Time to Remove Stimulus?

Before I get to the currencies, economies and the dolts in the world, I wanted to briefly talk about the SEC, who made an announcement yesterday that they had done an investigation of the Madoff audits, and did not find any fraud… Just mistakes… Really? Mistakes? That’s what they call them? Even Bernie Madoff himself says that he was “astonished” that the SEC failed to shut him down after interviewing him in 2006!

Well… The currencies, led by the euro (EUR), have scratched and clawed their way back to levels they traded at before Tuesday’s sell off… The European Central Bank (ECB) is meeting this morning, and while the markets are not expecting rates to move here, they are holding out hope that ECB President, Trichet, will announce that the economic growth expectations have been raised. So… With these thoughts going through the markets, it’s no wonder the euro is back to 1.43 this morning.

However, not knowing what Trichet might say opens Pandora’s Box of risks for the euro… For if Trichet does not talk glowingly about the economic growth expectations for the Eurozone, the euro will be hung out on a line. So… Let’s hope Mr. Trichet had a good breakfast, and is feeling spry today!

For now, it’s all skipping in the sun for the euro… The ECB rarely ever ends their meeting before I hit the “send” button on the Pfennig, so… I guess we’ll take it all up tomorrow!

The euro isn’t the only currency that has scratched and clawed back against the dollar… Yesterday, I told you how the Aussie dollar (AUD) was rallying on the back of a stronger-than-expected second quarter GDP report… Well, now that the euro has joined in, the Aussie dollar is really making tracks higher, trading right now, within spittin’ distance of 84-cents.

And… Not to gloat or anything… But, let me go back to yesterday’s Pfennig and quote something I said…

“Talk about getting ‘dumped’… That’s what happened to the Brazilian real (BRL) yesterday… Yes, most of the currencies sold off… But real was really sold off! That makes some sense in that it had out performed most currencies this year, and therefore, the selling, or profit taking would be on a larger scale. I think this selling was overdone though, and I would look for the real to make an attempt to come back today.”

Well… Guess what happened yesterday? That’s right! The real came back with a vengeance! Yesterday morning the real was trading 1.9140… This morning it’s trading 1.8850! OK… It’s not that I’m auditioning for some kind of “spot trading” position… Geez Louise, no! I like to sleep at night! I just wanted to show that sometimes even a blind squirrel can find an acorn!

The real winners in terms of moves versus the dollar yesterday were the precious metals of gold and silver… Kicking sand in the face of the dollar, and laughing! Gold and silver are both stronger again this morning too!

There’s a great report going around by Frank Holmes, CEO and CIO of US Global Investors. I had dinner with Frank Holmes in Las Vegas about five years ago, and have run into him at conferences throughout the years… Anyway… Frank Holmes put together a strong report on how September is the best month for gold… “The gold price has risen in 16 of the 20 Septembers since 1989, by far the best success ratio of any month of the year.” It was the featured essay in yesterday’s Daily Reckoning, and in case you missed it, you can read the whole thing here.

OK… Chinese stocks rose 5% overnight, and that has the risk takers coming out of the woodwork! That’s quite a rebound for Chinese stocks. With all the talk going around about how it’s time to get out of stocks before the BIG sell off, one has to wonder if this isn’t akin to a star burning out… It burns brightest just before going dark…

The Swedish krona (SEK) got hit with a blow to the mid-section yesterday when the central bank (Riksbank) announced that they were going to keep rates at historical lows until the third quarter of 2010! What? How can they say that? I mean I know, they open their mouths and begin to use their voice box… But what I’m talking about is what backs up what they are saying? How do they know that? What a bunch of dolts! I used to think the Riksbank was a good central bank, but this blows it for them! (Not that they will be worried that the Pfennig no longer believes them to be a good central bank!) So… These are the cards that have been dealt to the krona… Too bad…

So… The Fed is tossing around the idea of removing pieces of the stimulus… Treasury Secretary Geithner, AKA “the cheater”, doesn’t agree, and has stated that he believes it to be “too early” to exit stimulus strategies… Geithner is getting ready for the G-20 meeting of finance ministers and central bankers beginning tomorrow in London, and had this to say… “We’ve come a very long way but I think we have to be realistic, we’ve got a long way to go still.”

Well… That’s the most intelligent thing I’ve heard him say so far!

Hey did you see that bond king, Bill Gross of PIMCO, chimed in on this… “To the extent that we have had a trillion dollars worth of stimulus, from the standpoint of deficits, and more, the government basically has to continue to do that and to add to that in order to keep the economy chugging along,” he said. “To the extent that that’s limited, to the extent that they pull back on some of those stimulus programs – ‘Cash for Clunkers’ and those types of things – then the double dip moves into the realm of possibility.”

Yes… Double dipping… It’s my call for this economy… And I’ve said that for a lonnnnnnngggggg time now!

The Organization for Economic Cooperation and Development (OECD), issued a report yesterday that says the global economy is emerging from its worst slump since WWII, and much faster than the OECD forecast just three months ago!

That’s nice…

You know… Whenever the currencies rally, the dollar and yen (JPY) get sold, and vice versa… But… Sometimes, the yen rallies alongside its currency brothers, which is an indication of a real rout on the dollar. And that’s what we’ve got going on this morning… The Japanese yen has joined the “dark side” and is rallying alongside its currency brothers.

Well, yesterday’s data cupboard printed a stronger-than-expected productivity number here in the US. So, doesn’t it make you feel better that you probably had to work longer hours at the same wage, because 1 in 5 American workers are out of jobs, and you have to take up the slack? That’s the root of productivity, folks… Sure there are other things like technology, etc. but at the root… It’s all about you.

That’s why I don’t like this report… So now I’ve given it more Pfennig space than it deserves! UGH!

Today, we’ll see the Weekly Initial Jobless Claims as usual on a Tub Thumpin’ Thursday, and we’ll also see the color of the “services” piece of the ISM… Tomorrow is the Big Kahuna though, with the Jobs Jamboree for August.

Last week, I told you that the US had to deal with another large amount of Treasuries to auction off… Last week it was $197 billion… And no word of problems dealing with these… But, have you noticed that the 10-year yield, which just a few weeks ago was 3.80%, has fallen to 3.34%? Hmmm… I wonder how that happened? It means that the price of the 10-year has been rising, which would only happen if there were a truckload of buying… Hmmm… I had better end here before I blow out a gasket!

The Daily Reckoning