In This Issue..
* No follow through on the Eurozone bond idea...
* Mirror, mirror on the wall...
* AIG to set record for losses...
* Finding another Pfennig Reader!
And Now... Today's Pfennig!
Good day... And a Terrific Tuesday to you! A Shrove Tuesday to boot! Shrove Tuesday you say with a tone of thinking that I have made up another word for a day? Yes... Shrove Tuesday! For Catholics in some regions of the world (Ireland originally), the day before Ash Wednesday is Shrove Tuesday... Or here in the U.S. it's Pancake Day! You see, long ago, pancakes would be served up on this day as a popular way to use up fat, butter and eggs before Lent got underway. So... Happy Shrove Tuesday!
Well... The Eurozone bond story that I brought to you yesterday failed to materialize yesterday, recall I told you that Germany was against the idea, and this failure to launch... Pushed the euro back down from the high 1.29 handle late Friday afternoon, to the 1.27 handle this morning... I see where the euro has rebounded back above 1.28 as I went through the explanation of Shrove Tuesday, so at least it shows a pulse every now and then!
The Risk Takers have crawled back under rocks and into the walls again, as Risk Aversion weighs heavily on the currencies... I saw a headline this morning that made me laugh out loud... Some writer believes that the "Dollar Is Best Looker in Ugly-Currency Parade"... Hmmm, apparently he didn't take the time to look at Norwegian krone! Now, here's my version of Mirror, mirror on the wall...
Long time readers know my affection for the Surplus / Positive Balance of Payment countries and their respective currencies... Norway, always drifts to the top of those discussions, and then last night I came across a report by the research team at HSBC that graded the currencies... Their pick for Best Currency? Norway... Now, I can't give you all the results of their report (It's THEIR REPORT!) but, the note that was on the internet is up for grabs, so lets listen in to the research team at HSBC....
"The world is in total flux and, as such, we have released our new interim forecasts for the global economy today. Based on these numbers, which make depressing reading, we look at who comes out the best amongst the G10. We give all the variables an equal weight. We could have quite easily given CDS spreads a higher weight, which we believe is a key driver of the FX market at the present time, but even with equal weights the answer is still the same - Norway wins hands down. In addition, the JPY and the CHF are both losing their safe haven status and the best safe haven currency is the NOK. The NOK is our preferred G10 currency where we expect a sustained appreciation over the next 18 months."
OK... NOK is Norwegian krone, JPY is Japanese yen, and CHF is Swiss francs... Just to make that clear...
So... I my colors are already pinned to Norway's mast... Has been, and will continue to be, until something changes...
Now that I've said all that, I will say this just to make the Legal Beagles happy with me (yeah, like they're ever happy with me!) And that is, simply this is a fundamentals choice, and has been... You can go back to the start of 2006, when we issued a 20 year anniversary for World Markets newsletter, and in it, I talked about the Surplus countries being at the top of my Hit Parade... And which Surplus Country was the first one I mentioned then? Norway... But to carry on with the Legal stuff... Again, this is a fundamental choice, there are times the markets do NOT follow fundamentals, and fundamental choices do NOT perform.
And with a currency like Norway... It really needs the euro to be underpinned for the krone to outperform the single unit... So... All, I'm really saying here is that the dollar isn't the "Best Looker" in my opinion... That claim to fame would be Norwegian krone!
Whew! That was a long talk, and my fingers are tired... I'll have to give them a break here for a minute... Hold on, I'll be right back!
OK, I'm back now! Hope you didn't miss me! HA! This morning, the euro saw some selling based on a rotten German Business Confidence report that was issued by the think tank, IFO... The rot on the German Business Confidence vine wasn't that bad compared to last month, as the index fell from 83 to 82.6, but it was enough, when added with the fact that the Eurozone bond idea fell apart, to kick some sand in the euro's face this morning. It was also a 26-year low for the report...
In further evidence that Japanese yen is losing its grip on the claim of "best performing currency", the yen has fallen to a 12-week low this morning of 95.60... I began writing about the possible end of the Carry Trade Unwinding a couple of weeks ago... And since then more and more evidence to prove that thought has come about. Some traders and writers believe the yen's weakness has to do with it losing it's "safe haven allure"... While that's all fine and dandy, I truly believe it has more to do with the end of the Carry Trade unwinding...
Now, here's a guy that's been reading the Pfennig and probably the Review & Focus, and might even subscribe to my "pay for" newsletter, The Currency Capitalist, for listen in to what he's saying and see if any of it sounds familiar... It should! This story appears on Bloomberg...
"LGT Bank in Liechtenstein (Singapore) Ltd., part of the bank for the wealthy owned by Liechtenstein's royal family, is favoring gold and shunning Treasuries because of the risk inflation will quicken.
U.S. government and Federal Reserve efforts to snap the recession in the world's biggest economy will push up prices for goods and services, said Hans Goetti, who oversees $10 billion in Asia as LGT's chief investment officer. President Barack Obama's spending plans will force the government to borrow more, another reason to stay away from Treasuries, he said.
We are setting ourselves up for inflation maybe 12 to 18 months from now, Goetti said. The borrowing requirement will go up. There's no doubt. I cannot see bond yields staying at these levels."
>>>>> Hmmm... Yep, he's a "reader"!
OK... I've been on the soapbox many times on this bailout of AIG that happened last year... Well, as a taxpayer, you had better get pretty darn upset with this latest news... A reader sent me this story so I wouldn't miss it!
"American International Group Inc., the insurer bailed out by the U.S., may restructure its rescue package for the second time in four months as the recession forces down the value of the firm's assets.
AIG may announce that it is converting the government's preferred shares into common stock to relieve pressure on the New York-based firm's liquidity, a person familiar with the situation said. AIG pays a 10 percent dividend on preferred stock, and none on common shares."
OK... So, AIG wants to bleed slower than the current pace... So... The Gov. owns the preferred shares, but would see their return reduced by 10%, if AIG converts their preferred shares to common shares... Doesn't this just tick you off? Oh, and before I go on... Sources close to the company (AIG) said the loss (when reported next week) will be near $60 billion due to write downs on a variety of assets including commercial real estate. That number, if it prints at $60 Billion will se a record for the largest loss in U.S. Corporate History!
Alright, I had better stop there... You see what I keep talking about though? You apply a tourniquet to a bleeding company, and sooner or later they'll come back and need more...
Speaking of tourniquets... The stock markets of the world need one badly... Here in the U.S. yesterday, the DOW fell to its lowest closing level since May 1997 as stocks dropped across the board on fears that the recession will worsen. The S&P 500 dropped 3.5% to its lowest close since April 1997.
Personal wealth is falling down a hole... And suddenly people look up and say..."if I had only saved more money instead of trying to be the next Warren Buffett!" Things are falling apart all around... Clowns to the left of me, jokers to the right...
A month or so ago I went off on a tangent about how I felt a lot of all this mess with financial instruments that have failed, came about... And my words pale in comparison to those of former Fed Chairman, Paul Volcker, who summarized this failure of these instruments in a recent speech... Here's Paul Volcker...
"There was so much opaqueness, so many complications and misunderstandings involved in very complex financial engineering by people who, in my opinion, did not know financial markets. They knew mathematics. They thought financial markets obeyed mathematical laws. They have found out differently now. You know, they all said these events only happen once every hundred years. But we have "once every hundred years" events happening every year or two, which tells me something is the matter with the analysis."
That's right! That's my feelings in a nutshell! And it's such a shame... OK, I've got to get to something that lifts my spirit this morning... YES! Let's talk about Gold!
As I signed off yesterday, Gold was trading down on the day at $986... The shiny metal then rallied on the day back to $995, but has seen more profit taking overnight to $990... And now $989, as I glance at the screen. Recall when I kept mentioning and even gave the "wink, wink" that Gold was "still" trading below $900? Well... A couple more days of this below $1,000 trading, and I'll be tempted to wink again!
Currencies today 2/24/09: A$ .6490, kiwi .5110, C$ .80, euro 1.2790, sterling 1.4525, Swiss .8640, rand 10.0725, krone 6.8120, SEK 8.8250, forint 233.40, zloty 3.6690, koruna 22.2325, yen 95.80, sing 1.5270, HKD 7.7530, INR 49.86, China 6.8375, pesos 14.97, BRL 2.3810, dollar index 87, Oil $38.50, Silver $14.44, and Gold... $989.60
That's it for today... Well... How about those Missouri Tigers? #8 in the country! But, they have some dates on their upcoming schedule that could put a dent in that lofty ranking... K-State, Kansas, and Oklahoma await the Tigers... But, Shoot Rudy! That warms my heart on yet another cold day, #8! Have you heard the little comedy skit about the new breakfast cereal? It's called Credit Crunch, and it's high in federal bailout to meet your daily requirement! HAHAHAHA! Our little Christine just called, she can't answer the bell today, sounded very sick! Still no improvement in my left eye, it will be one month this Friday... I go to the doctor to see what's up with it on Thursday... OK... Time to go! No Christine, means I better get going! I hope your Shrove Tuesday is Terrific!
EverBank World Markets
02-24-2009 8:25 AM