04/20/09 St. Louis, Missouri Good day… And a Marvelous Monday to you! Today is a special day, in that it is the Big Boss Frank Trotter’s birthday! Happy Birthday, Boss! Actually Frank is more of a very good, long-time friend, mentor, and then boss. We’ve worked together for a very long time… I tell people at shows that Frank and I have been working together for so long… The Dead Sea wasn’t even sick when we began working together! HAHAHAHAHAHA!
OK… A bad day a the office for the euro (EUR) and other currencies on Friday, and then last night in the overnight markets. European Central Bank (ECB) President, Trichet, once again deep-sixed the euro with talk of further rate cuts. He did attempt to water down the message by saying that “any rate cuts would be measured 25 BPS cuts.” Memo to Trichet… It doesn’t matter what the size of the debasing is, as long as you are going to debase your currency, the markets will make you pay for it!
So, the euro is at a one-month low versus the dollar this morning. Of course, remember what I told you over a week ago regarding the earnings season for U.S. corporations, and how the currencies needed to break the link to stocks before those earnings began hitting the news wires. Unfortunately, besides the one-day break that we saw, an earnest break hasn’t happened, and now the stocks are going to weigh heavily on the currencies. I know, I know… A couple of banks have announced some very nice surprise earnings… But you must draw a line between those that have received billions in aid, and those that have not! As I’ve said before, look under the hood at these banks/financial institutions, and tell me their earnings would have been as good without the billions of stimulus.
The other thing the euro has to deal with right now is what I talked about last week, and that is getting bogged down with the split among ECB ministers as to how monetary policy should be administered to combat the recession. There’s been no resolution to this disagreement, and so the euro suffers.
But don’t forget what I told you about the euro on Friday… The ECB is fully aware of what’s going on in the United States with the deficit spending and money creation, and what it’s going to do the dollar eventually. They don’t need the euro taking off versus the dollar too soon… So, this is all “noise”. As I said before… When you’re spinning and sliding uncontrollably toward the guardrail on that icy road, you know you’re going to make impact… It’s just a matter of time before it happens. The dollar is spinning and sliding toward the guardrail too… It’s just a matter of time before it happens.
Well, we have a couple of central bank meetings this week. The first will be the Bank of Canada (BOC), which will meet and discuss rates. I believe they’ll be discussing something else at the meeting as well… Quantitative Easing (QE)… In fact, I think the BOC will leave rates unchanged, but announce how they will introduce QE to their markets… That means there’s another currency on the list of ones that have seen their respective countries take on QE… And you know what that means don’t you? It means that I cross them off my list of currencies that are eligible to be on Chuck’s Hit Parade!
Sweden’s Riksbank will also meet this week… I do expect them to cut rates. The krona (SEK) has been a very disappointing currency in recent times, and the size of their rate cuts explains it all. When the Riksbank meets tomorrow, they will most likely cut 75 BPS to 0.25%, basically zero… And if they talk about “doing whatever is necessary to save the economy” then they will be setting the table for future QE.
Geez Louise! Doesn’t anybody want to have a strong currency any more? The Swiss National Bank (SNB) said last week that they don’t think that it’s a competition to see who can devalue their currency the quickest… Hmmm… Sure seems that way to me!
Gold had a very tough week along with the other non-dollar assets. I just look around at what’s going on in the United States and the world, with all the crack-pots running around acting like they’ve spent a day in the drug den, and think to myself that gold should be trading much higher, and not suffering through weeks like last week. I read a piece from my friend the Mogambo Guru over the weekend regarding this very topic, and thought it to be a good thing to add to the Pfennig this morning…
“Laurence Meyer, a former Fed governor (and so he ought to know) admitted to Bloomberg that the Federal Reserve ‘is “running a laboratory experiment” on what drives inflation: the money supply or the output gap.’
“The fact that we already know the answer to this experiment is what makes me stand at the window and shout at passersby that they should ‘Buy gold, silver and oil right now, you pedestrian morons, because your Congress is spending the “too much money” that is being created by the Federal Reserve just for that sinister purpose, and which will burn you alive in the painful fires of inflationary hell!’”
That Mogambo… He certainly has a way with words! HA! He’s one of my faves folks, and can be read every day here at The Daily Reckoning.
There’s a whispering campaign going on among “those who know” or “think they know” that all this deficit spending and money creation should deep-six the dollar eventually. One of those people is another of my fave writers, William Pesek, who had this to say on Bloomberg.
“It’s a bit rich for U.S. politicians to berate Treasury Secretary Timothy Geithner for not labeling China as a currency manipulator.
“Perhaps Senator Lindsey Graham, a South Carolina Republican, hasn’t seen a newspaper in the last 12 months. With near-zero interest rates, the likely issuance of trillions of dollars of government debt and massive taxpayer-funded bailouts, the U.S. will soon make China look like a manipulation piker.
“Memo to Graham and his ilk: Your economy has lost any moral high ground as it drags the world down with it. That will be even truer as the dollar eventually pays the price for ultra- loose monetary and fiscal policies. And it will.”
I do this from time to time, so that you’re not always just hearing from me on this stuff. I don’t want to look like the boy who cried wolf.
Chris Gaffney, who will be very bummed out this morning as his Blues lost again last night, sent me a story on Friday from the Economist. COM, regarding China… I thought that the story was very good in that it said quite a few of the things I’ve been saying about how China’s stimulus is working, and that China should be the first to come out of the global recession. (Not that they’ve had a recession, but a slowdown)… There was one point the writer made that really hit home that I hadn’t thought of… China’s stimulus is working because the Chinese had complete control on where it went and how it was spent… Not the willy nilly spending going on here, and elsewhere like the U.K. and Japan.
OK… The data cupboard is relatively empty this week, with only leading indicators today, and existing and new home sales along with durable goods later in the week. So… It appears that corporate earnings will take center stage this week, and that’s not a good thing, in my opinion.
I’ll head to the Big Finish right after I mention that bank lending is just not happening… The Wall Street Journal reports that analysis of Treasury Department data, the biggest recipients of taxpayer aid made or refinanced 23% less in new loans in February, the latest available data, than in October, the month the Treasury kicked off the Troubled Asset Relief Program. Hmmm… What they don’t mention is how many loan applications were denied! Look, it’s not just the banks fault for not lending right now… With 600,000 in job losses for five consecutive months, and unemployment running in the double digits (probably around 16%), and consumers leveraged up to their eyeballs, not many applying for loans are going to get approved given this scenario.
Currencies today 4/20/09: A$ .7075, kiwi .5615, C$ .8150, euro 1.2975, sterling 1.4580, Swiss .8550, rand 9.0440, krone 6.7834, SEK 8.57, forint 230.50, zloty 3.3750, koruna 20.85, yen 98.70, sing 1.5090, HKD 7.75, INR 50.25, China 6.8335, pesos 13.23, BRL 2.1930, dollar index 86.43, Oil $48.25, Silver $12.04, and Gold… $873.70
That’s it for today… Except to say Happy Birthday once again to Frank! I’m feeling better this morning; I rested most of the weekend. But I’m not out of the woods just yet on this… Got to see a great performance by Paul Simon on Saturday night. Slip out the back, Jack! The St. Louis Marathon was held yesterday, and the runners had to endure a day of rain… I believe our little Christine was running a half marathon, but I’m not sure… If so, it should bring back memories of when she ran a whole marathon about five years ago, in weather just like yesterday’s! I hope this pneumonia is out of my system before I leave for Bermuda this coming Saturday. Yes, I’ll be speaking three times at the Sovereign Society’s Total Wealth Symposium which will be held beginning Sunday and into next week. I’ve never been to Bermuda, so this will be exciting for me! Well… It’s that time again… So, thanks for your time, this time, till next time, and I hope you have a Marvelous Monday!
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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