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Dollar Gets Sold On Bad Data Prints

Jul 6th, 2010
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The currencies traded yesterday, but in very tight ranges, as the US was on holiday. This morning, the bias is to sell dollars, much like it was on Friday before the liquidity of Europe went to the pubs… Let’s go back now, and revisit Friday’s action…

Well… There was more proof on Friday that the double dip is coming…

The Jobs Jamboree was pitiful… As the “real” numbers (non-census workers) added just 83,000 jobs in June… (With the census workers, 125,000 jobs were lost!) That’s just not the kind of job creation an economy like the US needs to push it along…

But the real proof in the pudding came from Factory Orders, which fell 1.4% in May… And… Factory earnings were down for the month and up only 1.7% annualized. Add this to the long and getting longer list of economic data that’s nowhere near “recovery status”!

We sure didn’t see the politicians on the cable news stations pounding their chests and claiming that job creation was proof their stimulus was working, now did we?

And here’s something from Friday’s letter… A reader was quite upset with me because after talking about the bad economy I said, “we’ve got that going for us”… Well, I explained that I was not rooting against the US that it was simply a facetious comment… Long-time readers know…

So… In a blast from the past, the currencies rallied and the dollar was sold on the bad data… WOW! It was just like olden, golden times! Now, that was the way currencies should react to bad economic news in a country. Why? Because, if a country is printing bad economic news, the next step for that country is to lower interest rates, which is debasing their currency.

In recent times, it’s been the opposite for bad data prints… So hopefully this is a step in the right direction… And I’m not just talking about the bad economics in the US…  If, say Australia, prints a bad labor number, the Aussie dollar should be sold, that… Would put us back under the fundamentals flag… Yes, I would love to run that flag up the pole and leave it there for a long time!

The euro (EUR) traded all the way to 1.26 on Friday morning after the US Jobs Jamboree, but once the liquidity of Europe went to the pubs, and beer halls, the dollar staged a mini comeback. Yesterday, I checked in the light trading, and noticed that the dollar had continued to gain… But that all changed overnight, and the dollar is back on the selling block this morning.

I saw a report yesterday that the euro could very well go back to 1.30 on technical moves… I then saw a report saying that the euro was going to go back to parity.

That’s quite a wide swing from 1.30 to 1, eh? So… I guess it all depends on your outlook on which way it goes… Will you pin your colors to the 1.30 mast? Or, the 1 mast?

I’m on the fence… Personally, I think that the euro is fine where it’s at for now… And if the 1-trillion euro aid package works, then the euro can move higher… If it doesn’t, then it should move lower… But, even if the euro moves higher, it’s not out of the woods by any stretch of the imagination, folks…

The Canadian dollar/loonie (CAD), which had been dancing in the same conga line as the Swiss franc (CHF) lately, has run into a roadblock, and here is a good example of what I was talking about above… The loonie had been on rally tracks because of the good economic data, and a rate hike from the first G-7 nation. But in the past week, Canada has seen some softer economic reports, and an oil price that has plummeted, and those things have dampened the thoughts on future rate hikes… So, the loonie sees weakness… That’s what fundamentals are all about!

The Reserve Bank of Australia (RBA) issued their most recent policy statement last night, after leaving their interest rates unchanged…. The policy statement, though, had a different tone to it than one would expect, given the unchanged rates… The RBA acknowledged in their statement that consumer spending and business investment are expanding…

In other news, Australia printed a very strong Trade Balance in May, with a large upward revision to April’s number… Here are the numbers… May Trade Surplus of A$ 1.645 billion, and April revised from A$ 134 million to A$ 1.123 billion! WOW! Now that’s a nice upward revision, eh?

My two cents on this is that the RBA wants to raise rates, but is waiting right now, to see what unfolds globally… Remember, their rate hikes were fast and furious six months ago. And… Remember I told you that I thought the RBA would wait to hike rates again until their meeting in August… So, that’s still my thought, and it’s out there on the table for people to shoot holes in…

Speaking of holes… You’ll have to figure this one out, folks… The Swiss franc is still dancing in the conga line, even if the loonie had to sit out for a song or two. The franc has seen some Swiss National Bank (SNB) intervention to keep the franc from getting too far out of whack with the euro. But now that the euro has gained back some lost ground in the past week, the SNB can take a break. For those of you new to class, the SNB sells francs against euros to bring that “pair” in line…

Long time readers know that I’ve thrown the UK under the same bus as the US was thrown under… But, I’ve got to back off some of that now, as the UK has announced some very strong austerity measures, and deficit reducing plans that I like… Now, I’m not saying that all’s well there, and we should look to buy pound sterling (GBP) again, right now… But… For those who are what you call “contrarian investors,” this is what they would do…

And it was a tough row to hoe for gold last week… But think about this for a minute, if you’re a conspiracy nut like me… It was month end/quarter end, and according to the GATA people (the gold antitrust people that are trying to sue the major banks for manipulating the price of gold), the major banks have HUGE short positions in gold… So, my conspiracy mind was racing so fast, and it came up with this thought… The major banks manipulated the price of gold down at quarter end so that their books wouldn’t look so bad… Hey! It’s a thought… Why do you think gold fell so hard at quarter end?

I would think that with a lot of the bearishness in the euro pushed to the roadside at this point (except for the guys calling for it to go to parity!), that would point to more dollar weakness, and that “should” be good for gold…

I actually believe that since gold hit ,265 in June, and then slipped back to near 00, that these could be looked at as “dips” and good entry points… But then, that’s me, and I’ve said before that there’s never a “bad time” to buy gold, as long as you’re buying it to hold…

The data cupboard is pretty bare this week after printing all that data last week, which culminated in the Jobs Jamboree on Friday. We will see the ISM non-manufacturing (Service) Index today, but no biggie… I would suspect that the services sector would show the same type of slowdown that the manufacturing sector showed last week.

Then there was this…  As reported in the USA Today…

“The next big setback for the US job market might come as layoffs by state and local governments, under pressure to slash their payroll to narrow their budget deficit. As many as 400,000 workers could lose their jobs during the next year, said Mark Zandi, chief economist for Moody’s Economy.com. Together, states are confronting a 0 billion budget shortfall for fiscal 2011. Meanwhile, federal aid is shrinking. Money for states from the economic stimulus is expected to fall by billion, says the National Governors Association. And the Senate last week failed to pass a measure to provide states billion for extra Medicaid funding, an initiative that would have extended benefits from last year’s stimulus. The House approved billion in enhanced Medicaid funding.

“The downturn has gone on so long, all the low-hanging fruit has been taken,” says Scott Pattison, head of the state budget officers group.”

I shake my head, and wonder…

To recap… The Jobs Jamboree last Friday for May was very soft with only 83,000 jobs created, and the net jobs counting census workers was negative! The markets reacted the way fundamentals would dictate for once, and the dollar was sold. The selling continued last night, after a brief rally in the dollar. The RBA left rates unchanged today, but their policy statement was hawkish… And gold attempts to recover from last week’s sell off.

Chuck Butler
for The Daily Reckoning

Dollar Gets Sold On Bad Data Prints originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”


Daily Reckoning

Euro Rallies As Economic Data Piles Up Against a Strong Recovery

Jul 2nd, 2010
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The fireworks went off early yesterday in the currencies, folks… And they have not died down or had water thrown on them in the overnight and morning sessions…

WOW! You should have seen the currency screens lighting up yesterday… First it was the rise in Initial Jobless Claims, and then the hits just kept coming for the dollar, and economy. ISM Manufacturing Index slid further than forecast, which means manufacturing is slowing down. And Construction Spending was down in May…

I told you for the past week that the economic data was beginning to pile up against a strong recovery and for a double dip, and yesterday was no different! I was told by one of my chartist friends that the euro (EUR) would find resistance at 1.24 and 1.2450… The resistance must have been of the ilk of that country that I won’t name so I don’t tick people off, because… The euro flew right past those two figures without much hesitation…

Here’s the skinny… The economic data keeps piling up against the economy, which drives people to buy Treasuries, which pushes the price of Treasuries up, and the yields down… And down… And down… There’s now a problem, folks… Yields are too low to be attractive, so the dollar got sent to the woodshed.

The euro was the Big Dog once again, rising 2% on the day, and the other European currencies like Norway (NOK), Sweden (SEK) and Switzerland (CHF), all followed… The commodity currencies had a tough row to hoe all day, as the markets looked at them and said, “if the US isn’t going to be the growth engine, there will be no global growth, and those currencies depending on global growth will slump”…

Now… I still believe that commodities are in a bull market, and that commodities will rally strongly again, once the sovereign debt thing is in our rear view mirrors, and traders and investors begin to focus on fundamentals once again… And it’s at that time, when these commodity currencies will come back…

Gold fell alongside the dollar yesterday… And fell hard! In fact, gold fell below ,200 (albeit briefly) overnight… But, investors, traders, etc. saw what I had told Jen, our metals trader, the other day… If gold falls below ,200, I want to buy more… I didn’t get the opportunity, because it happened overnight, and once it was below ,200, the buying began, and gold is up this morning… But, the wipeout it suffered yesterday was something to behold… And if you panicked, then that was the classic example of attempting to catch a falling knife!

The euro is back above 1.25 this morning… The last time it breathed the air above 1.25 was the third week of May, and then it was sliding down the slippery slope… So… Is this the “real thing”? Hmmm… I don’t think so, but I could be wrong. I’m told that most of the euro’s rise yesterday came from short covering… (When someone has to cover their short position they have to buy the asset, thus if you have a lot of short covering, the buys drive up the price.)

Then there was also a rumor that the Swiss National Bank (SNB) had come into the markets to sell francs and buy euros. The franc/euro spread had reached another all-time record level yesterday morning, and even though the SNB said that they no longer needed to stem currency appreciation, they can’t have the franc so out of whack with the euro, so they allegedly did something about it.

But… In the end, do euro holders care what drives their currency higher? Well, maybe, but have some fun with it…

The commodity currencies got a bit of a lift overnight, when it was announced that the new Australian Prime Minister, Gillard, had reached an agreement on a total revision of the mining tax… Here’s what I know… The Australian government announced a reworked version of its planned new mining tax, featuring major concessions to the mining industry including a reduction in the headline rate of the tax to 30% from 40%.

Iron ore and coal, are the only commodities that will get taxed, and that’s good news for commodities, and it eases industry fears about the potential impact on base metals projects.

I read the report from Australia, and it sounds OK… Now, get my first reaction here… No tax is a good tax… However, this resolution is much better than the first proposal, which would have carpet-bombed all commodities with a tax, thus reducing the output…

One note… The proposal still has to be passed by both houses of Parliament… Let’s hope that the fat doesn’t get added to their bills like they do the ones in this country!

OK… I have to rail on the Fed for a minute here, so if you’re not in the mood for taking the Fed to the woodshed, then go ahead and skip down a paragraph or two…

I read this story on the Bloomie this morning, and immediately went over to the wall and screamed so loud, my voice is kind of froggy now! UGH! Here is a snippet…

“Federal Reserve Chairman Ben S. Bernanke and then-New York Fed President Timothy Geithner told senators on April 3, 2008 that the tens of billions of dollars in ‘assets’ the government agreed to purchases in the rescue of Bear Stearns Cos. were ‘investment grade.’ They didn’t share everything the Fed knew about the money.

“The so-called assets included collateralized debt obligations (CDO’s) and mortgage backed bonds with names like HG-COLL Ltd. 2007-1A that were so distressed, more than million already had been reduced to less than investment grade by the time the central bankers testified. The government also became the owner of billion of credit-default swaps, and taxpayers wound up guaranteeing high-yield, high-risk junk bonds.”

You can read the entire story here… But be prepared to put away the sharp objects, folks…

OK… So… Either these two lied to Congress, or… Maybe they didn’t know the difference between “investment grade” and “non-investment grade” assets!!! Which would probably make the most sense… But neither one should be acceptable to the American people…

Speaking of making sense… I saw a video of someone that didn’t make ANY sense! This was a video of the Speaker of the House telling people that unemployment benefits create jobs… I think that maybe I had better go back to school, and learn that kind of economics…

I’m currently reading a book by Judge Andrew Napolitano called Lies The Government Told You… This is a historical look at all the lies, not just a book on current lies… Once you read this, then you’ll have a different opinion on things, and then you’ll begin to say… “Hey, that Chuck was bang on with that thought, or that thought.”  OK, maybe I’m stretching it a bit there! HA!

Last year, in Vancouver, I gave a presentation at the Agora Financial Investment Symposium, and told the crowd there that their portion of the national debt was ,000… Well, one year later… The number has grown to ,000.. And that’s for every citizen… If we only count the taxpayers, the number skyrockets to 8,000… Nice, eh?

In our monthly letter to customers called A Review & Focus I do a section called “an inconvenient debt”…  It gets a little dark and spooky from time to time going through all this debt that we have. (You can get your copy of this “award winning” monthly newsletter by becoming a customer of EverBank World Markets… (OK, I made up the award winning thing, but it sounded good, eh?))

Well… I almost made it through the Pfennig today without talking about the Jobs Jamboree… But, I’ve got space to fill, so I might as well go down this road and talk about what will drive the markets this morning… (I’m sure you’re saying, “You think, Chuck? Yes, we would like to know about what will drive the markets this morning!”)

So, yes, the Jobs Jamboree is this morning. The experts believe that when you take out the government census workers, the US lost jobs last month… WHAT? Yes, that’s true… So, I guess the Speaker of the House might want to revisit with those economists that she said advised her, because we’ve been paying out unemployment checks by the truckload for a couple of years now, and we’re still not creating jobs!

But since we’re still dealing with an overall bias to risk aversion, a negative surprise on the jobs data would most likely benefit the dollar… I know, I know, that’s a strange and twisted way of thinking, but it’s true! In the old days, (now it sounds like I’m talking to my kids, who immediately head for the doors when I say, when I was a kid…) a negative number of jobs created would have sent the dollar to the woodshed, but not these days… These days, we have to deal with the risk aversion jugheads!

To recap… The euro had its best performance day in months yesterday, moving from 1.22 and change to above 1.25. Bad economic prints in the US got things started, and the short covering and SNB intervention took it from there. Today is a Jobs Jamboree Friday, and gold, which had briefly dropped below ,200 is up this morning.

Chuck Butler
for The Daily Reckoning

Euro Rallies As Economic Data Piles Up Against a Strong Recovery originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”


Daily Reckoning
gold

Some Good Alternatives to US Dollars on Bad US Data Prints

Jun 25th, 2010
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Today the G-20 meeting starts in Toronto. I hear they have “locked down the streets,” sure glad they don’t hold one of those boondoggles in my neck of the woods!

I think today we’ll have some “cautionary trading” ahead of the meeting, as traders just don’t know what to expect, other than the billing going into the meeting of an “austerity versus spending” fight between the US and Germany… Right now, that “cautionary trading” has a bias to buy dollars, and yen (JPY)…

The euro (EUR) tried once again yesterday to get past 1.24, and once again it was “denied,” as if the markets were telling the single unit to “get out of my kitchen!”  I really don’t expect much from the euro these days, as it certainly isn’t out of the woods by any stretch of the imagination. But neither is the UK pound (GBP), or the dollar in my mind… But the so-called “safe haven” trades are the cat’s meow right now, so, we’ve got dollar and yen strength… Go figure!

The data recently from the US has been weak, and it’s not just a rogue data print here and there… It’s just about all of them that come out of the data cupboard… Is anyone noticing this besides me? Just this week, we’ve had Existing Home Sales fall -2.2%, New Home Sales fall -33%, Durable Goods fall -1.1%, and Initial Jobless Claims remain above 450,000 per week. Now… Does any of that give you a warm and fuzzy about the US economy? And to take it one step further, does any of that give you a warm and fuzzy about owning dollars?

Sure, the Eurozone is getting hammered right now, but there are other fundamentally sound currencies out there that should be considered as alternatives to dollars, euros, and yen!

For instance… The Canadian dollar/loonie (CAD)… The loonie has hit a rough patch this week, but that’s what investors should be looking for… The dips! One of my fave economists to read is David Rosenberg… Here’s what David said about the loonie yesterday…

From David Rosenberg’s article in yesterday’s Globe and Mail…

“The Canadian dollar is ‘the new Swiss franc’ or old German mark. Overweight it, and do likewise to its assets markets, as Canada outperforms the majority of world markets in both risk-on and risk-off periods. But ask questions and pressure the country regardless.”

I would put Aussie dollars (AUD), as long as China is strong, on the list of fundamentally strong currencies, along with Norwegian krone (NOK), and Chinese renminbi (CNY). Those on the secondary list would be New Zealand dollars (NZD), Brazilian real (BRL), and Singapore dollar (SGD)… But that’s just my list, it doesn’t mean these currencies are going to be big winners versus the dollar, euro and yen today, tomorrow or in the next year.. It just means that if the karma was flowing, and the stars were in alignment, and fundamentals ruled the earth, I would want my cash in those currencies…

And gold! And silver! Yes, I’m always talking about how these metals are really “currencies”… So, in that vein, I’ve got to include them here!

Well… The political sideshow in Australia heads into the weekend, as Australia’s first female Prime Minister mulls over the mining tax proposal… Yesterday, she ordered all of the ads for the mining tax removed, which led a lot of people to believe that the tax proposal was dead in the water… But not so, not yet anyway… The Aussie dollar has backed off quite a bit because of this mining tax proposal, so to put it in the rear view mirror would be key to Aussie dollar strength ahead.

Not that I want the form of government that they have in Australia… But, just think for a minute… The former PM Rudd, tried a bonehead move, and they threw him out on his ear… Now for my money, there’s something to admire about that form of government! Imagine… Oh, never mind…

There’s a great story in the Globe and Mail this morning about how the euro is being called all sorts of things right now, but in the end, the euro is still standing, and doing something about their debt problem… While, the US had a beast in its closet (our debt problem) and “maybe the most frightening monster is the greenback.”

I like this snippet from the report… “Some of Europe’s most prominent economists are betting that the euro, bruised and bloodied as it is, will live to fight another day. We believe that the Eurozone will survive this current crisis, a team of six Deutsche Bank economists and strategists said in a June 18 report.”

As I read the report, which was good, I kept thinking… This sounds like something that I’ve read before, hmmm… Oh! It sounded like I wrote the article! It made all the points I’ve made in the past about how the Eurozone has enormous problems, but in the end, they are better than the problems in the US!

Yesterday… US stocks were down, and the euro and other currencies were up… A break of the “throw all the risk assets in the same barrel” trading pattern… But like the couple of times we’ve seen that in the past few months, there’s no follow through… UGH!

The one currency that seems to be the belle of the ball for the past two weeks, the Swiss franc (CHF), reached another record level versus the euro overnight. This move came after a Swiss National Bank (SNB) report that said the risk of deflation has largely disappeared… This is a follow up to their statement after the last rate announcement.

The franc is moving against the euro… But will see traction versus the dollar on the crosses, so the franc has that going for it!

Well… All the hype this week about China comes to the end of the week and the G-20 meeting… US lawmakers and Treasury Secretary might not like how China is going about it, but as of this morning, the renminbi has posted its biggest weekly gain versus the dollar since before the financial meltdown of 2008. So… Almost two years! It’s too early to be sure that China will continue with this “flexibility” displayed this week…

And… Like I said earlier this week, and I said in a video I did yesterday… China would not have made this move if their economy were teetering dangerously toward contraction!

The Japanese yen is back below 90… A strange thing to me… But that’s the way the markets go with yen… It’s thought of as a “safe haven”… They have 0% interest, they have debt that’s about 200% of GDP, and a funk that’s been over their economy for over a decade, but they are thought of as a “safe haven”? Sounds more to me like they would be a safe haven on maybe another planet, but not ours!

Then there was this from The Wall Street Journal, today… “US lawmakers meeting in the wee hours Friday reached a compromise on a bill that will redefine US financial markets and firms for decades.

“The breakthrough came after conference members reached compromises on controversial derivatives language; new limits on banks’ ability to invest in hedge funds and using their capital for trading; the contours of a new consumer protection agency; and the government’s ability to handle the failure of a large financial institution.”

I think I’ll keep my thoughts to myself on all this…

To recap… The bias to buy dollars prevails this morning, with the euro and other currencies falling to the dollar. The Swiss franc is the exception, along with the Chinese renminbi, with both showing small gains versus the dollar. And financial overhaul is in our futures… Be careful of overhauls, there are always unintended consequences…

Chuck Butler
for The Daily Reckoning

Some Good Alternatives to US Dollars on Bad US Data Prints originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”


Daily Reckoning
gold

High Yielders Sell Off on Bad US Existing Home Sales Data

Jun 23rd, 2010
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Yesterday, after the currencies had sold off in the overnight sessions, they traded throughout the US session in a tight range, with a bias to move higher, but were not able to mount any kind of sustained move against the dollar.

This morning, the overnight sessions have left the euro (EUR) about where it was yesterday morning. The worst performers are the ones that were the best performers on Monday… The high yielders… Aussie (AUD), kiwi (NZD), South Africa (ZAR), Norway (NOK), and even Canada (CAD), not that it’s a high yielder, but since Canada was the first G-7 nation to raise rates, they get some credit…

The high yielders saw selling after the US Existing Home Sales report yesterday was downright awful… UGH!

Well… It looks like I was as wrong as, well… I was wrong yesterday when I said that I thought the Existing Home Sales Data would be goosed up by 1. Government assistance, and 2. Lower Home Prices…

Sales of previously owned homes in the US slipped 2.2% in May from a month earlier despite the influence of a fading government tax credit. Although the tax credit ended April 30 for contract signings on homes, buyers have until June 30 to close. Existing-home sales data are based on closings.

The median price for an existing home was 9,600 in May, up 2.7% from a year earlier.

So… 0 for 2 on that call! Not only were sales down (not up), but home prices were up (not down)! UGH!

Those home prices being up is a surprise to me, and quite frankly I don’t see how that happened… But it has to be viewed as a “blip”, for I see home prices slipping another 10% this year, after all the government assistance has dried up and the foreclosures begin to mount… Yes, the foreclosures… I saw a piece on Bloomberg TV that said 2.4 million people will lose their homes this year… YIKES! That’s just plain awful!

On Monday, the Big News was all about China… Well, two days later, the renminbi (CNY) has given back over 50% of its move upward against the dollar on Monday morning. I’m going to stick to my conspiracy theory that I gave you yesterday regarding China’s announcement, until proven otherwise… So far… I’ve got something going here.

However, having said that… I’ve said for years now that China would do itself a favor when fighting inflation, by having a stronger renminbi. A strong currency goes a long way toward fighting inflation, which I’m sure the Chinese are very well aware of! So… Maybe, just maybe, they were sincere with their statement about flexibility for the renminbi… I guess we’ll have to wait-n-see, eh?

The other day, I saw an interview with economist, Paul Krugman, with whom – as I’ve pointed out several times over the years – I have major differences in opinions… This time Krugman was spouting off about the Eurozone states implementing austerity measures… Telling them they were wrong to do so, and that they should spend, spend, spend…

Then this morning two of my faves, US Treasury Secretary Geithner, and the director of the Economic Council, Lawrence Summers… NOT! Let me make this clear, these two guys are not even close to being faves of mine, except if you count my penchant for pointing out how dumb they sound sometimes… And this will be no exception…

Geithner and Summers are prepared to tell the G-20 nations meeting this week, that they should avoid budget cuts that would hurt economic growth. Geithner said, “We must demonstrate a commitment to reducing long-term deficits, but not at the price of short-term growth. Without growth now, deficits will rise further.”

Hmmm… How many arrows will I need to shoot this statement full of holes? Ahem… Timmy… The masses might follow your lead here, but I’m not falling for this… You can not spend your way out of this… Period! And, just wait until your friends on the Hill allow the Bush Tax Cuts to expire… Oh! You didn’t think about that? I guess your answer would be for us to spend more to make up for those tax cuts? I shake my head in disgust!

OK… I have to go on to something else, here… The air conditioning doesn’t turn on for another hour, and I was already hot under the collar! Yes… Another “benefit” of our building… It’s a good thing I love this space we’re in, and what we’ve done with it!

Just in case you were thinking that with Canada raising rates and leaving the US Fed’s rates behind, that the link to the US was gone, you had better think again, for that awful print of Existing Home Sales, sent the loonie down below 97-cents yesterday.

Today’s data cupboard in the US will yield New Home Sales for May…  And let’s not forget the Fed’s FOMC meeting, today! Not that anything will come of it… I guess all we’re resigned to looking for is if K.C. Fed Head, Hoenig, calls for a rate hike… He has been the “lone dissenter” regarding the time period for leaving rates at historic lows being described as “an extended period”…

In the UK this morning, the Bank of England’s (BOE) last policy meeting minutes were printed, and to the surprise of the markets, there was a member who had voted for a rate hike of 25 BPS… Not to worry, the vote was 7-1… But still, maybe this one member can get one of his buddies to join him, and that buddy gets a buddy, and soon, the vote gets messy… We can only hope!

The UK also released their “emergency budget” this morning… And the reaction has been muted for the most part, with the pound sterling (GBP) gaining a bit versus the dollar, but not much to write home about.

I chuckle when I hear the words “emergency budget” and think of Japan in the ’90s… If you weren’t following Japan’s moves in the ’90s, let me explain… Japan, after “having it all” in the ’80s, went the opposite direction in the ’90s… They spent money, threw money, and dumped money on the economy to get it kick started, and it never worked. They would announce a “budget stimulus package” and “emergency budgets” and again, they never worked… So… When I hear the UK announce an “emergency budget,” I think that maybe the UK, too, like us, is “turning Japanese”…

Norway’s Central Bank, The Norges Bank, is meeting while I write, this morning… But don’t expect anything to come of it, as the Eurozone debt problems have put the rate hikes on the back burner with the Norges Bank. I see this hurting the krone, for many traders, etc. had “looked forward” to see additional rate hikes, thus marking up the krone… If these same traders, etc. get the wrong message today, they could very well begin to mark down the krone and move on to greener pastures…

The Swiss franc (CHF) continues to defy gravity, folks… The franc is trading at an all-time high today versus the euro… This is going to really test the fabric of the Swiss National Bank, (SNB) which mentioned recently that it no longer had to “stem the appreciation of the franc”… I think that the SNB will keep this pair from getting too out of whack, which would mean they would buy euros to narrow the spread between the two… And sell francs, which would weaken the franc… But if they do… Look at it as an opportunity to buy francs cheaper!

Gold is stronger this morning, adding to yesterday afternoon’s rally in the shiny metal… The “dip” only lasted one day…

Then there was this… A reader sent me a note about the falling money supply here in the US and was confused about how the money supply can shrink when the government is printing and spending money all the time. Well… This shrinking money supply thing is concerning, to me… True, I didn’t like it when it was HUGE, but it is shrinking faster than you can sell funnel cakes at a State Fair! But let me get back to the confusion… The money supply is a different animal than the spending and printing… Money supply is the total amount of money available in an economy at a particular point in time. There are several ways to define “money,” but standard measures usually include currency in circulation and demand deposits (depositors’ easily-accessed assets on the books of financial institutions.

Hope that helps!

To recap… There are a couple of central bank meetings today (Fed and Norges Bank), but I don’t expect any changes in either one. The currencies traded in a tight range yesterday after the overnight sell off. The Swiss franc is trading at an all-time high versus the euro, this morning, and gold is back on the rally tracks.

Chuck Butler
for The Daily Reckoning

High Yielders Sell Off on Bad US Existing Home Sales Data originally appeared in the Daily Reckoning. The Daily Reckoning, offers a uniquely refreshing, perspective on the global economy, investing, gold, stocks and today’s markets. Its been called “the most entertaining read of the day.”


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