What’s Another $10 Billion?

Well… The rout that was on with the euro (EUR) continued for most of the morning yesterday, but then suddenly, it stopped, and we saw the currencies and gold turn around… It was just like I had said the day before, that the euro would probably reach oversold levels, and we could see a mini-rally… And we did!

Unfortunately, that didn’t last too long, and the rout is back on the single unit this morning, with the currency falling below the 1.28 figure. Today, however, it’s back to the trading pattern that we saw for most of the last couple of weeks, save this week. And that is the euro gets sold, drags down the European currencies, but the commodity currencies and gold find a way to carve out a profit, albeit a small profit! HEY! At least they’re not falling victim to the euro’s selling… Well, that’s how it looks right now, who knows what happens later today!

Speaking of gold… Earlier this week I explained how gold was moving close to $1,190… But then the trap door sprung, and the shiny metal fell hard… Was there any reason for this fall? NO! And if you’re like me, you see this and think… “The price manipulators are back in the market”… I mean, to me, that price action smelled of price manipulation by the BIG BOYS in an attempt to make gold look bad, while stocks were getting deep-sixed. For… If investors are fleeing stocks, they need someplace to put their cash to work… And if commodities, led by gold, are getting deep-sixed too, along with currencies, then the only place to go would be bonds… Oh, boy, give me some more of those “safe haven” bonds! NOT! But… That’s what’s happening, folks… I told you yesterday that the 10-year Treasury saw a 10 BPS move in one day! That required a TON of purchasing to do that… And the gold manipulators just happen to be BIG BOND DEALERS… Hmmm, you don’t think that they figured this all out ahead of time, and moved investors on purpose do you? OF COURSE I DO! And you should, too!

WOW! I really got wound up in that last paragraph! You know what? As long as I’m on a roll, I might as well keep going, and stand up here on the soapbox all morning long!

You know… Something that really bugs me is… How the ratings agencies have skated right past any blame for the financial meltdown… How is this happening? I mean… Bankers are being publicly flogged, the government has taken some blame, and the borrowers that lied about their ability to repay the loans have had the blame finger pointed at them… But what about the ratings agencies that placed AAA ratings on all that debt that is either circling the bowl now, or has already been flushed?

Why aren’t they being dragged in front of a Congressional hearing and asked questions like… “What criteria did you use to come to that rating on that bond issue” And… What were the total fees you collected in doing so? This just makes me sick… They put AAA ratings on things that went bad, collected fees that would make a banker blush, and when it went belly up, no one pointed a finger at them…

Oh… And here’s another story that should make you madder than a wet hen… Freddie Mac (FRE) has requested another $10.6 billion! I guess the $50.7 billion Freddie Mac has already received just isn’t doing the trick! Add to that the $76.2 billion Fannie Mae has already received from the government… No wait! What am I saying? The government doesn’t have any money, unless they take it from someone… So… Us taxpayers are funding this fiasco!

Hey, folks… Fannie and Freddie are simply propping up the mortgage market… You know, the one that the media and the government keep telling us is on the mend? Well, it’s not on the mend if you take away $125 billion!

I’m on a roll this morning, folks… I had better not stop!

The “good times” continue at the US Treasury, as they announced that they will be auctioning $39 billion of three-year notes on May 11. Next week’s sales will also include $25 billion of 10-year debt on May 12 and $16 billion in 30-year bonds the following day.

In doing my best Ace… How long has this been going on? Well… The answer to that is it has been going on too long! And how long will it continue? Given the government’s budget for this year, this need to auction $80 billion in Treasuries will continue for far too long!

And what will it eventually do to Treasuries? How about this… Have you ever heard of dilution? The Treasuries that already exist continue to be diluted by more Treasuries, making them worth less all the time… I’ve said this before on many occasions, but basically, if this continues, foreigners needed to buy the Treasuries, will begin to demand higher yields, to take on such risk… Higher yields means lower prices… Now, Treasuries don’t look so inviting or like a safe haven do they?

And… Just look over to Greece and Spain… Sure they are small potatoes when compared to the US but, you can get an idea of what happens when your debt gets so big, and bond buyers no longer want your debt at current levels… Yields on Greek and Spanish Bonds are going through the roof in an attempt to attract buyers… If you don’t think that can happen here in the US then, well… Maybe you should go buy some “safe haven Treasuries” today.

The European Central Bank (ECB) is meeting today, and it looks like the ECB will leave rates unchanged and the door open regarding resorting to quantitative easing, should the markets continue acting like JERKS!

The euro’s decline has gone on long enough to catch the collective attentions of the boys at the ECB… So… One has to wonder if the ECB is going to defend their currency at some level… Germany’s central bank (the Bundesbank) President Axel Weber said overnight, that he didn’t believe that the euro’s decline requires “using every means”… Which is central bank parlance for the ECB to buy bonds, which would be a way of defending the currency.

So… Today’s ECB meeting is a BIG ONE! The markets will be looking to ECB President, Trichet, to calm the markets… You might recall me telling you months ago, that the ECB had already removed their emergency lending measures that were in place during the financial meltdown. The ECB could easily put those measures back on the table.

I’ve always admired the ability of the ECB to provide price stability, and maintain credibility… However, if they don’t begin to do something soon, that admiration will have been shaken… Not stirred!

The data cupboard here in the US today really only contains the Weekly Initial Jobless Claims, which print every Thursday, and the stupid Productivity… Tomorrow is the BIG Jobs Jamboree, but for now, the markets will have to settle on the Weekly Jobless Claims, which have remained above 400K for some time now… Think about that for a minute, folks… That’s 400,000 PLUS, EACH WEEK, or 1.8 million per month… (440,000 actual each week) in new jobless claims… Shoot Rudy, even the census hirings can’t make up for those kinds of job losses each month!

And now that you’ve got that figure in your head, think about the claims that “things are getting better”… For who? Not for the 1.8 million people that lost jobs every month!

Reserve Bank of New Zealand (RBNZ) Governor Bollard, was speaking last night, and had this to say… “New Zealand’s economy is in a ‘less fragile stage’ that will allow monetary stimulus to be removed in coming months.” Hmmm… I know that I’ve said that I believe the RBNZ will raise rates sooner than the forecast period of mid-year… Well, the next RBNZ meeting and interest rate review is June… So that’s mid-year, if you ask me!

This statement by Bollard has underpinned kiwi (NZD) overnight… And, for that, you’ve got to like what Bollard had to say for once!

And, finally… Norway’s central bank, the Norges Bank, did stand on their own two feet yesterday, and hiked rates, as I thought they should! The hike was 25 BPS (1/4%), but marked the third rate hike for the Norges Bank since coming out of recession! WAY TO GO NORGES BANK! You did have the intestinal fortitude to do what was right for your country, and not get caught up in the Eurozone goings on! This is just another feather in the cap of the country that has, what Time Magazine called, “the world’s safest currency”…

Then there was this… There’s still an argument going on regarding whether the US will experience runaway inflation in the future (within one year) or will they still be fighting deflation in that same time period… One of my fave people to read, David Rosenberg, had this to say about deflation… “The Federal Reserve should be worried about deflation and has few weapons left in its arsenal to combat it. The central bank will likely reintroduce quantitative easing measures because the other stops are already pulled. The Fed will be expanding its balance sheet even further.” I’ve read some of David Rosenberg’s books… He’s the chief economist of Gluskin Sheff & Associates Inc. in Toronto.

To recap… Well… Chuck went ballistic on things this morning… But… Before he did, the euro continues to get sold this morning. Yesterday afternoon, a mini-rally occurred, but that has been erased overnight. The ECB meets today, and there are hopes that ECB President, Trichet, will calm the markets. And Freddie Mac needs another $10 billion from us… Who’s ready to “buck up” and give them that dough? NOT ME! UGH!

About Chuck Butler 105 Articles

Affiliation: EverBank

Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter.

With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News, World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune.

Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.

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