Daily Pfennig : European Union

A Eurozone Bond To Compete With Treasuries?

Chuck Butler — Mon, 23 Feb 2009 16:32:58 GMT

In This Issue..

* The euro gets some wind in its sails...
* Citigroup is seeking more bailout funds?
* Gold hits $1,000!
* The ghost of Humphrey-Hawkins...

And Now... Today's Pfennig!

A Eurozone Bond To Compete With Treasuries?

Good day... And a Marvelous Monday to you! Sure seems as though I went from Friday to Monday, as I went out of town this past weekend, and before I knew it, I was driving to work this morning! UGH! There was a rumor on Friday that really sent the euro higher, and there was another rumor this past weekend about the Asian currencies... So... Let's look at those two items and more of course, as we begin the last week of February!

Well... On Friday, the euro finally caught some wind its sails after being pummeled all week by the dollar in response to the St. Valentine's Day massacre that took place the previous weekend. In case you had forgotten what I'm talking about here... I'm talking about the news that the Eastern European loan losses had grown to a point that they were causing major problems for Western European Banks that had extended the loans. There were calls for the "end of the euro" and all that... Yes, it's a very serious thing, but not the cause of a collapse of the euro!

OK... You may recall me saying that as much as I hated saying it, the IMF and Bundesbank needed to come to the rescue... Germany's Chancellor Merkel, was all "show and no go" in her press conference, and that all left the euro without a bid... But then along came John, Tall walking John, slow talking John... Well, no "John" in particular is involved, but I always got a kick out of that song! Any way... There was a story on Friday mid-day, that a "Eurozone bond" could be used to ease the turmoil on the financial institutions... Here's a snippet from Reuters...

"The Chairman of euro zone finance ministers Jean-Claude Juncker has proposed that the common euro zone bond should cover the first 40 percent of the overall euro zone government debt, sources familiar with the work of the Eurogroup said.
   This would be senior debt, guaranteed by the whole euro area, which now has 16 members. Anything above the 40 percent would be junior debt that would be issued by the individual governments.
   The junior debt would most likely be more costly for the government to issue, therefore encouraging a reduction of debt towards the common euro zone level of 40 percent, sources said.
   If agreed on, common euro zone bonds would in a matter of a few years create a highly liquid bond market of some 4 trillion euros which could successfully compete with a similar size U.S.
treasuries market for large investors like China."

That's HUGE folks! However, before we all go out to celebrate... There's opposition to this plan by Germany, who already has about 1 Trillion euros worth of German bonds issued... And if Germany balks, this plan will not get off the floor. But, for now, it has put some wind in the euro's sails...

You have to give the Eurozone ministers some credit for creating something that the likes of China could use as an "alternative" to Treasuries, as Treasuries have long been the only game in town for countries like China and Japan that have tons of cash to invest...

There was another story out this past weekend that I read about last night, that tells of the Asian countries pooling together reserves to back their currencies against speculators. The report called for around $30 Billion to be pooled by the Asian countries...

Now, that may or may not be true, but the point here is that this kind of smoke comes from the fire of protectionism... These are baby steps to a full blown protectionism plan... And you know me, there's no smoke without a fire, there's no heat without a flame...

The BIG news this morning though is the one that's going around about Citigroup... Let's see what the Wall Street Journal has to say about this... "Citigroup is in talks with federal officials that could result in the U.S. government substantially expanding its ownership of the struggling bank, according to people familiar with the situation.

While the discussions could fall apart, the government could wind up holding as much as 40% of Citigroup's common stock. Bank executives hope the stake will be closer to 25%, these people said.

Any such move would give federal officials far greater influence over one of the world's largest financial institutions. The proposal was made by Citigroup to its regulators."

Oh great, I can the dolts on Capitol Hill all screaming about how this is proof that the U.S. needs to nationalize banks... Well, let's see... If they hadn't already put tens of Billions into this bank, maybe they wouldn't be so ready to try and save it! See? This is what I was talking about months ago, when I said that the Gov. bailing out banks was a very bad thing... But, do you think these guys on Capitol Hill cared to listen then? And they are still not listening... They are dolts! When former Treasury Sec. Paulson, came to them and said he needed $750 Billion to make things right, these lawmakers didn't bat an eye, they didn't question where he got the $750 Billion figure, they didn't ask him how he would account for the spending, or how it would be paid back and when... No, they just followed him like ducklings crossing the road with their mother...

OK... This week... Hmmm... Well, tomorrow and Wednesday we get a double dose of Big Ben Bernanke speaking on Capitol Hill... This is the semi-annual testimony on the economy, which used to be required by the Humphrey-Hawkins bill that expired some time ago, but is still followed by Fed Chairmen. What's going on nowadays makes a joke out of Humphrey-Hawkins... You may recall the Humphrey-Hawkins Full Employment and Balanced Budget Act, which was put in place in 1978... I'd say the Fed has to do a Lucy... They got some 'xplainin' to do!

Tomorrow, we will see the S&P/Case-Shiller Home Price Index, which I'm sure will show that the home prices continue to fall here in the U.S. Tuesday also brings us Consumer Confidence. Wednesday will bring us Existing Home Sales followed by New Home Sales on Thursday, and we finish the week and month with a revision to the preliminary 4th QTR GDP, and the Chicago Purchasing Managers Index (manufacturing)...

So, we've got a boat load of data to go through this week, but the Big items are... 1. is the Eurozone going to issue a bond to rival Treasuries? 2. Is Citigroup going to seek additional bailout funds from the Gov.? 3. Big Ben's testimony this week 4. An Asian currency fund? 5. Data...

Gold traded above $1,000 on Friday! I saw it trade there with my own 1 eye! $1,002... But, you may recall me telling you either last week or the week before that I was sure Gold would trade to $1,000, but getting there and staying there would be difficult for the shiny metal, as profit taking would push it back down every time it gained ground to $1,000... And... That's exactly what happened late Friday, and in the overnight markets last night. Gold saw a ton of profit taking, and has been pushed down to $986... But, I look at like this... "it's cheaper today than Friday!"

The Citigroup story has the "risk takers" dipping their toes back into the water... As the "risk takers" aren't really taking risk these days... They only come out when there are stories about how banks being bailed out... But any way, that's what they are called, and when they come out to play, the high-yielders like Aussie, kiwi, Brazil, South Africa, get to join in and play too... And all of these are stronger VS the dollar this morning than they were all last week...

The Swiss franc hung on to the euro's coattails and moved higher even in the face of their banking problems, as they would not be a part of the Eurozone bond idea...

Time to head to the Big Finish... Lots of stuff to deal with this, the final week of February! And Oil is back above $40... Hmmm....

Currencies today 2/23/09: A$ .6495, kiwi .5155, C$ .8040, euro 1.2840, sterling 1.4635, Swiss .8615, rand 9.99, krone 6.7980, SEK 8.6650, forint 232.40, zloty 3.6550, koruna 22.30, yen 94.70, sing 1.5250, HKD 7.7525, INR 49.68, China 6.8390, pesos 14.76, BRL 2.38, dollar index 86.51, Oil $40.52, Silver $14.35, and Gold... $987.50

That's it for today... Yesterday morning, my beautiful bride and I had breakfast outside next to the ocean with a bright sun beaming warmth down on us... 4 hours later we were back in St. Louis, and 20 degrees! UGH! I made the trek to Jacksonville for the memorial service of our colleague John Kimsey, who would have celebrated a birthday today. I met John's wife, who said to me..."you must be Chuck, I read your letter every day"... I was also stopped in the hallway by a fellow that said, "are you Chuck Butler?, I read your newsletter every day", So... John must have converted quite a few people to be Pfennig readers! But really... I must be easy to spot, as how many bald, overweight guys are there walking around with a cane, and a beautiful bride? It was good to see a lot of EverBankers that I don't normally get to see, too bad it was for that reason... And special thanks to Diane Russell, the dinner was magnificent! OK... Mike Meyer's here, time to go! I hope your Monday is Marvelous!

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

The Geithner Plan Day!

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

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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

Groundhog Day 2009

Chuck Butler — Mon, 02 Feb 2009 16:30:02 GMT

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

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.

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..

* The dollar remains strong...
* GDP sinks to -3.8%
* Central Bank rate meeting week...
* Gold outperforms just about everything!

And Now... Today's Pfennig!

Groundhog Day 2009

Good day... And a Marvelous Monday to you! It's Ground hog Day (what a great movie!) today... And what a Super Bowl Game last night! WOW! Almost as exciting as the year our Rams won and the tackle on the last play of the game for a touchdown, was made on the one yard line... Seems like eons ago, that the Rams won...

Well, front and center this morning, the euro and other currencies are still reeling from that shot to their mid section by George Soros at the World Economic Forum, in Davos Switzerland. The dollar has flexed its muscles a bit more and taken the euro to just above 1.27... Not that euro holders want to hear this, but this IS what I was talking about all last month with the talk of an Obama bounce. The stock market hasn't caught on yet though...

Friday's print of 4th QTR GDP didn't, on the outside, look as bad as forecast, printing at a negative -3.8% (forecast was -5.5%). But, like I said, and you what you would fully expect me to find, on the inside, this is not a good number folks... Here's the skinny...

OK, first of all, the print of -3.8% was the worst print / performance in almost 27 years! And it could have been worse... Let me explain... You see, business inventories, the goods that retailers could not sell to consumers and manufacturers, goosed up the GDP number. Inventories moved from a $30 Billion reduction in the 3rd QTR to a buildup of nearly $6 Billion in the 4th QTR. In the strange computation that's used for GDP, the growth numbers get credit for inventory buildup... However, that's going to be a HUGE drain on the 1st QTR growth numbers for 2009. When inventories are subtracted from the equation, the negative growth falls to -5.1%, almost at the forecast number.

You have to wonder now, just how long this recession is going to last, as I'm already marking down a negative -5% GDP for the 1st QTR of 2009... If it lasts past May, and I would almost bet the farm that it will, this recession will turn out to be the longest and perhaps the deepest period of economic decline in the U.S. since the Great Depression...

I recall last year at the Orlando Money Show, telling the crowd that we were already in a recession, and hearing some of the snickers... I had a brief conversation with an old colleague, that's a big shot now in other markets, that we had gone into a recession, and he laughed at me... Well...

So... If the trading theme remains in place during this quarter, the dollar is sure to be on an upswing, as you may recall... The Trading Theme rewards the dollar any time the economic data shows a deeper, darker, more dangerous economy / recession... And... Unfortunately, that's what we now have!

We also have a recession going on in the European Union... But, folks, let me tell you something... This falls under Chuck's reasons for a Positive Balance of Payments...

When all this started going down, I mentioned that stimulus packages, or bailouts come a little easier when a country is dealing from a position of strength, and by that, I mean if a country has a surplus. And isn't adding to deficits that already exist.

One day, this will matter... I may not today, tomorrow, next week, or next month... But eventually, you have to pay the piper... And the only way the U.S. can pay the piper right now is by printing more dollars to pay for the debts... And so, therefore, they would love to pay for them with "cheaper dollars"...

Here's another reason to strive for a surplus... On Friday, it was announced that Japan had made a loan of $100 Billion to the IMF. Better to have that $100 Billion in the checking account, eh? OH! And the IMF said it wasn't in danger of running out of money... They said the needed the loan because they Expect to be dealing with BIGGER problems in the future...

Now that gives you a nice warm and fuzzy, eh? NOT! I would rather the IMF say they needed the cash, because they've already helped everyone that needed help, rather than to say they EXPECT BIGGER PROBLEMS!

Down under in Australia, where it's getting to late summer, it looks like the global slowdown is beginning to take its toll here. Kevin Rudd, the prime minister, said the slowing down of global growth was forcing the government into a budget deficit for the first time since 2001-02... The Reserve Bank of Australia (RBA) meets tonight, and will announce afterwards that they cut interest rates again... Probably by 1% or 100 BPS...

There are quite a few Central Banks meeting this week to discuss rates... Here's a preview...
Sweden's Riksbank meets on Wednesday and I'm looking for a 50 BPS cut. Thursday sees both the Bank of England (BOE) and European Central Bank (ECB) announce their decisions. ECB President, Trichet, was quite hawkish last week, and has me believing that that ECB will skip a rate cut this month. However, I fully expect the BOE to cut rates by 100 BPS. The "experts" are calling for 50 BPS cut... But as I've said all along, the BOE is following the Fed down the road to ZIRP (zero interest rates), so why wait? Go ahead and cut 100 BPS now to .50%, and get it over with!

I understand that London was smacked by the worst snow storm in years this morning, and that the transport system is in disarray, causing many markets people to stay home, thus causing some real thin volume in the morning session...

But... Even as much as I would like to... I can't blame the snow and lack of volume for the dollar's strength this morning... No... As I said at the top of the page, I blame it on the pasting that George Soros laid on the euro last week... And now the euro and other currencies have to pull themselves up by the bootstraps if they want to get back into "the game"...

Well... On Friday, (our little Christine's birthday, I might add) I mentioned to the boys and girls on the trading desk that Gold was outperforming just about everything! On Friday, Gold ran up to $927... That level looked too good to some holders this morning though, as profit taking has brought Gold back to $914...

You know... My friend, Bill Bonner of The Daily Reckoning fame (www.dailyreckoning.com) has been telling people for 9 years now, that his "trade of the decade" is to sell the DOW and buy Gold... Sure has been one heck of a trade, eh?

With all the countries in the world racing to zero, it makes even more sense to hold Gold, as the Gold is a non-interest bearing investment, but neither is just about anything else these days! And while the news from China scared Treasury holders a bit a couple of weeks ago, the fear is waning, and yields are on their way back down again. OH BOY! You can get about 2.5% for a 10-year Treasury! Like I said, Gold compares with other holdings now that there's a race to zero... And... There certainly isn't the same amount of Gold in the markets as there is Treasuries! HA!

Well... Last week, we had a data cupboard that was chock-full-o-data, and none of it was good! We follow up that week of bad data with one that starts off strong and then has an even stronger finish! That's right, we finish this week up with the January Jobs Jamboree, which I'm afraid will show another 1/2 million unemployed were added during the month. In between now and Friday, we'll see Personal Income and Spending for Dec. ISM Manufacturing, which has fallen into the abyss in recent months, and with the dollar stronger, has no chance of improving. Pending Home Sales tomorrow, and Vehicle Sales on Wednesday.

With all the dollar strength, you have to make the assumption that the Risk Takers are no where to be found... And with no risk takers, guess what currency is also booking gains? That's right, Japanese yen... And the beat goes on...

Currencies today 2/2/09 (Groundhog Day): A$.6285, kiwi .50, C$ .8075, euro 1.2770, sterling 1.4110, Swiss .86, rand 10.225, krone 6.9920, SEK 8.3410, forint 233.15, zloty 3.4790, koruna 22.10, yen 89, sing 1.5140, HKD 7.7550, INR 48.93, China 6.8478, pesos 14.49, BRL 2.3575, dollar index 86.27, Oil $40.46, Silver $12.43, and Gold... $912

That's it for today... Well... It's Groundhog Day... So, what Super Bowl commercial did you like the best? I laughed at the Doritos Commercial until the second part of the commercial... And I laughed hard at the Bridgestone commercial with Mr. and Mrs. Potato Head... I didn't think the commercials were as good this year. My little buddy Alex, is still at home with his broken nose, although I think his mom is ready to kick him out the door and back to school! Little D, Delaney Grace, came to visit and watch the game with me yesterday... She is so darn cute! Well.. Tomorrow afternoon, I head out, with Chris, to Orlando for the Money Show. I know it's not hot there, but at least it will be (hopefully) be a bit warmer than here! With the Money Show here, that means January is over and done with, and none too soon as far as I'm concerned! Well, Mike's here, that means I better get this out the door! I hope you have a Marvelous Monday, and Wonderful Week!

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

Misguided risk aversion...

Chuck Butler — Fri, 21 Nov 2008 16:31:01 GMT

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In This Issue..

* Bad data pushes investors into US treasuries...

* Barclay's says the euro will rally...

* SNB surprises with a rate cut...

* Iceland gets their bailout...

And Now... Today's Pfennig!

Misguided risk aversion...

Good day...The dollar rallied a bit yesterday on some very poor economic data which illustrated just how bad things are getting here in the US. As Chuck has repeatedly told everyone, in the current trade pattern the dollar rallies whenever we get negative data for the US economy. Investors get spooked by this negative data, and run scared into the 'safety' of US treasuries.

Ty sent me a quote from respected newsletter owner/author Bill Bonner yesterday: "Misguided risk aversion, anyone? A few months ago, investors stretched for yields. Now, it's safety they reach for...and grab U.S. Treasury debt with both hands. Investors now seem to have an unqualified trust in the full faith and credit of the world's largest debtor. Yields on 91-day T-bills have fallen to 0.11% - scarcely a tenth of one percent!"

And when you adjust these yields for US inflation, the real yields on US treasuries are negative (even the 10 yr treasury real yield is -.43%!!). These investors won't be parked in US Treasuries for long, but while fear continues to drive the markets, the US dollar will remain strong.

The data which sent shivers down investors spines yesterday was a one two punch of weekly jobless claims and leading indicators. The number of Americans filing for unemployment benefits approached a 26-year high of 542,000 last week. The Unemployment rate will likely increase another 100 bps by this time next year, and stay at these elevated levels for an extended period of time.

The second blow came shortly after the jobs data was released, as the index of leading US economic indicators fell in October for the third time in four months. The Conference Board's gauge dropped .8%, more than forecast, after rising .1% in September. This index points to the direction of the economy over the next three to six months. Consumers and companies are cutting back as job losses mount and housing and manufacturing sink deeper into a slump. These two pieces of data indicate just how quickly the US economy is falling into recession.

Investors fled stocks and moved back into dollars throughout the trading day yesterday, rallying the dollar index back to the highest level since April 2006. We moved above 88 on the dollar index a week ago, but it was unable to maintain the higher level.

The same thing occurred last night, as equity markets in Asia rebounded, bringing the dollar index back below the 88 handle. Apparently there was speculation that a sale of Citigroup Inc. will reduce risk in the financial system, slightly increasing the confidence of investors. This is how perverse these markets have become; the possible sale of one of the largest financial firms in the US actually rallies the markets.

The European Union announced that is crafting a coordinated economic stimulus package to spur its 27 nation economy. European Commission President Jose Barroso told reporters in Brussels today that the commission will announce a fiscal stimulus plan next week. The plan will be based on member states taking measures suited to their own economic situation. I like the approach the EU is taking to the crisis, as they will design the stimulus to try and meet the differing needs by each country. According to the EC president, "Everyone is suffering from the crisis and everyone needs treatment, but not everyone needs the same pill."

According to Barclay's Capital, the euro will strengthen 16 percent against the dollar in the next 12 months as Chinese demand drives up prices for oil, reducing the US currencies attractiveness. Two-thirds of the euro's 22 percent slide since the July peak of $1.6038 can be accounted for by plunging oil prices, Barclays said. China is the second largest oil consumer after the US, and "Contrary to current received wisdom, oil prices are much more important for the euro-dollar cross than either the stock market or interest rate differential right now," wrote London-based David Woo, global head of currency strategy at Barclay's. Declining oil prices have helped the greenback by narrowing the US current account deficit, reducing the US's need for overseas funding, Woo said. He forecasts the euro will trade in a range around $1.24 in the next three months, but then rally to $1.45 over the next year as accelerating growth in China helps oil prices retrace their recent fall.

I agree with Barclay's analysis of global commodity prices. China and the rest of Asia will continue to be the world's growth engine, and demand for commodities will increase. The stimulus packages which are being pushed will put additional upward pressure on raw material prices. The commodity rally will not only help the Euro, but will help push up prices of the Norwegian krone, Australian dollar, and Brazilian real.

Switzerland's central bank surprised the market yesterday, dropping its benchmark interest rate by 100 basis points. The Swiss National Bank reduced its target for the three month Libor to 1 percent and promised a 'generous and flexible' supply of Swiss Francs. It's the third unscheduled move by the SNB since the beginning of October. I would expect the SNB to keep rates on hold at their meeting next month given the extent of yesterday's move. The Swiss Franc fell as the dollar strengthened yesterday, but rallied overnight and is now trading close to where it was prior to the SNB move.

In other interest rate news, the Bank of Japan kept its benchmark rate at .3 percent today and said it will consider pumping more money into the financial system to prop up an economy that fell into recession last quarter. Japanese banks are in a much better financial position that banks in the Eurozone or the US, and the Japanese consumers are flush with cash. Japan went through a long deflationary period, and consumers there are less leveraged than here in the US. The stronger position of Japanese banks, and the more solid consumer base will enable the Japanese economy to weather the global slowdown much better than most other economies. The yen will retain its attractiveness as the world faces a long, long recession.

Technical analysts predict the yen may rally to 92.50 in the short term, and could move above the 13 year high of 90.93 which it hit on October 24. According to the analysts, the so-called support level is near the bottom line of a trend channel that tracks the dollar's decline from a two week high of 100.55 yen on Nov. 4. The US currency is poised to extend a 3.5% loss this month as it failed to rise above the 20 day moving average and the down trend is still very clear.

The Australian dollar approached a five year low against the dollar in late US trading and the New Zealand dollar traded near a six year low as investors moved out of the carry trades after the negative US data yesterday. But the Australian dollar bounced back overnight as the Reserve Bank of Australia announced it had bought a record 3.15 billion Australian dollars in October. The RBA continued to purchase its own currency this morning, "providing liquidity as on previous occasions," said a spokesman for the Sydney-based central bank. The Australian dollar has posted a record monthly drop in October and the RBA has been purchasing the AUD$ in an attempt to slow the drop. Commodity prices continue to fall, dragging down the exchange rates of commodity exporting countries. Falling interest rates have also put pressure on the higher yielding currencies of NZD and AUD.

Iceland finally got the long promised bailout from the IMF and four Nordic countries yesterday. The IMF and four Nordic countries gave Iceland a $4.6 billion bailout. The Icelandic government will also borrow about $6.3 billion from the UK, Germany, and the Netherlands to cover foreign deposit guarantees at failed lenders. While the rescue was desperately needed, it will heap almost $11 billion of debt on the shoulders of the islands population of just 320,000. "This is an extraordinary scale of problem related to the size of the economy," IMF Mission Chief to Iceland Poul Tomsen told reporters. "Iceland is in an unprecedented situation." GDP in Iceland is predicted to shrink about 10 percent next year, the IMF says. The island had the fifth-highest per capita income in the world in 2007, but the collapse of their financial system has caused the Icelandic krona to lose two thirds of its value this year. The rescue may start to add some liquidity back into the banking system, but the massive amount of debt will likely keep the Icelandic economy from rebounding for a number of years.

Currencies today 11/21/08: A$ .6212, kiwi .5272, C$ .7817, euro 1.258, sterling 1.4982, Swiss .8194, ISK (No Quote), rand 10.46, krone 7.0831, SEK 7.2031, forint 211.78, zloty 3.046, koruna 20.405, yen 94.87, baht 35.22, sing 1.5304, HKD 7.7513, INR 50.02, China 6.8311, pesos 13.8031, BRL 2.457, dollar index 87.56, Oil $50.38, Silver $9.17, and Gold... $756.88

That's it for today... Big day here on the desk as we are all excited about our Christmas party tonight. Yes, it is a bit early for a Xmas party, but I'm not one to complain about free food and drinks!! And the party is being held at a bowling alley, which is right up our alley (pun intended) as we are a fairly competitive group. I actually took a bowling class in college, but I haven't bowled in a few years, so I hope I can recall some of what I learned back then. Hope everyone has a Fantastic Friday and a Wonderful Weekend!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

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

Rate Cut Week...

Chuck Butler — Mon, 03 Nov 2008 14:55:23 GMT

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

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In This Issue..

* Mixed bag o' data...

* Trading theme in place...

* election tomorrow...

* Consumer Spending collapses!

And Now... Today's Pfennig!

Rate Cut Week...

Good day... And a Marvelous Monday to you! Welcome to November! For almost 20 years, November was my least favorite month, cold gray days, dead looking trees, bad memories of the month, and all that... But I just don't get all involved in that stuff anymore, as my different outlook on life tells me that every day is a great day, and months just contain great days!

OK... On Friday, we saw more and more of the same trading theme, and in the overnight markets last night, more and more of it again! And Carry Trades are back for the moment anyway, as stocks rebounded late in the week to end the month with a brighter outlook than they had earlier in the month. But, in my view from the cheap seats, this stock rebound is much like what they call in the markets, a dead cat bounce, (OK no animals were hurt here!) which means... That stocks are going nowhere, but bounces can still happen. I say that stocks are going nowhere, and I'm not even your last choice as a stock jockey... I just survey the economic horizon and see a deeper recession than we are currently experiencing, and a "spent" Consumer, which is going to lead to awful earnings for Corporations, and thus stocks not going anywhere...

But, Hey Chuck! This is not a stock letter, so get on the ball and talk about currencies and economies! Geez Louise, just drift off on a tangent and the crowd is harsh, eh?

Well... The currencies played the trading theme a "T" on Friday and overnight... A stock rebound gives everyone the feeling that things are getting better, and that means... 1. Carry Trades go back on and 2. the dollar gets sold, thus giving a rebound to currencies. Of course Carry Trades going back on doesn't do the Japanese yen any good... So, you've got to deal with yen weakness, but a stronger euro and other "non-yen" currencies.

The data on Friday was interesting in that Personal Spending was worse than expected, but Personal Income was better than expected. The Personal Spending was negative -.3%, marking the low since 2005, and the sixth worst print since 1991. (see what I'm talking about regarding those Corp. Earnings, now?) And... That was September's numbers... I can't even imagine how bad that Spending number is going to look when October's numbers are printed!

The Chicago Purchasing Managers Index (manufacturing) collapsed in October, falling from an index number of 56.7 to 37.8. That's a low that hasn't been seen since the shortened recession of 2001. Other than that one, you would have to go back to 1982 to find such a weak print. I realize that this is just the Chicago region... But is there anything that gives one a feeling that the other regions will be immune to this? NO... And Manufacturing can thank... 1. the stronger dollar, 2. the credit squeeze, and 3. the recession... For their misery...

OK... I've gotten a ton of emails asking me about the Hal Turner video on the Amero... I thought I addressed this all last week... I don't believe in the Amero as the story has it all going down... Now someday, maybe two decades off, when the Social Security fund goes negative because of all the retired baby boomers, the dollar will collapse and there will have to be a "new currency", but now? In February 2009? I put that all down as a hoax... Sort of like... The guy that claimed back in the 80's that there was going to be the mother of all earthquakes in the Midwest... Browning was his name.

The European Union released a statement this morning that say they believe that the EU may be in recession... I find this interesting that they decided the week of a European Central Bank (ECB) meeting to announce this... Well, it does grease the tracks just a bit more for the ECB to cut rates this Thursday when they meet... So, expect rate cuts from the ECB and the Bank of England (BOE) this week... Neither Central Bank will "want" to cut rates... But both will feel the need to, given the slowdown in the U.S. and its history of causing major problems for the world when it does slowdown. Of course, I've argued that the rest of the world is in a better position to weather the storm of a U.S. slowdown, but a deep, dark recession... Now that's the horse of a different color folks... And unfortunately, that's what I think we're going to see in the U.S. as we go through the cold, short days of Winter...

There's a story on the Bloomie this morning that says: "Templeton, Sydbank see Won, Rupiah, Rupee bottoming"... OK... We don't deal in won, or rupiah, but we do deal in rupees... And renminbi, which in the story says is being bought by Franklin Templeton Investments... So, it's nice to see others with large research teams jumping on the Asian currency bandwagon that I've been taking memberships to join for some time now. Sydbank is Denmark's third-largest Bank, and they like rupees.

The idea with talking about this story is simply that Asian currencies are catching the eyes of more investment firms, and that's a good thing!

OK... I've been asked about the Big Mac Index say 100 times in recent days, and why I didn't see the euro as being overbought, since it was so out of line on the Big Mac Index. Well... That's because the Big Mac Index has a tendency to be ahead of the actual currency move. For instance, in 2001, the dollar showed it to be totally overbought on the Big Mac Index, but didn't lose ground to the euro until a year later.

Instead of the Big Mac Index, I've been watching the ipod index... That's right, there's a new kid on the block to compare trade competitiveness and "Purchasing Power Parity"... And guess what the latest ipod index shows? It shows that Australia has the cheapest ipods in the world!( well, really the top 62 industrialized countries) That means the A$ is very cheap, and oversold! The last time the index was printed, Australia had the 14th cheapest price... Guess when that was? Yes, July, when the A$ hit 98+ cents! Now, this doesn't make up for the fact that the A$ has fallen from the sky and fallen very hard, causing some major losses since July, but it does give a glimmer of hope that the selling could be coming to an end... It's just a glimmer folks, don't hold my feet to the fire here...

One thing that won't help the A$ right away is a Reserve Bank of Australia (RBA) rate cut, which is most likely to happen at their next meeting tomorrow night.

Well... Recall when I told you that the Fed was going to open up the Commercial Paper market and buy the paper from Corporations in an attempt to revive this form of funding for Corporations? Well, last week was the first week, and in the first day (Monday) Commercial paper sales were strong, spiking to $232 Billion that day. Think it was overdue? That's the most Commercial Paper done in one day in 5 years!

Again, I'm a free markets guy, and don't care for Gov't intervention in any way. I would rather see markets work things out for themselves, whether it causes pain or not. But... If the Gov't is going to stick their hands in the cookie jar... This is probably the one thing they've done that doesn't give me as bad of a rash. This market is essential to Corporate borrowings, and could get things moving in the credit squeeze. And the credit squeeze is the BIG KAHUNA with regards to getting things back to the fundamentals, which we all know spell weak dollar...

I saw an article in my local newspaper's business section yesterday that made me laugh out loud... The article inferred that now that October was over, the threat of a stock market crash was over! Who writes these things, and where is the editor? Just because we've seen some major stock moves in October, doesn't mean they can't happen any old time! Strange...

So... I expect to see 50 BPS rate cuts in Australia, England, and The European Union this week... We'll also have the U.S. election tomorrow, which ought to bring the markets to a standstill until the dust settles on the outcome... If the polls are correct, then it won't be a close election result... I've been asked by many people while on the road, etc. to outline the markets with an Obama or McCain win... I've steered clear of that stuff... All I'll say is that in my opinion, neither one were addressing the important things, like the deficit spending, and how are we going to pay for the baby boomers... I heard one party say they would balance the budget by the end of their term... That's 4 years from now? We have to add to the National Debt for 3 more years? YIKES!

So... There you have it... Chuck's election coverage! And that's all I have to say about that!

Data this week... We'll see the National ISM (manufacturing) Index this morning... Look for more rot on the vine from manufacturing as I stated above. We end the week with a Jobs Jamboree, which right now is looking awfully bad... Really bad... And that, I'm afraid will do nothing but add to the deep dark dangerous days for the U.S. economy, which will cause the trading theme to buy dollars once again... But it does add to the awful economic fundamentals, which when this trading theme gets turned off, should come to the front of the class once again and cause dollars to be sold... Should... That's just my opinion... Should...

Currencies today 11/3/08: A$ .6775, kiwi .5890, C$.8395, euro 1.2845, sterling 1.6190, Swiss .8640, ISK (still no quote), rand 9.71, krone 6.5940, SEK 7.6666, forint 200.50, zloty 2.7720, koruna 18.95, yen 99.15, baht 34.95, sing 1.47, HKD 7.75, INR 48.65, China 6.8380, pesos 12.73, BRL 2.1725, dollar index 85.20, Oil $68, Silver $10, and Gold... $735.10

That's it for today... How was your Halloween? My little bumblebee came to visit... She is such a cutie! It was a beautiful night here, we sat outside with friends and family had a fire in the chimenea and gave out candy to the trick or treaters. Best joke I heard... What did the fish say when he swam into a wall? Dam! Only my beloved Missouri Tigers made it out with a victory this past weekend, as the Rams lost, as well as the hockey Blues... The Butler family, including Delaney Grace, will be heading down to Columbia MO this weekend as the Tigers take on Kansas St. In two weeks from today I'll be speaking at the New Orleans Investment Conference. And In three weeks from today I'll be returning from Marco Island after speaking to the Wealth Masters Conference. Then I'm finished speaking for this year! Great weather weekend here, WOW! OK... Time to go, people are arriving, Have a Marvelous Monday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Coordinated Rate Cuts!

Chuck Butler — Wed, 08 Oct 2008 14:15:59 GMT

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In This Issue..

* Yen trades to 98!

* Carry Trades unwinding hurt high yielders...

* Gold rallies back to $900!

* Central Bank rate cuts....

And Now... Today's Pfennig!

Coordinated Rate Cuts!

Good day... And a Wonderful Wednesday to you! Well... There's a ton of stuff to talk about today, one of which is the amazing run that Japanese yen has had in the past month, but particularly the last week! No need to sneak a peak at the currency round-up, Japanese yen is trading 98.80! WOW! I could be acting like a contortionist and trying to slap myself on the back, but that would unprofessional... And besides, the rest of the currencies are taking shots to the mid-section. Anyway... Blow the horn, the Carry Trade (for yen) is dead, may it rest in peace!

OK... The currencies tried like all get out yesterday to rally VS the dollar, the euro did end the day 1% higher on the day, which after the bloodshed of the past month, I'll take that any old time! I would love to go back to 2005 (not really, but for this conversation's sake I will) and pull out some old Pfennigs where I talked about all the naysayers talking about a break up of the euro... We had the NO votes from France and Denmark on accepting the European Union's (EU) Constitution, we had riots in the streets of France, we had rising interest rates in the U.S. and dozens and dozens of naysayers called out the euro and said it would collapse under the weight. I said then, and I'll say now... HOGWASH!

Shoot Rudy! If this had all played out like the EU Finance Minister bragged about just two weeks ago, the U.S. economy would be drowning without a life preserver, and Europe would be pointing their finger saying neener, neener, neener... But the Finance Minister misspoke and didn't get the memo that Europe had toxic waste bonds too! So, the euro which should be basking in the sunlight is being tarred with same brush as was used on the dollar, when the markets thought it was just a "U.S. problem"...

Front and Center this morning, we have news that the U.K. Gov. has unveiled plans to partially nationalize major banks, with taxpayers taking a share stake in a bid to restore stability to the banking industry. Eight banks have signed up for the recapitalization plan, which isn't a marker on who's doing bad and who's doing OK... These banks, Abbey, Barclays, HBOS, HSBC, Lloyds, Nationwide Building Society, Royal Bank of Scotland, and Standard Chartered, see a chance to shore up their balance sheets... Who wouldn't sign up of that these days?

I don't really know what to make of this plan, I like it because taxpayers get a share of what they paid for... But I don't like it because once again the Gov. has gotten involved!

Well... The DOW fell another 500 points yesterday... I read something last night that reported U.S. retirement assets are down $2 Trillion dollars in the past 15 months! I guess the markets are calling for "more" from Big Ben Bernanke... The "more" they are asking for now is an interest rate cut, and not some measly 25 BPS... Hey, use the Reserve Bank of Australia (RBA) as your guide... They felt the need to jump start their economy with a rate cut and came out with a 100 BPS cut! No sense in messing around, eh? I mean, if you believe you will need to cut 100 BPS over a period of time, why not go for the gusto and get it over with?

That's how I've always worked on things... If I had things to do at work or home, don't stop until it's done, and then take a break...

So, anyway, back at the ranch... Big Ben is getting pelted with requests for rate cuts... I wonder if he has the intestinal fortitude to do a Saturday Night Special? (a rate move, out of meeting, and on a Saturday night, like Paul Volcker did back in the 80's) If Big Ben's speech yesterday is any indication of what he might do, then the "fix" is in for a rate cut... You see, he gave a strong indication that interest rates may need to be lowered... He has this to say... "The combination of the incoming data and recent financial developments suggests that the outlook for economic growth has worsened and that the downside risks to growth have increased."

WOW! He finally sees the downside risks to growth have increased! A round of Applause for the Fed Chairman! Don't ask me what they heck he's been looking at if he's just now come around to seeing downside risks to growth increasing!

Even sadder news than the Fed Chairman just now waking up to smell the coffee, is the unwinding of the Carry Trades for Aussie, kiwi, Brazil, and any other high yielding currency that was purchased in the Carry Trade... Yes, it's all seashells and balloons for Japanese yen, but the currencies of Australia, New Zealand, Brazil, South Africa and others are getting hammered with the unwind going on. The Aussie and kiwi currencies have fallen to 5-year lows VS the dollar... What took 5-years to build, has been knocked down... I can't believe it with my own 4 eyes!

The Brazilian real, which had been the belle of the ball for the last two years, has really fallen on a sword... And it all comes back to the unwinding of Carry Trades folks... Should "risk" return to the markets, we could see these trades come back in a hurry... But I wouldn't hang my hat on the thought that "risk" will return to the markets any time soon... This is the worst period of time in the financial markets that I have even seen... And just so you know... I began my career in the Brokerage business in 1973! So... That covers some time, eh? And I'm not just saying this because these currencies have fallen so badly... This IS the worst period of time that I have seen in the financial markets, period.

Shoot Rudy, the stock market crash of 1987 is like a party compared to this mess!

Stocks are circling the bowl, the high yielders are too, you are lucky if you can get 50 BPS yield on a 3 month T-Bill, and so on... But Gold... Gold is back above $900 this morning, and has rallied 3 days in a row, after dipping to $859 on Monday.

There's been a lot said recently about Gold and Silver for that matter too, and the theories on why they have not soared to the moon, given the shortage of Gold and Silver... Swiss Asia Capital CEO Jurg Kiener was on CNBC the other day to talk about gold, and he noted the disparity between the explosive physical market price and the sluggish paper market price, blamed the speculation of Wall Street banks for the latter, and predicted the failure of the paper market and the quick doubling of the gold price.

That's some aggressive talk and move there Mr. Kiener... While I'm a big Gold fan, I can't get all caught up in aggressive talk like that... Got to stay steady Eddie...

You know... One would have thought that the Fed's announcement on Monday that they were going to begin paying interest on reserve balances at the Fed would have given the markets some room to breathe... Then follow that announcement up with the Fed's announcement yesterday that they plan to purchase commercial paper directly from issuers, would have really gotten the market's attention... It got mine! This is huge folks... Those Corporations that depended on Commercial Paper issuance as a part of their financing, had seen this market dry up and wilt away since last August (2007)...

Of all the things the Fed has done and I have ripped them for, this is one that makes some sense... But again, why is the Fed having to step in to deal with this? Who gave them the authority to do this? Is that part of the Federal Reserve Act of 1934? Or whatever year it was they became a power!

But nooooooooo! The markets don't care right now, they have focused strictly on unlocking the seized up credit markets. I was asked during a radio interview yesterday whether this credit market seizing up was the "real" culprit in all this... I said, "well, it is now! Obviously, there have been other culprits, subprime, toxic waste bonds, FASB accounting rules, etc., but right here, right now, it's all about unlocking the seized up credit market"...

As I look at the currencies right now I see a massive overbought U.S. dollar... (that's my opinion, as I see it) It has gotten in this overbought position based on a flight to safety into U.S. Treasuries... But what happens when / if all the plans of the Fed and Treasury do work, and brighter days are ahead for the U.S. credit market and financial institutions? Will we see massive amounts of U.S. Treasury purchases that were made this year, sold, and a repatriation to the base currency of the investors? Now that would certainly lead to a weaker dollar once again, and the fundamentals would come shining through, eh? Well, that's the way I see it... But I hear you asking... Hey, Chuck... What happens if the un-dynamic duo's (Paulson and Bernanke) plans don't spell relief like Rolaids? What then, Big Guy? Hmmm... I guess you would still see the Treasuries being bought, and a stronger dollar... The dollar / currencies trades could end up being strictly tied to if the U.S. is in trouble or not...

Speaking of being in trouble or not... Yesterday, I told you about the Icelandic krona being pegged to the euro at 131... Well, I called a dealer yesterday to see where he was quoting krona, and he had it pegged at 255 euro, which would be $187 in dollars... And... Our foreign bonds trader, Don Ries, came to me yesterday and said he thought his clearing broker would deal in krona... I said, "get him on the phone and make certain of that." Soon, Don came back to say that clearing broker withdrew his bid/ offer on krona. I know it wasn't a popular decision on Monday to have to sell the krona we had due, since there was no longer a forward market, but it sure looks like it was the best one we could have made!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

OK>>> THIS JUST CAME ACROSS THE SCREENS FOLKS>>>

The Fed, European Central Bank, Bank of England and the Bank of Canada have all cut interest rates in a coordinated rate cut move before the markets in the U.S. open! The Fed cut rates 50 BPS to 1.50%! I'm looking all over the board for the size of the other Central Bank cuts... The Fed made the announcement, and said the other banks would announce their rate cuts...

I saw a blip that the ECB said that "inflation risks had weakened"... Since when? I guess when Big Brother (the Fed) calls and says they need a rate cut from them, they say, "how big?" I'm shaking my head in disbelief... The ECB has allowed the Fed to dictate rate policy...

OK... I now see that the ECB also cut 50 BPS... So... You see, the Fed needed a cut, like I said earlier today, and to keep the markets from jumping all over the dollar for lack of rate differentials, the Fed got the ECB to keep in line, to keep the differentials the same, etc.

The yen has lost ground since this move was announced, and the euro has gained 1/2 cent... So, the crosses to yen are causing problems! So... Earlier I talked about yen moving to 98... Well it's back to 100... So much for all that!

I could go on all morning about this move, but I have to tell you it has really lit a fire under the euro, and it's now up one full cent since the announcement!

I'll have more on this tomorrow, you can bet your sweet bippee!

Currencies today 10/8/08: A$ .6675, kiwi .6010, C$ .9050, euro 1.3720, sterling 1.7550, Swiss .8840, ISK 187, rand 9.20, krone 6.1150, SEK 7.0640, forint 184.10, zloty 2.5225, koruna 17.9850, yen 100, baht 34.40, sing 1.4640, HKD 7.7625, INR 48, China 6.8175, pesos 12.84, BRL 2.3110, dollar index 80.62, Oil $87.45, Silver $11.86, and Gold... $912.25

That's it for today... So... The rumored coordinated rate cuts came to fruition... Very interesting, eh? I'm enjoying a morning of listening to Carlos Santana as I write the Pfennig today... He's my fave guitar player of all time... Him, Joe Satriani, Eric Clapton, Stevie Ray Vaughn, and too many others to name... My little buddy Alex, is quickly becoming one of my fave guitar players, he has the gift. I hope he keeps at it... Because, unless he begins taking some growth hormones, his football playing days will end about the same time mine did! Well... Mary Owens just came in... So, that means I'm late out the door again today! The last two days have been pretty crazy on the trading desk, I have little time to even look up and see what's going on around me, but I can hear it, and it's crazy! I have to cut back the long days though, I promised myself, my beautiful bride and doctor that I would not return to 14 hour days, and I'm going to keep that promise! Besides, my beautiful bride reminds me every time I stay late! Our little Christine does the same, always calling out the time of day, etc. So, I have help in keeping that promise! I hope you have a Wonderful Wednesday! Now, on to reading more about these coordinated cuts!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Wooden Arrows?

Chuck Butler — Fri, 03 Oct 2008 14:46:26 GMT

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In This Issue..

* A euro revelation!

* House to vote on Bailout...

* Yen remains strong...

* Jobs Jamboree Friday!

And Now... Today's Pfennig!

Wooden Arrows?

Good day... And a Happy Friday to one and all! A Fantastic Friday, I hope! As the blind man said, as he spit into the wind... It's all coming back to me now... And so it was yesterday morning after I had hit the send button for the Pfennig, a trader friend called to give me some insight, and... After talking to him, it all came back to me now...

What the heck is he talking about now? I hear you asking... Well, recall how I and probably all of you too, have been scratching my head and wondering just how in the world the dollar could be rallying in the face of all that's going on, and the bad data to boot. Well, here it is folks, sit back and take a sip of coffee...

One of the things we've learned this week is that the European banks are not getting to go Ollie, Ollie Oxen Free, on the holding of toxic waste debt... And since they are U.S. issued mortgage bonds, the trader that called tells me that they need to have capital reserved in U.S. dollars. Well, usually, these banks use LIBOR for this funding... But with the credit crunch going on all over, LIBOR rates have gone through the roof. So... Looking for alternative means of raising capital, the European banks have turned to the euro / dollar swap market... Selling their euro reserves and buying dollars.

SLAP! I could have had a V-8! Now why didn't I think of that? Anyway... This is what's going on... One would logically think that when LIBOR gets back to normal, these euro / dollar swaps would be reversed. Now... The next question is... What will it take to get the LIBOR rates to normalize? Well, that would be an unlocking of the credit crunch. And according to our Fed Chairman, U.S. Treasury Sec. and President, the way to unlock the credit crunch is to pass the Bailout Package! Dang it! I knew it would all get back to that darn Bailout Package!

Speaking of which, the House is expected to vote on it today... Yesterday, I told you about some of the "inducements" the Senators added to the Package, and a friend of mine sent me a note and said, "Hey Chuck, you missed the wooden arrows in the Package"... What? Wooden Arrows? So... I looked into it... And there it was! And wooden arrows isn't all! But this is the thing that really gets me hot under the collar... My friend, Bill Bonner, of the Daily Reckoning (www.dailyreckoning.com) put it brilliantly, so I'll let him describe it...

"Of course, a spending Bill cannot originate in the Senate because as we know, Article 1, Section Seven of that useless piece of paper (the

Constitution) says: 'All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills.'

"So the Senate lobotomized a Bill already passed by the House, which included, among other ridiculous spending provisions, Section 503 (EXEMPTION FROM EXCISE TAX FOR CERTAIN WOODEN ARROWS DESIGNED FOR USE BY CHILDREN."

OK... A dear reader sent me a note yesterday, and told me in so many words to stop my complaining, as this Bailout Package is the end-all for what ails the U.S. economy and the world for that matter... OK, I guess I should just get down off my soapbox and give up my right to challenge views that don't go along with the "Washington crowd" or the "mass media", right? NOT! That dog is NOT going to hunt!

So... I've written for over 1/2 hour now, and I'm just now getting around to the currencies... Well, that's not true, Chuck, you told everyone what was going on with euro weakness! Yes, but you know what I mean... I truly get dear readers who get angry with me for not talking about the currencies at the top of the page, leave out the salutations, leave out the sponsor's ad, leave it all out, and get to the meat! They are like the Wendy's ladies of the 80's... "Where's the beef?"

The currencies are once again being held hostage by a stronger dollar... However, they haven't gotten any worse overnight. It sure looks as though they just might have bottomed... But, the euro catch a cold right now, much less a bid, so, we'll have to see what shakes out of the House vote on the Bailout Package today.

IT IS A JOBS JAMBOREE Friday today! Usually, the Jobs Jamboree gets top billing in the Pfennig... But not today. That's because the markets are not paying attention to data these days... I wonder if they'll sit up and take notice today, when Job losses go over 100K for September. Yes, that's the forecast for Sept. jobs... A Big Fat Negative -100K! Take away the "magic" by the Bureau of Labor Statistics (BLS) and this could potentially look even worse!

Yesterday... August Factory Orders were a dismal -4%, which was worse than the forecast of -3%. Initial Jobless Claims hit 497K! OUCH! Jobs are being lost all over, folks... When will the Fed open their eyes and see what's going on? And I don't want to hear the Bailout Package flag wavers yapping about how the credit crunch is causing these job losses! HOGWASH! The U.S. has been posting job losses for 8 months now, and this one would make 9 months!

Japanese yen continues to hang on to the 105 handle, while the currencies all around them look sickly... It sure looks as though all those Japanese housewives that were highlighted a couple of years ago as shrewd investors when they sold their yen and bought Aussie and kiwi dollars and booked the interest income, along with the currency gains, are repatriating their yen... That's not a good sign for Aussie and kiwi dollars, but it's a great sign for yen!

There's going to be a European Union (EU) Summit this weekend... Many years ago (16-years to be exact) I began writing the Pfennig, and at that time, I would talk about the different European countries, as there was no EU... I coined the phrase, Club Med, when talking about Italy and Spain, and even France... And now 16 years later, I come back to that phrase... Club Med is banging the drum for assistance from the EU, and Germany is balking. Just like the old days... You could always count on Germany and their staunch, well respected, Central Bank, the Bundesbank, to be sticks in the mud... But the Bundesbank, led by Hans Tietmeyer, always won... And Club Med was sent home with their tails between their legs... I wonder how this weekend's summit will turn out?

There was a story in the U.K. Telegraph yesterday, claiming that the EU might break up if Club Med can't get what they want... Which is namely, lower interest rates, and some help with their toxic waste bonds. Look... The EU has faced tougher problems than what they currently face, and they didn't break up... I found the Telegraph article to be nothing more than trying to stir up more "fear"... Sort of like the "fear" that's being used to shove the Bailout Package through...

So... Before I go to the Big Finish... Earlier this morning, I talked about LIBOR, and I thought... I bet some people aren't familiar with this term, so, I thought I would give you some info on LIBOR... If you already know what LIBOR is all about, go ahead and skip to the Currency Round-up...

LIBOR, the London Interbank Offered Rate, is the most active interest rate market in the world. It is determined by rates that banks participating in the London money market offer each other for short-term deposits. LIBOR is used in determining the price of many other financial derivatives, including interest rate futures, swaps and Eurodollars. Due to London's importance as a global financial center, LIBOR applies not only to the Pound Sterling, but also to major currencies such as the US Dollar, Swiss Franc, Japanese Yen and Canadian Dollar.

Currencies today 10/3/08: A$ .78, kiwi .6636, C$ .9285, euro 1.3865, sterling 1.7675, Swiss .8835, ISK 112.75, rand 8.4940, krone 5.9850, SEK 7, forint 177.25, zloty 2.4730, koruna 17.91, yen 105.10, baht 34.18, sing 1.4490, HKD 7.77, INR 47.05, China 6.8470, pesos 11.18, BRL 2.02, dollar index 80.22, Oil $94.80, Silver $11.17, and Gold... $840.17

That's it for today... A Big football weekend for our teams at the Butler House... My little buddy, Alex, and his 7th grade Lindbergh Flyers football team plays their big rival tomorrow morning, and our beloved Missouri Tigers take on Big Bad Nebraska tomorrow night in Lincoln, where the Tigers haven't won since 1978. Time to put an end to that awful streak! The game is on ESPN at 8 CT if you want to watch! Hey... Did you hear that Mr. Clean, has died? He lived to be 92! That dude had some pipes! Guns! The big VP debate last night, was boring to me, so I turned it off and went to bed... Dodgers, Phillies and Rays were winners in baseball's playoffs yesterday... Time to go... I hope you have a Fantastic Friday! Go Tigers!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837