A Pfennig For Your Thoughts

In This Issue…

  • The negative dollar sentiment digs deeper…
  • I’m not buying the Home Sales data…
  • The Jackson Hole Boondoggle…
  • Silver & gold… Champing at the bit!

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And Now… Today’s Pfennig!

New Home Sales Soar?

Good day… And a Marvelous Monday to you! I trust your weekend was grand… We had a monster storm roll through on Friday evening here, leaving some cooler and fresher air in my neighborhood!

The dollar saw a storm on Friday, too… And the currencies brought about some cooler fresher air, too! The euro is kicking some major dollar rear again… And so quickly after consolidating! On Friday morning, I told you the euro had reached the 1.36 level again; well, it’s cooking with gas at well above the 1.3650 level. I also told you that the negative sentiment had returned to the dollar, and that was quite evident on Friday.

New Home Sales surprised everyone by not falling again, and instead gaining… I find that report to be totally a sham… I’m not kidding… And who are they trying to kid? All of the National Assoc. of Realtors reports leading up to this never, and I repeat, never indicated a rise in New Home Sales… So, where did this come from? Well… I would tell you, but I would get so many emails canceling the Pfennig! HAHAHAHA! Seriously though, I’m not buying it!

Paul Kasriel, chief economist at Northern Trust, is skeptical too… I was watching Bloomberg on Friday, and Mr. Kasriel was being interviewed… When he was asked about the strong New Home Sales, he said the same thing I just said above, but in a nicer, economist-speak, way…

Durable Goods in the U.S. surged 5.9% in July… And while I’m not going to be skeptical of that printing, I have every right to be. I’m just going to point out that these were two strong reports for the dollar… And the dollar got sold… Talk about the negative sentiment being so strong!

In my never-ending search for other viewpoints to present to you so you can see that I’m not the only one out there talking about dollar weakness, I came across the following snippet from my good friend David Galland’s weekly newsletter…

“But what of the U.S. dollar? After all, once the printing presses fire up to full speed, and the Fed Funds rate begins to ratchet steadily downward, won’t the Chinese and other non-U.S. holders of our 6 trillion dollars show their displeasure by ridding themselves of the things, driving the dollar down even further? Surely that can’t be allowed. Can it?

“In a call yesterday with long-time friend Clyde Harrison, one of the most seasoned and sharpest players on the commodities scene (he invented the Rogers International Commodities Index Fund), he quipped to the effect of, ‘We’re in an election cycle and the foreign holders of U.S. dollars don’t vote. By contrast, the U.S. voting public is up to its neck in debt. When push comes to shove, the dollar will be sacrificed.'”

OK… Now back to me… Well… I think we’re going to begin to see the markets take notice of data reports again this week… The last couple of weeks saw the markets more worried about liquidity and credit that data reports were ignored… Now that things have settled down a bit, we’ll begin to see more attention being paid to data reports.

So, on that note… We’ll see Existing Home Sales today… Consumer Confidence tomorrow, along with the latest FOMC meeting minutes. I’m reluctant to say what Existing Home Sales will be, considering the “surprise” in New Home Sales… But my heart says it won’t be dollar friendly…

In the Eurozone, we’ll see the latest IFO sentiment report tomorrow, and the latest CPI on Friday… Inflation in the Eurozone has probably fallen to 1.8%, which on the outside says there’s no need for the European Central Bank (ECB) to raise rates again next month… But, don’t forget money supply… Yes… The ECB was front and center with the injection of liquidity… And that is money supply, which is in essence… Inflation!

I’m still on the fence on the ECB rate hike for September. I want to think they will continue on the rate hike tracks, mainly due to the size of their money supply growth… But then, they may forego the rate hike, pointing to slower growth in the Eurozone, and falling inflation.

Either way… I don’t think the euro needs higher rates to move higher vs. the dollar…

I’ve been asked a few times recently to discuss the carry trade again… And if it is really over, etc. Basically, it all depends on whether or not the markets want to take on risk… If we get back to go-go days of not giving two hoots about risk, then the carry trade will live, thus propping up the high-yielding currencies. If we have another go at a lack of liquidity, or a credit crunch, or… Any unforeseen global event, the markets will go into Operation Risk Aversion, and the carry trade will be unwound.

For now… It seems… It lives! Which is scary to me… I would think that anyone owning that trade would have looked around to see the damage that was caused by a one-week event in the markets… But then, that’s just me…

Well! It’s time once again for the Jackson Hole Central Banker Boondoggle! In case you’re wondering what I’m talking about… The Fed hosts a central banker meeting in Jackson Hole, Wyoming on an annual basis… Central bankers from around the world will come to be with their fellow central bankers to discuss… Well, it will be interesting to see what it is they do discuss this year… But to me… I put it down as a Boondoggle!

When Big Al Greenspan was captain of our financial ship, he would throw the markets a bone or two from this meeting… But last year, Big Ben Bernanke’s first at the helm was a non event… So.. We’ll have to see, eh?

There’s a London bank holiday today, so the European session has seen thin volume, although it has turned around what was beginning to look like a mini-dollar run in Asia. European Central Bank (ECB) President Trichet is going to speak today. I wonder if he is willing to throw the markets a bone, with regard to a Sept. rate hike? Talk about kick-starting the euro on the way to 1.40, should he talk about the need to be “vigilant”! Of course he could throw cold water on rate hike too, and that could send the euro to the woodshed…

Most likely, though… He won’t say a word about the rate decision… And the markets will have to sniff around on the ground for clues!

I’ve also been asked a lot about the direction of silver… Which really hasn’t had a direction for some time now, except to soften a bit. I’m looking at silver and gold, for that matter, as two commodities champing at the bit to rally… As the James Gang used to sing… Taking my time, choosing my line, trying to decide what to do… I think the traders for these two commodities are just waiting for the U.S. economy to slow down, the Fed to cut rates, and general consumer confidence to fall… When that happens… It’s rally time for these two..

So… We could be looking at bargain basement prices for silver and gold, for that matter… Hmmm… OK! Off to the Big Finish!

Currencies today: A$.8330, kiwi .7245, C$ .9545, euro 1.3670, sterling 2.0160, Swiss .8320, ISK 63.90, rand 7.18, krone 5.82, SEK 6.85, forint 187.25, zloty 2.80, koruna 20.33, yen 116, baht 32.70, sing 1.5190, HKD 7.8050, INR 41, China 7.56, pesos 11, dollar index 80.66, silver $12.15, and gold… $676.40

That’s it for today… Things are going well in my battle, at least I think they are! I’m still hobbling around with a cane, but I think I’m about ready to actually go to work! Little Delaney Grace came to visit yesterday… She loves to be outside with her grandpa! Looks like we’ve got a pennant race, and the Cardinals are back in it! Amazing, they’ve fumbled, bumbled, and generally looked in disarray all year, but when it’s time to count the chickens, they are right there! Amazing! I hope you have a Marvelous Monday and a wonderful week!

Chuck Butler
EverBank World Markets