Currencies Continue to Gain on the US Dollar

Front and center this morning, we have more upward movement in the currencies, and precious metals. Gold has reached yet another all-time record at $1,280 this morning… And silver is $20.80… On their way to $1,300 and $21 respectively, eh? Sure looks like it to me, but then, that’s just me, I could be wrong, right?

The euro (EUR) is trading well over 1.31 this morning, and the Aussie dollar (AUD) is nearing a two-year high at 0.9455… Yes, it was July of 2008, the last time the Aussie dollar saw the other side of 0.9450, and then it was falling from its all-time high of 98-cents that it reached earlier in the summer of 2008.

Basically, I think what’s really moving these risk assets these past few days is that the markets are not worrying about a double-dip for the US economy any longer, and if that’s not going to happen, investors are looking for something outside of the dollar, for there’s no need for a so-called “safe haven”…

Personally, I think the markets are wrong, but I was taught many years ago, that the markets are never wrong, and when you go against them, you lose… So, I guess I’ll have to put my call of a double-dip in my back pocket for now, and play ball with the markets, eh? I mean, I think there will still be a double-dip, but I doubt that it will feed a flight to safety again…

OK… No intervention from Japan overnight, so their entry into the “currency manipulation game” – otherwise known as intervention – is, for now, a one-and done… But I don’t think it will continue to be a one-and done…that is, as long as traders still have the intestinal fortitude to fight a central bank!

Speaking of Japan’s intervention… Remember when I used to ask the question about why the US beats on China, but lets Japan go Ollie, Ollie, Oxen free?

Well… Now you’ve got Japan purposely weakening their currency, and US Treasury Secretary Geithner still beating on China!

Japan’s economic status is far more mature than China’s, and yet, Geithner is still beating on China?

Serenity now!

The Reserve Bank of India (RBI) raised interest rates in an effort to cool inflation, and hiked its repo rate to 6.00% from 5.75% and reverse repo rate to 5.00% from 4.50%. The market consensus was for a 25 bps hike in both rates. In its statement, the central bank said that “inflation may remain high for some months.” The rate hike boosted the rupee (INR) higher versus the dollar in a move that we’ve not seen from the rupee in some time!

Yesterday, Spain saw a well-received auction of Spanish government debt, thus allowing Spain to kick the can further down the road.

Next week, on Tuesday, the FOMC will meet… And I can’t begin to tell you how many rumors are going that the FOMC will announce a new round of quantitative easing at this meeting. And the thought of more quantitative easing is hanging over the dollar like the Sword of Damocles.

And while we’re here in the US… Did you see this story? Bank of America Corp., the biggest US lender by assets, should repurchase as much as $20 billion in home loans that were based on wrong or missing information, said a trade group for bond insurers. More than half of the soured home-equity credit lines and residential mortgages created from 2005 through 2007 that insurers examined should be bought back, the Association of Financial Guaranty Insurers said in a Sept. 2 letter to Bank of America Chief Executive Officer Brian T. Moynihan.

I wonder if BOA budgeted a $20 billion hickey?

And this from our mortgage commentary guy, Andrew Murray… US home seizures have reached a record for the third time in five months in August as lenders completed the foreclosure process for thousands of delinquent loans. Bank repos have also climbed 25% to 95,364 from a year earlier. Some estimate that foreclosures could add about 12 million homes to the US home stock over the next year, which would basically crush any real estate recovery for some time to come. Florida and Nevada are still the twin epicenters of foreclosure activity with Florida filings at a ratio of 1 to every 155 homes and Nevada at 1 to every 84 homes.

I saw a blip yesterday that 1-in-7 here in the US live in poverty now… I have sidebar thoughts on that subject, but I think I’ll keep those to myself…

So… The US data on Thursday was interesting… Not earth shattering, just interesting… PPI (wholesale inflation) printed higher at 3.1% year-on-year. The Initial Jobless Claims were lower by 3,000 from the week earlier, but still 450,000! The Current Account Deficit for the second quarter was $123.3 billion or $41.1 billion per month… And the TIC flows were very strong at $61.2 billion…

So… The naysayers will be on the shouting blocks exclaiming that the world is still buying enough Treasuries to finance our deficit, and therefore deficits don’t matter!

I can’t begin to tell you how visibly sick I became typing that last paragraph…

Today, on this Fantastico Friday, we’ll see the color of the stupid CPI and the U. of Michigan Consumer Confidence, which for some strange reason is expected to inch up higher… Sure the US stocks continue to defy gravity, but come on… Every day another economist climbs onboard the “recovery is not happening here” train…

Then there was this… Yesterday, I talked about banks that didn’t take TARP, and how relieved they are today because they did not take TARP… Then there was this story on MarketWatch that played nicely with my thoughts yesterday… “The early change in TARP strategy from asset purchases to capital injections, followed by the rollout of numerous seemingly unconnected programs, combined with largely ineffective communication of the reasoning behind these actions, spread confusion in the public and undermined trust in the TARP,” the Congressional Oversight Panel said.

Yes… TARP was a fiasco, and until the day I die, I will believe in my heart of hearts that it should not have ever taken place, nor should have the $787 billion stimulus… Yes, there would have been lots of heartaches and devastation, but it would have been over with, and the strong institutions would now be thriving, and our future generations wouldn’t have to deal with the loss of freedoms and incur a heavy tax burden… But that’s just me… If you don’t agree, that’s fine…

And right before I go to the Big Finish, I’m seeing selling happening in the currencies… Probably profit taking before the books close in London, eh?

To recap… The currencies are stronger this morning, with Aussie dollars nearing a two-year high, and euro is back to 1.31… Gold is at another new all-time record high of $1,280, and silver is $20.80.

Chuck Butler
for The Daily Reckoning