Daily Pfennig : GDP

We Won't Get Fooled Again!

Chuck Butler — Tue, 17 Nov 2009 16:26:36 GMT

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In This Issue..

* Bernanke digs out some old words...
* Risk on, Risk off...
* Brazil to have a different meeting outcome?
* Winter Olympics are in Canada...

And Now... Today's Pfennig!

We Won't Get Fooled Again!

Good day... And a Terrific Tuesday to you! What a ride on Mr. Toad (Bernanke's) Wild Ride yesterday for the currencies! Gold? Well, at one point in the day, Gold had shot up $24 on the day! It topped out at $1,142... The shiny metal then gave some back on profit taking, but Whew! Gold holders have got to love it! Those that keep waiting for a pull-back... Well, they might be still waiting when the cows come home...

Yesterday, we had a couple of Fed Heads talking, but the Big Kahuna, stood out, and moved the markets with his statements... Here's the skinny...

Big Ben was giving a speech, and said that "The Fed will monitor closely the currencies, and that the Fed's policies will ensure that the dollar is strong." Now, when he first uttered those words, the dollar got bought and the non-dollar currencies were sold... But then, a few of us had this feeling... It was a feeling that we had heard all this before... And there... In the archives, circa June 2008... Bernanke said, "In collaboration with our colleagues at the Treasury, we continue to carefully monitor developments in foreign exchange markets." Wait! We won't get fooled again!

In June 2008, his statements spooked the markets into believing the Fed was really going to do something to bolster the dollar... But when nothing came along, the dollar REALLY got sold until the financial meltdown of August 2008... I mean... What has the Fed done in the past 1 1/2 years to "bolster the dollar"? Near zero interest rates that will remain in place for longer than they should... Quantitative easing... A Bloated balance sheet of toxic bonds...

You could see the V-8 moments on traders' faces when they realized, yesterday, that all this had been said before, and nothing came of it, so... Meet the new boss... Same as the old boss... We Won't Get Fooled Again! No No!

So, then traders reversed their buying of the dollar and sent the dollar to the woodshed... You should have seen the reversal... It was amazing... The Big Dog, euro, went from 1.4970 to 1.4860, and then turned around to rise to 1.50! ... Now, overnight, there has been some renewed selling of the non-dollar currencies, and the euro is back to 1.4910... Crazy... But not as crazy as Big Ben spouting off about "monitoring the currencies"... Yeah, right... And what are you going to do about them when they get out of line, Big Ben? Get the ruler out? I'll tell you what he'll do... Nothing... Absolutely nothing!

Memo to Big Ben... Ahem... Am I on? Ok, long time listener, first time caller... Big Ben... Just what policies are you talking about that will keep the dollar strong? In the future, you might want to list them, so that people like that Chuck Butler, doesn't rip your comments to shreds for their lack of truth, and facts...

Non-voting Fed Head, Fisher, had this to say yesterday... "Our job is to maintain the purchasing power of the dollar, while fostering the conditions that enable the economy to grow without fanning inflation." Hmmm I would say that he's got that right... But, apparently, somewhere along the way, the part about "maintaining the purchasing power of the dollar" got lost, eh? I mean, since the Fed / cartel was formed in 1913, the dollar has lost 95% of its purchasing power... YIKES! Most people that did their jobs that badly would be fired/ let go... These guys have had almost 100 years to figure this out, and have failed miserably... And hey! Before I get accused of something (I'm always accused of something, with everything I say), Fed Head Fisher was the one that described the Fed Heads' job, not me!

OK... While I'm on this subject of being accused... I have been beating on the U.S. administration for 9 years, folks... I know I've really stepped it up with the step up of deficit spending by this administration, but, I chastised the previous administration beginning with their protectionism measures in 2000, and never let up, with their deficit spending... Someone even said I never talked about Cheney and his "Deficits Don't Matter"... WHAT? I've even repeated the same joke several times about the Deficits don't Matter crowd, and that they remind me of a guy standing on the Empire State Building, he decides to jump off, and as he passes the 56th floor, he says... "So far, so good!"

Yes, so far, so good, because he hadn't hit the concrete to go splat yet... And neither had the deficits crowd... But they will, and in fact, they are getting awfully close to the concrete right now!

Well... Enough of that... I just get so ticked off sometimes... I write, and write, and people say I didn't say this or that... Don't know what else to say... So, I'll go on...

The U.S. economy got a boost yesterday when Retail Sales grew at a faster rate than forecast, growing 1.4% in October, above the 0.9% rise projected by Wall Street. The jump came on rebounding demand for cars, a sign the economy kept recovering despite climbing unemployment. Aside from automobiles in October, other sales rose just 0.2%.

But... Are these numbers suspicious? Well, when you look at the previous month's revision, you have to question these numbers as well... September Retail Sales, which were reported as -1.5%, actually fell -2.3%... I wonder what this number's revision next month has in store...

Today, the data cupboard is stocked to the brim with data prints... Producer Price Index (PPI) prints along with two of my faves, Industrial Production and Capacity Utilization... And then the Big Kahuna of the day... The TIC's data... For those of you new to class, The TIC's data stands for Treasury International Capital... Or... Easier to understand... It's the fancy, schmancy name for Net Security Purchases by Foreigners... This is how we track, how well we're doing as a county at financing our ever expanding deficit...

I made a mistake yesterday when talking about the Reserve Bank of Australia (RBA) and saying that if they didn't hike rates in December, that they would most likely come back in January at hike them... A reader pointed out to me that the RBA doesn't meet in January... OK... So, I guess I should have said that the RBA would hike at their next scheduled meeting!

Speaking of the RBA... They issued their latest meeting minutes, in which they sounded less hawkish than one would expect, since they raised rates at the same meeting... But this less hawkish tone, set off a round of Risk Aversion once again in the currency markets overnight... Risk on, Risk off, is reminding me of a Wayne and Garth street hockey game...

For, it's Risk on, one day, and Risk off the next day... So, while I find that the RBA minutes did set off this round of Risk off for the currencies, I don't see it having lasting power... Look for this all to fade, especially if we get a rogue data print in the U.S. today...

Late last week, I came across a story on the dollar that I totally forgot to talk about yesterday... So, here you go... Oh, by the way, strap yourself in for this one, and keep your arms and legs inside during the ride...

The German government's 5-person council of economic advisers issued a report that said, "After the massive global increase in U.S. dollar reserves in the past years, an "uncontrolled exit", especially in emerging economies from the U.S. dollar as a reserve currency is a possible trigger of instability in currency markets." The went on to say...

"Countries holding "high" dollar reserves should consider committing to selling their dollar holdings in a coordinated way over a longer period of time."

The folks over at the Royal Bank of Scotland (RBS) think that Bernanke's speech yesterday, basically gave the green light for a further, slow, gradual decline of the dollar... And, quite frankly, that's what traders would prefer to see too, given that they don't like getting whipsawed day in and day out by the Risk on, Risk off game... When assets go to fast one way or the other, it just causes strong corrections, and people get hurt by the movements... But a slow, gradual decline I would think would be the preference of the U.S. Gov't... That way, no one notices... It's not like a bubble that grows and everyone notices it...

Speaking of bubbles... And if you're like me, when I type, or say bubbles, I immediately think of Big Al Greenspan... Well, you'll love this Fed Head statement about bubbles... Here's Fed Head Kohn... "Asset price bubbles can be spotted when they become extreme, efforts to spot bubbles may result in seeing more than there is."

Now that statement plays well with Big Al Greenspan, who always claimed that bubbles could not be spotted before they got out of hand... Basically, what these two are saying in different ways is that the Fed could spot them, but probably wouldn't like it, and wouldn't have much at their disposal to do about it, so they just turn away...

And speaking of such... Fed Head Yellen said last night that the "U.S. stock market is not overvalued"... That's all I'll say about that!

OK... Hopefully, you are still with me here, and reading... And you will recall me going on and on about China and their FX currency swap agreements and how that was a baby step toward gaining a wider use of the renminbi... Well... Yesterday, there was a story, that I think Ty told me about, that talks about China preparing to float the renminbi, testing it in Hong Kong... The Chinese government has been moving to allow banks in Hong Kong to issue bonds, hold deposits, and settle trade with the mainland -- all in renminbi.

However, don't look for this conversion to a floating currency to happen soon... Financial analysts believe it will not happen before 2020... It may come sooner... But I wouldn't get all lathered up that it happens in the next year!

One of the best performing currencies VS the dollar this year, has been the Brazilian real, with a greater than 30% gain, so far... There's been a shakeup at the Brazilian Central Bank, and there will be a few new members, with voting power at the next meeting on December 9th... I still don't think the Brazilian real interest rate will be moved at this meeting, but with the new members, they might want to make a "statement" about how hawkish they are... And on December 10th, Brazil will print their 3rd QTR GDP, which I would think would be quite strong... You would have to think that the Central Bank will have privy to this report before they meet on the 9th... And with the new members possibly wanting to make a statement, there's a whole new outlook for the Central Bank meeting...

You know... As we draw closer to the end of the year, the closer we get to the winter Olympics which will be held in Vancouver, B.C. (and Whistler!) Going back to the early days of the World Markets Division at the old Mark Twain Bank, here in St. Louis, we tracked currencies from countries that were holding the Olympics, noticing that there was always a rise in the host country's currency... If that were to hold it would benefit the Canadian dollar / loonie... Will it hold true for the Vancouver Olympics? We'll have to wait-n-see, eh? But really... Wouldn't it be worth a flyer, a shekel or two to see if it did hold true?

And then there was this... Were you confused by the GM announcements yesterday? I was... First there was an announcement that GM would be paying back some of the bailout money to the Government... But then later it was announced that GM posted a $1.5 Billion loss... Kind of difficult to pay someone back, when you're booking losses, eh? Strange announcements for sure...

OK, to recap, which I forgot to do yesterday! UGH! The currencies were whipsawed yesterday by comments by Big Ben Bernanke, that we've heard before! The RBA issued a not-so-hawkish minutes report that spooked the markets and it's Risk off today... Brazil might have a different outlook for their next meeting in December, and the winter Olympics are ready for Vancouver, will that mean a boost for the loonie?

Currencies today 11/17/09: American style: A$ .9270, kiwi .7440, C$ .9450, euro 1.49, sterling 1.6775, Swiss .9840, European style: rand 7.4660, krone 5.62, SEK 6.8775, forint 179, zloty 2.76, koruna 17.1450, RUB 28.77, yen 89.30, sing 1.3870, HKD 7.75, INR 46.30, China 6.8266, pesos 13.01, BRL 1.7160, dollar index 75.38, Oil $78.24, 10-year 3.35%, Silver $18.16, and Gold... $1,030

That's it for today... Well, the college basketball season began last night... My beloved Missouri Tigers start tonight. The Tigers basketball team surprised quite a few people with their run last spring, hopefully they can repeat that! Our little Christine's husband is a high school basketball coach. Christine says that once the season starts, she rarely sees husband, Matt... She loves basketball season! HA! My little, adorable granddaughter, Delaney Grace, was at the house when I came home yesterday, and she ran out of the house to jump in my arms to hug me! WOW! Sure is great to have a little one around! OK... Late again today, UGH! Better get going... I hope your Tuesday is Terrific!

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

Japan Posts a 4.8% GDP!

Chuck Butler — Mon, 16 Nov 2009 15:19:00 GMT

..But First, A Word From Our Sponsor..
Gain exposure to currencies of emerging BRIC countries-and don't lose a dime on market risk

* 4 BRIC currencies: Brazilian real, Russian ruble, Indian rupee, Chinese renminbi
* High upside potential
* No market risk to deposited principal
* Low $1,500 minimum deposit

Don't miss this unique opportunity. Deadline to buy the BRIC MarketSafe CD is Dec. 3rd, 2009. Apply today or learn more at http://www.everbank.com/001CertificatesMSBRIC.aspx?referId=11808
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In This Issue..

* Risk Aversion goes away mad...
* China just says "no" to currency flexibility...
* Maybe a return to fundamentals?
* Gold continues to soar!

And Now... Today's Pfennig!

Japan Posts a 4.8% GDP!

Good day... And a Marvelous Monday to you! It's raining here, so it's one of those Rainy Days and Mondays... But I won't let it get me down, as opposed to the song! I got a chance to check out our new digs in the building next door to us here... Very nice! And... A long way from that small office I sat in on Olive St. a decade ago, when we started EverBank... To think back 10 years ago, and where we are today... Simply amazing!

OK... As I told you Friday, the President was in China this past weekend, trying his best to get the Chinese to agree to a greater flexibility for the renminbi... Well... There were a few stories this past weekend that hinted about the Chinese agreeing to do such... But I prefer to go with this story that appeared on Reuters last night... "The Chinese government has sought to distance itself from speculation surrounding a central bank statement earlier this week that was interpreted as a shift in currency policy towards a stronger yuan. However, a report on Saturday by Xinhua, the state-controlled Chinese news agency said that the government would not allow the currency to gain against the dollar in the short term."

Wang Qing, chief Asia economist for Morgan Stanley in Hong Kong, said in a report to clients: "I consider this article an official effort by Chinese authorities to dismiss the renewed speculation of yuan appreciation in the near term."

So much for that visit to China, eh? Put that one down next to the visit to Copenhagen earlier this year... Ahem... 3 strikes and you're out in baseball... But, getting back to the trip to China... The Asia-Pacific members were pretty tough with their questions for the U.S. President, questioning his commitment to free trade... And then let him know that China is going to fight protectionism, and keep the renminbi on a leash...

On Friday, we had the currencies add a bit to their rally on Thursday, as the Risk Aversion campers were sent home without a ball... No need to go away mad... Just go away! There was a bit of interesting data reaction that happened on Friday, which only gave me some hope of returning to fundamentals... The U. of Michigan Consumer Confidence Index fell in October, which wasn't expected one iota... And... The dollar sold off! That's exactly what should happen when a country's economic data prints badly! So Hur-ray! YAHOO! But... Just like I always say... On swallow doesn't make a summer, and one reaction to a data print doesn't make for a shift in fundamentals... But could it be a start? Yes, it could... But we'll need to see more of this type of trading after data prints to indicate that the old "trading theme" has been put in our rear view mirrors, and that fundamentals have returned... But wouldn't that be a happy day? Oh happy day... Oh happy day...

I'm going to tell you this next bit, and you're not going to believe it at first... But stay with it... There was good news in Asia overnight, as the Japanese printed a 3rd QTR GDP report that showed an annualized rate of +4.8%! That was 2.9% higher than the "experts" forecast for Japan! So... Even Japan is joining the other Asian and pan-Asian countries (Australia) in posting strong economic growth!

The Asia-Pacific leaders pledged to keep stimulus measures in place until there's a "durable growth"... Hmmm... Here's hoping that the Asia-Pacific leaders let us know when that happens, for 4.8% annualized growth for Japan, sure seems like "durable growth" to me!

And... In keeping with our hopes that fundamentals return to currencies and commodities... The strong economic data for Japan, did not quash the yen! In fact, the yen has traded stronger VS the dollar overnight!

Speaking of trading stronger VS the dollar overnight... Have you seen the price of Gold? WOW! Gold has set, yet another, all-time record high overnight of $1,133! It has since given back some of that to trade at $1,127... But still... WOW!

You know... Just about 10 days ago, the dollar was looking as if it was going to make a comeback / correction... I even saw a cute little poem a trader wrote about it being the end of euro strength... But here we are 10 days later, and the dollar is looking quite weak again... The euro is back to pushing the envelope to 1.50 VS the dollar, and I just told you about Gold's run VS the dollar...

Of course this doesn't mean that a correction couldn't take place today, tomorrow, or the next day... I'm just pointing out something that I've told you all about for years now... And that is: short term forecasting for currencies is usually wrong! So, then, people ask me... Why then do you write a daily letter about currencies, Chuck? Ahhh, grasshopper, because, someone has to make sense of this daily noise, and... You never know when a "turn" might happen in the currencies...

The Aussie dollar (A$) spent the overnight sessions trying to get past .9350, but failed to do so, especially on the back of a note from a local bank analyst who went out on a limb and said the Reserve Bank of Australia (RBA) would be on hold at their next meeting on Dec. 1st... Well, that may be... But I still believe the RBA will hike rates in December! But if they don't, then we could look for an even larger hike when they come back in January! So, this keeping the A$ below .9350 won't last long, in my humble opinion!

We could get some traction from the euro and other Euro-type currencies this week, as the Euro Finance Week in Frankfurt will take place with top leaders speaking on the financial crisis and lessons to be learned from it... German Chancellor Angela Merkel, who's always good for some interesting quotes, will speak, as will European Central Bank (ECB) President, Jean-Claude Trichet...

Speaking of Euro-type currencies... The Norwegian krone, continues to follow the Big Dog, euro... But when the Big Dog, euro gets going, the krone normally out performs the euro... So... The Big Dog, euro is the key here...

OK... For some time now, I've been trying to point out to you that monetary inflation is going to sneak up on us and rip apart our investments... My good friend, David Galland, had this to say in his Friday letter... Here's David!

"Just because it's not readily apparent doesn't mean it's not there. Of course, I'm referring to the government's monetary inflation, which, thanks to a combination of factors, still hasn't jumped out of the closet to scare bond markets into cardiac arrest."

David then goes on to show his readers a table that had useful details on the progression from normal to very much not normal, leading up to the German Hyperinflation of the early 1900's... David then says, "As you can see, the situation in Germany was not so bad - until it was."

If you would like to see the "table" David refers to... Or read his excellent letter... Click here... http://www.caseyresearch.com/quick-guide/free-publications/

OK... You know, the soaring Gold price has been mostly tied to the weak dollar... But, you would have to think that "smart investors" with an eye on this monetary inflation is having some push to the price of Gold too... I know that's why I own Gold... The weak dollar thing is just icing on Gold's value in my opinion... The inflation hedge... The Deflation hedge... Or... As I call it... The "uncertainty hedge"...

And then there was this... The other night I was discussing the Health Care stuff, and told the person I was talking to that the stimulus bill, you know the one that was pushed through so fast last winter because we as a country were "near total collapse"? Well, the stimulus bill had hidden in it, part one of the Obama Health Care Plan... Hmmm didn't know that? Well, yes, grasshopper... It's the "death panels" that Sarah Palin coined them... They are called the rationing and enforcement board. And... The President has already funded them with $20.6 Billion of our taxpayer dollars!

Now... I'm not going to get into a discussion of the Health Care here... My point was simply to show that when bills are passed, it is important that they are read aloud to the people, to keep from "hiding" things in the bills... $20.6 Billion of money that the Gov't did not have!

Ok... Enough of that... My good friend, Dr. Dave Janda, was the first to expose this "hidden gem" And he's been on the speaking circuit trying to get anyone that will listen to him, and they should, to understand what's going on...

Currencies today 11/16/09: American Style: A$ .9340, kiwi .7445, C$ .9555, euro 1.4970, Sterling 1.6720, Swiss .9920, European Style: rand 7.3910, krone 5.5730, SEK 6.8060, forint 178.90, zloty 2.7375, koruna 17.0530, RUB 28.68, yen 89.50, sing 1.3850, HKD 7.75, INR 46.22, China 6.8269, pesos 13.01, BRL 1.7125, dollar index 75.03, Oil $77.19, 10-year 3.40%, Silver $17.85, and Gold... $1,130.30

That's it for today... Our resident TV personality, Ty Keough, was announcing the Missouri Valley Conference Soccer match yesterday on Fox Sports Midwest... Ty had a great line during the match, referring to one shot by a player as being a "venomous shot!" I made a drive to the country yesterday to visit my graves of my parents and oldest sister... It had been a couple of years since I made that drive, my bad... The little country town that our family farm sat outside of, hasn't changed... It's still the same quiet little country town in mid-Missouri... Went to dinner with good friends, Lisa and Kevin on Saturday night, they used to be our neighbors, and now we rarely see them... UGH! OK... Mike's here, so that means it's time to hit "send"! I hope you have a Marvelous Monday!

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

Germany & France Post 3rd QTR Growth...

Chuck Butler — Fri, 13 Nov 2009 15:31:01 GMT

..But First, A Word From Our Sponsor..
Gain exposure to currencies of emerging BRIC countries-and don't lose a dime on market risk

* 4 BRIC currencies: Brazilian real, Russian ruble, Indian rupee, Chinese renminbi
* High upside potential
* No market risk to deposited principal
* Low $1,500 minimum deposit

Don't miss this unique opportunity. Deadline to buy the BRIC MarketSafe CD is Dec. 3rd, 2009. Apply today or learn more at http://www.everbank.com/001CertificatesMSBRIC.aspx?referId=11808
.

In This Issue..

* Risk Aversion fuels dollar rally yesterday...
* Eurozone growth may stop the Risk Aversion...
* Budget Deficit is a record $176.4 Billion!
* Euro, Swiss, Aussie, Norway, all cheaper today!

And Now... Today's Pfennig!

Germany & France Post 3rd QTR Growth...

Good day... And a Happy Friday to one and all! Let's try to make this a Fantastico Friday as well! The Risk Aversion that was creeping into the currency markets yesterday really took hold in the U.S. trading session, which meant the dollar was being bought once more, along with Japanese yen...

It just makes me laugh out loud, when I write that the "safe haven currencies" during Risk Aversion trading are the dollar and yen... These two countries have debt up to their eyeballs, pay no interest on their deposits, and have a leadership deficiency... (ok, before every begins to think that I'm ripping the president again, I'm not... I'm talking about the Central Bank, and lawmakers of each country)

There was good news out of the Eurozone this morning... Both Germany and France followed their previous quarter's growth, with stronger growth in the 3rd QTR... The Eurozone's two largest economies continued to recover from recession in the 3rd QTR, as exports boosted both German and French gross domestic products. I say that, and I want to spit out a raspberry to all those that claim the European Union will collapse because of the strong euro! Neener, neener, neener... The largest economies of the Eurozone can grow, with strong exports even with a strong euro!

OK Chuck, no need to be childish here, let's get back to the growth... Germany's GDP rose 0.7% in the three months to Sept. 30. In France, GDP also grew for the second consecutive quarter, rising 0.3%.

So... Of course this data from the Eurozone put a floor under the euro's decline from yesterday... It will be interesting to see how the U.S. guys look at these growth numbers... The European guys liked them... The U.S. traders though can be very fickle...

And more than that though, I think this might be the thing to put the Risk Aversion to bed... Recent history tells me that whenever Risk Aversion has crept into the markets, any sign that Global growth is back on track, and will lead investors to higher yielding assets, the Risk Aversion ends abruptly... Let's hope that's the case today with these two growth reports from the Eurozone!

Yesterday's data in the U.S. showed that the Weekly Initial Jobless Claims remain above 500,000 per week, and that the Budget Deficit was even worse than the forecast $160 Billion! The Budget Deficit for October totaled $176.4 Billion, which annualized puts us over $2.1 TRILLION! OMG! That awful folks! And you should be writing, calling, or making your way to your representative's next meeting and demanding that they STOP SPENDING MONEY THEY DON'T HAVE!

You know that letter that I said I was going to write to my darling granddaughter, Delaney Grace, apologizing for the lack of freedom and tax burdens that were left to her generation to deal with? Well, I started writing it the other night... What this and the previous administration is doing has no morals, when it comes to leaving the debt to be dealt with by future generations...

OK, it's a Friday, I need to try to remain calm here, and be upbeat! Hmmm... Usually, that means that I pull out a story on Gold... But yesterday was not a good day for the shiny metal, after reaching a new all-time record level of $1,118, it fell more than $10 in the aftermath of the Risk Aversion... See how stupid the Risk Aversion people are? I mean, if you wanted to avert risk, wouldn't you buy Gold?

Any way, colleague, Don Ries, sent me a story that he came across regarding Gold that I thought was quite interesting... The Telegraph in the U.K. printed a story about how Barrick Gold believes we may have reached "peak" Gold already... And by that "peak" I'm talking about the mining of the shiny metal!

"Aaron Regent, president of the Canadian gold giant, said that global output has been falling by roughly 1m ounces a year since the start of the decade. Total mine supply has dropped by 10% as ore quality erodes, implying that the roaring bull market of the last eight years may have further to run. There is a strong case to be made that we are already at 'peak gold'," he told The Daily Telegraph at the RBC's annual gold conference in London."

WOW! Did you get the one line that was in there about how this lack of mining implies that the roaring bull market of the last eight years may have further to run? I think that's putting it conservatively for sure! "may have further to run?" I would say it stronger... But I can't... Or I'm not supposed to! ( our legal beagles read the Pfennig each day!)

OK... That put me back on track to be more upbeat for this Fantastico Friday! Today's data cupboard will yield the Monthly Trade Deficit data, and the U. of Michigan Consumer Confidence index... The Trade Deficit overhang continues to be a problem for the U.S., obviously not as bad as a problem as it was during the go-go days for the consumer...

Traders have become "comfortably numb" with the deficit figures in the U.S. which is a bad thing folks... Traders need to make a stand, and not allow this stuff to just slip under the door, thus allowing larger and larger deficits in the future!

I see the President is in China... I bet he thinks his presence will be the thing that will move the Chinese to allow greater currency flexibility... I just don't see the Chinese getting caught up in the "show" to give in and allow flexibility in their currency, just because the President of the U.S. showed up...

The currencies are rallying this morning VS the dollar. Since I came in and began writing, the euro has climbed higher, albeit a small move higher, it's still moving higher, and thus has stopped the bleeding, that began yesterday morning...

I'm surprised the Aussie dollar isn't really hitting on all 8 this morning, considering the growth numbers in the Eurozone... But I think we might have to wait for the U.S. traders to come in to see the rally in the A$ this morning... It is Saturday in Australia!

The Swiss franc got caught up in the Risk Aversion trading yesterday, and has backed off its ascent to parity... The franc is trading around .9855 this morning, which is more than 1-cent lower than yesterday morning... Wink, wink...

And a country / currency that I drop the ball on all the time, when it comes to talking about it in the Pfennig, is the Norwegian krone... Long time readers know that I truly like Norway, for their fiscal and monetary surplus prowess... And most recently, for their absence from the rolls of those countries that got involved in sub-prime and bad lending practices. Earlier this month, Norway's central bank, the Norges Bank, hiked rates 25 BPS, and is expected to raise them again in a month or two... So, now we have a country that has a strong fiscal and monetary position, no bad banks or loans, and a strong positive interest rate differential to the U.S.... Hmmm...

And then there was this... Neil Barofsky, the special inspector general for the $700 Billion TARP bailout said the program will "almost certainly result in a loss to taxpayers"... "We need to temper or be realistic about our expectations, a dollar-for-dollar return is just highly unrealistic." Barofsky also said that he's conducting 65 investigations of possible fraud...

OH MY! You're telling me that with the $700 Billion TARP funds that there could have been some fraud involved? I wouldn't have believed it! .... NOT! I bet you thought I had gone softy on you! The whole TARP was fraud to begin with! So, with all the corruption and scandals that have gone in before, the thought that there could be some fraud, should have been a belief that there "would be fraud for sure" when the TARP was issued!

Currencies today 11/13/09: American Style: A$ .9285, kiwi .7370, C$ .9495, euro 1.4890, sterling 1.6685, Swiss .9860, European Style: rand 7.4410, krone 5.62, SEK 6.8660, forint 180.80, zloty 2.76, koruna 17.10, RUB 28.83, yen 89.70, sing 1.3860, HKD 7.75, INR 46.34, China 6.8263, pesos 13.16, BRL 1.73, dollar index 75.39, Oil $77.45, 10-year 3.44%, Silver $17.36, and Gold... $1,109.30

That's it for today... Yes, today is a Friday the 13th... I don't get into that stuff, but if you do, be careful today! We're supposed to have another nice weekend here in St. Louis, weather wise, so we have that going for us! No football game this weekend though for my little buddy, Alex. I saw Chris Gaffney and his son Brendan on TV at the Blues game last night. The Blues lost the game though. UGH! Another week, and well be talking about Thanksgiving getting here so fast! The radio station that plays Christmas music every year, began broadcasting the Christmas music a couple of weeks ago! They used to at least wait until Thanksgiving came and went! Well... Let's get working on having a Fantastico Friday! And a Wonderful Weekend!

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

RBA Raises Rates Again!

Chuck Butler — Tue, 03 Nov 2009 15:44:43 GMT

..But First, A Word From Our Sponsor..
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* 4 BRIC currencies: Brazilian real, Russian ruble, Indian rupee, Chinese renminbi
* High upside potential
* No market risk to deposited principal
* Low $1,500 minimum deposit

Don't miss this unique opportunity. Deadline to buy the BRIC MarketSafe CD is Dec. 3rd, 2009. Apply today or learn more at http://www.everbank.com/001CertificatesMSBRIC.aspx?referId=11808
.

In This Issue..

* Risk Aversion boosts dollar...
* U.S. manufacturing is strong...
* More stimulus? Please say it ain't so Joe!
* Thoughts from the Big Boss!

And Now... Today's Pfennig!

RBA Raises Rates Again!

Good day... And a Terrific Tuesday to you! Well, I'm here! Just when you thought I would be gone for the week, and you would get away from my rants, and get the calm Chris Gaffney, the rug gets pulled out from you! I am so bummed! I was told that I could not travel to Cabo for the Sovereign Society's Offshore Advantage Conference, and I was to remain at home, with my leg up, blah, blah, blah... What a crock!

OK, now that we've got that out of the way... Front and Center this morning, we have a very strong dollar rally going on... It began yesterday mid-morning, when things turned on one thin dime. First, we had the U.S. Manufacturing Index rise in September and the Trading Theme kicked in with the dollar getting sold on the good news for the economy... But then a strange thing happened on the way to the forum. Everyone began to fear what's been going on in Banking... Friday, the 115th bank failed this year, and suddenly, traders, investors, hedge fund dudes, and everyone else, got a case of the flu... Not the "pandemic" H1N1 flu... This is the "chicken flu"... Chicken to continue to takes risks in the face of a banking problems... Well, to think of it, maybe, just maybe, it's not the "chicken flu" but the "prudent flu"!

So... The dollar's losses were reversed by mid-day, and the non-dollar currencies were taken to the woodshed... Shoot Rudy, even a rate hike by the Reserve Bank of Australia (RBA) couldn't reverse the Risk Aversion trading... I'll get back to the rate hike by the RBA in just a minute... But first I need to talk about this shift to Risk Aversion once again... We saw this briefly last week, and it faded into the wind... I hope this shift to Risk Aversion is soon a small item in our rear view mirrors!

Now... The ISM Manufacturing Index rose to 55.7 from the prior month's 52.6 reading. This marks the strongest reading for the index since the April 2006 reading of 56.0. Let me explain something to you, that I've explained before, but this really illustrates what I'm talking about... And that is... This Manufacturing renaissance here in the U.S. comes as a benefit of the weak dollar that's been in place for over 6 months now. It's that simple folks... You want Manufacturing in the U.S. to be robust? Then you need a discounted clearing mechanism... And that is the dollar...

For, the Asians are learning to trade among themselves without the U.S., and the Eurozone already has 80% of their trade among themselves, with out the U.S. that doesn't bode well for U.S. exports unless... Unless there is a discount... And that discount comes in the price they have to pay / convert their currency for the dollars that are needed to buy the export... So... Why shoot the goose that lays the golden eggs?

OK... As I mentioned above... The RBA raised rates 25 BPS (1/4%) last night, as I expected them to, and had told you they would! The A$ got sold though after rallying briefly... Traders go spooked when the RBA Gov said that "it was prudent to lessen gradually" the stimulus to the economy provided by lower borrowing costs... OK... Folks, that's Central Bank parlance for: The interest rate hikes are going to slow down from here on out... So don't expect a rate hike at every subsequent meeting!

Oh come on A$ Traders! The A$ yield differential to the U.S. is now staggering! As it is to Japan, Europe, and Canada! Only New Zealand and Brazil can play on the same team as Australia when it comes to significant yield differentials! But NOOOOOOOOO OOOO! You get spooked! Have you no intestinal fortitude? HEY! The good news is that it gives late comers a chance to buy at cheaper levels, or... Those that already own, a chance to pick up more at a cheaper level! Courtesy of the Chicken Little A$ traders!

Well... I guess I can't blame them too much, with the Risk Aversion campers taking over the campground... Here's another thing that I saw last night that has the Risk Aversion campers spreading like wildfire... A long time reader of the Pfennig and Bloomberg TV personality, Pimm Fox reported last night that: President Barack Obama's advisers are "seriously" considering proposing a second stimulus measure to boost the economy, Commerce Secretary Gary Locke said in an interview. Locke said another stimulus would be "very targeted and specific and we need to be mindful of the deficit as well."

Hmmm... OK... How many times have I said in the past 8 months that the Gov't was going to see the need for more stimulus? The answer? MANY! I've got a question... If the GDP was "so robust" as the Gov't officials claimed it to be, then why are they discussing more stimulus? BECAUSE THE GDP WAS A FRAUD! We all know that... I explained it all to you yesterday! But the announcement that more stimulus is being "seriously considered" is what we used to call as kids as "cheaters proof"!

What does "very targeted and specific" mean? It means the Gov't is going to get deeper and deeper into the private sector... That's what it means!

I have a question for the Gov't... You told us the $787 Billion stimulus package last February was going to keep unemployment from reaching 10%... Guess what? That didn't work! So, what makes you think whatever taxpayer money you spend now is going to work? Oh, and don't give me that barrel of baloney that you've "saved" 650,000 jobs... Saved Jobs CAN NOT BE PROVED! So why not say you saved 1 Million or 2 Million jobs? I mean, what difference does it make... It's not true, and can't be proved!

Whoa, there big boy... You had better stop before the Pfennig gets sent to the White House to shut me down! Yeah, like it hasn't been sent there before now!

OK... Did you hear about the IMF Gold Sale? The IMF sold 200 tons of Gold... Not to worry though, the Reserve Bank of India stepped to the plate and bought the Gold... Gold revisited $1,060 after this announcement, but in reality it should have been a wash, and the price of Gold has backed off a few dollars overnight... But still pretty well bid, given the Risk Aversion going on in the currencies.

And why not? Gold is a store of value... Of wealth... Whey wouldn't it buck the trend?

Speaking of which... The Big Boss, Frank Trotter, and I were talking last week about Gold, and we kicked around this thought of sharing a lesson of money with kids... And he sent me this...

The weather turned around here in about three weeks. Great fall, then 10 days of deluge, now the chill of late fall. And instead of Thanksgiving displays, the march of catalogues imploring us to turn away from savings and save the world through spending have begun to hit the door. In the past few years as our children have become young adults we have started to turn away from the quest for unneeded presents and zombie-like consumption and have started to implement a contribution concept: research and choose a cause that will appeal to the recipient, ensure that the cause is not acting like your average NGO running around in white land cruisers or and staying at five star hotels in the third world, and make a modest contribution. It isn't working perfectly and we certainly backslide enough but it's underway. We may turn it into a gift of a few shares of a good company but enough of this.

Something else that meets the need of a physical gift, but one with a message has been on my mind lately. It isn't easy to start a conversation with a young person, especially quite young about global economics and the transient value of money. In fact it's hard to start a conversation with almost anyone on the topic. So what's a better way to provide a gift box and a message? Readers of "A Pfennig for your Thoughts" will certainly be ahead of me ( the gift of real money of course ) gold coins.

With the gift of a coin, or a set of coins you can tell so many stories or impart values in a variety of ways. Coins are struck around the world providing a geography lesson and of course an insightful and cogent discussion of central bank attention to their country's money supply (well okay, you might want to skip that one). You can tell the story of gold in the history of the world, and if you are brave and the audience attentive, how gold has held its value over the centuries and will probably do so for centuries to come. Bringing things up to date you can cover the astounding fiscal and monetary policy that has become our new national pastime over the current and past administrations (but be sure to take your blood pressure medicine). Tell 'em "you are worth an ounce a year" (or more).

If you are buying for one or two friends or children or grandchildren head down to the local coin store and grab a couple bullion coins. If you have a good size list or have the capacity to do something substantial then give the team here at EverBank a call. In any event lets all be sure to teach our kids, grand-kids and generally people around us about the monetary value of gold.

WOW! That was great Frank! I love it when the Big Boss puts down his thoughts in writing and shares them with the rest of us!

OK... To recap... The dollar is enjoying a strong rally thanks to the Risk Aversion crowd, that is getting spooked about the banks, after the 115th U.S. Bank this year failed... The Reserve Bank of Australia raised rates again by 25 BPS, and the Reserve Bank of India bought 200 tons of Gold that the IMF felt it needed to sell, so a wash if you will. And then Chuck went on a rant about stimulus...

Currencies today 11/3/09: American style: A$ .8935, kiwi .7115, C$ .9235, euro 1.46540, sterling 1.6285, Swiss .9685, European style: rand 7.9210, krone 5.8325, SEK 7.1625, forint 191, zloty 2.94, koruna 18.03, RUB 29.42, yen 90.10, sing 1.4030, HKD 7.75, INR 47.41, China 6.8279, pesos 13.35, BRL 1.7725, Dollar Index 76.73, Oil $77.19, 10-year 3.38% (see the Risk Aversion with the drop in the 10-year yield fall from 3.62% yesterday!) Silver $16.36, and Gold... $1,057.70

That's it for today... A little long today with the Big Boss's thoughts, but well worth them I must say! For all of you that are heading out to Cabo to the Sovereign Society's Conference, specifically to see me, I apologize for not being there! HA! Yeah, like someone was going just to see me! HAHAHAHAHAHA! Seriously though... I feel real bad that I had to remain at home... UGH! OH well, this way I won't miss my little buddy Alex's last game this Saturday, or son Andrew's girlfriend Rachel's birthday on Sunday! Gotta go... I hope your Tuesday is Terrific!

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

Consumer Spending Drives GDP?

Chuck Butler — Mon, 02 Nov 2009 15:44:08 GMT

..But First, A Word From Our Sponsor..
Gain exposure to currencies of emerging BRIC countries-and don't lose a dime on market risk

* 4 BRIC currencies: Brazilian real, Russian ruble, Indian rupee, Chinese renminbi
* High upside potential
* No market risk to deposited principal
* Low $1,500 minimum deposit

Don't miss this unique opportunity. Deadline to buy the BRIC MarketSafe CD is Dec. 3rd, 2009. Apply today or learn more at http://www.everbank.com/001CertificatesMSBRIC.aspx?referId=11808
.

In This Issue..

* Dollar rebounds after spending fades...
* Chinese Manufacturing rises...
* Eurozone Manufacturing rises...
* Australia as the proxy for global growth...

And Now... Today's Pfennig!

Consumer Spending Drives GDP?

Good day... And a Marvelous Monday to you! And Welcome to November! My least liked month! But that's a story for another time! I hope your Halloween was fun! The rain stopped here, there was a near full moon shining in the sky, and the little kids had a blast! And Hey! The Rams won a football game! WOW!

OK... Well... Friday was a blur to me, as I went to the doctor's office for a test, and then on my way to work, they called my cell and asked me to turn around and go to a lab for more tests... UGH! So, by the time I got to work, Jennifer had set everything up and begun trading for me... Then it was time to go home! So, I'm sitting here this morning, scratching my bald head trying to recall the currency prices on Friday... And Oh yeah! Now I remember! Do you recall the Thursday action after the GDP report showed such strength (whether you believe it or not) and the dollar got sold like pet rocks?

Well the Gov't had made such a big deal out of the fact that a good portion of the GDP report was consumer spending during the quarter... In fact 1.6% of the 3.5% increase was the Cash for Clunkers program! Well... That was a bad thing to do, for on Friday, Personal Spending and Income printed, and the Spending piece had fallen in September... So much for the euphoria of Consumer Spending bringing the economy out of the recession! Oh, and like I said last week, this plays right into my thoughts from long ago, that we would see some growth near the end of this year, but would slip right back into recession, thus a double-dip... So, the first two parts are in the books...

So... The currencies slid VS the dollar on Friday, and haven't really rebounded overnight from what I can see here at home, as I write the Pfennig at my kitchen table! The Aussie dollar (A$) seems to be champing at the bit to move higher VS the U.S. dollar, but just can't get the Big Dog, euro, to get off the porch this morning!

The reason the A$ is champing at the bit to move higher, is the news from China this past weekend that their Manufacturing data from October showed the fastest gain in 18 months! So, in keeping the Manufacturing Index here in the U.S. in mind, the Chinese Manufacturing Index moved to 55.4 in October, from the 55 in September, and the Chinese say that exports were strong... Ok... We have to apply the "believe 1/2 of what the Chinese tell us about their economy... If that's so, then the Manufacturing Index still is above the expansion line of 50... And that's a good thing for the global economies!

I would think that news like this from China would be a springboard for Commodities, and the Commodity Currencies of Australia, Brazil, Norway, New Zealand, and Canada...

Speaking of strong manufacturing... The Eurozone printed a strong Manufacturing Index report this morning too! Manufacturing in Europe expanded for the first time in 17 months, in October, increasing to 50.7 VS 49.3 in September!

The dollar index is beginning to show some weakness as I write this morning... And one would certainly think that news like this from China and the Eurozone, would push the dollar down... But, there's that stinkin' Trading Theme hanging over us like the Sword of Damocles! And with the news this past weekend that CIT Group was going to have to file bankruptcy, if things hold true, it would be good for the dollar... The flight to safety, and all that!

Hey! Doesn't this news about CIT Group tick you off a bit? It does me... And I'll tell you why! CIT Group had received $2.33 Billion of taxpayer money in an attempt to bail them out last year, but they failed any way! Again! Wouldn't it have been far better to just let them fail when they first showed signs of not being able to compete, and survive? I know that in the whole scheme of things $2.33 Billion doesn't sound like that much... Considering the Trillions that have been spend, allocated or guaranteed! But... $2.33 Billion here, and $2.33 Billion there, and pretty soon you're talking about a nice sized pile of cash, that would not have been wasted!

The Business Section of our local paper had an article this past weekend on what I was referring to last week regarding GMAC and Ally Bank... Here's David Nicklaus saying what I wanted to last week... "That clever Ally Bank ad, the one where a boy is denied a toy truck because of a "limited-time offer," omits a fact that would interest most viewers.

You, the taxpayer, are propping up Ally, the bank that's so good at making fun of other banks. And it looks like Ally's parent, GMAC Financial Services, will ask for more money soon."

So... The Gov't is in competition with private sector banks... And they can pay interest rates that are higher than other banks, because... If they lose money, they can just go back to the well and get more bailout money!

This is all just becoming one Big Mess folks... You've got to see what's going on here! It's called Big Gov't... And when you have Big Gov't, you have Big Deficits! The Gov't does not have any money to spend unless they steal it, I mean take it from taxpayers first! And they're spending what they don't have! Tax receipts are falling, and the Gov't's expenditures are rising! That's a bad formula folks...

And one that makes you so aware of the need to be diversified with a portion of your investments out of the dollar!

OK... I've got to stop there, I have to go to the doctor's office this morning, and I don't need my blood pressure boiling!

Hey! I was reading an article on Friday about Australia in which the Australian Treasurer, Wayne Swan, told reporters that he truly believes that the Australian economy is going to outpace most of the world in 2010... This plays well with my thought that I've held for so long, and have told you dear readers about for some time now, and that is... That Australia is the proxy for global growth... And if the "insiders" in Australia think their economy will outpace most of the world, that's a good sign for the global growth! And one that I think traders should be taking notice of!

I think that Brazil has a long way to go to catch up with Australia but, Brazil has made great leaps in the past 5 years, and has really taken the steps to be in the same conversation when talking about Australia... The country is still an Emerging Market though, and with that, you get wild swings in the currency... Just so you know!

I want to get back to the GDP report in the U.S. from last week... Recall that above, I told you that the Gov't made a Big Deal out of the fact that a large portion of the rise in GDP was consumer spending... But you have to ask yourself this question... "how are consumers propping up GDP with spending in the face of over 16% unemployment? Personal Consumption climbed while Personal Income fell in the quarter, as documented in the Pfennig each time they printed... So, the only way that works is if, you don't think, nah, we've had to have learned our lesson, right? Oh well, I'll throw it out there... The only way that works is if the money is borrowed... Credit cards, etc. OH NO! Tell me we're not going down this road again! Ahhh grasshopper, but Christmas is just around the corner... With 16% unemployment going on, this should be a very "plastic" Christmas shopping season!

Ok... The week ahead is chock-full-o-data and events... Like... The FOMC meeting tomorrow, that carries over to Wednesday... You know what I say about those two-day FOMC meetings! Got any Aces? Go Fish!

We'll see our own version of Manufacturing Index the ISM as it prints this morning... We'll also see Pending Home Sales. Tomorrow is the Auto Sales, and Factory Orders. Wednesday we'll get the Treasury Refunding Announcement, and Thursday is weekly initial Jobless Claims, and the stupid Productivity reports, and then Friday is the Jobs Jamboree!

So... We've got a lot to talk about his week... I'm supposed to be leaving for Cabo tomorrow, but I doubt the doctor is going to let me travel, so I'll probably be here all week. So, Chris gets off the hook this week most likely...

To recap... The euphoria that was all over the markets after the GDP report was wiped out by a very weak Consumer Spending report for September. The dollar rebounded on the "bad news for the economy" thus confirming that the "trading theme" is still in place. CIT Group filed for bankruptcy this weekend, thus wasting the $2.33 Billion, that was given to them by the Gov't from taxpayers! And both China and the Eurozone's manufacturing indexes were strong last month, which should be a good thing for the global economies, commodities, and so on...

I'm going to try something different this morning... I still get emails from people that question why I quote currencies in two different ways... Well, there are two pricing conventions in currencies, and so I try to keep currencies in the form they are quoted... But to make things easier... We'll break out the American Style, and the European Style...

Currencies today 11/2/09: American Style: A$ .9045, kiwi .72, C$ .9255, euro 1.4780, sterling 1.6360, Swiss .9790, European Style: rand 7.9175, krone 5.70, SEK 7.0315, forint 186.05, zloty 2.8740, koruna 17.88, RUB 29.20, yen 89.90, sing 1.3990, HKD 7.75, INR 46.97, China 6.8279, pesos 13.22, BRL 1.7635, dollar index 76.15, Oil $78.17, 10-year 3.62%, Silver $16.62, and Gold... $1,054.30

That's it for today... Well.. For once, it was a good football weekend here in St. Louis, as our Rams stopped a 17-game losing streak, and my beloved Missouri Tigers posted a Big 12 win. Little Buddy Alex's team remained undefeated, but tied. Two absolutely glorious sunny, blue sky days here after the what seemed to be 40 days of rain finally ended! November is off to a good start weather wise, but I know all too well what it has in store for us! Well, I'm off to see the Wizard! Speaking of which, my little granddaughter, Delaney Grace was the cutest Dorothy you've ever seen! She came by the office on Friday to show every here just how darn cute she is! OK... Time to go, this time for real... I hope you have a Marvelous Monday, and a good start to the week and month!

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

3rd QTR GDP Is Strong!

Chuck Butler — Fri, 30 Oct 2009 14:40:04 GMT

..But First, A Word From Our Sponsor..
Gain exposure to currencies of emerging BRIC countries-and don't lose a dime on market risk

* 4 BRIC currencies: Brazilian real, Russian ruble, Indian rupee, Chinese renminbi
* High upside potential
* No market risk to deposited principal
* Low $1,500 minimum deposit

Don't miss this unique opportunity. Deadline to buy the BRIC MarketSafe CD is Dec. 3rd, 2009. Apply today or learn more at http://www.everbank.com/001CertificatesMSBRIC.aspx?referId=11808
.

In This Issue..

* Dollar gets sold after GDP report
* High yielders get bought!
* German Retail Sales decline...
* Real has wild swings!

And Now... Today's Pfennig!

3rd QTR GDP Is Strong!

Good day... And a Happy Friday to one and all! I can't believe how hard it rained here yesterday... Unbelievable! And me, with my cane, and not able to run, was stuck in it going from the car... Absolutely soaked! If I were a kid, I would have thought that to be fun! But, I'm not... It's still raining this morning too! UGH! Let's hope it stops in time for the Trick-or-Treaters!

OK... Well the rain fell on the dollar's parade yesterday too! And, just like I thought it would do... The dollar got sold like funnel cakes at a state fair, once the U.S. 3rd QTR GDP report printed... The dollar rally was stopped in its tracks, which meant that the "trading theme" that rewards the dollar when things look bad in the U.S. and punishes it when things look good, which is completely opposite of what it should do fundamental wise, was still in place!

3rd QTR GDP was 3.5%!!! Let's Party! Get on your red dress sweetheart we're going out dancing, we're going to party like it's 1999! Seriously, the Gov't officials, including Summers and Geithner think it's all seashells and balloons from here on out! So, why shouldn't we think the same? I mean they've never led us to the wrong side of the tracks have they? HAHAHA HAHAHAHAHAHA... And HAHAHAHAHAHAHA HAHAHAHAHA!

OK, don't get me wrong here, I'm glad the U.S. economy seems to be out of the recession/ depression... But, didn't we expect a bump in the economy? Didn't we think we would see growth by the end of the year, based on the stimulus and money supply extravaganza that went on the first part of this year? And... Based on the reports I saw, a large portion of the growth was actually a return of Consumer Spending in the quarter... Cash for Clunkers really helped the Consumer Spending along too!

But isn't it just like the people that win the lottery... Suddenly, they have all this cash... And they spend it until they have no cash and voila! They are back to having nothing to spend! That's how I think the U.S. economy will react once the stimulus and other monetary candy is withdrawn from the economy... I'm still pinning my colors to the mast of a double dip for the economy... We've got the first two parts... The negative growth, and now the positive growth... Where are we headed next? Only the Shadow knows!

We'll begin to see a glimpse of what's going to go on in the next couple of weeks, as the Fed's Quantitative Easing program has hit their ceiling of $300 Billion, and ended yesterday... The Fed's 7-month buying spree, remember they announced this plan while I was in Florida at spring training, seems to have put the lid on yields of Treasuries to allow the housing market some time to heal... But, as I told my publisher for the Currency Capitalist, Erika Nolan, when I met with her after the announcement... "the U.S. has just opened Pandora's Box of baaaaaaaaaddddddd things for the economy, for Japan has implemented this same program, but over 10 years ago, look how well that's turned out for them!"

Today's data brings us two of my faves... Personal Spending and Income... We'll see if the Consumer Spending continued in September or not...

There's a great headline to a story on the Bloomie this morning... The title reads: "Obama Bridge To Lasting Economic Expansion Risks Going Nowhere" A Bridge to nowhere... That sounds about right to me! It could be the Bridge Over Troubled Waters, or it could be the Bridge of Sighs... I still believe that the U.S. Gov't has spend Trillions taking us deeper into the abyss of a national debt, with little to show for it, except... The U.S. has ventured into the private sector deeper than any Gov't has before during this financial meltdown... Think they'll get out once it's over? HAHAHAHA HAHAHAHAHA! Not going to happen my friend!

OK, enough of that! It's a Friday for crying out loud, Chuck, can't you think of more pleasant things to talk about? Yes... Let's see... Oh yeah! I started telling you above about the non-dollar currency rally VS the dollar yesterday, so let's go back to that!

Well, there wasn't much to say other than the dollar got sold after the GDP report printed... It wasn't so much that the currencies rallied VS the dollar, as it was a sell off of the dollar, which led to a currency rally! The high yielding currencies of Australia, Brazil, New Zealand, and even Norway now that rate on the rise there, posted the best gains VS the dollar on the day. And that makes sense, right? I mean, haven't I been harping on the yield / interest rate differentials lately? And here's where they came out to play!

The data in the U.S. was good, which brought the risk takers out of the walls once again, and knowing that the U.S. interest rates are going to remain near zero for some time to come, they sold the dollar and those paltry yields that go with the dollar, and bought currencies that had a nice positive yield differential to the those paltry yields!

The Big dog, euro, as the offset currency to the dollar, obviously participated in this dollar sell off... The euro's gains were stopped this morning though, when German Retail Sales printed and unexpectedly declined in September. Remember, Germany's economy exited their recession in the 2nd QTR, albeit a nascent recovery at best... So, we'll have to keep an eye on Germany's nascent recovery to see if it "double dips" too!

Speaking of Brazil... Recently, the real has really shown its tendency to take a walk on the wild side when trading gets going... I'm talking about 3-5% swings good and bad! Whew! That's something to watch! The good news is... That even though the swings in the price of the real are wild, the overall trend continues to be good for real holders... I expect the real to react to rumors this morning that the Gov't will not throw out road blocks to impede the real's performance... That would be HUGE! And very welcomed by currency traders that trade the real always looking over their shoulders to see if the Gov't will throw out the road blocks... So, like I said, there are rumors this morning, that the Gov't will announce that they are not going to impede the real's rise at this time...

And then there was this... U.S. Treasury Sec. Tim Geithner, announced yesterday that he wants the power to not only tell a corporation that they are closed for business, but to also have the power to shrink Corporations that are not having problems! He will be the "death panel" that Barney Frank talked about a couple of months ago for non-financial institutions... Shake me, Wake me, when's it's over... Maybe I'm having a bad dream, folks...

To recap... The dollar's rally was stopped in its tracks by the U.S. 3rd QTR GDP which printed a 3.5% increase, and caused investors to seek higher yielding assets, thus selling dollars. German Retail Sales unexpectedly declined in September, thus stopping the euro from rallying further this morning. And the High Yielders get all the glory when investors realize that U.S. rates are going to remain near zero for some time to come... Aussie, Brazil, New Zealand lead the pack!

Currencies today 10/30/09: A$ .9155, kiwi .7310, C$ .9360, euro 1.4845, sterling 1.6540, Swiss .9840, rand 7.6750, krone 5.63, SEK 6.9875, forint 183.61, zloty 2.8525, koruna 17.83, RUB 29.02, yen 90.90, sing 1.3970, HKD 7.75, INR 47.03, China 6.8275, pesos 13.01, BRL 1.7325, dollar index 75.87, Oil $79.58, 10-year 3.62%, Silver $16.60, and Gold... $1,044.90

That's it for today... I'm writing from home this morning, as I have a doctor's appt. first thing before I go to work... The network was a little touchy this morning, and I wasn't sure I would get this out, but it has settled down now. Whew! Big Weekend for my beloved Missouri Tigers as they travel to Colorado. And my little buddy Alex, as his team travels to Webster Groves! HA! Good news in the local paper this morning, as the best player in baseball today, Albert Pujols announced that he wants to be a Cardinal for life! Our Blues just can't get on a roll, win one, lose one... UGH! So... Tomorrow is Halloween! I can't wait to see the little ones in their costumes! Our little Delaney Grace is Dorothy from the Wizard of Oz, with ruby red shoes, a basket and Toto too! She is so darn cute! I'll leave you with the thought of a little Dorothy coming to your door! I hope it dries out here soon... And I hope you have a Fantastico Friday and Ghoulish Weekend! BOO!

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

3rd QTR GDP To Lift Our Spirits?

Chuck Butler — Thu, 29 Oct 2009 14:08:00 GMT

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In This Issue..

* Currencies rebound a bit VS the dollar..
* Bill Gross on the dollar...
* Norway raises rates!
* RBNZ lifts easing bias!

And Now... Today's Pfennig!

3rd QTR GDP To Lift Our Spirits?

Good day... And a Thunderin' Thursday to you once again! It's not raining at the moment, but rain is forecast for today, thus the Thunderin' Thursday name! Rain today, tomorrow and who knows when it will stop... I'm thinking of buying the blueprints to build an Ark!

Front and Center this morning, we have the non-dollar currencies showing some healing as stock futures are positive. What's driving this new found positive feeling in the risk assets? Well, it's all about the first reading of 3rd QTR GDP today, which... Is expected to show that the U.S. economy came out of the recession in the quarter. Of course, I'll be looking for the Gov't spending portion of the GDP, but other media outlets won't, and the markets will get back to looking for higher yields, which you can not get in the U.S.!

Speaking of higher yields... Norway's Norges Bank did indeedly do raise rates yesterday, making them the first European Central Bank to do so. The Norges Bank members chickened out and only opted for 25 Basis Points (BPS), when I thought they should go the full 50 BPS... But, hey! The Norges Bank is raising rates, right? Let's not get picky here! Is the European Central Bank raising rates? Is Sweden's Riksbank, or Switzerland's Central Bank raising rates? How about Canada? Or Japan? NO, NO, NO, NO, NO, NO and NO! Let's get to giving some love to the Norwegian krone!

So... Looking at the rate hike score card of major countries, we have Australia, and Norway... The exact two I told you months ago would be the first to raise rates this year, when most observers thought it would be in the first quarter of 2010... So, if the U.S. GDP is as strong as forecast (+3.2%) then investors and risk takers will be coming out of the walls again, and buying higher yielding assets... There's only a few places in the world they can go folks... Australia, New Zealand, Brazil, South Africa, the Eurozone, and Norway... The Euro wannabes of the Czech Republic, Poland and Hungary probably fall in there somewhere, but those countries are not at the top of the Hit Parade when people start looking for yield!

OK... So, the non-dollar currencies are seeing some healing this morning... The Big Dog, euro, had fallen to 1.4706 before the healing began, and is now 1.4750... The Aussie dollar (A$) had fallen to 89-cents and change, but has rebounded to .9055, as I write. And... If the trading theme remains in place, the dollar will get hammered on the positive GDP report this morning...

Well, yesterday it was PIMCO's Bill Gross's turn to give his thoughts about the dollar... Let's listen in... The dollar is an over-owned currency and likely to fall to an all-time low against major counterparts, Pacific Investment Management Co.'s Bill Gross said in an interview on CNBC.

"The Chinese, the Asians, have owned too many dollars for too long." The dollar becomes more and more owned and less and less desirable, so ultimately the direction is down. I don't sense stability in the dollar."

OK... Thanks Bill! Hey! Recall the other day when I gave you the list of "rumors" in the markets that deep-sixed the non-dollar currencies? One of the items on that list was the rumor that the tax credit for first time home buyers wouldn't be extended... Well, now there's a rumor going 'round that someone's underground, and she will rock, no wait! The rumor going around is that the tax credit will indeed by extended to April 2010... You heard it here first folks, remember that! HA!

And the folks over at the Royal Bank of Scotland (RBS) sent out a note to customers that "the euro remains in an uptrend, and investors should buy the currency when it weakens. It has dropped back to the middle of its last consolidation zone in late September and early August. In a bigger correction scenario it may make it down to 1.45-ish, but it is no longer a compelling sell, and medium term considerations favor buying dips."

Hmmm... Couldn't have said that better myself!

So... Let's get back to this thing with the risk assets... There must be quite a few of you missing class each day, for recently, there have been a ton of people telling me that I never talked about a risk asset sell off... WHAT? ARE YOU KIDDING ME? I've been talking about how stocks have been linked to currencies and commodities (the risk assets) for months now! And several months ago, I began to see the price to earnings ratios getting way out of whack (tech bubble like!) and began to talk about a stock market sell off that could adversely affect the price gains that the currencies and commodities had made since March...

I know that some of you believe that I only want to "talk up" the currencies to benefit me somehow... And would never write about a potential currency sell-off... Well I have written about it... And this isn't the first time either! I'm really pounding the keys right now, because the more I think about this, the more it ticks me off! I mean... Do these folks not recall my going through how to handle a currency sell-off? It went something like this...

If you bought currencies and precious metals to simply go with the flow and get out when the prices begin to decline to book your profits, then you simply want to watch the stocks to see if they put in a 4-day consecutive sell-off... That might be your indication... However, if you bought your currencies and precious metals to diversify your investment portfolio to: 1. not have just dollar denominated investments, 2. to provide a hedge against the potential of a further weakening in the dollar... Then you will simply want to batten down the hatches and ride this dollar strength out... And if you do anything, you might want to take this dollar strength as an opportunity to buy at cheaper levels!

Calm down, Chuck... Ok, I was gone for awhile but I'm back now... The real question is just why are stocks and currencies and commodities all being thrown into the same barrel marked Risk Assets? When fundamentals are in place, this isn't the case, for currencies and commodities have a low correlation with stocks, and they have different pricing mechanisms...

So, a return to fundamentals would be like manna from heaven for yours truly!

OK... Earlier this week I talked about the Bank of Canada officials jawboning the Canadian dollar / loonie lower... Well, they've done their job... The loonie is 2 full cents lower... I expect the markets to test the Bank of Canada (BOC) here, to see if they really want to keep the loonie from getting stronger...

The Reserve Bank of New Zealand (RBNZ) met last night, and while they officially removed their easing bias from their monetary statement, they did not come out and outright mention rate hikes.... In fact, the RBNZ said that there was "no urgency to begin withdrawing monetary policy stimulus" (low rates)... So, it was a two-handed monetary statement by the RBNZ... They removed the "easing bias" but didn't feel the urgency to move rates higher... But shoot Rudy! That's way better than the stuff they gave us at the last meeting, which was "we expect to keep the OCR (their Official Cash Rate / interest rate) at the current level until the second half of 2010"... Yes, Virginia, the RBNZ did improve their statement!

Yesterday, I talked about GMAC coming back to the well, and asking for more bailout money, to the tune of $12-15 Billion... This has some conspiracy undertones to it folks... You just have to think about GMAC and the bank they own, which in reality the taxpayers own! Well, the thoughts going around now is that GMAC, which has already gone to the well 2 times for bailout money, will get what they need, because the Gov't is "in too deep"... Oh great! Now we not only have the "too big to fail" thing, but the "in too deep" thing going for us taxpayers! Where do I sign up for more of this? I just can't get enough of Gov't owned former private sector businesses! NOT!

OK... So, like I said at the top, 3rd QTR GDP will print a preliminary figure this morning... And is expected to have gone from negative to +3.2%... That's quite a rise, don't you think? Personally, I think that it will be less than 3%, probably around 2.5%, and will have been made up of Government Sending... But don't let that get in the way of a feel good media blitz that will happen after the number is printed this morning!

U.S. New Home Sales declined in September for the first time since March... Does any one else feel that the best of the U.S economy during this recession / depression has passed us by, and that we'll be double dipping soon?

Well... With it being a Thursday, we will get the usual Weekly Initial Jobless Claims this morning... You know, this is some very disheartening data... The Weekly Initial Jobless Claims continue to remain above 500,000 each and every week! And the Continuing Claims continue near 6 million at 5.920 million! Who among us believes that the U.S. economy can REALLY recover as long as we have 16% unemployment rates?

To recap... The dollar rally continued throughout the day yesterday, but has stalled in the overnight markets, as the focus shifts to the U.S. 3rd QTR GDP, which is expected to be positive, thus technically taking the U.S. economy out of recession. This would bring the risk takers back into the markets, and thus the dollar would get hammered... The Reserve Bank of New Zealand lifted their "easing bias" but left rates unchanged, and U.S. New Homes Sales declined in September...

Gold is up $7 this morning, so it too is receiving some love, and healing!

Currencies today 10/29/09: A$ .9050, kiwi .7265, C$ .9280, euro 1.4750, sterling 1.6465, Swiss .9765, rand 7.8150, krone 5.7050, SEK 7.0170, forint 186, zloty 2.8880, koruna 17.92, RUB 29.27, yen 90.70, sing 1.3985, HKD 7.75, INR 47.21, China 6.8280, pesos 13.23, BRL 1.76, dollar index 76.26, Oil $77.83, 10-year 3.43%, Silver $16.33, and Gold... $1,035.50

That's it for today... Had a visitor yesterday... A very delightful person! It sure was nice to meet you Rebel! This past week has been the 80th anniversary of the 1929 stock market crash! I really am grateful for all of you readers that haven sent me notes this week with kind words... They are truly appreciated! A reader sent me a note yesterday giving me 3 cheers for not calling the Pay Guy a Czar... Yes, the Czars thing makes me ill! My trip to Cabo San Lucas might be nixed because of the blood clot they found in my leg... I hope not, I was really looking forward to going there! It's Thursday, so our little Christine will stop and bring us in breakfast sandwiches... Yeah for us! And on that note, I'll hit send... I hope it's dry where you are, but that your Thursday is still Thunderin'!

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

Renminbi To Become An International Currency?

Chuck Butler — Mon, 31 Aug 2009 15:02:46 GMT

...But First, A Word From Our Sponsor...
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Don't miss this unique opportunity. Deadline to buy the BRIC MarketSafe CD is Oct. 13, 2009. Apply today or learn more at http://www.everbank.com/001CertificatesMSBRIC.aspx?referId=11808

In This Issue..

* Currencies give back ground overnight...
* Don't look too closely at U.S. data...
* India posts strong GDP...
* Lots O'-data this week!

And Now... Today's Pfennig!

Renminbi To Become An International Currency?

Good day... And a Marvelous Monday to you! A Wonderful Weekend was enjoyed by your Pfennig writer, with good friends, and Chamber of Commerce weather, on a beautiful lake! It's back to work today though. I don't understand why I didn't plan on taking today and staying an additional day at that beautiful lake! Oh well... Time to go to work!

When I signed off on Friday morning, the currencies were enjoying a very nice rally, which remained in place the rest of the day. The Consumer Income and Spending data was very much as I describe it would be, and so there was no surprise for the markets to deal with. You may recall, that I told you that Spending would be greater than Income, as the "Cars for Clunkers" probably had something to do with the Spending be so much stronger than the Income piece...

The currencies ran into a speed bump in the overnight markets though... When I checked the Japanese market last night, stocks were rallying on the news of the election results. The ruling party was voted out, and a pro-consumer driven growth party was put in... But, I guess what turned this around overnight was the fact that while the opposition party in Japan ran on a platform that promised change, when the dust settled, there are many questions... And when there are questions about leadership, risk assets don't fare too well... And thus, the reversal of the currency rally.

So, as we all know, the trading pattern of the last 9 months... When risk assets don't fare well, the dollar and Japanese yen do... And vice-versa. Yes, even though Japanese stocks sold off overnight, the yen was in play. It's just some strange phenomenon that has a grip over the markets for 9 months...

It will be interesting to see if the opposition party in Japan will actually change the way the Gov't does business... And if it does, what kind of "change" will take place. One would hope for the Japanese economy that it lifts the economy from the doldrums that have hung over the Japanese like the Sword of Damocles for a very long time now... That's right! We're not talking 2-3 years, not 5-6 years, not even 9-10 years... Japan's problems go back to the early 90's... YIKES!

Every time, the economy would attempt to pull itself up by the bootstraps the Japanese Gov't would introduce some sort of stimulus, and burden its Gov't with more debt... I know it sounds familiar... And I long ago told you all that the U.S. was following Japan's steps, but hoped that the U.S. would not take 15 years or more to reverse their steps... Unfortunately, those hopes and dreams are taking a beating!

Which is why I questioned the reappointment of Big Ben Bernanke last week. The leader of the Fed Heads, has really, in my opinion, stepped in the doggie dookie and followed the Japanese even though he said he wouldn't! My friend Bill Bonner had an interesting thought about Bernanke's reappointment... "Obama picked him to continue as head of America's central bank, the Federal Reserve...even though his predecessor, a Republican, appointed him."

I know, I know, the media is making Big Ben out to be the "savior of the world" right now... I suggest we all wait-n-see if all that he's done really does "save the world" or if it just masks the problems, and they come back even worse in the near future... If I were a betting man, I would put money on the latter of those things.

I noticed a story on the Bloomie this morning that says "The Federal Reserve will be unable to prevent the Trillions of dollars in Government stimulus pumped in the U.S. economy from stoking inflation later this decade, according to a survey of business economists."

They didn't ask me... But I would have been all about that idea!

In fact, I think the cartel, I mean the Fed Reserve will have to accept the fact that inflation is growing at first, because they 1. won't recognize its beginnings, and 2. won't have the guts to raise interest rates, and remove quantitative easing at the first signs of inflation, because the economy's recovery will be nascent at best. So, a higher level of inflation will have to be accepted by the Fed... And unfortunately, you and me!

OK... Let's stop talking about the Fed, they make my stomach turn any way!

When I got home last night, I was reading a story that really got me thinking... The story was about how China has gone from Exporter to Importer. The story explains that the stimulus that the Chinese Gov't put into the economy this year, has really spurred consumer demand, and exports from South Korea jumped 26.6%, Taiwan 41%, Japan 30.2%, and the European Union 23.5%...

The idea here was that the Chinese Gov't wanted to reduce their dependence on the U.S. consumer... You see, from my vantage point, the Chinese Gov't has done their part in curbing the global imbalances that used to exist, and I used to rant about almost every day! Now the trick is to see if the domestic demand can really take off from here now that the stimulus has, well, stimulated the economy! And did you see where China announced that they are going to begin to build light trucks? Putting people to work making things... Wow! What a concept! It's what made the U.S. economy powerhouse that it once was...

The South China Morning Post had a very interesting story in it this morning regarding the Chinese renminbi becoming an international currency. Let's go to the tape! "Vice-Premier Wang Qishan has been put in charge of a task force to make the renminbi (yuan) a currency for international trade. The recession has encouraged Chinese officials to speed up the currency programme. As the downturn erodes U.S. influence, China is losing faith in the dollar and sees the time coming for the renminbi to become a major world currency.

The renminbi is not convertible for purely financial purposes, ruling it out as a reserve currency for now, but China has started to carve out a bigger international role for it, beginning with the currency swap agreements China has put in place."

SEE! I TOLD YOU! I TOLD YOU that was what China was doing when it signed those currency swap agreements with 6 different countries, and is currently working on ones with Brazil and Thailand! China was gaining a wider acceptance for their currency... Slowly but surely (who's Shirley?) China was begin to provide convertibility to the renminbi, and then and only then will it be picked up by currency dealers all around the world! It's all happening right before our eyes folks... Don't close your eyes, this won't go away by closing your eyes!

Staying in Asia... The Indian GDP surprised on the upside when it printed last night... A 2nd QTR 6.1% rise in economic growth VS last year, is a very good performance for India. The rupee has been hanging around a corner for the past couple of months, so maybe this kind of news will attract foreign investment once again, and drive that currency higher VS the dollar...

You know... The data that printed in the U.S. last week, wasn't half bad! In fact, as long as you don't want to turn it over to expose the rot on the underside, you might begin to feel as though the economy is recovering... Unfortunately, there is that rot on the underside to deal with... Therefore, I'm pinning my colors to the mast of a "W" shaped economic future... I know Chris talked about this while I was in San Francisco, and gave all his reasons for his thoughts... So I won't go over them again... But just to say that the rot on the underside of the economy is what leads me to think this...

The data cupboards all over the globe will get a workout this week... There are 2nd QTR GDP's to print, Manufacturing Indexes to print, Jobs Jamborees, and Central Bank meetings... So, the currencies won't have to take their only direction from stocks! The currencies will bet taken in so many directions this week, which is why I'm saying right here, right now, that this will be a very volatile week... This Friday will be interesting in that, a lot of the "big boys" on currency trading desks will be gone to add a day to the Labor Day Holiday weekend, and volume will be thin, but Friday is also a Jobs Jamboree Friday...

The sell off that I saw going on in the currencies when I first began writing this morning, has picked up steam... But still, not a strong sell off just yet...

And on that note, I'll head to the Big Finish! But for one more thought... The U.S. 10-year Treasury Note yield has fallen in the past week, which means there had to be some buying of the note to drive up the price (remember, with bonds, when the price goes up, the yield goes down, and vice-versa). You don't think it could be more Fed buying do you? I have my suspicions for sure!

Currencies today 8/31/09: A$ .8380, kiwi .6815, C$ .9060, euro 1.4280, sterling 1.62, Swiss .9415, rand 7.7875, krone 6.0250, SEK 7.1550, forint 190.30, zloty 2.8750, koruna 17.77, RUB 31.8350, yen 93.25, sing 1.4435, HKD 7.7505, INR 48.82, China 6.8305, pesos 13.29, BRL 1.8810, dollar index 78.49, Oil $71.15, 10-year 3.41%, Silver $14.72, and Gold... $955.37

That's it for today... It's going to be a hectic week here, so I had better get my rest when I go home! Mike Meyer just walked in, and he had Lasik done on his eyes Friday, and he's smiling from ear to ear! So... I guess it all went OK! A great weekend for the Cardinals, who are really on a roll, and probably hate to see August end! We were all sitting around a campfire on Friday night, listening to the ballgame, when Albert Pujols hit his "walk off" home run... High fives all around! This coming weekend will be a 3-day Labor Day Holiday weekend. College football begins this weekend, which means my beloved Missouri Tigers play Illinois at the Dome downtown. Go Tigers! It's a rebuilding year for the Tigers, but I still expect them to be good! And congrats to the U.S. kids from California who won the Little League Championship yesterday... OK... Time to go... I hope your week starts off with a Marvelous Monday!

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

The Boy Who Cried Wolf? NOT!

Chuck Butler — Thu, 27 Aug 2009 15:49:07 GMT

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In This Issue..

* Currencies rally in early morning Wednesday
* But see selling the rest of the day.
* German Consumer Confidence surprises...
* GDP to be revised downward?

And Now... Today's Pfennig!

The Boy Who Cried Wolf? NOT!

Good day... And a Tub Thumpin' Thursday to you! I get knocked down, but I get up again, you're never gonna keep me down... Yes, a little Tub Thumpin' this morning... I'm all geeked up because I'm sneaking out to go watch Chris Carpenter pitch for the Cardinals this afternoon! A day game... YAHOO!

OK... Enough of that! Well, another day where the currencies bumped higher early morning, but then were sold the rest of the day. I know the currency guys (and gals) are all wonder where do they go from here... Which is the way that's clear? Well... Short term currency forecasts are proven to be wrong, most of the time... Long term? Well, that can't be argued... The deficit spending, the money creation, and the monetizing of debt will all come back to haunt the dollar... And as Aaron said yesterday, "we've only just begun"... (he was telling a joke), it holds true for the U.S. deficit spending picture...

I know, you all are beginning to think I'm becoming the boy who cried wolf, when it comes to these warnings about deficit spending, and where it will take the dollar in the future. But... I was thinking about an interview for the Oxford Club yesterday... I told them that since Feb 2002, the dollar, as measured by the dollar index, is down around 40%, and against some other currencies that aren't a part of the dollar index, the dollar has lost even greater amounts. And the precious metals of Gold and Silver? They are off the charts when it comes to their gains VS the dollar in that same time period...

And why did all that happen? Because of Deficit Spending... So... I'm not really the boy who cried wolf... Back in 2001, I wrote a White Paper called "The Decline of the dollar"... In 2002, I wrote a White Paper called "The year of the euro"... So... You can see that I was warning people way back then... And what has happened in 8 years? The Deficits have gone off the charts! That's what's happened! I told you yesterday that the Budget Deficit is going to add (at least!) $9 Trillion to the national debt, which will put us way over the $20 Trillion national debt mark! UGH!

So... Go ahead and mock me... Go ahead and call me names... But, this is my story and I'm sticking to it!

OK... Now... Yesterday, the U.S. economic data printed some pretty good looking data... Durable Goods orders (fueled by airplane orders, which won't happen again next month), and the housing numbers shined a bright light on the U.S. economy... In the past 6 months, whenever the U.S. data was good like it was yesterday, the dollar would get sold like funnel cakes at a State Fair. But that didn't happen yesterday... It started out that way, but an announcement by China really threw the cat among the pigeons...

China announced that they were going to prevent further excess capacity in several industries, including steel and cement... You see, China is afraid that the markets are getting ahead of themselves, and they don't want their economy to overheat before it really gets legs under it! Pulling back on the reins if you will... And I don't see that as a bad thing, especially for an economy that can take off on a moment's notice like China.

Unfortunately though, the markets took this as armegeddon... It was the Hindenburg all over again... Oh the Humanity! China is going to put a governor on their economy while the rest of the world attempts to play catch up! What a bunch of dolts, these guys are that are calling for an end of the global recovery because of this news... So... The currency that acts as a proxy for global growth... Aussie dollars, took one to the gut... But before the upper cut from the markets could hit the A$ on the chin... A good piece of data printed in Australia, and it blocked the upper cut... But still battered and bruised, the A$ carries on...

Private capital expenditure, in Australia, surprised significantly to the upside in the 2nd QTR at +3.3%, which was much greater than the forecast (-.5%). Plant and equipment components rose by a strong 5.3% while spending on buildings was up by 0.7% in the quarter. This is all good stuff for the Aussie economy... The Plant and Equipment components, I'm told, feed right into the national accounts measurements... So, one would have to think that would boost Aussie GDP!

In Germany this morning, Consumer Confidence followed the positive prints of Investor Confidence and Business Confidence, with a positive print of its own! German Consumer Confidence rose to a 15-month high, thus telling me that economic pessimisms are being chased out of town! And as I said yesterday, perception or sentiment toward an economy is half the battle folks!

OK... You know how I always tell you that the Unemployment Rate, as reported by the Bureau of Labor Statistics (BLS) has games played with it, and as a result it is too low? I've said as recently as last month that the Unemployment Rate is probably closer to 20% than it is 10%, that the BLS reports... Well... What do we have here? Ahhh... A Fed Head, Lockhart, that must be reading the Pfennig!

My public relations guru, Peter, sent me this overnight... Thanks Peter!

"If one considers the people who would like a job but have stopped looking -- so-called discouraged workers -- and those who are working fewer hours than they want, the unemployment rate would move from the official 9.4 percent to 16 percent, said Atlanta Fed chief Dennis Lockhart.

He underscored that he was expressing his own views, which did "do not necessarily reflect those of my colleagues on the Federal Open Market Committee," the policy-setting body of the central bank."

OK... If a Fed Head thinks the Unemployment Rate is 16%, then the actual number is probably closer to my 20% number than he's admitting! WOW! I can't believe that a Fed Head had the intestinal fortitude to call the Unemployment Rate out, as the fraud that it is!

I'm still taken back by this admission by a Fed Head... Oh well, time to go to other things, Chuck, no need to hang around here all day!

Well... Did you hear the news, there's good rockin' at midnight? No wait! The news that for the first time, it has become less expensive to borrow in U.S. dollars than in Japanese yen. Can you say... Dollar, Carry Trade? I thought you could...

And in a follow up from what I reported the other day, regarding the Judge demanding that the Fed disclose the borrowers of the $2 Trillion in loans made, The Fed asked judge Preska to delay enforcement of the decision until an appeals court can act on the central bank's yet-to-be-filed appeal. Yvonne Mizusawa, the Fed's senior counsel, said financial institutions as well as the central bank will suffer irreparable damage if loan-program details are disclosed publicly.

You know... If Ron Paul's bill to audit the Fed Reserve would get the support it needs and is worthy of, then we wouldn't have to go through all this legal stuff... I just don't see how a cartel that was created in 1913 as supposedly a central bank, and independent corporation, can't be audited... They make decisions that affect you, me and the man down the street...

OK, enough of that... Every time I head down the cartel's, I mean the Fed's road, I begin to pound on the keyboard, and curse under my breath!

Today, the data cupboard will yield, the usual suspect of Weekly Initial Jobless Claims, but also a 2nd printing of the 2nd QTR GDP, which printed the first time at -1.0%... The revision is expected to show a downward print to -1.5%, which I believe will reflect the reporting of a huge drawdown of inventories during the 2nd QTR...

That would play well with my thought that I told you about a long, long time ago... And that is whenever it is that we begin to get out from under this depression rock, inflation will be fueled by the fact that there will be consumers attempting to buy things once again, but no inventory on the shelves of corporations...

Hey! Did you see where Eurozone M3, money supply, continues to come down, printing a softer than expected 3.4% growth in July. So... You can see that the stimulus is beginning to get pulled back here... But, before I slap them on the back for bringing their money supply into the atmosphere... 3.4% is still HIGH! And when converted to inflation, would be way over the 2% target ceiling for inflation in the Eurozone... So, there's more work to do here!

So... Let's hope the mental giants that took the Chinese announcement yesterday the wrong way, realize the error of their thinking, and reverse the direction they took the markets after the announcement...

And on the that note, I'll head to the Big Finish! You will notice, or maybe you won't, that I've added Russian Rubles to the Currency round-up, since it is part of our BRIC MarketSafe CD... It will be RUB...

Currencies today 8/27/09: A$ .8330, kiwi .6815, C$ .9120, euro 1.4265, sterling 1.6190, Swiss .9365, rand 7.8710, krone 6.0625, SEK 7.1230, forint 188.40, zloty 2.89, koruna 17.8325, RUB 31.66, yen 93.60, sing 1.4440, HKD 7.7510, INR 48.92, China 6.8318, pesos 13.14, BRL 1.8610, dollar index 78.56, Oil $71.06, 10-year 3.46%, Silver $14.26, and Gold...

That's it for today... I'm running late, as I overslept this morning... That rarely happens to me, but I just turned off the alarm and went back to sleep! Of course it still was just me and the truckers on the highway to work this morning, after I headed out the door 45 minutes later than usual... Well... Torn cartilage is the reading from the MRI on my knee... Same thing as I had "scoped" on my right knee in 2003. This seems to be much more painful though, I guess because I lean on that leg more since my right leg was taken apart and put back together again! Hey! At least it was just "torn cartilage", I still have fresh in my memory bank the results of when I thought I just had torn a hip flexor! OK... Gotta get this out the door... Get set up for trading, and then to Busch Stadium to watch Chris Carpenter and my beloved Cardinals! I sure hope it remains a Tub Thumpin' Thursday!

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

Making The Fed Reserve Accountable!

Chuck Butler — Tue, 25 Aug 2009 12:30:43 GMT

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In This Issue..

* Currencies sold overnight
* But rebound in early morning trading...
* China throws cold water on stock values...
* German exports rival the Big Kahuna!

And Now... Today's Pfennig!

Making The Fed Reserve Accountable!

Good day... And a Terrific Tuesday to you! I returned home from San Francisco last night, and am back in the saddle today! Not the way I like to travel, where I get a day when returning home to recharge the batteries, but it is what it is... I did an interview with MarketWatch yesterday morning, talking about... Well, what else? The deficits, and diversification! My presentations in S.F. were well attended... On Saturday, my power point froze up, but I carried on in spite of the technical difficulties!

You know... I really, heard a lot of people talking about the rumor / conspiracy story that there will be a bank holiday at the end of the month (this weekend) and the Gov't will announce major changes to the currency... Now, before anyone begins to believe that I am on board with that rumor / conspiracy story, STOP! I am NOT! I've read all the theories, and I've heard all the information regarding this, but just do not understand why this would be done... So... I just wanted to throw it out there, and let you all know where I stand on this...

OK... Well... As always, Chris did a fabulous job in my absence... He helped the currencies rally, which again, plays along with the old theory we held that when Chuck's away the currencies rally! As I sit down this morning and begin to write, the currencies, led by the euro, have backed off their lofty figures of yesterday. Stock futures must be down, eh?

It was all seashells and balloons for the currencies the last 3 trading days, but that seems to have all ended in the overnight markets. The euro has lost the 1.43 handle, and the Aussie dollar (A$) has lost the 84-cent handle... In keeping with the trading pattern of some time now, we have Japanese yen rallying...

You know, I had a long conversation with a customer in San Francisco and he wanted to know why Japanese yen was considered a "safe haven currency"... I told him, that other than the fact that the Japanese economy is the 2nd largest in the world, I didn't see any other reason for Japanese yen to be considered a "safe haven currency"... The Japanese economy recently saw a 3.7% gain in 2nd QTR GDP... But come on... Do we really expect to see this followed through on? I've been following the Japanese yen for over 12 years now, and I've seen this a dozen or so times, when everyone gets all giddy, with goose bumps, and chills down the back of their necks over a rise in Japanese GDP, only to have the rug pulled out from under them the following quarter... Safe Haven Currency? It makes me shake my head... But it is what the markets make it to be... So we carry on...

Hey! Did you see where a Manhattan Chief U.S. District Judge ruled against the Fed Reserve? Way to go Loretta Preska, the judge, who has rejected the argument that the Federal Reserve was making about disclosing loan records... The Fed said that loan records aren't covered by the law because their disclosure would harm borrowers' competitive positions... The judge said, that the Federal Reserve MUST identify the companies in its emergency lending programs...

This just makes me jump for joy, because the cartel, I mean the Federal Reserve System, (and notice I don't call it a bank, because it's not a bank!) has to be accountable, don't you agree?

While I'm on the cartel, I mean the Federal Reserve, I see where the President is going to nominate Big Ben Bernanke for a 2nd term... Why wouldn't he? Big Ben has been playing along with the Goldmanites, I mean the Administration's plans hasn't he? He sure has... And for that, he gets a 2nd term!

OK... Enough of the Fed, they make my stomach turn any way!

The word overnight is that China is attempting to throw cold water on stock valuations, telling investors that the values are overblown... I've also heard a few voices in the U.S. state the same thing... Of course, long time readers of the Pfennig, know that I've tried to throw cold water on the stocks for months now... I just don't see how they are rallying, given the rot on the vine, including the unemployment problem. But... Who knows? I still believe there is market manipulation... And the people at CNBC can laugh at it all they want! If they don't want to believe former Fed Head Big Al Greenspan, who admitted there was a Plunge Protection Team... And if they don't believe that the Gov't has had a hand in manipulating the markets, then that's their problem! (I still get very mad when I think about them telling me I should take this thought to Hollywood.... !!)

Speaking of China... I read a story on Reuters that quoted Chinese Premier Wen Jiabao regarding keeping the stimulus for the economy going... Let's listen in... "We must clearly see that the foundations of the recovery are not stable, not solidified and not balanced. We cannot be blindly optimistic," Wen said. "Therefore, we must maintain continuity and consistency in macroeconomic policies, and maintaining stable and quite fast economic growth remains our top priority. This means we cannot afford the slightest relaxation or wavering."

And here's where I make sure you understand the difference between China adding economic stimulus, and the U.S. adding economic stimulus... China has the treasure chest of reserves to do so, and the U.S. doesn't! They are working from a position of monetary strength... The U.S. on the other hand, has done a wonderful job of jacking up the national debt! And we still have 1 in 5 people unemployed! We still have banks failing left and right, 77 of them in 2009, and we still have an economy in depression...

Oh... And did you see the announcement the other day by the administration that they are forecasting that the Budget Deficit will continue for the next 10 years? OK... This is where I have to come out and talk about how badly these forecasts are! For instance 10 years ago, these forecasters said we would be enjoying a Budget Surplus right now... Buzz! Wrong! Thank you for playing, there's a nice parting gift for you at the door! Johnny? Tell them what they won! How about a near $2 Trillion (by Gov't accountants figures) Budget Deficit instead? Which will be more than $500 Billion more than these accountants forecast just a year ago!

OK... Enough of that, my blood pressure is rising right now!

Oil Prices have fallen first yesterday and then overnight, and that news has weighed heavily on the Norwegian krone... I would just hold tight here, because there are a number of reasons to hold krone, other than an "oil play"... A Huge Surplus is the number one reason in my book... A great fiscal position, a mildly strong Central Bank, and being a "euro" alternative, are added to the "oil play" story...

And in Germany this morning, we should see the final GDP figure that would re-confirm that the German economy pulled itself out of recession in the 2nd QTR... I saw something that caught my eye this morning, that I think will amaze you... But, after the amazement has settled in, you'll say... WOW! No wonder Germany's economy is on the mend! What I'm talking about here is a report by the World Trade Organization that in the first half of this year... Germany and China were neck and neck for first place in the Exports by a country category... WOW! I know that everyone and their brother, believed that China was the Big Kahuna when it came to exports... But looky there! Germany is keeping up with the Big Kahuna!

I received a note from a reader last week regarding Germany... "We just returned from a trip to Germany and got the feeling that the recession has past. In short everything we saw pointed to a healthy economy."

That's the kind of economics that work for me... It's how I view economics, as a hands on kind of thing... How it affects you, me and the guy down the street. It's how I believe we should all view economics... No need to get all "book smart" with all those technical descriptions... Just see it for what it is, and report on it!

Today... The data cupboard has a few economic reports to print... Leading off and playing 2nd base is the S&P/CaseShiller Home Price Index, which I've heard more than one economist say that they think the index will show an improvement. In other words, home prices don't fall as much! We'll also see the color of the August Consumer Confidence report, which is forecast to be stronger in August... Then there will be few 2nd tier reports that also print, but not market movers, so we'll not spend time talking about them!

OK! Now that I've talked about the risk assets getting sold overnight, I'm sitting here watching the currencies rally right in front of my eyes! The euro has climbed back above 1.43, and so on...

Currencies today 8/25/09: A$ .8380, kiwi .6865, C$ .9275, euro 1.4320, sterling 1.6575, Swiss .9430, rand 7.8150, krone 6.0250, SEK 7.0670, forint 187.30, zloty 2.8560, koruna 17.75, yen 94.10, sing 1.4415, HKD 7.75, INR 48.78, China 6.8319, pesos 12.89, BRL 1.84, dollar index 78.23, Oil $73.97, 10-yr 3.47, Silver $14.14, and Gold... $947

That's it for today... My beloved Cardinals just returned home from a great west coast road trip in first place and looking better than they have all year. Kristin was telling me in S.F. that she saw football on TV and was very excited about the upcoming football season. Me too... Very unsure what to expect from my beloved Missouri Tigers... Well... We put the finishing touch on our first BRIC MarketSafe CD yesterday. It was quite the issue! And judging from the interest in it at the S.F. Money Show, the next funding of October 13th, should be good too! I saw quite a few "old friends" / customers at the S.F. Money Show, and that was fun. My next trip is in September to Williamsburg. Then Atlanta, New Orleans, and Marco Island to finish out the year... My knee is not any better, and in fact it's worse! Maybe a couple of days at home will help... Ok.. That's enough for today... I sure hope you can make your Tuesday, Terrific!

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

Stocks push the currencies higher...

Chuck Butler — Thu, 20 Aug 2009 15:16:53 GMT

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In This Issue..

* Stocks push the currencies higher...
* Norway pulls out of recession...
* Jackson Hole boondoggle...
* Oil helps rally commodity currencies...

And Now... Today's Pfennig!

Stocks push the currencies higher...

Good day... We had more rain here last night, but the storms have cooled things off and it is starting to feel a bit like fall around here. Chuck flies off to San Francisco today to speak at the Money Show, so I will be bringing you the Pfennig for the next few days. The dollar has rallied just a bit overnight, clawing back some of the losses which occurred mid morning yesterday.

And what, you might asked, caused the dollar to rally yesterday? You can re-read a bit of yesterday's Pfennig for the answer: "The data cupboard has been emptied out and is looking to get restocked today... So the only thing besides sentiment moving the markets today will be the direction of stocks..." Yes, Chuck was right on in predicting what would drive the currency markets yesterday, as the dollar got sold off as stocks moved higher.

Without any data to push the markets one way or another, investors began moving back into riskier assets, selling their 'safe haven' US treasury holdings. The currency markets have been trading on the risk theme lately, and don't seem ready to break this pattern anytime soon. Risk appetite is the main driver of the currency markets, with the dollar gaining with investor worries, and falling back down as investors feel more confident.

I spoke at an investment conference last week in Chicago, and listened to several good presentations on the current state of the economy. While every speaker had differing opinions on how to invest during the next few months, they all seemed to agree on one thing; the recent rally and 'recovery' would reverse, and the US will likely head back into another downturn. The timing of this next downturn is hard to pin down, but most believe we will see the US economy falter again toward the first quarter of 2010. If and when this occurs, the dollar could see a temporary rally as investors flee back into US treasuries. But longer term, everyone at the conference was in agreement with what Warren Buffet said in his op-ed piece yesterday: the US$ will ultimately lose value.

Speaking of Buffet, I re-read his op-ed last night during dinner, and had to laugh a bit as much of what he wrote could have been taken directly from the presentation I gave last week. The following lines were especially poignant, so I decided to include them in the Pfennig:

"An increase in federal debt can be financed in three ways: borrowing from foreigners, borrowing from our own citizens or, through a roundabout process, printing money. Let's look at the prospects for each individually - and in combination.

The current account deficit - dollars that we force-feed to the rest of the world and that must then be invested - will be $400 billion or so this year. Assume, in a relatively benign scenario, that all of this is directed by the recipients - China leads the list - to purchases of United States debt. Never mind that this all-Treasuries allocation is no sure thing: some countries may decide that purchasing American stocks, real estate or entire companies makes more sense than soaking up dollar-denominated bonds. Rumblings to that effect have recently increased.

Then take the second element of the scenario - borrowing from our own citizens. Assume that Americans save $500 billion, far above what they've saved recently but perhaps consistent with the changing national mood. Finally, assume that these citizens opt to put all their savings into United States Treasuries (partly through intermediaries like banks).

Even with these heroic assumptions, the Treasury will be obliged to find another $900 billion to finance the remainder of the $1.8 trillion of debt it is issuing. Washington's printing presses will need to work overtime.

Slowing them down will require extraordinary political will. With government expenditures now running 185 percent of receipts, truly major changes in both taxes and outlays will be required. A revived economy can't come close to bridging that sort of gap."

This is what we have been preaching over the past several years, that the deficits, if unchecked, will ultimately lead the government to put the printing presses in overdrive, and we will attempt to inflate our way out of debt. This will cause the value of the US$ to drop. Buffet ended his piece with the following line: "Unchecked carbon emissions will likely cause icebergs to melt. Unchecked greenback emissions will certainly cause the purchasing power of currency to melt. The dollar's destiny lies with Congress."

Sorry to spend so much time on Warren Buffet, I know he isn't the most popular guy with many Pfennig readers. But you can't deny that he has been an extremely successful investor, and the piece he wrote for the NY Times was just right on in my opinion.

Lets get back to the currency markets. Good news helped propel the Norwegian krone higher overnight. Norway's economy grew last quarter, pushing the worlds fifth largest oil exporter out of recession. Norway's mainland economy (ex oil and gas) was able to grow .3% during the second quarter. Economists had predicted Norway's economy would contract by the same margin. The overall economy still contracted, as oil revenues declined, but the recent move higher in crude should help keep Norway on the growth path in the second half of 2009. Petroleum exports make up a quarter of Norway's output, so a global recovery is definitely good news for Norway. This currency, which was called the safest in the world by the NY Times, should be part of every investors portfolio.

The UK economy is doing quite as well as Norway's, as Britain reported a record $13.2 billion budget deficit in July. This is the largest deficit reported for July since records began. Quarterly tax payments usually boost the revenues in July, but the recession has taken its toll on tax revenue, and unemployment benefits are pushing outlays higher. The UK is predicted to have the biggest deficit in the G20 next year according to the IMF. The pound sterling was the largest loser vs. the US$ on the back of this reported deficit.

Minutes of the BOE's August 6 meeting were released yesterday, and it showed BOE Governor Mervyn King pushed for an even looser monetary policy. King pushed to expand the 'quantitative easing' which the BOE began in March. The pound lost more ground after the release of the report, as investors lost faith in King as an inflation fighter.

Chuck sent me this note last night and wanted me to include it in today's Pfennig:

"I forgot all about the fact that this is that time of year again when Central bankers and economists from around the world have a boondoggle at Jackson Hole Wyoming... You might recall that last year they all hunkered down and tried to think of ways to keep the financial mess forum worsening, only to have Lehman Brothers collapse a few weeks later!

Well... I'm sure we're going to hear a lot of rhetoric about the "recession coming to an end"... but they have it all wrong! this isn't a recession it's a depression...

With pockets of risk remaining, such as the collapsing U.S. commercial real estate market, and the double digit unemployment rate... I would think that these guys who missed seeing the subprime meltdown coming and then when it was presented to them, told us it wouldn't filter out into the economy... should just keep their opinions to themselves and read newsletters like The Pfennig and The Currency Capitalist, and the Daily Reckoning, and the 5-minute Forecast... OK I've had my say, thank you for letting me vent! Have a nice day!"

Yes, the 'top' economic minds (minus Chuck) will be meeting in Jackson Hole and Ben Bernanke will undoubtedly trumpet the fact that data shows the US economy is starting to pull out of its recession. This morning we will get the index of US leading economic indicators which is projected to show a move up in July; the fourth consecutive positive monthly move. The weekly jobless claims are also expected to be a bit positive, with a fall to 550k from last weeks 558k. But the jobless rate is still projected to reach double digits (the real number has been in double digits for a while!) and housing will continue to be a drag on the economy.

The administration will also announce the US deficit for 2009 will be slightly less than what was forecast in May. Yes, our government's deficit will total just $1.58 trillion, about $262 billion less than the previous estimate. But the change isn't due to increased revenues, it is mainly due to the administration's scrapping of a $250 billion contingency plan to aid the financial industry. With the recent signs that the economy is starting to pull out of recession, the Obama administration decided it no longer needed to hold the quarter trillion dollars in reserve to meet predicted bank failures. But I would still be a bit worried if I were the administration, as there will likely be a few more 'big' bank failures down the road. Personal bankruptcies continue to climb, and as Chuck pointed out above, the commercial real estate market still has a few 'surprises' in store for the economy.

Even after this adjustment, the deficit figure would amount to 11.2% of the GDP, the largest share since 1945 when we were paying for WWII. And unfortunately, with growing outlays for Social Security, and interest on the debt eating up a larger overall percentage, the deficits won't be shrinking in the near future.

A jump in oil prices and a reversal of risk aversion caused the South African rand, Mexican peso, and Australian dollar to rally. South Africa led all currencies vs. the US$ overnight, with a .54% appreciation. Mexico's peso rose for a second day as oil moved back above $72 per barrel. Oil revenue funded 38 percent of the Mexican government's budget last year, so the peso is somewhat linked to the price of crude. The jump in oil also helped the Canadian dollar reverse earlier losses.

The Australian dollar rallied as risk investors moved back into higher yielding currencies, and good news in the Asian stock markets continued the rally. The Aussie dollar also benefitted from the rally in oil, Australia's fourth most valuable raw material export. The Aussie dollar is one of the best performers over the past 3 months, with only the New Zealand dollar and Brazilian real out performing it vs. the US$.

Currencies today 8/20/09: A$ .8289, kiwi .6731, C$ .9105, euro 1.4219, sterling 1.6461, Swiss .9376, rand 7.9792, krone 6.055, SEK 7.1810, forint 191.02, zloty 2.9211, koruna 18.009, yen 94.15, sing 1.4477, HKD 7.7508, INR 48.695, China 6.8318, pesos 12.8717, BRL 1.8415, dollar index 78.62, Oil $71.92, 10-year 3.47%, Silver $14.01, and Gold... $943.27

That's it for today... I know Chuck already mentioned it, but Happy Birthday to Chuck's daughter Dawn and Christine's little buddy Jamieson!! Both are celebrating big milestones; Dawn is 30 and Jamieson is 5. The Cardinal's ownership is getting St. Louis pumped up about fall as they continue to set the team up for a nice run into the post season. The Cards signed veteran pitcher John Smoltz yesterday which made our #2 trader Jennifer extremely happy (she is a huge Smoltz fan). It sure looks like the Cardinals will be the ones to beat in the NL with the addition of another strong arm to our rotation. Christine just came in with the breakfast sandwiches, so I gotta get this out the door. Hope everyone has a Tub Thumpin Thursday!!

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

U. of Michigan Spoils The Party...

Chuck Butler — Mon, 17 Aug 2009 14:57:26 GMT

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In This Issue..

* Risk Aversion comes back strong!
* Risk assets get sold...
* What games will be played with TIC's?
* 40 years since Woodstock!

And Now... Today's Pfennig!

U. of Michigan Spoils The Party...

Good day... And a Marvelous Monday to you! A great weekend that was filled with watching my little buddy, Alex, play football, hosting a surprise 30th birthday party for my little girl, Dawn, and a sweep of the Padres by the Cardinals! This week gets cut short with me a the helm, as I head to San Francisco on Thursday. Chris will have the conn on the Pfennig Thursday through Monday.

Well... Who'd a thunk it? Yes, who would have thought that the U. of Michigan Consumer Confidence could turn the markets upside down and spoil the party? Well... It happened on Friday! The U. of Michigan Confidence Survey for Aug unexpectedly dropped to 63.2, from the previous month's 66 level. The real drop though was from the forecast for this month which was 69! The drop brought the index to a five-month low.

CPI printed at 0%, Industrial Production rose and so did Capacity Utilization in July... But none of it could get the taste of the U. of Michigan Consumer Confidence out of the markets mouths. It was the Humpty Dumpty economy once again... All the king's men couldn't erase the drop of Consumer Confidence.

And, the return of the risk aversion campers swamped the markets. And all day Friday, we saw losses in value of stocks, commodities and currencies. In the overnight markets, the return of risk aversion got even stronger. From what I understand happened, it seems that China's largest steel makers announced that they were going to se iron ore prices at 35% below the benchmark. This sent shockwaves through the commodities, and that has carried over to further losses in the currencies...

The euro has just fallen through the 1.41 handle, and is taking all the other currencies with it to the woodshed... That is, except of course, Japanese yen. I've gone through this so many times in the past, I think you all know exactly what I'm going to say, before I say it... But, for those of you new to class, when the risk aversion crowds fill the markets, investors head for the hills, thus selling their "risk assets" of which currencies are a part of. However, there are two currencies that the mental giants believe to be "safe havens"... One pick is ridiculous, and the other one is even more ridiculous as "safe havens"... But you can't fight the markets, and they deem Japanese yen and U.S. dollars as "safe havens"... Me? Personally? I deem one to be a currency that should be circling the bowl! And the other? It's iffy for sure... I don't think you need me to tell you which one is which!

Of course, the Japanese yen has its moments... And one of those came last night in the form of their 2nd QTR GDP. The Japanese economy grew 3.7% in the 2nd QTR, thus ending their recession... But just like the Australian economy that we talked about last week, and needing to see if it can maintain this growth after the removal of "fiscal candy", the same is true for Japan. But Hey! 3.7% growth is still pretty impressive, for Japan!

This morning, as I look over the headlines on the Bloomie, I see one story that says the euro will fall to 1.30 VS the dollar, and two other stories that say the opposite, with one saying it will reach 1.45 in the coming days, and the other saying the euro is a "buying opportunity"... Confused? Well, that's the stuff that markets are made of folks... People with differing opinions...

Which brings me to what I will call "Pfennig etiquette" Just because you have a "different opinion" on things that I say, does not give you the right to flood my email box with what you believe is proof that you are correct! Nor does it give you the right to get nasty with me... It's this simple folks... If something is on TV that offends you, what do you do? You change the channel... Carry that over to your FREE subscription to the Pfennig...

OK... Enough of that! Later this morning we'll see German Trade Balance numbers, and... The June TIC Flows data from the U.S. These TIC flows just don't get the attention I believe they should. So, I carry on despite the mental giants in the markets that place importance on data prints! TIC Flows are simply, the net security purchases by foreigners. The U.S. has to sell its Treasuries to finance the ever expanding deficit... And supposedly, these TIC Flows tell us whether that's happening or not. But given the games that people (the Fed and Treasury) play these days, who knows what is real or not? Only the shadow knows!

Don't ask Big Ben Bernanke, he'll tell you he doesn't know, like he did when he was asked by a Senator where $500 Billion that left the Fed's books went... Big Ben said... "I don't know"... Ahem... Big Ben? IF YOU DON'T KNOW... WHO THE )*&(&*)( SHOULD WE ASK?

OK, that was a tangent I didn't plan on going to... But I did... So let's finish the TIC Flows talk, eh Chuck? So... Last month, for instance, the data showed a negative figure, which meant that we did NOT finance our deficit in May! June's data prints today... Let's hope it prints better than the May report!

Speaking of the cartel, I mean the Fed Reserve... I saw this quote by Bill Bonner the other day, and just knew it would fit nicely in with any discussion of the cartel, I mean the Fed, and Big Ben Bernanke... Here's Bill... "And remember, too, the feds don't really have any money to hand out. They can only get money by taking it from its rightful owners - either in taxation or loans. Or, they can print it up themselves. In any case, the money adds nothing real or extra to the economy. It merely distorts the economy...twists it...misleads it...and makes it a bigger mess than it was already."

Yes, that's exactly right, Bill! And something that I've tried to tell my dear readers for some time now... A lot of people don't agree with that... And that's all fine and dandy with me... But I believe that the things that I've researched tells me otherwise... Quite a bit otherwise!

All the good that the Norwegian krone built up last week, has been wiped out by the sell off of Oil prices. And when the Norwegian krone backs off it takes the Swedish version of the crown the krona with it!

The Aussie and kiwi versions of dollars saw their recent lofty levels melt away with the commodities damage from the Chinese steelmakers announcement. These two are still way above their winter of this year's levels, so, it's not all bad...

So... These risk aversion outbreaks have been relatively short in recent months, and not like the risk aversion of last fall and winter... So, we can look to see what might shake the risk aversion campers... As I look over the data calendar for this week, I really don't see anything that "might" scare the risk aversion campers... However, the week is dominated by several reports on Housing & Building... Maybe, just maybe, these reports might show that the Housing market has bottomed, that sales are picking up, and that home prices have stopped falling.... Who knows? Maybe that would be enough to shake up the risk aversion campers!

I was thinking about this while I was typing that previous paragraph... And that is... Even if Home prices show a bottom, how long will it be before they are on the upside of 2 years in the red? Unfortunately, it will be a very long time before that happens! Long Time readers will remember when I used to (what many believed me to be doing, crying wolf), warn about the housing bubble... Shoot, I had people in the mortgage industry that just wouldn't / couldn't come to agree with me... Of course when it all melted down eventually, they admitted to me that they had been drinking the kool-aid, but now see what I had been trying to tell them...

So... When I say that I believe it will be a very long time before that happens, I've got a track record here...

I also was one of the first people to say in 2001 that the dollar was about to go into a secular long term weak trend... You should have seen the emails I got then! Oh, but look at us now... The dollar index has given up over 40% of its value since then! And some individual currencies were doing even better at one point during the trend...

So, with that note... I'll head to the Big Finish!

Currencies today 8/17/09: A$ .8175, kiwi .6665, C$ .90, euro 1.4065, sterling 1.63, Swiss .9250, rand 8.20, krone 6.20, SEK 7.32, forint 194.85, zloty 2.98, koruna 18.33, yen 94.50, sing 1.4520, HKD 7.7505, INR 48.96, China 6.8360, pesos 13.03, BRL 1.8475, dollar index 79.50, Oil $65.80, 10-yr 3.47%, Silver $14.18, and Gold... $936

That's it for today... Well, this past week was the 40th anniversary of Woodstock... From what I understand, the entire music performances of the concert are being put on CD, and will be sold as a box set, as opposed to the original 3 album set, that only included selections of the music... I remember as young man watching this movie, and being blown away by the music. I used to have the movie on VHS, and whenever a new person started working for me, I would give them the tape and tell them to watch it, and report back! HA! So... Getting back to something I said above... We hosted a 30th birthday for my darling daughter, Dawn, on Saturday night. Friends, and family successfully pulled off a surprise for her! Dawn's actual birthday is this Thursday, but I'll be flying to San Francisco, and I wanted to be able to celebrate with her! I'm taking this a little strangely, having a daughter that's 30! WOW! OK... Gotta go... I hope your Monday is Marvelous!

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

GDP Does Not Compute, Will Robinson!

Chuck Butler — Wed, 05 Aug 2009 14:49:35 GMT

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In This Issue..

* Currencies trade in a tight range
* Pound Sterling, the star performer?
* Something smells fishy...
* Do you see trend with Gov. Reports?

And Now... Today's Pfennig!

GDP Does Not Compute, Will Robinson!

Good day... And a Wonderful Wednesday to you! We had a very tight range trading day yesterday in the currencies, which have left them trading in about the same clothes they were wearing when I signed off yesterday! We've got that to talk about, and... Another $2 Billion for the CARS program has been allocated... What a crock! OK, Chuck, slow down, you don't need to get your blood boiling this quickly, this morning!

I'm writing from home this morning, as I have a meeting close to our old office, which means its not far from where I live, which is completely different from our current office location, which is, I'll say... Quite a distance... But, hey! I'm not complaining, just giving you the details...

OK... Well, as I stated in the opening, the currencies have traded in a very tight range for the past 24-hours, with little in the way of data to push them in either direction. That could change this morning when we see the color of the ADP Employment report, and Challenger job cut report. The ADP/Challenger reports are usually a very bad indicator of what the Bureau of Labor Statistics (BLS) print in the Jobs Jamboree (which will print on Friday this week)... But a few months ago, the people at ADP/Challenger decided to change their methodology to mirror that used by the BLS... In other words... They will lie, cheat, and cook their books too! HA! But that hasn't helped them...

I think it to be a better indicator to use the employment component of the ISM Index that printed the other day... The employment component showed that the job losses will be around 350,000 for July... That's close enough for government work regarding the forecast of 325,000 jobs lost by the surveyed economists.

However, the ADP/Challenger report will print, and the markets will make an initial reaction to the report. So, watch for that... If the ADP/Challenger report shows a greater number of jobs lost, it could push the risk appetite to the back of the class once more... At least temporarily!

OK... I was all prepared to talk about this in today's Pfennig, when I saw a note from my friend, John Mauldin, talking about it last night! He beat me to the punch! Oh well, I'm going to continue on with my plans...

What I'm talking about is the GDP report last week... Something smells of yesterday's fish here folks... I'll put it out here very simply... The Gov't tells us that Consumer Spending is only down -2.5%. Which when plugged into the GDP report tells us why GDP was reportedly stronger than expected in the 2nd QTR... Consumer Spending represents about 70% of GDP! But here's where I have a problem with the report... Corporate Earnings are down 15%... Corporate Earnings are down 15% because there's no Consumer Spending! -2.5% doesn't compute when Corporate Earnings are down 15%!

And here's where the cheese begins to bind folks... I believe the Corporate Earnings numbers are true... They are regulated to be so! While the Consumer Spending data is Gov't produced... As the robot in the Lost in Space TV program used to say... "This does not compute, Will Robinson"!

But hey! What do we expect from Gov. reports? Look at the games that people play at the BLS for example! Any old way, I just wanted to throw that out there as food for thought about the U.S. economy / recovery data...

Ty Keough and I had a quick conversation yesterday about Bank Earnings that have been reported... I discussed how disgusted I was with all this yesterday, but left it at that. Ty decided to try and get me talking about this... I know I shouldn't, but I must! These Big Banks that borrowed funds from the Gov't, got to stop marking to market the securities/bonds that had gone bust, which means they then got to sell them to the Gov't at inflated prices, then take the money they Gov't gave them for the inflated securities/bonds and pay back the Gov't! The funds also allowed the Big Banks to post those earnings that the markets got so wound up about! Now... How's that for getting your cake and eating it too!

I shake my head in disgust, folks... But hey! We've got the cartel folks over at the Fed taking care of all of this for us... Isn't that nice? NOT! We had all better be careful or before we know it, the Fed Heads will be doing an Oliver North on us!

Ok, enough of that! The British pound sterling was the star performer again yesterday and last night... The U.K. has seen a plethora of better data recently, and it didn't stop yesterday or this morning... The U.K. manufacturing index unexpectedly rose, and U.K. services expanded the most in 1.5 years in June. Factory output was up .4%, and home values shot up almost double what was forecast for them!

This recent run of better than expected data reports in the U.K. tells me that the Bank of England's (BOE) Gov., Mervyn King has come to an end of his bond purchases... For now... That means Quantitative Easing in the U.K. has ended... Again, for now... And that news , along with the better than expected data has allowed the pound sterling to rally and rally it has!

In the Eurozone, things aren't looking so rosy... Eurozone Manufacturing and services contracted at the slowest pace in the past year, and Retail Sales for June showed a 2.4% drop, year-on-year. However, these things only place a drag on the euro temporarily, as the euro will shine, with every mark down of the dollar...

And then there was this... A long time reader sent me a note yesterday, and said that it just didn't make sense that U.S. Manufacturing was healing while Capacity Utilization was wallowing in the mud (OK she didn't put it like that, I did!)... So... I put on my Sherlock Holmes hat, grabbed my pipe and looked into it, because... Now that she said that, it didn't make any sense to me either!

So, I went to the components of the ISM Index, and found that 9 of the 10 showed improvement... But none so much as the Government Construction Spending component that showed a 3% increase! So... There you have it... Manufacturing, per se, was better, but not as advertised!

So... GDP was not as good as advertised. Manufacturing was not as good as advertised. Jobs data has not been as good as advertised... Do you see a trend here? If not, you might want to go for an eye check up! HA!

OK, I've got to get this and me out the door soon, so I had better head to the Big Finish!

Currencies today 8/5/09: .8440, kiwi .6745, C% .9295, euro 1.44, sterling 1.70, Swiss .9420, rand 7.91, krone 6.03, SEK 7.1415, forint 185.49, zloty 2.85, koruna 18.05, yen 95.30, sing 1.4340, HKD 7.75, INR 47.62, China 6.8310, pesos 13.13, BRL 1.8160, dollar index 77.27, Oil $71.70, 10-yr 3.72%, Silver $14.70, and Gold... $966.70

That's it for today... A better day for yours truly on the trading desk yesterday, not so long! I'll get a late start today though, with this meeting I'm going to right out of the starter blocks. Little Delaney's Birthday pool party was wiped out by the rain yesterday, but not to worry, the family gets to celebrate her turning 2 this weekend! Our new BRIC MarketSafe CD has really caught on with the newsletter writer community, and with investors! Our phones are ringing off the hook once again, which is a very good thing! The BRIC MarketSafe is explained in the "ad section" above, if you haven't already, you should check it out! Ok... Day light is burning, I've got to get moving! Hey! I just realized that I didn't rant about the CARS program... I bet that makes your day!... I hope your Wednesday is Wonderful!

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

Dollar continues it’s slide...

Chuck Butler — Fri, 31 Jul 2009 14:45:32 GMT

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.........
In This Issue..

* Dollar continues to slide...
* US GDP contracts but not as fast...
* Nordic currencies outperform...
* Japanese yen continues to fall...

And Now... Today's Pfennig!

Dollar continues to slide...

Good day... The last day of July is upon us. Time just seems to keep moving faster as it seems summer just got started. The fall of the dollar also accelerated yesterday as investors moved back out of the 'safe haven' of US$ and continued to shop for more yield. The greenback tried to stage a bit of a rally in early European trading, but has fallen back off again as I sit down to write the Pfennig.

I got a call from a Reuters reporter yesterday mid morning to ask why the dollar was rallying at the same time stocks were moving higher. I quickly paged through my Bloomberg looking for some sign why both were heading higher. The trading pattern which has been established over the last few months has these two asset classes moving in opposite directions; good news for the US economy sends stocks higher and the dollar lower as investors retreat from defensive 'safe haven' positions in the US$. The opposite occurs whenever there is data which shows the global economic recovery is faltering, stocks move lower and the dollar rallies with safe haven buying.

But yesterday morning, for a short period both were moving up. I first looked at the jobs data to see if they held any clues. The Initial Jobless claims came in slightly higher than expected, confirming our calls that the labor market will continue to be a drag on the US economy. But the reporter pointed out the continuing claims has dropped. I explained to her that the continuing claims were dropping because people are falling off the rolls. Drops in continuing claims are not due to people going back to work, but are due to people being out of work longer than the labor department's records. So I didn't see anything in the jobs data which would cause stocks to rally.

Unable to find anything in the data to support the short term market movements, I moved the conversation to the longer term trends which I feel much more comfortable speaking about. And by the time the conversation was over, the quick rally in the dollar had subsided, and the dollar index was moving back down. The short term market movements are very hard to call, as the currency and equity markets can move on emotion and rumor for short spans of time. But they will always move back toward the underlying trend line. Right now, the trend is for the US$ to weaken vs. the major currencies; as investors begin to look for currencies with higher yields and better underlying fundamentals.

So the dollar continued to fall vs. every currency except the Japanese yen. The Nordic currencies of Sweden and Norway led the charge vs. the US$ with Sweden moving up over 1.5% and Norway appreciating just under 1%. As I wrote yesterday, the Swedish krona has been one of the best performers recently as their economy has begun to recover ahead of mainland Europe. Sweden's central bank, the Riksbank, was more aggressive with rate cuts than the ECB, so they will now have more room to increase them as the global economy recovers. Like Norway, Sweden went into the global recession in a fundamentally solid position, with a good trade surplus and low national debt. But Norway seems to be a bit better positioned going forward, as they rely on commodity based exports and while Sweden is geared more toward manufacturing. Both should continue to move higher vs. the US$.

The focus today will be on the 2 quarter GDP report which will be released this morning. GDP is expected to have contracted 1.5% after a 5.5% contraction in the first quarter. If the number comes in as expected, the dollar will likely sell off as investors move back into riskier assets. But as I mentioned earlier, the currency markets have started to show signs of moving away from the safe haven / risk aversion pattern recently. Investor's focus will eventually shift toward interest rate differentials. But I still think it is a bit too early for this shift to occur, and a stronger GDP figure will likely cause a further drop in the US$.

We will also see Personal consumption data for the second quarter which is expected to show US consumers are continuing to increase savings. Consumption is expected to have fallen .5% after rising 1.4% during the 1st quarter. In spite of government efforts to stimulate spending, US consumers are worried by rising unemployment and won't likely loosen their tight grip on their wallets anytime soon. Finally, we will end a busy week of data releases with the Chicago Purchasing Manager's index which is expected to show a slight increase to 43 from 39.9 reported last week. This would be a second consecutive monthly increase, a sign that the manufacturing sector is bottoming out. Even though the number continues to move higher, any number below 50 is seen as a negative indication for the economy. Even with inventories near record low levels, manufacturers will likely wait for consumers to start spending again before increasing production.

The pound sterling continued to rise against the dollar after a report showed British consumer confidence held at the highest level since April of last year. It seems the pound sterling has moved to a upward trend, after dropping most of last year.

The Japanese yen continues to fall vs. the US$ as investors sell the currency and move to higher yielding assets elsewhere. Japan's unemployment rate rose to a six year high in June and consumer prices fell at a record pace. The Japanese economy continues to be stuck in a stagnant deflationary state and will be dependent on a global economic recovery to spark exports. Increasing growth in other Asian nations (mainly China) has sparked production increases by Japanese manufacturers. This has been the one positive sign out of Japan recently, but this one piece of data couldn't halt the selling of the Japanese yen.

Elections in Japan will be held at the end of next month, and the opposition party is all but guaranteed to win. The ruling Liberal Democratic Party is in a shambles, and has produced 4 prime ministers in the last 4 years. The new government is expected to increase spending on government programs, but like the US administration, no one has figured out how to pay for these increases. The opposition's spending proposals add up to 3.5% of GDP, and the party has ruled out raising Japan's 5% consumption tax for at least 4 years. Much of the funding for the new programs will come from cutting 'waste' in existing spending programs (sound familiar?). Gross national debt in Japan is currently 180% of GDP and rising as the stimulus packages kick in.

Many factors in the Japanese economy are eerily similar to those in the US, and neither looks to recover quickly. Both the US$ and the Japanese yen will continue to be sold as investors move into currencies of countries with much better economic potential. The short and medium term prospects for these two currencies certainly look negative.

Two currencies which seem to be on a much different path than the Japanese yen are the Australian and New Zealand dollars. Both are headed for their longest set of monthly gains since 2004. With interest rates expected to start rising, and China continuing to consume commodities which both produce, these currencies should continue to perform well. Barclays Capital raised their forecasts for both currencies saying rising risk appetite will boost demand for them in the short term. "A better than expected US GDP result would be the final icing on the cake for July and would provide great opportunity for the Australian dollar to retest 83.38 cents," according to the report.
Currencies today 7/31/09: A$ .8284, kiwi .6561, C$ .9269, euro 1.4139, sterling 1.6552, Swiss .9231, rand 7.804, krone 6.1628, SEK 7.2825, forint 187.92, zloty 2.9328, koruna 18.089, yen 95.70, sing 1.4405, HKD 7.7500, INR 47.935, China 6.8321, pesos 13.2126, BRL 1.883, dollar index 78.966, Oil $66.81, 10-year 3.61%, Silver $13.63, and Gold... $938.42

That's it for today... The EverBank kickball team played or final regular season games last night and ended up victorious in both. More importantly, we were able to make it through both games without an injury! We finished in third place, so we will have a pretty good seed going into the end of season tourney. Happy Birthday to Ann Hopkins today! I have worked with Ann off and on since I started in the banking industry back in the late 80's, and she is a real treat to have on the desk. 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

Risk aversion returns…

Chuck Butler — Fri, 17 Jul 2009 17:11:25 GMT

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

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......................................................
In This Issue..

* Risk Aversion returns...
* Money Multiplier dampens stimulus effects...
* TIC flows show concern of foreign investors...
* China back on growth track...

And Now... Today's Pfennig!

Risk aversion returns...

Good day... Chuck got an early start on a two week hiatus from the desk, so you will be stuck with me writing the Pfennig for the next two weeks. But don't worry, you will still get a small dose of Chuck over the next week as he typically emails me his thoughts while on the road (I call it Pfennig Pfodder). Risk aversion dominated the currency markets overnight, as terrorists set off two separate explosions in Jakarta and investors moved money back into the 'safe havens' of the US$ and Japanese yen.

Chuck wrote about this move yesterday, believing the bad news regarding CIT would probably cause a risk reversal. But the US stock market shook off the CIT news and rallied higher after a big earnings report by JP Morgan and a somewhat positive statement by Nouriel Roubini. Roubini, the New York University economist who is credited with predicting the financial crisis, said in a speech yesterday that the US economy might be close to the bottom. The stock jockeys took this statement along with the positive earnings reports and ran stocks up. But Roubini later tried to caution these bulls against reading too much into his statement, and reminded everyone that he has not changed his thoughts on a US recovery: "I continue to see a shallow, below par and below trend recovery."

Those looking for a quick v shaped recovery will be disappointed, as we continue to believe the recovery here in the US will be more of an L shape as our economy struggles to recover. After all, who is going to propel the US economy to recovery? In past recessions, we have been able to depend on the US consumer to pull us back out. But the poor consumer is now facing the highest unemployment rate post WWII combined with falling home prices and much stricter lending policies. And with the dire fiscal position of most states matching that of the federal government, the tax burden placed on almost all taxpayers will likely be rising, chewing up more of consumers disposable income. We are no longer be able to rely on US consumers to 'borrow and spend' our way to GDP growth (which is actually a good thing!!). Consumers are tightening their belts, and saving a larger percentage of their income; good news for the consumers, but bad news for the economy.

The administration has tried to take over where the US consumer left off by borrowing record amounts of money and injecting it into the economy through stimulus packages. But recent data bring into question whether or not this stimulus is having the desired effect, and many are now questioning whether any fiscal measures can pull the economy out of recession. With the credit markets still tight, and the negative outlook for consumer demand, no amount of government intervention seems able to stop the decline in jobs and quickly pull the US out of this recession/depression. The reason is that the 'multiplier effect' of the stimulus money is too low. Typically when the government injects funds into the economy, the effect of each dollar they spend is multiplied several times over as it moves through the lending / spending cycles. It works like this: $1,000,000 given to a bank by the Fed is lent out to consumers and business who then spend the funds on goods and services. The companies who sell the goods and services place a majority of these funds back into the bank who then turn around and lend them back out, starting the cycle all over again. But recently neither the banks or the consumers are acting 'normal'. Banks who have received stimulus funds are using them to shore up balance sheets and keeping them in reserves. Consumers who have received stimulus funds, or are strong enough to qualify for loans have been doing the same thing; using the funds to pay down debts and saving a larger percentage. So the multiplier effect of each dollar injected by the administration has been much smaller than in years past. While some in the administration are calling for another stimulus package, others are now realizing the impact of government stimulus will continue to be decreased by the low multiplier. The government should probably just let the recession take its course, and avoid adding more debt to our already over burdened tax payers.

But 'big government' is back, and the current administration obviously feels it is their job to make government even bigger. Chuck had this to say about this weeks earlier announcement of a new government run health care program:

"The Big Debate right now is a National Health Care program... I'll come right out front and center and say that I'm not for it, which shouldn't surprise anyone that's been reading this letter very long. But there's someone else who should be more important a figure against this than I think the media is reporting...

I'm talking about Douglas Elmendorf, the Director of the Congressional Budget Office who, under questioning by members of the Senate Budget Committee, had this to say...
"Instead of saving the federal government from fiscal catastrophe, the health reform measures being drafted by congressional Democrats would worsen an already bleak budget outlook, increasing deficit projections and driving the nation more deeply into debt."

He went on to say... That "bills crafted by House leaders and the Senate Health Committee do NOT propose the sort of fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount."

But... I doubt they listen to him... For when it comes to spending and driving up the deficits.. They haven't listened to former CBO director, Alice Rivlin... And they haven't listened to former Comptroller General, David Walker... Why the current CBO director now?"

Data released yesterday showed the number of Americans filing claims for unemployment benefits fell last week to the lowest level since January. But like last week, these jobless claims were skewed by the Labor Department's 'adjustments'. As I explained last week, the automakers typically lay off workers during July, so the BLS adds back thousands of jobs in order to offset these seasonal layoffs. But this year, the auto plants laid off these workers months ago, so the seasonal adjustments are adjusting away actual job layoffs, not just temporary automobile layoffs. These distortions will likely continue for the next few weeks, with the weekly numbers climbing back over 600,000 in August when the seasonal adjustments end.

The TIC flows were also released yesterday and showed International demand for long term US financial assets weakened in May. Investors sold the most Treasury notes and bonds in six months, with the net Long-term TIC flows dropping almost $20 billion. The 'experts' had predicted a rise of $16.5 billion in purchases. But as investors dumped long term Treasuries, purchases of US stocks in May were the strongest since January of 2008. So the impact of these flows were minimal on the value of the US$. The administration has to be worrying about the direction of the TIC flows, as it continues to bring record amounts of Treasuries to the markets. If investors shy away from the new debt, interest rates will be driven higher putting further pressure on our 'stealth recovery'.

After reviewing the numbers, I spotted another item which should be cause for concern. The report showed foreign governments were moving from the longer term maturities of Treasury notes and bonds into shorter term bills which have a maturity of less than one year. Foreign governments continue to be worried about the future ability of the US to maintain our record deficits. The Chinese economy continues to grow, and is propelling them to a much more important status among global leaders. Chinese Premier Wen Jiabo continues to express concerns regarding his country's US Treasury holdings, and officials in Japan, the second largest investor, have also begun to express concern. The administration is calling in the big guns to try and assuage China's concerns. Federal Reserve Chairman Ben S. Bernanke will brief Chinese officials at a summit this month about how the US plans to keep inflation in check over the next few years. The summit is the first high-level gathering of its kind since President Obama took office.

China reported yesterday that their economy grew 7.9% in the 2nd QTR, which was greater than the 7.7% forecast by economists, and the 6.1% that was booked in the 1st QTR. This was the first acceleration in growth in more than two years, and comes on the heels of a $585 billion stimulus package which was targeted at increasing infrastructure and getting credit flowing again. The positive growth number will likely cause them to start raising rates in 2010 according to a Bloomberg news survey. Economists predict the one-year lending rate will climb over 50 basis points after remaining steady for the rest of the year. China is the only one of the 10 biggest economies that is expanding, and confirms what we have been saying for some time: China will be the engine which propels the global economy out of recession.

Chuck noticed the good numbers out of China before heading out yesterday, and sent me the following:

"This news must be manna from heaven for Australian commodity exporters... As I've said for some time now... China's economic strength = strong demand for raw materials, of which Australia is not only geographically positioned to supply China with raw materials, but has the raw materials to supply to China! And demand for Australian raw materials is a proxy for commodities as a whole... And, will underpin the A$!"

If you agree with what Chuck is saying regarding the A$, it may be a good time to buy some more as the AUD$ slid below .80 overnight due to risk aversion. Both the AUD$ and NZD$ fell against the dollar and the yen as investors shifted to safe haven currencies. The New Zealand dollar fell the most in two weeks after Fitch Ratings cut the nation's long term sovereign credit rating outlook to negative. Fitch said the nation's deficit is large and a "stronger fiscal adjustment than currently planned" may be needed. First, I think everyone should treat anything coming out of the rating agencies with caution. But I agree that the nation's deficit is too large, but the news coming out of China should go a long way toward pushing these commodity exporting countries back into the black. As Chuck says above, as China expands the commodity currencies should stay well bid.

Before I head to the big finish, Chuck wanted me to make this announcement to all the Pfennig readers....

After 2 long years of looking for the next MarketSafe CD to issue, I decided to put together the countries that have been in the news lately. So... Introducing: The EverBank MarketSafe BRICK CD! This will be a 3-year CD that will have FDIC protection, 100% Principal Protection, and 100% of the upside of the combined values of the currencies from Brazil, Russia, India and China! If the combined values of these 4 currencies should go down in 3 years, you'll get your principal back!

To invest in this new MarketSafe CD, you need to either go to: www.everbank.com where after reviewing the offering you will be able to apply for the CD right on line, or by calling the trading desk @ 1-800-926-4922 for the details.

Currencies today 7/17/09: A$ .8000, kiwi .6444, C$ .8945, euro 1.4100, sterling 1.6291, Swiss .9276, rand 8.102, krone 6.3926, SEK 7.8203, forint 194.08, zloty 3.0682, koruna 18.3992, yen 93.83, sing 1.4504, HKD 7.7501, INR 48.68, China 6.8316, pesos 13.58, BRL 1.9318, dollar index 79.49, Oil $61.93, 10-year 3.56%, Silver $13.19, and Gold... $934.45

That's it for today... The EverBank kickball team pulled out another victory last night in a tightly contested match. Happily, none of our players were injured, but a player on the opposing team did a faceplant which still has everyone on the desk laughing. The weather here in St. Louis has turned fall like, and we are supposed to have record lows over the weekend. Should be perfect for a triathlon I am competing in Sunday morning. 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