Listening To The Bundesbank.
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In This Issue.

* Portugal to auction bonds.

* A short-list of currencies gain VS the dollar.

* Gold & Silver rebound.

* RBNZ to cut rates?

And, Now, Today's Pfennig For Your Thoughts!

Listening To The Bundesbank.

Good day. And a Wonderful Wednesday to you! It's my last day here in the office until the end of the month, so I think it would be watered down to say I'm excited! Yes, the day is finally here, tomorrow. the smell of freshly mowed, finely manicured grass on a baseball field, the smell of baseball food, the sounds of the game, and the beautiful sun filled days, under blue umbrella skies. As they said in the movie, Field of Dreams. "Is this heaven"? I remember actually having my eyes filled with tears, the first game the year after I was diagnosed with cancer, for in my mind I feared never being able to witness Roger Dean Stadium again. So, now you're checking the travel to Jupiter Florida, right?

Well. I guess I should have left my original thought about the big slippage in the euro, yesterday in the Pfennig. and not changed it to a smaller move, because the rest of the day, the major slippage was in! the euro was down over 1-cent at one point in the day before recovering a bit in the afternoon.

A trade friend of mine sent me a note yesterday. it said: Who Threw Cold Water on the Euro Rally? Blame Mr. Fibonaci!

I thought to myself. self.

Ahhh. here we go again, with the all the "explanations" about moves, after they happen! OK, I'm being a little hard on the beaver (technicals) but. could they may have told us before the move that it was going to happen? Apparently not!

OK. so much for that! Well. I have a few readers send me their thoughts on my call that the Chinese renminbi would be the next reserve currency of the world. They didn't agree with me. And that's fine, they did it in a reasonable tone, and explained their reasons in a calm manner. And I understand what they are saying about the fact that China is after all still a Communist country. But, that doesn't change my mind. I still believe that the Chinese are preparing the renminbi to compete for reserve status with the dollar. That's my story and I'm sticking to it!

So, as I look over the currencies this morning, the list of currencies gaining ground VS the dollar is short, and their gains VS the dollar are small. So, it doesn't look like a good day for the currencies overall VS the dollar. but, as I always tell you, this is short-term noise, it doesn't have anything to do with the overall underlying weak dollar trend. The currencies on the short-list, are: loonies, A$'s, krone, krona, and francs. I get the loonies, A$'s, krone, and krona, but francs? The Swiss franc is much like the energizer bunny, as it keeps going and going. It's the one currency outside of the dollar, that benefits from geopolitical problems, and brother do we have a mess of them right now!

After spending yesterday in a funk, Gold & Silver are back on the rally tracks this morning. And the price of Oil is rising again, after selling off on Tuesday. If there are fears about the Portugal bond auction, then there must be a rally in Gold! I have to say that the thought I gave you the other day about the rising price of Oil, hurting the global growth prospects, is really gaining traction among the mass media people. (I assume they read it in the Pfennig, and then went to their editors and said, "look what I thought of" HA!) That's OK.. No harm, no foul. But I have to tell you that I always get a kick out of seeing something that I've said, hitting the cable news screens a couple of days later. and no, don't worry, I'm not going to hurt myself, patting myself on the back! HA!

Yesterday, we saw the euro lose ground, as there was word that Portugal was preparing to auction bonds in its first bond auction in two months. Then we saw the euro rebound a bit, when Bundesbank Chief, Axel Weber, reacted to the strong report of German Factory Orders, by saying that the European Central Bank (ECB) was going to hike rates on more than one occasion this year.

OK, folks. I'm sure that all the young studs with their Armani suits, and jelled hair, on trading desks, don't have any idea who or what the Bundesbank is, and therefore they don't see what I see when I see the Bundesbank making comments about the direction of interest rates in the Eurozone. So, for all of you, youngsters, gather round, and let me explain to you that the Bundesbank is Germany's Central Bank, and before it got its wings clipped by the formation of the Eurozone, the Bundesbank was THE CENTRAL BANK! This is what a central bank should have been all about (of course I still believe that the world would be a better place without central banks). The Bundesbank maintained a strong hawkish stance, and maintained price stability. When the Bundesbank would announce monetary policy, every other European Bank would follow.

When the European Central Bank (ECB) was formed, the Bundesbank was there to guide them, support them, and most of all, mentor them on what a central bank should be. I personally believe that the Bundesbank has long been the silent voice of the ECB. So. when Bundesbank President, Weber, says that he sees multiple rate hikes for the ECB this year. you can take that to the bank!

The rebound for the euro was short-lived though. The markets have short attention spans, folks. They might get all lathered up on words that multiple rate hikes will come this year for the Eurozone, but unless they see something following that up, like an actual rate hike, then they forget about it, and go on to something else.

Down under in New Zealand, the Reserve Bank of New Zealand (RBNZ), is still kicking around the idea of a rate cut to assist the country after the devastating earthquake last month. I would have to say that since RBNZ Gov. Bollard, who has never been an advocate of a strong kiwi, would probably welcome this rate cut. But, apparently, the economists in New Zealand are split as to the need for a rate cut. Prime Minister, Key, threw his vote in the hat for a rate cut, which then makes it difficult for the RBNZ, and Bollard to pull off, without it looking like the Prime Minister guided the Central Bank's policy.. Oh, what to do? I say, forget the rate cut, pull the bootstraps, and get back to work! The economy is driven by farming, lumber, dairy, wool, etc. things that weren't disrupted by the earthquake! Look at what China is doing to assist, by increasing their dairy purchases 5-fold! But knowing Bollard's drive to weaken the kiwi, I would say a rate cut is in the cards for their next rate meeting.

The Aussie dollar (A$), lost quite a bit of ground yesterday, but is attempting to gain it back this morning. Yesterday, the A$ was hit by another weak Consumer Confidence report, with Confidence hitting a 9-month low.

Going north from Australia and New Zealand, we sail our ship to Japan. Where there was news overnight that Japanese machine orders increased 4.2% in January (from December). This data is a good indicator that capital spending is happening in Japan, and that's a good sign for an economy. But, Shoot Rudy, we've had so many "good signs" and false dawns in Japan for the past 20 years, that I would never hang my hat on a "good sign" for Japan's economy. but you had to wonder, no wait, you didn't have to wonder, I had to wonder, and then tell you! OK, let's try this again. I had to wonder just when the economic growth going on in the rest of Asia, was going to catch on, or carry over to Japan. Maybe this is it. and maybe it isn't, but it sure doesn't hurt Japan to have the rest of Asia experiencing economic growth!

Back to Western Europe. the U.K. received some good news this morning in the form of a narrowing of their Trade Deficit. The U.K. trade deficit narrowed more than economists forecast for January, moving the deficit to a 11 month low. U.K. exports rose to a record level of 5.4% for the month. I read a report, that spelled it out perfectly. "Bank of England officials are counting on manufacturers benefitting from the weakness of the pound."

You know, this illustrates what I tell people all the time.. Look, if I were in Canada, or Australia, or the U.K. I would tell investors the same thing. you should allocate a portion of your investment portfolio outside of your "base currency". So, in the case of investors in the U.K. they would protect themselves from the 23% fall of their currency in the past 3 years, and that loss of purchasing power that comes when your base currency loses value, by simply allocating a portion of their portfolio to other currencies.

But since I'm based in the U.S. I think when I tell people that, they just don't get it! For if they did, they would be lining up at our door to diversify!

Then there was this. it appeared in, and was sent to me by Scott! "Recent comments from Atlanta Federal Reserve President Dennis Lockhart, combined with spiking oil prices, have led to speculation regarding future rounds of quantitative easing. Lockhart spoke recently at the National Association of Business Economics conference, commenting on rising oil prices and the potential for spikes to affect the economic recovery.

"I would take a position we would respond with more accommodation" Lockhart said, regarding the potential onset of recession as a result of oil price increases. While current - or even slightly elevated - prices are manageable, said Lockhart, "around $150 it becomes a much more serious concern."

Chuck again. how timely! I just talked yesterday about how I see more Quantitative Easing in our future, and then Scott saw this article! So. for those of us that like to keep score at home. That's 1 for more QE, and 1 against more QE (Fisher). I'll bet a dollar to a Krispy Kreme that St. Louis Fed Head, Bullard, vote for more QE!

Then there was this deux. from the Washington Post. "U.S. taxpayers are on the hook for more than $100 million to defend Fannie Mae in a lawsuit brought by shareholders. When the government seized the mortgage-finance company, it also took on liability for Fannie's alleged mismanagement and huge legal bills that followed. Investors are demanding billions of dollars in compensation for losses they blame on Fannie's accounting."

Chuck again, deux. you've gotta love it. I told you when it happened that it was not the Gov't's job to get involved in Fannie and Freddie, GM, AIG, and the rest. But, the Gov't itself is "too big for its britches"!

To recap. The euro is leading most currencies weaker, as a new auction of bonds in Portugal, is weighing heavily on the euro, which in turns leans on the other currencies. only a short list of currencies are positive VS the dollar this morning: A$'s, C$'s, krone, krona, and francs. The Bundesbank Gov. Weber said that he thinks the ECB will hike rates multiple times this year. And the RBNZ is still kicking around the idea of a rate cut, which they believe would assist the country after the earthquake.

Currencies today 3/9/11. American Style: A$ $1.01, kiwi .74, C$ 1.0310, euro 1.39, sterling 1.62, Swiss $1.0720, . European Style: rand 6.8970, krone 5.5720, SEK 6.33, forint 196.15, zloty 2.86, koruna 17.4725, RUB 28.31, Yen 82.85, sing 1.2675, HKD 7.79, INR 44.99, China 6.5725, pesos 12.00, BRL 1.6545, dollar index 76.77, Oil $104.70, 10-year 3.53%, Silver $ 36.16, and Gold.. $1,430.60

That's it for today. Sorry for carrying on so much about spring training at the beginning today. sometimes I just can't help myself! I've still got to pack, and then tomorrow morning, Alex, and his friend, Jack, and I will head to the airport. this will be Jack's first airplane trip. that's a trip right there! Good luck to all my colleagues on the trading desk for the next 3 weeks. and to Mike Meyer, who will take the conn on the Pfennig next week, while both myself and Chris will be gone! I'm hoping to come back this year, and not need any more surgery! You all might recall that last year, I came back and had to have surgery on my eye! UGH! Next month, I have a short trip to Tampa, then later in the month to Panama. (UGH!) I swore I would never return to Panama, but, my publisher, twisted my arm. So, I'll be there again. I'll try not to be an unhappy camper there! So. get my work done today, and I'm out the door! I hope you have a Wonderful Wednesday, and fantastic St. Patrick's Day, next week! I'll be celebrating you don't have to worry about that!

Chuck Butler


EverBank World Markets



Posted 03-09-2011 10:59 AM by Chuck Butler