The Markets Ignore Bernanke...
Daily Pfennig

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In This Issue..

* The dollar continues to get bought...                              
* German Investor Confidence weakens...                                    
* The Carry Trade shifts to Japan again...                                        
* More deficit spending...                                                                                                 

And Now... Today's Pfennig!

The Markets Ignore Bernanke...                                     

Good day... And a Terrific Tuesday to you! Not a Terrific Tuesday for the non-dollar currencies though, as the overnight markets have marked them down once again, and favored the dollar... More on that in a minute... I got a chance to meet up with some old friends and co-workers last night, at a holiday party... I had to leave early though, my leg couldn't stand that long... UGH!

OK... The daily noise, has the bias to buy going toward the dollar this morning... For some unknown reason, and I emphasize this here... The markets are not listening to Big Ben Bernanke, when he says that current near zero interest rates will remain for "some time to come"... You see, the markets are under the impression that he's giving us a head fake, and will raise rates aggressively very soon, for the data that has printed recently is of the "need to raise interest rates before inflation takes the economy hostage" kind of stuff...

So... Somehow, the markets don't believe the Fed Chairman... Now, I can't imagine why they wouldn't believe him, can you? HAHAHAHAHAHAHAHA! Of course I can, and so can you! He's made a mockery of Central Banking! But shoot, like the old Hank Williams, Jr. song goes... It's a Family Tradition! For the previous Fed Chairman, Big Al Greenspan, was just as bad, if not worse! He primed the pump, and Bernanke is doing the pumping!

OK, I digress... Somehow, I see this all ending this week though, at least for a while... You see, tomorrow, the FOMC will meet... I think Big Ben will take that opportunity to stress to the markets that not only did the Fed keeps rates unchanged, but that they will continue to do so... I just don't see Big Ben validating the markets' thought process here, that rates will be going up, and not just going up, but going up aggressively very soon...

Now... Here's the tale of two cities... First, I personally think that interest rates should have never gone to near zero... I made this case a couple of years ago, so for you new readers, do not think that I'm doing this with hindsight vision... And... I would have hiked rates long before now... But... That's just me...

On the other side of the coin though, I personally hold to the thought that the U.S. economy will do a double dip, and I think Big Ben sees that chance too, so therefore, he is not going to raise rates now, only to have to cut them again and look like more of a fool than he already does.

OK... So... What's the damage to all of this interest rate hike thought process by the markets this morning? Well, the euro has fallen back to the 1.45 handle, and wasn't given any room to breathe this morning, after German Investor Confidence slipped back to a 50.4 figure from the 51.1 previous month's figure. The report actually was better than forecast (50), but... The slippage, helped euro investors decide to go ahead and take profits...

The other thing weighing on the single unit this morning are the never ending armegeddon  reports from Greece, regarding Greece's debt position... I had a conversation with one of my fave economists last night regarding this situation... And again, just like the Dubai thing, I keep coming back to California, New York, Illinois, and other states here in the U.S. that have debt problems that are just as bad or worse than Greece... Or Spain... Or Ireland... So, therefore, if the media were doing their jobs correctly, when reporting the Greek problems, they would say something like, "but here in the U.S. the world's 8th largest GDP  resides in the state of California, and in California, the debt problems are far worse, which makes this a more dire situation, given the size of California."!

But... I'm dreaming there... So... I go on...

Another thing weighing on the single unit this morning is (you would think that with all this stuff weighing on the euro it would be far worse than 1.4550!) the story out of Austria last night, that Austria had to take over bank (Hypo Bank)...

In Australia last night... The markets got shaken, not stirred, a bit when the Reserve Bank of Australia's (RBA) last meeting minutes were released, and showed that it was suggested that "they could consider a pause at the following meeting."

So... Now we have the tale of two Central Banks... The RBA's minutes were taken as dovish... What will the Fed say following their meeting tomorrow? If the Fed's statements are more upbeat than the RBA's, the A$ could suffer... I personally don't see that happening, but... You never know!

The Japanese yen is weaker overnight too, which is opposite from what has happened any time the dollar has rallied in the past year... I think that all the talk of the Fed moving to aggressive rate hiking, has squelched the dollar carry trades, and probably pushed them to the Japanese yen, where there hasn't been any sign to raise rates since... Well, come to think of it, my youngest son is 14, and in his lifetime, the Japanese have not raise rates!

So... Do you remember the Carry Trade? Well, it was a risk trade that involved selling a low yielding currency to buy a high yielding asset... The currency that was sold was the "funding currency"... This was huge before the financial meltdown of August 2008... Earlier this year, the dollar replaced the yen as the funding currency, for the dollar was losing ground so fast, and yen was gaining ground. If the funding currency is losing value, then it makes the trade even more profitable, for the person that sold the currency short, can buy it back to unwind the trade, at a cheaper level!

But, all this talk of the Fed moving on rates soon, has scared the bejeebers out of the dollar carry trade folks, and... They have, it appears to me, unwound them in favor of yen carry trades once again... That means, the dollar gets bought to unwind the trades, and yen gets sold...

This is what it looks like to me folks... I could very well be way off base here, but I've got my eye on the pitcher, and don't think I'll get picked off here!

Hey! Have you noticed the financial institutions lining up to repay the TARP money they took from the Government? Citicorp, and Wells Fargo so far, and there will be more... These financial institutions have gone "cold turkey" on the cocaine of TARP! The Government was akin to the drug dealer, holding out the cash for these institutions at very low rates of interest, and once they institution took the "cocaine" they found out that it came with strings attached... Drug dealer / Government intervention in how their institution would run!

So... These institutions are going "cold turkey" and giving up the "cocaine"...

And.. The fact that they can do that, is what makes me so darn angry! If the Government hadn't just held out the drug for them in the first place, maybe these institutions would have figured out how to survive without the drug! But nooooooooo! The Government made it too easy for them to take the drug, and make it all better, without the pain!

Ok... I'm not going to carry on with this... Just thought it was interesting... And I just love the fact that Treasury Sec. Geithner, says now that the $700 Billion financial bailout will end up costing taxpayers "no more than $140 Billion." HEY TIMMY! IF IT COST TAXPAYERS $1 IT WAS TOO MUCH YOU DOLT!

Besides... That $700 Billion bailout package was suppose to keep unemployment at 8.5%... Hmmm... So, taxpayers paid $140 Billion for nothing! Unemployment, if calculated correctly is around 17%!

OH! And speaking of wasted days and wasted nights, along with wasted money... I read a story on the Bloomie this morning that says that Fannie and Freddie's federal regulator is renegotiating the companies' financing plan with the U.S. Treasury Department and may seek an increase to their $400 Billion federal lifeline before the end of the year.

So... Here's another thing that just gets me all ticked off... The Gov't took over Fannie and Freddie... And they've already run through a good portion of their $400 Billion "back up" money... So, it's just another example of how "well" the Gov't runs things...

And then... That brings me to this... This past Sunday, the U.S. Senate voted to pass a government funding bill that pumps $1.1 Trillion into the government... Now... Haven't I screamed and yelled enough about our national debt? Are these guys trying to see if they can make my heart explode? And get this... There will be all kinds of pork added to this bill  before it gets the final stamp of approval...

So... Why is it that American people aren't storming the streets with their pitchforks and rakes, and chasing their Senators down the streets? This is nothing more than more deficit spending that just increases the chances that this country goes belly up in the future... Is that what you want for your grandkids?

I shake my head in disgust... I really do...

So, in the end folks, it goes like this... There may be dollar rallies, there may be times when everything is coming up roses for the dollar, but in the end, when the music stops, there won't be a chair for the dollar to sit on... So, don't let this "noise" cause you to lose your focus on the horizon, and the long term slippery slide the dollar will be on some day...

Then there was this... Last week, when I spoke at the Plan B Conference here in St. Louis, I was talking about Gold... And I had heard a quote by an old friend, Jon Nadler, about Gold that I just had to repeat to the people... That if you're buying Gold for the right reason... There's no wrong time to buy it... I explained it like this... If you're buying Gold because your neighbor down the street said he bought it and made a 20% profit in a week, then, that's what I'm talking about...  If you're buying it as a diversification tool for your investment portfolio to provide insurance against, dollar depreciation, inflation, deflation, and uncertainty in the world, then that's the right reason!

To recap... The dollar is stronger this morning, on thoughts that the Fed will go on an aggressive rate hike campaign shortly, due to recent economic data. Bernanke could throw cold water on those thoughts at the FOMC tomorrow. The euro has a number of things weighing heavily on it this morning, but has shown resiliency in dealing with these items, and it looks like the carry trade is getting shifted from a dollar carry trade to a yen carry trade once again.

Currencies today 12/15/09: American Style: A$ .9075, kiwi $.7220, C$ .9405, euro 1.4545, sterling 1.6235, Swiss .9620, European Style: rand 7.4735, krone 5.8350, SEK 7.1810, forint 190.35, zloty 2.87, koruna 17.9150, RUB 30.21, yen 89.40, sing 1.3950, HKD 7.7525, INR 46.71, China 6.8280, pesos 12.79, BRL 1.7595, dollar index 76.86, Oil $69.69, 10-year 3.55%, Silver $17.20, and Gold... $1,114.60

That's it for today... It's always fun to catch up with old colleagues, and that's what I got the chance to do last night... The funny thing from the get together was one of my old bosses, who was telling me that he remembered when I had back problems, and he was having them now... I reminded him that he once accused me of "milking" the physical therapy after back surgery... He apologized, and said that he "now understood"... Thanks to Mr. Dubinsky, Mr. Trotter, and Mr. Lissner, for putting that together! A Happy Birthday to my younger sister, Terri, today... She just had surgery for her breast cancer, and will begin chemo after the holidays... But! She's here now, to celebrate her birthday! My youngest sister, Joanie, just had knee surgery, so man, we're all falling apart! UGH! OK... Enough of the family talk... Time to get this out the door... I hope your Tuesday is Terrific!

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





Posted 12-15-2009 9:43 AM by Chuck Butler