World Market Wrap Up
By: Chuck Butler Here is the recent World Market Update. The dollar has been sent to the woodshed, and the selling has been something that mirrors the buying it saw a couple of weeks ago! The Euro has just reached 1.38.
What turned on the dollar? I told you that “Investors are extraordinarily long dollars right now”. An overbought position, tends to get sold, and when it does, it goes the extra mile to sell and sell and then sell some more. But that’s not everything.
Yesterday, the Slovaks had the last vote on the changes to the European Financial Stability Fund (EFSF). I told you that I didn’t think the first vote would be “yes”, but that a second vote taken a couple days later would yield the result that the other 16 euro members have already reached. I thought that a “no vote” might cause some slippage in the Euro’s value, but that would be short-lived. The Slovaks did vote down the changes to the EFSF, but immediately announced that a second vote would take place, and the changes would be approved at that vote.
The Euro didn’t see slippage, as everyone said. “OK, it’s just a matter of days before it gets passed, there are no more questions about whether it gets passed, so let’s go ahead and reward the euro.”
And here’s the third reason. Not as important as the first two, but important nonetheless. Eurozone Industrial Production for August printed at +5.3%, more than doubling the forecast for a 2.1% rise in Industrial Production. This report really surprised the markets, and they acted accordingly.
And how about the Fed’s Twist & Shout? Wasn’t that supposed to bring long term Treasury yields down? Well, the 30-year has gone from 2.80% on 10/4, to 3.17% today. And if you think the loss in the 10-years were big, you get more bang for the buck with the 30-year. ($119.12 on 10/4, and $111 on 10/12).
The news yesterday was that all of the jobs that have been added since the financial meltdown on Wall Street (2008) will probably be lost in the coming weeks. That’s right 10,000 Wall Street jobs to be cut. That’s just awful! But I think it points out something here. Wall Street is experiencing falling profits, so they cut jobs. When profits were good they added jobs. They didn’t add jobs because they received some tax credit. They added jobs because their business dictated the need to add jobs, not because of some government program!
But knowing how the BLS works, they’ll figure that these 10,000 workers all started new businesses in the coming months, and count them as being added as new hires. Ok, I say that in jest, because we all know that can’t really happen, right? Ahem.
And I have to wonder if all this dollar selling is seeing some selling develop from the news that the U.S. Senate passed the bill that will punish Chinese exports for having a weak currency. I’ve talked about this till I’m blue in the face, but it looks like a little more is needed here.
The U.S. believes that by reducing the Trade Imbalance between the U.S. and China that it will create more jobs in the U.S. Hmmm. I sure hope they are correct, but unfortunately, I believe they have opened Pandora’s Box of Trade Wars. The Chinese are ticked about this. The Chinese Ministry of Commerce had this to say after the news of the bill passing. “The move has seriously violated international regulations and sent a wrong signal of escalating trade protectionism.”
Arguing that the renminbi’s exchange rate is not the cause of China- US trade imbalance, China has voiced its strong opposition to the US Senate’s passing of the bill, warning the US politicians against politicizing the issue of China’s currency and resorting to trade protectionism.
Gold was up $21 on Wednesday. We really haven’t seen many days lately, where we see both anti-dollar assets, the Euro and gold moving up against the dollar at the same time. That’s when you know the dollar has been sent to the woodshed, when both of these anti-dollar assets are moving up at the same time!
I saw an article yesterday that highlighted the gold buying going on in India. Well, you have to love it when astute investors see a “buying opportunity” that gold & silver have offered, as their prices plunged from highs set in September. In India inflation is soaring, and the government or Central Bank isn’t doing anything about it, so Indian people are buying gold to protect themselves!
Then there was this from CNBC.com: “The world’s advanced economies are headed for a second recession, regardless of whether there is further chaos in Europe”, noted economist Nouriel Roubini told CNBC on Tuesday.
“The question is not whether or if there is going to be a double dip, but whether it’s going to be mild or severe with another financial crisis”, Roubini, head of Roubini Global Economics, told CNBC on the sidelines of the World Knowledge Forum in Seoul. “The answer on that depends on the EuroZone.”
According to Roubini, a disorderly situation in Europe caused by a sovereign debt default, a banking crisis, or an exit of one of the members from the EuroZone, would be a shock more severe than the collapse of Lehman Brothers in the U.S.”
All Things Considered – John’s Commentary
Watch for more Euro/Dollar see-saw action – resulting in both gold and silver being bound in ranges. For silver specifically, it will have to definitively pierce either $33.50 or $28.50 and close above/below those levels for three consecutive days to let us know its direction. A lot of “wait and see” – although $32 silver is still cheap by any measure.
Quote of the day: “Gold and silver, like other commodities, have an intrinsic value, which is not arbitrary, but is dependent on their scarcity, the quantity of labour bestowed in procuring them, and the value of the capital employed in the mines which produce them.” – David Ricardo
