Currencies Feel The Freezing Rain.
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In This Issue.

* Tight ranges for the currencies.

* Except for yen.

* Fiscal Cliff talks resume?.

* Norway back on the rally tracks.

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

Currencies Feel The Freezing Rain.

Good day. And a Happy Friday to one and all! Yes. I'm back! Chris let the cat out of the bag yesterday, so here I am, back in the saddle once again! I hope you all had a great Christmas or holiday that you observe. I sure did! My vacation was interrupted for 2.5 days to travel to South Florida for a meeting, but at least it was to S. Florida and not anywhere North! The cold weather has set in, and I already am tired of it! Like today, we are expecting some freezing rain. YUCK!

Well. from the looks of what Chris was reporting while I was away, the currencies look as though they've been hit by freezing rain, as they haven't really gone anywhere to speak of. Except that is.. Japanese yen. I kept warning you all that the debt and flailing economy was going to get to yen eventually. And eventually has finally come around for the yen. So, in case you've been on vacation, like me, and hadn't seen the rot on yen's vine, you've still got time to react, as yen is still below 90, but at the rate it has fallen from 79 to 86 (I know the numbers went higher, but since it's a European priced currency, as the numbers rise, the value of yen falls)

Sooner or later, love it gonna getcha. No wait! Sooner or later, the debt was going to catch up with Japan. For the longest time, the markets believed that Japan's debt could be self-financed by the Japanese population. But, as I pointed out some time ago when talking about this, the Japanese population is growing older, and the youngsters have no interest in bailing out the Gov't's debt. So. here we go! Yen has taken its seat on the slippery slope, I wonder where it will get off.

The other "thing" that's weighing on the yen these days is the simple matter of it no longer being the "king pin" of the region. The other Asian currencies are taking liberties with yen these days, and the central banks of those Asian countries like S. Korea, are not doing anything to stop these gains. That's because these central banks believe in the Chinese recovery story. And all have pinned their colors to the Chinese renminbi/ yuan mast. yen is no longer the lead dog in Asian.

The other currencies taking on water are Gold and Silver. It's been a nasty December to remember for these two. You would have to think that the price manipulators are smiling like Cheshire Cats these days. They believe they are beyond the law, and can't be touched. They may be right. But then, here in the U.S. people or organizations in the past that have thought that, usually trip up, and get what's coming to them. That's the hope I have, and I'm sure as Gold & Silver holders you hope so too!

The euro is down this morning, about ½-cent. As we head into the end of the quarter & year, we could very well see some interesting currency moves, especially since we still have the "Fiscal Cliff" talks continuing. I heard a couple of people talking on TV yesterday, saying that they didn't know what everyone was referring to, when they say "Fiscal Cliff". Are you kidding me? As many times as it has been mentioned in the past couple of months, wouldn't you think that they would have stopped and just Googled it? Oh well. personally, I don't think that the Fiscal Cliff will be that Big a deal. I think that the increases in taxes that are coming from other things that I can't mention here, will be enough to bring the economy to its knees once again, but then, that's just my opinion, and I could be wrong.

Apparently the "talks" are going to resume today. Oh boy! On a side bar. I saw a cartoon yesterday that if it weren't so true it would be funny. An old, opened, used and bent up can of soup 1,000 times its size, representing our debt, is in the road, and the Democrats and Republicans are attempting to kick it down the road, and say, "This is going to be more difficult than we thought".

I know, I kept saying all along that I believed that our leaders would find a way to kick the can down the road further, and avert the so-called "Fiscal Cliff". And unless an 11th hour deal can be put together and agreed on, it looks like I'll have racked up another "wrong thought". UGH! But, remember, if our leaders don't reach a deal to kick the can further down the road, that the markets will most likely see this taking global growth to 2008 levels, and we could very well see a return to the so-called flight to safety of dollars and Treasuries. Now, there's one thought I wish I were wrong about!

OK. Well. the Aussie dollar (A$) remains well bid around $1.04 (it's actually a shade below that figure this morning, but still "around" it!) I would have to think that given the rot on the yen's vine that Japanese investors will have even more reason to get out of the low yielding yen and invest in a "higher yielding" (well it is when compared to yen!) currency like the A$.

The Canadian dollar / loonie, is a bit weaker this morning, as the Fiscal Cliff non-talks, are dragging the loonie lower. As it appears that the loonie will be the first to feel the heat of a "non-agreement on the Fiscal Cliff". of course all these currencies (except yen) that have been held down by the U.S. impasse could really bounce should an agreement get ironed out.

I read a story this morning, that highlighted the fact that the Norwegian krone will book its first gain VS the dollar since 2009, this year. I was shocked to read that! I know that 2008 was not good to any currency other than the dollar, but I don't recall 2010, and 2011 being that "bad" to the krone. But if Bloomberg says it was, then it was! I think that the markets had it all wrong to paint the krone with the same brush used on the euro.

Let's do a quick run-through on Norway, OK? First of all Norway is Western Europe's largest crude exporter. the country is backed with a $680 Billion sovereign wealth fund and boasts the largest surplus of any AAA rated nation. and now it's considered to be the world's safest credit. It costs less to insure against a default in Norway that it does to insure against a default in the U.S.

So, that certainly doesn't sound like the Eurozone, does it? So, maybe, just maybe, because you never know, the markets will begin to see Norway and krone for what it truly is. the world's safest credit! (hey! I didn't say that. the markets did!)

At my S. Florida meeting last week, I was asked what I wanted to happen. I said that while I still believed an agreement would be found, that my fiscal prudence tattoo would lead me to say that I hoped we went cliff diving. We have to start to stop our deficit spending at some time, right?

Did you see that U.S. Consumer Confidence fell out of bed this month? Yes, the Consumer Confidence index number, fell from 71.5 to 65.1 the first two weeks of December. OUCH! But this is all about the fear of increased taxes. Well, you know me, I always say that this number is too high, given all the "bad things" going on here in the U.S. so, for once, I believe, by Joe, they've got it right!

Hey. did you also see that stormin' Norman Schwarzkopf died yesterday. Remember him? He was our military leader during the successful "desert storm" war in the Gulf. He was someone we could all rally around. That was sad news to me to hear of his death at the age of 78.

OK. back to other stuff. I saw that the "dim sum" bonds that we've talked about several times in the past year, were the best performing bonds in Asia this past year, rising over 6%, which was greater than any local currency bond issued in any other Asian country. For those of you new to class, a "dim sum bond" or DSB, is a bond issued by a corporation denominated in renminbi/ yuan. These bonds are issued outside of China, at first in Hong Kong only, but now in Australia too. Eventually, mom & pops here in the U.S. will find a way to invest in these bonds, but for now, it's mostly local and institution owners.

But, the point here is that we'll continue to see things like this spread, as China continues to open up its markets, and spread the use of its currency. Long time readers of the Pfennig know all too well that I've been preaching about China's desire to remove the U.S. dollar as the standard (reserve currency), and this is just another step in achieving that desire.

Then There Was This. from Reuters. "The 2012 holiday season may have been the worst for retailers since the 2008 financial crisis, with sales growth far below expectations, forcing many to offer massive post-Christmas discounts in hopes of shedding excess inventory.

While chains like Wal-Mart Stores Inc and Gap Inc are thought to have done well, analysts expect much less from the likes of book seller Barnes & Noble Inc and department store chain J. C. Penney Co Inc.

Shares of retailers dropped sharply on Wednesday, helping drag broader indexes lower, as investors realized they were likely to be disappointed when companies start to report results in a few weeks' time."

Chuck again. it's already happening folks. the economic slowdown. are you ready?

To recap. The currencies continue to move is small ranges, but are susceptible to quarter / year end moves that could really be violent. Yen continues its slide, and is no longer the king-pin of currencies in Asia. Fiscal Cliff talks or non-talks are really holding the currencies down, should something get done to avert the cliff we could see a strong bounce.

Currencies today 12/28/12: American Style: A$ $1.0385, kiwi .8210, C$ $1.0050, euro 1.3190, sterling 1.6145, Swiss $1.0920, . European Style: rand 8.4950, krone 5.5830, SEK 6.50, forint 2220.50, zloty 3.0925, koruna 19.0520, RUB 30.48, yen 86.05, sing 1.2225, HKD 7.7515, INR 54.77, China 6.2315, pesos 12.99, BRL 2.0415, Dollar Index 79.75, Oil $91.04, 10-year 1.71%, Silver $30.50, and Gold. $1,660. and it's Friday. so here's your chance to take a peek at the U.S. debt clock, click here:

That's it for today. That was not as easy as it appeared, putting this together today, coming in stone cold, and trying to figure out what to talk about! But, like the true professional that I am, I pulled it together in time! HA! I got to go to the Missouri - Illinois Braggin' Rights game last Saturday, that was a blast! (Thanks Rick!) The 3 grandkids were really special at Christmas, a real joy for me. the whole family, grandkids and all, celebrated my wife's birthday the day after Christmas. They restaurant put us in a private room, they must have known about my grandsons! But a great meal and a good time was had by all. our Antione just emailed me and told me that they got to take their new baby home on Wednesday, and she's doing great. (she was born early) So, they are now getting to enjoy their new bundle of joy at home. Now, that's some great news to end with! I hope you have a Fantastico Friday!

Chuck Butler


EverBank World Markets



Posted 12-28-2012 12:12 PM by Chuck Butler
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