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 Marvelous Monday to you! Man… Talk about hitting the wall! I got home on Friday afternoon, sat down in my recliner, and fell asleep for hours! The last few days on my four weeks of cancer meds, this last week has been awful for me… But… I carried on, and I doubt anyone at the Money Show noticed me being uncomfortable and in pain.

The Las Vegas Money Show was quite good I believe, one of the better ones with regards to people having interest in what we do. It’s still nice to receive the “good to see you” and well wishes from readers that stop by the booth.

OK… Well… Friday saw some chinks in the dollar’s armor, and the euro (EUR) was marked up as the day went on. The U. of Michigan consumer sentiment index dropped to 59.5 in early May, its lowest level since 1980, from 62.6 in April. The decline was below the experts’ expectations calling for a dip to 62.0.

There was also news that U.S. housing starts posted an unexpected increase… But, really folks, is that a good thing? Empty homes a.k.a “inventory” is the major problem in this housing glut, so should we really get excited about “more homes” being built? I don’t think so… And apparently neither did the currency players, as this news was largely ignored.

In the overnight market, the Asians have really taken the dollar to the woodshed, pushing the euro to 1.56. Wasn’t it just last Monday that the euro dropped to 1.5365? This overnight move is being pushed by the thought that home sales, the more important part of the housing data, will show another decline, thus dropping for the second consecutive month.

Then there was a subtle little statement by the U.S. Treasury Undersecretary that I believe helped usher the dollar on its way to the woodshed. U.S. Treasury Undersecretary, David McCormick urged China to quicken their currency reforms. Now, I know, you’re saying what’s new about that, Chuck? Ahhh grasshopper… The dollar had rallied lately and the calls for Chinese currency reforms were nowhere to be seen. This statement reminded the markets that in the end… The U.S. Government wants a weak dollar… And if that’s what they want, currency traders and participants are happy to oblige them!

I don’t know at this point if this is a true reversal of the dollar rally or a false dawn… But either way… Just to see some chinks in the dollar right about this time is probably a good thing to currency holders!

The key focus for the United States this week will likely be the release of April’s FOMC minutes on Wednesday, which should provide some indication as to who is winning at Battleship. No wait, we’re looking for indication on who is winning the battle for rate hikes or rate cuts. The rate hike hawks have dominated of late on speculation that the Fed has ended its easing cycle, and the next U.S. rate move will be a hike later this year.

Of course you know me… I’m still keeping the light on for another rate cut by the Fed this year, which should really throw a spanner in the rate hawks’ works.

And getting back to last month’s -20K job loss posting… I’ve already highlighted the BLS ghost jobs that totaled 260K… But now this… The sum of state payrolls just came out for April showing -151K jobs, versus the actual preliminary release earlier this month of -20K. This hints at a potentially large downward revision to April payrolls when the May data is released.

I’m currently reading a new book called, Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve written by William Fleckenstein. You know that name as the guy who writes financial columns on MSNBC. I met Bill Fleckenstein a few years ago… He told me I was bang on with my banging on the Fed. Well, his new book is awesome at pointing to the mistakes that Big Al Greenspan and the Fed Heads made over and over again… More on this in the future…

Today, we’ll see the color of the latest printing of leading indicators here in the United States. I suspect they will show no gains, thus leaving the people like me that believe the recession is already in place, with reinforced thoughts.

We won’t see the above-mentioned existing home sales report until Friday… So, we’ll probably drift around all week… But at least we’re drifting in the right direction!

I was writing our monthly newsletter to clients, The Review & Focus, last night (yes, on a Sunday night!) and highlighted the Aussie dollar (AUD)… Through all the dollar strength the past couple of weeks, there were a couple of currencies that remained resilient… Aussie dollars, Brazilian reals (BRL), and Canadian loonies (CAD)… That’s no coincidence either! As I kept telling people last week… Look at positive balance of payments currencies and currencies from countries that provide the world with something they need! Voila! Aussie, Brazil and Canada!

The Aussie dollar has pushed the door of 95-cents wide-open overnight, and Canadian loonies have passed the parity level to the green/peachback. Aussie is looking quite perky, which is good for my thought that Aussie too would reach parity to the green/peachback.

Aussie dollars have a central bank that will either keep rates unchanged or move them higher, while the loonie has to fight with a central bank that wants to keep in step with the Fed’s rate cuts… So… Look for Aussie to outperform loonies, kiwi (NZD), and reals going forward based on this rate outlook.

Now that was some great news that Chris brought to you regarding Iceland on Friday, eh? The poor krona (ISK) was in need of some good news, and when the Nordic Banks pledged to provide liquidity to the Icelandic Central Bank, it was just what the doctor ordered! But… Please do not take this as an endorsement to buy Iceland again. Instead, I believe that this news gives us better levels to sell when our CDs come due.

Someone asked me at the Money Show last week, what I would buy with the Icelandic krona proceeds… Well… I would either cross to Norway (NOK) or Aussie… There are two great economic stories right there, with little chance of going the way of Iceland.

And how about bold? The shiny metal enjoyed its best week in about two months it seems, and has come back to the $900 level and beyond. I have to admit that the $900 handle looks much better hanging on gold than the lower number it wore for too long!

Good day… And good morning from beautiful downtown Panama. Chuck had to get on a plane back to St. Louis early this morning, so he asked me to pfill in this morning. The dollar mostly traded within a range versus most of the major currencies yesterday as negative news from the United States was offset by predictions of a possible FOMC rate rise. The biggest movers yesterday were the commodity currencies and the ISK, which was helped by the Nordic central banks. More on that later, but lets start with the data due out in the United States.

The Reuters/University of Michigan consumer sentiment index will likely show a drop to a 26-year low when it comes out later this morning. The other major report released today will probably show that housing starts in the United States fell to a 17-year low in April. Home construction and property values “seem likely to decline well into 2009,” Federal Reserve Bank of San Francisco President Janet Yellen said earlier this week. And a jump in foreclosures, as values fall and adjustable rate mortgage costs rise, is adding to concern. Foreclosure filings climbed 65% and bank seizures more than doubled in April compared with a year earlier, according to figures issued this week.

The U.S. economy is in a recession, and the over-leveraged U.S. consumer won’t be able to ride to the rescue as they have in the past. And I don’t expect the stimulus checks to help much either, as they are way too little too late. The fundamentals of the U.S. economy don’t look good and this dollar rally will not last past the end of the second quarter. But short term, we could see additional dollar strength as investors focus on future FOMC moves.

Both the Federal Reserve and the Bank of England have had to admit that inflation is rising faster than they expected, leading currency traders to predict an end to their interest rate cuts. Higher inflation numbers have caused future traders to increase their bets that the Fed will reverse recent cuts later this year. This change in sentiment has helped push the dollar higher, but the move will likely be short-lived as the markets will realize that the FOMC is just too far behind in their fight with inflation. As prices continue to move higher, the U.S. economic growth will slow even further and the dollar will resume its steady decline.

Nordic central banks rode to the rescue of the Icelandic krona (ISK) this morning as they announced they have agreed to provide as much as 1.5 billion euros in emergency funds to Iceland’s central bank. We’ve written at length about how the credit crisis has spilled into the Icelandic banks, and recently the liquidity in the ISK has all but dried up as currency dealers questioned the financial stability of the Icelandic central bank. Traders have been concerned that the Atlantic island’s commercial banks may seek help from Sedlabanki (Iceland’s central bank) which doesn’t have the funds to bail them out. While the size of the swap agreement wasn’t large enough to move the krona, the announced cooperation seems to have restored at least some of the lost confidence. With the support of the central banks of Norway, Denmark, and Sweden, the Icelandic krona rallied more than 4.4%, the biggest gain on record.

In other news from the Nordic region, the Danish central bank raised its benchmark interest rate by 0.1% to 4.35% today.

Japan’s economy grew faster than economists estimated as exports to the rest of Asia helped offset the U.S. slowdown. Gross domestic product in the first quarter of 2008 grew 3.3% in Japan, well above estimates. Net exports accounted for most of Japan’s growth as demand from Europe and Asia continues to be strong. The figures coincide with reports released yesterday that showed the German economy expanded at the fastest pace in 12 years. Both of these reports confirm our thought that the global economy will not be dragged down by the slowdown in the United States.

But the currency markets ignored the positive surprise in Japan and the yen (JPY) continued to sell off. As Chuck pointed out earlier in the week, the carry trade is back as market volatility has eased. Japan’s currency slid the most against the Aussie dollar (AUD) and New Zealand dollar (NZD), both of which benefit from the return of the carry trades. With the markets generally range bound, volatility has decreased encouraging investors to borrow funds in the nations with low rates and invest where returns are higher. This week’s sell off of yen reflects a return to risk-taking activity and a revival of carry trades. Ultimately the currencies will return to trading on economic fundamentals, but for now the carry trade is continuing to dominate.

Currencies today 5/16/08: A$ .9449, kiwi .7675, C$ .9992, euro 1.5457, sterling 1.9479, Swiss .9465, ISK 74.43, rand 7.4835, krone 5.0855, SEK 6.0402, forint 160.20, zloty 2.1922, koruna 16.16, yen 104.77, baht 32.285, sing 1.3715, HKD 7.80, INR 42.65, China 6.9950, pesos 10.436, BRL 1.653, dollar index 73.28, Oil $125.58, Silver $16.81, and Gold… $886.90

That’s it for today… Had a great dinner with the folks from the Sovereign Society last night. I know it sounds like I came down here to Panama kicking and screaming, but this conference has far outweighed my expectations. The investors are knowledgeable and excited by the opportunity to diversify out of the U.S. dollar. Hopefully I will be able to convert a few of them over to the EverBank family. Got to get back downstairs now, as I don’t want to miss an early presentation by one of last night’s dinner hosts. Hope everyone has a Fantastico Friday and a great weekend!!

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.

Source: U.S. Housing Continues to Slump

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Good day… And a Tub Thumpin’ Thursday to you! No earth shattering moves in the currencies overnight like yesterday morning, so we’ve got that going for us! Hey! I heard from my friend The Mogambo Guru yesterday… He tells me that he’s doing fine, and that it was his third heart attack, and that he’s the proud owner of five cardiac stents now.

The Mogambo brings many smiles to yours truly, and the people on our trading desk, so that’s good news… Not that he’s had three heart attacks, but that he’s doing fine!

OK… Currency traders and participants tried to take profits yesterday, and some did, but the currencies, for the most part, remained range bound on the day, after the big move the previous night. Once again, stocks have rebounded the past couple of days, and that has put carry trades back on the table. And, we all know what that means, right? Yes, that means the low yielding currencies get sold (read Japanese yen (JPY), and Swiss francs (CHF)) and the high yielding currencies get bought (read Aussie (AUD), kiwi (NZD), and even Iceland (ISK)). This carry trade has had more comebacks than a retired heavyweight boxer!

Yesterday, we saw U.S housing starts continue to collapse when the March reports printed. Both housing starts and building permits showed a 59% fall from the high two years ago. Let me put this in perspective… In previous crashes, the decline from peak to trough has been 40-60%, so we are on the verge of breaking all records for a down-move. Nice to know that the men put in place to protect the economy, thought this meltdown had “bottomed” last August, eh?

After the report, Reuters reported that Fed Head Mishkin, was overheard saying, “THERE IS ROOM TO LOWER FEDERAL FUNDS RATE IF NEEDED”… This is what I’ve been talking about folks… The U.S. rates are going lower, and you can take that to the bank! OK, well… Maybe the legal beagles won’t like me saying that, so, let’s just say, I think that you should think that U.S. rates are going lower.

And rates in the Eurozone, Norway, Sweden, Australia, and New Zealand are remaining unchanged… And in some cases may see additional hikes.

Well, the high price of oil, has finally pushed across to consumer inflation… (Of course you and I know it already did, but the stupid CPI report is just now showing it, but not much of it!) CPI pushed higher in March to 4%, which is exactly where the “experts” forecast it to come in. You’ve got to love it when a plan comes together, eh? Of course over at the Shadow Stats, John Williams, has calculated consumer inflation using the 1980 methodology, and shows inflation much higher. Can you say, 12%? I knew you could!

You know me; I’m such a nut over inflation that this kind of information just gets me so riled up and yelling at the walls! Why will no one that’s running for President talk about this? Because… That would not make you “feel good”, and you sure wouldn’t vote for someone that didn’t make you feel good, right? Well, that’s what they think! Oh… And price of oil went up again yesterday, to $115! OUCH!

So… Remember when the euro (EUR) banged around 1.48, it seemed forever before finally moving past 1.50? I think it’s doing the same thing now, hanging around 1.58-59. 1.60 is a HUGE psychological level, so when it hits it, it could bounce back and forth as black box trades are executed… But think about that for a minute… 1.60 for the euro is practically double what it was in 1999/2000… Unbelievable! But… Look for some verbal intervention from the European Central Bank (ECB) at 1.60… Nothing serious, just some jawboning.

With every passing day, G-7 gets smaller in the rear view mirror, and their change of wording in the communiqué… Almost as though, it didn’t happen… But once again, I have the feeling that the markets just didn’t get what G-7 was saying… But talking the talk, without walking the walk isn’t going to get it done. In other words, they can talk about a stronger dollar, but unless they are willing to put some of their hard earned cash at work, intervening, I don’t think currency participants are going to pay attention.

The Canadian dollar/loonie (CAD) pushed past parity for the first time in a month yesterday. It’s back below this morning, but this move yesterday illustrates what I’ve been talking about for a month or so… The loonie has the commodities providing a floor, which will underpin the currency, while the Bank of Canada (BOC) cuts rates, keeping the loonie from going much higher. So… A trading range around parity is what I see for loonies for the time being.

I see by my trusty screen that shows me year-to-date returns on the currencies that the Swiss franc is still the best performing currency this year, followed by Swedish krona (SEK), Norwegian krone (NOK), euro, Danish krone, Japanese yen, Aussie, and kiwi… (G-10 currencies) I was asked last week to list my top six favorite currencies… So off the top of my head I said… Swiss francs, Japanese yen, Norwegian krone, Swedish krona, euro, Aussie… That’s pretty amazing that my top six is eerily similar to the official top nine.

I think if we could go back into the past, you would see that my top six hasn’t changed this year. A positive balance of payments goes a long way toward making a currency strong, and if you look, all of these have a positive balance of payments except Aussie.

The price of gold (and silver) surged yesterday after the housing starts report. Gold has been waiting for more “bad” news in the United States to move higher. I’m not suggesting here that gold will only move higher on “bad” news… But “bad” news does help put the focus back on gold, which is trading well below the $1,000 oz. figure it achieved last month. With inflation surging… One would think that would be enough for gold to move higher. We’ll have to see, eh?

Well… The euro has seen some selling since I came in this morning and started to write. Overnight it hit a high of 1.5985… But right now, before I head to the Big Finish, it’s barely holding the 1.59 handle. I don’t see any news on the euro that would explain this selling, so… We’ll have to keep an eye on this today.

Currencies today 4/17/08: A$ .9365, kiwi .7885, C$ .9975, euro 1.5910, sterling 1.9790, Swiss .9955, ISK 73.75, rand 7.8630, krone 4.9660, SEK 5.90, forint 158.90, zloty 2.1470, koruna 15.67, yen 102.25, baht 31.45, sing 1.35, HKD 7.7920, INR 39.91, China 6.9830, pesos 10.46, BRL 1.6640, dollar index 71.59, Oil $115.08, Silver $18.53, and Gold… $947.05

That’s it for today… The Big Boss, Frank Trotter was just on Fox News, Business for Breakfast. He was talking about Bank Earnings… I received a call from a guy associated with the Glenn Beck show yesterday. Apparently, Glenn Beck recently read Craig Karmin’s excellent book, Biography of the Dollar which features me in Chapter 6 – and after reading the book, Glenn told his producer to get in touch with me! WOW! First it was the NY Times Magazine, and now Glenn Beck, that found me in the book. Thanks again Craig! The producer said he wasn’t sure if I would be on the CNN TV show or Glenn’s radio show. I was quick to inform the producer that I have a “face for radio!” OK… Yours truly is sneaking out today to head down to the ballpark for an afternoon game Cards/Brewers. I love day baseball… To me, it’s when the game should be played! So… I’ve got to get going here… I hope your Thursday is Tub Thumpin’!

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.

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…