Kiwi Sets A New Post-Float High!
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In This Issue.

* Dollar bias is reversed.

* German Business Confidence falls.

* ECB to accept defaulted bonds?

* Selling Gold. not me!

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

Kiwi Sets A New Post-Float High!

Good day. And a Tom Terrific Tuesday to you! Today is it! I'm not coming into this office on summer mornings until the air conditioner kicks on. Hey! I'm no baby on this. I'd rather be outside, at least there's a breeze blowing! My beautiful bride will just "love" me staying home in the early morning, making noise, playing my I-Pod, and banging on the keys!

Ok. I got that off my chest! Well. Gold continued its journey higher yesterday, until the overnight markets decided to take some profits, but the shiny metal is still above $1,600 this morning! I just find this to be quite significant, especially since a "name" newsletter writer told his customers, just last week, to sell their Gold. Didn't make any sense to me. but, then, during this Bull Market for Gold, any time someone has said that Gold was a bubble, or that Gold had reached its destination, or other things like that, none of that made sense to me.

The dollar must have gotten tired from swinging that mighty hammer yesterday, because it stopped swinging. Yes, around noon, traders shifted their bias to selling dollars. It was like the movie Trading Places, when they ran the orange futures up, and then the sells came in, or vice versa, I don't recall the directions, but the directional change is what I'm talking about. So. yesterday morning's figures on the currencies don't look like they do this morning!

So. you could call this a Risk On Day. as dollars, Swiss francs, yen and Treasuries are weaker. The currencies led by the euro are back on the rally tracks this morning. but I've got to tell you that all this back and forth stuff is really beginning to wear out your old Pfennig writer!

The risk assets got a boost yesterday afternoon, when Greek Finance Minister told reporters that "a resolution of the crisis is attainable." And that comment was followed up by a comment by European Central Bank Governing Council member, Nowotny, that the "ECB may be willing to compromise on the use of Greek bonds as collateral after a default."

Whoa there partner! This past weekend, ECB President, Trichet, said that the ECB could not and would not hold bonds from countries that had defaulted. So. what's up here? I just don't see the ECB compromising as Nowotny believes they will do. But then he's a "governing council member" and I'm just some guy trying to make sense of all this.

So, whether the ECB will accept Greek bonds as collateral or won't, is being swept under the rug this morning with the thought the ECB "might". I mean, this news is so powerful, that it has pushed aside the German Business Confidence print that showed a fall in the index number to reach a level not seen since January 2009. I'm surprised at this weak showing, as exports continue to go out the door at a strong pace. But then, the ECB did just hike rates again. So. there you have it. The acceptance of Greek bonds is a more powerful pull than German Business Confidence.

That's surprising to me, because, with Germany being the largest economy in the Eurozone, by a large margin I might add, I would think that they would be the straw that stirs the drink in the Eurozone.

Did you see the rot on the Net Security Purchases by foreigners (TIC's Flows) that printed yesterday? Of course you didn't, because no one wants to have to explain this data on TV. they get 20-second sound bites! Well. Net Long-term flows were only $23.6 Billion. (the forecast was for $40 Billion!) That's awful folks! The U.S. during the month of May, was only able to attract a net of $23.6 Billion in security purchases by foreigners.

I saw a report that said that China has increased their holdings of Treasuries during May to $1.16 Trillion. Well, the Chinese had a HUGE Trade Surplus in May, so that makes some sense. but, the thing you won't see anyone report on because it doesn't make people feel good, is that China has been backing away slowly from the Auction table here in the U.S. For instance, yes, they increased their holdings, but the pace of their buying is slowing. At least that's the feel I get from the stuff I see.

A quick look at the currency screen this morning, and I see that the New Zealand dollar / kiwi, has set yet another new post-float all-time high level. Kiwi is trading this morning above 85-cents! I point this out because, even in 2008, pre-financial meltdown, when it looked as though the U.S. dollar was falling off a cliff, kiwi wasn't even close to 85-cents! So, the currency is wanted more now than when the dollar was teetering in pre-financial meltdown times.

I'm sure that Reserve Bank of New Zealand (RBNZ) Gov. Bollard will be "dissing the currency" soon, as he has been known to do, to throw the markets off the scent of a rallying kiwi. But in Bollard's heart of hearts he knows that the strong kiwi, is doing some of the work that a rate hike would do, and with the New Zealand economy still attempting to get its legs underneath itself, a rate hike might be harmful. So, if he remains mum on the kiwi's strength, then this is the reason why. but I doubt he'll be able to fight off the urge to diss his currency!

And then New Zealand's kissin' cousin across the Tasman, Australia. The Aussie dollar (A$) seems to be spinning its wheels around the $1.06 -$1.07 range. As you know, I watch these things with great interest, in that I like to see if my "hunches" are correct. Like in Gold earlier this month, when I said it was forming a new base around $1,500 to move higher from. Well. the A$ seems to be looking for something to spring it forward from here. A rate hike would do the trick. But as I told you last week, the calls for a rate cut in Australia are growing louder.

So, the A$ is going to have to find their "wind" for their sails someplace else, I'm afraid. So, either, the markets will grow tired of seeing the A$ not move past $1.07 and begin to sell their stale old long positions, or the A$ will find that "wind" and take off from here. I told you last week, that I had seen a report that called for the A$ to go to $1.25. And now, a reader from Australia, sent me an article that once again made that call.

You have to remember that Asia seems to have the only countries where there's consistent economic growth. And Australia's 4 biggest trading partners are: China, Japan, S. Korea, and India. Maybe that's where the "wind" comes from!

And in China, after spending a few days last week not gaining VS the dollar, the renminbi is back to taking small chunks out of the dollar's value. And why not? Chinese economic data, even if you can only believe ½ of what they tell us, is still strong. And the U.S. lawmakers sure believe that a stronger renminbi against the dollar will cure all that ails us. We all know that by believing that the lawmakers are barking up the wrong tree. but that's what is in front of us right now, so. we go with it!

Just imagine if lawmakers had heeded the suggestions of the Chinese for years now, that U.S. lawmakers should concentrate on getting their own house in order, that maybe right now, we wouldn't be mired in this debt ceiling deadlock. It's always someone else's fault, right?

The Bank of Canada (BOC) meets this morning. I doubt the BOC will hike rates this month. I still believe a rate hike is coming, probably next month. The Canadian dollar / loonie is stronger this morning, but I would think that it could see some traders exiting after the BOC makes its announcement, as they bought loonies on a flyer that the BOC would hike rates today. Once that doesn't materialize, they'll get right back out.

Well. did you see the news that Borders Group announced that they are going to liquidate the store, as no buyers materialized. Borders employs 10,700 people, that will soon not have a place to go to each day. Add to that bad news, the news that Cisco announced yesterday that they will cut 6,500 jobs. Let's hope this isn't the start of another round of deep cuts because of the stagnant economy.

Then there was this. I truly meant to report on this yesterday, but once again, my recall that I had it in my back pocket failed me. So. here we go! This from the Washington Post on Friday. "Obama administration officials have been privately exploring with major banks and foreign investors whether the government could devise a way to avoid a severe disruption in financial markets .....Officials have discussed suspending some domestic spending in order to make payments to investors in U.S. bonds - which include domestic pension funds and the Chinese government - and possibly selling assets such as gold"

Chuck again. did you read that last line? "possibly selling assets such as Gold"? Hmmm. you, know, for years I've had people ask me why the U.S. doesn't just sell its Gold holdings and pay off the debt. I tell them that the debt has gotten so large, that the President would have to pull a FDR and pushed through the Gold Reserve Act of 1934, the US realized a dollar devaluation of 41%, when the government officially raised the price of gold from $20.67 to $35 an ounce.

I've done the math on this. and the total amount of Gold held in Fort Knox, and the Fed New York if sold, would only dent the debt. but would give the Gov't some breathing room to pay some bills should the debt ceiling not be raised.

To recap. It's a turnaround Tuesday, with the currencies reversing the dollar bias beginning late yesterday afternoon, and carrying through to the overnight and sessions in Asia and Europe. Gold moved steadily higher all day yesterday, but has seen some profit taking this morning. not much, but some. The New Zealand dollar has hit another post-float all-time high of 85-cents this morning. And another writer is calling for the A$ to move much higher from present levels.

Currencies today 7/19/11. American Style: A$ $1.0675, kiwi .8510, C$ $1.0475, euro 1.4175, sterling 1.6120, Swiss $1.2210, . European Style: rand 6.94, krone 5.54, SEK 6.50, forint 191, zloty 2.84, koruna 17.3075, yen 79, sing 1.2160, HKD 7.7950, INR 44.49, China 6.4630, pesos 11.69, BRL 1.5745, dollar index 75.08, Oil $96.76, 10-year 2.95%, Silver $40.31, and Gold. $1,602.65

That's it for today. the boys were at the house when I got home yesterday having "band practice" Did you ever play or hang around a garage band in your youth? Well, these kids are a "garage band" that plays in my basement! When I was a young man playing my guitar, we used to have band practice in our basement, and my mom used to come downstairs to listen to us play, she loved having us there playing music. I go to the ocularist today to have my eye prosthesis "polished up" I'm feeling pretty good these days considering. so, I carry on. so, thank you for reading the Pfennig, and I hope you have a Tom Terrific Tuesday!

Chuck Butler


EverBank World Markets



Posted 07-19-2011 12:31 PM by Chuck Butler
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