Daily Pfennig : Jobs, Deficit, China

China & Russia Team Up...

Chuck Butler — Fri, 10 Sep 2010 16:01:00 GMT

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In This Issue..

* U.S. data is stronger...

* Loonie rallies on jobs data...

* krona rallies on IP data...

* An end to the bond rally?

And Now... Today's Pfennig!

China & Russia Team Up...

Good day... And a Happy Friday to one and all! Not a 3-day Holiday weekend Friday, but a Friday still... It's raining here in St. Louis, so hopefully, that will end, the sun will come out, and we can have a Fantastico Friday!

Well... I'm back in the saddle this morning, still feeling a bit shaky, but sitting firm in the saddle, so let's go!

When I turned on the currency screens this morning, I saw levels that were basically the same as they were yesterday. The trading range yesterday was tight, and in the overnight markets, there was no change to that pattern.

With the currencies remaining in tight ranges, we can take a moment to visit the data from yesterday... Front and center, was the Trade Deficit, which fell from - $49.9 Billion in June to $-42.8 Billion in July, that's a 14% improvement in one month! WOW! Too bad it can't happen more often, eh? For, you see, this month's number was highly influenced by a surge in airplane sales. I call those types of sales, "one off sales". The other thing that was surprising to me, given the Personal Spending data we saw earlier this month, was that imports fell across the board? Really? As Will Robinson's robot used to say, That does not compute...

The other news was also a good sign for the U.S. in that the Weekly Initial Jobless Claims for last week, fell 27,000 to 451,000... I hate to be the Eeyore to everyone, but, instead of things getting better, could they actually be getting worse? Could we have saturated the jobs market cuts? In other words, are we running out of people / jobs to cut? Well... If we continue to drop 27,000 a week, one would have to think so!

While we're talking about data... It's not all about the U.S.... Canada will print their jobs report this morning, and Bank of Canada (BOC) Gov. Carney speaks later this afternoon... Both should give us some clues as to the direction of the BOC at their next meeting... WOW! I must be late, because the labor report just printed in Canada! And... Drum roll please... Canada added more jobs in August than forecast! That's a good fundamental for the Canadian dollar / loonie, and I look for the currency to have a good day to end the week!

New this morning coming from China, has China posting a third straight Trade Surplus of more than $20 Billion, in August! That HUGE number in the face of surging imports in China! Again, not that the months line up perfectly, but if China has a 34.4% increase in exports, don't you think that a large portion of that is going to the U.S.? I know that China is trying to wean themselves from the dependency of a U.S. market, and doing quite well at it, I must say, but still... Old habits don't change overnight...

And in a case of "Mom, he's doing it again"... (an old radio ad here in St. Louis) Japan announced a yen .9 Trillion support package for the economy... Is this what we have to look forward to? 15 years after the meltdown, the Japanese Gov't is still trying to stimulate the economy?

But still, people flock to yen... Look, I was once someone that said that yen was a buy... It was 110.00 then... I said it would trade below 100, and maybe even below 90... But all this below 90 is speculation, and is a house of cards that could come crashing down on yen holders in a heartbeat... But then, it's gone on like this for some time now, so Shoot Chuck, why are you scaring people like this? I don't know, just speaking from the heart, like always...

Of course, some of the yen strength, and Aussie dollar (A$) strength for that matter, comes from Chinese renminbi strength. And after a couple of weeks where the Chinese attempted to scare away the speculators and kept pushing the value of the renminbi down VS the dollar, the renminbi has rallied the past couple of days, and the move last night was huge, for renminbi that is! I sent you all to class the other day with how renminbi gets priced for spot and in the forwards market, so... Knowing all that, you'll be saying to yourself that this move stronger VS the dollar is being pushed by the Chinese Gov't. and you would get a gold star!

Ty Keough sent me a story that he came across yesterday that was frightening to me, as I read it... Here's a snippet from the story on the Bloomberg: "China and Russia plan to start trading in each other's currencies as the world's second-biggest energy consumer and the largest energy supplier seek to diminish the dollar's role in global trade."

Uh-oh, spaghetti-o! This is serious stuff folks... Recall, last year, when I made a big deal out of China signing currency swap agreements for trade, with all of Asia, and then moved to South America? This was basically to do two things for China. 1. it was to get more trading outside of China for the renminbi, more of a general acceptance if you will, and 2. to remove the U.S. dollar from those trade agreements.

Well... If China and Russia do this, they will basically reduce the volatility that they have in primary goods, and reduce their dependence on the dollar in trade transactions....

This is not a good trend folks, and it's the type of thing that builds slowly and then before you know, the dollar isn't the reserve currency of the world any longer... Now, I'm not saying that this happens next year or in the next 5 years... But, it sure seems to me that unless the removing of the dollar from trade transactions around the world stops, that's exactly what's going to happen... Sometime, down the road...

I sent a note to my editor for my "paid subscriber newsletter" The Currency Capitalist, last week, and told them something that I thought I was seeing in the markets... And that is an end to the bond rally. We've seen the yield on the 10-year now go from 2.49% just two weeks ago to today's level of 2.74%... Now, that's quite a move, and I don't want to gloat about saying that people flocking to the "safe haven" will have losses, but guess what? If they don't get out now, they will have losses, if they don't already have them!

Yes... This could be a trap, and the Fed will step in and mysteriously get yields back to below 2.50%, but here's the nugget you want to take from this... People / investors are always saying they wished they had gotten in at the bottom or sold at the top? Well, we may not be "at the top" any longer for the 10-year Treasury, but we're within in spittin' distance for sure! Are there risks? You betcha! Like I said the Fed could be setting a trap, oh, I know, that's not in their job description, but they do it anyway! And if they are, you could be on the losing end... But if not... Hmmm...

Sorry... I had to step away for a minute to cough, but I'm back now!

Speaking of being back now... That's Gold... Yes, it sold off yesterday, in that profit taking that I told you about, but it's back today! The price of Gold is up $6, this morning, thus giving you just one day to buy on a dip, right? Well, these are the markets, and you have to be ready to strike, like a rattlesnake!

Brazil's Finance Minister, Mantega, was in the news last night, as he gave a speech about the Brazilian economy... He said a couple of things that I've highlighted...

1. "Brazil to have surplus of 3.3% of GDP in 2010"

2. "Brazil's economy will grow at 7% pace in 2010"

3. "Brazil will not allow currency to get stronger"

4. "It's not easy to contain Brazilian real's gains"

So... Here' the skinny... The Fin Min sees some good strong structural fundamentals for Brazil, which he knows, and we all know, will drive investors to the real... But he doesn't want the real to get too strong, which would upset his exports applecart... But in the end, there's not much he can do to stop the real's gains, if the markets want to push it higher... And that's been my argument all along, as the Gov't has tried a couple of things already to stem the real's gains.... It will work short-term, for all it does is give investors that have profits an excuse to take them... But that's just short-term... Eventually, the swarm of bees (investors) comes in to sting the Gov't, and take the real higher...

Let's move to the North Sea, and see what's up in Norway... Ahhh... Inflation in Norway rose in August, 1.4%, thus proving to the Norges Bank (the central bank) and the Gov't that the recovery is well on its way, and they were bang on to hike rates twice in the past 6 months... And for those that think that Norway is nothing but Oil... Think again, Norway's non-oil economy has expanded for 4 consecutive quarters!

But BIG Winner overnight was the Swedish krona... What's up with that Chuck? Well, to me it looks like a delayed reaction to the Riksbank's rate hike... But, following up on that rate hike with a very strong Industrial Production number didn't hurt! Industrial Production in Sweden during July rose 2.9%, pushing the annualized number to 14.4%! And this is all good for Sweden... But being an Eeyore, I must say that I truly don't believe that the Riksbank has a quiver full of rate hike arrows, and eventually with nothing to push the krona higher, it will wallow around in the mud...

Unless! The Riksbank surprises the markets with a rate hike or two, or... The euro takes off to higher ground, pulling the kronas, krones, and other non-euro currencies with it...

Then there was this... From the Washington Post... Capitol Hill employees owed $9.3 million in taxes last year according to IRS data obtained by the Washington Post. And while this number is just a sliver of the $1 Billion owed by Federal Workers nationwide, it says a lot about the people on Capitol Hill, if you ask me!

To recap... The currencies are trading in very tight ranges, and have not moved much overnight, except the Swedish krona, and Canadian dollar, both of whom saw strong economic reports this morning to move them higher VS the dollar. And in the scary part of the letter today, I tell you about Russia & China getting together to remove the dollar from their trade transactions....

Currencies today 9/10/10: American Style: A$ .9260, kiwi .7290, C$ .9705, euro 1.2720, sterling 1.5450, Swiss .9775, ... European Style: rand 7.1750, krone 6.1980, SEK 7.2440, forint 223, zloty 3.0930, koruna 19.3915, RUB 30.86, yen 83.95, sing 1.34, HKD 7.7675, INR 46.47, China 6.7690, pesos 12.97, BRL 1.72, dollar index 82.60, Oil $75.86, 10-year 2.74%, Silver $19.90, and Gold... $1,248.20

That's it for today... Little Delaney Grace was at the house yesterday, and she wanted to stay downstairs with me, she knew I wasn't feeling well... She told me, "I have to go upstairs, if you need me, call me, and I'll be back"... What a darlin'! Taking care of me at 3! Congrats to Alex, and his freshman football team, as they won their first game in overtime! WOW! The NFL season kicked off last night, with Sunday's games being the meat of the first week's games...

And I want to shout out on a new book that's about to hit the shelves... The Book's title: The Evergreen Portfolio, by Martin Truax and Ron Miller. There's even a chapter that was written by our own Big Boss, Frank Trotter! I've been reading through it, and I think it's good... Here's the link to find out more:

http://www.amazon.com/Evergreen-Portfolio-Timeless-Strategies-Investing/dp/0470560088/ref=pd

Or if you prefer http://search.barnesandnoble.com/The-Evergreen-Portfolio/Martin-Truax/e/9780470560082/?itm=1&USRI=The+Evergreen+Portfolio

And that's all for this week! I hope your Friday is Fantastico, and you weekend is wonderful!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Another Government Bailout!

Chuck Butler — Mon, 08 Sep 2008 19:32:11 GMT

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In This Issue..

* Fannie & Freddie news...

* Jobs Jamboree very disappointing!

* Risk Taking back on the board!

* Troubles brewing in China?

And Now... Today's Pfennig!

Another Government Bailout!

Good day... And a Marvelous Monday to you! We had some historic economic news over the weekend as the Gov't has decided to take over Freddie Mac and Fannie Mae... When I heard the news, I made sure I would check on the currencies later in the day when the Asian markets opened. At first, it was all dollar negative news, and the euro was flying high to near the 1.44 handle... So... I went to bed thinking that the markets would be a shambles this morning when I got to work, etc. etc.

But, that's not the case, as I turned on the currency screens I saw the euro had lost all that ground it had gained and is back to looking sickly around 1.42 again. In fact, I just looked over, and the single unit has given up the 1.42 handle and is trading below... I'm searching and searching for news on this strong dollar move, and can't seem to find anything... So, I'll go on with the normal fun, and see if something pops up later as I go along...

The Jobs Jamboree on Friday was not anything to light a fire under the dollar, as we saw a Bureau of Labor Statistics (BLS) trumped up -84K loss in jobs for August... I say trumped up, because... The BLS added +115K jobs, through their Birth / Death Model, or "ghost jobs" as I like to call it. The Unemployment rate jumped to 6.1%, the highest in 5 years, but the dollar did not lose ground.

The fact that the dollar didn't lose ground on this awful data print, is a sign... It's a sign that we've moved to a period of time, much like in 2005, when bad data doesn't affect the dollar. It's like I've said a couple of times now, that the markets have become comfortably numb with the awful data in the U.S. and it would take something BIG to make them notice it these days.

Something Big like Fannie and Freddie being taken over by the U.S. Gov't, which will cost taxpayers billions and billions of dollars... But... Apparently not! Why not? I have no idea! This is something, a risk event, that should have shook the U.S. dollar down to its foundation! But NOOOOOOO!

I'll tell you something the takeover of Fannie and Freddie will push the markets to do... And that is TAKE ON MORE RISK! Oh, yes... Risk, and more risk, and why not? The Gov't will be there bail you out if you get in over your head! OK, excuse me for a minute I'm going to go yell at the wall!

OK, I'm back now... That feels better, but doesn't change anything! The Wall Street Journal is reporting that Washington Mutual's CEO has been shown the door. The Bloomie says that Lehman Bros. announced some shuffling of their top ranked officials, for the third time this year. Apparently, things are getting any better for these two...

So... The return of risk taking to the markets did help the beaten and downtrodden Aussie, kiwi and South African currencies last night. But, I'm not a fan of this risk taking mentality not at this time, when there is so much risk in the air you could cut it with a knife!

That means that the funding currencies for the Carry Trade, which is being put back on with the return to risk taking, the Japanese yen and Swiss franc are seeing selling... UGH! Oh... And on Friday, my fat fingers were the reason the Swiss franc had a price that would make most people smile! Unfortunately it was a fat finger price...

This will not be a strong week for data on either side of the Atlantic, but we will see July's Trade Deficit and the August Budget statement on Thursday, and then we finish the week with August Retail Sales... The BHI tells me that Retail Sales will show some life because of the "back to school" purchases... But that will be short-lived! And then finally on Friday, which I will not be here, we'll see the U. of Michigan Consumer Confidence report... And of course, the mental giants they survey will be very confident, because the Gov't keeps BAILING OUT ANYONE THAT GETS INTO TROUBLE! (OK, could you tell that I was yelling while typing that?, I bet you could!)

This is going to be a little longer than usual this morning, because I came across a story this weekend that is quite important and I want to bring this to you...

Under the heading of: Problems Brewing In China...

The NY Times ran an article over the weekend, that was picked up by my local paper, regarding China's Central Bank dealing with the declining value of U.S. bonds and mortgage debt that they have purchased over the years. I've long said that this is the stuff that's pushed way back of the deep dark closet of economic horrors for the U.S., and hoped that we never had to deal with this...

Here's a snippet of the story...

"It has been on a buying binge in the United States over the last seven years, snapping up roughly $1 trillion worth of Treasury bonds and mortgage-backed debt issued by Fannie Mae and Freddie Mac.

Those investments have been declining sharply in value when converted from dollars into the strong yuan, casting a spotlight on the central bank's tiny capital base. The bank's capital, just $3.2 billion, has not grown during the buying spree, despite private warnings from the International Monetary Fund.

Now the central bank needs an infusion of capital. Central banks can, of course, print more money, but that would stoke inflation. Instead, the People's Bank of China has begun discussions with the Finance Ministry on ways to shore up its capital, said three people familiar with the discussions who insisted on anonymity because the subject is delicate in China."

OK... This was a long story, and I can't bring you the whole thing... But it goes on to say that this problem my slow down the appreciation of the renminbi. (remember, the renminbi is the "official" name of the Chinese currency, and the yuan is just the slang name. It has always been my contention that the media picked up the use of yuan as the Chinese currency because it's easier to say and type!) Anyway... This is something we need to deal with... But, the report did not mention that the Chinese would "stop" the appreciation, just slow it down...

Well... The price of Oil has pushed higher over the weekend, as Hurricane Ike heads towards the Gulf of Mexico. The good news is that there isn't any others Hurricanes in the Atlantic right now. So, Hopefully we can get Ike to fizzle out, and go on with normal life in the Gulf. The price of Oil saw an 8% drop last week, as Hurricane Gustav didn't have the strength it was thought to have had.

The price of Gold moved higher too, in the face of a rallying dollar... So, that's not something you see every day!

The Brazilian real took this return to risk taking in stride, and rallied for the first time in a week. The real, South African rand, Mexican pesos had seen some strong selling in the past week, but a tourniquet has been wrapped around their wounds, and they have all rallied strongly overnight.

And while the U.S. was losing almost -200K jobs in August, Canada was adding 15K jobs... So, the two countries' economies aren't as closely tied together as many think they are. And... Maybe, just maybe the Bank of Canada (BOC) will see the error of their ways... (read rate cuts)... The loonie has moved back above 94-cents...

The euro has bounced off that move below 1.42 and is pushing higher as I head to the Big Finish!

Currencies today 9/8/08: A$ .8185, kiwi .6735, C$ .9410, euro 1.4230, sterling 1.7640, Swiss .8860, ISK 87, rand 7.8450, krone 5.6190, SEK 6.6450, forint 169.40, zloty 2.4360, koruna 17.52, yen 108.80, baht 34.54, sing 1.4275, HKD 7.8040, INR 44.58, China 6.8430, pesos 10.43, BRL 1.7150, dollar index 79.19, Oil $106.96, Silver $12.37, and Gold... $808.07

That's it for today... My radio gig on Friday morning went so well, that the Rocky Mountain Radio Network, asked me to be a regular on Friday mornings! WOW! Good thing it's just a quickie 5 minutes gig, as I don't have time to take on any other "things" these days! A BIG win for my beloved Missouri Tigers and my little buddy Alex's 7th grade Lindbergh Flyers on Saturday... Alex recovered a fumble while playing linebacker, so he was pumped! I'll be gone all next week, on the first phase of the Currency Tours... Seattle, San Diego, and Dallas here I come! I won't be in one city long enough to enjoy the city, so... I'll just be passing through... Friday I'll be at the hospital most of the day for tests... I'm keeping my fingers crossed... Got the news last week that we'll be moving into the building (that's under construction right now) next to us next year... We've grown so much that a larger space was needed, and with a building going up right next to us, it made abundant sense! Time to hit the send button, and get to work, as Mondays are always crazy around here! I hope your Monday is Marvelous, and you have a Wonderful Week!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837