BofA / Merrill Lynch is out with a note on interest rates. They see the Bank of Canada as the next central bank to move on interest rates.

– Bank of Canada’s Carney speech hinted that the central bank is considering a rate hike earlier than the prior forecasted mid-2010.

–There is a trade surplus expected for December and a 15 month high for January housing starts. Both of these data points support a forecast for the first Bank of Canada rate hike in June 2010.

Meanwhile, as the world turns, so does the Factory and it’s cast of characters. X is monitoring world events; The Consigliere continues to build his law firm specializing in the law of attraction; Pinky Megiston is beautiful; and Anything Anywhere! seeks more avenues through which he can add value.

Apart from all that, sovereign risk spreads are igniting. The dollar is catching a flight to safety bid and stocks are crushing lower–the S&P 500 is off about 2.5% as I write. Gold and silver have been pummeled most severely, off 4% and 5.5% respectively.

Sovereign risk spreads have risen dramatically this week, led by the European majors. Holders of sovereign debt—in particular Portugal, Italy, Ireland, Greece, and Spain—are running for cover. Not surprisingly, politicians will blame these events on speculators. However, a closer look at the money flows reveals true fear: real money is fleeing sovereign debt (selling government bonds) as opposed to speculators driving risk higher by buying credit default swaps (insurance). Nations with the largest deficits and the most in need of short term financing are being sold the hardest.

Dubai has continued to see risk premiums rise, as it scrambles unsuccessfully to sell off some of it’s holdings. Like a skydiver free-falling through the air, Dubai is reaching for it’s reserve chute. The velocity is building to the perilous downside. Hope is not a viable strategy here and now; but other than bluff, it may be all they have.

The crash of 2009 was not foiled—it was postponed.

We are sitting on the precipice of something special. An event where fortunes will be made and lost. Great art will be inspired, and an ageless tale will be re-told.

And the beat goes on.