Another Treasury Auction Day

Well… I sure stirred up the hornet’s nest yesterday… Some people didn’t think I should express my opinion… But that’s OK… Here’s the skinny… I wrote yesterday about the farce that the jobs report was, and what a feeble job the media did in reporting the “real numbers.” I then threw something in the Pfennig that I don’t normally do, just to see what was more important to people… The fact that their government lies to them, or the fact that they don’t see eye-to-eye with me on the President…

Given the response, I’d say that most had their eye on the ball with the jobs farce… And that’s all I’m going to say from here on out.

One person did ask me what the President had to do with currencies, in an attempt to obviously steer me back to what I DO know… Well, perception is a BIG thing in currencies, folks, and if your leaders are perceived to be one way or the other, it can play big into currency direction. So, to say that what I had to say didn’t have anything to do with currencies is on the wrong path.

OK… Enough! The currencies did heal a bit yesterday, with the euro (EUR) trading back to 1.39 and change during the day… After taking the euro down on Friday, and Sunday night, traders began to realize that the U.S. has to deal with more supply today. And… Once again, the fears that the U.S. won’t have anyone show up for a Treasury Auction, just brings back the reality that owning dollars probably isn’t a wise thing to do… $35 billion in 3-year Treasury Notes will be auctioned today.

And… Treasury yields continue to rise… I keep coming back to the rising Treasury yields because, well… Because I want to! Seriously though, have you been keeping score at home on these rising yields? The 10-year Treasury hit a yield of 3.83% yesterday… Now that might not sound too high, but at year-end 2008, a mere five months ago, the 10-year’s yield was 2%… And if you just keep bringing more supply after more supply to the markets, they are going to demand that those yields get even higher!

And let me remind you that as the yield on a bond goes up, the price of the bond goes down! So… For example… At 2% the price was 110.08… And at 3.83% the price is 94.20… (according to my Bloomberg!) So… All those investors that bought Treasuries last summer in a flight to safety, need to check their statements! Anyway… I’m going to add the 10-year Treasury’s yield to the Big Finish, so we can keep better track of it!

The political turmoil in the U.K. looks to be water under the bridge now, and the pound sterling (GBP) came back strong! I’m shocked at how strong this currency bounced back after the U.K. elections were over. But then I was shocked that the currency was 1.65 last week too! But, as I always say, don’t step in front of a run-away bus!

The high yielders and commodity currencies all saw some healing too, except Mexico, which is watching the price of oil back off from the higher levels of last week. I saw a story on the Aussie dollar (AUD) that struck me as strange… Now, first of all, I have a few detractors that tell me that I only write about things that make a currency look good and bypass the bad stories… I don’t see it that way, but be that as it may… I saw a story that said the technical charts show that the Aussie dollar is going to fall back to 70-cents… Of course last week, another guy’s charts had it going back to 80-cents… Hmmm… I need to get these two chartists together and iron this out!

There’s a preliminary G-8 meeting this weekend to set the agenda for the Big G-8 meeting in a couple of weeks. I have to think that the currency moves in the past three months have got to be on the agenda… That, and… China’s latest rumblings about the dollar as a reserve currency. Speaking of China, the World Bank President, Robert Zoellick, was talking at a conference in Montreal last night, and said that China may seek to diversify its foreign currency holdings over time, moving them away from U.S. dollars.

Well… He sees it… But do the Chinese see it as a need? One would think that they do, given their worries that a weaker dollar could hurt Chinese investments in U.S. assets, and the fact that they brought to the table an alternative currency as the reserve currency of the world… I’ve reported all of this numerous times in the past couple of months, so nothing new… Just a need to review it once again.

As I write this morning, I’m watching the euro – which was 1.3920 when I came in – lose some ground to 1.3875… Not much of a move, but a direction that is not likely to last, in my opinion… Not with the supply thing hanging over the dollar’s head.

Don’t know if you follow stuff like this or not… But the elections for the European Parliament took place last week. In Germany, France, Spain and the U.K. the representatives that believed that throwing taxpayer money at failing corporations, got hammered… Hmmm… I wonder how that would play out here? But I’m not going to go down that road.

I mention that piece above, because I think it had something to do with German Chancellor, Angela Merkel’s comments last week. Most of us thought she was taking a shot at the Fed and Bank of England… And she probably was… But her main goal – as I believe it now, after see the results of the elections – was to bring all this to light right before the voters went to the polls… I’m telling you… She’s one smart cookie!

Gold and silver are having a tough row to hoe in finding a bid… The bid winds have not filled the main sails of gold and silver for three days now… And with this following story that I’m going to provide, the bid winds will be even tougher to find… As it will signal to the markets that the tourniquet has been wrapped around the patient (financial institutions) and some are recovering.

It was reported last night that 10 banks will be allowed to repay their TARP (troubled assets relief program) funds… Could total $50 billion! With the Fed being so demanding in their grading of these banks before allowing them to repay the TARP, I would think that these banks will be well suited to move forward from here.

With gold hovering around $950 and silver around $15, it certainly provides an opportunity to buy at cheaper levels than last week’s lofty figures, eh? I would use these dips to my advantage… But then that’s just me… It doesn’t mean that it’s the right thing to do!

My friend, Bill Bonner, had a great piece here in The Daily Reckoning yesterday, regarding house prices… Check this out!

Robert Shiller was talking about home prices in the NY Times, and this just kind of hit me like a V-8 slap. Here’s Bill’s response to that…

“Even if there is a quick end to the recession, the housing market’s poor performance may linger. After the last home price boom, which ended about the time of the 1990-91 recession, home prices did not start moving upward, even incrementally, until 1997.”

We’re also looking at $2.4 trillion worth of Alt-A mortgages that will need to be refinanced or reset. The peak in those resets won’t happen until January 2013.

Hmmm… That’s not anything that anyone selling a house wants to hear! But anyone that wants to buy, well… That’s not as devastating to hear!

Well, the data cupboard is empty today, with the U.S. Treasury auction the only thing to deal with today. Tomorrow we get the trade balance report for April… Yesterday, I made a mistake talking about the trade deficit saying it was “millions”… When I know all too well that it is in the billions! Just put that down to being writing too early in the morning! But for those of you keeping score at home, the trade deficit is forecast to be $29 billion in April!

But more importantly, tomorrow we’ll see the budget deficit, which is expected to be $180 billion for the month of May… If it tallies there at $180 billion, the budget deficit in the first five months of this year will have exceeded $650 billion… And that’s before the $787 billion stimulus gets added… And other items that will come along… And don’t forget that we posted a deficit in April! I still believe the budget deficit will be at least $3 trillion this year! That would push our National Debt to around $14 trillion.