The global population is peaking and is consuming more food than it’s producing. This will make food scarcer and cause it to rise in price.

But there are more subtle reasons for investing in commodities right now. Rogers says that although stocks may touch crazy valuations in the near term, they may be in worthless currencies – a vista Notes readers will be familiar with. This from a recent interview with Rogers in the Economic Times:

Central banks all over the world have printed huge amounts of money, and the real economy is not strong enough for all this money to be absorbed… so, it’s going into stocks and real assets such as commodities. It’s a mistake what they are doing. It’s giving short-term pleasure, but there’s long-term pain as we are going to have much higher inflation, much higher interest rates and a worse economy down the road.

The American bond market is already beginning to go down dramatically as people realize that the American government has to sell huge amount of bonds, and secondly, there is going to be inflation, serious inflation, as it was always in the past when you had governments printing huge amounts of money.

The fiscal deluge is lifting stocks. But they’re getting frothy. And Rogers reckons the current upward trend won’t last.

It’s going to snap. Later this year, next year, we are going to have currency problems, maybe even a currency crisis. I don’t know with which currency — maybe with the pound sterling, maybe with the US dollar, who knows. It maybe with something none of us have at the moment. When you have a currency crisis, stocks will be affected, many things will be affected. It is not sound, what’s happening out there in the world.

In the 1930s, we had a huge stock market bubble which popped. And then politicians started making many mistakes. They became protectionist. They made solvent banks take over insolvent banks and then both banks failed in the end.

They are doing many of the same mistakes now. What’s different this time is that we are printing huge amounts of money which they did not print at that time. So, we are going to have inflation this time.

There are a number of ways to play this scenario with hard assets. But to keep things simple, you may want to focus on the following three market-beating commodities ETFs (hat tip ETF Trends).

1) The iShares S&P GSCI Commodity-Indexed ETF (NYSE:GSG), up 8.1% for the year

2) Notes’ old favorite, the PowerShares DB Agricultural Fund (NYSE:DBA), up 7.5% for the year

3) The Market Vectors-RVE Hard Asset Producers ETF (NYSE:HAP), up 25.9% for the year

For instance, it was reported the other day that the Treasury Dept. has overpaid for stock received from TARP recipients by $78 Billion. You see, for every $100 given in TARP, the Treasury was to receive $100 in stock / assets, but when all the beans are counted, the Treasury is $78 Billion short on stock /assets… But, what the heck, what’s $78 Billion among friends?

I was totally amused at the lawmakers grilling of Bank CEO’s yesterday. In going along with the general practice that exists today… “It’s always someone else’s fault for it can’t be my own fault” The lawmakers pointed fingers and blasted these CEO’s for “earning a living”… This is dangerous ground folks, as it speaks of doing away with the way businesses have been run for eons, and shakes the very foundation of Capitalism… If the lawmakers had stopped and thought about their TARP money before they began to hand it out with no accountability, and lending requirements, maybe things would be moving in the right direction by now… And I know… This is getting to opinionated and I’m not going there anymore.

Oh! And one more thing… Please no more emails blasting me for taking the new administration to the woodshed so early in their rein… It’s NOT A POLITICAL THING! For any reader that was around in 2001 when the then new administration had just taken over, and their first order of business was to place tariffs on Steel imports, I came out with both guns a blazin’ that this was protectionism and had no place in free markets and Capitalism… I ranted and railed on this new president for this move. Funny, I don’t recall receiving the nasty emails I get now for doing the same thing to this new president back then.. Hmmm…

OK… The dollar was in the driver’s seat yesterday, as the risk takers have all gone home… A heading on Bloomberg this morning tells it all… “Stocks fall worldwide on concern stimulus plans may fail” The Stimulus they are talking about is the “new and improved” Stimulus package that the Senate approved yesterday, which came in lower than the previous package. This version’s total comes in at $789 Billion.

Yesterday’s potential market moving data didn’t materialize, as the Trade Deficit did not narrow as much as forecast, and last month’s number was revised upward. For the record and for those of you keeping score at home, the Trade Deficit for December printed at $39.9 Billion, and November’s Deficit was revised from $40.4 Billion to $41.6 Billion. Exports have fallen off the cliff as 1. Global demand is waning, and 2. the dollar is overvalued and too strong to allow U.S. exports to be competitive.

Today, we’ll see Retail Sales for January. The BHI (Butler Household Index) tells me that we should look for a very disappointing number from January. We’ll also see the Weekly Initial Jobless Claims that continue to show more rot on labor’s vine. Last week, the Initial Claims showed a record of 626K filed. This week, the “experts” are looking for 610K… I’ll go out on the limb and say it will be even more disappointing. UGH!

Well… As I told the interviewer the other day… I believe what we’re seeing right now is a general increased concern regarding fiat currencies, which has Gold on the rally tracks once again. Yesterday, Gold soared upward and onward by $23… And it has already added $3 since the London Morning Fixing earlier… As my friend, the Mogambo Guru, tells his readers… Everyone should own Gold… “see how easy this investing stuff is? Whee!” And let me repeat something I said before. My friend, Bill Bonner of the Daily Reckoning, www.dailyreckoning.com coined this saying for his “trade of the decade” at the turn of the century… “The trade of the decade is to sell the DOW and buy Gold on the dips”… WOW…

And now that Central Banks all over the world are having a race to zero… Deposit rates no longer hold the hammer over Gold’s non interest bearing status. So… When Gold is on one scale, and cash (like dollars!) is on the other side of the scale… Guess what happens! I was surprised that I didn’t get any comments yesterday from the media or readers about what I said Gold was… “An Uncertainty Hedge”… Are you uncertain as to what all this that’s going on is going to bring us?

An ECB minister, Papademos, was speaking overnight about how “a further easing of the Eurozone monetary policy may be appropriate as risks to growth and inflation are to the downside.” Then another ECB minister, Liikanen, said that “at the next meeting it is possible we could move.” No dookie Sherlock! Your leader, Mr. Trichet, has all but told us to look for lower rates at the March 5 meeting…

Lower interest rates in the Eurozone won’t necessarily hurt the euro, as they sure haven’t hurt the dollar! There’s a whole trading pattern that deals with a currency not losing value even after a debasing rate cut… I’ll put that all together, and bring it to you probably next week, as we’ve got time before March 5 comes around any way!

Instead, the market movers for euros this morning has been 1. risk aversion in play 2. more flight to the safety of Treasuries, and 3. recession type data, like this morning’s December print of Industrial Production for the Eurozone, which fell -2.6% for the month, and moved the annual year-o-year figure at -12% OUCH! Now, that’s recession type data! And something that really brings that thought I’ve made a few times now, about the move to Gold…

Pound sterling has gone back on the slippery slide downward, after a brief rally last week. I was getting a little hot under the collar with the sterling strength last week, but, as with all things, patience is a virtue… Sterling is showing its true colors again, and the folks over at BNP Paribas say that the “downside risks for pound sterling VS dollars have increased”… Hmmm… That’s big time research dept there… I could of, and in fact I already did all by my lonesome, tell you that!

The Aussie dollar (A$) just won’t go away quietly… Yes, I fully understand that it has fallen from the lofty level 98-cents to present day levels of around 65-cents… But since it got to this mid-65 cent range, it has held steady Eddie. Now, of course I realize that I just gave it the kiss of death, but really this is worth pointing out. And with yen now stalled out around 90, it kind of makes you wonder if the Carry Trade unwind is over… Makes you stop to think doesn’t it? Australia keeps cutting interest rates, and it remains in the mid-65 cent range… Yen has had every opportunity under the sun to go further to 85, and can’t seem to find any terra firma below 90… Therefore, I’m pronouncing the unwinding of the Carry Trade as a done deal… This is where the munchkin coroner comes out and proclaims the Carry Trade as truly dead… As Coroner , I thoroughly examined her And she’s not only merely dead She’s really most sincerely dead…

Well… At least we can hope so! This would be a good indication that risk aversion is dying out… Although I’m truly aware that this risk aversion has a ways to go, we have to get to this place before we can begin to make plans to send risk aversion to a state run home…

On a sidebar here… Whenever I used to sit around late into the night with my friends, they would invariably get me to do my imitation of the Lollipop Guild… HAHAHAHAHA! Of course this is when they also would have me play my guitar, which I now haven’t picked up in some time…

OK… Enough of that silliness! Your Pfennig writer has really gone out on a limb this morning with the Carry Trade thingy, eh?

I’m out of ideas for today, so with no further ado…

Currencies today 2/12/09: A$ .65, kiwi .5195, C$ .8045, euro 1.2855, sterling 1.4230, Swiss .8610, rand 10.0950, krone 6.8735, SEK 8.4050, forint 232, zloty 3.58, koruna 22.29, yen 90, sing 1.51, HKD 7.7515, INR 48.84, China 6.8340, pesos 14.59, BRL 2.2870, dollar index 86.14, Oil $35.53 (the price of oil just keeps falling!), Silver $13.45, and Gold… $944.44

Source: It’s Not My Fault, It Must Be Yours!

Chuck Butler

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Source: Gold As An Inflation Fighter!

Hey! What a day for the currencies yesterday! Geez Louise, it’s seems like it’s been a month of Sundays since I could say that! And there’s been follow up overnight, although, I do believe I’m seeing some profit taking right now… I went to radiation yesterday with the euro trading around 1.2965… I came back 2 hours later, and it was 1.31! And it didn’t stop there, trading up to 1.3175, but running into a wall of resistance there… But that was temporary, as the overnight market pushed the single unit higher to 1.3250… It did trade all the way up to 1.33 and change on news that the German Business Confidence, as measured by the think tank IFO, unexpectedly rose for the first time in 8 months. This improvement was a result of the European Central Bank (ECB) cutting interest rates…

Of course, you know me… And I always say that one swallow doesn’t make a summer… And that can be used here, as this IFO report is just one sliver of hope for the German economy… There needs to be more, or this will report will be put in the rear view mirror soon. So, I’m not pinning my colors to the mast of a German economic recovery, just yet! But, the data did “goose” the euro higher, and for taking part in that, I give the IFO kudos!

The Big Winner of the day though, was pound sterling… In a case of an asset “falling too far, too fast”… The pound sterling has done a Super Ball Bounce from Friday’s price, and has rebounded to 1.4190… Of course, that’s a rally from Friday’s figure of 1.3570… It certainly STILL shows the rot on the vine in the U.K. from last summer’s 2.00 for pound sterling. I would be very careful here, as the U.K. is in the same boat, smaller in size, but the same boat as the U.S….

I had a great lunch yesterday with the Big Boss, Frank Trotter, and we were discussing what we would talk about next week at the Orlando Money Show. I told Frank that I really believe in the prospects of a nice big rally in Norwegian krone… Let me tell you why… First and foremost, it remains a Surplus country… A positive balance of payments… And that surplus has allowed Norway to weather the storm that’s hit just about every other country in the world… See, why I believe the Surplus countries should always be considered when buying currencies? Anyway… The main reason it lost ground from last July’s levels is the drop in Oil prices… They like the other types of Commodity driven currencies like Aussie, Canada, Brazil, New Zealand, South Africa, just got hammered due to the selling in Commodities… But… You know my outlook for the inflation in this country, and that will be driving Commodity prices higher by year-end… But the leader in the forefront of all this move will, in my opinion, be Oil prices… And IF Oil prices rebound like I suspect they will, that will be a very nice underpin for Norwegian krone…

And Gold traded above $900 yesterday… It has seen some profit taking overnight, and fallen back to $896… But, again, these are stair steps to higher levels for the shiny metal… But then that’s just my opinion. You have to make your own investment decision…

OK, the data yesterday was not good, Yes, the Existing Home Sales moved higher, but only at the expense of a falling Home Price… The median home price was $175,400 in December, down 15.3% from $207,000 in December 2007, the National Association of Realtors said Monday. The median price in November this year was $180,300. Here’s the real indication that this rise in sales wasn’t at good levels… Of all sales in December, about 45% were distress sales at discounted prices. That’s foreclosures and auctions on foreclosed homes folks… I don’t think we want to get up on the fence and crow about this report…

And then, after all my harping about how the markets should pay closer attention to Leading Indicators data, the report for December showed an unexpected gain of .3%… Again, the one swallow doesn’t make a summer, applies here too… I’m from Missouri, and I’ll need to be shown more of this to believe it…

Today, we get the color of the S&P/CaseShiller Home Price Index, which will repeat what yesterday’s Realtors report showed… Expect more rot on the vine here though, with home prices showing an -18% drop…

And we’ll see Consumer Confidence, which I suspect will bump higher in December, although in reality I don’t know why… But it most likely will, based on the stock market’s head fake rally in December…

I see that “the cheater” a.k.a. Tim Geithner was confirmed as our U.S. Treasury Sec. I really didn’t think I would ever have another punching bag Treasury Sec. like I had with King Henry Paulson, but, then along came “the cheater”… I have to tell you that this is scary stuff folks… In his confirmation he said, not once, but twice, that “President Obama, backed by the conclusions of a broad range of economists, believes that China is manipulating its currency. President Obama has pledged as President to use aggressively all the diplomatic avenues open to him to seek change in China’s currency practices.”

OK folks, this is where the problems begin… If in his confirmation, he’s making statements like that, you can expect that Obama will push for legislature to put tariffs on Chinese goods… Protectionism… This is ALL GOING IN THE WRONG DIRECTION!!!!!!! And believe me now and hear me later… “the cheater” didn’t just make up this response! This was given to him by Obama, and “the cheater” made certain that everyone hear him, by repeating the answer!

I’ve told you before, folks, that Protectionism is to a currency, like kryptonite is to Superman… So… Not only is the Gov’t on the path to spending even more than the previous administration spent, they look as though they will go down this protectionism path… Add to that, the recession and zero interest rates, and you’ve got the ingredients for a huge swat at the dollar…

I read a report by Stephen Jen of Morgan Stanley, where he writes that he believes the euro will trade back to 1.20 in the coming months… Well, that may be, and would play well with my Obama bounce thing… But with this all happening so fast in the past couple of days, I might have to rethink that Obama bounce thing… We may get an Obama bounce, but it may be for the euro and other currencies!

Oh… And one more thing on China, before I go on… The IMF’s Managing Director, Strauss-Kahn, was talking yesterday, and said, “I have said repeatedly that the renminbi is undervalued” He went on to add, “What we need is for the Chinese to change their policy and shift to more domestic-led growth than to focus on exports. Most Chinese officials are convinced that this is in their own interest.”

So… The IMF believes the renminbi is undervalued, and that the Chinese should do something about it, and so does the Obama administration… And you say, “Trade wars”? I bet you can! And not a good time for them either! Not when the whole globe is suffering… Dolts, all of them, they can’t see the Big Picture… Shame, Shame, Shame!

OK… I could really get going on all that… But… I’ll shift gears and talk about the bailouts… Have you seen the Neil Young, you know THE Neil Young, video on YouTube? He’s singing about the bailouts… Here are the lyrics…

There’s a bailout coming but it’s not for me
It’s for all those creeps watching tickers on TV
There’s a bailout coming but it’s not for me
There’s a bailout coming but it’s not for you
It’s for all those creeps hiding what they do
There’s a bailout coming but it’s not for you
Bailout coming but it’s not for you

So… When guys like Neil Young know that these bailouts aren’t working, and they aren’t good… It should be very apparent to the likes of Pelosi, and Obama…

Oh… And Home Depot announced 7,000 layoffs yesterday, Sprint announced 8,000 layoffs, while Caterpillar announced 20,000…

I’ll get to the Big Finish here in a minute… But first, and finally I wanted to talk briefly about New Zealand… The Reserve Bank of New Zealand (RBNZ) meets this week, and I truly expect them to continue their interest rate cutting. 325 BPS have already been cut from their once highest interest rate in the industrialized world… Finance Minister Bill English was speaking last night and said that the “economic outlook had deteriorated since the government’s Dec forecasts, and that the economy now looked to be closer to the Treasury’s “worst case scenario”.” In that scenario, he suggested that recession would continue through to 2010, the current account deficit would balloon beyond 10% of GDP, and unemployment would rise sharply rising. These aren’t “good times” for kiwis… So… Look for the weakness in the kiwi-dollar to remain in place here…

Currencies today 1/27/09: A$ .6625, kiwi .5280, C$ .8160, euro 1.3250, sterling 1.41, Swiss .8790, rand krone 6.7325, SEK 7.9660, forint 215.90, zloty 3.2950, koruna 21, yen 89, sing 1.4990, HKD 7.7690, INR 48.93, China 6.8615, pesos 14.05, BRL 2.3120, dollar index 84.36, Oil $46.27, Silver $12, and Gold… $897.40

Source: ‘The Cheater’ Speaks

A Chinese newspaper reported that Chinese officials are calling for Beijing to sell U.S. Treasuries… Whoa! This is completely different than people outside of China giving them their 2-cents worth of opinions on how they should run their economy (read, Schumer, Graham, Bernanke, Paulson, and now Geithner a.k.a “the cheater”)… Let’s go to the story…

“BEIJING (Nikkei)–Calls are growing in China for the government to reduce its holdings of U.S. Treasury securities, as some observers expect their prices to decline amid heavy issuance to fund U.S. economic stimulus plans.

Such sentiment — in part motivated by indignation over recent American assertions that China is partially responsible for the global financial crisis — threatens to cast a cloud over relations between Beijing and the new U.S.
administration.

“China should sell some of its U.S. government bonds and increase its euro and yen assets,” Yu Yongding, a former member of the People’s Bank of China’s policy board, wrote in a Chinese newspaper earlier this month. Yu warned that the supply of Treasuries may far exceed demand in the future.

Such remarks by Yu, who currently serves as director-general of the Chinese Academy of Social Sciences’ Institute of World Economics and Politics, has sparked discussion within the government on how to manage its foreign reserves, according to a source familiar with the matter.”

I told the boys and girls on the desk about the story, and Ty noted that the markets weren’t really picking up on it… But by noon, you could tell something was going on, as the euro traded to 1.30 (+2 figures), Gold was up $40, and the Long Bond in Treasuries was down 2 whole points!

Now, I’m not saying that “this is finally the last shoe to drop” You see, just because a Chinese official calls for Beijing to sell their Treasuries, doesn’t mean Beijing does. However, look at the damage done to the dollar, and Treasuries when we have a single individual within China calling for this!

So… Judging from the currency reaction overnight… There’s been no follow up to the NIKKEI story… But what a performance from Gold! WOW! The shiny metal traded over $900 for a short time on Friday… I do see the Gold futures on the internet, and they are showing Gold will be over $900 today…

Pound sterling has bounced off its lows from last week, after Barclays announced they did NOT need Capital from the Government… This is the first “good” news from the U.K. in weeks, but I suspect it won’t last too long, as this is just one Bank… There are plenty others in the U.K. that won’t be able to make a statement like that!

And speaking of Banks… I see where BNP Paribas posted a huge loss in the 4th QTR on their investment banking woes… So, it’s not just U.S. , and U.K. Investment Banks with losses… The key here is “investment” banks… The ones that got deep into the subprime bonds, credit default swaps, and didn’t manage the “risks” correctly… Any way, this news from BNP Paribas is probably weighing heavily on the euro this morning, and one of the reasons the single unit has given up it’s gains from Friday…

So… As I said above, the Trading Theme for the dollar is in place, which means… The euro gets sold along with the other alternative euro currencies like Norway, Sweden, Denmark, and Switzerland… But the High yielders, like Aussie, kiwi, Brazil, and South Africa, really take shots to the chin… On the other side of the coin, the Japanese yen rallies like there’s no tomorrow…

The U.S. data cupboard is chock-full-o-data this week, and the Fed’s FOMC meets tomorrow, but won’t announce their rate decision until Wednesday. I’ve always wondered just what these Fed Heads do during these two-day meetings… I’ve always contended that they most likely played board games… Or Battleship! I can hear Kohn, telling, Bernanke, “Ben, by Joe, you’ve sunk my battleship!” (if you do it in an English accent it’s funny)…

We begin the week with Existing Home Sales and Leading Indicators… I keep saying over and over again that if the markets had 1. read the Pfennig… Or more likely 2. paid attention to the Leading Indicators they would have not been blind sided by this recession! Leading Indicators have told us for months now that things were not going to be all seashells and balloons for the economy… And voila! Well… I think Leading Indicators will continue to tell us there are more problems ahead, as they are forecast to be negative -.3%… And Existing Home Sales? The rot on that vine has been exposed for over a year 1/2 now…

Tomorrow we get the Case-Shiller Home Price Index, and Consumer Confidence… Wednesday, we’ll get the Fed’s rate decision, which I told you last week, to forget about any more rate cuts, they are so close to zero, they are at zero… Thursday brings us the Weekly Initial Jobless Claims, which last week, got very close to 600K, Durable Goods Orders, and New Home Sales… And then finally on Friday, we get 4th QTR GDP… Which I told you, and a Huge crowd at the Wealth Masters Conference in November, that 4th QTR GDP would be a negative -5.0%…

Well, it looks as though it probably will be an even greater negative than I forecast back then…

OK… Let me give you a bit of a lesson on what’s happening with the economy and this recession… You see… Every other time in the modern era that the U.S. economy has contracted more than 5% in a quarter, falling inventories have been a major reason, if not the single biggest factor. Unfortunately, the really bad recessions, like this one is going to turn out to be, get worse by the Companies getting rid of all their inventory, you know, stuff that isn’t selling! Then… Once the inventories are sold off, the economy can grow quickly again, but at the cost of inflation, as the Companies sold off their stuff, and now there’s demand for it again.

But so far in this recession, falling inventories haven’t been the problem. Of course you have to forget about housing here… NO, this recession is a direct result of the Credit Crisis that was first exposed in August of 2007… Which, I’m afraid, doesn’t bode well for a turn around in the recession, that a lot of economists are calling for in the 1st QTR of this year… The recession is deep rooted, and will be protracted until someone figures out how to get this credit crisis unlocked!

I’m still holding out hope that by summer, we see an unlocked Credit market… Then it would take a couple of months before the economy could get some “legs”… Then… We could see this spiral of demand again, and inflation rising, like in previous recoveries from recessions… And this is why I believe that in the 2nd half of 2009, we’ll see a return to the fundamentals, and all this awful debt creation that was done to “stop” the correction, will be on display again, and a dollar sell off, along with U.S. Treasuries should be in store…

But, if the Chinese jump the gun, and begin selling ahead of that time, then the dollar sell off could obviously move forward on the calendar!

I think what the markets are looking for these days, and especially after the NIKKEI story on Friday, is some sort of hedge against Treasuries… All that safe haven buying, that I’ve been talking about for months now, has created what I call the last balloon / bubble in this cycle…

And then finally before we head to the Big Finish… There’s this… A story that Ty found the other day, and sent to me… When I went to read it, I saw that the writer is a young man, that used to swim against and play water polo against my oldest son, Andrew! The lad’s name is Jamie Saettele, and he’s now the Senior Currency Stategist for DailyFX.com…

Jamie is a stategist, so he works with charts… And he believes that the euro is forming a base for a Large Rally… He points out that each time the euro rallies, and then drops, the drop is less than the previous drop… You may recall that I pointed this type of information on Gold a couple of weeks ago, and said that it looked like it would rebound to $900, and voila! Here it is… So… Let’s see if the charts work for the euro, the same way, eh?

Currencies today 1/26/09: A$ .6570, kiwi .5290, C$ .8190, euro 1.2970, sterling 1.3870, Swiss .8625, rand 10.1820, krone 6.8750, SEK 8.1750, forint 222, zloty 3.3815, koruna 21.5920, yen
89.30, sing 1.4980, HKD 7.7580, INR 48.90, China 6.8465, pesos 13.93, BRL 2.3140, dollar index 85.69, Oil $45.90, Silver $12, and Gold… $898.30

Source: Chock-Full-O-Data Week!

So… The euro reached a new record high overnight of 1.6038! WOW! This was reached based on the fears that credit problems in the U.S. are going to put the kyboshes on what little economic growth we now have. But the shine on the euro was rubbed out by a very weak ZEW… German Investor Confidence as measured by the think tank, ZEW, fell to a record low this month on the surging inflation problems, and rising interest rates. So for now, the euro is back below 1.60, but hear me now and listen to me later… This ZEW will soon be in the rear view mirror, and the euro won’t have that albatross around its neck as it revisits its overnight high…

And don’t look now, but the Aussie dollar is up to 98-cents! WOW! I’ve said for about 8 months that I wouldn’t be surprised to see the A$ at parity to the green/peachback… It certainly has that parity look about it does it not? The last time the A$ was 98-cents was 1983… 25-years ago… 1/4 of a century, and all that!

The U.K. pound sterling is back to $2, which seems totally unlikely an event as possible, but it has happened, so, go on and crow if you thought I was wrong to say the pound was going to have problems once the Bank of England (BOE) started its rate cut cycle…

And the Canadian dollar / loonie has crept back to parity! It’s been a long, time coming… It’s going to be a long, time gone… (a little CSNY)…

And, the poor, downtrodden, Japanese yen, is at the bottom of the 105 handle, and looking like it wants to trade with a 104 next to it! I had to laugh at a story I saw flash across the screen… The title was… “Yen may gain as Bank of Japan (BOJ) is more likely to raise rates than the Fed”. Now that’s funny! Ok, stay with me on this… A month ago, the dollar was getting bought like Pet Rocks because Fed Chairman, Big Ben Bernanke hinted that he was going to be an inflation fighter, thus interest rates would go higher… But here we are a month later, there’s been no sign of Big Ben the inflation fighter, and now it’s deemed that the BOJ could raise rates before the Fed!

And the dollar bulls wonder why their currency is getting sold like funnel cakes at a state fair? Why don’t the dollar bulls give Big Ben a call on the telly, and see if he can’t help them out? Oh… That’s right, Big Ben doesn’t take calls from just anyone… According to our friend, Jim Rogers, on his Bloomberg TV interview yesterday morning… “Ben Bernanke and Paulson only take calls from their Wall Street Buddies”… HA!

Speaking of Jim Rogers… He was full of you know what and vinegar yesterday morning… He didn’t pull any punches and said what was on his mind… You should have seen me here at the trading desk, Jim Rogers would say something, and I would clap and hoot and holler! At one point, Rogers said that the Gov’t’s plan to rescue Freddie and Fannie was “an unmitigated disaster”…

So… Remember early in the year when I kept telling you that there would be another “risk event” this year, and then we had the Bear Stearns meltdown, but that wasn’t it for the “risk events” , and I kept harping that there would be more? Well… It’s not like I was wishing, and hoping and thinkin’ and praying for these things to happen… I was simply pointing out that the world today has too many “risk events” all over, and with the credit woes in the U.S. and the housing and mortgage meltdowns, I just figure it would touch here a few times.

Anyway… What I’m trying to get at here is simply that these are the things I kept telling people to protect themselves from by diversifying into currencies and precious metals… I also, recall, the wink, wink, I gave you when Gold was trading below $900 about a month ago… Today, Gold is $983!

OK, enough with all the “I told you so” talk! Let’s talk about today… Well, today has “risk” written all over it! Big Ben goes to the “hill” to talk to lawmakers about the economy and Fed direction… You have to think that before the Meltdown last week of Freddie and Fannie (see more talk about them, I just can’t leave them on the side of the road!), that Big Ben would go to the “hill” and talk the inflation fighter talk… But now… Not now… Not with the financial sector in meltdown mode… So this is a double-edged sword… If he doesn’t go and sound hawkish, then the markets will take that as no rate hike is coming and take the dollar to the woodshed again… (you would think by now that the dollar would have gotten used to these beatings!)

Besides Big Ben, we get a ton-o-data today… PPI for June… Retail Sales for June… And Business Inventories for May… Retail Sales is the Big Kahuna of data today… And I would think that given the tax rebate checks that were still being mailed in June, Retail Sales would remain somewhat robust… Wait till July’s number, I saw all the shopping bags from my beautiful bride’s trip to Chicago this morning! But that’s for next month! For now, PPI poses a treat to future Consumer inflation, so this one plays big too…

If any of this stuff comes in worse than expected, we could see the dollar not only get taken to the woodshed, but told to go pick the switch that it will get beaten with.

Source: Credit Woes Sink The Dollar!

Early morning losses were due to the high number of initial jobless claims and talk of a U.S. recession from Federal Reserve Chief Ben S. Bernanke in his second day of testimony before the Joint Economic Committee.

At midday in New York, the blue-chip Dow Jones Industrial Average Index was down 41.52 points (-0.33%), to trade at 12,564.31. The tech-laden Nasdaq Composite Index increased 9.22 points (0.39%), to reach 2,371.97. And the broader Standard & Poor’s 500 Index rose 2.30 points (0.17%), to hit 1,372.48.

The basic materials sector (up 1.39%) and the energy sector (up 1.01%) posted the biggest gains, while the conglomerates sector (down 0.94%) and the consumer cyclical sector (down 0.95%) posted the largest declines.

Shares of Exxon Mobil Corp. (XOM) and seed producer Monsanto Co. (MON) gained as oil prices climbed and corn rose to a record high.

Initial jobless claims for the week ended March 29 jumped by 38,000 to reach 407,000, marking the highest level seen for this economic indicator since mid-September 2005, MarketWatch reported.

In overseas markets, Japan’s Nikkei Index gained 200.54 points to close at 13,389.90. Hong Kong’s blue-chip Hang Seng Index had a 392.20-point increase, to close at 24,264.63.

European bourses reversed a two-day streak of gains with the Paris-based CAC40, London’s FTSE 100, Madrid’s IBEX 35 and the Frankfurt-based DAX all posting slight losses.

At midday, the dollar had gained ground against the euro (up 0.224%) and the yen (up 0.157%), but lost ground against the pound sterling (down 0.456%).