05/13/10 St. Louis, Missouri – Front and center this morning… The 2-day tight trading range for the euro (EUR) was thrown to the roadside last night, and the single unit has fallen through the 1.26 handle. This is all due to the thought that, while the aid package is in place, it will take too long for the cost cutting to begin. OK… I agree that it could take a while, but… Why would traders beat on a currency that is at least attempting to cut their deficit spending, and at the same time buy a currency (the dollar) where there is NOTHING – nada, none, zero, zilch, a big goose egg – when it comes to cutting deficit spending… In fact, the dollar is getting bought while the US continues to spend money it doesn’t have, will ever have, or even dream about paying back!
I was thinking yesterday about the euro aid package/bailout…
While it’s not helping the euro at the moment, per se…the package seems to be filtering through to risk assets… Just not euros.
So… Thinking about this at the moment, gold, silver, and high yielding currencies would be the beneficiaries of the aid package, if… This scenario plays out the way I see it going right now…
Speaking of gold… The shiny metal reached a new all-time high yesterday of $1,248.82, before backing off overnight… Yes, gold is cheaper this morning by $13… Does this sell-off mean gold has reached it’s high, and like a star, shined the brightest before burning out? I chuckle at that thought! Of course it doesn’t! It just means that there was profit taking, and for those that own gold as a trading vehicle, I guess, the old saying that I was taught many years ago, that there’s nothing wrong with taking a profit, comes into play here…
But for most of us… We bought gold to act as an insurance policy for our investment portfolios… And that insurance sure has paid off BIG TIME in the past eight years, eh? Don’t forget… Gold is the “uncertainty hedge”… And with all the uncertainty in the world today, who wouldn’t want to have the “uncertainty hedge” in their portfolio? I say that, because there are still people out there without the “uncertainty hedge”… Oh! And don’t forget that gold is a store of value, and wealth… It has never gone to zero…
OK… Geez Louise, I was beginning to sound like a gold commercial! UGH! I just get carried away when I start talking about gold…
Speaking of gold, though… I know that many of you will recall me saying a year or so ago, that when gold gets back to it’s previous levels, and oil begins to rise again, the Canadian dollar/loonie (CAD) will return to parity… Well, we saw parity from the loonie last month, and after getting caught up in the ill-winds from Europe, the dust has settled and the loonie is back to pushing higher versus the dollar to the south… I don’t believe it will take much to move the loonie to parity again at this point, with gold at or near all-time highs, and oil prices, although cheaper this week, rising…
Getting back to the “uncertain times”… Down in Australia overnight, a very strong labor print boosted the Aussie dollar (AUD) until Reserve Bank of Australia (RBA) Assistant Governor Lowe highlighted these risks and emphasized that “we continue to live in turbulent times.” He concluded that the RBA would be “watching carefully over the weeks and months ahead to assess how the balance of these risks is evolving.”
That made Aussie dollar traders step back… Yes, even Australia is thinking that the Eurozone problems will affect the rest of the world. You would think that Australia would be immune from these Eurozone problems being so far away geographically and not having a TON of trade with Germany… But, the thighbone is connected to the knee bone, and the knee bone is connected to the leg bone, and so on…
However, the jobs report in Australia was very good, with employment rising 33.7K in April (the forecast was for a 22K increase). There was also a 37.5K increase in full-time jobs, and last month’s number was revised higher. The unemployment rate here is 5.4%… So… The data from Australia supported a rise in the Aussie dollar, but like I said, the “uncertain” theme by the RBA surprised the markets…
While we’re down under… Today, we’ll see the color of Retail Sales in New Zealand, which if as strong as forecast, could be the straw that stirs the drink for a Reserve Bank of New Zealand (RBNZ) rate hike… Remember… I believe the RBNZ will hike rates at their next meeting (June)…
OK… Back here in the US… We saw trade and budget balances yesterday… I shake my head in disgust… Here’s the skinny…
OK… Who didn’t pay their taxes last month?
The US government’s budget deficit was $82.7 billion in the month of tax returns!
So… Somebody owes the government some tax money!
Just for the record… The Budget Deficit was forecast to be $57.9 billion, as if that wouldn’t be bad enough in a month when tax returns are received… But we went the extra mile when it came to spending last month… Pushing that Budget Deficit to $82.7 billion!
How sad is this, folks? Take the tax returns, and we spent them along with another $82.7 billion in a month! Yes, I’m pretty upset with this figure… Remember… The Budget Deficits get added to our national debt, which today stands at almost $13 trillion dollars!
For a complete picture of the debt situation we are in here in the US (you have to promise to put away all the sharp objects first!) click on this link.
Don’t forget to scroll down to the US unfunded liabilities… How are we going to pay for that?
The only answer is… Higher taxes… And a cheaper dollar…
And the other so-called safe haven currency, Japanese yen (JPY), is getting bought again along with dollars, as the Eurozone debt cutting comes under fire… I just don’t get what traders see in Japanese yen, as a so-called safe haven currency… Zero interest rates… And government debt coming out their ears, just like the US… But still perverted mental giants continue to buy dollars and yen, on safe haven calls…
Yes… At one time I did like Japanese yen, and said when it was 118 that it would go to below 100… It took a couple of years for that to happen, but it finally did… But since then, there’s been no “getting well” in Japan. You know how I yell at the walls because of the US Treasury issuance? Well, get this… Japan auctioned 1.6 trillion yen worth of government bonds last week… This is the largest issuance ever in Japan… Oh… And 1.6 trillion yen is 1,720,430,107 dollars… That is if my calculator worked corrected! Those are big numbers, and ones that don’t work well with calculators!
And in keeping with my ranting for the past week about ratings agencies… Why does Japan still have a debt rating of AAA?
Or the UK, for that matter? What’s good for the goose… Is good for the US, UK and Japan… That’s my answer, I’m locking that in, and don’t need help from a 5th grader!
Today’s data cupboard here in the US will yield the usual Thursday data of Weekly Initial Jobless Claims, and that’s about it… Not much to deal with today data-wise here in the US.
So… I might as well go to the Big Finish!
Then there was this… Remember some time ago I told you about a German entrepreneur, Thomas Geissler, who invented a gold dispensing ATM? Well, a hotel in Abu Dhabi has installed the ATM that offers small gold bars up to 10 grams or coins with customized designs… I guess the demand for gold in Abu Dhabi is such that an ATM was needed… WOW!
I was telling the Big Boss, Frank Trotter, about this gold dispensing ATM, and his response was very good… Frank said, “and right next to the ATM they need a gold assayer”… Yes, who’s to say that the gold you get from the ATM is real? Oh, well, these are problems that new ventures face, I guess…
To recap… The euro is back on the selling blocks this morning, falling below 1.26 overnight, as there are now fears that cost cutting measures will take too long to be implemented… Gold set another new all-time high yesterday at $1,248, but has backed off by $13 in profit taking (I hope!) The RBA is concerned about Eurozone problems, and gold and oil have propelled the loonie toward parity once again.
Chuck Butler
for The Daily Reckoning
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 Chuck Butler speaks, need any more be said?
Almost anything can (and probably has been!) used for ‘money’ as a medium of payment. So, why is gold in particular associated with coinage and money? Why is gold such a universally recognised and accepted standard of value?
Gold is portable – Unlike many other commodities, gold is also relatively portable; gold can be melted down or cut into smaller pieces, though it does have limitations when it comes to everyday transactions…the amount of gold needed to pay for a loaf of bread is not only very difficult to cut and weigh, it would be so small that it would get lost easily lost! So, while gold buyers can not use gold in everyday transactions, gold buyers can always sell gold for its equivalent value in notes.
Gold does not degrade – Gold can be stored or hidden without fear that it will rot, rust, or be eaten by termites. Gold buyers can be certain that if they buy gold for investment, it will not depreciate physically.
Gold is durable – Gold is not destroyed by floods, fires, famine, or other natural disasters. Gold buyers can be confident that any gold will withstand just about anything!
Gold is divisible – Unlike investments of property and other commodities, gold can be melted into various forms and weights when required.
Gold purity or gold standard is uniform – Gold has a ‘standard’ unit of value, gold purity by gold weight. One ounce of pure gold is always one ounce of pure gold, unlike, for example, one carat of diamonds which are of variable quality and thus variable value. Perhaps the most vital factor to the acceptance of gold as money is that the standard of gold purity can be can be guaranteed and maintains its value; in other words, gold buyers can be confident that they can sell gold for near equal value in the future.
That is if my calculator worked corrected! Those are big numbers, and ones that don’t work well with calculators!
Chuck, use the scientific calculator in windows.
Cosmo Hippie
1.6 trillion Yen should be approximately
US$17.2 Billion, not US$1.72 Billion???????
They will keep printing and printing, because that’s all they know and can do at this point. The best solution? Let is collapse and restart over, but politician rather keep the debt sky high than fix anything.