Daily Pfennig : Currencies, Eurozone, Oil, Australia

Big Ben Talks Rate Hikes...

Chuck Butler — Thu, 11 Feb 2010 15:51:00 GMT

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In This Issue..

* Currencies trade in a very tight range...
* Aussie job creation soars!
* Oil pushes loonies higher...
* The Mogambo Guru returns!

And Now... Today's Pfennig!

Big Ben Talks Rate Hikes... (dreams about them more accurately!)

Good day... And a Tub Thumpin' Thursday to you! Well... It's a BIG night at the Butler house... Not really at our house, but more the Fabulous Fox! My little buddy Alex, and the jazz band he plays guitar for, will be performing tonight at the Fabulous Fox, which for those of you not familiar with the Fox, it's a beautiful refurbished theater here in St. Louis... Alex also has a big guitar solo, so this should be good!

OK... Well, the "experts" that thought the Trade Deficit was going to narrow in December got their lunch handed to them yesterday, when not only did the Trade Deficit NOT narrow, but widened from $35 Billion to $40 Billion! Now that stinks! And... I'll tell you right now, it will deduct from the 5.7% GDP figure that was printed a couple of weeks ago. Yes, this increase in the Trade Deficit will probably reduce the GDP figure to at least 5%...

Now... In the old days (before the financial meltdown) a report like this would have deep sixed the dollar in a New York Minute... And... You could see some traders attempt to get the ball rolling for the euro after the report printed... But then along came a German in a black hat putting an end to that mini-rally for the euro... A German official threw cold water all over the euphoria that swept through the markets on Tuesday, when it was rumored that Germany was weighing a bail out for Greece... The German official, basically said that Germany would not help Greece, and it was Greece's problem to deal with...

Well, that sure pulled the plug on the mini-rally! The non-dollar currencies all took a nose dive lower, and brought Gold down with them. But, then about an hour later, the non-dollar currencies and Gold were inching their way higher once again...

So... Here's what I see folks... I see currencies and commodities champing at the bit to move higher VS the dollar, but there are too many forces going against this right now because of the stories coming out of the Eurozone... You know, the stories that I'm talking about, the debt problems of the so-called PIIGS... (Portugal, Italy, Ireland, Greece, Spain)

And... While I don't agree with throwing Portugal, and Spain in that mix, that's what the market participants are doing right now... I tried, but I was unsuccessful in my attempt to come up with an acronym for California, Illinois, Michigan, New York... I did some research the other day, and while I don't want to spill the beans for the article I wrote for our monthly customer newsletter, I can assure you that the U.S. states that are in trouble, just like the Eurozone states, account for more of the GDP of the country, than the Eurozone states account for in the Eurozone... Not sure I said all that correctly, but I think you get the drift... The U.S. states problems are a bigger part of the U.S. than the Eurozone states' problems...

But, who's getting whacked? And the whacking of the euro doesn't bother me as much as the whacking of Gold... For, what asset would you most want when the two largest contributors to World GDP are in such bad shape? For me, it would be Gold... For some it would be Silver... But for all it wouldn't be the dollar!

So... Big Ben Bernanke was talking about his plan to remove / withdraw stimulus... He even mentioned that he may raise the discount rate at some time... Notice he didn't say when... And he didn't say that he would definitely raise the discount rate! He's a knucklehead folks... I still can't believe he got re-confirmed for a second term!

The 10-year $25 Billion auction didn't exactly go off without a hitch yesterday, as buyers of the 10-year bonds demanded higher yields. The yield on the 10-year rose to 3.70% from 3.63% yesterday morning. Like the guy in the movie Airplane, it was a bad day for Ben Bernanke to talk about raising rates, with a $25 Billion auction to get off!

So... It wasn't exactly a "bad" auction, but it didn't inspire a ton of confidence either!

Again... Let me repeat for you in case you forgot, or, missed class that day... But... Here's the skinny on the thought that the Fed is going to raise rates soon... You have to remember that the Fed bought tons of adjustable mortgage backed bonds from dealers with the stated intention to sell them back to the markets once the "coast was clear"... Well, if the Fed raises interest rates, those bonds that they hold begin to lose value, and the Fed will be holding them at great losses should they decide to sell them back to the "street"... So, keep that little ditty in mind, when you hear the Fed Heads talking higher rates... They are just like me as a teenager with my friends, talking about how great it would be to own a GTO... Talking about it made us feel like we really owned one ( I drove a 1963 Ford Falcon!) even though we knew we would never be behind the wheel of one!

And all the while that the Fed Heads keep rates low... Inflation builds... My friend, the Mogambo Guru, is back to writing on the Daily Reckoning (www.dailyreckoning.com) and not a moment too soon! Yesterday I was reading the Mogambo's article titled: Ignoring Inflation Won't Make it Go Away... And the Mogambo goes on to talk about increasing prices everywhere... I pulled these two snippets to share with you on inflation...

Here... He's talking about the Wall Street Journal, which he says claims inflation doesn't exist... "A subscription to the paper now costs $385 per year, whereas as early as the middle of 2004 it cost $338 for a TWO-year subscription. So The Wall Street Journal, as oblivious and clueless as ever, has seen its own prices more than double in 5 years, which comes out to a compounding of 14.87% increase per year, but yet they can't see inflation in prices?

When it comes to actual proof of a coming inflation that is going to destroy the world, instead of just me loudly running my mouth about it, where the only good news is that The Mogambo (me!) can rise from the ashes to assume full dictatorial powers and a huge salary-and-benefit package to re-establish the gold standard and real prosperity to America, one need only look at the last two pages of The Economist magazine, where we find, among the 40 biggest economies in the world, that all of them have inflation in consumer prices! Well, all of them except Singapore (where inflation is zero), Taiwan (negative 0.2%) and Japan, where prices are supposedly falling at 1.9% a year."

All hail the Mogambo, for he has returned!

I read a story this morning about the upcoming European Union Summit, and how the groundwork will be put down for a Greek bail out... You know, while I like the fact that this would calm the markets down a bit... I'm not for bail outs... And the thing that scares me is that once the EU opens Pandora's Box of bail outs, the line will begin at the door for handouts to whatever Eurozone state feels the need... And I don't like that scenario!

In the South Pacific overnight... The A$ received a boost when it was announced that Aussie employers added more than three times as many jobs in January as the "experts" forecast! The Aussies added/ created 52,700 jobs last month, the biggest monthly increase since December 2006! The unemployment rate fell to 5.3%... This print also marks 5 consecutive months of jobs gains in Australia!

I just don't see how the Reserve Bank of Australia (RBA) can ignore all these strong data prints too much longer! The A$ shot up 1-cent on the news to .8880! So... I'm going out on a big fat limb here and saying that the RBA will hike rates on March 2nd... (their next scheduled meeting)

Moving to the North Sea area... Sweden's Riksbank left their rates unchanged, as expected, but did sound a bit more hawkish in their after rate announcement statement. Reading the statement leaves me thinking that the Riksbank has their collective eyes on a late summer rate hike... That's like throwing the krona a bread crumb... But, the krona did react favorably to the bread crumb, so, maybe the Riksbank can get to throwing it loaves of bread!

Have you been following the rise of Oil's price this week? We started the week with a $71 handle, and today we have a $75 handle... After briefly falling below 94-cents earlier this week, the Canadian dollar/ loonie is back above that figure on this rise in Oil's price... The Russian ruble too is stronger on the rise in Oil... Norway's krone is just a bit stronger VS the dollar this morning, as the oil price rise doesn't seem to be helping the krone, just this minute...

Not that the krone needs a crutch like rising oil prices to reflect what a strong currency it is! But... Rising oil prices would go a long way toward boosting the krone...

The Data Cupboard is quite empty today, except it is a Tub Thumpin' Thursday, which means the Weekly Initial Jobless Claims will print this morning, and is expected to remain well above the 450,000 figure...

I saw a headline go across the screen titled: Unemployment in U.S. May Have Peaked As Economists Raise Growth Forecasts... Well, you knew that seeing that I would have to go check it out to see what kind of dolt mentality it was going to print... Yes, the economists, surveyed by Bloomberg, believe that Unemployment has peaked, and that as the economy strengthens, jobs will be added through 2011... Hmmm... I just don't see it folks... Just don't see it... Unemployment is near 20% (don't listen to those nilly willies that say it is just 9.7%!) and while they could be correct that unemployment has peaked... I just don't see this recovery they are talking about that would be strong enough to reverse the job losses and added over 150,000 jobs a month, which is what a stable economy in the U.S. is needed...

Then there was this... The Obama administration has apparently come up with a creative way to deal with the increasingly bleak news with regard to the economic position of the United States in the world.

It proposes to eliminate the office in the Bureau of Labor Statistics that collects and publishes the comparative data on employment, unemployment, manufacturing productivity, and labor costs, among other things. You can find it at below link among the various programs that it has marked for termination.

http://www.whitehouse.gov/omb/budget/fy2011/assets/trs.pdf

And I thought, and you too thought, that Bush's hiding of M3 was bad enough?

To recap... The currencies traded in a tight range yesterday and overnight, with bumps up and slides back down. The EU Summit is supposed to be working on a bail out for Greece, which I don't want to see. Aussie job growth was 3 times what the experts forecast, and a return of the Mogambo Guru!

Currencies today 2/11/10: American Style: A$ .8885, kiwi .6990, C$ .9455, euro 1.3740, sterling 1.5625, Swiss .9365, European Style: rand 7.6750, krone 5.8950, SEK 7.2380, forint 196.80, zloty 2.9310, koruna 18.9230, RUB 30.14, yen 89.60, sing 1.4115, HKD 7.77, INR 46.50, China 6.8338, pesos 13.05, BRL 1.8440, dollar index 79.87, Oil $75.10, 10-year 3.70%, Silver $15.42, and Gold... $1,080.80

That's it for today... This Saturday, here in St. Louis, we hold the country's 2nd largest Mardi Gras Parade and Party... It's always a good time, but since I can't walk far, or stand for too long, I've had to quit going... The young guys here on the trading desk go though, and I get to hear about it... Next Tuesday is Fat Tuesday, or Shrove Tuesday for those of us with Irish blood... Then lent begins... Which means... Spring is just around the corner! I just saw a headline flash on the screen that said the EU had worked out a deal to help Greece... Hmmm.... Maybe the markets can calm down now just a bit, eh? It is so darn cold here! I gotta go where it's warm! Boat Drinks, the boys in the band ordered boat drinks, the visitors scored on the home rink... Yes, just singing a Jimmy Buffet song, get me thinking about the warm sun! Ok... Big night for us in the Butler House, as my little buddy Alex will be playing his guitar at the Fabulous Fox tonight! I know I told you that twice, but some people, only read the last paragraph... I hope your Thursday is Tub Thumpin'!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Will History Repeat Itself?

Chuck Butler — Tue, 20 Oct 2009 15:07:39 GMT

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In This Issue..

* Non-dollar currencies rally...
* A$'s and C$'s to parity?
* Reaching 40% of expenditures...
* Gold & Oil on the rise once again...

And Now... Today's Pfennig!

Will History Repeat Itself?

Good day... And a Terrific Tuesday to you! A long day on the desk for me yesterday, left me draggin' the line... But I'm rested and refreshed again this morning, so let's get to the Pfennig for today! The Finance Ministers of the Eurozone met yesterday, as I told you, and they've tried to stem the euro's rise... But, they'll need more than words to get the job done! And so, we begin a new day...

Front and Center this morning, the currencies, which had given back ground overnight to the dollar, are back in rally mode, and are taking liberties with the dollar once more. For most of the night that was not the case, though. The dollar had rallied back and sent the euro, for instance, to the 1.48 handle, after the single unit spent yesterday at 1.49 and change... There seemed to be a move to the dollar, but that didn't last long, and the currencies are once again rallying VS the dollar this morning, and the euro has pushed to 1.4970 as I write...

Daily noise, eh? Yes, you have to wade through this daily noise most days, and keep your eyes fixed on the horizon...

OK, I mentioned above that the Finance Ministers of the Eurozone met yesterday, and tried to stem the dollar's decline by backing the U.S. administration's stated preference for a strong dollar... Of course we all know that the U.S. administration's stated preference for a strong dollar is a bunch of horse dookie! So... What was it that the Eurozone F.M.'s were backing? A false statement by the U.S.? Now, that's something to hang your hat on, eh? The dolts just continue to mount daily don't they?

But, you can't be too hard on the beaver (Eurozone F.M.'s) for they have to sound like they don't want their euro to get too strong, for if they really said what they wanted to say, the euro would be back to 1.60 with a bullet in a heartbeat! So... In the end, I don't think currency traders were swayed by the Eurozone F.M.'s, at least not for too long!

Yesterday, I talked about Canada and the Bank of Canada (BOC) and how I thought that the BOC would remove their statement about interest rates remaining on hold until the 2nd half of 2010... I had a few readers question me on this, saying that Canada's economy is in no shape to withstand a rate hike... OK... Hear me out on this... I'm not saying that the BOC will hike rates now, or even in 2009... But, if Canadian energy prices of Oil, natural gas, and coal continue to get stronger, I'm afraid the BOC will have to entertain thoughts of raising rates to fight inflation... But not now... So... I hope you get what I'm saying here...

So... The U.S. fiscal deficit for 2009 was $1.42 Trillion... Remember how I used to take the previous administration to the woodshed for posting $450 Billion fiscal deficits? How did we go from $450 Billion to $1.42 Trillion, that is if that's really the number??? Well... That's not a question to really answer, folks, we all know how we got here... But now that we're here, what happens next?

I came across this when putting the two monthly newsletter together on Sunday, I think it would be appropriate to share it with you here...

Peter Bernholz (Professor Economics in Basel) studied the world's 12 most important periods of hyperinflation and discovered that the tipping point occurs when deficits amounted to 40% of the expenditures.

For the United States we have arrived at exactly that point. The deficit of $1.5 trillion amounts to 41.7% of the $3.6 trillion in expenses.

You see, that Peter Bernholz, rounds some numbers, but for those of you keeping score at home, the real point is that the U.S. deficits are greater than 40% of expenditures... And you know me, I truly believe in this history repeating itself, or as Mark Twain put it, it may not repeat itself but it rhymes... Mark Twain also wrote: "It's not worthwhile to try to keep history from repeating itself"...

So, the point I'm trying to make here is that according to Mr. Bernholz, we can soon expect a bout of hyperinflation! OH BOY! Where do I sign up for that? Not only do we have a falling dollar causing us to lose purchasing power, but what purchasing power we have left is going to be eaten away with inflation! Like I said, OH BOY! Gee Willikers, that sounds like the cat's meow! NOT!

So... Here we go again, with me getting on the soapbox and telling you the only way to protect yourself from a falling dollar and hyperinflation is to diversify with non-dollar currencies and precious metals...

OK... I get emails all the time from readers that say, "OK Chuck, you tell us to diversify, but you don't tell us what to buy"... Well... To the untrained eye, that would be true... But to long time readers they know better... So, keep reading, and it will hit you right between the eyes one day, and you'll slap your forehead and say, "I could have had a V-8"!

The boys and girls over at Citigroup have written a letter to their clients telling them that "the dollar is weakening because foreign central banks are diversifying their reserves and U.S. investors are buying high-yielding emerging market assets." The went on to say that, "The Australian and Canadian dollars are likely to rise to parity against the U.S. currency."

So, there's one more on the roster that believe Aussie dollars (A$) and loonies will go to parity against the dollar... The loonie isn't exactly the same stretch of a forecast as the A$, as loonies are almost 97-cents right now, with A$'s trading near 93-cents...

Doesn't that make sense given the talk we just had about hyperinflation? What currencies are going to help protect you against hyperinflation? The Commodity Currencies! Aussie, kiwi, Canada, Norway, Brazil and you can even throw in the S. African rand, for those that like rides on Mr. Toad's wild ride!

The folks at Citigroup also had this to say about the euro, which I found to be quite interesting... "The euro will extend gains against the U.S. dollar and the British pound, and may reach parity against the U.K. currency in 6 to 12 months."

I would think that for the euro to reach parity with the pound, it would involve the pound falling quite a bit from current levels... And that makes sense to me... Did you see the report the other day from the U.K. where they reported bank bad debt to be twice the forecast amount? YIKES!

You know... The Asian currencies which never really participated in the first bout of dollar weakness, are still stuck in the mud... Well, they are being manipulated to be stuck in the mud, for the most part... But, something's got to give here sooner or later. Why do I say that? Well, as I've told you for months now, the Chinese economy was the first to exit their slowdown / recession... Shoot Rudy, even Japan is showing signs of economic growth! And then we have India going strong too... And of course you have the "kind of Asian countries" of Australia and New Zealand... Where we already know that Australia has raise rates and New Zealand would love to raise rates... So, this region is leading the world out of the recession... Hmmm... I thought only the U.S. economy was allowed to do that! Uh-Oh, looks like we have a shift in how the world works!

Hey! Even Big Ben Bernanke sees the Asian countries as leading the world out of the global recession! Big Ben said... "Asia appears to be leading the global economic recovery." Hmmm... See, even a blind squirrel can find an acorn! HA!

I had to laugh when I read this headline this morning... "yen rises as Fujii repeats reluctance to stem currency's rise"... I laugh because the last time Japan's new Finance Minister talked about not intervening to stop the yen's rise, he back-pedaled and said that traders mis-took him to say that he was not going to intervene... So, this on again, off again love affair with Fujii and intervention, just makes me laugh! I would think that after getting burned on Fujii comments a couple of weeks ago, that Traders would not get too lathered up when he talks about not intervening...

Ok... Here in the U.S. while we are still a sovereign nation, the cartel, I mean the Fed Reserve, is doing some testing of reverse repos as a means of drawing the excess liquidity / stimulus out of the markets... I don't think we have to put too much into these tests right now... But it will be a method that the cartel uses at some point in the future... The IMF is against removing any stimulus now... So, that may carry some weight with the cartel, I don't know...

Gold prices rose yesterday for the first time in a couple of days, pushing back above $1,060... I would think that until we know for sure that the cartel is removing stimulus, that Gold would remain well bid... When we do know that stimulus is being removed... Gold might take a step or two back... But then we'll have to wait-n-see what happens with inflation...

I read where ETF holdings of Gold are sluggish... Well, that certainly makes sense to me! With what we're seeing these days from our Gov't pushing us toward who knows what (I know, but I get blasted by people whenever I say it out loud), physical Gold is the thing people want right now... And you can't get physical Gold out of an ETF! So... All those people that have long said that the ETF was just as good as holding Gold either in your buried coffee cans in the back yard, or in pooled accounts, are wrong, when it comes to physical Gold demands...

And, don't know about you, but I filled my gas tank the other day, and the price of gas has really shot up recently, eh? And a quick look at Oil prices and that tells it all... Oil prices have risen to $79, while trading at $69 just a month ago! Is Oil the proxy for rising inflation?

OK... To recap... The dollar rebounded a bit overnight, but has given back to a currency rally this morning. Citigroup believes Aussie and Canadian dollars will reach parity to the U.S. dollar. The Bank of Canada meets today. Our fiscal deficit reached 40% of our expenditures, which historically is a harbinger to hyperinflation, and Gold is back above $1,060 this morning...

Currencies today 10/20/09: A$ .9280, kiwi .7545, C$ .9690, euro 1.4975, sterling 1.6435, Swiss .99, rand 7.32, krone 5.56, SEK 6.9350, forint 176.50, zloty 2.7735, koruna 17.1470, RUB 29.15, yen 90.40, sing 1.3890, HKD 7.75, INR 46.11, China 6.8266, pesos 12.85, BRL 1.7360, dollar index 75.27, Oil $79.31, 10-year 3.37%, Silver $17.80, and Gold... $1,065.50

That's it for today... My good, dear friend, Mary Anne Aden, sent me a note last night, that really lit up my day... Mary Anne told me that Richard Russell recently mentioned me and the Pfennig... WOW! When a man as well respected as Richard Russell mentions me and my humble little Pfennig newsletter, then that's a great day! Mike Meyer just came in, returning from a trip to Jacksonville to watch the Rams / Jaguars game on Sunday... He travels once a year to watch the Rams... It actually was a nice day here yesterday with the sun out, and a hint of warmth in the air! The weather forecasters say El Nino is going to keep our winter warmer than usual and dryer than usual... That's fine with me! Well, I've got to go... I hope your Tuesday is Terrific!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837