Currencies Maintain Their Gains

The first trading day of 2010, was interesting, as it certainly looked like risk was back on the table, and the Emerging Markets, and any currency that has some yield, were the beneficiaries of this return to risk taking. It certainly didn’t take traders long to get back to dissin’ the dollar in favor of these risk assets…I will warn you about this first day of the year move… Let’s see if it carries through the rest of the week… If so, then the risk taking bus is about to leave the station, you might just want to be on that bus!

The Aussie dollar (AUD) is the proxy for this risk taking, as it has yield, and has, in my opinion, always been the proxy for global growth… The A$ is near a 1-month high, which is nice to see it get back to where it once was from… The December position squaring, and profit taking was getting a bit out of hand at the end, and was actually causing some short-minded people into thinking that the dollar’s weak trend was in a reversal stage… Yeah, right… And I’m confused with Jack LaLane all the time! HA!

Recall, yesterday, I told you about the Brazilian Sovereign Wealth Fund (SWF) that had been approved to buy dollars, by the President of Brazil, in an effort to stem the real’s rise VS the dollar… I told you that I did not think it would work… And lo and behold, we had our first taste of that yesterday… Ty Keough stopped me in the hall, and said, “did you see the real’s move in the past 20 minutes?” He went on to tell me that he had seen a story come across the screens that the Brazilian SWF had indeed been in the markets selling real and buying dollars, but that didn’t stop the real from  gaining… In fact, when I got back to my desk, I saw that the real had increased its gain VS the dollar on the day!

Sort of like a Neener, neener, neener… Of course, traders don’t really know how much of an appetite the SWF has for dollars… So, in this case, I think traders are going to push the envelope and see just how hungry the SWF is for dollars… Again, in the beginning it might work, but over time, I just don’t see it working… It’s like all other Gov’t moves to get their hands in there and act like they know what they’re doing, they end up with a mess!

Just ask Japan! Or the country that is following Japan… The U.S.! Government meddling in the markets just doesn’t have a good track record!

Speaking of Japan… 2010 marks 30 years that they have been wallowing in deflation, going into recession, coming out, going back in, coming out, and the pattern never ends… They are now no longer the 2nd largest economy in the world, as China has passed them by… If you could just go back in time like they do in Bill and Ted’s Excellent Adventure, and see what I was writing about Japan and their stimulus packages back in the mid-90’s… You would say, Geez Louise, that sounds familiar… Oh yeah, that’s what he’s been saying about the U.S. stimulus packages ever since the first one was announced a couple of years ago… Remember that one? The Gov’t sent our tax-rebate checks… $150 Billion worth, which I had a cow about then… But Shoot Rudy! $150 Billion now, seems like chump change!

Well… You can’t really see what I was writing then, unless you kept the hand written letters that I used to have on the salesmen’s desks each morning, and that they would then fax out to their customers! Yes, that’s how the Pfennig started… Then, the Big Boss, Frank Trotter, created a web site for the old Mark Twain Bank, and we posted the Pfennig on the web site… It wasn’t until around 1997 that we used e-mail to send it out… Mark Twain Bank was about the only bank in the country that had a web site back then… But it was all Frank Trotter’s doing, he’s the guy with the vision, and the intellectual prowess to do these things… Frank was also the person that created the World Currency CD, at Mark Twain Bank…

OK. That little trip back in time was fun… But we have to get back to the currencies!

And Gold! Yes, the “true” hard currency! Yesterday, I told you that Gold was up $24 about this time of the morning… The shiny metal pretty much held on to those gains all day, fluctuating a buck-or-two as the day went along. I think that those that saw the dip below $1,100 as a buying opportunity will be rewarded as we go along this year… I think that while, Gold might not see the meteoric rise of past years in 2010, it will continue to gain VS the dollar, as the dollar’s interest rates remain low, and the deficit spending continues, and the saber rattling between Iran and the rest of the world continues, and so on, and so on…

But… And this is for the legal beagles… That’s just my opinion… I could be wrong…

Yesterday, we talked about the manufacturing indexes that had already posted in the Eurozone and China. We also talked about the manufacturing index that would print in the U.S. yesterday… Well, that index actually came in stronger than forecast at 55.9 (forecast at 54.3), and that’s a good sign for the U.S. economy…

Today, we’ll see the manufacturing index from Norway… No wait! It just printed! OK, so I get talk about the real data, and not the forecast data, cool… Norway’s manufacturing index rose to 50.4 in December, from 48.7 in November… That’s quite a jump in one month, eh? This is the first month to see expansion in the past 5, so that’s a good sign for the Norwegian economy, and… Very importantly… It validates the Norges Bank’s rate increase last month! (Norges Bank is Norway’s Central Bank, for those of you new to class!)

OK… Before I get to the Big Finish… The euro is seeing some selling this morning… Overnight, the euro traded up to 1.4480, on news that the Bank of Korea was diversifying out of the dollar… Well, that news didn’t hold up, and the euro began to pull back in early European trading… Right now, as I write the euro is 1.4420… Still, stronger than yesterday, but weaker than the overnight high…

And here’s our first piece of data to keep track of from Australia… New Home Sales inched up by .3% in November… So… Put that piece of data’s results on the side of the ledger that’s a “pro” for a rate hike in February!

Yesterday, I told you that PIMCO announced that they were reducing their U.S. debt positions… Today, I’ll tell you that friend, Bill Bonner, here at The Daily Reckoning has announced his new trade of the decade. You might recall his old trade of the decade, which was to sell the DOW and buy Gold… That one worked out pretty good… His new Trade of the Decade has as it’s “sell side” a sell of U.S. Treasuries… And I can’t argue with that!

How could I? I’ve called U.S. Treasuries the next bubble to pop… I’ve done a 15-minute video for the Sov. Society about the Treasury Bubble, and how to protect yourself from the Bubble popping, and I’ve gone on record here in the Pfennig about the Treasury Bubble… So much so, I added the tracking of the 10-year yield to the currency round-up each day!

So… That’s just another person that sees what I’ve been talking about! It’s nice not being the only boy crying wolf!

Then there was this… I’ve talked about how U.S. officials have been beating on China to allow more flexibility in their currency for years now… I heard a comment / quote by one of my fave economists, Morgan Stanley’s Stephen Roach… Roach said, “China should be suspicious of any currency advice”…

That just cracks me up! He’s so right! And it cracks me up to think about the U.S. giving currency advice to China, when they’ve allowed our currency to lose purchasing power for years now!

Oh… Here’s something else Stephen Roach had to say that echoes what I said yesterday about Fed Chairman, Bernanke pointing the blame finger at others… “Bernanke’s defense of monetary policy is ludicrous”… Right arm, farm out, out of state! Darn tootin’! And whatever silly expression I can think of that emphasizes my agreement with his statement!

To recap… The first trading day of 2010, brought about dollar selling, and a move back into risk positions in Emerging Markets and currencies with yield. Gold held onto the $24 move upward yesterday morning, and the Brazilian Sovereign Wealth Fund, got off on the wrong foot yesterday, as they bought dollars, but the real rallied!

The Daily Reckoning