Daily Pfennig : Swiss National Bank, Switzerland

The Big Dog Gets Off The Porch!

Chuck Butler — Thu, 17 Jun 2010 15:05:17 GMT

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In This Issue..

* Good Spanish auction fuels a euro rally...
* SNB leaves out important words...
* Deflation disappears in Switzerland...
* U.S. Housing Starts drop -10%!

And Now... Today's Pfennig!

The Big Dog Gets Off The Porch!

Good day... And a Tub Thumpin' Thursday to you! I was reading my friend David Galland's letter the other day, and learned that he, like me, was dealing with his wife being gone for the week... I think I have an advantage on him though, as he has little ones at home... My little buddy Alex, has been hanging out with his older brother, Andrew, so I've been... All by myself... (what a great song by Nilsson)

OK... Yesterday, I told you how the currency rally had the brakes applied by a return to the European Debt Crisis focus... Yesterday's trading was different though. It was, as if, traders never heard that the U.S. and the IMF were putting together a line of credit for Spain, for they began marking up the euro, and selling dollars, as if it June of 2009! (you may recall that in June, last year, the dollar was on the slippery slope once again)

So... The euro inched higher and higher on the day VS the dollar, and overnight? Well, there was no profit taking, no consolidation either, it was just plain unadulterated dollar selling! The euro is once again trading near 1.24... The focus on the European Debt Crisis was put on the back burner this morning, when news of a successful Spanish auction filtered through the markets...

But, just like the "old days" when the Big Dog, euro, would get off the porch to chase the dollar down the street, the little dogs would pass the Big Dog up... And so it was with the Canadian dollar, Swiss franc, New Zealand dollar, and even the Aussie dollar got to run a bit!

Let me tell you what put the tiger in the Swiss franc's tank... The Swiss National Bank (SNB) left rates unchanged yesterday, but they tried to sneak the sun past the rooster, by not mentioning what has been a staple of theirs for some time now, and that is... They didn't mention the need to stem currency appreciation! WOW! It was like an Oklahoma land rush... No Sooners though! Currency traders, and investors that were scared of SNB intervention, were given the green light to buy the franc.

Now... Let me set this up for you... The SNB didn't want currency appreciation, previously, because they had deflation in their economy, and they figured that a weak currency would give them the inflation they needed to rid themselves of deflation... Well, I guess it worked, because deflation in the Swiss economy is gone. Poof! Just like that... Gone! So, now, the SNB will be fighting inflation, and what better tool to have at your side as you begin to fight inflation, than a strong currency!

Right behind the franc's strong move was the move by the Canadian dollar / loonie. The loonie got some wind in its sails with the price of Oil continuing to move higher... Yesterday, Oil was trading with a 76-dollar handle, this morning it has a 77-dollar handle. Gold is also trading higher this morning, so the loonie has both sails catching wind this morning!

Here in the U.S. yesterday, we saw the color of the latest Housing Starts data, and it was NOT good! Housing Starts for May fell 10%, and April's figure was revised downward... Uh-Oh! Is this the beginning of what I've said I thought we would experience here and that is, a double dip in the housing sector, with home prices falling another 10%? Difficult to say with only a smidgen of data to view, so we'll have to keep watch all of the housing data closely...

Industrial Production and Capacity Utilization were good data prints yesterday, so it wasn't all "bad stuff" for the U.S. economy. The PPI (wholesale inflation) report was interesting... The Producer Price Index fell -.3% in May... Huh? Year-on-Year though the index is up 5.3%...

Today, is the stupid CPI report, and as usual on Thursday, the Weekly Initial Jobless Claims... Jobless Claims will most likely remain around 450,000, and that my friends is a very telling picture of how our economy is doing... Don't listen to the pundits on cable news that don't deal with the truth, and follow the President around like a puppy follows his owner! An average of 450,000 jobless claims each and every week now for 30 consecutive weeks, which followed about the same amount of time that the average was over 500,000 each and every week!

And here's another thing that's a HUGE problem for the economic recovery folks to deal with... Money.cnn reported last night that: "Most borrowers who have had their mortgages modified through a government-sponsored program will re-default within 12 months, according to a report released Wednesday.

Between 65% and 75% of loans that are modified through the Home Affordable Modification Program but not backed by the federal government are likely to go bad, according to the report released by Fitch Ratings, a N.Y.-based credit-rating agency."

WOW! Or more appropriately... OUCH!

I came across a story online on Tuesday that I forgot to talk about yesterday, so here it is... The question was asked of Dennis Gartman "did he think Gold was in the midst of a bubble"... Mr. Gartman's answer was interesting... He contends that: "we are not in the midst of a Gold bubble"... He then gave some data on enthusiasm for Gold, and pointed out that it was nowhere near "bubbly"...

So... We've got that going for us, eh?

Then there was this... And this, and if the Mortgage default story didn't tick you off at the Government, this sure will... CNBC is reporting this morning that: "More than 90 U.S. banks and thrifts missed making a May 17 payment to the U.S. government under its main bank bailout program, signaling a rising number of lenders are struggling to meet their obligations."

Great... Just great! You know what's coming from that don't you? Of course you do, that is as long as you weren't living under a rock the past 2 years! More stimulus, more bailouts, more taxpayer agony, and more debt... Brother! Can us taxpayers catch a break for cryin' out loud!

To recap... The Spanish Auction of debt went off just fine overnight, and that has boosted the euro, which is nearing 1.24 again. The Swiss National Bank didn't talk about stemming currency appreciation, which gave the green light to traders and investors looking to buy the franc without the fear of SNB intervention. And the Canadian loonie is gaining ground again with the price of Oil rising, and Gold back on the rally tracks...

Currencies today 6/17/10: American Style: A$ .8665, kiwi .7015, C$ .9765, euro 1.2380, sterling 1.4820, Swiss .8980, ... European Style: rand 7.5660, krone 6.3545, SEK 7.7375, forint 225.15, zloty 3.3875, koruna 20.77, RUB 30.96, yen 91.30, sing 1.3915, HKD 7.7885, INR 46.35, China 6.8290, pesos 12.53, BRL 1.7870, dollar index 85.72, Oil $77.40, 10-year 3.27%, Silver $18.51, and Gold... $1,235.60

That's it for today... Yesterday, I also forgot to talk about the two interviews I did on Tuesday... One with MarketWatch, and the other on the Red Chip radio network. The radio guy, said to me, "Chuck, we've got 5 minutes to fill, do you think you can fill the whole 5 minutes?" I laughed, and said, I could fill 5 hours if you've got them! It was like old times last night, as my old neighbor, Kevin, stopped by, and my other neighbor, Paul, came over, and we sat outside and listened to the ball game. Cardinals lost, but that didn't ruin the beautiful evening, and the company of two good friends... Tomorrow is the next BIG game for the U.S. Soccer team, Go USA! I hope you have a Tub Thumpin' Thursday!
Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Currencies Rally Yesterday...

Chuck Butler — Thu, 23 Apr 2009 13:03:03 GMT

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In This Issue..

* Euro climbs back to 1.30...
* High Yielders bounce back...
* Gold to hit $1,500?
* Kurt Richebacher...

And Now... Today's Pfennig!

Currencies Rally...

Good day... And a Tub Thumpin' Thursday to you! Yes, it's a Tub Thumpin' Thursday because it's finally supposed to be warm here today, and... The Card and Mets in a day game at Busch today... Wink, wink... It's also a Tub Thumpin' Thursday because... I said so! HA-HA!

Well... We had a rally in the currencies yesterday and this time the rally wasn't reversed overnight by profit taking! WOW! It's been some time since we could say that! Maybe it was the good karma the overnight markets received by my little buddy Alex's base hit last night to drive in 2 runs! Or, the good karma from a Cardinals pitcher going into the 9th inning of a game! WOW! Or... Maybe, just maybe, cause you never know, fundamentals are creeping back into the currency markets?

A one day rally does not make a trend... Nor does a bear market rally that lasts 9 months! Fundamentals dictate trends... Charts do not... And neither does bear market rallies! For they are built on short covering, deleveraging, safe haven flows, and profit taking... Not Fundamentals!

I've been wanting to get that off my chest for some time now... I know, I've explained this before, but it's been awhile, and thought it needed to be said once again for a refresher or for the new readers! On that note... Did you know that the Pfennig is now read by a very large number of people each day? It something to behold, for your humble Pfennig writer, that began this endeavor with hand written notes about the overnight markets on the desks of the bond salesmen so they didn't have to spend their mornings trying to catch up!

OK... Back to the task at hand... Well... I see that Commerzbank is telling their clients that these rallies in the euro are opportunities to sell their positions... Hmmm... Of course they must be talking about "trading positions" clients... Not investment portfolio diversification clients!

The euro, which tried for a week to get back to 1.30, finally climbed above the figure yesterday morning, and has remained there. The single unit received an additional boost this morning when the Good ZEW Business Confidence report that printed earlier this week, was followed up by the European Manufacturing Index rising... Does this mean the Eurozone's recession is easing? Hmmm... I don't think so... I just think it shows what I've been talking about for some time, and that is the fact that in the Eurozone, 80% of their trade is among themselves... But! You have to like the resiliency, eh?

The Big Dog (euro) was off the porch yesterday chasing the dollar down the street, which means the rest of the smaller dogs get to stretch their legs too! And so, currencies like Aussie, Swiss, kiwi, rand, and real all enjoyed their exercise! One of these things is not like the other, can you guess which one it is? Right! It's Swiss francs! All the other currencies mentioned are high yielders...

So, what's with Swiss getting mixed in with the high yielders? Ahhh grasshopper, Credit Suisse posted a return to the black... A profit... And that's a good thing for Switzerland, as Credit Suisse, and UBS had really pulled the franc down in the past quarter... But don't look for any sustained gains here, as The Swiss National Bank's (SNB) vice-chairman, Hildebrand, that the bank would continue to limit gains in the franc... That's Central Bank parlance for they will intervene, and sell francs to keep it weak...

Now... I find that statement by Hildebrand very interesting... Because just last week, the SNB issued a statement that said they didn't think it was a competition by countries to weaken their currencies... Hmmm... When a Central Bank makes two different statements within a month talking about how they will extend currency purchases as long as necessary to prevent appreciation of the franc to ward off deflation... You've got to wonder how many other Central Banks will follow?

Just to explain further for those of you new to class... A strong currency goes a long way toward fighting inflation... Well, if inflation isn't your concern, and you would like to actually see some inflation in your economy (not deflation) then a weak currency would go a long way toward achieving that goal...

I think the U.S. Fed and Treasury would love to follow, but they just can't right now, with all the safe haven flows into the U.S.

Gold pushed higher yesterday and then again this morning at the London fixing... There's a great story on the U.K. Telegraph by Ambrose Evans-Pritchard regarding Gold, and how it could rise to $1,500... Here's a link to the whole story... http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/5184036/Gold-price-could-hit-1500.html

But for those of you with no spare time to play on the internet, here are a couple of snippets...

"In normal times, gold mining companies sell - or "hedge" - a chunk of their output in advance through bullion banks. These banks cover their positions by leasing gold from central banks. This bread-and-butter trade created excess supply of 500 Tonnes each year until the start of this decade.

Low real interest rates have caused the process to reverse, creating a shortfall of about 500 Tonnes. The process accelerates as rates turn negative, leading to a scramble by market players to find physical gold."

OK... Back to me... I'll follow that up with a story I read the other day that the claims that The NYSE-Liffe futures exchange has, it seems, run out of 1 kg bars of gold. WOW! This physical demand for Gold is really beginning to get very serious... We did some research on our Metals Select product, and found that comparing March 2008 to March 2009, our trades for physical Gold increased by over 200%! I just finished an outline to a presentation that I'll be making at the Las Vegas Money Show that will be web-cast on Gold... And in the presentation, I talk about these uncertain times... The fear that everyone walks around with, from the crackpots shooting missiles, to those gearing up nuclear capabilities, to those throwing good money at bad situations... Gold, is the answer...

Well... Speaking of throwing good money at a bad situation... I received a couple of emails from people that weren't happy that I made fun of the $100 million that the Obama camp was told to cut from the Budget... The claimed that I was being unfair to Obama... Well... I said, very quickly... That apparently they hadn't been readers very long, or else they would recall me lambasting the previous administration for their deficit spending too! Shoot Rudy, I don't care who's making the decisions, as long as it involves adding over $3 Trillion to the National Debt in one year, I'm going to point out how bad that is for us, our kids, and our grandkids...

Think the call for an alternative reserve currency by China is a thing of the past? I think the Chinese are just getting warmed up! Memememememememe... Testing, testing, 1,2,3... Ahem, there my voice is clear! Seriously though... The research folks over at ING said that they believe with China's Trade Surplus swelling to $325 Billion this year, thus boosting their currency reserves (read dollars), it will add pressure on the Chinese to push for an alternative reserve currency, other than the dollar. Recall, that the Chinese earlier this month threw a cat among the pigeons by saying they wanted to create SDR's (special drawing rights) that would include a number of currencies, and that would be the global currency...

That was met with a cold shoulder at the G-20... But for how long? With that kind of a war chest of dollars, the Chinese could really start throwing their weight around. Recall that Chinese PM Wen Jiabao said earlier this month that he feared that the dollar was going to weaken given the spending, and thus their need to borrow in the U.S.

The Bank of Canada will give the details of their announcement the other day to cut their target rate and place a hold on it, but not the discount rate. They'll also give details on what they will do with regards to Quantitative Easing...

And... The Bank of England didn't back off reports that they would issue a budget deficit larger than any since World War II yesterday... That's exactly what they did... Not, good stuff for the U.K. economy or the pound sterling, folks...

Time to head to the Big Finish, and eat my apple...

Currencies today 4/23/09: A$ .7115, kiwi .56, C$ .8090, euro 1.3050, sterling 1.4525, Swiss .8640, rand 8.9475, krone 6.6750, SEK 8.4125, forint 227.80, zloty 3.3840, koruna 20.60, yen 98.20, sing 1.5010, HKD 7.75, INR 50.07, China 6.8299, pesos 13.22, BRL 2.21, dollar index 86.03, Oil $48.57, Silver $12.47, and Gold... $894

That's it for today... Do you Twitter? I keep getting asked to join people's twitter conversations... I have to say that I understand what it is... But don't understand the need... And, think about it, the base word to Twitter is Twit... That cracks me up! Of course there's more to that discussion but not here! Late game for my little buddy Alex last night... And on a school night! Good thing I got a 3 hour nap in when I got home! Ok... This is really serious stuff... My friend, Addison Wiggin at Agora Publishing made an announcement the other day that I asked if I could relay to my readers. Remember the late, great Kurt Richebacher? Well, his newsletter is being continued in the framework of the great Austrian economics guru. Here's a link for more information...
http://www.richebacher.com/the-dr-richebacher-legacy/

OK... Time to get going if I'm going to sneak out of here and head to downtown... Ooops! Guess I let the cat out of the bag! Oh well, I'm sure you figured that out when I first told you there was a day game today! I sure hope our Thursday is Tub Thumpin'!

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