Taking Back Lost Ground.
Daily Pfennig

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In This Issue.

* Bias to sell dollars remains in play.

* Norway & Sweden gain.

* Central Bank meetings today.

* BOE see inflation pressures.

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

Taking Back Lost Ground.

Good day... And a Wonderful Wednesday to you! It was "scans day" for yours truly yesterday. going from one part of the hospital to the other. You would think that all these areas where they do basically the same thing, but with different machines, would be in the same general area, eh? You know me, I'd find something that doesn't work efficiently any where!

All right! Now dig this baby. (a little Jimi to start the day). The currency markets, as far as I could tell when I got home yesterday afternoon, were once again led by the Big Dog, euro. This is so weird seeing this happen, given all the talk from people that have spouted off about this for a couple of years now, that the euro was going to collapse. OK, maybe this is a case of a shining star burns the brightest right before it burns out. But, I don't think so. And By the way, the euro has taken back the 1.37 handle this morning. Every step higher for the euro is taking back lost ground.

I like watching the little dogs, when the Big Dog gets going. for instance, Norwegian krone. The krone has long been one of my fave currencies, due the fiscal stability of the country. Time Magazine, a couple of years ago, called the krone the "safest currency in the world". Well, I wouldn't go that far, but fundamentally speaking, the krone is on terra firma for sure! And Norway's kissin' cousin, Sweden, and its krona, have become the darlings of a lot of currency pundits. (they got tired of banging the drum for Norway, and switched to Sweden, like those two guys in the TV commercial). But, when you do a quick chart of the best performing currencies (of the majors) year to date (4 weeks), the Swedish krona, sits on top. followed by the euro, and then the Danish krone. Interesting top of the heap I would say.

This morning, we'll see what Norway's Central Bank, The Norges Bank, has up their sleeves, as they will announce their rate intentions. I don't see the Norges Bank raising rates right here, right now. and, we could actually see a statement by the Norges Bank that's on the dovish side. There's a new sheriff (Central Bank Gov.) here, and you might see him attempt to put "his stamp" on the rate announcement. if that happens, I would expect the krone to back off a bit.

There's a Global Investor Poll that indicates that most global investors predict at least one nation will leave the Eurozone within 5 years, and could be 2 leaving. The two Ireland and Greece. I find this to be very interesting, because this is something I told an audience in Scottsdale AZ, last February! I also told them that the short-term hit to the euro would be bad, but eventually, it would be a good thing for the euro. I compared it to the slowest Buffalo theory. (I crack up at the comparison Cliff Clavin used on the old Cheers show). But, that's something for those that can see into the future.

Gold & Silver got whacked again yesterday, as things just keep piling on these two precious metals. Things like successful bond auctions in Europe, brighter forecasts for the U.S. economy, and now the state of the union address last night, that should leave many people feeling like they just drank one of those energy drinks. Just wait for the "crash" later.

To me, Silver is the metal that has me scratching my bald head. I had a reader send me a note that said he had gone to the mint to buy Silver coins, like he has always done, and they, for the first time, put a limit on the number of coins he could buy. 200. Hmmm. Something's strange here folks. Demand is soaring, and the price is falling.

The Reserve Bank of New Zealand (RBNZ) also has a rate announcement due this afternoon. And I don't expect any fireworks here either. Everybody's on hold, for now.

And that includes the Fed/ Cartel/ Bernank. Which will end their 2-day meeting that was filled with some competitive board games. Hey! They've got to fill the time with something! Why else would they need 2-days, to announce that they are keeping rates unchanged, and the U.S. economy is continuing at a slow pace? Hey! They have to say that about the economy, or stop the QE2!

And China's President, Hu, has returned home. It's now time for the renminbi to stop aggressively gaining VS the dollar! HA! Well, that's what's happened any time in the past whenever the U.S. visited China. As soon as it was wheels up for the plane, the renminbi would weaken.

In all my "down time" going from one area of the hospital and waiting, to another area and waiting. I got to do some reading, and one of my fave pieces to read each day is the Daily Reckoning (www.dailyreckoning.com). yesterday there was a great example of what I've been talking about for years now... And that is... having the Chinese allow their currency to gain VS the U.S. will not be that big of a deal to the Trade Deficit, but... will act as a tax on U.S. Consumers because their purchasing power was reduced, by the fact that the dollar weakened VS the renminbi... Here's a snippet of the story from yesterday's D.R....

"Imagine, for example, the Obama administration got its wish and the Chinese renminbi rose relative to the dollar and all other currencies by 20% in the year ahead. Using the example of the iPhone, such an appreciation in the value of the Chinese currency would reduce the price of all of the imported components by 20%. As a result, only the cost of final assembly in China would be affected, rising 20% to $7.20. Assuming a full pass-through, that would increase the imported price of the iPhone by a mere 70 cents, or less than 0.5%. Hardly enough to alter trade flows." (you can read the whole story by clicking the link above, and I realize there's more to the story, but I don't have the space for it all)

Chuck again... The lawmakers of this country had better stop, hey now, what's that sound, everybody looks what's going down, because one day the people of the world are going to say, "hey, if the U.S. wants their currency weaker we can darn well help them with that, now can't we?"...

OK. back to other stuff. The Bank of England (BOE) is finding itself between the proverbial rock and another rock these days. Inflation is really picking up steam here, and the BOE is nowhere near a place that would allow them to raise interest rates to combat the rising inflation pressure. BOE members are even commenting on the inflation pressures. But, I don't see the BOE having the intestinal fortitude to hike rates right now.

And that plays well with the Bernank. Look folks. the U.S. has issued tons and tons of debt in the form of Treasuries. These Treasuries have interest rates attached to them, and that interest is paid to the holder of the Treasuries every 6 months. Now. the U.S. can barely make the payments on the interest due now, because of reduced tax receipts. What happens if interest rates rise aggressively here to combat the inflation pressures we're going to see in the next year? That's right. the interest cost on the debt is going to choke us, and out economy. But, then again, deficits don't matter, right? NOT! But not to worry, because as the interest cost is choking us, our Consumer Confidence will be high. you can bet your sweet bippie on that!

Well. Home Prices here in the U.S. took another hit in November according to the S&P/CaseShiller Home Price Index, which printed yesterday, showing a drop of 1.59% in home prices for November. But get this. Consumer Confidence rose Big Time this month. the Consumer Confidence Index went from a level of 54 to 60.6! WOW! I guess all that talk about the economy on the upswing is really working, to get people feeling more confident. That, and the stock market is cooking with gas these days.

Today, we'll see the New Home Sales data from December. Home Prices, keep falling, and New / Existing Home Sales keep rising. Now, that's what we need here. we need for the home prices to continue to fall, so that Americans can get cheaper housing. And with mortgage rates at 4%... It's like the perfect scenario to kick off another housing bubble! I sure hope someone notices this is going on. The only saving grace right now with regards to holding down the possible housing bubble is the unemployment problem, and. I guess it's actually two things. the Inventory.

Then there was this. from the Kansas City Star. The crisis that nearly took down the U.S. financial system in 2008 could have been anticipated and prevented, the Financial Crisis Inquiry Commission said. "The greatest tragedy would be to accept the refrain that no one could have seen this coming and thus nothing could have been done," the panel said. "If we accept this notion, it will happen again."

The commission that investigated the crisis casts a wide net of blame, faulting two administrations, the Federal Reserve and other regulators for permitting a calamitous concoction: shoddy mortgage lending, the excessive packaging and sale of loans to investors and risky bets on securities backed by the loans.

Chuck again. the Gov't could have saved some major dinero, if they had just read the Pfennig, or. better yet, hired me to compile the report! HA! Let's see here, we'll start back in the mid 90's, Big Al Greenspan was the Cartel's Chairman. That's a great place to start.

To recap. The bias to sell dollars remains, but it's a very weak bias. The euro is leading the currencies charge against the dollar once again, with the single unit trading over 1.37 this morning. Norway and Sweden are doing a great job of following the euro higher. The FOMC ends their 2-day, board game-palooza, today. no change in rate or comments is expected. And, it's time for the renminbi to stop gaining aggressively, as their President is back home from his trip to the U.S.! And. Home Prices continue to fall in the U.S..

Currencies today 1/26/11. American Style: A$ .9980, kiwi .7675, C$ $1.0050, euro 1.3695, sterling 1.5865, Swiss $1.06, . European Style: rand 7.0850, krone 5.7430, SEK 6.4835, forint 199.85, zloty 2.8270, koruna 17.6840, RUB 29.75, yen 82.20, sing 1.28, HKD 7.7845, INR 45.70, China 6.5830, pesos 12.06, BRL 1.67, dollar index 77.82, Oil $88.90, 10-year 3.37%, Silver $27.12, and Gold. $1,336.55

That's it for today. Well... another round of scans were taken yesterday... I was 3 months past my normal every 6 months... I tried to forget about doing them, but those darn doctors! HA! so... I'll find out what's up, doc, tomorrow afternoon, but I don't expect anything... In fact, I'm actually feeling better right now than I have in a long time, other than this stupid little cold I have. A great Big Happy Birthday to my youngest sister, Joanie, who lives in Houston, Texas, and I get to see about once a year.. She used to follow me around, and hang on me. But then like Puff the Magic Dragon felt, I found girlfriends. and that was the end of that. OK. We're closing in on Birthdays for Chris Gaffney and our little Christine both of whom celebrate this weekend, with Chris on Friday and Christine on Sunday. I know a lot of customers talk to both Chris and Christine, so, when you talk to them this week, you can wish them a Happy Birthday! And then one more time on the notice that the Orlando Money Show is Feb 9-12, at the Gaylord Palms in Kissimmee. It's free, and you get to come see me! HA! OK. out the door with this letter, Chuck! I hope you have a Wonderful Wednesday!

Chuck Butler


EverBank World Markets



Posted 01-26-2011 9:59 AM by Chuck Butler