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A Pfennig For Your Thoughts

November 22, 2010

In This Issue.

* Ireland agreement is good for risk assets.

* Some healing in currencies & precious metals.

* Treasury yields continue to climb higher.

* 10-year anniversary for Japanese QE!

And, Now, Today's Pfennig For Your Thoughts!

The EU And IMF To The Rescue!

Good day... A Marvelous Monday to you. Thank you, thank you, thank you, to all who sent very kind words of condolences and comfort last week. I have read them all, and truly appreciate you taking the time to send me a note. I've been a bit of a fog since last Tuesday, but hopefully I'll get out of it soon. Little Delaney Grace sure helped yesterday, she asked if she could sit on my lap. I said, any time you want! And the healing process began.

OK. the currencies and precious metals began healing on Friday too! The Sword of Damocles that hung over Ireland for the past two weeks, was removed (for now that is) and the focus shifted from a Eurozone problem back to the U.S. I know, you're saying, these traders have very short attention spans. And you would be correct. but even more than the traders, I believe it has more with the focus and importance that the media puts on the "current problem".

So. for now, the eyes of disgust have shifted to the U.S.'s problems with debt, Quantitative Easing, and the question of how will the bills get paid? So. that means the Big Dog, euro is back off of the porch, chasing the dollar down the street, and all the little dogs get to chase too! For those of you new to class, I use this to describe what's going on with the currencies. The euro is the offset currency to the dollar, therefore it is called the Big Dog. all the other currencies are the "little dogs". The little dogs can't get off the porch to chase the dollar unless the Big Dog goes first. Once the Big Dog is off the porch, the little dogs, which can move faster, can outperform the Big Dog. But once again, they can't get going unless the Big Dog goes first.

Sorry, for the long explanation, but I thought to myself, self. you haven't explained all that in some time. and since I'm sitting here wondering what I'm going to write about this morning, I thought this to be a good time to do some 'xplanin' , Lucy style!

It's not like it's all seashells and balloons over in Ireland this morning. Ireland became the second Eurozone country to seek a rescue (Greece was the first). A week ago, Ireland was saying that they didn't need any aid. But what a difference a week makes, eh? But, the markets look at this and say, "well, if they get the rescue package they need, then we'll go back to the problems in the U.S." . Of course, over the past year, I've done my best to show you that the debt problems of the Eurozone states, are very much like the problems of the U.S. states. Unfortunately, for us, you take a state like California (the 8th largest economy in the world), and the problems are far greater here, than there.

So. it's what we used to call as kids, and ugly contest. Or, as the Big Boss, Frank Trotter, shows in one of his old presentations. An auto salvage yard with nothing but Mercedes Benz cars. Then he would say, what you're looking for here, is a car that will start every day and get you to work. it'll be wrecked and ugly, but it does the job. And. isn't that what we're looking for? Something to offset the fall of the dollar's value? To replace the lost purchasing power that the dollar has lost for years now?

That's an interesting thing to talk about. Purchasing Power. It is the number of goods/services that can be purchased with a unit of currency. For example, if you had taken one dollar to a store in the 1950s, you would have been able to buy a greater number of items than you would today, indicating that you would have had a greater purchasing power in the 1950s. Or even better, you would have had more purchasing power just 8 years ago, when the dollar began this long ride on the slippery slope to its intrinsic value.

Of course if you were with me 8 years ago, and diversified your investment portfolio, and stuck with it, during the dollar's brief rallies of 2005, 2008, and the first 6 months of 2010, you would have retained most of that lost purchasing power that was lost by holding just dollars.

And. of course, a "unit of currency" doesn't have to be folding money (like dollars or euros) it can also be a precious metal, like Gold or Silver. Gold is up $5 this morning, adding to Friday's $5 gain. Sure, Gold will need to string together quite a few $5 gain days to catch up with the losses it suffered last week. But, I certainly do believe that it will. but, that's just my opinion, I could be wrong.

You know. that Silver has actually outperformed Gold this year, right? That's right. in fact Silver has surged 62% this year, while Gold has surged 24%... WOW! I recently did a long interview with NewsMax that will be in print the month of January, where I answer the question, "is Silver the next Gold?" . I don't want to steal the thunder from the magazine. but I'll just point to the fact that Silver has outperformed Gold this year. And now the Mints are talking about Silver. Perth Mint in Western Australia, says that "global demand for Silver, will increase. The Royal Canadian mint said that they believe "Silver coin sales will jump more than 50% this year."

Ok. well, I see that Brazil's strong economy has created 2.4 million jobs in the first 10 months of this year. The Brazilian Gov't had set a target of job creation for 2010 at 2.5 million jobs, which certainly looks like that will be achieved. And to think that the Gov't is so concerned that the real's value is too strong. The Gov't believes the strength of the real is hampering their economy. But apparently not! See, what I mean when I get all lathered up and talk about Gov't's leaving their economies to the market forces? These Gov't's all believe that "they have to stick their hands in there and act like they know what they're doing" and that's just plain wrong!

A great old song, Momma let him play. this is what I hear in my head when I talk about the Gov't's leaving the economy alone. Give that boy some freedom, let him move around Don't get in his way, you'll only bring him down Mama won't you let him, let him play some rock and roll, yeah

And the ratings agencies would do us all some good if they just went away. they don't have to go away mad, they just have to go away. The latest problem I have with them is S&P, which sent out a negative outlook for New Zealand. OK. we know, the markets all know, and investors know already that New Zealand's external debt is not good. but it's nowhere near the levels that would demand that S&P would give New Zealand's outlook a negative rating. Needless to say, but this announcement knocked the stuffing out of kiwi. I would have to say that this knee-jerk reaction to the announcement has probably given kiwi a nice level to look to buy.

Speaking of "stuffing". Thanksgiving is this week! It will be a shortened week for yours truly, and for the markets in general. The data cupboard's data will be all "stuffed" into mostly 2 days, tomorrow and Wednesday. the stock market closes early on Friday. I guess all the stock jockeys want to get in on the Black Friday action! HA!

So. the data talk can be held until tomorrow.

Canada will hold onto its data until tomorrow too, with both Retail Sales and inflation due to print on Tuesday. These reports from Canada have all been soft lately, so tomorrow is a big day for the loonie. at this point, I would think that since all of the data lately has been soft, that it's time for a reversal in the soft data trend. That's my story and I'm sticking to it!

Last week, before Chris took the conn on the Pfennig, I had told you about the rise in Treasury yields, and wondered out loud, if this was the beginning of the end for the Treasury Bubble. Recall, that I thought it would quite difficult with the Cartel buying $600 Billion of Treasuries in the coming months. Well, the Economist was questioning the affects of the Quantitative Easing, and came to the conclusion that if the one of the important objectives of the Cartel's Quantitative Easing was driving down medium term Treasury yields (that are tied to mortgage rates), then. that's not what's happening!

Think about this for a minute folks. QE isn't driving down yields, and neither is the Irish debt problem that in the past would have sent quite a few investors toward Treasuries in a flight to safety. So, has the bloom been taken from the Treasury's rose? It sure looks that way to me.

The Wall Street Journal had a good story on QE. they pointed out something that I've pointed out to you several times now, that QE hasn't helped Japan. It's been almost 10 years since Japan introduced QE to their economy. And inflation hasn't been seen! So. if that's the FOMC's / Cartel's plan. then it hasn't worked in Japan.

But here's the difference folks. here in the U.S. consumers are spenders. In Japan they are savers. I've been telling you this for some time now. That's the big difference.

OK. here's a pattern I've seen over and over again for months now. I come in, and the overnight markets have pushed the euro higher (it was 1.3740 when I came in), and then watch as the NY traders arrive and take it back down (1.3685 now). I guess it's time to go to the Big Finish!

Then there was this. The Irish govt will now open formal talks with the EU/IMF on details of the package, including its amount (Goldman Sachs says it will have to be 95 Billion euros) and also the policies Ireland will be expected to implement in exchange for aid. Both the ECB and the finance ministers stressed that the bailout package would have "strong" policy conditions attached. Ireland's PM Cowen said he expected an agreement "within the next few weeks." Ireland has already implemented a series of austerity measures over the past two years and said last month it planned further cuts in spending and tax changes to cut 15 Billion euros from the budget by 2014 (6 Billion euros in 2011).

I hope it all works for Ireland... Just 5 years ago, it was the cat's meow of countries with growth, and business creation...

To recap... It's Thanksgiving week, and the data will be "stuffed" into two days this week, tomorrow and Wednesday. The currencies and precious metals saw some healing on Friday, that had carried over to this morning. It looks like Ireland will get a rescue package from the European Union and IMF, and that has given risk traders a bit of room around the neck this morning.

Currencies today 11/22/10: American Style: A$ .9890, kiwi .7735, C$ .9845, euro 1.3690, sterling 1.5990, Swiss $1.0115, ... European Style: rand 6.9880, krone 5.9830, SEK 6.8510, forint 199.35, zloty 2.8725, koruna 18.0285, RUB 31.04, yen 83.50, sing 1.2975, HKD 7.7550, INR 45.40, China 6.6422, pesos 12.26, BRL 1.7105, dollar index 78.40, Oil $82.66, 10-year 2.87%, Silver $27.42, and Gold.... $1,355.10

That's it for today... I recorded the Missouri Tigers game Saturday night, and was able to play it back and watch it yesterday... Not an overly exciting game, but a win, and now that loss at Texas Tech 3 weeks ago, is really looking like it could be the difference in a major or a mid-level bowl... The Tigers play arch rival Kansas this week, and could close out the year 11-2... WOW! What a season! I did see some of my cousins last week, of course I would wish it was under different circumstances! When we were kids the cousins were always together, on the farm, on the holidays, etc. Now, I see them rarely... Well, the wedding day for oldest son Andrew and his fiancé, Rachel, is set for New Year's Eve... This way there will always be a party for their anniversaries! It will be a very small get together for the wedding service... Alex is going to be the best man... that's brotherly love, eh? OK... I had better get this out the door and see what was left for me from Friday... I hope your Monday is Marvelous...

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837





Posted 11-22-2010 10:23 AM by Chuck Butler