Exceptionally Low For An Extended Period...
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In This Issue..

* Old Trading Theme rises up again...                                       
* Currencies sell off then rebound overnight...                                         
* U.S. New Homes Sales Decline...                                             
* It's somebody's birthday today!                                                                                                          

And Now... Today's Pfennig!

Exceptionally Low For An Extended Period...                                            

Good day... And a Tub Thumpin' Thursday to you! Yes, it's me... I thought it best to cancel my San Antonio trip, so Jen can get to Florida to be with her family. This is the second time that I've backed out of speaking engagement with this private group, I sure hope they don't think I'm avoiding them!

Front and Center this morning... It's Chris Gaffney's Birthday! So... This will be the "Chris Gaffney Birthday Edition of the Pfennig"! Chris is 10 years younger than me, so yesterday when he said "I'm an old man now" I about fell out of my chair! He's not even 50! Oh well...

For Chris' Birthday, I'm going to buy him lunch, and... Talk briefly about the State of the Union Address, only to the extent of how it affected the currencies, and the FOMC statement yesterday, and other things... Just for Chris' Birthday! HA!

OK... Yesterday, I told you how the currencies were in "lock-down" mode, awaiting the FOMC statement and the State of the Union Address (SUA, I'm getting tired of typing the whole thing, so to take a page out of my friend, the Mogambo Guru's book, it's now SUA).

Well, the "lock-down" mode got "unlocked" when the Fed said that they (the Fed Heads) would keep interest rates "exceptionally low" for an "extended period". That got the markets spooked a bit, as they thought this was a message from the Fed Heads that they see something that would require interest rates to remain "exceptionally low" for an "extended period"... And that brought about some of the tired old trading that we saw for most of 2009, in which, when things get dark, and dangerous, the Risk Assets get sold, and dollars are bought...

For some time now, we kept getting mixed signals that this tried old trading theme was a thing of the past and fundamentals were creeping back into the markets... But this move yesterday proved that to be wrong...

So... Dollars were bought the rest of the U.S. session, and into the Asian session, with the euro falling to 1.3930 in Asian trading... But then, things turned on a dime, and someone realized that the U.S. President, had spoken a softer tone with banks in his SUA, and that goosed stocks, and got everyone feeling a bit better about the whole thing, and saw "risk assets" rebound, with the euro recovering back to 1.4050. (it's back to 1.40, as I write)

The high yielders got a boost when the "exceptionally low" for an "extended period" words were spoken. Currencies like the Aussie dollar (A$) moved back above 90-cents, and so on...

There was a "dissenter" among the Fed Heads yesterday... Kansas City Fed Head, Thomas Hoenig, called for an increase in the Fed Funds interest rate, "sooner rather than later"... Now... There's a Fed Head you could kind of get to like, eh?  Hoenig voiced that inflation could surge within a few years with the economic recovery gaining strength and the benchmark interest rate at this "exceptionally low" level...

Of course, he didn't say how he thought that might upset the applecart with regards to the Unemployment problem... My guess is he didn't think about that...

Hey! Did you hear the news? It's Chris Gaffney's Birthday!

You know... I did some more research into the President's proposed "spending freeze", which I believe is nothing more than rearranging of the deck chairs on the Titanic... They've increased their deficit spending by such a large percentage in the past year, that "freezing" it here, doesn't account for a hill of beans! Defense, Medicare, and Social Security aren't a part of the "freeze"... And they are the 3 biggest hits to the budget! So... In the end... This "freeze" accounts for about $250 Billion over 10 years... That's chump change folks...

Over that same period, some $9 Trillion is expected to be added to the government's debt pile. Which is to say the "freeze" will reduce the total deficit spending anticipated over the next decade by some 0.027%.

Don't get me wrong here, I'm glad it won't keep going higher... But, it certainly isn't getting "cut"... And that's what we need to hear, not all this sex, lies and videotape about a "spending freeze"!

I was thinking about this on my way to work this morning, as to how I would talk about it, and then a Pink Floyd Dark Side of the Moon track came on the radio, and the words just stuck in my mind that it has so much to do with all this going on these days, with the AIG, NY Fed, the Treasury Sec. the Fed Heads, and anyone else you want to throw into the pile... Pink Floyd - "Haven't you heard... It's a battle of words, and most of them are lies"...

OK... Yesterday, we saw U.S. New Home Sales decline 7.6% in December... Add this to earlier this week when we saw Existing Home Sales plunge! Is this what you would expect to see if your housing sector was recovering? I don't think so! As I said the other day, I fully expect to see Housing do a double dip, and home prices to fall another 10%... With all this unemployment, and foreclosures, etc. it's just not the environment for a housing recovery, folks... I'm sorry to be the one to have to tell you these things, because you won't see or hear about this on the dumbed down major media... (well, maybe on one channel, but I won't get into that!)

Oh! And the period to sell the inventory of homes was extended in December to 8.1 months from 7.6 months in November... Yes, this is better than a year ago when the period was 12.4 months... But, if I'm correct, we'll see this continue to tick up toward that 12.4 months figure once again.

Well... Yesterday, I was reading a newsletter from one of my fave writers, and friend, Steve Sjuggerud... Steve has coined an acronym for the problem children of the Eurozone... He calls them the PIGS... Portugal, Italy, Greece, and Spain... Many, many years ago, I before the Eurozone came to be in 1999, I used to write about these countries and referred to them as "Club Med"...

Any way... Steve is convinced that the debt problems of the PIGS is going to weigh too heavily on the euro, for the euro to remain at current levels... Steve isn't the first to think this, nor will he be the last... And... I have to agree that IF THE CLUB MED DEBT PROBLEMS CAN'T BE FIXED, then the euro will suffer...

But that's a BIG IF, to me... So... Tread carefully here... For, the euro is the offset currency to the dollar... So, you can't have a weak dollar with a weak euro, it just doesn't work that way! So, if you believe the euro will suffer, then you are thinking that the dollar is going to rally... And that may be... But like I said yesterday... The U.S. needs a weaker dollar to be able to pay just the interest on our debt... And if you don't believe that you're dreaming... But... We could see a dollar rally... Shoot Rudy, we saw one in 2005 that lasted about 10 months... We saw one from August 2008 through Feb 2009, which was 6 months... But each time, the dollar returned to the underlying weak trend...

And... For months now, and I do mean months now, I've told you that a stock sell off could cause an adverse affect in the currencies' values & gains since March of last year... I know I certainly sounded like the boy who cried wolf, quite a few times in the past 6 months, as I kept calling for a stock sell off...

We did get two mixed pieces of data from the Eurozone this morning... First... Germany's unemployment rose this month, the first increase in unemployment data since June of last year... Germany, the Eurozone's largest economy, saw their unemployment rate rise to 8.2% from 8.1%...

On the other side of the coin, Eurozone Confidence in the economic outlook posted a 10th consecutive month improvement! The index of executive and consumer sentiment increased to 95.7 from 94.1 in December...

So... Apparently, the problems of "Club Med" aren't being seen as too big of a deal by the people in the Eurozone... Hmmm... Which means either they are wrong, or those calling for a meltdown are wrong...

Here in  the U.S. today, we not only will be celebrating Chris Gaffney's Birthday, but also looking over some data prints... It's Thursday, so that means the Weekly Initial Jobless Claims will print, we should expect the huge jump in last week's data to correct this week. We'll also see the color of December Durable Goods Orders, which should be pretty good, given the other data we've seen...

Gold has dropped below $1,100, and Silver has dropped below $17, both, are blue light specials, in my mind...

Then there was this... I received a note from a Latin American Currency dealer yesterday, telling me that his trading desk believes that the Brazilian real is now "oversold"... Hmmm... You have to be careful about these claims from trading desks, as they could very well be long reals, and need them to rally to unload them, so they kind of "nudge" the markets with a call... But then this looks to be legit, as the BRL's RSI has reached an oversold level of 77. (RSI is the relative strength index, that measures assets in a range, and when they reach certain levels, they flash either oversold or overbought)

Now... I'm not a HUGE believer of this stuff all the time, but taken along with other things, it can be helpful...

Currencies today 1/29/10:  (Chris Gaffney's Birthday): American Style: A$ .9030, kiwi .7125, C$ .9465, euro 1.4010, sterling 1.6245, Swiss .9520, European Style: rand 7.5675, krone 5.8380, SEK 7.2725, forint 193.70, zloty 2.9030, koruna 18.7120, RUB 30.33, yen 90.20, sing 1.4010, HKD 7.77, INR 46.35, China 6.8267, pesos 12.92, BRL 1.8470, dollar index 78.70, Oil $73.92, 10-year 3.67%, Silver $16.71, and Gold... $1,091.60

That's it for today... My little buddy, Alex, is doing a presentation in school today, and his assignment was to document the British Invasion of the 60's... Geez Louise, I never got to work on an assignment like that when I was in school! He's got all my Beatles CD's, and Rolling Stones, and I even gave him a band that not many people know were a part of the British Invasion, The Dave Clark 5! Well, he put on his Beatles' wig, holding his guitar, and kind of looked the part! Suzy Q just walked in, and was surprised to see me in the saddle... She said, "well it's good to see you"... I said, "it's good to be seen!"  Which is what I used to say to everyone right after my cancer surgeries... But I've kind of gotten past that, until this morning! OK... It's a big trading day on the desk here, so, I've got to get going... I hope your Thursday is Tub Thumpin'!

OH! And I almost forgot... Happy Birthday, Chris!

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





Posted 01-28-2010 11:03 AM by Chuck Butler