Daily Pfennig : Credit Crisis

The Geithner Plan Day!

Chuck Butler — Tue, 10 Feb 2009 14:55:49 GMT

...But First, A Word From Our Sponsor...
Now in Print: What You Need to Know About America's Economic Crisis

On election night, Amazon.com's top-selling book wasn't about Obama or even McCain. Instead, it was a book about the four American deficits that threaten to steal your wealth-and the steps you can take to reverse them.

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

If you missed your chance to see the film-or just want more of its in-depth interviews and analysis-the IOUSA book should be at the top of your reading list. The issues it explores and the solutions it provides are too important to ignore.

Get your copy today: http://www.amazon.com/dp/0470222778?tag=dailyreckonin-20&camp=14573&creative=327641&linkCode=as1&creativeASIN=0470222778&adid=03WYRVDX49DN6K6GRQ4G

In This Issue..

* Talking stimulus again...
* Currencies rally, then sell off...
* Aussie Business Confidence slumps...
* The Mogambo on Gold...

And Now... Today's Pfennig!

The Geithner Plan Day!

Good day... And a Terrific Tuesday to you! The President talked to us last night regarding the "new and Improved" Stimulus package. He sounded a bit defensive, don't you think? But, I will say this, he tried to stay on the high road, when defending the package. He really ripped people like me, that oppose the package, and see it as spending only. I think he forgot to mention that people like me that oppose it, oppose it because we can't afford it! But the President firmly believes our economy could completely collapse without this, so I can see where he feels the urgency to get this bill signed.

OK... Enough of that! I don't like talking about stuff like that, because I'll have 100 people write me nasty emails about politics, and 100 people write me that I was bang on!

Well... I don't know, I don't know, I don't know where I'm a going to go when the volcano blows... Things around the world just don't see to be anything to write home about... This morning, the euro has lost all the ground it gained yesterday and more, before climbing back this morning. The euro led the other currencies (minus yen) to higher ground yesterday, and the rally last most of the day. The euro climbed to near 1.31, before profit taking set in last in the day bringing it to just above 1.30. However, in the overnight market, the euro has been sold again down to 1.2894 before rallying back as I write to 1.2970... Here's the skinny...

Russia owes the European Union and other countries a boat load of money on loans made to Russia. This has been a "known" thing for years now. But... Russia is now asking the European Union to moderate talks with foreign creditors on $400 Billion of loans... This obviously shows that the credit crisis is still in play, and now affecting Governments from obtaining needed credit. This news has caused the euro to take a shot to the mid-section...

OK... The President was very clear last night that U.S. Treasury Sec. Geithner will explain his "new and improved" plan for dealing with the remaining $350 Billion from the TARP (troubled assets relief program). Now, I have no idea what Geithner is going to say, but I know what he had better say, or else the risk takers are going to go back under their rocks and stay for awhile. I expect Geithner to talk about how the remaining $350 Billion will come with some major strings attached, like: a provision that any of the funds taken are to be used to clear up funds for lending.

And here's where the cheese binds folks... Without the credit markets operating in a near-normal capacity, the "new and improved" Stimulus Package that's going through Capitol Hill now, won't stand a chance! Businesses need to get credit to expand and hire workers, individuals need to get credit to buy homes, etc.

I was talking to a banker that I've known for a very long time last week, and one that was a lender for many years, and he thinks that even if the credit markets unlock, who's going to have a "sound" balance sheet to obtain a loan? His thought was that "whey would any lending institution make a loan when 500K jobs losses are posted each month, and bankruptcies are at record levels, and regulators are breathing down their necks to make certain we don't slip back into past lending practices... Just imagine, if you will... A return to the old adage that a lender looks at the borrower's ABILITY TO REPAY THE LOAN...

OK... So now, after having said all that... I need to say, that we HAVE to find a way to get past all this... The Credit markets need to unlock! Or else... We'll be stuck in Jimmy Carter's "malaise" for years to come! We don't even want to slip into anything resembling "Japan's lost decade"...

So, I've spent the morning talking about stimulus and TARP, and the credit crisis... Time to skip over to something else!

Yesterday, the Aussie dollar had it all going on, rising to well above 68-cents... Overnight, however, with the euro getting sold, the A$ has seen selling. Add to the euro's plight, the fact that Aussie Business Confidence dropped to a record low last month, and we've got A$ selling down below 67-cents... But hey! At .6670, the A$ is still quite a bit higher than it was just a week ago...

With the risk takers on the run yesterday afternoon and overnight, the Japanese yen is back on the rally tracks after a couple of days off of them.

Union Bank of Switzerland (UBS) announced more layoffs along with more losses last night, but assured everyone that they would return to profit next year.

A couple of weeks ago, I talked about how I believed U.S. Treasuries were the next bubble to burst... I spent a ton of time explaining how this would work in my presentations last week at the Orlando Money Show. Well... A quick look at the Merrill Lynch Treasury Master Index, shows that Treasuries have lost 3.6% so far this year... That's the worst start in any year since 1980!

I remember what was going on in the early 80's in bonds... I was running the bond operations at Mark Twain Bank, and this is nothing like that... But... I think the thing that resembles this move in bonds the most is what happened in the 90's. Back then, the bond markets' participants made sure the President's spending plans were put aside and a balanced budget was pursued instead. The bond market participants drove up borrowing costs then... And it looks like they have plans on doing that again, which would really throw a spanner in the works for President Obama's plans...

I'm so bummed about all of this... If the lawmakers in Washington had just had read their Financial Reckoning Day books that were sent to them 6 years ago, or their I.O.U.S.A. books that were sent to them last year, maybe we could have done something about this before it got so dire... BTW Bill Bonner and Addison Wiggin wrote Financial Reckoning Day, and Addison Wiggin and Kate Incontrerra wrote I.O.U.S.A.

And to add to my / our misery this morning... Fannie Mae and Freddie Mac, remember these two? They kick started all these losses, now say they need more bailout funding. Well, let me clarify that, they said they will need $200 Billion more if the housing market continues to deteriorate. Well... They might as well get in line for that $200 Billion now folks... That's how I see it...

And then there was Gold... My friend, the Mogambo Guru, had this to say in his weekly letter that posts on the Daily Reckoning site, (along side my Pfennig!) www.dailyreckoning.com So, here's the Mogambo talking about buying Gold!

"Well, since you asked, the point is that "At the end of 2007, above-ground privately held gold bullion amounted to less than $650 billion, and the total amount of silver and platinum bullion was less than $5 billion. Put together, this is less than 1/3 of 1 percent of the estimated $187 trillion of global financial assets", which doesn't even start to address the implications that "China, Russia and the OPEC countries are considering substantial increases to their gold allocations in order to diversify their US dollar risk", which means that "Any reallocation by these countries will drive prices much higher."

>>> back to me, briefly... I get asked all the time about the Gov't confiscating our Gold like they did in the 30's... I tell people that times are different. Back then, Gold was a part of our money. Dollars were backed by Gold, and therefore the Gov't had a "need" for the Gold... But that's no more! Therefore, I just don't see the Gov't getting involved in a confiscation... Besides, as I told the crowds last week, I've got a rake, you've probably got a pitchfork, and if they want to take my Gold, they will face the rake and pitchfork! HA

But, I think the Mogambo nailed it even better, so back to my friend, the Mogambo Guru...

"And in that regard, people keep asking me if the government is going to confiscate gold, and I tell them "Why don't you ask the government?" Hahaha! As if they would tell you the truth! Hahaha!

But not even mentioning that the Federal Reserve can print up all the money it wants, so they would not confiscate gold for the money, or the fact that all the gold held at the Federal Reserve is chump change; if the Fed still has all of its reported 261 million ounces, then at even $1,000 an ounce, all the gold would only be worth a lousy $261 billion dollars!
Less than a quarter of the Federal budget deficit for this year alone!
Hahaha!

And then the government has to store the gold someplace and start absorbing all of the expenses of guarding it, which doesn't even address that the "takings clause" of the Constitution which prevents the government from taking anything away from you, including gold, without paying full market value to you, the owner.

So will the government confiscate gold? Why in the hell would they want to do that?

>>>> Ahhh... The Mogambo on a Tuesday, there's not a better way to start a Tuesday! (except of course if you won the lottery and asked for Gold instead of dollars!)

OK... So to sum up today... U.S. Treasury Sec. Geithner will give his "new and improved" plan for TARP money. But before he speaks, the Fed Chairman, Big Ben Bernanke, will speak on lending programs at the Fed... The markets will wait for Geithner, to see if the risk takers are coming back... Let's hope he can do a Bullwinkle and pull a rabbit out of his hat!

Currencies today 2/10/09: A$ .6670, kiwi .5335, C$ .8165, euro 1.2970, sterling 1.48, Swiss .8625, rand 9.6960, krone 6.6760, SEK 8.1250, forint 222.25, zloty 3.4410, koruna 21.6375, yen 91, sing 1.4975, HKD 7.7510, INR 48.74, China 6.8325, pesos 14.20, BRL 2.2545, dollar index 86.10, Oil $40.59, Silver $12.95, and Gold... $895.78

That's it for today... Hey! How about those Missouri Tigers! My beloved Tigers came back from a double digit deficit against the reigning National Champion Kansas Jayhawks, and beat them on a last second shot! WOW! Not only was the victory sweet before a home crowd, but it was against rival Kansas! Britney Spears, I mean, Alex Rodriguez, admitted to using steroids yesterday, which works out well, since he was exposed for using them the day before! The NY papers are calling him A-Roid... Isn't this all sad? He was supposed to be the anti-Barry Bonds... And now he's on Barry's team... We're just a few days away from pitchers and catchers reporting for spring training, maybe we can forget about A-Rod then... I'm one month away from leaving for Florida, where I will remain for the rest of the month! I'll be speaking at the Investment U. Conference in St. Petersburg at a tre' cool hotel down the street from now demolished, Al Lang Stadium! You have to be a member of the Oxford Club to attend, so if you are a member, get signed up and go where it's warm! See you there! Whew! Enough typing today! I sure hope your Tuesday is Terrific! (I also hope that Timothy Geithner's Tuesday is Terrific too!)

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

The End of 2008!

Chuck Butler — Wed, 31 Dec 2008 16:30:13 GMT

.........But First, A Word From Our Sponsor..........
Gold and silver prices are down.

For a simple and inexpensive way to own gold or silver, consider the non-FDIC insured Pooled Metals Select Account from EverBank®. This economic alternative to buying actual bars or coins lets you "pool" your metal with other investors, saving you from costly storage or maintenance fees.

Invest for as little as $5,000, avoid costly broker commissions, and receive account statements every month.

Apply online. Simply go to EverBank.com, mouse over "Products" then select "Precious Metals." For important disclosures visit: http://www.everbank.com/001MetalsTBLegal.aspx?TB_iframe=true&height=400&width=700
......................................................

In This Issue..

* The dollar rebounds...
* Home prices collapse!
* Consumer Confidence finally rings true...
* Chuck Speak to end the year!

And Now... Today's Pfennig!

The End of 2008!

Good day... And a Wonderful Wednesday to you! An end of the year Wednesday to boot! And end of a completely awful year financially and economically. Personally, it was great! I got good news from scans about the cancer I'm fighting, had a setback with the eye, but I'll get through that too, and if not, well, it will be just like my kidney... I lost one, but still have a good one, and if I lose the vision in one eye, I'll still have a good one!

The currencies look like they'll end the year on a sour note, except Japanese yen, of course. The dollar rallied back overnight after spending most of the day yesterday range bound in euros 1.41-1.42... This morning, as I turn on the screens, and hear one of my all time faves on the radio, Leon Russell, "we're alone now and I'm singing this song to you" The euro has fallen to 1.3950...

As I explained yesterday, we could see some "book squaring" today, which, depending on which way the "squaring" was going could cause some additional wild swings. The Japanese yen, however, is set to book a performance in 2008 that is the best we've seen from yen, in 20 years! WOW! Shoot Rudy, that's longer than I've been writing the Pfennig! Yes, 2009, will mark my 17th year writing the Pfennig... Just think it began with hand written notes, of which I still have every one, and has turned into a letter that is read by 100's of thousands of people each day! WOW!

But let's get back to yen... If yen is going well, and the dollar is going well against the other currencies, it tells me that Risk Aversion has slipped back into the markets on a larger scale, which makes sense to me, given the fighting in the Gaza Strip.

The "star" currency yesterday though, was the beaten down Brazilian real. We saw a 6 whole figure move in real yesterday... There was no news, so once again it was thin volumes causing wild swings!

We did see two pieces of data yesterday, in the U.S., that played well with the financial meltdown in 2008... First we saw U.S. Home prices fall 18.% in October, and 2.2% from the previous month! OUCH! The S&P/CaseShiller Home price index showed this 18% fall, which turns out to be a record drop! This, will continue for most of 2009 folks... There's still just too much inventory out there to deal with, and now, even people with good credit are finding it difficult to get loans... That problem will lessen as we move through 2009, and eventually, this will all get back to normal, whatever that is!

The second piece of data was Consumer Confidence... The Consumer Confidence index came in much weaker than expected in December falling to 38.0 from 44.7 in November. This represented a record low reading for household confidence. The "experts" had thought that the fall in gas prices would give Consumer Confidence a boost... But that failed to become fact! This index is finally about where I believe it should be... Look, I DON'T WANT it to be this bad, I just think that finally people are looking around and have finally taken off the rose colored glasses!

OK... So, we're heading to the end of 2008... I thought I would share with you some "Chuck Speak"... Thoughts from the Cheap Seats, as I think when I retire, I'll call my newsletter! So... Here goes...

As we put the finishing touches on 2008, we've seen a nice Santa Rally in the euro and other currencies, especially the Swiss franc, will this continue or do we go back to the Trading Theme of rewarding the dollar as things get deeper, darker, and more dangerous?

Well... Here's what I think... First of all, we could very well see a very nice "Obama bounce" in the first QTR of 2009, as he takes over. This would encompass stocks, and the dollar. But unfortunately, the "Obama bounce" will come to an end quickly, as a touch of reality comes over the markets about June... So, for the first 3 months, we have the "Obama bounce" and the "ding dong the witch is dead crowd" will be coming out of the woodwork. But, as I said, then a touch of reality comes over the markets, as the $1 Trillion stimulus plan is put through. Then we'll probably see three months of capitulation before the trap door springs on the latest bubble... Treasuries...

More Treasury issuance will glut the market and soon, everyone will be heading to the EXIT door, panic setting in, as Treasury yields go higher and higher, and their bond values go lower, and lower. Why higher and higher? Well, two reasons... 1. there will be so much supply, that the yield will have to go higher to attract buyers of all this debt. 2. Inflation will be returning...

Yes, yesterday I gave you my theory on how the asset price deflation will end, and new buying will take place. Someone asked me a good question, "how will these people get the money to spend?" Well, you see, I'm not talking about the Mom and Pops in the investing world, I'm talking about the BIG BOYS, Institutions, Hedge Funds, Sovereign Funds... OK, so, then inflation sets in and now we've really got problems on our hands!

So... By June, we could very well be seeing a true and earnest return to fundamentals, and a much weaker dollar. Recall that when this current Credit Crisis caused dollar repatriation, I said that it could last through the election and on through year-end... Then I revised that, seeing the rot on the economy's and Credit Crisis vine, to say that it could very well last one year, just like the last mini-dollar rally in 2005... So that would put us around June!

And that's where the asset deflation probably ends too... So... I'll trade today, and come back in May, eh? Nah... Just kidding, I've got to be here for the fireworks that will go off IF I happen to get lucky enough to have nailed this scenario!

You won't get this scenario from anyone else folks... Most writers out there are talking about deflation setting in on the U.S. like it did Japan... And I know that I've spent a ton of time talking about the similarities between Japan, circa 1990's, and the U.S. now... But I draw the line at deflation setting in for a decade like in Japan! We, the U.S. buyer, be it consumers or hedge funds, will be experiencing the 7-year itch to buy assets at depressed prices next spring... I just can't see it any other way!

Currencies today 12/31/08: A$ .6875, kiwi .5760, C$ .8175, euro 1.3860, sterling 1.4590, Swiss .9375, ISK 145.50, rand 9.3850, krone 6.99, SEK 7.81, forint 190, zloty 2.9775, koruna 19.07, yen 90.50, baht 34.60, sing 1.4390, HKD 7.75, INR 48.80, China 6.8275, pesos 13.81, BRL 2.3325, dollar index 81.27, Oil $39.90, Silver $10.85, and Gold... $863.15

That's it for today and this year! Well... Another year... I always begin New Year's Eve on a solemn note, as it was this day 10 years ago that my mom passed away. And it's time to reflect before bringing in a new year... Here's a poem that I think hits it on the head...

Looking back on the months gone by,
As a new year starts and an old one ends,
We contemplate what brought us joy,
And we think of our loved ones and our friends.

Recalling all the happy times,
Remembering how they enriched our lives
We reflect upon who really counts,
As the fresh and bright new year arrives.

And when I ponder those who do,
I immediately think of you.

Thanks for being one of the reasons I'll have a Happy New Year!

I found that on the internet and it struck a chord with me... Let's see my fave chord, cmaj7!

So... If you go out tonight, please be careful... As my dad used to say, "This is Amateur Night"...
Be CAREFUL OUT THERE! And... I'll see/ talk to you NEXT YEAR!

OH, and have a Wonderful Wednesday!

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

Wild Swings!

Chuck Butler — Tue, 30 Dec 2008 15:35:10 GMT

.........But First, A Word From Our Sponsor..........
Gold and silver prices are down.

Invest for as little as $5,000, avoid costly broker commissions, and receive account statements every month.

In This Issue..

* Euro gains, then loses, then gains...
* Inflation and Commodities...
* The euro turns 10!
* Risk Aversion remains but is waning...

And Now... Today's Pfennig!

Wild Swings!

Good day... And a Terrific Tuesday to you! Well, it happened way too late for yours truly to witness it, but my beloved Missouri Tigers rallied and won the Alamo Bowl in overtime. Go Tigers! Hopefully they can fix the defense before next fall!

OK... Remember those Wild Swings I talked about yesterday? The Wild Swings that could be a result of thin volumes in this the second week of Christmas. Well... We witnessed them in earnest yesterday! As I signed off yesterday, I told you that the euro had rallied 2 whole figures to 1.43 and change. Well, that rally dissipated throughout the morning, and by late in the day the single unit was 1.39 and change... WOW! Now that's a Wild Swing!

You can point to profit taking as the reason for the move, and with the volumes thinned out by Holiday trading, one profit taking sell begot another, and before you knew it, the euro was looking at a loss on the day.

But don't despair, as the single unit has rallied back overnight. Back to the high 1.41 handle, in fact when I arrived it was 1.4205! Wild Swings... I keep saying Wild Swings and every time I type it I want to say Wyld Stallyns, the name of Bill and Ted's band in their Excellent Adventure move... "Ted, while I agree that, in time, our band will be most triumphant... Hey! That's righteous... Excellent!

OK, enough of that silliness... I had some guy tell me that I should stop the silliness and just report the news, that the silliness was making me look foolish... Well! If I couldn't go off on these silly tangents then I wouldn't write the letter! It's what I do! It's my style! It's me! And I wouldn't change a thing!

So, back at the ranch... The fighting in the Gaza Strip continued yesterday, and those fears of disrupted oil supplies to the U.S. are once again on the minds of currency traders this morning. You know, I said this a few weeks ago, and it needs to be repeated, especially now with these fears of disrupted oil supplies. Can you imagine what this whole recession and financial meltdown would look like if Oil had remained around $100 a barrel? The drop in the price of Oil would always be welcome at my house, but even more with the U.S. economy staring straight the nose of a .44 that has recession written all over it!

This collapse in the price of Oil has other consequences... For those of us that need gas for our cars the collapse is manna from heaven. But for the Canadian dollar / loonie, this collapse has been a shot to the mid-section, bowling over the loonie and leaving it in a fetal position on the canvas. Yes, the shot to the mid-section was that devastating for the loonie, but wait! That's not all (why do I feel like Billy Mayes here?) The loonie also had to contend with falling interest rates and Commodity prices overall that collapsed... That's one, two, three strikes you're out at the old ball game!

But, I still think the loonie can improvise, overcome, and adapt, (to borrow a line from Clint Eastwood) once inflation begins to creep into the markets again.

OK, I can hear every mother say, "that's not going to happen any time soon, Chuck"... Well, maybe not, but I can tell you this... U.S. Consumers might be turning into "savers" once again, but they won't / can't stay that way. It's not in our blood! We bargain hunters, and let me tell you about the bargains that will be out there in all the assets that have suffered from asset price deflation! They will be at "can't pass that up" levels, and the U.S. consumer will eat up those levels like kids eat up cake! And after all this recession has taken its toll on businesses, that have closed up or slowed production to snail's speed, that's where the inflation comes in... Money chasing not enough goods... Think about that...

That will also mean that the U.S. Fed will be behind the inflation eight ball once again, as they won't see it coming, and will be so focused on getting out of the recession, that they'll keep interest rates too low for too long once again, and that will speed the inflation rate along to high levels once again.

Well... That was quite the discussion, eh?

I saw a story by the Wall Street Journal talking about how Japan's NIKKEI had fallen 42% this year... I wondered why did the WSJ pick on Japan? It's not like the NIKKEI was the only stock market to suffer this year... A quick look at the roster shows the Dow down 36%, NASDAQ down 43%, and S&P 500 down 41%, the German DAX down 41%, the FTSE down 33%, and so on... Stocks had one very bad year... I don't see that reversing any time soon either, folks. Globally, Corporations are going to be posting some very ugly returns in the 4th QTR, and that should show up in stock prices...

When we turn the calendar to 2009, the euro will be celebrating it's 10th birthday! WOW! Has it really been that long already? In 10 short years, the euro has done things its creators never thought it could do in 10 years... To have gained 26% of the world's currency reserves in 10 short years... To reach parity to the dollar and then move to 1.60 in 10 short years... To be within spittin' distance of parity to the pound sterling in 10 short years... Europeans, even including those in Spain, which is one of the countries naysayers like to point to as one that will break away from the euro. 70% of the Spanish that were polled, believe the euro will overtake the dollar as the World's reserve currency...

OK... Don't know what those crazy Spanish are smoking, but you can't complain about the euro, and the European Central Bank, and then promote the currency as the world's reserve currency... I guess the rumors of Spain's want to leave have been greatly exaggerated, eh?

Well, the Aussie dollar (A$) has found a base around 65-cents, and is knocking on the door to 70-cents... I would think that given Gold's rise, 70-cents would be the top for now... But if Gold can take the next step to $900 and beyond, then the A$ will have support to move higher than 70-cents. And the A$'s kissin' cousin across the Tasman, kiwi, looks like it is in a range between 55-cents and 60-cents... If the A$ does follow a rise in Gold, kiwi would grab the coattails of the A$...

It's all tied to "Risk Aversion"... If Risk Aversion continues to hold a grip on the markets because of the Credit Crisis, then Commodities as a whole can't take off on any extended rally, and that keeps the currencies in check too. I do see less Risk Aversion in the markets these days than I saw in October and November, but it remains there like the relative that comes to stay for Christmas and doesn't leave!

The Gaza Strip fighting doesn't do anything to eliminate the Risk Aversion trades, but does lend a hand to the rise in Swiss francs. The franc is still seen as a "safe haven" currency. We had a few people sell francs yesterday on some story they read about Switzerland's economy mirroring Iceland's... Yeah right! OK, I'm not in Switzerland, and don't have the on the ground experience there, but that sound pretty strange doesn't it?

Long time readers might recall when I used to give the weekly updates of the IMM futures positions in the currencies. This was one way of watching the demand for a currency, or the lack of demand in short positions in a currency. I stopped because at one point it was getting crazy each week. But, I never stopped watching them... And I noticed something last week... Dollar short positions, the previous week, stood at $238.3 million... But last week they jumped to $559 million, with positions in yen, euro, franc, loonies and A$'s all increasing... Hmmm...

A friend / colleague in Jacksonville sent me a story in the WSJ yesterday regarding this Russian dude that has predicted the fall of the U.S. He first predicted it in 1997, and said the U.S. would fall by 2010, with sections of the country going to different countries. This is all crazy stuff folks, but if you want to read it, put away the sharp objects, and click here: http://online.wsj.com/article_email/SB123051100709638419-lMyQjAxMDI4MzIwOTUyMTkxWj.html

Now... I'm not even buying one word of what this guy is saying, and liken him to Iben Browning, you know the guy that predicted the massive earthquake in the 80's? But found it interesting that he wrote his first thoughts on this in 1997...

The Chinese renminbi is back to its old tricks of barely registering gains on the scale... But at least they are gains! The renminbi's gains this year will come in around 7%... Hey! That's better than losing 43% in the NASDAQ! The currency was on pace to gain more than 10% this year until the recent goings on... I suspect the Chinese currency officials will continue to allow the renminbi to gain, but not down a One-Way Street. So expect setbacks along the way...

Currencies today 12/30/08: A$ .6925, kiwi .5780, C$ .8135, euro 1.4180, sterling 1.4510, Swiss .9455, ISK 145.50, rand 9.4940, krone 6.9660, SEK 7.7250, forint 188, zloty 2.9325, koruna 18.75, yen 90.15, baht 34.75, sing 1.4410, HKD 7.75, INR 48.48, China 6.8309, pesos 13.70, BRL 2.3540, dollar index 80.55, Oil $39.15, Silver $10.81, and Gold... $871.75

That's it for today... Whew! Long day yesterday, I'll have to see what I can do about that today! HA! I was looking for my little buddy, Alex, to watch the Mizzou game with me last night, and he was "not going to watch it, Dad, they lost to Kansas!" After explaining that if it's your team, you root for them win, lose or draw, he watched it with me... He has no recollection of the football depression of the 90's at Missouri. He only knows about their return to prominence. So a loss to Kansas is devastating to him. To me, I lived through the football depression of the 90's, nothing devastates me about Missouri Football! Well, Mary Owens is here, so I must be running late again, already on my second day back. UGH! That's OK, because tomorrow I'll be even later! You see, tomorrow is New Year's Eve, and if I have any intention of staying up to midnight, I will NOT be getting up when I normally do... So, expect the Pfennig a little later tomorrow morning... Time to go... I hope your Tuesday is Terrific!

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

Fed brings rates down to near zero...

Chuck Butler — Wed, 17 Dec 2008 15:36:22 GMT

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

New 5-currency Index CD from EverBank®. Apply today.

The new Debt-Free Index CD is comprised of equal parts Singapore dollar, Japanese yen, Swiss franc, Australian dollar and Brazilian real. Why these currencies? All 5 economies have a strong balance of payments-a factor that could aid performance against the U.S. dollar.

Of the 5 economies, only Australia has a trade deficit-and the gap appears to be narrowing. Concerned about investing in a weak U.S. dollar? Consider this new Index CD, it is available in 3- and 6-month terms with a $20,000 minimum deposit. Apply today at http://www.everbank.com/001CurrencyCDIndex.aspx?referid=11080.

This CD is FDIC insured against bank insolvency, but please keep in mind that you could lose principal as a result of currency fluctuation.

EverBank is a Member FDIC and Equal Housing Lender.

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

In This Issue..

* The Fed fires its last bullet...

* Euro breaks back above $1.40...

* AUD and NZD rally...

* Happy Birthday Jen...

And Now... Today's Pfennig!

Fed brings rates down to near zero...

Good day... The 'noise' from the street which I wrote about yesterday turned out to be correct, as the FOMC cut 75 basis points to put the Fed Funds target at .25%. The US now has the lowest interest rates in the industrialized world, even below those in Japan. The dollar lost ground quickly after the announcement and continued to fall overnight to a 13 year low vs the yen and the weakest vs. the Euro in 4 months.

With both Chuck and Frank out of the office, I fielded the calls from reporters after the FOMC cut, and the most popular question asked was what the near zero interest rates would mean for the man on the street. Well it was great news for those on Wall Street, but I told the reporters that the rate cut really wouldn't have much of an impact on US consumers. After all, interest rates at 1% weren't stimulating the banks to start lending so why would .25% rates cause any change?

Fed Funds have been trading at around .25% for some time, so this move by the Fed simply moved their target rate closer to the actual market. In addition, the Fed can't really impact the Libor rates, which most loans are now tied to. So yesterdays interest rate move was largely for cosmetic purposes. Chuck was sick with the flu yesterday, but sent me a quick note after seeing the news from the Fed.

"So... The Fed goes 75 BPS... Japan now has higher interest rates than the U.S.! How is that possible? How many times must I repeat that it's not the COST OF THE CREDIT... IT'S THE AVAILABILITY OF THE CREDIT! That's causing the Credit Crisis!

Well... I saw yen trading below 90 yesterday, less than 5 whole figures from the 85 that I said yen could trade to 2 years ago... I know, I'm always early on these things! There was good news from the Japanese Ministry of Finance (MOF) yesterday... Seems they are not interested in intervening right now... The MOF's head guy, Nakagawa, had this to say...

"We're not considering intervention at all at this time," Nakagawa told reporters in Tokyo today. I'm not that concerned about today's yen moves."

When I woke up last night to look at the currencies... And what to my wondering eyes did appear, but the euro trading very close to 1.41! Oh, those of little faith and patience that sold into the weakness, like catching a falling knife!"

Yes, all of the WorldMarket investors who claimed to be 'long-term' but bailed out after the dramatic dollar rally are probably kicking themselves right about now. Markets like these are a great illustration of why investors need to stick to their diversification strategies, and not try to time the markets.

So Chairman Bernanke has used up all of his remaining ammunition for the main weapon against the economic crisis, and now has to move to other less proven methods to combat the crisis. These 'quantitative' easing methods which the Fed will now use are unproven, but they are all that they have left. The Fed pulled the first new weapon out yesterday with a pledge to buy unlimited quantities of mortgage backed securities. They hope that by purchasing these securities, they will be able to force mortgage rates lower. But as Chuck points out above, it isn't the cost of credit, but the availability that is the big problem.

The problem with these new untested financial weapons is that their longer term impacts are not known. I can assure you of one thing, the new methods suggested by the FOMC will all lead to higher inflation. Most of the press surrounding the announcement suggested that inflation is no longer a problem. And the data released yesterday supports this view, as CPI fell 1.7% MOM in November, bringing the annual change in core prices to just 2%. So US policy makers have decided to concentrate on getting the US economy growing again, with no consideration of the long term inflationary effects of their policies. The Fed is pushing the printing presses to their limit, and while oil prices have kept prices down for now, inflation is still alive, and is waiting just around the corner.

The value of the dollar fell across the board yesterday, but the yen was the biggest mover falling to 88 yen/dollar. The latest move puts the total yearly appreciation of the yen at 26% vs. the US$. Japan's Finance Minister threw water on the yen's rally said the government is prepared to take steps to help their economy. But we haven't seen any intervention this morning, so the yen has held onto its gains.

Australia's dollar rose to a two month high and the kiwi gained on purchases by investors looking for higher yields. Currency markets are starting to return to trading on fundamentals, and interest rate differentials are one factor which traditionally determines currency rates. It looks like the AUD$ has a green light to move back toward .75 while the kiwi will probably move above .60 before year end.

The currency markets rallied dramatically as they seem to have finally come to the realization that the US dollar is not the 'safe haven' which they thought. Many of the stories and opinions which are now coming across my desk suddenly agree with what we have been saying for some time, that the fundamentals of the US dollar are very weak.

Currencies today 12/17/08: A$ .6915, kiwi .5788, C$ .8263, euro 1.4060, sterling 1.5285, Swiss .8971, ISK 177.82, rand 9.9574, krone 6.7496, SEK 7.8235, forint 189.35, zloty 2.9103, koruna 18.718, yen 88.79, baht 34.57, sing 1.4575, HKD 7.7501, INR 47.6575, China 6.8357, pesos 13.01, BRL 2.346, dollar index 80.20, Oil $44.02, Silver $10.98, and Gold... $855.05

That's it for today... Sorry for the short Pfennig today, it wasn't for a lack of material, but I am having to type with one hand this morning. As I wrote a month ago, I am remodeling our basement, and my wife has set Xmas eve as my deadline. Last night I was working on putting in some baseboard and tore my left hand up pretty good with a miter saw. I spent a good part of my night in the emergency room, and will head to a plastic surgeon later today. Needless to say, I finally succumbed to my wife's suggestions and a contractor is headed to my house this morning to finish things up.

Before I sign off, I want to wish my co-worker and good friend Jennifer a happy birthday!! Jen is our trader when Chuck is off the desk, and I've worked with her for close 15 years. In honor of Jen's birthday, we are having a food day today. You got to love food days!! Hope everyone has a Wonderful Wednesday!!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

TARP Testimony Today...

Chuck Butler — Tue, 18 Nov 2008 16:03:29 GMT

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

Gold and silver prices are down.

Invest for as little as $5,000, avoid costly broker commissions, and receive account statements every month.

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

In This Issue..

* What will Paulson say?

* Dollar remains well bid...

* How long for Safe Haven buyers?

* G-20 Schmee 20!

And Now... Today's Pfennig!

TARP Testimony Today...

Good day... And a Terrific Tuesday to you! I've been away for a few days to deal with something, I want to thank Chris once again for taking the conn on the Pfennig since last Thursday. He'll get it again at the end of this week and the beginning of next week, as I hope to get to Marco Island for the Wealth Masters Conference.

Well... Nothing has changed since I left you last Wednesday. The awful economic data just keeps piling on, and the dollar gets bid up on safe haven purchases. We did see the Eurozone and Japan announce that they are in a recession... Chris was kind enough to leave me the following, so here's some more Chris....

"The dollar weakened slightly after the US Industrial production numbers showed a rebound in October. The 1.3% monthly gain sounds great, but it followed September's drop of 3.7% due to the Gulf Coast hurricanes. After adjusting for the effect of the hurricanes and a strike at Boeing, output dropped .7 percent during each of the past two months. The trend continues to be very weak, and the recession which currently grips the US is now expected to last through 2010.

The US was rescued from the last two recessions by US consumers, who continued to borrow and spend right through the previous slowdowns. But we can't count on consumers to pull us out of this one. Plummeting home values, dwindling incomes and the near disappearance of credit have proved a potent mixture for the US consumers. The number of personal bankruptcy filings jumped nearly 8 percent in October from September. Filings totaled 108,595, surpassing 100,000 for the first time since the bankruptcy laws were changed in 2005. The number of filings were up nearly 34 percent from October 2007, and are expected to total over 1.2 million for the year.

Not only are bankruptcy filings up, but most filers have much more credit card debt than in years past. A recent study found that the typical family who filed for bankruptcy in 2007 was carrying about 21 percent more in secured debt, and about 44 percent more in unsecured debts like credit cards than those that filed in 2001. Don't count on US consumers to rescue us this time, so who will? Pelosi and President elect Obama are already talking about increasing government spending to try and borrow and spend our way out, but any stimulus or massive government projects will only add to the overall debt and increase the deficits. We are already being crushed by our debt load, and increasing it won't be a long term positive for the US. The dollar continues to be propped up by safe haven purchases and the global deleveraging, but this dollar strength can't continue. Once we return to the underlying fundamentals, the dollar will fall."

OK... Thanks once again, Chris!

The BIG NEWS today should come in the form of a testimony by Treasury Sec. Paulson, regarding his TARP... This should be interesting folks... You see there is a whispering campaign to withdraw the "blank check" that lawmakers gave to Paulson and Fed Chairman, Big Ben Bernanke, and any attempt to not fully disclose the details of what has been given out to date, or... Any more changing of horses in the middle of the stream, could cause a ruckus. It could also cause the safe haven boys and girls to go "all in" on their safe haven purchases, because, it will be just like last week, when Paulson did change his course for the $700 Billion bailout money, and the blanket of "unknown" was cast upon the markets, and the risk takers ran for the hills.

In other words... The Trading Theme that is in place that rewards the dollar when things look darker in the U.S. will be working overtime, buying dollars...

For the sake of honesty... And not that I'm cheerleading the currencies (I get real tired of this... Recently I've had some readers turn on me and accuse me of "knowing nothing" and being nothing more than a "cheerleader") Come on! Can't you see the forest from the trees? This is simply telling it like it is... WE have a HUGE deficit problem, and unless you are willing to begin paying taxes that amount to about 75% of your income to pay the deficit down, then we need to get the dollar weaker now, for that's the only way we're going to be able to pay down the interest alone on these debt obligations is with a cheaper dollar! So, yes, I push for that dollar to get weaker now, so that the tax obligations of my kids and grand kids aren't oppressive!

OK, sorry but I had to get that off my chest... So, for the sake of honesty, let's hope Paulson comes to the lawmakers with a cup of honest, and let the chips fall where they will. Oh! And yesterday, the Wall Street Journal reported that Paulson is unlikely to launch new bailout (the used "rescue" but we all know what it is!) programs, saving his unused horde of cash to hand over to the new Treasury Sec. and say, "here you go, spend it wisely, but just between you and me, this isn't enough to help anything"

Judging from happened in the overnight stock markets, with the risk takers nowhere to be found, the consensus being the overnight markets don't believe Paulson will deliver the goods, and stocks sold off in Asia and early Europe... I suspect that the U.S. market will take a cue from those overnight markets as well, at least until Paulson talks... And the Dow only has 273.58 points to give before falling below 8,000... UGH!

All those "Safe Haven buyers" must really be "scaredy cats" because as I look at the bond screens, I see that you will get 13 basis points for a 3-month T-Bill, and 80 basis points for a 6-month T-Bill... By the time the broker takes his fee or commission you are left with nothing! So, that's the same as putting the money under your mattress or stuffing it in coffee cans and burying it in the back yard! And, if you want to talk long notes and bonds... Well, you'll have to go to the 30-year bond before you can get yield that comes near to covering the inflation rate! Uh-Oh! Negative real earnings for the "safe haven buyers"...

How long can that continue? How long... Can this be going on? How long... Can this be going on? How long are these guys and girls going to accept negative real earnings? That's the $64 question... But, I have to believe that once these "safe haven buyers" decide that they've had enough, the unwinding will go very quickly, and the whiplash we'll receive from watching yields turn around will hurt!

And, with the unwinding of the "safe haven buys" one would think that the dollar gets put on it ear once again... That is unless there's a new "hoola-hoop" for investors to move into... But since there's no "hoola-hoop" to speak of, and probably won't be, given the fact that the regulators will be scrutinizing "new instruments" to make sure they "don't get fooled again"...

Did you see the news yesterday that Citgroup plans to cut 50,000 jobs? That's just awful! And if true, will be the latest jolt to Wall Street! Chief Executive Vikram Pandit addressed employees in a town hall-style meeting Monday morning, giving them the bad news. These job cuts won't take place overnight... And that they plan to be finished with them by the 3rd QTR of 2009.

The data cupboard today will give us a look at the Producer Price Index (PPI) (wholesale inflation), which is expected to fall from previous printings, as Oil prices have fallen faster than anyone and I mean anyone could have imagined. We'll also see the TIC Flows (net security purchase by foreigners) for September... This data should see some improvement, but remain well below the figure needed to finance the current account deficit.

Yesterday, Capacity Utilization printed for October, and improved (on first glance, wait for the revision) on September's revised downward figure of 75.5%... Capacity Utilization has long been a fave piece of economic data of mine due to the fact that it is one of the very few / rare pieces of data that is forward looking. Capacity Utilization weakness was one of the factors I used in calling the recession in the U.S. back in January. Capacity Utilization and the ISM Index (manufacturing)...

So, how about that stirring communiqué' from the G-20 crowd! I was moved! The chills went down my spine, my eyes filled with tears of joy, it was something to behold! Oh? They didn't do all that? I must have been dreaming, eh?

What a joke! These leaders from around the world met and didn't come up with anything other than rhetorical direction only? Fire them all! Throw the bums out! This is ridiculous! It just shows me that they are probably more interested in pointing fingers than actually agreeing to work together to deal with this global problem.

So... Look for more of the Trading Theme today, folks. The deeper, darker, more dangerous clouds are moving back in over the U.S. economy.

Currencies today 11/18/08: A$ .6465, kiwi .55, C$ .8115, euro 1.2635, sterling 1.5040, Swiss .8345, ISK 182, rand 10.2850, krone 7.0180, SEK 8.0425, forint 214.40, zloty 3.0475, koruna 20.4280, yen 96.10, baht 35, sing 1.5270, HKD 7.75, INR 49.65, China 6.8280, pesos 13.22, BRL 2.3215, dollar index 87.07, Oil $54.80, Silver $9.35, and Gold... $736.75

That's it for today... This summer I began to have a vision problem in my left eye, but having been to the eye doctor and being told about floaters, I figured it would go away. And it did for about 3 weeks... But then came back, and this time was worse, the eye was cloudy. So I went to the eye doctor again, and this time was told I had a mass behind my eye that was causing the problem. Last Thursday, I spent the day at a Cancer Center dealing with this mass that is attached to the back of my left eye. The procedures involved a laser and a shot, which resulted in some massive pain... This is just a setback folks. The doctor believes my vision in that eye will be saved, and that's all I know for now... I had to live like a hermit for 5 days because of the dye they put in me, so here I am... Back in the saddle... I know that I'm in good hands...

My beloved Missouri Tigers got out of Dodge with a win on Saturday, as their recent trips to Ames, Iowa haven't been good, but they prevailed this time, and are Big 12 North Champions for the 2nd year in a row! They still have the border war with main rival, Kansas, in two weeks, which they need to take care of before playing in the Big 12 Championship Game. I took my family to the Big 12 Championship Game in San Antonio last year... This year the game is in Kansas City, I think I'll stay at home in the warmth of the house and watch it on TV! OK... Mike's here, so I must be running late... I hope Your Tuesday is Terrific!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Data shows just how bad things are...

Chuck Butler — Fri, 14 Nov 2008 18:38:37 GMT

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

Gold and silver prices are down.

Invest for as little as $5,000, avoid costly broker commissions, and receive account statements every month.

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

In This Issue..

* Data shows just how bad things are...

* Trade deficits narrow...

* EU confirms they are in a recession...

* RBA intervening again...

And Now... Today's Pfennig!

Data shows just how bad things are...

Good day... Chuck asked me to go ahead and write the Pfennig this morning, but I got a late start, so this one will be short. We finally had some data releases here in the US which look to steer the markets, so I'll just get right to it.

The dollar continued to strengthen yesterday after another round of bad weekly employment figures. Initial jobless claims increased to 516k during the first week of November, and last weeks numbers were revised up to 484k. The employment picture continues to darken here in the US, and it doesn't look like it will improve any time soon. This is just what the US consumers don't need right now. Not only are most consumers living paycheck to paycheck, but now many of those paychecks are being ripped out of their hands.

Personal bankruptcies are heading into record territory, and job losses will only make this worse. While the total size of the consumer credit market is dwarfed by the size of the mortgage market, with home loans there is an underlying asset providing some base from which banks can work. Credit card debt is different, the banks and investors who hold this debt have no underlying assets to fall back on. This fact has not been missed by the current administration, and Treasury Secretary Paulson is now looking to spend some of the bailout package to try and help out the consumer lenders. Unfortunately it looks like we will be taking another step into the deep dark area Chuck has continually talked about.

This morning we got the retail sales numbers here in the US which showed a further deterioration. Retail sales less autos were down 2.2% in October, almost double economist's expectations. This fall is the largest monthly drop ever, and is just one more sign the US economy is heading for a doozy of a recession!

We did get some good news yesterday morning as the trade deficit narrowed somewhat, a result of a stronger dollar and lower oil prices. But even after the narrowing, we are still running a deficit adding to our need to attract foreign investments. Chuck let me have a sneak preview of December's Review and Focus the other day before he sent it to the printer. In the latest issue, he talks about our need to finance the twin deficits which the US continues to amass. This financing need is one of the factors convinces me the US dollar will have to get weaker. The current dollar strength will not last, and once the 'flight to quality' buying of US Treasuries subsides, we will see the US currency return to its long term decline.

As I said earlier, the dollar continued to strengthen yesterday morning as the stock market fell. But both reversed course early in the afternoon after Paulson started talking. The Treasury Secretary said the big 3 auto makers should receive some government help, but he isn't willing to take any of the funds already approved by congress to help them. Instead, he urged congress to come up with additional funds to help the car makers. He also said he would look to try and spend some of the already approved rescue package on 'non-traditional' lenders who give loans directly to consumers. Looks like Paulson is finally realizing what we have been saying for a while now, that the next big crisis is the consumer credit crunch.

Anyway, just after the news came across the wire about Paulson's remarks, the stock market jumped 400 points and the euro bounced up over two cents in the matter of a few short minutes. The dollar has really become a contra indicator for the risk appetite in the market. The dollar index and the stock market have moved in opposite directions 88 percent of the time since the beginning of September. As investors feel more comfortable with risk, they sell the short term dollar holdings and invest them into other markets. The Europeans have started to take the dollar back up this morning, but it remains lower than at this time yesterday.

The Europeans are taking the euro down after it was confirmed that the European economy fell into its first recession in 15 years during the third quarter. Germany had already reported a third month of negative growth, and the European Union confirmed the GDP shrank .2% in the 15 euro nations during the third quarter. France, Europe's second largest economy, unexpectedly grew in the third quarter as consumer spending gained and exports rebounded. I am still convinced that while things are bad across the pond, Europe's economies are still in better shape than the US economy. And while some here in the US have given the ECB trouble about not lowering interest rates as quickly as the US; I believe they have done a better job navigating the current crisis, and Europe will be able to recover more quickly than the US.

And finally, the RBA was in the markets protecting the Australian dollar again. Lately, the RBA is intervening to hold the AUD$ up while there are rumors the Bank of Japan may start intervening to stop the appreciation of the yen. Officials at the Swiss National Bank have also been complaining about the rise of the Swiss franc. Both the Japanese yen and Swiss franc continue to strengthen as investors reverse carry trade positions. So we have a couple central banks intervening to hold their currencies down, and others who are intervening to try and keep theirs from falling further. Crazy Times!!

Currencies today 11/14/08: A$ .6585, kiwi .5595, C$ .8188, euro 1.2671, sterling 1.4738, Swiss .8409, ISK (No Quote), rand 10.152, krone 6.890, SEK 7.894, forint 213.42, zloty 2.9408, koruna 20.015, yen 96.39, baht 34.97, sing 1.5184, HKD 7.7501, INR 49.01, China 6.8250, pesos 12.97, BRL 2.30, dollar index 86.89, Oil $58.25, Silver $9.65, and Gold... $747.24

That's it for today... Rainy day here in St. Louis, tonight it is supposed to get a bit colder so this rain will likely turn into our first dusting of snow. My wife, Tina, took off to Colorado with her girlfriends last night, so I will spend the weekend playing chauffeur for our two kids. I hope all of you have a Fantastic Friday and a Wonderful Weekend!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Paulson throws the markets a curve...

Chuck Butler — Thu, 13 Nov 2008 15:45:59 GMT

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

New 5-currency Index CD from EverBank®. Apply today.

This CD is FDIC insured against bank insolvency, but please keep in mind that you could lose principal as a result of currency fluctuation.

EverBank is a Member FDIC and Equal Housing Lender.

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

In This Issue..

* Paulson throws the markets a curve...

* Goldman says to buy the yen...

* RBA intervenes to protect the AUD$...

* China provides support to commodities...

And Now... Today's Pfennig!

Paulson throws the markets a curve...

Good day... Chuck is out today, so I get the opportunity to share some of my thoughts on the markets. As many of you know, I spent most of last week in Washington DC giving presentations at the Money Show. On the way to the hotel, the cab driver who had noticed my EverBank luggage tag asked if I was a banker. He said he had seen a lot of us lately. I guess I was one of the few bankers flying into Washington DC who wasn't heading over to the Treasury Dept. to get some of the cheap money they are passing out. I had a great trip to Washington and really enjoyed the opportunity to spread the word about EverBank and the protection that portfolio diversification provides.

I don't think Treasury Secretary Paulson is having as good a time as I did in the nation's capital. When he came down from NY a couple years ago to take over the Treasury, he was Wall Street's best paid CEO and looked to cap his career with a high-profile sojourn in public service. But his credibility has really taken a hit over the past year, and his update before congress yesterday didn't quite go as everyone expected. Chuck left me the following to share with readers this morning:

"Yesterday I told you that Treasury Sec. Paulson was going to give an update on the bailout package... And instead of an update, he threw the markets a great big 12-6 curveball! Treasury Sec. Paulson laid out his plans for the next stage of the financial market rescue package, announcing he has shelved a plan to buy troubled mortgage assets and is moving his attention to non-banks and consumer finance.

And... in a striking admission, Paulson said that buying mortgage assets "is not the most effective way" to use government funding. Geez Louise! I could have saved him, Congress, and the whole country a lot of time and stress on this if he would have just listened to me at the time! I said when it was first announced that the Gov't had no business buying up these troubled assets, and getting involved in what used to be known as "free markets"! He's changing horses in the middle of the stream! What gives? And... All this unknown stuff now, put the Trading Theme in overdrive, buying dollars in the deep, dark days of the U.S. economy!

There's a silver lining here folks... And I believe that Sec. Paulson is seeing the seized up credit markets unlock. This development might just be nascent, but he believes it's there. And when this problem with the credit markets eases, a return to the fundamentals could very well be in store. In fact, I would bet a dollar to a Krispy Kreme, those fundamentals are going to come home to roost once this credit market problem is in our rear view mirror.

Now, back to the bailout package... Now, the Treasury Sec. wants to put the government's money toward unlocking student loans, credit card receivables, and auto loans... Some are calling this move a U-Turn, but in essence it isn't... Before the Gov't was going to buy toxic bonds made up of residential home loans... Now, they will be buying bonds made up of consumer loans, which in my opinion may end up more toxic than the first choice, given the fact that we're in a recession and the recession will work out to be one that is protracted.

While these things "might" get the credit markets unlocked, they might miss the mark too, and until we get these credit markets unlocked, the markets focus will remain on the crisis and not return to focusing on the awful fundamentals in the U.S. economy. These awful fundamentals need to rise to the top again for risk takers to come back, and until the risk takers come back, currencies and commodities like euros and Gold, will continue to be put into a corner by the dollar.

We get a new Treasury Sec. in January when the new administration takes over... The new Treasury Sec. will have their hands full for sure!

On the side... OK.... Yesterday morning... I looked up to the TV and saw that knucklehead Jim Cramer on the Today Show... I swear.. He said this to Meredith... "I have been honest on this show, Meredith, and I "try" to be honest on my show"... He Tries to be honest? OMG!"

I agree with Chuck, whoever decides to take over as the new Treasury Secretary will certainly have their work cut out for them. I've heard they may bring back Volker to take over for Paulson. That would be an interesting choice, as he has 'been there, done that' crushing inflation during the 1980's. But his high interest rate policies which he pushed caused the US to dip into a deep recession, and he also played an important role in bringing the US off the gold standard back in the early 70's. Even if he doesn't take the Treasury position, Volcker is one of Obama's advisors, and will certainly have some influence on the new administration's monetary policies.

Paulson's curve ball put the markets in a sell mode, with investors moving back into the relative safety of US treasuries and money markets. The dollar strengthened after his bombshell, but started to fall again in Asian trading. The Japanese yen which has been one of the most volatile currencies, rose to a two week high against the euro after Paulson's curve caused cuts in purchases of higher-yielding assets. But the yen reversed some of yesterday's sharp gains overnight as currency traders worried about BOJ intervention. These concerns were heightened by comments from Japanese Finance Minister Nakagawa who warned that Japan would protect the yen against sharp volatility.

Despite the prospect of intervention, the yen remains a buy according to a report by Goldman Sachs group. Goldman believes the yen will strengthen 6 percent against the US dollar due to a continued unwinding of the carry trade. The dollar will weaken to 90 yen in three months, before gaining to 100 yen six months from now, Goldman said. "Deleveraging and funding constraints have likely created a new source of foreign-exchange demand and supply," the Goldman analyst wrote. "We expect deleveraging patterns to continue into year-end, driving the dollar and yen stronger and putting pressure on higher-yielding currencies." As readers know, Chuck has been talking about this carry trade reversal for some time, and we agree that this reversal will likely last through the end of the year and into the 1st or 2nd quarter of 2009. Look for further dollar strength during this time period, but watch out below once the dollar reverses course.

The reversal of the carry trades has led to a fall in the value of the Australian dollar, a move which accelerated yesterday. The currency drop became too much to bear for the Reserve Bank of Australia who intervened in the markets to protect the AUD$. An RBA spokesman confirmed the central bank bought its own currency, putting a floor under the currency after it dropped over 2 cents yesterday morning. This intervention is a good sign that the RBA is now concerned with the value of the Aussie dollar and won't let it slip too much further than the current levels. With the RBA's support, and the possibility of a bottoming of commodity prices, these could be excellent levels to buy into the Australian dollar.

The German economy, Europe's largest, contracted more than economists expected in the third quarter, pushing the nation into the worst recession in at least 12 years. German GDP dropped a seasonally adjusted .5% from the second quarter, when it fell .4%. The economy is officially in a recession, as it has now contracted over two consecutive quarters. Traders increased bets that the ECB will reduce interest rates. The euro had been sold off before the announcement, hitting a low of 1.2389 vs. the US$, but then rallied back above $1.25 in early US trading.

This week has been a pretty slow data week here in the US, but today we have two important releases. The US trade deficit probably narrowed in September as retreating oil prices reduced the value of imports. The sharp increase in the value of the US$ over the past 6 months has also helped reduce our trade deficits. But I don't think the commodity price slump will last, and also believe the US$ will turn back around sometime next year. So this narrowing of the trade deficit won't last. We will also get the weekly jobs report today, which will likely show another big bounce in first time filings for unemployment. The labor market in the US is bad and getting worse, and I would be surprised to see a number below 500k for the weekly initial jobless claims. This is one of the factors which caused the Treasury Secretary to reverse course on the bank bailout, as he now moves his focus to the growing consumer credit crisis.

We talked about China's big stimulus package earlier this week, and the impact it will have on China's US$ reserves. But the stimulus package will have another impact on the markets. Most of the $586 billion stimulus will be focused on infrastructure building projects. These projects will mean China will continue to import large amounts of copper, iron ore, cement, and other building materials. They will also continue to demand a greater supply of oil and feul. This new demand will help offset some of the drop in commodity demand from the slowing western economies. Commodity prices have fallen dramatically as traders priced in the global slowdown. But China's economy is still the fastest growing among the world's 20 largest, with a growth rate close to 8 percent, and this latest stimulus announcement should cause a bounce back in the prices of these commodities. The countries supplying China with raw materials should also benefit, including the currencies of Brazil, Australia, and Canada, all of which have been beaten down lately.

Finally, Chuck let me know some great news for our St. Louis readers: There's going to be a screening of Addison Wiggin's movie, I.O.U.S.A. here in town... The screening will be Nov. 18 at the Missouri History Museum, part of the Community Cinema Series, co-sponsored by KETC and the History Museum. "I.O.U.S.A." will be shown at 7, followed by a panel discussion.

Currencies today 11/13/08: A$ .6389, kiwi .5557, C$ .8113, euro 1.2535, sterling 1.4838, Swiss .8404, ISK (No Quote), rand 10.3166, krone 7.096, SEK 8.0703, forint 215.51, zloty 2.9765, koruna 20.095, yen 96.03, baht 34.99, sing 1.5119, HKD 7.7501, INR 49.2925, China 6.8298, pesos 12.97, BRL 2.305, dollar index 87.43, Oil $56.81, Silver $9.41, and Gold... $717.66

That's it for today... Got to go now so I can call into the quarterly EverBank officer's meeting. It really is great working for EverBank, we continue to do very well and maintain our health in a very difficult banking environment. We just announced record growth in deposits and earnings here at EverBank. It truly is a great day at EverBank!! Hope everyone has a Tub-thumpin Thursday!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Credit Fears Ease...

Chuck Butler — Mon, 20 Oct 2008 14:16:46 GMT

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

A panel of currency experts is coming to St. Louis University.

Plan to attend the upcoming panel discussion "Dollar Prospects: Do Fundamentals Really Matter" on October 23 from 4:00 p.m. to 5:30 p.m. in St. Louis University's Busch Student Center.

The event is free, and is being sponsored by the Simon Center for Regional Economic Forecasting at St. Louis University. Presenters include our very own Chuck Butler and Frank Trotter and other professionals in the currency market.

EverBank is an Equal Housing Lender and member FDIC.

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

In This Issue..

* Credit fears ease...

* Chuck's thoughts from the road...

* India cuts rates...

* China growth slows, but is still 9%...

And Now... Today's Pfennig!

Credit fears ease...

Good day...And welcome to what should be another volatile week in the markets. Credit worries eased somewhat over the weekend, which helped push money back into the higher yielding currencies. Today Federal Reserve Chairman Ben Bernanke will head to Congress to share his view on the economy. Should make for a pretty interesting day of trading. Hope you are sitting down and holding on, it looks like we are going to take another lap on the currency roller coaster!

The yen fell over the weekend as investors began moving funds back into the higher yielding currencies of Brazil, Mexico, New Zealand and Australia. I won't go into the whole explanation of the carry trade again, but suffice it to say that these moves haven't proven to have much staying power. But I do like the news that the credit markets may be calming down a bit after the government moves to shore up the big international banks.

European Central Bank President Jean-Claude Trichet urged banks to start lending again after policy makers put them "on the path" to recovery. Trichet said in an interview yesterday that the banking system is "on the path to normalization" after governments pumped record amounts of cash into money markets. The three month Libor rate for dollars fell every day last week and this morning we saw another drop in the rate, an indication that the credit markets are continuing to thaw out. "We're facing a very important market correction which is lasting," Trichet said, hinting that the credit crisis may be coming to an end.

Today I expect the international markets to focus on Fed Chairman Bernanke's testimony to the House Budget Committee. While I don't expect Big Ben to come totally clean on the dire economic situation facing the US, I would expect him to warn Congress that a rebound in US growth won't happen right away and that losses on mortgage derivatives will continue to impact the credit markets. His pessimistic comments on the economy will likely move the dollar even lower vs. the major currencies as the focus moves back to the US where we are most certainly in a recession.

Chuck was busy this weekend on the road with FXU, but took some time to send me these thoughts to share with all of you:

"A Marvelous Monday to you!

I gave a speech on Saturday in Fort Lauderdale, and tried very hard to get people to listen carefully about what I was telling them. And what I was telling them was that the U.S. debt generation is out of control... Then I saw this info that a reader sent along, that played well with my speech from the pulpit...

"From September 30, 2007 to the end of this past fiscal year on September 30, 2008, total federal debt grew by $1.0 trillion, from 9,007,653,372,262.48 to $10,024,724,896,912.49, which is an 11.3% annual rate of growth. The federal debt as of October 16, 2008 is now $10,331,139,000,845.92. So in just 16 days since the end of the last fiscal year, the federal debt has grown by an astounding $331.1 billion, which is a 75.5% annual rate of growth. It has taken just 16 days to borrow one-third of what the government borrowed in all of last year."

So... The National Debt clock needs to be replaced, because it doesn't have enough digits to deal with $10 Trillion dollars of debt! So... I thought I would give you two thoughts that I read out loud to the audience in Fort Lauderdale. These come from the book, I.O.U.S.A. by my friends, Addison Wiggin and Kate Incontrerra. The first piece is from Ron Paul... The second from Warren Buffett regarding debt....

Ron Paul: "We can't afford to pay all these bills, and if we just pay for these bills by printing money, it will destroy the currency - and that will be a much, much more painful reaction than us just tightening our belts and living within our means."

Warren Buffett: "I do think that piling up more and more and more external debt and having the rest of the world own more and more of the United States may create real political instability down the line and increase the possibility that demagogues come along and do some very foolish things."

>>>> Now folks, you know me... I have always railed on the U.S. for building up these debts... Budget, National, etc. but after reading the book, and seeing the movie I.O.U.S.A. I have to tell you that what I've been fearful of was chickenfeed compared to the information the book and the movie have regarding debt! Put away the sharp objects folks... This stuff is scary... But Real!

So... We can go along now, and the repatriation and LIBOR currency swaps can build up the dollar... But, the way we're headed, we have no other choice as a country than to allow our currency to devalue so that these debts, and interest on these debts be paid in the future with cheaper dollars!

I just saw that South Korea announced a plan to put $100 Billion toward a guarantee to foreign currency debt and a $30 Billion injection (from FX reserves) (see how nice it is to have reserves?) to the banking sector.

This lit the light bulb over my head! Could this be the key that unlocks the intense demand for dollar funding, which has fueled the dollar rally? (recall, when I told you about this dollar funding on currency swaps because of the out of whack LIBOR?) Well, this is what I'm talking about here... Another good sign last week was the drop, albeit baby step drop, of LIBOR last week... If this can continue, and the banking sector no longer has to go the currency swap market for funding, we could see the dollar lose some of its steam..."

New Zealand officials are working on a plan to guarantee wholesale deposits at the nation's banks, according to Finance Minister Micheal Cullen. New Zealand last week guaranteed retail deposits to bolster confidence in their financial institutions. These moves by South Korea and NZD follow similar moves by countries across the globe. These guarantees look like they are working, as credit markets have eased a bit and money is moving back into the higher yielding currencies. As risk aversion eases, the currencies of NZD, AUD, BRL, and Mexico will likely benefit. All four of these currencies are up nearly 1% vs. the US$ as a result of these moves.

Producer prices in Australia rose in the third quarter twice as fast as economists expected, which may stoke speculation central bank Governor Glenn Stevens won't repeat this month's decision to cut benchmark interest rates. The producer price index advanced 2 percent after rising 1 percent in the second quarter, the Bureau of Statistics said in Sydney today. Traders are still betting on another interest rate cut at the next meeting on Nov. 4, but the size of the cut is now expected to be just 50 basis points compared to the last cut of 100 basis points. The prospects for further aggressive cuts by the central bank has been reduced by the jump in producer inflation. Hopefully the Aussie dollar will continue to climb back up, as we are seeing a lot of support around the .69 level. A further rally in Gold and other commodities would also help the Australian currency.

India's central bank unexpectedly lowered its key repurchase rate for the first time since 2004 in response to the global credit market turmoil. The Reserve Bank of India cut its overnight lending rate to 8 percent from 9 percent today. The move signals Governor Subbarao sees weaker growth a bigger threat than inflation in Asia's third largest economy. China's economic growth slumped to a five year low last quarter and growth in India has been declining also. The Indian rupee is Asia's third worst performing currency this year, and may fall to a record low of 50 per dollar by year end according to currency strategists at France's Credit Agricole. A research report predicted the currency, headed for its biggest annual loss in 17 years, is one of the most vulnerable in the region to the falling appetite for risky investments. The currency has continued to fall as investors have pulled out nearly two-thirds of the $17.4 billion they invested in Indian stocks last year.

As mentioned above, China's economy expanded at the slowest pace in five years as the financial crisis cut demand for exports. But before everyone gets too worried about the shutdown of the Chinese economy, gross domestic product rose 9 percent in the third quarter from a year earlier. Nine percent doesn't sound like too much of a slowdown to me! And China will continue to cut internal interest rates to keep growth near the current levels. Predictions of an even greater drop in Chinese growth has helped push commodity prices down. If China can continue to grow at near double digit rates, demand for iron ore, copper, and oil will remain strong. Currencies such as the Australian dollar, which depend on commodity exports, will rebound with a rebound in these commodity prices.

Currencies today 10/20/08: A$ .6935, kiwi .6129, C$ .8446, euro 1.3403, sterling 1.7390, Swiss .8781, ISK 260.0, rand 10.10, krone 6.5672, SEK 7.3810, forint 199.61, zloty 2.668, koruna 18.63, yen 101.75, baht 34.28, sing 1.4792, HKD 7.7563, INR 49.01, China 6.8299, pesos 12.8049, BRL 2.106, dollar index 82.52, Oil $73.81, Silver $9.763, and Gold... $798.32

That's it for today...What a gorgeous weekend here in St. Louis, perfect fall weather. The Mizzou Tigers barely showed up in Austin this weekend and now they will have to try and battle through the rest of the season hoping for a rematch with Texas at the Big 12 Championship. The Blues and Rams both had big wins this weekend in some pretty exciting games! Hope everyone has a great week and a Marvelous Monday!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Rescue plan not an instant fix...

Chuck Butler — Wed, 15 Oct 2008 14:16:08 GMT

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

The FX University Seminar Series. Learn from foreign currency experts-then invest like one.

Plan on attending this enlightening one-day seminar on currency investing, hosted by the Sovereign Society. You'll mingle and learn from experts from: Jyske Global Asset Management, Black Swan Capital, Sovereign Society, Philadelphia Stock Exchange, and of course EverBank®. You'll leave with expert foreign currency know how. All this for just $99.

Coming to a location near you:

. 10/16 - Philadelphia

. 10/18 - Ft. Lauderdale

. 10/20 - Jacksonville

Don't miss this exclusive event-you owe it to your portfolio. Visit http://www.sovereignsociety.com/Portals/0/landing/pfennig.html to find out more and register.

EverBank is a Member FDIC and Equal Housing Lender.

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

In This Issue..

* Rescue plan to take time...

* Pound sterling rallies (for now)...

* Brazil supports the real...

* Iceland cuts rates...

And Now... Today's Pfennig!

Rescue plan not an instant fix...

Good day...Another roller coaster of a day, as the dollar continued to slide through lunch but then rallied back up in the afternoon. As I walked out the door last night, most of the major currencies were trading right about where they were when I turned the screens on. The dollar has started to fall again in overnight trading, so the up and down of the past few weeks looks to continue.

The news stories coming across the wires this morning seem to be as volatile as the currencies. I have now counted three different stories which state the markets are moving back into higher yielding currencies and riskier investments after the coordinated bank bailout plan which was announced yesterday. But several other stories are talking about how investors are moving out of the higher yielding assets because of concern that the bank rescue will take too much time to unfreeze global credit markets. I tend to agree with the latter of these.

While Paulson and Bernanke have shown a willingness to throw UNLIMITED US$ at the credit markets, they have very little leverage to make the banks start lending again. The equity stakes which the US taxpayers purchased in Citigroup, Morgan Stanley, and seven other big institutions come with no guarantee that the investments will spur lending. Nor do they give the government board seats or any other leverage to demand that the firms actually use the money to help the economy. The banks have accepted the money (they may be dumb but they aren't stupid) and look to be using it to help shore up their balance sheets. The bet Paulson is making is that by helping them get their balance sheets in order more quickly, the taxpayer investments will hasten the major banks return to a more normalized lending environment. And I agree that this will probably be the case, but this will not happen overnight, and the recession which the US slipped into several months ago will continue to deepen.

Chuck had this to say about yesterday's trading:

"Well... All the euphoria in the markets earlier this week is diminishing as the realization that all this work to unlock the credit markets does NOTHING to change the recession course of the economy. San Francisco Federal Reserve Bank President, Janet Yellen, did not help sentiment when she said that "the U.S. economy "appears to be in a recession" as a contraction of growth is likely in Q4 and that financial market turmoil is a "serious and direct threat to global well being."

This was a big theme in my talks not only yesterday here in St. Louis, but Monday in Chicago too... The trading theme that I've talked about dominating currencies... But when the credit markets get unlocked... We'll return to the underlying fundamentals and the recession that could last 4 quarters according to one of my fave economists, Nouriel Roubini, is one of those awful underlying fundamentals... Yes, the dollar has rallied at times during previous recessions... But, we never had all these other dark clouds hanging over us like we do this time... Debt coming our out ears, money supply like there's no tomorrow, ultra-low interest rates that are very likely to go even lower, and now our new "socialism" hard at work! There are more... But, my fat fingers get tired after a while! HA! OK... Off to Philly!"

ECB President Trichet suggested a return to the 'discipline' of Bretton Woods yesterday in a speech at the Economic Club of New York. "Perhaps what we need is to go back to the first Bretton Woods, to go back to discipline," Trichet said. "It's absolutely clear that financial markets need discipline: macroeconomic discipline, monetary discipline, market discipline." The data released yesterday here in the US illustrates the need for monetary discipline in our own government.

It is of no surprise that the US government posted a record budget deficit for 2008 as financial market strains slowed the economic growth and spending rose the most since 1990. The shortfall widened to $455 billion in the fiscal year ended Sept 30 compared with a $162 billion deficit a year earlier and the previous high of $413 billion in 2004. The gap was 3.2% of GDP, up from 1.2% last year. And with the bailout and 'rescue' plans which Bernanke and Paulson have recently concocted, the shortfall will likely quadruple to about $2 trillion in the coming year. Yes, we will likely have a budget deficit of nearly $2 trillion in fiscal 2009!!

With this kind of debt, there is just no way the dollar will hold on to its value. A reader sent me a very scary looking graph yesterday, and I would love to share it with you but I haven't figured out how to paste it in. It illustrated the money supply figures and how they have spiked here in the past few weeks. With the Treasury secretary and Fed Reserve chairman throwing an unlimited supply of dollars into the markets, the value of our US dollar will undoubtedly be debased.

Today we will get a peek at how the US economy is weathering this storm, as Retail sales and producer price data is released along with the empire manufacturing data and business inventories. Later this afternoon we will get a glimpse at the Fed's Beige Book which gives the regional Federal Reserve bank's take on the current situation. Sales at US retailers probably decreased in September as mounting job losses, plunging home prices, and the deepening credit crisis rattled consumers. Producer prices may be a small bright spot, as the drop in the price of oil helped bring down producer prices in September.

Britain's pound had its biggest two day gain in three years against the dollar as UK stocks advanced after the govt. bailed out three of the UK's major banks. The currency climbed to the highest level vs. the dollar in almost a week as the FTSE stock index rose 3% yesterday. The pound is seeing a bit of a bounce back, but their problems are very similar to what we have here in the US, and I would suggest taking advantage of any bounces to exit Pound Sterling positions. There will be more bad news to come in the UK.

The Japanese yen rose for the first time in five days vs. the dollar as investors recovered from their initial euphoria over the bank bailouts. The bailout announcement has provided a bit of stabilization to the markets, but now investors are again shifting their focus to fundamentals, which are not pointing to strong global growth. Carry trade investments, which were put on during the Euphoria are being taken back off again as investors realize the rescue plan will not be an immediate cure for the global economic downturn. The yen is also being underpinned by repatriation of funds by Japanese investors. Japanese households' appetite for risk was already diminishing before the turmoil last week materialized, and these investors continue to bring their money back home.

With the markets waking back up to the fact that there is still risk in these markets, the higher yielding currencies of South African rand and Mexican pesos sold off. The Australian dollar and New Zealand dollars also fell as stocks and commodity prices declined on global economic concerns. The retreat of the Aussie dollar, after yesterday's record gain, was somewhat expected. Gold, Australia's third-most valuable raw material export dropped for a fourth session along with other commodity prices. Prime minister Rudd continues to take an aggressive approach to addressing the credit crisis, stating Australia's financial system and economy remain 'strong'.

The Brazilian real bucked the trend of other high yielding currencies and rose slightly for a second day. Brazil's central bank announced it was selling dollars in the spot market yesterday in order to support the real. Later, the authority said it will sell up to $1 billion worth of US dollars at auction today. The real has risen nearly 8.5% vs. the US$ in the past few days, nearly erasing last weeks plunge.

Canada's currency weakened against the US$ as the price of crude oil fell. The Canadian dollar has declined 13 percent since July 11 when oil reached a record of $147.27 a barrel. Commodities make up about half of Canada's export revenue, and the US is Canada's largest trading partner. With the US obviously slipping deeper into recession, the Canadian dollar will find it tough to sustain any kind of rally. They have established close trading ties with Asia and China in particular, which will likely make up for some of the lost exports to the US. These trading ties and the abundance of commodities in Canada could help put a floor under the loonie.

I will close today's Pfennig with another update on the situation in Iceland. Iceland's central bank cut its benchmark interest rate by 3.5 percentage points following the collapse of the country's three largest banks. Policy makers agreed on the cut at an unscheduled meeting today following the collapse of three banks last week. The central bank abandoned its attempt to peg the currency to the euro last week, citing 'insufficient support' from the market. We will continue to keep investors updated as to the status of things in Iceland.

Currencies today 10/15/08: A$ .7023, kiwi .6235, C$ .8627, euro 1.3659, sterling 1.7544, Swiss .8815, ISK 260.0, rand 9.2343, krone 6.2831, SEK 7.1762, forint 192.22, zloty 2.5739, koruna 18.1005, yen 101.38, baht 34.13, sing 1.4688, HKD 7.7594, INR 48.47, China 6.8318, pesos 12.442, BRL 2.0963, dollar index 81.158, Oil $77.39, Silver $10.889, and Gold... $845.35

That's it for today...Another crazy day on the desk yesterday, with near record call volumes. Customers are both buying and selling currencies, I guess that is what makes markets! Chuck said his presentation went well here in St. Louis and he is on his way to Philly today. Should be another busy day today, so off to the phones! Hope everyone has a Wonderful Wednesday!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Govt to follow Buffet's lead...

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

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

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

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

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

As a seminar sponsor and participant, we're pleased to offer you access to this exclusive event. For locations and dates, and to register, call 866.584.4096. Cost to register is only $99 for EverBank customers.

EverBank is a Member FDIC and Equal Housing Lender.

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

In This Issue..

* Govt to follow Buffet's lead...

* Aussie $ has biggest gain ever...

* Yen reverses on carry trades...

* China's currency reserves rise...

And Now... Today's Pfennig!

...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Fed floods the markets with US$...

Chuck Butler — Mon, 13 Oct 2008 17:37:23 GMT

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

The FX University Seminar Series. Learn from foreign currency experts-then invest like one.

Coming to a location near you:

. 10/13 - Chicago

. 10/14 - St. Louis

. 10/16 - Philadelphia

. 10/18 - Ft. Lauderdale

. 10/20 - Jacksonville

Don't miss this exclusive event-you owe it to your portfolio. Visit http://www.sovereignsociety.com/Portals/0/landing/pfennig.html to find out more and register.

EverBank is a Member FDIC and Equal Housing Lender.

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

In This Issue..

* Bernanke gets help opening the spigot...

* Euro and Pound rally...

* Yen to continue to benefit from carry reversals...

* Aussie $ rallies...

And Now... Today's Pfennig!

Fed floods the markets with US$...

Good day...and happy Columbus day! This is an official bank holiday here in the states, so all of the banks are closed, but the stock markets are open. We will have a half day here on the desk to try and catch up with all of the work which has been piling up the past few weeks. The phones are turned off, since it is an official bank holiday, but we will be checking messages and try to get back to everyone as quickly as possible. It is a very unusual holiday, as the banks are all closed with no funds transfers possible, but the stock markets are open. Currency desks are lightly staffed, so we will have to really work to get the trades done this morning. These strange holidays usually can lead to some real market volatility, and with today will probably be another rollercoaster.

In an all out effort to ease the credit freeze, the Federal Reserve recruited help from the ECB, Bank of England, and the Swiss central bank to flood the market with US$. These central banks will auction unlimited dollar funds with maturities of seven days, 28 days, and 84 days at a fixed interest rate. This move is unprecedented, as all previous dollar swaps were capped at a maximum amount while these auctions will be for unlimited funds.

Chuck spoke about these dollar swaps a few weeks ago, explaining that these trades partially account for the huge rally in the US$. Central banks around the world are purchasing US$ to lend out to the markets, at the request of the Federal Reserve.

Policy makers from the G-7 pledged this weekend to take "all necessary steps" to stem the markets' dramatic slide. European leaders agreed to guarantee new bank debt and use taxpayer money to keep distressed lenders afloat after the worst rout in European's stock markets in two decades. But they didn't come up with any coordinated measures, other than saying they need to attach the crisis on a unilateral basis.

Chuck had this to say about the G-7 and G-20 weekend meetings:

"The G-7, G-20 meetings didn't leave the markets much to go on... They issued a communiqué that said, "The will take the necessary steps to stem Global Financial Crisis" I would think that the markets were looking for something with a little more meat to it, don't you? I doubt the credit markets are going to magically unlock on that communiqué... And so the beat goes on... "

The Euro rose the most in three weeks against the dollar in early European trading, moving up over 3 cents from Friday's low of 1.3259. The British pound also advanced against the dollar on speculation the government's bailout plan will avert a banking collapse. In the near term, the plans give investors confidence that there won't be further banking failures. In today's world, everyone is constantly looking for where the next big financial failure will occur, so the European plan to shore up their banks has led to a pretty good rally in the Euro and Pound Sterling.

The Japanese yen, which has been the best currency year to date traded in a rather tight range right around 100 yen per dollar. Some currency research departments are now suggesting that the yen will rally all the way to 95 as investors reverse carry trades. With the global slump in equities, Japanese investors have started selling some of their more than $1.3 trillion in overseas assets to bring money home. Chuck mentioned that he has seen this before, and wanted me to share the following with readers this morning:

"It has been a very tumultuous week, and I just want to make certain that you are aware of this trading pattern that is existing these days... It is Japan circa 1995-1998, when the Japanese stimulus packages and budget junk didn't work, and the economy was circling the bowl. But... The yen was rallying to 85! It was a repatriation of the offshore investments to bring home to squirrel away and have "under the mattress" in case things get even more bleak...

Sound familiar? That's what's going on right now with the dollar... It's a "the worse things get in the U.S. buy the dollar, and if it looks like Armageddon won't happen in the U.S. sell the dollar trend... Nothing more, nothing less..."

Two of the biggest movers over the weekend were the high yielding currencies of Brazil, New Zealand, and South African rand. The Brazilian real was the biggest mover, up over 5% vs. the US$ in the past 24 hours. The rebound in stock market overseas has made investors more comfortable with moving money back into the emerging markets. But this rally could be short lived, as the reality of a global recession sinks in and investors continue to de-leverage their positions. At this point I think it is best to take advantage of rallies in the high yielders to exit and reallocate funds into more 'stable' currencies.

Two which would fit this description are the Norwegian and Swedish currencies which rose against the euro and the dollar on this weekend's news. But these gains could again prove short lived, as Norway's central bank is expected to lower interest rates later this week. Norske Bank pushed forward its regular interest-rate meeting from Oct. 29 to Oct. 15. The bank kept borrowing costs on hold last week while Sweden's Riksbank cut its main rate a half point as part of a coordinated effort by central banks, including the ECB, to revive interbank lending.

The Australian dollar also rallied overnight, moving up over 4.5% vs. the US$ in European trading. The Australian dollar rose as Prime Minister Kevin Rudd said yesterday his government will guarantee all deposits with financial institutions for the next three years to bolster confidence in the banking system. The government will also guarantee all "term wholesale funding" by Australian banks operating in international credit markets. This was an aggressive move by the Australian government to stem the run on the AUD$, and right now it seems to be working. With just a small amount of confidence creeping back into the markets, some investors are actually moving money back into the 'carry trades' which have benefited the high yielding AUD$ and NZD$ over the past few years. Investors should not count on any 'carry trade' rallies to last, as these investors have proven to be extremely volatile over the past year.

But we are possibly seeing an end of the all out attack on the AUD$ which has occurred over the past few months. If the latest move by Prime Minister Rudd works, we should see the AUD$ start to slowly gain back some of the recent losses. Aussie continues to have excellent commodity resources, and a direct trading link to China and the rest of Asia.

And I will close out today's Pfennig with another update on the Icelandic krona. Trading in Iceland's krona all but dried up last wee as the country's banks collapsed, sending the currency's bid/ask spreads skyrocketing. There is currently no active market for the Icelandic krona, and trades are very difficult to get through. JP Morgan Chase & Co. was reported to be in negotiations with Iceland's central bank to underwrite all krona trades in an attempt to unlock the currency markets, according to TD Securities in London. We continue to attempt to close out the Icelandic krona CDs as they come due, and will use every effort to get investors in this currency traded back into US$. We were able to get the Icelandic currency traded last week and expect to be able to again this week, but can't make any guarantees. We will continue to keep you updated on the status of these very volatile markets.

Now on the the big finish:

Currencies today 10/13/08: A$ .6693, kiwi .6044, C$ .8572, euro 1.3620, sterling 1.7332, Swiss .8845, ISK (no quote), rand 9.2399, krone 6.1787, SEK 7.0841, forint 185.28, zloty 2.6036, koruna 18.102, yen 100.46, baht 34.26, sing 1.4695, HKD 7.7636, INR 48.26, China 6.8258, pesos 12.6735, BRL 2.313, dollar index 81.18, Oil $82.24, Silver $10.535, and Gold... $850.40

That's it for today... Chuck and I switched spots today, as I returned from running the Chicago marathon, and he headed up for the FX university. The marathon went well, but I missed a personal best by a little under a minute. The weather was a little hotter than I like, with temperatures at the finish line up over 80. But no complaints or excuses from me, I still ran a sub 4 hour marathon which was just fine with me. Chuck returns back to St. Louis tonight, as the FX University comes to St. Louis tomorrow.

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

The Deed Is Done...

Chuck Butler — Mon, 06 Oct 2008 14:44:57 GMT

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

The FX University Seminar Series. Learn from foreign currency experts-then invest like one.

Coming to a location near you:

. 10/13 - Chicago

. 10/14 - St. Louis

. 10/16 - Philadelphia

. 10/18 - Ft. Lauderdale

. 10/20 - Jacksonville

Don't miss this exclusive event-you owe it to your portfolio. Visit http://www.sovereignsociety.com/Portals/0/landing/pfennig.html to find out more and register.

EverBank is a Member FDIC and Equal Housing Lender.

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

In This Issue..

* Adding $700 Billion to our debt...

* U.S. loses 159K jobs in September!

* Dollar rallies to 13-month high VS euro

* Ding Dong the Carry Trade is Dead...

And Now... Today's Pfennig!

The Deed Is Done...

Good day... And a Marvelous Monday to you! The deed is done... The House, which had previously voted down the Bailout Package, decided to go ahead and put the country in debt by another $700 Billion... Yes, I know it the payouts will be in installments, but in my mind it was in one swoop that $700 Billion was added to our debt... And guess what? The dollar rallied on the news!

More on the Bailout Package in a minute... The other thing happened on Friday was the awful Job Jamboree in which 159K jobs were reported lost by the Bureau of Labor Statistics (BLS) during September. The job losses were all over the place led by job losses in Manufacturing. And guess what? The dollar rallied on the news!

OK... I'm raising the white flag folks... This Credit squeeze has the whole world in a tizzy right now, and it appears to me that investors around the world have decided to reward the dollar for all these problems. Seems awful strange to me, since dollar denominated assets are what caused this whole problem, but that doesn't seem to be on anyone's mind right now. The dollar has moved the front of the class against the euro, and the rest of the currencies that aren't Japanese yen or Chinese renminbi.

When the dollar can rally in the face of news like it received on Friday, even me, the biggest fundamental trader you've ever seen, can see the writing on the wall... This dollar rally goes against everything I've ever known or studied regarding fundamentals. I still don't believe the dollar can maintain this strength going forward, as the funding requirements on the deficit continues to be the Sword of Damocles hanging over the dollar. But for now... I have to go to the corner and sit, for I have been wrong about how the dollar would react to all of this.

Now... I haven't been wrong about how all of this mess has played out... I've warned of "risk events" and we've had plenty of them... I was one of the first to bang the drum and warn of a housing bubble... I've warned of interest rate cuts, and growing debts... And in the end, I warned that the dollar would take the brunt of all these indiscretions... And it may still... But for now, it's the belle of the ball... Don't ask me why... For I don't know... And don't remind me of my failures, I'm well aware of them...

So... As I mentioned above... The Japanese yen, and Chinese renminbi are the only currencies posting gains VS the dollar. China, just back from a week of holidays, allowed the renminbi to gain VS the dollar overnight, and that's a good sign, given the rumors circling around regarding the slow down in China.

But the big Kahuna moving against the dollar is Japanese yen... Don't look now, but yen has a 103 handle! Is the Carry Trade truly Dead in the water? Much like the munchkins we'll have to see if it is truly dead... As Glenda said... "Let the joyous news be spread, The Wicked Old Witch at last is dead!"... Seriously though... The Carry Trade does very truly, look dead in the water, as the credit squeeze takes its toll on these once favorite tools of investors... They are "risk trades" as I've explained 100 times before, and therefore, the credit squeeze wiped them out...

And... So now... Finally, a couple of years after I first said, that the next shoe to drop for the dollar would be against the Asian currencies... It looks like the Carry Trade is dead, and that the Asian currencies, led by Japanese yen, can finally be left alone to trade straight up VS the dollar...

So... We're taking on water with the other currencies that have been so profitable for holders for over 6 years now, but Japanese yen is finally cut free of the Carry Trade.

The Credit Crunch / squeeze is spreading folks... I told you about a few of the problems in Europe last week, and how a bank had failed in Iceland... Well... There's even more problems for Europe... And... Iceland is looking for a bailout now. Iceland is looking for a bailout from the Nordic Central Banks... I first wrote about a banking crisis in Iceland about 5 months ago, and every week we send out a notice to Icelandic krona CD holders that they should probably look to do something with their krona CD's... Well... I'm afraid they will have no choice pretty soon. Recall, last week I told you that offshore investments of krona are getting hammered and that interest rates had gone negative... Well... We won't be able to offer Iceland going forward, if they remain negative... There won't be any dealers that will take on the risk of selling us the currency forward... It's a very sad day in Iceland, folks...

And in Europe... The rot on the vine is spreading. The Euro Summit didn't produce any real deals or solutions to their problem... But one thing it didn't produce was a plan that would mirror the U.S's $700 Billion Bailout Package... I would suspect that the fact that the Euro Summit didn't produce any answers, has weighed heavily on the euro this morning... The single unit has fallen to a 13 month low VS the dollar... I wonder where those guys from Citigroup are that were calling for a euro rally are now? I can't blame them, I would certainly like to hide under a rock (I know it would have to be a real big rock) right now and let this blow over... But I can't... I write this daily newsletter!

There is still a lot of talk about coordinated Central Bank rate cuts happening this week... Even after the European Central Bank (ECB) left rates unchanged last Thursday. I didn't think the ECB would look at cutting rates as an option, but that was before the rot on the vine was exposed in Europe last week... Now... I'm 50-50 on the ECB participating...

Speaking of the $700 Billion Bailout Package... The stock jockeys sure loved the passing of the Bailout Package... But what's there to love about it? Yes, I know... King Henry and Big Ben assure us that this will unlock the seized credit markets, and get this economy rolling again... But didn't they tell us that back in July too, when they got the president to sign $3.9 Billion to help 400,000 home owners that would qualify... They told us then, that the mortgage bill would cure what ailed the housing meltdown... These two have been so wrong about this whole mess going back to last summer when they failed to recognize that we had a housing meltdown...

The overnight markets of Asia and Europe saw stocks sell off big... So it could be that the U.S. stock euphoria over the passing of the package will be short-lived.

Don't expect this Bailout Package to cure what ails the economy right now folks... There are going to be more banks closing, Corporations closing, and consumer bankruptcies. Banks aren't going to just open their vaults to the public today and offer loans to anyone that has a shirt and shoes on!

There was a great article in my local Sunday Business Section. I was surprised by that, because there's normally not much, and I mean NOT MUCH, in my local paper's Business Section... But that was before yesterday's print! It's a great look back at the financial mess we're in, how we got there, and how our leaders don't have a clue as to what's going on based on the myths they keeps coming back to... David Nicklaus is the writer, and he dispels the myths and calls them out on how wrong they are, and offers a solution... I don't have the room or time to do snippets, but if you want to read it, you can find it here: http://www.stltoday.com/stltoday/business/columnists.nsf/davidnicklaus/story/ECAC1FD06F4DD39C862574D80007C529?OpenDocument

The Reserve Bank of Australia (RBA) meets tonight... I fully expect them to cut rates at least 25 BPS and maybe even 50 BPS... It's not really a rate cut because inflation is in check or anything like that. The Aussie economy has slowed, but not to the degree that would require another rate cut... No, this rate cut, I believe will be of the "lets reduce borrowing costs, and try to avoid a lending problem like in the U.S. and Europe" kind of rate cut... That won't help the Aussie dollar any... The A$ is getting whacked on two fronts... The thought of lower yields from the rate cuts, and the Japanese investors repatriating funds (selling A$ and buying yen)...

The Bank of England (BOE) meets this week, and they too will cut interest rates. The BOE will cut 25 BPS and probably follow that up with 25 BPS cuts in November and December.

There isn't a whole lot of data in the data cupboard this week... All second tier stuff, with the Sept FOMC meeting minutes being the most important data until we get to Friday, and the August Trade Deficit.

So... The dollar, will hold onto its belle of the ball title this week as the dust settles on the Bailout Package...

Next week, I'll be out all week on the second leg of the Currency Tours. The next leg lasts 10 days, and ends in Jacksonville. That's the home town of EverBank! We end the following Monday the 20th, and then I get to travel home on Tuesday, and back in the saddle Wednesday! I don't know how this one will go, but the last Tour went fine for me... Travel isn't easy when you have a small handicap like me, but, it is what it is, and you just roll with the punches!

Currencies today 10/6/08: A$ .7460, kiwi .6475, C$ .9215, euro 1.3590, sterling 1.7585, Swiss .8765, ISK 114.52, rand 6.1625, SEK 7.1990, forint 183.70, zloty 2.5410, koruna 18.25, yen 103.05, baht 34.49, sing 1.4630, HKD 7.7670, INR 47.77, China 6.8425, pesos 11.35, BRL 2.0440, dollar index 81.17, Oil $90, Silver $11.39, and Gold... $859.05

That's it for today... What a huge win for my beloved Missouri Tigers on Saturday night! 30 years of frustration at Lincoln, Nebraska were wiped out with a romp over Nebraska. I'm heading down to Columbia Mo this weekend to watch them play Oklahoma St. Saturday night. I'm so excited! Oklahoma St. is a good team too, so this will be a big test for the Tigers! What a great weekend, weather wise here in St. Louis! WOW! I'm feeling so much better these days, the further I distance myself from the cancer drugs... Things are looking up for me health wise, and that's more important than what direction the dollar goes! Thanks to all... Time to go, Mike and Mary are here, I must be late! Hope your Monday is Marvelous!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Dollar swings a mighty hammer...

Chuck Butler — Tue, 05 Aug 2008 14:17:06 GMT

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

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

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

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

EverBank is a Member FDIC and Equal Housing Lender.

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

In This Issue....

* Dollar swings a mighty hammer...
* FOMC expected to sound more hawkish...
* Euro Opportunity currencies rally...
* RAB leaves rates unchanged, but AUD$ falls...

And Now... Today's Pfennig!

Dollar swings a mighty hammer...

Good day...The dollar rallied again yesterday, and shot up even more overnight as the markets prepare for the rate announcement from the Fed. Falling oil prices helped propel the greenback higher, as oil fell below $120 a barrel for the first time since May. This latest move puts the dollar index close to 74, the point at which the last dollar correction ended back in mid June. The technical guys are all waiting to see if the index can break through 74.31, a sign that further strength is possible. But I don't pretend to be a technical analyst and would much rather look at the economic fundamentals to figure the direction of the dollar.

And the fundamentals in the US economy still look bad. Yesterday morning we started off the week with the Challenger job report, which showed a dramatic jump in the YOY number of job cuts. This was followed by Personal Income and Spending numbers, both of which showed the resilient US consumer is still spending more than they are making. Finally, the PCE Deflator was released and showed the biggest increase in prices in almost three years.

Just after the release of this first set of data, the dollar started to fall with the Euro jumping almost over 3/4 of a cent. But the Euro couldn't hold onto these gains as the US factory orders showed a surprising jump propelled by gains in petroleum and chemicals. This morning we see how the service sector of the US economy is faring as we get the ISM Non-Manufacturing data released. This number is expected to stay below 50, which is the dividing line between growth and contraction. While this figure will be negative for the US$, the afternoon announcement by the FOMC will overshadow this report.

Chuck sent me the following comments after looking over yesterday's data:

"Did you see the outcome of the monthly Challenger job report that usually is a good indicator of the Jobs Jamboree?

A situation that looked like, at first, that it could be contained to the housing industry, really has taken a wide swath across the country with job losses. The ADP / Challenger report printed a 140.8% surge of job losses in July! This set of reports only goes back to 2000, but since that time, the job losses have only exceeded July's number one time, at 150% during the 2001 recession.

It's not just construction jobs either... And I believe these job losses are just gaining momentum... Unfortunately, by the 4th QTR we could be looking at +6% unemployment rate! UGH!

Don't know much about history... Don't much biology... Don't know much about a science book... Don't know much about the French I took... But I do know that job losses cause recessions, and if they're bad enough they could cause depressions... Old Same Cooke, never thought his song would be used to make fun of dollar bulls, buying dollars in the face of huge job losses!"

I think just about everything reminds Chuck of a song! He is always able to relate just about any situation to some lyrics.

So that brings us to the morning of the big rate announcement by the FOMC. The currency markets have rallied on expectations that Chairman Ben Bernanke will sound hawkish. I've read a few comments by dollar bulls which suggest the FOMC will actually come out with wording to say tat the risks to inflation outweigh risks to growth. The fastest inflation in 17 years certainly suggests we will see a more hawkish tone. And three members of the FOMC have been calling for an increase in rates to limit price increases. With two seats assigned to Fed governors on the 12 member panel vacant, Bernanke will have to try and craft a consensus to avoid having three of the 10 members dissent. So this certainly is setting up for a more hawkish statement.

But is this a turning point for the dollars long term trend down? Or just another correction and base building before further declines for the greenback? To answer this question, I always try to dig back into the fundamentals of the underlying economies. Congressional leaders and most of the popular press would like you to believe that the huge mortgage and housing-bailout bill signed by President Bush last week will reverse the economic downturn, but it won't.

The big boss, Frank Trotter, dropped by my desk yesterday and gave me a number of newsletters which he had finished reading. The headline of one of them really caught my eye. It was July's issue of Strategic Investment, put out by our friends over at Agora Financial. The headline read "BEWARE THOSE WHO SAY THE WORST IS OVER". I couldn't agree more.

Yesterday's NY Times had a lead article warning about how housing lenders are now fearing a bigger wave of loan defaults. Homeowners with good credit are falling behind on their payments in growing numbers, even as the problems with mortgages made to people with weak, or subprime credit are looking like they are beginning to level off. The article states that while it is difficult to draw precise parallels among various segments of the mortgage market, the arc of the crisis in subprime loans suggests that the problems in the broader market may not peak for another year or two. Subprime was just the tip of the iceberg, and since prime loans account for a majority of the $12 trillion market, any increase in defaults in this sector will have an even more dramatic impact.

And the housing sector isn't the only area which is a drag on the economy. As Chuck reported in the Review and Focus a couple of months ago, the next shoe to drop in the ongoing credit crisis is consumer credit cards. Consumers, squeezed by rising energy and food prices and falling income and employment have turned to their plastic for everyday items. In years past, consumers were able to max out one card and move on to another. But banks have started to tighten up lending standards, and the number of offers for new cards showing up in the mail has declined dramatically. Banks are now predicting higher charge off rates across the credit industry, much more than previously anticipated. And like the mortgage mess, these credit card loans have been securitized and repackaged to be sold out to investors. Citigroup posted a loss due to credit-card securitizations yesterday and warned of future losses.

So the dollar is swinging the big hammer right now, and the losses on currencies are widespread. But the fundamentals here in the US continue to tell me that this latest dollar rally will soon go the way of the other dollar corrections we have seen in the past 5 years.

The Swiss franc fell to the lowest level against the dollar since mid-May as the carry trade investors are again buying the riskier assets funded by Swiss loans. Both the yen and franc are again being used as funding currencies for these carry trades, and they have fallen as a result. The full blown move back into the carry trades have benefited the high yielding currencies of Brazil and South Africa. Even the Icelandic krona has been benefiting from a move back into the riskier assets.

The focus has moved to interest rate expectations and currencies which are moving up are those with central banks which are looking to increase rates. In Europe, the currencies which have been performing the best are the 'euro wannabes' of the Polish zloty and Hungarian forint. Both central banks remain hawkish and have announced they will continue to raise interest rates to combat rising inflation. Investors interested in these currencies can invest into our Euro Opportunity CD which combines the Polish zloty, Hungarian forint, and Czech koruna in one index cd. These index cds pay an interest rate of 3.19% APY for 3 months and 3.28% APY for 6 months. Additional information regarding these index cds can be found on our website.

The Australian dollar continued its fall last night as the Reserve Bank of Australia signaled it may cut rates for the first time in almost seven years. "With demand slowing, the board's view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing." Governor Glen Stevens said today in Sydney after keeping the overnight cash rate target at 7.25%. Currency traders took this statement as a signal that the central bank has now moved from a neutral stance to an easing bias. Weakness in the commodity markets have added to the sell off in the Aussie dollar. We don't expect the RBA to lower rates as soon as next month, but the statement was definitely more dovish than we expected, and will continue to cause the Aussie dollar to trade off in the short term.

Currencies today 8/5/08... A$ .9176, kiwi .7236, C$.9591, euro 1.5479, sterling 1.9536, Swiss .9480, ISK 79.24, rand 7.3762, krone 5.1822, SEK 6.1054, forint 151.85, zloty 2.0787, koruna 15.49, yen 107.86, baht 33.61, sing 1.3776, HKD 7.8049, INR 42.23, China 6.8554, pesos 9.8869, BRL 1.5619, dollar index 73.72, Oil $119.84, Silver $16.69, and Gold... $884.78

That's it for today... I want to congratulate one of our newest members of the trade desk, John Kretchmar, who passed a securities licensing test yesterday. Good job Chachi!! My wife and two kids are heading out on a 'float trip' today. They will be spending the day floating down one of the many small rivers just south of St. Louis along with several of their friends. Unfortunately the temperature is expected to be well into the 90's with a heat index of over 100. But with a group of several preteens, I'm sure the paddlers will be spending a good deal of the time tipped over in the water. Hope everyone has a Terrific Tuesday!

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

Credit Woes Sink The Dollar!

Chuck Butler — Tue, 15 Jul 2008 14:37:00 GMT

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

The currencies. The free expert insights. The latest global economic information-all in one place. And only in the new Foreign Currency Resource section on EverBank.com. Visit today for a detailed and timely look at over 20 major and emerging currencies. There's a page devoted to every currency we offer. And inside each page, read what Chuck Butler has to say about the currency. Everything you'll find, including Chuck's insights, is updated regularly so you can diversify with confidence.

Come see the products mentioned in "The Wall Street Journal" and "New York Times". Go to EverBank.com, click Research & Planning, then Foreign Currency Resources.

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

In This Issue..

* No Bailout for Freddie and Fannie...

* The euro reaches a new record high!

* More risk today...

* Aussie hits 25-year high!

And Now... Today's Pfennig!

Credit Woes Sink The Dollar!

Good day... And a Tip Top Tuesday to you! I thought I would change it up there today... Well... Overnight, we've seen the euro reach a new record high VS the dollar, only to give some of that ground gained back on some weak German data. There was more news yesterday regarding the Freddie and Fannie saga, but I've grown tired of that talk, we dance now! Seriously, though, I have grown tired of all that Freddie and Fannie talk, that I'm going to go through an exercise explaining what GSE's are and then go on with life...

So... The euro reached a new record high overnight of 1.6038! WOW! This was reached based on the fears that credit problems in the U.S. are going to put the kyboshes on what little economic growth we now have. But the shine on the euro was rubbed out by a very weak ZEW... German Investor Confidence as measured by the think tank, ZEW, fell to a record low this month on the surging inflation problems, and rising interest rates. So for now, the euro is back below 1.60, but hear me now and listen to me later... This ZEW will soon be in the rear view mirror, and the euro won't have that albatross around its neck as it revisits its overnight high...

And don't look now, but the Aussie dollar is up to 98-cents! WOW! I've said for about 8 months that I wouldn't be surprised to see the A$ at parity to the green/peachback... It certainly has that parity look about it does it not? The last time the A$ was 98-cents was 1983... 25-years ago... 1/4 of a century, and all that!

The U.K. pound sterling is back to $2, which seems totally unlikely an event as possible, but it has happened, so, go on and crow if you thought I was wrong to say the pound was going to have problems once the Bank of England (BOE) started its rate cut cycle...

And the Canadian dollar / loonie has crept back to parity! It's been a long, time coming... It's going to be a long, time gone... (a little CSNY)...

And, the poor, downtrodden, Japanese yen, is at the bottom of the 105 handle, and looking like it wants to trade with a 104 next to it! I had to laugh at a story I saw flash across the screen... The title was... "Yen may gain as Bank of Japan (BOJ) is more likely to raise rates than the Fed". HAHAHAHAHAHA! Now that's funny! Ok, stay with me on this... A month ago, the dollar was getting bought like Pet Rocks because Fed Chairman, Big Ben Bernanke hinted that he was going to be an inflation fighter, thus interest rates would go higher... But here we are a month later, there's been on sign of Big Ben the inflation fighter, and now it's deemed that the BOJ could raise rates before the Fed! And the dollar bulls wonder why their currency is getting sold like funnel cakes at a state fair? Why don't the dollar bulls give Big Ben a call on the telly, and see if he can't help them out? Oh... That's right, Big Ben doesn't take calls from just anyone... According to our friend, Jim Rogers, on his Bloomberg TV interview yesterday morning... "Ben Bernanke and Paulson only take calls from their Wall Street Buddies"... HA!

Speaking of Jim Rogers... He was full of you know what and vinegar yesterday morning... He didn't pull any punches and said what was on his mind... You should have seen me here at the trading desk, Jim Rogers would say something, and I would clap and hoot and holler! At one point, Rogers said that the Gov't's plan to rescue Freddie and Fannie was "an unmitigated disaster"...

So... Remember early in the year when I kept telling you that there would be another "risk event" this year, and then we had the Bear Stearns meltdown, but that wasn't it for the "risk events" , and I kept harping that there would be more? Well... It's not like I was wishing, and hoping and thinkin' and praying for these things to happen... I was simply pointing out that the world today has too many "risk events" all over, and with the credit woes in the U.S. and the housing and mortgage meltdowns, I just figure it would touch here a few times.

Anyway... What I'm trying to get at here is simply that these are the things I kept telling people to protect themselves from by diversifying into currencies and precious metals... I also, recall, the wink, wink, I gave you when Gold was trading below $900 about a month ago... Today, Gold is $983!

OK, enough with all the "I told you so" talk! Let's talk about today... Well, today has "risk" written all over it! Big Ben goes to the "hill" to talk to lawmakers about the economy and Fed direction... You have to think that before the Meltdown last week of Freddie and Fannie (see more talk about them, I just can't leave them on the side of the road!), that Big Ben would go to the "hill" and talk the inflation fighter talk... But now... Not now... Not with the financial sector in meltdown mode... So this is a double-edged sword... If he doesn't go and sound hawkish, then the markets will take that as no rate hike is coming and take the dollar to the woodshed again... (you would think by now that the dollar would have gotten used to these beatings!)

Besides Big Ben, we get a ton-o-data today... PPI for June... Retail Sales for June... And Business Inventories for May... Retail Sales is the Big Kahuna of data today... And I would think that given the tax rebate checks that were still being mailed in June, Retail Sales would remain somewhat robust... Wait till July's number, I saw all the shopping bags from my beautiful bride's trip to Chicago this morning! But that's for next month! For now, PPI poses a treat to future Consumer inflation, so this one plays big too...

If any of this stuff comes in worse than expected, we could see the dollar not only get taken to the woodshed, but told to go pick the switch that it will get beaten with! (OK, that takes me back to the farm as a kid... If we were bad, we were told to go pick the tree limb (switch) that we would get smacked with... Talk about adding insult to injury!, but hey! Look at me! I grew up, didn't kill anyone, didn't rob my neighbors, didn't develop a drug addiction, and didn't hate my parents, wow! Now-a-days "they" would tell you that couldn't happen, not with getting spanked as a child! HA! What dolts!)

Oh... And rode my bike all day long from sun-up till sun-down without a helmet! OH NO! Of course some of you might say, see what happens! HA! Living dangerously, that was me! HA!

OK, enough of that! Today has "risk" written all over it, and I should stick to the facts here and not go off on tangents!

I said at the top that I was going to do a little 'xplainin' Lucy style, regarding these GSE's that keep getting talked about with regard to Fannie and Freddie... So... Here goes... Now, if you already know about GSE's, then go ahead and skip to the Big Finish...

First off... A GSE is... A Government Sponsored Enterprise... Here's the skinny on them...

The two largest housing GSEs of Fannie Mae (FNMA) and Freddie Mac (FHLMC) own and/or securitize upwards of 70% of the residential mortgage loans in the United States. Ginnie Mae (GNMA) is a government corporation that performs a similar function to Fannie and Freddie, and has the explicit backing of the full faith and credit of the United States government, although there is a perception (and a political reality) that Fannie and Freddie are "too large to fail" and, therefore, will be bailed out by the government should they get into financial trouble. This perception is reinforced by their line of credit with the U.S. Treasury and other benefits of GSE status, such as exemption from state and local taxes and use of the Federal Reserve as a transfer agent.

A GSE bond is perceived to have the same risk as a government bond, which is essentially near zero risk. While GSEs clearly state their securities are not backed by the U.S. government, the market largely perceives them to have an implicit government guarantee.

There you have it... All this and education too! And for free! WOW, where do I sign up for this letter? No wait, you dolt, I write it!

It looks like the selling from the German ZEW for the euro has already been put in the rear view mirror and the euro is back to above 1.60! That was quick!

Currencies today 7/15/08: A$ .9840, kiwi .7730, C$ 1.0020, euro 1.6020, sterling 2.0110, Swiss .9975, ISK 77.70, rand 7.6450, krone 5.0210, SEK 5.9250, forint 145.42, zloty 2.0370, koruna 14.56, yen 104.60, baht 33.48, sing 1.3460, HKD 7.7990, INR 43.20, China 6.8211, pesos 10.31, BRL 1.5970, dollar index 71.46, Oil $146.25, Silver $19.35, and Gold... $984

That's it for today... Tough day for yours truly yesterday, as the 4th week of treatment really kicked my tail... But I got through it, and today is starting out better, so I've got that going for me! The activity on the desk has really picked up in the last week, and rightly so, too bad these people are just now realizing that they need to diversify! Better late than never, I say! Next week, when I'm in Vancouver, the Pfennig will be at least 2 hours if not more later in the morning, due to the time zone... I didn't know that Chris was going to be on vacation during the Vancouver show, so I'll do it on the road, two hours later! What a show that Josh Hamilton put on at the Home Run Derby last night... WOW! He almost hit the ball out of Yankee Stadium! All-Star Game tonight, St. Louis Cardinal, Albert Pujols will bat cleanup for the National League! So... Watch out for all the risk today, and make it a TIP TOP Tuesday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837