Intervention?
Daily Pfennig

Blog Subscription Form

  • Email Notifications
    Go

Archives

........But first a word from our sponsor.......
Strike while the metal's hot and the market risk none

Growing demand for gold, silver and platinum attracts many of today's leading investors. Is fear of market volatility and high costs keeping you from adding precious metals to your portfolio? Find out why the new EverBank® MarketSafe® Diversified Metals CD could be a safe and rewarding way to gain exposure to these three popular commodities.

100% deposited principal protection and a low minimum $1,500 deposit. Just what the smart investor looks for: high upside potential with no market risk.

Find out if this precious metals CD is right for you and apply for one today. Go to: http://www.everbank.com/001CertificatesMSDiversifiedMetals.aspx?referid=11808

EverBank is an Equal Housing Lender and Member FDIC.
................................................

In This Issue..

* Euro recovers 2-cents...
* Gold gets trashed!
* Questions on China...
* Counting the deficit correctly...

And Now... Today's Pfennig!

Intervention?

Good day... And a Thunderin' Thursday to you! The heavy rain is back! Just in time to ruin my first Cardinals game of the year too! Yes, a day game today, and it's raining... UGH! Oh well, time to start the letter... There are a couple of Big things to talk about today that happened yesterday, so let's get set, ready, go!

OK... Front and Center this morning, we have the euro's rise yesterday, and Gold's awful performance... Let's go to the euro's rise first...

The euro did a little magic act yesterday, defying gravity, by rising VS the dollar during the day, while every other currency not called U.S. dollars, Japanese yen, or Chinese renminbi, was getting sold like funnel cakes at a state fair. Does this sound suspicious to you? It did to me... And I told Chris during the day, that it sure looked like European Central Bank (ECB) intervention...

The ECB looked at the price action of the euro after it was announced that the Germans didn't want to get naked any longer, OOPS, I mean the Germans were banning naked short-selling... The euro was falling fast, and then, turning on a dime, the single unit began to rise VS the dollar... And rise it did... Adding almost 2-cents to its price... And again, this was going on while the currencies and Gold were spending the day in the woodshed!

This smells of intervention, walks like intervention, and talks like intervention... I don't know it as a fact, but I'm sure it was intervention... The ECB said, Whoa there partner! While we enjoy a "weaker" euro for our manufacturing and exports, we certainly don't care for a "weak" euro, and so... In my opinion, the ECB stepped in and bought euros throughout the day.

Is this the end of the euro weakness, because the ECB intervened? Hardly... I've told you all for years and years, that Central Bank Intervention can only move a currency for a short-period of time... The markets have far deeper pockets than any Central Bank... It would take a "co-ordinated" bout of intervention to scare the markets... That would mean that the ECB would round up the Big Boys from the U.S. and Japan, and all three would go into the markets to buy euros... That would scare the bejeebers out of the markets and the euro would then be out of the woods...

But, I don't see that happening... This was simply a case of the ECB going alone to stop the slide in the euro, and to even out the move... I've also told you for years and years that Central Banks don't like to see wild moves in their currencies... The ECB is not a collection of dolts... I do believe they see the writing on the wall, that the euro was to get sold because of the debt problems of the GIIPS (Greece, Italy, Ireland, Portugal, and Spain... I changed it to GIIPS from PIIGS because I thought these guys were giving pigs a bad name!). However, the ECB does not want the trading to become a One-Way street...

So... The damage to the other currencies yesterday was something that I've not seen since the collapse of Lehman Bros. back in the fall of 2008. Get sold? No it was more like get "trashed" The fundamentally strong to the weak sisters of the poor, the price action was down, down, and down... All day, all night...

And Gold led the way... At one point in the day the shiny metal was down $35 on the day... OUCH! Here are my thoughts on this price movement in Commodities and the Commodity Currencies..

This is all based on China... The analysts that claim to know what's going on in China, all say that the Chinese economy is going to hit the wall, and fall flat on its face, much like a road runner cartoon, with Wiley coyote... So the thinking is this... If China sees its economy fall on its face, then their demand for commodities will too... And therefore the Commodity currencies will suffer...

Look, I don't know if that's true, or not... All I can say is that I've seen this before, and each and every time, the "experts" were flat wrong! I recall one time years ago, probably 2003-ish, I was in Phoenix to give a speech / presentation, and picked up the USA Today, and right there on the front page in bold letters was the claim that China was going to slow down and Commodities would be on the selling block... The price action in Aussie, Canada, New Zealand, and the other Commodity Currencies was very similar to yesterday's price action...

The problem for that and many other claims to follow over the years was that it was wrong! And a few months down the road when it was confirmed that it was wrong, the commodities and Commodity Currencies would rebound... I was always amazed at the way no one went back and pointed fingers at the people that made those calls... But, things were moving in the right direction again, so who cared I guess...

The Commodity Currencies are caught up in this Chinese vortex once again... And Commodities? Getting trashed too... To me, I believe this all to be a trap... As I said, I've seen this many times in the past 10 years, and each time the experts have been wrong... Maybe they're right this time... They still wouldn't be hitting above the Mendoza line if it were baseball... I'm from Missouri, I'm going to have to be shown that China's economy is going to fall on its face..

Well... As I turn on the screens this morning from my home here in my little river town, I see the euro has already given back 1-cent from yesterday's 2-cent gain... That doesn't bode well for the price action in currencies and commodities today folks... I can't say it enough... This all looks very familiar to me... Just like the price action after the collapse of Lehman Bros... It took 6 months for the fundamentals to return...

Gold has given up another $9 this morning too...

Pretty soon, U.S. officials are going to feel their shirt collars tightening around their necks, and the sweat to begin rolling down their faces... You see, they can't have the dollar getting strong! The need it to be weak, and a lot weaker than this to give them a chance to deal with their deficit spending!

Speaking of deficits... I was thinking last night that I've been blind to something that I should have seen a long time ago, since I talk about both of them all the time! The National Debt in the U.S. is nearing $13 Trillion dollars... But... It's really $19 Trillion... Where did the $6 Trillion come from? Ahhh, grasshopper, it even too me this long to figure this one out... You see... The debts of Fannie and Freddie total over $6 Trillion... And since these two were nationalized their debts are our debts now... And just because the Gov't doesn't count their debts with ours, from now on, I will...

How are we ever going to pay back $19 Trillion? (Oh and that's not counting the unfunded liabilities of Social Sec., Medicare, and Medicaid) Higher taxes? That won't work folks... Gov't spending cuts? That would help, but going forward with all the baby boomers like me nearing retirement, the unfunded liabilities become "funded" and those alone will be more than tax receipts and spending cuts can cover!

There's only one thing left... A cheaper dollar... I don't think U.S. Gov't officials have forgotten this... And neither should you!

Then there was this... The Wall Street Journal reported late last night that, "Floyd Landis, the American cyclist whose 2006 Tour De France victory was nullified after a positive doping test, has sent a series of emails to cycling officials and sponsors admitting to, and detailing, his systematic use of performance enhancing drugs during his career. The emails also claim that other riders allegedly participated in doping, including seven-time Tour de France winner Lance Armstrong."

I don't know about you... But, I'm not surprised by anyone's admission of steroids any longer... But one thing I don't like one iota, is when one person is found guilty, and they attempt to drag others through the mud with them to take the spotlight off of them... Like I said, I'm not surprised any more, and if it were to be true about Lance Armstrong, while it would be a bummer, I would still be a fan, because... He's a fellow cancer survivor!

To recap... The euro was stronger by 2-cents yesterday on a day when most of the other currencies and commodities got trashed. This looked like ECB intervention to me... The Commodity and Commodity currencies sell off is all tied to thoughts of a Chinese economic meltdown... They've been wrong before...

Currencies today 5/20/10: American Style: A$ .83, kiwi .6730, C$ .9450, euro 1.2335, sterling 1.43, Swiss .8695... European Style: rand 7.8680, krone 6.47, SEK 7.8565, forint 228.17, zloty 3.3665, koruna 20.9680, RUB 31.04, yen 91, sing 1.4085, HKD 7.8020, INR 46.79, China 6.8277, pesos 12.97, BRL 1.8280, dollar index 86.63, Oil $68.90, 10-year 3.32%, Silver $17.88, and Gold... $1,184.20

That's it for today... Back to not hitting again for my beloved Cardinals... UGH! Can't win if you don't score runs! Looks like today's game is in jeopardy... UGH! I go to see the dentist this morning... I changed dentists recently after a long time with the same guy... I like the new dentist much better! Of course I might not be saying that later this morning! HA! My son Alex, was just out the door with guitar case in hand, all gussied up for his "gig" at the Jazz Education Network (JEN) today... His older brother, Andrew (water polo coach) has recruited Alex to play water polo next year in High School, and training will begin this summer... I want to go to see how this works, Alex playing for his brother... Should be interesting! Hey! Good luck to my friend and colleague, Chris Gaffney, today... He's in Montreal taking my place... And on that note... I hope your Thursday is dry, and not Thunderin' like it is here!

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





Posted 05-20-2010 11:05 AM by Chuck Butler