China Is Number 2!
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    In This Issue..

    * Retail Sales Are Soft...

    * TIC data today...

    * A$ hangs on to 89...

    * Gold adds another $6...

    And Now... Today's Pfennig!

    China Is Number 2!

    Good day... And a Marvelous Monday to you! The Extreme Heat finally broke this weekend, and we're back to normal heat for an August... The heat on the euro and other currencies is still on from last week's FOMC meeting. And we have a new #2 in the world, in terms of size of economy... I head to San Francisco on Wednesday, it'll be a long trek, as finding direct flights out of St. Louis is getting more difficult all the time! UGH!

    Well... Friday, we were waiting for the Retail Sales to print... Recall that the BHI (Butler Household Index) had indicated that it would be a bit stronger, and not so disappointing... And voila! That's exactly what happened! July Retail Sales printed at a +.4%, and the previous month's -.5% previous print was revised upward to -.3%... So... Not "as" disappointing!

    The July Retail Sales was an opportunity for the economy to shine, and put all that negative stuff to the side of the road for the day and weekend. But, it failed to do so, and thus we're left with no direction for the markets, once again, and the feeling that the only place to be was Treasuries, yen, francs and some Gold, would not leave the markets...

    The U. of Michigan Consumer Confidence for this month bumped upward... Why? I mean, did they survey a bunch of people that just came out from under rocks? Stocks are circling the bowl, more and more economists are joining my band, playing the double dip doe-se-doe... But, their survey showed increased confidence? Give me a break!

    Apparently, those surveyed were unaware that:

    The number of Americans who are receiving food stamps rose to a new all-time record of 40.8 million in May. The number of Americans receiving food stamps has set a new all-time record for 18 months in a row.

    Or that:

    The U.S. economy lost 131,000 more jobs during the month of July. But the truth is that the U.S. economy has been bleeding jobs for a long time. According to one analysis, the United States has lost 10.5 million jobs since 2007.

    Or that:

    According to a poll taken in 2009, 61 percent of Americans "always or usually" live paycheck to paycheck. That was up significantly from 49 percent in 2008 and 43 percent in 2007.

    OK... I'll stop there, but I could go on... So don't challenge me!

    So... As I said near the top, the euro and other currencies still are feeling the heat of a flight to safety that began last week with the FOMC, announcing QE-Light, and that their forecast for the economy was downgraded. However, traders and other participants aren't willing to take the single unit lower right now... I mean with 10-year U.S. Treasuries at 2.63%, and a 2-year at .75%, investors are left to search for yield, and balancing that with safety... Good Luck! So... The whole "shootin' match" is just wandering around in the fog right now.

    Last week there were a ton of stories going around about China buying Japanese bonds for safety... At first, a lot of people took this as slap to European bonds... But upon further review (now that football has started again!) According to a "top-level Chinese Central Bank" who said, "we didn't sell any European Bonds or assets, instead we bought quite a lot."

    So... The slap is to U.S. Treasuries! But, you'll have people point to the TIC data that prints today, and show you that China is still buying Treasuries... Ahhh, troubadours of Treasuries... Is China still buying the same amount as in years past?

    Speaking of China... There had been rumors of this, but now it's official... China is the number 2 economy, size wise, in the world... Now, that China has reached this #2 position, I can't see them being satisfied with being number 2! And don't think for a moment that the Chinese don't realize their increasingly dominant role in the global economy... Besides, every time I type #2 or say number 2, I think of Austin Powers! HA!

    So... Let's check the scorecard of milestones that China has reached this past year...

    China overtook the U.S. last year, as the biggest automobile market, and they overtook Germany as the largest exporter. And they are the world's number one buyer of iron ore, and copper.... The moved into the #2 position of biggest oil importers too!

    So... Does dropping down to #3 lesson the grip Japanese yen has on the "flight to safety" investors? I would hope so... But, with guys like "Mr. Yen" former top currency official in Japan (Sakakibara), saying, "What we are seeing is not appreciation of the yen, but weakness of the dollar, reflecting concerns that the U.S. economy may falter. There is still a chance the yen will reach an all-time high and stay at that level for the time being." then you have to deal with more yen buying... It's that simple...

    Of course there's no yield in Japan, there's no yield in Swiss francs either, and I've already told you what you have to accept in the U.S. while taking on risk... So, where does one go? Well... Each investor has his own criteria, so this can't be a blanket statement, but as far as I'm concerned, I would rather be in places like Canada, Australia, and Norway than the U.S., Japan, or Switzerland!

    But you can't always fight the "machine"... I always wanted a shirt that said, "I fought the lawn, and the lawn won"... (That's my saying, so if you go and make a million dollars from it, please remember me!) And that feeling creeps into my mantra every now and then when the flight to safety is on... A feeling that I'm fighting a losing battle, but then, I realize...

    Hey you ding-dong! Like "Mr. Yen" said above... "it's not appreciation of the yen, but depreciation of the dollar." So, the dollar continues its weakness... But you won't find that in the dollar index, folks... That's because the dollar index is heavily weighted in euros... So, to get any real movement in the dollar index, the euro has to move one way or the other.

    Speaking of Japan... Japanese GDP softened in the 2nd QTR, rising only .1% (+.6% was forecast)...

    I see where the Aussie dollar (A$) is fighting to hold on to the 89-cent handle this morning... That's a 3-week low for the A$. The heat is on the A$ because the Reserve Bank of Australia's (RBA) meeting minutes will print tomorrow, and there are fears that the RBA talked about pausing rate hikes for the rest of the year... UGH!

    And Canada's dollar / loonie is trading lower this Monday morning, falling below 96-cents, but as far as I can tell, the loonie is outperforming its "Commodity Currency Cousins" of Aussie, kiwi, South Africa, and Norway...

    The price of Oil certainly hasn't helped the loonie, as the Oil price slid last week from $81 to today's price of $75.75... We've seen these drops before, only to watch the price recover... But for now, Oil is cheaper, and that sure helps at the gas pump, it just doesn't aid the loonie's drive VS the dollar.

    So... Like I said above, the TIC-data (net security purchases for the U.S.) will print today... And tomorrow, Housing Starts will print... Get this... Housing Starts are expected to have gained again in July! I thought that inventory was the problem here, but we keep hammering nails...

    And Gold... Has added $6 to its figure this morning, moving the shiny metal over $1,220... Just a couple of weeks ago, Gold was $1,161...

    Then there was this... I hear that the U.S. mint has already begun to ration Silver Eagle Coins... Do you see what I see? I see huge demand for Silver, and have to wonder just what is keeping Silver from soaring in price? Obviously, the games are still being played, and the CFTC (Commodities exchange) continues to have the wool pulled over their eyes... No wait, not the CFTC, but lawmakers... Yeah, that's the ticket! They claim to have completed a HUGE Financial Overhaul, but none of it touched the manipulation of Silver's price... I don't know all the lawmakers that worked on the financial overhaul bill, but I know one... And you would think that he would have used the tools at his disposal to bring this Silver manipulation to light... Tools... All of them!

    Currencies today 8/16/10: American Style: .8910, kiwi .7025, C$ .9590, euro 1.2815, sterling 1.5610, Swiss .9615, ... European Style: rand 7.31, krone 6.2150, SEK 7.42, forint 218.75, zloty 3.12, koruna 19.3850, RUB 30.53, yen 85.55, sing 1.3625, HKD 7.7720, INR 46.78, China 6.8065, pesos 12.71, BRL 1.7710, dollar index 82.56, Oil $75.75, 10-year 2.63%, Silver $18.23, and Gold... $1,222.60

    That's it for today... A tough weekend for my beloved Cardinals, as they fell out of 1st place again! Back and forth... UGH! The Rams began their pre-season schedule Saturday night, looking very much like nothing has changed... UGH! A nice sunrise this morning, and it was 71 degrees when I came in today. It hasn't been 71 since Christmas! OK, I got carried away there... It's the last day of summer vacation for my buddy, Alex, as he begins High School tomorrow. I remember when he used to sit on my lap and help me write the Pfennig when he was 3... WOW! Where did the time go? And my darling daughter, Dawn, turns 31- this week! YIKES! I must be getting old! Eh? Well... I guess I had better hit send, as it's late it's late! I sure hope you have a Marvelous Monday, and the start to a Wonderful Week!

    Chuck Butler


    EverBank World Markets



    Posted 08-16-2010 10:50 AM by Chuck Butler