06/30/09 St. Louis, Missouri Let the Data flow begin! And let Big Ben Bernanke’s “green shoots” wilt under the bright summer sun! Not that I want to see the US in economic muck, but come on! He was banging the drum for these “green shoots” when they simply looked like weeds to me, and I just think for him to say those things when I believe he knew better was wrong… Very Wrong!
I came in this morning, and turned on the currency screens to see that the dollar has taken a step back for the fourth consecutive day versus the euro (EUR). The single unit is up to 1.41 again, as it makes those probes out beyond the 1.35-1.40 trading range we’ve had in place now for some time. Yield demand is what’s driving the dollar downward, and while the euro doesn’t exactly have a “yield differential” to the dollar, the thing to remember, as I always tell you… The euro is the “offset currency” to the dollar. So, just by nature of the crosses to other currencies, the euro benefits whenever the dollar is sold.
So… If yield demand is what’s beating up the dollar like a rented mule (no animals were hurt here, just a saying), then the “high yielders” should be doing the beating… And as I look at the currency screens, that’s what I see! The Aussie dollar (AUD) is trading above 81-cents, kiwi (NZD) above 65-cents, rand (ZAR) is 7.75, and the Brazilian real (BRL), which has to fight with the central bank for every inch of gain versus the dollar, is holding its own right now… A month ago, I was telling you about the gains versus the dollar since March first… Well, an updated look at the 3-month gains tells us that the move against the dollar has continued… Albeit with several steps backward along the way!
Shoot Rudy! Even the beaten and left for dead Mexican peso (MXN) has rebounded in recent days as the “other” high yielders drag the peso along for the ride.
Four months of gains versus the dollar doesn’t exactly qualify this move as a “trend,” which is normally associated with long sweeping moves. This does look as though it could become a “trend” though, as it has all the qualities of a long sweeping move, just concentrated in a 4-month span. Like when a “trend” is in place, it’s not a one-way street, there’s volatility within the trend… And we’ve certainly experienced that! Personally, even if this does turn into a long sweeping downward move for the dollar, I would just say that it’s a return to fundamentals, and not a new trend… Simply a return to the underlying weak dollar trend that began in 2002, and saw a pause in 2005, and then another one from July 2008 to March of 2009.
OK… Remember when I made such a BIG DEAL out of China and Argentina agreeing to swap currencies in trade settlement and remove dollars from the equation? I told you then that China was trying to gain a wider acceptance for their currency, the renminbi (CNY). And… That China had locked up Southeast Asia with similar agreements, which led me to believe that since they had traveled to South America, that Brazil could be next in line… And, the rumors began circulating…
Mom… He’s doing it again! Yes… China and Brazil have agreed in principle to remove dollars from trade settlement, and replace them with renminbi and reals respectively! This follows up what I told you about 10 days ago, and that is that China had become Brazil’s number one trading partner, knocking the US down a notch. So… If that’s so, it’s not like we’re talking small sums of money, folks… No, this is the BIG KAHUNA for China, and the not-so-big-kahuna for the US/dollar…
So, while China claims to be on the dollar’s side, and “sees no alternative currency,” they are working to get their own currency in the mix… Looks like it’s all a “plan” to me, folks… Before we know what hit us, renminbi will be everywhere!
But… It’s still manipulated as to its value versus the dollar by Chinese officials. So don’t think, for now anyway, that you should sell everything you own and go out and buy truck loads of renminbi… I think you would find yourself to be a bit disappointed… That is, unless you have time on your side.
I got a HUGE kick out of my friend, The Mogambo Guru, yesterday, where in his latest visit to John Williams’ website Shadowstats, he was surprised to see that inflation is really running at 6%, which is quite different from the stupid CPI the government tries to shove in our faces of -1.3%! Here’s the Mogambo…
“As for inflation, his calculation of the Consumer Price Index ‘reflects the CPI as if it were calculated using the methodologies in place in 1980,’ which I note is back when inflation was a measurement of the change in prices of things that you buy, and not, as it is now after the villainous Alan Greenspan and Michael Boskin came up with their ludicrous ‘hedonic’ measurements of inflation with which to disguise it.”
And… He also found that unemployment, which I tell you all the time is very, very, very, and maybe one more very, understated by the BLS, is… At 20%… 1 in 5 are unemployed.
So… Thanks to the Mogambo, and John Williams for giving us data that backs up what I’ve been spouting off about!
This morning, Norway got the data flow going early with Norwegian retail sales surprising to the upside in May, rising 1.9%! The experts had forecast a -0.2% decline. This rise in May brings the year-on-year figure to a -1%, which still sounds bad… But much better than what was forecast… -3.2%!
Norway seems to be just sailing along, out to sea, without any wind in its sails, not joining the other commodity currencies like Aussie, kiwi, and South Africa and Brazil. I think that won’t last too much longer… You see, Norway had a governor put in its currency when it’s neighbor, Sweden experienced bad times due to the Latvian banking crisis… So, as more and more miles of road get put between the thoughts of Latvia and Sweden, the better it will be for Norway… That… And… Getting oil’s price back to the rally mode!
The Canadian dollar/loonie (CAD) is another currency that is not gaining along with the other commodity currencies, even with oil moving higher again… Here’s the difference. Those other commodity currencies all have YIELD! While Norway and Canada do NOT! However, having said that, I just don’t see these two energy driven currencies wallowing around in the mud too much longer. Playing catch-up with Aussie and the rest of the bunch will be difficult, though, and the “other” commodity currencies have such a big head start!
OK… Time for the data set-up for today.
The S&P/CaseShiller Home Price Index for April will print this morning, and is expected to show a decline of 18.6%, to which those who wear rose-colored glasses will say, “Hey, Chuck, that’s down from previous declines”… To which I will respond… “Yes, it is… But, not much…” And if you chart out the monthly prints you’ll see that it hit the low of -19.01% in January… February’s print was -18.67, and March’s print was -18.7%, and you’ll have to agree with me that the move to “down from previous declines” has been quite slow, eh? And… At this pace it would take until 2011 before we got back to 0% YIKES! So… While you’re wearing those rose colored glasses you might, just might, want to dig deeper into the data before you start sounding the “all’s clear horn”!
We’ll also see consumer confidence, which, because of the better times in stocks, is expected to inch upward to an index number of 55.3 versus 54.9 in May… While this data is more like what I believe it should be, it’s still higher than I would think… But then, so are stocks!
And… Then there was this… Recall last week, when Big Ben Bernanke gave his impression of Sgt. Schultz, when asked about pressuring Bank of America (BOA) to take over Merrill Lynch, and he claimed he “knew nothing”! I thought that he had thrown former U.S. Treasury Secretary Paulson under the bus… Well, today, Paulson will appear before the same committee that’s looking into this mess. I wonder what Paulson’s thinking after hearing Big Ben last week? I guess we’ll find out today!
It’s the last day of June, which will close the books on the second quarter. And soon enough, we’ll begin to see earnings reports for the quarter. Should be interesting.
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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