Fundamentals Might be Creeping Back Into the Markets

Well, day two of 2010 was another sign that the fundamentals just might be creeping back into the markets… There was a piece of data that was a good sign for the US and the dollar got bought… Now… Was that so difficult to do? That’s the way it’s supposed to work!

The piece of data? Oh, you probably heard all about it, as the talking heads on cable news were all smiles and giggles over this one… Pending home sales plunged a seasonally adjusted 16% in November as a highly popular tax credit for first-time buyers was set to expire on November 30, according to the National Association of Realtors. Of course we knew that it would take government intervention to help… Isn’t that what the government wants to hear from us? That we can’t go on without them intervening in our lives and the public and the markets?

OK… I had better stop there before I say something that could fill my email box with not so nice notes… There was another piece of data that was good for the US that kind of flew under the radar, and that was a 1.1% jump in Factory Orders in November. Apparently, businesses stepped up their demand for capital equipment to expand production… That’s according to the Commerce Department.

So… Dollars were bought, but not in huge droves… And, commodity currencies like the Aussie dollar (AUD) and the Canadian dollar/loonie (CAD), held on to gains versus the US dollar… So, it wasn’t like there was a huge conviction to buy dollars… The two currencies where dollar buying showed up the most were the euro (EUR), of course, by nature of being the offset currency to the dollar, and the Brazilian real (BRL)…

So… Like I said yesterday, the Brazilian Sovereign Wealth Fund (SWF) might have a short term affect on the real, but in the end I doubt the SWF will have that huge of an appetite for US dollars, and this plan to weaken the real will join the list of “plans” to weaken the real on the side of the road… But for now… Real is weaker. Would this be viewed as a buying opportunity? I think I would wait-n-see if the SWF buys more dollars right away first.

OK, there’s a story out this morning from China, where a government-sponsored think tank called CASS (Chinese Academy of Social Sciences) issued a report calling for a one-time 10% appreciation of the renminbi (CNY) versus the dollar to reduce inflows of speculative capital… The report calls for a 10% appreciation of the renminbi, and then a cap of 3% per year on the renminbi.

The Chinese Central Bank declined to discuss this report… And I think I can see why… Because, it makes sense! HA! Seriously… You know me… I always say, where there’s smoke, there’s fire… And this report certainly falls under the heading of “smoke”.

Well… Along with the commodity currencies holding on to gains yesterday, gold too held onto gains, and has added $6 to its total this morning, bringing it to $1,124.50

There has been so much written about gold in the past six months, and my goodness you can’t watch TV for five minutes without seeing a commercial with Gordon Liddy, or some other supposedly famous person telling you to buy gold…

I just want you to remember who was explaining the virtues of owning gold long before these TV commercials, and before other people thought it was a good thing!

In my December issue of the Currency Capitalist, I talked about giving my granddaughter, Delaney Grace, a gold coin for Christmas. I know, she’s only two… But the idea here was to begin early teaching her about the store of, and the accumulation of wealth… Maybe her generation will understand that your government can’t act like ours has for years now. Maybe, just maybe.

With the start of the New Year, I’ve completely lost track of the schedule of economic data prints… I was completely unaware that this Friday is going to be a Jobs Jamboree Friday, until I pulled up an economic calendar this morning! UGH!

The main piece of data this morning isn’t really data… It is the minutes of the last Fed Reserve meeting… These minutes are usually pretty interesting, except they don’t include the “By Joe, you’ve sunk my battleship” cries during the meeting! HA! I would look to see if the Fed mentions any timeline for their supposed removal of stimulus from the economy in the minutes.

Then there was this… I’ve talked quite a bit in the past couple of months about Greece, and their debt problems, and how quite a few people who should know better, have said that Greece would deep-six the euro… Well… If you’re in the same camp as me in thinking that states, corporations, financial institutions and whatever should not be bailed out, then you’ll love this news from the Eurozone… Apparently Eurozone member, Stark, said that the “EU will not save Greece” I say… YAHOO!

Why? Because, it’s the old slowest buffalo thing… The slowest buffalo would get killed, but, in the end, it would make the herd faster… If Greece is as much dead weight as everyone says it is, then cut bait and run!

To recap… Another sign that fundamentals are creeping back into the markets showed up yesterday, and after two good data reports printed in the US, the dollar got bought against the euro and Brazilian real… Aussie and Canadian currencies held onto gains as did gold… And a think tank in China is calling for a one-time 10% appreciation of the renminbi… Let’s see if that sinks or swims, eh?

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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