Traders took advantage of a dollar rally in the prior session to sell on views the Fed will signal plans to maintain loose monetary policy well into 2010.

Currency investors are also bracing for G20 leaders to discuss rebalancing the global economy this week, a process that would almost certainly require a weaker dollar.

A document obtained by Reuters showed how Washington would urge G20 leaders to launch a new push this year to get debtor nations like the United States to save more and exporters like China, Germany and Japan to spend more.

“If you take the view that too much of U.S. growth has been domestically driven, the next logical step is to say an orderly decline of the dollar — it’s not in anyone’s interest to see a collapse — in many ways makes sense,” said Tom Fitzpatrick, chief technical analyst at Citigroup in New York.

“And at the end of the day, the U.S. has a zero interest rate policy and the highest fiscal deficit in peacetime while (foreign investors) are holding a lot of dollars, so the path of least resistance for the dollar is down,” he added.

The euro was up 0.8 percent at $1.4794 after options-related demand and strong Asian buying pushed it above $1.48 for the first time since September 2008. The dollar fell 1 percent to 91.09 yen and 0.9 percent to 1.0231 Swiss francs , near a 14-month low touched earlier.

Sterling rose 1.0 percent to $1.6375 while the New Zealand dollar surged more than 2.0 percent to a 13-month high after dairy exporter Fonterra raised its estimated payout to farmer shareholders. Fonterra accounts for some 7.0 percent of the New Zealand economy.

With no major economic data on the calendar, traders said $1.4825 may be the next target in euro-dollar, with many predicting an eventual move back to $1.50.

“Every time we get to a round number in euro-dollar, we’ll probably try to chip away on the way to $1.50. But for now $1.4825 is the next line in the sand, and then we’ll have to wait and see about $1.49,” said Steven Butler, head of FX trading at Scotia Capital in Toronto.

DOLLAR IN FOCUS AT G20?

European Central Bank Governing Council member Axel Weber said on Tuesday recent moves in currency markets were “not out of line” given the euro zone’s economic performance relative to other areas.

Some said this suggested the ECB was comfortable with the euro’s level and was a green light to push it even higher, especially in light of the U.S. proposals to put fixing global imbalances on the G20 agenda in Pittsburgh this week.

But others said there is still a risk of dollar bearishness engulfing the market and selling turning into a rout.

“A discussion at the G20 on currencies, and especially the dollar, is not only appropriate but essential, as this move could accelerate swiftly,” said Maurice Pomery, managing director at Strategic Alpha in London.

Sept 22 (Reuters)

“The Obama administration, for example, expects to run $9 trillion in deficits over the next 10 years – and that number is based on a recovery! Imagine what will happen if the economy doesn’t recover?”

Now, that’s a nice comforting thought to start our day right? NOT! WAKE UP! Morning has broken, and the coffee is on… If you are still of the thought that this is all going to end up seashells and balloons, then you need to stop and smell that coffee!

Oh brother! Looks like I’m full of you know what and vinegar this morning! Let’s try to calm down, Chuck, you’ve only just begun to write, you don’t want to peak so soon!

OK… Yesterday, I told you that the Asian stocks had sold off and that risk assets were being taken off the table. But that didn’t last long, and by mid-morning, I witnessed a nice currency rally, that wiped out the overnight selling. At one point during the morning a customer called to buy some euros, and when the sales person asked me for a price, I said, “you know, they may want to come back tomorrow morning, after the overnight markets beat the euro up, like we’ve so many times lately.”

But wait! That did not happen last night! So, I was wrong! The euro is getting some real love this morning after German unemployment fell in August, which was totally unsuspected. Euros and Swiss francs are the only currencies I see that have gained on the news this morning. So the Big Dog, euro, must have told the other little dogs to “stay on the porch”… Stay Rex!

German unemployment fell by 1,000… OK, now I know that this has the same feeling as removing a bucket of sand from a beach, when unemployment in Germany is 3.46 million! But, I never said that Germany’s economic recovery was a tidal wave! It’s smoking embers, that are in need of stirring, some small twigs, and leaves… My beautiful bride is an “expert” and getting a fire started like that, I should send her over to Germany, that would really kick the domestic demand to another level! HA!

Baby steps… That’s the way we’re going here… So, we’ve had IFO and ZEW think tank reports on Confidence all print stronger… We had the GDP surprise on the upside… And there was something else last week, but it slips my mind right now. The point here is that the Eurozone’s largest economy is waking up… We just have to hope it doesn’t hit the “snooze” button, now!

A reader sent me a note yesterday asking if I thought there would be a collapse of the Eurozone and thus the euro… If I had $5 for each time these stories have hit the streets, I would be sipping on a multi-colored drink in a tall glass with one of those tiny umbrellas, in a tropical setting… The point I’m making here is that on the outside Spain and Italy have problems… But what’s changed? These two had problems before they joined the Eurozone, and have had problems since joining the Eurozone… Me? I totally believe that these two get down on their knees each night and give thanks for being allowed to join the Eurozone!

So… In case you missed my answer in there… I don’t see that happening, at least not in the near future…

OK… Enough of that! The Reserve Bank of Australia ( RBA )met last night, and left rates unchanged, as suspected they would, and the following statement regarding their thoughts on the economy was relatively upbeat… However, the markets were looking for an indication of “when” the RBA would hike rates, and that didn’t happen… So… The markets were disappointed, and when they are disappointed with a Central Bank, they take it out on the currency! So the A$ got pounded overnight.

Now… Aussie GDP for the 2nd QTR is going to print tonight, I would have to think that the RBA maybe had a peek at the report, and thus their gearing down the interest rate hike talk… So… We could be looking at even weaker A$ prices tomorrow morning… Unless, that is, 2nd QTR GDP is as strong as it was once believed it would be!

Did you see where Canada printed a HUGE Deficit last week? Not a good thing… But, the Canadian balance position has teetered back and forth between Surplus and Deficit, but recently has remained in the red… You know me and deficits, so, I put a red mark next to the Canadian dollar / loonie… But then, you hear news like last night… Get this! PetroChina has agreed to pay C$ 1.9 Billion for a stake in a Canadian oil sands project. PetroChina will buy 60% of Athabasca Oil Sands Corp.’s MacKay River and Dover oil-sands projects.

That’s 1.9 Billion Canadian dollars / loonies that will have to be purchased… And You would have to think that China will be spending the “few loose dollars” they have in their pockets, which would put pressure on the green/peachback!

Canada is still in a recession, here folks… But… Could these be cheaper levels given the merger and acquisition activity? Only the shadow knows!

OK… So, here I am, 1 hour from when I began writing this morning, and all that glossy and shiny talk about the euro’s rally is fading… The Big Dog has lost 1/4 euro in the past hour… So… I wasn’t wrong after all!

OK, you’ll love this, or maybe you won’t, but I do, and since I’m writing this letter, I get to talk about it! HA!

Here’s the title of the story that flashed across the screen, and of course, caught my attention… “Goldman Sachs Wrong on Economic Recover, Macro Hedge Funds Say”

You’ve got me on this one! I’ve got to read on… “Paul Tudor Jones, the billionaire hedge-fund manager, who outperformed peers last year, is wagering that Goldman Sachs Group, Inc. and Morgan Stanley to it wrong in declaring the start of an economic recovery.”

“If we have a recovery at all, it isn’t sustainable.” One Hedge Fund Manager said… Calling this a “ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later.”

WOW! These guys must be reading the Pfennig! OK, I kid, because these guys would never bet caught with the Pfennig in their hands… They probably put it between the pages of the “Economist” so that others think they’re reading the Economist! HAHAHAHAHAHAHA!

Speaking of “must be reading the Pfennig”… I saw a thing that came across my desk yesterday that 57% of Americans would vote out every politician if the vote were taken right now! WOW! I didn’t know the Pfennig was read by so many people! Recall, I said weeks ago, to “fire them all”… Well, let’s hope that 57% grows to 95%, and Americans really do go through with their threat to vote them all out, if they continue to take us down the road to socialism / fascism / collectivism…

OK… You may recall a couple of weeks ago, I started asking you questions about the stock market rally, and it’s ability to continue on… I truly believed that the stocks were overbought, and the P/E ratios were out of control… Now, I see quite a few jumping on that bandwagon, and calling for a stock market reversal.

Do we really think the Gov’t will allow that to happen? Didn’t the President himself, say that he thought it to be a good time to buy stocks… Isn’t that sort of like a wink and a nod from the President that everything will be OK?

Beyond those conspiracy thoughts, let’s just say the markets get to go where the participants take them ( I know, it’s not reality, but let’s just play along ), and stocks begin to reverse their gains from March… I would think it to take an adverse affect on the currencies and their gains since March too… Throw Commodities in there too!

Now, in the old days, I would look at a stock sell off and say, currencies will rise… “Honey, put on the red dress tonight, we’re going out on the town!” but… These aren’t the old days… This is the new improved way of throwing all risk assets into the same barrel! And I don’t like it at all!

Ok… The Norwegian krone, traded with a 5 handle yesterday for the first time in a month of Sundays! It has traded back over 6 overnight… But, it was a good strong move from the krone yesterday nonetheless!

Well, today, we’ll see the ISM Index (Manufacturing) from August, and for the first time in 19 months, it is expected to be above 50! New readers might wonder what I’m talking about here… But it’s simple… 50 is a line in the sand that says any number below it represents contraction of manufacturing, and any number above it represents expansion of manufacturing… So, if it prints above 50 as expected one would say that manufacturing must be recovering…

Let’s look at that closer… Come on, closer, closer, closer! We’re experiencing a global recession, and global trade has been sketchy at best… But here’s U.S. manufacturing showing expansion… And… The rise has been quite steady since March… With March printing at 36.3, April 40.1, May 42.8, June 44.8, and July 48.9… See the steady rise?

What else has happened since March? That’s right, thank you for paying attention there in the back of the class! Yes, the currencies have been rallying VS the dollar… So, the dollar is much weaker than it was in March… The dollar index was 89.05 on March 5th, and today it is around 78… So… How did manufacturing / exports rise during this period of time? Because the dollar was weaker!

Let’s keep that in mind, eh? For if we get an adverse affect on the currencies from a stock sell off, this recovery in manufacturing could go kaput!

We’ll also see Pending Home Sales for July, and Vehicle Sales for August… Cash for Clunkers will push up the Vehicle Sales… But what happens next month?

Gold has backed off by about $8 in the past two days… It’s a dip… Therefore it must be an opportunity to buy at a cheaper price! I was reminding all my friends that we spent the weekend together at a lake, that I had told them to buy Gold $400 dollars in price ago… I was booed out of the room at that point, because you see, they didn’t buy it $400 dollars in price ago!

And on that note… I’ll head to the Big Finish!

Currencies today 9/1/09: A$ .8355, kiwi .6820, C$ .9125, euro 1.4295, sterling 1.6220, Swiss .9440, rand 7.7975, krone 6.0275, SEK 7.15, forint 192, zloty 2.8780, koruna 17.9110, RUB 31.8325, yen 93.10, sing 1.4430, HKD 7.75, INR 49, China 6.8303, pesos 13.44, BRL 1.88, dollar index 78.35, Oil $69.69, 10-year 3.38%, Silver $14.75, and Gold… $949.50

That’s it for today… Well, it’s been an unusually cool summer here in St. Louis… We had two separate weeks of hot weather, and that was it! It normally is much hotter, with very high humidity… I wonder what that means for this coming winter! UGH! Just found out yesterday that I won’t be going to Marco Island this December to speak like I had the previous two years… UGH! September is the last full month of baseball, and with the Cardinals in first place in their division, this should be a good month! There are two middle of the week day games in September, and I always enjoy those! So… Summer may be coming to an end, as along as September takes a long time to work through, I’ll be OK! All righty then, let’s get going on this Terrific Tuesday, the first day of September!

Source: More Baby Steps For A German Economic Recovery

Well, on Friday I left you with the story of a currency rally for the ages… And it didn’t let up there! Although the rest of the day on Friday the bias was to sell dollars, the real chunk of the dollar wasn’t taken until last night in Asia… Here’s the deal folks, and this won’t be the first time you’ve heard this from me either!

Fundamentals! The fundamentals are coming home to roost, and the rot on vine is being exposed… Just an example of what I’m talking about… G.M. will file for bankruptcy today… Soon, they will become the new GM… And not Government Motors… (a reader gave me that line!)

But more importantly is simply the fact that the thing that drove up the dollar’s value beginning last July until March of this year, is simply Treasury buying… And now those Treasury purchases are showing HUGE losses for those holders that “thought” they were “safe”! And… As I kept telling you, once holders grew weary of paltry yields, or the losses, the reversal of those Treasury purchases would be as swift as the move to Treasuries last summer…

So… The move in the Big Dog, euro, overnight in Asia and now in the European session has produced yet another move through a line of resistance at 1.42… And we all know that when the Big Dog leaves the porch, all the other smaller dogs get to stretch their legs too… And so it is that Swiss francs are 94-cents, Aussie 81-cents, and so on…

And, as Hannibal Smith used to say… I Love It When A Plan Comes Together! Not that I’m cheering on the losses in Treasuries… I’m patting myself on the back for telling you over and over again that it would happen!

OK, so I see the our esteemed, diligent tax payer (NOT!), U.S. Treasury Sec. Geithner, was promising the Chinese that the U.S. “wants to shrink the budget deficit”… Hmmm… I doubt the Chinese believed him… Of course I’m not a Chinese official, so I don’t really know what they are thinking… But having watched them smile and tell former U.S. Treasury Sec. (Mr. Bailout) Paulson that they were going to allow greater currency flexibility, and after he would board his plane, it would business as usual… Same thing for Graham and Schumer who thought their prestigious status as lawmakers would get them some place with the Chinese…

It all comes down to the fact that the U.S. needs China, more than the other way around… Sure it would have been sweet for China if the previous boom went on forever and ever… But that’s not the way of the markets… Booms are followed by busts… And for all you youngsters out there, that didn’t believe this could really happen, even though you might have spent 5-minutes on it in college… Booms really are followed by busts… The secret to not having them end up like this one, is to not allow the Boom to get out of control… Irrational exuberance, eh Big Al? I’m choking on that, because he’s at the root of this problem!

And China? Well… As I boldly told you months ago, that the Chinese would be the first to come out of this economic malaise… The rest of the world has caught up and now the optimism for China is spreading… This is perception folks… And you are what you are perceived to be… And in China’s case, they are perceived to be an economy on the mend, which means their strong growth might return… Well, when China’s growth is strong, they have outrageous demands for commodities, raw materials, and the rest of the lot.

That’s manna from heaven for Australia… And to a lesser degree, New Zealand and Canada… But when commodities get to rising, all the commodity currencies get to rise, because, besides Canada, they have higher than the average bear interest rates… And yield demand becomes the pet rock of the 70’s, the cabbage patch doll of the 80’s, and the tickle me Elmo of the 90’s, everyone has just got to have it!

Aussie and kiwi currencies are approaching 8-month highs… The difference here is that 8-months ago, these two were on the slippery slope down, and now their on the escalator going higher, and higher…

And the euro… The Big Dog’s 3-month rally (recall I pointed out weeks ago that the turn happened around March 1st), is the steepest rally for a 3-month period in the last 7 years… The thing though that’s really stuck out for everyone to see, is how the move in the past week has been really swift, and the momentum seems to be picking up steam… I made a bold forecast to the people on the desk the other day… And NO I can’t share it with you, because that would be making a call on a currency, and the legal beagles won’t let me do that any more! Let’s just say the move to 1.42 and change is a move in the right direction!

And this rise in the euro, comes with the Eurozone economy in a recession… But for all those out there that think this “can’t happen”… There is precedence here… Back in 2002-2003, German, the Eurozone’s largest economy, was in a recession, and yet the euro posted large gains in those years of: 17.96% and 19.59% in those respective years… So there you go! And… As long as the euro is the “offset” currency to the dollar, it will retain this ability to gain in value even with the Eurozone’s economy in a recession… The other title, besides “offset currency to the dollar” that the euro has picked up, is the one people are using currently, calling the euro the “anti-dollar”…

We have several Central Bank meetings this week… The Reserve Bank of Australia (RBA), Bank of England (BOE), European Central Bank (ECB), and Bank of Canada (BOC) all meet this week to discuss rates… I read this note and found it to be funny… OK, the BOC is meeting this week… And when asked about the recent rise in the Canadian dollar / loonie, the Finance Minister, Mr. Flaherty had this to say… “We’re always concerned when there are fluctuations in the value of the Canadian dollar, and it has been relatively rapid in the past few weeks, and I know that the governor of the Bank of Canada is monitoring that as it’s his job.”

What’s so funny about that? Well… I find it funny when people in power give ultimatums to others, in “not so many words”… In this case, Flaherty is telling Mark Carney (the Gov. of the BOC) that he needs to do something to halt the loonie’s rise… Cut rates, would be his choice, but interest rates already near zero, I think he’s giving Carney the “high sign” to implement Quantitative Easing… As you can see what that’s done for the U.S. dollar!

The RBA is the only Central Bank that has “fat to cut”… It will be interesting to see if the RBA keeps their interest rate arrows in their quiver… I tend to believe they will hold on to them… But that’s just a hunch…

The data cupboard will get a real work-out this week beginning today with two of my faves… Personal Income and Spending. The Big Banana today is the ISM Index (manufacturing)… Given the rot on the Chicago ISM’s vine last week, one would think that the national (ISM) index would take a hit… But… I tend to think that the Chicago one was pushed lower by the goings on in Detroit, and that the national index will, while still being recessionary, be a bit stronger… And if it is stronger (42 is forecast VS 40 previously), I think the currencies will continue to take liberties with the dollar, as risk assets will ride on!

We end the week with the May Jobs Jamboree… After last month’s hefty addition to jobs by the Bureau of Labor Statistics (BLS), it will be interesting to see how the BLS monkeys with the May number… One thing all their playing around with the numbers can’t do is change the unemployment rate, which is expected to go to 9.2% in May…

I’m seeing what is probably profit taking as the NY trading desks come in and see the 1.42 handle in euros… The euro has backed off its level of 1.4235 from when I came in and turned on the screens… A couple of years ago, we had this game of give and take going on between the U.S. players and Asian players… Overnight, Asia would push the currencies higher and sell dollars, only to see that wiped out by the U.S. players… I sure hope we don’t see a return bout of that game of give and take… It sure gave me a rash watching that each day!

Well… Before I head to the Big Finish… Gold & Silver have really jumped on the risk assets rally’s bandwagon. Gold is $985 this morning… A mere hop, skip and a jump from $1,000… You know, maybe we’ll get to talking about how buying Gold on the dips below $1,000, like I used to do with the dips below $900!

Currencies today 6/1/09: A$ .81, kiwi .6485, C$ .9230, euro 1.4215, sterling 1.6370, Swiss .94, rand 7.9660, krone 6.1880, SEK 7.4575, forint 197.40, zloty 3.1370, koruna 18.85, yen 94.80, sing 1.4370, HKD 7.7514, INR 46.96, China 6.8267, pesos 13.02, BRL 1.97, dollar index 78.79, Oil $67.85, Silver $15.90, and Gold… $985.35

That’s it for today… An absolutely fabulous day yesterday here in St. Louis, the sky was so blue, and the sun was warm! And I had the pleasure of cooking for a family birthday party for my darling daughter’s husband, Jerry… (he’ll get a big kick out of being mentioned!) My beloved Cardinals had a not-so-good trip to one of my fave cities, San Francisco this past weekend. The Stanley Cup Finals are going on, and the Basketball Finals will start this week… So It’s not like there’s nothing on TV to watch! HA! Come on… It’s gotta be better than watching a cable financial news station that I refuse to name! OK… Mike and Mary are here, so that means all good things must come to an end, and so I bid you farewell for today… I hope your Monday is absolutely Marvelous!

Source: The Currency Rally Continues!

Well… The dollar came back with some vengeance yesterday pushing the Big Dog, euro, back well within the 1.38 handle, and all the other little dogs, other currencies, followed. There wasn’t data to speak of yesterday to push the dollar higher, it was simply a case of fright, as safe haven flows went the dollar’s way after the news of a N. Korea attack warning spread throughout the markets.

Funny thing… I get a daily email from a news source that gives the highlights at mid-day… And yesterday, the email said, well, the email didn’t really “say” anything, it can’t talk! Any way, the email contained these two headline stories… 1. Crude rises for third session… And 2. Gold down for second day… I then glanced at the screen, and saw Crude Oil trading down on the day, and Gold up $5.80 on the day… So much for that news source, eh?

Yesterday, I talked about the high yielders, highlighting Brazil’s return to a Current Account Surplus… But the high yielders have more to say about the dollar’s future value… You see, it’s more than the Commodity Currencies… It’s also the Emerging Markets currencies, which seem to have a life of their own. There was a lot of talk last year about how the Emerging Markets economies had decoupled from the U.S. and a U.S. slowdown would no longer affect them negatively as a U.S. slowdown would have in the past. For a few months there, the decouple story was laughed at, as the Emerging Markets sold off just like everyone else. But then, like the Phoenix Bird, they rose from the ashes… And it’s these Emerging Markets currencies that have taken the biggest bite out of the dollar this year!

OK… This is not an endorsement to run out and buy Chilean pesos! You’ve got to be very careful with these Emerging Markets currencies, as they are smallish, they are illiquid in most cases, and they have wild swings. Take for instance two more “mature” Emerging Markets, Brazil and South Africa… These two do NOT fall into the illiquid category… But currencies like S. Korean won, and Chilean pesos definitely do!

The real point here was to talk about the decoupling… It’s happening just as those that saw that it could, said it would. It just took some time to get legs underneath themselves. Remember last year they called the action from July to December, “De-Leveraging”… This simply meant people were selling everything non-dollar and buying dollars… You might recall me questioning this thinking, but who am I to say this was wrong! Well, I read yesterday that this price action in Emerging Markets is being called the “Re-Leveraging”!

Speaking of an Emerging Markets Country / currency… The Russian ruble (illiquid!) was in the news yesterday… And here’s where, I just didn’t get the dollar strength yesterday… Here’s the skinny… Rumors were flying around yesterday that Russia is planning to revise the weightings in their basket of currencies they use to value the ruble… The rumor had the weighting in euros for the basket, changed from 45% now, to 55% in October, and 60% in December….

Now… If true… This would be HUGE for the euro! Now we just need to all be Sherlocks and find out what’s going on here… The Truth is Out There!

OK… Back to the majors!

The euro has recovered a bit this morning on the news from the European Commission, who, this morning said that European Confidence in the economic outlook increased to a 6-month high this month… The people surveyed repeated the thought that record-low interest rates, and the Government spending plans may be starting to work, and the economy may have bottomed… Hmmmm… I hate to be the bearer of bad news to these people, but I don’t think their economy has bottomed…

I say this because I truly believe there’s another hic-cup for not only the European economy, but the U.S. economy. I see where quite a few economists are now saying that the U.S. recession will in this year… Hmmm… Here’s what I think… I do think that we’ll see a quarter later this year with positive growth… But then I think it’s followed by a negative growth quarter, thus… A bump…

And… Yesterday, I talked about how we might be seeing the end of the link between stocks and currencies, and stocks had gained the previous day, and currencies had not… Well, yesterday stocks sold off, and so did currencies… But this time, I think it had more to do with the N. Korea news than any “link” between the two… I really do think we’re beginning to see a break… Let’s hope so, because that would mean that we’re taking baby steps toward getting back to “fundamentals”…

And these fundamentals include the fact that stocks and currencies have a low correlation to each other, and different pricing mechanisms…

U.S. Treasury yields continue to climb with the 10-year Treasury gaining 19 Basis points in yield yesterday… That pushes the annual climb in yield for this note to 148 Basis points… Hey! You can’t say I didn’t bring this to your attention before it happened!

My friend, Bill Bonner, had this to say about Treasuries yesterday in the Daily Reckoning (www.dailyreckoning.com) “The US Treasury market is in a bubble. Like all bubbles, it will pop. And as always, when bubbles pop, there are those who get hurt – and those who profit. The difference is how well you’re prepared for it.”

Oh, and one more thing… With Treasury yields rising… Mortgage rates will HAVE to follow… And that’s not going to make Messrs Obama, Bernanke, Geithner and anyone else involved in artificially keeping mortgage rates low, happy… But, that’s fine with me! I don’t really care if they are happy with this development or not! They are responsible for this rise in yields, so they can only be unhappy with themselves!

In New Zealand overnight… The 2009-2010 Budget printed, and showed remarkable restraint (for New Zealand!) The Finance Minister, Mr. English, then spoke about how near term deficits are high, he believes that they are at a “peak”… Which is Finance Minister parlance for: We’ll see our debt to GDP ratio shrink from here on out! That kind of talk is manna from heaven for kiwi investors, and the folks over at S&P liked it too, as they immediately raised the outlook for New Zealand’s debt from negative to stable…

Last week, we had S&P lower the U.K.’s debt outlook and the pound sterling took off for higher ground… Sort of backwards thinking, eh? Any way… Kiwi has responded favorably for the time being, but without the Big Dog, euro, off the porch chasing the dollar down the street, kiwi will have a difficult time adding to these gains…

Someone asked me yesterday why I hadn’t mentioned the Canadian dollar / loonie lately, given my statement that crude oil was rising yesterday… OK… The reader was right! I should have been all over the loonie like a cheap suit! The Loonie has gained 13% since March 1st, and Crude Oil has moved from $40.15 to $63.40 since March 1st…

It was a year ago, that the loonie was basking in the sun of parity with the U.S. dollar… All the talk then was that the loonie could go into uncharted waters VS the dollar… We all know that didn’t happen… And the reason? Oil fell and commodities like Gold fell… But guess what’s happening again? Oil and Gold are rising again… Hmmmm…

I saw something yesterday that hit me as strange… Forbes Magazine had a lead story titled: “Make A Buck On The Rising Euro”… The reason I found this strange, is that I’ve heard Steve Forbes talk the past few years and each time he emphasizes that the dollar is strong and will remain strong… But now his magazine had a story on how to make money buying the euro… Which means, to make money in the euro, (for dollar based investors) the dollar would have be weak! Strange, eh?

Anyway, the writer, Ryan Campbell, goes on to talk about how the euro has risen VS the dollar since March (something I told you weeks ago!), but also adds that the “charts sound the all-clear for euro bulls.” Interesting… I hadn’t heard from my charts guy lately, maybe this will wake him from his slumber!

And Swiss francs continue to defy the Swiss National Bank (SNB)… Francs have pushed to near 92-cents… Recall that the SNB issued verbal warnings pre- 90-cents that they were not happy with franc strength… Well, apparently that’s all the SNB has… Verbal warnings, because they have not stepped in front of this franc fueled bus!

And Swedish krone is seeing some selling pressure this morning, as the old story regarding the Eastern European Banking woes, was brought up again… This is old news! Wrap it up in newspaper and carry it out with the other trash!

So… As I get ready to head to the Big Finish, I see that the currencies, led by the Big Dog, euro, are getting off the porch once again to chase the dollar. One currency that’s not participating is the Japanese yen, which has taken a big spill overnight to near 97… However, that bad performance in yen hasn’t spilled over to other currencies…

Currencies today 5/28/09: A$ .7840, kiwi .6255, C$ .8955, euro 1.3895, sterling 1.5960, Swiss .9195, rand 8.0425, krone 6.4730, SEK 7.7690, forint 204.30, zloty 3.2250, koruna 19.2450, yen 96.90, sing 1.4525, HKD 7.7530, INR 47.66, China 6.8289, pesos 13.24, BRL 2.04, dollar index 80.75, Oil $63.43, Silver $14.94, and Gold… $952.10

Source: Russian Rumors

• Warren Buffet’s Berkshire Hathaway Inc. (BRK.A, BRK.B) is investing 3 billion Swiss francs ($2.6 billion) in Swiss Reinsurance Co. (ADR: SWCEY ). Swiss Re, which is expecting a net loss, said it is also seeking another 2 billion francs on the capital markets, the Associated Press reported.

• Renowned global investor Jim Rogers said he’s keeping his money out of weakening Russia – saying there is “a good chance Russia will continue to disintegrate into more than one country” in a Bloomberg Television interview. “I am not optimistic about the continuous stability of Russia,” Rogers said.

• Ford Motor Co. (F) is talking with China’s Geely Auto Holdings Ltd. (PINK:GELYF) about unloading its unprofitable Volvo unit, several sources told Bloomberg. Ford has also contacted China’s Chery Automobile Co. and Chongqing Changan Automobile Co. about Volvo, the people said.

• LVMH Moet Hennessy Louis Vuitton SA (ADR:LVMUY) said net income dropped 4.2% to $1.5 billion (1.14 billion euros) in the six months ending in December, missing analysts’estimates for second-half profit, Bloomberg reported.  The world’s largest luxury-goods maker said higher handbag sales failed to offset slumping demand for Hennessey cognac and Moet champagne. The financial crisis has crimped demand for even the most expensive luxury goods, eroding sales in the $230 billion (175 billion-euro) luxury goods market.

• U.K. Prime Minister Gordon Brown signaled he won’t block bonuses to executives at Royal Bank of Scotland Group Plc (ADR: RBS) as lawmakers stepped up pressure to adopt a U.S.-style plan capping pay. While he told reporters he supported President Barack Obama “strongly” on the need to change the way bankers are rewarded, he twice refused to say he’d ban bonuses at RBS, Bloomberg reported.  The U.K. government is taking a 70% stake in RBS after the Edinburgh-based institution tapped part of the Treasury’s 50 billion-pound recapitalization fund.

• U.S. mortgage rates jumped to their highest levels since December this week, frustrating efforts to bring mortgage rates down to levels that will spur demand and help the hard-hit housing market begin to recover, Reuters reported. Interest rates on U.S. 30-year fixed-rate mortgages rose to 5.25% for the week ending February 5, up from the previous week’s 5.10%, according to a survey released Thursday by home funding company Freddie Mac (FRE).

• The National Retail Foundation said current economic stimulus legislation might not do enough to spur consumer spending and repeated its call for a series of temporary sales tax holidays. The retail trade group estimates that the proposed tax holidays would save consumers about $20 billion, or $175 per family, reported. The U.S. government would reimburse states for the lost revenue.  The proposal comes as the NRF forecasts a 2.5% drop in retail sales in the first half of 2009.

Source:  Global Investing News Briefs Friday, February 6th, 2009

The currencies were lifeless yesterday, with only a blip up in euros to 1.2740, only to give it back overnight. Aussie dollars (A$) rallied on the Huge 100 BPS rate cut news from the previous night, but at the end of the day, that was all but forgotten… It was as if the currencies did a Hans and Franz… Got all pumped up… But then turned into 100 lb weaklings again as the day turned to night.

Hey! I’ve written a bit about China this week, and the renminbi, and I must have scared quite a few holders of the currency, because, my trading screen is lit up with nothing but renminbi sell trades… Interesting… For the last couple of years, I tried to illustrate a picture that would show that owning Japanese yen, was a far better choice than Chinese renminbi… But, that fell on blind eyes… I see that UBS (Union Bank of Switzerland) believes that there “limited scope” for renminbi to drop much further, while Morgan Stanley believes we’ll see a 10% drop in renminbi…

I think I will pin my colors to the UBS mast on that one… I just can’t see why China would want all the negative press that would go along with allowing their currency to drop VS the dollar by 10%… The UBS research team said that, “Depreciation would likely invite criticism that china is a adopting a beggar-thy-neighbor type of policy, leading to possible protectionist responses from China’s major export markets.”

The NBER call on the recession brought out a lot of economists that are saying, “they knew it all along”… Yeah, right… However, there was one particular economist / analyst that has been saying the U.S. was in a recession for years! That’s our old friend, John Williams of Shadow Statistics (shadowstats.com) I would love to show you the chart, but the Pfennig template doesn’t allow me to do that… So, you’ll just have to read about it!

Shadowstats.com uses a methodology that calculates GDP “old school” and when using this methodology, Showstats.com says that beside a brief blip into positive growth in 2004, the U.S. economy has been in negative GDP growth since 2000! I guess, John Williams won’t be asked to be the keynote speaker at the NBER holiday party, eh? HA!

The U.S. data cupboard gets restocked today as we build to a crescendo on Friday with the Jobs Jamboree. Today, we’ll see the ADP employment report, which as I’ve explained in the past, is a good indicator as to what we can expect in the Jobs Jamboree numbers. ADP is forecast to show a negative -200K job loss in November. Right now, the Jobs Jamboree is forecast to show a negative -325K job loss in November, so the ADP report is no sight for sore eyes over at the Bureau of Labor Statistics (BLS), who count the beans on the Jobs Jamboree. (and quite poorly, I might add!)

The “stupid” Productivity data for the 3rd QTR will also print… The old Fed Chairman, Big Al Greenspan, used to think the world of Productivity… He thought is was the “end all” in the “new economy” and the reason inflation stayed low, and he could keep rates low… Well, it wasn’t the “end all”, and the “new economy” was a bust, inflation wasn’t really low, it was just “adjusted with changes to the CPI basket of goods to make inflation figures look low, and keeping interest rates so low, is the root of all evil for us today, now weren’t they…

The awful fundamentals continue to mount for the U.S. and the dollar… But, as I’ve said over and over and over again, this dance is gonna be a drag… No wait! I have no idea where that Dave Clark 5 song came from! But, as I’ve said before, and will say again… These fundamentals are being swept under the rug and ignored, as long as the Credit Crisis has a tight grip on the markets. But, in my heart of hearts, I truly believe that all this bad data will come back to haunt the dollar, if the Credit Crisis can get some WD-40 applied to it, and unlock it.

The Reserve Bank of New Zealand’s rate cut announcement should be coming forth this afternoon. Yesterday, I said I thought the RBNZ would cut 150 BPS… They very well could go more than 150 BPS, as their internal cash rate was the highest in the industrialized nations before all this rate cutting began in September.

I saw a piece of data that pointed out that Commodity Prices are down 18% YOY. OUCH! This is the worst performance for Commodity Prices since 1991. This is the main culprit in the poor currency performances of the Commodity Currencies like: A$, kiwi, loonies, rand, and real… (Australia, New Zealand, Canada, South Africa, and Brazil) This, and the unwinding of the Carry Trade, which hurt the high yielding Commodity Currencies, A$, kiwi, rand and real. So, a double whammy hitting these guys…

So… You have to ask yourself this question… Do you believe the Commodities are finished? Is this the end of their bull market that lasted only 7 years? Remember, our friend, Jim Rogers has documented that for over 200 years, Commodity Bull Markets averaged 17-22 years in length… And you might be saying but Chuck, you just said that Commodities were down 18% this year… Doesn’t that tell you that it came to an end? Ahhh… Grasshopper… This Bull Market is a Trend, and trends are not “One-Way Streets” they have volatility, and they can see losses… But in the end, the underlying fundamentals return and the trend continues.

This is exactly what I tell you about the currency trends all the time… We had dollar weakness from 2002 thru 2004, then dollar strength in 2005, only to return to the underlying fundamentals in 2006, 2007, and 1/2 of 2008. Was the dollar strength in 2005 the “end of the weak dollar trend”? No! it wasn’t… And I truly believe that the dollar strength since July this year will prove NOT to be the end of the weak dollar trend now!

You know, one of the things fueling dollar strength right now is the flight to safety in U.S. Treasuries… Oh by gosh, by golly, it’s time for mistletoe and holly, and some straight talk about Treasuries. Everyone and their brother is buying Treasuries, which pushes the prices of the asset higher, and the yield lower… Big Ben Bernanke must be getting a bonus at the end of the year, for the Treasuries he sells… I say this because he announced the other day that the Fed is “considering” to buy long term Treasuries. (when you see “considering” just figure that it’s a done deal!) Well, the Fed hasn’t bought long term Treasuries since I was a kid, the Beatles were new, and I had hair!

For your troubles… A 3-month T-Bill will pay you 6 BPS… Folks, after the broker takes his pound of flesh to do the trade, you are paying the Gov’t to hold your money! Want to go out further on the yield curve? OK… How about a 10-year Treasury? 2.70%, which again, will barely pay you anything by the time the broker charges you to do the trade. And those “long-term Treasuries” that Big Ben is “considering” buying? Where do I sign up for 3.2% yield in a 30-year Treasury… NOT!

It’s crazy! I don’t see the appeal… Especially considering the fact that when the Credit Crisis in unlocked, the unwinding in these “safe” Treasuries should be quite swift and push the price of those bonds down quickly, which will cause some investors to book losses, while paying the Gov’t to hold their money…

These are just my thoughts… Market commentary…

OK, before I head to the Big Finish, someone asked me to talk about Swiss francs, as they think that Swiss Banking is going to cause a Big problem for the franc. Hmmmm… Could be, but I would think the Swiss, being a rich nation, would be able to deal with the problems that UBS and others have without causing too much of a problem for them and the franc. I still think of Swiss francs as a very good alternative to euros… Along with Norway, Sweden and Denmark… All surplus / positive balance of payments countries…

Oh, and this one last thing… I saw where mortgage applications more than doubled last week. This is probably the result of the announcement that the Fed will begin to buy mortgage backed debt directly… Yes, that’s right folks… The Gov’t may very well own your mortgage in the future… Now, as inviting as having a Gov’t guaranteed loan might sound… Does anyone else find this arrangement to be creepy?

Currencies today 12/3/08: A$ .6435, kiwi .5295, C$ .7985, euro 1.2645, sterling 1.4735, Swiss .8265, ISK (no quote yesterday), rand 10.2825, krone 7.0850, SEK 8.2675, forint 207.25, zloty 3.03, koruna 20.18, yen 93.20, baht 35.55, sing 1.5290, HKD 7.7515, INR 50, China 6.8820, pesos 13.61, BRL 2.4190, dollar index 87.07, Oil $47.29, Silver $9.43, and Gold… $776.75

Source: Automakers Say They Need Funding Now

This morning we’ll listen in on former Fed Chairman Volcker’s speech, which ought to be a good one, don’t you think? I mean, this is the guy that said a couple of years ago that the U.S. could see a currency crisis… And didn’t it? OK, it’s not now, but turn your clocks back to June, and you’ll see what I’m talking about here. Volcker is a “hero” of mine in how he took on the inflation of the late 70’s early 80’s and didn’t dance around the dance floor with it… He whipped it into shape, and then left it all in good shape for Big Al Greenspan… We all know what happened after that!

We’ll also see Consumer Confidence for the first part of this month, which is expected to take the Nestea plunge from and index number of 59.8 to 52! You know me, I can’t ever, for the life of me, figure out how Consumer Confidence can even be this high! But then, if every one worried about the stuff I worry about, this would be a dull place to live, eh? HA!

The S&P Case/Shiller Home Price Index will also print this morning, so expect more rot on the vine with home prices here… And finally… The Fed begins a two day meeting today… The Fed’s FOMC begins today with a rate announcement expected tomorrow. What do you think it will be… A 25 BPS cut? Or 50 BPS cut? I’m thinking that it will be 50 BPS… I’ve always kidded that I wondered what the Fed Heads do for two days before announcing their rate moves… I think they play Battleship! By Joe you’ve sunk my Battleship! HA

One of my fave economists, Nouriel Roubini, said in interview that he believed the Fed was going to have to move rates to zero! That’s a big fat goose egg folks! Wow! What country does this all remind you of? Come on, you know what I’m referring to here, as I keep bringing this up over and over again… Oh, I think I’m turning Japanese, I really think so… (my good friend, and big fan of the 80’s, Rick, tells me that song was by the Vapors)

Let me add up the facts here… A collapsing stock market, check. Falling bond yields, check. Economic stimulus packages, check. Bailouts, check. Dire times for the economy, check. A Central Bank that believes cutting interest rates to near zero is the right thing to do, check, and checkmate! Which country was I talking about there? The U.S. or Japan in the 90’s? Oh, I think I’m turning Japanese, I really think so! This all reminds me of those Memorex commercials… Remember? “Is it live or Memorex?” Is this Japan or U.S.?

Speaking of Japan… The yen saw selling yesterday for the first time in a while… I know from my view in the cheap seats, most yen selling that I saw was simply profit taking… You have to think that given the price action in almost all assets these days, seeing one with a profit is very inviting, eh?

So… With yen weakening just a bit, did it mean that the risk takers were back? I don’t think so… Not yet anyway. As I said, it all looked like profit taking to me. Not even the threat of Bank of Japan (BOJ) intervention was going to bring the risk takers back out… By that I mean, that if the BOJ was going to intervene, which means sell yen to weaken it, the risk takers might use that information to their advantage and put Carry Trades back on the books… But, that didn’t happen, I think the risk takers have had the bejeebers scared out of them with all that’s going on, and it will be awhile before we see them in the places with bright shiny faces!

And… While I don’t want to spend the whole letter today on Japan… I must say that I think we should all be very wary of the BOJ and their history of intervening to keep yen weak. This will be a huge battle between the Carry Trade unwinders and Uridashi Bond sellers VS the BOJ… Just don’t get caught up in it… If it happens, stay to the sidelines, you don’t want to get caught up in an intervention battle…

I was reading friend, Bill Bonner’s Daily Reckoning (www.dailyreckoning.com) last night, and noticed that he was talking about the Dow going to 5,000… He had this to say about it, which plays well with our thought about all the deleveraging going on in the world right now… Here’s Bill…

“It probably would have corrected to the 5,000-range already. But the feds intervened. And now we’ve really got trouble. Because in trying to head off a recession/bear market, the authorities provoked a housing bubble, a financial bubble, and a worldwide credit bubble. Homeowners over-bought. Banks over-lent. Consumers over-stretched. Almost everyone seemed to over-do it. So, what might have been a typical bear market has been transformed into a monster of deleveraging.”

Gold is up $13 this morning! But Silver has dropped below $9… And we still can’t find physical Gold or Silver supplies anywhere! We did find 2,000 Gold Olympic Coins from Canada a few weeks ago, and those went out the door as fast as they came in! This whole lack of physical metals and slumping prices is beyond my ability to figure it out… I get asked all the time why isn’t Gold going higher, and I went through all that yesterday, but it’s important to know that I’m a firm believer that all this stimulus, and low interest rates are going to fuel much higher inflation, and that should be a good thing for Gold prices.

The Swiss franc continues to remain well bid and resist the strong pull down of the euro. I would think that given all the “risk” in the global markets these days, that francs would be well bid, which means that there are buyers of the currency. There’s little in the way of yield here in Swiss francs, but it’s better than nothing, nada, zero, zilch, a big fat goose egg like we’ll soon see here in the U.S!

In its semi annual Financial Stability Report released overnight, the Bank of England (BOE) said that the five biggest banks and Nationwide building society could lose as much as 130 Billion pounds over the next five years, well in excess of the 50 Billion pounds that the banks recently promised to raise as part of the Treasury’s bailout plan, forcing the banks to ask shareholders for even more cash. Things don’t look rosy for the U.K. or pound sterling, folks…

And speaking of not looking so rosy… Nothing has changed in Iceland… We can’t get payment for our maturities, as the clearing mechanism for currencies has been shut down, with the takeover of the largest banks in Iceland. Now, I read that the Icelandic Central Bank raised interest rates 400 BPS to 18% this morning… For what? I don’t get it… That’s like rearranging the deck chairs on the Titanic! I just wish the Central Bank would worry more about getting maturities paid! UGH!

You know… I talked a lot about foreign bonds when I was doing the Currency Tours. Foreign bonds are a great way to take a long term position in a currency, and not worry so much about the day-to-day moves of the currency. You lock in a yield to maturity on the bond, and it’s liquid… Seems like a lay-up to me, especially when you consider that in a lot of countries your yield to maturity would be higher than what you can find here. Foreign Bond trading is how I got my feet wet in the currencies… I cut my teeth on Foreign Bonds, so they have always been near and dear to my heart…

I was thinking the other day about all these people taking losses breaking their CD’s and attempting to catch a falling knife, and said to myself… “Chuck, why don’t you tell people about taking that currency they own, and using it to buy a foreign bond?” So… There! I did just that! Should you want to talk to somebody about that, our bond guy is Don Ries… He can be reached at the same 800#, 800-926-4922, that you call us on everyday…

Chris Gaffney sent me a note yesterday regarding our first MarketSafe CD maturity, which happened yesterday! Recall, we created MarketSafe CD’s on different assets (before all the volatility in the markets squeezed us out of the structured product creation), and the owner of the CD would have upside potential of the underlying asset, and enjoy 100% principal protection… Well, this first maturity was one based on the S&P 500… And it sure looks like the owners of that CD did quite well!

Chris tells me that the ending price of the S&P 500 index today was 848.92, which equates to a 29% fall vs. the original S&P price of 1196.54. Investors in this MarketSafe CD will be receiving their original investments with no upside payment. So… We saved investors 29% (assuming they would still be holding stocks)… Pretty cool…

And on that note… I think I’ll head to the Big Finish! Oh, and the currencies have risen a bit since I first came in, so we’ve got that going for us today!

Currencies today 10/28/08: A$ .6190, kiwi .5495, C$ .7720, euro 1.2505, sterling 1.5680, Swiss .8615, ISK (no quote), rand 10.66, krone 6.8650, SEK 7.9950, forint 212.75, zloty 2.9775, koruna 19.48, yen 94.60, baht 34.90, sing 1.5075, HKD 7.7520, INR 49.87, China 6.8385, pesos 13.21, BRL 2.19, dollar index 87.13, Oil $64.03, Silver $8.91, and Gold… $742.50

Source: FOMC Meeting Begins Today…

Today is a holiday in Britain and America. But here at The Daily Reckoning, we are on the job – because there are things that need to be reckoned with.

Before we get down to serious reckoning, however, we give you a look at the news from the end of last week.

On Friday, the Dow fell another 145 points. Oil stuck around $132 and the dollar at $1.57 per euro. Gold rose to $925.

Remember when you could buy an ounce of gold for less than $100? We do. Remember when you could buy a gallon of gas for 25 cents? We do. What is Memorial Day for…but for remembering?

First, let us pause for a moment of silence, in honor of our ancestors, our veterans and our war dead. Like Pericles, we recognize that we have a big debt to the generations that went before us — their sacrifices have helped made us what we are…and made the country what it is. They saved. They invented. They built. What we see around us is mostly the result of their hard work…and many years of saving. If our ancestors had used up everything they produced, there would have been nothing left behind. But they didn’t. They left us their inventions and their constructions. They left us money, too. In the post-WWI period up until the mid-‘1980s, America was the world’s biggest creditor. More people owed more money to Americans than to any other nation. Public finances were occasionally stretched – such as during WWII itself – but from the founding of the republic almost until the Reagan years, each federal administration generally tried to leave the government cash till in about the same state it found it.

But in the space of a single generation, that huge legacy of capital and custom has been squandered. Now, the United States is the world’s greatest debtor – by a huge margin. Every year, it spends approximately 6% more than it earns. Its leaders have abandoned the virtuous practices of their ancestors. They no longer even pay them the homage of hypocrisy; they don’t even pretend to balance the budget, and the latest tally reported in these reckonings put the total unfunded liability at $61 trillion. This has effectively bankrupted the average family. It also turns every new baby in the U.S.A. into a major debtor – with more than $100,000 worth of unpaid bills –on the day he is born.

So we have a lot to remember this Memorial Day, and a lot to reckon with.

Warren Buffett was born in 1930. He must remember what the United States was like when it was still growing and genuinely prosperous.

“I’m fond of 1929,” said he a few months ago. “I was conceived that year and have always had an agreeable feeling towards the crash.”

Now, the richest man in the world, Buffett has come to Europe looking for better investments.

In an interview for Der Speigel, the Sage of the Plains said the United States was already in a recession and that it would be “deeper and longer than people think.”

He was in Madrid over the weekend, so we picked up a copy of El Pais to see what else he was saying.

When will growth in the U.S. economy pick up, the Spanish paper wanted to know?

“I have no idea,” Buffett replied.

When will the financial markets stabilize?” El Pais persisted.

“No idea about that either.”

So you see, Buffett could write for The Daily Reckoning; he would fit right in. Go ahead; ask us a question. We’ll give you the same answer Buffett gives:

We have no idea. But we do have opinions.

And in our opinion, George Soros is probably right when he says:

“The current financial crisis was precipitated by a bubble in the US housing market. In some ways it resembles other crises that have occurred since the end of the second world war at intervals ranging from four to 10 years. However, there is a profound difference: the current crisis marks the end of an era of credit expansion based on the dollar as the international reserve currency. The periodic crises were part of a larger boom-bust process. The current crisis is the culmination of a super-boom that has lasted for more than 60 years.”

*** Yes, it was a super-boom that Soros describes. And it coincided with your author’s life. He was born at the beginning of it. He has now reached what he thinks is the end of it. That financial super-boom also probably marked America’s great peak – when everything went so well for so long that politicians and central bankers all wanted to claim credit for it.

But the tippy top of the peak also coincided with a number of trends and events that made it possible. Among the most important was a low oil price. Back in the ‘70s, the price of oil went to $30 – and shocked the world. It stayed around that level for 5 years, long enough to convince people that it was permanent. Consumers – especially in Europe – learned to live with less energy. Oil companies spent fortunes to produce more. And then the price plummeted back to $10…and world enjoyed a great boom.

That boom seems to be over, it drowned in the rising tide of the oil price. The black goo has gone up $50 a barrel since last September. The world’s consumers and producers should simply take the price clue with good grace – cutting back consumption and looking for new supplies, just as they did in the ‘70s.

That is what is happening. The oil companies are spending four times as much on exploration as they did eight years ago. And consumers are being forced to cut back too. But it is not all that is happening. Central banks are fighting the correction with everything they have – and all they have is cheap money.

As you know, the combination of higher fuel prices…and lower housing prices…is squeezing America’s family. Comes news at the end of last week that the typical house in California is down 32% from a year ago. The state also has the second highest foreclosure rate in the nation, with one out of every 204 houses going back to lenders.

The other thing putting pressure on U.S. family budgets is the price of food. For the 15 years, up to 2007, food prices rose only 2.5% per year. This was the “Great Moderation” that central banks felt so proud of. But in the last 12 months, food prices are said to be up 4%.

Consider Basilea, a Swiss drugmaker focused on antibacterial and antifungal remedies. The company’s lead drug, ceftobiprole, is a promising treatment for complicated skin infections. But last month, the FDA issued the company and its Big Pharma partner, Johnson & Johnson, an approvable letter – the regulator’s notorious maybe-yes/maybe-no ruling.

Without pausing to see if the company can satisfy the agency’s concerns, investors dumped the stock. It fell from 187.40 Swiss francs to 148.50 on the day of the ruling. It closed yesterday around 150.

But these dramatic, emotional reactions give us excellent opportunities to profit. Our own Dr. George Huang has developed a proprietary method for trading these approvable letters. It’s a strategy that offers huge upside and very limited downside.

The FDA will issue 55 more rulings in 2008, and we have exact dates for all of them. The next one happens on Tuesday. Dr. George Huang has written a primer explaining his system, and we’re offering the primer and his new trading service at a big discount that ends this Monday. To learn more about Dr. Huang’s S&A FDA Report, click here…

Oil trades for more than $117 per barrel, and for the first time China, India, Russia, and the Middle East will consume more crude than the U.S.

The International Energy Agency estimates the emerging markets will consume 20.67 million barrels a day this year, a 4.4% increase. Meanwhile, U.S. consumption will fall 2% to 20.38 million barrels a day. We doubt oil prices are going anywhere but up.

Look at the chart below (courtesy of U.S. Global Investors) showing international oil consumption per capita. Every country’s oil consumption exploded following the industrialization of that country… except China. China has not even begun to whet its oil appetite. Wildcatter T. Boone Pickens thinks we’ll see $125 oil, but according to this chart, it could go much higher

Oil consumption per capita, 1900 to present

Ali al-Naimi, Saudi’s oil minister said, “Limited capacity along the entire supply chain is the real source of current global supply tightness and represents the greatest threat to ensuring adequate energy to fuel future economic growth.” Al-Naimi says the world needs more infrastructure investment to find new oil wells. Saudi Arabia is the third major oil-producing nation to warn of shortages. This month, a Russian oil executive announced his country’s oil production has peaked, and Nigeria claimed its output may fall by one-third due to under-investment.

One thing is for sure: Americans are going to see their standard of living fall dramatically as prices for energy continue to rise. And no amount of solar-panel rebates is going to change this harsh fact.

Alberta, Canada, is one area with sufficient energy supplies. Alberta has a patch of land the size of Florida containing more oil than all of the Middle Eastern countries combined. The oil is mixed with dirt, and harder to process. But with oil at $120, it is worth trying to sort the dirt from the oil.

Canadians will invest $22.2 billion over three years on Alberta infrastructure. Most of this investment will relate to natural gas, which is becoming the most important fuel source in the region. Matt Badiali noticed the Alberta trend early and has several recommendations in his S&A Oil Report portfolio with operations in the region. But he recently discovered a little-known Canadian oil patch that may prove to be even more profitable for investors who get in now. To learn more, click here…

Regards,

Porter Stansberry and Dan Ferris

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.