October 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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  • Fed floods the markets with US$...

    * Bernanke gets help opening the spigot... * Euro and Pound rally... * Yen to continue to benefit from carry reversals...* Aussie $ rallies... ** Fed floods the markets with US$... Good day...and happy Columbus day! This is an official bank holiday here in the states, so all of the banks are closed, but the stock markets are open. We will have a half day here on the desk to try and catch up with all of the work which has been piling up the past few weeks. The phones are turned off, since it is an official bank holiday, but we will be checking messages and try to get back to everyone as quickly as possible. It is a very unusual holiday, as the banks are all closed with no funds transfers possible, but the stock markets are open. Currency desks are lightly staffed, so we will have to really work to get the trades done this morning. These strange holidays usually can lead to some real market volatility, and with today will probably be another rollercoaster. In an all out effort to ease the credit freeze, the Federal Reserve recruited help from the ECB, Bank of England, and the Swiss central bank to flood the market with US$. These central banks will auction unlimited dollar funds with maturities of seven days, 28 days, and 84 days at a fixed interest rate. This move is unprecedented, as all previous dollar swaps were capped at a maximum amount while these auctions will be for unlimited funds....
  • Wooden Arrows?

    * A euro revelation! * House to vote on Bailout... * Yen remains strong... * Jobs Jamboree Friday! ** Wooden Arrows? Good day... And a Happy Friday to one and all! A Fantastic Friday, I hope! As the blind man said, as he spit into the wind... It's all coming back to me now... And so it was yesterday morning after I had hit the send button for the Pfennig, a trader friend called to give me some insight, and... After talking to him, it all came back to me now... What the heck is he talking about now? I hear you asking... Well, recall how I and probably all of you too, have been scratching my head and wondering just how in the world the dollar could be rallying in the face of all that's going on, and the bad data to boot. Well, here it is folks, sit back and take a sip of coffee......
  • The Bailout Lives!

    * The Senate to the rescue? * Dollar rallies big time... * Rumor day... * Consumer Confidence stronger? ** The Bailout Lives! Good day... And a Wonderful Wednesday to you! Welcome to October! Or as we say in St. Louis... Rocktober! September went by in a flash, let's hope Rocktober slows down a bit! Well... Monday we had carnage in stocks, and yesterday in currencies, while stocks rebounded. What a difference a day makes! On Monday, the House voted down the Bailout package (doesn't it just get your goat that it's still being referred to as the "rescue plan"?), and yesterday, seeing the collateral damage caused by the "no" vote, Congress decided to try and rescue the bailout plan....
  • Deleveraging pushes the US$ up...

    * Deleveraging continues to push $ higher... * Pound Sterling tumbles... * Canada cuts rates... * Argentina spoils appetite for emerging markets... ** Deleveraging pushes the US$ up... Good day... Wow, another unbelievable day/night in the currency markets. The dollar continued to run up vs. most of the currencies yesterday and last night as investors brought money back into the US. We continue to get calls from WorldMarket investors asking us what was pushing this dollar up, as all of the data seems to be negative for the US$. The only explanation which seems to make sense is the global deleveraging of investors. Here is as good an explanation as I can give. Over the past several years money was extremely cheap and investors took advantage of these cheap loans. Hedge funds, corporate investors, and even some individuals borrowed funds and placed them into higher yielding investments to earn the 'carry'. This occurred not only in the currency markets, but across the entire spectrum of asset classes. These investors were rewarded with incremental yields over 'cash' investors, and banks were more than willing to lend, so the amount of leverage continued to increase to absolutely absurd levels. Everything was fine until the housing market here in the US turned and losses started to show up on the books of some investors....
  • Who Owes Who?

    * Trading theme pushes yen higher... * Settlement day for Lehman CDO's... * Oil price fall hurts loonies... * Gold climbs back above $900... ** Who Owes Who? Good day... And a Happy Friday to one and all! It certainly doesn't look as though it will be a Fantastico Friday in stocks, as yesterday was a bloodletting, and overnight the Japanese stock market sold off 11%, and Europe is down about 9% at this point. UGH! This is getting quite ugly... But remember what I've been saying this week about the currency trading theme... When things look bleak, the dollar goes up... And when it looks as though all the stimulus might work, the dollar sells off... This has been quite evident in Japanese yen overnight, as stocks sold off 11%, the currency rallied to a 98 handle from 101 yesterday... And... Then in dollar trading, other than yen, the dollar is stronger this morning, pushing the euro back to the 1.35 handle. The high yielders, which enjoyed a day in the sun yesterday before U.S. stocks took a turn on the slippery slope, got whacked hard overnight! UGH!...
  • A New Trading Theme...

    * Coordinated rate cuts...* Did the Fed reignite soaring inflation?* More pain in Iceland...* Revisiting the 90's in Japan... ** A New Trading Theme... Good day... And a Tub Thumpin' Thursday to you! Well... How about those wily veteran Central Bankers? They all got together and decided to cut rates... The Reserve Bank of Australia (RBA) went first with their 100 BPS cut, and opened the rate cut sea for the rest of the Central Banks around the world. The European Central Bank, The Riksbank (Sweden), Swiss National Bank, Bank of Canada, Bank of England, and the Bank of China all lined up at the rate cut table... The Bank of Japan, The Norges Bank (Norway), and Reserve Bank of New Zealand did not participate. The Bank of Japan doesn't have any rate to cut, The Norges Bank will wait until their regularly scheduled meeting on 10/15, and the RBNZ believes that they have taken their toxic waste bond flu shot......
  • The Trading Theme Remains In Place...

    * Heeee's Baaaaaacccckkkkk... * Carry Trade Depth... * RBA intervenes... * Oil weighs on the loonie... ** The Trading Theme Remains In Place... Good day... And a Marvelous Monday to you! It's been a long time, now I'm coming back home, I've been away now, oh how, I've been alone... Two weeks gone by the wayside! This Friday is Halloween! WOW! Where did the month go? Airports, hotels, and taxi cabs, that's where! But, I did it... The Currency Tour is finished... Time well spent I might add, but very taxing on me... Of course, my beautiful bride tells me if I were in better shape, it wouldn't be so taxing! Well... As I look at the currency screens this morning, I see that nothing has changed... The Trading theme I left you with is still in place, as the more deeper, darker, dangerous outlook for the U.S. becomes, the more the dollar gets bought... Things look better, and the dollar will get sold... The dollar has become the new Japanese yen!...
  • Coordinated Rate Cuts!

    * Yen trades to 98! * Carry Trades unwinding hurt high yielders... * Gold rallies back to $900! * Central Bank rate cuts.... ** Coordinated Rate Cuts! Good day... And a Wonderful Wednesday to you! Well... There's a ton of stuff to talk about today, one of which is the amazing run that Japanese yen has had in the past month, but particularly the last week! No need to sneak a peak at the currency round-up, Japanese yen is trading 98.80! WOW! I could be acting like a contortionist and trying to slap myself on the back, but that would unprofessional... And besides, the rest of the currencies are taking shots to the mid-section. Anyway... Blow the horn, the Carry Trade (for yen) is dead, may it rest in peace! OK... The currencies tried like all get out yesterday to rally VS the dollar, the euro did end the day 1% higher on the day, which after the bloodshed of the past month, I'll take that any old time! I would love to go back to 2005 (not really, but for this conversation's sake I will) and pull out some old Pfennigs where I talked about all the naysayers talking about a break up of the euro... We had the NO votes from France and Denmark on accepting the European Union's (EU) Constitution, we had riots in the streets of France, we had rising interest rates in the U.S. and dozens and dozens of naysayers called out the euro and said it would collapse under the weight. I said then, and I'll say now... HOGWASH!...
  • A Currency Bounce...

    * U.S. stocks soar! * Currencies rally! * Consumer Confidence at an all-time low! * Getting off the bench! ** A Currency Bounce... Good day... And a Wonderful Wednesday to you! The fall chill has really set in here as witnessed by my need to throw on a jacket and my Missouri Tigers baseball cap each morning! When you are basically bald like me, the cold air is not a friend to you, thus the need for a baseball cap from now until late spring! Well... The trading theme remained in place yesterday, but this time it was reversed. For those of you new to class, or any of you who have been playing horse hooky, the trading theme that has gripped the markets since August is: The deeper, darker, and more dangerous the U.S. economy and financial meltdown, including the credit market's locked status, the dollar gets bought... If there is any sign of light to all this mess, the dollar gets sold, for whenever the markets get their minds off the mess, they are reminded of awful fundamentals for the dollar....
  • Bernanke looks to spend some more of our $...

    * Bernanke asks for more $... * Credit markets start to thaw... * Iceland may get help from the IMF... * Goldman sees value in some currencies... ** Bernanke looks to spend some more of our $... Good day... The dollar moved higher yesterday as Fed Reserve Chairman Ben Bernanke urged Congress for another stimulus package. Yes, Bernanke wants to spend a few more of our taxpayer dollars to try and keep Wall Street afloat. "With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate," Bernanke told a congressional panel. Others at the Fed echoed Bernanke's gloomy outlook, saying that the global credit crisis will chill US economic growth well into next year. Bernanke is looking to Congress to send out additional stimulus checks in the hope that they will 'prime the pump' and get US consumers spending again. The govt. sent out about $100 billion in tax rebate checks over the summer to consumers, but consumer spending has struggled since then. Retail sales fell for three consecutive months through September. Bernanke says the moves to shore up the global financial systems seem to be working, but we now need to concentrate on getting the US economy growing again. "The stabilization of the financial system, though an essential first step, will not quickly eliminate the challenges still faced by the broader economy," he said. The FOMC which meets next week is expected to lower US interest rates to further stimulate the economy....
  • Chuck finally heads back home...

    * Chuck's thoughts... * US housing still a drag... * Rate cuts push currencies lower... * Yen rallies and is joined by some odd partners... ** Chuck finally heads back home.. Good day...Another big move up by the dollar and the Japanese yen last night. Really just another repeat of what we have been seeing each day of this week, dollar down, gold down, and oil down. And with the stock market falling dramatically yesterday, all of us on the desk were searching for something that was actually up yesterday. Our bond trader, Don Reis let me know that muni bonds rallied dramatically, along with US treasuries. So I guess investors are just continuing to park funds into the US fixed income markets. Chuck is headed back home this afternoon, after spending the past two weeks traveling the country with FX University. I'm sure he will be happy to get to sleep in his own bed again tonight, and will catch up on his rest tomorrow. He sent me the following note to share with readers....
  • Iceland Melts Down...

    * RBA cuts rates 100 BPS! * Iceland to peg the krona... * High Yielders get whacked! * Gold rallies in the face of a strong dollar! ** Iceland Melts Down... Good day... And a Terrific Tuesday to you! Well... Folks... The wheels, what was left of them, are really coming off this economy. It's a sad sight to see, but it's happening nonetheless, and there's no bailout, stimulus check, mortgage bill, truck loads of money supply, or whatever, that's going to stop this recession bus.. Memo to Paulson and Bernanke... Don't throw yourself under this recession bus... Well... The dollar continued to push the envelope against a handful of currencies yesterday. Up front and center, the high yielders got beaten about the head and shoulders by the dollar. Aussie, kiwi, real, rand, all took major hits from the dollar. It was one of the worst days I can remember seeing for these currencies. This huge sell off showed two things going against the high yielders... 1. Commodities (other than Gold) are getting whacked, and 2. The Carry Trade is Dead......
  • GDP Goes Negative...

    * Currency rally fizzles out... * Bank of Japan cuts rates... * Tracking David Walker... * A major shift change on spending... ** GDP Goes Negative... Good day... And a Happy Friday to one and all! A Happy Halloween Friday to boot! Boy, to be a kid again, and have what is forecast as a 70 degree day on a Friday for Halloween! We've been so busy at the Butler house that we didn't even decorate our front yard with Halloween stuff this year. UGH! But, that's OK, I guess, Alex is older now, and little Delaney Grace would probably freak out with the ghost that would fly across the front of our house, etc. Well... The fog that was lifted from the markets came back with a vengeance yesterday, and once again it was the deep, dark, dangerous U.S. economy leading the charge. 3rd QTR GDP printed yesterday and even though it was forecast to be negative, when it actually printed negative, the trading theme returned. 3rd QTR GDP goes negative (and if you throw in inflation for good measure growth was REALLY negative!) and the dollar rallies... It's the trading theme of the decade! (Ok, I exaggerate a bit there, as it has only been in place for 3 months now!)...
  • Govt to follow Buffet's lead...

    * Govt to follow Buffet's lead... * Aussie $ has biggest gain ever... * Yen reverses on carry trades... * China's currency reserves rise... Good day...And what a day it was! As I stated in yesterday's Pfennig, Columbus day is just sort of a holiday for the markets. These 'semi-holidays' can create some volatile trading, as not all of the markets are open and many desks are short staffed. So with the Federal Reserve and the banking system closed, the equity markets had the largest one day gain in over seven decades. I guess the stock jockeys figured they weren't going to get any bad news out of the credit markets, which were closed, so no news is good news!! The rally was certainly welcomed, and hopefully some of the gains will stick today as we return to a normal trading environment. And I guess some of the credit for the stock rally has to go to finance ministers around the globe who finally agreed on a plan which seems to be able to work. The leaders of a majority of the worlds largest economies borrowed a page from Warren Buffet's playbook and decided to invest directly into some of their largest financial institutions. The Bush administration announced it would invest $125 billion in nine of the biggest US banks. The US move came after France, Germany, Spain, the Netherlands, and Austria committed $1.8 trillion to guarantee interbank loans and take equity stakes in European banks....
  • Here we go again...

    * Here we go again... * US numbers show further slowdown... * Norway cuts rates... * Switzerland moves to shore up UBS... ** Here we go again... Good day...The dollar rallied and the equity markets plunged yesterday as investors again pulled their money away from the markets. As we have seen over the past several weeks, when investors get worried about the state of the global economy, they rush back into cash, and in the world of cash the US$ is still king. Chuck has been talking about this trading pattern during his FX University presentations, and I'll start this morning's Pfennig off with his thoughts from Philadelphia, where he is hosting another day of FXU: Here we go again! The recession trap door gets sprung under the stock market, and things begin to look really bad in the U.S. again, and guess what? The dollar rallies... This just plays the trading theme over and over again... And Yen? It's back below 100! Risk gets taken out, and whatever carry trades that were brave enough to go back on after Monday, have been wiped out! Wiped out like the rally in Aussie dollars, which had rallied to +70-cents after Monday... And lost 5-cents today......

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