Search results matching tags 'Ben Bernanke' and 'TIC Flow'

Retail Sales Soar!

ChuckButler — Wed, 16 Sep 2009 14:20:00 GMT

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In This Issue..

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

And Now... Today's Pfennig!

Retail Sales Soar!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Another day for the currencies...

ChuckButler — Tue, 17 Mar 2009 13:48:03 GMT

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In This Issue..

* Disappointing data...
* Euro held ground...
* Down under...

And Now... Today's Pfennig!

Another day for the currencies...

Good day...And a Terrific Tuesday to you. Another Monday morning has come and gone but not before confirming the US economy is still heading down the wrong side of the slippery slope. The uneventful trading day from Friday certainly didn't carry over as we saw a sizeable run up in currencies along with equities during the morning session. As the day progressed, the equity markets shed their gains but most of the currencies remained resilient and held on. I guess I'll stop beating around the bush and get right to it...

It seems that Bernanke's calming approach during his interview with 60 Minutes gave investors the feeling that we are not as bad off saying the risk of a depression has been averted. He went on to say if the government succeeds in calming financial markets, the recession will probably end this year and the economy will expand in 2010.

It might be a bit early to make that call especially amid economic data that hasn't found a bottom yet. I understand the need for some type of positive news in order to boost fragile confidence, but I don't see much in the way of a foundation to provide longer term support.

The TIC flows, or foreign demand of US assets, were absolutely terrible as foreign investors ran for the hills taking their money with them in January. Net sales of long term equities, notes and bonds totaled $43 billion in January compared with a positive $34.8 billion in December. If you bring short term securities into the picture, foreigners sold a net $148.9 billion. All of this combined with China's concern about safety of their capital does not paint a rosy picture for funding the stimulus measures here in the US. The two largest holders of US Treasuries, China and Japan, did increase holdings but no where near previous figures.

Industrial production fell for the 4th consecutive month with its 11% year over year contraction marking the most since 1975. We saw a more than expected fall of 1.4% from January and capacity utilization, which measures the amount of factory capacity in use, falling to the lowest level on record. We have PPI, some housing numbers, and a measure of consumer confidence out today so maybe these figures will give us something to be hopeful about as yesterday's numbers were making me want to pull a Rip Van Winkle and wake up when its all over.

The euro had a nice little day as it shot up to 1.3072 on the back of the equity markets morning rally and G-20 policy makers saying they would double the IMF's resources. Monday marked the 5th day of gains against the dollar and is the longest such run we have seen in the past three months. One of the biggest concerns about the euro recently has been its exposure to eastern Europe but if the IMF has the ammo to step in, those worries should begin to subside.

The euro broke through a key resistance level of 1.2990 yesterday and has some technical traders looking to 1.31 and 1.3325 as possible destinations for the currency down the road. If investor risk tolerances continue to inch upward or if inflation shows any signs of going higher, the incentive to hold dollars at virtually zero yields will begin to fade. Risk aversion, at this point, continues to be the overall market mover. As we continue to say, the euro is the offset currency to the US dollar so any movement one way or the other will appear directly in the euro.

The Australian dollar and New Zealand dollar were both trading a little higher on the day as commodities held their own providing some support for the resource rich countries. The minutes of the RBA are due out today and could provide some insight into their decision to keep rates on hold earlier in the month. The odds of a .50% cut resulting from their April meeting have gone down a bit but still remain very high. An increased degree of apprehension still exists because of the poor GDP and employment numbers that came out after the last rate decision.

The Japanese yen has remained under pressure as it sold off and was contained within the 98 handle by the end of the day. As Chuck has pointed out several times in the past, the prospects of higher appreciation to the low 90s or high 80s are wearing off and has found a home near 100 for the time being. On the flip side of the risk barometer coin, the Brazilian real rose to a one month high of 2.2565 and has become the second best performing currency so far this year. Even though we like their commodity rich attributes, the fact that it remains an emerging market commands a higher tolerance for risk.

As I came in this morning, the euro was back up to 1.30 as German investor confidence unexpectedly rose but we are starting to see some signs of profit taking from US traders first thing here today. We'll see if that trend continues as the day wears on and how the dollar reacts to the results of today's numbers right out of the gate. Its on to the Big Finish...

Currencies today 3/17/09: A$ .6598, kiwi .5288, C$ .7885, euro 1.3017, sterling 1.4078, Swiss .8463, rand 9.8865, krone 6.7922, SEK 8.4556, forint 228.54, zloty 3.4267, koruna 20.3095, yen 98.63, sing 1.5328, HKD 7.7521, INR 51.3950, China 6.8370, pesos 14.0730, BRL 2.2842, dollar index 86.85, Oil $46.92, Silver $12.91, and Gold... 919.05

That's it for today...I almost forgot that it was St. Patrick's Day so needless to say I forgot to wear my green today. Its supposed to be a picture perfect day, pushing 80 degrees here in St. Louis, so that is welcomed news for those who are going to enjoy our parade and other St. Paddy's Day activities. Anyway, I'm running a little behind schedule today so top o' the morning to you on this fine day and have a Terrific Tuesday!

Mike Meyer
Assistant Vice President
EverBank World Markets
1-800-926-4922
1-314-647-3837

Waiting on the FOMC meeting...

ChuckButler — Mon, 15 Dec 2008 15:11:05 GMT

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In This Issue..

* FOMC to cut further...

* Bernanke turns his back on inflation...

* Kiwi and Australia rally...

* Gold continues to shine...

And Now... Today's Pfennig!

Waiting on the FOMC meeting...

Good day...and welcome to another week, hopefully the currency markets can continue their assault on the dollar which began a few weeks ago. The dollar index peaked back on November 21, and with the exception of a few days around the beginning of December, the greenback has consistently fallen vs. most of the major currencies. Friday was no exception, and the dollar continued to give back gains over the weekend with the Euro climbing back over $1.35 for the first time in two months.

This morning the markets are focusing on the Fed's Open Market Committee meeting and rate announcement which will come tomorrow. It is widely expected that Bernanke and his compatriots will push US interest rates close to just 0.5%, the lowest on records dating back to July 1954. From everything I've read over the weekend, this 50 basis point cut is pretty much a done deal, and currency traders are actually more interested in what the Fed's statement will say about 'alternative easing measures'. The rate announcement will come tomorrow at around 2:15 pm EST after a two day meeting. The FOMC meeting had originally been scheduled for just one day, but was extended so policy makers could study options for unusual steps to spur the economy. I guess they finally figured out that they are running out of room with the interest rate cuts!

The Feds newest weapon against the falling economy is 'quantitative easing', which the Bank of Japan used in the 1990's. This non-traditional method of easing centers around pumping money back into the financial markets as quickly as possible. The Fed has already started down this path by allowing its balance sheet to more than double in size after pumping over $1 trillion into financial markets. The markets are now expecting the Fed to announce it will start purchasing private sector mortgages to drive down home loan costs. By purchasing these bonds, the Fed would narrow the spread between their yields and yields on US Treasuries, and theoretically allowing banks to offer home loans at lower rates.

But the Fed has already pumped trillions into the banks in an effort to get them to start lending, so I'm not sure having the Fed narrow mortgage spreads will get these same banks to open up their lending windows. And even if the banks lower mortgage rates, they won't be lowering credit standards. Unemployment continues to rocket upward as more and more firms lay off workers. Do you think these banks are going to be willing to refinance someone who has just lost their job?

And what will be the long term impact of all of this 'quantitative easing'? The Fed is mashing on the money supply accelerator, totally ignoring the inflationary results which all of this will bring down the road. Ben Bernanke is smart enough to know the risks of the path he is speeding down, but right now he is choosing to ignore the consequences in an attempt to keep the economy from falling off the abyss. Some at the Fed believe they will be able to pull all of this added liquidity back out of the markets as soon as the economy starts to recover. But this is a very difficult thing to do, as the Fed would have to start pulling liquidity and increasing rates just as the economy is starting to turn. I think it is pretty obvious the 'experts' have a tough time calling the turning points, as it took them almost a year to call the recession!! And the consequence of missing the timing on pulling the liquidity back out of the market is much more drastic than mistiming the entry into the recession. Hyperinflation is waiting on the other side of this short term deflationary pause, and the Fed is currently looking the other way.

This weekend, President Bush announced that he is thinking about spending some of the TARP money which was set aside to stabilize the financial system to bail out the auto industry. This announcement caused a further sell off of the dollar as it is quickly losing its status as a safe-haven currency. Chuck was busy this weekend, but still found time to send me his thoughts:

"Well... We went to cut down our tree today, then watched Alex's basketball team get smoked! Put the tree up in a spiffy, with one of the greatest inventions of man kind, the swivel stand... And now I'm off to tell you what I've read about this weekend...

First though... A quote from Ronald Reagan... "The most terrifying words in the English language are: I'm from the government and I'm here to help"

OK, with that in mind, I wanted to discuss the bailout for the automakers, GM and Chrysler.

First of all, I know it will be tough for the autoworkers should they be laid off, especially at this time of the year. But, the problem here is the fact that the automakers have run their respective companies very badly, and now they expect the taxpayer to bail them out.

It was reported on Friday that the Gov't is "looking into" using TARP money for the automakers bailout since the Senate voted "no" to the $14 Billion plan.

First of all... Congress said nothing about helping carmakers, or any other non-financial business, in October when it authorized the $700 billion Troubled Asset Relief Program, or TARP. But yet, it is being discussed as the "funding source of funds"...

That fund was never designed to rescue manufacturing companies with long-term operational issues. It was designed to shore up confidence in the banking system in order to thaw the world's credit markets.

Our own David Nicklaus of the St. Louis Post Dispatch has this to say, which makes a whole lot of sense to me! "The Detroit Three have been losing market share for decades, and their bloated cost structure makes it difficult for them to turn a profit even in good times. They have too much debt, too many models, too many dealers and, sad to say, too many workers.

Congress seemed to view an auto bailout as a jobs program, and TARP is nothing of the sort. In fact, the Treasury has invested in Bank of America, which is eliminating 35,000 jobs, and Citigroup, which is slashing 52,000.

The Treasury program, as it's been used so far, at least lacks one of the worst features of the failed auto bill. Nothing in the TARP legislation allows the government to name a car czar."

Yes, a Car Czar... Those Czars worked out well for the Russians, eh?

But the thing that really gets my blood boiling folks, is the fact that if bailout had gone through with the Car Czar, it would have been one more nail in the free markets / business coffin, just another opportunity for those that want to run the country toward the socialist side of the ledger..."

That is one of the things I love about Chuck, you don't ever have to wonder where he stands on something!

As I started to say before I went off on my FOMC tangent, the dollar continued to give back ground vs. just about all of the major currencies over the weekend. The Euro was up over 1.2% vs. the dollar, and broke through the $1.35 handle. The only two currencies which sold off over the weekend were the South African rand and Brazilian real, which were down just slightly. In addition to the FOMC meeting and announcement, we will get the TIC flows, Empire manufacturing number, Industrial Production, and Capacity Utilization numbers today. Tomorrow will bring the CPI numbers along with housing starts, building permits, and ABC Consumer confidence. Wednesday will be a light data day with just the Current Account Balance reported, and Thursday will close out the data with the weekly jobs numbers along with Leading indicators.

The Australian and New Zealand dollars rose on speculation the FOMC will be cutting US interest rates. These two currencies will benefit from their higher rates with the US cutting rates to near zero. The currency markets have started to move back toward trading on fundamentals over the past few weeks, and interest rate differentials are one fundamental which favors the NZD and AUD. If the Fed's statement makes it known that interest rates will remain low for a long time, the dollar would likely fall further vs. the Aussie dollar, as the RBA has signaled that it is close to the end of its rate cutting cycle. Benchmark rates are nearly 400 basis points higher in Australia and New Zealand when compared with the same rates here in the US.

In a break with the recent trading pattern, the Japanese yen rallied along with the New Zealand and Australian dollars. A former Deputy Governor of the BOJ said Japan is probably not going to lower rates further; "with the interest rate already so low, a further reduction would have only limited impact." The central bank's Tankan survey today showed confidence among large manufacturers fell the most in 34 years as a deepening global financial crisis crimped export demand, forcing companies to pare production and fire workers. The yen's recent surge to a 13 year high has compounded woes for manufacturers.

Gold continued to rise over the weekend, pushing back up to an eight week high in London. The dollar's fall has spurred investors to move back into gold as an alternative investment. News that President Bush was looking to tap the bank bailout fund to keep GM and Chrysler out of bankruptcy spurred further purchases of gold. With the tremendous growth in the US money supply, and the FOMC turning their back on inflation concerns, precious metals should continue to gain ground. Gold is traditionally one of the best hedges against rising inflation.

Currencies today 12/15/08: A$ .6635, kiwi .5523, C$ .8138, euro 1.3473, sterling 1.4969, Swiss .8534, ISK 218, rand 10.1985 krone 6.9051, SEK 7.9963, forint 197.97, zloty 2.9644, koruna 19.428, yen 90.79, baht 34.88, sing 1.4773, HKD 7.75, INR 48.0512, China 6.85, pesos 13.5138, BRL 2.387, dollar index 83.15, Oil $48.52, Silver $10.36, and Gold... $827.60

That's it for today... The roads were a bit icy this morning, as we got a small taste of the ice storm which hit the Eastern states so hard over the weekend. But my drive into work was fantastic, as the 6 mile stretch of interstate running from my home to the office was reopened over the weekend. Some of the schools are closed this morning, so we will be shorthanded on the desk. Better get to work, hope everyone has a Marvelous Monday!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Paulson speaks with forked tongue...

ChuckButler — Wed, 17 Sep 2008 14:35:18 GMT

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In This Issue..

* Paulson speaks with forked tongue...

* Fed leaves rates unchanged...

* A look back at the data...

* Japan to weather the financial Tsunami...

And Now... Today's Pfennig!

Paulson speaks with forked tongue...

Good day...Another day, another $85 billion of US taxpayer used to bail out an ailing financial firm. Yes, our Treasury Secretary went on another shopping spree, and this time he was accompanied by Fed Reserve Chairman Ben Barnanke. Just two days ago, Paulson drew a line in the sand when he let Lehman Brothers collapse into bankruptcy. The non-action from Paulson was seen as a good move by most, as he was sending a signal to the markets that the US taxpayer couldn't be seen as the buyer of last resort for failed financial firms.

And Paulson talked tough with regard to AIG. Paulson was asked about reports that AIG wanted an emergency loan to help it through its troubles. "What is going on right now in New York has got nothing to do with any bridge loan from the government," he replied. "What's going on in New York is a private sector effort, again, focused on dealing with an important issue that's, I think, important that the financial system work on right now, and there's not more I can say than that.

But as we have seen in the past, Paulson speaks with a forked tongue. Just a day after making statements that he would not put any more taxpayer money at risk to bail out his Wall Street buddies, Paulson and Bernanke did just that, purchasing 79.9% of troubled insurer AIG for about $85 billion of tax payer money. The purchase was made after the two remaining 'healthy' investment banks passed on the deal. I read where investor Warren Buffet says his phone has been ringing off the hook, but the man who is arguably the world's smartest investor has decided to pass on all of these 'opportunities'. So US taxpayer money is being used to buy a company which couldn't get anyone else to lend them money. True, the press reported that the billions were just a 'bridge loan', but it really is nothing more than a bail out using taxpayer dollars. And how do you think the latest moves makes the folks over at Lehman feel? I guess they just weren't nice enough to Paulson and Bernanke during their days on Wall Street.

This latest move by Paulson/Bernanke reinforces a very bad precedent which they set with the bail out of Bear Stearns and Fannie/Freddie. The Fed has moved from its primary goal of price stability to 'purchaser of last resort' for ailing financial firms. Our fearless leaders are now making ad-hoc decisions on whom to help, setting new precedents for investors as regulators crowd out the market's own risk and reward incentives to manage exposures to ailing companies. As expected, the government bailout was top on his mind last night as he sent me the following in an email:

"So now the U.S. Treasury is bailing out AIG with conservatorship and an $80 Billion allowance for their newest member of the dysfunctional family. What's next? Oh, I already know, the Big 3 have asked for a Gov't check, and before you know it, Disneyland will be asking for an allowance from the Gov't! (OK, I used Disneyland to show how ridiculous this has gotten)

And... The Fed decided to leave rates unchanged... I'm shocked! All throughout this past year, I called for rate cuts by the Fed, because I thought that's what they would do, not what I thought they SHOULD do! And now, that I think they SHOULD have cut rates.... They leave them unchanged! Clueless, toothless, delusional, there's lots of descriptions for the Fed Heads, and I can't pick one, because they all fit!

And still... People buy dollars... If there isn't a thing called the PPT (Plunge Protection Team), then I'm a monkey's uncle! (when was the last time you heard that expression?) But just think about this long and hard folks... All this debt, and all the debt that has yet to be booked (baby boomers all retiring and wanting their payments is a start) has to be paid back... And how does the Gov't plan to do this? With cheaper dollars... With cheaper dollars... Say that to yourself a few times and you'll begin to wonder what's going on with people propping up the dollar! With cheaper dollars, folks... With cheaper dollars..."

The currency markets seem to be partially agreeing with Chuck, as the dollar is being sold across the board. But the moves aren't as dramatic as one would expect (PPT is working overtime). The Fed is monetizing debt at an unprecedented scale. The amount of debt we have put on the books just in the past 60 days is absolutely mind blowing. And the collateral we received for all of these loans? Mortgage backed securities backed by homes which are falling in value. The Fed even started to accept equities as collateral for loans. The fed knows that the toxic debt and equities which firms are posting with them are probably worthless, but they just keep taking them in and handing out more dollars. Yes, Bernanke has the printing presses working overtime. This is inflationary folks, and inflation will eventually destroy the value of our currency. No Plunge Protection Team will be able to combat the eventual fall of the dollar.

As Chuck mentioned above, the Fed kept interest rates unchanged yesterday, deciding to be more selective in their stimulus. This did help keep the dollar better bid, as they risked an all out freefall if they would have made a dramatic cut. But the market is still betting the FOMC will need to cut rates before they raise them again. I read where the odds makers have put the chances of a US rate cut by year end at 85%. Readers will remember that a change in rate expectations here in the US was one of the contributing factors for the dollars sudden rise two months ago. Now that rate expectations have again shifted, the dollar is in a pretty precarious position.

And the data released here in the US hasn't been dollar positive as of late. On Monday, the news of Lehman overshadowed the Empire Manufacturing data which showed a drop of 7.4 and industrial production fell 1.1%. Economists had predicted that both of these numbers would be positive. Capacity utilization was also released on Monday, and showed a drop to 78.7%, from an expected 79.6%. This number is important, as it shows factories are slowing production which doesn't bode well for employment in an already hard hit manufacturing sector.

Yesterday we saw Consumer Price data which reflected the easing of commodity prices over the past month. This data provided the FOMC with a little breathing room, and should allow them to seriously consider cutting rates at the next meeting.

We also saw the very important TIC flows, which showed foreign investors have started to back away from additional investments in the US. The Total Net TIC flows fell $74.8 billion in July, after increasing an adjusted $59,9 billion in June. This is a big number folks, and is dramatically different than the $40 billion expected by economists. As we have pointed out numerous times in the past, the US is dependent on foreign inflows of capital. After all, someone has to buy all of the debt which Paulson is using for his Wall Street spending sprees!! And it now looks like foreigners are finally pushing back from the table. This is scary folks, and does not bode well for the US$! In order to persuade foreign investors to come back to buying our debt, we will have to offer them higher rates, or cheaper dollars. I think a combination of the two is what will be demanded, and even then we may have trouble finding enough buyers for all of the new debt we are taking on.

Today we will get the Current Account Balance numbers, which are expected to show a 180 billion deficit. We will also get the latest information on Housing starts and building permits, both of which are expected to show a slight decrease from last month's numbers. Tomorrow we will close out the week's data with the jobs reports along with leading indicators which is expected to show another drop. Nothing in this data should be dollar positive.

The Japanese Yen and Swiss franc continue to benefit from the market volatility. Overnight the Euro and Pound sterling also ran up vs. the US$ and all four of these currencies have now rallied over 1.5% vs. the US$ over the past 5 days. Yes, the dollar correction could finally be over. Central banks around the world have been pumping funds into the credit markets to try and ease the pain being exported from Wall Street. Bank of Japan Governor Shirakawa downplayed concern that the US banking crisis will hurt the world's second largest economy and said Japan's financial system remains stable.

The BOJ left interest rates unchanged after their policy meeting today. The yen will likely continue to benefit from the deleveraging of financial markets, and the reversal of carry trades.

I just don't think the US$ can continue to hold up under the pressures being put on it. I think this may be a good time for those investors who have been sitting on the sidelines waiting for the dollar rally to finally end. Gold and silver look cheap to me also, with all of the market turmoil. Now on to the big finish:

Currencies today 9/17/08: A$ .7942, kiwi .6587, C$ .9398, euro 1.4222, sterling 1.7865, Swiss .8917, ISK 92.62, rand 8.1363, krone 5.827, SEK 6.765, forint 170.45, zloty 2.3531, koruna 16.911, yen 105.83, baht 34.29, sing 1.4357, HKD 7.7816, INR 46.42, China 6.839, pesos 10.7029, BRL 1.808, dollar index 78.71, Oil $93.79, Silver $10.765, and Gold... $780.78

That's it for today... Great day here yesterday, as we started it off with some good news from Chuck. Weather here is about as good as it gets, probably similar to what Chuck is enjoying down in San Diego. It is great news for me, as I am Chairman of my daughter's school picnic, scheduled for this weekend. The weatherman says we will have beautiful weather for it! Hope everyone has a Wonderful Wednesday!!

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Calling Out The Fed...

ChuckButler — Tue, 17 Jun 2008 14:10:29 GMT

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In This Issue....

* TIC's look funny...
* Germany's ZEW is weaker...
* A note from the Washington Post!
* Tons of data today...

And Now... Today's Pfennig!

Calling Out The Fed...

Good day... And a Terrific Tuesday to you! Well... Someone from the Washington Post is a Pfennig Reader (I think!), as there was a great article in the paper calling out the Fed on their "rate hike" rhetoric... I'll give you snippets of that, and a snippet from my friend, the Mogambo Guru, along with the usual currency talk, on this Terrific Tuesday... Ready, set, let's go!

Front and Center this morning is the dollar getting sold all day yesterday, as the euro recovered all the way to 1.5515 in the overnight markets. Unfortunately, the single unit was stopped in its rally tracks by an awful printing of German Investor Confidence, as measured by the think tank ZEW... German Investor Confidence dropped to the lowest level in 15 years this month, as rising inflation is eating away at the economy. I don't expect this report to put too much a dent in the single unit's performance today, but for now it has slipped back below 1.55...

You know, from reading each day, that I've been harping on the Fed's rhetoric about the dollar causing inflation and their renewed interest in inflation, which has given the markets the idea that interest rates were going to rise in the U.S. I have been adamant that the Fed has its hands tied, with rising unemployment, and a stagnant economy, and that their talk is simply words... Not actions!

Well... Someone else is paying as close attention as I am... Robert Novak had a piece in the Washington Post yesterday, that really opened some traders' eyes... (of course if they just read the Pfennig they would have had their eyes opened 10 days ago!) Anyway... Here's a snippet of his article...

"Speculation that the Federal Reserve is about to begin inflation-fighting interest rate increases appears to be dead wrong. Fed Chairman Ben S. Bernanke is worried more about runaway oil prices contracting the global economy than inflating it with a wage-cost spiral. According to sources close to him, America's leading central bank has no plans for a raise."

So... I wasn't out on the limb all by my lonesome! Now if the cheerleaders in the mass media would join the crusade to call out the Fed, then we would have something!

Before I go on to the currencies... Ty sent me a snippet of the Mogambo Guru's letter in which he calls out Big Ben Bernanke... Let's go to the tape...

"And the value of the money going down is felt by the impoverished people as a rise in prices, which brings us to the salient point that a new University of Michigan survey came out with the horrifying news that consumers expect inflation in prices to run at 5.2% over the next year, which is reportedly the highest 1-year expected inflation rate since 1982 or something!

It will be very interesting to see what Ben Bernanke, chairman of the Federal Reserve, does now, because he has always maintained (as laughably unbelievable as it sounds) that it is not actual inflation that is important to Fed policy, but inflation EXPECTATIONS! Hahaha! What a moron!
And now we have both!"

OK... So... The euro led the currencies on an all-day rally VS the dollar yesterday (minus Japanese yen) I would expect this rally to continue today, as U.S. data is not going to support a rallying dollar. Yesterday, we saw the TIC's Data, which measures the net security purchases by foreigners... The numbers were a little strange, and appeared to have some burn marks from overcooking... Here's what I mean...

The Total Net TIC Flows posted a positive $60.6 Billon for April, which is below the amount needed ($80-85 Billion each month) to finance the Current Account Deficit... But the curious burn marks appear on the March number, which was originally reported at $80.4 Billion? Well, the revision shows a negative -$42,7 Billion... What? I don't care what school you go to, that math just doesn't' work! You can't tell me that the preliminary number was that far off!

Remember folks, and here's another conspiracy theory, that the euro had just hit 1.60 in April, and the dollar looked like it was teetering... Then along came this overcooked number, showing foreigners were buying dollar assets, and the rot on the dollar's vine disappeared for the time being... Oh, and did you notice not one media outlet talked about this? Strange...

OK... I'm back from the sleuth conference! Today, we'll see the Current Account Deficit for the 1st Qtr... The experts think it will be steady as she goes at $172.5 Billion... I think they are wrong... I'll go back out on the thick limb and say I believe it will be closer to $180 Billion because of oil...

We'll also see the stupid PPI data... And more importantly, we'll see May Housing Starts and Building Permits... With foreclosures up 48% VS last year, I would have to think that these numbers would be weak. To close out the data prints today, we'll see my fave, Capacity Utilization, which should remain unchanged below 80%, and Industrial Production, which won't be great shakes... So... Nothing to support the dollar today if it all prints the way I think it will.

Did you see the price of Oil sniffing $140 yesterday? Well... It did, but immediately backed off once Saudi officials confirmed that they would be increasing production by 200,000 barrels a day... There was a report in the NY Times on Sunday that said Saudi officials had agreed to a 500,000 barrels a day increase... Don't know what 200,000 barrels a day can do to a price that looks as though its bound and determined to get to $150...

With the dollar wilting, and Oil soaring yesterday, Gold had its best performance in what seems to be a month of Sundays... The shiny metal just doesn't seem to be able to sustain these mini-rallies lately... But, I'm not worried about it, because I just don't see the commodity rally as over...

The Chinese renminbi moved below 6.90 last night... I hear that U.S. Treasury Sec. Paulson is on his way to visit the Chinese again... Hey Rocky, wanna watch me pull a rabbit out of my hat? Nothing up my sleeve... I just don't see why Paulson is wasting his time and taxpayers' money by going there... He's got nothing up his sleeve that the Chinese haven't seen, and they will smile and greet him, but then show him the door! What a waste!

I hear Argentina is having debt problems again... I hope this doesn't spill over to our new shining star, Brazil... The Brazilian real has remained strong VS the rallying dollar this month, which leads one to believe that once the dollar rally is in our rear view mirror it will kick some tail and take names later... But... That's just how it looks from the cheap seats... I could be wrong here...

Well... The weakness the euro saw after the ZEW report has gone away already! Now, someone could say that I went back and wrote that "I didn't think the ZEW report would put too much dent in the euro's rally"... But, you have to know me... Once I've written something, I do not go back and re-read it, change it, etc. it's all raw Chuck thoughts!

The good news is that I was right... Now let's see if the euro can go on a run here, and lead the other currencies to higher ground VS the dollar...

Currencies today 6/17/08: A$ .9410, kiwi .7560, C$ .98, euro 1.5505, sterling 1.9520, Swiss .96, ISK 79.85, rand 8.0125, krone 5.1750, SEK 6.0340, forint 159.15, zloty 2.1825, koruna 15.61, yen 108.05, baht 33.17, sing 1.3685, HKD 7.8080, INR 42.90, China 6.8915, pesos 10.31, BRL 1.6220, dollar index 73.63, Oil $132.60, Silver $17.18, and Gold... $883.70

That's it for today... I forgot to mention yesterday that we all had a great time at Busch Stadium last Friday night... The game was awful, but it was great to get together outside of the office and relax a bit... Good stuff! A nice game last night, as my little buddy Alex, got a hit to start a rally that led his team to an upset win over a select team that held 1st place... A late game that got me home around 10:30, and will have me yawning around noon today! A crazy day on the desk yesterday... And the rest of the week, they have me in all-day meetings, UGH! Meetings are like the plague to me... No business is done, and no profits are made! But, there's always a good lunch! HA! My beloved Cardinals renew their I-70 series with the K.C. Royals tonight... Every year when we play them, I get this image of Don Denkinger blowing "the call" at first base in 1985... UGH! OK, so it's time to hit the send button... I hope you have a terrific Tuesday!

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