Stiglitz Disses The Euro...
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In This Issue..

* Wen confirms Euro Bond purchases...

* Overnight rally ends abruptly!

* RBA meets tonight...

* Oil price rises to $81!

And Now... Today's Pfennig!

Stiglitz Disses The Euro...

Good day... And a Marvelous Monday to you! The St. Louis Rams won their second consecutive game yesterday! YAHOO! It's been a month of Sundays since the Rams won two consecutive games! And with a break here or there, they could realistically be 4-0 this year! WOW! So... I'm was fired up yesterday, and it carried over to this morning... That is until I came in and turned on the currency screens!

Just Friday, Chris Gaffney said to me, you know, like you said the other day, "it's about time the Eurozone GIIPS deficits get back in the news to stop this euro rally"... And so it was to be last night... The euro actually traded over 1.38 last night, to 1.3807... But then Nobel Prize winning economist (I've got my own ideas about these guys and their Nobel Prizes but that's for a night when I'm full of you know what and vinegar), Joseph Stiglitz came out and said, "the euro's future is looking bleak"... Stiglitz is concerned because countries such as Germany have trade surpluses, while the GIIPS (remember, it's Greece, Italy, Ireland, Portugal, and Spain) have trade deficits...

OK... So, that's Germany's fault that these countries didn't see the way you make a wealthy nation is to make things, produce things, invest in those manufacturers, and export? Any way... We used to see that way here in the U.S. but those days are gone with the wind, and Rhett Butler riding off into the sunset!

Well... Since I arrived this morning, the euro has rallied back from 1.3660 to 1.3690... So, maybe the Stiglitz bomb from left field, won't be that damaging...

The news that pushed the euro over 1.38 came this weekend in comments from the Chinese Premier, Wen, who said that "I have made clear that China supports a stable euro. We will NOT reduce the holdings of European Bonds in our foreign exchange portfolio. Chinas has already bought Greek bonds, and China commits very positively to buy new bonds to be issued by Greece."

Talk about a boost for the euro! But again, Stiglitz turned the lights out on the rally that came about from comments by the Chinese...

Well, folks... As I said on Friday, I'm 2/3rds toward the Reserve Bank of Australia (RBA) hiking rates this week (tonight for us, tomorrow for them) after all the things we talked about last week... But there was one more clue for us on Friday...

You see, Australia tracks the prices of their commodities... Not all commodities, but the ones that are Australia's, like iron ore, coal, and others. They put their commodities into a Commodity Index... And guess what the index showed last week?

The August Australian Commodity Index went up 1.5% in September! That puts the index at a 52% increase this year, and is now actually higher than the peak it reached in 2008!

So... Why has this moved me to believe the RBA WILL HIKE RATES now? Well... The Official Cash Rate (OCR) in Australia back in 2008 was... 7.25%, now it's 4.5%... Guess what needs to go higher to fight inflation from this commodity boom? You got it! The current Aussie Official Cash Rate!

Don't expect their OCR to go back to 7.25%... In the near future... But 4.5% is going higher, and if not tonight... The next time the RBA gets together!

OK... Here in the U.S. the debate about when and how much Quantitative Easing (QE) is going to be administered by the FOMC is dominating the news wires, and TV talking heads. The New York top Fed Head, William Dudley, is convinced that more QE is on the way, unless "the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long."

I guess, the "too long" leaves the door open to wonder how long the FOMC will wait... Well, the FOMC next meets the first week of November, so they'll get to see 1- month's worth of data here in the U.S. And at the end of this week, the first of those pieces of data that will move the FOMC will print... This Friday, will be a Jobs Jamboree, with the September labor numbers printing... Right now, the "experts" believe the overall job creation for September will be flat, and may even show a net loss of jobs...

I would have to say, that if we show a net loss of jobs from September, that the FOMC would most likely begin their process to implement more QE... So, this Friday is HUGE on the data scale... Oh, there will be other data this week, but none-so-important as the Jobs Jamboree on Friday!

The FOMC is just looking for an excuse to begin implementation of their next round of QE... And a less than stellar result for September employment could very well, be the thing the FOMC is looking for... Look folks, the FOMC said in their statement following their last meeting that inflation was too low... Then we had Fed Heads talking all around the country, and all of them were concerned about inflation being too low.... So, in case you missed that, I think it's Central Bank Parlance for "we going to implement QE and get inflation moving higher again"...

Now... The dollar has already been sold on the QE implications, but what happens when the FOMC actually pulls the trigger? Well... I personally feel that when the FOMC pulls the trigger this time, it will be HUGE! The amount they announce will be so large, that everyone will believe the FOMC really means it when they say that inflation is too low! And the mere size of this next round of QE will "surprise" the markets, and that will cause some major dollar selling... Just my opinion, folks...

On Friday I talked briefly about the latest run-up in the price of Oil... Well, the price of Oil is still moving higher, reaching $81 this morning. And that, as long time readers of the Pfennig you know, underpins the Canadian dollar / loonie. The Loonie is rising again, getting close to 98-cents. So... What's your thoughts for the price of Oil? Because if you believe Oil prices will continue to be high, or even go higher, then you'll want to look to buy loonies... If you don't believe in the strong Oil prices, then you'll want to look to sell loonies, and take your profits...

Yes, loonie has other things going for it, like a positive yield differential to the U.S. dollar, but, right now, Oil is ruling the roost...

I see that Gold and Silver have sold off a bit overnight, with Gold down $3, and Silver down almost a dollar... You would expect to see some profit taking after a week of record setting trading in Gold, and so it is overnight. But, if the U.S. data this week, is weaker and shows more uncertainty... Well, you know the routine...

Lets go back to Friday's data... Remember, it was the Personal Income and Spending day? Well... Personal Income out lagged Personal Spending for once in August, as Income was up .5%, and Spending was up .4%, and the PCE Deflator that I made a such a big deal out, and even sang Puff the Magic Dragon to, was a non-event... The U. of Michigan saw their Consumer Confidence Index come in flat, and the ISM Manufacturing Index was also flat in August...

There's two ways you can look at those "flat" results... Either they are going to slip badly, or they are forming a new base to move higher... Well, since data isn't like the markets, I would say they are getting ready to slip badly.

Then there was this... Well... I really stirred up a hornet's nest with my talk about how close the states were to a Constitutional Convention (35 states are "in" 38 states are needed)... Look folks... I was just stating my opinion, I would love to see Senators go back to the way they were assigned by each state. I would love to see income tax revised, and I would love to see the end of the Fed / Cartel... That's what I meant when I said repeal 1913, for all of those were put in place in 1913, by Woodrow Wilson... But again, it's just my opinion, if you don't agree, that's fine, just say so, there's no need to call me a "nut job" or other things...

To recap... The currency rally of Friday, was initially added on to, overnight, as China's Premier, Wen, voiced confidence in owning European Bonds. But that rally ran into a roadblock put up by Joseph Stiglitz's comments about the euro. However, since early this morning, the euro has rallied and gained some of its lost ground back. Fed Head Dudley had plenty to say about inflation being too low, and the need for more QE should the economy not turn around... In other words, more QE is coming! The Jobs Jamboree this Friday, should be the keymaster for the gatekeeper... In other words... The FOMC will be looking for any sign of weak data as an excuse to implement QE...

Currencies today 10/4/10: American Style: A$ .9695, kiwi .7425, C$ .98, euro 1.3720, sterling 1.5840, Swiss $1.03, ... European Style: rand 6.95, krone 5.8485, SEK 6.7315, forint 198.35, zloty 2.8790, koruna 17.8210, RUB 30.47, yen 83.25, sing 1.3135, HKD 7.7580, INR 44.55, China 6.6912, pesos 12.54, BRL 1.6895, dollar index 78.30, Oil $81.16, 10-year 2.47%, Silver $22.10, and Gold... $1,317.30

That's it for today... The end of a very frustrating season for my beloved Cardinals came yesterday, with them winning 10 of their last 12... A case of too little, too late for them. I went to the Blues hockey game Saturday night with my buddy, Alex. The Blues CAN be exciting at times... Their real season begins next Saturday night... Good Luck to them! And I see that my beloved Missouri Tigers are now ranked #23! YAHOO! I have a couple of interviews lined up this morning, both of the interviewers want to know my thoughts on Silver, which is pretty timely, eh? Well... Now it's time to say good bye... I hope your Monday is Marvelous!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837





Posted 10-04-2010 11:34 AM by Chuck Butler
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