Trichet Throws A Cat Among The Pigeons.
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In This Issue.

* The dollar rallies!

* Bollard talks down kiwi.

* China's imports soar!

* BRIC's continue to grow in stature.

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

Trichet Throws A Cat Among The Pigeons.

Good day. And a Happy Friday to one and all! I'm not feeling my usual "Friday-self" this morning, so I'll make this short-n-sweet. Don't know what it is, but it certainly is a drag/ funk I'm feeling. But I do have Led Zeppelin's Rain Song playing right now to start the morning, so maybe, I'll come around by the end.

Well. Front and Center this morning, the dollar is swinging a mighty hammer and the currencies and metals are scrambling to find a bid. The euro had it all going for it yesterday morning, trading higher, and all that, when European Central Bank (ECB) President, Trichet, began to speak. Yes, he used the word "vigilance" which I had thought would give the markets the sign that the ECB was going to hike rates next month, which would support the euro. Well, that didn't pan out, for it seemed that he watered down the rate hike pressures immediately with talk about Greece.

Trichet threw a cat among the pigeons by breaking with Germany on their demands that investors pay some of the cost of a second Greek rescue. Trichet said that the ECB would not have direct involvement in the rescue. WOW! Good for you ECB! But, here's the problem, as traders see it, folks. The Eurozone is not singing from the same song sheet, and markets and traders don't like that, and when it happens the associated currency gets hammered.

That meant that the euro and all the euro alternatives like: Norway, Sweden, Denmark, Switzerland, and other 2nd tier currencies, all get dragged through the mud, along with the big dog, euro. It shouldn't be that way, right? I mean, a country and its currency has its own fundamentals, and that's what the currency should be valued on. Not the fact that ECB isn't singing from the same song sheet!

But, me saying what things should be like, and what they are is akin to a little girl that believes in unicorns and pots of gold at the end of the rainbow. But. I feel it's important anyway to let you all know, especially you newbies to currencies, just how things used to be.

Well. for the past year, I've been telling you that China was switching gears, and moving toward an economy that was driven domestically, instead of export driven. I think that we are beginning to see the color of that move. Last night, China reported a $13.1 Billion Trade Surplus for May. Which is much smaller than the "old figures". the key here is that imports were 28% higher in May than from a year earlier, while exports rose 19%... Ahhh grasshopper, this is blatant domestic demand outweighing exports. And you've got to love how strong that domestic demand is, considering that China has raised interest rates 5 times this past year. And. I do believe that interest rates in China will continue to rise, for this domestic demand is feeding inflation pressures.

The IMF issued a report yesterday saying that they believed China's GDP will be 9.5% this year and next year. So, while it's not the iron-hot +10% growth figures, 9.5% is enough to stir the global growth drink. The Global growth mantra had taken some shots this past when it was announced that the U.S. only created 54,000 jobs in May. (yes, we all know that's what they "reported", but without the "ghost jobs" we would have seen negative job creation in May, and don't for one minute think that the Chinese don't already know this!) But, this domestic demand in China may be just enough to pull global growth through this rough patch.

While we're in the "area". In the South Pacific. Australia and New Zealand saw their currencies remain well bid overnight, which was interesting given the selling going on in Europe. The strength of kiwi is especially interesting considering Reserve Bank of New Zealand (RBNZ) Gov. Bollard was talking down kiwi yesterday. Here's the skinny on this. Bollard, has long been a Central Banker that does not like a strong currency. He has a long history of talking down kiwi. This is unlike the old RBNZ Gov. Don Brash, who understood the importance of a country owning a strong currency. Yesterday, Bollard, started speaking and immediately, kiwi fell from .8280 to .8240, very quickly. Bollard said that, "he is surprised by the gains in the nation's currency, which surged to a record after he signaled interest rate increases the previous day. Markets have "over-interpreted the desirable strength of the New Zealand dollar."

But not to worry. kiwi is climbing back and has regained some lost ground. But you can expect to see this from Bollard every now and then. So, to me. if you have an axe to grind for kiwi. look for these jawboning episodes from Bollard, and your cheaper price could very well be there for you!

Well.. it's been 2 years since we came out with our BRIC's MarketSafe CD. I'm not here to tell you how wonderfully it has or has not done. I'm here to tell you that when I came up with the idea for a BRIC CD, I made the points that the countries (Brazil, Russia, India & China) would eventually become world powers, because they held the majority of the world's reserves, and they also had a large portion of the world's population. These figures come courtesy of Fed Head, Dudley, who gave a speech earlier this week. Emerging Market Economies now account for 38% of World GDP, up from 23% in 1990. And the account for 59% of world growth since we started this millennium, which is up from 25% in the 1980's. And since 2007, the BRIC's GDP has risen 31%, while the G-7's GDP has risen just 1%!!!!!!

So. I love it when a plan comes together!

I know, now I'm carrying on longer than I said I would, but I have this Dudley stuff, and it's good stuff, folks. Mr. Dudley had a lot of things to say in his speech the other day, but the thing that I took from it was this. Mr. Dudley tells us that "aggressively easy monetary policy is essential to both the cyclical recovery and to a structural rebalancing of the American economy away from consumption and toward exports. This process will go more smoothly for everyone if emerging market economies cooperate and let their exchange rates appreciate, but absent such cooperation, don't expect the Fed to change course."

Did you see / hear what he said there dear reader? He wants other currencies to appreciate, which means he was saying he wants a cheaper dollar, without having to actually say the words. Pretty Tricky Mr. Dudley, but, I caught it!

In Canada this morning, we'll see the color of their jobs report for May. I believe that it will be stronger than the forecast +20,000 increase in jobs. But, we'll have to just mark this down on the side of the ledger that has the "Pros" for a rate hike. I doubt we'll see any movement in the loonie today on the jobs report.

Did you see that the Weekly Initial Jobless Claims increased last week? We were joking on the desk, trying to figure out what "excuse" there would be given for this increase. We did have hot weather. maybe people didn't go out to find a job because it was too hot? I doubt it. but those are the kind of excuses we hear all the time. The fact remains that Initial Jobless Claims remained above 400,000 per week, for the 9th consecutive week. The total last week was 427,000. That's not a good sign folks.

So. Gold & Silver continue to drift in price. It's a strange action to me. But, the end of the bull market trend is not in sight, dear readers.

To recap. The dollar is in the driver's seat this morning, with only the Asian, and Pan-Asian currencies finding bids VS the dollar. ECB President, Trichet, greased the tracks for a rate hike next month, but then really hurt the euro by breaking from the German Gov't on their proposal for a Greek bailout.

Currencies today 6/10/11. American Style: A$ $1.0615, kiwi .8260, C$ $1.0260, euro 1.4460, sterling 1.6285, Swiss $ 1.1875, . European Style: rand 6.77, krone 5.43, SEK 6.2780, forint 182.85, zloty 2.7190, koruna 16.67, RUB 27.84, yen 80, sing 1.2315, HKD 7.7825, INR 44.70, China 6.48, pesos 11.79, BRL 1.5825, dollar index 74.42, Oil $101.33, 10-year 2.97%, Silver $37.40, and Gold. $1,541.15 and with it being a Friday we need to take our weekly peek at the debt clock..

That's it for today. Well. Sunday, June 12th. Chuck & Kathy will celebrate our 35th anniversary. Where did all those years go, dear? Oh well. I'm going to get a bit sappy here, so for those of you who don't like that stuff, skip ahead. I give all the credit for our 35 years together to my beautiful bride. She's as beautiful to me today, as she was the first time I ever saw her at Roosevelt High School. yes, we were young, but it was love at first sight for yours truly. When I was going through all my cancer surgeries 4 years ago, she never left my side, sleeping in the chair in my hospital room. And a great Mom too! Just ask her children! So. Happy Anniversary dear.

Chuck Butler


EverBank World Markets



Posted 06-10-2011 1:57 PM by Chuck Butler
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