Germany Calls The Shots.
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In This Issue.

* Bias to hold dollars remained yesterday.

* Eurozone Summit kicks off today.

* TIC's data is strangely bad!

* Inflation is here.

And, Now, Today's Pfennig For Your Thoughts!

Germany Calls The Shots.

Good day... And a Tub Thumpin' Thursday to you! An icy street Thursday too! Yes, as usual here in the "middle of the country" we get ice on the roads. Makes for interesting driving, that's for sure! Then as I stepped out of my car in the parking lot, my foot hit ice, and I started to slide, which if the slide had continued I would be on my rear end, and probably in much pain. But I caught myself, righted the ship, and got on terra firma without ice.

So. that's how my morning has started. How about yours? We had more of the same bias to buy dollars yesterday, with Gold falling further, along with Silver. The Currencies held their ground pretty good, but the bias to buy dollars was there for us to deal with. I've been here for awhile now, and I'm not seeing any movement either way in the currencies, and Gold is up $3. The euro still has the goings on with the debt-crisis facility negotiations, causing the single unit some pain. And when the euro has pain, the rest of the currencies fight to gain ground VS the dollar.

The debt-crisis facility negotiations have gotten pretty heated, but in the end. I do believe that the direction that Germany wants to go, will be the end-game for those negotiations. The shape of the Eurozone is going to be driven by the region's largest economy it's that simple. At least to me it is, and I do believe the Eurozone members see that too, but have to put on a show to make their constituents back home feel like Germany didn't push them around. You may ask yourself what happens if Germany decides to no longer underwrite the debt of the periphery countries in the Union? Well. I don't think it would come to that, as I've said before Germany does quite well using a single unit currency, the euro, in Europe. So, I don't believe they would jeopardize that. So. whenever German Chancellor, Angela Merkel, says something, it's like one of those old E.F. Hutton commercials. people listen.

I wonder if Angela Merkel ever thought, growing up in E. Germany, that her words would move markets in Europe? I understand that she's really a physicist. strange, eh? But, hey! She's been one of my fave political people with her stance on budget reductions, and sound fiscal policy.

OK. enough on that! But. before I go on to something else, I do need to mention that the European Union's 2-day Summit kicks off today. There will be many voices heard the next two days, but Angela Merkel's will be heard over all of them. Because, like I said above, her country underwrites the debt of the periphery countries.

Yesterday, the TIC's data here in the U.S. were strangely bad. I mean only $7.5 Billion of net foreign purchases were made in October. and the dollar remained bid? I mean that wouldn't pay for 1 day's worth of deficit spending! Global demand for U.S. Assets (read Treasuries) must have gone with the wind in October. This is serious stuff folks. but, I doubt you'll hear or see it mentioned anywhere else.

The Swiss National Bank (SNB) met, under a veil of secrecy, well. not really, but shoot Rudy, I had to search to find this news! Any way. the SNB left rates unchanged, and only moved their inflation forecast marginally higher. Hmmm.

Inflation. Well. I walked past Ty's desk yesterday, and he was reading a report from John Williams, of the Shadow Stats fame, and inflation was the topic. John Williams believes that we will have hyperinflation in this country within the next two years. Remember when I told you about the National Inflation Association (NIA) and their claims that inflation was soaring already? The NIA has said that they "believe that if the U.S. stays on its current path, we are guaranteed to see hyperinflation this decade. The only way it will be possible to prevent hyperinflation is if the U.S. government dramatically cuts spending across the board immediately and if the Federal Reserve raises interest rates from near zero percent (where they have been for nearly two years) to a level that is higher than the real rate of price inflation. Considering that the Federal Reserve still claims to fear deflation and just announced massive quantitative easing, we see very little chance of any major interest rate hikes taking place during the next six months."

Now. getting back to John Williams. this man has done a wonderful job of presenting the "real numbers" that the Gov't will not produce. And so, when he says that he believes that hyperinflation is but a couple of years away, I believe him! And. you should too. There's just no reason not to! And I'm sure that if you are a person that says, "but I'd rather believe the Fed Chairman and stand behind him in his fight with deflation". Well. then, I'm sure that in a couple of years, you'll be saying, "Geez I wish I had not followed the Fed Chairman down the slippery slope of inflation".

And. I think that all you have to do is to watch the bond markets. I think the bond markets are seeing what John Williams, and yours truly are seeing, and that's why Treasury yields are rising! The 10-year added another 4 BPS yesterday. Hello? Is there anybody in there? Is there anybody in there? Yes, I know most people have become comfortably numb with the low rates, but that's all about to change folks.

You know. I could get into my mode of digging into the back of the deep, dark closet, but, this is my last day of writing before I head to vacation and Christmas, so. I'll save you from that depressing stuff. But here's a snippet for you. just a tease. The bailout money didn't save us. It will be one of the causes of our hyperinflation.

In fact. the spending for this, that, and other things that the Gov't keeps doling out is going to prop up the economy for a while. and there will be people that become complacent with this arrangement, because on the outside, things are going to look good. But it won't be. and eventually, things will unravel, and come crashing down. Where will your investment portfolio, your accumulated wealth stand? Will you be able to keep your head above the rising waters? I sure hope so.

OK. enough of that too! Dear Lord, please grant me the ability to be positive on this last day of writing for 10 days.

Well. it looks like there's some healing going on with the currencies, as I get close to heading to the Big Finish. There has been no word from the people watching the CFTC (Commodities, Futures, Trading Commission) on what I'm hoping is a reprimand for those that have manipulated precious metals prices for years. And. a demand that the positions used to manipulate be unwound. I'm just wishing, and hoping, and thinkin' and praying. that could be in the hearts of the CFTC people to announce. It's probably a pipe-dream, eh? OH! And I have to say that it's all speculation on my part that there are institutions that have manipulated precious metals prices. But, if you don't believe that to be the case, then explain to me, why with all the crack pots shooting off missiles, and promising to wipe countries off the map, with the U.S. fighting multiple wars. Afghanistan, Iraq, drugs, poverty, and others, the U.S. deficit heading another $1 Trillion higher this year, interest rates are near zero for over two years now, and other things, that the prices of Gold and Silver are not reflecting all these things?

Sure Gold & Silver had one heck of a decade 2000 through 2010. But come on! Hyperinflation is right around the corner! In 1980, when inflation was soaring, and interest rates had to be jacked up to fight the soaring inflation, Gold traded past $800. So. given that, Gold should be much higher today..

Well.. that "slip" this morning, has my knee and back screaming for some Advil. and apparently, from my review of what I wrote, made me full of you-know-what and vinegar!

Then there was this. Competing for bank industry attention on this Tub Thumpin' Thursday will be the testimony of U.S. Treasury Secretary Timothy Geithner on the $700 billion Troubled Asset Relief Program (TARP) that was used to bail out major financial firms like Citigroup and automaker General Motors.

The often-criticized TARP program will cost taxpayers $25 Billion according to a recent congressional estimate. I'm sure Tiny Tim will not "recall" a lot of things, like he did his tax reporting, and fill the rest of the time with. no I can't say what I would like to say there. It's the new me, being under the microscope of the legal beagles. So. you fill it in.

To recap. the bias to buy dollars remained in the markets yesterday, but the trading range was very small, leaving me with the feeling that they held ground on the day. Gold & Silver did not hold ground, and weakened VS the dollar. The EU Summit kicks off today. there have been some nasty negotiations going on with the "debt-crisis facility" between member nations. but remember, in the end, only Germany's opinion counts! The SNB left rates unchanged this morning, and it's slippery out!

Currencies today 12/16/10: American Style: A$ .9895, kiwi .7390, C$ .9950, euro 1.3240, sterling 1.5610, Swiss $1.03, . European Style: rand 6.8565, krone 5.9670, SEK 6.8490, forint 206.60, zloty 3, koruna 18.9790, RUB 30.75, yen 84.10, sing 1.3150, HKD 7.7750, INR 45.35, China 6.6650, pesos 12.43, BRL 1.7025, dollar index 80.05, Oil $88.11, 10-year 3.46%, Silver $29.20, and Gold. $1,384.80

That's it for today. well. It's beginning to look a lot like Christmas! And that makes me happy! Can't wait to see Delaney Grace on Christmas morning! We took our Trading Desk picture the other day for our Christmas cards. Look for the picture-card in your email box next week! Tomorrow is a fun day, as I get together with "the boys", and we go "shopping". (hint, we really don't shop!) And we hire a driver to take us around all day! Good stuff! Alex was one of only 4 wrestlers on his team to win last night. He wrestled for the first time at his weight (he had been wrestling up a weight class) and looked good. OK. without trying to sound sappy. I want to thank everyone for sticking with me and the Pfennig each day. I know that I get off on tangents and all, but in the end, It's all about getting you information with some meat that will help you make investment decisions. So. thank you for reading the Pfennig. and thank you for all the support you dear readers have sent my way over the years.. I was thrown a curve 3 years ago, but I'm still in the batter's box fouling off pitches, and you, dear readers, were one of the reasons I'm still there. Your thoughts, and prayers meant so much to me. And now, it's time, to say good bye. I doubt I'll be sending Chris any notes next week, but you never know!

It's time for me to go. get through a myriad of meetings today, and then it's on to vacation and Christmas. I've left you all with these words for the last few years. so here goes.

May the light of faith, the warmth of heart, and the love of family be your gifts this year.

Chuck Butler


EverBank World Markets



Posted 12-16-2010 10:39 AM by Chuck Butler