Aussie Inflation rises.
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In This Issue.

* Draghi goes before German gauntlet..

* Euro sells off another ½-cent.

* A$ leads kiwi, loonies, and pounds higher.

* The anti-dollars in a slump.

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

Aussie Inflation rises.

Good day. And a Wonderful Wednesday to you! We're all still walking around wondering what happened to the 3-1 lead in the NLCS that the Cardinals held and lost. A reader sent me a note yesterday, saying that now we know how Washington Nationals fans felt. I don't see it like that, in that this was a 3 game meltdown by the Cardinals. Oh well, when do pitchers and catchers report for spring training?

European Central Bank (ECB) President, Mario Draghi, is heading to a German gauntlet today. Draghi will appear before 3 committees of the German Parliament in Berlin today. He's going to attempt to win the German Parliament over, regarding his plan to purchase Gov't. bonds to stem the debt crisis of the Eurozone. This is pretty HUGE today, folks. Draghi has to convince the German policy makers that his plan which is called Outright Monetary Transactions, are required for price stability, and wont' send inflation on a moon shot.

It's true that Draghi's plan, which has yet to be implemented, has calmed the markets. But, Germany's Bundesbank has adamantly opposed this plan, and the Bundesbank used to be THE Central Bank everyone in Europe looked up to. And with the Bundesbank being opposed to the plan, Draghi, will have his work cut out for him, if he is to be successful, and smooth the ruffled feathers of the German Parliament.

And this attempt to smooth the feathers is responsible for the further losses in the euro. Yesterday, I told you that the euro had lost 1/2-cent, well, that was in the morning. by the time I left for home the euro had slid another 1/2-cent, and has added to those losses in the overnight market sessions. Apparently, the markets, which like the Draghi plan, are concerned that it will get deep sixed by the German Parliament.

I've often heard of the baseball stadium here in St. Louis (Busch Stadium) referred to as "The Sea of Red". Because Cardinals fans wear their red Cardinals gear. But yesterday, that phrase carried over to stocks, currencies and metals. They were sent to the Sea of Red, by the U.S. dollar. So, the coast is clear! The dollar has no problems going forward! The U.S. economy is without hickeys, The Unemployment problem is no longer a problem, and our debt has magically disappeared! NOT!, NOT!, NOT!, and NOT! But. you would have thought that by the buying in the dollars yesterday, that all these things were no longer in the minds of traders. And this too, shall pass.

No data from the U.S. data cupboard yesterday, none, today, with the start of the 2-day FOMC meeting taking place today, being the only thing on the docket. I don't see all this dollar buying, but, it's nothing that we haven't seen before, and the choices remain the same. you can hunker down, batten down the hatches and ride the dollar buying out. You can use these cheaper prices as opportunities to buy at cheaper levels. or. you can blow out, take your profit or loss, and hold dollars, which gives you reduced purchasing power.

Oh. and a couple of things (thanks Dennis!) for traders buying dollars to think about. 20% of home mortgages modified by lenders in the 2nd QTR of 2011, were 90 days or more delinquent just 1-year later, according to the OCC.

And. Then there's this thing to think about when people carry on about how there are too many deductions. According to the IRS, only 32% of the 141 million tax returns filed by American taxpayers for the 2009 tax year, claimed itemized deductions. Things that make you go, Huh?

So. the euro is down again this morning, and the euro alternatives (Norway, Sweden and Denmark) continue to get tarred with the same brush as the euro. I still believe that one day, some trader will wake up and smell the coffee, and realize that these countries are not Greece. But, other than those currencies, the Aussie dollar (A$), New Zealand dollar / kiwi, Canadian dollar / loonie, and even the British pound sterling are all booking gains VS the dollar this morning.

In addition to the Draghi effect on the euro this morning, German Business Climate Index as measured by the Think Tank IFO, fell by 1.4 points this month to 100, which marks a steady decline in the index for the past 6 months, and has shed nearly 10 points from the April high of 109.7. There's no doubt that Germany is feeling the effects of the Eurozone recession, and when Germany feels the effects, so too does the euro.

The A$ got a boost last night for the latest print of consumer inflation. Yes, inflation is bad. But in this case, this faster than expected pace of inflation which printed at +2.4% for the 3 months ended September VS last year, made those dirty dogs that were calling for 100 basis points of rate cuts next year, put their tails between their legs and back those calls off. I even saw where the head of FX (foreign exchange) at Citicorp Inc., Steven Englander, say that with the faster inflation pace in Australia and the stronger manufacturing reports from China (we talked about them last week), that he now sees the A$ climbing to $1.10. And Greg Gibbs, a senior currency strategist at Royal Bank of Scotland, said that "The Aussie will continue to grind higher"

OK. let's water all this euphoria in the A$ down a bit. While I don't think that getting to $1.10 is impossible, I do think that we're putting the cart before the horse.. Those calls for rate cuts next year may have had to be backed off for now. The future rests on the data from both Australia and China. and we really don't know what those data prints hold. I think I have a pretty good idea what they will hold, I've been wrong on this stuff before, so let's just temper this a little, eh?

In a follow-up from my thoughts on Monday morning about U.S. Corporate profits plateauing. a headline on yesterday said, "U.S. stocks steeply lower Tuesday as weaker quarterly earnings spurred concerns about the global economy."

Now. I'm not even your last choice as a stock jockey. and the only reason I talk about this is to illustrate my call that more Quantitative Easing (QE) will be coming to a theater near you. In fact, we could very well hear the Fed Heads announce this afternoon, at the conclusion of their two-day FOMC meeting, that they are extending not only the size but the length of their latest round of QE. It may be too soon, given QE3 was just announced 6 weeks ago, but, given the reports this week on Corporate Earnings, the Fed Heads might be tempted to try and fix this.

I was talking to two currency dealers (thanks for breakfast, Aaron and Justin) yesterday, and I was giving them the Chuck on the patio talk. You should have seen their eyes, they couldn't believe this stuff was coming from some guy in St. Louis! But. one of the points I was making is that the Fed Heads are not concerned with inflation not one iota. Their main concern is to "fix the economy and unemployment" and they will do everything they can to correct this problem. Here's a novel idea. why not just let the economy alone, and clean out the excesses (not that there are many, but there are some) and then we can form a base from which to begin our economic growth from? All this meddling begets more meddling, which begets more meddling. Sort of like a little lie. and we all know what happens to a little lie.

Poor Gold & Silver. They just keep getting beaten down. Yesterday, I was ranting about the price manipulators, but in reality, some of the take down was actual trading based on the bias to buy dollars. As I've explained for years now. Gold & Oil are anti-dollar assets. And we've not only seen Gold weaken this week due to the bias to buy dollars, but also, the price of Oil has slipped by $6. So, going back to my banging on the walls about the things that traders should be concerned about when buying dollars (above) one would think that this is a short-term situation for Gold & Oil. I always think of my friend, the Mogambo Guru who says "buy Gold, Silver and Oil. This investing stuff is easy. whee!"

Then There Was This. thanks to a reader that sent me this story from "Storied investor and financial author Stephen Leeb alleges that major hedge funds have engaged in concerted efforts to manipulate precious metals markets.

Speaking to King World News Leeb reported an incident in which a friend witnessed the head of a leading hedge fund issuing orders to staff to engage in willful manipulation of the market:

.the instructions the head of the hedge fund was giving to one of his traders was, "Sell it, and sell it stupid. And make sure people just don't know where the selling is coming from and why it's coming."

According to Leeb there is a "tremendous vested interest" in maintaining the dominance of paper fiat money, which is the underlying motivation for efforts on the part of major hedge funds to manipulate the price of gold by means of selling which is contrary to market logic.

Leeb nonetheless feels that the efforts of market manipulators are doomed to fail against such a positive environment for precious metals, noting that gold remains up year-to-date."

Chuck again. you may recall Stephen Leeb as the original man behind the newsletter "Personal Finance". Add this to the many stories about people in the industry that have witnessed the manipulation, and then the golden gun story that is the Wikileaks Cable that I've talked about for a couple of years now. Here's quote from the Pfennig going back to May this year. "I talked a lot about Gold, and how I truly believe that the push down that we've seen in the price of Gold has been Gov't orchestrated, going back to the Wikileaks cable I told you about. The U.S. can't have everyone replacing dollars with Gold. it's that simple, folks.. and one day, sons and daughters, will find out the truth. and you'll be able to tell your grandkids that you knew the guy that first talked about that." -Chuck Butler, May 4, 2012

To recap. The euro lost more ground yesterday and in the overnight markets, taking the euro alternatives along for the ride down the slippery slope. But the Aussie dollar (A$) brought kiwi and loonie to the profit side of the ledger VS the U.S. dollar, as Aussie inflation printed at a much faster pace than was expected, and caused the rate cut campers to pull of stakes and move down river. Gold gets taken down again. and Stephen Leeb points to manipulation.

Currencies today 10/24/12. American Style: A$ $1.0330, kiwi .8145, C$ $1.0095, euro 1.2945, sterling 1.6020, Swiss $1.07, . European Style: rand 8.8065, krone 5.7420, SEK 6.6830, forint 216.80, zloty 3.1975, koruna 19.2770, RUB 31.89, yen 79.80, sing 1.2240, HKD 7.75, INR 53.73, China 6.2472, pesos 12.97, BRL 2.0255, Dollar Index 80.02, Oil $86.81, 10-year 1.77%, Silver $31.39, and Gold. $1,707.80

That's it for today. Our Indian Summer continues here in St. Louis, it's supposed to get to 85 today! But it all ends on Friday, so we need to get out and enjoy it while we can. so, I'm going home! HA! Spent my time here yesterday in meetings. but good ones, so I'm not complaining like I usually do about meetings! Delaney and Everett were at the house when I got home yesterday, they were running around like, well, like young kids! I'm late today, for some reason. I was reading some very interesting stories this morning, so I guess that's it! So. let's get this Wonderful Wednesday started! Thanks for reading the Pfennig, and I hope you have a great day!

Chuck Butler


EverBank World Markets



Posted 10-24-2012 11:29 AM by Chuck Butler