Stop Deficit Spending. Save the Credit Rating.

Front and center this morning, the non-dollar currencies have seen some healing… Not much, but some… But these mini-rallies are on tenterhooks, folks; they can be reversed in a New York Minute… And, now that I look back at the screens, that’s exactly what’s happening! UGH! These turn-arounds are beginning to give me a rash!

The euro (EUR), which used to be a Big Dog, full of pep and energy, continues to look like an old blue tick hound, that likes to lay around in the shade… My chartist friend sent me a note over the weekend, and said that he believed the euro had crossed, what he called, a “dead cross”. He said this “dead cross” comes about when an asset trades below its 50-day moving average, and its 200-day moving average.

So… Let me get this straight… Just because an asset drops below its short dated average while being below its long dated one, the chartists believe this will indicate further declines?

Well… There is some news this morning that Greece might get the help it needs to avoid default… This is the key master to the gatekeeper for the euro, folks… Not some chart!

And there was also this story about the “P” in the “PIGS”… Fitch’s Head of EMEA (emerging markets) sovereign ratings gave Portugal a boost, saying that many of the comparisons made with Greece are “too simplistic” and that Portugal’s rating is significantly higher.

Chris was kind enough to send me a note with some of the action in currencies from yesterday… He mentioned that the “usual suspects” in the commodity currency arena did not have particularly good days versus the dollar, but the commodity currencies that sit just outside the Aussie dollars (AUD) and Canadian loonies (CAD) – like Norway (NOK), South Africa (ZAR) and Brazil (BRL) – did have particularly good days versus the dollar on Monday.

I read a story yesterday about Norway, which has always been, and will remain, one of my fave currencies for their unmatched fiscal position, and the analyst thought that the slide in the krone had gone too far to match the fundamentals of Norway… Well, I thought to myself, “Self… This analyst will soon join you in screaming at the walls, for the markets are none too concerned with fundamentals at this point.”

But… Any time a currency like the krone, can rally when the currencies all around them are getting sold… That’s a good thing!

That was some scary stuff that I gave to Chris to put in the Pfennig yesterday regarding our deficit spending, eh? I just don’t understand why this has to continue to go on and on like the Energizer Bunny! Think about this for a moment… The majority of people in the US want the government to stop spending so much. The rating agencies like S&P want the US government to stop spending so much… And the foreign countries that are forced to swallow the ever-increasing amount of US debt want the US government to stop spending so much… SO WHY HAVEN’T THEY STOPPED?

I’ll tell you one thing that’s on the horizon that could very well put a dagger in the government’s spending plans… And that’s if a rating agency lowers the US’s AAA (triple-A) rating!

As an American, I’ve got to hope that I never see the day when our credit rating is dropped… For that would bring about Armageddon for the Treasuries, and interest rates, and our economy, etc. The collateral damage would also be horrendous… So, the government has GOT to stop before this awful thing happens to us!

I know this is like removing a bucket of sand from the beach, but what was the US government doing spending millions of dollars advertising during the Super Bowl? Hey! When you get in the hole, fiscally, do you then go book a trip to Hawaii? NO! You hunker down, until you have the money to book a trip to Hawaii! I bet the boys and girls at CBS were jumping with joy to receive that check!

Marc Faber says that the US would be rated “junk” if it were a company!

On a sidebar… I sat on a panel with Marc Faber three years ago in New Orleans… A very interesting, and intelligent man, I must say…

OK… Back to the task at hand… Earlier, I mentioned that the Brazilian real had gained a bit versus the dollar, yesterday… There certainly seems to be this growing feeling in Brazil that interest rates will be moving higher as early as next month… And once the central bank opens Pandora’s Box of rate hikes, the real should look to take off and leave the Sovereign Wealth Fund that has been selling the real to weaken it, in the real’s rear view mirror!

In Australia overnight… Reserve Bank of Australia (RBA) Governor Stevens said that “holding interest rates too long may help create asset bubbles”… NO way! Geez Louise, where do these guys come from? I’ve always held the RBA high on my list of central banks, but making a statement like that, right after the RBA left rates unchanged, is absolutely ridiculous!

Oh well, I guess we’re all eligible to make statements like that… I mean, sure it’s true, but come on! I would bet that even Mr. Bubbles, Al Greenspan, would admit to that now… Just don’t ask him if he saw the bubble coming!

I have to think that this statement by Stevens though, will help the Aussie dollar, as the forecasts for a rate hike at the next RBA meeting next month should begin to reflect a change in rates.

There’s a G-7 meeting going on in Sydney… And there was some scuffling around when European Central Bank (ECB) President, Trichet had to leave the meeting early… The rumor went around quickly that he was returning to attend an emergency meeting of the ECB… But, that rumor was put to bed after it was learned that he had previously planned the early exit to attend a European Council meeting.

Then there was this… Didn’t I tell you this kind of stuff would happen when they began the TARP loans? Check this out… As reported by The Wall Street Journal this morning…

“US Sen. Robert Menendez, D-N.J., wrote to the Federal Reserve asking the central bank to approve the sale of a New Jersey bank, of which two top officers were major contributors to his campaign, The Wall Street Journal reported. Menendez urged the Fed to approve the sale of BankAmericano of Elizabeth, N.J. He failed to disclose that the bank’s chairman and vice chairman contributed to his senatorial campaign.”

See? Didn’t I tell you?

To recap… The bias to buy dollars remains in the markets with only mini-rallies going on for the non-dollar currencies. The commodity currencies of Brazil, South Africa and Norway, were the only currencies to gain ground versus the dollar yesterday. A Norwegian analyst believes the krone has fallen too far… Brazilian banks believe that the rate hikes will begin next month… And finally, the deficit spending problems in the US continue to mount!

The Daily Reckoning