Will History Repeat Itself?
Daily Pfennig

Blog Subscription Form

  • Email Notifications


..But First, A Word From Our Sponsor..
Gain exposure to currencies of emerging BRIC countries-and don't lose a dime on market risk

Don't let market risk get in the way of potentially rewarding exposure to the BRIC currencies. Our 3-year MarketSafe® BRIC CD shields you from any market risk and provides 100% principal protection on deposits held until maturity.

* 4 BRIC currencies: Brazilian real, Russian ruble, Indian rupee, Chinese renminbi
* High upside potential
* No market risk to deposited principal
* Low $1,500 minimum deposit

Some experts believe these 4 countries may become economic powerhouses in coming years. Now could be the right time to add these currencies to your portfolio. And you can do so-safely-with the U.S. denominated MarketSafe BRIC CD.

Don't miss this unique opportunity. Deadline to buy the BRIC MarketSafe CD is Dec. 3rd, 2009. Apply today or learn more at http://www.everbank.com/001CertificatesMSBRIC.aspx?referId=11808

In This Issue..

* Non-dollar currencies rally...                     
* A$'s and C$'s to parity?                         
* Reaching 40% of expenditures...                                    
* Gold & Oil on the rise once again...                                                                                   

And Now... Today's Pfennig!

Will History Repeat Itself?                              

Good day... And a Terrific Tuesday to you! A long day on the desk for me yesterday, left me draggin' the line... But I'm rested and refreshed again this morning, so let's get to the Pfennig for today! The Finance Ministers of the Eurozone met yesterday, as I told you, and they've tried to stem the euro's rise... But, they'll need more than words to get the job done! And so, we begin a new day...

Front and Center this morning, the currencies, which had given back ground overnight to the dollar, are back in rally mode, and are taking liberties with the dollar once more. For most of the night that was not the case, though. The dollar had rallied back and sent the euro, for instance, to the 1.48 handle, after the single unit spent yesterday at 1.49 and change... There seemed to be a move to the dollar, but that didn't last long, and the currencies are once again rallying VS the dollar this morning, and the euro has pushed to 1.4970 as I write...

Daily noise, eh? Yes, you have to wade through this daily noise most days, and keep your eyes fixed on the horizon...

OK, I mentioned above that the Finance Ministers of the Eurozone met yesterday, and tried to stem the dollar's decline by backing the U.S. administration's stated preference for a strong dollar... Of course we all know that the U.S. administration's stated preference for a strong dollar is a bunch of horse dookie! So... What was it that the Eurozone F.M.'s were backing? A false statement by the U.S.? Now, that's something to hang your hat on, eh? The dolts just continue to mount daily don't they?

But, you can't be too hard on the beaver (Eurozone F.M.'s) for they have to sound like they don't want their euro to get too strong, for if they really said what they wanted to say, the euro would be back to 1.60 with a bullet in a heartbeat! So... In the end, I don't think currency traders were swayed by the Eurozone F.M.'s, at least not for too long!

Yesterday, I talked about Canada and the Bank of Canada (BOC) and how I thought that the BOC would remove their statement about interest rates remaining on hold until the 2nd half of 2010... I had a few readers question me on this, saying that Canada's economy is in no shape to withstand a rate hike... OK... Hear me out on this... I'm not saying that the BOC will hike rates now, or even in 2009... But, if Canadian energy prices of Oil, natural gas, and coal continue to get stronger, I'm afraid the BOC will have to entertain thoughts of raising rates to fight inflation... But not now... So... I hope you get what I'm saying here...

So... The U.S. fiscal deficit for 2009 was $1.42 Trillion... Remember how I used to take the previous administration to the woodshed for posting $450 Billion fiscal deficits? How did we go from $450 Billion to $1.42 Trillion, that is if that's really the number??? Well... That's not a question to really answer, folks, we all know how we got here... But now that we're here, what happens next?

I came across this when putting the two monthly newsletter together on Sunday, I think it would be appropriate to share it with you here...

Peter Bernholz (Professor Economics in Basel) studied the world's 12 most important periods of hyperinflation and discovered that the tipping point occurs when deficits amounted to 40% of the expenditures.

For the United States we have arrived at exactly that point.  The deficit of $1.5 trillion amounts to 41.7% of the $3.6 trillion in expenses.

You see, that Peter Bernholz, rounds some numbers, but for those of you keeping score at home, the real point is that the U.S. deficits are greater than 40% of expenditures... And you know me, I truly believe in this history repeating itself, or as Mark Twain put it, it may not repeat itself but it rhymes... Mark Twain also wrote: "It's not worthwhile to try to keep history from repeating itself"...

So, the point I'm trying to make here is that according to Mr. Bernholz, we can soon expect a bout of hyperinflation! OH BOY! Where do I sign up for that? Not only do we have a falling dollar causing us to lose purchasing power, but what purchasing power we have left is going to be eaten away with inflation! Like I said, OH BOY! Gee Willikers, that sounds like the cat's meow! NOT!

So... Here we go again, with me getting on the soapbox and telling you the only way to protect yourself from a falling dollar and hyperinflation is to diversify with non-dollar currencies and precious metals...

OK... I get emails all the time from readers that say, "OK Chuck, you tell us to diversify, but you don't tell us what to buy"... Well... To the untrained eye, that would be true... But to long time readers they know better... So, keep reading, and it will hit you right between the eyes one day, and you'll slap your forehead and say, "I could have had a V-8"!

The boys and girls over at Citigroup have written a letter to their clients telling them that "the dollar is weakening because foreign central banks are diversifying their reserves and U.S. investors are buying high-yielding emerging market assets."  The went on to say that, "The Australian and Canadian dollars are likely to rise to parity against the U.S. currency."

So, there's one more on the roster that believe Aussie dollars (A$) and loonies will go to parity against the dollar... The loonie isn't exactly the same stretch of a forecast as the A$, as loonies are almost 97-cents right now, with A$'s trading near 93-cents...

Doesn't that make sense given the talk we just had about hyperinflation? What currencies are going to help protect you against hyperinflation? The Commodity Currencies! Aussie, kiwi, Canada, Norway, Brazil and you can even throw in the S. African rand, for those that like rides on Mr. Toad's wild ride!

The folks at Citigroup also had this to say about the euro, which I found to be quite interesting... "The euro will extend gains against the U.S. dollar and the British pound, and may reach parity against the U.K. currency in 6 to 12 months."

I would think that for the euro to reach parity with the pound, it would involve the pound falling quite a bit from current levels... And that makes sense to me... Did you see the report the other day from the U.K. where they reported bank bad debt to be twice the forecast amount? YIKES!

You know... The Asian currencies which never really participated in the first bout of dollar weakness, are still stuck in the mud... Well, they are being manipulated to be stuck in the mud, for the most part... But, something's got to give here sooner or later. Why do I say that? Well, as I've told you for months now, the Chinese economy was the first to exit their slowdown / recession... Shoot Rudy, even Japan is showing signs of economic growth! And then we have India going strong too... And of course you have the "kind of Asian countries" of Australia and New Zealand... Where we already know that Australia has raise rates and New Zealand would love to raise rates... So, this region is leading the world out of the recession... Hmmm... I thought only the U.S. economy was allowed to do that! Uh-Oh, looks like we have a shift in how the world works!

Hey! Even Big Ben Bernanke sees the Asian countries as leading the world out of the global recession! Big Ben said... "Asia appears to be leading the global economic recovery." Hmmm... See, even a blind squirrel can find an acorn! HA!

I had to laugh when I read this headline this morning... "yen rises as Fujii repeats reluctance to stem currency's rise"... I laugh because the last time Japan's new Finance Minister talked about not intervening to stop the yen's rise, he back-pedaled and said that traders mis-took him to say that he was not going to intervene... So, this on again, off again love affair with Fujii and intervention, just makes me laugh! I would think that after getting burned on Fujii comments a couple of weeks ago, that Traders would not get too lathered up when he talks about not intervening...

Ok... Here in the U.S. while we are still a sovereign nation, the cartel, I mean the Fed Reserve, is doing some testing of reverse repos as a means of drawing the excess liquidity / stimulus out of the markets... I don't think we have to put too much into these tests right now... But it will be a method that the cartel uses at some point in the future... The IMF is against removing any stimulus now... So, that may carry some weight with the cartel, I don't know...

Gold prices rose yesterday for the first time in a couple of days, pushing back above $1,060... I would think that until we know for sure that the cartel is removing stimulus, that Gold would remain well bid... When we do know that stimulus is being removed... Gold might take a step or two back... But then we'll have to wait-n-see what happens with inflation...

I read where ETF holdings of Gold are sluggish... Well, that certainly makes sense to me! With what we're seeing these days from our Gov't pushing us toward who knows what (I know, but I get blasted by people whenever I say it out loud), physical Gold is the thing people want right now... And you can't get physical Gold out of an ETF! So... All those people that have long said that the ETF was just as good as holding Gold either in your buried coffee cans in the back yard, or in pooled accounts, are wrong, when it comes to physical Gold demands...

And, don't know about you, but I filled my gas tank the other day, and the price of gas has really shot up recently, eh? And a quick look at Oil prices and that tells it all... Oil prices have risen to $79, while trading at $69 just a month ago! Is Oil the proxy for rising inflation?

OK... To recap... The dollar rebounded a bit overnight, but has given back to a currency rally this morning. Citigroup believes Aussie and Canadian dollars will reach parity to the U.S. dollar. The Bank of Canada meets today. Our fiscal deficit reached 40% of our expenditures, which historically is a harbinger to hyperinflation, and Gold is back above $1,060 this morning...

Currencies today 10/20/09: A$ .9280, kiwi .7545, C$ .9690, euro 1.4975, sterling 1.6435, Swiss .99, rand 7.32, krone 5.56, SEK 6.9350, forint 176.50, zloty 2.7735, koruna 17.1470, RUB 29.15, yen 90.40, sing 1.3890, HKD 7.75, INR 46.11, China 6.8266, pesos 12.85, BRL 1.7360, dollar index 75.27, Oil $79.31, 10-year 3.37%, Silver $17.80, and Gold... $1,065.50

That's it for today... My good, dear friend, Mary Anne Aden, sent me a note last night, that really lit up my day... Mary Anne told me that Richard Russell recently mentioned me and the Pfennig... WOW! When a man as well respected as Richard Russell mentions me and my humble little Pfennig newsletter, then that's a great day! Mike Meyer just came in, returning from a trip to Jacksonville to watch the Rams / Jaguars game on Sunday... He travels once a year to watch the Rams... It actually was a nice day here yesterday with the sun out, and a hint of warmth in the air! The weather forecasters say El Nino is going to keep our winter warmer than usual and dryer than usual... That's fine with me! Well, I've got to go... I hope your Tuesday is Terrific!

Chuck Butler
EverBank World Markets

Posted 10-20-2009 10:07 AM by Chuck Butler