Daily Pfennig : Brazilian Real

Dollar drifts lower....

Chuck Butler — Fri, 06 Nov 2009 15:30:36 GMT

..But First, A Word From Our Sponsor..
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In This Issue.

* Dollar drifts lower...
* Looking for silver linings...
* NOK to increase rates...
* Aussie dollar continues to move up...

Dollar drifts lower....

Good day... And good morning to everyone. I wanted to start out this morning's Pfennig by saying my thoughts and prayers go out to all of the families of the fallen soldiers and civilian at the tragedy down at Ft. Hood. It is tough enough when we here about losses of our soldiers overseas in the 'combat zones'; but such a large loss of life right here in the US is deeply saddening.

The dollar moved lower throughout the trading day on Thursday as investors felt more confident with the global recovery and the US stock market climbed back above 10,000. Yesterday's weekly jobs numbers were slightly better than expected, and set the market up for this mornings monthly jobs report which will probably show fewer job losses in October compared to September. But there will still be job losses, not gains; and the 'official' unemployment number will inch closer to double digits. We all know if you count those individuals who are underemployed (part time workers who would like full time jobs) and those that have given up on their job search, the actual unemployment number is more like 16%.

Another number which was encouraging for economists was the large jump in non-farm productivity. US worker productivity spiked up an annualized 9.5% in October as employers found ways to squeeze more work out of existing employees instead of hiring new ones. This jump demonstrates one of the positive aspects of a severe economic slowdown. Contrary to what some reader's of the Pfennig seem to believe, neither Chuck nor I are happy that the US continues to be mired in this economic recession. But business cycles are inevitable, and the more we 'spend to extend' the longer it will take for the recovery to take hold. The jump in productivity is one positive which comes out of an economic downturn. In the good times, companies become fat and happy, with many companies becoming very in-efficient. The severe slowdown causes companies to rethink all of the processes, and worker productivity increases. This need for higher efficiency also encourages innovations to the manufacturing and service sectors.

Another piece of data due out this morning will illustrate another positive aspect of the economic slowdown. US Consumer credit is expected to show another $10 billion drop. The highly leveraged US consumer is continuing to draw in their purse strings, ignoring calls from the administration to resume their old borrow and spend attitudes. While some of this belt tightening has been forced on consumers by the credit crunch, hopefully we will see this adjustment continue. This isn't good news for retailers as we approach the holiday season, but if the global imbalances are to be corrected, US consumers are going to have to continue to increase their savings rate and decrease debt.

So there are a few silver linings to the economic cloud hanging over the US. The United States will eventually emerge from this economic storm with a leaner and meaner manufacturing sector and a much weaker dollar enabling it better compete in the global arena.

Both the ECB and BOE kept rates unchanged, just as Chuck had predicted. Officials at the Bank of England slowed the pace of bond purchases, but still approved the additional purchase of 200 billion pounds. A rebound in factory output, which rose 1.7% (the largest gain in 7 years) combined with a .2% increase in UK producer prices caused the change of direction by the BOE.

ECB President Jean-Claude Trichet signaled the beginning of the end of emergency stimulus measures in Europe. Trichet said next month's offer of 12 month loans would be the last. Data released yesterday was unable to paint a clear picture of the economic recovery in the Euro-area. German factory orders rose for a seventh month in September, as exports helped the recovery. But another report showed European retail sales fell for a 16th month, declining more than economists had predicted.

The Euro rallied a bit after the ECB decision, but Citigroup is predicting an even larger rally. A report by Citigroup stated that the technical trading patterns predict the Euro will climb to $1.5064 short term, and move up to $1.5285 over time. It continues to look like Europe will recover, and the euro will move higher vs. the US$.

The Norwegian krone also moved higher as Norway's central bank Deputy Governor Jan Qvigstad said it is 'most probable' the deposit rate will be moved another quarte point higher by the beginning of 2010. Officials of the Norges Bank are attempting to hold down some of the appreciation of the krone as Norway continues to increase interest rates to combat rising inflation. Norway's oil rich economy was one of the first to emerge from recession, so the central bank is also taking the lead on increasing interest rates. Yield differentials, along with a strong economy should keep the NOK among the world's top performing currencies.

Speaking of the top performers, I was updating the return charts for the currencies yesterday and was amazed at the returns on the Brazilian real and Australian dollars YTD. Brazil is up 31.42%, and the Australian dollar has increased 28.05% during 2009. The Australian dollar continued to strengthen yesterday as the central bank signaled it will continue to increase interest rates in the coming months. "A further gradual lessening of monetary stimulus is likely to be required over time," the Reserve Bank said in Sydney today. A rally in commodity prices, along with increasing interest rates will push the AUD toward parity with the greenback.

Yesterday was Chuck's Friday, as he took today off to spend some time with Alex who was off school. But before heading home, he asked me to include the following in today's Pfennig:

And then there was this... Yesterday, I totally forgot to mention my complete distaste for naming a designated hitter (DH) the MVP of the World Series... He doesn't play the field... And only batted 13 times during the Series... Baseball people like myself, just cringe when the DH is in play... Giving the MVP to a DH goes along with the thought that is prevalent in sports today... To give every kid a trophy... Oh well... Let's move on to other things because it's YOUR Friday!

I am a little late in getting this out, so I am able to tell you the official US Unemployment rate rose into double digits during the month of October, hitting 10.2%. This will probably give some life to the US$, as investors run away from risk and move back into US treasuries for temporary safe haven.

To recap... Silver linings of the current economic storm cloud: increased worker productivity and decreased consumer credit. The ECB and BOE kept rates unchanged. Aussie dollars continue to move closer to $1, and Chuck really doesn't like the DH!

Currencies today 11/5/09: American Style: A$ .9161, kiwi .7247, C$ .9342, euro 1.4881, Sterling 1.6587, Swiss .9848, European Style: rand 7.5482, krone 5.6747, SEK 6.9866, forint 184.70, zloty 2.8567, koruna 17.27, RUB 28.96, yen 90.60, sing 1.3925, HKD 7.75, INR 46.815, China 6.8274, pesos 13.29, BRL 1.719, dollar index 75.71, Oil $79.60, 10-year 3.5%, Silver $17.50, and Gold... $1,093.55

That's it for today... The Blues finally scored a goal at home, but lost to Calgary last night in overtime. The sun is shining again today, and apparently we are supposed to have a rain-free weekend!! The big EverBank sign went up on the new office building next door, we will be moving into our new digs in less than a month. 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

3rd QTR GDP Is Strong!

Chuck Butler — Fri, 30 Oct 2009 14:40:04 GMT

..But First, A Word From Our Sponsor..
Gain exposure to currencies of emerging BRIC countries-and don't lose a dime on market risk

* 4 BRIC currencies: Brazilian real, Russian ruble, Indian rupee, Chinese renminbi
* High upside potential
* No market risk to deposited principal
* Low $1,500 minimum deposit

Don't miss this unique opportunity. Deadline to buy the BRIC MarketSafe CD is Dec. 3rd, 2009. Apply today or learn more at http://www.everbank.com/001CertificatesMSBRIC.aspx?referId=11808
.

In This Issue..

* Dollar gets sold after GDP report
* High yielders get bought!
* German Retail Sales decline...
* Real has wild swings!

And Now... Today's Pfennig!

3rd QTR GDP Is Strong!

Good day... And a Happy Friday to one and all! I can't believe how hard it rained here yesterday... Unbelievable! And me, with my cane, and not able to run, was stuck in it going from the car... Absolutely soaked! If I were a kid, I would have thought that to be fun! But, I'm not... It's still raining this morning too! UGH! Let's hope it stops in time for the Trick-or-Treaters!

OK... Well the rain fell on the dollar's parade yesterday too! And, just like I thought it would do... The dollar got sold like funnel cakes at a state fair, once the U.S. 3rd QTR GDP report printed... The dollar rally was stopped in its tracks, which meant that the "trading theme" that rewards the dollar when things look bad in the U.S. and punishes it when things look good, which is completely opposite of what it should do fundamental wise, was still in place!

3rd QTR GDP was 3.5%!!! Let's Party! Get on your red dress sweetheart we're going out dancing, we're going to party like it's 1999! Seriously, the Gov't officials, including Summers and Geithner think it's all seashells and balloons from here on out! So, why shouldn't we think the same? I mean they've never led us to the wrong side of the tracks have they? HAHAHA HAHAHAHAHAHA... And HAHAHAHAHAHAHA HAHAHAHAHA!

OK, don't get me wrong here, I'm glad the U.S. economy seems to be out of the recession/ depression... But, didn't we expect a bump in the economy? Didn't we think we would see growth by the end of the year, based on the stimulus and money supply extravaganza that went on the first part of this year? And... Based on the reports I saw, a large portion of the growth was actually a return of Consumer Spending in the quarter... Cash for Clunkers really helped the Consumer Spending along too!

But isn't it just like the people that win the lottery... Suddenly, they have all this cash... And they spend it until they have no cash and voila! They are back to having nothing to spend! That's how I think the U.S. economy will react once the stimulus and other monetary candy is withdrawn from the economy... I'm still pinning my colors to the mast of a double dip for the economy... We've got the first two parts... The negative growth, and now the positive growth... Where are we headed next? Only the Shadow knows!

We'll begin to see a glimpse of what's going to go on in the next couple of weeks, as the Fed's Quantitative Easing program has hit their ceiling of $300 Billion, and ended yesterday... The Fed's 7-month buying spree, remember they announced this plan while I was in Florida at spring training, seems to have put the lid on yields of Treasuries to allow the housing market some time to heal... But, as I told my publisher for the Currency Capitalist, Erika Nolan, when I met with her after the announcement... "the U.S. has just opened Pandora's Box of baaaaaaaaaddddddd things for the economy, for Japan has implemented this same program, but over 10 years ago, look how well that's turned out for them!"

Today's data brings us two of my faves... Personal Spending and Income... We'll see if the Consumer Spending continued in September or not...

There's a great headline to a story on the Bloomie this morning... The title reads: "Obama Bridge To Lasting Economic Expansion Risks Going Nowhere" A Bridge to nowhere... That sounds about right to me! It could be the Bridge Over Troubled Waters, or it could be the Bridge of Sighs... I still believe that the U.S. Gov't has spend Trillions taking us deeper into the abyss of a national debt, with little to show for it, except... The U.S. has ventured into the private sector deeper than any Gov't has before during this financial meltdown... Think they'll get out once it's over? HAHAHAHA HAHAHAHAHA! Not going to happen my friend!

OK, enough of that! It's a Friday for crying out loud, Chuck, can't you think of more pleasant things to talk about? Yes... Let's see... Oh yeah! I started telling you above about the non-dollar currency rally VS the dollar yesterday, so let's go back to that!

Well, there wasn't much to say other than the dollar got sold after the GDP report printed... It wasn't so much that the currencies rallied VS the dollar, as it was a sell off of the dollar, which led to a currency rally! The high yielding currencies of Australia, Brazil, New Zealand, and even Norway now that rate on the rise there, posted the best gains VS the dollar on the day. And that makes sense, right? I mean, haven't I been harping on the yield / interest rate differentials lately? And here's where they came out to play!

The data in the U.S. was good, which brought the risk takers out of the walls once again, and knowing that the U.S. interest rates are going to remain near zero for some time to come, they sold the dollar and those paltry yields that go with the dollar, and bought currencies that had a nice positive yield differential to the those paltry yields!

The Big dog, euro, as the offset currency to the dollar, obviously participated in this dollar sell off... The euro's gains were stopped this morning though, when German Retail Sales printed and unexpectedly declined in September. Remember, Germany's economy exited their recession in the 2nd QTR, albeit a nascent recovery at best... So, we'll have to keep an eye on Germany's nascent recovery to see if it "double dips" too!

Speaking of Brazil... Recently, the real has really shown its tendency to take a walk on the wild side when trading gets going... I'm talking about 3-5% swings good and bad! Whew! That's something to watch! The good news is... That even though the swings in the price of the real are wild, the overall trend continues to be good for real holders... I expect the real to react to rumors this morning that the Gov't will not throw out road blocks to impede the real's performance... That would be HUGE! And very welcomed by currency traders that trade the real always looking over their shoulders to see if the Gov't will throw out the road blocks... So, like I said, there are rumors this morning, that the Gov't will announce that they are not going to impede the real's rise at this time...

And then there was this... U.S. Treasury Sec. Tim Geithner, announced yesterday that he wants the power to not only tell a corporation that they are closed for business, but to also have the power to shrink Corporations that are not having problems! He will be the "death panel" that Barney Frank talked about a couple of months ago for non-financial institutions... Shake me, Wake me, when's it's over... Maybe I'm having a bad dream, folks...

To recap... The dollar's rally was stopped in its tracks by the U.S. 3rd QTR GDP which printed a 3.5% increase, and caused investors to seek higher yielding assets, thus selling dollars. German Retail Sales unexpectedly declined in September, thus stopping the euro from rallying further this morning. And the High Yielders get all the glory when investors realize that U.S. rates are going to remain near zero for some time to come... Aussie, Brazil, New Zealand lead the pack!

Currencies today 10/30/09: A$ .9155, kiwi .7310, C$ .9360, euro 1.4845, sterling 1.6540, Swiss .9840, rand 7.6750, krone 5.63, SEK 6.9875, forint 183.61, zloty 2.8525, koruna 17.83, RUB 29.02, yen 90.90, sing 1.3970, HKD 7.75, INR 47.03, China 6.8275, pesos 13.01, BRL 1.7325, dollar index 75.87, Oil $79.58, 10-year 3.62%, Silver $16.60, and Gold... $1,044.90

That's it for today... I'm writing from home this morning, as I have a doctor's appt. first thing before I go to work... The network was a little touchy this morning, and I wasn't sure I would get this out, but it has settled down now. Whew! Big Weekend for my beloved Missouri Tigers as they travel to Colorado. And my little buddy Alex, as his team travels to Webster Groves! HA! Good news in the local paper this morning, as the best player in baseball today, Albert Pujols announced that he wants to be a Cardinal for life! Our Blues just can't get on a roll, win one, lose one... UGH! So... Tomorrow is Halloween! I can't wait to see the little ones in their costumes! Our little Delaney Grace is Dorothy from the Wizard of Oz, with ruby red shoes, a basket and Toto too! She is so darn cute! I'll leave you with the thought of a little Dorothy coming to your door! I hope it dries out here soon... And I hope you have a Fantastico Friday and Ghoulish Weekend! BOO!

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

The Dollar Bounces Back!

Chuck Butler — Tue, 27 Oct 2009 14:22:19 GMT

..But First, A Word From Our Sponsor..
Gain exposure to currencies of emerging BRIC countries-and don't lose a dime on market risk

* 4 BRIC currencies: Brazilian real, Russian ruble, Indian rupee, Chinese renminbi
* High upside potential
* No market risk to deposited principal
* Low $1,500 minimum deposit

Don't miss this unique opportunity. Deadline to buy the BRIC MarketSafe CD is Dec. 3rd, 2009. Apply today or learn more at http://www.everbank.com/001CertificatesMSBRIC.aspx?referId=11808
.

In This Issue..

* Rumors kill the currency rally...
* Risk Aversion campers return...
* Dr. Faber with some thoughts...
* Big Mac and the real...

And Now... Today's Pfennig!

The Dollar Bounces Back!

Good day... And a Terrific Tuesday to you! The rain is back... First we had the coldest / rainiest spring I can ever recall, and then a very mild summer, now this... Cold and rain in the fall... I'd say that's climate change for you!

Good news from the scans! By the grace of God, I sailed through the scans and tests, cancer wise... I would like to thank everyone that had me in their thoughts, and prayers... Those are powerful things, don't forget that one minute!

OK... Well, the non-dollar currencies didn't enjoy such good news yesterday, as they got whacked a good one! After signing off yesterday, the non-dollar currencies continued to rally VS the dollar, and then the rug got pulled out from underneath them in a NY Minute! What happened? The risk assets were dropping like the Cardinals' batting averages at the end of the season... Well... Remember yesterday when I said that the data for the week looked like it might show some healing in the economy which would be bad for the dollar?

Well, it wasn't data that caused this move... It was a few things that I'll list for you that ganged up on the currencies and gave the markets the thought that the U.S. economy just might not be free and clear, which brought about a return of the "Risk Aversion" trades... Here's the list that ganged up on the non-dollar currencies...

Things making the U.S. economy look like its on shaky ground again include:
1. rumors that the first-time home buyer's credit will not be extended past Nov 30
2. rumors that the ING rights issue is not being well received
3. talk of bank downgrades
4. mention of a new bill addressing 'too big to fail' giving the Gov't broad power to dismantle financial companies that get into trouble

I was asked by our Public Relations people to put together some thoughts for CNBC... So, the above stuff was what I put together... CNBC then asked for an interview... Well, this is where I get off the bus... Long time readers know that I've been ambushed twice at CNBC, and decided to not go back for a 3rd... So, even though this interview has little chance of an ambushing, since they asked for the info... The Big Boss Frank Trotter will be doing the honors at 8:40 CT / 9:40 ET, today... So, don't forget to tune in!

Another thing that may be giving the dollar some love is the yield on the 10-year Treasury... This yield, as reported in yesterday's Pfennig, had bumped up to 3.50%, which had been the proverbial line in the sand in the past... 3.50% had been the level that had seen strong Treasury buying (probably by the Fed!) to bring the yield back down... But yesterday, we saw this yield inch higher to 3.54%... We should keep an eye out of this, to see if we see slippage in the yield, for it would only mean one thing... That the Fed was buying again! And that's the reason the dollar got some love yesterday from this yield... Because so far... The Fed hasn't gotten their hands dirty here... But should they, once again, it won't support the dollar...

So... There you have it! Just when we thought the data this week would send the dollar to the woodshed, these things popped up to underpin the dollar! Hopefully, it's just a case of sell the rumor and buy the fact for the non-dollar currencies, as most of this stuff was just rumors in the markets...

But it did get people / investors / traders thinking about just how oversold, in the short-term, the dollar was... It normally takes something like this to get those thoughts to come to the front of the class, as the negativity had such a stronghold.

We've seen these "Risk Aversion" moves in the past 7 months, and each time they've been short in terms of time that they lasted. But that doesn't mean we'll see the risk aversion campers leave shortly this time... They might... And they might not... Don't you just love it? I know one thing for sure! The sell off yesterday was swift and strong. For instance, the euro was 1.5050 before the sell off, and is 1.4890 this morning! What does that look like to you? Buzz! If you said, "Chuck, it looks like a cheaper level to buy" then you may have won a free subscription to the Pfennig newsletter! If you did not have that answer, then there's a free parting gift for you at the door! HA!

Yes, it certainly does look like a cheaper level to buy... Of course it doesn't mean that tomorrow's price won't be cheaper, but given the history of the risk aversion reversals in the past, it doesn't mean that it will be cheaper either!

And... According to Commerzbank... "it would probably be premature to call this the end of the dollar's weakness. It remains under pressure due to the low interest rates and the resulting attractiveness as a financing currency for Carry Trades."

I saw a story last night about the Brazilian real, and how the real's +35% gain VS the dollar this year, as a Big Mac in Brazil costing more than in New York and London... Uh-Oh! That Big Mac Index again! But that doesn't scare the research team over at Goldman Sachs, for they still believe the real has room to gain VS the dollar... And you know me and the Big Mac Index... While it's a "nice" measure, it's not the holy grail of currency outlooks... I can point back to 2000 and 2001, when the Big Mac Index said the dollar was overvalued, but it took nearly 2 years before we saw dollar weakness... So, I don't put much faith in the Big Mac Index, for short term forecasting... Not that I forecast, at least not in this letter I don't, for I would be hung out to dry by readers if I got something wrong... I mean look at when I said I thought the Aussie dollar COULD go to parity, and it only got to 98.5-cents!

OK... Dr. Marc Faber was in the news last night, as he was giving an interview on Bloomberg TV... This is Dr. Faber's words folks...

"The dollar will become worthless when people eventually realize the fiscal situation in the U.S. is a disaster. It will go to a value of zero eventually, but not right now. Looking at Mr. Obama's administration, it should already be there." He went on to say...

"In my opinion, about 50% of tax revenues will be used just to cover interest payments on the government debt. That's unsustainable. Then you'll really be forced to print money. The best investments right now are foreign currencies, commodities, and equities." And then when asked about Fed Chairman, Big Ben Bernanke, Dr. Faber said, "He's a money printer. He's nothing else."

Whew! That's taking the whole shootin' match of the Gov't and the cartel, I mean the Fed, to the woodshed, eh?

For those of you at home keeping score, make sure you've jotted down the right figure of dollars that the U.S. Gov't and the Fed have spent, lent or guaranteed... $11.6 Trillion!

OK... It looks like the last country that's needed to sign the Lisbon Treaty, the Czech Republic is going to sign it... Now, let me be perfectly clear about this... I don't agree with the Lisbon Treaty, but the European Union has gone so far down this road now, that there's no turning back, so you might as well go along and sign the thing, I guess... The one thing it does do, is underpin the euro... For if this Treaty did not get signed, the pressure on the euro would have been great, because you would have had all the naysayers coming out of the walls again talking about a collapse of the European Union and a return to the legacy currencies... You know: Deutsche marks, French francs, Spanish pesetas, and so on...

Speaking of Europe... I know it's not really November... But it's close enough! The Norges Bank of Norway will meet tomorrow, and are expected now to raise rates, which would make them the first European Central Bank to raise rates... Notice I said "now"? Well, the rest of the crowd are jumping on my bandwagon that began a couple of months ago when I said that it was a race between Australia and Norway to be the first to raise rates... There weren't many pundits out there calling for rate hikes... But as time has gone on, and they read the Pfennig, they've come along nicely! HAHAHAHAHAHA!

In the last couple of weeks, the Pfennig and me, have been mentioned a couple of times by the best writer on the planet, Richard Russell... And now, I have learned that Harry Schultz has mentioned the Pfennig and me in his most recent letter... The Pfennig is really beginning to get noticed, eh? That just puts more pressure on me to come up with fresh, informative information!

Hmmm... And then there was this... PIMCO's Bill Gross, who is known as the "bond king" admitted that he "has some concern on owning Treasuries"... If Bill Gross has some concern folks, shouldn't we? I recently did about a 20 minute video for our friends over at the Sovereign Society on the Treasury Bubble... Sure wish Bill Gross would have said something like this when I was putting that video together! Imagine what I could do with a statement like that when I'm doing a video on the Treasury Bubble!

OK, to recap... The dollar came back with vengeance yesterday, after some rumors on the street led people to believe that things in the U.S. won't be free and clear after all, which led to risk aversion... We've seen this risk aversion before, and each time it hasn't lasted too long... Dr. Marc Faber checks in with some comments on the dollar, and Bill Gross has some concern about owning Treasuries!

Currencies today 10/27/09: A$ .9185, kiwi .7485, C$ .9370, euro 1.4890, sterling 1.6440, Swiss .9825, rand 7.5680, krone 5.6350, SEK 6.8930, forint 180.25, zloty 2.8170, koruna 17.52, RUB 29.11, yen 91.90, sing 1.3965, HKD 7.75, INR 46.95, China 6.8294, pesos 13.24, BRL 1.7325, dollar index 75.85, Oil $79.09, 10-year 3.54%, Silver $17.14, and Gold... $1,040.10

That's it for today... Well... From one thing to another... No sign of cancer is a great thing for me! But now the left knee and lower leg... I go for another test today, to see if they can figure out what's causing the swelling. So, I'm not out of the woods completely, just yet... Originally, I had thoughts about attending the Grand Opening of La Estancia de Cafayate in Argentina that's going on this week... But then Ty Keough told me how long it would take me to get there, and I decided that my trip to Cabo San Lucas next week was enough! Then I think that's it for me this year, as far as travel goes... I normally speak to the Wealth Masters Group in December on Marco Island, but they moved that meeting to next spring... So, I think I'll be home until we go to Orlando for the Money Show in Feb. 2010! You'll be so tired of hearing from me, you all will probably take up a collection and buy me a plane ticket somewhere! HA! OK... Time to go... I hope your Tuesday is Terrific!

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

Brazil Throws The Cat Among The Pigeons!

Chuck Butler — Wed, 21 Oct 2009 14:26:05 GMT

..But First, A Word From Our Sponsor..
Gain exposure to currencies of emerging BRIC countries-and don't lose a dime on market risk

* 4 BRIC currencies: Brazilian real, Russian ruble, Indian rupee, Chinese renminbi
* High upside potential
* No market risk to deposited principal
* Low $1,500 minimum deposit

Don't miss this unique opportunity. Deadline to buy the BRIC MarketSafe CD is Dec. 3rd, 2009. Apply today or learn more at http://www.everbank.com/001CertificatesMSBRIC.aspx?referId=11808
.

In This Issue..

* Real leads Commodity Currencies to the woodshed!
* Niall Ferguson speaks his mind...
* BOC leaves rates and statement unchanged...
* Bollard gives the green light!

And Now... Today's Pfennig!

Brazil Throws The Cat Among The Pigeons!

Good day... And a Wonderful Wednesday to you! How many people out there know about "network neutrality"? Well, if you don't know, you're about to find out tomorrow, when it will be decided upon... I'm not going to get into it, because after you find out what it is you'll know why I didn't explain... All I'll say is that this is just another thing that's flying below the radar that's about to be thrown in our laps...

OK... Well... Yesterday, after signing off and hitting the "send button" for the Pfennig, I saw a story that shot across the desk, and then a follow up was sent to me by Don Ries later in the morning. The story was about the Brazilian Gov't imposing a 2% tax on capital inflows... This was done in an attempt to slow down the Brazilian economy by slowing down the "hot money" that's going into the Brazilian stock market by foreigners... Talk about throwing a cat among the pigeons!

This news was like a shot to the heart and you're to blame, for the Brazilian real... Talk about pulling the rug from underneath the real! The loss for the real was 3.5% for the day! WOW! We had a reader call and accuse me of not writing about this story in yesterday's Pfennig, because I didn't want to water down the BRIC MarketSafe CD sales... WHAT? First of all, I didn't know about it until after I sent the Pfennig out... And second of all, What's a tax today that may not even be in place 6 months from now, have to do with the real's value in 3 years from now? Besides, this is good news for those that are buying the real now, for they get to buy it 3.5% cheaper! I shake my head and repeat... HOGWASH! Accusing me of hiding something!

Any way... My colleague on the Currency Capitalist newsletter, Ashish Advani, had this to say about the tax announcement in Brazil...

"Frankly, I think this move to restrict capital flows is a pointless exercise at best. It's simply a waste of time to think that they can control the strengthening Brazilian real."

OK, back to me... In addition, to Ashish's thoughts... I tend to think there's something up Bullwinkle's sleeve here... Recall that about a week ago or so, I told you that Brazil's Central Banker had mentioned the need to raise interest rates 200 Basis Points (or 2%)... So... The Gov't sees the real responding to that comment, and thinks, "Oh my God, we've got a big problem when rates really do go up 2%, for this real will skyrocket! What's a Gov't to do? Ahhh, we'll impose a tax to offset the rate hikes, thus currency neutrality"...

So... I still like the real, but this really points out what I've been trying to say for some time now... These Emerging Markets currencies are Big Swingers, when they're going good, they're really good, but when things go awry, they really go bad, fast! But, that's their game, as long as you know it, no biggie!

But like Ashish said, I see this as a short-term adjustment for the real...

OK... So, that news yesterday sent not only the real to the woodshed, but sent the Aussie, kiwi, Norwegian krone, and Canadian dollar to join the real in the woodshed! The Big Dog, euro lost about 1/2-cent, but was able to avoid the trip to the woodshed.

I also received an email yesterday from a reader that really ticked me off... And I get ticked off every time someone accuses me of this! The reader said that I was accusing the current administration with the "total deficit"... I AM NOT! I HAVE NOT! I USED TO SHOOT ARROWS AT THE PREVIOUS ADMINISTRATION FOR THEIR DEFICIT SPENDING! I CAN NOT BELIEVE I HAVE TO KEEP EXPLAINING THESE THINGS! Look... Do the research and then point a finger at me! The research in this case would show that for over 9 years, I've harped and harped about deficit spending! Remember when the U.S. Current Account Deficit reached 4.5% of GDP in 2001, and I blasted the Gov't for doing that? Of forget about it Chuck, this is akin to talking to one of your kids... One of these days when they're adults they will talk about how smart you became in your late years!

Whew! I was really pounding on the keys there... My fingers need a rest! But as long as we're on the subject of Deficit Spending, (that's been going on for more than 8 years!!!!) Ty Keough sent me this:

The U.S. is an empire in decline, according to Niall Ferguson, Harvard professor and author of The Ascent of Money.

"People have predicted the end of America in the past and been wrong," Ferguson concedes. "But let's face it: If you're trying to borrow $9 trillion to save your financial system...and already half your public debt held by foreigners, it's not really the conduct of rising empires, is it?"

Given its massive deficits and overseas military adventures, America today is similar to the Spanish Empire in the 17th century and Britain's in the 20th, he says. "Excessive debt is usually a predictor of subsequent trouble."

OK... Here's some more Niall Ferguson... Ferguson dismisses the dollar loyalists, citing the British pound -the last international reserve currency - as his example. "These things don't last forever" but don't expect it to happen overnight. "It's a long multi-decade process," he states. Even with the dollar near a 14-month low against the Euro, he claims it's not without historical precedence for the greenback to lose "another 20%" this year.

For international investors the loss is enough to offset this year's stock market gains. Not exactly great motivation for foreigners to keep buying the almighty dollar."

Sounds like Mr. Ferguson has been a loyal reader of the Pfennig for the past 17 years!

Fed Head, Janet Yellen gave a speech yesterday, which her comments are usually good for a few quotes... And this was no exception... Fed Head Yellen said, "IT IS TO BE EXPECTED THAT INTEREST RATE DIFFERENTIALS WILL DRIVE CAPITAL FLOWS and that: U.S. STRUCTURAL BUDGET DEFICITS A SERIOUS PROBLEM, WILL REQUIRE PAINFUL DECISIONS"

Well now, that's two subject that I've talked quite a bit about lately now isn't it? Interest rate differentials, and the Budget Deficit problem... And some people wonder why I say that currency and precious metals diversification is a must? Really? When your own Fed Head thinks that these things will be problems, doesn't that spell it out for you? I thought so...

Not that I'm waving the flag for the Russian ruble here folks, but I think it's important to note that I've said all along that Russia is an "oil play" and nothing more... And that the currency has rallied in step with the rise in oil prices recently... And the ruble's biggest move VS the dollar came overnight after Oil briefly touched $80 yesterday!

A few people asked me yesterday why I didn't include the Swiss franc when I was talking about Aussie and loonies going to parity against the dollar... Well, for one, I wasn't talking about that, I simply gave you a quote from Citigroup's research team. But since you asked... The franc is only 1-cent away from parity, so in my mind it's already there! I just keep thinking about the Swiss National Bank's (SNB) warning to the markets about franc strength...

But hey! What could the little old SNB do to stop the franc from going to parity against the dollar?

Well... I was wrong... There I said it! (My beautiful bride says that I never admit when I'm wrong, and I say I do, it just doesn't happen very often! HA!) I said that I thought the Bank of Canada (BOC) would lift their previous statement that their near zero interest rates would remain in place until the 2nd half of 2010... The BOC did NOT lift that statement... In fact, the BOC hung the loonie out on a line to be beaten until dry! The BOC whined about the strong loonie as working against economic growth...

So... I think the BOC did what they set out to do, and that was to: 1. stop the talk about a rate hike before their stated timeline, and 2. stem the loonie's rise... The loonie dropped about 2% on the day...

But, like most things... The pain of the BOC statement will be forgotten about in a few weeks, and I suspect the loonie to be back on the road to parity against the dollar...

And then there was this... Long time readers know my dislike of the Reserve Bank of New Zealand's (RBNZ) Gov. Bollard, due to his penchant for dissing the currency, kiwi... Well, in a turn of direction... Gov. Bollard said in a speech last night that "there is little the Bank can do to bring down the value of NZD, and that the high value of NZD is not necessarily an impediment to raising the official cash rate in order to quell rising house prices."

That's Central Bank parlance for: "I'm giving you the green light to push kiwi higher"...

U.S. Housing Starts were disappointing in yesterday's print from September, where a .5% gain was very much less than expected...

PPI (wholesale inflation) declined 0.6% in September... Which is a very strange number don't you think?

To recap... Do you know what Network Neutrality is? You had better find out! Brazil imposed a 2% tax on capital inflows to an attempt to slow the economy and the real's rise. The real reacted with a 3.5% drop VS the dollar. The other Commodity Currencies followed the real down VS the dollar. The Bank of Canada also tried to stop the loonie's rise, and the RBNZ's Gov. Bollard give the green light to kiwi appreciation!

Currencies today 10/21/09: A$ .9220, kiwi .7530, C$ .9475, euro 1.4930, sterling 1.6570, Swiss .9890, rand 7.3930, krone 5.5750, SEK 6.8990, forint 177.50, zloty 2.7960, koruna 17.33, RUB 29.17, yen 90.80, sing 1.3950, HKD 7.75, INR 46.48, China 6.8275, pesos 13.02, BRL 1.76, dollar index 75.46, Oil $78.30, 10-year 3.36%, Silver $17.40, and Gold... $1,052.70

That's it for today... I hope everyone is staying healthy, and away from the flu these days... Good luck to the best baseball player today, and best Cardinal since Stan Musial, Albert Pujols will undergo surgery on his right elbow today. Had a visit from one of my all-time fave people yesterday... Ellie Williams came by! Ellie has authored a few books over the years, and in one, that she wrote about 8 years ago, she even mentions me and the Pfennig! Ellie is a fellow cancer survivor, so we always have plenty to talk about! The Big Boss, Frank Trotter, was limping around the office yesterday, having suffered an ankle injury playing soccer (why, I have no idea!) I told him we could go to the orthopedist together, as my knee has never responded to the steroids that were injected into it. Looks like a scope is in my future! And with that... I'll get this out the door! I have an eye appt. this morning, so I need to get working! I sure hope your Wednesday is Wonderful!

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

Gold Soars To Another All-Time High!

Chuck Butler — Thu, 08 Oct 2009 14:39:07 GMT

...But First, A Word From Our Sponsor...
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* 4 BRIC currencies: Brazilian real, Russian ruble, Indian rupee, Chinese renminbi
* High upside potential
* No market risk to deposited principal
* Low $1,500 minimum deposit

Don't miss this unique opportunity. Deadline to buy the BRIC MarketSafe CD is Oct. 13, 2009. Apply today or learn more at http://www.everbank.com/001CertificatesMSBRIC.aspx?referId=11808

In This Issue..

* $1,055 for Gold!
* Global recovery prospects fuel run on the dollar...
* Trichet to defend the dollar today?
* Central Banks are diversifying...

And Now... Today's Pfennig!

Gold Soars To Another All-Time High!

Good day... And a Thunderin' Thursday to you! It's raining here in St. Louis, so, it must be Thursday! It's a big night for yours truly, but I'll talk about that at the end... We've got some big moves going on in the currencies and metals, so we had better get to it, and save the chit-chat for later, eh? But first, today is the funding deadline on our latest BRIC MarketSafe CD... We'll have one more in November and then that's it!

OK, front and center this morning, Gold has soared to another all-time high! When I turned on the screen this morning, Gold was flashing a great big $1,055 figure... WOW! But wait! OK, now that sounded like an infomercial... But wait! If you act now, you can get double the Ginsu knives! HA! OK, getting back to the original, but wait... Gold and Silver for that matter, aren't the only risk assets moving higher this morning... All 16 of the countries that are deemed to be the biggest U.S. trading partners, have currencies that are taking liberties VS the dollar this morning...

Basically, it's like this folks... We keep seeing signs that a global recovery is taking place, I mean, the Reserve Bank of Australia (RBA) even hiked rates this week for crying out loud! And... With those signs of recovery, come the feelings that global rates will be rising, as witnessed by the RBA this week, and with global rates rising, the yield differential to the dollar becomes even greater in favor of the non-dollar currencies.

This is quite evident, when you look out on the currency landscape and see that Aussie dollars (A$) are trading with a 90-cent handle... Brazilian reals are trading 36% higher VS the dollar since March 1st!

Why did I highlight those two currencies? Well, as has been well documented, the RBA already hiked rates and increased their rate differential to the dollar this week, with the thought that they would come back again in November for another rate hike... And Brazil? Yesterday, I saw a story flash across the screen that the Brazilian Central Bank Gov. is mentioning at least 200 BPS of rate hikes before he leaves office next year! Talk about increasing the rate / yield differential!

Yesterday, I talked to you about the euro, and explained why it had not participated with the other currencies' assault on the dollar... Well, the Big Dog /euro got off the porch to stretch its legs and chase the dollar down the street a bit last night... The euro is trading with an eye toward 1.48...

I'm waiting for some data to print from Germany this morning before I go on... So let's wait a bit... OK, I'm back now... Well, keeping with the theme that a global recovery is taking place, German Industrial Production rose in August 1.7% from a decline in July. As reported here about a month ago, Germany exited their recession in the 2nd QTR, posting a positive, albeit negligible, GDP... I expect their 3rd QTR to be a bit stronger, as they build on this nascent recovery.

The European Central Bank (ECB) meets this morning, in fact, they're meeting as I write... I don't expect the ECB to move rates, announce any quantitative easing, or anything like that... What I'm half expecting though is for ECB President, Trichet, to attempt to put a tourniquet around the dollar, to stop the bleeding... Hey! Nobody in the U.S. is fighting to keep the dollar strong, so somebody has to!

OK... I've explained this many times before, but for the new readers, it's really something that needs to be understood... Look, the ECB and Trichet, know all too well that the U.S. has painted itself into a corner, and the dollar is getting punished for their actions... And, they understand that all they would have to do is talk glowingly about the euro and it would deep six the dollar in a heartbeat! But what good would that do? It's far better to just keep the lips zipped shut, and watch a general, slow, depreciation of the dollar... So... The euro's run to the high 1.47 handle this morning, could be at risk to what Trichet has to say... But remember folks, he's just wrapping a tourniquet around the dollar, it's not like he's in love with the dollar and the fundamentals behind it!

Last night, I was doing some reading / research and came across a story that really piqued my interest... Here's a snippet from the Bloomberg...

"Central banks are diversifying away from the dollar "more aggressively," according to Barclays Plc, the world's third-largest currency trader.

The dollar accounted for 37 percent of the $115 billion foreign reserves central banks amassed in the second quarter, after adjustment for exchange-rate changes during the period, compared with 52 percent in the euro, according to a Barclays analysis of data that the International Monetary Fund released on Sept. 30. That was the first time that the dollar's share fell below 40 percent in the new accumulated foreign reserves of $100 billion or more since the euro's 1999 debut."

Remember, about a week or so ago, when I told you that the IMF's currency report basically showed a move away from the dollar too...

HEY! IF CENTRAL BANKS ARE DIVERSIFYING, SHOULDN'T YOU BE DOING IT TOO?

OH! And there was this quote from Canada's Finance Minister, Flaherty said..."We are all concerned about the U.S. dollar"...

And then there was this... Haven't you heard about the guy, known as the Cheater? It seems every day now, you hear people say now, Look out for the cheater, make way for the fool-hearted clown, look out for the cheater, he's gonna build you up just to let you down... Come on... We all know who I'm talking about, you know him, you love him... It's U.S. Treasury Sec. Tim Geithner!

Yes, the man that was in charge the NY Fed, and oversaw the banks in that region, of which, most of them needed TARP money didn't they? Any way... The thing I want to talk about is his latest statement about the dollar... Here's Timmy! "officials recognize that the dollar's important role in the system conveys special burdens and responsibilities on us, and we are going to do everything necessary to make sure we sustain confidence."

Yeah, sure you are... How many Treasuries have you auctioned off this year? Something like $1.6 Trillion? Now, that will give everyone in the world a warm and fuzzy about the dollar's future won't it? NOT!

OK, I had better go on to something else before I get too wound up!

The Bank of England (BOE) is also meeting this morning... And after an awful set of economic reports in the past month, the BOE members are scratching their heads and wondering what to do next... They cut rates to the bone... They've bought toxic assets from financial institutions... They've nationalized a few companies that were about to go under... They spent money on stimulus packages... And they've implemented Quantitative Easing...

Sounds like the U.S. doesn't it? I'll tell you who else it sounds like... It sounds like Japan in the last decade... I hate to be the one to half to tell these dolts that none of this works! It just makes a laughing stock out of your Central Bank, and puts your currency on the slippery slope downward...

Oh, but not to worry, Tim Geithner is maintaining the confidence in the dollar... ( I guess no one told Canada's Finance Minister, eh?)

Again, Chuck, go on to something else, and quit coming back to this!

Well... Earlier in the Pfennig this morning, I told you about the rise in the A$... I didn't tell you that it was trading at a 14-month high, as it was reported that Australian employment surged 40,600 in September! With a print like this, I think that's it's almost a given now that the RBA comes back in November and hikes rates again!

Another currency at a 14-month high is the New Zealand dollar / kiwi... Remember how I've told you about the Reserve Bank of New Zealand (RBNZ) Gov. Bollard, and his penchant for jawboning kiwi lower? I despise him for these things, as a Central Banker, your job is to protect the value of your currency, not diss it!

Well, now Bollard has company... New Zealand Finance Minister, Bill English, has this to say... "We're uncomfortable with it (kiwi) at this stage in the economic cycle." You see, Mr. English is concerned that the economic recovery will be stamped out with a strong kiwi... Well, I've got a cure for you Mr. English... Tell Bollard and the boys over at the RBNZ not to raise interest rates, and that will do the trick! It'll stop the speculation in its tracks! However, if the RBNZ does raise rates next month, then you have no one to blame but yourselves!

OK... Let's get back to Gold, before we head to the recap and the Big Finish!

I did a video yesterday on Gold... And I talked about how you can go about your life without an inflation hedge in your back pocket and suffer the consequences of not only having your purchasing power reduced by the falling dollar, but having what dollars you have left eaten away by inflation... OR... you can get that inflation hedge... and put it away for a rainy day... or pull out to play it like a "Get Out of Jail Free Card" when inflation hits...

To recap... Gold has soared to another all-time high of $1,055 overnight. And the non-dollar currencies are all gaining VS the dollar on the thoughts that a global recovery will result in wider yield differentials in those currencies VS the dollar. A$ and kiwi have both traded at 14-month highs overnight... And... We could see some downside risk to the euro if ECB President Trichet decides to defend the dollar today after the ECB meeting this morning.

Currencies today 10/8/09: A$ .9050, kiwi .7398, C$ .9475, euro 1.4770, sterling 1.6060, Swiss .9745, rand 7.3440, krone 5.6545, SEK 6.9890, forint 182.75, zloty 2.8655, koruna 17.4375, RUB 29.60, yen 88.30, sing 1.39, HKD 7.75, INR 46.36, China 6.8260, pesos 13.31, BRL 1.7480, dollar index 76.03, Oil $70.23, 10-year 3.19%, Silver $17.84, and Gold... $1,055.08

That's it for today... And for me this week, as Chris will have the conn on the Pfennig tomorrow. My beloved Cardinals took game one of the playoffs on the chin last night, leaving 14 runners on base... UGH! It's a BIG night tonight for us here as the Cardinals play game two... The Hockey Blues have their home opener, and my beloved Missouri Tigers take on Big Bad Nebraska! I'm heading down to the game with oldest son, Andrew, and friends. It looks like we're going to be soaked from the rain! UGH! I'll talk to you again on Monday, God willing... So, have a Thunderin' Thursday today, and a wonderful weekend ahead... Go Tigers!

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

The Dollar Gets Ambushed!

Chuck Butler — Tue, 22 Sep 2009 14:43:15 GMT

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

Looking for a great place to park your U.S. cash? Check out the Yield Pledge Money Market Account by going to www.dailypfennig.com and clicking EverBank Home. Its yield is pledged to remain in the top 5% in the nation!
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In This Issue..

* Non-dollar currencies soar!
* Weber gives the green light...
* Is the Fed buying more Treasuries?
* China considering IMF's Gold!

And Now... Today's Pfennig!

The Dollar Gets Ambushed!

Good day... And a Terrific Tuesday to you! A Tuesday that needs no "turn-around", as the currency actions VS the dollar overnight are amazing! The dollar got ambushed overnight, as the euro shot right straight through the 1.47 handle, and has just traded 1.48! Hmmm... Didn't I say yesterday that the I didn't think the dollar strength we were seeing was any change in the recent trend? ... I love it when a plan comes together!

Traders have found a "soft spot" in the dollar, and are really going after it! I don't recall the last time I saw this kind of a move overnight. It must have been back when the dollar was getting sold like funnel cakes at a state fair, almost every day in the spring of 2008... But, I really don't recall... But, that doesn't put a damper on this morning's move! No way!

The only thing I can think of, or find in the news, that brought about this HUGE move in the currencies VS the dollar, is the fact that European Central Bank (ECB) Council Member, Axel Weber pretty much gave the "green light" to traders, when he said in an interview that the euro's strength is not out of line with fundamentals... That's right! The way I read that is this... It's Central Bank parlance for... "go ahead and drive the euro higher!"

Weber also said, "There were some stronger data coming from the Eurozone compared to some other regions. So, I think that the behavior of the foreign exchange markets is not out of line with these developments over the recent months."

Now... These comments carry even extra weight due to the position Axel Weber holds as President of the Bundesbank... Buba, as I used to call them, is Germany's Central Bank, and has always held a position of influence on the ECB...

So, Axel Weber says the euro's rally is OK with him... That's Big Folks... For, currency traders like to know that they can run up or down a currency and not fear that the Central Bank is going to step in with currency intervention to stop the run. And, for all intent gives them the Green Light...

OK... Now that the euro has pushed the envelope to 1.48, I expect to see some strong profit taking when the U.S. traders arrive... But, keep this in mind... The euro hit 1.48, and therefore, we now know that traders will take it there a few times before they give up... So, if the euro falls back into the 1.47 handle, look for it to bounce, at least a couple of times. I've explained this trading before... It really comes down to how badly the euro bulls want to push the envelope... Or the dollar bears want to push too!

The euro isn't the only currency gaining VS the dollar... Euro, Swiss francs, kiwi, and Swedish krona have all hit 2009 highs overnight, with kiwi gaining to .7215... A quick look at yesterday's currency round-up shows that kiwi was trading at .7040... Using my "new math" talents... That's a 175 pips move! WOW! New Zealand received some very good news on their deficit problem, as their annual deficit fell from 8.1% of GDP to 5.9% of GDP... Still too high, but moving in the right direction!

For once, it seems, the Aussie dollar (A$) followed its kissin' cousin from across the Tasman, kiwi, higher... It's normally the other way around!

You know what I think? I think that the markets are beginning to look at the man behind the curtain at the Fed, and realize he's just pulling levers, and creating special effects...

OK, I'll explain... Yesterday, I talked to you about the "new record" in size of Treasury Auctions will be shoved down the throats of the markets this week, to the tune of $112 Billion worth of 2, 5, and 7 year notes...

Well... I came across this yesterday, from Morgan Stanley...

"Households reduced Q2 Treasury purchases from their blistering pace in Q1 Foreign accounts reduced Q2 UST purchases as the Fed ramped up Q/E ops. Bank Q2 purchases remained anemic."

In normal speak, what that's saying is that Mom and Pop buying of Treasuries has backed off... You may recall me telling you many months ago that Mom and Pop buying of Treasuries had taken up the slack from declining foreign purchases... The Mom and Pop buying was credited to the "flight to safety", when the walls came crashing down last fall...

So... If Mom and Pop buying is backing off, and it was used to offset declining foreign purchases, who's left at the table to buy the Treasury's issuance this week and in a couple of weeks, and a couple of weeks after that?

Well... It's the Fed... I read this, and just couldn't believe my eyes! The Fed is taking on more and more.. I read where it is believed that about 50% of U.S. Treasury issuance in the 2nd QTR saw Fed intermediation... $164 Billion in the 2nd QTR ended up on the Fed's books, while foreigners bought $101 Billion and Mom and Pops bought $29 Billion... When you add in the Primary Dealers, the total of Non-Fed buying was $158 Billion...

Let me be perfectly clear on this... This is only speculation at this point... But it certainly makes sense doesn't it?

Now... Why isn't the main media all over this? Where are the questions about how the upcoming record amounts of Treasury issuance will be taken, and by whom? Why am I the only one asking these questions? It's just little old me (yeah, right! HA!), and my laptop... Oh, and let's not forget that the Administration has already given us the bad news that $9 Trillion in Budget Deficits will need financing in the next 10-years...

This all makes me sick to my stomach... I mean come on! This Deficit Spending has got to stop! And We've got to say NO to any additional new Deficit Spending! Stop it, right here, right now! Cut government in half... Get rid of non-Constitutional agencies... Audit the Fed, and turn this around!

OK... I've got to talk about something else before I throw my keyboard! I used to throw my keyboard, slamming it down on the desk all the time, and break them... The IT people would laugh, and just bring down a new one for me... But, since I got sick two years ago, I don't throw my keyboard any more... But, I was tempted... I could have gone into a song by The Squeeze there, but I didn't...

Remember last week, when I told you about the IMF wanting to get permission to sell quite a bit of their Gold? And at that time, I said... "China, are you ready to buy?" ... Thinking, of course, that China would be the only country that could / would buy up the 403 tons of Gold that the IMF is putting up for sale...

Well... Guess who answered my call? That's right, China! It is reported this morning, that China is considering buying the Gold that the IMF is offering. It's not clear whether they want just "some of the offering" or "all of the offering"... My guess would be the latter... As this would just add to China's goal of diversifying their U.S. dollar reserves...

And... If China does take down 403 Tons of Gold, that will take away from their Treasury purchases, don't you think?

But, I'm not going down that Treasury road again... I'm staying on the high road with Gold! Which at one point yesterday morning, looked weak... I even mentioned on the desk that it looked like Gold was getting spanked, as it was down over $10... But, later in the day, the shiny metal had come back and was on the positive side of the ledger for the day! And now, this news that China is considering buying the IMF's offering of Gold, has Gold on the high road too... Gold is up $12 this morning, back to $1,016!

So... Throwing stones at the dollar this morning on two fronts... The currency and Precious Metals fronts... Hey! I'm not throwing the stones! The markets, traders, investors, etc. are doing the throwing!

You know, each day, when I'm writing the Pfennig, the currencies are all trading, except... The Brazilian real... The real is still not a floating currency, as it goes through a "fixing" each day, but then the markets take it over, and trade it the rest of the day. So... When you have an overnight market like we've just had, when the non-dollar currencies have all spring-boarded higher, I sit with anticipation for the "fixing" for real, and then watch as the markets play catch-up... The move will be stunning, I'm sure... As real is much like South African rand, when it come to the wild swings...

There's not really any data in the U.S. cupboard this morning... In fact, the only thing I see globally is July's print of Canadian Retail Sales... And with it being so delayed, I doubt it will mean much when it does print!

I thought I would play a game of "Remember when?" Here's how it goes... Remember when the Swiss National Bank said they would intervene to keep the franc weak? Or... Remember when the Brazilian Central Bank Gov. said that he would do everything in his power to keep the real above 2? OK, I'll stop there... Oh... Swiss francs? They have gained almost 15%, and Brazilian real? Well, it's trading at 1.82... So let's just say that the "2" thing wasn't in the cards!

So, what am I getting at here? Well... I've told you for years now that Central Bank intervention can stop currency runs for short periods of time only... And that Central Bank jawboning will only last as long as traders want it too, for if the Central Bank doesn't back up the jawboning, then just like a child, Traders will then push the envelope...

OK... Maybe some day we'll play again, only with Big Ben Bernanke!

So... Traders have ambushed the dollar overnight, and Axel Weber has given them the green light to do so. Could the Fed be the major buyer of Treasuries? China may be the buyer for the IMF's Gold sales, and no data today to speak of...

Currencies today 9/22/09: A$ .8740, kiwi .7215, C$ .9375, euro 1.48, sterling 1.6340, Swiss .9775, rand 6.8250, krone 5.8350, SEK 6.8275, forint 183.30, zloty 2.80, koruna 17, RUB 30.12, yen 91.40, sing 1.4110, HKD 7.75, INR 47.96, China 6.8269, pesos 13.30, BRL 1.8240, dollar index 76.13, Oil $70.80, 10-year 3.49%, Silver $17.26, and Gold... $1,017.10

That's it for today... Cardinals' magic number to win their division is 3... Pretty amazing, eh? With two weeks left in the season! Hey, Californians... Did you see the little blurb in the L.A. Times quoting yours truly? Yes, there was a story in the L.A. Times this past weekend regarding "Foreign Currency Investing"... I spend a good amount of time on the phone with the writer, Kathy Kristof, who seemed quite interested in what I was saying! Today, is the first full day of Autumn... YIKES, you and I know all too well what follows Autumn! Oh well, maybe we can make Autumn last longer than usual! HA! So... Welcome to Autumn! And with that... I'll hit send, and get this on the delivery truck to your computer! I hope you can make this Tuesday totally Terrific!

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

U.S. Manufacturing On The Rise...

Chuck Butler — Wed, 02 Sep 2009 14:18:22 GMT

...But First, A Word From Our Sponsor...
Gain exposure to currencies of emerging BRIC countries-and don't lose a dime on market risk

* 4 BRIC currencies: Brazilian real, Russian ruble, Indian rupee, Chinese renminbi
* High upside potential
* No market risk to deposited principal
* Low $1,500 minimum deposit

Don't miss this unique opportunity. Deadline to buy the BRIC MarketSafe CD is Oct. 13, 2009. Apply today or learn more at http://www.everbank.com/001CertificatesMSBRIC.aspx?referId=11808

In This Issue..

* Risk Assets Get Sold!
* ISM hits 52.9!
* Aussie GDP rises!
* China leading the way!

And Now... Today's Pfennig!

U.S. Manufacturing On The Rise...

Good day... And a Wonderful Wednesday to you! Well, all that back and forth between rally and sell off for the currencies came to an abrupt halt yesterday, when the dollar bulls went on a rampage. There was some very strong economic data to help the move, but the real thing that brought the currencies to their knees was the stock sell off of 185 points...

Get this... Now we all know that the risk assets of stocks, commodities, and currencies have all been tied together for some time now... So, I was surprised to see a story titled: "Currency Markets Taken For A Ride By Stocks" Hmmm, maybe this person just woke up from a 9-month coma, eh? Any way, that doesn't matter, it's just another opinion that coincides with mine!

I had a read send me a note yesterday asking me to explain my lingo when talking about "handles"... OK... A quick run-though of this... It's an old Bond trading term, that I carried over from bond trading to currencies. So... A "handle" is the whole number... So, if Norwegian krone is trading at 6.0350... "6" is a serious number... It's all the fingers on your hand plus your thumber... No, Wait! "6" is the "handle"... Hope that helps!

OK... Back to currencies... One has to wonder what's going on these days... I mean for over 9 months, whenever there was strong data in the U.S. the dollar would get sold... But now, that's all changed... And, since when does a rise in manufacturing lead to a 185 point stock sell off? It's crazy out there folks! There's nothing that's trading on fundamentals...

The strong data I'm talking about is the ISM (Manufacturing) Index that printed for August yesterday... For the first time in 19 months, the Index rose above the 50 level to 52.9! That's a good performance for the manufacturing sector, and one that will probably bring economists, and politicians to claim the recession to be over... Well, that may be... FOR NOW! Double dipping... It's in our future, I can feel it! And don't forget what I explained to you yesterday regarding the weaker dollar playing a big part in Manufacturing's rise....

A reader that's a Manufacturer sent me a note... "Regarding the uptick in the manufacturing index: from where I'm sitting I don't see it as an increase in demand for our products, but rather a re-building of inventories from an oversold position. We've seen a bounce off the bottom in May that has been carried through this month but it appears to be leveling off."

So... Once again, this is the kind of thing I believe to be "real economics"... Real stuff! Not the surveys, not the hedonic adjustments, not the cooking of books... Real Stuff!

And, before I go on to other things... I normally look at the employment component of the ISM to give me an indication of what the Jobs Jamboree will show, which prints on Friday this week. The ISM employment component showed a job loss of -225,000... So, we're still losing jobs...

OK, back at the currencies ranch, the dollar is beating up on the currencies, but what's that I see? Ahhh... It's the Aussie dollar (A$) mounting a rally in the face of this dollar strength! Let's go to the tape to find out what's going on there!

2nd QTR GDP in Australia printed stronger than forecast at +.6%, (VS +.3% forecast) and stronger than the 1st QTR print of +.4%... This uptick has really brought the rate hike campers back out into the streets. Recall, that a couple of months ago, I wrote about how Australia might end up being the first to raise rates after the financial meltdown of 2008... (It's neck and neck between Australia and Norway)... The thought then that the rate hike would come in the 1st QTR of 2010... But there are those now that are thinking the first rate hike could come this year! October's Reserve Bank of Australia meeting is being targeted now... Put this in you calendar to come back to...

Speaking of Norway... The rate hike campers here had to take a step back yesterday after Norway's PMI (Manufacturing Index) was a disappointing print. Norwegian PMI, which just a month ago was knocking on the 50 number, at 49.7, fell back to 42.3 In August... UGH! So, the Norwegian krone, which had just Monday, traded with a 5 handle, got smoked on this print.... But, I don't think this is something that we should get our undies in a bunch about. This is just one print... And probably only delays Norway's rate hike by a month or two...

Recall on Monday this week I told you that we would have all kinds o' data this week, and all over the world. Well... In keeping with that... China too, printed their Manufacturing Index report last night. The state-sanctioned China Federation of Logistics and Purchasing said its purchasing managers index (manufacturing) rose to 54 from July's 53.3 on a 100-point scale where numbers above 50 show activity expanding. It marked the sixth month of expansion.

So... Just like I told you a couple of months ago... China was going to be the first to exit the economic mess / slowdown / recession / depression, depending on where you live... This marks 6 consecutive months of prints above 50...

I watched Gold get sold yesterday too, and wondered to myself, or maybe it was out loud, our little Christine, who sits next to me, has to listen to all my comments about things all day... I'm sure, she "heard" me wondering to myself! Any ways... What I was wondering about was the price of Gold and how it seemed to be stuck in the $950 range... I did see recently where the Central Banks around the world had signed a new agreement on the amount of Gold that they sell... The good news for Gold was that the Central Bankers agreed on a smaller amount as their maximum amount of Gold that can be sold each year...

Imagine if you will for a moment, where the price of Gold would be today, if those Central Banks hadn't dumped Gold on the markets for the last 9 years? The fact that Gold has risen from $250 to $950, in the face of these Central Bank sales is amazing! And now... The amount the Central Banks can dump on the markets each year is smaller... What do you think that means for the price of Gold? I know what I think it means!

Talk about getting "dumped" that's what happened to the Brazilian real yesterday... Yes, most of the currencies sold off... But real was really sold off! That makes some sense in that real had out performed most currencies this year, and therefore, the selling, or profit taking would be on a larger scale... I think this selling was overdone though, and I would look for the real to make an attempt to come back today...

Today, the data cupboard here in the U.S. has the ADP Employment report, which is kind of a wild hair, report that hardly ever gives a good indication of what to expect in the Jobs Jamboree... But just for the record the forecast for the ADP report is for job losses of -250,000... Which is close enough for Gov't work to the ISM employment component, I talked about above.

We'll also see the stupid Productivity report for 2nd QTR... I've explained why I think this report is stupid in the past, so I won't spend a lot of time on that.

Factory Orders is the only "real" piece of data that I care to look at this morning... July's Factory Orders will print and most likely show an increase of 2.2%...

Then later this afternoon, the minutes of the latest FOMC meeting (8/12) will print. Hmmm... You never know what these minutes might reveal, I've always maintained that if they were the "real" minutes we would see things like... B-10, By Joe, You've sunk my Battleship! HA!

And on that note... I'll head to the Big Finish...

Currencies today 9/2/09: A$ .8325, kiwi .6755, C$ .9065, euro 1.4235, sterling 1.6220, Swiss .9385, rand 7.86, krone 6.0950, SEK 7.2320, forint 193.75, zloty 2.9240, koruna 18, RUB 31.96, yen 92.60, sing 1.4430, HKD 7.7510, INR 48.98, China 6.8310, pesos 13.63, BRL 1.9140, dollar index 78.59, Oil $68.74, 10-year 3.37%, Silver $14.95, and Gold... $956.15

That's it for today... Well... I'm happy you, dear reader, are still reading... I had a guy rant at me yesterday regarding my talking about the Cardinals and Tigers and my family here... HEY! It's my letter! My suggestion... Simply stop reading at the Currency Round-up! So... That sure was a nice win last night for my beloved Cardinals... In a case of "pick your poison" the Brewers intentionally walked Albert Pujols, only to have Matt Holiday hit a home-run! WOW! This is becoming a special season for the Cardinals, for sure! Still battling pain and stiffness in my left knee, I thought the steroids that they shot in the knee joint were supposed to have begun to work by now... Oh well, ice and more ice helps... We had our draft for our Fantasy Football league.. This is silly stuff, but it's interesting at times! OK... Let's get working on what we need to do to make this a Wonderful Wednesday!

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

Spending More Than We (the U.S.) Make...

Chuck Butler — Thu, 06 Aug 2009 14:49:00 GMT

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In This Issue..

* Currencies trade in a tight range
* Pesos, loonies and reals in the spotlight...
* The Mogambo on a Thursday! YAHOO!
* Jobs reports dominate today & tomorrow...

And Now... Today's Pfennig!

Spending More Than We (the U.S.) Make...

Good day... And a Tub Thumpin' Thursday to you! Once again yesterday, we traded all day in a very tight range with the currencies. The ADP/Challenger data didn't give anyone a warm and fuzzy about the labor picture, and tax receipts are in the news... So, let's go to the tape!

OK, front and center this morning, I have to talk about this deal with tax receipts in this country. So, I've chronicled the April and June debacles for tax receipts, but just in case someone is new to class, and missed that, let's review... The U.S. used to count on the months of April and June for HUGE cash receipts from tax returns, but this year, both April and June's tax receipts were so bad, the expenditures were greater than the receipts! I highlight these two months because, they should have been positive months for the budget balance... If we can't post a positive balance in April and June, what's the rest of the year going to look like?

Well... Just for starters, tax receipts in the U.S. are the worst since the Great Depression, and if they continue on this path, could pass that awful period of time for the top spot! My friend, the Mogambo Guru, had this to say, in that "special" Mogambo way of describing something... Let's listen in...

"In fact, speaking of taxes, it makes your hat fly up comically off your head in astonishment when you realize that total income and corporate taxes are less than this year's federal budget deficit alone! And then you really start screaming your guts out in anger when you then realize that the total federal budget is 400% of total federal revenues! They are spending four times as much as they take in! Four times as much!"

You can read the Mogambo Guru on the Daily Reckoning... www.dailyreckoning.com

OK... Now that I've sufficiently raised my blood pressure talking about the fact that in a time when tax receipts are down because of the depression, the Gov't is spending more and more and more and more. I'll stop there, even though the Gov't isn't stopping their spending! And just like I used to bang on consumers for spending more than they made... The U.S. Gov't continues to do so... Consumers have gone to saving (YAY!), but the Gov't has not! As we all found out, you can't continue to spend more than you make forever... I wonder when the Gov't will figure this out... (probably when foreigners say "no mas" on financing the deficit spending!)

Well... The currencies, like I said at the top, remain in a very tight trading range... Three currencies stick out above the others though in the overnight trading...
1. Mexican pesos... Moodys affirmed Mexico's credit rating, which was thought might be revised lower, and the peso rallied on the news...
2. Canadian dollars/ loonies... After a day of consolidation trades due to the Central Bank Gov. once again threatening the markets if they take the loonie higher, the loonie went higher! Look for the Bank of Canada (BOC) to come out and make a statement, something to the tune of they are going to extend their interest rate pledge for a longer period. They will do this to once again attempt to keep a lid on the loonie...
3. Brazilian real... Oh brother! Somebody put a leash on this puppy! The real continues to edge higher and higher, and now is close to move past the 1.80 level.. The real has posted a better than 27% gain VS the dollar this year, with most of that move coming in the past 3 months!

Yesterday, there was a story in China Daily, that China was going to switch from Australian Iron Ore to Brazilian Iron Ore... Now... On the outside this looks bad for A$'s and good fro reals, right? Well... As I told the boys and girls on the trading desk yesterday, I think this is more posturing by China, after some of their businessmen were arrested in Australia and charged with espionage. We'll have to keep an eye on this, to see if there's more to this than posturing...

The news didn't hurt the A$ yesterday... In fact the A$ is trading near a 10-month high this morning, after posting a surprising jobs report for July last night... Australian employers added jobs in July. Once again, the jobs markets sparks the A$ higher, just like in the go-go days before the deleveraging meltdown last year.

I'll tell you what this report does do more than anything... It gives the markets the idea that the Reserve Bank of Australia (RBA) is definitely on track to raise interest rates next year... And some traders are now thinking that the RBA moves rates higher before we turn the calendar page on 2009! WOW! Now that's aggressive thinking! So, you can see why the A$ took the news in China Daily, and let it roll off its back like water on a duck's back!

In the U.S. yesterday... The ISM Index for Services (non-manufacturing) printed, and fell unexpectedly in July... The ISM Services Index printed at 46.4 following the prior month's 47.0 reading. The weakening was broad-based amongst the sub-indices. New orders declined to 48.1 from 48.6, business activity fell to 46.1 from 49.8 and employment softened to 41.5 from 43.4.

But... To offset the ISM we saw Factory Orders rise, but that data was for June... I really don't understand why it takes two months to get data like this to the markets!

Today, we'll see the Weekly Initial Jobless Claims, which have fallen below 600,000 each week, but remain very high at 580,000, so nothing to get the "recovery is here campers" all excited... Today's report is just an appetizer for tomorrow's Big Jobs Jamboree...

Economists are expected a HUGE drop in the jobs lost figure for July, dropping to 327,000 from June's 467,000 (after BLS adjustments, of course!) I really don't know where they think the jobs came from, but if they're right, then good for the U.S. worker! And, that kind of number, although it will seem strange to say this, and for you to hear it when you read it, but... A good Jobs Jamboree number will be negative for the dollar...

Why? Because... As I've been telling you over and over again, like a broken record, or for you youngsters, a scratched CD... The dollar was a safe haven last fall and winter with U.S. Treasury purchases... As the losses mount on those "safe haven" purchases of Treasuries, and things begin to look brighter those "safe haven" trades are reversed, and than means the dollar gets sold...

You know for some time now I've written about the Treasury Bubble popping... And those darn Fed Reserve purchases of Treasuries kept a lid on the losses mounting... But, it appears that the cartel, I mean Fed Reserve has backed off their purchases... And Treasury yields are once again on the rise... And for those of you new to bonds, they work like this... As a bond's yield goes up, the price goes down, and vice versa... So... In January this year, the 10-yr Treasury yield was 2%... In June it reached 3.80%, then the cartel, I mean Fed Reserve bought Treasuries, and the yield on the 10-yr fell to 3.12%... But in the past three weeks, those yields have risen once again to 3.73%... Looks like the Bubble popping is once again on the table, eh?

You've got the U.S. issuing more and more Treasuries to finance their deficit spending, and on the other side you've got Treasury holders unloading them on the markets... That looks like a perfect storm brewing, folks...

The Bank of England (BOE) and The European Central Bank (ECB) are meeting as I write... Don't expect anything earth shattering from either meeting... There is hope that the BOE will announce an end to their Quantitative Easing (QE), which I talked about yesterday. Now that would be earth shattering, but... There's no guarantee that the BOE sees things the way the markets want them to be seen!

Gold backed off yesterday as it saw profit taking. The shiny metal had traded over $670 yesterday before seeing the profit taking. I would think that the inflation hedging buying of Gold would really be strong for the remainder of this year, as my inflation fears really begin to grow stronger every day, you know I'm alright now... HA!

Currencies today 8/6/09: A$ .8410, kiwi .6705, C$ .9320, euro 1.4390, sterling 1.6975, Swiss .94, rand 8.05, krone 6.02, SEK 7.1350, forint 187, zloty 2.8825, koruna 18.04, yen 95.50, sing 1.4350, HKD 7.75, INR 47.73, China 6.8312, pesos 13.04, BRL 1.8130, dollar index 77.79, Oil $71.56, 10-year 3.73%, Silver $14.69, and Gold... $961.05

That's it for today... The boys and girls in the office here are participating in a huge fund raiser tonight, and I have to say I'm impressed with their attention to detail. You see, the fund raiser is around a pinewood derby. Last year, they won all the trophies for designing their car like the one in Animal House, and dressing in togas... This year, they designed a car to look just like the one in the Flintstones, and they are all dressing like the characters from the cartoon! I bet they win again! Can you believe that NFL teams are in training camps? WOW! OK... Time to get this Tub Thumpin' Thursday going!
Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Dollar rally peters out...

Chuck Butler — Thu, 30 Jul 2009 14:24:55 GMT

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In This Issue..

* Dollar rally peters out...
* Obama defends his policies...
* Commodity currencies should outperform...
* Global Power Shift Index...

And Now... Today's Pfennig!

Dollar rally peters out...

Good day... And happy Thursday to everyone! Hope everyone made it through the 'hump day' with no worries. We started the morning here with rainshowers, but it ended up being a beautiful afternoon and evening. Currency markets were similar to the weather here, as most currencies started Wednesday in the loss column vs. the US$, but rallied as the day progressed. The dollar had strengthened over the past couple of days due to 'safe haven' demand; but a surprisingly strong durable goods number (ex autos) combined with an 'all clear' signal from President Barack Obama had investors moving back into riskier assets. The commodity based currencies also got a boost as China signaled it would maintain an accommodative policy, easing speculation that the Bank of China would try to rein in bank lending. Lots to cover today, so lets get right to it.

Durable goods orders for June were released yesterday morning, and the overall number actually showed a pretty dramatic drop of 2.5% compared to the month prior. But the overall number includes automobiles, and with many of the big 3 automobile plants shut down for part of June, the markets were focused on the number ex transportation. Orders for durable goods, excluding automobiles and aircraft unexpectedly rose 1.1% in June following an adjusted .8% rise in May. The ex auto number was strong enough for some to reason that companies would have to start boosting output in the coming months. While the 1.1% jump in orders is nice to see, the overall drop was pretty dramatic, and the auto sector makes up a large percentage of overall output for the US.

Just after noon the Fed's Beige book survey of economic conditions was released. The report said the pace of the US economic recession slowed or stabilized in most areas of the country and pointed to a protracted period of weakness as the economy transitions to recovery. The Fed said labor markets across the country were 'extremely soft' and wages and compensation were steady or falling in most areas. Not the rosiest of pictures for the economy, but not overly negative either.

The nation's #1 cheerleader was out in full force yesterday afternoon, as President Barack Obama defended his administrations policies during a speech in North Carolina. President Obama's poll ratings have slipped as unemployment continues to be a drag on consumer confidence. So he took a break from pushing his health care reform to defend his economic policies, saying he had helped avert an economic disaster as the US economy was in a "freefall". He stated that the US "may be seeing the beginning of the end of the recession", and that his stimulus plans had "helped stop a recession from becoming a depression".

The British pound was one of the biggest gainers vs. the US$ yesterday after a report showed UK house prices rose in July for a third consecutive month. Another report showed the average cost of a home in the UK rose 1.3%. The pound will probably end up in positive territory vs. the US$ this month for a fifth consecutive monthly gain. The rally is a relief for pound sterling investors as the currency dropped more than 26% vs. the US$ last year. A Standard Chartered PLC analyst predicted further strengthening for the pound sterling in a report released yesterday. The analyst stated that the US$ is in a multi-year downtrend, and the pound will likely push up to $1.75 by year end.

But there is still the question of deficits in the UK. The BOE was one of the first central banks to institute 'quantitative easing' policies, and many are looking for them to be the first to stop the program. With the UK housing sector stabilizing, officials will likely pause the asset-purchase program which was set up to lower borrowing costs. But the UK is still going to have to deal with a record deficit, similar to the problems facing the US. The UK Treasury said it will sell a record 220 billion pounds of debt in the year ending March 2010 to offset falling tax revenues and increased government spending. Again, good news for the pound in the short term, but the storm clouds are still gathering.

Positive news out of Europe this morning has helped keep the Euro moving up in early trading. European confidence in the economic outlook increased more than economists forecast in July, as an index of executive and consumer sentiment climbed to the highest reading since November. But the economic recovery in Europe is still very fragile, as evidenced by another report which showed retail sales fell for a 14th month in July. Unemployment in the Euro region continues to be a concern, with the unemployment rate expected to reach 12 percent in 2010.

Both Morgan Stanley and BOA/Merrill Lynch told investors to sell the dollar vs. the Euro in research reports released yesterday. Morgan Stanley said investors should sell the dollar against the Euro, Norwegian krone, and Canadian dollar as the global outlook improves. "As the outlook continues to improve, we believe that currencies with strongest ties to the global growth cycle will outperform at the expense of the US dollar," a currency strategist at Morgan Stanley wrote in a note to clients. BOA raised its forecasts for the euro predicting it would rise to $1.50 by year end. The report highlighted the diversification of reserves as a key driver of the Euro. The euro is predicted to continue to gain vs. the US$ as central banks diversify reserves into Euros from US$ as the US government is debasing its currency through its program of printing money to buy assets such as Treasuries.

One currency which hasn't been performing well vs. the US$ recently is the Swiss Franc which is one of the few currencies to drop vs. the US$ over the past month. This is exactly what the Swiss National Bank has been trying to accomplish, as they have spent as much as $32 billion since March to keep the Swiss franc from appreciating. The SNB sold the franc and cut interest rates on March 12 to stem the currency's gains. The Swiss continues to be a popular choice for investors, but problems with Swiss banking and the government intervention will likely keep the Swiss franc from rallying dramatically. However, as Chuck has pointed out several times in the past, no central bank (not even the Swiss) has enough money to fight the currency markets. The markets will eventually win out, and the longer term prospect for the Swiss franc is still positive. It is just that we feel there are other currencies which have better prospects in the near term.

Norway is one such currency. Norway's central bank will likely be one of the first among the world's richest economies to begin raising rates as the global crisis shows signs of abating. Inflation in Norway is likely to increase past the Norges Bank's target, increasing pressure for Norway's central bank to hike rates. The markets are beginning to price in an increase in rates at the beginning of next year as the Norwegian economy starts to heat up. Oil revenues, and a conservative fiscal policy helped to soften the impact of the global economic crisis, and Norway is now set to be one of first European economies to recover. Retail sales in Norway were up 2.6% in May since March and underlying inflation accelerated to an annual 3.3% in June, the fastest pace in eight months. The housing market in Norway is also pushing the recovery, as property values rose 5.3% in the three months ended June, the second quarterly gain.

Norway's neighbor, Sweden, is another currency which has been performing quite well vs. the US$. The Swedish krona is second only to the Australian dollar in return vs. the US$ over the past week, and is among the top three currencies this month. Sweden's krona is benefitting from a jump in exports as Sweden's trade surplus almost doubled in June as exports to Europe and the US increased. The Swedish krona has also benefitted from recent IMF support of the Baltic region, where Swedish banks are heavily exposed.

The Australian dollar continued to climb overnight, and is the best performing currency vs. the US$ in the past week. Investors are betting that the Reserve Bank of Australia will be one of the first central banks to start raising rates. With the US Fed keeping interest rates near zero, investors are likely to search for yield, and interest rate differentials will push the AUD$ higher. We saw a similar pattern back in 2003, when the AUD$ rallied over 30% vs. the US$ on interest rate differentials. Australia's economy unexpectedly grew in the first quarter, and recent rhetoric from RBA Governor Stevens suggests the start of a tightening cycle sooner rather than later.

Brazil's real continues to be a strong performer and is expected to strengthen to 1.8 per dollar by year end according to JPMorgan Chase & Co. The real will strengthen due to faster economic growth and higher demand for commodities according to JPMorgan. The currency will benefit from a stronger trade surplus and increased foreign investment. In news released yesterday, China Development Bank Corp, the state run bank for public works projects, stated they plan on opening an office in Rio de Janeiro next year, one of its first branches outside mainland China. Close ties with China will continue to benefit Brazilian exports of commodities. The Brazilian economy will expand at an annualized pace of 4.2% in the second, third, and fourth quarters this year according to research by JPMorgan.

A great way to invest in 4 different currencies which should appreciate as the global recovery takes hold is our Global Power Shift Index CD. This newest CD offering combines the currencies of Australia, Canada, Brazil, and Norway; all countries which are perfectly positioned to take advantage of commodity price increases. The CD is available with 3 or 6 month maturities and a minimum deposit of $20,000. Call the desk for details!

Currencies today 7/30/09: A$ .8248, kiwi .6528, C$ .9213, euro 1.4061, sterling 1.6485, Swiss .9188, rand 7.7974, krone 6.2331, SEK 7.4434, forint 190.56, zloty 2.9674, koruna 18.1791, yen 95.09, sing 1.4437, HKD 7.7500, INR 48.3575, China 6.8323, pesos 13.2083, BRL 1.8935, dollar index 79.273, Oil $64.01, 10-year 3.70%, Silver $13.425, and Gold... $932.88

That's it for today... I'm running a little late this morning, as Christine is already here with the breakfast sandwiches (she even picks them up when Chuck is out!). Cardinals won again last night with a timely hit by Albert Pujols in the 15th inning. It is great to see the Cardinals coming on strong in the second half of the season, should be an interesting playoff run. Hope everyone has a Tub Thumping Thursday!!

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

Blood in the streets.....

Chuck Butler — Tue, 14 Jul 2009 15:05:50 GMT

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In This Issue..

* Red ink flows...
* Japan suggests diversification for their reserves...
* Commodity currencies rebound...
* Data galore for the rest of the week...

And Now... Today's Pfennig!

Blood in the streets.....

Good day... Chuck had a late night down at the ballpark watching the home run derby, so he asked me to take the helm of the Pfennig this morning. I'm going to try to get this one out a bit earlier than I did last Friday, so I'll get right to it.

The biggest news to hit the markets yesterday was the Treasury Department's report that the deficit in June totaled $94.3 billion. This monthly deficit pushed the deficit for the fiscal year to over $1 trillion dollars for the first time, and we still have another quarter to go until the fiscal year ends in September. It comes as no surprise to readers that the deficit is above $1 trillion, but what is a bit unnerving is the speed at which the red ink is flowing.

According to the Treasury department's report, spending in June surged 37 percent to $309.7 billion while revenue fell 17 percent to $215.4 billion. June is typically a good month for revenues, and the reported deficit was the first since 1991. Individual and corporate tax receipts are falling while unemployment continues to rise. But the revenue picture isn't nearly as bad as the other side of the ledger. The administration is just starting to ramp up the spending from the $787 billion stimulus package President Obama signed into law in February. And as Chuck has reported, the administration has already started to lay the groundwork for another big stimulus package.

Congress seems to be turning a blind eye to the deficit, why let some red ink keep them from accomplishing all they set out to do? Just this morning, the day after we surpassed the $1 trillion deficit mark for the first time, the democrats have unveiled their long awaited health care reform. The program, by most estimates will add another $1 trillion to the deficit over the next several years. Sure, I think we all would like to see an improvement on the current health care system, but what a time to try and shove it through congress! I'm sure you will start to hear a chorus of 'deficits don't matter' by the media; as they try to convince all of us that these new programs are just too important to let a little thing like red ink keep them from passing.

But deficits do matter! Other than the fact that someone is eventually going to have to pay all of this debt off, financing this shortfall is going to continue to get more difficult. Interest rates will certainly rise from their current low levels, and for the fiscal year to date, the interest expense on the government's outstanding debt was $320.7 billion. As rates rise, this interest component will also rise, chewing up a larger percentage of our overall spending. Rising interest payments will continue to push out spending for other, more productive programs and force either a reduction in government services, or a dramatic increase in government revenues. Look out for some dramatic tax increases!

The huge deficit continues to worry our foreign investors, who have thus far financed all of our free wheeling spending. China, Russia, and some of the oil rich Arab states have all expressed their concerns regarding the security of US debt and the stability of the US$. Japan's opposition party, leading in polls ahead of next month's election, is the latest country to question the long term viability of the US$ as the global reserve currency. Japanese investors are the biggest foreign holders of US Treasuries after China, so the talk of diversification away from the US$ could have a big impact on the currency markets. "In the medium to long term, we need to do what we can to avoid the risk of currency losses or economic turbulence that could result if the dollar were to swing," said the opposition party's finance minister in an interview. "Many countries are starting to diversify their reserves."

The biggest currency gainers vs. the US$ yesterday were the commodity currencies of the Canadian dollar, Brazilian real, New Zealand dollar, and the Australian dollar. Yesterday Chuck let everyone know he had finally put the finishing touches on our latest index cd. It just so happens that the new index combines three of these top performers. The new index CD, named the Global Power Shift Index is a combination of the Australian dollar, Canadian dollar, Brazilian real, and the Norwegian krone. Chuck designed this new index CD to take advantage of commodity price increases which are bound to occur as the global economy starts to recover. Call the desk for more information on this newest addition to our stable of offerings.

The Australian dollar got a boost from the business sentiment which turned positive in June for the first time since December of 2007. This should help convince the central bank to keep interest rates stable as the Australian economy starts to show signs of a recovery. The kiwi also got a boost as Reserve Bank Governor Alan Bollard said "Early signs of a global recovery have now emerged." Rates in New Zealand will likely remain stable as the commodity driven economies turn the corner.

Today and tomorrow will bring us a plethora of data, with PPI, Advance Retail sales, Business Inventories, and the ABC consumer confidence numbers today followed by the release of the CPI numbers, Empire manufacturing, Industrial production, Capacity utilization, and the minutes of the June 24 FOMC meeting to be released tomorrow. Thursday we will get the weekly jobs data along with the TIC flows and Philadelphia Fed index. We will close the week out on Friday with news on the US housing market with the release of Housing starts and Building permits. All of this data could bring some excitement to the currency markets, which have settled into a fairly stable summer trading pattern.

Currencies today 7/14/09: A$ .7878, kiwi .6336, C$ .8742, euro 1.3983, sterling 1.6317, Swiss .9227, rand 8.1989, krone 6.4653, SEK 7.8388, forint 197.26, zloty 3.1216, koruna 18.6183, yen 93.14, sing 1.4590, HKD 7.7505, INR 48.84, China 6.8328, pesos 13.654, BRL 1.9782, dollar index 79.97, Oil $61.10, 10-year 3.45%, Silver $12.935, and Gold... $926.19

That's it for today...The home town favorites, Albert Pujols and Ryan Howard couldn't quite get it done at the derby last night, but it sure looked like everyone had a great time. Three of the guys on the desk went down to the derby last night, and I actually saw both Mike Meyer and Tim Smith in the right field bleachers scrambling for one of Cecil Fielder's 16 homers. My wife and I were lucky enough to get invited to tonight's game by a good friend. I've heard we will have to be heading down a bit earlier than normal with President Obama in town to throw out the first pitch. Should be a great time; I just hope the rain holds off. Should turn out to be a Terrific Tuesday! Let's go National League!!
Chris Gaffney, CFA
Vice 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

Desperately Seeking Yield...

Chuck Butler — Fri, 26 Jun 2009 15:27:32 GMT

.........But First, A Word From Our Sponsor..........
The Ultra Resource Index CD: 6 foreign currencies, 1 unique opportunity

The Ultra Resource currencies (each is equally represented in the CD):

*Australian dollar
*Canadian dollar
*Hong Kong dollar
*New Zealand dollar
*Norwegian krone
*Singapore dollar

EverBank is a Member FDIC and Equal Housing Lender.
......................................................

In This Issue..

* Currencies rally...
* More on the BRIC's...
* New Zealand's GDP contracts..
* Bernanke gets grilled!

And Now... Today's Pfennig!

Desperately Seeking Yield...

Good day... And a Happy Friday to one and all! The end of what seemed to be a very long week... The last weekend in June, can you believe that? Next week, we'll be getting ready for the 4th of July celebrations! WOW!

Well... What a volatile week it has been in the currencies! Up, down, all around, and settling back to levels that we saw before the Fed's FOMC meeting earlier this week. Suddenly, investors are looking for yield again... Looks like they are "Desperately Seeking (not Susan) Yield! And why not? The Fed, and the Bank of Canada (BOC) have come out and said that there will be no interest rate hikes until we've turned quite a few pages on the 2010 calendar.

So, with investors clamoring for yield, the dollar gets taken to the woodshed... As I said earlier this week, one of these probes above 1.40, need to take hold of the figure and build on it, otherwise we're doomed to remain in the 1.35-1.40 range, and range trading is for the birds! Talk about counting flowers on the wall, and watching paint dry! UGH!

I was shocked yesterday to see but a few emails asking me more about the SDR's story that I talked about... Men, women, boys and girls, all... This is important stuff! Don't take it lightly! There's a movement underway that could end up costing you dearly, if you do not take the diversification steps...

I think it is important to know that the BRIC countries (Brazil, Russia, India, and China) are serious about replacing the dollar with a "global currency" i.e. the IMF's SDR's... And... That the BRIC's want more power on the World's stage... And why not? These countries currently have almost 3 Trillion in foreign reserves... And... A very large piece of the world's population... (Thanks for that fodder, Kevin!)

OH! And guess who was banging the drum for a "super-sovereign" currency overnight? China, that's who! So... They're Baaaaaaaaccccckkkkk! OK... This was the People's Bank of China (the Central Bank), that made this statement, along with a call for the IMF to manage part of member's foreign exchange reserves... Hmmm... OK, I just said that China wants more power on the world stage, and here they are saying that their puppet will be the IMF! OK, I took some liberty with that, but it's the way I see it!

OK... Back to what's going on in the currencies today... Hmmm... The dollar is getting taken to the woodshed to end the week, that's what's happening! And the currency leading the pack with regards to performance VS the dollar, drum roll please.... The Brazilian real... A 3 day "winning streak" has the real back to levels it saw before the Brazilian Central Bank (BCB) cut rates about 10 days ago...

The way I see it, and long time readers know this will be interesting in the least, is that investors want to invest in the BRIC countries, but there's very little liquidity there in each of those currencies, along with very little yield, except... In Brazil... Liquidity isn't what the majors enjoy, in fact it's still traded on what's called a "non-deliverable forward", which means it can only settle in dollars, with no deliverability, but... It's traded easier and less costly than the other BRIC's and... It has the highest interest rate available... So... You can see why investors are buying reals...

Having said that though... You must know about the volatility... Look at what happened this week... On Monday, we started the week with the real at 1.9750, only to see it rocket to 2.0326 in one day's trading, a near 3% move / loss in one day! Then we saw it rally back to 1.9795 the next day, and after 3 days of gains the real sits at 1.9420 this morning, thus generating a "gain" for the week! And... The other thing, is that Brazil is considered an Emerging Market... And long time readers have learned over the years that when one Emerging Market gets slammed, they all get taken to the woodshed... So... Be careful out there!

A high yield currency that far removed from the early days of trading like Brazil, but offers yield, is the New Zealand dollar / kiwi... And kiwi has been held back, although still posting a gain VS the dollar, overnight as 1st QTR GDP printed at a negative -1%, thus marking the 5th consecutive quarter of negative growth in New Zealand...

I'm probably out there on the big fat limb (to hold me up, of course!) by myself on this one, but... I personally believe that both the Reserve Bank of New Zealand (RBNZ) and the Reserve Bank of Australia (RBA) have seen the lows in their interest rates, and no further rate cuts will come from these respective Central Banks. I know, that last week, we were all hyped up about future rate hikes from the RBA in 2010, and we probably got a little ahead of ourselves with that thought... I'm probably ahead of the curve on the "end of rate cuts" talk... But that's where I like to be!

So... When the world's investors are looking for yield, they don't have to go to Brazil, or India... They can go to the old reliables... Australia and New Zealand, with a reduced fear of further rate cuts... At least that's they way I see it! And yes, I could be wrong...

And how about Gold and Silver this week? What a week on Mr. Toad's Wild Ride for precious metals... The main thing though is that they are finishing the week with a rally, and Gold which was trading at $922 on Monday, is $944.85!

And how about that grilling that Big Ben Bernanke received yesterday by legislators over the Fed's conduct in the Bank of America (BOA) takeover of Merrill Lynch... You may recall that BOA's CEO, Ken Lewis said he was "bullied" into taking over Merrill and not disclosing to his shareholder all of Merrill's losses that were on the books... Big Ben denies that he participated in any bullying... (doesn't that lead to Paulson then? Did Big Ben just throw Paulson under the bus?)... Any way... Big Ben did little to convince the legislators that the Fed didn't keep their hands out of the cookie jar... And that, my friends, may be the foot in the door that we've been looking for... Maybe, just maybe, because you never know, but with the legislators having questions about the Fed and Big Ben, they probably aren't in any mood to hand over the regulatory powers that the President wants to give them...

And... My old fave Central Banker, NOT! Big Al Greenspan was back in the news last night... I'm trying to figure out how he and I got on the same side of the ship... But, here was Big Al, my nemesis for years, talking about inflation being a concern... Let's listen in to Big Al... Alan Greenspan, former chairman of the Federal Reserve, said the threat of inflation needs to be confronted because it poses a threat to economic recovery. "Excess capacity is temporarily suppressing global prices. But I see inflation as the greater future challenge," Greenspan said. "If political pressures prevent central banks from reining in their inflated balance sheets in a timely manner, statistical analysis suggests the emergence of inflation by 2012."

Of course, I think inflation will be showing its ugly face next year, not 3 years from now!

And on the data front... The Weekly Initial Jobless Claims "surprised" economists by moving back up, after falling last week... 627,000 unemployed Americans filed for unemployment claims last week... No "green shoots" here! In fact... We need to see if we can use these so-called Green Shoots that the President and Big Ben keep talking about, for ethanol... They've got to be good for something! HAHAHAHAHAHAHAHA! I must say that a reader gave me that line!

And here's Warren Buffett on Green Shoots... "I had a cataract operation on my left eye about a month ago and I thought maybe now I'll be able to see green shoots. We're not seeing them. Whether it's retailing, manufacturing, wherever. We have a big utility operation. Industrial demand is down like we've never seen it for a simple thing like electricity. So it hasn't happened yet. It will happen. I want to emphasize that. But it hasn't happened yet."

And... Then... There was this... A good story to end the week and head to the Big Finish with...

Barclays Capital Inc. (Barclays) the world's third largest currency trader, have lowered their one-year forecast for the dollar, saying foreign investors will reduce their purchases of U.S. assets... Barclays referred to the dollar's status as "safe-haven paradise lost", due to the ballooning fiscal deficit and the printing of money by the Central Bank... Barclays believes that the euro will be trading at 1.50 in a year...

Hmmm... Nothing new there for Pfennig readers, but, I always find it to be good to see others with their BIG research departments, no divisions, yeah, divisions, that's bigger than a department! Wait, get back on track, here Chuck! Yes, the Big research divisions, that finally come around to what little old me has been saying for months now... Oh! And that "little old me" has just got to crack up any one that knows me, and have seen me lately!

And one more thing... Oil is back to $71 this morning, as there has been more problems in Nigeria... Let's hope these problems go away!

Currencies today 6/26/09: A$ .8055, kiwi .6450, C$ .8710, euro 1.4085, sterling 1.6490, Swiss .9210, rand 7.9680, krone 6.4250, SEK 7.8125, forint 196.20, zloty 3.1975, koruna 18.50, yen 95.40, sing 1.4540, HKD 7.75, INR 48.21, China 6.8338, pesos 13.18, BRL 1.9420, dollar index 79.86, Oil $71.07, 10-year 3.55%, Silver $14.25, and Gold... $945.65

That's it for today... Well... Today marks the 2-year anniversary of the surgery that removed my cancer ridden femur, and replaced it with a prosthetic. Quite an ordeal, but... Here I am! Rock you like a hurricane! Oops, sorry, got carried away there! I'm so happy that's behind me now! Well... Michael Jackson has died at 50 years old... When I think of Michael Jackson, I just remember my two oldest kids, playing that Thriller album over and over again. The heat wave over us continues, but is expected to back off next week... My little buddy, Alex, turns 14 on Sunday. WOW! We began a tradition when he was quite young, of the two of us going to breakfast on his birthday. Two years ago, when I was in the hospital, my darling daughter, Dawn, brought Alex to the hospital with breakfast, so we could continue the tradition. I hope I can continue celebrating with him for many years to come. So... Happy Birthday Alex! Real long time readers might recall when Alex was 3, and would sit on my lap as I wrote the Pfennig from home, and every once in awhile the text would look like this... 9087lkndy7, and I would say, "sorry, Alex is helping me again"... Alex has already made me aware that he can get his drivers permit next year... YIKES! OK, time to head off into the sunrise... (not sunset, as I'm writing at daybreak, HAHAHAHA) The currencies are having a Fantastico Friday, so why don't we joining them?

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

So Far... It's A Turn Around Tuesday!

Chuck Butler — Tue, 23 Jun 2009 14:42:11 GMT

.........But First, A Word From Our Sponsor..........
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In This Issue..

* Currencies bounce back...
* Commodities and Commodity Currencies get hit hard!
* China's recovery a myth?
* Devaluation in the dollar's future?

And Now... Today's Pfennig!

So Far... It's A Turn Around Tuesday!

Good day... And a Terrific Tuesday to you! It's too hot in the hot tub! You can't make me get in the hot tub! Ahhh... When I walk outside and my eye glasses fog up from the heat and humidity, I think of that old Saturday Night skit, with Eddie Murphy playing James Brown!

OK... Well, yesterday we saw the currencies stop the bleeding from the overnight sell off, and although they range traded on the day, the bias was to sell dollars once again. That bias has played through on our Turn Around Tuesday theme, and the currencies are higher today than yesterday, but lower than they were 3-weeks ago week ago. Yes, the month of June has not been kind to the currencies, as some of the euphoria that was going on from March thru May, regarding the global economic recovery is being thought about again, and this time, not with the same rose colored glasses...

Yesterday, I told you about the story in the Australian Morning Herald that shook the A$'s confidence, when the Economics Editor said the markets were wrong to believe the Reserve Bank of Australia (RBA) were finished with their rate cuts. Well, that story was followed up by one that shook the confidence of the Commodity Currencies... This one was about China, and how analysts had gotten the stimulus all wrong in China, and that the Chinese had NOT put the money toward infrastructure and Capital improvements but instead into investments, thus making the Chinese disguising the stimulus in China as a recovery... Hmmm... I don't live in China, so I can't really pass judgment here, but I will say that most people that comment on China in the past 6 years have been mostly wrong.... And more wrong than right for sure!

But... As they say on the farm, it's too late, the cow's out of the barn! That Chinese stimulus story, hit a nerve with the Commodity Currencies, and before you knew it, the high flying currencies of Aussie, kiwi, Brazil, and South Africa were all looking at figures that thought for sure were in their rear view mirror! The sell off was damaging for sure...

This looks like a classic case of "getting cold feet"... Traders were all lathered up to take these currencies higher last week, but read a story and "got cold feet"... They would say they are being prudent... I would say that they are being wimps! Because in the end, folks... This has nothing to do with whether or not the RBA cuts rates again or not! In the end, this is all about what the U.S. is going to do about all their debt! I've harped on this for years, and the thing that really gets me is that IT HAS GOTTEN WORSE! The National Debt, is now over $11 Trillion, and will probably reach $14 Trillion this year, after all the deficit spending by the administration... This is just awful folks, just awful... Because... And here I go again getting up on my soapbox, but come on, this is important! And Yes, I know, you've heard this at least 100 times if not more before!

But, the only way the U.S. is going to be able to pay down their debts, and the $11 Trillion is just the tip of the iceberg with the baby boomers starting to retire, is to pay it back with cheaper dollars... But... Hey! Don't take my word alone for this... Let's listen in to the IMF's Chief Economist, Olivier Blanchflower, who was speaking at a conference in Paris yesterday...

"A U.S. economic recovery will only be sustainable if there is a "large increase" in net exports, which may require a dollar adjustment. It may not be very easy, It may require "an adjustment in the dollar, but it is needed."

Did you hear that? The IMF Chief Economist is saying out loud, and not under his breath, like most economists that see this but don't want to go out on a limb, that the U.S. needs to devalue the dollar!

Now... That might be a shock to you, folks... But it's not to me! And if you've read the Pfennig for a long time, and heard me harp and harp about the deficits and not being able to pay them back unless we do so with a cheaper dollar, then now it might just all come back to you... Like what the blind man said when he spit into the wind, Ahhhh, it's all coming back to me now!

But again... It's not just me that thinks these things, although I will say that sometimes it sure feels like I'm the only one saying them out loud every day of the work week!

Today, I have a special treat... And once again, I'm as proud as a peacock this morning, because, I have a quote to share with you, from the one and only Richard Russell... This comment plays well with what I've just been talking about... Check this out!

Richard Russell - "It's clear (at least to me) that Obama is following the path Roosevelt took during the Great Depression.

In 1933, the government devalued the dollar by 41% by raising the official price of gold from $20.67 to $35 an ounce. Devaluation makes debt easier to handle. In a devaluation, the dollar value of debt remains the same, but all other assets would be worth more (in nominal terms) whether it was a house, a stock, a car or an ounce of gold.

How our creditors who own trillions of dollar in their reserves will react to a dollar devaluation I really don't know, but a devalued dollar is a lot better than nothing. The Bernanke Fed is trying desperately to bring back inflation, and devaluing the dollar is the surest and quickest way to inflate."

WOW! It's not every day that I get to use a quote by Richard Russell! But now... Think about this stuff that's in the Pfennig this morning... And then think about what I told you last week, about how all this going back and forth in the currencies and precious metals, is just "noise"... Ahhh, now I want to hear you say... "I get it, I get it!"

Oh... And to follow up the Blanchflower, Butler, and Russell comments... Ty sent me a quote my Mark Twain that sums it all up... Mark Twain - "History doesn't repeat itself, but it does rhyme."

U.S. stocks sold off 200 points yesterday, making it a tough row to hoe for the Commodities, and Commodity Currencies... The Brazilian real posted the worst performance on the day, with the real moving back above the "2" level for the first time in about a month... Recall, that the Central Bank Gov. said in the middle of May that he would everything he could to keep the currency above "2", only to watch it move below and then well below "2" in the next weeks. The Central Bank Gov. did try, by cutting interest rates about 10 days ago, but in reality, he has little at his control if the markets / traders / investors decide to buy the currency... He does not have a treasure chest of reserves like the Bank of Japan and Bank of China... No, in reality, the only way the real was going to move back above "2", was to have the sentiment toward Commodity Currencies change...

And again, I can't believe that the one story in the Australian newspaper, has caused a sea-change of sentiment like this! Maybe, the story's writer will be proven to have been bang on... That's not what I'm saying... I'm saying, his opinion, caused a sea-change of sentiment, and that surprises me!

I had someone write me yesterday and say, I might add, once again, that Europe is in worse shape than the U.S. that they didn't even have stress tests there because they fear what they might show... Hmmm... I wonder what they'll think when they read this... ECB member, and President of the Bank of France, wrote in his annual letter to French President Sarkozy, that the "worst has passed for the economy and that he was favorable to releasing the results of the banks' stress tests." Hmmm... Guess we're back to the "ugly car" comparison, eh?

Recall last week when I told you about the Chinese announcing a "buy China" protectionist program? I said then that these things usually spread and other countries announce their own versions of protectionism measures... Of course, we all know who started this round of protectionist talking... The current administration and their "buy American" plan... The Chinese measures were placed to offset the U.S. measures... But now, Germany is feeling pinched... Germany's economy minister, Guttenberg, is voicing concerns about the Chinese announcement last week, and that he would bring this up at the next G-8 meeting in July...

Well... The problem with that is that China isn't a member of G-8, so this could just be a "you-know-what session" of finance ministers, getting them all wound up to write protectionist measures of their own! Watch for these protectionist policies to spread like Bermuda grass! And, if that happens, the global recession will get even worse, folks! Thanks to the "buy American" move... Geez Louise, when will they ever learn? When, will, they, ever... Learn?

Looks like more and more people are jumping on my bandwagon, that the stimulus would not work... Two months ago, 59% of Americans thought the $787 billion stimulus would restore the economy, but since then, the number has slid to 52%. And... As unemployment heads to 10%, even with the adjustments and ghost jobs the BLS adds each month, that number of those that thought the stimulus would restore the economy, will continue to slide...

And finally a not so serious story... Say it ain't so Paul Simon! Kodak will retire Kodachrome! Eastman Kodak has announced it will discontinue the legendary 74-year-old film that revolutionized color photography because of slow sales and dwindling demand in the film, due to digital cameras...

Kodachrome
You give us those nice bright colors
You give us the greens of summers
Makes you think all the world's a sunny day, oh yeah!
I got a Nikon camera
I love to take a photograph
So Mama, don't take my Kodachrome away

On a sidebar... I saw Paul Simon in concert this past spring... A great concert!

Currencies today 6/23/09: A$ .7870, kiwi .6330, C$ .8670, euro 1.3960, sterling 1.63, Swiss .9295, rand 8.24, krone 6.5375, SEK 7.9650, forint 202, zloty 3.2535, koruna 18.71, yen 95.50, sing 1.4565, HKD 7.75, INR 48.54, China 6.8345, pesos 13.33, BRL 2.0325, dollar index 80.44, Oil $67.08, 10-year 3.68%, Silver $13.81, and Gold... $922.73

That's it for today... OK... Are you as fearful of what could happen in this on-going N. Korean ship following by the U.S.? That kind of stuff is scary... Somebody gets a nervous trigger finger, and... Oh well, I had better think of more peaceful things this morning, eh? For those that send me notes asking me about my left eye... I don't have anything new to report. My lack of vision with the eye is the same, the good news is that it hasn't gotten any worse! I told a good friend of mine the other day, when he expressed his concern that I've taken more than one hit with this cancer... "So far, the Good Lord has only allowed me to be attacked by cancer in places where I have two of"... Kidney, hip, leg, and eye! And... That's the way I see it! I love those east coast starting times, I can actually watch the whole game! Of course I didn't like it last night when the Metropolitans took it out on my Cardinals... Time to go... I hope you have a Terrific Tuesday!

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

Gold Vending Machines!

Chuck Butler — Thu, 18 Jun 2009 14:59:35 GMT

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In This Issue..

* More range trading...
* SNB doesn't target the franc...
* Norges Bank cuts rate but looks forward...
* Buy your gold and Snickers!

And Now... Today's Pfennig!

Gold Vending Machines!

Good day... And a Tub Thumpin' Thursday to you! It was 95 here yesterday, and forecast to be even warmer, or should I say hotter, today! WOW! Like overnight, it turned to summer, after the coldest, most wet, spring I can ever recall... I know, I'll get 100 emails reminding me that summer doesn't officially start until next week... I'm just talking about the summer-like weather!

The currencies remained in that range I talked about yesterday, with a slight bias to sell dollars, but not much of one. Crude Oil prices moved higher on the day and overnight, which doesn't play well with a dollar rally, and therefore, has pushed the dollar down a bit... But again, we're talking minor moves. It's as if someone (traders) are waiting for something BIG to happen with data, the Fed, the Treasury, before taking one direction.

Did you hear about the Gold vending machine in Germany? I saw this yesterday morning, and thought it to be a hoax... Then someone in the office brought me a print out of a story in the U.K. Telegraph... OK, so maybe it's not a hoax... Any way... Here's the skinny... In Germany, they've come up with a vending machine that can update prices of Gold every few minutes, and... Dispense 1 gram Gold wafers, 10 gram Gold bars, or coins... There's about a 30% increase in the market price! WOW! Imagine that, you need some Gold in your pocket just for GP, and you simply walk up to a vending machine and buy some, as simple as getting that Zero bar, or Snickers!

OK... What gives a guy this kind of idea to make a vending machine that disperses Gold? It's all about taking advantage of the times, folks... I may have told you this in the Pfennig before, I don't recall, but I use it in my presentation for Gold... Investment in Gold increased 427% last year... To put it into Tonnes of Gold, retail investment purchases of Gold reached approximately 108 Tonnes of Gold in 2008, up from 36 Tonnes in 2007, and 28 Tonnes in 2006!

I was talking with the Big Boss, Frank Trotter, who, by the way scored a goal from about 30 yards out in his soccer match the other day... Ty Keough, our one-time national team player, and long time pro, was quite impressed, and that says a lot, because Ty has seen some soccer in his years... You may know Ty or heard of him... But do you know his dad? His dad is a soccer legend, playing on the U.S. national team that beat Great Briton in the World Cup in the 50's, and then went on to be the winningest college coach, with multiple national championships at St. Louis University...

Oh, I digress, there, I'm so sorry... But once I got talking about soccer, of which I played a ton of in my youth, I just started typing... UGH! Any way, I was talking to the Big Boss, Frank Trotter, the other day, and Frank mentioned that he was concerned that Gold could be the next bubble... I assured him that I didn't see it that way, not until my neighbors are asking if they can buy Gold at $1,200 oz! (I tried to get them to buy it at $800 oz, to no avail!)

Remember when we were kids? No wait, we wouldn't all have been kids at the same time you dufus Chuck! OK, when I was a kid... We used to have these bomb shelters in our schools, and we would practice going into them... It was a different time, the cold war was strong, and the fear was put in all of us toward Russia... I had a teacher, many moons ago, that told the class that it was a good thing that Russia and China didn't see eye-to-eye... Well... I wonder what he thinks about the news that China and Russia have agreed to use each other's currencies and eliminate the use of dollars in their trade?

It kind of feels like Russia and China are ganging up on the dollar!

The other "new kid on the block" Brazil, is joining in with Russia and China... But that news didn't help the Brazilian real yesterday, as it saw one of its worst days in weeks! But that's the real... I watch it trade some days, and your eyes grow very wide open in amazement of the wild swings in this currency. It will move 2-3% in a day, either way, in a heartbeat! Which tells you that the "number of players" in real, is smallish when compared to the second most liquid currency in the world... The euro! So... If you're going to own reals, you need to be aware that it has these wild swings!

Speaking of the euro... It's getting a boost this morning from an improved outlook for risk today, as U.S. stock futures are stronger. The "Big Dog" looks a little tired of chasing the dollar, and then being pulled back on to the porch over and over again recently... But, as always, always I tell you tutor turtle, be yourself... No wait! I always tell you that all this is "noise"... Investment portfolio diversification into currencies and precious metals is a long-term relationship... The dollar didn't lose over 90% of its value overnight! The euro didn't gain over 50% VS the dollar overnight! These things are long sweeping moves, and you have to drown out the "noise"... Otherwise, you'll become a currency and metals "trader", and chasing these assets all over the board!

Pound sterling is getting hit on the chin this morning, as retail sales fell in May, which was the first drop in 3 months... Retail Sales fell .6% in May, and pretty much squashes those so-called "green shoots" that have been talked about for the U.K. economy... I think you can expect to see stuff like this for the next year... Up and down, in and out, green and brown shoots... And... Like I've said before, if it's happening in the U.K. it won't be long before we experience the same, as the U.K. just seems to be ahead of the U.S., time-wise...

The Swiss franc is stronger this morning than recent trading sessions as the Swiss National Bank (SNB) met, left rates unchanged, and made a statement that has given a green light to franc traders to buy... The SNB announced that they were not targeting a specific exchange rate for the currency. You may recall that the SNB had previously stated that they were not happy with franc strength, and had intervened on occasion to keep the currency from strengthening... I would be careful here, as this could be a "trap" Oh, you don't think Central Banks set traps for traders? OK, well, maybe they don't really set a "trap", but they do send mixed messages that cause losses!

Big Al Greenspan was famous for these "mixed messages" that were called "Greenspeak"... After reading two books on Big Al, I can tell you that I personally think that "Greenspeak" was gobble-de-gook! Confuse everyone so they think you are some sort of messiah! Right Big Al? When... In reality, he was just "a guy", who really screwed things up!

Today, we will see the Weekly Initial Jobless Claims, which for me has turned into watching the "Continuing Claims"... This part of the data tells me if unemployed people are being re-hired... I haven't see that happening, as Continuing Claims have continued to grow larger in numbers... We'll also see the Philly Fed Index, (manufacturing)...

The real meat (where's the beef?) will come from a testimony before the Senate Banking Committee by U.S. Treasury Sec. Geithner, on the President's plan to overhaul the U.S. Financial regulatory system... I doubt these Senators will understand what Geithner is talking about, and will "rubber stamp" the plan... Which means, folks... That the Gov't gets its foot in the door further...

I know, I know, I get quite a few emails from people that take exception to me getting upset with the Gov't getting more involved in the markets, etc. as they say, "Yeah, Chuck, and you think the "markets" have done a better job?" Well... The markets are the markets, folks... If left alone, they will act as markets should... What? You didn't like the fact that the Mr. Market, as my friend, Bill Bonner, calls it, turned the whole credit, and deficit spending on its ear? Mr. Market was just trying to correct what was wrong... Getting the Gov't involved is just plain, wrong! One foot in the door... Then next it's the next thing, and the next, and pretty soon, the Gov't is completely in the door, and hanging out on your couch!

Please... These are just my opinions... If you don't like them, you have that right! It is still a free country for speech! Just delete it and go on with your life! OR... You didn't pay anything for all this, that I've been giving to people since 1992...

In Norway yesterday, the Norwegian Central Bank, The Norges Bank, surprised me and the markets by cutting rates 1/4% of 25 BPS... I did say the other day that the Norges Bank was the only Central Bank that was meeting this week, that had some room to cut rates... The Norges Bank did say in their press conference after the rate announcement that rates were at the "bottom" and that they were looking toward the first quarter 2010 as the timing on the first rate hike!

Well, with traders so forward looking, this was good news for the krone, as the rate cuts was quickly put in the rear view mirror, and now everyone is looking forward to higher rates!

And under the heading of "dirty float"... The Reserve Bank of Australia (RBA) is reported to have sold the most A$'s in the month of May, since February 2004! Now, go back to May and recall the move in A$'s... The currency gained almost 10% in the month... So, the A$ would have gained even more if the RBA had not sold A$1.4 Billion A$'s in the month! I personally think the RBA was just trying to smooth out the trading the A$, which given this information would have been moving up the charts with a bullet in May!

I don't think the RBA would get involved if the move was a slow, general appreciation of the currency... So, I don't look for future intervention to keep the A$ from gaining the ground I believe it will gain rest of this year, as inflation fears grow stronger and stronger...

And on that positive note... I think I'll head to the Big Finish!

Currencies today 6/18/09: A$ .7945, kiwi .6355, C$ .8835, euro 1.3935, sterling 1.6260, Swiss .9280, rand 8.1380, krone 6.37, SEK 7.8725, forint 204, zloty 3.26, koruna 19.16, yen 95.80, sing 1.4570, HKD 7.7503, INR 48.25, China 6.8350, pesos 13.46, BRL 1.97, dollar index 80.42, Oil $71.30, 10-year 3.69, Silver $14.25, and Gold... $938.20

That's it for today... That's a pretty interesting story about the Gold vending machine, eh? Here in the office we have one of those "honor snack trays", where people pay for what they take... Can you imagine one of those that had Gold coins in it? HAHAHAHAHA! Another good win for the Cardinals VS the Tigers last night... Of course I can only watch 5 innings or so, before it's bed time. I get up the next morning, and watch the highlights! This weekend is Father's Day... Don't forget your dad! More on that tomorrow... I just love this time of year when the daylight lasts until 9 pm... The daylight lifts spirits, I believe, and now spirits get lifted longer each day! HA! OK... How about making this a Tub Thumpin' Thursday, eh?

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

Fundamentals Return...

Chuck Butler — Thu, 21 May 2009 15:48:14 GMT

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In This Issue..

* Currencies & Gold move together!
* Fed downgrades economic growth...
* More on China...
* Yen breaks the trading pattern...

And Now... Today's Pfennig!

Fundamentals Return...

Good day... And a Tub Thumpin' Thursday to you! It's Tub Thumpin' here, as the warm winds of spring have finally sprung, the Cardinals have won two in a row from the rival Cubs, and I'm headed to Busch Stadium tonight! Oh! And fundamentals, as far as currencies and metals are concerned, seemed to be in place yesterday...

That's right... The rout on the dollar was on (recall yesterday, Wayne and Garth playing street hockey... Game On!) and this time... Not only did the currencies rally VS the dollar, Gold and Silver took part in the proceedings too! It's been a long time since we've seen this happen... For the most part, whenever the currencies (minus yen) rallied, Gold would back off, and vice versa... Not yesterday! For the first time in a long time, the negativity toward the dollar was front and center BIG TIME!

The currency rally began early in the morning, and really gained steam as the day went on, and especially after the minutes of the FOMC meeting printed. You see, the Fed Heads had discussed that the economy is in a weakened condition and the economic projections for 2009 and 2010 were actually revised lower. The thing I took out of the minutes was this statement by the Fed Heads... the housing market "remained depressed but seemed to have leveled off"...

Memo to Fed Heads... Better be careful with those kind of statements... Did you all make a similar statement late in 2007? Look how well that prognostication worked out!

So... This news from the Fed about downgrading the growth outlooks for 2009 and 2010, is the key folks... You see, during the July 2008 - Feb. 2009 timeline, we traded under a different Trading Theme, that was well documented in this letter. But for new readers, the Trading Theme threw fundamentals out of the window, and rewarded the dollar every time data indicated the economy to be deeper, darker, and more dangerous in the recession / depression. This was against all fundamentals...

But yesterday, with the Fed downgrading growth forecasts, the dollar got sold like funnel cakes at a state fair! Finally! A return to fundamentals! Well, at least for one day that is. We certainly need to see more than one day of this to make any kind of final change in the Trading Theme trend... But it sure was nice to see for one day!

The Big Dog, euro, led the way for the other currencies (little dogs) yesterday. The euro finally, traded above its key resistance of 1.3740. A level that had stopped the euro "cold" three previous times. You may recall about a week ago, I told you that this is what happens with currencies, in the time (since 1992) that I've followed currencies. They make a run at a resistance level, and get knocked down. They make another, only to get knocked down, and then another with the same result. Sooner or later, love is gonna get ya', no wait! Sooner or later, traders and market participants either 1. take this as a challenge and push the currency through the resistance level, or 2. they give up, take the ball and go home... And the currency then falls back through previous gained ground.

In this case, the euro finally moved higher and through the 1.3740 level, and traded all the way up to 1.38 on the day... The good news for euro holders is that there has been little to no profit taking overnight, and the Big Dog is still trading with a 1.38 handle this morning!

Long time currency followers would have to admit that this all looks very similar to previous periods where the negativity toward the dollar was very strong, and seemed take on a life of its own. Even your run of the mill dollar bull, begins to see things they way his counterpart the dollar bear sees them...

I think that the markets have come to the realization that the U.S. has taken the road that leads to easy monetary policy... And everyone knows what's at the end of that rainbow! Inflation!

A couple of weeks ago, I participated in an editorial roundtable with my publishers for my "other" newsletter, The Currency Capitalist, (shameless plug!) and in the meeting I was trying to get everyone to agree with me that China was up to something. This was right after the announcement of their currency swap line with Argentina... Someone raised the question, a very astute question I might add, about why would China want to see the dollar lose value, when they own so many Treasuries...

I then pointed out something I had researched... That China had been stealth-like in doing so, but had shortened their maturities to less then 3 years... Which would mean that they could allow these to mature and not sell them pre-maturely... Could this be a "time-line" toward the lines of thought that China wants to replace the dollar as the world's reserve currency?

OK... That was a couple of weeks ago, in a meeting... But yesterday, Chris Gaffney sent me a story that appeared on Reuters... Here's a snippet... "China has engineered a subtle yet significant shift in the investment of its foreign exchange reserves, a sign of how it is willing to act on concerns about financing an explosion of U.S. debt."

And then this... "China's move to the shorter end of the U.S. debt spectrum is a defensive tactic adopted by the wider market as well on the view that the United States will have to raise interest rates down the road to control inflationary pressures when the economy recovers from the financial crisis."

So... Now there are "others" that are sniffing around this trail of tears I think I've discovered, for if there is no "long-term" plan by the Chinese to replace the dollar as the world's reserve currency, then I'll have egg all over my face! Well... The good thing for me, is that this is a very long tailed story... And I'll get to point to it over and over again in the coming years!

Doesn't that just make you get chills of excitement? HA!

A currency that "I like" but had fallen badly last summer, the Brazilian real, has really pushed higher in recent months (since March 1st). Yesterday it looked as though it would trade below the 2 handle for the first time in 8 months! (BRL is a European Style currency, where as the price goes down, it returns more value VS the dollar) For those of you keeping score at home, the real has gained 17% since March 1st... With Brazil being a "high yield" currency, the return grows even more... But, that's in the past... And past performance does not indicate that future performance will duplicate... (that's for the legal beagles!)

Well... Recall earlier this week I talked about pound sterling nearing its 200-day moving average? Well... Forget about it! Yesterday, Standard & Poors (S&P) decided to place the U.K. on negative outlook... And the pound sterling quickly became the G-10's worst performing currency on the day... For those of you wanting to know what's what with these ratings from S&P... When S&P imposes negative outlook they foresee a greater than 50% chance of downgrade within the next two years, this is compared to negative watch which implies a greater than 50% chance of downgrade within the next few months.

I said earlier that the euro (Big Dog) had seen little to no profit taking overnight, and was trading with a 1.38 handle this morning... It has just slipped below that level, as I prepare to go to the Big Finish... Data wise for the Big Dog, Eurozone PMI's (manufacturing indexes) surprised to the upside for this month. Now... It's true that this manufacturing data is still in negative territory, but this data supports the thought that the worst is behind the Eurozone... That remains to be seen... But for now, that's good news!

In Japan overnight... In yet another sign that the Fundamentals may have re-emerged, if for only one night, the yen rallied with the other currencies. Yes, this has not been the case for several months now. When the dollar rallied, yen rallied along with it... But not yesterday and last night... Yen pushed to a 94 handle for the first time in 2 months!

The data cupboard comes back with a plethora of data this morning... The Weekly Initial Jobless Claims prints first, followed by Leading Indicators and the Philly Fed Index (manufacturing for the region)...

And then there was Gold... And Silver! Year-to-date, Silver is outperforming Gold! Silver is up almost 25% this year, while Gold is up 6.6%. Our newest member to the currency and metals desk, Aaron Stevenson, pointed something out to me the other day regarding Silver... "the Gold/Silver ratio has increase to about 64 from 51 this time last year." Hmmm... Very interesting...

Speaking of Gold... I had a long discussion with a long time customer last week in Las Vegas at the Money Show. We were discussing Gold confiscation... Again, I said it before and I'll say it again, I don't believe the Gov't would do this again... But... The customer gave me something to think about. In "his scenario" the Gov't devalues the dollar, and pushes Gold to $10,000 an ounce... Well... Now that's "out there"... But as a Gold holder, I certainly would love to see $10,000 an ounce... My problem is that I don't want to see what the U.S. economy looks like with $10,000 Gold! It may not be worth it folks...

OK... Before I go to the Big Finish, I need to make certain everyone understands that the previous paragraph was just a "discussion" of scenarios... I'm not saying, and neither is my customer saying that we believe Gold is going to $10,000 an ounce! It was just a figure to use to see if I would "bite" at confiscation at that level!

Currencies today 5/21/09: A$ .7715, kiwi .6050, C$ .8765, euro 1.3795, sterling 1.5660, Swiss .9080, rand 8.3950, krone 6.4075, SEK 7.5990, forint 201.20, zloty 3.1850, koruna 19.35, yen 94.97, sing 1.4570, HKD 7.7525, INR 47.33, China 6.8247, pesos 13.03, BRL 2.0330, dollar index 81.18, Oil $60.73, Silver $14.25, and Gold... $940.67

That's it for today... $7 Billion more being injected to GM by the Gov't... The sound of that just doesn't give me a warm and fuzzy! I was sitting in the high school auditorium with my little buddy, Alex, last night at a meeting for football players and parents. Alex's football coach came up to him and told him he needed to "gain weight"... I had a major flashback... When I entered high school I weighed 125 pounds, and the football coach told me I needed to "gain weight", I tried and tried, but to no avail. The coaches even had me tested to see if I had a "tape worm"... But finally, the weight began to cling to me... And... After my football career was over, I had to fight to keep my weight down, now that I'm somewhat immobile, I really have a fight on my hands... And I can't stop thinking about how I needed to "gain weight" in high school! I told Alex, "I was a skinny kid like you at your age, look at me now... You had better be careful... Oh, look at how I've carried on with this story... Shame on me! I hope your Thursday is Thunderin'!

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