Everyone Gets the Employee Discount!
"We have put out the For Sale sign on U.S. debt and have done everything to attract foreign buyers, even enabling them to buy at better prices than U.S. consumers. But what will happen when they no longer want or need to purchase this debt?"
by Chris Gaffney In this issue… - Selling the U.S.
- Big Al addresses congress
- Good news for the Euro
- Chinese economists weigh in
--- Advertisement --- Investing in the world's major currencies can help you diversify your portfolio, earn income, and seek capital gains. EverBank offers an innovative selection of WorldCurrency Deposit Accounts and CDs. Want to learn more? Call 1-800-926-4922 --------------------- And now…today's Pfennig Everyone Gets the Employee Discount!! Good day. Today we will see just how attractive U.S. assets remain to international investors, as the Net Foreign Security Purchases report is due out for May. Economists predict the monthly figure will again top $60 billion compared with a trade deficit of $55.3 billion. If true, this would be the first time in three months that the inflows have exceeded the trade deficit, which would be looked at as dollar positive. I was speaking to a man this weekend whose family has owned a Chevy dealership for 60 years. He said the discount incentives have been great for traffic and sales at the dealership, but he is extremely worried about the future. He says anyone who wants a new car is almost certainly buying them now; so what is going to happen this fall when the new models come out? I have to compare the Auto manufacturers to the U.S. Fed. We have put out the For Sale sign on U.S. debt and have done everything we can to attract foreign buyers, even enabling them to buy at better prices than the U.S. consumers (weaker dollar). But what will happen when they no longer want or need to purchase this debt? The answer, as Chuck has pointed out several times in the past, is that we will need more incentives to keep them buying. These incentives will come in the form of higher interest rates and a weaker U.S. dollar. For now, Greenspan looks like he will keep investors focusing on interest rate differentials rather than the deficits. Big Al is almost as good as Lee Iacocca when it comes to selling. I expect him to sound very hawkish during his two days of testimony to Congress this Wednesday and Thursday. He will most likely signal the central bank isn't through with its "measured" pace of interest rate increases. Most economists are now predicting that the fed will continue the .25% increases through the end of the year with the market thinking the target will be moved to 4% by December. As you will recall, many had believed the Fed would stop at 3.5%. So the spotlight will again be on Mr. Greenspan to see what the Fed has in mind. After declining Friday, the Euro moved back up on speculation on a cut by the ECB has disappeared after inflation accelerated. The Euro is also getting support from expectations that the confidence reports due out tomorrow in Germany will show a nice gain. Government reports this month showed German factory orders gained and French industrial production increased in May from the previous month. The worst of the European data has been priced into the market, and the data should continue to improve helping to increase the upward pressure on the Euro. About 60 percent of the 60 state economists in China believe their government should revalue its currency in the second half of this year. Most are advising their government to simply widen the trading band of the Renminbi whose value is currently held within .3% of the pegged rate of 8.265 Renminbi/US$. This meshes with last week's reports in the Financial Times that China will revalue in August. It looks like the pressure to revalue is growing from within China as well as from their trading partners. Currencies today: A$ .7485, kiwi .6734, C$ .8195, euro 1.2054, sterling 1.7462, Swiss .7725, rand 6.66, krone 6.5927, forint 204.49, zloty 3.4164, koruna 25.05, yen 112.28, baht 41.80, sing 1.6889, pesos 10.61, and gold… $421.60 That's it for today. Happy birthday to our bond trader extraordinaire John K. I've worked with John for over 10 years now, and I believe this is the first time I remember him coming into work on his birthday! With Chuck in LA and Ty in Hong Kong, I guess he thought we would need him. Thanks John! Chuck will be back in the saddle tomorrow, have a great day!! | 
