Yesterday was one of those hard to write about, rudderless days with pathetic volume. The only notable trend was the continued move into Healthcare, as Senator Kennedy’s health care reform bill looks dead in the water, and Utilities, as a more cautious tone prevailed. Economic news was decidedly mixed, with the Philly Fed Index and Leading Indicators providing upside surprises but the Weekly Jobless and Continuing Claims Jobs numbers continued to be worrisomely high. After the bell, BlackBerry maker Research in Motion report some underwhelming numbers which may pressure the Nasdaq and Dax at the open.

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The indices had a volatile session in that they were up in the morning, down mid-day, rallied back to new highs, and then rolled over in the last couple hours and gave back a chunk of the gains, but still ended up ahead on the day.

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Front and center this morning the Big Dog (euro) has left the porch and is chasing the dollar down the street! I got home yesterday afternoon, rested, and then checked the currencies at the NY closing before they handed the books over to Japan, and saw that the euro (EUR) had leap-frogged to the 1.39 handle! WOW! What was going on?

Well… First of all… Didn’t I tell you long ago that whenever the fundamentals returned to the markets that had been absent since July of 2008, we would see the dollar return to the underlying weak trend? OK… I don’t know if this is “exactly” what’s happened, but I do know this… The negativity toward owning dollars is growing like a nut-grass weed does on hot summer days. I also know that ever since the euro moved higher than its 200-day moving average on May 8th, there’s been little or no looking back. And… To finish this up, people are beginning to notice the monetary policies of the U.S., the rising deficits, the supply that’s needed to finance the deficits, and… The thought that the U.S.’s credit rating could be downgraded… OUCH! Hey! That’s going to leave a mark!

Seriously though… This would not be a good thing… You know, Bill Gross of PIMCO, the world’s largest bond house, right? I’ve quoted him on quite a few occasions in the past… Well, anyway, Bill Gross, said that he believed that the U.S. would eventually lose their Triple A (AAA) rating…

Don’t look for any answers from that crew on CNBC! Don’t know if you caught my appearance on the CNBC Power Lunch yesterday… But, they had this “lynching mob” ready and waiting for me… I was told by the producer that I would get a chance to tell my “story” on the comment I made the other day about the PPT. (Plunge Protection Team) BUZZZZZZZZ, WRONG! Thank you for playing, there’s a nice parting gift for you at the door! As I tried to put the whole thing into context, one of the “lynch mob” said to me, “You’re losing me”… Oh really? You only have an attention span of 1 minute? Any way… I know, I know, these guys are there to entertain, not inform… and they thought it was entertaining to mock me, rather than listen and maybe have their viewers informed…

OK… I know, my public relations people will be reeling this morning when they read that, but… I just had to get it off my chest. The mass media is so to blame for a lot of this mess we’re in… The sat there and said nothing… They looked the other way, while the government slowly tears at our Constitution… OK, I had better stop now!

Back to currencies, because THAT’S the story of today! It sure looks like the scene we’ve seen before when the dollar reaches this threshold of major weakness again… It looks like the scene, it smells like the scene, walks like the scene, it must be the scene! The dollar is once again on the threshold of major weakness!

Why do I think the “fundamentals” have come back into play? Well… Bad data… Since July of last year, we’ve been in this funky trading theme that rewarded the dollar, every time things looked bad in the U.S. for the economy… However, in the last week, we’ve begun to see a change… Not a “sea change” yet… But a change… And this is when you want to get in on something, not after the “sea change” has come! Then you’re chasing the market…

Yesterday’s bad data came on two fronts, one that everyone had the chance to see, and one you would have to pay close attention to… 1. Initial Jobless Claims rose again last week. This time to 637,000, which was higher than forecast, and the previous week’s number was revised upward… And then number 2. The Fed left the markets out on a line… You see they did NOT purchase as many Treasuries as the markets believed they would… On the outside that would seem to be a good thing… But underneath the covers, things are different… The markets took this lower bond purchase by the Fed as an indication that they will have to come back and do more later, as the Fed attempts to hold down long term Treasury yields… And in doing so… The dollar will get stuck in the middle. In fact, here’s the dollar’s new song… Clowns (bad data) to the left of me, Jokers (the Fed) to the right, here I am stuck in the middle with you!

Yesterday was also a very bad day at Red Rock for not only the dollar, but stocks, and bonds! You don’t normally see days like that… I read somewhere that there have only been 18 days since 1990 that we’ve seen a day like yesterday! Stocks and bonds both getting sold? Where were the funds going from those sales? Ahhhh grasshopper, this is playing out just as I told you it would when the safe haven buying of Treasuries were reversed… The funds, yesterday, were obviously going toward currencies and metals!

And, the currencies and metals have added to their gains from yesterday in the overnight markets! And going into a thinned out Friday, before a holiday weekend, trading… This could get ugly for the dollar today… If I had been standing on the sidelines waiting to get in, I don’t think today would be the day… Although the currencies might continue this move higher, I just don’t think that chasing a market in a thinned out market, is the prudent thing to do… And on the other side, we could just as easy see a big sell off today… Because, as I always tell you, be yourself! No, wait, that’s Tutor Turtle and Mr. Wizard talking… I always tell you that in thinned out markets, you can see wild swings…

OK… So it wasn’t just the euro kicking sand in the face of the dollar bulls yesterday… All the little dogs were able to get off the porch and chase the dollar down the street too. For instance the Canadian dollar/loonie (CAD) reached .8875, a level it hadn’t traded at since October of last year! Aussie dollars (AUD) has a 78-cent handle, something it hasn’t seen since October of last year… And look at the Indian rupee go! And gold is $955!

When we return on Tuesday of next week, the data cupboard will be overflowing with data here in the U.S. All sorts of Housing data, which I can’t see as anything good for the dollar, given the new direction and return to fundamentals.

This article originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a “uniquely refreshing” perspective on the global economy, investing, and today’s markets. Follow the Daily Reckoning on Twitter.

Stocks, Bonds and Dollars All Get Sold

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Dr. Stephen Leeb submits:

After nine weeks of strong gains with barely a pause, stocks ran into a brick wall last week, dropping 5 percent by Friday’s closing bell as doubts about a quick recovery for the economy started to set in. Whether that pullback proves to be merely the pause that refreshes on the start of a significant correction remains to be seen.

Given the light volume to Monday’s rally and the barely 2-to-1 advantage advancing issues had over decliners, we wouldn’t put too much faith in the concept that the rally has staying power. Indeed, our work continues to point to a sizeable correction that could unfold at any time.

The only way to characterize the recent rally is that it has been extremely speculative in nature. Everything, and we mean everything, has been rising in uniform fashion. Investors are returning to the market in droves, taking greater and greater risks in the process.

The problem with this homogeneous movement in shares is that little attention is being paid to fundamentals. Instead, investors are banking on the idea that everything will return to normal at some point in the relatively near future—despite a paucity of data to support the argument.

The many so-called “green shoot” data points, that conjure up the image of spring growth, overwhelmingly show that the pace of decline is slowing rather than any real turnaround (such as retail sales and industrial production). Or they are survey numbers (like Monday’s National Association of Home Builders Housing Market Index, which climbed to 16 from 14—with readings above 50 pointing to favorable conditions). The home builders’ sentiment survey is particularly laughable when you consider that there’s an inventory glut of approximately 800,000 for sale nationwide according to Freddie Mac, and many more on the way via expected foreclosures. These are hardly the numbers you want to hang the rally on.

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There are times when it pays to be a contrarian, to think outside-the-box, to bet against the conventional wisdom of the crowd, and ignore the chatter of the media. Usually at key turning points, and the beginning of important new market trends, the fundamentals do not explain the behavior of the market. It is at these critical junctures, where sudden shifts in price trends can occur, – big percentage gains or losses are registered.

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The markets had a strong slide after a morning rally that sent them to the lows of the day near the close, definitely a bad day for the bulls.

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The most salient feature of the markets at this juncture is the number of interim bases that have been building in several major sectors, including copper and other economically sensitive groups. In this commentary we’ll examine the …

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By Mike “Mish” Shedlock, MISH’S Global Economic Trend Analysis

MarketWatch, the Wall Street Journal, Hussman, MSNBC, and Barron’s are all bullish on the stock market. That is pretty amazing optimism in the face of the collapse we have seen. Is such optimism warranted? Let’s take a look and see.

The Wall Street Journal is reporting Stocks Look Cheap World-Wide.

World-wide, stock valuations have fallen to a level roughly equivalent to the one that prevailed during the 1970s, according to Citigroup. As of Thursday, global stocks were trading at roughly 10.3 times their earnings for the previous 12 months, even lower than the average of 11.4 through the 1970s.

The selloff has been especially savage in emerging markets. Earlier this week, investors drove down stocks in such markets to valuations that were almost as low as those during the nadir of the Asian crisis in the late 1990s, according to a Merrill Lynch report. Read more….

By Jakob Lindstroem, Bloomberg

Iceland’s benchmark stock index plunged 77 percent, the biggest decline on record, as trading resumed after a three-day suspension and the nationalization of the country’s largest banks.

Investors demanded a higher premium to hold Icelandic government bonds, while the price of the country’s currency remained “undetermined,” according to TD Securities.

The global financial crises sparked the collapse this month of Kaupthing Bank hf, Glitnir Bank hf and Landsbanki Islands hf with debts equivalent to as much as 12 times the size of Iceland’s economy. The three banks accounted for about 76 percent of the OMX Iceland 15 Index’s value prior to the nationalization.

“We are quite far away from having it up and running in terms of anybody being able to invest, or disinvest in the Icelandic stock market,” said Lars Christensen, a senior strategist at Danske Bank A/S in Copenhagen. “Given that we don’t have a normally functioning exchange-rate market, a fixed income market, we don’t have a clearing system between the banks internally, it’s hard to talk about any well-functioning stock market.”

The OMX Iceland 15 fell 2,326.22 to 678.40, the lowest since April 1996. The gauge has lost 89 percent this year, making it the worst performer among 88 equity indexes tracked by Bloomberg News. Four of the 13 other stocks in the index didn’t trade, while the six that did accounted for about 8.5 percent of the measure’s weighting before today. Read more….