In the overnight markets of Asia and Europe, there has been some distinct movement in Japanese yen vs. the high yielders... Of course yesterday, I wrote about how the high yielders were inching back because there was no risk aversion in the markets... But that's changing, and the thing pushing risk front and center once again is our old friends, Fannie and Freddie! Fannie and Freddie shares are down about 30% overnight, as it now appears that a nationalization bailout is the real McCoy. With risk back on the table, yen has rallied to the 108 handle! And... Aussie and kiwi, back off... Again!

The U.S. dollar should be trading lower on this latest Fannie and Freddie development. That's all that needs to be said regarding that... The dollar is overvalued right now given what's going on... JPMorgan issued a report signaling the euro to be oversold, and that the losses have been excessive, according to their charts...

In the U.K. Retail Sales printed stronger than expected by a wide margin, thus showing that there is still a pulse in the U.K. economy. July Retail Sales posted a 0.8% gain... But one has to think that this is a "one and done" for Retail Sales, given the June number was a negative 4.3%, and the forecast for the U.K. economy isn't bright... I'd say... If this quickie in Retail Sales bumps pound sterling, then use the bump to your advantage...

Back to the U.S. credit market for a minute or two (depending on if you took Evelyn Woods' speed reading course! HA!). We have a great older gentleman that works with us from time to time and offers his insights in the Review & Focus from time to time, Joe Losos. Whenever he is in the office, he'll bring us his Financial Times after he's read through it... Well, yesterday, I noticed a story in the Financial Times (thanks, Joe!) that said the CDO (collateralized debt obligation) values are in a "free fall," and that defaults are increasing... Uh-Oh! Long ago, I explained these CDOs, but thought that we probably need to go over this in class again, since I think everyone will be hearing lot of this term going forward!

A CDO (collateralized debt obligation) is: An investment-grade security backed by a pool of bonds, loans and other assets. CDOs do not specialize in one type of debt but are often non-mortgage loans or bonds.

Similar in structure to a collateralized mortgage obligation (CMO) or collateralized bond obligation (CBO), CDOs are unique in that they represent different types of debt and credit risk. In the case of CDOs, these different types of debt are often referred to as "tranches" or "slices." Each slice has a different maturity and risk associated with it. The higher the risk, the more the CDO pays.

There's our lesson for today, class, please write at least 500 words on how the issuance of CDOs got completely out of control pre-August 2007, and turn it in tomorrow...

Yesterday, I told you about the OECD recommending rate hikes to Norway... Overnight, Norway printed a stronger-than-expected report on economic growth. Norway, which excludes oil production from their growth numbers, reported a very strong 1% gain in the 2nd QTR, thus adding pressure on the Norges Bank (Norway's central bank) to raise interest rates. The experts had forecast a gain of 0.6%... So, economic activity was much stronger than expected, and you've gotta love that! The krone has gained a bit on the news, but really needs the euro to get on the rally tracks before the krone and other currencies can take a strong run at the dollar.

There are geopolitical risks in oil-producing countries increasing again... But this time, it's not the usual suspects in the Middle East... This time it's Russia. Seems relations are getting strained between the U.S. and Russia over the invasion by Russia into Georgia. That invasion closed some oil export routes... These tensions are pushing the price of oil higher again... Oil is trading this morning at $117.15, that's up quite a bit from yesterday's $114, and earlier this week's $112.87...

Oil's rebound has the Commodity Index (CRB) on the rise again... The CRB is trading this morning at 391.33, vs. 382 last Friday. It will take more than oil rebounding to get the commodity currencies back in favor, though...

Gold put in another good performance gaining $12 overnight... So... Maybe, we can get gold back on terra firma, which would be good for Aussie dollars.... Recall last week, I pointed out how gold and Aussie dollars had been tied together... Well, if it was like that on the way down, it had better be like that on the way up!

The Brazilian real continues to be strong vs. the dollar, and if this story that appeared on Reuters yesterday has anything to say about it, the real could be in for a strong run...

SAO PAULO, Aug 19 (Reuters) - Bradesco, Brazil's largest private-sector bank, said on Tuesday it signed an agreement with Mitsubishi UFJ Financial Group to sell funds that invest in Brazilian assets to Japanese retail investors.

OK... So maybe you're wondering... "Why does that story help the real?" Ahhh grasshopper, sit down, hear me now and listen to me later... Remember the strong runs of Aussie and kiwi that were fueled by Japanese investors looking for higher yields? Oh yes, these were huge! And this story indicates that Brazilian real could very well be the next destination for Japanese investors looking for higher yields! I would think this to be quite the blinking blue light special notification... But then, that's just me, I could be wrong here, and this story might not mean dookie!

The data cupboard will yield three second-tier reports today. First will be the Weekly Initial Claims data, which has exploded above 400K and remained there with little indication that it will go back down. Look for last week's jobless claims to have risen by 450K...

Then we'll see the current Philly Fed Index (manufacturing), which has been negative for some time now. The Philly Fed report will then be followed by one of my faves... Leading Indicators... I complain all the time about how the markets don't pay any attention to this data, and it's true, they just don't give it two looks! But I do! And Leading Indicators should continue to print negative.

And finally... The Chinese renminbi booked