Another Day, Another Risk Off Day.
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In This Issue.

* Euro dips below 1.30.

* Italy's auction turns around.

* U.S. Retail Sales disappoint!

* Norges Bank to cut rates today.

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

Another Day, Another Risk Off Day.

Good day. And a Wonderful Wednesday to you! Another day closer. My darling daughter, Dawn, called last night, and asked me to read to her class again this year. So, Friday morning, I will read The Night Before Christmas to 5 & 6 year olds. I don't know who gets a bigger kick out this, me or the kids! We used to do this at home each year, on Christmas Eve, before we went to bed. But then they got older. So. I sure hope my tongue doesn't dry up!

Speaking of drying up. that would best describe the willingness of investors to back the risk assets. It's all about the dollar, right now. and of course, in September I told you that the perfect storm was building for dollar strength, so this comes as no surprise. What does surprise me though is the myopic view of debt that the markets' participants have taken. It's as if all the debt in the world belongs to the Eurozone, and the U.S. has a picture perfect balance sheet.

Which leads me to believe that this dollar strength is nothing more than a bear market rally, and not an end to the weak dollar trend, that began because of a fundamental reason (rising debt), and won't end until that fundamental reason has been reversed, or is at least on the way to being reversed. So. like I told you in September. batten down the hatches, and keep an eye on buying opportunities to pick up some additional diversification at cheaper prices.

Those that don't believe in any of this, will panic, and sell. OK. They obviously haven't been through a period of dollar strength or a bear market rally before. Let's see. there was 2005. And then there was late 2008 thru early 2009, and then there was even the run on the euro in 2010 when it fell to 1.18. But, eventually, the ball comes back to the U.S.'s court. and when it does risk aversion goes out the window, and is wrapped in yesterday's newspaper!

So. with having said all that. The euro today is hanging on to 1.30 by the skin of its teeth. Italy held a bond auction today, and at first, the auction went off just fine. But then a turnaround in bond markets left a mark on the euro. I wouldn't be surprised to see the euro drop to the low 1.20's in the coming year, before the focus shifts back to the U.S. I read a story last night that expressed the writer's view that he believed that Germany would leave the euro, leaving the Eurozone members to deal with their debt problems on their own. Of course, in my opinion, Holland, Austria, and a couple of little guys would also leave with Germany if that were to happen. Hmmm. While the writer was convincing in this view, that Germany will leave the euro. I have to say I still don't believe any members will leave the euro.

But if that did happen, I couldn't imagine how large the flows would be from euro to Deutsche Mark! But, don't get your hopes up, like I said, I don't believe this will happen. But then, I do always reserve the right to change my mind in the future!

The U.S. Fed left rates unchanged yesterday (no surprise there!), and in their statement following the rate announcement, the Fed Heads suggested that they were seeing signs of modest economic expansion. But maintained that there were "significant downside risks". They did mention the elevated unemployment rate and one of those downside risks, along with the Eurozone problems. So. all-in-all, pretty much as I said it would go, eh?

Yesterday, U.S. Retail Sales printed, and for one of the very few times since I introduced the BHI 10 years ago, it led me to believe Retail Sales would be strong, and they were not only not strong, but they were basically weak, only gaining .2% in November! Hey! I thought those Black Friday sales were of record numbers? Do you remember what I said following the reports of record Black Friday Sales? Well. here's what I said on November on November 29, right here in the Pfennig. "I'll make a bet here. I'll bet a dollar to a Krispy Kreme that when all the dust settles on the holiday shopping, that the euphoria that swelled from the announcement of Friday's numbers, will bomb out."

Sure looks that way to me! Yes. the stores may have had record numbers of items leaving their shelves, but the steep discounts that were needed to move the items, left the total sales figures down.

OK, enough of that. all the currencies and I do mean all the currencies, including renminbi and Gold, are taking on water this morning. The Aussie dollar (A$) has fallen below parity again, and the Swiss franc is the lowest level VS the dollar, it has been since February. 10 months ago. Japanese yen is just a shade weaker this morning, but weaker nonetheless. So, even the safe havens of francs & yen aren't trading alongside of the dollar any longer. So. this would qualify as a Risk Off Day. Gold is weaker again, and U.S. stocks took one on the chin again yesterday.

Boy are those people going to be disappointed come summer of 2012. in my opinion that is. I could be wrong. I know long time readers get tired of me saying that, as you know all too well that this is just my opinion. But. I've got to keep the legal beagles happy, folks. of course the legal beagles don't like it when I call them legal beagles, and that they make me adhere to rules. Oh well. I think I just broke about a dozen of their rules!

Don't be surprised if the price of Oil begins to ratchet up. Think about this. The Fed Heads mentioned yesterday that they are seeing signs of economic expansion. ( I don't truly believe there is, but as long as something is perceived to be, it will be) And in the coming election year, there will be more upbeat talk about the economy in an effort to get re-elected. Well, whether there is improved economic expansion or not, if every time you turn on the TV some political ad is telling you there is expansion, you'll start to believe it. And with perceptions of U.S. economic expansion in place, the price of Oil will rise.

I would think the Oil producers of Norway, Canada, Russia, Brazil, and even Mexico and the U.K. would be underpinned by a rise in the price of Oil as we get into 2012.

Speaking of Norway. The Norges Bank (Central Bank) will meet today, and will probably cut their interest rate. The European Central Bank (ECB) has already cut twice, so, I expect that the Norges Bank will cut today. And. given the market reaction to rate cuts recently, we could see a bump in the krone after the rate announcement. but not much more.

Ok. I said yesterday that Sing dollars had gotten ahead of itself. I didn't say that now that it has come back in line with the renminbi that it was still overpriced. In fact, the currency is now ready to move in tandem with the renminbi. Don't know why someone thought I said that Sing dollars were overpriced, now.

Then there was this. Well. what a dolt I was yesterday, when I had a brain drain and only talked about the last two articles that were written about me. The original article that appeared in the Wall Street Journal was written by a young man named Craig Karmin, and it appeared in the WSJ in March of 2005. Well, Craig Karmin wrote a book that was published in 2008, titled: Biography of the Dollar. How The Mighty Buck Conquered The World And Why It's Under Siege.

In the book, Craig dedicated a chapter talking about me, and my fight to get the word out about deficits, debts, and diversification.

I apologize to Craig for my oversight yesterday. and. if you're interested in reading that book simply click here:

To recap. The euro is hanging on to the 1.30 level by the skin of its teeth this morning, as Italy's bond auction went well at first and then fizzled out. The A$ is below parity again, and even the Chinese renminbi, yen and francs are weaker VS the dollar today. U.S. Retail Sales were very weak at .2% in November. what happened to those record Black Friday Sales? Gold is getting sold again. and if you missed class yesterday, the Gold selling is by dollar bugs that think that if the dollar is going to be strong they don't need Gold. I truly believe they will rue the day they thought that at some time in the future.

Currencies today 12/14/11. American Style: A$ .9990, kiwi .7530, C$ .9660, euro 1.3010, sterling 1.55, Swiss $1.0555, . European Style: rand 8.35, krone 5.9390, SEK 6.9860, forint 234.60, zloty 3.5065, koruna 19.7190, RUB 31.77, yen 78, sing 1.3050, HKD 7.7840, INR 53.71, China 6.3712, pesos 13.88, BRL 1.8715, Dollar Index 80.40, Oil $99.40, 10-year 1.98%, (still pumping air in the Treasury Bubble), Silver $30.10, and Gold. $1,627.35

That's it for today. Well. a lot of you who know my love for baseball, and my beloved Cardinals, have sent me notes and wondered why I didn't have anything to say about Albert Pujols leaving the Cardinals for the Angels. I guess it's better that I don't opine on that. All I'll say is that was one heck of a decade of baseball. But it's over. We've had 3 days of rain here, which is guess is better than 3 days of snow or ice! Little Delaney Grace was singing Christmas songs with me last night. her mom always loved to sing with me, especially when I would play my guitar. Dawn loved to sing the old Hank Williams song. hey good lookin'. I got a hot rod Ford and a $2 bill. great memories. Ok. look at that! It's time to go! Now go out and make this a Wonderful Wednesday!

Chuck Butler


EverBank World Markets



Posted 12-14-2011 11:28 AM by Chuck Butler
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