Consumer Spending?
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In This Issue.

* U.S. GDP prints at 3.2%...

* Dollar rallies on GDP data.

* Eurozone inflation rises 2.4%

* The CABAL.

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

Consumer Spending?

Good day... And a Marvelous Monday to you! It's January 31st, and the country is about to get hit with a major winter storm. We're supposed to get about an inch of ice, and then anywhere from 3 to 12 inches of snow. Other parts of the country will get blizzard conditions. pretty crazy. Reminds of the 2 feet of snow we got about this same time of year in 1982. The St. Louis Fed closed for a couple of days, and people were stranded all over the place. Let's hope that doesn't happen again, eh?

Well. the snow is about to dump on us, and the euro got dumped on last Friday. The euro (and the rest of the currencies) got slammed on Friday, from mid-morning on. The euro, which was well into the 1.37 handle when I hit send on Friday, fell 1.5-cents. And while the euro was getting slammed, Gold & Silver woke up from their doldrums, and rallied strongly. I mentioned to the boys and girls on the desk that the trading seemed very strange, given that the euro was down, and Gold was up VS the dollar. As I look at the screens this morning though, it seems we're getting a reversal of that Friday trading, with the euro gaining back 1-cent, and Gold selling VS the dollar.

So. what happened on Friday, and what's turned it around overnight? Well, Friday, we saw the first estimate of 4th QTR GDP here in the U.S., and while it wasn't as robust as expected (3.6%), GDP did show a strong move of +3.2%... Of course that's the first estimate, and it could go up or down from there. My guess? I think it will go down. One of the components just didn't make sense to me. the report said that Consumer Spending is strong. What? Where are they getting the money to spend? Ahhh. My good friend, and investment sage, John Mauldin, addressed this in his weekly letter that can be read for free. (www.2000wave.com) Here's John on that Consumer Spending claim.

"The really surprising number you saw the talking heads on TV mention was the growth of consumer spending, at 4.4%. Is the US consumer back? After all, real final sales rose by 7.1%, a number not seen since 1984 and Ronald Reagan. But real income rose a paltry 1.7%. Where did the money that was spent come from? Savings dropped a rather large 0.5% for the quarter. That was part of it. And I can't find the link, but there was an unusual drawdown of money market and investment accounts last quarter, somewhere around 1.5%, if I remember correctly. (David Walker remembered that article as well.) That would just about cover it. But that is not a good thing and is certainly not sustainable."

Chuck again. Yes, John, I agree. those draw downs can't be a good thing as far as sustaining strong growth. Besides, are we, as a country, going to go down that "consumption" road again? Before we embark on that journey, let me remind everyone that consumption does not create wealth! And, as the Big Boss Frank Trotter told an audience one time, "I walked through a cemetery the other day, and I noticed that 100 years ago, most of the grave stones said that people died of "consumption".

OK. so it was all about the dollar on Friday, as the mass media was in love again. But something else strange happened on Friday. and that was the stock market sold off by more than 100 points (at one point in the day it was 150 points!) . If the U.S. economy is as strong as the GDP would suggest, I would certainly think that the stock jockeys would be dancing in their seats. But that was not to be. What could they be afraid of, for they're not smart enough to look under the hood of the GDP report. They take it for what it is, and usually run with it. I'm not knocking stock jockeys, I'm just pointing out that this was not normal trading for them.

Well that was Friday. Overnight, like I said above, the euro has climbed back 1-cent overnight. Well.. can you believe that it was a pop up of Eurozone inflation? Well, my dear reader friends, that's exactly what pushed the euro higher this morning. Eurozone inflation accelerated to a two-year high in January. Remember now, the European Central Bank's (ECB) ceiling for inflation is 2%, and January's number was 2.4%... In December it was 2.2%, so. the trend for inflation here is not the ECB's friend. But, you may recall me pointing out a couple of weeks ago, that ECB members were beginning to take notice of the rising inflation, and as the ECB and its members will tend to do, they started talking hawkishly. Well, folks, the ECB can stop talking now. I know the Eurozone economy is on tenterhooks, but the ECB could become the first major Central Bank to hike rates. Don't think they will? I wouldn't bet against the ECB. Their mandate from the Maastricht Treaty is to provide price stability, and even if 2.4% inflation isn't the worst thing in the world. They're the ones that instituted the ceiling of 2%, so if you place a ceiling of 2%, you have to do something once it moved above the ceiling for more than 1 month.

The unrest in Egypt continues this morning. The goings on here are sure to upset the risk applecart. Especially for the Emerging Markets. Remember that when one Emerging Market suffers, they all suffer, whether they have problems or not. So, the Egypt thing has really put pressure on the likes of Brazil, South Africa, and others. One Emerging Market that is not suffering though, and bucking the trend, is Mexico. But I'm not even going to board that bus!

The data cupboard here in the U.S. will get a workout this week, beginning today with two of my faves, Personal Income and Spending.. We'll get a better look at the "income" of those so-called "spending consumers". And we end the week with the Jobs Jamboree! Lots will happen before Friday though, especially for commuters! But. as it looks right now, it looks like the forecast for Job creation in January is going to be +140,000. While that's far better than the -300,000 we saw a couple of years ago, 140,000 jobs is not enough to sustain a so-called growing economy. And unfortunately, for us. that means the boys and girls over at the CABAL (I'll explain in a bit), will feel that their QE2 is justified. and as readers of this letter know, I've already gone out on the limb and said that QE2 won't be the last one in the installments of debt monetization.

OK. as you all know, I've called the Fed the Cartel ever since I read the book, "The Creature from Jekyll Island". And told you that if you read that book, you too would call the Fed, the Cartel. OK. so. now I'm getting some heat for using Cartel from the powers that be. So. here's another version for me of this that I can use, and it's CABAL. and it stands for the people responsible for creating the Fed, and care taking of it now.

You may or may not know the story of the secretive closet advisers to Charles II of England in the mid 17th century. At any rate after the departure of an appointed minister it was said, somewhat inconclusively that Sir Thomas Clifford, Lord Arlington, the Duke of Buckingham, Lord Ashley, and Lord Lauderdale - thus CABAL became his primary advisers and were signatories to a treaty with France against Holland.

C - Central Bankers (for the other major central banks) A - Nelson Aldrich (The Aldrich Plan became the Federal Reserve act) as you know his son-in-law was John D Rockefeller B - The Bernanke of course A - Alan Greenspan L - Linda Robertson - the newly hired lobbyist to help smooth the image.

So. that's it! My new name for the Fed Reserve, because there's nothing Federal about them, and there are no reserves.

I see where Moody's downgraded Egypt's credit rating. Isn't that like adding insult to injury? Leave it to these credit ratings guys.

Then there was this. from Reuters this morning. Quantitative easing by the Federal Reserve and other central banks cannot address fundamental economic problems but may lead to excessive global liquidity and competitive currency depreciation, China's central bank said on Sunday. "Quantitative easing policy cannot fundamentally address economic problems, and it may cause excessive liquidity on a global scale as well as risks of competitive currency depreciation," the Chinese central bank said in its 59-page report. "It is creating imported inflation and short-term capital inflows, pressuring emerging markets," it said.

Chuck again. Same old stuff I told you with the first round of QE in March of 2009. and then again last fall when it was brought on again by the CABAL.

To recap. The U.S. 4th QTR estimate of GDP was 3.2%, and along with the unrest in Egypt, knocked the stuffing out of the currencies on Friday. But a stronger than expected inflation report for the Eurozone this morning, has the euro back on the rally tracks, and acting as the engine that it is, the rest of the currency are following along. The GDP report was a little suspicious and we discuss that along with good friend, John Mauldin.

Currencies today 1/31/11. American Style: A$ .9940, kiwi .7710, C$ $1.0010, euro 1.3675, sterling 1.59, Swiss $1.0610, . European Style: rand 7.18, krone 5.8015, SEK 6.49, forint 199.90, zloty 2.88, koruna 17.7585, RUB 29.80, yen 82.20, sing 1.2810, HKD 7.7970, INR 45.90, China 6.5950, pesos 12.16, BRL 1.6740, dollar index 77.91, Oil $89.85 (the unrest in the Middle East, has really pushed the price of Oil higher), 10-year 3.34%, Silver $27.65, and Gold. $1,327.10

That's it for today. Well. yesterday, was our little Christine's Birthday. she turned. no wait! I don't want her throwing pencils at me for telling her age! But, she's been with us for 10 years now! WOW! I packed an overnight bag in case we can't get out of here or back in the morning. Better to be prepared, eh? I'm listening to the Temptations' song, Papa was a rolling stone, this morning. great old song! Little d, (Delaney Grace), and the EverBaby (Everett) came to see us yesterday. Delaney sat and played with these little stuffed animals and sang for hours, making up words for melodies to other songs. It was quite funny. The EverBaby is already getting big, he's just a butterball! OK. We've got to get done and out of here today, to get home before it gets bad, so, I'm going to sign off here, and get to work. I hope you all have a Marvelous Monday, and be safe out there the next couple of days!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837





Posted 01-31-2011 10:16 AM by Chuck Butler