Currencies back off gains…Administration slaps tariff on China…And Yen rallies…Quotes from Davos…And Now… Today’s Pfennig!

Good day… And a Marvelous Monday to you! I hope your weekend was grand… I was supposed to be traveling back from Williamsburg today, so this is a bonus day for you all! HA! On Friday morning, I told the early arrivers that the currencies were strong, Gold was strong, it was all good, and we needed to close up shop and go home, because it wasn’t going to get an better than that, and that the rest of the day had nothing but disappointment risk! Boy did I nail that one on the head! Let’s get to the goings on.

The currencies added to their gains during the Friday morning, only to see them give the gains back later in the day, as the “boys” in NY all closed shop and headed to the Hamptons. I

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By Simon van Norden

Today, we're fortunate to have Simon van Norden, Professor of Finance at HEC Montréal (École des Hautes Études Commerciales), as a guest blogger.

"Once you've seen one financial market crisis...you've seen one financial market crisis."

-- Attributed to Federal Reserve Board Governor Kevin Warsh by former US Treasury Assistant Secretary for Economic Policy Phillip Swagel in The Financial Crisis: an Inside View, March 2009, p. 4.

The financial crisis has set a lot of records so far; it's certainly the worst US banking crisis of my lifetime. Some, as suggested by the above quote, see such crises as unique events; each one is singular and there's not much to be learned about how to handle one from looking at past crises. For example, there's no precedent that I know of for a banking crisis involves the failure of the biggest counterparties for credit default swaps.

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By now, you have surely heard that our elitist banks passed their recent government sponsored “stress test”? Forget about it! Relying on this incestuous bunch to grade themselves is like putting Madonna in charge of screening convent applicants. Take no comfort in shams of this nature.

There are bigger fish being fried. The entire American nation is in the crosshairs and will be severely tested like never before.

Very few people comprehend the scope of the problems that continue to unfold. The Dow is up a couple of thousand points so everything must be normalizing, no?

No! Look deeper.

The US Hits the Treadmill

The core of our problems lies deep in the roots of the overall system.

The US economic model has been extremely flawed for more than an entire generation. Our “money” holds no intrinsic value. We follow the consumption mantra instead of the production model. ...

The low for gold was at the Sydney open, and from there it rose slowly and steadily through Far East, London and Comex trading in New York. The high came in electronic trading about an hour after the Comex close. Gold managed to make it to $928…but was not allowed a sniff of $930 yesterday. Maybe today.

Although trading appeared quiet, the usual N.Y. commentator said otherwise…”Today’s up $5 June gold Comex close [at $926.70] was quietly dramatic. A rally effort on the Comex open was contained under $3 on very heavy volume [41,523 lots estimated by 9 a.m.]. Very powerful attempts to move gold up after 12 noon were also blocked. Estimated volume jumped 25.6% in the 12 noon/1 p.m. space for a totally reversed gain of $2. An astonishing 36.4% [20,000 contracts] leap in estimated volume between 1 p.m. and the close [less than a tenth of the trading

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by Edward Hugh: Barcelonabr /br /“For Austria, the actual crisis is yet to come. The decline of the eastern European economy will hit Austria in 2009".br /Peter Eigner, Professor of economic history at the University of Vienna”br /br /br /The yield difference, or spread, between 10-year Austrian securities and benchmark German bunds has been rising substantially of late, and hit 137 points on Feb. 18, the widest yet recorded (see chart below). At the same time Austria now has a higher default risk than those Mediterranean "laggards" Italy, Portugal and Spain, at least according to credit-default swap prices as quoted by CMA Datavision. Austrian swaps were trading at 253.3 basis points on March 3, compared with 17.5 points 12 months ago. That means it costs 253,300 euros a year to protect 10 million euros from default for five years. br /br /br /a href="http://1.bp.blogspot.com/_ngczZkrw340/SbFfRtpHzcI/AAAAAAAAM9E/eiB4kvwG70A/s1600-h/austria+bund.png"img id="BLOGGER_PHOTO_ID_5310130193561013698" style="DISPLAY: block; MARGIN: 0px ...

by Claus Vistesen: CopenhagenI don't know how many GEM readers are dedicated followers of the day-to-day rhythm of market movements but with an important US unemployment report and a much awaited ECB interest rate decision to think about I imagine that many a trader and broker spent a good part of last Thursday holding their breath. In the former case the data confirmed that the US economy is stuck knee deep in stagflation as unemployment held stubbornly at that 5.5% "statistical quirk" while payrolls registered the sixth consecutive month of job losses, shedding 62.000 jobs. If the latest US employment data may have raised an eyebrow here and there, the decision taken by Trichet and his governing council almost certainly will not have (introductory statement here) since the 25 basis point hike was more or less expected by everyone.As I suggested earlier ...