11/25/09 St. Louis, Missouri – It’s a full on risk day today! At least that’s how it looks as I begin to write this morning… The Big Dog, euro (EUR), is back over 1.50 this morning, and gold is trading at $1,177! What brought about this full on risk day?
Well… It was the Fed’s FOMC meeting minutes… And when I read what the Fed Heads had to say, I had one song in my mind… Hey! You! Get off of my cloud! Because that’s where their collective heads are with these minutes, folks… The Fed Heads viewed the US economy on firmer footing and expect the growth to continue in the fourth quarter… Yeah, right, and I’ve got some swampland I’d like to sell you! Snake oil salesmen, these guys!
Anyway… The Fed Heads also said that the dollar’s depreciation had been “orderly”, with no mention of doing anything to stop the depreciation! Green light, green light, green light… How many of these green lights do traders need to realize that the Fed isn’t going to stop the dollar’s decline? And how about the Treasury? Oh! That’s right, they’re too busy shoving negative yields down people’s throats! OK, I’m getting all ticked off, and I really don’t feel like doing that today, so I’m going to talk about something else, fast!
Six months ago, I wrote in the Pfennig that the think tank in Germany called ZEW had predicted that the German economic developments would be good by now… How prophetic! Looky what we have going on here today six months later… Germany came out of their recession in the second quarter, and booked strong gains in the third quarter.
The point I’m going with here, is that these think tanks in Germany – ZEW and IFO – should be taken seriously… I mean, how more accurate could ZEW have been back on May 19th?
About a week ago, I read a story about how in Vietnam (I believe it was) there was an audit of their gold holdings, during which the auditors found that the large 100 oz. gold bars, had been hallowed out, and replaced with tungsten – a metal that’s similar to gold in weight, density, etc.
My immediate reaction to this story was simply… See! This is why the Fed needs to get audited, which includes an audit of Fort Knox’s gold reserves!
But, I’m sure a lot of you are questioning whether or not if all gold bars, no matter what size, have been tampered with… My thought on that is NO…
OK… Want another sign that the US recovery is NOT on terra firma? According to the FDIC, Banks in the US cut back the amount of money loaned to customers by $210.4 billion in the third quarter… That’s pitiful, folks… Businesses can’t get loans… And they won’t hire, grow, or make capital investments.
On the day following Thanksgiving, we’ll see what’s called “Black Friday”… It’s the make or break day for retailers… And… Even with all the “sales” and markdowns, I just don’t see it working out well for the retailers this year… The US consumer is not dead… But he’s barely breathing, and with last gasps, they’ll attempt to get out there and make it good Christmas shopping season for the retailers, but I just don’t see them coming through.
Yesterday, I told you that Canada’s retail sales had posted a strong gain… What I didn’t tell you is that this is the seventh of the last 9 months that we’ve seen gains in retail sales in Canada… This time it was a 1% gain in September… In our “currency connection” video, Kristin and I talked about Canada yesterday… I still like Canada… Strong banking sector, their economy can become “juiced” with energy components like coal, oil, and natural gas, all things people need all over the world! Kristin asked me if I thought the loonie (CAD) might get back to parity against the US dollar… And I said… Drum roll, please… YES! It might!
Especially with the news overnight from Russia… There were reports overnight that the Russian Central Bank is preparing to invest their reserves in Canadian dollars!
And speaking of the Russia Central Bank… They lowered interest rates there yesterday again, and said afterward that rates would continue to go down in Russia. The news didn’t put a damper on the ruble, though.
We saw the latest reading of consumer confidence here in the US yesterday, and while the index edged up a bit to 49.5 from 48.7, the figure is still historically low, and concerns about the labor market situation increased, leaving one with the feeling that the consumers surveyed wanted top be confident, but just couldn’t come to grips with any form of real confidence.
Today, before everyone heads out over the river and through the woods to grandmother’s house… We’ll see some data here in the US. Personal Income and Spending tops the list as far as I’m concerned…. To see if we’ve continued to spend more than we make, which has been the recent return to this scenario. We’ll also see the Weekly Initial Jobless Claims… And Durable Goods Orders for October, will print… While all these are important, the thing going on today that’s the most important is what I told you about yesterday… The US Treasury will be auctioning $32 billion (a record amount) of 7-year Treasuries… At what yield will these be sold? And… Will the auction be covered? Inquiring minds need to know!
The Big Dog, euro, has gained even more ground this morning, since I came in and turned the screens on…. The euro has added 1/4-cent.
And… Like I’ve told you over and over again, the euro is the Big Dog on the porch… And the other non-dollar currencies are the little dogs… The little dogs can’t get off the porch and chase the dollar down the street, unless, the Big Dog gets off first… The little dogs may run faster, but they don’t ever get a chance to run unless the Big Dog goes first… And that’s exactly what’s happening today…
I’m watching the Aussie dollar (AUD) get close to 93-cents again, the Swissie (CHF) spittin’ in the back yard of parity to the dollar, and Japanese yen (JPY) continuing to defy gravity…
Speaking of yen… “Mr. Yen” – former currency official in Japan, Sakakibara – told CNBC last night that he thinks the dollar will continue to fall versus the yen, with the yen possibly reaching 85 to a dollar… He also thought that the Bank of Japan – as directed by the Finance Ministry – would possibly intervene at that level of 85.
Then there was this… The FOMC meeting minutes provided us with a look at the ineptness of the Fed Heads… The Fed Heads admitted in the minutes that their near zero interest rates may be fueling undue financial market speculation… And that’s all fine… They see what the near zero interest rates are doing… But did they come up with a plan to deal with this? NO! And so, just like the bubbles before this time that were created by the Fed, this bubble will continue to grow, without any deflating from the Fed… I tell you this, folks… We need to repeal 1913… And if you don’t know what I’m talking about, it’s the 16th and 17th amendments, along with the creation of the Federal Reserve System… Google it!
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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When the financial markets have the courage to face the fact that interest rates must inevitably rise, we will have those rates rise.
As soon as they do, the same characters in the financial world will scram bloody murder to lower rates.
We need more than a repeal of the FED Act of 1913; we need to take away the notion that corporations are “individuals.”
As far as the dollar is concerned (and I’m no fan) there is no other “big dawg” on the block….they are all (the other dogs) full of economic fleas to be depended on.
Happy Holiday (Black Friday!)
Fed has painted itself into a corner and can’t wait for the paint to dry. If they raise rates the collapse in housing will destroy the country as they have bet our future in rising housing prices. If they don’t raise the rate they will never fund our debt without further quantitative eas…..oh what the heck is this double talk……….without printing us into oblivion.
Hahahaha audit the Fed and what are you going to get……..piles of worthless paper.