Euro Rally Fizzles Out, Having Gone Too Far, Too Fast.
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In This Issue.

* Euro gains over 2-full cents before pulling back

* A$ gains to $1.07 before pulling back

* U.S. 3rd QTR GDP at 2.5%...

* China offers Eurozone help.

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

Euro Rally Fizzles Out, Having Gone Too Far, Too Fast.

Good day. And a Happy Friday to you! It's already a Fantastico Friday in my book! The Cardinals kept coming back, and faced elimination 2 times with 2 outs and 2 strikes on the batter, but eventually won in 11 innings forcing a Game 7 tonight! WOW! And. today will be my last radiation treatment! Don't know which one has me more pumped up this morning like Hans and Franz. Oh, who am I kidding? You know as well and I do, that it's the Cardinals!

The euro was down to its last strike on Wednesday night, and an 11th hour deal put it back on the rally tracks and yesterday's trading was something for the ages. When I signed off the euro was 1.4025, and I thought that to be a nice gain! Oh, was I cutting the euro's prospects for the day short! First 1.41 was taken out, and then the single unit traded all the way to 1.4255. Are you kidding me? The currency that was supposed to be collapsing had gained over 2 full cents in one day of trading? How could that be, even famous named economists claimed this was the end of the euro?

I think it shows two things, folks. 1. It shows just how many short positions in the euro that were being held, and had to be covered to prevent additional losses. 2. What the pent up negativity toward the dollar really is.

Oh. and I really pulled a Dr. Evil yesterday. You know Dr. Evil from the Austin Powers movies? I said that the EFSF had been increased to 1 million euros, which at $1.40 was equal to $1.4 Trillion dollars worth. Hmmm, that does not compute Will Robinson! I meant to type: 1 Trillion euros! One reader caught it. and sent me a picture of Dr. Evil! HAHAHAHAHAHAHA!

So.. while the euro shorts were being closed out, with losses I might add, the markets were crazy with euphoria, much like the Cardinals fans last night! But, you know what happens when things move to quickly right? Yes, they fall back. Too fast, can't last, is the saying among currency traders for times like this. So, as I said the euro reached 1.4255 yesterday, but overnight and this morning, the markets woke up from their night of debauchery with a hangover, and decided they had moved the euro too far, too fast yesterday. So, the single unit is off about 3/4-cent this morning.

Nevertheless, barring a complete turnaround today, the euro will post its third weekly gain VS the dollar. Maybe it's a case of the old adage about a star burning the brightest right before it burns out. But I don't think so. But I do agree that 2-full cents in one day qualifies for too fast, can't last.

And. when the Big Dog (euro) comes back to the porch, all the little dogs (the other currencies) follow.. For instance. The Aussie dollar (A$) had climbed to $1.07 yesterday. not bad for a currency that the markets believe will see a rate cut soon! But, it's been a perfect storm for the A$ this week. First we had Chinese manufacturing rebound, Then Chinese GDP remain above 9%, and then the Grand Plan for the Eurozone, which had weighed heavily on the A$... Sure, Aussie inflation was lower, but in the whole scheme of things, that's GOOD! So.. the perfect storm for the A$ unleashed powerful winds to fill the A$'s sails, and a downpour of rain on the U.S. dollar.

Don't know when this report came out. but the boys and girls over at a major brokerage house issued a call to sell euros and buy dollars. Of course, they were also one of many brokerage houses that lowered their forecast for the euro a month or so ago.. So connect the dots. I'm not picking on anyone. I'm just pointing out that when you are in the business of making calls on assets, you're going to get some wrong from time to time.. And who could blame all the brokerage houses that lowered their forecasts for the euro? The Eurozone leaders looked like a bunch of chickens running around the barnyard with their heads chopped off for the longest time.

So. just to show both sides of the coin here. the euro euphoria isn't being shared in some of the major brokerage houses.

The stock jockeys had a great day too yesterday with the Dow up over 3% on the day. But they too moved too far, too fast, and stock futures this morning are pointing to a weak opening.

Wanna know where all the funds came from to fuel the huge rallies in currencies and stocks? Well, the 10-year's yield rose to 2.38%, which means its price fell by a huge margin. I would have to say, this is the main source of funding for the huge rallies. Think about this move in the 10-year for a moment. As I've explained many times before, the so-called "Safe Haven" just doesn't turn out to be that! On 10-3-2011, the 10-year's yield was 1.75%, which was equal to a price of $103.36. Today's yield of 2.38% is equal to a price of $97.78. so for every bond (1,000) you would have a loss of over $5. now, multiply that out by the hundreds of thousands, or even millions for hedge funds and institutions. OMG! So, much for that so-called Safe Haven!

Well.. as thought by the markets. the U.S. preliminary print of 3rd QTR GDP was bang on +2.5%... Mike Meyer stopped by to bring me some documents to sign yesterday morning, and as little as I could talk, I said that I hadn't been able to look under the hood at the GDP number as of yet, but I bet that a major piece of the GDP was Government spending. I still haven't been under the hood yet. But, 2.5% isn't too shabby, eh? Sure beats negative growth, or the 1.3% growth we saw in the 2nd QTR. but this will see a couple of revisions, so there is downside risk here. I might present this thought though. 2.5% isn't the stuff that the Global economic engine is made of.. So, while on the outside it's a better print. One must ask the question.. but is it really?

I just noticed that the euro had moved down another 1/4-cent this morning, on reports that a group of banks are claiming that they know of no deal as yet with the European Union on restructuring Greek debt. Oh, come on traders, do not be swayed by news like this.. How in the world was the EU to get the details out to every bank in less than 24 hours? They'll get it!

Ok. back to the data cupboard. Weekly Initial Jobless Claims remained above 400,000 again last week, and I can see former Fed Chairman, Big Al Greenspan, jumping up and clicking his heals together because Personal Consumption was up 2.4% in the 3rd QTR. I've said this in the past a few times, but Personal Consumption rising is in reality nothing more than you and me working longer and harder.

Today, the data cupboard will yield two of my faves. Personal Income & Spending. Once again, it looks like Spending will double Income.. And once again I'll say that's not a good thing folks! We already played that game, and the outcome wasn't too pretty when the markets & economy went to hell in a hand basket, and consumers had no savings in which to draw from.

Next week's European Central Bank (ECB) meeting will be the first presided over by Mario Draghi.. I've told you all that I expect Draghi to cut rates in the Eurozone. So, this will be the meeting that he lays the groundwork for a cut in December. He'll sound very dovish. and that won't help the euro, unless. the markets are still in the mood to reward currencies from countries that cut rate to promote growth. That's a discussion we had a few weeks ago.

And in a very simple message that runs very deep, A Chinese Foreign Ministry spokeswoman said that "China is prepared to increase cooperation on finance, trade, and investment with Europe to support the global economic recovery."

Sounds harmless right? Ahhh grasshopper, it's just another foot in the door for China. The are already the financier to the U.S. and to up their presence as a financier of Europe would be another step in their goal to replace the dollar based monetary system with the renminbi.. not now, not next year. all the steps have to be in place, and as you can imagine, the Chinese are moving at a slow pace, as to not ruffle the feathers of the U.S. and not have investors flocking to renminbi, just yet..

Then there was this.. You know how Norway and its sound fiscal policies have long been a fave of mine. Who can't love a Surplus? So.. this story caught my eye. from Bloomberg. "Norway's $570 Billion Sovereign Wealth Fund sold all its holdings in U.S. mortgage-backed securities as part of a shift of its fixed income portfolio. The Fund holds no mortgage bonds issued by Fannie Mae and Freddie Mac and an insignificant amount of private home loan-backed bonds."

Chuck again. Wanna know why Norway's Sovereign Wealth Fund sold all their mortgage-backed bonds issued by Fannie & Freddie? I think I know why. All the refinancing risk. And add to that all the talk of the Gov't restructuring home loans. The Fund held about $11 Billion in mortgage-backed bonds from the U.S. a the start of the year, so. this can't be just shrugged off by the markets.

To recap. the euro drove the rally bus yesterday for the currencies, but the bus has returned to the station this morning. Yes, the euro rallied very strongly yesterday to 1.4255, over 2 full cents of gain in one day. That has proved to be too fast to last, and the euro has given back 1-cent this morning. Nonetheless the euro will most likely post its thirst weekly gain VS the dollar. U.S. 3rd QTR printed at +2.5%, not too shabby, but Chuck hasn't had a chance to look under the hood just yet.

Currencies today 10/28/11. American Style: A$ $1.0670, kiwi .8170, C$ $1.0070, euro 1.4155, sterling 1.6110, Swiss $1.1580, . European Style: rand 7.7235, krone 5.4225, SEK 6.3680, forint 212.50, zloty 3.05, koruna 17.47, RUB 29.86, yen 75.80, sing 1.2425, HKD 7.7650, INR 48.76,China 6.3595, pesos 13.10, BRL 1.7060, dollar index 74.99, Oil $92.59, 10-year 2.38%, Silver $35.19, and Gold. $1,737.30 and as usual on a Friday, here's the link to take a peek at the debt clock . click here: www.usdebtclock.org/index.html

That's it for today. Giddy. is what I am this morning. I've even forgotten at times just how bad my mouth feels, that is until it twitches and reminds me! UGH! But the last treatment is today, and then the healing can begin. In 1982 I was lucky enough to hold a ticket to Game 7, in which the Cardinals won. I can truly say that the only thing sports wise that has come close to that was the Game 6 NCLS in 2004 walk off home run that Jim Edmonds hit to take us to Game 7. Last night it was a hometown kid, named David Freese who hit the walk off home run in the 11th inning. I unfortunately was asleep when that happened. So. now another Game 7.. In any sport, Game 7 is great for fans. OK, I've carried on long enough today. Now go out and make this a Fantastico Friday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837





Posted 10-28-2011 11:18 AM by Chuck Butler
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