Re-Thinking China...
Daily Pfennig

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In This Issue..

* Risk Assets sell off...
* Is China trying to appease G-20?
* Aussie commodity profits skyrocket!
* Gold sells off by $22...

And Now... Today's Pfennig!

Re-Thinking China...

Good day... And a Terrific Tuesday to you! Are you full? You know appetite wise... Probably not, for most of you read the Pfennig in the morning, with a cup o' Joe... The renewed appetite for Risk that the markets were displaying yesterday disappeared yesterday afternoon... The markets were full of risk, I guess... For the selling was swift, and damaging to the levels the currencies, commodities, and stocks had gained overnight on the news that China would allow more flexibility in the renminbi...

See how fickle these markets / traders are? Very! You had a day that everyone was looking forward to, China allowing the renminbi to gain VS the dollar again, and just threw it to the roadside... UGH!

Yes... The China news was good for about 12 hours, and then it was back to fretting about the debt crisis in the Eurozone... The euro, which had traded above 1.24 for most of the morning yesterday, not only lost the 1.24 handle, but the 1.23 handle too! UGH! The Aussie dollar (A$) lost about a cent, as did the New Zealand dollar / kiwi. So, did the Canadian dollar... The Lone Ranger of gained ground not given up was the Swiss franc, which remained well bid at 90-cents.

This morning, German Business Confidence as measured by the think tank, IFO, posted an unexpected rise to a two-year high this month. Here's the skinny folks... With the weakened euro, Businesses are eyeing a return to export glory... So, they pushed the Confidence survey to a high since May of 2008! Imagine what these guys would be saying if they had known about China's decision before they were surveyed! For you see... If the renminbi DOES GET, question mark, stronger VS the dollar, and other currencies, it could slow their exports, and Germany could take back the crown of export king!

Ok... I had one more thought on China's announcement yesterday, after I had time to think more about it... And you know me... Mr. Conspiracy, right? Well... What if the Chinese just said that about more flexibility to appease the G-20 members that will meet this weekend? What if the Chinese don't have any intention of carrying out a more flexible renminbi? Wouldn't it be just like them to give us a rug to stand on while entering the room, and then pull it out from under us? Yes, it would...

A readers sent me this, which put me on the Conspiracy path regarding China... "International Herald Tribune distributed here in China today says in its first paragraph:

"The Chinese central bank announced Sunday afternoon that any changes in the value of its currency, the renminbi, would be gradual, in a clear attempt to reassure the Chinese people that a move Saturday evening toward a more flexible currency would not result in a sharp or disruptive change."

And if the markets have a conspiracy bone in them, they have probably snuffed this out already, and thus the sell-off... But then that's giving the markets a great deal of credit that they don't deserve!

Well... There's a story on the Bloomie this morning titled, "Central Banks show euro losing reserve currency status with loonie gaining"... Hmmm...

According to the writer, "The Australian and Canadian dollars are becoming reserve currencies for central bankers seeking alternatives to deteriorating government credit quality in Europe, the U.S. and Japan."

Well... That's right... But let's put this in perspective... The debt problems of the U.S. and Japan far outweigh those in Eurozone... So, let's not be so quick to lump them together, eh? Bank of America / Merrill Lynch believes that the markets have "overreacted to the debt crisis in Europe" and expects a 10% gain in the regions stocks by the end of this year... Hmmm...

I guess this is a follow up from the story I told you about last week regarding the thought that Russia would be adding Canadian dollar / loonies to their reserves...

But, let me tell you the most important part of all this... Central Banks are seeing the need to diversify... WOW! Just like you and me!

I had someone send a note regarding my interview with MarketWatch last week, and said I was wrong, that fiat currencies do not give your investment portfolio diversification... Hmmm... On what planet does that not take? If your investment portfolio is denominated in one currency, let's say dollars, then you have no diversification... And yes... Metals like Gold, Silver, Platinum also diversify your portfolio... I never said they didn't!

So... Why wouldn't an investor look to add currencies from countries that show good fundamental economic growth, and feature an interest rate differential? Like the A$? Check out this most recent data print from Australia... Overall earnings of Australia's commodity exports are set to gain as much as 23% in the fiscal year of 2010 to 2011, led by a 28.5% increase in profit from mineral and coal exports, according to the Bureau of Agricultural and Resource Economics. Fundamentally sound...

Speaking of debt, and the U.S. has plenty of it, like the $1.6 Trillion Budget Deficit that will be posted this year... There are rumors that the U.S. Budget Director, Peter Orszag, will resign soon... Like BEFORE he has to put his name on another Budget that shows another $1.6 Trillion Deficit! That's just my guess folks... But who could do that year after year? I couldn't... But then, debt to me is like kryptonite to Superman... You have to avoid it!

Today... The data cupboard yields the Existing Home Sales data from May... This number will still be a component of two things.... 1. Government assistance, and 2. much lower Home Prices.

My friend, David Galland, has a good thought about the Canadian dollar in a round-a-bout way yesterday... David said that, "with the U.S. set to spend $ 15 Billion on offshore drilling" and with "the Gulf shut down"... "The destination of those funds are probably going to head to the tar sands of Canada."

Well... Gold got caught in the cross winds of the China news and the end of the risk taking euphoria yesterday... At one point Gold was down $22... I had told our metals trader, Jen, that I wanted to buy more Gold the next time it dipped... And she reminded me of that yesterday, like a good sales / trader would do!

Silver also backed off, as you would expect, given the $22 loss in the Gold price yesterday.

Yesterday I mad a Big Deal out of Canada's CPI report that would print this morning... I was half hoping that it was greater than expected, so that the Bank of Canada (BOC) would have no other choice but to raise rates again at their next meeting next month. That's kind of a strange thought pattern, eh? Oh well... Canadian CPI for May fell to 1.4% from April's 1.8%...

So... That news will probably knock some of the stuffing out of the loonie today... Because interest rates are not going higher in Canada with inflation data like that! And here's my strange thought pattern working again... That's a good thing for those that want to buy loonies... A cheaper price...

Just got the word that I will not be speaking a the Vancouver Conference this year. UGH! However, the Big Boss, Frank Trotter will be! So, at least there will be some EverBank presence on the main stage! Besides 2007, when I was at home recovering from two major surgeries, I had spoken on the main stage for since 2005... I will be going though, as I'll do some workshops, etc. So, they didn't get rid of me altogether! HA!

Then there was this... For years now, I've told you about the cartel that calls themselves the Fed Reserve... I've told you about how it was created, and who threw the Constitution in the trash to create it (Woodrow Wilson)... I've also stated on several occasions how we, as a country would be better off without the Fed. They were supposedly created to even out the economic peaks and valleys and stop recessions... They were also supposed to protect the dollar... Well... If I did my job as badly as they have theirs, I would have been fired decades ago! And so... They should also be fired... This is not just me on the soap box folks... Any way... A guy names James Cobb wrote and performs a song about ending the Fed... It's here, should you want to hear it...

http://www.youtube.com/watch?v=NWNnCMkw7iY

To recap... The strong risk appetite on display yesterday morning, disappeared in the afternoon hours, and the euphoria over the China announcement to allow more flexibility in the renminbi was thrown overboard! The Swiss franc was the only currency that had risen the night before, to hold on to most of its gains, as most others lost at least 1-cent. There are questions about what China meant in its announcement, and therefore, the focus returned to the debt crisis in the Eurozone...

Currencies today 6/22/10: American Style: A$ .8760, kiwi .7060, C$ .9785, euro 1.2365, sterling 1.4720, Swiss .90... European Style: rand 7.5475, krone 6.4650, SEK 7.7715, forint 228.30, zloty 3.31, koruna 21.00, RUB 30.98, yen 90.70, sing 1.2825, HKD 7.7805, INR 46.22, China 6.8123 (notice how quickly renminbi weakened!) pesos 12.55, BRL 1.77, dollar index 86.21, Oil $76.94, 10-year 3.22%, Silver $18.66, and Gold... $1,234.10

That's it for today... Well... A tough Monday for yours truly... Barely made it through the day, went home got my leg up and fell asleep! Woke up, remembered the Cardinals had the day off, and went back to sleep! I go to the doctor today that is going to make the shell for the prosthesis in my left eye socket... It's a 3 hour appt. I doubt I'll be a happy camper for most of it... But one thing I learned with all my doctor appointments, hospital stays, sticking, prodding, and so on, is, to simply remain calm, and just go with the flow... (and for those that have known me a long time, they would be extremely surprised to hear that!) That will be put to a test this afternoon... And with that, I'll get this out the door... I hope you have a Terrific Tuesday!

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





Posted 06-22-2010 10:31 AM by Chuck Butler