Draghi Throws The Euro Under The Bus!
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    In This Issue.

    * Ireland wants to stand on its own two feet.

    * Aso says yen has fallen too far.

    * Canada's strong jobs reports .

    * What is the Fed up to now?

    And, Now, Today's Pfennig For Your Thoughts!

    Draghi Throws The Euro Under The Bus!

    Good day. And a Happy Friday to one and all! Well, I made it through the week! It was questionable the other night, but I made it! Little Delaney Grace stayed all night with us last night, so her and Mimi (Kathy) can spend the day together. She is so darn cute, and smart. And she's a non-stop talker, question asker, and quick to comment on what she observes, little girl! The Northeast is preparing for a blizzard, so be careful and respect Old Man Winter!

    Well. so much for statistics! I sat here yesterday, and told you that I didn't think ECB President Mario Draghi would mention the strength of the euro. And then pointed to statistics showing that in the past 170 ECB meetings the euro was only mentioned 15 times. And then guess what Draghi did? Yep! He signaled that "policy makers are concerned that the euro's advance could damp inflation and hamper an economic recovery."

    And the euro dropped like a rock! I was in my interview with the International Business writer, and came out to see the euro heading toward a 1-cent decline. within 30 minutes later, it was down $1.30! YIKES! So, much for all that talk by Draghi a few months ago, about defending the value of the euro, eh?

    It just shows to go you, that these Central Bankers will say whatever works for them at that time. The euro is attempting to work itself back onto the rally tracks this morning, but the sting from Draghi's words is still being felt. The euro also got a lift late yesterday when it was announced that the European Central Bank (ECB) had agreed to ease the terms under which the Irish Gov't. repays some 31 Billion euros of debts it incurred in support of its stricken banking system.

    The Irish Gov't hopes the agreement will smooth the way for a return to the international bond markets in 2014, which would bring to an end Ireland's reliance on loans from the IMF and European Union.. This is all good stuff for Ireland folks. and it looks like the rest of the world won't be kicking sand in Ireland's face too much longer!

    The Japanese yen is stronger this morning on the news overnight that Japanese Finance Minister (Fin Min) Aso, said that, "yen had weakened much more than we had hoped or expected" Those words surprised the markets, who were thinking that the 95-100 range would be where the Bank of Japan (BOJ) and Fin Min would like to see yen. Does this mean that the selling in yen is over for good? Hardly. I believe this is just a form of a circuit breaker, much like the ones the U.S. uses whenever the dollar appears to be heading over the cliff. The Japanese don't want the markets to believe that this is a One-Way street down for yen. For, if that was the case, the momentum would carry yen far weaker than the Japanese leaders want to see.

    The Aussie dollar (A$) put an end to the selling last night, after the Chinese printed their latest Trade Balance report. China's Trade Balance remained a surplus, and beat expectations printing at $29.15 Billion (VS $24.7 Billion forecast). This report signaled that China's economic recovery is still working its way through, and long time readers of the Pfennig know all too well that a strong Chinese economy will cure all that ails the A$...

    So much so that the Chinese Trade Surplus was enough to offset the damage that the Reserve Bank of Australia (RBA) was attempting to inflict on the A$ by reducing their economic growth and inflation outlooks. They also made mention that the strength of the A$ was keeping growth down.. Hmmm. here we go again, right? Another Central Bank, crying in their beer about their strong currency.

    Closer to home. Canada will print their January employment data today. In recent prints the strength of the jobs market has outpaced the forecasts, and the forecast for today's report is again for a weak report. The Canadian jobs market has generated net new jobs at what I believe to be a good strong pace of 37,500 per month since July. But all good things must come to an end, right? I'm on the fence with this report, as part of me says the good, strong pace will continue, and the other part says, this is the month that it falters.

    I guess we'll just have to wait-n-see, eh? The Canadian dollar/ loonie is weaker this morning as the markets again believe they'll see a weaker jobs report.

    The Brazilian real continues to tear a path below the 2 handle. I'm watching this and not believing what I'm seeing, given what's gone on with the real the past two years.. Be careful here, but for now, this currency is on a tear. pent up frustration I guess.

    Chris and Chuck talked to the International Business writer yesterday, and the talk was mostly about the Currency Wars. I started off by telling the writer that this Currency War has been going on for years, and that it's not the first time a Currency War was being played out before us. And then I came out to my desk, and found an email from one of our astute people in NY, Brian, that gave me a link to a story about the 1930's currency war.

    I told the writer that we could either see the Currency Wars get so intense that they cause a collapse of the financial system, (not likely) or we could see the IMF step in, and try to get everyone to settle down. But that in the end, the U.S. was the most important piece to the puzzle, for if they continue to push the buttons that cause dollar weakness, it could really carry over to the rest of the countries. But that maybe, the U.S. will eventually reach a weakness level for the dollar that they believe they can work with to pay down the debt servicing (bond interest).

    Speaking of pushing the buttons to further dollar weakness. Fed Head, Evans, President of the Chicago Fed, said yesterday that "the U.S. Jobless Rate won't fall to 6.5% until 2015". Recall that the Fed set the bogey for the unemployment rate at 6.5%, before they would entertain raising interest rates. Evans went on to say that "the bond-buying program may need to continue for another 6 months to a year until we're clear the job market outlook has improved."

    And my old nemesis. Robert Rubin, believes that the automatic spending cuts that are supposed to go into place on March 1, is a "terrible, terrible piece of legislation." So, I'll take it that he's not a fan of spending cuts. Sure, why not just kick them down the road? I saw a cartoon yesterday that fits here. it's Uncle Sam standing on the shoulders of children holding up the debt ceiling.

    While I'm on this road that leads to ruin here in the U.S. the Big Boss, Frank Trotter, sent me this note yesterday, and long time readers know how much I enjoy it when Frank writes. So here's the Big Boss. "Way back in graduate school our professor, Murray Wiedenbaum - former Chairman of Reagan's Council of Economic Advisors, noted that government managers are no fools. When asked to make cuts these reductions will not come in the Washington bureaucracy where they work but rather in places calculated to make the most impact on the public who will then call their congressman to demand action. If Social Security were asked for example, cuts would likely come in the number of people staffing the local service windows resulting in a line around the block . . . .

    We don't know but it sure feels like that is starting again. I've noticed two large Navy ships that had deployments called back at the last minute, calculated no doubt to gain the most publicity and generate talk like - 'if we make cuts we will be unprotected, fund now and fund more'! Watch for more examples and report back to Chuck. It's tough cutting spending and the spenders will use every tactic possible to foil the plan."

    Chuck again.. Thanks Frank! You know, when I first met Frank in 1981, I used to be told that I was identical to Bruce Willis. Remember "Moonlighting?" Now, stop laughing out loud! It's not THAT funny!

    The U.S. data cupboard only has the December Trade Balance to print today. I usually try to match up the Trade Balance with dollar performance the previous month. So. in December the dollar was heading down, and therefore I think we'll see a narrowing of the Trade Deficit for December.

    Then There Was This. my friend Scott Pluschau, sent me this, and said he had just come inside from yelling at the Oak Tree, after reading the story. So, he naturally thought of me, yelling at the walls over stuff like this. It appears on CNS News should you want to find the whole story. here are some snippets..

    "So far this calendar year, the Federal Reserve has bought up more U.S. government debt than the U.S. Treasury has issued.

    On Dec. 31, the total debt of the U.S. government was $16.4327 trillion and then-Treasury Secretary Tim Geithner announced that the government had hit what was then the legal debt limit. Last week, however, Congress enacted a law to suspend the federal government debt limit until May 18, 2013, and allow the administration to resume increasing the debt.

    By the close of business on Wednesday, Feb. 6, according to the U.S. Treasury, the total federal debt had climbed to $16.4799 trillion-an increase of $47.2 billion for the calendar year.

    At the close of business on Jan. 2, the Federal Reserve had owned $1.661 trillion in U.S. Treasury securities. By the close of business on Feb. 6, it owned $1.7172 trillion-an increase of $51.1 billion for the calendar year."

    Chuck again. OK.. so why does the Fed need to buy $3.9 Billion Treasury bonds than the debt that has been accumulated? Well, if you ask me, I would say that they are simply greasing the tracks for more deficit spending. But the key thing here is that the Fed is buying more than 100% of our debt at this point. that's scary!

    To recap. Draghi threw the euro under the bus yesterday, when he questioned the euro's strength. So much for doing everything possible to protect the euro, eh? With the euro getting thrown under the bus yesterday, the rest of the currencies drifted throughout the day. This morning the currencies are attempting to rally, but things like the RBA dissing the strength of the A$, just don't make things easy.. China's Trade Surplus printed stronger than forecast, and Ireland is getting ready to stand on its own two feet again.

    Currencies today 2/8/13. American Style: A$ $1.0335, kiwi .8380, C$ $1.0020, euro 1.3415, sterling 1.5780, Swiss $1.0915, . European Style: rand 8.8950, krone 5.5150, SEK 6.4125, forint 217.55, zloty 3.1010, koruna 18.8050, RUB 30.15, yen 92.50, sing 1.2375, HKD 7.7555, INR 53.50, China 6.2347, pesos 12.72, BRL 1.9585, Dollar Index 79.95, Oil $96.08, 10-year 1.94 (finally moved off the 1.99% level all week), Silver $31.16, Gold. $1,671.55, and it's Friday, so let's take a peek at the U.S. Dollar Index. click here: http://www.usdebtclock.org/index.html

    That's it for today. a bad night for our Blues and Missouri Tigers. That's two losses in a row at home for the Blues. it's not good when the visitors win in your building. I hope they can turn it around quickly, it's too short of a season to have problems at home! I'll be gone most of next week, but will pick the Pfennig back up on Thursday morning. It was a far better night last night, so I've got that going for me this morning! And our little Christine is stopping to pick up breakfast sandwiches for the trade desk, so it's all good! Pitchers and catchers report next week, I truly believe that it should be a national holiday! Thanks for reading the Pfennig, I'll talk to you next Thursday, and I hope you have a Fantastico Friday!

    Chuck Butler
    EverBank World Markets

    Posted 02-08-2013 3:26 PM by Chuck Butler
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