Bernanke Squashes Rate Hike Hopes...

By Chuck Butler    Dec 8 2009 11:31AM www.caseyresearch.com

In This Issue….

* Non-dollar currencies see some healing...
* Gold rebounds during the day...
* Japan to issue $81 Billion stimulus package...
* Canadian loonie is best performer on the day...

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And Now... Today's Pfennig!

Bernanke Squashes Rate Hike Hopes...

Good day... And a Terrific Tuesday to you! Day one in the new office, seemed to work out pretty smoothly, with only our fax machine giving us fits... As I said yesterday, kudos to the organizers, planners, doers, tech gurus, and anyone else that had anything to do with this move...

OK... Well, yesterday, I left you with the dollar on the rampage, and the non-dollar currencies and precious metals in the woodshed, having been beaten so badly, they didn't want to come out!

But that was before Fed Chairman Big Ben Bernanke spoke... So, let me set this up for you... The dollar went on a rampage Friday after the BLS aided Jobs Jamboree surprised the markets with how strong it was, thus giving the market players the idea that the Fed would probably move up their date to get off the schnide and raise rates again... But then along came Ben, slow talking, slow walking Ben... And he set the record straight!

Big Ben told an audience, on the edges of their seats, waiting to hear those words from Big Ben that rates would be going higher, that... Basically rates are not going to go up any time soon! Big Ben said, "Economic forecasts are subject to great uncertainty, but my guess is that we will continue to see modest economic growth next year. The economy confronts some formidable headwinds that seem likely to keep the pace of expansion moderate." He also added that, "inflation could move lower from here."

Now, does that sound like he's bullish on this economy? Does it sound like he's ready to raise rates? No, and NO!

So... After that HUGE rally in the dollar on Friday and Sunday night, Monday morning, we saw the dollar bulls pull back the reins on the dollar's run, and the currencies saw some healing... Gold, erased it's $23 loss for the day, in a manner of minutes, and finished the day in the black!

I have to say this about Big Ben folks... Long time readers know that I do not like his method of fighting deflation, or the road that the Cartel has taken during this financial depression. But, for once, I'm going to say that I agree with him! For, this is all the stuff I've been saying for months now, and ripping him and U.S. Treasury Sec. Geithner, every time they beat the drum for the economy... So... The Aaron Neville "Tell it Like it is" award goes to Big Ben Bernanke... But, it comes with a warning... If you do not continue to "tell it like it is" then you have to give it back!

And on a side bar... Just because he's telling it like it is, doesn't mean I like what he's telling us! Keeping interest rates this low is just going to be something that he can hang his hat on, and will definitely be something that our economy is going to suffer from, along with U.S. citizens!

In fact, Andy Zie, the former chief Asian economist for Morgan Stanley, said that, "Chairman Ben S. Bernanke is prescribing "poison" to the U.S. economy by keeping interest rates near zero and fueling a wave of speculative capital that may cause the next global crisis."

Ok... Now that I've gone through all of that, I'm seeing some slippage in the non-dollar currencies from when I came in and turned on the currency screens this morning.

Getting back to Gold for a minute... Overnight, Gold took a hit when a newspaper headline story printed: that The Bank of Korea (BOK) Sees "Illusion" in Gold, Unlikely to Add Holdings. The story went on to note the BOK has said that additional Gold holdings are not attractive as most other central banks are not buying, while the shiny one offers no cash returns.

Hmmm... Funny how that came out the night after a Bloomberg story basically said the same thing about Gold not outperforming interest bearing cash accounts... WHAT? Hey! If the BOK doesn't want to buy additional Gold, I'm sure that's fine with the central banks of India and China!

As for that story on Bloomberg... Again, it took Gold's previous high of $850 in 1981, and did its calculations from there... I've said this over and over again, that to be truthful, you need to go back to when Gold was allowed to float, and the price was around $40... Now... Do you calculations!

Ok... I had to step away and yell at the walls for a moment, but I'm back now!

My good friends, Mary Anne and Pam Aden (the Aden sisters), sent out a note to their subscribers about Gold yesterday... I know that they would want my Pfennig readers to also know their position on Gold... So, here are the Aden sisters...

"The over $60 decline in gold since Friday is fueling some concern... At this point, the decline does not even warrant the label of a correction. Gold had quickly risen to such an extreme level, it's not unusual that it's backing off some. This volatility could be a sign of a maturing C rise but, it's still too soon to tell if it's near an end. Gold has risen 18% in the past five weeks and it has risen 40% since its April low. So this not even 5% decline since Friday is not a concern. In fact, gold hasn't even neared its 5 week moving average at $1140. This average identifies a super strong market and any corrections above this level are simply erasing some of the froth in the market. While gold's rise might be coming to an end, we haven't yet seen the first sign of a top."

Thank you Mary Anne and Pam...

On a sidebar, I thought I would tell you that both Mary Anne and Pam have been very good friends to me during this battle with cancer. They have sent me nutrition books, and notes from time to time making sure I'm doing well... Super people these two...

Yesterday, I told you about how Canada's jobs report on Friday was completely overlooked, except for me, and it was quite strong... Well, that report fueled a nice run by the Canadian dollar / loonie yesterday, as it was the top performing non-dollar currency...

In Australia, their Business Survey showed confidence rising from 16 to 19 in November, which happens to be the highest level for this data since May 2002! I wonder how this will play in the Reserve Bank of Australia Gov.'s speech today... RBA Gov. Stevens, will speak today, and everyone believes that Stevens will damp expectations for further rate increases... But, the Gov. has to remember that the jobs market there is strong, and now Business Confidence is at a 7 year high...

I do have to mention something that worries me here, and that is that Australia's Current Account Deficit, which had been narrowing, has widened in the past three months from $13.1 Billion to $16.1 Billion...

Wouldn't that be sweet here in the U.S. to have a Current Account Deficit of only $16.1 Billion?

Speaking of Deficits... One would think they would have learned by now that throwing money at a weak economy and deficit spending doesn't get them anywhere... But apparently not! It was reported overnight that Japan has issued an $81 Billion worth, stimulus plan for their economy...

I shake my head in disgust, and wonder when these knuckleheads will ever figure out that this method does nothing, absolutely nothing, say it again! Except! Build your national debt to unsustainable sizes!

But! Never fear, for Underdog is here! The yen has rallied strong VS the dollar overnight, moving back to near the level it traded right before the Jobs Jamboree printed last Friday! So... Yen is up to its old tricks once again! Rallying when the dollar is strong or weak!

I'll tell you that yen continues to be considered a "safe haven" which makes little or no sense whatsoever! Japan's national debt is $11 Trillion, the U.S. has a national debt of $12 Trillion, and yet these are the two places that investors run to when the dark clouds gather?

I'll leave that at that...

Then there was this... Citigroup and Wells Fargo are wrestling with the U.S. government over how much capital the banks will be required to raise to exit the Troubled Asset Relief Program.

The disagreements are related to last week's announcement by the Treasury Department that Bank of America won approval to repay its $45 billion in federal aid. The Charlotte, N.C., bank sold about $19 billion in common stock late Thursday as part of its repayment strategy.

To recap... Big Ben Bernanke squashed the rate hike campers hopes yesterday, and brought about some healing in the non-dollar currencies, and Gold. These two asset classes have begun to slip again this morning. And Japan is going to issue yet another, $81 Billion stimulus program... UGH! When will they ever learn?

Currencies today 12/8/09: American Style: A$ .9105, kiwi .7105, C$ .95, euro 1.48, sterling 1.6285, Swiss .9790, European Style: rand 7.4960, krone 5.7420, SEK 7.0870, forint 184, zloty 2.7710, koruna 17.4050, RUB 30.39, yen 88.50, sing 1.3915, HKD 7.75, INR 46.67, China 6.8275, pesos 12.77, BRL 1.7515, dollar index 75.88, Oil $73.68, 10-year 3.38%, Silver $18.10, and Gold... $1,153.50 (it's selling off again as I send this off)

That's it for today... Geez Louise, I totally forgot to mention yesterday that my little buddy Alex, ran in his first 5K on Sunday, and his time was 22 minutes... Not too shabby for that once pudgy little kid that just sat in front of a computer building roller coasters and playing video games! He's now as active as can be, growing tall and thin... I was coloring with Delaney last night, and she kept telling to color more! And then giggle... I'm going to have to buy a space heater for my new office... You could hang meat in there it's so cold! OK... Suzy Q is here, which means I need to get this out the door! I sure hope your Tuesday is Terrific!

Chuck Butler
Senior Market Strategist

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Two decades ago, Chuck Butler embarked on his extensive career in foreign investments as the Director of Operations for the Fixed Income Division of the Mark Twain Bank. He oversaw the clearing and custody of all bond department trades and Mark Twain portfolio transactions.