King Henry Keeps His Cash!
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In This Issue..

* Paulson says no to automakers...

* Currencies trade in a tight range...

* Richard Russell on a Wednesday!

* TIC Flows improve...

And Now... Today's Pfennig!

King Henry Keeps His Cash!

Good day... And a Wonderful Wednesday to you! OK... Are you up on these "pirates" stories going on right now? That's pretty unbelievable, eh? And... We are all fans of "pirates" here on the Currency Trading Desk, but these guys now are giving "our pirates" a black eye!

The currencies range traded yesterday in a very tight range, as Treasury Sec. Paulson, didn't give in to the lawmakers and allocate $25 Billion of the TARP (Troubled Asset Relief Program) funds to automakers. King Henry said, "The rescue (read bailout!) package was not intended to be an economic stimulus or an economic recovery package. The $700 Billion TARP was designed to stabilize financial markets and the flow of credit, and it not a panacea for all our economic difficulties."

Well... For once, I'm not going to take King Henry to the woodshed... The lawmakers were banging on him and Fed Chairman Big Ben to dole out funds to anyone that was in dire straits... But they held their ground... And therefore did not cast any "unknown" shadows over the markets. But U.S. stocks didn't like it, and sold off after the testimony and questions on Capitol Hill.

The thing to think about with these automakers is the fact that they have become such HUGE finance companies, which is where, I believe I read, they "really make the money"... Shutting them down because they haven't run their businesses correctly over the years isn't the issue... It's what to do with those financing companies... I could be totally wrong here, off base and picked off by a wily veteran lefty, but it's the way I see it...

OK, well, for the currencies... Like I said above, they were stuck in the mud, in a tight range, with no where to go and no one to see. I was reading a note from well respected and famous analyst, Richard Russell yesterday... Let's listen in to see what Mr. Russell had to say...

"Please remember, all these billions of dollars that the government is throwing at entities - all this money represents additional DEBT.

How the US dollar will hold up against this building-tower of debt is the question.

Ultimately, the trillions of newly-created dollars could lead to hyper-inflation."

Yes... But the question that I keep getting asked, and I would ask of anyone that makes a statement like that is "when?" When do the markets wake up and smell the coffee? When do the markets realize that they're on the wrong side of the road? I keep saying that it will all happen when the credit markets get unlocked... But that certainly doesn't look like it's going to happen any time soon... I just getting frustrated by all this... The signs are there for dollar weakness... It's like they are glowing neon signs in bright colors, pointing to the dollar with exclamations like "should be weak"...

Remember when I used to write about how the debt level in New Zealand would come into focus once the hype over the high interest rates and Carry Trades were history? And for years people would write me and cuss at me about how they sold their kiwi because I said it would be in trouble when the interest rates and Carry Trades were history... But I held my ground, then... And I'll hold it now... In fact, I've got company... By good friends over at Casey Research, including the guy that inspired me to write more and more, David Galland, had this to say yesterday....

"The foreign debt of New Zealand, which includes private debt, is a serious problem for them and is why their currency has fallen from NZD 0.80 to NZD 0.60 to the USD>

What will happen when the world finally realizes that the U.S. government debt (that is not even accounting for private debt) is already in excess of $10 trillion and well on its way to exceed $12 trillion in 2009? This is at a time when our $13 trillion GDP is sure to contract by a couple trillion. I am afraid the U.S. chart next year will not be that different, which bodes well for gold as the only real substitute to the fiat currency that will be created to cover the deficits."

OK... Let's talk about what's going on in the markets right now... Not the future, which is unknown to all of us... We can only speculate about the future based on the data we have now, and the knowledge of history... What's going on, as Marvin Gaye used to sing, is simply that the sentiment in the markets right now is so terrible and fragile, which is keeping the risk takers on the sidelines and investments centered around risk aversion on the burners. Any time the risk takers go out on the limb, another deep, dark, dangerous piece of data prints, or our "leaders" (read Paulson and Bernanke) make some stupid comment, which leads to a dollar rally, and the risk takers get squeezed.

Speaking of deep, dark, dangerous data prints... How about the news that Citigroup is liquidating its CSO hedge fund after it lost 53% of its value last month? This news won't be looked at as anything but deep, dark and dangerous!

Speaking of data... Today, we'll see the stupid CPI (consumer inflation), some Housing data, and the last FOMC meeting minutes... I would think the Fed Heads wouldn't have any surprises in their minutes, like the Bank of England (BOE) did in theirs... The BOE's minutes showed that the 150 BPS rate cut that was delivered earlier this month (which also begs the question as to why the BOE can issue their minutes within two weeks, while it takes the Fed over a month?) Anyway, the BOE minutes showed the 150 BPS rate cut was unanimous... Plus... There were quite a few calls to go to 200 BPS! WOW!

So... Ok, the stupid CPI, I've beaten this horse to death (no animals were hurt!) here with why I feel that CPI is stupid... And when those that have payments tied to CPI see today's print they will fully agree with me. CPI is expected to have fallen .9% YOY... To 4%... Of course you and I, and those on the payments ties to CPI believe that inflation is really around 10% or more!

The Housing data today is the October Housing Starts, and Building Permits, of which both are expected to be weaker than September's data...

I met Dan Ferris a year or so ago... A quiet, soft spoken guy, that when you look at him you just know he's got a lot of brain matter... Real intelligent! I follow his writing from time to time, and Ty Keough sent me a note from Dan... This was in the Stansberry Research letter... "The money we use every day in the U.S. is debt. It is lent into existence. This record level of Treasury borrowing is the inflation engine itself, tank filled with gas, hood popped up, revving into the red zone right before your eyes."

OK... I just saw / read a story that came across the Bloomie, that Bank of America (BOA) and Barclays Capital, are calling for a Aussie dollar rally next year, as they believe Australia will skirt a recession, that Europe, Japan and the U.S. are mired in. They even called for a rise to 70-cents in the next 6 months. Hmmm... I guess they're of the opinion that the Carry Trade unwinding is coming to an end.

I, on the other hand, don't believe that the Carry Trade is anywhere near an end... So, do with this information in your individualistic manner!

The data yesterday, saw PPI fall -2.8% in October... Which was mainly made up by the fall in oil prices... The TIC Flows showed the improvement I said we would see in this data, as the October flows showed an positive balance of $66 Billion, VS the $21 Billion in Sept. This still does not cover what's needed to finance the Current Account Deficit, and Federal Direct Investment. And should have been expected to be so robust, given the flight to safe haven Treasuries...

Currencies today 11/19/08: A$ .6480, kiwi .5495, C$ .8115, euro 1.2650, sterling 1.5080, Swiss .83, ISK 182, rand 10.38, krone 7, SEK 8.02, forint 214.75, zloty 3.0425, koruna 20.3390, yen 96.80, baht 35, sing 1.5280, HKD 7.75, INR 49.99, China 6.83, pesos 13.19, BRL 2.3590, dollar index 86.98, Silver $9.45, and Gold... $738.30

That's it for today... Well... Anheuser Busch is no longer, as the InBev deal closed yesterday... I was so focused on getting the Pfennig out yesterday that I totally forgot to send some love and congratulations toward Albert Pujols, the National League MVP for 2008! Way to go Albert! And... Hey! This IS HUGE NEWS! The good folks at Agora sent me the news yesterday that the movie I.O.U.S.A. has made the cut from 94 Documentaries to the final 15 that will be voted on for an Oscar! WOW! And to think I was interviewed for that movie, but was left on the cutting room floor! Congratulations to my good friend Addison Wiggin, and the other folks at Agora that had the idea to put this together in the first place! No improvement in the eye yet, still some pain to deal with, but I have to believe it will get better! Thanks so much, once again, to all of you dear readers that sent along good wishes and prayers for me. I feel bad that I have to keep announcing this stuff, but it is what it is, and life goes on. God willing... OK... Time to go... I hope your Wednesday is Wonderful!

Chuck Butler


EverBank World Markets



Posted 11-19-2008 9:24 AM by Chuck Butler
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