Trichet! Long Live Trichet!

What a bizarre day in the markets. If you ever needed proof that it's foolish to expect the markets to act rationally, today was the day. The Dollar is down 45 ticks and Oil is up over $5 a barrel,...and Gold is down? Go figure.

Several times I have commented that the US Dollar was "strong" ONLY because the Euro was weak. Today brought that observation full circle. The Dollar was weak today because the Euro was strong. None of the over hyped "strength" in the Dollar the past 10 weeks, as in zippo, was because of any fundamental turnaround in the Dollar. There has been a lot of Dollar jawboning over the past 10 weeks that has attempted to piggyback and take advantage of the recent weakness in the Euro, but there has been absolutely no concrete policy change or initiative that would lend any "real" strength to the Dollar. Bumbling Ben and his court of fools have only attempted to change the world's "perception" of the Dollar with their jawboning, in an attempt to slow it's decent into the dustbin of history. In a sense they have pulled the rip chord on the Dollar in the hopes that their verbal parachute will allow the Dollar to crash back to Earth softly. Sometimes parachutes fail, or the chute lands in the trees and the trooper breaks his neck and is left twisting in the wind for all to see. And such is the destiny of the US Dollar. It's either, SPLAT!, flat as a pancake or a slow ride down the slope of hope and suddenly, Pfft! In the end, the same result, ugly or cruel, the Dollar is dead.


Euro surges after ECB's Trichet hints at near-term interest rate hike
LONDON (Thomson Financial) - The euro surged against the dollar after European Central Bank president Jean-Claude Trichet suggested interest rates will need to rise soon to counteract soaring inflationary pressures.

Trichet said the ECB is in a state of "heightened alertness" on inflation risks in the euro zone and would not rule out a rate hike as early as July.

"Unless euro zone inflation and money supply data come down significantly the ECB will definitely move in August, if not in July," said Neil Mellor at the Bank of New York Mellon.
http://www.fxstreet.com:80/news/forex-news/article.aspx?StoryId=2f51cb97-8c3d-4715-930d-854ea1d63fd7

The Euro vaulted higher as the words fell from Mr Trichet's mouth. The Dollar gasped for air, and Gold rocketed off it's lows of the day. The Dollar Bears and Gold Bulls were sitting a little taller in their seats as the news broke at 8:30AM est., high-fiving and making rude gestures at the Dollar Bulls and Gold Bears. The counter punch came almost immediately from the US financial media.


Jobless claims show unexpected improvement
WASHINGTON (AP) - The number of laid-off workers filing claims for unemployment benefits showed an unexpected improvement last week although a key indicator of unemployment hit a four-year high.

The Labor Department reported Thursday that applications for unemployment benefits totaled 357,000 last week, some 18,000 fewer than the previous week. That pushed applications for benefits to their lowest level since mid-April.

However, the four-week average for people receiving benefits edged up to 3.086 million, the highest level since March 6, 2004, when the country was still struggling to recover from a prolonged period of rising unemployment.

The increase in so-called continuing claims underscored the problems people are facing with rising layoffs and the difficulty in finding new jobs in a weak economy.

Some analysts said the better-than-expected showing was an aberration that reflected problems the government has in adjusting the claims figures around holidays. Last week covered the Memorial Day holiday when state claims offices were closed.

"Claims will rebound over the next couple of weeks and the underlying trend will continue to grind slowly higher," said Ian Shepherdson, chief U.S. economist at High Frequency Economics.
http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=9ffb582e-5ce7-4882-8821-204fbd0df321


Dollar Bulls and Gold Bears are overheard shouting expletives at the Dollar Bears and Gold Bulls and questioning their patriotism. The Dollar Bears and Gold Bulls point out that ANY drop in "continuing jobless claims" is because 18,000 more Americans ran out of unemployment benefits and can no longer continue their claims. The Dollar Bears and Gold Bulls bob and weave and strike another blow.

US May retail sales lifted by discounters, rebates
CHICAGO, June 5 (Reuters) - U.S. retailers reported a mixed bag of May sales results on Thursday, with consumers focused on lower prices and essentials like food, but signs emerged that tax rebates were helping to spur some spending.

While many discount and warehouse stores topped analysts' lowered expectations, department store operators continued their struggles, as U.S. consumers spent cautiously.
Overall, same-store sales rose 2.5 percent, more than twice the average 1.2 percent increase forecast by analysts, according to Thomson Reuters data. That compares with a 2.9 percent increase a year earlier.

A total of 58 percent of retailers covered exceeded analysts expectations, while about one-third missed estimates, according to Thomson Reuters.

"We have this clear divide in where the strength is and where it isn't," said Michael Niemira, chief economist for the International Council of Shopping Centers. "The strength seemingly was in the less discretionary areas -- like discount, drugs and wholesale clubs."
http://www.guardian.co.uk/business/feedarticle/7565702

The Dollar Bears and Gold Bulls took a quick swing and pointed out that buying just food, gas, and drugs at Wally World won't go very far in crystallizing Bumbling Ben's "vision" of "somewhat better growth " in the second half of this year. "I thought people were supposed to buy TVs and video games with their rebate checks," a boisterous Gold Bug out in the hall crowed. More expletives from the Dollar Bulls and the Gold Bears. "Gold is a boat anchor, pal," bellowed a Dollar Bull.

The Dollar Bears and Gold Bulls decided it was time to fight dirty and trick the Bumbling Ben Fan Club into believing they were gonna win the day. And then they hit below the belt at two perpetual soft spots on the Dollar Bulls and Gold Bears.

Foreclosures hit a record high -- and more coming
Foreclosures surge to a record high -- late payments, too, signaling worse to come
WASHINGTON (AP) -- The foreclosure hammer is hitting ever harder. People lost their homes at the highest rate on record in the first three months of the year, and late payments soared to a new high, too -- an alarming sign that the housing crisis and its damage to the national economy may only get worse.

Dumping more empty homes on an already glutted market also is likely to put a further drag on home prices -- extending a vicious cycle.

Slumping home values are being blamed in large part for the rising tide of foreclosures. Troubled borrowers are left owing more to the bank than their homes are worth. They can't sell without taking a huge financial hit, so they just walk away.

In fact, Americans' equity in their homes -- usually their single biggest asset -- now has dropped to the lowest level on record in figures going back to the end of World War II. Homeowners' portion of equity fell to 46.2 percent, which means the amount of debt tied up in their homes exceeds the equity they have built up.

"The economy is treading water, and the housing market is one of the undercurrents trying to pull it down," said Stuart Hoffman, chief economist at PNC Financial Services Group.

Both the rate of new foreclosures and late payments were the highest on record going back to 1979.

With prices expected to keep dropping, foreclosures and late payments "are going to continue to go up," Jay Brinkmann, the association's vice president of research and economics, told The Associated Press.
http://biz.yahoo.com/ap/080605/home_foreclosures.html

"Low blow, low blow," somebody shouts from the Dollar Bull and Gold Bear mob. But the words barely cross the fools lips when the Dollar Bears and Gold Bulls strike again.

Standard & Poor's cuts Ambac, MBIA bond insurance units ratings to Double-A

NEW YORK (Thomson Financial) - Standard & Poor's lowered its financial strength ratings on Ambac's Ambac Assurance Corp. and MBIA Inc.'s MBIA Insurance Corp. to Double-A with negative implications from Triple-A, citing the bond insurers' decreasing financial flexibility amid continued deterioration in the U.S. housing market.

S&P also cut its ratings on the holding companies, Ambac Financial Group and MBIA Inc. to Single-A from Double-A, and to Single-A minus from Double-A minus, respectively, and placed both on creditwatch with negative implications.

'The rating actions on the companies reflect our belief that these entities will face diminished public finance and structured finance new business flow and declining financial flexibility,' analyst Dick Smith wrote Thursday. 'In addition, we believe continuing deterioration in key areas of the U.S. residential mortgage sector and related CDO structures will place increasing pressure on capital adequacy,' he added.
http://www.forbes.com/afxnewslimited/feeds/afx/2008/06/05/afx5086346.html

Oh man, that had to hurt. The Dollar Bulls and the Gold Bears had just been betrayed by one of their partners in crime. The ramifications of this downgrade could potentially devastate the bond markets and prove the "credit crisis" is NOT over. "There must be some mistake," cries a bewildered Dollar Bull and Gold Bear. No mistake, another ally has become a turncoat:

MBIA, Ambac May Quit Aaa Battle on Moody's Likely Cut
June 5 (Bloomberg) -- MBIA Inc. and Ambac Financial Group Inc. may give up attempts to retain the Aaa credit ratings of their bond insurance units after Moody's Investors Service put them under review for a second time this year.

The world's largest bond insurers, which have raised $4.1 billion combined in the past six months, said they won't seek more capital after New York-based Moody's yesterday said the most likely result of its examination would be a downgrade of the companies' top insurance financial strength rankings.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aOQpu7f9_R3s&refer=home

"Noooooooooooooooooooooooooooooo!"

"Been promised us AAA for life!" screams a wounded Dollar Bull and Gold Bear.

"Liar, Liar, Liar, Liar...." a chant from the Dollar Bulls and Gold Bears inner circle begins.

The Dollar Bears and Gold Bulls can see that they have the enemy on the ropes and go in for the knockout. "Take this you Rat Bastids!"

Oil posts record $6 gain on weak U.S. dollar
NEW YORK (Reuters) - Oil surged $6 to over $128 a barrel on Thursday in the largest outright gain on record as signals the European Central Bank may raise interest rates this year pushed down the U.S. dollar.

"The dollar had a reversal and that helped to support crude," said Tom Bentz, BNP Paribas Commodity Futures Inc.

"Basically, this is still an uptrend that goes back 10 years. It is going to take more than two days of losses and talk of demand destruction to end it."

Thursday's surge came as the greenback fell sharply against the euro on after European Central Bank President Jean-Claude Trichet signaled possible rate hikes later this year.

The comments offset a rare warning this week from the U.S. Federal Reserve on the inflationary risk of a weak dollar, suggesting more interest rate cuts this year are not likely.

"If the ECB does raise rates it has the same impact on the dollar as the U.S. cutting rates. So the feeling is, here we go again with the weaker dollar," said Peter Beutel, president of Cameron Hanover.
http://biz.yahoo.com/rb/080605/markets_oil.html

"Is there a Doctor in the house?" a passerby quips as the Dollar Bears and Gold Bulls are sent reeling.

"Not so fast, Gold Bug. Don't forget tomorrow's phony non-farm payrolls numbers..."

"Touche," mumbles the Gold Bug.

"Trichet, you idiot. Trichet! Long live Trichet!" screams a die hard Dollar Bear and Gold Bull.

Too be continued...