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In This Issue.

* Currencies range trade.

* 4th consecutive improvement in IFO.

* Gold loses its uncertainty hedge temporarily.

* One Big Happy Family!

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

Confusion Reigns!

Good day. And a Wonderful Wednesday to you! A very confusing day for yours truly yesterday. I have my beliefs, they have been proven to be true for a long time now. But now there's something gnawing at those beliefs now. And then a spanner gets thrown into the works. I'm telling you now, so you can listen to me later, confusion reigns.

So. I'm going to stray a bit from my normal go-through on the markets. I'll still give a brief update, and then I'm going to go into all this confusion. If that doesn't interest you, then after the update, simply skip ahead.

OK. The currencies, which had backed off their lofty Monday values on Tuesday, remained in a tight range yesterday afternoon and overnight. This morning, Germany Business Sentiment, as measured by the think tank IFO, showed a 4th consecutive improvement in the business climate for Germany. Here are the IFO readings for the past 4 months. Oct. 106.5, Nov. 106.7, Dec. 107.3, Jan. 108.3. I think this plays well with my thought that thing will settle down and stabilize a bit in the Eurozone this year.

Given the improvement in manufacturing that I reported yesterday, and the improvement in the IFO, I would think that the European Central Bank (ECB) would think twice, about cutting rates further. But, then I've said that a couple of times before and the ECB with its new President, Mario Draghi, went ahead and cut rates any way!

Oh well. as I said above, the currencies are range trading, with the euro a 1/4-cent below 1.30 this morning. I don't know how many times I watched the euro climb above 1.30 yesterday, only to fall back below the figure and then do it all over again.

There's a report out this morning from the U.K. that we should look closely at. Why? I hear you asking. Well, I've said this at least a couple of dozen times in the past 3 years, but we as a country have followed the U.K. and their problems. Whatever happens there, we see it here about 6 months later. And so, it is with the great concern that I tell you that in the U.K. the economy contracted (-.2%) more than forecast in the 4th QTR, which has analysts, and the markets thinking that the U.K. is headed for its second recession in the past 3 years.

For, when the realization hits here. more QE will come. I've seen more and more calls that the Fed is headed back to QE. Ahem. they won't call it that. The Fed has been skewered for two rounds of QE, they'll use another term and attempt to throw the markets off the scent of QE.

Gold lost some ground yesterday. My interview with the Street.com's, Alix Steel, went OK. I don't think she liked my thoughts on the stabilization of Europe putting pressure on Gold, as the "uncertainty" fades a bit, but then is picked up by the goings on in Iran.

You know, yesterday, I told you about a story that I read that reported Iran would accept Gold from India for Iranian Oil. I then saw a story titled: The Demise of the Petrodollar. I can tell you that since last year, when I began giving presentations on the dollar losing its status as the reserve currency of the world, I have highlighted most of the things in this report. But, it's a good read, and can be found at: www.caseyresearch.com

OK. let's get into this. and see where it takes us!

First of all. Ever since I began managing the risk of the currency book at Mark Twain Bank in 1992, I have been a believer of "trends". Weak Trends, Strong Trends, and no gray area. The dollar would go into a weak trend for a fundamental reason, and not come out of the trend until that fundamental reason was corrected, or. well on the way to correcting. And then a strong trend would begin for another fundamental reason, and so on.

I believed that trends are what moved asset, not charts. a trend, however, is not a One-Way Street. And those of you who have heard me speak over the years, know that I always make a point of that thought! I never believed the dollar would collapse, or even remain in a weak trend for longer than previous trends lasted. The longest trend was a weak dollar trend that began with the meeting at the Plaza Hotel in NY City. The Plaza Accord sent the dollar on a weak trend that began in 1985 and lasted 10 years.

We have just passed the 10-year marker for the current weak dollar trend. And so, it's time to re-think all this, right? Can the dollar remain in the weak trend for longer than 10 years? And what could bring it out of the weak trend? Remember, the fundamental reason it went into the weak trend to begin with. exploding debt. In 2001, the debt to current account level hit 4.5%, which was an indicator that the dollar was about to experience a currency crisis, for historically that had been the case.

What has happened to that so-called exploding debt in 2001? Well, the explosions have gotten larger, and larger, and larger, until they are completely off the charts! I like to tell people all the time that the U.S. needs to go down the road to debt reduction before the dollar can leave the weak trend. But. the U.S. hasn't even found that road!

So. the other day, I'm sitting at home, reading. and I just fell right out of my chair. the thought entered my mind that. Maybe, just maybe, the dollar is in serious trouble, even more serious than having the reserve currency title stripped from it. the total of unfunded liabilities in this country today are greater than $117,000,000,000,000! And. in 3 short years, those unfunded liabilities will be greater than $143,685,000,000,000! And if the taxpayers are tapped to pay for this, they will have to cough up $1,175,537,000 a piece!

I was looking at these numbers, and thought. if the markets think Greece can't pay its debts, how are we going to pay for this? The answer that most people that follow this stuff is: We'll just print dollars to pay out debts. And that's where the rubber meets the road, with dollar value. It just won't have any.

So. here's the confusion. a long-time belief of trends beginning and ending, and now evidence that the current weak trend won't end!

And just when I'm consigned to believing this is all going to hell in a hand basket, I receive a voice over video from Byron King, of the Outstanding Investments at Agora publishing, in which he tells me that all this debt and problems with the dollar are going away, because the U.S. will make themselves energy kings once again, due to the shale discoveries and the technology to get the oil and gas.

So. there! I've had readers over the years tell me that I'm a cheerleader for dollar weakness. Hmmm. I guess they never read the Pfennig between 1996-2001, when the dollar was king. But, nevertheless, they didn't let that get in the way of throwing barbs at me.

Look, I'm no geologist. I don't know if what Byron King is telling us will come to fruition. All I do know right now is that if nothing changes and we continue to move along down the same road, that our future doesn't look so bright.

So, confusion reigns with me this morning. I've got all these thoughts shooting into my head. I need to get a tape recorder to record all these ideas! HA! (from one of my all time fave movies.. Night Shift) Yes. here's one. feed the tuna, mayonnaise. HAHAHAHAHA!

So, even in the face of all these conflicting thoughts I find humor. call me different, but you don't have to call me crazy.

Then there was this. well, in keeping with my thought I put forth in the Pfennig last week, that we're all one big happy family, with the U.S. and China needing each other, and both needing Europe to remain intact.. A guy that I don't really care for, but makes this point for me, George Soros, had this to say in Davos this week. "The euro must survive because the alternative, a breakup, would cause a meltdown that Europe, the world, can't afford."

Chuck again. just to repeat what I put out last week on this. China needs Europe to remain a good market for their exports. China exports more to the Eurozone than to the U.S., so. if Europe was to go into a tailspin, China would lose a very important market, which means they would have less money at their disposal. Less money for China, means they cut back their buying of U.S. debt. Uh-oh! So. we're all one big happy family.

To recap. The currencies range traded all day yesterday, and in the overnight sessions, albeit with slippage from their lofty levels of Monday. German IFO Business Sentiment posted its 4 consecutive month of improvement, and taken with the improvement in manufacturing, is sending signals that stabilization is beginning. Gold dropped $11 yesterday, as the "uncertainty hedge of Gold, takes a step back with the goings on in the Eurozone. And Chuck is very confused this morning.

Currencies today 1/25/12. American Style: A$ 1.0480, kiwi .8065, C$ .9870, euro 1.2970, sterling 1.5575, Swiss $1.0730, . European Style: rand 8.00, krone 5.9235, SEK 6.8185, forint 230, zloty 3.3095, koruna 19.55, RUB 30.69, yen 78.10, sing 1.27, HKD 7.7615, INR 50.10, China 6.3055, pesos 13.17, BRL 1.7590, Dollar Index 80.21, Oil $98.33, 10-year 2.05%, Silver $31.78, and Gold. $1,656.15

That's it for today. Well. I hope I didn't bore you to death with my talk today. these are things that as non-dollar investors we need to consider. Our Blues lost in a shoot-out with the high flying Penguins last night. We have a young team, that plays strong at home. I see Stanley Cup in their future, the kids are that good! And once they figure it out on the road, watch out! I've finished up my two presentations for the Orlando Money Show. That's a relief! A couple of years ago, my marketing guru said he would do the power point, and when I saw him at the Show in the coffee house, he was finishing it! I had to do the presentation, having never seen it before! Talk about strange! I had to change, improvise, and be quick on my feet! HAHAHAHA! Ok. now go out there and make this a Wonderful Wednesday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837





Posted 01-25-2012 11:39 AM by Chuck Butler
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