Doug Casey is smart, hard-working, and extremely knowledgeable. He has an instinct about investments that has made him and many of those around him very rich. If you ever get a chance to tap into that instinct, you should take it without hesitation. - Bill Bonner, The Daily Reckoning
In This Section
The U.S economy is crumbling!
Now would be a good time to consider investing abroad...
Learn how in the free special report- "Investing Abroad: What U.S. Investors Need to Know"
Now would be a good time to consider investing abroad...
Learn how in the free special report- "Investing Abroad: What U.S. Investors Need to Know"
Chuck Butler
Two decades ago, Chuck Butler embarked on his extensive career in foreign investments as the Directo... More
Related Links
Email Article
Printer Friendly Version
Daily Pfennig 11/14/08: Data Shows Just How Bad Things Are...
11/14/2008A Pfennig For Your Thoughts
In This Issue…
- Data shows just how bad things are...
- Trade deficits narrow...
- EU confirms they are in a recession...
- RBA intervening again...
All major currencies available. Even some emerging ones.
Ready to diversify globally? At EverBank®, you can choose from more than 20 individual currencies, including some like the Czech koruna and the Brazilian real that are just emerging.
You understand the value of diversifying beyond the U.S. dollar. And at EverBank, you’ll find a range of currencies and accounts that makes diversifying in foreign currencies easy and convenient.
Apply today, get expert insights and more. Visit EverBank.com ( http://www.everbank.com/002Currency.aspx?ReferID=11953 or call 800-926-4922.
EverBank, the Infinity Sphere and EverBank logo are proprietary service marks of EverBank. All rights reserved.
08ACQ0131.2 FDIC/EHL ©EverBank, 2008
And Now... Today's Pfennig!
Data Shows Just How Bad Things Are...
Good day... Chuck asked me to go ahead and write the Pfennig this morning, but I got a late start, so this one will be short. We finally had some data releases here in the U.S., which look to steer the markets, so I'll just get right to it.
The dollar continued to strengthen yesterday after another round of bad weekly employment figures. Initial jobless claims increased to 516k during the first week of November, and last week's numbers were revised up to 484k. The employment picture continues to darken here in the U.S., and it doesn't look like it will improve anytime soon. This is just what the U.S. consumers don't need right now. Not only are most consumers living paycheck to paycheck, but now many of those paychecks are being ripped out of their hands.
Personal bankruptcies are heading into record territory, and job losses will only make this worse. While the total size of the consumer credit market is dwarfed by the size of the mortgage market, with home loans there is an underlying asset providing some base from which banks can work. Credit card debt is different, the banks and investors who hold this debt have no underlying assets to fall back on. This fact has not been missed by the current administration, and Treasury Secretary Paulson is now looking to spend some of the bailout package to try and help out the consumer lenders. Unfortunately, it looks like we will be taking another step into the deep, dark area Chuck has continually talked about.
This morning, we got the retail sales numbers here in the U.S., which showed a further deterioration. Retail sales less autos were down 2.2% in October, almost double economists' expectations. This fall is the largest monthly drop ever and is just one more sign the U.S. economy is heading for a doozy of a recession!
We did get some good news yesterday morning as the trade deficit narrowed somewhat, a result of a stronger dollar and lower oil prices. But even after the narrowing, we are still running a deficit adding to our need to attract foreign investments. Chuck let me have a sneak preview of December's Review & Focus the other day before he sent it to the printer. In the latest issue, he talks about our need to finance the twin deficits which the U.S. continues to amass. This financing need is one of the factors that convince me the U.S. dollar will have to get weaker. The current dollar strength will not last, and once the "flight to quality" buying of U.S. Treasuries subsides, we will see the U.S. currency return to its long-term decline.
As I said earlier, the dollar continued to strengthen yesterday morning as the stock market fell. But both reversed course early in the afternoon after Paulson started talking. The Treasury Secretary said the big 3 auto makers should receive some government help, but he isn't willing to take any of the funds already approved by Congress to help them. Instead, he urged Congress to come up with additional funds to help the car makers. He also said he would look to try and spend some of the already approved rescue package on "non-traditional" lenders who give loans directly to consumers. Looks like Paulson is finally realizing what we have been saying for a while now, that the next big crisis is the consumer credit crunch.
Anyway, just after the news came across the wire about Paulson's remarks, the stock market jumped 400 points and the euro bounced up over two cents in the matter of a few short minutes. The dollar has really become a contraindicator for the risk appetite in the market. The dollar index and the stock market have moved in opposite directions 88 percent of the time since the beginning of September. As investors feel more comfortable with risk, they sell the short-term dollar holdings and invest them into other markets. The Europeans have started to take the dollar back up this morning, but it remains lower than at this time yesterday.
The Europeans are taking the euro down after it was confirmed that the European economy fell into its first recession in 15 years during the third quarter. Germany had already reported a third month of negative growth, and the European Union confirmed the GDP shrank 0.2% in the 15 euro nations during the third quarter. France, Europe's second largest economy, unexpectedly grew in the third quarter as consumer spending gained and exports rebounded. I am still convinced that while things are bad across the pond, Europe's economies are still in better shape than the U.S. economy. And while some here in the U.S. have given the ECB trouble about not lowering interest rates as quickly as the U.S., I believe they have done a better job navigating the current crisis, and Europe will be able to recover more quickly than the U.S.
And finally, the RBA was in the markets protecting the Australian dollar again. Lately, the RBA is intervening to hold the AUD$ up while there are rumors the Bank of Japan may start intervening to stop the appreciation of the yen. Officials at the Swiss National Bank have also been complaining about the rise of the Swiss franc. Both the Japanese yen and Swiss franc continue to strengthen as investors reverse carry trade positions. So we have a couple central banks intervening to hold their currencies down, and others who are intervening to try and keep theirs from falling further. Crazy Times!!
Currencies today 11/14/08: A$ .6585, kiwi .5595, C$ .8188, euro 1.2671, sterling 1.4738, Swiss .8409, ISK (No Quote), rand 10.152, krone 6.890, SEK 7.894, forint 213.42, zloty 2.9408, koruna 20.015, yen 96.39, baht 34.97, sing 1.5184, HKD 7.7501, INR 49.01, China 6.8250, pesos 12.97, BRL 2.30, dollar index 86.89, oil $58.25, silver $9.65, and gold... $747.24
That's it for today... Rainy day here in St. Louis, tonight it is supposed to get a bit colder, so this rain will likely turn into our first dusting of snow. My wife, Tina, took off to Colorado with her girlfriends last night, so I will spend the weekend playing chauffeur for our two kids. I hope all of you have a Fantastic Friday and a Wonderful Weekend!!
Chris Gaffney, CFA
Vice President
EverBank World Markets
www.everbank.com
PFENNIG DISCLOSURE
Related Articles
Daily Pfennig 1/6/09: The Italian Job...
Daily Pfennig 1/5/09: The Obama Bounce Begins!
Daily Pfennig 2/1/09: A New Year!
Daily Pfennig 12/31/08: The End of 2008!