While Washington’s all-powerful ego may have our leaders believe they still control our fiscal fate, they lost that power long ago. Now, the Fed and the Treasury may dictate who gets what, but China decides how much and when.

That’s scary.

After yesterday’s unnerving trade-deficit report, Americans are waking up to Beijing’s power and its dangerous shenanigans. If it continues unabated, this nation’s role as a supreme power is over.

It is absolutely no coincidence China unveiled new banking reserve requirements on the very same day the Commerce Department reveals the largest trade gap in ten months. With a seriously undervalued currency working to its advantage, China needs to appear like it cares about America’s financial future.

In reality, we know the truth. China doesn’t care. It already owns us.

All across the globe, calls for yuan (China’s currency) appreciation are growing louder by the day. Of course, you won’t hear much from the Obama administration. After all, it’s hard to talk when an important appendage is getting squeezed in a vice.

But France’s Nicolas Sarkozy has the, um, guts to say what needs to be said. He doesn’t have a $400 billion trade imbalance to worry about. Flat out, he tells the world “The monetary disorder has became unacceptable.”

But as American voters have learned. Talk is cheap. It won’t get you anywhere, especially with China.

If America is not willing to politically attack Beijing’s manipulation, it will have to do it by good old-fashioned belt tightening. Stop asking China for so much of its goods and free cash and the country’s ears will quickly bend our way.

Obama has his chance to stand up for you and me next month. But will he do it? Has he ever?

The political and financial pundits will be all over the president in February as he reveals his latest budget proposal. If he does what is best for this country, this will be a watershed event for the world markets.

But if Obama falls to the pressure of ever-political Pelosi and the constituents that elected him, it will be a non-event that proves we are enslaved to Asia.

As for me, I’m hoping Obama does what he’s promised (for a change) and cuts the nation’s spending by at least 5% next year. That would show China that we’re not ready to lie down just yet. Even better, it would slow down our government’s massive growth.

You and I know Obama is not about to cut tens of billions of dollars without slipping an equal amount through some sort of accounting loophole, especially when the Peace Prize winner is about to ask for another $33 billion on top of an already record-shattering defense budget.

If all goes as planned, Obama will allocate close to $750 billion in Defense Department spending next year.  Who will be lending us that money? You guessed it, China.

But don’t expect that to be a line item on Obama’s upcoming budget. If Bush managed to hide defense spending, you know this “ultra-transparent” administration will find an even better way.

We are in the midst of a critical year for this country’s fiscal fitness. By my calculation, we have not fallen of the cliff yet, but the ground beneath us is crumbling. If we don’t swallow our pride and jump to safety now, we will likely never get another chance.

China has open arms, awaiting our fall.

*** As investors, this is heavy stuff. If the value of the dollar falls, so does our wealth. If national security weakens, so does our wealth. And if our taxes rise, we lose even more wealth.

The future is scary. But inaction will make it even worse.

For many investors, gold is the fallback. But I don’t buy it. If America fails, Washington will either steal your gold or unload its own onto the market.

Diversification is the key. If you are holding a portfolio filled with domestic stocks, you are sitting on a time bomb. You don’t want to own American companies when the Chinese are increasing their share of the global market. You want Chinese companies.

And you want Indian firms. And you want Japanese companies. And you most certainly want exposure to Australia’s vast natural resources.

You don’t need any more exposure to the land of broken promises and empty rhetoric. Talk is cheap and Obama’s only making it cheaper.

Good day… And a Happy Friday to one and all! Today is Patriot Day in the U.S. and a day that brings back memories of cowardly attacks on our country 8 years ago. I remember the shock and horror on everyone’s faces, and that image will remain with me to the grave. I also remember trying to write the Pfennig the “day after”… It just didn’t seem that important of a thing to do, but a reader told me that to keep things as “normal” as possible was the best thing I could do… So… I wrote…

OK… The currencies, and this time I mean the majority of them not just euro and yen, added to their gains this week VS the dollar yesterday… The Big Dog, euro, is once again knocking at the door to 1.46… Who’s that knocking at the door, Who’s that ringing the bell? Do me a favor, open the door, and let ‘em in…

The dollar index has really tumbled this week… Recall when I told you how the dollar index was put together, that euros were really overweighed in the index, which means that even yesterday morning, when the dollar had rebounded a bit against the commodity currencies, the dollar index still lost ground, due to the euro strength… So, once again, I tell people that the dollar index isn’t a currency… To get real currency exposure, you must own the currency… And yes, you can buy all the ETF’s at Gary’s Stocks and Bonds you want, you can’t get the currency out of an ETF… So, if things come to push and shove, you may just want to have the ability to own the currency, eh?

Ok, I really went off on a tangent there… What I was working toward with the comment about the dollar index tumbling is that today marks the 6th consecutive day of the index falling in value, the longest such streak for the dollar index since March, when the dollar began going into the tank once again. And a lot of traders and such use the dollar index as an indicator… Well, fellas… That indicator is telling you something!

But I didn’t need the dollar index to tell me the negativity toward the dollar had begun growing again, and that risk assets are the king of the hill right now… And what is being used as the “funding currency” to purchase these risk assets? That’s right… The dollar!

The Japanese yen has joined its currency brothers and taken up the fight against the dollar… For the longest time, dollars and yen traded in tandem… But this week, things have changed, and yen is gaining VS the dollar… In fact, yen just went below 91! A stock company in Tokyo issued a report last night that said, “if the yen falls below 90 it may spark a downward spiral”… Hmmm…

The thing I pointed out to the boys and girls on the trading desk was that it was almost like “the old days”… The U.S. printed some bad data, and the dollar got sold! Now, that’s the way it used to be! The data I’m talking about is the Trade Deficit for July, which registered its biggest increase in more than 10 years in July, as surging purchases of oil caused an unprecedented jump in imports. The deficit widened by 16.3%, its largest percentage increase since February 1999, to $31.96 Billion. That’s up from the $27.49 Billion Deficit figure in June.

The trading pattern for a long time now was to buy dollars when bad data printed, (safe haven, they thought!) and the currencies would suffer… But, yesterday that changed, at least for that piece of data it did. Like I always say… One swallow doesn’t make a summer… In this case, one “fundamentals trading day” doesn’t make for a new trend… But it could be a start, and one that I would welcome with open arms!

We’ll see how that holds up today… On this Friday, the 11th of September, Patriot Day, we’ll see the Monthly Budget Statement, which should be quite a doozy, and the U. of Michigan Consumer Confidence… Probably split down the middle as far as negativity toward the dollar, unless that is, the Consumer Confidence surprises on the downside… But with the stock market kicking rear and taking names later, I would be shocked if Consumer Confidence was weak!

The Monthly Budget Statement, read Deficit! Is forecast to print a whopping addition to our already eye-popping Budget Deficit, of $140 Billion! Recall that we all thought last month’s deficit of $111 Billion was bad… Well, we’ll see your $111 Billion, and raise you $29 Billion!

That’s just shameful folks… We, as a country, continue to spend what we don’t have, and print money, and do all the stupid things that got us to this place to begin with! Pursuing the same stupid policy of excessive spending, debt expansion and monetary inflation can only compound the problems that prevent the required corrections. Doubling the money supply didn’t work, and neither will any amount of money supply!

I read this somewhere, forgive me but I don’t recall where, and it stuck in my head… “Buying up the bad debt of privileged institutions and dumping worthless assets on the American people is morally wrong and economically futile.”

The Chinese see what we’re doing folks… And they don’t like it one iota! Why does that matter, you may ask? Ahhh grasshopper… Come, sit… Did you ever borrow money from your parents, grandparents? (I didn’t, but I know how it works) Well, in the presence of the people you borrowed money from, you are thrifty, and show that you are doing what it takes to pay them back… Hmmm… Think of China as the parents that have lent money to the child, the U.S. They see us as doing harm to their money…

I know, that I’ve talked about this so many times before that you’re tired of hearing about it… But, China is the gate keeper folks… We were stupid enough to get to this place, with all our deficit spending, and now… As my mother used to say… You made your bed, now lay in it!

Well! Someone opened the door and let the euro in! The single unit just traded above 1.46! You, are my shining star! Well, wait a minute here, Chuck… There are a lot of shining stars in the sky for us to see, especially when you get out into the country away from the city lights! In the case of currencies being shining stars… Aussie, kiwi, real, loonies, Swissie, krone, are all up there in the sky to shine for us all!

I know that a lot of people do not believe in the Chinese economic growth story… That’s OK… But without it, we wouldn’t be having this rally in risk assets… So… I tend to go along with it, until somebody can prove to me that the Chinese data is bad… For instance, last night, China reported that their Industrial Production rose 12.3% in August VS a year ago. I told you long ago that China would be the first country to come out of the global recession… And they have proved that to be bang on!

I received a note yesterday that put a smile on my face… The note was from the “Audit The Fed Coalition”… I’ve made such a stink about the need to audit the Fed, and to support Ron Paul’s HR 1207, Bill that calls for such an audit, that these people have made me an honorary member of their coalition! Any way… The note said that House Financial Services Committee Chairman Barney Frank has officially agreed to hold hearings on HR 1207! The hearings are tentatively scheduled for Friday, September 25 at 9:00 am.

This doesn’t mean we’re home free here… It just means the Bill will take the next step toward giving the American people the ability to see the man behind the curtain, and where the money is going, etc. in other words, the Fed would have to defend itself to the American people…

And this has nothing to do with currencies and economies, but I have to get this off my chest… I read where U.S. Treasury Sec. Geithner, has proposed that bankers get paid in equity, something that can be “clawed back” if the bank doesn’t perform. This reminds me a Gov. we had here in Missouri years ago, he said he wouldn’t raise taxes without a vote of the people… But after being elected he raised the taxes without a vote by the people… But he also then put in place a law that prevented any other Gov. from ever doing that in the future… This is the same thing with Geithner… He would have stomped and whined for days years ago if they told him his pay would be in equity rather than cash…

OK… I’m back now… Hey! Gold is back above $1,000! Yesterday, it was $984, when I went through the currency round-up… And I had told you all that my new thing was to look to buy on the dips below $1,000… BTW… I wrote my Gold piece I told you about the other day, the Publisher rejected it! YIKES! Back to the drawing board!

OH! I almost forgot! The Bank of England (BOE), and the Bank of Canada (BOC) both kept rates unchanged as expected… The BOC, which I took to the woodshed yesterday morning, maintained their “conditional” commitment to keep rates at .25% until near the end of 2010… Again, I just don’t see how they can make that statement… The data in Canada lately has shown signs of a nascent recovery… I would think the BOC would have to move earlier should this recovery get legs…

And… Finally, I’ve complained for years about this guy and his jawboning and dissing his own currency, and he’s at it again… Reserve Bank of New Zealand’s (RBNZ) Gov. Bollard, said, “the currency’s gains are undesirable and unhelpful for an export-led recovery”… Now, that’s true in one sense… But, not completely true! Look at the euro! It’s strong, and Germany’s exports are rivaling China’s! I feel bad for kiwi… It’s just not right for a Central Banker to talk about wanting his country’s currency to be weaker! Where have you gone, Don Brash?

Don Brash, was the Gov. of the RBNZ years ago and understood the “perception” that a strong currency gives to a country! I met Don Brash years ago, and in fact have a picture of him with me! Oh well… A little history never hurts!

So… Let’s recap… We have a strong currency rally going on, after the U.S. printed an awful one month increase in the Trade Deficit. The euro has scratched and clawed its way back to 1.46 this morning, and we’re holding our breath for the Monthly Budget Statement today…And Gold is back to $1,000!

Currencies today 9/11/09: A$.8650, kiwi .7085, C$ .9295, euro 1.4615, sterling 1.67, Swiss .9655, rand 7.57, krone 5.91, SEK 6.98, forint 186.66, zloty 2.86, koruna 17.44, RUB 30.73, yen 90.80, sing 1.4210, HKD 7.75, INR 48.46, China 6.8290, pesos 13.41, BRL 1.81, dollar index 76.59, Oil $72, 10-year 3.35%, Silver $16.88, and Gold… $1,002

That’s it for today… American Flag on the house today for Patriot Day… And tomorrow, it gets changed to my BIG M Flag… M for Mizzou! Or for those of you out of the state… The University of Missouri! Tomorrow is my little buddy Alex’s first football game of the year… He’s in 8th grade now, and the size difference of these boys at this age is amazing! Alex is on the small side, but so was I when I was his age! I don’t worry about him out there, because he has a bulldog attitude, with a motor that doesn’t stop on the Football field… I wonder where he got that? HA! Speaking of which, I watched some of that football game last night, the first NFL game of the year, and Troy Polamalu was something! OK.. Gotta go.. Just one last cheer for Old Mizzou, and those Lindbergh Flyers 8th grade team! Now… Let’s get working on making this a Fantastico Friday!

Source: Patriot Day…

Good day… And a Thrillin’ Thursday to you! Ahhh! A change! Just thought that with the thrilling victories my beloved Cardinals have been accumulating, that Thrillin’ would be a nice change to our Thursday lineup!

Front and Center this morning… The currencies added to their gains this week yesterday, albeit small gains, but gains nonetheless. The Fed’s Beige Book was “cautiously positive”… And… Overnight, the Reserve Bank of New Zealand met, and left rates unchanged as suspected… This and more as we begin our Thrillin’ Thursday!

The Big Dog euro has been off the porch chasing the dollar down the street for a week now, one would think that a return to the porch for food and water might be in the cards… But, as I was telling someone yesterday… Even though all signs point to a major stock sell-off, it hasn’t happened, so why stand in front of the stock and risk assets rally bus?

The euro climbed to very near 1.46 yesterday, before falling back to 1.4550 as the day ended… Overnight, the euro has traded within a narrow range. The Aussie dollar (A$) got slapped on the wrist by traders after it was reported that Australia lost 27,100 jobs in August (consensus was to lose 15,000)… The unemployment rate in Australia remained at 5.8%, but the weaker than expected data caused the A$ to slide from the 86-cent handle to .8550…

If the heat remains on the dollar the rest of this week, then I would expect the A$ to rebound from that sell-off last night. Much like the Brazilian real sell-off last week… You may recall me saying that it was overdone, and I expected the real to bounce back, which it did, and the bounce was like a Super Ball Bounce!

The Reserve Bank of New Zealand (RBNZ) met last night, and kept rates unchanged as expected… But I really thought the RBNZ would opt to change the wording of their last statement following a rate announcement, in which they talked about leaving rates unchanged for some time to come… Well… They didn’t change… And instead repeated the comment from the previous meeting… “We continue to expect to keep the OCR (official Cash Rate) at or below the current level through until the latter part of 2010″.

Here we go again with a Central Bank making statements about rate policy months ahead to time! I don’t see where they have the data to do something like that… But, they do it! I’ll bet a dollar to a Krispy Kreme that the RBNZ has to move rates higher before “the latter part of 2010″, and when they do, they’ll be pushing rates up in 50 BPS clips!

Kiwi also took a slap across the wrist by traders after the RBNZ rate announcement and statement. I’m not so sure about this currency’s ability to rebound, but if the A$ does rebound, kiwi normally hangs on the coat tails of the A$…

So… As I look across the screens this morning… I see that the euro and yen are the only currencies that are really stronger today than yesterday… So, my statement at the beginning that the currencies had added to their gains this week, needs to be tweaked, to say just euro and yen have added to their gains this week!

The Norwegian krone, was really on a run yesterday, trading below 5.90… But, couldn’t hold those gains. I was reading a story last night about Norway’s inflation rate falling, and how that might push back the Norges Bank (Central Bank) timetable for a rate hike from late this year to the 1st QTR of 2010… That thought process is responsible for the pull back in the krone yesterday, and overnight.

Do you see the mental giant (NOT!) thought process that goes through some of these traders? Sometimes it’s all about yield differentials, and sometimes it’s all about economic growth possibilities. Just like a baseball player wishes for consistency from the Umpire, I wish for consistency from the markets… UGH!

The Fed’s Beige Book was “Cautiously Positive” yesterday… And of course, you know me, I want to know why the Fed is Positive at all! Let’s see… The Beige Book said, that… Most districts characterized consumer spending as “soft” with a majority of reporting retail activity as “flat.” And that the Cash for Clunkers was a positive… HEY! FED HEADS! Cash for Clunkers is over!

On the real estate component… Both residential and commercial real estate markets were described as “weak”… So… Do you see anything in here that spells “positive” for the Fed Heads? I sure don’t!

I’ll stop there… These guys at the Fed drive me up a wall, and cause me to go over to the walls and scream at them!

One thing the Beige Book didn’t contain was the report yesterday that foreclosures in the U.S. jumped above 300,000 for the sixth consecutive month! RealtyTrac Inc. reported that a total of 358,471 properties received a default or auction notice or were seized last month, which is 18% higher than it was a year ago!

And then add in those details I gave you yesterday about the Option ARMs that will reset in the next three years, and this is getting ugly folks…

Doesn’t it seem as though the “people in power” have turned their backs on this problem? I mean, don’t get me wrong, I don’t want the Government sticking their hands in everything, but they already started down this road, and then turned around and headed down a different road… That’s the Gov’t’s way isn’t it? As my football coach used to describe someone not giving everything to a play as doing it half-a_ _ … That’s what the Gov’t does… I don’t want you sticking your hands in the private sector! But! If you’re going to do it, do it right and until it’s fixed!

The Bank of England (BOE) and the Bank of Canada (BOC) both meet today… The BOE’s meeting is going on as I write, while the BOC meeting will take place later today. I look for both Central Banks to remain steady at the wheel. The BOC will really tick me off later today when they repeat their earlier statement that interest rates will remain at near zero until June of 2010… The BOC also talked about the strong Canadian dollar / loonie in their last statement, as “significantly moderating growth”… As if a strong currency is a “bad thing”, which it certainly is not! But here’s an opportunity… If the BOC doesn’t talk about the strong currency this time out, we could see a “relief rally” in the loonie…

Today, the U.S. data cupboard has July’s Trade Balance, and since it’s Thursday we’ll see the latest Weekly Initial Jobless Claims. The Trade Balance is a misnomer as far as I’m concerned… It should read… The Trade Deficit! And while this Trade Deficit isn’t as bad as it once was, due to the depression, it remains a bugaboo…

And talk about sticky! Those darn Weekly Jobless Claims! Last week they printed 570,000 new claims, and this week is expected to be 560,000 more! I wonder when these people will be counted as “unemployed” by the Bureau of Labor Statistics (BLS)! OK… You know me… The BLS is one letter too long, as the “L” should be removed!

And… Before I recap, is it just me? Or does anyone else see stock market bubbles all over the world? I’ve already talked till I’m blue in the face, which is normally red!, about the U.S. stock market being overbought… But there was news yesterday that Asian stock index hit a 1-year high… And that the FTSE, London’s stock exchange, returned to the 5,000 level for the first time in a year! Bubbles Greenspan, should be in hog-heaven with all these bubbles floating around!

OK… Almost ready to go the Big Finish… Let’s recap first though… Euro and yen have added to this week’s gains, while other currencies have seen profit taking. Central Banks in the U.K. and Canada meet today, while New Zealand’s Central Bank was a disappointment. U.S. Beige Book is “cautiously positive”, and Foreclosures are greater than 300,000 for the 6th straight month!

Currencies today 9/10/09: A$ .8560, kiwi .6940, C$ .92, euro 1.4530, sterling 1.6560, Swiss .9585, rand 7.6150, krone 5.9650, SEK 7.0520, forint 188.10, zloty 2.8710, koruna 17.5725, RUB 30.93, yen 92.10, sing 1.4270, HKD 7.75, INR 48.65, China 6.8292, pesos 13.54, BRL 1.8330, dollar index 77.12, Oil $71.69, 10- year 3.46%, Silver $16.07, and Gold… $984.55

That’s it for today… I sure hope your Thursday is Thrillin’!

Chuck Butler

Source: Cautiously Positive?

Good day… And a Wonderful Wednesday to you! I’ve got an interesting thought for you all this morning… I think you’ll want to read what I have to tell you this morning and not just skip to the Big Finish! HA! But first, a review of what happened yesterday and in the overnight markets. Are you ready? Then let’s go!

Well… Yesterday did NOT turn out to be a Turn-Around Tuesday after all… The small rally I saw right before signing off on the Pfennig yesterday, went “poof” and it was gone. The currencies then traded in a tight range the rest of the day. The High Yielders and Commodities have really taken on some water in the past two days.

In the overnight markets, Japanese yen was the only currency other than the dollar to gain. We’ve seen this before… In fact from Sept of ‘08 through Feb of ‘09, we saw the Japanese yen and dollar move higher together… You may recall that I would question the mental capacity of a trader that thought that Japanese yen was a “safe haven” but at the same time decided that discretion would be better than valor, and not stand in front of that yen bus!

That leads me to what I really wanted to talk about today, and that is… What happens if this great run that stocks have been on since March, suddenly ends? What happens if smart people begin to take profits, and that leads to more selling, and before you know it, things are looking bleak for stocks again? Well… I doubt anyone knows… But… We can look back to last fall’s huge reversal of stocks for an indication… And I don’t like that indication!

As you know, I’ve chronicled over and over again, how stocks and currencies have been connected at the hip for some time now… This is contrary to the historical trading pattern of these two risk assets. Currencies have different pricing mechanisms than stocks, and have a low correlation to stocks… But… The markets have put stocks and currencies and even commodities in a bucket labeled “risk assets”… And all that historical trading has been shoved under the bed for now…

With that in mind, and no apparent break in the link of these asset classes in sight, although last Friday’s Jobs Jamboree gave us a glimpse of a break, but no follow up occurred, we have to believe that a stock sell off will adversely affect the nice gains the currencies have made this year since March. And with that is my chance to step up on the soap box…

Ahem… Hello? Can you hear me now? Is this microphone turned on? OK… Here we go… I long have told people that the most important thing they can do in their investment portfolios is to diversify, and to add the asset classes of currencies and metals to their portfolios. I ask them… You wouldn’t own just one stock would you? Then why own just one currency? Diversification, gives you a hedge against the potential drop in the dollar, which most people truly believe will happen eventually, but with short periods of dollar strength mixed in.

So, if one is “truly diversified” they don’t panic when the short periods of dollar strength occur… In fact, over the years, I’ve seen, what I consider to be really intelligent investors, use the short periods of dollar strength as an opportunity to add to their positions at cheaper prices…

I told the crowd in Vancouver… Markets always do what their supposed to do — just not when…

So, the dollar may have second winds here and there, and for sometimes up to 5 months, but the idea to diversifying now is to take away the risk of the markets doing what their supposed to do… now! And the idea is that eventually, the Gov’t will get what they want (a cheaper dollar to use to pay back their debts), and you will be diversified! And you’ll be singing: Jimmy crack corn and I don’t care!

Ok… I’ll get down from the soap box now… Be careful, Chuck, the balky knee might give out on you!

I had to chuckle this morning, but then the chuckles turned to crying, as I read this story on the Bloomie… “The dollar may weaken should the Federal Reserve unexpectedly say it will keep buying assets”, UBS AG, said…

What UBS is referring to here is the Quantitative Easing (QE)… And they feel that the dollar would be taken to the woodshed if the Fed decides to implement more QE…

OK, apparently, the strategist at UBS that wrote the note to Bloomberg, doesn’t read the Pfennig! For had he read it, he would have known that the Fed has taken to what I call, “stealth QE”… Recall that on Monday, I told you about a story by Chris Martenson (yes, my fat fingers on Monday typed Mortenson, UGH!) that revealed the plan that the Primary Dealers and the Fed put in place for the last auction of 7-year Treasuries. The Primary Dealers bought the bonds that nobody else wanted, and then a couple of days later, the Fed bought 47% of the purchased bonds by the Primary Dealers!

So… I guess, in the end, if most traders don’t read the Pfennig (boy, they don’t know what they’re missing! HA!), then I guess this thought about more QE might hold some water… But, here’s the rub… If the Fed can affectively buy back from the Primary Dealers what the rest of the world didn’t want, without announcing it to the world, why then, would they announce it? It’s all a shell game folks… With the cartel, I mean, the Fed Reserve in control…

Speaking of the cartel, I mean the Fed Reserve… Their FOMC meets today… And wouldn’t it be nice if we could wake up in the morning when the day was new, and see that the FOMC came clean and told everyone that they bought 47% of the Primary Dealers 7-year Treasuries after the last auction? Yeah, right, if you believe that will happen then I’m sure the Gov’t has some land it would like to sell you…

I read where 71% of economists surveyed want the FOMC to announce in their statement today following the meeting, that the recession is over… WOW! Now, that would be right up the Fed’s alley wouldn’t it? I mean how wrong have the Fed and Treasury been about this financial crisis and resulting depression since the get-go? VERY WRONG! So… Go ahead FOMC, say the recession is over… It’s my opinion, that they’ll be eating those words in the future…

Ok enough! Norway’s Central Bank, Norges Bank, is meeting this morning, and I don’t expect any movement in their internal interest rate of 1.25%… I would like to see something in writing from the Norges Bank that hints at rate hikes this year… Otherwise, the risk is for krone weakness on the announcement.

I have to think that for now, all the recent good news in Australia has been priced into the currency. The reason I say that is simply because the last couple of data reports showing positive signs for the economy have not moved the A$ one iota… Last night it was Consumer Confidence printing a nice gain of 3.7%, moving the data to the highest level since 2007… But no movement in the A$, except to follow the other High Yielders to softer ground… UGH!

Today… The data cupboard will get a workout here in the U.S. We’ll see the color of the Trade Deficit and the Budget Deficits… Of course the color will be RED! For the deficits in these two will be larger than the previous print / month, and there’s no dreaming of a turn-around any time in the near or far future!

This Budget Deficit is something that every citizen should be banging on their representatives about every day! And it’s getting worse, folks! I’ve told you about how tax receipts are near the levels of the great depression, which means the revenue to the Gov’t is falling, while the Gov’t spending continues to grow! But don’t let that get in the way of Gov’t officials telling us how everything is on the mend, and soon it will all be seashells and balloons…

Remember a couple of months ago or so, I explained to you how when we get to the other side of this deflationary asset price scenario, that we would begin to see inflation pressures? I said that those pressures would be fanned by the fact that people will have money to spend, but retailers won’t have inventory to sell them, thus, money chasing too few goods… A few people scoffed at that thought and told me I would be wrong…

Well… It was reported yesterday that wholesale inventory has shrunk for 10 consecutive months! Businesses continued to draw down wholesale inventory in June for the 10th consecutive month, with a fall of -1.7%… Oh! By the way… The 10th consecutive month is a record for continuous inventory decline, according to the U.S. Commerce Department.

So, we’ve got that to look forward to!

OK… Before I go to the Big Finish… I’ve got an interesting story to share with you!

Before I talk about the story, I want to tell you that a friend of mine just returned from Greece and Italy, and he reports that for the first time that he can recall, people there preferred euros to dollars… Hmmm…

OK, now the story… Well, it seems that it’s not just foreigners that are growing tired of choking on dollars… The LA Times reported that Communities in North Carolina, Massachusetts, Arizona and elsewhere are printing their own money to encourage shoppers to patronize local businesses. Local money was last popular during the Great Depression.

Last popularized during the Great Depression, scrip, or locally created stand-ins for U.S. currency, is making a comeback. Pittsboro N.C., population 2,500, is one of a handful of communities that launched its own money in recent months. It reports an avalanche of calls from other communities that have lost faith in the global financial system.

Pittsboro calls their own currency, the Plenty… “The Plenty is not going to get siphoned off to Wall Street, or Washington, or make a stop in Bentonville on its way to China,” said B.J. Lawson, a software entrepreneur who is president of the board of the Plenty cooperative. “It gives us self-reliance.”

Here’s a link to the complete story in the LA Times… Very interesting indeed!
http://www.latimes.com/news/nationworld/nation/la-na-scrip-money11-2009aug11,0,1371794,full.story

And… No… I’m not going to add the “Plenty” to the Currency round-up! HAHAHAHAHAHAHA!

Currencies today 8/12/09: A$ .8235, kiwi .6650, C$ .9070, euro 1.4165, sterling 1.6455, Swiss .9280, rand 8.1440, krone 6.2225, SEK 7.2715, forint 193.45, zloty 2.96, koruna 18.21, yen 95.80, sing 1.4475, HKD 7.7505, INR 48.31, China 6.8350, pesos 13.07, BRL 1.8484, dollar index 79.08, Oil $69.69, 10-yr 3.66%, Silver $14.33, and Gold… $945.70

That’s it for today…I hope you have a Wonderful Wednesday!

Chuck Butler

Source: On The Soapbox Again!

Good day… And a Marvelous Monday to you! You know the Jobs Jamboree data that printed on Friday, and created some HUGE euphoria among the media types that love to just “read the news” and not actually do the research to report it? Yes… It was a very good number, on the outside… Not that losing 345,000 jobs in a month is a good thing, but it is far better than the near 700,000 jobs lost a couple of months ago.

So… I’ve got that to talk about today… And the rebound by the dollar that has taken the euro to the 1.38 handle and looking as if it is going to go lower… And, then finally, I have to get on my soapbox again, because I don’t think I want my President calling me names! So, all that and more as we begin this 2nd week of June…

OK… Well… Did you get all caught up in the euphoria of the Jobs Jamboree on Friday? I know the 2 different cable news stations we have on here in the office, sure took the number, hook, line and sinker. The markets all reacted violently to the number too… At first… You see, when the number was reported, which was -345,000 for May, the euro took off, and the dollar selling was incredible, but the flurry only lasted about 1/2 hour, then someone with an ounce of gray matter, looked closer at the number. It was like a game of Who’s foolin’ Who?

So… Here’s the skinny… If the jobs losses were really just -345,000 in May it would have signaled a bottoming of the job losses, and a bottoming of the recession / depression, which would feed right into the inflation story, albeit a lot sooner than anyone would have expected… And with that thought, the dollar got sold. But… A funny thing happened on the way to the forum, and the currencies were soon to reverse their recent trend, and it all came back to the Jobs Jamboree…

First of all… The Bureau of Lying Statistics, I mean Labor Statistics, reported on their website that 220,000 jobs were created in May through the Birth / Death Model… And 43,000 of the 220,000 “ghost jobs” were Construction jobs… Really? You’ve got to be kidding me! But if you think that’s all… That’s just the tip of the labor iceberg… The number of unemployed persons actually increased by 787,000 in May! The number of long-term unemployed (those jobless for 27 weeks or more increased by 268,000 over the month to 3.9 million and has tripled since the start of the recession.

Not that I’m trying bum you out on a Monday morning, I just think you “should know” the score… The total number of unemployed persons is 14.5 Million… In January of this year 5 months ago it was 11.6 million… And… Oh, by the way… The 9.4% Unemployment Rate? It’s probably nearing 20% in “real terms”…

The thing that gets me is that people, investors, traders, hedge funds, etc. all react to data and make investment decisions based on the data when it prints… I guess this will teach them to wait until all the dust settles and the numbers have had a chance to be exposed to the daylight! I just think it’s a shame that we have to deal with these liars, and cheats, just to make us all “feel good”…

So… Eventually the truth comes to the top, because the truth… Is out there! So… Why is this bad for the currencies? Well… In normal times this news would be manna from heaven for the currencies… But these aren’t normal times, as the President, U.S. Treasury Sec. and Fed Chairman all remind us at least once a week… And the trading pattern for this type of bad news, is that the inflation picture everyone was thinking of last week and the week before, just isn’t going to come that fast… So… The currencies gave back gains that they had made in the last two weeks…

Whew! I typed all that “non-stop” and have to give my fat fingers a chance to rest here for a minute!

The euro also has had to deal with the Irelands rating was lowered by S&P to AA… But, I do have to say that since I’ve come in this morning, the bias has been to sell dollars, and buy euros… But, the move has been very small…

There’s not much in the data cupboard this week, until Thursday when the May Retail Sales report prints… The Butler Household Index (BHI) tells me to expect stronger Retail Sales in May. Wednesday we’ll get the May Budget Statement, which will be around a deficit of -181 Billion… Did you all get that notes I wrote last week about the month of April and the Budget Deficit… Did it hit home with you? Maybe I should repeat it just for GP…

Here’s what I said on Thursday… The Budget Deficit this April was $20.9 Billion, the first deficit in this “tax-paying” month in 26 years! Can you imagine that? In April when taxes are paid, we recorded a deficit? That’s pretty amazing folks… April 2009 tax receipts dropped 44% compared with those in April 2008.

And Here’s what I said on Friday… And I also believe that we will return to the underlying Weak Dollar Trend for good in the 2nd half of this year… Because… By then… the U.S. Budget Deficit, which has already breached 5% of GDP (late last year), will be heading beyond 10% of GDP this year. So… Do you want to own a truck load of dollars when the markets are staring at a Budget Deficit of greater than 10% of GDP? I don’t think so!

And… Then this week we get the actual data to tie it all together in a nice bow!

I just saw a news story flash across the screen quoting the President… Hmmm, seems President Obama believes that his “stimulus package” will create 600,000 jobs… Well, that should be in the bag, right? I mean if it’s not people being hired to take the census, then the BLS will just create them out of thin air, and the President will be able to say… “See! I told you I would create 600,000 jobs!”

I shake my head in disgust… I really do folks… And speaking of the President… I don’t know about you… But I’m tired of him apologizing to other countries… And I really don’t like him calling me names… OH! He’s calling you names too!

OK, back to regular stuff… The Reserve Bank of New Zealand will meet this week, and I’m on the fence regarding what they will do… I’m leaning toward leaving rates unchanged, but jawboning for further rate cuts… Which is about the same as actually cutting them! So… Just cut the darn things! Quit beating around the bush!

And… U.S. Treasury yields continue to climb higher, and that means further losses to holders… The 10-year U.S. Treasury yield hit a seven-month high this morning… Treasuries have to deal with more supply this week. Hmmm… I have to blow my own horn here and tell you that I told you a couple of months ago that this would happen… That the deficit spending would create a monster, and that monster would be the need to issue more Treasuries than ever before, and the more you issue, the less the value of those outstanding become… So, to sell them, you have to allow the markets to let the yields rise to attract investment, and… As the yields rise, those previous issues lose value, in the secondary markets… Sure, if you hold them to maturity, there’s no principal loss… But how many of those Treasuries were bought last year in the flight to safety, to hold until maturity? I don’t have an answer, but my guess is… Not many!

See? Deficits Do Matter! And these days it’s the Budget Deficit that’s taking the hits… The Trade Deficit, which used to be the Big Kahuna, is no longer adding $700 Million to the Current Account each year. In fact, the Trade Deficit will print this week for April, and is expected to remain below $30 million… Not a Surplus, but still, much better than the $65 million figures we used to see every month! As I’ve explained before though this is simply, not the preferred way to reduce one’s Trade Deficit… To have a recession! No, it would have been far better to have our exports be competitive…

And in the “here we go again” category… Saudi Arabia, Bahrain, Kuwait and Qatar signed an agreement to create a Persian Gulf monetary union, committing themselves to working toward a common currency despite the withdrawal of the United Arab Emirates and Oman.

These “oil states” threaten to do this about once a year… Kuwait finally go tired of waiting and dropped their peg to the dollar over a year ago! But, an oil monetary unit? Now that would really put a dent in the dollar’s armor, eh? Just don’t go hanging your hat on that happening any time soon!

I think that we’ve seen some real profit taking in the past few days… A reversal of the risk taking that was going on… And… The feeling that we went too far too fast… This move back in the euro and other currencies does give all those that were sitting on the sidelines and just couldn’t pull the trigger on the rally that began in March, an opportunity to get in at cheaper levels than the past two weeks…

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

Currencies today 6/8/09: A$ .7870, kiwi .62, C$ .89, euro 1.3850, sterling 1.59, Swiss .9130, rand 8.1850, krone 6.4470, SEK 7.8645, forint 207.35, zloty 3.2810, koruna 19.50, yen 98.55, sing 1.4585, HKD 7.7520, INR 47.57, China 6.8372, pesos 13.40, BRL 1.9615, dollar index 81.30, Oil $67.45, Silver $14.96, and Gold… $951.02

Source: Who’s Foolin’ Who?

The lack of volume on Friday didn’t yield any wild swings, and the currencies pared their losses from the day before (trade deficit plunges)… This morning, the currencies, led by the euro, are moving higher VS the dollar, but at this point it’s baby steps… The bias to sell dollars hangs over the currencies however… It seems to me that it’s very much like trying to hold a kid back from ripping open their Christmas presents… It sure seems inevitable, but when is the question… As I used to say in my presentations, imagine if you will a big old Ford rambling down an icy country road, and it begins to spin out of control… You know for sure that you’re heading toward that guard rail, and your Ford will make impact with that guard rail, it’s just a matter of time….

Well… Some water and time has passed under the bridge now and traders and investors are dipping their toes back into the risk waters again. The Mayo comments last week, really threw a spanner in the works for the risk takers… But, as I said, time has now passed, and the comments are in the rear view mirror now. With risk back on the menu, the high yielders are the first to get attention… And the Aussie dollar (A$) is soaring this morning, passing the 72-cent figure this morning… And the Brazilian real has really taken some HUGE strides recently… In fact, in the past 3 months… The real is up over 6% VS the dollar!

And do you know what currency is at the top of the heap with regard to performance VS the dollar this year? That’s right! It’s the real!

Speaking of high yielders… The South African rand, which I’ve always said is too volatile for my liking, is the best performer in the past 3 months… So… With the A$, real and rand all percolating… You can see that investors are growing tired of paltry yields, and looking to higher yielding countries. Of course, whenever the cold wet blanker of risk aversion is thrown over the markets, the risk takers head of the hills… But, for now they are taking on risk, and that spells Happy Times Are Here Again for the High Yielders…

Of course, I laugh out laugh (LOL) whenever I say “high yielder” as if they really have “high yield”… Compared to the majors like the U.S., U.K., Japan, Canada, and even the European Union, these “are” high yields!

OK… Did you read the news, this morning, when the paper landed in your yard? China’s currency reserves grew by 16% in the first QTR, VS a year ago… This puts China’s currency reserves at $1.9537 Trillion, at the end of March… Hmmm… Makes you wonder, why the rest of the world doesn’t treat China like E.F. Hutton, and listen to them when they complain about stuff, like the safety of its holdings… Yes, China has complained recently about the monetary policies the U.S. is using to keep the economy’s pulse pumping.

Speaking of the monetary policies being used… Friday, the Budget Deficit printed… And has, right now (which is before a ton of the spending is booked) tripled to $957 Billion! That’s in the first 6 months of the fiscal year… So… Let’s just say, we don’t spend any of the funds already allocated to revive the economy… That would put the annual deficit at almost $2 Trillion! And, then… Add in the spending already allocated… Remember, a couple of months ago, I told you that at first I calculated the deficit this year to be $2.5 Trillion, but then raised it to over $3 Trillion? Well, it sure appears that we as a country are well on the way to a $3 Trillion Budget Deficit this year, which should put our National Debt at around $14 Trillion dollars!

And… Of course that’s just a drop in the bucket, when you add in all the future payments we will owe on the endowments like Social Security, and Medicare… And, Oh, by the way, just where do those war expenses get booked? Is that the proverbial “off balance sheet item”? You bet it is folks…

Oh… I had better stop right there! I can get all geeked up whenever I begin talking about our deficits… I begin to wonder, no wait! I said I was going to stop! OK, onward and upward to something else! I’m going to step away for a minute, I’ll be right back…

OK, I’m back! I had to get up and walk around for a minute, that deficit talk just get right under my skin from the get-go! Then you add in the consumer debt, and you just go crazy! Yes, maybe Credit Card Debt is plunging, but Mortgage foreclosures are soaring, according to Reuters…

So… Gold, which has had a difficult time pushing back to $900, is up $5 this morning. I was checking the best returns this morning, year-to-date, and I noticed that Silver had pushed higher by over 9% so far this year… It’s out performing Gold, right now… The real winners this year, so far, are… Platinum and Palladium, up 32 and 27% respectively. WOW!

As I said at the top this morning, it’s Easter Monday, which means it’s a holiday in parts of the world, and that means we won’t be “fully staffed” in the markets again today… But the U.S. stock jockeys are back in the saddle, and that should add to the excitement of the day!

Well… Here in the U.S., the data cupboard is bare… But the remainder of the week, sees it get restocked daily! Tomorrow’s big report will be the Retail Sales for March, which given the indication of the BHI (Butler Household Index), should be a bit better than recent reports… Wednesday is Tax Day, and we’ll see the stupid CPI, and the TIC reports. Industrial Production and my fave, Capacity Utilization also prints on Wednesday. Thursday brings us a slew of data, of which the Weekly Initial Jobless Claims will be the most important. And we finish this week with the U. of Michigan Consumer Confidence report for this month.

So… With me dragging a bit, some countries on holiday, and no data today, I think I’ll head to the Big Finish… Will you join me?

Currencies today 4/13/09: A$ .7245, kiwi .5860, C$ .8165, euro 1.3210, sterling 1.4730, Swiss .8685, rand 9.0550, krone 6.6225, SEK 8.2240, forint 219.20, zloty 3.2910, koruna 20, yen 100.50, sing 1.5250, HKD 7.75, INR 49.87, China 6.8350, pesos 13.11, BRL 2.17, dollar index 85.44, Oil $50.84, Silver $12.51, and Gold… $887.40.

Source: Budget Deficit Triples!

Our old friend, Lord Rees-Mogg, writes in the TIMES:

“Daniel Webster’s opinion should never be forgotten. Of paper money he says: ‘We have suffered more from this cause than from every other cause or calamity. It has killed more men, pervaded and corrupted the choicest interests of our country more, and done more injustice than even the arms and artifices of our enemy.’

“In the 1930s some nations tried to beat the slump by competitive devaluations. In the present crisis, Britain has already experienced a very big devaluation of the pound, taking it down by a quarter against the dollar. Every country, led by the United States, has been issuing money, often in very large amounts, in order to bail out its banks. No one knows the total value of these national injections of cash into the banking systems. As the earlier injections have not restored stability to national economies, further injections inevitably will be made. All will be made in unconvertible currency, and over-issue will occur.

“Governments need to create a new world system, in which gold, as a stabiliser, should play its part. For individuals, gold remains the best insurance against future shocks and the best store of value.”

Yesterday, the Dow fell another 297 points…as the market continued to react to Obama’s $787 billion bailout. “Too little,” say some. “Too late,” say others.

But the worst may not be over for this market. Earnings are falling…for the very simple reason that people are spending less money. People spend less. Business makes less. Lower revenues; lower earnings. As we mentioned yesterday, for the first time in history, S&P stocks are losing money.

Savings rates are climbing in the United States. The trade deficit is falling. These are healthy trends for the long run. But they are hard to take in a depression.

Not only are earnings falling, P/Es are falling too. Stock prices are adjusting not only to the lower earnings, but to the new psychology of a depression era. There are times when people will pay $20 for one dollar’s worth of earnings. Other times, they’ll be reluctant to pay even $5. We’ve seen the $20 figure as recently as a couple years ago. Now, the trend is moving in the opposite direction. We’re headed towards 5 bucks. That’s what people will pay for $1 of earnings when this market finally reaches its bottom. Or thereabouts.

The combination of falling earnings and falling P/Es does to stock prices approximately what the Romans did to Carthage in the third Punic War. That’s why we have our Crash Alert flag flying. Stock prices delenda est

Typically, depressions come with bear markets. And bear markets come with bounces and rallies. We expected an O! Bama! bounce after the election. We got one…but much less than we expected. Stocks only rallied about 15%.

A stronger bounce will come, sooner or later. But we’ve put up our Crash Alert flag again – just in case. Stocks could go down another 30% – 50% first.

The news from the economy is not all bad. The shipping index has rallied – up 147% from its bottom. So, somebody must be moving something.

Beyond that, the headlines are grim. The automakers are headed down a dead end road, say the papers; they say they need $18.5 billion. Where are they going to get that kind of dough? The corporate bond market – to which corporate borrowers turn to raise money – is dead. When it comes to borrowing money, private borrowers just can’t compete with the U.S. federal government. Even the states can’t compete; they don’t have printing presses either. California is facing a “lockdown” of public services, Bloomberg reports.

All over the world, the search for the bottom continues. Ireland seems to be edging towards default. And Japan is in a “dreadful state,” says the Economist.

Things are so bad in Japan that the finance minister, Shoichi Nakagawa decided to drown his sorrows in drink. Alas, he chose the G7 meeting – at which he represented his country – to get drunk. Now, according to the New York Times, he is being forced to quit.

From what we can tell, Nakagawa is the only G7 finance minister who should stay on the job. The rest of them clearly don’t know what’s going on. Otherwise, they’d be drunk too.

*** Gold, as Lord Rees-Mogg notes, is the “best insurance against future shocks.” A lot of people seem to think so. Gold rose $25 yesterday, to $967, and soon will be crowding $1,000 an ounce again.

Technical analysts are warning that gold is headed for a correction. “What should we do?” asks a colleague. “It looks like gold might go down in the near–term…but we don’t want investors to sell out and risk being out of the market when the big move comes.”

Unless you enjoy the thrills and spills of trading in and out, we don’t recommend that you try to time the gold market. It’s too treacherous. Yes, gold may go down in the next few months. But that has been true for the last 10 years – ever since we began recommending it. It goes up. Then, it corrects. And then, before you know it, it goes up again.

We don’t think that pattern is going to change anytime soon. Gold is in a bull market that will only end when the final bubble pops – the bubble in paper money. How that will happen is anyone’s guess. When it will happen is a matter of guesswork too. But the dollar delenda est too. In the meantime, we hold onto our gold and await developments.

*** Here’s an interesting little item: “US Military Will Offer Path to Citizenship,” says the New York Times. Why not? It worked for the Romans – for a while. Then, when the barbarians in the ranks became numerous and powerful, they took over.

Richard Florida, writing in The Atlantic:

“‘One thing seems probable to me,’ said Peer Steinbrück, the German finance minister, in September 2008. As a result of the crisis, ‘the United States will lose its status as the superpower of the global financial system.’ You don’t have to strain too hard to see the financial crisis as the death knell for a debt-ridden, overconsuming, and underproducing American empire – the fall long prophesied by Paul Kennedy and others.

“Big international economic crises – the crash of 1873, the Great Depression – have a way of upending the geopolitical order, and hastening the fall of old powers and the rise of new ones. In The Post-American World (published some months before the Wall Street meltdown), Fareed Zakaria argued that modern history’s third great power shift was already upon us – the rise of the West in the 15th century and the rise of America in the 19th century being the two previous sea changes.

“But Zakaria added that this transition is defined less by American decline than by ‘the rise of the rest.’ We’re to look forward to a world economy, he wrote, ‘defined and directed from many places and by many peoples.’ That’s surely true. Yet the course of events since Steinbrück’s remarks should give pause to those who believe the mantle of global leadership will soon be passed. The crisis has exposed deep structural problems, not just in the U.S. but worldwide. Europe’s model of banking has proved no more resilient than America’s, and China has shown that it remains every bit the codependent partner of the United States. The Dow, down more than a third last year, was actually among the world’s better-performing stock-market indices. Foreign capital has flooded into the U.S., which apparently remains a safe haven, at least for now, in uncertain times.”

We remember our Five Big E’s from a couple of years ago.

They were the underlying trends that we thought were unstoppable. Let’s see…

1. Our Experimental money system – with faith-based paper dollars at the foundation – was doomed
2. The U.S. Empire was peaking out
3. Energy was becoming more expensive
4. Wealth and power were moving to the East.
5. And the Economy was headed for a crisis.

The only one of those that looks like a bad bet is number 3. Energy is a lot cheaper now that it was a year ago. But does that mean that the trend towards more expensive energy is over? Maybe…maybe not.

The price of crude oil dropped below $35 this week. Yesterday, it traded at about $37.
“I think we’ve seen the bottom,” says colleague Simone Wapler.

Simone explains that many of the projects that were supposed to bring more oil on line have been abandoned. That will mean shorter supplies than forecast. Economic growth forecasts have been cut too…which will cut consumption. But inevitably, Asian economies will grow…and they will use more energy. There are 700 cars per 1,000 people in the US, she points out. In China, the figure is barely 20. One way or another, Asia is probably going to use more energy in the future…which is probably going to increase the price of oil.

Until tomorrow,

Bill Bonner
The Daily Reckoning

Source: Obama’s Bailout: Too Little, Too Late?

There’s a rumor going round, that’s someone’s underground, no wait, there’s a rumor going around that Ireland had requested aid from the IMF… Whoa there Partner! I know that things in Ireland have turned around on a dime from boom to bust, but I wasn’t aware of a problem that would run that deep… The rumors were denied, of course, but you know me… Where there’s smoke, there’s fire… I’m reminded of an email I received 2 weeks ago from a reader in Ireland, that talked of a major slowdown in the economy. The writer, was very adamant about how bad things had gotten that he compared Ireland to a banana republic! I responded to him, and said, no… That can’t be, because we’ve got a corner on being a banana republic right here in the U.S.A.!

You should have seen the sell off in euros when this rumor hit the streets! It was scary how fast a currency could lose a handle! But, after the rumors were denied, the single unit rallied back nearly as fast as it fell, and is now trading, as I write at 1.3225. The dollar is swinging a mighty hammer once again…

Talk about a flight to Risk Aversion! This rumor has the Risk Aversion campers battening down the hatches and heading to the cellars! Risk Aversion is NOT good for currencies and commodities.

Another reason for the Risk Aversion campers to batten down the hatches is the report from yesterday that Citigroup is going to sell their brokerage arm, Smith Barney, to Morgan Stanley for $2.7 Billion in cash… This to me, sounds like a fire sale, and that Citigroup is in deep dookie once again… Citigroup has already received $45 Billion from the Gov’t in TARP money, much more than any other bank has received, for sure!

This news scares the bejeebers out of me, as Citigroup has always prided themselves on the fact that a customer could do “one-stop investing”… I guess, we’ll have to wait-n-see if Citigroup announces a sale of another unit somewhere down the line, eh? But for now… This news is not good for any asset!

Well… Today, we’ll see the color of the Retail Sales for December. We all know that December Retail Sales should be kicking rear and taking names later… But… And that’s a BIG BUT… Not last month, unfortunately. As we get ready for the printing of Retail Sales, the experts say that Retail Sales will have fallen -1.2%, following a -1.8% in November. The Butler Household Index (BHI) tells me that while Christmas shopping was good, it wasn’t on scale with other years, and I believe the Retail Sales will be very disappointing this morning.

OK, what do we have here? A Fed Head talking about our ZIRP (zero interest rate policy). I know, we’re not quite at zero yet with the official rate, but the Fed Funds people would tell you differently! So, in my book, I say ZIRP! Well, this Fed Head, Lacker, thinks that interest rates will stay very low for some time… Say it ain’t so, Joe! I don’t want to see rates at zero for a long time, folks! That’s part of the reason we’re in this mess to begin with!

Oh, and yesterday, Big Ben Bernanke, was speaking over in London, and kind of threw some cold water on Obama’s $800 Billion stimulus plan… I can hear Obama saying… “Hey! He backed all the other stimulus plans, but now he’s throwing cold water on mine!” Well… I said “kind of threw” I didn’t say he DID throw cold water on the plan… I’ll let you decide… Here’s Big Ben… Fed Chairman Ben Bernanke said the “stimulus package being crafted by Barack Obama and Congress could provide a “significant boost” to the sinking economy. But he warned that such a recovery won’t last unless other steps are taken to stabilize the shaky financial system.” And what is he talking about in the “other steps”?

Here’s more Big Ben… “There will be no lasting recovery without further government action and funds to strengthen the financial system, with the timing of an economic recovery “highly uncertain.” OH GREAT! More Government action! That’s Central Bank parlance for “we’re getting our hands deeper into the cookie jar”!

OK, I’ve gone this far, and have not mentioned the huge drop in the Trade Deficit that showed up in the print yesterday… The Trade Deficit fell from $56.8 Billion in October to $40.4 Billion in November! WOW! This fabulous! Or is it? Let’s take a closer look at the numbers… U.S. exports fell $8.7 Billion and imports fell $25 Billion. Lower oil imports accounted for more than half of this drop, but ex-petroleum imports also fell $10.5 Billion.

So… Here’s the problem folks… As I tried to explain yesterday… A narrowing Trade Deficit because of less spending and larger exports would be manna from heaven… But a narrowing Trade Deficit because spending was slashed, and exports also fell, is not a good thing for the economy. It simply means that 1. The U.S. consumer has dried up and with consumption at least 70% of GDP, we’re in for a long recession… And 2. that the dollar is too strong, otherwise exports wouldn’t be so far off too. Yes, I’m quite aware of the fact that the recession is hitting all over the globe, but come on, we still buy Chinese and Japanese and even German exports even in a recession don’t we? These same countries would be doing the same with U.S. exports…

And then there’s this… News of the weird… Chris Gaffney saw a story yesterday that he sent to me, that qualifies for this category… Here’s a snippet of the story… “The Bank of England will be able to print extra money without having legally to declare it under new plans which will heighten fears that the Government will secretly pump extra cash into the economy.” Oh boy! Just what the pound sterling needs as a stabilizer eh? NOT! This is awful news for the pound folks…

I’ve said for months now that the Bank of England (BOE) was following in the Fed’s & Treasury’s steps, which could be to ruin, but following nonetheless! This is just another step in the Fed’s & Treasury’s direction. The free use of a printing press… The story went so far as to say “this will spark comparisons with the Weimar Germany and Zimbabwe, were uncontrolled use of the printing press ultimately caused hyperinflation.” This is where they’re getting a little out of control with the sensationalism… I prefer to say that it should compare to the U.S…. Which may still see hyperinflation in the future… But not the kind of Germany and Zimbabwe! YIKES!

So… As I get ready to head to the Big Finish… It looks as though that Trading Theme is back in force again, and the dollar will benefit any time the data shows the recession to be deeper, darker and more dangerous… Makes no sense to me! But that’s the work of the mental giants these days… So… If Retail Sales is as disappointing as I suspect it to be in about 15 minutes, then the dollar should be supported today…

Currencies today 1/14/09: A$ .6670, kiwi .5440, C$ .8185, euro 1.3190 (slipped back again), sterling 1.4535, Swiss .8925, rand 10.0450, krone 7.14, SEK 8.30, forint 210.20, zloty 3.1420, koruna 20.42, yen 89.45, sing 1.4920, HKD 7.7570, INR 48.83, China 6.8350, pesos 13.83, BRL 2.3140, dollar index 84.15, Oil $38.87, Silver $10.76, and Gold… 826.50

Source: The Dollar Swings A Mighty Hammer!