Inauguration Day 2009...
Daily Pfennig

Blog Subscription Form

  • Email Notifications
    Go

Archives

.........But First, A Word From Our Sponsor..........
New 5-currency Index CD from EverBank®. Apply today. 
The new Debt-Free Index CD is comprised of equal parts Singapore dollar, Japanese yen, Swiss franc, Australian dollar and Brazilian real. Why these currencies? All 5 economies have a strong balance of payments-a factor that could aid performance against the U.S. dollar.
Of the 5 economies, only Australia has a trade deficit-and the gap appears to be narrowing. Concerned about investing in a weak U.S. dollar? Consider this new Index CD, it is available in 3- and 6-month terms with a $20,000 minimum deposit. Apply today at http://www.everbank.com/001CurrencyCDIndex.aspx.
This CD is FDIC insured against bank insolvency, but please keep in mind that you could lose principal as a result of currency fluctuation.

EverBank is a Member FDIC and Equal Housing Lender.
......................................................

In This Issue..

* Rogers and Roach...                    
* Dollar gaps higher!                 
* Ireland's problems...                        
* Bad data...                                    

And Now... Today's Pfennig!

Inauguration Day 2009...

Good day... Well... And a Terrific Tuesday to you! I got to enjoy a nice restful 3-day weekend. I realize not everyone got yesterday off, so I won't carry on about it. Can you believe it? The St. Louis Cardinals Football Team A.K.A. The Big Red, no wait, Chuck, they left town 20 years ago... OK, the Arizona Cardinals are going to the Super Bowl? When they were here, I never thought I would live to see the day...

Front and Center this morning, I have two quotes from people I truly respect... first from Jimmy Rogers... second from Stephen Roach...

"If I were you, I would be worried about the U.S. dollar," said Rogers, 66, in a speech at the Asia Financial Forum in Hong Kong today. "The Americans are printing U.S. dollars. The Americans are going to do whatever they can to revive their economy, even if it means destroying the U.S. dollar."

And at the same Asian Forum... "

Stephen Roach, chairman of Morgan Stanley Asia Ltd., recommended investors buy "anything to do with the Asian consumer, infrastructure, alternative energy and technology."

Now... these are people that "know better" and not ones that keep telling you that everything will be OK, if we just all come together, right now, over me... No wait, I mean if we all just come together, and forget about deficits, forget about 2.6 million unemployed in 2008, and another 2 million expected in 2009, forget about the fact that the Gov't that our forefathers created over 200 years ago didn't want the Gov't to get involved in the "free markets", or build up debts, or all the other things we now do that doesn't follow the rule of the constitution... and.... go out and get a loan, spend some money, and get this economy going again!

Whoa there partner, you're quite spry this morning! Must have been that kickin' bitter cold wind blowing in my face as I walked to the door this morning that got me going!

OK... The Big news this morning is that the dollar has taken another mighty swing at the euro and other currencies overnight. All day yesterday, I watched the euro hold steady Eddie at 1.31, but when I came in this morning, and did NOT turn on the currency screens because somebody messed with them this weekend, and I can't get logged onto them, but did check the internet, and saw the euro trading below the 1.30 handle at 1.2966... There had to be something I could find on my currency screens IF I only had them available! Geez Louise, why can't people leave things alone that work?

Alright I'll stop my whining... Doesn't do any good any way! So, I see that the German Economic Sentiment, as measured by the think tank, ZEW, improved a bit last month, as seen in the print this morning... That has helped the euro off the mat this morning as it has fallen to 1.2920 before this report. But, this report won't help the euro too much, as the ZEW think tank report isn't on the same level of importance as the IFO think tank report...

I told you last week about the rumor that Ireland was seeking funds from the IMF, and that a resident reader there had told me things were getting bad. The rumors were denied at the time, but I told you then, that I truly believe that where's there's smoke there's fire... And so it is with Ireland after all... Now there's all kinds of rumors running about regarding Ireland and their ability to make debt payments. (Hey!, haven't they learned anything from the U.S.? Just print the currency to make the debt payment!, but no, wait, they can't they're a part of the euro!) This, my friends has to be the reason the euro has sunk to below the 1.30 handle this morning. I'm reading a report from a trader friend in Europe that say there are nervous Nellies over in Euroland, regarding this debt payment... The Eurozone won't like any debt defaults under their watch, and could slap Ireland pretty hard...

I have to say that this is real folks... And presents the Euroguard in Frankfurt a real problem to deal with... No more of a problem than France rejecting the Eurozone Constitution in 2005, but a real problem nonetheless.

And a real problem for dollar bears... Who would like to beat the dollar like a rented mule (no animals were really hurt here) but the offset currency to the dollar has its own problems at this time... So... What's a dollar bear to do? Well... There's always the old offset to the dollar, the Japanese yen, which continues to outperform all the other currencies, and has bouts of real strength followed by profit taking, so there's opportunities to buy on dips when profit taking comes along... And this ties back to the Stephen Roach comment at the top of the page... To buy Asian... Well, he didn't say it, but he did in a way... If you buy Asian, you have to convert your dollars to the Asian currency of the asset you're buying... So, in a way, he's saying buy Asian currencies...

Another hickey on the euro's neck this morning is the report that Spain's credit rating has been downgraded... S&P downgraded them from AAA to AA+... They're credit rating should have never been that high to begin with, if you ask me... So this downgrade, just puts it where it should have been all along... Spain got "extra credit" for being a part of the Eurozone... My European trader friend said that the euro's resistance doesn't come into play until 1.27... So... There's a gap down that could happen quickly...

Yesterday, the pound sterling was basking in the Trading Theme, after the Bank of England announced a bank bailout plan... That brought out the risk takers for just a brief moment... But they had no lasting power, and the pound began selling off, and didn't stop until it reached a record low VS the yen, and VS the dollar it fell to below 1.40 for the first time since 2001! I've said since this credit crisis began that the U.K. was "into" this problem more than other countries (with the U.S. being the ring leader) and that it would take its toll on the pound... It has, and in a very strong manner...

And down under, the New Zealand dollar / kiwi keeps getting caught up in Commodity sell offs, Reserve Bank of New Zealand (RBNZ) rate cuts, and now... Talk of a downgrade to their credit rating... Commonwealth Bank of Australia (CBA) issued a report yesterday that points out that S&P already downgraded New Zealand's foreign currency rating to AA+ last week, and that the credit rating "MAY" be cut should the current account deficit cut into growth.

Now, that's all fine and good, as I've been harping about New Zealand's Current Account Deficit for a couple of years now... But, what? S&P only looks at the "little guys" that they can handle? I mean, for crying out loud, have they taken a peak at the U.S. Current Account Deficit as a percentage of growth? OMG! What? Are they afraid of the Big Bad Wolf? I'm afraid so... They don't have the cajones to take on the U.S. and their debt problem... So... They go around kicking sand in the face of the 90-lb weaklings around the world...

So... We start this week on a down leg for all currencies... Shoot Rudy, even the Japanese yen, is a bit weaker than it was last week, when it hit 88 at one point!

Gold had a very strong showing on Friday, going up $30... But is seeing a softer tone this morning...

All eyes will be focused on the inauguration of the new president here in the U.S. today, so don't look for too much to happen... But, I'm reminded of the words I wrote a couple times a couple of weeks ago about an Obama bounce, which would help stocks, and the dollar... Could this be happening as the inauguration is about to happen? I'm sure a lot of investors and traders will be swayed today when President Obama talks about change and hope... He has a tough row to hoe, folks... He's going to need more than words to get us out of this mess, and carrying on with the same policies as before with bailouts and stimulus packages isn't change... I wish him good luck, as this is my country, and I sure don't want to see us like this...

I have a good friend that gives me trouble all the time, (he reads the Pfennig) saying that I'm responsible for these problems because I "root for them" ... (he's kidding folks!) And I have my standard reply... I don't "root for them", I point them out, and try to warn people that these things will affect their investment portfolios... It's all about diversification...

OK, on Friday, (seems like a long time ago but still important) we saw the color of the latest Industrial Production, Capacity Utilization, and the stupid CPI (consumer inflation)... Here we go with a recap...

Industrial Production for December printed much worse than expected, and it fell -2% (expected -1%) and the previous month was revised downward from -.6% to -1.3%... For the year, Industrial Production fell -7.8%, the worst performance since 1975... Capacity utilization also fell sharply from 75.2% to 73.6%, matching the low at the end of the 2001 recession. You can go back all the way to 1967, to see that this data has only dropped lower during the 1982-83 period...

Long time readers know my affection for the Capacity Utilization data, as it is one of the few pieces of data that is "forward looking"... And if this report is right... We don't have much to look forward to in manufacturing...

The stupid CPI report showed that Consumer inflation came in at .01% for December... Which is pretty strange, as it was forecast to go into the negative. Annually CPI rose just 1.8%, an annual low since 2004... Of course if you believe that YOUR inflation experience only saw a 1.8% annual increase, then you don't understand why I call this report names... If you're like me, and 1.8% is a bunch of baloney... Then you know why! But... Given that my forecast has inflation rising rapidly next year, this report tells me that the inflation wolf is always at the door!

Not much on the data cupboard's calendar this week... So, let's go to the Big Finish!

Currencies today 1/20/09: A$ .66, kiwi .5280, C$ .7915, euro 1.2975, sterling 1.3960, Swiss .8775, rand 10.3350, krone 7.1030, SEK 8.3930, forint 221.87, zloty 3.3620, koruna 21.51, yen 90.25, sing 1.5080, HKD 7.7590, INR 49.22, China 6.8385, pesos 14, BRL 2.36, dollar index 85.92, Oil $39.78, Silver $11.08, and Gold... $831.90

That's it for today... Each day for the next two weeks, I'll be on a time line in the morning to get the Pfennig out before 6:30 CT as I then head into the city for my radiation treatment, and then return to the desk. So, if by chance I miss the time one day, look for it later when I return to the desk, as I'll send it out then... Well, I got through today without my "normal" screens... Like writing from home or the road! Yeah for me! Sunday, my little buddy, Alex, had a busy day, as he was in a wrestling tournament, and then played a basketball game! I was worn out watching him! Basketball turned out better than the wrestling tournament... Gotta go... I hope you have a Terrific Tuesday!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837





Posted 01-20-2009 12:52 PM by Chuck Butler