Global Economic Growth Takes a Hit

The news that Chris brought you yesterday – regarding the mini-rally in the currencies, led by the euro (EUR) climbing back to 1.40 – was completely washed out by the time the wheels on his plane touched down here in Orlando, yesterday afternoon. Chris had said as he signed off that the dollar was being bought right then, and he was right… And that buying of the dollar lasted all day!

It was strange watching that move, for just the night before, the talk was that there was no longer a need to buy the so-called “safe haven” US Treasuries and dollars… But that all turned on a dime, as the feeling came over the markets that the global recovery will be uneven, and therefore the hunt for strong economies with higher yields, has ended… For now, that is!

You see, that non-move by the Reserve Bank of Australia (RBA) on Tuesday night, really threw a spanner in the works for the global recovery. I’ve explained this to you before, but for those new to class… The Australian economy is THE proxy for global growth… And when the RBA left rates unchanged, when all the data pointed to another rate hike, it caused a hiccup to the “global growth” campers… Without global growth, it’s the same-ol’ “safe haven” trade… And as long as that exists, we’ll see dollar strength….

But this shouldn’t come as a surprise to anyone, as I’ve been writing for months now about a stock market sell-off that could adversely affect the values of the currencies… But the stock market sell-off wouldn’t last forever, and once thing calmed down, we would return to the underlying weak dollar trend.

The European Central Bank (ECB), and Bank of England (BOE) are both meeting this morning as my fat fingers type away. I don’t expect – and neither do any of the economists surveyed by Bloomberg – that either of these two would be so brave as to raise rates… The most important thing to come from these two meetings would be for ECB President, Trichet, to talk about how Greece isn’t going to cause the European Union and the euro to collapse, and that he expects economic growth in the EU to expand in 2010… Now that would be a good statement! Let’s see if he says anything close to that!

Speaking of Trichet… I have to admit that when he was handed the ECB President job, I was not thrilled. Wim Duisenberg had guided the ECB with a strong steady hand through its initial “lack of credibility” tag at the ECB’s infancy, and soon had traders around the world believing in the ECB. Trichet was a French Banker, and as such wasn’t held in the same high regard for being a hawk, and a central banker that would provide price stability, like the Germans and the Dutch… But he has done a very stellar job, in my opinion. He has guided the EU through some difficult times, and still the EU’s currency, the euro, remains stronger than the dollar by quite a margin.

Yes, I’m quite aware that the “margin” has been shrinking, but it did in 2005, and 2008 too! Only to see the single unit, euro, rally back… And rally because of the credibility of the ECB, for its ability to provide price stability.

OK… Enough of the drooling over Trichet… HA! Let’s come over to this side of the “pond” and see what we have to work with here…

I heard on the TV yesterday that the Vice President actually said that the “deficits could become a national security problem”.

Geezo, Geezo, Geezo! Where has this dolt been? I’ve been preaching this for years now! That sooner or later, the Chinese will be calling the shots in our country… It’s almost like these dolts just “figured this out”… That’s a sad thing, folks. Very sad… For what are they going to do about it now that they’ve finally smelled the coffee?

This is very similar to my old nemesis (Big Al Greenspan) saying all the while that he couldn’t see a bubble, and then later when asked about it, saying that he didn’t have the tools to deal with the bubbles. Government officials say they didn’t see the deficit growing, and now the say they don’t know how to deal with it!

On a side bar, speaking of Greenspan… It is a fact that he said in a speech that homebuyers were costing themselves money by doing 30-year fixed loans, and that they would have more funds to spend if they did ARMs (Adjustable Rate Mortgages)… He banged the drum for ARMs and then proceeded to raise interest rates 17 times in the next 2 years! Imagine if you listened to the Fed Chairman, and then watched him deep-six your mortgage!

That’s just one of the many, many dastardly deeds that Big All pulled off during his time in the Fed Chairman’s seat.

OK… Enough… Of that… But before I go on to other things… I did a presentation yesterday to about 250 people regarding some of these stupid statements that Fed Heads, Treasury Secretaries and presidents have made through the years regarding the economy, and so on… Theses guys are clueless, and they only say these things to make us “feel better” so we’ll go out and spend money!

Well… I was reading a story yesterday regarding Brazil… The real (BRL), which has been beaten about the head and shoulders for over a month now because of the Sovereign Wealth Fund, will hopefully benefit from the news that economists in Brazil now agree with the currency traders regarding the interest rate direction in Brazil. The reason the economists have upped their forecasts for rate hikes? The Brazilian economy is being seen to expand at a very fast pace!

I’ve said this before, but it’s worth repeating… I truly believe that the Brazilian Sovereign Wealth Fund was created to soften the real, because the central bank knew that it would be raising interest rates aggressively this year, and they didn’t want to start those rate hikes with the real already so strong versus the dollar!

With today being a Thursday, it means the Weekly Initial Jobless Claims report will print… We’ll also see Factory Orders for December.

Then there was this… After being sworn in to the Fed Chairman’s position again, Big Ben Bernanke decided to do a raspberry in the face of lawmakers, and immediately vowed to defend the Fed’s autonomy! What nerve! Lawmakers should have put him right back on the stand and voted him out! What a major league jerk! He was all humble and forthright when the hearings took place, but give him his job back, and he does this!

You know… If I were Big Ben, I would have said, “To heck with this,” and walked away from the job of reversing a record monetary expansion without hurting the economy… I personally don’t believe it can be done that way. So, Big Ben is NOT going to be smiling like he was yesterday when he looked like the cat that ate the canary!

About Chuck Butler 105 Articles

Affiliation: EverBank

Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter.

With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News, World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune.

Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.

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