Rates To Remain Near Zero…

Posted by Chuck Butler - Daily Pfennig

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Dollar drifts lower….

Good day… And good morning to everyone. I wanted to start out this morning’s Pfennig by saying my thoughts and prayers go out to all of the families of the fallen soldiers and civilian at the tragedy down at Ft. Hood. It is tough enough when we here about losses of our soldiers overseas in the ‘combat zones’; but such a large loss of life right here in the US is deeply saddening.

I nailed that FOMC statement… WOW! You might begin to think that I have some inside info on the Fed Heads, the way I’ve been able to basically call every move they’ve made since the beginning of this whole meltdown in August of 2007! But that’s not important here… The important thing is that the Fed said that “economic growth is not enough to hike rates, and therefore they will keep interest rates at near zero for an “extended period”…

Hmmm… Where have I heard that before? Any way, I thought that by continuing to use the words “extended period” that the dollar would get pummeled… And momentarily, it looked as though it might, as the offset currency to the dollar, the Big Dog, euro, raced to trade above 1.49… But a funny thing happened on the way to the forum, and the invisible hand reached down and reversed this move in a NY Minute! The work of the PPT? Probably… The Plunge Protection Team, probably stepped in to keep the dollar from a free-fall… That’s my take on it any way!

Any way… With interest rates remaining at near zero levels here in the U.S. I thought it to be appropriate to pull out this new nickname for Big Ben… “Zimbabwe Ben”… (Thank’s Ty!)

The rate hike decision ball gets thrown over to the “pond” to the Bank of England (BOE) and the European Central Bank (ECB) this morning for their versions of: Leave rates at present levels, but try to sound upbeat… I think you’ll have the “tale of two Central Banks” here this morning. While both will keep rates unchanged, I think you’ll see the BOE opt for more bond purchases in an attempt to shore up Britain’s banking system… The ECB will NOT be making any such announcement.

In fact, I believe we’ll hear ECB President, Trichet, announce that the ECB is moving closer to withdrawing stimulus from the economy! So, those of you who have the ability to go long euros VS sterling, this would seem to me to be the “trade o’ the day”… What do I know, I’m not a short term “cross trader”!

So… With the FOMC finished… And the two European Central Banks on the docket today, somehow the Risk Aversion has crept back into the markets…

I received an email from a reader the other day, asking me why I prefer Australia to New Zealand, as the kiwi had outperformed its kissin cousin across the Tasman from 2002 to 2008…. Well… New Zealand enjoyed a wider yield differential than Australia during that time period, as it posted the highest interest rates in the industrialized world… Now that’s saying something right there, and a good reason kiwi outperformed the A$…

But times have changed… And a very timely talk by Reserve Bank of New Zealand Gov. Bollard yesterday, helps explain why A$’s now over kiwi… Here’s Gov. Bollard…

“Both countries have survived the crisis well, due to a mix of strong institutions and stimulative policies. However, their immediate prospects are different. Australia has avoided negative growth, and its prospects are driven by strong terms of trade, vast mineral deposits, the Chinese market, and rapid population growth.

New Zealand has had a recession, and the pick-up is slower and more vulnerable – a difference financial markets do not appear to appreciate.

Australia is a lucky country, but we could be a lucky neighbor.

Australia is entering a new minerals boom, investing heavily and encouraged by new finds, re-opening markets, bottlenecks and strong prices. Strong investment and export growth would mean big challenges for Australian policy. This all means an economy that looks less like New Zealand.

However, Australia’s potential raised the prospects for New Zealand’s manufacturers and services, which have a bigger share of exports than the same sectors in Australia.”

OK… Back to me… So… Australia is a “lucky country” but New Zealand could be the “lucky neighbor”… Makes sense to me!

The Brazilian real rally took a walk on the wild side yesterday, gaining 2.5% VS the dollar in one day! But, that’s relatively tame for some of the wild moves we’ve seen in recent times with the real… As long as you are not watching the currency like a hawk, and sweating out each pip move, this is no biggie… Keep your eyes on the horizon…

I find it somewhat humorous that the Brazilian Gov’t officials have tried and tried to throw down road blocks for the real, and the investors just keep coming in droves… The 2% tax on Capital inflows did nothing to slow down the real’s move VS the dollar, except for the day it was announced… After that, it was Wayne and Garth playing street hockey once more… “Game On!”

OK… I had a few callers and emails yesterday telling me that I was wrong about the Gold sales to the Reserve Bank of India (RBI), saying that it was done in SDR’s… I think the confusion exits in the fact that the Gold sale kept getting reported as $6.7 Billion worth of Gold… But to put these questions to rest… Here is a report from the Economic Times of India (leading financial newspaper)


The purchase was in SDR 4.8 Billion worth.

Today in the U.S. we’ll see the Weekly Initial Jobless Claims data, which will remain above 500,000 per week… And the ICSC Chain Store sales figures, which if consumer spending has gone back to pre Cash for Clunkers levels, would mean these figures would be soft… But I don’t think this data gets much playing time with traders, so we’ll just carry on…

And then there was this… OK… So… Some people chastised me yesterday for saying that the Gov’t can’t prove the 650,000 jobs they claim they “saved”… Well… Here’s a ditty for you! Did you know that the Gov’t is claiming that by giving a person that already has a job, a raise, it constitutes as “saving” that job? Want more funny accounting? Stay tuned, same bat time, same bat channel!

To recap… The FOMC left rates unchanged and said they would remain there for an “extended period of time” this sent the dollar to the woodshed, but reversed on a dime… PPT at work? The BOE and ECB meet this morning to discuss monetary policy. Expect the BOE to announce more bond purchases, and expect the ECB to announce a move to withdraw stimulus.. We learned that New Zealand is not Australia, but lucky to be Australia’s neighbor! And try as they might to keep the real from gaining VS the dollar, the Brazilian Gov’t’s moves have not worked…

Currencies today 11/5/09: American Style: A$ .9085, kiwi .7190, C$ .94, euro 1.4850, Sterling 1.6530, Swiss .9825, European Style: rand 7.6360, krone 5.6975, SEK 7.0540, forint 186.37, zloty 2.8745, koruna 17.55, RUB 29.15, yen 90.32, sing 1.3955, HKD 7.75, INR 47.02, China 6.8276, pesos 13.28, BRL 1.7255, dollar index 75.81, Oil $79.91, 10-year 3.62%, Silver $17.40, and Gold… $1,088.80

That’s it for today… Writing from home again, as I have yet, another appointment with a doctor this morning. When you have a blood clot, they monitor the thinness of your blood, and it has to be checked every 3 days… So, I have that going for me! I’m taking tomorrow off, so Chris will have the conn on the Pfennig tomorrow… So, as our little Christine would say… This is my Friday! YAY FOR ME! So with that on my mind… Good luck to my beloved Missouri Tigers as they take on Baylor this weekend, and my little Buddy Alex has his last game on Saturday. Congratulations to the Yankees on their World Series Championship… So… I’m off to see the Wizard…



The Daily Pfennig

Two decades ago, Chuck Butler embarked on his extensive career in foreign investments as the Director of Operations for the Fixed Income Division of the Mark Twain Bank. He oversaw the clearing and custody of all bond department trades and Mark Twain portfolio transactions.

In 1992, he became the Chief International Bond Trader and Director of Risk Management for the Mark Twain Bank, and was responsible for trading global bonds and currencies, as well and overall risk management. In that same year, Mr. Butler began composing his now decade-old daily currency market commentary, A Pfennig for Your Thoughts-a play on the American aphorism “a penny for your thoughts”(the pfennig is the Germany equivalent of a penny). The Pfennig started as some handwritten market notes and witty anecdotes circulated every morning to help traders stay on top of the economic, currency, and market happenings. Butler’s “Daily Pfennig,” as it is more commonly called today, has become a popular resource for currency investors and traders alike.

In 1999, Mr. Butler joined the team that launched EverBank as the Senior Vice President of EverBank World Markets. He oversees the trading desk and operations for over 12,000 individual and corporate clients, both in the United States and abroad, who look to EverBank for FDIC-insured World Currency Deposit Accounts, and Single Currency and Index CDs . Chuck is also a frequently quoted and respected analyst of the currency market; in 2003 and 2004, he has appeared on, was featured or quoted in, or referenced by: the Wall Street Journal, US News and World Report, CBS Market Watch, USA Today, CNNfn, the Chicago Tribune and many other publications.