RBA Raises Rates Again!
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In This Issue..

* Risk Aversion boosts dollar...                       
* U.S. manufacturing is strong...                              
* More stimulus? Please say it ain't so Joe!                                     
* Thoughts from the Big Boss!                                                                                      

And Now... Today's Pfennig!

RBA Raises Rates Again!                              

Good day... And a Terrific Tuesday to you! Well, I'm here! Just when you thought I would be gone for the week, and you would get away from my rants, and get the calm Chris Gaffney, the rug gets pulled out from you! I am so bummed! I was told that I could not travel to Cabo for the Sovereign Society's Offshore Advantage Conference, and I was to remain at home, with my leg up, blah, blah, blah... What a crock!

OK, now that we've got that out of the way... Front and Center this morning, we have a very strong dollar rally going on... It began yesterday mid-morning, when things turned on one thin dime. First, we had the U.S. Manufacturing Index rise in September and the Trading Theme kicked in with the dollar getting sold on the good news for the economy... But then a strange thing happened on the way to the forum. Everyone began to fear what's been going on in Banking... Friday, the 115th bank failed this year, and suddenly, traders, investors, hedge fund dudes, and everyone else, got a case of the flu... Not the "pandemic" H1N1 flu... This is the "chicken flu"... Chicken to continue to takes risks in the face of a banking problems... Well, to think of it, maybe, just maybe, it's not the "chicken flu" but the "prudent flu"!

So... The dollar's losses were reversed by mid-day, and the non-dollar currencies were taken to the woodshed... Shoot Rudy, even a rate hike by the Reserve Bank of Australia (RBA) couldn't reverse the Risk Aversion trading... I'll get back to the rate hike by the RBA in just a minute... But first I need to talk about this shift to Risk Aversion once again... We saw this briefly last week, and it faded into the wind... I hope this shift to Risk Aversion is soon a small item in our rear view mirrors!

Now... The ISM Manufacturing Index rose to 55.7 from the prior month's 52.6 reading. This marks the strongest reading for the index since the April 2006 reading of 56.0. Let me explain something to you, that I've explained before, but this really illustrates what I'm talking about... And that is... This Manufacturing renaissance here in the U.S. comes as a benefit of the weak dollar that's been in place for over 6 months now. It's that simple folks... You want Manufacturing in the U.S. to be robust? Then you need a discounted clearing mechanism... And that is the dollar...

For, the Asians are learning to trade among themselves without the U.S., and the Eurozone already has 80% of their trade among themselves, with out the U.S. that doesn't bode well for U.S. exports unless... Unless there is a discount... And that discount comes in the price they have to pay / convert their currency for the dollars that are needed to buy the export... So... Why shoot the goose that lays the golden eggs?

OK... As I mentioned above... The RBA raised rates 25 BPS (1/4%) last night, as I expected them to, and had told you they would! The A$ got sold though after rallying briefly... Traders go spooked when the RBA Gov said that "it was prudent to lessen gradually" the stimulus to the economy provided by lower borrowing costs... OK... Folks, that's Central Bank parlance for: The interest rate hikes are going to slow down from here on out... So don't expect a rate hike at every subsequent meeting!

Oh come on A$ Traders! The A$ yield differential to the U.S. is now staggering! As it is to Japan, Europe, and Canada! Only New Zealand and Brazil can play on the same team as Australia when it comes to significant yield differentials! But NOOOOOOOOO OOOO! You get spooked! Have you no intestinal fortitude? HEY! The good news is that it gives late comers a chance to buy at cheaper levels, or... Those that already own, a chance to pick up more at a cheaper level! Courtesy of the Chicken Little A$ traders!

Well... I guess I can't blame them too much, with the Risk Aversion campers taking over the campground... Here's another thing that I saw last night that has the Risk Aversion campers spreading like wildfire... A long time reader of the Pfennig and Bloomberg TV personality, Pimm Fox reported last night that: President Barack Obama's advisers are "seriously" considering proposing a second stimulus measure to boost the economy, Commerce Secretary Gary Locke said in an interview. Locke said another stimulus would be "very targeted and specific and we need to be mindful of the deficit as well."

Hmmm... OK... How many times have I said in the past 8 months that the Gov't was going to see the need for more stimulus? The answer? MANY! I've got a question... If the GDP was "so robust" as the Gov't officials claimed it to be, then why are they discussing more stimulus? BECAUSE THE GDP WAS A FRAUD! We all know that... I explained it all to you yesterday! But the announcement that more stimulus is being "seriously considered" is what we used to call as kids as "cheaters proof"!

What does "very targeted and specific" mean? It means the Gov't is going to get deeper and deeper into the private sector... That's what it means!

I have a question for the Gov't... You told us the $787 Billion stimulus package last February was going to keep unemployment from reaching 10%... Guess what? That didn't work! So, what makes you think whatever taxpayer money you spend now is going to work? Oh, and don't give me that barrel of baloney that you've "saved" 650,000 jobs... Saved Jobs CAN NOT BE PROVED! So why not say you saved 1 Million or 2 Million jobs? I mean, what difference does it make... It's not true, and can't be proved!

Whoa, there big boy... You had better stop before the Pfennig gets sent to the White House to shut me down! Yeah, like it hasn't been sent there before now!

OK... Did you hear about the IMF Gold Sale? The IMF sold 200 tons of Gold... Not to worry though, the Reserve Bank of India stepped to the plate and bought the Gold... Gold revisited $1,060 after this announcement, but in reality it should have been a wash, and the price of Gold has backed off a few dollars overnight... But still pretty well bid, given the Risk Aversion going on in the currencies.

And why not? Gold is a store of value... Of wealth... Whey wouldn't it buck the trend?

Speaking of which... The Big Boss, Frank Trotter, and I were talking last week about Gold, and we kicked around this thought of sharing a lesson of money with kids... And he sent me this...

The weather turned around here in about three weeks.  Great fall, then 10 days of deluge, now the chill of late fall.  And instead of Thanksgiving displays, the march of catalogues imploring us to turn away from savings and save the world through spending have begun to hit the door.  In the past few years as our children have become young adults we have started to turn away from the quest for unneeded presents and zombie-like consumption and have started to implement a contribution concept: research and choose a cause that will appeal to the recipient, ensure that the cause is not acting like your average NGO running around in white land cruisers or and staying at five star hotels in the third world, and make a modest contribution.  It isn't working perfectly and we certainly backslide enough but it's underway.  We may turn it into a gift of a few shares of a good company but enough of this.

Something else that meets the need of a physical gift, but one with a message has been on my mind lately.  It isn't easy to start a conversation with a young person, especially quite young about global economics and the transient value of money.  In fact it's hard to start a conversation with almost anyone on the topic.  So what's a better way to provide a gift box and a message?  Readers of "A Pfennig for your Thoughts" will certainly be ahead of me ( the gift of real money of course ) gold coins.  

With the gift of a coin, or a set of coins you can tell so many stories or impart values in a variety of ways.  Coins are struck around the world providing a geography lesson and of course an insightful and cogent discussion of central bank attention to their country's money supply (well okay, you might want to skip that one).  You can tell the story of gold in the history of the world, and if you are brave and the audience attentive, how gold has held its value over the centuries and will probably do so for centuries to come.  Bringing things up to date you can cover the astounding fiscal and monetary policy that has become our new national pastime over the current and past administrations (but be sure to take your blood pressure medicine).  Tell 'em "you are worth an ounce a year" (or more).

If you are buying for one or two friends or children or grandchildren head down to the local coin store and grab a couple bullion coins.  If you have a good size list or have the capacity to do something substantial then give the team here at EverBank a call.  In any event lets all be sure to teach our kids, grand-kids and generally people around us about the monetary value of gold.

WOW! That was great Frank! I love it when the Big Boss puts down his thoughts in writing and shares them with the rest of us!

OK... To recap... The dollar is enjoying a strong rally thanks to the Risk Aversion crowd, that is getting spooked about the banks, after the 115th U.S. Bank this year failed... The Reserve Bank of Australia raised rates again by 25 BPS, and the Reserve Bank of India bought 200 tons of Gold that the IMF felt it needed to sell, so a wash if you will. And then Chuck went on a rant about stimulus...

Currencies today 11/3/09: American style: A$ .8935, kiwi .7115, C$ .9235, euro 1.46540, sterling 1.6285, Swiss .9685, European style: rand 7.9210, krone 5.8325, SEK 7.1625, forint 191, zloty 2.94, koruna 18.03, RUB 29.42, yen 90.10, sing 1.4030, HKD 7.75, INR 47.41, China 6.8279, pesos 13.35, BRL 1.7725, Dollar Index 76.73, Oil $77.19, 10-year 3.38% (see the Risk Aversion with the drop in the 10-year yield fall from 3.62% yesterday!) Silver $16.36, and Gold... $1,057.70

That's it for today... A little long today with the Big Boss's thoughts, but well worth them I must say! For all of you that are heading out to Cabo to the Sovereign Society's Conference, specifically to see me, I apologize for not being there! HA! Yeah, like someone was going just to see me! HAHAHAHAHAHA! Seriously though... I feel real bad that I had to remain at home... UGH! OH well, this way I won't miss my little buddy Alex's last game this Saturday, or son Andrew's girlfriend Rachel's birthday on Sunday! Gotta go... I hope your Tuesday is Terrific!

Chuck Butler
EverBank World Markets

Posted 11-03-2009 9:44 AM by Chuck Butler