Obama picks his economic team...
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In This Issue..

* Obama picks his economic team...

* Nordic currencies rise...

* US floods market with dollars...

* China looks to keep growth at 8%...

And Now... Today's Pfennig!

Obama picks his economic team...

Good day... Hope everyone had a great weekend, mine sure was. We had a fun time Friday night bowling and playing pool at our Xmas party. Unfortunately Chuck wasn't able to attend, as he was down in Florida speaking at a Wealth Masters Conference. He will be heading back into St. Louis today, and will be back in the saddle tomorrow morning for what will be a short week.

The big news over the weekend was the unveiling of President elect Obama's economic team. Obama has picked Timothy Geithner, head of the Federal Reserve Bank of New York, to be his Treasury secretary, and former Treasury chief Lawrence Summers will be White House economic director. Obama is also likely to nominate New Mexico Governor Bill Richardson as Commerce Secretary. Geithner has had a primary role in the Federal Reserve's attempt to steer Wall Street through the current financial tsunami. He also oversees most of the Fed's special lending programs set up this year to channel more than $1 trillion to banks and other financial institutions.

Just this weekend, Geithner helped push for additional funds to help Citigroup avoid a possible bankruptcy. The nation's largest financial services firm received $306 billion of US government guarantees for troubled mortgages and toxic assets to stabilize the bank after its stock fell 60 percent last week. Citigroup also will get a $20 billion cash injection from the Treasury department, adding to the $25 billion the company received last month under the TARP. Just last week, current Treasury Secretary Henry Paulson was saying there aren't any firms which are 'too big to fail', but I guess the rest of the administration decided he was wrong. The bailout of Citigroup has stabilized overseas markets, with currency investors starting to move back out of the 'safe haven' of US treasuries.

The dollar has fallen vs. all of the major currencies in early European trading, with the high yielding currency of Brazil leading the way with a 3.57% increase vs. the US$ since Friday. The Nordic currencies of the Swedish krona and Norwegian krone were in second and third place vs. the US$ with increases of just over 2%. The high yielding South African rand was number 4, and the Danish krone rounded out the top five performing currencies this weekend. Chuck has been talking about the Viking Index CD during his presentations, which is a combination of the currencies of Norway, Sweden, and Denmark. This index gives investors an excellent way to take advantage of the short term strength of the US$; investing into currencies of countries with good solid underlying economic fundamentals.

The economic fundamentals of the US continue to weaken, and congress is now predicted to send President elect Obama an economic stimulus package the day he takes office January 20th. Senator Charles Schumer and House Majority Leader Steny Hoyer both said they would have a $500 to $700 billion stimulus package waiting on the new president's desk. The Federal Reserve, which has already pumped out hundreds of billions of dollars, is looking to flood the world financial system with even more money. The Treasury, on course to borrow some $1.5 trillion this fiscal year, will have to tap global capital markets for even more to finance this new economic rescue package.

The Fed has set up currency swap lines with more than a dozen other central banks. Some of these arrangements, including those with Europe, Britain and Japan, are open-ended, allowing the Fed's counterparts to draw as many dollars as they need. The US has also established individual $30 billion swap lines with Brazil, Mexico, South Korea, and Singapore. These currency swaps are one of the items which has been propping up the value of the US$.

As the Fed has stepped up its efforts to combat the credit crisis, our US balance sheet has mushroomed. Assets rose to $2.2 trillion from just $924 billion less than three months ago. The central bank's holdings are likely to increase further. "I would not be surprised to see them aggregate to $3 trillion - roughly 20 percent of GDP - by the time we ring in the new year," Dallas Fed President, Richard Fisher said on Nov. 4th.

On November 3, the department tripled its estimate of planned debt sales in the final three months of the year to a record $550 billion. Paulson told a conference in Washington November 17 that the US will issue some $1.5 trillion worth of Treasury securities in the fiscal year that began October 1st. And that number is also likely to grow. Obama's pick for his administration's economic advisor, Lawrence Summers told the same conference that the US needs a "speedy, substantial and sustained" stimulus package to aid the economy. By the time it all ends, the TARP will likely be closer to $2 trillion than $1 trillion.

The danger, other than the fact that eventually our children and grand children will have to repay this debt, is that this dumping of dollars into the world's financial markets will end up with inflation sky rocketing higher. After all, the ultra-easy Fed policy of the late 90's is exactly what fueled the asset bubbles and the problems we are dealing with today. But Bernanke and Paulson aren't worried about inflation right now, as they try to prevent the biggest credit catastrophe in decades from sending the economy into a deflationary nosedive. Over the long run, the current policies will create inflation, and with the huge amount of money supply being pumped into the markets, the move from deflation to inflation will be abrupt. The Fed won't be able to immediately drain the markets of the huge amounts of money supply which have been pumped in. Unfortunately I think we could be facing a rapid increase in inflation just around the corner.

China announced plans for a second Chinese stimulus package in order to keep their economy expanding at a rate over 8 percent for each of the next two years. The new proposals include income tax cuts, salary increases, and larger housing subsidies, Chinese reported yesterday. The new proposals show the government is determined to maintain strong growth as the rest of the world slips into recession. A growing Chinese economy will provide an anchor to the overall Asian region, and will help stabilize commodity prices. I continue to believe the Asian currencies, along with the currencies of commodity exporters, have some of the best value. China will maintain a good growth rate, and is slowly moving toward a more balanced economy, with internal demand picking up some of the slack left by the western recession.

While this week will be short, it is packed with data as we will see home sales today. Tomorrow is a bigger day as we get 3rd quarter GDP, Personal Consumption, Consumer Confidence, and the S&P Home price index. And to close out the data week on Wednesday we will get Durable goods, Personal income and spending, New Home sales, U of Mich confidence, and the PCE numbers along with the weekly jobs data. Like I said, it will be a lot of data packed into a very short week. Could make for some volatile days in the currency markets.

Currencies today 11/24/08: A$ .6387, kiwi .5398, C$ .7905, euro 1.2751, sterling 1.4991, Swiss .8257, ISK (No Quote), rand 10.28, krone 7.0627, SEK 8.1964, forint 207.03, zloty 3.0363, koruna 19.98, yen 95.49, baht 35.29, sing 1.5175, HKD 7.7525, INR 50.09, China 6.8285, pesos 13.5737, BRL 2.3906, dollar index 86.96, Oil $51.65, Silver $10.04, and Gold... $821.00

That's it for today... As I said in the first paragraph, the Xmas party on Friday night was a great time, even though I wasn't among the top bowlers or pool players. Yesterday my son and I had to choose between going duck hunting or heading to the Rams game. We chose correctly, as the Rams got embarrassed by the Chicago Bears, and Brendan and I had a great afternoon in the duck blind. This will be a short week, as Chuck emailed me that we will be shutting the phones down early on Wednesday. Both Chuck and I will be out on Friday, as I will be heading up to Chicago for my son's hockey tournament and Chuck will be cleaning up from his big Thanksgiving day bash. Hope everyone has a great start to the short week, and a Marvelous Monday!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837





Posted 11-24-2008 10:19 AM by Chuck Butler