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In This Issue.
* The can was full of pork.
* Dollar continues to get sold.
* Chinese GDP grows at 7.8%! .
* A HUGE oil discovery in Australia! .
And, Now, Today's Pfennig For Your Thoughts!
Up Comes A Bubbling Crude.
Good day. And a Happy Friday to one and all! Well, the "sell dollars" trade that was so evident yesterday morning, is still in place, maybe not as strong, but still in place, as Traders now turn their attention to Tapering, which is thought to be delayed now, with all the disruptions this month. My beloved Cardinals come home and attempt to win 1 of the last 2 games of this series that decides who goes to the World Series. Last weekend we had an out of town wedding, and Alex's homecoming. This weekend Alex has a swim meet tomorrow, and after that, I'm headed to my recliner!
OK. Yesterday, I told you that the lawmakers had kicked the can further down the road. A longtime dear Pfennig reader sent me a note adding a couple of words to my statement. "lawmakers had kicked the can down the road, after first stuffing the can with pork" Geez Louise, I wish I could laugh at that! I want to. but just can't. And the sad part? The can was stuffed with pork.
Alrighty then! This is a Friday, so Let's attempt to stay away from depressing stuff like that! I went through all my thoughts on the "debt deal" yesterday. And besides the lawmakers are taking a 3-month break in dealing with it, so I'll take a break too! Well, at least today.
So, like I said above, the "sell dollars" trade is still in place this morning. The euro is ticking the toes of 1.37, and New Zealand dollars / kiwi are doing the same with the 85-cent handle. I told you yesterday, that the markets appear to have taken the road that says, "if the U.S. wants to continue to accumulate massive debt, and debase their currency, then we will continue to sell dollars".
I also told you yesterday that I was expecting to see China's 3rd QTR GDP print at 7.8%... And voila! It did just that! And as the economy's reward for being so strong, the renminbi / yuan took a huge jump higher, to finish the week with its biggest weekly gain in a year! The other day, my friends Dave and Addison over at the 5 Minute Forecast, printed my thoughts on the steps that China is taking to get their currency ready to become the next reserve currency. As dear Pfennig readers you all have been ahead of the curve on all these moves, because I've written about them for 4 years now!
The Chinese economy has really done a good job of bouncing higher after a brief slowdown that worried many that the sky would be falling on China again. How many times do we have to hear that stuff from the "so-called experts on China"? And here's some news from China that's flying under the radar this morning. The Hong Kong Monetary Authority has proposed that China remove a 20,000 renminbi / yuan daily currency conversion limit on the city's permanent residents. So, you're asking me why would this be important?
Ahhh grasshopper. The removal could very well lead to more demand for renminbi / yuan, and that would be positive for the currency, no doubt! Remember, what I've told you, China wants to gain a wide distribution of their currency, and starting as close as Hong Kong would be a good first step!
I put the finishing touches on next month's Review & Focus yesterday, and in it I talked about the latest Monetary Authority of Singapore (MAS) report, in which the MAS kept their hawkish stance about inflation, which is a good thing for the Singapore dollar (S$). And then Ty Keough brought me a graph with currency returns on it from February 1, 2006 (A kewpie doll for the first person to tell me what is significant about that date), and while the currency returns are mixed, there are two that stick out. Chinese renminbi / yuan @ +32.14%, and Singapore dollar @ +31.08%...
I told you about, and showed you the relationship between these two currencies a couple of years ago, and there are times when the relationship has a wedge between the two currencies, but overall, in the long term scheme of things, here they are at +32% and +31%...
Speaking of moving in tandems. Using that same date, 2/1/2006, Gold is up $125.26% and Silver is up $119.20%... Ok. had to stop to sing along with Del Shannon's great song: Runaway. Sorry youngsters, you probably have no idea what I'm talking about here.
The Aussie dollar (A$) really jumped out of its shoes once the debt deal in the U.S. was announced, and is trading this morning around .9675. Like I said yesterday, not much has changed to want people buy the A$ than was around before the debt deal, but now that the "sell U.S. dollars" is in place, the A$ is getting noticed again.
Speaking of Australia. One of my EverBank colleagues, Steve McIntosh, sent me a link to an article that talked about a new Oil discovery in Australia. The estimated size of this Oil find is 233 Billion Barrels of Oil. And is thought to be so large that it could break the OPEC grip on Oil. For comparison purposes, Saudi Arabia estimates their Oil would yield 263 Billion barrels of Oil , but remember, recently there have been calls that the Saudis are greatly overestimating their Oil capacity. I took this snippet form the article: "Since the Coober Pedy discovery in Southern Australia is nearly six times larger than the Bakken find in North Dakota, 17 times larger than the Marcellus shale find in Pennsylvania, and 80 times larger than the Eagle Ford Basin in Texas, many fear this could impact America's ability to profit from its domestic shale oil boom and slow our overall economic recovery."
Other than those two things, this could be HUGE for the Aussie economy, and thus the Aussie dollar (A$). Of course these things take years to get flowing, the anticipation will be enough for now. Speaking of anticipation, Anticipation is making me late, Is keeping me waiting. But the first thing I thought of when I read the story about the oil discovery was Old Jed Clampett! Let me tell you a story about a man named Jed, Poor Mountaineer, barely kept his family fed. Then one day he was shootin' at some food, and Up from the ground came a bubblin' crude. Black Gold, Texas Tea.
A$'s kissin' cousin across the Tasman, has really been the better of the two South Pacific gems lately, outperforming the A$. It's all about the Reserve Bank of New Zealand's (RBNZ) new stance on rates. The Reserve Bank of Australia (RBA) is attempting to remove the rate cut threat that's keeping the door open right now, while the RBNZ is talking rate hikes in 2014. So, while the A$ has gotten some buying because the RBA is attempting to remove rate hikes from their bias, the RBNZ is locked and loaded for a rate hike. You can see why the outperformance of kiwi in this short-period has taken place.
But remember, Australia is by far, the larger economy of the two, and has far more raw materials to ship off to a rebounding Canada, and now with that HUGE oil discovery in Australia, this outperformance of kiwi could be short-lived.
But, don't get mixed up here folks. I'm talking about the cross of A$'s and kiwi. When compared to the U.S. dollar, both are taking no prisoners right now.
And in a case of "Don't pay attention to that man behind the curtain" . RBA Gov. Stevens, said last night that he preferred the A$ to be lower. Oh, those Central Bankers, they sure are a funny group of guys. funny, funny, funny. NOT!
Well, besides the metals, what fiat currency do you think was the best performer VS the dollar since 2/1/2006? Well, if you said: By Joe, Chuck, I do believe that would be Swiss francs, you would be correct! But remember most of the gains that the franc has made in that time period all came before Sept 2011, when the Swiss National Bank basically devalued the currency and tied it to the euro.
And the tale of two policies continues to play out in Brazil. Recall, that I first told you how the Brazilian Central Bank (BCB) and the Brazilian Gov't thought it best to slash interest rates, and implement roadblocks to foreign investment in Brazil, in order to weaken the real. And the real obliged by going for a ride on the slippery slope. But when inflation began to infiltrate the Brazilian economy, the BCB and Gov't panicked and said, "oh no, what are we going to do now?"
Well, they first had to remove the egg from their faces, and go back to the markets and tell them that they were now going to remove some of the roadblocks, and begin a rate hike cycle that would make most rate hike cycles blush! Just last week the BCB hiked rates again and in response, the real is on the move higher again. Since reaching a low of 2.4465 on August 22nd, the real has gained back 12%... Yes, I know, the real still isn't near the levels it held before the BCB and Gov't began to deep six it. But, I think these two have begun to see the error of their ways. Of course, the BCB and Gov't could decide today that the real's move is enough for now. And that's why I always say, that any buying of real should be done with the speculative portion of your investment portfolio.
Another Emerging Market currency that has reversed its recent downward course, is the Mexican peso. And having the U.S. avert a default was HUGE for Mexico, who depends on the U.S. consumer and Gov't. A couple of months ago, I told you about the new Mexican President, Nieto, who had proposed a reforms for a number of things in Mexico that could all lead to a better economy and thus a stronger peso. These reforms were beginning to gain some traction, and then the U.S. Debt problems rose up and snatched away the momentum from the Mexican reforms. The thought here now is that the reforms will get back on track, and that thought has the peso moving in a stronger direction now.
Not much going on in the Eurozone, but the euro still moves upward toward 1.37. Why? Oh come on grasshopper! I've gone through this so many times over the years, you should know the answer like the freckle on the back of your hand! The euro is the offset currency to the dollar, so dollar weakness shows up first in euro strength. The euro could be experiencing an economic slowdown, and still booking gains, as long as the "sell dollars" trade is going on.
Before I head to the Big Finish this morning, I have a question that needs an answer. It's simple. OK, the U.S. Gov't shutdown on Oct 1, and on that day, Gov't things had signs hung explaining the shutdown. How did the Gov't get those signs printed all over the country so fast? You don't think that the Gov't planned the shutdown do you? Nah. that couldn't happen, but that would explain the signs being ready. But Nah. they wouldn't do that!
For What It's Worth. OK. I just watched a video that I found over at zerohedge.com that features a clip of European Central Bank (ECB) President, Draghi, and his thoughts on Gold. And then I click on Ed Steer's letter this morning and he is featuring the clip, and had this to say. "While Ben Bernanke would prefer not to discuss the barbarous relic, having noted in the past that "nobody really understands gold prices," it would seem his European brother-in-arms has a different opinion. When asked this week, by Bull Market Thinking's Tekoa Da Silva, his thoughts on precious metals as reserve assets (and central banks around the world increasing their allocations), none other than the ECB head himself Mario Draghi explained "I never thought it wise to sell [gold], because for Central Banks this is a reserve of safety." But Draghi did not stop there, and perhaps enlightened by the farce in Washington this week, the unusually truthful central banker explained, "in the case of non-USD countries, it gives you good protection against fluctuations of the USD." Perhaps that is why China continues to import gold at a record pace?
Chuck again. Yes, it does sound like Draghi, "gets it". And countries that include: China, & Russia also have Central Bankers that "get it". China & Russia are just a couple of the Countries with Central Banks that keep accumulating Gold. And as I always say, follow the money.
To recap. The "sell dollars" trade remains in the markets today, a bit softer tone to it for sure, but it remains nonetheless. China printed a strong 3rd QTR GDP report last night, showing that the Chinese economy grew at 7.8%, up from the 7.5% of the 2nd QTR. Chuck asks, what's significant about 2/1/2006, and why does he use that date to go forward from today? Singapore's MAS keeps their hawkish stance, which is good for the Singapore dollar, and a HUGE oil discovery has been found in Australia.
Currencies today 10/18/13. American Style: A$ .9655, kiwi .8490, C$ .9715, euro 1.3690, sterling 1.6190, Swiss. $1.1085, . European Style: rand 9.7625, krone 5.9120, SEK 6.4035, forint 215.15, zloty 3.0555, koruna 18.8410, RUB 31.85, yen 97.80, sing 1.2375, HKD 7.7535, INR 61.26, China 6.1372, pesos 12.77, BRL 2.1515, Dollar Index 79.58, Oil $100.84, 10-year 2.55%, Silver $21.83, Platinum $1,436.70, Palladium $736.55, and Gold $1,317.60. And since the Gov't is booking their deficit spending again, let's take a peek at the U.S. Debt Clock, which can be found by clicking here: http://www.usdebtclock.org/index.html
That's it for today. OK. Game 6 tonight at Busch. Hopefully there will be no Game 7! I sure hope history doesn't repeat itself, as the Cardinals blew a 3-1 lead last year. Well, it's Homecoming weekend at the University of Missouri. We used to make it a yearly thing to go down to Homecoming, but when Alex began playing football games on Saturday, that all ended. But next year, I think the tradition will return! The Florida Gators come to Mizzou this weekend for the game. Go Tigers! Alex had an interview with a college recruiter last night, he was dressed up in a jacket and tie, looked really sharp! Hey! The cake donut cure worked again yesterday! I'm not kidding! I was on shaky ground, and forced a cake donut down, and suddenly my stomach stopped having a gymnastics meet inside it! I'm so excited about this cure that I'm going to start buying if someone will go flying for cake donuts in the morning! HA! OK. time to go! I hope you have a Fantastico Friday! Go Tigers! Go Cardinals! Go Rams!
EverBank World Markets
10-18-2013 3:12 PM