Chuck Butler

Good day… And a Happy Friday to one and all! Apparently, an email friend named Craig sent a letter to the Bank of Canada pointing out the perils of the bank’s low-interest bias, and guess what? He received a reply from the governor of the Bank of Canada, Mark Carney! WOW! So I guess Craig actually has friends in high places!

Well, no beating around the bushes this morning… Since yesterday, we have an all-out currency rally going on. Yesterday, the euro (EUR) was flirting with 1.33, and today, it is sending love notes to 1.34. The single unit actually touched 1.34 overnight, but currently sits just below that figure. Unbelievable, right? Well, it just shows to go you that even the ugly currency gets taken out and dined! I called it an ugly currency because many of you know that I’ve referred to the dollar/euro as an ugly contest. Right now, it appears that the dollar is winning the ugly contest. But as we all know all too well, that can change in a heartbeat…

Well, the price of oil has soared again, this time passing $108! When I saw that this morning, I immediately shifted my focus to the currency screens to see where the Canadian dollar/loonie (CAD) was trading. And much to my surprise, the loonie is trading in yesterday’s clothes, and in fact, the same clothes all week! What’s going on here? The price of oil is really pushing the envelope once again, and the loonie is stuck in the mud? Hmmm…

I think that the fear that this rise in the price of oil is going to be a tax on the nascent recoveries in the U.S. and other countries is keeping a lid on the loonie right now…

One other thought on the rise in the price of oil… maybe I’m looking at this incorrectly! Maybe oil has become another anti-dollar. So the price of oil is rising because the dollar is falling? Something to think about, anyway…

It’s not keeping a lid on the Aussie dollar (AUD), though! Earlier this week, I talked about how the A$ was searching for wind after having it knocked out of it on Monday by the RBA minutes. Well, I think the A$ finally found its wind overnight… I told you when I first talked about the RBA minutes that we’ve seen this scenario before, and it took only a couple of days for the calmer heads to prevail and start pushing the A$ up again… Well, it looks as if that happened again. And even though the RBA kept their “easing bias,” I’m of the opinion that they are finished with this current rate cut cycle. And once the markets get wind of this (it will take them longer because they have to read it here first! HA!), the A$ will be back on terra firma!

The other petrol currencies from Norway, Russia, Brazil and even Mexico are all seeing a rally on the back of the rise in the price of oil.

I wrote earlier this week about the Norwegian krone (NOK) appearing as though it had broken the spell that the euro held over it. Now, even with the euro rallying, the krone is still outperforming the euro… I sure hope the spell has been broken for good, because fundamentally speaking, the krone should not be tarred with the same brush as the euro!

Did you see the story from yesterday in which 200 billion yen (JPY) of pension assets held by money manager AIJ (in Japan) are missing? The Japanese SEC suspects that AIJ faked investment reports to clients. So the corporate scandals that the U.S. is known for have spread to Japan… Which is not what the Japanese yen needs right now…

I saw a video yesterday that really got me thinking. The video was a quickie about all the young kids that voted in the last election. They have become the “Debt Generation,” for more than $4 trillion in debt has been added to our national debt in the past four years. My oldest son, Andrew, actually shows the movie I.O.U.S.A. to his class and quizzes them on it. But think about this for a minute. I.O.U.S.A. was made four years ago. Imagine if my friend Addison Wiggin was to make that movie/documentary now?

Where is the Tea Party? Have they faded away? I say this because I saw this story in The Washington Post yesterday: “The national debt is likely to balloon under tax policies championed by three of the four major Republican candidates for president, according to an independent analysis of tax and spending proposals so far offered by the candidates.

The lone exception is Texas Rep. Ron Paul, who would pair a big reduction in tax rates with even bigger cuts in government services, slicing about $2 trillion from future borrowing.”

So as I’ve said for a couple of years now, there’s no political will to cut spending, no matter who is leading the charge.

I read that story and immediately went to my account and checked on gold and silver holdings. Why? To see if I have enough! With all that spending going on, the dollar is going to lead the fiat currency system to the land of failed fiat currencies. Of course, that’s just my opinion, and I could be wrong…

And the thing I like to point out whenever I’m on the road and I make a statement like that is that while the fiat currency system is faltering, the dollar leads the way, so there will be currencies that remain stronger than the dollar. Again, just my opinion.

Gold (and silver) had another nice performance yesterday and is now a stone’s throw from $1,800. I’m told by a chartist that $1,803 is the next psychological figure for gold. Should it trade past $1,803, the charts say a HUGE rally could follow…

G-20 finance ministers and central bankers are going to meet in Mexico this weekend. Do you think the eurozone’s debt situation will be discussed? You bet! Of course, I would prefer them to talk about what to do about debt everywhere, not just the eurozone!

Fed head Dudley, who’s always good for sound bites on the economy, will be speaking today, along with Fed heads Plosser, Bullard and Williams. It was revealed about a month ago that Dudley owns a ton of gold, which is curious to me due to the call by the Fed for more inflation. Hmmm…

Not much for the data cupboard today: new home sales and U. of Michigan consumer confidence. Yesterday’s cupboard showed us that weekly initial jobless claims remained at 351,000.

Speaking of the Fed heads this morning, I saw this story on Reuters:

“Seeking to make good on past threats in Congress to rein in the Federal Reserve’s powers, a prominent Republican lawmaker said on Thursday he will introduce legislation to focus the U.S. central bank on a single mandate to fight inflation and protect the dollar’s value.

“Rep. Kevin Brady, vice chairman of the Joint Economic Committee, said in a statement his “Sound Dollar Act” aims to “maintain the purchasing power of the dollar in order to foster long-term economic growth and stability.” He plans to formally introduce it in early March.”

Good luck with that “Sound Dollar Act”! Brady might want to wait until March 17, so he can have the luck of the Irish on his side! But as I said earlier, there’s no political will to cut spending, and to cut spending and lower the national debt is the only way to a “sound dollar,” in my opinion…

To recap: The stabilization of the eurozone continues and is fueling a currency rally that has gone on for two consecutive days now. The euro has climbed back to 1.34. Gold is now a stone’s throw from $1,800. The price of oil is above $108, and the petrol currencies of Russia, Norway, Brazil and Mexico are enjoying that move, while the loonie is kept out of the rally. And the Australian dollar has found its wind again…

One more thing: Yesterday, I referred to the Aussie foreign minister, who stepped down, Rudd, as the finance minister. My faux pas. I didn’t realize I had so many Aussie readers! They all let me know my mistake, as they should have.

Chuck Butler
for The Daily Reckoning

Chuck Butler

Chuck Butler is the Managing Director EverBank Global Markets. The father of the Daily Pfennig® newsletter, Chuck has a career in investment services and currencies spanning 35+ years. His tacit knowledge of the global markets along with his inventive spirit has led to the creation of many distinct and innovative currency-based products. A respected analyst of the currency market, Chuck has made frequent appearances on MarketWatch, USAToday, CNNfn, Bloomberg Television, and CNBC as well as quoted in The Wall Street Journal, US News & World Report, and The Chicago Tribune.

  • Pinhole Camera

    Current economy is totally depending on “Oil”. Any shortage of oil throughout the world can bring “Economic Disaster” & a threat to currency too.

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