Trichet's Last Meeting.
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In This Issue.

* The weak Bias to sell dollars remains.

* Gold rallies back!

* SNB intervenes to weaken the franc.

* U.S. legislature on China should die!

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

Trichet's Last Meeting.

Good day. And a Tub Thumpin' Thursday to you! 47,000 Cardinals fans at Busch Stadium were Tub Thumping last night. The stadium was rocking. Chris was amazed at how loud, and energetic the crowd was. I had seen it the night before, but still quite a pretty sight..

And it was a pretty sight to see Gold turn around yesterday morning and head North once again. To watch these gyrations is pretty amazing sometimes. And I love it when an asset is down in the dumps in the morning, but rallies throughout the day. And conversely I strongly dislike when assets fall in price when there is no fundamental reason for it. I understand corrections. What I don't understand are the "unusual circumstances". Wink, wink. for we all know what I'm talking about here. The price manipulations. But, for now, Gold is rallying. so, there you go!

The currencies continued their bias to rally yesterday. And again, fundamentally speaking. The currencies like Norway, Australia, China, Singapore, Canada, and a few others, shouldn't have to deal with these crazy "flights to safety" which sells the currencies and buys dollars. For, their fundamentals are stellar compared to those of the U.S., Eurozone, and even Japan. But Japan is a different animal.. fundamentals are thrown out the window when it comes to Japan.

Well. it was confirmed in a roundabout way yesterday that the Swiss National Bank (SNB) has been intervening to weaken the franc's value. I say roundabout, which by the way is a great old rock song, because the SNB doesn't just come right out and tell us. One has to get the figures from the SNB report on Foreign Currency Reserves. So, they way I look at it, if Foreign Currency Reserves jump, then the SNB has purchased them, after selling francs. For the most part. we're talking about the SNB buying euros. So. their Foreign Currency Reserves rose 11% in September from August.

OK. that's how I look at it. and the SNB has achieved their goal, right? They have maintained the floor they put in against the euro. and the franc's value VS the dollar has plummeted.

Now. back to Japan. talk about a basket case of a country. All I'll say is that Japanese officials should thank their lucky stars that the markets give the yen credit for having a population that consists of savers. It is thought that the Japanese debt, which is legendary in size, could be self financed by the Japanese savers. I don't know if anyone has bothered to check that lately. It's almost like an urban legend. Sort of like when investors believe that the Swiss franc is still backed by Gold!

And. so it seems that China's claim that the measure being discussed in the U.S. Senate to pass legislature designed to pressure China into allowing a faster appreciation of the renminbi, by placing duties on China imports, is.. Against World Trade Organization (WTO) law. So. if the U.S. implements the measures, China will petition the WTO, and the U.S. will lose that lawsuit in the WTO. Because, to place duties on Chinese imports, is based on a weak currency policy that's followed in China, not a subsidy.

So. not only would the U.S. tick off their financier. they would be told to stop. So knowing that they'll have to stop in the middle of the stream, wouldn't it makes sense to just let that bill / legislature die? I think so. We don't need to tick off China.

Listen to me now and hear me later dear reader. The U.S. depends on the kindness of strangers to allow us to continue our deficit spending. And the major "stranger" is China. The day China does a Roberto Duran, and says "no mas". we as a country will turn into Greece, with insurrection in the streets, because the Gov't won't have the money to continue to issue food stamps, and all the other Gov't boondoggles that exist. So. please. let's not tick off China.

People argue that China needs us as much as we need them. And a few years ago, that was true. China got their financial strength from exporting goods to the U.S. But when the you know what hit the fan in 2008, and China's exports to the U.S. went to hell in a hand basket, the Chinese decided to change. And they promoted domestic & regional growth. So, yes China needs the U.S. to continue to buy their goods, but not more than we need them.

OK. today is European Central Bank (ECB) President, Trichet's, last meeting. I bet he's thankful for that! There are some analysts that are calling for a ½% (50 basis points) rate cut today. I doubt seriously that Trichet, in his last ECB meeting, will go for that! Especially with the latest print of inflation for the Eurozone running at 3%, well above the ceiling target of 2%... So. I believe it will be a no rate move meeting for the ECB, and Trichet in his last meeting. I've said this before, but for all of you new to class. When Trichet, who was the top dog French banker, took the reins from Wim Duisenberg and became the President of the ECB, I was not a fan. After all, and no ill will meant here, he was a French banker. Not a Bundesbank banker, not a Dutch banker or Austrian, but French. The Bank of France had a bad reputation when it came to credibility and providing price stability. But.

Mr. Trichet has done a very good job at the ECB. and while I'm sure he would love to have left the post, with the Eurozone in much better shape, he didn't tell the Greeks, and other peripheral countries to run their deficit spending to unsustainable levels. He has strengthened the credibility of the ECB, and now it's Draghi's turn. And again, I'm no fan.So, hopefully when his term is complete I can repeat this discussion about Trichet, with Draghi.

But. in getting back to the what I said above. there are analysts that believe a ½% rate cut is coming. maybe not today, but soon. What will that do to the euro? Well. I guess it all depends on what the markets are rewarding currencies on at that time. Go back to our discussion about how in 2000 & 2001, the markets would reward currencies from countries that cut rates to promote growth. Which is completely opposite from the normal trade, that rewards currencies that have rate differentials VS others. So, what will the markets think about that?

We'll have to watch this carefully. The reason I say that, is that once analysts begin talking about something like that (a ½% rate cut), the markets begin to price it in. Look at how they did that in Australia, punishing the Aussie dollar (A$) when a rate cut got priced in, even though no rate cut has come about. Well. the euro has rallied the past two days, and is up a bit this morning going into the meeting. So, one never really knows with the fickle markets, but, that's how I see it this morning.

The Bank of England (BOE) was first up this morning, and they have already announced that they are leaving their rates unchanged. And as I said earlier, I believe the ECB will do the same.

Well. the Challenger Job Cuts report printed yesterday, and it was U-G-L-Y! Sort of like that old saying about being so ugly that it wasn't just the ugly tree, but instead the whole forest! Here goes. hold on. U.S. employers announced the most job cuts in more than two years in September! Announced firings jumped 212%... Yes, the military's 5-year troop reduction plan plays here. but still, think about the 30,000 jobs cuts that was announced at Bank of America, and so on. And, add this 212% increase in September to the 47% increase in August, and the trend is not our friend!

With it being a Tub Thumpin' Thursday, we'll see the Weekly Initial Jobless Claims, which you may recall had an impressive 39,000 drop reported last week. It will be interesting to see what the report shows this week, given the Challenger data. I would bet a dollar to a Krispy Kreme that last week's data is revised upward. Not that I want to see that, it's simply a matter of fact type of thing!

Then there was this. from the Asia Times. Year-on-year consumer demand for Gold in 2010-2011 grew 38% in India and 25% in China, compared with a 7% worldwide growth of Gold Sales. Accounting for over 55% of global craving for the noble metal, India and China ensure Gold remains a trusted refuge of investment in an ailing world economy, weakened further with the deepening debt crisis in Europe and the United States.

On September 25, China joined the U.S., Germany, Italy and the UAE, in having ATMs that dispense bullion and gold coins."

Chuck again. Yes, now more than ever before, the Chinese people can buy Gold, which is promoted by the Gov't that they do so. Yes, that's right, the Chinese Gov't encourages the public to buy Gold!

To recap. the currencies rallied yesterday and have a bias to continue to rally, with the euro leading the way. Gold reversed yesterday's morning selling to finish in the black yesterday, and is up again this morning. Today is ECB President Trichet's last meeting. Chuck doesn't believe there will be a rate change today, not at Trichet's last meeting. And the unemployment data here in the U.S. continues to get worse!

This just in. The ECB did leave rates unchanged at the meeting this morning. however, the euro is getting sold on the news. strange days indeed, so peculiar momma..

Currencies today 10/6/11. American Style: A$ .9720, kiwi .7710, C$ .9605, euro 1.3310, sterling 1.5315, Swiss $1.0805, . European Style: rand 8.00, krone 5.8625, SEK 6.8615, forint 222.35, zloty 3.2935, koruna 18.6285, RUB 32.45, yen 76.65, sing 1.3025, HKD 7.7840, INR 49.24, China 6.3550, pesos 13.54, BRL 1.8320, dollar index 79.16, Oil $80.55, 10-year 1.90%, Silver $31.27, and Gold. $1,650.90

That's it for today. Well. The Cardinals get to play another game. that was a good game last night, I was sure glad I was there for that! My beautiful bride is off to N.Y. City today, with her friends, for her very first visit to New York City. I'm not a fan of the city, being a country boy at heart, but she'll have fun. I began my radiation treatments yesterday. everyday m-f for the next month. it took the people in the hospital a long time to get the markings just right, which meant I wore that mesh mask for over an hour, when I left the hospital, my face was like a waffle iron. I looked like the horror guy, pin-head, without the pins! The guy at the parking lot at the stadium, just looked at me strangely, and pointed. It won't take that long from now on, so that's good! And with that. I thank you for reading the Pfennig, and now let's go make this a Tub Thumpin' Thursday!

Chuck Butler


EverBank World Markets



Posted 10-06-2011 10:47 AM by Chuck Butler
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