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In This Issue..

* Risk Assets soar!          
* German Investor Confidence surprises!         
* High yielders kicking tail...                             
* Who's afraid of the SNB?                                                 

And Now... Today's Pfennig!

Currencies Bounce Back!         

Good day... And a Terrific Tuesday to you! Finally! Spring has arrived and for more than one day at a time here in St. Louis! YAHOO! A very cold and wet spring for us, brought us to the middle of May before normal spring weather was upon us... Good things come to those who are patient, right?

OK... Speaking of patience... I think that's what we'll all have to possess a lot of going forward with these currencies and stocks... Here's what I'm talking about... Yesterday morning it looked as though the recent rally in stocks was over, complete, pack up the bags, get on the bus, Gus... And with the trading theme of throwing all risk assets in the same bag and trading them alike that's been in place since last July, this would seem to be a nail in the coffin of the currency rally we've seen going on since March 1st....

But, NOOOOOOOOO! Let me tell you all about it now... First, we had what I called the potential White Knight for risk assets yesterday, the Indian election results, which pushed the Indian stock market to levels it hadn't seen in some time. That carried over to the Japanese stocks, which carried over to Europe and finally the U.S. It took most of the day to really get things going, but by the time I was packing up to head home, the move was on... And risk assets all around, save for the safe haven Gold, kicked into gear, and were off to the races. And Currencies were in the pole position of this rally!

I just can't get my arms around this stock rally folks... What are they rallying for? Corporate earnings are awful... And the prospects of future earnings are awful... Why do I say that? Well... Have you seen the rot on the labor market's vine lately? "Real" unemployment is north of 16%... And with announcements like the one last night from American Express, where they say they will layoff 4,000 employees, hitting the news wires each day... There's just no way that consumers are going to have the "juice" to support corporate earnings... Those that do have the "juice" will probably squirrel it away, and those that don't, well... They don't have any to squirrel away or spend!

But... I always think of things logically, right? This is logical that stocks would suffer going forward... But will it play out this way? Who knows? I'm certainly not even your last choice for a stock jockey! But... It just seems to me that this is just the way it is... Some things will never change... It's just the way it is...

OK... The "other" news this morning that's fueling a huge currency move overnight... German Investor Confidence, as measured by the think tank ZEW, rose more than the "experts" were forecasting, and reached a 3-year high this month! WOW! OK, I hate to throw cold water on this, but this "investor confidence" is all tied to the rally in stocks... And what's good for the goose (the U.S.) in stocks, is good for the gander (EUROPE) in stocks...

But hey! Why step in front of this bus? If the stock jockeys want to take their assets higher, then I'm not going to throw myself under their bus! The ZEW report is "supposed" to predict economic developments 6 months ahead... Well... By the time we sit down to eat our Turkey on Thanksgiving, I'll look back and see if the ZEW think tank predicted correctly!

The Huge currency rally is across the board, including the once beaten and battered pound sterling, which has really mounted a strong performance in recent weeks... Yes, things in the U.K. are still teetering... But the pound sterling has seemed to have weathered the storm... At least for now!

Of course, in this crazy mixed up world we live in with currencies, a Huge rally currently means that Japanese yen is back on the selling blocks. And... The high yielders are soaring...

The Aussie dollar (A$) seemed to ignore the news from China overnight that the Chinese had ordered an immediate 30% Steel production cut by all mills to address 25-30% over-capacity. Then it seemed for certain the A$ would back off when Reserve Bank of Australia (RBA) Gov. Stevens' gave a speech and revealed his bias toward easing rates further. Watch... At some point in the near future, there will a story that hits the news wires that claims traders are selling the A$ because they believe the RBA will lower rates further... And they will all act as though they "just found this fact out!" But for now... The A$ is kicking tail and taking names later!

I keep seeing one story after another these days from people that claim they "know" the Bank Stress Tests were a "sham"... Well? Didn't I tell you that first? Didn't I tell you the Gov't would not tell us the "real facts" because if they did, they would spook the markets, and even more important spook our foreign buyers of U.S. debt! And we can't afford for that to happen!

But just for kicks... Here's a sample of the stories I'm talking about... Put away the sharp objects before reading, we don't want any injuries.... This is... Howard Davidowitz, Chairman of Davidowitz & Associates, talking... (NOT ME!) "The stress tests were a sham and part of a "con game to get private money to finance these institutions because [Treasury] can't get more money from Congress. It's the 'greater fool' theory. We're now in Barack Obama's world where money goes to those that should never receive a penny....we're bailing everyone out. The bailout money is in the sewer and gone."

OK... That's just a sample of the things I read each day and night... Of course last night I didn't do any reading, as I was glued to my TV for the final 2 hours of my fave show, 24!

And in a story that makes you wonder what the heck these people are thinking... Two economists, Gregory Mankiw, former White House advisor, and Ken Rogoff, former Chief Economist at the IMF, believe that the U.S. economy is in need of a dose of good old-fashioned inflation! WHAT? They believe the Fed should have a looser rein on inflation, to help debt-strapped consumers and governments to meet their obligations... Again... WHAT? I have to wonder just what else the Fed can do to create an inflationary environment! Come on! They've cut rates to near zero... The implemented Quantitative Easing... They've pushed Trillions into the system... And these two dunderheads want more? Did they stop, in the name of love, and think about what they were saying before they said it?

And... I can't understand why they believe that running 6% inflation for "at least a couple of years" is a good thing! Talk about "spooking our foreign investors"! And talk about sending the dollar to the woodshed! Let's hope these two go away... Don't go away mad, just go away...

And then... It sure looks like the Bank of Canada (BOC) is doing everything they can to put a 100 miles of desert between them and Quantitative Easing... There will be a speech today by BOC Gov. Murray titled: "Unconventional Monetary Policy Measures and the Zero-Bound, Differing International Approaches and Critical Considerations"... Now, that looks like a speech title that his marketing team came up with... Why not say... "the rest of the world is doing Quantitative Easing, and we're not!" 

Of course... Should this be the "real" gist of his speech, the Canadian dollar / loonie should look to continue its recent strong performance!

The Swiss franc is nearing 90-cents again... Every time it gets to this level, the Swiss National Bank (SNB) makes a statement that "they are watching the currency gains closely" This is supposed to scare traders to not take the franc higher... Who's afraid of the SNB?   Of course "real traders" like the ones that were around when I began to deal in currencies, would take this message as a challenge, and push the franc to the point that the SNB had to intervene or lose credibility... And then they would attempt to push the franc higher! But today's traders, are not your "father's traders"... They are wimps! Every time a Central Bank jawbones their currency lower, traders just put their tails between their legs and go home... Give up, quit... Hey! Quitters don't win, and winners don't quit! You can't quit here! When the Germans bombed Peal Harbor, did we quit? NO! (ok that's a line from Animal House, I don't want 100 emails telling me that the Germans didn't bomb Pearl Harbor! HA!)

Today, the data cupboard yields Housing Starts for April... I saw a news story on the TV yesterday that said "Home Builders were seeing a pick-up of new homes being built"... Well... That should be our indication that Housing Starts for April will be stronger! See how easy this stuff is? HAHAHAHAHA!

I always get a kick out of my friend, The Mogambo Guru, and the ending each week of his newsletter... Each week he ends his letter with some message about buying Gold and Silver... And then this line... "Whee! This investing stuff is easy!"

The Mogambo always puts a smile on my face!

Currencies today 5/19/09: A$ .7760, kiwi .6050, C$ .8640, euro 1.3635, sterling 1.5480, Swiss .8990, rand 8.4620, krone 6.42, SEK 7.6675, forint 203.85, zloty 3.20, koruna 19.5660, yen 96.20, sing 1.4610, HKD 7.7510, INR 47.79, China 6.846, pesos 12.91, BRL 2.07, dollar index 82.12, Oil $59.89, Silver $13.94, and Gold.... $922.80

That's it for today... It was good to get back in the saddle yesterday... I actually will be in the saddle for 2 months before travel begins again... WHEW! My beloved Cardinals' good start to the season has just about been turned completely around... They just got swept by the Brew Crew! UGH! And two HUGE Rivals come to town the Cubs and Royals... They need help! NOW! We have another birthday in the office today... Charlotte Reeves is celebrating a birthday... That does it for birthdays this month... Our office here has really added some people in the past couple of years... I don't even know all the people in the office these days! This coming weekend is Memorial Day weekend. Time to make plans! Oh! And don't forget what the day is all about! Time to go... I hope your Tuesday is Terrific!

Chuck Butler
EverBank World Markets

Posted 05-19-2009 10:12 AM by Chuck Butler