We attract thousands of investors and hundreds of mining company executives to our conferences -- it is always standing room only when Doug Casey steps up to the podium. - Joe Martin, Cambridge House
Chuck Butler
Two decades ago, Chuck Butler embarked on his extensive career in foreign investments as the Directo... More
Related Links
6.10
-0.0506/04/2009
Daily Pfennig 6/4/09: Magical Currency Tours!
A Pfennig For Your Thoughts
In This Issue…
- Currencies get whacked by Geithner!
- Big Ben wants the budget deficit cut!
- BOE and ECB meetings today...
- I told you this was going to get ugly...
When it comes to growing your portfolio — you explore all avenues.
You research, read industry publications and utilize every opportunity to learn more. So when a good opportunity comes along — you recognize it. That’s why the EverBank® WorldCurrency Accounts could interest you.
Consisting of a range of CDs and a money market account, you’ll have the opportunity to take part in foreign currencies — as well as build your portfolio in an innovative way2. Participating is easy. Choose from our WorldCurrency Accounts and monitor how your euro, Swiss franc or other currency performs against the U.S. dollar.
What’s more, all of the WorldCurrency Accounts are FDIC-insured against bank insolvency. Learn more online and see just how easy participating in foreign currencies is at EverBank. http://www.everbank.com/001WorldCurrency.aspx?referid=11953
EverBank, the Infinity Sphere and EverBank logo are proprietary service marks of EverBank. All rights reserved.
07EWMGNET006 FDIC/EHL ©EverBank, 2008
And Now... Today's Pfennig!
Magical Currency Tours!
Good day... And a Tub Thumpin' Thursday to you! Yes... Tub Thumpin' because I said so! Yesterday was absolutely a 10 on the crazy meter, and We the People just continue to sit and take whatever the government and media tell us is "best for us in these uncommon times"... I've got some interesting words on this later in the letter... It's time for me to get on my soap box once again, so... At least I've prepared you! But first... Some currency news!
Well... Yesterday, I left you with the thought that the currencies were selling off, after the Asian central banks all made statements regarding their support of the dollar as the world's reserve currency... Here are some further thoughts on that...
Roll up, roll up to the Mystery Tour... The Magical Mystery Tour is waiting to take you away, Waiting to take you away.
Yes... U.S. Treasury Sec. Geithner's Magical Mystery Tour, which should be renamed the Magical Currency Tour! OK... Remember, yesterday I told you about the Asian countries of S. Korea, India and Japan, all made comments regarding the U.S. dollar as the world's reserve currency, etc, etc. Well... Now we know more about why they all decided to make favorable comments about the dollar on the same night! They were behooved to do so by Geithner!
Well, at least the dollar bulls have someone that they can get all excited about! But, the jury is still out on whether or not Geithner's Magical Currency Tour will last very long... But yesterday, it carried a lot of weight! The currencies lost some major ground yesterday, as it certainly looked like a coordinated effort to pick the dollar up from the canvas, after spending 3 months in the ring with Rocky Marciano!
Because... In addition to Geithner's Magical Currency Tour, we had Big Ben Bernanke on "the hill" telling lawmakers to "cut the budget deficit"... And the markets reacted as if... As if the lawmakers could do something about the budget deficit train that has already left the station! But the markets did react, and react favorably for the dollar...
Hmmm... You don't think that... Nah... I don't want to say it, because the last time I did, I got ambushed on that cable station that I refuse to mention by name! But this all smells of yesterday's fish! So, I'll just keep it as I said... That it was a coordinated effort to pick the dollar up from the canvas...
So... The Big Dog, euro, was sent back to the porch and chained to the porch column. The euro, which had traded up to 1.4320 on Tuesday, saw those gains and previous gains wiped out yesterday, as the single unit was pushed back to 1.41 and change... The rest of the little dogs followed the Big Dog back to the porch, and their kissin' cousins gold and silver got taken to the woodshed!
But if you think that the move in euro was wild... You should have been in the driver's seat here on the currency desk to witness the move in the emerging and commodity currencies! (Aussie, Brazil, South Africa, kiwi, Canada) Yes, they outperformed every other currency on the way up, and when the tables were turned, they led the way to underperform/lose more ground than every other currency! UGH! But... Hey! Didn't I warn about these emerging markets as being volatile? You have to strap yourself in, and remember to keep your arms and legs inside the car at all times!
The euro had recovered a bit overnight, moving back to a 1.42 handle, but once again has given that up, as the European Central Bank (ECB) is meeting as I write. The inner struggles at the ECB have really weighed on the euro the past two days... In the blue corner, we have the likes of Spain and Italy that want, and think they need, Quantitative Easing, along with further rate cuts. In the red corner, we have Germany's central bank, the Bundesbank, and they want neither! Let the markets be! is their mantra... And I have to say, that I agree with the Bundesbank!
ECB President Trichet has his hands full of Big Babies, whining about this, that, and the other thing, but mostly about how the "other central banks are doing Quantitative Easing." If I were Trichet, I would use the line I've always used with my kids, when they would tell me that the other kids were doing something... "But don't you want to be better than the other kids?"...
And, so... Trichet should tell the likes of Spain and Italy that the ECB wants to be better than the rest of the kids/central banks!
Unfortunately, I'm not convinced that Trichet has the intestinal fortitude to do that... So... The Quantitative Easing question hangs over the euro like the Sword of Damocles this morning... What's it gonna be boy? Spain and Italy or Germany's Bundesbank that wins this tug-o-war!
The Reserve Bank of Australia (RBA), who earlier this week kept their interest rates steady as she goes, warned the other central banks that cutting rates too low was dangerous... RBA Gov. Stevens said, "policy makers must be cautious about lowering borrowing costs too far. Cutting interest rates further may be counterproductive as that might encourage some borrowers to take on debt they can't afford."
The Bank of England (BOE) is also meeting this morning... Not much can come out that meeting, as they've already cut interest rates to the bone, and implemented Quantitative Easing measures.
Getting back to the ECB meeting... I think the markets are going to be looking for any indication from Trichet that the ECB is "uneasy" with the recent upward moves of the euro. If he doesn't mention it, the euro gets to go past "Go" and collect its $200... If he does mention it, the euro will not get to pass "Go," not get to collect its $200, and go straight to jail... Let's hope it has a Get Out Of Jail Free Card!
I think it does, and it's called being the offset currency to the dollar... But some pain will have to come before it gets played...
And here's one of the reasons I think the Get Out Of Jail Free Card will get played is the fact that the deficit spending in the U.S. recently got some very bad news, that you won't hear on the TV news... Here's the skinny...
The budget deficit this April was $20.9 billion, the first deficit in this "tax-paying" month in 26 years! Can you imagine that? In April, when taxes are paid, we recorded a deficit? That's pretty amazing, folks... April 2009 tax receipts dropped 44% compared with those in April 2008. OK... I also read where the money collected by taxes is only going to cover half of the fiscal 2009 federal budget, requiring the government to borrow and print more than $1.8 trillion to fund it. And that's not the end of it... There are equal-sized deficits looming for fiscal year 2010 onward. (Read entitlement programs.) Tax receipts fell 50% during the Great Depression. Now eight months old, this depression is already rivaling that drop!
Did you know that we as a country were in the red during April? Do I have to tell you what's next for Jean and Joan and who knows who? Higher taxes! You won't hear the lawmakers running around screaming that they need to cut government spending! Instead, you'll hear them screaming that they need to increase revenue! HEY! Cut the spending Jack!
Bill Gross, founder of Pacific Investment Management Co (PIMCO), is advising holders of U.S. dollars to diversify before central banks and sovereign wealth funds ultimately do the same amid concern about surging deficits!
You know... Bill Gross is like the old E.F. Hutton commercials (sorry youngsters, this will go right over your heads!). When Bill Gross talks... People listen! I suggest you do too! Here's more, from Bill Gross speaking about Geithner's statement to the Chinese about shrinking the budget deficit... "I think he'll (Geithner) fail at pulling a balanced rabbit out of a hat. They are talking about, once the economy in the U.S. renormalizes, the move back toward balance or much less of a deficit. I suspect that will be hard to do."
Big Ben Bernanke was right on one thing he talked about yesterday... And that is "a prolonged deficit will choke economic growth"... He said it! But that's almost like me saying it... He can't do a thing about the deficit, and neither can I! He can try to be influential, I can't even do that! So... I just think Big Ben is seeing the writing on the wall and wants to be able to point out in a few years that he "told lawmakers to cut the budget deficit, and they didn't listen to him, see how smart I was!"
OK... Now, I saw some news flash across the TV yesterday that just made my blood pressure rise quickly... OK... Remember when I told you that the Gov't owning banks was a baaaaaaaaaddddddd thing? Recall me telling you how banks would be directed by lawmakers to make loans in the lawmakers' districts, when it would not meet the banks' requirements for a loan? This among other things would be very bad...
Well... Skip ahead to the Gov't bailout of carmakers... Guess what? The lawmakers are going after the carmakers for closing dealerships in the lawmakers' districts! That's right... It's happening right now! Let the Gov't put their foot in the door, and the next thing you know, the Gov't is making out your grocery list and telling you where you can shop!
Well... As usual, I hold the Pfennig from going out on these first Thursdays of a month, to see if I can include the results of the BOE And ECB meetings. I usually get the BOE in before hitting send, but being an hour later, the ECB meeting get left out until tomorrow. And... Here it is! Talk about timing! The BOE kept rates unchanged and refrained from expanding their Quantitative Easing, like the Fed Reserve did at their last meeting. This should be constructive to sterling... But you never know with these crazy markets these days! OK... So on to the Big Finish!
Currencies today 6/4/09: A$ .8025, kiwi .6325, C$ .9020, euro 1.4140, sterling 1.6350, Swiss .9340, rand 8.0775, krone 6.2925, SEK 7.6320, forint 203.40, zloty 3.1960, koruna 19.05, yen 96.60, sing 1.4430, HKD 7.7515, INR 47.17, China 6.8336, pesos 13.35, BRL 1.9645, dollar index 79.43, Oil $67.15, Silver $15.32, and Gold... $968.60
That's it for today... A wild day yesterday, let's hope for some semblance of calm today! I forgot to tell you yesterday about my time with my beautiful granddaughter on Tuesday night... She and I sang "You are my sunshine" together... Just like her momma used to do when she was a little girl. I would pull out my guitar, and Dawn would immediately want to sing with me. She liked "Sunshine," but her favorite was an old Hank Williams song, Hey Good Lookin'! Sappy stuff, I know... But after all the hootin' and hollerin' I do about things, this is the stuff I do when I get home! No one there wants to hear me talk about this stuff, as they've heard it for years! And the neighbors? They all change the subject as fast as lightning! So... My dear readers get all my thoughts, aren't you lucky? HAHAHAHAHAHAHA! OK... Gotta go... I hope your Thursday is Tub Thumpin'!
Chuck Butler
President
EverBank World Markets
www.everbank.com
PFENNIG DISCLOSURE
