The Junkyard Dog Bites
by Chuck Butler
Good day... And a
Wonderful Wednesday to you! Well, the junkyard
dog got a hold of the euro yesterday, and even
though the U.S. banks, thus the majority of
currency desks, were observing Veterans Day, the
move down in currencies vs. the dollar, led by
the euro, was drastic!
The junkyard dog I'm talking about is
Jean-Claude Juncker, chairman of the Euro
group... he stopped the euro in its tracks from
its nascent rise in the past month by saying the
"euro's recent rise was undesirable"... He also
deep sixed the euro, and thus all the currencies
save yen, by saying he "didn't see any reason
there couldn't be more rate cuts by the ECB"...
(the ECB is of course the European Central
Bank). Well... These two comments tore through
any gains the currencies had mounted vs. the
dollar in recent weeks, like a junkyard dog
tears through some raw meat! It was a knife to
the euro's heart...
And so it was to be, a massive dollar rally on
Veterans Day. And it didn't get any better in
the overnight markets, as Japan and then early
European trading has taken the dollar even
higher and the euro drops to the 1.25 handle...
A handle it thought it had left in the rear view
mirror back in October... Boy! If comments from
a guy that's not even the president of a central
bank in the Eurozone can deep six the euro like
that, you have to sit back and wonder what's
going on... Was it simply a case of watching the
euro rally in recent weeks and even get within
spittin' distance of 1.31 last week, and needing
to stem the rise? Well, if that's the case, the
plan worked! And like Col. John "Hannibal" Smith
used to say... "I love it when a plan comes
And it just so happens that Bank of England (BOE)
head Gov. Mervyn King added to the currencies'
worries by announcing that the BOE policy makers
are "prepared to cut interest rates again to
prevent a recession pushing inflation below its
target." All this on a day when most U.S.
currency desks were absent... Hmmm... Sure seems
to me as though this was a "planned" jawbone
intervention to support the dollar...
So... Like I said above, the currencies, save
yen, got whacked yesterday... But not Japanese
yen! When things get really dark in the U.S. and
with all the investment choices except U.S.
Treasuries getting sold, that's when the dollar
and Japanese yen shine... Which to me is still a
strange phenomenon, that the dollar can be
strong vs. almost every currency on the face of
the earth, but losing ground to yen. You would
think that the other currencies would get some
love just based on the dollar/yen cross!
Recall, I've explained the currency pairs and
crosses before, and how one major pair (like
dollar/yen) usually carries over to the other
currencies... But since the dollar and yen were
the two major currencies used to fund the Carry
Trade, they are getting bought at the same time,
causing all kinds of ripples in the currency
Looks like the good folks over at Bank of
America have been reading their Pfennigs each
and every day! I say that because there is a
report out this morning that Bank of America
(BOA) issued a report that "U.S. dollar gains
are increasingly at risk toward year-end as
declining credit market rates switch investors'
focus to the slowing economy."
WOW! If that's not just rewording what I've been
saying in the Pfennig almost daily for a couple
of months now, then I'm a monkey's uncle! They
go on to say that, "A weak economy and declining
stock prices are not a solid foundation for any
currency over time. Persistent strength in the
dollar is more related to the unwinding of long
positions in the euro and pound and not a sign
of optimism about U.S. economic prospects."
It's nice to see someone other than me keeping
my eye on the ball here... OK, I know all too
well that it's not just me, but it sounds good,
Well.. There's another "bailout" plan, although
the media now calls them "rescue plans," being
talked about... This one is for the
automakers... The speaker of the House wants the
bailout package NOW! Unfortunately for her and
the automakers, it doesn't look like a bailout
package will be passed with this "lame duck"
Congress... The "new guys" don't come into
office until January 6th. Maybe, just maybe,
this thought that every freaking business that
runs into trouble because they didn't run their
business correctly, and therefore "deserves" a
bailout from the government, which will mean in
the end, taxpayers, will go away... I doubt
it... But there's always a chance, somebody,
someone, somewhere, at sometime, comes up with a
hoola-hoop, and we don't have to go down this
bailout road anymore!
Hey! Whatever happened to U.S. Treasury Sec.
Paulson's "bazooka" that he threatened to aim at
the U.S. credit crisis back in July? A quick
check of the financial scorecard since then
shows that stocks are circling the bowl, the Fed
has had to step in to conduct commercial paper
operations, U.S. Consumer Confidence is at 1982
low levels, and loans are still difficult to get
on the books... I'd say his bazooka was much
like the bubble gum I used to chew as a kid,
with the Bazooka Joe comic inside the wrapper...
Sweet and satisfying at first, but soon petered
out and the taste was gone, soon to be disposed
Speaking of Treasury Sec. Paulson, or King
Henry, as I so named him during his ascent to
the top of decision making with regard to the
financial crisis, will be speaking today! King
Henry will be giving an update on the bailout
packages... Should be interesting...
Our friends down under in New Zealand think they
are far removed from the financial mess going on
in the U.S. and Europe... But then, the
Europeans thought they were far removed from it
too before the walls began crumbling down on top
of them with bad debt! But in New Zealand's
case, I think they are on top of it... Mainly
because the strong central bank... The Reserve
Bank of New Zealand (RBNZ) is big on fiscal
discipline and stated in their quarterly
Financial Stability Review that... "We are far
from seeing the final impact of the financial
and economic disruption. However, Kiwi banks and
the Australian parents of the majors are well
positioned to withstand the economic downturn."
It would be a HUGE feather in the RBNZ's cap,
and further the kiwi's cap, should the financial
meltdown pass them by without causing major
problems... The Kiwis get a glimpse at the state
of their economy tonight when Sept Retail Sales
Well... The euro is creeping back up as I get
ready to head to the Big Finish this morning...
You know... On Monday I talked about the Chinese
announcement to provide $586 billion worth of
renminbi liquidity to their economy, and how
that had gotten the currencies around the world
excited... And yesterday I talked about how that
excitement dissipated... But there's one more
thing to discuss here... And that's the fact
that if the Chinese are going to focus on
keeping their economy going and their billions
of citizens happy, they won't be focusing on
buying U.S. Treasuries... And the funding
problem that still exists, even though it's not
the markets' focus right now, will get even
trickier for the U.S. and the U.S. dollar...
And... One more thing before I head to the Big
Finish... Oil has fallen below $60 for the first
time since March 2007! WOW!
Currencies today 11/12/08: A$ .6610, kiwi .5755,
C$ .8260, euro 1.2590, sterling 1.5285, Swiss
.8450, ISK 182, rand 10.45, krone 6.9830, SEK
8.0150, forint 215.50, zloty 2.9920, koruna
20.21, yen 97.30, baht 34.98, sing 1.5050, HKD
7.75, INR 49.25, China 6.8298, pesos 13.06, BRL
2.2665, dollar index 86.93, oil $58.40, silver
$9.70, and gold... $732.42
That's it for today... Mervyn King also said...
"We are living in unprecedented times." Oh,
thanks! Like we didn't already know that! It was
a great day yesterday for catching up on email,
etc. I also got a huge chunk of our monthly
newsletter to clients, The Review & Focus,
finished too... Hey! Chris has the conn on the
Pfennig tomorrow, I will not be in the office.
Don't know what the baseball writers were
smoking, but they named Tim Lintecum as the
National League Cy Young winner... Ahem...
Brandon Webb won 22 games last year, ahem... My
darling daughter Dawn phoned last night to tell
me that my precious granddaughter, Delaney
Grace, heard the song "Amy" on the radio and
began to dance around and jabbering like she was
singing... Dawn knows that I used to play that
song on my guitar and sing it when friends would
make me... I told Dawn that Delaney Grace has
good taste in music, she's like me! HA! OK,
enough... I hope your Wednesday is Wonderful!