In This Issue.
* Currencies struggle to find traction.
* Krona is best overnight performer.
* The N.Z. Current Acct Deficit narrows.
* You're fired!
And, Now, Today's Pfennig For Your Thoughts!
Deciding The Fate Of The World.
Good day. And a Wonderful Wednesday to you! Well. Today's "the day" we've all been waiting for with much anticipation. Anticipation is making me late, Is keeping me waiting. Yes, the fate of the world is in the hands of one man today. OK, maybe I went a little overboard there, with the fate of the world stuff, but. if you count the number of media reports on TV, in the newspapers, on the internet, and anywhere else a story can show up, you would think that this FOMC meeting today would be akin to deciding the fate of the world!
I say, forgetaboutit! First of all, the FOMC members wasted their time coming to Washington D.C. for the meeting, because, the only member that counts, is Fed Chairman, Big Ben Bernanke.. He gets to decide the fate of the world today. I've been telling you this for the past 6 weeks, with all the Fed Heads running around sounding as IF they had a voice in the proceedings, that the only opinion that counted was Big Ben's. And then, 2nd of all, I just don't see the fireworks coming from the meeting as everyone else does.
Let's get to the skinny of all this today. Either Big Ben Bernanke decides to remain with the status quo in Quantitative Easing (QE) bond buying, but makes some overtures about tapering should the economy strengthen, OR. He goes back on his statement of 6 weeks ago, that tapering could begin if the economy strengthens, and decides to taper QE. But, in reality is that such a big deal? Let me put it this way. Let's say Big Ben decides to cut $10 Billion from his monthly total of bond purchases to $75 Billion per month. Is the FED Still adding $75 Billion to the balance sheet every month? Why, yes, Chuck, they sure are! So, why is everyone in a tizzy about this? Because, grasshoppers, they don't have the inner peace, and calm that I possess. HAHAHAHAHAHAHA! If my beautiful bride read that, she would laugh so hard it would hurt! No, the real answer is, because that's what the markets do. The react with knee jerk quickness to things, before ever opening up the hood, and taking a look inside.
So, with all this anticipation going on (speaking of anticipation, remember Carly Simon singing that while we waited for ketchup to come out of a bottle?) The currencies couldn't really find any traction, unless of course you count the selling that went on in Aussie dollars, Brazilian real, and yen. The euro on the other hand inched higher all day, and finally pushed back 1.34, only to fall right back below the figure, obviously not ready for prime time.
This morning, the dollar is broadly softer, but the moves are miniscule compared to what we might see this afternoon. One of the best performers this morning has been the Swedish krona. The krona got a lift this morning when the latest (May) unemployment report saw a sharp reduction to 7.9% from 8.4% in April. This would lead me to believe that the calls for a Riksbank (central bank) rate cut at their next meeting would have to be removed. The Riksbank next meets in early July, so this will be water that has passed under the bridge a long time ago by then, but for now, the markets are feeling like no rate cut from the Riksbank in July, and that has the krona outperforming other currencies this morning.
The New Zealand dollar / kiwi, has some wind in its sails this morning, climbing back to 80-cents on the news that their Current Account Deficit narrowed in the 1st QTR from 5% of GDP to 4.8% of GDP. And that reminds me of a little history lesson we need to discuss this fine day. Back in 2001, I saw that the U.S. Current Account Deficit had surpassed a level of 4.5% of GDP, which had always meant that a Country experiencing that kind of debt would experience a currency crisis. And so, I wrote a white paper called the Decline of the Dollar. 2001. And in 2002, the dollar entered its weak trend, from which it has not exited. Yes, it has attempted to exit a few times but has always returned to the underlying weak trend. That's because. drum roll please. The U.S. has never corrected the fundamental weakness of the Current Account Deficit reaching 4.5% of GDP. In fact, the figure has gotten worse over time! And that, my friends, is our lesson for today, now take out your #2 pencils and begin your tests. now.
So. what do we learn from a country reaching that level of indebtedness? And how does it apply to kiwi? Well. this is something that I used to talk about all the time when kiwi was stronger than a steaming locomotive, was that the debt would reach out and grab kiwi eventually. Reminds me of the presentation I gave at the Agora Financial Investment Symposium in Vancouver last year called: What Is Evident, May Not Be Imminent.
Take Japanese yen. for years, all the evidence was there, that yen should be weaker, but it wasn't imminent, until. it was. The dollar is another case of things being evident, but not yet imminent. We all know that the U.S. needs to have a much weaker dollar to pay back portions of debt with cheaper dollars in the future. but that's not the case today.
OK. Whew! That was a long-winded! Probably not as long-winded as Big Ben will be this afternoon! The U.S. data cupboard is pretty empty this morning, as the schedulers cleared off the shelves of the data cupboard to make room for the FOMC meeting this afternoon. So, the currencies will appear to be directionless this morning, as the markets await for the fate of the world to be decided.
In Japan overnight, Japan's May Trade Deficit, that's right I said Trade Deficit (doesn't that sound strange?) narrowed but. things just don't look right here with this report, as export growth was a very big part of the report, gaining 10.1% year on year. That growth could have been a result of the yen's weakness. And that weakness has proved to be a difficult thing to hold on to for the Japanese leaders. I still don't like yen, I still think that the Gov't will eventually get its way with a much weaker yen, so it evident, just not imminent.
The losses in the Brazilian real continue to mount. The other day, the Gov't made a statement that I found to be very questionable. The Gov't said that the "new range for the real should be 2.15 to 2.20. The reason I found that to be questionable, was that on one hand the Gov't was raising interest rates, cutting foreign investment taxes, and reducing currency controls to get foreign investors to notice the real again, but on the other hand they were saying, "we want you to come back and buy real, but it's going to get weaker". Not exactly a good way to sell your country's currency to investors, eh?
We were talking about Brazil's protests yesterday, and I said, "Brazilians are protesting the costs of the World Cup. If they think that's bad, wait till they see the costs of hosting the Olympics!"
Gold sure took a shot to the gut yesterday. it was one of those uppercuts that came from nowhere. I just put the finishing touches on an article I wrote on Silver. You'll see it in two weeks on a Sunday. (don't ask me. I just write when they tell me to!) I went back to what I wrote in December 2010 for the January 2011 NewsMax magazine, and it pretty much is as Led Zeppelin sang many years ago. The song remains the same.
Speaking of something being evident, but not imminent. The popping of the Treasury Bubble. I read yesterday that a 10-year yield of 2.23% would represent the line in the sand. That a push beyond that level would indicate that the end of the 30-year bond rally was over. Hmmm. I looked to see when the research paper was written, because I'm looking at the 10-year and it's trading with a 2.18% yield, only 5 basis points away from the 2.23% level that the researcher thought to be so important. Any way. that's not going to happen until either the Fed stops buying Treasuries, or. the bond vigilantes get some intestinal fortitude and push the envelope. But these so-called bond vigilantes have been nowhere to found. When yields get so low who you gonna call? The bond vigilantes, that's who! But. where are they?
Yesterday, the U.S. printed their stupid pet tricks, I mean stupid CPI (consumer inflation). Isn't it assuring to you that the Gov't tells us that inflation only grew 1.7% in the last year? AREYOU KIDDING ME? Serenity NOW! Thank goodness that Stevie Wonder started singing my Cherie Amour on the IPod right now, and I stopped to sing along, otherwise I would have probably lost all control of my fat fingers, talking about the stupid CPI. As My dad used to say. "hey I didn't just fall off the turnip truck". or as I've said for many years here in the Pfennig. "I was born, just not last night".
And this CPI that the Gov't goes around telling us is a 53 year low, is going to be very difficult for Big Ben to explain this afternoon, should he decide to taper. (I emphatically believe that he won't, but we do have to cover our bases here) You see, QE was started in the beginning with designs to improve the economy, unemployment, and avoid deflation. Those were the Marquee designs. In reality the Big Ben had designs on propping up the stock market, keeping interest rates low, and weakening the dollar. So. if he tapers this afternoon, he's got a lot of explainin' to do, right? He told us he wanted to see the economy strengthen before he tapered, and he wanted to avoid deflation. Both of those get failing grades, so what's he going to fall back on?
Remember yesterday when I told you that the U.S. president said that "Ben Bernanke has stayed a lot longer than he wanted or was supposed to."? I saw that former Fed Gov. (and Mark Twain Bank advisor) Larry Meyer said that "the president basically fired Ben Bernanke on the spot". I can see Big Ben sitting in front of Donald Trump, and him saying. "You're Fired". What? You mean the president fired the man who will decide the fate of the world this afternoon? How dare he? OK. maybe I've gone just a little too far this morning with all this "fate of the world" stuff. I think I made it clear at the top that I'm making fun of the media and the markets for this is what they have come to think this FOMC meeting today is all about.
For What It's Worth. So, speaking of the Fed. Remember when I used to bang on former Fed Chairman, Big Al Greenspan for all sorts of things. Oh my goodness I could write for a week about all the things I complained about, that he was doing. Bill Fleckenstein wrote a book titled: Greenspan's Bubbles! Well. I was reading my Daily Reckoning yesterday, and came across this that I then shared with the rest of the trading desk, and now you!
"The comparable measure with respect to households is that if you don't save adequately, you are wholly dependent upon the income you are getting. But as far as you're concerned, unless you put money away for nest egg purposes, for retirement, for a variety of other purposes, you will ?nd that you are living an extraordinarily precarious existence. Savings is the buffer which is the gap between disaster and prosperity." - Al Greenspan
To which I told the desk. Before the Fed, Big Al was a Gold Bug, a disciple of Ayn Rand. But during the Fed years, he was known as Bubbles. And now that he's gone from the Fed, he's taken back his Austrian economics. Where the heck was all that during his years at the Fed! To which, colleague Ty Keough responded: He was "Mr. Play Along to Get Along" with the political cronies."
I'm sure that one day, Big Ben Bernanke will also revert back to a non-politically influenced economist. You just have to laugh when they say that the Fed is not politically influenced.
To recap. The currencies found it difficult yesterday to gain any traction, and in the overnight markets all focus has shifted to the FOMC meeting adjournment this afternoon. Chuck makes fun of the markets and media acting as if Big Ben Bernanke will decide the fate of the world this afternoon. But then after he makes the announcement, he's shown the door! The Swedish krona is the best performing currency this morning, as rate cut bets have been reduced, after unemployment dropped in May.
Currencies today 6/19/13. American Style: A$ .9490, kiwi .80, C$ .9795, euro 1.3395, sterling 1.5635, Swiss $1.0860, . European Style: rand 9.9425, krone 5.7350, SEK 6.4075, forint 219.45, zloty 3.1790, koruna 19.1705, RUB 32.22, yen 95.15, sing 1.2565, HKD 7.7565, INR 58.71, China 6.1677, pesos 12.87, BRL 2.1810, Dollar Index 80.63, Oil $98.79, 10-year 2.18%, Silver $21.69, and Gold. $1,371.72
That's it for today. My friend, Dennis Miller, a true Cub fan, sent me a note late last night, and said he didn't want to hear any whining from me this morning that the Cubs beat the Cardinals last night. OK, no whining. The game proved an old adage in baseball, that when you have an elite pitcher, if you're going to get to him, you're going to have to get to him early. Alex comes home tonight, but leaves his mom on "location". Good thing darling daughter Dawn and family are living with me, otherwise I would not have been able to exist on my own. HAHAHAHAHA. We actually had a sunny day yesterday with no rain! Everybody, quick, go outside, the sun's out! Oh well. thanks for reading the Pfennig, it's time to go. I hope you have a Wonderful Wednesday!
EverBank World Markets