Trillion Dollar Deficits For Years To Come...
Daily Pfennig

Blog Subscription Form


    .........But First, A Word From Our Sponsor..........
    Foreign Currency IRAs from EverBank®: diversify your retirement portfolio

    Our wide range of IRAs even includes two foreign currency accounts: the WorldCurrencySM CD and WorldCurrency Access Deposit Account.

    Diversify your retirement portfolio globally. You can seek gains (though loss of principal is possible), hedge against inflation and lower overall portfolio risk. Simply choose your account type and the currency that's right for you. Our currency IRAs are FDIC insured against bank insolvency only.

    Build for retirement your way, only at EverBank®. Visit

    EverBank is a Member FDIC and Equal Housing Lender.

    In This Issue..

    * CBO forecasts $1.2 Trillion Budget deficit!                      
    * And we can expect more!                   
    * ADP shows job losses mounting big time!                       
    * Brazil's real reverses course...                                   

    And Now... Today's Pfennig!

    Trillion Dollar Deficits For Years To Come...                       

    Good day... And a Tub Thumpin' Thursday to you! I had not realized it was Thursday until I began writing this morning! I had been buying breakfast sandwiches for the trading desk on Thursdays, and I'm sure a few people will be wondering what happened when there are no sandwiches this morning... I simply lost track of the days! UGH!

    Well... There are two major things on the docket for the front and center piece today, both tell us a lot, but I think I'm going to go with the announcement of the Congressional Budget Office (CBO) yesterday afternoon as the lead story, and the ADP jobs report as the second story... So, let's go to the tape!

    The CBO announced yesterday that they are forecasting a $1.2 Trillion Budget Deficit for 2009! Uh-oh! This is scary folks, and there's plenty more where that came from! This "forecast" doesn't even consider the stimulus package that the President-elect is about to put into place once he's sworn in... And it doesn't consider the auto bail out, and it doesn't consider any of the next sectors that haven't come to Washington with their hats and cups out asking for their bailout!

    And here's the thing that scares me even more... Obama said Tuesday he anticipates "trillion-dollar deficits for years to come." Some one slap me! Am I having a nightmare? I thought President was the answer to all these deficits... OK, I'm not going to get into a discussion about all that, what I'm really scared of is the fact that it will be "business as usual" on the deficits, and by the end of the 4 years we'll be looking at a National Debt of around $14 Trillion!

    I received some notes from the Big Boss, Frank Trotter, last night regarding this announcement, and any time I get notes from Frank, they get front page billing in the Pfennig... So, let's see what Frank thought about this announcement by the CBO yesterday... "I must have been on phone calls when the announcement came today about the projection for a $1.2 Trillion deficit for the government fiscal year 2009.  That's for things on the books right now.  That's before the rest of TARP is distributed.  That's before any stimulus program is enacted by the new congress or the new administration.  If I had seen it come up I would have run through the office yelling for everyone to take cover.  And I thought that a deficit of 5% of GDP was earth shattering - now the debt-dollars are going up and GDP is going down.  Yikes."

    Frank went on to say that he heard a commentator say, "in today's environment there are still a lot of people and institutions that think they need a bailout and there will be more to come.  I was reminded of the trend to award trophies to everyone on the team - after all everyone contributed equally and should share equally right?  Kurt Vonnegut's Harrison Bergeron come to life.  Here's a reminder to the new administration now caught between the proverbial rock and a populous hard place - tax fairness is not leaving a debt disaster to the following generations."

    Folks... Don't let this just pass you by, you need to do react to this, no, there's nothing you can do about the deficit, except write your congressman or woman, and tell them to stop spending or you'll gather up your friends with their rakes and pitchforks and come to Washington D.C.! But, think about this... It may not happen this year, and maybe not next year, and it could happen next month, but when it comes down to the cheese that binds, the debt issuance in this country is going to be off the charts! And too much of one thing is not a good thing, right?  And when everyone runs to the exit door at the same time, somebody's going to get hurt... Make sure that's not you!

    One thing that will get hurt no matter what when this mass exit takes place is the dollar, as people sell their treasuries and move to higher yielding assets abroad, the dollar will get sold too. So... As one of my all time fave music groups, Gypsy, used to sing... This is a warning... You better beware...

    OK... Not that I want to cut this discussion short, but there is something else knocking on the door for front page notice, and that's the ADP jobs report that printed yesterday... Up until this repot printed, the stock jockeys were feeling pretty cocky, and the risk takers were back in the drivers seat, as evidenced by the Aussie dollar rising to .7270! But then this ADP report printed and caused the DOW to sell off all it's 2009 gains, and that reeled in the risk takers and this morning, the Aussie dollar is barely holding on to 70-cents!

    I bet by now you'd like for me to tell you what the ADP report showed, eh? Well, good things come to those who wait, and for your patience you will now be rewarded with the results of the ADP jobs report! HA! According to ADP, private payrolls collapsed during December by 693K, far exceeding the expectations for a very poor report (-495K forecast). This report is NOT the Jobs Jamboree by the Bureau of Labor Statistics (BLS), that report prints tomorrow... But this report supposedly changed their methodology to mirror the BLS... So, if that's true, we're in for trouble tomorrow morning!

    Roughly 2.5 million jobs were lost in 2008... Most likely the worst year for jobs since 1945...

    We'll have to wait-n-see tomorrow, but this isn't a good indication of what to expect, eh?

    So... The currencies rallied at first yesterday when the CBO made their announcement about the Budget Deficit, but then gave up their gains when the ADP Report caused the risk takers to take their bat and ball and go home, leaving the currencies to back off. Of course, in an opposite action of most currencies, the Japanese yen rallied yesterday and last night. Nothing new here, either the risk takers are in the market, causing yen to weaken, or they are not in the market causing yen to gain... Very simple...

    This morning, the Eurozone is receiving some weak data and that's putting some pressure on the euro... German Factory Orders took the Nestea plunge in November... You know, I'm always amazed at how the markets react to such old news / data... Oh well, things in Germany aren't bright and sassy as they were a year ago, but that doesn't mean the euro falters... For new readers... I've explained this many times in the past, but here we go again... You see... The euro is the offset currency to the dollar... In 2002 and 2003, things were pretty dark in Germany and the rest of the Eurozone, but that didn't stop the euro from gaining 18 and 20% respectively those years... Why? Because things in the U.S. were worse, the Current Account Deficit was rising to eventually reach 6% of GDP, and so on... So people sold the dollar, and by way of the euro being the offset to the dollar it went up!

    Well... I was driving down the wrong road the other day when I said that the European Central Bank (ECB) would meet this week... They don't meet until next week... Those holidays still have me confused on schedules! The Bank of England (BOE) DOES meet today, so I wasn't going down the wrong road there. The BOE cut rates 100 BPS a month ago bringing their internal rate to 2% I expect the BOE to cut rates at least another 75 BPS, and they could be like Bullwinkle and have another 100 BPS rate cut surprise up their sleeve!

    If the mentality in the markets to reward currency debasers remains in place, then the pound sterling should look to rally on any large rate cut news... But, these are all short term moves by the pound... Be careful there...

    The "great year" Brazilian reals were having in 2009, got placed in the rear view mirror yesterday... The risk takers went away, and took their profits in real with them! This currency has become quite volatile in recent months, which wasn't the case for the last couple of years. Before that, yes, reals were volatile, but had seemed as though they had "matured", "grown up" and left those wild days of volatile swings behind... Apparently not! One final soirée'? Let's hope so... I really like what's going on in Brazil, and would like to see this currency be stable...

    Before I head to the Big Finish I have to point out that Oil is on the rise again... I'm sure all the fighting in Gaza is causing this, well, no wait, our friends (NOT!) at OPEC are cutting production. So add these together and the price of Oil is back to $43 this morning... That's all we need (NOT!) here in the U.S. given our current economic condition, is rising gas prices...

    Currencies today 1/8/09: A$ .7025, kiwi .5880, C$ .8315, euro 1.3565, sterling 1.5050, Swiss .9075, rand 9.60, krone 6.9950, SEK 7.90, forint 199.45, zloty 2.9680, koruna 19.32, yen 91.60, sing 1.4825, HKD 7.7540, INR 48.40, China 6.8345, pesos 13.48, BRL 2.26, dollar index 82.39, Oil $43.15, Silver $10.95, and Gold... $839.80

    That's it for today... A big shout out to our new accounts guru, Mary Vance, who celebrates a birthday today! We have a few birthdays in January here in World Markets so I had better be on my toes to remember them! (now that's not a pretty sight, me on my toes!) Well, tonight is the Big Game! The college National Championship football game between Florida and Oklahoma... My beloved Missouri Tigers play in the Big 12 with Oklahoma, so my rooting will be reserved for the Crimson and Cream... Besides I lived in Oklahoma for a brief period of my adult life, when I played in the band, and always root for OU, except when they play my Tigers! My good friend, Jay, who played rugby at OU, and lives and dies with them has got to be in hog heaven, but probably worrying about the game... Of course, I'll be in bed sleeping when the game comes to an end, just too late for yours truly on a school night! This just in... The BOE cut rates 50 BPS this morning... I don't think that will help pound sterling, but you never know what the mental giants have in their minds to do! OK... Enough! Time to get this Tub Thumpin' Thursday on the road! Have a great day!

    Chuck Butler
    EverBank World Markets

    Posted 01-08-2009 9:08 AM by Chuck Butler