US Companies to Repatriate Profits?

Before I left on vacation, I shipped out with the thought that I was getting too stressed out over all this ridiculous deficit spending and so on… But, several readers reminded me that “venting” was good for me! HA! So… I’ll get back to beating the drum for an end to deficit spending, and a repeal of 1913…

While I was gone, didn’t Chris do a great job, by the way? I didn’t really follow the currencies daily, only what Chris would say about them. I did notice that all the currencies had backed off significantly from where they stood about a month ago… And I know that the dollar bulls have come out of the woodwork, and are scattering all about the kitchen floor right now, and if you listen closely, you can hear them shouting about a reversal of the weak dollar trend…

As we end this week, a short week, we’ll be heading into the year-end, so there will be further position squaring, profit taking, and mostly likely, dollar strength… That will cause many to shout from the rooftops that the dollar is back on terra firma for 2010… That may be… I mean, I can’t control the markets once they get a hold of some bad fruit! But, fundamentally, the reasons for the dollar to remain in the weak dollar trend remain, and will remain even more so in 2010!

There’s new speculation in the markets this morning that US companies doing business overseas are bringing back their profits before the year ends, which would give the dollar a further boost going into year-end… But what happens after we turn the calendar page to 2010? What happens when Dick Clark sees the ball drop? Well, first of all, if you ask me, I think that there will be two hangovers to get past… First the hangover of New Year’s Eve partying… And second, the hangover of the dollar bulls’ euphoria from the year-end position squaring and profit taking… I think they have a big surprise waiting for them in 2010 (if you get my wink and nod)…

Gold certainly lost a lot of luster in the last couple of weeks, didn’t it? I can’t help but think that I tried to say that a sell off of currencies and commodities was due, but it just doesn’t help when it does, because people take paper losses, and some panic and sell into the weakness, like amateurs… OOOPS! Did I say that out loud? Shame on me!

But, getting back to gold… I know that before I left, I kept thinking out loud of course, that gold had found a bottom… At that time gold was $1,133… It is now trading at $1,111… Hmmm… Looks like I was wrong there… Gold has slipped below $1,100 a couple of times since I was gone, but, like I said, is trading at $1,111 this morning, so maybe, just maybe, $1100 is the resistance… The line in the sand that can be broken, but only momentarily…

Even the Chinese renminbi (CNY) got into the dollar strength pile up on the currency highway. The renminbi went back above 6.83 after trading below that figure for about three months… I know the move is miniscule at best, but significant anyway, as it suggests the Chinese are using it to rub it in the US President’s face… I certainly do not like the games that the Chinese play with the world, regarding their currency… But, it’s the golden rule: They have the gold… They get to make the rules! I still don’t have to like it, though.

Speaking of China… The IMF has forecast that China will overtake Japan as the world’s second largest economy next year.

Did you see that the US Treasury vowed to cover Fannie and Freddie’s losses for the next two years? Isn’t that nice? When the heck did the US Treasury get in the “insuring mortgage companies from losses” business? What the heck is going on around here? Doesn’t anyone use the Constitution anymore? Where in the Constitution does it say that the US Treasury can get involved with this kind of loss insurance?

Oh, I know… We don’t want a little thing like the Constitution getting in the way of “saving the world” do we now?

The Aussie dollar (AUD) is the best performing currency overnight, but the range is quite tight, like Tupperware… Or like a guy I know, that I swear, throws around quarters like they’re manhole covers! Now that’s tight!

The Brazilian real (BRL) is right behind the Aussie dollar in performance overnight… So, even with the thought going around that US companies doing business overseas are repatriating their profits, which should underpin the dollar, these two non-dollar currencies are finding a way to push the envelope this morning versus the dollar.

And don’t look now… But here in the US our 10-year Treasury is at its highest yield in three months, at 3.84%… Imagine there’s no safe haven, it isn’t hard to do, nothing but losses in Treasuries, and no interest too…

Yes, think about that for a minute… Investors were fleeing to Treasuries as a safe haven… But a funny thing happened on the way to the forum… Their safe haven wasn’t so safe! Not like I wasn’t’ warning people about Treasuries or anything like that! Geez Louise, I was screaming from the rooftops about potential losses in Treasuries… I even did a special 10-minute video for my friends at the Sovereign Society on the Treasury Bubble… And now, look what we have here… The 10-year with a yield of 3.84%… (Remember now, that yield and price have an inverse relationship when talking bonds, so when the yield rises, the price falls) Which, if you calculate the price loss it went from around $101.20 to $96.20… And… The holder was in dollars, which continue to be a drain on one’s purchasing power!

The price of oil has gone higher since I left too… When I left it was $72… And this morning it’s trading above $78…

The poor Canadian dollar/loonie (CAD)… When gold was higher, oil was lower, and now they have reversed positions… If you get the two moving together, then you have the recipe for loonie strength…

Of course I say “poor Canadian dollar/loonie” in jest, because the loonie is still trading above 95-cents, which isn’t too shabby for a currency that eight years ago was trading around 62-cents!

Which brings me to a subject that I talk about a lot when I’m out on the road speaking at conferences… And that is… The fact that I was a lone wolf, the Lone Ranger, the only one in space that was calling for a weak dollar trend in 2001… I remember that our marketing guru didn’t believe me, but was willing to distribute the white paper I had put together called “The Decline of the Dollar”… At that time, people were so sure that the dollar would be strong through the end of time… But there was this guy in St. Louis, Missouri who saw the rot on the underside of the dollar’s belly… And in those nine years, the currencies have returned unbelievable profits to the people who bought them, held them, and didn’t trade them whenever the dollar would have a brief rally.

For instance… Since 2001, the Aussie dollar has gained 62%, and so has the euro (EUR)… And those figures were much higher, before the financial meltdown, and the profits were taken from the currencies to pay for the losses in other financial instruments… Oh! And gold has gained $223% in that same time period!

I guess the thing I’m trying to get at here is simply that there have been some tremendous gains by the currencies in the past nine years… And all the while, there were several bouts of dollar rallies… Very much like right now… Only to lose steam and fade out… You have to think that this one will too, just like all the others in the past nine years…

With this being a short week, the data prints will be few… But we will see the color of the latest S&P/CaseShiller Home Price Index… And consumer confidence for this month, tomorrow… And before we head out the door to celebrate with Dick Clark, we’ll see the Weekly Initial Jobless Claims… So, like I said, “a few”, but there will be “some”…

To recap… The dollar is getting a boost from a thought that US companies doing business overseas will be repatriating their profits this week. The non-dollar currencies are trying to post gains versus the dollar, although the moves are tight, and… It has been a great nine years for the non-dollar currencies!

The Daily Reckoning