Dollar Strong vs. Euro...Weak Against Commodity Currencies

The dollar is still moving along with strength for the fourth consecutive day… Yesterday, I told you that the 10-year Treasury had jumped 20 Basis Points to 2.72%, but not to get to lathered up about it, as the FOMC is getting ready to buy $600 billion of Treasuries, which should lower the yield. Well… The more I looked at the rising Treasury yields, (the 30-year hit a 6-month high) the more I realized that the dollar strength was being fueled by more than the problems of the Eurozone periphery countries… Investors were drawn to these higher yields, it’s that simple…

But, once again, I’ll get on my soapbox and shout from the top of my lungs that buying US Treasuries is a Ponzi scheme that will all come crashing down on you when the Fed removes their stimulus… Sure it won’t be now, or in the next six months, but this Treasury bubble will pop one day, and when it does, the mass exodus to the exit door will be so jammed, that everyone will get hurt!

Oh… And guess what happened yesterday in the Treasury’s latest Treasury Auction? The auction was not well received by the markets! The Treasury had wanted to issue the bond at 4.26%, but the markets demanded a higher yield, and the auction went off at 4.32%… Just a sign of the things to come, folks… I’m just saying…

OK… since this is going to be a limited Veteran’s Day edition, I had better get to the news that is driving commodities higher this morning… Mexico may allow pension funds, the nation’s biggest institutional investors, to tap global commodities that are trading at near two-year highs. The Thomson Reuters/Jefferies CRB Index of 19 commodities traded at its highest level since October 3, 2008! Gold jumped $14, Silver $1.25, Copper hit a 2-year high, and so on…

And the commodity strength has carried over to the commodity currencies, as even with the dollar strength, currencies like Aussie dollars (AUD), and Canadian dollars/loonies (CAD), remain above parity to the US dollar this morning.

The Big G-20 meeting begins tomorrow, and the President is in Asia and will attend the meeting… I think the other 19 country finance ministers are coming to the meeting loaded for bear, folks… They are ticked and ready to ask some tough questions about the $600 billion quantitative easing (QE)… I heard a rumor that Germany is ready to deliver a frank message to the G-20 about likely fallout from the QE… Recall, I told you the other day that US Treasury Secretary Geithner was ripping Germany’s export prowess…

I’m going to go out on a limb here, and I’m sure to tick off half  of my readers with this thought, but from everything I see going on, one can’t help but think that the US is not doing itself any favors, dissing Germany, placing trade barriers on Chinese imports, and so on… It’s not the book on how to win friends and influence enemies… Well, that is, that’s how we treat the large countries… And that’s all I’ll say about that!

There’s a guy over at Goldman Sachs Asset Management, Jim O’Neill, that I think has a good hold on things going on… Yesterday, O’Neill said that it was “ridiculous to claim that countries around the world are engaging in a currency war.”

I like that, because it agrees with what I’ve been saying! Sure, maybe the US wants the dollar to race to the bottom, for that’s the only way they see that they’ll be able to pay interest costs (notice I didn’t say principal?) on the debt they’ve issued. You know, with “cheaper dollars”… But countries like China, Australia, Norway, and so on, are not running with the US dollar, in case you haven’t noticed!

Then there was this from The Washington Post… One of every four staffers on the US National Commission on Fiscal Responsibility and Reform is paid by an outside organization, The Washington Post reported. Two of the panel’s most senior employees, Ed Lorenzen and Marc Goldwein, are paid by private groups that have campaigned for cuts in entitlement programs. “This is the type of shenanigans that average Americans are so upset about right now – that money talks and everyone else is left out,” said former Rep. Barbara B. Kennelly, D-Conn.

To recap… It’s Veteran’s Day! The dollar is still strong, but not against commodities and commodity currencies, as Mexico is nearing a decision to allow their pension plans to buy commodities, thus opening up Pandora’s Box of commodity rallies! Gold is up $14, silver $1.25, and copper is at a 2-year high! The Eurozone periphery countries are being a real drag on the euro, and the G-20 meeting is sure to set off some lively debate on the likely fallout of the Fed’s QE.

Chuck Butler
for The Daily Reckoning

The Daily Reckoning