I just saw a story go across one of my screens that said, “Greeks run university professor out of the country for telling economic truths.” I immediately thought, Good thing that doesn’t’ happen here in the U.S., for I would be a man without a country, eh?

Let’s get to the tape of what happened yesterday and what we can look forward to today. I left you yesterday morning with the thought that the tourniquet had been wrapped around the deep wounds the currencies had received from the dollar the previous day, and it looked as though a handful of currencies would gain on the day. Well, that thought carried through for the day, but the trading ranges were very tight.

The euro (EUR) is getting a weak wind in its sails this morning on news that German Chancellor Angela Merkel is leaving open a potential compromise on debt sharing for the eurozone. Confused? Don’t be! That’s what I’m here for! What this is saying is that even though Merkel has dug her heels in on this eurozone bond issuance idea that I talked about yesterday, she’s leaving open that option. And that’s a good sign, if you believe that a eurozone bond issuance, instead of each country doing their own auctions, would be good and help restore the eurozone and euro.

I think, though, that a true “eurozone bond” will continue to meet strong opposition from Germany. But there’s a compromise that could be worked out, and that’s a general eurozone redemption fund. So each country could retain their sovereignty and issue their own debt, but they would have to contribute to this general eurozone redemption fund, from which bond maturities would be paid. So you see this would very well calm the markets and allow the eurozone countries the ability to scale back their debt. Now, that’s a very good concept, and one that should have been hammered into the skulls of the eurozone leaders at the EU summit… but NOOOOOOOOO! They would rather talk about stuff that’s not going to work!

As longtime fans and first-time callers, you all know that I don’t believe that the Japanese yen (JPY) should be as strong as it is versus the dollar. I believe I’ve made that perfectly clear. But I’ve also said that you shouldn’t throw yourself in front of a bus either. Which is akin to trading versus a trend. And the trend in place right now is to buy dollars and yen. Sure, the Japanese government doesn’t like to see this yen strength, for they have set out to achieve an inflation rate of 1% this year, and they won’t get there with the yen so strong. (They won’t get there either way, who the heck are they kidding?)

But the trend is your friend, right? So yen strength is here for now. I threw in the towel on yen a month ago (remember?). I gave up using fundamentals on yen. It’s a currency on its own course. Oh, by the way, Japan’s latest CPI (inflation) for April printed at +0.2%. That’s a long way from 1%, BUT better than a kick in the shins for the Japanese leaders.

Yes, one day the “debtor countries” like Japan and the U.S. are going to feel the heat. Obviously, that “day” isn’t today, or next week, or month. but I do believe that the dog days of summer are going to return the heat to these two. Especially if stories like the one I have for you coming up after the break get some attention. We’ll be right back!

Well, what do we have here? USA Today yesterday (thanks, John Min) had a front-page story titled “Red Ink 4 Times Official U.S. Tally.” Oh, haven’t I told you before about how our government tends to stretch the truth when it comes to real numbers? And I’ve complained about the fact that the government doesn’t have to account for things like corporations, small businesses or even states! But there it was in USA Today. When using accounting that would put corporate heads into jail, the U.S. reported a $1.3 trillion deficit last year. However, when using accounting that everyone else in the U.S. has to use, the deficit was really, truly and officially — drumroll, please — $5 trillion.

Now, from 2004 to 2011, government deficits would actually be six times the government’s figure of $5.6 trillion.

I can hear the fans of the government style of accounting saying that you shouldn’t include retirement programs in the budget, because — and get this — “Congress can change what it owes by cutting benefits or lifting taxes.” OK, tell me when you think THAT might happen! Are you kidding me? That’s a pretty weak argument. There’s no political will to do what needs to be done. There’s no political will to cut the discretionary spending, which is chump change compared with the Medicare, Social Security and Medicaid expenses.

Onto something else, I feel like the boy who cried wolf — only I’ve been crying wolf for over a decade now! Of course, the problems with the dollar did occur, so some of my crying wolf has helped people. But this debt thing here in the U.S. just continues to grow and grow, sort of like my waistline the past five years.

The Swiss franc (CHF) continues to hold onto the 1.2010-15 cross to the euro, just keeping its head above water enough to keep from taking on water. At any time, traders could very well take out that 1.20 level, leaving the Swiss National Bank (SNB) no course but to react and sell francs and buy euros. And that’s why I tell people at conferences to steer clear of the franc. But what happens if the SNB has no resolve and the traders call their bluff? Then the franc strengthens and I’m wrong.

The Australian dollar (AUD), which on Tuesday was nearing 99 cents again and then experienced what all the other currencies experienced on Wednesday, is back on the rally tracks for the second consecutive day this morning. Maybe those measures we’ve talked about showing the A$ was oversold were correct. But then, in previous turnarounds by the A$, the bounce was more significant than what we’ve seen the past two days. So maybe there’s more to come? If near-term history since 2010 is any indication, that would be a yes, there’s more to come. But I’m not banking on anything from the past holding true these days, fundamentals having been thrown out the window with the bath wash.

Gold also has found its way to the green numbers for two consecutive days. I’ve got to say that the performance of gold (and silver) has been very disappointing this year. But people like Bill Bonner told us all that this could be the first year in the past decade that gold takes a breather, and if we had listened, this would not be so disappointing. And earlier this week, I told you what I believed about the price action from $250 to $1,200 and then from $1,200 to $1,900 and then back to $1,555. The year isn’t half over, so we could still see gold recover this year. But if not this year, then 2013 should be the year of recovery. I say that because I truly believe that the commodity bull market is not over. It has just taken a breather. The challenges to the global economy remain and will remain for years to come. This uncertainty will be the match that lights the fire. And before the legal beagles prepare to slap my wrists, that’s all my opinion, and I could be wrong!

The euro did bump up to 1.26 briefly while I was writing, but is back down a bit. This will be an interesting day with the thin volume in the markets. So be prepared for a wild ride, but then the past couple of Fridays before three-day weekends have been lackluster. So what’s it gonna be, markets?

I completely forgot to mention the incomparable newsletter writer Richard Russell, an absolute must-read for me. I’ve used so many of Richard Russell’s snippets and quotes over the years, you would have thought I would pull that name out without thinking about it!

And I actually heard from the Mogambo Guru yesterday! The Mogambo sent me an email. Longtime readers of the Mogambo Guru know how good he is with his descriptions of government blunders, so you can only imagine an email from him! Thanks, Richard… you are a real friend!

The Chinese renminbi (CNY) has been on a three-week losing streak as the Chinese government guides the currency weaker in an effort to keep their exports on pace to support the slowed-down economy. I’m not too concerned about this three-week move, which has only really been less than 1%. China left the renminbi unchanged for over almost two years during the financial meltdown in the U.S., and then they went back to allowing appreciation. We could very well see that again as the U.S. prepares to enter the backside of the financial hurricane. But remember, the Chinese want desperately to remove the dollar standard, and have publicly said so. They won’t get that to happen with their currency at current levels.

As I’ve told you many times in the past, the Singapore dollar (SGD) mimics what the Chinese renminbi does. So with the three-week losing streak in renminbi, so too do we have a three-week losing streak in the S$. But again, its loss during that three-week losing streak has been less than 1%.

Then, in keeping with my call that the U.S. is preparing to enter the backside of the financial hurricane, I saw this on ZeroHedge.com. You can always find stuff like this there:

“Here in the U.S., I think that The Bernank’s plan was to pretend they didn’t need to print more money, get commodity prices down and then hope that the economy would respond favorably to that development. This wouldn’t have negated the need for more printing; however, it would have bought time and allowed for a potentially lesser degree of action. Instead, what has happened is that the global Ponzi is completely and totally incapable of holding itself together without consistent and increasingly large infusions of central bank money. The debt burden is too large, the malinvestments too pervasive, the corruption too systemic. The whole house of cards that is the global economy will vanish into dust rather quickly without more and more printing. So what do you think they are going to do? If I am correct and the U.S. economy itself is now in the early stages of what will probably turn into a serious economic slowdown, then it will not be easily stopped with incremental central bank policies. The fact that they have waited this long and the fact that the global economy is in the midst of a serious slowdown tells me one thing. They are way behind the curve, and by the time they realize this, it will be too late to stem the momentum. That said, I do expect them to respond, and the fact that things will have gotten much worse than they expected will mean a major response. I’m not talking Operation Twist part deux. I mean a serious print. Potentially, the BIG ONE.”

See, I’m not the only person crying wolf on this economy. It makes looking to gold and silver as safe havens an interesting thought.

To recap: The calm that was in the currencies yesterday morning held through the day, and is still prevalent this morning. The tourniquet has been wrapped around the currencies and metals for now. There’s news out this morning that German Chancellor Merkel is open to a compromise on the eurozone bond issuance idea. Chuck offers up his idea of a compromise. The U.S. fails to account for its expenditures like it demands corporations do. Our deficit last year was really $5 trillion, as if the reported $1.3 trillion deficit weren’t bad enough!

Chuck Butler
for The Daily Reckoning

Accounting for the US Government originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

The talk about a Grexit softened its tone a bit yesterday. The markets were basically saying that Greece could exit the euro (EUR) this weekend! The US is obviously on holiday this coming Monday, and that fact has factored into the calls for an exit this weekend.

Again, I don’t see this happening, as the cost to Greece — the pain and mess — will be far greater to the Greeks than their austerity measures, should they decide to leave. So I’m on the side of the fence that says Greece stays.

The EU summit was a nonevent. EU leaders left the summit without any meaningful plans. They all agreed that Greece needed to stay in the eurozone, but could not come up with any meaningful action that could be taken.

If you go back in time, when the Greek debt problems first called for a bailout, and the markets all thought that the contagion effect would take over all the southern eurozone countries, I told you then that the only way to deal with this — so that there would be no further contagion — is to issue a eurozone bond, and quit having each country hold their own auctions.

Yes, it takes another chink from each country’s sovereign armor, but when each eurozone country decided to give up their sovereignty of their currency, they opened the Pandora’s box of how to lose one’s sovereignty.

So now skip ahead to the EU summit, in which discussion of a eurozone bond would have nipped the daily flogging of the euro in the bud, the EU leaders decided to push that discussion off to the next summit. What? These guys are really beginning to give me a rash! What the heck are they thinking? Oh, I know, they are thinking that maybe with time, the problem goes away, and they don’t have to have that eurozone bond discussion.

My dad used to tell me all the time that most problems will take care of themselves with time. However, I think the EU leaders have chosen the wrong road to journey down. They needed to address this problem right away! So they decided to see if the problem would take care of itself, with time. I’m sure they will rue the day they decided to journey down this road.

OK, the euro this morning is down just a bit, as it shrugs off the nonevent EU summit, and the news this morning that German business climate, as measured by the think tank IFO, fell by the largest one-month margin (negative three points) since August 2011. The experts had thought it would be a negative number but a soft negative number, not a hard negative number.

German flash PMIs (manufacturing indexes) also are showing some weakening. So even the calm in the eye of the eurozone storm, Germany, is showing that the overall weakness in the eurozone is hurting them, too.

Speaking of PMIs, in China, we always get two sets of PMIs. The government issues their report on the pulse of manufacturing, and HSBC (Hong Kong and Shanghai Banking Corp.) issues theirs, and never do the two match up. For instance, last month, the government issued a report that said that manufacturing as measured by the PMI was a number above 50, and HSBC issued a report that said it was below 50. (Remember, 50 is the line in the sand that denotes whether manufacturing is expanding or contracting.)

I always grow suspicious of government reports that don’t line up with those in the private sector. Take the U.S. economic reports versus ShadowStats. There are HUGE discrepancies between these two, but the sheeple here in the U.S. don’t pay attention to any of this. Whatever the government tells them, they swallow hook, line and sinker.

Anyway, getting back to China, the HSBC PMI report showed a seventh month of below 50 for April. The government report is usually printed on a weekend, so we’ll see what this has in store for us this weekend, as the pools open here in the U.S. (ours has been open for a month!) and the smell of charcoal drifts through each neighborhood and we sit back and reflect on the meaning of Memorial Day.

Did you know that Memorial Day was originally called Decoration Day? And that it originated after the Civil War to commemorate the fallen Union soldiers of the war? Notice, it was only the Union soldiers. Apparently, the South held their own Decoration Days in each region on different days. We joined this all together and called in Memorial Day, to honor the men and women that had died while serving in the U.S. armed forces, and later, we said it would be the last Monday of May.

There you go! A public service education announcement! You get it all here, folks! Why go to any other newsletter? Just kidding. Of course, absolute newsletter reads that I have include: The 5 Min. Forecast, anything David Galland writes, Doug Casey, Bill Bonner, David Rosenberg and I even carve out time for my friend John Mauldin once a week, and of course, the Mogambo Guru!

I wanted to write about this yesterday, but forgot all about it until I had hit “send”! UGH! But did you see the latest existing home sales data here in the U.S.? Very strong, and for the first time in a year of Sundays, the home price increased! WOW! Did we just hit the bottom for home prices? Somehow I can’t get my arms around that thought. I just think about the unemployment situation, and the foreclosures coming down the line, and have to think that this was just a one-month blip. But maybe I’m wrong, and it’s time for me to stop being such a negative Nellie.

I really wanted to send Chris a note on this last week, and then something happened that took my attention away from the story. Then I thought I would talk about it first thing this week, but then something happened to take my attention away from the story, so now on Wednesday afternoon, while I’m thinking about it, I will write it down for Thursday. And it’s Thursday!

Basically, I wanted to talk about sentiment, and focus. While everyone was having a cow over the Greek debt and whether they would form a new government and all that, the eighth-largest economy in the world announced that they had miscalculated their budget deficit and what had previously been forecast to be $9 billion turned into $16 billion in deficits. That eighth-largest economy in the world? Not Greece… not Spain… not Italy… but the great state of California.

The sentiment right now is that the eurozone’s center will not hold together, and the focus is on the eurozone’s problems, not those here in the U.S. with the same thing: debt. Trader sentiment and focus is all that’s needed to either make a currency’s day or send it up the creek without a paddle. And right now, the euro has been sent up the creek without a paddle.

Gold and silver saw another day of selling yesterday, and are down once again. (I have some words on this from Ted Butler later today). And the Australian dollar (AUD) has bounced higher this morning. I have given you two measures that are used to calculate if a currency is oversold in the past week and both showed that the A$ was oversold. But that doesn’t always mean that traders will jump to buying, in this case the A$ immediately. Not with the U.S. dollar strength so prevalent in the markets right now. But they will. Traders can’t break free of their urges to react to charts and index measures.

Hey! I just watched the price of gold go from a negative $5 to a positive $5 in less than five minutes! WOW! Maybe the shiny metal can catch some wind in its sails today.

The 7-year U.S. Treasury auction was interesting. The yield on the 7-year note fell to 1.13%. That’s a record low yield, folks. And just when I thought that yields couldn’t really get much lower! I’m sitting here with the thought of “Yes, Virginia, Treasury yields can go lower.” Hey! For the award of financing U.S. deficit spending, you can get 19 basis points of yield out one year. Of course, by the time the broker takes his pound of flesh for doing the trade, you probably end up with a negative yield. And I hate to break this to all you U.S. Treasury buyers, but unless you go out 30 years, you have negative real interest on your holding (real interest is the yield — inflation).

And then the two anti-dollar investments, oil and gold, which have been butchered lately with the dollar strength, at least didn’t lose any more ground overnight. I’ll have to go read the Mogambo Guru to see what he’s thinking these days about the price of oil and gold.

Then, from Ed Steer’s Daily: “This is Ted Butler speaking… ‘The price action this week has been horrid. It is horrid because the crooked commercials on the Comex have made it horrid. There is no legitimate economic justification for the price decline since Feb. 28 other than the price action was created to permit the commercials every opportunity to scare and induce others into selling Comex contracts so that the commercials could buy. Almost every day, the price of silver and gold seem to be put lower in thin overnight trading. Almost every day, we start out “in the hole,” where it is a struggle to get back to unchanged. This is not accidental; it is a deliberate plan to demoralize and keep silver investors confused. It is shameful that the CFTC has been captured by the crooks and is content to look away.

“‘The good news is that the commercials have succeeded in buying record amounts of silver (and gold) contracts. It’s impossible to pick the timing of the next rally, as we are in a sort of “no man’s land” currently, where technical-type buying won’t come in until the moving averages are penetrated to the upside. There still doesn’t appear to be much speculative selling remaining in silver and gold after the orchestrated takedown of the past couple of months, but neither is there any impetus for technical buying below the moving averages. In this environment, it’s not hard for the commercials and HFT practitioners to put prices sharply lower at will. About the only sane reaction to all this is to accumulate and hold physical silver for the long haul, as the short-term manipulative games won’t last forever.’”

Last week at the Las Vegas Money Show, the booth across from ours was Investment Rarities, which is Ted Butler. One of the guys in their booth came over to me and told me what a fan he was of the Pfennig. And I was like, “When you have Ted Butler? WOW!”

To recap: There was blood in the streets yesterday with the risk assets, as the asset prices dropped all day long. Today, we’re seeing some light — not much, but some, for the risk assets. German IFO and flash PMIs say that even Germany is weakening. The eighth-largest economy in the world announced that their budget deficit was $16 billion, not the $9 billion they originally told everyone it would be. And yes, Virginia, U.S. Treasury yields can go lower.

Chuck Butler
for The Daily Reckoning

Currencies Try to Rebound Today originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

Grexit — that’s what is being talked about this morning. Grexit is a “Greek Exit,” See how I put the two together? Simply genius, eh? HA! Seriously, this talk of a Grexit has really put the euro against the ropes

This talk of a Grexit is really beginning to get loud, folks. But let me be perfectly clear here: Leaving the euro is NOT the answer to the Greek problems, and I truly believe that a few years from now, the Greeks will regret this Grexit.

Bloomberg had a great article this morning that listed what the Greeks would have to do in a 46-hour period should they decide to leave the euro:

“Over the two days, leaders would have to calm civil unrest while managing a potential sovereign default, planning a new currency, recapitalizing the banks, stemming the outflow of capital and seeking a way to pay bills once the bailout lifeline is cut. The risk is that the task would overwhelm any new government in a country that has had to be rescued twice since 2010 because it couldn’t manage its public finances.”

I was on a call with a couple of other analysts a couple of months ago, and this topic of a Grexit came up, and I was alone in my thought that leaving would be very difficult and messy. I think this will be the case should the Greeks decide to leave the euro.

This Grexit talk has really gotten louder since the caretaker government of Greece made overtures about “renegotiating the terms of its bailout.” Hardliners in the eurozone will NOT go for that, and knowing that, the markets are preparing for a Grexit. That, my friends, is the main reason the euro is taking a ride on the slippery slope.

When I say the “rest of the currencies” are following the euro down the slippery slope, that doesn’t include Japanese yen (JPY), which is a currency on its own course. I’ve said all there is to say about the yen, so I won’t bore you with repeats.

I say don’t go against the trend that’s in place, and that trend is to flock to the so-called safe havens — dollars and yen. Swiss francs (CHF) used to be in that category, but with the “games” the Swiss National Bank (SNB) played with the franc last year, traders don’t want to touch francs with someone else’s 10-foot pole!

And who knows? The SNB could be selling francs into this dollar strength, to further weaken the franc. I wouldn’t put it past them.

One of the anti-dollar investments — oil — has really seen its price plunge, and that’s not surprising to me, given the dollar’s strength right now. You see, it’s all about the petrol-dollar.

But what’s going to happen to the petrol-dollar next month, when Iran opens its Oil Bourse, in which oil can be purchased with any currency, not just dollars? Maybe not right away, but should the Oil Bourse gain traction, it should be a real pain in the side of the dollar and the U.S.

I can tell you right now, folks, that all the saber rattling with Iran is not truly about their nuclear capabilities. The reports I read say Iran is 10 years away from a weapon of mass destruction, but you won’t hear the U.S. leaders say that, because they have to keep the focus on Iran’s nuclear capabilities. The real reason that all this saber rattling is going on is that Iran is going to open this Oil Bourse.

Now, that’s probably something you hadn’t heard or read about. But that’s me — always digging for the stories that fly under the radar. Like the story I saw go across the screens briefly yesterday — The U.S. Commerce Department has imposed tariffs of 31-250% on Chinese solar panels. Back in 2001, when I wrote the white paper called The Decline of the Dollar, I began to write that white paper because President Bush had just affixed tariffs on Japanese steel.

And while being protective of American Industries sounds good, the unintended consequences is that protectionism is one of those things that cause chinks in a country’s currency. So like in 2001, the hit to the dollar didn’t come immediately. I think this hit to the dollar will follow suit, and it will be some time before we see it cause harm to the dollar.

The European Union (EU) summit is going on as my fat fingers type away here this morning. This summit is going to be a real dogfight, and that won’t help the euro any. In the blue corner, we have French President Hollande, who wants to pull off the austerity measures and promote growth with spending (same old dookie, right?), and in the Red corner, we have Germany’s Chancellor Merkel, who will dig her heels in on the austerity measures.

But things can’t be that bad. A German auction of bonds/debt this morning saw great demand, and the issue was oversubscribed, and the yield for 10-year bunds fell to the lowest level in some time. And France also saw good demand at their bond auction this morning. And yes, just here in the U.S., where the Fed buys 61% of Treasury auctions, the European Central Bank (ECB) could very well be doing the same. I don’t think so. But I could be wrong!

One of my trading partners (thanks, Shauna) sent me some research her firm had done on India the other day — and folks, it doesn’t look good. This morning there is an article in The Times of India talking about an Indian default! “Market players are starting to worry that India’s deepening economic crisis and political paralysis could drive Asia’s third-biggest economy into default, according to the International Financing Review.”

Gold is down another $15 this morning. There just doesn’t seem to be anything to stop this slide as another anti-dollar gets whacked by the dollar strength. And we’re coming into the “traditional slow months” for gold and silver… the summer months. Last year was an exception, as gold hit its high during the summer, but you have to go back to last summer. And remember that the debt ceiling debacle was taking place, along with a downgrade for the U.S. Gold should have been going higher with stuff like that going on! And lookie, lookie… what do we have here?

Another round with the debt ceiling, which should come about by late summer. Are you with me that this could get really ugly with this being an election year? That’s why I think — and is my opinion, which could be wrong — that this current dollar strength will last until late summer.

Then from Forbes:

“Add it to the growing list of people going after JPMorgan Chase. Employees are suing the bank over the $2 billion trading loss that they say hurt their retirement plans.

“A lawsuit filed on behalf of JPMorgan employees says their retirement accounts fell in value after news broke about the trading loss, Reuters reports. That’s because the plan holds JPMorgan shares, which have dropped 18% since the loss was announced on May 10.

“The complaint, filed in U.S. District Court, Southern District of New York, names the bank, its CEO and chairman Jamie Dimon as well as former CIO Ina Drew, who resigned soon after the loss was revealed, as defendants. According to the suit, the defendants violated the federal Employee Retirement Income Security Act which gives plan participants the right to sue for breaches of fiduciary duty.”

OMG, what’s next?

To recap: The two-day calm in the currencies ended overnight as fears of a Greek exit from the euro are really strong after an EU official said that there would be no renegotiating of the bailout terms for Greece. The EU summit begins today and should become a real dogfight between the southern countries that want to spend and promote growth and the northern countries that want to continue the austerity measures. Gold and oil — the “anti-dollars” — are getting sold because of the dollar strength.

Chuck Butler
for The Daily Reckoning

Talk of a Greek Exit Gets Louder originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

Maybe the currency traders can also find their way back on to the right course, but I doubt it. I told quite a few people last week that I truly believe that this dollar strength that we’re seeing could last for most of the summer. But you know what happens at the end of summer, don’t you?

Ahhh, grasshopper, with the way we’re spending money that we don’t have, the U.S. government will be bumping up against the debt ceiling by the end of summer. And with this being an election year, don’t you think that the raising the debt ceiling negotiations are going to get even uglier than last year? I do, and if you recall last year, the dollar was teetering on the cliff during those negotiations.

For now, the dollar still holds the mighty hammer. Of course, I also told quite a few people last year that while the Australian dollar (AUD) has fallen from the lofty levels above $1, it’s still strong. Yes, that’s right, the A$ is still strong compared with where it was 10 years ago! Fifty-five cents — do you recall that?

Anyway, last week, I sent Chris a note to include in the Pfennig that talked about the A$ falling through oversold levels on the RSI charts, and how it had done that four times since 2010, and each time previously, the A$ bounced higher. Now there’s some more data that lead us to that same conclusion.

The IMM positioning last week showed A$ longs at their lowest level since the crisis. The last two times that the A$ saw positioning like this (oversold) was in July 2010, and in September 2011, the A$ experienced pretty significant moves higher in a relatively short period of time.

Now, after I’ve said all that, the A$ is down about half a cent this morning!

When I came in this morning, the currencies were holding their own, but they have slipped while I was preparing to write the letter. And gold is off $16 this morning. So I’ve got to find out what happened while I was preparing to write — inquiring minds want to know!

Well, the ratings agencies don’t seem to mind being late to the party, and Fitch is the latest to be late to the party in Japan. Fitch downgraded Japan’s credit rating and placed the country on negative outlook. Really? So what you’re saying is that you believe Japan has a problem? HAHAHAHAHAHAHA! I can’t stop laughing!

Japan has had a problem for over two decades! But here’s my serious thought on this: The yen (JPY) might have weakened by 0.5% on the announcement, but I don’t think the selling of the yen has any legs, and it will stop soon enough. There’s just too much going on in the world right now, and as perverse as it might seem, Japanese yen is a safe haven.

Yesterday, I told you about how Chinese Premier Wen Jiabao, announced that China’s economy would receive stimulus. This news helped the emerging markets get their heads above water yesterday, along with the fact that oil gained back a buck on the day, which really helped the Russian ruble (RUB) gain back some lost ground.

The Chinese announcement also helped the Aussie and New Zealand dollars (NZD). I think, though, that today is going to be a tough row to hoe for the currencies, as the European Union summit begins tomorrow, and everyone believes that there is going to be a showdown between Germany and France, and this has got the markets scared right now, which is leading to the selling I’m seeing this morning.

France’s new Socialist leader wants to promote growth with spending. Germany had just about gotten every EU member to sign on to the “austerity is the best program” until France threw a spanner in the works by electing Francois Hollande. And now we’re going to have to be witness to all this drama.

But as I’ve said before, history tells us that, eventually, the German leaders can persuade the French leaders to see things the German way. But Hollande has to grandstand now, as he was just elected, although, in my opinion, it’s better to let your constituents down early in your term, so they have time to forget that you dumped on them! HA!

Yesterday, I told you about how I felt regarding Norway and Sweden getting tarred with the same brush as the euro (EUR), and that one day, traders would get it through their thick skulls that Norway and Sweden are not Greece! Norway tried to pound that thought in traders’ heads this morning by printing a stronger-than-expected GDP for the first quarter — 1.1% first-quarter growth is very good for Norway, given how the rest of the world has slowed. Oh, by the way, the consensus forecast was 0.9%.

I guess the Brazilian government and central bank win. They set out two years ago to weaken the real (BRL), and after multiple rate cuts, taxes and interventions, they have finally gotten what they wanted: a weak real. I told you about a month ago that it appeared to me that the traders had left town, and didn’t want to play this game with the Brazilian central bank any longer. That took away the support for the real, and the free fall has been quick. This is exactly why I always talked about buying the real only with the speculative money that you allocate in your investment portfolio. Crazy wild swings, and now this.

The unintended consequences… they are everywhere and in everything we do. Brazil’s leaders are going to soon find that the unintended consequences of their bashing the real into a weakling that gets sand kicked in its face is soaring inflation. And when the tourists begin to arrive for the World Cup and then the Olympics… oh, my!

Speaking of the Olympics, going back to the ’90s. We have always seen the host country get a bump in the currency as the Olympics draw near and during them. Spain was the first we tracked, and so on. So keeping that in mind, could there be a bump in store for the British pound sterling? That’s going to be a tough row to hoe, given all this dollar strength. But it will at least be interesting to watch, eh?

Yesterday, I made fun of the G-8 meeting and their silly attempts to make people think they actually accomplished something. I saw that Russian leader Putin said that the meeting wasn’t worth coming to. Did you know that there was only one truly trained economist among the G-8 leaders? Mario Monti of Italy. Now, that alone should tell you something about the meeting. The leaders were all throwing in uneducated ideas of what would work. Oh, boy, sign me up for the next meeting, eh?

I was asked by quite a few people last week about the Swiss franc (CHF). The franc is still hovering just above the 1.20 floor that the Swiss National Bank (SNB) put on the currency’s cross to the euro last September. It’s currently at 1.2011. The overtures from the SNB continue to ring out a song about how they want that cross’s level to go to 1.35 or 1.40. That would knock the stuffing out of the franc, folks. And with the euro getting weaker by the day, the SNB’s resolve will be tested soon enough.

I had a chance to talk briefly with James Rickards, author of Currency Wars, while in south Florida a couple of weeks ago. Mr. Rickards is convinced that all countries are in a war to reduce the value of their currency below their neighbor’s or trading partner’s currency.

I told him I hoped that wasn’t true, but at this point, how can you argue with him? But here’s what I took from the conversation and the book. That the U.S. dollar is going to lead the currencies down, which means the dollar will always be weaker than the other currencies. Maybe that’s taking a simplistic view of the whole situation.

Then I had a couple of readers send me this story, so it obviously is worthy! Did you know that the U.S. allows China to bid directly in U.S. debt auctions without going through Wall Street banks? Yes, it’s true! And China has the only central bank that’s allowed to do this. Reuters broke the story on this. I say good for both parties! And I would ask why are the other central banks of the world not allowed to do this? Why should Wall Street primary dealers get to make truckloads of markups on debt auctions to central banks? We should be rolling out the red carpet and meeting them with an adult beverage with an umbrella in the glass, when these central banks show up to buy our debt.

To recap: The currencies held their own yesterday and overnight, but the announcement by Fitch that they were downgrading Japan’s credit rating put the currencies on the selling block again early this morning. Gold is off by $16 this morning. The A$ has reached oversold levels on two different measures now. Chuck is looking for a bump here, along with one in pound sterling, should the “Olympic host country bump” for the currency hold true.

Chuck Butler
for The Daily Reckoning

Fitch Downgrades Japan originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

Thanks to Chris and Mike for picking up the conn on the Pfennig while I was gone. The crowds that came to listen to me in Las Vegas were HUGE! And the group of EverBankers at the booth was great! Mike H., Dina, Luis, Mike B, Diane, Lauren and Jason! If you came to our booth, you we had you covered!

The old saying that they had on the desk about when I was gone, that the currencies would rally, came to a screeching halt. And that “perfect storm” for the dollar that I talked about at the end of last year is really flexing its muscles now.

I read this weekend that while the euro (EUR) has been quite resilient through all the bailouts of Greece, Portugal and Ireland, hedge funds don’t believe the euro can withstand the exit of Greece, so these hedge funds are blowing out of the euro at warp speed.

And when the euro is getting sold like funnel cakes at a state fair, the rest of the currencies’ chances of rallying are slim and none. Even the Japanese yen (JPY) can’t seem to find terra firma, although it remains strong.

Old faithful, the Chinese renminbi (CNY), is really wishy-washy these days. But remember what I told you a couple of weeks ago about the renminbi: In 2008-09, during the financial meltdown, when investors flocked to the dollar and Treasuries, the Chinese kept the renminbi steady Eddie versus the dollar, I wouldn’t be surprised to see them take that approach now, again.

A reader sent a note and asked me to explain why the Swedish krona (SEK) was performing worse than the euro. It’s unwinding the gains it made when the Riksbank (Sweden’s central bank) was in a rate-hike mood. As I’ve explained in the past, the euro is the Big Dog on the porch. All the other currencies are the little dogs. The little dogs can out run the Big Dog, (outperform) but not unless the Big Dog gets off the porch to chase the dollar down the street — the same holds true for when the dollar chases the Big Dog back to the porch!

I’ve talked about Norway and Sweden being tarred with the same brush as the euro, and that hopefully, one day — and hopefully soon and not far away — traders will realize that Norway and Sweden are not Greece! But until that day, we have this scenario to deal with.

G-8 world leaders met this past weekend, and they have all decided that the best course of action is to promote growth. Hmmm, sounds great! Global growth all around, eh? Ahem, how did they say they would promote this growth? Oh, they didn’t?

Hmmm. Now, that sounds about right for G-8. But to come out and make all these statements about promoting growth without a plan, unless you count more stimulus — that has been about as helpful long term as a broken crutch.

In China, Premier Wen Jiabao, said that more stimulus for his economy was coming, and when Wen speaks, investors listen. You see, China can dictate where the stimulus goes, and this gives them an advantage. We saw this in 2009, how the Chinese economy quickly reacted to the stimulus measures applied by the government and was the first to gain ground, while the rest of the world’s economies were still stuck in the mud and yuck of the financial meltdown.

Wen said that his government will give “more priority to maintaining growth” while continuing “to implement a proactive fiscal policy and a prudent monetary policy.” Sounds like central bank parlance for get ready for a truckload of stimulus.

At least China has the treasure chest from which they can dig into to get this stimulus. What’s the rest of the world going to do? Go deeper into debt? Spend to get out of debt? That’s been the mantra of the U.S., and they’ve finally gotten their message across to the rest of the world!

How many times have we heard U.S. Treasury Secretary Geithner tell the Chinese that they need to be more like the U.S.? Too many is the answer.

How about those U.S. Treasury yields? I bet you didn’t think, like I didn’t think, that they could go lower, but they did! Let’s see how well those low yields hold up this week when the U.S. Treasury has to auction about $99 billion of new bonds/debt this week, starting tomorrow.

And I had quite a few people last week ask me about gold (and silver, of course!). I told them that it was my opinion that gold’s rise from $250 to $1,200 was all about people realizing that gold was a store of wealth, etc. The rise from $1,200 to $1,900 was all about the “anti-dollar trade,” since the dollar has become the darling of investors again. As we saw in 2005, 2008 and 2010, the need for the anti-dollar gets reduced, and thus the price of gold gets reduced.

Sure, a lot of it has been “paper trades.” The price manipulators must be smiling like Cheshire cats. But that’s not all of it, folks. People are hopping off the gold and silver bandwagon as if they just found snakes on it! But I personally will not sell! It’s my personal opinion that these people jumping off the bandwagon are going to be sorry for doing so.

Today we have Fed head Lockhart speaking, and he’s been a proponent of more stimulus for the U.S. economy. Any kind of talk like that should be dollar negative today. But only slightly, as he’s just one voice.

It’s a pretty light week datawise here in the U.S. so the markets will really get to focus on the $99 billion of new Treasuries that will hit the street!

Then last week, Chris was talking about economic reports and how they had all looked a bit better than recent data reports here in the U.S. And I got to thinking: I wonder what John Williams over at Shadowstats.com would say about the economic reports. For years now, I’ve talked about John Williams and Shadowstats.com, but thought that new readers might get a kick out of going to the website and seeing what John Williams says about how the U.S. accounts and reports its data. It’s all lies and videotape!

To recap: The G-8 meeting called for growth… calling all growth, calling all growth! The dollar is in the driver’s seat these days, and that means the currencies and metals are getting sold like funnel cakes at a state fair.

Chuck Butler
for The Daily Reckoning

Hedge Funds Bail On Euro Now originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

That little mini-rally, which a handful of currencies saw yesterday, faded overnight, and those currencies are all back to the levels of Wednesday. UGH! The handful, in case you were wondering, included the Australian dollar (AUD), euro (EUR), Brazilian real (BRL), Norwegian krone (NOK), Swedish krona (SEK), Singapore dollar (SGD) and a couple of others.

Yesterday, we saw the U.S. trade deficit widen from $45.4 billion in March to $51.88 billion in April. It’s not all with China, folks — the majority is with OPEC. Remember, the price of oil in April was well over $100 all month!

We also saw the initial weekly jobless claims, which was flat versus the previous week, at 367,000. The continuing claims remain a problem, folks. I know I talked yesterday about jobs, etc,. and I received a few emails from very disgruntled folks that have been looking for jobs, and don’t believe there are any out there to be found.

That brings me to the thing that I’ve said since 2008 — that a lot of the jobs that were lost were not going to come back, and the jobs that did open up were going to be completely different than what the unemployed person was trained to do. I’m not insensitive to this, folks. I just tried to get it out there a few years ago so that people could begin to make changes.

OK, did you see that the monthly budget statement, which had been a deficit each and every month for so long that I had begun to call it the monthly budget deficit, actually stopped the bleeding in April? The government posted a $59.1 billion surplus in April. WOW!

OK, hold on a minute there. Isn’t April the month that all taxes owed are collected (for the most part, anyway)? The key here is to see where this balance goes the next couple of months. My bet is that it will go right back to the monster deficits that were seen every month prior to April.

Today, we’ll see wholesale inflation (PPI) for April, and the University of Michigan confidence index.

Overnight, we heard that the Greeks were having second thoughts about electing an anti-euro government, and now it appears that the government that will be elected will keep the euro, no questions asked. That’s nice of them! Obviously, calmer, smarter heads prevailed here, because I don’t believe that the Greeks want to see what life is like for them outside of the euro!

Euro traders are kind of lost between two lovers here. They just can’t figure out whether they want Greece to leave or stay.

The Aussie dollar (A$) had climbed back above $1.01 yesterday, but is right back to Wednesday’s level of $1.0050 this morning — losing half a cent overnight. The other day, I talked about the forecast Aussie budget surplus for next year. While that would be great for them, should they achieve that surplus, it won’t really be known if that’s going to be a reality until September.

I also told you, a couple of weeks ago, that I thought bond buyers of Aussie government bonds were behind the resiliency of the A$ in the face of a rate cut. Of course, back then, I thought that the Reserve Bank of Australia (RBA) was going to cut only 25 basis points, and they surprised the markets with a 50 basis point rate cut. That severely inhibited the resiliency of the A$.

And I talked about how it is believed that if Australia does achieve a budget surplus, the supply of Aussie bonds would drop by a large margin. So if that were true, that underpinning that the A$ enjoyed from bond buyers would be damaged. But as I told a small group the other day, “Even if the A$ falls to 95 cents, it’s still a strong currency; just 10 years ago, it was trading around 50 cents.”

As far as today’s prospects for a risk-on day go, I think the chances are slim to none. All the overnight bourses are down, and U.S. stock futures are down.

Everyone is running for the hills after a story in The Wall Street Journal hit the streets last night. According to the WSJ report, “JPMorgan Chase has taken $2 billion in trading losses in the past six weeks and could face an additional $1 billion in second-quarter losses due to market volatility.”

Most of you all know how I would have reacted to this report in “the old days.” So this is your chance to “be like Chuck” and give me your version of what Chuck would have said in the old days. (You don’t really have to send it to me unless you think you have really nailed it!)

I think I’ll talk about silver now (wink, wink). Did you see that China had introduced silver futures contracts that will trade in renminbi/yuan (CNY) on the Shanghai Futures Exchange? The contracts will not be allowed to fluctuate more than 7% per day. I have to wonder how the Chinese are going to take seeing the price of silver brought down in after-hours trading.

And did you know that China is now the world’s leading producer of silver? No, it’s not Mexico, and no it’s not Peru. It’s China. And that’s good because China is the world’s second leading consumer of silver, behind the U.S.

Have you been following the news on Scotland contemplating leaving the U.K.? That would be a HUGE blow to the U.K., not only prestigewise, but monetarily. Scotland’s economy is second in contribution to the U.K. economy, coming behind the southeast part of England.

The pound sterling, which has defied gravity recently, is beginning to feel the weight of doing a double dip in the recession pool, and everything else that’s going on badly there. Like this morning, they reported that March construction output was very disappointing, which points to a downward revision to first-quarter GDP, which already showed that the U.K. economy was going for a double dip.

Gold enjoyed a day in the sun yesterday, but it’s raining on the shiny metal again this morning. It seems that we’ve returned to the days around 2008 and early 2009, where the dollar is rewarded with bad data. Dollar bugs will tell you that this is how it should be, as the only true safe haven is the U.S. dollar and Treasuries. I want to hit these dollar bugs over the head with a gold bar! Maybe then they would find the true safe haven!

Speaking of gold, I did some math about a year ago and ran it here, and with all the talk about the U.S. paying off its debts by selling its gold holdings, I thought it best to pull this back out:

There are 5,046 tons of gold at Fort Knox
There are 7,716 tons of gold at the N.Y. Fed
Total = 12,762 tons.

There are 32,000 ounces in a ton
12,762 tons x 32,000 = 408,384,000

Price of gold is $1,590
408,384,000 x $1,590 = $649,330,560,000

Sorry, but $650 billion doesn’t pay for even the stimulus that was thrown at us a couple of years ago! But if the price of gold were to be pushed up to let’s say $5,000, then we would be talking about making some inroads to the debt! And if the price were pushed to $10,000, then we’re getting somewhere. But we would still be left with a very large national debt.

You see that’s the problem with deficit spending. At some point, the numbers become so HUGE that you can’t make a difference in total unless you come in with both guns blazing! And then keep those guns blazing! Doing one-off corrections are only chinks in the armor.

For longtime readers, do you remember a few years ago when I tried to show the knuckleheads at CNBC that the markets were being manipulated in the after-hours trading and they laughed and told me to take the story to Hollywood? Well, CNBC has come a long way, I guess, for they allowed Eric Sprott to talk freely about manipulation the other day. Of course, maybe not that long a way, as I wanted to include the link to the video here, but it’s not working. And the folks at CNBC did attempt to ridicule him. But he would have none of it!

Maybe CNBC will have it fixed later. Just Google Eric Sprott at CNBC and look for the most-recent video.

Anyway, Eric Sprott, Ted Butler and others, including me, have done our best to inform the public of what’s going on. Maybe one day, We the People will get the message and exercise our right to contact our representatives and discuss this with them.

Then I saw this on Reuters:

“Financial advisers increasingly warn that U.S. Treasury bonds are close to a bubble and suggest that clients look elsewhere for stable and safe returns. Alternatives recommended include investment-grade corporate and emerging-market bonds, master limited partnerships and preferred stocks.”

I liked that they had finally come around to noticing the Treasury bubble, but nowhere on their list of alternatives do I see gold.

To recap: The mini-rally in a handful of currencies yesterday was wiped out in the overnight markets. And the currencies and gold are back to Wednesday’s levels. The Greeks agree to elect a government that keeps Greece in the euro. The U.S. posted a monthly surplus for the first time a very long time in April, but tax collections are made in April, so one would think that if they can’t book a surplus in April, when can they? And JP Morgan has really thrown a spanner in the works for a risk-on day with their after-market announcement yesterday.

Chuck Butler
for The Daily Reckoning

US Posts Monthly Budget Surplus! originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

I don’t know what the markets mean when they flock to dollars and yen (JPY), the two big dogs when it comes to debt creation. But it is what it is, so we carry on, and look for other things that make sense!

Like the Chinese buying eurozone government debt. I explained this all previously, but for those of you new to class, the eurozone is China’s largest export destination. Did that surprise you? I bet you thought it was the U.S. But no, it’s the eurozone.

China is making progress with its attempt to switch from being a country that depends wholly on exports to drive its economic growth, to one that shares the load of driving the economy with domestic demand, but they aren’t there just yet, and therefore, exports remain very, very important to the Chinese. Therefore, they cannot afford to lose their biggest customer.

And this is part of the plan, folks (China’s plan to replace the dollar standard). The Chinese have become the world’s financier, taking that away from the U.S., and they have also made big inroads to removing the dollar as the settlement mechanism — in terms of trade — by signing currency swap agreements with a boatload of countries.

These currency swap agreements allow China and the country with whom they are trading to exchange each other’s currencies and not use dollars, as the way it was done since the end of World War II.

Last year, I told you that the New York branch of the Bank of China had begun allowing deposit accounts in CNH, the new, deliverable Chinese currency. The account size is limited, but the idea of deposits was what stirred the drink, folks.

Now there’s word that the U.S. Fed had approved an application by ICBC (Industrial and Commercial Bank of China) to acquire retail bank branches in the U.S.  ICBC will pay $140 million to buy an 80% piece in Bank of East Asia USA.

People that should know better are not making a big deal of this, and saying things like, “This is too small to be concerned with,” and so on. But it’s a foot in the door, folks.

And just another baby step for China to remove the dollar as the reserve currency of the world.

OK, after going through all that, I see a news story go across the screen that says “China’s Sovereign Wealth Fund (SWF) Stops Purchasing European Sovereign Debt.” Let me try to break this down (and let this be a warning to the U.S.).

Obviously, China has bought enough European sovereign debt (ESD) to fill their desires. If The Chinese SWF can back away from its biggest customer, then it should have no problem backing away from its second-biggest customer (the U.S.).   I think that China will attempt to invest in Europe to help keep the ship afloat — they just won’t make a big deal of it.

OK, I didn’t mean for this Thursday Pfennig to carry on about China for the whole letter. So I’ll stop there, and return to our regularly scheduled programs.

The dollar’s mighty hammer stopped swinging so wildly yesterday, and in the overnight markets, we’re actually seeing a handful of currencies that are attempting to gain back some lost ground to the dollar in the trading days since last Friday’s jobs jamboree disaster.

The Norges Bank, Norway’s central bank, is meeting as my fat fingers fly across the keyboard. I don’t think the Norges Bank is going to cut rates today, so it will be interesting to hear what the Norges Bank has to say.

You see, right now, I’m not a fan of the Norges Bank, when normally I am a fan. What has soured my taste right now is the fact that the Norwegian economy and fundamentals are calling for higher interest rates.

But the Norges Bank has been struggling with a strong krone (NOK) (to the euro (EUR)) for some time now, and a rate hike would only make their struggle more difficult. But in Chuck’s world of “when I’m the head of a central bank,” I wouldn’t let those kinds of things bother me — especially if I were head of Norway’s central bank. They have oil revenue coming out of their ears, they have to offset the inflationary problems that oil revenues bring and they can do that with a combination of a strong currency and appropriate interest rate levels.

I see where global investors have given Fed Chairman Big Ben Bernanke a 75% approval rating. Of course they did! Big Ben has been responsible for keeping the stock market ship out to sea with his quantitative easing, and ZIRP (zero interest rate policy). Of course, with this highest rating for the Fed chairman comes the EXPECTATION that he take further action this year to accelerate a revival in U.S. financial markets.

I wonder what these people will say in a few years when we see the unintended consequences of Big Ben’s policies. I doubt they give him a 75% approval rating then, but on the other hand, maybe they will, for we could be talking about QE4 or QE5 or QE10!

The price of oil seems to have found a bid at $96, as it has held that figure for three consecutive days now. The petrol currencies of Norway, Canada, Russia, Brazil, the U.K. and even Mexico will breathe a sigh of relief if $96 is the bottom for this sell-off.

While I like seeing the price of oil lower, I know in my heart of hearts that this sell-off was overdone. You see, it all started with the Jobs Jamboree disaster last week, and has continued until reaching $96. That’s a fall of $8 in a week. Talk about overdone!

Gold had a very interesting day, as the price dropped, recovered, dropped, recovered and finally gained a bit. When I see this happening, I think that the “price manipulators” are being matched by the Chinese and Indians taking advantage of the cheaper price. And talk about a sell-off being overdone! But when the “price manipulators” smell blood, they attack, and attack they did this past week. I would love to give these “price manipulators” my version of Jackie Gleason on The Honeymooners. One of these days, price manipulators, to the moon!

The eurozone has approved the next scheduled payment to Greece. There was some thought going around yesterday that eurozone leaders would hold up the payment, as penalty to the Greeks for attempting to elect an “anti-euro” government. Of course, that government didn’t have enough seats and couldn’t put together a coalition that worked, so it dissolved, and the Greeks will have to vote again.

There are renewed calls for Greece to leave the euro. I still don’t think that will happen, as the problems for Greece would multiply, not be reduced, by leaving the euro and going back to the drachma. But hey, that’s never stopped leaders of a country from doing stupid things before!

I would think the euro would be better off without the baggage in the long run.

The Swiss franc (CHF) continues to be strong. Not as strong as a year ago, but strong, nevertheless. And that’s killing the Swiss National Bank (SNB). The cross to the euro remains stuck at around 1.2015 — spittin’ distance to the floor set by the SNB last September. I’m surprised that the markets haven’t tested the SNB’s resolve here. But they haven’t, so life goes on in Switzerland.

The Bank of England (BOE) just ended their meeting today and left rates unchanged. No surprise there — what can they do? They’ve cut rate to the bone, they’ve increased their version of QE/ bond buying… yet the economy does a double dip in the recession pool..

I told a small group of people yesterday that just like the euro and dollar are an ugly contest, so too is the British pound sterling (GBP) and the euro. And here, the euro loses. But really? Investors think that things in the U.K. look better than in the eurozone? Really? Maybe they are, but I sure would be looking elsewhere in Europe. (Remember, Norway, Sweden, Switzerland, Poland, Hungary and the Czech Republic don’t use the euro!)

Then one of my fave reads on Bloomberg is the author and columnist Caroline Baum. She always makes sense to me, and you don’t find many writers on economics that do that! Her latest column on Bloomberg is about the labor picture here in the U.S., titled “Government’s Snake Oil Won’t Cure Jobs Ailment.”

In the column, Ms. Baum talks about how the jobs problem could be structural. “What if the Fed, through all its efforts, can’t buy more employment? What if unemployment is structural, with an inadequately trained workforce or labor immobility preventing employers and job seekers from hooking up? Signs are pointing in that direction.”

She goes on to say: “Structural unemployment, like the nation’s other fundamental deficits, is a tough challenge for policymakers all around. Jobs are a big issue in the presidential election. No elected official wants to see the public suffer, financially or emotionally, from being unemployed. There a strong desire to do something even if nothing is the lesser of two evils.

“On the fiscal front, attempts to correct long-term structural imbalances with short-term tax-and spending are doomed. Cyclical medicine leaves the patient with more debt and the same old ailments.

“What happens if the monetary authority misdiagnoses the cause of high unemployment and uses its usual tool, the printing press, as a cure? For the same money, the Fed will buy itself more inflation and less growth. That’s the sort of jolt the economy can do without.”

As I’ve said since the financial meltdown and the jobs problem began, that a lot of those jobs were not going to return. It appears that I hit that one bang on.

To recap: A few of the currencies are showing some life this morning, while the majority are still under the spell of the dollar and the flight to safety that began after the Jobs Jamboree disaster last week. China gets approval to buy a U.S. bank. Another baby step, folks. The Norges Bank meets today and will probably follow the lead of the Bank of England and leave rates unchanged. And we have a special treat with a snippet of a column by Caroline Baum!

Chuck Butler
for The Daily Reckoning

China Stops Buying Eurozone Debt originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

The currencies, metals, commodities and stocks are all on the run from the dollar this morning, all while people like Pimco’s Bill Gross and Jan Hatzius at Goldman Sachs are telling their customers to prepare for QE3, to combat a slowing U.S. economy.

Now, I don’t believe these two think QE3 is the answer that the Fed heads believe it is; I think they are simply doing what I’ve said all along, and that is telling people what we see. And with the Fed heads showing that they are bound and determined to keep the stimulus machine well oiled, they will once again feel that “they SHOULD do something.”

However, even though the thought of QE3 might be shared by a few, the rest of the market participants haven’t gotten the memo yet. The dollar is swinging a mighty hammer, and the risk takers, as I said yesterday, have all headed for higher ground. It’s a messy scene on the currency screens I have in front of me. The Japanese yen (JPY) is the only currency gaining versus the dollar this morning.

And for those of you new to class, QE is quantitative easing, and QE3 would be the third round of QE that the Fed heads implement. Now, I was told by someone that says he has friends in high places that the Fed will never call their next round of bond buying or monetizing the debt or — when you get right down to it — money printing. QE has become persona non gratis. So while we all know what they’re doing, they won’t call it QE.

And again, for those of you new to class, or a refresher for everyone else, the first two rounds of QE brought about higher stock prices, and a lower dollar against currencies and metals. So that’s why I say the dollar is rallying in the face of these comments from big-time analysts that QE3 is coming. Seems a little strange to me, how about you?

You know, while I believe that the Chinese will continue with their slow, general appreciation of the renminbi (CNY), I am having thoughts about 2008, when we saw the front of the storm. The Chinese basically held the renminbi steady until June 2010, when they announced that they would return to a general appreciation of the renminbi. Will the Chinese do that again, or have they already begun to go down in their bunker?

I ask this because the renminbi hasn’t posted a gain in over a week! Yes, we’ve seen this before, but given what I think is going on in the U.S. economy, and how badly the eurozone has stepped in the dookie, I can’t seem to get the thought that it could be 2008 all over again for the Chinese.

But let’s see, from August 2008 to June 2010, the renminbi remained steady Eddie versus the dollar, while 99% of the currencies lost ground to the dollar as a safe haven. So if that were to happen again, at least you have the potential opportunity to hold a currency that keeps your investment portfolio diversified with an allocation of an asset class that’s not dollar denominated, that holds its value in the face of dollar strength. I say “potential” because I don’t know any more than you do if this is will happen. It’s just my opinion, and I could be wrong!

So here’s the rundown this morning. The euro (EUR) has fallen below 1.30, as Greece can’t form a government and the Greeks will have to go back to the election booths. The Australian dollar (AUD) is still above parity, but is losing ground quickly, as Aussie Prime Minister Julia Gillard threw the A$ under the bus again by saying that the forecast for a budget surplus next year will allow for more interest rate cuts.

I have to stop for a minute here to say that I just don’t buy the Greek thing as the driver for further euro weakness. Initial weakness, yes… further weakness, no. It’s as if the markets are using it as an excuse to drive the euro down. Because the Greek election thing is what it is. And yes, it presents an “unknown,” which I’ve explained to you over the year that currency traders don’t like “unknowns.” But this “unknown” is more like a tempest in a teacup, for not having a Greek government doesn’t stop the eurozone as a whole from functioning.

Back to the blood in the streets — I mean the currencies and metals. Yesterday at one point, gold was down $40. It’s down another $15 this morning. Sure, go ahead and sell your gold — get that price down so that I can buy more at a cheaper price! The selling of gold, by some entity — either investors, hedge funds or governments — isn’t stopping the Chinese from buying more gold. Get this: Chinese gold imports from Hong Kong in the first quarter of 2012 (this year!) totaled 135.5 metric tons. In 2011, the first-quarter total was 19.7 metric tons!

I’ve told you all quite a few times previous to this, but here goes. I truly believe that the Chinese are buying all this gold so that when they finally allow their currency to be backed by gold, in some percentage — it may not be 100%, but 25% — backing of gold, would, in my opinion, make the renminbi the most attractive currency in the world.

The Canadian dollar/loonie (CAD) lost its grip on parity to the U.S. dollar yesterday. I think traders have given up their hope on all the lathering up they got from Bank of Canada (BOC) Gov. Carney that interest rates would rise sooner than later. Canada saw some strong housing data yesterday that briefly provided a speed bump to the decline in the loonie, but eventually, the pull down from the U.S. dollar strength proved to be too much for housing data to offset.

But in case you’re keeping score at home, Canadian housing starts increased 14% in April, and like the U.S., the driver for housing starts is the multiple-family units.

The U.S. data cupboard is basically empty again today. Yesterday didn’t work out too well for the risk assets without data.

I saw this blip yesterday and it struck me as something that is important. The Federal Reserve said borrowing by U.S. consumers rose in March for the seventh month in a row. Total borrowing increased $21.4 billion, the biggest jump since November 2001.

Hmmm, very interesting, don’t you think? And they say that you can’t get a loan? Seems like we’re heading right back to where we were prior to 2008. But then, that’s just me, I guess.

Then this was sent to me by Scott Pluschau, from The New York Times. Here are the requirements to receive principal reduction on home loans at BOA:

“To be eligible for the principal reductions, homeowners will have to meet certain criteria, including: having a loan owned or serviced by Bank of America, owing more on the mortgage than their property is worth, and being at least 60 days behind on payments as of the end of January.”

OK, what do I get for continuing to honor the contract I signed with my lender? What kind of principal reduction do I receive for being good and continuing to pay on time? Have we really become a country of wimps? Take the easy way out? And what about BOA? Not that I have a problem with them, but what about giving these people some encouragement for making payments? Instead, we just give everyone the easy way out? I shake my head in disbelief of what has come of this.

To recap: The dollar is swinging a mighty hammer in the face of top analysts calling for QE3 to be coming soon. Gold has really gotten whacked the past two days. China has slowed down their general appreciation of the renminbi. Is this 2008 again? U.S. consumers are borrowing at rates that haven’t been seen since 2001. Does that bother you like it does Chuck?

Chuck Butler
for The Daily Reckoning

Bill Gross and Others Call for QE3 originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

Both of these elections couldn’t have gone any worse for the euro. France’s new leader, Francois Hollande, ran on an anti-austerity platform, and for now, that will carry a lot of weight with traders and investors as far as wanting to take on euro exposure. Of course, history tells us that eventually Hollande will see things along with the Germans. But maybe, and here’s that phrase I dislike, “this time’s different.”

Greece still hasn’t formed a government, so talk about a screwed-up country! Sorry, I don’t mean to insult anyone that’s Greek, but come on, the country had a government that was doing the right things, bringing their excessive deficit spending down, but the pain apparently was too much for the citizens. I’ve got news for them: That pain was nothing compared with being bounced out of the euro!

With the Big Dog (euro) getting hung out on a line, the footing for the currencies has been very slippery. And with the proxy for global growth, Australia — seeing their central bank debase the Australian dollar (AUD) — the rest of the commodity currencies are also in search of terra firma.

Gold and silver have really seen heavy selling, but by whom? We’re not seeing it here on our metals desk, but we’re not a “bullion bank” or big-swinging metals dealer, so maybe they’re seeing something different.

U.S. stocks are getting their due, too, dropping four days of the last five. This has people running to U.S. Treasuries again. Oh, by the way, the U.S. Treasury will auction $72 billion worth of new Treasuries this week. The U.S. government is doing their best to provide job security for the Treasury people. In the first six months of our fiscal year 2012, the U.S. government has spent $1.84 trillion.

For comparison of numbers purpose only, for the entire year of 2001, the U.S. government spent $1.86 trillion, which happened to be an all-time record at that time! But this current group will double that all-time record of 2001 this year.

Speaking of 2001, I gave a presentation this past weekend to a group of people who had no idea who I was! Give or take a couple of current Pfennig readers, it was a new group that would hear things they hadn’t heard before. A lot of them signed up to read the Pfennig, so welcome to you!

The thing I was going to talk about, though, was I showed them the U.S. Debt Clock of 2001, when our national debt was $5.7 trillion, and then showed them the Debt Clock, circa 2012: $15.7 trillion! The U.S. government has increased the national debt by $6.7 trillion in the last five years, but the previous five years weren’t exactly good, as the debt increased $3.3 trillion.

I also told them that in 2001, Chuck had more hair, less weight and few believers.

OK, I’ve got to go on to something else before I explode here and begin throwing things! How could we as a country allow our leaders to do this to us, our kids and grandkids?

But right now, everyone wants to take pot shots at the eurozone debt crisis, and not pay any attention to the U.S. debt crisis. Look, the eurozone, as a whole, and the U.S. each contributed about 20% to the global GDP last year, so it’s not like we’re comparing apples to oranges here. Both of these problems are nothing to ignore.

The brightest shining star of the eurozone, Germany, saw their industrial output jump 2.8% in March from February, which was three times the consensus forecast. And February’s -1.3% decline was revised upward to finish at -0.3% — much better — and suggests to me that Germany probably skirted by the recession gauntlet.

It looks like Australia is going to turn their modest budget deficit of $44 billion into a budget surplus next year. And with that news, the Aussie also announced that bond sales would decrease by 80%!

Remember when I told you that I had the feeling that Australia was becoming the new Switzerland? Well, if they can pull this off at a time when a lot of countries are finding it difficult to live within their means, then a big feather will be in their cap! And think about this: Reducing their bond sales will make the rest of the outstanding issues more valuable. Or at least that’s what I learned from the guy that taught me all about bonds, my friend, Ed Bonawitz.

Now Australia’s kissin’ cousin across the Tasman, New Zealand, is going in the opposite direction with their Budget. The New Zealand budget deficit widened in the nine months through March, to NZ$787 million. Of course, NZ$787 million isn’t exactly $1.2 trillion, but New Zealand is much smaller than the U.S. So that goes back to my thought on comparing the U.S. to the eurozone.

The New Zealand dollar/kiwi (NZD) has really shown some weakness lately, as it no longer can cling to the coattails of the Australian dollar. And now this budget deficit isn’t going to sit well with traders.

But hey! The Japanese yen (JPY) is securely back on the rally tracks! See how mixed-up the investing world is these days? Japan’s debt is beyond the atmosphere, the U.S.’ debt is up to its eyeballs but investors seek out these two when the risk takers head for the hills.

The Chinese renminbi (CNY) has been bouncing back and forth in a very tight range lately. Today, the renminbi is a bit weaker, but that’s a tiny move in the renminbi world. A week has gone by since the U.S. Treasury Secretary Geithner was in China to urge them to do things more like the U.S. Hopefully, the Chinese will continue to ignore the calls by the U.S. to do things more like them.

Years ago, when it was fashionable to kick the Chinese for our trade deficit, when all they did was sell us stuff that we ended up buying. I told you all that the currency level of the renminbi was not going to correct our trade deficit. Our financial meltdown took that task on and reduced it by a large amount, but the trade deficit remains a problem. Why? Oil. Go ask the OPEC members how many dollars they have in reserve from their oil sales.

Why doesn’t the U.S. Treasury secretary sit down with the OPEC members and see if he can get them to change the way they do things? He’s tried it with China on numerous occasions.

I don’t mean to kick sand in the Treasury secretary’s face. I’ve talked enough about his past at the New York Fed before and after the financial meltdown that I won’t bore you with repeating all that.

The Singapore dollar (SGD) continues to remain strong. The Monetary Authority of Singapore (MAS) gave the wink and nod for further S$ strength, so when the Chinese renminbi decides to stop trading in a range and get back on the rally tracks, the S$ will follow along.

I see the British pound sterling (pound) continues to surprise me with its strength. Remember, I told you that the U.K. had gone for a double-dip recession. The Bank of England (BOE) had decided to add to their bond buying (stimulus). But the pound hangs tough. I guess right now it’s good to not be the euro.

The U.S. data cupboard is pretty empty today, so there’s nothing to look for to drive the markets this morning. I guess they are on their own!

Then, in keeping with what I talked about above, regarding history with French and German leaders, German Chancellor Angela Merkel told reporters ahead of a meeting that she’ll have with France’s new leader, Francois Hollande, that the fiscal pact is not up for renegotiation (from AFP):

“Merkel said Hollande would visit the German capital shortly after his inauguration as president, expected to take place on May 15, without giving a date for the much-awaited meeting.”

“The German chancellor irked Hollande by openly campaigning for his rival, Nicolas Sarkozy, who comes from the same conservative political family as Merkel.

“During the campaign, Hollande won few friends in Berlin by criticizing Merkel’s insistence on austerity as the way out of the eurozone debt crisis, seeking to shift the focus to growth.

“But Merkel told reporters that both budgetary consolidation as well as growth was necessary in Europe and reiterated that the EU’s fiscal pact — aimed at reducing ballooning deficits — was not up for discussion.”

This is not what the euro needs right now — or the eurozone, for that matter! They need a united front to implement austerity measures to get deficit spending under control.

To recap: The risk takers have all headed for the hills. Stocks, currencies, commodities including gold, silver and oil, are all down. And U.S. Treasury yields are falling again. German industrial output was very strong in March, and February’s number was revised upward, thus suggesting that Germany will not go into recession. Australia announced that they will have a budget surplus next year and reduce bond issuance by 80%! And the Japanese yen continues to run alongside the dollar.

Chuck Butler
for The Daily Reckoning

Elections Throw Euro Under a Bus originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".

I’m going to get back to the price of oil in a bit here, but first, the currencies. They are still stuck in that rut we talked about yesterday — the underlying bias remains to buy dollars right now, but the bias is very weak folks, very weak.

It is a Jobs Jamboree Friday, and right now, the “experts” are saying that the Bureau of Labor Statistics (BLS) will show that 160,000 jobs were created in April. That’s quite a bit more than the ADP report showed us the day before (117,000), and looks pretty suspect when you also factor in the Challenger job cuts that printed yesterday and showed an 11% gain year on year for April.

The markets have recently kind of gone back to the old way of valuing the dollar with outcome of the jobs jamboree, which would mean 160,000 jobs created is not that good. Sure, it’s better than the 120,000 jobs that were allegedly created in March. But at this rate, jobs aren’t even keeping up with the population. Remember, I told you long ago that about 250,000 jobs need to be created on a monthly basis to fuel a recovering economy — 160,000 is not 250,000.

But the markets will get lathered up a bit, should the report print around 160,000, and the knuckleheads that see it as good will mark up the dollar. The calmer heads that see it for what it is will not mark up the dollar. At the end of the day, we’ll see who won.

Basically, I see it like this. We all know the BLS “adjusts” the numbers to look better than they are, but take the BLS number as it is — for that’s what the markets do — and look at it this morning with this in mind: A strong number for April would wipe out the negativity that surrounded the March weak number of 120,000 and prove that it was only a bump in the road, thus removing thoughts about QE3.

But if the number is weak, making two consecutive months of weak reports, the calls for QE3 will be deafening, and that would be dollar negative, and gold positive.

Of course, if the number of jobs created per the BLS is strong, that would be dollar positive.

The euro (EUR) is also being held hostage this morning, as Europe heads into the weekend with two major elections to take place. France will choose a new president, probably Hollande, who is not Sarkozy and not a fan of the great plan for the eurozone. Greece will vote in a new government. Then in minor elections, both Germany and Italy will have regional elections.

Everyone knows what to expect from Hollande, so his win, while not good for the euro, won’t hurt it too much, as a Hollande victory has already been priced into the euro. The Greece government election is a real wild card, and is putting the most pressure on the euro this morning. My thought is that this will turn out to be a tempest in a teapot.

The fun just keeps coming for the Australian dollar (AUD)… NOT! First, the Reserve Bank of Australia (RBA) delivered a powerful blow to the midsection of the A$ by cutting rates 50 basis points, when 25 basis points were expected, and now the RBA has moved up the A$’s body and is slapping it in the face. The RBA lowered its growth forecasts across the forecast horizon, which is central bank parlance for as far as we can see, economic growth will be weaker…

So make a notation right here, right now, that the RBA is going to cut rates another 50 basis points (1/2%) later this year…

Gold is selling off again. This morning, the shiny metal is down $5. I did an interview with Dow Jones yesterday and I talked a lot about gold and how I truly believe that the push down that we’ve seen in the price of gold has been government orchestrated, going back to the WikiLeaks cable I told you about. The U.S. can’t have everyone replacing dollars with gold. It’s that simple, folks. And one day, sons and daughters, you will find out the truth, and you’ll be able to tell your grandkids that you knew the guy that first talked about that.

And the price of oil might have slipped some this week, but it hasn’t stopped Norway from posting some very impressive profit numbers this year. Norway, the world’s seventh-largest oil exporter, will probably raise its oil price estimate by 13% when it publishes its budget on May 15.

I promised that I would get back to the price of oil. Let me set this up. Twice this week, I talked about the call that was made at the Casey conference for $40 oil in the next year. And while I believe as a country we should be able to achieve that, I believed that the government, the EPA and other things would be stumbling blocks.

I saw this last night in The Wall Street Journal: “The Obama administration will soon issue new environmental-safety rules hydraulic fracturing on federal land, setting a new standard that natural gas wells on all lands eventually could follow.

“The rules, which are likely to be unveiled by the Interior Department within days, are designed to address concerns that the method of extracting natural gas known as ‘fracking’ can contaminate groundwater. Among other things, they create new guidelines for constructing wells and treating waste water, according to a draft of the proposed rules reviewed by The Wall Street Journal.”

Chuck again. So see, the government’s hand is already entering the oil cookie jar.

Then from The Daily Reckoning, my friend, the one and only Bill Bonner:

“In Europe, the following countries are now in recession:

Slovenia
Italy
Czech Republic
Ireland
Greece
Denmark
Portugal
Netherlands
Belgium
U.K.
Spain

“In America, the last reported GDP results were positive. But take out inventory buildups and the growth rate was only 1.6%. Not very exciting. Almost every report in the financial press said the results were ‘disappointing.’ But why would they be disappointed? Don’t they know we’re in a Great Correction? They’re lucky there was any growth at all. And if you took out all the stimulus spending, ZIRP, LTRO, TARP, QE 1, QE 2, Operation Twist and all the increases in disability…and other transfer payments…

“…what do you have?

“Most likely, you’d be in the same situation as the U.K., Spain and all the other recessed economies.”

Chuck again… no one can say it like Bill does…

To recap: It’s a Jobs Jamboree Friday, and the currencies’ near-term direction could very well come from the outcome of the jobs data. The currencies this morning remain in a rut, with a weak bias to buy dollars. The euro is being held hostage by elections that will take place this weekend in the eurozone. And gold continues to be pushed down, but by whom?

Chuck Butler
for The Daily Reckoning

Euro Held Hostage By Elections originally appeared in the Daily Reckoning. The Daily Reckoning, published by Agora Financial provides over 400,000 global readers economic news, market analysis, and contrarian investment ideas. Recently Agora Financial released a video titled "What Causes Gas Price to Increase?".