China Likes Canadian Investments

When I turned on the currency screens this morning, the euro (EUR) was trading with a 1.47 handle! WOW! It just skipped right through the 1.46 handle, eh? It began yesterday afternoon… The dollar was getting sold on the news of a strong retail sales figure (more on that in a minute), and the euro was edging up the 1.46 ladder. The move to get it past 1.47 came in the overnight markets. Now, having gotten you all lathered up about 1.47, I have to say that since I turned on the currency screens, the euro has lost ground back to 1.4688, but still. That’s quite an impressive move from yesterday morning, eh?

OK… The issue with the retail sales figure causing dollar weakness is a time-honored tradition… NOT! Well, it is if you only count the last nine months… But traditionally, a figure like the one that printed yesterday, would have attracted buyers for the dollar, not the opposite, which occurred… Here’s the skinny, as I see it…

Retail sales for August were quite strong, and showed signs that the move was more than the Cash for Clunkers program, and “back to school” buying. There are quite a few people/economists/analysts out there now jumping on the President’s bandwagon that the recession is over based on this report… For those of you at home keeping score, retail sales for August printed at +2.7%!

Does one retail sales report that’s being trumped up with a Government deficit spending program, and back to school buying really tell us that the recession is over?

I wonder if all those people wearing the President-endorsed, end-of-the-recession rose-colored glasses ever stopped to wonder if gas purchases might have helped trump up this figure? Well, I found that rising gasoline prices sent service station receipts up 5.1% in the month. If we had journalists like we used to have, they would have known to go look at the rising gas price component of the report, since just last week the trade deficit jumped by 16% in one month due to rising oil prices!

So… With retail sales shooting toward the moon, the dollar selling increased… Because, if the thought here (and not my thought!) is that if retail sales are jumping again, it must mean the US consumer is buying again, and that will help kick the global recession in the rear, and the risk takers come out of the walls, the US Treasury “safe haven” buyers sell to get out of their losses, and they all go to better investments… It may be what they think to be better… Stocks… But for the most part, these investors seek out higher yielding or better income potential investments… And you won’t find those on the Big Board… You won’t find them at the local bond house… You’ll only find them abroad, in foreign deposit rates, and foreign bond yields.

Now that everyone is all lathered up about this euphoria going on in the markets… I’m still keeping a light on for a HUGE stock market sell off, which would adversely affect the values of all these risk assets that risk takers have been going into. Commodities, currencies and stocks would all be affected.

However, if that HUGE sell-off never comes… Who wants to stand in front of the bus that has gold above $1,000 and the euro posting a nearly 17% gains since March 1st… But that’s nothing, folks! The New Zealand dollar (kiwi) (NZD) has gained 44% since March 1st… The list of currency gains since March 1st is amazing… Simply amazing. Here’s a sample… Aussie dollars +38%, Norway +23%, loonies +21%, and so on… So, now you see the bus that I’m talking about!

Big Ben Bernanke had this to say yesterday… “Even though from a technical perspective the recession is very likely over at this point, it’s still going to feel like a very weak economy for some time.” He also said that he “may have to accept a slow recovery and high unemployment as the price for defending [his] inflation fighting credentials.”

OK.. Excuse me for a minute, I have to go in the other room and either laugh my rear off or, throw up! Big Ben has “inflation fighting credentials”? Since when? And just where is he hiding these credentials? Or… Maybe his description of “inflation fighting credentials” is different from mine! Hmmm… I shake my head in disgust…

Speaking of the Fed and inflation… My good friend, David Galland, who writes an absolutely fabulous daily letter regarding the goings-on in the world called “Casey’s Daily Dispatch”, had this to say yesterday regarding this subject of the Fed and inflation…

“Reason Magazine is one of the few magazines I read with any regularity. In the current edition, they had a couple of items that I thought were especially interesting. Ironic, actually.

“The first was about a comic book the Fed has published discussing inflation, as well as defending its autonomy. You can view it by following the link below. What you should find interesting is that they make several clear mistakes in describing inflation – for instance, by saying that if the price of oil goes up, that causes inflation. And on the very first page, they state that ‘The dictionary defines inflation as a substantial and continuing rise in the general price level.’

“But that is not what the dictionary says – every entry I checked always includes ‘related to an increase in the volume of money,’ or words to that effect. Kind of scary, when the organization charged with fighting inflation doesn’t actually know what it is.”

I saw the results of a survey last night that showed that the Chinese are very interested in investing in Canada. It was reported that China sees energy, natural resources, agriculture and biotechnology as the most promising areas of Canada’s economy. Hmmm… Aren’t those the same things I’ve listed over the years? (Well minus the biotechnology) Anyway… The report also showed China having interest in the US and Australia…

Money flow is a very important thing to watch in the investment world… And if money is going to be flowing into Canada and Australia from China, that will be good for those countries and their respective currencies. As far as the US is concerned… Forgetaboutit! Remember when China wanted to buy that oil company in California a couple of years ago? I doubt that China will want to get dragged through a mile of broken glass and razor blades again!

Yesterday, I told you about the dollar denominated bonds being issued by Germany, and how I viewed it as a green light from Big Ben Bernanke for other countries to take over the destruction of the dollar, for which the Fed has carried the flag for since 1913… I told you I had another frightening thing that I would bring to you this morning… So with no further delay…

The Chinese government has told Chinese companies that they do not have to honor derivatives and commodity futures contracts made with Western financial institutions. Uh oh…

This appears to be one of those things that passes in the night, and then one day smacks us right between the eyes, and we say, “Where did that come from?” Well… If came from the Chinese government that told Chinese companies that they did not have to honor derivatives and commodity futures contracts made with Western financial institutions… That’s where!

OK, I can hear you saying, “How can they do that, Chuck?” Well… When you’re a 200-pound gorilla, you can sit where you want, and you can do what you want! China is taking the stance of “you come get us, if you think you were wronged!”

So… What does this do to the institutions that wrote these contracts with China? Well… That’s the cheese that binds, folks… It’s going to hurt… And it’s going to hurt bad… But, nobody really knows just how many or how much risk is out there… But, if one day you wake up and hear on the news that the financial markets here are melting down once again, you’ll be able to say… Ahhh, it must be that Chinese announcement that Chuck talked about!

Big Al Greenspan was back in the news last night… But first, I want to quiz you on something.

Who said, “In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value.”

Well… You’ll never guess who, so I might as well tell you, but when you hear it you’ll bust a gut, given the whole low interest rate, high money supply environment he created at the Fed… It was… Drum roll please… Alan Greenspan, from an article written in 1966 entitled, “Gold and Economic Freedom”.

Anyway… Big Al was back in the news, and said that he was worried that lawmakers would hamper the Fed’s efforts to rein in its monetary stimulus, and that inflation might “swamp” the bond market. See how Big Al is sticking up for the Fed, and putting down the groundwork now, to blame lawmakers when inflation is soaring on the other side of the recession?

Big Al is dastardly… I wouldn’t be surprised to see a Commie flag nailed to the wall of his garage! HA! Long time readers know my dislike for this guy as a Fed Head, and how he might now have paved the road to this mess we’ve been in, but he laid the foundation!

OK… The data cupboard will yield a boatload of data today, and it will be interesting to see how the dollar reacts to it. Leading off for the data cupboard today is the stupid CPI data for August. Batting second is the current account deficit, and in the all-important third position in the batting order we have The Tic Flows… Batting clean-up are Chuck’s faves Industrial Production and Capacity Utilization… WOW! What a line-up! A Murderer’s Row for data if you will!

Since no one but me (and my friends her at The Daily Reckoning and 5-minute Forecast) seems to care about the deficits, the markets will probably wax over the current account deficit… And I don’t care about CPI… So that brings us the TIC Flows for July, and I’m fearful that this data will be harmful to our future… And the experts are forecasting a bump up in Industrial Production and Capacity Utilization, which would indicate a stronger economy, and given what we saw yesterday with the stronger retail sales, one would think that a bump up in Industrial Production and Capacity Utilization would be bad for the dollar.

Finally… Someone with some brains! I was beginning to think that these guys were all kin to the scarecrow! Yesterday, I told you about how the new governing party in Japan is calling for increased currency intervention… Well, finally someone that understands! Japanese Finance Minister, Fujii, said that he is “against intervention if their moves are gradual, and that [he doesn’t] think they are fluctuating rapidly now.”

It looks like currency traders in the overnight markets were paying attention, and immediately began buying up Japanese yen (JPY)… The yen is pushing the envelope once again to a sub 90-level… And that would be a very good thing for yen holders!

While I’m on “feel good stories”… I might as well mention that gold has finally made a strong move above $1,000, moving to $1,018 as I write! Silver is kicking tail and taking names later too, with a strong move to $17.35! The retail sales data in the US yesterday kicked off a new phase of “inflation protection buying”

OK… To recap today… Retail sales in the US were very strong, setting off a new wave of dollar selling, to currencies and precious metals. China likes Canada and Australia, and China tells their companies not to honor derivative contracts with Western institutions. And we have a boatload of data to get through today in the US.