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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Source: Santa Rally Continues

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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