Daily Pfennig : Inflation

Dollar continues to fall...

Chuck Butler — Wed, 14 Oct 2009 15:21:42 GMT

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In This Issue..

* Dollar moves lower...
* China to take a role at IMF...
* US Borrow and spend policies continue...
* Gold sets a new record...

And Now... Today's Pfennig!

Dollar continues to fall...

Good day...and what a day it was in the currency markets on Tuesday! The rout on the dollar continued, and was broad based with gains in every currency we trade. The commodity based currencies led the pack, as the weaker dollar fueled a big run up in raw material prices. Reports out of both Asia and Europe signaled the global economy is recovering, and bolstered investors looking for a way out of the falling dollar.

European industrial output rose for a fourth month in August, increasing just below 1 percent from July. From a year earlier, August output fell 15.4%, a big drop but still the smallest YOY decline in 8 months. The Euro area continues to recover 'at a gradual pace' according to ECB President Trichet. The positive news coming from the manufacturing sector is a good sign the European economic recovery will be sustainable.

Another report overnight showed China's exports fell by the least amount in nine months during September. As we have written over and over again, China will lead the world out of the global recession, and the latest reports show China beginning to pull away. Reports due out next week will likely show China's economic growth accelerated to 8.9% in the third quarter; slightly above the governments target.

China has used the economic downturn to lock in a dominant position in world trade, and has replaced Germany as the world's biggest exporter. During the first seven months of this year, China has moved past Canada as the number one supplier of imported goods to the US with 19% of all imports entering the US originating in China. These exports continue to bolster China's foreign reserves which climbed $141 billion in the third quarter to a record $2.273 trillion. China has decided to keep their currency pegged to the falling dollar, which has helped them increase their exports leading to additional growth in their currency reserves.

The Chinese government is now looking to leverage their huge reserves to attain a more dominant role in the post-crisis global financial order. A story in the China Daily predicted Bank of China Vice-President Zhu Min will soon take up a crucial post at the International Monetary Fund (IMF). According to the Chinese paper, "Zhu's appointment at the IMF will be a significant step toward breaking up the US and Europe's dominant position in the international financial stage". Welcome to the new world order!

Today we will finally get some data in the US, with the release of retail sales, business inventories, and the monthly budget statement. We will also get to read the minutes of the Sept 23 FOMC meeting this afternoon. Retail sales is the number to watch, and it is expected to have dropped by over 2% with the end of the 'cash for clunkers' program. If the data come in as expected, it will confirm the US consumer will not be able to sustain their spending as the government stimulus fades. So while Europe and China look to be expanding, the US is bogged down with rising unemployment and weak growth.

I can pretty much predict what the administration will say after seeing the report: It is obvious that we need to have another stimulus package!! The administration thinks the way out of this mess is to borrow and spend, and if the US consumers won't do it on their own, the government will be more than happy to spend our money for us. But President Obama's effort to spend us out of recession is undermining the US$. In spite of his pledge to keep the dollar strong, the dollar index is down 10% during the first 8 1/2 months of Treasury Secretary Tim Geithner's term.

And the boys over at the Federal Reserve certainly don't seem like they want a strong dollar either. Fed Vice Chairman Donald Kohn put a shot across the dollars bow yesterday when he said interest rates will remain low for an 'extended period'. I expect the minutes of the FOMC meeting which will be released later today will show the members continue to focus on the short term and have turned a blind eye to the threat of future inflation. The dovish tone which the Fed has taken will continue to push the dollar lower.

I read the following quote in an article on Bloomberg which I thought was dead on: "The all night printing runs at the Treasury are chipping away at the dollar's ability to hold value compared to other currencies and commodities," Mike Sander, of Sander Capital said yesterday. "With dollar weakness, inflation fears, a huge budget deficit, energy prices creeping up, metals such as gold, silver, and copper will be pushed up in price." Sounds like Mr. Sander is a Pfennig reader!!

As I pointed out in my opening paragraph, commodity prices have surged on the positive economic news from China and Europe. Demand by China continues to support the market for raw materials, and a falling dollar has created additional demand. The prices of oil, gold, and copper all moved higher yesterday and brought the currencies of Canada, South Africa, and Norway along for the ride. The South African Rand and Norwegian Krone were both up nearly 1% vs. the US$ and the Canadian loonie moved a bit closer to parity with the US$. Norway's finance minister helped push the krone higher with the announcement that their stimulus efforts will generate an extra .5% of economic growth next year. The Norges Bank considered moving interest rates higher last month, and looks poised to deliver a rate increase at their next meeting.

I know I will get some emails accusing me of being hypocritical, bashing the US and UK stimulus plans while praising those of Norway and China. The big difference between these plans is that Norway and China are spending money they already have, while the US and the UK are borrowing in order to spend. Norway is spending some of its $450 billion oil fund in order to stimulate their economy, and China has been spending some of their record reserves. These stimulus plans will be less inflationary than the 'quantitative easing' being instituted by the US and UK.

Gold benefitted from the good economic news and a push by investors to diversify out of US$ holdings. Gold advanced to a record level for a second day as investors increased purchases in order to hedge against a falling dollar and the possibility of future inflation. A report I read this morning predicts further price gains by gold: "A weakening US dollar and easy liquidity conditions will particularly favor precious metals," Morgan Stanley analyst said in a report today. "We expect prices of gold, silver, and platinum all to register further gains over the next year." Gold at $1,100 looks like a done deal in the face of increased investor appetite for dollar alternatives.

I'll end with a funny story Chuck shared with me via email last night. He was standing with Michelle Boschert out in front of the airport in Atlanta waiting for Frank Trotter to pick him up when a car rolled up and a guy yelled out... "Hey! Are You Chuck Butler? He didn't hear him at first, so Chuck said what? And he repeated it... Hey! Are you Chuck Butler? Chuck still wasn't sure what he was saying, but Michelle heard him and answered, YES! And the guy in the car yells out, I read your newsletter! And drives away... Pretty amazing, eh? Chuck's fan base is nationwide!!

Currencies today 10/14/09: A$ .9145, kiwi .7417, C$ .9741, euro 1.4909, sterling 1.5988, Swiss .9828, rand 7.2528, krone 5.5619, SEK 6.916, forint 179.51, zloty 2.8204, koruna 17.3585, RUB 29.38, yen 89.26, sing 1.3907, HKD 7.7501, INR 46.107, China 6.8263, pesos 13.0535, BRL 1.7216, dollar index 75.58, Oil $75.10, 10-year 3.38%, Silver $17.875, and Gold... $1,064.20

That's it for today... We had a busy day on the desk yesterday, as it was the funding deadline for another BRIC MarketSafe CD. This issue was almost as large as the last one which set a record. Those that missed the opportunity will have one more chance, as we are offering a November issue. Today is 'flu shot' day here in the office with our annual health and wellness fair. Hope everyone has a Wonderful Wednesday!!

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

Gold Soars To An All-Time High!

Chuck Butler — Wed, 07 Oct 2009 14:46:17 GMT

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In This Issue..

* It was all about Gold yesterday!
* Commodity Currencies take the lead today...
* The story behind the euro's non-move...
* Budget data prints today...

And Now... Today's Pfennig!

Gold Soars To An All-Time High!

Good day... And a Wonderful Wednesday to you! What a day for Gold yesterday! WOW! In case you were trapped in a cave and didn't hear the news... Gold, which I said yesterday morning looked like it was going to take out its all-time high, did take out its all-time high, and not just take it out! Gold pushed past the all-time high of $1,033.90, and didn't stop until it was trading $1,047 and change! WOW! No check that... Double WOW!

The Reserve Bank of Australia's (RBA) rate hike the previous night, opened the door to this run by Gold, as the Gold Bugs all came out and bought the preferred investment to counter soaring inflation... You see, if the RBA is raising rates, when most every other Central Bank is stuck in the mud with near zero rates, the RBA must see something, eh?

Well, I don't know about what they see, but I would guess it's inflation coming around the bend... I hear that inflation coming, it's rollin' around the bend, and I ain't seen the sunshine since I don't know when... Now... The RBA did say that they realized that they had reacted quickly last fall cutting rates too quickly and too low, and this rate hike would begin to reverse those panic cuts... The RBA did not say that they see inflation... But riddle me this Batman... Why would the RBA not just wait and hike rates 50 BPS in a couple of months if all they were doing was reversing their panic cuts?

So... Yesterday, was all about Gold! And why not? Gold has a few things going for it right now... 1. dollar weakness 2. inflation fears 3. rising oil prices and probably the biggest thing would be the momentum buying that takes place when mom and pops all see on the evening news that Gold has reached an all-time high, and they go out the next day and buy... Shoot Rudy, we couldn't get these people to buy when Gold was clawing its way to $900, couldn't get them to even notice Gold when it was $950, but now that its at the all-time high...

Today... I think we'll see things settle down a bit on the Gold front. I don't mean to take the move in Silver lightly... Silver pushed way past $17 once again, following Gold higher... Instead of Gold today, I think it will be more about the dollar...

Yesterday, I told you about the story in the U.K. Independent regarding the alleged secret meetings of countries to remove the dollar as the clearing mechanism for buying Oil. I did mention that the Saudis had denied these meetings had taken place. Now... Here's the big deal behind any removal of the dollar as the clearing mechanism for Oil... It's the perception, folks... The "KING DOLLAR" would no longer be needed to buy Oil...

As far as the affect on the dollar, the actual physical removal wouldn't kill the dollar per se, as most of these Oil producing countries, now take their dollars they receive for Oil and trade them right away for something else... So the net affect now on the dollar is zilch... The dollar is bought, the dollar is sold... But, the perception folks... This is the Big Kahuna here... And, think back to all the discussions we had a couple of months ago regarding the calls to remove the dollar as the reserve currency of the world... Wouldn't removing it from Oil trades, be just another step in that direction?

OK... Well today, the Commodity Currencies are the ones front and center in the assault on the dollar... Aussie, kiwi, loonies, real, rand, and krone are all lighting up "green" on my currency screen, which means they are UP VS the dollar! Doesn't it make sense that these Commodity Currencies would be the currencies to push the dollar around the schoolyard, especially after the RBA Opened Pandora's Box of interest rate hikes? I think so... Because, as I said yesterday, I think we'll begin to see more countries / Central Banks come to the rate hike table... And they are all on this list of Commodity Currencies! Which again points toward "seeing inflation pressures" in the future...

The euro? Well, even the best fall down sometime, even the stars refuse to shine sometime, eh? The official "offset currency to the dollar" participated in the currency rally yesterday moving as high as 1.4765, but overnight, it has retreated to 1.4715... Yes, even the Big Dog, has to take a back seat to the Commodity Currencies right now... But... That doesn't mean the euro is shaky... That the euro is weakening... That the euro has lost its place as the Big Dog... Not one iota! It simply means that sometimes other currencies take a flyer VS the dollar, while the euro bides its time... Taking my time, choosing my lines...

And I would bet you a dollar to a Krispy Kreme that the European Central Bank (ECB) is champing at the bit to join the RBA in a rate hike cycle! The ECB is a stickler for inflation fighting, a "hawk" if you will, and if the RBA is feeling some inflation heat, the ECB is sweating under the collar for sure! But, the Eurozone is hanging on to its nascent recovery by the skin of its teeth right now, and would not be able to continue if rates were hiked right now... So, here's the deal... The ECB "wants to"... But can't hike rates right now... But you can bet your sweet bippie that the ECB will hike as soon as they see the light at the end of the recession tunnel! I mean, they resisted cutting rates to the bone didn't they? That alone should give you an inkling of what' on their minds!

I think at this point it is important to note that even with the currencies moving strongly VS the dollar since March, they are still roughly 10% below their high levels that they had reached before the financial meltdown in August of 2008... So, some people wonder if they "missed the boat" because of the strong moves since March... I think this proves that they could potentially see the currencies move back to their previous highs...

Ty Keough, pointed something out to me yesterday when I was talking about this to the desk... Ty said, that this move probably has been more genuine, in that prior to the financial meltdown there was all that liquidity, and money flying around pushing risk assets higher and higher... Well, there certainly isn't any liquidity flying around this time! So, the moves by the currencies have been actually stronger, and with a stronger base...

Today... We'll see the Monthly Budget Statement for September. I laugh at the name of the data, given this has been nothing but a Deficit for a month of Sundays now... So, why not just change it to the Monthly Budget Deficit? I mean it couldn't even post a surplus in April or June when normally tax receipts outweigh the deficit spending! I know, I know, you're squirming in your seat thinking that I'm going to go on a tirade about deficit spending once again, when you've heard it from me over and over and over again for years now... Well, I have a treat for you... I'm not going to go there today! I mean, it certainly isn't important to our leaders... So why should I continue to make a big deal out of it?

HA! Gotcha! You know me, I can't just leave the deficit spending, and national debt alone! I can't let the leaders of our country win! I'm going to fight them to the bitter end, and you should too! Come on! Follow me! We can win this battle, if we have enough people to fight it!

And then there was this... I'm seeing more signs that the break of currencies and stocks is happening... And what a welcome thing that would be! These two have different pricing mechanisms and a low correlation to each other, which leads to both being in an investment portfolio for diversification... But, as chronicled many times in the past, since March of this year, the two have moved together... But last week, we saw a sign that fundamentals might be coming back into play... And then overnight, in Asia, we saw Asian stocks move significantly higher, and the dollar remain at current levels, not getting sold, as in the past 6 months... Hmmm... Maybe, this is just another teaser... But, I have to think that a return to fundamentals is coming... And none too soon either! For you all know what I think of future stock returns!

OK... To recap... Gold hits an all-time high and continues to move higher! Did the RBA smell the smoke of inflation burning? The Commodity Currencies are the story today as they are the leaders of the pack VS the dollar. Perception is the key to the dollar being removed as the clearing mechanism for oil... And, the Budget Deficit prints today...

Currencies today 10/7/09: A$ .8910, kiwi .7345, C$ .9455, euro 1.47, sterling 1.59, Swiss .9705, rand 7.4690, krone 5.6840, SEK 7.01, forint 182.40, zloty 2.8625, koruna 17.47, RUB 29.77, yen 88.90, sing 1.40, HKD 7.75, INR 46.67, China 6.8265, pesos 13.51, BRL 1.7590, dollar index 76.38, Oil $71.15, 10-year 3.24%, Silver $17.39, and Gold... $1,042.28

That's all for today... Well... That was SOME GAME last night in the tie breaker between Detroit Tigers and Minnesota Twins, with the Twins finally winning in the 12th inning! A BIG night for my beloved Cardinals, as they begin their playoff series with the Los Angeles Dodgers... The BIG question is will the Cardinals hit? If they do, watch out, World Series here we come! I did an interview with a writer for Business Week yesterday, I wonder what actually gets printed... If anything! Well... I've got my "blue" shirt on today, so it must be video taking day! I think we're doing two today, so I've got that going for me! OK, time to hit "send"... I hope you have a Wonderful Wednesday!

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

Retail Sales Soar!

Chuck Butler — Wed, 16 Sep 2009 14:20:00 GMT

.........But First, A Word From Our Sponsor..........
Countries poised to benefit from rising commodity prices: combined into one CD

*Australian dollar
*Brazilian real
*Norwegian krone
*Canadian dollar

CD features: 3 and 6 month terms, no monthly account fees and $20K minimum to open. Apply or learn more at http://www.everbank.com/001CurrencyCDIndexGlobalPowerShift.aspx?referid=11808

EverBank is an Equal Housing Lender and member FDIC.
......................................................

In This Issue..

* Currencies rally on Retail Sales!
* China likes investments in Canada...
* Big Ben the "inflation fighter"...
* Gold climbs to $1,018!

And Now... Today's Pfennig!

Retail Sales Soar!

Good day... And a Wonderful Wednesday to you! Good news for me this morning, the pain in my left knee has subsided... Now, If I could just get that swelling to go down, I'd be in tall cotton! This has been quite the ordeal on the old Pfennig writer, and one that I will be glad to put in the rear view mirror!

Well... When I turned on the currency screens this morning, the euro was trading with a 1.47 handle! WOW! It just skipped to my Lou right through the 1.46 handle, eh? It began yesterday afternoon, the dollar was getting sold on the news of a strong Retail Sales figure, more on that in a minute, and the euro was edging up the 1.46 ladder... The move to get it past 1.47 came in the overnight markets... Now, having gotten you all lathered up about 1.47, I have to say that since I turned on the currency screens, the euro has lost ground back to 1.4688, but still... That's quite an impressive move from yesterday morning, eh?

OK... The issue with the Retail Sales figure causing dollar weakness is a time honored tradition... NOT! Well, it is if you only count the last 9 months... But traditionally, a figure like the one that printed yesterday, would have attracted buyers for the dollar, not the opposite that occurred... Here's the skinny, as I see it...

Retail Sales for August were quite strong, and showed signs that the move was more than the Cash for Clunkers program, and Back to School buying... There are quite a few people/ economists/ analysts out there now jumping on the President's bandwagon that the recession is over based on this report... For those of you at home keeping score, Retail Sales for August printed at +2.7%!

Does one Retail Sales report that's being trumped up with a Government Deficit Spending program, and Back to School buying really tell us that the recession is over? Was it over when the Germans bombed Pearl Harbor? HA! (from Animal House, I know very well the Japanese bombed Pearl Harbor)... You know, it kind of ruins the funny line when you have to make disclaimers... But... I've had people send me emails before telling me, that I should know better that the Germans didn't bomb Pearl Harbor!

OK, I went off on a tangent there, eh? Any way... I wonder if all those people wearing the President endorsed end of the recession rose colored glasses ever stopped to wonder if gas purchases might have helped trump up this figure? Well, I did, you knew I would! And I found that rising gasoline prices sent service station receipts up 5.1% in the month. If we had journalists like we used to have, they would have known to go look at the rising gas price component of the report, since just last week the Trade Deficit jumped by 16% in one month due to rising oil prices!

So... With Retail Sales shooting toward the moon, the dollar selling increased... Because, if the thought here (and not my thought!) is that if Retail Sales are jumping again, it must mean the U.S. Consumer is buying again, and that will help kick the global recession in the rear, and the risk takers come out of the walls, the U.S. Treasury "safe haven" buyers sell to get out of their losses, and they all go to better investments... It may be what they think, to be better... Stocks... But for the most part, these investors seek out higher yielding or better income potential investments... And you won't find those on the Big Board... You won't find them at the local bond house... You'll only find them abroad, in foreign deposit rates, and foreign bond yields...

Now... That everyone is all lathered up about this euphoria going on in the markets... I'm still keeping a light on for a HUGE stock market sell off, which would adversely affect the values of all these risk assets that risk takers have been going into... Commodities, currencies, stocks would all be affected...

However, if that HUGE sell off never comes... Who wants to stand in front of the bus that has Gold above $1,000 and the euro posting a nearly 17% gains since March 1st... But that's nothing folks! The New Zealand dollar (kiwi) has gained 44% since March 1st... The list of currency gains since March 1st is amazing... Simply amazing... Here's a sample... Aussie dollars +38%, Norway +23%, loonies +21%, and so on... So, now you see the bus that I'm talking about!

Big Ben Bernanke had this to say yesterday... "Even though from a technical perspective the recession is very likely over at this point, it's still going to feel like a very weak economy for some time." He also said that he "may have to accept a slow recovery and high unemployment as the price for defending my inflation fighting credentials."

Ok.. Excuse me for a minute, I have to go in the other room and either laugh my rear off or, throw up! Big Ben has "inflation fighting credentials"? Since when? And just where is he hiding these credentials? Or... Maybe his description of "inflation fighting credentials" is different from mine! Hmmm... I shake my head in disgust...

Speaking of the Fed and inflation... My good friend, David Galland, who writes an absolutely fabulous daily letter regarding the goings on in the world called "Casey's Daily Dispatch", and can be found here: http://www.caseyresearch.com/casey-services/free-publications/caseys-daily-dispatch/ , had this to say yesterday regarding this subject of the Fed and inflation...

"Reason Magazine is one of the few magazines I read with any regularity. In the current edition, they had a couple of items that I thought were especially interesting. Ironic, actually.

The first was about a comic book the Fed has published discussing inflation, as well as defending its autonomy. You can view it by following the link below. What you should find interesting is that they make several clear mistakes in describing inflation - for instance, by saying that if the price of oil goes up, that causes inflation. And on the very first page, they state that "The dictionary defines inflation as a substantial and continuing rise in the general price level."

But that is not what the dictionary says - every entry I checked always includes ". related to an increase in the volume of money," or words to that effect. Kind of scary, when the organization charged with fighting inflation doesn't actually know what it is.

You can read the comic yourself here, straight off the New York Fed's website. http://ia301540.us.archive.org/2/items/gov.frb.ny.comic.inflation/gov.frb.ny.comic.inflation.pdf

OK... I'm back now... I saw a report last night that showed the results of a survey that showed the Chinese are very interested in investing in Canada... It was reported that China sees energy, natural resources, agriculture and biotechnology as the most promising areas of Canada's economy... Hmmm... Isn't that the same things I've listed over the years? (well minus the biotechnology) Any way... The report also showed China having interest in the U.S. and Australia...

Money flow is a very important thing to watch in the investment world... And if money is going to be flowing into Canada and Australia from China, that will be good for those countries and their respective currencies. As far as the U.S. is concerned... Forgetaboutit! Remember when China wanted to buy that oil company in California a couple of years ago? I doubt that China will want to get dragged through a mile of broken glass and razor blades again!

Yesterday, I told you about the dollar denominated bonds being issued by Germany, and how I viewed it as a green light from Big Ben Bernanke for other countries to take over the destruction of the dollar, that the Fed has carried the flag for since 1913... I told you I had another frightening thing that I would bring to you this morning... So with no further delay...

The Chinese government has told Chinese companies they do not have to honor derivatives and commodity futures contracts made with Western financial institutions. Ruh-Roh...

This appears to be one of those things that passes in the night, and then one day smacks us right between the eyes, and we say, "Where did that come from?" Well... If came from the Chinese Gov't that told Chinese companies that they did not have to honor derivatives and commodity futures contracts made with Western financial institutions... That's where!

Ok, I can hear you saying, How can they do that, Chuck? Well... When you're a 200 pound gorilla, you can sit where you want, and you can do what you want! China is taking the stance that you come get us, if you think you were wronged!

What does this do to the institutions that wrote these contracts with China, Chuck? Well... That's the cheese that binds folks... It's going to hurt... And it's going to hurt bad... But, nobody really knows just how many or how much risk is out there... But, if one day you wake up and hear on the news that the financial markets here are melting down once again, you'll be able to say... Ahhh, it must be that Chinese announcement that Chuck talked about!

Big Al Greenspan was back in the news last night... First, I want to quiz you on something...
Who said, "In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value."

Well... You'll never guess who, so I might as well tell you, but when you hear it you'll bust a gut, given the whole low interest rate, high money supply environment he created at the Fed... It was..... Drum roll please... Alan Greenspan, from an article written in 1966 entitled "Gold and Economic Freedom"

Any way... Big Al was back in the news, and said that he's worried that lawmakers will hamper the Fed's efforts to rein in its monetary stimulus, and that inflation might "swamp" the bond market. See, how Big Al is sticking up for the Fed, and putting down the groundwork now, to blame lawmakers when inflation is soaring on the other side of the recession?

Big Al is dastardly... I wouldn't be surprised to see a Commie flag nailed to the wall of his garage! HA! Long time readers know my dislike for this guy as a Fed Head, and how he might now have paved the road to this mess we've been in, but he laid the foundation!

OK... The data cupboard will yield a boat load of data today, and it will interesting to see how the dollar reacts to it... Leading off for the data cupboard today is the stupid CPI data for August... Batting second is the Current Account Deficit, and in the all important third position in the batting order we have The Tic Flows, batting clean-up is Chuck's faves Industrial Production and Capacity Utilization... WOW! What a line-up! A Murderer's Row for data if you will!

Since no one but me and my friends over at the Daily Reckoning and 5-minute Forecast, seem to care about the Deficits, the markets will probably wax over the Current Account Deficit... And I don't care about CPI... So that brings us the TIC Flows for July, and I'm fearful that this data will be harmful to our future... And the experts are forecasting a bump up in Industrial Production and Capacity Utilization, which would indicate a stronger economy, and given what we saw yesterday with the stronger Retail Sales, one would think that a bump up in Industrial Production and Capacity Utilization would be bad for the dollar...

Finally... Someone with some brains! I was beginning to think that these guys were all kin to the scarecrow! Yesterday, I told you about how the new governing party in Japan is calling for increased currency intervention... Well, finally someone that understands! Japanese Finance Minister, Fujii, said that he is "against intervention if their moves are gradual, and that I don't think they are fluctuating rapidly now."

It looks like currency traders in the overnight markets were paying attention, and immediately began buying up Japanese yen... The yen is pushing the envelope once again to a sub 90 level... And that! Would be a very good thing for yen holders!

While I'm on "feel good stories"... I might as well mention that Gold has finally made a strong move above $1,000, moving to $1,018 as I write! Silver is kicking tail and taking names later too, with a strong move to $17.35! The Retail Sales data in the U.S. yesterday kicked off a new phase of "inflation protection buying"

OK... To recap today... Retail Sales in the U.S. were very strong, setting off a new wave of dollar selling, to currencies and precious metals. China likes Canada and Australia, and China tells their companies not to honor derivative contracts with Western institutions. And we have a boat load of data to get through today in the U.S.

Currencies today 9/16: A$ .8720, kiwi .7135, C$ .9365, euro 1.4680, sterling 1.6525, Swiss .9665, rand 7.3625, krone 5.8615, SEK 6.9070, forint 184, zloty 2.8240, koruna 17.27, RUB 30.61, yen 90.30, sing 1.4120, HKD 7.75, INR 48.24, China 6.8260, pesos 13.24, BRL 1.8030, dollar index 76.30, Oil $70.75, 10-year 3.40%, Silver $17.35, and Gold... $1,017.50

That's it for today... I just looked up and noticed I was running late with the Pfennig this morning. UGH! So, I guess it's good that I don't have a lot to talk about here... I was going to the day game today... But had to back out because of the problem with my knee... But now the pain is subsiding... I wonder if there's still a ticket... Nah... I gave it away! Go Cards! As a part of the hockey Blues web site, they have a picture of Chris Gaffney's son, Brendan! He's a star! Chris has taken Brendan to hockey games since he could barely see over the side boards. When the games were on TV, you could watch Brendan running back and forth in his space, as Chris has ticket along the glass! Ok... Enough... Time to roll, April Showers is here, and that means I'm late! I sure hope your Wednesday is Wonderful!

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

House prices move up, but consumers still aren't confident...

Chuck Butler — Wed, 29 Jul 2009 15:01:37 GMT

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In This Issue..

* House prices move up...
* US consumers are worried...
* Japanese retail sales drag...
* Australian rates to rise...

And Now... Today's Pfennig!

House prices move up, but consumers still aren't confident...

Good day... We finally had a bit of volatility in the currency markets yesterday, as conflicting data released in two separate reports moved the markets in opposite directions. The dollar started off the day drifting lower, as has been the pattern over the past 2 weeks. But during the late morning the dollar started gaining strength, and has barely paused its ascent overnight.

Many of you probably heard the news reports that home prices finally rose during the month of May, and this is what had the dollar on the ropes yesterday morning. The S&P/CaseShiller Home Price Index reported that home prices in the US rose ever so slightly in May compared to April. But if we look at the annual figures, home prices are still down just over 17% across the country. Media outlets trumpeted this 'feel good' story with many economists declaring that housing has now turned a corner. This is a good sign, as prices have to stabilize before the housing sector can recover, but it is hard to get overly excited about a 17% drop YOY. The monthly figure rose just .5%, reflecting the first monthly gain since July 2006. Another report showed the share of homes sold as foreclosures or otherwise distressed properties fell to about 31% in June, down from a high of 50% seen earlier this year. With unemployment still creeping up, and the US consumer continuing to save instead of spend, I am going to need to see a couple of months of stabilized prices before I am convinced housing is turning the corner here in the US.

Just an hour after the surprisingly good news on the housing front was received, consumer confidence numbers for July were released, and spoiled the party. Higher unemployment is being blamed for dropping just under three points from the Conference Board's consumer confidence index. This was the second consecutive decline, and shocked economists who had predicted no change. Our economy is still consumer driven, so this number resonates with investors who had started moving money back into riskier assets believing the economic recovery was well under way. But US consumers are concerned about the job markets, and will likely continue to keep tighter control of their spending. Despite the rhetoric coming out of the Chinese/US talks (more on this later), the administration is counting on consumers to help pull us out of this recession/depression.

But consumers have a right to be worried, and will likely continue to keep a tight hold on their wallets. After all, the economy has lost 6.5 million jobs since the recession began in December 2007; the biggest employment slump in over 80 years. Official estimates predict double digit unemployment by the end of this year, and our unofficial estimates have pegged the number in the double digits since the first quarter of 2009. Without good prospects for employment, US consumers are finally realizing the intelligence of being frugal. Savings rates in the US continue to climb, but while that is good in the long run (and exactly what I believe they should be doing) it doesn't help fuel a quick turn around for the economy.

Investors and the administration worry that the higher savings rate and slower economic growth will lead to deflation, and have been hoping instead to see some signs of inflation. But a bit of deflation is really not that bad, and can actually be healthy for the economy. While he was in Vancouver last week, Chuck sent me the following quote from our friend Doug Casey regarding deflation...
"Deflation is actually a good thing, because in a deflation prices drop and money becomes more valuable, so deflation encourages people to save money. Deflation rewards the prudent saver and punishes the profligate borrower. The way a society, like an individual, becomes wealthy is by producing more than it consumes. In other words, by saving, not borrowing. And during a deflation, when money becomes more valuable, everybody wants money. They want to save. Whereas during an inflation, you want to get rid of the money. You want to consume. You want to spend. But you don't become wealthy by spending and consuming; you become wealthy by producing and saving.

Inflation encourages people to borrow, because they expect to pay the debt off with cheaper dollars. It encourages people to mortgage their future.

The basic economic fallacy in this is that a high level of consumption is good. Well, consumption is neither good or bad. The problem is the emphasis on consumption financed by debt -- which leads to the national bankruptcy we're facing. It's much healthier to have an emphasis on production, financed by savings."

I think Doug hit the nail on the head, but as he points out, most economists fear deflation and have convinced the administration that the only way out of our current recession/depression is to borrow and spend. Hopefully US consumers will continue to fight the urge to re-leverage, even if it does extend the downturn. A bit of pain now can and will avert a whole lot of pain in the future.

But the markets don't like the thought of frugal US consumers so the stock market sold off, and investors ran for the cover of US treasuries sending the dollar higher. Asian markets continued the sell off overnight causing a reversal of the carry trades which had just started to be popular again. Risk aversion is back in vogue, so the high yielding currencies which had been benefitting got sold off. The biggest drop was in the Australian dollar which fell nearly 1% vs. the US. As you would expect, the South African rand and Mexican peso also sold off, but surprisingly so did the Japanese yen.

Japanese retail sales fell for a 10th month in June, extending the longest losing streak since 2003. Deflation is still gripping the Japanese economy, and a report released earlier this week showed Corporate prices dropped 3.2% from a year earlier. As I stated earlier, a bit of deflation isn't necessarily a bad thing, but it certainly stalls out any sort of economic recovery. The problem with deflation is that once it takes hold, it is very hard to combat. Japanese consumers have traditionally had one of the highest savings rates, and their economy has been treading water for a number of years. The Japanese are relying on the global economic rebound to help stimulate exports which will drive their economy back up.

The ideal situation is some happy medium between the two extremes. A slow growth/ low inflation environment is what we should strive for. Not high growth fueled by high leverage, or no growth with very high savings rates. So the current swing by US consumers toward a higher savings rate is a good thing, as long as we eventually start spending these savings and keep leverage to a minimum.

Numbers to be released later today will continue to call into question the recovery of the US economy. Orders for Durable Goods in the US probably fell in June for the first time in three months. The major automobile factories shuts down for part of the month, causing a drop in the overall number. Ex autos, the number will likely be unchanged from the May figure. Mortgage applications were already reported this morning, and showed another dramatic drop. The 'refinancing boom' which the government created earlier this year has petered out, and unless additional stimulus money is thrown at home buyers, the housing recovery will be a long drawn out process. And finally, the Fed's Beige book will be released later today. This report details how the economy is performing in each of the Fed's districts, and is expected to confirm the US economy is starting to bottom out, but no rapid recovery is in sight.

An economy which seems to be starting to recover more rapidly is Australia where central bank Governor Glenn Stevens signaled rates may rising sooner rather than later. "I've never seen written down or heard in discussion some rule that says we wait until unemployment is peaking before we lift the cash rate," Stevens said in Sydney yesterday. Stevens also said the economy may rebound faster than the central bank forecast six months ago as consumer and business confidence surges. The AUD$ touched its high for 2009 yesterday at .8338 before retreating back below .82 on the carry trade reversal. I would think any pull back by this currency is an excellent opportunity for investors to jump into this currency which we predict will end up one of the best performers of the year.

Whenever I talk about the Aussie dollar, I naturally move to its kissin cousin across the Tasman, the New Zealand dollar. New Zealand central bank Governor Alan Bollard will probably match Governor Steven's moves and keep rates unchanged at their meeting tomorrow. The recent reversal of carry trades has caused this currency to turn around, but as with the AUD$, a move lower should be seen as a buying opportunity.

India left rates unchanged overnight, signaling an end to its deepest round of interest rate cuts. The central bank is concerned that inflation will creep up as the Asian economies recover. Interest rate expectations have turned the currency around as the Indian rupee has increased about 1.5% vs. the US$ during the last two weeks.

I'm filling in for Chuck this morning on a conference call with the Big Boss, Frank Trotter, so I'll have to end it here and move to the currency wrap-up:

Currencies today 7/29/09: A$ .8204, kiwi .6574, C$ .9212, euro 1.4136, sterling 1.6379, Swiss .9274, rand 7.9065, krone 6.2205, SEK 7.4936, forint 190.64, zloty 2.9671, koruna 18.0674, yen 94.91, sing 1.4418, HKD 7.7500, INR 48.4262, China 6.8324, pesos 13.2659, BRL 1.8809, dollar index 79.092, Oil $65.84, 10-year 3.65%, Silver $13.6125, and Gold... $935.79

That's it for today... My wife qualified for combat pay as she took my 10 year old daughter, Lauren and three of her friends to the Jonas Brothers concert last night. I love my daughter, but I'm not sure I would have been able to stand 3 hours of 20,000 screaming tweens. Finally got some summer thunderstorms last night, and it continues to rain today. I hope Chuck and his family are staying dry camping down in southern Missouri. The Cardinals looked great last night, as the new offense which they have picked up in their recent moves seems to be starting to click. Hope everyone has a Wonderful Wednesday!!
Chris Gaffney, CFA
Vice President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Good news for housing is bad news for the dollar...

Chuck Butler — Tue, 28 Jul 2009 15:10:28 GMT

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* Home sales increase most in eight years...
* Euro boosted by confidence...
* Geitner sells the Chinese...
* Carry trades back in vogue...

And Now... Today's Pfennig!

Good news for housing is bad news for the dollar...

The dollar lost more ground on Monday, but the reasons were different than those that caused last week's slow decline. Currency traders sold the dollar after a report showed sales of new homes rose the most in eight years. New-home sales in the US climbed 11% last month to a 384,000 annual pace. This was substantially higher than economists had forecast, and the most since November. The report also showed the number of houses on the market dropped to the lowest level in more than a decade. The housing numbers seem to confirm that the housing market may be approaching a bottom, but housing prices continue to fall, and more data is needed before I'm convinced the worst is over. Many of these homes have been sold to first time homebuyers taking advantage of government programs; and if unemployment continues to climb, housing sales are not likely to rise quickly.

But the housing news was music to the ears of investors, and those who had parked money in the dollar for 'safe haven' purposes began looking for other places to invest. Many feel the worst of the global recession is over, as global data seems to be turning positive. Adding to the good feeling on Wall Street, analysts raised their profit estimates for US companies for the first time in two years. The new optimism has many investors searching for higher yields and accepting higher risks. During the mid morning trading, the dollar index touched the lowest level this year, dropping to 78.315 before gaining back some of its losses late in the day as US stocks retreated from eight month highs.

A report from UBS, the worlds second largest currency trader predicts the dollar will continue to drop during the next month amid a revival in risk appetite. "Our near term bias is for further US dollar weakness," a UBS analyst wrote. Everyone seems to be jumping on the carry trade again, which should give a lot of strength to the higher yielding currencies of AUD, NZD, and Brazil. This will likely be the 'popular' trade for investors over the next few months.

The Euro was helped by earlier by a report which on German consumer confidence which unexpectedly increased to a 14 month high. German business confidence rose also rose more than expected this month. Lower inflation in Germany has put more money into the pockets of German consumers, and private consumption has continued to remain a significant support for the economy.

The positive news for the global economy couldn't come at a better time for US Treasury Secretary Timothy Geitner who began talks with China. Geitner and Secretary of State Hillary Clinton will host two days of meetings which many predict will focus on the state of the US economy. Secretary Geitner will have his bond salesman hat on as he tries to convince the Chinese to keep buying Treasury bills, notes, and bonds. This week the US Treasury will attempt to unload $235 Billion in Treasuries, so Geitner will certainly have his work cut out for him. The US debt sales will include $130 Billion of T-bills, $42 Billion 2 year notes, $39 Billion 5 year notes, $28 Billion 7 year notes, and $6 Billion of TIPS.

I find it odd that the US government isn't trying to sell more bonds out in the longer term durations with rates being held down at these incredibly low levels. Does anyone expect US interest rates to remain at these low levels for an extended period of time? Why wouldn't the Treasury department take advantage and try to sell more longer term debt now, instead of loading up the majority of the issuance at the short end of the curve? I guess Geitner realizes that his job of selling all of this debt is already difficult, and trying to get the foreigners to agree to purchase longer term maturities would be next to impossible.

Let's hope Geitner is a first class salesman, as our economy is dependent on the Chinese continuing to buy our debt. Unfortunately his boss isn't making his job any easier, as the deficits continue to rise. The nonpartisan Congressional Budget Office estimates the annual deficits under the administration's spending plans will never drop below $633 billion over the next decade. And it forecasts an additional $9.1 trillion added to the debt held by the public - the amount that Geitner has to finance with bond sales. Publicly traded US debt - which excludes deficits the government owes to itself in Social Security and other trust funds - stood at 41 percent of the total economy in 2008. It is projected to climb to 82 percent of the entire economy by 2019.

The official line after the first day of meetings stuck to the pre-arranged script. Geitner pledged to rein in the US deficit to a more 'sustainable' level by 2013, and China agreed to try and stimulate more internal consumption. Speaking of Chinese consumption, I heard a story driving home on NPR last night which spoke about how China is spending their stimulus money. While the big infrastructure projects have grabbed most of the headlines, they have also used a large amount of their stimulus spending to stimulate consumer buying. They have issued vouchers to many of the lower income rural areas which can be turned in for consumer durables, including cars, appliances, and TVs. The increase in demand by the emerging Chinese middle class has actually caused a price jump for the panels used to make flat screen TVs. You may recall that many critics of what we write in the Pfennig regarding future growth in China stated that the Chinese economy couldn't grow without a strong US consumer. We pointed out that even a small increase in personal wealth spread across the millions of Chinese consumers could offset some of loss of demand by the US. What we predicted seems to be coming true, as the Chinese automobile market has become the largest in the world, and markets for other consumer products like flat screen TVs seem to be following suit.

This also plays into our theory that inflation will likely spike up after the global economy starts to recover. Inventories are extremely low, and once demand starts heating up in the western markets of Europe and the US, orders will again start flowing back into Asia. But demand in Asia will be competing with these new orders from the West, so prices will likely jump. And commodity prices have already started rebounding, including industrial metals and crude oil. Inflation is definitely lurking, and investors need to protect their holdings against a possible spike. The precious metals, or commodity based currencies are a good way to protect your holdings.

The Australian dollar has long been a favorite of the desk, and is turning in another stellar year. The Aussie dollar rose to its highest level this year after central bank Governor Glenn Stevens said the nation's economic downturn may not be "one of the more serious" of the post World War II era. Most economists now believe interest rates in Australia will start to rise prior to the end of 2009. The New Zealand dollar also had a gain yesterday, and headed for its fifth monthly gain in a row.

Finally, I read a story in our local paper over the weekend which pointed out that the administration has delayed the release its annual mid summer budget update. No doubt the update will show higher deficits and unemployment along with slower growth than projected in President Obama's budget in February and the update in May. Typically the budget estimates are updated in Mid-July, but the administration had postponed them until the middle of next month. It is not surprising that President Obama wants congress to act on his $1 trillion dollar health care initiative before he releases the bad news of the updated budget numbers. The administration predicted unemployment would peak at 8%, and growth next year would reach 3.2%; both overly optimistic predictions. Downward revisions to these numbers, which are inevitable, will mean that budget deficits will be much higher than the administration is now predicting. Chuck's earlier predictions of a $2 trillion deficit this fiscal year is looking more likely with each passing day.

Currencies today 7/28/09: A$ .8299, kiwi .6603, C$ .9255, euro 1.4227, sterling 1.6489, Swiss .9345, rand 7.8098, krone 6.1748, SEK 7.4390, forint 188.95, zloty 2.9424, koruna 17.9397, yen 94.54, sing 1.4404, HKD 7.7500, INR 48.2075, China 6.8309, pesos 13.2884, BRL 1.8779, dollar index 78.610, Oil $67.82, 10-year 3.68%, Silver $13.985, and Gold... $949.50

That's it for today... My son Brendan had his last regular season hockey game of the summer season. The coach let me know last night that he will be out of town for the playoffs next week, so I have the helm. We ended up the season in 4th place, so the boys will have their work cut out for them in the tourney. I plan on stressing team play, as summer hockey is played on a shortened rink with only 3 outskaters. Passing and teamwork are the key! Looks like another beautiful morning here in St. Louis, but I hear there may be Thunderstorms on the horizon. Someone on the desk said this month will go down as the third coolest July on record. No complaints here!! Got to try to get this out, so hope everyone has a Terrific Tuesday!!!

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

US leading indicators push higher...

Chuck Butler — Tue, 21 Jul 2009 14:48:06 GMT

...But First, A Word From Our Sponsor...
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In This Issue..

* US leading indicators push higher...
* Labor department admits errors...
* Ben Bernanke heads to the hill...
* PIMCO suggests buying emerging markets...

And Now... Today's Pfennig!

US leading indicators push higher...

Good day... A quiet trading day to start the week off yesterday. As I turn on the computers this morning the dollar index is trading right at the level it was yesterday morning. The currencies were up a bit through most of Monday's trading day, but the dollar came back in Asian trading leaving us right about back where we started.

The only data released yesterday was the index of US leading indicators which rose slightly in June for a third consecutive month. The numbers gave a bit of hope for all of the bulls, with many exclaiming that the US economy has turned a corner and the recession has ended. I am not so sure, as rising unemployment and continued weakness in the housing market will likely hold any recovery back.

Aaron Stevenson sent me a story he read on CNNMoney.com yesterday which highlighted the labor problems here in the US. The article states that more than 650,000 Americans will have used up all of their unemployment benefits by September, and the Labor Department is expecting the problem to accelerate. "In the next few weeks, the victims of the mass layoffs that happened six months ago - when the pace of layoffs was at its zenith - will start running out of their basic benefits. A total of 4.4 million people are expected to face this fate - or 65% of the entire filing population. And while they may have up to another year of unemployment insurance benefits - thanks to the confusing patchwork of extensions that were enacted last summer - they will soon be unaccounted for in government unemployment reports."

As Chuck has continually pointed out, the Labor Department doesn't track anyone who has been unemployed more than 26 weeks, and has no plans to adjust the way the report claims (even though they know they are under-reporting the actual unemployment rate!). As a result, the weekly jobs data will probably start showing declines in continuing filers later this year. But these declines won't be because of an improved job market, but instead will be because many of these filers will be falling off the Labor Department's radar.

Even the director of the White House's National Economic Council, Mr. Lawrence Summers, isn't feeling so rosy about the prospects for recovery. "I don't feel there's a basis for predicting that income growth is going to resume in the near term," Summers said in an interview yesterday. So while the US economy may not be sinking any more, Summers doesn't believe the economy will be able to quickly pull itself back up from the deepest recession in a half a century. "The pace of growth next year I think is very much in doubt, and difficult to predict, and will depend crucially on our effectiveness in implementing the programs that have been legislated and the kind of confidence that's provided by what Congress is able to do in crucial areas like health care and financial regulation and energy," Summers said.

The focus today will shift to Federal Reserve Chairman Ben S. Bernanke who will be giving his semiannual monetary policy testimony to Congress today. The markets are looking for Bernanke to map out an 'exit strategy' for the loose money policies which have been enacted over the past few years. Bernanke gave a sneak preview of his testimony in an opinion piece which he wrote for the Wall Street Journal yesterday. "When the economic outlook requires us to do so," the central bank will employ a series of tools to tighten policy, Bernanke said in the piece. He outlined five different ways the central bank will be able to prevent the record reserves that banks have accumulated from causing money supply and inflation to surge.

I don't doubt that Bernanke and the Fed have the means to pull liquidity out of the system. What I question is if they will have the cojones to use these methods when the time is right. In order to stem inflation, the Fed will be required to start tightening policy just as the economy is starting to recover. If they tighten too early, they could squash the recovery, and if they wait too long, inflation could spiral out of control. History has shown that the FOMC is typically late in their move to tighten.

And the likelihood of an anemic recovery heightens the risk that the Fed will be late in reacting. The recovery will be weak compared with historic recoveries from recession. I just can't imagine Bernanke stepping up and pushing rates higher in the face of a weak economic recovery. But we will see what he has to say to congress today. His testimony could be good for the dollar, if he is able to convince the markets that he and his compatriots will step up to the plate and keep inflation at bay. Again, I just don't believe he has the fortitude to time his move correctly.

Chuck sent me a note after reading a great piece by the Mogambo Monday.. The Mogambo doesn't think Bernanke will be able to rein in inflation, and believes investors should protect themselves by purchasing gold:

"And if you don't think that gold will shoot up when inflation starts roaring like that, then you are obviously new at this investing business and you haven't had time to look at what happened to the price of gold when it was $35 an ounce in 1970 and over $800 an ounce by 1980 when the inflation (from the vast expansions of the money supply needed to simultaneously finance the War on Poverty and the War in Vietnam) was rising along this same parabolic ride."

I love how you always know exactly where the Mogambo stands on things! I can't argue with his logic and agree that gold is a good hedge against rising inflation which I'm sure we will see on the other side of this recession/depression. Every investor should have a portion of their overall investment portfolio dedicated to precious metals, and our unallocated metal select accounts are one of the most efficient ways I know of to hold gold.

Speaking of the precious metal, gold held above $950 an ounce overnight, and seems to be on a fairly sharp upward path. Gold has gained just over $45 in the past two weeks and looks set to test resistance levels around $960. If it can push through these levels, the next resistance would be around $985. And just think what the price will do once we start seeing signs of inflation creeping back into the global economy.

So the dollar will likely move up today as long as Bernanke can 'deliver the goods' in his testimony to congress. But if the dollar does rally, I would take advantage and look at the move as an opportunity to purchase currencies at better levels. Some of the largest, and smartest investors are looking to do the same, and share our believe that Bernanke will be unable to turn the liquidity pump off in a timely fashion. PIMCO, the manager of the world's biggest bond fund, said it is looking to buy the Brazilian real as the dollar slumps and growth in emerging economies outpaces that of developed nations. According to a report published by PIMCO, investors should buy emerging market currencies to protect themselves against the risk that US policy makers will allow the dollar to slide should they lack the skill to "drain the system of emergency liquidity at the appropriate time." The report goes on to say "In light of an expected long-run erosion in the value of the US dollar, Pimco will look to take positions in select emerging market currencies that we believe have the most compelling appreciation potential."

Want to take a position in the emerging markets without the risk? Why not look at our new BRIC MarketSafe CD. It combines Brazil, India, Russia, and China into a 3 year CD which is protected against any downside risk. I think we came up with a real winner on our newest MarketSafe!

Currencies today 7/21/09: A$ .8132, kiwi .6548, C$ .9040, euro 1.4217, sterling 1.641, Swiss .9362, rand 7.8703, krone 6.2998, SEK 7.685, forint 191.68, zloty 2.9982, koruna 18.1561, yen 94.20, sing 1.4419, HKD 7.750, INR 48.4337, China 6.8305, pesos 13.2694, BRL 1.8987, dollar index 78.923, Oil $64.16, 10-year 3.61%, Silver $13.555, and Gold... $947.85

That's it for today... It is food day here today, as we celebrate everyone with July birthdays. The crew is coming in with food galore; Krispy Kremes, Cake, and every imaginable form of dip n chips. It is going to be a real challenge for me to stick to my diet today (but I guess I can have a free day every once in a while right!?!?) Hope everyone has a Terrific Tuesday, mine is sure shaping up to be one!

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

Frightened investors move back into US treasuries.....

Chuck Butler — Fri, 10 Jul 2009 14:46:50 GMT

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In This Issue..

* Jobs data skewed by 'seasonal adjustments'...
* BOE surprises the market...
* Oil falls below $60...
* China's reserves continue to grow...

And Now... Today's Pfennig!

Frightened investors move back into US treasuries.....

Good day...Chuck has a bevy of doctor's appointments today, so he decided to let me take over the Pfennig. Unfortunately it will go out a little later than usual, as I always struggle to get all of my thoughts together so early in the morning. Its not that I come in late (I was here two hours before everyone else) but it just takes me much longer than Chuck to get it all on paper. But enough of the excuses, I've got to get writing.

Weekly jobless claims released in the US yesterday morning fell below 600k for the first time since January but the continuing claims continue to rise, hitting another record. The slight improvement in the weekly numbers was distorted by the automotive sector. Car companies typically shut down plants in early July in order to change over to the new model year. Bankruptcy forced many of these plants to shut down much earlier than normal, and some temporarily started up production again during the past few weeks.

Chuck would have a field day with the jobless claims, as the government economists were hard at work 'massaging' the numbers to give everyone a more 'clear' picture of the data (why can't they just report the actual number of people filing for unemployment?). As Chuck has pointed out, the Labor Department adjusts the figures using seasonal and demographic trends, creating 'ghost jobs'. Since automobile plants typically shut down in the first weeks of July, the labor department expected a large increase in claims during this time. In order to offset these 'seasonal factors', the brain trust at the Labor Department added back a number of jobs in order to balance out the expected temporary layoffs in the auto sector. You would think the Labor Department would realize that most of these automobile workers were already idled, and therefore keep the adjustments to a minimum. But that would be too logical, so they just went ahead and 'seasonally adjusted' the claims as if this was a typical July for the auto sector.

The continuing claims illustrate a much clearer picture of the US job market, with unemployment spiking up to 9.5% in the US. The news from the retail sector was also gloomy, as the ICSC Chain Store Sales fell another 5.1% YOY during the month of June. Inventories also continued to shrink for a ninth month in a row in May to just over $400 billion. This is the lowest level since August of 2007, and raises some longer term inflationary concerns. Some of you are probably questioning this last statement, so I will explain.

Lower retail sales have forced stores to keep inventories down. I was in a local Walmart store the other day and noticed the shelves were emptier than what I have seen in the past, items weren't stacked 5 deep and didn't reach toward the ceiling. US consumers have been buying less and saving more, a very good thing! But stores have reacted by dropping the amount of inventory they are carrying (again a smart thing for retailers). Against this backdrop, the US government continues to flood the economy with cash, trying to get consumers to start spending again to jumpstart the economy. For now, the cash has been hoarded by banks and used by consumers to pay down some of their massive debt. Eventually the 'all clear' horn will sound, and consumers will start looking to make purchases again, but will find empty shelves. Inflation will follow, as too much cash will be chasing too few goods.

But our government has a much shorter term view, and continues to pump money into our economy with no real regard for future inflationary concerns. And some very smart economists seem to agree with the administration. Both Nouriel Roubini and Robert Shiller, respected economists, are calling for additional stimulus. In a radio interview yesterday, Roubini predicted the US recession will last another six months and be followed by a 'shallow' recovery. On the same radio show, Shiller said the economic crisis would continue despite the $12.8 trillion pledged by the US government and Federal Reserve.

The BOE shook up the markets with a surprise announcement not to increase its quantitative easing program. The Bank's Monetary Policy Committee put the program designed to pump extra cash into the markets by purchasing its own debt on hold after announcing it would also keep interest rates steady at .5%. The move was a major surprise to the markets, and sent the price of gilts (the UK's treasury bonds) falling and the price of the Pound Sterling higher. The BOE was the first of the western central banks to begin the controversial program in which it monetizes its debt; hitting the overdrive button on the printing presses by monetizing its debt. We've never been a fan of the Quantitative Easing programs, as they are short sighted with total disregard for the future inflationary pressures the exert on the economy. But several other central banks, desperate for a way to get cash into their economies have followed the BOE's lead.

The move by the BOE was even more surprising given the fact that the Chancellor has authorized another 25 billion pounds to be added to the program. Perhaps the Bank's Monetary Policy Committee is finally starting to realize all of the QE which it has done hasn't really had the desired impact. Much of the extra cash being created by the program is simply being hoarded by banks and is not making its way out into the economy via loans. Sound familiar? We have a similar situation occurring here in the US, with banks sitting on a majority of the stimulus monies which they have received. They have used the funds to shore up their balance sheets, a good thing long term, but not what the central banks intended with the introduction of the QE programs.

But enough of the economic talk, I need to let you know what happened to the currency markets overnight!! In spite of the Labor departments attempts to 'adjust' the weekly jobless claims, the economic data released here in the US yesterday was generally poor. This raised further concerns regarding the global economic recovery, and forced investors back into the US treasury market. As typical during these periods of uncertainty, the Japanese yen was the best performing currency. This is due to a general deleveraging as investors purchase yen to pay down debts used to invest into higher yielding assets.

We have seen this pattern repeat several times over the past year. As investors start to see some signs of recovery in the global economy, they invest into the higher yielding currencies, and borrow funds at lower rates available in Japan. But as soon as they begin to question the recovery, they move back out of the higher yielders and pay back these loans in the Japanese yen. Morgan Stanley believes the recent move by the yen is just the beginning of another big move, predicting a move to 85 yen/dollar. The foreign exchange strategists at Morgan Stanley predict the yen will continue to rally through the end of the year as doubts about the global recovery intensify. But their longer term predictions are less enthusiastic, as they feel the yen will weaken throughout 2010.

The commodity currencies took a hit over the past few days as the price of oil and metals continued to fall. Oil fell below $60 per barrel for the first time in a couple of months. Concerns over the global recovery, along with some slight calming of tensions in the gulf states have caused the price to drop. One commodity currency which has been able to hold steady during the recent selloff is the Brazilian real. A report that car sales in China surged bolstered the outlook for the commodity rich country. China's passenger-vehicle sales rose 48% in June, pushing China past the US as the world's largest auto market.

Increased automobile demand in China is another sign of their slow move away from an export based emerging market economy to that of a more balanced one. China's exports tumbled for an eighth month in June, but internal demand helped by the government's stimulus package is offsetting some of the impact of these falling exports. Imports also fell, but the size of the decrease was the least in eight months. This is good sign for the future of China, as imports are typically a leading indicator for exports in China.

China's foreign exchange reserves likely topped $2 trillion for the first time, climbing another $67.8 billion in the second quarter. The central bank is predicted to release the number sometime today. The increase in reserves certainly cause concern in the currency markets, as officials in China continue to call for the diversification of these reserves. According to a story in the Financial Times, China launched its highest profile criticism of the dominant role of the US dollar as a global reserve currency during the last day of the G8 meetings in Italy. "We should have a better system for reserve currency issuance and regulation, so that we can maintain relative stability of major reserve currencies exchange rates and promote a diversified and rational international reserve currency system," Chinese state Councilor Dai Bingguo was reported to say. Western leaders tried to play down the remarks, with Gordon Brown stating that he did not remember Mr. Dai making the remarks.

Separately, Joseph Yam, chief executive of the Hong Kong Monetary Authority, said Hong Kong might consider diversifying more of its $200 billion reserves away from the US dollar. I would expect China to keep the heat on the Obama administration in order to try and get them to reign in some of their 'quantitative easing' programs. The Chinese officials continue to be concerned about the future inflationary consequences of these programs. But at the same time, they have to be very careful about the diversification out of the dollar, as they still hold trillions of dollars and don't want to cause a sudden fall in their value. The big boss, Frank Trotter, constantly reminds us that China has a much longer term thought process, and has an extreme amount of patience. I would expect them to continue to slowly diversify their holdings, adding to the long slow decline of the US$.

With that I will move on to the currency roundup. Sorry to go so long this morning, but I felt like there was a lot of data to get through.

Currencies today 7/10/09: A$ .7760, kiwi .6263, C$ .8596, euro 1.3902, sterling 1.6198, Swiss .9172, rand 8.196, krone 6.5369, SEK 7.9021, forint 199.10, zloty 3.1440, koruna 18.708, yen 92.76, sing 1.4623, HKD 7.75, INR 48.97, China 6.8327, pesos 13.6408, BRL 2.009, dollar index 80.489, Oil $59.66, 10-year 3.337%, Silver $12.64, and Gold... $909.39

That's it for today... Everyone is limping into the office this morning, as we played a double-header in our kickball league last night. We ended up splitting the two games, but as my wife continues to tell me, kickball is a game for kids, not middle aged currency traders!! One of our team had to go to the hospital last night, as he injured his shoulder diving for a catch in the outfield; I hope Joe B's shoulder turns out to be ok!! St. Louis is getting ready for the All Star weekend, and I saw one of the blimps floating around last night. My son, Brendan and I are heading downtown to compete in the All Star Charity 5k run which begins at Busch Stadium. It will be fun to be downtown and around all of the All Star hoopla, even though we don't have a ticket to any of the events. Hope everyone has a fantastic Friday and a Wonderful Weekend!!

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

Desperately Seeking Yield...

Chuck Butler — Fri, 26 Jun 2009 15:27:32 GMT

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In This Issue..

* Currencies rally...
* More on the BRIC's...
* New Zealand's GDP contracts..
* Bernanke gets grilled!

And Now... Today's Pfennig!

Desperately Seeking Yield...

Good day... And a Happy Friday to one and all! The end of what seemed to be a very long week... The last weekend in June, can you believe that? Next week, we'll be getting ready for the 4th of July celebrations! WOW!

Well... What a volatile week it has been in the currencies! Up, down, all around, and settling back to levels that we saw before the Fed's FOMC meeting earlier this week. Suddenly, investors are looking for yield again... Looks like they are "Desperately Seeking (not Susan) Yield! And why not? The Fed, and the Bank of Canada (BOC) have come out and said that there will be no interest rate hikes until we've turned quite a few pages on the 2010 calendar.

So, with investors clamoring for yield, the dollar gets taken to the woodshed... As I said earlier this week, one of these probes above 1.40, need to take hold of the figure and build on it, otherwise we're doomed to remain in the 1.35-1.40 range, and range trading is for the birds! Talk about counting flowers on the wall, and watching paint dry! UGH!

I was shocked yesterday to see but a few emails asking me more about the SDR's story that I talked about... Men, women, boys and girls, all... This is important stuff! Don't take it lightly! There's a movement underway that could end up costing you dearly, if you do not take the diversification steps...

I think it is important to know that the BRIC countries (Brazil, Russia, India, and China) are serious about replacing the dollar with a "global currency" i.e. the IMF's SDR's... And... That the BRIC's want more power on the World's stage... And why not? These countries currently have almost 3 Trillion in foreign reserves... And... A very large piece of the world's population... (Thanks for that fodder, Kevin!)

OH! And guess who was banging the drum for a "super-sovereign" currency overnight? China, that's who! So... They're Baaaaaaaaccccckkkkk! OK... This was the People's Bank of China (the Central Bank), that made this statement, along with a call for the IMF to manage part of member's foreign exchange reserves... Hmmm... OK, I just said that China wants more power on the world stage, and here they are saying that their puppet will be the IMF! OK, I took some liberty with that, but it's the way I see it!

OK... Back to what's going on in the currencies today... Hmmm... The dollar is getting taken to the woodshed to end the week, that's what's happening! And the currency leading the pack with regards to performance VS the dollar, drum roll please.... The Brazilian real... A 3 day "winning streak" has the real back to levels it saw before the Brazilian Central Bank (BCB) cut rates about 10 days ago...

The way I see it, and long time readers know this will be interesting in the least, is that investors want to invest in the BRIC countries, but there's very little liquidity there in each of those currencies, along with very little yield, except... In Brazil... Liquidity isn't what the majors enjoy, in fact it's still traded on what's called a "non-deliverable forward", which means it can only settle in dollars, with no deliverability, but... It's traded easier and less costly than the other BRIC's and... It has the highest interest rate available... So... You can see why investors are buying reals...

Having said that though... You must know about the volatility... Look at what happened this week... On Monday, we started the week with the real at 1.9750, only to see it rocket to 2.0326 in one day's trading, a near 3% move / loss in one day! Then we saw it rally back to 1.9795 the next day, and after 3 days of gains the real sits at 1.9420 this morning, thus generating a "gain" for the week! And... The other thing, is that Brazil is considered an Emerging Market... And long time readers have learned over the years that when one Emerging Market gets slammed, they all get taken to the woodshed... So... Be careful out there!

A high yield currency that far removed from the early days of trading like Brazil, but offers yield, is the New Zealand dollar / kiwi... And kiwi has been held back, although still posting a gain VS the dollar, overnight as 1st QTR GDP printed at a negative -1%, thus marking the 5th consecutive quarter of negative growth in New Zealand...

I'm probably out there on the big fat limb (to hold me up, of course!) by myself on this one, but... I personally believe that both the Reserve Bank of New Zealand (RBNZ) and the Reserve Bank of Australia (RBA) have seen the lows in their interest rates, and no further rate cuts will come from these respective Central Banks. I know, that last week, we were all hyped up about future rate hikes from the RBA in 2010, and we probably got a little ahead of ourselves with that thought... I'm probably ahead of the curve on the "end of rate cuts" talk... But that's where I like to be!

So... When the world's investors are looking for yield, they don't have to go to Brazil, or India... They can go to the old reliables... Australia and New Zealand, with a reduced fear of further rate cuts... At least that's they way I see it! And yes, I could be wrong...

And how about Gold and Silver this week? What a week on Mr. Toad's Wild Ride for precious metals... The main thing though is that they are finishing the week with a rally, and Gold which was trading at $922 on Monday, is $944.85!

And how about that grilling that Big Ben Bernanke received yesterday by legislators over the Fed's conduct in the Bank of America (BOA) takeover of Merrill Lynch... You may recall that BOA's CEO, Ken Lewis said he was "bullied" into taking over Merrill and not disclosing to his shareholder all of Merrill's losses that were on the books... Big Ben denies that he participated in any bullying... (doesn't that lead to Paulson then? Did Big Ben just throw Paulson under the bus?)... Any way... Big Ben did little to convince the legislators that the Fed didn't keep their hands out of the cookie jar... And that, my friends, may be the foot in the door that we've been looking for... Maybe, just maybe, because you never know, but with the legislators having questions about the Fed and Big Ben, they probably aren't in any mood to hand over the regulatory powers that the President wants to give them...

And... My old fave Central Banker, NOT! Big Al Greenspan was back in the news last night... I'm trying to figure out how he and I got on the same side of the ship... But, here was Big Al, my nemesis for years, talking about inflation being a concern... Let's listen in to Big Al... Alan Greenspan, former chairman of the Federal Reserve, said the threat of inflation needs to be confronted because it poses a threat to economic recovery. "Excess capacity is temporarily suppressing global prices. But I see inflation as the greater future challenge," Greenspan said. "If political pressures prevent central banks from reining in their inflated balance sheets in a timely manner, statistical analysis suggests the emergence of inflation by 2012."

Of course, I think inflation will be showing its ugly face next year, not 3 years from now!

And on the data front... The Weekly Initial Jobless Claims "surprised" economists by moving back up, after falling last week... 627,000 unemployed Americans filed for unemployment claims last week... No "green shoots" here! In fact... We need to see if we can use these so-called Green Shoots that the President and Big Ben keep talking about, for ethanol... They've got to be good for something! HAHAHAHAHAHAHAHA! I must say that a reader gave me that line!

And here's Warren Buffett on Green Shoots... "I had a cataract operation on my left eye about a month ago and I thought maybe now I'll be able to see green shoots. We're not seeing them. Whether it's retailing, manufacturing, wherever. We have a big utility operation. Industrial demand is down like we've never seen it for a simple thing like electricity. So it hasn't happened yet. It will happen. I want to emphasize that. But it hasn't happened yet."

And... Then... There was this... A good story to end the week and head to the Big Finish with...

Barclays Capital Inc. (Barclays) the world's third largest currency trader, have lowered their one-year forecast for the dollar, saying foreign investors will reduce their purchases of U.S. assets... Barclays referred to the dollar's status as "safe-haven paradise lost", due to the ballooning fiscal deficit and the printing of money by the Central Bank... Barclays believes that the euro will be trading at 1.50 in a year...

Hmmm... Nothing new there for Pfennig readers, but, I always find it to be good to see others with their BIG research departments, no divisions, yeah, divisions, that's bigger than a department! Wait, get back on track, here Chuck! Yes, the Big research divisions, that finally come around to what little old me has been saying for months now... Oh! And that "little old me" has just got to crack up any one that knows me, and have seen me lately!

And one more thing... Oil is back to $71 this morning, as there has been more problems in Nigeria... Let's hope these problems go away!

Currencies today 6/26/09: A$ .8055, kiwi .6450, C$ .8710, euro 1.4085, sterling 1.6490, Swiss .9210, rand 7.9680, krone 6.4250, SEK 7.8125, forint 196.20, zloty 3.1975, koruna 18.50, yen 95.40, sing 1.4540, HKD 7.75, INR 48.21, China 6.8338, pesos 13.18, BRL 1.9420, dollar index 79.86, Oil $71.07, 10-year 3.55%, Silver $14.25, and Gold... $945.65

That's it for today... Well... Today marks the 2-year anniversary of the surgery that removed my cancer ridden femur, and replaced it with a prosthetic. Quite an ordeal, but... Here I am! Rock you like a hurricane! Oops, sorry, got carried away there! I'm so happy that's behind me now! Well... Michael Jackson has died at 50 years old... When I think of Michael Jackson, I just remember my two oldest kids, playing that Thriller album over and over again. The heat wave over us continues, but is expected to back off next week... My little buddy, Alex, turns 14 on Sunday. WOW! We began a tradition when he was quite young, of the two of us going to breakfast on his birthday. Two years ago, when I was in the hospital, my darling daughter, Dawn, brought Alex to the hospital with breakfast, so we could continue the tradition. I hope I can continue celebrating with him for many years to come. So... Happy Birthday Alex! Real long time readers might recall when Alex was 3, and would sit on my lap as I wrote the Pfennig from home, and every once in awhile the text would look like this... 9087lkndy7, and I would say, "sorry, Alex is helping me again"... Alex has already made me aware that he can get his drivers permit next year... YIKES! OK, time to head off into the sunrise... (not sunset, as I'm writing at daybreak, HAHAHAHA) The currencies are having a Fantastico Friday, so why don't we joining them?

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

So Far... It's A Turn Around Tuesday!

Chuck Butler — Tue, 23 Jun 2009 14:42:11 GMT

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In This Issue..

* Currencies bounce back...
* Commodities and Commodity Currencies get hit hard!
* China's recovery a myth?
* Devaluation in the dollar's future?

And Now... Today's Pfennig!

So Far... It's A Turn Around Tuesday!

Good day... And a Terrific Tuesday to you! It's too hot in the hot tub! You can't make me get in the hot tub! Ahhh... When I walk outside and my eye glasses fog up from the heat and humidity, I think of that old Saturday Night skit, with Eddie Murphy playing James Brown!

OK... Well, yesterday we saw the currencies stop the bleeding from the overnight sell off, and although they range traded on the day, the bias was to sell dollars once again. That bias has played through on our Turn Around Tuesday theme, and the currencies are higher today than yesterday, but lower than they were 3-weeks ago week ago. Yes, the month of June has not been kind to the currencies, as some of the euphoria that was going on from March thru May, regarding the global economic recovery is being thought about again, and this time, not with the same rose colored glasses...

Yesterday, I told you about the story in the Australian Morning Herald that shook the A$'s confidence, when the Economics Editor said the markets were wrong to believe the Reserve Bank of Australia (RBA) were finished with their rate cuts. Well, that story was followed up by one that shook the confidence of the Commodity Currencies... This one was about China, and how analysts had gotten the stimulus all wrong in China, and that the Chinese had NOT put the money toward infrastructure and Capital improvements but instead into investments, thus making the Chinese disguising the stimulus in China as a recovery... Hmmm... I don't live in China, so I can't really pass judgment here, but I will say that most people that comment on China in the past 6 years have been mostly wrong.... And more wrong than right for sure!

But... As they say on the farm, it's too late, the cow's out of the barn! That Chinese stimulus story, hit a nerve with the Commodity Currencies, and before you knew it, the high flying currencies of Aussie, kiwi, Brazil, and South Africa were all looking at figures that thought for sure were in their rear view mirror! The sell off was damaging for sure...

This looks like a classic case of "getting cold feet"... Traders were all lathered up to take these currencies higher last week, but read a story and "got cold feet"... They would say they are being prudent... I would say that they are being wimps! Because in the end, folks... This has nothing to do with whether or not the RBA cuts rates again or not! In the end, this is all about what the U.S. is going to do about all their debt! I've harped on this for years, and the thing that really gets me is that IT HAS GOTTEN WORSE! The National Debt, is now over $11 Trillion, and will probably reach $14 Trillion this year, after all the deficit spending by the administration... This is just awful folks, just awful... Because... And here I go again getting up on my soapbox, but come on, this is important! And Yes, I know, you've heard this at least 100 times if not more before!

But, the only way the U.S. is going to be able to pay down their debts, and the $11 Trillion is just the tip of the iceberg with the baby boomers starting to retire, is to pay it back with cheaper dollars... But... Hey! Don't take my word alone for this... Let's listen in to the IMF's Chief Economist, Olivier Blanchflower, who was speaking at a conference in Paris yesterday...

"A U.S. economic recovery will only be sustainable if there is a "large increase" in net exports, which may require a dollar adjustment. It may not be very easy, It may require "an adjustment in the dollar, but it is needed."

Did you hear that? The IMF Chief Economist is saying out loud, and not under his breath, like most economists that see this but don't want to go out on a limb, that the U.S. needs to devalue the dollar!

Now... That might be a shock to you, folks... But it's not to me! And if you've read the Pfennig for a long time, and heard me harp and harp about the deficits and not being able to pay them back unless we do so with a cheaper dollar, then now it might just all come back to you... Like what the blind man said when he spit into the wind, Ahhhh, it's all coming back to me now!

But again... It's not just me that thinks these things, although I will say that sometimes it sure feels like I'm the only one saying them out loud every day of the work week!

Today, I have a special treat... And once again, I'm as proud as a peacock this morning, because, I have a quote to share with you, from the one and only Richard Russell... This comment plays well with what I've just been talking about... Check this out!

Richard Russell - "It's clear (at least to me) that Obama is following the path Roosevelt took during the Great Depression.

In 1933, the government devalued the dollar by 41% by raising the official price of gold from $20.67 to $35 an ounce. Devaluation makes debt easier to handle. In a devaluation, the dollar value of debt remains the same, but all other assets would be worth more (in nominal terms) whether it was a house, a stock, a car or an ounce of gold.

How our creditors who own trillions of dollar in their reserves will react to a dollar devaluation I really don't know, but a devalued dollar is a lot better than nothing. The Bernanke Fed is trying desperately to bring back inflation, and devaluing the dollar is the surest and quickest way to inflate."

WOW! It's not every day that I get to use a quote by Richard Russell! But now... Think about this stuff that's in the Pfennig this morning... And then think about what I told you last week, about how all this going back and forth in the currencies and precious metals, is just "noise"... Ahhh, now I want to hear you say... "I get it, I get it!"

Oh... And to follow up the Blanchflower, Butler, and Russell comments... Ty sent me a quote my Mark Twain that sums it all up... Mark Twain - "History doesn't repeat itself, but it does rhyme."

U.S. stocks sold off 200 points yesterday, making it a tough row to hoe for the Commodities, and Commodity Currencies... The Brazilian real posted the worst performance on the day, with the real moving back above the "2" level for the first time in about a month... Recall, that the Central Bank Gov. said in the middle of May that he would everything he could to keep the currency above "2", only to watch it move below and then well below "2" in the next weeks. The Central Bank Gov. did try, by cutting interest rates about 10 days ago, but in reality, he has little at his control if the markets / traders / investors decide to buy the currency... He does not have a treasure chest of reserves like the Bank of Japan and Bank of China... No, in reality, the only way the real was going to move back above "2", was to have the sentiment toward Commodity Currencies change...

And again, I can't believe that the one story in the Australian newspaper, has caused a sea-change of sentiment like this! Maybe, the story's writer will be proven to have been bang on... That's not what I'm saying... I'm saying, his opinion, caused a sea-change of sentiment, and that surprises me!

I had someone write me yesterday and say, I might add, once again, that Europe is in worse shape than the U.S. that they didn't even have stress tests there because they fear what they might show... Hmmm... I wonder what they'll think when they read this... ECB member, and President of the Bank of France, wrote in his annual letter to French President Sarkozy, that the "worst has passed for the economy and that he was favorable to releasing the results of the banks' stress tests." Hmmm... Guess we're back to the "ugly car" comparison, eh?

Recall last week when I told you about the Chinese announcing a "buy China" protectionist program? I said then that these things usually spread and other countries announce their own versions of protectionism measures... Of course, we all know who started this round of protectionist talking... The current administration and their "buy American" plan... The Chinese measures were placed to offset the U.S. measures... But now, Germany is feeling pinched... Germany's economy minister, Guttenberg, is voicing concerns about the Chinese announcement last week, and that he would bring this up at the next G-8 meeting in July...

Well... The problem with that is that China isn't a member of G-8, so this could just be a "you-know-what session" of finance ministers, getting them all wound up to write protectionist measures of their own! Watch for these protectionist policies to spread like Bermuda grass! And, if that happens, the global recession will get even worse, folks! Thanks to the "buy American" move... Geez Louise, when will they ever learn? When, will, they, ever... Learn?

Looks like more and more people are jumping on my bandwagon, that the stimulus would not work... Two months ago, 59% of Americans thought the $787 billion stimulus would restore the economy, but since then, the number has slid to 52%. And... As unemployment heads to 10%, even with the adjustments and ghost jobs the BLS adds each month, that number of those that thought the stimulus would restore the economy, will continue to slide...

And finally a not so serious story... Say it ain't so Paul Simon! Kodak will retire Kodachrome! Eastman Kodak has announced it will discontinue the legendary 74-year-old film that revolutionized color photography because of slow sales and dwindling demand in the film, due to digital cameras...

Kodachrome
You give us those nice bright colors
You give us the greens of summers
Makes you think all the world's a sunny day, oh yeah!
I got a Nikon camera
I love to take a photograph
So Mama, don't take my Kodachrome away

On a sidebar... I saw Paul Simon in concert this past spring... A great concert!

Currencies today 6/23/09: A$ .7870, kiwi .6330, C$ .8670, euro 1.3960, sterling 1.63, Swiss .9295, rand 8.24, krone 6.5375, SEK 7.9650, forint 202, zloty 3.2535, koruna 18.71, yen 95.50, sing 1.4565, HKD 7.75, INR 48.54, China 6.8345, pesos 13.33, BRL 2.0325, dollar index 80.44, Oil $67.08, 10-year 3.68%, Silver $13.81, and Gold... $922.73

That's it for today... OK... Are you as fearful of what could happen in this on-going N. Korean ship following by the U.S.? That kind of stuff is scary... Somebody gets a nervous trigger finger, and... Oh well, I had better think of more peaceful things this morning, eh? For those that send me notes asking me about my left eye... I don't have anything new to report. My lack of vision with the eye is the same, the good news is that it hasn't gotten any worse! I told a good friend of mine the other day, when he expressed his concern that I've taken more than one hit with this cancer... "So far, the Good Lord has only allowed me to be attacked by cancer in places where I have two of"... Kidney, hip, leg, and eye! And... That's the way I see it! I love those east coast starting times, I can actually watch the whole game! Of course I didn't like it last night when the Metropolitans took it out on my Cardinals... Time to go... I hope you have a Terrific Tuesday!

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

A Currency Rally For The Ages!

Chuck Butler — Fri, 29 May 2009 15:11:00 GMT

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In This Issue..

* Negative momentum towards the dollar grows...
* Treasury yields continue to rise...
* Fundamentals and Charts coincide!
* Silver has best week in 22 years!

And Now... Today's Pfennig!

A Currency Rally For The Ages!

Good day... And a Happy Friday to one and all! I'm going to make the call and say this is going to be a Fantastico Friday! The sun is supposed to come out today after a week of rain, it's Friday, it's pay-day, and... The currencies have put on a rally that's the stuff that movies are made from! And... Once again, there were signs yesterday that the break of the link to stocks was in place! Take all that, and the fact that we woke up this morning for a brand new day... And you have a Fantastico Friday!

OK... So front and center this morning let me tell you about the currency rally that began yesterday morning... Let's look back at what I said as I was getting ready to hit the send button yesterday morning... "So... As I get ready to head to the Big Finish, I see that the currencies, led by the Big Dog, euro, are getting off the porch once again to chase the dollar."

And... The Big Dog, euro, did get off the porch, which allowed all the little dogs to get off the porch to all chase the dollar... Now, before I go on... I wanted to make certain everyone understands what I'm talking about here, when I say "chasing the dollar down the street"... Imagine, if you will, a Big ole dog sitting on a porch, and a rabbit (the dollar) comes hopping by. The Big Dog will spring from the porch to chase the rabbit... If the he catches the poor little rabbit, the rabbit will be cease to be... So, now replace the Big Dog with the euro... And the rabbit with the dollar... And when the euro is chasing the dollar down the street, it's not a good thing for the dollar... For what if the euro catches the dollar?

OK... Sorry for the explanation but it occurred to me that I talk so much about the "Big Dog" euro, and all that, I had better do some 'xplainin'!

For most of the day the currencies rallied VS the dollar, and stocks were going nowhere, which was another good sign that the link between these two asset classes had broken... Stocks did end the day on a high note... But, for the most part were down or flat on the day before rally in the afternoon.

I've been telling you that the "negativity" toward the dollar has been building pressure, and just like any pressure cooker, if the heat stays on, the pressure cooker will finally give in... And it sure looks as though the dollar bulls finally gave in yesterday... Let's just look at this move... Yesterday morning, when I arrived here, the euro was trading at 1.3830... By the time I hit the send button it was 1.3895... And this morning when I arrived, it has a completely different look to it... Trading at 1.4080!

Were you sitting on the sidelines and feel that you missed this move? Well... I have a governor on my writing, folks... But, still I pointed out emphatically a couple of weeks ago that the dollar index had traded through the downside of its 200-day moving average, and that the euro had traded through the upside of its 200-day moving average...

The boys and girls over at Morgan Stanley see a 10% Trade Weighted dollar drop... The believe this will happen through the end of the year... Hmmm... The dollar index (recall I explained this a few weeks ago) has lost 5% since May 8th when it traded through its 200-day moving average... And... The technical / charts people are beginning to jump on this bandwagon, and say their charts are telling them that this is a strong indicator that we're heading for another leg down in the dollar... So... You've got the fundamentals rounding back into shape, and the charts confirming it...

So... Let's sit back and look at the currency landscape for a minute... What's causing this run on the dollar, you might be asking... Ahhh grasshopper... I kept telling you and telling you, that the debts were going to come home to roost, and when the markets got tired of having to choke down the debt issuance, the reversal of the "flight to safety" treasury buying that boosted the dollar from July 2008 - Feb 2009, would rule... And the selling of the dollar would be just as swift as the buying of the dollar was back in July and August of last summer!

I know, I know, you basically wrote that off and said I was akin to the "boy who cried wolf"... But... I did it so that you would have that V-8 moment, when it all began to happen! I've tried to tell you that Treasury yields were rising, which meant there was Treasury selling going on... And it's come to this... What I put down before you months ago.

I'm not trying to blow my horn here, I'm simply trying to show you the sequence of events!

OK... Enough of that! This morning, there's news from the South Korean Pension Fund that is shaking the foundations of the Treasury market... The Fund has announced that they will reduce the amount of its exposure to U.S. Treasuries, and diversify into other assets... This fund is about $200 Billion in size... So, not the likes of China and Japan, but still... Just another outlet for Treasuries to be apparently closed...

In other news that's helping drive up the currencies, as it's not all just "dollar selling"... Retail Sales in Germany showed a nice rise, the first one in 4 months! And in some news that you might not find anywhere else... Eurozone M3 (Money Supply) printed at +4.9%... Hmmm... U.S Money Supply, the last time I looked, was running in the double digits... So... Which economy is going to suffer from higher inflation pressures? Money Supply is inflation folks...

And in some not so bright news for the U.S. economy and housing... The New York Times ran an article from the Mortgage Bankers Association (MBA), that shows 12.07% -- about 5.4 million -- of all U.S. home mortgages were delinquent or going through foreclosure during the first quarter. That compares with 11.93% at the end of last year. UGH! That's awful news... And U.S. Consumer Confidence was higher this month? Really?

Well, folks... I just glanced at the currency screen while typing, and yes, I can do that, with very little in the way of errors, to see the euro cross the 1.41 level... So, now the move looks even stronger, because the euro has gone through two levels of resistance at 1.40 and 1.41...

Looks to me like the only thing that can stop this run-away bus is a bout of profit taking, or the invisible hand of the markets... Dare I say government intervention? I don't want the folks at CNBC to tell me to take this idea to "Hollywood" like they did last week with my PPT thought!

I'm seeing quite a few articles these days on how "unhappy" Big Ben Bernanke is with these rising interest rates... It sure this let's his cow out of the barn, eh? His cow being artificially low interest rates on mortgages... Government intervention in this whole mess continues to muddy up the process, and Big Ben has had his hands right there in the mud! At least my son, Andrew, got his home loan rate locked in, before this latest rise in mortgage rates!

The data cupboard spills out all over the floor today with more data than the cupboard can hold! But before we begin the data round-up, let's look at a couple of other currencies besides the Big Dog, euro... The Aussie dollar (A$) is within spittin' distance of 80-cents! The loonie is within spittin' distance of 91-cents! OK, I'm outta spit now, so I'll just tell you that every currency I see on the board is moving higher VS the dollar.

And the precious metals of Gold and Silver are taking liberties with the dollar too! Last week I told you about the Gold and Silver ratio, and how the Silver ratio was out of line, which could mean a good "buying opportunity" for Silver... Well, in the past week, Silver has put in its best 1-week performance in 22 years! WOW! That's right, 1987, was the last time Silver had a performance like it had this past week! And to move it out further, Silver has gained 25% this month! Double WOW!

OK... Time to settle down... Let's take a look at the mess on the floor from the data cupboard! First off, a revision to 1st QTR GDP will print this morning, expect a revision to show GDP performance was worse than first reported. Look for GDP to revised down to -6.1% from the original -5.5%... Personal Consumption for the 1st QTR will also print, and is also expected to be worse than originally thought. Then the Chicago Purchasing Managers Index (manufacturing for the region) will print... And finally, the U. of Michigan consumer confidence index is expected to show confidence is rising... In what? I guess simply stocks... But given the soaring unemployment, the recession / depression, and rising savings rate, where are corporations going to make money to support these stock prices? I think I've said this already, but if I haven't it simply means that I wrote it somewhere else, but I truly believe that we are going to see negative price to earnings (P/E) ratios later this year... Now, that REALLY gets my stock buying juices going!... NOT!

I don't like going to the Big Finish on a Friday on a sour note like that... But, what's a poor Pfennig writer to do? At least currency and precious metals holders are happy this morning! Oh! And it's Friday, so we must have a "feel good Corporate story" today at the end of the Big Finish!

Currencies today 5/29/09: A$ .7995, kiwi .6380, C$ .9085, euro 1.4120, sterling 1.6165, Swiss .9335, rand 7.9470, krone 6.3130, SEK 7.5650, forint 199.58, zloty 3.1610, koruna 19.0385, yen 95.80, sing 1.4420, HKD 7.7510, INR 47.12, China 6.8281, pesos 13.11, BRL 2.0025, dollar index 79.52, Oil $66.17, Silver $15.54, and Gold... $975.45

That's it for today... The momentum in the currencies right now is incredible! My beloved Cardinals, back in first place where they belong, are on the West Coast this weekend, which means I miss most of their games, as I can't stay up that late! The sun is supposed to remain out for the weekend here, so we've got that going for us! It's that time of the year, with all the graduation parties. Congrats to all the graduates! Good luck! I just love these 4 day work weeks! Time to go to the "feel good" Corporate story of the week! I hope your Friday is Fantastico!

********************************
Pat here in Jacksonville with the Fitness Industry "feel good" story.
Although we're not insulated from economic downturns, we are somewhat more resilient than other discretionary money takers. Nonetheless, the industry as a whole shares a relative bruise on the shoulder - bad dept is up, new business is down, etc. The good news is that people don't have to get a loan to join a health club. So in these dark, gloomy economic days our clubs have actually seen increases in year to year revenue three straight months. How is it that health clubs can realize growth in this environment?
In the good ole days it was all about margins. Today it's all about market share. Hands are folding everyday and if you want to see the next card you better have chips on the table. Understanding this, we have eliminated any reason not to do business with us; long term contracts - gone - exorbitant initiation fees - gone. Conceding to the consumers' ultimate terms has redefined our modus operandi - we no longer establish the terms and conditions for how we conduct business. The consumer does. They want ease of entry? We give it to them. They want no long term commitment? Fine. This is how we not only are surviving but thriving (relatively typing) in a recession. It's the microcosmic adjustment I fully expect to see manifest to the macro stage in the very near future. My fav quote from John Kimsey..."Do something; even if it's wrong - do something!" Going against the grain of generally accepted rules can sometimes forge new generally accepted rules.

Patrick Meinert
President
Fitness Management and Consulting
841 Prudential Drive Suite 120
Jacksonville Florida, 32207
www.fmcjax.com
Office (904) 396-6122
*************************************************

I hope you liked Pat's story!

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

Maybe, Just Maybe A Break In The Link?

Chuck Butler — Wed, 27 May 2009 12:57:53 GMT

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In This Issue..

* Currencies consolidate...
* Brazil posts a surplus!
* Dr. Marc Faber speaks...
* High yielders rule!

And Now... Today's Pfennig!

Maybe, Just Maybe A Break In The Link?

Good day... And a Wonderful Wednesday to you! A very tight trading range day was in place yesterday for the currencies... In yet another sign that maybe, just maybe, because you never know, the currencies could be breaking their link to stocks... U.S. stocks jumped 196 points yesterday, and the currencies range traded... Hmmm....

Not that this will become a "stock jockey journal"... Stocks jumped on the news that Consumer Confidence surged this month... Talk about looking at things through rose colored glasses! Any way, Consumer Confidence surged... Better to have blips in Confidence than to be all negative all the time I guess! I also guess the stock jockeys took what was behind door number 1 (consumer confidence) and not was what behind door number 2, which was the Case-Shiller House Price Index...

For the first quarter, the S&P/Case-Shiller U.S. National Home Price Index posted a 19.1% drop from a year earlier, the biggest quarterly decline for the reading's 21-year history. So much for those (insert name to call them) that thought we would see Home Prices level off! Not that there's anything wrong with "wanting" to see Home prices level stop falling, but come on... Where was the proof of that happening? So... Any way... Obviously, Home Prices continue their multi-year tumble... And, the most important thing about the report is that it gives no signs... Get that? NO SIGNS, of abating Home Price declines...

Alrighty then... We've got those two under our belt! Let's get on with the news! So... Now, I read where N. Korea is threatening a strike against S. Korea... Not that we follow the S. Korean Won, but that can't be a good thing for the S. Korea's currency... Of course there are a lot worse things that could happen and people wouldn't be worrying about the currency! But for now, it's just words...

The good news this morning is that Brazil has posted their first Current Account Surplus in 19 months! $146 Million in April was the figure... And any Current Account figure that's written in black is good for a country and their currency! And the real is no exception to this rule. The real is trading this morning at 2.0060, spittin' distance from losing that "2" handle! (real is a European Style priced currency, so the lower the price, the more value it returns VS the dollar) The real hasn't seen the underbelly of a "2" handle since October of last year!

You may recall last fall, I wrote about how the real was holding serve, but eventually it had to give up ground, with the euro losing value and commodity prices circling the bowl. But now that the Big Dog, euro, and commodity prices are on the rise, once again... The real is back in the driver's seat... Ooh, ooh, ooh, driver's seat... A free Pfennig to the first person that knows the name of the band that sings that song. No Googling it!

Don't know if you look at these things or not... But Treasury yields continue to inch higher and higher... It's almost as if they are looking for the pressure point that will cause the U.S. / Fed and Treasury too much pain... In the meantime... Holders of Treasuries are losing value... Of course if they hold them to maturity they get their principal back, so no loss of principal there... But how many of the Treasuries that were purchased last year in the "flight to safety" were made with the thought in mind to hold them to maturity? My guess, is very few... And so it goes for those that thought they were making a flight to safety!

And of course, the dollars they bought to make those Treasury purchases has lost quite a bit of ground since March, which means the Treasury holders get a double whammy / hit... Bond price, and currency price... Fun times at the old Treasury ranch, eh?

And while I'm on that subject... Recall that I've gone out on the limb (no worries, I picked a big strong limb!), and said that I believe that on the other side of this current deflationary asset price scenario we are in, we'll see inflation that rivals the inflation we saw in the late 70's, early 80's... Inflation like that will absolutely kill the price of bonds...

And to that... We have a quote or two from Dr. Marc Faber. I sat on a panel with Dr. Faber at the New Orleans Investment Conference in 2007. A truly intelligent man with the ability to look ahead and see things that others don't see... Well... Any way... What I'm trying to get at is an interview that Dr. Faber gave on Bloomberg TV... Here's the good Dr.

"The U.S. economy will enter "hyperinflation" approaching the levels in Zimbabwe because the Federal Reserve will be reluctant to raise interest rates." He went on to say... "I am 100 percent sure that the U.S. will go into hyperinflation. The problem with government debt growing so much is that when the time will come and the Fed should increase interest rates, they will be very reluctant to do so and so inflation will start to accelerate."

OK, back to me... Now, I think Dr. Faber mentioned Zimbabwe to illustrate his "hyperinflation" call... Myself? I think that just what I said above that inflation will rival that seen in the late 70's, early 80's... Dr. Faber has a point, that I've tried to make before, so let's see if I can get it across now... When a Central Bank raises interest rates, the new Treasury supply they issue has a higher yield, than previous ones issued... That makes the previous ones issued, less valuable. So, what will the Fed do, when the first signs of run-away inflation show up? Do they bite the bullet and raise rates causing all their previous issues to lose value (hello, China, I've got bad news for you), or do they do what Dr. Faber suggests they will do... Nothing, absolutely nothing, say it again!

And what's this all got to with currencies? Ahhhh grasshopper... Everything has to do with currencies! Those dollar denominated Treasuries when reversed and sold, will have the dollar purchases reversed and sold too!

And then throw in what I've been talking about lately with China already signing 6 currency swap agreements with countries that allows them to take dollars out of their trade equation with these countries, and put renminbi into wider use, and you've got the "Perfect Storm" forming for the dollar, folks... I know this is all what I see, and now "fact" per se... But, it's staring us right in the face! I don't know why more people aren't talking about this!

OK... Let's go somewhere else, all this talk is starting to give me a rash!

How about.... Asia? Yes, let's see... There were rumors yesterday that Asian countries like Singapore, India, and Japan had to intervene in the markets because of the dollar's decline. It's likely that Asian Central Banks had to sell their currency and buy dollars to keep the fall in the dollar to a minimum. I really, truly don't like when Central Banks get into the markets... It's manipulation... And as long as they can do that, and... Print money... There really is no such thing as "free markets", right? If, Alan Greenspan can manipulate interest rates to allow the stock market to run higher for years, was it the stocks that was the "root" of the rally, or was it the Fed Reserve manipulation? Yes, I'm sure you know the answer...

Well.. Gold continues to consolidate after last week's huge run-up. I think that when you see assets stop to take a breather, it's a good thing. 1. it allows those that were looking to buy a chance to buy without chasing a rising asset... And 2. Trading trends are not one-way streets, so as long as the asset doesn't have a HUGE sell off, then the price action is good... It allows the asset to form a new base from which to spring higher!

I see the pound sterling trading this morning with a 1.60 handle... That's the first times since November last year... Only this time the currency is rising instead of sliding down the slippery slope! I really don't see the value in pound sterling, but apparently others do! This rise does give owners who wanted to get out of the currency an opportunity to do so at higher levels!

I heard one of the salespeople yesterday tell a customer that the South African rand had been the best performing currency this year... But that was before the Brazilian real posted its Current Account Surplus and rallied! Any way, I was going to talk about the rand... Now, I've always said that I wasn't a huge fan of the rand, because it was volatile, and the corruption in the country just didn't give me a warm and fuzzy... But, what's going on right now is simply a case of the rand being 1. a high yielder, and 2. a commodity currency...

The need for higher yields is quickly becoming a growing concern for investors... They are difficult to find, and when you do find them, they're mostly the property of Emerging market countries, or Commodity countries... Not your run-of-the mill "major" currency like euro, yen, or sterling! So... What I'm telling you, is simply be careful out there in high yield land!

The price of Oil spiked up yesterday to over $63!

And finally... The first test of the 2-year auction of Treasuries, passed... But getting investors to go short probably isn't the real problem... The real test will be the 10-year and out... I told you earlier that yields were rising... Well... How does this sound? 10-year yields are up 129 Basis points so far this year and 103 Basis points since the March 18th quantitative easing announcement.

OK... The email server is down and out this morning, so I have no idea when this will actually get to you today... I've got some things to get done this morning, so I'll just go ahead and go to the Big Finish, and hope it goes out!

Currencies today 5/27/09: A$ .7845, kiwi .6190, C$ .8980, euro 1.3930, sterling 1.60, Swiss .9190, rand 8.2870, krone 6.3830, SEK 7.6570, forint 203.50, zloty 3.1950, koruna 19.23, yen 95.30, sing 1.4515, HKD 7.7525, INR 47.70, China 6.8284, pesos 13.18, BRL 2.0067, Dollar Index 80.50, Oil $63.11, Silver $14.53, and Gold... $950.60

That's it for today... Today is a very special day... It's the first ever World MS Day... 100 nations around the globe are joining together to build awareness for multiple sclerosis. My mom had MS, so that's why I point this out today. I see currencies selling off a bit since I did the currency round-up... The monsoons continue here in the Mid-West... The river that runs through my little town is swelling once again, with all this rain-fall I have to believe it will spill over its banks soon... And that makes getting to and leaving from my little town a bit difficult! Well... Mike's here, that means I'm running late! Time to get on with this Hump Day... I hope your Wednesday is Wonderful!

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

Currencies Bounce Back!

Chuck Butler — Tue, 19 May 2009 15:12:34 GMT

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In This Issue..

* Risk Assets soar!
* German Investor Confidence surprises!
* High yielders kicking tail...
* Who's afraid of the SNB?

And Now... Today's Pfennig!

Currencies Bounce Back!

Good day... And a Terrific Tuesday to you! Finally! Spring has arrived and for more than one day at a time here in St. Louis! YAHOO! A very cold and wet spring for us, brought us to the middle of May before normal spring weather was upon us... Good things come to those who are patient, right?

OK... Speaking of patience... I think that's what we'll all have to possess a lot of going forward with these currencies and stocks... Here's what I'm talking about... Yesterday morning it looked as though the recent rally in stocks was over, complete, pack up the bags, get on the bus, Gus... And with the trading theme of throwing all risk assets in the same bag and trading them alike that's been in place since last July, this would seem to be a nail in the coffin of the currency rally we've seen going on since March 1st....

But, NOOOOOOOOO! Let me tell you all about it now... First, we had what I called the potential White Knight for risk assets yesterday, the Indian election results, which pushed the Indian stock market to levels it hadn't seen in some time. That carried over to the Japanese stocks, which carried over to Europe and finally the U.S. It took most of the day to really get things going, but by the time I was packing up to head home, the move was on... And risk assets all around, save for the safe haven Gold, kicked into gear, and were off to the races. And Currencies were in the pole position of this rally!

I just can't get my arms around this stock rally folks... What are they rallying for? Corporate earnings are awful... And the prospects of future earnings are awful... Why do I say that? Well... Have you seen the rot on the labor market's vine lately? "Real" unemployment is north of 16%... And with announcements like the one last night from American Express, where they say they will layoff 4,000 employees, hitting the news wires each day... There's just no way that consumers are going to have the "juice" to support corporate earnings... Those that do have the "juice" will probably squirrel it away, and those that don't, well... They don't have any to squirrel away or spend!

But... I always think of things logically, right? This is logical that stocks would suffer going forward... But will it play out this way? Who knows? I'm certainly not even your last choice for a stock jockey! But... It just seems to me that this is just the way it is... Some things will never change... It's just the way it is...

OK... The "other" news this morning that's fueling a huge currency move overnight... German Investor Confidence, as measured by the think tank ZEW, rose more than the "experts" were forecasting, and reached a 3-year high this month! WOW! OK, I hate to throw cold water on this, but this "investor confidence" is all tied to the rally in stocks... And what's good for the goose (the U.S.) in stocks, is good for the gander (EUROPE) in stocks...

But hey! Why step in front of this bus? If the stock jockeys want to take their assets higher, then I'm not going to throw myself under their bus! The ZEW report is "supposed" to predict economic developments 6 months ahead... Well... By the time we sit down to eat our Turkey on Thanksgiving, I'll look back and see if the ZEW think tank predicted correctly!

The Huge currency rally is across the board, including the once beaten and battered pound sterling, which has really mounted a strong performance in recent weeks... Yes, things in the U.K. are still teetering... But the pound sterling has seemed to have weathered the storm... At least for now!

Of course, in this crazy mixed up world we live in with currencies, a Huge rally currently means that Japanese yen is back on the selling blocks. And... The high yielders are soaring...

The Aussie dollar (A$) seemed to ignore the news from China overnight that the Chinese had ordered an immediate 30% Steel production cut by all mills to address 25-30% over-capacity. Then it seemed for certain the A$ would back off when Reserve Bank of Australia (RBA) Gov. Stevens' gave a speech and revealed his bias toward easing rates further. Watch... At some point in the near future, there will a story that hits the news wires that claims traders are selling the A$ because they believe the RBA will lower rates further... And they will all act as though they "just found this fact out!" But for now... The A$ is kicking tail and taking names later!

I keep seeing one story after another these days from people that claim they "know" the Bank Stress Tests were a "sham"... Well? Didn't I tell you that first? Didn't I tell you the Gov't would not tell us the "real facts" because if they did, they would spook the markets, and even more important spook our foreign buyers of U.S. debt! And we can't afford for that to happen!

But just for kicks... Here's a sample of the stories I'm talking about... Put away the sharp objects before reading, we don't want any injuries.... This is... Howard Davidowitz, Chairman of Davidowitz & Associates, talking... (NOT ME!) "The stress tests were a sham and part of a "con game to get private money to finance these institutions because [Treasury] can't get more money from Congress. It's the 'greater fool' theory. We're now in Barack Obama's world where money goes to those that should never receive a penny....we're bailing everyone out. The bailout money is in the sewer and gone."

OK... That's just a sample of the things I read each day and night... Of course last night I didn't do any reading, as I was glued to my TV for the final 2 hours of my fave show, 24!

And in a story that makes you wonder what the heck these people are thinking... Two economists, Gregory Mankiw, former White House advisor, and Ken Rogoff, former Chief Economist at the IMF, believe that the U.S. economy is in need of a dose of good old-fashioned inflation! WHAT? They believe the Fed should have a looser rein on inflation, to help debt-strapped consumers and governments to meet their obligations... Again... WHAT? I have to wonder just what else the Fed can do to create an inflationary environment! Come on! They've cut rates to near zero... The implemented Quantitative Easing... They've pushed Trillions into the system... And these two dunderheads want more? Did they stop, in the name of love, and think about what they were saying before they said it?

And... I can't understand why they believe that running 6% inflation for "at least a couple of years" is a good thing! Talk about "spooking our foreign investors"! And talk about sending the dollar to the woodshed! Let's hope these two go away... Don't go away mad, just go away...

And then... It sure looks like the Bank of Canada (BOC) is doing everything they can to put a 100 miles of desert between them and Quantitative Easing... There will be a speech today by BOC Gov. Murray titled: "Unconventional Monetary Policy Measures and the Zero-Bound, Differing International Approaches and Critical Considerations"... Now, that looks like a speech title that his marketing team came up with... Why not say... "the rest of the world is doing Quantitative Easing, and we're not!"

Of course... Should this be the "real" gist of his speech, the Canadian dollar / loonie should look to continue its recent strong performance!

The Swiss franc is nearing 90-cents again... Every time it gets to this level, the Swiss National Bank (SNB) makes a statement that "they are watching the currency gains closely" This is supposed to scare traders to not take the franc higher... Who's afraid of the SNB? Of course "real traders" like the ones that were around when I began to deal in currencies, would take this message as a challenge, and push the franc to the point that the SNB had to intervene or lose credibility... And then they would attempt to push the franc higher! But today's traders, are not your "father's traders"... They are wimps! Every time a Central Bank jawbones their currency lower, traders just put their tails between their legs and go home... Give up, quit... Hey! Quitters don't win, and winners don't quit! You can't quit here! When the Germans bombed Peal Harbor, did we quit? NO! (ok that's a line from Animal House, I don't want 100 emails telling me that the Germans didn't bomb Pearl Harbor! HA!)

Today, the data cupboard yields Housing Starts for April... I saw a news story on the TV yesterday that said "Home Builders were seeing a pick-up of new homes being built"... Well... That should be our indication that Housing Starts for April will be stronger! See how easy this stuff is? HAHAHAHAHA!

I always get a kick out of my friend, The Mogambo Guru, and the ending each week of his newsletter... Each week he ends his letter with some message about buying Gold and Silver... And then this line... "Whee! This investing stuff is easy!"

The Mogambo always puts a smile on my face!

Currencies today 5/19/09: A$ .7760, kiwi .6050, C$ .8640, euro 1.3635, sterling 1.5480, Swiss .8990, rand 8.4620, krone 6.42, SEK 7.6675, forint 203.85, zloty 3.20, koruna 19.5660, yen 96.20, sing 1.4610, HKD 7.7510, INR 47.79, China 6.846, pesos 12.91, BRL 2.07, dollar index 82.12, Oil $59.89, Silver $13.94, and Gold.... $922.80

That's it for today... It was good to get back in the saddle yesterday... I actually will be in the saddle for 2 months before travel begins again... WHEW! My beloved Cardinals' good start to the season has just about been turned completely around... They just got swept by the Brew Crew! UGH! And two HUGE Rivals come to town the Cubs and Royals... They need help! NOW! We have another birthday in the office today... Charlotte Reeves is celebrating a birthday... That does it for birthdays this month... Our office here has really added some people in the past couple of years... I don't even know all the people in the office these days! This coming weekend is Memorial Day weekend. Time to make plans! Oh! And don't forget what the day is all about! Time to go... I hope your Tuesday is Terrific!

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

Spraying Round-up....

Chuck Butler — Mon, 18 May 2009 14:55:10 GMT

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

Based on the eye-opening film, IOUSA is your guide to America's enormous economic crisis. You won't find a more concise and complete evaluation of the global financial situation anywhere else.

Get your copy today: http://rcm.amazon.com/e/cm?t=dailyreckonin-20&o=1&p=8&l=as1&asins=0470222778&fc1=000000&IS2=1<1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr
.................

In This Issue..

* Industrial Production declines...
* Stocks sell off, leading currencies down...
* Indian election spurs a rally...
* China stockpiles commodities...

And Now... Today's Pfennig!

Spraying Round-up....

Good day... And a Marvelous Monday to you! Thanks to Chris for picking up the ball on the Pfennig Friday. I returned to St. Louis with a very swollen leg and foot from all that walking in Las Vegas. One of these days I'll learn, eh? Any way... A restful day with my feet up on Friday, and I was ready to go again!

Well... As much as I dislike having to say so, because I told you this might happen... The currencies have given back some major ground VS the dollar since Friday morning. It's all tied to the fact that the euphoria going around the markets the previous week regarding stocks and the U.S. economy, came to a screeching halt last week. I pleaded and begged for the currencies to break this link to stocks, but it wouldn't / didn't happen and voila! What we have here is a failure to break the link, and now that there's a falling demand for stocks, currencies have tanked too... UGH!

Not that I'm cheering for currencies to go one way or the other, what I'm rooting for is a return to fundamentals... And apparently, that did not happen!

The proverbial straw to break the stock rally's back was the color of Industrial Production on Friday... Not that Industrial Production is that Big of a piece of data... It just got added on to all the other bad data that acted like a shot of Round-Up on all those so-called Green Shoots! For the record, Industrial Production decline .5% in April, and March's already bad figure was revised downward to -1.7%... So... The "glass is half full crowd, would say, "Hey!, the pace of decline has slowed, this is an indication of a bottom!" Unfortunately, that's not how the market participants saw it... You have to think outside the box here, and recall all of the announced shutdowns that will be coming down the pike... I fully expect this data to reverse itself and go deeper into the tank.

We also saw the "stupid" CPI (inflation) number on Friday... CPI fell .7% VS a year earlier, which on the outside screams "deflation"! But... That's not what I see... I see a CPI that's dominated by food and energy, and we all know that energy prices have plummeted from last year... So, to me, this is strictly price deflation of energy, and not overall deflation that would include a contraction of money supply. (Like that's going to happen any time soon!) No... And I'm sure there are few readers that will beg to differ with me on this, as they already do every time I mention inflation, but... This data continues to suggest the risk of deflation remains remote, since the drops are still mostly centered in energy and energy-related products.

So... If we've gone back to the black cloud over risk assets that existed July 08 through February 09, that means you can see Japanese yen as the lone wolf rallying major currency... Recall what I told you on Friday about the opposition party in Japan, calling for a boycott of U.S. Treasuries denominated in dollars... Imagine there's no rift between the two, It isn't hard to do, China and Japan getting together for currency cooperation... Hmmm... Makes you shiver, eh? Any way... The yen, is back on the rally tracks and trading this morning with a 95 handle...

But wait! What's that I see? Is it a White Knight for risk assets?

Another Asian currency that I talk about occasionally, the Indian rupee, has been through the spin cycle a few times in the past year... Just when the rupee looks like its on a run, it gets sent back to the spin cycle and comes out looking quite wrinkled... But... We might be seeing a change... This past weekend, India held an election, and the Congress Party - led alliance chalked up a decisive victory... This is the party, led by Prime Minister Singh, that is pro-growth, pro-economic reform. And the news of the decisive victory sent the Indian stocks soaring... Along with the rupee, that's now trading with a 47 handle for the first time in 5 months! So... The rupee has it all going on today, eh?

This news from India, helped turn the stocks around in Japan overnight, and that's a good thing! If stocks can maintain this momentum, that's a good thing for risk assets... But... I'm being pessimistic here... I just don't see how the Indian stock market euphoria can outweigh the bad data here in the U.S. But... I guess we'll have to wait-n-see, eh?

I was reading an article in the Wall Street Journal this weekend, and saw this, that caught my eye... "Economists Say Full Recovery to Take at Least 3 Years"... I bet they didn't make Mssrs Obama and Bernanke happy with that call! Here's snippet of the story from the Wall Street Journal... "Economists in the latest Wall Street Journal survey see an end to the recession by August, but say it will take years to eat up the slack created by the downturn. Nearly half of the economists said it will take three to four years to close the output gap, while more than a quarter say it will take five to six years. The economists on average expect the unemployment rate to climb to 9.7% by the end of the year, with two million more jobs lost over the next 12 months."

Don't know if you remember or not... But some time ago, I told you that I believed the Chinese were stockpiling commodities... They knew they would need them, and it sure seemed like a better investment than buying more dollar denominated assets... Well, the Royal Bank of Canada (RBC) just issued a report that agrees with my earlier statement! Let's see what RBC had to say... "China is stockpiling commodities such as copper and iron ore as part of a reallocation of its sovereign wealth amid concern that the value of its dollar assets may decline. It's part of an overall desire to decrease its exposure to dollar assets."

That's been a reoccurring theme here lately hasn't it? I've spent a ton of time writing about China and their new found diversification bone... I've told you about all this here, in and if you are a subscriber to my monthly "paid" subscriber newsletter, The Currency Capitalist, well, you're probably growing tired of hearing about China... You see I really have to tell you, that it all gets so intense, from my experience... This is BIG NEWS! Oh, and if you want to see what the Currency Capitalist is all about: https://www.web-purchases.com/CUC/WCUCJ900/landing

We have a holiday in Canada today... Victoria Day... I had a reader question why I talked about Australia more than Canada... Hmmm, I said... I did talk about Canada twice last week! But he's right, I do talk about Australia more, and that's because the story right now is China coming out of the economic doldrums before any other country, and demanding more raw materials from Australia... Now, if the price of Oil were to soar to $75 or higher, than I'd be talking about the "juiced" Canadian economy more and more once again...

Before I left for Viva Las Vegas (admit it, you were doing your Elvis voice there!) I had talked about the "rift" going on in the European Central Bank (ECB) well, ECB President, Trichet hasn't done anything on the outside to calm the waters there. Bundesbank (Germany's Central Bank) President, Axel Weber, a very outspoken voice against Quantitative Easing probably stirred up the hot blood again overnight... Let's listen in on Mr. Weber... "the ECB has done enough to help the economy and shouldn't consider further measures unless things get a lot worse." He went on to say a bit more... "the ECB doesn't see the risk of a broad credit crunch or deflation in the euro area."

I'm sure his opposition in Italy, Spain, Ireland, to name a few, will take offense to those statements, and we'll get the "rift" going again, which won't be a good thing for the euro to have to deal with.

The data cupboard is fairly empty this week, and for sure void of any major data until Thursday, when the Weekly Initial Jobless Claims, Leading Indicators, and Philly Fed Index all print... So... Not too much to deal with every day, which can lead to some strange currency moves. It just depends on the overall bias of whether to sell dollars or buy them. We'll get a feeling for that today...

Well... If stocks are going back into the sell gear, then look for Gold to push higher... Which is what it's doing right now, at $930... Speaking of Gold, my webcast Gold presentation last week wasn't much a draw... We had less than 100 people watch it on their computers... Hmmm... Don't know if we'll go that route any more. At least the room was packed!

So... On that note... I'll head to the Big Finish... This is a bit earlier than usual this morning, as I woke up long before my alarm was to go off, and decided to just go ahead and get up.

Currencies today 5/18/09: A$ .7580, kiwi .5895, C$ .8550, euro 1.3475, sterling 1.5240, Swiss .8910, rand 8.6440, krone 6.5025, SEK 7.8630, forint 212.50, zloty 3.3260, koruna 20, yen 95.60, sing 1.4680, HKD 7.7515, INR 47.90, China 6.8269, pesos 13.26, BRL 2.1150, dollar index 82.97, Oil $57.10, Silver $13.98, and Gold... $930.75

That's it for today... An absolutely gorgeous day yesterday here in St. Louis, not a cloud in the sky... Seashells and balloons for sure! I complain about Las Vegas a lot, but there was a really bright spot last week, when our group went to Bobby Flay's Mesa Grill... I'm a big fan of Bobby Flay. When I was at home recovering from my cancer surgeries two years ago, day time TV would have been a bummer without Bobby Flay on the Food Network! I thought I knew quite a bit about grilling before, but I sure know more now! Any way, the food at the Mesa Grill was absolutely incredible! I'm home and in the saddle now until the middle of July when I head to the Agora Financial Investment Symposium in Vancouver. July 21-24th Fairmont Hotel Vancouver, Vancouver BC. It's the 10th anniversary of the Symposium and the Daily Reckoning (www.dailyreckoning.com)! Oh, and a Happy Birthday to our projects King, Keith Rigdon... Time to go through this pile on my desk! I hope your Monday is Marvelous!

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

Carry trades unwind...

Chuck Butler — Fri, 15 May 2009 14:53:00 GMT

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

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

* Carry trades unwind...
* Euro zone GDP falls...
* Will TIC flows be enough??
* Aussie dollar predicted to outperform...

And Now... Today's Pfennig!

Carry trades unwind...

Good day...Chuck handed me the Pfennig this morning, as I took an early flight home yesterday and he got back to St. Louis much later than I did. The Las Vegas Money Show went well, as Chuck packed the presentation rooms with investors looking to learn more about investing in Gold and currencies. Attendance seemed like it was down a bit, but we stayed busy at the booth with investors looking for diversification. We also got to see a number of 'old friends' who stopped by the booth to say hi. All in all it was a good three days, but as always, it is good to get home and back into the routine.

The currency markets fell back into their established routine also, as fear drove investors out of riskier assets and back into the US$. We saw a general reversal of the carry trade, with the Japanese yen the only major currency which appreciated vs. the US$. As Chuck pointed out last week, investors feeling more confident about the global economy, dusted off their carry trades which had made them good money over the past few years. But traders are still a bit skittish, and move back out of these leveraged trades at the first sign of trouble in the global economy.

Europe delivered the bad news overnight with the released of first quarter GDP in the 16 member euro region. Gross domestic product fell 2.5% from the fourth quarter, when it fell 1.6% according to this morning's report. This is the biggest drop since euro-area GDP data was first compiled in 1995, and was 50 basis points higher than the 2% drop expected by most economists. Inflation data was also released for the euro-region this morning, and showed prices are holding steady.

The fall in GDP will likely renew calls for Trichet and the ECB to step up 'quantitative easing' in order to stimulate the european economies. But I have to believe that the ECB got ahold of a 'preliminary' copy of this data, and had a pretty good idea of the bad news prior to their meeting last week. Unemployment in the euro region continues to climb, and the flat inflation data will strengthen the argument for a more aggressive move by the central bank. While the ECB did leave themselves room to increase the money supply, they seem to be content to wait it out a bit before becoming too aggressive with monetary easing.

Since I have been away from the desk for most of the week, the first thing I did this morning was turn on the screens to catch up on what data we were going to get today. It was a bit of a shock, as the list of reports filled the screen. Inflation data will be first up this morning, with the release of the April CPI numbers here in the US. Inflation is expected to show no change for the month of April, with only a small 1.8% increase in the core CPI compared to last year.

The inflation numbers will be followed by the Empire manufacturing number, which everyone expects to show another major contraction in manufacturing here in the US. Then we will get the all important TIC flow data which will give us an indication of the appetite of foreign investors for our US treasuries. We have educated investors on the importance of this number for years, as foreign investment is the only thing enabling the US to continue to live above our means. With the large increase in the budget deficit predicted for 2009, foreign investment has become even more important. But several overseas investors, including Asian central banks, have started worrying about the amount of US debt they are holding. But even if they wanted to continue financing our debt (and they have many self-serving reasons to do just that), the drop in global trade has put less money in the coffers of these export driven economies. They simply don't have as much to invest as they did during the past few years.

So the I would expect to see the TIC flows decrease, putting Bernanke and his boys in an even tougher spot. There are two ways they can try to entice these foreign investors back into the US treasury market, either let interest rates increase, or let the value of the US$ fall. Now which do you think they will choose? They have been running the printing presses on overdrive in order to try and keep interest rates down to create another refinance boom. The Fed will try to do everything they can to keep interest rates down, so the alternative is to let the value of the US$ fall. The drop in TIC flows, combined with a huge increase in funding requirements by the US, will have to lead to a general debasing of the US dollar.

To close out the morning, we will get Industrial Production and Capacity Utilization for the month of April, and the U of Mich confidence number. Industrial production is expected to have declined again, but the rate of the drop is slowing. Output is expected to fall .6% during the month of April, after falling 1.5% during March. If these numbers come in as expected, the US media will undoubtedly spin it as a positive sign that the US economy is bottoming.

With the carry trade reversing, both the New Zealand and Australian dollar fell, posting their first weekly loss since February. Both these currencies have benefitted from a move back into riskier assets, which is now beginning to be reversed. New Zealand's kiwi also fell due to a report which showed retail sales dropped in the first quarter almost twice as fast as economists predicted. But the main driver of the sell off in both the kiwi and Aussie dollar has been the reversal of investor sentiment, and the move back out of the carry trade positions.

The Australian dollar, which is coming off a pretty big drop last year vs. the greenback, is now predicted to be one of the best performers during the global recovery. As China's economic engine revs up again, commodity prices will move back up supporting the Aussie dollar. China's infrastructure spending has already boosted the prices of base metals which has helped to fuel a rally in the price of the Australian dollar. Mellon Capital Management Corp. released a report yesterday which stated the Aussie dollar would rally the fastest among the world's major currencies. The report cites China's $585 billion economic stimulus plan to improve housing, highways, airports, and power grids. The Aussie dollar has advanced 12 percent against the dollar since China announced the stimulus plan on November 9th. The Aussie $ should continue to appreciate, so any sell off due to carry trade reversals should be viewed as a great opportunity to add to positions.

Another commodity based currency which we have been watching is the Norwegian Kroner which is the fourth best performing currency vs. the US$ in 2009 (The top is the Brazilian real, followed by the South African Rand and then the Australian dollar). Norway's government announced it would raise spending and add to the stimulus package it announced earlier. Norway will spend an extra 9.5 billion kroner ($1.5 billion) to create jobs. The Norwegian mainland economy (ex oil, gas, and shipping) is predicted to contract 1% this year. But if we continue to see positive signs out of China, oil and shipping revenues should rebound, and Norway could very well post a positive GDP for 2009. I continue to feel the Norwegian kroner is one of the best investments for diversification out of the US$.

And on that note... Let's go to the Big Finish!

Currencies today 5/15/09: A$ .7533, kiwi .5889, C$ .8514, euro 1.3556, sterling 1.5187, Swiss .9017, rand 8.61, krone 6.51, SEK 7.879, forint 213.24, zloty 3.31, koruna 19.94, yen 95.01, sing 1.4661, HKD 7.75, INR 49.395, China 6.826, pesos 13.26, BRL 2.088, dollar index 82.62, Oil $57.81, Silver $14.02, and Gold... $926.64

That's it for today... I got home yesterday evening just in time to take my wife to the Billy Joel / Elton John concert. These are two of my favorite entertainers, and they put on a very good show. I am dragging a bit this morning as the concert didn't get over until well past my usual bedtime. The weather sounds like it is going to be beautiful today, much nicer than the 100 plus temperatures in Las Vegas. Hope everyone has a Fantastic Friday, and a Wonderful Weekend!!

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

The ECB Clash Over Policy Again...

Chuck Butler — Thu, 14 May 2009 16:11:59 GMT

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

Based on the eye-opening film, IOUSA is your guide to America's enormous economic crisis. You won't find a more concise and complete evaluation of the global financial situation anywhere else.

Get your copy today: http://rcm.amazon.com/e/cm?t=dailyreckonin-20&o=1&p=8&l=as1&asins=0470222778&fc1=000000&IS2=1<1=_blank&m=amazon&lc1=0000FF&bc1=000000&bg1=FFFFFF&f=ifr
.................

In This Issue..

* Initial Jobless Claims rise...
* PPI does too!
* Euros get hung out on a line...
* Gold makes a comeback!

And Now... Today's Pfennig!

The ECB Clash Over Policy Again...

Good day... And a Thunderin' Thursday to you! It may not be Thunderin' where you are, but apparently it was yesterday in my little river town, as I heard we had some shingles blow off... And... It certainly is Thunderin' over in the Eurozone this morning, I'll tell you why in a minute. So, let's get going don't want to get caught in any of that Thunder!

I finished the last of my 3 presentations yesterday, and called it quits, as far as walking back and forth to the Conference Center. They'll just have to do without me at the booth! But the presentation was good, I think, and I made some very important points. None of which, were brand new to Pfennig readers!

Once again yesterday, the currencies traded in a very tight range, with a bias to buy dollars... Something quite opposite to what we've seen in recent trading sessions. Earlier this morning, the Weekly Initial Jobless Claims printed at 637,000 (forecast at 610,000), so once again the euphoria that was in the markets last week with the thought that the U.S. was coming out of the recession is turning into hogwash... Oh, and the continuing claims, which to me is just as important as the new claims, rose much more than expected too at 6,560,000...

And, we've already seen the color of the PPI data this morning. (Not that it accounts for a hill of beans! In my opinion, that is!) PPI rose a bit in April, but nothing, according to the Gov't., to be worried about, with regards to pipeline inflation... Yeah, right... The Gov't also probably believes we are all dumb enough that we would have to be told what the answer to 2+2 is!

So... Regarding the Thunder in the Eurozone this morning... Reuters is reporting this morning that the: "ECB HAS REJECTED C.EUROPEAN CBANKS' REQUEST TO ACCEPT LOCAL CURRENCY BONDS AS COLLATERAL - HUNGARIAN CBANKER KIRALY"

Recall that the European Central Bank (ECB) adopted Quantitative Easing two weeks ago, but there were some very important and powerful dissenting votes. For instance, the Bundesbank, Germany's Central Bank, and the most influential Central Bank in the ECB, was totally against Quantitative Easing...

So... Now today, apparently, the ECB's Quantitative Easing has a line drawn in the sand... And it's for "members only"... ECB President, who just a week ago engineered a truce among Eurozone Central Bankers, will need to polish up his negotiating tools once again... While this is happening, the euro, gets hung out on a line.

Recall that I told you that the Swiss National Bank (SNB) was watching for currency appreciation, as they did not want the Swiss franc to gain. Because... The Swiss are fighting deflation, and a strong currency would fight inflation.. The SNB has said they would intervene if the franc got too strong... Well, this morning, an SNB official told the markets once again that he's concerned with the franc's recent strength... HEY! SNB! GET OVER IT! You should never, ever, not in a million years, want a weak currency... You should be careful what you wish for!

A reader sent me a story that is very interesting... Here's the skinny, from the BBC... Japan's opposition party said that it would refuse to buy U.S. Treasuries denominated in dollars, if elected... Whoa there partner! What's this again?

The chief finance spokesman of the Democratic Party of Japan, Masaharu Nakagawa, told the BBC he was worried about the future value of the dollar.

"Japan has been a major buyer of US government bonds, helping the US finance its Federal budget deficits. But, he added, it would continue to buy bonds only if they were denominated in yen - the so-called samurai bonds. If it's [in] yen, it's going to be all right. We propose that we would buy [the US bonds], but it's yen, not dollar."

OK, before everyone begins to panic... Observers say that it is unlikely that Mr. Nakagawa's party will win the forthcoming election in Japan. But... What happens if they get enough attention to this position? Could it be adapted by the winning party too? I don't know... I tend to think no, as this would be a large reversal of current policy, and the Japanese aren't known for major shifts of policy!

So... The main point of this exercise was to point out that it's not just the Chinese who are running scared of the U.S. deficit spending...

Meanwhile, back at the ranch... This week's data, so far, has really put the risk takers off balance, and risk aversion seems to be sneaking back into the markets... If that's so, and we need a couple more days of this type of trading to tell for sure, then stocks will take a hit, and so will the currencies... Again... This is why I want this link to break... I've never seen it before and would hope to never see it again! Fundamentals! That's what I want to see!

I've talked so much about Gold here in Las Vegas, and haven't really touched on it much in the Pfennig lately, so... I'm here to change all that! With the stocks wobbling again, Gold gets some McLovin... The shiny metal pushed higher yesterday and overnight to settle in this morning at $924... While the stocks were getting bought, Gold had to take a back seat to the proceedings... But now that we've seen a few days of stock weakness... Gold gets to move to the front of the car! (Hey don't forget to buckle up!)

A lot of people here at the Las Vegas Money Show are interested in buying Gold... But... They are all convinced that the U.S. is going to confiscate it again like they did in the 30's... If I've told one of these people, I've told 100, that 1. in the 30's Gold was a part of our money. Dollars were backed by Gold, and with the problems of the depression, the Gov't needed to print more dollars, and thus needed more Gold to do so. That's certainly not the case today, the dollar is no longer backed by Gold, and Gov't sure doesn't have any governor to hold back their printing of dollars! And 2. So, confiscation doesn't do the Gov't any good, unless they want to see thousands of people storming the White House with pitchforks and rakes!

And on that note... Let's go to the Big Finish!

Currencies today 5/14/09: A$ .7550, kiwi .5905, C$ .8515, euro 1.36, sterling 1.5150, Swiss .9020, rand 8.58, krone 6.50, SEK 7.89, forint 212.15, zloty 3.29, koruna 19.7725, yen 95.65, sing 1.4650, HKD 7.75, INR 49.85, China 6.8249, pesos 13.27, BRL 2.0980, dollar index 82.60, Oil $57.33, Silver $13.92, and Gold... $924

That's it for today... I ran into an old colleague from Mark Twain Bank yesterday... Neil George... He's not changed a bit! After Mark Twain Bank was bought by the old Mercantile Bank, the buyers performed what I call "ethnic cleansing" of Mark Twain employees, and Neil and I went our separate ways... Man, we used to have some arguments across the desk! Oh well, that was over 10 years ago! Onward and upward! I'll miss my little buddy, Alex's, baseball game tonight... So... Get a couple of hits, Alejandro! (he's taking Spanish these days) OK... Time to get this out the door, and on your computer screens! I hope your Thursday is Thunderin' in a good way, and not stormy Thunderin'!

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