04/02/09 St. Louis, Missouri Good day… And a Tub Thumpin’ Thursday to you! I’m Baaaaaaaaccccckkkkk! I bet by now you are all used to me being gone and figured I wasn’t coming back! But, I did! I didn’t want to… But I did! Every year, after that trip to Florida in the spring, I get the itch to move there… It used to be San Diego, which is where I’m headed tomorrow, but those prices there scared me away for good!
Mike and Chris did a great job with the Pfennig while I was gone, didn’t they? I like giving it to someone to do for a week so that they get a better appreciation for what I do all year long – since 1992!
OK… Well, the currencies sure have been volatile since I left… When I left, the euro (EUR) was trading around 1.27-ish… Right after the Fed announced that they were entering quantitative easing/monetizing the debt-mode, the euro shot up to 1.37 (in two days of trading), only to fall back on weak economic numbers in the Eurozone. But, if the fundamentals have anything to say about what’s going on, it gets down to a choice of whose junk is better… According to my fave politician, Ron Paul, who was interviewed about a week ago on the Glenn Beck show, “the people that are going around saying that other countries have worse problems than we do here in the U.S. are wrong.”
For instance, yesterday the euro dropped a bit after their unemployment data showed some rot on the vine there… But that was far outdistanced by the ADP employment report here in the United States hours later. ADP showed that the jobs losses in March were 742K… Now, I know how the ADP tends to be a bit higher than the Bureau of Labor Statistics (BLS) numbers print. We all know why that is to a degree (the birth/death model for instance), but the rest is unexplained… For some reason, I tend to want to believe the ADP numbers more than the BLS numbers. And… I know that these numbers for unemployed Americans have been quite high for some time now… But don’t lose focus on the enormity of all this job loss… It’s quite devastating to an economy.
An inconvenient debt, is what I call it in our monthly newsletter to clients, A Review & Focus, (shameless plug)… And brother, are we racking up the debt in this country! But I won’t get into the details today, as I’ve got to get caught up with all the debt that has been added while I was on vacation.
The G20 meeting began yesterday, and there have been some interesting developments… You have probably seen all the demonstrations going on outside the building where the G20 ministers – including President Obama – are meeting. What you probably haven’t heard about is some of the stuff going on inside…
1. G20 PLEDGES TO “REFRAIN FROM COMPETITIVE DEVALUATION OF OUR CURRENCIES”
2. G20 NATIONS COMMIT TO “CANDID, INDEPENDENT” IMF SURVEILLANCE OF THEIR ECONOMIES AND FINANCIAL SECTORS”
3. WILL ESTABLISH NEW FINANCIAL STABILITY BOARD TO IDENTIFY, WITH IMF, ECONOMIC/FINANCIAL RISK & ACTIONS NEEDED
4. IMF READY TO SELL GOLD RESERVES TO HELP COUNTRIES IN CRISIS
OK… This might ruffle a few feathers, but it has to be said… Am I the only one that’s seeing what’s happening here? Does it seem that the IMF is being given more authority? Hmmmm… Mark my words on this day; and it is the day after April Fools, so I’m serious here… It sure looks like this is all becoming a way to have a “general rule” in the world.
OK… The IMF selling gold won’t be a good thing for the shiny metal, but it has withstood the selling pressures of central banks before, and will again… But each time the IMF does commit to selling, it certainly represents cheaper levels to buy, eh?
With the G-20 ministers spreading the gospel and singing, “everything is beautiful in its own way” the risk appetite among investors is getting pretty giddy, and stocks are getting marked up around the world… With risk appetite moving higher once again, a currency like the Aussie dollar (AUD) certainly gets “special notice” and has been the best performer of the “majors” overnight.
While I was speaking one of my four times last Thursday (see it wasn’t all sun and fun for me while I was gone!), I told anyone who would listen that I believed the best path to take when considering currencies is always the surplus countries… But added that in these times, it might be best to only consider countries that have not gone down the quantitative easing road… Those that have so far include: U.S., U.K., and Japan…
I told you before I left that Aussie looked like it was rounding the corner and headed to better times, and that certainly has played out with the Aussie dollar all the way up to 71-cents! It was around 65-cents when I told you about it looking healthier… Of course I said it could be a false dawn, and all the other required legal mumbo jumbo.
A currency that one might think to be bid up when risk appetite returns is the New Zealand dollar/kiwi (NZD)… But unfortunately, that’s not the case, as there has been a ton of jawboning by the central bank, and the Finance Minister about the economy and the kiwi… And neither one are receiving praises! I think this currency should be one to pass on the road should you see it standing there with its thumb out looking for a ride.
I’ve also highlighted the Canadian banks and their ability to skate around the problems their brothers down south have encountered. I saw this story on the Bloomie last night and thought it be interesting…
“The Canadian dollar will rise against the U.S. currency on stable oil and commodity prices coming out of an economic recovery, Royal Bank of Canada Chief Executive Officer Gordon Nixon said.
“‘Over time, the Canadian currency will strengthen and will be back up closer to par’ with the U.S. dollar, Nixon said yesterday in an interview in New York. ‘The natural range for the currency is somewhere between 75 and 85 cents, and I think we will trend towards the upper end of that level.’
“Canada’s dollar, called the loonie, has fallen about 19 percent in the past 12 months relative to the U.S. currency, retreating from a record 90.58 Canadian cents per U.S. dollar on Nov. 7, 2007. The currency traded today at C$1.2648 per U.S. dollar. One Canadian dollar purchases 79.02 U.S. cents.
“Nixon, 52, said his forecast assumes that prices for oil and commodities remain stable as Canada recovers from recession.
“The loonie tumbled a record 18 percent last year as the U.S. economy, destination of more than three-quarters of Canada’s exports, deteriorated and the price of commodities such as crude oil declined.
“‘When we start to recover, you should have firmness in commodity prices combined with a much, much stronger fiscal situation in Canada than you have in the U.S., therefore I believe our dollar fundamentally has to increase,’ he said.”
Hmmmm… Interesting take, eh?
OK… While I’ve been typing my poor out of shape fat fingers to near exhaustion this morning, the euro has rallied more than 1/2 cent to 1.3365… So, the return to risk appetite is showing up here too!
Well, the data cupboard has a couple of items for us to deal with today here in the United States… The biggie is the Weekly Initial Jobless Claims, which have just ballooned higher and higher with each passing week; 650K is expected this week… And Factory Orders for February are expected to reverse January’s negative -1.9% showing.
Tomorrow, of course, is the Jobs Jamboree… Right now, the experts have forecast for a job loss in March of 660K… But given the weekly numbers and the ADP report we talked about earlier, I would have to think that the actual print will be even more disappointing, which is hard to do when 660K is the forecast!
So… Until then… We’ll deal with G20 and the data today… Let’s go to the Big Finish!
Currencies today 4/2/09: A$ .7115, kiwi .5745, C$ .7990, euro 1.3350, sterling 1.4650, Swiss .8770, rand 9.2425, krone 6.6250, SEK 8.1150, forint 224, zloty 3.3450, koruna 20.13, yen 99.50, sing 1.5040, HKD 7.75, INR 50.35, China 6.8345, pesos 13.80, BRL 2.2735, dollar index 84.89, Oil $51.29, Silver $12.85, and Gold… $910.50
That’s it for today… Good to be back, I guess… A BIG THANK YOU to Jen Mclain for taking the reins on my currency trading duties, along with her metals trading… And a Big Thanks to Kristin for taking my place at the Wealth Masters Conference, and finally again to Mike and Chris for their wonderful jobs on the Pfennig! I go right back out on the road tomorrow as I head to San Diego for the Richard Russell Tribute, that my friend, John Mauldin, has organized… I’ll get to see my faves, Mary Anne and Pam Aden, David Galland, and more! And then Monday is Opening Day! So, Jen has more on her plate, but then I’m back in the saddle until the last week of April, when I head to Bermuda to speak at the Sovereign Society’s Conference… I want to also thank my family and friends for a wonderful vacation…. OK… Chris is here; time to go… I hope your Thursday is Tub Thumpin’!
Chuck Butler
Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter, which is reposted here at The Daily Reckoning. With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News and World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune. Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.
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But added that in these times, it might be best to only consider countries that have not gone down the quantitative easing road… Those that have so far include: U.S., U.K., and Japan…
I think you need to add other countries to this list. Basically all the dollar peggers have essentially done QE. Their currency interventions are rarely fully sterilized which is in essence a form of QE. China in particular comes to mind as a country that unofficially pumps a lot of new currency into FOREX.
I don’t think the G20 meeting will change anything. A lot of jawboning. There’s no way competitive devaluation is going to stop. Without it, the dollar would drop like lead. Most of the worlds major economies have no choice but to inflate their way out of their debt mess. The options are that or a massive deflationary depression.
I also don’t believe the IMF is going to sell gold. Gold can’t easily be replaced while fiat currencies can. Gold needs to remain in CB and IMF vaults as an insurance. Actually, let me change that. They may sell gold directly to some central banks. Basically exchange it for currency. It won’t increase the amount of gold in circulation. The gold will remain in the central bank domain one way or the other.
Chuck;
Welcome back. You need to explain how holding EU$, AUS$, etc… can be a “risky” move? Following that RBC guy, you mean keeping clean books, a small deficit or surplus and having access to hard assets is “risky”??? How?