Draghi Sets Off A Firestorm Of Euro Buying!
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In This Issue.

* Euro leads currencies on rally .

* Gold heads to $1,350, again.

* It's a Jobs Jamboree Friday .

* Richard Russell! .

Draghi Sets Off A Firestorm Of Euro Buying!

Good Day! . And a Happy Friday to one and all! The first "fish Friday" of Lent. With the way my stomach has been already this morning, I doubt I eat anything today, so that's one way to not eat meat on Friday! When I was a youngster, we couldn't eat meat on any Friday, not just the Fridays during Lent. Fish sticks were a specialty of my mom. Fish sticks and macaroni and Cheese. I don't think I've eaten a fish stick since I lived at home, eons ago! I think that's a good thing.

Well, I'm going to kick off things this morning with a little fun, and seriousness all rolled together, so are you ready? Yes I'm ready.

In my best Rocky the Flying Squirrel voice. And Now A Word From Mr. Know-it-all! OK, I'm laughing, and I hope you are too, because there's no way I believe I'm a Mr. Know-it-all! But that's what came to my mind yesterday, when I saw what happened at the European Central Bank (ECB) meeting. First, let's revisit what I had to say ahead of the ECB meeting yesterday morning. "Chuck believes the economy is recovering, albeit modestly, but recovering just fine without additional stimulus, and therefore thinks Draghi will opt to not announce additional stimulus. Should that scenario play out this morning, we could see the euro get a bit of a bounce higher."

Now, let's look at what happened. ECB President, Mario Draghi, announced NO additional stimulus! No rate cut! But to go even further, he said that inflation in the euro region will accelerate over the next 2 ½ years, and that the latest economic numbers "fully confirm our decision to maintain an accommodative stance for as long as necessary." In other words, the recent data is good, and trending in the right direction, but no reason to throw gas on the fire with additional stimulus! And then the euro bounced. it was more than a bit of a bounce higher, it was a super ball bounce higher! So, Chuck was right, and the markets were wrong. neener, neener, neener!

Now I started today's letter off with what happened at the ECB meeting, or better yet, what didn't happen at the ECB meeting, because the Big Dog euro not only left the porch, it was sprinting after the dollar, and the remaining currencies, except yen, saw this as an opportunity to really stretch their legs, and run they did, chasing the dollar down the street, without looking back!

The euro is near 1.39 this morning, the highest level for the single unit since October 2011! Of course back in 2011, the euro was on the way down, this is a better way to revisit that number. To further what Draghi had to say yesterday, it's important to pick out his comments on the exchange rate, where he indicated that he doesn't have a problem with the rate, nor will the ECB stand in the way of further appreciation. Of course they don't want it taking off to the moon, and I'm sure Draghi is quite aware of the fact that the Eurozone still has many warts that it has to deal with, so the chances of the euro taking off to the moon are slim and none, and Slim left town!

The Aussie dollar (A$), which was already the best performer the previous night, just kept adding to its price. The Reserve Bank of Australia (RBA) was the star performer this week of the Central Banks, with the ECB coming in a close second. Both Central Banks decided that they meddled enough, and it was time to take a look at what they had done.

I really can't describe this ambush of the dollar yesterday any better than that. Yesterday's price action reminded me of the early days of the weak dollar trend, and then the days after the first round of debt monetization/ QE/ bond buying/ cocaine for the economy was announced and implemented. Gold even got into the dollar weakness, and climbed back to $1,350, but this morning it is off by $2 falling back below $1,350 again.

This $1,350 level for Gold seems to be a real line in the sand. I've explained these lines to you all before, but for those new to class, write this down, take notes, for this is important stuff! HA! Usually, the markets will dive an asset to the line of resistance (line in the sand) and test the resistance, and then attempt to push through and hold above that line. This will be done a few times, and if the asset can't remain above the resistance level, then the markets will give up and move on to another asset. So, these attempts to take out $1,350 are important. It's my feeling that $1,350 will be taken out, and a couple months down the road, that level will be but a speck in our rear view mirror. But then, that's just my opinion, and I could be wrong.

OK. I've gone this far into the letter today, and haven't mentioned the Jobs Jamboree today! I love it when the Jobs Jamboree isn't Front and Center, given all the hedonic adjustments "the survey" has done to it before it's ready for prime time. In fact, at this point in the proceedings, I'm ready to ignore all data from the Gov't. Call me jaded, and that's OK, it's better that what people usually call me, which leads me to get into my car, and attempt to run them over! HA! Just kidding. Just channeling my inner Mogambo Guru!

So, what's up doc with the Jobs Jamboree today? Right now, the so-called experts, have the total jobs that will be reported by the BLS, that were created in February as 155,000. But after the weaker ADP report on Wednesday, and the employment component of the Services sector of the ISM (non-manufacturing), I would have to think that the so-called experts are too optimistic, and the number, as fabricated as it is, will be around 135,000. I tell you, dear readers, that the number of jobs isn't really that important, but the markets think it is, so we have to play along with the markets. The participation rate, the Avg Hourly Earnings, and Workweek Hours is where the bodies are buried.

And if you think like me, Lord help you if you do! HA!, you're probably very suspicious of this BLS jobs report today. The dollar appears to be on the tenterhooks right now, and what better way to get things back to normal, than to print a stronger than the average bear, employment report this morning? If that happens, then the conspiracy bells and whistles will all be going off. and any investigating journalist worth his pay would be all over this like a cheap suit!

The Chinese heard what the ECB had to say yesterday, saw the dollar taken to the woodshed, and decided to stop the bleeding of the renminbi, and allow a large appreciation in the currency. So the renminbi / yuan ends the week on a high note. When all the currencies, except yen, which doesn't deserve to rally, are in rally mode like they are this morning, it appears that they are all ganging up on the dollar. Oh, and the euro just rose above 1.39, while I'm typing my fat fingers away here.

And when I say all the currencies, except yen, I mean all the currencies. Currencies like the Indian rupee, which is rallying this week on the latest Current Account report showing the deficit is shrinking, and that will spur more overseas demand for the currency, is trading at 3-week highs. Remember, that the rupee is an Emerging Market currency, and for the past 3 weeks, the Emerging Market currencies have been held hostage by the saber rattling in Ukraine..

The other currency to gather some steam these past few days, is the Brazilian real. The real has really seen some tough times these past couple of years, with the Brazilian Gov't and Central Bank in cahoots to weaken the currency. But now that these two partners in crime, yes, I mean crime, as I feel it was criminal what they did to their currency, have finally realized what the weak real has done to spark inflation in the country, and they went about reversing their rate cuts.

But the markets weren't fooled by this change of horses in the middle of the stream, and have kept the pressure on the real. But that seems to have changed a bit this week... The real was a prime candidate to take advantage of all this weakness in the U.S. dollar.

There are a handful of currencies other than Japanese yen that aren't participating in the dollar weakness, but these other currencies are all little. Currencies like the Polish zloty, the S. African rand, Mexican peso, Russian ruble, and a couple others, are finding themselves on shaky ground.

I was talking with Ty & Tim, here on the trade desk, yesterday, and we were talking about the dollar weakness, and I said, "it sure is nice to see the Norwegian krone trading with a 5 handle once again." And Ty said, "it sure seems like it has been a long time since we saw that!" The reason I said that it was nice to see it trading with a 5 handle again, is that, I'm hoping that the krone can break the association that the markets place on it, with the euro. I believe that one day everyone will wake up and realize that the krone is not the euro, and Norway's fiscal position is far superior to the Eurozone's!

Unfortunately, I don't believe that's what's going on in the krone's rally right now. Instead, it's simply a wax on, wax off, or brush stroke down, brush stroke up, thing. The krone got tarred with the same brush as the euro when things looked bad in the Eurozone, and now that the euro is back on the rally tracks, that brush is going upward for the krone too. But one of these day's Alice! To the moon!

Back here in the U.S. the Data Cupboard will also have a report that a lot of people just ignore, but it's on Chuck's radar, and it's Consumer Credit. You may recall me talking about this last month, that December's Consumer Credit was $18.75 Billion. The experts have January's tab at $14 Billion, which while down from December, which makes sense given the Christmas shopping season, is still pretty high, folks. and plays along with the reminder I keep giving you about margin debt reaching all-time highs. A very large sum of stocks are being bought on margin these days. And I'm just waiting for the Minsky Moment, when all these margin accounts have to be liquidated.

The monthly Trade Balance (read Deficit) will also print this morning. I saw where one of our publishing friends that we have marketing agreements with, is highlighting the U.S. Trade Deficit, and telling people that this is not a good thing historically, and then highlight one of our basket CD's that is called the Balanced Debt CD, and contains currencies from countries that don't have Trade Deficits.

Yesterday, I told you about how Radio Shack had announced that they were closing 1,100 stores. Well I follow that up this morning with the news that Staples is closing 225 stores, as sales at their stores plunge. I loved the CEO of Staples not using the bad weather excuse like the Gov't does. He said that, " customers are using less supplies". I might add, that he might want to blame it on the fact that there are less office workers using supplies.

Before I head to the Big Finish today. Well, move over Detroit, you've got company as far as credit ratings are concerned. Moody's downgraded Chicago's credit rating on $8.3 Billion in debt from A3 to Baa1, just three notches above junk bond status. OK, so Chicago isn't as bad, yet that is, as Detroit, but this is the same path Detroit took.

For What It's Worth. It looks like it will be a Fantastico Friday, because I found another piece on Kingworld.com from the great Richard Russell. Richard sounds like he's channeling his inner Chuck Butler here, but trust me, he's the one we all channel. Get ready for this folks. strap yourself in, and keep your arms and legs inside at all times during the ride.

"It's not the troubling news that's making the hair on the back of my neck stand up, it's the lying and BS and propaganda that I can't stand. For instance, we're being told bold lies about the US economy. From what I hear and what I can dig out, the US is in recession and has been since late 2007. Bernanke left office believing (hoping) that the US economy was improving.

Now Janet Yellen is Chair of the Fed, and she is hoping that Bernanke was right. Yellen notes that retail sales and housing and job growth and industrial production have slowed, but she blames all this unsatisfactory data on the rotten weather we've been experiencing. The latest is that Yellen will continue tapering. Good luck Madam Yellen.

The big picture is really that the US has been undergoing deleveraging and deflation. Meanwhile the Fed, which is terrified of deflation, has been trying to create its beloved two percent inflation. But so far the Fed has failed. The Fed has failed in its frantic attempt to produce inflation because the current forces of deflation are overwhelming the Fed's inflationary efforts.

And I'm wondering how long it will be until news of the ongoing US recession bursts out in the open. Unemployment in the US is embarrassingly poor, retail sales are weak, hey, it's easy to blame the weather.

The stock market is climbing on the basis that Fed stimulus will continue. No money manager can afford to be out of the market while the Fed is creating new trillions of dollars. Seeing the parade of new highs in many of the major stock averages, Joe six-pack is jumping into the market in the hopes of recouping some of his 2008-09 losses.

So what is a poor middle class citizen to do? You can't find a job, and with interest rates at zero, you can't stir up any income, and the food stamp lines are running around the block. My advice is to be patient, hold physical gold.

I note that China is doing two things: it is building up its gold reserves, and it is building up its military. Furthermore, I believe China is getting ready to make its currency, the yuan, convertible. I've been saying this for years, and I'll say it once more: China is preparing to make the yuan the world's next reserve currency. And I'll ask this question once more -- would you rather own a yuan which is backed by gold and a powerful military, or would you rather own a dollar, which is backed by debt and a shrinking military?" - Richard Russell

Chuck again. I forget all about my stomach woes, when I find something that Richard Russell has written. He's getting pretty wound up in this article, eh?

To recap. The ECB meeting set off a firestorm of dollar selling yesterday, and euro buying, as the ECB did not add to stimulus and talked about rising inflation. The euro took off toward 1.38, and has hit 1.39 this morning, bringing most of the currencies along for the ride. The A$ which was already rallying when the ECB met, was able to keep adding to its level throughout the day and overnight. Gold rose to $1,350, the line in the sand, but has backed off that this morning, and today is the Jobs Jamboree. Whoopdeedo!

Currencies today 3/7/14. American Style: A$ .9130, kiwi .8505, C$ .9105, euro 1.3905, sterling 1.6770, Swiss $1.1410. European Style: rand 10.6295, krone 5.9605, SEK 6.3740, forint 222.80, zloty 3.0150, koruna 19.6655, RUB 36.35, yen 102.90, sing 1.2635, HKD 7.7605, INR 61.08, China 6.1201, pesos 13.16, BRL 2.3290, Dollar Index 79.46, Oil $101.71, 10-year 2.73%, Silver $21.35, Platinum $1,481.88, Palladium $776.73, and Gold. $1,350.27

That's it for today. A good night for our Blues, as they won their 2nd consecutive game, and got good goal tending from their new goalie. It's supposed to be 60 degrees with sunshine today! YAHOO! It was 20 degrees as I came to work this morning, so it had better start heating up! The kids, and grandkids will all be over tonight for a fish fry dinner. We go to the local VFW hall, and bring the fish home to eat. I love it when they are all at the house, and then I love it when they all go home! HA! My beautiful bride is still in S. Florida, and tells me the weather is great. She likes to rub it in with me, for she knows how much I dislike cold weather! Happy early Birthday to my good friend Rick B.. And now I'm down to two work days. And with that thought. I thank you for reading the Pfennig, and hope you have a Fantastico Friday!

Chuck Butler
EverBank World Markets

Posted 03-07-2014 2:12 PM by Chuck Butler
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