Currency Rally is Wiped Out!

Last night, I went to my computer at home, and brought up the currency markets, and saw that as of 9:00 last night, the currency rally that was VERY strong yesterday, was still “on”… But, like I said at the top, I arrived here, albeit late, this morning and things are drastically changed! I was all prepared to tell you about the 1.70 appreciation of the euro (EUR) in one day, and the $18 rise in gold… But, the best laid plans of mice and men change, eh?

So… I scoured the news wires, and my emails to see if I could pinpoint just what happened to cause this drastic overnight change… And the only things I can find shouldn’t have been that big of a deal, and shouldn’t have caused the sell off that happened overnight and this morning. First, Japan reported that their economy is growing slower than expected, and that triggered a flight to safety… HUH? Let me get this straight… Japan, the land of stimulus and QE, is still having problems generating economic growth, and so traders buy yen (JPY) and dollars? Talk about a strange mentality! But it is what it is, folks… We just know that this is all noise, the real McCoy comes on the days the dollar and yen get sold!

The other thing weighing on euros this morning is a report that showed German retail sales unexpectedly dropping for a second straight month in September. German Retail Sales for September fell 2.3% from August… That’s quite a drop! I find this report to be a little misleading though; I mean I just saw a blip go across the screens yesterday that said German unemployment fell to an 18-year low this month! So… If all these Germans are working, there’s got to be some domestic demand, eh?

And domestic demand is what German officials are counting on to help exports drive the economic recovery.

Well… With this dollar and yen overnight, I don’t think we can lose sight of what’s happened since June, when the thoughts of QE first surfaced, and the Chinese announced that they would allow more flexibility in the renminbi (CNY)… The currencies and precious metals have taken it to the dollar since June… But guess which currency is the laggard? The currency that has only gained a small amount since June? I think it will surprise you, because it’s one of my fave currencies… Canadian dollar/loonies (CAD)… So… What does that tell you? Well, I don’t know what it tells you, but I know what it tells me, and that is the loonie has some catching up to do!

Look, I’ve gone this far this morning, and not mentioned the goings on with US QE! But I heard a line yesterday that stuck with me, and I think it makes a lot of sense… It’s a theme that’s playing out, called: “punish the printer”…

I had an interview with Dow Jones yesterday, and they asked me if I would comment on the market’s actions… I said that the currency and precious metals rally was a result of Thursday being a day when the markets were thinking the FOMC would go deep with QE… That’s all… “Punish the printer”… Today, if I got that call, it would be a different story.

I did an interview with NewsMax yesterday that I believe will appear in the January edition of the magazine. We talked about a lot of things, but the meat of the story was all about silver being the new gold… William Jennings Bryant would have been proud of me! I can’t say any more, or else you won’t go out and buy the magazine in January! HA!

Did you see that German Chancellor Angela Merkel won European Union backing for a rewrite of European Union (EU) treaties to create a permanent “debt-crisis mechanism” by 2013 to prevent a repeat of the Greece-led shock that jolted the euro?

Way to go, Angela! You go girl! Think about this, folks… But think about this using the US states instead of the Eurozone member nations… Wouldn’t that be great to keep the states from taking a trip to the Hotel California?

Just shows to go you that Germany still pulls the strings in the Eurozone, and as its largest economy, and most prudent central bank, it should!

Hey! I read a story last night, that had a concept in it that I hadn’t really considered, and that is that the FOMC is going to implement QE, not in attempt to kick-start the economy, but instead to simply keep the dollar weak… Hmmm… Even I don’t think they’re that devious! But the more I thought about it, the more I started thinking about how before Big Ben Bernanke was Fed Chairman, he told us all that he had studied Japan’s meltdown, and knew exactly how to keep the US economy from ever being a “Japanese economy”… Hasn’t he failed miserably at that? Maybe he still has work to do on that, but here’s my point… Having failed miserably, the Fed Chairman now finds the US in a pile…no…make that mountain of debt, and an economy spiraling into a dark abyss… He figures, he can’t save the economy, it will have to save itself, but with it in the dark abyss, foreigners will balk at buying our debt, so what’s the one thing the Fed Chairman can do? He can make certain that the dollar is weak so that those buying our debt can buy it at a discounted clearing price.

And looky there! Recall a couple of weeks ago, when I said that it was about time for the US government to give the wink and nod to the media to shift their focus on the European debt crisis, and take the heat off the US’s problems? Well, to borrow a phrase from Bud Light, Here We Go!

Above, I mentioned the win for Angela Merkel that came at the EU summit on debt… Well, the media is all over this, just ahead of the FOMC meeting next week… Hmm… here I go again! But this all seems a little too contrived for me, that even with the EU agreeing to a “debt-crisis mechanism” the media is focusing on the problems? So, maybe it’s a co-inky-dink, but I doubt it!

So… Gold ran up $18 yesterday! But this morning is waffling between down $8 and down $2… You could say that it’s profit taking… But I think it’s more than that… It’s all about QE…

Then there was this… From the USA Today, talking about the foreclosure problem… Let’s pick it up in the meat of the story…

“The epidemic is spreading from the states at the ground zero of the foreclosure problems out into areas that hadn’t been previously affected,” said Rick Sharga, a senior vice president at RealtyTrac.

The trend is the latest sign that the nation’s foreclosure crisis is worsening as homeowners facing high unemployment, slow job growth and uncertainty about home prices continue to fall behind on their mortgage payments.

In all, 133 out of 206 metropolitan areas with at least 200,000 residents posted an annual increase in foreclosure activity in the three months ended Sept. 30, RealtyTrac said.

The firm tracks notices for defaults, scheduled home auctions and home repossessions – warnings that can lead up to a home eventually being lost to foreclosure.

Eleven out of the nation’s 20 largest metropolitan areas saw foreclosure activity increase in the third quarter compared to the same period last year.

This is getting very ugly, folks…

To recap… The currencies and precious metals rallied very nicely yesterday, with the euro up 1.70 and gold up $18, but most or all of those gains have been wiped out overnight and in the morning session. Japan’s economy is still dragging along, and the most recent report on that sent the markets into the flight to safety mode once again. Germany won over the European Union with their idea for a “debt-crisis mechanism,” and the Canadian loonie is lagging the other currencies in their rallies since June… Wink and nod…

Chuck Butler
for The Daily Reckoning