High Yielders Rally...
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In This Issue..

* Is it Game On for Carry Trades again?                            
* A Trade-Free Zone for Southeast Asia!                                   
* 10-year yield rise will shut down the mortgage rally...                                         
* A min-rally for the euro this morning...                                                                                                    

And Now... Today's Pfennig!

High Yielders Rally...                                       

Good day... And a Terrific Tuesday to you! I'm already draggin' the line today on the 2nd day back from vacation! UGH! The High Yielders are back to work this week, as the currencies of Australia, South Africa, and Brazil are attempting a come-back VS the dollar. This and more, as we head into the last Tuesday of 2009...

Well... The last Monday of 2009, was uneventful with the currencies remaining in Tupperware ranges (tight that is!), and with little to show in the way of any measurable appreciation VS the dollar. There was no sign of the U.S. Corporations repatriating their profits yesterday as was rumored... Of course they still have today, tomorrow and Thursday to do so...

The exception to that rule are the 3 high yielders I talked about in the intro to today's letter. Yesterday, I reported that the Aussie dollar (A$) was the best performing currency overnight, with Brazilian reals right behind... This morning, we have South Africa joining the party...

This, to me, is a sign... A sign that some risk taking is going on, and most likely in the form of Carry Trades... Just look at how the high yielders have gained ground VS the dollar... The other side is to look at how the Japanese yen has softened VS the dollar...

This is where the "crosses" that I've talked about endlessly in the past about, come into play... Currency crosses that feed back to dollars, and so on... For instance, if you are a German in Frankfurt, and want to sell your euros, and buy Swiss francs, that's a "currency cross"...

OK... Enough of that! I read a story last night, that was quoting an interview with a currency trader in London, who believed this dollar rally to be a "head fake", that was fueled by year-end position squaring, and profit taking... I would have to say that I truly believe that to be the case too... But... How long the "head fake" lasts, is the question... And that, I don't have an answer for... But... In my heart of hearts, I can't believe that it would take too much longer to get through it!

About 6 or 7 years ago, the Big Boss, Frank Trotter and I sat down to discuss Asia joining together, Eurozone like, to form a Union, and create their own single unit currency, we called "the Pan"... These thoughts were published by the good folks at the Daily Reckoning (www.dailyreckoning.com) and while they were good thoughts, most thought it was something that would never happen, given the animosities between Asian countries... But, looky, looky, what I see this morning!

The ASEAN (Association of Southeastern Asian Nations) has announced that they have created a free-trade zone for Asian... For now, the Asian free-trade zone will be behind those in the Eurozone, and the North American Trade (NAFTA). On a sidebar... Remember when Ross Perrault tried to tell us to listen to the "sucking sound" of jobs going to Mexico, if we signed NAFTA? Everyone thought he was a little whacky, and he was sent to the sidelines...

OK... So... This could be a BIG DEAL for Asia, eh? I think so...

Yesterday, I talked to you about the 10-year Treasury's yield rise, and the overall losses in Treasuries / safe haven trades... The thing I totally forgot to mention about all this is that the next shoe to drop here is with rising yields, mortgage rates are going to have to rise, and that will pull the rug out from under the housing rally that has never really been on terra firma any way...

We wouldn't see that for a couple of months though, because in mortgages, there's a pipeline of mortgages that have not closed yet, and have already had their interest rates locked in... So... Today's S&P/CaseShiller Home Price Index for October, isn't going to be close to recognizing the yield increases... But, I'll a bet a dollar to a Krispy Kreme, that the media will have not done their homework on this, and will tout the recovery of Housing should the data today indicate rising home prices... This is one where we'll have to wait-n-see... But, with 10-year yields on the rise, mortgage yields will follow, you can take that to the bank!

And... When all that begins to hit the fan once again, what's the Fed going to do then? Their balance sheet of mortgage backed toxic debt has grown to monster size... Something's got to give...

I've been watching the euro push higher VS the dollar this morning... And again the range is tight, but still the single unit has pushed up 1/4-cent while I was writing this morning. I'm sure that this will fade out as we go along today, as there just aren't enough 1st chair traders around to feed this rise... I thought I would use a music term to describe traders...

I've received a ton of requests over the years to add S. Korean won to the list of currencies that are offered by EverBank. The problem being is quite simple... The S. Korean won is illiquid, in that it is not traded freely and convertible... It's traded on what's called a "non-deliverable forward", which is exactly what it says... You can't deliver won! And yes, I know that we currently offer a handful of currencies that are "non-deliverable", but... The difference is the number of dealers that will take positions and make bids and offers...

One day the S. Korean won will be "mature" enough to offer... Until then we can only marvel at their Current Account Surplus...

The price of Oil is higher again this morning. I was reminded of the recent gains in the price of oil, as I filled up my car's gas tank this morning on the way to work. But, the price of Gold is off from yesterday's levels this morning... So the give-and-take for the Canadian dollar / loonie remains... But with the U.S. dollar under some pressure this morning, the loonie is getting brought along for the rally...

And don't look now, but the A$ is climbing ever-so-close to that 90-cent mark once again...

This could be one of those days, when with little volume, and no 1st chair traders (except me!) around, that we could see some wild swings... You could see one or two major players come in and try to move the currencies... The euro, has gained another 1/8-cent since just minutes ago, when I said it had gained 1/4-cent!

So... Almost to the Big Finish, and not one mention of deficit spending in the U.S.... But that's going to stop right here! Did you see where the U.S. is scheduled to post a $2.5 Trillion deficit in 2010? If that doesn't make you ill, or cough up your coffee, juice or milk, then you've become comfortably numb with these deficits, and I'm afraid there's no cure... I'd call the doctor if I were you... Oh! The doctor said he's coming but you gotta pay him cash!

I don't think the U.S. has that much in reserves! In fact, I know that they don't! So, not only will the Gov't be spending more than the revenues they take in, they will be spending more than the reserves of the U.S.

Now again, you've got to demand that this deficit spending stop!

You know the founding fathers of this country were pretty smart dudes... They put the spending power in the House of Representatives, and made the Representatives come up for election every 2 years. That way, if they were spending money against the wishes of their constituents, the constituents would not have to wait long to throw them out of office! And... With that thought, and see placed... I'll head to the Big Finish!

And then there was this... Jean-Claude Trichet, president of the European Central Bank (ECB), said the 16 nations that use the euro need to cut their budget deficit within the next couple of years. "In the Eurozone, budget deficits should be reduced in 2011 at the latest, in some countries already in 2010, to preserve faith in state finances," Trichet said. "In Europe and around the world, there are lessons to be learned from the financial crisis to make the financial system more resilient."

Once again, the ECB being more credible than the Fed...

To recap... The High yielders are pushing higher this morning VS the dollar. Aussie, Brazil, and South Africa lead the high yielders push. The Southeastern Asian nations are coming together to form a free-trade union, and could this be one of those "wild swings" days in currencies? Stay tuned, same bat time, same bat channel!

Currencies today 12/29/09: American Style: A$ .8975, kiwi .7175, C$ .9625, euro 1.4445, sterling 1.60, Swiss .9720, European Style: rand 7.4060, krone 5.7650, SEK 7.1580, forint 188.50, zloty 2.8735, koruna 18.2590, RUB 29.95, yen 91.60, sing 1.4025, HKD 7.7555, INR 46.66, China 6.8290, pesos 12.96, BRL 1.7280, dollar index 77.41, Oil $78.92, 10-year 3.85%, Silver $17.47, and Gold... $1,106.15

That's it for today... I totally forgot to mention yesterday, that it was really exciting watching former Mizzou Tigers Quarterback, Brad Smith, (who now plays for the NY Jets)  run back a kickoff 106 yards for a touchdown the other day! Tre' cool! And... I know that I mentioned it before I left, but the day after Christmas is my beautiful bride's birthday... I think she enjoyed her day... Pretty tough having your birthday so close to Christmas! Do you have plans for New Year's Eve? Please be careful if you plan on going out. I want you back here for 2010 and beyond! My other project that I work on, The Currency Capitalist, is really taking off with regards to subscribers... That puts a smile on my face, and that of my publisher... Right Erika? The "editor" of the Currency Capitalist, Kat, does a fabulous job of taking my thoughts, and putting them into something people might want to pay to read! Did everyone like my offering of a Christmas Pfennig? I know the formatting of the poem didn't come out right in the Pfennig, and the meter, and rhyme wasn't exactly great, but when you have to work with so many names it's not easily done! OK.. Enough of this... Time to get this day going toward a Terrific Tuesday!

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





Posted 12-29-2009 9:42 AM by Chuck Butler
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