A New & Improved Deal For Greece!
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EverBank World Markets

A Pfennig For Your Thoughts

July 22, 2011

In This Issue.

* Eurozone plan calms the markets.

* No deal yet in the U.S. though.

* Changing views in Australia.

* Asian currencies soar to 14-year high!

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

A New & Improved Deal For Greece!

Good day. And a Happy Friday to one and all! It appears that it will be a Fantastico Friday for a number of reasons, so we've all got that going for us, eh? Sitting in the cool comfort of my house, with a couple of laptops around me, so I can read news, follow markets, et. It looks a lot like Rick Wakeman's keyboards set up! Don't know who he is? Ahhh grasshopper, the keyboard/ synthesizer player for the awesome 70's band. YES..

Front and Center this morning, it appears that there was a deal in the pockets of the Big Two, that we talked about yesterday. the markets appear to believe the "deal" was better than expected. So, let's see what the Big Two had in their pockets yesterday, and then presented to Eurozone leaders..

So.. Eurozone leaders announced yesterday that a deal to provide 159 Billion euros ($229 Billion worth) in new aid for Greece, with bondholders agreeing to contribute to the package. They also empowered their 440 Billion euro rescue fund to buy debt across stressed euro nations, which will help troubled banks. This removes the need for the European Central Bank (ECB) to hold these toxic waste bonds.

I know this doesn't sound like a hoola-hoop, but it's just like I said yesterday, it's a plan, and all the Eurozone leaders were singing from the same song sheet. By doing so, they have provided the markets with optimism that these extra measures will contain the Eurozone's debt crisis.

And that news really put wind in the sails of the currencies that aren't considered as "safe havens" for now. The euro is trading with a 1.44 handle, and the other currencies fall in behind the leader. As they say in Peter Pan. we're following the leader, the leader, the leader, we're following the leader.

What I find interesting is that yesterday we German Business confidence drop, and today, we've seen the latest Business Climate Index, as measured by the think tank, IFO, also drop, but yet the euro rallies. We've seen this before folks. back in the day (probably 5-6 years ago) when Germany's economic recovery was nascent at best, and people would wonder how the euro was rallying with weak fundamentals. I told them then, that it was simple. The euro is the offset currency to the dollar, and therefore, the dollar's fundamentals must have been worse than those in the Eurozone.

And ever since January of 2010, when the Greek debt problems first were hung out on the line for all the world to see, I tried to put it in perspective, so that we wouldn't get pulled into the hype around the selling of euros at that time. And here we are 1 & 1/2 years later, and the markets, for now, are finally figuring this out. Wouldn't it all be better for all of us, if these guys & girls just read the Pfennig each day? Then they wouldn't have these knee jerk reactions to things! HA!

Well. there's still no plan in place here in the U.S. to either raise the debt ceiling or not raise it, to cut spending or not cut spending. A friend of mine (Thanks Dennis!) sent me a note last night, and told me that he had heard a guy on TV say that there will be big battle in the House to accept a deal to raise the debt ceiling. talk about something that would deep six the dollar! That would be the antithesis of what's going on in the Eurozone, with everyone singing from the same song sheet.

Remember the other day when I told you that there appeared to be a deal on the table to cut $4 Trillion in spending over 10 years? Well, that is now down to $3 Trillion. Shame, shame, shame While $4 Trillion over 10 years wasn't exactly taking the chainsaw out and cutting away at the deficit spending, it was "something". And so is $3 Trillion, but that "something" is called. crumbs. and certainly isn't what I would call "spending cuts". Now, if the debt was only $7 Trillion, then you're talking about "Something", but unfortunately, the debt is more than double $7 Trillion. L

Last night, I gave a presentation to a group of business leaders right here in St. Louis, which was great, because I didn't have to travel hours to do so! But that's not what I want to focus on here. After the presentation I sat down with the group and ate dinner. At dinner, the man sitting next to me asked me if the markets were beginning to show that a deal in the U.S. is almost done. I said, "yes, the Swiss franc has backed off, and so have Treasuries. Gold & Silver have backed off, but just by a bit."

I then went on to explain that this whole debt ceiling deadlock is nothing more than political drama. the Republicans decided to use this as their message board that the debt needed to be dealt with. now! And both parties have dug in their heels on this, with both feeling they are right about their ideas. But, in the end, I hoped that the debt ceiling would not be raised. No, I'm not trying to throw the U.S. into default, as I explained yesterday, if you have a debt problem, you don't provide more debt!

Basically, in my mind, the U.S. has already defaulted. How did I get there, I hear you asking? Ahhh, you see, when an auction of Treasuries fails, the U.S. basically has defaulted, because they haven't financed their debt. Well, when the Fed has to account for more than 70% of auctions in the past 7 months, that to me, is a default.

Our favorite Gold Bug representative, Ron Paul, had this to say. "When a country is indebted to the degree that we're indebted, the country always defaults. We will default because the debt is unsustainable. If we don't understand this, this default will not be because we don't send out the checks. We will send out the checks. It will be defaulted on because people will get their money back, or they will get their Social Security checks and it won't buy anything." - Ron Paul [R-Texas]...20 July 2011

OK. let's talk about something else.

I see that the markets are beginning to come around to my way of thinking regarding Australia, and what will come next, a rate hike. and not a rate cut, like the markets were pricing in for Australia. Last night, the latest Import Prices data printed much stronger than expected, indicating or suggesting that next week's printing of the latest CPI, will have accelerated, thus moving everyone to Chuck's side of the ledger that calls for a rate hike before year-end.

This new development, as the Aussie dollar (A$) moving higher. Yes, I know, you probably peeked at the currency round-up below to see the A$ price. but if you didn't, A$'s are trading around $1.0850!

And Asian currencies "as a whole" are really moving higher. you would think that these Asian countries are so far removed from the Eurozone problems that it wouldn't affect their confidence and currency values. But it has. But now with the "new plan" in place for the Eurozone the Asian currencies are back to gaining VS the dollar. the Bloomberg-JPMorgan Asia Dollar Index reached a 14-year high last night. yes, not since 1997, before Mark Twain Bank was purchased by Mercantile Bank, has this index, that tracks 10 Asian currencies, has been this high!

One of those 10 Asian Currencies is the Japanese yen, which continues to inch stronger and stronger VS the dollar. I think that the move are very slow, due to the fear of intervention by the Bank of Japan (BOJ). But in reality, as long as the markets remain orderly, and continue to move yen inch by inch, I don't think the BOJ will intervene right now.

And today in Canada, we'll see the color of their latest CPI data. this data will hold the trump card regarding whether the Bank of Canada does "withdraw the stimulus in the economy" (read hike rates!) as they said earlier this week. There are some buyers that are going out on a limb and pushing the Canadian dollar / loonie higher. I hope the data doesn't disappoint them. I don't think it will, but one never knows!

The U.S. data cupboard is empty today. Yesterday we saw the Weekly Jobless Claims rise (I told you they would!) from revised up figure last week of 408,000 to 415,000. Add to that the announcement this week that I told you about that Cisco will cut 6,500 jobs, and Borders will cut loose 10,000+ jobs. And that with the NASA shuttle ending its 30 year run, there will be some layoffs there. and layoffs continue to be quite stubborn, eh?

And the Philly Fed Index (manufacturing for the region) printed a so-so number, but one that was much better than the previous month's -7.7% print. the report this month, showed a 3.2 number, which is worse than the forecast (5), and tells me that we'll see further slowing in the National Number (ISM) but not a contraction, yet.

And. Big Ben didn't make any ripples yesterday, and neither did Fed member Charles Evans, who also spoke. I would think that the debt ceiling deadlock would hold everyone's attention for now.

You know. a great song just came on the I-Pod, Wouldn't It Be Nice, by the Beach Boys, and I started to sing along with it, and realized I was not at the office, but instead at home, and would wake my beautiful bride up if I began to sing! UGH! Sorry, but that was on my mind right then, I'll get back to currencies and stuff now.

Gold & Silver continue to trade under their lofty levels of earlier this week. but, I told you that this would happen, didn't I? I said that much like when Gold got to $1,000, and $1,100 and so on, the shiny metal would go back and forth above and below the current figure, forming a new base from which to move higher. And that's what Gold appears to be doing at $1,600. back and forth, above and below, forming a new base.

Chris sent me a story that will appear in Forbes about Gold. and in the story they talk about how Gold is still a buying opportunity. "We think investors are looking at the federal debt crisis, the Euro problems and a continuing declining housing market ... and are more ready than ever to explore the upside prospects of an investment in gold... both as an investment opportunity and a hedge against an uncertain future."

Chuck again. yes.. the uncertainty hedge. I began calling Gold that a long time ago, and it gets used more and more. but what better way to describe the shiny metal? Last night at dinner, I also had a discussion about Gold, and made everyone swallow hard, when I told them that Gold was real money, and the dollars in their wallets were not.

Ok. I have two "Then There Was This" items for you today. I'll start with a story on potential conflicts of interest at the Fed, and head to the Big Finish with a story from Hong Kong on a new Silver market there.

So, you can choose one, or both!

Then there was this. from The Washington Post. "An audit by the U.S. Government Accountability Office identified weak conflict-of-interest policies and instances of potential conflicts at the Federal Reserve. The GAO found that many Fed employees and contractors owned stock of companies that received assistance from the central bank during the financial crisis. William Dudley, president of the Federal Reserve Bank of New York, owned American International Group shares as the government worked to rescue the insurer. Dudley was a senior official then at the New York Fed."

Chuck again. don't know what to say about this. as the report is damaging enough, but what will the public do about it? Nothing, absolutely nothing, say it again!

And then There was This. The Hong Kong Mercantile Exchange ("HKMEx"),China's international commodity marketplace, announces today the launch of a US-dollar silver futures contract to begin trading on 22 July,2011,following the successful introduction of its gold futures two months ago.

The new contract, launched on the back of surging global demand for silver, will trade in units of 1,000 troy ounces and be delivered in Hong Kong. Trading will last for 15 hours every day, Monday to Friday, beginning at 8am and ending at 11pm Hong Kong time, with a 30-minute pre-opening auction starting at 7:30am. Clearing and settlement of contracts will be conducted through the independent clearing house LCH.Clearnet.

Between 2008 and 2010,demand for silver rose 67% in China and 17% globally to reach 7,495 tons and 32,870 tons respectively, according to market data compiled by HKMEx. China alone, accounted for nearly 23% of the world's silver consumption last year, reflecting its importance as a global manufacturing powerhouse.

Chuck again. OK folks. I've made myself clear, how clear, Crystal clear over the years that I believed that Gold & Silver prices were "manipulated". there are tons of theories out there on who does this manipulation, and I won't get into that, and can't get into the "who". but my point here is simply that this new market in Hong Kong would basically remove the ability of the "manipulators" to move the Silver market. I can't tell you how excited I am about this new market. but I am!

To recap. There's a calm falling over the markets in the Eurozone and thus in Asia as well, as a new plan to deal with Greece, and prevent problems from spreading was announced yesterday. The euro has rallied on the news, and the rest of the currencies that aren't used as "safe havens" are following the leader. The opinion of the markets in Australia is beginning to shift to Chuck's way of thinking, and the Asian currencies are at a 14-year high!

Currencies today 7/22/11. American Style: A$ $1.0850, kiwi .8665, C$ $1.0585, euro 1.4405, sterling 1.6295, Swiss $1.2165, . European Style: rand 6.7565, krone 5.3915, SEK 6.2875, forint 184.70, zloty 2.7560, koruna 16.9090, RUB 27.69, yen 78.50, sing 1.2080, HKD 7.7910, INR 44.36, China 6.4470, pesos 11.59, BRL 1.5525, dollar index 74.01, Oil $99.47, 10-year 3%, Silver $39.33, and Gold. $1,590.20 And with it being a Friday, don't forget our weekly look at the debt clock. click here: www.usdebtclock.org/index.html

That's it for today. and that's it for me for a long time. 3 weeks. I will be sending in reports from the road, next week from Vancouver, and then when I'm in San Francisco the second week of August. In between I'll be enjoying my summer vacation! Thanks to John & Laura McBride for inviting me to speak to their group last night. Cardinals pull one out in NY, thanks to the Mets playing like the Bad News Bears. Good luck to Alex tonight, as he will be swimming in his summer league's Finals. He had a waterpolo game late last night, so I don't know how it went 108 is what my car's temp gauge read yesterday afternoon. Now. let's go out there and make this a Fantastico Friday! I'm off to travel the country!

Chuck Butler


EverBank World Markets



Posted 07-22-2011 11:12 AM by Chuck Butler