Daily Pfennig : The Fed

‘For Much Longer’...

Chuck Butler — Thu, 24 Jun 2010 14:19:00 GMT

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In This Issue..

* Aussie PM resigns!
* Aussie mining tax is dead!
* New Home Sales plummet 33%!
* Fed is not so "cocky" any longer...

And Now... Today's Pfennig!

"For Much Longer"...

Good day... And a Tub Thumpin' Thursday to you! It's Tub Thumpin' because of some good, no great news from Australia overnight! It certainly isn't because of the Housing data that printed yesterday! And the Fed isn't so "cocky" about the economy suddenly... Hmmm... These things and more, as we explore our Tub Thumpin' Thursday, so let's go!

Front and Center this morning, Julia Gillard became Australia's first female prime minister after Kevin Rudd stepped aside as leader of the governing Labor Party, paving the way for the government to drop a controversial new 40% levy on mining profits that has damaged its standing in voter polls.

That's right! Remember a week or so ago, I printed a quote from Bill Fleckenstein, who said then that it looked like the 40% mining profits tax was in jeopardy... So... All the damage the Aussie dollar (A$) had to suffer from because of the prospects of this tax, was all for naught... And caused large losses to A$ holders... That's shameful!

The A$ is rallying this morning on the shake up in Prime Ministers and the thought that it was done to deep six the mining tax proposal... Good riddance!

The rest of the currencies you may be asking at this point? Well... They seem to be trading in yesterday's clothes once again. The Swiss franc inches higher, but for the most part the currencies are flat compared to yesterday's levels.

The other Big News yesterday was the awful New Home Sales data...

Well, boys and girls... The trap door on New Home Sales was sprung in May... Here's the skinny as reported by the Commerce Dept... "new home sales fell in May from a month earlier to a seasonally adjusted annual sales pace of 300,000. That was the slowest sales pace on records dating back to 1963."

1963... The Beatles premiered here in the U.S. on the Ed Sullivan Show! So, I guess we have quickly learned that without Government Assistance... Sales of new homes collapse, and sink 33 percent to the lowest level on record as potential buyers stop shopping for homes once they can no longer get government incentives.

Because the credit was eligible only up to an income cap of $125,000 for single-taxpayers and $225,000 for married couples, it had a disproportionate impact on homes sold for less than $300,000. New home sales above this price point have hardly budged for the past seventeen months!

Another Government spending boondoggle like the $150 Billion in tax rebates from 3 years ago... Or the Cash for Clunkers... Or the funding of Fannie and Freddie... Or the, oh forget it... I'm tired of pointing out these spending boondoggles and the markets not paying attention to them!

As Dieter would say... "I've grown tired of your babble... We dance now!"

In Canada yesterday... Retail Sales declined 2.0% in the month of April that almost fully reversed the 2.2% increase in March... This was NOT the Retail Sales data I was looking for! Taken with Tuesdays print of CPI that was weaker, I would have to say without a doubt, that the prospects for a rate hike from the Bank of Canada at their meeting in July are slim and none, and Slim just left town!

The Canadian dollar / loonie weakened a bit on the disappointing Retail Sales print, and rightly so... But to me, it was a welcomed move, for it allows investors to buy some loonies at cheaper levels today!

I saw a list of reasons why Canada is a great place to be in the Daily Reckoning (www.dailyreckoning.com) yesterday... Among them were these two that I really liked...

4) Freedom to travel abroad where all countries welcome you and like you.

5) A banking system that works. Sorry, no easy way to buy a home without 10% down at least.

But here's another that I came across... Canadian household net worth climbs to C$ 6.0-Trillion in the 1st QTR...

Canadian household net worth increased by 1.3% ($74-billion) in the first quarter of 2010 to C$ 6.0-Trillion. This marks the fourth consecutive quarterly improvement in household net worth and reflects a 96% recovery off the net worth lost during the recent economic downturn.

I tell you all this, not because I want to live there... But to illustrate to you, why investors would look to Canada and the Canadian loonie...

The Fed's FOMC meeting was quite interesting yesterday... And in the end, I do believe that my call several months ago, when everyone else was claiming that the U.S. would be raising rates by now, and I steadfastly said "no they won't", is looking bang on, eh?

The Fed left the rate unchanged, no surprise there... But they really pointed out that the economy was sputtering... And I now believe that their statement that: "rates would remain low for an extended period" now means... "for much longer!" At this point, who would argue with me regarding the Fed's moves? I've been all over them like a cheap suit going back to August of 2007, and telling you what they were going to do months before they did it, and this no rate hike for 2010, is just another feather in my cap!

And here's another thing that I've said over and over again, until I'm blue in the face, and that is... That the U.S. woes can't be solved by a revaluation of the renminbi... The Bloomie has a story this morning quoting a spokesman from the Chinese Foreign Ministry, who said exactly what I've been saying... That, "The U.S. woes can't be solved by a revaluation of the renminbi, and added, and American leaders will help no one by politicizing the issue."

He went further to say, "Renminbi appreciation cannot help to solve U.S. problems of unemployment, overconsumption, and low saving rate."

But... Unfortunately, it looks like that knucklehead Schumer is going to push for legislation that would punish the Chinese for the lack of renminbi appreciation...

So... I guess that China's announcement last Saturday to allow more renminbi flexibility is a thing of the past now, for there is this saber rattling in Congress, and now calls for this all to be discussed at the G-20 meeting this weekend...

I guess this qualifies as a "too much, too little, too late" for the Chinese... But I wish these knuckleheads in Washington D.C. would stop and listen to what the Chinese have been telling them for years now... "Get your house in order!"

Before I head to the Big Finish... I wanted to include a snippet from yesterday's newsletter that's written by my friend, David Galland... He's talking about things going on here in the U.S. (you can read the full letter at: http://www.caseyresearch.com/free-publications/caseys-daily-dispatch/ and I highly recommend that you sign up and read it daily.. David has an incredible mind, and is the best writer bar none!

"And it's not just economics. Over the weekend I re-read both the Declaration of Independence and the Bill of Rights, and it struck me that if the Founding Fathers were alive today, they would be considered terrorists and rounded up. Furthermore, because the Bill of Rights has been all but voided at this point, they might be dropped into the equivalent of a dark hole with no right to a speedy trial, or any trial at all, for that matter.

Trading our freedoms for security is a bad decision because, in the end, the nation will be neither free nor secure. Much in the same way that, to paraphrase one sage, a government that habitually saves all fools from their bad decisions, ultimately creates a nation of fools."

Then there was this... According to the Wall Street Journal... "The FDIC said the fund, which is under water by about $21 billion amid a surge of bank failures, won't reach its statutory minimum funding level (1.15% of insured deposits) for at least seven years. Even if the economy somehow muddles through the Gulf oil disaster, the still-gathering euro crisis and who knows what else, the FDIC's estimate puts a full deposit fund recovery off till the first quarter of 2017, all else equal."

To recap... Australia has a new Prime Minister that has removed the ads for the mining tax... The A$ has responded positively. The rest of the currencies are pretty flat to yesterday's levels. The Fed is not so "cocky" about the economy any longer. Canada prints a disappointing Retail Sales report, and New Home Sales plunged 33% in May!

Currencies today 6/24/10: American Style: A$ .8690, kiwi .7070, C$ .9610, euro 1.2295, sterling 1.4985, Swiss .9065, ... European Style: rand 7.6255, krone 6.49, SEK 7.7830, forint 230, zloty 3.3410, koruna 20.9240, RUB 31.10, yen 89.30, sing 1.3915, HKD 7.7790, INR 46.43, China 6.80, pesos 12.69, BRL 1.7870, dollar index 86.80, Oil $76.20, 10-year 3.09%, ( the flight to safety goes nuts after the awful housing data yesterday!) Silver $18.41, and Gold... $1,233.80

That's it for today... What a win for the U.S. Men's soccer team yesterday! YAHOO! After two questionable calls taking goals away from the U.S. in the past two games, the winner was finally put in the net by Landon Donovan, in stoppage time... WOW! The now move on to the lose and you go home round of 16, and play Saturday afternoon... Are you ready to put on your red, white and blue, and cheer them on? And how about that tennis match that was suspended at 59-59 in the tiebreaker set? WOW! And Chris Carpenter and the Cardinals win a pitchers' duel last night 1-0... (that's like a soccer game score!) And a Happy Birthday to our Sheryl with an "S" today! OK... The A/C just kicked on, which means it's time to get this out the door! I hope your Thursday is Tub Thumpin' I sure hope mine is!

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

Waiting On The RBNZ...

Chuck Butler — Wed, 09 Jun 2010 13:27:00 GMT

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

In This Issue..

* Currencies trade in a tight range...
* Fed to keep rates unchanged till 2011?
* Brazil GDP soars 9%!
* Another glut of Treasuries to auction...

And Now... Today's Pfennig!

Waiting On The RBNZ...

Good day... And a Wonderful Wednesday to you! I had a first today on the way to work... I hit every green light! Now... I'm sure you are wondering why I would even have green lights at this hour of the morning... Me too! But they are there! And it was smooth sailing into work today... YAHOO!

OK... Let's get serious, serious... The currencies traded in a tight range yesterday, with a brief mini-rally in euros, as the single unit rallied to 1.20, but that was short-lived. The rumor going around was that the Swiss National Bank (SNB) was intervening...

Do you remember last week, when I told you how the Swiss franc was trading at an all-time high VS the euro? Well, the SNB said, "enough"! And according to the rumors, they sold francs and bought euros...

Now, that would explain the quick run-up to 1.20 for the euro, but if the SNB was selling francs, it sure wasn't being seen in the price of francs, as francs rallied too!

And the Swiss franc has really been the belle of the ball lately (outside of dollars and yen)... I told you about a week ago how the Swiss franc was viewed as a "safe haven" currency too, and now, we're seeing the currency participants "buy into that thought"...

You know... I've noticed quite a few economists and pundits are jumping on my bandwagon that the Fed can't and won't raise interest rates this year... I was reading last night about how the Fed sees no inflation in their near future, and with the persistent unemployment problem here in the U.S. the Fed sees no other choice but to keep interest rates at historical lows... In addition, I think the Fed's decision to keep rates unchanged will be more tied to the fact that they are sitting on a mountain of toxic waste bonds that would get even uglier should rates in the U.S. go higher...

However, having said all that... Fed Head, Hoenig, was speaking yesterday, and said that interest rates should reach 1% by September... Let's see if he actually votes that way!

While we're walking in these circles... This week the Treasury will auction $ 36 Billion 3-year notes, $21 Billion 10-yr notes, and $13 Billion 30-year bonds raising $56 Billion in new cash. There have been some calls recently for the U.S. to go further out on the yield curve and lock in some of these low yields... But, think about that for a minute... Sure the U.S. would want to do that... But, are the buyers of the Treasuries on board with locking in low yields for 30 years? I don't think so! And thus, the Treasury has to continue issuing shorter term Treasuries to satisfy the buyers demands...

Did you see Marc Faber addressing the Mises Institute?

He takes on the "deficits don't matter" nonsense by saying, something like, "Well if deficits don't matter, then why do we have to have taxes? We can just borrow all the money."

Thanks to a reader who sent me that info... Marc hit the nail on the head there, eh?

OK... Reserve Bank of Australia (RBA) Gov. Stevens spoke last night, following a weak print of Consumer Confidence, and once again warned Australians to not return to the spending levels of past years... Stevens also talked about Australia's strong fiscal position and sound banking system. And then finished with a little ditty about how Aussie interest rates are not really that high compared to the past decade or two...

Sounds like a good speech by a Central Banker, eh? Unfortunately, the speech did little to support the Aussie dollar (A$)... The A$ was the worst performer overnight, but again, we're talking about tight ranges for the currencies.

Tonight, the Reserve Bank of New Zealand (RBNZ) meets to discuss rates... And since I've been calling for a rate hike by the RBNZ for a couple of months now, the actual news of the rate hike will be a non-event for me... I expect though, that the RBNZ will issue a statement following the rate hike, and try to water down the hike... They'll probably tell us something like that the rate hike cycle they are now entering will not be hot and heavy, so don't look for rate hikes at every subsequent meeting...

Just trying to keep the sharks from circling, folks... That's all the RBNZ will be doing this afternoon... We'll have to see if the markets believe them or not!

Guess what the Washington Post is reporting this morning about Greece? Or... Guess what country, that has a HUGE war chest of reserves, is swooping in to help Greece? That's right... China! So, while everyone else has jammed the exit door with bodies trying to get out of Greece, the Chinese are "helping out"... Hmmm... Sounds like a good plan for the Chinese to me!

Well... The data cupboard will begin to open up all over the map today... And Brazil kicked it off with a very strong 1st QTR GDP print of 9%! WOW! That's the strongest quarter of economic growth for Brazil in more than a decade! The Brazilian real got a nice boost from this print, as it should have! I suspect this will get the Brazilian National Bank back to the rate hike table very soon...

I saw last night the Estonia was approved for acceptance to the euro... This makes 17 countries now a party of the euro... I remember 8 years ago or so, writing about how I believed there would eventually be 25 members of the euro, and they would have combined economies larger than the U.S. Well... The "membership drive" has slowed in recent times... For instance, I thought 8 years ago, that Hungary, Poland and the Czech Republic would have been "members" by now, for they were thought to be on the "fast track" to euro acceptance... I still believe the euro will continue to expand its membership, but with the sovereign debt thing going on we'll have to be patient... Very patient!

Well... Gold didn't hold on to its gains that took the shiny metal to a new all-time high yesterday... I would have to think it was profit taking... And a lot of it! I saw an interview with a hedge manager, and he was asked about Gold, and why he was buying it... He answered that he was buying Gold because of his fear that paper currencies were in trouble, with all the debt problems of the world, and no real "plan" to correct the problem...

And finally, Big Ben Bernanke will speak to the Budget Committee today... I'm looking for Big Ben to "let it rip" and tell the lawmakers that their ideas of a budget are wrong, and that they had better get their financial house in order, fast! I guess we'll have to wait-n-see what he says, eh?

Then there was this... Ok... Remember a few months ago, the President announced that he was forming a commission to address the deficit? Well, guess what? The commission that was formed to figure out how to cut the budget is over budget! YES! They've already spent the money that was allocated to them and more! Now, that's funny, I don't care who you are! It's also sad... Sort of like the "comedy / tragedy masks"

To recap... The currencies traded in a tight range with a brief mini-rally in the euro that was rumored to be SNB intervention to break the strength of the franc VS the euro... The rally didn't last long, and we're back to the same levels as yesterday. Brazilian 1st QTR GDP was 9%! China is stepping in to help Greece. The RBNZ will meet this afternoon and hike rates. And the Treasury has a boat load of debt to auction again this week...

Currencies today 6/9/10: American Style: A$ .8280, kiwi .6685, C$ .9560, euro 1.1965, sterling 1.45, Swiss .87, ... European Style: rand 7.7340, krone 6.6610, SEK 8.0510, forint 236.15, zloty 3.4440, koruna 21.7050, RUB 31.80, yen 91.40, sing 1.4135, HKD 7.80, INR 47, China 6.8275, pesos 12.85, BRL 1.8535, dollar index 88.08, Oil $72.82, 10-year 3.20%, Silver $18.30, and Gold... $1,234.80

That's it for today... Don't know what's going on out on the West Coast with my Cardinals, but they've forgotten how to hit! They wasted a great performance by Chris Carpenter last night. Not that I was awake to see it! A Happy Birthday to a good friend, Laura Baur today! I just looked at the screens one more time before signing off, and saw the euro at 1.973, for a second... 37 years ago... I had graduated from high school, and was already on the road playing my guitar from a VW micro-bus all across the country... WOW! 37 years ago! Oh well, time goes on, and doesn't wait for no one... I hope you have a Wonderful Wednesday!

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

A New All-Time High For Gold!

Chuck Butler — Tue, 08 Jun 2010 15:54:43 GMT

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

In This Issue..

* Deflation to deep six Gold?
* German data points to recovery...
* The U.S. sponsored Ponzi Scheme...
* ECOFIN internalizes their debt problems...

And Now... Today's Pfennig!

A New All-Time High For Gold!

Good day... And a Terrific Tuesday to you! I hit the "wall" yesterday about 2 o'clock... All the fun and sun of the weekend, became the wall, and I hit it square on! But I'm well rested now, so here we go!

Front and Center this morning... Gold has reached a new all-time high this morning. Yesterday I kept watching the shiny metal tick higher and higher, and I would yell out across the desk each rise in Gold... Gold was $1,250 when I turned on the screens this morning. It has given back $2 since, as I did some reading and research, but Shoot Rudy, the move yesterday was something to admire!

Now... Remember how I always tell you that a star shines the brightest right before it burns out... Well... I've been reading some research / stories that claim that Gold has reached it's top level... But, I'm not buying any of that at this time, period! But I thought I would tell you that there are some people out there that believe Gold is at the top...

They think that because they believe that deflation is the call to order... And while I don't argue that deflation has settled into our economy right now, I will argue that Gold will suffer during deflation. Portfolio theorists have always said that the best asset to hold in a deflationary period is cash... Well, to me, Gold is cash... And it doesn't have to fight for shelf space with investors right now, because deposits of cash aren't earning interest, (except here at EverBank!) and neither does Gold...

OK... Enough on Gold... You get the picture...

Risk Aversion, has set in Big Time folks... The Risk Assets (except Gold!) are getting sent down the river without a paddle! The euro is in danger of losing the 1.19 handle this morning, and even the higher yielding Commodity Currencies are losing ground VS the dollar. Stocks are in shambles, and Commodities are slipping again...

You would have thought the euro would have gotten some love from a strong Factory Orders print yesterday in Germany... But no! This morning, Germany printed a strong Trade Balance report... It wasn't as strong as forecast, but still... A nice surplus balance of 13.4 Billion euros! That puts the Trade Surplus in Germany for 2009 at 50 Billion euros, which rounds out to a nice 10 Billion per month! Well, that is, if the data wasn't two months behind!

Industrial Production in Germany also printed strong this morning for April... So... The economic recovery of Germany remains in place, even with all this debt debacle of the Eurozone going on.

Well... I guess the pain is Spain is mostly on the plain, eh? Now Spanish citizens are realizing the budget cuts that the Gov't has proposed are probably going to cut into their way of life... Hey! Suck it up! Germany is going to cut their deficit too, just to show everyone that what's good for the goose is good for the gander!

This morning, the ECOFIN (Eurozone Finance Ministers) Conference is going on, and there has been some news already from the Conference. Let's listen in... But first, I want to remind everyone that 3 months ago, I offered this solution to some of the problems in the Eurozone, right here in the Pfennig...

Finance ministers from across Europe agreed to establish the European Financial Stability Facility to curtail the sovereign-debt crisis that began in Greece. The facility will sell bonds backed by national guarantees, then use proceeds to lend to needy euro-area nations.

Yes, internalize the problems, and forget the IMF!

Last week I spent quite a bit of time talking about the U.S. deficit, and where it was heading... I was reading my friend, David Galland's, letter yesterday, and he addressed this whole thing in a way that only David could do... So, let me set this up for you... David discusses the forecast that the deficit will reach 100% of GDP in 2012... So, here you go... My friend, David Galland...

"Thus, in order to reverse the steady rise in its debt, the government will need to collect more revenue from the citizenry trapped under its boot heel. Err, I mean, "under its warm and protective wing."

Ironically, on the order of 65% of all U.S. government debt is owed to the American people. Thus, in order to pay them their modest yields, the government must first lift them out of their pockets.

It is the very definition of a Ponzi scheme, with the exception that this one is legal.

Oh, I suppose that if the government actually had even the scintilla of a chance of getting ahead of its debts, it wouldn't technically be a Ponzi scheme. However, when you add the total future obligations of the government of these United States to the nominal debt, the sum becomes an order of magnitude greater than $14 trillion - $50 trillion? $70 trillion? - so a Ponzi scheme remains the accurate description."

Oh... I also read an interview yesterday with an economist that claims that the deficits don't matter, for if they did, buyers of the debt would be demanding higher interest rates / yields... And with yields at historical lows, he believes this is the sign that deficits don't matter...

I would ask him, just what he knows about buying Treasuries through the back door, in order to keep yields low? For that's what the Fed has been doing for over a year now... Again, I'll say this any time I hear that deficits don't matter stuff... It reminds me of a man standing on top of the Empire State building, and decides to jump off, as he passes the 56th floor, he says... "so far, so good"!

And you just wait... Once the Fed does one tiny rate hike, the markets are going to smell blood, and begin to demand higher and higher rates to compensate them, there will be the higher yields the "economist" says are missing from his deficits don't matter thesis...

I read an article yesterday about a rumor that the Gov't would impose a new tax on Gold holdings... WOW! I guess they figure they have to raise revenue somehow, and with everyone and their brothers owning Gold these days... Well...

Right now this is just a rumor... And one that needs to get silenced before it becomes a whispering campaign!

Then there was this... I read this morning that, in Australia, two iron-ore companies, BHP and Rio have notified Japanese steelmakers that iron ore prices for the July-September period will be raised 23% despite the recent slide in commodity prices overall. Brazil's Iron-ore maker, Vale, is also likely to raise their prices to keep up with the Joneses. This is the second consecutive quarterly hike and will put iron ore at 140% higher than the 2009 contract prices.

That certainly doesn't look like deflation to me... But it is just one sector...

Currencies today 6/8/10: American Style: A$ .8185, kiwi .6615, C$ .95, euro 1.1935, sterling 1.4435, Swiss .8635, ... European Style: rand 7.7840, krone 6.6970, SEK 8.09, forint 237.40, zloty 3.4650, koruna 21.7150, RUB 31.82, yen 91.55, sing 1.4160, HKD 7.8050, INR 46.92, China 6.8295, pesos 12.90, BRL 1.88, dollar index 88.43, Oil $71.11, 10-year 3.17%, Silver $18.36, and Gold... $1,247.55

That's it for today... I just looked up at the TV, and saw a line of storms heading toward St. Louis that should make things interesting today... UGH! Cardinals take a beating out in L.A. UGH! I see the new I-Phone has been introduced to the public... Those "smart phones" are really something, I'm surprised we still call them "phones"! My little buddy, Alex, had his first water polo practice yesterday. His older brother, Andrew, will be coaching him in high school, but this is a summer introduction league. Just one more destination for my beautiful bride to take him... And she wonders how her car just turned 100,000 miles! Ok... Time to go... I hope your Tuesday is Terrific!

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

Gold Breaks Through!

Chuck Butler — Wed, 12 May 2010 14:58:38 GMT

........But first a word from our sponsor.......
Strike while the metal's hot and the market risk none

100% deposited principal protection and a low minimum $1,500 deposit. Just what the smart investor looks for: high upside potential with no market risk.

Find out if this precious metals CD is right for you and apply for one today. Go to: http://www.everbank.com/001CertificatesMSDiversifiedMetals.aspx?referid=11808

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

In This Issue..

* Euro trades in tight range
* Gold hits new all-time high...
* Audit The Fed gets gutted...
* Budget cuts all around, but not here!

And Now... Today's Pfennig!

Gold Breaks Through!

Good day... And a Wonderful Wednesday to you! Some wild storms ripped through our area overnight and left a mess! I had to change my route to work 2 times, due to road closures. But, just like the Pony Express... I made it here, and so the Pfennig will go out!

Well... Yesterday was a change in the weather for the currencies, as we saw a very tight trading range with no wild swings up or down, which has been the routine for a month now. The euro traded in a range of 1.2675 to 1.2740, going back and forth all day... This morning, as I turn on the screens, the euro is at the bottom of that range.

Europe got some good news for once in a blue moon this morning in the form of two strong economic data reports... First, the Eurozone economy expanded faster than forecast in the 1st QTR, growing .2% (.1% was forecast)... I know, that doesn't sound like much, but given what's been going on in the 16 nation Union, and the fact that Gov't spending isn't pumping the economy up, I think .2% is probably a good number for the Eurozone right now...

In addition to GDP... The Eurozone printed a strong Industrial Production number of +1.3% in March... I'll tell you this folks... For an export led economy like the Eurozone, which is dominated by Germany's exports, a cheaper euro is just what the doctor ordered! So, while euro investors aren't happy right now about the euro's drop this year, think about the BIG PICTURE... If a cheaper euro drives the Eurozone's economy stronger, then once we get past this mess we're in right now, and we will get past it, a stronger economy will demand higher interest rates, and that should be the medicine the euro needs to get back on the rally tracks...

Now... Does that happen today? No... Does it happen next week? No... Shoot Rudy, "it" may not ever happen... But it's how I see this working out, and it will take time... It's like learning to fly for the Eurozone economy... Can't keep my eyes from the circling skies
Tongue-tied and twisted, just an earth-bound misfit, I...

Ok... I have to admit... I heard that song on the way to work today, and said to myself... "Self, you need to work that in today"... And I did!

The BIG story... Overnight, and I'm sure you're wondering why I waited until now to write about the Big story overnight, is... Gold has blown past its previous all-time high of $1,126... The shiny metal is trading around $1,241 this morning... A huge move, I would say! Gold flirted with the all-time high figure all day yesterday, leading me to believe the All-time high was probably a strong resistance level... But, just like every other asset class, once it trades through the strong resistance level, it gaps higher...

Now, we have to see if: 1. profit taking comes around once NY traders arrive at their desks and see this move, or 2. the Gold price manipulators step in...

And for now... The Dollar, yen, Gold alliance that held tight for the last week, seems to be broken... The risks that are inherent in the Eurozone debt crisis, are fueling this demand for the safe haven of Gold... Not trying to sound like Gordon Liddy in his TV commercial that airs about 100 times a day...

And... Speaking to a crowd from a place he knows all too well... Fed Chairman Big Ben Bernanke, called the $1 Trillion European rescue package no panacea... I chuckled when I read that... Not that it's funny... It's just that it's kind of like the kettle calling the pot black...

OK... Speaking of the Fed... I was very disheartened yesterday when I saw the results of Ron Paul's audit the Fed bill... It has been gutted folks... That's so sad... I thought for once we would reveal to the world the cartel that the Fed really is... Instead, it was reduced to a "one-time audit" of the $2 Trillion in payments that the Fed made during the financial meltdown... Here's the great congressman from Texas in his own words, talking about the gutted bill that turned into something else...

"While it is better than no audit at all, it guts the spirit of a truly meaningful audit of the most crucial transactions of the Fed," Mr. Paul wrote on his Web site. "In fact, rather than still calling the Sanders Amendment an audit, maybe it should instead be called more of a disclosure at this point."

"The new language of the Sanders amendment requires a one-time disclosure from the Fed," Mr. Paul continued. "Basically, their sins of the past would be revealed and Americans would know more about who got bailed out by the Fed and under what terms. This would be good, but it's not nearly enough."

I agree completely... Big Ben, Big Al Greenspan, and all the Fed Heads are breathing a sigh of relief this morning...

The U.K. finally has a new government today... That should help the pound sterling... But not bring it out of the woods by any imagination!

And... In Spain... The Prime Minister (Zapatero) announced a new set of Budget measures to the parliament, which shows the Spanish Gov't saving 5 Billion euros this year, and 10 Billion euros next year, by making deep cuts in public spending... Well... This is good news, sort of... You hate to see them have to make these cuts, but, truthfully, this is exactly what they need to do, and more of it... Soon!

Yesterday morning, after I signed off, Australia's budget was presented... Australia presented a plan to bring their Budget to a surplus 3 years ahead of forecast... The Budget Surplus is expected now to be in the 2012-13 fiscal year... Their Budget Deficit is currently $40 Billion... This projection is based on the tax on miners profit that I talked about a week or so ago...

And... Of course the hopes that China continues to demand raw materials from Australia...

I know, I know, there are quite a few "big name" economists and analysts out there calling for a marked slowdown in China... But, I'm from Missouri, and I'll have to be shown that slowdown...

Speaking of Budget Deficits... We just happen to have the U.S. Monthly Budget Statement due to print today, along with the Trade Deficit... The Budget Statement is for April, and the Trade Balance if for March... Both are not good folks... To have this twin deficit slapping you in the fact each month is just not the thing that bodes well for our future...

Then there was this... Remember me telling you how I believed that House Prices would take a double dip, that the recovery in housing was a house of cards? Well... I saw this story in the USA Today...

"Housing prices in the U.S. might slip into the second part of a double-dip downturn, experts said. Data from the National Association of Realtors indicate that the housing rebound is losing steam, while CoreLogic, a real estate analytics firm, forecast that prices will be 4.2% lower by February."

Hmmm... Nice to see that they've come around to seeing things the way I see them! Too bad it took them so long to see though!

To recap... The Big Story overnight is that Gold has blown past it's previous all-time high, and is trading all the way to $1,241 this morning! The euro was traded in a tight range for once in a blue moon yesterday, and Spain and Australia have announced measures to cut their Budget Deficits...

Currencies today 5/12/10: American Style: A$ .8960, kiwi .7185, C$ .9830, euro 1.2670, sterling 1.4915, Swiss .9015... European Style: rand 7.5060, krone 6.1520, SEK 7.5660, forint 216.75, zloty 3.1650, koruna 20.0650, RUB 29.99, yen 93.10, sing 1.3820, HKD 7.78, INR 45.21, China 6.8272, pesos 12.48, BRL 1.79, dollar index 84.59, Oil $75.92, 10-year 3.55%, Silver $19.58, and Gold... $1,241.80

That's it for today... I have a photographer coming in this morning to take pictures of me... I'm wondering if I should have gotten all "gussied up" ... But, I figured, this is how I look everyday, so might as well stick to that! For all of you who view the videos that go out to Currency Capitalist subscribers, you know all about my "blue shirt"... Well, that's what I have on today! HA! Speaking of the Currency Capitalist... I hear that we are adding subscribers by the boat load these days... That's great to hear! The Currency Capitalist is a "paid subscriber" monthly newsletter that's published by the Sovereign Society... I won't go into a big selling mode here... Just wanted you to know about my "other" venture! Well, the photographer is here, so I have to get in my place with my bright shining face! I hope your Wednesday is Wonderful!

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

The Fed Keeps The "Extended Period" Wording...

Chuck Butler — Thu, 29 Apr 2010 14:18:41 GMT

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In This Issue..

* Spain gets downgraded...
* Fed keeps rates unchanged...
* Interest rate differentials are back in play!
* RBNZ keeps rates unchanged...

And Now... Today's Pfennig!

The Fed Keeps The "Extended Period" Wording...

Good day...And a Tub Thumpin' Thursday to you! What a great evening of jazz music last night, with my little buddy having two guitar solos in two of the 4 songs played...

Well... No amount of soothing words from Germany was going to stop the tailspin of the euro yesterday, after S&P downgraded Spain's debt now... It's a European debt pandemic according to the people selling the euro like funnel cakes at a State Fair.

The Euro states have to feel like they are getting treated like a red headed stepchild... (Ok, it's just a saying folks) by the ratings agencies... The PIIGS (Portugal, Italy, Ireland, Greece and Spain) are falling like dominoes that were all lined up...

Do you remember the last time the euro was going through times like this? It was after the financial meltdown of August 2008, and for the next 6 months, everyone and their brother thought the euro would collapse, and the dollar would once more be king... Well... We all know what happened there...

But how about the time before, in 2005, when the homeland reinvestment act, brought back over $300 Billion of profits earned overseas at no tax penalty... The euro fell in value for most of that year, and once again, people said that the euro would collapse.... And that didn't happen either...

So... What I'm getting at here folks, is that we've seen all this before... Could this be the time that the dollar really takes hold for more than 6-9 months? Or... Will all this pass by like a long summer day, and by the end of the year, everyone jumps back on the euro's bandwagon? Well... That's up to you to decide... I can't do it for you, because if I were to be wrong, you would blame me for your losses... Hey! Don't laugh, or chuckle, I've seen it happen!

I keep getting emails from people that believe that I'm barking up the wrong tree comparing the Euro states debt problems with the debt problems of U.S. States... Saying, that the U.S. States can't leave the U.S. Hmmm... I guess they've never heard the folks in Texas talk about such a thing! I Just don't see that as being a fly in the ointment... The Eurozone states aren't going anywhere either!

OK... Enough of that... Besides! Risk is back on this morning! Maybe not so much with the offset currency to the dollar, the euro, but with the higher yielding, commodity and emerging markets currencies... What brought this about late yesterday afternoon and then carried into the overnight sessions?

Ahhh grasshopper... Come, sit... Let me tell you a story about a cartel, I'm sorry, I mean a Central Bank that is doing what they believe to be the right thing to keep their economy from falling off a cliff, but what they are really doing is simply making things worse for the future... By bloating their balance sheet with toxic waste bonds... By pumping the money supply pipeline all day and all night... By keeping interest rates at near zero for far too long... And the list goes on... It's not a fairy tale folks... This is a real Central Bank, and it's OUR Central Bank! The Fed!

Yesterday's 2-day FOMC meeting came to an end, after all the board games of Sorry, Candyland, and the high tech games of Battleship were put away... The Fed Chairman, Big Ben Bernanke then gave the statement, which said... the U.S. economy continues to strengthen, but that the slack left over from the recession is still so large that it expects interest rates to stay near zero for an "extended period."

Hey! Didn't I tell you that's what they were going to say? I don't know how... But ever since the liquidity crunch of August 2007, I've been reading the Fed like a book! I can see their actions coming from a mile away... They are so predictable... And wrong! So, I simply think of what a dolt would do to an economy, and then apply it to the Fed...

One Fed Head, KC Fed Hoenig was the lone dissenter... So kudos to him for finally waking up and smelling the coffee! I'm reminded of a song here... Too much, too little, too late...

So... The Commodity and Emerging Markets Currencies took this news that the Fed was keeping rates at record lows for an "extended period" and ran with it! Interest rate differentials came back into play, and the rally in these currencies like A$, kiwi, C$, real, pesos, rands, has been quite strong overnight and this morning... Looks like the little dogs are out-running the Big Dog this morning...

New Zealand dollars / kiwi, have rallied overnight even with the Reserve Bank of New Zealand (RBNZ) keeping interest rates unchanged... The RBNZ made that announcement yesterday afternoon... RBNZ Gov. Bollard, had this to say... "On balance, we continue to expect the New Zealand economy to recover in line with or slightly faster than our March Statement projection. Annual CPI inflation, which has been close to 2 percent for the past year, is expected to track within the target range over the medium term.

As previously indicated, we expect to begin removing policy stimulus over the coming months, provided the economy continues to evolve as projected."

So... To the markets... That was sort of like Tom Burdette, keeping the light on... The markets want to see the RBNZ join Australia with rate hikes, and Bollard was simply keeping those hopes alive with his comments... I still say, that I expect the RBNZ to hike rates at their next meeting, and not wait any longer...

And Gold... The shiny metal is very close to that level of resistance I told you about yesterday, trading right now about $1,168, and change... Again... Folks... I've long called Gold the "uncertainty hedge"... And what, with all the debt pandemic taking on Japan, Europe and the U.S. does that lead to? Uncertainty, that's what! Faster than a speeding bullet, more powerful than a locomotive, able to leap tall buildings in a single bound... Look! Up in the sky! It's the Uncertainty Hedge!

Then there was this... From the Bloomie this morning... The Federal Reserve Bank of New York's hiding of crucial information about the bailout of American International Group for more than a year could end up in criminal prosecution of those involved, said Neil Barofsky, special inspector general for the Troubled Asset Relief Program. "We're either going to have criminal or civil charges against individuals or we're going to have a report," Barofsky said. "This is too important for us not to share our findings." He declined to say whether his investigation targets U.S. Treasury Secretary Timothy Geithner.

To recap... Spain was added to the list of Euro states receiving downgrades, and that added to the euro's woes yesterday. However, overnight, the Commodity and Emerging Markets currencies (higher yielding currencies) have pulled a reversal act, and are rallying into this morning because the Fed announced yesterday that they were keeping rates at historical lows for an "extended period"... Rate differentials are back in play this morning...

Currencies today 4/29/10: American Style: A$ .9285, kiwi $.7225, C$.9975, euro 1.3270, sterling 1.5265, Swiss .9250... European Style: rand 7.37, krone 5.9260, SEK 7.2650, forint 202.30, zloty 2.9510, koruna 19.25, RUB 29.22, yen 94, sing 1.3680, HKD 7.7650, INR 44.65, China 6.8260, pesos 12.27, BRL 1.7475, dollar index 81.96, Oil $84.24, 10-year 3.77%, Silver $18.18, and Gold... $1,168.30

That's it for today... And this week... Chris will have the conn on the Pfennig for me tomorrow morning... Day game at Busch Stadium today... Just doesn't have the same ring to it, when I'm not sneaking out of work to go to the game! HA! Since I won't be writing tomorrow, I have to give a big shout out, Happy Birthday (big one!) to my good friend Toni Moody, who celebrates a birthday on Sunday... She's a real sweetheart, and it's about time she joined the rest of us in this age category! The whole family was at the jazz concert last night, even little Delaney Grace, who cheered so loud for her Alex! We were sitting almost on top of the band, and Alex was playing his guitar right in front of us, and Delaney, who was so excited to see her Alex! OK... I want to end with an update on me, as many have asked for... I'm going quite well, I must say... I'm a little self conscience of not having a left eye, but in 6 weeks, I'll go to get fitted for a shell that will match my right eye... In a couple of months, people meeting me for the first time will not know I have a prosthesis for a left eye! OK... Time to go... This is going to be a Tub Thumpin' Thursday for me, and I hope for you too!

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

Confidence sends the dollar lower...

Chuck Butler — Tue, 30 Mar 2010 15:27:49 GMT

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In This Issue..

* Confidence sends the dollar lower...

* Good data for the US boosts Mexico and Canada...

* The Fed exits stage left...

* Pound rallies, but don't be fooled...

And Now... Today's Pfennig!

Confidence send the dollar lower...

Good day, only two more days left in March, and April brings Chuck back to the desk. The dollar bears returned to the markets yesterday as most every currency moved higher versus the dollar.

Confident investors kept the dollar on the run yesterday as they went shopping for yield. The commodity currencies ruled the day again, with Australia, Norway, and Brazil's currencies all posting gains nearing 1.5% vs. the US$. Greece successfully sold 5 billion euros worth of bonds in the first sale since the EU reached agreement on a stability plan. The sale emboldened investors who moved funds out of their 'safe haven' parking spots in the Japanese yen and US dollar. It seems we are back to the risk on / risk off trading pattern which dominated the currency markets over the past year. Good news for the US or global economy means bad news for the safe havens of the US$ and yen, while the opposite occurs whenever the global recovery is called into question.

Data released yesterday morning showed spending growth again outstripped income growth here in the US. Personal income was flat, and personal spending increased .3% in February. But even with the increased spending by consumers, inflation remains calm as the PCE Core figure showed no change during the past month. Another report showed manufacturing activity in the Dallas region jumped 7.2% during March, after a small decline during the previous month.

While the increased consumer spending without a matching increase in income worries me, it was great news for those with a shorter term outlook. More spending by US consumers pushed both the Mexican pesos and Canadian dollars higher. Mexico's peso rose to the strongest level in nearly a year and 1/2 on the thought that US consumers would be demanding more of Mexico's exports. Mexico ships 80 percent of its exports to the US, so the increase in US consumer spending definitely benefits the peso.

The Canadian dollar also strengthened, trading near the highest level since July of 2008. While Canada has developed a strong trading relationship with China, the US is still its number one market; so good news for the US economy filters through to a stronger Canadian dollar. With investors in a positive mood throughout the globe, oil rallied almost $2 and helped those currencies which have strong exports of crude, including both the Norwegian krone and the Canadian dollar. With good vibes running all over the globe, investors moved out of dollars and into currencies which should benefit from renewed global growth.

But there are still some items which could throw the markets back into crisis mode. Greece will need to raise as much as 15 billion euros by the end of May, matching the amount it has raised since the beginning of the year. Another factor which could weigh on the global markets is the Fed's plan to end their support of the US bond mortgage bond market. March 31st is the last day the Federal Reserve will be a participant in the 'agency MBS' market. 18 months ago, the mortgage markets went into a tailspin prompting the global financial crisis. In order to stabilize the market, Ben Bernanke brought the Federal Reserve's unlimited buying power to the secondary mortgage markets. According to the Financial Times, the Federal Reserve has purchased 1.25 trillion dollars worth of bonds in the past year, slighty less than a quarter of all bonds sold.

The program has worked, as mortgage rates fell immediately after the program was announced in November of 2008, and continued to drop reaching 50 year lows last December. Mortgage rates have been held well below where they would have been without the Fed's trillion dollar balance sheet. This has helped stabilize the housing market, which was in a free fall back when the Fed first started buying mortgage backed securities (MBS). These lower rates have not only helped new homeowners, but have also calmed worries about all of the adjustable rate mortgages which would be subject to major adjustments if rates moved higher.

But what happens later this week when the Fed is no longer there to purchase these securities? Lenders need to sell these mortgages to free up cash to make more loans. Naturally, the loss of a buyer who was responsible for a quarter of all the sales is going to drive prices lower and rates higher. This has our friends over at Agora Financial worried. The following was in the 5 minute forecast yesterday:

"This is likely to be a big thing," warns The Richebacher Society's Rob Parenteau. "The Fed has bought over $1 trillion on government-sponsored entity (GSE) debt from the private sector. Private sector investors have taken the money the Fed has created. "Given the yield on near cash instruments, we believe investors have turned around and invested the proceeds from their GSE sales to the Fed in risky assets. We also believe some of these investors have replaced their GSE positions with Treasury bonds.

"So directly, the Fed has bid GSE prices up and suppressed GSE-related interest rates (think mortgage rates). Indirectly, the Fed's money creation in the QE ops has suppressed Treasury yields and boosted prices of risky assets. At month end, then, a major prop beneath asset markets will go poof.

What happens, then, when broker dealers, households and money market funds go to sell their GSE debt after March 31 and there is no Fed on the other side of the trade, with a bunch of blank checks, prepared to buy the GSE debt?

"Can you say train wreck?"

I look forward to getting the 5 every afternoon, it is packed full of great observations and always has some good 'Pfennig Pfodder'.

The Australian dollar turned in the best one day performance vs. the US$ in over a month. I wrote a few paragraphs on the Aussie yesterday, so I won't go into a lot of detail here, but just wanted to let readers know the Aussie is still on an upswing which is actually picking up some steam.

While I have expected the move higher by the Aussie dollar and kiwi; today's move up by the pound sterling caught me a bit off guard. The pound moved clearly above the $1.50 and touched $1.51 for the first time in a week. A report released this morning showed Britain emerged from recession in the 4th quarter at a faster pace than previously estimated. This was good news for Prime Minister Gordon Brown who is facing a strong challenge in the general elections which are just weeks away. Brown is desperate for data which shows the UK economy is recovering in order to keep the Conservatives a majority in the upcoming elections.

I still wouldn't touch this currency, as there is just too much uncertainty surrounding it. Not only will the BOE need to figure out how to extricate itself from the quantitative easing programs, but the elections continue to be 'too close to call'. Currency markets don't like uncertainty, and volatility usually favors those looking to drive prices lower.

Currencies today 3/30/10: American Style: A$ .9206, kiwi .7127, C$ .9822, euro 1.3483, sterling 1.5083, Swiss .9412, European Style: rand 7.3698, krone 5.9680, SEK 7.2497, forint 197.12, zloty 2.8724, koruna 18.8540, RUB 29.43, yen 92.55, sing 1.3974, HKD 7.7644, INR 45.1363, China 6.8257, pesos 12.4206, BRL 1.7945, dollar index 81.17, Oil $82.23, 10-year 3.86%, Silver $17.4026, and Gold... $1,110.45

That's it for today... My son, Brendan returns today from a 'retreat' he took with his 8th grade class. He'll be happy that he only has one day of school before we head down to Jamaica for the Easter weekend. Another do or die night for the Blues, as they take on the Chicago Blackhawks here. We had a busy day on the desk yesterday, but Chachi is back, so we are only down two people now. Hope everyone has a Terrific Tuesday!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Loose Lips, Sink Ships...

Chuck Butler — Tue, 09 Mar 2010 15:24:23 GMT

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In This Issue..

* Greek PM stops currency rally...

* Will Fed stop mortgage buying program?

* Aussie jobs report is strong!

* The history of a Pfennig For Your Thoughts...

And Now... Today's Pfennig!

Loose Lips, Sink Ships...

Good day... And a Terrific Tuesday to you! The monsoons are coming to the Midwest... I believe I saw the weather report for this area showing rain today and the rest of the week... I should leave my car outside, to get a "wash"! HA!

Well... During World War II, there was a saying, that, "loose lips, sink ships"... I think Greek Prime Minister, George Papandreou, should have taken those words to heart yesterday... You see, the currencies, led by the beleaguered euro, were rallying, and the single unit was nearing 1.37, when Papandreou made a statement that sunk the rally's ship... He said that "Greece's debt problems could soon spread to the rest of Europe and mean a weaker euro"

Now, that's just what the markets wanted to hear... NOT! The markets were very content believing that Greece's problems would fade away with a combination of Greek spending cuts, and aid from France and Germany... And you could see the euro shorts beginning to unwind... But... NOOOOOOOOO! The Greek PM sunk the rally's ship, with his loose lips...

The Greek PM also said that "the Greek crisis has implications for the U.S. dollar", but didn't elaborate on that point, so the markets took that to mean the implications were good!

So... There you have it... Yesterday's price action all rolled into a couple of paragraphs...

Overnight... We saw additional dollar strength... And when you see dollar strength, you also see yen strength... At least since July of 2008... Safe haven flows... Yeah, right... And my first wife was a young Elizabeth Taylor... Yeah, that's the ticket! Those "safe haven" flows sure helped shelter investors from losses last year didn't they? NOT!

Last night, the ratings agency, FITCH, fired some shots across the bow of the Eurozone... Let's go the tape! FITCH told Portugal, that it may be downgraded if measures are insufficient, and they told Spain, its macroeconomic risks remain high.

The ratings agency also told Greece that their short outlook is probably OK... Huh?

Then FITCH went a step further and said that, "there's no pressure on the U.S. credit rating in the short/medium-term though the U.S. is vulnerable to interest rate shocks."

Hmmm... Just last month the rating agency, Moodys, issued a report that said the U.S. debt problem was going to lead to a credit rating downgrade...

So... What's it gonna be boy? FITCH or Moodys? I would have to think that since FITCH is the latest to come out, that it supersedes the Moodys report last month... Or... That's how the markets look at it any way!

The "loose lips, sink ships" arrow that was shot at the currency markets yesterday, carried over to the Aussie dollar (A$), which makes little sense to me, given the rate differential, and the strong economic data that keeps printing in Australia... Last night it was the latest jobs report, which showed that job ads increased 19.1% in Feb, and... A Business Survey, showed improvement in both conditions and confidence. Australia did receive one piece of economic data that is so strange, you have to think that a revision will come... I'm talking about Capacity Utilization, which dropped from 82.1% in Jan to 80.7% in Feb... The 80.7% is the lowest print of Capacity Utilization since last September... Remember, just like here in the U.S... Capacity Utilization is about the only "forward looking" piece of data that prints... So... Just taking this report for what it said, one would think that going forward, the Reserve Bank of Australia's interest rate hikes have begun to settle into the economy, which... Is a good thing folks... The last thing you want to see in a country where you have money invested is an overheating economy!

Gold got smacked right on the chin yesterday... Just when it appeared that Gold's downtrend had been reversed (as I said last Friday) we get a day like yesterday, when the sellers of the shiny metal came out of the woodwork! Forces are pulling on both sides of Gold these days, as there are those that believe Gold will fall to $800... And there are those that believe Gold will soar to $2,000... Me? I'm not a betting man, except for a shiny quarter, or a dollar to a Krispy Kreme, but I would think that Gold slipping in price isn't out of the question, but to $800? That's a little extreme, and on the other side of the coin, $2,000 on the upside seems to be a little extreme...

I'm reading a story on the Bloomie this morning that caught my good eye, it's about yields on Fannie and Freddie mortgage securities... It seems that the Fed's buying of mortgage bonds to keep yields low, has worked... Unfortunately, that plan will cease to exist at the end of this month... What will mortgage rates do then? The Bloomie story was attempting to paint a picture whereby yields remain low after the Fed plan ends... I'm not buying that! I'm of the opinion, that the Fed might let this plan end, take a look at widening yields, and put it right back in place... But... I guess we'll have to wait-n-see, eh?

I see where "my idea" of creating a European Monetary Fund (EMF) is gaining traction in Europe... I talked about this yesterday, and the plans to create this EMF began this past weekend. I had talked about the need for something like that last week! Of course I'm patting myself on the back right now, but it doesn't mean that I'm full of myself! I'm sure there are thousands of people out there writing letters that talked about the creation of a EMF before the European authorities began discussing it...

The creation of this EMF would be like manna from heaven for Greece, and the other PIIGS... And... It would keep the egg off the faces of the ECB and the Eurozone officials... For those of you new to class, the ECB is the European Central Bank, and in no way are they going to allow the IMF to step in to help... This is the ECB's baby...

OK... Enough on that! I read a report from my good friend, David Galland, yesterday, and his economist, Bud Conrad, who is among the best folks... Any way... Bud was talking about the CBO's (Congressional Budget Office) projections for the next 10- years which they say the deficit will see an additional $9.8 Trillion... Bud was looking at the tax base, and concluded that the tax base will not grow as fast as the deficit...

So... That brings us back to what I always, always tell you... Be yourself... No wait! I always tell you that to finance the deficit, the country can raise taxes, raise interest rates aggressively, or allow a debasement of the dollar... Let's go through those...

1. Raise taxes... This would increase the revenue, and decrease the amount of foreign financing needed.

2. Raise interest rates aggressively... This would make our Treasuries more attractive, and keep foreigners buying them to finance the deficit.

3. allow a debasement of the dollar... This would allow foreigners to buy our Treasuries at a "discount" price and thus make them more attractive...

1. hurts the economy... But face it folks, this is what we're leaving to our grandkids, higher taxes and less freedoms than we had, because of this deficit spending that's gone on for 9 years now.

2. hurts the economy... Yes, aggressively higher rates would bring the economy to its knees once again...

3. Well... You have to admit that what's behind door #3 is what every politician, Treasury Secretary and Fed Chairman would prefer happened... But... For you and me... It represents a loss of purchasing power... Unless that is, you have taken steps to protect yourself from this choice...

In the end... It will most likely be a combination of higher taxes and a cheaper dollar... Oh boy, where do I sign up for that? I shake my head in disgust...

Then there was this... A new reader, and there a tons of them after the Wall Street Journal article, asked me what a "Pfennig" was... And I thought... Here's my chance to tell everyone the history... In 1991, I took over the trading of foreign bonds at Mark Twain Bank. Now to do this job correctly I needed to come in quite early and get caught up on markets that were 8 hours ahead of me. I then noticed that the sales guys would come in and spend a good part of their morning trying to get caught up on the markets overseas... I decided to start writing a quick morning note about the markets that they would have on their desks when they came in, and therefore would be ready to begin trading immediately... The sales guys started taking those morning notes and faxing them to their customers... These were hand written folks! In 1994, Frank Trotter, created the website for Mark Twain Bank, and we began putting the, now typed notes on the website... Frank then coined the term, "A Pfennig For Your Thoughts" which was the play on the American phrase, "A Penny For Your Thoughts"... The Pfennig, at the time, was the lowest denomination of a Deutsche Mark, and since I was talking about foreign markets and currencies it all fit... In 2001, the marketing team at EverBank changed the name to the "daily pfennig"... But I still refer to it as "A Pfennig For Your Thoughts"...

To recap... The currency rally yesterday was stopped in its tracks by Greek PM Papandreou's comments... Loose lips, sink ships, is what he should have thought before speaking! Gold also took a shot to the chin yesterday. The Aussie jobs report was good, but Capacity Utilization dropped which wasn't good. We start today with currencies a bit lower than yesterday's starting point...

Currencies today 3/9/10: American Style: A$ .9075, kiwi .6980, C$ .9705, euro 1.3570, sterling 1.4965, Swiss .9275, European Style: rand 7.44, krone 5.9350, SEK 7.1675, forint 197.40, zloty 2.8620, koruna 18.92, RUB 29.80, yen 89.80, sing 1.40, HKD 7.7605, INR 45.63, China 6.8263, pesos 12.68, BRL 1.7955, dollar index 80.77, Oil $81.05, 10-year 3.69%, Silver $17.06, and Gold... $1,117.45

That's it for today... Thanks to everyone that sent along notes about the Wall Street Journal article... It's all good! I am blessed with the best group of readers, that take the time to congratulate me, or take the time to send along prayers to me for my health problems... Thank you so much! Your kind words are truly appreciated! I got to see my darling granddaughter, Delaney Grace yesterday.. She called me on the phone yesterday here at work and told me that she was going to hug me when I got home... What a sweetie! Her mom and dad have decided to come to Florida with the rest of the family next week, so we'll all be there together... Isn't that what's important? Now I get to see Delaney on the beach again! Counting the hours now... Am I ready for warm weather? You bet your sweet bippie I am! Ok... Let's get this out the door today... I hope you have a Terrific Tuesday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

The BLS Attempts A Fast One...

Chuck Butler — Mon, 08 Mar 2010 16:42:00 GMT

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In This Issue..

* Chuck in the Wall Street Journal!

* Feb Job losses -133,000

* Oil pushes Petrol currencies higher...

* Volcker believes euro to stay...

And Now... Today's Pfennig!

The BLS Attempts A Fast One...

Good day... And a Marvelous Monday to you! Was your weekend grand? The temps were below normal, but the sun filled a blue umbrella sky for most of the weekend, and for that I get a smile on my face... For those of you who don't like me going into personal stuff, and would much rather me stick to the facts, you'll want to skip ahead a few paragraphs, for I've got some very important personal stuff to talk about... If that's you... I'll see you in a bit... Otherwise, for the rest of us... Here goes!

Well... It was a great weekend at my house... No, my beautiful bride was still in Florida... It was great because, after a couple of weeks of waiting, and wondering if it was going to print or not... There was a very nice feature article in the Wall Street Journal Saturday, that featured... Me! And my Pfennig! I'm sure that most of you missed it, as the Pfennig Box had very few emails about the article... So... If by chance, you would want to read what the Wall Street Journal writer, Jeff Opdyke, had to say about me, and the Pfennig... Then click here... I must say, that some browsers require you to subscribe to the article... Some don't... I believe we'll have the article, text and picture, on our website soon...

http://online.wsj.com/article/SB10001424052748704869304575103653627834216.html?mod=WSJ_business_LeftSecondHighlights

Ok... You're back now... Well, my beautiful bride didn't have a comeback for me this time when this story printed, so I guess even she was impressed! There were some very nice quotes from Pfennig readers in there, except one... Of course the writer had to make it "fair" and "balanced" right? So...

My two older children were left out of the article, so I want to make sure everyone is aware that I have 3 children... Dawn, Andrew, and Alex... Dawn teaches kindergarten, and Andrew teaches high school social studies / history/ law, and coaches water polo and swimming.

OK... The article did say that some people don't like me taking up space with talk about family and the Cardinals, they forgot to mention my beloved Missouri Tigers! So, on that note, I had better get to the currencies / economies of the world, eh? But first, I want to thank Jeff Opdyke, and the WSJ, for picking me as the subject of the story... I was quite proud to have a picture and story in the WSJ... And.. I don't think that means I'm full of myself!

Well... Welcome back to those that skipped ahead! Friday's Jobs Jamboree turned out to be very interesting, after looking under the hood... According to the Bureau of Labor Statistics (BLS) the U.S. lost 36,000 jobs in February, much less than what was expected (-68K), and the unemployment rate remained at 9.7%... Of course we all know that the "real unemployment rate" is 21%, it all comes back to the games people play now, every night and every day now... The most important piece of the Jobs Jamboree is the Avg. Hourly Earnings, which printed at 1.9% gain... So, those that are working are seeing some increases... Marginal increases, but still!

And... The BLS did add 97,000 jobs out of thin air, so the job losses were really -133,000... I also found it suspicious that the BLS waited some time on Friday, before posting that +97,000 adjustment... Before they did, the markets were led to believe that job losses were dwindling... Again... The games people play... It sure looks like they tried to pull a fast one on the markets... But, I'm sure it was just a technical thing... Right?

So... The dollar began to go into the tank shortly after the BLS adjustment, and traded down for the rest of the day on Friday, and the overnight markets of Asia and Europe have not reversed that move from Friday. In fact, the overnight markets have added to the gains by the currencies...

Recall on Friday I told you that Pending Home Sales had dropped 7.6% last month, and then that was followed up by a not so good Jobs Jamboree... The rate hike campers here in the U.S. are beginning to feel like a forgotten lover... There's just no love coming from the Fed regarding rate hikes, and with that thought falling over the markets, the high yielders took off, as rate differentials came back into play.

The other currencies that took off were the Petrol-currencies... You know them, you love them, here they are.... The currencies of: Norway, Canada, Mexico, and... Even the beaten and downtrodden, U.K. are gaining ground VS the dollar as the price of Oil nears $82!

OK... A Greece update is needed here I think... Basically, the Greek 10-year bond issue was taken down by dealers, but at a cost to the Greeks... This is exactly what I keep talking about regarding the U.S. debt and need to finance... If we keep kicking the deficit spending can down the road for someone else to deal with, we will run into a financing problem like Greece, and to take our bonds, the buyers will demand higher yields... Uh-Oh!

There was news over the weekend, that France was ready to give Greece some financial support... And former Federal Reserve Chairman, Paul Volcker, has this to say about the euro... "I'm still a believer in the euro, the lack of a unified government to back up the European Central Bank is a "structural crack" and maybe fortunately it's tested with a country as small as Greece, which doesn't present an insuperable financing problem."

I was typing that, and I just couldn't get the Monkees song, I'm a believer, out of my head! Then I saw her face, now I'm a believer!

OK... I'm back now... Looks like we have two Central Bank meetings this week, the Swiss National Bank (SNB) and the Reserve Bank of New Zealand (RBNZ)... Although the RBNZ has been talking hawkish lately, it might be too soon for them to hike rates this week, although they have to be feeling a bit behind their kissin' cousins across the Tasman, who have raised rates 4 times in the past 6 months!

The Swiss, will not, and can not raise rates at this time...

There will be two jobs reports this week from Australia and Canada... So, there's a few things on the plates of the countries we follow this week.

Here in the U.S. the data cupboard is pretty empty most of the week with some real data coming in Thursday and Friday... First we'll see the Monthly Budget Statement, and I have no idea why, but the expectations for Feb.'s deficit is $210 Billion! OUCH! Then the Trade Deficit prints for January, and then finally on Friday the Retail Sales for Feb... I don't think any of this is going to be rate hike positive, and therefore not dollar positive... But we'll have to wait-n-see, eh?

OK... Call me clairvoyant... Nah... I'm not that! I'm just a guy that sees things and thinks of ways to make them work better... In this case I'm talking about the announcement over the weekend of the European Monetary Fund... That's right! I did talk about the Eurozone creating this European Monetary Fund, a week ago, long before anyone even whispered it! Why did I think this? Because I knew that the European Central Bank (ECB) and the European Union was not going to go for any assistance to Greece by the IMF... So... I figured that it would be best to form their own IMF... And lo and behold look what they announced this past weekend!

"The European Monetary Fund, patterned after the International Monetary Fund, is a key part of an initiative backed by Germany and France to strengthen cooperation and surveillance of public finances across the Eurozone, government officials said. German Finance Minister Wolfgang Schäuble revealed details of the plan during the weekend."

OK... I'm going to have to come back down now... I was floating after hearing that announcement! I'm sort of like those Windows 7 commercials... The European Monetary Fund was my idea, and I'm a PC!

While I was looking around the Wall Street Journal this weekend, I saw a story that caught my eye... Here's a snippet from the WSJ... "Bank of America, Citigroup, JPMorgan Chase, Wells Fargo and other lenders reported a large increase in the volume of troubled loans they bought back last year. Barclays Capital estimated that banks repurchased about $20 billion in such loans, with half of the total written off. "Most investors haven't really focused on this issue and are surprised on how much impact this could have, including on earnings," said Ajay Rajadhyaksha, head of U.S. fixed-income and securitized strategy at Barclays Capital."

Back to Chuck again... Doesn't that stuff scare the bejeebers out of you? Mortgage loans that were made in the past 6 years are toxic! Of course not all of them are... But isn't this all we every hear about are these mortgage loans going bad and having to be written off?

Well... China was in the news this weekend, talking about their shrinking Trade Surplus... The thought here is simply that if China's trade surplus continues to shrink, the pressure applied to the Chinese to allow the renminbi to float will be eased... For those of you keeping score at home, China's Trade Surplus was $44 Billion a year ago... Today, it is $8 Billion...

One of my fave economists, Nouriel Roubini, said that he believed the Chinese would "limit the renminbi's appreciation to 4% over the next 12 months because of a super cautious outlook on the global economy."

I personally think that China will allow more than that as we go along, starting with a 2% or so, gain by summer... But then, that's just me...

Then there was this... There was a good story in the USA Today regarding Gold this past week, that long time colleague Ed Bonawitz, sent along to me... Here's a snippet...

By John Waggoner, USA TODAY

"If you like to have your investments close at hand - say, buried 12 paces northeast of the old apple tree - then gold bullion is the kind of investment you'd like. But even if you're not worried that the dollar will plunge, owning gold isn't a bad idea.

You hear many people pushing gold these days, citing our nation's $12.4 trillion debt. Gold is the classic hedge against inflation. If the U.S. resorts to printing money to repay our debts, the value of paper dollars will fall, and gold prices will skyrocket."

To recap... The Jobs Jamboree was worse than printed by the BLS, and not dollar positive. The price of Oil is shooting higher again, and taking the Petrol-currencies of Norway, Canada, Mexico and even the U.K. higher VS the dollar. And recent data has the rate hike campers here in the U.S. feeling left out, and therefore the rate differentials kick in for Australia, Brazil, and South Africa... And... Oh yes! Chuck was in the Wall Street Journal Saturday!

Oh.. And one more thing to quote John Maynard Keynes... "when the facts change, I change my opinion... What do you do, sir?

Currencies today 3/8/10: American Style: A$ .9110, kiwi .7005, C$ .9725, euro 1.3650, sterling 1.5120, Swiss .9330, European Style: rand 7.3910, krone 5.8875, SEK 7.1025, forint 195.15, zloty 2.8355, koruna 18.7770, RUB 29.73, yen 90.30, sing 1.3990, HKD 7.7590, INR 45.53, China 6.8264, pesos 12.62, BRL 1.7720, dollar index 80.35, Oil $81.95, 10-year 3.69%, Silver $17.35, and Gold... $1,133.80

That's it for today... Got a chance to go to the Championship game of the Missouri Valley Conference yesterday with good friend Rick... I love to watch basketball live... Same with hockey... On TV? I can take it or leave it, but live... I'm all over that like a cheap suit! Down to the days I can count on my hand, before I leave for spring training... I don't think Chris has figured out yet that he'll have the conn on the Pfennig for 3 weeks... Shhhhh, don't tell him! HA! Thanks to all of you who sent me a note, or called me about the enlarged mass on my left eye, and my fight with cancer. You are all wonderful people, and although I don't know you, I feel that I do... I believe that I'll beat this like I did the other cancer, so let's move onward and upward from here! OK? Alright, my fingers are tired of typing, so it must be time to hit send! I hope you have a Marvelous Monday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Exceptionally Low For An Extended Period...

Chuck Butler — Thu, 28 Jan 2010 17:03:02 GMT

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In This Issue..

* Old Trading Theme rises up again...
* Currencies sell off then rebound overnight...
* U.S. New Homes Sales Decline...
* It's somebody's birthday today!

And Now... Today's Pfennig!

Exceptionally Low For An Extended Period...

Good day... And a Tub Thumpin' Thursday to you! Yes, it's me... I thought it best to cancel my San Antonio trip, so Jen can get to Florida to be with her family. This is the second time that I've backed out of speaking engagement with this private group, I sure hope they don't think I'm avoiding them!

Front and Center this morning... It's Chris Gaffney's Birthday! So... This will be the "Chris Gaffney Birthday Edition of the Pfennig"! Chris is 10 years younger than me, so yesterday when he said "I'm an old man now" I about fell out of my chair! He's not even 50! Oh well...

For Chris' Birthday, I'm going to buy him lunch, and... Talk briefly about the State of the Union Address, only to the extent of how it affected the currencies, and the FOMC statement yesterday, and other things... Just for Chris' Birthday! HA!

OK... Yesterday, I told you how the currencies were in "lock-down" mode, awaiting the FOMC statement and the State of the Union Address (SUA, I'm getting tired of typing the whole thing, so to take a page out of my friend, the Mogambo Guru's book, it's now SUA).

Well, the "lock-down" mode got "unlocked" when the Fed said that they (the Fed Heads) would keep interest rates "exceptionally low" for an "extended period". That got the markets spooked a bit, as they thought this was a message from the Fed Heads that they see something that would require interest rates to remain "exceptionally low" for an "extended period"... And that brought about some of the tired old trading that we saw for most of 2009, in which, when things get dark, and dangerous, the Risk Assets get sold, and dollars are bought...

For some time now, we kept getting mixed signals that this tried old trading theme was a thing of the past and fundamentals were creeping back into the markets... But this move yesterday proved that to be wrong...

So... Dollars were bought the rest of the U.S. session, and into the Asian session, with the euro falling to 1.3930 in Asian trading... But then, things turned on a dime, and someone realized that the U.S. President, had spoken a softer tone with banks in his SUA, and that goosed stocks, and got everyone feeling a bit better about the whole thing, and saw "risk assets" rebound, with the euro recovering back to 1.4050. (it's back to 1.40, as I write)

The high yielders got a boost when the "exceptionally low" for an "extended period" words were spoken. Currencies like the Aussie dollar (A$) moved back above 90-cents, and so on...

There was a "dissenter" among the Fed Heads yesterday... Kansas City Fed Head, Thomas Hoenig, called for an increase in the Fed Funds interest rate, "sooner rather than later"... Now... There's a Fed Head you could kind of get to like, eh? Hoenig voiced that inflation could surge within a few years with the economic recovery gaining strength and the benchmark interest rate at this "exceptionally low" level...

Of course, he didn't say how he thought that might upset the applecart with regards to the Unemployment problem... My guess is he didn't think about that...

Hey! Did you hear the news? It's Chris Gaffney's Birthday!

You know... I did some more research into the President's proposed "spending freeze", which I believe is nothing more than rearranging of the deck chairs on the Titanic... They've increased their deficit spending by such a large percentage in the past year, that "freezing" it here, doesn't account for a hill of beans! Defense, Medicare, and Social Security aren't a part of the "freeze"... And they are the 3 biggest hits to the budget! So... In the end... This "freeze" accounts for about $250 Billion over 10 years... That's chump change folks...

Over that same period, some $9 Trillion is expected to be added to the government's debt pile. Which is to say the "freeze" will reduce the total deficit spending anticipated over the next decade by some 0.027%.

Don't get me wrong here, I'm glad it won't keep going higher... But, it certainly isn't getting "cut"... And that's what we need to hear, not all this sex, lies and videotape about a "spending freeze"!

I was thinking about this on my way to work this morning, as to how I would talk about it, and then a Pink Floyd Dark Side of the Moon track came on the radio, and the words just stuck in my mind that it has so much to do with all this going on these days, with the AIG, NY Fed, the Treasury Sec. the Fed Heads, and anyone else you want to throw into the pile... Pink Floyd - "Haven't you heard... It's a battle of words, and most of them are lies"...

OK... Yesterday, we saw U.S. New Home Sales decline 7.6% in December... Add this to earlier this week when we saw Existing Home Sales plunge! Is this what you would expect to see if your housing sector was recovering? I don't think so! As I said the other day, I fully expect to see Housing do a double dip, and home prices to fall another 10%... With all this unemployment, and foreclosures, etc. it's just not the environment for a housing recovery, folks... I'm sorry to be the one to have to tell you these things, because you won't see or hear about this on the dumbed down major media... (well, maybe on one channel, but I won't get into that!)

Oh! And the period to sell the inventory of homes was extended in December to 8.1 months from 7.6 months in November... Yes, this is better than a year ago when the period was 12.4 months... But, if I'm correct, we'll see this continue to tick up toward that 12.4 months figure once again.

Well... Yesterday, I was reading a newsletter from one of my fave writers, and friend, Steve Sjuggerud... Steve has coined an acronym for the problem children of the Eurozone... He calls them the PIGS... Portugal, Italy, Greece, and Spain... Many, many years ago, I before the Eurozone came to be in 1999, I used to write about these countries and referred to them as "Club Med"...

Any way... Steve is convinced that the debt problems of the PIGS is going to weigh too heavily on the euro, for the euro to remain at current levels... Steve isn't the first to think this, nor will he be the last... And... I have to agree that IF THE CLUB MED DEBT PROBLEMS CAN'T BE FIXED, then the euro will suffer...

But that's a BIG IF, to me... So... Tread carefully here... For, the euro is the offset currency to the dollar... So, you can't have a weak dollar with a weak euro, it just doesn't work that way! So, if you believe the euro will suffer, then you are thinking that the dollar is going to rally... And that may be... But like I said yesterday... The U.S. needs a weaker dollar to be able to pay just the interest on our debt... And if you don't believe that you're dreaming... But... We could see a dollar rally... Shoot Rudy, we saw one in 2005 that lasted about 10 months... We saw one from August 2008 through Feb 2009, which was 6 months... But each time, the dollar returned to the underlying weak trend...

And... For months now, and I do mean months now, I've told you that a stock sell off could cause an adverse affect in the currencies' values & gains since March of last year... I know I certainly sounded like the boy who cried wolf, quite a few times in the past 6 months, as I kept calling for a stock sell off...

We did get two mixed pieces of data from the Eurozone this morning... First... Germany's unemployment rose this month, the first increase in unemployment data since June of last year... Germany, the Eurozone's largest economy, saw their unemployment rate rise to 8.2% from 8.1%...

On the other side of the coin, Eurozone Confidence in the economic outlook posted a 10th consecutive month improvement! The index of executive and consumer sentiment increased to 95.7 from 94.1 in December...

So... Apparently, the problems of "Club Med" aren't being seen as too big of a deal by the people in the Eurozone... Hmmm... Which means either they are wrong, or those calling for a meltdown are wrong...

Here in the U.S. today, we not only will be celebrating Chris Gaffney's Birthday, but also looking over some data prints... It's Thursday, so that means the Weekly Initial Jobless Claims will print, we should expect the huge jump in last week's data to correct this week. We'll also see the color of December Durable Goods Orders, which should be pretty good, given the other data we've seen...

Gold has dropped below $1,100, and Silver has dropped below $17, both, are blue light specials, in my mind...

Then there was this... I received a note from a Latin American Currency dealer yesterday, telling me that his trading desk believes that the Brazilian real is now "oversold"... Hmmm... You have to be careful about these claims from trading desks, as they could very well be long reals, and need them to rally to unload them, so they kind of "nudge" the markets with a call... But then this looks to be legit, as the BRL's RSI has reached an oversold level of 77. (RSI is the relative strength index, that measures assets in a range, and when they reach certain levels, they flash either oversold or overbought)

Now... I'm not a HUGE believer of this stuff all the time, but taken along with other things, it can be helpful...

Currencies today 1/29/10: (Chris Gaffney's Birthday): American Style: A$ .9030, kiwi .7125, C$ .9465, euro 1.4010, sterling 1.6245, Swiss .9520, European Style: rand 7.5675, krone 5.8380, SEK 7.2725, forint 193.70, zloty 2.9030, koruna 18.7120, RUB 30.33, yen 90.20, sing 1.4010, HKD 7.77, INR 46.35, China 6.8267, pesos 12.92, BRL 1.8470, dollar index 78.70, Oil $73.92, 10-year 3.67%, Silver $16.71, and Gold... $1,091.60

That's it for today... My little buddy, Alex, is doing a presentation in school today, and his assignment was to document the British Invasion of the 60's... Geez Louise, I never got to work on an assignment like that when I was in school! He's got all my Beatles CD's, and Rolling Stones, and I even gave him a band that not many people know were a part of the British Invasion, The Dave Clark 5! Well, he put on his Beatles' wig, holding his guitar, and kind of looked the part! Suzy Q just walked in, and was surprised to see me in the saddle... She said, "well it's good to see you"... I said, "it's good to be seen!" Which is what I used to say to everyone right after my cancer surgeries... But I've kind of gotten past that, until this morning! OK... It's a big trading day on the desk here, so, I've got to get going... I hope your Thursday is Tub Thumpin'!

OH! And I almost forgot... Happy Birthday, Chris!

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

It's Not My Fault!

Chuck Butler — Mon, 04 Jan 2010 15:20:25 GMT

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In This Issue..

* Currencies mount a mini-rally...
* Let's blame someone else...
* Eurozone manufacturing rises...
* Brazil tries something new...

And Now... Today's Pfennig!

It's Not My Fault!

Good day... And a Marvelous first Monday of 2010 to you! It's very cold here, much like most of the country, and there's no forecast that has our temperature even reaching the freezing mark this week... So... It's hunker down, stoke up the fire, and find a good book to read weather!

The Chill that has settled down on us here in the Midwest, has tried to settle in on the currencies going into the end of the year... But... Here we are, it's 2010, a new year, and new ideas for the currencies... We'll have to wait-n-see what comes out this week and next, for there will be plenty of pundits, analysts, writers, and so on, that come out with their forecasts for 2010... Me? The song remains the same folks... Fundamentally speaking, there's only one direction the dollar should go... But, then, we need to get to fundamentals again, eh?

So... On Thursday, when I left you, the non-dollar currencies were in mini-rally mode on thoughts that the dollar's run has gone too far, too fast... But, remember... I warned you about taking that too seriously, given the thin volumes in the markets... And by mid-morning, the mini-rally had been reversed, and the dollar bulls once again were pounding their chests...

This morning, we have yet again, another mini-rally going on with the non-dollar currencies, which makes sense, given the fact that risk-type trades were taken off the books as we headed into Christmas, and it's time to get those puppies back on the books! The High-yielders like Aussie, Brazil, South Africa, and even New Zealand are the currencies that look the best this morning...

Speaking of looking the best this morning, that claim goes to Gold, which is up $21 as I write! WOW! One has to wonder if last week's dip below $1,100 was the last opportunity to buy Gold below $1,100... I'm not saying it was... I'm just saying that given this $21 move on the first day in the new year, one has to wonder if it was the last chance...

OK... I was reading the Business Section of our local paper yesterday morning, and a couple of things caught my eye... There on the front page, was a story by David Nicklaus... Let's listen in...

"If Rip Van Winkle were to check his stock portfolio today after a 10-year snooze, he might wish he had stayed asleep. The U.S. stock market just completed a decade that was, by some measures, its worst ever. If Rip had bought a S&P 500 Index fund on Jan. 1, 2000, he'd now be worth about 11% less, even after reinvesting 10 years' worth of dividends. Adjusting for inflation makes things worse: The purchasing power of that buy-and-hold index portfolio fell by roughly 3.5% a year during the dismal decade."

Chuck again... OK... So, that's a prime reason right there, that diversification is needed!

But wait, in the same paper, we had some investment author writing this... "I think a well-diversified stock portfolio is what you ought to have." Hmmm... You mean like the S&P 500 Index fund?

Let me lay this out for you... The writer was asked if Gold should be a part of an investment portfolio... And he said that about a "well diversified stock portfolio"...

See why I get so darn ticked off about these guys that only think about stocks? I mean, while his well diversified stock portfolio wallowed in the mud for a decade, Gold was up over $870 per ounce, or 358%! And the currencies? Well... I told you about their moves last week during the same period of time... Now, wouldn't it have been better to have a "well diversified portfolio, that included non-dollar denominated asset classes during this time?"

I don't see that changing in going forward either!

I also came across this story last night, when checking the Asian markets open... I'm shaking my head in disgust just thinking about typing what I'm about to type... But here goes...

Federal Reserve Chairman Ben S. Bernanke said the central bank's low interest rates didn't cause the past decade's housing bubble and that better regulation would have been more effective in limiting the boom.
"The best response to the housing bubble would have been regulatory, rather than monetary," Bernanke said today in remarks to the American Economic Association's annual meeting in Atlanta. The Fed's efforts to constrain the bubble were "too late or were insufficient," which means that regulatory actions "must be better and smarter," he said.

Hmmm... Just like today's youth... Point the finger and blame someone / something else! Why, it's never their fault! Someone else must be to blame!

No... Big Ben... Low interest rates were the fuel that this bubble needed to get growing... All the other stuff came later... If the low interest rates were never in place, we would have never seen the housing bubble like we did... And guess what, Big Ben? You're doing the same stupid thing again, by keeping interest rates at near zero! But don't let that get in the way of you blaming someone else...

And... With regards to regulation... You might want to check with your buddy over at the U.S. Treasury, Tim Geithner, for he was the President of the N.Y. Fed at the time, maybe he can shed some light on why there wasn't regulation...

OK... I'll get down from the soap box now...

There's a story out this morning, that we need to look at... The story is about Brazil's Sovereign Wealth Fund (SWF) and the decision to allow them to buy dollars... This authorization came from the Brazilian President, whom we chronicled here in the Pfennig previously as someone that feels the need to get the Brazilian real weaker...

So... Is this his plan to get the real weaker? To allow the SWF to buy dollars? I think so... The question here would be whether or not the markets believe the plan will be successful...

Personally, I don't think so... But it could have some initial strength, just like all new plans, before the markets can punch holes in them! The SWF has 16.3 Billion reals, as a reserve to make payments in the event the Government's revenue falls short... Hmmm... Sounds like the SWF had better keep as many reals ready in their fund, and not worry about holding dollars... In the end, I think the Brazilian authorities are crossing their fingers and wishing, and hoping and thinking and praying that the simple announcement of being able to buy dollars will be enough to scare the markets into halting the ascent of the real!

Last week, I mentioned that I know that some of you believe I need to be on the funny farm, because of my thought that Treasuries were the next bubble to pop... Well... Maybe I'll have company on the funny farm, for PIMCO the world's largest bond fund, announced that they were cutting holdings of U.S. debt... Hmmm... You don't think that they see a... Oh, never mind, I'd rather be the only one on the funny farm any way!

Oh... And the 10-year Treasury yield is still inching higher, trading at 3.85% this morning... And for those of you new to class, when pricing bonds, yield and price have an inverse relationship... So, as yield rises, the price goes down, and vice versa...

This cold snap across the country has the price of Oil above $80 again...

In the Eurozone this morning, their Manufacturing Index (PMI) came in as expected at 51.6, ticking higher than the previous month's figure of 51.2... Eurozone manufacturing has been inching higher for 10 months now, which is a good sign for the recovering economy there.

The euro took the news and ran with it back to 1.44 this morning...

In Canada, the Canadian dollar / loonie, registered its best performance for a year in 2009 in a month of Sundays... And, it didn't take long this morning for the loonie to get rolling again VS the green/peachback, with Oil trading higher once again...

And in Australia... The A$ is back above 90-cents this morning... I noticed last week that the A$ had fallen to .8940, which according to my chartist friend, was 40 pips above the resistance... Since then the A$ has shot up over 1-cent!

We'll see some data from Australia this week, that we need to keep track of, to tally up so-to-speak because the Reserve Bank of Australia (RBA) doesn't meet until Feb, and we'll want to see if the data adds up to another rate hike at that meeting. This week, we'll see Retail Sales and the Aussie Trade Balance...

And in China this morning... China's manufacturing posts its biggest growth since 2004 last month! WOW! Their Manufacturing Index rose to 56.1...

As a refresher... These Manufacturing indexes report an index number, which uses a level of 50 as the line in the sand between expansion and contraction... So, any number above 50 means manufacturing is expanding...

Speaking of which, we'll se the U.S. version of a manufacturing index we call the ISM this morning... And the ISM is expected to have inched up too to 54.1 in December... I'm still not sure where this "manufacturing" is happening, with the unemployment rate at 17%, and so on... But, that's what the Government says it is, and we can't question the Gov't...

OK... You all know that I was kidding there, right? It's our duty to question the Gov't!

Then there was this... Well, I know that these mini-rallies can be snuffed out in a NY minute, but... It sure didn't take long for the dollar to get back on the selling blocks this morning, as we start the New Year! It usually takes a week or two to see the direction for the currencies when we start a new year, but if this year is different, and we continue with the initial move downward for the dollar, for now...

To recap... The dollar bulls finished the year pounding their chests, but it didn't take long for the reversal to take place in the New Year! Eurozone manufacturing is stronger, and China's is off the charts! Canadian dollars / loonies, recorded one of their best year's, performance wise, and Greenspan is pointing the blame-finger at someone else... It couldn't have been the low interest rates that caused the housing bubble... Yeah right!

Currencies today 1/4/10: American Style: A$ .9055, kiwi .7285, C$ .9630, euro 1.44, sterling 1.6185, Swiss .9675, European Style: rand 7.32, krone 5.73, SEK 7.0735, forint 187.25, zloty 2.8420, koruna 18.27, RUB 29.97, yen 92.80, sing 1.3985, HKD 7.7565, INR 46.29, China 6.8273, pesos 12.96, BRL 1.7285, dollar index 77.53, Oil $80.80, 10-year 3.85%, Silver $17.20, and Gold... $1,117.70

That's it for today... 6 weeks till pitchers and catchers report to spring training... And about 65 till I head there! I hope everyone had a fun and safe New Year's celebration... I got to spend it with good friends... We saw a band that did nothing but Beatles music, talk about having fun, singing those songs! My beloved Missouri Tigers laid an egg in their bowl game. UGH! I owe a Pfennig reader a shiny quarter on that one! My good friend, Jen, is back today... YAHOO! And, I believe everyone will be back today, so we have that going for us today! The gyms will be crowded again, as everyone begins their weight loss programs in an effort to keep their New Year's resolution... My resolution? To be healthy... On that note, I'll get this out the door... Try to stay warm... And have a Marvelous Monday!

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

Thin trading brings tight ranges...

Chuck Butler — Fri, 18 Dec 2009 16:45:09 GMT

.........But First, A Word From Our Sponsor..........
Chuck Butler Will Help You Create Your Own "Dollar Oasis" in Just One Weekend

This February 25 to 27, Chuck Butler is partnering up with The Sovereign Society to hold an intensive, 2-1/2-day currency boot camp in Scottsdale, Arizona.

Why are we doing this?

Simple - to give you the tools to protect your investments from the perils of Wall Street and the destruction of the dollar, and to grow your wealth no matter what happens in the stock market.

Visit http://www.worldcurrencywatchfxu.com/main/ for more information.
......................................................
In This Issue..

* Thin trading brings tight ranges...
* Searching for the exits...
* Mixed data in Europe...
* Yen and Real make strange bedfellows...

And Now... Today's Pfennig!

Thin trading brings tight ranges...

Good day...We had a pretty quiet 24 hours in the currency markets, with the majors all trading in a very narrow band vs. the US$. We will probably have a few more of these days during the next two weeks, as currency desks are manned by the backups and trading thins out. Many of the institutional investors will be moving to cash in order to preserve gains for their year end statements, and individual investors will have the holidays to take them away from the markets. Occasionally we will get a rogue piece of economic data which shoves the market one way or the other, but we typically won't see any long term positions being put on during the last two weeks of the year.

Thursday started out with more dollar strength as investors continued to take off risk positions, exiting the higher yielding currencies and moving funds into the US$. I read a story this morning on Bloomberg which confirmed my thoughts in the first paragraph. Bill Gross, who runs PIMCO, cut holdings of govt. debt and boosted cash to the highest overall levels since the collapse of Lehman Brothers in September of 2008. Gross increased the funds cash holdings to 7% in November from -7% in October. Readers may be questioning how a fund can hold negative cash; they accomplish this through leverage. I wrote a bit about the carry trade yesterday, and how investors were moving back out of this leveraged position, and the interview with Gross confirms my belief that the carry trade reversal is what has been strengthening the US$.

Investors have been scared out of these leveraged trades, with the debt problems in Greece and Dubai and the thought that the US Fed may be starting to look for an exit from their quantitative easing. As the economies of Asia continue to recover, inflation has started to appear back on investor's radar. While Bernanke did his best to convince the market rates would stay low for an extended period, he confirmed that the Fed would let the stimulus programs expire as originally planned on Feb. 1 of next year. So while official interest rates will continue to be held at their extremely low levels, the Fed will begin to move toward the exits and try to pull liquidity out of the markets.

The FOMC has been faced with several reports suggesting growth in the US is picking up. Retail sales climbed in November and inventories rose in October for the first time since August 2008. Exports have also picked up as a weaker dollar has started to work on balancing our lopsided trade picture. Yesterday we saw the leading economic indicators in the US climb .9% which was above forecasts. Manufacturing in the Philadelphia region (exports were helped by a weaker dollar) rose at the fastest pace in more than four years according to another report released yesterday. This data had some economists predicting the Fed would start raising rates in early 2010.

But I believe stubborn employment data will keep the Fed from increasing rates until late in 2010 (if then). The weekly jobless report put a damper on the rate hike crowd as it showed 480,000 initial job claims filed during the second week of December. This was a 7,000 increase from the previous week, the second consecutive week that claims have climbed. Continuing claims have also pointed to a deteriorating employment picture. So we are currently having a 'jobless recovery' which doesn't feel much like a recovery to the folks on Main street. With unemployment staying in double digits, the FOMC will face pressure to keep the stimulus in place longer than they probably should. While 2009 was all about rescues, 2010 is going to find central banks searching for the exits.

It looks like Ben Bernanke will be the one leading the search for the exits here in the US. The Senate banking committee voted 16-7 to recommend Bernanke's nomination for another term as Fed Chairman. Democrats on the committee praised Bernanke's emergency actions, which they said saved the economy from a more severe recession. The Senate will likely follow the committee's recommendation, and Bernanke will serve for another 4 years. I'm sure his buddies on Wall street were thrilled!

Moving across the 'pond', data released yesterday in Europe showed Ireland's economy exited the recession in the third quarter. GDP in Ireland rose .3% in the third quarter, marking the technical end of the recession. Germany and France exited the recession in the 2nd quarter thanks in part to government stimulus measures. Ireland still faces many problems, as the debt to GDP measure is worrisome, and their credit ratings are at risk. Greece has focused attention on this problem, but Ireland now looks like it is moving toward a sustainable recovery.

Other data released in Europe showed German Business confidence rose to the highest levels in 17 months as exports help push manufacturing growth. The global recovery has helped German exporters sell their goods into the growing markets of China and India. The Bundesbank raised its forecast for 2010 growth earlier this week, and the data puts a positive end to the year. In contrast, French business confidence fell in December for the first time in 9 months. While France's expansion is set to continue, a large part of consumer spending has been tied to tax cuts and government incentives; so executives are less optimistic about demand going forward.

A story which ran on Bloomberg yesterday showed the Swiss franc had moved past an important level vs. the Euro yesterday. While we typically don't track cross currency rates, and usually just follow the currencies vs. the US$, this caught my attention as it showed the Swiss National Bank may be moving away from their hard line against further franc appreciation. The SNB had been intervening in the markets to keep the franc's value down vs. the Euro and US$. The failure of the SNB to act yesterday indicates that they may be throwing in the towel and will stop intervening. If this is true, the Swiss could see a nice appreciation vs. the Euro and US$.

The two biggest losers vs. the US$ over the past 24 hours have been the Japanese yen and Brazilian real. These certainly make strange bedfellows, as they are opposite sides of the carry trade. Brazil boasts some of the highest interest rates, while Japan has near zero rates and is typically the currency of choice for funding these carry trades. The Japanese yen fell after the Bank of Japan said it won't tolerate price declines and will likely keep rates near zero to combat deflation. The Japanese continue to battle deflation even as their economy seems to be picking up steam. The BOJ Governor indicated overnight that he's prepared to expand monetary easing (re Quantitative Easing) should a rising yen and deflation threaten the recovery.

Brazil's currency fell in spite of some good economic data. Brazil's unemployment rate fell for a third month to the lowest level of 2009. Latin America's biggest economy expanded 1.3% in the third quarter and is expected to grow 5% next year. Some of the selling of the real was probably due to a speech given by NY Professor Nouriel Roubini. Roubini said Brazil's currency is overvalued, and said the economy will fail to grow faster than 4.5% without the help of new legislation. I am usually in agreement with Mr. Roubini, but have to disagree with his thoughts on this one. While the real has certainly appreciated dramatically, they are an emerging market, and their ties to the world's largest consumer of commodities (China) should propel their economy in 2010. The currency has dropped to the lowest level in 11 weeks, and is starting to get to levels which look like an excellent buying opportunity.

To recap: Thin trading brings tight ranges, carry trades are reversing, another 4 years for Bernanke, mixed data out of Europe, and the Japanese yen and Brazilian real move in the same direction vs. the US$.

Currencies today 12/18/09: American Style: A$ .8883, kiwi .7091, C$ .9377, euro 1.4346, sterling 1.6174, Swiss .9588, European Style: rand 7.5732, krone 5.8553, SEK 7.2889, forint 193.07, zloty 2.9256, koruna 18.3257, RUB 30.657, yen 90.33, sing 1.4018, HKD 7.7569, INR 46.725, China 6.8281, pesos 12.8785, BRL 1.7914, dollar index 77.696, Oil $73.85, 10-year 3.49%, Silver $17.275, and Gold... $1,106.87

That's it for today, looking forward to a nice weekend here in St. Louis. I heard we may even get a sprinkling of snow tonight. That would certainly put everyone in the Christmas mood as they run out to make their last minute purchases. Chuck and his buddies are heading out on their annual shopping trip. He usually calls to let me know where all the 'best shopping' can be found so I can run out and do some shopping of my own. Kristin surprised us with Starbucks this morning, HOORAY for US!! 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

Game off for risk trades...

Chuck Butler — Thu, 17 Dec 2009 15:14:29 GMT

.........But First, A Word From Our Sponsor..........
How to Build Your Own Profit Oasis in Just One "Weekend"

This February 25 to 27, Chuck Butler is partnering up with The Sovereign Society to hold an intensive, 2-1/2-day currency boot camp in Scottsdale, Arizona.

Why are we doing this?

Simple - to give you the tools to protect your investments from the perils of Wall Street and the destruction of the dollar, and to grow your wealth no matter what happens in the stock market.

Visit http://www.worldcurrencywatchfxu.com/main/ for more information.
......................................................
In This Issue..

* Dollar hits 3 month high...
* Norges bank raises .25%...
* Fed repeats call to keep rates low...
* Inflation in India rises...

And Now... Today's Pfennig!

Game off for risk trades...

Good day...And welcome to Thursday. Chuck started his Christmas vacation, so I have the honor of bringing you the daily missive for the next week or so. The dollar continued to gain strength throughout the day as investors waited on news from the FOMC. Overnight, Greece sustained another rate cut, this time by S&P, which caused investors to move back toward the 'safety' of the US$. The news caused the dollar to rally to a 3 month high vs. the Euro and post gains across the board. The currency markets are becoming a bit volatile again, and much of this volatility can be linked back to the return of a transaction which dominated currency markets over the past decade.

The carry trade, where investors borrow at low rates and invest into higher yielding (but sometimes riskier) investments has become popular again. This trade was extremely popular during the last few years, and helped push the value of the Japanese yen down as it was the preferred funding currency of the carry trade. But as Chuck pointed out the other week, the US$ has now replaced the yen as the funding currency of choice, as investors take advantage of the low rates here in the US to borrow funds and invest them into riskier assets. This is one of the factors which has been weighing on the value of the greenback. These carry trades use a high degree of leverage enabling investors to look for short term trading gains. This leverage and short term outlook makes the markets pretty volatile, as investors put on and take off the trades on an almost daily basis.

Overnight we saw the S&P downgrade Greece's credit rating from A- to BBB+, matching an earlier move by Fitch. This move was largely expected, but it still shook investors confidence as everyone is looking for the next downgrade. So the past few days have been 'risk off' days and investors moved monies back into US$. This move back into US$ is a bit perplexing, as the problems facing Greece are the same facing the US. As Chuck pointed out, California has a larger GDP than Greece and is in a lot worse financial position. But when you look at the information vs. the explanation of the carry trade, the move makes a bit more sense. Investors see the downgrade of Greece as a possible precursor for additional credit problems and therefore took money back off the risk table and back into the US$ to sit and wait for another opportunity.

Chuck told readers yesterday that I would be reporting on Norway's Norges Bank, and shared his thoughts that they would follow up on their previous hike of 25BPS with another hike of the same size. As usual, Chuck was bang on with his prediction, as the Norges bank surprised all of the non-Pfennig readers with a 25 BPS increase. Mike Meyer was putting some research together for Chuck, and also shared his research with me so I could include it in today's Pfennig:

In statements following the rate decision, policy makers commented that growth in private consumption is strong and home prices are rising sharply, so the bank considered the alternative of keeping rates unchanged, but said interest rates are low and the October increase had a limited impact on bank lending rates. The Norwegian economic recovery has gained steam since October's policy meeting, but the market was assuming fear of a perpetually higher krone fueled by rate hikes would keep Norges Bank sitting on their hands until next year.

The NOK is basically in a 3 way tie with Brazil and Japan for third place over the past 6 months by posting about an 11% gain against the US$. Looking year to date, the krone has climbed up a bit to the number 5 spot and is currently sitting on a 20% return, which has led the exchange rate to trade close to the 5.50 handle during that period of time. In fact, it topped out at 5.5126 on 10/23 which are levels we haven't seen in well over a year. Norway, the world's 2nd largest natural gas and 5th largest oil exporter, suffered a milder recession than most industrialized economies thanks to its oil industry and stimulus measures employed by the government.

Thanks to Mike for his excellent analysis of the NOK rate increase. While you would think a surprise rate increase would rally the NOK, the opposite occurred as the rate talk was overshadowed by the events in Greece. Norway has been plagued by worries about Baltic bank loans to weaker countries such as Iceland. But Norway still has excellent economic fundamentals, and continues to be one of the best run economies in all of Europe. With a global recovery pushing oil prices higher, and interest rate differentials in Norway vs. US and Europe widening, the Norwegian krone should appreciate. I believe the current prices of the krone make it an excellent time to invest.

But lets move back to the US where the FOMC hit the repeat button and played the same old tune. As expected, Bernanke and his boys (and girls) kept rates unchanged and continued to tell the markets that rates would remain low for some time. The Fed continues to walk a fine line between trying to keep the stimulus measures in place, but continuing to sound positive on the state of the US economy. Policy makers said the labor market is stabilizing (we will see the weekly jobs numbers this morning) but still kept a pledge to keep interest rates 'exceptionally low' for an 'extended period'. The Fed did say most of its lending programs which benefitted Wall Street dealers would end as scheduled on Feb 1 of 2010.

In addition to the weekly jobs numbers, we will see the release of the index of US leading indicators for November which probably rose for an eighth consecutive month. Rising stocks seem to be bolstering consumer confidence even though unemployment remains in the double digits. A report released yesterday showed the cost of living in the US accelerated in November from a month earlier, propelled by higher energy and medical costs. The .4% increase followed a .3% move up in October. The core index numbers (ex food and energy) were unchanged for the first time this year, throwing cold water on those warning of the inflationary impact of quantitative easing programs. But I am still in the opinion that these programs will bring higher inflation rates in the coming months. We may not see it immediately, but the amount of money creation which has occurred will (in my opinion) eventually filter into consumer prices. An extended period of extremely easy credit markets, along with the printing presses working overtime, has got to have an inflationary impact eventually.

Inflation certainly seems to be taking hold in India, where wholesale food prices rose tat the fastest pace in eleven years. An index of food prices increased 19.95% in the week following a 19.05% gain last week. Policy makers across Asia have started to exit monetary stimulus programs as their economies rebound. Rates throughout Asia will likely start rising, as inflation begins to take hold. This latest increase in food prices will put additional pressure on the Indian central bank to increase rates which were cut in half over the past 12 months. The combination of a growing economy and rising interest rates should provide good support to the Indian rupee over the coming months. This currency, like the Norwegian krone, should be considered a good buy at current levels.

I'll end today's Pfennig with a rather humorous quote sent to me by Ty Keough. Fed Chairman Ben Bernanke's confirmation hearing will start today in the Senate Banking Committee. And in spite of Ben being named Time's Man of the Year, some believe he should not be confirmed as he has enabled the administration to put our future at risk by letting them run up record deficits. Ty came across the following quote on the Internet from a former member of our Armed Forces:

I take exception to saying that Bernanke, Obama, and Pelosi are spending like drunken sailors.
When I was a drunken sailor, I quit spending when I ran out of money.

To recap...

Currencies today 12/17/09: American Style: A$ .8883, kiwi .7122, C$ .9325, euro 1.4367, sterling 1.6123, Swiss .9542, European Style: rand 7.501, krone 5.8499, SEK 7.2665, forint 193.47, zloty 2.9238, koruna 18.1495, RUB 30.73, yen 89.92, sing 1.4024, HKD 7.7573, INR 46.885, China 6.8285, pesos 12.789, BRL 1.7698, dollar index 77.70, Oil $72.13, 10-year 3.53%, Silver $17.42, and Gold... $1,120.60

That's it for today, I want to say Happy Birthday to Jennifer. Like Chuck, I have had the honor of working with Jennifer for just over 15 years. Jennifer always sings happy birthday to each of us on our special days, so I guess I will have to sing to her later this morning (you can all be thankful that the Pfennig doesn't have audio available!!). It sounds like the weather is going to be warming up a bit today, with temperatures approaching 50 degrees. Should make for a Tub Thumping Thursday!!

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

Carry Trade reversals rally dollar / yen

Chuck Butler — Thu, 19 Nov 2009 15:13:25 GMT

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In This Issue..

* Carry trade reversal boosts the dollar/yen...
* STL Fed Head Bullard sends mixed signals...
* Audit of Fed in jeopardy...
* Kiwi and AUD fall...

And Now... Today's Pfennig!

Carry Trade reversals rally dollar / yen

Good day... And a Thunderin Thursday to you! Yes, the rain continues today, but I hear it is supposed to stop this afternoon. Fear of risk rained on the currency investors' parade as an equity market sell-off fueled a US dollar and Japanese yen rally. At times it looks as if we will break this pattern of markets up dollar down/ markets down dollar up, but it seems investors continue to return to the US$ and Japanese yen as soon as they become worried about equity market returns.

Many of the callers into the trade desk wonder how anyone would be buying the Japanese yen and US Dollar as 'safe haven' currencies. I think a lot of this buying of yen and dollars isn't necessarily due to investors believing they are safer in US$ and Japanese yen, but is a result of the reversal of carry trades. The dollar and yen are the two major funding currencies of the carry trade. Investors borrow yen and dollars and then invest the proceeds into higher yielding assets including equities. This is what is called the carry trade, and works best when an investor can use high leverage to increase the return. Since these trades are highly leveraged, they are closely monitored and reversed at the first sign of a possible fall in the value of the higher yielding assets. So while the popular press will talk about the 'perceived safety' of the yen and US$, I believe much of the dollar and yen buying is due instead to a reversal of the carry trade. Investors aren't buying these currencies because they think the Japanese and US economy are stronger and therefore safer than others, but are simply deleveraging to take risk off the table, and are buying yen and US$ in the course of this deleveraging.

So what caused investors to worry about their investments in the equity markets? Chuck sent me this note before heading out the door last night:

I saw currencies jump around again on Wednesday... But here's something that makes me scratch my bald head, and should make you wonder too... If you're confused with this, then don't feel alone... Fed Head Bullard was speaking yesterday and at one point he said... "FED MAY NOT START TO RAISE RATES UNTIL EARLY 2012" That really got the currencies going... But later in the same speech, he said, "MEMORY OF HOUSING BUBBLE MAY PUSH FED TO START RATE HIKES MORE QUICKLY THAN AFTER PAST RECESSIONS." WHAT? He said that the Fed may not start raising rates until 2012, but then says that the Fed may push to start rate hikes more quickly than before? In my best Andy Rooney voice... Do you ever wonder, how these Fed Heads get in the door? Oh well... The second statement didn't change the currencies, but it did change stocks... And for one of the first times in some time... U.S. stocks sold off, and non-dollar currencies rallied.

As Chuck points out, the St. Louis Fed Head Bullard seemed to be speaking out of both sides of his mouth, but his second statement that the Fed may push to start rate hikes more quickly than before scared equity investors. He stated that in the debate to tighten policy, "the idea that you might be creating asset bubbles by keeping rates too low for too long will be an important argument." This is what scared the markets.

The economic data released yesterday certainly didn't help investors confidence in the global recovery as US housing starts unexpectedly dropped 11% in October compared to the month before. The pace of construction was the fewest since April's record low, and illustrates housings reliance on government support. Obama has extended both the first time homebuyer's tax credit and instituted a new (and I believe stupid) program to give existing homebuyers a tax credit to go out and buy a new one. These programs will probably give a bit of life support to the housing market in November, but many question just how long the government can continue them.

Another piece of data released showed the cost of living in the US rose more than forecast in October as the price of gas pushed CPI up .3% following a .2% rise in September. Today we will get the weekly jobs data along with the Leading Indicators for the month of October. Last month's leading indicators surprised the market with a 1% increase, but this month the expected rise is just .4%. This would be the seventh consecutive month of increased indicators begging the question: Just how LEADING are these indicators??? They have posted positive gains for seven months, but the economy sure doesn't feel like it is picking up steam. Housing and unemployment continue to be drags on the US economy and, according to Chairman Ben S. Bernanke, economic 'headwinds' will limit the recovery for an 'extended period'.

Speaking of our esteemed fed head, Bernanke's clout among US lawmakers will be tested today as the House Financial Services committee will consider how much to expand audits of the US central bank today. Panel members will be voting on a Democratic proposal to retain a ban on audits of the Fed interest-rate decisions. This would be a big blow to Ron Paul and his bill to allow audits of the Fed. Unfortunately I believe the Democratic ban on audits will pass, and Ron Paul will have to figure another way to try and hold the Fed accountable.

The worst performing of the currencies vs. the US$ over the past 24 hours is the New Zealand dollar which fell by over 2%. The kiwi dropped as the nation's main opposition party said it will no longer accept the central bank's primary policy of targeting inflation. The head of the central bank's salary is actually tied to keeping inflation rates at an acceptable level. This is one of the main reasons interest rates in New Zealand have been among the highest of industrialized nations. But in the opinion of the nation's main opposition party, these high rates have been at the cost of slower growth and a weaker exports. In my opinion, having a central bank focus on keeping inflation within a targeted range is absolutely required; and tying the main policy makers income directly to this objective is smart.

The Australian dollar also dropped for a second day on interest rate speculation. As Chuck has written, the markets have expected the Reserve Bank to raise rates again at their December meeting, but minutes of their Nov. 3 meeting caused some concern that they will not raise rates again until 2010. The minutes, released yesterday, said the pace of interest rate increases is an 'open question' as policy makers balance the risk of inflation vs. an economy which could slow as government stimulus ends. But I am still firmly in Chuck's camp, and believe the RBA will raise rates in December, and the interest rate differentials will continue to rally the AUD$ vs. the US$.

Minutes of the Bank of England's November meeting were also released yesterday, and showed the policy makers were split on whether to extend the 'quantitative easing' program or possibly cutting rates further. The pound sterling lost ground against both the euro and US$ as investors worried about the lack of direction. The minutes show there are three different camps at the BOE, one which favors expanding the program of pumping money into the system with bond purchases, another which favored no change, and a third which wants to use another interest rate increase to stimulate the economy. The lack of a clear plan by the central bank policy makers strikes fear into investors who want to see more of an agreement on the direction of policy.

While we don't trade the Russian ruble, it is part of our BRIC MarketSafe CD (for which time is running out!). Chuck pointed out to me yesterday that the Russian ruble has been the best performing currency of the BRIC, which was surprising. A story overnight said that Russia's central bank will have to accept a stronger ruble next year as rising commodity prices move the currency higher. Strong commodity markets have pushed capital into the Russian markets, pushing the ruble higher. Policy makers had indicated they will try to cap the ruble's gains, but the IMF warned recently that these efforts to fight the rubles advance will prove 'unproductive' and that 'underlying factors' justify the ruble's strength. This is good news for holders of the BRIC MarketSafe. If you haven't purchased this latest MarketSafe CD, the cut-off is approaching - you only have until December 3 and then your opportunity is lost.

OK, to recap, the dollar rallied on carry trade reversals, the 'Audit the Fed' bill is in jeopardy, AUD$ and NZD$ fell, and the BOE is split on the future of monetary policy in England.

Currencies today 11/19/09: American style: A$ .9170, kiwi .7287, C$ .9414, euro 1.4851, sterling 1.6626, Swiss .9811, European style: rand 7.5605, krone 5.658, SEK 6.93, forint 180.17, zloty 2.789, koruna 17.2147, RUB 28.90, yen 88.86, sing 1.3904, HKD 7.75, INR 46.69, China 6.8284, pesos 13.07, BRL 1.7287, dollar index 75.54, Oil $78.77, 10-year 3.35%, Silver $18.20, and Gold... $1,134.55

That's it for today... Best of luck to Chuck this morning as he heads to the eye doctor again today. It is nice to see Kristin Kuchem back from two weeks of traveling. She said both of her presentations were well received, as investors were eager to get money diversified out of the US$! Looking forward to the Blues game this evening, as several of us from the desk are hoping to watch a win! Hope everyone has a great Thursday!!!

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

3rd QTR GDP Is Strong!

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

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

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

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

In This Issue..

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

And Now... Today's Pfennig!

3rd QTR GDP Is Strong!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A New Carry Trade Currency?

Chuck Butler — Mon, 28 Sep 2009 14:17:00 GMT

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

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

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

In This Issue..

* A bias to buy dollars remains...
* The Fed was warned as far back as 1999!
* Fujii gets "the memo"!
* A ton o' data all around the globe this week!

And Now... Today's Pfennig!

A New Carry Trade Currency?

Good day... And a Marvelous Monday to you! My weekend turned out to be quite grand, as all the things I said that would make it special came to pass! My Cardinals clinched their division. My beloved Missouri Tigers won on Friday night, and my little buddy's 8th grade Flyers won their game against their arch rival... WOW!

Well... Here we go with the last 3 days of September... A month that saw Gold return to $1,000, and the non-dollar currencies all return to levels they held a year ago, having withstood the onslaught of flight to safety trades that benefitted the dollar after the Lehman Bros collapse.

We've seen the Fed Chairman sound the "all clear horn" and me question, why anyone would still be listening to this guy! And our country is becoming quite divided over the health care issue... So... There we have it... September all rolled up in a nice package, to take out the trash!

Ok, we're all caught up now... On Friday, the currencies gravitated toward weaker levels, as the dollar buying continued, with stocks leading the risk assets lower... But it hasn't been a "taken to the woodshed event" for the currencies yet... So, the question remains if this is the correction we've been waiting for or not...

Last week I gave you some quotes by Nassim Taleb, but forgot to tell you that he was the author of the book, "The Black Swan"... Nassim Taleb was talking to a group of business people in Hong Kong this weekend, and asked the same question I've been asking, as he wanted to know why Big Ben Bernanke, and Treasury Sec. Tim Geithner kept their posts after failing to foresee the collapse in global credit markets. Taleb said, "Bernanke, Geithner, and Summers didn't see the crisis coming so why are they still there? Bernanke is like a pilot who didn't see a hurricane."

Good stuff, eh? Especially, when you read the Washington Post and see that the Fed was ignoring pleas from Consumer Groups, as far back as 1999, that subprime lending was expanding... Turning a deaf ear on the Consumer Groups, the Fed left rates low, and accommodating... What the heck do we have these guys for any way! The Fed has been the root cause of every financial problem we've had in this country since they were created in 1913...

OK... Last week, the Financial Times ran a story regarding the dollar laying claims to being the top Carry Trade Currency... Let's read a bit from the FT... "For years, the yen was the currency of choice to fund international Carry Trades. Analysts say negligible U.S. interest rates, its quantitative easing measures and little sing that the country is set to withdraw from its ultra-lose monetary policy anytime soon leaves it in a similar position to Japan at the start of the decade."

Well... I had already told you all that, but when you see it in the FT, it obviously gives it more credence, eh?

But, let's talk about that for a minute... If the dollar begins to become the new funding currency of the Carry Trade, that means that people will be selling the dollar short, and using the proceeds to buy a higher yielding asset... Well, in today's markets, there aren't what we would traditionally consider to be "high yielding assets"... For the Carry Trade is quite risky, therefore you need to have some cushion from the "buy side" asset... The only "real interest differential" in the world resides with Brazil... But the real is traded on a non-deliverable forward, which means it's just as liquid as say Aussie or kiwi, which were the main beneficiaries when the yen was the funding currency.

So... This new Carry Trade, might have to wait a bit before getting into 4th gear. When the Reserve Bank of Australia (RBA) begins their rate hike cycle, probably by year-end, then it might begin to make sense... Which is just another thing in the gauntlet the dollar has to run through every day!

Speaking of the Japanese yen... The yen reached a 8-month high of 89.30 overnight. I told you last week that yen is getting a lot of love from Japanese exporters that are repatriating their profits in yen, ahead of the end of the month / quarter.

I had to laugh out loud when I read a story about the Japanese Finance Minister, Fujii, who apparently hadn't gotten the memo about how Finance Ministers are supposed to jawbone the yen lower... Recall, I had told you that he said over and over again that he supported a strong yen... Well... That all changed once he got the "memo"... Fujii said last night that, "people were mistakenly saying he supported a strong yen."

Hey Fujii, got the memo now? Is it clear?... Crystal... OK, now go out there and jawbone the yen weaker, or you'll be falling on a sword!

This week is chock-full-o-data all over the globe... In the U.S. we'll end the week with the Jobs Jamboree, while Japan will print their latest Tankan report (which checks the pulse of the economy), Canada will print their latest GDP, China will print their latest Manufacturing Index, and Australia will report on Retail Sales...

In the Eurozone, Germany re-elected Angela Merkel as chancellor... Now, she just needs to figure out how to deliver those tax-cuts she promised during the campaign!

The euro had climbed back to 1.4720, but the election results were not taken as "euro friendly"... Remember, I told you that there could be tax-cuts coming in Germany, which is the Eurozone's largest economy. Tax-cuts are great, if you are in a fiscal position to do so... Germany has a nascent recovery at best going on right now, so the timing is not what traders are happy with... Therefore the euro dropped like a stone to 1.4570, but then bounced off that is back to 1.4635 as I write...

And the Reserve Bank of Australia, (RBA) which I mentioned earlier was in the news overnight, as the RBA Gov. Stevens gave a speech, that was hawkish... Stevens mentioned that the interest rates needed to move off their "unusually low levels". He also pointed out something that should be quite recognizable by all Central Bankers now, but apparently not here in the U.S.... And that is that "imbalances build up when rates are left too low for too long."

Well... The highly touted G-20 meeting last week ended not with a bang, but with some newfound strength as a group... Recall on Friday I told you that they would replace G-8 as the watchdog for the economies of the world. That news was announced later on Friday... G-20 ended with leaders from the G-20 nations saying that they plan to cooperate on an overhaul of financial regulations to prevent arbitrage in the global system. By the end of next year, banks will be required to hold more capital, and compensation policies will need to be linked to longer-term performance.

You know... When the media reports "Bankers compensation" they're not talking about real Bankers, per se... They're referring to the Merrills and Goldmans of the world that pay out Billions in bonuses, or did at least... Just thought I would clarify that point...

And then there was the British Pound sterling, which I kept saying over and over again, that this dance is gonna be a drag, no wait! I kept saying over and over again, that the pound sterling strength was a house of cards... Well, that house of cards is collapsing under the pound sterling... Even the speculators that were buying it because it was a part of the mix of currencies that made up the IMF's SDR's (Special Drawing Rights), are backing out now...

Data in the U.S. besides the Jobs Jamboree at the end of the week, include the S&P/ CaseShiller Home Price Index for July which will print tomorrow, along with Consumer Confidence, which is expected to be stronger... I guess the people they surveyed haven't seen the Bernanke video collection of his statements that couldn't be more wrong, and still believe him when he says it's all OK! Wednesday brings us the final print of 2nd QTR GDP. Thursday has two of my faves, Personal Income and Spending, and then Friday's Jobs Jamboree...

So, if the data continues to show some strength, but nothing to speak about... I would think that the risk takers will remain confused, and it could lead to further selling in stocks, and other risk assets... Don't really know... Just an opinion on what might happen...

OK, to recap... The dollar has rebounded, but nothing too strong to speak of as of this morning. G-20 is the new world economic watchdog, there's a ton o' data to print this week, all over the globe, and Japanese yen continues to outperform the other currencies VS the dollar.

Currencies today 9/28/09: A$ .8665, kiwi .7135, C$ .9135, euro 1.4650, sterling 1.5870, Swiss .9695, rand 7.44, krone 5.82, SEK 6.9750, forint 184.20, zloty 2.88, koruna 17.22, RUB 30.11, yen 89.30, sing 1.4190, HKD 7.75, INR 47.98, China 6.8274, pesos 13.57, BRL 1.7890, dollar index 76.90, Oil $65.77, 10-year 3.32%, Silver $15.99, and Gold... $992.10

That's it for today... A great weekend, even with the rain on Saturday! It rained so hard that Alex's football game was stopped, and they had to pick it up and finish it yesterday... When I played football, back in the dark ages, we played in any kid of weather... That was a long time ago! It cleared up for a wonderful Saturday night block party with neighbors... Cards are Central Division Champions! (they were picked to finish 4th in this division) Now, it's onto the playoffs... Got to find some way of getting playoff tickets! I'm a month away from heading to Los Cabos, Mexico for the Sovereign Society's Offshore Advantage Academy. 11-4 through 11-7... You can go to www.soveignsociety.com to find out more! I'm flying solo today with the currencies this morning, as Jen is out, so I've got to get working! I hope your Monday is Marvelous!

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