Angela Merkel: The Loudest Voice at the EU Summit

We had more of the same bias to buy dollars yesterday, with gold falling further, along with silver. The currencies held their ground pretty good, but the bias to buy dollars was there for us to deal with… I’ve been here for a while now, and I’m not seeing any movement either way in the currencies, and gold is up $3… The euro (EUR) still has the goings on with the debt-crisis facility negotiations, causing the single unit some pain. And when the euro has pain, the rest of the currencies fight to gain ground versus the dollar.

The debt-crisis facility negotiations have gotten pretty heated, but in the end… I do believe that the direction that Germany wants to go, will be the end-game for those negotiations… The shape of the Eurozone is going to be driven by the region’s largest economy; it’s that simple… At least to me it is, and I do believe the Eurozone members see that too, but have to put on a show to make their constituents back home feel like Germany didn’t push them around. You may ask yourself what happens if Germany decides to no longer underwrite the debt of the periphery countries in the Union? Well… I don’t think it would come to that… As I’ve said before, Germany does quite well using a single unit currency (the euro) in Europe… So, I don’t believe they would jeopardize that… So… Whenever German Chancellor, Angela Merkel, says something, it’s like one of those old E.F. Hutton commercials… People listen…

I wonder if Angela Merkel ever thought, growing up in East Germany, that her words would move markets in Europe? I understand that she’s really a physicist… Strange, eh? But, hey! She’s been one of my fave political people with her stance on budget reductions, and sound fiscal policy…

OK… Enough on that! But… Before I go on to something else, I do need to mention that the European Union’s 2-day Summit kicks off today… There will be many voices heard the next two days, but Angela Merkel’s will be heard over all of them… Because, like I said above, her country underwrites the debt of the periphery countries.

Yesterday, the TIC’s data here in the US were strangely bad… I mean only $7.5 billion of net foreign purchases were made in October… And the dollar remained bid? I mean, that wouldn’t pay for one day’s worth of deficit spending! Global demand for US assets (read Treasuries) must have gone with the wind in October… This is serious stuff, folks… But, I doubt you’ll hear or see it mentioned anywhere else.

The Swiss National Bank (SNB) met under a veil of secrecy… Well, not really… But shoot, Rudy, I had to search to find this news! Anyway… The SNB left rates unchanged, and only moved their inflation forecast marginally higher… Hmmm…

Inflation… Well… I walked past Ty’s desk yesterday, and he was reading a report from John Williams, of the Shadow Stats fame, and inflation was the topic… John Williams believes that we will have hyperinflation in this country within the next two years… Remember when I told you about the National Inflation Association (NIA) and their claims that inflation was soaring already? The NIA has said that they “believe that if the US stays on its current path, we are guaranteed to see hyperinflation this decade. The only way it will be possible to prevent hyperinflation is if the US government dramatically cuts spending across the board immediately and if the Federal Reserve raises interest rates from near zero percent (where they have been for nearly two years) to a level that is higher than the real rate of price inflation. Considering that the Federal Reserve still claims to fear deflation and just announced massive quantitative easing, we see very little chance of any major interest rate hikes taking place during the next six months.”

Now… Getting back to John Williams… This man has done a wonderful job of presenting the “real numbers” that the government will not produce… And so, when he says that he believes that hyperinflation is but a couple of years away, I believe him! And… You should, too… There’s just no reason not to! And I’m sure that if you are a person that says, “But I’d rather believe the Fed Chairman and stand behind him in his fight with deflation”… Well… Then, I’m sure that in a couple of years, you’ll be saying, “Geez I wish I had not followed the Fed Chairman down the slippery slope of inflation.”

And… I think that all you have to do is to watch the bond markets… I think the bond markets are seeing what John Williams, and yours truly are seeing, and that’s why Treasury yields are rising! The 10-year added another 4 BPS yesterday… Hello? Is there anybody in there? Yes, I know most people have become comfortably numb with the low rates, but that’s all about to change, folks…

You know… I could get into my mode of digging into the back of the deep, dark closet, but, this is my last day of writing before I head to vacation and Christmas, so… I’ll save you from that depressing stuff… But here’s a snippet for you… Just a tease… The bailout money didn’t save us… It will be one of the causes of our hyperinflation…

In fact… the spending for this, that, and other things that the government keeps doling out is going to prop up the economy for a while… And there will be people that become complacent with this arrangement, because on the outside, things are going to look good… But it won’t be… And eventually, things will unravel, and come crashing down… Where will your investment portfolio, your accumulated wealth, stand? Will you be able to keep your head above the rising waters? I sure hope so…

Well… It looks like there’s some healing going on with the currencies, as I get close to heading to the Big Finish… There has been no word from the people watching the CFTC (Commodities, Futures, Trading Commission) on what I’m hoping is a reprimand for those that have manipulated precious metals prices for years… And… A demand that the positions used to manipulate be unwound… I’m just wishing, and hoping, and thinkin’ and praying… That could be in the hearts of the CFTC people to announce. It’s probably a pipe-dream, eh? OH! And I have to say that it’s all speculation on my part that there are institutions that have manipulated precious metals prices… But, if you don’t believe that to be the case, then explain to me why – with all the crack pots shooting off missiles, and promising to wipe countries off the map, with the US fighting multiple wars (in Afghanistan, in Iraq, on drugs, on poverty, etc.), the US deficit heading another $1 trillion higher this year, interest rates being near zero for over two years now, and other things – that the prices of gold and silver are not reflecting all these things?

Sure gold and silver had one heck of a decade 2000 through 2010… But come on! Hyperinflation is right around the corner! In 1980, when inflation was soaring, and interest rates had to be jacked up to fight the soaring inflation, gold traded past $800… So… given that, gold should be much higher today…

Then there was this… Competing for bank industry attention on this Tub Thumpin’ Thursday will be the testimony of US Treasury Secretary Timothy Geithner on the $700 billion Troubled Asset Relief Program (TARP) that was used to bail out major financial firms like Citigroup and automaker General Motors.

The often-criticized TARP program will cost taxpayers $25 billion according to a recent congressional estimate. I’m sure Tiny Tim will not “recall” a lot of things, like he did his tax reporting…

To recap… The bias to buy dollars remained in the markets yesterday, but the trading range was very small, leaving me with the feeling that they held ground on the day. Gold and silver did not hold ground, and weakened versus the dollar. The EU Summit kicks off today… There have been some nasty negotiations going on with the “debt-crisis facility” between member nations… But remember, in the end, only Germany’s opinion counts! And the SNB left rates unchanged this morning.

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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