A Pfennig For Your Thoughts

In This Issue…

  • Yen continues to move higher…
  • Why pick on China and not Japan?
  • More on the “carry trade”…
  • If it smells like a pig…


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And Now… Today’s Pfennig!

Hoping This Is Not Another False Dawn…

Good day… And a Happy Friday to one and all! Let’s see what holiday can we make up that we could pass off to set up another 3-day weekend? Now that would be sweet! Oh, well… I tried! The currencies were up to their old range-bound tricks again yesterday, with the exception of Japanese yen, which, as I told you yesterday, was back on the rally tracks!

We’ve had so many false dawns with yen, that I’m tip toeing (that would be a sight to see!) around this move… I love to see it, but just can’t get all lathered up until there is some strong follow through… No profit taking, and certainly no Bank of Japan jawboning that the currency is too strong! I have to think that the Bank of Japan is ready for some currency strength, or else they wouldn’t have come clean the night before with the “we’re almost ready to raise interest rates” talk…

While I’m over in Asia… I see that the Chinese renminbi has taken its strongest move vs. the dollar in about a month, ahead of the visit by the U.S. Treasury Undersecretary Tim Adams next week… I find this cat and mouse game by China and the U.S. Treasury to be somewhat entertaining… The good thing that it brings renminbi holders is a bump in the price vs. the dollar every time this comes around…

Tim Adams may be going to China to tell them that they are going to be named a “Currency Manipulator” in April… I’m telling you this now, so you can listen to me later… But the U.S. had better tread carefully around this issue… The U.S. consumer needs Chinese prices on goods to remain where they are or else spending goes down the tubes, taking the economy along for the ride. So, whether they are calling China names and looking for the WTO to step in… Or the Senators Graham and Schumer get their bill passed to attach tariffs on Chinese goods, the outcome for the U.S. economy isn’t a good one, in my opinion…

Yes, the Chinese need to allow their currency to float freely, and that will come eventually… I just don’t see how the U.S. can sit there and point fingers at the Chinese, when the renminbi is actually gaining almost every day vs. the dollar, and Japan continues to manipulate their currency weaker, and we don’t say a word to them!

OK… I’ve got to get onto a different subject, I can feel the blood pressure rising, and I don’t like to get in those kinds of moods on Fridays!

Yesterday, I explained the “carry trade” and talked about how the “carry trade” coming to an end would hurt the high-yielding currencies, with kiwi # 1 on the hit parade. Someone asked me if that was what hurt the Icelandic krona… Good question! While I think that the Fitch fiasco had more to do with krona falling out of bed the other day… Some carry trades unwinding here wouldn’t be out of the question… The thing to think about, though, is krona hasn’t really been a free-floating currency for very long, which limited the trading in the currency… So… The carry trades here would not be anywhere near the size of those in kiwi… Even Aussie dollars… South African rands… Brazilian real…

I don’t know where the markets are going to take the Icelandic krona at this point; there’s been no real news since the Fitch fiasco. However, I would think that once May comes and goes, and the Fed is finished with rate hikes (this is my scenario here, not something that came to me a dream or in my crystal ball), and we see the euro back on the rally tracks that the krona would go along for the ride…

Here in the U.S. things are looking pretty rocky, and I don’t mean the flying squirrel! Yesterday the Federal Reserve issued a report that really caught my attention (of course the media let this one fly under the radar). The Federal Reserve says average real income of American families fell 2.3% in 2001-2004… I bet 2005 wasn’t any improvement, either! However, the report indicated that net worth had risen during that same period… Does that smell like housing? Does it look like housing? Well… As they taught me on the farm as a kid… If it smells like something, and looks like something… It is just that!

Yes, rising house values probably was 100% of that rise in net worth… The rise of 1.5% was far below the 10.3% gain in median net worth from 1998 to 2001, a period when the stock market scaled record highs before beginning to fall in early 2000.

We’ll end the week with Durable Goods Orders for January, which has not been a strong piece of data recently and is forecast to show a decline of 2%… Next week, we begin March and a ton of Central Bank meetings that could yield a string of rate hikes, with the U.S. and the ECB front and center. The ECB rate hike will provide some underpinning to the euro this time… But I look for the June rate hike (my belief is they will hike again then) as the one that really propels the euro higher, because at that time the Fed will have finished in May (again, my belief) and the focus will be on the euro’s rate hikes…

March also brings us the Iranian Oil Bourse that will buy and sell oil for euros only… Now, there’s word that Norway wants to start their own Oil Bourse, too! Bourse Director Sven Arild Andersen is fed up with Norwegian oil having to be traded in London and wants to have a commodities and energy bourse in Norway. Andersen is of the opinion that Norwegian oil must be traded in euros, which can be advantageous for international customers.

I can’t believe currency traders aren’t all over this like a cheap suit! Oh well… I’m doing my best to educate them! HA!

Currencies today: A$ .7405, kiwi .6640, C$ .8670, euro 1.1910, sterling 1.7510, Swiss .7625, ISK 66.30, rand 6.1350, krone 6.7650, forint 212.36, zloty 3.175, koruna 23.795, yen 116.65, baht 39.37, sing 1.6240, China 8.0424, pesos 10.4950, dollar index 90.51, silver $9.5550, and gold… $551.23

That’s it for today… And the week… Off to the weekend… It’s our Big Mardi Gras celebration this weekend here in St. Louis, I hope the weather cooperates! 6 days until the first spring training game! We had to postpone that “next MarketSafe CD” meeting last week to today… If I can get everyone to say “energy,” “energy,” the power of the suggestion might result in an energy CD! HA! We’ll see… Have a great Friday and weekend!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837
www.everbank.com

PFENNIG DISCLOSURE