Daily Pfennig : Euro, Consumer Spending, Jobs

Data shows just how bad things are...

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

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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

Heading Towards Zero...

Chuck Butler — Thu, 30 Oct 2008 13:59:32 GMT

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In This Issue..

* Fed cuts rates 50 BPS!

* Currencies rally Big!

* 3rd QTR GDP to go negative?

* I.O.U.S.A.

And Now... Today's Pfennig!

Heading Towards Zero...

Good day... And a Tub Thumpin' Thursday to you! It certainly was a Tub Thumpin' Wednesday for the currencies, foreign stocks, commodities, and the Philadelphia Phillies! This by no means that the deep dense fog that has hung over the markets for 3 months has lifted for good... It did, however, lift for one day, and what a day it was!

Oh, and the Fed did indeedly do cut their Fed Funds rate to 1%, which works out great since Fed Funds had been trading at 1% anyway! I had a reported from Dow Jones call me a few minutes after the rate cut and ask me my opinion on what the dollar was doing, which at the time was rallying back a bit... I said it looked like a classic case of buy the rumor sell the fact, that enough speculators were pushing the dollar lower ahead of the rate cut in hopes that a larger cut would be made. That, however, was not the case, and the dollar rallied... But only for about 20 minutes, and then it took a rid on the slippery slope, with the euro pushing to the 1.29 handle as I left for the day.

I turned on the currency screens this morning, and what to my wondering eyes did appear, but the euro trading back above 1.30, I gave a cheer! Not that I have a dog in this race, I just like to see people make money... So, I immediately began to think, Now Chuck, is this for real? Or... Just a false dawn? Well... You know, the dollar really had gone too far, too fast this month and was due for a correction, and what better day to have a correction than a day when your currency was debased by 50 BPS! The dollar was going higher so fast it reminded me of a story I heard a very long time ago, and can't remember if my dad or mom told me, but it goes like this... Chuck, nothing grows to the moon, stars and sun, but sometimes it looks as though something might... But don't worry, it will come back to earth.

And so it was for the dollar this month... Of course this all could be wiped out by the fact that tomorrow is month-end, and we could see some adjustments being made in foreign stock funds... Let me explain... These foreign stock funds are off by quite a bit this month, and since they are foreign stock funds, they are denominated in foreign currencies... So, to adjust the amount of currency needed to fund the well, fund... These funds might have to sell currencies tomorrow. So, keep that in mind... But after yesterday's performance, who knows?

The other day, I mentioned how the Emerging Market Currencies had really taken the brunt of the dollar strength... But... I saw where there was an announcement overnight of IMF and Fed dollar swap lines for emerging markets. This is a bold and reassuring measure to address the liquidity problem for the Emerging Markets... I don't know if it will be enough, but for now it has brought some calm to these markets.

So... U.S. rates are at 1%... This is the level that former Fed Chairman, Big Al Greenspan, brought rates to in 2003 and left them there far too long, through 8 successive meetings before lifting rates in June of 2004. During that time, Gold rose 16%... The S&P 500 rallied too, and bond yields went up... But... We certainly do live in a different world than just 4 years ago, don't we? I just don't like interest rates this low, but a Fed has got to do what they've got to do. And I think the Fed Heads believe that they will be "Saved by Zero"... Maybe, someday, Saved by Zero... But I think they'll have another thing coming! You've got another thing coming!

The current Fed Chairman, Big Ben Bernanke, or triple B, issued a statement following the rate cut, that was quite somber... To me, he painted a very dark, depressing picture of the economy, and... I think he left the door wide open to further rate cuts, taking us on that path toward 0%... I doubt they'll actually ever get to 0%, but we could be getting within' spittin' distance of 0%...

I could go on and on regarding these low interest rates, but I don't feel like getting my blood pressure all boiling, and yelling at the walls! This is the first day in what seems to be a month of Sundays, that I can look at the currency screens and smile... So, I'm not going there, and you can't make me!

Don't know if you've noticed, but the Chinese renminbi has remained virtually unchanged this week... Yes, the peg was dropped in July of 2005, and it should move some each day, right? Well... When you realize that the reality of the situation is simply that China is a Communist Country, and can do what ever they well please with their currency! And it looks to me as though China has restored the peg... Maybe it's just a move to sit on the sidelines during these tumultuous times in the financial markets...

OK... I just saw the euro gap up from 1.3075 to 1.3135 in a heartbeat! It was crazy! Now this is going too fast! Why can't these currency traders make up their minds? OK, I'm not complaining, this time! But, really... On Monday of this week we were looking at some devastating currency levels, and by Thursday they have reversed about 6%!

And you know what all this dollar weakness and euphoria brings to the currency table don't you? Of course you do! Risk trades, Carry Trades, dollar and yen weakness, Aussie, Kiwi, and other higher yielders stronger... Yen is still below 100, so that's a good thing... And maybe, the Bank of Japan (BOJ) will lose the scent of currency intervention... Or, maybe they'll just stop talking about things that would weaken the yen... For now!

I've been around the currencies since 1985... Trading them since 1992... I've never seen the volatility that I see every day since July in the currencies... Crazy, I'm crazy for feeling so lonely... No wait! Ahhh... Patsy Cline, one of my all-time faves! And, on a sidebar here... What's the most played song ever in jukeboxes? Crazy...

OK... Don't know where I was going there, but quickly turned to trivia, UGH! Today, we'll see the color of the 1st estimate of 3rd QTR GDP... This ought to be interesting.... Remember in the 3rd QTR, the dollar was stronger, so imports won't be there to pump up GDP like they did in the 2nd QTR. Hans and Franz, pump you up! The experts believe that 3rd QTR GDP will be negative to the tune of -.5%... I'm going to go out on a limb and say it will be worse than that... But the fact that it's negative, really reinforces my claims that we're already in a recession.

We'll also see Personal Consumption for the 3rd QTR... This is a report that the Fed Heads usually pay close attention to. Personal Consumption is expected to have fallen -2.4% in the 3rd QTR... That's another rate cut arrow in the Fed Heads' quiver... Personal Consumption falling is akin to falling inflation, which you and I know is a bunch of bunk! But the Fed believes what it wants to believe...

And with it being a Tub Thumpin' Thursday, we'll see the Weekly Initial Jobless Claims like we do every Thursday. This report has showed that the Initial Jobless Claims will not slow down. The Weekly number remains around 475K, and the Continuing Claims number adds to the figure every week. This all will lead to unemployment rising to at least 7% in the near future...

Again... I received a letter yesterday from someone that ripped me for not providing solutions and always criticizing... Hmmmm... I said for years now... Reduce the debt, reduce the debt, reduce the dept... That's the Solution! I think everyone can think of one way the Gov't and Consumers could reduce their debt... And that's the Solution! I've beaten the proverbial dead horse with that statement... Reduce the debt! Geez Louise... Oh, and did I mention... Reduce the debt!

And with the smoothness of a Carlos Santana guitar solo... I slip right over to talk about my friends, Addison Wiggin, and Kate Incontrerra's book I.O.U.S.A. that accompanies the movie of the same name that was released last August. I read the book on all the flights during the currency tour, and even recited parts of it in my presentations. This is a must read for everyone, period. It makes no difference if you are rich, poor, middle class, in debt or not. It doesn't matter what you wear, just as long as you are there.... See how I slipped right over to I.O.U.S.A. from my tirade about Reduce the debt? I've learned something from writing a daily newsletter for 16 years!

And... You can get your copy of I.O.U.S.A. by clicking this link... http://rcm.amazon.com/e/cm?t=dailyreckonin-20&o=1&p=8&l=as1&asins=0470222778&fc1=000000&IS2=1&lt1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr

Currencies today 10/30/08: A$ .6870, kiwi .5995, C$ .84, euro 1.3140, sterling 1.6575, Swiss .8855, ISK (still no quote), rand 9.91, krone 6.5770, SEK 7.5050, forint 194.70, zloty 2.7040, koruna 18.60, yen 98.70, baht 34.85, sing 1.4610, HKD 7.5110, INR 49.67, China 6.8410, pesos 12.81, BRL 2.1150, dollar index 83.64, Oil $68.25, Silver $10.06, and Gold... $770.15

That's it for today... Congrats to the Philadelphia Phillies on their World Series title... I told the people of Philadelphia (when I was there) that I had thought the Phillies were the best team in the National League all year... Got to have dinner with my little buddy, Alex last night, as we went out (my beautiful bride was gone)... Just the two buddies... I had a flashback to when he was 3, and would sit on my lap while I wrote the Pfennig, and would help me sometimes, which would look like this 0970987u038yr8hy32o.... He's 13 now, loves to work out, play his guitar, and sports... I don't know how it happened but that sounds exactly like me when I was 13! One difference though, I was bigger than he is... And... I had no qualms admitting I liked girls at 13... He hasn't felt comfortable with all of that yet! So, see, kids aren't always ahead of what their parents did! OK, I've rambled on here too much... Time to go and have a Tub Thumpin' Thursday, hope your is Tub Thumpin' too!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837