Good day. And a Tom Terrific Tuesday to you! Yes. I'm back! After a trip to Vancouver for the Agora Investment Symposium, and then on to my summer vacation. I did read the Pfennig each and every day while I was gone, so kudos go to Chris and Mike for a wonderful job. I'll mention something here, front and center, that I found interesting in what Mike had to say.
He said that in the "old days" the desk would joke about how the currencies would rally when Chuck was gone. And he was wondering if that would be the case this time. Well. a quick look at the Pfennig archives tells me that on July 20th (my last day here) the currencies were weaker than they are now. For instance, the A$ was 1.04 then, and is $1.0585 now. The euro was 1.2240 then and 1.24 now, and Gold was $1,579.45 then and $1,614.50 now. So, I would say the old days are back! And. to all of you who would like to see me leave again for an extended period of time so these currencies could rally further, need to send your cards and money to the Chuck Butler retirement fund! HA! No, you could contact the Big Boss, Frank Trotter, and see what could be worked out.
So. Much has gone on while I was gone. The Central Bank leaders of the two largest economy wise countries in the world, have put their foot in the door to additional stimulus, thus keeping the markets all lathered up, over and over again. I find this exercise to be fruitless, take my advice guys. Don't be the "buy the rumor and sell the fact" crowd. Why not just react when something actually happens? Now, that would be revolutionary wouldn't it?
The markets, from my view in the cheap seats, have decided to give the euro the benefit of doubt, that the German Constitution Court will approve the ESM funding directly to banks and by-passing Governments. Since we won't know for sure until September, the markets, to their credit, have said, "Ok. no sense in beating the tar out of the euro until we know about the ruling". And the euro received a "Get out of Jail Free Card". for now. Of course that doesn't mean the euro is out of the woods by any stretch of the imagination!
Last night, the Reserve Bank of Australia (RBA) left their Official Cash Rate (OCR) at 3.5%, and came to the conclusion that the current stance of monetary policy was appropriate. That means they are more than satisfied with their previous rate cuts, and even mentioned that it's too soon to see the full effect of the rate cuts made earlier this year. So. good for them! No sense in going willy nilly cutting rates, when you don't need to. The A$ is up slightly overnight, so the non-move was pretty much expected by the markets.
The euro is up slightly too this morning, popping over 1.24. The Norwegian krone has outperformed the euro and most other currencies overnight on the news that June Manufacturing Production beat the estimates, rising .8%... I was looking at the latest Big Mac Index that the Economist produces, yesterday on the plane coming home. Now, before I go on with this discussion, purchasing power parity is something that people used to use as a way to value a currency. Basically, they do a survey and calculate the exchange rate that would leave a Big Mac costing the same in each country. For, instance here in the U.S. a Big Mac costs $4.33, but costs just $2.29 in Russia. So, a dollar buys more Big Macs in Russia. OK, you get the picture. well.
Norway's krone had the biggest % of over valuation. Strange, huh? Switzerland is also high on the overvaluation list, While Australia is barely overvalued. Canada, Japan, New Zealand, Mexico, China, South Africa, Russia and Hong Kong were all undervalued. But remember, this is all for fun. I don't put much stock in this, but, in my early days doing currencies, we used to really get into this purchasing power parity thing.
Quite a few of the "emerging markets" have currencies that are on the undervalued side of the ledger on the Big Mac Index (except Brazil). and that does play well with my thought that the real gains in currencies going forward are going to be in the Emerging markets.
OK. from fun stuff to serious stuff. The Get Out of Jail Free Card that the markets have given to the euro has a time limit on it. and that time limit's first alert will come in less than two weeks. That's when the Greeks have to convince its creditors that it can put economic reforms back on the tracks. if the latest plans to cut 14.5 Billion euros from their spending appear to be unrealistic then the next tranche of bailout money 31.2 Billion euros will be held back.
If that happens, then Greece would be unable to finish recapitalizing it big banks. Without credit the Greek economy would come to a screeching halt! Pensions and public sector salaries would not be paid. a major mess could incur. for the Greeks that is. and therefore, I don't see the Eurozone leaders quick to dismiss the Greek plans to cut 14.5 Billion euros of spending. We shall see, eh?
I began reading about 3-D printers a couple of months ago. these things are fascinating to me, folks. It will become a new way of manufacturing for the future. Our friends over at the 5-Minute Forecast, did a great two-piece story on how an assault rifle was created using a 3-D printer! Well, now the propeller heads working on this stuff, and I say that as a compliment!, are working on new ways of printing electronics! It's the future folks. are you ready for this?
Could this be the hoola hoop I've said that the U.S. needs to invent? Well. yes, and no. there are still many questions to be answered regarding, things like cost, savings, availability, and the list goes on. but something to be aware of and think about for sure!
I sent this info to Chris last week, but didn't see where he used it, so. even though it's a week old, I think I plays well with the currency rallies we've seen in the past two weeks.
As of July 31, USD net longs continue to be pared back, dropping from 134.9k contracts to 77.7k, a 14-week low and well down from the levels that prevailed in early June (275k).
The spec market still held a substantial net EUR short. Meanwhile, the spec market has rebuilt net longs in AUD, NZD, and JPY.
What that means folks, is that the contracts that are being written to buy or sell a currency VS another currency have seen the US. Dollar long positions being pared back by quite a bit.
I saw this morning on the Bloomberg, that U.S. Banks are lending the most since 2009. The Fed said that they believed that the banks were easing their lending standards. Uh-Oh! And then they also said that the competition among institutions was heating up. Double Uh-Oh! We all know what happened the last time these institutions began to compete for loans, now don't we? One of the slides I used in my one of my presentations in Vancouver, basically said that we were seeing bad borrowing habits coming back. And now this story on the Bloomie. This won't end up good folks.
You should have heard the crowd in Vancouver gasp when I showed them the Debt Clock for 2015, just 3 short years from now. Our National Debt will be $24 Trillion dollars, and the Unfunded Liabilities will be $117 Trillion. I've been warning this same group of people each year about the growing national debt and unfunded liabilities for quite a few years, but they were still taken back by the sheer size of those numbers when they were right there on the screens. And that won't end up good either folks.
Speaking of debt. Chris wrote yesterday about the money spent on the Mars rover. and we received this response from a longtime Pfennig reader. (I say longtime, because of what he talks about) here's our dear reader. "Without taking sides, I will only relay that the TV news interviews with NASA officials over the weekend mentioned the figure of $2 Billion on this Mars mission. I assume some of that went into hardware and some into jobs for the engineers and technicians who built the thing. So at least we have that going' for us, I guess.
But what gets MY blood boiling is the $8 Billion that will be spent this election season, mostly on negative ads which don't say anything except, "Be very afraid of THAT guy! I won't tell you what I can, could, or would do if elected, but be very afraid of THAT guy!" Then to top everything off, Congress goes on a 5 week vacation with all of the problems hanging over the country."
Then There Was This. from the Big Boss Frank Trotter! "As reported here in the Pfennig and finally in the national press it has been a long hot summer already here in the great fly-over. We see a torpid attitude amongst our friends in the neighborhood which is perhaps a metaphor for the state of the economy. Piling on is the impending horror of the election cycle with the anticipation of unwanted survey calls at dinnertime rivaling the days before the no-call list, and the who-needs-facts-attack approach to campaigning that is surely to come. We stand exhausted before the starter calls "at your marks".
The good news is that there's a light at the end of the tunnel (hopefully a bit bright than the one that Nixon saw). Two great upcoming conferences (in cooler places) provide an opportunity to sort things out ahead of the election. First, San Francisco hosts the MoneyShow August 24th-26th featuring our own Chris Gaffney - http://tinyurl.com/bsv8qva; the MoneyShow is a cornucopia of commentary that is sure to have aspects that appeal to you. Then on down the coast to San Diego September 7th-9th where I'll be joining in the discussion "Navigating the Politicized Economy" with our friends at Casey Research and Sprott http://tinyurl.com/bqu4prm. We are looking forward to seeing all of you there!"
To recap. Chuck's back.. and while he was gone, the currencies rallied! And Chuck gives you options if you want to see the currency rally go further! HA! The RBA kept rates unchanged last night, and mentioned that are satisfied with their currency monetary policy, which doesn't sound like they will move rates either way any time soon! The new Big Mac Index is out. not as big a deal as it used to be.
Currencies today 8/7/12. American Style: A$ $1.0590, kiwi .8210, C$ $1.00, euro 1.2420, sterling 1.5655, Swiss $1.0335, . European Style: rand 8.15, krone 5.93, SEK 6.7040, forint 223, zloty 3.2635, koruna 20.22, RUB 31.59, yen 78.35, sing 1.24, HKD 7.7545, INR 55.07, China 6.3665, pesos 13.15, BRL 2.03, Dollar Index 82.15, Oil $92.54, 10-year 1.58%, Silver $28.01, and Gold. $1,614.80
That's it for today. not bad for the first day back, but each time I go on vacation, it gets more difficult to come back to work! Got home last night and went to dinner to celebrate Delaney Grace's 5th birthday. She had a party (at our house!) while we were gone, so we wanted to celebrate with her. Happy Birthday Delaney Grace! While in Vancouver, it was nice to see many Pfennig readers, and old friends. I also met Dave Gonigam from the 5-Minute Forecast for the first time. Oldest son, Andrew, his lovely wife Rachel, and their cute little Braden Charles spend some time with us on vacation. Braden learned a new word. Turtle, and we must have heard it 200 times! But he was so cute saying it! I'll leave you with a quote from Milton Friedman who would have been 100 this year. "Nothing is so permanent as a "temporary government program" . and with that. thanks for reading the Pfennig, and I hope you have a Tom Terrific Tuesday!