Chairman Bernanke keeps the money flowing...
Daily Pfennig

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In This Issue.

* FOMC decides to keep the presses running...

* Growth in the US drops during the 4th quarter...

* Mixed data keeps the euro steady...

* RBNZ maintains a stable path...

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

Chairman Bernanke keeps the money flowing...

Good day. Chuck got out of town right on time, as the temperature fell through the floor yesterday, dropping from a high of over 70 degrees on Tuesday to a low in the single digits yesterday. This change in temperatures became very apparent to me as I walked to my car last night without a coat (I have to learn to check the forecast before going to bed!). The Money Show kicks into full gear today, so if you live anywhere near Orlando I would suggest heading over to the Gaylord hotel to see the 'Chuck and Frank' show; both of them will be sharing their vast knowledge on the currency and metals markets with the attendees. And best yet, the show is FREE!

Bernanke and his buddies on the Federal Open Markets Committee decided to keep the free money flowing into the markets during the meeting which ended yesterday. Ok, the money is free but at these low rates it is as close to free as you can get. As I wrote yesterday, many in the markets were a bit worried that the FOMC would start closing the spigot on the flow of money, but Chairman Ben and his compatriots decided there are still too many risks in the economy to suggest an early ending to QE3. It will be interesting to see if an early end was even discussed, after news of a 50/50 split during the last meeting shook up the markets during January. The central bank left its statement unchanged saying that it planned on holding target interest rates near zero as long as unemployment remains above 6.5% and projected inflation stays below 2.5%. "Growth in economic activity paused in recent months in large part because of weather-related disruptions and other transitory factors," the FOMC said in their statement.

So the Fed is blaming 'weather related disruptions' for the poor growth numbers in the 4th quarter. I know Sandy was devastating for many on the east coast, but could it be the cause of a negative GDP during the 4th quarter? Yep, GDP as reported by the Commerce Department yesterday morning dropped at a .1% annual rate during the last quarter of 2012. This was the worst performance for the US economy since the second quarter of 2009 when the US was still in a recession. You may not have heard about that poor GDP number, as the bad news was buried by the media. I read through several different sources of news each morning, and several of these 'news summaries' didn't even mention the 4th quarter drop in GDP. I finally found a mention of it on page 6 of an 8 page story on the US economy, and even this story seemed to brush the number aside, stating the Fed believes growth will resume in 2013. But economists certainly didn't do a very good job of projecting the 4th quarter number, with estimates ranging from gains of .3% to 2.1%, so why should we think they can predict what the number will be going forward. Another story I read pointed out that this was just the 'first reading' of the GDP numbers for the 4th quarter, and that this number will be revised in February and March (I can't wait to see what creative revisions the folks over at the Commerce Department come up with for this one!)

But I believe the negative numbers needs a bit more attention. While the Fed blamed the pause in economic activity on the weather, a look at the GDP data shows a big plunge in defense spending was what caused the negative GDP number. According to the report, the decline in government outlays and a smaller gain in inventory subtracted 2.6 percentage points from growth. Consumer spending was actually up, causing the equity cheerleaders to suggest the negative number is not by any means a recessionary signal. But wait, aren't there another $1.4 trillion of government spending cuts waiting to be forced into place as of March 1st? I know these cuts won't be immediate (if they get accomplished at all) but it certainly isn't an indication that government spending will adding to the GDP numbers in the coming months.

The other data which was released yesterday morning here in the US was a bit more positive, as ADP reported a pickup in employment for the first month of 2013 and another report showed Personal Consumption here in the US increased 2.2%. Purchases of durable goods, including cars and trucks, climbed at an impressive 13.9% rate, the most in two years. And after tax income rose at an 6.8% annual rate from October through December, the biggest increase since the second quarter of 2008. All indications that the US consumers are starting to recover. But I still worry about the US recovery going forward, as the increase in payroll taxes and decrease in government spending will probably combine to threaten the US recovery.

On the other side of the pond, the data was a bit mixed coming out of Europe. On the positive side, figures released from the European Commission showed executive and consumer sentiment in the euro area climbed in January to the highest level in seven months. Another report showed German unemployment unexpectedly declined in January. The number of people out of work fell by 16,000 surprising economists who had predicted the number of out of work Germans to actually increase by 8,000. But a report released later in the day showed German retail sales fell more than economists had expected last month. Sales in Europe's largest economy fell 1.7% in December, following a revised .6% increase in the prior month. The poor sales numbers had the euro bears coming out of the wood work questioning the resilience of the nascent recovery in Europe.

All of this mixed data left the currency markets largely unchanged on the day. The euro began yesterday morning slipping a bit, but the common currency quickly recovered after the Fed statement. Most of the currencies ended the day fairly close to the levels at which they began.

The RBNZ left rates unchanged, but sounded a slightly more hawkish tone in the statement following their meeting which pushed the kiwi higher vs. the US$. "House price inflation has increased and we are watching this and household credit growth closely," RBNZ Governor Graeme Wheeler said in a statement. "The bank does not want to see financial stability or inflation risks accentuated by housing demand getting too far ahead of supply." Wheeler went on to suggest the New Zealand economy is firmly on the road to recovery, "We expect economic growth to strengthen over the coming year, reducing spare capacity and bringing inflation slowly back towards the 2 percent target midpoint."

Governor Wheeler is certainly indicating the next move in rates will be higher, which would be great news for holders of the kiwi. The New Zealand currency has traditionally been a favorite of 'carry trade' investors, and it is especially popular with the Japanese looking for higher yields. With the BOJ looking to push the yen lower, I would think the kiwi will continue to see investment flows which should keep the currency well bid. Kiwi's sister currency, the Australian dollar, didn't fare as well yesterday as it slid against most of the majors. The fall in the Aussie dollar was mainly due to a hesitancy of investors to be putting on more 'risk' trades as the data out of Europe and the US was somewhat mixed.

Today we will get more data to show the status of the US economy as we closed out the year, with Personal Income and Spending along with the weekly job numbers. Surveys suggest the personal income and spending numbers will show slight increases (a positive indication) while the weekly jobless claims are expected to have increased by 20k last week. Tomorrow we will have another big day of data here in the US with the release of January's payroll numbers including the Unemployment rate which is expected to remain at 7.8%. We will also get data showing how the industrial recovery in the US is going with the ISM Manufacturing index, ISM prices paid, Total vehicle sales, Construction spending, and the U of Mich. Confidence numbers. Should be plenty to talk about in tomorrow's Pfennig!!

Then there was this.. It is another great day at EverBank! We released our earning information after the equity markets closed last night, and the numbers certainly seem to support our claim of another great day. EverBank Financial Corp announced the full year and fourth quarter 2012 financial results yesterday, which showed continued growth and earnings. There were many highlights but adjusted diluted earnings per share was $0.34 in the fourth quarter 2012, a 13% increase from $0.30 in the third quarter 2012, and a 3% increase from $0.33 in the fourth quarter 2011. For the full year 2012, adjusted diluted earnings per share was $1.27, a 14% increase from $1.11 in 2011. I think Mr. Clements, our Chairman and Chief Executive Officer, summed it up best by saying "EverBank is pleased to have completed a historic year for our Company as we executed on our strategic plans, raised significant growth capital and closed two material acquisitions. Our fundamentals remained strong in the fourth quarter as we benefited from continued loan and deposit growth, credit quality improvement and robust noninterest income. We believe we are well positioned for growth and success in 2013."

You can read all about our company and our latest earnings release at .

To recap. Bernanke and the FOMC indicated they will keep the printing presses rolling through all of 2013. A report showed US GDP actually dropped .1% in the 4th quarter, mainly due to a decrease in govt. spending. Data out of Europe was mixed, with German unemployment decreasing, confidence rising, but Retail sales falling. All of this left the currency markets mostly unchanged. The RBNZ left rates unchanged but sounded a slightly more hawkish tone which helped boost the Kiwi in spite of it being a 'risk off' day. There is a plethora of data releases here in the US today, and even more tomorrow which should give the markets plenty to trade on. And finally, it was another great day at EverBank as we released our 4th quarter earning information yesterday.

Currencies today 1/31/13: American Style: A$ $1.0413, kiwi .8373, C$ .9975, euro 1.3554, sterling 1.5798, Swiss $1.0973. European Style: rand 8.9535, krone 5.4902, SEK 6.3640, forint 215.96, zloty 3.0961, koruna 18.9232, RUB 30.0725, yen 91.00, sing 1.2379, HKD 7.7565, INR 53.225, China 6.2190, pesos 12.7138, BRL 1.9851, Dollar Index 79.32, Oil $97.74, 10-year 1.98%, Silver $32.05, and Gold $1,675.47.

That's it for today. Big game college basketball game here in St. Louis tonight as the Basketball Billikens will be taking on Butler who are ranked in the top 10. I think a couple of the guys on the desk are heading over to watch the game. I will be heading home and trying to get some sleep as I had a late night last night attending a High School Hockey playoff meeting which ran long. My son's hockey team got a pretty low seed in their playoff bracket, so this first round of games will be tough. The good news is if they get can get past this first round they should have a fairly easy path right to the finals. First hockey playoff game is Friday night; GO REBELS!! With that I will hope everyone has a Tub Thumping Thursday and thank you for reading the Pfennig.

Chris Gaffney, CFA
SVP & Director of Sales
T. 314-951-1619
EverBank World Markets
8300 Eager Road, Ste. 700, St. Louis, MO. 63144

Chris Gaffney, CFA
Vice President
EverBank World Markets

Posted 01-31-2013 11:47 AM by Chuck Butler
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