Do Investors Pay Attention To Ratings Agencies?
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In This Issue.

* A roller coaster ride for euros.

* Germany & IMF lower growth forecasts.

* China's back on currency appreciation tracks.

* Why QE was really done.

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

Do Investors Pay Attention To Ratings Agencies?

Good day. And a Wonderful Wednesday to you! Well. I did come back. Every time I go to my fave place, it becomes more difficult to come back. Well, Chuck, you do have a son in High School, little grandchildren, grown kids, and. Ahem. a job! Ok. but the idea is there folks. and coming back to 20 degree weather with wind chills making it feel colder, doesn't help things!

Speaking of not helping things. both Germany and the IMF have cut their growth forecasts for this year. Germany for Germany, and the IMF for global growth. But both are cutting their forecasts because of the same thing. Eurozone weakness, due to the debt problems, which are pushing austerity measures, which will cut growth for certain!

But the IMF did throw the euro a bone this morning, saying that they will seek $1 Trillion in an attempt to boost their resources to bail out countries (read Eurozone peripheral countries). And.. Germany had a great auction result this morning. So. The euro which traded as low as 1.2734 overnight before the IMF statement, has gained back 1 full cent to 1.2834, as I write. Of course by the time I get to the currency round-up that euro figure could be much different. Volatile times, for sure!

Look at that Aussie dollar (A$)! Back to $1.04 and change this morning! WOW! This currency looked like it was headed for the slippery slope after the Reserve Bank of Australia (RBA) cut rates. I remember telling you then that the rate cut made no sense, but. with the markets pro-growth mentality, they just might look at the rate cut as a reason to reward the A$... And slowly but surely (Who's Shirley?) the markets have done just that!

Overnight, The A$ got a boost from the news that the latest check on Consumer Confidence showed a rebound this month. The markets will look next to the Aussie Jobs report, which is due out today. And again the experts have forecast a rebound in Aussie job creation. If that holds true, the A$ should be able to maintain this 2 ½ month high VS the U.S. dollar!

I know I talked briefly about this in the past, but. could the A$ become a "safe haven" currency? Now that would be more like it, eh? A country with a Trade Surplus, narrowing debt, and "things" that other countries want! The problem, is that the A$ can't go toe to toe with regards to volume, with the majors of the: U.S., U.K. and Japan. But if tiny little Switzerland can be regarded as a "safe haven" currency, then why not A$'s?

OK. that's my 30 seconds on the soap box this morning. But even with me banging my fist on the podium, the markets won't listen, and they'll decide what a safe haven currency is in the end.

So. Chris (and thanks Chris!) brought you the news on all the downgrades by the ratings agencies. Should that have all been done long ago though? Do I really have to tell you that it all gets so intense, from my experience, it just doesn't seem to make sense. (a little ELP on a Wednesday morning to get the blood flowing!) But seriously. I don't know why anyone pays attention to what these agencies have to say any longer.

Here's a prime example. S&P lowered the AAA rating of the U. S. last August, right? Well, let's see since then the yield on the 10-year, which is the bell ringer for bonds, yield has gone from 2.82% to 1.85%... So, just to explain bonds for those new to class. with bonds, yield and price have an inverse relationship. So, when the yield goes down, like it has for the past 6 months, the price goes up, which makes the bond more expensive. And to make a bond price go up, and yield to go down, the bond has to be bought by the truck load. Which, makes you wonder if anyone cared that S&P cut the U.S. rating. doesn't it?

It's nice to see the Chinese renminbi on the currency appreciation tracks again. I did a ton of reading on my mini-break, and a lot of it was on China. (The U.S. and Eurozone too!) And what I read reinforced my thoughts that China is working to remove the dollar standard. But it will be a long process. And it looks as though Russia is now joining China's move away from having their trade terms settled in dollars, but signing currency swap agreements.

Look folks. I know that some of you think I get enjoyment from telling you these things, but that doesn't have one iota of truth to it. Having these countries sign currency swap agreements to remove dollars from the terms of trade is a BIG DEAL! And will eventually lead to the dollar being removed as the reserve currency of the world. Which means we can't run up deficits like we do, print money like we do, and live like we do, because everything, and I mean everything will cost more.

We could have avoided what looks like is just down the road a bit. But our leaders chose not to. They, instead, chose to fund every program known to mankind, and borrow money to pay for it. I warned and warned about the deficit spending, and what it would do to not only our purchasing power, but our national security. and now, it's led to this. I shake my head in disgust, and think about what could have been. But, if you don't think not having the reserve currency of the world is important, then take a look at the U.K. after WWII. They had to devalue their currency twice! And talk about a dark, depressing, drag of an economy!

OK. that talk can go on for hours, and. has. But, as I said, it's nice to see China back on the currency appreciation tracks. That was also very nice to see such a strong 4th QTR GDP number of +8.9%... Moderation. not collapse. remember who told you that many months ago, and many time since.

Don't forget that the Singapore dollar (Sing $) follows the renminbi. So, if the Chinese are ready to begin another round of currency appreciation VS the dollar, the Sing $ will move along with the renminbi.

While I'm here in Asia. I will remind everyone that Asia is where I see the majority of economic growth this year. The Emerging markets will have some, but Asia will have the most. So, I like most Asian countries outside of Japan. and here's something that will make you bang you fist on the table. 28% of high-tech manufacturing jobs left the U.S. from 2000 to 2010. That's equal to 687,000 jobs.

The expansion of science and engineering capabilities in China and its neighbors are really making things difficult for the U.S. President's mandate to improve exports.

Here's the thing folks. When the President got up in front of the nation and said that the U.S. would improve exports by "X" what was he thinking? I'll tell you. a weaker dollar, and a stronger renminbi.

And here's a glimpse into that thought process. Remember when St. Louis Fed President Bullard, was asked if the rounds of Quantitative Easing (QE) were successful, one of his answers were: The dollar depreciated.

And those rounds of QE. The Fed told us that they were doing them to inflate the economy and produce jobs. When in reality, QE was done to weaken the dollar, to help meet the President's mandate. I've always told you that the Gov't wants and needs a cheaper dollar.

You had better stop there Chuck.

Gold has had a nice run so far this year. with the low for the year (yes, I know we're only 18 days into the month) coming on Jan 3. $1,566.25 . Gold has added about $90 to its price since Jan 3.

As the dollar, euro, pound sterling, and franc fail to attract investment, those dollars head to Gold. and as long as Japan keeps their interest rates at zero, there's no reason to buy a currency that, according to Jim O'Neil from Goldman Sachs, is 25% overvalued. So, those investors turn to Gold too.

And look at that Brazilian real. beaten down, and sent to woodshed for more beatings, the Brazilian real proves to be resilient. Crazy moves in this currency folks. and like I've always told you, only money from the "speculative investments" portion of your investment portfolio should be used here. And, and iron stomach to handle all the volatility. But in the end, remember. Brazil needs to attract a boat load of investments and cash to fund the infrastructure projects for the World Cup and Olympics that are coming to Brazil.

OK. it's economic data dump day. PPI (wholesale inflation), the TIC Flows, and two of my faves, Industrial Production and Capacity Utilization, will all print today. The only two I really care about are IP and Cap U. Both should see slight improvements in December over November results. The TIC Flows have pushed the markets to become comfortably numb, which is a real shame.

Then there was this. a reader sent a note to Chris yesterday chastising him for calling out U.S. Treasury Sec. Geithner. he said that we are "almost constant in anti-Obama administration political spin. Greenspan was the one calling the shots in those days not Geithner."

OK. first of all political spin is not what we do here. we call them as we see them, just like we did with Bush's $500 Billion Budget Deficits. But let me spell something out for this reader about Geithner. He was the head of the NY Fed, the lead Fed Bank and the one responsible for regulation. the NY Fed failed miserably. they had the regulations, but not the will to enforce them. And as I said, Geithner was the head of that bank. That's what Chris and I talk about. which is NOT anti-Obama administration spin.

To recap. Chuck's back. we did have a currency rally going on when I arrived this morning, but has since backed off. The currencies rallied on news that the IMF was going to seek $1 Trillion for a rescue fund. Germany & the IMF lowered their 2012 economic growth forecasts. And Germany had a very successful bond auction this morning. And it's a data dump day.

Currencies today 1/18/12. American Style: A$ 1.0385, kiwi .8045, C$ .9855, euro 1.2785, sterling 1.5345, Swiss $1.0570, .. European Style: rand 8.0385, krone 6.02, SEK 6.8985, forint 239.75, zloty 3.4055, koruna 19.9910, RUB 29.99, yen 76.80, sing 1.2810, INR 50.40, China 6.3110, pesos 13.40, BRL 1.7825, Dollar Index 80.82, Oil $101.32, 10-year 1.86%, Silver $30.05, and Gold. $1,653.25

That's it for today. back to winter. but it's good to have those short breaks at my age, and state of mind! In 3 weeks I head to Orlando and the World Money Show, so another type of break is on the docket. I don't get out much, for it's about work, but a break indeed. Today is our little Christine's Eddie's birthday. You have to know our little Christine to know how she'll react to seeing that. A Big Thank You to Chris, and Jen. And to Andrew, Rachel and Braden for sharing their home with Alex. I've got to get to work on the Review & Focus, so. I've got to go! I hope you have a Wonderful Wednesday!

Chuck Butler


EverBank World Markets



Posted 01-18-2012 10:43 AM by Chuck Butler
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