September 2008 - Daily Pfennig

A free, quick-reading daily e-letter on world currencies, economic trends, and the occasional baseball score.

Daily Pfennig

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  • Does The Bail Out Constitute A CDS Event?

    * A potential CDS debacle... * Currencies rally back... * Brazilian real history... * Saber rattling or geopolitical pressure? ** Does The Bail Out Constitute A CDS Event? Good day... And a Terrific Tuesday to you! Right out of the starters blocks this morning, I have to apologize for the tardiness of the Pfennig yesterday... We were experiencing some technical difficulties... In fact, if you sent me an email, I didn't get it yesterday! Things look better this morning, so, maybe we're back on track! I know it's no one's fault when this stuff happens, but it sure doesn't make me feel good about getting up at X:XX AM (I won't say because you will think I'm crazy!) to come in and write the Pfennig, only to see it not go out until late in the day! Well... The stock market here in the U.S. sure liked the news about Fannie and Freddie! I guess, they, just like the dollar bulls, didn't get the memo that this will put billions of dollars of tax burden on taxpayers, and most likely is going to cause a major disruption in the Credit Default Swaps (CDS) that are on the books... Oh, well, we have to learn to deal with mental giants all our lives, this is just another case of that!...
  • More Dollar Strength!

    * Trichet's words sink the euro rally... * A New Conspiracy theory... * Japanese yen continues to rally! * An Announcement... ** More Dollar Strength! Good day... And a Happy Friday to one and all! It has not started out as a Fantastico Friday, just a Fun Friday... No wait! Just because the dollar is running around the end with the ball, and the currencies can't catch up with the greenback, is no reason to allow it to filter through to my feelings about each and every day! That's right! I'm feeling like there's a ton of weight on my shoulders right now, with this dollar strength, and everyone jumping ship... But, I promised myself over a year ago that if I was able to fight cancer and come out on top, that I would celebrate each day... And that's what I try to do! So... I'll make it a Fantastico Friday after all! The euro's two-day rally VS the dollar got stuffed in a box and shipped to sea yesterday. The single unit looked as though it would add to the rally that took it above 1.45 but as I was signing off yesterday the euro was giving back its gains VS the dollar... And soon, it would give back more than the two-day rally's gains....
  • Congratulations to Chuck...

    * Great news from Chuck... * FOMC could lower rates... * TIC flows to slow... * Yen and SFR continue to rally... ** Congratulations to Chuck... Good day... I want to start this mornings Pfennig off with a note Chuck sent the trade desk last night: "The doctor called, and I'm CLEAN! My scans were clean, and, I'm officially off the Sutent, and considered a "Cancer Survivor" now! YIPPEE!" I know the markets are in a state of turmoil, but that great news from Chuck took precedence over anything I could write about the currencies. It looks like Chuck's positive attitude along with all of our prayers have beaten back the cancer (I guess his doctors and the new medicines deserve some of the credit also). Congratulations to Chuck, can't wait to shake his hand when he returns from the first week of the FXU tour. But now lets move on to the markets. I was so focused on the Wall Street turmoil yesterday that I failed to mention the FOMC will be meeting today. Just a few weeks ago, the markets were calling for an interest rate increase by the Fed to tackle inflation. But the events of this past weekend, along with a dramatic drop in the price of oil, has many calling for another interest rate cut. The Central Bank has already injected billions of money into the markets to try and calm them after the bankruptcy of Lehman. The Federal Reserve yesterday added $70 billion in reserves, the most since the September 2001 terrorist attacks. The funds were needed as banks and financial firms tightened up their lending in reaction to the financial turmoil....
  • Paulson speaks with forked tongue...

    * Paulson speaks with forked tongue... * Fed leaves rates unchanged... * A look back at the data... * Japan to weather the financial Tsunami... ** Paulson speaks with forked tongue... Good day...Another day, another $85 billion of US taxpayer used to bail out an ailing financial firm. Yes, our Treasury Secretary went on another shopping spree, and this time he was accompanied by Fed Reserve Chairman Ben Barnanke. Just two days ago, Paulson drew a line in the sand when he let Lehman Brothers collapse into bankruptcy. The non-action from Paulson was seen as a good move by most, as he was sending a signal to the markets that the US taxpayer couldn't be seen as the buyer of last resort for failed financial firms. And Paulson talked tough with regard to AIG. Paulson was asked about reports that AIG wanted an emergency loan to help it through its troubles. "What is going on right now in New York has got nothing to do with any bridge loan from the government," he replied. "What's going on in New York is a private sector effort, again, focused on dealing with an important issue that's, I think, important that the financial system work on right now, and there's not more I can say than that....
  • Central Bank Meeting Day...

    * Euro fights back... * Germany Factory Orders drop... * BOE & ECB meeting today... * Riksbank raises rates! ** Central Bank Meeting Day... Good day... And a Thunderin' Thursday to you! A rainy Thursday for us here in St. Louis, as the rains from Gustav reach this area. There's another Hurricane in the Caribbean now... There are two Central Bank meetings going on as I write this morning. The European Central Bank (ECB) and Bank of England (BOE) both are meeting this morning, and both are expected to leave rates unchanged. More on this in a bit, the Fed's Beige Book, and more this morning, so let's go! Front and Center this morning, the euro spent yesterday on the rally tracks recovering from a 5-month low... When I turned on the screens this morning, the single unit was trading above 1.45 again, on expectations that the ECB would leave rates unchanged. But I've seen a softening in the euro, since arriving, that has come from an unexpected drop in German Factory Orders for the month of July....
  • Scaredy Cats!

    * Not your father's currency traders.... * The euro does the rope-a-dope... * Deep Thoughts * Jimmy Rogers on the bail out... ** Scaredy Cats! Good day... And a Wonderful Wednesday to you! Hurricane Ike moves into the Gulf... Which way it goes from here isn't good for anyone. We had another day of watching the euro rally during the day, only to see it fizzle out by the end of the day. I go home each night and think all the way home about all this stuff going on, and wonder just who in their right minds would be buying dollars right now... Scaredy Cats that's who... So... Here you go... Deep Thoughts by chuck butler... Here's the skinny on that thought... Ever since the Fed, Bank of Japan (BOC), and European Central Bank (ECB) intervened in their coordinated, covert operation, market participants and traders are scared to death to short dollars, for fear of more intervention that could wipe out their trades, and post losses for them. Come on... These aren't the currency traders that I grew up with! Those traders took any Central Bank intervention as a "challenge" and would laugh in the face of Central Bank intervention! Central Bank intervention usually meant it was a desperate measure to shore up a currency, and that was like blood in the water for a shark... Currency traders would hit that currency even harder! But not these scaredy cats! That's one thing I think about... And then there's this......
  • Paulson and Bernanke ride to the rescue...

    * Paulson and Bernanke ride to the rescue... * More debt for the US taxpayer... * Emerging markets rally... * Congrats to EverBank Soccer Greats... ** Paulson and Bernanke ride to the rescue... Ahoy thar maties.. Yesterday was a very volatile day in what has become an incredibly choppy week. The currency and metals markets began the day rallying vs. the dollar as it seemed yet another huge financial firm was circling the bowl. But late in the afternoon the dollar came charging back, and gold fell back below $850 after surpassing $900, ARRGH! So what caused this quick reversal? Senator Schumer was credited with turning the markets around. He announced, mid afternoon, that the Federal Reserve and Treasury were going to create a new government institution which would purchase all of the toxic debt instruments being held by Wall Street. Wall Street obviously thought this was just a fantastic idea, and the stock market immediately rallied, taking the dollar with it. The details of the plan still aren't available, but the markets have been desperately searching for a hero to come and rescue them, so even the hint of a rescue was enough to shoot stocks back up. The proposal currently being discussed in congress involves moving troubled assets from the balance sheets of American financial companies into a new government backed institution. The SEC also instituted a ban on short selling of financial stocks, copying a similar ban which was instituted yesterday in London. Chuck had a travel day yesterday as the FXU moved from San Diego to Dallas, but he was keeping an eye on the markets and sent me this last night....
  • King Henry Was Wrong Again!

    * Bailout package is voted down! * Biggest one day point drop for the DOW! * Dollar rallies hard... * Carry trades unwind... Again! ** King Henry Was Wrong Again! Good day... And a Terrific Tuesday to you! Well... Guess who was wrong AGAIN! That's right, King Henry Paulson, he of the U.S. Treasury Sec. throne... He told the world on Friday, that the bailout package was a "done deal"... And he told us again on Sunday that it was a "done deal"... The markets rejoiced, the stock jockeys danced in the streets, the karma flowed and all the stars were in alignment... And then... A (not so) funny thing happened on the way to the forum... King Henry's men revolted, and the bailout package did NOT have the votes to pass it, and the "done deal" was "undone"! Once again this man has led investors down the wrong path. I've documented the wrong statements by this man in the past year, and still, investors hang on every word by King Henry... When will they ever learn? When, will, they, ev-er learn?...
  • Bailout Package Is Ready...

    * Ready to spend $700 Billion... * Wachovia wants to sell itself... * Dollar rallies hard... * The rot on the vine spreads... ** Bailout Package Is Ready... Good day... And a Marvelous Monday to you! A Wonderful Weekend for yours truly, as the weather was Chamber of Commerce like, I got to see all the kids, and little Delaney Grace two days! I also got to enjoy two football games, one that Alex played in, and one that Alex went with me to! Fabulous stuff! OK... The data on Friday was the stuff that should have sent the dollar to the woodshed, but like all the data lately, it just gets swept under the rug, as the market movers are myopic with the Bailout package. Lawmakers worked all weekend to iron out the details of the package, and King Henry (U.S. Treasury Sec.) has announced again that the package has been agreed on by Congress. The vote doesn't actually take place until tomorrow or Wednesday, but that hasn't stopped King Henry from pounding his chest over his latest victory. I like what I heard from former Fed Gov. (and Mark Twain Bank economist) Laurence Meyer, who said: "This has a reasonable chance of pulling back from the brink and having some success, but it's far from certain that will be the case."...
  • Sanity returns to the currency market...

    * Sanity returns to the currency market... * Chucks thoughts from San Diego... * CDS market explanation... * Swiss central bank to leave rates unchanged... ** Sanity returns to the currency market... Good day...Wow! What a day it was yesterday on the currency/metals desk here at EverBank. Finally, some sanity returned to the markets as investors moved out of their dollar holdings and into both currencies and metals. Gold was up over $80 yesterday, and continues to climb this morning. The Aussie dollar was up over 2%, climbing back above .80 cents and the Euro climbed back above $1.45. The dollar was up pretty much across the board, making for a very busy day here on the desk. Chuck also had a great day down in San Diego with FXU. He sent me the following late last night which he asked me to share with you....
  • Another One Bites The Dust...

    * Bailout or rescue plan? * JP Morgan buys Wa-Mu... * Canadian loonie remains well bid... * China to stop lending to U.S. Banks? ** Another One Bites The Dust... Good day... And a Happy Friday to one and all! It's not starting out to be a Fantastico Friday, but I'm sure that by the time the closing whistle blows this afternoon, I'll be all about a Fantastico Friday! The reason I say it's not starting out that way, is simply that it looks as though the bailout package is close to being a done deal. On a side bar... Have you noticed that the bailout package is now being referred to as the "rescue plan"? I guess the word "bailout" wasn't sitting to well with voters... Better to scare the bejeebers out of them into agreeing with taking on $700 Billion!...
  • Some Healing...

    * largest one-day move up in the euro! * largest one-day move up in Oil! * Gold and Silver rebound! * Renminbi finally moves! ** Some Healing... Good day... And a Terrific Tuesday to you! I heard from one of my two sisters that live in the Houston area yesterday. They rode out the Hurricane together, have some damage to her house, and is still without electricity. I can't imagine what that's all like. But they are both safe at that's what's important at this point. Well... The euro had it's largest one-day move upward VS the dollar since its inception in 1999, yesterday... We've seen some profit taking in the overnight markets, but just for good measure... I think it appropriate to show that the euro reached 1.48 yesterday... That was a 3.5 euro move, and after falling to a low of 1.3869 on 9/12 (before bouncing big that day), the euro has now recovered about 7%... I would call that "some healing"......
  • Goldman and Morgan Stanley Are Now Banks!

    * Currencies see some healing... * $1 Trillion and counting... * Gold and Silver rebound! * The Currency Capitalist... ** Goldman and Morgan Stanley Are Now Banks! Good day... And a Marvelous Monday to you! Someone along the road last week stopped by to tell me that I was too "Cheery" each morning with my salutations! He laughed, because of course he was kidding... But as I told him... If you're told what I was told last summer, each and every day is a day to be cheery about, no matter what's going on in the markets! Well... That was quite the trip last week, 3 cities in one week... In October I do 5 cities in 10 days... And then of course we had the goings on of last week... I really was upset and angry last week when I sent those notes to Chris for Friday's Pfennig. Our Gov't has spent 100's of Billions of dollars, and looking to spend more to avert a crisis... Yes, it was a Crisis, and something had to be done, but the way we did it, wreaks of socialism... My good friend, John Mauldin, whom I spent some time with last Friday, said, "I would sure like to see some regulation in Credit Default Swaps for all the money we spent!"...
  • Dollar bulls take a breather...

    * Dollar bulls take a breather... * Paulson is out of control... * From the mouth of babes... * Fingers crossed for Chuck... ** Dollar bulls take a breather... Good day...Just as Chuck predicted, we had a Thundering Thursday yesterday, as thunderstorms moved into the St Louis area early yesterday and are expected to stick around throughout the weekend. Yesterday was a pretty slow day in the currency markets, with the dollar trading in a fairly tight range, but overnight the dollar changed direction and we saw it lose ground across the board for the first time in weeks. This turnaround was seen in the European markets as traders finally started to realize the speed of the increase in the US$ was overdone. But before I get going this morning, I need to run a public service announcement for Chuck. Yesterday's Pfennig announced that the Reserve Bank of New Zealand cut interest rates .25%. This was in error, the bank actually cut .50% to a rate of 7.5%. Chuck realized his error just after hit the send button, and wanted to make sure I let everyone know (He received more than a few emails from readers letting him know his error). The extra quarter point cut was aimed at giving the NZD a good jump start, and Governor Alan Bollard is indicating more rate cuts will be on the way: "We've got room to move,.. We're in a loosening mode." The reaction of the currency markets was the same with a 50 bps cut as it would have been with a 25 bps cut, they sold off the kiwi as the interest rate differentials narrowed....
  • Turning Japanese?

    * Profit taking in the currencies... * German Business Confidence falls... * More talk of the bailout package... * A strong statement on Aussie dollars... ** Turning Japanese? Good day... And a Wonderful Wednesday to you! Another crazy day not only in the markets but on our trading desk, where the phones continue to light up. There's a ton of volatility in the markets these days, as witnessed by the roller coaster ride stock jockeys take every day, the no direction is a good direction course of currencies, and the ups and downs of bailout plans. It's all a little too much for yours truly some days, but I carry on... Take this morning... Please somebody take this morning! The euro was showing signs of wiping out yesterday's profit taking session early on, only to see its gains wiped out by a weaker than expected German Business Confidence report. Yes, German Business Confidence, as measured by the think tank, IFO, declined more than expected this month, to the lowest level in almost 3 years. I would say that with lower Oil prices, and weaker inflation, these German Business people's attitudes will be changing soon... The German economy, other than this report, is showing signs of strength, which is bang on what I've been trying to tell everyone that was throwing darts at the Eurozone economy... Remember 80% of trade in the Eurozone is among the Eurozone members......

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