Daily Pfennig : Icelandic Krona

A New Year!

Chuck Butler — Fri, 02 Jan 2009 15:31:00 GMT

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In This Issue..

* Currencies range trade...
* With a bias to buy dollars...
* Recession deepens in Eurozone...
* India cuts rates...

And Now... Today's Pfennig!

A New Year!

Good day... Happy New Year! And a Happy Friday to one and all! A Fantastico Friday, I bet it will be, as most people are still on "holiday". I hope your New Year's celebration went well, mine did, spent with good friends, after a simply scrumptious dinner! Yesterday, we spent the day with friends again, as good friend Rick, had everyone and their brother to his new house to celebrate the New Year... I'm worn out! Good thing this is a quick shot work day, and then onto the weekend, because I'm spent!

Well, enough of all that! The currencies traded in a very tight range on Wednesday, and I expect more of that today. The bias has been to buy dollars going into the year-end, and it looks as though that might be the case today, as there's been no data to speak of in the U.S., while the Eurozone printed a very weak manufacturing index report, indicating that the Eurozone's recession is deepening. Of course if we compared apples to apples the bias would be to buy euros, but since there hasn't been any "real" economic data in a couple of days from the U.S. this report from the Eurozone gets all the attention.

Normally, the first Friday of a month is Jobs Jamboree Friday, but with most Gov't workers on holiday, the Jobs report won't print until next Friday. The Weekly Initial Jobless Claims dipped below 500K last week at 492K, but you would have to think that the dip had more to do with the holidays and offices being closed than any reversal of the job loss trend. But you know the mass media, they were all over this report, smiling like Cheshire Cats, as if... As if 492K job losses the previous week was something, to, smile about! UGH! These guys... And gals... I tell you, they must go home at night and either they are brainwashed, and feel good about what they do each day, try to make the U.S. Consumer feel good... Or they go home and vomit!

OK... I'll go onto something else, that commentary was not going in the right direction! Wait! I just read the Economic Calendar incorrectly for today! We will get some data... The ISM (manufacturing) index will print for December, and is expected to fall even further from the previous month's 36.2 print... Remember, of for those new to class, an index reading below 50 represents contraction in the industry... One below 45 for two consecutive months is a lock on indicator of recession... So, that's where we are here in the U.S. dealing with a recession and we keep wishing, and hoping, thinking and praying, that it will not turn into a depression.

As I told you on Wednesday, it looked as though a return to Risk Aversion, was creeping into the markets once again. And that return to Risk Aversion, has had a different affect on the currencies this time. This time, Japanese yen has not blossomed / rallied on the Risk Aversion. (recall that Risk Aversion causes Carry Trades to be unwound, thus supporting yen) Yen has traded back to 91 and change this morning...

But again, the price action this week can't be used as any indicator as to what will happen when everyone returns to the desk with bright shiny faces next week. I think that you need to re-read Wednesday's "Chuck speak" to get a handle on what to expect the first 3 months of this new year... You can always read archives along with the current Pfennig at: www.dailypfennig.com

So... It looks like 13 will become 14 in 2009, as the Czech Republic, once viewed as being on the fast track to euro adoption, will adopt the euro on November 1 this year. It's about time! The other two countries viewed as being on the fast track to euro adoption, Hungary and Poland, have really run into a tough row to hoe, but they'll get there eventually... In fact, I'm still of the thought that the Eurozone / euro will grow to 25 members in the next 10 years... Of course there are those "Chicken Littles" running around squawking that the Euro won't be around next year, much less 10 years from now... Just shows to go you just how different I think from "others"!

And what about Gold in 2009? Well, first of all that was some roller coaster ride that Gold had in 2008, reaching for the stars of $1,000 only to fall back $250, and then rebound $130 to close the year at $880... Well... Going back to my thoughts about an "Obama bounce" in the first quarter of this year, I would have to think that Gold will not have much support given that scenario... But... If my thoughts about the second half of the year hold true, then Gold should have a smashing 2nd half to 2009... So... The "play" in the 1st half of the year, and especially the 2nd QTR, is to look to buy the dips... But that's only if you believe my scenario for 2009... If you don't, then steer clear of Gold and every other commodity!

I see more and more calls for $2500 Gold... WOW! I think to myself, that, would mean that the U.S. economy is really suffering, and if Gold would every reach those "crazy" levels, the dollar must be just about at its intrinsic value... (get it?) So... In my mind, I have to hope the price of Gold doesn't go to $2500, because then we would have a worthless dollar... And I know that there are some out there that truly believe that I "want" the dollar to be worthless, that's not the case... I live here, I need dollars for gas, groceries and giggles...

Well, it didn't take long for another Central Bank to get back to the rate cut table in 2009, as India's Central Bank cut 50 BPS to 5% this morning. With a lot of Central Banks around the globe now pretty much with rates cut so close to the bone, I don't know that we'll continue to see rate cut after rate cut in 2009... For instance, the Reserve Bank of Australia (RBA) could very well be finished with rate cutting... I guess the real question on everyone's mind is how long will the U.S. Fed keep rates close to zero? I would only hope that the answer to that question is "not very long"! But you know the Fed, they most likely will leave them too low for too long, thus fueling the next bubble, whatever that might be...

Of course, the other day I said that U.S. Treasuries were the next bubble to pop, so Treasuries can't be the "next bubble" as they are already a bubble! Just think about all that Treasury issuance that's going to be needed in 2009 to finance the Gov't's goings on...

Speaking of the Gov't's goings on... My friend, Bill Bonner, always has a unique way, and one that I totally enjoy by the way, of explaining things... And here's Bill talking about the current recession and what the Gov't has been doing about it... (www.dailyreckoning.com)

"The bad news is that government meddlers all over the world are making the situation much worse. They don't have any choice. They have to react. And the only things they can do are the usual claptrap remedies. More government spending. More giveaways.
More bailouts. All they are doing is trying to avoid the 'creative destruction' that a real economy needs... and postponing the inevitable adjustments and corrections that must be made.

"But it gets worse. Because the world's main debtor - the USA - is also the custodian of the currency that most of the world's debts are denominated in. And Ben Bernanke is hell-bent on making sure that the US does not follow the Japanese example...or the example from the U.S. in the '30s. He won't stand for deflation. He'll wants to fight it in the worst possible way, because he wants to go down in history as the first and only central banker to beat it. What's the worst possible way to fight deflation? Print money."

I went back to January 2008 to see what I had said last year at this time just for grins... This is somewhat interesting, folks... I talked about how we could see a dollar rally taking the euro back to 1.40 (it was around 1.48), and that Gold would hit $900 soon...

I'll finish up today's letter with a snippet from the NYT that Chris Gaffney sent me on Wednesday... I read it and said... "sounds like this writer, reads the Pfennig!" I bet you'll think the same, but here it is....

"he answers to those questions will depend on the availability of credit in all its forms - home mortgages, personal and business loans and bonds sold by corporations, states and municipalities. For now, many banks are hoarding money rather than lending it. Their holdings of cash have nearly tripled to just over $1 trillion in the last three months, according to Federal Reserve data."

All of the money supply the Fed has pumped into the markets is currently being held by the banks. The Fed just keeps pumping out more money supply trying to get the banks to open the tap. But the pressure behind the tap continues to increase; and once the banks crack it open I think we could see a huge flow of funds back out into the markets. The banks won't be able to close the taps, and we will see the inflationary flipside of this temporary deflation.

The Fed says it will be able to 'pull back' some of the excess liquidity it is pumping into the markets, but it will be like trying to stop the flow of water after a damn breaks."

OK... Onto the Big Finish for this first working day of 2009!

Currencies today 1/2/09: A$ .6950, kiwi .5810, C$ .82, euro 1.3950, sterling 1.45, Swiss .9395, rand 9.44, krone 6.9650, SEK 7.78, forint 190.50, zloty 2.99, koruna 19.22, yen 91.20, sing 1.4550, HKD 7.75, INR 48.75, China 6.83, pesos 13.74, BRL 2.3160, dollar index 81.47, Oil $42, Silver $11.12 and Gold $870

That's it for today... Please notice that I will no longer publish the price of Thai baht, and Icelandic krona, as we no longer are able to deal in those currencies. January is not one of my fave months, as it is long, the sunshine is short, and it is too darned cold for me! But, my mom used to tell me that I wouldn't enjoy spring without January... Speaking of spring, just two months away from spring training, and I'm already making my plans! Once again, I will be taking my family to spring training during their spring break (since they're all teachers, or in Alex's case a student, they all get of the same time!) I'll also be going a few days at the end of the month with my friends, Rick and Duane, and maybe an additional friend, Kevin, this year! With visits, for work, to Florida the beginning and near the end of the month, I've worked it out to spend a good part of the whole month in Florida... Don't know how that worked out, but I'm not complaining! I was watching the Rose Bowl yesterday, and thought, man, that looks beautiful there, I would like to attend a Rose Bowl some time... Next year the National Championship game will be in the Rose Bowl, maybe my beloved Missouri Tigers can... Nah... Now that's a pipedream! But dream I can, and doesn't cost me anything! OK, I've carried on enough, time to hit send... I hope you have a Fantastico Friday, and a healthy and prosperous New Year!

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

Back to Risk Aversion...

Chuck Butler — Mon, 01 Dec 2008 15:44:41 GMT

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In This Issue..

* Japanese yen rallies...
* Renminbi stumbles...
* A very tough data week in store...
* Rate cuts all around the world...

And Now... Today's Pfennig!

Back to Risk Aversion...

Good day... And a Marvelous Monday to you! In addition, Welcome to December! We had our first "dusting" of snow over the weekend, after experiencing wonderful weather Thursday and Friday. As much as they tried, even my beloved Missouri Tigers losing to ultra-rival, Kansas on Saturday, couldn't ruin what was a very fun and relaxing weekend for yours truly!

Well... When I left you last Wednesday, I had thought that we could be on the cusp of a "change" in the currencies, as the Trading Theme that had held a tight grip on the currencies since July, was thrown to the side for a couple of days... But, I doubt "that" has happened, as a return to risk aversion is back on the table, which means the currencies and precious metals get sold, while Japanese yen, and U.S. Treasuries (read dollars) get bought.

And Japanese yen is "getting bought!" Yen is trading in the 93 range this morning... Strong, very strong!

When this all began, I truly believed that it would last through the elections and on to the end of the year... Then the magnitude of the problems were revealed, and I changed that to lasting probably through to spring. The longer it takes the "boys" Paulson and Bernanke, to get this credit market crisis unlocked, the longer it will take before we return to the fundamentals that continue to get worse by the day.

On Friday, Chris printed some thoughts I had left him regarding the data that printed on Wednesday, wasn't that just downright scary? I know that a ton of you all had the day off on Friday, and didn't see the Pfennig that day, so for those of you that missed class on Friday, here's what I had to say about the data prints from Wednesday...

New-Home Sales Sink 5.3% to Lowest Level in 17
Years U. Mich. Confidence - new low since '80
Chicago PMI collapses Consumer Spending Fell to 7-Year Low in October (manufacturing for that region)
Americans' Food Stamp Use Nears All-Time High

And can't imagine what in the world the people that make the official call on a recession the NBER (National Bureau of Economic Research) are thinking... I called this a recession back in January, and they have yet to make the call... Amazing!

Of all that bad data, the only one that will have a good outcome in the end, is the Consumer Spending falling to a 7-year low. We've gone on with this spending more than we make, for far too long! Now, if we could just get the Gov't to do the same!

Now onto this week... So, as I said above, the risk aversion theme is back... There will be a ton o' data print this week with it all culminating on Friday with the Jobs Jamboree... Just peeking ahead at Friday, the "experts" believe the job losses for November will be 320K, with the unemployment rate moving to 6.8% from 6.5%. That's downright ugly folks.

Speaking of ugly... Today, we'll see the color of the Nov. ISM (manufacturing) Index, which collapsed to 37 last month, and is expected to have fallen to 32 in Nov. All this "bad data" does is put the Trading Theme front and center even more...

OK, The Chinese renminbi has fallen .73% overnight, which is the largest drop for the currency since dropping the peg to the dollar in July 2005. I find it interesting that the banking officials allowed the renminbi to drop by that large of an amount right before, U.S. Treasury Sec. Paulson is about to visit... Can't you just hear the Chinese saying something like this to Paulson... "See, Mr. Treasury Sec. we can play games with our currency too, and so now if you'll just get yourself back on that plane, and leave us alone, we'll see where the currency goes next."

The Chinese have their own problems right now, and making sure their currency continues to strengthen isn't one of them! China has shifted from "inflation fighting" which requires a strong currency, to "promoting growth" which doesn't! And with exports set to collapse next year, given the U.S. recession, a currency strengthening just isn't on their agenda any longer.

There will be a truck load of Central Bank rate meetings this week, beginning with the Reserve Bank of Australia (RBA) tonight. The Reserve Bank of New Zealand (RBNZ), Bank of England (BOE) and European Central Bank (ECB) are all expected to cut rates this week, and then next week, we'll see rate cuts from the Bank of Canada (BOC) and the Fed Reserve...

Global rates are going lower and lower folks, we had all better be prepared for this, as it is going to happen, no doubts. For instance, I fully expect the RBA to announce a 75 BPS rate cut tonight or tomorrow, whenever they do it...

Now... Enough rate talk... How about we visit the goings on with the bailouts? Oh, goodness gracious, no! I don't want to go there! My blood pressure is doing just fine today! Oh? I have to? The little guy on my right shoulder is telling me to not go there, and the little guy on my left shoulder is telling me to do it, NOW! Hmmm... Ok, I won't do it, but what I will do is give you a thought from a reader, who is an investment advisor regarding all of this and the Gov't taking ownership of banks... Let's listen in...

"Does anybody out there have any memory of the reason given for the establishment of the DEPARTMENT OF ENERGY during the Carter Administration? Anybody? Anything? No? Didn't think so. Bottom line .. . we've spent several hundred billion dollars in support of an agency the reason for which not one person who reads this can remember. Ready? It was very simple, and at the time everybody thought it very appropriate. The Department of Energy was instituted 8-04-1977 TO LESSEN OUR DEPENDENCE ON FOREIGN OIL. HEY, PRETTY EFFICIENT, HUH? AND NOW IT'S 2008, 31 YEARS LATER, AND THE BUDGET FOR THIS NECESSARY DEPARTMENT IS AT $24.2 BILLION A YEAR, THEY HAVE 16,000 FEDERAL EMPLOYEES, AND APPROXIMATELY 100,000 CONTRACT EMPLOYEES AND LOOK AT THE JOB THEY HAVE DONE! THIS IS WHERE YOU SLAP YOUR FOREHEAD AND SAY 'WHAT WAS I THINKING?' Ah yes, good ole bureaucracy. And now we are going to turn the Banking system over to them?"

Now, that's one of those things you say, Whoa There Partner! I've warned about this Gov't sticking their hands into banks and acting like owners before... But that's exactly what's happening folks...

OK, enough... Let's talk Gold a bit... Mark O'Byrne, executive director at Gold & Silver Investments, has his attention on the open interest numbers.

Comex gold futures open interest-the number of outstanding contracts-declined sharply this month, falling to 289,700 contracts in the week ended November 18, according to the Commodity Futures Trading Commission. That's down 9.3% from a month ago.

What the low open interest means is "that nearly all the speculative froth has been liquidated and remaining longs are 'strong hands'," O'Byrne says. "This will encourage more long interest to enter the market and should contribute to markedly higher prices in the coming weeks."

OK... But... We need to see the markets return their focus on the fundamentals to weaken the dollar before we get any "real traction" in Gold... At least that's my opinion, although Gold did have its best month in 9 years in November, gaining 11%...

Well, the good news from the weekend was that the Black Friday retail Sales were stronger than expected... But what's going to happen when, as I said above, job losses post a 320K figure at the end of the week? I think it takes the wind out of those sails in a heartbeat!

I've gone on a bit this morning, but there's lot to talk about, and that means an Iceland update! Reuters reported on Friday that... REYKJAVIK, Nov 28 (Reuters) - Iceland's parliament passed legislation on Friday to curb currency outflows and the central bank vowed to restrict credit as authorities moved to restart trade in the collapsed Icelandic crown.
    "The bank will maintain tight control over the access of banks to central bank credit until exchange market stability has been achieved," Sedlabanki said on its Web site.
    It said temporary currency restrictions, which had been necessary for Iceland to function at a basic level, would be lifted in stages.
    "A considerable proportion of crown-denominated securities are owned by foreign investors. Lifting restrictions by stages will make it possible to unwind their crown-denominated positions in a systematic way, as the external balance permits, without undue impact on the exchange rate."

There have been quite a few individuals that have ripped us for our handling of the Iceland meltdown, but as you can read above, there WERE CURRENCY CONTROLS in place...

One industry that's not experiencing slowing sales... Guns... Barack Obama apparently is the best salesman the gun industry has had in years! With many buyers worrying about higher taxes or limits put on guns and ammo, sales are quite brisk since the election... I sure wish I was talking about home sales being brisk, or computers, or something like that...

Currencies today 12/1/08: A$ .6425, kiwi .5355, C$ .8045, euro 1.2675, sterling 1.5040, Swiss .8285, ISK 230, rand 10.25, krone 7.0280, SEK 8.1825, forint 207.35, zloty 3.0425, koruna 20.2330, yen 93.90, baht 35.75, sing 1.5285, HKD 7.7518, INR 50.29, China 6.8842, pesos 10.25, BRL 2.3735, dollar index 86.71, Oil $52.07, Silver $9.94, and Gold... $794.00

That's it for today... Well... It's that time of year. Time to get our the decorations for outside and inside the house. It will be a lot of fun this year with Little Delaney Grace around. She had her Mizzou cheerleading outfit on Saturday, but it didn't help the Tigers, UGH! Now we have to play the best team in the country (in my opinion) Oklahoma for the Big 12 Championship this Saturday. The promise of this season has not panned out for the Tigers, but... They are still exciting to watch, and had a good season, not just the season they hoped to have! My little buddy, Alex, tells me that he's ready to "cut down the tree" this year. That's good because I can't get down on the ground to do it any longer! OK... The snow is blowing around outside, the wind is blowing a bitter cold air around, it must be getting close to winter! I hope you have a Marvelous Monday!

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

The Day After...

Chuck Butler — Wed, 05 Nov 2008 16:50:18 GMT

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

Gold and silver prices are down.

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In This Issue..

* I want change too!

* Euro leads a currency rally!

* Factory Orders plunge!

* Carry Trades back on the table!

And Now... Today's Pfennig!

The Day After...

Good day... And a Wonderful Wednesday to you! The day after... The day after all the election ads ended... What a beautiful day it is! Well, in January we'll have a new president, one that had a call to "change"... I sure hope we can change... The problem is what I want changed hasn't been on any candidate's agenda... That's because, as the Big Boss Frank Trotter so eloquently said the other day when I complained about the lack of talk on this subject, "They can't get elected if they talk about that"...

The "that" is simply the national debt, and how we'll deal with it as the baby boomers begin to draw on their entitlement programs... I think people now like to "live for today, and not worry about tomorrow" and that's a real shame. As I said a month or so ago... I'm going to have to sit down and write a letter to my sweetheart granddaughter, Delaney Grace, and apologize to her for leaving her generation with a debt load that requires a huge tax burden that her grand father didn't have, and a loss of freedoms, and life style, that her grand father had...

OK... Man that was a real somber way to get things rolling this morning, eh? Well, it's things that have to be said, even if the people running our country won't say them!

Alrighty then, let's get the beat going here, and start to rock and roll! The currencies really put on a display yesterday pounding out gains VS the dollar all day long. The euro actually traded up and through the 1.30 handle at one point in the day. But profit taking took hold later in the day, and carried over to the overnight markets of Asia and Europe. But still, as I turn on the screens this morning, the euro is managing to hang around 1.2875...

Euros weren't the only currency to see some lovin' yesterday, as the Aussie dollar (A$) added to its early morning gains after the rate cut by the Reserve Bank of Australia (RBA), and saw 70-cents at one point in the day! But as I said above, the profit taking set in as the day and night came, and it looked like the exit polls were pointing to an Obama win. These knuckleheads are thinking that an Obama win will speed an economic recovery... Ahhh grasshopper, if it were all so easy as changing the President!

U.S. stocks rallied all day, leading the "risk takers" back to the trading tables... That meant the yen and dollar were sold, and A$'s and kiwi were bought... That's the Carry Trade in a nutshell for you there folks. Yen traded above 100 for the first time in a couple of weeks, but has settled back below the figure in overnight trading, as the profit taking took hold.

Oil prices also surged yesterday by over $6, and Gold had a strong performance... But the commodities are going through the same thing the currencies are going through this morning... Profit taking...

Factory Orders for September printed yesterday and were weaker than expected. Posting a 2nd consecutive month of weakness, Factory Orders decreased by over $11 Billion, or 2.5%. Notice something here folks... Going back to yesterday's report on the ISM (manufacturing index) and now this Factory Orders, which is simply new orders for manufactured goods, and you have some real rot on manufacturing's vine... While there was rot before August, the real nasty stuff has been exposed since the end of July... And guess what else has gone on since the end of July? Come on, you don't have to be a Sherlock Holmes to figure this one out... It's the dollar rally! The dollar has rallied strongly since the end of July, and has pushed Manufacturing to the edge of the cliff... And from the looks of the ISM the other day, (recall it fell to 38.5 from 53) Manufacturing is teetering over the edge...

Some good news on the LIBOR borrowing rate... It narrowed 21 BPS overnight... It's still out of whack with what the markets believe it should be, but this is a good sign. Let's hope it's not a false dawn. If we can get borrowing costs lowered, to stop the currency swaps going on, and to apply some W-4 to the locked credit markets, then maybe, just maybe, you never know, we could get back to fundamentals! And those fundamentals have not been good lately... Speaking of fundamentals, there's none bigger than jobs...

Friday, is a Jobs Jamboree Friday, and right now, it doesn't look good for the U.S. employment picture as I think that it could show another loss of jobs and this time to the tune of at least 200K... We'll get a "sneak peek" at the report this morning, as the ADP Employment Change for October will print... As I've explained before, this ADP report gives an indication of the direction of what the Jobs Jamboree will print... ADP is forecast to show -100K, which would not be a good sign for the Jobs Jamboree...

Some readers questioned my thought yesterday that deflation was winning the battle VS inflation, and one person even thought that my call was completely off base... I know it had been some time since I took those economics classes in college so I looked up deflation just so I get it exactly right... Webster's says that Deflation is a contraction in the volume of money and credit relative to available goods.

Hmmm... Maybe the jury's still completely out on this, but in my mind this is a deflationary period we're experiencing right now, but still feel that soaring inflation is on the other side of this record... Yes, the "B" side has inflation in store for us... But then, that's just my view from the cheap seats!

But! If I'm right, and Lord knows I can be just as wrong as the next guy writing a letter every day for 16 years at 5 in the morning, then the precious metals, like Gold, will be big winners... And non-dollar investors will also wear smiles like a Cheshire Cat! And this dollar rally will have been proven to be the fraud it is... A bear market rally... But... If I'm wrong... Well, I think I'll just retire and ride off into the sunset... OK, I can't do that, I have a 13-year old that still needs to go to college in 5 years! But If I'm wrong, then I'll take my lumps and admit it like a big boy...

Thought I would pass along some news from beleaguered Iceland... We were able to get our maturing CD's this week, traded at a much better level this week, and the news is full of hope that this will continue. I was told that there is a semblance of a spot market taking shape for maturing forwards. There's still no deliverability or forward markets, as the largest banks in Iceland are still trying to deal with being taken over by the Gov't. I know that there is a lot of confusion with the price that's being reported on the internet for Icelandic krona. But believe me now and hear me later, that is NOT THE MARKET PRICE FOR KRONA! And if you think it is, call up the provider of the price and tell them you want to sell them krona at that price! OK... I'm getting a little upset right now, so I'll stop there... Just wanted to give an update...

Well... As I opined here, the euro got back on the rally tracks, and is back above the 1.29 handle... I guess the profit taking has ended for now, eh?

With the major news circling around the Presidential Election results there's not much left for those of us that are trying to deal with the Financial Crisis going on... So... With that void, for today at least, I'll head to the Big Finish!

Currencies today 11/5/08: A$ .6970, kiwi .6065, C$ .8675, euro 1.2955, sterling 1.5995, Swiss .8610, ISK (no quote), rand 9.5875, krone 6.6950, SEK 7.6825, forint 199, zloty 2.69, koruna 18.75, yen 99.10, baht 34.92, sing 1.4775, HKD 7.75, INR 47.44, China 6.8280, pesos 12.61, BRL 2.1120, dollar index 84.67, Oil $68.70, Silver $10.27, and Gold... $759.78

That's it for today... My friend, Addison Wiggin, sent me a note the other day, letting me know that the I.O.U.S.A. movie is going to be released in 35 new cities, and that soon a DVD will be available! I know I've banged on everyone regarding this movie and book, but it's truly a must see / read! Football is over for my little buddy, Alex. Now it's basketball time... I wonder if a coach tells him what a coach told me when I got to high school and went out for basketball... "you should stick to football"... (and I thought I was pretty darn good! HA!) Time to hit the send button... It's a great day, hope your Wednesday is Wonderful!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-984-0892

www.everbank.com

* Early withdrawal penalties apply. Fees may reduce earnings.

Bernanke looks to spend some more of our $...

Chuck Butler — Tue, 21 Oct 2008 15:37:42 GMT

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

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

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

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

EverBank is an Equal Housing Lender and member FDIC.

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In This Issue..

* Bernanke asks for more $...

* Credit markets start to thaw...

* Iceland may get help from the IMF...

* Goldman sees value in some currencies...

And Now... Today's Pfennig!

Bernanke looks to spend some more of our $...

Good day...

The dollar moved higher yesterday as Fed Reserve Chairman Ben Bernanke urged Congress for another stimulus package. Yes, Bernanke wants to spend a few more of our taxpayer dollars to try and keep Wall Street afloat. "With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate," Bernanke told a congressional panel. Others at the Fed echoed Bernanke's gloomy outlook, saying that the global credit crisis will chill US economic growth well into next year.

Bernanke is looking to Congress to send out additional stimulus checks in the hope that they will 'prime the pump' and get US consumers spending again. The govt. sent out about $100 billion in tax rebate checks over the summer to consumers, but consumer spending has struggled since then. Retail sales fell for three consecutive months through September. Bernanke says the moves to shore up the global financial systems seem to be working, but we now need to concentrate on getting the US economy growing again. "The stabilization of the financial system, though an essential first step, will not quickly eliminate the challenges still faced by the broader economy," he said. The FOMC which meets next week is expected to lower US interest rates to further stimulate the economy.

My thoughts yesterday were that Bernanke would have to come clean on the poor status of the economy, and his 'straight talk' would force the dollar lower. But Bernanke through a spanner in the works with his push for a new stimulus package. The prospect of a new government handout was enough to rally the dollar across the board, as it would have a positive short term impact on the US economy. But the markets continue to overlook the elephant in the room, we are going to eventually have to pay for all of this 'stimulus'. Helicopter Ben is certainly living up to his old nickname!

And have you heard any mention of inflation from Bernanke and his compatriots lately? With the price of oil dropping back below $75 per barrel inflation has been pushed back into the closet. Sure, the drop in oil has certainly helped ease consumer prices, but what about the unbelievable amount of money Bernanke and Paulson have thrown into the credit markets? This dramatic increase in money supply is pretty much the definition of inflation. I agree that a certain amount of 'bailout' was necessary, but taxpayer funded stimulus has become the drug of choice for this administration. Not only are US taxpayers on the hook for all of the debt Paulson and Bernanke have created, but we are also going to pay for it with an eventual spike in inflation.

But as usual, the markets have a very short term outlook; and the prospects of another stimulus package has the stock market rallying and the dollar moving up with it. Investor confidence has also been buoyed by a drop in the short term Libor rates. This drop confirms that the central bank efforts are working to thaw out the recent freeze in short-term lending. And the efforts to shore up banks continue. Overnight, France announced it would inject 10.5 billion euros into BNP Paribas, Societe Generale and four other domestic banks.

The Czech koruna slipped for a second day against the euro after Deputy Prime Minister Alexandr Vondra said he is uncertain whether the government will survive a no-confidence vote tomorrow. Hungary's forint also fell to a two year low versus the euro. The political uncertainty is weighing heavily on the Czech currency, but the odds are that the Czech govt. will survive the vote. The Czech currency also fell as traders bet the Prague-based central bank will lower interest rates at their meeting on November 6th. The eastern European currencies have been getting sold as investors worry the slowdown in western European economies will also impact growth rates in the eastern countries.

We were unable to sell the Icelandic krona from maturing Icelandic CDs yesterday, as we were told by our currency traders that there was 'no bid' for ISK in the markets. But hopefully this situation will improve as the Icelandic central bank announced last night that it was close to finalizing a $6 billion IMF-led rescue package. The IMF is expected to provide about $1 billion in emergency cash for Iceland with the balance lent by Norway, Sweden and Denmark and additional money possibly coming from Russia and Japan. But Economists gave warning that $6 billion would not be sufficient to refloat Iceland's devastated banking system because the Government needs so much foreign currency to buy basic supplies for Icelanders. We continue to work with our currency dealers to try and work out a solution for holders of this currency. I just hope the currency markets will open back up following the proposed IMF bailout.

I read a research report from Goldman Sachs yesterday which made a compelling argument for the currencies of South Africa, Mexico, and Australia. The report stated that these currencies are undervalued by more than 20 percent based on inflation, productivity and terms of trade. The three have been the worst performers over the past month with the Rand falling nearly 25% vs. the US$ and the others falling almost 20%. The currencies "offer considerable value from a medium-term perspective," Jens Nordvig, a Goldman strategist in New York, wrote in the research report. "Any evidence that currencies are becoming less closely linked to equity market trends would be an indication that valuation signals are closer to becoming important trading signals again." According to Nordvig, the South African rand is the cheapest, followed by the currencies of Norway, Australia, and Mexico. All trade at discounts of more than 20 percent to both current and 12-month estimates.

Speaking of undervalued, have you seen the price of Gold lately? It still doesn't make sense to me, as our dealers continue to tell us they can't get any 'physical' metals. The basic law of supply and demand tells me that if there is a shortage of metal in the markets the price should be moving higher. The price of Gold and Silver look like an excellent buying opportunity to take a position or average down on existing positions.

You can always find value in markets. Over the long term, the best time to be buying is when everyone else is looking to sell. In my opinion, diversification of a portfolio into / across several different asset classes is the most important factor in reaching your financial goals. Investors need to set their emotions aside, and make investment decisions based on fundamentals. Staying focused on the long term goal will help you avoid the pitfalls of short term 'emotional' trading which typically locks in big losses.

Currencies today 10/21/08: A$ .6853, kiwi .6119, C$ .8292, euro 1.3208, sterling 1.698, Swiss .8679, ISK (No Quote), rand 10.33, krone 6.7084, SEK 7.5330, forint 207.52, zloty 2.7303, koruna 19.1385, yen 100.88, baht 34.41, sing 1.4813, HKD 7.7550, INR 49.09, China 6.8338, pesos 13.0438, BRL 2.1475, dollar index 83.52, Oil $73.50, Silver $9.815, and Gold... $777.66

That's it for today...I a little wore out this morning as I was up late tiling my basement floor. My wife and I decided to finish out our basement a few months ago, and I decided to do much of the work myself. My wife suggested we hire a contractor to do most of the work, but I actually enjoy doing projects so I convinced her to let me do a majority of the work. But this project (as many do) has turned into a much larger one than I had anticipated. After spending more than a full day at the office I hardly feel like heading downstairs to do 'manual' work on my hands and knees. With a big push tonight I should be done with the floor, but I'm finally starting to think my wife may be right when she keeps telling me to hire out the rest. I just hate to admit she was right (again!). Hope everyone has a Terrific Tuesday!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Govt to follow Buffet's lead...

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

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

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In This Issue..

* Govt to follow Buffet's lead...

* Aussie $ has biggest gain ever...

* Yen reverses on carry trades...

* China's currency reserves rise...

And Now... Today's Pfennig!

...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Fed floods the markets with US$...

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

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

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. 10/13 - Chicago

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EverBank is a Member FDIC and Equal Housing Lender.

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In This Issue..

* Bernanke gets help opening the spigot...

* Euro and Pound rally...

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

* Aussie $ rallies...

And Now... Today's Pfennig!

Fed floods the markets with US$...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Now on the the big finish:

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

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

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Coordinated Rate Cuts!

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

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

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

Coming to a location near you:

. 10/13 - Chicago

. 10/14 - St. Louis

. 10/16 - Philadelphia

. 10/18 - Ft. Lauderdale

. 10/20 - Jacksonville

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

EverBank is a Member FDIC and Equal Housing Lender.

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

In This Issue..

* Yen trades to 98!

* Carry Trades unwinding hurt high yielders...

* Gold rallies back to $900!

* Central Bank rate cuts....

And Now... Today's Pfennig!

Coordinated Rate Cuts!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Iceland Melts Down...

Chuck Butler — Tue, 07 Oct 2008 14:20:17 GMT

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In This Issue..

* RBA cuts rates 100 BPS!

* Iceland to peg the krona...

* High Yielders get whacked!

* Gold rallies in the face of a strong dollar!

And Now... Today's Pfennig!

Iceland Melts Down...

Good day... And a Terrific Tuesday to you! Well... Folks... The wheels, what was left of them, are really coming off this economy. It's a sad sight to see, but it's happening nonetheless, and there's no bailout, stimulus check, mortgage bill, truck loads of money supply, or whatever, that's going to stop this recession bus.. Memo to Paulson and Bernanke... Don't throw yourself under this recession bus...

Well... The dollar continued to push the envelope against a handful of currencies yesterday. Up front and center, the high yielders got beaten about the head and shoulders by the dollar. Aussie, kiwi, real, rand, all took major hits from the dollar. It was one of the worst days I can remember seeing for these currencies. This huge sell off showed two things going against the high yielders... 1. Commodities (other than Gold) are getting whacked, and 2. The Carry Trade is Dead...

To add insult to injury, the Reserve Bank of Australia (RBA) surprised the markets with a shock 100 BPS rate cut last night. A short-lived rally in Aussie after the announcement leads me to believe that interest rate expectations are not driving currencies right now. Instead, we've got the same kind of strange thinking in the markets, much like in 2001 and 2002, where the markets rewarded currencies that had Central Banks that cut rates to promote growth... It was the first time I had seen currencies gain after being debased, but it was there right before my eyes, and now, this... It could be happening again...

Yesterday, Japanese yen actually traded for a good part of the day with a 100 handle! That was a 3.5% gain in one day VS the dollar! Talk about the Carry Trade being dead... WOW! I looked up from my attempt to work through trading yesterday and saw yen with a 100 handle, and shouted out... "Hey! Look here everyone, yen is 100, I told you all that yen would get to 100!" Then some smart alec yelled back... Yeah, you said that two years ago, now sit down and trade currencies! HAHAHAHAHA! Funny guys...

On the Very Serious side folks, is the news that we came across yesterday when attempting to deal in Icelandic krona... There was no forward market! Dealers would only quote spot transactions! The banking crisis had reached a point that basically shut the markets down. The currency dropped 33%!!!!! This was Serious Stuff folks, I was scrambling around trying to find a forward market so our CD's could roll to the next maturity... But there was none... Well, maybe one could be found if the buyer wanted to take HUGE LOSSES... One's that were 1000% away from the previous week's bad forward points.

Basically, what happened is that, as I reported yesterday morning, the Icelandic Central Bank was waiting to hear from the Nordic Central Banks regarding a bailout, when they had to take the second largest lender, Landesbanki, into receivership... This news spread quickly, and caused the currency to drop to depths not seen in recent years. Since then Iceland has announced that they had received a 4 Billion euro loan from Russia to provide the banking system help and liquidity.

Now... The Central Bank has announced plans to peg the Icelandic krona to the euro at a value of 131. So... Like I said above, there is no forward market, the Icelandic krona CD's that remain will have to be closed when they come due. And they can NOT be traded / broken ahead of maturity, as there is NO FORWARD MARKET. A sad ending to what was once an exciting currency to be in... But had faded badly since early this year when the banking crisis arrived on the Icelandic scene.

So... There are a lot of theories as to why the dollar continues to rally in the face of increasing debt burdens, job losses, factories nearly shutting down, etc. In the end it really is just a case of the U.S. and Europe being in a bind, and them coming back to dollars as a safe haven... There's the CDO's unwinding, there's the capital requirements on toxic waste bonds, there's a ton of things going for the dollar right now, and I won't deny it... Which is why I said yesterday, that I needed to go sit in a corner with my back to the room, for not seeing this ahead of time... I was so myopic about all the bad stuff causing problems for the dollar, and didn't see the bad stuff causing dollar strength... Just didn't make sense to me, the dollar looked like it didn't have a prayer...

OK the focus today, since the data cupboard is basically in need of a trip to the grocery store, will be on speeches... First, European Central Bank (ECB) President, Trichet, will speak at the World Policy Conference in France. That will be followed by Big Ben Bernanke talking at a Capitol Hill boondoggle. Fed Head, Stern, will speak in Chicago on Financial Shock, which should be quite current, eh? I think the thing to think about here is that Trichet, and the hawkish Fed Heads, including Big Ben, remember he said in June that he was an inflation fighter, are all going to have to back off their hawkish statements... This is not the time to be putting the fear of higher interest rates into the markets...

Things like the Wall Street Journal (WSJ) reporting yesterday that Bank of America announced a cut in their dividend by 50% and raise $10 billion through the sale of common stock. Tell me that fundamentally the U.S. economic position is teetering... So, will the dollar's run be short-lived? Well... As far back as July I was telling anyone that would listen to me that I thought the dollar strength would last through the elections and probably through year-end. So... That's my story and I'm sticking to it.

We will see the color of the Fed's FOMC meeting minutes from last month's meeting... One would think that it would be, if they were honest with themselves, a picture of an economy in shambles... Plus that was the time when all the you know what was hitting the fan with Fannie and Freddie, IndyMac Bank, AIG, and a host of other problems... Should be interesting reading... If it isn't, then they were hiding things...

OK... Let me go through this Gold and Silver stuff again... Some of you missed class the last time I talked about this, so here goes... The metals dealers don't have ANY supply of coins or bars, PERIOD! Metals dealers haven't received shipments in some time. The minters had stopped minting because of a backlog in orders. It really is a HUGE mess! And there's nothing we, the dealers, or minters can do about it.

Now... I know what you're saying... But Chuck, if there's a shortage, the price should be going through the roof for the metals... And to that I would say, you are correct sir! (and Ladies!) Can you say, hanky panky? There's hanky panky going on here folks...

BTW... Gold rallied yesterday... Oil was down... The dollar was up... And Gold rallied? That seems strange to even type much less say! But it's true , it's true, I did see a Gold rally! And... It's rallying again this morning, up $22 right now on the day!

So, the turmoil in the markets continues today... Stocks were off 800 points at one point in the day yesterday before rallying back to close down "only" -370 points... The DOW is now trading below the 10,000 level... YIKES! All I can say is that I'm glad I sold all of my stocks last October! I have no idea what moved me to do that, except that I saw this all coming, as I had chronicled in the Pfennig, and for once in my life I have someone who needs me, no wait, for once in my life I acted on my thoughts for the market!

The euro seems to be in a mini-rally this morning, as I've seen it move higher throughout the time I've been here writing. There was profit taking in Japanese yen overnight, and the currency is trading back to 102, but 102 is still better than 110! I see where China's renminbi moved higher VS the dollar, the most it has in one day, in 7 months! Remember, China was on holiday all last week, and therefore left the renminbi unchanged on the week... But that was quickly changed in the first two trading days, and that has to be a good sign for all that talk about a China slowdown!

The Chinese government indicated that the move downward in the renminbi before the holiday was too much, and that they want a "stable currency" to stabilize their markets. Makes sense, eh?

Our little Christine told me last night when we were leaving that she had received a truck load of CD breaks for this morning. UGH! This is not the time to sell into this kind of a market folks... It's akin to catching a falling knife! But... It's obvious that they are in panic mode, which I don't blame them... I don't know their personal investment situations... According to FDIC, CD holders must have a "financial reason" and a "need for the funds" to break a CD... So, that's all I have to go on!

Currencies today 10/7/08: A$ .7160, kiwi .63, C$ .9070, euro 1.3585, sterling 1.7450, Swiss .8760, ISK (no quote), rand 8.8130, krone 6.1825, SEK 7.1250, forint 183.90, zloty 2.5350, koruna 18.07, yen 102.10, baht 34.52, sing 1.4640, HKD 7.7660, INR 47.95, China 6.8170, pesos 11.93, BRL 2.1790, dollar index 81.24, Oil $90.40, Silver $11.63, and Gold... $882.25

That's it for today... I made it through a whole Pfennig without talking about the Bailout Package! YAHOO! I arrived home late last night, but in time to see my darling little granddaughter, Delaney Grace, who is really a cutie! She dropped something and said UH-OH! Cracked me up! She sure loves her uncle Alex (my little buddy). She just lights up when he comes into the room. Hugs him, kisses him, hangs on his leg, it's so darn cute! Long time colleague, Jennifer, had her son, Drew, here for a few minutes yesterday, he's getting so big! OK, enough kid-talk! Go a chance to spend some time with the Big Boss, Frank Trotter, yesterday... That's a treat, as he is always gone or on busy with something... We'll both be in New Orleans this year for the New Orleans Investment Conference... It's only about a month away! You can look up the Conference by going to: http://www.neworleansconference.com/ AND! If you're interesting in signing up, please use this link to do so... http://www.jeffersoncompanies.com/affiliate/affiliate_process.php?icode=confreg&acode=EverBank

Time to go... Hope your Tuesday is Terrific!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

The Bailout Lives!

Chuck Butler — Wed, 01 Oct 2008 14:35:31 GMT

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

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In This Issue..

* The Senate to the rescue?

* Dollar rallies big time...

* Rumor day...

* Consumer Confidence stronger?

And Now... Today's Pfennig!

The Bailout Lives!

Good day... And a Wonderful Wednesday to you! Welcome to October! Or as we say in St. Louis... Rocktober! September went by in a flash, let's hope Rocktober slows down a bit!

Well... Monday we had carnage in stocks, and yesterday in currencies, while stocks rebounded. What a difference a day makes! On Monday, the House voted down the Bailout package (doesn't it just get your goat that it's still being referred to as the "rescue plan"?), and yesterday, seeing the collateral damage caused by the "no" vote, Congress decided to try and rescue the bailout plan.

And that, folks, is the story on the day... Stocks kicked sand in the face of other investments, currencies and Gold got taken to the woodshed, and all because Congress is going to try and rescue the bailout plan. I have to ask those that made these trades based on this latest development in the bailout package... "Will the passage of this bill prevent the U.S. from sinking deeper into the recession we're currently in?" According to those that want to instill "fear" in us (by the way doesn't this all seem like déjà vu?), the whole economy will seize up and fail to operate if the bailout package doesn't pass. That may be true... But, does the taxpayer really have to foot the bill?

I mean (I know you're saying, here he goes again on his soapbox), come on! These guys led us to the river with their exotic mortgage options, no proof of information applications for loans, and the Fed with their low interest rates and liquidity out the, well, let's just say a lot of liquidity! But when they get their hands caught in the cookie jar, they come running back to the U.S. taxpayer!

Eurogroup Chairman Jean-Claude Juncker said in an interview this morning that "Bank rescues shouldn't cost taxpayers anything"

Regarding liquidity... A reader sent me a nice tally sheet of "injections" of liquidity that the Fed has done in the last two weeks... And the total "injections" have been $900 Billion in the last two weeks. (some are done and some are announced) The reader was as confused as I am regarding this dollar strength... "all this liquidity and the dollar is still up, and commodities are still down... Go Figure."

Well... Currencies and Gold have had a tourniquet wrapped tightly around them to stop the bleeding, and the euro has rebounded from 1.4025 to 1.4160. Martin McMahon, a Zurich based currency strategist for Credit Suisse Group had this to say about the dollar's rally yesterday... "We don't think that what we've seen over the last month is the beginning of a sustained dollar rally. There are still lost of problems for the dollar."

Couldn't have said it better myself!

OK... Months ago I told you about a pending banking crisis in Iceland, and how the market makers were cutting our ability to pay the high interest rates that reside in Iceland. Well, that banking crisis finally came to the front of the class on Monday as an Icelandic bank failed... Then yesterday Fitch lowered their sovereign debt rating. When we went to the markets to buy some krona we got a rude awakening! The markets are now charging us to hold krona forward! So... Now the interest rates we can pay are zero, and should actually be negative! And the krona? I just cringe talking about this currency... But it has fallen to 107.60. What a shame...

So... Let me tell you about the latest rumors that are spreading across the markets... And that is... Drum roll please... A coordinated round of rate cuts by Central Banks... The European Central Bank (ECB) meets tomorrow, so we won't have to wait long to see if this is in fact more than a rumor. Of course these rumors contradict what ECB President Trichet said last week, that the ECB isn't interested in coordinated rate cuts... But, there you have it! I just don't see the ECB bending their Maastricht Treaty mandate to provide price stability, and cut rates to debase the euro, just to help the U.S. and their dollar / credit crisis/ liquidity problem...

And... This morning, Germany, the European Union's largest economy, posted a very strong Retail Sales number for August. Retail Sales for August in Germany, rose the most in almost 2 years! Falling energy prices are being made out to be the hero/cause of increased consumer spending during the month. OK... You know me... One swallow does not make a summer... And one strong Retail Sales print doesn't make a turn-around in the German economy... But it's a start! And... The way things were being talked about for the German economy, one would think that Retail Sales would have been negative, and the sky would be falling! But... There's a ray of light... Let's hope it continues to shine, eh?

I'm also hearing rumors that in China, the factories haven't started up again, after being shut down for a couple of months before the Olympics so that the athletes could breathe... This is alarming news to me, for I figured China would spool right back up after the Olympics... I'll have to do more follow up on this rumor... But it could explain the stuck in the mud movements of the renminbi lately...

Add to the rumors about China, the story I saw this morning that India's manufacturing has slowed to the slowest pace in 14 months... Obviously, a slump in demand is going on here, which isn't a good thing for the Indian economy. The rupee has gotten sand kicked in its face for months now without any reprieve, and apparently, the Central Bank couldn't give two hoots about the rupee's situation... The Central Bank first caused the rupee's problems, as they intervened to stop the gains... They had better think about intervening now to stop the run off!

Yesterday's data was a real head scratchier! The S&P/CaseShiller House Price report showed more rot on housing's vine... But get this! Consumer Confidence gained! And not a tick here and there! Consumer Confidence was much stronger! WHAT! ARE YOU KIDDING ME? No... I wouldn't kid you Chuck! I shake my head in disgust... Pardon me for a minute as I go scream at the walls...

OK, I'm back now... Geez Louise, who are these surveyors talking to? Bill Gates? Warren Buffett? Britney Spears? HA! I just don't get it... But then, I don't get a lot of things these days... So, I remind myself that this is all "daily noise" and has nothing to do with the fundamentals!

Today, the data cupboard will yield The Challenger Job Cuts data, and the ISM Index (manufacturing) for September. The ISM should remain below the line in the sand at 50... For new readers, the ISM index line of demarcation is 50... Any number above 50 represents expansion, and any number below represents contraction... The number has been below 50 for over 6 months now...

So... We head into this Wonderful Wednesday with the currencies trying to win back friends and influence enemies, Gold rebounding again, and Congress contemplating the bailout package... Looks like another crazy day in the markets... Oh, and stock futures are down, so the roller coaster ride in stocks continues.

Currencies today 10/1/08: A$ .8015, kiwi .6785, C$ .9450, euro 1.4150, sterling 1.7840, Swiss .8960, ISK 108.93, rand 8.2590, krone 5.8440, SEK 6.8710, forint 170.77, zloty 2.39, koruna 17.35, yen 106, baht 34, sing 1.4320, HKD 7.7680, INR 46.70, China 6.8450, pesos 10.93, BRL 1.9040, dollar index 79.07, Oil $100.80, Silver $12.24, and Gold... $873.15

That's it for today... Good thing I get here before anyone else... This morning I arrived and parked my car, and then one of my all-time fave songs came on the radio, and I sat there and sang along... Ferry 'Cross the Mersey, by Gerry and the Pacemakers... I used to sing that to my little buddy when he was a little guy, and I rocked him to sleep... Now, he's 13, and playing football! I don't think he would remember me singing to him, and I'm sure he doesn't want to sing to him now! HA! The baseball playoffs begin today, just seems kind of empty not having my beloved Cardinals playing! We have John Kimsey from Jacksonville on the trading desk this week, helping us out during these high phone traffic days... Good deal! Let's see what the Senate comes up with today, and I'll talk about it tomorrow! Until then, have a Wonderful Wednesday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Dollar's Mini-rally ends...

Chuck Butler — Tue, 24 Jun 2008 14:15:00 GMT

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In This Issue..

* Record iron ore price!

* Ben Stein in the Pfennig!

* Top 11 currency returns...

* Mogambo on Gold...

And Now... Today's Pfennig!

Dollar's Mini-rally ends...

Good day... And a Terrific Tuesday to you! The dollar's mini-rally yesterday stalled overnight, and once again the dollar bulls are having to cover euro shorts they put on. Yes, they NOW believe the Fed will not come through on it's claim to be an inflation fighter, and leave rates unchanged. That will keep the positive yield differential in the euro's favor (well, it would have anyway, but it keeps it unchanged).

Remember though, who called out Fed Chairman Big Ben Bernanke when he said early this month that the "falling dollar had caused an unwelcome increase in inflation, and that he was "attentive" to the problem." Hogwash, said I!

Well... Now everyone is coming around to the "right way of thinking"... I see that 101 economists that were surveyed by Bloomberg say the Fed will keep rates unchanged tomorrow... In 6 weeks from now, we'll most likely see that say kind of survey, as the FOMC will prepare to meet again, and so on and so on... The Fed is an inflation fighter like I have the body of a Greek God! HAHAHAHAHAHAHA!

The Aussie dollar is back on the rally tracks this morning after it was announced that Rio Tinto is reported to have agreed average iron ore price increases of 80% with China's largest steel maker Baosteel group. That puts iron ore at a record price, and the Chinese have agreed to pay it! That just brings more revenue to the Aussie Treasure Chest, which helps narrow the Trade Deficit and so on... As I keep saying, I like Aussie to outperform kiwi, because of the astronomical Trade Deficit in New Zealand VS the narrowing Trade Deficit in Australia, and this story plays well with that thought!

And here's a story you'll like to hear, that is, if you are a fan of the Canadian loonie! Bank of Canada (BOC) Deputy Gov. Kennedy said yesterday that sub prime lending only accounted for less than 5% to total mortgage lending in Canada, and that the housing market does not appear to have the excess supply that weighs down the U.S.... OK... That's great news! Now... Keep those rates from falling any further!

I was watching a piece of the Glenn Beck show last night, and he had Ben Stein on as his guest. Ben Stein has long been a guy that has seen the problems with the dollar, and last night was no exception. When asked about the falling dollar, he said, that it will continue to fall because of the ever growing Fiscal Deficit and the large Trade Deficit. I would say that he does NOT subscribe to the "Deficits Don't Matter" crowd, eh? That means he's tops in my book!

My friend and former colleague, David Galland, reported this week that well respected investment analyst Dennis Gartman had reversed his call to sell Gold... I told you about the time I met Dennis Gartman in New Orleans last fall, that was pretty interesting... Good to see him back on the Gold bandwagon!

That news didn't help Gold yesterday though, as it fell like a rock right after I hit the send button on the Pfennig... Looks like Gold Traders are being influenced by what Big Ben might say after the rate announcement tomorrow... To me... This sell off yesterday looks stupid, which means it looks like a buying opportunity to me... Shoot Rudy, Gold was $22 cheaper yesterday than the day before! The shiny metal has gained back of that loss and is up $6 this morning, so most of that "buying opportunity" has been lost... But, let me point out that Gold is still below $900!

My friend, the Mogambo Guru, ends his letter each week with a note about Gold... I absolutely love they way he presents this note... So, I'm going to borrow it and put it here... Here's the Mogambo on buying Gold...

"The Mogambo sez: You have two choices. For one, you can buy silver and gold and watch in delight as it goes up in price as the value of the dollar goes down, and make delighted squealing noises ("Whee") as you wax rich.

Or you can not buy silver and gold (thus reducing demand and making it cheaper for me to buy your share, for which I say thanks!), and then watching in horror as the purchasing power of your precious dollars and dollar-denominated assets go down and down, making prices go higher and higher, month after month, until it reaches a crescendo and everything collapses in chaos and brutal mayhem, after which things really get really, really bad.

It's nice to have a choice, eh?"

You've got to love that Mogambo!

Oh... You may remember last week when the price of Oil fell about $6 because the Saudi's announced a production increase of 200,000 barrels of Oil a day... Well... It now looks as though that's not enough to make a dent in the demand deficit... Once Oil traders got wind of this, they began to mark up the price of Oil again... $138 is where it stands this morning... That's not a good thing, folks... So, one has to wonder, once again, what the heck our leaders are doing about this?

Oh, and I'm not talking about investigating the Commodities/ Futures market... I've got ideas on this, but this is not the place or time... If you ever see me out on the speaking circuit be sure to ask me... That is if you've got an hour to spare! HA!

Speaking of Oil trading... Did you see that according to congressional findings cited in a Wall Street Journal report... that Speculators now account for about 70% of all benchmark crude-oil trading on the New York Mercantile Exchange, up from 37% in 2000? Why not? It's a free country last time I checked, and investors can buy Oil Futures just like anyone else... And if there's a chance you can make a shekel or two, why not?

OK, I'm not saying, go out there and spend all your cash that you have stored away in coffee cans buried in the back yard, and buy Oil Futures... I'm just saying that it doesn't surprise me on iota that this market has grown so much...

The data cupboard gets restocked today with the Case/ Schiller Home Price Index for April... Look for the price index to have fallen about 16% from a year ago... We'll also see the color of the latest Consumer Confidence report for June... Look for Confidence to have fallen even further than May's awful reading of 57.2.

So, unless we see a hiccup in Consumer Confidence today, the dollar should be pressed to rally.

Well... There was a currency that got routed yesterday... The Icelandic krona... The Banking Crisis going on there came to a head and the currency just got taken to the woodshed. It's so bad that the Icelandic Prime Minister thought he had better come to the aid of the currency, saying that the currency, "is likely to stabilize at a stronger level"... The PM also said that Icelandic banks are "more healthy than they appear"...

I hate to say this, but that sounds to me like a General Manager in Baseball giving his manager a "vote of confidence", only to fire him a week later... I sure hope I'm wrong here, Iceland deservers better... Unfortunately, things just got to heated for such a small country to bear.

Yesterday, I was doing some research for something I'm writing, and I noticed that the top ten currencies year-to-date are all my list of currencies to look to except two #7 Taiwan dollars and #9 Mexican pesos... But for those of you keeping score at home, the list goes like this: 1. Brazilian real, 2. Aussie dollar, 3. Swiss franc, 4. Swedish krona, 5. euro, 6. Danish krone, 7. Taiwan dollars, 8. Norwegian krone, 9. Mexican pesos, 10. Singapore dollar and just for fun, 11. Japanese yen

The Brazilian real is the winner by far though, racking up a better than 10% gain VS the dollar so far this year...

The Chinese renminbi put the brakes on last night... After a week of strong moves VS the dollar, the renminbi applied the brakes as it appears China might be trying to deter speculators from making what they believe to be "one-way" bets on the renminbi. The problem here is that the Chinese won't follow that one day "hard stance" with about a week of the same... I'm not saying that the Chinese "don't get it" what I'm saying is that I don't believe they really truly want to deter speculators...

Currencies today 6/24/08: A$ .9540, kiwi .7560, C$ .9845, euro 1.5560, sterling 1.9645, Swiss .9610, ISK 84.45, rand 8.0750, krone 5.1250, SEK 6.0440, forint 153.72, zloty 2.1625, koruna 15.49, yen 108, baht 33.50, sing 1.3670, HKD 7.8075, INR 42.96, China 6.87, pesos 10.32, BRL 1.6125, dollar index 73.33, Oil $138, Silver $16.85, and Gold... $889.50

That's it for today... For those of you in the Pittsburgh area... Did you see the story in the Post-Gazette, by Tim Grant, on the diversifying into currencies? I was interviewed for that story and he mentions some of my quotes... Of course I gave him more, but I guess they were left on the editor's floor. Back on the cancer meds this week... I decided to go back on them myself... I'm sure in about a week I'll be second guessing myself, but why not give it one more run? Lots of readers have sent me notes lately asking about my health... Thank You! Now it's time to say good-bye, so... I hope you have a Terrific Tuesday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

US Housing Continues to Slump

Chuck Butler — Fri, 16 May 2008 15:41:00 GMT

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In This Issue..

* US housing continues to slump...
* FOMC to reverse course...
* Nordic Banks help the Icelandic krona...
* Carry trade weighs on the yen...

And Now... Today's Pfennig!

US housing continues to slump..

Good day... And Good Morning from beautiful downtown Panama. Chuck had to get on a plane back to St. Louis early this morning, so he asked me to pfill in this morning. The dollar mostly traded within a range vs. most of the major currencies yesterday as negative news from the US was offset by predictions of a possible FOMC rate rise. The biggest movers yesterday were the commodity currencies and the ISK which was helped by the Nordic central banks. More on that later, but lets start with the data due out in the US.

The Reuters/University of Michigan consumer sentiment index will likely show a drop to a 26 year low when it comes out later this morning. The other major report released today will probably show housing starts in the US fell to a 17 year low in April. Home construction and property values "seem likely to decline well into 2009," Federal Reserve Bank of San Francisco President Janet Yellen said earlier this week. And a jump in foreclosures, as values fall and adjustable rate mortgage costs rise, is adding to concern. Foreclosure filings climbed 65 percent and bank seizures more than doubled in April compared with a year earlier, according to figures issued this week.

The US economy is in a recession, and the over leveraged US consumer won't be able to ride to the rescue as they have in the past. And I don't expect the stimulus checks to help much either, as they are way too little too late. The fundamentals of the US economy don't look good and this dollar rally will not last past the end of the second quarter. But short term, we could see additional dollar strength as investors focus on future FOMC moves.

Both the Federal Reserve and the Bank of England have had to admit inflation is rising faster than they expected, leading currency traders to predict an end to their interest rate cuts. Higher inflation numbers have caused future traders to increase their bets that the Fed will reverse recent cuts later this year. This change in sentiment has helped push the dollar higher, but the move will likely be short-lived as the markets will realize the FOMC is just too far behind in their fight with inflation. As prices continue to move higher, the US economic growth will slow even further and the dollar will resume its steady decline.

Nordic central banks rode to the rescue of the Icelandic Krona this morning as they announced they have agreed to provide as mouch as 1.5 billion euros in emergency funds to Iceland's central bank. We've written at length about how the credit crisis has spilled into the Icelandic banks, and recently the liquidity in the ISK has all but dried up as currency dealers questioned the financial stability of the Icelandic central bank. Traders have been concerned the Atlantic island's commercial banks may seek help from Sedlabanki (Iceland's central bank) which doesn't have the funds to bail them out. While the size of the swap agreement wasn't large enough to move the krona, the announced cooperation seems to have restored at least some of the lost confidence. With the support of the central banks of Norway, Denmark, and Sweden, the Icelandic krona rallied more than 4.4%, the biggest gain on record.

In other news from the Nordic region, the Danish central bank raised its benchmark interest rate by .1% to 4.35% today.

Japan's economy grew faster than economists estimated as exports to the rest of Asia helped offset the US slowdown. Gross domestic product in the 1st quarter of 2008 grew 3.3% in Japan, well above estimates. Net exports accounted for most of Japan's growth as demand from Europe and Asia continues to be strong. The figures coincide with reports released yesterday showing the German economy expanded at the fastest pace in 12 years. Both of these reports confirm our thought that the global economy will not be dragged down by the slowdown in the US.

But the currency markets ignored the positive surprise in Japan and the yen continued to sell off. As Chuck pointed out earlier in the week, the carry trade is back as market volatility has eased. Japan's currency slid the most against the AUD$ and NZD$, both of which benefit from the return of the carry trades. With the markets generally range bound, volatility has decreased encouraging investors to borrow funds in the nations with low rates and invest where returns are higher. This weeks sell off of yen reflects a return to risk-taking activity and a revival of carry trades. Ultimately the currencies will return to trading on economic fundamentals, but for now the carry trade is continuing to dominate.

Currencies today 5/16/08: A$ .9449, kiwi .7675, C$ .9992, euro 1.5457, sterling 1.9479, Swiss .9465, ISK 74.43, rand 7.4835, krone 5.0855, SEK 6.0402, forint 160.20, zloty 2.1922, koruna 16.16, yen 104.77, baht 32.285, sing 1.3715, HKD 7.80, INR 42.65, China 6.9950, pesos 10.436, BRL 1.653, dollar index 73.28, Oil $125.58, Silver $16.81, and Gold... $886.90

That's it for today... Had a great dinner with the folks from the Sovereign Society last night. I know it sounds like I came down here to Panama kicking and screaming, but this conference has far outweighed my expectations. The investors are knowledgeable and excited by the opportunity to diversify out of the US$. Hopefully I will be able to convert a few of them over to the EverBank family. Got to get back downstairs now as I don't want to miss an early presentation by one of last night's dinner hosts. Hope everyone has a Fantastico Friday and a great weekend!!

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

The Fed Throws Us To The Inflation Wolves...

Chuck Butler — Wed, 02 Apr 2008 18:13:00 GMT

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In This Issue....

* Dollar rally continues...
* A Big Time Challenge...
* An Iceland note...
* Carry Trades still have life!

And Now... Today's Pfennig!

The Fed Throws Us To The Inflation Wolves...

Good day... And a Wonderful Wednesday to you! I'm draggin' the line this morning, so if I seem to trail off at times, it's simply that I started to nod off while writing! Nah! That couldn't happen, could it? I guess we'll see!

Well... The dollar extended its mini-rally again yesterday... You know, I've just got to chuckle at some of these guys that write for the media... The dollar has a two-day rally, and you would think, by their writings, that the weak dollar trend is a thing of the past! I would argue quite differently, as you would expect!

We've seen these "flash in the pan" dollar rallies before... We've seen quite a few of them during the 6 year weak dollar trend... As I always try to emphasize in my presentations... A trend is NOT a One-Way Street... There is always volatility, and this is what we're seeing right now... This is NOT a Trend reversal, as far as I'm concerned... It's not a crying time... It's a buying time... Well, it's buying time again... WOW, even Englebert Humperdink gets some air time in the Pfennig!

Yesterday, I told you about how there's a chance that Iceland's banks could see a financial crisis... Well... Iceland's Central Banker, Fridriksson, says that Iceland's economy and banks are "sound"... He cited the strong performance of the aluminum smelters, the fishing industry, and his budget surplus... He also cited the banks as "sound" and noted that "they are affected by the same situation in the global financial markets like banks everywhere, but we have no subprime exposure."

OK... That's a warm and fuzzy... Maybe he's throwing up a smokescreen and maybe he's bang on... I just have to question the "soundness"... One of my fave economists, Nouriel Roubini recently wrote that, "Doubts over the health of its highly-leveraged banks came to the fore this week. The fear is that the government will be unable to support the banks if the banks run into trouble."

WOW! You should have seen the email that a reader sent me yesterday from a very well respected analyst, Jim Sinclair... I've followed Jim Sinclair's writings for some time, and he is usually bang on with his stuff... Well... He has issued a challenge to anyone questioning his call for a much higher Gold price for the next 3 years... Bloomberg, CNN, CNBC, anyone willing?

So... If Jim's formula for calculating Gold prices is correct, and I have no reason to believe it wouldn't be, Gold has got to be at bargain basement prices right now, eh?

Well... It seems that the Fed is willing throw any dollar they can get their hands on at the current financial crisis... At what cost though? Money Supply is surging and was even higher in March than the record level of February... So, it seems to me that with their decision last week to accept mortgage backed securities from Brokers as collateral, interest rates being cut to the bone, and Money Supply surging, that the Fed has decided to throw caution to the wind of inflation...

I know I must sound like a broken record / scratched CD for the younger people, regarding the Fed's lack of attention to inflation... But mark my word... We'll all regret the fact that the Fed allowed inflation to eat away at our wallets, while they went about "saving the world"... They are throwing us to the inflation wolves...

OK... So... I'll get down off my soap box now... Big Ben Bernanke will speak to Congress this morning on the economy... I wonder what he has up his sleeve... Speak the truth Big Ben... You'll be remembered in a kinder light in the future if you just come clean...

We'll see the color of this month's ADP Employer Service's report today... This ADP report used to give us an indication of the monthly Jobs Jamboree, but recently, it has been all over the board... Anyway, the ADP report is expected to show a loss of 45K jobs last month... Sounds about right to me...

As I look at the dollar the past two days, I see a currency that probably rose by default... What else could it do? The data from Japan and Germany wasn't good, and the Reserve Bank of Australia kept rates unchanged for the first time in 3 months... So... I really don't expect this dollar rally to last too long... About as long as it takes to read my book... No wait! I haven't written a book! Oh, well... I should have... But there's only so many hours in a day...

Back to the dollar for a minute... The currency rallied yesterday, when U.S. Treasury Sec. Paulson announced a new plan to deal with financial institutions, Lehman secured $4 Billion in a stock sale, and the ISM Index (manufacturing) didn't fall as much as expected, although it remained well below the 50 level... Doesn't sound like the fundamentals here are any better... In fact they just keep getting worse, but, the mass media doesn't see it that way... Too bad...

So... Soon... I suspect we'll be singing the old Cyrkle Song... Red Rubber Ball...
And I think it's gonna be alright
Yeah, the worst is over now
The mornin' sun is shinin' like a red rubber ball

With the stock market bounce yesterday, the high yielders got a boost... So nothing's changed here... Stocks rally... Carry trades get put on... Japanese yen and Swiss francs go down, Aussie, kiwi, Iceland, and other high yielders go up... I find this to be quite interesting, given the fact that just last week, Carry Trades were being unwound faster than speeding bullet!

That's right... These Carry Traders can bask in the stock market's sunshine for a day or two... But I can't see this ending any other way, but a house of cards crashing down in a heap.

I read a story yesterday afternoon from HSBC that China's net FX flows have topped $6 million dollars per minute... With the Fed's rate cut last month, China now enjoys a positive rate differential to the dollar! Say it ain't so Joe! We've recently seen some greater appreciation of the daily movements in renminbi... So, that's fueled expectations for even greater appreciation this year in the renminbi...

So, here's the scenario in China... Overseas Chinese are pouring their dollars into China... Want proof? It was reported that there was an 80% year-on-year surge in retail demand for renminbi in Hong Kong in the first two months this year...

Have you noticed the nice rally in rupees lately? The Indian rupee had seen some profit taking and Central Bank actions pushing it into the 40.80 region... But in the past couple of weeks it has rebounded nicely...

Currencies today: A$ .9130, kiwi .7910, C$ .9845, euro 1.5665, sterling 1.9840, Swiss .99, ISK 74.80, rand 7.8670, krone 5.1550, SEK 5.9850, forint 164.15, zloty 2.2275, koruna 15.98, yen 102, baht 31.50, sing 1.3790, HKD 7.79, INR 39.98, China 7.0180, pesos 10.55, BRL 1.7450, dollar index 72.38, Oil $102.03, Silver $16.92, and Gold... $891.29

That's it for today... I got a call from a writer for the NY Times Magazine yesterday... He had read about me in Craig Karmin's Biography of the Dollar... It's available on Amazon, should you be interested... It was a cold one at the baseball stadium last night... Isn't this supposed to be spring? I think I'll go back to Florida! Wait! I am going back next week! Good! OK... I sure hope you have a Wonderful Wednesday!

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

This Is Not A Trend Reversal!

Chuck Butler — Tue, 01 Apr 2008 14:05:00 GMT

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In This Issue....

* German Retail Sales crumble...
* UBS takes a big loss!
* An Iceland note...
* RBA leaves rates unchanged...

And Now... Today's Pfennig!

This Is Not A Trend Reversal!

Good day... And a Terrific Tuesday to you! And also, welcome to April! We have a wonderful young lady in the office that is our IRA specialist, named April... I call her April Showers, she always giggles... It's her month!

You know the old saying about April showers bringing May flowers, and what do May flowers bring? Pilgrims! HA! Anyway... Happy April to everyone, hopefully the rain will stop here and the sun will come out, and we can get on with spring!

Opening Day was rained out in the 3rd inning with the home team Cardinals up 5-1... Those are 5 wasted runs, as they all get washed out and we have a "do over"...

Yesterday, I left you with the news that the euro had ventured above 1.58 again... By the time I got to work, (I arrived late because I had to deal with a sick car) the euro had risen to 1.5889... WOW! But, by the time I got through all the mail on my desk, the euro had given up that rally and profit taking began once again, driving the currency to 1.5815... And then even lower as the day went on...

Overnight, the euro lost even more ground and fell through the 1.57 handle.... German Retail Sales unexpectedly declined in February, and had the biggest drop in almost a year... Seems the 3.5% inflation I told you about yesterday is beginning to eat away at people's wallets... Retail Sales fell 1.6% in Feb from Jan, and really puts the heat on the ECB to cut interest rates...

There was some good news from Germany overnight, that was largely overlooked by the currency traders... German unemployment has reached its lowest level in 15.5 years! The March report showed hiring across many sectors... 1992 was the last time unemployment was less than 8%... Good show!

Remember... I told you time and again in the past that the euro would get dented when the ECB does finally cut rates, which I believe will come next month... I also said that it would be a short-term thing... Remember? It was when the euro was about 1.45, and I said it could go down to 1.40... Well... Now it has seen the light of 1.58, I certainly don't believe it will fall all the way to 1.40 any longer! So... The markets may be pricing in a rate cut before its time, which means they aren't going to wait for May... Which also means we could see the euro get dented ahead of the rate cut, which certainly looks like what's happening now. So... Look for further softness and use it as your opportunity to buy at cheaper levels!

This is a NOT a trend reversal people... We've seen this various times in the past with the euro... Sooner or later, love is gonna get ya, and then the euro will finally climb over 1.58 to on its way to higher ground... At least that's the way I see it from my cheap seats!

As I said yesterday, and I've been saying since last October... The HUGE capital flows that used to come into the U.S. are disappearing... And with the Current Account having problems with financing, the only give is in the dollar...

I've heard some economists saying that the Fed is going to step in and not tolerate further weakness in the dollar... Hmmmm.... I wonder where they get this information, don't you? Since when does the Fed get involved with the currency? That's the Treasury's domain... And as long as Treasury Sec. Paulson is beating on China to allow their currency to strengthen VS the dollar, why would he tell the Fed to intervene and support the dollar? Doesn't make sense to me!

I received some differing opinions from mine yesterday regarding the Fed Bailout of Bear Stearns... And that's OK! I don't expect people to agree with everything I say... I am just glad that when they don't agree, they explain themselves and not get nasty about it...

I still hold onto an email from a guy a couple of years ago (2005) that called me a "know nothing clown" and that I had led him to lose thousands in sterling... I always said that I would ask him when sterling got to 2 and then 2.10 if he still felt the same way... But you know something? My mother taught me not to rub it in someone's face... And just because they insulted you... You don't have to stoop to their level... She was right...

OK... Enough of that!

The dollar rally yesterday didn't interfere with the strength in yen and francs... Both are HOT, HOT, HOT! OUCH! Better put some Aloe on that burn! However, with the euro sell off overnight, these two were dragged down by the Big Dog... Not much slippage though, and again, it certainly looks like a chance to buy at cheaper levels....

Now, onto the currencies that aren't performing well VS the dollar... South African rand, and Icelandic krona... Well... Long time readers know that I've always said that I wouldn't touch rand with "your" ten foot pole... And a lot of people chastised me for saying that, because rand had been able to post some very lofty gains VS the dollar in the past 6 years... But these are the volatile times I have always been leery of with rand... And it's ugly... In fact, it didn't just get hit with the ugly stick, it got hit with the whole forest!

Iceland has the same volatility problems as South Africa and now that the Carry Trade is truly unwinding, these two have warts showing up all over the place. I'm being serious here folks... Iceland has some major problems, one of which is how small the economy is, and how it can be overrun by speculators... But another problem is beginning to show up, and if it continues could be really tough times for the krona...

I'm talking about a financial crisis in the banking sector in Iceland... If it gets out of hand... We're talking whole forest ugly... So... Here's my thought of the day for you Iceland holders... The next time your CD comes due, get out! And go to something that makes more sense without the warts...

If you want to break your Icelandic CD, you will have to wait until we gather up enough breaks at the same maturity date as yours before the break can be executed... And remember, you lose your accrued interest... And it costs 1.5% in currency conversion costs...

I don't like having to talk about stuff like that... But it has to be done!

Now... Onto brighter moments in the lives of currencies!

Getting back to Japanese yen... Here's some proof in the pudding that the yen's strength is coming from Carry Trades being unwound... Japan's Tankan (economic pulse) report showed sentiment among large manufacturers declined, thus raising expectations that the Bank of Japan (BOJ) will cut rates this year...

At any other time, that news would have "rocked" the foundation of yen... But not now... Not with millions and millions of Carry Trades being unwound probably as I write!

I keep seeing stories about how Investor Risk Aversion is easing due to the Fed's bailout of Bear Stearns... Oh, so we're to believe that it's OK to get back into the water and take on risk, because the Fed bailed out Bear Stearns? HOGWASH! I say! Anyone that buys into this thought, will get their hands trapped in the cookie jar, when it all unravels... But don't let my opinion get in the way of a "feel good" story...

Another currency that I've been warning would get caught up in unwinding Carry Trades is the New Zealand dollar... I received a note from a reader that tells the story of a slowing down of the lumber business in New Zealand... Time to think again about the fact that New Zealand's Current Account Deficit is over 7% of GDP... Sure the high interest rates have helped the currency to hold the wolves at the door... But I have to wonder for just how long can that go on?

Geez Louise, I'm full of "good news" NOT! This morning, eh? Well... You can't report stuff on the sunny side of the street every day!

Oh... Another thing denting the euro and Swiss franc this morning was the news that the Union Bank of Switzerland (UBS) reported a 1st QTR loss of $12.6 Billion... UBS has announced that they will be seeking additional capital... That casts an ugly light on European bank finances. The mortgage related write-downs just keep adding up, folks, and now they are infecting European banks... UBS's loss was larger than expected, and that's what's got everyone in a tizzy this morning... I expect this to hurt the euro and franc in the short term... But not drag on, and on, and on...

We'll see the color of the latest U.S. ISM Index (manufacturing) this morning... I expect to see this come in well below the 50 line in the sand that marks whether we are seeing expansion or contraction in manufacturing... This index first when below 50 3 months ago, which is when I said the U.S. had already entered a recession...

The Reserve Bank of Australia (RBA) left rates unchanged last night, which is what I expected they would do... The RBA had lifted rates in each of the past three months, so it was time for them to sit back and see what the landscape looks like... The high interest rates in Australia should be a good foundation and underpin for the Aussie dollar going forward.

And finally, in Canada... January's GDP rose a robust .6%, thus erasing, for the most part, the -.7% drop in GDP that was posted in December. Manufacturing led the way with a very strong showing of 1.7% growth... This report to me, tells us that the Canadian economy was relatively flat for the last few months... That's much better than the deep six GDP report that printed last month! A flat economy isn't the thing that a strong currency is made of, but it's better than a sharp stick in the eye! OUCH! Maybe that was carrying things too far... But it's a fave saying of the Big Boss, and I thought he would get a kick out of seeing me use it! (OK... I'm not a brown nose, but... Why not try to make the Big Boss smile?)

Currencies today: A$ .91, kiwi .7820, C$ .9725, euro 1.5635, sterling 1.9820, Swiss .9930, ISK 77.75, krone 5.16, SEK 6, forint 165.40, zloty 2.2450, koruna 16.11, yen 100.25, baht 31.45, sing 1.38, HKD 7.79, INR 40.11, China 7.0110, pesos 10.63, BRL 1.7520, dollar index 72.30, Oil $101.04, Silver $16.68, and Gold... $894.35

That's it for today... I just love those Opening Day festivities at Busch Stadium... The Sea of Red, and all... Gives me chills every year! Today is our Tim Smith's birthday... He's an April Fool's baby! Tim was the Top mortgage producer at EverBank last year, and wanted to broaden his skill set... So, we offered a chance on the currency desk, and he's taken to it like a duck to water! The main road to the little river city where I live, was washed out by the recent flooding here... We've had so much rain the past few days that it looks like we'll see more flooding... UGH! Pretty soon the rain and cold weather is going to hurt the farmers attempting to plant their crops... Let's hope the sun comes out soon! So... Welcome to April, and I hope you have a terrific Tuesday!

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

Employment Data Sends the Dollar Down...

Chuck Butler — Mon, 10 Mar 2008 15:55:00 GMT

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

In This Issue...

* Employment data sends the dollar down...
* A divergence of two economies...
* Carry trade reverses (again)...
* The desk is back to full strength (almost)...

And Now... Today's Pfennig!

Employment data sends the dollar down...

Good day... The bad employment numbers in the US sent the dollar spiraling down early Friday morning, but it suddenly rebounded and ended Friday a bit stronger vs. most of the currencies. I scrambled to figure out what had turned the dollar, and found it was nothing but a technical correction. A trader friend told me that as the Euro ran up toward 1.55 but then stalled, option traders started covering their positions, forcing the single currency back down to 1.532. Apparently $1.55 on the Euro is a big options level, so the Euro will have to work to get past it. I don't really mind though, as the run from 1.50 was a bit to quick and it is a healthy sign for the Euro to range trade a while and 'fill in the gaps' left by the rapid appreciation it has had over the past 1 1/2 weeks.

Chuck went from one of his favorite spots in Florida out to the cold weather in Colorado and sent me the following from the road last night:

"Rocky Mountain high... Colorado... Here I am in Edwards Colorado, just down the road from Beaver Creek and Vail, where I've been shuttling my beautiful bride and little buddy to and from their ski and snowboard schools... It was an absolutely beautiful day here today, but... It's wasted on me... I've said it over an over again, this dance is gonna be a drag, no wait! I've said over an over again, that I've gotta go where it's warm!

As Chris was signing off on Friday he left you with the news that the Jobs Jamboree had posted a negative 63K jobs in February... I read something, I don't remember what, that ballyhooed the fact that the jobless rate fell... COME ON! We all know that the jobless rate is bogus as it no longer counts people as unemployed after their unemployment benefits run out! Anyway... In my humble opinion... This report does nothing but put the stamp of approval on my call that we're already in a recession!

Don't forget... On March 18th, the Bureau of Labor Statistics (BLS) will issue their annual "adjustment" to all the "ghost jobs" they've created in the past year... I would say, that after the BLS comes clean, the recession will officially begin!

So... I'm looking at reports in my in box, and a couple of them are telling me that traders are now pricing in a 100 BPS rate cut by the Fed next week to 2%! WOW! Now... I told you a long time ago that I thought the Fed would cut rates to 2%... BUT I didn't think it would be achieved by cutting 100 BPS to get there! But I'm not taking this thought hook line and sinker like the markets are... I still think we'll see 50 BPS next week, followed by another 50 BPS at the next meeting...

To cut 100 BPS, the Fed would be saying "uncle"... All that bogus talk about a strong economy, and how housing wasn't going to hurt the economy, and the other lies and videotape they threw at us, were just that... Lies... And I don't think they want that on their resumes!

Anyway... Just the thought of 100 BPS has the dollar running for cover again!"

I can always count on Chuck to send me some great stuff for the Pfennig no matter where his travels take him. As he stated, the markets will spend this week trying to predict what the FOMC will do with US rates at their meeting next week. Data due out this week will include Wholsale inventories today, Trade Balance and ABC Consumer Confidence tomorrow, and MBA mortgage applications and the Monthly budget statement on Wednesday. The big data will be out on Thursday when we will get Retail sales and Import prices along with the weekly jobs data. We will end the week with another big series of data as the monthly inflation numbers will be reported on Friday.

All of this data will likely point toward the fact that the US economy is already in a recession, and the Fed will have no choice but to keep cutting rates even with inflation heating up. But Friday's monthly inflation numbers are predicted to show no increase in prices for the month of February, and the monthly numbers are actually predicted to show a drop of .1% over last month. Are you kidding me? Economists actually believe prices have fallen recently?!? These guys not be shopping in the same grocery stores or gas stations that I am. Even the bogus ex food and energy number has got to show an increase. But if these 'experts' are correct, and inflation doesn't show a gain the dollar is in for an even more dramatic drop as Ben Bernanke and his 'boys' will have the green light to get more aggressive with their rate cuts.

While the data in the US was negative, data released in Europe illustrates the differences in the direction of the two economies. German exports rose more than three times faster that economists forecast in January, as the stronger euro didn't have the negative impact some had predicted. French industrial production also rose in January, spurred by record exports. Another report showed German industrial production growth unexpectedly accelerated in January as mild temperatures fueled the biggest gain in construction output in almost two years. From a year earlier, industrial production rose 6.9%. Apparently German manufactures stepped up production as sales to Asia and Europe offset a drop in exports to the US.

This is what we have been talking about for some time; just because the US is in recession the rest of the world doesn't have to stop growing also! Asia is going to continue to grow, and the demand created by just a small up tick in disposable income in the world's largest population will help offset the slowdown in the US. Now I don't think these new Chinese consumers will be spending as quickly as our US consumers, but the sheer size of the Chinese middle class will make up for their lack of experience in consumption.

Speaking of professional spenders, it was reported that US consumer debt expanded $6.9 billion in January on credit card charges as Americans spent twice as much as they did a month earlier. Chuck wrote in this month's Review and Focus about this 'other shoe to drop' for the US economy. People once dependent on home-equity financing are turning to other forms of short-term financing after the collapse in subprime mortgages made it harder to qualify for loans. Personal income in January rose at a slower pace than inflation, and credit card usage in January rose for a second straight month. This is not good for the US economy, as these credit cards will soon be maxed out, leaving US consumers with no where to turn for additional spending. Without the resilient US consumer supporting our economy, growth will fall even faster. This is not good folks!

Just when the "experts" are writing off the Japanese economy... They get this thrown in their collective faces... Japanese machinery orders rose at the fastest pace in seven years in January. Orders jumped 19.6 percent from December... Yen keeps trying to push the 100 envelope, and data like this will grease the tracks! And the yen isn't the only Asian currency doing well vs. the US$ lately. China continues to let the Renminbi appreciate to try and offset inflation which probably surged to another 11 year high in February. The Chinese central bank has moved interest rates up and is now letting the currency appreciation help to offset these inflation pressures. China's producer prices rose 6.6% from a year earlier after gaining 6.1% in January.

I read a story over the weekend that suggested China will try to let the Renminbi appreciate vs. the Euros instead of the US$ as exports to Europe will likely be growing at a greater clip than those to the failing US economy. The Chinese currency actually dropped 3.3% vs. the Euro last year and is now expected to rise 9.5% vs. the Euro in 2008. China's trade surplus soared to a record $262 billion in 2007, prompting calls from European officials to reduce trade imbalances. Letting the Renminbi appreciate vs. the Euro will stem some of these protectionist calls. So what will this mean for US investors? It should mean the Euro will continue to advance vs. the US dollar which will continue to take a back seat to what is starting to be seen as the world's new reserve currency.

Several readers have asked me to write about the Icelandic Krona and recent drops in its value. The Icelandic economy is actually fairly strong as their diversification into Aluminum processing has helped reduce dependence on fishing. The reason the Icelandic krona has been dropping is mainly due to another reversal of the 'carry trade'. Most of the high yielder have been selling off, and the Icelandic Krona was one of the largest losers during the past three months selling off almost 10.5% v.s the US$. The only currency which has done worse than the Krona is the South African Rand which has sold off more than 16% vs. the US$ over the past three months. Risk and volatility in the markets have made the carry trade less attractive for investors and these high yielding currencies will continue to come under selling pressure.

This latest reversal was also blamed for Friday's sell off of the AUD$ and NZD$ currencies. Both traded off their recent highs as investors moved out of them. Much of this selling was due to equity market deterioration after the bad US data. But as all of our readers know, the carry trade seems to never die, so don't expect to see these high yielders stay down for too long. AUD$ and NZD$ rates will remain high when compared to the US and Europe, and their commodity driven economies should remain strong. The recent sell off in both of these currencies should be viewed as another buying opportunity.

Currencies today: A$ .9250, kiwi .7940, C$ 1.0124, euro 1.5351, sterling 2.0202, Swiss .9769, ISK 68.35, rand 7.9700, krone 5.1344, SEK 6.1165, forint 171.88, zloty 2.3221, koruna 16.3145, yen 102.23, baht 31.52, sing 1.3891, HKD 7.7876, INR 40.495, China 7.1062, pesos 10.8205, BRL 1.6832, dollar index 73.027, Oil $104.56, Silver $19.83, and Gold... $989.35

That's it for today...Mike beat me in this morning, and Tim and John also flew in last night so we will only be down one today. What a relief that will be! Christine's husband's basketball team made it to the state finals, but ended up taking second. I forgot to remind everyone to move their clocks up an hour this weekend, I love daylight savings, as it is still light outside when I get home from work. Hope everyone has a Marvelous Monday!!

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