A Pfennig For Your Thoughts

In This Issue..

  • Is that Clear? Crystal!
  • A rebuttal to Poole…
  • Commodity Currencies begin to rebound…
  • Icelandic krona…

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And Now… Today’s Pfennig!

A Clear Signal!

Good day… Well… It’s Thanksgiving Week, I sure hope you get to your destination or those that are coming to see you, arrive safely… It was an awful weekend for our football teams (Tigers, Rams) so I’m looking for something to get my week started on a happy note!

We received one heck of a happy note on Friday in the form of strong words from ECB President Claude Trichet… Yes, just when everyone was expecting a quiet Friday, along came an announcement by Trichet that the ECB “was ready to move rates” and will begin “augmenting rates soon”… That my friends is Central Bank parlance for “Rates are going higher, are you ready?” That signal to the markets was so clear, even Traders got the message… I can see / hear Trichet shouting… “is that clear” and Traders responding… “crystal”!

Well, the euro shot up 1 full cent on the clear signal, and short positions were getting closed one after another. Of course, we had to deal with a bout of profit taking, and from what one trader told me was, another round of repatriation, but, once that was all through the system, the euro rallied back to end the week on a happy note!

Recall, on Friday I told you that Trichet would be talking to the European Parliament on Monday, and I thought he would indicate then that the ECB would be raising rates? I also said that I was of the few that thought the first hike would come in December, while the majority that even thought the ECB would raise rates, would do so in January… Well, Trichet jumped the gun, and made the announcement on Friday… He’ll still speak to the European Parliament today, and I would look for him to reiterate his words from Friday.

The thought that Trichet will do just that today, had the Asian markets pushing the euro even higher overnight, through the 1.18 figure… I know, these moves are like removing a bucket of sand from the beach, but at least they are in the right direction! The European markets have picked up the baton from Asia, and have continued marking the euro higher this morning… Now, if Trichet gets a case of the Nervous Nellies and backs off his clear signal from Friday, this will all go down the drain in a NY minute. However, having said that, I don’t expect any Nervous Nellies today, except from speculators that have euro shorts out on the line!

Recently, there was article in our, one newspaper town, Post a couple of weeks ago that followed up a speech by St. Louis Fed President Poole, in which he stated that the deficits weren’t a problem… The newspaper writer, agreed with Poole… I was so angst ridden when I read that article, I wanted to fire off some thoughts, but didn’t… However, this weekend, two well versed people did respond, and it you read the articles they wrote, you would say… “That sounds like the stuff Chuck keeps harping about”!

Of all the stuff that was written though, the one thing I liked the best was a thought by Alan Tonelson (Research Fellow at the U.S. Business and Industry Council Educational Foundation)….

“No one knows exactly when a dollar crisis may emerge, but the Nicklaus/ Poole point of view has just been challenged by Poole’s boos, outgoing Fed Chairman, Alan Greenspan. It was Greenspan who noted this week that a worldwide departure from dollar assets may already be underway. As proof, Greenspan cited the dollar’s shrinking share of all global cross-border banking and international bond claims, which are increasingly taking place in euros and other currencies.

In fact, these trends conform to everything that modern economics has learned about trade and economic imbalances. The Trade Deficit and the resulting debt confront Americans and their leaders with a clear choice. They can try to master their fates and address these problems before the economy is engulfed. Or… They can remain in a state of denial, enjoy what’s left of the ride, and play surprised victims when their chips are actually called in.”

OK… Other currencies… As you would imagine, the euro strength has given cause for the other currencies around the world to rally… Aussie, kiwi and Canadian loonies lead the pack in that regard as they had already begun to rebound before the Trichet comments on Friday. The rally in these currencies is long overdue, as they have not rallied along with Commodity prices recently… So, there’s obviously some catch up to be played here. In fact I would think the rally in these three can go well beyond any sustained rally the euro can put together at this point.

The Asian currencies just can’t catch a break these days… There obviously wasn’t any Chinese currency revaluation while President Bush was there, and until there is one, yen, baht, and other currencies in this region aren’t going to mount a rally on their own… This is going to be a slow process, so keep your patience… It’s a virtue I’m told!

OK… The Icelandic krona is quickly becoming a popular currency among our customers… Let me repeat something that may not have come across so clear on Friday… This currency has only lost one-half of one percent this year VS the dollar, which is a very strong performance given the dollar’s correction. There’s something else I want to make perfectly clear… This is a small country, very small population… But we’ve been watching the currency for 4 years now, and like what we saw… So, it’s great to be able to finally offer it to you!

The data cupboard only has October’s Leading Indicators for us to review today… And these indicators supposedly are supposed to rebound from 4 months of disappointment… If they do rebound, the dollar could see some support… The greenback could also see some support from a speech by Chicago Fed President Moskow today… But… I don’t see the dollar getting too much support…

Currencies today: A$ .7380, kiwi .69, C$ .8410, euro 1.1820, sterling 1.7215, Swiss .7630, rand 6.63, ISK 61.90, krone 6.68, forint 214.73, zloty 3.366, koruna 24.76, yen 18.80, baht 41.17, sing 1.6980, China 8.0833, pesos 10.64, and gold… $488.66

That’s it for today… The old Pfennig writer is in major pain this morning, as I think I probably broke or cracked a rib Saturday… Hurts to breathe, hurts to laugh, hurts to, oh you get the point… No sympathies though, I should know better! It’s a short week, but a busy one for us, as Chris will be gone this week… Have a great Monday and Thanksgiving Week!

Chuck Butler
EverBank World Markets