Yellen Is Confirmed.
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    In This Issue.

    * Tight ranges for currencies & metals .

    * Euro is only currency to break out.

    * Aussie Trade Deficit prints better than expected .

    * Trends .

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

    Yellen Is Confirmed.

    Good Day! And a Tom Terrific Tuesday to you! Burrrrrrr. It's cold! It's the real life version of the hit movie: The Big Chill! Remember that one? That was a pretty good movie, but the music in it was even better, given that it brought back such great songs that most people had forgotten about! Music from my teen years. I saw a brief interview with Linda Ronstadt last night on TV, brother could she sing in her younger days! The saddest song I think I've ever heard, is her version of: A Long, Long Time.

    Speaking of a Long, Long Time. I sure hope the Big Chill doesn't last a long, long time! The highway that I take to work, still only has one lane cleared of ice. One thing that has lasted a long, long time is the weak dollar trend! About 2 years ago, I was talking with the Big Boss, Frank Trotter, and said I worried that we no longer were dealing with trends, that the U.S. had built so much debt that we would just continue to see the circuit breakers of dollar strength, and then return to the underlying weak dollar trend.

    That certainly appears to be the case, as I look back these past couple of years. Every time the currencies begin to rally with some conviction against the dollar, "something" happens, and the dollar flips a circuit breaker. Well, I'm no electrician, but I would think that after a circuit breaker gets flipped enough times that it eventually wears out. I'll have to look that up to see if that's correct, but logically thinking that would be the case, eh?

    For those of you new to class, when I talk about the weak dollar trend, I'm talking about a overall trading pattern that's not a One-Way Street, and could have volatility. This current weak dollar trend began in February of 2002, and saw a circuit breaker flipped in 2005, 2008, 2011, and 2013. But each time, the dollar went right back to its underlying weak trend. Which is where it exists today.

    A lot of economists and analysts have forecast that 2014 will be the year of the dollar. Of course, they've said that for the past 5 years this time of year. What they simply do not understand is that a trend begins for a fundamental reason, and the trend doesn't completely end until that fundamental reason is corrected or at least well on its way to being corrected. Debt is the main fundamental reason the dollar began this journey in the weak dollar trend, and I hate to remind everyone but we certainly haven't done anything close to correcting that fundamental reason, now have we?

    When I was in Vancouver last summer for the Agora Financial Symposium (AFS) I surprised the crowd and the folks at Agora, who may never ask me back, by talking about this call for the dollar weakness to end, and referring to it as the Sweet Spot. I then talked about how the dollar's "Sweet spot" reminded me of the great Trini Lopez song. And then sang to the audience, and on the second verse, asked them to sing along with me. Lemon Tree very pretty, and the lemon flower is sweet, but the fruit of the poor lemon is impossible to eat! I still feel strongly about this, folks. But trust me, I don't think singing during a serious presentation probably wasn't a good idea. But then, I've always used the AFS to do something different, that breaks up the day of one presenter after another talking about investments.

    Well. Yesterday, we saw the currencies range trade, and in the overnight markets there was a lot of nothing going on. I certainly can't blame the Big Chill on the overnight markets, for it's summertime in Australia and New Zealand, and I'm told it was over 100 in Australia yesterday! There just wasn't enough activity in the NY markets yesterday to get the rest of the world all fired up overnight! Gold, tried to add to its recent gains, but every time it went up $4 it went back down to flat, the up $4, and back down. It was as if somebody or some entity was playing a game.. Nah, no one would do that. HA!

    Speaking of Australia. The Aussies printed a smaller than expected Trade Deficit at A$ 118 Million, which in my mind is pretty much a flat deal. But the markets weren't impressed and pushed the Aussie dollar (A$) down by 1/2-cent. But that's about the only currency that has seen much movement overnight. I have to say that I think I get why the markets were not pleased with the Trade Deficit number. You have to not think logically, but use a Trader mentality for this, so stick with me. The traders probably looked at the smallish size of the Trade Deficit, and said, "this was realized because of the weaker A$... And if the Aussie Gov't figures this out, they'll probably push for even more A$ weakness". OK. make sense? Well about as much as trader mentality can I guess!

    The euro pushed higher by about 1/2-cent during the day yesterday, and has added a few ticks this morning. This morning the Eurozone's largest economy, Germany, printed some much better Unemployment, and Retail Sales data. First, the German Unemployment numbers were better in December for the first time in the last 5 months. The number of people out of work decreased by 15,000, and pushed the total for the year to 230,000. November Retail Sales increased 1.6%. In addition, the latest Investor Confidence survey from the think tank, ZEW, showed that Investor Confidence had surged to the highest level since 2006!

    On a side bar, I read on the Bloomberg this morning that starting this year, citizens from Romania and Bulgaria will be allowed to seek employment in Germany. This comes seven years after they joined the European Union. It is thought that this will lead to an influx of workers seeking jobs in Germany by 120,000.

    Staying in Europe. Sweden bucked the trend that we saw all last week, of countries around the world printing weaker than the previous month's manufacturing data. Sweden posted a manufacturing index number (PMI) of 57.7 in December VS 57 in November. Sweden continues to outshine most of Europe, even its kissin cousin that lives next door, Norway. This data has the krona pushing the appreciation envelope, but not too strongly.

    And then finally before I leave Europe, we'll fly over the Alps into Switzerland, where the Swiss National Bank (SNB) announced yesterday that they will post a $10 Billion loss for 2013, mostly because of the losses in their Gold holdings. I'm sure they also lost a shekel or two on their currency move in 2013 to Aussie dollars, as the A$ sure didn't end 2013 on a good note, after spending most of the year around $1.04, it fell, and I know I don't have to tell you that, but I'm just explaining the SNB's losses. But we don't really care about Central Bank losses do we? Well, in a way we do. Because just as easily as the SNB bought Gold and Aussie dollars they can sell them, which would be just like a Central Bank to sell into weakness.

    So, was the SNB wrong to "diversify"? NO! This was one year. but what about all the previous years when the diversification made them money? It's about reducing the over risk of one's investment portfolio folks, and that goes for Central Banks as well as individuals!

    Take the Fed, and their bond buying. This was not diversification at all, and now they're going to have to hold those more than $3.5 Trillion worth of Treasuries and Muni bonds until they mature, because to sell them into the markets right now would be crazy and bad for bond yields. Remember bond pricing has a reverse relationship with yields. So, if there's a ton of selling bond prices would go down, which would mean the yields would go up. And we know that the Fed has stated that they are going to do everything they can to keep that from happening. Remember our discussion about Reverse Repos? If you missed class on December 4, that's when I talked about Reverse Repos. You can either go to the Pfennig's Blog site at: and go to the archives, or do a simple search on Google by typing: Daily Pfennig: reverse repos. this will take to a list of Daily Pfennigs that got posted by other entities.. Just pick one, and read it!

    OK. Well, Janet Yellen was confirmed by the Senate yesterday to be the next Fed Chairperson. But it was scary there for a little while, as she received the least amount of Senate support on record, with a vote of 56-26. I think those "no votes" were to show everyone that these Senators are not happy with the fact that the Fed's balance sheet has grown to more than $4 Trillion, and now Yellen will have to preside over the unwinding of Quantitative Easing, ZIRP (zero interest rate policy), and overall unlimited liquidity. OR. having to admit that the unwinding is not prudent at the time, and just keep the bus running..

    My money is on the latter of those two. I've gone on record here in the Pfennig several times explaining my position on Tapering, so I won't bore you with that again, but once again, you can find it if that interests you, either in the archives or through Google.

    And the markets aren't convinced that she'll carry on with the tapering, as the 10-year Bond yield has slipped back below 3%...

    But I have to get away from talking about the Fed before my blood pressure starts to rise, and I begin yelling at the walls again! OK. Hall & Oates are singing Sara Smile on the IPod, so that will settle me down.

    Up north in Canada, where I wish they would keep their arctic blasts of weather, they will print their Trade Balance today for November. Recall that October's Trade Balance in Canada was a Surplus? Well, the "experts" believe that November's data will show that Canada slipped back into a deficit. But, by only C$ 100 Million, which to me, as I said above with the Aussie Trade Deficit, is pretty much flat. So, Canada is showing the world that they can have a semi-strong currency and still print good Trade Merchandise numbers.

    I talked to a group of young people last Friday, the Coro Fellows in Public Affairs, and they asked me what the U.S. could do to improve their trade position and become more competitive with their exports. Brother, was I loaded for bear on that question! Thank you, to whomever it was that asked that question. Softball for Chuck! But they wanted to know, because all they had ever heard was that it was the other country's fault that we weren't competitive. You know. I wrestled when I was in High School, and it was in wrestling that I discovered that you have no one else to blame for your loss but yourself. You can't blame the other kid because he trained harder than you. You can't blame your training partner because he didn't work you hard enough. It was only me, my choice to get better, and make my presentation on that mat more competitive.

    It's the same with our exports. Our leaders cry about how the Chinese renminbi is too strong and it needs to get stronger VS the dollar. Wait, that means what they are in essence saying is that they need for the dollar to get weaker. Now, switch over to Germany for a minute. The Germans deal with a very strong currency, the euro, which is 1/3rd of a cent more expensive than the dollar, and much stronger than yen, and a host of others, but does their exports suffer? NO! And why? Because just like me wrestling, they chose to make a better presentation of their goods and be more competitive because of value.

    Whew! I'm worn out now! I feel like I just went 6 minutes on the mat! HA! And now it's as if I'm in a tournament and now I have to go wrestle another guy, because. I'm going to talk about the latest thing on Gold.

    What I'm talking about is that even MarketWatch ran a story yesterday on Price Manipulation in Gold.. Sure, they were just quoting guys and using the proof that we've already talked about, but the point here is that MarketWatch was doing this. not the usual suspects when it comes to trying to make price manipulation in Gold public news. I have to wonder if this could become so widespread in coverage that the CFTC (commodities regulator) will feel that they actually need to enforce their own regulations? Or is that just wishful thinking? Probably. But one can hope, can't they?

    The U.S. will print its November Trade Deficit today, and it should come in around $40 Billion. I read a story last week by a guy that said that the Trade Deficit means nothing, and that people should not pay attention to it. I beg to differ, buddy! Countries that have a Trade Surplus get to build a treasure chest of reserves that can be used when needed, instead of going into debt. So, if it's good to have a Trade Surplus, it is bad to have a Trade Deficit!

    No mid week holiday this week, I'm addicted to them! So I guess I'll just have to take tomorrow off! HA! As if!

    The Peoples Bank of China (PBOC) finally got back to work on allowing the renminbi to appreciate, after 3 days of weakening the value of the currency. I continue to believe that these weaker moves are simply the PBOC's way of keeping the markets from having a view that the currency is a One-Way street to appreciation.

    For What It's Worth. In keeping with the thoughts on Gold, I found this on, which I've told you is a site that visit regularly for tidbits of info. Here are a couple of snippets from an article found there yesterday.

    "Why do we continue to keep the faith with gold (and silver)? We can encapsulate the argument in one statistic.

    Last year, the US Federal Reserve enjoyed its 100th anniversary, having been founded in a blaze of secrecy in 1913. By 2007, the Fed's balance sheet had grown to $800 billion.

    Under its current QE program (which may or may not get tapered according to the Fed's current intentions), the Fed is printing $1 trillion a year.

    To put it another way, the Fed is printing roughly 100 years' worth of money every 12 months. (Now that's inflation.)

    Conjuring up a similar amount of gold from thin air is not so easy."

    Chuck again. That's right! Even if you knew that there was Gold in a mine, you would still have to go down and find it, and mine it, bring it out and so on. Not as easy as going to the Fed's computer and entering some numbers to add to their balance sheet. right?

    To recap. Yellen was confirmed as Fed Chairperson but it certainly wasn't a clean vote, as 26 Senators voted no. The currencies traded in a range yesterday, with the euro about the only currency gaining more than 1/2-cent. Overnight there wasn't much movement except in the A$, which is getting sold even though they printed a better than expected Trade Deficit number!

    Currencies today 1/7/14. American Style: A$ .8940, kiwi .83, C$ .9355, euro 1.3645, sterling 1.6420, Swiss $1.1030, . European Style: rand 10.6130, krone 6.1540, SEK 6.4905, forint 220.50, zloty 3.0615, koruna 20.1320, RUB 33.18, yen 104.45, sing 1.27, HKD 7.7545, INR 62.30, China 6.1042, pesos 13.04, BRL 2.3605, Dollar Index 80.65, Oil $93.93, 10-year 2.96%, Silver $20.00, Platinum $1,416.75, Palladium $738.88, and Gold. $1,237.38

    That's it for today. Congrats to the Florida State football team for winning the NCAA Championship game last night VS Auburn. I only watched the first half, and thought Auburn had the game under control. But a fake punt gave FSU life, and they went on to win. Our colleague, Mike Harrell aka Cisco, had his FSU shirt on yesterday. So, he'll be a happy camper today! It was -6 this morning as I started my car. All the schools are closed, which means their Christmas break is even longer. Paul McCartney is singing about somebody knocking on the door, which is one of those songs that get your head bobbing, but certainly doesn't have a strong meaningful message! Our little Christine is here, so that means I'm really late getting this out! UGH! So, I hope you have a Tom Terrific Tuesday, and keep warm!

    Chuck Butler
    EverBank World Markets

    Posted 01-08-2014 1:00 PM by Chuck Butler
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