Italy Successfully Auctions Bills

Mike told you yesterday about how the euro (EUR) had lost over 2-cents in the overnight markets, on fears that Italy, which is a much larger economy than Greece, is the next to visit the bailout doctor. The euro went up, when it was announced that the budget vote had passed, and it went down when it was announced that Berlusconi no longer had a majority government, and then it went right back up when it was announced that Berlusconi had stepped down. But that “relief rally” didn’t last long, as everyone began to imagine what it would cost to bailout Italy…

This morning, the euro has gapped up 1-cent after it was announced that Italy had successfully auctioned off 5 billion (euros) of bills… (At the highest rate in a month of Sundays). But since I came in, the euro has dropped again, thus wiping out most of that 1-cent gain earlier. Up and down, Up and down… Reminds me of that classic song by the Ohio Players, Love Rollercoaster…

But in the end, folks… The euro will continue to lose ground, as long as the markets and media carry on about the Eurozone debt… That’s not to say that I don’t think it’s not bad… For it is… But as bad as our debt? Hardly! Oh… To give you a sample of what I’m talking about…

How many people heard about the largest municipal bankruptcy in US history that took place yesterday? That’s right… Jefferson County, Alabama, declared bankruptcy after failing to gain support for a deal to reduce their debt… Now, here’s a classic statement by the County Commissioner, and one that will be repeated here in the US on a national platform one day…

“We’ve reached the last resort. We could continue and keep kicking this can down the road, but I think the people of Jefferson County have had enough.”

But for now… The markets and media want to focus on the Eurozone… They flip flop, though, as you may recall just last summer when the focus was on US debt 24/7. And personally, (this is my conspiracy hat, so if don’t want to go through this, skip ahead) I feel the media is directed by the government… So… As I’ve told you many, many times before, the US needs to have a cheaper dollar so that they can repay debt interest with cheaper dollars. But… They can’t have the dollar fall off a cliff… So, when things begin to get a little too much in dollar strength, oddly, the media and thus the markets begin to focus on US debt again, and the dollar loses ground until… It looks like the dollar is ready to fall off that cliff, then oddly, the media and markets focus on Eurozone debt…

OK… Glad you stayed along for the ride… Or if you skipped ahead, I’m ready to carry on my wayward son!

Yesterday, only Japanese yen (JPY) and Chinese renminbi (CNY) were able to post gains versus the dollar. Today, most currencies are seeing some sunshine versus the dollar, with the euro up slightly at this point. Gold is down $5 this morning… Which is odd to me… Again this is just Chuck’s opinion, but I think that any time it looks like the risk assets are going to have a bad day, the price manipulators take that time as an excuse to bring gold down again… For, if gold was trading on fundamentals only… The shiny metal would be shining even brighter during times like this, because there is so much uncertainty in the Eurozone right now… But it’s not… Sso what does that tell you? I told you what it tells me…

Of course those of you who go with the “flow” would say right off the bat that gold is down because the dollar is up… But there’s more to it than that, I’m afraid… And to that… I have this note from King World News… “Geopolitical analyst James G. Rickards, who spoke at GATA’s Gold Rush 2011 conference in London in August, told King World News yesterday that a second but secret London Gold Pool is being operated by Western central banks to suppress gold’s price…and that he doesn’t expect it to survive more than two more years.”

And going back to Japanese yen… It appears that the Bank of Japan (BOJ) has intervened at least three times since Halloween last week. The poor manufacturing sector of Japan has really taken the brunt of the 50% gain of yen in the past five years, right on the chin. They’ve seen China overtake them as the World’s second-largest economy, and now the latest blow to Japan is being seen by carmakers that are moving more and more production overseas… I know it’s probably not seen as a safe idea right now, but fundamentally, Japan is a mess, and the yen should not be as strong as it currently is… But, it is what it is… I would just say that buying yen at these current prices isn’t on terra firma, in my opinion.

The Swiss have already gone so far as to clamp the franc’s (CHF) rise (which was also not fundamentally supported) by placing a ceiling on it versus its biggest trading partner, the Eurozone’s euro. Will Japan be next? I think that it would be a “toward the end” type thing if they did, but Japan could very well follow Switzerland here…

In Australia overnight, they printed a jobs report that no one noticed, because of all the focus on the Eurozone… But I did… So, now you will! HA! Australia created 10,100 jobs in October. Not the kind of job growth they had there a few months ago, but still positive, and nothing to ignore for the island nation. Unfortunately, with all the focus on the Eurozone, the Aussie dollar (AUD) was not able to rally on the employment report… UGH!

So… If all the focus is on the Eurozone, we may as well head back there to see what else we can talk about… I saw this quote and thought it made sense… Jean-Claude Juncker, head of the Eurogroup, said that while some Eurozone countries are struggling with a sovereign-debt crisis, the currency is not in trouble. “The euro is not in crisis,” Juncker said. “I become filled with rage when people say the euro is in crisis. We have a crisis of public debt in certain Eurozone members, and one in particular, but the euro is not at stake.”

Then there was this… Yesterday Mike told you about the rot that’s still on Housing’s vine… To follow that up, we have a story on Adivsorone.com about loan delinquencies… Here’s a snippet from that story…

Loan delinquencies are on the rise again for the first time since the end of 2009, an ominous sign for a housing market that has yet to gain its footing in a battered economy. News of the 5.88% increase in delinquencies at the end of the third quarter came as a surprise to TransUnion, which compiles the data. The downturn spells more trouble for Fannie Mae and Freddie Mac.

The Chicago-based credit information provider said the housing market reversal came after six consecutive quarters in which the number of consumers making timely mortgage payments increased — a trend TransUnion executive Tim Martin expected to continue.

Martin blames economic shocks for the change in trend; in a TransUnion release issued Tuesday he cited “the US credit rating downgrade, stock price declines, European debt concerns, stubbornly high unemployment, more downward pressure on home values and low consumer confidence. All of this affects a borrower’s net worth and desire, or ability, to continue making house payments — especially if they are facing negative equity in their homes due to price depreciation.”

It is estimated that more than one-quarter of all households hold mortgages worth more than their houses. The TransUnion third quarter report shows that mortgage delinquencies rose in 40 states and in 64% of US metropolitan areas. Just 21% of US metropolitan regions saw an increase in delinquencies in the second quarter, a difference TransUnion called “significant.”

To recap… The euro has bounced around overnight, first rising 1-cent on the news that Italy had a successful bill auction, but then retreating when it was learned that Italy had to pay the highest rate in a month of Sundays on those bills. Focus right now is all about the Eurozone debt, but did anyone else see that the largest municipal bankruptcy in US history took place yesterday? Jefferson Co. Alabama, decided to stop kicking the can down the road… When will that happen on a national stage?

Chuck Butler
for The Daily Reckoning

The Daily Reckoning