Contrarian Stock Market Investing News - Featuring Bargain Stocks » Currencies rally

Desperately Seeking Yield

Chuck Butler — Fri, 26 Jun 2009 15:50:41 +0000

Currencies rally… More on the BRIC’s… New Zealand’s GDP contracts.. Bernanke gets grilled! And Now… Today’s Pfennig!

Good day… And a Happy Friday to one and all! The end of what seemed to be a very long week… The last weekend in June, can you believe that? Next week, we’ll be getting ready for the 4th of July celebrations! WOW!

Well… What a volatile week it has been in the currencies! Up, down, all around, and settling back to levels that we saw before the Fed’s FOMC meeting earlier this week. Suddenly, investors are looking for yield again… Looks like they are “Desperately Seeking (not Susan) Yield! And why not? The Fed, and the Bank of Canada (BOC) have come out and said that there will be no interest rate hikes until we’ve turned quite a few pages on the 2010 calendar.

So, with investors clamoring for yield, the dollar gets taken to the woodshed… As I said earlier this week, one of these probes above 1.40, need to take hold of the figure and build on it, otherwise we’re doomed to remain in the 1.35-1.40 range, and range trading is for the birds! Talk about counting flowers on the wall, and watching paint dry! UGH!

I was shocked yesterday to see but a few emails asking me more about the SDR’s story that I talked about… Men, women, boys and girls, all… This is important stuff! Don’t take it lightly! There’s a movement underway that could end up costing you dearly, if you do not take the diversification steps…

I think it is important to know that the BRIC countries (Brazil, Russia, India, and China) are serious about replacing the dollar with a “global currency” i.e. the IMF’s SDR’s… And… That the BRIC’s want more power on the World’s stage… And why not? These countries currently have almost 3 Trillion in foreign reserves… And… A very large piece of the world’s population… (Thanks for that fodder, Kevin!)

OH! And guess who was banging the drum for a “super-sovereign” currency overnight? China, that’s who! So… They’re Baaaaaaaaccccckkkkk! OK… This was the People’s Bank of China (the Central Bank), that made this statement, along with a call for the IMF to manage part of member’s foreign exchange reserves… Hmmm… OK, I just said that China wants more power on the world stage, and here they are saying that their puppet will be the IMF! OK, I took some liberty with that, but it’s the way I see it!

OK… Back to what’s going on in the currencies today… Hmmm… The dollar is getting taken to the woodshed to end the week, that’s what’s happening! And the currency leading the pack with regards to performance VS the dollar, drum roll please…. The Brazilian real… A 3 day “winning streak” has the real back to levels it saw before the Brazilian Central Bank (BCB) cut rates about 10 days ago…

The way I see it, and long time readers know this will be interesting in the least, is that investors want to invest in the BRIC countries, but there’s very little liquidity there in each of those currencies, along with very little yield, except… In Brazil… Liquidity isn’t what the majors enjoy, in fact it’s still traded on what’s called a “non-deliverable forward”, which means it can only settle in dollars, with no deliverability, but… It’s traded easier and less costly than the other BRIC’s and… It has the highest interest rate available… So… You can see why investors are buying reals…

Having said that though… You must know about the volatility… Look at what happened this week… On Monday, we started the week with the real at 1.9750, only to see it rocket to 2.0326 in one day’s trading, a near 3% move / loss in one day! Then we saw it rally back to 1.9795 the next day, and after 3 days of gains the real sits at 1.9420 this morning, thus generating a “gain” for the week! And… The other thing, is that Brazil is considered an Emerging Market… And long time readers have learned over the years that when one Emerging Market gets slammed, they all get taken to the woodshed… So… Be careful out there!

A high yield currency that far removed from the early days of trading like Brazil, but offers yield, is the New Zealand dollar / kiwi… And kiwi has been held back, although still posting a gain VS the dollar, overnight as 1st QTR GDP printed at a negative -1%, thus marking the 5th consecutive quarter of negative growth in New Zealand…

I’m probably out there on the big fat limb (to hold me up, of course!) by myself on this one, but… I personally believe that both the Reserve Bank of New Zealand (RBNZ) and the Reserve Bank of Australia (RBA) have seen the lows in their interest rates, and no further rate cuts will come from these respective Central Banks. I know, that last week, we were all hyped up about future rate hikes from the RBA in 2010, and we probably got a little ahead of ourselves with that thought… I’m probably ahead of the curve on the “end of rate cuts” talk… But that’s where I like to be!

So… When the world’s investors are looking for yield, they don’t have to go to Brazil, or India… They can go to the old reliables… Australia and New Zealand, with a reduced fear of further rate cuts… At least that’s they way I see it! And yes, I could be wrong…

And how about Gold and Silver this week? What a week on Mr. Toad’s Wild Ride for precious metals… The main thing though is that they are finishing the week with a rally, and Gold which was trading at $922 on Monday, is $944.85!

And how about that grilling that Big Ben Bernanke received yesterday by legislators over the Fed’s conduct in the Bank of America (BOA) takeover of Merrill Lynch… You may recall that BOA’s CEO, Ken Lewis said he was “bullied” into taking over Merrill and not disclosing to his shareholder all of Merrill’s losses that were on the books… Big Ben denies that he participated in any bullying… (doesn’t that lead to Paulson then? Did Big Ben just throw Paulson under the bus?)… Any way… Big Ben did little to convince the legislators that the Fed didn’t keep their hands out of the cookie jar… And that, my friends, may be the foot in the door that we’ve been looking for… Maybe, just maybe, because you never know, but with the legislators having questions about the Fed and Big Ben, they probably aren’t in any mood to hand over the regulatory powers that the President wants to give them…

And… My old fave Central Banker, NOT! Big Al Greenspan was back in the news last night… I’m trying to figure out how he and I got on the same side of the ship… But, here was Big Al, my nemesis for years, talking about inflation being a concern… Let’s listen in to Big Al… Alan Greenspan, former chairman of the Federal Reserve, said the threat of inflation needs to be confronted because it poses a threat to economic recovery. “Excess capacity is temporarily suppressing global prices. But I see inflation as the greater future challenge,” Greenspan said. “If political pressures prevent central banks from reining in their inflated balance sheets in a timely manner, statistical analysis suggests the emergence of inflation by 2012.”

Of course, I think inflation will be showing its ugly face next year, not 3 years from now!

And on the data front… The Weekly Initial Jobless Claims “surprised” economists by moving back up, after falling last week… 627,000 unemployed Americans filed for unemployment claims last week… No “green shoots” here! In fact… We need to see if we can use these so-called Green Shoots that the President and Big Ben keep talking about, for ethanol… They’ve got to be good for something! HAHAHAHAHAHAHAHA! I must say that a reader gave me that line!

And here’s Warren Buffett on Green Shoots… “I had a cataract operation on my left eye about a month ago and I thought maybe now I’ll be able to see green shoots. We’re not seeing them. Whether it’s retailing, manufacturing, wherever. We have a big utility operation. Industrial demand is down like we’ve never seen it for a simple thing like electricity. So it hasn’t happened yet. It will happen. I want to emphasize that. But it hasn’t happened yet.”

And… Then… There was this… A good story to end the week and head to the Big Finish with…

Barclays Capital Inc. (Barclays) the world’s third largest currency trader, have lowered their one-year forecast for the dollar, saying foreign investors will reduce their purchases of U.S. assets… Barclays referred to the dollar’s status as “safe-haven paradise lost”, due to the ballooning fiscal deficit and the printing of money by the Central Bank… Barclays believes that the euro will be trading at 1.50 in a year…

Hmmm… Nothing new there for Pfennig readers, but, I always find it to be good to see others with their BIG research departments, no divisions, yeah, divisions, that’s bigger than a department! Wait, get back on track, here Chuck! Yes, the Big research divisions, that finally come around to what little old me has been saying for months now… Oh! And that “little old me” has just got to crack up any one that knows me, and have seen me lately!

And one more thing… Oil is back to $71 this morning, as there has been more problems in Nigeria… Let’s hope these problems go away!

Currencies today 6/26/09: A$ .8055, kiwi .6450, C$ .8710, euro 1.4085, sterling 1.6490, Swiss .9210, rand 7.9680, krone 6.4250, SEK 7.8125, forint 196.20, zloty 3.1975, koruna 18.50, yen 95.40, sing 1.4540, HKD 7.75, INR 48.21, China 6.8338, pesos 13.18, BRL 1.9420, dollar index 79.86, Oil $71.07, 10-year 3.55%, Silver $14.25, and Gold… $945.65

That’s it for today… Well… Today marks the 2-year anniversary of the surgery that removed my cancer ridden femur, and replaced it with a prosthetic. Quite an ordeal, but… Here I am! Rock you like a hurricane! Oops, sorry, got carried away there! I’m so happy that’s behind me now! Well… Michael Jackson has died at 50 years old… When I think of Michael Jackson, I just remember my two oldest kids, playing that Thriller album over and over again. The heat wave over us continues, but is expected to back off next week… My little buddy, Alex, turns 14 on Sunday. WOW! We began a tradition when he was quite young, of the two of us going to breakfast on his birthday. Two years ago, when I was in the hospital, my darling daughter, Dawn, brought Alex to the hospital with breakfast, so we could continue the tradition. I hope I can continue celebrating with him for many years to come. So… Happy Birthday Alex! Real long time readers might recall when Alex was 3, and would sit on my lap as I wrote the Pfennig from home, and every once in awhile the text would look like this… 9087lkndy7, and I would say, “sorry, Alex is helping me again”… Alex has already made me aware that he can get his drivers permit next year… YIKES! OK, time to head off into the sunrise… (not sunset, as I’m writing at daybreak, HAHAHAHA) The currencies are having a Fantastico Friday, so why don’t we joining them?

Source: Desperately Seeking Yield

Geithner’s Plan Disappoints

Chuck Butler — Wed, 11 Feb 2009 21:27:22 +0000

Trade Deficit to narrow further… Currencies rally, then sell off… Obama’s stimulus loses backers… Riksbank cuts 100 BPS unexpectedly… And Now… Today’s Pfennig!
Good day… And a Wonderful Wednesday to you! Well… Tim Geithner didn’t experience a Terrific Tuesday, as I had wished for him… And now, it looks as though the shine is coming off the new President as more and more individuals are “not buying” his appeal to the nation to get a stimulus package passed… The currencies rallied and then sold off after Geithner gave the details of his “new and improved” plan… We’ve got some potential market moving data printing today and more! So… Let’s go to the tape!

Front and Center this morning, we have some data that could potentially move the currencies today. I’m talking about the Trade Deficit for December. The “experts” have forecast a narrowing of the December Trade Deficit from $40.4 Billion in November, to $35.7 Billion. Now, that all sounds wonderful, as this is one of the twin deficits that I have banged on for years now. But the resolution is completely different than what I wanted to see. I wanted to see U.S. exports bring the Trade Deficit down… Instead we have a complete collapse of demand for imports… And with the dollar stronger than it was 7 months ago, exports are falling like a house of cards.

Now, here’s the potential market moving piece of this data… Last month (January) when the November $40.4 Billion Deficit printed, it was more narrow than forecast, and sparked the dollar to a 1.5% gain in one day. But that’s not all, the rest of that week the dollar gained 2.5% (in the dollar index)… So… While this isn’t the path I would have liked to see the Trade Deficit narrow, it is narrowing…

Unfortunately, for the Twin Deficits, the other Deficit, that resides in the Budget, is taking up the slack… I now figure that the Budget Deficit could very well hit $3 Trillion this year… We already have $1.2 Trillion from the Congressional Budget Office, $838 Billion in the “new and improved” stimulus package the Senate passed yesterday, and don’t forget the $350 Billion in TARP money that was carried over from last year, that will be spent this year… And you know, there will be “another” spending package coming in the future, because people like you and me are calling out this “new and improved” stimulus package…

A recent poll by Pew Research Center found that a narrow majority of Americans, just 51%, support the stimulus. And that’s down from 57% in January. Even worse for the administration, support seems to be dropping among people who say they’ve learned more about the stimulus:
Notably, support for the proposal is now much lower than it was in January among those who have heard a lot about the economic stimulus. By 49% to 41%…

And here’s something in the plan that I bet you didn’t know was a part of it. I thank a dear reader for bringing this to my attention. He’s a doctor, so I believe he knows what he’s talking about here folks…

“This past weekend and Monday I took the time to read “The Obama Stimulus Plan.” I will leave politics to the side and will leave my interpretation from an Economic perspective aside ( I double majored at Bucknell in Chemistry and Economics ). What I will NOT leave to the side is what is buried in “The Bill” from a health care standpoint. YOU NEED TO KNOW…..the “stimulus bill” is a Trojan Horse…..hidden in “this horse” is the legislation to NATIONALIZE HEALTH CARE.”

So… Do I have your attention now? Here’s a link to the story by Betsy McCaughey on Bloomberg…

OK… I won’t carry on about that… I’ve given you the information to do with as you please.

Back to the task at hand… The Geithner Plan was a bust according to the markets… Here’s what the Wall Street Journal had to say about the stock sell off… “Financial stocks led a broad move down in the market on the heels of Geithner’s unveiling of the Treasury’s bank-rescue plan and Senate passage of the stimulus measure. The Dow Jones Industrial Average dropped by roughly 350 points, or 4.2%, reaching its worst levels of the day in mid-afternoon trading. Bank of America and Citigroup experienced double-digit percentage losses.”

Currencies followed along with stocks, like they have for a couple of weeks now. The euro, which had traded up to near 1.31, fell back to yesterday morning’s figure of 1.2975, as if nothing had happened. The high yielders like Aussie, kiwi, and Brazil, had all been trading higher this week on hopes that the Geithner Plan would bring the risk takers back to the markets. But that didn’t happen, as Geithner really disappointed the markets with his plan…

It was reported yesterday that economic advisors for Obama were in a tug-o-war with Geithner on this Plan, and that Geithner had won… Given the reaction by the markets, I think I would like to see what the Advisors had planned, to make a choice between the two! Maybe Geithner is swayed by the old regime at the Treasury, given he had his hands in there helping the old Treasury Sec. Paulson, with his bailouts and TARP last year… Hmmmm… Makes you wonder…

I read the text of the Geithner Plan… And was very disappointed… I will say that the Treasury’s plan to make this all transparent is good… In fact you can follow the money trail at this website: www.finacialstability.gov But, the rest of it was the same old, spending taxpayer funds on shoring up financial institutions… Could go up to $1 Trillion!

You all know where I stand on this spending that we can’t afford, and placing the burden of paying it off on our grandchildren… It’s downright immoral! Let the financial institutions that can’t cut the mustard sell themselves to someone who can, or close, and when all the dust settles, we’ll be left with the financial institutions that are strong and ready to grow! But that won’t happen, as my friend Bill Bonner (www.dailyreckoning.com) says about the Fed and Treasury propping up these institutions… He calls them “the meddlers”… Great term!

So… As I said above, the Geithner Plan rubbed the markets the wrong way, and stocks and currencies hit the skids… Bonds had a banner day… Of course you knew they would after I talked about how they had started the year off with the worst performance since 1980! UGH! And… As always, well for the past 6 months… As the risk takers took their high yielders rally and went home… Japanese yen, rallied… There was another currency that rallied along side yen yesterday… Swiss francs… But that didn’t last through the night…

One of the biggest losers (to use the name of the TV show my beautiful bride can’t miss each week), was the Swedish Krone, as the Swedish Central Bank, the Riksbank, made a larger than expected rate cut of 100 BPS (50 BPS was forecast). The Riksbank also basically outlined their plan to cut rates further in future meetings.

British pound sterling lost ground too, when the Bank of England’s (BOE) Gov. Mervyn King made some statements about the U.K. being in a “deep recession” and that it will “probably require lower interest rates and an increase of money supply”….

Now, the lower interest rates aren’t what put the kyboshes on the pound’s recent strength… It was the comment about increasing money supply… Which in my book of how to value a currency is one of the top valuation indicators. You see, inflation in the U.K. has fallen to .05%, 1.5% below the ceiling target for inflation, and lowering the interest rate is one thing, but increasing money supply? I truly believe that increasing money supply places the velocity of money rule in place, and inflation can spiral when that happens… It’s akin to “playing with fire”… Somebody is going to get burned!

And here’s a sign that a country’s currency is on the downward slope… Mexico’s Central Bank said that it will “continue to intervene to support the peso”… UH-OH! Let’s see what this intervention has gotten the Central Bank so far this year… The peso is down 4.7% this year, and lost 2.3% of that yesterday! The Central Bank bought $1.1 Billion worth of pesos last week to prop up the currency… Their foreign reserves now stand at $82 Billion worth, so they could play this game for some time… But, in the end, the markets have deeper pockets, and if they smell blood in the water, like I think they do now with pesos, they will test the Central Bank’s willingness to spend those foreign reserves!

The folks over at Citigroup (NYSE:C), issued a report on China yesterday, and they are bucking the trend to downplay China in 2009… Citigroup believes China will surprise on the upside, and their currency, the renminbi, will continue to gain VS the dollar in 2009 to 6.6, from current levels of 6.83… So… This is one of the few reports that follow along with my general feeling of China…

The Geithner Plan was good for Gold, as the shiny metal gained $20 yesterday, and is up another $10 this morning, and is trading at $924.69… I gave a long interview yesterday regarding deflation and inflation. I tried to explain how the deflation we are seeing right now is asset deflation, not your ordinary monetary deflation, for that would require a contraction of money supply… I was asked what assets perform well in a deflationary cycle… Cash… And while Gold is the same as cash… Gold! I have a new term that I came up with for Gold… An “uncertainty hedge”… How do you like that one? Everyone is uncertain as to what’s going on and what will happen with all this spending going on, and what performs well? The “uncertainty hedge”!

And on that note… I think I’ll head to the Big Finish! And don’t look now but the price of Oil is falling again….

Currencies today 2/11/09: A$ .6530, kiwi .5230, C$ .8025, euro 1.2950, sterling 1.4360, Swiss .8655, rand 9.8980, krone 6.7175, SEK 8.2430, forint 227.50, zloty 3.5140, koruna 22.0850, yen 89.90, sing 1.5060, HKD 7.7510, INR 48.69, China 6.8330, pesos 14.60, BRL 2.2890, dollar index 85.60, Oil $37.84, Silver $13.39, and Gold… $924.69

That’s it for today… I tried and tried to get “something” out of the Geithner Plan last night, but it totally lacked specifics, and I understand why the markets began to circle the bowl.

Source: Geithner’s Plan Disappoints