A Currency Rally For The Ages!
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In This Issue..

* Negative momentum towards the dollar grows...           
* Treasury yields continue to rise...          
* Fundamentals and Charts coincide!                           
* Silver has best week in 22 years!                                                   

And Now... Today's Pfennig!

A Currency Rally For The Ages!           

Good day... And a Happy Friday to one and all! I'm going to make the call and say this is going to be a Fantastico Friday! The sun is supposed to come out today after a week of rain, it's Friday, it's pay-day, and... The currencies have put on a rally that's the stuff that movies are made from! And... Once again, there were signs yesterday that the break of the link to stocks was in place! Take all that, and the fact that we woke up this morning for a brand new day... And you have a Fantastico Friday!

OK... So front and center this morning let me tell you about the currency rally that began yesterday morning... Let's look back at what I said as I was getting ready to hit the send button yesterday morning... "So... As I get ready to head to the Big Finish, I see that the currencies, led by the Big Dog, euro, are getting off the porch once again to chase the dollar." 

And... The Big Dog, euro, did get off the porch, which allowed all the little dogs to get off the porch to all chase the dollar... Now, before I go on... I wanted to make certain everyone understands what I'm talking about here, when I say "chasing the dollar down the street"... Imagine, if you will, a Big ole dog sitting on a porch, and a rabbit (the dollar) comes hopping by. The Big Dog will spring from the porch to chase the rabbit... If the he catches the poor little rabbit, the rabbit will be cease to be... So, now replace the Big Dog with the euro... And the rabbit with the dollar... And when the euro is chasing the dollar down the street, it's not a good thing for the dollar... For what if the euro catches the dollar?

OK... Sorry for the explanation but it occurred to me that I talk so much about the "Big Dog" euro, and all that, I had better do some 'xplainin'!

For most of the day the currencies rallied VS the dollar, and stocks were going nowhere, which was another good sign that the link between these two asset classes had broken... Stocks did end the day on a high note... But, for the most part were down or flat on the day before rally in the afternoon. 

I've been telling you that the "negativity" toward the dollar has been building pressure, and just like any pressure cooker, if the heat stays on, the pressure cooker will finally give in... And it sure looks as though the dollar bulls finally gave in yesterday... Let's just look at this move... Yesterday morning, when I arrived here, the euro was trading at 1.3830... By the time I hit the send button it was 1.3895... And this morning when I arrived, it has a completely different look to it... Trading at 1.4080!

Were you sitting on the sidelines and feel that you missed this move? Well... I have a governor on my writing, folks... But, still I pointed out emphatically a couple of weeks ago that the dollar index had traded through the downside of its 200-day moving average, and that the euro had traded through the upside of its 200-day moving average...

The boys and girls over at Morgan Stanley see a 10% Trade Weighted dollar drop... The believe this will happen through the end of the year... Hmmm... The dollar index (recall I explained this a few weeks ago) has lost 5% since May 8th when it traded through its 200-day moving average... And... The technical / charts people are beginning to jump on this bandwagon, and say their charts are telling them that this is a strong indicator that we're heading for another leg down in the dollar... So... You've got the fundamentals rounding back into shape, and the charts confirming it...

So... Let's sit back and look at the currency landscape for a minute... What's causing this run on the dollar, you might be asking... Ahhh grasshopper... I kept telling you and telling you, that the debts were going to come home to roost, and when the markets got tired of having to choke down the debt issuance, the reversal of the "flight to safety" treasury buying that boosted the dollar from July 2008 - Feb 2009, would rule... And the selling of the dollar would be just as swift as the buying of the dollar was back in July and August of last summer!

I know, I know, you basically wrote that off and said I was akin to the "boy who cried wolf"... But... I did it so that you would have that V-8 moment, when it all began to happen! I've tried to tell you that Treasury yields were rising, which meant there was Treasury selling going on... And it's come to this... What I put down before you months ago.

I'm not trying to blow my horn here, I'm simply trying to show you the sequence of events!

OK... Enough of that! This morning, there's news from the South Korean Pension Fund that is shaking the foundations of the Treasury market... The Fund has announced that they will reduce the amount of its exposure to U.S. Treasuries, and diversify into other assets... This fund is about $200 Billion in size... So, not the likes of China and Japan, but still... Just another outlet for Treasuries to be apparently closed...

In other news that's helping drive up the currencies, as it's not all just "dollar selling"... Retail Sales in Germany showed a nice rise, the first one in 4 months! And in some news that you might not find anywhere else... Eurozone M3 (Money Supply) printed at +4.9%... Hmmm... U.S Money Supply, the last time I looked, was running in the double digits... So... Which economy is going to suffer from higher inflation pressures? Money Supply is inflation folks...

And in some not so bright news for the U.S. economy and housing... The New York Times ran an article from the Mortgage Bankers Association (MBA), that shows 12.07% -- about 5.4 million -- of all U.S. home mortgages were delinquent or going through foreclosure during the first quarter. That compares with 11.93% at the end of last year. UGH! That's awful news... And U.S. Consumer Confidence was higher this month? Really?

Well, folks... I just glanced at the currency screen while typing, and yes, I can do that, with very little in the way of errors, to see the euro cross the 1.41 level... So, now the move looks even stronger, because the euro has gone through two levels of resistance at 1.40 and 1.41...

Looks to me like the only thing that can stop this run-away bus is a bout of profit taking, or the invisible hand of the markets... Dare I say government intervention? I don't want the folks at CNBC to tell me to take this idea to "Hollywood" like they did last week with my PPT thought!

I'm seeing quite a few articles these days on how "unhappy" Big Ben Bernanke is with these rising interest rates... It sure this let's his cow out of the barn, eh? His cow being artificially low interest rates on mortgages... Government intervention in this whole mess continues to muddy up the process, and Big Ben has had his hands right there in the mud! At least my son, Andrew, got his home loan rate locked in, before this latest rise in mortgage rates!

The data cupboard spills out all over the floor today with more data than the cupboard can hold! But before we begin the data round-up, let's look at a couple of other currencies besides the Big Dog, euro... The Aussie dollar (A$) is within spittin' distance of 80-cents! The loonie is within spittin' distance of 91-cents! OK, I'm outta spit now, so I'll just tell you that every currency I see on the board is moving higher VS the dollar.

And the precious metals of Gold and Silver are taking liberties with the dollar too! Last week I told you about the Gold and Silver ratio, and how the Silver ratio was out of line, which could mean a good "buying opportunity" for Silver... Well, in the past week, Silver has put in its best 1-week performance in 22 years! WOW! That's right, 1987, was the last time Silver had a performance like it had this past week! And to move it out further, Silver has gained 25% this month! Double WOW!

OK... Time to settle down... Let's take a look at the mess on the floor from the data cupboard! First off, a revision to 1st QTR GDP will print this morning, expect a revision to show GDP performance was worse than first reported. Look for GDP to revised down to -6.1% from the original -5.5%... Personal Consumption for the 1st QTR will also print, and is also expected to be worse than originally thought. Then the Chicago Purchasing Managers Index (manufacturing for the region) will print... And finally, the U. of Michigan consumer confidence index is expected to show confidence is rising... In what? I guess simply stocks... But given the soaring unemployment, the recession / depression, and rising savings rate, where are corporations going to make money to support these stock prices? I think I've said this already, but if I haven't it simply means that I wrote it somewhere else, but I truly believe that we are going to see negative price to earnings (P/E) ratios later this year... Now, that REALLY gets my stock buying juices going!... NOT!

I don't like going to the Big Finish on a Friday on a sour note like that... But, what's a poor Pfennig writer to do? At least currency and precious metals holders are happy this morning! Oh! And it's Friday, so we must have a "feel good Corporate story" today at the end of the Big Finish!

Currencies today 5/29/09: A$ .7995, kiwi .6380, C$ .9085, euro 1.4120, sterling 1.6165, Swiss .9335, rand 7.9470, krone 6.3130, SEK 7.5650, forint 199.58, zloty 3.1610, koruna 19.0385, yen 95.80, sing 1.4420, HKD 7.7510, INR 47.12, China 6.8281, pesos 13.11, BRL 2.0025, dollar index 79.52, Oil $66.17, Silver $15.54, and Gold... $975.45

That's it for today... The momentum in the currencies right now is incredible! My beloved Cardinals, back in first place where they belong, are on the West Coast this weekend, which means I miss most of their games, as I can't stay up that late! The sun is supposed to remain out for the weekend here, so we've got that going for us! It's that time of the year, with all the graduation parties. Congrats to all the graduates! Good luck! I just love these 4 day work weeks! Time to go to the "feel good" Corporate story of the week! I hope your Friday is Fantastico!

Pat here in Jacksonville with the Fitness Industry "feel good" story.
Although we're not insulated from economic downturns, we are somewhat more resilient than other discretionary money takers. Nonetheless, the industry as a whole shares a relative bruise on the shoulder - bad dept is up, new business is down, etc. The good news is that people don't have to get a loan to join a health club. So in these dark, gloomy economic days our clubs have actually seen increases in year to year revenue three straight months. How is it that health clubs can realize growth in this environment?
In the good ole days it was all about margins. Today it's all about market share. Hands are folding everyday and if you want to see the next card you better have chips on the table. Understanding this, we have eliminated any reason not to do business with us; long term contracts - gone - exorbitant initiation fees - gone. Conceding to the consumers' ultimate terms has redefined our modus operandi - we no longer establish the terms and conditions for how we conduct business. The consumer does. They want ease of entry? We give it to them. They want no long term commitment? Fine. This is how we not only are surviving but thriving (relatively typing) in a recession. It's the microcosmic adjustment I fully expect to see manifest to the macro stage in the very near future. My fav quote from John Kimsey..."Do something; even if it's wrong - do something!" Going against the grain of generally accepted rules can sometimes forge new generally accepted rules.

Patrick Meinert
Fitness Management and Consulting
841 Prudential Drive Suite 120
Jacksonville Florida, 32207
Office (904) 396-6122

I hope you liked Pat's story!

Chuck Butler
EverBank World Markets

Posted 05-29-2009 10:11 AM by Chuck Butler