Convertibility For The Renminbi?
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In This Issue.

* Bias to buy dollar fades.

* U.S. economic data prints soft.

* A$'s and Gold rebound.

* Fisher grows up before our eyes!

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

Convertibility For The Renminbi?

Good day. And a Marvelous Monday to start our Thanksgiving Week! I got to spend Saturday with darling daughter Dawn, her husband Jerry and the kids, Delaney Grace and Everett. Then I got to spend Sunday with son Andrew, his wife Rachel, and grandson Braden Charles, who stayed outside with his dad and me all day! The weather was chamber of commerce-like, so we had it all going for us, except. the outcomes of the Missouri Tigers and Rams games. UGH!

On Friday, we didn't have much going on in the currencies. The bias to buy dollars hung over the currencies like the Sword of Damocles, most of the day! But by the end of the day, it appeared the currency traders had had enough of this bias to buy dollars and began to back off the bias. The economic data on Friday, probably was the reason for the backing off, as currency traders are so confused these days on which way they're supposed to trade. One day it's sell the dollar because the data is soft, and the next day it's buy the dollar because the data is soft. They're doing their best imitation of Vinnie Barbarino. "I'm so confused"..

Anyway. the economic data from Friday, continued to show a soft side to the economy. Industrial Production for October fell -.4%, and September's +.4% original print was revised downward to +.2%... And Capacity Utilization backed off its September reading of 78.3 to 77.8% in October. These pieces of economic data are pretty good at telling us what's happening in the U.S. economy. And from the October readings, the U.S. economy isn't doing very well. But then, you and I already knew that, as we don't allow the Gov't to pull the wool over our eyes with their cooked books.

And, of course, the Hurricane got blamed for the weakness in the numbers. Hmmm. Let me get this straight. The Hurricane made landfall on October 30-31, right? The LAST two days of October. So, the Gov't is trying to tell us that the weakness was caused by interruptions in the last two days of the month. Come on! Hey. I was born at night. just not last night!

So. recall that a few months ago, I told you about how the increased commodity prices at the Hostess Co, were pushing the Corporate leaders to talk about liquidation of the company? Well, I'm sure you heard about this on Friday, but Hostess, the maker of iconic treats like Twinkies, is closing its plants and liquidating its 82-year-old business. Of course it wasn't just the strikes. All those crazy people out there that don't eat Twinkies and chocolate cupcakes, and Ho-Ho's, etc. are to blame! HA! You can look at me and say, "He's had a Twinkie or two in his life!" HA! So, add the changing customer tastes, higher commodity prices (like sugar!), and now the strikes that hit the company. and you can say good-bye to your Twinkies!

So. sorry about that. I just couldn't pass up talking about something that's happening now, when I first talked about it months ago. Sort of like my talk in Vancouver this year. "What Appears to be Evident, Isn't Imminent" You should have hear that one. I really got fired up!

OK. so the currency traders began to tire of bias to buy dollars on Friday afternoon, and that sentiment carried over to the Asian overnight markets and into the European morning session. The dollar has backed off and currencies like the euro and Aussie dollar (A$) have begun to put the pieces of this puzzle back together again. The A$ is closing in on $1.04 yet again. Shoot Rudy, even the recent beatings that the Japanese yen has had to endure, have backed off this morning. And our fave currencies, Gold & Silver, are rebounding nicely this morning too.

I wish I had checked my "forward events calendar" when the A$ was as low as $1.03 last Friday, because if I had, I would have seen that the minutes of the last Reserve Bank of Australia (RBA) meeting were going to print this afternoon. And given that at that meeting the RBA left rates unchanged, when the whole world thought they were going to cut rates, leads me to believe that these minutes must be upbeat. And if they are upbeat, the A$ could push higher. And I would have told you so. But with the A$ already correcting by 1-cent back to $1.04, I doubt the minutes would add much to that correction, but maybe, just maybe, you never know!

The other reason the currency traders grew tired of the dollar bias was that there were optimistic signs that U.S. lawmakers will come to a compromise on the Fiscal Cliff problem that is staring us in the face. So the need for a so-called safe haven, will no longer be needed. But I think these knuckleheads are forgetting something very important. The breach of the Debt Ceiling limit, which should be counting down right now to the last couple of million!

I see that the Canadian dollar / loonie has gotten back to parity and beyond this morning. I think that loonie buyers saw that Canadian Retail Sales for October is due tomorrow, and with the forecasts at +.5% for the month, it would put the 3rd QTR total at +2.3%... A good strong figure for Canada. And with the price of Oil rebounding from the Friday lows, the loonie is receiving quite a bit of wind for its sails.

This is an ALERT for all of you. The Chinese are talking convertibility for the renminbi/ yuan. Remember that I've told you for a few years now, that the Chinese don't just talk to hear themselves talk.. When they say something, it's either a warning that something's coming or a statement about something that is true. Well, knowing that, it really caught my eye, that they are talking convertibility. Let's listen in to China's Central Bank Gov. Zhou. "For the Central Bank, I think the next movement related to the yuan is going to be reform of convertibility. We are going to realize it, we are moving in this direction, we need to go further, we will have some deregulation."

WOW! I actually had to check to make sure this wasn't some internet hoax, for these are words that I've been waiting to hear for 9 years now. Of course, we need to pull back on the reins here, as you and I both know that the Chinese move at a snail's pace, and this won't happen overnight. but the thought that they are thinking this loudly about it, is a very good sign! Well, a good sign for renminbi/ yuan holders, not for U.S. dollar holders.

As I've documented over and over again through the past 3 years. The Chinese want badly to replace the dollar standard in the world. The Chinese don't believe the U.S. deserves to have this dollar standard, when they've done nothing to preserve the value of the dollar. The Chinese have gone about taking steps to eventually have the renminbi/ yuan the reserve currency of the world. They have basically taken the dollar out of the terms of transactions by signing currency swap agreement across the world. They have been the fancier of the world. And all they needed was to make their currency convertible, and liquid. (there's that sticky question of them being a Communist country, but for now that's on the back burner) So. this could be the start of the replacement of the dollar, folks. could be. you never know!

So, what if the dollar isn't the reserve currency of the world I hear some of you saying. Oh brother! Don't make me go through this again! Because the U.S. has the reserve currency of the world, it gets to receive loans at lower yields, it gets to buy commodities at lower prices, it gets to print at its will, and. Central Banks around the world have to hold truck loads of dollars in reserves. Take all those things away, and the U.S. economy goes to hell in a hand basket, and not just for a couple of years. for decades! Just ask the U.K. what happened after they lost the reserve currency after World War II.

So. that's some scary news, eh? Well, at least it's not shocking news to long time readers. They've heard me scream at the walls regarding this for years now. I've got to get into a better mood for today after that!

Then There Was This. Fed Head Fisher was asked if the Fed could do anything to help save the U.S. economy from the Fiscal Cliff. And here's what he had to say about that! "Federal Reserve Bank of Dallas President Richard Fisher said the Fed can't avert "fiscal perdition" as lawmakers wrangle over how to avert $600 billion in tax increases and spending cuts threatening economic growth.

"The Federal Reserve has been carrying the ball for the fiscal authorities by holding down interest rates in an attempt to stoke the recovery while the fiscal authorities wrestle themselves off the mat," Fisher said Thursday in prepared remarks given in Stanford, California. "But there are limits to what a monetary authority can do."

"Only the Congress of the United States can now save us from fiscal perdition," Fisher said at Stanford University. The Fed can't "endlessly" keep purchasing bonds to keep the recovery going, he said."

Chuck again. Don't you just love it when the Fed Heads grow up right before our eyes?

To recap. The bias to buy dollars remained in the markets until late Friday, when traders grew tired of the bias. The sentiment carried over to the Asian and European markets overnight, and where the dollar was sold. U.S. economic data on Friday was soft with both Industrial Production and Capacity Utilization falling from previous readings. And China makes a huge statement about the convertibility of their currency. Could be the beginning of the end, folks.

Currencies today 11/19/12. American Style: A$ $1.0390, kiwi .81.15, C$ $1.0010, euro 1.2765, sterling 1.59, Swiss $1.0495, . European Style: rand 8.8465, krone 5.7740, SEK 6.7705, forint 222.05, zloty 3.2485, koruna 19.93, RUB 31.58, yen 81.15, sing 1.2250, HKD 7.7520, INR 55.06, China 6.2345, pesos 13.10, BRL 2.0770, Dollar Index 81.06, Oil $88, 10-year 1.61%, Silver $32.70, and Gold. $1,724.10

That's it for today. So.. it's Thanksgiving Week. The college kids are all going home, and Wednesday night is the biggest night out of the year. As I've talked about before, we can watch the sun move through the sky north to south and vice versa as the seasons change. The sun is rising has moved far to the south these days, winter is on its way. UGH! I dislike cold weather, period! If you'll be traveling this week, please be careful, you don't want to go over the river and through the woods, and not get to grandmother's house! Well. did you like the videos in the Sunday Pfennig? I didn't. I didn't think they were very good. I stumbled around a bit, and thought the videos would be edited. or maybe they were and that's why I appeared to be stumbling around. Yeah, that's the ticket! (it's always someone else's fault, right? HA!) Any way. at least the cameral didn't catch the tumor in my mouth, that's now down considerable. and with that. I thank you for reading the Pfennig, and hope you have a Marvelous Monday!

Chuck Butler


EverBank World Markets



Posted 11-19-2012 8:54 AM by Chuck Butler
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