I give them out to my friends and family, and explain that they need to protect themselves against inflation. They get a real kick out of it and this opens their eyes to the fact that paper money is not backed by anything.

Zimbabwe’s annual inflation rate peaked at 489 billion percent in September 2008 and the Zimbabwe dollar became literally worthless.

Will America ever experience this type of inflation? I don’t think so… Our government has maintained steady price controls for over 30 years.

However, the U.S. could see inflation levels like we saw in the 1970s and we could easily experience 10% to 20% inflation rates or more…

Recently, America’s Federal Reserve has been easing, or decreasing interest rates, in an attempt to restart economic growth and get out of this recession. But, it’s the Fed’s main job to keep inflation in check. If inflation goes too high they will tighten, or increase interest rates in an attempt to head off future inflation.

We know inflation is coming due to massive federal spending—and next will come higher interest rates. Keep in mind that interest rates hit 18% in the 1970s, under similar circumstances.

High inflation and high interest rates both have negative consequences for the economy. The bad thing about high inflation is that it takes away your purchasing power. Then you have inflation’s evil side kick-higher interest rates, which slows down economic growth.

We are entering a tricky period and you need to be prepared. Invest in commodities and make sure to lock in that 30-year fixed rate mortgage at today’s low 5% rate.

Source: Pick Your Poison: Inflation or Higher Interest Rates

What prompted us to tackle this bug bear now? Why aren’t we out on a Buenos Aires terraza sipping cold beer instead? Well, we couldn’t help noticing that the yields on long-dated US Treasuries are rising.

As underground investors Adam Lass writes in today’s Taipan Daily, last December future contracts for 30-year T-Bonds “were hovering around 142 and change with yields under 2%. Now we were looking 122, a drop of some 14%, forcing yields to just about double.” And last week the 10-year Treasury bond yield, which hit 2.07% in December, broke above 3% for the first time since the financial crisis started last September. It is currently trading at around 3.17%.

For those of you not familiar with the relationship between Treasury yields and inflation, higher yields on long-dated bonds is a sign that the bond market is anticipating higher interest rates in the future. (Higher interest rates being the typical monetary response of central banks to higher inflation rates.)

What could be pushing up pushing up yields on long-dated T-bonds? Look no further, dear reader, than the frantic action of the wonks at the US Federal Reserve.

This from Martin Hutchinson at Money Morning:

Monetary policy has been extremely stimulative for the last six months, with broad money growth running at more than 15%, and real interest rates substantially negative. The justification for this – that the United States was in danger of substantial deflation – was proved to be erroneous by last week’s report on first-quarter gross domestic product (GDP). In that report, the deflator – the rate at which domestically produced goods increase in price – was a surprisingly high 2.9%, indicating that inflation has by no means gone away.

In addition, the U.S. Federal Reserve is buying securities in the markets and financing others to do the same; its purchases of U.S. Treasury bonds, in particular, are nothing more than a pure monetization of the U.S. federal deficit, which can only lead directly to higher inflation.

As Martin points out, the German Weimar Republic did something similar. In the years leading the one trillion percent inflation of 1923, monetized 50% of government expenditure. The Fed isn’t that stupid, of course. In buying $300 billion of T-bonds in six months, it is only monetizing about 15% of government expenditure… Of course, as more pressure comes to bear on the Treasury’s bond auctions, the Fed may have to up its monetization efforts.

Good day… And a Tub Thumpin’ Thursday to you! Day One at the Orlando World Money Show (WMS) went well. My room for the presentation was packed! It was standing room only, and the good part was the fact that there were only about 30 Pfennig readers in the crowd. I say that not because I have something against Pfennig readers, oh Lord, they are dear readers! The reason I say that is I like to know how many of the non-readers I can convert to Pfennig readers!

Well… As you know, when I’m on the road like this, I’m not sitting in the saddle back home, and watching the markets all day long, and reading stories about what’s happening, etc. So, the “road Pfennigs” tend to be a bit shorter. But as my friend, and once editor of our monthly newsletter, David Galland, used to tell me… “you’ve got to get it out every day, no matter what!”

So… From what I can tell this morning, the currencies traded in a very tight range after the sell-off from the previous night that I told you about yesterday. Japanese yen is a bit weaker, from yesterday morning’s currency round-up, but other than that small move in yen, the levels look like they are wearing the same clothes as yesterday!

Today we have the Central Banks of England and the Eurozone meeting to discuss rates. As I said earlier in the week, I truly believe the Bank of England (BOE) to cut rates aggressively once more to bring their internal rate to 1/2% or 50 BPS, just like here in the U.S. The forecast is for the BOE to cut to 1%… But I’ll go out on that limb and say they’ll be even more aggressive. Here’s the thing that just gets my goat though… The more aggressive the BOE is in cutting rates, the better pound sterling will trade. Now this should be the opposite, as a rate cut is a true debasing of one’s currency. But the mental giants in today’s trading world don’t see it that way. They see it as a plus for the economy and so for the currency.

I could really go off on a tangent now about how trading desks are run by Ivy leaguers that got that job right out of grad school and don’t carry the same “valuation tools” as old timers… And quite frankly could very well be one of the reasons we’re in this mess today… But I won’t go there, as that’s too touchy of a subject!

The European Central Bank (ECB) will also meet today, but ECB President, Trichet, has pounded it into everyone’s heads that the ECB will NOT cut rates today, and to look to the March 5th ECB meeting as the next “chance” for a rate cut.

Here’s another example of not carrying the same “valuation tools”… The ECB is being prudent and waiting to see the results of previous rate cuts, so as to not “over cut” and get in trouble with spiraling inflation, etc. Why debase the currency when you don’t have to? But…. NOOOOOOO! The mental giants these days are punishing the euro because they believe the ECB is now “behind the curve” with regard to rate cuts. See how crazy this has all become? Crazy… I’m crazy for thinking about you… I’m Crazy… Crazy for feeling so blue… Ahhh, the soothing voice of Patsy Cline… Now, I can get back to writing without carrying on about “valuation tools”… Or as the kids say nowadays those guys are “tools”… HAHAHAHAHAHAHAHAHAHA!

Yesterday, I told you about the surprise Pending Home Sales report, and how maybe it’s a sign of better times, but I needed to be shown more before I would commit to saying that it’s a true sign. Well, my friend, Bill Bonner, author, and Daily Reckoning fame (www.dailyreckoning.com) had this to say yesterday about this very subject…

“Our guess is that the little light investors thought they saw will turn out to be another torpedo blowing up. Millions of homeowners and stock market investors have gone down already…but there are many still afloat.
And many torpedoes that still haven’t found their marks.

In Japan, for example, property prices began falling in 1991. They fell for the next 13 years…reaching a low in 2004 equal to where they had been in 1973!

If that pattern plays out in the United States, the housing market won’t hit bottom until 2020…when you’ll be able to sell your house for what you paid for it in 1989.”

Our old Fed Chairman, who is highly regarded for his inflation fighting in the early 80’s, Paul Volcker, spoke last night and he’s none too happy with the delay in starting the economic advisory group that the new President, Obama, set up. Obama picked Volcker, but Volcker isn’t seeing any moving forward with this advisory panel. Volcker wants to help, and I believe we need his voice, but no one wants to “include” him… Hmmmm… I wonder what’s going on there… Does the new administration believe they don’t need Volcker’s voice? I sure hope that’s not true!

In another sign that the German economy has fallen into a recession, German Factory Orders for December fell -6.9% bringing the annual number to a staggering decline of -25%, according to the report I saw this morning… This is just another reason why the euro no longer trades at 1.60…

I saw a report this morning regarding India and the rupee… I don’t talk about India very often, because not much in the way of market moving news comes out of India… But, this report is talking about black clouds hovering over India, so I thought I had better fill you in… An advisor to the Prime Minister said last night that the 2009 Budget “may” reach 7.5% of GDP! The forecast is for 2.5% of GDP. If this is true, the writer believes that the rupee could sell off from today’s level of 48 and change to 52… If that all holds true, then holders of rupees will be thankful for the above market interest rates to cushion that blow… But again, this is all based on a “may” and could turn out to be a boy crying wolf!

I’ll end today’s letter with a “feel good story”… Gold rallied to $915 yesterday… Gold traders say that they believe Government spending will spur inflation, the dollar will weaken, and gold will take off on the strength of its inflation fighting make up.

Goldman Sachs Group, Inc. (which probably has so many research people you can’t count them with stick) said that they believe Gold will reach $1,000 within three months. And a commodity analyst at Dresdner Bank said this, “expectations of future inflation and dollar depreciation are driving the market right now.”

I told the crowd at my presentation yesterday that Gold IS an excellent inflation fighter… And not to listen to those that preach otherwise, as they use the high of the 80’s at $800 and say Gold hasn’t done a very good job of fighting inflation since then! But! Not so fast Tim! I say you have to go back to when President Nixon closed the Gold window, and took the dollar off the gold standard. Gold was trading then at $35 an ounce… Now follow Gold’s price through the years to the present at $915… Now… That’s what I call an inflation hedge!

And finally on Gold… Kristin sent me this note that she came across… “Short term, said Tom Pawlicki, of MF Global in Chicago, “Investment has been a key supporting factor for gold,” and thus “Passage of the stimulus package in its current form would likely be inflationary and bullish for gold while a Senate filibuster would be bearish.”

On to the Big Finish! Wait! There’s been a nice move up in the currencies since I got up this morning! WOW! Alrighty then, let’s go to the currency round-up!

Currencies today 2/5/09: A$ .6485, kiwi .5130, C$ .8125, euro 1.2875, sterling 1.4515, Swiss .8615, rand 9.9765, krone 6.83, SEK 8.2625, forint 230.32, zloty 3.62, koruna 21.98, yen 89.70, sing 1.5050, HKD 7.7540, INR 48.77, China 6.8367, pesos 14.44, BRL 2.3075, dollar index 85.60, Oil $40.44, Silver $12.71, and Gold… $915.80

Source: Gold As An Inflation Fighter!

Martin Hutchinson says the Fed has finally starting doing its job: putting price stability over Wall Street’s demands. Real interest rates are negative. This is feeding inflation. It also means Treasury bond yields – also currently below the rate of inflation – are too low and should begin to rise again.

Martin says investors can profit from this situation with the Rydex Juno Inverse Government Long Bond Strategy (MUTF:RYJUX).

More from Martin in Money Morning:

The statement that was issued after the policymaking meeting was somewhat “hawkish,” suggesting that the U.S. Federal Reserve is awakening to the dangers of persistent and gently rising inflation.

Wall Street was initially spooked: it had hoped for the usual bounce that follows a Fed rate cut. However, investors subsequently decided the Fed’s inaction meant things weren’t so bad after all. Actually, the inaction was the first example in several years of the Fed doing its job – standing up to the easy-money politicians and Wall Street in the pursuit of lower inflation.

The Consumer Price Index (CPI) for August registered a decline in prices of 0.1%, which observers hailed as an indication that inflation worries are at an end. But don’t you believe a word of it; the decline was entirely due to the recent fall in oil prices, which we here at Money Morning expect will one day reverse course and resume their upward march. The only question is when that will happen and what the catalyst will be to make it so.

In terms of the CPI, the “real” consumer price inflation was actually 5.4% over the past 12 months, which makes the 2.0% Federal Funds rate look pretty silly.

The same is true all over the world: Inflation rates are either well above the local bank base rates (2.3% vs. 0.5% in Japan, 12.1% vs. 9.0% in India), or are only just below them (3.8% vs. 4.25% in the Eurozone, 4.8% vs. 5.0% in Britain). Only China has inflation of 4.8% to go against a bank rate of 7.2% – just reduced from 7.47% – but China had been holding prices down with direct controls for the Summer Olympic Games, so its current inflation number is pretty dodgy.

If interest rates are at or below the inflation rate in most of the world, then it follows that global monetary policy is expansionary and inflation can be expected to increase generally.

You can’t entirely blame the world’s central banks; we have been in a credit crunch for more than a year now, and investment banks the size of Lehman Brothers (NYSE:LEH) and Merrill Lynch (NYSE:MER) getting in trouble is a pretty good indication that all is not well. However, there’s also no denying that low or negative real interest rates will tend to produce an acceleration of inflation.

The two objectives – saving the world banking system, and keeping inflation under control – are in conflict.

The market demonstrates the solution to the conflict.

On Monday the Federal Funds rate traded for much of the day at 6.0%, versus the Fed’s target of 2.0%. To get the market Federal Funds rate down towards the target, the Fed needed to inject lots of liquidity, which it did – to the tune of about $70 billion.

That liquidity increased the money supply, but only to make up for the decrease caused by bank failures and market fear, thus restoring the market’s balance and lowering the Federal Funds rate to about 3.0% by the end of the day’s trading. An interest rate cut Tuesday would simply have moved the “target” Federal Funds rate, rather than the actual rate, and would have led to more inflationary pressures without materially helping the banking system.

Indeed, one can wish that the Fed had confined itself to injecting liquidity throughout this prolonged credit crunch, keeping the Federal Funds rate level at its September 2007 level of 5.25%. In that case oil prices would probably never have soared to $147 a barrel, and U.S. inflation might have remained safely around 3.0%.

Going forward, it seems clear that next time the FOMC meets without having had about half of Wall Street disappear in the preceding week (the next scheduled meeting is Oct. 28-29), it will be tempted to announce a modest interest-rate rise, unless the U.S. economy is truly in the tank by then. Of course, the Fed would remain ready to lower rates again if a deep recession appeared, or to inject liquidity if more banks got in trouble.

That would suggest that the current sharp drop in yields on long Treasury bonds has been overdone (from 4.25% in June to 3.25% yesterday (Tuesday) morning, before rebounding to 3.49% at yesterday’s close). Thus, a rebound in Treasury bond yield – taking them significantly above the level of inflation – is called for as money is tightened and the Federal Funds rate rises.

To take advantage of such a yield rebound, you should consider the Rydex Juno Inverse Government Long Bond Strategy (MUTF:RYJUX). This invests in short futures contracts on long-term Treasuries. It can be expected to gain as Treasury yields rise.

Source: Federal Reserve Policymakers Stand Up to Wall Street’s Easy-Money Crowd

Open interest in gold on Wednesday showed a decline of 5,975 contracts. For silver, o.i dropped 1,391 contracts…which is a real surprise considering the huge rally in the silver price after the London a.m. fix

With options expiry, first day notice and month end out of the way, it will be interesting to see what happens to gold and silver during the last month of the ’summer doldrums’. Can the bullion banks flush more long positions from the tech funds? Are the 200 day moving averages a target? We will find out soon enough. One thing is for certain, if this isn’t the bottom…it’s not far off.

The Commitment of Traders report will be out later today and will form part of my commentary on Saturday.

In the ‘a picture paints a thousand words’ category…here is a graph of total U.S. debt as a percentage of GDP. Everyone should already be familiar with this graph in one form or another, but here’s another look.

click to enlarge

As usual, it was wall-to-wall bad news yesterday. Europe’s inflation rate accelerated at its fastest pace in 16 years, The Carlyle Group is closing another of its hedge funds after its value fell by one third. And Alan Greenspan says that home prices are “nowhere near the bottom” and the resulting market turmoil isn’t showing signs of abating. He went on to say that Fannie and Freddie were a “major accident waiting to happen” and had to be nationalized. Well…Sir Alan ought to know better than anyone, as he’s the one who created these problems in the first place.

In my first offering today, I noticed in a couple of stories out of the U.K. that the price of natural gas to consumers got hiked by 35% when the latest gas bills arrived in their mailboxes earlier this week. Then in a Bloomberg story yesterday, it was mentioned that home prices in the U.K. declined the most in two decades…8.1% year over year…and Britain’s retail sales index dropped to its lowest in 25 years in July.

And don’t forget my comment on Wednesday about beer sales being back to levels of the 1930s. Here is a piece by Adrian Ash of the bullionvault.com posted at Aaron Crowne’s web site ml-implode.com about the housing market crash in Britain. No wonder the Chancellor of the Exchequer (in a story I ran a couple of days ago) is extending a financial life-line to England’s banks. It’s my opinion that the entire western world’s housing market is on the slippery slope to total collapse. The article is entitled “UK Housing Bubble: Apocalypse Now?” and is linked here.

In a story out of the Financial Times in London early this morning, it appears that Russia plans to seize control of grain exports by forming a state grain trading company. And in another anti-free market move, Putin is at it again. This story is from Ambrose Evans-Pritchard at The Telegraph in London. The headline reads “Kremlin’s heavy hand triggers foreign exodus”. This story, like the UK housing bubble story, is well worth the read. The link is here.

Do not, therefore, under-estimate the potential threat to gold…which already carries the weight of the US government-directed gold cartel. – James Turk

Thursday was just another day in Fantasy Land in the equity markets. The bankruptcy sign went up in the USA the day that Nixon closed the gold window back in 1971. Now the whole world lives on a fiat currency system…and that won’t survive in its current form when the US$ finally loses its ‘reserve currency’ status. Got gold…and silver?

All of us at Casey’s Daily Resource Plus look forward to seeing you on Saturday. Have a great weekend.

Source: And Then There’s This Friday August 1, 2008

Martin Hutchinson in Money Morning blames Fed inspired inflation and speculators:

The reason for this intense advance in commodity prices is that the Fed and its European counterpart have been pumping money into their respective economies to prevent the collapse of several major banks. The St. Louis Fed’s “Money of Zero Maturity” (the best broad money-supply measure left over since the central bank stopped reporting M3 money-supply statistics in March 2006), is up at an annual rate of 17.6% during the last six months. In Europe, Euro M3 is up at an annual rate of 10.8% during the same period – still double the growth seen in nominal gross domestic product (GDP).

In the key emerging markets, the money supply has been rising even faster – 19% in China over the past year, and 21% in India. Not surprisingly, those countries’ inflation rates are taking off, with India into double digits and China quickly getting there.

He goes on to say:

It’s fairly clear to me that concerted speculation by hedge funds and pension funds is what’s been pushing up oil prices. But that may be playing out – and reaching its limit – as the huge price increases we’ve seen in “black gold” over the past year is finally dampening consumer spending both here in the United States and in other key markets worldwide…

Dave Gonigam in Daily Reckoning sees oil supply as the problem:

…Oh, and those darn speculators. OPEC loves to blame them, and has blamed them, going at least as far back as $92 oil eight months ago.

BP (NYSE: BP) chief Tony Hayward is having none of that, calling the notion of speculators driving up the oil price a “myth.” More relevant, he told the World Petroleum Congress, is that “supply is not responding adequately to rising demand.” But then Hayward goes off the rails when, according to Reuters:

He added that politics rather than geology was the reason. “The problems are above ground not below it,” he said.

Now it’s true enough, as Hayward complains, that OPEC nations don’t like having Western oil majors like BP working OPEC oil fields the way they did in decades gone by. But the fact oil-rich nations are giving BP less access than they used to doesn’t change the fact that the world’s biggest oil fields are in decline, and new ones aren’t coming online nearly fast enough to pick up the slack. I can understand why OPEC doesn’t want to fess up to that reality, but why is Tony Hayward so reluctant?

Surely, these three factors of inflation, speculators, and lagging supply are the primary causes of rapidly rising prices. But, will any of these factors fall off or fade in the near future? Speculation is most likely to wain according to Hutchinson. Demand may well slump with consumer spending, but inflation will likely worsen… Bill Bonner says:

Talk is cheap. It’s action that is dear. And the action the Fed needs to take – raising rates – will be so potentially costly for the lame U.S. economy that Bernanke and Co. are afraid to do it. They’re hoping inflation will go away so they can continue the battle against the slump, without having to worry about their unprotected flanks. Most likely, they will make a gesture towards raising rates – perhaps a quarter of a point. But then, when the mob starts howling for his head, Ben Bernanke will drop them again.

It’s evident that the Fed does not have the will or the tools to ward-off looming inflation. With inflation eating your dollars and commodities most likely set to rise higher, there are still many opportunities to profit…

Implications

Martin Hutchinson says:

Investing in the late stages of a bubble is highly speculative. Nevertheless, I reiterate my prediction of a few months ago that gold will reach $1,500 an ounce. Even if the Fed begins to act against inflation in August, it is very unlikely that its initial actions will be effective. Don’t forget that in the last great inflationary bubble of 1980, gold hit a level that’s the equivalent of $2,300 an ounce in today’s money.

I would consider SPDR Gold Trust (formerly StreetTracks Gold Trust) shares (GLD) about the most efficient way of getting a pure gold play. As an alternative, you might consider a silver investment: The metal is currently trading at less than 15% of its 1980 high, the equivalent of $130 per ounce. If that’s a move you like, the iShares Silver Trust ETF (SLV) seems the best way to play silver directly.

Also see other commodity ETFs such as:

S&P GSCI(TM) Commodity Indexed Trust (GSG)

PowerShares DB Agriculture (DBA)

Market Vectors Global Agribusiness (MOO)

Mike is worried by rising inflation rates in the so-called ‘BRIC’ emerging markets: Brazil, Russia, India and China.

India is particularly hard hit. This week the central bank there signaled it would keep raising borrowing costs to mixed reviews.

Indian inflation was driven by the first increase in retail prices of gasoline and diesel this year. The International Herald Tribune reports that,”India joined China, Indonesia, Malaysia and Sri Lanka as a near doubling of oil prices pushed up costs and eroded profits of refiners.”

It’s also worth keeping in mind that BRIC nations have still relatively small economies compared to the US, Europe and Japan.

“If you look at them in real (and not in overly flattering purchasing parity power) terms,” says The Global Guru editor Nicholas Vardy,” the BRIC countries are best compared with large U.S. states in terms of economic heft. China and its population of 1.3 billion generate as much economic wealth as do the 60 million inhabitants of California and Texas. India’s economy is the size of Florida. Brazil’s is the size of New York. And Russia is smaller than Ohio and Illinois combined.”

BRICs Crumble Under Threat of Inflation

By Mike Burnick

The most popular group of fast-growing emerging market countries which includes: Brazil, Russia, India, and China are facing their biggest economic challenge this decade. Like everywhere else on the planet, inflation is picking up in the BRIC economies but it’s much worse over there and central bankers are responding by raising rates and tightening monetary policy.

While these rate hikes may be necessary to fight inflation, tight money policies are usually a very unfriendly environment for stock investors.

India is the latest BRIC under fire. Wholesale price inflation is running at 11%. That’s the highest level in 13 years and climbing. So the Reserve Bank of India responded last week by raising its benchmark lending rate to 8%. Global investors are signaling a vote of “no confidence” in the central bank move, because they sent Indian stocks plunging.

India’s currency, the rupee, is also under attack, having lost 8% of its value against the dollar this year, the worst performance for the rupee since 1993.

India is in the riskiest position among the BRICs when commodities are soaring like this. That’s because India is a net importer of most resources, including 75% of its oil.

It’s possible India’s troubles are perhaps just an early-warning sign of other troubles to come for the BRICs. Inflation in China is running close to 8% in spite of several interest rate increases last year. Inflation just topped 15% in Russia. Brazil, which suffered a painful hyper-inflationary past, recently raised interest rates after inflation crept up to 5.4%.

Seeing this threat on the horizon, stock investors have been busy pulling money out of some BRIC markets. China’s CSI 300 Index is down over 50% from its 2007 high, while India’s Sensex Index has plunged by one-third in value. Share prices in the first two markets of the BRIC alphabet, Brazil and Russia, have so far held up relatively well. This is due in no small part to their favorable trade terms and the fact that both are resource-rich exporters.

All of the BRICs are threatened by the risk of inflation. As an Indian government official put it, “Until inflation slows, this crisis is only going to widen.”

MIKE BURNICK, Senior Editor

P.S. Speaking of inflation, the big Fed rate decision comes this afternoon. We’ll find out whether Bernanke will really “get tough on inflation” as he has claimed in the last few weeks. Keep an eye on the news because there will be some very real profit opportunities once the decision hits the headlines.

Source: BRICs Crumble Under Threat of Inflation

Good day… And a Tub Thumpin’ Thursday to you! I get knocked down, but I get up again… Yes, Tub Thumpin’, come on sing along! We finally saw a full day of sunshine yesterday, but sitting at my little buddy Alex’s baseball game late last night I had a jacket on to combat the falling temperatures… I thought last week we had finally turned the corner with this weather, but to my chagrin that was not to be… Oh well, we had sunshine yesterday!

OK… Currencies… Let’s see… Yesterday, the currencies tried to stage a rally VS the dollar only to be knocked down again, this time by Fed Head Fisher, who was speaking about inflation and debt… Fisher, decided to throw a cat among the pigeons by indicating that the Fed was ready to fight inflation, and raise rates… Of course, the markets didn’t stop to ask Fisher if that was just him talking or if he had surveyed the other Fed Heads… Recall that Fisher was one of two dissenting votes at the last rate cut… He has always been somewhat of a Hawk, so his comments shouldn’t have done anything for the markets… Unfortunately, it has led them to buy dollars…

Today, we get more Fed Speak, with Geithner, Kohn, and Big Ben all speaking on something… Trust me on this, there’s not one of these guys that will be talking the truth, the whole truth, and nothing but the truth… It’s not good for the markets to have them talking about the “real stuff” going on! So… Look for more dollar strength today… Not a trend reversal, just more dollar strength.

Well, did I hit that media reaction to Durable Goods bang on or what? The number was negative, which is bad… However, it wasn’t as bad as forecast… How did the media report it? “Durable Goods Surprisingly Strong”… What? By reading that headline you would think that Durable Goods were on the positive side, right? Yeah, don’t bother telling people that they were NEGATIVE!

Today, we’ll see the latest update to the 1st QTR GDP here in the U.S. Recall that the 1st reading had it pegged at just .06%, which when you don’t play games with the numbers like the Gov’t bean counters do, was really negative growth. The revision that will print today is expected to show an upward move to .09%. To do so, the report will have to show a move toward more sales activity and less inventory build up… Something’s wrong here… Hasn’t Retail Sales been weak? Hasn’t the Big Box stores reported slower sales?

I would guess to get to .09%, the Gov’t will have to use some smoke and a few mirrors…

Bill Bonner of the Daily Reckoning (www.dailyreckoning.com) had some thoughts yesterday regarding the Consumer’s problems… Let’s listen in…

“Naturally, the auto industry has to downshift. Not only because gasoline is so expensive, but also because the average household is struggling to pay its other bills too. After it pays the interest on its debt, it has less left over than ever before. And then, it has to pay for food, gasoline…and other things, many of them imported. Of course, food and energy are rising sharply, but until recently Americans could count on low-cost Asian producers to cut prices on our imports. Now, import prices are rising at 14.8% – the highest rates since the early ’80s.”

I received a few emails from readers regarding my thought that Credit Card Debt would be the next big shoe to drop on the U.S. economy… They wanted me to talk about how I see this playing out… Well, if you don’t like movies like the Texas Chainsaw Massacre, then you had better not read this, and just go on to the Big Finish, as this won’t be pretty…

OK, Credit Card Debt… Well… The problem with Credit Card Debt is that most people buy things with it, and at the end of the month, they look at the statement and say, “I didn’t buy that, did I?” Yes, you did… And when that card gets maxed out, all you have to do is sift through your incoming mail, to find an offer from another bank card that offers you some wild-eyed offer to get you to use the card… The next thing you know, you have accumulated quite a few of these, with no ability to pay them back. Now you’ve got a mountain of debt, and no ability to pay it off… Your house equity has gone underwater, and the last time wages grew greater than money spent, we were wearing bell bottoms…

Now, the people that loaned you that money expect to have to write off some amount of debt… But this will get out of hand… And pretty soon, these banks will be taking losses… They won’t like that much, so guess who they go after? The credit card holder… I see tons of law suits, losses, lay offs, and other “L” words, and this will prolong the U.S. recession…

ALL CLEAR NOW! Yes, it’s safe to get back into the water now… The horror flick is over… That reminds me of my first date with my beautiful bride many, and I mean many years ago… We went to the movies and saw a horror film, The last House on the Left (another “L” word!), I looked over to her, and she was watching the movie through her coat sleeve, she was that scared… We never went to another horror film again…

The Aussie dollar continue to be resilient with this U.S. dollar strength going on… Unfortunately, some of that strength is coming from Carry Trades though…

A couple of weeks ago I talked about The Slovakian koruna being approved for a conversion to the euro… Yesterday, the Slovakian Gov’t asked the European Union (EU) for a revaluation of the koruna ahead of its entry into the EU… That request was granted. The Slovakian koruna (SKK) was revalued 17.65% higher, with an allowed upward movement of 15%… Too bad this was such a small currency with no liquidity to trade before all of this happened… The good news is that the Eurozone continues to grow… Back in 2001 I said that the Eurozone would eventually grow to 25 countries… Slovakia makes 16…

While we’re talking about the Eurozone… The Eurozone received a shock this morning as Germany’s Unemployment unexpectedly rose for the first time in 28 months. Unemployment rose 4,000 in April… Hmmm… It’s been a long time, since Germany saw this… But hey! If the U.S. media were on this story, they would tell you that “Employment is surprisingly strong” given the fact that the economists forecast a drop of 25K!