Well, the dollar continues to dance with the wolves, and though the heavy selling has backed off…you can just tell by the way the markets react each day, that the bias to sell dollars remains.
For instance, the euro (EUR) is flirting with 1.45 this morning, after visiting that level a couple of times yesterday. The Aussie dollar (AUD) is back to $1.05, and kiwi (NZD) is 79-cents this morning! The Canadian dollar/loonie (CAD) has pulled back, as the price of oil has dropped $5 in the past two days, and the Swiss franc (CHF) has added to its $1.11 figure of yesterday… So, while not every currency is gaining on the dollar, most are… Gold and silver, after losing some large chunks of ground yesterday, are back on the rally tracks this morning…
Remember, and not that long ago either, when we used to say it was a â€œrisk onâ€ or â€œrisk offâ€ day? In those times, all of the risk assets of currencies, commodities and equities would get thrown together, and traded one way or the other depending on what type of â€œdayâ€ it was… And I used to tell you all the time that fundamentally, currencies and commodities donâ€™t trade alongside equities, for they have different pricing mechanisms and low correlation to each other.
Well… My recent theme is that of a â€œreturn to fundamentalsâ€ starting with interest rate differentials coming back as a key value tool for currencies… And the next step is to have the divergence between currencies, commodities and equities carry through… Weâ€™ve seen some of that happen lately, but there are still traces of this risk on, risk off still hanging on. But, eventually, pricing equities alongside currencies and commodities will be a distant thing in our rear view mirrors!
OK… I hear that train a coming; itâ€™s rolling around the bend; and I ainâ€™t seen the sunshine since I donâ€™t know when… Iâ€™m stuck in government taxation prison, and more are coming on… Yes, the increase in taxes that I keep warning you about that your kids and grandkids are going to have to deal with, are going to see their timetable pushed up, and we will begin to deal with them sooner than I thought!
As I said to a customer yesterday… â€œRaising the debt limit just means weâ€™ll be issuing more Treasuries.â€ And we all, as Pfennig readers, know what that means… The debt servicing goes up! And who will pay for that debt servicing? You and me; our kids and grandkids… But donâ€™t let that get in the way of arguing that deficit spending shouldnâ€™t be seriously cut back… You wouldnâ€™t believe all the flack I got from people the other day when I mentioned cutting government deficit spending!
Government spending is like a drug for them, and us… We just have to say â€œnoâ€! Come on; everybody together now… â€œJust say no!â€
Today, in the US, we will see the color of Marchâ€™s retail sales… I told you on Monday that the BHI (Butler household index) indicated that retail sales would be OK for the month of March, as I personally made quite a few purchases. My family, and my friends who were with me in Florida, can vouch for that! HA! I donâ€™t see this print at a 0.5% increase as anything that will push the dollar higher… But then, sometimes you have to wonder just what currency traders are doing…
OK… I saw an article last night that was issued by the Canadian Imperial Bank of Commerce (CIBC) regarding the euro… The report talked about how the European Central Bank (ECB) is going to hike rates again in either June or July, and the push by the markets to get that rate hike will see the euro rise to 1.50 this summer… But, CIBC believes that 1.50-euro is the peak… Hmmm… Interesting, donâ€™t you think?
The reason that the CIBC people think that 1.50 euro is the peak is because the ECB will stop hiking rates this summer, and the markets will grow tired of holding on to euros that are not seeing their yield rise… Always great to get a different viewpoint, eh?
Did you see the Fed Heads that are Hawks trying to combat what the dovish Fed Heads had said the night before? Fed Heads Bullard and Fisher were trying their best to offset the dovish tone that Fed Vice-Chair Yellen had dispersed… Bullard called for a $100 billion reduction of the $600 billion quantitative easing, and Fisher said, â€œThere are risks of inflation getting out of controlâ€… Basically, itâ€™s the same-olâ€™, same-olâ€™ for these two, but still, I find the singing from different song sheets interesting… Youâ€™ve also got to wonder what foreign central bankers think of this division in the Fed… It certainly canâ€™t be good for the dollar.
I saw this and thought it best to just put it out there, and let the dear readers see the problem as I see it… I found this on the Bloomberg… â€œThe US budget deficit this year will amount to 10.8% of gross domestic product, the biggest shortfall in the developed world, the International Monetary Fund said. As a percentage of GDP, the shortfall will outstrip that of Japan and the UK. The IMF estimated that [the] US president would have to implement in the next two years the biggest budget cut in â€˜at least half a centuryâ€™ to keep his promise of halving the deficit by the end of his four-year term.â€
To carry it further, reader Scott, sent me this from the FT… â€œThe US lacks a â€˜credible strategyâ€™ to stabilize its mounting public debt posing a small but significant risk of a new global economic crisis, says the International Monetary Fund.â€
I shake my head in disgust… But not to worry! The president is going to announce his deficit cutting plan today… And weâ€™ll be torn between two lovers… Paul Ryanâ€™s austerity deficit cutting plan, or the tax increases from the president… Ooooohhhh… Where do I sign up for the tax increases? NOT!
I heard one of the sales guys talking on the phone yesterday, and saying that most of the currencies had recovered the ground they lost in 2008, and more… But that Norway and Sweden had not…yet… I would have to say that knowing that, one would be lead to the think that Norway and Sweden will outperform the rest of the currencies going forward, as they play catch-up… Either that, or they are just laggards, with no chance of ever catching up… Hmmm… The best fiscally run country in the world, and its neighbor, laggards? I hardly think so!
After 30 years of selling gold holdings or keeping reserves flat, central banks are buying gold again. In 2010, emerging markets central banks moved cash reserves to gold, becoming significant buyers of the metal. What do you make of that? Iâ€™ll tell you what I make of it… There are a couple of thoughts here… 1. They have enough dollars, and donâ€™t want any more. 2. They know what a true store of wealth looks like, or 3. They have other plans for that gold…
And, now I know I have your attention! Hmmm, what could be their other plans for gold? Can you say, making gold a currency? I knew you could! Remember a couple of months ago, when I did the gap band thing, and dropped a bomb on you, and said that I thought China was amassing HUGE piles of gold and silver to eventually back the renminbi (CNY) when it becomes the next reserve currency of the world? Well, I just put two and two together, and emerging markets will want to follow Chinaâ€™s lead… WOW! Now, we have to see if that all plays out… Remember, I always see things far before they come to reality…
Then there was this… The birth/death model strikes again! From reader Scott, and The NY Post…
Early this month Labor reported that 216,000 new jobs were created in March. It was better than Wall Street expected. But the figure included 117,000 jobs that the department thinks, but canâ€™t prove, were created by newly formed companies that might not even exist. In fact, the department is getting so optimistic about the labor market that it increased this imaginary job count from just 81,000 in March, 2010.
Yes, Iâ€™ve pointed this out so many times in the past that I had given up tracking it, because it just causes me to go yell at the walls… The BLS comes out with a trumped up jobs number, the politicians all pat themselves on the back, and claim their programs are working, the markets buy dollars, and everyone thinks that allâ€™s right in the world again… Only to find out a day or two later that the number wasnâ€™t as lofty as reported… But the discovery of the trumped up number never, and I repeat never, causes all those things to be reversed… Itâ€™s all a game to the government, to make you feel good…
To recap… The bias to sell dollars remains, although not against all currencies. For instance the Canadian dollar/loonie has backed off versus the green/peachback due to a two-day $5 drop in the price of oil. The euro is flirting with the 1.45 figure, and CIBC thinks that the euro will peak out at 1.50 later this summer. And are you ready to pay more taxes? Itâ€™ll be the presidentâ€™s plan that will be announced today…
for The Daily Reckoning
The Bias to Sell US Dollars Remains originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2
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The Bias to Sell US Dollars Remains
The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.