Daily Pfennig : Bank of Japan

Risk Returns... Slowly...

Chuck Butler — Thu, 09 Jul 2009 14:24:08 GMT

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In This Issue..

* Currencies rebound...
* G-8 has no fireworks...
* Aussie / China and coal...
* Entitlements...

And Now... Today's Pfennig!

Risk Returns... Slowly...

Good day... And a Tub Thumpin' Thursday to you! I'm late, I'm late! I don't believe I ever heard the alarm go off this morning! I overslept by more than an hour, and will still be here more than an hour before any sign of someone else! But! That puts me behind by more than an hour today... I've got to play catch-up! So, let's get this Tub Thumpin' Thursday going!

Well... Let's see... G-8 never had the opportunity to shoot fireworks because China's leader had to return home to deal with the street riots going on in his country. So... The call for a replacement for the dollar as the reserve currency will have to wait for another day! And, with that news, the dollar got to remain in the sunlight, and bask in the glory of being the reserve currency and so-called "safe haven" another day...

There was added Risk Aversion yesterday when it was reported that an Australian shipment of coal to China was cancelled... This sent bad vibes through the markets for the currencies and commodities with the thought that China was putting the brakes on their buying of raw materials, and that their recovery had not taken hold like many had believed...

But... Overnight, calmer heads have prevailed. You see, it was my opinion when I heard that news yesterday, that it was simply one bad shipment to a customer that was having difficulties... Not ALL OF CHINA! And then overnight the data came out... This was one shipment, maybe 150,000 tons of coal... Australian coal shipments to China on a monthly basis run about 3 million tons! I truly believe that Australia's trade with China is on terra firma, and this was a one-off deal that went bad... I also believe that the sell-off of the Aussie dollar (A$) was completely overdone... Completely!

I don't know this to be a fact... But, given the relationship of the Asian investors and the A$, I would think the Asian investors to be licking their chops to have the opportunity to buy the A$ at these lower levels! Buy on the dips, right? Don't I always say that to be a prudent investment strategy?

Of course it didn't hurt that U.S. stocks rebounded yesterday a bit on the news that Alcoa's losses weren't "as bad as expected"... Talk about setting the bar low! It's not like ALCOA didn't still have a LOSS! But, don't get me started on this mental giant thought process that has a grip on stocks these days... "oh, don't worry, you only burned down 1/2 of the house, I would have expected it to all burn down!"

I've got to leave that alone before I really burst! Let's see, what can get my mind off of that subject... OH! The Bank of England (BOE) just announced that they would keep rates unchanged. Well, my goodness, what else would we expect them to do? Their base rate is .50!

Here in the U.S... The Obama administration is trying desperately to nip in the bud, the whispering campaign for another stimulus package... "No one in the administration is talking about a second stimulus at this point," said Robert Nabors, deputy director of the Office of Management and Budget. However he also mumbled something about how the President is not "ruling anything out"...

I don't care what they say... I'll believe it when I see it... And I still believe that the Gov't will believe that another stimulus is needed...

One of the discussions that I had with my fave economist the other day was about "delaying the inevitable"... I've talked about this before, but for new readers, I thought I would give them a dose of "Chuck's Thoughts" this morning... (HA! As if they don't get that every day!)

This "delaying the inevitable" is all about the TARP (troubled asset relief program) and how it all did was allow bad banks to continue to be bad banks longer, with toxic waste in their portfolio... This, even in the face of a suspension of the mark to market rules! Bad Banks should have been sent packing, then... And now, all we've done is let them hang on to cause even more collateral damage!

OK... I'll get back to the daily discussion now...

It looks as though the auction of $35 Billion in 3-year Treasuries went smoothly, which is another reason the dollar was strong yesterday... Every time one of these auctions go smoothly, the "deficits don't matter" crowd all point and say... "see, we told you, that foreigners will always come to the auction to buy Treasuries, so it doesn't matter what we run the deficit up to"...

Right! You just keep thinking that, and see where it eventually gets you! Ty sent me a note yesterday from an article he was reading, that plays nicely with this discussion... So... Let's play Marvin Gaye, and see what's going on!

"For now, the Treasury continues to find takers for government savings bonds at low interest rates. But somewhere between here and infinity lies a point at which American debt reaches unsustainable proportions, at which investors will balk at continuing to finance the American expenditures absent a higher return on their investments. Then, everything could change quickly, with interest rates soaring and the value of the dollar plummeting, as foreign investors lose faith in its fundamental value.

"We're running this $10 trillion gamble that interest rates aren't going to rise," said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund and now a professor at Harvard. "If they do, we could end up in a very difficult situation."

Hey, you think so, Kenneth? My goodness, we have a new "Mr. Obvious!" I would think that we are already in a very difficult situation, given the fact that when the you know what hit the fan the U.S. had no war chest to use, like China did... Why? Because we didn't think "deficits mattered"... Dealing with problems from a position of strength, it would have made a HUGE difference from the get-go!

However, having said that... I believe that a larger problem is still on the horizon for the U.S. and the "deficits don't matter" flag wavers... And Hey! It's not going to happen overnight... It's going to be a slow, dragged out, problem that goes on for years, and then finally snaps! I'm talking about the entitlements and the retiring baby boomers... And more specifically when I'm talking about entitlements, I'm talking about Medicare!

The Big Boss, Frank Trotter, showed me a graph that he came across from the Concord Coalition the other day that illustrated this... While I wasn't shocked, having seen this all in the movie I.O.U.S.A. and in the book of the same name, there it was again staring me in the face...

The reason I tell you all this, is that the Current Administration has no other choice but to allow the dollar to weaken considerably over the years so that these deficits that "didn't matter" can be paid off with cheaper dollars... And it won't be this administration that has to deal with it... That's why this one and the previous one aren't concerned about the size of the National Debt...

Ok, enough of all that... I didn't mean for this to be gloom and doom! Let's move on...

The data cupboard has the Initial Weekly Jobless Claims for us to view today... I expect for the weekly number to remain above 600,000, and the Continuing Claims to have risen... Though this all sounds bad, the markets have become comfortably numb with this unemployment data... It will take something really BIG to slap the markets in the face and say WAKE UP!

And then, finally... The Japanese yen has really been on a tear this week as the Risk Aversion crowd dominated the markets... I find it very strange that Japan is considered a "safe haven" currency, given their national debt problems... And their once "Ace in the hole" the Trade Surplus, is taking on water... But... This is what the markets do, and they are never wrong! However, there's a road block ahead for the yen, as it trades with a 92 handle this morning... And the road block is in the form of the Bank of Japan. (BOJ).. It was reported that last night the Bank of Japan issued a statement to the markets that "they were checking FX levels"

That's Central Bank parlance especially coming from the BOJ, for... We don't want the currency to get any stronger, and we're just letting you know that we're ready to intervene if you don't settle down. Sort of like when grandma would tell you that if you didn't settle down she would send you to the woods to find your switch... Believe me you only didn't settle down once!

And when the Risk Traders come back and push the Risk Aversion crowd to the back of the room... Again, we'll see yen sell off again... So be careful here!

Currencies today 7/9/09: A$ .7845, kiwi .6305, C$ .8650, euro 1.3980, sterling 1.6260, Swiss .9250, rand 8.11, krone 6.4925, SEK 7.8590, forint 196.70, zloty 3.1150, koruna 18.55, yen 92.90, sing 1.4580, HKD 7.75, INR 48.71, China 6.8317, pesos 13.47, BRL 2.00, dollar index 80.21, Oil $61.29, 10-year 3.39%, Silver $12.95, and Gold... $915

That's it for today... Well... I got the news from the eye specialist yesterday regarding my left eye... The tumor and the fluid on the eye is gone, they successfully shrunk it and removed it... Unfortunately it left a ring of "stuff" on my eye, and my eyesight from that eye will never get any better. Of course, I still have my right eye, so I'm not completely bummed... My cutie little granddaughter, Delaney Grace came by to see me yesterday, she wanted me to come "sit by her" She's almost 2 now, and saying her ABC's, and singing songs, and she showed me how she knew her right from left now... Such a little joy to be around... I'll get to spend a whole week with her in about 10 days when we all go on vacation together... Can't wait! Well, my lateness has put me way behind this morning, I had better get going... Don't forget... Today is going to be a Tub Thumpin' Thursday no matter what!

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

Its all about the yen...

Chuck Butler — Sat, 27 Dec 2008 03:55:15 GMT

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In This Issue..

* Japan dominates news wires...
* US retail sales to drop...
* Russia devalues the ruble again...
* Happy Birthday Kathy Butler...

And Now... Today's Pfennig!

Its all about the yen...

Good day...Hope everyone had a wonderful holiday, I had a great Christmas and Christmas eve. I ate entirely too much, but that is one of the joys of the holidays! Most of the markets were closed yesterday, and trading was very light on Christmas eve. The Asian markets were open, and the dollar did sell off a bit vs. most of the major currencies with the one exception being the Japanese yen.

Unless we see a big bounce today, the yen will end the day with the first weekly loss vs. the US$ in two months. With a majority of markets closed, most news stories centered around the Japanese yen. Japanese industrial production fell the most in 55 years as reported on Wednesday. Factory output plunged 8.1% from October, more than 6.8% estimated by economists. Other data released in Japan showed the jobless rate climbed to 3.9% from 3.7%, and household spending slid .5%, a ninth drop.

Markets are now counting on the Bank of Japan to follow the FOMC's lead and begin 'quantitative easing'. Bank of Japan policy board member Hidetoshi Kamezaki said policy members would consider 'extraordinary steps' to help the economy. Japan's central bank already countered the drop in US interest rates with a drop of their own, and again have the industrialized world's lowest interest rates. Now they will turn to other means designed to pump liquidity into the financial markets. Kamezaki told reporters that the bank's next policy steps should focus on improving funding for companies and influencing long-term borrowing costs. The bank will likely start buying corporate bonds and could actually go into the equity markets purchasing stocks to support Japanese industry.

If Japanese policy makers do adopt aggressive quantitative easing, the yen could see a fall in value. These measures pump large amounts of cash into the markets, and the laws of supply and demand tell me that these tremendous increases in money supply will eventually drive down the value of the currencies. The values of both the yen and the dollar will be challenged by these 'quantitative easing' measures over the next few years.

But some in the Japanese administration want a more cautious approach. Prime Minister Taro Aso has yet to implement two announced stimulus packages. He believes the Asian economies are better positioned than those of the west to endure the global recession. Instead of using all of their ammunition at once, the Prime Minister wants to take a more gradual approach to combating the economic slowdown.

One thing helping Japan weather the economic downturn is the falling price of crude oil. Since hitting a high of 147.27 on July 10 of this year, the price of oil has fallen 75%. OPEC has cut production in an attempt to slow the drop, but these announced cuts have yet to have an impact on crude prices.

The lower oil prices have kept a lid on global inflation, and several countries are taking advantage of these lower numbers to bring their interest rates down. India's inflation slowed to a nine month low, with wholesale prices increasing 6.61% from a year earlier, down from 6.84% the prior week. Inflation in India has fallen below the central bank's target of 7% largely due to lower fuel costs. I would expect India to continue cutting rates, which could reverse some of the rupees recent gains.

But the fall in oil prices haven't helped all economies. Russia's central bank devalued the ruble for the third time in a week, sending the currency to its lowest level against the dollar in two years. The Norwegian krone had also fallen as oil retreated from its highs. But the recent dollar weakness has steadied the krone, and it has been trading in a fairly tight range vs. the US$.

No data will be released in the US today, and the markets will likely be very light. Most will be heading out to the malls to try and take advantage of all of the year end closeout sales. Retailers have been dropping prices dramatically to try and salvage a tough holiday shopping season. US retail sales fell between 6 and 8% this season according to predictions by the credit card companies. This was one of the most challenging holiday seasons on record, and with a falling US economy, I would expect next year's to be even worse.

The dollar strength we saw during 2008 will not spill over to 2009. I would think the recent dollar weakness will be the rule for next year, as the tremendous increase in money supply here in the US will help drive the value of the dollar lower. On that note I will move on to the currency scorecard:

Currencies today 12/26/08: A$ .6851, kiwi .5765, C$ .8209, euro 1.4097, sterling 1.4747, Swiss .9321, ISK 145, rand 9.74, krone 7.1259, SEK 8.022, forint 189.79, zloty 2.9163, koruna 18.728, yen 90.43, baht 34.99, sing 1.4469, HKD 7.75, INR 48.4437, China 6.8413, pesos 13.3125, BRL 2.3764, dollar index 81.214, Oil $36.37, Silver $10.38, and Gold... $848.55

That's it for today... I want to give a big birthday shout out to Chuck's beautiful bride Kathy Butler who turns another year older today. I won't be able to wax as eloquently as Chuck usually does about how wonderful she is, so I won't even try. I can tell you that she has been a tower of strength to Chuck and her family during this very difficult year; and her love for Chuck is one of the things which helped pull him through. I'm sure Chuck will try his best to spoil her on this special day, she certainly deserves it!! 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

Dollar bounces back up...

Chuck Butler — Fri, 19 Dec 2008 15:20:48 GMT

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In This Issue..

* Dollar bounces back up...

* Paulson heads back to congress...

* BOJ cuts rates to below the US...

* China to continue increasing the value of the Renminbi...

And Now... Today's Pfennig!

Dollar bounces back up...

Good day... The currencies took a breather overnight as the dollar bounced back up. When we left last night, the Euro was still holding above $1.42, but the single unit dropped 3 cents overnight and is now hovering around the $1.39 level. This move back down was to be expected, and serves as an excellent opportunity for investors who were afraid they had missed out on getting back into the currency market.

I have searched the news wires this morning and can't find any good reasons for the dollar's turn around other than it had simply gone too far too fast. Mike Meyer and I were talking about this yesterday morning, as we were looking at the trading screens in amazement. The dollar's move down over the past two weeks was even faster than the move up earlier this year. Chuck had warned readers all during the dollar rally that the strength was only temporary, but the reversal was just too quick. This move back up is healthy for the markets, and will allow investors another opportunity to move back in.

The US jobless numbers were better than expected as they dropped to 554k from an adjusted 575k last week. The continuing claims also fell to 4,384,000 out of work. Leading indicators fell .4% during November, and Octobers number was revised to -.9%. So while all of these numbers could be spun as positive (not quite as bad as the last ones), they still reflect an economy which is continuing to falter.

Treasury Secretary Paulson will probably be heading back to Congress to claim the second half of his $700 billion bank rescue plan. I think he is probably hoping Congress is in a giving mood with the upcoming holidays and will go ahead and let loose of the additional funds. But Paulson may have some trouble securing the additional funds as lawmakers have warned the Bush administration it must come up with a new effort to aid homeowners and get aid directly to their constituents.

Paulson is also probably worried that congress may pull back some of the promised funds and earmark them for the new administration's stimulus package. So now we have the present and future administrations fighting over who is going to get to spend the taxpayers money, with Paulson doing his best to get it all spent before heading off into the sunset. Chuck spent a tough day as the eye doctor yesterday, but still sent me the following note:

"As reported by the Wall Street Journal...

"Obama's economic team is crafting a stimulus package to send to Congress of $675 billion to $775 billion over two years, according to transition officials. The transition team has conveyed the figures to Capitol Hill, where the package is likely to grow as it works its way through the House and Senate. Obama aides hope to keep the package below the trillion-dollar mark, as they fear being accused of adding too much to the country's long-term budget deficit."

I laugh! As if! As if $775 Billion "won't add too much to the country's long-term budget deficit"! I give up... I really do... The Gov't thinks we are all BUFFOONS! They really do, folks... They are taking us as village idiots, thinking that if they keep it below $1 Trillion, we "won't notice"! "

Not to be outdone by the US, the Bank of Japan cut its benchmark interest rate to .01 from .3%. The move puts Japanese target rates back below the new target for US fed funds. The Japanese central bank also said it will continue using 'quantitative measures' to inject capital into the financial markets. The yen is unchanged on the day, but we saw a pretty large amount of selling by our investors yesterday.

The Chinese Renminbi headed for a second weekly gain as Chinese officials signaled they won't pursue a weaker currency to help exporters. Many thought the slow and steady appreciation of the Renminbi had come to an end as Chinese officials let the Renminbi move lower during the first part of this month. China's trade surplus which widened to a record $40.1 billion in November, continues to support a stronger Renminbi. Consumer prices in China rose just 2.4% in November from a year earlier, the smallest increase in almost two years. The easing of inflation pressures will allow China to lower interest rates to make sure growth stays above their 8% target. All indications support a further slow and steady appreciation of Renminbi.

Currencies today 12/19/08: A$ .6819, kiwi .5745, C$ .8155, euro 1.3982, sterling 1.5036, Swiss .9049, ISK 176.5, rand 9.7813, krone 7.0467, SEK 7.7980, forint 189.78, zloty 2.9152, koruna 18.8295, yen 89.24, baht 34.49, sing 1.466, HKD 7.75, INR 46.255, China 6.8457, pesos 13.17, BRL 2.3927, dollar index 80.869, Oil $34.39, Silver $10.67, and Gold... $835.34

That's it for today... I had good news from the hand doctor yesterday, as he feels the fingers are healing well. We had some crazy weather here, as the snow and ice were replaced by rain overnight with temperatures moving back above 50 degrees. The warm weather will be replaced pretty quickly, as temps are supposed to fall back to sub freezing today. Last weekend to finish Christmas shopping!! My wife and daughter are heading out to pick up her big present a little early, as they are going to pick up a cute little latese puppy this afternoon. Hope everyone has a wonderful weekend and a fantastic Friday!!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

A Bailout For The Big 3...

Chuck Butler — Wed, 10 Dec 2008 14:44:31 GMT

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

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Based on the eye-opening film, IOUSA is your guide to America's enormous economic crisis. You won't find a more concise and complete evaluation of the global financial situation anywhere else.

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....

In This Issue..

* Another currency rally....

* Bank of Canada cuts 75 BPS!

* A Santa rally?

* What Asia thinks...

And Now... Today's Pfennig!

A Bailout For The Big 3...

Good day... And a Wonderful Wednesday to you! We didn't get that snow I talked about yesterday, I guess the milk and bread on the grocery store shelves are safe today! Had to get "all dressed up" last night for a function that brought together a ton of old Mark Twain Bank people, among others. It was great, but I stood for two hours and I'm paying for it this morning... UGH!

OK... Another day of "healing" for the currencies, as the 1.29 handle was achieved and held on to in the overnight markets. Slowly... Like sand through the hourglass, these are the days of currency healing! HA! That show, Days of our Lives, was burned into my brain as a kid, as it was my mother's fave soap.

The single unit was higher within the 1.29 handle overnight than it is right now, as it has given back a bit of ground on the news that a European Union Commissioner, Buti, said that, "economic indicators point south very badly." This is strictly, jawboning to keep the euro's move VS the dollar in check, folks...

The Bank of Canada (BOC) did cut rates yesterday 75 BPS... You may recall me telling you yesterday that the "experts" thought the cut would be 50 BPS, but I thought it would be 75 BPS... Maybe, one day, these surveys of "experts" will include the Pfennig writer, as he seems to be more "on target" than the current "experts"! Now, Chuck, who would you be referring to here? HA!

I also said yesterday that I didn't think the markets would care, and they didn't, as the larger rate cut did little to hurt the loonie. In fact, the loonie rallied a bit on the news!

Again, I don't understand the mentality here with these Central Bank rate cuts... It's not the cost of the credit that's keeping the credit crisis all locked up, it's the availability of such credit / money! So... Here's a memo to Central Banks around the world... "STOP ALREADY!" All you're are doing is inviting inflation into your economy, and debasing your currency!

That glimmering light that I talked about the other day for the Credit Crisis is getting smaller all the time, as the Big 3 still don't have their bailout from the Gov't (read taxpayers)... It now looks as though it could get done today, but at a much smaller figure than previously discussed. It now looks as though the Big 3 will get $15 Billion and they had better smile and say "thank you very much" as they leave the room!

It also looks like the Big 3 will get the "Car Czar" that they so desperately fought to keep from looking over them. The "Car Czar" will have the power to call Chapter 11 on GM or Chrysler should they not deliver a sound plan by the end of March. Geez Louise, why do they get 4 months to some up with a sound plan? They should have had one to get the funds to begin with! OK, I had better stop there, I'm really pounding the keys right now... I think I'll step away for a minute and cool off...

OK, I'm back now, hope you didn't miss me, or that I was away too long! No wait, this is text, you have no idea how long I was gone! Silly me!

You know... I was thinking aloud in my car yesterday, and saying to myself that it sure looks like all those pundits that called for a breakup of the European Union by the end of the year, will have to put their tails between their collective legs, and fade away... You know, the European Union (EU) had more pressure on them in 2005, when the French voted no on the Constitution, and other things, and they held steadfast then, and if they could it then, then this little tiff with Spain and Italy will pass... These pundits like to point to the problems that Italy is experiencing... And I say..."What's so new about that? Italy has had problems since I've been following currencies (1985 for those of you keeping score at home)! I truly believe that Italy and Spain like to complain about the European Union and the euro, but when they get behind closed doors, when they let their hair hang down, they thank their lucky stars that they were included in the Euro Club!

The boys and girls over at Bank of America (BOA) believe they are seeing the dollar repatriation flows waning... Now, I wonder how many research people they employ over at BOA, when all it would take is for one of them to read the Pfennig, to see that I said all that yesterday! Any way... Let's listen to what BOA had to say about this... "The repatriation demand for the dollar may have run its course, we retain our core long euro-dollar exposure and add long euro-dollar exposure today"... Now... You would think that given the size of BOA that saying something like that could really "move the market"...

But, given the markets "don't care" attitude until the credit crisis unlocks, I understand why it didn't! The BIG POINT here is that we could very well be seeing all this dollar repatriation end. And... Like I said Monday, the risk takers were slowly dipping their toes back into the waters which is what it will take to get the currencies and precious metals on the rally tracks again. But, put these two things working together, and voila' you've got the makings of what could very well be a Santa Rally...

The boys over at the Bank of Japan (BOJ) are at "it" again... Mom... He's doing it again! He's looking at me! Mom! He's got his hand on my side of the car seat! OK, I'll stop there... But the BOJ was "jawboning" again in an attempt to keep the yen from strengthening further VS the dollar. BOJ Gov Shirakawa reminded the markets last night that the Ministry of Finance has the option of intervening if necessary... The Ministry of Finance (MOF) are the signal callers for the BOJ, and they are the ones that determine if intervention is to come into play. For new readers... BOJ intervention means the Bank sells yen in the markets to keep it from getting too strong.

In the currency world, this is called a "dirty float"... And the MOF and BOJ like to keep it "dirty"...

OK, I was laughing when I wrote that last bit, but notice I didn't carry on... Maybe I'm growing up! HA!

Down Under in the South Pacific, Australia saw a very nice rise in Consumer Confidence of 7.6%, adding on to November's 4.3% gain. The index collapsed this summer, but with the rate cuts the Reserve Bank of Australia (RBA) have instituted, it seems to be rounding back into shape.

In New Zealand, Reserve Bank of New Zealand (RBNZ) Gov. Bollard, gave a speech titled "Everyone needs to play their part." In the speech, Bollard, reminded everyone that New Zealand's inflation rate is still very high (5.1%). Hmmm... Was that the "wink and nod" that interest rates are not going to go much lower? I think it was folks.. But I guess it all depends on if the rest of the world continues to think that by cutting rates they will unlock the credit crisis!

Both of these things for Aussie and kiwi could underpin the currencies at current levels...

And another "Commodity Currency" the Brazilian real really put on the Ritz yesterday with a very strong rally... Just another sign that the risk takers are dipping their toes again...

OK... I'll slide away from the currencies for a minute to talk about a news article that one of my fave writers, William Pesek, provided to Bloomberg, titled: China Will Be Happy Geithner Isn't a Goldman Guy... Here are some snippets of the article that can be read in its entirety at: http://www.bloomberg.com/apps/news?pid=20601039&sid=aa4nka49enf0&refer=columnist_pesek

"Why does Goldman Sachs run your government?"

After seven-plus years in Asia, I'm no longer startled by this question. It was posed to me yet again recently -- this time by Kuala Lumpur taxi driver Sumit Kotari.

"What's wrong with America is that it's run by investment bankers, mostly from the same bank," the 49-year-old Malaysian said. "How can Americans stand for it? Is Barack Obama from Goldman Sachs, too?"

It has been reported in Asia that Neel Kashkari, assistant Treasury secretary in charge of the Troubled Asset Relief Program, worked for the same New York-based investment bank. President-elect Obama's decision to seek advice from other former Goldman Sachs bigwigs, such as Robert Rubin, also grabbed attention.

Even the guy helping choose a replacement for Timothy Geithner at the Fed Bank of New York came from Goldman Sachs. It makes one breathe a sigh of relief that Geithner, who will be the next Treasury secretary, doesn't have Goldman Sachs on his resume.

The point here isn't to pick on Goldman Sachs. Yet it is seen by many in Asia as the gold standard of investment banks. Its name also is a byword for the perception of incestuous ties between Wall Street and Washington."

OK, I'm back now... The point of the discussion is to acknowledge that to Asian, it appears that Goldman Sachs runs our country... Now, that may be perception, but as they teach you perception is reality. And you have to wonder if the Asian Central Banks are shaking their heads at what we're doing, and how we're doing it... Now, some might say, "Who cares what the Asian Central Banks think of what and how we're doing it.?" Ahhh grasshopper... We all have to be very cognizant of what the Asian Central Banks think about us, because, you see... They hold most of our I.O.U.'s and they could make things very messy for us any time they wish!

So... How about the Illinois Gov. getting arrested yesterday? Could it be two Illinois Governors incarcerated? That whole story is pretty amazing that someone would do what he is alleged to have done, knowing that his phone was tapped!

Ok enough of that! We'll see the Monthly Budget Statement / Deficit for November, today... Look for it to explode!

Currencies today 12/10/08: A$ .6590, kiwi .5465, C$ .7950, euro 1.2950, sterling 1.4830, Swiss .83, ISK 261, rand 10.21, krone 7.0475, SEK 8.1650, forint 203.50, zloty 3.05, koruna 19.99, yen 92.60, baht 35.50, sing 1.5010, HKD 7.75, INR 49.01, China 6.8835, pesos 13.50, BRL 2.4725, dollar index 85.71, Oil $43.80, Silver $10.02, and Gold... $792

That's it for today... Got a chance to talk to my old friend, and softball teammate, the wiley old veteran Jack last night. Talk about someone that doesn't seem to age... And someone that loves Missouri Football more than me, Dean... And my good friend and colleague, Chris Gaffney, helped me out BIG TIME, by going out in the rain and moving my car up next to the door for me... What a class guy! My little buddy, Alex, is still in the sick bay, poor guy... I was remiss in not mentioning the retirement of Greg Maddux the other day... There's another class guy! One more day of getting up with the milkman, and then I'm off to see the Wizard... Well, not really, just vacation... I do go to the eye doctor again next week while I'm on vacation. Unfortunately, I've had no improvement in my left eye... Time to get movin'! I hope your Wednesday is Wonderful!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

GDP Goes Negative...

Chuck Butler — Fri, 31 Oct 2008 14:53:04 GMT

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......................................................

In This Issue..

* Currency rally fizzles out...

* Bank of Japan cuts rates...

* Tracking David Walker...

* A major shift change on spending...

And Now... Today's Pfennig!

GDP Goes Negative...

Good day... And a Happy Friday to one and all! A Happy Halloween Friday to boot! Boy, to be a kid again, and have what is forecast as a 70 degree day on a Friday for Halloween! We've been so busy at the Butler house that we didn't even decorate our front yard with Halloween stuff this year. UGH! But, that's OK, I guess, Alex is older now, and little Delaney Grace would probably freak out with the ghost that would fly across the front of our house, etc.

Well... The fog that was lifted from the markets came back with a vengeance yesterday, and once again it was the deep, dark, dangerous U.S. economy leading the charge. 3rd QTR GDP printed yesterday and even though it was forecast to be negative, when it actually printed negative, the trading theme returned. 3rd QTR GDP goes negative (and if you throw in inflation for good measure growth was REALLY negative!) and the dollar rallies... It's the trading theme of the decade! (Ok, I exaggerate a bit there, as it has only been in place for 3 months now!)

And get this... Recall how 2nd QTR GDP (+2.9%) was goosed by net exports (because the dollar was weak)? Well... Apparently the dollar was still considered "weak" during the 3rd QTR because net exports added 1.3% to GDP in the 3rd QTR! I can't imagine what the 4th QTR GDP number will look like, well, actually I can... And the big fat red figure doesn't look pretty! Anyway, what I was trying to get at before my fat fingers started typing something else, is that 4th QTR GDP isn't going to get any goose from exports, given the strength of the dollar these days!

So... As I left you yesterday, the euro had "gapped up" to 1.3145, and the stars were getting in alignment, the karma was flowing, and peasants were dancing in the streets, as the things seemed to be getting back, somewhat, to normal, and the fundamentals were back on the table. But, then the 3rd QTR GDP print brought the deep, dark, dangerous clouds/ fog back over the markets, and the trading theme kicked into place, with the dollar rallying and pushing the euro to 1.27! That's some strong volatility there folks... Something, as I said the other day, I've not witnessed before... Yes, there was volatility in currencies, but not like these wild swings we see on a daily basis now. The "trading crowd" have to be pulling their hair out, as I think about how they put on trades and then add "trailing stops" at a certain percentage away from the current market. With these wild swings, they have to be seeing their trades "stopped out" almost instantly!

I have nothing against the "trading crowd", it's just like stocks, commodities, etc. Me? I'm a diversification kind of guy... I don't have the stomach for "trading"... I would probably be taking as many losses as gains and it would be all fruitless anyway!

OK... The currencies, Chuck, focus... Concentrate... Ok, I'm back now. And one more point on the 3rd QTR GDP print... It appears as though the U.S. Consumer is in full retreat...

About a year ago, I gave a rousing speech in New Orleans (well I talked anyway!) and painted an ugly picture for the U.S. dollar with regards to borrowing needs to finance the debt going forward... Well, that was all playing out until the credit squeeze took control of the markets in July. But that doesn't mean the funding needs of the U.S. are going by the wayside... A reader sent me a note to look at a story he saw in regards to the debt and borrowing needs... Here's a snippet of the Bloomberg story...

"The U.S. government's borrowing needs will almost double to $2 trillion this fiscal year, prompting the Treasury to revive three-year notes and hold more frequent sales of 10- and 30-year debt, according to Goldman Sachs Group Inc."

Then, I read the Daily Reckoning (www.dailyreckoning.com) and saw where friend, Dan Denning had this to say... "The 30-year Treasury bond yield plunged 27 basis points last week to

4.062 percent. It reached 3.8676 percent on Oct. 24, the lowest since regular issuance of the security began in 1977.

This is the last big bubble. There's going to be a stiff penalty for staying in Treasuries as the supply increases (the three-year note is coming back, monthly auctions for ten-year notes will resume). Plus, you know, all that new stimulus. All that new borrowing. Yields will be going up for sure"

Hmmm... Debt... Treasury issuance... And we have only just begun... (no I'm not going to do the Carpenters here...) I'm talking about the problems of giving 70 million baby boomers what they will be looking for as they begin to retire. (the first baby boomer born began receiving Social Security this year!) You know who can give you all the facts you need about the amount of debt that will be added to the U.S.'s ledger as each year goes by and more baby boomers (like me) retire (not me yet!)? His name is David Walker... And he is the former U.S. Comptroller General, and if anyone should know, it's David Walker!

Well, David Walker is the star of the book and movie I.O.U.S.A. He, resigned from his job to take a position with the Peterson Group and spread the word about a coming crisis in the U.S. with regards to debt burden. (if he were to be able to tell the truth about it, he would probably say he left his job because no one would listen to him (recall the deficits don't matter crowd!), and he wanted to do something about the problem!) And David Walker is telling everyone that will listen that we (as a country) need to act now in an attempt to keep the U.S. from going bankrupt... There's a snippet of the I.O.U.S.A. book in Forbes this month that was carried by MSN Money... If you want to read the snippet click here... http://money.cnn.com/2008/10/28/magazines/fortune/babyboomcrisis_walker.fortune/index.htm

Or if you want to read the whole book I.O.U.S.A. click here... http://rcm.amazon.com/e/cm?t=dailyreckonin-20&o=1&p=8&l=as1&asins=0470222778&fc1=000000&IS2=1<1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr

OK, anyway... What does this all have to do with currencies you're asking? Well, grasshopper... Sit, and listen... Not that this is the case right here and now, but every year we get closer and closer to having to pay interest on debt obligations out our ears! And there will come a time when we won't even be able collect enough taxes to pay off our obligations... So... You can be assured that 1. taxes are going to have to go higher and higher and higher... And 2. the Gov't will allow the dollar to weaken and weaken and weaken, so that they can pay back the interest and debt with CHEAPER DOLLARS!

But for now... The dollar is in a bear market rally, which gives a lot of people that missed one of my 150 talks the past 8 years and didn't know they could be diversifying out of the dollar as a hedge, a chance to get in at prices that aren't at all-time highs! Is this the bottom and the best prices they'll see? I don't know... My crystal ball is pretty hazy these days, but what I do know is these prices are bargain prices VS what was seen in June, just 4 months ago...

Today, we'll see the color of the Sep Personal Income and Spending reports... I fully expect to see the tide change on these two... I expect to see Personal Spending go negative, thus showing that we didn't spend more than we made, which will be a major shift change in this trend... Don't look for any big gains in Personal Income either though...

We'll also see the Employment Cost Index, which used to be a closely watched piece of data, by the Fed... And finally the Chicago Purchasing Manager Index (manufacturing), which will probably be awful... So... Once again, the data doesn't help things any... The rot on the vine is quite evident...

But, then too is the rot on the vine over in Europe... A month ago, we were all led to believe that they were going to get to Ollie, Ollie, oxen free on the toxic waste bonds, only to have that blow up in their faces. And now the Emerging markets of Eastern Europe are dragging the European Union down... But they're still putting on a brave face at this point.

Speaking of the European Union... The European Central Bank (ECB) will meet next week, and I think we'll see them cut rates to keep in step with the Fed, but I think they will be kicking and screaming all the way to the rate cut table. The ECB has a mandate from the Maastricht Treaty that requires them to provide price stability... Now, that will be difficult to achieve when you are cutting rates and debasing the currency... But, it's the call to arms right now, with the U.S. Fed calling the shots on rate cuts.

Shoot Rudy, even the Bank of Japan (BOJ) cut rates last night... I had thought earlier in the week that the BOJ was just jawboning the yen weaker with that kind of talk... But, they were able to squeeze another drop of blood out of the turnip and cut rates 25 BPS... That erases the 25 BPS rate hike they made a year ago or so, and led everyone to believe they were breaking out of their decade of deflation...

The rate cut didn't hurt the yen, as much as the talk the other day, so for yen it was a case of sell the rumor buy the fact... I would think with all the dark clouds forming over the U.S. once again, the risk takers would be running for shelter once again, thus pushing yen stronger, but that remains to be seen as of right now...

Currencies today 10/31/08: A$ .6650, kiwi .5830, C$ .8180, euro 1.2760, sterling 1.6230, Swiss .87, ISK (still no quote), rand 10.0675, krone 6.6980, SEK 7.7850, forint 204.50, zloty 2.8380, koruna 18.91, yen 97.90, baht 35, sing 1.4835, HKD 7.7890, INR 49.45, China 6.8380, pesos 12.74, BRL 2.10, dollar index 85.54, Oil $63.85, Silver $9.45, and Gold... $727.30

That's it for today... Can't wait to see my darling granddaughter today dressed up in her bumble bee costume! And can't wait to see the kids in the neighborhood in their costumes tonight. And the terrible jokes they come up with... They're funny anyway! Late night last night as we had our Art Show here... A good time was had by all. I got to catch up with a lot of former Mark Twain Bank colleagues... I don't know how Frank Trotter does it, but he somehow keeps in touch with all those folks that are spread out all over town! My beloved Missouri Tigers travel to Texas again this week to play Baylor. It won't be easy, but I have full faith in these Tigers to win! Next Saturday, I travel to Columbia again, and hope this time will be different from my last trip there to see the Tigers play! And my little buddy Alex has his last football game of the year tomorrow. He does love to play football! That's it... I hope you have a Happy Halloween, and a Fantastico Friday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Govt to follow Buffet's lead...

Chuck Butler — Tue, 14 Oct 2008 14:41:05 GMT

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What this seminar can mean for you: Get an expert's view on a vast range of currency opportunities - leave with tips, tactics and insights you need to diversify with confidence.

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......................................................

In This Issue..

* Govt to follow Buffet's lead...

* Aussie $ has biggest gain ever...

* Yen reverses on carry trades...

* China's currency reserves rise...

And Now... Today's Pfennig!

...

Good day...And what a day it was! As I stated in yesterday's Pfennig, Columbus day is just sort of a holiday for the markets. These 'semi-holidays' can create some volatile trading, as not all of the markets are open and many desks are short staffed. So with the Federal Reserve and the banking system closed, the equity markets had the largest one day gain in over seven decades. I guess the stock jockeys figured they weren't going to get any bad news out of the credit markets, which were closed, so no news is good news!! The rally was certainly welcomed, and hopefully some of the gains will stick today as we return to a normal trading environment.

And I guess some of the credit for the stock rally has to go to finance ministers around the globe who finally agreed on a plan which seems to be able to work. The leaders of a majority of the worlds largest economies borrowed a page from Warren Buffet's playbook and decided to invest directly into some of their largest financial institutions. The Bush administration announced it would invest $125 billion in nine of the biggest US banks. The US move came after France, Germany, Spain, the Netherlands, and Austria committed $1.8 trillion to guarantee interbank loans and take equity stakes in European banks.

The investment represents a new approach for US Treasury Secretary Henry Paulson, who first promoted a bailout targeted at buying up illiquid mortgage-related assets. The government will obtain its stakes by purchasing preferred shares with warrants similar to investments that Berkshire Hathaway Inc. made recently in Goldman Sachs and General Electric. The move could be just what was needed to 'unfreeze' the credit markets and restore some liquidity in the markets.

I really think the new president should do all he can to try and convince Warren Buffet to at least take an advisory position in the new administration. Now that we have followed his lead on the $125 billion we should see what he suggests for the rest of the $700 billion 'rescue' package. Just think, with his guidance maybe the US taxpayers can come out of this whole episode with a bit of a profit!

The move got the backing of former Federal Reserve Chairman Paul Volcker who said the inevitable recession in the US would be made 'more manageable' by the new government plans to invest directly into American banks. The bailout measures were 'distasteful' and 'not consistent with a capitalistic system,' Volcker said at a lecture in Singapore today. 'But however distasteful, they are necessary to restore stability to the financial system.' But Volcker also warned that the global financial system is in 'intensive care' and will remain there for a considerable time before things return to normal.

The largest mover in the currency markets yesterday was the Australian dollar which has surged up 12% vs. the US$ since late last week; the biggest two day gain since it began trading freely in 1983. The Australian dollar gained as investor's confidence was restored and stock markets rallied. Australian Prime minister Kevin Rudd announced a A$10.4 billion spending package aimed at bolstering Australia's economy, adding to his Oct. 12 pledge to shore up the nation's banks. These moves by the Prime Minister should provide some support under the Australian dollar which had been falling fast. But the Aussie dollar will likely still be subject to some volatile swings, as investors continue to buy the Aussie dollar on carry trade investments, which have proven to be very erratic.

With investors moving back into carry trades, and some confidence returning to the equity markets, the Japanese yen fell against the higher yeilders. The yen headed for a record decline vs. the Australian dollar, but fell less against the US$. Japan's currency has become an excellent gauge of risk appetite in the markets, and the currency has risen as investors exited highly leveraged 'carry trades' over the past few months. But risk appetite has returned as we have exited the 'panic mode' and investors have started to move money back into these leveraged trades.

The Bank of Japan said it will hold an unscheduled monetary policy meeting today to discuss ways to make it easier to add funds to money markets. The bank said yesterday it's considering offering an unlimited amount of dollars to financial institutions, following a move by European counterparts to provide lenders with as much of the currency as they want to reduce short-term borrowing costs.

This recent flood of US$ into the markets has seemed to stabilize them, but what will it do to inflation in the US? One of the first lessons in Economics is that increasing money supply causes an increase in inflation. The billions or trillions (I can't keep up with all of the 'rescue' packages they keep announcing) of US$ which have been placed into the markets will eventually create a big up tick in inflation. And the huge amount of dollars which are being printed and pumped into the credit system will undoubtedly lead to an erosion of the value of the dollar. Simple supply and demand tells you that if we continue to throw unlimited supplies of US$ into the market, the value of these dollars will decrease in value.

And who is holding most of these dollars? China! China's foreign-exchange reserves rose to a world record $1.906 trillion at the end of September. Currency holdings rose 32.9% from a year earlier, the People's Bank of China said on its website yesterday. These reserves have helped to strengthen China's finances as the credit crisis threatens to trigger a global economic slump. The world's fourth biggest economy can still expand 10 percent this year and 9 percent in 2009 according to the central bank. Close to $2 trillion in foreign reserves provides China with a strong foundation and more room to adjust policies to enable it to maintain relatively fast growth. The worlds economic engine will continue to purr despite the slowdown in the US and Europe. Internal demand among these fast growing Asian economies will take the place of some of the exports which will undoubtedly slow. I look for the Chinese currency to continue to be a rock solid performer, with no big movements either way.

Good news / bad news for the holders of Icelandic krona, as we were able to get a trade done yesterday selling the maturing proceeds of the Icelandic CDs. The bad news was that the ISK currency was sold at the rate of just over 260 krona per $. Hopefully the latest moves in the credit markets will start to calm things in Iceland. But for now we will do our best to sell the Icelandic krona as the CDs mature.

Again, it will be interesting to see what the markets have in store for us today. We don't have much in the way of data being released today (as if anyone is really looking at economic data lately anyway). Wednesday we will get the PPI numbers which are expected to show an up tick in inflation, along with the retail sales and empire manufacturing numbers, both of which will likely show a decline. Thursday will be a big data day, as we will see the CPI data for September along with the weekly jobs data, the TIC flows, Industrial production, and the Capacity Utilization numbers. We will end the week on Friday with the release of housing starts and building permits, both of which are expected to be down.

Hold on to your hats, this rollercoaster ride is over yet.

Currencies today 10/14/08: A$ .7223, kiwi .6332, C$ .8781, euro 1.3738, sterling 1.7593, Swiss .8861, ISK 260.0, rand 8.9732, krone 6.1409, SEK 7.0546, forint 182.72, zloty 2.5284, koruna 17.933, yen 102.68, baht 34.07, sing 1.46, HKD 7.7606, INR 48.07, China 6.8338, pesos 12.004, BRL 2.144, dollar index 80.929, Oil $84.55, Silver $10.875, and Gold... $842.94

That's it for today... What was supposed to be a bank holiday turned into a full day of work here on the trading desk, as we took the opportunity to try and catch up on work. Chuck returned to St. Louis last night as the FX University comes to our home town. Unfortunately none of us on the desk will be able to attend, as the phones are already starting to ring. Hope everyone has a Terrific Tuesday!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Scaredy Cats!

Chuck Butler — Wed, 10 Sep 2008 14:26:06 GMT

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

Announcing the FX University Seminar Series. It could open your portfolio to new horizons.

Come learn from some of the world's authorities on foreign currency investing. The one-day seminar will take place in 8 cities across the nation this September and October.

What this seminar can mean for you: Get an expert's view on a vast range of currency opportunities - leave with tips, tactics and insights you need to diversify with confidence.

EverBank is a Member FDIC and Equal Housing Lender.

......................................................

In This Issue..

* Not your father's currency traders....

* The euro does the rope-a-dope...

* Deep Thoughts

* Jimmy Rogers on the bail out...

And Now... Today's Pfennig!

Scaredy Cats!

Good day... And a Wonderful Wednesday to you! Hurricane Ike moves into the Gulf... Which way it goes from here isn't good for anyone. We had another day of watching the euro rally during the day, only to see it fizzle out by the end of the day. I go home each night and think all the way home about all this stuff going on, and wonder just who in their right minds would be buying dollars right now... Scaredy Cats that's who... So... Here you go... Deep Thoughts by chuck butler...

Here's the skinny on that thought... Ever since the Fed, Bank of Japan (BOC), and European Central Bank (ECB) intervened in their coordinated, covert operation, market participants and traders are scared to death to short dollars, for fear of more intervention that could wipe out their trades, and post losses for them. Come on... These aren't the currency traders that I grew up with! Those traders took any Central Bank intervention as a "challenge" and would laugh in the face of Central Bank intervention! Central Bank intervention usually meant it was a desperate measure to shore up a currency, and that was like blood in the water for a shark... Currency traders would hit that currency even harder!

But not these scaredy cats! That's one thing I think about... And then there's this...

The Government's decision to bail out Fannie and Freddie and place them into conservatorship may shore up the mortgage meltdown in the short term... But to me, this is just another in the line of things the Fed and Treasury have done in an attempt to bring calm to the financial markets... (Bear Stearns, mortgage bill, money supply, low interest rates, and dollar intervention, stimulus checks, and more!) But, when you step back and look at all this, none of it, and I mean NONE of it had done anything to alleviate the pressures on rising home inventories, falling home prices, upside down mortgages, unemployment, the deteriorization of the financial markets (see the dead man walking list of banks that are in deep dookie) and that doesn't just mean banks... The major Brokerages are standing on the street corners with their hands out, begging for any sovereign wealth fund that might give them a capital infusion... I started to describe them standing on the street corner in different light, but remembered this is a family newsletter!

And all that brings me right back to my call several months ago, and one that has been on the opposite side of the markets... And that is, that the Fed will come back to the rate cut table before they go to the rate hike table.

And when I think about all these fundamental problems, with lower rates, and money supply, I can't think about anything else this all does but cause dollar weakness. And thus my conspiracy theory from last week... And here's one step further that I've already mentioned before, and that is this dollar intervention is all "window dressing" for the elections... And thus, my previous thought that we could see this dollar strength through the elections, and maybe into next year, but eventually we come back to the weak dollar fundamentals...

On Monday... (and I love Mondays for one reason, I get to read my friend the Mogambo Guru's latest letter) My friend, the Mogambo Guru was talking about Gold as usual, and printed this quote from Jeff Clark at Doug Casey's Big Gold newsletter...

"Due to the bloating federal deficit and the big-dollar promises the politicians have made, but that the U.S. can't possibly pay, further rapid growth in the money supply lies ahead. And that means more inflation, which means the dollar's recovery will turn out to be temporary. And more debasement of the dollar equals higher gold.

If the bull market in gold were over, it would mean that inflation was under control, the dollar's long-term problems had been solved, the government had become restrained in printing new money, banks were healthy, house prices had stabilized, a surprising new source of energy had been discovered, unemployment was diminishing, and everyone was smiling."

Yes, Jeff... My sentiments, exactly! I couldn't have said it better myself!

So... All this strong talk, and... The dollar has the euro on the 1.41 ropes again... Yes, the euro is doing the "rope-a-dope" with the dollar punching its lights out. There's not much else I can say about all of it... In the category of "not helping the euro"... The European Union cut their economic growth forecast for 2008 to 1.3% from the previous forecast of 1.7%... At least they don't have currency weakness providing export growth as the main driver of their economic growth, like here in the U.S.! And for all those naysayers that keep banging on the EU's economic growth, and saying the EU will have a recession... You may have noticed that the lower, revised growth forecast is still on terra firma in positive territory!

Monday and Tuesday saw Carry Trades being put on again... But, late yesterday afternoon, and overnight, those Carry Trades are getting wiped out, as the markets, who had checked their brains at the door, come to the realization what I was talking about above, that the Gov't sticking their hands into the markets and acting like they know what they're doing, is not solving any of the problems hanging over the markets like the Sword of Damocles!

So, that means Japanese yen gets some love again, and is trading well into the 107 handle... While Aussie and kiwi get taken back to the woodshed. I really didn't think that return to risk positions was going to last long but it was there and had to be talked about as the reason for the movements in those currencies associated with the Carry Trade.

My friend Jim Rogers had a lot to say about the bail out of Fannie and Freddie, comparing it all to communism... Here's Jim Rogers... "America is more communist than China is right now," Rogers told CNBC Europe's "Squawk Box Europe" September 8. It's bailing out the financiers, the banks, the Wall Streeters."

Yes, Comrade... I would agree with that... Jim Rogers also said... "I'm waiting for the dollar to continue to rally so I can sell my dollars. The dollar recovery is certainly taking place and has a ways to go; a few weeks, a few months, maybe even another year or so that the dollar could recover because it was beaten down do much." He went on to say that he is buying the "victims of the Carry Trade": Japanese yen and Swiss francs...

I would agree with that too!

OK... The data cupboard is empty today, but tomorrow it gets restocked with The Trade Deficit, Weekly initial Jobless Claims, and... The Monthly Budget Statement... Yesterday, the Budget Office offered up a number that makes one choke... The Budget Office said that we could see at $407 Billion Budget Deficit this year... Hmmmm... I say this, if the Budget Office is offering up $407 Billion now... It will be worse than that when all the dust settles! And... They obviously offered this up before the tallies on the tote board showed the results of the stimulus checks, and the Fannie and Freddie bail out!

How about that Screaming Eagle roller coaster ride in stocks? The stock jockeys can't seem to decide whether they want to rally or sell off, one day down 300, next day up 280, next day down 300... I'm glad I don't mess with stocks... I think that currency dolts make me yell at the wall now? I can't even imagine trying to make heads or tails out of stocks!

My friend, Ian Mathias, over at the 5-Minute Forecast, which by the way is a "must read" each day, also does some additional writing. I was reading an article by Ian last night, titled: Enter the Fed's Trash for Treasuries... It's a great read, and explains the Fed's deal to take in the mortgage backed securities that no one else would buy because they were beaten down so much, and exchange them for Treasuries...

I don't know about you... But I've stated before that this scenario scares the bejeebers out of me! The Fed & Treasury are totally out of control! But unless the media decides that this is important to talk about, it's just Ian, me and a few of our adult beverage drinking buddies shouting from the rooftops... And right now, very few are stopping to listen...

That's a real downer to end the morning Pfennig with... So... I'll end it with the news that Lance Armstrong has announced that he is coming out of retirement, and has set his sights on winning another Tour de France! You show 'em Lance! You show 'em what a cancer survivor can do!

Currencies today 9/10/08: A$ .8055, kiwi .6685, C$ .9350, euro 1.4110, sterling 1.7570, Swiss .8835, ISK 90.98, rand 8.0225, krone 5.7075, SEK 6.7405, forint 170.40, zloty 2.4575, koruna 17.57, yen 107.50, baht 34.62, sing 1.4340, HKD 7.80, INR 45.14, China 6.8380, pesos 10.54, BRL 1.7770, dollar index 79.60, Oil $103.60 (strange that the oil price isn't rising with Ike in the Gulf), Silver $11.25, and Gold... $774.75

That's it for today... A great ninth inning rally for a win for my beloved Cardinals VS the Cubs last night... It's probably too little too late for the redbirds, but, any time they can beat the Cubs, it makes the home crowd happy! (as it does for Cubs fans when they beat the redbirds at Wrigley) Had a visit from an old fave, Ellie Williams, yesterday... Ellie is a cancer survivor too, and that just makes me smile when I see her! Looks like the presidential race is a dead heat after both conventions... This ought to be a looooonnnnnggggg election period, I'm already tired of having to change the channel when one of either party's "I approve of this message" ads come on! UGH! Was going to go on a walk through of our digs in the building next door yesterday, which will be on the 6th floor, but had to back out when they told me the elevator wasn't working yet! YIKES, like I'm going to drag me and my cane up 6 floors of steps? Yeah, right! Oh well, maybe someday! Time to go... Hope your Wednesday is Wonderful!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Dollar Receives Some Stimulus...

Chuck Butler — Thu, 12 Jun 2008 14:29:25 GMT

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In This Issue...

* Dollar receives some stimulus...
* G8 to support $ over the weekend...
* India surprises with a rate increase...
* BOJ likely to keep rates unchanged..

And Now... Today's Pfennig!

Dollar receives some stimulus.....

Good day... We had a pretty calm day in the markets yesterday as the dollar drifted lower vs. most of the major currencies. But when the Europeans picked up the trading overnight they all but wiped out any advances the currencies had made and the dollar is now sitting slightly higher than it was trading at this time yesterday morning. But I will get to that later; let me start this morning's Pfennig off with some comments Chuck left me on the markets as he signed off his computer last night:

"OK... So quite a few of you liked my conspiracy theories yesterday, and even a few had one of their own! This whole mess of Bernanke and Paulson finally sitting up and taking notice in June is just too much for me. I think there's got to be a story here that we don't know about... Yet!

The euro which was hovering around 1.55 yesterday as I signed off, got a lift when a different European Central Bank (ECB) member, Orphanides, followed up ECB member Stark's comments that sent the euro lower, with a different statement. Orphanides decided that it was better to come clean and tell the markets that he "can't rule out the need for more rate hikes after the July hike"... You may recall that yesterday I told you the ECB member Stark had said, "However, we are not talking about a series of rate increases."

It's not often that the ECB members sing from a different song sheet... But I like Orphanides comments, and so did the markets!

We saw the color of the Fed's Beige Book (pun intended!), yesterday... And to use just two words to describe what the Fed Heads were discussing, the two words would be: "Generally Weak"... Here's a snippet of the report from the Fed... "Comments from retailers not particularly impressive as sales "slowed further" since the last report, but we still think strong sales at discounters will boost retail sales for May"

Thanks to Chuck for sending me these comments, and as I said above, all of the information released yesterday sent the dollar lower. But the European traders reversed the dollar's course and sent it rocketing back up. So what caused this reversal? It wasn't data released in Europe. European Industrial production unexpectedly rose in April as gains in France and Italy countered weakness in Germany. No, the dollar jumped on expectations that today's release of Advance Retail Sales in the US will show an increase following last months decline.

The traders in Europe are absolutely giddy with the thought that a higher retail sales number will cause the FOMC to start raising rates. But I have two problems with this most recent turn around for the dollar. First, the Advance Retail Sales numbers haven't even been released, and could come in softer than expected. As Chuck pointed out above, the Fed's own estimations of our US economy showed it to be 'Generally Weak' and indicated a further slowdown was likely.

Second, any pick up in the retail sales in April were likely due to the stimulus checks which were distributed. These checks likely gave us a one time boost as consumers rushed out and spent them. While I sometimes question the decisions the FOMC makes, I believe they have enough brainpower to realize any uptick in May's retail sales would be the result of these stimulus checks and not a sign of an economic turnaround. Unless congress wants to continue to borrow against the future to send out more stimulus checks to everyone, this uptick in spending won't last.

So even if the May's retail sales show a slight increase, I don't believe the FOMC will react by raising interest rates in the near future. We were having a discussion on the desk about interest rate differentials yesterday, and Chuck pointed out that the Fed has never raised interest rates while unemployment was rising. The ECB will continue to increase rates, as will several other countries as global inflation continues to increase. Reading all of the recent releases by ECB council members, I expect them to raise rates three more times this year while the US FOMC will keep rates on hold.
I just don't believe Ben Bernanke will be able to move US rates up. The US economy is going to continue to weaken throughout 2008 and do you really think the FOMC is going to raise interest rates in an election year and risk pushing the economy into a recessionary abyss?

I don't think so. In fact, after taking a break and holding rates right where they are for a few months, I think there is probably a pretty good chance the FOMC comes back with a further rate cut as the US economy continues to stagnate later this year.

The US currency was also supported by speculation that finance ministers from the Group of Eight countries will make comments discouraging the currency's decline at two days of meetings starting in Osaka, Japan, tomorrow. This would play right into the conspiracy theories that the US will coordinate intervention to try and strengthen the greenback. You can bet that policy makers will be doing there best to jawbone the dollar up during the weekend's G8 meeting.

One currency which did well vs. the US dollar overnight was the Indian Rupee which benefited from a surprise rate hike... The first one in over a year! The rupee liked the sound of a rate hike and rallied. India joined Brazil, China, and Russia in raising borrowing costs. These four nations, termed BRICs by Goldman Sachs, accounted for almost half of global expansion last year. India's industrial production growth accelerated more than expected in April to 7%. This higher growth will enable the economy to withstand further rate increases which will be used to combat inflation.

While the Indian Rupee has underperformed so far this year, interest rates are expected to increase by another 75 basis points during 08. As long as the Indian government doesn't step in the currency could start making up some of the lost ground vs. the US$.

One Asian country which hasn't benefited from the higher growth rates in the region is Japan. But the latest numbers show Japan's first quarter economic growth was faster than the government initially reported. Gross domestic product expanded an annualized 4 percent in the three months ended March 31, the Cabinet Office said today in Tokyo. But don't expect the higher growth figures to stimulate the BOJ to raise rates. The Bank of Japan will likely keep rates unchanged at the end of their two day meeting which begins today. And even the risk of higher inflation due to rising oil prices will not push the BOJ to raise rates before year end. While the yen looks to have very good potential, unfortunately that potential may not be realized until the BOJ begins to raise rates.

Currencies today 6/12/08: A$ .9363, kiwi .7515, C$ .9767, euro 1.5416, sterling 1.9471, Swiss .9569, ISK 78.50, rand 7.9955, krone 5.2155, SEK 6.0754, forint 160.35, zloty 2.2024, koruna 15.8284, yen 107.69, baht 33.18, sing 1.3802, HKD 7.8090, INR 42.855, China 6.9070, pesos 10.4194, BRL 1.6401, dollar index 73.83, Oil $133.94, Silver $16.59, and Gold... $869.60

That's it for today...We have finally received some nice late spring weather here, but the thunderstorms are expected to come back tomorrow. I was saddened to hear about the tragedy which occurred just north of us with a deadly tornado hitting a boy scout camp up in Iowa. My daughter Lauren is away at a YMCA camp down in southern Missouri, so the bad news hit pretty close to home. Looking forward to a big weekend here in St. Louis as the entire office is going to watch the Cardinals on Friday night. Hope everyone has a tremendous Thursday!!

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

The Fed Follows Through...

Chuck Butler — Thu, 01 May 2008 14:42:00 GMT

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In This Issue..

* Fed follows through...
* GDP holds positive...
* BOJ keeps rates unchanged...
* Gold continues to drop...

And Now... Today's Pfennig!

The Fed follows through...

Good day...Chuck will be a little late this morning, so he asked me to get the Pfennig out for him today. As usual, he sent me his thoughts on the big news of yesterday, the rate cut and announcement by the Fed. So here are Chuck's thoughts on the FOMC move:

"Well... The Fed did cut 25 BPS to 2% on Wednesday, just as I thought they would... And they tried a back door curve ball to try and wiggle out of a basses loaded jam... You see, the Fed had loaded the bases with rate cuts, and the markets were at bat, looking for the Fed to pull a Roberto Duran and say "no mas" with the rate cuts...

The Fed decided to leave out some language that had the markets thinking they had figured out the Fed... But in reality they know nothing more than they did earlier in the day! You see... The Fed removed the "downside risks to growth" clause as well as the statement that, "the committee will act in a timely manner as needed to promote economic growth and price stability."

OK.. On the outside looking in, this looks like a wink and nod from the Fed that they are finished... But... I don't think they are! And you know what? I don't think everyone else will buy it either, once it sinks in to some of the hard heads on Wall Street.

The currency participants didn't go for the back door curve ball, and they took the hammer away from the dollar... But not a huge swing back in the currencies' favor... Not yet...

I explained yesterday that the Fed wouldn't come out and say "no mas" because they would have egg all over their collective faces when the Jobs report for April prints on Friday... And the Fed didn't... They removed some language, but left Pandora's Box of interest rate cuts cracked open...

A couple of months ago, I told you that I believed the Fed would cut rates down to 1.50% before stopping... They are now at 2%... And I'm not backing off that statement!

Oh, and before I go and hand this back to Chris... (no there's not a word from our sponsor!) I wanted to touch on the GDP preliminary printing for the 1st QTR yesterday... It came in at .6%... And you should have seen the media jumping all over this saying... "see we averted a recession!"... Yeah, right... Without a good dose of Government Spending, and a swing in inventories, GDP would have been negative...

Household spending grew at the slowest pace since our last recession of 2001...

So, Hey! You dollar bulls... Keep propping up those dollars... There's no risk in the economy or markets these days! NOT! Knuckleheads... The whole lot!"

Thanks to Chuck for making my job a whole lot easier this morning! So with the Fed cut 'in the bag', and no clear sign from them if in fact this is the last cut, the dollar held its ground. But overnight, Asia decided the recent dollar rally was a bit overdone, and took the dollar back down, moving the dollar index below 72.50, where it was trading at the beginning of the week. But Europe turned it back around again, and rallied the dollar back to where it was trading right after the FOMC announcement.

As Chuck suggested, the language of the FOMC statement isn't clear, so everyone is trying to put their own spin on it. There are several stories out this morning which suggest we have avoided recession and are starting to move forward again, while others suggest we have several more quarters of negative growth before we see a turn around. Treasury Secretary Paulson seems to be right in the middle, suggesting that the credit crisis is probably about half over.

"We are closer to the end of this problem than we are to the beginning," Paulson said in a Bloomberg interview. Even with "headwinds and despite some of the things that we're going through, this economy is still growing, albeit modestly." Sounds like Paulson is still pushing the kool-aid (and drinking some of it himself). The FOMC will meet next on June 24-25 and current expectations predict they will leave the overnight lending rate at 2% for the rest of the year.

But a pause in interest rate cuts doesn't necessarily mean the dollar would rally over the next several months. Mike Meyer pointed out a research piece yesterday from Credit Suisse Group which showed the dollar index fell 8 percent by the end of the year after the Fed stopped lowering the target lending rate in June 2003. So even if the Fed does decide to pause, which I don't believe will happen, the dollar still may have some room to fall.

After all, even though the GDP figure was slightly positive, the fundamentals haven't changed. "Economic activity remains weak," the FOMC statement said. "Tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters." The gain in GDP reflected an increase in inventories as consumers retrenched and companies cut investment. Spending by households, the biggest part of the economy, grew last quarter at the slowest pace since 2001, amid mounting job losses and surging food and fuel prices. Data which will be released today will probably show further weakness in employment with the weekly jobless claims coming in above 365k.

We will also see the ISM Manufacturing number which will show a further weakening in the manufacturing sector. Finally, we will get the monthly construction spending and total vehicle sales, both of which will show continued weakness. On the drive in this morning, I heard a piece on the number of US consumers who are getting behind on their car loans. Loan delinquencies in the auto sector are at 17 year highs. When you think about it, the two biggest loans US consumers take out are on their home and car. We have all heard about the crisis in the housing market, and it looks like we will have a similar crisis in the automobile sector now. Several customers are 'upside down' in their car loans, as they paid too much for huge SUV's which are now worth substantially less with gas prices skyrocketing. Just another drag on our already over leveraged consumer, and further proof that we are still no where near the bottom of this economic downturn.

The FOMC wasn't the only central bank meeting yesterday, as the Bank of Japan announced they would leave rates unchanged. This was again largely expected by the markets, but some of the accompanying language showed their concern with inflation. The BOJ predicted inflation would accelerate but also cut its economic growth forecast. The report tried to downplay any predictions of interest rate moves, and the markets seem to think the BOJ will leave rates unchanged through the end of the year. The yen didn't really react to the news, as markets had already predicted the outcome.

The Japanese yen will continue to be at the mercy of the 'carry trade'. When the markets are worried about risk, the carry trades will be reversed and the yen will rally, but when risk is no longer a worry, the carry trades will be put on and the yen will fall. Right now, the markets are putting carry trades back on, so the yen has been sold. But I believe there will be another 'event' similar to Bear Stearns which will remind the markets that all is not well and these carry trades will again be reversed and the current 104 levels on the yen will look cheap.

With the Fed failing to raise concern on inflation, gold continued to drop. Investors move to gold as both an inflation hedge and as a safe haven during high risk periods. Lately, investors have started moving back into riskier assets and away from the relative safety of gold. Again, I don't share the rosy picture which these investors have, and believe we will soon be reminded of the risk which remains.

Currencies today 5/01/08: A$ .9386, kiwi .7792, C$ .9827, euro 1.5528, sterling 1.9867, Swiss .9558, ISK 75.07, rand 7.5793, krone 5.1122, SEK 6.0179, forint 162.72, zloty 2.22, koruna 16.295, yen 104.11, baht 31.65, sing 1.3582, HKD 7.7930, INR 40.59, China 6.9914, pesos 10.489, BRL 1.6622, dollar index 72.88, Oil $112.92, Silver $16.68, and Gold... $856.20

That's it for today... We are all hoping and praying that things go well for Chuck this morning! He got to see a great game yesterday, and the weather helped out with temps staying in the 70's. I can't believe it is already May, this year is really flying by. Both Chuck and I will be traveling during May with the LasVegas Money show and a Sovereign Society meeting in Panama. All the travel can be tough, especially on Chuck, but he loves 'spreading the word' on EverBank and the benefits of portfolio diversification. Hope everyone has a Terrific Thursday!!

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