Is Jim Rogers Right About the Euro?

I arrived in the parking garage across the street from our building – not exactly the best situation for someone that’s partially crippled and has a blood clot in their leg, but that’s a story for another day… I got out of my car, and said, “Hmmm… Wouldn’t it be nice to see the euro trading with a 1.22 handle this morning?” Then said, “Nah, it didn’t look too good on Friday…”

I then came into the office, turned on the screens, and to my shock and amazement, there was the euro (EUR) trading with a 1.22 handle! Now… Maybe I should be booking me a flight to Vegas, eh?

Let me set this up for you… Friday, I signed off, and said that instead of an overnight sell off, the currencies had consolidated, and held onto their gains from Thursday… But then the roof caved in! The consolidation that we saw first thing Friday morning in the currencies, was wiped off the face of the currency map, once the awful retail sales data printed on Friday… The whole “feel good” feeling about the US economic recovery was thrown to the road side, and the currencies could not recover throughout Friday.

Now… In the “old days” of currency trading, a retail sales figure as bad as the one that printed on Friday (and remember, I told you that the BHI indicated it would be disappointing) would have knocked the stuffing out of the dollar… But once again, the mental giants running the markets right now, are all about the US driving global growth, and any signs to the contrary, causes a sell off in risk assets, and a flight to dollars.

Since I’ve talked about it a couple of times now, I guess I had better give you the skinny on the retail sales from May… US retail sales declined for the first time in eight months in May, tumbling a surprising 1.2%, the Commerce Department estimated Friday. Whoa, there partner! Did you say the figure tumbled 1.2%? I would say it did more than “tumbled”… It dropped like a rock!

But, that sell off of the risk assets on Friday was reversed in the Asian markets overnight, and added onto by the European markets this morning. What I think I’m seeing here is the markets throwing the retail sales figure aside, and thinking back to the strong data we saw from China on Thursday. The high yielders are the big winners overnight, and I think they are dragging the euro along for the ride…

The Aussie dollar (AUD) is up over 1-cent overnight, along with kiwi (NZD), the loonie (CAD), and krone (NOK)… Brazilian reals (BRL), which got a HUGE boost on Friday after the rate hike of 75 BPS was announced on Thursday, are stronger once again.

And for the first time in a week or so, gold is moving higher along with the currencies/euro… Recently, we’ve seen gold move along with the dollar… I told the boys and girls on the trading desk last week that this would not last long, for it was not a fundamental move… Gold is the “anti-dollar” asset… But, you can see why it happened, albeit briefly… The dollar was moving higher on the “recovery” rumors, and with interest rates so low, for so long, if the US economy was in “recovery mode” then inflation was about to begin to show up… And that would boost gold…

I was going to talk about a Jimmy Rogers interview last Friday, and completely forgot! But, it’s still a good thing to talk about so, a day late and a dollar short, but here it is from CNBC…

“‘Everybody is so bearish about the euro that it looks like now is a good time to buy the single European currency,’ famous investor Jim Rogers told CNBC Thursday.

“Rogers’ long-term bet is on commodities, as he predicts that governments will keep printing money to get out of their debt problems and this will flare up inflation.

“‘I’m as confused as anybody else… I’m basically short stocks and long commodities and trying to figure out whether to add to the euro yet,’ Rogers told CNBC.

“‘Everybody is terribly negative on the euro right now, it’s unbelievable how many bears there are and usually that indicates a rally,’ he said.”

OK… He’s certainly going to look like a genius if the euro continues to take off from Thursday’s figure of 1.2050…

This morning, the Bloomie is reporting that China has a response to US Treasury Secretary Geithner’s claim that China’s currency policy was an impediment to global growth… Hmmm… Well, the Chinese answered, “China hopes that US politicians will ‘seriously consider’ how to solve the structural problems in their economy and not blame others. The US should not politicize the renminbi or use it as an excused for protectionism.”

Here’s my take on this… The US politicians are so darn dumb, and truly believe that China’s currency level is the end all to what ails the US’s economic and fundamentals problems… They will end up doing something stupid like slapping trade tariffs on Chinese goods, and start a trade war… This is similar to what happened in our history, and what that ended up causing was some very bleak economic times for us!

I believe we are destined to relive the past, given the mental giants we have in the House and Senate…

OK… I have to go on to something else here… I could feel my blood pressure rising…

The data cupboard is being restocked today, for the remainder of the week is chock-full-o-data… Some of it worth talking about, and some of it, like CPI, worthless! Tomorrow, we’ll see the Net TIC Flows for April… Wednesday we’ll see PPI, and some housing data, and my fave Capacity Utilization, along with Industrial Production. The Current Account Deficit prints on Thursday, and so on…

Then there was this, as reported by The Washington Post

“President Obama urged reluctant lawmakers Saturday to quickly approve nearly $50 billion in emergency aid to state and local governments, saying the money is needed to avoid ‘massive layoffs of teachers, police and firefighters’ and to support the still-fragile economic recovery.

“In a letter to congressional leaders, Obama defended last year’s huge economic stimulus package, saying it helped break the economy’s free fall, but argued that more spending is urgent and unavoidable.”

I told you that we would need more stimulus… Not that I’m a fan of stimulus and want to see more and more of it… It’s just that I’ve seen this all before… Just go back to Japan in the ’90s…

I had someone challenge something I said last week about how deficits do matter, and pointed to Japan, and said that their government has run up huge deficits, but it hasn’t hurt their currency… Ahem… Two things make the difference here… 1. Japan has a HUGE trade surplus war chest, and 2. They are a nation of savers… So, Japan is not as dependent on foreigners to finance their deficit… The US on the other hand, does not have a trade surplus to help with the deficit spending, and 2. We are NOT a nation of savers!

To recap… The risk assets are on the rally tracks this morning, led by the high yielders who have all added 1-cent to their figures overnight. The euro is being dragged higher by the high yielders. Jim Rogers says that it just might be the time to buy the euro, with everyone so bearish on it, and gold looks like it might have broken that link to the dollar that existed for about a week…

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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