The Golden Scenario.
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In This Issue.

* Currencies rally strongly this morning.

* Home Prices keep falling.

* Baby steps for stabilization.

* Carney has harsh words for U.S. economy.

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

The Golden Scenario.

Good day. And a Marvelous Monday to you! And Happy Chinese New Year! The NFL Championship games yesterday were very entertaining, eh? The two brothers that coach different teams went from a chance to match wits in the Super Bowl, to going home. Too bad. it would have been a good story. Should be an interesting week, as the ECOFIN people meet, and Greece is still working on their debt, and. this will be my first full week of work in over a month, so all-in-all, pretty interesting!

What I also found interesting on Friday, was the price action of Silver. I don't know if you follow Silver or not. I do, very closely, I might add! But Silver was outperforming Gold by a long shot, rising over $1 on the day, which you don't normally see in the Silver price action. My colleague, Aaron yelled over the desk and asked me what was going on with Silver, as he too watches it closely. I couldn't really find anything out there, so the thought came to me very quickly, that Silver must be playing "catch-up".

I don't know if you follow this stuff or not, and I don't really put that much emphasis on this, but from time to time I come back to it, and that is the Gold/Silver ratio. but what was once thought as a real indicator for Silver, has to be pushed to the back of the closet these days, for the Gold-Silver ratio has spread out to over 50:1. That's pretty crazy stuff. and doesn't look right. So, maybe, just maybe, Silver was playing catch-up to Gold, which had gained over $90 so far this year, and Silver's gains were negligible until Friday.

Both metals are up this morning, so we have that going for us, eh?

The Aussie dollar (A$) touched $1.05 this morning, and is spittin' distance from the figure now. And, looky there, it's back over $1.05! Just like that! I would say that the A$ is benefitting from a lower than expected PPI (wholesale inflation index) number. Which indicates to me that the markets still have an appetite for rewarding currencies that have been debased to promote growth. If you're an Aussie bond holder, this is what's called the "golden scenario". That's when rates are being cut, and the currency maintains its value or even increases in value. The bonds & currency rallying, = the golden scenario.

When I was a foreign bond trader, I saw this happen only a few times. I saw it Germany in the mid 90's, and in Aussie and New Zealand around the same time. I haven't traded foreign bonds since 1998, and don't recall if there were other instances since then. But, it's happening now. The thing about the golden scenario, is that it doesn't last long.

The euro begins another week as the most talked about currency, with the U.S. dollar coming in second, and the renminbi placing third. The euro is trading above 1.29 this morning, as it has range traded for over a week now, but around the 1.29 level, which is probably driving the analysts that have called for a collapse of the euro, crazy. I've told you probably 3 or 4 times since the year began what I think the euro will do this year. So, as to not beat a dead horse (no animals were hurt), I'll go to what I really want to point out this morning about the euro.

In the past couple of weeks, we've seen the economic data from Germany to be better than forecast for them. We've seen the Italian and Spanish bond auctions go quite well, with more bonds sold than planned and at lower yields! And money market rates have eased.

I talked about the beginnings of a stabilization here on Friday, and I just can't help but think that this is just the beginning. Now that doesn't mean that everything we see from here on out from the Eurozone is good. baby steps, wobble, go backwards sometimes, and even stumble. So. we have that to watch for.

Well, every winter, about 2,600 political, business and financial leaders in Davos, Switzerland for a 5-day boondoggle. There are always some very good sound bites from Davos, and this year will be no different. You'll see the Eurozone contingent continue their attempt to calm the markets, and then you'll have the euro naysayers, like George Soros doing his best to deep six the euro.

Speaking of deep sixing something. I can't put enough emphasis on this folks, but the Asian countries are removing dollars from their terms of trade. One by one, the Asian countries draw up new currency swap agreements, that basically exchange the two countries' currencies, and removes dollars from the terms of the trade. This has long been one of the benefits to having the reserve currency of the world, for if two countries wanted to trade Oil, they would have to convert their currencies to dollars and settle the transaction in dollars.

This kept dollars in each country's reserves by the truck loads. But, first it was China alone signing swap agreements to remove dollars from the terms of trade. Then Russia joined in, and now India is jumping on the bandwagon. India and Iran have signed a currency swap agreement for Oil.

Now. let me be clear here. I do NOT want to see this happening, for I live here, work here, and use dollars for my gas, groceries and giggles. And. once I'm gone, my kids and grandkids will learn what it's like to not have the reserve currency of the world. It's a sad thing.

However, since I began writing in 1992, I have always made it a point to not let my love of country get in the way of telling like it is. I was even called unpatriotic years ago. and that hurt!

But. at the same time, I warned and warned about the growing debt, and people thought I was nuttier than a fruitcake. Well. when countries turn away from using your currency, I think I speaks volumes. So. how does that fruitcake taste these days?

Last Friday, we saw the latest Existing Home Sales data, which was pretty strong. But here's the thing I keep harping about. Home Prices. The national median sales price of existing homes fell 2.5% in December year-on-year. This is the thirteenth straight monthly decline in home prices. Foreclosures and short sales accounted for 32% of the total sales. So, all in all, I would say the data was not good. 1/3rd of the sales were forced by foreclosure, and the median home price fell 2.5%...

I don't think home prices have found a bottom yet. One of the reasons I feel strongly about that is the fact that the "robo-signing" case that held up foreclosures in 2011, has been settled, which means foreclosures could really ramp up in 2012, pushing prices downward.

The data cupboard is empty today and doesn't really get restocked later this week. We will have a FOMC (Fed Reserve) meeting on Wednesday, but since the Fed told us that interest rates are going to remain at current levels until mid 2013, this is a little anti-climatic, eh?

OK. back to the currencies. Well. I guess the Bank of Canada's (BOC) bunker mentality is beginning to pay off for them, but I'm sure they didn't really think that this would happen. The "this" I'm talking about is a larger than expected drop in consumer inflation. Canadian CPI fell .%6% in December from the previous month, and the year-on-year rate stands at 2.3%... Still higher than the target rate of 2%, but moving in the right direction as far as the BOC is concerned.

The Canadian dollar / loonie took the data and digesting it, moved lower. The loonie is attempting a rally this morning trying desperately to grab onto the coat tails of the Aussie dollar.

Remember when I told you that we could see a "pop" in the Swiss Franc, should then Swiss National Bank (SNB) President, Hildebrand, resign, as the markets would want to test the resolve of the new President? Well. Let's see. the franc has really been on a run in the past 10- days and has climbed back to a dollar price of $1.0750. After falling to a $1.04 handle. I think this is simply the markets testing the SNB, folks. nothing to hang one's hat on for any extended period of time. Leave this to the "traders".

Ok. I mentioned at the top, and then forgot to talk about it until now. But the Greek / private creditors meetings have stalled on a deadlock over the interest rates to be paid. People close to the meetings still believe that an agreement will be ironed out soon.

Did you see what the Bank of Canada's Gov., Mark Carney, had to say about the U.S. economy? Well, you had better sit down for this. Mr. Carney said that the "U.S. economy might never recover." He went on to say that, "it will take many more years for the U.S. economy to get back on its feet, and it might never completely recover. In fact, they are not in our opinion ultimately going to get back fully to the U.S. we used to know."

Then he made a statement that qualifies him as a recent addition to the "Mr. Obvious Club". when he said, "If Canada is to grow it must look beyond the U.S. for trading partners."

Then there was this. my friend, and former colleague, David Galland, did it again this past weekend. He wrote something that made me want to pump my fist in the air, and say "Yes"! I don't have the room here to do him justice, but he wrote about the U.S. Government meddling in the economy and in private business. If that's the stuff that interests you, and I would hope it did. then click here and read the first part of the letter on Government meddling: after clicking the link, then click on the "contrarian's View of Argentina". http://www.caseyresearch.com/

To recap. Currencies are in rally mode this morning, along with Gold & Silver. Silver outperformed Gold big time on Friday. just playing catch-up I think. The ECOFIN meeting begins today, and Greece is still working with the private creditors on an agreement. FOMC meeting this week is a non-event. And the data cupboard is empty today.

Currencies today 1/23/12. American Style: A$ 1.0550, kiwi .8125, C$ .9905, euro 1.2990, sterling 1.5565, Swiss $1.0765, . European Style: rand 7.9365, krone 5.9070, SEK 6.76, forint 233, zloty 3.3050, koruna 19.5660, RUB 32.69, yen 76.90, sing 1.2670, HKD 7.76, INR 50.08, China 6.3390, pesos 13.14, BRL 1.75, Dollar Index 79.90, Oil $98.32, 10-year 2%, Silver $32.73, and Gold. $1,677.15

That's it for today. Congrats to the Giants and Patriots, good luck in the Super Bowl. I really don't care for either team, but will root for the Giants. I still have a bad taste with the Patriots because of spygate... Well. I heard from my darling daughter Dawn on Friday. She reminded me that little Delaney Grace was going to be in her first musical Friday night and then again on Saturday night. All three grandkids were at the house yesterday, one starting crying for no reason, and the next thing we knew, all three were crying for no reason. Ahhh, we'll all be together in March for a week! I had to laugh at them. OK. fun a the Butler House! And with that, we'll head into the last full week of January. I hope you have a Marvelous Monday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837





Posted 01-23-2012 11:29 AM by Chuck Butler