Reid Throws Currencies Under The Bus.
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In This Issue.

* Fiscal Cliff talks are disappointing.

* A$'s trade flat ahead of CAPEX.

* Traders are confused on how to trade yen.

* Meddling in economies.

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

Reid Throws Currencies Under The Bus.

Good day. And a Wonderful Wednesday to you! Well. front and center this morning, I have a mea culpa, Big Time! Yesterday was my grandson Everett's birthday, and I had another senior moment when sending out the Pfennig, forgetting to say Happy Birthday to Everett! "E" as I call him, turned 2 yesterday. So, Happy Birthday, buddy! Geez Louise, I can't believe that I hit "send" yesterday and didn't say a word about E's birthday! UGH!

Well. Yesterday, I knew the currencies and metals were in trouble, when Senate Leader, Harry Reid, said that he was "disappointed" with the congressional budget talks aimed at averting the Fiscal Cliff. As I've explained a couple of times now, this Fiscal Cliff is going to bring the U.S. economy to its knees next year, and while I say "that's what you get for deficit spending all these years", I realize that we could see a repeat of 2008, and the flight to the so-called safe havens of dollars and Treasuries. So, when Reid basically said that the talks to avert the Fiscal Cliff weren't going anywhere, I knew the currencies and metals would be in trouble.

So. this morning, the euro is drifting lower, and is about to give up the 1.29 handle. Most of the currencies around the world have taken their cue from the Reid comments and have backed off their lofty figures of last Friday. One of the exceptions this morning is the Aussie dollar (A$), which is trading flat to yesterday's levels. I think that traders and investors are looking at the A$ and thinking that if Central Banks around the world are diversifying their reserves with A$'s, then why shouldn't they? The Australian Capital spending (CAPEX) for the 3rd QTR will print this afternoon.. I expect the report to show that spending increased during the quarter, which is different from the forecasts by the experts, who are looking for spending to be flat or up slightly.

If the CAPEX prints as strong as I suspect it will, then we could see the A$ rally, for. another nail has been removed from the rate cut coffin.

Traders are really confused as to where the yen should go though. Recall, that in previous flights to safety, yen was bought as a safe haven along with dollars and Treasuries. I totally dislike the phrase, "this time will be different" So I can't say that, but so far, the selling that was seen in yen has pulled back. But I truly believe that this is just confusion on the traders part, I think we'll see yen get back to sliding down the slippery slope soon. the Japanese economy and fiscal situation are great big messes. and that can be attributed to a lot of things, but the one thing I think is the root cause of the problems, is the fact that the Japanese Gov't and Central Bank (Bank of Japan/ BOJ) have been meddling in the economy since the mid-90's. And they are still meddling in the economy.

And this holds true for the U.S. Gov't and Central Bank (Fed). I've been harping about the stimulus plans going back to Big Al Greenspan keeping rates too low for far too long during the recession 11 years ago! For years now, I've read the Austrian economics view on Gov't meddling, and I'm always reminded of these words from the great economist, Ludwig von Mises. "There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or, later as a final and total catastrophe of the currency system involved."

Take the discussions going on in Washington right now in an attempt to avert the Fiscal Crisis. I want to say to the participants of the meetings. Back away slowly with your hands where I can see them. now turn and leave! Go away! Don't go away mad. just go away! Quit meddling in the economy. if this is what has to happen then let it happen!

I know some of you are saying. "But Chuck, if the Fiscal Cliff isn't averted, we could see our currencies lose value, how can you say, "let it happen"? Ahhh grasshopper. Didn't we see this in 2008, the currencies lost value, but when they recovered, most of them reached new all-time levels VS the dollar, and Gold made a moon shot move higher.. So, it will be time to batten down the hatches and ride this one out. And look to buy at cheaper levels!

You see. the deficit spending cuts are going to take place over 10 years, and it's on forecast spending increases. So, in reality it's not that big a deal, it's all in the funny games that politicians play. The Big nut here in the Fiscal Cliff is the tax increase. And think of it like this. if we don't increase the revenue (taxes) of this country, we're going to just continue to add to our national debt. Now, I would prefer that we leave taxes at current levels and hope that the economy recovers and grows, then you would have increased tax revenues. But, if that doesn't happen, then tax increases are in our future.

OK. I really didn't mean for that discussion to go on like that and go in that direction! But it did, and it is what it is.. so let's carry on!

Well. didn't I tell you the other day to expect to see the Chinese to back off the appreciation of the renminbi/ yuan to remind traders that the currency is NOT a One-Way street? As if the Chinese leaders read the Pfennig and said, "Hey! This guy knows what he's talking about!" And then they went out and put the brakes on their currency appreciation. So, after reaching a 19-year high VS the dollar, the night before, the renminbi / yuan backed off. The Chinese leaders could point to the Reid comments and say global growth will be hurt, so they stopped the appreciation run. But you and I know the real reason for the halt.

This halt will last as long as the Chinese believe investors haven't learned their lesson yet. But then I expect the appreciation to pick up again.

Well. my hopes for a better champion of the New Zealand dollar are getting bashed. Recall that former Reserve Bank of New Zealand (RBNZ) Gov. Bollard, used to diss the New Zealand dollar / kiwi, any time he had an audience. Bollard retired a couple of months ago, and the new RBNZ Gov, Wheeler, picked up right where Bollard left off. Wheeler was speaking to the N.Z. parliament last night and said that, "N.Z. manufacturing is being hurt by the currency gains". But he failed to mention that N.Z. inflation is within the guidelines set by the Gov't because. of the currency gains! What do you do when your hopes are bashed? You move along. for these are not the droids we're looking for!

Here in the U.S. the Durable Goods Orders were flat for October. Recall I had said that they would be negative. Well the number wasn't negative, but we certainly didn't gain. Besides, I got to thinking yesterday that we won't be seeing big reversals of the numbers reported before the election, right off the bat. for that would be too obvious, right? The cooks for these books will slowly bring down the data over a period of time. The S&P/CaseShiller Home Price Index booked another gain for September, and that's a good thing, but remember that prices had gone so low that they really nowhere to go but up. And Consumer Confidence rose a bit. This is pretty useless data, folks. I think they only survey people that wear rose colored glasses!

This afternoon, the Fed's Beige Book will print, which gives the markets an indication of what the Fed Heads see going on in their regions. I think we'll see that the Fed Heads will attempt to put on a happy face here. but in reality they know the ship is sinking.

Then There Was This. OK. for quite a few years now. I've been telling you about the Unfunded Liabilities here in the U.S. and that when the TV knuckleheads talk about the U.S. Debt, they never mention the Unfunded Liabilities. Well, yesterday, on one of the TV's a former representative in the U.S. House, (Bill Archer) was actually explaining the Unfunded Liabilities the correct way, and explaining that the national debt isn't just $16 Trillion. it's $121 Trillion!

Then I found this on Yahoo Finance.. an article written by Bill Archer and Chris Cox. "In 1994 we predicted that, unless something was done to control runaway entitlement spending, Medicare and Social Security would eventually go bankrupt or confront severe benefit cuts.

Eighteen years later, nothing has been done. Why? The usual reason is that entitlement reform is the third rail of American politics. That explanation presupposes voter demand for entitlements at any cost, even if it means bankrupting the nation.

A better explanation is that the full extent of the problem has remained hidden from policy makers and the public because of less than transparent government financial statements. How else could responsible officials claim that Medicare and Social Security have the resources they need to fulfill their commitments for years to come?

But it hasn't. For years, the government has gotten by without having to produce the kind of financial statements that are required of most significant for-profit and nonprofit enterprises. The U.S. Treasury "balance sheet" does list liabilities such as Treasury debt issued to the public, federal employee pensions, and post-retirement health benefits. But it does not include the unfunded liabilities of Medicare, Social Security and other outsized and very real obligations."

Chuck again. of course most of you probably click the link that I include on Fridays to peek at the U.S. Debt Clock, and you already know about the incredible figure that sits beside the Unfunded Liabilities column.

To recap. the currencies and metals backed off their lofty figures of late last week, when Senate leader, Reid, stated that he was disappointed in the talks to avert the Fiscal Cliff. The euro is barely holding to the 1.29 figure, and traders are confused as to how to trade yen. should they continue to sell it, or. treat it as a safe haven? Gov't meddling in economies has got Chuck all riled up this morning. better watch out!

Currencies today 11/28/12. American Style: A$ $1.0440, kiwi .8205, C$ $1.0050, euro 1.2902, sterling 1.5980, Swiss $1.0715, . European Style: rand 8.8660, krone 5.6940, SEK 6.6815, forint 217.75, zloty 3.1845, koruna 19.5935, RUB 31.13, yen 81.85, sing 1.2235, HKD 7.75, INR 55.45, China 6.2210, pesos 13.07, BRL 2.0910, Dollar Index 80.50, Oil $86.76, 10-year 1.62%, Silver $33.77, and Gold. $1,735.04

That's it for today. Poor little "E" was sick and had to go to the doctor on his birthday. I spoke too soon about being able to get back in my basement and relax. This Saturday night, is our subdivision's Progressive Dinner Party. It's a chance to catch up with neighbors you don't see all the time. Our house is one of the houses on the stop... We've been a host house about 5 times in the 20 years we've been doing this. We turned the Christmas music radio station on this week here on the desk. most times we can't hear it over the noise of the phone conversations, but every once in a while, we can hear a song. Those Christmas songs always get me the spirit of the season. But, until 7:30, I have my iPod on, and I definitely can hear that! OK. Mike is here, so I must be late. I hope you have a Wonderful Wednesday!

Chuck Butler


EverBank World Markets



Posted 11-28-2012 12:50 PM by Chuck Butler
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