Daily Pfennig : Automotive Industry

Another New Record Level For Gold!

Chuck Butler — Wed, 04 Nov 2009 15:19:53 GMT

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In This Issue..

* Risk players come back out to play...
* Waiting on the Fed's statement...
* Yield differentials come into focus...
* Lisbon Treaty gets signed / ratified...

And Now... Today's Pfennig!

Another New Record Level For Gold!

Good day... And a Wonderful Wednesday to you! Well... Did you see the strong performance that Gold put in yesterday? And it didn't stop yesterday, overnight Gold is up another $7 on top of the +$20 gain it had yesterday... I've got some info on that, we can talk about later...

Oh Shoot Rudy! Let's talk about it right here, right now! It's not every day that Gold not only goes past its previous all-time record high, but obliterates the previous figure! I know you're wanting to take a peek at the price of Gold in the currency round-up portion of the Big Finish, so go ahead, and then come on back... How'd that $1,090 and change price look to you? Pretty sweet, eh? That is as long as you are a Gold holder!

So... What put the tiger in Gold's tank yesterday and overnight? Well, the weaker dollar helped... The thought became clearer that the cartel, I mean the Fed will keep rates on hold this week helped... But the real beef came from the announcement that the Reserve Bank of India was buying the 200 tons of Gold from the IMF... I know, I know, I told you yesterday that I thought it would be a "wash" for the dollar and the Gold price... But that was before I learned that the Reserve Bank of India paid for their $6.7 Billion dollars worth of Gold with... SDR's!

So... Either, the Reserve Bank of India (RBI) didn't want to get rid of their dollar reserves... (yeah, right!) or... The IMF didn't want anything to do with dollars, and preferred receiving SDR's! (for those of new to class, a SDR is a basket of currencies to make one unit called a Special Drawing Right, of which the IMF uses, and has been rumored to be the replacement for the dollar as the reserve currency of the world... The one government, one currency thing)

I'll pin my colors to the mast of the IMF not wanting anything to do with dollars at this point! Been there, done that, bought the T-shirt!

So... The price of Gold is nearing $1,100... I reminded my beautiful bride last night that just 2 months ago I told a group of close friends that they should seriously be considering buying Gold as it had slipped to $940 an ounce... I wonder what they think when they see Gold at nearly $1,100... I'm sure the V-8 head slap is going on all over my neighborhood!

OK... So what's going on with the currencies, as the dollar has had the hammer for 3 consecutive days now... Well... The dollar is back on the slippery slope this morning, as those same thoughts about the cartel, I mean (crying out loud Chuck, why can't you get that thought about the Fed really being a cartel out of your mind!) the Fed, will keep rates unchanged this week, really emphasizing the fact that Australia has raised rates 50 BPS so far, and Norway has raised them 25 BPS... There are places to go where you can get higher yields...

I get a kick out of some people that call the desk here, and say... "I'm looking for a high yield of around 8-10%, with no risk... Do you have that?" Sure, right here in my back pocket! NOT!

The FOMC meeting will be a 2-day meeting, so get the board games out, find the deck of cards, and make sure you have good batteries for the Battleship Game! When the Fed Heads get tired of the board games, and all, they'll announce tomorrow afternoon that they are going to leave rates unchanged, and that while they see improvement in the economy, sans the 3.5% 3rd QTR GDP, it's too soon to remove the accommodating rates... How do I know that? I don't... But, I'll bet a Krispy Kreme to a dollar that what they say is pretty darn close to that!

The key will be to see if the Fed Heads, led by Big Ben Bernanke, leave the words regarding the how long the low rates will remain, "extended period" for if they do... The dollar will immediately be sent to the woodshed once more, without passing Go, and without collecting $200! So... The statement following the rate announcement is the key tomorrow...

So... The euro is 1-cent higher this morning, the Aussie dollar is about 1-cent higher, and so on... Those that bought at yesterday's blue light special prices will be smiling like a Cheshire Cat this morning!

OK... I have to talk about this... For I've received a ton of emails about it...

Quite a few readers have sent me Nouriel Roubini's interview knowing that Mr. Roubini has long been a fave of mine.
Well... Mr. Roubini talked about the "mother of all Carry Trades" being the dollar, of which I told you had become the new funding currency for the Carry Trade a few months ago...

Mr. Roubini also talked about how this was fueling a huge run-up in the prices of risk assets... I've also told you about that, and how... Should the U.S. do the double dip that a huge sell off of stocks would probably occur, and cause an adverse affect on the risk assets of currencies and commodities....

So... All in all... Nothing new... So I was surprised that readers wanted me to comment on this... Well, the caveat here is that Mr. Roubini is calling for a massive sell off of the risk assets when the correction comes... He doesn't specify when this will happen...

I've also said that the risk assets have gone too far too fast, and that a correction is due... So, let's move on from there...

I see where Marc Faber is saying that the correction will net the dollar 10% VS the euro... Again, he doesn't say when this will happen, but that it will...

But again, as diversification people, with our eyes fixed on the horizon that shows that the only way the U.S. Gov't can repay their debts is with cheaper dollars... We just batten down the hatches for this correction, for we know that on the other side of the correction is another massive move upward...

There was something else that I wanted to talk about... And it's something that I'm sure I'll get a few emails about... Good and bad... But here goes... Did you see that Ford announced a nice profit for the last quarter... CAPITALISM ISN'T DEAD! Three cheers for Capitalism! Maybe that's all I'll say about it, for if I went into how I feel that Capitalism is getting beaten like a rented mule, I might start talking about stuff that doesn't need to be discussed here!

So way to go Ford! Didn't take bailout money... And 1 year later books a profit! Whereas GMAC is in need of additional bailout money, and Chrysler is Fiat now... Great use of taxpayer money wasn't it?

Here I go again... Sorry, didn't mean to go on this tangent about this stuff... It's just that I have no idea why this doesn't just tick off any American that reads about this stuff! But not to worry, the Gov't has more plans to spend money they don't have!

Hey! Earlier I talked about Australia's rate increases... Well, the Reserve Bank of Australia (RBA) is running scared these days... Scared that their rhetoric about rate increases is going to push the A$ to parity with the green/peachback... So guess what the RBA members have decided to do? You've got it! They're going to "tone down" their interest rate hike rhetoric... RBA Gov. Stevens said that the 28% gain in the A$ this year VS the U.S. dollar would be a good inflation fighter, and allow him to slow down the rate increases...

Well... Don't get off the A$ love train just because the RBA Gov. Stevens suggests that he could slow down rate increases... The A$ already enjoys more than 300 BPS of yield differential to the U.S. dollar, Japanese yen, Canadian dollar, and Swiss franc!

And the Lisbon Treaty that was hung up in the Czech Republic, has finally been signed by the Czech Republic's President, thus completing the rounds, and putting the Treaty in place. Now, I'm not a big fan of the Treaty, but... It's what the Eurozone needed to remain viable, and so it it's done... This removes the albatross from around the euro's neck, and will shut those people up that keep talking about a collapse of the European Union, and the euro...

Chris Wood is filling in for good friend David Galland this week on David's daily letter called "Casey's Daily Dispatch"... Anyway, Chris Wood had this to say yesterday, which I believe just about sums it all up regarding the Fed and Treasury here in the U.S....

"A group of federal agencies including the FDIC, Federal Reserve, and Office of Thrift Supervision just released new guidelines for how banks deal with troubled commercial real estate loans. And get this:

Under the guidelines, loans to creditworthy borrowers that have been restructured and are current won't be classified as high risk by regulators solely because the collateral backing them has declined to an amount less than the loan balance.

Yes, you read that correctly. Banks won't have to show losses "solely" because the collateral has fallen in value below the loan. Perhaps most incredible is that this move is being applauded by the business community. The next step will be a federal move to facilitate refinancing that same collateral."

Chuck here again... That's pretty amazing, don't you think? First the financial institutions were allowed to drop the "mark-to-market" on their collateral... And now this... And people still question why foreigners are growing very weary of these things, and becoming quite scared regarding their dollar backed holdings? They shouldn't question any longer, eh?

And then there was this...

Remember how excited I was that Ron Paul's bill to audit the Fed was going to discussion? I thought, surely (hey! Who's Shirley?) this would be it... The Fed would finally get audited, and treated like the Corporation they are! But, then Ty Keough sent me this, and my hopes were dashed...

Representative Ron Paul, the Texas Republican who has called for an end to the Federal Reserve, said legislation he introduced to audit monetary policy has been "gutted" while moving toward a possible vote in the Democratic-controlled House.

The bill, with 308 co-sponsors, has been stripped of provisions that would remove Fed exemptions from audits of transactions with foreign central banks, monetary policy deliberations, transactions made under the direction of the Federal Open Market Committee and communications between the Board, the reserve banks and staff, Paul said today.

"There's nothing left, it's been gutted," he said...

OK... To recap... Gold is soaring! Gold has reached a new record all-time high! The dollar has given back some of its gains the past 4 days as traders begin to realize that the Fed is going to keep rates unchanged tomorrow. The Gov't is up to its usual tricks regarding collateral and the bill to audit the Fed.

Currencies today 11/4/09: American Style: A$ .9080, kiwi .7245, C$ .9425, euro 1.4770, sterling 1.6525, Swiss .9770, European Style: rand 7.7365, krone 5.7150, SEK 7.0580, forint 187.60, zloty 2.89, koruna 17.6650, RUB 29.27, yen 90.80, sing 1.3970, HKD 7.75, INR 47.06, China 6.8270, pesos 13.22, BRL 1.7280, dollar index 76.14, Oil $80.02, 10-year 3.48%, Silver $17.43, and Gold... $1,091.70

That's it for today... I hear that my colleague on the Currency Capitalist newsletter that I do for the Sovereign Society, Ashish, is going to fill in for me at the Conference that I'm missing, and give my presentation on the Treasury Bubble... He'll do a great job! We've had 4 consecutive days of sunshine, and you should see the people, they are smiling again! I began making my plans for Spring Training with the family last night... Whenever I do that, I get all geeked up and ready to leave now! But I have 4 months to go! UGH! First we have our move to the new building next door, then Christmas, then New Year's, Orlando Money Show, and then finally March! Oh, and there's a conversion to a new system thrown in there somewhere! It's a moving target so we don't know for sure, but it will be HUGE! OK... Well, as with every day, it's time to go, so I hope you have a Wonderful Wednesday!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

A Jobs Jamboree for Friday 10/02/2009!

Chuck Butler — Fri, 02 Oct 2009 14:14:00 GMT

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* Low $1,500 minimum deposit

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In This Issue..

* The dollar remains well bid...
* G-7 to hand currencies off to G-20?
* Car Sales collapse...
* Auditing the Lehman cash movements...

And Now... Today's Pfennig!

A Jobs Jamboree Friday!

Good day... And a Happy Friday to one and all! Yesterday, I welcomed you to October. I had been prepared to tell you about a famous radio station here in St. Louis, that has long called October... Rocktober... But forgot, as usual! But anyway... It's the first Fantastico Friday of Rocktober!

Today is a Jobs Jamboree Friday too! And... I'm not getting a good feeling about today's labor report at the Jobs Jamboree. The forecast is for jobs losses to fall from -216,000 to -175,000, but the unemployment rate to tick up to 9.8% from 9.7%... I got the feeling, baby, baby, I got the feeling... Oops, a little James Brown on Fantastico Friday never hurts! But what I was saying was I'm getting the feeling that there are risks to this forecast... And that the job losses could come in higher, which would really be a BAD thing for the recovery flag wavers and risk takers, I'm sorry to say...

You see, the recovery flag wavers and risk takers are wishing, and hoping, and thinking and praying that the data in the U.S. continues to show some sign of life. Any signs that the U.S. economy could be slipping backwards, would deep six stocks for sure, and if last year's trading tells us anything, it would have an adverse affect on Commodities and Currencies too!

So... This is a BIGGIE, today, folks... So strap yourself in, and make sure you keep your arms and legs inside at all times during the ride!

Yesterday's currency trading left a lot to be desired... There was little movement from the overnight sessions which tomahawked the non-dollar currencies. That's a good thing... But the downside risk today is just too much for me right now... Maybe after 7:30 CT I'll be able to breathe again, for that's when the Jobs Jamboree prints... Again, Japanese yen enjoys the sun from both sides of their house... When the dollar is weak, yen rallies with the other non-dollar currencies... When the dollar is strong, yen rallies alongside the dollar! It's good to be the yen! (that is before the Ministry of Finance in Japan begins to intervene!)

Hey! Remember when I bashed the Cars for Clunkers scheme, I mean program, and exposed it for what it was, and what it would do to future sales of automobiles? Well, as they say... The proof is in the pudding!

Yesterday, it was reported that General Motors had posted a 45% drop in September U.S. light-vehicle sales, while Chrysler's sales fell 42%. Ford saw a much more modest drop of 5.1%. Among Japanese auto makers, Toyota said its September U.S. sales declined 16% from a year earlier, while Nissan saw its results fall 7% and Honda said its sales slid 23%. The auto industry was hurt by the expiration of the U.S. government's "cash-for-clunkers" rebate program.

Yes... I told you this would happen... I also think that any Gov't program to prop up the economy is just falling into the ghost of Japan's hands... I've explained this before, about how when Japan experienced a HUGE market correction after their go-go 80's, they panicked and began throwing money at the problem, instead of just letting the markets run their course... The Japanese introduced stimulus package after stimulus package, and Gov't program after Gov't program, like Quantitative Easing... And look how well that's worked out for them!

So the ghost of Japanese recoveries that never panned out, is haunting the U.S. Gov't now!

Today is also the start of a G-7 meeting in Istanbul... Istanbul was once Constantinople! Or so the song goes... Any way... The rumors coming out of the pre-meeting stuff is that G-7 will no longer make a statement or issue a communiqué' regarding currencies, as they now feel that the only group that should have that responsibility is the G-20, which last week took the world economies watchdog title from G-8...

Currency traders have long used these G-7 communiqué statements as a tool that indicates direction for currencies... And while that has actually come to fruition a handful of times over the years, for the most part, G-7 was nothing but a boondoggle!

One thing that's out there that you won't see a lot of people talking about is the vote going on in Ireland today, on the Lisbon Treaty, which the Irish people voted down last year... This Lisbon Treaty changes the way the European Union works, and would amend the Maastricht Treaty... It was intended that all member European Union states would ratify this before now... So, this vote is like the Sword of Damocles hanging over the euro for Monday morning...

You see, the vote will be taken today, counted tomorrow, and announced Sunday, which will cause a knee-jerk reaction to the euro trading on Monday... Right now, the polls show the Treaty will be accepted this time by the Irish. If passed, it goes to Poland and the Czech Republic, and if they vote yes then it would lead to ratification, which would be a good thing for the euro... A no vote would be bad thing, just like it was in June of 2008, when Ireland voted no the first time around.

Yesterday, the IMF issued a report on Currency Composition of Global FX Reserves... And this is quite telling I believe, for the report showed a continued diversification away from the dollar, in the 2nd QTR of this year... I had to laugh last year, when I was on the FXU Currency Tours, and one of the guys there said that the fall of currency reserves allocation of dollars from over 80% to 64%, was nothing but currency appreciation by the euro... I would point to the these IMF reports, when I talked so that I didn't make a big thing out of it...

Did you see the story in the Wall Street Journal (WSJ) regarding Lehman Brothers? This story has conspiracy stamped all over it, so you know me, I was all over this story like a cheap suit! Here's the gist of the story from the WSJ... "An examiner is looking into how the Federal Reserve was promptly repaid billions of dollars in cash and securities it lent to Lehman Brothers before the bank filed for bankruptcy, while other creditors are still owed money. The court appointed Anton Valukas, chairman of Jenner & Block and a former U.S. attorney, to explore whether the Fed received improper preferential treatment."

Chuck again... Now, you, me and the lamppost all know what went on here, just by that description in the WSJ... But, we'll wait for the report, I guess...

The U.S. stocks really got taken to the woodshed at the close yesterday, and the futures in the overnight markets are weak... So... Guess where the money goes when they sell stocks? That's right, U.S. Treasuries... So, just about the time you think that the mom and pop's of the world that went to Treasuries last year in the so-called Flight to Safety, had taken on enough losses, and were going to get out... Here comes the stock correction that I've been talking about... Or maybe not... Maybe this is just a couple of days of selling... Or maybe it is the correction...

So, if dollars are flowing into Treasuries, the yields of those Treasuries are going down once again... UGH! This just doesn't make any sense to me! Didn't these people that went to the so-called Safety of Treasuries last year, but lost money, learn anything? Or did enough time pass and they've "forgotten the pain"?

Oh Heck! This just feeds more air into the Treasury Bubble... Which means that it grows larger and larger, and also means that when it does POP, the losses will be severe and all across the board... I mean, isn't that what we've learned about what happens when a bubble POPS in the past?

Yesterday, the data cupboard was busy... We had the Weekly Initial Jobless Claims post a higher number than was expected, coming at 551,000, VS last week's 534,000... I always love it when the Jobs Jamboree follows a Weekly Initial Jobless Claims repot... Because... The Weekly report shows that, in this case, that 551,000 jobs were potentially lost last week, and today's monthly report by the BLS will show something far less...

We also saw that the U.S. Consumer continues to spend more than they make, as Personal Spending was up 1.3%, while Personal Income was only up .2%...

And then finally we saw the U.S. ISM Index (manufacturing) come in weaker than expected, but remain above 50, at 52.6... That's a weaker number than the August figure which was 52.9... And I would think that someone would have noticed this... But we had the TV on all day, and I had it one when I got home, and never saw mention of this anywhere!

And then there was this... Colleague, Aaron Stevenson, called me yesterday morning, trying to beat the deadline for stuff to add to the Pfennig... He missed... So I have it for today... Remember yesterday morning, when I announced that BOA CEO Ken Lewis was retiring, and that I thought that to be strange?

Well, Aaron was all over this, telling me that he worked for BOA for a number of years, and sat in on meetings with Ken Lewis, and that Ken Lewis was not the kind of person to take "early retirement"... In fact, Aaron says, "that 4 months ago, I heard an interview with Ken Lewis, and he said I'm 62, I'm not ready to retire." Aaron said that he was a "no surrender, no quit, kind of guy." Hmmm... I wonder what changed in 4 months? Well, Aaron thinks, and I agree, that he was forced out by the Feds, for speaking his mind on the BOA / Merrill Lynch deal that was brokered by the Fed and Treasury...

OK... To recap... Today is a Jobs Jamboree Friday, and I'm getting the feeling that it will be disappointing VS the forecast of 175,000 job losses. G-7 meets this weekend, and there might be a change in the what they say after each meeting. The ghost of Japanese recoveries, is at work in the U.S. Ireland votes on the Lisbon Treaty today, and the dollar remains well bid VS the non-dollar currencies... Except yen!

And this... On Monday next week, I will be doing an educational presentation for the folks at DTI... You can find out more here: http://www.dtitrader.com/trading_education_MMM_everbank.htm

Currencies today 10/2/09: .8630, kiwi .7130, C$ .9175, euro 1.4550, sterling 1.5850, Swiss .9620, rand 7.72, krone 5.8250, SEK 7.0420, forint 186.20, zloty 2.9185, koruna 17.4750, RUB 30.20, yen 89.30, sing 1.4170, HKD 7.75, INR 47.75, China 6.8265, pesos 13.77, BRL 1.7860, dollar index 77.20, Oil $69.69, 10-year 3.15%, Silver $16.25, and Gold... $996.75

That's it for today... A Big Day for investments, so hang on to your hat! That was a much better display of baseball yesterday by the Cardinals. They have 3 games left in the season, to get on a roll before the playoffs! I had a brain drain the other day, when I gave you the link to the Sovereign Society for the Offshore Academy Conference... I'm sure once you all figured that out, you just went to Google and got to the site! UGH! OK, my little buddy, Alex, plays football tomorrow morning against another top rival... He told me it's payback time, as his team lost to the rival last year... I told him, talk is cheap... You have to back it up on the field. OK... Enough! It's a Fantastico Friday, and we're in Rocktober! Time to get working on making this Friday, Fantastico!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Frightened investors move back into US treasuries.....

Chuck Butler — Fri, 10 Jul 2009 14:46:50 GMT

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In This Issue..

* Jobs data skewed by 'seasonal adjustments'...
* BOE surprises the market...
* Oil falls below $60...
* China's reserves continue to grow...

And Now... Today's Pfennig!

Frightened investors move back into US treasuries.....

Good day...Chuck has a bevy of doctor's appointments today, so he decided to let me take over the Pfennig. Unfortunately it will go out a little later than usual, as I always struggle to get all of my thoughts together so early in the morning. Its not that I come in late (I was here two hours before everyone else) but it just takes me much longer than Chuck to get it all on paper. But enough of the excuses, I've got to get writing.

Weekly jobless claims released in the US yesterday morning fell below 600k for the first time since January but the continuing claims continue to rise, hitting another record. The slight improvement in the weekly numbers was distorted by the automotive sector. Car companies typically shut down plants in early July in order to change over to the new model year. Bankruptcy forced many of these plants to shut down much earlier than normal, and some temporarily started up production again during the past few weeks.

Chuck would have a field day with the jobless claims, as the government economists were hard at work 'massaging' the numbers to give everyone a more 'clear' picture of the data (why can't they just report the actual number of people filing for unemployment?). As Chuck has pointed out, the Labor Department adjusts the figures using seasonal and demographic trends, creating 'ghost jobs'. Since automobile plants typically shut down in the first weeks of July, the labor department expected a large increase in claims during this time. In order to offset these 'seasonal factors', the brain trust at the Labor Department added back a number of jobs in order to balance out the expected temporary layoffs in the auto sector. You would think the Labor Department would realize that most of these automobile workers were already idled, and therefore keep the adjustments to a minimum. But that would be too logical, so they just went ahead and 'seasonally adjusted' the claims as if this was a typical July for the auto sector.

The continuing claims illustrate a much clearer picture of the US job market, with unemployment spiking up to 9.5% in the US. The news from the retail sector was also gloomy, as the ICSC Chain Store Sales fell another 5.1% YOY during the month of June. Inventories also continued to shrink for a ninth month in a row in May to just over $400 billion. This is the lowest level since August of 2007, and raises some longer term inflationary concerns. Some of you are probably questioning this last statement, so I will explain.

Lower retail sales have forced stores to keep inventories down. I was in a local Walmart store the other day and noticed the shelves were emptier than what I have seen in the past, items weren't stacked 5 deep and didn't reach toward the ceiling. US consumers have been buying less and saving more, a very good thing! But stores have reacted by dropping the amount of inventory they are carrying (again a smart thing for retailers). Against this backdrop, the US government continues to flood the economy with cash, trying to get consumers to start spending again to jumpstart the economy. For now, the cash has been hoarded by banks and used by consumers to pay down some of their massive debt. Eventually the 'all clear' horn will sound, and consumers will start looking to make purchases again, but will find empty shelves. Inflation will follow, as too much cash will be chasing too few goods.

But our government has a much shorter term view, and continues to pump money into our economy with no real regard for future inflationary concerns. And some very smart economists seem to agree with the administration. Both Nouriel Roubini and Robert Shiller, respected economists, are calling for additional stimulus. In a radio interview yesterday, Roubini predicted the US recession will last another six months and be followed by a 'shallow' recovery. On the same radio show, Shiller said the economic crisis would continue despite the $12.8 trillion pledged by the US government and Federal Reserve.

The BOE shook up the markets with a surprise announcement not to increase its quantitative easing program. The Bank's Monetary Policy Committee put the program designed to pump extra cash into the markets by purchasing its own debt on hold after announcing it would also keep interest rates steady at .5%. The move was a major surprise to the markets, and sent the price of gilts (the UK's treasury bonds) falling and the price of the Pound Sterling higher. The BOE was the first of the western central banks to begin the controversial program in which it monetizes its debt; hitting the overdrive button on the printing presses by monetizing its debt. We've never been a fan of the Quantitative Easing programs, as they are short sighted with total disregard for the future inflationary pressures the exert on the economy. But several other central banks, desperate for a way to get cash into their economies have followed the BOE's lead.

The move by the BOE was even more surprising given the fact that the Chancellor has authorized another 25 billion pounds to be added to the program. Perhaps the Bank's Monetary Policy Committee is finally starting to realize all of the QE which it has done hasn't really had the desired impact. Much of the extra cash being created by the program is simply being hoarded by banks and is not making its way out into the economy via loans. Sound familiar? We have a similar situation occurring here in the US, with banks sitting on a majority of the stimulus monies which they have received. They have used the funds to shore up their balance sheets, a good thing long term, but not what the central banks intended with the introduction of the QE programs.

But enough of the economic talk, I need to let you know what happened to the currency markets overnight!! In spite of the Labor departments attempts to 'adjust' the weekly jobless claims, the economic data released here in the US yesterday was generally poor. This raised further concerns regarding the global economic recovery, and forced investors back into the US treasury market. As typical during these periods of uncertainty, the Japanese yen was the best performing currency. This is due to a general deleveraging as investors purchase yen to pay down debts used to invest into higher yielding assets.

We have seen this pattern repeat several times over the past year. As investors start to see some signs of recovery in the global economy, they invest into the higher yielding currencies, and borrow funds at lower rates available in Japan. But as soon as they begin to question the recovery, they move back out of the higher yielders and pay back these loans in the Japanese yen. Morgan Stanley believes the recent move by the yen is just the beginning of another big move, predicting a move to 85 yen/dollar. The foreign exchange strategists at Morgan Stanley predict the yen will continue to rally through the end of the year as doubts about the global recovery intensify. But their longer term predictions are less enthusiastic, as they feel the yen will weaken throughout 2010.

The commodity currencies took a hit over the past few days as the price of oil and metals continued to fall. Oil fell below $60 per barrel for the first time in a couple of months. Concerns over the global recovery, along with some slight calming of tensions in the gulf states have caused the price to drop. One commodity currency which has been able to hold steady during the recent selloff is the Brazilian real. A report that car sales in China surged bolstered the outlook for the commodity rich country. China's passenger-vehicle sales rose 48% in June, pushing China past the US as the world's largest auto market.

Increased automobile demand in China is another sign of their slow move away from an export based emerging market economy to that of a more balanced one. China's exports tumbled for an eighth month in June, but internal demand helped by the government's stimulus package is offsetting some of the impact of these falling exports. Imports also fell, but the size of the decrease was the least in eight months. This is good sign for the future of China, as imports are typically a leading indicator for exports in China.

China's foreign exchange reserves likely topped $2 trillion for the first time, climbing another $67.8 billion in the second quarter. The central bank is predicted to release the number sometime today. The increase in reserves certainly cause concern in the currency markets, as officials in China continue to call for the diversification of these reserves. According to a story in the Financial Times, China launched its highest profile criticism of the dominant role of the US dollar as a global reserve currency during the last day of the G8 meetings in Italy. "We should have a better system for reserve currency issuance and regulation, so that we can maintain relative stability of major reserve currencies exchange rates and promote a diversified and rational international reserve currency system," Chinese state Councilor Dai Bingguo was reported to say. Western leaders tried to play down the remarks, with Gordon Brown stating that he did not remember Mr. Dai making the remarks.

Separately, Joseph Yam, chief executive of the Hong Kong Monetary Authority, said Hong Kong might consider diversifying more of its $200 billion reserves away from the US dollar. I would expect China to keep the heat on the Obama administration in order to try and get them to reign in some of their 'quantitative easing' programs. The Chinese officials continue to be concerned about the future inflationary consequences of these programs. But at the same time, they have to be very careful about the diversification out of the dollar, as they still hold trillions of dollars and don't want to cause a sudden fall in their value. The big boss, Frank Trotter, constantly reminds us that China has a much longer term thought process, and has an extreme amount of patience. I would expect them to continue to slowly diversify their holdings, adding to the long slow decline of the US$.

With that I will move on to the currency roundup. Sorry to go so long this morning, but I felt like there was a lot of data to get through.

Currencies today 7/10/09: A$ .7760, kiwi .6263, C$ .8596, euro 1.3902, sterling 1.6198, Swiss .9172, rand 8.196, krone 6.5369, SEK 7.9021, forint 199.10, zloty 3.1440, koruna 18.708, yen 92.76, sing 1.4623, HKD 7.75, INR 48.97, China 6.8327, pesos 13.6408, BRL 2.009, dollar index 80.489, Oil $59.66, 10-year 3.337%, Silver $12.64, and Gold... $909.39

That's it for today... Everyone is limping into the office this morning, as we played a double-header in our kickball league last night. We ended up splitting the two games, but as my wife continues to tell me, kickball is a game for kids, not middle aged currency traders!! One of our team had to go to the hospital last night, as he injured his shoulder diving for a catch in the outfield; I hope Joe B's shoulder turns out to be ok!! St. Louis is getting ready for the All Star weekend, and I saw one of the blimps floating around last night. My son, Brendan and I are heading downtown to compete in the All Star Charity 5k run which begins at Busch Stadium. It will be fun to be downtown and around all of the All Star hoopla, even though we don't have a ticket to any of the events. Hope everyone has a fantastic Friday and a Wonderful Weekend!!

Chris Gaffney, CFA
Vice President
EverBank World Markets
1-800-926-4922
1-314-647-3837

More Wild Swings!

Chuck Butler — Wed, 03 Jun 2009 14:30:02 GMT

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In This Issue..

* Euro goes back and forth over 1.43...
* Eurozone unemployment rises to 9.2%
* Australia's GDP surprises!
* Is it protectionism?

And Now... Today's Pfennig!

Wild Swings!

Good day... And a Wonderful Wednesday to you! I'm draggin' the line today, as I was helping my oldest son, Andrew, with things in his brand, spankin' new house, last night. Congrats to Andrew, for finding a great bargain, with a low, fixed, interest rate!

OK... Whew! What a day in the currencies yesterday! Another day, and another day of wild swings.. Volatility is the name of the game these days... Watching, for instance, the euro trade down to 1.4220, and then up to 1.4320 and not just on a one-way ticket! Oh No! this is a bounce here a bounce there... But just like it was going from 1.41 to 1.42, it took a few times over the 1.42 figure before it finally stuck, and headed to 1.43... All the other currencies followed in the swings, as usual...

In a change of things that have been going on, which was simply watching the Asians sell dollars, and watching the U.S. counterparts buy them... The Asians actually reversed that course last night taking the euro from 1.4320 to 1.4220 as I walked in this morning, which was later than usual... Had to go a scavenger hunt at home... No worries... But, as I was saying... The S. Korean monetary officials said that they "see absolutely no alternative to the dollar as the main reserve currency of the world." Hmmm... Of course what else would you say if you were a small country connected to another country that likes to show its military power, and shoot off missiles, and Oh, by the by, they are believed to have nuclear bomb capabilities... You would be kissing up to the U.S. like an intern to their boss, as they attempt to get full time employment!

However, the S. Koreans weren't the only Asian monetary officials to speak... The Indian Central Bank, which is dying a death of 1,000 daggers watching their currency gain 11% in the past 3 months! And... Then the Big Kahuna... Japan... But, we all know that the Japanese are the biggest currency manipulators on this earth, and they would do anything to get the yen weaker... Speaking of currency manipulating... (doing an Andy Rooney here) Ever wonder why the U.S. Treasury Sec. and lawmakers all point to China for currency manipulation and don't mention Japan?

Japan was the whipping boy of the U.S. in the 80's... Remember? It was all "their fault"... Skip ahead 20 years and it's now switched to China... Ask Schumer, ask Graham, and any of the other dolts that signed the bill to assign tariffs to Chinese exports, that hangs out on the shelves in D.C. just waiting for the "right time", who's at fault here, China or Japan... They'll tell you China... And never mention Japan...

Speaking of currency manipulation, the Big Boss, Frank Trotter, and I were talking the other day, and we came to a thought about manipulation... The U.S. is quick to find fault with currency manipulation, but isn't the U.S. in the manipulation business too? Aren't they buying Treasuries in their quantitative easing, to keep interest rates down? By buying the treasuries they are manipulating the price of the bond... But, does any one hear the media calling them out here? Bawk, Bawk, Bawk... Son! I think I see a chicken hawk!

OK.. On to other things... Did you hear Germany's Chancellor Angela Merkel talking about Quantitative Easing? This is like one of those MasterCard commercials... Bundesbank President Axel Weber talking down Quantitative Easing... very worthy... But Germany's Chancellor Angela Merkel talking about it... Priceless!

Why priceless? Because it is a long standing tradition in Germany that the leader of the country never comments on monetary policy... But with the European Central Bank (ECB) looking at ways of doing Quantitative Easing, she took her shot... And the shot was not just aimed at the ECB... She got three birds with one stone! Throw the Fed and Bank of England in here too... Here's the Chancellor... "Unconventional monetary policies being pursued by the world's main central banks could aggravate rather than ease the economic crisis."

She went on to mention the Fed and Bank of England... Let's listen in... "I view with great skepticism the powers of the Fed, for example, and also how, within Europe, the Bank of England has carved out its own small line," Merkel said. "We must return together to an independent central bank policy and to a policy of reason, otherwise we will be in exactly the same situation in 10 years' time."

You know... Another female leader of a county from time past is responsible for another quote that I use in my presentations... I'll go dig it up, and come right back... Just hum the Jeopardy song for the final question, and I'll be back! ... ... ... ...

OK! I'm back! Here it is... "The problem with socialism is that you eventually run out of other people's money." ---- Margaret Thatcher...

The Eurozone did get some damaging employment data overnight... The Eurozone unemployment rate hit 9.2% in April, after sitting at 8.9% in March. I know, that sounds bad... But just like I tell you all the time about comparing the dollar and euro's data... The U.S. car is uglier than the euro car... Here's the reason I say there in this case... I know of NO games that are played with Eurozone employment data, like the games the Bureau of Labor Statistics (BLS) plays here in the U.S. So... If the Eurozone say unemployment is 9.2%, it's 9.2%! Whereas here in the U.S. when the BLS says that unemployment this Friday is 9.2%, it won't really be 9.2%, instead it will most likely be closer to 20%!!!!!!

While the Eurozone deals with rising unemployment... Australia posted a better than expected rise in GDP for the last quarter! The last three months showed a rise in GDP of .4%, after shrinking .6% in the previous quarter! Now... The members of the Reserve Bank of Australia, can all breathe a sigh of relief after they left rates unchanged on Monday night! They can walk about like 20-game winners, with their chests sticking out, and their chins in the air! They are dragon slayers!

The news pushed the A$ to .8260, but profit taking has pushed the A$ back below 82-cents... But this news will live in the minds of traders for some time, and after the profit taking is over, they will once again take a run at higher levels for the A$. Could 85-cents be in the cards for the A$ in the near future? Could be... But, just as easy as it could go to 85-cents and maybe beyond, it could go the other way... What I'm saying here is that this run from March 1st, is going so fast! It certainly could see it break off, take a breather, go back and fill in the gaps, whatever you want to call it...

I was reading a report yesterday where a trade expert was interviewed regarding the massive bailout of Government Motors (GM)... Claude Barfield, a trade expert at the American Enterprise Institute, believes that the massive bailout of GM: "raises the question of whether the subsidies violate President Barack Obama's pledge not to embrace protectionist measures. The intervention "will come back to haunt us in terms of the competitiveness of U.S. corporations and in terms of furthering U.S. public-policy goals."

Well, slowly but surely (Hey, who's Shirley?), more and more people who understand the ramifications of Gov't bailouts, are starting to agree with me and speak out against them... Don't you think that over half of the Financial Institutions that took TARP money are wishing they hadn't ever hear of TARP right now? It's a bad thing... Ronald Reagan used to say that the scariest words spoken are..."Hi, I'm from the Government, and I'm here to help."

But, these were "not normal times" and they called for "not normal measures" right? Isn't that the gobble-de-gook the Gov't tells us, as they jam one measure after another down our throats that takes away free markets, and more importantly our republic... We The People, are soon to be, We The Government...

OK, I know, I'll get a ton of emails telling me to shut my trap, and stick to currencies... But this all has something to do with currencies folks... Protectionism to a country's currency, the dollar in this case, is like kryptonite to Superman... So, if you want to see your country's currency on the slippery slope to nowheresville, just keep those protectionism measures floating... Because you can't have both... You can't have protectionism and a strong currency (dollar)... One floats, while the other sinks...

In a related story about having one but not both... A reader sent me two charts yesterday... One showed the fall in the U.S. dollar index in the past 3 months... And.. The other showed the rise in the stock markets in the same 3 months... The reader said that it looked to him that someone was saying, "you can either have a weak dollar and strong stock market or vice versa, but you can't have both!" Yes... Just like the protectionism, and a strong dollar... You can't have both!

In a "sign of the times"... The Vehicle Sales for May printed yesterday, and while all the car makers reported double digit declines of sales, the U.S. automakers outperformed the Japanese automakers!

And then... I know I go to the well quite often when I reprint something from the Daily Reckoning, but it goes both ways, so I don't feel too bad! But, when Bill Bonner, the Mogambo, or someone else says something that I think you need to read, I go for it! So... Yesterday, Bill was talking about U.S. Treasury Sec. Geithner's visit to China... Let's listen in: "it will be helpful if Mr. Geithner can show us some arithmetic," said
Yu Yongding, a former advisor to the Chinese central bank.

Yes, we'd like to see that arithmetic too. How do you add $1.75 trillion in deficits...pay for it with funny money from the Fed...and still come out even on the value of the dollar? There's no arithmetic we know of that works in the Chinese favor. Right now, the numbers...and the logic of the situation...are telling us that feds aim to create inflation. Instead of trying to keep prices under control...they're trying to get them to go up. That's yet another thing we didn't expect to see!

The US government is less concerned with protecting foreign lenders than it is with getting the US economy back to its old E-Z money ways. Cheap money is what people want. Cheap money is what the feds are trying to give them." Bill Bonner, The Daily Reckoning (www.dailyreckoning.com)

I'll head to the Big Finish in just a minute... But before I go there, I was looking at some graphs yesterday of the major currencies... Dollar, euro, yen, sterling, and even Canadian loonies... I've told you over and over again that this dance is gonna be a drag, no wait, I've told you over and over again that the currencies have all posted gains VS the dollar since March 1st... Well.. Euro, sterling and loonies have all outperformed yen... You would have to think that if China is pulling Asia out of the economic meltdown, that Japan would also benefit... So... Maybe, we'll see yen catch up with it's major currency counterparts...

Speaking of sterling... Chris Gaffney and I were discussing the other day about sterling's rise... I talked about this a couple of weeks ago, and said I was impressed with the performance but wasn't sold on its ability to remain strong... But there it is with a 1.65 handle on it, after hitting a low of 1.35 in Feb... I still don't "get it" as the U.K. has the same problems as the U.S., but... As I told Chris... Sterling is probably a beneficiary of the "crosses" with all the currencies that are going up VS the dollar... Explains it a bit, but sterling has put in a very good performance the past three months!

But... The sterling's performance is not even on the same page as the performance of the South African rand... And the Brazilian real... Of course past performance doesn't mean that future performance will repeat itself... And on that note... Here's the Big Finish!

Currencies today 6/3/09: A$ .8160, kiwi .6450, C$ .92, euro 1.4220, sterling 1.65, Swiss .9370, rand 8.0250, krone 6.2820, SEK 7.5650, forint 198, zloty 3.1575, koruna 18.8675, yen 95.90, sing 1.44, HKD 7.7510, INR 47.05, China 6.8309, pesos 13.21, BRL 1.9230, dollar index 78.98, Oil $68.10, Silver $15.87, and Gold... $976.80

That's it for today... Strong storms ripped through our area yesterday afternoon and night... When the day turns black as night in the middle of the day, you know you had better take cover! They found the debris from the airplane that disappeared over the Atlantic, and now the Brazilians are saying there were bomb threats before the plane took off... That makes an already sad story more sad... Cards get back in the win column last night. I caught most of the game on the radio, which actually is my preferred way to follow a baseball game, but with every game on TV these days, most nights I watch it... On the weekends though, I'm outside with my radio on the game... It's how I relax! OK... Geez Louise, I'm late today! Gotta go! I hope your Wednesday is Wonderful!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

The Rot On The Vine Goes Deeper...

Chuck Butler — Mon, 04 May 2009 15:07:29 GMT

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In This Issue..

* The 31st bank is closed in 2009
* China is showing signs of improvement...
* The so-called "decoupling" taking place?
* Jobs Jamboree ends the week...

And Now... Today's Pfennig!

The Rot On The Vine Goes Deeper...

Good day... And a Marvelous Monday to you! I'm Back! Once again, the traveling troubadour returns to the saddle... I'm here for two weeks, then gone again for the Las Vegas Money Show, then I get a nice reprieve in June before heading to Vancouver in July. There's a day game at Busch this Thursday, and I've already been invited to go, so I'm already getting in the frame of mind for that!

OK... Chris did a great job bringing you the Pfennig each day last week... I was still writing each day, giving daily updates to the FXU people. Chris will be traveling with me to "lost wages" , I mean, Las Vegas, so I'll be writing from the road, which long time readers know I just absolutely love!... NOT!

The currencies rallied for most of the week, after the Swine Flu scare filtered through the markets... On Friday, the currencies were range bound, as it was May Day across the globe, and many countries were on holiday. So... We start this week with the news that Citigroup may need $10 Billion to keep afloat, and news that Federal regulators shut down Silverton Bank in Atlanta, along with another smaller bank in New Jersey, bringing the total count of banks closed in the U.S. this year to 31! The FDIC estimated that the cost to the insurance fund would be $1.3 Billion...

The Silverton Bank was supposedly a key cog in the Southeast, according to the Wall Street Journal, and bankers in Georgia are saying that Silverton's collapse could take down at least 8 to 12 other banks with ties to Silverton. Domino dancing...
(All day, all day) Watch them all fall down
(All day, all day) Domino dancing
(All day, all day) Watch them all fall down
(All day, all day, domino dancing)

I'm not being flippant about this folks... I'm trying to point out that the rot on the vine is deeper than the media and the leaders of this country would have you believe them to be. I keep coming back to that interview with Ron Paul that I saw in March, where he said, "people are saying that problems in other countries are worse than ours... Those people are wrong!"

Oh, and did you hear that Boston's most storied newspaper, the Boston Globe, is going to be shut down? And one more item... Those "stress tests"? Well, wouldn't you know it, the results are being delayed, due to the Banks debating the findings... Well, they have that right to do so... Maybe, the regulators didn't understand something in their accounting methods, or something like that... Unfortunately, I believe the banks' debating will be like arguing with an umpire over balls and strikes!

OK... Enough of the blood in the streets! Let's talk about some good things... Like last week when the Bank of Canada (BOC) decided to do a Nancy Reagan, and just say "no" to Quantitative Easing... Let's hope they don't end up with egg on their collective faces should they need to implement Quantitative Easing at some point in the future... But I'm sure they have weighed all the facts to this point. Canada's Banks are in tip top shape, compared to their neighbors to the south, and I'll explain this about the Canadian dollar / loonie once more for those new to class... When Oil returns to higher levels, the loonie will follow... This currency is so juiced by energy prices, and Oil is the Big Kahuna...

And remember what you heard here first, last month, and that is that China would be the first to come out of the economic doldrums... I had someone ask me last week, why I thought China's stimulus worked better than anyone else's... Ahhh grasshopper, I've explained that before... But again, it's very simple... With China being a Communist Country, they can dictate not only to whom the stimulus goes to, but HOW the stimulus is used... Imagine if you will the initial $150 Billion that was sent out last spring... If there were stipulations on how it was to be spent, maybe you'd have something, or better yet... The initial $700 Billion in TARP funds... They didn't have strings attached, and the receivers didn't use the funds to loan out, as "requested by the Treasury", they threw it in the nearly empty treasure chest and sat on it... See the difference in the two methods?

It appears that the so-called "decoupling" is back on the table, as China and India seem to be coming out of the economic doldrums long before the U.S., Europe, and Japan will... Hmmmm...

OK... The Chinese renminbi has begun to move higher again, just when everyone thought the Chinese would batten down the hatches on currency appreciation. This is only happening because the Chinese economy is beginning to show signs of improvement.

Those signs of improvement in China are doing wonders for the Aussie dollar (A$)... Don't look now, but the A$ has climbed past 73-cents! Aussie's kissin' cousin across the Tasman, New Zealand, is not seeing the same kind of McLovin the A$ is seeing... The Reserve Bank of New Zealand (RBNZ) left the door open to further rate cuts last week, while the Reserve Bank of Australia (RBA) is giving signals that the rate cuts may be nearing an end. The Tale of Two Central Banks...

A long time readers sent me a link to a story on Morningstar regarding our fave shiny metal... Gold... Here's a snippet...

"Jon Nadler, a senior analyst at Kitco Bullion Dealers, points out that all of the world's above-ground gold amounts to around 0.6% of total global wealth, so even if gold were at $10,000 per ounce, the metal would only amount to 6% of total global wealth." (I know Jon, so I just had to use his quote!)

Here's another snippet from someone else... "Singapore, Norway, Saudi Arabia and other member nations of the Organization of the Petroleum Exporting Countries are likely already increasing their allocation to gold, or likely to do so in the coming months. They would be somewhat ignorant and financially and economically illiterate not to do so."

Everyone at the Total Wealth Symposium in Bermuda last week was talking about Gold... I see that it has slipped back below the $900 level, which I have taken as the line in the sand for buying opportunities... Could it go lower? Of course it could, but that wouldn't change my mind as far as a sub $900 level being a buying opportunity to get it cheaper than where most people see it going...

Did you see that China announced last week that they had increased their holdings of Gold by 76% in the past 6 years? Hmmm... No wonder the last 6 years have been so kind to holders of the shiny metal, eh?

And... How about this for some "good news"... Ford outsold Toyota in April! Now, that's something you don't see every day! Well, maybe when Ford was selling their pick-em-up trucks like funnel cakes at a state fair... But not often, at least not to my recollection.

OK... The data cupboard is pretty feeble this week until we get to the end of the week, where the April Jobs Jamboree gets printed. We'll see Pending Home Sales, Construction Spending today, and then not much, until later in the week... The initial forecast for jobs in April are showing a job loss of 606K... The weekly numbers show this forecast to be quite understated... But, as I've explained many times in the past, the Bureau of Labor Statistic (BLS) doesn't use those Weekly Initial Jobless Claims... The BLS uses a survey of corporations, and then puts the survey in their witch's caldron and stirs in the Birth / Death model, and comes out with "their number"...

Bad news for my little river town this past week, as Chrysler closed down the plant that had been operating in our city since the 60's. Good thing we decided back in the late 90's to diversify our income stream in the city! I was an alderman then, and recall this to be my greatest fear, that the city depended on one corporate entity so much... And the alderman at that time made great strides to diversify the city's portfolio of income streams... So... That today, when the bad news hits, it doesn't hit as hard as it would have if no diversification had taken place. You see... The overall risk to the portfolio was reduced!

Well, what does that lesson teach us? It should teach us the diversification is the most important monetary thing anyone should be thinking about! Diversification so that the asset classes in your portfolio have a low correlation to one another. That they have different pricing mechanisms. Currencies and metals represent the best diversifying assets to your already existing portfolio of stocks, bonds, mutual funds, and land... It is a proven fact that by adding currencies and metals to a portfolio, you will reduce the over risk in the portfolio! And.... Remember... 94% of a portfolio's return is based on asset class selection...

Just thought I would give you an example of diversification in real life, and then apply it to the lesson for today... That's how I always tried to explain things to my kids, and the older two are teachers today, and probably use the same methods for explanation!

The U.K. is on holiday today, as they decided to do May Day on the 4th! Either way, it was a 3-day weekend for those that celebrated May Day!

Currencies today 5/4/09: A$ .7330, kiwi .5720, C$ .8415, euro 1.3230, sterling 1.4845, Swiss .8770, rand 8.38, krone 6.5750, SEK 8.08, forint 218, zloty 3.33, koruna 20.14, yen 99.30, sing 1.4815, HKD 7.75, INR 49.90, China 6.8220, pesos 13.76, BRL 2.1725, dollar index 84.77, Oil $52.89, Silver $12.61, and Gold... $890.60

That's it for today... A very good road trip for yours truly last week, and my beloved Cardinals! My little granddaughter, Delaney Grace, came by to see me on Saturday. She sings songs now... She is so darn cute! She tips her head from side to side while singing! Too much work in the yard yesterday, has my hip and leg quite sore this morning, but that's a good thing! My little buddy Alex, can cut the grass now, so that's a good thing for my beautiful bride you had to take that over after my surgeries 2 years ago... Speaking of my beautiful bride... Her and I walked into a restaurant last week, and a long time reader saw us and said to me, "hey Chuck, she really is your beautiful bride"... Now how nice was that? On that note, I'll move onto to something else, wish you a Marvelous Monday and hit the send button!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Bad news for GM and Chrysler rallies the US$...

Chuck Butler — Mon, 30 Mar 2009 14:16:47 GMT

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In This Issue..

* Bad news for car makers rallies the US$...
* Yen comes back strong...
* Singapore to devalue?...
* German Chancellor Merkel gives warning...

And Now... Today's Pfennig!

Bad news for GM and Chrysler rallies the US$...

Good day... And good Monday morning to all of you. I can't believe March is nearly over, it seems as though it just started. March will end up being a pretty good month for the currency markets, as investors exited the safety of US treasuries and started moving funds back into higher yielding assets. But the markets continue to be volatile, and news released on Friday and over the weekend has sent these investors rushing back to the safe haven of the US dollar.

The Japanese Yen and US dollar benefited after a US Government official said Friday that bankruptcy may be the best option for GM and Chrysler. The dollar continued to gain strength this morning after US Treasury Secretary Geithner warned yesterday that some financial institutions will need "large amounts" of aid. When the Treasury Secretary says large amounts, you know it is going to be billions or trillions! Geithner was making the rounds of Sunday morning talk shows to try and justify the money already spent and prepare the taxpayers for another request of funds.

Bad economic data released on Friday here in the US helped drive investors back into the US$. Consumer confidence in the US remained near a three decade low this month as the jobless rate continues to climb. The number of US states with a double digit jobless rate almost doubled in February; with Nevada, North Carolina, and Oregon joining Michigan, South Carolina, California, and Rhode Island with unemployment rates above 10%.

The Japanese yen benefited from the safe haven buying, with the yen turning in the only positive performance vs. the US$. A report in Japan which indicated a cut in inventories added to the yen's good day. Inventories fell 4.2% last month, and companies said they would increase production in coming months, indicating the worst of the manufacturing slump may be over. But with exports falling, and retail sales tumbling, I don't expect manufacturing to pick up anytime soon. Deflation continues to be a problem in Japan, as consumer prices remain stalled. With benchmark rates as close to zero as possible, the Bank of Japan has little ammunition left to combat the falling prices. If you still own the Japanese yen, take advantage of these small rallies to exit your position, as the yen will probably not be able to maintain this strength.

Another currency you may want to consider exiting is the Singapore dollar. According to a story I read on Bloomberg this morning, the Monetary Authority of Singapore may devalue their currency and allow it to drop 4 percent against the US dollar in the next few months. The central bank reviews the currency's position twice a year, and some are now predicting it will shift the value of the Singapore dollar in April. Singapore's exports continue to fall and some are blaming the strength of the Singapore dollar vs. its regional competitors. While I believe the Asian economies will lead the world out of the global recession, the Singapore dollar will likely come under some selling pressure going into April.

With a general move back toward safety, the higher yielding currencies of Australia and New Zealand suffered. The Australian dollar dropped below .68 but will still end March with over an impressive gain vs. the US$. The New Zealand dollar also gave back some of its recent gains, moving down to the .55 handle. But like the Australian dollar, the kiwi will still end march with nice gains vs. the US$, likely to be in the double digits.

Other commodity based currencies also suffered, with the US dollar moving higher vs. the Brazilian real and Canadian dollar. But many investors still feel these commodity currencies will be some of the first to recover, as countries invest stimulus money into infrastructure projects.

News from Europe fed into the dollar's strength as a report showed industrial orders plunged 34% in January, the most on record. Another report showed France's economy shrank by 1.1% in the fourth quarter, the steepest decline since 1974. With all of this negative data, it isn't hard to see why European confidence fell to the lowest on record in March. An index of executive and consumer sentiment in the euro region released this morning fell to a record low. All of this negative data is boosting calls for further rate cuts by the ECB. After the 50 basis point cut at the beginning of March, most currency traders expected the ECB to pause and hold rates steady for a couple of meetings. But now the calls for further cuts are becoming louder.

The Euro had the worst day vs. the US$ in nearly three months on Friday, and is not holding just above 1.32. Some are now even suggesting the ECB follow the US and UK down the path of "quantitative easing", buying bonds to pump more money directly into their economy. As I have written recently, this is one of the most inflationary moves a central bank can take, and would be a dramatic step by the typically hawkish ECB.

But not everyone in Europe is wanting the ECB to follow the paths of the US, UK, and Japanese central banks. Germany's leader, Chancellor Angela Merkel warned against inflating the global economy to revive growth. Frank Trotter sent me an article from this weekend's Financial Times in which Merkel rejected calls to spend more public money in Germany to speed the recovery. "This crisis did not come about because we issued too little money but because we created economic growth with too much money, and it was not sustainable growth," Merkel said, according to the FT. "If we want to learn from that, the answer is not to repeat the mistakes of the past."
Merkel's position is in stark contrast to our own administration, who have taken a somewhat short sighted 'grow now, worry about inflation later' stance. In fact, the US administration is excited about how they have been able to manufacture a new 'refinance' boom by forcing mortgage rates back down. But the concern I share with Merkel is how will policy makers unwind all of this 'easy money' once the recovery begins?

Does anyone think the Fed will have the courage to end their emergency-lending programs while the unemployment rate remains near double digits? You know the administration is going to push the Fed to wait until there are clear signs the US is in recovery before moving rates back up. But any slight hesitation on the Fed's part will probably spark inflation which could quickly grow out of control if left unchecked.

But Treasury Secretary Geithner said yesterday that the Fed's injections of reserves into the economy are "not going to create the risk of hyperinflation in the future." "We have a strong independent Federal Reserve with a very strong mandate from the Congress, and they will do what's necessary to keep inflation low and stable over time," Geithner said on ABC's Meet the Press. At the same time, he warned policy makers shouldn't "put the brakes on too quickly."

I hate to disagree with the Treasury Secretary (ok, you caught me, I actually kind of like disagreeing with the Treasury Secretary) but I just don't think they have the ability to keep inflation at bay. The Fed has injected record amounts of liquidity into the system, using some untested 'quantitative easing' procedures which will need to be reversed. With the Fed pledging to purchase another $1.25 trillion of mortgage debt and $300 billion of Treasuries, inflation is inevitable.

Finally, I read where Wednesday has been dubbed 'Financial Fools Day' in London. Protestors attracted by the G20 summit plan to target London bankers for their role in the financial meltdown. This should make things interesting on Wednesday, as protestors plant to try and block roads and prevent people from getting to work at the heart of the global currency trading.

Currencies today 3/30/2009: A$ .6808, kiwi .5625, C$ .8001, euro 1.3192, sterling 1.4183, Swiss .8706, rand 9.7274, krone 6.7765, SEK 8.2889, forint 234.97, zloty 3.595, koruna 20.89, yen 96.63, sing 1.5213, HKD 7.7502, INR 51.2825, China 6.8364, pesos 14.539, BRL 2.2911, dollar index 85.66, Oil $50.57, Silver $13.03, and Gold... 912.14

That's it for today... Mizzou just couldn't get it done vs. UCONN on Saturday, and a terrific Tiger season came to an end. But the Blues had better luck vs. Columbus, winning back to back games and moving into a tie for the final playoff spot. They still have their work cut out though, as they play 6 of their last 7 games on the road. We did end up getting a quick shot of snow which had been predicted, but nothing more than a dusting which melted in a few hours on Sunday. I guess we got lucky, as areas just to our west got dumped on with up to a foot. Mike and Chachi are here now, so better get this out and get the week started. Hope everyone has a Marvelous Monday!!
Chris Gaffney, CFA
Vice President
EverBank World Markets
1-800-926-4922
1-314-647-3837

A change in the Trading Theme?

Chuck Butler — Fri, 06 Mar 2009 15:13:02 GMT

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In This Issue..

* A change in the Trading Theme?
* Gold rebounds Big time!
* ECB cuts 50 BPS, as expected...
* Lots of lessons today...

And Now... Today's Pfennig!

Jobs Jamboree Friday!

Good day... And a Happy Friday to one and all! It supposed to be 70 degrees here today, so in my book that makes it a Fantastico Friday!

It's also a Jobs Jamboree Friday, and while this report is probably not going to be anything good, it will be Fantastico BAD! The experts have forecast a job loss in February to be 650K!!!!!! Six Hundred and Fifty Thousand did I say? Yes, sir, may I have another, sir? Well, shiver me timbers, this is just downright awful! And if it prints this bad, it will be the most jobs lost in a month since 1949! This is horrific, just plain horrific folks... And in my opinion, will NOT signal the bottom of the barrel for labor just yet... This thing has momentum and I don't think you'd want to step in front of this run-away bus!

A strange thing is happening in the currencies though... While currency investors have had to live with this Trading Theme that rewards the dollar with every deep, dark, dangerous data report, this time it appears to be different. The dollar is getting sold on all corners overnight, and the reason is traders have looked at the size of the forecast for job losses and have run for the hills. The euro is leading the way higher, with a huge gain overnight... As I walked out the door yesterday afternoon, the euro was barely holding onto the 1.25 handle... When I woke up this morning with a wine glass in my hand, what wine, who's wine, where the hell did I dine? The euro was 1.2675! And we all know what happens when the BIG DOG gets off the porch to chase the dollar down the street... All the little dogs get to chase the dollar too!

And Japanese yen was one of the best performers, which tells me that the risk takers were back!

So... Is this a change in the Trading Theme? Well, one overnight rally doesn't lend itself to a convincing argument of such, but... It certainly points out that the dollar is vulnerable at the margins, and it once we get back to fundamentals... Watch out!

I came across another story about Europeans repatriating euros ahead of their quarter end, March 31st... Now, that would be interesting... The report didn't say "WHY" they would be repatriating their euros, but shoot Rudy, the Europeans are apparently doing it, so, again, don't step in front of that bus either!

Gold had a great day yesterday, rebounding to $940, after barely holding on to $900 earlier this week... I said at the time that I thought $900 or $890 would provide resistance, and for now, at least, that's held true. Of course having the auditors finally admit that General Motors (GM) is in trouble, didn't hurt Gold. The safe haven buyers were out in force after this announcement by the GM auditors... In case you didn't hear... The auditors at GM issued a report questioning GM's ability to remain solvent, citing recurring losses from operations, stockholders' deficit and an inability to generate enough cash to meet its obligations. GM already has received $13 Billion from the Gov't, and is seeking an additional $30 Billion... Of course that $30 Billion isn't even enough to cover GM's loss last year of $30.9 Billion! You know me... I say, "stop throwing good money at bad businesses!"

While we're on the subject of cars... Did you see where Sweden told the SAAB unit "no bailout for you!" Recall, I told you in a letter a week or so ago that SAAB wanted to break away from GM, but needed Billions to do so, and had asked the Swedish Gov't for the money... And the Swedish Gov't said NO! While it's not funny to SAAB, or to GM, it's kind of funny when you think about the fact that Sweden isn't exactly your first choice when it comes to picking the democracies in the world... But, here they are holding the flag... And appear to be the only one's holding the flag, and saying NO!

And I saw a quote yesterday that made me chuckle, not that the subject is funny, because it's not, but the thought process to come up with the quote is! Let me begin with the backdrop of the subject... Yesterday, Citigroup's stock fell to below $1... Which prompted the quote from a guy that said... "Now you can finally buy Citi's stock at the dollar store"

OK... Back to the task at hand... Did you see, wait, of course you probably didn't see, because I just happened to come across it... What am I babbling about? It's the data from the Fed that there was a sharp drop in commercial paper issuance last week... Why is that so important, I hear you asking? Ahhh grasshopper, recall that after the initial meltdown of the markets in August of 2007, the issuance of commercial paper dried up, which was an important method of corporations to generate cash and for the buyers to generate above Treasury interest rates. So... A few months ago, the Fed took over facilitating the commercial paper market, to give it the backing of the Fed... And things were beginning to look brighter, until last week... Total commercial paper outstanding fell $44.2 Billion... I think this is another reason for the rally in Gold yesterday...

Yesterday, the Bank of England (BOE) left their rates unchanged, but announced they had adopted quantitative easing... And the European Central Bank (ECB) cut as we expected them to by 50 BPS, to an internal rate of 1.5%... ECB President, Trichet, was very strange in the press conference afterward, and mentioned "touching wood" when he was talking about inflation... Hmmm... Well, for all of you wondering what he meant by "touching wood"... Here in the U.S. we would say, "knock on wood"... You know for good luck!

I think Trichet was being tricky, and trying to tell us that inflation is not a problem right now, but I'm going to knock on wood, because I'm not so sure about the future! It's like Thunder, and lightening, the way you love me frightening, you better knock, knock on wood, baby, you better knock! Now the horns come in! of course the Eddie Floyd version is in my head, not the re-make years later!

OK... I had a few emails yesterday asking me what "quantitative easing" was... I had explained this all a month or so ago, but for those of you who missed class that day, and are wondering just what the heck I'm talking about...

Quantitative easing is the creation of new money out of 'thin air' by a central bank, and its injection into the banking system. The aim is to increase the amount of deposits in private banks so that, by way of deposit multiplication, they can increase the money supply by increasing debt (lending).

'Quantitative' refers to the money supply; 'easing' refers to reducing the pressure on banks. A central bank can do this by using this new money to buy Treasuries in the open market, or by lending the new money to deposit-taking institutions, or by buying assets from banks in exchange for currency, or any combination of these actions. These have the effects of reducing interest yields on government bonds, and reducing inter-bank overnight interest rates, and thereby encourage banks to loan money to higher interest-paying bodies.

Wow! The Pfennig is chock-full-o-lessons today... Let's recap... We've learned about Commercial Paper, touching wood, and Quantitative easing, all in one day! WOW!

OK, seriously folks... This Jobs report that will print later this morning is a scary thing right now... Sort of like those horror movies, when you're screaming a the girl to not look in the closet, because you know what horror lurks behind the closet door! You're screaming, "don't open the door, don't open the door"... But she does anyway, and well, you know the "rest of the story"...

Before I head to the Big Finish, I'll talk about China for a minute... Yesterday, I told you about their leader and his thoughts of a return to 8% economic growth... Well, that was followed up last night by the Central Bank Gov. Zhou, who pledged fast and forceful policies to restore confidence and prevent the global financial crisis from deepening in China... Here's what Zhou had to say... "If we act slowly and less decisively, we're likely to see what happened in other countries: a slide in confidence." and my final thought here is "it's good to be China in situations like this"... You see, China can do whatever they want to do, and do it NOW! They don't have to deal with earmarks, pork, and knucklehead lawmakers being directed by lobbyists! Now, I'm not saying that what China does do will be any more successful than our method, I'm just saying they can do what they want NOW! And one would have to think that would help things move along faster...

Currencies today 3/6/09: A$ .64, kiwi .5025, C$ .78, euro 1.2680, sterling 1.4230, Swiss .8670, rand 10.5350, krone 7.0575, SEK 9.2710, forint 249.55, zloty 3.7450, koruna 22.11, yen 96.70, sing 1.5475, HKD 7.7560, INR 51.66, China 6.84, pesos 15.34, BRL 2.39, dollar index 89.06, Oil $44.11, Silver $13.43, and Gold... $940.40

That's it for today... Day two on our own... Done! My older kids, Dawn and Andrew are coming over tonight and bringing me fish from the fish fry. So, I've got that going for me! Alex is attending cotillion on Thursday nights, and he gets all duded up with a tie, and he actually combs his hair! Looking sharp, I must say! I want to thank our neighbors, Ray and Kathy for taking Alex to school and picking him up this week, it was a HUGE help to me! OK... Later this month I'll be in St. Pete, to talk at the Investment U. Conference sponsored by the Oxford Club. Then in April, I'll be in Bermuda to talk at the Total Wealth Symposium sponsored by the Sovereign Society. I've never been to Bermuda, so I'm as excited as a kid in December about that! If you're interested in this symposium or want to know more about it...click here: http://www.sovereignsociety.com/Portals/0/landing/TotalWealthSymposium2009_FXU.html

I haven't had time to go through every "feel good" story that was sent to me, so I'll start this when I get back, as today, is the last Friday, I'll be in the office until April 3rd! And then only for a short time, as I go back out on the road to the Richard Russell Tribute dinner that day! OK... Time to hit the send button... I hope you have a Fantastico Friday, and a Wonderful weekend... And.. Don't forget to "spring forward" tomorrow night, by setting your clocks ahead one hour!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Bank Losses Mount... Globally...

Chuck Butler — Wed, 18 Feb 2009 14:23:51 GMT

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In This Issue..

* The dollar continues to rally...
* Loan ratios figure big now...
* Bank nationalization returns to Germany...
* Gold pushes the envelope further...

And Now... Today's Pfennig!

Bank Losses Mount... Globally...

Good day... And while I hope it's a Wonderful Wednesday to you, I have sad and shocking news for us at EverBank. Yesterday, we were shocked to learn that a colleague and friend, John Kimsey has passed unexpectedly. Thoughts and prayers are with the family. John had joined the World Markets desk in November of last year, after a career in our Mortgage Division, and made an immediate impact with his personality, and his love of his family. His laugh, and smile were contagious, and will be missed.

I have no experience in dealing with the loss of a colleague, so I'll just leave it there, and move on. This will be short this morning, as I'm just not really in the mood to be in a normal writing mood.

The dollar continued to rule the roost yesterday, as the story that I broke to you yesterday regarding the Eastern European loan losses weighing heavily on the euro, really gained steam as the day went on. I have to apologize right here, right now, that I contradicted something I said and my friend John Mauldin said yesterday. I did not mean to do that, and I shows what happens when you write pre-5 a.m. I was of the thought that the U.S. losses were larger than those in Europe (overall, both East and West)... But upon further review, I see that NOT to be the case. It all goes back to lending ratios, which in good times people don't pay attention to... But in bad times, they begin to be as self-evident as a hatchet in one's forehead. U.S. Banks have a loan ratio of around 26 to 1... And European Banks have one that is around 60 to 1... Uh-Oh!

My long time friend, and sometimes colleague, Ed Bonawitz, sent me a note yesterday showing the rot on the vine... This stuff isn't for anyone under 13 to view, folks, it's nasty... Here are some facts to make you cringe... "Ireland's external debt, at $1.8 trillion, equals 900% of the country's $200 billion GDP. The United Kingdom's external debt of $10.5 trillion equals 456% of its $2.3 trillion GDP. Switzerland's external debt of $1.3 trillion equals 433% of its $300 billion GDP."

So... Now that the credit markets are locked tight, renegotiating the terms of these loans is virtually impossible... The IMF will need to step in Big Time, and as badly as I don't want to even say this, but have to, the Bundesbank, Germany's Central Bank, will have to step in also.

There's news this morning that Germany will take over Hypo Real Estate Holding, Inc. thus paving the way for the first German Bank nationalization since the 1930's...

So... Here's the deal folks, the way I see it... These countries are dealing with their own problems, and soon they will move to protectionism measures to keep trade at home... This will happen all over the world, and for my money, it will be akin to pushing Trade over the cliff. No way trade is able to recover from a blow like global protectionism, until it ends...

So, again, there's "uncertainty"... And the Uncertainty Hedge is here to help! Yesterday, I watched Gold move higher all day to the tune of $28 bringing the price of Gold to $970! This morning, there has to be a ton of profit taking, as Gold has backed off by $6... I'll say this again for anyone missing class on two different occasions last week... It appears that the large investors are moving to hard assets, like Gold and not to fiat currencies...

The TIC Flows data yesterday surprised on the upside, with a total of Net security purchases by foreigners rising to $34 Billion, while the previous month's negative -$21.7 Billion was revised down to negative -$25.6 Billion... So, if you average out the two months, we have a net of around $9 Billion, which is not enough to finance the deficit... And that just gets added to our financing needs down the road.

So... Europe is having problems with banks, just like here in the U.S. But keep in mind that at least Europe was dealing from a position of strength when this all materialized, and the financial meltdown began, while the U.S. was already deep in the deficit hole...

Today in the U.S. we get Housing Starts, Building Permits, Industrial Production, and Capacity Utilization all for January... And all should continue to show bad things for the U.S. economy. But as I said yesterday with the deficits rising, and everyone becoming comfortably numb with the numbers, they have long been comfortably numb with the rot on the data's vine here in the U.S. It's not that people don't care... It's that they see it, and realize they can't do a darn thing about it!

OK... GM was at the back door begging for more drugs, I mean bailout money yesterday... Here's what the Wall Street Journal had to say about it....

"General Motors plans to ask for access to an additional $16.6 billion in federal aid. The company said it will run out of money by next month without additional aid. GM also said it would close 14 U.S. plants, five more than previously planned. GM also would cut 47,000 global hourly, salaried jobs."

If I were "the man" doling out the bailout funds, I surely wouldn't want the closing of 14 plants and the loss of 47,000 jobs on my conscience... But! I wouldn't write the check, until GM gave me something in writing... 1. a plan to pay it back 2. why they believe this $16.6 Billion will "do the trick" for them. 3. what are their plans to get back in the black given the U.S. is in a recession, and not buying automobiles!

Well, the President signed the "new and improved" Stimulus Bill yesterday, and I totally misread what stocks would do with that news... I was fully expecting stocks to rally with the news... But instead we got a 300 point sell off in the DOW... Don't look now, but the Dow is now within less than a point of its November 20 closing low of 7552.29... Financials led the way for the stock losses yesterday as they too the Nestea plunge once again.

Good thing I'm not even your last pick for a "stock jockey"...

Yesterday's move pushed the Dow to near a -14% loss year-to-date. Even with the large investors trading in fiat currencies for hard assets (read Gold!), these currencies are still in better shape year-to-date than the DOW... And most of the red in the currencies has come in the past week.

Norway leads the G-10 currencies VS the dollar so far this year...

Someone asked me, (they are always asking me about Swiss!) to talk about Swiss again... Well, from the above note about loan loss problems Switzerland is not going to go Ollie, Ollie Oxen free... They've got some real banking problems, and that's the reason the Swiss franc has seen a -9% decline this year...

I got a chance to talk to an old Mark Twain Bank colleague yesterday... Craig Caringer called to check up on my health... What a great person always was, and apparently still is! Craig is a bond trader/ sales guru down in Florida... He tells me there are scant signs of liquidity returning to the markets, but scant for sure... Craig was the absolute best golfer I ever played a round of golf with. He is a Mizzou alum, and we had a blast talking about our Missouri Tigers ranked #10!

OK, I'm watching the euro trade higher this morning, than when I first came in... The range is small though, so it will be interesting to see if it can add to the gains I've seen already this morning. The trading pattern for some time now is for the overnight markets to push the currencies higher, and the U.S. markets to pull them back down.

There's a writer out there in writer-land, that wrote a piece this last weekend, saying that the banking problems in Europe were too big, and that the euro was doomed... WOW! Those are some strong words! I saw the report, and I just cringed... For we've heard these wild forecasts before... There was the so-called collapse of the euro right after its issuance in 1999... There was the so-called collapse of the euro right after Denmark voted "no" to joining the euro... There was the so-called collapse of the euro, after France voted "no" to accepting the constitution... And now this...

I'll say this now, just like I said during those previous crisis... The euro is here to stay, folks... The level of the euro VS the dollar may lose ground because of this problem, but it's here to stay... So, don't let yourself get all caught up in the sensationalism going on... Which reminds me of the Y2K stuff... Remember that?

OK... This went on a little longer than I anticipated... So let's go to the Big Finish together...

Currencies today 2/18/09: A$ .6385, kiwi .5115, C$ .7920, euro 1.2610, sterling 1.4210, Swiss .8525, rand 10.21, krone 7.01, SEK 8.81, forint 242, zloty 3.8350, koruna 23.09, yen 92.60, sing 1.53, HKD 7.7545, INR 49.97, China 6.8375, pesos 14.66, BRL 2.3390, dollar index 87.66, Oil $35.02, Silver $14.05, and Gold... $963

That's it for today... Again, thoughts and prayers to John's family. That's all I've got for today... I hope you have a wonderful Wednesday...

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Talking Stimulus Deux

Chuck Butler — Wed, 04 Feb 2009 15:10:29 GMT

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In This Issue..

* Pending Home Sales surprise!
* Eurozone Retail Sales slump!
* Tax cuts don't create jobs...
* Failure to follow through for the A$

And Now... Today's Pfennig!

Talking Stimulus Deux

Good day... And a Wonderful Wednesday to you! Well... I'm here! The Orlando Money Show... And guess what? Looks like I brought that artic cold front that had hit St. Louis, all the way down to Orlando! It's cold here! UGH! Well, not "cold" like at home, but "cold" for here!

OK... Front and center this morning, we had a stock rally yesterday after the Pending Home Sales data printed a surprise number. And since stocks and currencies have been trading together the past few days, (we talked at length about this yesterday) that meant a currency rally as well! But! Neither stocks or currencies could break on through to the other side, break on through, yeah! So... That left them vulnerable to profit taking, and that's exactly what we've seen with the currencies overnight. We'll have to wait a couple of hours to see how stocks open up...

So... I guess a review of the Pending Home Sales data is in order, eh? U.S. December pending home sales rose 6.3%, which as far better than the forecast (0%)! Let's look further into the data release to get an overall feeling of what's up here...

According to the report, Pending Home Sales are now up 2.1% year-on-year, but down by a cumulative 31% since the peak in April 2005. Hmmm... Does this mean we've turned the corner with housing? Well... I'm from Missouri, and I'm going to have to be shown more than just this one report. Pending Home Sales has been barely keeping its head above water for 1 1/2 years now... So, I'll hold out judgment until I see some follow up data... But... Maybe, just maybe, you never know... This could be good...

Another item weighing on the euro this morning is the printing of Eurozone Retail Sales for December, which fell more than forecast. Sales in the Eurozone fell -1.6% in December (-1.4% forecast), and shows that Consumers are saving... This fall in domestic demand, has helped with the inflation front in the Eurozone. But that's about the only good thing going on in the Eurozone's economy. Consumer Confidence, Investor Confidence, and high unemployment are making things difficult for the euro to rise.

But... It's not that it can't rise given this scenario. It happened back about 5 years ago, when Germany (the Eurozone's largest economy and key to overall Eurozone health) was trying to kick start their economy, and things look very similar to this overall outlook for the economy... And... We had the euro moving higher VS the dollar.

It was simply a case of traders and market participants focusing on fundamentals, and seeing the debt creation in the U.S. the dollar was sold... And... As luck would have it, the euro was the offset to the dollar, and voila... Dollar sold, means euro rally!

I can't stress enough about the need for the traders and market participants to once again focus on the fundamentals of debt creation, and money supply... Unfortunately, this isn't the case and hasn't been for some months now, as the Credit Crisis has everyone's focus.

Well, there's some news this morning that's interesting... Looks like there's a chance that G-7 nations might be laying the lumber to China... A former Japanese Finance Ministry official said that the "Group of Seven nations may reinstate their call for China to increase the flexibility of its currency." G-7 meets next week in Rome.

So... Let's take a look at this lineup... First, "the cheater" Geithner, called out China... The IMF's Strauss-Kahn, said the renminbi remained "undervalued", and now, supposedly G-7 will take their best shot at China and the renminbi...

I have to repeat something I've said for years now... They are wasting their time! China will do what it wants to do, in the best interest of their economy... Now, having said that, I too believe the renminbi is undervalued, but me saying that isn't the same as U.S. and IMF officials! I'm just a little old Pfennig writer from South St. Louis!

One of my fave countries, for their strong fiscal position, Norway, will see their Central Bank (Norges Bank) cut interest rates this morning... I'm looking for a 50 BPS rate cut to an internal rate of 2.5%...

So... When I turned on my laptop this morning, the euro was trading at 1.2955... The Retail Sales data is really pushing the euro further down, as it is now trading 1.2860!

Someone took exception with my problems with the new and improved Stimulus Package, saying I wasn't giving the new President a chance... Hmmm... I was simply talking about how much "pork" there was in what to me is simply another "Spending Package"... For instance... There are tax cuts in the package... That's fine, probably worthy... But... Do tax cuts put cash in Joe six-pack's pocket today? Do they create jobs? And when do these get to the tax payer? Probably not for a year! Again... Worthy... But, I'm not seeing what benefit it does for the economy NOW!

The "Risk Takers" saw a reason to crawl behind the rock even further this morning, as Kazakhstan devalued their currency by 18% overnight. Now, this is not a big deal in the overall scheme of currencies, as Kazakhstan's currency wasn't even liquid... But it did put the kyboshes on the other "Emerging Markets" currencies and any rally attempts they might have up their sleeves.

With no Risk Takers, the Japanese yen is back on the rally tracks... I saw a report yesterday, before I left, that one Japanese bank is calling for yen to reach a level of 80 VS the dollar, according to their charts. That's pretty aggressive, as most, including me, believe that at 85, the Bank of Japan comes in with both barrels smoking, intervening, and selling yen to keep it from getting stronger... I picked 85, because that's where the line in the sand was drawn back in the late 90's when yen was this strong...

We get the ADP Jobs data today... Recall that last month, I held out hope that the ADP report would be a good indicator to the Jobs Jamboree, as ADP had changed their methodology to be closer to the Bureau of Labor Statistics (BLS), without the Birth / Death Model! But that didn't hold true the first month... We'll have to wait-n-see if this month's data does a better job of indicating what to expect in the Jobs Jamboree...

Yesterday, I told you about the rate cut and stimulus announcement in Australia... And the Aussie dollar (A$) really took off with the news... But as I said yesterday, I doubted that the rally would last long... And so, it did not... The A$ got as high as .6450 before I left yesterday, and was on an upward move... But this morning, it's back to below 64-cents...

And then finally... Here's what the Wall Street Journal had to say about the Vehicle Sales data that printed yesterday... "Auto makers posted sharply lower U.S. sales for January, putting more pressure on struggling Detroit companies. GM's light-vehicle sales dropped 49%, while Ford was down 40%. Toyota fared slightly better, with light-vehicle sales down 32%."

That's a ton of pressure for the automakers, I just don't see how they're going to get past this... GM, Chrysler, and Ford...

Gold is on the rise again... As it's stay below $900 didn't last long!

Currencies today 2/4/09: A$ .64, kiwi .5055, C$ .8075, euro 1.2865, sterling 1.4380, Swiss .8625, rand 10.10, krone 6.9770, SEK 8.3245, forint 234.45, zloty 3.3620, koruna 22.20, yen 89, sing 1.5090, HKD 7.7540, INR 48.82, China 6.8340, pesos 14.57, BRL 2.3150, dollar index 85.73, Oil $41.44, Silver $12.37, and Gold... $900

That's it for today... This sure takes much longer to get done on the road than it does back home in the saddle! The trip down here was uneventful, and much better than last year, when I had that guy drop his luggage on my head, and then find out we didn't have Hotel reservations! Everything went smoothly... Chris and I played Gin on the plane, like we always do. They are marathon games that usually go back and forth, but yesterday, the cards were flowing my way! My little buddy, Alex, heads back to school today. Let's hope no one takes a swipe at his nose! I have my first talk this morning... I haven't seen the Big Boss, Frank Trotter, yet, and we have to get together before that talk... So, I guess I had better get this sent, and go looking for him! I hope you have a Wonderful Wednesday!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

The Italian Job...

Chuck Butler — Tue, 06 Jan 2009 15:01:01 GMT

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In This Issue..

* The dollar continues to rally...
* Obama bounce picks up steam...
* ECB and BOE meet this week...
* Brazilian reals on a roll!

And Now... Today's Pfennig!

The Italian Job...

Good day... And a Terrific Tuesday to you! A very icy Tuesday here in St. Louis... When I left home this morning (I live Southwest of the office) there was nothing on the ground, but as I got closer to the office, I could see the ground was wet. Arriving in the parking lot, I found the wet to be nothing but ice! You should have seen me attempting to walk from my car to the front door! Shuffling my feet very slowly was more like it, but can you blame me? That's all I need is to take a nasty fall on ice when I'm already walking with a cane! Oh well, I'm here, and safe...

Well, front and center this morning, the dollar has gained a huge chunk of ground back from the euro and Swiss franc that it had lost last month. The euro has seen the underside of 1.34 in almost a month, but that's where it sits this morning. And the Swiss franc has taken a tumble too... So, what's the reason behind this move? Ahhh grasshopper, sit, and listen, there's a story to this that you'll want to hear!

You see, there's a bond scandal that was uncovered in Italy, with Italy losing large sums of money, and some major banks like Deutsche Bank and UBS are right smack dab in the middle of the investigations. With Deutsche Bank in Euroland, and UBS in Switzerland, there you have the story behind those two currencies taking a beating from the dollar the past two days. There are other banks like JP Morgan Chase reportedly involved, but the majority of the problems resides in Europe... Let me try to explain the problem, as I know it to be from reading the story in the U.K. Telegraph last night.

Investment bankers, many based in London, spotted a major opportunity in the 1990s. Italian cities and regions wanted to borrow money. In order to avoid ballooning debt, the central government required local authorities to put away a percentage of the loan every year in a "sinking fund" so that when it was time to repay the full sum, they would be able to do so.

Investment banks offered to manage the sinking funds. While the funds initially had to be invested in Italian government bonds, the criteria were widened to include other government debt within the European Union. This could include debt from countries seen as more likely to default, such as Greece, as long as it was triple-A rated.

The banks took a fee to manage the sinking funds. They argued to the Italian authorities that as well as saving the money to repay their initial loan, they might also make some money from the investments. Many did when the global economy was booming.

All of the contracts were different. But critics have said some contained a "sting" which was not properly understood by some of the Italian authorities. While the local authorities only earned a return on the money they put aside, the value of their total loan was at risk. The banks could invest all of the money the authority had borrowed through bonds. If everything went well, the bank would pay a return based on the incremental amounts the local authority was putting into the sinking fund, and keep the rest as profit.

If things went badly, it was the local authority which would have to pay for the loss - and then also have to pay off the bond when it became due.

And THAT my friends is the big bugaboo right now... Things have not gone well, and the local Italian authorities (like cities) are left holding the bag, and they have no way of paying this debt! It's a remake of: The Italian Job!

OK... That was a long explanation, but one that was needed, I believe, to explain this mess... One thing that I did notice in the story is that a Japanese Bank (Nomura) was involved, and this is the first instance of any involvement of a Japanese Bank in any of the mortgage bond meltdown and now this. Could be why the Japanese yen has seen a removal from terra firma the past couple of days.

There's also the euphoria going on from the Obama Bounce... I've explained this a couple of times now in the first few days of 2009, so I won't go there again, but when the President-elect goes on TV to discuss is "stimulus plan" the "bounce" gets magnified. There's a lot of euphoria being built up for this plan. My problem is the size that it will end up being once the lawmakers get their hands on it, and begin hanging other spending bills on the plan. That just adds to our National Debt, folks... And that, in a nutshell, is a BIG Problem for me...

The euphoria is spilling over to the risk takers, as I explained yesterday. The Big Winner yesterday was the Brazilian real, which last week had a full 6 figure move higher, followed that yesterday with a full 8 figure move higher! WOW! OK... Before we get too excited about reals, let me point out that this huge rally in the past week, has left reals about at November's levels. It's still got a long way to go, to get back to last summer's levels... But, Shoot Rudy! Why throw cold water on this move? 14 figures higher is better than 14 figures lower!

OK... Have you been following this Madoff stuff? So... I hear that the lawmakers are going to grill the SEC... As if! As if the lawmakers, save for Ron Paul, could have figured out what Madoff was up to if they were the SEC! But, it's interesting anyway... The thing that ticks me off about the Madoff meltdown is that his people pulled the wool over the SEC's eyes, even though there had been 8 probes by the SEC in the past 16 years...

Other lawmakers expressed concern about the make up of the SEC and even whether it should exist. Rep. Ron Paul, R-Texas, said he believes Congress should eliminate the agency, which he argued gave investors a false sense of security about Madoff and other problematic investment vehicles. "Investors should be self-reliant," Paul said.

Did you see the collapse of Auto Sales yesterday? YIKES! Where have all the car sales gone? Long time passing... Shoot Rudy, even Toyota has announced that they will shut down their plants for 11 days in Feb and March... Now, that's should tell us something... Here's what the Wall Street Journal printed... "GM posted a 31% drop in U.S. light-vehicle sales for December, while Ford reported a 32% fall. Toyota saw a 37% decline, and Honda saw sales drop 35%, closing out the auto industry's worst year in more than 15 years."

Of course one might think that there would be some "real" sales for autos, eh? And not that cheesy "you get what we pay" promotion... I mean something with some real meat to it! Better to sell than to see it rot on a sales lot!

Well... The European Central Bank (ECB) and the Bank of England (BOE) both meet this week to discuss interest rates. There's some speculation out there that the ECB will cut rates, especially after it was announced this morning that inflation for the Eurozone has fallen to lowest level in 2 years... Of course oil prices are behind that fall in inflation, but still... The ECB has done a marvelous job of providing price stability, even when Oil prices were shooting for the moon... Of course, I'm of the opinion that we'll see Oil prices shooting higher again, and this is all great right now, but it won't last.

Inflation for the Eurozone hit 1.6% in December, down from 2.1% the previous month... Now that inflation is back under the ECB's 2% ceiling target for inflation, we could very well see them cut rates this week... But, I'm going to go out on a limb and say they will be prudent and wait... But then, I don't know about any smokey back room deals between the Fed and ECB...

The BOE will also meet, and I DO expect them to cut rates this week... The BOE is cut from the same cloth as the Fed, and believes that lower interest rates are the way to a Lender's heart... I would argue that the way to a lender's heart is through their stomach... They need to be fed tons and tons of cash, which is another arrow in the Fed's quiver that they are using... But not the BOE at this time...

Today, in the U.S.... We'll see Factory Orders for November (pretty long lag, I agree!) which I believe will follow up the previous month's rotten print of -5.1% with another negative print of -2.3%. We'll also see Pending Home Sales for Nov. , and later today, we'll see the color of the last Fed meeting minutes, when they cut rates to .25%... These ought to be good!

The ISM (non-manufacturing) Index, which covers the Servicing Industry, will print too... And I don't normally give two hoots about the Index, except for the employment component of the report, which is normally where I get my thoughts about where the total Jobs Jamboree will print. There, I just gave away one of my secrets! And you didn't have to pay a penny for it either! WOW! What a guy! OK, stop it Chuck! Seriously though, I do use the employment component of this report to give me a clue about where the National jobs will print... So, here's a key to look for!

Currencies today 1/6/09: A$ .7115, kiwi .5870, C$ .8405, euro 1.3350, sterling 1.46, Swiss .89, rand 9.31, krone 7.0420, SEK 7.94, forint 200, zloty 3.04, koruna 19.79, yen 94.10, sing 1.4790, HKD 7.7535, INR 48.69, China 6.8363, pesos 13.35, BRL 2.1820, dollar index 83.81, Oil $49.66, Silver $10.87, and Gold... $841.55

That's it for today... I have been remiss in not taking a moment to thank everyone that sent along Christmas and New Year's wishes to me. They were all truly appreciated! I just heard on the radio that there are auto accidents all over because of the ice on the roads. Usually I begin to get phone calls from co-workers this time in the morning, knowing that I am here, and asking me "how are the roads?" We had a "full desk" yesterday for the first time in a long time, with Jen and Ty returning from vacation. Half the desk is sporting a cold, which means the other half will be sporting it next week! Me? So far so good, I keep feeling like one is coming but, with all the immune system boosters I take, it turns out to be nothing... I guess they work! My little buddy, Alex, was funny last night, as he was convinced there would be a "blizzard" this morning, school would be cancelled and he would be sledding all day... He's getting up about now, I can only imagine his disappointment... He really was convinced! OK... I could be the only here today... Now wouldn't that be funny! So, I had better get to work... I hope your Tuesday is Terrific, and not icy!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Another HUGE Currency Rally!

Chuck Butler — Mon, 29 Dec 2008 23:43:17 GMT

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In This Issue..

* Gaza bombing has dollar on the run...
* More proof we're turning Japanese...
* Adding to the debt burden...
* What will deflation do for the dollar?

And Now... Today's Pfennig!

A HUGE Currency Rally!

Good day... And a Marvelous Monday to you! Well... It's been a long time, now I'm coming back home! Actually, I've been home all of my winter vacation, but I'm referring to the trading desk and EverBank's office. I had a vacation that had a split personality, as I was sick for the first part of it, then went to the eye doctor to get another shot / injection in my eye. So much for the first part! The second part went quite well, with lots of rest and time spent with family. Are there two better ways to spend your time? Not in my book!

So... The currencies had a split personality while I was gone too... At first, they rallied like there was no tomorrow, but then sold off, and then range traded. So, we'll finish the year on a down note for most of the currencies, but knowing all too well that the markets are beginning to realize that the debts the U.S. is chalking up are not going to go away, and in fact they're just going to get worse, and that spells bad times for the dollar... Eventually...

I did a lot of reading on my vacation, and the book I read the most was one by Christopher Wood, titled: The Bubble Economy... Now, on first take you would think that he was talking about the U.S.... But that would be wrong... This is an old book, and was written about Japan's economy in the 90's... I've spent a ton of time talking about the similarities between Japan then, and the U.S. now. And this book, just brings those thoughts even closer! For instance... In the book he quote the Levy Institute circa 1991... "monetary policy would not, on its own, be able to restart a depressed economy suffering from asset deflation and widespread financial crisis, for lower interest rates cannot motivate fixed investment when the market is glutted with existing assets worth much less than it costs to replace them."

Oh my! We're turning Japanese, I really think so!

So... Then this weekend, a Pfennig reader sent me a link to a story on Bloomberg regarding the Japanese... Here's a snippet... "Japan should write-off its holdings of Treasuries because the U.S. government will struggle to finance increasing debt levels needed to dig the economy out of recession, said Akio Mikuni, president of credit ratings agency Mikuni & Co.

The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes "drastic measures" to help bail out the U.S. economy, Mikuni said. Treasury yields, which are near record lows, may fall further without debt relief, making it difficult for the U.S. to borrow elsewhere, Mikuni said."

Well...the "rest of the story" can be read by clicking here: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aFgHlh.Dn4Lc

As I write, the euro is back on the attack VS the dollar, with it trading above 1.43 once again. There has been a 2 figure move up in the euro from just last night, as it appears that the markets are running from the dollar with the Israeli / Gaza thing going on. The Swiss franc is back above 95-cents, and so on... I also noticed, while on vacation, that the Aussie dollar bounced nicely off its 65-cent level. And Commodities staged a nice rally / comeback while I was gone. Gold is trading around $880 again...

When I left, I had told you about a Santa Rally for the euro, and it did just that, even with the profit taking after reaching 1.45, it's still much higher than it was when I said that we should look for a Santa Rally. I also was hinting that the Trading Theme that we've seen in place since July, was beginning to show chinks in the armor. Those chinks are becoming major exposed areas, as the markets are returning to focus on the fundamentals the hang over the U.S economy and dollar like the Sword of Damocles.

So... I see that the Fed has opened the door to grease the tracks to make GMAC a "bank-holding company" Why? Ahhh grasshopper... If GMAC is a bank holding company, they would be eligible for TARP funds, which would put them on the fast tracks to obtaining taxpayer bailout funding.

The thing I see happening now is that "everyone and their brother" is going to line up for taxpayer bailout funding... We've already set the stages for car loans, and student loans, and next we'll get real estate guys and who knows what else! Everyone is lining up at the Government bailout trough...

So, thanks guys... Thanks for running up the taxpayer costs... Thanks for making it possible that my grandchildren will be burdened with these unbelievable financing costs of all this debt we're building... Thanks... But no thanks!

It's all sort of like Humpty Dumpty isn't it? You know, all the king's men and all the king's horses couldn't put Humpty Dumpty back together again. All the Big Ben Bernankes and Henry Paulsons are trying to put the economy back together again, but it "ain't happenin"! Just shows to go you that they should have left it all alone... Let it fail... Then pick up the pieces and begin again... I've had a few people along the way that tell me that I don't offer solutions all I do is pick at the wounds... But they just don't read into what I'm typing each morning... I've said all along that we would end up in a debt ridden society if we didn't stop spending... So, there's one solution... STOP SPENDING! And then I warned that these bailouts that began last spring with the $150 Billion in checks to consumers, was going to put us on the road to turning Japanese, and we should have let things go their normal business course... There was another solution!

Now, that we're here in this quagmire of debt and there's more coming folks... I recall telling Chris while I was gone that there are rumors that the next bailout amount could reach $1 Trillion! But now that we're here, what's a poor boy to do? Well... For me, it's called savings... And when things look really bad, and prices have fallen to the core, then I'll put those savings to work, and if everyone does the same, the economy will grow once again, but from a lower base, which is a good thing. Of course, should everyone begin to spend their savings at once, this will bring about inflation that comes out our ears, but let's worry about that then, eh? Besides, like no one really thinks that with interest rates near zero, and all this money going into the system, that eventually we won't have an inflation problem do they?

OK... Now, that was a lot to get off my chest on my first day back, eh?

We didn't see any economic data on Friday after Christmas, so one would think that there's some catching up to do this week to end the year. But the data cupboard is empty today too! And it looks like those that are responsible for restocking the data cupboard, have taken this week off too... One piece of data we will get is the ISM (manufacturing) Index for this month... And remember when this index was hovering around the contraction/ expansion level of 50 and I kept saying that it was going to go below it and fall? Well, the index number in Nov. stood at 36.2, that's a long way from 50, eh? And the "experts" have forecast another fall to levels not seen since 1980! UGH! Now... Early last fall I fretted about the reversal in the weak dollar and its affect on manufacturing... Exports had just posted a strong performance in the 2nd QTR, boosting GDP, because the dollar was so darn weak! Well, I said then, that those wishing for a stronger dollar had better be careful for what they wish for...

So, with the trading desks still undermanned the volumes will be thin for the most part, unless... We see a ton of "book squaring" today, to settle before the end of the year... Either way, we need to be aware of the fact that thin volumes can cause wild swings in the currencies... Take last night's action for instance. When I went to bed the euro was trading 1.4130, and that looked pretty darn good to me... But when I turned on the screens, here in the office, this morning, what did my wondering eyes did appear, but the euro trading at 1.4350!

This rally means the euro is only down 2.5% from a year ago, which is far better than it was showing a month ago! And the best performer of 2008? Like you didn't know! It was Japanese yen, up 24.7% since last year! WOW! Of course there are some real "problem children" in the currency performance roster... Aussie, kiwi, pound sterling, loonies, and krone are all showing pitiful performances for 2008... But, if the recent price action is any indication of what could happen in 2009, if we return to the fundamentals, then these pitiful performances might get put in the rear view mirror...

U.S. Treasury Sec. Henry Paulson is just about at the end of his "tour of duty", and you've got to think that he can't wait for the new administration to take over! I don't doubt for a minute that the new Treasury Sec. will pull back on the bailouts... But what I do question, with Paulson leaving, is what happens with China? Paulson didn't make the progress with China that he set out to make, but what he did do is keep the knuckleheads in D.C. from slapping trade tariffs on China... I have to wonder if that will be the direction of the new Secretary... If it is, then that won't be good for the dollar, as protectionism is never viewed as a positive for a currency. So, those questions and more are on the docket for 2009...

I received quite a few emails from readers while on vacation with a question about something that another newsletter writer wrote about the euro / dollar... The writer believed that deflation was going to be a big problem for the U.S. next year, and that would be a good thing for the dollar, thus pushing the euro to parity. Hmmm... Well, that may be true, for I don't know what's going to REALLY HAPPEN! But! I would just have to say that since we're mirroring Japan so much, let's go back and look at what deflation did for the yen in the late 90's when deflation was so prevalent... Oh, it doesn't look like deflation did yen any favors then... And I doubt it will do the dollar any favors this time around... So, there's my answer to that call by someone else... To me, though, this is all good, as it still means that there is a two-way trade, and that not everyone is on the same side of the ship!

So... Before I head to the Big Finish, let me re-cap today's action so far... The dollar has been hammered overnight on fears that the Israeli attacks on Hamas in the Gaza Strip will disrupt oil supplies to the U.S. This has driven the price of oil higher to $40.40, and has caused a traders to unload dollars... The data cupboard is empty today, and trading desks are undermanned, which could cause wild swings in the currencies this week.

Currencies today 12/29/08: A$ .6965, kiwi .5850, C$ .8210, euro 1.4355, sterling 1.4670, Swiss .9585, ISK 143.20, rand 9.55, krone 6.95, SEK 7.67, forint 186.10, zloty 2.9050, koruna 18.54, yen 90, baht 35, sing 1.4370, HKD 7.6710, INR 48.42, China 6.8525, pesos 13.46, BRL 2.3450, dollar index 79.70, Oil $40.40, Silver $11, and Gold $885.80

Oh, and thanks for all the kind words about our Christmas card / photo we sent out! Chris had a little error on his listing of the names on the photo... He said "right to left", but it really was left to right... Now, we've really got you confused, eh? HA!

That's it for today... Well, did you have a great Christmas / Holiday? I sure hope so! Do you have Big Plans for New Year's Eve? If you do, please be careful! I will get together with close friends for dinner, and return home! Thanks to Chris for another great job Pfilling in on the Pfennig! Chris sure had some very kind words about my beautiful bride last Friday. I thought he had ticked her off some way! HAHAHAHAHA! Wait till he sees my travel plans for March! I guess most people will be back today, except for Jen, who will be out this week. She needed it after me being gone two weeks! My beloved Missouri Tigers play in the Alamo Bowl tonight (a far cry from where they thought they might play this year!), against Northwestern. Should be a good game. Go Tigers! The bitter cold we had here has been replaced by normal temperatures, still chilly / cold, but not bitter cold like they were. So, that's all good... I guess it's not too early to talk about the Orlando Money Show, which will be Feb 4-7... I'll be there, God willing, along with others... I wonder where the currencies will be then? This is always the biggest show, best attended, and a welcome relief from the cold weather here in St. Louis! OK... That's all I've got for today... Let's make it a Marvelous Monday, eh?

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Holiday pause...

Chuck Butler — Tue, 23 Dec 2008 14:58:33 GMT

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In This Issue..

* US data may wake up the markets...

* Toyota reports a loss...

* NZD falls, AUD gains...

* Will the Rupee shine in 2009?...

And Now... Today's Pfennig!

Holiday pause...

Good day... The currency markets remained in a tight range through the day yesterday with no movement from the majors currencies vs. the US$. Japan has a public holiday today, so trading this afternoon will be very quiet. Jennifer, who is doing all of our currency trading while Chuck is out, let me know that the trading desks were extremely quiet yesterday afternoon. But the markets may wake up a bit this morning, as we wait for data on 3rd quarter growth in the US.

GDP is expected to have fallen .5% in the 3rd quarter, and Personal Consumption is also predicted to have dropped last quarter. Later in the morning we will get reports on the sagging housing market. New home sales and existing home sales are both expected to have dropped slightly during the month of November. And with sales dropping, prices of both existing homes and new homes are also expected to have dropped. Finally, this afternoon we will get the ABC Consumer Confidence number which will likely show another drop in consumer sentiment.

I went over to a shopping center last night while I waited for my son's hockey practice to end. I was surprised at the number of shoppers in the Electronics store, but after speaking with a sales person, he told me the traffic has been down, with many shoppers waiting for items to go on sale after the holiday. Most retailers make their year during these last two weeks of December, and it will be interesting to see just how many sales we will see post Christmas.

The Japanese yen has been in the news again, as Toyota Motor Corp. forecast its first operating loss in 71 years yesterday. The worlds second largest automaker said the sagging global economy and a rising yen were to blame. Japanese officials have not yet decided to intervene, but a quick move below 90 by the yen could trigger action by the central bank. Bank of Japan Governor Masaaki Shirakawa was trying to jawbone the yen yesterday as he spoke about the negative effect the strong yen has on the economy. The thin holiday markets give officials a perfect opportunity to drive the yen back down.

New Zealand's dollar fell for another day as a report showed their economy shrank. New Zealand's gross domestic product declined .4% in the three months ended Sept. 30 from the 2nd quarter. A further move down in NZD interest rates will likely combine with the slower economic growth to put further selling pressure on the kiwi. New Zealand central bank Governor Alan Bollard has been aggressively cutting rates to try and avoid the deepening recession. He has cut 3.25% since July, and has indicated that there is still room left to cut further.

In a split with their kissin cousin across the Tasman, Australia's currency advanced against the US$. The Aussie dollar rallied as some of the base commodity prices rallied. Copper rose yesterday in New York trading as traders predicted the drop in Chinese interest rates will keep the largest Asian market growing. Gold futures also rose overnight, helping to support the Australian dollar. Raw material exports make up 60% of Australians economy, and China is their biggest trading partner. I believe the Chinese government will be successful in keeping economic growth right around their target of 8%, and this growth will support the Australian dollar.

The Indian rupee fell further against the US$ yesterday, and will likely end up the year as the worst performing Asian currency. But Moody's Economy.com is predicting the currency will be the region's biggest gainer during 2009. "India's rupee is one of my top picks as the country has a strong domestic market with very strong growth potential," Moody's Sherman Chan said in an interview yesterday. "It is one of the most attractive destinations for foreign direct investments with its large domestic market and a very well educated workforce." He expects the currency to rise 7.7 percent against the dollar next year. But much of this rise will occur during the last half of the year, and Chan said the rupee could get weaker before starting its move up.

Moody's Chan also said he thinks the Chinese Renminbi will be 'largely stable' as authorities seek to protect exporters while avoiding upsetting trade partners. I agree with his assessment, and believe the Chinese Renminbi will continue its long slow appreciation through 2009.

As I wrap this up, I want to remind everyone to take advantage of this pause in market volatility to take a look at your portfolios. It is a perfect time to reallocate your positions to align them with your investment goals. The big moves in the markets have probably caused most portfolios to become over allocated in some currencies such as the Renminbi and Yen, and under allocated in commodity currencies of Australia or Norway. You can contact the trade desk and have one of our specialists review your holdings. While we can't manage accounts, they will be more than happy to share their opinions with you.

Currencies today 12/23/08: A$ .6840, kiwi .5723, C$ .8219, euro 1.4007, sterling 1.4832, Swiss .9223, ISK 145, rand 9.7375, krone 6.9865, SEK 7.8310, forint 189.08, zloty 2.9429, koruna 18.8077, yen 90.06, baht 34.60, sing 1.443, HKD 7.75, INR 48.7625, China 6.8488, pesos 13.18, BRL 2.3755, dollar index 80.966, Oil $40.16, Silver $10.76, and Gold... $845.25

That's it for today...Sorry for the shortened Pfennig today, but as I said above, the markets have been very quiet lately. The temperatures warmed up out of the single digits today, but another round of winter snow/ice is supposed to come through St. Louis today. I'll be heading to the annual Mizzou/Illini game with my wife this evening. I hope to catch up with Chuck who will be at the braggin rights game with a few of his friends. Hope everyone has a Terrific Tuesday!! GO MIZZOU!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Currency markets stabilize...

Chuck Butler — Mon, 22 Dec 2008 15:40:00 GMT

.........But First, A Word From Our Sponsor..........

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In This Issue..

* Currency markets stabilize (for now)...

* Data packed holiday shortened week...

* China cuts rates...

* Indian rupee falls...

And Now... Today's Pfennig!

Currency markets stabilize...

Good day...The dollar settled in at the slightly higher levels it reached Friday morning and is trading in a narrow range heading into a holiday shortened week. Trade desks across the globe will be mostly staffed by the backups as the big bosses take Christmas week off. Volume will likely be lighter, which can sometimes lead to an increase in volatility.

The data calendar is empty today, but chock full tomorrow and Christmas eve. Markets will be closed on Christmas day, and most will be closed again on the day following Christmas (known as boxing day). GDP, Personal Consumption, U of Michigan consume confidence, New Home Sales, Existing Home sales, House price index, Richmond Fed Man. Index, and ABC Consumer confidence numbers will all be released tomorrow. On Christmas eve the US will release MBA Mortgage applications, Personal Income, Personal Spending, PCE deflator, Durable Goods orders, and the weekly jobs numbers will all be released. I told you we will be packing in a weeks worth of data in the next two days!!

So what will all of this data mean to a thin currency market? I expect all of this data will show a US economy which is continuing to weaken. 3rd quarter GDP is expected to show a drop of .5%, and Personal Consumption is expected to have dropped 3.7% during last quarter. The housing industry continues to weaken, which will be reflected in this week's data. Personal Income is expected to be flat, with spending in the US to show a slight decrease. Durable goods orders will probably show a drop of 3%, and the weekly jobs data will end the data packed two days showing further weakness in the US labor market. The bias for the US$ will continue to be negative, as the next two days of economic data will confirm just how bad the state of the US economy is.

As I mentioned earlier, the currency markets have been trading in a tight range with the Commodity currencies of the Canadian dollar, South African Rand, and the Australian dollar leading the pack. The Japanese yen weakened slightly, trading back above 90 yen per dollar. The yen weakness came as investors slowly moved back into risk trades as a US bailout of GM and Chrysler moved closer to reality. The yen stayed lower vs. the US$ as China announced an interest rate cut in order to try and support its economy.

The dollar weakened a bit vs. the Euro which held just above 1.40 during early European trading. According to a story on Bloomberg by Stanley White, the Euro will likely rise to $1.50 in the next two weeks. The relative strength index for the Euro moved above 50 which illustrates the Euro is gaining momentum. The Fibonacci series of numbers says we are in a bullish trend, with resistance at $1.50 near a 150 percent projection of the euro's rise from its Dec. 4 low of $1.225 to its Dec. 16 high of $1.4147. White goes on to report the 14 day relative strength index shows the euro will start heading higher after a short correction.

The Australian and New Zealand dollars rose as the Feds bailout moved investors back toward higher risk trades. These currencies have been two of the biggest recipients of 'carry trade' flows, and the expected rescue of US automakers gave currency investors confidence to move back into these higher yielding currencies. Even after aggressive rate cuts in both South Sea nations, benchmark rates are still over 400 basis points better than in the US. If commodity prices can start to rebound, the combination would be very good for both the AUD$ and NZD$. I still favor the Australian currency vs. the kiwi, as New Zealand has a much larger current account deficit, which will need to be funded with foreign capital flows.

China's central bank cut interest rates for the fifth time in three months to try and support growth. Chinese leaders have stated they want to keep growth in the world's fourth biggest economy from dropping below 8%. The IMF predicts they will be unsuccessful, as a recent report released estimates 2009 Chinese growth at 5% to 6%. But the People's Bank of China is going to continue to try and meet their goal, using a combination of economic stimulus spending, lower deposit requirements, and easier credit. Mike Meyer tells me we have been fielding a number of callers selling their Renminbi deposits after Dr. Steve Sjuggerud suggested investors exit their positions. While I don't disagree that there are probably many currencies which will outperform the Renminbi, I do think the Renminbi will continue its slow ascent vs. the US$.

The Indian rupee fell sharply after its recent move to a 2 1/2 month high vs. the US$. The selling was probably due to importers taking advantage of the rupee's strength to lock in rates. The rupee touched 46.86 in trading on Friday, the highest since October 3, rebounding more than 8 percent from a record low of 50.615 on Dec. 2. Trading in the forward markets indicate the rupee will recover slightly from where it is trading now.

Currencies today 12/22/08: A$ .6861, kiwi .5755, C$ .8299, euro 1.3976, sterling 1.4807, Swiss .9096, ISK 176.5, rand 9.6712, krone 7.0286, SEK 7.7487, forint 189.52, zloty 2.9259, koruna 18.784, yen 89.96, baht 34.55, sing 1.449, HKD 7.75, INR 46.02, China 6.8512, pesos 13.12, BRL 2.3644, dollar index 80.88, Oil $42.95, Silver $10.965, and Gold... $842.52

That's it for today...Had a great weekend, as a couple of work crews worked long days so that I will be able to make my wife's Christmas eve deadline. I guess the injury to my hand had a silver lining, as these guys really knew what they were doing and probably did a better job than I would have been able to. I caught up with some Pfennig readers and old friends at a big formal ball on Saturday night and got to go watch the Blues vs. Boston yesterday. The new puppy is adorable, but is just like having another child, as he got us up a few times during the night. With temperatures hovering in the single digits, taking the puppy out to do his business is not an enjoyable experience!! Got to get to work, hope everyone has a Marvelous Monday!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Waiting on the FOMC meeting...

Chuck Butler — Mon, 15 Dec 2008 15:11:05 GMT

.........But First, A Word From Our Sponsor..........

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In This Issue..

* FOMC to cut further...

* Bernanke turns his back on inflation...

* Kiwi and Australia rally...

* Gold continues to shine...

And Now... Today's Pfennig!

Waiting on the FOMC meeting...

Good day...and welcome to another week, hopefully the currency markets can continue their assault on the dollar which began a few weeks ago. The dollar index peaked back on November 21, and with the exception of a few days around the beginning of December, the greenback has consistently fallen vs. most of the major currencies. Friday was no exception, and the dollar continued to give back gains over the weekend with the Euro climbing back over $1.35 for the first time in two months.

This morning the markets are focusing on the Fed's Open Market Committee meeting and rate announcement which will come tomorrow. It is widely expected that Bernanke and his compatriots will push US interest rates close to just 0.5%, the lowest on records dating back to July 1954. From everything I've read over the weekend, this 50 basis point cut is pretty much a done deal, and currency traders are actually more interested in what the Fed's statement will say about 'alternative easing measures'. The rate announcement will come tomorrow at around 2:15 pm EST after a two day meeting. The FOMC meeting had originally been scheduled for just one day, but was extended so policy makers could study options for unusual steps to spur the economy. I guess they finally figured out that they are running out of room with the interest rate cuts!

The Feds newest weapon against the falling economy is 'quantitative easing', which the Bank of Japan used in the 1990's. This non-traditional method of easing centers around pumping money back into the financial markets as quickly as possible. The Fed has already started down this path by allowing its balance sheet to more than double in size after pumping over $1 trillion into financial markets. The markets are now expecting the Fed to announce it will start purchasing private sector mortgages to drive down home loan costs. By purchasing these bonds, the Fed would narrow the spread between their yields and yields on US Treasuries, and theoretically allowing banks to offer home loans at lower rates.

But the Fed has already pumped trillions into the banks in an effort to get them to start lending, so I'm not sure having the Fed narrow mortgage spreads will get these same banks to open up their lending windows. And even if the banks lower mortgage rates, they won't be lowering credit standards. Unemployment continues to rocket upward as more and more firms lay off workers. Do you think these banks are going to be willing to refinance someone who has just lost their job?

And what will be the long term impact of all of this 'quantitative easing'? The Fed is mashing on the money supply accelerator, totally ignoring the inflationary results which all of this will bring down the road. Ben Bernanke is smart enough to know the risks of the path he is speeding down, but right now he is choosing to ignore the consequences in an attempt to keep the economy from falling off the abyss. Some at the Fed believe they will be able to pull all of this added liquidity back out of the markets as soon as the economy starts to recover. But this is a very difficult thing to do, as the Fed would have to start pulling liquidity and increasing rates just as the economy is starting to turn. I think it is pretty obvious the 'experts' have a tough time calling the turning points, as it took them almost a year to call the recession!! And the consequence of missing the timing on pulling the liquidity back out of the market is much more drastic than mistiming the entry into the recession. Hyperinflation is waiting on the other side of this short term deflationary pause, and the Fed is currently looking the other way.

This weekend, President Bush announced that he is thinking about spending some of the TARP money which was set aside to stabilize the financial system to bail out the auto industry. This announcement caused a further sell off of the dollar as it is quickly losing its status as a safe-haven currency. Chuck was busy this weekend, but still found time to send me his thoughts:

"Well... We went to cut down our tree today, then watched Alex's basketball team get smoked! Put the tree up in a spiffy, with one of the greatest inventions of man kind, the swivel stand... And now I'm off to tell you what I've read about this weekend...

First though... A quote from Ronald Reagan... "The most terrifying words in the English language are: I'm from the government and I'm here to help"

OK, with that in mind, I wanted to discuss the bailout for the automakers, GM and Chrysler.

First of all, I know it will be tough for the autoworkers should they be laid off, especially at this time of the year. But, the problem here is the fact that the automakers have run their respective companies very badly, and now they expect the taxpayer to bail them out.

It was reported on Friday that the Gov't is "looking into" using TARP money for the automakers bailout since the Senate voted "no" to the $14 Billion plan.

First of all... Congress said nothing about helping carmakers, or any other non-financial business, in October when it authorized the $700 billion Troubled Asset Relief Program, or TARP. But yet, it is being discussed as the "funding source of funds"...

That fund was never designed to rescue manufacturing companies with long-term operational issues. It was designed to shore up confidence in the banking system in order to thaw the world's credit markets.

Our own David Nicklaus of the St. Louis Post Dispatch has this to say, which makes a whole lot of sense to me! "The Detroit Three have been losing market share for decades, and their bloated cost structure makes it difficult for them to turn a profit even in good times. They have too much debt, too many models, too many dealers and, sad to say, too many workers.

Congress seemed to view an auto bailout as a jobs program, and TARP is nothing of the sort. In fact, the Treasury has invested in Bank of America, which is eliminating 35,000 jobs, and Citigroup, which is slashing 52,000.

The Treasury program, as it's been used so far, at least lacks one of the worst features of the failed auto bill. Nothing in the TARP legislation allows the government to name a car czar."

Yes, a Car Czar... Those Czars worked out well for the Russians, eh?

But the thing that really gets my blood boiling folks, is the fact that if bailout had gone through with the Car Czar, it would have been one more nail in the free markets / business coffin, just another opportunity for those that want to run the country toward the socialist side of the ledger..."

That is one of the things I love about Chuck, you don't ever have to wonder where he stands on something!

As I started to say before I went off on my FOMC tangent, the dollar continued to give back ground vs. just about all of the major currencies over the weekend. The Euro was up over 1.2% vs. the dollar, and broke through the $1.35 handle. The only two currencies which sold off over the weekend were the South African rand and Brazilian real, which were down just slightly. In addition to the FOMC meeting and announcement, we will get the TIC flows, Empire manufacturing number, Industrial Production, and Capacity Utilization numbers today. Tomorrow will bring the CPI numbers along with housing starts, building permits, and ABC Consumer confidence. Wednesday will be a light data day with just the Current Account Balance reported, and Thursday will close out the data with the weekly jobs numbers along with Leading indicators.

The Australian and New Zealand dollars rose on speculation the FOMC will be cutting US interest rates. These two currencies will benefit from their higher rates with the US cutting rates to near zero. The currency markets have started to move back toward trading on fundamentals over the past few weeks, and interest rate differentials are one fundamental which favors the NZD and AUD. If the Fed's statement makes it known that interest rates will remain low for a long time, the dollar would likely fall further vs. the Aussie dollar, as the RBA has signaled that it is close to the end of its rate cutting cycle. Benchmark rates are nearly 400 basis points higher in Australia and New Zealand when compared with the same rates here in the US.

In a break with the recent trading pattern, the Japanese yen rallied along with the New Zealand and Australian dollars. A former Deputy Governor of the BOJ said Japan is probably not going to lower rates further; "with the interest rate already so low, a further reduction would have only limited impact." The central bank's Tankan survey today showed confidence among large manufacturers fell the most in 34 years as a deepening global financial crisis crimped export demand, forcing companies to pare production and fire workers. The yen's recent surge to a 13 year high has compounded woes for manufacturers.

Gold continued to rise over the weekend, pushing back up to an eight week high in London. The dollar's fall has spurred investors to move back into gold as an alternative investment. News that President Bush was looking to tap the bank bailout fund to keep GM and Chrysler out of bankruptcy spurred further purchases of gold. With the tremendous growth in the US money supply, and the FOMC turning their back on inflation concerns, precious metals should continue to gain ground. Gold is traditionally one of the best hedges against rising inflation.

Currencies today 12/15/08: A$ .6635, kiwi .5523, C$ .8138, euro 1.3473, sterling 1.4969, Swiss .8534, ISK 218, rand 10.1985 krone 6.9051, SEK 7.9963, forint 197.97, zloty 2.9644, koruna 19.428, yen 90.79, baht 34.88, sing 1.4773, HKD 7.75, INR 48.0512, China 6.85, pesos 13.5138, BRL 2.387, dollar index 83.15, Oil $48.52, Silver $10.36, and Gold... $827.60

That's it for today... The roads were a bit icy this morning, as we got a small taste of the ice storm which hit the Eastern states so hard over the weekend. But my drive into work was fantastic, as the 6 mile stretch of interstate running from my home to the office was reopened over the weekend. Some of the schools are closed this morning, so we will be shorthanded on the desk. Better get to work, hope everyone has a Marvelous Monday!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Bailout failure accelerates dollars decline...

Chuck Butler — Fri, 12 Dec 2008 15:32:54 GMT

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....

In This Issue..

* Senate rejects auto bailout...

* ECB pushes back from the rate cut table...

* Goldman and Citigroup predict a dollar fall...

* China to continue to appreciate...

And Now... Today's Pfennig!

Bailout failure accelerates dollars decline...

Good day... Not sure when all of you will be receiving this today, as it took nearly over a half hour for my computer to boot up this morning. But its all good news for currency investors, so I'll get it written and out to you as quickly as I can. The dollar slowed its decent overnight, but continued to fall vs. most of the major currencies as the US Senate rejected the $14 billion bailout for the auto industry.

The big winner in the Senate rejection of the bailout plan was the Japanese yen, as Japanese car makers are predicted to grab an even bigger piece of the US auto market. The yen, which has been rallying due to global deleveraging and carry trade reversals, suddenly had another reason to rally. The yen rose to a 13 year high, trading below 90 yen per dollar, and some are now predicting a rise to 80. Finance Minister Shoichi Nakagawa boosted the yen further after telling reporters in Tokyo that Japan isn't considering intervening in the currency markets.

But even before the automakers got the bad news from the Senate, the dollar was falling faster than we've seen in the past few weeks. Chuck shouted out across the trade desk around noon yesterday that the dollar index, which tracks the greenback against the euro, yen, pound, Canadian dollar, Swedish krona, and Swiss franc, had fallen below the 55 day moving average. This is a major level for technical traders, and signaled the dollar could be headed for a further fall.

The data released yesterday showed initial jobless claims in the US surged to a 26 year high as the recession deepened. Claims increased to 573,000 last week, an increase of 58,000 from a revised 515,000 the previous week. The total number of workers staying on the benefit rolls jumped to just below 4.5 million, the most since November 1982.

While the markets had predicted another increase in the jobless claims, the trade deficit numbers were a big surprise. US exports slid to a seven month low causing the trade deficit to widen to $57.2 billion in October. No one I read was predicting a widening deficit. The worsening trade balance removes what has been the sole source of support for the economy during this recession.

A separate report issued by the Federal Reserve showed US household wealth fell by the most on record in the third quarter. Net worth for households and non-profit groups decreased by $2.81 trillion, the most since records began in 1952. So we have record unemployment, a widening trade deficit, and falling consumer net worth; not a good picture for the incoming President. But President Elect Obama has a plan, we can just spend our way out of this problem!! Chuck sent me the following comments yesterday afternoon:

"So... All this week I've talked about the President-elect's plan to spend more money since 1950 on infrastructure, which is fine in good times, but these are faaaaaaaaarrrrrrrr from "good times" for the economy... Well... Yesterday the P/E said this, "We understand that we've got to provide a blood infusion to the patient right now to make sure that the patient is stabilized. And that means that we can't worry about the deficit."

Can't worry about the deficit? Did I hear that correctly? Geez Louise, here we go again, sliding down the same old slippery slope of "deficits don't matter"! Aye, yi, yi! What is everyone smoking? I've said this before many times at presentations, and here in the Pfennig, but I can't pass this up... These people, who should know better, that claim that deficits don't matter, remind me of the guy standing on top of the Empire State Building, and decides to jump off... As he passes the 56th floor he says... "So far... So good!"

Well, that's right, so far he hasn't hit the ground! And... So far deficits have only bruised us, but they haven't hit the ground yet either! A quick look at my fave book on deficits, I.O.U.S.A. tells me that we've passed the $10 Trillion mark for Federal Debt... "today's deficits reduce national savings, which dramatically decreases productive investment and wealth-creating activities. Increased indebtedness to foreign lenders puts future financial decisions in the hands of people who may or may not have our interests in mind when they make them. Further, interest payments that have historically stayed home now provide more and more income to investors abroad."

"At the current rate, with existing laws, by 2040 the federal government will be spending twice as much as it takes in from taxes. Our children and grandchildren already face a more competitive, challenging, and uncertain world than most Americans have grown accustomed to."

Failure to recognize this by our leaders is the biggest mistake we can make... And comments like the one above from the new PE lead me to believe we'll have more of the same old "deficits don't matter" and that, my friends will eventually weigh heavily on the dollar...

Sorry to be so gloom and doom on a Friday... But that comment by the new PE just sent me reeling! Now, back to Chris..."

I've known Chuck for nearly 20 years now, and nothing gets his blood boiling as quick as the saying 'deficts don't matter'! The leaders of Europe sure think they matter, as the EU decided to trim down a proposed stimulus package, as Germany warded off calls by France and Britain for deficit-boosting programs. This announcement, combined with a statement by ECB council member and Bundesbank head Axel Weber caused the Euro to jump vs. the US$. ECB member Weber cautioned against reducing interest rates below 2 percent, suggesting the bank is probably near the end of its rate-cutting cycle. "If the benchmark rate sinks below 2 percent when medium to long term inflation expectations are just below 2 percent, that implies negative real interest rates," Weber said in an interview. "I would like to avoid that."

Weber knows the long term impacts of negative real interest rates, they are very inflationary. The generation before his lived through the German hyper inflation of the early 1920's which helps explain why financial leaders from Germany are such inflation hawks. So the 75 basis point cut by the ECB last week, which was the biggest in ECB history, will likely be the last cut for some time. The Euro has benefited from this perceived change in attitude. As of this morning, the Euro has risen over 5 percent vs. the US$ this week.

We have been suggesting that the recent dollar rally was not a change in the long term trend for the dollar, and some big name currency traders are starting to jump on our bandwagon. Goldman Sachs Group lowered its forecast for the dollar against the euro and the yen for 2009, saying the repatriation of overseas assets by US investors and demand for the greenback for funding are 'diminishing'. Goldman is now predicting the Euro will rally to $1.45 per euro by the end of next year, up from their previous prediction of $1.30. "We are at a turning point," Goldman's Jens Nordvig wrote in a research report. "We expect the dollar support from temporary deleveraging and funding flows to diminish, and, in that scenario, the underlying pressure from more standard sources should once again become more important." Sounds like he has been reading the Pfennig, as Chuck has been calling for a return to underlying fundamentals for a while now!

The folks at Citigroup are also jumping on the dollar bear bandwagon. "There are good indications that the US dollar is likely to weaken against many Asian currencies into year-end," wrote Tom Fitzpatrick and Shyam Devani, analysts at Citigroup. They went on to say the dollar will retreat from a two year high against an index of Asian currencies after breaching levels where orders to buy the greenback are clustered. They believe the dollar will fall vs. the Singapore dollar, Chinese Renminbi, and the Indian rupee.

The Chinese Renminbi continued to rally for a seventh day in a row, the longest winning streak since June. Assistant Finance Minister Zhu Guangyao vowed to keep the currency at a 'reasonable and balanced' level after the Chinese let it drop sharply on Dec. 1. China stalled the Renminbi's appreciation in July to aid exporters after letting it rise 6.6% in the first half of 2008. I think China will continue to slowly let the Renminbi appreciate, but will keep the pace of the appreciation at a manageable rate of 6 to 7 percent per year. China's economy is slowing, but Asia will continue to be the growth engine of the global economy. I still suggest investors allocate at least a portion of their investments into the Asian currencies of Singapore, Japan, or China.

Currencies today 12/12/08: A$ .6586, kiwi .5453, C$ .8038, euro 1.3363, sterling 1.4962, Swiss .8473, ISK 218, rand 10.2214 krone 6.8858, SEK 7.9616, forint 197.96, zloty 2.9621, koruna 19.488, yen 90.35, baht 35.01, sing 1.4918, HKD 7.75, INR 48.577, China 6.8433, pesos 13.3266, BRL 2.3684, dollar index 83.68, Oil $44.97, Silver $10.10, and Gold... $817.05

That's it for today... Drove the side streets in to work for the last time today. The highway department shut down a 5 mile stretch of interstate which runs from the front door of our office to my house. After a full year of taking side roads to and from work, I will be able to take the newly refurbished highway on Monday. This will drop my commute big time, and is great news for yours truly!! Chuck is off on his annual Christmas shopping trip with his buddies today. They start first thing in the morning and spend the entire day spreading Christmas cheer around town. Hopefully I will be able to meet up with them this evening, as they typically end their trip at a local restaurant/bar not too far from my home. Hope everyone has a Fantastic Friday, and a Wonderful Weekend!!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837