German Bundestag Votes to Expand EFSF

I read a story this morning, titled “World Recession Seen Triggered by Europe Breakdown in a Global Investor Poll”… Whoa there! The US never left their recession, so, tell me just how Europe, which isn’t the economic engine of the world, caused a world recession, when THE economic engine of the world was mired in their own recession! Just shows to go you that people just don’t understand what’s going on here in the US and how the media has air-brushed over all the rot on the economic vine…

That’s OK… We all know better, eh? Oh, I’m not making light of the Eurozone’s problems… They made that bed and they have to get in it… And sure, their gyrations of debt have caused some countries to be wary of what might come next, but to say that… Oh, never mind… Let’s not spend all morning on this Chuck!

Yes… The currencies remained range bound all day yesterday, with a bias to the upside… But in the overnight markets there had been some slippage… But since I came in, and maybe, just maybe because you never know, they were waiting for me to arrive and begin talking about them to move higher! HA! Yes, since I came in and turned on the screens, the currencies, led by the euro (EUR), are moving higher versus the dollar…

The euro’s move higher is interesting given the fact I told you about yesterday, that the Germans are voting on the expansion of the EFSF… Shoot, even stocks are rising in Germany this morning, so the downside risk remains that the Germans vote no… But I doubt that… Yes, they’ll complain about it, balk at signing on… But in the end, remember, the euro is their baby… If you ever want a full explanation about how the euro was formed, and who was responsible for what…you might want to read a book called Exorbitant Privilege by Barry Eichengreen… I read the book, and then left it on a plane! UGH! So, someone out there got a free excellent book!

And before I go on… Let me be precise here… When I say the Germans are voting, I don’t mean the general public… I mean the German Bundestag, which is the federal legislative body in Germany… They are the lower house, and if it passes there, it goes to the upper house, the Bundesrat… Again, there’s a whole history book on this process, and where it came from, so I can’t go into that here, not enough time or space… Just know that if the Bundestag votes yes, then the expansion of the EFSF will go through…

And the markets are wishing, and hoping, and thinking, and praying that the Bundestag will vote yes… In fact, they are going out on a limb and making trades as if the vote is already in!

In Australia overnight, where the most slippage in the currencies could be found last night, the Aussie dollar (AUD) got smacked around after third quarter job vacancies rose by 3.2%… I think that this slippage overnight will be short-lived, especially if the euro is able to maintain its current bias to go higher.

In Japan overnight, Japanese officials at the Finance Ministry announced that they would extend by at least one month their monitoring of currency market positions. That cracks me up… Think about that for a minute… The Japanese truly believe that the markets will shudder in their collective boots, because the Finance Ministry “is watching”… HAHAHAHAHAHA! Memo to the Japanese Finance Ministry… The markets aren’t afraid of you, especially when you do nothing but attempt to jawbone the currency lower! So… As they used to say… “you know what”, or get off the pot! That’s right! Either get in there and intervene or shut up and go home! My beautiful bride was a pre-school teacher before she “retired”, and used to tell our kids not to say “shut up”… Please refrain from speaking… But in this case, I’m attempting to express an emotion, and saying “shut up” is fine… I think! HA!

OK… Fed Chairman, Big Ben Bernanke was speaking yesterday, so let’s listen in to what he had to say…

Federal Reserve Chairman Ben Bernanke called long-term unemployment in the US a “national crisis” and called on Congress to take action to fight it. About 45% of the jobless have been unemployed six months or more, Bernanke said. “This is unheard of,” he said. “This has never happened in the post-war period in the United States.”

And that brings me to what we’re going to be hearing from now until November 2012, and that is how the candidates and the president will talk about how they are going to create jobs… The minute those words come out of someone’s mouth, you should immediately mark them off your list, because they have no idea how jobs are created… And the government doesn’t create them! Unless you count a reinstatement of the military draft!

Speaking of the draft… Remember the lottery? When birthdates were pulled out one by one, with each one representing all the young men born on that day, being eligible for the draft? That was hairy… Very hairy…

Well, more rot on the US economy’s vine was exposed yesterday, when Durable Goods Orders reversed the previous month’s 0.7% gain, and fell -0.1% in August. (Remember the previous month had some airline orders that helped account for the 0.7% gain)…

Today, we’ll see the final (and it’s about time too, eh? The third quarter is almost over!), second quarter GDP print… Don’t expect any miracles here, folks… GDP is running 1 to 1.2%… And unemployment is running around 23%… And with that information raining on our parade, we’ll switch to the usual Tub Thumpin’ Thursday data, which is the Weekly Initial Jobless Claims, which are forecast to remain above 400,000 again… Look for the total to be around 420,000… And stop to think about that for a minute, folks… Almost every week for a month of Sundays, over 400,000 people file their FIRST unemployment claim… And the government says we’re not in a recession? If it weren’t so serious, I would laugh at their inability to see the forest for the trees…

And I can’t forget to talk about gold… Well, the shiny metal is up $8 this morning, but with the wild swings we’ve seen lately, $8 is not terra firma in any stretch of the imagination! As I said the other day… It sure looks as though gold found a bottom around $1,600, because its brief visit just below $1,600 was very short lived, and the move higher has been good… The fall to $1,600 really spurred a lot of buying and looks to close out the third quarter with an 8.6% gain… Yes, even with the $300 sell off from the high it reached on September 6th of $1,921, the shiny metal can boast another quarter with a gain!

Then there was this… Talk about not learning anything from the past… I read a story on the Bloomie about a Deutsche Bank analyst that believe the Fed’s decision to resume buying government backed mortgage bonds might prompt US banks to purchase riskier debt. And then reported that banks are looking into securities backed by “subprime auto debt”, company loans and commercial mortgages…

You would think that the word “subprime” would be the forbidden word to a bank? Eh? Good to know EverBank doesn’t do this stuff, to the best of my knowledge, that is…

Oh! This just in! Talk about fresh press! The German Bundestag did indeed vote in favor of expanding the EFSF… But, in a case of buy the rumor sell the fact… The currencies are weakening after the vote was announced!

And then I want to make sure I tell you about this… Richard Fisher is the President of the Dallas Fed… And he was one of the dissenters on the Fed’s decision to implement Twist & Shout (Operation Twist)… So, he had this to say… “The central bank’s decision last week to push down longer-term interest rates risks proving ineffective and may hurt job creation.”

To recap… The currencies range traded yesterday, saw some slippage overnight, rallied on the rumor that the German Bundestag would vote for expansion of the EFSF, and then sold on the fact that they did vote to expand the EFSF! Japan is still barking loudly about the strength in the yen… But doing nothing but “watching it.” US Data continues to come in very soft… And gold tried to build on its last couple of days of positive gains.

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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