China's Economy: Still Soaring.
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In This Issue.

* Currencies back off a bit.

* Gold, Silver and Oil all get sold..

* Poland hikes rates 25 BPS.

* The Worst AAA rating.

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

China's Economy: Still Soaring.

Good day... And a Tub Thumpin' Thursday to you! Why Tub Thumpin' today? Well. Why not? If you're reading this, it means you are alive, and that's reason to thump the tub, eh? We're getting snow dumped on us here in St. Louis. Shoot Rudy, I'll take snow over ice any day. And Ice is what we usually get! So. it's a snowy Tub Thumpin' Thursday!

Front and Center this morning the big news from last night was that China's 4th QTR GDP beat the estimates! China's economy grew at a 9.8% pace in the 4th QTR. Ok, I have to ask this, with a snicker in my voice. Where are all those pundits / economists that predicted a collapse of the Chinese economy a year ago? For those of you keeping score at home, for all of 2010, China's economy grew at a 10.1% pace. OK. remember when I told you that a customer of mine, that had done business in China for over 20 years, told me to only believe 1/2 of what the Chinese report to the public? So. if that's true, the 4th QTR GDP was 4.9%! Still. it certainly hasn't collapsed, nor has it even moderated, which is what the Chinese Gov't was hoping for.

So. that means the wink and nod has been given to commodities. And as I look at the currencies, I'm shocked that the Aussie dollar (A$) is back below parity. I would have thought this GDP report would mean smooth sailing for the A$... Now, I know that the markets are going to be calling for another rate hike by the Chinese in another attempt to moderate their economy. But, the previous rate hikes didn't do the job, right?

The currency strength we saw yesterday morning, remains intact this morning, although the figures for each respective currency are off a bit. The euro traded well above the 1.35 handle yesterday, but has slipped back through the figure this morning, albeit barely. as it trades at 1.3490 right now.

The U.S. Housing data yesterday was awful. And once again, I saw a well known economist on TV saying that housing had bottomed. Hmm. That's about a dozen different times now since 2008, that we've heard someone saying that housing had bottomed. One of these times the forecaster will be correct. Unfortunately, I don't believe this will be the time. Housing Starts for December, fell 4.3%, and had the worst monthly performance since October of 2009, when we were probably hearing the 5th or 6th person tell us housing had bottomed.

Look folks, it's one vicious cycle. The economy, Housing, unemployment. They are all dependent on the other, and none of them are doing well. This rot on housing's vine is a huge indicator that the U.S. economy is weak. it has a pulse. and that's good. but it's weak. very weak.

Well. the Big Meeting, between the Presidents of China and the U.S. took place yesterday. I got a kick out of watching and seeing the text of the press conference. The Chinese President, Hu, just smiled a lot, and kept repeating that the U.S. and China are going to work to improve this, that an the other things. Nothing like the grenade he threw from left field on the dollar prior to his visit to Washington D.C. Now, he left that to his Commerce Minister Chen, who said, "the U.S. trade deficit with China isn't a result of the value of the Chinese currency. U.S. controls on certain exports to China have exacerbated the deficit."

The U.S. just needs to be patient, folks. China will move on their own timetable, but more and more, we're seeing a consumer driven economy in China, with the new-found middle class driving the economy. And that middle class will be wanting the stuff from the western world. And the renminbi? It will continue to gain VS the dollar, but on China's timetable, not from the wishes and demands of lawmakers in Washington D.C.

The New Zealand dollar / kiwi is much weaker this morning, than it traded yesterday. Last night, New Zealand's latest inflation report was not as robust as the currency traders were looking for (higher interest rates would be the result of a stronger inflation report), and so all the buys that were put on ahead of the report, were unwound.

And In Japan. Japan's Economic Minister, Kaoru Yosano was doing his best to point out the real problem in Japan that seems to be Hush-Hush with the Japanese Gov't and the markets just keep looking the other way. What I'm talking about is the Japanese debt. Yosano said, "If we keep going with no fiscal discipline, allowing the stock of public debt to grow larger or continuing to borrow more than we receive in tax revenue, international confidence in Japan could be gradually eroded."

Whew, I had to do a double check on that statement, because I wasn't sure if he was talking about Japan or the U.S.!

Speaking of debt here in the U.S. The ratings agency, Fitch, issued a report on the U.S. and debt. Here's what Fitch had to say about that.. "Record U.S. Budgets deficits due to stimulus measures and a lack of a plan to reduce debt may undermine confidence in the dollar and raise inflation concern. The U.S. fiscal metrics will be the worst of any AAA rated sovereign."

That's right. we're now the "worst AAA rating". Great! One of these days, the fact that the size of the U.S. economy, and the fact that the U.S. dollar is the world's reserve currency isn't going to imply a higher debt tolerance as it does now. And guess where we are headed here in the U.S. very soon? We're headed to a showdown on raising the debt ceiling. I wonder how that will all play out. You have to wonder if back rooms deals will be the call to order, on raising the debt ceiling. no wait, no wondering needed, we all know that back room deals will be made. That seems to be the way we get things done these days. and that's all I'm going to say about that!

On the Emerging Markets front. an interesting comment was made yesterday by an Emerging Market Central Bank Gov.. Poland's Central Bank Gov. Marek Belka, said that the Polish zloty, "retains substantial potential to appreciate, with the scope of possible gains oscillating around 10%!" Hey folks, when was the last time you heard a Central Banker make a statement like that? Talk about possible appreciation? Most of the time, all we hear about are the knucklehead Central Bankers that want to "weaken their currency". Not talk about possible appreciation! And not only talk about it, but embrace it! So. kudos to Poland. Here's hoping the Central Bank Gov. is bang on! And they erect a statue of him someday!

Oh. and get this! Belka's comments must have been a wink and nod to his buddies, and family to buy zloty. You see, this morning, the Polish Central Bank raised interest rates 25 basis points (1/4%) ..

Today is National Penguin Day. For those of you who are into Penguins.

I have no idea why I just typed that. but it popped into my mind, and this is a stream of conscienceless at 5 am! So, with that I guess I had better get back to the currencies, eh?

Gold & Silver spent two days in the sun, and then the shades were pulled on them again yesterday afternoon. Again, the Chinese GDP performance should have geared these two precious metals higher, but NOOOOOOOO! I guess the price manipulators were at it again. So. Gold & Silver are both down VS the dollar, and looking pretty sickly, folks. Last week, I bought more Silver. I just thought that the price had dropped so much that it was time to buy on the dip. See? I practice what I preach! But, if I liked Silver at $28.75, I'm going to love it at $28.50! HA! Seriously. this is a dip. unfortunately, the dip is not on terra firma right now. But, as we all know, from watching Gold and Silver for the past 10 years, things can change in a heartbeat, and before you know it Gold is setting new record all-time highs. Now, certainly, there's a chance that this scenario won't happen again, like it has for the last 10 years. And that's the little legal beagle that sits on my right shoulder talking to me. the little sarcastic, devil may care what I type guy sits on my left shoulder. both are telling me what I should write, and what I shouldn't! Stop it! Either let me write, or don't!

Then there was this. Big Al Greenspan is back in the news. The former Cartel chairman, and someone I despise, is talking about the stock market these days. Remember back in his day, when he said that stocks were irrational, and they went on to rally strong for about 5 more years? Well, according to the interview by the Wall Street Journal's Kelly Evans (who by the way is a real cutie!), Greenspan believes that "stocks are cheap in earnings are to continue higher". Whoa there partner! Big Al has really told us something here, eh? NOT! Well. no, forget it, he's not worth me going on about.

I will say this folks. don't know if you've seen this or not, but margin debt in brokerage houses is up 24% in the past year. And the funding of hedge funds? It's increasing again. Hedge funds are reporting that they have increased their leverage to within 10% of the peak in 2008. Here in St. Louis, there's a famous rock station that used to run a commercial of a dad, and daughter listening to the station, and the Rolling Stones, song Brown Sugar comes on, and the dad gets up and starts playing the air guitar, and the daughter cries, "Mom, he's doing it again!". if it were the bad things that get into stock markets, I would be saying, " markets, they're doing it again!"

To recap. The currency strength that we say yesterday morning has backed off a bit, but the bias to sell dollars remains, albeit a weaker bias this morning. China's 4th QTR GDP was an impressive 9.8%, with the overall GDP for 2010 an equally impressive 10.3%... So much for the calls of an economic collapse in China, eh? Aussie dollars (A$) and the other commodity currencies have backed off yesterday's highs, as the markets believe that China will hike rates in yet another attempt to moderate their economy. and Gold and Silver are getting sold again.

Currencies today 1/20/11. American Style: A$ .9950, kiwi .7630, C$ $1.00, euro 1.35, sterling 1.5990, Swiss $1.0475, . European Style: rand 7.06, krone 5.8380, SEK 6.63, forint 202.85, zloty 2.8890, koruna 18.0650, RUB 29.91, yen 82.20, sing 1.2855, HKD 7.7815, INR 45.53, China 6.5860, pesos 12.11, BRL 1.6680, dollar index 78.56, Oil $90.35, 10-year 3.33%, Silver $28.44, and Gold. $1,363.25

That's it for today. About 4 inches of snow is what's on the ground now with more on the way today. We received a funny phone call from our disaster recovery people yesterday. They heard that we were going to get 6 inches of snow, and wanted to know if we were going to close? HAHAHAHAHAHAHA! Now that's funny! OK. I'm tired of winter! I just don't know how many more years I can deal with 0 degrees. and that makes me think that I'll be heading south to the Orlando Money Show Feb. 10-12. It's at the Gaylord Palms in Kissimmee. and it's free! So, come on down, get warmer (there's no guarantee it will be actually warm, but it will be warmer than up north!), and stop by to see us! Chris Gaffney will be there too, that is if we can drag him away from his Temenos project! HA! We always make a visit to Jimmy Buffett's Margaritaville for a Cheeseburger in Paradise. I can almost taste it now! And with that. I hope you can make this a Tub Thumpin' Thursday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837





Posted 01-20-2011 10:51 AM by Chuck Butler