Euros Get a Boost from a Rumor

Good day… And a Thunderin’ Thursday to you! The day after, and we’re all still shocked at the news from Tuesday, but working through the loss of a colleague. One week from today, I head back to the eye doctor and radiologist. I haven’t noticed one change in my eyesight in the left eye, so I have to believe that this next week will be “the week” that the eyesight returns.

Stocks around the world are getting sold like funnel cakes at a State Fair, and I don’t see why not! Face it, stock jockeys, this “recession” has turned into a depression here in the United States as far as I can see; and it will eventually filter out around the world. What was once thought to be “insulation” from the affects of a U.S. meltdown has basically been non-existent. Still, one would like to think that 80% of Eurozone trade being among themselves would count for something!

So… If this is a depression – and I believe it is, and no amount of government intervention will help it, only making the “bottom line” worse… How long will it last? Oh my! Now, that’s a question for a “real economist”, not just one that plays the part on TV or through a free newsletter. But since you asked… It will last several years… Or until the un-thinkable happens… And I think you know what I’m talking about here… But since I don’t want people thinking I’m a warmonger, I won’t even go down that path… Just know that if this is a depression, it will last for some time, and all the government intervention will be akin to re-arranging the deck chairs on the Titanic!

Well… The currencies remained in a very tight range yesterday, with the euro (EUR) and other currencies trading stronger in the overnight markets. The story/rumor fueling the euro’s bounce off of near 3-month lows yesterday, is speculation that Germany plans to help ease the financial turmoil in the Eurozone, and eastward. I told you yesterday that I didn’t want to have to say it, because this is against my thoughts on how these things should work, but that the Bundesbank needed to get involved. Well, the rumors are that they will… Remember, that the Bundesbank is Germany’s central bank, and the most powerful central bank in Europe. There’s a press conference scheduled for this afternoon in Germany (which will be this morning for us!) and it is expected that Germany’s chancellor Angela Merkel will announce the plans to ease the financial turmoil then.

This rumor has really pulled the euro up off the mat, as it was about to get pinned by the dollar. So… I sure hope that Merkel doesn’t disappoint the markets, or else the euro will be thrown right back into the ring with the dollar, and that hasn’t worked out too well for the single unit so far this year…

And when the euro gets going versus the dollar… The rest of the currencies come out of the woodwork… But the one currency I want to talk the most about here is the Norwegian krone (NOK)… I’ve gone through all this before, so I won’t keep beating a dead horse (no animals were hurt here!)… But! I do need to point out that Norway, to me, rises above all other fiat currencies because of their fiscal position… And that didn’t just happen for them; they planned, and plotted this for years…

And, since Swiss francs (CHF) had been hit so hard by the news over the weekend regarding the European loan losses, this news benefits the franc, too.

Well… President Obama signed the new Mortgage Bill yesterday… Recall, that a mortgage bill was done last July, and was touted as the “cure” to what ailed the housing market… Well, that certainly didn’t come to fruition. One has to hope that this one does… But, you know me, and I just can’t sit by idly and watch, as once again the majority of people in this country get steamrolled…

Chuck! Get down off the soapbox! This has no place in your letter on currencies and economies! Chuck, you can have those types of discussions with whomever wants to listen to you carry on… But not here! So, get back to the task at hand!

Whew! OK, I’m back now… The data cupboard is chock-full-o-data today, with the Weekly Initial Jobless Claims front and center this morning. We’ll also see the Philly Fed Index (manufacturing), PPI (wholesale inflation), and Leading Indicators. In addition, a Fed Head (Lockhart) is speaking on the U.S. economy today. The Weekly Initial Jobless Claims, which have totaled more than 600K in the last two weeks, is forecast to keep the streak of 600K weekly claims going. This is really “bad”, folks… With this kind of rot on the labor vine, one has to wonder what the March print of the Jobs Jamboree is going to look like. Recall, that January’s number was an awful looking 598K jobs lost… And we weren’t printing Weekly Initial Jobless Claims of 600K per week in January! Makes you cringe… But, then the Jobs Jamboree is two weeks away.

Japanese yen (JPY) has really fallen on a sword this past week, as it now appears that Japan has some real problems with Credit-Default Swaps, just like we had here in the United States! Credit-Default Swaps on the books reached their highest level in four years in Japan this week, and that means that people are betting that Japan will have a worse time with their economy than Europe and the United States. I think it is more tied to my belief, which I told you about a week or so ago, and that is what I believe to be an end of the carry trade unwinding, which benefited the yen to the heights of 88… But now, with yen falling back to 93, one has to wonder if my belief is taking place.

Yesterday morning, I left you with gold having seen a bit of profit taking and losing $6 in morning trading… Well, that $6 loss was wiped out immediately after the signing of yet another spending bill (the mortgage bill) in the United States. Late in the afternoon, I yelled over to Jen and Kristin, to check out gold, as it had rallied all the way to $987.90! WOW! But, in the overnight markets in Asia, more profit taking took place and gold is trading at $976 – down over $8. I think the Asians thought that the move to near $990 – and then onto a return to $1,000 – had gone too fast… And I truly believe that gold WILL return to $1,000, but not without a fight, as I believe it will take more than one attempt by gold traders to push it past $1,000. You have to believe that profit taking all along the way will be in order, and thus the two opposite trades will offset each other… But, as I said above, I truly believe it will revisit $1,000, so eventually gold will break through the resistance.

The NY Times yesterday had a feature story by Lord Rees-Mogg… And he had many things to say, but the thing I think hits the nail on the head the best is this snippet… “For individuals, gold remains the best insurance against future shocks and the best store of value.”

Recall the other day, I wrote about the Japanese Finance Minister Nakagawa’s actions at the G-7 meeting in Rome last weekend… My friend, Bill Bonner here at The Daily Reckoning, had this to say about Nakagawa that I found to be bang on…

“Things are so bad in Japan that the finance minister, Shoichi Nakagawa decided to drown his sorrows in drink. Alas, he chose the G7 meeting – at which he represented his country – to get drunk. Now, according to the New York Times, he is being forced to quit.

“From what we can tell, Nakagawa is the only G7 finance minister who should stay on the job. The rest of them clearly don’t know what’s going on. Otherwise, they’d be drunk too.”

Yesterday… We saw housing data that showed Housing Starts had fallen a seventh straight month in January… Here’s the Wall Street Journal’s take on the data…

“Home construction fell a seventh straight month during January and a sign of future building tumbled as high inventories and the recession sent builders into further retreat. Housing starts decreased 16.8% to a seasonally adjusted 466,000 annual rate compared to the prior month, the Commerce Department said Wednesday, much worse than Wall Street expected. Year over year, housing starts were 56.2% below the pace of construction in January 2008.”

Boy… Wouldn’t you like to have former Treasury Secretary Paulson, or Fed Chairman Bernanke in a locked room, where you wouldn’t leave until you got the truth from them? I say this because when I was looking at the housing data, these two clowns flashed across my memory, for it was these two clowns that told us in August of 2007 that the subprime problem would not spread into the rest of the economy… And then a few months later, Paulson told us that the Housing market had hit bottom!

Oh, and one more thing while my memory is flashing me pictures and quotes from Paulson… When asked how the Treasury had come up with the figure of $700 billion for the TARP program… Paulson was heard to say, that it was just a number that he pulled out of the air… Oh BOY!

Well… The budget deficit continues to grow… Let’s see what the tote board has so far… $1.2 trillion forecast by the Congressional Budget Office, $787 billion in the “new and improved stimulus package, $350 billion of TARP left over to be spent this year, and now $75 billion in the mortgage bill… Getting closer to a $2.5 trillion Budget Deficit with every passing day… And still, the dollar, holds on… Apparently, dollar bulls don’t see what I see here…

Currencies today 2/19/08: A$ .6490, kiwi .5160, C$ .80, euro 1.2690, sterling 1.4385, Swiss .85, rand 9.98, krone 6.85, SEK 8.5770, forint 235.80, zloty 3.6675, koruna 22.5250, yen 93.70, sing 1.5250, HKD 7.7540, INR 49.62, China 6.8355, pesos 14.55, BRL 2.3280, dollar index 87.20, Oil $35.63, Silver $14.26, and Gold… $981

That’s it for today… I have a radio interview this morning in about 20 minutes with KGAB-AM – Cheyenne, WY… I had a very long radio interview yesterday with a radio show out of New York called Money Matters… The “real” economists, like Nouriel Roubini must be “busy”! HA! Went home yesterday, fell asleep immediately, woke up for about 2 hours and went to bed! I tell you, I really lead an exciting life! NOT! I didn’t see the weather report, and wore just a light jacket, which didn’t do much to protect me from the frigid winds blowing this morning! Well… Mary Owens just walked in, with Suzy Q. right behind her, so I had better get this tied in a bow and sent! I hope your Thursday is Thunderin’!

The Daily Reckoning