Yes, for those “old rockers” from the 70’s like me… That’s Uriah Heep, at their best!

OK… So, welcome to July! The last day of June was quite the volatile one to say the least! There we were waiting for the S&P/CaseShiller Home Price Index to print, and show that home prices were still down by quite a bit, when it did, it did, it printed at -18.12%… But! The media was all over that like a cheap suit, clamoring that the spiral down in Home Prices had come to and end! Which, may be true… But wouldn’t you want to wait to see if next month’s report confirms it? And… By the way… Since when does -18.12% fall in home prices beckon a rally? Yesterday, would be that answer!

So… The currency rally that was going on for a 4th day, was quickly wiped out, Ventures style… What? Don’t know who the Ventures are? Boy, you really missed a lot of great instrumentals! Any way, the euro sunk like the Titanic from a level of 1.4130 to 1.40… The iceberg that caused this mess was simply the fact that traders, etc. believe the U.S. is on its way out of this mess… Of course, they must not be Pfennig readers, because… They would have read yesterday how I detailed the monthly numbers and showed how even with the spiral down in Home Prices ending, it would take until 2011 before the Home Prices got back to zero!

But NOOOOOOO!!!! They couldn’t read it until late yesterday afternoon, because… Houston, we had a problem, with the Pfennig’s delivery yesterday… See, how I’ve mellowed? I’m not even going to rant about this… Instead, I’ll just remind everyone that whenever the Pfennig doesn’t show up in your email box, you can most likely find it to read on the Pfennig’s website, where you can view that “glamour shot” of me, and archives of the Pfennig! You can find it here: www.dailypfennig.com —- Hope that helps!

OK… Well… After the thrill is gone, and the dust settled on all that yesterday, the euro is leading the other currencies higher once again… Here are a few things that have caused a sell-off of the dollar overnight once again…

Not that I’m a fan of his… In fact, I don’t really care at all… But George Soros, normally has some interesting things to say, that end up being bang on… So here are a few one liners from a speech by George Soros yesterday… I believe this sounds very much like the things I tell you, have told you, and will continue to tell you…

SOROS SAYS SEES A “STOP-GO” ECONOMY GOING FORWARD
SOROS SAYS SELF-CORRECTING MARKETS IS A MISCONCEPTION
SOROS SAYS INFLATION FEARS WILL DRIVE UP RATES AS MARKETS REVIVE, CHOKING OFF GROWTH
SOROS SAYS CURRENT SUPER BUBBLE MADE POSSIBLE BY PAST INTERVENTION, EFFORT TO RESOLVE PREVIOUS BUBBLES
SOROS SAYS FORMER FED CHAIRMAN GREENSPAN REFUSED TO ACCEPT RESPONSIBILITY FOR STOPPING BUBBLES

And then there was Alice Rivlin, she of former Budget Director, and former Fed Reserve member, fame, had a few things to say to the House Budget Committee… Good stuff, but you have to wonder if anyone was paying attention! Here’s Alice!

“The long term budget outlook: impending
catastrophe”

“No one needs to remind this Committee that the outlook for the federal budget is worrisome indeed, scary. Long before the financial crisis and the current deep recession, this Committee was anxiously pointing out that current federal spending and revenue policies are on a risky, unsustainable course. Promises made under the major entitlement programs (especially Medicare and Medicaid) will increase federal spending rapidly over the next couple of decades, as the population ages and medical spending continues to rise faster than other spending. Federal expenditures are projected to grow substantially faster than revenues, opening widening deficit gaps that cannot not be financed.”

Hmmm… Sounds like me too! Is this “sound like Chuck day?” HA!

OK… Enough of all that, I don’t want anyone to get hurt, and I should have told everyone to put away the sharp objects before reading!

In other data yesterday, Consumer Confidence took a step backward, and fell in June to 49.3 from May’s figure of 54.8… Maybe those that were surveyed has just read Alive Rivlin’s talk to the House Budget Committee! Seriously though, this was a surprise, given the fat that the DOW gained 838 points in the 2nd QTR! At least, that’s what the Wall Street Journal said!

Today, we get a truckload of data starting with Challenger Job Cuts, and the ADP Employment Change. Those are followed by the ISM Manufacturing Index, Construction Spending, Pending Home Sales and Vehicle Sales… Not a lot of “major” data prints, but still stuff to check the pulse of the economy.

I was talking to my good friend, and an economics professor at a prestigious University, yesterday, and she mentioned that “this piece of data is questionable as to the inputs”… I said to her… “What piece of data isn’t questionable these days?”

OK… The “demand for high yield” was put on hold yesterday… But it will return, or at least I should say I think it will return… I don’t know for sure to say “it will”, so had better make the legal beagles happy… That’s funny! To say that they would be “happy” with me… They cringe, and get very uncomfortable every day when they read the Pfennig! HA!

But you know me… I’m just trying to provide Market Commentary, and other things that I think are important, well, important to me that is!

Like… A long time reader sent me a note yesterday, and said, “hey Chuck, did you see the story in the Wall Street Journal (WSJ) on Foreign Demand for Treasuries?” Well, I hadn’t and went immediately to the WSJ, and there it was… Tucked away in a corner so that no one would see it, if they weren’t looking for it… A story, by Min Zeng, titled, “Is Foreign Demand As Solid As It Looks?

These are the things that really TICK ME OFF folks, so stay with me on this… Basically, as we all know the U.S. Treasury Auctions have been getting “covered” easily recently… And foreign demand was listed as the reason… Which would have been the exact opposite of what I was saying about foreigners shying away from Treasuries…

Here’s the skinny… But I’ll let Min Zeng tell it, since he did the research and brought this to the public, even though it was tucked away so no one would notice!

“But in a little-noticed switch on June 1, the Treasury changed the way it accounts for indirect bids, putting more buyers under that umbrella and boosting the portion of recent Treasury sales that the market perceived were being bought by foreigners.

The new definitions are deep in the arcane world of Treasury auctions. The change involves buyers who place orders through primary dealers. Those had been counted as direct buyers, but as of June 1 they were classified as indirect buyers, making that group larger than before. Because investors view that group as being dominated by foreign buyers, they assumed foreign demand was higher.”

>>>> OK, back to me… Ahhh, so that’s what’s going on… The Treasury “moved the goal posts on us”… As Sylvester would say… That’s despicable! Why isn’t someone in Washington D.C. shouting from the roof tops about this? Oh, that’s right, they’re all in cahoots!

This is HUGE folks… So… When the markets were thinking that foreign demand was increasing, it was actually, as I had said, shying away from Treasuries! Which, if the market participants are thinking that as long as foreigners are “buying into our deficit spending” then the dollar will be on terra firma, but instead are getting “duped” by the U.S. Treasury, you would think that someone would have some xplainin to do… Right Lucy?

And here’s another thing that just ticked me off when I read it this morning… Recall, last week I told you about how someone in China was dissing the talk that China’s stimulus was working, and that China would not be recovering, which sent the Aussie dollar to the woodshed until this news had passed? Well… Talk about egg on their face! Here’s the skinny…

China’s manufacturing expanded for a fourth month in June… The official Purchasing Managers’ Index rose to a seasonally adjusted 53.2 in June from 53.1 in May… And just like here in the U.S. any reading above 50 is thought to show manufacturing is expanding… The manufacturing index in the U.S. is around 44, so… We DO have the tale of two economies…

In one corner, we have the Chinese who have spent about $585 Billion worth of renminbi in stimulus, and are seeing the results… Whereas in the other corner we have the U.S. who have spent… More money than you can shake a stick at, and are not seeing green shoots like they “think they are”, instead they see dandelions, and weeds!

And the currencies of Australia and New Zealand have responded positively to this news from China…

And since I’m talking about China, might as well check on the other members of the BRIC’s (Brazil, Russia, India and China) Brazil’s real just posted its best quarterly performance on record, and India was Asia’s 3rd best performing currency, and if you throw out the two currencies above India that are illiquid, South Korea, and Indonesia, India was the best performing currency in Asia in the second QTR…

And the people over at the Royal Bank of Scotland (RBS) believe that the rupee won’t stop here… RBS issued a research report calling for a record 11% gain by the rupee in the 3rd QTR… I bet this news is music to the ears of my colleague on the “other” newsletter that I write… The Currency Capitalist… (to find out more: https://www.web-purchases.com/CUC/WCUCJ900/landing) My colleague, Ashish Advani, at the Sovereign Society, has been saying the rupee would be a strong performer for months now!

Here’s something you might want to be aware of, regarding the New Zealand dollar / kiwi… About $4.5 Billion in kiwi Uridashi and euro kiwi bonds denominated in kiwi will expire next month… I’m told that this is more than 4 times the size of a usual monthly expiration of bonds. This could very well be the hoola hoop the Reserve Bank of New Zealand (RBNZ) is looking for, given their wish that kiwi would weaken…

Royal Bank of Canada’s Currency guru, Sue Trinh, says that kiwi weakness could be beneficial to Aussie dollars, as the Japanese are leaning toward Aussie over kiwi these days…

Sounds about right to me!

And then there was this… OK, you all saw that Bernie Madoff was given 150 years in prison… Did you see that his wife, Ruth, reached an agreement with the authorities to return all of her wealth except $2.5 million that she got to keep? The thing that I still don’t get is how there aren’t more people going down with the ship on this one… I’ve been in the back office of brokerage firms, ran a margin dept, etc. and know this wasn’t just Bernie and his accountant… There was a lot of wool pulled over many eyes… And this will be the next step in the investigation by the U.S. officials… To see, who else knew what… If a whole stable full of people aren’t found to have known, then I’ll be surprised…

Currencies today 7/1/09: A$ .8045, kiwi .6410, C$ .8640, euro 1.4050, sterling 1.6430, Swiss .9220, rand 7.7675, krone 6.39, SEK 7.6337, forint 192.50, zloty 3.1390, koruna 18.3315, yen 96.90, sing 1.4475, HKD 7.75, INR 47.90, China 6.8330, pesos 13.18, BRL 1.9515, dollar index 80.11, Oil $71.27, 10-year 3.54%, Silver $13.67, and Gold… $931.20

That’s it for today… So sorry about the tardiness of the Pfennig yesterday, but I can’t do anything about it when we have technical difficulties… You know that I get up before the milkman, and the paper man, to get here to write it… It wasn’t like I was dilly-dallying around and didn’t get it done until 5 in the evening! HA! I see that my little buddy, Alex, got a 2nd and 3rd in backstroke and freestyle respectively at his latest swim meet. Really long time readers might recall when Alex’s older brother, Andrew was a highly decorated swimmer, and I would write about his swimming records… And their sister Dawn, also was a medal winner as a young girl! So… It’s now up to granddaughter, Delaney Grace to carry on the swimming tradition! HA! Cards lose again… UGH! OK… Time to try to get this out the door, hopefully it will go without a hitch… But whether it does or doesn’t it won’t stop me from having a Wonderful Wednesday… How about you?

Source: The U.S. Treasury Moves The Goal Posts

Good day… And a Terrific Tuesday to you! Well… Let the Data flow begin! And let Big Ben Bernanke’s “green shoots” wilt under the bright summer sun! Not that I want to see the U.S. in economic muck, but come on! He was banging the drum for these “green shoots” when they simply looked like weeds to me, and I just think for him to say those things when I believe he knew better was wrong… Very Wrong!

I came in this morning, and turned on the currency screens to see that the dollar has taken a step back for the 4th consecutive day VS the euro. The single unit is up to 1.41 again, as it makes those probes out beyond the 1.35-1.40 trading range we’ve had in place now for some time. Yield demand is what’s driving the dollar downward, and while the euro doesn’t exactly have a “yield differential” to the dollar, the thing to remember, as I always tell you… The euro is the “offset currency” to the dollar. So, just by nature of the crosses to other currencies, the euro benefits whenever the dollar is sold.

So… If Yield Demand is what’s beating the dollar up like a rented mule (no animals were hurt here, just a saying… ) Then the “high yielders” should be doing the beating… And as I look at the currency screens, that’s what I see! The Aussie dollar is trading above 81-cents, kiwi above 65-cents, rand is 7.75, and the Brazilian real which has to fight with the Central Bank for every inch of gain VS the dollar, is holding its own right now… A month ago, I was telling you about the gains VS the dollar since March 1st… Well, an updated look at the 3-month gains tells us that the move against the dollar has continued… Albeit with several steps backward along the way!

Shoot Rudy! Even the beaten and left for dead Mexican peso has rebounded in recent days as the “other” high yielders drag the peso along for the ride.

4 months of gains VS the dollar doesn’t exactly qualify this move as a “trend”, which is normally associated with long sweeping moves. This does look as though it could become a “trend” though, as it has all the qualities of a long sweeping move, just concentrated in a 4-month span… Like, when a “trend” is in place, it’s not a One-Way street, there’s volatility within the trend… And we’ve certainly experienced that! Personally, even if this does turn into a long sweeping downward move for the dollar, I would just say that it’s a return to fundamentals, and not a new trend… Simply a return to the underlying weak dollar trend that began in 2002, and saw a pause in 2005, and then another one from July 2008 to March of 2009…

OK… Remember when I made such a BIG DEAL out of China and Argentina agreeing to swap currencies in trade settlement and remove dollars from the equation? I told you then that China was trying to gain a wider acceptance for their currency, the renminbi. And… That China had locked up Southeast Asia with similar agreements, which led me to believe that since they had traveled to South America, that Brazil could be next in line… And, the rumors began circulating…

Mom… He’s doing it again! Yes… China and Brazil have agreed in principle to remove dollars from trade settlement, and replace them with renminbi and reals respectively! This follows up what I told you about 10 days ago, and that is that China had become Brazil’s number one trading partner, knocking the U.S. down a notch. So… If that’s so, it’s not like we’re talking small sums of money folks… No, this is the BIG KAHUNA for China, and that not so big kahuna for the U.S. / dollar…

So, while China claims to be on the dollar’s side, and “see’s no alternative currency”… They are working to get their own currency in the mix… Looks like it’s all a “plan” to me, folks… Before we know what hit us, renminbi will be everywhere!

But… Still manipulated as to it’s value VS the dollar by Chinese officials. So… Don’t think, for now any way, it could all change though, that you should sell everything you own and go out and buy truck loads of renminbi… I think you would find yourself to be a bit disappointed… That is, unless you have time on your side… Time is on my side, yes it is…

I got a HUGE kick out of my friend, The Mogambo Guru, reading his weekly letter on the Daily Reckoning site (www.dailyreckoning.com) I’m looking forward to catching up with the Mogambo in Vancouver in 3 weeks time. We keep missing those opportunities to meet up, with first my cancer, and then his stroke… But, there we will be together, two of the biggest smart alecs you’ve ever met in your entire life… I need to see if he’s up to going on the road with me to do a two-man show! HA! Any way… The thing I was going to talk about was that the Mogambo, told his readers yesterday, that in his latest visit to John Williams’ web site: Shadow Stats, he was surprised to see that inflation is really running at 6%, which is quite different from the stupid CPI the Gov’t tries to shove in our faces of -1.3%! Here’s the Mogambo…

“As for inflation, his calculation of the Consumer Price Index “reflects the CPI as if it were calculated using the methodologies in place in 1980,” which I note is back when inflation was a measurement of the change in prices of things that you buy, and not, as it is now after the villainous Alan Greenspan and Michael Boskin came up with their ludicrous “hedonic” measurements of inflation with which to disguise it.”

And… He also found that unemployment, which I tell you all the time is very, very, very, and maybe one more very, understated by the BLS, is… At 20%… 1 in 5 are unemployed…

So… Thanks to the Mogambo, and John Williams for giving us data that backs up what I’ve been spouting off about!

This morning, Norway got the data flow going early with Norwegian retail sales surprising to the upside in May, rising 1.9%! The experts had forecast a -.2% decline… This rise in May gives brings the year-on-year figure to a negative -1%, which still sounds bad… But much better than what was forecast… -3.2%!

Norway seems to be just sailing along, out to sea, without any wind in its sails, not joining the other Commodity Currencies like Aussie, kiwi, and South Africa and Brazil… I think that won’t last too much longer… You see, Norway had a governor put in its currency when it’s neighbor, Sweden experienced bad times due to the Latvian banking crisis… So, as more and more miles of road get put between the thoughts of Latvia and Sweden, the better it will be for Norway… That… And… Getting Oil’s price back to the rally mode!

Canada is another currency that is not gaining along with the other Commodity Currencies, even with Oil moving higher again… Here’s the diff… Those other Commodity Currencies all have YIELD! While Norway and Canada do NOT! However, having said that, I just don’t see these two energy driven currencies wallowing around in the mud too much longer. Playing catch-up with Aussie and the rest of the bunch will be difficult though, and the “other” Commodity Currencies have such a big head-start!

OK… Time for the data set-up for today…

The S&P/ CaseShiller Home Price Index for April will print this morning, and is expected to show a decline of -18.6%, which those that wear rose colored glasses will say, “Hey, Chuck, that’s down from previous declines”… To which I will respond… Yes, it is… But, not much… And if you chart out the monthly prints you’ll see that it hit the low of -19.01% in Jan… February’s print was -18.67, and March’s print was -18.7%, you’ll have to agree with me that the move to “down from previous declines” has been quite slow, eh? And… At this pace it would take until 2011 before we got back to 0% YIKES! So… While you’re wearing those rose colored glasses you might, just might, want to dig deeper into the data before you start sounding the “all’s clear horn”!

We’ll also see Consumer Confidence, which, because of the better times in stocks, is expected to inch upward to an index number of 55.3 VS 54.9 in May… While this data is more like what I believe it should be, it’s still higher than I would think… But then, so are stocks!

And… Then there was this… Recall last week, when Big Ben Bernanke gave his impression of Sgt. Schultz, when asked about pressuring Bank of America (BOA) to take over Merrill Lynch, claimed he “knew nothing”! I thought that he had thrown former U.S. Treasury Sec. Paulson under the bus… Well, today, Paulson will appear before the same committee that’s looking into this mess, that BOA Chairman Ken Lewis claims to have happened. I wonder what Paulson’s thinking after hearing Big Ben last week? I guess we’ll find out today!

It’s the last day of June, my younger brother David’s birthday… David was born when I was nearly in high school, while my youngest brother, Mike was born while I was in high school! Anyway… What I was going for with the last day of June, before my mind wandered, was that it will close the books on the 2nd QTR… And soon enough, we’ll begin to see earnings reports for the quarter… Should be interesting…

Currencies today 6/30/09: A$ .8140, kiwi .6520, C$ .8675, euro 1.4125, sterling 1.66, Swiss .9255, rand 7.7435, krone 6.3955, SEK 7.6630, forint 193, zloty 3.1555, koruna 18.3360, yen 95.80, sing 1.4465, HKD 7.7499, INR 47.90, China 6.8305, pesos 13.12, BRL 1.9565, dollar index 79.64, Oil $71.67, 10-year 3.48%, Silver $14, and Gold… $940.75

That’s it for today… Whew! What spanking by the Giants last night! OUCH! It’s bad enough to get shut-out on two hits, but when the other team hangs 10 on you… Like I said, OUCH! Now that’s going to leave a mark! Tomorrow, we turn the page on the calendar to July, which means the All-Star Game is almost here! I’m as excited as a kid at Christmas for this… You’ll have to look for me at the Home-Run Derby, and All-Star Game… I’ve got some primo tickets right at the end of the visitor’s dug-out (3rd base line), 2nd row! Now, you know why I’m so excited! Well, that’s enough of that… Mary and Suzy Q are here, so that must mean that I’m late! So… Let’s make this Tuesday Terrific, eh?

Souce: A Week Dominated By Data

Good day…and welcome to another week, hopefully the currency markets can continue their assault on the dollar which began a few weeks ago. The dollar index peaked back on November 21, and with the exception of a few days around the beginning of December, the greenback has consistently fallen vs. most of the major currencies. Friday was no exception, and the dollar continued to give back gains over the weekend with the Euro climbing back over $1.35 for the first time in two months.

This morning the markets are focusing on the Fed’s Open Market Committee meeting and rate announcement which will come tomorrow. It is widely expected that Bernanke and his compatriots will push US interest rates close to just 0.5%, the lowest on records dating back to July 1954. From everything I’ve read over the weekend, this 50 basis point cut is pretty much a done deal, and currency traders are actually more interested in what the Fed’s statement will say about ‘alternative easing measures’. The rate announcement will come tomorrow at around 2:15 pm EST after a two day meeting. The FOMC meeting had originally been scheduled for just one day, but was extended so policy makers could study options for unusual steps to spur the economy. I guess they finally figured out that they are running out of room with the interest rate cuts!

The Feds newest weapon against the falling economy is ‘quantitative easing’, which the Bank of Japan used in the 1990’s. This non-traditional method of easing centers around pumping money back into the financial markets as quickly as possible. The Fed has already started down this path by allowing its balance sheet to more than double in size after pumping over $1 trillion into financial markets. The markets are now expecting the Fed to announce it will start purchasing private sector mortgages to drive down home loan costs. By purchasing these bonds, the Fed would narrow the spread between their yields and yields on US Treasuries, and theoretically allowing banks to offer home loans at lower rates.

But the Fed has already pumped trillions into the banks in an effort to get them to start lending, so I’m not sure having the Fed narrow mortgage spreads will get these same banks to open up their lending windows. And even if the banks lower mortgage rates, they won’t be lowering credit standards. Unemployment continues to rocket upward as more and more firms lay off workers. Do you think these banks are going to be willing to refinance someone who has just lost their job?

And what will be the long term impact of all of this ‘quantitative easing’? The Fed is mashing on the money supply accelerator, totally ignoring the inflationary results which all of this will bring down the road. Ben Bernanke is smart enough to know the risks of the path he is speeding down, but right now he is choosing to ignore the consequences in an attempt to keep the economy from falling off the abyss. Some at the Fed believe they will be able to pull all of this added liquidity back out of the markets as soon as the economy starts to recover. But this is a very difficult thing to do, as the Fed would have to start pulling liquidity and increasing rates just as the economy is starting to turn. I think it is pretty obvious the ‘experts’ have a tough time calling the turning points, as it took them almost a year to call the recession!! And the consequence of missing the timing on pulling the liquidity back out of the market is much more drastic than mistiming the entry into the recession. Hyperinflation is waiting on the other side of this short term deflationary pause, and the Fed is currently looking the other way.

This weekend, President Bush announced that he is thinking about spending some of the TARP money which was set aside to stabilize the financial system to bail out the auto industry. This announcement caused a further sell off of the dollar as it is quickly losing its status as a safe-haven currency. Chuck was busy this weekend, but still found time to send me his thoughts:

“Well… We went to cut down our tree today, then watched Alex’s basketball team get smoked! Put the tree up in a spiffy, with one of the greatest inventions of man kind, the swivel stand… And now I’m off to tell you what I’ve read about this weekend…

First though… A quote from Ronald Reagan… “The most terrifying words in the English language are: I’m from the government and I’m here to help”

OK, with that in mind, I wanted to discuss the bailout for the automakers, GM and Chrysler.

First of all, I know it will be tough for the autoworkers should they be laid off, especially at this time of the year. But, the problem here is the fact that the automakers have run their respective companies very badly, and now they expect the taxpayer to bail them out.

It was reported on Friday that the Gov’t is “looking into” using TARP money for the automakers bailout since the Senate voted “no” to the $14 Billion plan.

First of all… Congress said nothing about helping carmakers, or any other non-financial business, in October when it authorized the $700 billion Troubled Asset Relief Program, or TARP. But yet, it is being discussed as the “funding source of funds”…

That fund was never designed to rescue manufacturing companies with long-term operational issues. It was designed to shore up confidence in the banking system in order to thaw the world’s credit markets.

Our own David Nicklaus of the St. Louis Post Dispatch has this to say, which makes a whole lot of sense to me! “The Detroit Three have been losing market share for decades, and their bloated cost structure makes it difficult for them to turn a profit even in good times. They have too much debt, too many models, too many dealers and, sad to say, too many workers.

Congress seemed to view an auto bailout as a jobs program, and TARP is nothing of the sort. In fact, the Treasury has invested in Bank of America, which is eliminating 35,000 jobs, and Citigroup, which is slashing 52,000.

The Treasury program, as it’s been used so far, at least lacks one of the worst features of the failed auto bill. Nothing in the TARP legislation allows the government to name a car czar.”

Yes, a Car Czar… Those Czars worked out well for the Russians, eh?

But the thing that really gets my blood boiling folks, is the fact that if bailout had gone through with the Car Czar, it would have been one more nail in the free markets / business coffin, just another opportunity for those that want to run the country toward the socialist side of the ledger…”

That is one of the things I love about Chuck, you don’t ever have to wonder where he stands on something!

As I started to say before I went off on my FOMC tangent, the dollar continued to give back ground vs. just about all of the major currencies over the weekend. The Euro was up over 1.2% vs. the dollar, and broke through the $1.35 handle. The only two currencies which sold off over the weekend were the South African rand and Brazilian real, which were down just slightly. In addition to the FOMC meeting and announcement, we will get the TIC flows, Empire manufacturing number, Industrial Production, and Capacity Utilization numbers today. Tomorrow will bring the CPI numbers along with housing starts, building permits, and ABC Consumer confidence. Wednesday will be a light data day with just the Current Account Balance reported, and Thursday will close out the data with the weekly jobs numbers along with Leading indicators.

The Australian and New Zealand dollars rose on speculation the FOMC will be cutting US interest rates. These two currencies will benefit from their higher rates with the US cutting rates to near zero. The currency markets have started to move back toward trading on fundamentals over the past few weeks, and interest rate differentials are one fundamental which favors the NZD and AUD. If the Fed’s statement makes it known that interest rates will remain low for a long time, the dollar would likely fall further vs. the Aussie dollar, as the RBA has signaled that it is close to the end of its rate cutting cycle. Benchmark rates are nearly 400 basis points higher in Australia and New Zealand when compared with the same rates here in the US.

In a break with the recent trading pattern, the Japanese yen rallied along with the New Zealand and Australian dollars. A former Deputy Governor of the BOJ said Japan is probably not going to lower rates further; “with the interest rate already so low, a further reduction would have only limited impact.” The central bank’s Tankan survey today showed confidence among large manufacturers fell the most in 34 years as a deepening global financial crisis crimped export demand, forcing companies to pare production and fire workers. The yen’s recent surge to a 13 year high has compounded woes for manufacturers.

Gold continued to rise over the weekend, pushing back up to an eight week high in London. The dollar’s fall has spurred investors to move back into gold as an alternative investment. News that President Bush was looking to tap the bank bailout fund to keep GM and Chrysler out of bankruptcy spurred further purchases of gold. With the tremendous growth in the US money supply, and the FOMC turning their back on inflation concerns, precious metals should continue to gain ground. Gold is traditionally one of the best hedges against rising inflation.

Currencies today 12/15/08: A$ .6635, kiwi .5523, C$ .8138, euro 1.3473, sterling 1.4969, Swiss .8534, ISK 218, rand 10.1985 krone 6.9051, SEK 7.9963, forint 197.97, zloty 2.9644, koruna 19.428, yen 90.79, baht 34.88, sing 1.4773, HKD 7.75, INR 48.0512, China 6.85, pesos 13.5138, BRL 2.387, dollar index 83.15, Oil $48.52, Silver $10.36, and Gold… $827.60

Source: Waiting on the FOMC Meeting

OK… The Fed’s FOMC meeting minutes caused quite a stir in the currencies yesterday, so let’s go to the tape. The Fed noted that prior easing had provided a better balance to the risks to inflation and growth, although the risks were still towards downside growth. In addition, the Fed downgraded their outlook for growth and pointed toward higher inflation… In addition, the Fed noted that “much weaker 2008 growth, inflation to remain elevated in 2008, jobless rate to rise significantly.” Ooooh, now that doesn’t give me a warm and fuzzy, and it shouldn’t give you one either!

So… If that’s what they “really” talked about, then why on earth did they go ahead and cut interest rates? They put in print that they believe inflation is going higher, and they went ahead and cut interest rates! OMG! These guys (and gals) are something… They are really something.. What? I don’t believe I can say what they are in this letter, as this is a family letter! But, I’m sure my friend, the Mogambo Guru will have something to say about this, in his special Mogambo way… Can’t wait to read his letter next Monday!

The Fed notes sent a message to currency traders and the message said… “with low growth forecast, and higher inflation forecast, the Fed doesn’t have a clue what to do” Which means there isn’t a strong feeling about an interest rate hike now either.

Last night, after getting home from my little buddy Alex’s baseball game, I checked what was going on in the Asian markets… I did this because the Fed FOMC minutes printed after Asia and London had gone home for the day, and I wanted to see how the Asians took the FOMC minutes… At that time the euro was close to 1.58 again…

But something funny happened on the way to the forum for the euro this morning… So, let me explain what happened… It’s called jawboning. The dollar was falling too far too fast again, and something had to be done to slow down the fall, a governor if you will on weakness! And that something came in the form of a report showing that futures traders are adding to bets that the Fed will raise interest rates before year-end…

Well… With inflation (in my terms) at 11%, I would think they would be raising interest rates well before then… But, then, that’s just me… And if the Fed does raise rates, what good will it do if they wait till year-end? By then, inflation will probably be around 14-15% (in my terms) and the price of oil will be… Oh, who knows how high it will be by year-end?

So… The euro has lost about 1/2 cent overnight on this news… Still, the euro has made a nice recovery this week, and all those banging on the drum for and end to the weak dollar trend have crawled into the back seat and shut their traps this week…

OK… Enough on the Fed and their ineptness! Under the category of: “It’s about time they agree with Chuck”… Banks including Royal Bank of Canada, and ABN AMRO Holding NV. Believe that the Aussie dollar is going to parity with the green/peachback. So, the “parity watch” is on… With champagne bottles chilling and party hats all ready to be worn… The “parity party” is being planned… Too bad these Big Banks with their Big Research Departments don’t read the Pfennig…

Just kidding… These guys are great at what they do! But, how about that Aussie dollar? I’ve spent most of this week talking glowingly about the Aussie dollar… Yesterday, it hit a 25-year high!

The New Zealand dollar / kiwi, finally got off its duff and moved higher last night… Kiwi had lagged the Aussie dollar lately, but finally saw some love when a more expansionary than expected budget for 2008 was printed… I still like Aussie more than kiwi, as New Zealand’s debt situation is just too much for me to try to sweep under the rug!

U.S. stocks lost another 200 points yesterday… And we all know what that means… So a quick look at Japanese yen and Swiss francs shows some nice gains this week. This all plays well with what I’ve been talking about… (stocks to fall, and Carry Trades unwind) It’s too early to tell if this will continue, but for now, it sure looks like another “plan” has come together!

A couple of weeks ago I talked about the Indian rupee, and how it had weakened for no apparent reason, therefore laying the blame on the Indian Central Bank… It now appears that a credit market slump has led to this weakness… Corporate Treasurers in India believe this credit market slump has passed and the currency will rebound 8% in the next year.

Yesterday, Reuters reported that Warren Buffett has this to say about the dollar… “BUFFETT SAYS DOLLAR WILL CONTINUE TO DEVALUE, POLICIES NEEDED TO CORRECT SLIDE HAVE NOT CHANGED”

Sounds like Warren Buffett has been reading the Pfennig! Doesn’t that all sound familiar? Of course it does… Because that’s what I keep saying over and over again! The fundamentals remain awful!

OK… Today, we’ll see the Weekly Initial Jobless Claims, which are forecast to have jumped to 373K, which would be equal to the level at the start of the 2001 recession… We’ll also see the OFHEO House Price Index for the 1st Qtr, which is expected to show a 1.3% decline, which if that number prints it would equal a record low since the data began in 1975… UGH!

Fed Head Kroszner is going to talk today about the recovery and “repair” of the mortgage markets… What recovery? What repair? This ought to be interesting!

Bank of Canada’s Gov. Carney will speak today, but after Canada prints March Retail Sales, which are forecast to show a rebound from the Feb. report. The Canadian loonie continues to move higher VS the green/peachback, so expect some “jawboning” from Carney to slow the loonie’s rise…