Change… What Change?

Good day… And a Thunderin’ Thursday to you! I say Thunderin’ because we’re expected to get thunderstorms and rain today here in the St. Louis area… This will be the first rain we’ve received in some time, so, while it will bring cooler weather our way, it will still be much needed rain!

Well… What a volatile day in the currencies yesterday! WOW! Running up and down the dial, all day long! At one point yesterday morning, the euro (EUR) looked to be in the driver’s seat, ooh, ooh, ooh ooh, driver’s seat, yeah… Stop it Chuck, this is supposed to be a serious commentary! Yeah right! Well, at least seriousness is sprinkled in from time to time, eh? Anyway… What I was getting at before slipping off into a song by Sniff-n-The Tears… The euro was moving higher and higher, and was making the 1.29 and 1.30 handles look like picket fences when you pass them going 80 mph!

But… Then the trading theme entered the picture once again… What brought it back this time, Chuck? Ahhh grasshopper, it was the ADP Employment data that I talked about yesterday morning as a piece of data that gives us a good indication of what the national Jobs Jamboree will look like. And… Unfortunately the ADP printed worse than expected! Stocks immediately began to give back the Election Day 300-point rally, and the deep, dark, dangerous clouds hovered over the U.S. economy once again. And the rest of the day, the dollar took over the driving duties.

This morning, the Bank of England (BOE) and European Central Bank (ECB) both meet and will both cut rates. So… The thought of lower rates in Europe has added to the weight on the euro this morning, and we’re right back to the trading levels we saw yesterday morning, when I hit the send button!

There are two camps screaming their theories about the ECB rate cut today… In one camp we have the old stick in the mud, “a rate cut debases the currency” crowd, (of which I’m on board with 90% of the time)… And in the other camp we have the risk taking “a rate cut will allow the Eurozone to shorten the recession and will be good for the euro” crowd. Hmmm… You know, I’ve seen this kind of perverse way of thinking about rate cuts before. In 2000 and 2001, when the economies of the world were trying to recover after the brief recession in the United States that was cut short by the Fed sticking their hands in the cookie jar and acting like they knew what they were doing. Cutting rates to 1% and providing enough liquidity to choke the proverbial horse!

You know… I don’t think I can ever mention the last U.S. recession without going on that tirade about the Fed… Anyway… What I was saying is that during that time, the currency markets were rewarding currencies that had central banks cutting rates to provide the chance of economic growth. It was the first time I had ever seen that, and I remember my editor of the Review & Focus at that time thought I had “lost it” when I wrote about cutting rates being good for a currency…

The boys and girls over at Citgroup are waving the euro flag again. They issued a letter to clients that said they believed the ECB would cut rates 1% (100 BPS) today, and bring the official rate to 2.75%. They also said – should the ECB cut rates to 2.75% – to buy the euro, as it may rally to 1.33… Of course it’s important to note that the ECB has NEVER moved rates more than 50 BPS before… So, 100 BPS would be a large pile of wood to chop for the ECB, eh?

The euro wasn’t the only currency to get whacked by the trading theme yesterday… Aussie dollars (AUD) were looking perky at 70-cents before falling back to 0.6750… And Canadian dollars (CAD) were pushing the envelope on 87-cents, only to see their fortunes fade to 0.8540. And just to prove that the trading theme was in play… The only two currencies to gain yesterday were… Dollars and Japanese yen (JPY)!

OK… I know you’ve been waiting patiently for me to discuss the title of today’s Pfennig… Change… What Change? I was doing some research on the Obama plans yesterday, and just don’t see anything that points to any change in the debt creation. Yes, I know about the gradual withdrawal in Iraq… But that debt isn’t on the radar screen. I’m strictly talking about the Budget Deficit remaining in place and maybe even widening. The research I was reading had this all going on until around 2013… Oh, and the 2009 Budget is forecast right now to be around $800 billion! Oh, and before anyone accuses me of throwing stones at someone who hasn’t even taken an oath yet, let me say that I’m just talking about the Budget Deficit, and the economic plans. The public debt is going to get pretty ugly too, all the stuff now in place will be taking the public debt to GDP ratio up to 52% from 37% before the crisis. And that’s on this administration’s bill… With thanks to the Treasury Dept and the Fed!

So… If Change is in order… This is where it needs to start! Because every time we rack up a Budget Deficit, it adds to the National Debt – which is now $10 trillion! And yes, the current administration was responsible for adding $4 trillion to that total!

OK… Enough of thinking about debt… Let’s turn our attention to gold and silver, the precious metals… I’ve been talking about the shortage of physical precious metals for some time now. The minters aren’t minting… (Except for the Perth Mint in Australia, which announced about 10 days ago that they were going to double their production of physical coins and bars. I guess that should put to bed all that Internet talk about how the Perth Mint didn’t have the bullion to back up their pooled holdings. I wonder what that guy (I won’t even mention his name because he’s been so wrong about all of this) but I wonder what he has to say now?)

Again, off on a tangent… Where was I? Oh! The minters aren’t minting, and suppliers don’t have any supply, etc. The only time a supplier comes up with some physical metals, it’s because a customer has sold their holdings. We have a list of names of people that want physical metals… And we’ve got nothing to show them… BUT! I put my thinking cap on… And thought… Hey, Chuck! You always tell crowds when you speak at conferences that they can buy pooled and always have it fabricated to coins and bars later… Well… This is what we should be doing right now! Buy pooled so that you lock in your price now, and when (and someday this will happen… When, I don’t know! But someday!) the supply is back to normal… Fabricate the holding then. You’ll have to pay the fabrication costs at that time, but if you had bought allocated coins and bars in the beginning you would have paid for fabrication, so there’s no difference! (Fabrication is the actual minting of the coin or bar, and runs about 5% for gold, and 18% for silver… It doesn’t cost any more to mint a silver coin that it does gold… It’s simply the math in the price difference between the two and the amount of silver you can buy for the same amount of money in gold.)

So, how about that idea? WOW! It sure pays to put the thinking cap on, eh?

OK… I’m getting near the time to go the Big Finish, and the BOE or ECB hasn’t announced their rate cuts yet. This always happens… I get the Pfennig out at its normal time, and the BOE and ECB haven’t announced yet. That’s OK… Because you read the Pfennig, and your neighborhood friendly Pfennig writer tells you that the BOE will cut rates by 1% today, while the ECB will opt for 50 BPS. That’s my call… We’ll see if I was right (and of course if I’m wrong; I’ll get 50-100 emails telling so!) That’s OK… I deserve it, as long as the email isn’t nasty, it’s fine.

Currencies today 11/6/08: A$ .6810, kiwi .5980, C$ .8515, euro 1.2830, sterling 1.5850, Swiss .8540, ISK (no quote) rand 9.75, krone 6.7890, SEK 7.80, forint 203.25, zloty 2.7750, koruna 19.28, yen 97.90, baht 35, sing 1.4840, HKD 7.75, INR 47.68, China 6.8250, pesos 12.73, BRL 2.1350, dollar index 85.44, Oil $64.25, Silver $10.40, and Gold… $741.67

That’s it for today… Risk takers one day, gone the next day. This is driving me crazy, all this volatility! WOW! The Bank of England just slashed interest rates by 150 BPS! 1.50%! To 3%! WOW! What a cut! I guess that desperate times call for desperate measures, eh? If that’s any indication of what the ECB might do, we could see a ton more of volatility today! HEY! How about that news yesterday that our Yadier Molina (Yadi) had won the catcher’s Gold Glove for 2008! That’s long overdue, he’s the best defensive catcher in the league and has been since he first arrived three years ago! I’m surprised that Albert Pujols didn’t win a gold glove for 1st base… As long as he wins the MVP, the stars will be back in alignment! OK… Time to go… Got one rate cut in before hitting the send button, just one to go! Oh, and the euro is rallying on the BOE rate cut news… I hope you have a Thunderin’ Thursday!

Chuck Butler
November 6, 2008