House Passes Protectionism Measure

On my way into work this morning the radio was playing one of my fave Pink Floyd songs, “Comfortably Numb,” which also happens to be a fave phrase of mine… Well, the song got me thinking about the currency performances this month, since this is the last day of September… And what a month it has been for the currencies and not so much for the dollar!

Leading the pack for the month of September, we have… Drum roll please…

Swedish krona +10.57%
Aussie dollar    + 8.72%
Euro                  + 7.88%
Norway             + 7.87%
Danish krone     + 7.80%

All of the 16 “major currencies” put in positive performances versus the dollar in September, making this a September to remember!

A readers sent me a story from Bill Gross, (the bond king from PIMCO), where he is quoted as saying, “the days of 10% returns are gone”…

Ahem… Bill… I know that you are the bond king, but there are other types of investment opportunities out there that can produce 10% returns, especially if the negativity toward the dollar continues to mount!

You know what’s funny to me regarding the currencies? The fact that the three currencies that have had their central banks proclaim that they were going to intervene to stem their respective currency’s appreciation, have all posted gains year-to-date versus the dollar… So much for the best laid plans of mice and men, eh?

You know the roster… Japan, Swiss, and Brazil… All three central banks were adamant about keeping their currencies weaker, only to see yen (JPY) climb right back to where the Bank of Japan drew a line in the sand, the Swiss franc (CHF) add to its gains over parity to the dollar, and the Brazilian real (BRL) look like it could trade below 1.70 for the first time since last November!

Well… The other day, when I was gone, Chris did a good job explaining the problems with Ireland’s Anglo-Irish Bank… It’s sad to watch, but think about this for a minute, if the euro (EUR) didn’t have this Irish bank problem hanging over it like the Sword of Damocles, imagine just how much stronger the euro would be right now? Yes, it’s still in the red year-to-date versus the dollar, but that red is beginning to turn green…

OK… Well, it looks like the US is going to bite the hand that feeds them, as the House passed a measure that would let domestic companies petition for duties on imports from China to compensate for the weakness of the renminbi (CNY).

China responded by saying that this measure will not do anything to reduce the US Trade Deficit, and will risk growth. The Chinese Foreign Ministry spokeswoman Jiang Yu told reporters… “We urge the US Congressmen to be clearly aware of the importance of China-US trade and economic relations, resist protectionism so as to refrain from any damage to the interests of both peoples and people around the world.”

The Senate apparently won’t touch this bill until after the November election. I don’t blame them… This all looks like a time bomb, with awful consequences… OK, you’ve all got one month to let your Senator – at least the one that’s not up for election this time, because they will be gone after the election – know that you oppose this bill…

And why just Chinese imports? Why not Japanese imports, too? I mean they manipulate their currency just as much as China does, and have been doing it for a long time!

Speaking of the election next month… I’ll be out of town, so I have to make certain that I go vote absentee before I leave! It’s time to take out the trash…

OK… Enough of that! Gold is $1,312 this morning… I like it when it adds small chunks of change and not gap up $20 in one day… Those $20 leaps scare buyers, but if the shiny metal can add $2 on most days, that will keep buyers interested…

And just yesterday, I was talking about silver getting close to $22 and looky here! Silver is $22 this morning!

I saw a great headline this morning from one of my fave writers, William Pesek… The headline to his story went like this: “How I learned to Stop Worrying and Love yen”… And I think most investors are taking the yen in the same vein… Buying it again, running it higher versus the dollar, and taunting the Japanese Finance Ministry & Bank of Japan…  In football, you get “flagged” for taunting, but in currencies, there’s no penalty… HA!

Lessons learned are like bridges burned, you only need to cross them but once… And so it should have been with the FOMC… The Fed, I mean the Cartel, should have learned their lesson from March of 2009, when they first implemented quantitative easing (QE)… But, apparently, they didn’t… And the markets are turning on the Cartel right now, and taking their frustrations out on the dollar…

The Cartel now says that they are thinking that QE would be better utilized in small doses… Oh! That will be like death by a 1,000 knives for the dollar!  Memo to the Cartel… If you’re going to implement QE, and we all know you will, do it all in one big swoop and get it over with, don’t hang your currency out on a line for it to be beaten daily by small doses of your QE…

Well… The US data cupboard gets restocked today, and will have for us a veritable Whitman’s Sampler of data! Leading off will be the first revision to second quarter GDP, which, you may recall, originally printed at 1.6%… The “experts” don’t expect any move in that 1.6% figure, but, I say, if all the apples and oranges are counted correctly, it would be revised downward… But, that’s just me thinking logically again…

We’ll all see the color of second quarter Personal Consumption… I remember when the markets hung by a thread waiting for this data, and I would stomp and yell that consumption doesn’t create wealth… But no one listened… But, this data is second tier now… As it should be!

The Chicago Purchasing Managers Index (manufacturing) for September will, I think, show a drop in manufacturing during September. And then finally, because it’s a Thursday, we have the Weekly Initial Jobless Claims, which last week shot up to 465,000 after falling for two consecutive weeks…

And to top off our Thursday, Big Ben Bernanke will be testifying at the Senate Banking Committee… Hmmm… I wonder what the Senators will be asking Big Ben?

Then there was this, from CNN.com…

Congress has passed a resolution that would allow the US government to continue operating for the first two months of the next fiscal year, which begins Friday. The measure is necessary because Congress has not adopted a budget. Most programs and agencies are funded at the same rate as that of the expiring budget.

Not passed a budget? Why? Would passing a budget have gotten in the way of their Battleship games and other board games? It’s not like the fiscal year-end – which is today – snuck up on them! Just shows to go you that their work ethic is something less of what you and I want from them, right?

To recap… The currencies continue to climb higher versus the dollar overnight, with gold and silver also participating in the assault on the dollar. The US House passed a measure that amounts to protectionism, and the Chinese are not happy about it. And the data cupboard gets restocked today…

And this came across my desk, and I promised you that I would keep you up to date on any news regarding the rumor that the government would confiscate our IRAs… I’m told that the meeting to discuss this was held on September 13th and 14th. The agenda was called “Lifetime Income Options for Retirement Plans.” Now… I don’t know for a fact that IRA confiscation was discussed here… But the rumors are flying… And you know me… Where there’s smoke…

So, when you Senator comes home to campaign, you might want to ask him or her, just what the heck is going on here? And if the government is NOT going to confiscate IRAs, they might just want to make an announcement saying just that, to squash these rumors…

Remember, the rumor was that the government would require us to buy Treasuries only (talk about a stock market crash), which takes care of their need to have the deficit financed… And the fund would be run by the government, probably as well as they ran the Social Security fund!  But remember! This is just a rumor right now! But there’s smoke…

Chuck Butler
for The Daily Reckoning

The Daily Reckoning