So… Yesterday, we saw the euro lead the currencies higher all day, with the single unit finishing the day in the 1.3050 area… I turned on the currency screens this morning, and what did my wondering eyes did appear, but the euro trading at 1.3170, and others bringing up the rear!

The Swiss National Bank (SNB) cut rates further this morning, bringing their internal rate to 1/2%, 50 BPS, that’s it… So, one would think that bringing your interest rates to near zero, would NOT be a good thing for the currency, right? Well, in this day and age of rewarding a currency for lower interest rates to promote growth, that’s not the case. The franc has rallied on the news… Of course it’s probably just caught up in the euro’s move higher.

Looks like the U.S. House of Representatives approved a $14 Billion package for GM and Chrysler, but the Senate has put some roadblocks out on this deal, and that puts the whole deal in jeopardy… A Final Jeopardy if you will for the contestants Gm and Chrysler! Notice I didn’t include Ford. The people at Ford, backed out, and tried to put a 100 miles of desert between them and GM & Chrysler. Good for them!

Well, earlier in the week, the glimmering light of the bailout for the Big 3, helped the currencies… But now that the Trading Theme seems to be taking its last breaths, the news of the bailout in jeopardy, has helped the currencies, as this would mean that we could finally be back to focusing on fundamentals! Could we really? Is it possible? Well, maybe if you’re real good and take a nap… No wait, that’s what I used to tell the kids on Christmas Eve! It IS possible… But we need a few more days of what we’ve seen so far this week to confirm the Trading Theme to be a thing of the past.

Speaking of things of the past… A Bank of New York (BONY) strategist, issued a statement saying the, “Carry Trade is Dead and Buried.” Hmmm… I beg to differ with him on that, for if we get investors and traders focused on fundamentals again, and the risk takers come out of the woodwork again, the Carry Trade could very well be on the burners again… But then, I do see his thought here and that is (I think it is) that if every Central Bank is cutting interest rates to the bone, there won’t be any “high yielders” left to buy on the buy-side of the Carry Trade. Well, let’s see now… Aussie and New Zealand were the BIG WINNERS of the last Carry Trade craziness, and their rates are lower, but still 3 and 4 hundred basis points above those in Japan, Switzerland and the U.S.! But, the Carry Traders might have to look further, and do some additional leg work this time to find the “high yielders” like… Brazil, and India…

OK… I came across this story yesterday and really had my blood boiling… I wanted to talk to the Big Boss Frank Trotter about it and get his thoughts, but the poor guy was tied up on the phone all day, well, all day that is, until I left to go home! Anyway, here’s the base story, that the entire piece can be read here.

The U.S. Federal Reserve is considering issuing its own debt for the first time, the Wall Street Journal said, citing people familiar with the matter.

“Fed officials have approached Congress about the move, which could include issuing bills or some other form of debt and would provide the central bank with more flexibility to tackle the financial crisis.”

NOW WAIT JUST A MINUTE THERE BIG BEN! This is the bailiwick of the Treasury Dept, issuing debt! You’ve already got the printing press for currency, and now you want to issue your own Debt? This is complete madness I tell you, complete madness! I think the Fed is thinking of ways to deal with deflation…

Oh well, apparently, Big Ben can do whatever he pleases these days, the new President has named an “energy Czar” and the automakers might get a “Car Czar”, the new President had better think about naming a Fed Reserve and Treasury dept Czar!

OK, yesterday’s printing of the Monthly Budget Statement saw the monthly deficit not “as bad” as forecast, with the figure posting a $164.8 Billion deficit, instead of $171 Billion as forecast… That’s still really bad folks, let’s not get caught up in the media spin of talking about how it “wasn’t as bad as forecast”! Let’s focus on the fact that for the second consecutive month the Budget Deficit widened… And this month it went from $98 Billion in October to $164.8 Billion in November!

Of course you know why this is happening, right? No? Ahhh grasshopper… Recall the bailout money? Well, whenever any of it is spent, it will show up here! Want even further bad news here? Government revenue fell 4.2%, while spending soared 24%!

The Treasury Dept has written checks on all but $15 million of the first half of the $700 Billion allocated to help financial institutions.

So, as I said the other day when I mentioned that the President-elect’s plan to spend more money on infrastructure since 1950 might be the right thing to do at the wrong time… We’ve got the deep, dark recession going on, the Credit Crisis and this collapse of revenue… But don’t let that stop him! Why would we want to stop with the deficit spending here? I shake my head in disgust!

Today’s data cupboard has the Trade Deficit for November, which should narrow, given the collapse of the Oil price. That and the recession should allow the Trade Deficit to narrow… But, let’s not get caught up in the media spin on this too… You see, the Trade Deficit is still $53 Billion, which annually is $636 Billion… Which is probably right about where it will end out this year…

And… $53 Billion still needs to be financed! Let’s not forget that little ditty!

I just watched the euro gap up to 1.32… This is a rout like I’ve not seen since last summer! And wouldn’t you know it, here it is, and I’m going on vacation! Oh well, maybe the old adage that the currencies rally when Chuck’s away, will come back!

I just can’t pass up on this one though… And I know the legal beagles will be all over me on this, but here goes… This certainly looks like the Santa rally that I talked about earlier this week, eh?

I know, I know, it could all be reversed in a New York Minute, but you’ve seen these types of routs before…

Another currency on the rally tracks this week is the Chinese renminbi… After all the “bad talk” about China last week, the Chinese have said, “you’ll be sorry”! What I’m talking about here is the fact that everyone is dissing the renminbi right now, and selling it, and pushing forward contracts down in value… And the Chinese, because they can, have moved the renminbi higher VS the dollar this week! There! In Your Face, disgrace!

So… What’s everyone thinking these days buying Treasuries? I mean, the yield on a 3 month T-Bill is 1 BP! You have to go out 30 years in a Treasury Bond to get 3% yield! OUCH! But, investors keep buying! Well, I think what you’ve got going on here is simply the fact that all this repatriation of dollars has investors with tons of cash, that they don’t want to put into banks, (for a number of reasons, like FDIC insurance limits, shaky banks, etc.) So, they put the cash into Treasuries, realizing that they may not earn any interest, but it will be there when they want it at some point in the future. And this “point in the future” is what scares the bejeebers out of me! Because when the icing is off the cake here, there will be a swift exodus from Treasuries, as no one will want to be the last man standing here… UH-OH! Just be careful folks…

The weekly Initial Jobless Claims will also print this morning. We’ve seen a huge increase to average above 500K in the Weekly Initial Claims, and that should hold true today. This isn’t a good thing folks…

Well, the rally this week hasn’t been cornered by currencies… The Commodities have come back too! Oil is up $2, but the real meat here is the rally in Gold! Gold this morning is perched above $827, when it was sitting at $770 just a week ago!

Currencies today 12/11/08: A$ .6660, kiwi .5525, C$ .8015, euro 1.3235, sterling 1.49, Swiss .84, ISK 215.50, rand 10.13, krone 6.95, SEK 8, forint 199, zloty 3.01, koruna 19.64, yen 91.30, baht 35, sing 1.4890, HKD 7.75, INR 48.30, China 6.8515, pesos 13.30, BRL 2.3950, dollar index 84.33, Oil $45.50, Silver $10.46, and Gold… $832

Source: A Huge Currency Rally

OK… Whew! What an awful day yesterday for the currencies… In the morning, they ere in rally mode with the euro gaining ground to well within the 1.27 handle. But then the Trading Theme set in, and those gains were wiped out. The Trading Theme was set off by the awful Housing data, which reminded everyone of the deep, dark , dangerous days ahead… I bought some euros, and watched them rise, and went off to do something else… When I returned, they had fallen… UGH! The Japanese yen, however, rallied, as is the case with the Trading Theme… Risk trades get unwound, which benefits dollars, and yen. I’ve explained all this before, so I won’t get into it again, but there’s someone that has gone into the problems (credit markets and the Fed and Treasury’s response to the crisis), and does a great job of telling it like it is… So, instead of hearing from me, ranting and cursing the “leaders” I’ll let someone else explain it to you… This is a fellow named Ted Cook, that Ty Keough sent my way…

“One hardly knows where to begin. America has currently embraced the monetary policies of a banana republic. The Argentine and Zimbabwe models cannot be far behind. For years (35 to be exact) we have warned about the consequences of unbridled credit expansion. We argued that artificially low interest rates would lead to catastrophe. Now the first installment of this crisis has been visited upon us. Our policymakers have greeted this dilemma with even more ruinous money and credit policies that compound the problem. We’ve had the earthquake. The Tsunami is yet to come.

The monetary authorities in Washington, who are supposedly the brightest among us, have adopted a short-term strategy resplendent with economic error. As usual, the politicians are clueless. Somehow the idea has gained ground that recklessly expanding money and credit (inflating) will cure our economic ills without repercussions. Nothing could be further from the truth. This is currency debasement on a grand scale.”

OK… Back to me… I see where Iceland is getting $2.1 Billion from the IMF, and $2.5 Billion from the Nordic Countries of Finland, Sweden, Norway, and Denmark to help resurrect the Icelandic economy. Seems like it’s a case of too little too late to me, but maybe this can unlock the markets there a bit. For those of you keeping score at home, we received a price of 182.10 on our Icelandic currency this week. Now… I know there are people out there that don’t believe that we receive a price like this when the Central Bank posts a daily figure of around 139…

But let me tell you how this all works… I think the easiest way to explain this is to look at the Wall Street Journal, or most newspapers’ business section, and you’ll see the Fed Reserve rates for currencies that day. Since currencies only really trade at the level that’s posted in the paper for a mili-second, it’s merely used as a reference. It’s not an indication where trades are being bought and sold.

Then there was the Housing data yesterday… October Housing Starts fell 4.5%, and Building Permits fell 12%! OUCH! That’s just awful data! The Housing Starts fell to an annual rate of 791,000, which is the lowest since records began in 1959! That’s 1959 folks! I hadn’t even started kindergarten yet! We hadn’t even launched Alan Shepard into space yet! Oh, the Soviets were way ahead of us at that time, only to be caught and passed later… But I digress, with this space exploration talk!

I don’t mean to try to get everyone’s attention away from the awful Housing data, like the media would do… I think of the cable news people doing this story, something like this: “Today, we saw the October Housing Starts fall 4.5%, and how about Paris Hilton breaking up with her boyfriend yesterday?”

OK, I’m back now, the research team over at JP Morgan sent out a note to clients yesterday, telling them that they believe the Fed will cut interest rates to zero by the next two meetings, Dec. 16, and Jan 28, and leave them there for the rest of 2009. Recall, that I wrote about how I believed the Fed was going to cut rates to zero about a month ago? I said then that the Fed is thinking that they can be “Saved by Zero”… Well… It’s nice to see the BIG research teams jump on my bandwagon!

I guess, the Nestea Plunge in the Consumer Price Index (CPI) yesterday convinced them to make that call… October CPI took the biggest Plunge in 61 years by falling 1% in the month!

Falling asset prices… Falling inflation (so they say)… Falling Home prices… And Falling Job Creation… This is getting pretty ugly folks… And here’s Jimmy Buffett (a reader reminded me of this!) I don’t know —- I don’t know — I don’t know where I’m gonna go when the volcano blows. Mr. Utley! (you can hear those steel drums playing in your head now can’t you?)

I ran some numbers last week for our monthly newsletter to clients, called the Review & Focus, (shameless plug) because I wanted to see if our age-old portfolio theory thought about how diversifying your investment portfolio reduces the overall risk of your portfolio, was holding true, given the currency sell of since July… Lo and Behold, it’s tru, it’s tru, I did see a putty tat! Yes, with the S&P 500 off more than 39% in the past year, a $100,000 investment in the S&P would not have done you very good… But by allocated 20% to Gold, and 20% to 3 currencies, euros, Swiss, and yen, and you can even substitute Aussie to prove the point even more… You are left with far more money in your portfolio, than if you did not diversify.

So… Yes, the currencies have fallen on difficult times since July, but they are still doing their work as a risk reducing machine for investment portfolios… Interesting… Those are the facts, Jack!

Today… The Data Cupboard will yield, the Weekly Initial Jobless Claims, which last week jumped above 500K… I would look for this to remain above 500K… And that my friends, is not a good thing. We’ll also see the Philly Fed Index (manufacturing), and one of my fave data pieces, Leading Indicators… If everyone would have paid attention to the Leading Indicators in the last year, they were telling us that something was wrong… And I believe they’ll still indicate something still is going wrong, as they are forecast to post a negative -.6% print for October…

The Data Cupboard will be emptied after today, with nothing to report tomorrow.

In the Eurozone… ECB member Nowotny made a clever comment that has helped the euro a bit this morning… Nowotny was talking about interest rates cuts and said, “it makes perfect sense not to use all your firepower at once.” Like I always say about not using all the arrows in your quiver! Yes, this is what I was referring to yesterday when I was talking to a long time customer… I said that the ECB would be more pragmatic when it came to their rate cuts… Yes, they participated in the coordinated round of rate cuts, and they cut rates 50 BPS at the last meeting… But… I believe they will pause for the cause, and take a look at what their two previous rate cuts did to the economic landscape before going off and cutting rates like there’s no tomorrow.

Speaking of rate cuts… The Swiss National Bank (SNB) decided to take the plunge this morning and take out their yield that’s offered… The SNB cut rates 100 BPS! That’s crazy man! Crazy!

Speaking of crazy… The automakers were on Capitol Hill yesterday pleading for some bailout money… I understand that the proceedings were a bit heated at times, as well they should be! I think there will be a vote today on whether the Big 3 get some additional bailout money… You might recall that they already received $25 Billion to put toward alternative fuel vehicles… Yeah, I bet it went there, right? Oh, that’s right, I see a whole line of alternative fuel cars rolling off the lines right now! NOT! If I were in charge of the purse strings here, I don’t think I would give them a dime, until they demonstrated that they will change…

And… Finally, before I head to the Big Finish… Did you happen to see or hear or read any of the conversation between Sen. Ron Paul, and Big Ben Bernanke? Oh, this is classic stuff! Here’s a link to a site that has the video of the back and forth between these two… Simply classic!

Currencies today 11/20/08: A$ .6305, kiwi .54, C$ .7955, euro 1.2545, sterling 1.4865, Swiss .8210, ISK 182.10, rand 10.5675, krone 7.0740, SEK 8.15, forint 215.15, zloty 3.0740, koruna 20.43, yen 95.70, baht 35.15, sing 1.5290, HKD 7.75, INR 50.15, China 6.8342, pesos 13.40, BRL 2.3890, dollar index 87.62, Oil $52.15, Silver $9.39, and Gold… $745.50

Source: SNB Cut Rates 100 BPS!