In This Issue.
* Euro drops ahead of ECB meeting.
* RBI leaves rates unchanged.
* Who benefits the most from the Oil price drop?
* The games people play.
And Now. Today's A Pfennig For Your Thoughts.
The Dollar Swings Its Mighty Hammer.
Good Day!… And a Wonderful Wednesday to you! I'm still quite a bit under the weather, but. I did make it into the office, so I can spread my virus around to everyone! Well, not really, and if they prefer, I'll work in my office today, so as to not be around them. But for now, while I'm here alone, I'll stick to my spot on the trading desk. In other words, back in the saddle! But from the looks of things on the currency screens, I think I should turn around and go back home to bed! It's ugly out there folks. So, rather than beating around the bush this morning, let's go straight to the ugliness and deal with it!
Yesterday morning, the dollar was swinging its mighty hammer, and by noon, it was not just swinging it, the dollar was hammering the currencies into the night. And then overnight, the hammering continued. Of course, I told you all a few months ago that we would see dollar strength, so this can't be a complete surprise, but the swiftness of the move still is somewhat surprising. The euro is leading the currencies lower, and has cut through the 1.25, and 1.24 handles down to 1.2335 this morning. Aussie and kiwi are on the selling blocks too, and the Japanese yen has it a 7-year low VS the dollar.. There are a couple of currencies carving out gains. The Swedish krona, and Gold. So there you go!
So, the euro hasn't been this low VS the dollar in over two years. Remember back then? Everyone thought the euro was going to collapse, and the Eurozone would break up and go back to their sovereign currencies. But that didn't happen, and it won't, until somebody comes up with a mousetrap to deal with the myriad of things that have to be done to convert from the euro back to a respective sovereign currency. But, that's not important here, what's important is that The Eurozone economy is in dire straits and not the band that Mark Knopfler headed. You know, money for nothing and the chicks for free? And tomorrow the European Central Bank (ECB) will meet. I've told you numerous times recently that ECB President, Mario Draghi, is itching to implement all-out Quantitative Easing / QE. But tomorrow he doesn't have the keys to the car yet, so what we'll hear is him whining about how the economy needs QE, and he as the ability to implement it, but not yet. In reality, Germany is his roadblock in implementing all-out QE, and he may end up doing it, but he won't have his job much longer if the Germans have anything to say about it!
The euro is also being dragged down by the yen's weakness. I've explained the crosses of the currencies before, so I won't get into that again, but when you have a major currency like the Japanese yen falling like a rock, its weakness will carry over to other major currencies that are traded VS dollars.
The Aussie dollar (A$) is getting whacked once again, but at least this time the Reserve Bank of Australia (RBA) isn't throwing it under the bus. No, this time, it was weak data. Aussie 3rd QTR GDP printed weaker than expected, growing at just .3% for the QTR, and 2.7% year on year. The expectations were for .7% and 3.1%… A dear reader that lives in Australia, sent me a note last night, letting me know that things in Australia are looking dim. One thing that I read in the piece that he sent me was that: Real net national disposable income, which measures what Australian governments, businesses and households receive in exchange for goods and services, contracted for the second quarter in succession, which is the normal definition of a recession. In other words. wage deflation.
Well, the RBA already closed out 2014, with their meeting on Monday night, so, any new rate cuts will have to come in 2015, and judging by the slowdown in GDP, and wages, I would have to think that the RBA has no other choice at this point. They've been patient, holding rates steady Eddie so they can see how their previous rate cuts would work through the economy. And now they see. UGH!
Things are different across the Tasman in New Zealand, but with so much of their trade dependent on Australia's strength, it won't be long before the New Zealand economy sees the strains of a slow Australia. How much? Well, that's an unknown, and the N.Z. economy is going pretty good right now, so maybe it can bear the weight and keep moving. We'll have to wait-n-see.
The Bank of Canada (BOC) will meet today, and chances are slim and none, and Slim left town, that the BOC does anything but talk about the economy at this meeting. I sure hope that BOC Gov. Poloz takes the high road and talk glowingly about the Canadian economy, as he should. I've chronicled all the positive data prints recently in Canada, and just the other day they posted a strong 3rd QTR GDP of +2.8%, which was well above the consensus of 2.3%, and on Frida this week, Canada will post their November labor report, which should be strong. So, what's it gonna be Gov. Poloz? The Canadian dollar / loonie has carved out a small gain VS the dollar this morning, so it's one of the few, the proud.
Well, I told you above that the Swedish krona had carved out a small gain this morning, but in reality the move was quite strong. The problem being the krona was sold off by the truckload yesterday when a Budget stalemate was announced. So, the krona had to rally back to retrace its lost ground, and then have moved stronger by a small amount. The Budget impasse still exists, so, I believe that the krona will be subjected to these wild swings until something concrete is created in a budget.
And in a stealth-like Central Bank meeting, the Reserve Bank of India (RBI) left rates unchanged yesterday. India's internal rate is 8%, but deposit rates are much lower, but the good news is that they aren't going lower now, like everyone else's!
Yesterday when I was doing the currency roundup, I noticed that the Mexican peso had fallen to the 14 handle. I was about to send the letter out, so I put it down, and made a note to come back to it today. It has been 2 years since the peso was this weak. Here's the skinny on this, folks. The drop in the Oil price is taking a pound of flesh from the Mexican economy and the peso. Let's go back in time. Remember when I hailed the Mexican President, Nieto, for coming true on one of his reforms to end the national Oil Company's monopoly on drilling? Well, the drop in the Oil price is making things difficult for private companies to continue, and lost Oil revenues hurts the Mexican economy and therefor the peso.
Speaking of Oil. I read yesterday, that author, and investment analyst, James Rickards, who first coined the term “Currency Wars” is saying that: “low Oil prices are just another form of Currency War”. YIKES But you know who this cheap Oil price is going to be good for now and in the future? China. Didn't they just sign that HUGE Oil and gas deal with Russia, and Russia promised China that they would supply China with all the Oil & gas they needed? Why, yes, Chuck why do you bring that up now? Well. think about that. China was going to have to import Oil at $100 a barrel and now they get to import it at $70. That's HUGE folks! But this goes deeper than that.
You see, Russia has lost revenue on the sale, while China comes out smelling like roses. And who will Russia go to when it comes time to make up that lost revenue? China. Now, remember when I gave you that scenario about China no longer wanting our debased dollars as repayment for their loans to us, and decided to instead take our Oil resources as payment instead? Yes, a lot of you said that couldn't happen, and so on, but when you're up to your eyeballs in debt, anything is possible.. Well, now take this scenario to Russia, and whomever else sends Oil to China, I think Venezuela is one that does, China will end up owning the Oil reserves. You watch, this will happen, I would be my bottom dollar on it. Of course that's just my opinion and I could be wrong. But China will be the BIG Winner, winner Chicken dinner on this Oil price collapse.
The first of the labor reports this week prints today, with the ADP Employment Change for November expected to show 222,000 jobs created for the month. The U.S. Data Cupboard will also have the 3rd QTR Final Unit Labor Costs, which will most likely show a negative -.2%… YIKES! Talk about Australia and their negative wage recession! Oh, and the Fed's Beige Book prints this afternoon. I'm not sure why they continue to make a big deal out of this print, for it's just the regional presidents giving their thoughts on what's going on in each respective region, but none of it carries over to the FOMC meeting.. So, come on, let's drop this one, eh?
I told you above that Gold is up this morning, and has climbed back above $1,200 overnight and this morning, gaining nearly $5 at this point. I read yesterday that physical delivery not just in China but all of Asia is picking up again. I would think so! Gold, to me, is at bargain prices, and while they could become even cheaper, why take the chance that they don't! That's the thinking in Asia, and they've been at this investing stuff a whole lot longer than any of us have!
Speaking of Asia, I have this little ditty regarding Japan, before we head to the Big Finish today, so let's do this! I saw this on the Bloomberg this morning: “Takeshi Fujimaki, a banker turned opposition lawmaker, said the yen will slide to 200 per dollar once the Bank of Japan can no longer camouflage the nation's default risk.”
OK.. let's make this clear, that was Mr. Fujimaki talking not Chuck! And since he's an opposition lawmaker, I would think that he has a flair for the dramatic to emphasize what the leader's policies are doing to the yen. But still, 200 yen? WOW! Of course many years ago, it was 350 yen to a dollar, and in 1985 before the Plaza Accord, it stood at 200 yen to a dollar.. So, it's not like it's out of the question!
For What It's Worth. Well, the games people play. That great song by Joe South, seems to be playing right now at the U.S. Treasury Dept.. Ed Steer mentioned this in his letter this morning, and so I tracked it down here: http://www.worthynews.com/top/cnsnews-com-mrctv-blog-terence-p-jeffrey-ponzi-treasury-issues-1t-new-debt-8-weeks-pay-old-debt/ Here are a couple snippets to whet your whistle.
“The Daily Treasury Statement that was released Wednesday afternoon as Americans were preparing to celebrate Thanksgiving revealed that the U.S. Treasury has been forced to issue $1,040,965,000,000 in new debt since fiscal 2015 started just eight weeks ago in order to raise the money to pay off Treasury securities that were maturing and to cover new deficit spending by the government.
During those eight weeks, Treasury took in $341,591,000,000 in revenues. That was a record for the period between Oct. 1 and Nov. 25. But that record $341,591,000,000 in revenues was not enough to finance ongoing government spending let alone pay off old debt that matured.
The only way the Treasury could handle the $942,103,000,000 in old debt that matured during the period plus finance the new deficit spending the government engaged in was to roll over the old debt into new debt and issue enough additional new debt to cover the new deficit spending.”
Chuck again. And don't forget that the Fed won't be allowing their balance sheet to shrink as bonds mature, they've told us that they intend to buy new issues to replace the maturing bonds. So, we have the Treasury issuing a Trillion worth of Treasuries in the first 8 weeks of the fiscal year for the U.S. and we have the Fed buying them when they need to replace maturing bonds. Isn't that all just peachy dandy?
To recap. It's all about the dollar today, folks. So go back to bed! I wish I could! The euro is getting whacked on thoughts about the ECB meeting tomorrow. I still think that the ECB won't be able to implement QE, but that jury is still out! The Bank of Canada meets today, no changes there, but Chuck hopes that BOC Gov. Poloz talks glowingly about the Canadian economy. Yen is at a 7 year low VS the dollar this morning. The Aussie 3rd QTR GDP was weaker than expected, and has the A$ on the slippery slope again this morning, which is spilling over the kiwi. And the RBI left rates unchanged yesterday.
Currencies today 12/3/14. American Style: A$ .8430, kiwi .7785, C$ .8780, euro 1.2325, sterling 1.5670, Swiss $1.0245, . European Style: rand 11.1750, krone 7.0270, SEK 7.5205, forint 248.70, zloty 3.3745, koruna 22.4055, RUB 53.04, yen 119.40, sing 1.3105, HKD 7.7525, INR 61.91, China 6.1376, pesos 14.09, BRL 2.5590, Dollar Index 88.82, Oil $67.26, 10-year 2.29%, Silver $16.43, Platinum $1,223.50, Palladium $806.00, and Gold. $1,203.25
That's it for today. Well, another day at home yesterday, and another day of listening to Mizzou bashing from people in the SEC region. It's as if these people thought that we joined their conference so they could beat up on us! I'm glad the game is this Saturday, because this stuff is giving me a rash, like election time commercials! Well, I just pointed out to Mike Meyer that the sun is rising so far south now that it's almost out of our view. UGH! But it's December, and the houses begin to get dressed up and decorated. We already have out tree cut, put up, and decorated, that's pretty early for us, but we took advantage of the unseasonably warm day on Saturday that's a thing of the past now, as cold has returned. We weren't the only ones that thought that Saturday would be a good day to cut down our tree, I had never seen that many people at the tree farm we go to about an hour out of town. OK. Blues and Blackhawks tonight. That used to really get the juices flowing, but these days, it's just another hockey game to me. And with that. I hope you have a Wonderful Wednesday!
EverBank World Markets