Daily Pfennig : Carry Trade

Carry Trade reversals rally dollar / yen

Chuck Butler — Thu, 19 Nov 2009 15:13:25 GMT

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In This Issue..

* Carry trade reversal boosts the dollar/yen...
* STL Fed Head Bullard sends mixed signals...
* Audit of Fed in jeopardy...
* Kiwi and AUD fall...

And Now... Today's Pfennig!

Carry Trade reversals rally dollar / yen

Good day... And a Thunderin Thursday to you! Yes, the rain continues today, but I hear it is supposed to stop this afternoon. Fear of risk rained on the currency investors' parade as an equity market sell-off fueled a US dollar and Japanese yen rally. At times it looks as if we will break this pattern of markets up dollar down/ markets down dollar up, but it seems investors continue to return to the US$ and Japanese yen as soon as they become worried about equity market returns.

Many of the callers into the trade desk wonder how anyone would be buying the Japanese yen and US Dollar as 'safe haven' currencies. I think a lot of this buying of yen and dollars isn't necessarily due to investors believing they are safer in US$ and Japanese yen, but is a result of the reversal of carry trades. The dollar and yen are the two major funding currencies of the carry trade. Investors borrow yen and dollars and then invest the proceeds into higher yielding assets including equities. This is what is called the carry trade, and works best when an investor can use high leverage to increase the return. Since these trades are highly leveraged, they are closely monitored and reversed at the first sign of a possible fall in the value of the higher yielding assets. So while the popular press will talk about the 'perceived safety' of the yen and US$, I believe much of the dollar and yen buying is due instead to a reversal of the carry trade. Investors aren't buying these currencies because they think the Japanese and US economy are stronger and therefore safer than others, but are simply deleveraging to take risk off the table, and are buying yen and US$ in the course of this deleveraging.

So what caused investors to worry about their investments in the equity markets? Chuck sent me this note before heading out the door last night:

I saw currencies jump around again on Wednesday... But here's something that makes me scratch my bald head, and should make you wonder too... If you're confused with this, then don't feel alone... Fed Head Bullard was speaking yesterday and at one point he said... "FED MAY NOT START TO RAISE RATES UNTIL EARLY 2012" That really got the currencies going... But later in the same speech, he said, "MEMORY OF HOUSING BUBBLE MAY PUSH FED TO START RATE HIKES MORE QUICKLY THAN AFTER PAST RECESSIONS." WHAT? He said that the Fed may not start raising rates until 2012, but then says that the Fed may push to start rate hikes more quickly than before? In my best Andy Rooney voice... Do you ever wonder, how these Fed Heads get in the door? Oh well... The second statement didn't change the currencies, but it did change stocks... And for one of the first times in some time... U.S. stocks sold off, and non-dollar currencies rallied.

As Chuck points out, the St. Louis Fed Head Bullard seemed to be speaking out of both sides of his mouth, but his second statement that the Fed may push to start rate hikes more quickly than before scared equity investors. He stated that in the debate to tighten policy, "the idea that you might be creating asset bubbles by keeping rates too low for too long will be an important argument." This is what scared the markets.

The economic data released yesterday certainly didn't help investors confidence in the global recovery as US housing starts unexpectedly dropped 11% in October compared to the month before. The pace of construction was the fewest since April's record low, and illustrates housings reliance on government support. Obama has extended both the first time homebuyer's tax credit and instituted a new (and I believe stupid) program to give existing homebuyers a tax credit to go out and buy a new one. These programs will probably give a bit of life support to the housing market in November, but many question just how long the government can continue them.

Another piece of data released showed the cost of living in the US rose more than forecast in October as the price of gas pushed CPI up .3% following a .2% rise in September. Today we will get the weekly jobs data along with the Leading Indicators for the month of October. Last month's leading indicators surprised the market with a 1% increase, but this month the expected rise is just .4%. This would be the seventh consecutive month of increased indicators begging the question: Just how LEADING are these indicators??? They have posted positive gains for seven months, but the economy sure doesn't feel like it is picking up steam. Housing and unemployment continue to be drags on the US economy and, according to Chairman Ben S. Bernanke, economic 'headwinds' will limit the recovery for an 'extended period'.

Speaking of our esteemed fed head, Bernanke's clout among US lawmakers will be tested today as the House Financial Services committee will consider how much to expand audits of the US central bank today. Panel members will be voting on a Democratic proposal to retain a ban on audits of the Fed interest-rate decisions. This would be a big blow to Ron Paul and his bill to allow audits of the Fed. Unfortunately I believe the Democratic ban on audits will pass, and Ron Paul will have to figure another way to try and hold the Fed accountable.

The worst performing of the currencies vs. the US$ over the past 24 hours is the New Zealand dollar which fell by over 2%. The kiwi dropped as the nation's main opposition party said it will no longer accept the central bank's primary policy of targeting inflation. The head of the central bank's salary is actually tied to keeping inflation rates at an acceptable level. This is one of the main reasons interest rates in New Zealand have been among the highest of industrialized nations. But in the opinion of the nation's main opposition party, these high rates have been at the cost of slower growth and a weaker exports. In my opinion, having a central bank focus on keeping inflation within a targeted range is absolutely required; and tying the main policy makers income directly to this objective is smart.

The Australian dollar also dropped for a second day on interest rate speculation. As Chuck has written, the markets have expected the Reserve Bank to raise rates again at their December meeting, but minutes of their Nov. 3 meeting caused some concern that they will not raise rates again until 2010. The minutes, released yesterday, said the pace of interest rate increases is an 'open question' as policy makers balance the risk of inflation vs. an economy which could slow as government stimulus ends. But I am still firmly in Chuck's camp, and believe the RBA will raise rates in December, and the interest rate differentials will continue to rally the AUD$ vs. the US$.

Minutes of the Bank of England's November meeting were also released yesterday, and showed the policy makers were split on whether to extend the 'quantitative easing' program or possibly cutting rates further. The pound sterling lost ground against both the euro and US$ as investors worried about the lack of direction. The minutes show there are three different camps at the BOE, one which favors expanding the program of pumping money into the system with bond purchases, another which favored no change, and a third which wants to use another interest rate increase to stimulate the economy. The lack of a clear plan by the central bank policy makers strikes fear into investors who want to see more of an agreement on the direction of policy.

While we don't trade the Russian ruble, it is part of our BRIC MarketSafe CD (for which time is running out!). Chuck pointed out to me yesterday that the Russian ruble has been the best performing currency of the BRIC, which was surprising. A story overnight said that Russia's central bank will have to accept a stronger ruble next year as rising commodity prices move the currency higher. Strong commodity markets have pushed capital into the Russian markets, pushing the ruble higher. Policy makers had indicated they will try to cap the ruble's gains, but the IMF warned recently that these efforts to fight the rubles advance will prove 'unproductive' and that 'underlying factors' justify the ruble's strength. This is good news for holders of the BRIC MarketSafe. If you haven't purchased this latest MarketSafe CD, the cut-off is approaching - you only have until December 3 and then your opportunity is lost.

OK, to recap, the dollar rallied on carry trade reversals, the 'Audit the Fed' bill is in jeopardy, AUD$ and NZD$ fell, and the BOE is split on the future of monetary policy in England.

Currencies today 11/19/09: American style: A$ .9170, kiwi .7287, C$ .9414, euro 1.4851, sterling 1.6626, Swiss .9811, European style: rand 7.5605, krone 5.658, SEK 6.93, forint 180.17, zloty 2.789, koruna 17.2147, RUB 28.90, yen 88.86, sing 1.3904, HKD 7.75, INR 46.69, China 6.8284, pesos 13.07, BRL 1.7287, dollar index 75.54, Oil $78.77, 10-year 3.35%, Silver $18.20, and Gold... $1,134.55

That's it for today... Best of luck to Chuck this morning as he heads to the eye doctor again today. It is nice to see Kristin Kuchem back from two weeks of traveling. She said both of her presentations were well received, as investors were eager to get money diversified out of the US$! Looking forward to the Blues game this evening, as several of us from the desk are hoping to watch a win! Hope everyone has a great Thursday!!!

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

Another New Record Level For Gold!

Chuck Butler — Wed, 04 Nov 2009 15:19:53 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
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In This Issue..

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

And Now... Today's Pfennig!

Another New Record Level For Gold!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

And then there was this...

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

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

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

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

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

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

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

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

Dow hits 10,000 and the dollar is down...

Chuck Butler — Thu, 15 Oct 2009 16:12:26 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 Nov. 5, 2009. Apply today or learn more at http://www.everbank.com/001CertificatesMSBRIC.aspx?referId=11808

In This Issue..

* Dow hits 10,000 and the dollar is down...
* Return of the carry trade?...
* Global Power Shift Index...
* Goldman predicts a further fall for the dollar...

And Now... Today's Pfennig!

Dow hits 10,000 and the dollar is down...

Good day... It is a Thunderin Thursday here as the rain continues for another day. We have had a very wet two weeks here in the midwest, but the cold rain is finally supposed to stop later today. The currencies continued to their thunderin stampede over the US$ yesterday with several reaching fresh highs. The Dow Jones average moved above 10,000 again, so everything must be alright in the world economy now, right?? This morning the dollar bounced back up, but it looks like profit taking and not a more permanent trend. Lots to talk about today, so I'll get right to it.

The dollar dropped again yesterday as investors continued to move money out of the 'safe haven' investments in favor of higher returns. The two places where investors sought refuge during the economic crisis were the US$ and Japanese yen. Investors felt a level of comfort in the currencies of these countries because they are the worlds largest and most advanced marketplaces. With the credit crisis gripping the globe, investors were satisfied pulling money off the table and 'parking' the funds in ultra low rate accounts in Japan and the US. With the latest data showing the global recovery taking hold, investors have moved out of these low rates and have sought out higher returns. Some of this money has flowed into the equity market in the US, pushing the Dow Jones average back above 10,000 (more on that in a second). The global recovery also has investors looking toward commodities, which were beaten down on fears of a global slowdown. The price of copper, gold, and crude oil have all run up on fresh signs of a global recovery. With commodity prices coming back up, the countries who are commodity rich should do well, and investors have returned to the currencies of Canada, Australia, and Norway.

Finally, investors who feel more confident have begun to take on a bit more risk, with many returning to what was once a very profitable trade: the carry trade. This trade dominated the currency markets for a number of years prior to the global economic crisis. While long term readers know all about it, I will give another quick explanation for those of you who are new to the Pfennig. The carry trade is simply a trade where investors borrow at low interest rates and then invest the borrowed funds at higher interest rates. The trade typically uses a high degree of leverage in order to make even a small interest rate differential profitable. The most popular funding currency of the carry trade had been the Japanese yen, as interest rates in Japan were held at near zero levels for several years. Investors would borrow the yen at 1%, sell the yen and use the proceeds to purchase New Zealand Dollars, and then invest these kiwis at a rate of 5%; earning the spread of 4% (before fees). As long as the currencies remained relatively stable, the profits rolled in. The risk to this trade occurs when the funding currency starts to move up vs. the investment currency, and the leverage used can make these currency moves pretty dramatic.

But enough of the history lesson, let me get back to where we are today. The US$ has replaced the Japanese yen as the most popular currency for the carry trade. Investors have been selling dollars and moving funds into the higher returns of Brazil, South Africa, and even Mexico. These countries have the attractive combination of high interest rates and commodity based economies which should do well in a global recovery. But as I mentioned above, investors in these carry trades can be a bit fickle, and can reverse these trades at the first sign of trouble. These currencies can be volatile, and should be viewed as the speculative portion of your currency investments.

The last few months have been a sort of 'perfect storm' for the currencies of Australia and Norway. Both have benefitted from the surge in commodity prices. Both also have strong governments which kept their economies from dipping too far into recession. Because of this fiscal strength, both countries are now raising interest rates, which continues to make their currencies more attractive. The Norwegian krone climbed to a one year high against the euro and the dollar yesterday as crude oil prices jumped. With Norway putting a percentage of their oil revenues to work rebuilding their economy, their central bank will probably start raising rates at their next meeting. The Norges bank governor Svein Gjedrem said last month the bank had considered raising rates at the Sept 23 meeting and will likely have to take a fairly aggressive stance on rates going forward.

Australia was the first to raise interest rates, and will likely continue to tighten. Reserve Bank Governor Glenn Stevens told reporters that the RBA can't be too timid in raising rates now that the threat of an economic crisis has passed. "If we were prepared to cut rates rapidly, to a very low level, in response to a threat but then were too timid to lessen that stimulus in a timely way when the threat had passed, we would have a bias in our monetary policy framework." Unemployment is falling, and consumer confidence continues to rise in Australia which will likely mean additional interest rate increases in the next few months.

Investors in our newest WorldCurrency Index CD have been perfectly positioned for these latest currency moves. We introduced the Global Power Shift CD back in July of this year and it has been one of our best performers. This CD combines Australia, Brazil, Canada, and Norway into one mighty index CD. Ty Keough mentioned the other day that he had spoke to one of the first investors in the Global Power Shift, and had calculated the customer had earned an amazing 12.5% during the first three months (that is a 50% annualized return!!). With commodity prices continuing to push up, and interest rates set to rise in both Norway and Australia, investors should continue to see good returns in this WorldCurrency Index cd.

As I mentioned above, the Dow Jones average moved back above 10,000 yesterday. Investors have apparently taken the same view as the Nobel Peace Prize committee and are betting on the 'good things to come'. I just don't see any concrete evidence of a sustainable recovery here in the US. Unemployment continues to hover near double digits, and US foreclosure filings have climbed to a record high. While 'less negative' numbers on the retail sales may have inspired some mis-directed optimism, the US economy is still in a very precarious position. I know equity investors always have to look at 'future' cash flows and purchase stocks on the promise of earnings coming in somewhere down the road, but I don't see where the current data supports a Dow at 10,000.

The retail sales numbers which were reported yesterday here in the US were 'less negative' than expected; dropping 1.5% vs. a predicted 2.1% drop. The press proclaimed the return of the US consumer confidence since this number was better than predicted. I guess as long as the data comes in a bit better than what the economists predicted, it is positive (no matter what the actual data is!). Today we will see data on consumer prices which are predicted to show inflation continues to be muted. The volatile Empire Manufacturing report will also be released this morning and will show another jump.

If the inflation data come in as expected, the news will give the upper hand to FOMC members who have said the central bank can keep interest rates low for a long time. The minutes of the FOMC Sept 22-23 meeting showed some members were actually calling for an expansion of the 'quantitative easing' program. Chairman Ben Bernanke said the Fed is prepared to tighten credit when the economic outlook 'has improved sufficiently'. But the minutes show the Fed is actually leaning toward a more expansionary program. There seems to be absolutely no fear of future inflation, so look for rates to remain low for some time to come. This will continue to keep downward pressure on the US$.

I wrote yesterday how the US is following the BOE lead when it comes to 'quantitative easing'. These programs had led to a drop in the value of both the UK Pound Sterling and the US$. But overnight, the pound sterling stormed back up vs. the US$ as the Financial Times cited the BOE Markets Director as saying policy makers would be more likely to pause asset purchases, giving themselves the option of 'doing more later', rather than stopping them. A report yesterday showed UK unemployment rose less than forecast last month causing some of those shorting the pound to reverse course. I have to believe a lot of the Pounds movement is simply profit taking after the sterling lost 3.5% v.s the US$ in the past month. I still believe the pound sterling will have a tough going as long as they continue with their QE programs.

I will end today's Pfennig with a prediction from Goldman Sachs. You may have seen where Goldman reported another quarterly profit of $3.2 billion yesterday. The profit is really no surprise when understand just how far 'inside' Goldman is with the administration. Given their position, I always like to read what Goldman is predicting for the currencies. Their latest report said the dollar is likely to extend drops against the euro and commodity-backed currencies over the coming six months (sound familiar?). The euro is now predicted to reach $1.55, revising previous forecasts of $1.45. "It now looks as though the dollar trough will be slightly deeper," Goldman analysts said.

Currencies today 10/15/09: A$ .9171, kiwi .7436, C$ .9694, euro 1.4883, sterling 1.6252, Swiss .9836, rand 7.2675, krone 5.5710, SEK 6.9361, forint 179.27, zloty 2.820, koruna 17.3585, RUB 29.36, yen 90.19, sing 1.3902, HKD 7.75, INR 46.16, China 6.8284, pesos 13.0673, BRL 1.7009, dollar index 75.38, Oil $75.04, 10-year 3.44%, Silver $17.48, and Gold... $1,050.95

That's it for today... Had an absolutely crazy day on the phones yesterday, as it seems everyone wants to purchase currencies and metals now that the Dow went over 10,000. Chuck, Michelle, Frank, and Jane Dulle will be heading back from Atlanta today after what was hopefully a successful planning meeting. My son's football game was cancelled last night due to a lack of players on both teams; it seems the flu has hit St. Louis schools pretty hard. We all got flu shots yesterday (hopefully in time), and the wellness fair continues today with visits from a massage therapist and nutritionist. I just hope the phones ease up a bit to enable us to take advantage of the free massages! Hope everyone has a Thunderin Thursday.

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

A New Carry Trade Currency?

Chuck Butler — Mon, 28 Sep 2009 14:17:00 GMT

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

* A bias to buy dollars remains...
* The Fed was warned as far back as 1999!
* Fujii gets "the memo"!
* A ton o' data all around the globe this week!

And Now... Today's Pfennig!

A New Carry Trade Currency?

Good day... And a Marvelous Monday to you! My weekend turned out to be quite grand, as all the things I said that would make it special came to pass! My Cardinals clinched their division. My beloved Missouri Tigers won on Friday night, and my little buddy's 8th grade Flyers won their game against their arch rival... WOW!

Well... Here we go with the last 3 days of September... A month that saw Gold return to $1,000, and the non-dollar currencies all return to levels they held a year ago, having withstood the onslaught of flight to safety trades that benefitted the dollar after the Lehman Bros collapse.

We've seen the Fed Chairman sound the "all clear horn" and me question, why anyone would still be listening to this guy! And our country is becoming quite divided over the health care issue... So... There we have it... September all rolled up in a nice package, to take out the trash!

Ok, we're all caught up now... On Friday, the currencies gravitated toward weaker levels, as the dollar buying continued, with stocks leading the risk assets lower... But it hasn't been a "taken to the woodshed event" for the currencies yet... So, the question remains if this is the correction we've been waiting for or not...

Last week I gave you some quotes by Nassim Taleb, but forgot to tell you that he was the author of the book, "The Black Swan"... Nassim Taleb was talking to a group of business people in Hong Kong this weekend, and asked the same question I've been asking, as he wanted to know why Big Ben Bernanke, and Treasury Sec. Tim Geithner kept their posts after failing to foresee the collapse in global credit markets. Taleb said, "Bernanke, Geithner, and Summers didn't see the crisis coming so why are they still there? Bernanke is like a pilot who didn't see a hurricane."

Good stuff, eh? Especially, when you read the Washington Post and see that the Fed was ignoring pleas from Consumer Groups, as far back as 1999, that subprime lending was expanding... Turning a deaf ear on the Consumer Groups, the Fed left rates low, and accommodating... What the heck do we have these guys for any way! The Fed has been the root cause of every financial problem we've had in this country since they were created in 1913...

OK... Last week, the Financial Times ran a story regarding the dollar laying claims to being the top Carry Trade Currency... Let's read a bit from the FT... "For years, the yen was the currency of choice to fund international Carry Trades. Analysts say negligible U.S. interest rates, its quantitative easing measures and little sing that the country is set to withdraw from its ultra-lose monetary policy anytime soon leaves it in a similar position to Japan at the start of the decade."

Well... I had already told you all that, but when you see it in the FT, it obviously gives it more credence, eh?

But, let's talk about that for a minute... If the dollar begins to become the new funding currency of the Carry Trade, that means that people will be selling the dollar short, and using the proceeds to buy a higher yielding asset... Well, in today's markets, there aren't what we would traditionally consider to be "high yielding assets"... For the Carry Trade is quite risky, therefore you need to have some cushion from the "buy side" asset... The only "real interest differential" in the world resides with Brazil... But the real is traded on a non-deliverable forward, which means it's just as liquid as say Aussie or kiwi, which were the main beneficiaries when the yen was the funding currency.

So... This new Carry Trade, might have to wait a bit before getting into 4th gear. When the Reserve Bank of Australia (RBA) begins their rate hike cycle, probably by year-end, then it might begin to make sense... Which is just another thing in the gauntlet the dollar has to run through every day!

Speaking of the Japanese yen... The yen reached a 8-month high of 89.30 overnight. I told you last week that yen is getting a lot of love from Japanese exporters that are repatriating their profits in yen, ahead of the end of the month / quarter.

I had to laugh out loud when I read a story about the Japanese Finance Minister, Fujii, who apparently hadn't gotten the memo about how Finance Ministers are supposed to jawbone the yen lower... Recall, I had told you that he said over and over again that he supported a strong yen... Well... That all changed once he got the "memo"... Fujii said last night that, "people were mistakenly saying he supported a strong yen."

Hey Fujii, got the memo now? Is it clear?... Crystal... OK, now go out there and jawbone the yen weaker, or you'll be falling on a sword!

This week is chock-full-o-data all over the globe... In the U.S. we'll end the week with the Jobs Jamboree, while Japan will print their latest Tankan report (which checks the pulse of the economy), Canada will print their latest GDP, China will print their latest Manufacturing Index, and Australia will report on Retail Sales...

In the Eurozone, Germany re-elected Angela Merkel as chancellor... Now, she just needs to figure out how to deliver those tax-cuts she promised during the campaign!

The euro had climbed back to 1.4720, but the election results were not taken as "euro friendly"... Remember, I told you that there could be tax-cuts coming in Germany, which is the Eurozone's largest economy. Tax-cuts are great, if you are in a fiscal position to do so... Germany has a nascent recovery at best going on right now, so the timing is not what traders are happy with... Therefore the euro dropped like a stone to 1.4570, but then bounced off that is back to 1.4635 as I write...

And the Reserve Bank of Australia, (RBA) which I mentioned earlier was in the news overnight, as the RBA Gov. Stevens gave a speech, that was hawkish... Stevens mentioned that the interest rates needed to move off their "unusually low levels". He also pointed out something that should be quite recognizable by all Central Bankers now, but apparently not here in the U.S.... And that is that "imbalances build up when rates are left too low for too long."

Well... The highly touted G-20 meeting last week ended not with a bang, but with some newfound strength as a group... Recall on Friday I told you that they would replace G-8 as the watchdog for the economies of the world. That news was announced later on Friday... G-20 ended with leaders from the G-20 nations saying that they plan to cooperate on an overhaul of financial regulations to prevent arbitrage in the global system. By the end of next year, banks will be required to hold more capital, and compensation policies will need to be linked to longer-term performance.

You know... When the media reports "Bankers compensation" they're not talking about real Bankers, per se... They're referring to the Merrills and Goldmans of the world that pay out Billions in bonuses, or did at least... Just thought I would clarify that point...

And then there was the British Pound sterling, which I kept saying over and over again, that this dance is gonna be a drag, no wait! I kept saying over and over again, that the pound sterling strength was a house of cards... Well, that house of cards is collapsing under the pound sterling... Even the speculators that were buying it because it was a part of the mix of currencies that made up the IMF's SDR's (Special Drawing Rights), are backing out now...

Data in the U.S. besides the Jobs Jamboree at the end of the week, include the S&P/ CaseShiller Home Price Index for July which will print tomorrow, along with Consumer Confidence, which is expected to be stronger... I guess the people they surveyed haven't seen the Bernanke video collection of his statements that couldn't be more wrong, and still believe him when he says it's all OK! Wednesday brings us the final print of 2nd QTR GDP. Thursday has two of my faves, Personal Income and Spending, and then Friday's Jobs Jamboree...

So, if the data continues to show some strength, but nothing to speak about... I would think that the risk takers will remain confused, and it could lead to further selling in stocks, and other risk assets... Don't really know... Just an opinion on what might happen...

OK, to recap... The dollar has rebounded, but nothing too strong to speak of as of this morning. G-20 is the new world economic watchdog, there's a ton o' data to print this week, all over the globe, and Japanese yen continues to outperform the other currencies VS the dollar.

Currencies today 9/28/09: A$ .8665, kiwi .7135, C$ .9135, euro 1.4650, sterling 1.5870, Swiss .9695, rand 7.44, krone 5.82, SEK 6.9750, forint 184.20, zloty 2.88, koruna 17.22, RUB 30.11, yen 89.30, sing 1.4190, HKD 7.75, INR 47.98, China 6.8274, pesos 13.57, BRL 1.7890, dollar index 76.90, Oil $65.77, 10-year 3.32%, Silver $15.99, and Gold... $992.10

That's it for today... A great weekend, even with the rain on Saturday! It rained so hard that Alex's football game was stopped, and they had to pick it up and finish it yesterday... When I played football, back in the dark ages, we played in any kid of weather... That was a long time ago! It cleared up for a wonderful Saturday night block party with neighbors... Cards are Central Division Champions! (they were picked to finish 4th in this division) Now, it's onto the playoffs... Got to find some way of getting playoff tickets! I'm a month away from heading to Los Cabos, Mexico for the Sovereign Society's Offshore Advantage Academy. 11-4 through 11-7... You can go to www.soveignsociety.com to find out more! I'm flying solo today with the currencies this morning, as Jen is out, so I've got to get working! I hope your Monday is Marvelous!

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

Good news for housing is bad news for the dollar...

Chuck Butler — Tue, 28 Jul 2009 15:10:28 GMT

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In This Issue..

* Home sales increase most in eight years...
* Euro boosted by confidence...
* Geitner sells the Chinese...
* Carry trades back in vogue...

And Now... Today's Pfennig!

Good news for housing is bad news for the dollar...

The dollar lost more ground on Monday, but the reasons were different than those that caused last week's slow decline. Currency traders sold the dollar after a report showed sales of new homes rose the most in eight years. New-home sales in the US climbed 11% last month to a 384,000 annual pace. This was substantially higher than economists had forecast, and the most since November. The report also showed the number of houses on the market dropped to the lowest level in more than a decade. The housing numbers seem to confirm that the housing market may be approaching a bottom, but housing prices continue to fall, and more data is needed before I'm convinced the worst is over. Many of these homes have been sold to first time homebuyers taking advantage of government programs; and if unemployment continues to climb, housing sales are not likely to rise quickly.

But the housing news was music to the ears of investors, and those who had parked money in the dollar for 'safe haven' purposes began looking for other places to invest. Many feel the worst of the global recession is over, as global data seems to be turning positive. Adding to the good feeling on Wall Street, analysts raised their profit estimates for US companies for the first time in two years. The new optimism has many investors searching for higher yields and accepting higher risks. During the mid morning trading, the dollar index touched the lowest level this year, dropping to 78.315 before gaining back some of its losses late in the day as US stocks retreated from eight month highs.

A report from UBS, the worlds second largest currency trader predicts the dollar will continue to drop during the next month amid a revival in risk appetite. "Our near term bias is for further US dollar weakness," a UBS analyst wrote. Everyone seems to be jumping on the carry trade again, which should give a lot of strength to the higher yielding currencies of AUD, NZD, and Brazil. This will likely be the 'popular' trade for investors over the next few months.

The Euro was helped by earlier by a report which on German consumer confidence which unexpectedly increased to a 14 month high. German business confidence rose also rose more than expected this month. Lower inflation in Germany has put more money into the pockets of German consumers, and private consumption has continued to remain a significant support for the economy.

The positive news for the global economy couldn't come at a better time for US Treasury Secretary Timothy Geitner who began talks with China. Geitner and Secretary of State Hillary Clinton will host two days of meetings which many predict will focus on the state of the US economy. Secretary Geitner will have his bond salesman hat on as he tries to convince the Chinese to keep buying Treasury bills, notes, and bonds. This week the US Treasury will attempt to unload $235 Billion in Treasuries, so Geitner will certainly have his work cut out for him. The US debt sales will include $130 Billion of T-bills, $42 Billion 2 year notes, $39 Billion 5 year notes, $28 Billion 7 year notes, and $6 Billion of TIPS.

I find it odd that the US government isn't trying to sell more bonds out in the longer term durations with rates being held down at these incredibly low levels. Does anyone expect US interest rates to remain at these low levels for an extended period of time? Why wouldn't the Treasury department take advantage and try to sell more longer term debt now, instead of loading up the majority of the issuance at the short end of the curve? I guess Geitner realizes that his job of selling all of this debt is already difficult, and trying to get the foreigners to agree to purchase longer term maturities would be next to impossible.

Let's hope Geitner is a first class salesman, as our economy is dependent on the Chinese continuing to buy our debt. Unfortunately his boss isn't making his job any easier, as the deficits continue to rise. The nonpartisan Congressional Budget Office estimates the annual deficits under the administration's spending plans will never drop below $633 billion over the next decade. And it forecasts an additional $9.1 trillion added to the debt held by the public - the amount that Geitner has to finance with bond sales. Publicly traded US debt - which excludes deficits the government owes to itself in Social Security and other trust funds - stood at 41 percent of the total economy in 2008. It is projected to climb to 82 percent of the entire economy by 2019.

The official line after the first day of meetings stuck to the pre-arranged script. Geitner pledged to rein in the US deficit to a more 'sustainable' level by 2013, and China agreed to try and stimulate more internal consumption. Speaking of Chinese consumption, I heard a story driving home on NPR last night which spoke about how China is spending their stimulus money. While the big infrastructure projects have grabbed most of the headlines, they have also used a large amount of their stimulus spending to stimulate consumer buying. They have issued vouchers to many of the lower income rural areas which can be turned in for consumer durables, including cars, appliances, and TVs. The increase in demand by the emerging Chinese middle class has actually caused a price jump for the panels used to make flat screen TVs. You may recall that many critics of what we write in the Pfennig regarding future growth in China stated that the Chinese economy couldn't grow without a strong US consumer. We pointed out that even a small increase in personal wealth spread across the millions of Chinese consumers could offset some of loss of demand by the US. What we predicted seems to be coming true, as the Chinese automobile market has become the largest in the world, and markets for other consumer products like flat screen TVs seem to be following suit.

This also plays into our theory that inflation will likely spike up after the global economy starts to recover. Inventories are extremely low, and once demand starts heating up in the western markets of Europe and the US, orders will again start flowing back into Asia. But demand in Asia will be competing with these new orders from the West, so prices will likely jump. And commodity prices have already started rebounding, including industrial metals and crude oil. Inflation is definitely lurking, and investors need to protect their holdings against a possible spike. The precious metals, or commodity based currencies are a good way to protect your holdings.

The Australian dollar has long been a favorite of the desk, and is turning in another stellar year. The Aussie dollar rose to its highest level this year after central bank Governor Glenn Stevens said the nation's economic downturn may not be "one of the more serious" of the post World War II era. Most economists now believe interest rates in Australia will start to rise prior to the end of 2009. The New Zealand dollar also had a gain yesterday, and headed for its fifth monthly gain in a row.

Finally, I read a story in our local paper over the weekend which pointed out that the administration has delayed the release its annual mid summer budget update. No doubt the update will show higher deficits and unemployment along with slower growth than projected in President Obama's budget in February and the update in May. Typically the budget estimates are updated in Mid-July, but the administration had postponed them until the middle of next month. It is not surprising that President Obama wants congress to act on his $1 trillion dollar health care initiative before he releases the bad news of the updated budget numbers. The administration predicted unemployment would peak at 8%, and growth next year would reach 3.2%; both overly optimistic predictions. Downward revisions to these numbers, which are inevitable, will mean that budget deficits will be much higher than the administration is now predicting. Chuck's earlier predictions of a $2 trillion deficit this fiscal year is looking more likely with each passing day.

Currencies today 7/28/09: A$ .8299, kiwi .6603, C$ .9255, euro 1.4227, sterling 1.6489, Swiss .9345, rand 7.8098, krone 6.1748, SEK 7.4390, forint 188.95, zloty 2.9424, koruna 17.9397, yen 94.54, sing 1.4404, HKD 7.7500, INR 48.2075, China 6.8309, pesos 13.2884, BRL 1.8779, dollar index 78.610, Oil $67.82, 10-year 3.68%, Silver $13.985, and Gold... $949.50

That's it for today... My son Brendan had his last regular season hockey game of the summer season. The coach let me know last night that he will be out of town for the playoffs next week, so I have the helm. We ended up the season in 4th place, so the boys will have their work cut out for them in the tourney. I plan on stressing team play, as summer hockey is played on a shortened rink with only 3 outskaters. Passing and teamwork are the key! Looks like another beautiful morning here in St. Louis, but I hear there may be Thunderstorms on the horizon. Someone on the desk said this month will go down as the third coolest July on record. No complaints here!! Got to try to get this out, so hope everyone has a Terrific Tuesday!!!

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

A Lost Decade?

Chuck Butler — Thu, 02 Jul 2009 15:08:57 GMT

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In This Issue..

* An Up and Down day for currencies...
* Jobs Jamboree moves to Thursday today...
* China to buy more Gold!
* Sweden cuts rates!

And Now... Today's Pfennig!

A Lost Decade?

Good day... And a Thankful Thursday to you! I'm reminded that we all need to be thankful for the patriots that led this country to victory and thus our freedom. The freedom for me to write a letter like this, each day, that allows me to say what I want to say (well, with the governor of the legal beagles of course!). And since this weekend we will celebrate our Independence, I thought this to be a good time to have a Thankful Thursday!

Patriots... You know, the ending story for those 56 Patriots that signed the Declaration of Independence is not a happy story... So, when we learn of their collective fates, we realize that freedom does not come free...

OK... This time of year, always stirs up the emotions, that are burning all year...

Two things have happened in the past 24 hours that have moved the currencies and caused some very wild swings... So, let's look at the "two things", eh?

When I left you yesterday, the currencies had rallied back and were waiting for more data... The data that printed was not very good, led by the ADP Employment Report for June, which came in with a greater number of job losses than was forecast (-473K VS -395 forecast)... So, according to ADP the bleeding continues... Now we have to wait for the Jobs Jamboree that will print later this morning, to see what "games people play now, every night and every day now"...

So, the currencies moved a bit more with the data printing and showing continued rot on the vine... For instance, the ISM Manufacturing Index remained below 45, which is recessionary to me... But the real blow to the dollar yesterday came when G-8 Sources announced that CHINA HAS ASKED FOR G8 ITALY SUMMIT TO DISCUSS ISSUE OF NEW GLOBAL RESERVE CURRENCY...

You should have seen the dollar selling at that point! OUCH! The euro climbed to 1.4175, and took the rest of the currencies along for the rides! This was HUGE folks! There it was... On the G-8 Agenda!

However, seeing the damage that this announcement had done so quickly, the Chinese had to do something quick... And quick they were... China's Vice Foreign Minister said he is "not aware of any plan to discuss alternative reserve currencies at next week's G-8 meeting." And the turn-around was on!

So, overnight, the dollar is firmer, and the euro has lost that 1.41 handle once again... These probes to the 1.41 handle are becoming more frequent, but with little staying power. So... There you have it... One item made the currencies soar... And the denial made them come back to earth, all within 24 hours... Jack Bauer would be proud!

While I'm talk about China, I was wondering if you all caught the interview on Fox (I didn't, of course, it was pointed out to me by a reader!) where U.S. Rep. Mark Kirk, was interviewed and asked questions about his accompanying U.S. Treasury Sec. Geithner on his Magical Currency Tour last month to China... In a private discussion with Chinese officials, Kirk was told that the Chinese were extremely concerned about the likely near term decline in the dollar because of the "explosion" of government debt. And... As a reaction to this concern, the Chinese Gov. was creating a "fund" / reserve to buy oil... And another $80 Billion worth of Gold!

OK! And did you see Gold trade higher yesterday by $15? Well, it's lost $8.50 of that gain overnight... Profit taking, and the denial by the Chinese has caused this sell-off...

The euro is also seeing some pressure this morning, as the European Central Bank (ECB) is meeting and most likely will have to admit that they will keep rates at ultra / record lows for some time to come, as the Eurozone remains in a recession.

As I explained on Monday this week, the Jobs Jamboree was moved to today, to avoid the markets being thinned out tomorrow. Apparently, the Bureau of Labor Statistics (BLS) wants everyone to see their work! HA! The "experts" believe that the Jobs losses will have increased in June, adding 20,000 lost jobs to May's "BLS adjusted" number of -345,000... I would have to think that if this prints as forecast, that the "risk takers" will be happy enough, and continue adding risk assets like stocks, currencies, precious metals... Anything greater would probably put a lid on their propensity to spend on risk assets... For now, at least!

Oh... And one more thing on the job losses for June that will print this morning... If the "forecast" number of lost jobs prints... It would mean that the number of people working today, in 2009, would be about the same number of people that were working in May of 2000! Talk about a Lost Decade! I wonder if the major media will pick up this fact? Now wouldn't that be a big surprise to all those folks that were surveyed last week for Consumer Confidence? It surprised me to see that fact! The Lost Decade... Strange but true...

The strangeness of today though will be the fact that the Weekly Initial Jobless Claims will print, and probably show that over 600,000 jobs were lost last week, and unemployment claims were filed... So... How does the BLS come up with "only" 365,000 jobs lost for the month, when one week was 600,000? The games people play now... Every night and every day now... Never meaning what they say now... Never saying what they mean... And they wile away the hours... In their ivory towers... Till they're covered up with flowers...In the back of a black limousine... - Joe South...

I've gone over the do goody-good bull of the BLS so many times in the past it makes my head spin, so I won't go there again today... But, it makes no sense to me what-so-ever that the BLS still uses a stupid "survey" when they have the ADP and Weekly Claims at their disposal... I think I know why... But again, it just doesn't make sense to me!

So... Keep an eye on the Jobs Jamboree for today...

Recall earlier this week I told you that Sweden's Riksbank would meet on Thursday, and I said that: "With internal rates at just .50%, I guess they could cut, but what would be the point?" Well... The Riksbank surprised the markets this morning, and did cut 25 BPS bringing their internal rate to just 25 BPS or 1/4%... I would think that any good that Swedish krona buyers saw in the past 5 days, will be wiped out by this news, as the rate cut at this time has to signal "bad stuff" for the economy... The only thing left for the Riksbank now is to implement Quantitative Easing, which if they aren't afraid to cut rates to 25 BPS, they certainly won't have any "moral" problems with Quantitative Easing...

And like I said for the U.K., Switzerland, and U.S. when they announced their Quantitative Easing... "Hey, Japan's been doing it for over a decade now, and look how well it's worked for their economy!" I shake my head in disgust, that anyone with an ounce of brain power would go down the same road as Japan with regards to how they responded to their economic meltdown of the 90's... But we have... Step for step... Beginning with the $150 Billion in stimulus checks... And moving on to larger sized measures from there...

I've told you all this before, but for new readers they might not know... That in the 90's I was a currency and foreign bond trader... I watched the Japanese introduce stimulus after stimulus, and budget gadgets after budget gadget! And, like I said, look at how well it worked in their economy? History may not repeat itself, but it rhymes according to Mark Twain... And what we're doing with our economy rhymes with what Japan did in the 90's...

Oh! I know, the rose colored glasses wearers will say, "but Chuck, we reacted "much earlier" in the recession than the Japanese did" Yes... We did, so, what does that mean? That instead of a greater than decade economic funk that we'll experience something shorter in time? OH, so a 5 year economic funk is worth adding Trillions to our National Debt? I don't think so...

With regards to the interest rate policy that adds to these woes... Janet Yellen, president of the Federal Reserve Bank of San Francisco, went further than other policymakers in assuring that the Fed is not likely to push its interest rate up in the near future. Ms. Yellen was speaking to reporters and said." it is "not outside the realm of possibility" that the central bank will let the interest rate remain close to zero for several years."

Oh great! Just go ahead and fuel that future inflation... And rack up the deficits... We can go on like this forever, right? NOT! There's no way this can go on forever! And... If the markets were doing their job, it wouldn't be going on now, without major pain in the yield on Treasuries and the value of the dollar! When out of the 29 largest nations in the world, the U.S. has the worst debt/GDP ratio, you've got to take a step back and say Whoa, there partner! Unfortunately, no one (except Ron Paul) in Washington D.C. is doing that... This is getting completely out of control, folks... Completely out of control!

The markets always do what the markets should... Just not always when they should... I learned that a long time ago, from my old, old boss, Ed Bonawitz, and I'm reminded of that all the time...

Like remember when I was calling for an end to the Carry Trade, and a Japanese yen rally, 2-3 years before it finally happened? The markets finally did what they were supposed to do, it just took 2-3 years!

Well... The euro has been in a steady downward move since I came in this morning. I turned on the screens and the single unit was trading just below 1.41... It's now moved down to 1.4060... No biggie, but a steady downward move in the past two hours...

A long time reader sent me a note yesterday regarding yesterday's Pfennig... "Uriah Heep, The Ventures, Soros, Rivlin, Sylvester, and Lucy! All in one Pfennig" It caused Cranium Spin!

Yes, I was on a roll yesterday... I don't think I was on quite the same roll today...

And while I don't like to head into the Big Finish on a "down note", I'll have to today, as it's beginning to get late... The "down note" is from "down under" (get it?) Australia's Trade Deficit widened in April to A$556 million ($448 million worth), as coal exports fell... This news caused a weakening in the A$ overnight... But remember, this is from April... And in April, China was just beginning to show signs of their stimulus working... I'll bet a dollar to a Krispy Kreme that next month this number will be narrower and if not, then the following month we'll see the narrowing... So, no need to be alarmed here, there's nothing to see here, move along! It does provide cheaper levels of the A$ though!

And... I just noticed this, so I won't end it on the A$ story... The price of Oil fell out of bed yesterday, moving from over $71 yesterday morning to $67.85 this morning... WOW!

Currencies today 7/2/09: A$ .8030, kiwi .6360, C$ .8685, euro 1.4070, sterling 1.64, Swiss .9230, rand 7.8050, krone 6.3635, SEK 7.70, forint 190.60, zloty 3.1040, koruna 18.2885, yen 96.60, sing 1.45, HKD 7.75, INR 47.96, China 6.8312, pesos 13.10, BRL 1.9320, dollar index 80.09, Oil $67.85, 10-year 3.55%, Silver $13.50, and Gold... $933.75

That's it for today... So... The U.S. has begun a military offensive in Afghanistan... I wish for safety for those soldiers... Little Delaney Grace came for a visit last night... What a cutie! And she's beginning to really talk, which is cute, but she never stops talking! She was copying everything I did at the dinner table, cracking me up! The Streets of San Francisco aren't as safe any longer... Karl Malden has passed away at 97 last night... Colby Rasmus bangs a walk off homer in the 10th for the Cardinals, and today is our Jen Mclean's son, Drew's 2nd birthday! Happy Birthday, Drew! And with that, I'm going to head to the high school where my son, Alex, will be playing in a jazz concert this morning, and he has a guitar solo... Wouldn't miss that! Time to hit send, and be thankful on a Thursday!

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

Carry trades unwind...

Chuck Butler — Fri, 15 May 2009 14:53:00 GMT

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

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In This Issue..

* Carry trades unwind...
* Euro zone GDP falls...
* Will TIC flows be enough??
* Aussie dollar predicted to outperform...

And Now... Today's Pfennig!

Carry trades unwind...

Good day...Chuck handed me the Pfennig this morning, as I took an early flight home yesterday and he got back to St. Louis much later than I did. The Las Vegas Money Show went well, as Chuck packed the presentation rooms with investors looking to learn more about investing in Gold and currencies. Attendance seemed like it was down a bit, but we stayed busy at the booth with investors looking for diversification. We also got to see a number of 'old friends' who stopped by the booth to say hi. All in all it was a good three days, but as always, it is good to get home and back into the routine.

The currency markets fell back into their established routine also, as fear drove investors out of riskier assets and back into the US$. We saw a general reversal of the carry trade, with the Japanese yen the only major currency which appreciated vs. the US$. As Chuck pointed out last week, investors feeling more confident about the global economy, dusted off their carry trades which had made them good money over the past few years. But traders are still a bit skittish, and move back out of these leveraged trades at the first sign of trouble in the global economy.

Europe delivered the bad news overnight with the released of first quarter GDP in the 16 member euro region. Gross domestic product fell 2.5% from the fourth quarter, when it fell 1.6% according to this morning's report. This is the biggest drop since euro-area GDP data was first compiled in 1995, and was 50 basis points higher than the 2% drop expected by most economists. Inflation data was also released for the euro-region this morning, and showed prices are holding steady.

The fall in GDP will likely renew calls for Trichet and the ECB to step up 'quantitative easing' in order to stimulate the european economies. But I have to believe that the ECB got ahold of a 'preliminary' copy of this data, and had a pretty good idea of the bad news prior to their meeting last week. Unemployment in the euro region continues to climb, and the flat inflation data will strengthen the argument for a more aggressive move by the central bank. While the ECB did leave themselves room to increase the money supply, they seem to be content to wait it out a bit before becoming too aggressive with monetary easing.

Since I have been away from the desk for most of the week, the first thing I did this morning was turn on the screens to catch up on what data we were going to get today. It was a bit of a shock, as the list of reports filled the screen. Inflation data will be first up this morning, with the release of the April CPI numbers here in the US. Inflation is expected to show no change for the month of April, with only a small 1.8% increase in the core CPI compared to last year.

The inflation numbers will be followed by the Empire manufacturing number, which everyone expects to show another major contraction in manufacturing here in the US. Then we will get the all important TIC flow data which will give us an indication of the appetite of foreign investors for our US treasuries. We have educated investors on the importance of this number for years, as foreign investment is the only thing enabling the US to continue to live above our means. With the large increase in the budget deficit predicted for 2009, foreign investment has become even more important. But several overseas investors, including Asian central banks, have started worrying about the amount of US debt they are holding. But even if they wanted to continue financing our debt (and they have many self-serving reasons to do just that), the drop in global trade has put less money in the coffers of these export driven economies. They simply don't have as much to invest as they did during the past few years.

So the I would expect to see the TIC flows decrease, putting Bernanke and his boys in an even tougher spot. There are two ways they can try to entice these foreign investors back into the US treasury market, either let interest rates increase, or let the value of the US$ fall. Now which do you think they will choose? They have been running the printing presses on overdrive in order to try and keep interest rates down to create another refinance boom. The Fed will try to do everything they can to keep interest rates down, so the alternative is to let the value of the US$ fall. The drop in TIC flows, combined with a huge increase in funding requirements by the US, will have to lead to a general debasing of the US dollar.

To close out the morning, we will get Industrial Production and Capacity Utilization for the month of April, and the U of Mich confidence number. Industrial production is expected to have declined again, but the rate of the drop is slowing. Output is expected to fall .6% during the month of April, after falling 1.5% during March. If these numbers come in as expected, the US media will undoubtedly spin it as a positive sign that the US economy is bottoming.

With the carry trade reversing, both the New Zealand and Australian dollar fell, posting their first weekly loss since February. Both these currencies have benefitted from a move back into riskier assets, which is now beginning to be reversed. New Zealand's kiwi also fell due to a report which showed retail sales dropped in the first quarter almost twice as fast as economists predicted. But the main driver of the sell off in both the kiwi and Aussie dollar has been the reversal of investor sentiment, and the move back out of the carry trade positions.

The Australian dollar, which is coming off a pretty big drop last year vs. the greenback, is now predicted to be one of the best performers during the global recovery. As China's economic engine revs up again, commodity prices will move back up supporting the Aussie dollar. China's infrastructure spending has already boosted the prices of base metals which has helped to fuel a rally in the price of the Australian dollar. Mellon Capital Management Corp. released a report yesterday which stated the Aussie dollar would rally the fastest among the world's major currencies. The report cites China's $585 billion economic stimulus plan to improve housing, highways, airports, and power grids. The Aussie dollar has advanced 12 percent against the dollar since China announced the stimulus plan on November 9th. The Aussie $ should continue to appreciate, so any sell off due to carry trade reversals should be viewed as a great opportunity to add to positions.

Another commodity based currency which we have been watching is the Norwegian Kroner which is the fourth best performing currency vs. the US$ in 2009 (The top is the Brazilian real, followed by the South African Rand and then the Australian dollar). Norway's government announced it would raise spending and add to the stimulus package it announced earlier. Norway will spend an extra 9.5 billion kroner ($1.5 billion) to create jobs. The Norwegian mainland economy (ex oil, gas, and shipping) is predicted to contract 1% this year. But if we continue to see positive signs out of China, oil and shipping revenues should rebound, and Norway could very well post a positive GDP for 2009. I continue to feel the Norwegian kroner is one of the best investments for diversification out of the US$.

And on that note... Let's go to the Big Finish!

Currencies today 5/15/09: A$ .7533, kiwi .5889, C$ .8514, euro 1.3556, sterling 1.5187, Swiss .9017, rand 8.61, krone 6.51, SEK 7.879, forint 213.24, zloty 3.31, koruna 19.94, yen 95.01, sing 1.4661, HKD 7.75, INR 49.395, China 6.826, pesos 13.26, BRL 2.088, dollar index 82.62, Oil $57.81, Silver $14.02, and Gold... $926.64

That's it for today... I got home yesterday evening just in time to take my wife to the Billy Joel / Elton John concert. These are two of my favorite entertainers, and they put on a very good show. I am dragging a bit this morning as the concert didn't get over until well past my usual bedtime. The weather sounds like it is going to be beautiful today, much nicer than the 100 plus temperatures in Las Vegas. 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

A Horrific Jobs Report!

Chuck Butler — Mon, 09 Mar 2009 14:47:02 GMT

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In This Issue..

* 651K jobs lost in Feb...
* Dec. and Jan Job losses revised up...
* Talking Norway, Canada, Australia...
* Brazil stealthlike for 3 months...

And Now... Today's Pfennig!

A Horrific Jobs Report!

Good day... And a Marvelous Monday to you! A wonderful weekend here in St. Louis, a taste of spring was in the air. I got to spend some time with some of my closest friends on Friday night, a good time was had by all!

Well... Our Fantastico Friday was interrupted by that horrific Jobs Jamboree number that printed Friday morning... 651K jobs were lost in February, which let me remind you is a couple of days shorter than other months. So, it could have been worse! Hard to believe that could be the case, but it's true. The unemployment rate rose to 8.1%, from 7.6% in January. The jobless rate is the highest since 1983. The economy has now shed 4.4 million jobs since the recession began in December 2007, with almost half of those losses occurring in the last three months alone.

Remember a year ago, when I kept harping that we had entered a recession, but the NBER hadn't announced one yet, nor were the Un-dynamic duo of Paulson and Bernanke agreeing with me, as they kept denying what was right in front of them, for if little old me, could see that we had entered a recession, then why couldn't these two? Oh, well, we now know that the recession began in December 2007... And now we know that 4.4 million jobs have been lost since that time. Of course if the Bureau of Labor Statistics (BLS) didn't add jobs throughout the year that didn't exist, we would be even more worse, so I don't know whether to thank the BLS or curse them...

One thing to not let slip by you, is the fact that the previous months' totals of -577K and -598K were revised upward by large amounts to -681K and -655K respectively... So, you've now got to ask yourself if the Feb figure will be revised to -700K... Of course it's my opinion that the BLS would never dare print that figure on a first run printing, but only as a revision, that can be swept under the rug.

So... The currencies reacted a bit differently on Friday than we had seen recently when bad news printed in the U.S. Recall, that the Trading Theme that rewarded the dollar, whenever bad economic data printed, had held a grip on the markets for some time... But Friday morning, I mentioned that the trading looked different, with no Trading Theme in place, and that carried on even after the Jobs data printed.

The euro was stronger for most of the day on Friday, but as I left the office at the end of the day, it was beginning to look a little worn around the edges, and as I turn the currency screens on this morning, I see that the single unit has given back some ground.

I got a kick out a story that a reader sent me over the weekend... It was a story that appeared on the Bloomie regarding rate cuts... I told him, "yes, this is the stuff I keep harping on about how it's not the cost of the credit that keeps banks from making loans, so why keep cutting interest rates?" So... Here's a snippet of the report so you can see what it is that I'm talking about...

"European Central Bank Executive Board member Juergen Stark said cutting interest rates won't remedy the financial crisis and pushing them too low may backfire. The financial crisis can't be solved with rate cuts, Stark said in an interview to be published in Luxembourg's Tageblatt newspaper on March 9. Too low a rate level can even be counter-productive."

Hmmm... Finaly a Central Banker with the intestinal fortitude to stand up and say the right thing! Of course, that didn't stop the European Central Bank (ECB) from cutting 50 BPS last week! UGH!

Recall last week I was talking about how fundamentally speaking, Australia was looking healthier than other countries, but then they posted a contraction in their GDP the next day... Some egg on my face with that one, but Hey! I still think they are poised to pull out of this global financil meltdown on the fast track. Apparently, I'm not the only person that thinks that... Derivatives show that the worst is over for the Aussie dollar... And the Royal Bank of Canada (RBC) is telling their customers to buy the Aussie dollar VS Canadian dollars / loonies... I read that this morning, you don't think I make this stuff up do you? It was there in on the screen...

I mentioned to Chris Gaffney last week, that I had been seeing more yen selling coming across the trading desk than I had seen in a long time. I said that these people, if they had held it long enough, were probably taking profits. And why not? In this day an age with deflationary pricing pushing most assets downward, when you see a profit, you take it!

The guy known as "Mr. Yen", Sakakibara, told the press last night that he believed yen may rise to a record 70 VS the dollar... WOW! He also said that it would range trade between 100 and 70... He believes that the yen will be afforded the same kind of love the dollar has received since the financial crisis began in the U.S. With Japan posting a large economic contraction last week, Mr. Yen, is of the opinion that it will help the currency gain to 70.

Hmmm... I just don't know about all that... For one, I'm not convinced the flight to safety that has underpinned the dollar with buying of Treasuries, will be duplicated in Japan... And two... The only thing I saw pushing the yen stronger in 2008 was the unwinding of the Carry Trade, which I said had come to end about a month ago. So... There you have it... I don't like yen's chances to go to 70, but do agree that it could hold 100... It's darn close to 99 as I type...

Recall last week I told you about my neighbor that stopped me in the driveway and was all concerned about what he had heard on the radio that day, regarding the FDIC going broke... I said then, not to worry about it, as the Fed will print more money and keep the FDIC from failing... If they kept AIG from failing, they certainly would do the same with the FDIC... Well, on Friday I saw this... "the FDIC wants a permanent increase in its line of credit with the Treasury Department to $100 billion from the current $30 billion. FDIC Chairwoman, Sheila Bair told key lawmakers in letters Thursday that such an increase "would leave no doubt that the FDIC will have the resources necessary to address future contingencies and seamlessly fulfill the government's commitment to protect insured depositors against loss."

OK... I told you on Friday morning about Gold's rebound to $940, but it failed to add to that figure even after the horrific jobs data. I guess you would have to say that Gold traders had "priced in the jobs data already", eh? Gold is off by about $4 this morning, as it gets pulled down by a report regarding global inflation... The Economic Cycle Research institute assesses that U.S. inflation pressures are at their lowest since 1958, and likely to decline further...

But for every report attempting to pull Gold down, there's one attempting to push it higher... What I'm talking about here is the report that our friends, NOT! At OPEC are going to maintain their 13% cuts in production put in place since September 2008. They may consider more cuts. Oil is trading higher this morning at almost $47, and oil traders believe it will be back to $50 within two months...

Quietly making noise for the past 3 months has been the Brazilian real... The real has gained 4% in the past 3 months, as investors around the world look for yield... And Brazil's interest rates have had the allure of the Sea Hag's song to Pop-Eye! But... There's word out of Brazil that the Central Bank will look to cut rates by 100 BPS / 1% when they meet, later this week. That's too bad, but Shoot Rudy, Brazil's rates will still remain higher than you can get in most ports of call... And... Their GDP will be positive.... And... If traders and investors reward the real for cutting rates aggressively like they did over currencies, then the real has nothing to worry about, eh?

OK... So, for the past month I've given you my ideas for the countries / currencies that could be on the fast track to recovery, given their ability to remain off the rosters of countries with failing banks. Norway leads the pack, with Canada, and Australia close behind... I even told you about how Paul Volcker thought we should shift to the way Canadian Banks operate. Well... It's always nice to see someone else follow up on my ideas, not that they read the Pfennig and said, "Hey! Let's write about what Chuck wrote about"... Nah... That wouldn't happen... HA! But, seriously, BNP Paribas' research team has issued a report advising their clients to buy... You guessed it... Norway, Canada and Australia...

BNP said, "we remain friendly on commodity currencies like Norway, Canada, and Australia, and view today's oil price rally as an indication for other commodities to follow. We are bullish on the Canadian dollar, Norwegian krone, and Australian dollar, but unlike last week we like trading these currencies long against the dollar."

So... There you go! It's not just me!

There is no scheduled data to print today, but the rest of the week is chock-full-0-data. On Wednesday, when I board a plane to Florida, we'll see the Monthly Budget Deficit... That should be a doozy! On Thursday, we get the usual Weekly Initial Jobless Claims, and Retail Sales for Feb... I can tell you right now, that the BHI (Butler Household Index) tells me this report for Retail Sales is going to be very disappointing! Friday the 13th, we'll see the Trade Deficit, Import Prices, and U. of Michigan Confidence. There are other 2nd Tier reports sprinkled in all week...

I really do think that the Retail Sales for Feb, is going to be bad... And that may weigh on the dollar, that is, if the Trading Theme keeps to the back of the room!

OK, as I head to the Big Finish, I see the euro has lost more ground than when I first came in... It just can't stand prosperity!

Currencies today 3/9/09: A$ .6360, kiwi .4980, C$ .7735, euro 1.2590, sterling 1.3890, Swiss .8595, rand 10.5930, krone 7.1125, SEK 9.2050, forint 247.90, zloty 3.77, koruna 22.02, yen 99.15, sing 1.5515, HKD 7.7550, INR 51.88, China 6.8410, pesos 15.28, BRL 2.3750, dollar index 89.20, Oil $46.74, Silver $13.22, and Gold... $937.90

That's it for today... Well.. The Butler boys made it through the 5 days on our own... No probs... My beautiful bride returned home last night, but too late for me to see her, as I was in ZZZZZZ-land when she got home. I believe a good time was had by all though, given the messages/ texts I received... I head to Jacksonville on Wednesday, for a corporate event, then drive down to Jupiter on Friday... My family joins me in Jupiter Friday night, and by Saturday, I'll be in heaven... No, I mean, Roger Dean Stadium, watching my beloved Cardinals! Sure hope the weather is warm, to get the "frost" out of my system! I will celebrate my birthday in Jupiter, like I have for the past 7 years... After the events of almost two years ago, I do "celebrate" my birthday now more than ever. OK... I hope you remembered to set your clocks ahead this weekend. This is the second year of doing it this early, so eventually we'll get used to it, of course by then they'll change it again! UGH! Got to get this tied up and out of here, so I hope your Monday is Marvelous!

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

China Announces A Stimulus Plan...

Chuck Butler — Thu, 05 Mar 2009 13:53:28 GMT

In This Issue..

* China to grow 8%?
* An end for Mark-to-markets?
* What will the ECB do today?
* Gold at a discount....

And Now... Today's Pfennig!

China Announces A Stimulus Plan...

Good day... And a Tub Thumpin' Thursday to you! It's a Tub Thumpin' Thursday, because I woke up to see that my beloved Missouri Tigers had beaten #3 ranked Oklahoma last night! YAHOO! I had to hit the sack at half-time, so the outcome was in question when I went to bed. Great stuff! This was HUGE after being not ready for prime-time last Sunday against Kansas... Be gone you demons! You monkeys on our backs too! We just beat OU!

Whew! A poet and I didn't know it! Well... We have the Bank of England (BOE) and the European Central Bank (ECB) meeting today. Look for rate cuts from both of them, as recessions are deepening in both camps. The BOE doesn't have many arrows in their quiver, while the ECB has held some in reserve. I doubt the ECB would go for a "huge honkin'" rate cut today, as they are normally more stick in the mud thinking... The BOE will probably move rates nearer to zero...

The currencies all had a day to bounce yesterday, more on that in a minute... But the day on the trampoline had to end, and as the day turned to night, the overnight market participants took a look at the rate cut meetings and decided to sell... So, last night when I went to bed, the euro was 1.2645... And right now it's 1.2585... Not a huge change, but one that's going the wrong way for euro holders.

OK, back to yesterday... All my troubles seemed so far away... Now it looks as though they're here to stay, oh I believe in yesterday... Suddenly... NO WAIT! My fingers were going to continue that tangent! UGH! Any way... Yesterday, the currencies all rallied on the news that China was going to introduce a new stimulus package and their leader Wen Jaibao said he believed there would be a return to 8% growth for the Chinese economy. This news got commodities rolling, and risk takers dipping their toes back into the water. But then... Stephen Green, head of China research at Standard Chartered Bank in Shanghai has this to say in rebuttal of Wen... "Every day the world economy gets worse and they've probably got two years of very slow global growth to get through."

So... Either Wen was saying what he truly believed was going to happen... OR... He has taken a page out of the Bernanke / Paulson, un-dynamic duo's book on how to deceive the public as to how bad things are... Oh, I know the un-dynamic duo eventually came around to say things were bad... But, all you have to do is go back to the last part of 2007, and the first part of 2008, to find all the quotes you need to fill your bag, from these two regarding how things weren't that bad... It wasn't a recession... And subprime won't filter out into the economy...

What I believe is taking place in China is a move away from a dependence of U.S. consumers... Which won't happen overnight... But, if I'm correct in this thinking, it would eventually lead to a HUGE problem for the U.S. For, if China can make this move, they won't need to keep buying U.S. Treasuries... Uh-Oh!

There was other news that goosed the risk takers yesterday, and that came from the U.S. as reported by Reuters... "A U.S. House Financial Services subcommittee is expected to hold a hearing on mark- to-market accounting rules, which have been blamed for forcing banks to record billions of dollars in write downs, a source briefed on the matter told Reuters.
The congressional subcommittee on capital markets has tentatively scheduled the hearing for March 12, the source said.
The U.S. Securities and Exchange Commission's chief accountant and the chairman of accounting rule maker, the Financial Accounting Standards Board, will be asked to testify, the source said."

So, recall about 10 days or so ago, I told you there was a rumor going around, that someone's underground, and she will rock you in the, NO WAIT! Darn it! I'm really going off on song lyrics today, because it's a Tub Thumpin' Thursday! Any way, I told you about the rumor that was going around about how the dropping of the mark-to-market was being considered... Well, I said then, that I smelled smoke... And when there's smoke there's a fire... And here's the proof in the pudding folks... They congressional subcommittee will talk about this next week!

I can't believe that they will go through the effort of talking about his, dragging everyone up to Capitol Hill to testify, without suspending the mark-to-market... Now... Talk about unlocking the credit crisis! All those reserves being held to cover the mark-to-markets, could be released on the economy!

But wait! With over 500K being placed on the unemployment rosters every month these days, and most likely a number of 600K being placed on the roster last month, who in their right mind would make loans to consumers in an economy like that? Well, that will be the next hurdle, but don't tell the markets now, as stocks really liked this news about the mark-to-market, and rallied on the day!

So... Commodities had a day in the sun, much like I will be doing in about a week from now! Or, should I say "hope there's sun?" Doesn't matter much to me, as I'll be in the ball-park next Saturday watching my beloved St. Louis Cardinals with my family at my side... It doesn't get any better than that my friends! Oh! I was talking about commodities... Well, the commodities that rallied didn't include Gold, as the shiny metal has seen better days this past week after hitting $1,002... I would have to think that $900 or $890 is a level it will hold. Consider, if you will, the fact that there's so much uncertainty in the world today... And... Surrounding that uncertainty is the fact that so many Central Banks are near zero with their rates, and have announced quantitative easing as their next move... Recall, I told you a day or two ago that the Bank of Canada has joined the ranks of those employing the quantitative easing measures... The list is getting longer all the time, and now includes the Fed, the BOE, the Bank of Japan, and Bank of Canada... There'll be more, as we go along... What else can a Central Bank do, after they've cut rates to the bone?

So... As I said the other day... I truly believe that Gold is trading at a discount right now... But, that's just my opinion, not that of EverBank's, and I could be wrong... I certainly was wrong about the Obama bounce, eh? I wasn't wrong about calling the end of the Great Unwinding of the Carry Trade, though! Nailed that one to the wall!

Speaking of the end of the unwinding of the Carry Trade (let's see how would my friend, the Mogambo shorten that... EOTUOTCT!) Japanese yen continues to weaken, after being the best performing currency of 2008, it is now the worst performing currency of 2009! And there doesn't seem to be any change in that selling patter for yen... In fact, there was a story yesterday on Bloomberg that caught my eye... "Scottish Widows Investment Partnership, which oversees 42 billion pounds ($59 billion) in bonds and currencies, cut its yen-denominated holdings by a fifth because of Japan's worsening economic situation."

Before I head to the Big Finish, I wanted to mention the Richard Russell Tribute Dinner that is going to take place in one of my fave cities, San Diego, on April 4... My friend, John Mauldin, is putting this all together, so if your interested in attending, here's a link to click for more information.... https://www.johnmauldin.com/russell-tribute.html

Currencies today 3/5/09: A$.6425, kiwi .5010, C$ .78, euro 1.2565, sterling 1.4245, Swiss .8510, rand 10.5250, krone 7.1150, SEK 9.1325, forint 247.55, zloty 3.7675, koruna 21.9925, yen 99.40, sing 1.5540, HKD 7.7580, INR 51.70, China 6.8405, pesos 15.30, BRL 2.3680, dollar index 88.98, Oil $44.41, Silver $13.09, and Gold... $916.60

That's it for today... Day one for the Butler Boys being bachelors went well... Day two is about to begin with Alex waking up, so I had better put a bow on all this and get it sent, so I can get his breakfast going! Recall, about a month ago, I told you about a new project I was working on with Kristin Kuchem. We're doing a short 5-8 minute video, where Kristin does a recap of the Pfennig, and then asks me questions about stuff I wrote. We've been "practicing" and I think the Bank is about ready to let us go to the website with the video... Not there yet, but almost... Just thought I would give everyone an update on that project. You know, I thought about something the other day... I talk a lot about the people that send me nasty emails... But, those are very small compared to the people who send me some of the nicest, thoughtful, some even tear jerking emails... You know... I once heard this: people will forget what you said, people will forget what you did, but people will never forget how you made them feel. I think that about sums it up... OK, I hope your Thursday is Tub Thumpin' as mine is already!

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

Saying "NO" To Eastern Europe...

Chuck Butler — Mon, 02 Mar 2009 14:18:46 GMT

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In This Issue..

* Dollar continues to rally...
* John Taylor buys dollars...
* Canada sees a deficit!
* More bailout funding...

And Now... Today's Pfennig!

Saying "NO" To Eastern Europe...

Good day... And a Marvelous Monday to you! Welcome to March too! Here and a lot of the country saw March come in like a lion, which means it should go out like a lamb, right? Let's hope it begins turning in that direction before month-end! 9 days before I leave for Florida, the countdown begins!

Well... The currencies continue to trade heavy under the pressure of the dollar, and the "flight to safety" in Treasuries... The euro has lost the 1.26 handle and continues to look weaker and weaker all the time. The latest move down came as a result of new that Eurozone leaders rejected a request for Eastern Europe aid... Here's the skinny on that...

Hungary had proposed that Eastern European countries like themselves, Poland and the Czech Republic, receive loans totaling 180 Billion euros ($227 Billion dollars worth) from the Eurozone... Shot down..... I don't want to be... Shot down! Ahhh, a little April Wine this morning... But getting back to this latest development, this news of a rejection, leaves the Eastern European countries hanging, and trading this week, or until something changes, outside the euro... In other words, the Eastern European Countries, like Hungary, and the other two mentioned above, normally trade partially on their own, and partially with the backing of the euro, since these three particularly were once considered to be on the "fast track" to euro conversion.

So... Not only do the Eastern European currencies get taken to the woodshed, in today's environment with bailouts being the norm, the euro gets taken to the woodshed too for not "bailing out" their brothers...

This is what we've come to folks... If you're not going deeper in debt, and bailing everyone and their brother, nobody likes you any more! I read one person's thought on the Eurozone rejection, and they immediately stuck a knife in the Eurozone, saying "this shows European countries are behind the curve. They are acting against a global crisis with national measures." Hmmm... Ward... You were a little hard on the Beaver last night, weren't you?

The other BIG NEWS this morning was a report that John Taylor, who manages $11.4 Billion as chairman of New York-based FX Concepts, Inc. Let's listen in... "Whenever a banking system realizes it's in big trouble, it says, I have to take care of my next door neighbors and the businesses down the block. Then the currency of that country, it its banks are big in international lending like the U.S., will strengthen."

Needless to say, but, it certainly sounds like Mr. Taylor, has drunk the kool-aid, and is buying dollars along with the others seeking a "safe haven"...

I tell you this, because, someone wrote me recently, and said that I only print commentaries that agree with my stance... So there! This guy is HUGE, and he's buying dollars!

Well, the revision to 4th QTR GDP printed much worse than forecast on Friday... Let's see what the Wall Street Journal had to say about it... "Gross domestic product decreased at a seasonally adjusted 6.2% annual rate October through December, the Commerce Department reported in a new, revised estimate of fourth-quarter GDP. The sharply lower revision reflected adjustments downward of inventory investment, exports and consumer spending.

The 6.2% decline meant the worst quarterly showing for GDP since a 6.4% decrease in first-quarter 1982 GDP.

But... With like all "bad data" in recent times, the traders flocked to the dollar and U.S. Treasuries... Makes no sense to me, but then, I think logically... Not like some Ivy leaguer that never spent time in the mail room, learning the business from the bottom up... Wait! How did that thought go into my feelings about one of the reasons this mess is so bad? I was saving those thoughts for a "rainy day"... Oh well, there's a hint as to where that discussion might go, when I decide to really "let loose"!

Obviously, a decline of 6.2% is pretty dis-heartening for those that believe the recession will be V-shaped... Buzzzzzzzz! Thank you for playing, there's a nice parting gift for you at the door!

The data cupboard is stocked and ready to yield a plethora of data this week! We start today with Personal Income and Spending, and end the week with the Jobs Jamboree, in between we'll see the ISM Index (manufacturing), Pending Homes Sales, the Fed's Beige Book, and more! So, we won't be void of data to talk about this week.

It looks like January will be the month that sees jobs losses greater than 600K, as the "experts" have forecast the total job loss for January at 650K! Aye, Yay, Yay... That's just awful! The unemployment rate is expected to hit 7.9%, but don't be surprised if it prints a snowman... That's an 8 for you non-golfers, bad golfers I should say! I still believe that the unemployment rate will reach 8.5% before this is all over, and that's even taking into consideration that Obama's Stimulus is a smashing success! (here's the kicker though, that no one's talking about regarding these jobs that will be created by the Obama stimulus... For the most part, they will all be "short-term jobs". What happens when those "short-term jobs" end?)

OK... Enough! The data will print when it prints, so I'll just leave it there...

Back to Treasuries for a minute... A reader sent me a note that the 5-year Treasury auction priced at 1.92% yield... So, why the attraction to Treasuries? 1.92% for a 5-year Treasury? That's pitiful! And if the continued buying at that level doesn't represent an "overbought" situation than I'm not bald, overweight and short!

The Canadian dollar / loonie had a rough go of it on Friday after their Current Account printed as a deficit for the first time since 1999! So... After 9 years of surpluses, Canada is dealing with a deficit... The Current Account deficit totaled a seasonally adjusted C$ 7.486 Billion in the fourth quarter, bigger than the consensus forecast for a C$ 5.1 Billion shortfall. A slump in the goods trade account combined with a widening investment income deficit resulted in the largest Current Account deficit since 1993.

Japanese yen continues to weaken from it's lofty levels of just a couple of weeks ago... I tried to point this out to everyone when I said that the Unwinding of the Carry Trade looked as though it had come to an end... If the unwinding involved buying yen, then the end of the unwinding would involve not buying yen... Then when it stops getting stronger, profit taking begins, and... Well, that's where we are today with yen...

Remember last week when I mentioned that AIG could post the largest loss in U.S. Corporate history at $60 Billion? Well, they bettered that number posting a loss of $61.66 Billion! So... Guess who stepped in again to make sure they didn't fail? That's right! The U.S. Gov't... Here's the skinny as reported by the Wall Street Journal... "The federal government has revamped its rescue package to American International Group and will provide the troubled company another $30 billion, with the Treasury saying AIG continues "to face significant challenges." The announcement comes as the insurance giant posted a $61.66 billion net loss for the fourth quarter.

The new package comes as the company has burned through cash and has been unable to find buyers for pieces of its company that it hoped to sells to repay the government on its existing loan package, which totals some $150 billion.

>>>> back to me... I tell you this folks... I truly believe that the Gov't might as well find a big black hole and throw the $30 Billion into it, because now AIG is at $150 Billion in total loans, and still burning through cash... I hope I'm wrong, because as a taxpayer, I would hate to see this, but... I think we'll hear about more Tens of Billions being put into this company in the future...

Speaking of taxes... I met my guy on Friday to begin the tax accounting process... The time is slipping by pretty quickly folks, and April 15th will be here before we know it!

I've talked about how much I enjoy reading Caroline Baum's articles on Bloomberg before... And she has one now that really strikes a nerve with me, in that for once I have someone agreeing with me that the latest stimulus isn't addressing the problem with the banks... Here's a snippet...

"Fed Chairman Ben Bernanke said in congressional testimony last week that key to stabilizing the economy is stabilizing the financial system.

If that's the case -- and policy makers of all stripes seem to agree that it is -- why a $787 billion fiscal stimulus bill filled with political priorities and a budget that increases domestic spending by 8 percent?

As an economist friend of mine says, you can't force-feed someone who's in the middle of coronary thrombosis.

Better to make the treatment fit the disease. Revamping the health-care system won't fix the banks. Raising the price of carbon-based fuels and force feeding the nation alternative sources of energy won't loosen up lending. And higher taxes on the wealthy, and inevitably the not-so-wealthy, won't enhance bank solvency.

Doing so many things at once means a reduced focus on the root of the problem. There's a reason the tortoise beats the hare in Aesop's fable."

The entire story can be read here, and I highly recommend that you do... http://www.bloomberg.com/apps/news?pid=20601039&sid=aoKaIpGop7No&refer=columnist_baum

Currencies today 3/2/09: A$ .6325, kiwi .4935, C$ .7785, euro 1.2580, sterling 1.4150, Swiss .85, rand 10.3685, krone 7.20, SEK 9.22, forint 243.50, zloty 3.78, koruna 22.62, yen 97.10, sing 1.5540, HKD 7.7565, INR 51.94, China 6.8450, pesos 15.40, BRL 2.4120, Dollar index 88.72, Oil $42.38, Silver $13.10, and Gold... $946.55

That's it for today... Well, March is here, which means the NCAA Basketball tournament gets underway, which is always a great couple of weeks. It also means spring training games... Isn't it great to see baseball highlights on ESPN again? And on Saturday, I listened to our Mike Shannon announce the Cardinals' spring training game. There's nothing like baseball on the radio! Oh, you can watch it on TV, but you don't use your mind like you do when you listen to it on the radio... My little buddy, Alex, had his basketball season come to an end this past weekend. His coach told him yesterday that he had "played like a warrior"... Our little Christine gets her husband, Matt, back. Matt is a high-school basketball coach, and his season ended last week too! Time to go... Hope everyone has a Marvelous Monday!

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

It's Not My Fault, It Must Be Yours!

Chuck Butler — Thu, 12 Feb 2009 14:40:46 GMT

In This Issue..

* What's $78 Billion among friends?
* Currencies fade with bias to buy Gold...
* Could the Carry Trade Unwind be done?
* U.S. soccer beats Mexico...

And Now... Today's Pfennig!

It's Not My Fault, It Must Be Yours!

Good day... And a Thunderin' Thursday to you! Well... Front and center this morning, I'm going to tell you something that will surprise a few and make a few happy. I've had my say on the Bailouts, TARP, Stimulus, and spending. I've beaten them to a pulp, and some readers have expressed their contempt with me carrying on with this beating. So... Unless something cracks, I'll just leave it all as it stands, and go on with life. This all has been too much for my blood pressure to take! I'll report the facts on this stuff, and leave the commentary for people that think they "know better"...

For instance, it was reported the other day that the Treasury Dept. has overpaid for stock received from TARP recipients by $78 Billion. You see, for every $100 given in TARP, the Treasury was to receive $100 in stock / assets, but when all the beans are counted, the Treasury is $78 Billion short on stock /assets... But, what the heck, what's $78 Billion among friends?

I was totally amused at the lawmakers grilling of Bank CEO's yesterday. In going along with the general practice that exists today... "It's always someone else's fault for it can't be my own fault" The lawmakers pointed fingers and blasted these CEO's for "earning a living"... This is dangerous ground folks, as it speaks of doing away with the way businesses have been run for eons, and shakes the very foundation of Capitalism... If the lawmakers had stopped and thought about their TARP money before they began to hand it out with no accountability, and lending requirements, maybe things would be moving in the right direction by now... And I know... This is getting to opinionated and I'm not going there anymore.

Oh! And one more thing... Please no more emails blasting me for taking the new administration to the woodshed so early in their rein... It's NOT A POLITICAL THING! For any reader that was around in 2001 when the then new administration had just taken over, and their first order of business was to place tariffs on Steel imports, I came out with both guns a blazin' that this was protectionism and had no place in free markets and Capitalism... I ranted and railed on this new president for this move. Funny, I don't recall receiving the nasty emails I get now for doing the same thing to this new president back then.. Hmmm...

OK... The dollar was in the driver's seat yesterday, as the risk takers have all gone home... A heading on Bloomberg this morning tells it all... "Stocks fall worldwide on concern stimulus plans may fail" The Stimulus they are talking about is the "new and improved" Stimulus package that the Senate approved yesterday, which came in lower than the previous package. This version's total comes in at $789 Billion.

Yesterday's potential market moving data didn't materialize, as the Trade Deficit did not narrow as much as forecast, and last month's number was revised upward. For the record and for those of you keeping score at home, the Trade Deficit for December printed at $39.9 Billion, and November's Deficit was revised from $40.4 Billion to $41.6 Billion. Exports have fallen off the cliff as 1. Global demand is waning, and 2. the dollar is overvalued and too strong to allow U.S. exports to be competitive.

Today, we'll see Retail Sales for January. The BHI (Butler Household Index) tells me that we should look for a very disappointing number from January. We'll also see the Weekly Initial Jobless Claims that continue to show more rot on labor's vine. Last week, the Initial Claims showed a record of 626K filed. This week, the "experts" are looking for 610K... I'll go out on the limb and say it will be even more disappointing. UGH!

Well... As I told the interviewer the other day... I believe what we're seeing right now is a general increased concern regarding fiat currencies, which has Gold on the rally tracks once again. Yesterday, Gold soared upward and onward by $23... And it has already added $3 since the London Morning Fixing earlier... As my friend, the Mogambo Guru, tells his readers... Everyone should own Gold... "see how easy this investing stuff is? Whee!" And let me repeat something I said before. My friend, Bill Bonner of the Daily Reckoning, www.dailyreckoning.com coined this saying for his "trade of the decade" at the turn of the century... "The trade of the decade is to sell the DOW and buy Gold on the dips"... WOW...

And now that Central Banks all over the world are having a race to zero... Deposit rates no longer hold the hammer over Gold's non interest bearing status. So... When Gold is on one scale, and cash (like dollars!) is on the other side of the scale... Guess what happens! I was surprised that I didn't get any comments yesterday from the media or readers about what I said Gold was... "An Uncertainty Hedge"... Are you uncertain as to what all this that's going on is going to bring us?

An ECB minister, Papademos, was speaking overnight about how "a further easing of the Eurozone monetary policy may be appropriate as risks to growth and inflation are to the downside." Then another ECB minister, Liikanen, said that "at the next meeting it is possible we could move." No dookie Sherlock! Your leader, Mr. Trichet, has all but told us to look for lower rates at the March 5 meeting...

Lower interest rates in the Eurozone won't necessarily hurt the euro, as they sure haven't hurt the dollar! There's a whole trading pattern that deals with a currency not losing value even after a debasing rate cut... I'll put that all together, and bring it to you probably next week, as we've got time before March 5 comes around any way!

Instead, the market movers for euros this morning has been 1. risk aversion in play 2. more flight to the safety of Treasuries, and 3. recession type data, like this morning's December print of Industrial Production for the Eurozone, which fell -2.6% for the month, and moved the annual year-o-year figure at -12% OUCH! Now, that's recession type data! And something that really brings that thought I've made a few times now, about the move to Gold...

Pound sterling has gone back on the slippery slide downward, after a brief rally last week. I was getting a little hot under the collar with the sterling strength last week, but, as with all things, patience is a virtue... Sterling is showing its true colors again, and the folks over at BNP Paribas say that the "downside risks for pound sterling VS dollars have increased"... Hmmm... That's big time research dept there... I could of, and in fact I already did all by my lonesome, tell you that!

The Aussie dollar (A$) just won't go away quietly... Yes, I fully understand that it has fallen from the lofty level 98-cents to present day levels of around 65-cents... But since it got to this mid-65 cent range, it has held steady Eddie. Now, of course I realize that I just gave it the kiss of death, but really this is worth pointing out. And with yen now stalled out around 90, it kind of makes you wonder if the Carry Trade unwind is over... Makes you stop to think doesn't it? Australia keeps cutting interest rates, and it remains in the mid-65 cent range... Yen has had every opportunity under the sun to go further to 85, and can't seem to find any terra firma below 90... Therefore, I'm pronouncing the unwinding of the Carry Trade as a done deal... This is where the munchkin coroner comes out and proclaims the Carry Trade as truly dead... As Coroner , I thoroughly examined her And she's not only merely dead She's really most sincerely dead...

Well... At least we can hope so! This would be a good indication that risk aversion is dying out... Although I'm truly aware that this risk aversion has a ways to go, we have to get to this place before we can begin to make plans to send risk aversion to a state run home...

On a sidebar here... Whenever I used to sit around late into the night with my friends, they would invariably get me to do my imitation of the Lollipop Guild... HAHAHAHAHA! Of course this is when they also would have me play my guitar, which I now haven't picked up in some time...

OK... Enough of that silliness! Your Pfennig writer has really gone out on a limb this morning with the Carry Trade thingy, eh?

I'm out of ideas for today, so with no further ado...

Currencies today 2/12/09: A$ .65, kiwi .5195, C$ .8045, euro 1.2855, sterling 1.4230, Swiss .8610, rand 10.0950, krone 6.8735, SEK 8.4050, forint 232, zloty 3.58, koruna 22.29, yen 90, sing 1.51, HKD 7.7515, INR 48.84, China 6.8340, pesos 14.59, BRL 2.2870, dollar index 86.14, Oil $35.53 (the price of oil just keeps falling!), Silver $13.45, and Gold... $944.44

That's it for today... What a nice win, in awful conditions, for the U.S. men's soccer team VS Mexico last night. My little buddy, Alex, and I watched the game together. Soccer was never "his" sport, but when I was a youngster, growing up in South St. Louis, where everyone and their brother was Catholic, German, Irish, Italian, French, and any other European background, soccer was played all the time, well, when we weren't playing baseball, basketball, football, and hockey! We have two, count'em... Two, soccer greats, and members of the St. Louis Soccer Hall of Fame on this trading desk... Don Ries, and Ty Keough... Both grew up on the South side of St. Louis, where so many athletes came from. Today, would have been my oldest sister Brenda's birthday. We lost her to cancer 20 years ago, she would have been 58 today... OK... It's also Charles Darwin's 200th birthday! Suzy Q just arrived... I need to get this sent, so... I hope you have a Thunderin' Thursday!

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

A Jobs Disaster!

Chuck Butler — Mon, 12 Jan 2009 16:35:58 GMT

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In This Issue..

* Retail Jobs are cut in December!
* Dollar rallies on renewed Trading Theme...
* Looking for the Obama bounce...
* High yielders get sold...

And Now... Today's Pfennig!

A Jobs Disaster!

Good day... And a Marvelous Monday to you! A grand weekend for yours truly with time spent resting, watching football, Alex play basketball, dinner with friends, and finally a wonderful dinner with my kids as we celebrated my oldest son, Andrew's, birthday. Whew! I'm at work about an hour earlier than usual this morning, as I couldn't sleep, and just decided to get up and come in... UGH!

OK... Well, the big news this morning, is that the Jobs Jamboree was just awful, but "not as bad as some forecast" and therefore the dollar rallied. OK, I'm shaking my head in disgust too, but that's what the headlines reported later in the day on Friday, as the reason for the dollar rally. But let's get to the meat of the Jobs report... First of all, jobs lost in December were -525K, which was bang on the forecasts. But here's the two things I found to be very scary in the report... First of all, November's awful print of -533K was revised downward to -584K (recall, I questioned a month ago if it would reach -600K on the revision)... And here's the really scary number... -67K Retail jobs were cut in December... That's right, December! The month when retailers are supposed to be on fire!

I was very impressed with the network news on NBC with Brian Williams, Friday night, as they did report the numbers as awful, and highlighted the Retail jobs losses as I did above... But then I got to thinking... Who the heck watches network news any more? Oh well, they tried!

Oh... And for those of you keeping score at home... The Bureau of Labor Statistics (BLS) decided that they would ADD 72K jobs in their Birth / Death Model... Makes sense, eh? NOT! So, if they hadn't put their hands in the cookie jar, the total job losses in December would have been within spittin' distance of -600K! Any way... The Unemployment rate rose to 7.2% from 6.7%, that's quite a hefty rise in one month, and is very reminiscent of moves made in previous recessions...

But the dollar rallied, so I'll leave all that Jobs Jamboree stuff, and move on!

The euro is much weaker as we begin this week than it was last week, and besides the mental giants that marked up dollars after the jobs report, the euro was feeling the pressure from some statements from European Central Bank (ECB) President, Trichet... Yes, it sounded as though Trichet had turned dovish... But then there were denials that he said anything, but it was too late, the cow out of the barn!

The ECB DOES meet this week, on Thursday, and while I once thought that the ECB would skip cutting rates at this meeting, I now, with the Trichet comments even if he didn't say them (you know me, where's the smoke, there's fire!), believe the ECB will cut rates this Thursday, and that is also weighing on the euro.

As we, (me, and you dear, long time reader) know all too well, the euro is the Big Dog on the currency porch... It's the offset currency to the dollar, which is quite impressive given the fact that it has only been around for 10 years! Anyway... Back at the ranch, dollar strength shows up here with the euro first and foremost... But guess what happens when everyone finally begins to focus on fundamentals again? Well, Oooh! Oooh! Call on me, teacher! Call on me! Yes, you, in the back, what's your answer? Well, teacher, My answer is that the dollar will come under pressure again, and with the euro being the offset currency to the dollar, this current weakness will be a thing of the past. Very Good, young man, please move to the front of the class!

So... After the dollar performance on the bad news of the Jobs Jamboree, I got to thinking that the Trading Theme that was all so evident... I know, I thought we had put the Trading Theme of second half of 2008, in the closet... But here it is again, all dusted off, and looking as though it might be here to stay... For those of you new to class or in need of a refresher course... The Trading Theme I'm talking about, is the one where the deeper, the darker, the more dangerous things get for the U.S. and the economy, the dollar is rewarded, as dollars are repatriated, and Carry Trades that used the dollar as the funding currency get unwound, thus propping up the dollar...

I've seen this before, as I've explained before... It was Japan in the late 90's... Their economy was circling the bowl, and yen was being repatriated, pushing the yen to 88!

These Carry Trades also use Japanese yen as the funding currency... And that goes to explain why Japanese yen is trading so strong again... Last week, with the risk takers dipping their toes in the risk waters again, Japanese yen was weakening... But not now!

This is all bad news for the high yielders, which had really stretched their legs last week! The usual suspects of Aussie, kiwi, Brazil, South Africa, have all been sold again on this return to the Trading Theme which has risk takers pushed to the back corner of the room...

This is as good of a time as any to repeat my thoughts for 2009... ( I did this the last week of 2008) First of all, I believe, we'll get an Obama bounce, thus pushing stocks back up, and giving everyone a false sense of euphoria... By late spring, this euphoria should all be fading, as people begin to realize that we're just mortgaging the future with stimulus package after stimulus package... And all that "horded up cash" that investors have been holding on to, will begin to get spent... Then we'll have a problem Houston, as the Corporations that have slowed production down during the recession, can't produce enough to meet demand, and inflation begins to soar!

The dollar basks in the sun during the first part of the Obama bounce... But, when the bloom is off the rose, we should see a return to the fundamentals...

OK... This week, we've got some hefty data in the U.S. and of course the ECB rate meeting on Thursday. Here in the U.S. we'll see this week... The Trade Deficit for November, Retail Sales for December, The TIC Flows, the stupid CPI and PPI reports will also print. Sprinkle in the Philly Fed (manufacturing), Business Inventories, and the Initial Jobless Claims, and we've got a data cupboard that chock-full-o-numbers!

None of these should be good for the economy, save for the stupid CPI report, which they will try to push off on us a report that inflation fell -.2% in December, and now stands year-on-year at 1.8%... HOGWASH! The boys and girls that print this report think that just because the price of Oil has collapsed, they can mark inflation down to the bone... That's right, there's no other inflation going on, not medical, not tuitions, not insurance, not food, not ball game tickets! HOGWASH!

After all that, there is no data scheduled for printing today! I hear that Big Ben Bernanke is going to speak on "The Crisis and the Policy Response" at the London School of Economics tomorrow. Oh boy! NOT!

OK, before I head to the Big Finish... I wanted to give you a piece of my friend, Bill Bonner's, Daily Reckoning (www.dailyreckoning.com) from Friday, as he discussed the massive amounts of stimulus that have been put in place and the massive amounts yet to be put in place... Here's Bill...

"When America's economy was young and competitive it survived slumps and crashes without medical intervention. Now, every passing cold requires feeding tubes. And this latest bout of influenza has the doctors in a panic. They are casting aside warnings and giving the patient masses doses of the old quack treatments. They'll increase the dosage - until they run out of supplies - and then switch to those new, experimental medicines that have recently been used in field trials by Dr. Gono in Zimbabwe.

Since they cannot leave well enough alone - the public won't stand for it - they will keep giving bigger and bigger doses, of more and more dangerous medicines, until the patient dies."

Currencies today 1/12/09: A$ .6845, kiwi .5790, C$ .8340, euro 1.34, sterling 1.4955, Swiss .8940, rand 10.02, krone 7.0550, SEK 8.0450, forint 208.20, zloty 3.02, koruna 19.83, yen 89.80, sing 1.49, HKD 7.7540, INR 48.84, China 6.8370, pesos 13.69, BRL 2.2940, dollar index 82.93, Oil $38.70 (Oil is collapsing once again!), Silver $11.11, and Gold... $844.50

That's it for today... A great big Happy Birthday, to my son, Andrew, who turns 27 today. Andrew teaches high school social studies, history and law. He teaches at his Alma Mater, and coaches the swimming and water polo teams. I always told him to "give back" to the sport he loved, and that's what he's doing, as he ended his swimming and water polo careers highly decorated. OK... Did you all see I.O.U.S.A. on CNN yesterday? Sorry, I didn't tell you Friday, I didn't know about it until later in the day! Every time I watch I.O.U.S.A. I get chills down my spine, and want to get my pitchfork and march to Washington D.C.! And then to top off the day yesterday, my fave TV show is back after a 1 year hiatus... 24... It was great to see Jack back! And we get another 2 hours of 24 tonight! YAHOO! And how about those Arizona Cardinals (once our football team here in St. Louis), and the ex-Rams quarterback, Kurt Warner? The Cardinals lost me as a fan when they moved to Arizona, but I just can't help but root for Kurt Warner! OK... I know it's early, but I'm going to hit the send button, and get working on today's trades... I hope your Monday is Marvelous!

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

A HUGE Currency Rally!

Chuck Butler — Thu, 11 Dec 2008 15:00:55 GMT

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In This Issue..

* Another currency rally....

* SNB cuts another 50 BPS!

* Budget Deficit continues to widen!

* Treasury yields go south for the winter!

And Now... Today's Pfennig!

A HUGE Currency Rally!

Good day... And a Tub Thumpin' Thursday to you! It's been quite the rally this week in the currencies led by the euro, which is like old times, eh? The Big Dog on the porch finally gets to stretch its legs and chase the dollar down the street! It's been a long time since we've seen this go on for more than a day. Yes, we've seen one day spikes, and even two day rallies turn into false dawns, but this one has lasted about a week now. Ever since last Friday's awful Jobs Jamboree, the tide has turned, and the Trading Theme that has held the currencies in a full nelson since the end of July, could very well be on the way out the door. I said that about the Trading Theme earlier this week, so I just wanted to repeat that to emphasize the point!

So... Yesterday, we saw the euro lead the currencies higher all day, with the single unit finishing the day in the 1.3050 area... I turned on the currency screens this morning, and what did my wondering eyes did appear, but the euro trading at 1.3170, and others bringing up the rear!

The Swiss National Bank (SNB) cut rates further this morning, bringing their internal rate to 1/2%, 50 BPS, that's it... So, one would think that bringing your interest rates to near zero, would NOT be a good thing for the currency, right? Well, in this day and age of rewarding a currency for lower interest rates to promote growth, that's not the case. The franc has rallied on the news... Of course it's probably just caught up in the euro's move higher.

Looks like the U.S. House of Representatives approved a $14 Billion package for GM and Chrysler, but the Senate has put some roadblocks out on this deal, and that puts the whole deal in jeopardy... A Final Jeopardy if you will for the contestants Gm and Chrysler! Notice I didn't include Ford. The people at Ford, backed out, and tried to put a 100 miles of desert between them and GM & Chrysler. Good for them!

Well, earlier in the week, the glimmering light of the bailout for the Big 3, helped the currencies... But now that the Trading Theme seems to be taking its last breaths, the news of the bailout in jeopardy, has helped the currencies, as this would mean that we could finally be back to focusing on fundamentals! Could we really? Is it possible? Well, maybe if you're real good and take a nap... No wait, that's what I used to tell the kids on Christmas Eve! It IS possible... But we need a few more days of what we've seen so far this week to confirm the Trading Theme to be a thing of the past.

Speaking of things of the past... A Bank of New York (BONY) strategist, issued a statement saying the, "Carry Trade is Dead and Buried." Hmmm... I beg to differ with him on that, for if we get investors and traders focused on fundamentals again, and the risk takers come out of the woodwork again, the Carry Trade could very well be on the burners again... But then, I do see his thought here and that is (I think it is) that if every Central Bank is cutting interest rates to the bone, there won't be any "high yielders" left to buy on the buy-side of the Carry Trade. Well, let's see now... Aussie and New Zealand were the BIG WINNERS of the last Carry Trade craziness, and their rates are lower, but still 3 and 4 hundred basis points above those in Japan, Switzerland and the U.S.! But, the Carry Traders might have to look further, and do some additional leg work this time to find the "high yielders" like... Brazil, and India...

OK... I came across this story yesterday and really had my blood boiling... I wanted to talk to the Big Boss Frank Trotter about it and get his thoughts, but the poor guy was tied up on the phone all day, well, all day that is, until I left to go home! Anyway, here's the base story, that the entire piece can be read here: http://www.cnbc.com/id/28153817/

The U.S. Federal Reserve is considering issuing its own debt for the first time, the Wall Street Journal said, citing people familiar with the matter.

"Fed officials have approached Congress about the move, which could include issuing bills or some other form of debt and would provide the central bank with more flexibility to tackle the financial crisis."

NOW WAIT JUST A MINUTE THERE BIG BEN! This is the bailiwick of the Treasury Dept, issuing debt! You've already got the printing press for currency, and now you want to issue your own Debt? This is complete madness I tell you, complete madness! I think the Fed is thinking of ways to deal with deflation...

Oh well, apparently, Big Ben can do whatever he pleases these days, the new President has named an "energy Czar" and the automakers might get a "Car Czar", the new President had better think about naming a Fed Reserve and Treasury dept Czar!

OK, yesterday's printing of the Monthly Budget Statement saw the monthly deficit not "as bad" as forecast, with the figure posting a $164.8 Billion deficit, instead of $171 Billion as forecast... That's still really bad folks, let's not get caught up in the media spin of talking about how it "wasn't as bad as forecast"! Let's focus on the fact that for the second consecutive month the Budget Deficit widened... And this month it went from $98 Billion in October to $164.8 Billion in November!

Of course you know why this is happening, right? No? Ahhh grasshopper... Recall the bailout money? Well, whenever any of it is spent, it will show up here! Want even further bad news here? Government revenue fell 4.2%, while spending soared 24%!

The Treasury Dept has written checks on all but $15 million of the first half of the $700 Billion allocated to help financial institutions.

So, as I said the other day when I mentioned that the President-elect's plan to spend more money on infrastructure since 1950 might be the right thing to do at the wrong time... We've got the deep, dark recession going on, the Credit Crisis and this collapse of revenue... But don't let that stop him! Why would we want to stop with the deficit spending here? I shake my head in disgust!

Today's data cupboard has the Trade Deficit for November, which should narrow, given the collapse of the Oil price. That and the recession should allow the Trade Deficit to narrow... But, let's not get caught up in the media spin on this too... You see, the Trade Deficit is still $53 Billion, which annually is $636 Billion... Which is probably right about where it will end out this year...

And... $53 Billion still needs to be financed! Let's not forget that little ditty!

I just watched the euro gap up to 1.32... This is a rout like I've not seen since last summer! And wouldn't you know it, here it is, and I'm going on vacation! Oh well, maybe the old adage that the currencies rally when Chuck's away, will come back!

I just can't pass up on this one though... And I know the legal beagles will be all over me on this, but here goes... This certainly looks like the Santa rally that I talked about earlier this week, eh?

I know, I know, it could all be reversed in a New York Minute, but you've seen these types of routs before...

Another currency on the rally tracks this week is the Chinese renminbi... After all the "bad talk" about China last week, the Chinese have said, "you'll be sorry"! What I'm talking about here is the fact that everyone is dissing the renminbi right now, and selling it, and pushing forward contracts down in value... And the Chinese, because they can, have moved the renminbi higher VS the dollar this week! There! In Your Face, disgrace!

So... What's everyone thinking these days buying Treasuries? I mean, the yield on a 3 month T-Bill is 1 BP! You have to go out 30 years in a Treasury Bond to get 3% yield! OUCH! But, investors keep buying! Well, I think what you've got going on here is simply the fact that all this repatriation of dollars has investors with tons of cash, that they don't want to put into banks, (for a number of reasons, like FDIC insurance limits, shaky banks, etc.) So, they put the cash into Treasuries, realizing that they may not earn any interest, but it will be there when they want it at some point in the future. And this "point in the future" is what scares the bejeebers out of me! Because when the icing is off the cake here, there will be a swift exodus from Treasuries, as no one will want to be the last man standing here... UH-OH! Just be careful folks...

The weekly Initial Jobless Claims will also print this morning. We've seen a huge increase to average above 500K in the Weekly Initial Claims, and that should hold true today. This isn't a good thing folks...

Well, the rally this week hasn't been cornered by currencies... The Commodities have come back too! Oil is up $2, but the real meat here is the rally in Gold! Gold this morning is perched above $827, when it was sitting at $770 just a week ago!

Currencies today 12/11/08: A$ .6660, kiwi .5525, C$ .8015, euro 1.3235, sterling 1.49, Swiss .84, ISK 215.50, rand 10.13, krone 6.95, SEK 8, forint 199, zloty 3.01, koruna 19.64, yen 91.30, baht 35, sing 1.4890, HKD 7.75, INR 48.30, China 6.8515, pesos 13.30, BRL 2.3950, dollar index 84.33, Oil $45.50, Silver $10.46, and Gold... $832

That's it for today... And for me until after Christmas... I'll probably send Chris notes from time to time, but I really don't expect to be monitoring the markets THAT much while on vacation! And of course, I'll attempt to write a Christmas Pfennig, which has been a tradition that goes back to 1992! I've got the Review & Focus to do while on vacation and my "other" newsletter, the Currency Capitalist to do too! Don't know what I'm talking about there? Well, for new readers, I was honored to be asked to be the main writer for a "paid for" newsletter that is published by the Sovereign Society, called the "Currency Capitalist"... So, I've got "all that" going for me! My little buddy, Alex, is still sick, poor guy, he was supposed to be playing in the 7&8th grade jazz ensemble concerts last night... It's beginning to look a lot like Christmas, as the house gets decorated, and we will finally go to cut down our Christmas tree on Sunday. (Hope Alex is better by then!) This is late for us, as we normally put up our tree earlier in the month! I love a Christmas Tree in the house! OK, I've carried on enough, Mike's here, Mary's here... I'll head out now... I'll leave you with the note I put in the December Review & Focus...

I wish everyone a joyous Holiday Season. Myself, I celebrate Christmas, and say Merry Christmas in hopes that it doesn't offend anyone that doesn't celebrate Christmas.

May the light of faith, the warmth of heart, and the love of family be your gifts this year...

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

The Worst Jobs Report Since 1974!

Chuck Butler — Mon, 08 Dec 2008 15:10:41 GMT

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In This Issue..

* Will -533K turn to -600K?

* A glimmer of light brings back risk takers...

* Another week of data...

* Fedspeak today...

And Now... Today's Pfennig!

The Worst Jobs Report Since 1974!

Good day... And a Marvelous Monday to you! What a Whirlwind Weekend for your truly, as it came and went, I did a ton of stuff, but no rest, and this morning, I was reminded that I had not gotten any rest! UGH! But! It was all fun! A great time in Jacksonville at the Headquarters' version of a Holiday Party... It was great to see the folks there that I know.

OK... Did you see the rot on labor's vine Friday? The Jobs Jamboree was very unkind to many, with a 533K jobs lost in November. That number was the worst figure since 1974! The tally of 1.9 million jobs lost this year surpasses the losses of the past two recessions, and according to the Wall Street Journal, signals that the current downturn could be the worst since the years immediately following World War II.

The unemployment rate ticked up to 6.7% from 6.5%, a separate Labor Department survey showed, the highest rate in 15 years. But the jobless rate -- which is based on figures of people looking for work -- was contained by the ranks of discouraged job-seekers giving up their searches. A broader government measure of unemployment, which includes those who want to work but are no longer actively seeking positions, jumped to 12.5% in November from 11.8% a month earlier.

Now... The thing that really ticks me off folks, is the fact that the October figure saw a major revision. You might recall that the September figure which was bad enough, was revised up by over 100K... Then last month we saw a negative -240K figure, which was bad enough, but one month later the figure is revised up to -320K... So, in my mind, the -533K figure reported this month for November, will probably be revised upward to the -600K figure... UGH!

So... All that rot, and the currencies hardly noticed! The trading range for the day was very tight, with a bias to sell dollars. In the overnight markets, the bias to sell dollars has really caught some wind in its sails. I'll tell you this, so hear me now and listen to me later... But the markets are really becoming predictable. You see, any time it appears there could very well be a light at the end of the tunnel, the fundamentals come back into focus (somewhat, because if they really came into focus, we would see dollars selling like funnel cakes at a State Fair), and the dollar gets sold.

The markets think they see a glimmering light this morning, as it appears the Big 3 will get some cash from the Gov't... Probably not as much ($40 Billion) that they wanted, but more than they originally asked for ($25 Billion)... I heard that they were bickering over whether they would accept having an "Auto-Czar" named by the Gov't, placed over them and to allocate the money... They should simply take the funds and be happy they got them!

This glimmering light always bring with it a chance for the high yielders to rebound, as risk takers stick their toes back into the chilled waters of Carry Trades. And that's exactly what we saw overnight, with the Aussie, kiwi, real, and rand all with strong rebounds VS the dollar. The glimmering light also lets Gold shine. So, the Commodities and the Commodity currencies all look better this morning. But, while I was typing the above, I had to laugh at my reference of Aussie and kiwi as "high yielders"... The way their Central Banks have been slashing rates, it amazing they can still hold up the "high yield banner"... But with the Big 3 of U.S., U.K., and Japan all with either zero rates and rates falling to zero, 3&4% yields look pretty lofty, eh?

And speaking of the risk takers coming back into the markets... It is really illustrated with the Japanese yen falling from 91 to 93 since Friday morning... I've explained all this before, so I won't bore every day readers with that again... If you want more info on this, you might want to check out the Pfennig's web site: www.dailypfennig.com where you can find today's letter, along with 6 months worth of archives... You'll probably find lots of Pfennigs that have full disclosure of what's going on here...

I saw this story on Reuters that really caught my attention... "One of the top managers of China Investment Corp, (CIC) the country's $200 billion sovereign wealth fund, reckons current dollar strength is temporary and he would like to bet that the U.S. currency is headed lower.

CIC President Gao Xiqing said in an interview with monthly U.S. magazine The Atlantic that," Everyone is saying, Oh, look, the dollar is getting stronger! I say, that's really temporary. It's simply because a lot of people need to cash in, they need U.S. dollars in order to pay back their creditors. But after a short while, the dollar may be going down again. I'd like to bet on that!"

Sounds like Mr. Gao and I would be good drinking buddies, as we think the same way! I wonder if he would like to take on the Cardinals as his baseball team?....

Speaking of drinking buddies... Here's another one that would probably fall into that category... Here's another story on Reuters... "Foundations for the dollar's recent rally have not been solid. The result of repatriation, deleveraging, quantitative easing and a major scarcity of dollars," said Bob Sinche, head of global FX and rate strategy at The Bank of America in New York. "But now we are bound for a correction."

Now, if you ask me (and I know you didn't, but you probably would if you ran into me, and I said, Hey! Would you like to ask me a question? HA!) but if you ask me, it sure seems as though these two guys could be Pfennig readers! But it would be better if they are not... For if they are not, then that means they're seeing things the same as I do, and not just using the Pfennig for their fame and fortune! HAHAHAHA HAHAHAHAHAHAHAHAHAHA!

So, after all the rate cuts last week, the Fed still gets their turn at the rate cut table next week, and I don't expect the Fed Heads to disappoint the rate cut campers in any sense of the imagination! And this could be the one that really brings the fact that yield differentials "SHOULD" be in play, and that the dollar "SHOULD" be in trouble... I'm really thinking that we could see a Santa rally for the currencies from here to the end of the month... Now... That's just me thinking out loud... I did NOT tell anyone, nor give advice to anyone to go out and buy euros today because I said there was going to be a rally! Of course, I could give you the wink and nod, but then you wouldn't see it because I can't physically wink and nod here in the Pfennig!

OK, I carry on, but it just gets me to no end... Advice... Yeah... Well the only advice I do give people is to love their families and friends, for in the end, that's all you've got! That, and the fact that investors should diversify their investment portfolios, so that not all of their investments are dollar denominated. Just like real estate's key word is "location"... Investing's key word is "diversification"...

In the "sign of the times" that I've been detailing lately... The Wall Street Journal reported that Merrill Lynch's CEO, John Thain, has suggested to directors that he get a 2008 bonus of as much as $10 million, but the battered securities firm's compensation committee is resisting his request.

And... The Tribune Company is preparing for a possible bankruptcy-protection filing as soon as this week. (I could say that I guess this isn't a good time to bring up all the millions they spent on Kerry Wood and Mark Prior... ) (and yes, I know, that wasn't playing nice with my Cubs friends)...

And... U.S. President-elect Barack Obama's pledged to create the largest infrastructure spending package since the 1950s to revive the economy.

The data cupboard will yield some interesting data this week for us to chew on... Like the Monthly Budget Statement (deficit), and the Trade Balance (deficit), and Retail Sales... The Retail Sales figure should remain pretty disappointing. A quick check of the BHI (Butler Household Index) tells me that! I tried to help the BHI, but that was last week, in December... So, in the end, there's more awful data to deal with, and by the time the Retail Sales figures are printed on Friday, this week, the glimmer of light provided by a deal with the Big 3, will have faded, and we could begin to feel pretty gloomy and doomy again.

But not me! I begin my Winter vacation on Friday... And I can guarantee you that I will not be checking on Retail Sales on Friday, as this is our "guys shopping day"... All the "guys" read the Pfennig, so I hope they are ready to go this Friday!

We get some "Fed Speak" today from Mssrs. Kroszner, Rosengren, and Kohn... They'll most likely be setting the table for the FOMC meeting next week...

Currencies today 12/8/08: A$ .6635, kiwi .5435, C$ .80, euro 1.2865, sterling 1.4865, Swiss .8250, ISK 261, rand 10.24, krone 7.08, SEK 8.12, forint 205.70, zloty 2.4450, koruna 20.02, yen 93.26, baht 35.54, sing 1.5090, HKD 7.7510, INR 49.59, China 6.8808, pesos 13.47, BRL 2.4410, dollar index 86.08, Oil $42.75, Silver $9.76, and Gold... $769.88

That's it for today... Well... My beloved Missouri Tigers got spanked by big bad Oklahoma on Saturday night. I saw the game with the score 10-7, and didn't see any more, only heard the final score. UGH! They're still going bowling though... Alamo Bowl, in San Antonio, TX... Not what they hoped for at the beginning of the season, but better than the football depression of the 90's! the folks in Jacksonville were all happy about their Gators... Got my first ever hug around the neck from little Delaney Grace last night. She gives them to Alex all the time, but this was the first one for me! She's so darn cute! I noticed the other day that the readership of the Pfennig had grown by about 3,000 readers in the past couple of months... So... Welcome... Well, Mike and Mary have arrived, Geez Louise, I'm getting later every day! YIKES! Oh well, I do my best... I hope you have a Marvelous Monday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Maybe It's Time For A Change?

Chuck Butler — Wed, 26 Nov 2008 17:14:00 GMT

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In This Issue..

* Currencies continue to rally...
* More Stimulus...
* Data shows more rot on the vine...
* A Thanksgiving thought...

And Now... Today's Pfennig!

Maybe It's Time For A Change?

Good day... And a Wonderful Wednesday to you! The day before Thanksgiving... Tonight is, historically, the biggest "going out" night for the younger crowd, as they all return home from college, etc. Not for yours truly though... A little reminder that Friday I will not be writing... Friday night, a large group of friends and family are starting the holiday season off with a gathering at the Butler House, before all heading to see the Trans Siberian Orchestra's Holiday Concert... I'm getting pumped up for that!

OK... Another rally day in the currencies yesterday... One that wasn't as pronounced as Monday's 3-cent rally... But a rally just the same, and at one point, the euro was trading above 1.30... Hadn't seen that level in a while, so welcome back to the 1.30 level, Mr. euro...

Someone sent me a note the other day, and said, why don't you talk about Australia, Canada, and Swiss more? Hmmmm... Maybe they don't read the Pfennig "every day"... But those currencies are in my notes most days, and if they are not, they are a part of the overall direction in currencies that are being pushed down by the Trading Theme... But in the spirit of the season...

Aussie dollars have rebounded nicely the last three days, but this is really putting a band-aid on a bullet wound, for the A$ has suffered a shot to the heart, and you're to blame, no wait! They've gotten bashed, beaten and left for dead, by the unwinding Carry Trades, and Commodities price collapse. Large interest rate cuts by the Reserve Bank of Australia (RBA) haven't helped the A$... And so... Until risk is back in the markets, driving commodities higher and bringing the battered Carry Traders back, the A$ will not be on the short list of currencies that can mount a rally VS the dollar... Should those two items come back with vengeance? Now that's a horse of a different color!

The Canadian dollar is getting tarred with the same brush as the A$, only the main commodity pushing the C$ down is the price of oil... Now, this is a case of: Torn between two lovers, feeling like a fool... I would love to see the C$ rebound, but it needs a higher oil price to do so, and I'm not about to turn my back on lower oil prices! I love less than $2 gas!

Now there are those that would tell you that this current level of the price of oil is just a fleeting moment price, and that we're still in store for $8 gas down the road... OK, I'm not sure I can get my arms around that, unless... We as a country do what we've done about gas driven automobiles for the last 35 years... Nothing, absolutely nothing! Then $8 gas is probably in our future... But it's not now, and won't be next week or next month, or even next year... Let's all hope it's not in our future at all!

The Swiss franc... Oh, where to start? The Swiss National Bank (SNB) shot an arrow into the heart of the franc last week, when they cut interest rates 100 BPS... Who would have thought that the SNB had 100 BPS of rate cut arrows in their quiver? But they did, and now francs are back on the block.... The "block" I'm talking about is the selling short block to fund Carry Trades, where they held court with Japanese yen, until the SNB began raising rates in 2007... Then the U.S. dollar took over, and that's where we are now... Good thing for francs that the Carry Trade and risk Aversion is hanging over the markets like the Sword of Damocles right now...

You know... We've been stuck in this Trading Theme of investors buying dollars whenever the economic Tsunami looks deeper, darker and more dangerous, for so long now, I had to sit back and examine this current currency rally further for what it was... At first, I thought this was simply a case of the currencies rallying because the "light at the end of the tunnel was brighter" as witnessed by the large rallies in stocks, caused by the bailout of Citicorp... But, then if that was the "true case" we would have seen the yen get sold along with the dollar... And guess what? Japanese yen was rallying too, while the dollar got sold!

In short- it seems like the market is starting to realize that all the various stimulus packages and bailouts our "leaders are throwing at the problems our economy faces and recognizing that while they may or may not lead us to the promised land of no deep, dark, dangerous recession, one thing that is a certainty is they will need to be financed. And isn't this the Big Problem for the dollar that I've talked about for over a year now? In the end, the reality will be that this is all negative for the dollar... And well, in the end, our fiscal well being.

Yes, I completely understand that Europe faces a similar challenge, but let's face the facts here, Europe has a surplus, right now at least, and does not have the funding requirements that the U.S. does...

And finally, there's the "other" thought... The dollar has gone a long way in a very short time erasing 5 years of gains from some currencies... It was about time that it paused for the cause...

So... In keeping with the thought about the stimulus packages and bailouts... The Fed and Treasury announced another round yesterday... You might want to sit down, and reach for your wallet, just to make sure it's still there!

Here's how the Wall Street Journal reported the news... "The U.S. on Tuesday stepped up its efforts to support strained credit markets through new programs aimed at boosting consumer credit and the market for mortgage-backed securities.

Under the Term Asset-Backed Securities Loan Facility, or TALF, the Federal Reserve will extend up to $200 billion in non-recourse loans to holders of asset-backed securities backed by consumer and small-business loans.

The Fed also said it will purchase up to $100 billion in GSE debt through a series of competitive auctions starting next week. It will also purchase up to $500 billion in mortgage-backed securities backed by GSEs, with the goal of starting that program by the end of the year."

For those of you that didn't experience "new math"... (HAHAHAHAHAHA 2+2 is still 4!) the tote board shows us that yesterday's announcement totals $800 Billion in addition to what they already have in the hopper! Geez Louise, when will this all stop? The Fed's balance sheet has grown by over $1.3 Trillion so far this year and could very well be turning Japanese once again! What am I talking about here? Well... You all know how I've been saying that the U.S. if following Japan's model of the 90's? Well... The Japanese added debt on to debt creating stimulus packages and bailouts too, and then lowered interest rates to zero, and the only thing left was targeting the quantity of money rather than its price. By that I'm trying to say that they didn't care what happened to the yen's value, they printed and printed... Oh brother! Here we go again! Are we doomed to experience a decade of deflation like the Japanese did?

I don't think so... I think our deflationary period will be much shorter, and then on the other side of that, we'll see inflation that will cause you to reach for your wallet again to see if it's still there! This inflation will push commodities back into the limelight, and once again the dollar will be punished...

That's my story, and I'm sticking to it!

OK... The data yesterday was more of the same-o, same-o, awful looking stuff... U.S. preliminary 3rd QTR GDP printed at negative -.5%, and Personal Consumption (which the Fed used to look at closely, but doubt they do any longer) fell to negative -3.7% from -3.2% in the 3rd QTR. And, the S&P/CaseShiller House Price Index fell another 17.4% in September from a year ago. The rot on the Housing price vine still has some additional deterioration to go, unfortunately...

The Data Cupboard continues to yield plenty for us to look at each day with a heaping helping of Personal Income and Spending for October today. In addition, we'll see Durable Goods Orders for October, the Weekly Initial Jobless Claims, Chicago Purchasing Managers Index (manufacturing for that region), U of Michigan Consumer Confidence, and New Home Sales for October... Whew! My fingers are worn out after all that! HA!

But there's more... I've been wanting to have a brief discussion about this for some time now, and each day I experience a loss of memory and forget to do so! What am I talking about, I hear you asking? Well... It's Gold... And not just the price of Gold in dollars, which has rebounded nicely this past week... But to point out that Gold has been rising VS all the currencies. Which makes sense right? The dollar has pounded the currencies for 4 months, and Gold gets stronger in those currencies... It's an interesting situation... So, Gold hasn't sunk VS the other currencies like it has VS the dollar.

OK... Here's the dilemma for the currency traders today... We've got all this data to deal with, and everyone is going to be trying to leave early today to get a head start on getting home for Thanksgiving... Will the lack of volume this afternoon cause wild swings? It has a history of doing so...

China has cut their internal interest rate to help stimulate their economy, which the OED lowered their forecast for China's economic growth from 9% to 7.5%... Well... 7.5% still sounds pretty darn good, doesn't it? Especially, when you consider that by the time the 4th QTR U.S. GDP numbers are printed (not until probably Fed 2009), they will show U.S. GDP to be a negative -5.0%!!!!!!

OK... Now that was a lot for the day before Thanksgiving, eh? I had better stop here, as I don't want to get you stuffed before your Thanksgiving meal!

Currencies today 11/26/08: A$ .6480, kiwi .55, C$ .8175, euro 1.2960, sterling 1.5340, Swiss .8375, ISK 235 (really, this is the quote we received Monday!) rand 9.8880, krone 6.9530, SEK 7.9260, forint 201.30, zloty 2.9180, koruna 19.48, yen 95.40, baht 35.20, sing 1.5080, HKD 7.7550, INR 49.43, China 6.8285, pesos 13.37, BRL 2.3370, dollar index 85.38, Oil $51.60, Silver $10.29, and Gold... $816.84

That's it for today... Well... I've written today's Pfennig knowing all long that I had no network to get it out... I noticed the problem when I logged on this morning... No network... And since I get here long before most of our IT people are wiping the sleep out of their eyes, (not a knock on them, just to point out how early I get here) The Pfennig probably won't go out for a few hours this morning... So... I've got that going for me this morning! UGH!

Tomorrow is Thanksgiving... It's quite a day as families gather and celebrate with wonderful meals and lively conversations. It's also a day for some great football games! Here's a Thanksgiving poem for you...

Leaves are falling everywhere,
A bit of chill is in the air,
It's time for fun and food galore,
For turkey, pumpkin pie, and more...
Autumn is here and that means one thing,
All the joy that Thanksgiving brings.

And as we gather together
From wherever we live
We give thanks to our Fathers above
For the earth and its harvest,
For freedom and peace,
And, especially,
For the people we Love.

I hope everyone has a wonderful and fulfilling Thanksgiving.

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