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Daily Pfennig: Shoppers Hit the Stores Early, But Will It Be Enough???
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In This Issue.
* Retailers hope Black Friday can pull them through...
* More problems for the Euro as ratings are cut...
* Risk aversion hurts the high yielders...
* China slows the Renminbi’s appreciation ...
And, Now, Today's Pfennig For Your Thoughts!
Shoppers hit the stores early, but will it be enough???
Good day, and welcome to another Black Friday!! I hope everyone had as great a Thanksgiving as I did. We spent the day at my mom's house, watching football and playing with my nephews who came in from Huntsville for the holidays. Lots of wonderful food and family made it a great day! Chuck is enjoying an extra bit of time with his family, so I have the honor of sharing my thoughts on the markets will all of you today.
From the looks of the parking lot out in front of our building, the Christmas shoppers aren’t quite as enthusiastic as in years past. Our building shares a parking lot with Best Buy and Sports Authority, and in years past the parking lot and stores have been jam packed. A few years back there were lines of shoppers wrapping around the sidewalk waiting to get into the Best Buy, and police cars were directing traffic out in the parking lot. But this morning when I rolled into work the parking lots were just ½ full. Honestly I can’t imagine why anyone would be willing to stand in line to go spend money. Oh, I know all of the great deals which everyone says are available to the first shoppers, but I just don’t need a 42” flat screen TV or another laptop, even if they are $100 off. I heard an interview with one shopper this morning who said he had camped out for 30 hours and hoped to be able to save $1,000. I guess $33 an hour isn’t bad, but how much will he have to spend in order to ‘save’ that $1,000?
I have to believe many of these shoppers hitting the stores in the early morning hours are just there to try and take advantage of these one or two 'deals'. And while all the Black Friday sales may start the holiday shopping season with a bang, I question how much stamina these shoppers will have. A report released Wednesday morning showed consumer sentiment in the US has stagnated at levels typically reserved for the depths of recessions. Poor consumer confidence, stubbornly high unemployment, and stagnate incomes are not good precursors of a strong holiday shopping season.
As Chuck mentioned in the Pfennig, Wednesday was chock full of data here in the US, and unfortunately none of it was very encouraging. Orders for durable goods fell .7% in October after a 1.5% drop in the previous month. Aircraft orders were blamed for the drop, but when we look at the numbers ex aircraft and defense the drop was the largest since January. Personal incomes rose a bit more than expected while spending was a bit lower. These reports were the highlight of the data releases on Wednesday morning, and were definitely a step in the right direction for US consumers, but the weekly jobs numbers quickly overshadowed the good news. The number of workers filing out of work rose again last week after dropping to a seven-month low. Claims for jobless benefits rose by 2,000 during the week ending November 19 to reach 393,000. Economists had predicted a figure of 390,000 new claims. The unemployment rate remains stuck right around 9% which will make this Christmas season a bit less joyful for a number of Americans.
Today should be a fairly quiet trading day, with no data releases here in the US and many of the traders taking advantage of an extended Thanksgiving weekend. But it is business as usual in the rest of the global financial markets, so let’s move on to Europe and see how the beaten down euro is faring. Chuck informed all of you about the lack of bids during Germany's bond auction earlier this week, and the Euro felt the effects, sinking to a six week low vs. the US$. Adding to the Euro's troubles was the release of data which indicate European services and manufacturing continue to be in contraction and another report which showed industrial orders slumped 6.4% in September from the previous month. And the bad news for the euro continues today as data releases showed French consumer confidence has dropped to the lowest level since 2009.
The bond vigilantes continue to test the European debt markets, forcing rates in Italy to a 14 year high. Italy will try to sell some additional short term debt today, but investors don’t seem too excited about lending money to European governments right now. Yield curves across Europe have inverted, with investors demanding more yield on short term investments than those further out the curve. In addition to Italy, Greece and Portugal also have inverted interest rate curves and Spain’s spread between their 2 and 10 year notes is the narrowest in over three years.
The rating agencies aren’t letting up on the Euro-area as Fitch cut Portugal’s debt rating to so-called ‘junk’ and Moody’s Investors service cited risks to budget deficit and public debt targets in cutting Hungary’s debt from Baa3 to Ba1 which is what they consider ‘junk’. The downgrades continue, and most of the ratings outlooks for the Euro zone are negative, not a good sign for things to come.
The strategists over at Goldman Sachs Group have apparently seen enough, and have recommended investors throw in the towel on a money-losing bet that the euro will gain against the dollar. Goldman issued a recommendation to buy the euro back on November 11 after Greece swore in a new government and Italy made plans for a new administration. But these short term bets have been money losers for investors, so Goldman strategists have now told investors to get out of these losing euro positions. Just another reason you won't see Chuck or I suggesting ways to make a 'quick buck' in these volatile markets; even the folks over at Goldman can't seem to figure out where the markets are headed in the short term! Investors need to look at the longer term, develop a good diversified portfolio, and stick with it.
The failed German bond auction on Wednesday morning sent the emerging market currencies into a tailspin from which they still haven't recovered. The Brazilian real, South African rand, Indian rupee, and Mexican peso have all lost over 10% vs. the US$ this year, as investors fears of a global slowdown have moved them out of these 'risk' currencies. These emerging market economies rely heavily on global economic growth, and continued strength in the commodity markets, so any indication that global growth could be falling further is bad news for the commodity markets and for these emerging market currencies. The Australian dollar continues to fall and is headed for another weekly loss while the New Zealand dollar is now in its longest losing streak vs. the greenback in three years. New Zealand will hold elections this weekend, but the political environment is fairly stable.
The Brazilian real has been especially hard hit as the Central bank President Alexandre Tombini continues talk of additional rate cuts. Tombini reiterated that Brazil was justified in making ‘moderate’ interest rate cuts given the decline in global growth. The ‘substantial and generalized’ worsening in the international outlook will affect Brazil’s economic growth and inflation, Tombini said at an event in Sao Paulo. “This important and significant deterioration has impact on the dynamics of economic activity and inflation, through different transmission channels, justifying the implementation of moderate adjustments to the benchmark interest rate,” Tombini said. Brazil will hold another policy meeting next week, and the markets are now expecting another rate cut.
Chuck mentioned that I should talk about the Singapore dollar this morning, as a Pfennig reader sent him a note on Wednesday asking about events there. But I guess the email must have sparked some thoughts Chuck had been holding, as he went ahead and sent me the following before leaving:
Seems to me that the Sing dollar (Sing$) is getting caught up in the goings on in Europe, as the value VS the dollar has slipped recently. I find this to be confusing somewhat, because… External currency values have until now, been the main mover of the Sing$. The external currency values being the Chinese renminbi. You see, these two countries are always in competition for exports, which means if one country allows their currency to weaken significantly, they gain an advantage on the other exporting country.
Therefore, as the Chinese renminbi takes its slow and steady steps of appreciation, the Sing$ should too. However, I do believe that the Sing$ got ahead of itself, and the renminbi this last summer. And now the Monetary Authority of Singapore (MAS), which is responsible for setting the direction of the Sing$, realizes this, and has backed away from supporting further appreciation, at this time.
Inflation in the city/state continue to run very high, which indicates to me that the MAS will not allow the Sing$ to weaken much more, given their previous comments about allowing the strength of the Sing$ to help them combat inflation.
Chris again. Data released this morning showed Singapore’s industrial production growth unexpectedly accelerated in October as a surge in pharmaceutical manufacturing offset a slump in electronics. Manufacturing climbed 24.4% from a year earlier after a revised 11.3% increase in September. As Chuck mentioned above, the Singapore dollar has been matching the Chinese Renminbi, and China has been slowing the appreciation of its currency in order to protect exporters. The Renminbi fell vs. the USE for a third week, the longest losing streak since July 2010.
Then there was this. EverBank was mentioned in a story on CNNMoney.com Wednesday. The story’s title asked the question ‘Should you move out of the dollar?’ and EverBank World Markets was mentioned as one of the simplest ways to diversify. “Or you could simply park some of your money in a US bank account that offers foreign currency investments. EverBank, for example, offers short term certificates of deposit denominated in baskets of foreign currencies. The CDs are FDIC insured and pay interest based on the rates prevailing in each relevant country. EverBank also offers deposit accounts in foreign currencies. A sustained drop in the US dollar is not a sure bet. But given the impact that such a decline would have on the purchasing power of your savings, moving a little money into foreign currencies is a sensible insurance policy.” Thanks to Janice Revell for the mention, which is apparently also going to be in the December 12, 2011 issue of Fortune.
To recap. Retailers hope Black Friday will kick the holiday shopping season off with a bang. Ratings agencies drop Hungary and Portugal debt to junk levels, and the euro continues to suffer. Risk aversion drives investors away from the emerging market currencies, and a rate cut in Brazil won’t help the real. China’s slower currency appreciation brings the Singapore dollar down also, and EverBank is mentioned as a simple way to diversify out of the dollar.
Currencies today 11/25/11. American Style: A$ .9681, kiwi .7379, C$ .9512, euro 1.3221, sterling 1.5463, Swiss $1.0783, European Style: rand 8.5877, krone 5.9297, SEK 6.9996, forint 238.20, zloty 3.4141, koruna 19.68, RUB 31.687, yen 77.65, sing 1.3129, HKD 7.7968, INR 52.255, China 6.3789, pesos 14.271, BRL 1.894, dollar index 79.67, Oil $95.16, 10-year 1.92%, Silver $31.05, and Gold. $1,676.57
That's it for today. I am still full from yesterday’s dinner! As I said in the opening paragraph, I spent a great day over at my mom’s house. She made enough food to feed an army, so I brought plenty of leftovers into work with me this morning. Should be a relatively quiet day on the desk, and I know at least one of the TVs on the desk will be turned to the big college football game this afternoon. Hope all of you have a Fantastic Friday and a wonderful weekend! Thanks for reading the Pfennig.
Chris Gaffney, CFAon behalf of Chuck Butler
Vice President
EverBank World Markets
1-800-926-4922
1-314-647-3837
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Two decades ago, Chuck Butler embarked on his extensive career in foreign investments as the Director of Operations for the Fixed Income Division of the Mark Twain Bank. He oversaw the clearing and custody of all bond department trades and Mark Twain portfolio transactions.
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