G-20 Put Focus Back on Dollar
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In This Issue.

* G-20 says no to currency wars!

* Aussie dollar nears parity.

* Riksbank to hike rates this week?

* Will China bark back?

And Now... Today's Pfennig!

G-20 Put Focus Back on Dollar.

Good day... And a Marvelous Monday to you! What a weekend for your truly, as we gathered with friends to watch my beloved Missouri Tigers win their game VS then #1 Oklahoma! It was exciting from the get-go, with the opening kick-off being run back for a touchdown! We were screaming and yelling and some were jumping up and down. the Tigers have moved up to #6, but now have to go to Nebraska this week, no breaks! I've never witnessed a bigger game won by the Tigers, and I've followed them since I was a young man watching Roger Wehrli run back punts for the Tigers!

That wasn't the only excitement for me, as I sat in the passenger's seat last night while Alex took the wheel, for a drive home. Now that's scary folks! For all of you who have sat there with a 15 year old behind the wheel, you know what I'm talking about!

OK. well, all that personal talk will really tick some people off, but come on! This is exciting stuff! Speaking of exciting stuff. I guess that what went on at the Big G-20 meeting this past weekend, with the G-20 members agreeing to, or better yet, pledging to avoid currency devaluations to spur exports. This news has erased the flight to safety that went on ahead of the meeting, as traders didn't believe the G-20 members could come to an agreement. So, now that we know that there will be no "currency war", of which I had already told you I didn't believe in such a thing, the selling of the dollar has come back to the front of the class.

The G-20 members are all for "letting the markets set foreign exchange values. Hey! U.S., & Japan. did you hear that?

So. we're back to selling the dollar this morning, and sell it strongly at that! The Aussie dollar (A$) is so close to parity that it could spit in parity's back yard! So. as my colleague in Jacksonville, Mike, likes to say. The pig is working itself through the snake, and that is bang on what's happening now with dollar.

The Big Winner overnight was the Norwegian krone. Hmmm. the krone gained almost 2% VS the dollar overnight. As, a return to valuing strong fundamentals seemed to be creeping in once again. And wouldn't that be the cat's meow if a return to valuing currencies on fundamentals were to set in and stay for longer than a day? This currency picking would be a piece of cake if currencies were valued on fundamentals! Of course that's how they used to be valued, but that got thrown out the window when the financial meltdown occurred in 2008.

When I do presentations like last week in Toronto, I show people the "Ring of Fire", which places countries on a grid, that takes into consideration, Debt, which is both Budget and Trade to GDP. and when it's all said and done, there are only a handful of countries that represent good, or at least, fair fiscal fundamentals. Oh! I guess, you want to know the handful of countries now, eh? Well, I be a real pain here, and say, "well, come to my next presentation". But I won't.

The countries that come out smelling like roses on the Ring of Fire are: Norway, Australia, Brazil, China, and Canada. there are a couple more that we didn't put on the grid, like Singapore and Sweden, that would be on the list.

Of course, now none of you will ever come to hear me speak again! HA! But before you go out and tell your neighbor and the mailman that "Chuck Butler said to buy Norway, Australia, China, Canada, and Brazil" that. to have this be something a reason to be, we'll have to change the market's outlook on this stupid "flight to safety" every time dark clouds hover above. Until then, we're subjected to a throwing out fundamentals to buy dollars and treasuries.

So. today. what's ahead for us today? Well. the G-20 stuff will hang around most of the day, with the U.S. traders arriving and seeing the dollar getting sold. Then we'll see Existing Home Sales data for September. Even with all the "funny stuff" of counting foreclosed homes as sales, I expect Existing Home Sales to have dropped in September and that shouldn't give dollar bulls any reason to believe the dollar would rebound. Remember, the halting of foreclosures didn't happen until this month, October.

Later in the week, we'll see the first estimate of 3rd QTR GDP here in the U.S. , which should be interesting. I believe it will be south of 2%....

This week, we'll see the Scandis hold rate meetings, with Sweden's Riksbank widely expected to hike rates to 1%, and Norway's Norges Bank to keep their powder dry, for now. The Swedish krona has been rallying very nicely lately, with most of those gains coming from traders that believe the Riksbank will not disappoint them.

Well. Gold is up $16 this morning. The shiny metal really got caught in the crosswinds of the so-called currency wars last week, but looks as though it's ready to take on the dollar once again this week! Silver is also on the rally tracks this morning..

I have to say that I was really surprised by the big sell off of Gold and Silver last week, as I thought that a so-called currency war would do nothing but be good for Gold and Silver, as they retain wealth, while the fiat currencies according to the "currency wars" people, go to zero. But that's not what happened. Hmmm. confusing, but then, what's new? But, confusion only leads to clarification. So, just stick with the diversification plan, and you'll be able to ride out confusion that sets into the markets every now and then!

Jr. Walker and The All-Stars, are playing on my I-Pod right now. Sorry youngsters, you have no idea, the music you missed in the 60's and 70's.

U.S. Treasury Sec. Tim Geithner is still banging on China, folks. You just have to wonder when China barks back at Geithner? I mean, the Chinese have allowed their currency to gain 2.3% VS the dollar in past two months, just how fast does Geithner want this renminbi strengthening to happen? I think he wants it NOW, and that's why I do believe that the Chinese will bark back at some point. Not that they would stop allowing the renminbi to appreciate, but they could slow it back down, and place a governor on it again. I have to wonder how the Chinese will react to the tariffs bill that the House passed a couple of weeks ago, but the Senate won't vote on until after the election, if. the Senate votes in favor of adding tariffs on Chinese exports. I just keep my fingers crossed that the Chinese will not react to U.S. protectionism, unfavorably.

Then there was this. from the Wall Street Journal this morning. "Expectations for rising consumer prices have increased faster in the U.S. than any other bond market this month as central bankers made the case for monetary easing through additional asset purchases. Yields on 30-year Treasuries climbed as much as half a percentage point since September to 2.61 percentage points more than similar maturity inflation-indexed debt, the widest gap since May, and an indication for anticipated gains in consumer prices.

While central banks are typically more concerned about faster inflation, the worst financial crisis since the Great Depression has made sustain price declines a bigger concern. Fed Policy makers, who already cut interest rates almost to zero and bought $1.7 Trillion of securities, are discussing more purchases of Treasuries to flood markets with cheap money, as well as strategies for raising inflation expectations to prevent prices from undermining the recovery."

Chuck again. The WSJ makes it all sound like everything is OK. Hmmm.

To recap. G-20 members agreed / pledged to avoid currency debasements to increase exports. This put to bed the thoughts of a "currency war" for now, and brought everyone back to earth, where, the call to sell dollars is the underlying theme that has been repeating itself for 8 years now. The A$ is nearing parity, and the Norwegian krone is the best performing currency overnight. Gold is up $15 and Sweden's Riksbank will most likely raise rates this week.

Currencies today 10/25/10: American Style: A$ .9950, kiwi .7535, C$ .9815, euro 1.4040, sterling 1.5730, Swiss $1.0310, . European Style: rand 6.8970, krone 5.7570, SEK 6.55, forint 194.70, zloty 2.8050, koruna 17.4630, RUB 30.25, yen 80.65, sing 1.2910, HKD 7.76, INR 44.35, China 6.6580, pesos 12.27, BRL 1.7060, dollar index 76.88, Oil $82.35, 10-year 2.53%, Silver $23.67, and Gold. $1,343.60

That's it for today. Well. Chris Gaffney and yours truly, drove from Stowe Vt. To Toronto last Thursday. our supposedly 6 hour drive was actually 8 hours. Chris pulled up to the convention center in Toronto, let me out, I took the escalator down, got my credentials, and walked into the room I was speaking in. Talk about "coming in hot"! I don't know how I pulled that one off, as I was going a little crazy in the car, thinking that I would not make it to the convention center in time! This past weekend was something else. I've still get goose bumps thinking about my Tigers! Our Blues beat the Blackhawks and Penguins this weekend, and the only deflator came yesterday, when the Rams forgot that a football game has a first and second half! OK. I had some problems getting in this morning. so, I'm running late. I hope your Monday is Marvelous!

Chuck Butler


EverBank World Markets



Posted 10-25-2010 10:33 AM by Chuck Butler
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