Against the yen, the dollar rose more than a full percent, after speculative flows pushed it higher in quiet trade in Asia, where markets in Japan, Singapore and other centres were closed for holidays.

In the absence of economic events or data, traders took profits on currencies which have rallied against the dollar, including the euro, up more than 2 percent so far this month.

Analysts said some investors were becoming concerned that short dollar positions were overstretched, suggesting that a near-term correction may be in store.

“There’s already a lot of long euro/dollar positions in the market so it’s difficult to push the pair higher,” said Lutz Karpowitz, currency strategist at Commerzbank in Frankfurt.

Data from the Commodity Futures Trading Commission showed that currency speculators last week raised short dollar positions — essentially bets that the U.S. currency will depreciate — to their highest since March 2008.

By 1102 GMT, the dollar was up 1.08 percent at 92.27 yen, near the a peak around 92.35 yen touched intraday in European trade, its highest since Sept. 9, according to Reuters charts.

Traders said Japanese exporters had placed sell orders above 92.50 yen, which may cap any dollar/yen rally until Tokyo markets reopen on Thursday.

The euro had slipped 0.4 percent to $1.4650, easing from $1.4768 hit late last week, which was its strongest since September 2008.

Against a currency basket <.DXY>, the dollar rose 0.5 percent to 76.824, off a one-year low of 76.01 hit last week.

The pound hit a five-month low against the euro after the Bank of England said the pound’s long-run sustainable exchange rate may have fallen due to an increased focus on Britain’s economic imbalances.

The euro rose more than 0.2 percent on the day to 90.79 pence, its highest since late April.

Against the dollar , it was down 0.5 percent at $1.6190, near $1.6134 hit earlier in the day for its weakest level in nearly three weeks.

The dollar also got a leg up from waning risk appetite which saw the pan-European FTSEurofirst 300 index <.FTEU3> fall below the 1,000 mark and retreat further from an 11-month ahead on worries the market may have run ahead of economic fundamentals.

U.S. stock futures indexes were down 0.5 percent.

FED AWAITED

Investors awaited a policy decision from the Federal Reserve on Wednesday, and some analysts said optimism about the U.S. economy’s recovery prospects may boost the dollar further.

Federal Reserve Chairman Ben Bernanke last week said the recession was “very likely” over, although he noted that any recovery would be slow.

Stronger-than-expected U.S. economic data in recent months has spurred speculation the Fed may raise interest rates from zero in the near future, but many analysts believe more time is required before such a move.

Some said dollar selling may pick up if the Fed reinforces the view that rates will stay pat for the coming months.

“A clear message that policy is on hold is likely (on Wednesday), which will certainly temper dollar buying on the back of any changes to the quantitative easing timetable,” analysts at BTM UFJ said in a research note.

Markets also awaited a summit of G20 leaders in Pittsburgh later this week, which analysts said was seen as holding potential risks to the FX market even though currencies were not expected to be formally discussed.

The meeting comes as U.S. President Barak Obama has said he will push the leaders for a reshaping of the global economy, while trade tensions between Washington and Beijing heat up and European leaders keep up pressure to curb salaries and bonuses paid to bankers.

Sept 21 (Reuters)

The dollar slipped against a basket of currencies, touching a nearly one-year low earlier, as the sell-off continued, on track for its worst weekly performance in more than three months. The greenback also fell to a fresh 2009 low versus the euro, but it recouped most of its losses.

The prospects for economic recovery and low U.S. borrowing rates continued to encourage investors to move cash out of the dollar into riskier assets in other currencies.

“Today we’re getting a little bit more action versus the yen and weaker U.S. stocks are helping,” said Patrick Brodie, chief FX dealer at Sumitomo Mitsui Banking Corp in New York.

The yen typically benefits when there is heightened risk aversion in the market.

“In the dollar’s case, selling has been fairly persistent all week and today is no exception. The euro and the Australian dollar should continue to make new highs next week.”

In early afternoon trading in New York, the dollar was down 1.4 percent on the day against the yen at 90.48 yen , having hit a seven-month low of 90.22, according to Reuters data.

Traders say there are option barriers at the 90 yen area, limiting the dollar’s downside.

The dollar was down 2.7 percent this week versus the yen.

The euro was also 1.4 percent lower versus the Japanese currency, trading at 131.88 yen .

The InterContinental Exchange’s dollar index <.DXY>, a gauge of the greenback’s performance against six other major currencies, was down 0.2 percent at 76.655 after falling to 76.457, its lowest in nearly a year.

The euro was little changed at $1.4597 , 2 percent higher on the week. The euro zone single currency hit a 2009 high of $1.4627 earlier, according to Reuters data.

The euro briefly erased gains earlier when a U.S. Coast Guard training exercise on the Potomac river set off a security scare as the United States marked the eighth anniversary of the Sept. 11 attacks.

Investors sold the dollar this week as signs emerged of a global recovery from one of the worst downturns this century. That encouraged investors to leave the perceived safety of the greenback and favor riskier assets such as stocks, emerging markets and commodity-linked currencies.

A report showing improving U.S. consumer sentiment on Friday further added to recent evidence that an economic recovery was picking up speed.

The Reuters/University of Michigan Surveys of Consumers preliminary reading of consumer confidence index for September came in at 70.2, the highest since June.

“Dollar selling momentum has picked up and it is likely to continue for a while,” said Win Thin, a currency strategist at Brown Brothers Harriman in New York.

Solid data out of China added to the view the global economy is on the road to recovery.  Questions about the dollar’s long-term value added to the negative sentiment towards the U.S. currency.

Sterling, meanwhile, rose 0.2 percent to $1.6682, within sight of a one-month high of $1.6742 , while the New Zealand dollar gained 0.5 percent to US$0.7066 .

NEW YORK, Sept 11 (Reuters)

Good day… And welcome to another week, the last one in August! The weather here in St. Louis has shifted toward fall, which is my favorite season. Chuck is flying back home from San Francisco today and will be back in the saddle tomorrow. Both he and the big boss, Frank Trotter, sent me some great Pfennig pfodder over the weekend so lets get right to it.

The dollar continued to drift lower throughout the trading day on Friday, with the commodity currencies of Australia, South Africa, and New Zealand leading the way. Confidence is returning to the markets, and investors are once again moving out of the ’safe havens’ of the Japanese yen and US dollar. The reports coming out of Jackson Hole indicate that central bankers believe chances for near-term growth appear good and recent data seem to support this conclusion.

European industrial orders increased more than economists forecast in June rising 3.1% from May. This was the largest gain in over a year and a half, and is the latest sign that the European economy is starting to climb back out of recession. But many economists question the strength of the recovery, saying the pick up in economic growth was mainly due to government programs. ECB President Jean-Claude Trichet sounded cautious after the report. “We see some signs confirming that the real economy is starting to get out of the period of freefall,” Trichet said in Jackson Hole. But this “does not mean at all that we do not have a very bumpy road ahead of us.”

The home sales data released in the US on Friday were surprisingly strong, with existing home sales increasing 7.2% month on month. We get a bit of a break in the data releases today with just the Chicago Fed index; but the rest of the week will give us plenty of data to digest. Tomorrow we see the S&P/CaseShiller housing data, US consumer confidence, and ABC consumer confidence numbers. Wednesday will bring Durable Goods orders along with New Home sales. Thursday will give us another look at the estimate for 2nd Quarter GDP here in the US along with the weekly jobless claims. And we will close out the week on Friday with the release of Personal income and spending for July.

Should be a busy week ahead, and I would expect for most of the data out of the US to continue to confirm a government led recovery is underway here in the US. In particular, the consumer spending and durable goods orders should show a nice uptick on the back of the cash for clunker program. But Chuck sent me a note over the weekend which questions the ’success’ of this program. Is it really what the US economy needed? Here are Chuck’s thoughts from San Francisco:

“I was sitting here thinking about something that had flashed across the TV screen here in my room, and that is the “Cash for Clunkers” program… I blasted this program two weeks ago, and now that it’s finally done with and $3 Billion was spent to artificially boost auto sales, I will put my final thought on this… Of course I already talked about the obvious things wrong with this program. But here’s my final thought, and that is… I believe the program is going to end up hurting the most vulnerable consumers in the U.S. Middle Class buyers, traded in their “paid for” cars, and leveraged up to buy a new car, when they probably shouldn’t have done so, given the rot on the economy’s vine.

So… Once again, I’m reminded of the words that President Reagan said were the scariest words that could be spoken… “I’m from the government, and I’m here to help”…

The reason I’m all over this program today like a cheap suit, is that this weekend, I heard that Big Ben Bernanke made a claim at the Jackson Hole boondoggle, that “we saved the world”… Oh, Come on Big Ben, isn’t that just a bit dramatic? Does this statement have anything to do with the fact that you are up for re-appointment in January, and you would love to have that thought of you “saving the world” on the minds of the administration?

So… In the end, we’ll see if “he saved the world”…”

I’m with Chuck on this one. It seems the US government is intent on getting consumers to go back to their borrow and spend habits. This is what created the bubbles, and the administration seems intent on creating another bubble economy. US consumers have made some historic cut backs on the amount of debt they are amassing (whether or not these cutbacks are by choice). The US government should not be encouraging these consumers to go back to their previous ways, but should instead be trying to use the funds to educate and train consumers and to encourage new and innovative companies. Use this downturn to correct some of the bad habits which we had gotten into. Yes, it will be painful, but breaking an addiction is always hard and painful. US consumers need to break our addiction to easy credit and massive debt. This recession/depression has given consumers a much needed wake up call, hopefully the administration won’t be able to push consumers back into their old habits.

I went running with my wife and her friends over the weekend (trying to take it easy on the back) and got into a discussion about the US economy. One of my wife’s friends had heard an interview on MSNBC in which an economist stated we were in a classic V shaped recovery. I let her know that I think the economist was one letter off, and that instead we will see the recovery shaped more like a W. The green shoots and recovery we are seeing right now will die out as government stimulus slows. High unemployment, a long slow housing recovery, commercial real estate woes, and rising personal bankruptcies will force the economy into another dramatic downturn. Central banks who have ‘juiced’ their economies with unlimited credit will have to decide whether to continue juicing, or pull back from the table.

Nouriel Roubini wrote a commentary in today’s Financial Times which agrees with my thoughts. Roubini said the chance of a double dip recession is increasing because of risks related to ending global monetary and fiscal stimulus. He believes the global economy still has further to fall, and will bottom out sometime during the second half of 2009. While some economies such as China, Germany, Australia, and France will likely recover; others such as the US and UK will double dip with another leg down. “There are risks associated with exit strategies from the massive monetary and fiscal easing,” Roubini wrote. “Policy makers are damned if they do and damned if they don’t.”

Oil traded up to a 10 month high over the weekend, and carried the commodity based currencies of Canada, Mexico, Norway, and Australia with it. Oil will continue to run up as confidence in a global recovery strengthens. Another factor which has helped boost demand for Australian dollar investments was a move by the Aussie govt. which removed interest withholding tax on federal government securities. This made these investments more attractive and spurred additional demand for the currency.

The Hungarian central bank will meet today and is expected to cut their benchmark interest rate. Rates in Hungary are the highest in the European Union, and lower growth combined with low inflation will spur the cut. The Hungarian forint weakened from the strongest level in a week on the interest cut speculation.

The dollar’s role as the world’s reserve currency has been a continued topic among scholars and was undoubtedly discussed out in Jackson hole last week. China and Russia have both been adamant about discussing the possibility of moving toward a new reserve system to replace the greenback. Since no single currency is strong enough to replace the dollar in today’s global economy, most discussion has centered around the idea of creating a ‘reserve currency’ which is comprised of a basket of the world’s largest currencies. This idea is supported by Joseph Stiglitz, a Nobel Prize winning economist and Columbia University economics professor. “The dollar’s role as a good store of value is questionable and the currency has a high degree of risk,” Stiglitz said at a conference last Friday. “There is a need for a global reserve system. The currency reserve system is in the process of fraying,” Stiglitz said. “The dollar is not a good store of value.”

Frank Trotter was thinking about the same thing as he sat and watched a musical over the weekend. Frank is a real thinker, and I really enjoy it when I get a chance to have a good economic discussion with him. Luckily for all of you Pfennig readers, he decided to send me a note on his thoughts during the performance. So here they are:

“Went to the touring musical Mary Poppins Saturday night; it’s always great to see a play about a run on a bank. While the books were written in the 1930’s and beyond most of you will remember the Disney film set in 1910 – before the Great War when England ruled the waves and empire was returning untold dividends to the mother country. At that time of course there was no questioning the power, status and earning capacity of the British Empire. As George Banks replies to Admiral Boom in the movie, “Credit rates are moving up, up, up. And the British pound is the admiration of the world.”

Well that was then and this is now. Soon after, in 1914 England suspended the conversion of Bank of England notes to gold for the period surrounding World War I, and the on again off again slide into today’s fiat currency world began. Over the next 100 years England has leaned the lesson of empires that came before. That extending the resources of a country in non-producing capacity leads to the decline of the currency and a fall in the economic power of the country and the economic wellbeing of it’s population. In 1910 it took 4.25 pounds to buy an ounce of gold, and 0.2056 pounds to buy a US dollar. Today of course the price of gold has risen 13,447% for British buyers, while the price of a greenback is only up 195%. We are uncomfortably comfortable in feeling that the carabineers have given way for the good old USA in a parallel fashion.

We’ll freely admit that there has been a slow motion slide going on in the US dollar since establishment, and especially since the removal from the gold standard and the Bretton Woods Agreement in 1971. But we feel even more strongly that the fiscal and monetary policies put in place starting in 2001, accelerating through the 2000’s, and now amplified since January 20th have left us with no legs for our stool. Fiscal policy has been and continues to be out of control. The Federal Reserve policy of the 2000’s created the credit bubble and now stands to create the largest monetary inflation experienced in a first world nation. Both political parties have determined that no one can be an adult in government by slashing spending or raising taxes to cover our exploding gap (mathematically the only two options), and instead are hiding behind the invisible tax of currency depreciation. For a country we conclude that a strong currency is essential to long term well being, and by extension that our government has given up on the dream in exchange for election and reelection.

So what’s to be done? If you are a believer that the political process can sort things out and return our wonderful nation to fiscal prudence and steady governance go ahead and stay the course. For the rest of us who like Margaret Thatcher believe that “the problem with socialism is that eventually you run our of other people’s money”, we’ll be letting our “tuppance safely invested in the bank” seek diversification across the globe in countries and markets with more opportunity and prudence. We couldn’t agree more with the Mary Poppins conclusion, re-written for modern times that “Where stands the banks of [the USA], America stand. Oh, oh, oh, oh! When falls the banks of [the USA], America falls!”

Leave it to Frank to use Mary Poppins to give an economics lesson! And with that, I will close this out and head to the currency roundup.

Currencies today 8/24/09: A$ .8400, kiwi .6845, C$ .9251, euro 1.4308, sterling 1.6492, Swiss .9424, rand 7.7805, krone 6.045, SEK 7.0496, forint 187.60, zloty 2.8755, koruna 17.775, yen 94.86, sing 1.4396, HKD 7.7505, INR 48.5575, China 6.8314, pesos 12.7805, BRL 1.8299, dollar index 78.17, Oil $73.98, 10-year 3.56%, Silver $14.42, and Gold… $953.85

That’s it for today… Thanks to both Chuck and Frank for giving me so much good stuff to include in today’s Pfennig! Kristin Kuchem sent me a note and told me she got stranded in the Chicago airport on her way back from San Fran last night. It is her son Jack’s first day of Kindergarten so she was pretty bummed out that she couldn’t get home to send him off. Flying just isn’t much fun anymore, as the airlines overbook most flights and any kind of weather can royally screw up your best laid plans. Hopefully Kristin can make it back down from Chicago in time to pick Jack up from school. John Smoltz had an impressive first outing for the Cardinals yesterday, setting a club record with 7 strikeouts in a row! Sure looks like this is going to be a fun October here in St. Louis. Hope everyone has a Marvelous Monday and a great start to your week!

Source: European orders support the Euro

I got a call from a Reuters reporter yesterday mid morning to ask why the dollar was rallying at the same time stocks were moving higher. I quickly paged through my Bloomberg looking for some sign why both were heading higher. The trading pattern which has been established over the last few months has these two asset classes moving in opposite directions; good news for the US economy sends stocks higher and the dollar lower as investors retreat from defensive ’safe haven’ positions in the US$. The opposite occurs whenever there is data which shows the global economic recovery is faltering, stocks move lower and the dollar rallies with safe haven buying.

But yesterday morning, for a short period both were moving up. I first looked at the jobs data to see if they held any clues. The Initial Jobless claims came in slightly higher than expected, confirming our calls that the labor market will continue to be a drag on the US economy. But the reporter pointed out the continuing claims has dropped. I explained to her that the continuing claims were dropping because people are falling off the rolls. Drops in continuing claims are not due to people going back to work, but are due to people being out of work longer than the labor department’s records. So I didn’t see anything in the jobs data which would cause stocks to rally.

Unable to find anything in the data to support the short term market movements, I moved the conversation to the longer term trends which I feel much more comfortable speaking about. And by the time the conversation was over, the quick rally in the dollar had subsided, and the dollar index was moving back down. The short term market movements are very hard to call, as the currency and equity markets can move on emotion and rumor for short spans of time. But they will always move back toward the underlying trend line. Right now, the trend is for the US$ to weaken vs. the major currencies; as investors begin to look for currencies with higher yields and better underlying fundamentals.

So the dollar continued to fall vs. every currency except the Japanese yen. The Nordic currencies of Sweden and Norway led the charge vs. the US$ with Sweden moving up over 1.5% and Norway appreciating just under 1%. As I wrote yesterday, the Swedish krona has been one of the best performers recently as their economy has begun to recover ahead of mainland Europe. Sweden’s central bank, the Riksbank, was more aggressive with rate cuts than the ECB, so they will now have more room to increase them as the global economy recovers. Like Norway, Sweden went into the global recession in a fundamentally solid position, with a good trade surplus and low national debt. But Norway seems to be a bit better positioned going forward, as they rely on commodity based exports and while Sweden is geared more toward manufacturing. Both should continue to move higher vs. the US$.

The focus today will be on the 2 quarter GDP report which will be released this morning. GDP is expected to have contracted 1.5% after a 5.5% contraction in the first quarter. If the number comes in as expected, the dollar will likely sell off as investors move back into riskier assets. But as I mentioned earlier, the currency markets have started to show signs of moving away from the safe haven / risk aversion pattern recently. Investor’s focus will eventually shift toward interest rate differentials. But I still think it is a bit too early for this shift to occur, and a stronger GDP figure will likely cause a further drop in the US$.

We will also see Personal consumption data for the second quarter which is expected to show US consumers are continuing to increase savings. Consumption is expected to have fallen .5% after rising 1.4% during the 1st quarter. In spite of government efforts to stimulate spending, US consumers are worried by rising unemployment and won’t likely loosen their tight grip on their wallets anytime soon. Finally, we will end a busy week of data releases with the Chicago Purchasing Manager’s index which is expected to show a slight increase to 43 from 39.9 reported last week. This would be a second consecutive monthly increase, a sign that the manufacturing sector is bottoming out. Even though the number continues to move higher, any number below 50 is seen as a negative indication for the economy. Even with inventories near record low levels, manufacturers will likely wait for consumers to start spending again before increasing production.

The pound sterling continued to rise against the dollar after a report showed British consumer confidence held at the highest level since April of last year. It seems the pound sterling has moved to a upward trend, after dropping most of last year.

The Japanese yen continues to fall vs. the US$ as investors sell the currency and move to higher yielding assets elsewhere. Japan’s unemployment rate rose to a six year high in June and consumer prices fell at a record pace. The Japanese economy continues to be stuck in a stagnant deflationary state and will be dependent on a global economic recovery to spark exports. Increasing growth in other Asian nations (mainly China) has sparked production increases by Japanese manufacturers. This has been the one positive sign out of Japan recently, but this one piece of data couldn’t halt the selling of the Japanese yen.

Elections in Japan will be held at the end of next month, and the opposition party is all but guaranteed to win. The ruling Liberal Democratic Party is in a shambles, and has produced 4 prime ministers in the last 4 years. The new government is expected to increase spending on government programs, but like the US administration, no one has figured out how to pay for these increases. The opposition’s spending proposals add up to 3.5% of GDP, and the party has ruled out raising Japan’s 5% consumption tax for at least 4 years. Much of the funding for the new programs will come from cutting ‘waste’ in existing spending programs (sound familiar?). Gross national debt in Japan is currently 180% of GDP and rising as the stimulus packages kick in.

Many factors in the Japanese economy are eerily similar to those in the US, and neither looks to recover quickly. Both the US$ and the Japanese yen will continue to be sold as investors move into currencies of countries with much better economic potential. The short and medium term prospects for these two currencies certainly look negative.

Two currencies which seem to be on a much different path than the Japanese yen are the Australian and New Zealand dollars. Both are headed for their longest set of monthly gains since 2004. With interest rates expected to start rising, and China continuing to consume commodities which both produce, these currencies should continue to perform well. Barclays Capital raised their forecasts for both currencies saying rising risk appetite will boost demand for them in the short term. “A better than expected US GDP result would be the final icing on the cake for July and would provide great opportunity for the Australian dollar to retest 83.38 cents,” according to the report.

Currencies today 7/31/09: A$ .8284, kiwi .6561, C$ .9269, euro 1.4139, sterling 1.6552, Swiss .9231, rand 7.804, krone 6.1628, SEK 7.2825, forint 187.92, zloty 2.9328, koruna 18.089, yen 95.70, sing 1.4405, HKD 7.7500, INR 47.935, China 6.8321, pesos 13.2126, BRL 1.883, dollar index 78.966, Oil $66.81, 10-year 3.61%, Silver $13.63, and Gold… $938.42

That’s it for today… The EverBank kickball team played or final regular season games last night and ended up victorious in both. More importantly, we were able to make it through both games without an injury! We finished in third place, so we will have a pretty good seed going into the end of season tourney. Happy Birthday to Ann Hopkins today! I have worked with Ann off and on since I started in the banking industry back in the late 80’s, and she is a real treat to have on the desk. Hope everyone has a Fantastic Friday, and a wonderful weekend!!

Source: Dollar Continues to Slide

Good day… Chuck got an early start on a two week hiatus from the desk, so you will be stuck with me writing the Pfennig for the next two weeks. But don’t worry, you will still get a small dose of Chuck over the next week as he typically emails me his thoughts while on the road (I call it Pfennig Pfodder). Risk aversion dominated the currency markets overnight, as terrorists set off two separate explosions in Jakarta and investors moved money back into the ’safe havens’ of the US$ and Japanese yen.

Chuck wrote about this move yesterday, believing the bad news regarding CIT would probably cause a risk reversal. But the US stock market shook off the CIT news and rallied higher after a big earnings report by JP Morgan and a somewhat positive statement by Nouriel Roubini. Roubini, the New York University economist who is credited with predicting the financial crisis, said in a speech yesterday that the US economy might be close to the bottom. The stock jockeys took this statement along with the positive earnings reports and ran stocks up. But Roubini later tried to caution these bulls against reading too much into his statement, and reminded everyone that he has not changed his thoughts on a US recovery: “I continue to see a shallow, below par and below trend recovery.”

Those looking for a quick v shaped recovery will be disappointed, as we continue to believe the recovery here in the US will be more of an L shape as our economy struggles to recover. After all, who is going to propel the US economy to recovery? In past recessions, we have been able to depend on the US consumer to pull us back out. But the poor consumer is now facing the highest unemployment rate post WWII combined with falling home prices and much stricter lending policies. And with the dire fiscal position of most states matching that of the federal government, the tax burden placed on almost all taxpayers will likely be rising, chewing up more of consumers disposable income. We are no longer be able to rely on US consumers to ‘borrow and spend’ our way to GDP growth (which is actually a good thing!!). Consumers are tightening their belts, and saving a larger percentage of their income; good news for the consumers, but bad news for the economy.

The administration has tried to take over where the US consumer left off by borrowing record amounts of money and injecting it into the economy through stimulus packages. But recent data bring into question whether or not this stimulus is having the desired effect, and many are now questioning whether any fiscal measures can pull the economy out of recession. With the credit markets still tight, and the negative outlook for consumer demand, no amount of government intervention seems able to stop the decline in jobs and quickly pull the US out of this recession/depression. The reason is that the ‘multiplier effect’ of the stimulus money is too low. Typically when the government injects funds into the economy, the effect of each dollar they spend is multiplied several times over as it moves through the lending / spending cycles. It works like this: $1,000,000 given to a bank by the Fed is lent out to consumers and business who then spend the funds on goods and services. The companies who sell the goods and services place a majority of these funds back into the bank who then turn around and lend them back out, starting the cycle all over again. But recently neither the banks or the consumers are acting ‘normal’. Banks who have received stimulus funds are using them to shore up balance sheets and keeping them in reserves. Consumers who have received stimulus funds, or are strong enough to qualify for loans have been doing the same thing; using the funds to pay down debts and saving a larger percentage. So the multiplier effect of each dollar injected by the administration has been much smaller than in years past. While some in the administration are calling for another stimulus package, others are now realizing the impact of government stimulus will continue to be decreased by the low multiplier. The government should probably just let the recession take its course, and avoid adding more debt to our already over burdened tax payers.

But ‘big government’ is back, and the current administration obviously feels it is their job to make government even bigger. Chuck had this to say about this weeks earlier announcement of a new government run health care program:

“The Big Debate right now is a National Health Care program… I’ll come right out front and center and say that I’m not for it, which shouldn’t surprise anyone that’s been reading this letter very long. But there’s someone else who should be more important a figure against this than I think the media is reporting…

I’m talking about Douglas Elmendorf, the Director of the Congressional Budget Office who, under questioning by members of the Senate Budget Committee, had this to say…
“Instead of saving the federal government from fiscal catastrophe, the health reform measures being drafted by congressional Democrats would worsen an already bleak budget outlook, increasing deficit projections and driving the nation more deeply into debt.”

He went on to say… That “bills crafted by House leaders and the Senate Health Committee do NOT propose the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount.”

But… I doubt they listen to him… For when it comes to spending and driving up the deficits.. They haven’t listened to former CBO director, Alice Rivlin… And they haven’t listened to former Comptroller General, David Walker… Why the current CBO director now?”

Data released yesterday showed the number of Americans filing claims for unemployment benefits fell last week to the lowest level since January. But like last week, these jobless claims were skewed by the Labor Department’s ‘adjustments’. As I explained last week, the automakers typically lay off workers during July, so the BLS adds back thousands of jobs in order to offset these seasonal layoffs. But this year, the auto plants laid off these workers months ago, so the seasonal adjustments are adjusting away actual job layoffs, not just temporary automobile layoffs. These distortions will likely continue for the next few weeks, with the weekly numbers climbing back over 600,000 in August when the seasonal adjustments end.

The TIC flows were also released yesterday and showed International demand for long term US financial assets weakened in May. Investors sold the most Treasury notes and bonds in six months, with the net Long-term TIC flows dropping almost $20 billion. The ‘experts’ had predicted a rise of $16.5 billion in purchases. But as investors dumped long term Treasuries, purchases of US stocks in May were the strongest since January of 2008. So the impact of these flows were minimal on the value of the US$. The administration has to be worrying about the direction of the TIC flows, as it continues to bring record amounts of Treasuries to the markets. If investors shy away from the new debt, interest rates will be driven higher putting further pressure on our ’stealth recovery’.

After reviewing the numbers, I spotted another item which should be cause for concern. The report showed foreign governments were moving from the longer term maturities of Treasury notes and bonds into shorter term bills which have a maturity of less than one year. Foreign governments continue to be worried about the future ability of the US to maintain our record deficits. The Chinese economy continues to grow, and is propelling them to a much more important status among global leaders. Chinese Premier Wen Jiabo continues to express concerns regarding his country’s US Treasury holdings, and officials in Japan, the second largest investor, have also begun to express concern. The administration is calling in the big guns to try and assuage China’s concerns. Federal Reserve Chairman Ben S. Bernanke will brief Chinese officials at a summit this month about how the US plans to keep inflation in check over the next few years. The summit is the first high-level gathering of its kind since President Obama took office.

China reported yesterday that their economy grew 7.9% in the 2nd QTR, which was greater than the 7.7% forecast by economists, and the 6.1% that was booked in the 1st QTR. This was the first acceleration in growth in more than two years, and comes on the heels of a $585 billion stimulus package which was targeted at increasing infrastructure and getting credit flowing again. The positive growth number will likely cause them to start raising rates in 2010 according to a Bloomberg news survey. Economists predict the one-year lending rate will climb over 50 basis points after remaining steady for the rest of the year. China is the only one of the 10 biggest economies that is expanding, and confirms what we have been saying for some time: China will be the engine which propels the global economy out of recession.

Chuck noticed the good numbers out of China before heading out yesterday, and sent me the following:

“This news must be manna from heaven for Australian commodity exporters… As I’ve said for some time now… China’s economic strength strong demand for raw materials, of which Australia is not only geographically positioned to supply China with raw materials, but has the raw materials to supply to China! And demand for Australian raw materials is a proxy for commodities as a whole… And, will underpin the A$!”

If you agree with what Chuck is saying regarding the A$, it may be a good time to buy some more as the AUD$ slid below .80 overnight due to risk aversion. Both the AUD$ and NZD$ fell against the dollar and the yen as investors shifted to safe haven currencies. The New Zealand dollar fell the most in two weeks after Fitch Ratings cut the nation’s long term sovereign credit rating outlook to negative. Fitch said the nation’s deficit is large and a “stronger fiscal adjustment than currently planned” may be needed. First, I think everyone should treat anything coming out of the rating agencies with caution. But I agree that the nation’s deficit is too large, but the news coming out of China should go a long way toward pushing these commodity exporting countries back into the black. As Chuck says above, as China expands the commodity currencies should stay well bid.

Before I head to the big finish, Chuck wanted me to make this announcement to all the Pfennig readers….

After 2 long years of looking for the next MarketSafe CD to issue, I decided to put together the countries that have been in the news lately. So… Introducing: The EverBank MarketSafe BRICK CD! This will be a 3-year CD that will have FDIC protection, 100% Principal Protection, and 100% of the upside of the combined values of the currencies from Brazil, Russia, India and China! If the combined values of these 4 currencies should go down in 3 years, you’ll get your principal back!

To invest in this new MarketSafe CD, you need to either go to: www.everbank.com where after reviewing the offering you will be able to apply for the CD right on line, or by calling the trading desk @ 1-800-926-4922 for the details.

Currencies today 7/17/09: A$ .8000, kiwi .6444, C$ .8945, euro 1.4100, sterling 1.6291, Swiss .9276, rand 8.102, krone 6.3926, SEK 7.8203, forint 194.08, zloty 3.0682, koruna 18.3992, yen 93.83, sing 1.4504, HKD 7.7501, INR 48.68, China 6.8316, pesos 13.58, BRL 1.9318, dollar index 79.49, Oil $61.93, 10-year 3.56%, Silver $13.19, and Gold… $934.45

That’s it for today… The EverBank kickball team pulled out another victory last night in a tightly contested match. Happily, none of our players were injured, but a player on the opposing team did a faceplant which still has everyone on the desk laughing. The weather here in St. Louis has turned fall like, and we are supposed to have record lows over the weekend. Should be perfect for a triathlon I am competing in Sunday morning. Hope everyone has a Fantastic Friday and a Wonderful Weekend!!

Source: Risk Aversion Returns

Good day… And a Thunderin’ Thursday to you! The “Day After” Tax Day… It still hurts! And to think, one of these days, I’ll be paying even more, thanks to the direction of our country… And you will be too! There’s no two ways about it, the Deficit in funding in Washington D.C. which will be a result of all the spending, is going to require greater revenue… Where does the Gov’t get the revenue? From taxes… Of course if it wasn’t a debtor nation, it would not have to pay out the large sums of interest on the Treasuries it issues… But, that… Is a discussion for another day.

The currencies saw more dollar strength yesterday, but it wasn’t a result of anything the dollar had going for it… In fact, the results of the data yesterday was all dollar negative… No, this time it came from the Eurozone. Right about the time I was hitting the send button yesterday, European Central Bank (ECB) minister, Axel Weber Opened Pandora’s Box of questions regarding future direction of the ECB… Let’s go to the tape!

Weber was so kind to mention that the ECB will announce a package of “non-standard” monetary measures at their next meeting in May… Brother, you should have seen all the different angles that were taken by the pundits after this announcement! Some believe he was telling the markets to get ready for Quantitative Easing. (not sure why he would do that, the ECB still has room to cut rates lower) Some believe he was telling the markets to get ready for rate cuts down to 0%. (not sure why they would need to go to 0%, or why he would make that announcement now, when rates are 150 BPS away from 0%)

Either way, the euro took the brunt of the message, and got sold, leading the other currencies to a day of dollar strength across the board… The board that stops in Japan that is! The Japanese yen continues to get back in the good graces of currency traders.

So… What about the data prints yesterday? ZOWIE! Talk about negativity! First, let’s look at Capacity Utilization, since I talked so much about it yesterday. Capacity Utilization fell to 69.3%, a new all-time low for the series. And, the manufacturing component of the data fell to a new all-time low! Recall, I told you this was a “forward looking” piece of data… So the future doesn’t look so bright, eh? Guess I won’t have to wear those shades!

Industrial Production also posted a negative number for the month of March posting a -1.5% decline. And… CPI? Well… Consumer inflation posted the first year-over-year decline in the headline rate in over 50 years! 1955 (it was a great year!) was the year… Prices were 0.1% lower in March than in February, contrary to the “experts” that thought prices would increase by .1% This resulted in the annual inflation rate falling to -0.4%, the first negative number since 1955!

So… Don’t look for interest rates in the U.S. to be going anywhere for some time… The one thing you can look for though is more Quantitative Easing…

And… Leave it to the media to spin the TIC Flows in a positive manner… TIC Flows (net security purchases by foreigners) posted a figure of $22 Billion in February, which is below the amount needed to finance the Current Account Deficit. However, the media spun it like this: “International demand for long-term Treasuries rose in February as China and Japan added to their holdings.” Hmmm… Well, it’s a true statement… But, not complete!

OK, enough on the data yesterday… Talk about putting someone to sleep! ZZZZZZZZZZ!

Did you hear about the U.S. Treasury turning yellow belly? OK, let me first set this up… During the Presidential campaign, Obama indicated that China had indeed manipulated their currency… But when it comes down to the cheese that binds, the Treasury Dept declined to name China as a currency manipulator… Bawk, Bawk, Bawk… Chic-ken!

Well, the Fed’s Beige Book printed yesterday, and believe it or don’t, half of the Fed Districts are seeing a moderation in the pace of the economy’s decline. That plays well with the mental note I made yesterday about full planes and restaurants. But is this just U.S. consumers refusing to batten down the hatches and save for a rainy day? You know, denying the recession and maintaining their spending habits? I mean, you know, the generation that comes after me, has never experienced a major slowdown… Maybe they don’t know how to act? HA!

China posted at GDP for the 1st QTR of 6.1% Pretty darn good for an economy that was slowing down so much the Gov’t had to implement a stimulus package. While it’s a far cry from the 11 and 12% growth rates of a couple of years ago, it’s still better than a sharp stick in the eye! I still believe that China will be the first economy to come out of the global recession.

Japanese yen got bought on the China GDP number, as traders were disappointed with the figure… I believe this all to be overdone, a little to much drama for my taste… I would be careful with this kind of trade, for you never know what the Chinese (a communist country) will do…

So… If yen is getting bought, that means the high yielders are getting sold, and so it is for the once high flying currencies of Australia, New Zealand, Brazil and South Africa. I still believe that eventually hedge funds, and investors are going to grow tired of the paltry yields on U.S. assets, and look to go elsewhere… Therefore, I like to be ahead of the crowd, if you get my drift…

Indian rupees are stealth like these days in gaining ground once again… I’ve had my foot stepped on plenty of times by the Indian Central Bank and their intervention whenever the currency gets stronger… But much like most things, I forget the pain, and talk glowingly about rupees once again… Talk about a country that is least likely to implement Quantitative Easing!

And finally, Gold… It just hasn’t been a good week for Gold. Every morning the shiny metal posts a gain at the London Morning Fixing, but gives it all back by the end of the day. Today, Gold posted a loss at the Fixing, so maybe, it gains all day! A reversal of fortune if you will! The Uncertainty Hedge is still just that folks… And in these days of uncertainty you have to wonder, just what’s going on in the minds of investors without Gold… But that’s just my opinion…

Currencies today 4/16/09: A$ .7195, kiwi .57, C$ .8285, euro 1.3165, sterling 1.4850, Swiss .8710, rand 9.0250, krone 6.7150, SEK 8.3075, forint 222, zloty 3.2550, koruna 20.44, yen 98.70, sing 1.4975, HKD 7.75, INR 49.75, China 6.8325, pesos 13.08, BRL 2.1835, dollar index 85.23, Oil $49.71, Silver $12.66, and Gold… $889

Source: Awful Data!

Good day… And a Wonderful Wednesday to you! Well… It’s Tax Day, and to keep with tradition in the Pfennig… Here are the Beatles…

(if you drive a car, car;) – I’ll tax the street;
(if you try to sit, sit;) – I’ll tax your seat;
(if you get too cold, cold;) – I’ll tax the heat;
(if you take a walk, walk;) – I’ll tax your feet.

Taxman!

‘Cause I’m the taxman,
Yeah, I’m the taxman.

OK… Every year, I bring you a different part of that song, which was so prevalent in my mind as I wrote out my check last night to mail my taxes…

So… The currencies remained in a very tight range yesterday, inching down VS the dollar slightly. While the high yielders like Aussie, real, and rand, all sit on the sidelines the past two days, Japanese yen moves higher VS the dollar, moving back below 100.

The break of currencies and stocks only lasted one day folks… So, no return to fundamentals… Instead, what we have is this all-or-none Risk or no Risk… It’s almost like watching a poker game, which on a sidebar, I still don’t understand why poker games are on a Sports Station! OK, back to the poker game… It’s like when the guy goes “all-in”… It’s either take risk, which then means “all risk assets”, or don’t take risk, which means “don’t take all risk assets”… Or… More like saying… “All Risk Takers… Out of the pool!) Strange days indeed, so peculiar momma…

When risk assets are off the table… The high yielders, commodities, and stocks gets sacked… And the low yielders like dollars and yen bask in the sun. I recall last week mentioning that I hoped this link between stocks and currencies would soon be over, as stocks were entering their quarterly earnings period, and I certainly didn’t think they would have good earnings, which would mean a stock sell-off… And if stocks are getting sold… The other risk assets, during these strange days, are getting sold…

The best performing currency overnight? The British pound sterling! It seems that pound bulls have had enough and they weren’t going to take the selling of their currency any more! There’s a report out this morning that says pound traders are the most bullish they’ve been in years… Hmmmm… Doesn’t make sense to me that this currency would rally, or that there would be reason to be bullish on it, given the economy, low interest rates, and the fact the Central Bank has taken on Quantitative Easing!

Well… The Big News / Data yesterday was Retail Sales, and all the forecasters got it completely wrong! The consensus for Retail Sales in March was for a .3% gain… Retail Sales actually printed a negative 1.1%… Most of that loss was at gasoline stations… But, hey! That’s part of the deal! This negative report however, was tempered by the upward revision of the previous month’s negative .3% figure. The upward revision was +.3%, which makes February’s figure flat…

I have to say that while we keep seeing 600K job losses each month, and Retail Sales in the negative, the physical evidence of a major slowdown is difficult to find. Every plane that I’ve been on recently is still packed with people… Restaurants I go to, are crowded… I don’t go to malls, so I have no idea what’s going on there.

I saw a report the other day that quoted a group of economists that had been surveyed and the economists said that they believed the recession would end in the 2nd half of this year, but job losses would continue on for several more months. Hmmmm…. Now I know that these guys are far better educated than yours truly. But, I would ask them, just what is going to happen to reverse the economy, without job growth? We need a hoola-hoop!

Did you see that North Korea ordered International Atomic Energy Agency inspectors out of the country Tuesday? Talk about uncertainty in the world! And what can you look to in these uncertain times… Gold! It’s the Uncertainty Hedge! And looky there! Gold is still trading in the spot market below $900!

The data cupboard today will print a plethora of reports, beginning with the stupid CPI (consumer inflation)… Right now, the forecasters are calling for a decline in consumer inflation for March… The Gov’t accountants want us to believe that inflation is only running at 1.7% annualized… HOGWASH! See, now why I say it’s stupid!

OK… We’ll also get the TIC-net flows, which is usually a good show… Feb.’s showing was a negative $43 Billion in net security purchases by foreigners… March is supposed to show a gain of $14 Billion… Even with the recover, if it prints as such, $14 Billion is NOT enough to cover our Current Account Deficit, which means the deficit gets carried forward… Eventually, we’ll be so far in the future with these deficits, that we’ll have to get that famous Delorean from Back to the Future, to bring us back here!

Then finally, Industrial Production and Capacity Utilization… For new readers… Capacity Utilization is one of my fave data prints, in that it is one of the few that is forward looking. Most data is old, stale, and backwards looking… But Capacity Utilization is forward looking. The Capacity Utilization rate reflects the limits to operating the nation’s factories, mines and utilities. In the past, supply bottlenecks created inflationary pressures as the utilization rate hit 84 to 85 percent. March’s CAP Utilization rate is forecast to be 69.6%… Far below the numbers hit in the glory days of the economy!

So… As I was writing this morning, I watched the euro rise to 1.33 from 1.3245 when I turned on the screens, but now that I’m getting ready to head to the Big Finish, it’s right back at 1.3245… So… Range trading still…

Currencies today 4/15/09: A$ .7280, kiwi .5815, C$ .8255, euro 1.3245, sterling 1.50, Swiss .8755, rand 9.1720, krone 6.6775, SEK 8.1810, forint 218.80, zloty 3.2280, koruna 20.2575, yen 99.25, sing 1.5025, HKD 7.75, INR 49.65, China 6.8325, pesos 13.21, BRL 2.2075, dollar index 84.79, Oil $50.50, Silver $12.92, and Gold… $894.20

Source: Tax Day!

Good day… And good Monday morning to all of you. I can’t believe March is nearly over, it seems as though it just started. March will end up being a pretty good month for the currency markets, as investors exited the safety of US treasuries and started moving funds back into higher yielding assets. But the markets continue to be volatile, and news released on Friday and over the weekend has sent these investors rushing back to the safe haven of the US dollar.

The Japanese Yen and US dollar benefited after a US Government official said Friday that bankruptcy may be the best option for GM and Chrysler. The dollar continued to gain strength this morning after US Treasury Secretary Geithner warned yesterday that some financial institutions will need “large amounts” of aid. When the Treasury Secretary says large amounts, you know it is going to be billions or trillions! Geithner was making the rounds of Sunday morning talk shows to try and justify the money already spent and prepare the taxpayers for another request of funds.

Bad economic data released on Friday here in the US helped drive investors back into the US$. Consumer confidence in the US remained near a three decade low this month as the jobless rate continues to climb. The number of US states with a double digit jobless rate almost doubled in February; with Nevada, North Carolina, and Oregon joining Michigan, South Carolina, California, and Rhode Island with unemployment rates above 10%.

The Japanese yen benefited from the safe haven buying, with the yen turning in the only positive performance vs. the US$. A report in Japan which indicated a cut in inventories added to the yen’s good day. Inventories fell 4.2% last month, and companies said they would increase production in coming months, indicating the worst of the manufacturing slump may be over. But with exports falling, and retail sales tumbling, I don’t expect manufacturing to pick up anytime soon. Deflation continues to be a problem in Japan, as consumer prices remain stalled. With benchmark rates as close to zero as possible, the Bank of Japan has little ammunition left to combat the falling prices. If you still own the Japanese yen, take advantage of these small rallies to exit your position, as the yen will probably not be able to maintain this strength.

Another currency you may want to consider exiting is the Singapore dollar. According to a story I read on Bloomberg this morning, the Monetary Authority of Singapore may devalue their currency and allow it to drop 4 percent against the US dollar in the next few months. The central bank reviews the currency’s position twice a year, and some are now predicting it will shift the value of the Singapore dollar in April. Singapore’s exports continue to fall and some are blaming the strength of the Singapore dollar vs. its regional competitors. While I believe the Asian economies will lead the world out of the global recession, the Singapore dollar will likely come under some selling pressure going into April.

With a general move back toward safety, the higher yielding currencies of Australia and New Zealand suffered. The Australian dollar dropped below .68 but will still end March with over an impressive gain vs. the US$. The New Zealand dollar also gave back some of its recent gains, moving down to the .55 handle. But like the Australian dollar, the kiwi will still end march with nice gains vs. the US$, likely to be in the double digits.

Other commodity based currencies also suffered, with the US dollar moving higher vs. the Brazilian real and Canadian dollar. But many investors still feel these commodity currencies will be some of the first to recover, as countries invest stimulus money into infrastructure projects.

News from Europe fed into the dollar’s strength as a report showed industrial orders plunged 34% in January, the most on record. Another report showed France’s economy shrank by 1.1% in the fourth quarter, the steepest decline since 1974. With all of this negative data, it isn’t hard to see why European confidence fell to the lowest on record in March. An index of executive and consumer sentiment in the euro region released this morning fell to a record low. All of this negative data is boosting calls for further rate cuts by the ECB. After the 50 basis point cut at the beginning of March, most currency traders expected the ECB to pause and hold rates steady for a couple of meetings. But now the calls for further cuts are becoming louder.

The Euro had the worst day vs. the US$ in nearly three months on Friday, and is not holding just above 1.32. Some are now even suggesting the ECB follow the US and UK down the path of “quantitative easing”, buying bonds to pump more money directly into their economy. As I have written recently, this is one of the most inflationary moves a central bank can take, and would be a dramatic step by the typically hawkish ECB.

But not everyone in Europe is wanting the ECB to follow the paths of the US, UK, and Japanese central banks. Germany’s leader, Chancellor Angela Merkel warned against inflating the global economy to revive growth. Frank Trotter sent me an article from this weekend’s Financial Times in which Merkel rejected calls to spend more public money in Germany to speed the recovery. “This crisis did not come about because we issued too little money but because we created economic growth with too much money, and it was not sustainable growth,” Merkel said, according to the FT. “If we want to learn from that, the answer is not to repeat the mistakes of the past.”

Merkel’s position is in stark contrast to our own administration, who have taken a somewhat short sighted ‘grow now, worry about inflation later’ stance. In fact, the US administration is excited about how they have been able to manufacture a new ‘refinance’ boom by forcing mortgage rates back down. But the concern I share with Merkel is how will policy makers unwind all of this ‘easy money’ once the recovery begins?

Does anyone think the Fed will have the courage to end their emergency-lending programs while the unemployment rate remains near double digits? You know the administration is going to push the Fed to wait until there are clear signs the US is in recovery before moving rates back up. But any slight hesitation on the Fed’s part will probably spark inflation which could quickly grow out of control if left unchecked.

But Treasury Secretary Geithner said yesterday that the Fed’s injections of reserves into the economy are “not going to create the risk of hyperinflation in the future.” “We have a strong independent Federal Reserve with a very strong mandate from the Congress, and they will do what’s necessary to keep inflation low and stable over time,” Geithner said on ABC’s Meet the Press. At the same time, he warned policy makers shouldn’t “put the brakes on too quickly.”

I hate to disagree with the Treasury Secretary (ok, you caught me, I actually kind of like disagreeing with the Treasury Secretary) but I just don’t think they have the ability to keep inflation at bay. The Fed has injected record amounts of liquidity into the system, using some untested ‘quantitative easing’ procedures which will need to be reversed. With the Fed pledging to purchase another $1.25 trillion of mortgage debt and $300 billion of Treasuries, inflation is inevitable.

Finally, I read where Wednesday has been dubbed ‘Financial Fools Day’ in London. Protestors attracted by the G20 summit plan to target London bankers for their role in the financial meltdown. This should make things interesting on Wednesday, as protestors plant to try and block roads and prevent people from getting to work at the heart of the global currency trading.

Currencies today 3/30/2009: A$ .6808, kiwi .5625, C$ .8001, euro 1.3192, sterling 1.4183, Swiss .8706, rand 9.7274, krone 6.7765, SEK 8.2889, forint 234.97, zloty 3.595, koruna 20.89, yen 96.63, sing 1.5213, HKD 7.7502, INR 51.2825, China 6.8364, pesos 14.539, BRL 2.2911, dollar index 85.66, Oil $50.57, Silver $13.03, and Gold… 912.14

Source: Bad News for GM and Chrysler Rallies the US$

Stabilising stock markets and the dollar’s rise over the past week after the U.S. government announced measures to clean toxic assets off banks’ balance sheets put a cap on gold prices, undermining the yellow metal’s appeal as a safe haven.

Still, uncertainties over the sustainability of a stock market rally and the dollar’s rise, as well as the global economic outlook, kept intact investor appetite, resulting in record holdings of gold-backed securities.

“The stock market is stabilising and investors are stopping their safe-haven buying of gold,” said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong. At the same time, there was nothing to justify selling of gold because it was not clear how the economy fares, he said.

Gold was at $921.05 per ounce by 0240 GMT, little changed from New York’s notional close of $922.10. Gold has held firmly above $900 thanks to buying related to gold-backed securities.

At current levels, gold is up about 5 percent on the quarter but 10.6 percent below an all-time high of $1,030.80 hit a year ago. Bullion has recovered about 4 percent from a six-week low of $882.90 hit on March 18, but is 8 percent off the 11-month high above $1,000 set in February.

It has been six months since the collapse of Lehman Brothers, which aggravated the financial crisis, and the global economy and financial system have yet to show a clear sign of a turnaround, traders said.

“Unless the economy really starts working and stock markets rally, and banks start lending and businesses revive, people will not jump out of the gold market,” Leung said.

Trading was subdued due to the month-end and as some players turned cautious ahead of U.S. nonfarm payrolls data due later in the week. There were not many expectations for a meeting later in the week of the G20 group of the world’s 20 biggest economies, traders said.

The world’s largest gold-backed exchange-traded fund, the SPDR Gold Trust , said holdings rose 2.45 tonnes to a record 1,127.44 tonnes on March 29.

For details on the gold holdings of the ETF listed in New York and co-listed on other exchanges, click on: http://www.exchangetradedgold.com/iframes/usa.php

Tokyo shares fell 1.8 percent on Monday as investors locked in profits from last week’s sharp rally.

The dollar firmed after the euro posted its biggest one-day fall since early January on Friday.

Later on Monday, data on British consumer credit and mortgage lending for February and euro zone March business climate sentiment will be released.

Prices as of 0250 GMT Metal Last Change Pct chg YTD pct chg Turnover Spot Gold 921.65 -0.45 -0.05 4.72 Spot Silver 13.29 0.02 +0.15 17.40 Spot Platinum 1129.00 6.00 +0.53 21.14 Spot Palladium 215.50 -2.00 -0.92 16.80 TOCOM Gold 2926.00 -34.00 -1.15 13.72 13488 TOCOM Platinum 3585.00 -58.00 -1.59 35.18 7031 TOCOM Silver 416.40 -7.00 -1.65 30.41 221 TOCOM Palladium 690.00 -16.00 -2.27 25.45 291 Euro/Dollar 1.3269 Dollar/Yen 97.68

TOCOM prices in yen per gram, except TOCOM silver which is priced in yen per 10 grams. Spot prices in $ per ounce.

March 30 (Reuters)

Well… Our Fantastico Friday was interrupted by that horrific Jobs Jamboree number that printed Friday morning… 651K jobs were lost in February, which let me remind you is a couple of days shorter than other months. So, it could have been worse! Hard to believe that could be the case, but it’s true. The unemployment rate rose to 8.1%, from 7.6% in January. The jobless rate is the highest since 1983. The economy has now shed 4.4 million jobs since the recession began in December 2007, with almost half of those losses occurring in the last three months alone.

Remember a year ago, when I kept harping that we had entered a recession, but the NBER hadn’t announced one yet, nor were the Un-dynamic duo of Paulson and Bernanke agreeing with me, as they kept denying what was right in front of them, for if little old me, could see that we had entered a recession, then why couldn’t these two? Oh, well, we now know that the recession began in December 2007… And now we know that 4.4 million jobs have been lost since that time. Of course if the Bureau of Labor Statistics (BLS) didn’t add jobs throughout the year that didn’t exist, we would be even more worse, so I don’t know whether to thank the BLS or curse them…

One thing to not let slip by you, is the fact that the previous months’ totals of -577K and -598K were revised upward by large amounts to -681K and -655K respectively… So, you’ve now got to ask yourself if the Feb figure will be revised to -700K… Of course it’s my opinion that the BLS would never dare print that figure on a first run printing, but only as a revision, that can be swept under the rug.

So… The currencies reacted a bit differently on Friday than we had seen recently when bad news printed in the U.S. Recall, that the Trading Theme that rewarded the dollar, whenever bad economic data printed, had held a grip on the markets for some time… But Friday morning, I mentioned that the trading looked different, with no Trading Theme in place, and that carried on even after the Jobs data printed.

The euro was stronger for most of the day on Friday, but as I left the office at the end of the day, it was beginning to look a little worn around the edges, and as I turn the currency screens on this morning, I see that the single unit has given back some ground.

I got a kick out a story that a reader sent me over the weekend… It was a story that appeared on the Bloomie regarding rate cuts… I told him, “yes, this is the stuff I keep harping on about how it’s not the cost of the credit that keeps banks from making loans, so why keep cutting interest rates?” So… Here’s a snippet of the report so you can see what it is that I’m talking about…

“European Central Bank Executive Board member Juergen Stark said cutting interest rates won’t remedy the financial crisis and pushing them too low may backfire. The financial crisis can’t be solved with rate cuts, Stark said in an interview to be published in Luxembourg’s Tageblatt newspaper on March 9. Too low a rate level can even be counter-productive.”

Hmmm… Finaly a Central Banker with the intestinal fortitude to stand up and say the right thing! Of course, that didn’t stop the European Central Bank (ECB) from cutting 50 BPS last week! UGH!

Recall last week I was talking about how fundamentally speaking, Australia was looking healthier than other countries, but then they posted a contraction in their GDP the next day… Some egg on my face with that one, but Hey! I still think they are poised to pull out of this global financil meltdown on the fast track. Apparently, I’m not the only person that thinks that… Derivatives show that the worst is over for the Aussie dollar… And the Royal Bank of Canada (RBC) is telling their customers to buy the Aussie dollar VS Canadian dollars / loonies… I read that this morning, you don’t think I make this stuff up do you? It was there in on the screen…

I mentioned to Chris Gaffney last week, that I had been seeing more yen selling coming across the trading desk than I had seen in a long time. I said that these people, if they had held it long enough, were probably taking profits. And why not? In this day an age with deflationary pricing pushing most assets downward, when you see a profit, you take it!

The guy known as “Mr. Yen”, Sakakibara, told the press last night that he believed yen may rise to a record 70 VS the dollar… WOW! He also said that it would range trade between 100 and 70… He believes that the yen will be afforded the same kind of love the dollar has received since the financial crisis began in the U.S. With Japan posting a large economic contraction last week, Mr. Yen, is of the opinion that it will help the currency gain to 70.

Hmmm… I just don’t know about all that… For one, I’m not convinced the flight to safety that has underpinned the dollar with buying of Treasuries, will be duplicated in Japan… And two… The only thing I saw pushing the yen stronger in 2008 was the unwinding of the Carry Trade, which I said had come to end about a month ago. So… There you have it… I don’t like yen’s chances to go to 70, but do agree that it could hold 100… It’s darn close to 99 as I type…

Recall last week I told you about my neighbor that stopped me in the driveway and was all concerned about what he had heard on the radio that day, regarding the FDIC going broke… I said then, not to worry about it, as the Fed will print more money and keep the FDIC from failing… If they kept AIG from failing, they certainly would do the same with the FDIC… Well, on Friday I saw this… “the FDIC wants a permanent increase in its line of credit with the Treasury Department to $100 billion from the current $30 billion. FDIC Chairwoman, Sheila Bair told key lawmakers in letters Thursday that such an increase “would leave no doubt that the FDIC will have the resources necessary to address future contingencies and seamlessly fulfill the government’s commitment to protect insured depositors against loss.”

OK… I told you on Friday morning about Gold’s rebound to $940, but it failed to add to that figure even after the horrific jobs data. I guess you would have to say that Gold traders had “priced in the jobs data already”, eh? Gold is off by about $4 this morning, as it gets pulled down by a report regarding global inflation… The Economic Cycle Research institute assesses that U.S. inflation pressures are at their lowest since 1958, and likely to decline further…

But for every report attempting to pull Gold down, there’s one attempting to push it higher… What I’m talking about here is the report that our friends, NOT! At OPEC are going to maintain their 13% cuts in production put in place since September 2008. They may consider more cuts. Oil is trading higher this morning at almost $47, and oil traders believe it will be back to $50 within two months…

Quietly making noise for the past 3 months has been the Brazilian real… The real has gained 4% in the past 3 months, as investors around the world look for yield… And Brazil’s interest rates have had the allure of the Sea Hag’s song to Pop-Eye! But… There’s word out of Brazil that the Central Bank will look to cut rates by 100 BPS / 1% when they meet, later this week. That’s too bad, but Shoot Rudy, Brazil’s rates will still remain higher than you can get in most ports of call… And… Their GDP will be positive…. And… If traders and investors reward the real for cutting rates aggressively like they did over currencies, then the real has nothing to worry about, eh?

OK… So, for the past month I’ve given you my ideas for the countries / currencies that could be on the fast track to recovery, given their ability to remain off the rosters of countries with failing banks. Norway leads the pack, with Canada, and Australia close behind… I even told you about how Paul Volcker thought we should shift to the way Canadian Banks operate. Well… It’s always nice to see someone else follow up on my ideas, not that they read the Pfennig and said, “Hey! Let’s write about what Chuck wrote about”… Nah… That wouldn’t happen… HA! But, seriously, BNP Paribas’ research team has issued a report advising their clients to buy… You guessed it… Norway, Canada and Australia…

BNP said, “we remain friendly on commodity currencies like Norway, Canada, and Australia, and view today’s oil price rally as an indication for other commodities to follow. We are bullish on the Canadian dollar, Norwegian krone, and Australian dollar, but unlike last week we like trading these currencies long against the dollar.”

So… There you go! It’s not just me!

There is no scheduled data to print today, but the rest of the week is chock-full-0-data. On Wednesday, when I board a plane to Florida, we’ll see the Monthly Budget Deficit… That should be a doozy! On Thursday, we get the usual Weekly Initial Jobless Claims, and Retail Sales for Feb… I can tell you right now, that the BHI (Butler Household Index) tells me this report for Retail Sales is going to be very disappointing! Friday the 13th, we’ll see the Trade Deficit, Import Prices, and U. of Michigan Confidence. There are other 2nd Tier reports sprinkled in all week…

I really do think that the Retail Sales for Feb, is going to be bad… And that may weigh on the dollar, that is, if the Trading Theme keeps to the back of the room!

OK, as I head to the Big Finish, I see the euro has lost more ground than when I first came in… It just can’t stand prosperity!

Currencies today 3/9/09: A$ .6360, kiwi .4980, C$ .7735, euro 1.2590, sterling 1.3890, Swiss .8595, rand 10.5930, krone 7.1125, SEK 9.2050, forint 247.90, zloty 3.77, koruna 22.02, yen 99.15, sing 1.5515, HKD 7.7550, INR 51.88, China 6.8410, pesos 15.28, BRL 2.3750, dollar index 89.20, Oil $46.74, Silver $13.22, and Gold… $937.90

Source: A Horrific Jobs Report!