A Pfennig For Your Thoughts

In This Issue…

  • Another currency rally…
  • Bank of Canada cuts 75 BPS!
  • A Santa rally?
  • What Asia thinks…

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And Now… Today’s Pfennig!

A Bailout for the Big 3…

Good day… And a Wonderful Wednesday to you! We didn’t get that snow I talked about yesterday, I guess the milk and bread on the grocery store shelves are safe today! Had to get “all dressed up” last night for a function that brought together a ton of old Mark Twain Bank people, among others. It was great, but I stood for two hours and I’m paying for it this morning… UGH!

OK… Another day of “healing” for the currencies, as the 1.29 handle was achieved and held on to in the overnight markets. Slowly… Like sand through the hourglass, these are the days of currency healing! HA! That show, Days of our Lives, was burned into my brain as a kid, as it was my mother’s fave soap.

The single unit was higher within the 1.29 handle overnight than it is right now, as it has given back a bit of ground on the news that a European Union Commissioner, Buti, said that, “economic indicators point south very badly.” This is strictly jawboning to keep the euro’s move vs. the dollar in check, folks…

The Bank of Canada (BOC) did cut rates yesterday 75 BPS… You may recall me telling you yesterday that the “experts” thought the cut would be 50 BPS, but I thought it would be 75 BPS… Maybe, one day, these surveys of “experts” will include the Pfennig writer, as he seems to be more “on target” than the current “experts”! Now, Chuck, who would you be referring to here? HA!

I also said yesterday that I didn’t think the markets would care, and they didn’t, as the larger rate cut did little to hurt the loonie. In fact, the loonie rallied a bit on the news!

Again, I don’t understand the mentality here with these central bank rate cuts… It’s not the cost of the credit that’s keeping the credit crisis all locked up, it’s the availability of such credit/money! So… Here’s a memo to central banks around the world… “STOP ALREADY!” All you’re doing is inviting inflation into your economy and debasing your currency!

That glimmering light that I talked about the other day for the Credit Crisis is getting smaller all the time, as the Big 3 still don’t have their bailout from the Gov’t (read, taxpayers)… It now looks as though it could get done today, but at a much smaller figure than previously discussed. It now looks as though the Big 3 will get $15 billion and they had better smile and say “thank you very much” as they leave the room!

It also looks like the Big 3 will get the “Car Czar” that they so desperately fought to keep from looking over them. The “Car Czar” will have the power to call Chapter 11 on GM or Chrysler should they not deliver a sound plan by the end of March. Geez Louise, why do they get 4 months to come up with a sound plan? They should have had one to get the funds to begin with! OK, I had better stop there, I’m really pounding the keys right now… I think I’ll step away for a minute and cool off…

OK, I’m back now, hope you didn’t miss me, or that I was away too long! No, wait, this is text, you have no idea how long I was gone! Silly me!

You know… I was thinking aloud in my car yesterday, and saying to myself that it sure looks like all those pundits that called for a breakup of the European Union by the end of the year will have to put their tails between their collective legs and fade away… You know, the European Union (EU) had more pressure on them in 2005, when the French voted no on the Constitution, and other things, and they held steadfast then, and if they could do it then, then this little tiff with Spain and Italy will pass… These pundits like to point to the problems that Italy is experiencing… And I say…”What’s so new about that? Italy has had problems since I’ve been following currencies (1985, for those of you keeping score at home)!” I truly believe that Italy and Spain like to complain about the European Union and the euro, but when they get behind closed doors, when they let their hair hang down, they thank their lucky stars that they were included in the Euro Club!

The boys and girls over at Bank of America (BOA) believe they are seeing the dollar repatriation flows waning… Now, I wonder how many research people they employ over at BOA, when all it would take is for one of them to read the Pfennig, to see that I said all that yesterday! Anyway… Let’s listen to what BOA had to say about this… “The repatriation demand for the dollar may have run its course, we retain our core long euro-dollar exposure and add long euro-dollar exposure today”… Now… You would think that given the size of BOA that saying something like that could really “move the market”…

But given the market’s “don’t care” attitude until the credit crisis unlocks, I understand why it didn’t! The BIG POINT here is that we could very well be seeing all this dollar repatriation end. And… Like I said Monday, the risk takers were slowly dipping their toes back into the waters, which is what it will take to get the currencies and precious metals on the rally tracks again. But put these two things working together, and voila, you’ve got the makings of what could very well be a Santa Rally…

The boys over at the Bank of Japan (BOJ) are at “it” again… Mom… He’s doing it again! He’s looking at me! Mom! He’s got his hand on my side of the car seat! OK, I’ll stop there… But the BOJ was “jawboning” again in an attempt to keep the yen from strengthening further vs. the dollar. BOJ Gov Shirakawa reminded the markets last night that the Ministry of Finance has the option of intervening if necessary… The Ministry of Finance (MOF) are the signal callers for the BOJ, and they are the ones that determine if intervention is to come into play. For new readers… BOJ intervention means the bank sells yen in the markets to keep it from getting too strong.

In the currency world, this is called a “dirty float”… And the MOF and BOJ like to keep it “dirty”…

OK, I was laughing when I wrote that last bit, but notice I didn’t carry on… Maybe I’m growing up! HA!

Down Under in the South Pacific, Australia saw a very nice rise in Consumer Confidence of 7.6%, adding on to November’s 4.3% gain. The index collapsed this summer, but with the rate cuts the Reserve Bank of Australia (RBA) have instituted, it seems to be rounding back into shape.

In New Zealand, Reserve Bank of New Zealand (RBNZ) Gov. Bollard gave a speech titled “Everyone needs to play their part.” In the speech, Bollard reminded everyone that New Zealand’s inflation rate is still very high (5.1%). Hmmm… Was that the “wink and nod” that interest rates are not going to go much lower? I think it was, folks… But I guess it all depends on if the rest of the world continues to think that by cutting rates they will unlock the credit crisis!

Both of these things for Aussie and kiwi could underpin the currencies at current levels…

And another “Commodity Currency,” the Brazilian real, really put on the Ritz yesterday with a very strong rally… Just another sign that the risk takers are dipping their toes again…

OK… I’ll slide away from the currencies for a minute to talk about a news article that one of my fave writers, William Pesek, provided to Bloomberg, titled: China Will Be Happy Geithner Isn’t a Goldman Guy… Here are some snippets of the article that can be read in its entirety at: http://www.bloomberg.com/apps/news?pid=20601039&sid=aa4nka49enf0&refer=columnist_pesek

“‘Why does Goldman Sachs run your government?’

“After seven-plus years in Asia, I’m no longer startled by this question. It was posed to me yet again recently — this time by Kuala Lumpur taxi driver Sumit Kotari.

“‘What’s wrong with America is that it’s run by investment bankers, mostly from the same bank,’ the 49-year-old Malaysian said. ‘How can Americans stand for it? Is Barack Obama from Goldman Sachs, too?’

“It has been reported in Asia that Neel Kashkari, assistant Treasury secretary in charge of the Troubled Asset Relief Program, worked for the same New York-based investment bank. President-elect Obama’s decision to seek advice from other former Goldman Sachs bigwigs, such as Robert Rubin, also grabbed attention.

“Even the guy helping choose a replacement for Timothy Geithner at the Fed Bank of New York came from Goldman Sachs. It makes one breathe a sigh of relief that Geithner, who will be the next Treasury secretary, doesn’t have Goldman Sachs on his resume.

“The point here isn’t to pick on Goldman Sachs. Yet it is seen by many in Asia as the gold standard of investment banks. Its name also is a byword for the perception of incestuous ties between Wall Street and Washington.”

OK, I’m back now… The point of the discussion is to acknowledge that to Asians, it appears that Goldman Sachs runs our country… Now, that may be perception, but as they teach you, perception is reality. And you have to wonder if the Asian central banks are shaking their heads at what we’re doing, and how we’re doing it… Now, some might say, “Who cares what the Asian central banks think of what and how we’re doing it?” Ahhh, grasshopper… We all have to be very cognizant of what the Asian central banks think about us, because, you see… They hold most of our IOUs, and they could make things very messy for us any time they wish!

So… How about the Illinois gov. getting arrested yesterday? Could it be two Illinois governors incarcerated? That whole story is pretty amazing that someone would do what he is alleged to have done, knowing that his phone was tapped!

Ok, enough of that! We’ll see the Monthly Budget Statement/Deficit for November today… Look for it to explode!

Currencies today 12/10/08: A$ .6590, kiwi .5465, C$ .7950, euro 1.2950, sterling 1.4830, Swiss .83, ISK 261, rand 10.21, krone 7.0475, SEK 8.1650, forint 203.50, zloty 3.05, koruna 19.99, yen 92.60, baht 35.50, sing 1.5010, HKD 7.75, INR 49.01, China 6.8835, pesos 13.50, BRL 2.4725, dollar index 85.71, oil $43.80, silver $10.02, and gold… $792

That’s it for today… Got a chance to talk to my old friend and softball teammate, the wiley old veteran Jack last night. Talk about someone that doesn’t seem to age… And someone that loves Missouri Football more than me, Dean… And my good friend and colleague Chris Gaffney helped me out BIG TIME, by going out in the rain and moving my car up next to the door for me… What a class guy! My little buddy, Alex, is still in the sick bay, poor guy… I was remiss in not mentioning the retirement of Greg Maddux the other day… There’s another class guy! One more day of getting up with the milkman, and then I’m off to see the Wizard… Well, not really, just vacation… I do go to the eye doctor again next week while I’m on vacation. Unfortunately, I’ve had no improvement in my left eye… Time to get movin’! I hope your Wednesday is Wonderful!

Chuck Butler
EverBank World Markets