Canadian Dollar Gains Most Since 1950

I have been Long Canadian Dollar; think Canada has their affairs in much better shape than other countries (US UK), as well, Canada has the strongest banking industry. In addition, Canada has good resources. But Canada's currency suffered a bit during the recent US $ run up. However, why would one ever trade CAD for USD? USD is fundamentally unstable and in particular with what the US is doing and where it says it is going. The fundamentals are for Canada.

However, as the linked article reports a number of on Wall Street and Bay Street think the Canadian dollar is over done. But TD Securities, disagrees and thinks the Canadian dollar will be at par with the US by end of the year.

I agree with TD Securities. Canada is better managed than the US, and has stronger industry. Keep your investments in those strong resource currencies and avoid those which governments have announced QE quantitive easying (printing money).

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May 30 (Bloomberg) -- Canada’s currency rose the most in a month since the Korean War as investors stepped out of the haven of the U.S. dollar in search of assets with higher returns.

“Traders and speculators continue to push, and the U.S. dollar is so receptive to weakness that it’s an easy case to make,” said Eric Lascelles, Toronto-based chief economics and rates strategist at TD Securities Inc. “It’s the risk-appetite story right now that’s dominant.”

The Canadian currency, known as the loonie for the aquatic bird on the one-dollar coin, rose 9.3 percent this month, the most since at least October 1950, according to data from the Bank of Canada and Bloomberg. Stocks advanced and commodities rallied, led by energy, as the slumping greenback boosted demand for raw materials as a hedge against inflation. Raw materials account for more than half of Canada’s export revenue.

The loonie appreciated to C$1.0915 per U.S. dollar in Toronto yesterday, from C$1.1925 on April 30. It touched the strongest level yesterday since Oct. 6, C$1.0892. One Canadian dollar buys 91.61 U.S. cents.

Market - COT

COT reports:

S&P - Moves to Cash June 1st
Gold - Long June 1st
Oil - Long from May 25th
US Banks (BKX) - Long from May 25th

S&P 500 Rally Is in Last Stages, Aurel Says: Technical Analysis

It does feel like the market is slowing down. Time for a correction? Maybe time to move to Cash

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May 28 (Bloomberg) -- The two-month rally in U.S. stocks is in its final stages and a correction will take place in the coming weeks, according to a technical analyst at Aurel BGC.

“The speed of the market’s gains is slower and slower,” Paris-based Alexandre Le Drogoff said in a phone interview yesterday. “Mathematical indicators are showing the market losing steam.”

Most People do not change

Gary North writes: Most people will not change. Too radical. Not going with the flow. Not betting against the herd.

The best examples in the 20th century were Jews in Germany in 1933. They stayed. This included Jewish bankers, all of whom could have left. They thought they could deal with Hitler. They did not read Mein Kampf. They did not take it seriously.

About 7% did leave early: 38,000 out of 523,000. More left after 1938. By 1941, about 160,000 remained in Germany. Then emigration was closed by the Nazis. Earlier, it was encouraged. The data are here.

At some price, almost all could have left. There were countries that would have let them in. They would have had to learn a new language. They would have arrived in poverty. But Jews had faced those options ever since the Assyrian captivity in the eighth century B.C. So what?

They all would not have escaped the Nazis. Some would have moved to other European countries that were overrun by Germany after 1939. But they could have tried to get away. They stayed. They refused to acknowledge the warning signals. "It can't be that bad." It got worse.

Jews had an answer for worrywarts. "No problem. We can handle it."

The Armenians went through the same thing. The Turkish massacres of 1895 were a foretaste. Most stayed behind. Then came the genocide of 1915.

NO PROBLEM!

Look back at the economy in October 2007. The Dow was at 14,000. The banks were booming. Real estate was down a little, but the experts gave no warning. They were wrong. All of them.

The U.S. government is running a $1.8 trillion deficit this year. Federal tax receipts are down 34%, which means that the deficit will go above $2 trillion. No one cares. No one says, "This is the end. The American economy will never again be what it was."

Think "2007." Would you have believed that Chrysler and GM were both headed for bankruptcy? In October 2007 GM shares were at $43. Now they are at $1. There was an industry called investment banking. Bear Stearns, Lehman Brothers, and Goldman Sachs were not part of the commercial banking system. To survive, a few made the transition in September 2008. Some did not make the cut.

Merrill Lynch is gone. Bank of America and Citigroup were bailed out by the government. They would have gone under. They sell for a fraction of what they did in 2007.

And what do most people say? "No problem."

There is no problem for which their answer is not "no problem."

Medicare will go bust. Social Security will go bust. "No problem."

The unemployment rate keeps rising. "No problem."

When people refuse to face reality, because reality is going to be more painful than anything they have experienced, they look for signs that the problems they cannot avoid without changing are really not that bad. They look for offsetting good news.

They think the status quo ante will return. The U.S. government is about to spend another $30 billion to buy a dead carcass of a company. It has already spent $20 billion. "No problem."

The government will let the company stiff bondholders for $27 billion in exchange for 10% of the company, 72% owned by the government and 17% by the United Auto Workers medical insurance fund. "No problem."

Bondholders were originally told that it would take a 90% vote to authorize this. The government has changed the rules. It will determine after the May 30 vote by bondholders what percentage must approve. "No problem.

The company will never return to what it was. "No problem." People will not buy as many cars as before from a company run by the government and the United Auto Workers. "No problem."

The Dow rose 100 points on the rumor that the largest bondholders will accept the deal. The deal is a disaster, but investors are in "No problem" mode. Somehow, the wipeout is less of a wipeout.

Who is going to buy a GM car instead of a Japanese car? Here is a company that is about to break its contracts with thousands of its dealers. "No problem." Yet buyers are expected to trust a GM warranty.

Oldsmobile is gone. "No problem." Pontiac is going. "No problem." Cadillac sells its cars with an ad of a flash model putting the pedal to the medal. Hot stuff! The company thinks people with money will not see through this ad. The Cadillac division has lost its way. "No problem."

The price/earnings ratio for the S&P 500 is over 120. Traditionally, 20 was regarded a sell. The investor pays $120 on the hope that the stock will retain a dollar of earnings, and pay investors some minimal percentage of these earnings as dividends. "No problem."

We are watching the investment world adopting a lemming mentality that has always produced losses. "This time it's different. No problem."

CONSUMER CONFIDENCE

The Conference Board announced that consumer confidence is up to 55. The 50 figure is neutral. Yet consumer confidence is a lagging indicator historically. When it rises, the stock market usually falls.

The indicator is a reflection on what the stock market has done recently. To use consumer confidence as a justification for buying stocks is nonsense. This is like saying, "I will buy stocks because the public is confident, which based on the fact that stocks have risen." If that strategy worked, stocks would never stop rising.

Even hard-money newsletter readers are beginning to doubt that the recent good news is in fact "less worse than expected" bad news. This is the stuff of dreams that do not come true.

Readers look at the reports, and the reports look awful: falling home prices, rising unemployment, an astronomical Federal deficit. But the media say we are close to a bottom – the bottom of a crash that none of them forecasted.

Readers think, "by the standards of late 2007, what we are seeing daily was inconceivable." Optimists speak of a slow, weak recovery. Pessimists speak of hyperinflation and depression simultaneously. But as the chorus proclaims "No problem," the public mindlessly picks up this refrain.

"We have nothing to fear but . . . fear itself!" Yet as FDR delivered those words, Hitler was consolidating power in Germany. Stalin was beginning the purges. A quarter of the U.S. work force was unemployed. But Roosevelt began the refrain: "No problem." Four years later, unemployment was still 20%. The Federal deficit had ballooned. Happy days were not here again.

Your friends don't want to hear your pessimism anymore. They don't want to change. They will refuse to change.

In 1934, Ludwig von Mises realized that Hitler, an Austrian, would seek to bring Austria under German hegemony. He warned Jewish economists to leave. They had been his students at his famous seminar in Vienna. Fritz Machlup believed him, and came to the U.S. So did Gottfried Haberler. Mises went to Switzerland as a professor, leaving his great personal library behind. He fled to the U.S. in 1940, after France had fallen. He never got a full-time teaching job again.

A few listened. Most did not. "No problem."

HEARING, THEY WILL NOT HEAR

People count the costs of making a change. This is wise. Jesus taught:

For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it? Lest haply, after he hath laid the foundation, and is not able to finish it, all that behold it begin to mock him, Saying, This man began to build, and was not able to finish. Or what king, going to make war against another king, sitteth not down first, and consulteth whether he be able with ten thousand to meet him that cometh against him with twenty thousand? Or else, while the other is yet a great way off, he sendeth an ambassage [ambassador], and desireth conditions of peace (Luke 14:28–32).

In short, count the costs. This is what people have refused to do. They have counted the cost of doing something radical. It's high. They have counted the immediate cost of doing nothing new. It seems low. They prefer doing nothing.

But what about the long term? What about:

1. Retirement (no Social Security or Medicare)
2. The Federal Deficit ($1.8 trillion this year)
3. Federal Reserve's monetary base (doubled)
4. Falling house prices
5. Rising unemployment
6. The war in Afghanistan (forever, until our defeat)

"No problem!"

How do you reason with these people? Answer: you don't, if you value your time and your privacy. If you turn out to be wrong, you will be ridiculed or at least treated as a child. If you are correct, you will be hated. You will also be hit up for money. If you are a Christian, you will be told you are heartless. You will become a line of credit for those whose mantra was "No problem!"

They don't want to change. They will not change. They will not listen to you.

And when things turn out much worse than even most newsletter writers are forecasting, you will be hated. Are you prepared for this?

Do you have a real plan to deal with what is obviously an unfolding disaster: rising government ownership, massive deficits, rising unemployment, falling house prices, busted retirement pensions, rising interest rates (falling corporate bonds), and Federal Reserve inflation on a scale never seen in American history?

Or do you think you can delay. "No problem!"

CONCLUSION

We live in today's world. It's bad, but it's not a catastrophe. We must keep our heads above water.

A Tsunami is coming. In such a scenario, you have got to get out of the water and off the beach. But few people ever do, unless they have seen a tsunami. Few have.

Allocate some percent of your wealth to tsunami-avoidance. Do it quietly. Do not discuss this with your big-mouth brother-in-law.

What do you really think is likely to happen? Not what you would prefer will happen.

Think, "General Motors in October 2007"

Think Chrysler, Merrill Lynch, and Lehman Brothers.

No one saw it coming. It came.

Problems. Big, big problems.

Green Shoots or Smoking Weed?

From Absolute Return Partners, London - A good read on asset bubbles (US government to regulate them (hey, say what?), Obama's plans, real estate, the consumer and the global economy.

Our conviction remains high that the global economy will stage a recovery later this year but, unfortunately, we remain equally convinced that this will prove temporary. The main culprit are US property prices which are doing more damage to the purchasing power of US consumers than generally perceived. The poorest two thirds of US households are effectively bankrupt and the wealthiest one third are facing substantial tax hikes. This combination is lethal for US consumer spending, and what is poisonous for US consumers is bad for the global economy. We are therefore facing several more years of sub-par economic growth unless countries with high savings such as Germany can persuade their people to spend more.

Moody’s Opens Pandora’s Box on AAA Debt Ratings: William Pesek

More downgrades on government debts. This time it is Japan. UK has been put on the watch list and there are loud warning about US debt levels.

So where do you invest your money?

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May 26 (Bloomberg) -- The shot Standard & Poor’s put across Britain’s bow last week made headlines. An earlier one by Moody’s Investors Service deserves more attention.

The Moody’s action didn’t involve the U.K., but Japan. On May 18, it stripped Asia’s biggest economy of its last AAA rating. Moody’s cut Japan’s foreign-currency debt grade from Aaa to Aa2. While Japan is a negligible overseas borrower, the symbolism extends to a much bigger point.

U.S. Inflation to Approach Zimbabwe Level, Faber Says

I do not see the US (or other countries) prepared to do what they should be doing. The political leaders do not have the will, and given what we have seen in the UK and US, the leaders can not be trusted to do what is right. I have to agree with Marc Faber to an extent.....there is lots of inflation risks. The bond markets and currency markets are agreeing.
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May 27 (Bloomberg) -- The U.S. economy will enter “hyperinflation” approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates, investor Marc Faber said.

Prices may increase at rates “close to” Zimbabwe’s gains, Faber said in an interview with Bloomberg Television in Hong Kong. Zimbabwe’s inflation rate reached 231 million percent in July, the last annual rate published by the statistics office.

“I am 100 percent sure that the U.S. will go into hyperinflation,” Faber said. “The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate.”

Yield Curve Steepens to Record as Debt Sales Surge

The US is having trouble finding buyers for its debt....although the Fed is trying to support the bond market, and lower interest rates, they are failing. $300 billion of printed money does not make it. The market rules.

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May 27 (Bloomberg) -- The difference in yields between Treasury two- and 10-year notes widened to a record on concern surging sales of U.S. debt will overwhelm the Federal Reserve’s efforts to keep borrowing costs low.

U.S. Fixed Income: Maintain Long Duration But Avoid Treasurys

From BCA
Investors should maintain long duration positions in non-government sectors, particularly in corporate bonds.

IS THE BOND MARKET TRYING TO TELL US SOMETHING?

What is the trend? What is it telling us? See link

Oil Breaks Out: Is It Sustainable?

From BCA...Oil or couple of currencies; NOK and or CAD

Dollar Decline Begins In Earnest as U.S. Deficits Climb

From Newsmax - US $ is heading south....no surprise.

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The dollar has likely begun its long term decline, say investment experts, who add that the risk to America’s investment grade rating could start a stampede away from greenback, devaluing the currency even faster.

The dollar’s recent bottom was on March 4, right around the time of the stock market low, when it hit $1.23 to the euro. It now trades at $1.38 to the euro. It recently peaked at $1.44 on Dec. 17 of last year.

In addition to huge deficits racked up by the Obama administration in the effort to jump start the economy, the global economy is bottoming, and that’s bad news for the dollar, says Thomas Harr, senior foreign exchange strategist for Standard Chartered Bank.

While that argument may seem counterintuitive, the end of the financial crisis means the end of investors’ need for dollars as a safe haven, Harr explained on CNBC.

“We think it’s clearly the beginning of a trend downward for the dollar,” he says.

“The dollar is usually strong during a global recession because of deleveraging and investor repatriation.”

But as the global economy bottoms, “and I think that’s what we’re seeing now, then the dollar will start to fall,” Harr says.

“And it will probably this time fall more first against emerging market currencies, because that’s where fundamentals are stronger” and then gradually against developed market currencies.

“The pace of deceleration of economic data slowing is a negative for the dollar,” Harr says.

“Whether the pace of deceleration is slowing in the U.S., Europe or China, the key thing is that the deleveraging and investor repatriation is not as fast now as it was a couple quarters ago, and that is dollar bearish.”

Harr’s views almost exactly match those of Nobel laureate Paul Krugman’s. He said at a recent seminar, “Just about all of the economic indicators out there are suggesting that the free-fall has come to an end.”

But “the U.S. dollar is going to fall quite a lot,” as safe-haven demand wanes, Krugman says.

Superstar bond fund manager Bill Gross says the U.S. will ultimately lose its triple-A rating, thanks to the exploding budget deficit.

“I think eventually” that will happen, Gross tells Bloomberg TV.

“That’s the trend. It’s certainly nothing that’s going to happen overnight.”

Financial markets reflect that possibility after news that the U.K. may be downgraded, he says.

“The market knows and believes both the U.S. and the U.K. are quite similar in terms of their debt levels and their debt trends.”

What will drive the rating down? The level of outstanding debt as a percentage of GDP, Gross says.

“Interestingly enough, both of these countries start out at relatively low levels” on that score, he explains.

“The U.K. and U.S. are around 50 percent of GDP, where countries such as Japan and Italy are twice that.”

“Why are the U.K. and U.S. potential candidates for downgrades, whereas Japan and Italy are holding up better?” Gross asks.

Answer: “Both the U.K. and U.S. have … deficits of 10 percent (of GDP) annually as far as the eye can see,” he says.

“That means that at some point over the next several years, they may approach 100 percent of GDP (in terms of debt), which is a level at which country downgrades tend to occur.”

Warren Buffett is worried about the U.S. debt buildup too.

“A country that continuously expands its debt as a percentage of GDP, it’s going to inflate its way out of that debt,” he told CNBC.

© 2009 Newsmax. All rights reserved.

A "Second Chance" Trade That'll Make Your Year

From Growth Stock....Natural Gas might be a buy.

President Obama boldly told Americans: "We are out of money."

Well...maybe the President is beginning to recognize the problem. Now the search for workable solutions. I do not think printing money really works.

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From the Drudge Report
'WE'RE OUT OF MONEY'
Sat May 23 2009 10:32:18 ET

In a sobering holiday interview with C-SPAN, President Obama boldly told Americans: "We are out of money."

...As Fed Fights The Last Depression Is It Losing The Inflation Battle?

By David Cribbin

General Bernanke and his Federal Reserve now find themselves hip deep in the time honored military tradition of fighting the last war, and as with all armies who fight the last war General Bernanke is in danger of losing his current battle with inflation. While fighting a deflation with an increase in the money supply is a correct policy action, seeing a deflation where there is none, the Fed Chairman reveals that he has read his history of the Great Depression and learned the wrong lessons from it.

This problem of seeing falling prices as deflation and not the result of economic contraction can't be helped as long as he views events through the lens of a Keynesian Economic Model. Keynesians see only inflation and deflation. In their economic world view they don't grasp the differences between contraction and deflation, nor expansion and inflation .

The problem he faces is similar to that of a fireman who doesn't understand the difference between the paper fire in a kitchen trash can and the grease fire on a stove. Dousing both with water, he puts one out but intensifies the other.

Had the economy actually been in a deflation, the extra liquidity the Fed added would have been the correct monetary lever to bring relief . The problem for the Fed was that we were not in a deflation, but a contraction, which can also be marked by falling prices, but will not be fixed by additional monetary ease. As a result, even with the Fed's massive expansion of it's balance sheet, prices continued to fall.

The sharp contraction of the economy, ignited by a breakdown of the loan securitization market, helped to cause falling prices. The financial hardship of falling home and securities prices, while painful to many, was providing the economic cure to the recession by once again rationalizing market prices. This, in turn, would bring private capital back to the markets in search of newly created value. The Fed, in trying to prevent the deflation that wasn't, by injecting additional liquidity into markets that didn't need it, took exactly the wrong course of action. The Fed's misstep is resulting in a fanning of the sparks of a new inflation that, along with the recovery, is just now getting underway.

As the economy slowly continues to show signs of a recovery, the Fed needs to quickly do an about face and withdraw it's monetary surge, or the battle to tame inflation will be long and hard fought, but ultimately a losing one. The Federal Reserve should then play it's part in securing our economic future by once again fixing the value of the dollar,thereby eliminating the risk of inflation and assuring economic actors that the profit negotiated in today's contracts will not be diminished by the hidden tax of inflation. Economic growth and a return to a sound currency would unwind a lot of the negative effects of the increased liquidity the Fed has produced.

What was, and is still needed, are incentives to encourage risk taking by investors and entrepreneurs. Increasing the after tax returns to capital for successful risk takers is the road to an expanding economy that will create real jobs in the private sector. Economic expansion, along with the growing profits it produces, would also provide the additional revenue the Treasury seeks. Instead, we hear talk of higher taxes, closing loopholes, and hiring additional IRS agents to beef up enforcement . None of these are pro-growth policies. Unfortunately, pro-growth incentives will probably not be forthcoming from this Congress, as Government is firmly stuck in the muddied Keynesian view that the economy is suffering from a "shortfall in aggregate demand", which in their construct can only be addressed by additional government spending when the private sector retreats.

My guess is that when the economic history of this period is written, the Feds policy of fighting a contraction with monetary stimulus, coupled with the unusually large government interventions in just about every aspect of the economy, will show that it actually resulted in prolonging the depth and breadth of this recession .

David Cribbin is as ALG News Contributor and the President of the TailWind Capital Group. His blog can be read at http://therightsideofdave.blogspot.com.

Dollar Is Dirt, Treasuries Are Toast, AAA Is Gone: Mark Gilbert

...."the sound of inevitability".

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May 21 (Bloomberg) -- The odds on the dollar, Treasury bonds and the U.S. government’s AAA grade all heading for the dumpster are shortening.

While currency forecasting is a mug’s game and bond yields can’t quite decide whether to dive toward deflation or surge in anticipation of inflation, every time I think about that credit rating, I hear what Agent Smith in the “Matrix” movies called “the sound of inevitability.”

Gold bugs at last have their perfect trinity

From the UK Telegraph Will it be inflationary or deflationary and what is the direction for gold?

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China has doubled its bullion reserves and left us in no doubt that it will spend more of its $40bn monthly surplus on hard assets rather than the toxic paper of Western democracies.

...It is striking how many of those most alert to the deflation danger are either veterans of Japan's Lost Decade or close students of it: Albert Edwards at Société Générale, Russell Jones at RBC Capital, Nobel laureate Paul Krugman, the Fed's Ben Bernanke, and Athanasios Orphanides, who helped draft the Fed's study on the Japan trap. "People always thought Japan's bond yields had to rise, but they kept falling and Japan is still not really out of deflation," said Mr Edwards. Indeed, 20 years after the Nikkei peaked at over 39,000 it stands today at 9,280. Interest rates are 0.01pc. The yield on two-year state bonds is 0.34pc. Still there is not a whiff of inflation.

....America's debt-gearing has exploded, as it has in the UK and Europe. This looks awfully like Irving Fisher's "debt deflation" trap of 1933. It will be a long slog for households to bring their debt-to-wealth ratios down to manageable levels.

......Still, we think it is highly significant that both China and Russia – two of the biggest holders of foreign reserves – are both buying gold," he said.

...out of fear that the most corrosive phase of this crisis lies ahead. There are two more boils to lance: Europe and China. As the IMF keeps telling us, Europe's banks are still covering up their vast toxic debts. Nor has the G20 begun to address the root cause of the global crisis, which lies in excess exports from East (aided by currency manipulation) to an over-spending West. China is putting off the day of reckoning with its crisis response, which is to build yet more plant to flood the world with yet more over-capacity.

Canadian Dollar Strengthens Amid Rally in Commodity Currencies

May 23 (Bloomberg) -- Canada’s dollar posted the biggest weekly gain since October as crude oil climbed and investors bought the currencies most likely to benefit from a rebound in global economic growth, shunning the U.S. greenback.

The Canadian dollar rose 5.2 percent as currencies of countries that produce raw materials surged. The ICE’s U.S. Dollar Index dropped to the lowest in five months on speculation the creditworthiness of the world’s largest economy is deteriorating. Crude rose above $62 a barrel.

“The Canadian dollar’s had a nice move,” said Michael Leavitt, a Montreal-based institutional-derivatives broker at MF Global Canada Co. “This breakout has moved some people off the sidelines. Crude has had a lot to do with it.” He predicted the currency may strengthen to C$1.0825.

Canada’s dollar, known as the loonie, ended the week at C$1.1195, from C$1.1776 on May 15. It touched C$1.1188 yesterday, the strongest since Oct. 9. One Canadian dollar buys 89.33 U.S. cents.

Crude oil for July delivery rose 9.5 percent to $61.67 a barrel on the New York Mercantile Exchange after touching $62.26. Prices are up 38 percent this year. Crude, natural gas and other energy products accounted for 25 percent of Canada’s export revenue last year.

The loonie climbed the most over the past five days since the week ended Oct. 31, when it gained 5.4 percent. After reaching a four-year low on March 9, it advanced 16 percent as investors stepped out of havens to seek higher-yielding assets such as stocks and commodity-linked currencies amid signs the global economic slump is moderating.

‘Far-Reaching Implications’

The U.S. dollar was the worst performer this week among the 16 most-traded currencies tracked by Bloomberg.

“The extent of the rally is quite astonishing,” said Matthew Strauss, a senior currency strategist at RBC Capital Markets in Toronto. “If U.S. dollar weakness continues, it could have far-reaching implications not only for the Canadian dollar, but for currencies across the world.”

The dollars of New Zealand and Australia, which like the Canadian currency tend to track fluctuations in commodity prices and stocks, gained 6 percent and 4.5 percent, respectively, over the past five days against the greenback.

Canadian government bonds lost investors 1.9 percent this year, according to a Merrill Lynch & Co. index. The yield on the 10-year bond rose 16 basis points on the week, or 0.16 percentage point, to 3.26 percent. It touched the highest since Dec. 1 yesterday, 3.29 percent. The price of the 3.75 percent security due in June 2019 fell C$1.40 to C$104.19.

‘Serious Downside’

U.S. Treasuries dropped yesterday, pushing 10-year notes to their biggest weekly loss since June 2008, as investors prepared for the government to resume debt sales after a two-week hiatus.

“If these auctions don’t go well, we could see some serious downside” in 10-year government note prices on both sides of the border, said MF Global’s Leavitt. “We can’t consider ourselves immune from what’s happening in the U.S.”

The Dollar Index, used by the ICE to track the U.S. currency versus the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, touched 79.805 yesterday, the lowest since Dec. 29.

Pacific Investment Management Co.’s Bill Gross said on May 21 in an interview on Bloomberg Television the U.S. will “eventually” lose its AAA credit rating. President Barack Obama’s administration will sell a record $3.25 trillion of debt in the fiscal year ending Sept. 30 to fund a growing budget deficit, according to an estimate by Goldman Sachs Group Inc.

Gold Stocks Haven't Even Begun to Soar

Time to Buy Gold Stocks?

The cost of producing gold is down. According to John, oil makes up 25% of the cash cost of producing an ounce of gold. The price of oil has fallen by over half since last summer.

Also, the value of the currencies in gold-producing countries has fallen. John showed a table including the currencies of Australia, South Africa, and Canada (among others). The currencies had lost between 15% and 40% of their value versus the dollar.

Don't underestimate the importance of this... Much of the cost of production of gold (like local labor costs) is in those local currencies, but the gold is priced in U.S. dollars. In short, a fall in the currency is an instant boost for most gold producers.

So the price of gold is up while the cost of production is down. This directly increases profit margins. Gold-mining companies should report excellent earnings in the next few quarters... surprising on the upside.

John tracks three solid indicators to figure whether gold mining companies, as a group, are cheap or expensive. He looks at 1) market value versus ounces in the ground, 2) market value versus production, and 3) market value versus operating earnings. He tracks these in his excellent, data-heavy monthly newsletter, Gold Stock Analyst.

In his most recent newsletter, John said gold stocks were undervalued by 19% based on the first two of these metrics above.

Lastly, John explained sentiment toward gold stocks is still pretty bad. He had just spoken at the New York Gold Show, which he said was relatively poorly attended.

So gold stocks are cheap based on history... People are not clamoring for them, yet... And with cheaper oil and currencies, earnings of gold miners will surprise on the upside. In other words, if you think you've missed the move in gold stocks, you haven't.

U.S. Markets Wrap: Stocks, Dollar, Treasuries Fall; Gold Rises

No surprise here... maybe the only surprise there is how long it took for the US$ to start to fall.

May 21 (Bloomberg) -- Stocks and Treasuries fell, and the dollar dropped to a four-month low on speculation the U.S. government’s credit worthiness is deteriorating.

U.S. stocks declined for a third day, extending a global slump, after jobless claims topped economists’ forecasts and Standard & Poor’s said the U.K. may lose its AAA credit rating.

“The markets are beginning to anticipate the possibility of” a downgrade to the U.S.’s top AAA credit rating, and it will “eventually” be lost, said Bill Gross, co-chief investment officer of Pacific Investment Management Co. in Newport Beach, California, in a Bloomberg Television interview. “It’s certainly nothing that’s going to happen overnight.”

The dollar slid 0.9 percent to $1.3901 per euro at 4:02 p.m. in New York, from $1.3780 yesterday. It touched $1.3923, the weakest level since Jan. 5. The dollar fell 0.6 percent to 94.31 yen from 94.88 and reached 93.97, the lowest since March 19. The euro increased 0.3 percent to 131.93 yen from 130.77.

Gold rose to the highest price since March as the slump in global equity markets increased the appeal of precious metals as an alternative investment. Silver touched the highest since February.

Gold futures for June delivery gained $13.80, or 1.5 percent, to $951.20 an ounce on the New York Mercantile Exchange’s Comex division. Earlier, the price reached $951.80, the highest for a most-active contract since March 23. Bullion for immediate delivery in London jumped $16.19, or 1.7 percent, to $954.84 at 7:23 p.m.

Silver futures for July delivery climbed 16.5 cents, or 1.2 percent, to $14.445 an ounce in New York, after earlier touching $14.51, the highest since Feb. 24. The metal surged 28 percent this year, while gold is up 7.6 percent.

Oil Falls

Crude oil dropped from a six-month high after the Federal Reserve cut its forecast for the economy of the U.S., the world’s biggest energy-consuming country.

U.S. stocks erased gains in the final hour of trading yesterday after minutes from the Federal Reserve’s April meeting predicted a deeper recession.

Canadian Currency Advances to Strongest Level in Seven Months

May 21 (Bloomberg) -- Canada’s dollar rose for a fourth day, touching the strongest level since October, as its U.S. counterpart weakened against most major currencies.

“It’s part of the general move against the U.S. dollar,” said Meg Browne, a currency strategist at Brown Brothers Harriman & Co. in New York. “It looks like this is going to continue.”

The Canadian currency gained 0.4 percent to C$1.1374 per U.S. dollar at 5 p.m. in Toronto, from C$1.1418 yesterday. One Canadian dollar buys 87.92 U.S. cents. The loonie, as Canada’s currency is known, touched C$1.1349, the strongest level since Oct. 14.

The U.S. dollar fell today against all of the 16 most- traded currencies tracked by Bloomberg except the Brazilian real and Mexican peso as an increase in Treasury yields and gold prices indicated inflation may accelerate while the U.S. budget deficit widens. The greenback is the worst-performing major currency this month.

The markets are beginning to anticipate the possibility of the U.S. losing its AAA credit rating “eventually,” said Bill Gross, the co-chief investment officer of Pacific Investment Management Co., in an interview on Bloomberg Television.

Canada’s dollar surged 14 percent after reaching a four- year low on March 9 as investors stepped out of havens to seek higher-yielding assets such as stocks and commodity-linked currencies.

No Quick Turnaround

“Looking at momentum indicators, it doesn’t look like this move is going to turn around any time soon,” said BBH’s Browne. “The U.S. dollar may extend declines into next week.”

The 14-day relative strength indicator for the U.S. dollar against the Canadian dollar stood at 31.4. Readings below 30 and above 70 indicate a reversal may occur.

“Overall I’m fairly constructive longer term on the Canadian dollar,” said Jonathan Gencher, Toronto-based director of currency sales at BMO Capital Markets. The trend for the U.S. dollar versus the loonie is “biased to the downside.”

The yield on the 10-year Canadian government bond climbed as much as 15 basis points, or 0.15 percentage point, to 3.29 percent, the highest since Dec. 1. The price of the 3.75 percent security maturing in June 2019 fell C$1.13 to C$104.07.

Steve Leuthold May Boost Stock Holdings to Almost 70%

One needs to be following the smart money!

***************

May 20 (Bloomberg) -- Steve Leuthold, who turned bullish this year after profiting from the equity market rout in 2008, said he may invest almost 70 percent of some funds in stocks as the economy stabilizes.

He’s betting that large investment firms, which have cut equity holdings, will put more of their assets in U.S. stocks in an effort to avoid underperforming the Standard & Poor’s 500 Index as the market continues to rally. Leuthold, who spoke in a Bloomberg Television interview, also said he’s buying gold, silver and Asian stocks on speculation the dollar will weaken.

Leuthold’s Grizzly Short Fund returned 74 percent last year as the S&P 500 posted the steepest annual retreat since 1937. He turned bullish in March, five days before the index sank to the lowest level in 12 years, telling Bloomberg TV that “every investor ought to be considering putting money into equities.” The measure has surged 30 percent since then, approaching his prediction of 1,100.

Marc Faber thinks US Govt could go bust

Investment guru Marc Faber says the financial system must be cleansed to save capitalism.

"I think the final low in markets will occur when the system is cleaned out," Faber told CNBC.

Unless that happens, "the way communism collapsed, capitalism will collapse," he says. "The best way to deal with any economic problem is to let the market work it through."

He sees the Federal Reserve and other central banks continuing to print piles of money. And the outcome won’t be pretty.

"The U.S. government for sure will go bust,” Faber says. “That I guarantee you. Not tomorrow, but it will go bust."

He isn’t optimistic for the fate of the global economy either.

“I don’t think that the global economy will recover anytime soon,” he says. “And we have to define what a recovery is.”

If economic output drops far enough, a mere revival of inventories can push growth up a bit, creating a mild rebound, Faber says.

“I take 2006 and early 2007 as the peak of prosperity in this long cycle, and I don’t think we’re going back there anytime soon.”

Many other experts share Faber’s bearish view of the global economy.

“The debate will continue on whether it’s going to be a V, U or L-shaped recession,” former World Bank president James Wolfensohn said at a recent conference.

“My own judgment is that it’s more likely the latter. I don’t believe we’ll get a quick fix any time soon.”

Paulson’s Hedge Fund Bought Gold Stock, Miners in First Quarter

John Paulson believes in Gold. He is continuing his investments in gold and gold shares.

May 15 (Bloomberg) -- Paulson & Co., the hedge-fund firm run by billionaire John Paulson, increased its investment in gold and gold-mining shares in the first quarter, according to a regulatory filing.

As of the end of the first quarter, Paulson was the largest holder of SPDR Gold Trust, an investment fund that buys gold bullion. The New York-based firm owned 8.7 percent of the fund, valued at $2.8 billion as of March 31, according to a filing with the U.S. Securities and Exchange Commission.

China’s Stockpiles Are New Sovereign Wealth Strategy,

China is continues moving away from its US dollar investments. That just means higher interest rates on US debt and increase in commodity prices.

May 18 (Bloomberg) -- China is stockpiling commodities such as copper and iron ore as part of a reallocation of its sovereign wealth amid concern that the value of its dollar assets may decline, according to the Royal Bank of Canada.

“It’s part of an overall desire to decrease its exposure to dollar assets,” said Brian Jackson, senior strategist at Royal Bank of Canada in Hong Kong, in an interview today. China fears the hundreds of billions of dollars the U.S. is spending on bank bailouts and stimulus will cause “higher inflation and a weaker dollar,” he said.

Premier Wen Jiabao has said he is “worried” about the safety of the nation’s $767.9 billion in holdings of U.S. Treasuries and called on the U.S. “to guarantee the safety of China’s assets.” Central bank Governor Zhou Xiaochuan has proposed a new global currency to reduce reliance on the dollar.

More is Coming.....Be ready

I agree..more the risk is on the downside. Be ready.

From Money & Markets...

The easy monetary policy from 2001 to 2005 induced the biggest real estate bubble of all time to develop. As forecast by Mises and Rothbard’s theory of the business cycle, it was the bursting of the housing bubble that has done all the economic and financial damage you’ve witnessed during the past 18 months.

The Bigger the Burst Bubble … The More Devastating the Recession to Follow

America’s triple A rating is at risk

From the FT
Published: May 12 2009 20:06 | Last updated: May 12 2009 20:06
Long before the current financial crisis, nearly two years ago, a little-noticed cloud darkened the horizon for the US government. It was ignored. But now that shadow, in the form of a warning from a top credit rating agency that the nation risked losing its triple A rating if it did not start putting its finances in order, is coming back to haunt us.

That warning from Moody’s focused on the exploding healthcare and Social Security costs that threaten to engulf the federal government in debt over coming decades. The facts show we’re in even worse shape now, and there are signs that confidence in America’s ability to control its finances is eroding.

Prices have risen on credit default insurance on US government bonds, meaning it costs investors more to protect their investment in Treasury bonds against default than before the crisis hit. It even, briefly, cost more to buy protection on US government debt than on debt issued by McDonald’s. Another warning sign has come from across the Pacific, where the Chinese premier and the head of the People’s Bank of China have expressed concern about America’s longer-term credit worthiness and the value of the dollar.

The US, despite the downturn, has the resources, expertise and resilience to restore its economy and meet its obligations. Moreover, many of the trillions of dollars recently funnelled into the financial system will hopefully rescue it and stimulate our economy.

The US government has had a triple A credit rating since 1917, but it is unclear how long this will continue to be the case. In my view, either one of two developments could be enough to cause us to lose our top rating.

First, while comprehensive healthcare reform is needed, it must not further harm our nation’s financial condition. Doing so would send a signal that fiscal prudence is being ignored in the drive to meet societal wants, further mortgaging the country’s future.

Second, failure by the federal government to create a process that would enable tough spending, tax and budget control choices to be made after we turn the corner on the economy would send a signal that our political system is not up to the task of addressing the large, known and growing structural imbalances confronting us.

For too long, the US has delayed making the tough but necessary choices needed to reverse its deteriorating financial condition. One could even argue that our government does not deserve a triple A credit rating based on our current financial condition, structural fiscal imbalances and political stalemate. The credit rating agencies have been wildly wrong before, not least with mortgage-backed securities.

How can one justify bestowing a triple A rating on an entity with an accumulated negative net worth of more than $11,000bn (€8,000bn, £7,000bn) and additional off-balance sheet obligations of $45,000bn? An entity that is set to run a $1,800bn-plus deficit for the current year and trillion dollar-plus deficits for years to come?

I have fought on the front lines of the war for fiscal responsibility for almost six years. We should have been more wary of tax cuts in 2001 without matching spending cuts that would have prevented the budget going deeply into deficit. That mistake was compounded in 2003, when President George W. Bush proposed expanding Medicare to include a prescription drug benefit. We must learn from past mistakes.

Fiscal irresponsibility comes in two primary forms – acts of commission and of omission. Both are in danger of undermining our future.

First, Washington is about to embark on another major healthcare reform debate, this time over the need for comprehensive healthcare reform. The debate is driven, in large part, by the recognition that healthcare costs are the single largest contributor to our nation’s fiscal imbalance. It also recognises that the US is the only large industrialised nation without some level of guaranteed health coverage.

There is no question that this nation needs to pursue comprehensive healthcare reform that should address the important dimensions of coverage, cost, quality and personal responsibility. But while comprehensive reform is called for and some basic level of universal coverage is appropriate, it is critically important that we not shoot ourselves again. Comprehensive healthcare reform should significantly reduce the huge unfunded healthcare promises we already have (over $36,000bn for Medicare alone as of last September), as well as the large and growing structural deficits that threaten our future.

One way out of these problems is for the president and Congress to create a “fiscal future commission” where everything is on the table, including budget controls, entitlement programme reforms and tax increases. This commission should venture beyond Washington’s Beltway to engage the American people, using digital technologies in an unparalleled manner. If it can achieve a predetermined super-majority vote on a package of recommendations, they should be guaranteed a vote in Congress.

Recent research conducted for the Peterson Foundation shows that 90 per cent of Americans want the federal government to put its own financial house in order. It also shows that the public supports the creation of a fiscal commission by a two-to-one margin. Yet Washington still sleeps, and it is clear that we cannot count on politicians to make tough transformational changes on multiple fronts using the regular legislative process. We have to act before we face a much larger economic crisis. Let’s not wait until a credit rating downgrade. The time for Washington to wake up is now.

Oil Stock - Time to Buy?

Jeff Clark From Growth Stock Wire
May 12, 2009

The oil rally is solid.

The price of a barrel of West Texas Crude is up 100% since its bottom last December. By the look of the following chart, there are more gains to come...


The chart has broken above resistance at $55, and there should be enough momentum to take it all the way to $70. So if you're long oil, then stay long.

But if you're thinking about buying oil stocks now, you better think again. The single best oil stock timing indicator is flashing a warning sign...


A bullish percent index (BPI) is a measure of overbought and oversold conditions. A sector is oversold when the index dips below 30, and it's overbought when the index rallies above 80. The best market timing signals, however, come when the BPI reaches truly extreme conditions.

For example, the best buy signals in the oil sector occur when the BPENER dips below 10 – as it did in October, November, and March. Each of those signals generated 25% gains in the AMEX Oil Index in just a few weeks.

The best sell signals in oil are when the BPENER runs near 90 and above. You can see how the two previous sell signals played out on this chart...


Yesterday, the bullish percent index for the energy sector closed above 93. That means 93% of the stocks in the energy sector are trading in bullish chart formations. That's an extreme reading... And it doesn't leave much more room for additional momentum to carry it higher. In fact, it increases the likelihood of a strong selloff in the oil sector.

So even though oil itself looks ready to run higher, the stocks are in the danger zone. We'll likely have a better opportunity to buy them a couple months from now.

Mortgages Over 5% Mean Fed Purchases as Bonds Slump

Big question...are interest rates going to continue up or will the government be able to reverse this trend and lower long term market rates?

May 11 (Bloomberg) -- The world’s biggest investors are increasing bets that Federal Reserve Chairman Ben S. Bernanke will boost purchases of Treasuries as the steepest losses on government debt since 1994 send mortgage rates above 5 percent.

The slump in Treasuries the past seven weeks pushed yields on longer-maturity bonds up by more than half a percentage point and sent average rates on 30-year mortgages to the highest since the start of April, according to North Palm Beach, Florida-based Bankrate.com.

“The Fed needs to consider increasing its purchases of Treasuries,” said Stuart Spodek, co-head of U.S. bonds in New York at BlackRock, which manages $483 billion in debt. Spodek said he resumed buying Treasuries. “We are still in a recession. It’s quite bad. They need to stabilize long-term rates.”

Treasuries lost 3.93 percent this year, according to Merrill Lynch & Co.’s U.S. Treasury Master index, after gaining 14 percent in 2008

Gross Reduces U.S. Debt for First Time Since January

May 11 (Bloomberg) -- Bill Gross, manager of Pacific Investment Management Co.’s $150 billion Total Return Fund, reduced his holdings of U.S. government-related debt last month for the first time since January.

Market Week Review

• S&P - Up 36% since Mar 6th; completed 9th week of gains; Technical indicators have been on buy since Mar 18th; Commerical Hedges have reducing shorts and small traders have been cutting back on net long positions;
  
• Gold - At $917 up from $886 last week; Gold is looking weak due to low volumes and open interest; COT - continues to be long Gold
  
• USD - Has been falling since Mar 6th, it is down 8%; on the week it has fallen from 84.54 to 82.53 - World is losing confidence in the Dollar due to amount of stimulus that has being printed
• US Treasuries/Bonds - Has been falling as well, same issues as the USD and funding requirements of the US government together with China less willing to fund the US deficits
• Oil - Moving up at $59.66 from $54.06 last week; COT continues to be long Oil
  

In his latest newsletter, market giant Jeremy Grantham of money management firm GMO LLC proclaimed that he was parting company with his “bearish allies.” Why? He identified the Presidential Cycle and “the power of stimulus and moral hazard to move the stock market many multiples of their modest effects on the real economy” as the reason why he had recently turned bullish.

Quote of the Week

In the U.S., the total market value of housing, commercial real estate, and stocks was about $50 trillion at the peak and fell below $30 trillion at the low. The original $50 trillion of perceived wealth supported $25 trillion of debt. This loss of $20-$23 trillion of perceived wealth in the U.S. alone is still enough to deliver a life-changing shock for hundreds of millions of people.”

— Jeremy Grantham in the GMO Quarterly Newsletter May 2009

Canadian Dollar and the Market

The Canadian dollar tanked last year dropping from being at par with US$ to below US $0.80. Huge drop. However, it is starting to recover now at US$0.86.

Interesting is the graph overlay of the CAD and S&P. As the market recover so is the Canadian dollar.

The question is how long will this market run up before turning down. If the market does turn down, then the it can be expected that US dollar will increase and CAD will drop.

The Great Re-Leveraging - Markets Going Up

The title gives me phase to think. Wow....it really could be.

Are we prepared, positioned? Things have really changed over the last 1-2 months. How much have you gotten of this move up? Were you positioned for it....the indicators were all there.

Interest rates are effectively close to zero and have been for months. I have been asking what about other investments; corporate bonds, convertibles, trusts and REITs there has to be some great opportunities. But my advisors had nothing....Hmmm.... (not happy)

There has been some great yields....and opportunities. Timing and stops are everything.

There is lots of monies that have been setting on the side lines...and lot more being added by government printing presses. It looks like these funds are flowing back into the markets, and things should be moving up. The trend is up.

But the markets have moved up for about 8 weeks now....it is due for a correction. But it is only a correction on this leg up to higher levels.

However, all is not safe, caution is required. This is a Bear Market and it is a Bear Rally, which is due for a short term correction.

Technical indicators went Long mid March (I passed on it....but they were right!)

Market Rally Week

Not withstanding the economic news, markets continued their rally this week. With low interest rates, monies are beginning to flow back into the market. This rally now 8 weeks running is been strong. The momentum is there. The market is due for a temporary correction while it is on this major leg up.

From Schaeffer's Investment Research - Friday's wrap comments:

The equities market today continued its recent habit of rallying in the face of generally dire economic news. Headlining today was the Labor Department's nonfarm payrolls report, which revealed that the pace of job losses is slowing. Although the economy shed a whopping 539,000 jobs in April, analysts were expecting a steeper decline of more than 600,000. The banking sector's stress test results were also better than the worst-case scenario, with 10 out of 19 institutions failing to pass muster. The under-capitalized banks need a total of $74.6 billion to boost their reserves, according to the Treasury Department. "The results released today should provide considerable comfort to investors and the public," said Federal Reserve Chairman Ben Bernanke, adding that his primary concern was the quality of capital at major banks, rather than the quantity.
The Dow Jones Industrial Average (DJIA – 8,574.65) took the day's news as a cue to extend its recent rally, ending the day up 164.8 points, or nearly 2%. American Express (AXP) and JPMorgan Chase (JPM) set the pace for the 24 advancing blue chips after investors learned that neither financial firm was in need of additional capital. Meanwhile, tech titan Intel (INTC) swallowed the steepest loss of the six declining Dow members. For the week, the Dow added 4.4%, and notched a weekly close above the 8,500 level for the first time since Jan. 9.

Crude futures followed suit with U.S. stocks, blazing a path higher on hopes that the economy's slump may have finally hit rock-bottom. In fact, the prospect of a potential rebound in energy demand propelled black gold to its highest closing price in six months. Weakness in the U.S. dollar also drew some buyers to the hot commodity, with heightened risk appetites pressuring the greenback lower versus the euro. June-dated crude oil ended the day up $1.92, or 3.4%, at $58.63 per barrel -- its highest daily close since Nov. 11, 2008. For the week, crude futures rocketed to a gain of 10.2%.

Amid an upbeat day in the equities market and better-than-expected economic data, gold futures snapped their five-day winning streak. The malleable metal continues to attract attention from investors seeking a safe haven from the specter of inflation, though, which limited today's losses. By the close, gold for June delivery dropped just 60 cents, or 0.1%, to finish at $914.90 per ounce. On a weekly basis, the front-month contract added an even 3%.

NY Fed chair resigns amid stock purchase questions

Stephen Friedman, former chairman of Government Sachs...oh, that is, Goldman Sachs, now chairman of New York Reserve Bank has had to resign. Hmmm....just make you realize that government and the big banks are all working together for each other.

NEW YORK (Reuters) – Stephen Friedman, chairman of the New York Federal Reserve Bank's board of directors, resigned on Thursday amid questions about his purchases of stock in his former firm, Goldman Sachs.

194 countries ranked and rated to reveal the world’s best places to live in 2009

From International Living - France is the top country. Others ranking high are other European countries including Switzerland, Germany, Denmark and then on the other side of the world there is Australia and New Zealand.

This year, as with the past three years, all our number-crunching, rating, and ranking landed France at the top of our Index. France scores high marks across the board…from its health care (84 points) to its infrastructure (90 points) to its safety rating (100 points). But the main appeal of living in France is arguably its lifestyle (its scores 85 points in our Culture and Leisure category).

Kass: Short Bank Stocks Right Now

Hedge fund manager Doug Kass said he is selectively shorting U.S. financial stocks, which have more than doubled since bottoming in early March, on the belief that they have been "priced to perfection" ahead of the banks' stress test results later on Thursday.

"From my perch, investors should sober up and reduce their holdings in financials now," Kass said in a note to clients. "Financial stocks are now priced to perfection."

The KBW Bank Index .BKX of 24 large lenders, including 14 that are subject to the stress tests, jumped 25.8 percent in the first three days of this week and had more than doubled since bottoming on March 6.

Source: MoneyNews - May 7, 2009

Did FDR Make the Depression Great?

By David Gordon for Mises.org:

[The Politically Incorrect Guide to the Great Depression and the New Deal. By Robert P. Murphy. Regnery, 2009. 199 pages.]

Robert Murphy demonstrates in this excellent book a penetrating ability to explain the essence of fallacious economic doctrines. As he notes, three theories offer competing explanations of the Great Depression: the Keynesian account, which stresses a lack of aggregate demand; Milton Friedman's monetarism, which ascribes the severity of the early years of the Depression to a drastic cut in the money supply by the Fed; and, of course, the Austrian theory that Murphy himself favors.

Herbert Hoover, though not under Keynes's influence, defended a version of the first theory. If wages were not kept high, purchasing power would be insufficient to restore prosperity.

Read more...

If You Don't Watch This Chart, You're Going to Lose Money

Long bond yields keep on increasing and bond prices are falling.

Yields on the 30 year bonds have increased from 2.5% to over 4% in past few months. Wow!

Demand for funding government deficits are high and will push rates up.

Andy Xie: "If China loses faith the dollar will collapse"

From Naked Capitalism
It's easy for Americans to pooh-pooh bearish talk about the dollar. Yet the sterling was once the reserve currency, and has fallen, what, by 80% since it lost its standing.

With increasingly dubious accounting and lax enforcement, the US capital markets no longer stand out by virtue of being better regulated. Yes, they still may be deeper and more liquid. But overseas buyers have to look hard at foreign exchange risk. The direction for the dollar in the long term is certain to be down. Overextended debtors trash their currencies (see the Great Depression, the Nordic and Swedish banking crises, and the Asian crisis for a few of many examples).

What is interesting about the Xie piece is that even the stalwart Chinese retail investor has become leery of the dollar. Despite th logic of "oh if you sell, you only hurt yourself", the flip side is if you become certain you are indeed holding a depreciating asset, it makes sense to exit. You want to be early, not late, out.

And that logic, if it starts to take hold, in classic run on the bank fashion, could lead to a disorderly fall in the dollar. It isn't clear what the trigger might be, but Bob Shiller contends that sudden flights from markets don't necessarily require an event to kick them off. And given that Willem Buiter, who though fond of colorful writing, is hardly an extremist, foresees a collapse in dollar assets if the US fails to contain its fiscal deficit, talk of a dollar plunge isn't a a radical view.

Whose Auto Bailout Is Most Expensive? Go Canada!

Time - May 6, 2009

Is the Canadian government's bailout of Chrysler north the worst deal it has ever made? Quite possibly, some critics say, and more of the same is waiting just around the corner as General Motors prepares to ask that country's taxpayers to fork over a similar amount of money in a few weeks time.

Ottawa and the Ontario government are contributing a total of $3.2 billion in loans to keep Chrysler Canada alive, including $850 billion extended to the ailing automaker at the beginning of the year. Prime Minister Stephen Harper and Ontario Premier Dalton McGuinty have characterized the Canadian contribution as proportional to the $12 billion in emergency loans the Obama administration has made available to Chrysler LLC, now under Chapter 11 bankruptcy protection. (See the worst business deals of 2008.)

Not quite. In fact Canada is paying a significant premium over the U.S. to save Chrysler jobs at home, with no guarantees that the billions it is laying at the automaker's door will ever be repaid or do anything to help maintain the country's 20% production share of the North-American auto industry.

The Canadian rescue package works out to more than $340,420 for every employee at Chrysler Canada, which has 9,400 hourly and salaried workers on payroll. That's 15% more than the $295,000 per employee that Washington is shelling out to save about 40,000 Chrysler jobs in the U.S. "This money will never be paid back to the Canadian government," says Toronto auto analyst Dennis DesRosiers with DesRosiers Automotive Consultants. "The deal has been spun in a positive way, but if taxpayers understood what's really going on they would revolt."

What's really going on behind the scenes of the Canadian bailout of Chrysler has more to do with politics than economics. Car dealers and parts suppliers have engaged in a ferocious campaign to save the automaker, both in Ottawa and at the Ontario legislature in Toronto. At the same time Harper and McGuinty are fearful of the repercussions of having Chrysler Canada fail on their watch, possibly triggering a collapse of Ontario's auto sector.

Prime Minister Harper's minority Conservative government in particular needs votes in Canada's industrial heartland if it's to survive a general election, which might come as early as next month. (See the 50 worst cars of all time.)

Also, the Obama administration has made it clear that Canada needs to step up with a serious rescue package for Chrysler and General Motors if it wants a voice in how the North-American auto industry is restructured. But already it's a silent partner, receiving just 2% of Chrysler and one director on the new board in exchange for $3.2 billion in support. That's poor payback, says Jack Layton, head of the New Democratic Party, Canada's fourth largest federal party, which enjoys strong union ties. "The government did not fight hard enough for job and production-share guarantees," he says.

Sell in May, Go Away’ Unwise This Year, UBS Says

May 4 (Bloomberg) -- U.S. investors should stick with stocks and ignore the axiom of “sell in May and go away,” according to David Bianco, UBS AG’s chief equity strategist.

“Hold on for further gains in May,” Bianco wrote in a report dated May 1. Seasonal patterns are “a weak force” by comparison with the economy, which is showing “clear signs of improvement,” the report said.

The CHART OF THE DAY shows the average monthly returns for the Standard & Poor’s 500 Index since 1950. For May through October, the figure is less than 1 percent each month. Averages for November through April exceed 1 percent in every month but February.

Data on initial claims for jobless benefits, manufacturing and consumer confidence justify the gains in stocks since March, Bianco wrote. “Reduced risk of bank nationalization” is in the market’s favor as well, he added. The S&P 500 rose 30 percent from its March 9 low through the end of last week.

Bianco stood by a projection that the index will surpass 900 by the end of this month. The index hasn’t closed above this threshold since Jan. 8. He also repeated a year-end estimate of 1,100, leaving him tied with JPMorgan Chase & Co.’s Thomas J. Lee for the most optimistic view among 11 strategists in a Bloomberg News survey.

The figures in the chart were compiled by Plexus Asset Management and cited in a report by John Mauldin, president of Millennium Wave Advisors LLC, whose outlook on stocks differed from Bianco’s.

“There are times when you should be cautious and times when you should throw caution to the wind,” Mauldin wrote in the May 1 edition of the weekly newsletter, Thoughts from the Frontline. “I think this is the former.”

The Best Short-Selling Opportunity of the Year

I'm getting tempted to jump in on the market....however, it is that time of year which is sell in May and go away. Market is over brought and due for a correction. So I will wait.

From Jeff Clark of GrowthStock Wire

Buying into these conditions, however, is rarely a smart move. The risk/reward weathervane is blowing strongly in the direction of risk. In fact, we're rapidly approaching the best short-selling opportunity of the year.

George Soros Investment in PXP

May 4, 2009
George Soros' hedge fund Soros Fund Management has disclosed a new position in Plains Exploration (PXP). In a 13G filed with the SEC, Soros Fund Management now shows a 5.38% ownership stake in PXP due to activity on April 21st, 2009. They now own 6,467,400 shares. Again, this is a new holding for Soros Fund Management,

Greenlight Buys Ford Debt in First Quarter, Report Says

May 4 (Bloomberg) -- Greenlight Capital Inc., the hedge- fund firm run by David Einhorn, added to its holdings of Ford Motor Co. debt in the first quarter and invested in EMC Corp., Harman International Industries Inc. and Pfizer Inc.

The hedge fund bought Ford’s high-yield, high-risk bank loans at an average price of 37 cents on the dollar starting in the fourth quarter of 2008, according to a May 1 letter the New York-based Greenlight sent to investors. The debt rose to 45 cents on the dollar when the first quarter ended, said the letter, a copy of which was obtained by Bloomberg News.

“It does not appear that Ford will need a government loan any time soon, if ever,” the letter said. Ford, the only U.S. automaker to forgo federal aid, “had the foresight to borrow money when the debt markets were accommodating,” the hedge fund said. General Motors Corp. received $15.4 billion in U.S. government loans.