Daily Pfennig : G8

Back To Risk Aversion Again!

Chuck Butler — Mon, 13 Jul 2009 16:42:15 GMT

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In This Issue..

* Earnings reports begin this week...
* Dollar, yen, francs get bought...
* Medvedev shows off new coin!
* A busy week!

And Now... Today's Pfennig!

Back To Risk Aversion!

Good day... And a Marvelous Monday to you! A Home Run Derby Monday to boot! I have no Idea what's going on this morning, as I just woke up, and it's very late in the morning! I was very careful to set my alarm last night, and I've never been one of those people that hit the snooze button when it goes off, but here I am, waking up late... UGH!

So... I'm writing from home, and then I'll shoot in to work... We're short handed this week, so, I'm sure everyone will be arriving to the office, not see my car, and be a little ticked... So, I've got a surprise for them, something they've never seen... Me come in late!

Well... It looks like Risk is under pressure once again... And the only thing I can see that's causing this Risk Aversion, is the Corporate Earnings Season... For instance we get 4 banks reporting this week, Goldman (yes, remember they're a bank holding company now... They ex-chief, and ex-Treasury Sec. Paulson, made sure that the change was made so that Goldman would qualify for TARP last year!) We also have JP Morgan, Bank of America, and Citi...

Data wise, there are a few top shelf reports out this week, and the thought of them showing more dandelions instead of green shoots, is probably wearing heavily on the risk assets this morning too.

So... The euro is sitting just below 1.40 this morning at 1.3985, so no real harm being done at this time, but still the bias is to sell the risk assets like currencies and commodities as we start the week.

You know, I've harped about this for so long now, that I sound like a broken record, OOOPS! For the younger crowd that would be a scratched CD! What I'm talking about is the fact that the risk assets like currencies and commodities being thrown into the same barrel has stocks... And how I was just wishin' and hopin' and thinkin' and prayin' that we would return to the fundamentals of these asset classes not having anything in common with the stocks! I just knew... No wait, I can't say that... I just knew, not that I know anything on the inside, that is... That stocks were going to be under pressure from the Corporate earnings season, and with the "link" still in place... That wouldn't be good for currencies and commodities... Let's hope I'm wrong!

The one piece of data we get today is the Budget Statement... Last month, the Budget Statement printed an awful deficit of -$189.7 Billion (May)... Historically, June prints at a surplus... But Historically, so did April, and April was no where near a surplus this year! Year-to-date receipts for the Gov't are down 18%, and Year-to-date outlays are up 19%... That doesn't bode well for "history to come into play here"...

Last week, on Thursday, reported Friday in the Pfennig (thanks Chris!) was the Weekly Initial Jobless Claims, which printed the lowest level for this data series in more than 6 months, at less than 600K! But still, the number is still staggering, and one of the reasons that Commercial construction in the U.S. is set to decline 16% this year, followed by a 12% fall in 2010. No jobs... = no need to build offices for the "ghost jobs' that the BLS adds each month, because... THEY DON'T EXIST!

No need to get me started on the BLS (Bureau of Labor Statistics) this morning... I have to be clear and concise to get this out the door and me off to work!

Well... With the risk aversion back on the table... The two main beneficiaries remain to be Japanese yen and the U.S. dollar... Swiss francs are on the "kids table" but still a part of the beneficiary crowd...

The High Yielders like Aussie, kiwi, and South Africa get taken to the woodshed, when Risk Aversion comes to town... The Brazilian real is seeing a bias to sell, but for the most part has hung in there... Of course I remember saying that exact line early last fall, only to watch the real play catch up, until the turn-around in March of this year. So... I guess, what I'm saying is be careful!

So! Did you hear that Russian President Medvedev, showed off the "new world currency coin" at the G-8 meeting last week? He said.. "We are discussing both the use of other national
currencies, including the ruble, as a reserve currency, as well as supranational currencies. So... Here it is! This is a symbol of our unity and our desire to settle such issues jointly."

He then pulled a new coin out of his pocket and displayed to the attendees... Now... Don't get all tied up and twisted over this at this point. This was simply a "symbolic" move, there aren't mints all over the world rushing to get these coins minted and out the door... But, if you get the "symbolic" part, then you understand what Medvedev was attempting to do here... He was simply showing the G-8 attendees that if they really thought about it, they could see the need to move from a dollar reserve system, and to help them visualize it, he had a coin to pass around!

I can't believe that right now, with the whispering campaign to get an alternative reserve currency, that the dollar isn't getting sold, as I like to say, like funnel cakes at a State Fair! I guess the whispering will have to get louder, for this to make any real waves....

You know, I'm not for this "global currency"... I just wanted to make that clear! I'm not for removing the dollar as the reserve currency, for I know all of the "perks" that go along with it being the reserve currency! I'm just here to report the facts, and give my opinion / market commentary on how I think it will affect things...

I do believe, however, that given our deficit spending, and every growing to the moon National Debt, that the dollar deserves getting whacked, it's how things are done! Treasuries will get their comeuppance too one day... You can't just keep printing and printing and thinking that "buyers" will be there at the auction every time you print more... It's not going to happen that way... At least in my thoughts it won't!

OK... Time to go to the Big Finish... I know, I know, little shorter than usual this morning... But Hey! It was still chock-full-o-news!

Currencies today 7/13/09: A$ .7750, kiwi .6225, C$ .8605, euro 1.3980, sterling 1.61, Swiss .9240, rand 8.2930, krone 6.4830, SEK 7.9025, forint 198.10, zloty 3.1475, koruna 18.62, yen 92.10, sing 1.4650, HKD 7.75, INR 49.08, China 6.8328, pesos 13.71, BRL 1.9965, dollar index 80.16, Oil $59.96, 10-yr 3.30%, Silver $12.50, and Gold... $912.70

That's it for today... Went to the Futures Game yesterday, to sit through a 4-hour rain delay... UGH! Let's hope the rain stays away for the next two days! Home Run Derby tonight, All-Star Game tomorrow night. The family is all going to the Fan-Fest today, while I'm at work... Hey! Somebody has to work! HAHAHAHAHA! My beloved Cardinals went into the All-Star Game break on a good note, winning 6 of 10 on the road trip to end the 1st half of the season... This will be a very busy week for me, lots of writing to get done, and all the All-Star festivities... I go to my new oncologist this afternoon for the results of my scans on Friday, so all that and doctors stuff on top! UGH! Oh well, next Monday I head to Vancouver for the Agora Financial Wealth Symposium, their 10th year anniversary of the conference! And then I head off to vacation! So... Busy, busy, busy... Time to hit send, Hope your Monday is absolutely Marvelous I tell you!

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

Risk Returns... Slowly...

Chuck Butler — Thu, 09 Jul 2009 14:24:08 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
.................

In This Issue..

* Currencies rebound...
* G-8 has no fireworks...
* Aussie / China and coal...
* Entitlements...

And Now... Today's Pfennig!

Risk Returns... Slowly...

Good day... And a Tub Thumpin' Thursday to you! I'm late, I'm late! I don't believe I ever heard the alarm go off this morning! I overslept by more than an hour, and will still be here more than an hour before any sign of someone else! But! That puts me behind by more than an hour today... I've got to play catch-up! So, let's get this Tub Thumpin' Thursday going!

Well... Let's see... G-8 never had the opportunity to shoot fireworks because China's leader had to return home to deal with the street riots going on in his country. So... The call for a replacement for the dollar as the reserve currency will have to wait for another day! And, with that news, the dollar got to remain in the sunlight, and bask in the glory of being the reserve currency and so-called "safe haven" another day...

There was added Risk Aversion yesterday when it was reported that an Australian shipment of coal to China was cancelled... This sent bad vibes through the markets for the currencies and commodities with the thought that China was putting the brakes on their buying of raw materials, and that their recovery had not taken hold like many had believed...

But... Overnight, calmer heads have prevailed. You see, it was my opinion when I heard that news yesterday, that it was simply one bad shipment to a customer that was having difficulties... Not ALL OF CHINA! And then overnight the data came out... This was one shipment, maybe 150,000 tons of coal... Australian coal shipments to China on a monthly basis run about 3 million tons! I truly believe that Australia's trade with China is on terra firma, and this was a one-off deal that went bad... I also believe that the sell-off of the Aussie dollar (A$) was completely overdone... Completely!

I don't know this to be a fact... But, given the relationship of the Asian investors and the A$, I would think the Asian investors to be licking their chops to have the opportunity to buy the A$ at these lower levels! Buy on the dips, right? Don't I always say that to be a prudent investment strategy?

Of course it didn't hurt that U.S. stocks rebounded yesterday a bit on the news that Alcoa's losses weren't "as bad as expected"... Talk about setting the bar low! It's not like ALCOA didn't still have a LOSS! But, don't get me started on this mental giant thought process that has a grip on stocks these days... "oh, don't worry, you only burned down 1/2 of the house, I would have expected it to all burn down!"

I've got to leave that alone before I really burst! Let's see, what can get my mind off of that subject... OH! The Bank of England (BOE) just announced that they would keep rates unchanged. Well, my goodness, what else would we expect them to do? Their base rate is .50!

Here in the U.S... The Obama administration is trying desperately to nip in the bud, the whispering campaign for another stimulus package... "No one in the administration is talking about a second stimulus at this point," said Robert Nabors, deputy director of the Office of Management and Budget. However he also mumbled something about how the President is not "ruling anything out"...

I don't care what they say... I'll believe it when I see it... And I still believe that the Gov't will believe that another stimulus is needed...

One of the discussions that I had with my fave economist the other day was about "delaying the inevitable"... I've talked about this before, but for new readers, I thought I would give them a dose of "Chuck's Thoughts" this morning... (HA! As if they don't get that every day!)

This "delaying the inevitable" is all about the TARP (troubled asset relief program) and how it all did was allow bad banks to continue to be bad banks longer, with toxic waste in their portfolio... This, even in the face of a suspension of the mark to market rules! Bad Banks should have been sent packing, then... And now, all we've done is let them hang on to cause even more collateral damage!

OK... I'll get back to the daily discussion now...

It looks as though the auction of $35 Billion in 3-year Treasuries went smoothly, which is another reason the dollar was strong yesterday... Every time one of these auctions go smoothly, the "deficits don't matter" crowd all point and say... "see, we told you, that foreigners will always come to the auction to buy Treasuries, so it doesn't matter what we run the deficit up to"...

Right! You just keep thinking that, and see where it eventually gets you! Ty sent me a note yesterday from an article he was reading, that plays nicely with this discussion... So... Let's play Marvin Gaye, and see what's going on!

"For now, the Treasury continues to find takers for government savings bonds at low interest rates. But somewhere between here and infinity lies a point at which American debt reaches unsustainable proportions, at which investors will balk at continuing to finance the American expenditures absent a higher return on their investments. Then, everything could change quickly, with interest rates soaring and the value of the dollar plummeting, as foreign investors lose faith in its fundamental value.

"We're running this $10 trillion gamble that interest rates aren't going to rise," said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund and now a professor at Harvard. "If they do, we could end up in a very difficult situation."

Hey, you think so, Kenneth? My goodness, we have a new "Mr. Obvious!" I would think that we are already in a very difficult situation, given the fact that when the you know what hit the fan the U.S. had no war chest to use, like China did... Why? Because we didn't think "deficits mattered"... Dealing with problems from a position of strength, it would have made a HUGE difference from the get-go!

However, having said that... I believe that a larger problem is still on the horizon for the U.S. and the "deficits don't matter" flag wavers... And Hey! It's not going to happen overnight... It's going to be a slow, dragged out, problem that goes on for years, and then finally snaps! I'm talking about the entitlements and the retiring baby boomers... And more specifically when I'm talking about entitlements, I'm talking about Medicare!

The Big Boss, Frank Trotter, showed me a graph that he came across from the Concord Coalition the other day that illustrated this... While I wasn't shocked, having seen this all in the movie I.O.U.S.A. and in the book of the same name, there it was again staring me in the face...

The reason I tell you all this, is that the Current Administration has no other choice but to allow the dollar to weaken considerably over the years so that these deficits that "didn't matter" can be paid off with cheaper dollars... And it won't be this administration that has to deal with it... That's why this one and the previous one aren't concerned about the size of the National Debt...

Ok, enough of all that... I didn't mean for this to be gloom and doom! Let's move on...

The data cupboard has the Initial Weekly Jobless Claims for us to view today... I expect for the weekly number to remain above 600,000, and the Continuing Claims to have risen... Though this all sounds bad, the markets have become comfortably numb with this unemployment data... It will take something really BIG to slap the markets in the face and say WAKE UP!

And then, finally... The Japanese yen has really been on a tear this week as the Risk Aversion crowd dominated the markets... I find it very strange that Japan is considered a "safe haven" currency, given their national debt problems... And their once "Ace in the hole" the Trade Surplus, is taking on water... But... This is what the markets do, and they are never wrong! However, there's a road block ahead for the yen, as it trades with a 92 handle this morning... And the road block is in the form of the Bank of Japan. (BOJ).. It was reported that last night the Bank of Japan issued a statement to the markets that "they were checking FX levels"

That's Central Bank parlance especially coming from the BOJ, for... We don't want the currency to get any stronger, and we're just letting you know that we're ready to intervene if you don't settle down. Sort of like when grandma would tell you that if you didn't settle down she would send you to the woods to find your switch... Believe me you only didn't settle down once!

And when the Risk Traders come back and push the Risk Aversion crowd to the back of the room... Again, we'll see yen sell off again... So be careful here!

Currencies today 7/9/09: A$ .7845, kiwi .6305, C$ .8650, euro 1.3980, sterling 1.6260, Swiss .9250, rand 8.11, krone 6.4925, SEK 7.8590, forint 196.70, zloty 3.1150, koruna 18.55, yen 92.90, sing 1.4580, HKD 7.75, INR 48.71, China 6.8317, pesos 13.47, BRL 2.00, dollar index 80.21, Oil $61.29, 10-year 3.39%, Silver $12.95, and Gold... $915

That's it for today... Well... I got the news from the eye specialist yesterday regarding my left eye... The tumor and the fluid on the eye is gone, they successfully shrunk it and removed it... Unfortunately it left a ring of "stuff" on my eye, and my eyesight from that eye will never get any better. Of course, I still have my right eye, so I'm not completely bummed... My cutie little granddaughter, Delaney Grace came by to see me yesterday, she wanted me to come "sit by her" She's almost 2 now, and saying her ABC's, and singing songs, and she showed me how she knew her right from left now... Such a little joy to be around... I'll get to spend a whole week with her in about 10 days when we all go on vacation together... Can't wait! Well, my lateness has put me way behind this morning, I had better get going... Don't forget... Today is going to be a Tub Thumpin' Thursday no matter what!

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

Throwing A Cat Among The Pigeons Again!

Chuck Butler — Mon, 15 Jun 2009 16:20:40 GMT

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In This Issue..

* Russia's Fin Min talks up the dollar!
* Currencies, commodities, stocks all lose ground...
* Who's car is uglier
* Gold hit a 3-week low...

And Now... Today's Pfennig!

Throwing A Cat Among The Pigeons!

Good day... And a Marvelous Monday to you! How about that weekend? I actually didn't get a chance to experience much of it outside, but it sure looked great! We have new champions in basketball and hockey, so congrats to the Lakers and Penguins on their Championships! Now, the housecleaning is out of the way... It's time to get to the meat... Where's the beef? HA!

OK... Well, the Russian Finance Minister, Kudrin, threw a cat among the pigeons yesterday, when he stated that Russia has confidence in the U.S. currency. The markets have reacted violently to this statement, sending the dollar much higher, and the currencies led by the euro, much lower. An overreaction? I think so! But... These are the types of things you watch happen, and be glad you're not a currency "trader"! For, you would have either experienced a huge loss or gain, or... Been stopped out, and not allowed to participate in the large move... I'm not the "trading" type... I'm all about diversification... So that, when things like this happen, you realize that it's just "noise" in the markets, and the only thing it creates for you is an opportunity to buy at cheaper levels!

It sure sounds like, looks like, and smells like, a coordinated effort by those that have the most to lose should the dollar continue on it's downward path of the last 3 months, to get put a lid on their losses... Makes sense... But you have to wonder about what they are really thinking and doing... I'm talking about China, Russia, and Japan, who have ALL stated in the past weeks that "the dollar is fine, and there's no substitute reserve currency"... These statements all give dollar bulls a boost, and tell them that these countries are not going to back away from dollars and dollar denominated assets.

Now... There's a BRIC meeting coming up soon... Brazil, Russia, India and China... And while the Finance Ministers of these countries are at the meeting, I doubt seriously that they will hold the same amount of "love" for the dollar... But that sentiment will be kept to themselves, as they don't want to send the dollar spiraling downward. These BRIC nations had it all going for them until July of last year. They were sent spiraling downward like most assets until March of this year. I would have to think that the Finance Ministers of these countries would be interested in knowing how they can avoid another downward spiral caused by dollar buying... And... This... Would be the key, folks... I don't know what it would be, but if they did something like a currency swap / foreign exchange line between each other for trade, that would be colossal! Which is bigger than HUGE!

Well... The G-8 meeting this past weekend was centered on an "exit strategy" for the countries that have implemented the various forms of stimulus. I did see one comment on currency that came out of the meeting... German Finance Minister Steinbrück said he had "no problem with the level of the euro" Now that comment alone should have underpinned the euro coming into Monday's trading... But again, the cat thrown among the pigeons, but Kudrin, has really taken control of the markets' mindset today.

We will see central bank meetings from Japan, Norway, and Switzerland this week... Don't expect much from any of them, as interest rates are near to the bone for all... Norway's Norges Bank has an internal rate of 1.50%, which does give them some leeway for a cut, but again, I just don't expect anything from any of these Central Banks this week...

In that old comparison thing, when you say this car is uglier than that car... The Eurozone has lost 1.22 million jobs in the first QTR of 2009. Unemployment here is near a 10-year high, and not looking as though it will stop the bleeding any time soon... However, we are all aware of the rot in the U.S. employment picture... In the same period (1st QTR 2009) the U.S. lost 1.912 million jobs... And... We all know the "games people play now, every night and every day now" at the BLS! So... Which car is uglier?

So... As we lead off the this 3rd week of June, we have not only the currencies but, commodities and stocks all in the red from the Kudrin words... (see above, in case you skipped over that, which I can't imagine any one would do! HA!)

Speaking of commodities... Gold has hit a 3-week low. The shiny metal has had to endure 3 weeks of battering by China, Japan, and now Russia regarding the reduced need for an alternative to the dollar... I wouldn't think too much of this move... Again, it's "noise", and soon the Kudrin words will be a thing of the past, and we'll get back to the underlying fundamentals of a weak dollar trend eventually... But! It does give those that were thinking they wanted to buy Gold, but it was too expensive, the opportunity to grab some now!

As I turned the computers on this morning, the currencies have lost even more ground, so they haven't found a stop level yet.

Today, we'll see the color of the TIC's data... You know, the Net Security Purchases... This data will be from the month of April...

We'll also see National Home Builders House price index for this month. I know that quite a few economists believe that the housing markets meltdown has bottomed... But I think this data will prove otherwise.

Wednesday, Big Ben Bernanke and FDIC Chair Sheila Blair speak... You never know what will come out of the mouths of these two! So... We had better keep an eye out, and our ears to the ground, for you never know when you might get another quote from Big Ben like the helicopter speech of a few years ago! Don't recall that one? Ahhh...

When asked how he would deal with deflation as the Head of the Fed (obviously before he was the Fed Head!) Big Ben reminded everyone that the Gov't had this technology called a printing press... (he's talking about printing money here ) and that he would throw dollars from a helicopter to keep deflation from happening...

Well... Minus the helicopter, he's kept his word, eh? The Printing Press is working overtime and he sure is passing out the dollars to keep deflation from hitting us hard... (personally, I think he failed miserably, but that's just me!)

So... I see that the President is going ahead with his plans to give the Fed sweeping regulatory powers... Not that I don't want to see some changes... But again, I ask... The Fed? They've done such a masterful job of protecting the value of the dollar since they were created, eh? NOT! 94% loss in value since the Fed took over! Nice job! UGH!

Time to get this out the door, so on to the Big Finish!

Currencies today 6/15/09: A$ .8015, kiwi .6325, C$ .8840, euro 1.3855, sterling 1.6450, Swiss .9170, rand 8.0610, krone 6.4240, SEK 7.8280, forint 202, zloty 3.25, koruna 19.37, yen 98.20, sing 1.4570, HKD 7.7505, INR 48.15, China 6.8363, pesos 13.51, BRL 1.9260, dollar index 80.95, Oil 70.95, 10-year 3.76, Silver $14.33, and Gold $934

That's it for today... Thanks to all that sent along notes regarding my continuing battle with cancer... Yes, it's been two years... Seems like a lot longer! This coming weekend will be Father's Day weekend... Always a good time at my house! The kids will all be here, little Delaney Grace, and others... So... I'm looking forward to that. Two years ago, I spend Father's Day in the hospital with my kids, so this time around it should be in our beautiful back yard! OK... I'm very late! I hope you have a Marvelous Monday!

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

Rising Treasury Yields...

Chuck Butler — Tue, 09 Jun 2009 14:47:35 GMT

.........But First, A Word From Our Sponsor..........
The Ultra Resource Index CD: 6 foreign currencies, 1 unique opportunity

The Ultra Resource currencies (each is equally represented in the CD):

*Australian dollar
*Canadian dollar
*Hong Kong dollar
*New Zealand dollar
*Norwegian krone
*Singapore dollar

EverBank is a Member FDIC and Equal Housing Lender.
......................................................

In This Issue..

* Another Treasury auction today...
* Spending habits come back to haunt reps...
* Some healing in the currencies...
* 10 Banks to repay TARP today...

And Now... Today's Pfennig!

Rising Treasury Yields...

Good day... And a Terrific Tuesday to you! Well... I sure stirred up the hornet's nest yesterday... Some people didn't think I should express my opinion... But that's OK... Here's the skinny... I wrote yesterday about the farce that the jobs report was, and what a feeble job the media did in reporting the "real numbers"... I then threw something in the Pfennig that I don't normally do, just to see what was more important to people... The fact that their Gov't lies to them, or the fact that they don't see eye-to-eye with me on the President...

Given the response, I'd say that most had their eye on the ball with the jobs farce... And that's all I'm going to say from here on out...

One person did ask me what the President had to do with currencies, in an attempt to obviously steer me back to what I DO know... Well, perception is a BIG thing in currencies folks, and if your leaders are perceived to be one way or the other, it can play big into currency direction. So, to say that what I had to say didn't have anything to do with currencies is on the wrong path.

OK... Enough! The currencies did heal a bit yesterday, with the euro trading back to 1.39 and change during the day... After taking the euro down on Friday, and Sunday night, traders began to realize that the U.S. has to deal with more supply today... And... Once again, the fears that the U.S. won't have anyone show up for a Treasury Auction, just brings back the reality that owning dollars probably isn't a wise thing to do... $35 Billion in 3-year Treasury Notes will be auctioned today...

And... Treasury yields continue to rise... I keep coming back to the rising Treasury yields because, well... Because I want to! Seriously though, have you been keeping score at home on these rising yields? The 10-year Treasury hit a yield of 3.83% yesterday... Now that might not sound too high, but at year-end 2008, a mere 5 months ago, the 10-year's yield was 2%... And if you just keep bringing more supply after more supply to the markets, they are going to demand that those yields get even higher!

And let me remind you that as the yield on a bond goes up, the price of the bond goes down! So... For example... At 2% the price was 110.08... And at 3.83% the price is 94.20... (according to my Bloomberg!) So... All those investors that bought Treasuries last summer in a flight to safety, need to check their statements! Any way... I'm going to add the 10-year Treasury's yield to the Big Finish, so we can keep better track of it!

The political turmoil in the U.K. looks to be water under the bridge now, and the pound sterling came back strong! I'm shocked at how strong this currency bounced back after the U.K. elections were over. But then I was shocked that the currency was 1.65 last week too! But, as I always say, don't step in front of a run-away bus!

The high yielders and Commodity Currencies all saw some healing too, except Mexico, which is watching the price of Oil back off from the higher levels of last week. I saw a story on the Aussie dollar (A$) that struck me as strange... Now, first of all, I have a few detractors that tell me that I only write about things that make a currency look good and bypass the bad stories... I don't see it that way, but be it as it may... I saw a story that said the technical charts show that the A$ is going to fall back to 70-cents... Of course last week, another guys charts had it going back to 80-cents... Hmmm... I need to get these two chartists together and iron this out!

There's a preliminary G-8 meeting this weekend to set the agenda for the Big G-8 meeting in a couple of weeks. I have to think that the currency moves in the past 3 months have got to be on the agenda... That, and... China's latest rumblings about the dollar as a reserve currency. Speaking of China, the World Bank President, Robert Zoellick, was talking at a conference in Montreal last night, and said that China may seek to diversify its foreign currency holdings over time, moving them away from U.S. dollars... Here's more... "over time I could see china moving to some further diversification of its reserves."

Well... He sees it... But do the Chinese see it as a need? One would think that they do, given their worries that a weaker dollar could hurt Chinese investments in U.S. assets, and the fact that they brought to the table an alternative currency as the reserve currency of the world... I've reported all of this numerous times in the past couple of months, so nothing new... Just a need to review it once again...

As I write this morning, I'm watching the euro, which was 1.3920 when I came in, lose some ground to 1.3875... Not much of a move, but a direction that is not likely to last, in my opinion... Not with the supply thing hanging over the dollar's head.

Don't know if you follow stuff like this or not... But the elections for the European Parliament took place last week. In Germany, France, Spain and the U.K. the representatives that believed that throwing taxpayer money at failing corporations, got hammered... Hmmm... I wonder how that would play out here? But I'm not going to go down that road...

I mention that piece above, because I think it had something to do with German Chancellor, Angela Merkel's comments last week... Most of us thought she was taking a shot at the Fed and Bank of England... And she probably was... But her main goal, I believe now, after see the results of the elections, was to bring all this to light right before the voters went to the polls... I'm telling you... She's one smart cookie!

Gold and Silver are having a tough row to hoe in finding a bid... The Bid winds have not filled the main sails of Gold and Silver for 3 days now... And with this following story that I'm going to provide, the bid winds will be even tougher to find... As it will signal to the markets that the tourniquet has been wrapped around the patient (financial institutions) and some are recovering...

It was reported last night that 10 Banks will be allowed to repay their TARP (troubled assets relief program) funds... Could total $50 Billion! With the Fed being so demanding in their grading of these banks before allowing them to repay the TARP, I would think that these banks will be well suited to move forward from here...

With Gold hovering around $950 and Silver around $15, it certainly provides an opportunity to buy at cheaper levels than last week's lofty figures, eh? I would use these dips to my advantage... But then that's just me... It doesn't mean that it's the right thing to do!

My friend, Bill Bonner, had a great piece in his Daily Reckoning (www.dailyreckoning.com) yesterday, regarding house prices... Check this out!

Robert Shiller was talking about Home prices in the NY Times, and this just kind of hit me like a V-8 slap... "Even if there is a quick end to the recession, the housing market's poor performance may linger. After the last home price boom, which ended about the time of the 1990-91 recession, home prices did not start moving upward, even incrementally, until 1997."

We're also looking at $2.4 trillion worth of Alt-A mortgages that will need to be refinanced or reset. The peak in those resets won't happen until January 2013.

Hmmm... That's not anything that anyone selling a house wants to hear! But anyone that wants to buy, well... That's not as devastating to hear!

Well, the data cupboard is empty today, with the U.S. Treasury auction the only thing to deal with today. Tomorrow we get the Trade Balance report for April... Yesterday, I made a mistake talking about the Trade Deficit saying it was "millions"... When I know all too well that it is in the Billions! Just put that down to being writing too early in the morning! But for those of you keeping score at home, the Trade Deficit is forecast to be $29 Billion in April!

But more importantly, tomorrow we'll see the Budget Deficit, which is expected to be $180 Billion for the month of May... If it tallies there at $180 Billion, the Budget Deficit in the first 5 months of this year will have exceeded $650 Billion... And that's before the $787 Stimulus gets added... And other items that will come along... And don't forget that we posted a deficit in April! I still believe the Budget Deficit will be at least $3 Trillion this year!

That would push our National Debt to around $14 Trillion... You can keep score at home if you want by clicking on this link... http://www.brillig.com/debt_clock/

Time to head to the Big Finish...

Currencies today 6/9/09: A$ .7925, kiwi .6210, C$ .9025, euro 1.3890, sterling 1.6150, Swiss .9160, rand 8.1450, krone 6.4340, SEK 7.8150, forint 202.65, zloty 3.2350, koruna 19.3020, yen 98.30, sing 1.46, HKD 7.7515, INR 47.55, China 6.8354, pesos 13.40, BRL 1.9630, dollar index 80.83, Oil $68.85, 10-year 3.83%, Silver $15.07, and Gold... $952.45

That's it for today... A strange day for yours truly yesterday, but had a bright spot as my little granddaughter, Delaney Grace had come to visit, when I got home! She was eating some ice cream, and wouldn't share any with me! But would give me an ice cream kiss! She's so darn cute! Bad storms came through here yesterday, with the sky turning pitch black in the middle of the day once again, and a little hail just to top thing off! Those are scary storms! My beloved Cardinals got swept by the Rockies! UGH! This promising season, is slipping away, they had better get back in the winner's circle fast! Did you observe the 65th anniversary of D-Day last Saturday? I was having lunch with a very good friend, and we were watching the proceedings on the restaurant's Big TV... The waitress tried to stump us, but we were both quite aware of what was going on, and also reminded her that Flag Day was this next week! OK... Hope your Tuesday is Terrific!

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

Fighting Deflation Instead of Inflation?

Chuck Butler — Wed, 09 Jul 2008 14:53:15 GMT

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

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In This Issue..

* A bounce in the euro overnight...

* Iran tests long range missiles...

* Japan's Machine Orders soar!

* Is Big Ben giving us a hint?

And Now... Today's Pfennig!

Fighting Deflation Instead of Inflation?

Good day... And a Wonderful Wednesday to you! Things settled down a bit yesterday, with the rumors of bailout for Fannie and Freddie Macs fading, and some awful Housing data being swept under the rug. The dollar gained back the ground it had lost to the euro the previous day, and Japan printed a very strong Machine Orders report... And now Iran tests long range missiles... All that and more as we begin our Wednesday...

OK, front and center this morning... The Housing data from yesterday. Since the media decided to sweep this under the rug, I thought I would make certain that at least Pfennig Readers were aware of the rot on the Housing vine. The index of Pending Home resales fell -4.7% in April, a much larger decline than the "experts" forecast. I think what you're seeing here is simply that would be buyers are holding off as they expect further declines in prices...

Before I go on to other things, there's something that's been on my mind for a month now, and I just remembered what it was! Recall when the Existing Home Sales data was strong a month ago, and I said that it must have been the fall in home prices to spur that kind of result? Well... As I thought more about it, I decided to look into a thought I had... The thought was a question... Are foreclosures included in Existing Home Sales data? And, lo and behold, the answer is yes! As long as someone was living in the house when it was foreclosed, which would put the percentage very high, wouldn't you think? Anyway... There you have it! A price drop, and foreclosures spurred that strong Existing Home Sales report... I knew there was something rotten in Denmark when that data printed!

Well... I was all prepared to talk about the $8 fall in Oil prices the past two days this morning, only to come in a see the news story that Iran tested a long range missile overnight, one that would reach Israel... And voila! The price of Oil is climbing again... But since I was loaded for bear this morning on Oil talk, I'll go ahead and give you a bit of what I was prepared to talk about.

I was all prepared to tell you that the $8 fall in Oil prices the past two days were a result of the slowing economy worldwide. It was thought that with slowing economies, that inflation would weaken, and thus reduce the need to buy an inflation hedge like commodities... But I was going to refute that notion, and say that we've seen these drops in the price of Oil several times in the past couple of years, and every time it happens, we get the bugs coming out of the wall boards telling us that the price of Oil has stopped rising and it will now fall back to levels previously seen before the meteoric rise... And to that I would say HOGWASH! Will Oil go up forever? NO! Have we seen the highs? I don't believe we have... If this sell off is anything like the previous ones seen, Traders will simply use this lower level as a new base to move higher once again....

I don't know what's going on with Iran testing the long range missiles, it looks to be saber rattling to me, given Israel's test just a couple of weeks ago... Sooner or later, love is gonna get ya', no wait, sooner or later, I'm afraid that all this saber rattling will escalate to something else... Let's hope my fears are not proven to be true!

So, the euro lost ground yesterday, when the rumors of another risk event (Fannie and Freddie) faded... And I guess the news that another Financial institution was going to cut over half its staff wasn't enough to make people wonder about the U.S. economy, as dollars were bought all day long...

Overnight however, the euro has gained back the ground it lost yesterday... What the heck is going on here? Ahhh grasshopper, this is simply "noise" in the markets... Up one day down the next... As long as the underlying trend, which happens to be a weak dollar trend, remains in place, this is just daily noise... European Central Bank (ECB) President, Trichet, said in an interview overnight that "inflation is worrying"... Don't tell me that Trichet has become the new "Mr. Obvious"! That title has been held by U.S. Treasury Sec. Paulson for some time now... I think I'll give Trichet some slack on this one, since this is his first foray into the world of obvious statements!

Speaking of Mr. Obvious, Hank Paulson... Here's a little ditty that he put out there for us yesterday... Paulson Says... "Many Home Foreclosures Are Inevitable"

Japan captured some magic in a bottle with their Machine Orders posting a 10.4% rise in May... Here's the skinny... Equipment orders which signal capital spending in the next three to six months, rose 10.4 percent from April when they climbed 5.5 percent... The experts had forecast a rise of only 1.1%!

The rumors of the Japanese economy's death have been greatly exaggerated! And I can't point to it and say its just one report, as this is the second consecutive month of a strong posting in this data! Does this mean the Bank of Japan (BOJ) will react with a rate hike? Not hardly... The BOJ are stuck in the mud, just like the Fed and the Bank of England (BOE) ... The BOJ has different problems from the Fed and BOE, who have inflation coming out their ears and no economic growth...

I read my friend John Mauldin's "Out of the Box" letter yesterday, which was written by Van Hoisington and Lacy Hunt. These two analysts put down a lot of good thoughts that inflation isn't going to be our problem going forward, but deflation instead... If that's true, then the Fed's got an even tougher road to hoe than they do now! And if that's true... Forget all the rhetoric about raising interest rates here in the U.S. If that's true, you can take a flyer now on lower interest rates and tons of money supply, and easier credit, and well just about anything else you can throw at deflation. You might as well throw the kitchen sink, because Japan has tried all these things during their decade of deflation... And nothing worked!

The G-8 meeting in Japan ended with a whimper... I tell you this... These G-8 ministers are simply in it for the boondoggle... They did nothing, said nothing, and left without a word... though reports continue to suggest Germany's Merkel, in particular, was dissatisfied with the failure of the final communiqué to address recent currency movements. Merkel is quoted saying "Honestly speaking, we could have imagined one more sentence.that foreign exchange rates must reflect economic fundamentals."

I think the dollar wouldn't fare too well with that statement, given its economic fundamentals, and so, the G-8 decided to leave sleeping dogs alone here...

The Canadian dollar / loonie, has outperformed all currencies overnight, which is about time! The bounce in Oil prices overnight has boosted the loonie higher... But in reality it's a small trading range, so don't get all lathered up just yet!

The Aussie dollar received some not so good economic data last night... Consumer Confidence plunged to a 16 1/2 year low in July, as rising food and fuel prices are hurting the Aussies as well. The data in Australia, which previously, kept pointing to another rate hike by the Reserve Bank of Australia (RBA), has softened in recent prints, and now suggests that the RBA is finished with rate hikes in this cycle... That will cause some softness in the A$, but only while those that were looking for a "quick hit" get out and move to something else... I still believe in the Aussie $ story, and view this as a temporary situation.

The Indian rupee continues to get sold... And this is beginning to get old! I was telling someone yesterday that the flows into India have slowed somewhat, and you had the Reserve Bank selling rupees a couple of months ago to keep it from getting too strong... When you have a Central Bank that demonstrates a willingness to sell their currency, traders and investors can choose to fight them, or go along with the selling... Unfortunately, it looks like the latter of the two choices has been the winner, thus a weaker rupee...

The New Zealand dollar / kiwi has had a difficult time dealing with the fact that the Reserve Bank of New Zealand (RBNZ) has basically called an end to their rate hike cycle... I've said this many times in the past, but for new readers it could be a first, so I'll say it again... Kiwi has had a wonderful, exciting, and most profitable run for the last 6 years, but as the currency was being bought because of the high interest rates that could be had there, the country's Trade Deficit was rising... The Trade Deficit has run well over 7% of GDP for a couple of years now, but as long as interest rates were high, the kiwi benefited... But now, if interest rates aren't going higher any more, or maybe even lowered, the Trade Deficit comes front and center, and is no longer swept under the rug... Be careful here...

The weakness in Oil prices kept Gold subdued yesterday, but as you can imagine, the bounce in Oil prices overnight has allowed Gold to also rebound.

Did you see that Big Ben Bernanke announced yesterday that he is going to continue to allow Financial Institutions the ability to use the Fed's lending facilities? Doesn't that tell you something? Well, it tells me that Big Ben sees the need to keep this option open... And the need is probably the fact that he knows the problems these institutions are experiencing.

Don't you find it strange that the news stations didn't carry that news? I shake my head in disgust of the attempt to make us feel good... When people should be warned of the storm clouds so that they can take appropriate action to protect their investments...

Currencies today 7/9/08: A$ .9525, kiwi .7545, C$ .9845, euro 1.5715, sterling 1.9750, Swiss .9695, ISK 75.44, rand 7.6685, krone 5.12, SEK 6.0125, forint 146.40, zloty 2.0775, koruna 14.94, yen 107.40, baht 33.60, sing 1.3625, HKD 7.80, INR 43.15, China 6.8580, pesos 10.30, BRL 1.61, dollar index 72.80, Oil $137.70, Silver $17.83, and Gold... $920.75

That's it for today... The rain is back... Which left me pretty soaked on my way in today... I'm driving a loaner, so my umbrella isn't in the car, and if you've seen me walk since my surgeries last summer, I don't get along too quickly... So... Soaked! Baseball's All-Star Game is next week, two Cardinals made the team (should have been 3!). The All-Star Game is in St. Louis next year, sure hope there's a way I can find two tickets for me and my little buddy to go! But that's a year away, no sense thinking about it now! Kristin is on her way to Las Vegas to speak at the Freedom Fest, if you're going, make sure to stop by to say hi to her! Hey! About a month ago, I did an interview on a PBS radio show called "On The Money"... Our website will soon have that interview as a part of our great currency pages... So check back often to see when it's available, click on it, and there you go! I hope you have a Wonderful Wednesday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Trichet "Gets The Memo"

Chuck Butler — Mon, 07 Jul 2008 14:10:00 GMT

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

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

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

In This Issue..

* ECB raises interest rates...

* More jobs losses in June!

* An embarrassment for the Fed...

* Buying opportunities?

And Now... Today's Pfennig!

Trichet "Gets The Memo"

Good day... And a Marvelous Monday to you! What a fabuloso 3-day Holiday weekend! WOW! The weather was great, I relaxed max time, and shot off some fireworks just to keep the tradition going... The weekend was working hard to make me forget the happenings of Thursday...

The Perfect Storm that was possible for the dollar turned out to see the tables turned and it was the euro that went into a tailspin on Thursday... Here's the skinny...

The European Central Bank (ECB) did indeedly do raise rates 25 BPS and say that it was inflation running high that caused them to raise rates... And about the same time, the Jobs Jamboree posted a job loss for June of 62K, and the storm clouds were forming... But then, ECB President pulled a rabbit out of his hat and said... "Starting from here, I have no Bias"... Folks, that's just as good as saying, "here's your rate hike, don't expect another one"... No hawkish tone... No pointing out how inflation pressures are causing the ECB problems with their mandate to provide price stability... No nothing, nada, zilch, zero, and the euro was sent to the woodshed... And the whippin' was awful!

So, what happened here? Ahhh grasshopper, this is the "Beware the Thin Markets" conspiracy stuff I was talking about on Thursday morning. I believe in my heart of hearts that Big Ben Bernanke and Treasury Sec. Paulson, sent ECB President, Trichet, a memo. The memo said... "please help us out here... You are going to raise rates and talk hawkish on the same day we are going to post a huge negative jobs number, thus telling the markets the Fed is NOT going to raise rates soon... Could you please not sound so hawkish? That would help us greatly... Thanks, Big Ben and Hank"

Trichet "got the message"... That's how I truly believe the day went. So, we are sitting with the euro almost 3-cents lower than on Thursday morning when I signed off... U-G-L-Y... With the Big Dog euro getting whipped, the rest of the currencies suffered as well. Not much else to say about all that...

So, let's get back to basics... The fundamentals of the U.S. economy continue to be rotten... The Jobs Jamboree posted a net negative jobs of 62K, and the previous month's job losses were revised up to negative -62K (from -49K)... The Bureau of Labor Statistics (BLS) did their part, just as I suspected they would on Thursday, by adding 177K jobs with their Birth / Death Model... They even had the gall to add 29K Construction jobs! Geez Louise, Serenity Now! This is getting preposterous! When will this all come back to bite the BLS? Probably not for awhile, as they will want the dust to settle for some time before they come clean... But for the record... The job losses in June would have been -239K, added to May's -279K, if there were no Birth / Death Model.

The data cupboard is empty and needs restocking... But... Did you hear this little ditty about the Fed Reserve? The Fed is going to be faced with a general inspection by the IMF... The story printed on Wednesday last week, but you didn't hear about it on your favorite cable news station, now did you? Here's the skinny... Officials with the International Monetary Fund (IMF) have informed Bernanke about a plan that would have been unheard-of in the past: a general examination of the US financial system. The IMF's board of directors has ruled that a so-called Financial Sector Assessment Program (FSAP) is to be carried out in the United States. It is nothing less than an X-ray of the entire US financial system. No Fed chief in U.S. history has been forced to submit to the kind of humiliation that Ben Bernanke is facing.

I wonder what the IMF will say about those "wonderfully performing bonds" that the Fed took in the Bear Stearns bailout? The writer of the story, Gabor Steingart, had this great line, that sounds like it came right out of the Pfennig... Here it is... "Inflation is going up and up, and this year's average will likely top 4 percent. But this time Mr. Dollar is also Mr. Powerless. He can raise interest rates in the fall, or he can pray, which would probably be the better choice. At least prayer would not prevent the US economy from growing, a highly likely outcome if interest rates go up."

So, the Fed has to deal with that embarrassing "audit" from the IMF, while the economy is melting down... I truly believe that Consumers are being beaten around the head and shoulders with high gasoline and food prices, their house values falling, credit as tight as a drum, the stock market going to hell in a hand basket, and now job losses for 6 consecutive months... This all sounds like the late 70's early 80's to me... The only thing missing are interest rates as high as the sky!

But, the "boys" have successfully diverted the markets attention away from all of this rotten stuff for now... And they got their brother-in-arms, Trichet to play along with them for now too...

The latest G-8 meeting kicked off overnight... I wonder what they'll talk about? Could it be, spiraling oil and food prices? Could it be global inflation? Could it be the fate of the dollar? Recall that at the last G-8 meeting, the ministers decided that there had been enough dollar selling... But what did they do to change that besides talk about it? Nothing... No action... Words, and no action usually lead to no one paying attention to you in the future... Ask the boy who cried wolf! HA! And so it just might be for G-8 this time around...

Gold didn't fare any better than the currencies on Thursday and Friday, as it has lost about $15 since Thursday morning before the "memo"... Even our recent "belle of the ball" Brazilian reals saw some selling. UGH!

And Aussie dollars also saw a ton of selling. Of course this, in my opinion, does nothing but give investors that are just now figuring out that the dollar has lost a ton of purchasing power, and need to diversify to hedge this loss of purchasing power, an opportunity to buy at cheaper levels.

This week will be quite the let-down from last week, shoot Rudy, we don't even have any data to deal with today! And the data prints this week won't have the "star power" of last week's Jobs Jamboree... We will see the color of the May Trade Deficit, which will probably get worst... And the first week's reading of the U. of Michigan's Consumer Confidence report... But that's all later in the week.

I just checked the data calendar for the G-7 countries and there's not much there this week either... On Wednesday we'll see the Trade Balance in Germany, and that's the highlight of the week as far as I could see...

So... I'll just head to the Big Finish, watching the euro with its tail between its legs... The un-dynamic duo of Bernanke and Paulson won this round... But what kind of damage will they do going forward? We'll have to wait-n-see...

Currencies today 7/7/08: A$ .9580, kiwi .7540, C$ .98, euro 1.5660, sterling 1.9690, Swiss .97, ISK 76.90, rand 7.7580, krone 5.0870, SEK 6, forint 148.65, zloty 2.1150, koruna 15.05, yen 107.50, baht 33.65, sing 1.3640, HKD 7.80, INR 43.30, China 6.8666, pesos 10.34, BRL 1.61, dollar index 72.96, Oil $143.80, Silver $17.84, and Gold... $919.82

That's it for today... OK... Not such a good weekend for my beloved Cardinals as they lost 2 of 3 to the Cubs... It sure would be nice to play them with a full arsenal of pitchers, like former Cy Young winner Chris Carpenter, and current ace Adam Wainwright, who are currently injured... But you play with what you've got, and they beat us... Summer has finally arrived in St. Louis, as the heat index will reach +100 today... It had been so cold and so wet for so long, that at least one of that heat will be welcomed by me! But then, I'm inside all day, not out there working in the heat like some people... Not that much longer till the '08 Olympics, love the track & field, swimming, and basketball events... Looks like we're sending a real "team" for basketball this time... So, stay cool today, and have a Marvelous Monday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Fighting Inflation...

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

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In This Issue....

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

And Now... Today's Pfennig!

Fighting Inflation...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Dollar Receives Some Stimulus...

Chuck Butler — Thu, 12 Jun 2008 14:29:25 GMT

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In This Issue...

* Dollar receives some stimulus...
* G8 to support $ over the weekend...
* India surprises with a rate increase...
* BOJ likely to keep rates unchanged..

And Now... Today's Pfennig!

Dollar receives some stimulus.....

Good day... We had a pretty calm day in the markets yesterday as the dollar drifted lower vs. most of the major currencies. But when the Europeans picked up the trading overnight they all but wiped out any advances the currencies had made and the dollar is now sitting slightly higher than it was trading at this time yesterday morning. But I will get to that later; let me start this morning's Pfennig off with some comments Chuck left me on the markets as he signed off his computer last night:

"OK... So quite a few of you liked my conspiracy theories yesterday, and even a few had one of their own! This whole mess of Bernanke and Paulson finally sitting up and taking notice in June is just too much for me. I think there's got to be a story here that we don't know about... Yet!

The euro which was hovering around 1.55 yesterday as I signed off, got a lift when a different European Central Bank (ECB) member, Orphanides, followed up ECB member Stark's comments that sent the euro lower, with a different statement. Orphanides decided that it was better to come clean and tell the markets that he "can't rule out the need for more rate hikes after the July hike"... You may recall that yesterday I told you the ECB member Stark had said, "However, we are not talking about a series of rate increases."

It's not often that the ECB members sing from a different song sheet... But I like Orphanides comments, and so did the markets!

We saw the color of the Fed's Beige Book (pun intended!), yesterday... And to use just two words to describe what the Fed Heads were discussing, the two words would be: "Generally Weak"... Here's a snippet of the report from the Fed... "Comments from retailers not particularly impressive as sales "slowed further" since the last report, but we still think strong sales at discounters will boost retail sales for May"

Thanks to Chuck for sending me these comments, and as I said above, all of the information released yesterday sent the dollar lower. But the European traders reversed the dollar's course and sent it rocketing back up. So what caused this reversal? It wasn't data released in Europe. European Industrial production unexpectedly rose in April as gains in France and Italy countered weakness in Germany. No, the dollar jumped on expectations that today's release of Advance Retail Sales in the US will show an increase following last months decline.

The traders in Europe are absolutely giddy with the thought that a higher retail sales number will cause the FOMC to start raising rates. But I have two problems with this most recent turn around for the dollar. First, the Advance Retail Sales numbers haven't even been released, and could come in softer than expected. As Chuck pointed out above, the Fed's own estimations of our US economy showed it to be 'Generally Weak' and indicated a further slowdown was likely.

Second, any pick up in the retail sales in April were likely due to the stimulus checks which were distributed. These checks likely gave us a one time boost as consumers rushed out and spent them. While I sometimes question the decisions the FOMC makes, I believe they have enough brainpower to realize any uptick in May's retail sales would be the result of these stimulus checks and not a sign of an economic turnaround. Unless congress wants to continue to borrow against the future to send out more stimulus checks to everyone, this uptick in spending won't last.

So even if the May's retail sales show a slight increase, I don't believe the FOMC will react by raising interest rates in the near future. We were having a discussion on the desk about interest rate differentials yesterday, and Chuck pointed out that the Fed has never raised interest rates while unemployment was rising. The ECB will continue to increase rates, as will several other countries as global inflation continues to increase. Reading all of the recent releases by ECB council members, I expect them to raise rates three more times this year while the US FOMC will keep rates on hold.
I just don't believe Ben Bernanke will be able to move US rates up. The US economy is going to continue to weaken throughout 2008 and do you really think the FOMC is going to raise interest rates in an election year and risk pushing the economy into a recessionary abyss?

I don't think so. In fact, after taking a break and holding rates right where they are for a few months, I think there is probably a pretty good chance the FOMC comes back with a further rate cut as the US economy continues to stagnate later this year.

The US currency was also supported by speculation that finance ministers from the Group of Eight countries will make comments discouraging the currency's decline at two days of meetings starting in Osaka, Japan, tomorrow. This would play right into the conspiracy theories that the US will coordinate intervention to try and strengthen the greenback. You can bet that policy makers will be doing there best to jawbone the dollar up during the weekend's G8 meeting.

One currency which did well vs. the US dollar overnight was the Indian Rupee which benefited from a surprise rate hike... The first one in over a year! The rupee liked the sound of a rate hike and rallied. India joined Brazil, China, and Russia in raising borrowing costs. These four nations, termed BRICs by Goldman Sachs, accounted for almost half of global expansion last year. India's industrial production growth accelerated more than expected in April to 7%. This higher growth will enable the economy to withstand further rate increases which will be used to combat inflation.

While the Indian Rupee has underperformed so far this year, interest rates are expected to increase by another 75 basis points during 08. As long as the Indian government doesn't step in the currency could start making up some of the lost ground vs. the US$.

One Asian country which hasn't benefited from the higher growth rates in the region is Japan. But the latest numbers show Japan's first quarter economic growth was faster than the government initially reported. Gross domestic product expanded an annualized 4 percent in the three months ended March 31, the Cabinet Office said today in Tokyo. But don't expect the higher growth figures to stimulate the BOJ to raise rates. The Bank of Japan will likely keep rates unchanged at the end of their two day meeting which begins today. And even the risk of higher inflation due to rising oil prices will not push the BOJ to raise rates before year end. While the yen looks to have very good potential, unfortunately that potential may not be realized until the BOJ begins to raise rates.

Currencies today 6/12/08: A$ .9363, kiwi .7515, C$ .9767, euro 1.5416, sterling 1.9471, Swiss .9569, ISK 78.50, rand 7.9955, krone 5.2155, SEK 6.0754, forint 160.35, zloty 2.2024, koruna 15.8284, yen 107.69, baht 33.18, sing 1.3802, HKD 7.8090, INR 42.855, China 6.9070, pesos 10.4194, BRL 1.6401, dollar index 73.83, Oil $133.94, Silver $16.59, and Gold... $869.60

That's it for today...We have finally received some nice late spring weather here, but the thunderstorms are expected to come back tomorrow. I was saddened to hear about the tragedy which occurred just north of us with a deadly tornado hitting a boy scout camp up in Iowa. My daughter Lauren is away at a YMCA camp down in southern Missouri, so the bad news hit pretty close to home. Looking forward to a big weekend here in St. Louis as the entire office is going to watch the Cardinals on Friday night. Hope everyone has a tremendous Thursday!!

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