Daily Pfennig : Oil, bond

Stiglitz Disses The Euro...

Chuck Butler — Mon, 04 Oct 2010 16:34:58 GMT

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In This Issue..

* Wen confirms Euro Bond purchases...

* Overnight rally ends abruptly!

* RBA meets tonight...

* Oil price rises to $81!

And Now... Today's Pfennig!

Stiglitz Disses The Euro...

Good day... And a Marvelous Monday to you! The St. Louis Rams won their second consecutive game yesterday! YAHOO! It's been a month of Sundays since the Rams won two consecutive games! And with a break here or there, they could realistically be 4-0 this year! WOW! So... I'm was fired up yesterday, and it carried over to this morning... That is until I came in and turned on the currency screens!

Just Friday, Chris Gaffney said to me, you know, like you said the other day, "it's about time the Eurozone GIIPS deficits get back in the news to stop this euro rally"... And so it was to be last night... The euro actually traded over 1.38 last night, to 1.3807... But then Nobel Prize winning economist (I've got my own ideas about these guys and their Nobel Prizes but that's for a night when I'm full of you know what and vinegar), Joseph Stiglitz came out and said, "the euro's future is looking bleak"... Stiglitz is concerned because countries such as Germany have trade surpluses, while the GIIPS (remember, it's Greece, Italy, Ireland, Portugal, and Spain) have trade deficits...

OK... So, that's Germany's fault that these countries didn't see the way you make a wealthy nation is to make things, produce things, invest in those manufacturers, and export? Any way... We used to see that way here in the U.S. but those days are gone with the wind, and Rhett Butler riding off into the sunset!

Well... Since I arrived this morning, the euro has rallied back from 1.3660 to 1.3690... So, maybe the Stiglitz bomb from left field, won't be that damaging...

The news that pushed the euro over 1.38 came this weekend in comments from the Chinese Premier, Wen, who said that "I have made clear that China supports a stable euro. We will NOT reduce the holdings of European Bonds in our foreign exchange portfolio. Chinas has already bought Greek bonds, and China commits very positively to buy new bonds to be issued by Greece."

Talk about a boost for the euro! But again, Stiglitz turned the lights out on the rally that came about from comments by the Chinese...

Well, folks... As I said on Friday, I'm 2/3rds toward the Reserve Bank of Australia (RBA) hiking rates this week (tonight for us, tomorrow for them) after all the things we talked about last week... But there was one more clue for us on Friday...

You see, Australia tracks the prices of their commodities... Not all commodities, but the ones that are Australia's, like iron ore, coal, and others. They put their commodities into a Commodity Index... And guess what the index showed last week?

The August Australian Commodity Index went up 1.5% in September! That puts the index at a 52% increase this year, and is now actually higher than the peak it reached in 2008!

So... Why has this moved me to believe the RBA WILL HIKE RATES now? Well... The Official Cash Rate (OCR) in Australia back in 2008 was... 7.25%, now it's 4.5%... Guess what needs to go higher to fight inflation from this commodity boom? You got it! The current Aussie Official Cash Rate!

Don't expect their OCR to go back to 7.25%... In the near future... But 4.5% is going higher, and if not tonight... The next time the RBA gets together!

OK... Here in the U.S. the debate about when and how much Quantitative Easing (QE) is going to be administered by the FOMC is dominating the news wires, and TV talking heads. The New York top Fed Head, William Dudley, is convinced that more QE is on the way, unless "the economic outlook evolves in a way that makes me more confident that we will see better outcomes for both employment and inflation before too long."

I guess, the "too long" leaves the door open to wonder how long the FOMC will wait... Well, the FOMC next meets the first week of November, so they'll get to see 1- month's worth of data here in the U.S. And at the end of this week, the first of those pieces of data that will move the FOMC will print... This Friday, will be a Jobs Jamboree, with the September labor numbers printing... Right now, the "experts" believe the overall job creation for September will be flat, and may even show a net loss of jobs...

I would have to say, that if we show a net loss of jobs from September, that the FOMC would most likely begin their process to implement more QE... So, this Friday is HUGE on the data scale... Oh, there will be other data this week, but none-so-important as the Jobs Jamboree on Friday!

The FOMC is just looking for an excuse to begin implementation of their next round of QE... And a less than stellar result for September employment could very well, be the thing the FOMC is looking for... Look folks, the FOMC said in their statement following their last meeting that inflation was too low... Then we had Fed Heads talking all around the country, and all of them were concerned about inflation being too low.... So, in case you missed that, I think it's Central Bank Parlance for "we going to implement QE and get inflation moving higher again"...

Now... The dollar has already been sold on the QE implications, but what happens when the FOMC actually pulls the trigger? Well... I personally feel that when the FOMC pulls the trigger this time, it will be HUGE! The amount they announce will be so large, that everyone will believe the FOMC really means it when they say that inflation is too low! And the mere size of this next round of QE will "surprise" the markets, and that will cause some major dollar selling... Just my opinion, folks...

On Friday I talked briefly about the latest run-up in the price of Oil... Well, the price of Oil is still moving higher, reaching $81 this morning. And that, as long time readers of the Pfennig you know, underpins the Canadian dollar / loonie. The Loonie is rising again, getting close to 98-cents. So... What's your thoughts for the price of Oil? Because if you believe Oil prices will continue to be high, or even go higher, then you'll want to look to buy loonies... If you don't believe in the strong Oil prices, then you'll want to look to sell loonies, and take your profits...

Yes, loonie has other things going for it, like a positive yield differential to the U.S. dollar, but, right now, Oil is ruling the roost...

I see that Gold and Silver have sold off a bit overnight, with Gold down $3, and Silver down almost a dollar... You would expect to see some profit taking after a week of record setting trading in Gold, and so it is overnight. But, if the U.S. data this week, is weaker and shows more uncertainty... Well, you know the routine...

Lets go back to Friday's data... Remember, it was the Personal Income and Spending day? Well... Personal Income out lagged Personal Spending for once in August, as Income was up .5%, and Spending was up .4%, and the PCE Deflator that I made a such a big deal out, and even sang Puff the Magic Dragon to, was a non-event... The U. of Michigan saw their Consumer Confidence Index come in flat, and the ISM Manufacturing Index was also flat in August...

There's two ways you can look at those "flat" results... Either they are going to slip badly, or they are forming a new base to move higher... Well, since data isn't like the markets, I would say they are getting ready to slip badly.

Then there was this... Well... I really stirred up a hornet's nest with my talk about how close the states were to a Constitutional Convention (35 states are "in" 38 states are needed)... Look folks... I was just stating my opinion, I would love to see Senators go back to the way they were assigned by each state. I would love to see income tax revised, and I would love to see the end of the Fed / Cartel... That's what I meant when I said repeal 1913, for all of those were put in place in 1913, by Woodrow Wilson... But again, it's just my opinion, if you don't agree, that's fine, just say so, there's no need to call me a "nut job" or other things...

To recap... The currency rally of Friday, was initially added on to, overnight, as China's Premier, Wen, voiced confidence in owning European Bonds. But that rally ran into a roadblock put up by Joseph Stiglitz's comments about the euro. However, since early this morning, the euro has rallied and gained some of its lost ground back. Fed Head Dudley had plenty to say about inflation being too low, and the need for more QE should the economy not turn around... In other words, more QE is coming! The Jobs Jamboree this Friday, should be the keymaster for the gatekeeper... In other words... The FOMC will be looking for any sign of weak data as an excuse to implement QE...

Currencies today 10/4/10: American Style: A$ .9695, kiwi .7425, C$ .98, euro 1.3720, sterling 1.5840, Swiss $1.03, ... European Style: rand 6.95, krone 5.8485, SEK 6.7315, forint 198.35, zloty 2.8790, koruna 17.8210, RUB 30.47, yen 83.25, sing 1.3135, HKD 7.7580, INR 44.55, China 6.6912, pesos 12.54, BRL 1.6895, dollar index 78.30, Oil $81.16, 10-year 2.47%, Silver $22.10, and Gold... $1,317.30

That's it for today... The end of a very frustrating season for my beloved Cardinals came yesterday, with them winning 10 of their last 12... A case of too little, too late for them. I went to the Blues hockey game Saturday night with my buddy, Alex. The Blues CAN be exciting at times... Their real season begins next Saturday night... Good Luck to them! And I see that my beloved Missouri Tigers are now ranked #23! YAHOO! I have a couple of interviews lined up this morning, both of the interviewers want to know my thoughts on Silver, which is pretty timely, eh? Well... Now it's time to say good bye... I hope your Monday is Marvelous!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

2nd QTR GDP Today...

Chuck Butler — Fri, 27 Aug 2010 15:14:19 GMT

........But first a word from our sponsor.......

Hello currency trading. So long market risk.

The new CD has a funding deadline of September 16, 2010, so you must act soon.

More key details about the CD:

*Earnings tied to the performance of a specific currency index *100% protection of deposited principal when held to maturity *$1,500 minimum deposit *4-year term *No account maintenance fees

Don't miss the September 16 funding deadline. Apply online now at: http://www.everbank.com/001CertificatesMSCurrencyReturns.aspx?referid=11808

EverBank is an Equal Housing Lender and Member FDIC.

...........

In This Issue..

* A flat trading day in currencies...

* 473,000 newly unemployed last week...

* Kan ready to take "bold action"...

* Ludwig von Mises on a Friday!

And Now... Today's Pfennig!

2nd QTR GDP Today...

Good day... And a Happy Friday to one and all! The last weekend of August! Ty Keough receives the Silver Boot award in my little river town tonight, and other than that I plan on just relaxing, having ruined my last weekend with travel! It's absolutely a beautiful morning... Ahhh, I think I'll go outside for a while, and just smile... Ahhh, it's going to be a Fantastico Friday, I can feel it already!

OK... The currencies are trading in the same clothes as yesterday, it's almost like the movie Groundhog Day... For, the euro has performed the say way as the previous sessions... For instance, the euro rose up to 1.2765 yesterday, only to fall back to just above 1.27, and then overnight, like the previous night, the euro rose to 1.2740, only to see it fall back again...

Looks like the offset currency to the dollar (euro) is having a tough row to hoe getting past 1.27... And to tell you what I think, no wait, I'm doing that any way! But basically, this type of bumping up and down is fine with me, for to have the euro rise to 1.31 as fast as it did in July, is not good, as we've now seen... Too far, too fast, is not good for an asset... That is unless you are a trader, and bought at the low and sold at the high... But that's not what I'm all about, nor EverBank...

OK! I'm sure glad I didn't send anyone down the wrong road yesterday!

I have to say that I got a kick out of you!

I could go into that great song sung by Frank Sinatra, but...

I'll just say that a ton of readers sent me a note in regards to my "amended statement" Pfennig yesterday, and told me that, "We liked the first one better, it was more like reality!" or "Chuck, that was just a Freudian slip!"

So... It's all good... And I carry on, my wayward son!

The Initial Jobless Claims yesterday were being ballyhooed by the media for "falling to 473,000"... Again, get a grip media! Do you really believe that having 473,000 NEW people file for unemployment last week was a good thing? Sure it wasn't 504,000 like the previous week, but still 473,000 isn't anything to be happy about! Especially if you are one of those 473,000! Or one of the 1,465,000 that have filed in the first 3 weeks of August! UGH! That's nearly 4,700,000 this summer alone!

So... I guess, when the number falls by 31,000 it's something to feel good about, eh? But, I can't help wondering if this number won't keep falling, and not because things are getting better... There comes a time when a company can't cut any more employees or else fold... We could very well be at that time...

I totally dislike talking about unemployment... I was "retired" once (read unemployed) and I sure didn't like the feeling... But... It's a part of our economy, and thus part of the dollar's value...

A light bulb went on over my head yesterday, folks...

Now, recall, how I've said for over 1/2 year now that the FOMC would not be able to hike interest rates because of a number of things, including the fact that they owned Trillions of toxic waste mortgage bonds with adjustable rate mortgages... The FOMC told us when they took these into their books, that they would sell them in the market place when things calmed down... But... If the FOMC raised rates, those bonds would have more losses piled on them.

But, yesterday, the light bulb went on, and now I can see clearly now, the rain is gone! If the FOMC could keep rates at historic lows, then people would re-finance their homes at the lower rates... If the people re-financed, it would pay off the old loan and create a new one, thus paying off the old note that is a part of the bond!

Now, there are several reasons for rates being this low, for this long, eh? And... I have to think that the Fed Heads stumbled onto this scenario... I can't for the life of me think this was their intention... It's just one of those unintended consequences... And it's a good one, as far as removing the toxic waste from the FOMC's balance sheet... But what will the unintended consequences of keeping interest rates this low for this long be in future? I have a good guess... And I'm sure you do too, and... I'm sure it's the same guess!

So... FOMC Chairman, Big Ben Bernanke will kick off the Jackson Hole boondoggle for Central Bankers and economists, today... This should be interesting, because I'm sure Big Ben is going to be doing his best to tell the attendees that "his way" of guiding the economy is the best potion, and when ECB President, Trichet, gets up to talk, he'll be doing his best to tell the attendees that "his way" of guiding the economy is the best potion...

We could take a current report card and compare, right? The U.S. economy is heading downward, while the Eurozone economy is rising... The Fed is adding to its stimulus, while the ECB is looking to exit their stimulus. The U.S. is all about Government spending, while the Eurozone is adopting spending cut measures...

So... Which central bank would you pin your colors to the mast of?

And, right on time is the printing of U.S. 2nd QTR GDP today... I'm sure Big Ben will want to try to find a place to hide when that print happens, for like I said yesterday, I don't see U.S. 2nd QTR GDP anywhere near the preliminary print of 2.4%... I've said it would be below 2% and most likely around 1.5%... The summer months have been quite cruel on the U.S. economic data, and if the data hasn't sounded alarms for you yet, this GDP print will...

The question is... What will the markets take from the report? I mean, will they run and hide in the shadows of U.S. Treasuries? Or... Will they take the dollar to the woodshed? In the Old Days, good times I remember, fun days, filled with simple pleasures... The dollar would be taken to the woodshed... But these days, are different... And not fundamentally driven any longer... One day, we'll get back to fundamentals, but until then...

Ok... I'm looking for some slippage in Japanese yen, but just not seeing it... Last night, Japanese Prime Minister, Kan, said that he is, "willing to take BOLD action on currencies." Now, I know that the Japanese PM is not the Finance Ministry that makes the decisions on currency intervention, but this type of talk has got to go a long way toward fanning the flames of intervention, don't you think? But so far, no slippage in yen... Hmmm... I guess the markets are playing a game of currency chicken with Japanese officials...

Whenever the intervention flames get fanned in Japan, the Aussie dollar (A$) gets a little love... So, please, somebody in Japan, keep fanning! The A$ has seen its share of getting taken to the woodshed because of the "hung" election... Traders need something else to focus on besides the election thing.

And the price of Oil, which sunk like a rock in the past couple of weeks, looks to have found a bottom of $71, which it hit yesterday, and is back to $73 this morning... Wouldn't you know it? I haven't needed to get gas during the falling Oil price, but now that it's going back up, I'm about due for a fill-up! UGH! But, the real point here is that a rising Oil price, always helps boost the Canadian dollar / loonie, and the Norwegian krone.

And the price of Gold couldn't hold on to its 8-week highs yesterday, and Gold slipped about $5 on the day, and it's down another $5 this morning... I'm going to put this slippage in price down to profit taking... Yeah, that's it, that's the ticket! Seriously though, that's exactly what I believe went on with Gold the past two days... Profit taking...

So, apparently, these dudes and dudettes taking profits did not buy Gold as a hedge for their investment portfolio... Like you and your Pfennig writer did!

Speaking of taking profits... I sure hope all those people that rushed to Treasuries, are ready to get out and take profits, before the profits are wiped out! I just can't imagine the 10-year Treasury below 2.50%, or the 2-year below .50%... But that's where they are trading this morning, and any new rush to Treasuries because of the disappointing 2nd QTR GDP print will push these yields below those figures... (remember with bonds, yield and price move in opposite directions, so when the yield goes down, the price goes up, and vice versa)

Then there was this... I can't stop thinking about Big Ben and his speech today... I would have to think that the great Ludwig von Mises would be turning over in his grave at what Big Ben and his predecessor, Big Al Greenspan, have done... It was von Mises that observed that massive Central Bank Easing was invariably a form of cowardice that attempts to avoid the need to restructure debt or correct fiscal deficits, avoiding wiser but more difficult choices by destroying the value of the currency.

Think about that, noodle it, and then think about what's going on here...

To recap... The currencies duplicated the previous day and night's trading sessions, just like the movie Groundhog Day! 2nd QTR GDP prints today, and it will most likely show a huge downward revision to the preliminary estimate of 2.4%. How will the markets react to this is the question. And the Japanese PM, Kan, said he was ready to take "bold action" in the currencies, thus fanning the currency intervention flames... But nothing to report yet...

Currencies today 8/26/10: American Style: A$ .8890, kiwi .7060, C$ .9440, euro 1.2720, sterling 1.5520, Swiss .9760, ... European Style: rand 7.3830, krone 6.2735, SEK 7.3750, forint 224, zloty 3.1375, koruna 19.4560, RUB 30.69, yen 84.70, sing 1.3570, HKD 7.7795, INR 46.92, China 6.7977, pesos 13.10, BRL 1.7615, dollar index 82.89, Oil $73.29, 10-year 2.50%, Silver $19.03, and Gold... $1,238.20

That's it for today... Congratulations to Albert Pujols of the Cardinals, as he became a member of the 400 home runs club last night in Washington D.C. Unfortunately, the Cardinals lost again though! UGH! And Congratulations to Stan Kroenke, the new majority owner of the Rams! Only 1 week to go before College Football begins, with my beloved Missouri Tigers taking on Illinois here in St. Louis... And Good luck to Katherine Kuchem, the darling daughter of our Kristin Kuchem, who will see an orthopedic specialist about her broken hand / wrist today... And with that, I'll get out of your hair for today... I hope your Friday is Fantastico, because I truly intend to make mine Fantastico! Bye!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837