Bias To Sell Dollars Remains.
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In This Issue.

* Dollar remains weak.

* Euro backs off though.

* Gold climbs back to $1,400.

* 157 Banks close in 2010.

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

Bias To Sell Dollars Remains.

Good day... And a Wonderful Wednesday to you! Well. with it being the 29th of December, it's down to counting the hours until we begin to celebrate the New Year! Like I've told everyone already, this year on New Year's Eve, my oldest son, Andrew will be tying the knot with his fiancé, Rachel, or "the Rach" as she refers to herself! So, every year from here on out, they will always have something to celebrate on New Year's Eve!

Well. that bias to sell dollars that was prevalent in the markets yesterday morning, remained throughout the day, except against the euro. The Commodity Currencies and Commodities took some liberties with the dollar, and we saw Gold gain $20 to trade above $1,400 once again. Silver followed with gains that took it above $30 once again. But the poor, battered and beaten euro just couldn't get any love thrown its way. The move down in the euro wasn't HUGE, it was just down, which was opposite of most of the other currencies and commodities.

The S&P/CaseShiller Home Price Index did print with weaker home prices yesterday as expected. This kept the wind in the sails of the currencies that already enjoy a positive yield differential to the dollar. For. how can / could the FOMC/Cartel/ Bernank even think about raising interest rates with the Housing market remaining in shambles? Well, I could think of a few reasons to do so if I were a Fed Head, but that's not what the markets are thinking right now, so that's the direction we'll have to go.

U.S. Consumer Confidence surprised the markets, by showing a decline in Confidence this month. That makes sense to me, but, this data never adds up to what I think it should.

So. I was here, I had just finished the Pfennig yesterday, and the euro was 1.3250, and looking like it was going to trade higher, when what to my wondering eye did appear? But some media-head, reminding everyone that the Eurozone periphery countries still have a debt problem. It was as if, the media-head got the memo or phone call from (fill in the blank) that said, "the euro is getting stronger again, it's time we reminded the markets of the periphery countries and their debt". Of course, I don't believe that really happened, or maybe I do. HA!

What really weighed on the euro, most likely that is, would be the news from the European Central Bank (ECB) yesterday, showing that the ECB was not able to sterilize their bond purchases. This is a long explanation, so I'll try to keep it short-n-sweet. The ECB has been buying bonds in an effort to restore confidence in their periphery countries. To ensure the purchases don't swell the money supply and create inflation risks, the ECB each week drains the amount of extra liquidity it has created by offering banks seven-day term deposits. Well. unfortunately, the ECB was unable to withdraw the amount equal to the bond purchases, last week. This means the ECB failed to fully neutralize the extra liquidity created by its bond purchases. This isn't the first time this has happened either.

This time, though, there could be a reason for this to happen like this. and that reason is simply that we're heading to year-end, and banks like to have plenty of cash at the end of the year, when liquidity needs increase.

OK. enough of that! It's all smoke and mirrors any-old-way!

Speaking of smoke and mirrors. How about the game being played where the media bangs on the European periphery countries (and rightly so) for their debt problems, but let's the U.S. go Ollie, Ollie, Oxen Free on their debt problems? Remember 2009, and the 140 banks that closed, and the media said that the worst was over? Well, think again. the bank closures in 2010 will show that 140 was chump change! 157 banks were closed this year. That's the worst year since 1992 (after the S&L crisis). This is what happens when you have a government spending led economy, high unemployment, and a housing sector still devastated, and in shambles. Just for comparison. in 2006, there were no bank closures!

And this plays well with the data I gave you yesterday about the banks that are delinquent in their TARP payments. So. there will be more rot on this vine exposed in 2011. stay tuned, same bat time, same bat channel!

There's a great story on the Bloomie this morning about Sweden and how their central bank, The Riksbank, is fighting asset bubbles differently than the methods used by other central banks like the Cartel/ Bernank, and the Bank of England. In this novel approach, the Riksbank actually looks beyond conventional inflation targets and instead looks at asset-price growth. Tina Mortensen, an economist at Citigroup Inc, had this to say about this approach. "not countering asset-price increases has been the conventional wisdom among central banks, but what has it actually resulted in?

So. this brings us back to the Riksbank. I told you, probably 3 years ago, that Norway and Sweden's Central Banks had faced a lot of the bubble problems of the U.S, and dealt with them differently. Well, now the Riksbank is doing things different again, and I Like It! Why not do it this way? Just another reason, why during the height of the financial crisis you never heard a Norwegian or Swedish bank mentioned as "having problems". And. just another reason why, fundamentally, the currencies of these two countries should be considered as alternatives to the euro.

And here's another story that show the grind on the dollar will continue in 2011. India Central Bank (RBI) is allowing trade with Iran to go on without the use of dollars. for that matter, euros aren't being used either! I've kept you all up to date, like in Kansas City, on the ways that China is removing the dollar from their trade, and right before I went on vacation, China announced that they removing dollars from their trade with Russia. You the reserve currency of the world, all commodities are priced in dollars. So, dollars get in the middle of all that trade around the world. But China is taking steps to stop that from happening, and now India has joined China in that move to remove dollars from trade.

And that thought brings me to the stuff I was thinking about yesterday, as I watched the Swiss franc hit an all-time record high VS the dollar, the Japanese yen remain strong, and the Commodity Currencies inch higher. The thought was that in November, the dollar began to rally on the rising Treasury yields. But now, even though the Treasury yields continue to rise, the dollar's rally has faded. could this mean? Nah.. don't go there Chuck! Oh Shoot Rudy, why not? Could this mean that the dollar's "safe haven" status is getting tested? And maybe, just maybe, because you never know, the dollar is no longer being viewed as a safe haven any longer. Whew, that's a heavy thought, Chuck. Maybe you shouldn't have gone there this morning. Ahhh. grasshoppers why not? I'll do the heavy lifting, always have, always will!

Speaking of U.S. Treasury yields. yesterday, I kidded about the "bat phone" at the Bernank ringing and alerting the Fed Heads that Treasury yields were rising and there was something that needed to be done about that. (Treasury yields had backed off on Monday). Well. whatever they did, assuming they did something that is, it didn't have any staying power, as Treasury yields rose again on Tuesday. Or maybe the Bernank will simply act as a circuit breaker only allowing small moves in Treasury yields. OK. this is all a part of "Chuck's strange mind", and not reality. But, think about it. You could see this all happening, right?

OK. just a thought or two on the rise of Gold and Silver before I head to the Big Finish. about a year or so ago, I reported to you that the Chinese Gov't was telling Chinese citizens to buy physical Gold. Wasn't that smart of the Chinese Gov't to do? They saw the inflation that was coming, and wanted their citizens to protect their wealth. OK, that's probably not what happened, but it makes a good story, eh? The point I want to seriously make here is that inflation in China is a growing problem, and the physical demand of Gold in China is soaring! So. see it's not just investors here in the U.S. buying physical Gold.

Notice I keep referring to physical Gold? That's not an ETF. not that there's anything wrong with buying Gold ETF's. except. you can't get the actual Gold from an ETF. the physical demand for Gold in 2009 was up 429%, I would have to think that it will be even greater than that extraordinary number from 2009, in 2010! These people want physical Gold.

Then there was this. Did you see what one of my fave economists, Nouriel Roubini said about the S&P/CaseShiller Home Price Index report that showed home prices falling? He said, "there is no good news in October's report, the housing market is already in a double-dip downturn, and the rate of decline is stronger than in previous months".

Chuck again. I just don't get it, that this housing data would surprise anyone. I kept telling you over and over again that this dance is gonna be a drag, that the unemployment problem in the U.S. would feed foreclosures, and foreclosures would feed lower home prices. it's all bad. and no amount of Quantitative Easing is going to correct the unemployment problem. But, the Bernank just won't listen to me!

To recap. The bias to sell dollars remained throughout yesterday, except for the euro VS the dollar. The Commodity Currencies inched higher, and Gold & Silver really took liberties with the dollar, as Gold was up $20, and Silver traded back above $30. The S&P/CaseShiller Home Price Index showed that the rot on the housing vine is still being exposed, and home prices fell in October, thus keeping a lid on interest rates here in the U.S.

Currencies today 12/29/10: American Style: A$ $1.0125, kiwi .76, C$ $1.00, euro 1.3120, sterling 1.5390, Swiss $1.0525, . European Style: rand 6.6575, krone 5.9575, SEK 6.8420, forint 213, zloty 3.0285, koruna 19.2640, RUB 30.45, yen 82.15, sing 1.2970, HKD 7.7815, INR 45.04, China 6.6245, pesos 12.38, BRL 1.6910, dollar index 80.26, Oil $91.15, 10-year 3.44%, Silver $30.48, and Gold. $1,405.80

That's it for today. I can't imagine being stuck in an airport for days. I feel for those people stuck like that. Well, I didn't get to see it, but I saw the final score this morning, and my beloved Missouri Tigers couldn't pull out a win last night. UGH! I recorded the game, but doubt now that I'll watch it, knowing the bad outcome. I'm bopping and singing along here in my seat to Jr. Walker & the All-Stars song. What does it take. For you youngsters, that have no idea what I'm talking about. I feel sorry for you, because THAT was music! Darling daughter, Dawn, sent me a picture last night of the EverBaby, Everett in a Mizzou Tigers jersey. that's one small jersey! OK. try to stay warm and dry, and have a Wonderful Wednesday! I'll talk to you tomorrow! The last Pfennig of the year! WOW!

Chuck Butler


EverBank World Markets



Posted 12-29-2010 10:08 AM by Chuck Butler
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