04/24/09 St. Louis, Missouri I leave for Bermuda very early tomorrow morning, so no late night shenanigans for me tonight! HA! I’m still trying to make sure I’ve beaten that pneumonia, and being a “good boy”!
Well… Front and center this morning, we have a big currency rally going on… Recall yesterday, I told you of the beginning of the rally… Well, it really got legs as the day went on, and once again, it was not sold off overnight – but added to! Here’s what I believe is moving these currencies so violently higher versus the dollar – and you won’t see this anywhere else, my friends…
First, let me set the stage… I’ve been carrying on about how the deficit spending here in the United States was going to require a TON of Treasuries to be sold to finance that deficit spending. I even told you the other day that the U.K. gilts were getting clobbered because of the largest budget deficit in the U.K. since World War II, and that what happened in the U.K. had been carrying over to the United States… OK… Got the picture, right?
Well… Yesterday morning the U.S. announced that they would sell Treasuries in these amounts, and tenors… $40 billion 2-year, $35 billion 5-year and $26 billion 7-year next Monday, Tuesday, and Wednesday respectively… OMG! That’s over $100 billion in new Treasury issuance that the markets are going to have to digest. Is it the straw that breaks the proverbial camel’s back? Are the markets saying, “We don’t believe you will be able to successfully auction that amount without aggressively raising the yield?” I think so… Now, see if CNBC, MSNBC, FBN, CNN or any of the other media stations run this story!
There’s nothing else THAT BIG that could have moved the euro (EUR) like this… Oh! I haven’t even told you where the single unit is trading this morning! My Bad! 1.3230! That’s right… It skipped to my Lou right through the 1.31 handle, like a hot knife goes through margarine! The euro did get an additional boost this morning when it was announced that German Business Confidence, as measured by the think tank IFO, rebounded from a 26-year low this month.
So… Let’s look around the horn to see what the other currencies are doing, now that the BIG DOG, euro has left the porch to chase the dollar down the street. Well, the usual suspects like the euro-alternative currencies like Norway (NOK), Sweden (SEK), Switzerland (CHF) are all much stronger versus the dollar this morning… And a look to the high yielders shows that they too have moved in step with the Big Dog. Aussie (AUD), kiwi (NZD), rand (ZAR), and real (BRL) are all taking liberties versus the dollar.
There’s another high yielder that I don’t talk about all the time, and the last time I did, I gave it the kiss of death, watching it fall a couple percent after I mentioned it. The Indian rupee (INR)… Well… The rupee is on the rally tracks again, and this time, someone other than me is noticing. The folks over at Reliance Equities International have noticed that the Indian stock market has risen for seven straight weeks, and believe that they will see additional flow into this market. Therefore they believe the rupee may be in store to gain 6.7% in the coming weeks. Now, for you big swingers out there, 6.7% probably doesn’t even show up on your radar… But for all the rest of us, worried more about the “Return of Capital, rather than the Return on Capital” these days… That doesn’t sound too shabby!
On the data front yesterday we had the Initial Weekly Jobless Claims, which came in as expected, which doesn’t make it any better! The total of unemployed people filing claims last week totaled 640,000! Something that most people don’t look at, but that I’ve trained the folks here to do, as Chris Gaffney yelled out yesterday morning… “Continuing Claims are awful; they have risen to 6,137,000!”
Existing Home Sales continued to show that the housing markets is still in search of a bottom… Existing Home Sales fell 3%, and the home prices continue to fall with the median price down 12% from a year ago… The other day, I made a statement for which I should have been taken to the woodshed… I said that with interest rates this low, people should be taking advantage of them and buying those houses now… But… As I keep saying, home prices will continue to fall… So why buy now if you can get it cheaper tomorrow? Sorry… What I should have said was to refinance now is a very good idea!
In Canada yesterday… The Bank of Canada (BOC) explained the details of quantitative easing “should they need it”… That was HUGE for the loonie (CAD), as the BOC hasn’t implemented this monetary policy yet… They just have it ready and on the shelf should they need it… Good plan!
Another item that has helped to boost the loonie (Canadian dollar) was a report yesterday that showed retail sales unexpectedly rose 0.2% in February. Geez Louise, can’t they get this data on a more timely basis? February seems like a month of Sundays ago to me! Anyway, the Canadian economy does have a pulse… And that’s a good thing!
Gold didn’t like the color of the Treasury Auction announcement yesterday either, and the shiny metal pushed back over $900 once again. Oh… And here’s a story that just hit the news wires this morning… It is reported that China has increased their gold holdings 76%, to the fifth biggest country (of gold holdings). China increased their holdings from 454 Tons to 1,054 Tons… For those of you keeping score at home that’s $31 billion dollars worth of gold!
OK… Before we head to the Big Finish today… Have you heard or seen the story going around about Bank of America’s (BOA) purchase of Merrill Lynch? OMG! This is HUGE! BOA’s CEO, Ken Lewis, testified this week and said that Fed Chairman Ben Bernanke and then-Treasury Department chief Henry Paulson pressured Bank of America to not discuss its increasingly troubled plan to buy Merrill Lynch – a deal that later triggered a government bailout of BOA… Now, all my licenses in the brokerage business tell me that that’s a HUGE NO-NO! A Company is supposed to alert their shareholders of any materially significant financial hits. If I were a shareholder of BOA, I would be steaming mad right now! And as a market participant it still ticks me off!
Now… Here’s the latest from the Wall Street Journal this morning…
“The Federal Reserve didn’t advise Bank of America or CEO Ken Lewis ‘on any questions of disclosure,’ a spokeswoman for Fed Chairman Ben Bernanke said.”
Oh Great! Now we have a “he said – no he didn’t” scenario! That’s their plan, folks… Attempt to confuse the masses, throw up smoke screens, and maybe it all goes away. Not on my watch! We need to know who’s telling the truth!
And one of the things they will use to direct everyone’s attention away from this awful thing, is… Drum roll please… The stress tests! That’s right! They are supposed to be talked about today… I still hold to my beliefs that we won’t really be told the truth about these 19 largest banks… I can only hope to be wrong!
Oh, and one more thing… A reader asked me why I never talked about silver, always choosing to talk about gold… Hmmm… I guess it’s sort of like the Paris Hilton thing… Or let’s see what else could I compare it to…. Anyway, I don’t mean to short-change silver; when I talk about gold you can believe that it includes silver… Imagine my poor fat fingers if I had to type gold and silver every time I talked about gold and silver…
And… On that note… Time to go to the Big Finish!
Currencies today 4/24/09: A$ .7185, kiwi .5680, C$ .8225, euro 1.3250, sterling 1.4625, Swiss .8775, rand 8.8550, krone 6.5650, SEK 8.20, forint 223.40, zloty 3.4150, koruna 20.1950, yen 96.88, sing 1.49, HKD 7.75, INR 49.88, China 6.8272, pesos 13.12, BRL 2.2050, dollar index 84.78, Oil $49.91, Silver $12.82, and Gold… $911
That’s it for today… And for me for the next week! Chris Gaffney will have the conn on the Pfennig next week. I’m very excited about going to Bermuda, although it looks like the good folks at the Sovereign Society are going to keep me busy! Cardinals sweep the Mets! Wow! That has a great sound to it. The Cubs come to town tonight; it sure would be sweet to sweep them too! But that’s getting greedy… I would be giddy with 2 of 3! Tomorrow is the draft for the NFL, and the Rams have the second pick… Memo to the Rams… Don’t blow it! An absolutely beautiful day here, yesterday… My dad used to say to me when it would be blue skies, sunny, warm days… He would say… “Chuck, they don’t have days like this in the Soviet Union.” I use that saying with my kids, and they look at me like I should be wrapped in a white suit!
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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If China’s gold holdings went from 454T to l054T, how does that equate to a 76% increase. Just going to 908T would be a l00% jump.