Daily Pfennig : Yen

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

Will History Repeat Itself?

Chuck Butler — Tue, 20 Oct 2009 15:07:39 GMT

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

* Non-dollar currencies rally...
* A$'s and C$'s to parity?
* Reaching 40% of expenditures...
* Gold & Oil on the rise once again...

And Now... Today's Pfennig!

Will History Repeat Itself?

Good day... And a Terrific Tuesday to you! A long day on the desk for me yesterday, left me draggin' the line... But I'm rested and refreshed again this morning, so let's get to the Pfennig for today! The Finance Ministers of the Eurozone met yesterday, as I told you, and they've tried to stem the euro's rise... But, they'll need more than words to get the job done! And so, we begin a new day...

Front and Center this morning, the currencies, which had given back ground overnight to the dollar, are back in rally mode, and are taking liberties with the dollar once more. For most of the night that was not the case, though. The dollar had rallied back and sent the euro, for instance, to the 1.48 handle, after the single unit spent yesterday at 1.49 and change... There seemed to be a move to the dollar, but that didn't last long, and the currencies are once again rallying VS the dollar this morning, and the euro has pushed to 1.4970 as I write...

Daily noise, eh? Yes, you have to wade through this daily noise most days, and keep your eyes fixed on the horizon...

OK, I mentioned above that the Finance Ministers of the Eurozone met yesterday, and tried to stem the dollar's decline by backing the U.S. administration's stated preference for a strong dollar... Of course we all know that the U.S. administration's stated preference for a strong dollar is a bunch of horse dookie! So... What was it that the Eurozone F.M.'s were backing? A false statement by the U.S.? Now, that's something to hang your hat on, eh? The dolts just continue to mount daily don't they?

But, you can't be too hard on the beaver (Eurozone F.M.'s) for they have to sound like they don't want their euro to get too strong, for if they really said what they wanted to say, the euro would be back to 1.60 with a bullet in a heartbeat! So... In the end, I don't think currency traders were swayed by the Eurozone F.M.'s, at least not for too long!

Yesterday, I talked about Canada and the Bank of Canada (BOC) and how I thought that the BOC would remove their statement about interest rates remaining on hold until the 2nd half of 2010... I had a few readers question me on this, saying that Canada's economy is in no shape to withstand a rate hike... OK... Hear me out on this... I'm not saying that the BOC will hike rates now, or even in 2009... But, if Canadian energy prices of Oil, natural gas, and coal continue to get stronger, I'm afraid the BOC will have to entertain thoughts of raising rates to fight inflation... But not now... So... I hope you get what I'm saying here...

So... The U.S. fiscal deficit for 2009 was $1.42 Trillion... Remember how I used to take the previous administration to the woodshed for posting $450 Billion fiscal deficits? How did we go from $450 Billion to $1.42 Trillion, that is if that's really the number??? Well... That's not a question to really answer, folks, we all know how we got here... But now that we're here, what happens next?

I came across this when putting the two monthly newsletter together on Sunday, I think it would be appropriate to share it with you here...

Peter Bernholz (Professor Economics in Basel) studied the world's 12 most important periods of hyperinflation and discovered that the tipping point occurs when deficits amounted to 40% of the expenditures.

For the United States we have arrived at exactly that point. The deficit of $1.5 trillion amounts to 41.7% of the $3.6 trillion in expenses.

You see, that Peter Bernholz, rounds some numbers, but for those of you keeping score at home, the real point is that the U.S. deficits are greater than 40% of expenditures... And you know me, I truly believe in this history repeating itself, or as Mark Twain put it, it may not repeat itself but it rhymes... Mark Twain also wrote: "It's not worthwhile to try to keep history from repeating itself"...

So, the point I'm trying to make here is that according to Mr. Bernholz, we can soon expect a bout of hyperinflation! OH BOY! Where do I sign up for that? Not only do we have a falling dollar causing us to lose purchasing power, but what purchasing power we have left is going to be eaten away with inflation! Like I said, OH BOY! Gee Willikers, that sounds like the cat's meow! NOT!

So... Here we go again, with me getting on the soapbox and telling you the only way to protect yourself from a falling dollar and hyperinflation is to diversify with non-dollar currencies and precious metals...

OK... I get emails all the time from readers that say, "OK Chuck, you tell us to diversify, but you don't tell us what to buy"... Well... To the untrained eye, that would be true... But to long time readers they know better... So, keep reading, and it will hit you right between the eyes one day, and you'll slap your forehead and say, "I could have had a V-8"!

The boys and girls over at Citigroup have written a letter to their clients telling them that "the dollar is weakening because foreign central banks are diversifying their reserves and U.S. investors are buying high-yielding emerging market assets." The went on to say that, "The Australian and Canadian dollars are likely to rise to parity against the U.S. currency."

So, there's one more on the roster that believe Aussie dollars (A$) and loonies will go to parity against the dollar... The loonie isn't exactly the same stretch of a forecast as the A$, as loonies are almost 97-cents right now, with A$'s trading near 93-cents...

Doesn't that make sense given the talk we just had about hyperinflation? What currencies are going to help protect you against hyperinflation? The Commodity Currencies! Aussie, kiwi, Canada, Norway, Brazil and you can even throw in the S. African rand, for those that like rides on Mr. Toad's wild ride!

The folks at Citigroup also had this to say about the euro, which I found to be quite interesting... "The euro will extend gains against the U.S. dollar and the British pound, and may reach parity against the U.K. currency in 6 to 12 months."

I would think that for the euro to reach parity with the pound, it would involve the pound falling quite a bit from current levels... And that makes sense to me... Did you see the report the other day from the U.K. where they reported bank bad debt to be twice the forecast amount? YIKES!

You know... The Asian currencies which never really participated in the first bout of dollar weakness, are still stuck in the mud... Well, they are being manipulated to be stuck in the mud, for the most part... But, something's got to give here sooner or later. Why do I say that? Well, as I've told you for months now, the Chinese economy was the first to exit their slowdown / recession... Shoot Rudy, even Japan is showing signs of economic growth! And then we have India going strong too... And of course you have the "kind of Asian countries" of Australia and New Zealand... Where we already know that Australia has raise rates and New Zealand would love to raise rates... So, this region is leading the world out of the recession... Hmmm... I thought only the U.S. economy was allowed to do that! Uh-Oh, looks like we have a shift in how the world works!

Hey! Even Big Ben Bernanke sees the Asian countries as leading the world out of the global recession! Big Ben said... "Asia appears to be leading the global economic recovery." Hmmm... See, even a blind squirrel can find an acorn! HA!

I had to laugh when I read this headline this morning... "yen rises as Fujii repeats reluctance to stem currency's rise"... I laugh because the last time Japan's new Finance Minister talked about not intervening to stop the yen's rise, he back-pedaled and said that traders mis-took him to say that he was not going to intervene... So, this on again, off again love affair with Fujii and intervention, just makes me laugh! I would think that after getting burned on Fujii comments a couple of weeks ago, that Traders would not get too lathered up when he talks about not intervening...

Ok... Here in the U.S. while we are still a sovereign nation, the cartel, I mean the Fed Reserve, is doing some testing of reverse repos as a means of drawing the excess liquidity / stimulus out of the markets... I don't think we have to put too much into these tests right now... But it will be a method that the cartel uses at some point in the future... The IMF is against removing any stimulus now... So, that may carry some weight with the cartel, I don't know...

Gold prices rose yesterday for the first time in a couple of days, pushing back above $1,060... I would think that until we know for sure that the cartel is removing stimulus, that Gold would remain well bid... When we do know that stimulus is being removed... Gold might take a step or two back... But then we'll have to wait-n-see what happens with inflation...

I read where ETF holdings of Gold are sluggish... Well, that certainly makes sense to me! With what we're seeing these days from our Gov't pushing us toward who knows what (I know, but I get blasted by people whenever I say it out loud), physical Gold is the thing people want right now... And you can't get physical Gold out of an ETF! So... All those people that have long said that the ETF was just as good as holding Gold either in your buried coffee cans in the back yard, or in pooled accounts, are wrong, when it comes to physical Gold demands...

And, don't know about you, but I filled my gas tank the other day, and the price of gas has really shot up recently, eh? And a quick look at Oil prices and that tells it all... Oil prices have risen to $79, while trading at $69 just a month ago! Is Oil the proxy for rising inflation?

OK... To recap... The dollar rebounded a bit overnight, but has given back to a currency rally this morning. Citigroup believes Aussie and Canadian dollars will reach parity to the U.S. dollar. The Bank of Canada meets today. Our fiscal deficit reached 40% of our expenditures, which historically is a harbinger to hyperinflation, and Gold is back above $1,060 this morning...

Currencies today 10/20/09: A$ .9280, kiwi .7545, C$ .9690, euro 1.4975, sterling 1.6435, Swiss .99, rand 7.32, krone 5.56, SEK 6.9350, forint 176.50, zloty 2.7735, koruna 17.1470, RUB 29.15, yen 90.40, sing 1.3890, HKD 7.75, INR 46.11, China 6.8266, pesos 12.85, BRL 1.7360, dollar index 75.27, Oil $79.31, 10-year 3.37%, Silver $17.80, and Gold... $1,065.50

That's it for today... My good, dear friend, Mary Anne Aden, sent me a note last night, that really lit up my day... Mary Anne told me that Richard Russell recently mentioned me and the Pfennig... WOW! When a man as well respected as Richard Russell mentions me and my humble little Pfennig newsletter, then that's a great day! Mike Meyer just came in, returning from a trip to Jacksonville to watch the Rams / Jaguars game on Sunday... He travels once a year to watch the Rams... It actually was a nice day here yesterday with the sun out, and a hint of warmth in the air! The weather forecasters say El Nino is going to keep our winter warmer than usual and dryer than usual... That's fine with me! Well, I've got to go... I hope your Tuesday is Terrific!

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

Dow hits 10,000 and the dollar is down...

Chuck Butler — Thu, 15 Oct 2009 16:12:26 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 Nov. 5, 2009. Apply today or learn more at http://www.everbank.com/001CertificatesMSBRIC.aspx?referId=11808

In This Issue..

* Dow hits 10,000 and the dollar is down...
* Return of the carry trade?...
* Global Power Shift Index...
* Goldman predicts a further fall for the dollar...

And Now... Today's Pfennig!

Dow hits 10,000 and the dollar is down...

Good day... It is a Thunderin Thursday here as the rain continues for another day. We have had a very wet two weeks here in the midwest, but the cold rain is finally supposed to stop later today. The currencies continued to their thunderin stampede over the US$ yesterday with several reaching fresh highs. The Dow Jones average moved above 10,000 again, so everything must be alright in the world economy now, right?? This morning the dollar bounced back up, but it looks like profit taking and not a more permanent trend. Lots to talk about today, so I'll get right to it.

The dollar dropped again yesterday as investors continued to move money out of the 'safe haven' investments in favor of higher returns. The two places where investors sought refuge during the economic crisis were the US$ and Japanese yen. Investors felt a level of comfort in the currencies of these countries because they are the worlds largest and most advanced marketplaces. With the credit crisis gripping the globe, investors were satisfied pulling money off the table and 'parking' the funds in ultra low rate accounts in Japan and the US. With the latest data showing the global recovery taking hold, investors have moved out of these low rates and have sought out higher returns. Some of this money has flowed into the equity market in the US, pushing the Dow Jones average back above 10,000 (more on that in a second). The global recovery also has investors looking toward commodities, which were beaten down on fears of a global slowdown. The price of copper, gold, and crude oil have all run up on fresh signs of a global recovery. With commodity prices coming back up, the countries who are commodity rich should do well, and investors have returned to the currencies of Canada, Australia, and Norway.

Finally, investors who feel more confident have begun to take on a bit more risk, with many returning to what was once a very profitable trade: the carry trade. This trade dominated the currency markets for a number of years prior to the global economic crisis. While long term readers know all about it, I will give another quick explanation for those of you who are new to the Pfennig. The carry trade is simply a trade where investors borrow at low interest rates and then invest the borrowed funds at higher interest rates. The trade typically uses a high degree of leverage in order to make even a small interest rate differential profitable. The most popular funding currency of the carry trade had been the Japanese yen, as interest rates in Japan were held at near zero levels for several years. Investors would borrow the yen at 1%, sell the yen and use the proceeds to purchase New Zealand Dollars, and then invest these kiwis at a rate of 5%; earning the spread of 4% (before fees). As long as the currencies remained relatively stable, the profits rolled in. The risk to this trade occurs when the funding currency starts to move up vs. the investment currency, and the leverage used can make these currency moves pretty dramatic.

But enough of the history lesson, let me get back to where we are today. The US$ has replaced the Japanese yen as the most popular currency for the carry trade. Investors have been selling dollars and moving funds into the higher returns of Brazil, South Africa, and even Mexico. These countries have the attractive combination of high interest rates and commodity based economies which should do well in a global recovery. But as I mentioned above, investors in these carry trades can be a bit fickle, and can reverse these trades at the first sign of trouble. These currencies can be volatile, and should be viewed as the speculative portion of your currency investments.

The last few months have been a sort of 'perfect storm' for the currencies of Australia and Norway. Both have benefitted from the surge in commodity prices. Both also have strong governments which kept their economies from dipping too far into recession. Because of this fiscal strength, both countries are now raising interest rates, which continues to make their currencies more attractive. The Norwegian krone climbed to a one year high against the euro and the dollar yesterday as crude oil prices jumped. With Norway putting a percentage of their oil revenues to work rebuilding their economy, their central bank will probably start raising rates at their next meeting. The Norges bank governor Svein Gjedrem said last month the bank had considered raising rates at the Sept 23 meeting and will likely have to take a fairly aggressive stance on rates going forward.

Australia was the first to raise interest rates, and will likely continue to tighten. Reserve Bank Governor Glenn Stevens told reporters that the RBA can't be too timid in raising rates now that the threat of an economic crisis has passed. "If we were prepared to cut rates rapidly, to a very low level, in response to a threat but then were too timid to lessen that stimulus in a timely way when the threat had passed, we would have a bias in our monetary policy framework." Unemployment is falling, and consumer confidence continues to rise in Australia which will likely mean additional interest rate increases in the next few months.

Investors in our newest WorldCurrency Index CD have been perfectly positioned for these latest currency moves. We introduced the Global Power Shift CD back in July of this year and it has been one of our best performers. This CD combines Australia, Brazil, Canada, and Norway into one mighty index CD. Ty Keough mentioned the other day that he had spoke to one of the first investors in the Global Power Shift, and had calculated the customer had earned an amazing 12.5% during the first three months (that is a 50% annualized return!!). With commodity prices continuing to push up, and interest rates set to rise in both Norway and Australia, investors should continue to see good returns in this WorldCurrency Index cd.

As I mentioned above, the Dow Jones average moved back above 10,000 yesterday. Investors have apparently taken the same view as the Nobel Peace Prize committee and are betting on the 'good things to come'. I just don't see any concrete evidence of a sustainable recovery here in the US. Unemployment continues to hover near double digits, and US foreclosure filings have climbed to a record high. While 'less negative' numbers on the retail sales may have inspired some mis-directed optimism, the US economy is still in a very precarious position. I know equity investors always have to look at 'future' cash flows and purchase stocks on the promise of earnings coming in somewhere down the road, but I don't see where the current data supports a Dow at 10,000.

The retail sales numbers which were reported yesterday here in the US were 'less negative' than expected; dropping 1.5% vs. a predicted 2.1% drop. The press proclaimed the return of the US consumer confidence since this number was better than predicted. I guess as long as the data comes in a bit better than what the economists predicted, it is positive (no matter what the actual data is!). Today we will see data on consumer prices which are predicted to show inflation continues to be muted. The volatile Empire Manufacturing report will also be released this morning and will show another jump.

If the inflation data come in as expected, the news will give the upper hand to FOMC members who have said the central bank can keep interest rates low for a long time. The minutes of the FOMC Sept 22-23 meeting showed some members were actually calling for an expansion of the 'quantitative easing' program. Chairman Ben Bernanke said the Fed is prepared to tighten credit when the economic outlook 'has improved sufficiently'. But the minutes show the Fed is actually leaning toward a more expansionary program. There seems to be absolutely no fear of future inflation, so look for rates to remain low for some time to come. This will continue to keep downward pressure on the US$.

I wrote yesterday how the US is following the BOE lead when it comes to 'quantitative easing'. These programs had led to a drop in the value of both the UK Pound Sterling and the US$. But overnight, the pound sterling stormed back up vs. the US$ as the Financial Times cited the BOE Markets Director as saying policy makers would be more likely to pause asset purchases, giving themselves the option of 'doing more later', rather than stopping them. A report yesterday showed UK unemployment rose less than forecast last month causing some of those shorting the pound to reverse course. I have to believe a lot of the Pounds movement is simply profit taking after the sterling lost 3.5% v.s the US$ in the past month. I still believe the pound sterling will have a tough going as long as they continue with their QE programs.

I will end today's Pfennig with a prediction from Goldman Sachs. You may have seen where Goldman reported another quarterly profit of $3.2 billion yesterday. The profit is really no surprise when understand just how far 'inside' Goldman is with the administration. Given their position, I always like to read what Goldman is predicting for the currencies. Their latest report said the dollar is likely to extend drops against the euro and commodity-backed currencies over the coming six months (sound familiar?). The euro is now predicted to reach $1.55, revising previous forecasts of $1.45. "It now looks as though the dollar trough will be slightly deeper," Goldman analysts said.

Currencies today 10/15/09: A$ .9171, kiwi .7436, C$ .9694, euro 1.4883, sterling 1.6252, Swiss .9836, rand 7.2675, krone 5.5710, SEK 6.9361, forint 179.27, zloty 2.820, koruna 17.3585, RUB 29.36, yen 90.19, sing 1.3902, HKD 7.75, INR 46.16, China 6.8284, pesos 13.0673, BRL 1.7009, dollar index 75.38, Oil $75.04, 10-year 3.44%, Silver $17.48, and Gold... $1,050.95

That's it for today... Had an absolutely crazy day on the phones yesterday, as it seems everyone wants to purchase currencies and metals now that the Dow went over 10,000. Chuck, Michelle, Frank, and Jane Dulle will be heading back from Atlanta today after what was hopefully a successful planning meeting. My son's football game was cancelled last night due to a lack of players on both teams; it seems the flu has hit St. Louis schools pretty hard. We all got flu shots yesterday (hopefully in time), and the wellness fair continues today with visits from a massage therapist and nutritionist. I just hope the phones ease up a bit to enable us to take advantage of the free massages! Hope everyone has a Thunderin Thursday.

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

The dollar drifts lower in thin trading..

Chuck Butler — Tue, 13 Oct 2009 14:39:00 GMT

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*Canadian dollar

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In This Issue..

* US$ drifts lower in light trading...
* Euro/Yen benefit from reserve diversification...
* Pound sterling continues to drop...
* New Zealand retail sales pick up.....


And Now... Today's Pfennig!

The dollar drifts lower in thin trading...

Good day... and happy Tuesday morning to everyone. As Chuck told everyone yesterday, he is heading down south to a corporate meeting, so you will be stuck with me for the remainder of the week. Yesterday was an official 'bank holiday' but apparently most of the WorldMarkets customers were unaware, as our phones were surprisingly busy. Trading in the currency markets was substantially lighter than usual, and with no data releases in the US, the dollar drifted sideways throughout the day. The European currencies were slightly higher vs. the US$, the Asian currencies were lower vs. the US$, and the commodity based currencies were mixed.

European currencies were helped by good news over the weekend as Poland ratified the draft EU constitution (referred to as the Lisbon treaty). But one big hurdle still remains; Czech President Klaus is refusing to sign the treaty, even though the Czech government has approved it. The Czech President, who is against the EU, is hoping to stall until after the British election which must be held by June of next year. David Cameron, the Conservative leader, has pledged to hold a referendum on the treaty if his party is elected. This would throw the EU constitution back into question, so EU leaders are putting major pressure on the Czech President. While the pursuit of this last signature makes for good drama, I believe the EU constitution will be ratified, and the European Union is no in any immediate danger of falling apart.

In fact, the euro has quickly become one of the preferred investments for central banks who are looking to diversify out of US dollars. As Chuck wrote in yesterday's Pfennig, the latest data shows central banks placed 63 percent of new reserves into euros and yen in April, May, and June. Foreign currency reserves were increased by $413 billion during the last quarter, the most since 2003. In the past, a majority of these reserves would have been invested into US$, but central banks are now shying away from the greenback.

Recently, the role of the dollar and the euro/yen has been reversed. Previously 63% of new reserves were placed into US$, but lately that number has fallen to just 37%. As Chuck and I have written in recent Pfennigs, the current administration has no interest in supporting the US$, and global central banks seem to be fearing this lack of support. According to the data reported by Bloomberg, the dollar will likely remain under selling pressure for some time to come. Despite last quarter's move away from the greenback, central banks still hold over 62% of their foreign currency reserves in US$, leaving plenty for future sales.

Some of the largest pools of reserves are being held by China, Japan, Russia, and India. Both China and Russia have repeatedly called for the creation of a 'new' reserve currency, so their moves out of US$ come as no surprise. China, which controls $2.1 trillion in foreign reserves is the largest holder of US debt with over $800 billion invested in US treasuries. Investors would be wise to take notice of where these countries are moving their reserves. Pulling reserves away from the dollar will continue to rally the alternative currencies of the euro and yen; and will also put upward pressure on the price of gold which is another attractive alternative for reserves.

As I mentioned above, leaders in the UK will be forced to call an election by June of next year. Prime Minister Gordon Brown has been trailing Conservative leader David Cameron in opinion polls and the sagging British economy isn't helping his position. Mr. Cameron has been calling for an end to the 'quantitative easing' and a focus on the ballooning deficits. The Treasury expects its deficit to touch 175 billion pounds this year, about 12 percent of national income and the most in the Group of 20 nations. Brown wants to sell assets including the government's stake in the Channel Tunnel and increase taxes in order to halve the budget deficit in the next four years. I have to side with the conservatives and Mr. Cameron on this one. I just don't see how increasing taxes and selling off assets in order to continue to pump money back into the economy is a positive long term strategy.

What scares me is that Prime Minister Brown's plan has the stamp of approval by economists at Goldman Sachs. Readers know the influence the folks over at Goldman Sachs have on our administration. The US followed the Bank of England down the path of 'quantitative easing', and we will pay the price for these inflationary policies in the not to distant future. Why jeopardize the long term health of your economy for short term growth? But politics leads to some poor decisions, and Brown can't risk falling back into a 'double dip' with elections coming up around the corner. The same can be said of the US administration, with mid-term elections looming in 2010.

The pound sterling fell to its lowest level in several months vs. both the US$ and euro yesterday as speculation of an increase in the 'quantitative easing' programs ran through the markets. The UK inflation rate dropped in September by more than forecast, to the lowest level in five years. With inflation continuing to run below the radar, pressure will continue for the BOE to pump more newly created money into the markets through asset purchases.

Questions over Brown's economic policies and the uncertainty of the upcoming election will certainly keep up the selling pressure on the pound. I read a research report over the weekend which predicted the pound sterling would continue to drop, bottoming out as low as $1.45 if Brown's Labor party were able to hold on in the upcoming election. On the other hand, the report predicted the pound would rise to $1.85 by the end of 2010 under a Conservative Party win.

The Asian currencies were worst performers yesterday, selling off on speculation central banks would take advantage of the light markets to intervene. This is a perfect example of how 'jawboning' can work. Asian central banks have been expressing concern on the recent strength of their currencies as compared to both the US$ and Chinese Renminbi. Since the Chinese have decided to 'peg' their currency to the falling dollar, other Asian nations with free floating currencies have been put at a competitive disadvantage. With many traders in the US gone for the holiday, it was a perfect time for some verbal intervention by Asian central banks. The South Korean government said it would intervene to stop excessive volatility, and Taiwan said it would introduce measures to deter speculators. This verbal intervention had the desired effect, and temporarily reversed the ascent of the Asian currencies vs. the US$.

But overnight, these currencies surged back as the region continues to be the first to recover. Reports released show growth in Malaysia, South Korea, and Indonesia will be higher than previously predicted. Verbal intervention just can't compete with strong economic reports. The data doesn't lie, and it shows Asia will continue to take the lead in this global recovery.

The Indian rupee moved higher after a report was released which showed a big jump in industrial production in India. Output at factories, utilities, and mines jumped 10.4% in August from a year earlier; the largest jump in almost 2 years. The larger than expected move will increase pressure on India's central bank to begin to raise rates. Central bank Governor Subbarao said last week that India may need to act ahead of advanced economies due to the 'incipient' inflation pressures.

While most have predicted a move up during the first part of next year, some now believe we could see a 50 basis point hike as early as the Oct. 27 monetary policy meeting. India has been overshadowed by the growth story in China, but India's growth is expected to keep pace with it's larger neighbor. India also enjoys a more established economic system, a more educated workforce, and a higher standard of living than China. The central bank has reduced taxes on consumer products and imports, and cut interest rates to provide a stimulus worth more than 12% of India's GDP. If the Reserve Bank does boost rates later this month, the rupee could enjoy a continued rally vs. the US$.

One of the currencies with the biggest gains vs. the US$ overnight was the kiwi. Chuck noticed the currency rallying late last night and sent me this from home: New Zealand's retail sales rose in August at more than twice the pace expected by economists, adding to signs the economy's recovery from recession is gathering pace in the second half of this year. Sales increased 1.1 percent from July, seasonally adjusted, Statistics New Zealand said in Wellington today. Core retail sales, which exclude car yards, fuel outlets and workshops, rose 1.2 percent.

I think this just may move RBNZ Gov Bollard to move rates earlier than he had wanted to... but like I said last week in my rant and memo to Bollard, who is known as a central Banker that likes to talk down his currency.... "Don't want your currency to move higher VS the dollar? Then don't raise interest rates!... but, unfortunately for Mr. Bollard, he's trying to paddle against the current right now... So, unless he wants to face the music that comes from soaring inflation in the future, he'll have to raise rates, and... suffer through a rising kiwi!

I'll let Chuck have the last word and move on to the currency roundup:

Currencies today 10/14/09: A$ .9090, kiwi .7376, C$ .9706, euro 1.4825, sterling 1.5794, Swiss .9779, rand 7.3377, krone 5.6152, SEK 6.99, forint 181.16, zloty 2.85, koruna 17.458, RUB 29.56, yen 89.58, sing 1.3959, HKD 7.75, INR 46.495, China 6.8266, pesos 13.22, BRL 1.744, dollar index 75.96, Oil $74.05, 10-year 3.34%, Silver $17.98, and Gold... $1,067.13

That's it for today... Congratulations to all of the finishers of this years Chicago Marathon. Our own Christine Peplow ran a personal record as did John McLean who is married to our metals/currency trader Jennifer. It is an amazing accomplishment and I know both worked hard to make sure they were in great shape to make it all 26.2 miles. I think I'll get this out the door and head over to Starbucks to get the desk some latte's to celebrate Christine's return. Hope everyone has a Terrific Tuesday!!

Chris Gaffney, CFA
Vice 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

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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

G-20 Heats Up...

Chuck Butler — Fri, 25 Sep 2009 14:28:46 GMT

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

* Dollar's rally is cut short...
* Major problems for loans still exist...
* Yen rallies on exporter repatriation...
* Kiwi gets whacked!

And Now... Today's Pfennig!

G-20 Heats Up...

Good day... And a Happy Friday to one and all! It's still raining here in St. Louis this morning, but I won't that get me down, as it is a Friday! G-20 has gotten a bit ugly, folks... Seems everyone just can't seem to get along! Imagine that! 20 different countries, and now they want to be able to watch another country's finances and comment on them! Oh, I can see that working out real well! NOT!

So... Yesterday, we had the dollar gaining back the ground that it had lost the previous day, but at the end of the day, we're looking very much like the currencies hadn't moved from morning to morning... And overnight, didn't bring about much movement... So... When you get to the currency round-up below, you'll see the dollar's gains were small, and short-lived.

The U.K. and France are a bit upset with the U.S. and the President's plan to reduce the number of board members to the IMF, and guess who is on the chopping block? That's right... The U.K. and France! I really don't care about all this stuff, except to watch the saber rattling, and jockeying for "supreme leader"... I won't say any more about that here...

I did notice thought that, just as I said months ago, regarding the BRIC countries, that they would have to be reckoned with, due to their HUGE Treasury Chests of reserves, and the fact that they have a good portion of the World's population... Ok, where was I? Oh!, I noticed that it was going to be announced today that G-20 was going to take over as the main forum for global economic coordination. They will take that over from the G-8...

Well, guess who's a part of G-20 that wasn't a part of G-8? The BRIC countries! They will have more say in what goes on economically! Just like I said they would! This is a big deal, in that this shifts the power from the rich countries to the emerging markets... Yes, the rich countries are still in the Group of 20... But, the emerging markets outweigh them now!

And already, we can hear China taking shots at the U.S.... And, now that everyone can comment on other countries' economies, the U.S. took a shot at Germany, saying that they haven't done enough to spur Domestic Demand... Germany's chancellor, Angela Merkel, who is up for election on Sunday, shot back at the U.S., and said... "We should also look at imbalances between currency regions and not pick on specific countries within the Eurozone."

OK... Let's talk about something else... I was reading the Financial Times last night, and came across a story that really said something... Here it is... The FT...

"Losses on loans at U.S. banks and other lenders rose to $53 Billion in the first quarter, almost triple the previous high, reached in 2002, said a group of regulators, including the Federal Reserve and the Federal Deposit Insurance Corp. Nonbank lenders, particularly hedge funds, hold $1 of every $3 in troubled loans and 47% of all distressed loans. Loans made to media and telecommunications companies were in the worst state. Lending to the financial-services sector was the next worst, followed by loans to property companies."

But Hey! According to people in power that should know better, it's time to sound the all-clear horn!

And that brings me to something I wrote about the other day, regarding the delayed foreclosures... A reader was kind enough to send me this that maybe explains the delays...

A landmark ruling in a recent Kansas Supreme Court case may have given millions of distressed homeowners the legal wedge they need to avoid foreclosure. In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. MERS is an acronym for Mortgage Electronic Registration Systems, a private company that registers mortgages electronically and tracks changes in ownership. The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose on 60 million mortgages. That is the number of American mortgages currently reported to be held by MERS. Over half of all new U.S. residential mortgage loans are registered with MERS and recorded in its name. Holdings of the Kansas Supreme Court are not binding on the rest of the country, but they are dicta of which other courts take note; and the reasoning behind the decision is sound.

And... As another reader pointed out to me... It sure doesn't make the holder of the loan any richer to foreclose on it, given the state of the housing market today...

Ok... Enough of that! Yesterday, I talked about how Japanese yen was living right these days, rallying when the dollar is weak, and rallying alongside the dollar when it's not! Well... One of the reasons this could be happening with regularity, is that it is believed that Japanese exporters are repatriating their profits, as their fiscal first half ends this month...

So, does that mean the rug gets pulled out from beneath yen next week? Hmmm... I don't think so... I think that the one thing that's really underpinning yen right now is this new found appreciation by the Bank of Japan for yen strength! Just last night, Japan's Finance Minister Hirohisa Fujii reiterated his opposition to intervention in foreign- exchange markets.

Now, I don't know how long the exporters in Japan are going to go along with this new found appreciation for yen strength... But for now... Yen is on the verge of gaining even more ground...

In New Zealand overnight... The string of good data prints ended with a thud! New Zealand's Trade Deficit widened almost double what was expected! UGH! Remember, New Zealand has to import lots of things, and when the exports of wool, dairy, and lumber aren't strong, their deficit gets whacked! So, New Zealand would always have a Trade Deficit... But, at times it gets completely out of hand, and this is one of those times... Kiwi, got taken to the woodshed after the report printed, as well it should!

The Swiss National Bank (SNB) had a board member giving an interview last night, and when asked about the SNB's repeated jawboning to get the franc weaker, he had this to say... "with regards to the Swiss franc this means that we counter an appreciation of the franc against the euro decisively."

Now, that's a horse of a different color! All this time we were led to believe that the SNB would intervene to get the franc weaker VS the dollar! No wonder the franc has kicked some dollar tail lately, without a peep from the SNB... The franc was allowed to get stronger VS the dollar, as long as the euro was moving in the same direction, same general percentage move VS the dollar!

Our mortgage production guru, Stacy Blair, was talking the other day in a meeting, and mentioned that mortgage rates had edged down again, and production was picking up once more... Well, that plays well with a story I read last night... The average interest rate for U.S. home mortgages fell to less than 5%, and loan applications surged 13%, the Mortgage Bankers Association said. The nationwide average rate on a 30-year fixed-rate mortgage declined to 4.97%. The application surge amounted to a 50% increase compared with the end of June.

OK... So... I would guess that most of that stuff is re-financing loans, but hey! Like I told everyone on our desk 6 months ago, when the rates were in the 4% region... Go refinance your home loan! And then put the money you save each month in savings!

We get back to some data in the U.S. today, and I think that it could have a lot to do on whether the currencies rally or not VS the dollar. Durable Goods Orders for August prints first, and is expected to really fall back from July's strong 4.9% print... August is expected to print just a .4% gain for Durable Goods... That won't get the "strong recovery flag wavers" out, and that won't be good for the non-dollar currencies...

Then later we get the U. of Michigan Consumer Confidence report, which could turns things around for the non-dollar currencies... As the Consumer Confidence report is expected to be strong... ????? Why? I have no idea... (besides the obvious, stock strength)

We'll also see New Home Sales data for August...

Have you noticed the collapse of the Oil price? Pretty steep drop in just a couple of days! I told you the other day that the G-20 might put pressure on commodities... Oil is off, and Gold has fallen back below $1,000 wink, wink...

So... To recap, the dollar's rally was stopped short. The G-20 is the new global economic monitor, and the U.S. is ticking the U.K. and France off, regarding seats on the IMF board. G-20 is getting hot and heavy... Japanese exporters are repatriating their profits thus propping up Yen... And, New Zealand's Trade Deficit widens again...

Currencies today 9/25/09: A$ .8650, kiwi .7185, C$ .9175, euro 1.4685, sterling 1.6010, Swiss .9720, rand 7.4280, krone 5.7850, SEK 6.9170, forint 184.25, zloty 2.8550, koruna 17.15, RUB 30.09, yen 90.20, sing 1.4160, HKD 7.75, INR 47.98, China 6.8286, pesos 13.48, BRL 1.7995, dollar index 76.73, Oil $66.28, 10-year 3.36%, Silver 16.31, and Gold $997.32

That's it for today... Well... The Cubs lost last night, which means the Cardinals' magic number remains at 1... They could clinch tonight in Colorado... My beloved Missouri Tigers play on ESPN tonight as they take on Nevada, in Reno... And my little buddy Alex, plays football tomorrow as his 8th grade team takes on their big rival! Tomorrow night is our subdivision's big block party, so it will be a grand weekend for yours truly, especially if, the Cards clinch, Mizzou and Lindberg 8th graders win, and the rain stops! I think I'm going to go to the Mizzou game VS Nebraska next Thursday night, now that will be exciting! OK... Suzy Q is here, so I must be running late... Time to go.. I hope you have a Fantastico Friday, and Wild and Wacky Weekend!

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

Protectionism Wars, Here We Come!

Chuck Butler — Mon, 14 Sep 2009 14:30:32 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..

* Currencies back off gains...
* Administration slaps tariff on China...
* And Yen rallies...
* Quotes from Davos...

And Now... Today's Pfennig!

Protectionism Wars, Here We Come!

Good day... And a Marvelous Monday to you! I hope your weekend was grand... I was supposed to be traveling back from Williamsburg today, so this is a bonus day for you all! HA! On Friday morning, I told the early arrivers that the currencies were strong, Gold was strong, it was all good, and we needed to close up shop and go home, because it wasn't going to get an better than that, and that the rest of the day had nothing but disappointment risk! Boy did I nail that one on the head! Let's get to the goings on.

The currencies added to their gains during the Friday morning, only to see them give the gains back later in the day, as the "boys" in NY all closed shop and headed to the Hamptons. I checked the markets last night before going to bed, and they were trading very close to Friday's close as they are still this morning.

The one currency to buck the trend, and remain hot as a fire-cracker, is the Japanese yen... Not that it had any fundamental reason to do so, but that didn't matter, as yen bulls looked around and found something to hang their hats on.

The news that pushed yen higher came from the U.S. where the Administration announced a tariff on Chinese tires... Passenger and light truck tires to be exact... This really heats up the trade protectionism between the U.S. and China, folks... And... If China and the U.S. are going to be battling it out on the Trade Protectionism front, the Japanese yen would look to be the "better bet" in Asia...

If you all recall, a couple of months ago I told you that protectionism was going to become the "thing to do"... At that time, I really thought that countries would use their currencies as bargaining tools, in trade... But leave it to the U.S. to pull a rabbit out of the protectionism hat...

You know... Back in 2001, the then President Bush, slapped a tariff on Chinese steel... And I remember telling everyone that would listen to me that this would be the Big Shift in the strong dollar trend that existed then... I was credited with calling the secular shift of the dollar to a weak dollar trend. Now, we have this tariff... What do you think this will do to U.S. / China relations? YIKES!

You know... If the U.S. Trade Commission was really concerned about the shipments of tires to the U.S. and what they felt to be a displacing of thousands of jobs, why then didn't the Trade Commission work with the U.S. tire companies and work out a price adjustment? Ahhh, grasshopper, that would be too difficult to do! It's far easier to slap tariffs on the one country that has bought your debt year after year, without batting an eye...

OK... So, could this new tariff be the juice that moves the dollar to the next big leg down? It very well could, but it won't happen overnight, folks... These things need to work themselves through... Just like in 2001, it took several months before the dollar really began a strong downward trend... But, keep this in the memory bank...

Oh... And China, feeling that they had to retaliate... Announced a probe of U.S. auto, and chicken imports... See how this works folks? If you get this going really heated, it could spread throughout the globe, and push all the hard work to get out of the global recession into the dumpster! This is plain stupid! And our Gov't should have known better!

Well... We had our first bank casualty from the Commercial Real Estate meltdown... Corus Bank in Chicago, is the second largest bank to fail this year, and will cost the government between $1.5 Billion and $2.4 Billion in losses, depending on the performance of the bank's outstanding loans.

Speaking of Gov't losses... I saw some math on the Cars for Clunkers program... Don't believe what the Gov't tells you that it was a success... Unless of course they are talking about successfully spending Billions!

OK... Lets get off this Gov't stuff, they give me a big rash anyway!

At this time every year, economists meet in Davos, Switzerland, and normally you can get a few thoughts that remind everyone about "what's really going on in the world"... And this year was no exception... The Big Boss, Frank Trotter, was kind enough to send a few of those thoughts to me this weekend...

First off, one of my fave economists, Stephen Roach, had this to say... "The American consumer is dead and this is a wake up call for the Chinese & Asian export industry."

Then we had a guy from China that's a "think tank" guy... His name is Yu Yongding, and he had this to say... "I have tremendous doubts about US households to finance the budget deficit." and... "Why are people still so confident in the strength of the dollar? It's a myth!"

And then there was this... Remember the talks I've had with you regarding the IMF wanting to issue their own "global currency"? Well... Zhu Min Bank of China had this to say... "IMF should provide stable reserve currency regardless of format. Very volatile reserve currency is difficult for Asia."

The Wall Street Journal had a good story regarding the weak dollar this weekend... Let's check it out... WSJ... "The dollar could continue its weeklong decline this week, especially if data on U.S. retail sales show improvement. The dollar hit a nine-month low last week against the euro and a seven-month low against the yen. Investors are moving into higher-yielding currencies such as the yen as the global economic picture brightens."

Sounds as if the WSJ writer is a Pfennig reader, eh?

Since the WSJ brought up Retail Sales, we might as well go to the data cupboard to see what's up this week... The cupboard is empty today... But tomorrow it will yield the stupid PPI report, along with Retail Sales for August, which are expected to be stronger, based on the Cars for Clunkers program which ended in August. We would have normally seen the August Retail Sales report to be stronger anyway, given the "back to school" purchases... The Butler Household Index (BHI) tells me that besides Cars for Clunkers we would see a jump...

On Friday last week, we saw the U. of Michigan Consumer Confidence report jump 5 figures to 70.2, and the Monthly Budget Deficit print at $111.4 Billion, not as bad as forecast, but still, not good in any stretch of the imagination, folks!

The Bank of International Settlements (BIS), issued a report yesterday that said the BIS expects longer-term bond yields to increase on the Swelling Budget Concern...

OK... Let me explain what they are talking about... As the Budget Deficit grows, we have to issue more bonds (our debt) to finance the deficit... The BIS believe, like I have said for some time now that eventually, the buyers of these bonds are going to require the yields to be more attractive... And as yields grow higher, the losses in these bonds grow wider for the holders...

Commodities have sold off since Friday morning, and that hurts the Commodity currencies... Oil, which was up to $72, is back to $68 this morning, as it was reported that "demand was slowing"... Hmmm, not when it comes to filling my gas tank! HA! Especially when I had to turn around and drive 45 minutes home to get Alex's cleats for his football game Saturday, and get back in time for the game! Sorry, my fat fingers just started typing that and I couldn't stop them!

That's about all I can talk about today regarding the currencies and economies... I do have to say before I head to the recap and Big Finish, that thanks to Chris Gaffney, I can now see the TV! We used to have this old TV in the office, and the picture on it had gotten so bad I couldn't see much... But Chris brought in an extra TV from home, and WOW! It's amazing! And the best part is now I can see Robin Meade better! HA!

OK, to recap... The Currencies gave back some ground Friday afternoon, but remain at those levels this morning. Japanese yen is stronger on the news of a protectionism war between the U.S. and China, as the U.S. administration slapped a tariff of Chinese tires. The annual meeting in Davos is going on, and Retail Sales tomorrow is important data for this week.

Currencies today 9/14/09: A$.8580, kiwi .6995, C$ .9185, euro 1.4550, sterling 1.6545, Swiss .9615, rand 7.5120, krone 5.97, SEK 7.0550, forint 188.50, zloty 2.90, koruna 17.5375, RUB 30.85, yen 90.60, sing 1.4250, HKD 7.75, INR 48.75, China 6.8290, pesos 13.46, BRL 1.83, dollar index 76.95, Oil $68.53, 10-year 3.35%, Silver $16.42, and Gold... $997

That's it for today... A tough weekend for my beloved Cardinals... The umpires robbed them on Friday night, they game up a game on Saturday, and failed to show up for yesterday's game, leading to a sweep by the Braves! YIKES! Is it time to start worrying? My little buddy Alex and his football team had a strong victory on Saturday, and my beloved Missouri Tigers showed up for the 4th QTR to win... Saturday night, was our little river town's Musical Sunset in the park, with fireworks... Neighbor friends all around... Little Delaney Grace wasn't impressed with the fireworks, as she nearly fell asleep during them! A full week ahead, so I had better get to working on getting ahead! Thanks for your time today, till next time... I hope you have a Marvelous Monday!

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

Patriot Day...

Chuck Butler — Fri, 11 Sep 2009 15:28:01 GMT

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In This Issue..

* Currencies have strong rally!
* Trade Deficit jumps 16.3% in July!
* HR 1207 Gets a hearing!
* Gold gets back to $1,000!

And Now... Today's Pfennig!

Patriot Day...

Good day... And a Happy Friday to one and all! Today is Patriot Day in the U.S. and a day that brings back memories of cowardly attacks on our country 8 years ago. I remember the shock and horror on everyone's faces, and that image will remain with me to the grave. I also remember trying to write the Pfennig the "day after"... It just didn't seem that important of a thing to do, but a reader told me that to keep things as "normal" as possible was the best thing I could do... So... I wrote...

OK... The currencies, and this time I mean the majority of them not just euro and yen, added to their gains this week VS the dollar yesterday... The Big Dog, euro, is once again knocking at the door to 1.46... Who's that knocking at the door, Who's that ringing the bell? Do me a favor, open the door, and let 'em in...

The dollar index has really tumbled this week... Recall when I told you how the dollar index was put together, that euros were really overweighed in the index, which means that even yesterday morning, when the dollar had rebounded a bit against the commodity currencies, the dollar index still lost ground, due to the euro strength... So, once again, I tell people that the dollar index isn't a currency... To get real currency exposure, you must own the currency... And yes, you can buy all the ETF's at Gary's Stocks and Bonds you want, you can't get the currency out of an ETF... So, if things come to push and shove, you may just want to have the ability to own the currency, eh?

Ok, I really went off on a tangent there... What I was working toward with the comment about the dollar index tumbling is that today marks the 6th consecutive day of the index falling in value, the longest such streak for the dollar index since March, when the dollar began going into the tank once again. And a lot of traders and such use the dollar index as an indicator... Well, fellas... That indicator is telling you something!

But I didn't need the dollar index to tell me the negativity toward the dollar had begun growing again, and that risk assets are the king of the hill right now... And what is being used as the "funding currency" to purchase these risk assets? That's right... The dollar!

The Japanese yen has joined its currency brothers and taken up the fight against the dollar... For the longest time, dollars and yen traded in tandem... But this week, things have changed, and yen is gaining VS the dollar... In fact, yen just went below 91! A stock company in Tokyo issued a report last night that said, "if the yen falls below 90 it may spark a downward spiral"... Hmmm...

The thing I pointed out to the boys and girls on the trading desk was that it was almost like "the old days"... The U.S. printed some bad data, and the dollar got sold! Now, that's the way it used to be! The data I'm talking about is the Trade Deficit for July, which registered its biggest increase in more than 10 years in July, as surging purchases of oil caused an unprecedented jump in imports. The deficit widened by 16.3%, its largest percentage increase since February 1999, to $31.96 Billion. That's up from the $27.49 Billion Deficit figure in June.

The trading pattern for a long time now was to buy dollars when bad data printed, (safe haven, they thought!) and the currencies would suffer... But, yesterday that changed, at least for that piece of data it did. Like I always say... One swallow doesn't make a summer... In this case, one "fundamentals trading day" doesn't make for a new trend... But it could be a start, and one that I would welcome with open arms!

We'll see how that holds up today... On this Friday, the 11th of September, Patriot Day, we'll see the Monthly Budget Statement, which should be quite a doozy, and the U. of Michigan Consumer Confidence... Probably split down the middle as far as negativity toward the dollar, unless that is, the Consumer Confidence surprises on the downside... But with the stock market kicking rear and taking names later, I would be shocked if Consumer Confidence was weak!

The Monthly Budget Statement, read Deficit! Is forecast to print a whopping addition to our already eye-popping Budget Deficit, of $140 Billion! Recall that we all thought last month's deficit of $111 Billion was bad... Well, we'll see your $111 Billion, and raise you $29 Billion!

That's just shameful folks... We, as a country, continue to spend what we don't have, and print money, and do all the stupid things that got us to this place to begin with! Pursuing the same stupid policy of excessive spending, debt expansion and monetary inflation can only compound the problems that prevent the required corrections. Doubling the money supply didn't work, and neither will any amount of money supply!

I read this somewhere, forgive me but I don't recall where, and it stuck in my head... "Buying up the bad debt of privileged institutions and dumping worthless assets on the American people is morally wrong and economically futile."

The Chinese see what we're doing folks... And they don't like it one iota! Why does that matter, you may ask? Ahhh grasshopper... Come, sit... Did you ever borrow money from your parents, grandparents? (I didn't, but I know how it works) Well, in the presence of the people you borrowed money from, you are thrifty, and show that you are doing what it takes to pay them back... Hmmm... Think of China as the parents that have lent money to the child, the U.S. They see us as doing harm to their money...

I know, that I've talked about this so many times before that you're tired of hearing about it... But, China is the gate keeper folks... We were stupid enough to get to this place, with all our deficit spending, and now... As my mother used to say... You made your bed, now lay in it!

Well! Someone opened the door and let the euro in! The single unit just traded above 1.46! You, are my shining star! Well, wait a minute here, Chuck... There are a lot of shining stars in the sky for us to see, especially when you get out into the country away from the city lights! In the case of currencies being shining stars... Aussie, kiwi, real, loonies, Swissie, krone, are all up there in the sky to shine for us all!

I know that a lot of people do not believe in the Chinese economic growth story... That's OK... But without it, we wouldn't be having this rally in risk assets... So... I tend to go along with it, until somebody can prove to me that the Chinese data is bad... For instance, last night, China reported that their Industrial Production rose 12.3% in August VS a year ago. I told you long ago that China would be the first country to come out of the global recession... And they have proved that to be bang on!

I received a note yesterday that put a smile on my face... The note was from the "Audit The Fed Coalition"... I've made such a stink about the need to audit the Fed, and to support Ron Paul's HR 1207, Bill that calls for such an audit, that these people have made me an honorary member of their coalition! Any way... The note said that House Financial Services Committee Chairman Barney Frank has officially agreed to hold hearings on HR 1207! The hearings are tentatively scheduled for Friday, September 25 at 9:00 am.

This doesn't mean we're home free here... It just means the Bill will take the next step toward giving the American people the ability to see the man behind the curtain, and where the money is going, etc. in other words, the Fed would have to defend itself to the American people...

And this has nothing to do with currencies and economies, but I have to get this off my chest... I read where U.S. Treasury Sec. Geithner, has proposed that bankers get paid in equity, something that can be "clawed back" if the bank doesn't perform. This reminds me a Gov. we had here in Missouri years ago, he said he wouldn't raise taxes without a vote of the people... But after being elected he raised the taxes without a vote by the people... But he also then put in place a law that prevented any other Gov. from ever doing that in the future... This is the same thing with Geithner... He would have stomped and whined for days years ago if they told him his pay would be in equity rather than cash...

OK... I'm back now... Hey! Gold is back above $1,000! Yesterday, it was $984, when I went through the currency round-up... And I had told you all that my new thing was to look to buy on the dips below $1,000... BTW... I wrote my Gold piece I told you about the other day, the Publisher rejected it! YIKES! Back to the drawing board!

OH! I almost forgot! The Bank of England (BOE), and the Bank of Canada (BOC) both kept rates unchanged as expected... The BOC, which I took to the woodshed yesterday morning, maintained their "conditional" commitment to keep rates at .25% until near the end of 2010... Again, I just don't see how they can make that statement... The data in Canada lately has shown signs of a nascent recovery... I would think the BOC would have to move earlier should this recovery get legs...

And... Finally, I've complained for years about this guy and his jawboning and dissing his own currency, and he's at it again... Reserve Bank of New Zealand's (RBNZ) Gov. Bollard, said, "the currency's gains are undesirable and unhelpful for an export-led recovery"... Now, that's true in one sense... But, not completely true! Look at the euro! It's strong, and Germany's exports are rivaling China's! I feel bad for kiwi... It's just not right for a Central Banker to talk about wanting his country's currency to be weaker! Where have you gone, Don Brash?

Don Brash, was the Gov. of the RBNZ years ago and understood the "perception" that a strong currency gives to a country! I met Don Brash years ago, and in fact have a picture of him with me! Oh well... A little history never hurts!

So... Let's recap... We have a strong currency rally going on, after the U.S. printed an awful one month increase in the Trade Deficit. The euro has scratched and clawed its way back to 1.46 this morning, and we're holding our breath for the Monthly Budget Statement today...And Gold is back to $1,000!

Currencies today 9/11/09: A$.8650, kiwi .7085, C$ .9295, euro 1.4615, sterling 1.67, Swiss .9655, rand 7.57, krone 5.91, SEK 6.98, forint 186.66, zloty 2.86, koruna 17.44, RUB 30.73, yen 90.80, sing 1.4210, HKD 7.75, INR 48.46, China 6.8290, pesos 13.41, BRL 1.81, dollar index 76.59, Oil $72, 10-year 3.35%, Silver $16.88, and Gold... $1,002

That's it for today... American Flag on the house today for Patriot Day... And tomorrow, it gets changed to my BIG M Flag... M for Mizzou! Or for those of you out of the state... The University of Missouri! Tomorrow is my little buddy Alex's first football game of the year... He's in 8th grade now, and the size difference of these boys at this age is amazing! Alex is on the small side, but so was I when I was his age! I don't worry about him out there, because he has a bulldog attitude, with a motor that doesn't stop on the Football field... I wonder where he got that? HA! Speaking of which, I watched some of that football game last night, the first NFL game of the year, and Troy Polamalu was something! OK.. Gotta go.. Just one last cheer for Old Mizzou, and those Lindbergh Flyers 8th grade team! Now... Let's get working on making this a Fantastico Friday!

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

Cautiously Positive?

Chuck Butler — Thu, 10 Sep 2009 14:12:04 GMT

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In This Issue..

* Euro & yen add to gains...
* RBNZ disappoints...
* Foreclosures continue to stack up!
* BOE & BOC meet today...

And Now... Today's Pfennig!

Cautiously Positive?

Good day... And a Thrillin' Thursday to you! Ahhh! A change! Just thought that with the thrilling victories my beloved Cardinals have been accumulating, that Thrillin' would be a nice change to our Thursday lineup!

Front and Center this morning... The currencies added to their gains this week yesterday, albeit small gains, but gains nonetheless. The Fed's Beige Book was "cautiously positive"... And... Overnight, the Reserve Bank of New Zealand met, and left rates unchanged as suspected... This and more as we begin our Thrillin' Thursday!

The Big Dog euro has been off the porch chasing the dollar down the street for a week now, one would think that a return to the porch for food and water might be in the cards... But, as I was telling someone yesterday... Even though all signs point to a major stock sell-off, it hasn't happened, so why stand in front of the stock and risk assets rally bus?

The euro climbed to very near 1.46 yesterday, before falling back to 1.4550 as the day ended... Overnight, the euro has traded within a narrow range. The Aussie dollar (A$) got slapped on the wrist by traders after it was reported that Australia lost 27,100 jobs in August (consensus was to lose 15,000)... The unemployment rate in Australia remained at 5.8%, but the weaker than expected data caused the A$ to slide from the 86-cent handle to .8550...

If the heat remains on the dollar the rest of this week, then I would expect the A$ to rebound from that sell-off last night. Much like the Brazilian real sell-off last week... You may recall me saying that it was overdone, and I expected the real to bounce back, which it did, and the bounce was like a Super Ball Bounce!

The Reserve Bank of New Zealand (RBNZ) met last night, and kept rates unchanged as expected... But I really thought the RBNZ would opt to change the wording of their last statement following a rate announcement, in which they talked about leaving rates unchanged for some time to come... Well... They didn't change... And instead repeated the comment from the previous meeting... "We continue to expect to keep the OCR (official Cash Rate) at or below the current level through until the latter part of 2010".

Here we go again with a Central Bank making statements about rate policy months ahead to time! I don't see where they have the data to do something like that... But, they do it! I'll bet a dollar to a Krispy Kreme that the RBNZ has to move rates higher before "the latter part of 2010", and when they do, they'll be pushing rates up in 50 BPS clips!

Kiwi also took a slap across the wrist by traders after the RBNZ rate announcement and statement. I'm not so sure about this currency's ability to rebound, but if the A$ does rebound, kiwi normally hangs on the coat tails of the A$...

So... As I look across the screens this morning... I see that the euro and yen are the only currencies that are really stronger today than yesterday... So, my statement at the beginning that the currencies had added to their gains this week, needs to be tweaked, to say just euro and yen have added to their gains this week!

The Norwegian krone, was really on a run yesterday, trading below 5.90... But, couldn't hold those gains. I was reading a story last night about Norway's inflation rate falling, and how that might push back the Norges Bank (Central Bank) timetable for a rate hike from late this year to the 1st QTR of 2010... That thought process is responsible for the pull back in the krone yesterday, and overnight.

Do you see the mental giant (NOT!) thought process that goes through some of these traders? Sometimes it's all about yield differentials, and sometimes it's all about economic growth possibilities. Just like a baseball player wishes for consistency from the Umpire, I wish for consistency from the markets... UGH!

The Fed's Beige Book was "Cautiously Positive" yesterday... And of course, you know me, I want to know why the Fed is Positive at all! Let's see... The Beige Book said, that... Most districts characterized consumer spending as "soft" with a majority of reporting retail activity as "flat." And that the Cash for Clunkers was a positive... HEY! FED HEADS! Cash for Clunkers is over!

On the real estate component... Both residential and commercial real estate markets were described as "weak"... So... Do you see anything in here that spells "positive" for the Fed Heads? I sure don't!

I'll stop there... These guys at the Fed drive me up a wall, and cause me to go over to the walls and scream at them!

One thing the Beige Book didn't contain was the report yesterday that foreclosures in the U.S. jumped above 300,000 for the sixth consecutive month! RealtyTrac Inc. reported that a total of 358,471 properties received a default or auction notice or were seized last month, which is 18% higher than it was a year ago!

And then add in those details I gave you yesterday about the Option ARMs that will reset in the next three years, and this is getting ugly folks...

Doesn't it seem as though the "people in power" have turned their backs on this problem? I mean, don't get me wrong, I don't want the Government sticking their hands in everything, but they already started down this road, and then turned around and headed down a different road... That's the Gov't's way isn't it? As my football coach used to describe someone not giving everything to a play as doing it half-a_ _ ... That's what the Gov't does... I don't want you sticking your hands in the private sector! But! If you're going to do it, do it right and until it's fixed!

The Bank of England (BOE) and the Bank of Canada (BOC) both meet today... The BOE's meeting is going on as I write, while the BOC meeting will take place later today. I look for both Central Banks to remain steady at the wheel. The BOC will really tick me off later today when they repeat their earlier statement that interest rates will remain at near zero until June of 2010... The BOC also talked about the strong Canadian dollar / loonie in their last statement, as "significantly moderating growth"... As if a strong currency is a "bad thing", which it certainly is not! But here's an opportunity... If the BOC doesn't talk about the strong currency this time out, we could see a "relief rally" in the loonie...

Today, the U.S. data cupboard has July's Trade Balance, and since it's Thursday we'll see the latest Weekly Initial Jobless Claims. The Trade Balance is a misnomer as far as I'm concerned... It should read... The Trade Deficit! And while this Trade Deficit isn't as bad as it once was, due to the depression, it remains a bugaboo...

And talk about sticky! Those darn Weekly Jobless Claims! Last week they printed 570,000 new claims, and this week is expected to be 560,000 more! I wonder when these people will be counted as "unemployed" by the Bureau of Labor Statistics (BLS)! OK... You know me... The BLS is one letter too long, as the "L" should be removed!

And... Before I recap, is it just me? Or does anyone else see stock market bubbles all over the world? I've already talked till I'm blue in the face, which is normally red!, about the U.S. stock market being overbought... But there was news yesterday that Asian stock index hit a 1-year high... And that the FTSE, London's stock exchange, returned to the 5,000 level for the first time in a year! Bubbles Greenspan, should be in hog-heaven with all these bubbles floating around!

OK... Almost ready to go the Big Finish... Let's recap first though... Euro and yen have added to this week's gains, while other currencies have seen profit taking. Central Banks in the U.K. and Canada meet today, while New Zealand's Central Bank was a disappointment. U.S. Beige Book is "cautiously positive", and Foreclosures are greater than 300,000 for the 6th straight month!

Currencies today 9/10/09: A$ .8560, kiwi .6940, C$ .92, euro 1.4530, sterling 1.6560, Swiss .9585, rand 7.6150, krone 5.9650, SEK 7.0520, forint 188.10, zloty 2.8710, koruna 17.5725, RUB 30.93, yen 92.10, sing 1.4270, HKD 7.75, INR 48.65, China 6.8292, pesos 13.54, BRL 1.8330, dollar index 77.12, Oil $71.69, 10- year 3.46%, Silver $16.07, and Gold... $984.55

That's it for today... I got the opportunity to sit down and talk with the Big Boss, Frank Trotter, yesterday... That doesn't happen very often, as he is a busy man! Frank always has a way of calming me down, or bringing me back to square one, when I'm all ticked off or keyed up about something. Get the brooms out! Cardinals sweep the Brewers! I was one of the millions probably that got my hands on the new box set from the Beatles, with all their albums re-mastered... My friend and colleague, Ann Hopkins, went to buy one for her husband, and asked me, knowing what a fan of the Beatles I am, if I wanted her to get me one too! How Sweet! And Too Sweet! It was bonus day for me, as I also received in the mail yesterday, my 40th Anniversary Woodstock CD's and DVD! WOW! OK... Enough! Time to get this Thrillin' Thursday started... I sure hope your Thursday is Thrillin'!

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

U.S. Manufacturing Is Recovering...

Chuck Butler — Tue, 04 Aug 2009 14:35:04 GMT

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In This Issue..

* A strong currency move Monday...
* RBA leaves rates unchanged...
* And moves bias to neutral...
* Central Bank warnings have no teeth!

And Now... Today's Pfennig!

U.S. Manufacturing Is Recovering...

Good day... And a Terrific Tuesday to you! First day back yesterday was a killer for yours truly... Went home, and went to sleep... But, I'm back today, and feeling good. I did something to my left knee on vacation that left me hobbling, and leaning on my cane more than I usually do. But today, it seems a bit better, so I've got that going for me!

Yesterday, I left you with the euro popping back and forth over the 1.43 level... But in a wink of an eye, the 1.43 level was gone, and the euro was trading with a 1.44 level, and remained there the rest of the day, reaching 1.4420 for the high... As I turn on the screens this morning, I see that the single unit has gone to popping back and forth over the 1.44 level... You don't think it will get another sling-shot higher today do you?

I don't... I was actually shocked to see that move yesterday... But then, I did say that the bias to sell dollars had really picked up steam lately. The piece of data that really pushed the dollar lower yesterday, was actually a "good piece of data" for the U.S. economy... The ISM Index (manufacturing) came in higher than expected and has reached a pre-Lehman Bros collapse level of 48.9... This was a BIG move from the previous month's 44.8... It's still below the "line in the sand figure" of 50, which is the indicator of contraction or expansion... I would say given the move from 44.8 to near 49, that expansion is already happening...

And why would that be given the rot on the U.S. economy's vine? Ahhh grasshopper... Here's a key ingredient, that I've pointed out to you for years now... The dollar... The dollar, measured by the dollar index has lost 13.4%... The dollar index, in case your new to class or have forgotten a previous lesson, is a basket of U.S. trading partner's currencies. It is heavily weighted toward euros though... And therefore you have one of the reasons I always talk about the euro being the Big Dog... That, and the fact that the euro is the second most liquid trading currency in the world, and... It's the offset currency to the dollar!

And... So... Here's a note to the dollar bulls... Mess with this, and you'll see manufacturing go right back into the dumpster!

But, what about this ISM Index? Pretty strong, I would say, given all that's going on in not only the U.S. but the world. Going back to yesterday's discussion about the recession coming to an end. This is one of the key pieces of data that will indicate to me that we have hit bottom and the bounce is on... I know that I have been pretty cynical of the forecasters that were calling for the bounce 6 months ago and so on, but if we get more of this type of data in the coming weeks, I'll have to put a different cap on...

OK... The Reserve Bank of Australia (RBA) met last night, and as expected they left their internal interest rates unchanged. The RBA did move their bias for interest rates from easing to neutral, which is a natural progression to the next step of beginning a rate hike cycle. The RBA wasn't in the mood to go "all in" on the move to neutral though... They hedged their move by saying that, "the present accommodative setting of monetary policy is appropriate given the economy's circumstances." That's Central Bank parlance for "we're doing this now, but we're prepared to go back to easing should the economy's rebound falter"...

So, the A$ was not able to push higher, as would normally be expected if the Central Bank would have gone "all in" on the move higher in bias... The A$ is hovering around 84-cents these days, which isn't shabby considering that on March 1st of this year it was trading with a 63-cent handle! Still not the "go-go" days of summer 2008, when the A$ was knocking at the door of parity to the green/peachback.

The A$'s rise from the ashes of Feb 2008 is dragging kiwi along. The New Zealand dollar / kiwi saw the same kind of bloodletting the A$ did last fall, so any dragging higher is a welcome sight to kiwi holders. I'm still not sold on kiwi's ability to maintain the levels it reached last year, given their deficit position... For those of you new to class, the kiwi was able to rise in the fact of a HUGE deficit, because of their interest rate differential to the rest of the world. New Zealand had the highest interest rates in the industrialized world, and those interest rates kept the blinders on their deficit... But, I kept warning folks that once the rates began to drop the Deficit would be as obvious as a man with a hatchet in his forehead!

So... The any dragging is good news to the kiwi holders...

OK... Back in the U.S., the Treasury announced that they would need to borrow less than originally forecast in the 3rd QTR by $109 Billion... They'll still need to borrow over $400 Billion, and will keep the pace of the total borrowings through the end of the fiscal year (September) at $1.39 Trillion...

The Treasury is borrowing less, because a handful of Big Banks are repaying their TARP loans... That's a good thing, I guess... But I just can't get a warm and fuzzy about the stories I keep reading regarding this whole deal of loaning money and buying back their bad assets so they can repay the loans to the Treasury... It's all mish-mashed folks... But! I'm not going there! I'm keeping my nose to the task at hand, and not veering off course...

The thing to take from this is that the Treasury will still need to borrow $1.39 Trillion in the past year, with the borrowings gaining momentum in the past 6 months... And this total amount of borrowings is what's weighing on the appetite for Treasuries by foreigners...

Did you see where Wal-Mart just issued $1 Billion in bonds but denominated them in yen? Is there a message there? I believe there is a message there, folks... Now, if we begin to see more Corporations doing this, then the message will be loud and clear. These Corporations don't believe they can sell their debt denominated in dollars, as the world is choking on dollars right now... When and if other Corporations begin to do this, we'll see the dollar get sold like ponchos on a rainy day at Disney World!

OK... Let's not go down that road of gloom and doom... Instead let's talk about a currency that's moved higher while remaining in stealth mode... The Canadian dollar / loonie... Ever since the Bank of Canada's Gov. said earlier this month that he was going to do whatever he needed to do to keep the loonie weak... The loonie has taken off on a moons hot! In fact, the loonie just hit a 10-month high VS the green/peachback!

And, not meaning to place the Chuck's kiss of death on these currencies, but this scene has played out in other places too... In Canada, Switzerland, and Brazil, each respective country's Central Bank Gov. issued warnings about keeping their currency weak... In all three, the exact opposite has happened. And I have to smile about that, because... You may recall me calling out today's currency traders as not having the cojones to take on Central Banks, as opposed to the currency traders of yesteryear who would take it as a personal challenge to defeat a Central Banker that put down a line in the sand on a currency's level...

So... It may all be a coinquidink, that these three currencies are rallying after their Central Bank Governors said they would keep their respective currencies weak... But I doubt it!

I see that Gold and Silver are back on the rally tracks again... Gold is trading over $950 again... And the price of Oil has jumped too ($70.67)... Commodities are all on the rise, once again as risk appetite really begins to grow. The Chinese have ignited the fire on Commodities with their economic growth and demand for the raw materials, and with that thought, commodity traders are jumping on the bandwagon...

I suspect we'll see some profit taking today in the currencies and commodities though... But that's OK! Bring them back a bit, give everyone that was sitting on the sidelines waiting for an opportunity to buy, a chance to do so, and then move on to higher ground! That sounds like a plan! And you know what I like to say... I love it when a plan comes together!

Currencies today 8/4/09: A$ .8395, kiwi .6665, C$ .9365, euro 1.4390, sterling 1.6935, Swiss .9410, rand 7.8325, krone 6.0475, SEK 7.1625, forint 185.70, zloty 2.86, koruna 17.95, yen 94.60, sing 1.4330, HKD 7.75, INR 47.71, China 6.8296, pesos 13.13, BRL 1.8250, dollar index 77.66, Oil $70.67, 10-year 3.62%, Silver $14.12, and Gold... $953.50

That's it for today... Well... Today is my granddaughter Delaney Grace's 2nd birthday! Delaney was born when I was still recovering from cancer surgeries, so I'll always know how old she is! Delaney talks all the time and when she's not talking she's singing songs, so she was a joy to be around on vacation... Happy Birthday! In a couple of weeks, my darling daughter Dawn (Delaney's mom) will be celebrating a birthday, that I'm having a hard time dealing with... Dawn won't be happy about this, but she will be 30... I can't believe that my little girl is going to be 30! I guess it happens to us all, but I'm taking her turning 30 worse than I took me turning 50! Oh well... Time moves on and waits for no one... All this birthday talk has me running a little late, so I'll sign, seal and deliver this... It's yours! I hope you have a Terrific Tuesday!

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

Dollar continues it’s slide...

Chuck Butler — Fri, 31 Jul 2009 14:45:32 GMT

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* Dollar continues to slide...
* US GDP contracts but not as fast...
* Nordic currencies outperform...
* Japanese yen continues to fall...

And Now... Today's Pfennig!

Dollar continues to slide...

Good day... The last day of July is upon us. Time just seems to keep moving faster as it seems summer just got started. The fall of the dollar also accelerated yesterday as investors moved back out of the 'safe haven' of US$ and continued to shop for more yield. The greenback tried to stage a bit of a rally in early European trading, but has fallen back off again as I sit down to write the Pfennig.

I got a call from a Reuters reporter yesterday mid morning to ask why the dollar was rallying at the same time stocks were moving higher. I quickly paged through my Bloomberg looking for some sign why both were heading higher. The trading pattern which has been established over the last few months has these two asset classes moving in opposite directions; good news for the US economy sends stocks higher and the dollar lower as investors retreat from defensive 'safe haven' positions in the US$. The opposite occurs whenever there is data which shows the global economic recovery is faltering, stocks move lower and the dollar rallies with safe haven buying.

But yesterday morning, for a short period both were moving up. I first looked at the jobs data to see if they held any clues. The Initial Jobless claims came in slightly higher than expected, confirming our calls that the labor market will continue to be a drag on the US economy. But the reporter pointed out the continuing claims has dropped. I explained to her that the continuing claims were dropping because people are falling off the rolls. Drops in continuing claims are not due to people going back to work, but are due to people being out of work longer than the labor department's records. So I didn't see anything in the jobs data which would cause stocks to rally.

Unable to find anything in the data to support the short term market movements, I moved the conversation to the longer term trends which I feel much more comfortable speaking about. And by the time the conversation was over, the quick rally in the dollar had subsided, and the dollar index was moving back down. The short term market movements are very hard to call, as the currency and equity markets can move on emotion and rumor for short spans of time. But they will always move back toward the underlying trend line. Right now, the trend is for the US$ to weaken vs. the major currencies; as investors begin to look for currencies with higher yields and better underlying fundamentals.

So the dollar continued to fall vs. every currency except the Japanese yen. The Nordic currencies of Sweden and Norway led the charge vs. the US$ with Sweden moving up over 1.5% and Norway appreciating just under 1%. As I wrote yesterday, the Swedish krona has been one of the best performers recently as their economy has begun to recover ahead of mainland Europe. Sweden's central bank, the Riksbank, was more aggressive with rate cuts than the ECB, so they will now have more room to increase them as the global economy recovers. Like Norway, Sweden went into the global recession in a fundamentally solid position, with a good trade surplus and low national debt. But Norway seems to be a bit better positioned going forward, as they rely on commodity based exports and while Sweden is geared more toward manufacturing. Both should continue to move higher vs. the US$.

The focus today will be on the 2 quarter GDP report which will be released this morning. GDP is expected to have contracted 1.5% after a 5.5% contraction in the first quarter. If the number comes in as expected, the dollar will likely sell off as investors move back into riskier assets. But as I mentioned earlier, the currency markets have started to show signs of moving away from the safe haven / risk aversion pattern recently. Investor's focus will eventually shift toward interest rate differentials. But I still think it is a bit too early for this shift to occur, and a stronger GDP figure will likely cause a further drop in the US$.

We will also see Personal consumption data for the second quarter which is expected to show US consumers are continuing to increase savings. Consumption is expected to have fallen .5% after rising 1.4% during the 1st quarter. In spite of government efforts to stimulate spending, US consumers are worried by rising unemployment and won't likely loosen their tight grip on their wallets anytime soon. Finally, we will end a busy week of data releases with the Chicago Purchasing Manager's index which is expected to show a slight increase to 43 from 39.9 reported last week. This would be a second consecutive monthly increase, a sign that the manufacturing sector is bottoming out. Even though the number continues to move higher, any number below 50 is seen as a negative indication for the economy. Even with inventories near record low levels, manufacturers will likely wait for consumers to start spending again before increasing production.

The pound sterling continued to rise against the dollar after a report showed British consumer confidence held at the highest level since April of last year. It seems the pound sterling has moved to a upward trend, after dropping most of last year.

The Japanese yen continues to fall vs. the US$ as investors sell the currency and move to higher yielding assets elsewhere. Japan's unemployment rate rose to a six year high in June and consumer prices fell at a record pace. The Japanese economy continues to be stuck in a stagnant deflationary state and will be dependent on a global economic recovery to spark exports. Increasing growth in other Asian nations (mainly China) has sparked production increases by Japanese manufacturers. This has been the one positive sign out of Japan recently, but this one piece of data couldn't halt the selling of the Japanese yen.

Elections in Japan will be held at the end of next month, and the opposition party is all but guaranteed to win. The ruling Liberal Democratic Party is in a shambles, and has produced 4 prime ministers in the last 4 years. The new government is expected to increase spending on government programs, but like the US administration, no one has figured out how to pay for these increases. The opposition's spending proposals add up to 3.5% of GDP, and the party has ruled out raising Japan's 5% consumption tax for at least 4 years. Much of the funding for the new programs will come from cutting 'waste' in existing spending programs (sound familiar?). Gross national debt in Japan is currently 180% of GDP and rising as the stimulus packages kick in.

Many factors in the Japanese economy are eerily similar to those in the US, and neither looks to recover quickly. Both the US$ and the Japanese yen will continue to be sold as investors move into currencies of countries with much better economic potential. The short and medium term prospects for these two currencies certainly look negative.

Two currencies which seem to be on a much different path than the Japanese yen are the Australian and New Zealand dollars. Both are headed for their longest set of monthly gains since 2004. With interest rates expected to start rising, and China continuing to consume commodities which both produce, these currencies should continue to perform well. Barclays Capital raised their forecasts for both currencies saying rising risk appetite will boost demand for them in the short term. "A better than expected US GDP result would be the final icing on the cake for July and would provide great opportunity for the Australian dollar to retest 83.38 cents," according to the report.
Currencies today 7/31/09: A$ .8284, kiwi .6561, C$ .9269, euro 1.4139, sterling 1.6552, Swiss .9231, rand 7.804, krone 6.1628, SEK 7.2825, forint 187.92, zloty 2.9328, koruna 18.089, yen 95.70, sing 1.4405, HKD 7.7500, INR 47.935, China 6.8321, pesos 13.2126, BRL 1.883, dollar index 78.966, Oil $66.81, 10-year 3.61%, Silver $13.63, and Gold... $938.42

That's it for today... The EverBank kickball team played or final regular season games last night and ended up victorious in both. More importantly, we were able to make it through both games without an injury! We finished in third place, so we will have a pretty good seed going into the end of season tourney. Happy Birthday to Ann Hopkins today! I have worked with Ann off and on since I started in the banking industry back in the late 80's, and she is a real treat to have on the desk. 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

Back To Risk Aversion Again!

Chuck Butler — Mon, 13 Jul 2009 16:42:15 GMT

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In This Issue..

* Earnings reports begin this week...
* Dollar, yen, francs get bought...
* Medvedev shows off new coin!
* A busy week!

And Now... Today's Pfennig!

Back To Risk Aversion!

Good day... And a Marvelous Monday to you! A Home Run Derby Monday to boot! I have no Idea what's going on this morning, as I just woke up, and it's very late in the morning! I was very careful to set my alarm last night, and I've never been one of those people that hit the snooze button when it goes off, but here I am, waking up late... UGH!

So... I'm writing from home, and then I'll shoot in to work... We're short handed this week, so, I'm sure everyone will be arriving to the office, not see my car, and be a little ticked... So, I've got a surprise for them, something they've never seen... Me come in late!

Well... It looks like Risk is under pressure once again... And the only thing I can see that's causing this Risk Aversion, is the Corporate Earnings Season... For instance we get 4 banks reporting this week, Goldman (yes, remember they're a bank holding company now... They ex-chief, and ex-Treasury Sec. Paulson, made sure that the change was made so that Goldman would qualify for TARP last year!) We also have JP Morgan, Bank of America, and Citi...

Data wise, there are a few top shelf reports out this week, and the thought of them showing more dandelions instead of green shoots, is probably wearing heavily on the risk assets this morning too.

So... The euro is sitting just below 1.40 this morning at 1.3985, so no real harm being done at this time, but still the bias is to sell the risk assets like currencies and commodities as we start the week.

You know, I've harped about this for so long now, that I sound like a broken record, OOOPS! For the younger crowd that would be a scratched CD! What I'm talking about is the fact that the risk assets like currencies and commodities being thrown into the same barrel has stocks... And how I was just wishin' and hopin' and thinkin' and prayin' that we would return to the fundamentals of these asset classes not having anything in common with the stocks! I just knew... No wait, I can't say that... I just knew, not that I know anything on the inside, that is... That stocks were going to be under pressure from the Corporate earnings season, and with the "link" still in place... That wouldn't be good for currencies and commodities... Let's hope I'm wrong!

The one piece of data we get today is the Budget Statement... Last month, the Budget Statement printed an awful deficit of -$189.7 Billion (May)... Historically, June prints at a surplus... But Historically, so did April, and April was no where near a surplus this year! Year-to-date receipts for the Gov't are down 18%, and Year-to-date outlays are up 19%... That doesn't bode well for "history to come into play here"...

Last week, on Thursday, reported Friday in the Pfennig (thanks Chris!) was the Weekly Initial Jobless Claims, which printed the lowest level for this data series in more than 6 months, at less than 600K! But still, the number is still staggering, and one of the reasons that Commercial construction in the U.S. is set to decline 16% this year, followed by a 12% fall in 2010. No jobs... = no need to build offices for the "ghost jobs' that the BLS adds each month, because... THEY DON'T EXIST!

No need to get me started on the BLS (Bureau of Labor Statistics) this morning... I have to be clear and concise to get this out the door and me off to work!

Well... With the risk aversion back on the table... The two main beneficiaries remain to be Japanese yen and the U.S. dollar... Swiss francs are on the "kids table" but still a part of the beneficiary crowd...

The High Yielders like Aussie, kiwi, and South Africa get taken to the woodshed, when Risk Aversion comes to town... The Brazilian real is seeing a bias to sell, but for the most part has hung in there... Of course I remember saying that exact line early last fall, only to watch the real play catch up, until the turn-around in March of this year. So... I guess, what I'm saying is be careful!

So! Did you hear that Russian President Medvedev, showed off the "new world currency coin" at the G-8 meeting last week? He said.. "We are discussing both the use of other national
currencies, including the ruble, as a reserve currency, as well as supranational currencies. So... Here it is! This is a symbol of our unity and our desire to settle such issues jointly."

He then pulled a new coin out of his pocket and displayed to the attendees... Now... Don't get all tied up and twisted over this at this point. This was simply a "symbolic" move, there aren't mints all over the world rushing to get these coins minted and out the door... But, if you get the "symbolic" part, then you understand what Medvedev was attempting to do here... He was simply showing the G-8 attendees that if they really thought about it, they could see the need to move from a dollar reserve system, and to help them visualize it, he had a coin to pass around!

I can't believe that right now, with the whispering campaign to get an alternative reserve currency, that the dollar isn't getting sold, as I like to say, like funnel cakes at a State Fair! I guess the whispering will have to get louder, for this to make any real waves....

You know, I'm not for this "global currency"... I just wanted to make that clear! I'm not for removing the dollar as the reserve currency, for I know all of the "perks" that go along with it being the reserve currency! I'm just here to report the facts, and give my opinion / market commentary on how I think it will affect things...

I do believe, however, that given our deficit spending, and every growing to the moon National Debt, that the dollar deserves getting whacked, it's how things are done! Treasuries will get their comeuppance too one day... You can't just keep printing and printing and thinking that "buyers" will be there at the auction every time you print more... It's not going to happen that way... At least in my thoughts it won't!

OK... Time to go to the Big Finish... I know, I know, little shorter than usual this morning... But Hey! It was still chock-full-o-news!

Currencies today 7/13/09: A$ .7750, kiwi .6225, C$ .8605, euro 1.3980, sterling 1.61, Swiss .9240, rand 8.2930, krone 6.4830, SEK 7.9025, forint 198.10, zloty 3.1475, koruna 18.62, yen 92.10, sing 1.4650, HKD 7.75, INR 49.08, China 6.8328, pesos 13.71, BRL 1.9965, dollar index 80.16, Oil $59.96, 10-yr 3.30%, Silver $12.50, and Gold... $912.70

That's it for today... Went to the Futures Game yesterday, to sit through a 4-hour rain delay... UGH! Let's hope the rain stays away for the next two days! Home Run Derby tonight, All-Star Game tomorrow night. The family is all going to the Fan-Fest today, while I'm at work... Hey! Somebody has to work! HAHAHAHAHA! My beloved Cardinals went into the All-Star Game break on a good note, winning 6 of 10 on the road trip to end the 1st half of the season... This will be a very busy week for me, lots of writing to get done, and all the All-Star festivities... I go to my new oncologist this afternoon for the results of my scans on Friday, so all that and doctors stuff on top! UGH! Oh well, next Monday I head to Vancouver for the Agora Financial Wealth Symposium, their 10th year anniversary of the conference! And then I head off to vacation! So... Busy, busy, busy... Time to hit send, Hope your Monday is absolutely Marvelous I tell you!

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

A Lost Decade?

Chuck Butler — Thu, 02 Jul 2009 15:08:57 GMT

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

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

Get your copy today

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

In This Issue..

* An Up and Down day for currencies...
* Jobs Jamboree moves to Thursday today...
* China to buy more Gold!
* Sweden cuts rates!

And Now... Today's Pfennig!

A Lost Decade?

Good day... And a Thankful Thursday to you! I'm reminded that we all need to be thankful for the patriots that led this country to victory and thus our freedom. The freedom for me to write a letter like this, each day, that allows me to say what I want to say (well, with the governor of the legal beagles of course!). And since this weekend we will celebrate our Independence, I thought this to be a good time to have a Thankful Thursday!

Patriots... You know, the ending story for those 56 Patriots that signed the Declaration of Independence is not a happy story... So, when we learn of their collective fates, we realize that freedom does not come free...

OK... This time of year, always stirs up the emotions, that are burning all year...

Two things have happened in the past 24 hours that have moved the currencies and caused some very wild swings... So, let's look at the "two things", eh?

When I left you yesterday, the currencies had rallied back and were waiting for more data... The data that printed was not very good, led by the ADP Employment Report for June, which came in with a greater number of job losses than was forecast (-473K VS -395 forecast)... So, according to ADP the bleeding continues... Now we have to wait for the Jobs Jamboree that will print later this morning, to see what "games people play now, every night and every day now"...

So, the currencies moved a bit more with the data printing and showing continued rot on the vine... For instance, the ISM Manufacturing Index remained below 45, which is recessionary to me... But the real blow to the dollar yesterday came when G-8 Sources announced that CHINA HAS ASKED FOR G8 ITALY SUMMIT TO DISCUSS ISSUE OF NEW GLOBAL RESERVE CURRENCY...

You should have seen the dollar selling at that point! OUCH! The euro climbed to 1.4175, and took the rest of the currencies along for the rides! This was HUGE folks! There it was... On the G-8 Agenda!

However, seeing the damage that this announcement had done so quickly, the Chinese had to do something quick... And quick they were... China's Vice Foreign Minister said he is "not aware of any plan to discuss alternative reserve currencies at next week's G-8 meeting." And the turn-around was on!

So, overnight, the dollar is firmer, and the euro has lost that 1.41 handle once again... These probes to the 1.41 handle are becoming more frequent, but with little staying power. So... There you have it... One item made the currencies soar... And the denial made them come back to earth, all within 24 hours... Jack Bauer would be proud!

While I'm talk about China, I was wondering if you all caught the interview on Fox (I didn't, of course, it was pointed out to me by a reader!) where U.S. Rep. Mark Kirk, was interviewed and asked questions about his accompanying U.S. Treasury Sec. Geithner on his Magical Currency Tour last month to China... In a private discussion with Chinese officials, Kirk was told that the Chinese were extremely concerned about the likely near term decline in the dollar because of the "explosion" of government debt. And... As a reaction to this concern, the Chinese Gov. was creating a "fund" / reserve to buy oil... And another $80 Billion worth of Gold!

OK! And did you see Gold trade higher yesterday by $15? Well, it's lost $8.50 of that gain overnight... Profit taking, and the denial by the Chinese has caused this sell-off...

The euro is also seeing some pressure this morning, as the European Central Bank (ECB) is meeting and most likely will have to admit that they will keep rates at ultra / record lows for some time to come, as the Eurozone remains in a recession.

As I explained on Monday this week, the Jobs Jamboree was moved to today, to avoid the markets being thinned out tomorrow. Apparently, the Bureau of Labor Statistics (BLS) wants everyone to see their work! HA! The "experts" believe that the Jobs losses will have increased in June, adding 20,000 lost jobs to May's "BLS adjusted" number of -345,000... I would have to think that if this prints as forecast, that the "risk takers" will be happy enough, and continue adding risk assets like stocks, currencies, precious metals... Anything greater would probably put a lid on their propensity to spend on risk assets... For now, at least!

Oh... And one more thing on the job losses for June that will print this morning... If the "forecast" number of lost jobs prints... It would mean that the number of people working today, in 2009, would be about the same number of people that were working in May of 2000! Talk about a Lost Decade! I wonder if the major media will pick up this fact? Now wouldn't that be a big surprise to all those folks that were surveyed last week for Consumer Confidence? It surprised me to see that fact! The Lost Decade... Strange but true...

The strangeness of today though will be the fact that the Weekly Initial Jobless Claims will print, and probably show that over 600,000 jobs were lost last week, and unemployment claims were filed... So... How does the BLS come up with "only" 365,000 jobs lost for the month, when one week was 600,000? The games people play now... Every night and every day now... Never meaning what they say now... Never saying what they mean... And they wile away the hours... In their ivory towers... Till they're covered up with flowers...In the back of a black limousine... - Joe South...

I've gone over the do goody-good bull of the BLS so many times in the past it makes my head spin, so I won't go there again today... But, it makes no sense to me what-so-ever that the BLS still uses a stupid "survey" when they have the ADP and Weekly Claims at their disposal... I think I know why... But again, it just doesn't make sense to me!

So... Keep an eye on the Jobs Jamboree for today...

Recall earlier this week I told you that Sweden's Riksbank would meet on Thursday, and I said that: "With internal rates at just .50%, I guess they could cut, but what would be the point?" Well... The Riksbank surprised the markets this morning, and did cut 25 BPS bringing their internal rate to just 25 BPS or 1/4%... I would think that any good that Swedish krona buyers saw in the past 5 days, will be wiped out by this news, as the rate cut at this time has to signal "bad stuff" for the economy... The only thing left for the Riksbank now is to implement Quantitative Easing, which if they aren't afraid to cut rates to 25 BPS, they certainly won't have any "moral" problems with Quantitative Easing...

And like I said for the U.K., Switzerland, and U.S. when they announced their Quantitative Easing... "Hey, Japan's been doing it for over a decade now, and look how well it's worked for their economy!" I shake my head in disgust, that anyone with an ounce of brain power would go down the same road as Japan with regards to how they responded to their economic meltdown of the 90's... But we have... Step for step... Beginning with the $150 Billion in stimulus checks... And moving on to larger sized measures from there...

I've told you all this before, but for new readers they might not know... That in the 90's I was a currency and foreign bond trader... I watched the Japanese introduce stimulus after stimulus, and budget gadgets after budget gadget! And, like I said, look at how well it worked in their economy? History may not repeat itself, but it rhymes according to Mark Twain... And what we're doing with our economy rhymes with what Japan did in the 90's...

Oh! I know, the rose colored glasses wearers will say, "but Chuck, we reacted "much earlier" in the recession than the Japanese did" Yes... We did, so, what does that mean? That instead of a greater than decade economic funk that we'll experience something shorter in time? OH, so a 5 year economic funk is worth adding Trillions to our National Debt? I don't think so...

With regards to the interest rate policy that adds to these woes... Janet Yellen, president of the Federal Reserve Bank of San Francisco, went further than other policymakers in assuring that the Fed is not likely to push its interest rate up in the near future. Ms. Yellen was speaking to reporters and said." it is "not outside the realm of possibility" that the central bank will let the interest rate remain close to zero for several years."

Oh great! Just go ahead and fuel that future inflation... And rack up the deficits... We can go on like this forever, right? NOT! There's no way this can go on forever! And... If the markets were doing their job, it wouldn't be going on now, without major pain in the yield on Treasuries and the value of the dollar! When out of the 29 largest nations in the world, the U.S. has the worst debt/GDP ratio, you've got to take a step back and say Whoa, there partner! Unfortunately, no one (except Ron Paul) in Washington D.C. is doing that... This is getting completely out of control, folks... Completely out of control!

The markets always do what the markets should... Just not always when they should... I learned that a long time ago, from my old, old boss, Ed Bonawitz, and I'm reminded of that all the time...

Like remember when I was calling for an end to the Carry Trade, and a Japanese yen rally, 2-3 years before it finally happened? The markets finally did what they were supposed to do, it just took 2-3 years!

Well... The euro has been in a steady downward move since I came in this morning. I turned on the screens and the single unit was trading just below 1.41... It's now moved down to 1.4060... No biggie, but a steady downward move in the past two hours...

A long time reader sent me a note yesterday regarding yesterday's Pfennig... "Uriah Heep, The Ventures, Soros, Rivlin, Sylvester, and Lucy! All in one Pfennig" It caused Cranium Spin!

Yes, I was on a roll yesterday... I don't think I was on quite the same roll today...

And while I don't like to head into the Big Finish on a "down note", I'll have to today, as it's beginning to get late... The "down note" is from "down under" (get it?) Australia's Trade Deficit widened in April to A$556 million ($448 million worth), as coal exports fell... This news caused a weakening in the A$ overnight... But remember, this is from April... And in April, China was just beginning to show signs of their stimulus working... I'll bet a dollar to a Krispy Kreme that next month this number will be narrower and if not, then the following month we'll see the narrowing... So, no need to be alarmed here, there's nothing to see here, move along! It does provide cheaper levels of the A$ though!

And... I just noticed this, so I won't end it on the A$ story... The price of Oil fell out of bed yesterday, moving from over $71 yesterday morning to $67.85 this morning... WOW!

Currencies today 7/2/09: A$ .8030, kiwi .6360, C$ .8685, euro 1.4070, sterling 1.64, Swiss .9230, rand 7.8050, krone 6.3635, SEK 7.70, forint 190.60, zloty 3.1040, koruna 18.2885, yen 96.60, sing 1.45, HKD 7.75, INR 47.96, China 6.8312, pesos 13.10, BRL 1.9320, dollar index 80.09, Oil $67.85, 10-year 3.55%, Silver $13.50, and Gold... $933.75

That's it for today... So... The U.S. has begun a military offensive in Afghanistan... I wish for safety for those soldiers... Little Delaney Grace came for a visit last night... What a cutie! And she's beginning to really talk, which is cute, but she never stops talking! She was copying everything I did at the dinner table, cracking me up! The Streets of San Francisco aren't as safe any longer... Karl Malden has passed away at 97 last night... Colby Rasmus bangs a walk off homer in the 10th for the Cardinals, and today is our Jen Mclean's son, Drew's 2nd birthday! Happy Birthday, Drew! And with that, I'm going to head to the high school where my son, Alex, will be playing in a jazz concert this morning, and he has a guitar solo... Wouldn't miss that! Time to hit send, and be thankful on a Thursday!

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

German Investor Confidence Is On The Rise...

Chuck Butler — Tue, 16 Jun 2009 15:24:59 GMT

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In This Issue..

* Currencies stop the dollar's run...
* BRIC meeting could get ugly for the dollar...
* RBA meeting notes good for Aussie dollars...
* Depressing data / forecasts for housing...

And Now... Today's Pfennig!

German Investor Confidence Is On The Rise...

Good day... And a Terrific Tuesday to you! Thundering storms moved through here this morning, as I was preparing to leave home and drive to the office. As slow as I am with getting around these days, I got pretty wet from my car to the office building. But, I didn't melt, as most would have thought! HA! And, I'll dry out soon enough... Well before anyone else comes in!

OK... Well... When I left you yesterday, the dollar was on a rampage, from the comments by the Russian Finance Minister, Kudrin... Was it an overreaction, I asked? A resounding YES was my answer... I think the proof is in the pudding on that this morning, as the dollar buying has hit a roadblock, and reversed overnight, with the euro gaining back about 1%...

The euro also got a needed boost this morning, as German Investor Confidence jumped to a three-year high. Seems most investors believe the economic slump in Germany, the Eurozone's largest economy, is easing... Of course, we know that while Investors believe the economic slump may be easing, it may, in reality, not be easing... It's all about perception, right? Any old way, the currencies have rebounded from yesterday's bloodbath... And now the currencies have a bid tone, and not the dollar!

And now a news flash just came across that these countries are "considering buying each other's bonds, and swap currencies" to eliminate the dollar from those transactions... OK... Skip back to yesterday... Here's what I said... Pfennig 6/15/09: "I would have to think that the Finance Ministers of these countries would be interested in knowing how they can avoid another downward spiral caused by dollar buying... And... This... Would be the key, folks... I don't know what it would be, but if they did something like a currency swap / foreign exchange line between each other for trade, that would be colossal! Which is bigger than HUGE!"

The BRIC (Brazil, Russia, India, China) meeting I told you about yesterday, actually happens today. Sorry for the mix-up, as I thought it would happen later this week. There were already comments hitting the news wires that Russian President Medvedev, wants to talk about issue of the dollar as the reserve currency... Now, if he does, and I'm not saying that he will, but if he does talk about that, doesn't that wipe out the Finance Minister, Kudrin's, comments about Russia's belief in the dollar? And... If he does, and again, I'm not saying that he will, but if he does, my thoughts yesterday, that this would happen at the BRIC meeting, would come to fruition...

There's always been a clamoring for a basket of currencies consisting of the BRIC countries... The problem is that the Russian ruble just isn't liquid enough to get this done, like EverBank World Markets does their other CD's... So... How about dropping the "R" and doing a BIC? Well... Again, even though EverBank does offer these currencies of Brazil, India and China individually, it's not easy... In fact it's quite the ordeal to get them done... But, eventually, we'll think of something!

OK... Now back to the goings on in the markets... This BRIC meeting today seems to have quite a hold on the markets' attention today... And it is a BIG thing, IF they do discuss the alternative reserve currency talk... Talk the talk, and walk the walk... These countries can't keep complaining about the need for a new reserve currency, and not do anything about it...

Looks like all the stimulus and money supply in the U.K. is beginning to show up in the inflation data... U.K. May CPI jumped .6%, thus pushing the year-on-year (YOY) figure to 2.2%! Now, this is important for a couple of reasons, folks... 1. it could signal an end of the easy money in the U.K. IF they are prudent in removing the stimulus, as they and their friends over at the Fed claim they will be... And 2. and more importantly... Is... The U.S. has actually been behind the events surrounding the financial meltdown in the U.K.... So... If the U.K. is beginning to see inflation rise, it stands to reason that it won't be long before we see it happening here too...

Down Under... The currencies of Australia (A$) and New Zealand (kiwi) both fell flat on their respective faces with the dollar on the rampage yesterday... But were able to rebound a bit overnight. They were moved higher, when the minutes of the last Reserve Bank of Australia (RBA) hinted that the RBA was going to maintain their easing bias, but move to the sidelines for the foreseeable future... Folks... That's Central Bank parlance for... This is it! Unless the sky falls! This is the bottom as far as rate cuts go! But... It will be awhile until they move up...

Well, that's how I read their statement! And I've been reading Central Bank statement for 17 years now... I think the traders that cover A$'s think the same thing... And kiwi, just grabbed on to the coat tails of the A$...

Did you see the color of the TICs data yesterday? WOW! Or should I say, UGH? The net security purchases by foreigners for April showed a HUGE drop! The total net purchases were $11.2 Billion... VS $55 Billion in March! And... The ongoing holdings of Treasuries feel a net of $2.6 Billion... Now... Here's where I get all ticked off folks... We've had Japan, China and Russia all say publicly that they have full faith in U.S. dollar denominated assets (read Treasuries)... But when it came to backing up the talk with the walk... They failed to show that they have full faith in these assets, didn't they!

These countries and their Finance Ministers caused investors HUGE losses with their statements, but when it comes down to the cheese that binds, these Finance Ministers didn't have the intestinal fortitude to back up the statements... Well, at least in April they didn't!

And $11.2 Billion a month is not going to be enough to finance the Current Account Deficit... Which will print tomorrow, how convenient! But that's for April, and we won't get all that data for months! However...

Right now, the "experts" believe the Current Account Deficit, which consists of the Trade Deficit, and the Federal Direct Investment, will be a deficit of $85 Billion (recall that the Trade Deficit had come down in the 1st QTR) for the 1st QTR... And going back, which is exactly what the Gov. doesn't want anyone to do, I see that the total purchases in the 1st QTR were a mere $40.63 Billion... There's a $46 Billion gap there folks...

I've gone over this financing thing so many times in the past that it make my head spin (yes, you should see it spinning right now!) just thinking about explaining it again... But, for those new to class... When a country has a financing problem (like it looks we had one in the 1st QTR) the gap gets pushed to the next quarter and so on, until... The chickens come home to roost... And then, a country has only two choices... They can raise interest rates aggressively to make the assets more attractive to the foreigners, or... They can allow a general debasement / weakening of their currency, to make purchases of the assets cheaper by discounting the clearing mechanism... The dollar, in this case... So... Which one do you think a Gov., especially one like ours, will choose to use? Yeah, right, like they would choose number 1!

Ok... Some more depressing news about the housing sector came through yesterday in the National Association of Home Builders Home Price Index (NAHB) printed worse than expected yesterday... The "experts" forecast the NAHB would be a 17... And it printed at 15... Soon afterward, economist Robert Shiller, said that the housing downturn "was not over yet"... Economist Nouriel Roubini, said that "house prices will fall another 15-20%" and... Banking analyst Meredith Whitney said that "she is even more bearish than either Shiller or Roubini on housing."

That's not good news folks... Nouriel Roubini as been dubbed as a gloom and doomer by the media (I don't think so... He just tells it like it is, he can't help it that it's not all seashells and balloons for the economy, like the media would have you believe!) and when another analyst, as prominent as Meredith Whitney says she's even more bearish than Roubini, you've got to sit up and take notice!

I just can't end the day's letter with those two depressing stories back-to-back... Oh! Here's an interesting story... The Japanese Finance Minister, believes the recession in Japan is nearing an end... Yeah, right... If I had a 1-oz Gold American Eagle Coin for each time a Japanese Finance Minister has said those words since 1990, I would be quite the "rich man"! But, the markets swallowed his statement hook, line and sinker, which is good for the yen! Japanese yen outperformed all the currencies overnight, and is trading with a 96 handle once again!

Speaking of Gold... It has rebounded by $8 this morning, as the sentiment to buy dollars has faded...

Currencies today 6/16/09: A$ .8020, kiwi .64, C$ .89, euro 1.39, sterling 1.6440, Swiss .9220, rand 8.00, krone 6.42, SEK 7.8070, forint 201.50, zloty 3.2550, koruna 19.2780, yen 96.83, sing 1.4575, HKD 7.75, INR 47.75, China 6.8335, pesos 13.36, BRL 1.95, dollar index 80.55, Oil $72, 10-year 3.72%, Silver $14.35, and Gold... $937

That's it for today... The rain that came through this morning was very a "hard rain"... And no, I'm not going to go into Bob Dylan here... We've had our share of "hard rain" lately, and the low lying areas are seeing flooding. The river that runs through my little river town, is on the rise again... I thought I had a doctor's appt today, but my calendar tells me it's next Tuesday! Yahoo! OK... Not too much else to talk about this morning, so, I'll just end it here, and send you on your way to a Hopefully Terrific Tuesday!

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

Fundamentals Return...

Chuck Butler — Thu, 21 May 2009 15:48:14 GMT

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In This Issue..

* Currencies & Gold move together!
* Fed downgrades economic growth...
* More on China...
* Yen breaks the trading pattern...

And Now... Today's Pfennig!

Fundamentals Return...

Good day... And a Tub Thumpin' Thursday to you! It's Tub Thumpin' here, as the warm winds of spring have finally sprung, the Cardinals have won two in a row from the rival Cubs, and I'm headed to Busch Stadium tonight! Oh! And fundamentals, as far as currencies and metals are concerned, seemed to be in place yesterday...

That's right... The rout on the dollar was on (recall yesterday, Wayne and Garth playing street hockey... Game On!) and this time... Not only did the currencies rally VS the dollar, Gold and Silver took part in the proceedings too! It's been a long time since we've seen this happen... For the most part, whenever the currencies (minus yen) rallied, Gold would back off, and vice versa... Not yesterday! For the first time in a long time, the negativity toward the dollar was front and center BIG TIME!

The currency rally began early in the morning, and really gained steam as the day went on, and especially after the minutes of the FOMC meeting printed. You see, the Fed Heads had discussed that the economy is in a weakened condition and the economic projections for 2009 and 2010 were actually revised lower. The thing I took out of the minutes was this statement by the Fed Heads... the housing market "remained depressed but seemed to have leveled off"...

Memo to Fed Heads... Better be careful with those kind of statements... Did you all make a similar statement late in 2007? Look how well that prognostication worked out!

So... This news from the Fed about downgrading the growth outlooks for 2009 and 2010, is the key folks... You see, during the July 2008 - Feb. 2009 timeline, we traded under a different Trading Theme, that was well documented in this letter. But for new readers, the Trading Theme threw fundamentals out of the window, and rewarded the dollar every time data indicated the economy to be deeper, darker, and more dangerous in the recession / depression. This was against all fundamentals...

But yesterday, with the Fed downgrading growth forecasts, the dollar got sold like funnel cakes at a state fair! Finally! A return to fundamentals! Well, at least for one day that is. We certainly need to see more than one day of this to make any kind of final change in the Trading Theme trend... But it sure was nice to see for one day!

The Big Dog, euro, led the way for the other currencies (little dogs) yesterday. The euro finally, traded above its key resistance of 1.3740. A level that had stopped the euro "cold" three previous times. You may recall about a week ago, I told you that this is what happens with currencies, in the time (since 1992) that I've followed currencies. They make a run at a resistance level, and get knocked down. They make another, only to get knocked down, and then another with the same result. Sooner or later, love is gonna get ya', no wait! Sooner or later, traders and market participants either 1. take this as a challenge and push the currency through the resistance level, or 2. they give up, take the ball and go home... And the currency then falls back through previous gained ground.

In this case, the euro finally moved higher and through the 1.3740 level, and traded all the way up to 1.38 on the day... The good news for euro holders is that there has been little to no profit taking overnight, and the Big Dog is still trading with a 1.38 handle this morning!

Long time currency followers would have to admit that this all looks very similar to previous periods where the negativity toward the dollar was very strong, and seemed take on a life of its own. Even your run of the mill dollar bull, begins to see things they way his counterpart the dollar bear sees them...

I think that the markets have come to the realization that the U.S. has taken the road that leads to easy monetary policy... And everyone knows what's at the end of that rainbow! Inflation!

A couple of weeks ago, I participated in an editorial roundtable with my publishers for my "other" newsletter, The Currency Capitalist, (shameless plug!) and in the meeting I was trying to get everyone to agree with me that China was up to something. This was right after the announcement of their currency swap line with Argentina... Someone raised the question, a very astute question I might add, about why would China want to see the dollar lose value, when they own so many Treasuries...

I then pointed out something I had researched... That China had been stealth-like in doing so, but had shortened their maturities to less then 3 years... Which would mean that they could allow these to mature and not sell them pre-maturely... Could this be a "time-line" toward the lines of thought that China wants to replace the dollar as the world's reserve currency?

OK... That was a couple of weeks ago, in a meeting... But yesterday, Chris Gaffney sent me a story that appeared on Reuters... Here's a snippet... "China has engineered a subtle yet significant shift in the investment of its foreign exchange reserves, a sign of how it is willing to act on concerns about financing an explosion of U.S. debt."

And then this... "China's move to the shorter end of the U.S. debt spectrum is a defensive tactic adopted by the wider market as well on the view that the United States will have to raise interest rates down the road to control inflationary pressures when the economy recovers from the financial crisis."

So... Now there are "others" that are sniffing around this trail of tears I think I've discovered, for if there is no "long-term" plan by the Chinese to replace the dollar as the world's reserve currency, then I'll have egg all over my face! Well... The good thing for me, is that this is a very long tailed story... And I'll get to point to it over and over again in the coming years!

Doesn't that just make you get chills of excitement? HA!

A currency that "I like" but had fallen badly last summer, the Brazilian real, has really pushed higher in recent months (since March 1st). Yesterday it looked as though it would trade below the 2 handle for the first time in 8 months! (BRL is a European Style currency, where as the price goes down, it returns more value VS the dollar) For those of you keeping score at home, the real has gained 17% since March 1st... With Brazil being a "high yield" currency, the return grows even more... But, that's in the past... And past performance does not indicate that future performance will duplicate... (that's for the legal beagles!)

Well... Recall earlier this week I talked about pound sterling nearing its 200-day moving average? Well... Forget about it! Yesterday, Standard & Poors (S&P) decided to place the U.K. on negative outlook... And the pound sterling quickly became the G-10's worst performing currency on the day... For those of you wanting to know what's what with these ratings from S&P... When S&P imposes negative outlook they foresee a greater than 50% chance of downgrade within the next two years, this is compared to negative watch which implies a greater than 50% chance of downgrade within the next few months.

I said earlier that the euro (Big Dog) had seen little to no profit taking overnight, and was trading with a 1.38 handle this morning... It has just slipped below that level, as I prepare to go to the Big Finish... Data wise for the Big Dog, Eurozone PMI's (manufacturing indexes) surprised to the upside for this month. Now... It's true that this manufacturing data is still in negative territory, but this data supports the thought that the worst is behind the Eurozone... That remains to be seen... But for now, that's good news!

In Japan overnight... In yet another sign that the Fundamentals may have re-emerged, if for only one night, the yen rallied with the other currencies. Yes, this has not been the case for several months now. When the dollar rallied, yen rallied along with it... But not yesterday and last night... Yen pushed to a 94 handle for the first time in 2 months!

The data cupboard comes back with a plethora of data this morning... The Weekly Initial Jobless Claims prints first, followed by Leading Indicators and the Philly Fed Index (manufacturing for the region)...

And then there was Gold... And Silver! Year-to-date, Silver is outperforming Gold! Silver is up almost 25% this year, while Gold is up 6.6%. Our newest member to the currency and metals desk, Aaron Stevenson, pointed something out to me the other day regarding Silver... "the Gold/Silver ratio has increase to about 64 from 51 this time last year." Hmmm... Very interesting...

Speaking of Gold... I had a long discussion with a long time customer last week in Las Vegas at the Money Show. We were discussing Gold confiscation... Again, I said it before and I'll say it again, I don't believe the Gov't would do this again... But... The customer gave me something to think about. In "his scenario" the Gov't devalues the dollar, and pushes Gold to $10,000 an ounce... Well... Now that's "out there"... But as a Gold holder, I certainly would love to see $10,000 an ounce... My problem is that I don't want to see what the U.S. economy looks like with $10,000 Gold! It may not be worth it folks...

OK... Before I go to the Big Finish, I need to make certain everyone understands that the previous paragraph was just a "discussion" of scenarios... I'm not saying, and neither is my customer saying that we believe Gold is going to $10,000 an ounce! It was just a figure to use to see if I would "bite" at confiscation at that level!

Currencies today 5/21/09: A$ .7715, kiwi .6050, C$ .8765, euro 1.3795, sterling 1.5660, Swiss .9080, rand 8.3950, krone 6.4075, SEK 7.5990, forint 201.20, zloty 3.1850, koruna 19.35, yen 94.97, sing 1.4570, HKD 7.7525, INR 47.33, China 6.8247, pesos 13.03, BRL 2.0330, dollar index 81.18, Oil $60.73, Silver $14.25, and Gold... $940.67

That's it for today... $7 Billion more being injected to GM by the Gov't... The sound of that just doesn't give me a warm and fuzzy! I was sitting in the high school auditorium with my little buddy, Alex, last night at a meeting for football players and parents. Alex's football coach came up to him and told him he needed to "gain weight"... I had a major flashback... When I entered high school I weighed 125 pounds, and the football coach told me I needed to "gain weight", I tried and tried, but to no avail. The coaches even had me tested to see if I had a "tape worm"... But finally, the weight began to cling to me... And... After my football career was over, I had to fight to keep my weight down, now that I'm somewhat immobile, I really have a fight on my hands... And I can't stop thinking about how I needed to "gain weight" in high school! I told Alex, "I was a skinny kid like you at your age, look at me now... You had better be careful... Oh, look at how I've carried on with this story... Shame on me! I hope your Thursday is Thunderin'!

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