China & Russia Team Up...
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In This Issue..

* U.S. data is stronger...

* Loonie rallies on jobs data...

* krona rallies on IP data...

* An end to the bond rally?

And Now... Today's Pfennig!

China & Russia Team Up...

Good day... And a Happy Friday to one and all! Not a 3-day Holiday weekend Friday, but a Friday still... It's raining here in St. Louis, so hopefully, that will end, the sun will come out, and we can have a Fantastico Friday!

Well... I'm back in the saddle this morning, still feeling a bit shaky, but sitting firm in the saddle, so let's go!

When I turned on the currency screens this morning, I saw levels that were basically the same as they were yesterday. The trading range yesterday was tight, and in the overnight markets, there was no change to that pattern.

With the currencies remaining in tight ranges, we can take a moment to visit the data from yesterday... Front and center, was the Trade Deficit, which fell from - $49.9 Billion in June to $-42.8 Billion in July, that's a 14% improvement in one month! WOW! Too bad it can't happen more often, eh? For, you see, this month's number was highly influenced by a surge in airplane sales. I call those types of sales, "one off sales". The other thing that was surprising to me, given the Personal Spending data we saw earlier this month, was that imports fell across the board? Really? As Will Robinson's robot used to say, That does not compute...

The other news was also a good sign for the U.S. in that the Weekly Initial Jobless Claims for last week, fell 27,000 to 451,000... I hate to be the Eeyore to everyone, but, instead of things getting better, could they actually be getting worse? Could we have saturated the jobs market cuts? In other words, are we running out of people / jobs to cut? Well... If we continue to drop 27,000 a week, one would have to think so!

While we're talking about data... It's not all about the U.S.... Canada will print their jobs report this morning, and Bank of Canada (BOC) Gov. Carney speaks later this afternoon... Both should give us some clues as to the direction of the BOC at their next meeting... WOW! I must be late, because the labor report just printed in Canada! And... Drum roll please... Canada added more jobs in August than forecast! That's a good fundamental for the Canadian dollar / loonie, and I look for the currency to have a good day to end the week!

New this morning coming from China, has China posting a third straight Trade Surplus of more than $20 Billion, in August! That HUGE number in the face of surging imports in China! Again, not that the months line up perfectly, but if China has a 34.4% increase in exports, don't you think that a large portion of that is going to the U.S.? I know that China is trying to wean themselves from the dependency of a U.S. market, and doing quite well at it, I must say, but still... Old habits don't change overnight...

And in a case of "Mom, he's doing it again"... (an old radio ad here in St. Louis) Japan announced a yen .9 Trillion support package for the economy... Is this what we have to look forward to? 15 years after the meltdown, the Japanese Gov't is still trying to stimulate the economy?

But still, people flock to yen... Look, I was once someone that said that yen was a buy... It was 110.00 then... I said it would trade below 100, and maybe even below 90... But all this below 90 is speculation, and is a house of cards that could come crashing down on yen holders in a heartbeat... But then, it's gone on like this for some time now, so Shoot Chuck, why are you scaring people like this? I don't know, just speaking from the heart, like always...

Of course, some of the yen strength, and Aussie dollar (A$) strength for that matter, comes from Chinese renminbi strength. And after a couple of weeks where the Chinese attempted to scare away the speculators and kept pushing the value of the renminbi down VS the dollar, the renminbi has rallied the past couple of days, and the move last night was huge, for renminbi that is! I sent you all to class the other day with how renminbi gets priced for spot and in the forwards market, so... Knowing all that, you'll be saying to yourself that this move stronger VS the dollar is being pushed by the Chinese Gov't. and you would get a gold star!

Ty Keough sent me a story that he came across yesterday that was frightening to me, as I read it... Here's a snippet from the story on the Bloomberg: "China and Russia plan to start trading in each other's currencies as the world's second-biggest energy consumer and the largest energy supplier seek to diminish the dollar's role in global trade."

Uh-oh, spaghetti-o! This is serious stuff folks... Recall, last year, when I made a big deal out of China signing currency swap agreements for trade, with all of Asia, and then moved to South America? This was basically to do two things for China. 1. it was to get more trading outside of China for the renminbi, more of a general acceptance if you will, and 2. to remove the U.S. dollar from those trade agreements.

Well... If China and Russia do this, they will basically reduce the volatility that they have in primary goods, and reduce their dependence on the dollar in trade transactions....

This is not a good trend folks, and it's the type of thing that builds slowly and then before you know, the dollar isn't the reserve currency of the world any longer... Now, I'm not saying that this happens next year or in the next 5 years... But, it sure seems to me that unless the removing of the dollar from trade transactions around the world stops, that's exactly what's going to happen... Sometime, down the road...

I sent a note to my editor for my "paid subscriber newsletter" The Currency Capitalist, last week, and told them something that I thought I was seeing in the markets... And that is an end to the bond rally. We've seen the yield on the 10-year now go from 2.49% just two weeks ago to today's level of 2.74%... Now, that's quite a move, and I don't want to gloat about saying that people flocking to the "safe haven" will have losses, but guess what? If they don't get out now, they will have losses, if they don't already have them!

Yes... This could be a trap, and the Fed will step in and mysteriously get yields back to below 2.50%, but here's the nugget you want to take from this... People / investors are always saying they wished they had gotten in at the bottom or sold at the top? Well, we may not be "at the top" any longer for the 10-year Treasury, but we're within in spittin' distance for sure! Are there risks? You betcha! Like I said the Fed could be setting a trap, oh, I know, that's not in their job description, but they do it anyway! And if they are, you could be on the losing end... But if not... Hmmm...

Sorry... I had to step away for a minute to cough, but I'm back now!

Speaking of being back now... That's Gold... Yes, it sold off yesterday, in that profit taking that I told you about, but it's back today! The price of Gold is up $6, this morning, thus giving you just one day to buy on a dip, right? Well, these are the markets, and you have to be ready to strike, like a rattlesnake!

Brazil's Finance Minister, Mantega, was in the news last night, as he gave a speech about the Brazilian economy... He said a couple of things that I've highlighted...

1. "Brazil to have surplus of 3.3% of GDP in 2010"

2. "Brazil's economy will grow at 7% pace in 2010"

3. "Brazil will not allow currency to get stronger"

4. "It's not easy to contain Brazilian real's gains"

So... Here' the skinny... The Fin Min sees some good strong structural fundamentals for Brazil, which he knows, and we all know, will drive investors to the real... But he doesn't want the real to get too strong, which would upset his exports applecart... But in the end, there's not much he can do to stop the real's gains, if the markets want to push it higher... And that's been my argument all along, as the Gov't has tried a couple of things already to stem the real's gains.... It will work short-term, for all it does is give investors that have profits an excuse to take them... But that's just short-term... Eventually, the swarm of bees (investors) comes in to sting the Gov't, and take the real higher...

Let's move to the North Sea, and see what's up in Norway... Ahhh... Inflation in Norway rose in August, 1.4%, thus proving to the Norges Bank (the central bank) and the Gov't that the recovery is well on its way, and they were bang on to hike rates twice in the past 6 months... And for those that think that Norway is nothing but Oil... Think again, Norway's non-oil economy has expanded for 4 consecutive quarters!

But BIG Winner overnight was the Swedish krona... What's up with that Chuck? Well, to me it looks like a delayed reaction to the Riksbank's rate hike... But, following up on that rate hike with a very strong Industrial Production number didn't hurt! Industrial Production in Sweden during July rose 2.9%, pushing the annualized number to 14.4%! And this is all good for Sweden... But being an Eeyore, I must say that I truly don't believe that the Riksbank has a quiver full of rate hike arrows, and eventually with nothing to push the krona higher, it will wallow around in the mud...

Unless! The Riksbank surprises the markets with a rate hike or two, or... The euro takes off to higher ground, pulling the kronas, krones, and other non-euro currencies with it...

Then there was this... From the Washington Post... Capitol Hill employees owed $9.3 million in taxes last year according to IRS data obtained by the Washington Post. And while this number is just a sliver of the $1 Billion owed by Federal Workers nationwide, it says a lot about the people on Capitol Hill, if you ask me!

To recap... The currencies are trading in very tight ranges, and have not moved much overnight, except the Swedish krona, and Canadian dollar, both of whom saw strong economic reports this morning to move them higher VS the dollar. And in the scary part of the letter today, I tell you about Russia & China getting together to remove the dollar from their trade transactions....

Currencies today 9/10/10: American Style: A$ .9260, kiwi .7290, C$ .9705, euro 1.2720, sterling 1.5450, Swiss .9775, ... European Style: rand 7.1750, krone 6.1980, SEK 7.2440, forint 223, zloty 3.0930, koruna 19.3915, RUB 30.86, yen 83.95, sing 1.34, HKD 7.7675, INR 46.47, China 6.7690, pesos 12.97, BRL 1.72, dollar index 82.60, Oil $75.86, 10-year 2.74%, Silver $19.90, and Gold... $1,248.20

That's it for today... Little Delaney Grace was at the house yesterday, and she wanted to stay downstairs with me, she knew I wasn't feeling well... She told me, "I have to go upstairs, if you need me, call me, and I'll be back"... What a darlin'! Taking care of me at 3! Congrats to Alex, and his freshman football team, as they won their first game in overtime! WOW! The NFL season kicked off last night, with Sunday's games being the meat of the first week's games...

And I want to shout out on a new book that's about to hit the shelves... The Book's title: The Evergreen Portfolio, by Martin Truax and Ron Miller. There's even a chapter that was written by our own Big Boss, Frank Trotter! I've been reading through it, and I think it's good... Here's the link to find out more:

http://www.amazon.com/Evergreen-Portfolio-Timeless-Strategies-Investing/dp/0470560088/ref=pd

Or if you prefer http://search.barnesandnoble.com/The-Evergreen-Portfolio/Martin-Truax/e/9780470560082/?itm=1&USRI=The+Evergreen+Portfolio

And that's all for this week! I hope your Friday is Fantastico, and you weekend is wonderful!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837





Posted 09-10-2010 11:01 AM by Chuck Butler