Daily Pfennig : Consumer Price Index

Spraying Round-up....

Chuck Butler — Mon, 18 May 2009 14:55:10 GMT

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In This Issue..

* Industrial Production declines...
* Stocks sell off, leading currencies down...
* Indian election spurs a rally...
* China stockpiles commodities...

And Now... Today's Pfennig!

Spraying Round-up....

Good day... And a Marvelous Monday to you! Thanks to Chris for picking up the ball on the Pfennig Friday. I returned to St. Louis with a very swollen leg and foot from all that walking in Las Vegas. One of these days I'll learn, eh? Any way... A restful day with my feet up on Friday, and I was ready to go again!

Well... As much as I dislike having to say so, because I told you this might happen... The currencies have given back some major ground VS the dollar since Friday morning. It's all tied to the fact that the euphoria going around the markets the previous week regarding stocks and the U.S. economy, came to a screeching halt last week. I pleaded and begged for the currencies to break this link to stocks, but it wouldn't / didn't happen and voila! What we have here is a failure to break the link, and now that there's a falling demand for stocks, currencies have tanked too... UGH!

Not that I'm cheering for currencies to go one way or the other, what I'm rooting for is a return to fundamentals... And apparently, that did not happen!

The proverbial straw to break the stock rally's back was the color of Industrial Production on Friday... Not that Industrial Production is that Big of a piece of data... It just got added on to all the other bad data that acted like a shot of Round-Up on all those so-called Green Shoots! For the record, Industrial Production decline .5% in April, and March's already bad figure was revised downward to -1.7%... So... The "glass is half full crowd, would say, "Hey!, the pace of decline has slowed, this is an indication of a bottom!" Unfortunately, that's not how the market participants saw it... You have to think outside the box here, and recall all of the announced shutdowns that will be coming down the pike... I fully expect this data to reverse itself and go deeper into the tank.

We also saw the "stupid" CPI (inflation) number on Friday... CPI fell .7% VS a year earlier, which on the outside screams "deflation"! But... That's not what I see... I see a CPI that's dominated by food and energy, and we all know that energy prices have plummeted from last year... So, to me, this is strictly price deflation of energy, and not overall deflation that would include a contraction of money supply. (Like that's going to happen any time soon!) No... And I'm sure there are few readers that will beg to differ with me on this, as they already do every time I mention inflation, but... This data continues to suggest the risk of deflation remains remote, since the drops are still mostly centered in energy and energy-related products.

So... If we've gone back to the black cloud over risk assets that existed July 08 through February 09, that means you can see Japanese yen as the lone wolf rallying major currency... Recall what I told you on Friday about the opposition party in Japan, calling for a boycott of U.S. Treasuries denominated in dollars... Imagine there's no rift between the two, It isn't hard to do, China and Japan getting together for currency cooperation... Hmmm... Makes you shiver, eh? Any way... The yen, is back on the rally tracks and trading this morning with a 95 handle...

But wait! What's that I see? Is it a White Knight for risk assets?

Another Asian currency that I talk about occasionally, the Indian rupee, has been through the spin cycle a few times in the past year... Just when the rupee looks like its on a run, it gets sent back to the spin cycle and comes out looking quite wrinkled... But... We might be seeing a change... This past weekend, India held an election, and the Congress Party - led alliance chalked up a decisive victory... This is the party, led by Prime Minister Singh, that is pro-growth, pro-economic reform. And the news of the decisive victory sent the Indian stocks soaring... Along with the rupee, that's now trading with a 47 handle for the first time in 5 months! So... The rupee has it all going on today, eh?

This news from India, helped turn the stocks around in Japan overnight, and that's a good thing! If stocks can maintain this momentum, that's a good thing for risk assets... But... I'm being pessimistic here... I just don't see how the Indian stock market euphoria can outweigh the bad data here in the U.S. But... I guess we'll have to wait-n-see, eh?

I was reading an article in the Wall Street Journal this weekend, and saw this, that caught my eye... "Economists Say Full Recovery to Take at Least 3 Years"... I bet they didn't make Mssrs Obama and Bernanke happy with that call! Here's snippet of the story from the Wall Street Journal... "Economists in the latest Wall Street Journal survey see an end to the recession by August, but say it will take years to eat up the slack created by the downturn. Nearly half of the economists said it will take three to four years to close the output gap, while more than a quarter say it will take five to six years. The economists on average expect the unemployment rate to climb to 9.7% by the end of the year, with two million more jobs lost over the next 12 months."

Don't know if you remember or not... But some time ago, I told you that I believed the Chinese were stockpiling commodities... They knew they would need them, and it sure seemed like a better investment than buying more dollar denominated assets... Well, the Royal Bank of Canada (RBC) just issued a report that agrees with my earlier statement! Let's see what RBC had to say... "China is stockpiling commodities such as copper and iron ore as part of a reallocation of its sovereign wealth amid concern that the value of its dollar assets may decline. It's part of an overall desire to decrease its exposure to dollar assets."

That's been a reoccurring theme here lately hasn't it? I've spent a ton of time writing about China and their new found diversification bone... I've told you about all this here, in and if you are a subscriber to my monthly "paid" subscriber newsletter, The Currency Capitalist, well, you're probably growing tired of hearing about China... You see I really have to tell you, that it all gets so intense, from my experience... This is BIG NEWS! Oh, and if you want to see what the Currency Capitalist is all about: https://www.web-purchases.com/CUC/WCUCJ900/landing

We have a holiday in Canada today... Victoria Day... I had a reader question why I talked about Australia more than Canada... Hmmm, I said... I did talk about Canada twice last week! But he's right, I do talk about Australia more, and that's because the story right now is China coming out of the economic doldrums before any other country, and demanding more raw materials from Australia... Now, if the price of Oil were to soar to $75 or higher, than I'd be talking about the "juiced" Canadian economy more and more once again...

Before I left for Viva Las Vegas (admit it, you were doing your Elvis voice there!) I had talked about the "rift" going on in the European Central Bank (ECB) well, ECB President, Trichet hasn't done anything on the outside to calm the waters there. Bundesbank (Germany's Central Bank) President, Axel Weber, a very outspoken voice against Quantitative Easing probably stirred up the hot blood again overnight... Let's listen in on Mr. Weber... "the ECB has done enough to help the economy and shouldn't consider further measures unless things get a lot worse." He went on to say a bit more... "the ECB doesn't see the risk of a broad credit crunch or deflation in the euro area."

I'm sure his opposition in Italy, Spain, Ireland, to name a few, will take offense to those statements, and we'll get the "rift" going again, which won't be a good thing for the euro to have to deal with.

The data cupboard is fairly empty this week, and for sure void of any major data until Thursday, when the Weekly Initial Jobless Claims, Leading Indicators, and Philly Fed Index all print... So... Not too much to deal with every day, which can lead to some strange currency moves. It just depends on the overall bias of whether to sell dollars or buy them. We'll get a feeling for that today...

Well... If stocks are going back into the sell gear, then look for Gold to push higher... Which is what it's doing right now, at $930... Speaking of Gold, my webcast Gold presentation last week wasn't much a draw... We had less than 100 people watch it on their computers... Hmmm... Don't know if we'll go that route any more. At least the room was packed!

So... On that note... I'll head to the Big Finish... This is a bit earlier than usual this morning, as I woke up long before my alarm was to go off, and decided to just go ahead and get up.

Currencies today 5/18/09: A$ .7580, kiwi .5895, C$ .8550, euro 1.3475, sterling 1.5240, Swiss .8910, rand 8.6440, krone 6.5025, SEK 7.8630, forint 212.50, zloty 3.3260, koruna 20, yen 95.60, sing 1.4680, HKD 7.7515, INR 47.90, China 6.8269, pesos 13.26, BRL 2.1150, dollar index 82.97, Oil $57.10, Silver $13.98, and Gold... $930.75

That's it for today... An absolutely gorgeous day yesterday here in St. Louis, not a cloud in the sky... Seashells and balloons for sure! I complain about Las Vegas a lot, but there was a really bright spot last week, when our group went to Bobby Flay's Mesa Grill... I'm a big fan of Bobby Flay. When I was at home recovering from my cancer surgeries two years ago, day time TV would have been a bummer without Bobby Flay on the Food Network! I thought I knew quite a bit about grilling before, but I sure know more now! Any way, the food at the Mesa Grill was absolutely incredible! I'm home and in the saddle now until the middle of July when I head to the Agora Financial Investment Symposium in Vancouver. July 21-24th Fairmont Hotel Vancouver, Vancouver BC. It's the 10th anniversary of the Symposium and the Daily Reckoning (www.dailyreckoning.com)! Oh, and a Happy Birthday to our projects King, Keith Rigdon... Time to go through this pile on my desk! I hope your Monday is Marvelous!

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

SNB Cut Rates 100 BPS!

Chuck Butler — Thu, 20 Nov 2008 15:01:41 GMT

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In This Issue..

* Trading Theme returns...

* Automakers' bailout vote today...

* Not using all your arrows...

* Housing Starts go back to 1959!

And Now... Today's Pfennig!

SNB Cut Rates 100 BPS!

Good day... And a Tub Thumpin' Thursday to you! It's a short week for me, so this IS a Tub Thumpin' Thursday! I head to Florida tomorrow, and I'm ready! After last week, and the cold that's set in here, I'm ready! Too bad I'll be working about 1/2 the time! But, I'm not complainin'!

OK... Whew! What an awful day yesterday for the currencies... In the morning, they ere in rally mode with the euro gaining ground to well within the 1.27 handle. But then the Trading Theme set in, and those gains were wiped out. The Trading Theme was set off by the awful Housing data, which reminded everyone of the deep, dark , dangerous days ahead... I bought some euros, and watched them rise, and went off to do something else... When I returned, they had fallen... UGH! The Japanese yen, however, rallied, as is the case with the Trading Theme... Risk trades get unwound, which benefits dollars, and yen. I've explained all this before, so I won't get into it again, but there's someone that has gone into the problems (credit markets and the Fed and Treasury's response to the crisis), and does a great job of telling it like it is... So, instead of hearing from me, ranting and cursing the "leaders" I'll let someone else explain it to you... This is a fellow named Ted Cook, that Ty Keough sent my way...

"One hardly knows where to begin. America has currently embraced the monetary policies of a banana republic. The Argentine and Zimbabwe models cannot be far behind. For years (35 to be exact) we have warned about the consequences of unbridled credit expansion. We argued that artificially low interest rates would lead to catastrophe. Now the first installment of this crisis has been visited upon us. Our policymakers have greeted this dilemma with even more ruinous money and credit policies that compound the problem. We've had the earthquake. The Tsunami is yet to come.

The monetary authorities in Washington, who are supposedly the brightest among us, have adopted a short-term strategy resplendent with economic error. As usual, the politicians are clueless. Somehow the idea has gained ground that recklessly expanding money and credit (inflating) will cure our economic ills without repercussions. Nothing could be further from the truth. This is currency debasement on a grand scale."

OK... Back to me... I see where Iceland is getting $2.1 Billion from the IMF, and $2.5 Billion from the Nordic Countries of Finland, Sweden, Norway, and Denmark to help resurrect the Icelandic economy. Seems like it's a case of too little too late to me, but maybe this can unlock the markets there a bit. For those of you keeping score at home, we received a price of 182.10 on our Icelandic currency this week. Now... I know there are people out there that don't believe that we receive a price like this when the Central Bank posts a daily figure of around 139... But let me tell you how this all works... I think the easiest way to explain this is to look at the Wall Street Journal, or most newspapers' business section, and you'll see the Fed Reserve rates for currencies that day. Since currencies only really trade at the level that's posted in the paper for a mili-second, it's merely used as a reference. It's not an indication where trades are being bought and sold.

Then there was the Housing data yesterday... October Housing Starts fell 4.5%, and Building Permits fell 12%! OUCH! That's just awful data! The Housing Starts fell to an annual rate of 791,000, which is the lowest since records began in 1959! That's 1959 folks! I hadn't even started kindergarten yet! We hadn't even launched Alan Shepard into space yet! Oh, the Soviets were way ahead of us at that time, only to be caught and passed later... But I digress, with this space exploration talk!

I don't mean to try to get everyone's attention away from the awful Housing data, like the media would do... I think of the cable news people doing this story, something like this: "Today, we saw the October Housing Starts fall 4.5%, and how about Paris Hilton breaking up with her boyfriend yesterday?"

OK, I'm back now, the research team over at JP Morgan sent out a note to clients yesterday, telling them that they believe the Fed will cut interest rates to zero by the next two meetings, Dec. 16, and Jan 28, and leave them there for the rest of 2009. Recall, that I wrote about how I believed the Fed was going to cut rates to zero about a month ago? I said then that the Fed is thinking that they can be "Saved by Zero"... Well... It's nice to see the BIG research teams jump on my bandwagon!

I guess, the Nestea Plunge in the Consumer Price Index (CPI) yesterday convinced them to make that call... October CPI took the biggest Plunge in 61 years by falling 1% in the month!

Falling asset prices... Falling inflation (so they say)... Falling Home prices... And Falling Job Creation... This is getting pretty ugly folks... And here's Jimmy Buffett (a reader reminded me of this!) I don't know ---- I don't know --- I don't know where I'm gonna go when the volcano blows. Mr. Utley! (you can hear those steel drums playing in your head now can't you?)

I ran some numbers last week for our monthly newsletter to clients, called the Review & Focus, (shameless plug) because I wanted to see if our age-old portfolio theory thought about how diversifying your investment portfolio reduces the overall risk of your portfolio, was holding true, given the currency sell of since July... Lo and Behold, it's tru, it's tru, I did see a putty tat! Yes, with the S&P 500 off more than 39% in the past year, a $100,000 investment in the S&P would not have done you very good... But by allocated 20% to Gold, and 20% to 3 currencies, euros, Swiss, and yen, and you can even substitute Aussie to prove the point even more... You are left with far more money in your portfolio, than if you did not diversify.

So... Yes, the currencies have fallen on difficult times since July, but they are still doing their work as a risk reducing machine for investment portfolios... Interesting... Those are the facts, Jack!

Today... The Data Cupboard will yield, the Weekly Initial Jobless Claims, which last week jumped above 500K... I would look for this to remain above 500K... And that my friends, is not a good thing. We'll also see the Philly Fed Index (manufacturing), and one of my fave data pieces, Leading Indicators... If everyone would have paid attention to the Leading Indicators in the last year, they were telling us that something was wrong... And I believe they'll still indicate something still is going wrong, as they are forecast to post a negative -.6% print for October...

The Data Cupboard will be emptied after today, with nothing to report tomorrow.

In the Eurozone... ECB member Nowotny made a clever comment that has helped the euro a bit this morning... Nowotny was talking about interest rates cuts and said, "it makes perfect sense not to use all your firepower at once." Like I always say about not using all the arrows in your quiver! Yes, this is what I was referring to yesterday when I was talking to a long time customer... I said that the ECB would be more pragmatic when it came to their rate cuts... Yes, they participated in the coordinated round of rate cuts, and they cut rates 50 BPS at the last meeting... But... I believe they will pause for the cause, and take a look at what their two previous rate cuts did to the economic landscape before going off and cutting rates like there's no tomorrow.

Speaking of rate cuts... The Swiss National Bank (SNB) decided to take the plunge this morning and take out their yield that's offered... The SNB cut rates 100 BPS! That's crazy man! Crazy!

Speaking of crazy... The automakers were on Capitol Hill yesterday pleading for some bailout money... I understand that the proceedings were a bit heated at times, as well they should be! I think there will be a vote today on whether the Big 3 get some additional bailout money... You might recall that they already received $25 Billion to put toward alternative fuel vehicles... Yeah, I bet it went there, right? Oh, that's right, I see a whole line of alternative fuel cars rolling off the lines right now! NOT! If I were in charge of the purse strings here, I don't think I would give them a dime, until they demonstrated that they will change...

And... Finally, before I head to the Big Finish... Did you happen to see or hear or read any of the conversation between Sen. Ron Paul, and Big Ben Bernanke? Oh, this is classic stuff! Here's a link to a site that has the video of the back and forth between these two... Simply classic! http://news.goldseek.com/RonPaul/1227028538.php

Currencies today 11/20/08: A$ .6305, kiwi .54, C$ .7955, euro 1.2545, sterling 1.4865, Swiss .8210, ISK 182.10, rand 10.5675, krone 7.0740, SEK 8.15, forint 215.15, zloty 3.0740, koruna 20.43, yen 95.70, baht 35.15, sing 1.5290, HKD 7.75, INR 50.15, China 6.8342, pesos 13.40, BRL 2.3890, dollar index 87.62, Oil $52.15, Silver $9.39, and Gold... $745.50

That's it for today... And that's it for me till next Tuesday. Chris will have the conn on the Pfennig till then. Hey! I paid (technically below $2) $2 for premium gas last night! WOW! It's a good thing the oil price plunged when it did, given the state of the economy right now, eh? Still no improvement in the eye... My little buddy, Alex, and I were on our own last night, so we opted to go out for dinner after his guitar lesson! Tomorrow night is the office holiday party... I don't know who set this date, but to me, it's like putting up your Christmas decorations and lights before Thanksgiving! Just a little early, eh? Oh well, I'm not complaining, just observing... I'll be gone for it anyway... OK, Mike's here, better hit the send button! I hope your Thursday is Tub Thumpin'!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Comfortably Numb...

Chuck Butler — Fri, 17 Oct 2008 14:10:38 GMT

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In This Issue..

* Comfortably numb...

* Data confirms the US slowdown...

* NZD and AUD end the week with gains...

* Hungarian forint stabilizes...

And Now... Today's Pfennig!

Comfortably numb...

Good day...These dramatic swings in the markets are becoming so common place that a move of 400 pts by the Dow doesn't really garner much notice. After all, in the past five days, the Dow Jones average has had a trading range of almost 2,000 points, but after five dramatic days the stock market is trading almost exactly where it was a week ago. And the volatility in the equity markets has carried over to the currency markets, where we continued the roller coaster ride which began a few weeks ago.

Yesterday, the dollar began the day with a strong move up in early European trading. But a plethora of bad data released here in the US caused the greenback to reverse course, and it wiped out all of its earlier gains. But the bargain hunting rally in the stock market during the afternoon pulled the dollar along with it, and we ended the day with a dollar index which was slightly higher than the day before. Today is shaping up to be a similar trading pattern, as Europe has begun the day buying dollars vs. most of the major currencies.

The numbers which forced the dollar lower yesterday included US industrial output which fell 6 percent in the third quarter, the largest fall in output since 1991. The September Industrial Production number was expected to fall .8%, but shocked the markets with a drop of 2.8%. Capacity Utilization, one of Chuck's favorite gauges of the health of the US industry, fell over 2% from last months number and sits at just 76.4%. This is an important piece of data, as it shows companies are pulling back production, and output here in the US is currently nowhere near our full capacity. The collapse of US manufacturing was further illustrated by a factory index for the Philadelphia region which hit an 18-year low this month. The slowdown in the manufacturing sector has been well documented in the past few years, but what many thought was a bottom apparently was just a pause in a further move down.

The only bright spot in the data released yesterday was consumer prices, which rose less than expected on the back of falling oil prices. The government reported that annual CPI Ex Food & Energy climbed just 2.5% during the month of September. The faltering economy seems to be keeping a cap on inflation for now. But with the government printing presses working overtime to flood the markets with US$, expect inflation to take a dramatic jump up sometime in the not so distant future.

Initial jobless claims for the past week were actually slightly less than projected with 'only' 461,000 filing first time claims instead of 470,000. But continuing claims jumped to over 3.7 million, nearly surpassing the previous peak back in May 2003. The job market continues to slide, which will continue to dampen any hope of a quick turnaround for the US economy. Today's data isn't expected to do anything to alleviate fears of a prolonged recession here in the US, as housing starts are expected to be at a 17 year low and consumer confidence will likely show another drop.

The increase in volatility in the equity markets caused the Japanese yen to advance against both the dollar and the euro yesterday. The yen gained against 15 of the 16 most-active currencies yesterday as investors took a more defensive position following the poor US data releases. Investors have again started to reverse their 'carry trades', causing the yen to drop below 100 before moving back up. The Swiss franc also benefited from the carry trade reversal. This pattern of buying and selling Japanese yen and Swiss francs according to the perceived risk in the markets will likely continue, taking currency investors along for the ride.

The high yielding currencies sold off a bit yesterday, but will end the week as the best performers. Brazilian real is up 8.41% in the past five days, and the Australian dollar is up 5.25%. Now we just need about 4 more weeks like this one to gain back the losses which have occurred over the past 3 months. But I question if we will see the past week's gains continue, as most of them occurred as bargain hunters snatched up these currencies after dramatic drops. The performance of these two currencies in particular is going to depend on global demand for commodities. If the global recession deepens, the demand for raw materials could fall further, dragging these currencies down. But the Asian economies should at be at least partially insulated from the global slowdown, and their demand for raw materials should at least put a floor under these currencies.

Yesterday I informed readers about events in Hungary which had caused a dramatic fall in the forint. As I reported, the ECB stepped in yesterday and said it would support Hungary's money-market operations with a loan of as much as 5 billion euros. This, along with other emergency measures enacted by the National Bank of Hungary over the past few days have apparently assuaged the foreign exchange market. The Hungarian forint ended the NY trading day flat vs. the US$, indicating the worst may be over. Hungary has a 'near zero' chance of defaulting on its debt, central bank President Andras Simor said on state television yesterday. But the ratings agencies are still downgrading the currency. Fitch today cut its outlook on the nations debt rating to negative from stable.

Mexico's central bank will probably leave its benchmark interest rate unchanged today on concerns that a reduction to help a sagging economy would further depreciate the currency and fuel inflation. While a rate cut would help the economy resist a worldwide slowdown and credit crunch, it would work against the bank's efforts to prop up the weakening peso. The Mexican central bank has sold $11.2 billion worth of US$ since last week and purchased pesos in a bid to stem a rout in the currency. The peso tumbled to a record low last week and the central bank is scrambling to stop the slide. Both Mexico and Canada are exposed to the US recession, and each country is trying to shield their economies from further slowdowns in the US. The tumble in oil from its record highs in July have also impacted the Peso and Canadian dollar. The effects are more pronounced for Mexico, where oil accounts for more than a third of fiscal revenue.

Currencies today 10/17/08: A$ .6783, kiwi .6127, C$ .8385, euro 1.3407, sterling 1.7290, Swiss .8805, ISK 260.0, rand 10.4099, krone 6.6635, SEK 7.5087, forint 202.10, zloty 2.6878, koruna 18.824, yen 100.83, baht 34.26, sing 1.4821, HKD 7.7576, INR 48.89, China 6.8332, pesos 13.0449, BRL 2.1335, dollar index 82.59, Oil $71.03, Silver $9.66, and Gold... $794.28

That's it for today...I took my son along with a few others on the desk to a fantastic Blues game last night. The Blues won 6-1, and my son, Brendan, ended up getting a game puck which dropped right into our seats after flying over the boards. This could be the Blues season, as the youngsters which they recently added to the roster seem to have sparked some life into the old veterans. It is finally starting to feel like fall here in St. Louis, we could actually have a light frost overnight. Hopefully the market volatility will cool down a bit too! 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

Here we go again...

Chuck Butler — Thu, 16 Oct 2008 14:07:20 GMT

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

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Coming to a location near you:

. 10/16 - Philadelphia

. 10/18 - Ft. Lauderdale

. 10/20 - Jacksonville

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EverBank is a Member FDIC and Equal Housing Lender.

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

In This Issue..

* Here we go again...

* US numbers show further slowdown...

* Norway cuts rates...

* Switzerland moves to shore up UBS...

And Now... Today's Pfennig!

Here we go again...

Good day...The dollar rallied and the equity markets plunged yesterday as investors again pulled their money away from the markets. As we have seen over the past several weeks, when investors get worried about the state of the global economy, they rush back into cash, and in the world of cash the US$ is still king. Chuck has been talking about this trading pattern during his FX University presentations, and I'll start this morning's Pfennig off with his thoughts from Philadelphia, where he is hosting another day of FXU:

"Here we go again!

The recession trap door gets sprung under the stock market, and things begin to look really bad in the U.S. again, and guess what? The dollar rallies... This just plays the trading theme over and over again... And Yen? It's back below 100! Risk gets taken out, and whatever carry trades that were brave enough to go back on after Monday, have been wiped out! Wiped out like the rally in Aussie dollars, which had rallied to +70-cents after Monday... And lost 5-cents today...

I'm afraid that the latest plan to give banks billions of dollars in exchange for partial ownership so that they will take the funds and loan them out to get the economy going and the credit markets unlocked is being exposed for the fraud that it is!

So, the Gov. is going to give Billions to the banks... What guarantee does the Gov't have that the banks will use the funds to loan out? None! Nada! Nothing! And... If anyone has stopped for just one minute to think about the Gov't having their hands in the bank's cookie jar, well... They know that this is something that will fail the economy and I am dead serious about that folks... It's bad for the economy, and will fail the economy!

Do we as investors and Capitalists want Gov't. ownership in banks? Did anyone ask us? Because had they asked me I would have said NO! Do we want the Gov't. determining what banks win or lose? Do we want Gov't. directing banks on who they make loans to? Can't you see members of Congress pushing to get loans in their home voting districts? And, once the Gov't is in the door, banks will NOT be able to turn their backs on them, for fear of the Gov't. pulling out the rug on the bailout!"

As Chuck mentions, the recession trap door was sprung on the stock market yesterday after retail sales numbers were released here in the US. Consumer spending, which comprises more than two thirds of the US economy, is faltering even as gas prices are falling. Retail sales dropped in September by 1.2%, the third consecutive month of a decrease. This is the first time we have had three consecutive months of declining sales since comparable records began in 1992. A pullback in consumer spending and a slowdown in consumer credit is something which has been needed, but it won't be good for the US economy.

Other data released yesterday also indicated the US recession will deepen before we see a turnaround. The volatile Empire manufacturing data for October fell a whopping 24.6. This number has been very volatile in the past, but it is an indicator of how the manufacturing sector in the NY area is doing. This drop put the index at a record low as the global credit freeze prompted businesses to pull back. Every component, other than prices, was negative for the month.

The Fed also released their Beige book yesterday afternoon, but with the news channels concentrating on the last Presidential debates, most investors probably didn't get to hear the Fed's take on the current economic conditions. Reports from all twelve Federal Reserve Districts indicated economic activity weakened in September, with several districts noting that their contacts had become much more pessimistic about the economic outlook. Labor market conditions weakened in most Districts. The only bright spot in the report was that cost pressures on prices had eased a bit, although a number of Districts noted that the costs of energy, raw materials, food, and transportation remain elevated and margins are tight. No real surprises here, just a confirmation of what we have been saying all along, the US is slipping further into a recession with no bottom in sight.

Today we will get additional data which will continue to show the weakness of the US economy. Consumer prices are expected to show a small increase, even after a fall in commodities and oil. The weekly jobless numbers are expected to show another 470,000 people filed for unemployment last week. The effects of the deepening credit crisis on the economy will cause the unemployment rate to keep rising for another year, and will likely reach 7.3% by the end of 2009. The rate was 6.1% last month, matching a five year high. Industrial production will also be reported this morning, and is expected show a drop of nearly one percent in September following last months 1.1% decline. The back to back drop in output at factories, mines and utilities would be the biggest since 1990. As I said earlier, none of this data will be positive for the markets or the US economy.

But recent trading patterns have shown that negative numbers here in the US have caused an increase in the value of the greenback, so I don't expect a big move down for the dollar after these releases. Recently, investors have begun to move money back into cash, staying away from making investments anywhere. This is reflected by the drops in the value of gold, silver, and the equity markets. Investors are simply moving money into their FDIC insured bank accounts and are also buying up short term US treasury securities. Risk is again a bad word in investing, so the roller coaster of the carry trades are back off again.

These reversals, along with a drop in commodity prices caused a major sell off in the Aussie and New Zealand dollars yesterday. But this morning investors are moving back into these two currencies and their prices are again climbing back up. In fact, the commodity currencies of AUD$, NZD$, CAD$ and the South African rand are the four best performing currencies during the past 24 hours. This is somewhat of a surprise, as the price of the commodities which these four countries produce are down. Oil is trading below $73 this morning, and silver has dropped below its two year low.

The drop in the price of oil has combined with a cut in interest rates to deliver a one-two punch to the Norwegian krone overnight. Norway's krone fell to its lowest level since the beginning of 2007 vs. the US$ after Norges Bank reduced the deposit rate by half a percentage point. The central bank is now more concerned about growth as the fall in the price of oil has reduced inflationary pressures. Norges bank pushed forward the Oct. 29 meeting after central banks including the ECB and Sweden's Riksbank reduced borrowing costs by a half percentage point on Oct. 8. Norway's economy, will grow 1.1% next year, 1.3% in 2010, and 2.8% in 2011 according to the central bank. These estimates are slightly lower than their previous forecasts. Norway continues to have some of the best underlying economic fundamentals of any of the European nations, and these fundamentals should eventually rally the krone vs. the currencies of weaker economies (the US).

Another of the stronger European nations, Switzerland, announced it would inject capital into UBS in order to shore up their balance sheet. UBS will get 6 billion Swiss francs from the govt. and put as much as $60 billion of risky assets into a fund backed by the central bank. Switzerland is the last of the world's financial centers to pour cash into ailing financial institutions. The Swiss franc continues to be one of only 3 currencies which are up vs. the US$ on a year to date basis. The franc should be a core part of investors currency diversification, as it is still seen as a safe haven currency for investors looking to shelter their portfolios from the global crisis.

A currency which we rarely talk about is the Hungarian forint, which plunged yesterday on investor concern the eastern European country may be the next to be engulfed by the crisis that is roiling global markets. Some commercial banks this week suspended foreign currency loans and demand on the government bond market has dried up. The European Central Bank said it will lend as much as 5 billion euros to the Hungarian central bank to help revive the local credit market. Investors should look at this as a warning shot and re-evaluate if they want to continue holding this currency, as it could become the next Icelandic krona.

Speaking of Iceland, the central bank announced yesterday that it will begin conducting daily krona auctions to 'facilitate international trade.' The bank is trying to restore some sort of order to the currency markets, which had been divided between an onshore market where the govt. was trying to hold the currency to a peg vs. the Euro and an offshore market where currency trades were getting done at a huge discount to the 'onshore' price. This new daily auction will hopefully bring the two markets closer together, and raise the price we are able to get for maturing Icelandic krona CDs.

Currencies today 10/16/08: A$ .6752, kiwi .6100, C$ .8418, euro 1.3516, sterling 1.7266, Swiss .8855, ISK 260.0, rand 10.175, krone 6.4868, SEK 7.3862, forint 196.93, zloty 2.6535, koruna 18.392, yen 100.50, baht 34.27, sing 1.4806, HKD 7.7555, INR 48.85, China 6.8298, pesos 13.3958, BRL 2.2263, dollar index 82.19, Oil $72.69, Silver $10.005, and Gold... $832.20

That's it for today...A bit slower on the desk yesterday, as investors seem to becoming numb to all of the market volatility. My legs are finally starting to feel a bit better after Sunday's marathon. I can actually walk down stairs without much pain! I swore this was my last marathon after waking up in pain on Tuesday morning, but with the legs feeling better I am thinking about running again. Maybe I'll just concentrate on the triathlons next year, the cross training is much easier on my aging body. The sun is coming up outside, and it looks like it is going to be a Tub Thumpin Thursday!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Fighting Inflation...

Chuck Butler — Mon, 16 Jun 2008 14:52:48 GMT

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In This Issue....

* CPI increases...
* Eurozone inflation increases too!
* G-8 lets currencies slip by...
* TIC Flows data today...

And Now... Today's Pfennig!

Fighting Inflation...

Good day... And a Marvelous Monday to you! I hope you had a grand Father's Day... Mine was fabulous! And a great weather day too! Cards take 2 of 3 from the Phillies after getting royally spanked on Friday night! UGH! And I got to see my first ever Polo game on Saturday! I've seen 100's of water polo games, as son Andrew was a good player in High School, but never a Polo game on horses... Absolutely cool!

OK... Friday was not a good day in the currencies as once again the dollar took the hammer and swung a mighty swing. The euro spent the day in the 1.53 handle, as more and more talk about the Fed fighting inflation took hold of the markets. I'm still resisting this rhetoric by the Fed, and believe that eventually the markets will come to the realization that the Fed is simply "talking the talk" and are unwilling to "walk the walk"...

Think of what 75 BPS (which is what some are saying the Fed will hike rates this year) would do for the economy... Or... Think about what it would do the melting mortgage sector... Or... Think about our Deficit, and the bonds we have to issue, what does 75 BPS do the future interest payments on those bonds? None of these are good outcomes... Yes, I believe the Fed needed to do something a long time ago to deal with inflation, but they turned their back on us and inflation... Now, suddenly they are "inflation fighters"... That's like a fireman watching a house burn almost to the ground before attempting to put it out... Doesn't make any sense to me...

But, that's what the market is all about these days... The Fed and higher interest rates, thus taking away the positive interest rate differential of the euro and other currencies.

On Friday, Ireland voted "no" to a treaty that would create the post of full-time president with the goal of upgrading Europe's role in world affairs... Once again, just as in 2005 when France voted "no" on a Eurozone referendum, the euro naysayers came out of the woodwork... 18 countries have already passed this treaty, leaving Ireland as the only "no" vote so far... I don't know where this takes the Eurozone and the euro, but I can only think that this is nothing more than a tempest in a teacup...

Friday also saw the stupid CPI (Consumer inflation) data for May, in which, the monthly number jumped form .2% to .6%, and the annual number to 4.2% from 3.9%... The core number which takes out food and energy, which is totally useless in times like this, showed that the annual rate remained at 2.3%... So... Normally, the media only highlights the "core" number... But when it plays well with the markets are thinking, they media switched gears and reported the "overall" number which is fine with me, but why change horses in the middle of the stream?

The U. of Michigan Consumer Confidence Index fell further in the first two weeks of June, from 59.8 to 56.7... Just to give you an idea of how far this index has fallen... The index averaged 85.6 in 2007... And the index of consumer expectations for six months from now, fell to 49 from 51.1... So current feelings are not great and neither are futures expectations... And the Fed is going to raise rates?

Today, we'll see the latest TIC Flows data... This is the report that shows the net security purchases in the U.S. As I've reported many times in the past, this report gives us an indication of whether or not foreigners are buying enough U.S. assets to finance the Current Account Deficit. Which, by the way, will be printed tomorrow... I'm going to say that the TIC Flows will show that the Deficit was not financed appropriately in May... We'll see later this morning.

Right now, I'm seeing the euro rally a bit on news that inflation in the Eurozone reached 3.7% in May, which was more than forecast (3.6%). This is the highest level of inflation in the Eurozone since June 1992... Which was about the time I moved over to trade foreign bonds at the old Mark Twain Bank... That's a long time ago! The reason the euro is rallying on this news is simple... The European Central Bank (ECB) all but told the markets they would raise rates at their July meeting, and this data all but puts those rate hike thoughts down as a "done deal"...

I personally don't like to see inflation that high, but I believe the ECB has done a good job of recognizing inflation and reacted accordingly months ago, while the Fed was concerning themselves with being a "White Knight"...

The Japanese yen continues to get dragged through the mud of the Carry Trade, which is really the cats meow in the markets again... Risk is no longer a threat to the markets (as they see it) and that's a whole line of consecutive green lights for the risk takers. I feel bad about this move, because I truly believed that this "risk taking" was going to be a thing of the past in 2008... It still may be, but we're almost 1/2 of the way through the year now... UGH!

In Australia... The economic data there last week tended to be softer, but inflation was higher... I think this keeps the Reserve Bank of Australia (RBA) at the rate hike table, which should continue to underpin the A$...

Across the Tasman, New Zealand posted a nice gain in Retail Sales in April of 1%, nearly reversing the -1.2% drop in March... It is believed that the sharp fall in March and near reversal in April was all due to the timing of the Easter Holiday, which led to less buying days in March than April... Goes to show you just how small the New Zealand economy really is... Again, I believe that the Reserve Bank of New Zealand (RBNZ) is finished with their rate hike cycle. That doesn't mean they will begin a rate cutting cycle right away... It just means rates probably aren't going any higher here... But they should be in Australia, which is one of the reasons I like Australia over New Zealand.

We also had a G-8 Meeting this weekend... Yes, I know, it probably slipped right by you! I had forgotten all about it until I turned on the screens this morning. The formal communiqué' after the meeting made no mention of the dollar or exchange rates... There had been some thought in the markets that G-8 would "pile on" the "pro dollar" talk... But they did not... And that has caused some selling of dollars this morning.

The G-8 ministers did focus on rising inflation... And I don't know if you've seen the pictures of the flooding Iowa, but it is similar to what we experienced here in St. Louis in 1993... One thing I did hear this weekend was this little snippet... The Chairman of Nestle has declared that high food prices "are here to stay" as governments divert resources to make biofuels, amass stockpiles and limit exports. Doesn't that make you feel good about going to the grocery store this week?

More Fed Speak is on the docket this week, with Big Ben, Lacker, Kohn, and Yellen all scheduled to speak this week...

Saudi Arabia announced over the weekend that they would increase oil production from 9.45 million barrels per day to 9.50 million per day... But Oil prices are still around $135...

The Swiss National Bank (SNB) will meet this week, and while I think they should raise rates, it is widely expected that they will keep rates unchanged. A rate hike here would really make using the Swiss franc as a funding currency of the Carry Trade an expensive proposition...

Currencies today 6/16/08: A$ .9405, kiwi .7635, C$ .9740, euro 1.5465, sterling 1.9635, Swiss .9585, ISK 79, rand 8.0850, krone 5.1860, SEK 6.05, forint 159.70, zloty 2.19, koruna 15.6440, yen 108.25, baht 33.25, sing 1.3745, HKD 7.8125, INR 42.94, China 6.90, pesos 10.34, BRL 1.6360, dollar index 73.67, Oil $135.50, Silver $16.70, and Gold... $878.77

That's it for today... The weekend began with some sad news about the passing of Tim Russert, only 58... What a great person he seemed to be to me from afar... I read his book about his dad and growing up a couple of years ago... A good book! The weekend got better starting Saturday though... So, was your Father's Day great? I truly hope so! Should be an interesting week with a ton of data, and talkers.. So stay tuned, same bat time, same bat channel! I hope you have a Marvelous Monday and a Wonderful Week!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837
www.everbank.com

Is Intervention In The Cards?

Chuck Butler — Fri, 14 Mar 2008 14:16:00 GMT

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In This Issue....

* Retail Sales collapse!
* Gold futures hit $1,000!
* S&P sounds the "all clear" horn...
* Happy St. Patrick's Day!

And Now... Today's Pfennig!

Is Intervention In The Cards?

Good day... And a Happy Friday to one and all! I'm out the door early this morning and on my way to get more stupider in Jupiter! HA! Another record day for the euro on Thursday, while yen backed off that 100 level with tons of profit taking. And who can blame these profit takers? They haven't held yen as long as I have, but I'm sure they've held it long enough that when they see a chance to take profits... DONE!

It was a Tub Thumpin' Thursday for the currencies once again... But at one point during the day, the dollar rebounded a bit only to give it all back by the end of the day. But overnight, there seems to be a feeling creeping into the markets that there could be some Co-coordinated Central Bank intervention... The euro has given up 1/2 cent on the creeping feeling...

Let me talk a minute about co-coordinated Central Bank Intervention (CCBI)... For anyone new to class, CCBI would be a case of let's say... The European Central Bank (ECB), The Bank of England (BOE), and maybe the Bank of Japan (BOJ) being brought together by the Fed to buy dollars and sell their own currency to wrap a tourniquet around the bleeding dollar.

Traders like to talk about this kind of stuff because it provides great drama... But in reality, it is a very rare occasion that brings these Central Banks together. This IS obviously a very rare occasion when the euro is high stepping it into the 1.60 end zone, and Japanese yen flirts with a sub-100 level... So... Do I think this will take place? No... I don't think it will... But does it have a chance to take place? Yes, it does...

So... Watch for this, but keep in mind that CCBI can lead to even worse levels in the dollar (in this case), as the markets have far deeper pockets than a Central Bank... CCBI can lead to short term appreciation for the currency the Central Banks are trying to "save"... That, my friends, could lead to a great buying opportunity for those of you who believe the currency parade had passed them by...

Retail Sales in the U.S. collapsed in February, just like the BHI indicated it would... Recall, I said the BHI indicated that the results would be disappointing... The "experts" had Retail Sales rising .2%... They actually fell .6%... This tells me that Consumers are battening down the hatches, just like they should be doing during a recession! You have rising food and energy costs, house prices falling, Jobs weaker, and somehow the "experts" thought the U.S. Consumer would just continue to spend... That dog ain't gonna hunt!

Hey! And how about Gold? I actually, with my own two eyes saw Gold futures trade at $1,000 yesterday... Spot Gold was just a hair below $1,000 at $999! WOW! With oil pumping the its price higher and higher every day, Gold is taking advantage of high oil and a low dollar.

OK, it's all clear now... Everyone back in the pool! S&P (standard & poors) said yesterday that the end to subprime-related write-downs is in sight... That's right... That's what they said... And that brought about a rally in stocks... So... S&P is part of the Plunge Protection Team, eh? Now... How does S&P know this about the write-downs? My two-cents is on the fact that they know nothing more than you and I, but saw stocks in a meltdown and came in to save them... I could be wrong about that... But from my view in the cheap seats, that's my two-cents!

Oh... And the Wall Street Journal says that in their latest poll of economists (funny, they didn't call me!) the economists now believe the U.S. has slipped into a recession. Hmmm, welcome to the party boys and girls! Your host, this evening, Mr. Chuck Butler, has been waiting for you to join him in the "the U.S. is already in a recession room"!

With U.S. stocks taking comfort in the news from S&P, that gave the green light to Aussie and New Zealand dollar bulls to push their respective currencies higher... Yesterday, Aussie was nearing 94-cents... Last night it hit .9450! 1/2 cent a day... You can't beat that with a stick!

This morning, we get to see the "stupid" CPI for Feb... Along with U. of Michigan Consumer Sentiment... Oh, and don't forget Big Ben is in Washington to speak about homeownership... That ought to be interesting!... But I won't have the faintest idea what he said, because I'll be jetting off to Spring Training!

Expect CPI to show some stupid number of .2% rise... .4% year-on-year... If it does, then you have to throw in the towel and finally agree with me that this report is "cooked", "baked", "massaged" and whatever other term you want to use, by the Government... They can't let you feel like the roof is crashing in with high inflation can they? They don't believe they can... And so, they lie!

The Chinese renminbi moved higher VS the dollar again overnight, moving to yet another record VS the dollar since dropping the peg in July of 2005. Talk about people that have some nice gains in a currency... We began offering renminbi in 2003, and there are investors that have owned it since then... I don't know what's going to happen in China and the renminbi, but this scenario reminds me of something my dad taught me years ago... It's not a profit until you take it...

And finally... The U.S. 10-year Treasury Auction yesterday had the lowest bid-cover ratio since 2003... That's not a good thing folks... It means that no one wants the paper at the price it was auctioned... This won't make the mortgage people happy either, as Treasuries weakened on the news, which means mortgage rates will rise... I didn't see anything on the Network News last night regarding this, did you? I didn't think so!

Currencies today: A$ .9420, kiwi .8165, C$ 1.0150, euro 1.5565, sterling 2.0285, Swiss .9905, ISK 69.85, rand 7.93, krone 5.1130, SEK 6.0750, forint 165.30, zloty 2.2680, koruna 16.11, yen 100.50, baht 31.30, sing 1.3825, HKD 7.7810, INR 40.38, China 7.0890, pesos 10.76, BRL 1.6930, dollar index 72.09, Oil $110, Silver $20.65, and Gold... $997.50

That's it for today... And for me until next Wednesday... A two day stint, back in town, and then I leave again until Opening Day! A typical March for me, travel wise... I try so hard to get things in my life back to normal... A nice family gathering at the Butler House last night to celebrate my beautiful bride's mom's birthday... My older kids named her "granny" when they were little... I'm heading to Florida with my good friends Rick, who just turned 40, and Duane... Our other member of the "posse" Jay couldn't make it this year, even though he was the one that told us that "we had no excuse to not make it to spring training each year"... The NCAA brackets will be announced this weekend. This is such an exciting time for college basketball fans... My beloved Missouri Tigers Basketball team will not be invited to the "Big Dance", they have been in a downward spiral opposite of the upward spiral of the football team... Oh, well, there's next year! Ok... I hope you have a Fantastico Friday, and wonderful weekend... Oh! Wait!, Monday is St. Patrick's Day... A BIG Day for yours truly... I left my Review & Focus readers with a fave Irish poem of mine... I'll do the say for you!

May the road rise up to meet you
May the wind be always at your back
May the sun shine warm upon your face
May the rain fall softly upon your fields
And until we meet again
May God hold you in the Palm of his hand...

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