Good day… And a Tremendous Thursday to you! Well… Euro 1.60 (EUR) didn’t last long. More on that in a minute… But first we need to address the question of whether or not the euro hitting 1.60 was a flash in the pan. I certainly don’t think so, but it sure looks as though that could be the case given how the single unit has tumbled since reaching that level on Tuesday.

So… There were lots of reasons for the euro’s decline yesterday… But the infamous straw for the euro seemed to be the German Business Confidence report as measured by the think tank, IFO, this morning. German Business Confidence – which had surprised on the upside the past three months – came out softer than expected in April, falling from 104.8 in March to 102.4. That was quite a tumble in business confidence, and apparently wipes out the previous three months of stronger confidence. It’s a “what have you done for me lately” world out there folks.

So, is this the mini-sell off I’ve been talking about since January? Could be… I had a sneaky feeling yesterday, so I asked my chartist friend what he was seeing. Here’s what he had to say…

“As far as the euro, I’m not seeing anything too exciting. There are some signs that it may be overbought in the short term. The weekly chart is absolutely beautiful (movement from lower left to upper right), but it is also showing that we may be due for a slight pullback (buying opportunity.)”

Risk appetite is really taking flight again in the markets, but I just can’t get my arms around this willingness to take on risk. There are just too many “risk events” out there (like Bear Stearns) but, that’s just me, apparently, the markets don’t think this way. And with the risk appetite on the rise, the fortunes of Japanese yen (JPY) and Swiss francs (CHF) are on the opposite side of that rise.

Here we go again… Investors taking on risk like there’s no tomorrow. I sure hope, for them, it doesn’t end up in smoke… But I have to think that it will. My chartist friend also had this to say about risk right now…

“What I am more excited to share with you is what is going on in the whole Risk vs. Risk Aversion Arena. As you have pointed out many times, the stock market and the high yielding currencies represent Risk. The Yen and Franc represent Risk Aversion. So, what does that mean?

“If you look at the stock market (S&P 500), there is major overhead resistance in the 1380-1400 area. We are currently in our fourth retest of this 1380-1400 area and we appear to be failing yet again. Each failure drains the confidence levels of investors, so we could be setting up for some dramatic downside movement. If this happens, then Risk will be on the run, which will mean Risk Aversion (Yen and Francs) could see some much needed love. Both of these low yielders look to be primed for strong moves upward.”

Theswoop.net had this to say about what’s going on with the Fed, their collateral for loans, and everything else that I’ve yelled at the walls about recently…

“The issue here is uncertainty. Despite some signs that the worst of the banking crisis may be past, officials from the Treasury and Federal Reserve concede in private that, with regard to certain complex financial products and relationships, their knowledge is imperfect. ‘The truth is,’ one Treasury official told us, ‘we don’t have a clue.’”

Oh my gosh! Did shivers just go down your spine when you read that? “We don’t have a clue”? The old saying about the inmates have taken over the jailhouse, comes to mind right now.

Are you keeping on top of the news of the rationing of rice? Brazil suspended their rice exports to protect their supply for domestic demand. I saw on the TV yesterday, a news story flash across that Wal-Mart and Sam’s Club are rationing rice. Yesterday, Chicago rice futures hit a record price above $25 (per hundredweight). And in Thailand, the world’s top exporter of rice, the price surged to $1000 a ton.

Right here, right now, in the U.S. of A. we’re rationing rice. Can you believe that? There are underlying stories woven into this that I won’t get into, but for now… We have this to think about… We have rationing in the United States.

So… The dollar is on the rise… The only good thing about that right now is the fact that when the dollar rebounds, the price of oil goes down. This all looks as though it’s a house of cards to me… But, give the dollar it’s due… I’ll bet a fiddle of gold, against your soul, ’cause I think I’m better than you! I have no idea where that came from, but Charlie Daniels in the morning ain’t too shabby!

You know all this talk lately by G-7 ministers claiming that the markets didn’t understand their Forex message? Well… The Bank of Canada’s (BOC) Flaherty said yesterday that G-7 did NOT have discussions about currency intervention.

See! I told you so! I told you that the markets wouldn’t take G-7’s message seriously, unless there was a threat of coordinated intervention… And that, I just didn’t see coordinated intervention in the cards, not as long as the United States is still banging on China to let their currency gain versus the dollar. And now, we know! There was no discussion of intervention!

That’s an “all clear” horn for currency participants… I guess they are now waiting for the bargains to appear.

The Reserve Bank of New Zealand (RBNZ) left rates unchanged last night. I didn’t expect any movement, and quite frankly had forgotten all about the meeting. Good thing they didn’t spring any surprises on me/us, eh? Here’s RBNZ Governor Bollard…

“Economic activity has weakened more markedly than expected in the Bank’s March Monetary Policy Statement. There have been sharp falls in consumer and business sentiment, exacerbated by tighter credit conditions, a further decline in the housing market and weaker prospects for world growth. Financial market turbulence around the world continues to add to an uncertain economic environment. Further, the very dry summer is also weakening short-term growth prospects.

“However, the labor market is still strong and New Zealand’s key international commodity prices remain high. Government spending plans and the possibility of personal tax cuts can also be expected to limit the economic slowdown.”

Shortly after the trade data was released, the Labor Department said initial jobless claims came in at 357K and continuing claims rose to 2940K last week. While the initial claims were slightly lower than expected, the numbers still show continued weakness in the employment sector, which will bolster the call for lower rates in the United States. And to finish the data in the United States, we got the ISCS chain store sales, which dropped 0.5% YOY indicating consumers may be starting to tighten their belts.

Again, this data was largely negative for the dollar, so I expected to see a further drop and a move by the euro (EUR) back up to $1.60. But the opposite occurred. The dollar suddenly started to strengthen, and continued a slow climb back up until just after noon CST. The dollar index, which had traded all the way down to 71.30 was suddenly back over 72.

So what caused the big turnaround in the dollar? I searched through the news stories and called a few traders to try and figure out what caused the turn around, but no one seemed to have the answer. When I went home last night, I just figured it had to be a ‘normal’ market correction along with profit taking. But Chuck sent me an email last night with a different idea on the reason for the turn around:

“It sure looks as though the Plunge Protection Team (PPT) was out in force on Thursday, don’t you think? I mean, the dollar had fallen to 1.59 and change, and the Trade Deficit came in $4 billion worse than forecast at $62 billion… And then the next thing we see was the dollar rallying… And rallying hard. Someone with a better answer than my PPT answer is more than welcome to respond…

“As you all know, I was supposed to have dinner last night with my friend, The Mogambo Guru. His wife called me yesterday to cancel… In Mogambo style his wife said to me. ‘The Mogambo must have gotten too excited to meet up with you, he had a heart attack yesterday.’ OH MY GOD! But, Mrs. Mogambo was quick to assure me that he was OK, had a couple of stints put in, and he was already itching to go home… WOW! What a shock!

“So, needless to say, I didn’t have dinner with him last night! And… I’m so glad to hear that he’s OK…

“Don’t you all just love the conviction of the European Central Bank (ECB) and its leader, Trichet? I mean… They have a mandate to provide price stability, and come hell or high water, they are going to follow the mandate! The ECB left rates unchanged yesterday, and President Trichet, talked a tough row to hoe against inflation… Don’t you wish you had someone to watch out for your pocketbook like that? (OK, you do have me… But I’m just a little ol’ Pfennig writer, not some Central Bank President!)

“As I said earlier this week, I fully expect the Fed to cut rates 75 BPS in their next to meetings, which will leave rates here in the U.S. at 1.5%. OK… Now, let’s have the dollar put the recession and low interest rate pants on and walk down the street!

“My time here in St. Pete is up… I’m on my way back home today. The conference was good… There were a lot of new faces in the crowd, and they didn’t get a lot of my dry humor jokes, while speaking… But that’s OK…”

So the PPT was hard at work yesterday; but as usual, their efforts can only support the dollar in the short term. Overnight the dollar went back to its losing ways and dropped again. As Chuck discussed, the ECB left rates unchanged and President Trichet continued to sound hawkish in his press conference. With the euro-region inflation running at the fastest pace in almost 16 years, the ECB is reluctant to follow the FOMC and BOE’s lead. “We believe that the current monetary policy stance will contribute to bringing inflation under control,” Trichet said. “The firm anchoring of medium to longer term inflation expectations is of the highest priority.” You go to love a central banker that knows his role!

Some of the news stories I searched yesterday credited the upcoming G-7 meeting for the quick turn of the dollar. Finance chiefs from the Group of Seven are meeting today to discuss the growing economic credit crisis. The ministers have said they will discuss stronger regulation of the financial markets, but many of the dollar bulls were hoping for a coordinated action to support the sagging dollar. But reports this morning indicate there will be no intervention by the G-7 members as they have been unable to agree on a plan to pull the dollar up. As Chuck has said in the past, these meetings typically do not produce anything concrete, and are usually just a boondoggle for the central bank big-whigs to sit around and discuss just how bad things are in their respective countries while dining on a gourmet meal.

The Group of Seven hasn’t intervened in the currency markets since it supported the euro in 2000. I don’t look for anything that dramatic this time around, and apparently the markets don’t either.

So the dollar will likely continue to drift down today, as the U. of Michigan consumer confidence numbers are expected to weaken. Confidence among U.S. consumers probably sank to a 16-year low this month as unemployment continued to rise along with prices for gasoline and food. The drop in sentiment and in the general wealth of the United States middle class may finally start to weigh on spending. The resilient U.S. consumer has continued to find ways to borrow and spend, keeping the U.S. economy away from a total collapse; but with home prices falling and banks shutting down the ‘free credit’ spigot, consumers are going to have to start pulling in their free spending ways.

So I believe there is much more room for dollar weakness in the next few months. One currency that the dollar had gained on this year has finally started to appreciate again. The South African rand (ZAR) is one of the worst performers this year, falling over 12.5% versus the U.S. dollar since January first. The rand has been hit by a combination of political instability both internally and among its close neighbors. Mining, which is South Africa’s number one industry, had been hit with some strikes and power problems. While these factors are slowly being corrected, South Africa’s central bank raised interest rates to the highest level in almost five years yesterday, which should help bolster the currency. The rand is now headed for a third week of gains versus the U.S. dollar as their interest rate advantage continues to widen. Higher gold prices along with a dramatic interest rate advantage will keep the rand supported, while risk aversion and the accompanying carry trade reversals could put downward pressure on the currency. Which will win out? It will be interesting to see.

Another of the more speculative currencies has had a good couple of trading days as Brazil’s real (BRL) rose for an eighth day on Thursday. The central bank is expected to follow South Africa and increase interest rates next week. The annual inflation rate in Brazil rose to a two-year high of 4.7% in February, and the central bank will likely increase rates to make sure they keep a lid on rising prices. Brazil was the top performing currency versus the U.S. dollar last year, and should benefit from strong commodity prices and interest rate differentials. But like the South African rand, some of the real’s strength is due to the carry trade, which has proven to be incredibly volatile. Both the real and the rand should be seen as speculative investments, and should make up just a portion of your overall currency portfolio.

The currencies were boring yesterday, with little movement at all. I was swamped though… Normal Monday trading, an interview with Smart Money, and further discussions with the NY Times… But, if you were at home keeping score, you probably found that counting flowers on the wall, and playing solitude with a deck of 51 were probably more exciting than watching the currencies.

And… That’s fine with me! We had just gotten too crazy with those records falling like the rain that kept coming down on us here in St. Louis. Overnight, though… We’ve seen the euro (EUR) gain about a half-cent as the dollar’s mini-rally continues to fade in the rear-view mirror.

As I mentioned last week, the markets are all about the thought that the Fed has taken “risk” out of the equation with their bailout of Bear Stearns. I still believe that taking that path is going to get someone hurt… But for now, the euphoria in stocks has the risk takers going into these murky waters feet first, which means… Carry trades live again… And that also means that the high yielders have gotten a reprieve.

Iceland (ISK) and South Africa (ZAR) have really seen a dead-cat bounce (no animals were hurt!), and the crisis for Iceland has been pushed to the back of the room. Hmmmm… Does this mean these two are ready for a full circle rebound? I don’t know… I’ll check my crystal ball… But I don’t have a crystal ball! But… I do have an opinion on this (you knew I would!) and of course to make the legal beagles happy, my opinion could be wrong!

Anyway… I don’t think this is a new life for Iceland or South Africa. You can cover up those awful looking warts, but sooner or later they will be exposed… So… As I’ve said before… As your Iceland CD’s come due, you should call the desk at 1-800-926-4922 and speak to someone about alternatives to Iceland. Let me also remind you that breaking CD’s is a no-no… It’s costly.

OK… The other high yielders that have a “life” other than high yield, Aussie (AUD) and kiwi (NZD), have also seen their fortunes turn with “risk” being put back onto the table.

And… Pound sterling (GBP) is not faring too well this morning. After reaching the “2″ level again last week, sterling has steadily fallen. Remember what I always say about a star burning brightest right before it burns out.

U.K. house prices fell more than expected, and the markets woke up to the fact I told you about yesterday. The Bank of England (BOE) will most likely cut rates this week… And with the data continuing to print weak… We could see back-to-back rate cuts from the BOE. That won’t help sterling any… Short term anyway.

I have two BIG things to talk about now… 1. Big Al Greenspan… 2. Pooled precious metals accounts.

First, Big Al Greenspan… You won’t believe this, or maybe you will, but nevertheless, Big Al Greenspan wants to “set the record straight”. This I’ve got to see, I said to myself… So… Here are some snippets… This man is 82… Why should this matter to him now? Anyway, here’s Big Al…

“I do take it seriously if my peers think I have misstated the facts,” he says. “But where’s the evidence? Too many people make accusations by assertion. I think it’s improper.

“I am reasonably certain that I am right here,” Mr. Greenspan says. If proved wrong, he says, “I will change. I do not have a vested interest in holding wrong ideas.”

Hmmm… I find it interesting that Big Al is getting testy about all the fingers being pointed at him for this mess. I believe I may have been one of the first to point a finger at him when the housing bubble was getting bigger and bigger, and no one would admit we had a bubble.

But just for the record… Here’s the blame I believe he should bear… First, I believe the Fed was too lax during the stock market bubble. Raising Fed requirements on margin, in my opinion would have gone a long way toward slowing that bubble, and maybe preventing trillions of dollars in losses.

Second, I believe he fueled the housing bubble and then all the awful stuff that happened as a result of the housing bubble, by cutting rates too low back in 2001 and then keeping them too low for too long (through 2003).

OK… I could spend a month of Sundays talking about Big Al and his faux pas after faux pas… But I won’t. Instead, I’m going to talk about our pooled precious metals accounts.

This is important, so please take the time to read this carefully.

There has been a lot of stuff said on the internet lately about “pooled” precious metals accounts and that the holders of the accounts don’t have the precious metals to back their holdings. This has caused quite a stir in the marketplace. We’ve had many a customer call and question us… We’ve even had some clients pull their accounts.

So… Here’s my take on all this…