Mortgage delinquencies move higher…Euro pushed higher by European data…Economist predicts Norway will be first to raise…Mexico to leave rates unchanged…And Now… Today’s Pfennig!

Good day… And happy Friday! The data released yesterday morning was a mixed bag, as the leading indicators climbed for a fourth straight month and the Philadelphia fed reported a big jump in their gauge of activity, but the initial jobless claims unexpectedly rose. Unemployment in the US will continue to be a drag on the economy, slowing any recovery and possibly pushing the US back into recession (or as some predict a depression). Today we will get some news on the housing market, and while the media will pump up the fact that month on month sales continue to rise, another report released yesterday showed mortgage delinquencies hit a record high in July. The proportion of homeowners delinquent on their mortgage or in foreclosure rose to its

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How does the current economic and financial downturn match up to past contractions?

In an attempt to present matters in historical context, Paul Swartz of the Council on Foreign Relations recently published a chart book showing that the current economic environment has been more severe than a typical recession. He specifically highlights the following four conclusions:

• Financial markets have dramatically improved, but from an extremely low base. Rather than pricing in disaster, they anticipate tough times ahead. For example, the charts on the spread for AAA and BAA bonds show the credit market moving from unprecedented panic to a level of fear that is merely in keeping with the worst experiences since 1945.

• Real economy indicators show signs of stabilization. See in particular the charts on manufacturing sentiment, non-farm payrolls, oil prices, and car sales. Nonetheless, many of these indicators remain worse than

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By RGE Monitor

A few years back, before this crisis erupted, several economists were concerned about the sustainability of the large global imbalances fueled by the so-called Bretton Woods 2 (BW2) system. These economists recognized the tendency of emerging (export-led) economies to manage their exchange rate systems - the origin of large trade and current account surpluses that, via large foreign reserve accumulation, were financing the mirror of those surpluses, namely the large US trade and current account deficits.

These surpluses, primarily in several exports-led Asian economies, and also in oil producing countries, ballooned to extensive proportions in 2007 and 2008. The purchases of US government bonds by these investors helped keep long-term interest rates low and led many investors to seek out high-yielding investments especially in some emerging markets.

Although we are not (yet) witnessing a US dollar crisis,

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As governments around the world fight rising unemployment, falling exports and bank credit crunch, and several central banks are facing liquidity traps, many are turning to restrictions that privilege national producers. These populist measures attempt to minimize growth impact, social unrest and pain from the credit crunch that poses a risk to several ruling governments, especially those facing elections soon. Furthermore, some officials hope that such restrictions will reduce the leakage of the scarce funds used in bank bailouts and fiscal stimulus to other countries.

But as history shows, the impacts of trade protectionism on exports and job creation if any are small in the short-term and instead may lead to global retaliation, and in the long-term result in inefficient allocation of labor and capital and trade distortions, affecting potential

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The current account surplus of $400 billion among the Middle Eastern and North African oil-exporting states will turn into a deficit of $30 billion this year, according to the latest IMF report, which classifies said exporters as Algeria, Bahrain, Iran, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia, Sudan, the U.A.E. and Yemen.

That said, according to IMF Middle East and Central Asia Department Director Masood Ahmed, “for most countries, this deterioration is from a position of significant strength, and thus can comfortably be sustained by the large stock of reserves that these economies have built up.”  Riyadh-based investment bank Jadwa Investment, for example, stated that Saudi Arabia’s net foreign assets of roughly 433 billion dollars gives the Arab world’s largest economy “an advantage over most other countries in alleviating the impact of the extreme financing pressures.  It can push ahead …

Perhaps I'm overstating it, but I think this is the abridged version of the Bush Administration's perspective on how we got into the financial mess we find ourselves in. You might ask why I focus on the ideas of the outgoing government. Well, it's because I'm confident that this will be a thesis pushed by some commentators eager to absolve previous policymakers of blame [1]. And indeed (as Mish points out), this view has apparently adherents in high places.

But let me let the the Economic Report of the President [large pdf] (Chapter 2) speak for itself:

The roots of the current global financial crisis began in the late 1990s. A rapid increase in saving by developing countries (sometimes called the "global saving glut") resulted in a large influx of capital to the United States and other industrialized countries, driving down the return on safe assets. The relatively low yield on safe assets ...

Russian gas deal, Gaza ceasefire ease supply concerns… World oil demand expected to fall in 2009… U.S. holiday leads to low trading volumes…

Oil fell more than $2 towards $34 a barrel on Monday after Russia and Ukraine signed a 10-year gas deal clearing the way for the resumption of supplies to a freezing Europe.

Implementation of a ceasefire between Israel and Hamas in Gaza also eased supply concerns as the market remained under pressure from expectations that the weakening global economy would erode oil demand.

“Right now the economy is dominating,” said Harry Tchilinguirian, analyst at BNP Paribas. “The market is very volatile and the signs are that demand is weakening.”

U.S. crude oil futures for February delivery dipped to a low of $33.89, down $2.62, before recovering to trade at $34.53 by 1800 GMT.

Traders said the February U.S. crude oil futures

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It seems everyone is turning against US Treasuries now. But Justice Litle says it might not be the best move. After a vicious fall at the start of the year, investors could flock back to Treasuries as the recent rally in stocks subsides. Justice says the arguments for shorting the dollar are far more convincing right now.

This from Taipan Daily:

Has the U.S. Treasury bubble popped? It’s starting to look that way.

USTs gapped higher in mid-December, traded in a quiet range til year’s end, and then immediately went into freefall with the start of the new year.

This wasn’t a total surprise. On Dec. 23rd, in a Taipan Daily piece titled “A Treasury Bond Mystery and a Currency Clue,” I gave a summation of what was happening and how to play it:

Based on

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PKey Newsbr•nbsp;U.K. Rescue Fails to Spur Loans (WSJ)br•nbsp;Japan's Central Bank Weighs Measures to Curb Stronger Yen (WSJ)/P PKey Reports Due (WSJ):br7:00 a.m. ICSC Chain Store Sales Index For Jan 3: Previous: -0.5%. br10:00 a.m. Nov Construction Spending: Expected: -1.2%. Previous: -1.2%. /P PbrQuotable br“How charming is divine philosophy!brNot harsh and crabbèd, as dull fools suppose,brBut musical as is Apollo’s lute,brAnd a perpetual feast of nectared sweets,brWhere no crude surfeit reigns.”/P P nbsp; John Milton/P PFX Trading – We’re Bullish on the US Dollar Today ...nbsp; and Tomorrow!/P PDo you remember what economists used to tell us about the global economy? If not, let me remind you.nbsp; /P PI remember the mantra-like chant from very clearly: There are major imbalances across the global economy.nbsp; Some countries save too much, others borrow and spend too much.nbsp; /P POf course the US seemed be the one to blame no matter the shape or weaknesses elsewhere.nbsp; The gut wrenching credit crunch of ...

It was cloudy in the Algerian city of Oran on Wednesday…and a fairly pleasant 14 degrees in the open air… But the assembled leaders of the OPEC oil exporters’ cartel must have been feeling rather hot under the collar. Since hitting a peak of $147 in July this year, the price of oil has fallen by about $100. That has put the oil exporting countries under a huge amount of pressure. And now they are determined to drive the price of oil back up again.

Global oil production is set to fall sharply

On Wednesday, the cartel announced that it will slash daily oil production by 2.46 million barrels a day. That’s OPEC’s biggest production cut ever. What’s even more extraordinary is that some of the big the non-OPEC producers are now coordinating their production cuts with the cartel.

The Russians attended the OPEC meeting and they may cut announce their own

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