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In This Issue.
* Euro trades higher on Greece news.
* A$'s outperform on the Greek news.
* Gold, Silver, Platinum. all good!
* Emerging Markets gaining exposure.
And, Now, Today's Pfennig For Your Thoughts!
A Deal Is Reached For Greece.
Good day. And a Tom Terrific Tuesday to you! Thanks to everyone that sent along kind words in response to our Thanksgiving Edition of the Pfennig and Pfriends. I liked putting that one together, because I could talk about stuff that didn't involve debts, deficit spending, and Fed Heads. Our marketing specialist, Suzanne, thought of that idea, so kudos to her! Unfortunately, I've got to get back to pointing out the things that will make our kids and grandkids' lives more difficult than ours were. So. here we go!
Well. the BIG news overnight is that European Finance Ministers announced that after 4 years of false starts that Europe had found the formula for nursing debt-stricken Greece back to health. That announcement came after the Eurozone leaders and IMF reached an agreement with Greece that would see the Greece's debt to GDP ratio fall to 124% by 2020. This agreement clears the way for the 34-Billion euro payment to Greece next month. The euro rose to a 3-week high on the news.
I'm not a fan of the things the leaders did to reach this deal. for instance they cut the interest rates on the bailout loans, and suspended interest payments for a decade. These things could be the reason the euro, after reaching a 3-week high, dropped 1/4-cent shortly afterward. Yes, a quick look under the hood, is probably the reason the 3-week high for the euro was short-lived.
But then, it could have been the statement by Dallas Fed Head, Fisher, who caught the markets off-guard with his comments that the "Fed should decide a limit on the amount of securities it is willing to buy at the next meeting." The markets are well aware that Fisher is a hawk, and hawkish statements from him are not unusual.. It's just that no one was expecting him to comment on the bond buying / Quantitative Easing.
You see. if the Fed did decide on a limit, which they haven't, the markets would feel better about the dollar's near-term future, and thus the return to buying dollars on the Fisher comments.
The currency that received the best move from the Greek deal, was the Aussie dollar (A$). And why not? The A$ got hit every time talks on a Greek deal looked like they would fall apart, so it's only logical that the A$ gets some love when the agreement on a deal was done. The A$ quickly rose to a 2-month higher of $1.0479, and didn't move much on the Fisher comments.
Across the Tasman in New Zealand, the New Zealand Trade Deficit widened in October, as imports far exceeded exports. the year-to-date Trade Deficit for N.Z. is now NZ$ 1.37 Billion, the widest deficit since 2009. New Zealand's island situation leads to these Trade Deficits, but the thing that I take from this is the strong imports number, which tells me that domestic demand is strong in N.Z. and should keep the Reserve Bank of New Zealand (RBNZ) from cutting rates for now. and that would be a good thing for kiwi.
Well. did you hear or see the news that the new Bank of England (BOE) Gov. is going to be the Bank of Canada's Gov. Mark Carney? This is certainly a surprise, given the tradition of picking someone within the U.K.'s inner circle. Congrats to Mark Carney. Unfortunately for him, the U.K. is a mess financially. So, good luck with that, Mark.
The Chinese renminbi/ yuan rose to a 19-year high overnight. The news from Greece just added to the already optimism that the Chinese economy has stabilized and is in recovery mode. I saw a piece of data from China that you probably wouldn't see anywhere else, so here goes. Net income at Chinese industrial companies gained more than 20% in October VS a year ago. This is yet another sign that China's economy is on the road to recovery. And data reports like this is what gets foreign investors all lathered up about the renminbi/ yuan. And right now, the Chinese Gov't is allowing the currency to gain VS the dollar. But watch for this. a couple of days where the Chinese Gov't doesn't allow the currency to gain. They do that just remind the markets that the renminbi is NOT a One-Way Street!
With the Chinese renminbi / yuan back on the rally tracks, and the Chinese economy improving day-by-day, the Emerging market currencies are for the most part performing nicely. Exposure to Russia continues to increase, as does the exposure to Turkey. While exposure to Mexico and S. Africa are underweight. So not all are attracting foreign investors right now. But the point here is that the Emerging Markets are gaining exposure and that gives investors alternatives. However, I must remind you that most of these Emerging Markets are very illiquid, and therefore investing in them is nearly impossible for retail investors. And don't forget that these markets are very volatile. so, only the speculation portion of your investment portfolio should be used here.
Remember last week when I told you that I thought the markets were very concerned about the Fiscal Cliff and were trading to the so-called safe havens once again of dollars and Treasuries. Well, that was reflected in the IMM futures positions last week. For the first time since mid-August, the net dollar positions swung to a net long position. So, this confirms what I was telling you. I understand that the President, House leaders and CEOs are all meeting today to discuss the Fiscal Cliff. I don't expect anything to come of it, but the markets might. so if the markets believe that the U.S. will avert the Fiscal Cliff, the dollar will be soft. if the Fiscal Cliff continues to stare us in the face then the shift to dollars as a so-called safe haven will continue.
I had a dear reader ask me about the comment I made yesterday about the Fiscal Cliff and should it happen, we could see a repeat of 2008. He wanted to know if I meant to say that Gold will lose huge chunks of ground like it did in 2008, only to recover and go higher later. Well. yes. That could very well happen once again, for you see, the mainstream investors don't own Gold as a diversification hedge in one's investment portfolio. They only own it because their neighbor told them to buy it, and any weakness will cause them to panic and sell.
Speaking of Gold. another dear reader asked me why I always talked about Gold and not Silver and Platinum. Well. I've explained this a few times in the past, but for those that missed class that day or are new to class, I say Gold as the brand name of precious metals. Like Kleenex.. I've talked about Silver a lot over the years, even writing an article for a magazine where I called Silver the New Gold. I even pointed out how Silver had outperformed Gold something like 9 of the past 11 years! And Platinum is pretty special too. So, any of these precious metals as a whole are excellent ways to diversify your investment portfolio.. Hope that clears that up!
Well. the U.S. data cupboard gets re-stocked today.. first to the plate today will be Durable Goods Orders for Oct. which I believe will show a drop. Then the S&P/CaseShiller Home Price Index for September will print. Later this morning, Consumer Confidence will print. And a regional manufacturing index for Richmond will print. But we've found that these regional reports don't feed into the national ISM manufacturing index, so no biggie here..
Then There Was This.. OK. long time readers know that I've harped and harped about the added taxes that are going to just grind away at our kids and grandkids in the future as we continue to deficit spend each year by the Trillions of dollars. Well, we might not have to wait for those tax burdens. U.S. lawmakers are taking a hard look at limiting the home mortgage interest rate deduction, as a way to reduce the budget deficit. I don't know about you, but for many millions of Americans, this deduction on their tax return is a BIG DEAL. But trust me on this one, folks. this is just the tip of the iceberg. And that's not to say that raising taxes to levels not seen by anyone alive in this country will be the elixir to what ails our deficits. But it's part of the two-step dance that will be done, with huge tax burdens and a cheaper dollar.
Sorry to be the bearer of bad news, but at least I've been consistent in this over the years!
To recap. Eurozone leaders, IMF and Greece came to an agreement on their debt, and cleared the way for the next installment of 34 Billion euros to be made to Greece next month. This pushed the euro higher, only to see it back off when Dallas Fed Head Fisher, caught the markets off guard with hawkish comments about QE. The Chinese renminbi/ yuan reached a 19-year high overnight VS the dollar, and the Emerging Markets rallied on the news.
Currencies today 11/27/12. American Style: A$ $1.0480, kiwi .8230, C$ $1.0080, euro 1.2965, sterling 1.6035, Swiss $1.0770, . European Style: rand 8.8160, krone 5.6750, SEK 6.6715, forint 215.85, zloty 3.1580, koruna 19.5245, RUB 30.97, yen 82.20, sing 1.2215, HKD 7.75, INR 55.45, China 6.2220, pesos 12.97, BRL 2.0725, Dollar Index 80.24, Oil $87.80, 10-year 1.65%, Silver $34.11, and Gold. $1,747.22
That's it for today. Did you see that the SEC director, Mary Shapiro, resigned yesterday. Who is going to resign next? I see that the so-called Cyber-Monday sales likely broke a record yesterday. Great! or maybe not. I was making plane reservations for the family trip to spring training on Sunday. Each year, when I do that, I then get very itchy about wanting to go NOW! It's still more than 3 months away! UGH! But pitchers and catchers report in mid February, so I've got that going for me! HA! The sunrise is beautiful this morning, as I look across the office and out the windows facing east. The workers in my basement are finally finished! I get to go back downstairs when I get home to relax in my recliner! I'm such a pain in the rear about things like that! And with that. I'll get out of your hair for today. I hope you have a Tom Terrific Tuesday
EverBank World Markets
11-27-2012 11:00 AM