Dollar drifts lower....
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In This Issue.

* Dollar drifts lower...                         
* Looking for silver linings...                             
* NOK to increase rates...                                      
* Aussie dollar continues to move up...                                                                                      

Dollar drifts lower....                       

Good day... And good morning to everyone.  I wanted to start out this morning's Pfennig by saying my thoughts and prayers go out to all of the families of the fallen soldiers and civilian at the tragedy down at Ft. Hood.  It is tough enough when we here about losses of our soldiers overseas in the 'combat zones'; but such a large loss of life right here in the US is deeply saddening. 

The dollar moved lower throughout the trading day on Thursday as investors felt more confident with the global recovery and the US stock market climbed back above 10,000.  Yesterday's weekly jobs numbers were slightly better than expected, and set the market up for this mornings monthly jobs report which will probably show fewer job losses in October compared to September.  But there will still be job losses, not gains; and the 'official' unemployment number will inch closer to double digits.  We all know if you count those individuals who are underemployed (part time workers who would like full time jobs) and those that have given up on their job search, the actual unemployment number is more like 16%. 

Another number which was encouraging for economists was the large jump in non-farm productivity.  US worker productivity spiked up an annualized 9.5% in October as employers found ways to squeeze more work out of existing employees instead of hiring new ones.  This jump demonstrates one of the positive aspects of a severe economic slowdown.  Contrary to what some reader's of the Pfennig seem to believe, neither Chuck nor I are happy that the US continues to be mired in this economic recession.  But business cycles are inevitable, and the more we 'spend to extend' the longer it will take for the recovery to take hold.  The jump in productivity is one positive which comes out of an economic downturn.  In the good times, companies become fat and happy, with many companies becoming very in-efficient.  The severe slowdown causes companies to rethink all of the processes, and worker productivity increases.  This need for higher efficiency also encourages innovations to the manufacturing and service sectors.

Another piece of data due out this morning will illustrate another positive aspect of the economic slowdown.  US Consumer credit is expected to show another $10 billion drop.  The highly leveraged US consumer is continuing to draw in their purse strings, ignoring calls from the administration to resume their old borrow and spend attitudes.  While some of this belt tightening has been forced on consumers by the credit crunch, hopefully we will see this adjustment continue.  This isn't good news for retailers as we approach the holiday season, but if the global imbalances are to be corrected, US consumers are going to have to continue to increase their savings rate and decrease debt.

So there are a few silver linings to the economic cloud hanging over the US.  The United States will eventually emerge from this economic storm with a leaner and meaner manufacturing sector and a much weaker dollar enabling it better compete in the global arena.

Both the ECB and BOE kept rates unchanged, just as Chuck had predicted.   Officials at the Bank of England slowed the pace of bond purchases, but still approved the additional purchase of 200 billion pounds.  A rebound in factory output, which rose 1.7% (the largest gain in 7 years) combined with a .2% increase in UK producer prices caused the change of direction by the BOE.

ECB President Jean-Claude Trichet signaled the beginning of the end of emergency stimulus measures in Europe.  Trichet said next month's offer of 12 month loans would be the last.  Data released yesterday was unable to paint a clear picture of the economic recovery in the Euro-area.  German factory orders rose for a seventh month in September, as exports helped the recovery.  But another report showed European retail sales fell for a 16th month, declining more than economists had predicted. 

The Euro rallied a bit after the ECB decision, but Citigroup is predicting an even larger rally.  A report by Citigroup stated that the technical trading patterns predict the Euro will climb to $1.5064 short term, and move up to $1.5285 over time.  It continues to look like Europe will recover, and the euro will move higher vs. the US$.

The Norwegian krone also moved higher as Norway's central bank Deputy Governor Jan Qvigstad said it is 'most probable' the deposit rate will be moved another quarte point higher by the beginning of 2010.  Officials of the Norges Bank are attempting to hold down some of the appreciation of the krone as Norway continues to increase interest rates to combat rising inflation.  Norway's oil rich economy was one of the first to emerge from recession, so the central bank is also taking the lead on increasing interest rates.  Yield differentials, along with a strong economy should keep the NOK among the world's top performing currencies.

Speaking of the top performers, I was updating the return charts for the currencies yesterday and was amazed at the returns on the Brazilian real and Australian dollars YTD.  Brazil is up 31.42%, and the Australian dollar has increased 28.05% during 2009.  The Australian dollar continued to strengthen yesterday as the central bank signaled it will continue to increase interest rates in the coming months.  "A further gradual lessening of monetary stimulus is likely to be required over time," the Reserve Bank said in Sydney today.  A rally in commodity prices, along with increasing interest rates will push the AUD toward parity with the greenback.    

Yesterday was Chuck's Friday, as he took today off to spend some time with Alex who was off school.  But before heading home, he asked me to include the following in today's Pfennig:

And then there was this... Yesterday, I totally forgot to mention my complete distaste for naming a designated hitter (DH) the MVP of the World Series... He doesn't play the field... And only batted 13 times during the Series... Baseball people like myself, just cringe when the DH is in play... Giving the MVP to a DH goes along with the thought that is prevalent in sports today... To give every kid a trophy... Oh well... Let's move on to other things because it's YOUR Friday! 

I am a little late in getting this out, so I am able to tell you the official US Unemployment rate rose into double digits during the month of October, hitting 10.2%.  This will probably give some life to the US$, as investors run away from risk and move back into US treasuries for temporary safe haven.

To recap... Silver linings of the current economic storm cloud: increased worker productivity and decreased consumer credit.  The ECB and BOE kept rates unchanged.  Aussie dollars continue to move closer to $1, and Chuck really doesn't like the DH!

Currencies today 11/5/09: American Style: A$ .9161, kiwi .7247, C$ .9342, euro 1.4881, Sterling 1.6587, Swiss .9848, European Style: rand 7.5482, krone 5.6747, SEK 6.9866, forint 184.70, zloty 2.8567, koruna 17.27, RUB 28.96, yen 90.60, sing 1.3925, HKD 7.75, INR 46.815, China 6.8274, pesos 13.29, BRL 1.719, dollar index 75.71, Oil $79.60, 10-year 3.5%, Silver $17.50, and Gold... $1,093.55

That's it for today... The Blues finally scored a goal at home, but lost to Calgary last night in overtime.  The sun is shining again today, and apparently we are supposed to have a rain-free weekend!!  The big EverBank sign went up on the new office building next door, we will be moving into our new digs in less than a month.  Hope everyone has a Fantastic Friday and a Wonderful Weekend!!

Chris Gaffney, CFA
Vice President
EverBank World Markets
1-800-926-4922
1-314-647-3837





Posted 11-06-2009 9:30 AM by Chuck Butler