Black Friday off to a good start
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In This Issue.

* Black Friday off to a good start

* Dollar Index reaches a 'turning point'

* Loonie rallies as Russia becomes a buyer

* Gold and Silver trade lower

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

Good Morning, and welcome to Black Friday! I hope everyone got to spend a nice Thanksgiving with their families; I ate too much and laid on the couch watching football which in my opinion is the perfect Turkey Day! We got a sprinkling of snow yesterday, and the temps have dropped significantly from the 50's and 60's of earlier this week. The cold and snowy weather sure didn't seem to hold back all of the shoppers, as the parking lots at the stores around the office were jam packed as I came in this morning. I am always amazed at how many people feel the desire to rush out in the middle of the night to save a couple of bucks purchasing the latest and greatest gadgets. With the current state of the US economy, I figured more shoppers would be staying at home, but from the looks of the stores around here the US consumers are feeling strong.

Data released on Wednesday showed American consumers increased spending in October for a fifth month in a row. Personal spending was up .4% and income was actually up a bit more, rising .5%. Another report showed weekly jobs claims dropped to the lowest level in nearly two years, with just 407k people filing for the first time. Both of these reports boosted the outlook for the holiday season spending, which is great news for US retailers.

The dollar sure felt stronger in the light trading of the past 24 hours. The dollar index rose back above 80 for the first time since September 24th, and continues to get stronger in early trading today. The Korean conflict and further concerns over the Soveriegn debt crisis in Europe seem to be the reason for the greenback's strength. North Korea warned that any 'escalated confrontation' would lead to war as North Korea's official news agency said in a statement that the North is 'greatly enraged at the provocation' from South Korea and it will retaliate to any encroachment on its sovereignty. With tens of thousands of US military troops spread throughout the South, the US is certainly in danger of getting pulled into yet another conflict (the last thing we need right now!!). But back to the currencies.

The Dollar Index's recent gains mark a 'turning point' according to analysts at the Bank of Tokyo. These technical traders feel the dollar index will continue to rally in the short term after the five-day moving average crossed above both the 21 and 65 day lines, forming what they call a 'golden cross'. I don't typically follow the charts, as I usually try to have a longer term view on the currencies, but we have a lot of readers who 'need to know' the short term outlook for the currencies, and this is where the techies generally shine. But with the low trading volumes which are expected today I doubt if the markets follow any of their standard patterns.

The only two currencies which have rallied vs. the US$ over the past couple of days are the Brazilian real and Canadian dollar. Chuck sent me a story on Wednesday which detailed why the Canadian dollar was so strong:

The Canadian dollar / loonie Soars! It was announced on Wednesday that Russia was adding Canadian dollars / loonies to their reserves. the news story did not say for sure, but I would bet a dollar to a Krispy Kreme that the Russians added loonies at the U.S. dollar's expense.

The reason I say that is. It was announced on Wednesday that China and Russia had signed a currency swap agreement for trade between the two nations. In other words. only renminbi and rubles will be used in Trade settlements between the two nations. Now. recall, that China has signed similar agreements with most the Asian countries, Belarus, Argentina, and Brazil. There are rumors that China is also working on a similar agreement with the Arab states. So. China takes another step toward making the renminbi more acceptable around the world, gaining a wider distribution of it, and eventually making it the reserve currency of the world. And. if Russia is removing dollars from trade with China, I would say that it's pretty good chance that Russia has removed dollars from their reserves and added loonies! But in the end. both are BIG announcements and . caused the dollar's rally to get turned on a dime once again in favor of the currencies.

I also had someone accuse me of hating the dollar the other day. It's been a while since I've been accused of that. So, I'll just get this out of the way, for those of you new to class. I do not hate the dollar. I live here, I work here, I spend money here (well, really my beautiful bride spends money here), I need dollars for gas, groceries and giggles, and do not appreciate the fact that my Gov't and the Federal Reserve, have allowed my dollar's purchasing power to be eroded over the years. I simply am attempting to explain to people every day the things that make their dollars worth less, and illustrate why diversifying an allocation of one's investment portfolio to outside the dollar helps offset the eroding purchasing power of the dollar. If it looks like I'm saying I hate the dollar, I'm sorry. I do not. Instead I dislike the fact that it's purchasing power has been allowed to erode.

I hope everyone had a wonderful Thanksgiving. Let the Holiday Season Begin!

Thanks to Chuck for that excellent information on the loonie, and for setting everyone straight on just why we do what we do, suggesting diversification out of US$.

The Brazilian real shot higher on Wednesday after news reports suggested S&P may be considering a ratings upgrade. Fitch Ratings raised the outlook for Brazil's rating to positive from stable back in June, and recent stories suggest S&P will likely follow suit. The ratings agencies note Brazil's 'better than expected resilience' during the global crisis as a reason for the upgrade. The real got some help from the appointment of Alexandre Tombini as the head of the Brazilian Central Bank. Brazilian President elect Dilma Rousseff signaled she would keep the policies of her predecessor in place. Tombini has served as a board member of the Central Bank since 2005, and is seen as an excellent choice. We still feel the Brazilian real should be considered a speculative investment, but stability in both the Central Bank and Government will go a long way toward reducing the inherent risk in this high flying currency.

With substantial interest rate differentials and what is seen as a stable political situation, the real should be set for further gains vs. the US$.

Commodity prices limited the gains in the real, as worries about the Korean situation led investors to become nervous about growth prospects in Asia. Both Gold and Silver are down this morning, with gold off 1.7% since Wednesday, and Silver down a whopping 3.5% over the past 48 hours. Chuck always tells readers that light trading days can create some of the best buying opportunities, and these metals prices sure look good to me! I heard Kristin and Chuck talking about a special holiday offer on gold coins, so stay tuned and make sure you keep a bit of your Christmas money available for what I think is one of the best gifts you can give, the gift of gold or silver coins!

Currencies today 11/26/10: American Style: A$ .9644, kiwi .7508, C$ .9776, euro 1.3242, sterling 1.569, Swiss $.9985, . European Style: rand 7.1389, krone 6.1712, SEK 7.0295, forint 211.46, zloty 3.0472, koruna 18.6935, RUB 31.4032, yen 83.86, sing 1.32, HKD 7.7635, INR 45.855, China 6.6686, pesos 12.495, BRL 1.7291, dollar index 80.36, Oil $83.06, 10-year 2.87%, Silver $26.66, and Gold.. $1,361.60

That's it for today. On the way out the door Wednesday Chuck was wishing all of us a 'Happy Turkey Day' when someone asked about his daughter Dawn. Chuck was absolutely beaming as he told all of us that he would be a 2 star General the next time we see him! His granddaughter Delaney Grace likes to call Chuck 'The General', and Delaney's mother, Dawn, is scheduled to have another baby on Saturday, so Chuck will now be a 2 star General! Best of luck to Dawn and her husband Jerry! I will get all of the details on Saturday night, as both Chuck and I are going to Blues game. I hope everyone has a Fantastic Friday, and a wonderful weekend!!

Chris Gaffney, CFA

Vice President

EverBank World Markets



Posted 11-26-2010 6:21 PM by Chuck Butler
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