The Big Dog Gets Off The Porch!
Daily Pfennig

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In This Issue..

* Good Spanish auction fuels a euro rally...
* SNB leaves out important words...
* Deflation disappears in Switzerland...
* U.S. Housing Starts drop -10%!

And Now... Today's Pfennig!

The Big Dog Gets Off The Porch!

Good day... And a Tub Thumpin' Thursday to you! I was reading my friend David Galland's letter the other day, and learned that he, like me, was dealing with his wife being gone for the week... I think I have an advantage on him though, as he has little ones at home... My little buddy Alex, has been hanging out with his older brother, Andrew, so I've been... All by myself... (what a great song by Nilsson)

OK... Yesterday, I told you how the currency rally had the brakes applied by a return to the European Debt Crisis focus... Yesterday's trading was different though. It was, as if, traders never heard that the U.S. and the IMF were putting together a line of credit for Spain, for they began marking up the euro, and selling dollars, as if it June of 2009! (you may recall that in June, last year, the dollar was on the slippery slope once again)

So... The euro inched higher and higher on the day VS the dollar, and overnight? Well, there was no profit taking, no consolidation either, it was just plain unadulterated dollar selling! The euro is once again trading near 1.24... The focus on the European Debt Crisis was put on the back burner this morning, when news of a successful Spanish auction filtered through the markets...

But, just like the "old days" when the Big Dog, euro, would get off the porch to chase the dollar down the street, the little dogs would pass the Big Dog up... And so it was with the Canadian dollar, Swiss franc, New Zealand dollar, and even the Aussie dollar got to run a bit!

Let me tell you what put the tiger in the Swiss franc's tank... The Swiss National Bank (SNB) left rates unchanged yesterday, but they tried to sneak the sun past the rooster, by not mentioning what has been a staple of theirs for some time now, and that is... They didn't mention the need to stem currency appreciation! WOW! It was like an Oklahoma land rush... No Sooners though! Currency traders, and investors that were scared of SNB intervention, were given the green light to buy the franc.

Now... Let me set this up for you... The SNB didn't want currency appreciation, previously, because they had deflation in their economy, and they figured that a weak currency would give them the inflation they needed to rid themselves of deflation... Well, I guess it worked, because deflation in the Swiss economy is gone. Poof! Just like that... Gone! So, now, the SNB will be fighting inflation, and what better tool to have at your side as you begin to fight inflation, than a strong currency!

Right behind the franc's strong move was the move by the Canadian dollar / loonie. The loonie got some wind in its sails with the price of Oil continuing to move higher... Yesterday, Oil was trading with a 76-dollar handle, this morning it has a 77-dollar handle. Gold is also trading higher this morning, so the loonie has both sails catching wind this morning!

Here in the U.S. yesterday, we saw the color of the latest Housing Starts data, and it was NOT good! Housing Starts for May fell 10%, and April's figure was revised downward... Uh-Oh! Is this the beginning of what I've said I thought we would experience here and that is, a double dip in the housing sector, with home prices falling another 10%? Difficult to say with only a smidgen of data to view, so we'll have to keep watch all of the housing data closely...

Industrial Production and Capacity Utilization were good data prints yesterday, so it wasn't all "bad stuff" for the U.S. economy. The PPI (wholesale inflation) report was interesting... The Producer Price Index fell -.3% in May... Huh? Year-on-Year though the index is up 5.3%...

Today, is the stupid CPI report, and as usual on Thursday, the Weekly Initial Jobless Claims... Jobless Claims will most likely remain around 450,000, and that my friends is a very telling picture of how our economy is doing... Don't listen to the pundits on cable news that don't deal with the truth, and follow the President around like a puppy follows his owner! An average of 450,000 jobless claims each and every week now for 30 consecutive weeks, which followed about the same amount of time that the average was over 500,000 each and every week!

And here's another thing that's a HUGE problem for the economic recovery folks to deal with... Money.cnn reported last night that: "Most borrowers who have had their mortgages modified through a government-sponsored program will re-default within 12 months, according to a report released Wednesday.

Between 65% and 75% of loans that are modified through the Home Affordable Modification Program but not backed by the federal government are likely to go bad, according to the report released by Fitch Ratings, a N.Y.-based credit-rating agency."

WOW! Or more appropriately... OUCH!

I came across a story online on Tuesday that I forgot to talk about yesterday, so here it is... The question was asked of Dennis Gartman "did he think Gold was in the midst of a bubble"... Mr. Gartman's answer was interesting... He contends that: "we are not in the midst of a Gold bubble"... He then gave some data on enthusiasm for Gold, and pointed out that it was nowhere near "bubbly"...

So... We've got that going for us, eh?

Then there was this... And this, and if the Mortgage default story didn't tick you off at the Government, this sure will... CNBC is reporting this morning that: "More than 90 U.S. banks and thrifts missed making a May 17 payment to the U.S. government under its main bank bailout program, signaling a rising number of lenders are struggling to meet their obligations."

Great... Just great! You know what's coming from that don't you? Of course you do, that is as long as you weren't living under a rock the past 2 years! More stimulus, more bailouts, more taxpayer agony, and more debt... Brother! Can us taxpayers catch a break for cryin' out loud!

To recap... The Spanish Auction of debt went off just fine overnight, and that has boosted the euro, which is nearing 1.24 again. The Swiss National Bank didn't talk about stemming currency appreciation, which gave the green light to traders and investors looking to buy the franc without the fear of SNB intervention. And the Canadian loonie is gaining ground again with the price of Oil rising, and Gold back on the rally tracks...

Currencies today 6/17/10: American Style: A$ .8665, kiwi .7015, C$ .9765, euro 1.2380, sterling 1.4820, Swiss .8980, ... European Style: rand 7.5660, krone 6.3545, SEK 7.7375, forint 225.15, zloty 3.3875, koruna 20.77, RUB 30.96, yen 91.30, sing 1.3915, HKD 7.7885, INR 46.35, China 6.8290, pesos 12.53, BRL 1.7870, dollar index 85.72, Oil $77.40, 10-year 3.27%, Silver $18.51, and Gold... $1,235.60

That's it for today... Yesterday, I also forgot to talk about the two interviews I did on Tuesday... One with MarketWatch, and the other on the Red Chip radio network. The radio guy, said to me, "Chuck, we've got 5 minutes to fill, do you think you can fill the whole 5 minutes?" I laughed, and said, I could fill 5 hours if you've got them! It was like old times last night, as my old neighbor, Kevin, stopped by, and my other neighbor, Paul,  came over, and we sat outside and listened to the ball game. Cardinals lost, but that didn't ruin the beautiful evening, and the company of two good friends... Tomorrow is the next BIG game for the U.S. Soccer team, Go USA! I hope you have a Tub Thumpin' Thursday!
Chuck Butler
EverBank World Markets

Posted 06-17-2010 10:05 AM by Chuck Butler