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In This Issue.

* A closer look wipes out euphoria.

* Gillard defeats challenger.

* The Eye of the Storm.

* Swiss / euro cross watch time.

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

Mom, They're Doing It Again!

Good day. And a Marvelous Monday to you! My "unsupervised" weekend went well, except for the ending of the Missouri / Kansas basketball game! Caught up with one of my oldest friends on earth, (Mike) and we tried to quickly forget the ending of the game. UGH! But, it was just a game, right? Not like the game that the Fed keeps playing with Treasuries. and I'll talk about that in a bit, but first we have to get caught up on the goings on from Friday, and in the overnight markets.

Well. Friday's price action was interesting in that, the euro held onto the 1.34 handle, but Gold was down $7. Hmmm. One anti-dollar doing well, while the other one weakens. The other anti-dollar, so proclaimed by me last week, Oil, saw continued interest in pushing the price higher. And with that higher price in Oil, the emerging countries, and the Asian countries with their nascent recoveries, are all feeling squeamish, about their growth prospect, given that elevated price in Oil.

But you can't blame it all on the price of Oil. Ever since the deal to give Greece the next bailout fund payment last week, the markets have been trying to look under the hood at the deal. And if Greece meets all the requirements in the deal, well. it will work. If they don't, if they slip up just once, this whole thing comes crashing down like a house of cards. And yes, from what I read, the Greek Gov't has allowed their Gold Holdings to be confiscated should they slip up. There are a ton of "other things" but at the end of the day, this worry about the "other things" has the currencies weaker today.

That's right, even the euro, which is hanging on to 1.34 is weaker by ½-cent today. So, all the euphoria in the risk markets that came about with the Greek deal approval last week, has turned out to be a case of buy the rumor, sell the fact.

One thing that should help the euro as we go along here is the fact that the review of the European Central Bank's (ECB) LTRO (long term refinancing Operations) is working, right now, precisely as the ECB would have hoped for. You may recall me telling you back in December, that the LTRO introduction included 3-year loans to Eurozone banks. The ECB was hoping to see an increase of credit / loan and credit growth has increased from 3.5% annualized to 4.8% annualized. There are other things the ECB is hoping for here, but this could get really long in explanation. So, I'll just say that while the ECB is getting the response it wants, we're only 3 months into this. This is not time to relax.

Well. I read on Bloomberg this morning that the number of contracts betting on commodity prices will rise this year, have reached 1 million in total! WOW! So, it sure looks to me that the investors, hedge funds, traders, etc. are catching up to what you dear Pfennig Readers have been hearing about for some time now! And that, with all the Quantitative Easing, easy money, zero interest rates, and everything else, that inflation for the U.S. was on the other side of all that, and all we needed was for banks to begin to withdraw the cash they have been getting paid interest on at the Fed Reserve, and put it into the economy.

Well. here' s how I see this folks. As I've told you, I believe that we are in the "eye of the storm" where everyone breathes a sigh of relief, and things begin to look better. The Washington Post printed a story that said "economists predict business spending, employment, and house construction will pick up this year, pushing GDP to 2.4%."

Those that don't believe in the "eye of the storm" and that's most, will begin to go back to the bad habits they developed before the financial meltdown, and that will mean putting that money into the economy among other things. Do you know about the "velocity of money"? Well, that's what will kick in and inflation will begin to soar, and just about the time the Fed sees this happening and they react with rate hikes, the economy will enter the other side of the storm.

Now. I could be wrong about this, I would love to be wrong about this! But, long time readers know that I don't sugar coat this stuff, and I have been pretty bang on with just about everything else that I've talked about over the years. But, past performance is not an indicator of future performance! If you agree with what I've said, then you'll want to be sure you protect your wealth from inflation.

Of course you know how to do that! All these years of writing, I might have mentioned the ways to protect your wealth and purchasing power, a time or two!

OK. back to currencies. The Aussie dollar (A$) got the wind knocked out of it again this weekend, when a vote for leadership was called. PM Gillard fended off a challenge from former PM Rudd. And as long time readers you know that any time a currency has to deal with elections, uncertainty, and election outcomes, that it loses steam. And that's what happened to the A$ last night. It may take a couple of days for it to get legs again.

A quick trip across the Tasman to Australia's kissin' cousin, New Zealand, leads us to a report that did not help the New Zealand dollar / kiwi, one iota. New Zealand, which had been on a real good roll with regards to narrowing their Trade Deficit, saw it slip back and post an unexpected deficit for January of NZ$ 199 million (or in U.S. dollars $167 million). And immediately the stronger kiwi was blamed! It was immediately pointed out that kiwi had gained 11.4% in the past year, one of the best performers in the past 12 months.

But before the Chicken Littles begin to run around screaming that the sky is falling in New Zealand, let me point out that aircraft purchases pretty much skewered this report to a deficit, because exports of milk powder, butter & cheese, which make up a third of all exports, increased 25% in January, VS last year! This could end up being a one & done for the Trade Deficit. So hopefully calmer heads will prevail here.

The Swiss franc is stronger trading in the $1.11 handle this morning. The cross to the euro is 1.2050, which is getting too close for comfort for the Swiss National Bank (SNB), who placed a ceiling on the 1.20 on this cross back in September, and has said emphatically that they will defend the level. Well, they had better be ready at a moment's notice. Because the only thing keeping this cross above 1.20 right now is that the euro has rallied. And we all know just how tenuous that is, right now.

Mom. they're doing it again! Thanks to the dear reader that sent me this story. from Reuters. "The Dubai International Financial Centre (DIFC), the United Arab Emirates' financial hub, expects to permit transactions in Chinese yuan from this year, industry sources told Reuters on Thursday. The change would represent an important step in China's drive to encourage international use of its currency, since the UAE is one of the world's top five oil exporters and the second largest Arab economy in the Gulf."

Chuck again. yes. As I've told you for more than a year now, China is taking the baby steps to remove the dollar as the reserve currency of the world, and gaining a wider distribution for its currency is one of those steps. Come on folks. can you blame the Chinese? We as a country have destroyed out currency's value with debts and deficits, Corporate Scandals, and, the bubble economy.

Speaking of Corporate scandals. Not to be outdone by the Japanese (I told you that story on Friday), I found this in the Wall Street Journal on Friday. "federal regulators and the Massachusetts attorney general are investigating whether a fund that was part of Oppenheimer Holdings Inc. overstated the value of one of its holdings.

The potential exaggeration in the fund grew to more than $4 million, according to documents shared with Oppenheimer investors. The bulk of this markup came as the fund was reaching out to potential investors in the fall of 2009, and helped push the fund's reported internal rate of return to 38%, after fees, from a loss of 6.3%."

And Treasuries. UGH! The 10-year yield fell to 1.95% late last week. Riddle me this Batman, the need for a safe haven was reduced by the Greek deal, but Treasuries rally any way? How or why would that be? I bet some enterprising journalist with some time could get a good look at the Fed's balance sheet last week, and probably tie the alleged increase to the Treasury auction. But that would not be new news to me. but at least would explain the riddle.

Then there was this. Well folks just like a rented baseball player, I've moved on from the Currency Capitalist. And now I'm proud to be a part of a brand new monthly letter that will be published by good folks at Casey Research. The World Money Analyst, is the name of the new letter, which will be a collection of well respected analysts in several different investment choices. So, I'm excited to be a part of such a great group of writers/ analysts/ traders. I'll provide a link to sign up for the letter, when it becomes available. Pfennig Readers, will not gain any additional knowledge from my part of the letter, but they will from the other writers' sections. I can't begin to tell you just how great I think this letter is and will be. So. as soon as I have that link, I'll get it to you!

To recap. The currencies, which rallied on Friday, are seeing that rally wiped out in the overnight and morning sessions, as the euphoria from the Greek deal, is fading, as the devil in the details is being exposed. Gold was down on Friday and again this morning. But the price of Oil continues to look strong and like it wants to go higher. The higher Oil price is dampening the outlook for global growth, and. Chuck talks about being in the eye of the storm.

Currencies today 2/27/12. American Style: A$ $1.0675, kiwi .8340, C$ .9965, euro 1.3405, sterling 1.5860, Swiss $1.1120, . European Style: rand 7.6325, krone 5.5950, SEK 6.5885, forint 217.95, zloty 3.1195, koruna 18.6955, RUB 28.98, yen 80.60, sing 1.2605, HKD 7.7555, INR 49.23, China 6.3015, pesos 12.94, BRL 1.7119, Dollar Index 78.57, Oil $108.48, 10-year 1.95%, Silver $35.17, and Gold. $1,767.00

That's it for today. Well. the end of February is almost here. And one of my fave months, March will begin! Spring Training, spring begins, we begin to get some warmer days, and I get to spend a couple of weeks in South Florida! Actually I'm heading that way on Wednesday this week, but will be back next Monday. Chris will have the conn on the Pfennig while I'm gone this week. I'm not going to complain about the "homer officiating" during the Missouri / Kansas game on Saturday. But anyone watching it knows what I'm talking about. My beautiful bride returned home sometime last night. At one point before I headed off to bed, I saw that her flight was delayed. So welcome home! And with that. I'll get this out the door. I hope you have a Marvelous Monday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837





Posted 02-27-2012 11:35 AM by Chuck Butler
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