In This Issue… Commodity Currencies rally… G

first_imgIn This Issue… * Commodity Currencies rally… * Gold up $20, Oil trades to $103… * Russia & Iran remove dollars… * Hildegard resigns… And, Now, Today’s Pfennig For Your Thoughts! Consumer Credit Explodes! Good day… And a Tom Terrific Tuesday to you! Winter is supposed to return to us this week, hopefully after I’ve left for warmer weather! But, even an old curmudgeon like me that likes to complain about cold weather, Can’t complain about what we’ve had this past week… I’ll tell you something else I can’t complain about… And that is all the wonderful, dear readers I have! Long time readers have been through a lot with me over the years, and even if you’re not a long time reader, you get caught up pretty quickly, given my propensity to talk about personal stuff… So… we all have that going for us, eh? HA! The currencies are seeing some wind gather in their collective sails this morning, led by the euro, which at this point in the morning is back to 1.28. Gold is up $16, this morning, and for the first time since the first trading day of 2012, to me, things look right… But I know how any risk asset rally is like walking on egg shells, so I’ll temper my enthusiasm this morning, which, I might add, isn’t difficult to do, given how early I do this! What About Me? Have you ever heard that song by Quicksilver Messenger Service? This song was written about 40+ years ago, and it’s almost as if it could have been written today… If you don’t know the song, you should download it from ITunes or whatever service you use… And listen to the words… This song has been a staple for me all these years, and goes to show you that history repeats… Why do I bring this up today? Well… yesterday, I saw something flash across the screen and suddenly, I was taken back in time. To a time when consumers ruled the roost, and were the main driver of the U.S. economy… It’s was all seashells and balloons back then, but then someone realized that the consumers were building debt that was most likely not going to be repaid, and it all came crashing down around us… Do we ever learn anything? Yesterday, it was reported by the Fed that there was a massive increase in U.S. Consumer credit in November. Consumer Credit rose by $20.4 Billion (Biggest gain since Nov. 2001!) VS the forecast of a $7 Billion increase… Credit card, revolving debt rose $5.6 Billion, and non-revolving credit increased $14.8 Billion… If you put the S&P 500 Index on a price graph, and then laid the Consumer Credit price graph on top of the S&P, you would see a correlation between these two like no other correlation. So, it will be interesting to see if this correlation continues to track step by step, for if it does, that’s a good sign for risk assets… But the more important thing I want to point out, is the Consumer Credit Increase, and the borrowing habits, that are being revisited… Do we ever learn anything? I don’t think so… I think the Commodity Currencies of: Australia, New Zealand, Canada, South Africa, Norway, Brazil and others are already receiving some of the benefits associated with a risk asset rally, and in fact, the Commodity Currencies are outperforming the euro this morning, which leads me to believe that they are dragging the euro to higher ground… We’ve seen this happen a few times in the past couple of years. Speaking of the euro… and vis-à-vis the Eurozone… Germany’s Merkel, and France’s Sarkozy met yesterday to discuss the defense of the euro… They didn’t invent a hoola-hoop, and in fact stated nothing more than the obvious… That boosting economic growth in the Eurozone is a priority… Hmmm… now, if I were in the room when they made this statement, I would have asked them… “But how can you stimulate growth, when Germany has led the charge to accept austerity measures, to reduce budget deficits.”? They would have probably answered me the same way my Econ professor did many years ago…. “Volume”… HA! The Eurozone leaders are between a rock and… well, another rock! And they are standing in a muddy quagmire of debt… Merkel and Sarkozy will meet with the IMF’s Lagarde tonight (for them)… should be an interesting dinner conversation! Speaking of muddy quagmires of debt… The U.S. passed the 100% of GDP, line of demarcation, in debt late in 2011 … Hey Greece! Move over and make room for us! Because here we come, with both feet leading the way! I guess we’ll find out which program or method of dealing with debt works the best, eh? We have the Europeans going for austerity measures to cut debt, while hanging their economies out on a wire in red corner… and in the blue corner we have the all-time champ of the world, the U.S. who is going for printing money, and Government spending programs, which keeps their economy afloat… Slow, but afloat… Which one will come crashing down like a house of cards? I think you know what my answer would be! But that won’t stop the markets from being confused about all this, and reward the dollar… In the short-run, that is… Until they won’t reward the dollar any longer, because things never got any better, and the U.S. debt continued to grow, and grow… When will that come? No one can tell you the timing of these things, folks… But as I’ve already told you, if my thoughts are correct, by summer when things begin to heat up with the elections, and the focus shifts back to the U.S. debt problems, that will be the time… But, that’s just my opinion, folks… I could very well be wrong… Remember last year, when I said we would have QE3 by the time the cold north winds began to call the leaves home? Well, technically, the Fed is still doing QE, they just didn’t come out and name it as such… So, you see, I could very well be wrong on this… we’ll have to wait-n-see, eh? Did you see where Russia and Iran have decided to do a Chinese-like currency swap? Iran and Russia will exchange their own currencies in terms of trade, and remove U.S. dollars from the terms of trade… Uh-oh… now it’s not just China that’s taking the dollar out of the middle of their trade flows… Pretty soon, having the reserve currency of the world isn’t going to be such a big thing, if all the commodity trade isn’t settled in dollars! Can you blame any country, that wants to remove dollars from their reserves? The dollars that have lost so much value over the years! And it’s not like they want to sterilize the dollars by putting them back into U.S. Treasuries yielding less than 2%, and with no place for yields to go but up, which would create even more losses for the holders… Which is why I still question this “safe haven currency” title the dollar holds… yes, it’s the most liquid currency in the world, but if countries keep taking dollars out of the terms of their trade, how much longer can it remain the most liquid currency? Yes… these things are clear to me, but that doesn’t mean they’ll happen today, tomorrow, or next year… But why wait to protect your investments from all this? OK, I’ll get off my soapbox now, and come back to what’s going on in the currencies and metals… Recall last week when I told you that the Swiss National Bank President, Hildegard, was going to fess up about his wife’s currency trades ahead of the fixing of the franc to the euro last fall, and would probably resign, which could lead to a pop in the Swiss franc, with the markets taking the stance that with Hildegard gone, the SNB would be less interested in defending the floor that was put in on the franc/euro cross… Well, then Hildegard didn’t fess up to anything, and didn’t resign… But yesterday, under pressure by the SNB, Hildegard did indeed resign, and now I’m waiting for the “pop”! I guess the euro couldn’t stand prosperity… earlier in the letter I told you that the euro had rallied to 1.28 this morning… Well, it has slipped back below 1.28… not by much, but still not moving higher as it once was this morning. France received some comforting news this morning from the ratings agency, Fitch, who said they didn’t expect to downgrade France in 2012… Of course that does little to remove the Sword of Damocles that has hung over France, and placed there by S&P, who put France on negative watch last month. The price of Oil has reached $103 this morning… So, commodities of all kinds are back on the rally tracks this morning. The stronger than expected jobs number last week in the U.S. and the falling interest rates in China, that we’ve talked about, are fueling this Commodity rally… One of our metals traders, Tim Smith, shouted over to me last week, some info on Silver Eagles, which at the time I was busy and didn’t stop to really listen (Ok there I said it, sorry Tim!) , but now seeing what he said in writing, is quite interesting! I talk all the time about how the demand for Silver (& Gold) continues to be quite strong… Well, Silver guru, Ted Butler, tells us that sales of Silver Eagles for 2011 accounted for the entire U.S. mine production for the year. And that the entire Silver mine production of Canada was consumed by the sale of Silver Maple Leafs last year! I have to admit that seeing that kind of demand is even greater than I thought! You know, there are industrial uses of Silver that are quite demanding… And if the entire mine production went toward Silver Eagle coins last year, the Silver needed for industrial use, had to be imported… Again, something that should have pushed the price of Silver toward the moon! But NOOOOOOOO! We had our friends (NOT!) the price manipulators to deal with! Well, it’s time for all that stuff to stop! Stop, I say! And finally… I see where the U.S. Budget Director is going to become the new chief of staff at the White House… I guess he was doing such a bang-up job with the Budget, that he got a promotion! I’m shaking my head in disgust here folks, not at the person, but the process… Then there was this… Gold experts in the Netherlands advised the federal government it should start facilitating the repatriation of its gold reserves from the U.S. , as well as from Great Britain and Canada, after the Dutch central bank (DNB) confirmed a Dutch newspaper report by the de Volkskrant that revealed much of the country’s reserves of the yellow metal are not within the country. Dutch gold experts all the more got restless when American commentator Jim Richards, according to the Radio Netherlands Worldwide, said the US government has the power to confiscate whatever foreign gold reserves it holds in the event global interest on the dollar decelerated, still owing to the global fiscal crisis that had shaken the fiscal stability of the much developed economies. Chuck again… Yes… that’s the last place I would hold Gold… at the New York Fed! Especially knowing that it could be confiscated by the U.S. Gov’t! To recap… Commodity Currencies are rallying this morning, dragging the euro along for the ride. The stronger than expected jobs number in the U.S. last week, and the lowering of reserve ratios, which is the same as a rate cut in China are improving the prospects for Commodities, which are also rallying this morning with Gold up $18 and Oil at $103. Merkel & Sarkozy didn’t invent a hoola-hoop for the Eurozone economy, but who thought they would? And U.S. Consumer Credit explodes higher in November… do we ever learn anything? Currencies today 1/10/12… American Style: A$ $1.0320, kiwi .7945, C$ .9820, euro 1.2775, sterling 1.5465, Swiss $1.0535, … European Style: rand 8.0840, krone 5.9950, SEK 6.9030, forint 245, zloty 3.4980, koruna 20.1980, RUB 31.65, yen 76.85, sing 1.2905, HKD 7.7670, INR 51.70, China 6.3145, pesos 13.60, BRL 1.8110, Dollar Index 80.91, Oil $103, 10-year 1.97%, Silver $29.66, and Gold… $1,630.80 That’s it for today… Congrats to Alabama for their big win in the National Championship last night… But now, in 2 games this year, the teams split, so how can Alabama be named the National Champion? They have one loss, so does LSU, and they are against each other… I don’t have a dog in this hunt, but if I were from LSU, I would be going crazy right now… Little Everett was over last night. He fell and had 4 stitches in his forehead last week. We played Where’s Everett most of the time he was there. He’s still a happy little guy, that is as long as you don’t tell him “no”… of which I have no problem with! Ok… time to get this out the door… I hope you have a Tom Terrific Tuesday! Chuck Butler President EverBank World Markets 1-800-926-4922 1-314-647-3837