A Mixed Bad of Data...
Daily Pfennig

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In This Issue..

* A Bias to take on risk...                             
* China's Factory Output soars!                                  
* Brazil exports "stuff"!                                        
* Calling a bottom in Gold...                                                                                               

And Now... Today's Pfennig!

A Mixed Bad of Data...                                   

Good day... And a Happy Friday to one and all! The 40 mph winds have stopped, which makes the cold a little more bearable... So... With the sun out yesterday, I would have to say that today will be a Fantastico Friday... Our office get together is tonight, should be a good time...

Well... Yesterday, the non-dollar currencies looked like they were ready to break out of their funk against the dollar, led by the high yielders of Australia, and especially New Zealand... But, that flamed out as the day went on as the data for the U.S. was mixed, and did not give anyone a warm and fuzzy about the general direction of the economy.

The Trade Deficit printed weaker than expected, but still posted a $32.9 Billion deficit, which isn't anything to get excited about... The Weekly Initial Jobless Claims printed a larger number than the previous week, but let me ask the dolts out there that thought this was a HUGE victory for labor... The previous week only had 3 days (Thanksgiving) to file claims... So, did you really think that the claims would be as strong given there were only 3 days that week? Any way... Last week's claims filed printed at 474,000... Still below 500,000 though, so that's a good thing... I think...

The Monthly Budget Deficit printed at $120.3 Billion... Not the $131 Billion that was forecast... Maybe the White House had to cancel one of their weekly parties! HA! Still, $120 Billion annualized is still $1.44 Trillion! That certainly isn't getting any better is it now?

So, all that data, and no clear direction... So... Overnight, the bias was to take on Risk again... The non-dollar currencies are ticking up, with the high yielders leading the way once again... But that was overnight... This morning in Europe, risk taking is not the bias, but Risk Aversion isn't either! It's almost as if the currencies are the red flag in the middle of the tug-of-war rope, being pulled one way and then the other, back and forth... So... Will it be Risk or Risk Aversion that finds the Big Strong Man to make the difference in this tug-of-war?

Gold, has come back by $10 this morning... I thought yesterday that it looked as though it has weathered this latest correction, and was forming a bottom... I know, you're saying, Sure Chuck, that's easy to say now! But, really, that's my thought from yesterday! And think about it, I'll sure have egg all over my face if Gold turns around and heads lower! But, you know me... I'll go out on the limb... You won't see many others do that, but I will!

The thing that kick started the risk takers overnight was the news that China's Industrial Production had grown more than forecast in November. Factory output rose 19.2% VS a year ago... This news was manna from heaven for Australia, as I've chronicled here many times over the years...

The bad news for China overnight came in the news that exports had fallen 1.2% in November... So, given the factory output, and the GDP that was 8.9% in the 3rd QTR, one has to believe that China has shifted to a domestic driven economy, and not one dependent on exports to the U.S.... Now, I know, there are those of you who do not believe this could happen in China... But until proven otherwise, I'll have to go with the data I'm given...

This could spell bad things for the U.S. should China become a true domestic driven economy, and along with the rest of Asia, grows without exports to the U.S.... Why is that spell bad things for the U.S. I hear you asking? Ahhh grasshopper... Because, it would negate the Bretton Woods II that has existed between the U.S. and China... The U.S. buys their "stuff" (I almost said cr*&) and they buy our Treasuries, (again I almost said cr*&!) If they don't need to do something with all the dollars they accumulate, who is going to buy our debt? Aye, YI-YI!

The semi-return of risk taking this morning can be seen in the weakness of the Japanese yen, which has backed off its gains from earlier in the week.

Our colleague here in the office, and someone I've known for over 25 years, Joe Losos, brings us the Financial Times once he's finished reading it, whenever he's in the office. The other day he dropped it off, and I happened to notice a story about Brazil... Did you know that according to the Financial Times, that Brazil is now the leading exporter of chicken and beef, orange juice, green coffee, sugar, ethanol, tobacco and the soya complex of beans, meal and oil? I didn't! I knew they exported a ton of agricultural stuff, but Shoot Rudy, this is very impressive, don't you think?

No wonder the Brazilian real is up more than 30% VS the dollar this year! You know me, if you've ever heard me talk about specific countries, I'll tell the audience that I like currencies from countries that have "stuff" to export... That gives their currency a wider acceptance and... Allows the country to export their inflation!

Now... Brazilian real is an emerging market, and should be viewed as "speculative", which means that nothing bad has to happen in Brazil for the real to get punished, because of another Emerging Market in say... Turkey has something bad happen... They are all connected and thrown into the barrel... But, when the stars are in alignment, and the karma is flowing, the real is in the catbird's seat...

Another emerging market is India... And again this currency should be viewed as "speculative"... So, knowing that, Indian rupees continue to crawl to higher ground VS the dollar... I say "crawl" because the moves are very slow... +4.85% so far this year VS the dollar... I can't wait for rupees to get up and begin to walk. Oh sure, they'll fall down a few times, but before too long they should be running... Run Forest, Run! Sorry, but I had that image hit my brain, and before I knew it my fingers were typing Run Forest, Run!

My colleague at the Currency Capitalist, Ashish, simply adores the rupee... And not just because he's from India! He's connected there, and believes that the information he's getting is solid for the rupee going forward...

But again... With rupees being an emerging market currency, they get thrown in the same barrel as the other emerging markets, so just be prepared to weather storms when they black clouds gather!

Ok... Then there was this... So... Did you hear about the proposal in the U.K. to tax bank bonuses 50%? This is getting crazy folks... The bankers did NOT cause the financial meltdown! Try 10 years or so of living beyond our means! Try excess liquidity... Try an explosion of money supply... Try the growing Deficit... Try the borrowing behavior... Those are all way ahead of the Bankers when it comes to the blame game!

I'll tell you this... Should this tax be approved, watch the global banks pick up their bags and leave the U.K. then who suffers? The U.K. that's who! I read a story that talked about this and the analogy they gave made a lot of sense... It went like this... "attacking the bonus payments at the London offices of Goldman Sachs, or UBS AG makes about as much sense as a Las Vegas croupier throwing the highest rolling player at his roulette table out of the casino. It's the casino that will suffer, not the gambler."

I can't believe that I just plum forgot to do the currency round-up yesterday... I've been doing this for so long that you would think that it would be branded on my brain by now... I sure hope it's not a sign of forgetfulness... So with no further ado... Here's the Currency Round-up!

Currencies today 12/11/09: American Style: A$ .9175, kiwi .7275, C$ .9530, euro 1.4765, sterling 1.63, Swiss .9765, European Style: rand 7.4765, krone 5.7255, SEK 7.0680, forint 184.50, zloty 2.80, koruna 17.4460, RUB 30.02, yen 89, sing 1.3885, HKD 7.75, INR 46.54, China 6.8276, pesos 12.89, BRL 1.7515, dollar index 75.95, Oil $70.85, 10-year 3.50%, Silver $17.55, and Gold... $1,139.80

That's it for today... You could sense the excitement building yesterday afternoon on the trading desk, anticipating the get together tonight... We do this in the summer at a Cardinals' game, and we do it this time every year, so about every 6 months... And at 6 months, it's due! I missed the get together last year, for I was on Marco Island, giving a presentation! UGH! I'll head out early today and go home to take a nap, that is unless little Delaney Grace keeps me from napping like she did yesterday... "build blocks with me"... Ok, I can sleep tonight! Time to hit send... Let's go out and have a Fantastico Friday, and be careful out there!

Chuck Butler
EverBank World Markets

Posted 12-11-2009 9:21 AM by Chuck Butler