Geithner Fuels A Rebound!
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In This Issue.

* 3 days of dollar strength are over.

* China raises interest rates.

* Brazilian real's trading pattern.

* Bollard disses kiwi again.

And Now... Today's Pfennig!

Geithner Fuels A Rebound!

Good day... And a Wonderful Wednesday to you! Thanks to Mike Meyer for taking the conn on the Pfennig yesterday, as I traveled. He'll be back with you tomorrow morning too, as I'll be driving from Stowe VT, to Toronto. Hopefully, my hip is up to at 6 hour drive. Yes, for those of you new to class, I have a replacement hip, but more. 2/3rds of my right femur was removed 3 years ago because of cancer, and the hip and femur is a one piece prosthesis that gets a little uncomfortable after sitting for too long. so, I'll have to ask Chris, who will be the driver for this trip to pull over, so I can change positions!

Speaking of changing positions. that's been the case for the currencies and precious metals VS the dollar for the last 3 trading days. A week ago, we were looking at levels not seen, in some currencies, ever, and for others not seen in over 2 years! I told you a week ago that I somewhat expected this to happen, as the currencies and metals had moved too far too fast, and needed to consolidate. this is what we've seen so far the last 3 days. And, also Like I've told you. I don't expect this dollar strength to last too long, for the dollar has no yield to attract too many investors.

And speaking of yield. The Chinese raised rates yesterday, and that has taken some of the wind out of the commodity currencies, like Aussie and kiwi. But like I explained to a group of bankers I was talking to last week. This isn't the first time China has responded the way a Central should respond when they see housing beginning to overheat! So they've done the fundamentally correct thing, and the markets, for now, see this as a bad thing for the Commodity Currencies, for if China is raising rates, that means their economy will cool down. but remember, I've told you this on more than one occasion. the Chinese economy is moderating. not collapsing!

And Gold? I just don't expect this sell off to last very long at all. for once the dollar goes back to the chopping blocks, because of no yields, Gold will rebound, in my opinion (yes, I could be wrong). Gold isn't just rallying in recent weeks VS the dollar either! Gold has rallied against all fiat currencies. there are more than a few people out there calling for an end of the fiat currency regime for the world. I'm not on that train, folks. but you know that the Armageddon crowd are all over that theory like a cheap suit!

And think about this with regards to Gold. Gold doesn't have Governments increasing taxes on it, Gold has no limits on inflows while supply is limited. And then we have the U.S. getting ready to unload $1 Trillion (at least) in their latest rendition of money printing known as Quantitative Easing. and while Gov't's are going around selling their currency to make it weaker, they sure aren't selling their Gold!

I gave an interview of sorts on the phone yesterday in the car, driving between Burlington, and Stowe. I was talking about Silver. I was asked if Silver was the "new gold". I said, it just might be going forward, because Gold has priced out the "mom and pops", but Silver still has a price that makes sense.

OH! AND HERE WAS THE BIG NEWS FROM YESTERDAY!!!! U.S. Treasury Sec. Geithner said yesterday that , "a weaker dollar may be in the national interest". WOW!

For years, all I've heard are the sex, lies and videotape, that "a strong dollar was in the best interest of the U.S.", only to have those muttering those words to turn around and say they want a stronger renminbi ( or yen , back in the day) . For once, a U.S. official speaks the truth about the dollar! Our plane to Burlington VT, had just landed when I got a text message from the big boss, Frank Trotter, telling that Geithner had said those words.

Apparently, the currency guys weren't paying attention to Geithner, for the dollar remained in control with the hammer firmly grasped in its hand!

BUT.. As Foreigner said. But that was yesterday. and Chuck adds. The dollar had the world in its hands, But it's not the end of the my world, just a short change of plans.

And so it was in the overnight markets. THOSE GUYS PAID ATTENTION in class, and knew that when a Gov't official like Geithner says that a weak dollar is OK, then traders are supposed to grant him his wish! So the rebound was on in Asia, and has carried over to the European session.

So. just about the time you were getting ready to panic. the hammer yielding dollar has slid back into its cave, like Puff the Magic Dragon, and you will not hear its mighty roar today.

One currency that's really on the rebound is the Aussie dollar (A$). I read story last night when I got back to my room about how traders were using the 3-day slide in the A$ to buy at cheaper levels ahead of what they believe will be a rate hike at the next Reserve Bank of Australia (RBA) meeting, or if not then, by year-end. And I thought to myself, I said, "self, isn't this what you've been telling people about? Telling them about the opportunities to buy at cheaper levels, and the rate hikes that are coming for Australia? Well, yes it is, self!" HA!

The Brazilian real really took one to the chin yesterday, as the Central Bank selling, combined with the added taxes to foreign investments really ganged up on the real. But if the trading pattern this year has shown us anything, it's shown us that the real reacts negatively to this kind of intervention for a short time, then bangs out of those restraints that the Gov't. has attached to the real, and gets back to rallying. Now, there's no guarantee that this will happen again, folks. But, that's been the pattern for 2010, and I don't see any reason for that pattern to change, as long as Brazil sports the highest interest rate around town.

But don't forget, the real is an Emerging Market currency, and can get caught in the crosswinds of an Emerging Markets sell-off, that has nothing to do with Brazil, but when it happens, all the Emerging Markets get thrown into a barrel, and treated the same. So, speculative money is all that should be used to hold real..

OK. I feel like the public broadcasting system when I talk about real, but. it's got to be done!

So. we begin today's trading with renewed fears of Quantitative Easing, and dollar debasement. And all that dollar buying the past 3 days is history!

In Canada yesterday. the Bank of Canada (BOC) downgraded Canada's growth forecast. UGH! In reality, the BOC sees the handwriting on the wall for the U.S. and believes it will filter over to the Canadian economy. which makes sense, eh? But. given that downgrade to the forecast, I still believe that the BOC will be back to the rate hike table by the end of the 1st QTR of 2011. So. the Canadian dollar / loonie, will have these bouts of weakness on and off. but the underlying bias for loonies will be to buy. I think. again, that's just my opinion!

And the New Zealand dollar / kiwi, is attempting to ignore the words from the Reserve Bank of New Zealand (RBNZ) Gov. Bollard who endorsed the current view ( by the markets) that rates are on hold until next year by saying "The markets ... expect that we will just be sitting there till early next year and that does not seem an unreasonable expectation". UGH! That's not what I expected to hear from Bollard or the RBNZ! But... you can go back for several years, and find where I've taken this guy to the woodshed on more than one occasion for dissing kiwi... He's not a proponent of the "strong currency is the best medicine" theory... shame on you Mr. Bollard!

But then right when I'm ready to throw him to the wolves, he says something that saves him... like last night when he also ruled out intervention by saying "FX intervention has only a temporary effect".

To recap... the dollar had the hammer for all of yesterday, marking the 3rd consecutive day of dollar strength... But then U.S. Treasury Sec. Geithner, said that the weak dollar was in our national interest... the U.S. markets didn't react to the statement, but the Asians did, and that has a currency and precious metals rebound in place this morning. China raised its interest rate for the first time in 3 years yesterday, doing what they feel they need to do to calm down their housing market, and Brazil is attempting to weaken the real once more... We'll have to wait-n-see how long this attempt lasts!

Currencies today 10/20/10: American Style: A$ .9770, kiwi .7480, C$ .9755, euro 1.3825, sterling 1.5720, Swiss $1.0365, ... European Style: rand 6.9470, krone 5.8995, SEK 6.7435, forint 199.55, zloty 2.87, koruna 17.7260, RUB 30.81, yen 81.25, sing 1.3075, HKD 7.7625, INR 44.38, China 6.6520, pesos 12.46, BRL 1.6715, dollar index 77.77, Oil $80.32, 10-yr 2.48%, Silver $23.73, and Gold... $1,342.00

That's it for today... a relatively easy trip here, as the planes left on time, there were no delays, and plane changes, etc. It's pretty up here in Vermont, but it's already cold, and you know how much I dislike cold weather! The mountains which Stowe sits at the foot of, received a foot and a half of snow this past weekend, so that should tell you something about how cold it is! It was great meeting up with a ton of the Jacksonville folks, that I don't get to see very often, and meeting some new additions to the team. One more day of meetings, then off to Toronto... Mike will have the conn on the Pfennig tomorrow... and... if I an twist his arm enough, maybe on Friday too... Well... it was great getting together with you this morning, or whenever it is you read the Pfennig. I thank you for your time, this time, till next time... Now go out and have a Wonderful Wednesday!

Chuck Butler


EverBank World Markets



Posted 10-20-2010 9:59 AM by Chuck Butler
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