Mr. Dodd, a man who pontificates on any and every subject under the sun and never lets real knowledge of a particular subject area stand between him and the nearest microphone decided to try out the “N” word – Nationalization! Traders viciously dumped the dollar on Dodd’s “deliberation.”

Dodd Speaks, the Dollar Sinks

And of course the games continue!

The dollar was sharply lower on opening in Asia last night with nationalization of U.S. banks ruling the headlines. But of course the U.S. isn’t the only one flirting with bank nationalization. Take a second look at Europe and Japan (and just about anywhere you care to look) and it’s ugly!

The euro has already reversed 200 pips from its high overnight, likely due in part to Mr. Trichet’s weighty assessment that Europe’s financial system is under huge strain. I say weighty because one should never confuse Trichet’s statements with anything dribbling from the constantly flowing font that is Dodd.

We were of the opinion U.K. banks would beat others to the race toward complete bank nationalization. But it’s probably splitting hairs as de facto nationalization seems the order of the day. Why buy financials in your 401(k) when you own them anyway?

I used to tell people that currency analysis was like being the judge at an ugly contest – the least ugly wins. But now, there is little that separates the degree of ugliness among all competitors. Thus, we have gold printing over US$1,000 and who knows where from here.

Gold has soared against the euro, pound, Aussie and U.S. dollar; though it hasn’t made a new high yet against the buck.

Gold Has Already Climbed Against the Aussie, Euro, Pound and Buck

We’re still sticking to our story that the world reserve currency will be buoyed at a time like this. But I have to admit that I’m covering my eyes when I see the U.S. government’s supercharged attempts to spend its way out of a debt deflation…ugh.

Replacing public debt to the same or increasing degree in which private debt is written down (public debt really means private debt because the private sector does all the wealth creation – while government mostly destroys it trying to “help” us) is no way to allow the system to cleanse.

But with pontificating pandering politicians never more than two minutes away from a microphone, we seem to be stuck there. And I have to wonder why we aren’t seeing any “traction.” Is it to cry, or maybe time to buy more gold? Maybe both!

Source: Only Gold Is Winning the Ugly Contest

Good day…It was actually a Great day for the currencies yesterday as the dollar index dropped another full point. The Euro moved past $1.35 and then blew through $1.36 to end the day over $1.37. And the Euro wasn’t even the best performer, as the New Zealand dollar rallied over 2.1% vs. the US$ to take the title of best performing currency against the greenback. The South African rand was the only currency turning in a negative performance yesterday with the other commodity driven currencies of Norway and Brazil just barely holding their ground vs. the US$.

The currency rally caught Chuck’s eye and he fired off the following email for me to include this morning:

“Quite a day in the currencies again… Looks like that Santa Rally for the currencies that I first mentioned on December 8th, is coming to fruition. Of course “I didn’t know this would happen” I was just giving market commentary on what looked like was happening!

So… 1.37 and change for the euro, the move from 1.27 and change has been swift and fast. And why not? I’ve said all along that the dollar’s rally was just a bear market rally. Now, we’ll have to see if this can continue, which I believe it will, or if this was just a false dawn.

Well… It’s Christmas time, so the giving is going on… And it looks like we’ll see the Gov’t “give” more once the calendar turns to 2009. What was once a $150-200 Billion stimulus package that would be sent through in January when the new lawmakers take their oath, now looks as though it will be in the neighborhood of $600 Billion, that is according to Nancy Pelosi who made that announcement yesterday. Shoot Rudy! What’s another $400 Billion among friends?

By my calculations, that will put us nearer to $3 Trillion in bailouts and stimulus packages… There’s a total of over $8.5 Trillion that has been allocated with funding facilities, but the actual output of cash is around $2.5 Trillion before the next deal in January gets done.

No wonder the dollar is getting pummeled once again!

I did a 1 hour interview yesterday… It was a “the world according to Chuck” interview… Long time readers all down about what I probably had to say, but it was cool getting to go “free form” and just let it all hang out. I will go to my darling daughter’s (Dawn) kindergarten classroom tomorrow and read to them… Dawn has always been a fan of the way I read, The Night Before Christmas… And her kids always get a kick out me doing this, most of them think I AM Santa Claus!”

Chuck loves the holidays, and I think reading to the kindergarten class is one of his favorite parts!

Today the markets will be awaiting the FOMC rate decision and the accompanying statement which should be released around 1:15 CST. As I stated yesterday, a cut of 50 basis points is already cooked in, but noise from the street indicates we could actually see a 75 basis point cut. The market is currently trading Fed Funds at .125%, so a drop of 75 basis points would move the target very close to where the market is trading. But as we have said in past Pfennigs, the FOMC has almost used up all of their interest rate ammunition, and will have to look for other ways to try and steer our economy out of the recession. The markets will be looking at the accompanying statement for any guidance as to the direction the FOMC will take next. ‘Quantitative Easing’ will be the big buzz words of the next few weeks. We will just have to wait and see just how creative our Fed is going to get.

The Fed will start to use its balance sheet as the key tool for monetary policy. Since he can’t cut rates much further, Ben Bernanke will likely start channeling credit directly to businesses and consumers by further enlarging its $2.26 trillion of assets. Bernanke and his compatriots will have to try some new experiments to manipulate the supply of money to try and prevent the worst recession in a quarter century from turning into a depression.

The data released yesterday continued to indicate the US economy is faltering, as the Empire manufacturing and Industrial Production numbers showed pretty large losses. Industrial Production decreased by .6% during November, as US manufacturing output continues to fall. Production has now decreased 7 out of the last 11 months, and the more important Capacity Utilization number also fell. We won’t be seeing the manufacturing sector pull us out of this recession any time soon, as the utilization number shows we are only using 75% of our manufacturing capabilities.

The manufacturing numbers were bad, but these negative numbers were largely expected. The surprise of the day came as the Net Long-term TIC flows for October were released. TIC flows were expected to be right around $40 billion, just slightly below what is necessary for us to fund our deficits. But the actual TIC flows were barely positive at just $1.5 billion. Could the rest of the world finally be tiring of our US Treasuries? Actually, foreigners continued to purchase treasuries, but sold a record amount of debt issued by mortgage-finance companies Fannie Mae (FNM) and Freddie Mac (FRE)  and other agencies, offsetting the treasury purchases.

So investors were shortening up the duration of the US$ holdings, selling longer term securities to buy short term treasuries. This has to have the Fed shaking in their boots, as no investor buys short term paper at near zero rates with a plan to hold them. This money is being parked short term, and will move out of the dollar as soon as the markets start to calm down. China remained the biggest foreign holder of US Treasuries, after its holdings rose by $65.9 billion to nearly $653 billion. Japan is the second largest holder with nearly $586 billion of US debt.

For those of you who may be wondering why the TIC data is so important, this is how we finance our deficits. As Chuck reported last week, the US trade gap unexpectedly widened 1.1 percent in October to $57.2 billion. Yesterday’s numbers show we only were able to attract $1.5 billion of foreign capital to finance this gap. So the remaining balance had to be financed with additional debt. It seems we just keep digging the hole deeper and deeper!!

The Euro was helped out by ECB President Trichet who indicated he would pause interest rate cuts in 2009. Trichet told journalists in Frankfurt that ECB policy makers want to “concentrate at this stage on getting what we already decided to be really operational.” He went on to say there is a limit to how far the bank can cut rates. “Do we have a feeling there is a limit to the decrease in rates? At this stage certainly yes.” Sounds like the ECB doesn’t want to follow the US into the zero interest rate environment. Maybe Trichet and his colleagues realize just how dangerous a zero rate policy can be with regard to future inflation.

Data released this morning caused the euro to back off its high of $1.3737 as reports showed European manufacturing and service industries contracted at the fastest pace in at least a decade. These reports showed the Eurozone faces some of the same challenges as the US, but in my opinion, their central bank has done a better job of dealing with the slowdown. With the FOMC cutting rates today, and the ECB indicating that they are going to pause, the Euro will likely continue to gain back some of the losses of the past 6 months.

The Australia and New Zealand dollars both rose for a second day on interest rate differentials. The Australian dollar extended gains after the central bank indicated it would slow the pace of further rate cuts. The Reserve Bank of Australia trimmed its forecast for inflation to 2.5 percent from a November prediction of 3 percent. Policy makers have a target range of 2 and 3 percent for Aussie inflation. With inflation in their target range and a simulative monetary policy, the RBA doesn’t need to do much more with rates. Commodity prices have hurt both the AUD and NZD, and any increase in commodity prices during 2009 would have a big positive impact on both these currencies.

Any hope for commodity prices will center around the rebound of the Chinese economy. China’s central bank Governor Zhou Ziaochuan continues to call for aggressive action to keep China’s growth rate from dropping below 8%. The Chinese govt. pledged last week to boost liquidity after cutting interest rates last month by the most in 11 years to spur lending and consumption. China’s economy has slowed, but will likely grow at 6 percent during 2009. This is still an excellent growth rate for the world’s fourth largest economy, but below the 8% rate many believe is necessary to avoid social instability.

Currencies today 12/16/08: A$ .6694, kiwi .5589, C$ .8102, euro 1.3659, sterling 1.5246, Swiss .8661, ISK 218, rand 10.3118 krone 6.9629, SEK 8.0583, forint 195.84, zloty 2.9716, koruna 19.319, yen 90.01, baht 34.78, sing 1.4781, HKD 7.7502, INR 47.91, China 6.8457, pesos 13.3631, BRL 2.39, dollar index 82.16, Oil $45.02, Silver $10.49, and Gold… $832.77

Source: Santa Rally for the Currencies

Money Morning’s William Patalon III discusses how rising inflation is dominating the news on both sides of the Atlantic:

Undoubtedly, a universal theme is emerging at the Fed and other world central banks: Inflation, Inflation, Inflation.

And, on that note, most Fed-watchers believe that the next move in rates will be higher. Last week, Fed Chairman Ben S. Bernanke reiterated his concerns about price pressures and many of his partners in crime followed in step by towing the company line. Dallas Fed President Richard Fisher and his counterpart in New York, Tim Geithner, promoted the prospects (rather realities) of rising energy costs and the declining dollar as major concerns. Boston Fed President Eric Rosengren echoed the sentiment by stating that higher energy prices were “trickling through the economy.”

Philly Bank President Charles Plosser went so far as to predict that the Fed would have no choice but to raise rates to combat inflation. Even the Fed’s Beige Book reported that the domestic economy remained sluggish through May, and has been “pinched by rising food and energy prices.” On the global front, European Central Bank President Jean-Claude Trichet targeted July as a date the ECB would look to hike rates should inflationary pressures continue.

Meanwhile, the Bank of Canada held off on a much anticipated rate cut because of – what else – higher energy costs.

For now, however, the recent data showed that inflation (outside of food and energy) remained well-contained as the core CPI climbed by a modest 0.2% in May. (WE have warned you about looking only at the “non-core” figures).

By the way, the CPI, as a whole (including food and energy), experienced its largest one-month-rise in six months. Consumer activity offered perhaps the most promising news of the week as May retail sales surged by 1% as many Americans took those government rebate checks from the stimulus package directly to the malls. Even after removing gasoline sales from the equation, the retail data still experienced its best showing in a year.

With the consumer price index (CPI) safely in the books for another month, economists can now turn their focus to wholesale inflation with the release of the May producer price index (PPI). Economists, mistakenly, often disregard the energy component of this data each month and focus mainly on the so-called “core” releases – which excludes “volatile food and energy prices.”

While food and energy prices often suffer from month-to-month volatility based on seasonal factors, they cannot be overlooked these days as they continue to have significant impact on the global economy.

Also, Lehman Brothers Holdings Inc. (LEH) can’t seem to avoid the limelight, as the eyes and ears of the investment community will be sharply focused on its earnings announcement today (Monday), which also is expected to detail plans for its much needed capital infusion.

U.S. Treasury Secretary Henry Paulson welcomes his friends from China for Strategic Economic Dialogue IV, as both countries are sure to bicker over unfair trade practices, protectionism, and currency valuations. (And, “bickering” has become a very popular sport in Washington as of late… too late for the Beijing Olympics?).

Market Matters

So let the partisan bickering and political pandering begin. With the executive branch up for grabs in November, the Democratic-led U.S. Congress introduced legislation that has virtually no chance of passing, merely to be used as ammunition as the campaign season heats up. So-called “Big Oil” became the latest villain with politicos proposing windfall profit taxes on record company earnings. Our friends within the Organization of the Petroleum Exporting Countries (OPEC) did not escape the wrath of the Dems, who want to file suits over perceived price-fixing.

In typical partisan fashion, Republican Presidential candidate John McCain has touted his opponent, U.S. Sen. Barack Obama, as a traditional “tax-and-spend” liberal, the wrong choice during this period of economic challenges. Sen. Obama pegged his opponent as a continuation of the previous eight years of failed policies that have led the country into recession/inflation/deflation.

Lehman Brothers has remained front and center in the “who will be the next Bear Stearns Cos. (BSC) watch“ as the financial giant attempted to raise $6 billion in new capital to compensate for its disastrous second quarter. The company also bid a (not-so) fond farewell to two high-ranking executives as it goes to great measures to regain some lost public trust. Over a four-day time frame, its stock gave up more than $4 billion in shareholder value.

Always a day late, Moody’s Investors Service jumped in to protect investors by downgrading the firm from “Stable” to “Negative.” In other business news, transactions headlined the week as Staples Inc. (SPLS) will be acquiring the Dutch office supply company, Corporate Express NV (ADR: CXP), for $2.7 billion. Anheuser-Busch Cos. Inc. (BUD) turned to Mexican brewer Grupo Modelo SA de CV (OTC: GPMCF) to help fend off an unsolicited offer by rival InBevNV.

Meanwhile, Yahoo Inc. (YHOO) finally said good riddance (presumably, for the last time) to Microsoft Corp. (MSFT) in any merger, partnership, or other relationship (and jumped into bed with Google Inc. (GOOG) with a search ad agreement). Apparently, McDonald’s Corp. (MCD) remains recession/inflation proof as the fast food chain reported strong domestic and global sales in May.

Crude traded within a $10 range throughout the week to settle around the $135-a-barrel level as traders over-analyzed news of declining demand, OPEC made comments about “unjustifiable rise on oil prices,” and polls blaming industry insiders for “unethical behavior.” In the “misery-loves-company” category, the United States is not the only nation to struggle with energy-related inflation.

China’s Shanghai Composite Index fell to its lowest level of the year as the country attempted to fight off related price pressures. Likewise, India reported that its inflation rate climbed above 8% in May, while Vietnam devalued its currency because of soaring prices. Closer to home, Broadway ticket sales are down more than 10% from last year’s levels – meaning that even the “rich-and-famous” group of consumers are suffering the ill-effect of soaring oil and gas prices.

After an extraordinary day in the markets that saw the Dow plunge close to 400 points and oil surge to almost $140 per barrel on June 6, any recent volatility seemed tame by comparison. While investors searched for bargains in equities, the fixed-income markets struggled mightily last week as prospects for future Fed rate hikes grew more likely. The yield on the benchmark 10-year Treasury surged past 4% (and beyond), reaching its highest level of the year. Anyone inside the Beltway you’d care to blame, senators McCain and Obama?

President Nixon instated price controls on the 15^th of August, 1971. Inflation was a little over 4% at the time. Price controls manifestly did not work (resulting in shortages of all sorts and a deep recession) and were rescinded a few years later. President Ford went to Congress with programs to fight inflation that was running closer to 10% in October of 1974, with a speech entitled “Whip Inflation Now” (WIN). He famously urged Americans to wear “WIN” buttons. That policy too was less than effective, and the buttons, in a history replete with silly gestures by governments, should stand on anyone’s top ten list of such silly gestures.

Cynics more thoughtfully wore the buttons upside down and said the inverted letters (which looked like NIM) stood for “No Immediate Miracles.” They were right. There was no miracle, just eventual pain and lots of it. Ultimately, Paul Volker defeated inflation, but at the cost of two serious recessions and a lot of economic misery, with unemployment levels over 10% for nine months in 1983.

This week we were given the data that inflation as measured by the Consumer Price Index (CPI) over the last year was 4.2% and unemployment is now 5.5%. Some call for the Fed to raise rates so that we do not have to experience another lost decade like the ’70s and then ultimately see some future Volker forced to raise rates and drive unemployment back to 10%. Others suggest that “core” inflation is what should be paid heed to, and urge caution.

This week we look at the cost of what could be a renewed effort to Whip Inflation Now, not just here but in countries worldwide. Will Trichet in Europe raise rates even as the European economy seems to be slowing down? If you think inflation is bad in the US and Europe, take a peek at Asia. And I ask, “What will Ben do?” It should make for an interesting letter.

Whip Inflation Now

Nixon and his advisors thought inflation at 4% was serious enough to institute price controls. Headline inflation in the US is now 4.2%. What kind of economic policy should we pursue to bring inflation back into the Fed’s comfort zone of 1-2%? Would it work and would it be worth the pain? To get a handle on the question, let’s go to the data from the Bureau of Labor Statistics and see where inflation is coming from.

And let me note, this is the same exercise we could do for a host of countries. The answer will be roughly the same: there are no easy solutions.

Core inflation, or inflation without food and energy, grew at 2.3%. Inflation without food costs was an even 4% and without energy was 2.7%. Clearly energy was the leading contributor to inflation in the past year.

But the recent trend in rising inflation is even more worrying. If you look at just the last three months of data and compute an annualized rate of inflation, you find that overall inflation has risen to 4.9%, energy inflation is running at a staggering 28%, and food costs have risen 6.2%. Meanwhile, core inflation during that period dropped to 1.8%. You can see all the data at http://www.bls.gov/news.release/cpi.nr0.htm.

Now, gentle reader, let’s think about these numbers. Food (over 14%) and energy (over 9%) combined make up roughly 24% of the CPI, yet were responsible for over 60% of the recent three-month trend in inflation. By the way, housing was up 4.9% and transportation up 8.7%, so it was not just food and energy.

What would it take to drop headline inflation back to under 2%? Well, one way would be for food and energy prices to fall. Let’s look at the possibilities.

As Donald Coxe has noted, North America has had an 18-year run of remarkably good weather in our growing season. You have to go back 800 years to get a string of years that were that good. Yet today food reserves of all types are at decades-long lows. There is very little room for any type of problem.

This growing season is not off to a good start. It looks like the yield on the corn crop will be lower than normal, and that is if we get very benign weather this fall. Given how late much of the US corn crop was planted, and how torrential rains in the corn belt have devastated crops (not to mention flooding cities, and our thoughts and prayers go out to those who have lost their homes to flooding), an early frost would be disastrous.

Because we have devoted so much of our arable land to corn (in a very misguided policy to turn food into ethanol), we have less for soybeans, which is putting upward price pressure on beans and other grains that are used to feed cattle, hogs, chickens, etc. In fact, it costs so much to feed livestock that ranchers are shrinking their herds.. This means more meat is coming into the system now, which is dampening prices. Increased supply will reduce prices in the short term, but next fall we will find that supplies of all types of meat will be short. That will potentially send meat prices soaring. Cereal and bakery products are up 10% over the last year. They could continue to rise in the fall if the corn crop does not yield more than currently projected. It will cost even more to feed your household and feed the animals we need for meat.

Food is the most basic of commodities. Demand is fairly consistent, and supplies may come under pressure. Looking for food inflation to drop back by the fall to 2% is not realistic in the current environment.

What about energy? There is some more hope there, at least on the oil front. High prices have reduced demand in the US, with gasoline usage down about 4%.

I think we have reached a tipping point. The psyche of the US consumer has been permanently scarred. Slowly, this country is going to replace its fleet of cars with smaller, more fuel-efficient cars. Over time, we will see demand continue to fall. We could see further drops in the demand for gas in the next few months.

Much of Asia used to subsidize oil prices to their consumers. That is changing, as Indonesia, Sri Lanka, and Taiwan have announced they are decreasing their subsidies, as the cost is simply too much. Malaysia now spends 25% of its budget on oil subsidies, and must raise prices or cut other services – or watch inflation get worse. India is now contemplating how to cut its subsidies. Even China is likely to start to raise costs after the Olympics. These countries are going to go through their own price shocks. All this will reduce world demand for oil.

The Commerce Department reported that retail sales rose by a surprising 1.0% in May, the best increase in six months. Excluding autos, sales rose 1.2%. Economists’ expectations had been for a 0.6% rise in total sales, 0.8% excluding autos.

That report was “serious and raises risks of earlier and more pronounced rate hikes” from the Federal Reserve, wrote Stephen Gallagher, economist for Société Générale.

The strong retail sales figures were shocking in that they show that consumers are continuing to shop, in the face of the lowest consumer confidence figures in decades. Where they’re getting the money is an open question, although it’s possible that the rebate checks are playing in.

Consumer spending projects to 2% annualized growth for the second quarter, and that would be enough to keep the economy “safely away from negative growth,” Gallagher said.

Traders shrugged off a more distressing report from the Labor Department showing that initial claims for jobless benefits rose by 25,000 last week, to 384,000. Continuing unemployment claims gained 58,000, pushing the number up to 3.14 million for the week ending May 31. That was the highest level since early February 2004.

Meanwhile, the euro weakened after European Central Bank executive board member Juergen Stark said the ECB isn’t planning a “series” of interest-rate hikes beyond July. Earlier remarks by ECB President Trichet had raised hopes of just such a sequence.

Source: Dollar Rallies on Sales Surprise - Euro Undercut on ECB Comments

Trichet’s comments were seen as the driving factor.

“Profit taking and/or selling in the crude market over the past week came to sudden halt and buyers stepped back to the plate based on these inflationary comments out of Europe,” wrote Thomas Hartmann, an analyst at Altavest Worldwide Trading.

But there was a technical aspect, too. “The price advance in crude futures accelerated after breaking yesterday’s highs, likely setting off a round of frenzied buying in the last hour of trading,” Hartmann added.

And James Williams, of WTRG Economics, sees “a market divorced from fundamental supply and demand … The decline in the dollar on the possibility of higher European interest rates only explains about 1/4th of [yesterday’s] move,” Williams wrote.

Source: Crude Takes Back Lost Ground – Buying Frenzy Develops Late in Day

Good day… And a Happy Friday to one and all! A Fantastico Friday in my books, as we had a day without rain yesterday, and… Mr. Trichet did jawbone the euro back to life, as I hoped he would do yesterday… After all that craziness from Big Ben this week, things sort-a got back to the awful fundamentals of the U.S….

OK front and center this morning, I’ve got to tell you that European Central Bank (ECB) President Trichet set the record straight yesterday, and reminded the world’s traders that U.S. rates are low… But Eurozone rates could be going higher, and increasing the already wide interest rate differential that exists between the dollar and euro.

Trichet warned that inflation was high, and probably going higher, and then reminded everyone that the ECB’s mandate is to maintain price stability… There’s two ways to go about that… Turn the money supply spigot off, or raise rates… With the economy slowing in the Eurozone, he can keep the money supply spigot trickling as to not completely kill the economy, but raise rates… The ECB might not get around to raising rates in this cycle, but the threat to do so is there, and the markets have to take that seriously…

So… In taking that threat seriously, the markets sold dollars and bought euros for the first time in two days… And the euro’s rise was something to behold… The single unit sat at 1.5385 when Trichet began to talk… And soon afterward, it was well into the 1.55 handle!

It wasn’t all Trichet though… The Fed’s Vice Chairman, Kohn, had some very strong words about the lending landscape… Let’s go to the tape…

Kohn noted that bank loan quality would worsen, bank write downs would increase, and expressed concern that loan losses might spread. Now before I go on, let me say that the “banks” he’s talking about are all those that participated in the mortgage Ollie, Ollie oxen free the past few years… Let me say also that EverBank did NOT, participate in the sub-prime, fancy free mortgage loan business… We stayed the course with our tried and true principals… Yes, we didn’t make as much money as the “other” guys the past couple of years, but then, we don’t have the losses to book now either!

Anyway… Kohn, sounded like he was a Pfennig reader… I just get a kick out of others that finally come around to my way of thinking that we may have averted a major meltdown, but the problems aren’t going away… And… We’ll have another “Bear Stearns” from all of this…

To follow up what Kohn had to say… 1st QTR mortgage delinquencies were reported by the Mortgage Bankers Association, showing a rise to 6.35%, a record high in data back to 1979. These delinquencies threaten the banking system folks… And on top of that the economy as a whole.

So… We saw a huge turn around in the currencies on our Thundering Thursday… If you had sailed around on the ocean and was gone for a week, and just came back, you would think that nothing had happened, except a stronger bias to sell dollars…

OK… Continental announced job cuts of 3,00 yesterday… And… A BIG home builder here in St. Louis, Taylor, Morley Simon closed their doors! It’s a sign of the times… I saw a funny sign yesterday that was titled: A sign of the times… “Beer costs less than gas” Drink Beer, Don’t drive! That’s funny!

Under the heading of: That’s NOT so funny, is the news that the SEC is going to investigate AIG on their accounting of sub prime mortgage contracts… Here’s where my thoughts are headed on all of this… Recall about 7 years ago, when one Corporate Scandal hit the news after another? I have the feeling that we’re heading right back to that awful time… It just all depends on how many rocks the investigators want to turn over…

Another Fed Head, Lacker chimed in yesterday and struck a nerve… Let’s go to the tape here… In a striking insider’s critique, Lacker said lending programs the central bank has created to combat the credit crisis distort private markets, encourage risky behavior and could endanger the Fed’s independence. Federal Reserve Bank of Richmond President Jeffrey Lacker’s remarks show that concerns that outsiders have raised about the Fed’s actions — in particular its rescue of the investment bank Bear Stearns — are shared by some inside the Fed.

Whoa there partner! Those are some harsh words… But… Sounds like Lacker has become a Pfennig reader!

The weaker dollar yesterday sent Oil prices climbing to the tune of $6 on the day! I looked at some stuff last night and saw that our friend, Jim Rogers, was speaking again, and said that the Bull Market in Oil has “years to go”… I agree… The demand has amped! I know that some will point to the U.S. and say that there aren’t lines at gas stations, etc. but… The slack in demand here is being taken up and more so by India and China…

Speaking of China… A former colleague at the old Mark Twain Bank, brought at thought to me attention yesterday and that is… With the election period on its way, the guys with the bats that are always beating on China to allow greater appreciation with their currency, will be tied up, and focusing on getting re-elected rather than beating on China… Therefore, China gets a “get out of jail free card” and therefore, I suspect the appreciation to slow for the rest of this year…

According to a new book by Robert Auerich, Deception and Abuse at the Fed: Henry B. Gonzalez Battles Alan Greenspan’s Bank, nobody seems to be able to track down the Maestro’s dissertation, which led to Greenspan obtaining a doctorate in economics from NYU.

According to Barron’s:

For years, NYU told the public that, at Greenspan’s request, the thesis was locked away from public view in a vault at its Bobst Library. Auerbach himself was told this in January 2004 when he tried to obtain a copy.

Auerbach, who has a Ph.D. in economics from the University of Chicago (Nobel laureate Milton Friedman was his thesis adviser), kept requesting access to the papers until NYU’s provost, David McLaughlin, finally admitted in August 2005 that, “I can tell you that it was the practice of the business school, during the 1970s, not to deposit dissertations with the library. Thus, a copy of Greenspan’s dissertation is not in the Bobst Library. We suggest that you contact Greenspan directly in order to obtain a copy of his dissertation.

Barron’s did exactly that but was told by Greenspan’s spokeswoman that “his busy travel schedule precluded him from getting back to us in time for our deadline.” As for two inquires to the provost, they also went unanswered.

Such a story may not come as a surprise to those skeptical of the merits of centrally planned economics.

“We doubt that the science of as practiced by Bernanke, King and Trichet is really any more reliable than the science of modern portfolio management as practiced by the geniuses at Bear, Lehmann and all the others,” says Bill Bonner.

“We take as a given that central planners are as prone to error as a bear to honey. It also seems likely to us that it was a mistake for Alan Greenspan to cut rates so aggressively in ’02-’03 and leave them below the inflation rate for so long. The result was an orgy of spending and borrowing in the Anglo-Saxon economies…and an orgy of factory-building and capital formation in Asia. In both parts of the world, people missed their marks – overdoing it considerably.”