Daily Pfennig : Stocks

Stocks push the currencies higher...

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

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In This Issue..

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

And Now... Today's Pfennig!

Stocks push the currencies higher...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Game On!

Chuck Butler — Wed, 20 May 2009 14:36:31 GMT

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In This Issue..

* Risk Assets soar!
* What's behind this stock rally?
* Charts and fundamentals...
* Aussie Consumer Confidence drops...

And Now... Today's Pfennig!

Game On!

Good day... And a Wonderful Wednesday to you! A total reversal of Friday's risk assets sell off was the soup du jour for Tuesday... This is beginning to remind me of a Wayne and Garth street hockey game... Here comes a car... Game off... Game on...

So, as I just said, Tuesday saw the currencies trade right back to the levels they enjoyed VS the dollar last Thursday, before risk assets began to sell off on Friday. These are the types of trading patterns you normally see when the assets involved are getting ready for a break out... A jail break... Tonight there's going to be a jail break!

OK, I'm not saying that the jail break takes place tonight, I just broke out in a song from the 70's... That's all... Seriously though, I hope we're seeing a return to fundamentals.

Speaking of fundamentals... I guess yesterday just shows me that I shouldn't (and neither should you!) pay attention to the cable news, eh? OK, remember yesterday, I said this: "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!"

And what happened? The government reported that construction on new housing projects slowed to a record-low pace in April. Don't expect Housing to lead us out of this recession / depression folks!

Stocks rebounded too along with currencies yesterday... Long time readers will recall that I've pointed my finger at the PPT a few times in the past... Well, I'm pointing it again! Don't know what I'm talking about here? Well, you see the PPT (Plunge Protection Team) was created by President Reagan after the stock market crash of 1987. It consists of major players (financial institutions) and their job, when called on, is to provide support for a falling stock market. And, what's the reason for me thinking this has happened now? Well, Friday you would have thought the stock rally was over, but an "Indian election result pulls U.S. stocks out of the fire?" I'm not buying it! This rally has somebody's finger prints all over it...

A news story at the top of the screen this morning says, "U.S. said to consider stripping SEC of power, shifting duties to the Fed." Hmmm... Doesn't that bother you? We had this independent regulator (yes they dropped the ball with Madoff, among other gaffes), and the Gov't is thinking about shifting it to the Fed? Yes, I know the Fed is not a Government division... But... I don't like a regulator being directed by the institutions that own the Fed... It's like giving the fox the keys to the hen house!

OK... A week or so ago I talked to you about the 200-day moving average... Explained it all, and told you how the dollar index had fallen through its 200-day moving average, which would indicate further declines for the dollar index. On May 8th, the euro moved higher through its 200-day moving average and then went on to gain almost 2%... There's another currency that's moving stealth-like up to its 200-day moving average... The pound sterling! Here's the skinny as I see it... Pound sterling's 200-day moving average is 1.5554, the current level of pound sterling is 1.5480... Within spittin' distance!

And while we're following price charts... I see where a new "player" has jumped on the Chuck, Mogambo, Bill Bonner, and others Gold Bandwagon! Gold has gained 6.8% since the last low on April 17th, and an analyst at BNP Paribas believes this is an indication that Gold will trade to $1,096 in the coming months, as long as it does NOT fall below key support at $880...

Charts people are interesting, in that they can come up with things that you can't see with the naked eye!

All I know is that the fundamentals point to a higher Gold price, and fundamentals are what cause trends to happen, and together they are the straw that stirs the drink... Everything else is just an explanation of what happened or what they "believe" will happen. But none of it takes place without the fundamentals creating a trend...

And speaking of Gold and fundamentals... Recall, that I've coined Gold the "uncertainty hedge"... And this morning we have more "uncertainty" in the world... According to the Washington Post, Iran has fired a test missile overnight that has a range of 1,200 miles, enough to reach Israel or Southern Europe...

The data cupboard is empty today, so we'll have to depend on a testimony by Treasury Sec. Geithner to the Senate Banking Committee on TARP... Speaking of TARP, I read a story last night, in between innings of a 3-0 shut-out victory by my Cardinals over the Cubs, that detailed how some Major Banks are discussing the repayment of TARP with the Treasury Dept. I see the Treasury Dept balking at this... Why? Because, the Gov't wants control of these institutions, folks... And they can't have control over them if their tentacles aren't all intertwined in the banks...

I know that this is a touchy subject... But here's another example of the Gov't taking over control... The Senate overwhelmingly passed a bill that would sharply curtail credit card issuers' ability to raise interest rates and charge fees... Yes, these institutions took advantage of people for years... But! They also provided credit to people that "signed the papers agreeing to the terms" I'm NOT talking about whether its right or wrong to raise interest rates on credit cards to "stupid" levels... I AM talking about the Gov't dictating to the bank that issued the credit, and is on the hook for the credit, just how and how much interest rates will be raised...

OK... Let's talk about something else, that stuff gets my blood pressure rising! How about.... Oh, yeah, the Aussie dollar (A$) saw a bit of selling overnight after Australia printed a less than stellar consumer confidence report. I guess all the money the Gov't of Australia had sent out to consumers is gone, spent, put in coffee cans and buried in the back yard, and now the consumers are sad... You give money to people for no reason, and it's like a drug, they want more and more... I like the A$ for the prospects related to China's economic recovery... But beyond that, Australia seems to be struggling, and it will take a Chinese recover to overcome this struggle...

And, in India... The rupee has not been able to add to its gains that followed the election results this weekend... But, I think it's more a case of stopping to catch its breath, and not a road block.

Last week, we heard about how China had passed the U.S. as the number one trade partner of Brazil... Now, I'm hearing about how Brazil and China are in discussions to form a currency swap line, just like the one China signed with Argentina two weeks ago. These currency swap lines are HUGE folks. Because, it allows the two parties doing trade with one another to eliminate the use of dollars, and only use their own respective currencies. That means, China reduces its exposure to the dollars! And if China has less dollars to spend on U.S. Treasuries, that's not a good thing! But, almost important as that, is the thought that China is spreading the use of their currency... This thought plays well with the idea that China proposed last month... That the U.S. dollar be replaced as the world's reserve currency.

China has now signed currency swap agreements with: Indonesia, Malaysia, Hong Kong, South Korea, Belarus, and Argentina, with Brazil waiting in the wings...

And then there was the price of Oil... I filled up the Pfennig-mobile this morning, and noticed gas prices had gone up... Well... When I came in and checked the screens, I saw the price of Oil had reached $60 again! Oil prices have been rising very slowly in recent weeks, and long side of those rising Oil prices, we have rising Canadian loonie prices! I've said this more than once over the years... The Canadian dollar / loonie is so energy driven, and recent moves are a prime example!

Currencies today 5/20/09: A$ .7720, kiwi .6035, C$ .8670, euro 1.3665, sterling 1.5480, Swiss .9040, rand 8.4350, krone 6.45, SEK 7.6775, forint 203.40, zloty 3.20, koruna 19.52, yen 95.70, sing 1.4610, HKD 7.7525, INR 47.48, China 6.8250, pesos 12.95, BRL 2.04, dollar index 81.91, Oil $60.69, Silver $14.34, and Gold... $932.40

That's it for today... I "hit the wall" yesterday... Don't know why it took so long, but I hit it, and hit it good! Went home and slept until "game time"! UGH! I Feel better this morning! My little buddy, Alex, came home from school sick yesterday, I guess he "hit the wall" too! The house was just too quiet without him playing his guitar or baritone horn! As I mentioned above, my beloved Cardinals won a game last night. These wins seem to be far and few in between the losses, but maybe, they can go on a run! I have a 2-hour meeting to start the day, so I had better get going here... I hope your Wednesday is wonderful!

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..........
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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

Shrove Tuesday!

Chuck Butler — Tue, 24 Feb 2009 14:25:56 GMT

In This Issue..

* No follow through on the Eurozone bond idea...
* Mirror, mirror on the wall...
* AIG to set record for losses...
* Finding another Pfennig Reader!

And Now... Today's Pfennig!

Shrove Tuesday!

Good day... And a Terrific Tuesday to you! A Shrove Tuesday to boot! Shrove Tuesday you say with a tone of thinking that I have made up another word for a day? Yes... Shrove Tuesday! For Catholics in some regions of the world (Ireland originally), the day before Ash Wednesday is Shrove Tuesday... Or here in the U.S. it's Pancake Day! You see, long ago, pancakes would be served up on this day as a popular way to use up fat, butter and eggs before Lent got underway. So... Happy Shrove Tuesday!

Well... The Eurozone bond story that I brought to you yesterday failed to materialize yesterday, recall I told you that Germany was against the idea, and this failure to launch... Pushed the euro back down from the high 1.29 handle late Friday afternoon, to the 1.27 handle this morning... I see where the euro has rebounded back above 1.28 as I went through the explanation of Shrove Tuesday, so at least it shows a pulse every now and then!

The Risk Takers have crawled back under rocks and into the walls again, as Risk Aversion weighs heavily on the currencies... I saw a headline this morning that made me laugh out loud... Some writer believes that the "Dollar Is Best Looker in Ugly-Currency Parade"... Hmmm, apparently he didn't take the time to look at Norwegian krone! Now, here's my version of Mirror, mirror on the wall...

Long time readers know my affection for the Surplus / Positive Balance of Payment countries and their respective currencies... Norway, always drifts to the top of those discussions, and then last night I came across a report by the research team at HSBC that graded the currencies... Their pick for Best Currency? Norway... Now, I can't give you all the results of their report (It's THEIR REPORT!) but, the note that was on the internet is up for grabs, so lets listen in to the research team at HSBC....

"The world is in total flux and, as such, we have released our new interim forecasts for the global economy today. Based on these numbers, which make depressing reading, we look at who comes out the best amongst the G10. We give all the variables an equal weight. We could have quite easily given CDS spreads a higher weight, which we believe is a key driver of the FX market at the present time, but even with equal weights the answer is still the same - Norway wins hands down. In addition, the JPY and the CHF are both losing their safe haven status and the best safe haven currency is the NOK. The NOK is our preferred G10 currency where we expect a sustained appreciation over the next 18 months."

OK... NOK is Norwegian krone, JPY is Japanese yen, and CHF is Swiss francs... Just to make that clear...

So... I my colors are already pinned to Norway's mast... Has been, and will continue to be, until something changes...

Now that I've said all that, I will say this just to make the Legal Beagles happy with me (yeah, like they're ever happy with me!) And that is, simply this is a fundamentals choice, and has been... You can go back to the start of 2006, when we issued a 20 year anniversary for World Markets newsletter, and in it, I talked about the Surplus countries being at the top of my Hit Parade... And which Surplus Country was the first one I mentioned then? Norway... But to carry on with the Legal stuff... Again, this is a fundamental choice, there are times the markets do NOT follow fundamentals, and fundamental choices do NOT perform.

And with a currency like Norway... It really needs the euro to be underpinned for the krone to outperform the single unit... So... All, I'm really saying here is that the dollar isn't the "Best Looker" in my opinion... That claim to fame would be Norwegian krone!

Whew! That was a long talk, and my fingers are tired... I'll have to give them a break here for a minute... Hold on, I'll be right back!

OK, I'm back now! Hope you didn't miss me! HA! This morning, the euro saw some selling based on a rotten German Business Confidence report that was issued by the think tank, IFO... The rot on the German Business Confidence vine wasn't that bad compared to last month, as the index fell from 83 to 82.6, but it was enough, when added with the fact that the Eurozone bond idea fell apart, to kick some sand in the euro's face this morning. It was also a 26-year low for the report...

In further evidence that Japanese yen is losing its grip on the claim of "best performing currency", the yen has fallen to a 12-week low this morning of 95.60... I began writing about the possible end of the Carry Trade Unwinding a couple of weeks ago... And since then more and more evidence to prove that thought has come about. Some traders and writers believe the yen's weakness has to do with it losing it's "safe haven allure"... While that's all fine and dandy, I truly believe it has more to do with the end of the Carry Trade unwinding...

Now, here's a guy that's been reading the Pfennig and probably the Review & Focus, and might even subscribe to my "pay for" newsletter, The Currency Capitalist, for listen in to what he's saying and see if any of it sounds familiar... It should! This story appears on Bloomberg...

"LGT Bank in Liechtenstein (Singapore) Ltd., part of the bank for the wealthy owned by Liechtenstein's royal family, is favoring gold and shunning Treasuries because of the risk inflation will quicken.

U.S. government and Federal Reserve efforts to snap the recession in the world's biggest economy will push up prices for goods and services, said Hans Goetti, who oversees $10 billion in Asia as LGT's chief investment officer. President Barack Obama's spending plans will force the government to borrow more, another reason to stay away from Treasuries, he said.

We are setting ourselves up for inflation maybe 12 to 18 months from now, Goetti said. The borrowing requirement will go up. There's no doubt. I cannot see bond yields staying at these levels."

>>>>> Hmmm... Yep, he's a "reader"!

OK... I've been on the soapbox many times on this bailout of AIG that happened last year... Well, as a taxpayer, you had better get pretty darn upset with this latest news... A reader sent me this story so I wouldn't miss it!

"American International Group Inc., the insurer bailed out by the U.S., may restructure its rescue package for the second time in four months as the recession forces down the value of the firm's assets.

AIG may announce that it is converting the government's preferred shares into common stock to relieve pressure on the New York-based firm's liquidity, a person familiar with the situation said. AIG pays a 10 percent dividend on preferred stock, and none on common shares."

OK... So, AIG wants to bleed slower than the current pace... So... The Gov. owns the preferred shares, but would see their return reduced by 10%, if AIG converts their preferred shares to common shares... Doesn't this just tick you off? Oh, and before I go on... Sources close to the company (AIG) said the loss (when reported next week) will be near $60 billion due to write downs on a variety of assets including commercial real estate. That number, if it prints at $60 Billion will se a record for the largest loss in U.S. Corporate History!

Alright, I had better stop there... You see what I keep talking about though? You apply a tourniquet to a bleeding company, and sooner or later they'll come back and need more...

Speaking of tourniquets... The stock markets of the world need one badly... Here in the U.S. yesterday, the DOW fell to its lowest closing level since May 1997 as stocks dropped across the board on fears that the recession will worsen. The S&P 500 dropped 3.5% to its lowest close since April 1997.

Personal wealth is falling down a hole... And suddenly people look up and say..."if I had only saved more money instead of trying to be the next Warren Buffett!" Things are falling apart all around... Clowns to the left of me, jokers to the right...

A month or so ago I went off on a tangent about how I felt a lot of all this mess with financial instruments that have failed, came about... And my words pale in comparison to those of former Fed Chairman, Paul Volcker, who summarized this failure of these instruments in a recent speech... Here's Paul Volcker...

"There was so much opaqueness, so many complications and misunderstandings involved in very complex financial engineering by people who, in my opinion, did not know financial markets. They knew mathematics. They thought financial markets obeyed mathematical laws. They have found out differently now. You know, they all said these events only happen once every hundred years. But we have "once every hundred years" events happening every year or two, which tells me something is the matter with the analysis."

That's right! That's my feelings in a nutshell! And it's such a shame... OK, I've got to get to something that lifts my spirit this morning... YES! Let's talk about Gold!

As I signed off yesterday, Gold was trading down on the day at $986... The shiny metal then rallied on the day back to $995, but has seen more profit taking overnight to $990... And now $989, as I glance at the screen. Recall when I kept mentioning and even gave the "wink, wink" that Gold was "still" trading below $900? Well... A couple more days of this below $1,000 trading, and I'll be tempted to wink again!

Currencies today 2/24/09: A$ .6490, kiwi .5110, C$ .80, euro 1.2790, sterling 1.4525, Swiss .8640, rand 10.0725, krone 6.8120, SEK 8.8250, forint 233.40, zloty 3.6690, koruna 22.2325, yen 95.80, sing 1.5270, HKD 7.7530, INR 49.86, China 6.8375, pesos 14.97, BRL 2.3810, dollar index 87, Oil $38.50, Silver $14.44, and Gold... $989.60

That's it for today... Well... How about those Missouri Tigers? #8 in the country! But, they have some dates on their upcoming schedule that could put a dent in that lofty ranking... K-State, Kansas, and Oklahoma await the Tigers... But, Shoot Rudy! That warms my heart on yet another cold day, #8! Have you heard the little comedy skit about the new breakfast cereal? It's called Credit Crunch, and it's high in federal bailout to meet your daily requirement! HAHAHAHA! Our little Christine just called, she can't answer the bell today, sounded very sick! Still no improvement in my left eye, it will be one month this Friday... I go to the doctor to see what's up with it on Thursday... OK... Time to go! No Christine, means I better get going! I hope your Shrove Tuesday is Terrific!

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

A Currency Bounce...

Chuck Butler — Wed, 29 Oct 2008 15:30:22 GMT

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In This Issue..

* U.S. stocks soar!

* Currencies rally!

* Consumer Confidence at an all-time low!

* Getting off the bench!

And Now... Today's Pfennig!

A Currency Bounce...

Good day... And a Wonderful Wednesday to you! The fall chill has really set in here as witnessed by my need to throw on a jacket and my Missouri Tigers baseball cap each morning! When you are basically bald like me, the cold air is not a friend to you, thus the need for a baseball cap from now until late spring!

Well... The trading theme remained in place yesterday, but this time it was reversed. For those of you new to class, or any of you who have been playing horse hooky, the trading theme that has gripped the markets since August is: The deeper, darker, and more dangerous the U.S. economy and financial meltdown, including the credit market's locked status, the dollar gets bought... If there is any sign of light to all this mess, the dollar gets sold, for whenever the markets get their minds off the mess, they are reminded of awful fundamentals for the dollar.

So... Yesterday, the stock jockeys must have read the Pfennig and seen that I called for a 50 BPS rate cut from the Fed... (now don't get me wrong here... I'm against a rate cut, as: 1. it debases the currency further and 2. it will fuel, along with money stimulus going on, future inflation pressures... But! This is what I see the Fed doing, no what I would like for them to do, which would be nothing. They just cut rates 50 BPS last month, that rate cut hasn't even filtered into the economy yet, why not wait-n-see, and not put that pressure on the dollar and inflation?

OK, I really got off on a tangent there... As I was saying, the stock jockeys read the Pfennig and noticed a call for a 50 BPS rate cut, and the stocks were off to the races! 600 points later, the Dow was looking perky... And all through the day when stocks were rising, and the overall feeling in the markets were upbeat... The dollar got sold, along with Japanese yen! This trading theme is so prevalent now that one could make some real dough if they were smart enough to trade this thing... But that's not our bag... Really, I'm telling you that's not my bag! (Austin Powers on a Wednesday morning, yeah baby!)

So... A currency rally that really had some meat and potatoes to stick to your bones! Stock markets around the world were strong overnight too, so maybe, just maybe, this rally can have a two-day run, and then... Who knows, right? Well... Maybe the shadow knows, and he tells me that the deep, dark, dangerous days (my poetry teacher would be proud of that alliteration!) for the U.S. are still in the cards... So be careful out there! Oh, and this just came across the screens... U.S. stock futures are down this morning, which doesn't bode well for the stocks or the currency rally!

Consumer Confidence here in the U.S. for this month, fell to an all-time low... I saw that and said, "well it's about time!" Not that I want gloom and doom for the U.S., I just happen to know that we already have it, and kept wondering what U.S. Consumers were so upbeat about! Well, they aren't any longer... And wait till they get the news that the Credit Card Companies are curtailing the issuance of credit cards... Uh-Oh! If these guys that send pre-approved credit cards to grade school kids, (not really, it's an exaggeration, but not a stretch!) are pulling back the reins, then you can be sure that they are feeling the pinch of losses from credit cards...

The Pfennig first told you that the next crisis would come from the Credit Cards... Well, it think we're about to see it unfold right here in front of us, which is NOT exactly what beleaguered banks need right now... Or the economy for that matter!

In other news... The S&P/CaseShiller House Price Index fell once again in August (that seems like eons ago, isn't there a way to get this data quicker?) to the tune of -16.6%! OUCH! That's going to leave a mark! And the overall price index has fallen 20% since July 2006... The real problem though is the report indicated that the inventory of unsold homes remains very large, and that will put further pressure on prices...

You may recall me mentioning Bill Fleckenstein from time to time in the Pfennig... The most recent mention was with regards to he book: Age of Ignorance at the Fed, Greenspan's Bubbles... I talked about it for months, as it gave me a great inside look at how badly Big Al Greenspan screwed up the economy we are now faced with. Anyway... Mr. Fleckenstein is an outspoken defender of short selling... And was interviewed by Bloomberg regarding his stance. I like his stance... Short selling is part of the fabric of the markets, and was put there for the bears... Short sellers are not jackals, hyenas, vermin or vultures, they are simply bears... How can the Gov't ban this, and call the market "free"? Anyway... Way to stand up for what you believe, Bill Fleckenstein!

OK... I've sat on the sidelines too long on this next subject, and it's time to get off the bench and get into the game... The Amero...

I know that there are people out there claiming they have Ameros, and that they were minted in Denver, and that the U.S. has shipped them all to China for holding until which time the U.S. can't pay its bills any longer and calls for a "force majeure", thus making the dollar worthless, and introduce the Amero. The Amero is supposedly the North American Union of the U.S., Canada, and Mexico, and that it will be back by Silver, thus the reason for the physical silver shortage...

OK... You have to ask yourself this question, if you are a believer of all this... The U.S. dollar is the reserve currency of the world, and by having the reserve currency, they are allowed to run up such huge deficits and the world doesn't bat an eye! Why would they jeopardize this arrangement? Why would the U.S. give up the reserve currency of the world? I'm sorry, but I can't get my arms around the Amero story...

But! If you are so inclined to believe in the Amero story, then you'll want to make certain that you convert dollars to currencies now, before it's too late!

OK... I'm joshing just a bit there, but in reality that's the case... If that's what you believe, then you had better get your dollars converted before the Gov't proclaims them to be worthless.

Alrighty then... Back to reality (for me at least!, if you're an Amero believer, then that's OK!), and the reality right now is watching the euro add on to gains made yesterday! The single unit has gained 1/2-cent while I wrote about the Amero! Of course, I just put the kiss of death on the euro's rally, by mentioning it! UGH! I seem to be a bit snake bitten lately... But, Shoot Rudy, at least I'm here to be snake bitten!

Regarding the Fed rate cut announcement this afternoon... I've said that I believe the Fed will cut 50 BPS, bringing rate to 1%... There is currently a 20-30% chance they could go 75 BPS... Talk about raising the "everybody out of the water flag"! That would really bring Halloween early to the markets, as they would have the bejeebers scared out them by a 75 BPS rate cut! I'll stick to, and the Fed had better stick to 50 BPS, as if that's not enough already to bring about memories of Jason or Freddie Krueger!

Norway's Norges Bank, which did NOT participate in the coordinated round of rate cuts on October 8th, but then did cut 50 BPS a week later, is expected to shave another 50 BPS rate cut at their next meeting... But, I wouldn't bet the ranch on that rate cut, based on their resistance to joining in the rate cut party earlier this month.

Norway's krone has rallied along side the euro, and I would not like to see a rate cut from the Norges Bank...

The Bank of Japan (BOJ) announced last night that they are "mulling over" a 25 BPS rate cut this week... But come on! Since when does the BOJ tell us what they are "going to do" ahead of time? I would say they did this to jawbone the yen lower... I wouldn't go betting strongly that the BOJ will cut rates this Friday at their meeting. Their jawboning did help yen to weaken yesterday, along with the trading theme.

And those wild and crazy guys over at Citgroup are talking up euros again... Recall, about a month ago when these guys issued a report showing charts that indicated the euro was about to take off against the dollar? Well... They're Baaaaaacccckkkkk.... This time, they've tempered their call regarding euros, and it sounds a whole lot like they've been reading the Pfennig! Let's listen in to see what they have to say now... "We believe the euro's move lower against the dollar has been driven by a strong anti-risk bias that has benefited the yen and the dollar. Today's improvement in commodities, equities, the rise in yields and emerging market improvements suggest a short-term respite that could send the euro back above 1.30 in the near term."

That's the trading theme in a nut shell right there! Glad to see them come around to the Pfennig's way of thinking! But... If a spanner gets thrown into the works, and the deep, dark, dangerous clouds begin to gather over the U.S. economy again, those improvements seen yesterday will be wiped out in a NY Minute!

OK... A quick check of Economic releases today... Oh, here's one... Durable Goods for September will print today... Recall last month's print was awful at -4.5%... This month's report should remain in negative territory, but probably not as awful as the previous month.

And... Then the Big Kahuna of them all... The FOMC rate announcement that will come right after lunch time today... Fed Funds are already trading at 1%, so, the announcement of 50 BPS is expected by everyone at this point! Should be bad for the dollar, but then... Will the current Trading Theme's grip be too tight?

Currencies today 10/29/08: A$ .6460, kiwi .5750, C$ .7925, euro 1.2810, sterling 1.6020, Swiss .8715, ISK (no quote), rand 10.22, krone 6.7075, SEK 7.7210, forint 199.50, zloty 2.83, koruna 18.77, yen 96.75, baht 34.90, sing 1.4940, HKD 7.72, INR 49.71, China 6.8485, pesos 12.9590, BRL 2.1675, Dollar Index 85.45, Oil $66, Silver $9.27, and Gold... $748.66

That's it for today... Well... They might get Game 5 of the World Series played by Christmas! Sure wish they played those games during the day the way they are supposed to be played! Remember as kids in school, we would watch the World Series Games? Great memories! We will be adding to the trading desk next week, as John Kimsey from our Jacksonville home office is set to join us full time. John has worked a couple of times here filling in, and decided to stay. So welcome John! This makes the 11th person that has been added to the desk since I started it in June of 2000, when the deposits were brought home to EverBank! (2 have left) And on the Operations side... We had 2... Now, we have more people than I have fingers and toes to count on! Pretty amazing! There's a new James Bond movie out. It hasn't gotten rave reviews, but that doesn't matter, it's a James Bond movie, they're all great! And... I saw a preview for my all-time fave TV show, 24, last night. A new season of 24 is set to start in November... I can't wait! The NBA season began last night... It will end in June! Talk about a looooonnnnngggg season! OK.. Time to go... Hope your Wednesday is Wonderful!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Fundamentals Rule!

Chuck Butler — Fri, 27 Jun 2008 13:58:44 GMT

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In This Issue..

* Stocks fall 358 points!

* Japan's inflation problem...

* Profit taking in reals...

* Buffett warns of stagflation...

And Now... Today's Pfennig!

Fundamentals Rule!

Good day... And a Happy Friday to one and all! Hopefully a Fantastico Friday too! It's the last Friday of June... Where did the month go? WOW! Next Friday, we'll be celebrating our nation's birthday... Can you believe that? The 4th of July? It just finally warmed up here in St. Louis, and it's already the going to be the 4th! Amazing... How the time flies when you're having fun! And Fun is what I'm having... With every day that passes, I get a little stronger, and another day further from the pain and problems of last summer... How could I not be having fun?

OK... Well... Recall yesterday when I told you a Big Bank's chartist said the euro would top out at 1.5726, and that I hoped it would fly right by that? It did! It did! It did fly right past that! I love it when fundamentals rule! The euro has climbed to 1.5765 this morning as I write after spending most of the day yesterday taking liberties with the dollar. Another chartist said yesterday that the euro would re-visit the 1.60 level if it breached 1.5785... So, we've got that going for us, eh?

The Big winner of the day though was Gold... Right after everyone began coming in yesterday morning, Gold got some wind in its sails and took off! Before you could read the Pfennig that said, "Gold is still trading below $900 wink, wink" it was above $900 and beyond... The trading band for Gold stretched and stretched as if it were made of spandex! And... Then, before you could gather up your cash that was stored in coffee cans and buried in the back yard, Gold was hitting $922... The shiny metal posted its biggest one-day move since 1985! WOW!

A sagging dollar, a weak stock market, and mounting global inflation problems put the wind in Gold's sails, and it never looked back. Oh, and we can't forget that our friends over at OPEC... NOT! Said that the price of Oil could reach $150-170 this summer... Oh boy, please tell me where I can send the Thank You card to OPEC! They've been so kind... Oh, and don't look now but the price of Oil has just hit $140! UGH!

Speaking of global inflation, guess who has inflation problems? Come on... Japan! WOW! The country that lived through a decade of deflation, now has an inflation problem as inflation in Japan hit a 10-year high... Ok, let's stop and put this into perspective... Japan's inflation rose from .9% to 1.5% on high Oil and food prices... Same story around the world, unless you live in Venezuela where they pay 18-cents a gallon for gas!

Anyway... With U.S. stocks circling the bowl yesterday, and inflation rising in Japan, the yen was able to enjoy a day in the sun light VS the dollar... Yen is trading with a 106 handle this morning, which is much better looking than its step sister 108! You see, when inflation rises in a country these days, traders look at that currency as possibly receiving higher interest rates to back it, and traders reward that country/ currency... Much like we saw with the dollar earlier this month, only to have that all erased...

I just signed off on a 800 word piece that I wrote for Forbes on why I Don't Buy Into The Idea That The Weak Dollar Trend Is Over... Don't know when or where it will appear, but I had all but forgotten that I wrote it, when I received notice to sign off on it yesterday... Though it still rings true, it sure would have been more timely, and piercing if it had been printed when I wrote it! However, am I complaining? Heck NO! I think about these things all the time when I get printed.... If my parents had only been alive to see all this...

OK... I was saying... Oh, yeah... I don't agree with the markets' mentality in rewarding currencies with inflation, unless... Their Central Bank has been ahead of the inflation 8-ball with rate hikes... Think about the European Central Bank (ECB) and Reserve Banks of Australia and New Zealand... They fit this description to a "T"!

Someone asked me what I meant yesterday when I said that New Zealand's pimples would get exposed with a negative print GDP... Well... I was simply referring to New Zealand's Current Account Deficit, which is HUGE! But has been swept under the rug by investors that loved that high yield... But if the yield begins to melt away, it will take kiwi with it, I'm afraid...

There was some strong profit taking in Brazilian reals yesterday and overnight... The real had reached 1.5895 yesterday, but sits at 1.6025 this morning... As I stated the other day, the real was the top performer this year, and I think some investors sat up and noticed, and took profits... And why not? I learned a long time ago that, "it's not a profit until you take it"... Paper profits don't pay bills! We've seen these short-term profit taking days in reals before... So... Look at this move as a chance to buy reals cheaper than yesterday!

The data that printed yesterday in the U.S. was not what the Fed wanted to see... This data really illustrated the corner that they've painted themselves into...

First the inflation piece of the GDP final print, which by they was did print at 1%, showed rising inflation... But then the Weekly Jobless Claims data printed an increase in job losses for the week... The real kicker here was the fact that the Continuing Claims are rising by the truck load each week. This doesn't bode well for the Jobs Jamboree, for June... The jobless rate should remain high, and inflation will continue to rise... So, which door will the Fed opt to open? Growth or inflation? Well, if you ask me, they're doing a horrible job at both right now!

Speaking of the Fed... Did you hear this one? The Wall Street Journal reported last night that: "The Federal Reserve, in a move that could facilitate the flow of capital to cash-strapped banks, is considering steps to make it easier for private-equity firms and others to invest in banks, according to regulators and other people familiar with the matter. The central bank is also expected to offer more clarity about what exactly outside investors can and can't do when they want to acquire sizable stakes in financial institutions but avoid direct regulatory supervision."

Hmmm... OK... The Fed is going to issue the blueprint on how private-equity firms can buy huge stakes of banks and avoid regulatory supervision... What's next? Leaving a key under the mat? Geez Louise, I shake my head in disgust at these people...

Did you see where Warren Buffett made some comments about the U.S. economy yesterday? Speaking on Bloomberg TV, Buffett said... "he's concerned about "stagflation," or slowing in the U.S. economy while inflation accelerates. We're right in the middle of it right now, I think the "flation" part will heat up and I think the "stag" part will get worse."

Can you say? 1970's? bell bottoms here we come! The 70's was a great decade for rock bands and rock music (just say NO to disco!), but I really don't want to have to dig out my WIN button... For you youngsters, WIN stood for Whip Inflation Now, and was the creation of President Gerald Ford... Of course buttons don't whip inflation, that took a Central Banker with intestinal fortitude to do that... You might have heard of him... Paul Volcker...

The rumors are running rampant that a major bank might incur further substantial write downs in the 2nd QTR... There were also rumors that a major U.S. auto maker was on the brink of bankruptcy... Things are getting quite ugly folks... I hope you have diversified your investment portfolios to protect your money...

We'll end the week with some data from the data cupboard... Two of my faves, Personal Income and Spending, for May... Look, I know we almost always spend more than we make and it shows up here, but May is really going to look strange, because of the stimulus / tax checks... We'll also see the U. of Michigan Confidence final reading for June... This Confidence index has fallen out of bed in recent months, as it should! The dollar won't get any love from these data prints, so the dollar should end the week on a sour note... And give investors and traders a weekend to think about what direction they think the dollar will go... Of course, if they just would read the Pfennig, they would know already, and therefore wouldn't have to waste their weekends thinking!

Next week, will be a short week, with the market volatility drying up on Thursday morning...

Currencies today: A$ .9615, kiwi .76, C$ .9940, euro 1.5765, sterling 1.9875, Swiss .98, ISK 81.40, rand 7.9375, krone 5.0680, SEK 5.9750, forint 151.35, zloty 2.1370, koruna 15.25, yen 106.30, baht 33.55, sing 1.3625, HKD 7.8010, INR 42.85, China 6.8615, pesos 10.29, BRL 1.6020, dollar index 72.40, Oil $140, Silver $17.40, and Gold... $922

That's it for today... Well... Today is the one year anniversary of my second cancer operation, which was the most awful thing I ever went through. So, it's good to put a year behind that ordeal! Tomorrow is my little buddy's 13th birthday. As I told you last week, we're heading to Kansas City to watch our beloved Cardinals play the Royals tomorrow night. Alex had two hits in his game last night, one was a double! Looks like more rain for us again today... Can you believe this is the last Friday in June already? I finalized my flights to Vancouver for the Agora Financial Investment Symposium-Vancouver July 22 through 25th at the Fairmont Hotel Vancouver... I missed this conference last year, so I'm excited to get back to that beautiful city and this fabulous conference! Then I come home for a week and head back out to the San Francisco Money Show... But that's not all, I then come home for a day and head to Milwaukee for meetings all week... I'll be one worn out dude come the middle of August! But I'll be having fun! OK... Let's get this Fantastico Friday on the way!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

2005 Revisited?

Chuck Butler — Mon, 12 May 2008 13:11:00 GMT

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In This Issue....

* Buying dollars...
* Trade Deficit narrows...
* Risk creeps back into stocks...
* Recession explanation...

And Now... Today's Pfennig!

2005 Revisited?

Good day... And a Marvelous Monday to you! I hope all you mothers and mothers to be enjoyed a wonderful Mother's Day! It was a very ugly weather day here in St. Louis, so the outside activities had to be moved inside... UGH!

I'm going to come front and center with something this morning that will probably scare a lot of euro holders... That's not my mission with this talk... But it's something I have to talk about.

The Futures Traders are beginning to go long the dollar again... We haven't seen this since 2005... But, here it is, staring us in the face... The question from me would be simply... What is driving them to go long the dollar?

Ever since the Bail out of Bear Stearns, the markets have looked at the awful U.S. fundamentals in a new light, and clearly just don't care about what's ailing the U.S. economy any longer. They believe they have seen the bottom... (I wonder if they've seen the stock market sell off late last week?)... So, here we are, circa January 2005... When the sentiment toward the dollar changed and the dollar gained back a chunk of ground until late that year.

This all comes back to the Bear Stearns bailout... And now what the markets believe is a sign by the Fed that rate cuts are over... The markets believe that since the Fed is no longer cutting rates, that they're sounding the "all clear horn"... They also believe that the European Central Bank (ECB) will begin to cut rates in September of this year... So... The futures traders have pinned their colors to the dollar's mast.

You may recall about a month ago, I said how I agreed with my chartist friend that pointed out a dollar rally on his charts... He also said that the long term trend would remain in place. So... There you have it...

Now some people seem to believe that this has all taken place with the G-7 meeting, in which you may recall they uttered some words about the dollar... I won't say that G-7 hasn't had anything to do with this dollar rally, but I wouldn't go as far as to say it is the end all of the rally...

So... If you're in currencies to diversify and hedge your portfolio, then this might be somewhat trying times... If you're simply in currencies to jump on the weak dollar bandwagon, then this is certainly a tough row to hoe for you...

But it is what it is... We have to deal with what I used to call "sex-lies and videotape" when discussing the lies and book cooking that goes on in the U.S. We have to deal with markets that change their views on a dime... And we have to deal with something that's trying to fundamentals believers like me... The fundamentals all point to a weak dollar... And yet... We see a dollar rally...

We can only hope that this change in view by the markets is something that burns out like the 2005 rally, which had props to help the dollar along... There are no props this time, at least none that I can see, so... Who knows how long this will go on... But, I felt that it was important to tell you what I'm seeing and hearing these days.

And before we get our pants all bunched up, we need to keep in mind what 40 strategists recently polled by Bloomberg had to say, and that is... That the dollar will strengthen to 1.50 by year end...

Folks... It's trading at 1.5480... That's not a huge move... Obviously, things could get out of hand... But if all we're talking about is to 1.50... That's just about what I kept telling you all might happen back at the beginning of the year, when the euro was 1.45 and I said it could go to 1.40, before moving higher again... So, I'm off by 10 cents!

Did you all see the story in the NY Times Magazine in Sunday's edition? I appreciate the writer, Rob Walker, spending time talking to me and printing some of what I had to say...

OK... This week we'll see data from the U.S. that will remind us of the awful fundamentals in the U.S.... The data includes April Retail Sales... A quick check at the Butler Household Index (BHI) says that Retail Sales will print soft... On Thursday, we'll see the TIC's data (net foreign purchases), Industrial Production, Capacity Utilization, and the Philly Fed Survey (manufacturing). We end the week with Housing Starts, and Consumer Sentiment...

There's not one piece of data this week that will print as a strong fundamental for the dollar... The Trade Deficit on Friday came in at a much smaller number than forecast... The Trade Deficit "narrowed" from $62.3 Billion to $58.2 Billion in March... Now... Isn't that a "good thing"? How did we do this? Ahhh grasshopper, the U.S. consumer is spent... But beyond that, exports were off a bit, but after posting 12 straight monthly gains... How did that happen? A WEAK DOLLAR!

And what will happen to this Deficit if the dollar rallies? It will get worse again! But hey! Don't let that bit of information get in the way of a dollar rally!

We have two non-voting Fed Heads speaking today... Evans and Lockhart... Evans will speak about the economic outlook, which ought to be interesting... You never know what these Fed Heads will say, and what their hidden agenda is...

On Friday, I spoke to you about the HUGE loss AIG printed... Well, that news sent stocks down... And also put "risk" back into the stock market... Just that little bit of risk back in the stock market, helped Japanese yen to its best trading day in weeks...

I've explained this relationship so many times, I could do it in my sleep... But for the new readers, let me explain... Japanese yen is a low yielding currency (along with Swiss francs), and in a "Carry Trade" the low yielding currencies get sold short (because the borrowing costs are so low), and the proceeds are used to buy higher yielding assets... For a while it was high yielding currencies, but most recently U.S. stocks were bought with Carry Trade funds...

The Carry Trade is considered a "risky trade"... So whenever "risk" creeps into the markets, the Carry Trade is unwound, which means one asset is sold, and the low yielding currency that was sold short, gets bought to cover the short, thus "unwinding" the trade.

I'm a believer, and I wouldn't leave her if I tried.... No Wait! No monkeying around here! (get it?) But I believe that we'll see more "risk events" this year, and that Bear Stearns wasn't the only one... That would be good for Japanese yen and Swiss francs... And not so good for the markets...

So... Have you received your $600 check yet? Of course there are millions that won't get a check (I for one!), but there's some bad news for the Gov't that thinks these checks will stimulate the economy... In a recent survey by Bloomberg, the tax rebates are not expected to prevent the U.S. economy from stagnating in the 2nd QTR.

Many of you know that I went on record saying that we were in a recession two months ago... Here's some interesting tidbits regarding a recession that was sent to me by a trader friend at RBC...

"The "R" word has been increasingly suggested as an appropriate characterization of the current situation. Some argue that without two consecutive quarters of negative GDP growth there simply cannot be a recession, while others castigate policymakers who demur from using the term as being dishonest. As is usual, the truth lies somewhere between these polar positions. As to the two consecutive quarters of negative GDP growth requirement, it simply does not exist. Perhaps the reason for this "urban legend" is that recessions generally involve two negative quarters of growth, but note that while the 2001 recession lasted from Mar – Sep'01, there were not two consecutive quarters of decline (GDP fell 0.5% in Q1, rose 1.2% in Q2, and then fell 1.4% in Q3). While the National Bureau of Economic Research does consider GDP as a comprehensive measure of activity, it also looks at a variety of other indicators, with the major ones being real personal income less transfer payments, employment, industrial production, and volume of sale of the manufacturing and wholesale-retail sectors. As to policymakers being disingenuous, calling a recession is very simply not their call; the NBER is tasked with dating recessions and can do so only after establishing that a trough in diminished economic activity has been established. Even assuming the economy has entered a recession, data only exists to suggest a cyclical top, and so publicly declaring a recession would be premature."

OK... So maybe I was premature with my call... But I believe that the history books will show that I was bang on!

Currencies today 5/12/08: A$ .9445, kiwi .7690, C$ .9955, euro 1.5450, sterling 1.9580, Swiss .9530, ISK 79.62, rand 7.6666, krone 5.0720, SEK 6.0060, forint 162.35, zloty 2.1970, koruna 16.1575, yen 104, baht 32.50, sing 1.37, HKD 7.7955, INR 42, China 6.9880, pesos 10.5450, BRL 1.6850, dollar index 73.20, Oil $125.44, Silver $16.82, and Gold... $884.10

That's it for today... I'm writing from home this morning, as I did a real bonehead thing on Saturday... I was out driving around running errands and forgot to pick up my cleaning! So... This morning, when the cleaners opens, I get it, pack it, and get on a plane to Las Vegas! What a brain drain! I was interviewed by NPR on Friday... I hesitated in taking the call, thinking that they could be baiting me... But no.. It went fine. They wanted 15 minutes, they got 25 minutes of "Chuck speak"... So, I'm leaving on a jet plane... I do know when I'll be back again! Not till Friday! I have a very early flight on Friday out of Vegas, which means I have to be at the airport to go through security, at least two hours before... So... I'm going to have to see if Chris can get the Pfennig out on Friday from Panama... Otherwise, I'll be up all night writing, while most people go to Vegas to be up all night partying! I hope you have a Marvelous Monday!

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