Ben Bernanke Visits Congress

Good day. The MRI I had on my brain last week showed nothing. HAHAHAHAHA! Yes, there was nothing there! Of course, my beautiful bride has told me that for years! And then there were the teachers back in the school years that muttered such things. But seriously, the good news is that no sign of lesions in the brain. I got to thinking yesterday about these bouts I’ve had with cancer. They have hit me much as I used to play golf: left kidney, right femur and hip, left eye, right mandible. They used to call that “Army golf” — left, right, left, right.

Here we go again! Once again, the traders and hedge fund gurus are selling dollars ahead of a Fed event, in hopes that additional stimulus will be announced at the event. Today, it’s Big Ben Bernanke giving his testimony to lawmakers on the economy.

You would think that having been disappointed time and time again by the Fed heads, that going down this road once again would be avoided at all costs. But as I told you about a month ago, the crown that gets placed on your head forever, when you are the first to call something, holds great value to these traders and hedge fund gurus, so they are always willing to go out on the limb.

I would be surprised six ways from Sunday if Big Ben even mentioned stimulus today and tomorrow, as he speaks to the Senate and House on different days. But that’s not stopping the bias to sell dollars, which began yesterday midmorning, and continued throughout the day and overnight sessions.

So we begin the day today with the euro (EUR) having moved from playing peekaboo with the 1.22 handle to now playing the game with the 1.23 handle. The last time, we went into a Fed event with the traders et al., selling dollars in hopes of an additional stimulus announcement, the euro got whacked by 2 cents when the disappoint set in. So the downside risk today is great, folks. Be careful.

But if you are one to think that Big Ben will use the testimony on the economy to announce additional stimulus, then you’ll want to jump on the “we got the call right first crowd” bandwagon. I’m skeptical at best here, folks. I really don’t think Big Ben, even with his “what, you dare to question the great and powerful Oz?” mantra, would take this time to announce additional stimulus.

Remember when I told you that German exports were kicking tail once again, with the relatively weaker euro allowing their manufactured goods to be more competitive? If they were doing well when the euro was 1.30, imagine how well they are doing with it around 1.23!

It is now thought that the weaker euro will allow Germany’s nominal trade surplus to equal 4% of the German GDP. So German exporters are happy campers with the weaker euro, as they should be! And as long as the euro remains stronger than the dollar, given the problems of the eurozone, what does that tell one about the dollar?

OK, the Bank of Canada (BOC) meets this morning to discuss rates — this will be a nonevent, as BOC Gov. Mark Carney wants to remove monetary policy stimulus, but just can’t pull the trigger with all the problems of the eurozone and the U.S. right now. The eurozone is in recession, and the U.S. — although I say it never left the depression, but officially came out of recession — is ready to re-enter it, says Pimco bond king Bill Gross.

So I don’t expect much in the way of movement from the Canadian dollar/loonie (CAD), from this nonevent BOC meeting. I think everyone knows the hand that the BOC has been dealt at this point.

The Reserve Bank of Australia (RBA) meeting minutes for the July meeting earlier this month were balanced to slightly hawkish. The RBA once again said that they were comfortable with the current rate cuts made, and will continue to monitor the effects of those rate cuts made earlier this year. These meeting minutes have helped the Australian dollar (AUD) to continue to gain in the $1.02 handle, heading to $1.03.

Last night, Japanese Finance Minister Jun Azumi tried his hand at jawboning in an attempt to slow down the speculative trading in the Japanese yen (JPY). This is typical of how the Japanese do things. The yen is strong, as it briefly went below the 79 handle yesterday (yen is a European-priced currency, so the lower the number, the more value it has versus the dollar), and this strength in the yen has been driving Japanese officials crazy.

But as I’ve said before, they can jawbone all they want — the markets are not afraid of the Bank of Japan (BOJ) any longer, for they know all too well that to really move the yen weaker, and cause massive losses for holders of yen, the BOJ would have to work in coordination with the U.S. and eurozone. They have other problems to work on right now to deal with Japan’s currency strength problem.

In China, the State Council will meet this week, and from this meeting, we could very well see the additional measures that will be adopted by the Chinese government in an attempt to regenerate the moderating economy. The Chinese renminbi/yuan (CNY) posted gains overnight. This is the first time in a week or so that Chinese officials have allowed the renminbi/yuan to gain. So maybe, they know something about Big Ben’s visit to the Senate today.

And here we go again with gold, as it nears $1,600 again this morning. The shiny metal has been manipulated so much lately that it’s difficult to get traction. Artur over in our Business FX group told me about a new gold trading platform that Italy started last week. Good for them!

I talked at length about gold manipulation in the next edition of the Review & Focus, which is sent monthly to EverBank World Markets clients. You’ll want to pick up a copy of that at your nearest newsstand when it comes out! HA! When will the public demand this be stopped? When a much-larger percentage of the population owns gold — that’s when!

Yesterday’s retail sales data here in the U.S. for June was absolutely disappointing, just as I said it would be. June retail sales fell -0.5% when a +0.2% gain was forecast. Not by me! But by the so-called experts. Of course, if these experts would just check the BHI (Butler Household Index), it has a more-consistent indication of what retail sales will be.

So Big Ben Bernanke will have this data in his back pocket when he travels to the Senate today. The backside of the financial storm is moving more onto our shores, folks. More and more economic data confirm that, and still no one does a thing about it.

We’ll be inundated with economic data today — some of it stupid pet tricks, and some of it worthy of the paper it’s printed on. CPI will print, as will industrial production and capacity utilization. Longtime readers know under which category those economic data prints fall under. But when it’s all said and done today, the markets will be moved by Big Ben Bernanke’s testimony, or they won’t. The economic data will be “extras” today.

Then There Was This… Richard Duncan is an author and analyst who has written at least two books that I have poured myself into over the years. First it was The Dollar Crisis, which was written about 10 years ago, and then the most-recent book, The Corruption of Capitalism. He “gets it,” folks. Always has, and he was interviewed on CNBC yesterday and decided to tell the world that he believes the risk of a new depression. Here are a couple of snippets from his interview on CNBC Europe yesterday:

“When we broke the link between money and gold, this removed all constraints on credit creation. This explosion of credit created the world we live in, but it now seems that credit cannot expand any further because the private sector is incapable of repaying the debt it has already, and if credit begins to contract, there’s a very real danger that we will collapse into a new Great Depression. If this credit bubble pops, the depression could be so severe that I don’t think our civilization could survive it.”

Chuck again. I have to say that reading that gives me the chills, and would hope that we don’t get to that. Hopefully, spending cuts that would alleviate the need to go to the credit markets will steer us around that problem. But the spending cuts have to come, folks. NOW!

In addition, I sent an email to my friend John Mauldin yesterday after I saw him on Bloomberg TV, talking about the debt, and how he was optimistic that Congress would do the right thing and begin to cut debt. My email simply said, “John, you are far more optimistic than I regarding Congress and their will to cut the deficit spending and debt. I believe there is no political will to do so, for it does not get them re-elected, and with the large number of voters receiving some sort of government payouts, to cut those payouts would be suicidal for their re-election chances.”

John replied, “If we don’t, then it is a disaster of biblical proportions.”

I agree with that, but then I’ve been telling people about the disasters that this growing debt were going to cause for over a decade now.

To recap, the currencies and metals began to gain midmorning on Monday, and carried on throughout the overnight sessions. It seems the traders et al., don’t ever learn a lesson — they are once again selling dollars ahead of a Fed event, in hopes to be the first to take advantage of an announcement of additional stimulus. Chuck thinks they will once again be disappointed by the Fed heads. The BOC meets today, expect no move, and the RBA meeting minutes had a hawkish bias to them.

Chuck Butler
for The Daily Reckoning