More Strong Data Sinks The Dollar...
Daily Pfennig

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In This Issue..

* Currencies near 1-year levels...                
* Canadian loonies are best performer!            
* Dangling a carrot...                                   
* Oil trades above $72...                                                                            

And Now... Today's Pfennig!

More Strong Data Sinks The Dollar...                           

Good day... And a Tub Thumpin' Thursday to you! Why Tub Thumpin'? Why not? Besides, the non-dollar currencies are darn near where they were a year ago, having a good chunk of the ground they lost during the Financial Meltdown last fall and winter... Not that I'm a cheerleader, but more of a "this is what I believed would happen, and glad to see a plan come together" kind of guy!

And since I, unlike throngs of people that like to point out errors, put my beliefs in writing every day... Right out there / here, in the open, for anyone to take pot shots at... But, I learned long ago that there will always be those that disagree, and not to let it upset or change the things I believe...

OK... So... Here we are, one year later, having survived the Lehman Bros. collapse, and credit default swaps, and Gov't bail outs... According to Big Ben Bernanke, he saved the world... Hmmm... I'll save those words for my grandchildren, and their children... For what we're doing to them is immoral! But that's not what I was going to talk about with the one year later stuff, so, let's skip over to that!

A year ago, I was on the road with FX University, giving one-day instructional presentations on currencies... At the end of each day, all the "professors" HA! Would get in front of the "students" and it was time for them to question us... One day, we had a heated debate, among us, when one of the guys said that, "the euro would collapse" and that it was happening now... Hmmm, you know me, I couldn't let that pass, so I stood up, and said that may be true, one day, but not now, and not in the next year, and that the euro should bottom our around 1.25 (It was 1.47 at the time, having fallen from 1.60)... The euro bottomed out around 1.23, and hasn't seen those levels in over 10 months! I'm not gloating here, just putting this all into perspective...

So... The euro isn't the only currency taking liberties with the dollar these days... And so, as I said above, they for the most part, all taking advantage of this dollar weakness and gaining back ground that was lost last year.

But as long as I was on the euro, I might as well stay there... BNP issued a report overnight that is calling for the euro to reach parity to the British pound sterling... In a combination of euro strength, and pound sterling weakness, this would be achieved, the report writer said... Hmmm... While this makes sense on one hand, it doesn't on the other hand... On the other hand.... How could the euro continue to gain VS the dollar, and not drag sterling along on the crosses? This would be a strange twist of fate for sterling should it find it trading at parity to the euro...

Tuesday it was the strong Retail Sales figure that dropped a bomb on the dollar... Yesterday, it was combo bombs of Strong Industrial Production, and a rising CPI... Holding with the trading pattern that has existed, except for rogue days, that whenever the data is strong in the U.S. the dollar gets hammered, this day was just like many others we've seen. The thought that is on every trader's minds, and investors, and hedge fund managers, and whomever else is out there participating in the markets, is... That what's good for the U.S. is good for the rest of the world, and they are spending money they don't have like there's no tomorrow!

My friend, Bill Bonner, of The Daily Reckoning fame (www.dailyreckoning.com) says it best... Bill was talking about how the Fed is desperately trying to get consumers to spend, and to that they will artificially inflate CPI... Here's Bill... "If they can successfully inflate consumer prices (not just producer prices) the whole picture might change. Then, we'd have an inflationary depression rather than a deflationary one."

He went on to make some very good comparisons of Japan's 20 lost years, and what's going on here... I've made a lot of these over the years... Remember when I would due the 80's song, I'm turning Japanese, yes, I'm turning Japanese I really think so... I'm sure you do... But it's important to revisit these things from time to time so that people don't forget...

Did you know that the Japanese introduced 11 different stimulus packages worth 30 Trillion yen? The Japanese thought that bailing out banks that should have been allowed to fail, was the way to go... And today? Well, the Gov't is saddled with a huge debt, and the banks are still wobbly... And when it you know what hit the fan in Japan, the Japanese began to save... They had always been savers... But now they were really saving! And thus the on again, off again deflation that has existed in Japan for 20 years...

Doesn't that sound like us? I mean the consumers... We used to spend, spend, spend, more than we made... But when the you know what hit the fan here, we began to hunker down and save again... Which is why I think the Retail Sales data the other day is nothing but Government spending programs, and cooked books... The U.S. Consumer looked spent! Oh, But looky here! They showed life when they saw the Cash for Clunkers program, and this is what the Gov't is licking their chops about... They dangled a carrot and U.S. consumers were led down the same debt taking road as before...

So, maybe this is where we don't follow the Japanese any longer... If the Gov't can get U.S. Consumers spending again, they can re-light the spending torch... There's one big problem though... Unemployment... All those millions of consumers that are unemployed! I'm sure the Gov't has a plan to deal with this though...

OK, I've got to stop here... I just get so darned ticked at this stuff, and really don't understand why U.S. citizens aren't just as ticked as I am... For if they were... Oh, forgetabout it Chuck... Go on to something else!

The best performing currency in the past 24-hours is the Canadian dollar / loonie... Yesterday, it was reported that: Manufacturing sales in Canada, rose by a stronger-than-expected 5.5% in July following June's revised 2.2% increase. So, loonies are being marked up VS the U.S. dollar... This was a good report for a recovering economy that I believe has exited their recession...

Speaking of Canada... The Canadian newspaper, The Globe and Mail carried an article written by Nassim Taleb on 9/15 that I think had some good thoughts... Here a couple of them...

"In the first place, the financial crisis was not a black swan. It was perfectly predictable. They ignored the phenomenal buildup in leverage since 1980. They acted like airline pilots who'd never heard of hurricanes!

Today we still have the same amount of debt, but it belongs to governments. Normally debt would get destroyed and turn to air. Debt is a mistake between lender and borrower, and both should suffer. But the government is socializing all these losses by transforming them into liabilities for your children and grandchildren and great-grandchildren."

Ok... Let's go to another country and see what we can find there!

Well...it's not another country, but a commodity! Don't look now, but Oil has pushed past $72 overnight... The price of Oil rose 2.2% yesterday and last night after a report showed that stockpiles in the U.S. had dropped to their lowest level in 9 months...

A strong Oil price, though not appreciated at the gas pump, does help push certain currencies higher, as they have a "petrol" component to them... Currencies from countries like: Norway, Brazil, Canada, Mexico, U.K., and Russia...

Speaking of Russia... Not that we can trade / offer this currency except in our BRIC MarketSafe CD, but the ruble has been on quite a tear in the past two weeks, gaining 11 of the past 12 days, VS the dollar... I talked to a lot of people when we first issued the BRIC MarketSafe CD, and they told me they wished we had made it a "BIC CD" and taken out the "R" for ruble, as they were very leery of Russia and the ruble... I would tell them, I understood, and the only way I would ever think of Russian rubles was in a "MarketSafe CD"... And... To think of rubles as an "Oil Play"... Let's hope that continues to be the case, eh?

Hey! Did you hear the President the other day talking about the $200 Billion Supplementary Financing Program (SFP)? He was happy that the Gov't was going to be able to remove it from the Budget, because Financial Institutions are getting healthy... Well... Not that I'm going to pull a Joe Wilson here, and call him a liar, but I am going to throw my 2-cents in here, and say that I believe removing the SFP $200 Billion from the Budget is due to the fact that Congress is having to raise the debt ceiling again, and this would give them some extra room...

So... I'm watching the currencies trade this morning, and ever since I came in the euro has been weakening VS the dollar... It has gone from 1.4755 when I came in, to 1.4715, and it doesn't look as though it will stop there! But... Before you panic, we've seen this a lot lately... Overnight, the euro gets traded upward, and then late in the European session (like now) it gets sold... Then the NY traders take it back up again... Looks like a classic example of profit taking in Europe to me!

Yesterday, I told you about the Japanese Finance Minister, Fujii, and his announcement that a strong currency was a good thing for the economy... Well, those words were echoed last night by Japan's Central Bank Chief, Shirakawa... Mr. Shirakawa said, "In the medium and long term, a strong yen can help push up the economy."

Hopefully, these two statements on consecutive nights will be enough to push the fears of traders, that the Bank of Japan would intervene to keep yen from getting too strong, into the back seat...

Gold was unable to add to yesterday's push up to $1,018. I'm convinced that Gold can go higher... But, it could very well go lower first! I've seen some calls for Gold to go to $3,000 and even higher! All I have to say whenever I see that, is simply... That would be nice for Gold holders (like me!), but I sure wouldn't want to see what the shape of the U.S. economy is in, if Gold is at $3,000! YIKES!

Geez Louise, I wrote all this, and haven't mentioned the data results from yesterday! UGH! OK... Real quick, because I'm running late... CPI was up .4% VS July... Industrial Production was strong, gaining .8% (VS .6% forecast), and Capacity Utilization edged higher to 69.6% (still a long ways to go to get back to the days of 85%!) And finally, the TIC's data... Total Net TIC Flows into the U.S. were a negative $97.5 Billion! OUCH! I'm going to spend a lot of time today trying to find out what China's purchases or lack of them were!

OK... To recap... The non-dollar currencies are close to their levels a year ago. Yesterday's move came as a result of strong data from Industrial Production and CPI. Canadian loonies were the best performer in the past 24-hours, and we had more jaw boning for a strong yen in Japan...

Currencies today 9/17/09: A$ .8720, kiwi .7110, C$ .9385, euro 1.4715, sterling 1.6520, Swiss .9675, rand 7.37, krone 5.8550, SEK 6.8650, forint 183.50, zloty 2.80, koruna 17, RUB 30.34, yen 91.40, sing 1.4150, HKD 7.75, INR 48.15, China 6.8266, pesos 13.16, BRL 1.8015, dollar index 76.25, Oil $72.49, 10-year 3.47%, Silver $17.37, and Gold... $1,016.50

That's it for today... Well, I just heard that Puff the Magic Dragon sings no more, as Mary Travers of Peter, Paul and Mary has died at 72 from leukemia... It's been a tough week for my beloved Cardinals, as they've backed off their strong showing of August and early Sept. I hope they can hold on for a couple more weeks! Another day, and less pain in my knee, although the swelling is a real problem, that won't seem to go away. Maybe this weekend, I can stay off it, and see if that works. Thanks to those who send me remedies for this swelling... I had better get going, people are streaming in, and it's not like me to be still typing when that happens! Well, so far today, it's a Tub Thumpin' Thursday... I hope it's Tub Thumpin' for you!

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





Posted 09-17-2009 9:37 AM by Chuck Butler