Japanese Investment Trusts To Buy A$'s?
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In This Issue..

* Currencies recover from Discount rate hike...

* Gold recovers too...

* An idea for Greece...

* Loonies fueled by Oil and Gold...

And Now... Today's Pfennig!

Japanese Investment Trusts To Buy A$'s?

Good day... And a Marvelous Monday to you! Happy Birthday George Washington! One of my fave past Presidents for sure! And I'm so excited about this, it can't wait until the last paragraph... How about that U.S. Men's Hockey VS Canada game last night? WOW! I had a reader ask me a couple of months ago why I didn't mention the U.S. Under 20 men's hockey Championship, which came against Canada... So there, hopefully I made up for that missing comment!

Well... Front and Center this morning... Let's start with this... Consumer prices rose 0.2% in January, equaling the increases in December and November. Market expectations going into the report had been for a slightly larger 0.3% rise. Core prices surprisingly fell 0.1% in January following the 0.1% rise recorded in December and the flat reading in November. On a year-over-year basis, the overall CPI index rose 2.6% in December.

That's funny... I recall just the day before, seeing wholesale inflation running at an annualized rate of 16.8%... And Consumer inflation is falling? THIS is why I say CPI is stupid, and not even worth printing any longer!

The "lemmings" in the markets followed CPI, and thought, that they had overreacted to the wholesale inflation figure the previous day, and began to sell dollars and buy higher yielding assets... Sure... They got it right in the end, but the damage to the currencies the previous day, well... That's water under the bridge I guess...

Last night, between periods of the hockey game, I was doing some reading, and came across a story that caught my eye regarding the Aussie dollar (A$)... It seems that Japanese Investment Trusts are in the process of raising the most money since 2008, which they use for investing in foreign assets. So... Look for the these Japanese Investment Trusts to lean toward higher yielding currencies, and favoring Aussie dollars over the rest of the high yielders.

The report went on to say that Brazil would the second destination of these funds...

The U.S. dollar strength last week, (if you take out the PPI print day) seemed to abate a bit... At one point last week, the euro was trading below 1.35, and has since recovered to 1.36... I don't think the euro is out of the woods yet... In fact, I'm quite certain that it's not even near the edge of the woods, but it's always nice to see a bounce here and there, when a currency has become everyone's piñata!

A quick look this morning at the price of Oil tells me quite a bit about why the Canadian dollar/ loonie is screaming higher again this morning. Oil is almost $80 this morning, and the loonie is more than 96-cents! Gold is also up this morning adding to Friday's very nice gain, and is trading, as I type, at $1,122.90... I've said for so long now, that as Gold and Oil go, so goes the loonie... A key to trading it I would have to believe!

I had a reader send me reminder that there are currencies in the Eastern Bloc like Poland, Hungary, and Czech Republic, that I tend to forget to write about... Like I've said many times in the past... These three "euro wannabes" are tied to the euro's tracks... And... As the euro goes, so goes these three... Having said that though, there is movement among these currencies VS the euro, and the stronger they can get VS the euro, the better their conversion rate will be when they finally convert to the euro... And Poland seems to be the frontrunner of these three when it comes to gaining VS the euro...

In keeping with the discussion of the "euro wannabes" this morning... The Polish Central Bank's Monetary Policy Council issued a report last week, saying that "the time for monetary policy tightening may be approaching." Hey!, so they've got that going for them!

I was also reading a report from a "think tank guy" that had an idea about what Greece should do... The writer had the idea that Greece should leave the euro, devalue the drachma (their old legacy currency and what they would need to go back to) by 25%, allow the cheaper drachma to work out the payment of debts, and then in a couple of years, join the euro again...

I was telling a reporter from the Wall Street Journal on Friday about my "slowest buffalo" theory for the Greece... You know, the slowest buffalo gets killed, but it makes the herd faster? Well... Greece is the slowest buffalo... They get axed, and the rest of the European Union is stronger... Makes sense to me!

Back to reality with Greece for a minute... Today a delegation from the EC, ECB and IMF arrives in Athens to assess progress... I think Greece and the EU (European Union) are in dispute as to what Greece needs to do... If I were leading Greece, I would either listen to what the EU says... Or leave the euro... I wouldn't stand there arguing with them!

I sure ran into a hornet's nest with my inclusion of my friend's, David Galland, comments about the Tale of Two Americas... Folks... I just want you to think about this stuff that's going on with our republic...

OK... Have you heard the latest regarding the decline of Chinese purchases of Treasuries? The latest report says that China has created Trusts in the U.K. and Hong Kong, and have switched their buying of Treasuries to these two trusts, so that it can't be tracked... So, really, we don't know for sure, but that's the rumor going around right now... I really don't know what to think... The Chinese said they were going to reduce their holdings... I have to think that this "story" about "trusts" has been made up, to keep people from thinking that China is really reducing their holdings of Treasuries... That's my story and I'm sticking to it!

The data cupboard is pretty empty today, with only a couple of 3rd tier manufacturing reports... Tomorrow, we get in high gear with the S&P/CaseShiller Home Price Index for December, and Consumer Confidence for this month.

I was thinking about the housing numbers last week. Remember when the TV media guys and girls got all lathered up about the 2.8% increase in Housing Starts? Well... Did anyone of these TV media people take a minute and say, "2.8% off the numbers from 2009, isn't very good"? Obviously not... And yes, while 2.8% is better than a sharp stick in the eye, it's based off of some atrocious numbers from 2009... So, it should have been taken with a grain of salt, eh?

OK... China allowed the renminbi to gain the most in one day in a month of Sundays last night... I wouldn't make too much of this until we seem more of these moves in the same direction...

Let's get back to Gold for a minute before we head to the Big Finish... Think about the resiliency of the shiny metal last week for a minute here... Gold had to deal with the IMF announcement of Gold Sales... It had to deal with PPI printing at 1.4%... It had to deal with the Fed's Discount Rate Hike... And, still, it ended the week about where it began!

Today's price action could be a key to the remainder of the week, folks... You see, Gold has bumped $1,125 a couple of times here recently only to fall back... It looks like, to me that as, that Gold could really put some wind in its sails if it could get to $1,125 and beyond...

Then there was this... The bankers association report shows possible signs that the foreclosure crisis that has gripped many of the nation's housing markets is starting to ease. Again... You can only attract so many flies with honey... For the area will run out of flies! You can only foreclose on so many homes, before all the ones that need to be foreclosed on are completed... I don't find solace in this report by the Bankers Association... But then that's just me, I guess... I mean, really... I'm a happy person! Just one that likes to "tell it like it is... Don't be afraid, to let your conscience be your guide...

To recap... CPI printed on Friday and showed very little Consumer Inflation, which is just plain stupid! The markets took it as the Fed not needing to raise rates any time soon, and began to put on the risk trades, again. The loonie and A$ are the most sought after currencies this morning, but as with any currency any day, those things can change on a dime!

Currencies today 2/22/10: American Style: A$ .90, kiwi .7015, C$ .9635, euro 1.3610, sterling 1.5475, Swiss .93, European Style: rand 7.7030, krone 5.9170, SEK 7.2225, forint 198.75, zloty 2.9215, koruna 18.93, RUB 29.94, yen 91.20, sing 1.4080, HKD 7.7640, INR 46.21, China 6.8265, pesos 12.78, BRL 1.8025, dollar index 80.47, Oil $79.86, 10-year 3.79%, Silver $16.45, and Gold... $1,122.50

That's it for today... A short week, Pfennig wise for yours truly, as I head out of town on Wednesday morning, which means Chris will have the conn on the Pfennig until I return to the saddle next Tuesday... We were all downstairs watching the hockey game last night... That is until my beautiful bride heard that ice dancing was on the other channel, and she bolted upstairs to watch that! I'll be heading to Scottsdale for the FX University conference this week. I like this format of 3 days in one place rather than the 8 cities in 2 weeks that we did in 2008! My little buddy Alex will be heading to Chicago at the end of the week, as his Middle School jazz ensemble goes to Chicago to play! WOW! It's now down to 17 days until I leave for Spring Training... OK... I'm sure you're getting tired of that countdown, but shoot Rudy, to me... it's just like a Christmas Day countdown for a little kid! And on that note, I hope you have a Marvelous Monday, George Washington's Birthday!

Chuck Butler


EverBank World Markets



Posted 02-22-2010 8:08 AM by Chuck Butler