the government will buy all of the Icelandic krona (ISK) that our customers still own. Nope, you and I are just ‘investors’ and have to live with the bad investments we make. That is why this gets me so angry. The folks on Wall Street who made all of these very poor investment decisions using huge amounts of leverage aren’t being held accountable for their actions. These guys should be made to walk the plank, but instead they are skipping away with nice severance packages.

And what does this do to the balance sheet of our federal government? You have to remember, Paulson made his name on Wall Street – where leverage is king and the short term is all that matters. Do you really think he is worried about the billions of debt he has saddled the U.S. taxpayers with? It is almost hard to keep track of all the obligations Paulson and Bernanke have transferred from Wall Street to Main Street. The Treasury has pledged to buy up to $200 billion of Fannie (NYSE:FNM) and Freddie (NYSE:FRE) stock to keep them solvent, while the Fed agreed on September 16 to an $85 billion bridge loan to AIG (NYSE:AIG).

The Treasury also plans to buy $5 billion of mortgage-backed debt this month under an emergency program and the Fed has begun to accept just about any collateral the banks want to pledge at the lending windows. Yes, these two scoundrels have turned the federal government into a giant dumpster for any illiquid assets which Wall Street needs to get rid of.

The question is just how much debt can the United States take on? We are already running deficits that blow my mind; and interest on all of this debt will squeeze out spending for ‘good’ governmental programs. Yesterday the Treasury announced $200 billion in special Treasury bill sales to help the Fed expand its balance sheet. Senator Richard Shelby of Alabama – along with some others in congress – are critical of these takeovers. “We cannot protect all risk in the market, and we shouldn’t do it at the risk of the taxpayer,” Shelby, the ranking Republican on the Senate Banking Committee, said in an interview on Bloomberg this week. But Shelby and others in opposition to more debt won’t be able to combat Schumer and the powerful lobbies of Wall Street firms. The rescue plan will go through.

But where does that leave currency and metal investors? The dollar rallied on the rescue news, with the euro (EUR) falling back below $1.4350. The yen (JPY) got sold off as the Wall Street investors actually started moving back into leveraged carry trade positions. And why not? When the U.S. government will be there to bail out your worst investments!! The carry trade moves actually helped investors in the high yielding currencies of South African rand (ZAR), Brazilian real (BRL), Aussie dollar (AUD), Mexican peso (MXN), and the New Zealand dollar (NZD).

Several readers have asked me to write about what has been happening to the Brazilian real, which has been one of the best performing currencies up until the last two months. The sell-off in Brazil has been due to the ‘deleveraging’ of carry trades. Some investors borrowed funds at a low interest rate to invest into the higher yields of Brazil. With the turmoil on Wall Street, these investors have had to reverse their leveraged positions, selling the Brazilian real and converting back into the Japanese yen or Swiss franc to pay back their loans.

So the sell-off has had nothing to do with the Brazilian economy. Brazil still has an abundance of commodities, including large deposits of minerals and oil, which will continue to be in demand. The stability of their political system is also not in question. The question now is just how much of the appreciation of the Brazilian real was due to the ‘carry trade’ investors, and just how far it will fall due to these reversals. I believe the proposed ’solution’ on Wall Street will not end the recent market volatility. With higher volatility, these carry trades will continue their on-again off-again pattern. Look for further volatility in the carry trade currencies over the short-term. Longer-term holders should be protected by the commodity resources of Brazil.

The South African rand rose against the dollar for a second day as demand for higher-yielding assets and a rally in gold stoked demand for the currency. The rand was the best performer versus the U.S. dollar yesterday and rose as much as 1.4% to 8.0632 per dollar paring its weekly decline against the U.S. currency to 1.3%. As I stated above, the Aussie dollar also rose close to 2% versus the U.S. dollar overnight and the kiwi rose just over 1%.

When the carry trades get put back on, the big loser is the Japanese yen. Financial firms who are having problem borrowing U.S. dollars have turned to the Japanese banks where they borrow yen and then sell them into dollars. The yen dropped over 2% versus the U.S. dollar overnight due to this borrowing.

Good day… And a Happy Friday to one and all! Looks like it could be a Fantastico Friday as traders are finally coming around to Chuck’s way of thinking regarding Fed rate hikes… And as traders remove their bets for aggressive Fed rate hikes, the luster begins to fade on the dollar rally. The meetings are over for this week (they start up again next week!), YAHOO! I get to spend the day on the trading desk… I’ve missed everyone!

OK… Front and center this morning, we have the euro (EUR) trading 1-cent higher, knock, knock knocking on Heaven’s Door, I mean, the 1.56 handle. As I said in the intro, it appears that traders don’t have the stomach to hold on to their bets that the Fed will aggressively raise interest rates this year. Recall, the other day, I told you that the bets were ratcheting up and had reached 75 BPS of rate hikes this year… I doubt we have any. In fact, as I told you the other day too, I believe that when the dust settles on the fact that the Fed isn’t going to raise rates, things will have gotten so bad here that the Fed will be entertaining thoughts of cutting rates again!

Japanese yen (JPY) had really been beaten about the head and shoulders this past week, as it re-visited the 108 handle… But with the stocks looking soft, it recovered a bit the past two days. The Royal Bank of Canada (RBC) says that the dollar is overbought versus the yen. Hmmm… I agree with that, but I think RBC’s call for a yen rally to 105.60 is not enough. That’s too conservative for me… But then, I get emotional about these things. I called for yen to rally to 100 this year, and while it got very close, it didn’t quite have the strength needed to reach that level. I based that call to 100 on the fact that we would have another “risk” event in the markets this year, which would lead to risk aversion, stock selling, carry trade reversal, and a yen rally! We still have half a year to go, but the year is moving fast!

Speaking of the carry trade… I receive dozens of emails each week from people asking me what the carry trade is… For long time readers, we’ve been through all this more times than you can count… But for new readers, well… It’s all new! So here you go! The carry trade is basically selling a low yielding currency (whose borrowing costs would be low) short, and taking the proceeds to buy a higher yielding asset. When the borrowing costs go up, or when the currency that was sold short rallies, it makes this trade very costly, and it then gets unwound/taken off.

OK… Back to currencies… Yesterday, I told you about Brazil’s Central Bank chief, and his calling out the Bank of England’s handling of inflation… Well, Mr. King of the Bank of England (BOE) heard that and came out with his own strong words… King said in an interview that the BOE needs to focus on rising inflation, not growth… OK… I’m with you there! The markets will take that to mean higher interest rates, considering the fact that inflation is well over the BOE’s 2% ceiling. And when that thought process enters the markets, the pound sterling (GBP) will be underpinned, and in fact it is rallying as I type my fat little finger to the bone here!

Here’s a story I doubt you saw on your news station yesterday… China said it will raise domestic gasoline and diesel prices by 17%-18%, as it responds to near-record crude-oil futures and criticism of its fuel subsidies. The surprise move is the largest increase in over four years, although local prices will still be below the international market. In case you weren’t aware… The Chinese government subsidizes fuel prices for their people… You see a country that has over $1 trillion in currency reserves can afford to do that! However, with the price of oil continuing to rise, even the Chinese had to say “no mas!”

I doubt this will be too heavy a load for the Chinese economy to bear… He ain’t heavy, he’s my brother! So… Expect the beat to go on in China, which means a slow, drip of currency appreciation at a time.

This news led oil prices lower for the day… And that’s OK in my books! And looky there! The euro just went back above the 1.56 handle! No more knocking… Someone’s knocking at the door, somebody’s ringing the bell; do me a favor, open the door and let them in… Why hello, Mr. Euro! How are you today? It’s good to see you back in the 1.56 neighborhood! Why thank you… It’s good to be back… I was lost in the 1.53 block for a long time, and people kept telling me I wasn’t worthy any longer, but I sure showed them, eh? HAHAHAHAHAHAHA!

OK, I’m back now, that was silly… But, you know me, once I get typing, I can’t stop, it’s simply a stream of consciousness!

Bank of Canada’s (BOC) Governor Carney gave a speech last night, that should be quite the underpin for the Canadian dollar/loonie (CAD). Carney indicated that the BOC was finished with their rate cuts and have moved to a neutral bias. He also talked about how a strong loonie would help exert a “dis-inflationary” influence. The loonie took notice and is rallying this morning.

Yesterday, we saw the color of the latest Philly Fed Index (manufacturing in that region), and it looked awful! The Index was “expected” to fall to negative -10, but instead it fell to negative -17… Uh-Oh! This leaves this index near the lows of earlier in the year. Significantly worse levels have occurred only in outright recessions. And you know me… I contend this to be a recession!

The data cupboard is bare today… No data, nothing, nada, zilch! And for the dollar, that’s probably a case of “no news is good news”!

Next week we’ll have the first Fed FOMC meeting since Big Ben began “fighting inflation”. The markets will be greatly disappointed when they leave rates unchanged, and leave the “downside growth risks” on the board… But don’t let that get in the way of dollar bulls still thinking they have the upper hand here… Too bad they’ll get that hand slapped next week (and the following weeks) when the Fed continues to do nothing, absolutely nothing, say it again!

Did you see that the ratings agency, Moody’s, announced that they were cutting the ratings of MBIA and Ambac, citing impaired ability to raise capital and write new business? Well… Just another item being swept under the rug! But you can depend on me to pull back the rug and expose these things!

And… Has anyone seen the warnings issued by the Royal Bank of Scotland (RBS)? Pretty scary stuff for a conservative bank to make this kind of a call, but they did, and I’m proud of them for going out on the limb! It gets lonely out on the limb all by yourself! Here’s the meat of the warning…

“The Royal Bank of Scotland, warned clients to be prepared for the biggest crash in stock and credit markets in the next three months as inflation and the dwindling fiscal growth continues to hit [the] world economy. The views were expressed in a report by the bank’s strategists Bob Janjuah, Kit Juckes, Tim Jagger and Richard Smith.

“The report stated, ‘Our macro economic road map is playing out – slow growth for longer, deep into 2009, with the pain spreading globally, gradually.’”

Well… That warning plays well with my warning that another “risk event” will play out in the United States this year… The liquidity/credit crunch losses booked so far will turn out to be merely the appetizer to this four course meal! Of course that’s my opinion… I could be wrong.

George Soros has a laundry list of reasons why he’s betting against the pound – including higher household debts and a damaged financial sector that’s weighing on the whole economy.

But honestly, that just skims the surface of U.K.’s troubles. There are several other reasons why you should follow Soros’ lead and short the pound in the coming months. I’ll tell you how in just a minute. First, why does the U.K. have such a bad reputation these days?

More Mortgage Nightmares,
Not Just on Elm Street Anymore

On Monday, Bradford & Bingley – the U.K.’s biggest lender to landlords – announced they lost £8 million (US$15.6 million) in just the last four months. That is just one example of how bad the housing situation has gotten in U.K.

So now, Bradford & Bingley has to raise some cash. They’re planning to sell 23% of the company to the Ft. Worth-based buy out firm, TPG Inc. And they’re selling it for £42 million (US$82.2 million) less than they thought they were going to get for it.

It’s not going to get better anytime soon either. The U.K. Mortgage Approvals number came out the same day and it was the lowest reading since they started keeping records over nine years ago.

Yesterday, the Bank of England decided to hold rates steady. Why? Because when many people’s number one asset, their house, is going down in value, the last thing you need to do is raise rates. Higher rates make homes just more expensive – especially when many Brits are trying to sell.

Furthermore, consumer confidence numbers are down. You can’t raise rates and improve. If consumers aren’t confident in the economy’s future they’re not going to spend. If they don’t spend, the economy has no “fuel.”

On top of this their manufacturing and services sectors are in the tank as well. So if you raise rates you’re going to make progress a lot more difficult in the corporate world too.

But if you keep rates steady for now, then you’ll allow the economy to continue to hurt and slow down which could ease the inflationary pressures for now.

So that’s the pound side of things. What about the ole greenback?

How could a market – 40-times bigger than the New York Stock Exchange – be “hidden” from the general public?

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Big Pensions, Mutual Funds and Insurance Companies Have Been Quietly Collecting Dollars

According to State Street Corp and Bank of New York Mellon Corp, institutions have actually bought more dollars this year than they’ve sold. That’s the first in quite a while. In fact, Bank of New York Mellon points out that the “dollar buying” is twice that of the 12 month average. These guys aren’t playing around.

Why do these big-name traders feel that the buck could go up from here? These institutions are betting that rates have bottomed and have no where to go from here but upward.

Now two Fed officials have hinted that their focus has shifted back to inflation once again. That means higher rates – if the Fed follows through. For my money, I’m betting the Fed will eventually raise this year simply to fight inflation.

Also, growth is starting to climb again in the U.S. – it just went from 0.6% to 0.9%. The Fed estimates that next year the U.S. economy will grow as fast as 2.8%. I sincerely doubt growth will rebound that fast, but I do think the U.S.’s growth will exceed the U.K.’s growth next year.

You Want to Short the Worse of Two Evils

The Fed has tougher decisions to make right now than they’ve had in years. They’re trying to tiptoe and maneuver around stagflation.

However, I fully believe that they’ll raise rates later on this year and that the U.K. will probably have to cut rates as their economy is expected to slow further just as the U.S. is starting to pick up a hair.

So compared to the pound, the dollar is the “lesser of the two evils.” That means the British pound vs. the U.S. dollar currency pair (GBP/USD) will drop in value in the months ahead. So look for shorting opportunities.

Sean Hyman, Currency Analyst

P.S. My colleague, Jack Crooks is playing this strong dollar trend with quick, timely plays in the spot foreign-exchange market in The Money Trader. In case you’re not familiar with this service, The Money Trader is the longest running spot-trading service tailored for retail investors like you. In timely updates, Jack tells you when to buy, when to sell and gives you running commentary on what’s happening with your money worldwide. Click now to get more details on where your money is headed next.

Source: Why Soros Is Getting Ready to Break the Bank of England Again, Part II

Good day… And a Wonderful Wednesday to you! Well… All the healing in the currencies we saw yesterday has been wiped out by one statement from a Fed Head. Imagine if you will that a Fed Head actually mentioned “inflation”! Well… One did! I feel like Tweedy Bird here… I saw a Fed Head mention inflation, I did, I did!

OK… Fed Head Hoenig has thrown a cat among the pigeons this morning by stating that “inflation pressures may spur a rate rise by the Fed.” Hmmm, is he serious, or just blabbering some currency intervention, seeing the dollar beginning to lose ground again? Well, that’s the question of the day.

To me… It’s the right thing to say for a Fed Head if it’s true. If he’s just trying to provide some verbal intervention for the dollar, then he should be stripped of his Fed Head Title and given the Title of court jester!

So, the dollar is back with the hammer in its hand again. The selling has been strong again too. The euro (EUR) has fallen 0.5 cents since I came in to the office about a half hour ago! UGH! I bet the writer from the Los Angeles Times is wondering why he printed that interview with me yesterday at this point…

Los Angeles Times writer Marty Zimmerman has a blog on the paper’s web site, and he writes about money. He called yesterday and said that he thought he saw the dollar getting sold again, and wanted my take on it. I told him that the markets had probably come to grips with the Fed’s statement last week, which ended up being quite “unsure” and vague, while the European Central Bank (ECB) would meet this week and keep rates unchanged, thus giving the euro the strong rate differential to the dollar.

But, then Hoenig came along and threw a cat among the pigeons!

Well… The euro had Hoenig’s comments going against it all night, and then ran into some weak data this morning, which really has the single unit selling like funnel cakes at a State Fair. Retail sales in the Eurozone fell 1.6% year-on-year, which was much larger than the forecast slide of 0.7%. Sales were off 0.4% from the previous month.

This is the first report that really slams the euro and shows a slowdown happening in the Eurozone. I’ve still got my colors pinned to the mast of “the Eurozone will pass the test of a U.S. recession”. But this report sure shakes my confidence. Oh, retail sales, you’re breaking my heart, you’re shaking my confidence daily.

OK… I’m back now, I was away for a moment…

The price of oil again set another new record level, moving to $122.73 yesterday. So, if Hoenig is sincere about his inflation talk, then he should be shaking in his Hugo Boss Patent leathers today… But there’s more to make him shake, and that’s all the market chatter surrounding the possibility of oil prices hitting $200 by the end of the year. OUCH! Our friends at OPEC (NOT!) have something to say about this, and OPEC’s President, Khelil, warned last week that oil prices could touch that level by the end of 2007.

For a while yesterday, it looked as though gold had gotten some wind in its sails, with the wind being oil prices… But that just couldn’t last, as the dollar strength overnight and this morning has gold running for the hills again with a $5 loss. Should $200 oil continue to dominate the markets’ discussions, I would think that gold would get some wind in its sails again.

The Canadian loonie (CAD) sure likes the look of oil prices. I was doing a trade yesterday in loonies, and looking at the daily graph I had a V-8 moment… Wow! The loonie had moved stealth-like back to near parity to the green/peachback. I know that I’ve said over and over again that this dance is gonna be a drag… In other words, the loonie will be pushed higher by commodity prices, and pulled lower by Bank of Canada rate cuts… But if $200 oil continues to dominate, it could push the loonie past parity once again.

Well… It looks like the Eurozone will have to set another place at the table, as the European Commission approved the Slovak bid to adopt the euro next year. You know, I find this strange that the Slovaks will move ahead of Poland, Hungary, and the Czech Republic, which were once thought to be on the euro “fast track”. That was in 2002! They still haven’t moved to the euro! But… Those three have done quite nicely moving along side the euro the past six years!

Pound sterling (GBP) is weaker this morning too, as it has absorbed the euro selling, and some weaker domestic data too. U.K. consumer confidence fell to a new record low in April, dropping from 77 to 70… OUCH! Now that’s going to leave a mark! Ever since the Bank of England started be weak kneed with the credit crunch like their friends on the other side of the Atlantic, I’ve not been a fan of sterling. We even moved it out of the World Energy Index!

The Reserve Bank of New Zealand (RBNZ) printed their Financial Stability Report last night, and contained a note that I thought was interesting. RBNZ Governor Bollard noted that “banks appear to be tightening the availability of credit” and that “there is a risk that if credit conditions are tightened too much, the slowdown in the economy will be exacerbated, putting additional pressure on households and businesses.” Governor Bollard also left out the word “significant” from his statement that rates would remain on hold for “a time yet”. It was just six weeks ago that he stated, “rates would remain at current levels for a ’significant’ time yet.” Hmmm…

I don’t think that means the RBNZ will run out and cut rates at their next meeting… But Bollard is greasing the tracks here folks. He’s making overtures of lower rates. I would look for additional follow up comments in the coming weeks for more indications of what he plans to do. If he continues to grease the tracks, kiwi (NZD) will not react favorably.

There’s a note on the Bloomie this morning that Greg Gibbs of ABN Amro Holding NV, said in an interview that “the commodity currencies is where the action is.”

I’ve never wavered on that thought. I keep telling anyone that will listen that we’ve been hearing the stories about how the commodity bull market has been over for five years now… And those calls have been wrong for five years now, and I still believe they will be wrong now too. For new readers to the Pfennig… Let me explain…

Famous and well respected (and a friend of ours) investment analyst Jim Rogers, explained a couple of years ago that in over 200 years, bull markets for commodities have averaged 17-22 years in length. This bull market has only been going for about seven years now.

I’m a true believer of trends… So… With that in mind… Commodity currencies should be “where the action is” or as the Dave Clark Five used to sing… Come on, let me show you where the action is!

And on that note… It’s time to head to the Big Finish! But first, the Big Boss, Frank Trotter has an announcement (no they didn’t name me employee of the year! HA!)

Here’s a note from Frank:

“We are looking forward to seeing EverBank customers next week while Chuck and Chris and I are at the MoneyShow in Las Vegas! Be sure to stop by our booth (#106) to say hello, attend the three talks Chuck is doing, and talk about adding more money to your EverBank accounts. I wanted to add to the excitement of the event by making a special invitation for you to join the EverBank team and some of the great financial editors attending the MoneyShow for an exclusive private dinner Monday night. This is an incredible opportunity to spend some one-on-one time with Chuck and enjoy dinner prepared by a Michelin-rated chef. We have a very limited number of slots for this dinner that will occur in one of the canyons north of Las Vegas on Monday night May 12th. We’ll depart the Mandalay at 4 PM, enjoy an evening of fine dining in the great outdoors, and return to the hotel by 10 PM. If you are interested please email me at EverBank-LasVegas@everbank.com – of course not everyone can come so we’ll let you know by Friday if we have space. Be sure you include an email address that you monitor and a phone number so we can provide you with the details.”

Alrighty then… It’s not every day that the Big Boss adds to the Pfennig, but I love it when he does!

Currencies today 5/7/08: A$ .9470, kiwi .7860, C$ .9965, euro 1.5440, sterling 1.9675, Swiss .9475, ISK 76.80, rand 7.5340, krone 5.0875, SEK 6.0175, forint 163.30, zloty 2.2180, koruna 16.29, yen 105.20, baht 31.70, sing 1.3640, HKD 7.7950, INR 41.37, China 6.9860, pesos 10.50, BRL 1.6580, dollar index 73.41, Oil $121.50, Silver $16.71, and Gold… $870.88

That’s it for today… So… As Frank said above, I’ll be in Las Vegas next week for the Money Show. Vegas is completely lost on me, as I’m not a gambler, and after working all day at a booth, I go out to eat dinner and return to my room. Pretty exciting guy, eh? I caught up with an old friend yesterday, Ellie, who was kind enough to mention my Pfennig in one of her books years ago. Ellie is a cancer survivor, so we have even more to talk about these days! My little buddy, Alex, got another baseball game in last night, this time it was a winner, winner, chicken dinner! However, the rain is back, and tonight’s game is going to be a washout I can tell already! Three inches of rain is forecast for our area in the next few days… Not a good thing for my little river town… But… That’s for another day… Today, I hope you have a Wonderful Wednesday!

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.

Good day… And a Marvelous Monday to you! Two of three from our second most heated rival, the Astros, makes for a good weekend at the Butler House! Should have been a sweep, but I won’t get greedy! The currencies in the overnight market have started to show some healing from last week’s meltdown… So, let’s get to it!

First off, front and center this morning, the euro (EUR) is leading the pack (vroom, vroom) this morning after rallying all night in Japan, and now Europe. I was talking to a trader from a BIG BROKERAGE HOUSE the other day, and I mentioned that I had seen plenty of stories in the past few days that made it sound as if the markets had changed their mind regarding a Fed rate cut this week. The trader mentioned that the percent of those polled thinking there would be a cut had fallen during the week, but was still around 75%.

I really thought at that time that the fall from the high 90% thinking there would be a rate cut to 75%, probably had a lot to do with the dollar rally last week. I still think that’s the case. One of these days we’ll see Big Ben change his tune on rate cuts to appease the markets, and affix his eyes on the inflation balloon that is now hovering over us. I even heard some dolt on our local radio station yesterday tell the audience that “inflation isn’t a problem”. HAHAHAHAHAHA! You should have heard me yell at the radio!

The dollar has two items hanging over its head like the Sword of Damocles this week… First, the Fed meeting on Wednesday… And Second, the Jobs Jamboree on Friday. We’ll be into May by then and the dollar bulls might be yelling “May Day” once that Jobs report prints on Friday, given the forecast right now stands at a negative -78K.

So… Who’s mast are you going to pin your colors to this week… The dollar’s…or the euro’s?

OK… Long time readers know how I continue to believe that the balance of payments is going to continue to weigh on the dollar. I tried to make this point on CNBC but they would hear nothing of it… So, instead I turned to my Pfennig readers, of which, there were probably more reading what I wanted to say than people watching CNBC! HA! (I jest, I know better!)

Well… Wanna see something that really plays well with my thought that the financing of the deficit is going to be the biggest problem for the dollar? Japan owns more Treasuries than any other nation. After raising their holdings by $9.2 billion to $620.6 billion between March and July 2007, Japanese investors trimmed that stake by $34 billion through February, the U.S. Treasury said April 15. And why not? The Japanese just posted a 7% loss on their Treasury holding in the last quarter!

So… The “pain meter” for the dollar just went up a few notches… As the story on the Bloomie said… “Add another ailment to the U.S. misery index of soaring gasoline and wheat costs and falling home values: a Federal Deficit that’s is burgeoning as foreign investors led by the Japanese recoil from the slumping dollar.” Couldn’t have said it better myself!

This is scary stuff folks… I don’t mean to cry wolf here… But it’s something to keep an eye on. This is a scenario that I’ve explained over and over again the past few years… That it was something back in the deep dark closet of scary things for the dollar. I don’t think that it has been dragged out of the deep dark closet just yet, but it has moved closer to the closet door.

On Friday, we saw a little bit of healing in the currencies after the U. of Michigan Consumer Confidence Index fell to it’s lowest level since 1982 in April. This was alarming, given the fact that the “experts” had thought the report would not show additional weakness from the previous reading. The 53.3 index level is firmly in the range that is historically associated with a recession.

I had two radio/podcast interviews on Friday… Since I have the face for radio, the PR people are lining the interviews up for me… I like these, because the interviewers let me talk… Too bad they have just regional reach.

OK… Besides the Fed meeting – which by the way is a two-dayer – what these guys do for two days, besides playing Battleship or Risk is beyond me! OK, back to what I was talking about, besides the Fed meeting, and the Jobs Jamboree, this week is chock-full-o-data, that will probably really weigh heavily on the dollar. Here’s the roster o-data…

Tomorrow we get to see the color of the latest GDP report for the first quarter (should be an anemic 0.4% growth, which without Government spending (we are fighting a war) would most likely be very negative. We’ll also see personal consumption, which the Fed looks at for signs of inflation. (I think they need another barometer… It’s called the Pfennig!) We’ll see the Chicago Purchasing Manager Index (manufacturing), and then two of my faves, personal income and spending.

On May Day, we’ll see the latest ISM Manufacturing Index, which is expected to remain below the contraction line of 50. There are other second tier reports sprinkled throughout the week, so it’s not going to be an easy week for the dollar, as it was last week!

With the dollar weakness overnight, gold has bounced back over $5. Oil has pushed back to within spittin’ distance of $119. Could this be the beginning of the next leg up for the commodities against the dollar? Don’t know the answer to that question… But figured it was worth everyone taking a moment to think about it.

One currency that’s not following the euro higher this morning is Japanese yen (JPY)… The Bank of Japan (BOJ) is expected to lower its growth projection for the current year when it releases its twice yearly outlook on the economy this Wednesday. In addition, the BOJ will most likely leave rates unchanged at the meeting on Wednesday. I think that yen gets more play in the carry trade than it does on its own data. And so it goes with yen… I still fully expect it to recover this lost ground and get back to 100 and beyond, but it will require a risk event to play out, that unwinds carry trades again.

In New Zealand, could the trade deficit finally be getting some relief? The February report showed a trade surplus for the month, at NZ$ 258 million. The March report will print tonight and is expected to be an even larger surplus number! WOW! New Zealand turning the tables on their HUGE deficit? Well… That would be grand! But, they’ve got a hard row to hoe with getting their trade deficit straightened out. But these monthly surplus reports are certainly a step in the right direction!

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… Or should I say “Great Day” for currency investors! Several record levels were reached overnight as the dollar continued its slide. The euro (EUR) traded all the way up to $1.5911, the Chinese renminbi (CNY) traded below 7, and the Singapore dollar (SGD) climbed to a record high. The yen (JPY) also made a big move up in value, flirting with the psychological 100 yen/$ barrier.

The big moves by the U.S. dollar came after the IMF cut its U.S. growth forecast and said the dollar was “somewhat on the strong side.” This IMF report, combined with the minutes of last month’s FOMC meeting confirmed that U.S. interest rates will continue to fall, while the ECB and other central banks will likely hold the line on further cuts due to inflation.

Speaking of inflation, former Federal Reserve Chairman Paul Volcker, famous for helping whip sky high inflation in the early 1980s was in the news earlier this week criticizing the current FOMC’s failure to deal with rising prices. Volcker said today’s economic conditions are not as severe as they were during his tenure, but still suggested caution about the threat of inflation and warned that the weak dollar is a major problem. He also gave Ben and his boys trouble about the Bear Stearns bailout.

Chuck spotted the article also and had this to say from down in Florida:

“And now… Did you see/hear about former Fed Chairman, and a fave of mine, Paul Volcker questioning the Fed’s legal powers in rescuing Bear Stearns? Let’s listen in…

“‘The Federal Reserve has judged it necessary to take actions that extend to the very edge of its lawful and implied powers, transcending in the process certain long-embedded Central Banking principles and practices.’ the former Fed Chairman went on to say…

“‘The extension of lending directly to non-banking financial institutions, while under the authority of nominally ‘temporary’ emergency powers… Will surely be interpreted as an implied promise of similar action in times of future turmoil.’

“But wait! Here’s the best part… Volcker said the modern fiscal system has ‘failed the test of time’ of the marketplace. When asked whether he predicts a ‘dollar crisis’ he said, ‘YOU DON’T HAVE TO PREDICT IT, YOU’RE IN IT.’

“WOW! Pulling an Aaron Neville and telling it like it is! Just like I do every day! But who am I compared to the former Fed Chairman? Like the old E.F. Hutton commercials… When Paul Volcker talks… People listen…

“Somebody said to me yesterday that they thought I was not fair to Big Al. I wasn’t trying to beat on him… I was simply pointing out that he seems to think this whole mess isn’t his fault. Well, it’s not entirely his fault… But as you used to say when the teacher broke up the fist fight… ‘He started it!’”

I guess Chuck won’t be invited over to Alan Greenspan’s for dinner anytime soon!

Inflation concerns were on the front page of the Wall Street Journal this morning but unfortunately our Fed just doesn’t feel they are in a position to deal with it right now. They have decided to take a path similar to their immediate predecessors, and pursue economic growth in spite of rising inflation. The problem is, all of their attempts at economic stimulus will continue to put upward pressure on inflation, and downward pressure on the dollar.

While the euro was rising to another record versus the dollar, the pound sterling (GBP) continued to slump, as the BOE followed the Fed’s lead and cut interest rates by a quarter point. This cut was widely predicted, as they are dealing with many of the same factors as the United States: a slumping housing market, banking credit crisis, and negative consumer confidence. The economic slowdown in England has encouraged policy makers to keep up the pace of rate cuts and set aside concerns about inflation, which reached a nine-month high in February. As I said earlier, they are in the same unenviable position as the U.S., with an economy that is in recession while inflation rises (can you say STAGFLATION?). We encouraged investors to exit positions in the pound sterling a while ago, and continue to believe the pound will follow the U.S. dollar down.

Another currency that seems to be following the dollar lately is the Canadian dollar (CAD), which fell to the lowest level in a week yesterday after the IMF report. The Canadian economy is just too tied in with the U.S. economy. So in spite of their abundance of natural resources, the Canadian currency will likely stay in a tight range with the U.S. dollar. I don’t expect it to fall dramatically, but it won’t move very far above parity with the U.S. ollar either.

The Japanese yen gained 1.6% versus the dollar yesterday and the Singapore dollar was up 1.5%. Both currencies rallied as hedge funds and other highly leveraged traders scrambled to reduce debts. These latest moves will be chalked up to carry trade reversals, but I think they should instead be classified as leverage reductions. The Bank of Japan held interest rates stable earlier this week so the rise wasn’t due to any interest rate differentials. Just think what the yen will do once the BOJ does start raising rates!

The Singapore dollar hit a record high as their central bank set a stronger trading range for the currency. The Monetary Authority of Singapore uses exchange rates instead of interest rates to manage their economy, so they let the currency move up to combat record inflation. Singapore’s economy expanded in the first quarter at the fastest pace since 2003 and the inflation rate was near a 26-year high at 6.5% in February. The latest move puts the Singapore dollar up 5.9% versus the U.S. dollar this year, making it the second best performer in the region outside Japan.

The Chinese renminbi was another currency that moved into record territory overnight, trading under 7 for the first time since it was floated in 2005. Like Singapore, China’s central bank is using a stronger currency to try and combat inflation, which jumped 8.7% in February versus a year earlier. It looks like China will continue to keep accelerating the pace of renminbi appreciation ahead of the Olympics. A stronger renminbi will help to keep a lid on inflation and will also appease some of the critics of China’s monetary policies. Just last week U.S. Treasury Secretary Hank Paulson said it was ‘dangerous’ for the exchange rate not to reflect the fundamentals of the world’s fastest growing major economy. Forward contracts show that traders are betting on an 11.2% appreciation for the renminbi during the next 12 months.

Currencies today 4/10/08: A$ .9337, kiwi .8013, C$ .9812, euro 1.5880, sterling 1.9787, Swiss .9912, ISK 72.99, rand 7.9164, krone 4.9966, SEK 5.9162, forint 159.67, zloty 2.1728, koruna 15.83, yen 100.18, baht 31.53, sing 1.3559, HKD 7.7892, INR 39.947, China 6.9916, pesos 10.5716, BRL 1.6906, dollar index 71.57, Oil $111.48, Silver $18.30, and Gold… $937.38

That’s it for today…Another great Cardinal game last night as Albert hit two home runs to beat Astros. Another rainy day here, and I hear we will have a ‘wintry mix’ this weekend! Typical springtime in St. Louis! I took a short run this morning and my legs are finally starting to feel a bit better after the marathon on Sunday. Hope everyone has a Thunderous Thursday, I know we will here, as the sky looks pretty dark.

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: Chris Gaffney is Vice President of EverBank World Markets and the alternate author of the popular “Daily Pfennig” newsletter. This valuable newsletter is delivered via email to tens of thousands of market watchers globally, and helps traders stay on top of the economic, currency, and market happenings.

The currencies were boring yesterday, with little movement at all. I was swamped though… Normal Monday trading, an interview with Smart Money, and further discussions with the NY Times… But, if you were at home keeping score, you probably found that counting flowers on the wall, and playing solitude with a deck of 51 were probably more exciting than watching the currencies.

And… That’s fine with me! We had just gotten too crazy with those records falling like the rain that kept coming down on us here in St. Louis. Overnight, though… We’ve seen the euro (EUR) gain about a half-cent as the dollar’s mini-rally continues to fade in the rear-view mirror.

As I mentioned last week, the markets are all about the thought that the Fed has taken “risk” out of the equation with their bailout of Bear Stearns. I still believe that taking that path is going to get someone hurt… But for now, the euphoria in stocks has the risk takers going into these murky waters feet first, which means… Carry trades live again… And that also means that the high yielders have gotten a reprieve.

Iceland (ISK) and South Africa (ZAR) have really seen a dead-cat bounce (no animals were hurt!), and the crisis for Iceland has been pushed to the back of the room. Hmmmm… Does this mean these two are ready for a full circle rebound? I don’t know… I’ll check my crystal ball… But I don’t have a crystal ball! But… I do have an opinion on this (you knew I would!) and of course to make the legal beagles happy, my opinion could be wrong!

Anyway… I don’t think this is a new life for Iceland or South Africa. You can cover up those awful looking warts, but sooner or later they will be exposed… So… As I’ve said before… As your Iceland CD’s come due, you should call the desk at 1-800-926-4922 and speak to someone about alternatives to Iceland. Let me also remind you that breaking CD’s is a no-no… It’s costly.

OK… The other high yielders that have a “life” other than high yield, Aussie (AUD) and kiwi (NZD), have also seen their fortunes turn with “risk” being put back onto the table.

And… Pound sterling (GBP) is not faring too well this morning. After reaching the “2″ level again last week, sterling has steadily fallen. Remember what I always say about a star burning brightest right before it burns out.

U.K. house prices fell more than expected, and the markets woke up to the fact I told you about yesterday. The Bank of England (BOE) will most likely cut rates this week… And with the data continuing to print weak… We could see back-to-back rate cuts from the BOE. That won’t help sterling any… Short term anyway.

I have two BIG things to talk about now… 1. Big Al Greenspan… 2. Pooled precious metals accounts.

First, Big Al Greenspan… You won’t believe this, or maybe you will, but nevertheless, Big Al Greenspan wants to “set the record straight”. This I’ve got to see, I said to myself… So… Here are some snippets… This man is 82… Why should this matter to him now? Anyway, here’s Big Al…

“I do take it seriously if my peers think I have misstated the facts,” he says. “But where’s the evidence? Too many people make accusations by assertion. I think it’s improper.

“I am reasonably certain that I am right here,” Mr. Greenspan says. If proved wrong, he says, “I will change. I do not have a vested interest in holding wrong ideas.”

Hmmm… I find it interesting that Big Al is getting testy about all the fingers being pointed at him for this mess. I believe I may have been one of the first to point a finger at him when the housing bubble was getting bigger and bigger, and no one would admit we had a bubble.

But just for the record… Here’s the blame I believe he should bear… First, I believe the Fed was too lax during the stock market bubble. Raising Fed requirements on margin, in my opinion would have gone a long way toward slowing that bubble, and maybe preventing trillions of dollars in losses.

Second, I believe he fueled the housing bubble and then all the awful stuff that happened as a result of the housing bubble, by cutting rates too low back in 2001 and then keeping them too low for too long (through 2003).

OK… I could spend a month of Sundays talking about Big Al and his faux pas after faux pas… But I won’t. Instead, I’m going to talk about our pooled precious metals accounts.

This is important, so please take the time to read this carefully.

There has been a lot of stuff said on the internet lately about “pooled” precious metals accounts and that the holders of the accounts don’t have the precious metals to back their holdings. This has caused quite a stir in the marketplace. We’ve had many a customer call and question us… We’ve even had some clients pull their accounts.

So… Here’s my take on all this…

Good day… And a Tub Thumpin’ Thursday to you! Well… You heard it! Big Ben says that everything is going to be all right! Man, do I feel better about that! Just when I was getting all nervous and out of whack because of the debt situation, the jobs situation, the war situation, the credit situation, the housing situation, and the awful state of financial institutions… Whew! Everybody back in the pool! Big Ben says the water is fine!

Whoa! (In my best John Wayne) Now, just wait a minute there partner… Haven’t we heard these words of euphoria before from Big Ben? Hmmm… Seems to me that last July, he told us that the mortgage meltdown wouldn’t filter out into the rest of the economy… And then he followed that gem up with the August all clear sign that the housing meltdown had bottomed… Now… He expects us to believe him that the economy will be strong again in the second half of this year?

Hmmmm… OK… Before I go on, I had better tell you what happened so you can catch up… I just realized I immediately went into level 4 on Big Ben…

OK, so, yesterday, Big Ben was talking to Congress about the economy… He admitted that the economy would contract (notice the mass media didn’t pick up that ditty) He also said that the there are “downside risks”…  But then he put lipstick on the pig by quickly switching to statements about how the economy would be strong in the second half of this year… Well… You know my old saying folks… You can dress up the pig… You can put lipstick on the pig… But in the end… You still have a PIG!

I want to know and I can’t understand why the lawmakers don’t ask him this stuff… But I want to know where this growth that he’s spouting off about is going to come from? Or, how about this one, triple B… Why don’t you SHARE with us what you feel the downsides risks are? Nah… You wouldn’t want to do that, because it would expose the awful job you and your Fed Heads have done! I feel like Ricky Ricardo… Hey Lucy, you got some ‘xplainin’ to do!

I could go on… But I’ve had it with this guy! He has begun to give me the same kind of rashes Big Al Greenspan gave me!

So… The currencies gyrated all over the place yesterday… First rallying on the Triple B words of a contracting economy, but then seeing the dollar rally on the “recovery” words. At the end of the day, the euro was back to rally mode, moving close to the 1.57 handle once again. Then came a report on Reuters that the Eurozone was going to voice concern at the euro’s gains at the next G-7… That sent the euro back down…

This morning… The euro saw further selling when Eurozone Retail Sales unexpectedly declined in February, thus signaling to the markets that the U.S. recession is spreading to Europe… That news was followed by a German bank announcing a $6.7 Billion write down… So… The euro has taken on some water from the weakening of the economy… But, Hey! We all knew the U.S. recession would spread to other parts of the world… What I kept thinking though was that it would not be as devastating to other parts of the world, especially the Eurozone, as it had in the past…

I know, I know, I dislike the saying, “but this time will be different”… That saying costs people trillions of dollars a few years ago… But my point here is that on of the reasons the Eurozone was created was to buffer the countries from suffering U.S. slowdowns… 80% of all Eurozone trade is among themselves… And lets face it, the exports of BMW’s, Mercedes, and other high end cars shouldn’t see that much of a shift… Rich people don’t suffer recessions!

So… We have the euro trading in the mid 1.55 handle… IT’S NOT A TREND REVERSAL! I said this the other day, but it’s worth repeating… We’ve seen these “flash in the pan” dollar rallies several times over the past 6 years of the weak dollar trend… Nothing, fundamentally, has changed… So, why would the dollar reverse the trend?

OK… Another note on Iceland this morning… Yesterday, there was an OP-ED in the Wall Street Journal titled: Iceland Isn’t Melting… Here’s a snippet…

“But fears of a meltdown in my sub arctic homeland are vastly overblown. True, the current account deficit was 16% of GDP last year, but that’s an improvement from more than 25% in 2006. And while net private-sector debt is about 120% of GDP, there is virtually no public debt in Iceland. This is largely the result of unparalleled political stability and continuity.”

That’s all nice… But it was written by an insider… A board member of the Central Bank of Iceland… I detect a note of “homerism”… But… Soothing words nonetheless, eh?

George Soros, a guy that I personally wouldn’t have over for dinner, called the current financial crisis: “the worst since the Great Depression”… He also noted that the “markets will fall more this year after a brief rebound.”

Well… I may not like the guy, but I agree with him on the second statement… Seems the markets are getting all pumped up on the Kool-Aid Big Ben is serving up… But these are just words folks… We’ll see who’s right and who’s wrong on this… His track record isn’t so good!

The Carry Trade is back on the books after spending the month of March getting unwound… This is good news for Aussie, and kiwi… And should be good news for South Africa and Iceland… But, I think the “once bitten twice shy” campers have had enough of the volatility of these two currencies and are sticking to Aussie and kiwi… So… Aussie and kiwi rallied yesterday, bucking the sell off of euro (EUR), yen (JPY), francs (CHF), and sterling (GBP)…

Remember what they taught you in 6th grade science… A star burns brightest right before it burns out… And I think this can be applied to the Carry Trade… But, we’ll have to wait-n-see, eh?

One of my fave currencies… The Norwegian krone, has held strong during this euro weakness… And this morning, Norway reported that Retail Sales jumped 5.6% in February… Seems that the recent wage increases, the largest in 5 years, spurred consumer spending… Hmmmm…

That would work here too… EXCEPT! Wages haven’t increased in the U.S. in so long, people have forgotten what that looks like! My friend, Bill Bonner, here at The Daily Reckoning had this to say about wages yesterday…

“The part of the economy in worst shape now is the consumer. He’s the one whose salary has not gone up. He’s the one whose house is being foreclosed. And he’s the one who’s got to buy gas and food.”

Here’s another note Bill made that I believe is important to note: “Again, we see the sad evolution of the U.S. of A. since the end of the ’60s. Then, fewer than five million people received food stamps. Now, nearly six times that number are living on them…after, what was supposed to be the biggest boom the world has ever seen.”

But not to worry, Bill… Big Ben, or triple B, and I like to call him, tells us that it will be alright on the night in the second half of this year… I sure hope he’s right! That would certainly make things easier for me and my family!

Currencies today: A$ .9140, kiwi .7865, C$ .9870, euro 1.5550, sterling 1.9825, Swiss .9815, ISK 75.05, rand 7.7980, krone 5.1430, SEK 6, forint 165.40, zloty 2.2410, koruna 16.07, yen 102.70, baht 31.65, sing 1.3870, HKD 7.7910, INR 40, China 7.0175, pesos 10.58, BRL 1.7250, dollar index 72.67, Oil $103.70, Silver $17.16, and Gold… $894.60

That’s it for today… I found out yesterday that I will be doing a joint presentation with my friend Addison Wiggin, at the Agora Vancouver Investment Conference in July… Addison, by the way, has done an update of his best seller, Demise of the Dollar, and it should be available soon… I was honored to write the forward for the book! You’ll need to check that out, when available! So… If you’re interested in the Vancouver Investment Conference check it out here.

Took my little buddy to get fitted for his football gear last night… I sure wish he would get a growth spurt, these other kids are really starting to get big! But he can hold his own… He has the bulldog approach like I did, when I played… So… The Cardinals score 8 runs the night after I freeze watching them scratch out 1 run! UGH! Oh well, at least we won a game! Time to hit the “send” button, as our accountant extraordinaire, Mary Owens just walked in the door… I must be running late! Hope your Thursday is Tub Thumpin’… I get knocked down, but I get up again…

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 .