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    A Pfennig For Your Thoughts

    August 10, 2010

    In This Issue..

    * Risk Off Day...

    * Will FOMC bring about new QE?

    * China prints 18-month high Trade Surplus!

    * Sorting out the Asian currencies...

    And Now... Today's Pfennig!

    FOMC Day...

    Good day... And a Terrific Tuesday to you! I had another visit to the dentist last night... My mouth is still pretty sore this morning, so it's a good thing I'm not talking to you, but writing instead! HA!

    Well, that slippage that I was seeing yesterday morning turned into a dollar rally, and has continued throughout the night with the euro losing 1 1/4-cents... It's about the same with Aussie dollars (A$), and the Norwegian krone, which I highlighted yesterday, and gave it the old "Pfennig kiss of death"!

    The Risk On / Off trading pattern is turned to Risk Off today, as the FOMC meeting approaches, and the markets are full of jitters about what the cartel might say after announcing that they would keep rates at historic lows... I told you yesterday, that I really don't see the Cartel announcing any new Quantitative Easing (QE) measures today, for they would seem desperate, scared, or jumpy, pick one, they all work! I say that because of the disappointing data that has printed lately, with the most recent disappointment coming from the Jobs Jamboree last Friday.

    So... You have all this, let's call it "soft data" to be fair, and then the central bank which I've been referring to as the "cartel" for some time now, announces stimulus measures... The markets would be running for the hills to get out of Dodge, and by that I mean dollars!

    But... It looks like the fears of more QE are receding, there is no pain you are receding, your lips move, but I can't hear what they say... OOOPS! Sorry, I slipped into a Pink Floyd state of mind there for a minute... Any way, the fears are backing off, and therefore the dollar selling has backed off... For now... For, like I said above, and yesterday, when the cartel does announce more QE, and they will, the dollar gets sold like funnel cakes at a state fair!

    Going into this morning's U.S. Open, and not the Gold version!, stock futures are off pretty strong, so that doesn't bode well for a reversal of the Risk Off trading today.

    In news that will make the likes of Mssrs Graham and Schumer very upset... China's Trade Surplus reached an 18-month high... And guess what the Chinese officials did? Give up? Come on, if you're a long time reader, you know how the Chinese like to rub everyone's face in their weak currency... So... They announce an 18-month high for their Trade Surplus, and the Chinese set the reference rate for the renminbi lower... Now that ought to tick some people off this morning in Washington D.C., eh?

    One thing that the Chinese naysayers will point to is the fact that the Trade Surplus number reflected a weaker imports component... And the naysayers will say that the Chinese economy is weakening, and still ready to collapse... Again, I'll spell it out for these knuckleheads... "Moderating" is what the Chinese economy is doing... And "Moderating" is a far cry from "collapsing"!

    And the "moderating" in China still puts a damper on global growth prospects, and when that happens, the proxy for global growth, Australian dollars (A$), gets sold...

    I think this is more of a short-time trade though, as we could very well just put all this in the rear view mirror and begin to sell dollars once again this afternoon, depending on what the cartel's leader, Big Ben Bernanke has to say.

    OK... I'm not a fan of the NY Times, for a number of reasons, and Sunday's edition with an op-ed by Treasury Sec. Tim Geithner, titled, "Welcome To The Recovery", is about the last straw for me... I don't know who to blame more for being so irresponsible... The NY Times in printing a story that is so opposite from most economist that now believe we are heading to a double dip recession, or the Treasury Sec. for writing it!

    Memo to both of these parties... Did you see the rot on labor's vine was last Friday? Or.. That Confidence among U.S. CEO's fell this quarter for the first time in a year? Or... Have you not seen the housing data lately? Or... How about the fact that the number of Americans who are receiving food stamps rose to a record 40.8 million. This is up a staggering 44% from the May 2008 figure of 28.4 million. More than one in every eight people in the U.S. is on food stamps. Participation has set records for 18 straight months, and the figure is projected to rise to 43.3 million in 2011!

    I could go on, and on, like the Energizer Bunny with these reasons that the recovery isn't any such thing, but that would not help things any... I don't want to get depressed any more than you do!

    I'll end this discussion on the U.S. economy with a snippet from a story I read on the Bloomberg this morning titled, "San Francisco Fed Scholar Sees Chance of U.S. Recession Relapse in 2012"...

    OK... In Japan overnight, the Bank of Japan (BOJ) left rates at .1%, and did not change their outlook for the Japanese economy, which is to say that the BOJ members do not see the Japanese economy gaining any strength... But still the yen sits at 86, and is the best performing currency this year... That just doesn't make any sense, folks, but it is what it is, and it's all good for yen! I don't see the BOJ intervening any time soon either! And that means smooth sailing for yen...

    But just remember this... The BOJ has been known to pull the rug from many a yen holder over the years, and just because I don't see them intervening right now, it doesn't mean they won't... And the BOJ loves to leave a trail of tears for yen investors...

    So, when I look at the top 2 performing currencies year-to-date, I see yen at the top, as I said above, but I also see Singapore dollars in 2nd Place... Now, I've explained this before with Sing dollars, but for the new kids to class, they might want an explanation, so here it goes... The sing dollar is a "managed currency"... The Monetary Authority of Singapore (MAS) sets the levels, or trading bands for the currency, much like the Chinese do, although the MAS has more latitude.

    So... If the Sing dollar is stronger, it's because of two things... 1. the MAS decided it was a good thing, and 2. because the other currencies in Asia are stronger VS the U.S. dollar. You see, these Asian currencies have to remain in competition with each other for exports, and therefore once currency can't get too far out of line with the other Asian currencies...

    Of course if it were me... I would get my hands out of the cookie jar, and allow the markets to do the work... But that's just me, eh?

    Then there was this... So... Did you see where the U.S. Social Security Trust was a deficit? According to a story on "" "This year's cash deficit, the first since the early 1980s and the biggest ever, means the Treasury will have to borrow money to redeem some of the trust fund's Treasury securities"

    Chuck again... Now I know that this announcement comes as no surprise to most people... But let me remind you this little ditty... The real problem for the U.S. deficit / economy in the future isn't Social Security... It's Medicare & Medicaid... But when you consider that Social Security's deficits will begin running more than $100 Billion a year deficits within a decade, it won't be chopped liver on our deficit and economy!

    To recap... The slippage in the currencies yesterday turned into a dollar rally with the risk assets turned to OFF today. I guess most people began to see what I saw yesterday morning, and that is that the Cartel won't announce more QE this afternoon... (saving it for a rainy day! HA) And... That thought backed out dollar shorts that were put on thinking more QE was on the way... (It's still on the way, just not this afternoon!) China's Trade Surplus hit an 18-month high, with imports declining, thus showing the "moderation" the economy is taking on. This "moderation" threw cold water on the commodity currencies though, and the global growth thoughts.

    Currencies today 8/10/10: American Style: A$ .91, kiwi .7225, C$ .9675, euro 1.3165, sterling 1.5760, Swiss .9495, ... European Style: rand 7.2475, krone 5.9930, SEK 7.1375, forint 211.50, zloty 3.0175, koruna 18.80, RUB 29.99, yen 85.95, sing 1.3545, HKD 7.7640, INR 46.39, China 6.7718, pesos 12.68, BRL 1.7485, dollar index 81.07, Oil $80.59, 10-year 2.81%, Silver $18.14, and Gold.... $1,196.30

    That's it for today... A Crazy Day yesterday, being the first day back, and Jen was gone, and I had the dentist appt. crazy! Congrats to our little Christine, who closed on her new house yesterday. Next Wednesday, I'll be heading to San Francisco for the Money Show... San Francisco is one of my fave cities, and while I'm there, the S.F. Giants will be here playing my beloved Cardinals! Speaking of which, are playing a HUGE series in Cincy this week... Good luck! Did you see the Hall of Fame football game? I only watched a couple of minutes of it, but it was good to see Football on TV again... And with that, I'll hit the send button... It's so hot in here! I hope you have a Terrific Tuesday!

    Chuck Butler


    EverBank World Markets



    Posted 08-10-2010 8:00 AM by Chuck Butler