Well… As much as I dislike having to say so, because I told you this might happen… The currencies have given back some major ground VS the dollar since Friday morning. It’s all tied to the fact that the euphoria going around the markets the previous week regarding stocks and the U.S. economy, came to a screeching halt last week. I pleaded and begged for the currencies to break this link to stocks, but it wouldn’t / didn’t happen and voila! What we have here is a failure to break the link, and now that there’s a falling demand for stocks, currencies have tanked too… UGH!

Not that I’m cheering for currencies to go one way or the other, what I’m rooting for is a return to fundamentals… And apparently, that did not happen!

The proverbial straw to break the stock rally’s back was the color of Industrial Production on Friday… Not that Industrial Production is that Big of a piece of data… It just got added on to all the other bad data that acted like a shot of Round-Up on all those so-called Green Shoots! For the record, Industrial Production decline .5% in April, and March’s already bad figure was revised downward to -1.7%… So… The “glass is half full crowd, would say, “Hey!, the pace of decline has slowed, this is an indication of a bottom!” Unfortunately, that’s not how the market participants saw it… You have to think outside the box here, and recall all of the announced shutdowns that will be coming down the pike… I fully expect this data to reverse itself and go deeper into the tank.

We also saw the “stupid” CPI (inflation) number on Friday… CPI fell .7% VS a year earlier, which on the outside screams “deflation”! But… That’s not what I see… I see a CPI that’s dominated by food and energy, and we all know that energy prices have plummeted from last year… So, to me, this is strictly price deflation of energy, and not overall deflation that would include a contraction of money supply. (Like that’s going to happen any time soon!) No… And I’m sure there are few readers that will beg to differ with me on this, as they already do every time I mention inflation, but… This data continues to suggest the risk of deflation remains remote, since the drops are still mostly centered in energy and energy-related products.

So… If we’ve gone back to the black cloud over risk assets that existed July 08 through February 09, that means you can see Japanese yen as the lone wolf rallying major currency… Recall what I told you on Friday about the opposition party in Japan, calling for a boycott of U.S. Treasuries denominated in dollars… Imagine there’s no rift between the two, It isn’t hard to do, China and Japan getting together for currency cooperation… Hmmm… Makes you shiver, eh? Any way… The yen, is back on the rally tracks and trading this morning with a 95 handle…

But wait! What’s that I see? Is it a White Knight for risk assets?

Another Asian currency that I talk about occasionally, the Indian rupee, has been through the spin cycle a few times in the past year… Just when the rupee looks like its on a run, it gets sent back to the spin cycle and comes out looking quite wrinkled… But… We might be seeing a change… This past weekend, India held an election, and the Congress Party – led alliance chalked up a decisive victory… This is the party, led by Prime Minister Singh, that is pro-growth, pro-economic reform. And the news of the decisive victory sent the Indian stocks soaring… Along with the rupee, that’s now trading with a 47 handle for the first time in 5 months! So… The rupee has it all going on today, eh?

This news from India, helped turn the stocks around in Japan overnight, and that’s a good thing! If stocks can maintain this momentum, that’s a good thing for risk assets… But… I’m being pessimistic here… I just don’t see how the Indian stock market euphoria can outweigh the bad data here in the U.S. But… I guess we’ll have to wait-n-see, eh?

I was reading an article in the Wall Street Journal this weekend, and saw this, that caught my eye… “Economists Say Full Recovery to Take at Least 3 Years”… I bet they didn’t make Mssrs Obama and Bernanke happy with that call! Here’s snippet of the story from the Wall Street Journal… “Economists in the latest Wall Street Journal survey see an end to the recession by August, but say it will take years to eat up the slack created by the downturn. Nearly half of the economists said it will take three to four years to close the output gap, while more than a quarter say it will take five to six years. The economists on average expect the unemployment rate to climb to 9.7% by the end of the year, with two million more jobs lost over the next 12 months.”

Don’t know if you remember or not… But some time ago, I told you that I believed the Chinese were stockpiling commodities… They knew they would need them, and it sure seemed like a better investment than buying more dollar denominated assets… Well, the Royal Bank of Canada (RBC) just issued a report that agrees with my earlier statement! Let’s see what RBC had to say… “China is stockpiling commodities such as copper and iron ore as part of a reallocation of its sovereign wealth amid concern that the value of its dollar assets may decline. It’s part of an overall desire to decrease its exposure to dollar assets.”

That’s been a reoccurring theme here lately hasn’t it? I’ve spent a ton of time writing about China and their new found diversification bone… I’ve told you about all this here, in and if you are a subscriber to my monthly “paid” subscriber newsletter, The Currency Capitalist, well, you’re probably growing tired of hearing about China… You see I really have to tell you, that it all gets so intense, from my experience… This is BIG NEWS! Oh, and if you want to see what the Currency Capitalist is all about.

We have a holiday in Canada today… Victoria Day… I had a reader question why I talked about Australia more than Canada… Hmmm, I said… I did talk about Canada twice last week! But he’s right, I do talk about Australia more, and that’s because the story right now is China coming out of the economic doldrums before any other country, and demanding more raw materials from Australia… Now, if the price of Oil were to soar to $75 or higher, than I’d be talking about the “juiced” Canadian economy more and more once again…

Before I left for Viva Las Vegas (admit it, you were doing your Elvis voice there!) I had talked about the “rift” going on in the European Central Bank (ECB) well, ECB President, Trichet hasn’t done anything on the outside to calm the waters there. Bundesbank (Germany’s Central Bank) President, Axel Weber, a very outspoken voice against Quantitative Easing probably stirred up the hot blood again overnight… Let’s listen in on Mr. Weber… “the ECB has done enough to help the economy and shouldn’t consider further measures unless things get a lot worse.” He went on to say a bit more… “the ECB doesn’t see the risk of a broad credit crunch or deflation in the euro area.”

I’m sure his opposition in Italy, Spain, Ireland, to name a few, will take offense to those statements, and we’ll get the “rift” going again, which won’t be a good thing for the euro to have to deal with.

The data cupboard is fairly empty this week, and for sure void of any major data until Thursday, when the Weekly Initial Jobless Claims, Leading Indicators, and Philly Fed Index all print… So… Not too much to deal with every day, which can lead to some strange currency moves. It just depends on the overall bias of whether to sell dollars or buy them. We’ll get a feeling for that today…

Well… If stocks are going back into the sell gear, then look for Gold to push higher… Which is what it’s doing right now, at $930… Speaking of Gold, my webcast Gold presentation last week wasn’t much a draw… We had less than 100 people watch it on their computers… Hmmm… Don’t know if we’ll go that route any more. At least the room was packed!

So… On that note… I’ll head to the Big Finish… This is a bit earlier than usual this morning, as I woke up long before my alarm was to go off, and decided to just go ahead and get up.

Currencies today 5/18/09: A$ .7580, kiwi .5895, C$ .8550, euro 1.3475, sterling 1.5240, Swiss .8910, rand 8.6440, krone 6.5025, SEK 7.8630, forint 212.50, zloty 3.3260, koruna 20, yen 95.60, sing 1.4680, HKD 7.7515, INR 47.90, China 6.8269, pesos 13.26, BRL 2.1150, dollar index 82.97, Oil $57.10, Silver $13.98, and Gold… $930.75

Source: Spraying Round-up

GM’s Swedish unit Saab is filing for protection from creditors, so that it can reorganize into a business independent of GM… Hmmm… Everyone is jumping the GM ship…

Well, it’s Friday, and that means yesterday we saw the print of the Weekly Initial Jobless Claims… And once again, the rot on labor’s vine was exposed… The total Claims files last week was 627K, the experts had forecast 600K… But here’s the thing that really hits home… The number of Americans collecting unemployment benefits has jumped to 4.99 Million, and each week and new record number is established… It certainly tells me that the labor market is still deteriorating…

At this rate… Obama’s hope that his $787 Stimulus would create 3.5 million jobs, might fall well short even if it’s a Smashing Success!

There was a boat-load of other data yesterday, of which none of it was good, except the Leading Indicators, which again will be goosed up by stuff that ends up being no good to the economy!

Today, we end the week with the “stupid” CPI data for January… Long Time readers know my dislike for CPI and what it does to people who depend on checks each month, and to our pocketbooks… WE all Know inflation is higher than CPI says it is, but the Gov’t, and the markets go with CPI as the “official” inflation gauge… Dolts… All of them!

Well… The euro had a day in the sun, and today the clouds are forming over the single unit once again. Yesterday, I left you with a rallying euro, based on a rumor that Germany would step in to ease the financial turmoil in Europe (Eastern & Western)… Well, Germany’s Chancellor Angela Merkel left the markets “wanting” more… She acknowledged that Germany “could” help… But didn’t have a plan, didn’t have an idea of what to do, didn’t do squat! Why have the stupid press conference if that’s all you’re going to do! Get up there, have your plan, and act like you know what you’re doing… People will follow! Geez Louise! Now I have to rip on the dolts overseas too? I’m getting too old for this stuff!

So… The euro is back to 1.26 and change this morning, and the other currencies are following along… Risk Aversion has plopped right down, smack dab in the middle of what appeared to be a Risk Takers “sighting”…

Gold even saw selling as the day went along and the Risk Aversion crowd won the battle… That is until the overnight markets saw the lower prices in Gold, and you should have seen the “rush” into buy Gold! The shiny metal is up $13 this morning to $988.30… I heard one our sales people talking to a prospective buyer on the phone… The prospective buyer admitted wanting to buy Gold below $900, and was very upset to learn it had leaped over $900 a couple of weeks ago, and not looked back. Shoot Rudy! You never know, it could fall back there again… But the view from the cheap seats, where I sit, is a changing landscape, where fiat currencies are traded in for hard assets, like Gold… I’ve mentioned this for the past couple of weeks now, so this shouldn’t come as any shock to you dear reader… That is unless… You just “delete” the Pfennig each day! OH! The Shock! The Horror! The Humanity!

On a sidebar… I mention that, because one day about 4 years ago, Chris Gaffney and I were meeting with some investment advisors that we knew from Mark Twain Bank days… And I told them they should sign up for the Pfennig… Chris, then said, “if you don’t want to read it you can always just delete it”… Of course he didn’t mean it the way it sounded, but I give him a very difficult time still today… As evidenced by the above!

One currency that had moved stealth-like to higher ground VS the dollar since the beginning of 2009, was Indian rupees… Notice, I said “was”… As all that stealth-like move to higher ground VS the dollar was wiped out this week… I saw a headline last night that said this was the worst performance week by the rupee… OUCH! Time for the Central Bank to get back on the intervention horse, and repair this damage…

While I wrote those last two paragraphs, Gold has moved up another $2!

There was more selling in stocks yesterday as the Dow fell 1.2% to a new five-and-a-half year low, breaking through the previous bear-market closing low of 7552.29 hit on November 20, 2008.

And during my radio interview yesterday, I was asked about the comments from former Fed Chairman, Greenspan, that he “favored nationalization of banks”… I had seen that comment a day earlier and even commented to the Big Boss, Frank Trotter, that he sure didn’t make comments like that when he was the Fed Chairman… And referred to as the “Maestro” and “Mr. Free Markets” But now that he is retired and looking at the mess he created, and yes folks, he wasn’t the sole culprit, but he was the “provider”… And now that he’s looking at the mess he created, he thinks we’re in a huge pile of dookie, and had better do something, fast!

My friend, Bill Bonner, of the Daily Reckoning, (www.dailyreckoning) had this to say about Greenspan’s comments… “Greenspan backs nationalization,” says a headline.

Well, that does it for us here at The Daily Reckoning. If Greenspan is in favor of it, we’re against it. No one man bears more responsibility for the present worldwide financial crisis and coming depression that Alan Greenspan.

The Fed’s job is to take the punchbowl away when the party gets too wild, said former Fed chairman William McChesney Martin. Greenspan did no such thing. As soon as the party began to quiet down and people began fumbling for their car keys, Greenspan added more rum to the punch and turned up the music. By the time the credit cops finally shut it down, people were dancing on tabletops all over the world.”

This “nationalization” cry is a very bad idea folks… Very bad… How bad? Very Bad! Did I say that it was a Very Bad idea? OK… Is that clear? … Crystal… I hope!

Ty Keough sent me a note on something he saw while watching Jay Leno the other night. So, let me set the stage for this note… It’s Monday night, the country had celebrated President’s Day… And President Obama celebrated Past President’s Day by signing the $787 Billion Stimulus Bill… OK.. Here’s what Jay Leno had to say…

“Today was Presidents Day. Congress commemorated George Washington’s throwing a dollar across the Potomac by throwing $780 billion down a rat hole.”

I see where the New York State Attorney is taking a run at the Bank of America / Merrill Lynch merger that took place last year… NY State Attorney, Mr. Cuomo’s office is trying to determine if investors were misled about the depth of Merrill’s losses in late 2008 and whether details of the bonuses to Merrill employees, contained in a nonpublic document, should have been disclosed to investors. Now… I’m not saying that there was anything misleading or scandalous here… But it reminds me of about 8 years ago… Remember?

Remember about 8 years ago, when the tech-bubble burst, and we had one Corporate Scandal after another? Well, we’re not doing too well these days either… Madoff… Stanford… And there will be more… I shake my head in disgust…

Time to head to the Big Finish…

Currencies today 2/20/09: A$ .6415, kiwi .5075, C$ .7950, euro 1.2640, sterling 1.4350, Swiss .8450, rand 10.1650, krone 6.9125, SEK 8.7365, forint 241.50, zloty 3.76, koruna 22.8825, yen 94, sing 1.5360, HKD 7.7540, INR 49.77, China 6.8370, pesos 14.77, BRL 2.3850, dollar index 87.63, Oil $37.75, Silver $14.36, and Gold… $993.65 (still moving higher this morning!)

Source: Labor Market Continues To Deteriorate

I remember what an oasis of calm that hotel was after spending a day in bustling Bombay. I remember its onyx columns and archways and domes, its hand-woven carpets and crystal chandeliers, its exceedingly polite staff and impressive Sikh doormen.

Poor India, the old stomping grounds of the great Hindu kings, the playground of the Mughal Empire, had a rough year in 2008. India has had such a good run – five years of nearly 9% economic growth and a booming stock market – that it had reason to feel it was Fate’s spoiled darling. But in a long and checkered life, a good many things come unstuck. And so India has.

In 2008, it stock market lost 60% of its value. The rupee lost 20% against the dollar. Foreign investors pulled out in record numbers. India’s best companies struggle. The global economic freeze walloped India hard.

So the question is should you buy India or forget it?

India is a place of staggering contradictions. On the one hand, there is “the Indian miracle.” There are the booming companies and spotless IT campuses. The many millionaires minted daily. Yet there is also awful poverty. The World Bank estimates some 420 million people live below the poverty line. That statistic doesn’t capture the awfulness of it at all.

I’ll never forget the train station in Agra. The mass of poor people lying on the ground in blankets, the beggars and human misery in that place. Yet it has been this way for eons. Mark Twain wrote about the squatters in Following the Equator (1897), about the crowds with their “humble bundles and baskets and small household gear.” Twain would probably still recognize the place.

In India, you’ll see a man in a suit chatting away on a cell phone and on the ground next to him a snake charmer. You’ll see elephants pottering down roads in Rajasthan alongside buses and scooters and hand-pulled carts. You’ll see beautiful buildings right next to absolute squalor.

In Paul Theroux’s new book Ghost Train to the Eastern Star, he retraces a route he took 33 years ago, when he was 33 years old. Part of that trip goes through India. And so Theroux, now 67, is in a good position to judge the changes in India. He is mostly unimpressed. “We drove through the streets of Mumbai, past the slums, the sidewalk sleepers, the lame and the halt. Was the miracle, I wonder, just an illusion?”

Theroux writes about the constant presence of the poor. “Unlike the poor in Europe or America or even China, the poor in India are a constant presence. Where else do people put up with plastic huts on the sidewalk of a main road – not one or two, but an entire subdivision of humpies and pup tents? They inhabit train stations, sleep in doorways, crouch under bridges and railway trestles.”

The biggest slum in all of Asia, Dharavi, lies right in the heart of India’s Manhattan, Bombay. Over some 520 acres live 600,000 people, with one public toilet per 800 people. It is a place of unbelievable filth.

Yet many people in India seem to ignore such slums. I remember sitting in a presentation in which some official from Bangalore showed us slides of new buildings and smooth, functioning roads – a modern city – as he talked up the investment potential of his rapidly changing city. Yet right outside was a completely contrary view: dusty, uneven roads; derelict buildings; and extreme poverty.

Yet there is a lot of good in India. These episodes recount how much more there is to do.

It doesn’t neglect all the progress. And the promise of India, even now, is still enormous.

Consider that even as growth forecasts come down from 9% to 5%, India is still one of the world’s fastest-growing economies. Its people are young and hungry for a better life, unlikely to unbutton the old waistcoat and put their feet up. Half of India’s population is under 25 years old. There are many English speakers. The savings rate is near China’s lofty levels. “The crowning reason for optimism,” opines The Economist “is the savings rate.” Unlike the U.S., India is a nation of savers.

What to Buy in India

And there are many needs and opportunities. India’s road network is the world’s second largest, but in need of further upgrades. Power outages are common in Indian cities, too. India plans to spend nearly $500 billion on infrastructure over the next five years. Power generation alone should increase 14% annually over that span.

There are good companies here available on the cheap. The economic deepfreeze won’t last forever. If you can sit on Indian investments for a few years, my guess is you will be amply rewarded.

If you believe in the long-term growth of India, as I do, then now is not the time to overlook it. The sun dipped behind some clouds in 2008. It won’t always look so dark. Stick with the survivors, build low-cost positions and be patient.

Source: Investing in India in 2009

GDP is expected to have fallen .5% in the 3rd quarter, and Personal Consumption is also predicted to have dropped last quarter. Later in the morning we will get reports on the sagging housing market. New home sales and existing home sales are both expected to have dropped slightly during the month of November. And with sales dropping, prices of both existing homes and new homes are also expected to have dropped. Finally, this afternoon we will get the ABC Consumer Confidence number which will likely show another drop in consumer sentiment.

I went over to a shopping center last night while I waited for my son’s hockey practice to end. I was surprised at the number of shoppers in the Electronics store, but after speaking with a sales person, he told me the traffic has been down, with many shoppers waiting for items to go on sale after the holiday. Most retailers make their year during these last two weeks of December, and it will be interesting to see just how many sales we will see post Christmas.

The Japanese yen has been in the news again, as Toyota Motor Corp. forecast its first operating loss in 71 years yesterday. The worlds second largest automaker said the sagging global economy and a rising yen were to blame. Japanese officials have not yet decided to intervene, but a quick move below 90 by the yen could trigger action by the central bank. Bank of Japan Governor Masaaki Shirakawa was trying to jawbone the yen yesterday as he spoke about the negative effect the strong yen has on the economy. The thin holiday markets give officials a perfect opportunity to drive the yen back down.

New Zealand’s dollar fell for another day as a report showed their economy shrank. New Zealand’s gross domestic product declined .4% in the three months ended Sept. 30 from the 2nd quarter. A further move down in NZD interest rates will likely combine with the slower economic growth to put further selling pressure on the kiwi. New Zealand central bank Governor Alan Bollard has been aggressively cutting rates to try and avoid the deepening recession. He has cut 3.25% since July, and has indicated that there is still room left to cut further.

In a split with their kissin cousin across the Tasman, Australia’s currency advanced against the US$. The Aussie dollar rallied as some of the base commodity prices rallied. Copper rose yesterday in New York trading as traders predicted the drop in Chinese interest rates will keep the largest Asian market growing. Gold futures also rose overnight, helping to support the Australian dollar. Raw material exports make up 60% of Australians economy, and China is their biggest trading partner. I believe the Chinese government will be successful in keeping economic growth right around their target of 8%, and this growth will support the Australian dollar.

The Indian rupee fell further against the US$ yesterday, and will likely end up the year as the worst performing Asian currency. But Moody’s Economy.com is predicting the currency will be the region’s biggest gainer during 2009. “India’s rupee is one of my top picks as the country has a strong domestic market with very strong growth potential,” Moody’s Sherman Chan said in an interview yesterday. “It is one of the most attractive destinations for foreign direct investments with its large domestic market and a very well educated workforce.” He expects the currency to rise 7.7 percent against the dollar next year. But much of this rise will occur during the last half of the year, and Chan said the rupee could get weaker before starting its move up.

Moody’s Chan also said he thinks the Chinese Renminbi will be ‘largely stable’ as authorities seek to protect exporters while avoiding upsetting trade partners. I agree with his assessment, and believe the Chinese Renminbi will continue its long slow appreciation through 2009.

As I wrap this up, I want to remind everyone to take advantage of this pause in market volatility to take a look at your portfolios. It is a perfect time to reallocate your positions to align them with your investment goals. The big moves in the markets have probably caused most portfolios to become over allocated in some currencies such as the Renminbi and Yen, and under allocated in commodity currencies of Australia or Norway. You can contact the trade desk and have one of our specialists review your holdings. While we can’t manage accounts, they will be more than happy to share their opinions with you.

Currencies today 12/23/08: A$ .6840, kiwi .5723, C$ .8219, euro 1.4007, sterling 1.4832, Swiss .9223, ISK 145, rand 9.7375, krone 6.9865, SEK 7.8310, forint 189.08, zloty 2.9429, koruna 18.8077, yen 90.06, baht 34.60, sing 1.443, HKD 7.75, INR 48.7625, China 6.8488, pesos 13.18, BRL 2.3755, dollar index 80.966, Oil $40.16, Silver $10.76, and Gold… $845.25

Source: Holiday Pause

Good day…The dollar settled in at the slightly higher levels it reached Friday morning and is trading in a narrow range heading into a holiday shortened week. Trade desks across the globe will be mostly staffed by the backups as the big bosses take Christmas week off. Volume will likely be lighter, which can sometimes lead to an increase in volatility.

The data calendar is empty today, but chock full tomorrow and Christmas eve. Markets will be closed on Christmas day, and most will be closed again on the day following Christmas (known as boxing day). GDP, Personal Consumption, U of Michigan consume confidence, New Home Sales, Existing Home sales, House price index, Richmond Fed Man. Index, and ABC Consumer confidence numbers will all be released tomorrow. On Christmas eve the US will release MBA Mortgage applications, Personal Income, Personal Spending, PCE deflator, Durable Goods orders, and the weekly jobs numbers will all be released. I told you we will be packing in a weeks worth of data in the next two days!!

So what will all of this data mean to a thin currency market? I expect all of this data will show a US economy which is continuing to weaken. 3rd quarter GDP is expected to show a drop of .5%, and Personal Consumption is expected to have dropped 3.7% during last quarter. The housing industry continues to weaken, which will be reflected in this week’s data. Personal Income is expected to be flat, with spending in the US to show a slight decrease. Durable goods orders will probably show a drop of 3%, and the weekly jobs data will end the data packed two days showing further weakness in the US labor market. The bias for the US$ will continue to be negative, as the next two days of economic data will confirm just how bad the state of the US economy is.

As I mentioned earlier, the currency markets have been trading in a tight range with the Commodity currencies of the Canadian dollar, South African Rand, and the Australian dollar leading the pack. The Japanese yen weakened slightly, trading back above 90 yen per dollar. The yen weakness came as investors slowly moved back into risk trades as a US bailout of GM and Chrysler moved closer to reality. The yen stayed lower vs. the US$ as China announced an interest rate cut in order to try and support its economy.

The dollar weakened a bit vs. the Euro which held just above 1.40 during early European trading. According to a story on Bloomberg by Stanley White, the Euro will likely rise to $1.50 in the next two weeks. The relative strength index for the Euro moved above 50 which illustrates the Euro is gaining momentum. The Fibonacci series of numbers says we are in a bullish trend, with resistance at $1.50 near a 150 percent projection of the euro’s rise from its Dec. 4 low of $1.225 to its Dec. 16 high of $1.4147. White goes on to report the 14 day relative strength index shows the euro will start heading higher after a short correction.

The Australian and New Zealand dollars rose as the Feds bailout moved investors back toward higher risk trades. These currencies have been two of the biggest recipients of ‘carry trade’ flows, and the expected rescue of US automakers gave currency investors confidence to move back into these higher yielding currencies. Even after aggressive rate cuts in both South Sea nations, benchmark rates are still over 400 basis points better than in the US. If commodity prices can start to rebound, the combination would be very good for both the AUD$ and NZD$. I still favor the Australian currency vs. the kiwi, as New Zealand has a much larger current account deficit, which will need to be funded with foreign capital flows.

China’s central bank cut interest rates for the fifth time in three months to try and support growth. Chinese leaders have stated they want to keep growth in the world’s fourth biggest economy from dropping below 8%. The IMF predicts they will be unsuccessful, as a recent report released estimates 2009 Chinese growth at 5% to 6%. But the People’s Bank of China is going to continue to try and meet their goal, using a combination of economic stimulus spending, lower deposit requirements, and easier credit. Mike Meyer tells me we have been fielding a number of callers selling their Renminbi deposits after Dr. Steve Sjuggerud suggested investors exit their positions. While I don’t disagree that there are probably many currencies which will outperform the Renminbi, I do think the Renminbi will continue its slow ascent vs. the US$.

The Indian rupee fell sharply after its recent move to a 2 1/2 month high vs. the US$. The selling was probably due to importers taking advantage of the rupee’s strength to lock in rates. The rupee touched 46.86 in trading on Friday, the highest since October 3, rebounding more than 8 percent from a record low of 50.615 on Dec. 2. Trading in the forward markets indicate the rupee will recover slightly from where it is trading now.

Currencies today 12/22/08: A$ .6861, kiwi .5755, C$ .8299, euro 1.3976, sterling 1.4807, Swiss .9096, ISK 176.5, rand 9.6712, krone 7.0286, SEK 7.7487, forint 189.52, zloty 2.9259, koruna 18.784, yen 89.96, baht 34.55, sing 1.449, HKD 7.75, INR 46.02, China 6.8512, pesos 13.12, BRL 2.3644, dollar index 80.88, Oil $42.95, Silver $10.965, and Gold… $842.52

Source: Currency Markets Stabilize

I pulled a chart of year to date currency returns vs. the US$, and there are now 5 major currencies which have appreciated vs. the greenback: Yen +26.44%, Swiss + 8.07%, and Singapore, Danish Krone, & Euro + 1%. And with the recent big moves, our phones have been lighting up with investors moving back into currencies. I love the fact that all of these investors are diversifying, but the speed of this recent move demonstrates why we suggest keeping your investments spread across all asset classes. Trying to time into or out of a market can be frustrating, while keeping consistent asset allocations is the key.

The cut by the FOMC is putting pressure on other central banks to follow suit. Norway’s central bank cut its benchmark rate by 1.75%, a huge move meant to counter the growing global recession. The Norges bank said the rate could go even lower during 2009 as falling oil prices reduce the risk of inflation. The Czech central bank also cut rates yesterday, but kept its move at a relatively small 50 basis points.

Chuck sent me the following note last night, as he is feeling better and keeping an eye on the currency markets:

“So… I read to Dawn’s class on Wednesday, they were all so cute… They were completely convinced by the time I left that I WAS Santa Claus. I left to the sounds of “Merry Christmas Santa”… So cute!

What another day for the currencies, eh? 1.45 in euros? That’s a rise from 1.27 just a week ago. I read something that said this was the largest 1-week move higher EVER in the euro VS the dollar! I guess investors and traders don’t appreciate the Fed’s new ZIRP! (zero interest rate policy)

This is what the Japanese policy has been called for over a decade now, so why would the U.S.’s policy be any different? I’m turning Japanese… The stimulus packages are just like Japan’s of the 90’s I’m turning Japanese, I really think so… The bailouts, and everything in between is just like Japan of the 90’s!

The “other stars” right now are Gold and Silver… If you are a “believer” (and I’m not talking about whether I’m Santa Claus or not!) of the lofty prices for Gold that are being bandied about, then you have to think that these are bargain basement prices, and if these are bargain basement prices, then what we had just a month ago and all autumn long were dirt cheap prices! Dirty deeds, done dirt cheep! OK, I have no idea why I went into that AC/DC song! But see, I even do this at home! Which by the way, you should not try at home without an adult’s supervision! HA!

Now, most of you who are long time readers have probably been asking where Chuck’s take on the Bernie Madoff scandal is…. Well, I would be right there with my voice, if it wasn’t the SEC… The last thing I need is to get in a fight on a Saturday night in Jackson Mississippi, with the SEC! But, I don find it to be very sad that the SEC admits that the SEC had credible and specific allegations going back to at least 1999! Now investors are licking their wounds to the tune of at least $50 Billion in losses… I’ll steer clear of this one, and let those that have armored shields take their shots…

Have a great day! I’m off to the eye doctor, and not “looking” forward to it!”

I spoke to Jeff Opdyke at the Wall Street Journal yesterday about a story he was writing with regard to the Japanese yen. He was wondering why the BOJ hasn’t intervened yet. It is an excellent question, as the yen has continued on its assault on the US$ unabated. Finance Minister Shoichi Nakagawa has been trying some verbal intervention, letting currency traders know that they stand ready to intervene. But the BOJ is smart enough not to jump out in front of a freight train, and as Chuck points out above, the speed of the dollar’s recent fall has been unprecedented. Also, since Japan imports almost all of their oil, a stronger yen reduces the price of crude imports. So at least some of the pain felt by Japanese manufacturers/exporters is being mitigated by these lower oil prices.

If Japan does intervene, the thin markets during the holiday season would be an excellent opportunity. There is also a chance that the BOJ will lower their interest rates tomorrow, following their two day policy meeting. This would be another good opportunity for additional ‘verbal’ intervention. Holders of yen may want to book gains, and look toward the Singapore dollar or Chinese Renminbi to maintain their Asian exposure.

India’s rupee has climbed for a fourth day as the Indian stock exchange headed for the biggest advance in more than a week. Capital inflows across all of Asia have increased as the dollar continues to lose its status as a safe haven. India’s inflation rate, as reported today, fell to the lowest since March as crude oil prices have fallen. Prices increased 6.84% last week vs. an expected increase of 7.5%. The slight fall in inflation may allow officials to lower interest rates, which are currently some of the highest in Asia. The rupee has benefited from high interest rates as investors return to carry trades.

The Australian dollar will increase another 12% vs. the US$ according to a note by the head of currency strategy for National Australia Bank Ltd. The strategist believes the Aussie dollar hit a bottom of 60 cents in October, and says the currency will begin to outperform as growth in China starts to recover. He targets 79 cents as the top.

We agree with the report, and suggest the Aussie dollar will again begin to rally as the commodity prices recover. Raw materials account for 60 percent of Australia’s exports, with China being one of their biggest customers. Growth in China has slowed, but remains at a relatively strong level above 6%. The stimulus package announced by China will concentrate on infrastructure construction, which will increase demand for commodities.

Currencies today 12/18/08: A$ .7081, kiwi .6002, C$ .8432, euro 1.4675, sterling 1.5366, Swiss .9541, ISK 112.19, rand 9.7288, krone 6.6677, SEK 7.5780, forint 183.20, zloty 2.837, koruna 18.1062, yen 88.39, baht 34.39, sing 1.4279, HKD 7.75, INR 46.95, China 6.8292, pesos 13.18, BRL 2.3527, dollar index 77.822, Oil $40.68, Silver $11.39, and Gold… $875.98

Source: Santa Rally Continues

Rather, Mr. Warhol’s comment was about the short attention span that tends to rule the mind of most humans. Fifteen minutes, he surmised, was the extent of the human mind’s ability to stick with something.

But Mr. Warhol made his prediction in 1968 – before the invention of business TV channels. With a “24/7″ need to match the senseless tickers scrolling at the bottom of their screens, the media have to create famous people. And they don’t have 15 minutes to do it. The TV channels have about a minute to create a new “expert” and then move on to their next creation.

A roll-call of experts come and go on TV channels, telling us why things have happened and what will happen next. For fifteen minutes their words rule our mind. And then, like a soap bubble floating on the surface of a bathtub, their words pop into nothingness. This is because the listener and the speaker are both chasing their fifteen minutes of fame. The human investor, full of passion and emotions wants to hear something different. The expert, seeking his slot in history, is willing to provide it.

The media experts, seeking another fifteen minutes of fame, will happily change their statements – and make even more absurd statements – to grab the attention of the investors. For the next fifteen minutes of fame.

Strong currency becomes a weak currency

In the year 2007 – which actually was only some 200 days ago – analysts and rating agencies were all telling us how wonderful India was and what a wide golden road lay ahead for India. The Indian rupee, they concluded, would be a strong currency. The media, attracted to sound bytes the way a bee zooms in on a flower, were all over the expert views. Now, things are different. The new sound byte is how terrible the Indian investment environment is. And the Indian currency is doomed to die.

In the boom days (again, less than 200 days ago) respected commentators were telling us how the Reserve Bank of India was being too nervous about the high growth scenario – and the RBI was wrong in trying to reduce economic activity by sucking out credit from the system.

Today, these same experts are telling us that the RBI was sleeping on the job – they should have moved faster and controlled economic activity and suppressed the inflationary pressures. Maybe the RBI did the right thing and these experts were wrong – the experts had their emotions ruling their fact sheets.

India, we were told, has decoupled from the world. Now we are told that India is very coupled with the world – oil is the great re-coupler. Being in the de-coupling camp, I am keen to know what impact the buying habits and economic activity of a person in El Paso, Texas has on the buying habits and economic activity of a person in Nagpur, Maharashtra? Just because they both uses oil – at different prices, in different quantities, for different reasons? The act of using oil is not re-coupling.

Sensationalism

Sensationalism is in. Everyone wants to be known as the person who “called” the market. Bull or bear does not matter – the fifteen minute plug has to be captured. So, Fitch ratings “downgraded” India’s GDP growth rate to 7.8%. What a downgrade!

It is a “downgrade” the Japanese, the Europeans, and the Americans would have loved to see. With their GDP growth rates at 1% and 2%, the developed world economies would give an arm and a leg to hear that their GDP would grow by 7.8%. But, hey, who wants to be the hero in the arena when the lions will eat anyone who raises their heads? So, rather than write: “India’s GDP will grow by over 7% per annum and we believe that this sustainable growth rate will not be hampered by external factors like oil prices at USD 140/barrell”, Fitch gave India a thumbs down. India’s GDP was “downgraded”. They got their 15 minutes of fame.

The Index got knocked -4.6% the same day. Not all of it because of Fitch – we must not give credit where credit is not due. But that monkey in the human mind wants to hear negative things. And Fitch gave a spoonful.

The analysts who work for the brokerage houses loved the banking stocks – 200 days ago, in the year 2007. That was then. Today, they trash them in their reports. Because, globally, it is fashionable to trash finance companies and banks. The banks are in trouble around the world – so why should Indian banks be different?

HDFC Bank is rumoured to own bonds of USA banks and financial companies, never mind that they are not allowed to! We own HDFC Bank for our clients and watch in awe as it gets massacred. Sure, we hated the price they paid for the merger with CBoP – and still do. But knocking the stocks because they have some rumoured large exposure to US finance companies?

So, there it is: a potent cocktail of news channels that need views all the time. A billion Indians lined up to give their views on anything the channels wish to air. An investor base that is actually a speculator base, waiting for sell and buy signals.

What a nation of dead-brained zombies we have turned into; stampeding in senseless direction like a lost herd.

Source: Fifteen Minutes of Fame