Norges Bank Prefers To Fight Strong krone.
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In This Issue.

* Euro at 8-week high.

* SNB has 380 Billion franc problem.

* Global growth getting blackened out.

* China Does announce stimulus plans.

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

Norges Bank Prefers To Fight Strong krone.

Good day. And a Wonderful Wednesday to you! Well, 7 years ago today, Katrina made landfall in Louisiana, and today Isaac does the same. You may recall the levees breaking, and the flooding in New Orleans from Katrina. I'm sure there will be more of the same with Isaac, but, hopefully, the engineers and city planners learned something 7 years ago!

Well, to get my day started today, and I needed a push, for I'm really dragging the line, I played a double dose of Mitch Ryder and the Detroit Wheels. Devil with the blue dress on, and Jenny come take a ride. I'm dancing in my seat now, so, I am properly prepared to write today!

As I turned on the currency screens this morning, I noticed that the euro had ticked up, albeit a small move, to a 8-week high. But the most impressive thing is that the euro has held onto its gains this week. So once again, just when it appeared that the euro was about to slide further down the slippery slope, it has bounced back. Of course that doesn't mean that it can't still slip further, and in fact, personally, I'm surprised it hasn't at this point.

But here's the reason why it hasn't, according to my opinion. You see, there are all these things that will happen in just two weeks time, and no one wants to be short going into September and all the event risks that will take place. For, if the German Constitutional Court agrees that the ESM funds can be used to recapitalize the troubled Spanish Banks, without the Gov't getting their hands on the money first, one HUGE obstacle for Spain will have been removed. And with the markets now feeling that contagion isn't going to happen, the euro could be in store for a nice rally.

But then the German Constitutional Court (GCC) could go a different direction thus throwing Spain and the euro under the bus. I truly believe the GCC will approve the payments. but then I'm probably out on that limb all by myself. I don't think I'm saying that because it's what I wish for. I'm saying it because, maybe the GCC is like our Supreme Court, and they pull a 180 on a major decision. OOPS did I say that out loud? Watch your mouth Chuck!

Norway's Central Bank, The Norges Bank, is meeting this morning, and they will most likely keep rates unchanged. The markets are hoping for a rate hike, but they aren't going to get their wish here. You see, Norway might have a housing bubble going on, but the strong krone is keeping a lid on inflation, which at the last print was only 1.3%, well below Norges Bank's target of 2.5%. The Norges Bank is fearful that a rate hike to combat the housing bubble, would push the krone interest rates even higher than those already present in the Eurozone, and while the Norges Bank members like that a strong krone is fighting inflation, they are well aware of what the strong krone is doing to exports. especially to the Eurozone.

So. The Norges Bank will keep rates unchanged at their meeting this morning (for us) and the markets will be disappointed. once again. But I see what the Norges Bank is thinking here, and that is a strong krone is more of a threat to the economy than the risk of a housing bubble. Maybe they are right, and maybe they are wrong. I think that they should embrace the strong krone, and let it fight inflation. So. I think they are right! But. I would love to see a rate hike here. But since none is forthcoming, I won't get all disappointed about the no rate cut, like the markets.

I know, I've spent some additional time on Norway this morning, but, when you are talking about the country that boats the biggest budget surplus of any AAA rate nation, I should spend additional time! And in the did you know Category. Norway's mainland economy, which excludes Oil, gas and shipping, expanded 1% in the 2nd QTR? Which puts Norway on pace to post a very nice and strong 3.75% annual gain, compared to the -.3% contraction in the Eurozone, and 1.9% gain of the U.S. (according to the Gov't).

The Swiss National Bank (SNB) is in the news this morning, and no, they didn't announce another devaluation of the franc, like they did nearly one year ago. The story this morning centers around the fact that the SNB has a 365 Billion francs reserve in currencies. That's $380 Billion for those wondering what that number is in dollars. And the SNB President, Jordan, has a real problem, because he wants to invest those reserves, but. where? Recall, last week, I told you that it had been reported that the SNB was diversifying into other currencies. Well, apparently they want more! The problem for the SNB is this. the so-called "safe assets" have become very, very expensive. Take U.S. Treasuries for instance. They are very overpriced and you don't pick up yield! And in Germany, German bunds / bonds are paying negative interest! Who wants that?

I haven't been able to say this for the past year, but good for the SNB, in that their share of dollar reserves have fallen to 22% from 28% just 6 months ago. Aussie dollars (A$) and Danish kroner holdings are up to 3.5% of the total from 2.9% a year ago. it is reported that the SNB added some S. Korean won this year. Well, if Emerging markets are good enough for the SNB, then that's good for our Emerging Markets MarketSafe CD! (see the add at the top!)

In the not sure why I even mention this category. Hungary's National Bank of Hungary (NBH) cut rates yesterday, sending the forint to the woodshed. The markets had anticipated the NBH would hold off one month, and were surprised to see the NBH wet its powder yesterday. But, just shows to go you, that cutting interest rates doesn't bypass the peripheral countries, and that "everybody is doing it"

The Aussie dollar (A$) and New Zealand dollar / kiwi, have seen better weeks for sure! A week ago, the A$ was basking in the sun from the news that the SNB was buying A$'s, and the A$ rallied to $1.0505. and kiwi was following close behind, with a gain of their own to .8140. But that was last Wednesday. Since then, a feeling of despair for global growth has cast its net over the globe. And soon, this net will have blackened the hearts of the global growth campers. I have to think that more selling is in store for these two. But remember what I told you a few months ago. Even if the A$ falls to parity to the U.S. dollar, the currency is STILL STRONG! It's just not AS strong, obviously. and it will still have a nice positive interest rate differential to the U.S., Eurozone, and Japan.

Gold & Silver are off by small amounts this morning, no biggie. Yesterday, both started the day in the red, but ended up posting small gains. Not the kind of gains we've seen lately from this dynamic duo. But after being stuck in the mud for several months, and then seeing a week of huge upward moves, it was almost good to stop and catch our breath. The Bloomberg is reporting that Gold investors were the "most bullish in 9 months"

As we grow ever-closer to Friday, and the Big Ben Bernanke speech at Jackson Hole, the markets are whipping themselves into a frenzy again, thinking that Big Ben will use Jackson Hole to announce additional stimulus (QE3), like he did when he announced QE2 a couple of years ago. It's my opinion that he won't announce QE3 at Jackson Hole, and the markets will end the week with a sour taste in their collective mouths. Instead, I do believe that Big Ben will give the markets what they want at the Sept 12 meeting. Even though Goldman Sachs says no QE3 is coming.

Well. yesterday I told you about how I was sent a note from a currency dealer that China had announced a stimulus plan, but I couldn't confirm the information. Well, a dear reader sent me a link to a story in the U.K. Telegraph, which is where I should have gone first to look, as they are always ahead of everyone else, that confirmed the information. China will implement a series of stimulus injections into different areas of their economy, that will total 10 Trillion renminbi/ yuan. In dollar terms that's a very large number! But remember what I always tell you about the difference between China's stimulus and the U.S.'s stimulus. China uses their treasure chest of reserves. The U.S. goes further into debt.

If you remember 2009, when the healing began for the risk assets, after the daily beatings they took in 2008, the Chinese economy was teetering, but after an injection of stimulus, the economy was soon ready to run again, and in June 2010, the Chinese announced that they would return to allowing the renminbi to appreciate. As far as global growth is concerned, we have to all hope the Chinese stimulus works again.

Well. did you see the S&P/CaseShiller Home Price Index data yesterday? Well bust my buttons! Year-over-year prices of homes in the 20 biggest U.S. cities increased in June for the first time since 2010! Prices increased .5% overall compared to June 2011. This was good news for the Housing sector. but. aren't we ready to go into September? The data is a bit stale, don't you agree? And notice that the last time we saw a monthly increase was 2010, September is was actually. But what happened after that one month increase? For the next 18 months prices fell. And I would be very surprised if at this time next month, we see 2 consecutive months of increases.

The other data in the U.S. yesterday surprised me a bit. U.S. Consumer Confidence fell by 4.8 points to 60.6 in August, from 65.4 in July. The "experts" thought Confidence would increase. But that was not to be! Apparently, Consumers are getting caught up, and realizing the "fiscal cliff" is coming, and food prices just keep rising. I know, this is gloom and doom stuff, but if I don't talk about it, no one does! Well, maybe my friends Doug Casey, David Galland, Addison Wiggin, and a few others. but you get the idea. it's not the stuff you see on major media news shows!

Today's U.S. data cupboard has the Personal Consumption data for the 2nd QTR. again, very stale data. and Pending Home Sales for July. The Fed's Beige Book will print this afternoon. no surprises here. So, we could very well see a day of drifting again for the currencies and metals..

And this news plays well with the biggest drop in 10 months for Consumer Confidence. from The Chicago Tribune.. "General Motors Co. will idle the Michigan assembly plant that makes the Chevrolet Volt for four weeks from the middle of September to the middle of October, plant suppliers and union sources said on Monday.

It will be the second time this year that the plant, which straddles the border of Detroit and the city of Hamtramck, has stopped making Volts.

GM confirmed the plant idling, saying it will continue to "match supply with demand" for both the Volt and the Chevrolet Malibu sedan that is also made at the plant. The automaker declined to specify how long the plant will be closed."

Then There Was This. from King World, it's John Embry of Sprott Asset Management. "we have the most beautiful setup in the world here. The fundamentals for gold and silver could not be better. Yet the public is not even in those markets. They don't even care. So sentiment is negative.

The bases that gold and silver have built will underwrite massive moves to the upside. Everything is now in place, and I think it's all going to come to a boil this fall. I would add that I am wildly bullish on silver. I still believe it will take out the all-time high before the end of the year.

Eventually the public will enter these markets with a vengeance, and the masses will turn to silver because it trades at a 1/50 ratio to gold. That opens the silver market up to a lot more people. Gold may be the rich man's refuge, but silver will be the refuge for the rest of the world. So there will be an enormous gain in price as the money flows into the already tight silver market.

In a debt-logged world, with a weakening economy, you are going to have massive money printing if you don't want a complete collapse. Gold and silver will be the go-to investments going forward, as the central bankers continue to destroy their currencies."

Chuck again. I couldn't agree more here. I still maintain that if you go to a cocktail party, beer bust, barbeque, whatever social function it might be, ask to see a show of hand of people that own Gold / Silver. And if they are really truthful, very few if any will raise their hands.

To recap. The euro is trading at an 8-week high this morning, and has held its gains this week, which is surprising to Chuck, who thought the euro would be much weaker at this point. What does that say about the dollar? The Norges Bank meets this morning and will keep rates unchanged, much to the chagrin of the markets. The SNB has a 380 Billion reserves and where to invest problem.

Currencies today 8/29/12. American Style: A$ $1.0365, kiwi .8025, C$ $1.0110, euro 1.2555, sterling 1.5835, Swiss $1.0450, . European Style: rand 8.4175, krone 5.8575, SEK 6.6680, forint 226, zloty 3.3165, koruna 19.78, RUB 32.18, yen 78.65, sing 1.2535, HKD 7.7565, INR 55.62, China 6.3516, pesos 13.24, BRL 2.0415, Dollar Index 81.45, Oil $95.53, 10-year 1.63%, Silver $30.65 and Gold. $1,663.10

That's it for today. I spent the day yesterday making videos. Sort of like a fireside chat with Chuck kind of thing. They will eventually be put on the Pfennig website, so look for them, but they will be in need of some major editing first! Thanks to our Marketing guru, Jason, for making this happen. So, while I'm at home for the next 3 weeks at least, maybe you'll get to see the a video or two. My beautiful bride went and had all that beautiful red hair cut very short last night. Oh well, if it makes her happy. at least her hair will grow back. I'm not so lucky! The RNC started last night, I don't watch that stuff, but I think after watching my beloved Cardinals get spanked by the Pirates, maybe I should have watched that instead! OK. time to go. I hope you have a Wonderful Wednesday!

Chuck Butler


EverBank World Markets


Posted 08-29-2012 11:21 AM by Chuck Butler
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