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The Fed’s Latest Dirty Deeds Done on the Cheap…

Chuck Butler (June 12, 2009)

Friday, June 12, 2009

Also In Today’s Letter…

By Chuck Butler So have you been following the goings on with the investigation into the Bank of America (BOA) purchase of Merrill Lynch? Whoa, there partner! I thought for sure this would get all swept under the rug, but now every dirty deed is coming out for all to see. Dirty deeds done dirt cheap!

First, you might recall me telling you back in April that BOA Chairman, Ken Lewis, testified that the Fed and Treasury pressured him into buying Merrill Lynch, and not disclosing the losses on Merrill’s books.

The government even gave BOA the money to make the purchase! And you may recall that Big Ben Bernanke immediately dismissed these statements, as false. It looks like someone with some intestinal fortitude decided to investigate this deal.

Well, the records were just subpoenaed and that I thought it would get all swept under a rug… But NOOO!

Yesterday, it came out that Fed officials sharply criticized Bank of America and CEO Kenneth Lewis in emails, after the bank tried to pull out of its deal to buy the troubled Merrill Lynch, according to documents unearthed by Congressional investigators.

The emails confirm Fed Chairman Bernanke was willing to threaten Mr. Lewis’s removal as CEO if he tried to bow out of the Merrill deal and later sought assistance.

And now… Ken Lewis is telling lawmakers that government officials pressed him to buy Merrill Lynch even after he became aware of major losses at the investment bank.

Uh-Oh! Looks like the Fed and Treasury may have some ‘xplainin’ to do!

I’ll keep my eyes on this story as it continues to unfold. But in the meantime, let’s take a look at currencies huge jump yesterday.

Chicken Traders Ruined Yesterday’s Currency Rally

Yesterday, the currencies had it going on vs. the dollar. Currencies were soaring! The euro at one point in the afternoon hit a high of 1.4170! You can imagine the long, stale trades that finally could take a profit there, eh?

Well, it happened, and by the time I left for the day, the euro had backed off that lofty figure. But not like it backed off overnight…

Overnight, chicken traders came out of the woodwork to push foreign currencies lower ahead of the G-8 meeting.

I call these guys “chicken traders” because they are afraid to be short the dollar this close to the G-8 meeting. They’re scared U.S. Treasury Secretary Geithner will say that the U.S. favors a strong dollar, and they’ll lose their shirts on short positions.

Geez Louise – here we go again!

How many times can Geithner go to the well with that saying and get positive traction from the markets? Each time Geithner or one of his buddies in the Fed says that, they always follow it up by attacking the Chinese renminbi. They’re constantly saying the renminbi must appreciate.

Well, how can that happen if they “truly” believe in a strong dollar? Add to that, the goings on now… How can anyone in the government say they believe in a strong dollar when they are implementing Quantitative Easing?

The other thing boosting the dollar is a report that Big Ben Bernanke is calling for reduced bond buying. Now that would be great news, if it were really going to play out. But it’s too late for that. This Quantitative Easing has become like cocaine for the bond markets…and it looks like they’re all junkies now.

Soon enough, the bond guys will be clamoring for more cocaine/ bond buying/ Quantitative Easing! And the Fed is the dealer.

The news that the Fed “might reduce bond buying” hit the high yielding currencies in the mid-section, knocking the air out of them! But, these currencies are resilient, and after the wind is restored in their mid-sections, they climb back on the rally tracks.

More Lip Service for the Dollar…This Time from Japan

As I said the dollar received a boost overnight…but it wasn’t just because of the chicken traders or the bond buyers. The dollar also received a bit of assistance from Japan.

Here’s the skinny… Japanese Finance Minister Yosano just said “we have complete trust in the fact that the U.S. views its strong-dollar policy as fundamental,” and “so our trust in U.S. Treasuries is absolutely unshakable.”

Again, this sounds great. But what else would you really expect from a country that is the second largest holder of U.S. Treasuries? Regardless though, the dollar basked in the sun from those comments…

More Power for the Fed? Are You Kidding Tim?

Did you hear that U.S. Treasury Sec. Geithner is clamoring for more power for the Federal Reserve? In Geithner’s mind, the Fed should be the Big Dog regulator in the markets.

Hmmm… Let’s see now. Could he want to see that because of the Fed’s “wonderful” track record of allowing the dollar to lose over 90% of its value since they took over the stewardship of the currency? Yeah, that’s the ticket!

I shake my head in disgust that this is even being discussed. The Federal Reserve Bank is not even a government agency folks! The Fed is a Farce! Come on people, get your rakes, and pitchforks, and let Geithner and the administration know this is not in the best interest of this country!

That’s it for today… This weekend is my two-year anniversary of my first cancer surgery to remove my left kidney… Less than 2-weeks later I would undergo the most difficult of the two surgeries. I recall all the wonderful emails from readers at that time, they were, and remain very special to me. Two years, since I was told I had cancer. I knew I would be here two years later, and I remember telling you all that I would beat it! I’m not out of the woods, just yet… But I’m well on my way!

And then finally…

Today, 33 years ago, I said “I do” to my beautiful bride. She remains just as beautiful, and we have 3 beautiful children. Okay, enough… I don’t want our little Christine crying! HA!

I hope you have a Happy Friday!
Chuck Butler

P.S. The dollar may be rallying for the day…but those chicken traders will run from the market as fast as they entered, assuming Geithner doesn’t tout the “strong dollar” party line this weekend at the G-8 meeting. Find out what’s in store for the dollar in the long-term here.

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