Good day…And welcome to another week. I spoke to Chuck over the weekend, and he is definitely feeling better than he was last week. You will see that while he is supposed to be resting, he just couldn’t help but share his thoughts on a subject which is very dear to him: the accumulation of debt and what that will mean for the future generations. He wrote so much that I am going to keep my contribution to this morning’s Pfennig short and sweet. Before I get to Chuck’s thoughts, let me update everyone on what went on in the markets since we turned the page on the calendar last Friday.
The dollar pushed higher through most of the first day of March as investors found reasons to question the staying power of the fragile global recovery. Data released here in the US on Friday morning showed Personal Income was down 3.6% in January, even worse than the 2.4% drop economists had expected. The increase in payroll taxes which took effect with the start of 2013 was the primary reason for the drop in income. But US consumers didn’t let the lower paychecks impact their spending, as the data showed Personal Spending increased slightly (.2% vs. an adjusted .1% increase in December). Other data showed Construction Spending unexpectedly fell 2.1% in January while another report showed Vehicle sales held fairly stable in February.
The euro continued to trade around $1.30 as the Italians moved closer to new elections. The ECB will be meeting this week, along with central banks in the UK, Japan, and Australia. Investors are reluctant to take on big positions in front of all of these central bank meetings, and many are simply parking their funds waiting to see what will happen. Data scheduled to be released on March 6th is expected to show GDP in the euro region fell .6% in the last quarter of 2012. Slower growth, stubbornly high unemployment, and questions over a new round of Italian elections will continue to put downward pressure on the euro.
The Pound sterling dropped vs. the US$ after an industry report showed UK construction output shrank the most in more than 3 years. The pound fell below $1.50 for the first time since July of 2010 on Friday after data showed UK manufacturing fell. There was an additional piece of bad news for UK investors this morning as an index of construction activity fell to 46.8 from 48.7 in January. Economists had predicted a reading of 49, so the drop to 46.8 was unexpected. Definitely not good news for the sterling.
The one currency in Europe which did get a shot of good news was the Swedish krona which strengthened the most in over 2 weeks vs. the US$. A report released Friday showed GDP was unchanged in the 4th quarter after expanding a revised .3% in the previous 3 month period. Annual growth accelerated to 1.4%, counter to investor expectations of a dip in the Swedish economy. The Swedish krona continues to be one of the bright spots on the European continent, with the Krona claiming the #2 spot of all the major currencies thus far in 2013 appreciating just below 1% vs. the US$.
The best performing currency vs. the US$ so far in 2013 is the Brazilian real which is up nearly 3.5% vs. the dollar. The real got a bit of a boost from an unlikely source last week after Brazilian Finance minister Guido Mantega said he is abandoning efforts to push down the value of the real. The Brazilian Finance minister was one of the first to warn markets of the ‘currency wars’ back in 2010; using the stimulus efforts of the US FOMC and the BOJ to justify his intervention to force the value of his own currency lower. But now the top financial policy maker in Brazil has apparently ‘thrown in the towel’ regarding the real and now it looks like he will no longer stand in the way of an appreciation of the Brazilian currency.
Now as I promised earlier, I will share Chuck’s thoughts on the debt that has been accumulating here in the US at a record pace. So take it away Chuck:
I wanted to talk a bit about something that I’ve said for sometime now… That by running up our debt to levels that are quite scary, that we put our National Security at risk… Think about that for a moment… sure, the government people and the Paul Krugmans of the world will tell you that as long as foreign countries, like China, keep loaning us money, it means they have no problem with our deficit spending… But, that’s not how I see it, folks… I see it as a real problem for us at that point in the future, when China says, “no mas”, and wants, no demands, repayment… What will we do?
Well, the first trick of the trade is to devalue the currency, and try to repay with cheaper dollars, I’ve told you all along that this would be what the Gov’t chooses… But, I’m afraid that won’t be enough! Did you know that our Gov’t, yes, the U.S. Gov’t now spends more on the mandatory expenses each year than it takes in with taxes? That doesn’t even count the “discretionary spending” which is about 37% of the budget… OK… back to the program you were watching… I’m afraid the Chinese will demand more… much more… like our natural resources… don’t think for a minute that the Chinese haven’t already done their due diligence in placing values on everthing in the U.S. so they can pick and choose what they want to buy… $85 Billion this year in spending cuts, is just a drop in the bucket, so to speak, folks… the writing is on the wall… I see the U.S. finally getting its energy landscape in order, and no longer having to buy foreign oil, and then along come the Chinese and say, “we will buy your Oil resources and you can’t stop us” And the vicious cycle of us paying someone else for our Oil will continue…
So… of course, I could be terribly wrong on all of this, and nothing would make me more happy! So, we can choose to ignore all these warning signs about our debt, and continue to allow the smoke and mirrors that the Gov’t uses to keep us from putting these thoughts together about our debt, or… we can say, this is the last chance saloon, and I need to get diversified outside of the dollar as my first step… then call up your representative and read them this email, and ask them to honestly say if they think this can happen…. If they say “no” then ask them why not? And the list goes on folks… I’m not going to tell you to leave the country… I love this country, and that’s why I can’t believe people have allowed the Gov’t to pull the wool over their eyes for so long…
I’m crying in my beer… well, actually, that’s just a saying, as I’ve not had a beer in 6 months now! UGH! My kids and grandkids are all, as my good friend, the Mogambo Guru says, “we’re all freakin’ doomed”! Geez, aren’t I a bag of happy thoughts this morning? Well, when you’re told that they are sending you the ICU in the hospital, you aren’t a bag of happy thoughts, and you begin to think of all the things you could have, should have done to keep this from happening… What can I do to help my kids and grandkids? And all sorts of feelings of gloom and doom… But, I’m better now, back at home, and thinking that this is the way to get the word out… You know the Pfennig is now a blog (www.dailypfennig.com) , it is reposted on several big reader numbers websites, so maybe, if enough people read this and say, “I’ve got to do something about this!” then I have done what I can…
Chris again… Yes, nobody can say Chuck hasn’t tried to warn all of us about the dangers of the accumulation of debt in this country.
China added to investors worries over the weekend after a report showed the Chinese service industries are expanding at the slowest rate in five months during February. This latest data adds to investors worries which began last week after data showed Chinese manufacturing growth is cooling. The Singapore dollar fell the most since July on worries the Chinese slowdown will impact the entire region. The Australian dollar also moved lower on the combination of the Chinese data and some ‘jawboning’ by Australian policy makers. The Reserve Bank of Australia will be meeting this week, and investors are expecting Governor Glenn Stevens will again take a dovish stance on interest rates. Governor Stevens said last month that the currency is ‘somewhat too high’ and added that ‘rates are more likely to go down than up’. The direction of the Aussie dollar will be determined, in part, by the rate decisions of the RBA as investors look to take advantage of any interest rate differentials.
The precious metals have been on a fairly wild ride lately, swinging between gains and losses. Investors are moving into both Gold and Silver on inflation concerns brought on by all of the stimulus being pumped into the markets by the major central banks. But a strengthening dollar and global recovery have pushed many investors away from precious metals and back into the equity markets. Central bank’s have certainly been big buyers of the precious metals, and a report released this weekend has many wondering if China will continue to move more of its reserves into gold. China’s foreign currency reserves have surged nearly 700 percent in the past decade and according to a Bloomberg chart, are now enough to buy every central bank’s official gold supply… twice. Currently about 2/3 of China’s assets are dollar-denominated and another quarter is in euros. The question is just how much of those reserves are being moved into the precious metals, and what impact that may have on the future of the precious metals markets.
Then there was this… As I told you in the opening paragraph, I feel like more of an editor today than a writer and to finish off today’s Pfennig I have another contribution from Chuck. A reader sent him a story written by Bob Livingston. In the article, Mr. Livingston describes how lawmakers in Illinois are looking to create a register for holders of precious metals. You can read the entire article at the following (just a word of warning, Mr. Livingston is a self proclaimed ultra-conservative): http://personalliberty.com/2013/03/01/gold-silver-registration-on-illinois-docket Chuck summed it up with just one word: WOW.
To recap. The euro held fairly steady right at the $1.30 level as the Italians moved closer to another election and the ECB will be meeting later this week. Central banks in Japan, UK, and Australia will also be meeting this week with most expected to remain with a stimulus bias. The pound sterling dropped after a report showed construction spending decreased, with the pound slipping below $1.50 on Friday. Chuck shared his thoughts on the debt accumulation which continues, and I ended up with some thoughts on what could happen to the precious metals markets if China decides to start buying.
Currencies today 3/04/13. American Style: A$ $1.0149, kiwi .8228, C$ $.9724, euro 1.3006, sterling 1.5050, Swiss $1.0615. European Style: rand 9.0732, krone 5.7273, SEK 6.4436, forint 227.77, zloty 3.1813, koruna 19.7115, RUB 30.7592, yen 93.56, sing 1.2463, HKD 7.7557, INR 54.865, China 6.2251, pesos 12.7948, BRL 1.9838, Dollar Index 82.356, Oil $90.74, 10-year 1.85%, Silver $28.7225, Gold $1,578.90, and Platinum $1,583.00.
That’s it for today. As I mentioned on Friday, I spent a great evening Saturday night with my beautiful 14 year old daughter. We got all dressed up, danced the night away, and then topped it all off with a midnight snack at the local pancake house. A night I’m sure we will both remember for a long time. And with that I will thank everyone for reading the Pfennig, and hope all of you go out and have a Marvelous Monday!!