Canadian Dollar Parity Party

Hello everyone! I want to start today with a great big THANK YOU to everyone who sent along prayers, thoughts, good wishes, and everything else to me last week… Yes, it’s me! I’m going to take a stab at writing again after two weeks… It’s been a turn on Mr. Toad’s Wild Ride the past two weeks, but I’m here… I’m out of cancer pain… And… Ready for life’s next fork in the road.

For the time I was at home before surgery last week, I had a lot of difficulty reading anything; so keeping up with the markets was out of the question… On Monday and Tuesday this week, I went back and read as much as I could from the last two weeks to bring me up to date…  So… Here goes…

From what I read, the last two weeks have basically been very much like the month of March. The euro (EUR) is held hostage by Greece… Oil is rising, which is pumping life into the Canadian dollar (CAD)… Interest rate speculation is still a big deal, in countries like Australia, Norway, and the US (at least Australia and Norway have “done the deal”)… While we’re still wondering, “Where art thou rate increases?” here in the US.

And all the while… The US Congress and administration continue to find more ways to spend money we don’t have than the law allows… Last week, I sent Chris those numbers to share with you about how 61% of the expenses are covered by taxes… The rest (39%) has to be borrowed. Well, that’s today, folks… My long time friend, colleague and big boss, Frank Trotter, has a slide in one of his presentations that shows that by 2017, the costs of Social Security, Medicare and Medicaid will have grown by so much (due to the baby boomers like me) that taxes won’t even cover those costs… So… You know what that means, right? Higher taxes, and less freedoms… Oh, it will also mean a significantly lower dollar to help with the financing of all that deficit spending. Yes… In case you forgot while I was gone… The Congressional Budget Office (CBO) has already forecast a 4.5% deficit to GDP for the next 10 years!

OK… I guess I had better get to what happened yesterday in the currencies and metals, eh? But first… A note about what I recently called the belle of the ball… Canada and its loonie… Yesterday, the Bank of Canada (BOC) met, and while they left rates unchanged as suspected… They did drop some language that had been in their previous statements about keeping rates steady until July… The economic outlook in Canada is glaringly strong right now, and so is the newest forecast for inflation… The BOC noted that inflation was moving higher than their target of 2% over the next year… And that mention along with the dropping of the language about the bogey date of July, has me thinking that the BOC will most likely be the first G-7 nation to raise interest rates… If not in May, then by June…

Meanwhile back at the ranch… The loonie has gone past parity this morning!

Yes, Australia, Norway, and India have raised rates, but they aren’t G-7… So… This would be HUGE for the loonie, folks… HUGE!

Oh! And The Reserve Bank of India (RBI) raised their benchmark interest rate by 25 BPS yesterday! The Indian rupee (INR) continues to be one of the best performers in Asia…

Yesterday, the markets were still trading with the stink of the Goldman accusation on their clothes… There just doesn’t seem to be any clear direction as to how the markets should react to the Goldman Sachs news. For those of you living in a cave, only to come out on Wednesdays, Goldman Sachs is being sued by the SEC for selling securities (CDOs) knowing all the while that someone on the other side of the trade was betting they would fail, and not making that information known.

To me this is kind of like Al Capone… But in the end… The Goldman story is not big enough to overshadow the sovereign risks that Greece brought on over two months ago.

The currencies moved sideways for most of the day… And while gold tried to mount a rally, it was not successful at the end of the day. In the overnight markets, the euro fell below the 1.34 handle on those Greek sovereign risks… However, the Greeks will begin talks with the IMF today, so we’ll have to see what shakes out that meeting… Guesses are centered on a 45 billion euro emergency aid package… For those of you at home keeping score that’s $61 billion worth!

Seems like peanuts compared to the bailouts amounts that were thrown about like wooden nickels here in the US… But, then, like I’ve tried to point out for months now… Greece is no comparison to the likes of California, Illinois, New York, and Michigan, with their debt problems…

The Aussie dollar was briefly above the 93-cent level this morning… I’m sure when the NY boys saw that they took some profits… So, let’s look at the Aussie dollar returning to that level again once the dust settles on the profit taking, eh?

I see where The Wall Street Journal is reporting that European Officials are calling for their governments to cut all ties with Goldman Sachs… Interesting…

And the poor beaten and bruised pound sterling (GBP) received some love this morning after the UK job report showed a nice drop of 30K in the unemployed… I wouldn’t be hanging my hat on the UK labor picture, folks… They have bigger fish to fry there, that aren’t going to come out looking very tasty…

And in another example of throwing good money at bad things… Chrysler reported a $3.8 billion loss in the 2nd half of 2009… That’s $3.8 billion from the time it left the loving arms of government protection… That’s sad, isn’t it? I was watching the Colbert Report on TV (he’s a very funny guy) and he was talking about bailing out Chrysler, and said that he didn’t agree with the bail out, and didn’t understand why it was such a big deal to bail them out… He then said, “I guess the Government remembered all the death and destruction that occurred when Studebaker shut down”…. HA!

And then there was this… I read this yesterday and couldn’t believe my eye… There was a European official that actually said that “vacation traveling” was a human right! OMG! This claiming that this is a “right” and that is a “right” is driving me up a wall, folks… The last time I checked, there was only a supreme being that could give out rights… Not governments… But then, that’s just me, and I don’t want to really get everyone mad at me my first day back writing the Pfennig!

To recap… The currencies are a mixed bag of good and bad this morning, as the Canadian dollar/loonie and Aussie dollar are looking strong, and the euro is getting sold on renewed Greek pressure, and dragging the other European currencies down. Government spending is still reaching new heights, and the Goldman Sachs news is trying to overtake the Sovereign Risks created by Greece, but I doubt in the end they will do so.

Chuck Butler
for The Daily Reckoning