So, when I arrived here this morning, I had one thing on the top of my list of things to do, and that was to find out what happened… Come on, I said to myself, it had to be more than the “risk on, risk off” stuff that’s been hanging over the markets like the Sword of Damocles! But, when you get right down to the nitty gritty, that’s all it was… For once again, there was some data, or story, or rumor, that spooked the markets into believing the global recovery isn’t going to happen, and the “risk off” came into play.

So what was it that spooked the markets… Well… The only thing I can find was the report yesterday about falling Housing Starts that Chris told you about… Did you know that about 14% of US homeowners were either delinquent on their mortgage or in some stage of foreclosure? That is the highest rate since the group started collecting the data in 1972!

But there was something else that was announced as the day went on, that I think probably spooked the markets more than anything else… And that is a key House panel approved two amendments to a sweeping financial-overhaul bill that would give federal watchdogs new authority to audit the Federal Reserve, and would establish a fund of as much as $200 billion to help dissolve large, troubled institutions. Rep. Ron Paul (R., Texas) offered the amendment seeking to subject the Fed to audits.

The House Financial Services Committee voted 41-28 to approve the amendments, wrapping up weeks of debate but postponing a final vote on the bill until after Thanksgiving.

OK… More deficit spending for sure, and I’m positive that this was “hung on this bill” to audit the Fed as the only way it would get through the gauntlet.

Why would this bill “spook the markets?” Ahhh grasshopper… To audit the cartel, is a step toward getting a peek behind the curtain, and that’s scary, folks… But it’s what is needed! And so I applaud the panel’s vote… (Too bad they had to hang that $200 billion deficit spending package onto this, but that’s how the dolts in DC work…)

So… When things get spooky, traders crawl back into the dollar’s corner… And when traders crawl back into the dollar’s corner, the currencies that have booked the best performances against the dollar, see their fortunes reversed the most… So… In this case, it’s the Aussie dollar (AUD), New Zealand dollar (NZD), Norwegian krone (NOK), and Brazilian real (BRL)… These three will most likely put a losing week into the books, which hasn’t happened very often during this rally that began in March. I say “most likely” because we’ve seen swings in these currencies that could easily wipe out these weekly losses in a NY minute! But with today’s data cupboard as empty as my stomach feels, right now… I doubt we’ll see any “swings” to bring these currencies to the positive side of the ledger this week!

The Weekly Initial Jobless Claims here in the US printed yesterday at 505,000, same as the week before… I heard one airhead TV commentator say that at 505,000, it shows that employment is on the mend… Ahem… Did you do the math? That’s over 2 million new jobless people per month!

Yes, I know it doesn’t net out the jobs that were created… I’m strictly talking about jobs that are lost on a weekly basis… You can’t in your wildest dreams think that we’re creating more than 2 million jobs a month during a depression!

So… That data wasn’t good for the “recovery campers”.

I was writing some notes for my latest video on Wednesday, and noted that Japanese yen (JPY), gets the best of “risk on, risk off” trading. For some strange reason – and yes, I’m well aware that Japan is the second largest economy in the world – Japanese yen is considered a “safe haven” when the “risk off” is in play… And when the “risk on” is in play, spanking the dollar, Japanese yen doesn’t sell-off!

Now… I’m not a HUGE fan of Japan, as their government deficit is tremendous in size, rivaling the doubled in size national debt of the United States. And I personally feel that the yen at 88 and change is bumping the ceiling… But, the markets can be irrational, right? And with yen, they are really irrational!

Hey! Did you see that there’s pressure on US Treasury Secretary Tim Geithner to resign? Personally, I don’t know that he’s done any worse than Hank Paulson… But then, is that what we’ve come to accept? Bad leadership? I’ve said this before, and I know it really gets under some people’s skin… But, besides the national deficit and the trade deficit, we have a leadership deficit… I’m talking about the lawmakers, the Fed Chairman, and Treasury Secretary… I guess the administration should be thrown in there, as well.

The European Central Bank’s President, Trichet, and the Swiss National Bank’s Governor Roth, both spoke last night, and neither referred to the currencies in any way; but Trichet did add to the “risk off” mood of the markets by saying, “it is too early, as of today, to declare the crisis is over.” The People’s Bank of China’s Governor, Zhou, said that China was “passive on the direction of the dollar”… Hmmm… I have to wonder if he was truly speaking from the heart there, or just stating that to keep the dollar from falling into an abyss.

You know about the stock sell-off that I’ve been warning you about for a couple of months now, that could very well drag the currencies and commodities along for the ride? Well… I know that you all think that I’m playing the boy who cried wolf, here… But, recent trading days have me worried a bit about this taking baby steps right now.

My trader/chartist friend sent me a note and told me to watch the Aussie, for it is very close to its 9-month trend line support of 0.9093 (it’s currently at 0.9110), for should it close below that number it would signal (according to him!) a correction to 88-cents. Not a huge drop, but it’s not like these charts can pinpoint a level that a currency will turn around… Or maybe they can! I’m lost when it comes to charts… I look at them and unless they are as obvious as a man with a hatchet in his head (like the US dollar chart since 1971) then I could make a case for an asset that’s being charted to go either way!

That’s why charts are not “fundamentals”… Fundamentals are what put an asset into a trend, either weak or strong, and charts tell you what happened in that trend.

And then there was this… According to The Wall Street Journal, “Some of Goldman’s largest shareholders have urged the firm to reduce the size of its bonus pool, arguing that it should pass along more of its blockbuster earnings to investors. The investors hold tens of millions of shares in the Wall Street firm, which is on track to make the biggest employee payout in its 140-year history.”

Where have these “largest shareholders” been all these years? Why make a big deal about this now? Oh, that’s right! The government has made it look “dirty” to give bonuses.

Oh… And I heard that the Senate’s version of the Health Care Bill would cost $849 billion… Just keep spending money we don’t have, Congress… I’m reminded of a saying by Voltaire… “Common Sense is not so Common.”

To recap… The “risk off” wax is being applied by Mr. Myagi again this morning, as the non-dollar currencies, other than yen, have given back recent gains versus the dollar. The “audit the Fed” bill has been pushed through the gauntlet for a vote after Thanksgiving. The Aussie dollar is near its 9-month trend level, and shareholders want “some of the action”!

“Audit the Fed” Bill Moves Along originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Someone asked me yesterday a question about the euro… He said, “Chuck, I know you like the euro, but couldn’t the Aussie dollar (AUD) be a better choice going forward?” And I answered like this… The euro is the offset currency to the dollar… But that doesn’t mean it is the best performer when the dollar moves down. The Aussie dollar has outperformed the euro since 2002, and will probably continue outperform the euro… But so has the Norwegian krone (NOK), and the New Zealand dollar (NZD), and the South African rand (ZAR), and the Canadian dollar (CAD)… Hmmm… Does that list ring a bell?

Why, yes, Chuck, it does! For these are all “commodity currencies”… You’ve gotta love ’em!

Countries that have “stuff” to sell to other countries, that either don’t have the “stuff” or are too lazy to deal with it!

Well, you had a one day window to buy gold cheaper, for the overnight sessions has the shiny metal hitting on all cylinders, and soaring once again to $1,148! Don’t you just hate those one-day windows? I mean, you wanted to pull the trigger and buy, but thought, what if gold drops more today, that would mean I could buy it cheaper tomorrow… Don’t be fooled! It’s like this, folks… If you want to buy something, buy it! Trying to time a purchase will leave you sitting on the sidelines with a baseball cap turned backward on your head and holding a clipboard!

OK… Remember when I questioned the current administration’s claims that instead of “creating jobs” they were “saving jobs”? I pointed out that claiming that jobs were saved would be difficult to prove… Well, guess what? Proving that the jobs saved don’t exist has been pretty easy… And the people claiming that the stimulus “saved jobs” have egg all over their collective faces.

One of my fave economists, Nouriel Roubini, had this to say about jobs…

“Think the worst is over? Wrong. Conditions in the US labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%.

“While losing 200,000 jobs per month is better than the 700,000 jobs lost in January, current job losses still average more than the per month rate of 150,000 during the last recession.

“Also, remember: The last recession ended in November 2001, but job losses continued for more than a year and half until June of 2003; ditto for the 1990-91 recession.

“So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back.”

And you think the recession/depression is going to end with the unemployment problem in this country? Not when the consumer is needed to generate nearly 70% of the GDP.

And all that tells me that the cartel/Fed is going to believe that they need to keep rates near zero for some time to come.

Yesterday’s data cupboard was a mixed bag of economic data as the US PPI wasn’t as strong as forecast, industrial production slowed in October, but capacity utilization bumped higher, and the TIC Flows for September were $40.7 billion, which was more than the $34.2 billion in August. The report showed that Japan, China and the UK all increased their holdings of Treasuries. September’s TIC Flows were probably the best report of the day, and the best report that this series has printed in a long, long time. Does this mean that the all-clear horn is blaring, telling us not to worry anymore about whether we finance our deficit or not? Well… It might be, but I’m not listening to it!

Well… The President ended his visit to China, with a call for a more flexible Chinese currency (renminbi). And… The Chinese said… Nothing! They met the President’s words with silence. I used to date a girl that would (when I wasn’t talking)… “Silence is Golden, Chuck” and I would say… “Then shut up and we’ll make a million!” HA!

Now, while it would nice if the Chinese played ball with us… I understand their dilemma… The IMF still believes that China’s currency is about 25-40% undervalued. China could not deal with a floating currency that went up 40% overnight!

Did you know that America’s trade deficit with China widened to a 10-month high in September? Well… It did, thus raising concerns that the combination of a recovering US economy and a fixed renminbi (CNY) exchange rate against the dollar will worsen global imbalances. But… As I’ve said at least 100 times before… The Chinese will do what they believe is best for their country, and that’s not floating the renminbi at this time, no matter who the US sends to visit them to persuade them to do so!

Moving further south in the Pacific, we land in Australia… I thought about the Reserve Bank of Australia (RBA) quite a bit the past couple of days… And have come to the conclusion that the December 1st meeting of the RBA will net another 25 BPS rate hike. The reason I think this, is the fact that there will be no meeting in January, thus leaving a two month gap, which in these economic times could be devastating… So… Look for another rate hike in Australia on December 1st… It would be their third consecutive meeting rate hike, and could be the harbinger to parity for the Aussie dollar.

I know that yesterday morning, I talked about how the RBA meeting minutes had been perceived as “dovish”, and that spooked the markets into thinking that the RBA would NOT hike rates in December… But upon further review, the meeting minutes were really pretty vague, and while they didn’t sound outright hawkish, they also didn’t sound “dovish” either… After reading the minutes, I got the feeling that overall, the minutes support the idea of “steady rate hikes”. I don’t think the RBA will stop until they reach an internal rate of 4.25% early next year.

I was giving an interview last week with a writer from BusinessWeek… And he asked me when this dollar weakness all started… I told him that, “Over the past nine years congress and two administrations have instituted fiscal policies that have undermined the value of the US dollar, and the deficit spending has gone from $350 billion budget deficits to $2 trillion (annualized) budget deficits in the blink of an eye. So… The dollar made brief comebacks in 2005 and in the financial meltdown of August 2008 through February 2009, but other than that, the dollar continues to decline, and I just don’t see anything on the horizon that will stop this decline.”

Well… As I look across the desk at the currency screens, I notice that every currency that’s supposed to be lighting up green (going up) is doing so, and every currency that’s supposed to be lighting up red (going down) is doing so… We’ve got it all going on today.

OK… To recap… The currencies have gained back the ground they lost in yesterday’s “risk off” trading sessions. Gold is back to soaring after a 1-day stall… Data yesterday in the US was a mixed bag. Chuck expects the RBA to hike rates in December, and China responds to the US President’s request to allow greater flexibility in the renminbi… With silence.

It’s All About the Commodity Currencies originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Yesterday, we had a couple of Fed Heads talking, but the Big Kahuna stood out and moved the markets with his statements… Here’s the skinny…

Big Ben was giving a speech, and said, “The Fed will monitor closely the currencies, and the Fed’s policies will ensure that the dollar is strong.” Now, when he first uttered those words, the dollar got bought and the non-dollar currencies were sold… But then, a few of us had this feeling… It was a feeling that we had heard all this before… And there – in the archives, circa June 2008 – Bernanke said, “In collaboration with our colleagues at the Treasury, we continue to carefully monitor developments in foreign exchange markets.” Wait! We won’t get fooled again!

In June 2008, his statements spooked the markets into believing the Fed was really going to do something to bolster the dollar… But when nothing came along, the dollar REALLY got sold until the financial meltdown of August 2008… I mean… What has the Fed done in the past 1 1/2 years to “bolster the dollar”? Near zero interest rates that will remain in place for longer than they should… Quantitative easing… A bloated balance sheet of toxic bonds.

You could see the V-8 moments on traders’ faces when they realized, yesterday, that all this had been said before, and nothing came of it, so… We won’t get fooled again!

So, then traders reversed their buying of the dollar and sent the dollar to the woodshed. You should have seen the reversal… It was amazing… The Big Dog, euro (EUR), went from 1.4970 to 1.4860, and then turned around to rise to 1.50! Now, overnight, there has been some renewed selling of the non-dollar currencies, and the euro is back to 1.4910. Crazy… But not as crazy as Big Ben spouting off about “monitoring the currencies”… Yeah, right… And what are you going to do about them when they get out of line, Big Ben? Get the ruler out? I’ll tell you what he’ll do… Nothing… Absolutely nothing!

Memo to Big Ben… Ahem… Am I on? OK, long time listener, first time caller… Big Ben… Just what policies are you talking about that will keep the dollar strong? In the future, you might want to list to them, so that people like Chuck Butler don’t rip your comments to shreds for their lack of truth, and facts.

Non-voting Fed Head, Fisher, had this to say yesterday… “Our job is to maintain the purchasing power of the dollar, while fostering the conditions that enable the economy to grow without fanning inflation.” Hmmm I would say that he’s got that right… But, apparently, somewhere along the way, the part about “maintaining the purchasing power of the dollar” got lost, eh? I mean, since the Fed/cartel was formed in 1913, the dollar has lost 95% of its purchasing power… YIKES! Most people that did their jobs that badly would be fired… These guys have had almost 100 years to figure this out, and have failed miserably… And hey! Before I get accused of, Fed Head Fisher was the one that described the Fed Heads’ job, not me!

OK… While I’m on this subject of being accused… I have been beating on the US administration for nine years, folks… I know I’ve really stepped it up with the step up of deficit spending by this administration, but I chastised the previous administration beginning with their protectionism measures in 2000, and never let up with their deficit spending… Someone even said I never talked about Cheney and his “deficits don’t matter” comments… WHAT? I’ve even repeated the same joke several times about the deficits don’t matter crowd, and that they remind me of a guy standing on the Empire State Building who decides to jump off, and as he passes the 56th floor, he says… “So far, so good!”

Yes, so far, so good, because he hasn’t hit the concrete yet… And neither has the deficits crowd… But they will, and in fact, they are getting awfully close right now!

The US economy got a boost yesterday when retail sales grew at a faster rate than forecast, growing 1.4% in October, above the 0.9% rise projected by Wall Street. The jump came on rebounding demand for cars, a sign the economy kept recovering despite climbing unemployment. Aside from automobiles in October, other sales rose just 0.2%.

But… Are these numbers suspicious? Well, when you look at the previous month’s revision, you have to question these numbers as well… September retail sales, which were reported as -1.5%, actually fell -2.3%… I wonder what this number’s revision next month has in store.

Today, the data cupboard is stocked to the brim with data prints… Producer Price Index (PPI) prints along with two of my faves, Industrial Production and Capacity Utilization… And then the Big Kahuna of the day… The TIC’s data… For those of you new to class, The TIC’s data stands for Treasury International Capital… Or… Easier to understand… It’s the fancy, schmancy name for Net Security Purchases by Foreigners… This is how we track, how well we’re doing as a county at financing our ever expanding deficit…

I made a mistake yesterday when talking about the Reserve Bank of Australia (RBA) and saying that if they didn’t hike rates in December, that they would most likely come back in January at hike them… A reader pointed out to me that the RBA doesn’t meet in January… OK… So, I guess I should have said that the RBA would hike at their next scheduled meeting!

Speaking of the RBA… They issued their latest meeting minutes, in which they sounded less hawkish than one would expect, since they raised rates at the same meeting… But this less hawkish tone, set off a round of Risk Aversion once again in the currency markets overnight… Risk on, Risk off, is reminding me of a Wayne and Garth street hockey game…

For, it’s Risk on, one day, and Risk off the next day… So, while I find that the RBA minutes did set off this round of Risk off for the currencies, I don’t see it having lasting power… Look for this all to fade, especially if we get a rogue data print in the US today…

Late last week, I came across a story on the dollar that I totally forgot to talk about yesterday… So, here you go… Oh, by the way, strap yourself in for this one, and keep your arms and legs inside during the ride…

The German government’s 5-person council of economic advisers issued a report that said, “After the massive global increase in US dollar reserves in the past years, an “uncontrolled exit”, especially in emerging economies from the US dollar as a reserve currency is a possible trigger of instability in currency markets.” The went on to say…

“Countries holding “high” dollar reserves should consider committing to selling their dollar holdings in a coordinated way over a longer period of time.”

The folks over at the Royal Bank of Scotland (RBS) think that Bernanke’s speech yesterday, basically gave the green light for a further, slow, gradual decline of the dollar… And, quite frankly, that’s what traders would prefer to see too, given that they don’t like getting whipsawed day in and day out by the Risk on, Risk off game… When assets go to fast one way or the other, it just causes strong corrections, and people get hurt by the movements… But a slow, gradual decline I would think would be the preference of the US government… That way, no one notices… It’s not like a bubble that grows and everyone notices it…

Speaking of bubbles… And if you’re like me, when I type, or say bubbles, I immediately think of Big Al Greenspan… Well, you’ll love this Fed Head statement about bubbles… Here’s Fed Head Kohn… “Asset price bubbles can be spotted when they become extreme, efforts to spot bubbles may result in seeing more than there is.”

Now that statement plays well with Big Al Greenspan, who always claimed that bubbles could not be spotted before they got out of hand… Basically, what these two are saying in different ways is that the Fed could spot them, but probably wouldn’t like it, and wouldn’t have much at their disposal to do about it, so they just turn away…

And speaking of such… Fed Head Yellen said last night that the “US stock market is not overvalued”… That’s all I’ll say about that!

OK… Hopefully, you are still with me here, and reading… And you will recall me going on and on about China and their FX currency swap agreements and how that was a baby step toward gaining a wider use of the renminbi… Well… Yesterday, there was a story, that I think Ty told me about, that talks about China preparing to float the renminbi, testing it in Hong Kong… The Chinese government has been moving to allow banks in Hong Kong to issue bonds, hold deposits, and settle trade with the mainland — all in renminbi.

However, don’t look for this conversion to a floating currency to happen soon… Financial analysts believe it will not happen before 2020… It may come sooner… But I wouldn’t get all lathered up that it happens in the next year!

One of the best performing currencies VS the dollar this year, has been the Brazilian real, with a greater than 30% gain, so far… There’s been a shakeup at the Brazilian Central Bank, and there will be a few new members, with voting power at the next meeting on December 9th… I still don’t think the Brazilian real interest rate will be moved at this meeting, but with the new members, they might want to make a “statement” about how hawkish they are… And on December 10th, Brazil will print their third quarter GDP, which I would think would be quite strong… You would have to think that the Central Bank will have privy to this report before they meet on the 9th… And with the new members possibly wanting to make a statement, there’s a whole new outlook for the Central Bank meeting…

You know… As we draw closer to the end of the year, the closer we get to the winter Olympics which will be held in Vancouver, BC.Going back to the early days of the World Markets Division at the old Mark Twain Bank, here in St. Louis, we tracked currencies from countries that were holding the Olympics, noticing that there was always a rise in the host country’s currency… If that were to hold it would benefit the Canadian dollar/loonie… Will it hold true for the Vancouver Olympics? We’ll have to wait-n-see, eh? But really… Wouldn’t it be worth a flyer, a shekel or two to see if it did hold true?

And then there was this… Were you confused by the GM announcements yesterday? I was… First there was an announcement that GM would be paying back some of the bailout money to the Government… But then later it was announced that GM posted a $1.5 Billion loss… Kind of difficult to pay someone back, when you’re booking losses, eh? Strange announcements for sure…

OK, to recap, which I forgot to do yesterday! UGH! The currencies were whipsawed yesterday by comments by Big Ben Bernanke, that we’ve heard before! The RBA issued a not-so-hawkish minutes report that spooked the markets and it’s Risk off today… Brazil might have a different outlook for their next meeting in December, and the winter Olympics are ready for Vancouver, will that mean a boost for the loonie?

Bernanke Digs Up Some Old Words originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Wang Qing, chief Asia economist for Morgan Stanley in Hong Kong, said in a report to clients: “I consider this article an official effort by Chinese authorities to dismiss the renewed speculation of yuan appreciation in the near term.”

So much for that visit to China, eh? Put that one down next to the visit to Copenhagen earlier this year. Ahem… Three strikes and you’re out… But, getting back to the trip to China… The Asia-Pacific members had some pretty tough questions for the US President, especially regarding his commitment to free trade… And then they let him know that China is going to fight protectionism, and keep the renminbi on a leash.

On Friday, we had the currencies add a bit to their Thursday rally as the risk aversion campers were sent home without a ball. No need to go away mad… Just go away! There was a bit of interesting data reaction that happened on Friday, which only gave me some hope of returning to fundamentals… The U. of Michigan Consumer Confidence Index fell in October, which wasn’t expected one iota… And… The dollar sold off! That’s exactly what should happen when a country’s economic data prints badly! So Hurray! YAHOO! But… Just like I always say… On swallow doesn’t make a summer, and one reaction to a data print doesn’t make for a shift in fundamentals… But could it be a start? Yes, it could… But we’ll need to see more of this type of trading after data prints to indicate that the old “trading theme” has been put in our rear view mirrors, and that fundamentals have returned… But wouldn’t that be a happy day? Oh happy day…

There was good news in Asia overnight, as the Japanese printed a third quarter GDP report that showed an annualized rate of +4.8%! That was 2.9% higher than the “experts” forecast for Japan! So… Even Japan is joining the other Asian and pan-Asian countries (Australia) in posting strong economic growth!

The Asia-Pacific leaders pledged to keep stimulus measures in place until there’s “durable growth.” Hmmm… Here’s hoping that the Asia-Pacific leaders let us know when that happens, because 4.8% annualized growth for Japan sure seems like “durable growth” to me!

And… In keeping with our hopes that fundamentals return to currencies and commodities… The strong economic data for Japan did not quash the yen (JPY)! In fact, the yen has traded stronger versus the dollar overnight!

And speaking of trading stronger versus the dollar overnight… Have you seen the price of gold? WOW! Gold has set yet another all-time record high overnight of $1,133! It has since given back some of that to trade at $1,127… But still… WOW!

About 10 days ago, the dollar was looking as if it was going to make a comeback/correction… I even saw a poem a trader wrote about it being the end of euro strength… But here we are 10 days later, and the dollar is looking quite weak again. The euro (EUR) is back to pushing the envelope to 1.50 versus the dollar, and I just told you about gold’s run versus the dollar.

Of course this doesn’t mean that a correction couldn’t take place today, tomorrow, or the next day… I’m just pointing out something that I’ve told you all about for years now… And that is: short term forecasting for currencies is usually wrong! So then, people ask me… Why do you write a daily letter about currencies, Chuck? Ahhh, grasshopper, because, someone has to make sense of this daily noise, and… You never know when a “turn” might happen in the currencies.

The Aussie dollar (AUD) spent the overnight sessions trying to get past 0.9350, but failed to do so, especially on the back of a note from a local bank analyst who went out on a limb and said the Reserve Bank of Australia (RBA) would be on hold at their next meeting on December 1st… Well, that may be… But I still believe the RBA will hike rates in December! But if they don’t, then we could look for an even larger hike when they come back in January! So, this keeping the Aussie dollar below 0.9350 won’t last long, in my humble opinion!

We could get some traction from the euro and other Euro-type currencies this week, as the Euro Finance Week in Frankfurt will take place with top leaders speaking on the financial crisis and lessons to be learned from it… German Chancellor Angela Merkel, who’s always good for some interesting quotes, will speak, as will European Central Bank (ECB) President, Jean-Claude Trichet.

Speaking of Euro-type currencies… The Norwegian krone (NOK), continues to follow the Big Dog, euro… But when the euro gets going, the krone normally outperforms it… So… The euro is the key here.

OK… For some time now, I’ve been trying to point out to you that monetary inflation is going to sneak up on us and rip apart our investments… My good friend, David Galland, had this to say in his Friday letter… Here’s David!

“Just because it’s not readily apparent doesn’t mean it’s not there. Of course, I’m referring to the government’s monetary inflation, which, thanks to a combination of factors, still hasn’t jumped out of the closet to scare bond markets into cardiac arrest.”

David then went on to show his readers a table that had useful details on the progression from normal to very much not normal, leading up to the German hyperinflation of the early 1900s… David then says, “As you can see, the situation in Germany was not so bad – until it was.”

OK… You know, the soaring gold price has been mostly tied to the weak dollar… But, you would have to think that “smart investors” with an eye on this monetary inflation is having some push to the price of gold too… I know that’s why I own gold… The weak dollar thing is just icing on gold’s value in my opinion… The inflation hedge… The deflation hedge… Or… As I call it… The “uncertainty hedge”.

And then there was this… The other night I was discussing the health care stuff, and told the person I was talking to that the stimulus bill, you know the one that was pushed through so fast last winter because we as a country were “near total collapse”? Well, the stimulus bill had hidden in it, part one of the Obama Health Care Plan… Hmmm didn’t know that? Well, yes, grasshopper… It’s the “death panels” as Sarah Palin coined them… They are called the rationing and enforcement board. And… The President has already funded them with $20.6 billion of taxpayer money!

Now… I’m not going to get into a discussion of the health care here… My point was simply to show that when bills are passed, it is important that they are read aloud to the people, to keep from “hiding” things in the bills… $20.6 billion of money that the government did not have!

OK… Enough of that… My good friend, Dr. Dave Janda, was the first to expose this “hidden gem,” and he’s been on the speaking circuit trying to get anyone who will listen to understand what’s going on.

China Says “No” to Currency Flexibility originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

It just makes me laugh out loud, when I write that the “safe haven currencies” during risk aversion trading are the dollar and yen… These two countries have debt up to their eyeballs, pay no interest on their deposits, and have a leadership deficiency.

There was good news out of the Eurozone this morning… Both Germany and France followed their previous quarter’s growth, with stronger growth in the third quarter… The Eurozone’s two largest economies continued to recover from recession in the third quarter, as exports boosted both German and French gross domestic products. I say that, and I want to spit out a raspberry to all those that claim the European Union will collapse because of the strong euro (EUR)! The largest economies of the Eurozone can grow with strong exports and even with a strong euro!

Germany’s GDP rose 0.7% in the three months to September 30. In France, GDP also grew for the second consecutive quarter, rising 0.3%.

So… Of course this data from the Eurozone put a floor under the euro’s decline from yesterday. It will be interesting to see how the US guys look at these growth numbers. The European guys liked them… But the US traders can be very fickle.

And more than that, I think this might be the thing to put the risk aversion to bed… Recent history tells me that whenever risk aversion has crept into the markets, any sign that global growth is back on track and will lead investors to higher yielding assets, the risk aversion ends abruptly… Let’s hope that’s the case today with these two growth reports from the Eurozone!

Yesterday’s data in the US showed that the Weekly Initial Jobless Claims remain above 500,000 per week, and that the budget deficit was even worse than the forecasted $160 billion! The budget deficit for October totaled $176.4 billion, which annualized puts us over $2.1 TRILLION! That awful, folks! And you should be writing, calling, or making your way to your representative’s next meeting and demanding that they STOP SPENDING MONEY THEY DON’T HAVE!

You know that letter that I said I was going to write to my darling granddaughter, Delaney Grace, apologizing for the lack of freedom and tax burdens that were left to her generation to deal with? Well, I started writing it the other night… What this and the previous administration is doing is immoral, when it comes to leaving the debt to be dealt with by future generations.

OK, it’s a Friday, I need to try to remain calm here, and be upbeat! Hmmm… Usually that means that I pull out a story on gold… But yesterday was not a good day for the shiny metal. After reaching a new all-time record level of $1,118, it fell more than $10 in the aftermath of the risk aversion… See how stupid the risk aversion people are? I mean, if you wanted to avert risk, wouldn’t you buy gold?

Anyway, colleague Don Ries, sent me a story that he came across regarding gold that I thought was quite interesting… The Daily Telegraph in the UK printed a story about how Barrick Gold believes we may have reached “peak” gold already… And by “peak” I’m talking about the mining of the shiny metal!

“Aaron Regent, president of the Canadian gold giant, said that global output has been falling by roughly 1m ounces a year since the start of the decade. Total mine supply has dropped by 10% as ore quality erodes, implying that the roaring bull market of the last eight years may have further to run. There is a strong case to be made that we are already at ‘peak gold’,” he told The Daily Telegraph at the RBC’s annual gold conference in London.”

WOW! Did you get the line about how this lack of mining implies that the roaring bull market of the last eight years may have further to run? I think that’s putting it conservatively for sure! “May have further to run?” I would say it stronger…

OK… That put me back on track to be more upbeat for this Fantastico Friday! Today’s data cupboard will yield the monthly trade deficit data, and the U. of Michigan Consumer Confidence index… The trade deficit overhang continues to be a problem for the US, obviously not as bad a problem as it was during the go-go days for the consumer…

Traders have become “comfortably numb” with the deficit figures in the US, which is a bad thing, folks… Traders need to make a stand, and not allow this stuff to just slip under the door, thus allowing larger and larger deficits in the future!

I see the President is in China… I bet he thinks his presence will be the thing that will move the Chinese to allow greater currency flexibility. I just don’t see the Chinese getting caught up in the “show” to give in and allow flexibility in their currency, just because the President of the US showed up.

The currencies are rallying this morning versus the dollar. Since I began writing, the euro has climbed higher – albeit a small move higher – and thus has stopped the bleeding that began yesterday morning.

I’m surprised the Aussie dollar (AUD) isn’t really hitting on all cylinders this morning, considering the growth numbers in the Eurozone… But I think we might have to wait for the US traders to see the rally in the Aussie dollar, this morning… It is Saturday in Australia!

The Swiss franc (CHF) got caught up in the risk aversion trading yesterday, and has backed off its ascent to parity. The franc is trading around 0.9855 this morning, which is more than 1-cent lower than yesterday morning… Wink, wink…

And a country/currency that I drop the ball on all the time when it comes to talking about it in the Pfennig is the Norwegian krone (NOK)… Long time readers know that I truly like Norway for their fiscal and monetary surplus prowess… And most recently, for their absence from the rolls of those countries that got involved in subprime and bad lending practices. Earlier this month, Norway’s central bank, the Norges Bank, hiked rates 25 BPS, and is expected to raise them again in a month or two. So, now we have a country that has a strong fiscal and monetary position, no bad banks or loans, and a strong positive interest rate differential to the US… Hmmm…

And then there was this… Neil Barofsky, the special inspector general for the $700 billion TARP bailout said the program will “almost certainly result in a loss to taxpayers.” “We need to temper or be realistic about our expectations, a dollar-for-dollar return is just highly unrealistic.” Barofsky also said that he’s conducting 65 investigations of possible fraud.

OH MY! You’re telling me that with the $700 billion TARP funds that there could have been some fraud involved? I wouldn’t have believed it! NOT! The whole TARP was fraud to begin with! So, with all the corruption and scandals that have gone in before, the thought that there could be some fraud, should have been a belief that there “would be fraud for sure” when the TARP was issued!

Risk Aversion Fuels Yesterday’s Dollar Rally originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

The only thing I could find was a comment by the Chinese Premier, Wen Jiabao, who said, “the world faces an uneven recovery”. This made traders think twice about the green light they thought they were under to have carte blanche with the dollar.

The dollar also received a bit of love from the comments by US Treasury Secretary Geithner (AKA the Cheater)… Geithner was doing his best Robert Rubin, circa 1995, saying that he believes strongly in the need to maintain a strong dollar and that the United States was determined to get its budget deficit down. HAHAHAHA! That’s a joke, right? OH! He wasn’t joking? Are you sure? Because for a minute there, I really thought he was joking. For what has he or this administration done to back up those words? But he wasn’t joking… Hmmm… And I was all ready to give him a new nickname… The Joker.

Geithner did say that the US was well aware it must work to keep investors confident in US economic policymaking. Yeah, and that’s exactly what you’ve done, right? NOT! Hey Timothy, you might want to check the scorecard on your performance so far… The dollar index has fallen 7.6% this year, and hit a 15-month low of 74.89 yesterday.

OK… I’ve got to go on to something else… But… It sure looks like risk aversion has crept back into the currencies after all these statements… We seem to run into these risk aversion stints about every week… They come, they take away gains, and they go away, thus allowing the gains to be reinstated.

How about that 15-month high for the Aussie dollar yesterday of 0.9368? At least this time the currency was on its way up when it hit that 15-month figure… 15 months ago, it was on its way down! So, here’s the skinny on this move by the Aussie dollar. Australian employers added jobs in October… This was unexpected… But… Caused the immediate response of speculating that the Reserve Bank of Australia (RBA) would raise rates at their next meeting on December 1st.

There was another “push” to the Aussie dollar yesterday… And it came from gold! The shiny metal pushed to yet another new all-time high record level of $1,117 during the day… I might remind you here that gold is Australia’s third most-valuable raw material export… Oh! By the way, Australia’s unemployment rate is now 6.5%, which is still too high, but falling… And doesn’t that have a nice ring to it, versus saying that the unemployment rate is rising past 10%?

The Aussie dollar pulled its kissin’ cousin from across the Tasman – New Zealand dollar/kiwi (NZD) – along for the rally yesterday… Kiwi continues to be haunted by the ghost of deficits past… But, hiding in Australia’s shadow suits kiwi just fine… And New Zealand retail sales just posted a nice, surprise, uptick… There are all kinds of reports going around that say the New Zealand third quarter GDP will be strong… I’m from Missouri, so they’ll have to show me!

There was further news out of China yesterday, from the People’s Bank of China (PBOC)… The PBOC stated, “The exchange rate will be guided in a proactive, controlled and gradual manner and based on international capital flows and movements in major currencies.” What’s the news of this you might be asking? Ahhh grasshopper, sit… Here is the news… That statement is completely different toward the Chinese currency than previous statements that said that the PBOC would keep the currency “basically stable.”

This is central bank parlance for the fact that the PBOC will continue to “gradually” move the renminbi (CNY)… As previously they basically said they would keep it at current levels… The foreign newspapers are all over this statement like a cheap suit, folks… But I think they’re going in the wrong direction. The foreign newspapers are thinking that the PBOC has given the “high sign” that they are ready to allow the renminbi to float…

I just don’t see that way… The Chinese like to play these games with words, to get everyone all lathered up… And then pull the rug out from under them. No rug pulling from under me!

The Wall Street Journal is reporting this morning that central banks around the world, like the Russian Central Bank, are buying dollars to underpin the currency from a free fall… The WSJ also said the Asian central banks have all been buying dollars to keep their currencies from getting too strong… Hmmm… I wonder how that’s been working out for them? Here’s the skinny on that… “Quite clearly, all Asian central banks have found it necessary to intervene, and it’s costing us,” said Korn Chatikavanij, Thailand’s finance minister.

So, it’s kind of nice to see other central banks around the world throwing good money at bad money, like the Fed Reserve has done for 15 months now… At least they’re not throwing money down the toilet… Oh wait… YES THEY ARE! They’re buying dollars! What dolts!

OK… While I was browsing through the WSJ, I saw another story that caught my attention… Here was the headline… “Fannie Mae, Freddie Mac say more losses are possible”… According to the WSJ, the US Treasury has already injected $112 billion into Fannie Mae and Freddie Mac since the government took them over last year… And now, more losses are possible?

Let’s see… The government took them over, and more losses are possible? Sounds like the Post Office… Sounds like Amtrak… What else has the government taken over, and the bleeding continues?

What some more depressing data? October saw 332,292 US homes seized by lenders or listed in default or auction documents according to RealtyTrac… October was the 8th consecutive month of 300,000 or more. There was a 3% decline in October from September, but I wouldn’t get too lathered up about that, given the chart I saw the other day regarding residential loan resets that are coming due in the next two years, with peaks in September of 2010, and September 2011…

Looking at this chart tells me that the cartel – I mean the Fed – will have no other choice but to keep rates low, and to keep buying Treasuries to keep the yield from getting too high. Haven’t we learned anything the past 10-years? You have to learn from previous mistakes or you’ll make them all over again… And that is what I believe the Fed is doing! They tried like heck to keep the tech bubble from bursting by keeping rates artificially low and credit loose as a goose… What were the unintended consequences of those actions? And what will be the unintended consequences of these actions by the Fed? I don’t have an answer to that, but I don’t see how this works out nice for the US economy and taxpayers…

The data cupboard finally gets restocked today, and we’ll see the usual Thursday fare of Initial Weekly Jobless Claims, which remains above 500,000 every week, and something that Tim Geithner might want to pay attention to… The US Monthly Budget Statement, which will be somewhere around $160 billion for October… Annualized, that’s almost a $2 trillion deficit in the budget! OUCH! Say it ain’t so, Joe!

To recap… The non-dollar currencies rallied all day yesterday, but have given back those gains in the overnight sessions. Most of the slippage has been from words, not actions. The Aussie dollar hit a 15-month high last night on a strong employment data report, which has traders thinking another rate hike on December 1st is coming, and the Asian countries have been buying dollars to keep their currencies weak, and according to them they are “paying the cost”!

Risk Aversion Creeps Back into the Currencies originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

The Big Dog, euro, did attempt to move stronger into the 1.50 level, but that move was thwarted by a poor reading of German Investor Confidence this morning. German Investor Confidence – as measured by the think tank ZEW – reported that their index had fallen to 51.1 this month versus the 56 in October. Most of those Germans surveyed said that they expect the economic recovery to be slow once the government removes the stimulus in the economy. So… Previous euphoria is being replaced by realism… But that’s OK… Better to have a grip on reality than to go around thinking that everything is seashells and balloons.

But, the ZEW report hasn’t dampened the euro’s spirit too much, as the single unit has remained above 1.50 even after digesting the ZEW… But looks vulnerable.

The ZEW report gets all the ink… But on the back page we can find that German industrial production increased 2.7% in September compared with August, which saw a 1.8% rise.

Hey did you know that the US is auctioning off another $81 billion in Treasuries this week? Yes, this total is lower than the recent auctions the US has held… But still… $81 billion isn’t anything to ignore! However, with the nutcases in the world, shooting off missiles, and ramping up nuclear capabilities, there are still some people who believe that US Treasuries are a “safe haven”. Of course I’ve proven that those who believed this and bought during the financial meltdown, lost tons of money… But don’t let that get in they way of a “good story”… And so it will be, that this auction will not be the “one that fails”… But, in my opinion, we will experience that at some time in the next year, especially given the government deficit spending!

And… If an auction of US Treasuries fails… Well… Being long Treasuries isn’t going to look too much like a “safe haven” position!

I was supposed to give a presentation last week in Los Cabos on the Treasury Bubble… Of course, we all know that I was not there, so I didn’t give the presentation… UGH!

OK… There was all kinds of rumbling, stumbling, bumbling going on in the UK overnight, as the rumors were flying that the ratings agency, Fitch, said it would lower the UK’s AAA rating… Finally it was confirmed that this was stated in an interview with Reuters, and not an official communiqué by Fitch… But, dear reader, when there’s smoke like this, you can bet there’s fire! The pound sterling (GBP) has taken this news like a blow to the mid-section…

In Australia overnight… Australian Business Confidence rose to near 6-year highs for the index… October’s index reading was 16, which was plus 2 from September’s index reading. The businesses surveyed strongly believe that the Reserve Bank of Australia will once again raise rates in December… I loved this quote from the Australian Trade Minister, who said, “Despite the Aussie dollar going up, manufacturing has improved, and manufacturers just have to learn to accommodate this sort of thing going forward using hedging.”

That’s right! Tell ’em! Deal with this Aussie dollar strength and quit your whining! I love it!

The Canadian dollar/loonie (CAD) continues to push higher versus the green/peachback (dollar)… This is all commodity related, as the data in Canada continues to be mixed, with the Bank of Canada (BOC) keeping rates in line with the US, thus keeping the loonie from looking attractive. But, that’s OK… With gold inching higher and higher, oil hovering around $80, and other commodities moving higher in price, the loonie can get its lipstick from commodities to look attractive!

Speaking of gold… I saw this quote and thought it hit the nail on the head… “It’s not that gold has changed, but gold buyers have changed,” said Suki Cooper, a precious-metals strategist for Barclays Capital. “It’s a structural shift we’re seeing on the investing side, from Asian central banks right down to individual investors buying ingots and coins.”

That’s right! Gold hasn’t changed… It still has to be mined out of the ground, it can’t be made by any alchemist, it has to be mined… And the demand in gold has skyrocketed in the past couple of years, thus pushing people to send in their gold bracelets, necklaces, and rings to cash in the gold price surge… So… One group of people over here is selling any and all gold they can get their hands on, and one group over there is buying it for a rainy day.

Gold’s recent rise has been spectacular to say the least, moving through the $1,000 handle to $1,100 very quickly. I think there are two things in play here… 1. The demand for gold driving the price higher, and 2. The dollar’s weakness. I heard a guy say the other day that “gold hasn’t gained; the dollar has gotten weaker”… What? Nothing about the demand?

We don’t have any “real data” today to speak of in the US but we’ve got a truckload of Fed Heads out on the speaking circuit. Lockhart, Yellen, Rosengren, Tarullo, and Fisher all will be speaking about something today. Even former Fed Chairman, Big Al Greenspan is going to speak today. No telling what he might say! Of course, if the subject comes up regarding the financial meltdown, he’ll say that he had nothing to do with it! HOGWASH! And we all know it! So, it doesn’t matter how many times he tries to absolve himself from any responsibility for the financial meltdown, we all know that at the root of it all… Sits Big Al Greenspan.

And then there was this… The folks over at Barclays say that they have recalculated the dollar’s share of global currency reserves. The dollar, which once stood at 80% of global reserves, and right before the current weak dollar trend began in 2002, it stood at 73% of global reserves, has fallen to 62.8%. But… Says Barclays… This is almost entirely a result of weaker valuation rather than attempts by central banks to diversify holdings away from the dollar. Hmmmm… Now… I do agree that the euro’s gains versus the dollar in the past seven years would cause quite a bit of slippage in the dollar’s value in terms of reserves held by central banks. But “almost entirely”? I doubt it… One could point at the Reserve Bank of India’s purchase of gold last week… They bought $6.7 billion “worth” of gold… You can’t tell me that wasn’t to diversify their reserves!

OK, to recap… The non-dollar currencies are trading in the same clothes as yesterday. The ZEW German Business Confidence slipped this month, although Industrial Output rose. The US is auctioning off $81 billion worth of Treasuries this week, and the demand for gold is really pushing the envelope in terms of gold’s price!

German Business Confidence Slides originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

So, what’s behind this big move in the currencies versus the dollar? Well… The move has been fueled by G-20… And it’s not anything that the G-20 members said… In fact, G-20 said nothing about the currencies… Traders are taking this to mean that the G-20 member nations don’t have a problem with the weak dollar, and that’s akin to giving them the green light to sell the dollar further… Proving once again that silence is golden… (At least to non-dollar currency and precious metals holders!)

Since G-20 was given the reins of the currencies, they haven’t said a word… I find this to be very significant, folks… You know, it’s not like if G-20 said the dollar’s fall was too deep, they could do anything significant about it… But the fear of something would be enough to wrap a tourniquet around the dollar’s bleeding. But… They didn’t! And so we go on with the dollar selling, which in reality is what the US government really wants anyway! A general slow depreciation of the dollar is the way the government would like to see the trading go…

So… There we have it! A non-dollar currency rally that’s wrapped around G-20’s silence on the weakness of the dollar.

Friday we saw the Jobs Jamboree really surprise on the “good side” of the job losses which according to the BLS (Bureau of Labor Statistics) was “only” 190,000 for October… Now, that’s quite the fall from the +500K job loss months we saw six months ago. The unemployment rate, however, spiked to 10.2% in October… The first time the unemployment rate has been above 10% since the recession of the early ’80s.

And then there was this, regarding job losses… Chris Manning of the BLS stated last month that payrolls were overestimated in the twelve months ending March by 824,000. The source of this error was the birth/death model. BLS used “plug” numbers for the number of births and deaths. These “plug” numbers were wrong. They led to estimated positive contributions to employment that were too high. Most of the error (675,000 out of a total 824,000 jobs) occurred in the first quarter of this year. The birth/death model was adding significantly to payrolls when all other payrolls were falling. In reality, the contribution from net births and deaths was negative.

I’ve ripped this birth/death model for years now… And here you go! Even a BLS employee says they were wrong to add these jobs!

So… The question is when do these job losses get posted? Well… I don’t think you’ll see that, folks. It’s just the way the government does things… Hides them, cheats you, and then says, “We made a mistake” and goes on about their business of hiding and cheating you!

Oh… And one more thing here regarding the Jobs Jamboree… According to the BLS, payrolls fell at a 188,000 per month rate over the last three months. But their own household survey says employment fell at a 589,000 per month rate.

I shake my head in disgust… But we all know how “the game is played”, so we just adjust our numbers and go on.

So… I guess you heard that the House passed the Health-Care Overhaul Bill this past weekend… I’m not going to go into this because it’s a “hot button” for a lot of people… I just want to know what this is going to cost… And don’t believe anyone in the Washington DC that tells you that it won’t cost anything! Their track record on that stuff is horrendous! Which also means that if they tell you it’s going to cost $1 trillion, it’s going “really cost” double or triple that!

So, we just keep adding on to our deficit, folks… The people in DC are so worried that they need to spend more, instead of reducing spending… I really think that anyone who voted for this new spending program, needs to get “fired” the next time their term is up…

OK… Enough of that! The data cupboard is empty today, and doesn’t really get re-stocked with “tier 1” data until Thursday… So… The data isn’t going to help the dollar out the front-end of this week.

The IMF issued a report this past weekend that isn’t helping the dollar… The IMF said that there are “indications that the US dollar is now serving as the funding currency for carry trades”; and that that was one of the things that hurt the dollar… The other thing was that the IMF felt that the dollar was still “overvalued”… Which in anybody’s book means it can fall further!

The IMF also said that the euro had “experienced the most appreciation among major advance economy currencies and that it remains on the strong side of its equilibrium.”

Hmmm… So… First it was the silence by G-20, and then the slap in the face by the IMF that has the dollar on the run this morning… I wonder what direction this will go once the New York traders arrive at their desks, and see what the overnight markets have done to the dollar. My guess is they will first take some profits, and then add on to the dollar’s woes… But that’s just a guess; who knows what those “fickle” traders will do!

So, like I said above, the euro, Aussie dollar, and Swiss franc are all moving higher versus the dollar… But the “winner” for best performing currency overnight is the New Zealand dollar/kiwi (NZD)! At one point overnight, kiwi traded at 74-cents… It has since given back some ground, but the move overnight was impressive! Kiwi got a nice bump when dairy giant Fonterra raised their forecast dairy payout… With farmers’ incomes representing 0.7% of the GDP, this was good news for the economy, and thus the thoughts begin to switch to a rate hike by the Reserve Bank of New Zealand (RBNZ), which just last week was downplaying any such rate hike… This might change their mind…

And… Chris Gaffney left me this note from Friday…

“The government extended the first time homebuyers $8,000 tax credit on Thursday. While this tax credit was intended to help alleviate the glut of housing left by the credit crunch and resulting downturn, housing analysts have found that the tax credit did little for home sales. Between 80 and 90% of the people who have bought homes using the credit would have purchased those homes without it. Sounds a lot like the cash for clunkers program: taxpayer money wasted in order to try and make the data look good in the short term.

“But not only did they extend the first time homebuyer’s credit, they also approved what I think is a really stupid addition. The expanded program introduces a $6,500 tax credit for people who already own homes but want to buy new ones. Unlike the cash for clunkers program, the old homes which these buyers now occupy will not be destroyed; they will be placed onto the market. So what does congress think this $6,500 credit is going to accomplish?? It isn’t going to decrease the number of homes on the market. It will help the banks, title companies, and mortgage lenders, who make money on the transaction. But it won’t help the homeowners who are facing foreclosure, or the taxpayers who don’t take advantage of it.”

Yes, Chris… That’s what’s going on here… And again, people are still wondering why China has such a problem with the direction of the US and our deficit?

And gold… The shiny metal reached $1,100 on Friday… And with the dollar weakness overnight, gold has moved even higher… I know it sure seems that gold has moved really quickly through the $1,000 level – and it has! I’m still waiting for the “correction” to buy some more… But, right now, it looks like that correction might not every materialize!

Speaking of this… I’m also still waiting for a decoupling of the risk assets… Getting back to the fundamentals… It could be happening right now, folks… We can only hope!

And then there was this… I received an email the other day from a reader who said he thought I enjoyed seeing these things happen in the US… WHAT? I do not revel in these things I talk about… I merely point out what I think will happen given a tax cut, or more deficit spending, or protectionism, etc. It doesn’t take a rocket scientist to figure these things out! And… Besides… I live here, my kids live here, my granddaughter lives here… I think in some way that as long as I point these things out, and ways for people to profit from them, that I’ll make things better for them.

OK… That was good to get out of the way this morning… Let’s go to the recap and then the Big Finish, eh?

To recap… G-20 was silent about the currencies and weak dollar, which has given traders the green light to sell the dollar further. The IMF didn’t help the dollar either, saying that the dollar was still “overvalued”. The BLS admitted the birth/deal model had made HUGE errors in the past years, and gold hit $1,100 and keeps moving up.

The BLS Admits a Big Mistake originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

Hmmm… Where have I heard that before? Anyway, I thought that by continuing to use the words “extended period”, that the dollar would get pummeled… And momentarily, it looked as though it might, as the offset currency to the dollar, euro (EUR), raced to trade above 1.49… But a funny thing happened on the way to the forum, and the invisible hand reached down and reversed this move in a NY Minute! The work of the PPT? Probably… The Plunge Protection Team probably stepped in to keep the dollar from a free-fall… That’s my take on it anyway!

With interest rates remaining at near zero levels here in the US, I thought it to be appropriate to pull out this new nickname for Big Ben… “Zimbabwe Ben”… (Thanks Ty!)

The rate hike decision ball gets thrown “across the pond” to the Bank of England (BOE) and the European Central Bank (ECB) this morning for their versions of: Leave rates at present levels, but try to sound upbeat… I think you’ll have the “tale of two central banks” here this morning. While both will keep rates unchanged, I think you’ll see the BOE opt for more bond purchases in an attempt to shore up Britain’s banking system. The ECB will NOT be making any such announcement.

In fact, I believe we’ll hear ECB President, Trichet, announce that the ECB is moving closer to withdrawing stimulus from the economy! So, those of you who have the ability to go long euros versus sterling (GBP), this would seem to me to be the “trade o’ the day”… But what do I know? I’m not a short term “cross trader”!

So… With the FOMC finished and the two European Central Banks on the docket today, somehow the risk aversion has crept back into the markets.

I received an email from a reader the other day, asking me why I prefer Australian dollars (AUD) to New Zealand, as the kiwi (NZD) had outperformed its kissing cousin across the Tasman from 2002 to 2008…. Well… New Zealand enjoyed a wider yield differential than Australia during that time period, as it posted the highest interest rates in the industrialized world… Now that’s saying something right there, and a good reason kiwi outperformed the Aussie dollar…

But times have changed… And a very timely talk by Reserve Bank of New Zealand Governor Bollard yesterday, helps explain why Aussie dollars are now over kiwi… Here’s Governor Bollard…

“Both countries have survived the crisis well, due to a mix of strong institutions and stimulative policies. However, their immediate prospects are different. Australia has avoided negative growth, and its prospects are driven by strong terms of trade, vast mineral deposits, the Chinese market, and rapid population growth.

“New Zealand has had a recession, and the pick-up is slower and more vulnerable – a difference financial markets do not appear to appreciate.

“Australia is a lucky country, but we could be a lucky neighbor.

“Australia is entering a new minerals boom, investing heavily and encouraged by new finds, re-opening markets, bottlenecks and strong prices. Strong investment and export growth would mean big challenges for Australian policy. This all means an economy that looks less like New Zealand.

“However, Australia’s potential raised the prospects for New Zealand’s manufacturers and services, which have a bigger share of exports than the same sectors in Australia.”

OK… So Australia is a “lucky country” but New Zealand could be the “lucky neighbor”… Makes sense to me!

The Brazilian real (BRL) rally took a walk on the wild side yesterday, gaining 2.5% versus the dollar in one day! But that’s relatively tame for some of the wild moves we’ve seen in recent times with the real… As long as you are not watching the currency like a hawk, and sweating out each pip move, this is no biggie… Keep your eyes on the horizon.

I find it somewhat humorous that the Brazilian government officials have tried and tried to throw down roadblocks for the real, and the investors just keep coming in droves… The 2% tax on capital inflows did nothing to slow down the real’s move versus the dollar, except for the day it was announced… After that, it was Wayne and Garth playing street hockey once more… “Game On!”

OK… I had a few callers and emails yesterday telling me that I was wrong about the gold sales to the Reserve Bank of India (RBI), saying that it was done in SDRs… I think the confusion exists in the fact that the gold sale kept getting reported as $6.7 billion worth of gold… But to put these questions to rest… Here is a report from the Economic Times of India (their leading financial newspaper).

The purchase was in SDR 4.8 billion worth.

Today in the US we’ll see the Weekly Initial Jobless Claims data, which will remain above 500,000 per week… And the ICSC Chain Store sales figures, which if consumer spending has gone back to “pre-cash for clunkers” levels, would mean these figures would be soft… But I don’t think this data gets much playing time with traders, so we’ll just carry on.

And then there was this… OK… So… Some people chastised me yesterday for saying that the government can’t prove the 650,000 jobs they claim they “saved”… Well… Here’s a ditty for you! Did you know that the government is claiming that by giving a person that already has a job, a raise, it constitutes as “saving” that job? Want more funny accounting? Stay tuned, same bat time, same bat channel!

To recap… The FOMC left rates unchanged and said they would remain there for an “extended period of time” this sent the dollar to the woodshed, but reversed on a dime… PPT at work? The BOE and ECB meet this morning to discuss monetary policy. Expect the BOE to announce more bond purchases, and expect the ECB to announce a move to withdraw stimulus. We learned that New Zealand is not Australia, but lucky to be Australia’s neighbor! And try as they might to keep the real from gaining versus the dollar, the Brazilian government’s moves have not worked.

Rates to Remain Near Zero originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

So… What put the tiger in gold’s tank yesterday and overnight? Well, the weaker dollar helped… The thought that the Fed would keep rates on hold this week helped… But the real beef came from the announcement that the Reserve Bank of India was buying 200 tons of gold from the IMF… I know, I know, I told you yesterday that I thought it would be a “wash” for the dollar and the gold price… But that was before I learned that the Reserve Bank of India paid for their $6.7 billion dollars worth of gold with… SDRs!

So… Either, the Reserve Bank of India (RBI) didn’t want to get rid of their dollar reserves… (Yeah, right!) Or… The IMF didn’t want anything to do with dollars, and preferred receiving SDRs! (For those new to class, an SDR is a basket of currencies that make up one unit called a “Special Drawing Right”, which the IMF uses; and lately it’s been rumored to be the replacement for the dollar as the reserve currency of the world… The one government, one currency thing.)

I’ll pin my colors to the mast of the IMF not wanting anything to do with dollars at this point! Been there, done that, bought the T-shirt!

So… The price of gold is nearing $1,100… I reminded my beautiful bride last night that just two months ago I told a group of close friends that they should seriously be considering buying gold as it had slipped to $940 an ounce… I wonder what they think when they see gold at nearly $1,100… I’m sure the V-8 head slap is going on all over my neighborhood!

OK… So what’s going on with the currencies, as the dollar has had the hammer for three consecutive days now… Well… The dollar is back on the slippery slope this morning, as those same thoughts about the Fed will keep rates unchanged this week, really emphasizing the fact that Australia has raised rates 50 BPS so far, and Norway has raised them 25 BPS… There are places to go where you can get higher yields.

I get a kick out of some people that call the desk here, and say… “I’m looking for a high yield of around 8-10%, with no risk… Do you have that?” Sure, right here in my back pocket! NOT!

The FOMC meeting will be a two-day meeting, so get the board games out, find the deck of cards, and make sure you have good batteries for the Battleship Game! When the Fed Heads get tired of the board games, and all, they’ll announce tomorrow afternoon that they are going to leave rates unchanged, and that while they see improvement in the economy, sans the 3.5% third quarter GDP, it’s too soon to remove the accommodating rates… How do I know that? I don’t… But, I’ll bet a dollar to a Krispy Kreme that what they say is pretty darn close to that!

The key will be to see if the Fed Heads, led by Big Ben Bernanke, leave the words “extended period” unchanged regarding how long the low rates will remain… For if they do, the dollar will immediately be sent to the woodshed once more, without passing Go, and without collecting $200! So… The statement following the rate announcement is the key tomorrow.

So… The euro (EUR) is 1-cent higher this morning, the Aussie dollar (AUD) is about 1-cent higher, and so on… Those that bought at yesterday’s blue light special prices will be smiling like a Cheshire Cat this morning!

OK… I have to talk about this… For I’ve received a ton of emails about it…

Quite a few readers have sent me a recent Nouriel Roubini interview, knowing that Mr. Roubini has long been a fave of mine.

Well… Mr. Roubini talked about the dollar being “the mother of all carry trades”, which I told you had become the new funding currency for the carry trade a few months ago…

Mr. Roubini also talked about how this was fueling a huge run-up in the prices of risk assets… I’ve also told you about that, and how, should the US do the double dip, a huge sell off of stocks would probably occur, and cause an adverse affect on the risk assets of currencies and commodities.

So, all in all, nothing new… So I was surprised that readers wanted me to comment on this. Well, the caveat here is that Mr. Roubini is calling for a massive sell-off of the risk assets when the correction comes… He doesn’t specify when this will happen.

I’ve also said that the risk assets have gone too far too fast, and that a correction is due… So, let’s move on from there.

I see where Marc Faber is saying that the correction will net the dollar 10% versus the euro… Again, he doesn’t say when this will happen, just that it will…

But again, as diversification people, with our eyes fixed on the horizon that shows that the only way the US government can repay their debts is with cheaper dollars… We just batten down the hatches for this correction, for we know that on the other side of the correction is another massive move upward.

There was something else that I wanted to talk about… And it’s something that I’m sure I’ll get a few emails about… Good and bad… But here goes… Did you see that Ford announced a nice profit for the last quarter… CAPITALISM ISN’T DEAD! Three cheers for capitalism!

So way to go Ford! Didn’t take bailout money… And one year later books a profit! Whereas GMAC is in need of additional bailout money, and Chrysler is fiat now… Great use of taxpayer money wasn’t it?

Here I go again… Sorry, didn’t mean to go on a tangent about this stuff… It’s just that I have no idea why this doesn’t just tick off any American who reads about it! But not to worry, the government has more plans to spend money they don’t have!

Hey! Earlier I talked about Australia’s rate increases… Well, the Reserve Bank of Australia (RBA) is running scared these days… Scared that their rhetoric about rate increases is going to push the Aussie dollar to parity with the green/peachback… So guess what the RBA members have decided to do? You’ve got it! They’re going to “tone down” their interest rate hike rhetoric… RBA Governor Stevens said that the 28% gain in the Aussie dollars this year versus the US dollar would be a good inflation fighter, and allow him to slow down the rate increases.

Well… Don’t get off the Aussie dollar love train just because the RBA Governor suggests that he could slow down rate increases. The Aussie dollar already enjoys more than 300 BPS of yield differential to the US dollar, Japanese yen (JPY), Canadian dollar (CAD), and Swiss franc (CHF)!

And the Lisbon Treaty that was hung up in the Czech Republic has finally been signed by the Czech Republic’s President, thus completing the rounds and putting the Treaty in place. Now, I’m not a big fan of the Treaty, but… It’s what the Eurozone needed to remain viable, and so it it’s done. This removes the albatross from around the euro’s neck, and will shut up those people who keep talking about a collapse of the European Union, and the euro.

Chris Wood is filling in for good friend David Galland this week on David’s daily letter called Casey’s Daily Dispatch… He had this to say yesterday, which I believe just about sums it all up regarding the Fed and Treasury here in the US…

“A group of federal agencies including the FDIC, Federal Reserve, and Office of Thrift Supervision just released new guidelines for how banks deal with troubled commercial real estate loans. And get this:

“Under the guidelines, loans to creditworthy borrowers that have been restructured and are current won’t be classified as high risk by regulators solely because the collateral backing them has declined to an amount less than the loan balance.

“Yes, you read that correctly. Banks won’t have to show losses ‘solely’ because the collateral has fallen in value below the loan. Perhaps most incredible is that this move is being applauded by the business community. The next step will be a federal move to facilitate refinancing that same collateral.”

That’s pretty amazing, don’t you think? First the financial institutions were allowed to drop the “mark-to-market” on their collateral… And now this… And people still question why foreigners are growing very weary of these things, and becoming quite scared regarding their dollar-backed holdings? They shouldn’t question any longer, eh?

And then there was this…

Remember how excited I was that Ron Paul’s bill to audit the Fed was going to discussion? I thought, surely this would be it… The Fed would finally get audited, and treated like the corporation they are! But, then Ty Keough sent me this, and my hopes were dashed…

Representative Ron Paul, the Texas Republican who has called for an end to the Federal Reserve, said legislation he introduced to audit monetary policy has been “gutted” while moving toward a possible vote in the Democratic-controlled House.

The bill, with 308 co-sponsors, has been stripped of provisions that would remove Fed exemptions from audits of transactions with foreign central banks, monetary policy deliberations, transactions made under the direction of the Federal Open Market Committee and communications between the Board, the reserve banks and staff, Paul said today.

“There’s nothing left, it’s been gutted,” he said…

OK… To recap… Gold is soaring! Gold has reached a new record all-time high! The dollar has given back some of its gains in the past four days as traders begin to realize that the Fed is going to keep rates unchanged tomorrow. The government is up to its usual tricks regarding collateral and the bill to audit the Fed.

Gold Over $1,090 and Climbing originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.