Good day… And a Tom Terrific Tuesday to you! Crazy morning for yours truly. I woke up at 2:30 am, and could not go back to sleep. So, I got ready and came in to the office. Quite a bit earlier than usual, for sure! And probably by 10 am I’ll be falling asleep at my desk! The overseas markets haven’t even gone to lunch yet! Crazy… Crazy sung by Patsy Cline is an all-time fave of mine, and for those of you that play trivia games… It’s the all time most record played on jukeboxes!
Well. The bias to buy dollars and yen didn’t last too long, and the currencies and metals are back on the rally tracks this morning. I guess all the traders that needed to balance out their books ahead of the FOMC meeting tomorrow, accomplished their tasks, and now we can get back to the underlying weak dollar trend. Of course we could all be in for another throwing of a cat among the pigeons tomorrow, if Big Ben Bernanke follows up his statement from the last meeting, about ending QE in 2013. I don’t think he will though, in fact, I’m betting a dollar to a donut that he tries to smooth the feathers on that statement.
You may recall me going ballistic with the markets knee-jerk reaction to the statement, saying things like: “the FOMC didn’t say when in 2013 they would end QE, they could wait until December 31st !” And. “I don’t think they will end QE or bond buying in 2013, for the U.S. economy is addicted to stimulus”. But that’s just my opinion.. and I could be wrong. what do you think? Will all the stimulus for the economy end in 2013?
Oh. for those of you keeping score at home… by the end of this year, Big Ben Bernanke will have purchased $1.14 trillion in bonds, to add to the already surpassed $3 Trillion in assets on the balance sheet. Is this really the role that the cartel of bankers had in mind when they hatched the plan for a Central Bank on Jekyll Island a century ago? I don’t think so.
Well. the Reserve Bank of India (RBI) is in the news this morning, as they decided to cut interest rates 25 basis points (1/4%) last night. Their “internal rate” is now 7.75%… Remember, a country’s internal rate, is NOT what a bank deposit receives. Just to make that clear. But get this. the RBI cuts rates, and. the rupee rallies! The RBI also reduced the cash reserve ratio to 4% from 4.25%.. All to promote economic growth, which apparently the markets like. I’m not a fan of rate cuts, but when they are that high to begin with, and inflation is under control (like it is in India, or so they think) then I say why not cut rates?
The two-day downward movement from the Aussie dollar (A$) and New Zealand dollar / kiwi, finally came to an end last night, with both of these getting back on the rally tracks last night. Both rallied for their own individual reasons. In Australia, Business Confidence printed a HUGE surprise, showing that in December, Business Confidence rebounded by the most in more than a decade. In New Zealand, kiwi got a boost when New Zealand’s Trade Deficit actually narrowed in 2012! New Zealand’s annual Trade Deficit printed at NZ$1.21 Billion The experts had forecast a deficit of NZ$1.87 Billion.
A Canadian reader of the Pfennig newsletter, sent me a note yesterday, and told me that us Americans are too enamored with the Canadian dollar / loonie, and that anyone that thinks the loonie can get to $1.05 and higher is not thinking straight. He game a list of reasons to back up his thoughts, which were all good. And I agree that $1.05 on the loonie is pushing the envelope. You may recall me telling you that the Canadian Gov’t goes bonkers any time the loonie passes parity to the U.S. dollar. So, to get to $1.05, the loonie would have to go through a Gov’t gauntlet. But. the thing that this young fellow that wrote me, is missing is that while the loonie has its pimples, the U.S. dollar has a nasty case of acne. So, when you compare the two, which one is better looking?
I would bet though, that the Canadian reader is probably pounding on his chest this morning after it was announced yesterday afternoon that the long term ratings of 6 Canadian banks, were being downgraded by Moodys.
Well. the euro, which yesterday was the only currency besides dollars and yen that was at least holding its own, seems to be stuck in the mud around 1.3450. But that’s OK, because if you recall what I told you yesterday, then it all makes sense. In case you missed class yesterday, I said that the benefits that the euro received from the relative calm, may be at an end. there will have to be additional signs of improvement from the Eurozone for the euro to continue to gain from here.
One observation from me on the euro’s value right now. I wonder when the German exporters begin to whine about the stronger euro? I’ve said this many times before. that I think Germany likes the euro around 1.20 to 1.25. Anything above that, causes exporters problems. But, like I always say. make something of excellent value, and people will pay whatever price for the value.
he U.S. data cupboard begins to empty out its contents today beginning with the S&P/ CaseShiller Home Price Index for November, and this month’s Consumer Confidence. Consumer Confidence probably soared given the stock market performance. Tomorrow the data cupboard has quite a bit to unload. Two of my faves. Personal Income and Spending will print before the FOMC meeting adjourns.
Gold is up $5 this morning. no great shakes. but with the recent trading of the shiny metal, anything on the upside is good! If the FOMC statement tomorrow smoothes the feathers of the previous meeting’s statement, like I’ve said I think it will, then Gold should be able to remain on the rally tracks. Nothing in the past 10 years of this Gold rally has changed that would make you think that’s it’s not a good time to buy Gold.
There’s still a ton of uncertainty around the world. The opportunity cost of holding Gold remains low (that means compare Gold to deposit rates, which remain near zero). And the U.S. national debt has gone from $5.7 Trillion in 2001 to $16.5 Trillion today. And then there’s the one reason I think everyone should take notice of, and that is the fact that Central Banks around the world are buying and holding Gold instead of reserve currencies.
And Japan and the Japanese yen. I tell people who actually want to listen to me, all the time that Japan has played their get out of jail free card already, and now have to face the music without their get out of jail free card. What the heck are you talking about Chuck?
Ahhh grasshopper. Remember when the yen was as strong as an ox, in the face of an unsustainable Gov’t debt? It was always thought, by the markets, that Japan could self finance their debt. that was their get out of jail free card. But, now, Japan’s demographics just keep getting worse. The older generation that was thought would use their savings to pay down the Gov’t debt, is dying. And the younger generation is thought to not have any desire to help out the Gov’t. Just to illustrate the growing demographics problem, it was reported recently that Japan’s population fell by 212,000 in 2012.. and births in 2012 of 1.03 million was a new low since the end of WWII. YIKES!
So, for all those that are writing about how the Japanese yen has fallen enough. you had better re-think that thought.
The price of Oil is back above $96… It has been back and forth through that figure for the past week. I don’t think it has the legs for $100 that it once did, but at $96 it’s still a lofty figure, and relates to a very high price for gas. That’s no picnic for an economy that’s trying to recover. But remember what I told you the other day about Oil. it’s an anti-dollar investment these days.
Do you remember the song Sunny Afternoon by the Kinks? Well, it just played on the iPod, and if you don’t want to get up and dance around or squirm around in your seat, then you had better have you blood pressure checked! That was followed by Groovin’ from The Young Rascals, so I’ve got a good flow going here right now.
I had to do a double take on the Brazilian real’s price this morning when do the currency roundup. the real has fallen below the 2 figure for the first time in a month of Sundays. it will be interesting to watch how the currency reacts from here. I don’t think the Brazilian Gov’t is ready for a rallying real.
Then There Was This. as reported in the Washington Post. A government report Monday criticized the U.S. Treasury Department for approving “excessive” salaries and raises at firms that received taxpayer-funded bailouts during the financial crisis.
The Special Inspector General for the Troubled Asset Relief Program said Treasury approved all 18 requests it received last year to raise pay for executives at American International Group Inc., General Motors Corp. and Ally Financial Inc. Of those requests, 14 were for $100,000 or more; the largest raise was $1 million.
Treasury also allowed pay packages totaling $5 million or more for nearly a quarter of the executives at those firms. Also noted: a $200,000 raise was approved for an executive of Ally’s mortgage-lending subsidiary, ResCap, just weeks before ResCap filed for bankruptcy protection.”
Chuck again. OK, I had to stop and go scream at the walls over this! Shouldn’t we as taxpayers expect the Treasury Dept to look out for us. I mean WE are the ones who bailed out these companies! I had better stop here. I’m really losing it right now!
To recap. The bias to buy dollars and yen faded yesterday afternoon, and lost its grip on the currencies in the overnight markets. Aussie and kiwi were back on the rally tracks after each receiving good news. Gold is back on the rally tracks too, and Chuck points out how nothing has changed in the past 10 years to make you believe that Gold shouldn’t be owned.
Currencies today 1/29/13. American Style: A$ $1.0450, kiwi .8355, C$ .9940, euro 1.3430, sterling 1.5735, Swiss $1.0820, . European Style: rand 9.0495, krone 5.5380, SEK 6.4235, forint 220.95, zloty 3.1265, koruna 19.0950, RUB 30.13, yen 90.40, sing 1.2375, HKD 7.7585, INR 53.76, China 6.2257, pesos 12.74, BRL 1.9910, Dollar Index 79.83, Oil $96.62, 10-year 1.95%, Silver $30.14, and Gold. $1,661.92
That’s it for today. and for me this week, as I will be getting on a plane tomorrow morning for Orlando. Chris has volunteered to take the conn for the rest of the week. I think he had a good birthday celebration yesterday. And tomorrow is our little Christine’s birthday. Christine has been here with me for at least a dozen years (probably seems longer for her!) The World Markets Division began with me, then Jen, then Michelle, then Cheryl, and Christine. I answered all the World Markets calls, and Jen answered all the brokerage calls. There’s now quite a few more people in the Division. Pretty amazing when I look back in time. Chris found the updated revision of the white paper I wrote back in 2001 called: The Decline of the dollar. In it I talked about the building housing bubble. I challenge any of these guys out there that claim to have called the housing bubble before it hit, to beat that date! And with that. I hope you have a Tom Terrific Tuesday!
EverBank World Markets