German Investor Confidence Fades...
Daily Pfennig

Blog Subscription Form

  • Email Notifications
    Go

Archives

.........But First, A Word From Our Sponsor..........
Chuck Butler Will Help You Create Your Own "Dollar Oasis" in Just One Weekend

This February 25 to 27, Chuck Butler is partnering up with The Sovereign Society to hold an intensive, 2-1/2-day currency boot camp in Scottsdale, Arizona.

Why are we doing this?

Simple - to give you the tools to protect your investments from the perils of Wall Street and the destruction of the dollar, and to grow your wealth no matter what happens in the stock market.

Visit http://www.worldcurrencywatchfxu.com/main/ for more information.
......................................................

In This Issue..

* The dollar rallies on weak German data...                                   
* Stronger overall data for the U.S. last week...                                      
* JAL files bankruptcy and yen rallies...                                           
* Bank of Canada meets today...                                                                                                         

And Now... Today's Pfennig!

German Investor Confidence Fades...                                            

Good day... And a Terrific Tuesday to you! I hope you all had the opportunity to enjoy a 3-day weekend... I realize that not everyone has the opportunity, so I don't want to sound like I'm rubbing it in... It's really foggy outside this morning. I live in a little river town outside of St. Louis, and we get fog there all the time, but once I cross the river, it dissipates quickly... But not this morning, the fog was with me all the way to work! Something right out of an old-time horror movie with Lon Chaney...

Well... Yesterday, I was doing quite a bit of reading, after suffering "football overload", which by the way, were not very good games... Sure, good for the winning teams' fans, but I didn't have a dog in any of those fights, so I just wanted to see a good game, only to be disappointed... OK, now back to my reading...

I was reading a good, thoughtful story about how currency swings could be dying down, as we return to fundamentals... You know, me... I jumped from my chair, and click my heels together in joy! OK, no, I'm not physically able to do that any longer, so I did it in my mind! But a return to fundamentals? I'm all over that like a cheap suit! One of the fundamentals that the story highlighted that would be taken into consideration by traders, would be interest rate differentials... Which, I've always considered to be a strong reason to own a currency, but not the "end-all"...

There's a currency purchasing program that's called the "Max Yield program"... In the Max Yield program, a currency holder buys the highest yielding foreign currency each year... It may be the same currency come the next year, or it may be different, which would require one to sell / cross one currency for the other, and then hold the new one for one year...

I've never been a HUGE fan of this program... But, there are years that this program kicks tail, and others when it gets sand kicked in its face! So... I just want you all to know that I'm not advocating this program... Just, making you aware of it...

So... Interest rate differentials, eh? Well, that would put the Aussie dollar, Brazilian real, South African rand, Mexican peso, Norwegian krone, and a Johnny come lately, the New Zealand dollar, which will see at least 3 rate hikes before summer, in my opinion that is...

Now, of all those currencies that currently have yield, we could play the old Sesame Street game about one of these things is not like the others... And that would be the Mexican peso, which is about as corrupt a Government as you can get (even more corrupt than South Africa? WOW!), a depleting oil supply, and a close tie to the U.S.... I would be careful here...

Of course saying that though doesn't take into consideration the 9.3% gain the currency has made VS the dollar in the last year... Add in the interest, and you've got a better than 10% annual gain in this currency, that I just said to be careful with...

OK... Now, onto other things... Friday's currency trading saw the dollar remain in the driver's seat, and the Big Dog, euro, was not able to regain the ground to 1.44, instead remaining below that figure all day... In yesterday's thinned out Holiday trading, the euro did gain back ground to 1.44 and stayed there all day, and night, until this morning...

This morning, we had German Investor Confidence, as measured by the think tank, ZEW, decline more than economists had forecast for the data in January. German Investors are of the belief that the economic recovery is showing signs of losing momentum... This weak reading of Investor Confidence, caused the euro to fall back below 1.44...

I saw this report, this morning, and said to myself... "self, apparently, these guys can see the trees in the forest, as opposed to the people that the U.S. Consumer Confidence survey contact! But... That's just me...

There are a couple of currencies that have gained VS the dollar overnight... The Japanese yen, even in the face of the announcement that JAL (Japanese Airlines) was going to announce bankruptcy... And the U.K. pound sterling...

Seems the pound sterling is getting some love from those exiting the euro because of the problems in Greece... It's the "euro-lite" currency, that does not have a Greece in its closet... However, the U.K.'s problems have all been taken out of the closet, that we know of, and I still wouldn't touch them with your ten foot pole... But, that's not stopping buyers of pound sterling, as it rises to 1.6380 this morning...

Last Friday... I know, it seems so long ago now... The data cupboard yielded some interesting data... The stupid CPI report came in at +2.7% annual inflation... I have to hand it to the Bureau of Labor Statistics, you know, the people that cook the labor data books, also produce the data on CPI... I have to hand it to them, they had to work long, and hard, to come up with 2.7% annual increase in inflation...

I wonder how these things came into play?

In the last 2 years...

Food and beverage prices increased 5.6%
Cereal and bakery prices increased 11.5%
Sugar and sweets prices increased 11.8%
Cooking oils prices increased 11.6%
The cost of medical care increased 6.7%
Medical care services increased 7.1%
Hospital services increased 14%
The cost of education increased 10.7%
Educational books and supplies increased 14.9%

Here's the thing that I've told you for years now, but for the benefit of new readers, and... A refresher... Inflation should be an individual thing... How does it affect you? Maybe you didn't use any of these things I just listed, but instead, found that movie tickets had increased by X amount, and you're an avid movie buff... Inflation hit you hard!

The CPI data has been chopped, diced, and shredded into what the Government wants... Low inflation, to make us all "feel good", and keep them (the Gov't) from paying out huge money to people receiving payments from the Gov't that are tied to CPI! I just did a HUGE piece on this in my "other" newsletter, The Currency Capitalist... So, I'm loaded for bear, with this one... Don't get me started!

We also saw the data cupboard yield, Industrial Production, +.6%, and Capacity Utilization 72%, for December... Both, good signs for the U.S. economy, I must say... The U. of Michigan Consumer Confidence number was less than expected at 72.8 VS 74 expected... The markets paid more attention to this number than the Industrial Production and Capacity Utilization reports, which I found to be typical of these dolts...

Today, we'll see the TIC Flows (net security purchases by foreigners) for Nov... It's expected to increase over October's awful figure of $20.7 Billion... But, it would need to increase quite a bit to even cover just the Trade Deficit, which posted last week at $36.4 Billion!

You know, I've made a BIG deal out of this data in the past, but realized that the markets just weren't paying attention to it any longer, becoming comfortably numb... With the data that is supposed to give us the pulse on whether the U.S. is financing its deficit or not... One of these days, Alice... To the Moon! That's what will happen when the deficit is not being financed... Someone that holds the IOU's is going to knock on the door, and want to see the books...

Let me explain what I see for the U.S. this year in this regards... The CBO has already said the Deficit this year will be $2 Trillion, and that's before Health Care's $1.5 Trillion price tag... So... If Health Care goes through, (heaven help us) that's a total of $3.5 Trillion in new financing that the U.S. will have to deal with... Who on earth, I ask politely, is going to step up and do another $3.5 Trillion in loans to the U.S.? Just keep thinking about that one, folks...

OK... I had better steer away from that furthering that discussion right now...

In Canada today, the Bank of Canada (BOC) meets... I don't expect any rate move here this month, and in fact, it might be déjà vu all over again when the BOC issues a statement that's identical to the one issued last month... "persistent strength in the Canadian dollar could act as a significant further drag on growth and put additional downward pressure on inflation"   Hey! At least they dropped that stupid statement about interest rates not being raised until the next Blue Moon or something like that!

Above, I talked about my thoughts regarding interest rate hikes in New Zealand this year... Well, we'll see the color of the first piece of data that would lend itself to increasing the chances of interest rate hikes sooner than later, this morning when 4th QTR CPI prints... A higher print of inflation would increase the chances that the Reserve Bank of New Zealand (RBNZ) moves on rates ahead of expectations... (as you can tell, I'm of the opinion that the RBNZ will have to move ahead of expectations... We'll just have to wait-n-see, eh?

Then there was this... My long-time friend, John Mauldin, was writing about the deficits, and the Fed removing quantitative easing in his Friday letter last week, then he came to currencies against the dollar... Let's listen in...

"So, where are the strong currencies going forward? The Canadian dollar is on its way to parity. I would want to own the Aussie, if I was a trader. Maybe the Swiss franc, although it is so high on a parity-value basis right now.

But the currency I want the most if I am a central banker is that barbaric yellow relic, gold. Just as India has recently bought 200 tons of gold, I think central banks in other emerging nations will want to buy more, too. They all have relatively little gold as a percentage of their reserves. Look for that to change."

To recap... The dollar held onto its gains on Friday, was sold briefly yesterday in thinned out markets, but bought again overnight, as German Business Confidence weakened pushing the euro well below 1.44, which it traded all day yesterday. New Zealand prints 4th QTR CPI this afternoon, and will go a long way toward moving rates higher should it be stronger than expected. And the Bank of Canada meets today, with no rate movement expected, and a repeat of last month's statement...

Currencies today 1/19/10: American Style: A$ .9205, kiwi .7365, C$ .9720, euro 1.43, sterling 1.6340, Swiss .9685, European Style: rand 7.4230, krone 5.70, SEK 7.0825, forint 187.40, zloty 2.8165, koruna 18.0970, RUB 29.69, yen 90.80, sing 1.3910, HKD 7.7625, INR 45.80, China 6.8274, pesos 12.71, BRL 1.7765, dollar index 77.46, Oil $77.97, 10-yr 3.68%, Silver $18.58, and Gold... $1,132.20

That's it for today... This past weekend was my youngest brother Mike's 40th birthday... Mike was born when I was in High School, so I was moved out and married when he was growing up... His fiancé, had a nice party for him... HEY! 24 returned Sunday and Monday night! 4 hours into the 8th day, 20 hours to go! Besides sports, this is what I turn the TV on for! Our Blues won one and lost one this weekend... Can't make the playoffs doing that! There's a HUGE election in Massachusetts today... The President even went to the state to campaign for the Democrat that's running... Hmmm... Oh well... HEY! Only 51 days until I leave for spring training! And... Only 4 weeks till pitchers and catchers report... Now, that will warm you up on a cold winters day! Well... It's that time again... I hope your have a Terrific Tuesday!

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





Posted 01-19-2010 10:05 AM by Chuck Butler
Related Articles and Posts