Daily Pfennig : LIBOR

Oops, Did I Say That Out Loud?

Chuck Butler — Thu, 24 Sep 2009 14:36:53 GMT

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In This Issue..

* A Wild and Wacky Wednesday...
* FOMC leave stimulus and QE in place...
* Will G-20 try to throw cold water on commodities?
* GATA receives a letter from the Fed...

And Now... Today's Pfennig!

Oops, Did I Say That Out Loud?

Good day... And a Thunderin' Thursday to you! It's Thundering and raining here, so I felt that naming today a "Thunderin' Thursday" was bang on! We had a wild and wacky Wednesday yesterday, with the Fed Heads playing the part of the court jester... And... I want to know, right here, right now, why the media isn't blasting Fed Head Honcho Big Ben Bernanke! I'll tell you why they should be, in a minute...

OK... As I said, we had a wild and wacky Wednesday yesterday, as the non-dollar currencies went for a spin on Mr. Toad's Wild Ride, with Big Ben Bernanke in the role of Mr. Toad! HA! That makes me chuckle! Here's the skinny, and what everyone should be up in arms about...

The FOMC meeting concluded with interest rates remaining at near zero... But what happened next was, well, exactly as I said it would happen, but we'll get back to that in a minute... What I'm talking about here is that the Big Ben's band of merry men announced that the U.S. economy's return to growth was insufficient to withdraw stimulus, and that quantitative easing would remain until March next year... WHAT!

HEY BIG BEN! I read in the Financial Times the other day, yes, the Financial Times, that you said the recession was likely over! I also read in another publication that you said basically the same thing... So! If what you told these fine publications is true... Why then do we need stimulus in place along with Quantitative Easing until next March? You could almost hear Big Ben saying... "Oops, did I say that out loud?" HA!

Doesn't that just tick you off? Big Ben and the President going around telling people that it's all clear and consumers can come out now and resume their spending, only to find out it was nothing but "feel good" stuff... Yes, stuff to make us "feel good"... So we would take our eye off the ball... But not me! You can't fool a wiley old veteran like me, right Jack Milner? I'm not falling for that change-up... And it ticks me off that they thought I was so stupid to fall for that!

Ok... Let's take a trip back to Monday of this week, when I was trying to explain why the dollar had reversed the negativity toward it... I said this in the Pfennig on Monday... "Seriously though, the markets are of the belief that the Fed will keep rates near zero, but will announce that they will begin to remove stimulus, as Head Fed Honcho, Big Ben Bernanke, believes the recession is over...

I think this is wishful thinking on the markets' part, as I really don't see the Fed Heads doing anything, but talking about doing this, that and the other thing. You see, the Fed Heads know all too well that the Commercial Real Estate problems are just beginning and with Unemployment."

I've been more right about what the Fed Heads were going to do, for the last 2 years, than Big Ben!

OK... So, here's where the wild and wacky comes in... The non-dollar currencies were hanging around on a corner trading in a tight range, when the announcement of further stimulus and Quantitative Easing was made... You should have seen the non-dollar currencies begin to run up VS the dollar... It was crazy, I mean in a manner of minutes the euro traded from 1.4765, to 1.4850, and Gold? It was soaring too! But then it was one of those a-ha minutes, and no, I'm not talking about the 80's group singing Take Me On! No, it was one of those head slapping moments when you say... Wow, I could have had a V-8!

Basically, investors figured out that by leaving the stimulus in place longer than originally planned, the Cartel, I mean the Fed, is confirming that the U.S. economic recovery isn't nearly as robust as Big Ben and his compatriots have led everyone to believe. Stock markets fell, and the Treasury rates rose.

With the stocks backing off, the risk assets of currencies and precious metals backed off VS the dollar... And, we ended the day, where we started it... A wild and wacky Wednesday for sure!

The overnight markets were very confused as to what direction they should take... So, as I turn on the screens this morning, the euro is 1.4775, and Gold is $1,014... About the same as yesterday morning... If you weren't around for the spin on Mr. Toad's Wild Ride, then you would think... "How boring these currencies and metals are"... HA!

The thing that keeps haunting me here with yesterday's stock sell off... Could it be the next leg down that I keep warning you about? Could yesterday's sell off be the harbinger of more selling? We'll have to keep an eye on this, folks... If we see 3 or 4 days of consecutive selling, it could very well be the indication that the next leg down is here...

Well... The other day I mentioned that the dollar could very well be the last man standing when it comes to near zero interest rates, and that could lead to the dollar becoming the next funding currency for the Carry Trade...

Ty brought to my attention this fact that plays quite well with that thought... For the 1st time since 1933, 3 month LIBOR rates in the U.S. (.28563) are lower than Japanese Yen 3 month LIBOR rates (.34875)

And one wonders why, the dollar is getting beaten like a rented mule? (no animals were hurt!)

A reader called in yesterday and wanted to know what I thought regarding... how a new SDR would affect the currencies. (Specifically NOK, AUS, BRL, CHF)

Well... That's a tough one! Because if we do end up with a new SDR, no one knows what the makeup of that SDR will be... So, I can't say how it would affect any currency until we begin down that road to a new SDR... If the current makeup of an SDR is used, then euro, yen, sterling and dollars would benefit... But one has to think that if things come to pass and we start down that road of a new SDR (Special Drawing Rights) that the makeup would be quite different, and could possibly even have some Gold as a component!

So... Sorry, I can't really answer the question, because it's an unknown... I hope my beautiful bride reads this part, as she usually only reads the first and last paragraphs, because she always contends that if I don't know the answer to a question that I just make something up... See, dear? I said I couldn't answer the question!

Ok... G-20 begins today... Look for these knuckleheads to take a toughened stance on speculation, with Oil in mind... I think that all they will do is make things tough for the Commodity Currencies of Australia, New Zealand, Brazil, Canada, South Africa, and Norway... There's also an outside chance that these knuckleheads will attempt to do something to limit the rise in currencies VS the dollar... In other words, prop up the dollar... I'm not convinced they could do that, and I am convinced they shouldn't do that!

Speaking of Norway... The Norges Bank (Norway's Central Bank) did as I thought they would with rates, and what I hoped they would do with their statement... Here's the skinny... The Norges Bank left rates unchanged... But... Said after the rate announcement that "they were CONSIDERING a rate hike"... The Norwegian krone went on a moon shot immediately after that statement.

In the race between Norway and Australia as to which will be the first to hike rates, Norway takes the lead, with that announcement yesterday... But, it really doesn't matter, as no one will get the checkered flag or anything... The thing that makes the difference is that the yield differentials to the U.S. will begin to grow wider... And that, my friends, will go a long way toward currency strength for the currency that rewards investors with higher yields!

Speaking of Australia... The Reserve Bank of Australia's (RBA) semi-annual Financial Stability Review gave a generally clean bill of health to the banking system and noted sentiment among households and business had improved considerably in recent months... But... The RBA went on to caution that it was not strong enough yet... Which then puts the Aussie rate hike forecast further behind Norway's...

In New Zealand overnight... It's been a good week o' data for the Kiwis... Last night, it was the latest Consumer Confidence Index which jumped to a 4 - year high of 120.3 (previous reading was 106)! WOW! So... The highest Consumer Confidence in 4 years! This news helped kiwi to remain above 72-cents... Even with the risk assets sell off...

In Germany this morning... The Business Climate Index, as reported by the think tank IFO, disappointed a bit, as it came in (91.3) lower than forecast (92), but... The 91.3 marked the 6th consecutive monthly increase for the data... So, the trend is still in place...

And it's good to be the yen, eh? I mean, recently, we've seen yen rally when the other currencies rally VS the dollar... And before that, we've seen yen rally along with the dollar... Last night, yen rallied alongside the dollar, and is trading with a 90 handle this morning...

And then there was this... The Federal Reserve System has disclosed to the Gold Anti-Trust Action Committee Inc. (GATA) that it has gold swap arrangements with foreign banks that it does not want the public to know about. WOW! This is a BIG DEAL folks, as the Fed as recently as 2001 (Big Al Greenspan) denied that these swap arrangements existed...

GATA believes that this letter suggests that the Fed is indeed very much involved in the surreptitious international central bank manipulation of the gold price particularly and the currency markets generally.

So guess what I think regarding the Fed now? That Ron Paul's bill to audit the Fed needs to get on a roll! Remember, it comes before a committee tomorrow, I believe, where it will be decided to forward the bill on or kill it... So, call your representative and tell them you believe they should back Ron Paul's bill to audit the Fed! I've got a bag full of names to call these guys at the cartel, I mean Fed... But, those are verbally used only... Nothing in writing... Hey! This is a family safe letter!

OK... So, to recap... The Fed is leaving stimulus in place along with Quantitative Easing until next March. So much for Big Ben, and the President's claim that the recession is over, eh? The currencies rallied at first on the Fed's announcement, but later realized the rot on the economy's vine has been exposed by the Fed, and then the currencies sold off VS the dollar to end the day unchanged...

Currencies today 9/24/09: .8745, kiwi .7235, C$ .93, euro 1.4775, sterling 1.6220, Swiss .9770, rand 7.3850, krone 5.7630, SEK 6.8380, forint 183.15, zloty 2.82, koruna 17.04, RUB 29.99, yen 90.60, sing 1.4110, HKD 7.75, INR 48.03, China 6.8273, pesos 13.37, BRL 1.7980, dollar index 76.25, Oil $68.36, 10-year 3.41%, Silver $16.81, and Gold... $1,014.10

That's it for today... Cardinals missed a chance to clinch last night, but the magic number falls to 1... Today, our colleague, Don Ries, celebrates his birthday... Don and I have worked together, off and on since 1989... He's our "Bond Daddy"! Or, I guess I should say "Bond Granddaddy"! We had a MarketSafe CD mature this week. It was a 3 year CD in the AIG / Dow Jones Commodity Index, and it returned a little less than 2%... Which isn't anything to write home about, but, as I tell people these days, "it's better to have a return of capital than a return on capital! We're going to extend the BRIC MarketSafe to another funding date in November, but that will be the last funding for that CD. The BRIC has been quite popular, I must say... I have 3 hours of Continuing Education on the docket this morning... This is my 3 broker licenses... Oh boy! Talk about brain death! OK... I've got to get this out the door... I hope everyone arrives to work dry, as it's a Thunderin' Thursday!

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

Misguided risk aversion...

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

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In This Issue..

* Bad data pushes investors into US treasuries...

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

* SNB surprises with a rate cut...

* Iceland gets their bailout...

And Now... Today's Pfennig!

Misguided risk aversion...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

The Day After...

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

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In This Issue..

* I want change too!

* Euro leads a currency rally!

* Factory Orders plunge!

* Carry Trades back on the table!

And Now... Today's Pfennig!

The Day After...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-984-0892

www.everbank.com

* Early withdrawal penalties apply. Fees may reduce earnings.

Election Day!

Chuck Butler — Tue, 04 Nov 2008 14:58:26 GMT

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

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In This Issue..

* The winner is... Deflation!

* Trading theme in place...

* RBA cuts rates 75 BPS!

* Manufacturing collapses!

And Now... Today's Pfennig!

Election Day!

Good day... And a Terrific Tuesday to you! It's Election Day! One more day of all that he said, she said, no I didn't, yes you did, aggravating election advertising! That's it! We're finally finished with all of it! Thank Goodness it's Election Day! TGIED!

This will be the end of another of the things that's keeping the fundamentals in the back of the classroom. All we'll have left is the credit squeeze... Unfortunately though I feel like we're going to have to live with that one for some time to come! There are signs that things are loosening up, but it's a far cry from what should be considered as "normal" in the lending arena! As long as the credit squeeze remains in place and on the minds of traders & investors everywhere, we're stuck with the Trading Theme of 2008... Well, let's see, it didn't come into play until late July, so it should be called the Trading Theme of late 2008 and 2009.

That's right folks... When I first saw this all unfolding in July and August, I told you in this letter that this dollar strength could very well last through the elections and through to year-end... That was before the rot on the vine was exposed in September and October... Now, I fear that this will be the Trading Theme for most of 2009 too... As the Credit squeeze continues to hang over the markets like the Sword of Damocles. And... Someone told me that in 6 out of the last 7 elections, regardless of whether the Democrats or Republicans won, the dollar rallied in the 6 months following the election. So.... That takes us into 2009, with the Trading Theme and credit market squeeze... It all adds up...

And as long as I'm going down this road of bad news... I have come to a conclusion that the deflation wolf has won... For months I wrote about how inflation was winning but the deflation wolf was always at the door... Well... After viewing the landscape of falling stock prices, falling commodity prices, and falling home prices, I have to think that inflation is no longer the king of the hill... Deflation is all around us folks... The only things you don't see falling are Consumer prices and bond prices... But those bond prices are sure to fall given the glut of Treasury issuance coming down the pipeline... And Consumer prices? Well, if Consumer Spending keeps falling off the cliff, then you can expect Consumer Prices to fall too...

But inflation isn't going away... And in my opinion, it will hide out on the other side of this deflationary period... And at first it will look much like 1976 all over... 1976 was a great year, right Christine? But it wasn't a great year for stagflation...

So... What does this mean for the currencies and precious metals? I don't think it spells a Happy Days while the deflation is going on... But... On the other side of the deflation, it could very well spell rallies in currencies and metals that will be huge! You see, the Trading Theme remains in place for most of 2009, as we work through the deflation... And then as the Trading Theme is removed slowly, inch by inch, step by step, there will be an unwinding of "Safe Haven" trades (read U.S. Treasuries) and the race to the bottom for the dollar will be on...

That's how I see it from my seat here on the Trading Desk in St. Louis Mo. Home of the 10-time World Champion St. Louis Cardinals! It's not a pretty picture, near term, that I'm painting this morning, but even an artist paints some ugly pictures now and then... I know of one, no never mind, no need to go into that.

OK... You've been very patient, waiting for the update in currencies... So, here we go!

The currencies played the Trading Theme to a "T" once again yesterday... When I left you yesterday morning, the euro was trading 1.2845... But then, more deep, dark, dangerous data printed for the U.S. and the dollar slapped down the single unit and every other currency that got in its path. The data came in the form of the latest reading of Manufacturing in the U.S. The ISM Index fell from 43.5 to 38.9, a low since September 1982! OMG! For the new kids to class, the ISM Index draws a line in the sand at a 50 level... Any number above 50 equals expansion... Any number below 50 equals contraction... We haven't seen manufacturing contract at this level since September 1982... And the NBER still hasn't put the "recession sign" on the economy's door? Geez Louise, what do these guys need to prove to them that we're so deep in recession right now?

So... With that bad data in the books... The dollar rallied and pushed the single unit to below 1.27 for most of the day... We're seeing some recovery this morning, and the euro has popped back up above 1.27... This morning, they are reporting from Europe that borrowing costs (LIBOR) have fallen a bit, thus loosening the purse strings... Recall, this was another of the things knocking the stuffing out of the euro and other currencies, as Financial Institutions in Europe stopped borrowing in LIBOR because the rate had gotten totally out of control on the high side. Instead, the Financial Institutions used the currency swaps market, selling their reserve currency (read euro) to raise the capital needed as reserves against the toxic waste they had on their books...

It was my assumption when hearing about this change to currency swaps to generate cash, that this would come crumbling down once LIBOR got back to what would be considered a "fair rate" for borrowing, and the swaps would get unwound, meaning the currency sold in the swap would be re-purchased. It will be interesting to see if this plays out, even with the Trading Theme in place.

The Reserve Bank of Australia (RBA) cut interest rates last night by a larger margin than I expected... I had thought the RBA would cut 50 BPS... Instead, the RBA followed up last month's 100 BPS cut, with a 75 BPS cut! WOW! They aren't messing around, eh? Before you skip down to the Currency roundup to see what the A$ is doing after a 75-BPS rate cut, no need... The A$ has rallied since the rate cut news! Talk about perverse! Currencies these days are just strange... Well, I guess it's not the "currency" but the Currency Trader! But, who am I to look a gift horse in the mouth? The A$ is rallied...

The Canadian dollar / loonie rallied last night too... Hmmm... I'm sitting here thinking about these rallies and started humming the great song by the Who... Won't Get Fooled Again! For I know that the Trading Theme is in play... Yes, it's the Same Old Song... Ahhh the Four Tops too!

So, one down, two more to go... That is Central Bank rate cuts this week... Still to come... The Bank of England (BOE) and the European Central Bank (ECB)... The performance of the A$ after the rate cut is promising for these two currencies; pound sterling and euros respectively... But remember the Who!

Recall last week, when I was talking about having the fear that the Bank of Japan's (BOJ) Ministry of Finance would intervene to stem the yen's rise... Well, unless they're lying... And we have no reason to believe they are... The BOJ announced last night that there was no currency intervention last week... Hmmm... Just wondering why then, did yen fall from 92 to 99? I doubt the rate cut on Friday had anything to do with it... Must have been all the jawboning...

Well, that, and... The fact that as things in the credit markets loosen up a bit, those cocky Carry Traders get back on their feet... And we all know that Carry Trades to yen are like kryptonite to Superman!

The data cupboard is pretty bare today, with only September Factory Orders on the docket, which are expected to drop -.8%... And Fed Head Fisher, will be speaking in Texas on economic challenges in Texas... Fed Head Fisher is always good for a quote... But this is election day, and most likely he will be a forgotten man today.

I'll finish up today and head to the Big Finish right after I tell you about this little ditty that the Wall Street Journal reported this morning... "The Treasury Department is considering using more of its $700 billion rescue fund to buy stakes in a broad range of financial companies, not just banks and insurers. In focus are companies that provide financing to the broad economy, including bond insurers and specialty finance firms such as General Electric's GE Capital unit, CIT Group and others."

Hmmm... Is it not bad enough that now these finance companies are going to get bail out money too? But... What's with the "others"? I sure hope they mean "other" finance companies, and not just "others" that need a bail out... Like, say, Joe's Bar and Grill! YIKES! The Treasury Dept is out of control folks, and there's no reining them in now... We've given them too much rope! UGH!

Currencies today 11/4/08: A$ .6875, kiwi .60, C$ .8525, euro 1.2785, sterling 1.5865, Swiss .8565, ISK (no live quote), rand 9.8910, krone 6.6950, SEK 7.73, forint 202.90, zloty 2.77, koruna 18.915, yen 99.50, baht 34.90, sing 1.4740, HKD 7.75, INR 47.72, China 6.8360, pesos 12.70, BRL 2.1410, dollar index 85.77, Oil $63.85, Silver $10, and Gold... $737.40

That's it for today... My beautiful bride just called to tell me the lines at the polling place are out the door and down the street! Don't let that keep you from exercising your right to vote today! And if you don't think it matters... Think again, I'm living proof that every vote counts, as I once lost my re-election vote for alderman in my little river city, by 1 stinking vote! Jen brought me in a small bag of my fave candy bar, Almond Joys, yesterday... I don't eat chocolate anymore, but had to have one, just for old time's sake... Love that coconut! Happy Birthday to Walter Cronkite, who's 92 today! WOW! Chris Gaffney is off to Washington D.C. today for the D.C. Money Show. I won't be going with him, as I will be traveling 3 of the next 5 weekends. The Big Boss, Frank Trotter will be speaking in Cancun later this week... So, we're everywhere, we're everywhere! Time to go... Make sure you vote today! And have a Terrific Tuesday, and Election Day!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

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

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

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

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

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

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

EverBank is an Equal Housing Lender and member FDIC.

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

In This Issue..

* Bernanke asks for more $...

* Credit markets start to thaw...

* Iceland may get help from the IMF...

* Goldman sees value in some currencies...

And Now... Today's Pfennig!

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

Good day...

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

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

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

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

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

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

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

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

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

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

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

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

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Credit Fears Ease...

Chuck Butler — Mon, 20 Oct 2008 14:16:46 GMT

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

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

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

EverBank is an Equal Housing Lender and member FDIC.

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

In This Issue..

* Credit fears ease...

* Chuck's thoughts from the road...

* India cuts rates...

* China growth slows, but is still 9%...

And Now... Today's Pfennig!

Credit fears ease...

Good day...And welcome to what should be another volatile week in the markets. Credit worries eased somewhat over the weekend, which helped push money back into the higher yielding currencies. Today Federal Reserve Chairman Ben Bernanke will head to Congress to share his view on the economy. Should make for a pretty interesting day of trading. Hope you are sitting down and holding on, it looks like we are going to take another lap on the currency roller coaster!

The yen fell over the weekend as investors began moving funds back into the higher yielding currencies of Brazil, Mexico, New Zealand and Australia. I won't go into the whole explanation of the carry trade again, but suffice it to say that these moves haven't proven to have much staying power. But I do like the news that the credit markets may be calming down a bit after the government moves to shore up the big international banks.

European Central Bank President Jean-Claude Trichet urged banks to start lending again after policy makers put them "on the path" to recovery. Trichet said in an interview yesterday that the banking system is "on the path to normalization" after governments pumped record amounts of cash into money markets. The three month Libor rate for dollars fell every day last week and this morning we saw another drop in the rate, an indication that the credit markets are continuing to thaw out. "We're facing a very important market correction which is lasting," Trichet said, hinting that the credit crisis may be coming to an end.

Today I expect the international markets to focus on Fed Chairman Bernanke's testimony to the House Budget Committee. While I don't expect Big Ben to come totally clean on the dire economic situation facing the US, I would expect him to warn Congress that a rebound in US growth won't happen right away and that losses on mortgage derivatives will continue to impact the credit markets. His pessimistic comments on the economy will likely move the dollar even lower vs. the major currencies as the focus moves back to the US where we are most certainly in a recession.

Chuck was busy this weekend on the road with FXU, but took some time to send me these thoughts to share with all of you:

"A Marvelous Monday to you!

I gave a speech on Saturday in Fort Lauderdale, and tried very hard to get people to listen carefully about what I was telling them. And what I was telling them was that the U.S. debt generation is out of control... Then I saw this info that a reader sent along, that played well with my speech from the pulpit...

"From September 30, 2007 to the end of this past fiscal year on September 30, 2008, total federal debt grew by $1.0 trillion, from 9,007,653,372,262.48 to $10,024,724,896,912.49, which is an 11.3% annual rate of growth. The federal debt as of October 16, 2008 is now $10,331,139,000,845.92. So in just 16 days since the end of the last fiscal year, the federal debt has grown by an astounding $331.1 billion, which is a 75.5% annual rate of growth. It has taken just 16 days to borrow one-third of what the government borrowed in all of last year."

So... The National Debt clock needs to be replaced, because it doesn't have enough digits to deal with $10 Trillion dollars of debt! So... I thought I would give you two thoughts that I read out loud to the audience in Fort Lauderdale. These come from the book, I.O.U.S.A. by my friends, Addison Wiggin and Kate Incontrerra. The first piece is from Ron Paul... The second from Warren Buffett regarding debt....

Ron Paul: "We can't afford to pay all these bills, and if we just pay for these bills by printing money, it will destroy the currency - and that will be a much, much more painful reaction than us just tightening our belts and living within our means."

Warren Buffett: "I do think that piling up more and more and more external debt and having the rest of the world own more and more of the United States may create real political instability down the line and increase the possibility that demagogues come along and do some very foolish things."

>>>> Now folks, you know me... I have always railed on the U.S. for building up these debts... Budget, National, etc. but after reading the book, and seeing the movie I.O.U.S.A. I have to tell you that what I've been fearful of was chickenfeed compared to the information the book and the movie have regarding debt! Put away the sharp objects folks... This stuff is scary... But Real!

So... We can go along now, and the repatriation and LIBOR currency swaps can build up the dollar... But, the way we're headed, we have no other choice as a country than to allow our currency to devalue so that these debts, and interest on these debts be paid in the future with cheaper dollars!

I just saw that South Korea announced a plan to put $100 Billion toward a guarantee to foreign currency debt and a $30 Billion injection (from FX reserves) (see how nice it is to have reserves?) to the banking sector.

This lit the light bulb over my head! Could this be the key that unlocks the intense demand for dollar funding, which has fueled the dollar rally? (recall, when I told you about this dollar funding on currency swaps because of the out of whack LIBOR?) Well, this is what I'm talking about here... Another good sign last week was the drop, albeit baby step drop, of LIBOR last week... If this can continue, and the banking sector no longer has to go the currency swap market for funding, we could see the dollar lose some of its steam..."

New Zealand officials are working on a plan to guarantee wholesale deposits at the nation's banks, according to Finance Minister Micheal Cullen. New Zealand last week guaranteed retail deposits to bolster confidence in their financial institutions. These moves by South Korea and NZD follow similar moves by countries across the globe. These guarantees look like they are working, as credit markets have eased a bit and money is moving back into the higher yielding currencies. As risk aversion eases, the currencies of NZD, AUD, BRL, and Mexico will likely benefit. All four of these currencies are up nearly 1% vs. the US$ as a result of these moves.

Producer prices in Australia rose in the third quarter twice as fast as economists expected, which may stoke speculation central bank Governor Glenn Stevens won't repeat this month's decision to cut benchmark interest rates. The producer price index advanced 2 percent after rising 1 percent in the second quarter, the Bureau of Statistics said in Sydney today. Traders are still betting on another interest rate cut at the next meeting on Nov. 4, but the size of the cut is now expected to be just 50 basis points compared to the last cut of 100 basis points. The prospects for further aggressive cuts by the central bank has been reduced by the jump in producer inflation. Hopefully the Aussie dollar will continue to climb back up, as we are seeing a lot of support around the .69 level. A further rally in Gold and other commodities would also help the Australian currency.

India's central bank unexpectedly lowered its key repurchase rate for the first time since 2004 in response to the global credit market turmoil. The Reserve Bank of India cut its overnight lending rate to 8 percent from 9 percent today. The move signals Governor Subbarao sees weaker growth a bigger threat than inflation in Asia's third largest economy. China's economic growth slumped to a five year low last quarter and growth in India has been declining also. The Indian rupee is Asia's third worst performing currency this year, and may fall to a record low of 50 per dollar by year end according to currency strategists at France's Credit Agricole. A research report predicted the currency, headed for its biggest annual loss in 17 years, is one of the most vulnerable in the region to the falling appetite for risky investments. The currency has continued to fall as investors have pulled out nearly two-thirds of the $17.4 billion they invested in Indian stocks last year.

As mentioned above, China's economy expanded at the slowest pace in five years as the financial crisis cut demand for exports. But before everyone gets too worried about the shutdown of the Chinese economy, gross domestic product rose 9 percent in the third quarter from a year earlier. Nine percent doesn't sound like too much of a slowdown to me! And China will continue to cut internal interest rates to keep growth near the current levels. Predictions of an even greater drop in Chinese growth has helped push commodity prices down. If China can continue to grow at near double digit rates, demand for iron ore, copper, and oil will remain strong. Currencies such as the Australian dollar, which depend on commodity exports, will rebound with a rebound in these commodity prices.

Currencies today 10/20/08: A$ .6935, kiwi .6129, C$ .8446, euro 1.3403, sterling 1.7390, Swiss .8781, ISK 260.0, rand 10.10, krone 6.5672, SEK 7.3810, forint 199.61, zloty 2.668, koruna 18.63, yen 101.75, baht 34.28, sing 1.4792, HKD 7.7563, INR 49.01, China 6.8299, pesos 12.8049, BRL 2.106, dollar index 82.52, Oil $73.81, Silver $9.763, and Gold... $798.32

That's it for today...What a gorgeous weekend here in St. Louis, perfect fall weather. The Mizzou Tigers barely showed up in Austin this weekend and now they will have to try and battle through the rest of the season hoping for a rematch with Texas at the Big 12 Championship. The Blues and Rams both had big wins this weekend in some pretty exciting games! Hope everyone has a great week and a Marvelous Monday!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Wooden Arrows?

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

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

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EverBank is a Member FDIC and Equal Housing Lender.

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In This Issue..

* A euro revelation!

* House to vote on Bailout...

* Yen remains strong...

* Jobs Jamboree Friday!

And Now... Today's Pfennig!

Wooden Arrows?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837