The Dollar Rebounds...
Daily Pfennig

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In This Issue..

* Too far, too fast?          
* Currencies give back some ground...         
*  Did China send a message?                           
* The Mogambo and more!                                                  

And Now... Today's Pfennig!

The Dollar Rebounds...           

Good day... And a Terrific Tuesday to you! I hope your Memorial Day Holiday weekend was grand... We had beautiful days Friday and Saturday, but Sunday and Monday brought the monsoons! Still... I got to spend time with family and friends, and attend a Cardinals game! YAHOO!

Well... Recall on Friday morning, I told you about how we could see wild swings because of the thinned out trading desks? Well, that's exactly what happened... The Big Dog, euro, traded well into the 1.40 level, up to 1.4050 at one point! The currencies across the board were kicking sand in the dollar's face and laugh. You may also recall that I said that Friday didn't seem like a good time to buy given the strength... And that too, has played out with the currencies giving back a good chunk of ground taken last week, in the overnight markets.

The dollar has another thing going for it this morning besides the "currencies went too far too fast" trading... You see, N. Korea conducted missile tests yesterday... That makes two missile tests that have been carried out in the past week... First Iran, now N. Korea... What's really strange though is that Gold has given back $15 of its gains from last week... It would certainly seem to me that this is backwards... If we have these countries going around test missiles, investors should be flocking to Gold...

My friend, the Mogambo Guru, did it again yesterday, he nailed my thoughts right on the head! The Mogambo was referring to an article about "3 Sound Reasons to Buy Gold"... Let's listen in on the Mogambo Guru, who can be found at the Daily Reckoning

"I admit that I did not read the article, but as far as I know, there are only two good reasons to own gold; to preserve wealth when prices are stable, and to make a lot of fiat wealth when your government acts so stupid as to create, or allow to be created, excess money and credit that eventually destroys the currency, especially when undertaken so as to enlarge the size of government, like now, which makes the problem of inflation worse because those more government weenies have a bigger incentive to save their own phony-baloney jobs, but can only make things worse."

That Mogambo... He's great!

There's one more thing hanging over the euro like the Sword of Damocles this morning... It's an internal memo from the German Banking Regulators, that points out German Banks are set for a series of serious downgrades from their bad loan positions. This internal memo (if it was really intended to be "internal" then why was it all over the news?) is suggesting that the likely write-offs may reach 816 Billion euros! YIKES! Hmmmm... I guess German Chancellor, Angela Merkel's plan to protect these banks that was greatly criticized when first presented, doesn't look so bad to these banks now, eh? This is serious stuff, folks...

There was little in the way of movement yesterday with the U.S. closed for Memorial Day. Most of the action as taken place overnight, first in Asia and now in Europe... Just when it appeared that the fundamentals had slipped in through the back door, and were present once again, with the dollar getting sold, we have the N. Korea story, the German Banks story, and... Too far, too fast story, turning this once run-away bus around...

In other news... Guess who's going to visit China to discuss foreign exchange rates? Yes, U.S. Treasury Sec. Geithner is going to China... And in what I view as a "political message" to Geithner before he gets there, to put him back on his heels... The Chinese moved the renminbi weaker overnight by .7%, the largest overnight move this year! I believe this was done just to emphasize to the new U.S. Treasury Sec. that he has no power here... Sort of like the Good Witch Glenda, telling the wicked witch to go away, that she had no power in munchkin land!

Friday, I saw a blurb that I yelled across to our Foreign Bond Trader, Don Ries, that Moodys had downgraded the rating on the Australian QTC bonds from AAA to Aaa... Not that big of a deal, but... Could lead to some selling by institutions that have strict buying rules that do not allow bonds to be held with a rating less than AAA...

This move by Moodys got me thinking about the story I wrote about earlier last week, about how Moodys could downgrade the U.S.'s AAA rating... Then I read one of my fave writers, William Pesek, and he just happened to be talking about Moodys and their ratings! Using a line that "love" to use, "Opening Pandora's Box"... He said it like this... "Moodys Opens Pandora's Box on AAA Debt Ratings"...

You did notice last week after the rumor of a U.S. downgrade, U.S. Treasury Sec. Geithner, immediately let it be known that the Obama administration is committed to reducing the federal budget... I saw that and had a great big chuckle! Well, if the administration is committed to reducing the federal budget, they sure have a strange way of going about it!

Today, we'll see the color of the latest Case-Shiller House Price Index, and while I've seen some people calling for this report to signal an end of the house price decline, I don't see it that way... And.. In fact, I believe those people are going to be disappointed. Look for the Case-Shiller House Price Index to show yet another month of declines... Probably hitting -18.7% declines...

We'll also see Consumer Confidence for this month... Hmmm, it's expected to show an increase... Well... Why not? I guess... Stocks have put in a good month, eh? And that holds a lot of weight for these people that get surveyed! Me? I would think that the rising unemployment, the bankruptcies of Chrysler and most likely GM, would weigh heavily on the minds of those surveyed... Any way... Consumer Confidence is expected to rise a bit, but remain quite low...

Before I go to the Big Finish, I thought I would talk a bit about the amount of supply that is going to be auctioned by the U.S. this week... The U.S. Treasury will auction $162 Billion in securities, with maturities ranging from three months to seven years. $162 Billion Folks! In one week! This supply has got to be choking the foreigners we need to buy it so that our deficit can be financed! When will they do the Roberto Duran, "no mas"? Let's hope it doesn't come to that, but quite frankly I wouldn't blame the buyers if they did back away... Too much of something isn't good...

Currencies today 5/26/09: A$ .7725, kiwi .6125, C$ .8825, euro 1.3885, sterling 1.5830, Swiss .9170, rand 8.39, krone 6.4660, SEK 7.60, forint 203.75, zloty 3.20, koruna 19.27, yen 94.90, sing 1.4535, HKD 7.7515, INR 47.89, China 6.8331, pesos 13.24, BRL 2.0270, dollar index 80.72, Oil $59.83, Silver $14.35, and Gold... $944.50

That's it for today... I received quite a few emails from readers regarding the "ambush" on CNBC last week... One reader sent me a note and said, those guys call their show "Power Lunch", but he believes it should be "Lower Punch"! HA! Thanks to all who sent along notes telling me to forget about those people at CNBC, and that's what I plan to do! We're in the last week of May! WOW! I will be spending the entire month of June here, with zero trips planned! My beloved Cardinals won 5 in a row last week, but are still not hitting the ball. UGH! My little buddy, Alex, has 3 more days of school this week and then summer break! That also means his older siblings, whom both are teachers, get their summer break too! OK... It's that time of the morning... Let's get this going, and have a Terrific Tuesday!

Chuck Butler
EverBank World Markets

Posted 05-26-2009 9:59 AM by Chuck Butler