Moody's Downgrades 6 Eurozone Nations.
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In This Issue.

* Currencies & metals rally halted.

* A Minsky Moment on the way?

* Dr. Steve & the manipulators.

* Retail Sales to print today.

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

Moody's Downgrades 6 Eurozone Nations.

Good day. And a Tom Terrific Tuesday to you! Well, I came home from unusually colder weather in Orlando , to snow and normally cold weather for this time of year here. The snowflakes were very large and wet, so it was easy to remove from the streets, etc. My darling daughter, Dawn, had to deal with taking Alex to the hospital while we were gone. Alex has a very bad case of skin herpes around his eye. This is not uncommon for wrestlers, but the big thing for him was that his wrestling season was over!

Speaking of being over. Yesterday, Chris told you about how the Greek Parliament had approved the latest round of budget cuts, which should have put the next bailout payment on the greased tracks. Chris also explained how this was causing a reversal of the short positions in the euro, which really had turned the "Risk On" campers. Well, that euphoria in the currencies and metals was short-lived because just as soon as the currencies were ready to tell the "shorts" to move over Rover, and let Jimmy take over, the Ratings Agencies came swooping in, to rain on the risk assets parade.

Yes, yesterday evening it was announced that Moody's Investor Service had downgraded six European nations.. While there was nothing new here, since S&P and Fitch had already gone through this exercise last month, Moody's did grab the markets' attention by being the first rating agency to warn the U.K. that their rating could be at risk.

So the Happy Days that Chris told you about yesterday, are now a thing of the past. and we must pull ourselves up by the bootstraps and get back to work today! It is Valentine's Day, and baring a Valentine's Day massacre in the currencies today, maybe we'll just see the profits taken out of the currency and metals this morning, and move along to the next drama that Greece will bring us.

I caught up with two of my fave people in the world in Orlando last week. Mary Anne and Pamela Aden. or as many know them, The Aden Sisters. We had a long talk about writing style. They kept telling me that I was their favorite writer, and I kept telling them that I was sure they had me mixed up with David Galland! Anyway, the reason I bring this up is that Mary Anne and Pam talked about "noise" in the markets, and how it has taken away the fundamentals of the markets. I totally agree, and this "noise" from the ratings agencies are a prime example.

I just finished reading Addison Wiggin's latest draft for a book. I'm going to do a quick review for the book. There's so much to learn about what happened to the dollar, and what is yet to happen here. When the book gets printed and issued, I'll let you know, because I think that everyone that thinks they know all there is about the dollar will be surprised to find out they learned something new here.

One of the things that Addison talks about in the books is how Gold isn't in a bubble. I found this to be interesting because I too, have said this over and over again about Gold. I say that my test for a bubble is to ask a group of regular people, like say, my FGB friends, if they own Gold, and until all of them raise their hands, Gold isn't in bubble, is the best way to measure this!

And then there was a great lunch with friend Dennis Miller, and Steve Sjuggerud. I've known Dr. Steve for some time, and he knows how much I love guitars (he's a collector of guitars), so we always have a great conversation about them. Dr. Steve said something though that really rang a bell with me.. and that was. he doesn't let the reports of price manipulators in Gold & Silver bother him. For he believes that if the demand remains strong, it will eventually win out. And, so with that I'm turning over a new leaf, and while I will continue to mention price manipulation when I see it, I'm not going to lose any more hair over it (not that I have any more to lose!) But you get the point. I was beginning to allow the manipulators to mess with my blood pressure, and my outlook for a day.. and no longer! Thanks Dr. Steve!

OK.. I could on about the meetings I had at the Orlando Money Show, but those two were the best. So.. back to the news today. This morning, although it's not helping the euro right now, both Spain and Italy auctioned bonds and both saw their borrowing costs decline to their lowest levels in 11 months! Once again bond buyers ignore the ratings agencies. But then, a very large chunk of any Eurozone country bond auction, is bought by the other members of the Eurozone. So, it's like "we're all in this together" type attitude.

And don't forget that the Eurozone debt is being underpinned by 3-year loans made in December by the European Central Bank (ECB), which will offer a second round of financing, known as LTRO, at the end of this month. There's still a spread between German and Italian or Spanish Bonds.. and that's the way it should be. The way it was before the implementation of the euro, and the way it will be from here on out!

Long time readers might recall me saying on more than a few occasions in the past that Greece, Italy and Spain were all rogue countries with debt before the euro, and that they should get down on their knees and thank their Gold every night that they were included in the euro.

The Big Boss, Frank Trotter, was kind enough to join me in one of my presentations, shows a chart of Greek bond rates that illustrates what I'm talking about here. Before 1999 (implementation of the euro) bond rate in Greece were 19-20%... but then after the Eurozone was formed, the bond rates plunged and remained low until someone said, Hey with all this debt, these yields aren't right". and back to 16% Greek bond rates went.

Should Greece have gotten a free ride on their careless deficit spending and debt? NO. but, no one was paying attention. I wasn't. I stopped trading foreign bonds in 1998, so I'll use that as an excuse!

I think the thing to take from this comes back to the U.S. should we be able to continue to add to our debt by 1 Trillion dollars every year with historically low bond rates? NO. But, until someone stops and says. Hey this debt is too high for bond yields this low" the Treasury Bubble will just keep building and will take a lot of investors down when it pops. it will be a Minsky Moment.

For those of you new to class or Hy Minsky. A Minsky Moment is an idea that the great economist, Hy Minsky, originated. When a market fails or falls into crisis after an extended period of market speculation, or unsustainable growth. A Minsky moment is based on the idea that periods of speculation, if they last long enough, will eventually lead to crises; the longer speculation occurs the worse the crisis will be.

Hy Minsky is responsible for much of my economics education, even though my time with him was brief.

And 10-year Treasury yields remain below 2%... And the band Ace sang.. "How Long"?

Speaking of debt, no wait, I wasn't speaking of debt, I was talking about the Treasury Bubble, but wait. Treasuries are issuances of debt, so technically, I was speaking of debt! (Don't question yourself, Chuck!)

Did you see that the President presented his 2012 Budget, with a $1.333 Trillion Deficit. And that's only if the ducks all get in a row. I saw this tide bit (Thanks Dennis) and it really hit home. From 7/31/11 to 1/31/12 (6 months) the U.S. National Debt grew from $14.5 Trillion to $15.4 Trillion, an increase of $1.1 Trillion. In the first 206 years of our country's history (through 8/82) the U.S. accumulated a national debt of $1.1 Trillion. And now we do it every year? Just that the heck is going on here? Our Government is spending us into the point of no return!

And that will continue to weigh heavily on the dollar folks. I told an audience last week that I know it seems a little strange taking dollars out of your dollar denominated portfolio to buy currencies and metals. But diversifications one of the ways to beat the awful things our Gov't and Central Bank are doing to our kids' and grandkid's futures.. But then that's just me.. I could end up being wrong.

The U.S. data cupboard is chock-full-o-data today. But the Big Kahuna data print comes in the form of January Retail Sales . Which when I look back at the Butler Household Index (BHI) I see that there were tons of shopping bags brought into our house IN January, so look for a better than the average bear print here today.

Then there was this. from the U.K. Telegraph..and before I post this, I want you to know that I don't condone what Iran is doing.. I'm just continuing to point out how countries all over the world are tired of the U.S. debt destruction of the dollar, and are now working out ways to get around dollar use. So, here the snippet of the article. "Last week the Tehran Times noted that the Iranian oil bourse will start trading oil in currencies other than the dollar from March 20. This long-planned move is part of President Mahmoud Ahmadinejad's vision of economic war with the West.

"The dispute over Iran's nuclear programme is nothing more than a convenient excuse for the US to use threats to protect the 'reserve currency' status of the dollar," the newspaper, which calls itself the voice of the Islamic Revolution, said.

"Recall that Saddam [Hussein] announced that Iraq would no longer accept dollars for oil purchases in November 2000 and the US-Anglo invasion occurred in March 2003," the Times continued. "Similarly, Iran opened its oil bourse in 2008, so it is a credit to Iranian negotiating ability that the 'crisis' has not come to a head long before now."

Chuck again. India is now going to pay for their Oil from Iran with a 45% allocation of Gold. China has been signing currency swap agreements with other countries for 2 years now. So it's going on all over. countries want out of having to hold large dollar reserve to facilitate the terms of trade with their partners.

To recap. The currency and metals rally that lasted all day yesterday, ended last night with a thud, as Moody's downgraded 6 Eurozone nations and warned the U.K. that their credit rating could be cut. The euro has lost the 1.32 handle, and the rest of the currencies have given back the gains they made yesterday. And Retail Sales headlines the data prints today.

Currencies today 2/14/12. American Style: A$ $1.0710, kiwi .8325, C$ $1.00, euro 1.3165, sterling 1.5720, Swiss $1.09, . European Style: rand 7.7225, krone 5.7220, SEK 6.67, forint 221.25, zloty 3.1812, koruna 19.0575, RUB 29.95, yen 78.15, sing 1.2645, HKD 7.7535, INR 49.36, China 6.2995, pesos 12.73, BRL 1.7166, Dollar Index 79.19, Oil $101.36, 10-year 1.98%, Silver $33.45, and Gold. $1,715.10

That's it for today. Well, Happy Valentine's Day to all my girls. Kathy, Dawn, Rachel and Delaney Grace! Delaney was not happy about having to go home from Orlando yesterday, she really had a great time at Disney World. You should have seen her all dressed up in her princess dress for the Princess Tea Party. Simply darling! My main presentation at the Money Show was a full room and big room too! It went well. the second has just about run its course.. I'll have to think of something else. Thanks to Chris for taking the conn on the Pfennig. just getting him ready for March! I have a new set of eyes reviewing the Pfennig each morning now, and when I went cut and paste this to them I lost it all and had to retype the whole thing! UGH! I hope you have a Tom Terrific Tuesday, cause mine's not starting that way!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837





Posted 02-14-2012 11:18 AM by Chuck Butler