Currencies and Metals Swing Wildly

Good day. What a crazy day in the risk markets yesterday! We had the Big Ben testimony on the economy (more on that in a minute), making me feel as though I were getting spun around and around. It was downright crazy, folks.

So yesterday morning, I told you how the traders and hedge fund gurus were selling the dollar ahead of the Big Ben Bernanke testimony, in hopes that he would use that stage to announce additional stimulus for the economy/markets. I told you how they would be disappointed, and therefore, the downside risk was great. You may recall that the euro (EUR) was playing peekaboo with the 1.23 handle. OK, the stage is set, and then…

Big Ben never even mentioned additional stimulus. So the selling of the dollar spun around, and the risk assets were on the selling blocks. The euro fell from 1.23 to 1.2185. Ahhh, grasshopper, we weren’t finished.

Having been disappointed once again, the market gurus said, “OK, but isn’t he going to talk again tomorrow, this time to the House?” Why yes, he is! So once again, they began to sell dollars, in hopes that Big Ben would change his testimony on the economy to include an announcement of additional stimulus — up, down, up, down, up, down. Crazy! Which brings me to this question for the markets: Will you ever learn?

Of course, most “real diversification investors” just watch these moves and shake their heads in disgust for the noise it creates. They don’t get caught up in these crazy moves on days like yesterday. That’s for the “trader guys” — let them get caught up in all that!

There I was trying to get work done yesterday, when I looked up to see some of the text that Big Ben Bernanke was delivering in his speech to lawmakers on the outlook for the economy. You know, the testimony that traders et al. were all lathered up about yesterday morning. And what to my wondering eye did appear?

The Fed chairman was delivering a very somber, bleak message assessment of the U.S. economy to the lawmakers.

HEY! Maybe Big Ben has become a Pfennig reader! Nahhhhhhh. I doubt that would ever happen! But rest easy, my dear readers, for the Fed chairman made sure the lawmakers knew that “the Fed is prepared to take action, should the economy weaken.” Yes, we can all rest easier now.

Did you see any of the testimony and the questions the lawmakers asked? Why didn’t they ask Big Ben about how his “additional stimulus” has done so far? Why didn’t they ask him about the new way money is created in the U.S.? Does it not border on counterfeiting?

OK, the other day, I was reading some research, and the writer was explaining how guys who keep saying that the Fed is printing money are wrong. They don’t really “print” money any longer. They make entries into a computer — it’s called the System Open Market Account at the Federal Reserve Bank of New York. Are these entries actually considered to be “legal tender”?

So many questions they could be asking Big Ben while they have him in front of them — like what did, they have to do, if anything, with the Libor rate-fixing scandal? Anyway, none of the good things were asked of the Fed chairman, and he skedaddled out of the Senate before they could ask him any tough questions. Now it’s on to the House. Nothing will change there, folks.

OK, let’s go on to other things. I could spend all morning on that stuff! So we had the risk assets spinnin’ around yesterday. This morning, there is some trepidation with the markets gurus regarding their conviction that Big Ben will help them out.

So the recovery we saw yesterday afternoon with the risk assets is on shaky ground this morning. Maybe the markets gurus have finally figured out that the Fed is going to do nothing but disappoint them, time and time again. The market gurus sometimes act as though they are not the sharpest tools in the shed.

The Bank of Canada (BOC) left rates unchanged yesterday, just as I thought they would, and continued to say that “some modest withdrawal of the present considerable monetary policy stimulus may become appropriate.” Hey, folks, that’s central bank parlance for “we would love to hike rates, but something has got to change in the U.S. and eurozone before we do that.”

The Canadian dollar/loonie (CAD) was all caught up in the spinnin’ ‘round yesterday, so this BOC keeping their interest rate powder dry, and didn’t do much on a day like yesterday.

The Australian dollar (AUD) traded above $1.03 yesterday. And today, it’s right there once again! And the rest of Asia is also stronger this morning. China allowed the renminbi/yuan (CNY) to gain this morning, and when that happens, you can bet your sweet bippie that the Singapore dollar (SGD) is right on the renminbi’s tail.

I write a monthly article for the World Money Analyst, which is published by the International Man, and I highlighted this connection between the renminbi and Singapore dollar this month.

Have you been following the Peregrine Financial Group disaster? I found this statement by CFTC (Commodity Futures Trading Commission) Chairman Gary Gensler to be very interesting. You know the firm in which the CEO faked statements for over 20 years and spent all the customer funds? “U.S. Commodity Futures Trading Commission Chairman Gary Gensler told the Senate Agriculture Committee that regulators failed customers of Peregrine Financial Group, which recently collapsed. Gensler vowed that his agency will do better and outlined measures that he said should help.”

I could really dig my heels in here and talk about the CFTC and the manipulation going on with gold and silver, but the kinder, gentler Chuck isn’t going to be hooked by the bait — it’s tempting, but I’ll leave the whole thing up to your imagination.

Oh, and gold is down $5 this morning. Since reaching $1,595 the other day, it has slid down the slippery slope, to $1,578. I look at this trading in gold and silver) and just shake my head in disgust that we’re still talking about gold below $1,600. I can’t help but think that this is like this because the market gods want everyone to own gold, and are giving them time to buy it at these cheaper levels. Call me crazy. That’s OK, you wouldn’t be the first person to call me crazy.

The euro is seeing some additional weakness this morning from comments that came from Germany Chancellor Angela Merkel, who said that the “European project is at risk unless policymakers work harder.” Traders are looking at these words and thinking that there is still a very wide divide between Germany and those eurozone members that would like to issue a eurozone bond.

Things had been pretty quiet this week so far, with the eurozone and their debt crisis, until now. Just goes to show you that you have to keep one eye on the eurozone, and the other on the rest of the markets. I guess I can’t do that, but you can!

I got a few minutes to work on my Vancouver presentations yesterday, and I borrowed a slide from the Big Boss, Frank Trotter, which brings up all kinds of news items randomly on the screen. I talk about how it’s difficult to focus on one thing in the markets these days, and then in great BIG Bold Letters, GREECE appears. Yes, the markets continue to be fixated on Greece’s problems. They refuse to look at the problems in the United States.

There was an article on Yahoo Finance that reader/friend Scott sent to me last night on the problems with the United States. Here are a couple of snippets from the article:

“U.S. states face long-term budget burdens that are already limiting their ability to pay for basic services, such as law enforcement, local schools and transportation. Aging populations and rising health care costs are inflating Medicaid and pension expenses. At the same time, revenue from sales and gas taxes is shrinking. And grants from the federal government, which provide about a third of state revenue, are likely to shrink.

“The state’s financial problems aren’t just a result of the recession and slow recovery. They have built up over years. Many states have already cut spending on public university and infrastructure projects. California has cut its spending on state universities 12.5% in the past five years, the report said. South Carolina has reduced its support 30% in that period, the deepest cuts in the country. Florida and Iowa have cut higher education spending about 25%.”

Chuck again. These cuts are just drops in the buckets for the states, folks. Things are going to get a lot worse before they ever turn to better, if ever. And that doesn’t bode well for the economy, but it’s all about GREECE, right? Pardon me while I go scream at the wall!

OK, I’m back now. Before I head to the TTWT story for today, I wanted to highlight that the best performer overnight for the currencies is the Swedish krona (SEK). The krona is outperforming all other currencies as investors look for alternatives to the euro, but remain in the European arena. The Swedish economy has been quite strong recently, thus the reason the Riksbank (Sweden’s central bank) left rates unchanged at their last meeting. It’s a good story today for the krona, but how long will it last? Good question, but given the recent movements in the currencies, this could very well be short-lived, although it shouldn’t be!

Then There Was This… You know me, I’ve said that all the previous two implementations of quantitative easing (QE) achieved were that they propped up the stock market and lowered the value of the dollar. I’ve not been a fan from the beginning, and while I talk about more QE, I’m merely talking about what I think the Fed heads will feel that they have to do next! I would have thought that QE3 would have already been announced, and we would be talking now about QE4, but the Fed heads are keeping things held together with ceiling wax and bailing wire.

Rex Nutting of MarketWatch wrote an article saying that QE3 is pointless. Nutting believes the U.S. has many things to deal with, and QE3 just distracts us from the choices that must be made.

Chuck again. Yes, I agree! Everyone keeps talking about the fiscal cliff that the U.S. is heading for, but no one is doing anything about it! And QE3, 4, 5 or 25 doesn’t resolve these problems. Maybe Big Ben finally got the memo on QE? I doubt it. As I said before, I don’t think he wants to implement the next round of QE this close to the election, as to not be seen as a political move.

To recap, we went for a ride on the spinning wheel yesterday with the risk assets, as it was a risk on, off, on, off, on wild day. Big Ben Bernanke disappointed the markets once again with no mention of additional stimulus, and instead painted a picture of gloom and despair for the U.S. economy. He’ll speak again today to the House. Merkel decided to make certain everyone knew there was still a wide divide between Germany and those that want a eurozone bond. And the Bank of Canada left rates unchanged and had the same-o, same-o to say about removing stimulus.

Chuck Butler
for The Daily Reckoning