Gold Moves Higher With The Dollar...
Daily Pfennig

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In This Issue..

* Currencies in a tight trading range...                   
* Bank of Canada follows the Fed...                  
* Look who's Talking Gold...                         
* Adding up the spending...                                     

And Now... Today's Pfennig!

Gold Moves Higher With The Dollar... 

Good day... And a Wonderful Wednesday to you! The first full day of the new regime... I will say this, it makes one proud to be an American when you can watch a peaceful, even extravaganza, handing over of leadership... It really rips me up when I read that the Wall Street Boys really contributed cash to the inauguration proceedings... Making certain the new President knows who contributed cash to his party...  Probably cash they received from the Gov't in bailout payments! Nah... That couldn't happen... Could it?

Well... The currencies didn't really trade outside of a very tight range yesterday, except for the pound sterling, which continues to fall VS the dollar, euro, yen, and probably even the Zimbabwe currency! OK, that's harsh! But I wanted to paint the picture, so that everyone understood the grave situation the pound sterling is in... The Bank of England has decided to take 70% control of the Royal Bank of Scotland, and nationalization isn't far behind for that bank, and a few others...

Yesterday, the Bank of Canada (BOC) lowered their official interest rate by 100 BPS or 1%... I told you long ago that the BOC would follow in the Fed's footsteps, and they have... Canada had it all going for them last year, with gold rising, Commodities like Oil, natural gas, and metals all rising, but that curtain came down hard on Canada and their dollar / loonie. It will be some time before the loonie can recover... but... if my scenario of soaring inflation for the U.S. and rising Commodities again comes to fruition, then it won't be that long, not in the scheme of things...
There was word yesterday that the Monetary Authority of Singapore (MAS) stepped in to support the Sing dollar after it had fallen to a 6-week low. This kind of intervention works in this case, as the Sing dollar is relatively small in circulation, and the intervention doesn't have to be of size to stabilize a market... But, they (the MAS) need to know when to get out, and let the markets be... They gotta know when to hold 'em, know when to fold 'em....
Gold put in another strong performance yesterday adding $21 as I left for the day. Jennifer asked me during the day if this was a first, with Gold and the dollar rising... I said that I had seen it before, but it certainly doesn't normally go that way... For Gold is another offset currency to the dollar... Which leads me to believe that it wasn't so much dollar buying as it was euro selling yesterday...

The Boys and Girls at Morgan Stanley issued a report on Gold recently that called for Gold to reach a new record within the next 3 years. They call for the Gold to "average" higher each of the next three years through 2012, with the average this year to be $900, next year $1,000, the following year $1,050, and $1,075 in 2012... Personally, I believe their call to be quite conservative, something that we're going to see a lot of in the next few years, as these research teams, back off the "hyper-calls" for assets, as they walk gently over eggshells in an attempt to not garner the spotlight...

At least they're calling for higher Gold prices... You normally don't see Wall Street firms going out of their way to talk up Gold... For that thought, you normally don't see Bankers talking about Gold either... That's where I'm different! I talk to one radio station quite often and they call me the "un-banker"! That's right, baby! I'm not even your last choice as a "banker"... I'm a markets guy...

OK, enough of that self-promotion! HAHAHAHAHAHA!

Back to the markets... Well, the Obama bounce didn't come in the first day of his Presidency, as the Dow sold off by 332 points! UGH! OUCH! That's going to leave a mark! So far, one piece of the Obama bounce, the dollar, has rallied... But the other, stocks, have fallen on their face.... We'll have to see what stocks think about the $850 Billion stimulus package that the Obama team is working on...

Here's the skinny on the package, that could still grow... It certainly isn't going to narrow! The stimulus plan covers 5 areas of spending and tax breaks... Health, education, infrastructure, energy, and support for the unemployed and the poor. All worthy areas... Unfortunately, we (the U.S.) don't have the funds to pay for this... Now... If we weren't already in a huge deficit hole, then a stimulus package to get the economy going might be the answer... But, that's not the case! I told a radio station a week ago that the Roosevelt plan worked back in 1933, but it could have just as well failed, it was that touch and go, and if it weren't for the war it might not have... This time, we're starting in a deep, dark deficit hole... I sure hope it works... I just can't get my arms around how adding $2 Trillion to our national debt this year helps...

How did I get to the $2 Trillion? Well... The Congressional Budget Office (CBO) has already told us the deficit in 2009 would be $1.2 Trillion. Recall I had a cow over that announcement! Well, the CBO's budget forecast does NOT include the new stimulus plan of $850 Billion... I'll tell you what it also doesn't include... Any new military expenses... And the remaining TARP money that the Obama team just came into...

I just heard, and sang along with, out loud, good thing no one else is here!, one of my all-time face Chicago songs... Hard Habit To Break... Yes, the habit of deficit spending is a Hard Habit to Break apparently... So, where's the change?

OK, Whew! I really went off on a tangent there, eh? Oh, some of that was from my radio interview, and some of it was from my good friend, David Galland, who recently put out a piece on the spending... David used to take my Review & Focus draft, and make music with it... What a writer!

I see where Christopher Cox, resigned from his leadership role at the SEC... I think back to the election process when John McCain was asked what he would do about the financial mess, and his first response was to say that he would fire Cox... McCain got all kinds of flak for that... But in hindsight, given the failure of the SEC to spot Madoff's alleged ponzi scheme, that call doesn't look so bad now, eh? So... According to Harvey Goldschmid, a former Democratic SEC Commissioner, the SEC was "passive" under Cox... Well, you can expect that pendulum to swing swiftly to the other side... As with all things in life... They go too far one way, and when somebody notices, they swing too far the other way... Never finding a "happy medium"...

Someone sent me a note yesterday and said I hadn't mentioned the Swiss franc and why it had fallen on hard times, after posting a great 3-month return... I pointed back to a previous Pfennig that pointed out that UBS was involved in a bond scandal in Italy, and it reverberated all the way to the franc... Of course since then the euro has fallen from 1.34 to 1.29, and that has even more to do with the recent movement in francs... Remember... The euro is the Big Dog of currencies...

I'm currently reading a research report on China, in my "spare" time I might add! The research plays well with what I've been harping about for some time... And that is rising inflation in China, and how the Chinese officials should use a stronger renminbi to combat that inflation... There are a lot of people, researchers, pundits, out there calling for China to slow down their renminbi appreciation VS the dollar... I'm on the other side of that fence, as usual, right? I think the Chinese WILL use the renminbi as an inflation fighting tool... More later, when I have some "spare" time!

For readers of our monthly client newsletter, Review & Focus, you're in for a special treat in February... The Big Boss, Frank Trotter, submitted a special report called "The March of the Presidents" which goes back to Nixon, and gives grades based on raw data, not sentimental, of "soft stuff" ... Strictly numbers... Inflation, unemployment, etc. Look for it at a news stand near you!

Currencies today 1/21/09: A$ .6510, kiwi .5210, C$ .7925, euro 1.2925, sterling 1.3770, Swiss .8750, rand 10.2725, krone 7.04, SEK 8.3250, forint 220, zloty 3.3660, koruna 21.42, yen 89.80, sing 1.5025, HKD 7.7580, INR 49.11, China 6.8375, pesos 13.95, BRL 2.36, dollar index 86.20, Oil $41.29, Silver $11.40, and Gold... $860.70

That's it for today... So far so good, getting up a bit earlier to get the Pfennig written before I head in for my radiation treatment. I walked back into the office yesterday morning after my treatment, and Tim Smith said, "hey Chuck, I finally beat you in to work"... HA! Been here and gone, my friend...  I've been talking about the Orlando Money Show that's Feb 3-7, for a month now, and now that it's two weeks away, I guess I had better get to work on the 2 presentations I'll be making! UGH! It usually takes me that long to fit in working on a presentation! I'm not like the Big Boss, Frank Trotter, who normally has all the ideas in his head, and puts them together on the plane! We're 5 months away from moving into our new digs in the brand spankin' new building next door... The seating plans and so on are being worked on now, along with how the computers and screens on the desks will be routed, etc. The "move" will be a pain, but the planning is fun! OK... Time to get this out the door... Hope your Wednesday is Wonderful!

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





Posted 01-21-2009 11:59 AM by Chuck Butler