Currency Rally Is Wiped out!
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In This Issue.

* A flight to safety returns.

* Angela Merkel wins over the EU.

* German Retail Sales fall.

* And so does German unemployment!

And Now... Today's Pfennig!

Currency Rally Is Wiped out!

Good day... And a Happy Friday to one and all! It's not starting out to be a Fantastico Friday, but I'll give it some more time, for, just because I overslept, hit every red light on the way to work, and came in to find out the currency rally that went on all day yesterday has been wiped out, are no reasons to give up on this Friday!

Well. Last night, I went to my computer at home, and brought up the currency markets, and saw that as of 9:00 last night, the currency rally that was VERY strong yesterday, was still "on". But, like I said at the top, I arrived here, albeit late, this morning and things are drastically changed! I was all prepared to tell you about the 1.70 appreciation of the euro in one day, and the $18 rise in Gold. But, the best laid plans of mice and men change, eh?

So. I scoured the news wires, and my emails to see if I could pinpoint just what happened to cause this drastic overnight change. And the only things I can find, shouldn't have been that big of a deal, and cause the sell off that happened overnight and this morning. First, Japan reported that their economy is growing slower than expected, and that triggered a flight to safety. HUH? Let me get this straight. Japan, the land of stimulus and QE, is still having problems generating economic growth, and so traders buy yen and dollars? Talk about a strange mentality! But it is what it is, folks. we just know that this is all noise, the real McCoy comes on the days the dollar and yen get sold!

The other thing weighing on euros this morning is a report that showed German Retail Sales unexpectedly dropping for a second straight month in September. German Retail Sales for September fell 2.3% from August. That's quite a drop! I find this report to be a little misleading though, I mean I just saw a blip go across the screens yesterday that said German unemployment fell to an 18-year low this month! So. if all these Germans are working, there's got to be some domestic demand, eh?

And domestic demand is what German officials are counting on to help exports drive the economic recovery.

Well. with this dollar & yen overnight, I don't think we can lose sight of what's happened since June, when the thoughts of QE first surfaced, and the Chinese announced that they would allow more flexibility in the renminbi. The currencies and precious metals have taken it to the dollar since June. But guess which currency is the laggard? The currency that has only gained a small amount since June? I think it will surprise you, because it's one of my fave currencies. Canadian dollar / loonies. So. what does that tell you? Well, I don't know what it tells you, but I know what it tells me, and that is the loonie has some catching up to do!

Look, I've gone this far this morning, and not mentioned the goings on with U.S. QE! But I heard a line yesterday that stuck with me, and I think makes a lot of sense. it's a theme that's playing out, called: "punish the printer".

I had an interview with Dow Jones yesterday, and they asked me if I would comment on the market's actions. I said that the currency and precious metals rally was a result of Thursday being a day when the markets were thinking the FOMC would go deep with QE. That's all. "punish the printer". Today, if I got that call, it would be a different story.

I did an interview with NewsMax yesterday, that I believe will appear in the January edition of the magazine. We talked about a lot of things, but the meat of the story was all about Silver being the new Gold. William Jennings Bryant would have been proud of me! I can't say any more, or else you won't go out and buy the magazine in January! HA!

Did you see that German Chancellor Angela Merkel won European Union backing for a rewrite of European Union (EU) treaties to create a permanent "debt-crisis mechanism" by 2013 to prevent a repeat of the Greece-led shock that jolted the euro?

Way to Go Angela! You go girl! Think about this folks. but think about this using the U.S. states instead of the Eurozone member nations. Wouldn't that be great to keep the states from taking a trip to the Hotel California?

Just shows to go you that Germany still pulls the strings in the Eurozone, and as its largest economy, and most prudent central bank, it should!

Hey! I read a story last night, that had a concept in it that I hadn't really considered, and that is that the FOMC is going to implement QE, not in attempt to kick start the economy, but instead to simply keep the dollar weak. Hmmm. Even I don't think they're that devious! But the more I thought about it, I started thinking about how before Big Ben Bernanke was Fed Chairman, he told us all that he had studied Japan's meltdown, and knew exactly how to keep the U.S. economy from ever being a "Japanese economy". Hasn't he failed miserably at that? Maybe he still has work to do on that, but here's my point. having failed miserably, the Fed Chairman now finds the U.S. in a pile, no make that mountain of debt, and a spiraling into a dark abyss economy. He figures, he can't save the economy, it will have to save itself, but with it in the dark abyss, foreigners will balk at buying our debt, so what' s the one thing the Fed Chairman can do? He can make certain that the dollar is weak so that those buying our debt can buy it at a discounted clearing price.

OK. I know, that's how my strange mind thinks folks. I find conspiracy in just about everything! I watch a home team get a call in their favor, and I believe it's a "homer call". And so on. There's always another layer of that onion to peel, folks. and until I get everyone thinking like me. No wait! I'm just kidding about getting everyone to think about me, I just wanted to see how many people began to hit "delete" when they read that! HA!

And looky there! Recall a couple of weeks ago, when I said that it was about time for the U.S. Gov't to give the wink and nod to the media to shift their focus on the European debt crisis, and take the heat off the U.S.'s problems? Well, to borrow a phrase from Bud Light, Here We Go!

Above, I mentioned the win for Angela Merkel. That came at the EU summit on debt. Well, the media is all over this, just ahead of the FOMC meeting next week. Hmm. here I go again! But this all seems a little too contrived for me, that even with the EU agreeing to a "debt-crisis mechanism" the media is focusing on the problems? So, maybe it's a coinquidink, but I doubt it!

So. Gold ran up $18 yesterday! But this morning is waffling between down $8 and down $2. you could say that it's profit taking. but I think it's more than that. It's all about QE.

Then there was this. from the USA/ Today, talking about the foreclosure problem. let's pick it up in the meat of the story. "The epidemic is spreading from the states at the ground zero of the foreclosure problems out into areas that hadn't been previously affected," said Rick Sharga, a senior vice president at RealtyTrac.

The trend is the latest sign that the nation's foreclosure crisis is worsening as homeowners facing high unemployment, slow job growth and uncertainty about home prices continue to fall behind on their mortgage payments.

In all, 133 out of 206 metropolitan areas with at least 200,000 residents posted an annual increase in foreclosure activity in the three months ended Sept. 30, RealtyTrac said.

The firm tracks notices for defaults, scheduled home auctions and home repossessions - warnings that can lead up to a home eventually being lost to foreclosure.

Eleven out of the nation's 20 largest metropolitan areas saw foreclosure activity increase in the third quarter compared to the same period last year."

Chuck again. this is getting very ugly folks.

To recap. the currencies and precious metals rallied very nicely yesterday, with the euro up 1.70 and Gold up $18, but most of that or all of those gains have been wiped out overnight and in the morning session. Japan's economy is still dragging along, and the most recent report on that sent the markets into the flight to safety mode once again. Germany won over the European Union with their idea for a "debt-crisis mechanism" . and the Canadian loonie is lagging the other currencies in their rallies since June. wink, and nod.

Currencies today 10/29/10: American Style: A$ .9735, kiwi .7575, C$ .9790, euro 1.3860, sterling 1.5935, Swiss $1.0115, . European Style: rand 6.9860, krone 5.9145, SEK 6.7460, forint 195.80, zloty 2. 8725, koruna 17.7785, RUB 30.83, yen 80.75, sing 1.2975, HKD 7.7560, China 6.6702, pesos 12.36, BRL 1.7070, dollar index 77.55, Oil $81.38, 10-year 2.64%, Silver $24.04, and Gold.. $1,341.90

That's it for today. I've been quite remiss in not welcoming back our Suzy Q, who has been at home recovering from a stroke. She looks great! I've got one of the greatest love songs playing on the I-Pod this morning, that I'm singing out loud with, I sure hope no one walks in right now. The Righteous Bros. Soul & Inspiration. Oops someone just came in! My buddy Alex had his last game of freshman football last night, and suffered his first injury of the year in the last game! No biggie, just a little ice needed on the elbow. Little Delaney Grace was at the game in her cheerleading outfit, cheering along with the "real cheerleaders". So darn cute! And then there was yesterday, I was all prepared to talk about this and completely forgot. Yesterday, was World Cancer Day. Most of you know that I have cancer, and am beating it, so far. I lost my dad, mom, and oldest sister to cancer. My younger sister has successfully battled breast cancer, so this is hits me differently than most people. So. I'll end this today with a short prayer: Dear God, I pray for a cure for cancer. Amen.

I hope today turns out to be a Fantastico Friday for you!... I'm gone all next week. It's work. Chris Gaffney will have the conn on the Pfennig for the week, I'll attempt to file reports from the road. Tomorrow, is a BIG Game for my beloved Missouri Tigers as they travel to Nebraska, and are 7-point underdogs. And Sunday is Halloween! I hope you have lots of cute little trick-or-treaters come to your house! My Delaney Grace is "Annie". and with that I say. bye!

Chuck Butler


EverBank World Markets



Posted 10-29-2010 10:23 AM by Chuck Butler