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DAILY PFENNIG

* Asian data sinks currencies.
* Risk Off Day except for Gold!
* Rugby World Cup in New Zealand!

And, Now, Today’s Pfennig for Your Thoughts!

Gold Rallies to $1,800 Again!

Well at one point yesterday, it looked as though the dollar was about to get a root canal, as the euro climbed back to 1.45, the Aussie dollar (A$) $1.05 and so on. The currencies were rallying so much that Gold climbed into the back seat and let the currencies drive for awhile. But, this morning gold is back in the driver’s seat, with the currencies backing off their charge against the dollar.

The backing off came in the Asian session after some weak data from the region, pushed Asian stocks lower, and took the “Risk trading” off the table. The one piece of data that really shook up the region printed in Singapore, where overseas sales slumped for the first time in 3 months. Malaysia saw their economy grow at the slowest pace since 2009, but the real meat was the Singapore data. You see, Singapore depends on overseas demand. They don’t have an economy the size of China that can switch to a domestically demanding economy. This is a little disturbing, but not like having one’s credit rating downgraded, so let’s see what comes next here before we scream the sky is falling.

I’ve said this before, but it bears repeating. Gold is more than just a commodity. It’s real money! And an excellent way to diversify an investment portfolio! As I tell audiences all the time. Gold has independent pricing mechanisms than the other assets you hold. Gold acts to smooth the volatility in an investment portfolio, especially in highly volatile times. Gold is not subject to any form of liquidity risk, and does not contain credit risk, and finally it has no liabilities attached to it!

Yesterday, we saw the color of the latest PPI (wholesale inflation) report here in the U.S. July’s PPI showed a .2% increase for the month, which didn’t erase June’s -.4% print but did get people talking about inflation again. But we won’t find inflation in today’s printing of CPI (consumer inflation). That just won’t happen, folks as the hedonic adjustments department will make certain of that!

It will be a busy day for the data cupboard, as CPI will be joined at the printer by Weekly Initial Jobless Claims, Leading Indicators for July, the Philly Fed (manufacturing), and Existing Home Sales. None of it will be too revealing to us. I like to see what’s going on with Leading Indicators, as it is a forward looking report.

I had a reader ask me why I hadn’t commented on the riots going on in England. Well, that’s because I would really like to imagine them not happening. You see for the last 3 years, whatever happens in England, happens here about 6 months later. And while I’ve always known that back in the deep dark closet, that kind of social unrest could come to this country. And because of the inevitable austerity measures that must be taken to seriously change the course this country’s finances.

I was sent another note by a reader that reminded me that the Rugby World Cup was being held in New Zealand, right now, and the forecasts for people coming to New Zealand to watch the games were understated. So the kiwi could very well see a short-term rise, based on the activity in the New Zealand.

I see where Norway announced a HUGE Oil discovery. There had been some recent talk that Norway’s Oil fields were drying up. Well that talk can now be put to bed! And the country with the absolute best financial balance sheet will continue to remain at the top of that list!

We’re turning Japanese, yes, I really think so! Turning the page back to the 90’s when Japan cut interest rates to the bone and kept announcing budget stimulus, just plain stimulus, job packages, quantitative easing, and what did it get them? Nothing, absolutely nothing! Unless that is you’re talking about a Gov’t debt that has exploded.

And now here we are in the U.S. we’ve gone down the stimulus road a couple of times now. We’ve cut interest rates to the bone. We’ve gone down the Quantitative Easing road a couple of times now, so what’s next? Ahhh grasshopper, the U.S. president announced yesterday that he will present a Jobs package next month. So, as of next month, we will have gone down every road the Japanese went down.

To recap, the currencies enjoyed a strong performance yesterday, only to see the rug pulled out from under them by some weak Asian data. Malaysia’s GPD was weaker, and Singapore’s overseas sales slipped. These two ripples led to an Asian stock sell off and that was handed over to Europe, who kept the weakness going. Gold however, has taken its place now as THE Safe Haven currency, and has rallied this morning. It will be a busy day for the data cupboard today.

Chuck Butler
President
EverBank World Markets