Search results matching tag 'Consumer Confidence'

Germany & France Post 3rd QTR Growth...

ChuckButler — Fri, 13 Nov 2009 15:31:01 GMT

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In This Issue..

* Risk Aversion fuels dollar rally yesterday...
* Eurozone growth may stop the Risk Aversion...
* Budget Deficit is a record $176.4 Billion!
* Euro, Swiss, Aussie, Norway, all cheaper today!

And Now... Today's Pfennig!

Germany & France Post 3rd QTR Growth...

Good day... And a Happy Friday to one and all! Let's try to make this a Fantastico Friday as well! The Risk Aversion that was creeping into the currency markets yesterday really took hold in the U.S. trading session, which meant the dollar was being bought once more, along with Japanese yen...

It just makes me laugh out loud, when I write that the "safe haven currencies" during Risk Aversion trading are the dollar and yen... These two countries have debt up to their eyeballs, pay no interest on their deposits, and have a leadership deficiency... (ok, before every begins to think that I'm ripping the president again, I'm not... I'm talking about the Central Bank, and lawmakers of each country)

There was good news out of the Eurozone this morning... Both Germany and France followed their previous quarter's growth, with stronger growth in the 3rd QTR... The Eurozone's two largest economies continued to recover from recession in the 3rd QTR, as exports boosted both German and French gross domestic products. I say that, and I want to spit out a raspberry to all those that claim the European Union will collapse because of the strong euro! Neener, neener, neener... The largest economies of the Eurozone can grow, with strong exports even with a strong euro!

OK Chuck, no need to be childish here, let's get back to the growth... Germany's GDP rose 0.7% in the three months to Sept. 30. In France, GDP also grew for the second consecutive quarter, rising 0.3%.

So... Of course this data from the Eurozone put a floor under the euro's decline from yesterday... It will be interesting to see how the U.S. guys look at these growth numbers... The European guys liked them... The U.S. traders though can be very fickle...

And more than that though, I think this might be the thing to put the Risk Aversion to bed... Recent history tells me that whenever Risk Aversion has crept into the markets, any sign that Global growth is back on track, and will lead investors to higher yielding assets, the Risk Aversion ends abruptly... Let's hope that's the case today with these two growth reports from the Eurozone!

Yesterday's data in the U.S. showed that the Weekly Initial Jobless Claims remain above 500,000 per week, and that the Budget Deficit was even worse than the forecast $160 Billion! The Budget Deficit for October totaled $176.4 Billion, which annualized puts us over $2.1 TRILLION! OMG! That awful folks! And you should be writing, calling, or making your way to your representative's next meeting and demanding that they STOP SPENDING MONEY THEY DON'T HAVE!

You know that letter that I said I was going to write to my darling granddaughter, Delaney Grace, apologizing for the lack of freedom and tax burdens that were left to her generation to deal with? Well, I started writing it the other night... What this and the previous administration is doing has no morals, when it comes to leaving the debt to be dealt with by future generations...

OK, it's a Friday, I need to try to remain calm here, and be upbeat! Hmmm... Usually, that means that I pull out a story on Gold... But yesterday was not a good day for the shiny metal, after reaching a new all-time record level of $1,118, it fell more than $10 in the aftermath of the Risk Aversion... See how stupid the Risk Aversion people are? I mean, if you wanted to avert risk, wouldn't you buy Gold?

Any way, colleague, Don Ries, sent me a story that he came across regarding Gold that I thought was quite interesting... The Telegraph in the U.K. printed a story about how Barrick Gold believes we may have reached "peak" Gold already... And by that "peak" I'm talking about the mining of the shiny metal!

"Aaron Regent, president of the Canadian gold giant, said that global output has been falling by roughly 1m ounces a year since the start of the decade. Total mine supply has dropped by 10% as ore quality erodes, implying that the roaring bull market of the last eight years may have further to run. There is a strong case to be made that we are already at 'peak gold'," he told The Daily Telegraph at the RBC's annual gold conference in London."

WOW! Did you get the one line that was in there about how this lack of mining implies that the roaring bull market of the last eight years may have further to run? I think that's putting it conservatively for sure! "may have further to run?" I would say it stronger... But I can't... Or I'm not supposed to! ( our legal beagles read the Pfennig each day!)

OK... That put me back on track to be more upbeat for this Fantastico Friday! Today's data cupboard will yield the Monthly Trade Deficit data, and the U. of Michigan Consumer Confidence index... The Trade Deficit overhang continues to be a problem for the U.S., obviously not as bad as a problem as it was during the go-go days for the consumer...

Traders have become "comfortably numb" with the deficit figures in the U.S. which is a bad thing folks... Traders need to make a stand, and not allow this stuff to just slip under the door, thus allowing larger and larger deficits in the future!

I see the President is in China... I bet he thinks his presence will be the thing that will move the Chinese to allow greater currency flexibility... I just don't see the Chinese getting caught up in the "show" to give in and allow flexibility in their currency, just because the President of the U.S. showed up...

The currencies are rallying this morning VS the dollar. Since I came in and began writing, the euro has climbed higher, albeit a small move higher, it's still moving higher, and thus has stopped the bleeding, that began yesterday morning...

I'm surprised the Aussie dollar isn't really hitting on all 8 this morning, considering the growth numbers in the Eurozone... But I think we might have to wait for the U.S. traders to come in to see the rally in the A$ this morning... It is Saturday in Australia!

The Swiss franc got caught up in the Risk Aversion trading yesterday, and has backed off its ascent to parity... The franc is trading around .9855 this morning, which is more than 1-cent lower than yesterday morning... Wink, wink...

And a country / currency that I drop the ball on all the time, when it comes to talking about it in the Pfennig, is the Norwegian krone... Long time readers know that I truly like Norway, for their fiscal and monetary surplus prowess... And most recently, for their absence from the rolls of those countries that got involved in sub-prime and bad lending practices. Earlier this month, Norway's central bank, the Norges Bank, hiked rates 25 BPS, and is expected to raise them again in a month or two... So, now we have a country that has a strong fiscal and monetary position, no bad banks or loans, and a strong positive interest rate differential to the U.S.... Hmmm...

And then there was this... Neil Barofsky, the special inspector general for the $700 Billion TARP bailout said the program will "almost certainly result in a loss to taxpayers"... "We need to temper or be realistic about our expectations, a dollar-for-dollar return is just highly unrealistic." Barofsky also said that he's conducting 65 investigations of possible fraud...

OH MY! You're telling me that with the $700 Billion TARP funds that there could have been some fraud involved? I wouldn't have believed it! .... NOT! I bet you thought I had gone softy on you! The whole TARP was fraud to begin with! So, with all the corruption and scandals that have gone in before, the thought that there could be some fraud, should have been a belief that there "would be fraud for sure" when the TARP was issued!

Currencies today 11/13/09: American Style: A$ .9285, kiwi .7370, C$ .9495, euro 1.4890, sterling 1.6685, Swiss .9860, European Style: rand 7.4410, krone 5.62, SEK 6.8660, forint 180.80, zloty 2.76, koruna 17.10, RUB 28.83, yen 89.70, sing 1.3860, HKD 7.75, INR 46.34, China 6.8263, pesos 13.16, BRL 1.73, dollar index 75.39, Oil $77.45, 10-year 3.44%, Silver $17.36, and Gold... $1,109.30

That's it for today... Yes, today is a Friday the 13th... I don't get into that stuff, but if you do, be careful today! We're supposed to have another nice weekend here in St. Louis, weather wise, so we have that going for us! No football game this weekend though for my little buddy, Alex. I saw Chris Gaffney and his son Brendan on TV at the Blues game last night. The Blues lost the game though. UGH! Another week, and well be talking about Thanksgiving getting here so fast! The radio station that plays Christmas music every year, began broadcasting the Christmas music a couple of weeks ago! They used to at least wait until Thanksgiving came and went! Well... Let's get working on having a Fantastico Friday! And a Wonderful Weekend!

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

Consumer Confidence Drops!

ChuckButler — Wed, 28 Oct 2009 14:22:19 GMT

..But First, A Word From Our Sponsor..
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* 4 BRIC currencies: Brazilian real, Russian ruble, Indian rupee, Chinese renminbi
* High upside potential
* No market risk to deposited principal
* Low $1,500 minimum deposit

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

* The dollar continues to hammer!
* Jim Rogers on the dollar rally...
* C. Fred Bergsten talks of a dollar alternative...
* Lord Monckton's thoughts...

And Now... Today's Pfennig!

Consumer Confidence Drops!

Good day... And a Wonderful Wednesday to you! It's still raining here... Quite frankly, I don't know how people that live in rainy areas do it! I don't mind rainy days, as long as they are sprinkled in with the days of sunshine!

Well... The dollar rally that began for a number of rumored reasons continued on yesterday... Remember when I said on Monday that the data this week should show us that the economy is healing somewhat, which would be bad for the dollar? Well, that thought got cold water thrown on it yesterday when Consumer Confidence surprisingly declined last month...

You know how I like to question just what people that were surveyed for this Consumer Confidence report are so confident about? Well, apparently, the Conference Board surveyed the wrong people this month! Consumer confidence in the U.S. declined in October to 47.7 versus expectations of a 53.5 reading. Both consumers' perceptions of current conditions and their expectations for the future declined. Hmmm...

So, Consumer Confidence is fading this month? That sure wasn't the outcome I was expecting... Sure, I would have questioned the dolts that were confident as people that obviously had no idea what was going on, but still, these people that get surveyed had not allowed negativity to enter their minds before, why was this month different? Maybe... Just maybe, people are waking up to smell the coffee that's brewing... And with that I mean, the deficit situation here in the U.S. and all the games the Gov't, the Fed, and Treasury are playing to pull the wool over our eyes... You think? Do you really think that's the case? Because if it is, then the next step is to stand up and shout out loud that you want Government to stop spending! Shout it, Shout it, Shout it out loud! And if they won't listen to you, fire them the next chance you get!

So... The dollar continues with this rally that began Monday mid-morning... One of our fave old friends, Jim Rogers was in the news last night... Let's listen in to what Jim had to say! "Everybody is pessimistic on the dollar, whenever you have everybody on the same side of the boat, you know what you have to do. We may have a rally in the dollar, a decline in Commodity prices or stock prices for a while." He went on to say that while there may be a rally in the dollar, it won't be "sustainable"

He also said something that goes right along with my "Treasury Bubble Story"... Rogers said, that he "certainly wouldn't be buying U.S. Treasuries, and couldn't imagine lending money to the U.S. government for long periods of time."

You know what? I don't think I could imagine that either! So... One has to wonder, just when the Chinese and Japanese begin to feel this way? It's not like we've spent the money and won't have a need to borrow again... The Gov't is finding new ways to spend money! The Budget Deficit is forecast to be $9 Trillion for the next 9 years! And that was before the Gov't got their hands on these "new ways to spend money"!

And getting back to what Jim Rogers said in about the dollar... Isn't this the same thing I've been warning about for a couple of months now? So, this shouldn't sound like anything new to Pfennig Readers... I've warned that the stock market was overbought, and that the U.S. economy was going to do a double dip, which would cause stocks to sell off, and that stocks would probably drag the other risk assets of non-dollar currencies and commodities along with them...

But again, this kind of move, just like the one in 2005, and the one from July 2008 to Feb 2009, will not be sustainable! There's trading themes, and there's trends that are moved by fundamentals... The fundamentals will win out eventually... And when the markets get all the excesses out of their system, the fundamentals will be there like that navy suit... Always in style, always dependable, always there for you!

This next story is very interesting indeed... Here's the skinny... C. Fred Bergsten, the former Treasury executive, is warning that dollar deficits might no longer be funded by foreign nations, including China! He also wrote in the current issue of the Council on Foreign Relations' Foreign Affairs magazine that he would recommend that the White House join with the international community in creating an alternative to the dollar for international trade... What? Are you kidding me?

This is not a joke folks... This is a real person, that is well respected... And he's telling the White House to help create an alternative to the dollar for international trade? That's like telling the fox he can guard the hen house!

That story leads me to this one... Quite a few readers have asked me to talk about this and while I wasn't sure I would, because it's so political, it now plays well with story I just told you about!

Have you heard of Lord Monckton? Well... He gave a speech in Minnesota last week, that you can find on U-Tube. In the speech he says that he has read the global climate change bill, and that if our President signs it, he will be signing away our sovereignty, our prosperity, our freedoms, for global rule...

So... We have the global rule rumors and the global currency rumors back to back! I'm not here to debate what Lord Monckton said, for all I know he's bang on with this thoughts... My thing is to point out that there's smoke... And you know me... Where there's smoke, there's fire...

Is this the method the U.S. will use to get us from beneath this deficit rock? I certainly hope not! And that's all I'll say about that! Now at least!

Remember my rant about allowing bad corporations to fail and not bailing them out? Well, I took a lot of heat on that one from some readers that didn't agree, and that's OK... But to my point... GMAC Financial Services and the Treasury Department are in advanced talks to prop up the lender with its third helping of taxpayer money.

The U.S. government is likely to inject $2.8 billion to $5.6 billion of capital into the Detroit company, on top of the $12.5 billion that GMAC has received since December 2008.

Another example of throwing good tax payer money at bad money...

Remember last week when I told you about the Pay guy (I refuse to call him a Czar!) was getting the Gov't involved in pay cuts for the bailed out firms? Hmmm... It was reported yesterday by the Wall Street Journal that while he cut total compensation by half, he substantially increased one important element -- regular salaries, according to a Wall Street Journal analysis. The move reflects the complexity of regulating something that mixes politics and economics. Yes, indeed it does!

So... I've gone on and on this morning about what we have to look forward to in our future (near?)... What about what's going on today? Well... As I said yesterday, Norway's Norges Bank will announce a rate hike this afternoon... They will be the first European Central Bank of raise rates, and the third overall Central Bank to raise them. We all know that the Reserve Bank of Australia (RBA) raised rates first... But who was second? Ahhh... In a not so publicized move, the Bank of Israel raised rates second!

Norway is experiencing accelerating home prices and the Norges Bank has to step in before another housing bubble gets started. No, the Norwegian economy isn't going great guns, but the recovery is going on, and a rate hike here would probably nip the housing price acceleration in the bud... The question remains of will the Norges Bank be aggressive with the rate hike and go for 50 Basis points (1/2%) or just 25 Basis Points (1/4%)? If they have any intestinal fortitude they'll go for the 50! But the markets expect them to be gradual about their approach to raising rates... And so, 25 BPS will probably be the announcement this afternoon.

Gold has really gotten the snot knocked out of it recently... Gold is trading more than $30 per ounce less than it was 10 days ago! And this plays well with the comment above about risk assets being dragged down by stocks... You know my thoughts on price drops in Gold... Need I say more?

And then there was this... Just when you thought the yield on the 10-year Treasury was going to keep moving higher... An invisible hand sweeps down and knocks the yield back 10 Basis points! Well... In this case, it's probably more "safe haven buying" driving the price up and the yield down, than it is hanky panky from the Fed... You would think that anyone that played this "safe haven" game before and got burned badly would not go down that road again... But... Maybe they didn't even realize that they took losses on their "safe haven" purchase! HA!

To recap... The dollar is on the warpath, as a drop in Consumer Confidence in the U.S. has investors dumping risk assets again. C. Fred Bergsten, former Treasury official, recommends the White House to participate in forming a new alternative currency for international trade and dump the dollar, and we talk about Lord Monckton's speech about the climate change bill... Norway will raise rates today, and safe haven buying seems to be on the docket once more.

Currencies today 10/27/09: A$ .9035, kiwi .7335, C$ .9315, euro 1.4780, sterling 1.6325, Swiss .9785, rand 7.7610, krone 5.7190, SEK 7.0425, forint 184.75, zloty 2.8830, koruna 17.8380, RUB 29.29, yen 91, sing 1.4015, HKD 7.7507, INR 47.35, China 6.8281, pesos 13.26, BRL 1.75, dollar index 76.24, Oil $78.86, 10-year 3.43%, Silver $16.46, and Gold... $1,033.05

That's it for today... Well... Thanks for all the kind notes regarding my cancer update... The did find the problem in my left leg... I have a blood clot! UGH! I'm not taking this one as well as I did the one in my right leg after my surgeries! But, we'll get it dealt with, and move on... I know that some of you don't like these health updates, but many do... I forgot a trip when I was talking about my upcoming travel yesterday... At the end of January I'll be heading to San Antonio... Time to batten down the hatches once again... And the World Series starts tonight... Good thing Colorado didn't make it to the World Series, they would be "snowed out"! OK... Time is here today... Time! I hope your Wednesday is Wonderful!

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

S&P breaks its up trend; but just barely; one more day to grin and bare it..

steven j cook — Wed, 28 Oct 2009 13:36:00 GMT

Economics

   This Week’s Data

    The International Council of Shopping Centers reported weekly sales of major retailers rose 0.1% (the fifth gain in a row) versus the prior week and 2.4% on a year over year basis; Redbook Research reported month to date retail chain store sales up 0.7% versus the comparable period in 2008.

    The August Case Shiller home price index increased 1.3% versus July with nearly all regions showing gains.
    http://mjperry.blogspot.com/2009/10/biggest-3-month-gain-since-2005-for.html
    http://bespokeinvest.typepad.com/bespoke/2009/10/august-caseshiller-housing-numbers.html

    The Conference Board’s October index of consumer confidence fell to 47.7 versus the September reading of 53.1 and expectations of 53.5.
    http://econompicdata.blogspot.com/2009/10/consumer-lack-of-confidence.html

    Weekly mortgage applications fell (again) 5.2%.
    http://www.calculatedriskblog.com/2009/10/mba-mortgage-applications-decrease_28.html

    September durable goods orders rose 1.0% versus expectations of +1.5% and August’s number of -2.6%.

   Other

    This article is very long but a great analysis of the problems facing the dollar:
    http://www.nationalinterest.org/Article.aspx?id=22348

    Why the stimulus plan didn’t work (medium):
    http://www.american.com/archive/2009/october/about-that-stimulus-the-shovel-wasnt-ready

    A really interesting piece on government debt (medium):
    http://www.nakedcapitalism.com/2009/10/all-debt-is-not-created-equal-government-debt-is-not-the-same-as-private-debt.html

Politics

Domestic

And why the ‘public option’ won’t work (medium):
http://article.nationalreview.com/?q=MGUzNjdiMWVlNGQ4ZjhiY2Q0ZTcyMTc5M2E1MmEwZTE=

International War Against Radical Islam

The Market

    Technical

    The Market entered another of those nonconfirmation phases yesterday. The DJIA (9882) closed within the up trend off its March low (9810-11738); while the S&P (1063) traded below the lower boundary of that up trend (1069-1311).

    As you know, I have been getting increasingly pessimistic about the intermediate term price movement in stock prices. However, yesterday’s S&P performance simply wasn’t sufficiently demonstrative to make me want to grab dates and run. Yes, it challenged the S&P up trend and busted it. But as you know, I tend not to accept a one day violation of a trend line as a break unless it is by a big percentage (distance). When we get a wimpy penetration like yesterday that was as much a function of the trend line rising as it was of the S&P being down, I want the index to remain below the up trend line for several days (time) before accepting it as a legitimate violation of the trend. So as negative as I sounded in yesterday’s Morning Call, I not going to allow myself to get stampeded by a fractional break of a trend.

    That said, nothing happened yesterday to make me less negative--the VIX rose again; it is still didn’t break the down trend, but is getting closer. More disturbing was the dollar which did violate its current down trend. If this challenge proves out, we see a lift in the dollar and the inverse dollar/stock price correlation holds, this is would not be good for stock prices. Hence, I remain very skittish.

    The latest from TraderFeed:
    http://traderfeed.blogspot.com/2009/10/morning-briefing-for-october-28th.html

    And Trader Mike:
    http://tradermike.net/2009/10/october_27_2009_stock_market_recap

   Fundamental

    The latest from Bill Gross (long):
    http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2009/Midnight+Candles+Gross+November.htm

     Headlines

    Nothing major stood out yesterday as was reflected in the inconsistent performances of the Averages. But there were several conflicting items which probably explains the basically directionless day. They include (1) conflicting economic data--the positive numbers we got from Case Shiller on housing prices offset by the poor consumer confidence results (see above) and (2) the strong dollar [suggesting higher interest rates] countered by a strong Treasury auction [contributing to lower interest rates].

Economic Recovery vs. Rising Unemployment

GaryHalbert — Tue, 27 Oct 2009 21:28:00 GMT

IN THIS ISSUE:

Overview of Recent US Economic Trends
Snapshot of the Latest Economic Data
Fed's "Beige Book" Sees Modest Improvement
Unemployment: The 800-Pound Gorilla in the Room
Conclusions - Storm Clouds on the Horizon

Eyes around the world are intently focused on this Thursday's advance estimate of 3Q GDP in the US. Everyone is anxiously awaiting the report which will signal whether or not the US economy moved into positive territory in the July-September quarter. Pre-report GDP estimates are all over the board, ranging from -1% to +3% or more. I can't recall another quarterly GDP report that was this uncertain in terms of pre-report estimates than this one.

As I have reported over the last couple of months, most economic reports of late have suggested that the US economy is coming out of the recession a little sooner than many of us expected earlier this year. In the pages that follow, we will review the latest economic reports in the hopes of giving us a little more insight as to what we may learn on Thursday with the release of the 3Q "advance" GDP estimate.

While the GDP report on Thursday is generally expected to be positive, we all know that the unemployment rate continues to rise, now at 9.8%, and likely headed even higher just ahead.

While most economists concur that the jobless rate will move even higher for at least several more months, recent data paint a grim picture for the likelihood of the unemployment rate falling significantly anytime soon.

And the truth is, the real unemployment rate in the US is now at 17%, if the government reported all of the people who are out of work and those who are having to work part-time because they can't find a full-time job. This week, I will give you all of the unemployment numbers, not just the official unemployment rate which now stands at 9.8% and rising.

Finally, most forecasters believe the economy will rebound, at least modestly in 2010, and I don't disagree. Yet few are offering forecasts beyond 2010 because no one knows what will happen if President Obama doubles the national debt in the next 5+ years. All I can say is that I don't believe this liberal experiment will end pretty, and I will have more to say about it in the weeks and months ahead.

Overview of US Economic Trends

Global attention will be intently focused on Thursday's 3Q GDP report as it is widely expected to show that the US economy emerged from the worst recession since the Great Depression. As noted above, not all pre-report GDP estimates are positive, but most are as I will discuss below.

But before we get to the latest estimates for Thursday's GDP report, let's quickly review the quarterly GDP data for 2008 and the first half of 2009. Here are the official annualized numbers:

1Q 08	2Q 08	3Q 08	4Q 08	1Q 09	2Q 09
-0.7%	+1.5%	-2.7%	-5.4%	-6.4%	-0.7%

On September 30, the Commerce Department released its third and final GDP report for the 2Q, showing the economy contracted at an annual rate of -0.7%, as compared to its prior estimate of -1.0%

As you can see, the worst of the recent economic slump occurred in the last half of 2008 and the first quarter of this year as the housing/credit crisis played out. But it should also be pointed out that the US economy was already slowing down its growth rate even before the latest recession. GDP growth was only 2.7% in 2006 and 2.1% in 2007 (annual rates).

Most economists agree that apprx. 3% annualized growth in GDP represents the average rate of growth in the US economy in the post-WWII era. Periods of growth below 3% represent "below-trend" time windows, while periods above 3% indicate "above-trend" examples. Clearly, the US economy has been growing at below-trend rates for the last several years.

With that perspective, let's look at the latest economic reports.

Gary D. Halbert, ProFutures, Inc. and Halbert Wealth Management, Inc.
are not affiliated with nor do they endorse, sponsor or recommend the following product or service.

Snapshot of the Latest Economic Data

The consensus view based on recent economic and financial data is that the US economy is coming out of the credit crisis and recession. The National Association for Business Economics (NABE) recently surveyed leading economists, and over 80% believe the recession is over and an expansion has begun, but they expect the economic recovery will be slow as worries over unemployment and high federal debt persist.

"The survey found that the vast majority of business economists believe that the recession has ended but that the economic recovery is likely to be more moderate than those typically experienced following steep declines," said NABE President-elect Lynn Reaser, chief economist at Point Loma Nazarene University.

Most of the forecasters surveyed had upgraded their economic outlook for the next several quarters, but cautioned that unemployment rates and the federal deficit are expected to remain high through the next year. On balance, the economists now expect the economy, as measured by GDP, to advance at a 2.9% pace in the second half of 2009, after falling for four straight quarters for the first time in more than 50 years. On average, they expect GDP to gain 3% in 2010. I wish I were so optimistic.

The best news in recent months has been in the Index of Leading Economic Indicators (LEI), which has long been one of my favorite economic benchmarks. The LEI has risen for six consecutive months, with a strong increase of 1.0% in September, following +0.6% in August.

The LEI rise over the last six consecutive months, alone, would suggest - with the benefit of hindsight - that the recession was coming to an end. The six-month rise in the LEI gives credence to positive forecasts for the 3Q GDP number and perhaps the 4Q as well. Beyond that, it is anyone's guess.

For the benefit of our many newer readers, the Index of Leading Economic Indicators is, for the most part, a compendium of economic indicators: new orders, jobless claims, money supply, average workweek, building permits, and stock prices. The LEI is maintained and reported by the Conference Board (www.conference-board.org).

Consumer confidence is arguably the next major indicator of the direction of the economy, since consumer spending accounts for roughly 70% of GDP. Since rising sharply in April-May-June, the Consumer Confidence Index has gone basically sideways since then.

The other widely followed measure of consumer confidence is the University of Michigan Consumer Sentiment Index. After reaching a new recent high of 73.5 in September, the UM Consumer Sentiment Index fell to 69.4 earlier this month as announced on October 16.

Consumer spending is generally gauged by two economic reports, both of which are generated by the Commerce Department. One is the monthly retail sales report which dipped slightly in September. However, if we revise this retail sales report to exclude auto sales (which plunged last month due to the end of the "cash-for-clunkers" rebate program in August), retail sales actually increased marginally (+0.5%) in September, following a 2.2% gain in August.

The other widely followed indicator of consumer spending is the Commerce Department's "personal consumption expenditures" (PCE) measure, which is a part of the quarterly GDP reports. Americans increased PCE by 0.6% in the 1Q, only to see it decline by 0.9% in the 2Q. We will get our first look at 3Q PCE on Thursday with the latest GDP report.

Regardless of which report we use to gauge retail sales, the results are not eye-popping. Yes, consumer spending is finally on the rise in the wake of the recession, but we are far from out of the woods.

On the manufacturing front, things continue to improve at least modestly. The ISM Index basically was flat in September at 52.6. Industrial production rose 0.7% in September. The factory operating rate rose to 70.5% in September from 69.9% in August. Construction spending rose 0.8% in August (latest data available). The ISM Services Index rose to 50.9 in September, another indication that the recession may be ending.

And finally, on the housing front, there was more encouraging news last Friday. The National Association of Realtors reported that sales of existing homes rose 9.4% in September. The inventory of existing homes on the market declined slightly last month, and the decrease in home sale prices was somewhat less than was expected.

Fed's "Beige Book" Sees Modest Improvement

The Federal Reserve publishes an economic report eight times per year (roughly every six weeks) that is based on surveys conducted by the Fed's 12 regional banks that continually collect economic data within their respective regions. This periodic economic report is called the Fed's "Beige Book," and the latest report was released last Wednesday.

Basically, the latest Beige Book indicated that the US economy is continuing to improve, albeit very modestly, in most (but not all) regions of the country. The survey indicates that the economy, while gaining momentum, has yet to overcome weaknesses in bank lending and employment. According to the report, unemployment continued to rise last month in 23 US states, giving the Fed additional reasons to hold the main interest rate at a record low to stoke a recovery.

In particular, Federal Reserve district banks identified commercial real estate as the weakest part of the economy, while most saw "stabilization or modest improvements" in areas including housing and manufacturing. All 12 district banks reported a weak or declining commercial real estate market. You may recall that I wrote about the problems in commercial real estate in great detail in my September 29 E-Letter, so my readers should not be surprised.

While the latest Beige Book tried to present a guardedly optimistic outlook for continued economic recovery, it included several prominent caveats, such as: "Reports of gains in economic activity generally outnumber declines, but virtually every reference to improvement was qualified as either small or scattered." The report also demonstrated how heavily many businesses are relying on government spending in the face of huge contractions in the private sector.

Unemployment: The 800-Pound Gorilla in the Room

It is widely estimated that over 7 million jobs have been lost since the recession began in late 2007. The unemployment rate rose to 9.8% in September, with the "official" number of job losses at 263,000 last month. That is the highest unemployment rate since June 1983.

Most forecasters expect the US unemployment rate to continue to climb until sometime in mid-2010 when the rate is expected to peak somewhere north of 10%.

As many of you know, the official Labor Department unemployment rate is quite misleading in several ways. While it is useful as an indication of the trend in the unemployment rate, it actually understates the real percentage of Americans who are out of work.

The official unemployment rate that is announced every month does not include: 1) workers who have had to settle for part-time jobs because they can't find full-time jobs; and 2) Americans who have given up looking for a job.

If laid-off workers who have settled for part-time work or have given up looking for new jobs are included, the true unemployment rate rose to 17% in September. Here is the actual data from the Labor Department:

Table A-12.

Alternative measures of labor underutilization
Seasonally adjusted rates as of September 2009:

U-1 Persons unemployed 15 weeks or longer, as a percent of the civilian labor force	5.4%
U-2 Job losers and persons who completed temporary jobs, as a percent of the civilian labor force	6.8%
U-3 Total unemployed, as a percent of the civilian labor force (official unemployment rate)	9.8%
U-4 Total unemployed plus discouraged workers, as a percent of the civilian labor force plus discouraged workers	10.2%
U-5 Total unemployed, plus discouraged workers, plus all other marginally attached workers, as a percent of the civilian labor force plus all marginally attached workers	11.1%
U-6 Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers	17.0%
NOTE: Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not looking currently for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule. For more information, see "BLS introduces new range of alternative unemployment measures," in the October 1995 issue of the Monthly Labor Review. Updated population controls are introduced annually with the release of January data. (Source: Bureau of Labor Statistics Economic News Release - October 2, 2009)

All told, 15.1 million Americans (17%) are now out of work, the Department said. And an estimated 7.2 million jobs have been eliminated since the recession began in December 2007.

The Labor Department said 571,000 of the unemployed dropped out of the work force last month, presumably out of frustration over the lack of jobs. That sent the so-called "participation rate," or the percentage of the population either not working or looking for work, to a 23-year low. The unemployment rate would have topped 10% if the labor force hadn't shrunk again in September.

Older, laid-off workers are dropping out and requesting Social Security at a faster-than-expected pace, according to government officials. The Social Security Administration reported earlier this month that applications for retirement benefits are 23% higher than last year, while disability claims have risen by about 20%.

Meanwhile, the number of people out of work for six months or longer jumped to a record 5.4 million in September, and they now make up almost 36% of the unemployed, also a record. Making matters worse, weekly wages fell $1.54 to $616.11 in September, according to the Labor Department. Also, the average hourly work week fell back to a record low of 33 hours in September.

Unemployment to Remain High for Years to Come,
Even if the Economic Recovery Gets Stronger

With the unemployment rate so much higher than most expected, and headed higher still, more and more analysts are trying to determine how much job creation will be required to bring us down to 5% unemployment. Many economists and analysts consider that 5% unemployment is the equivalent of "full employment," since there will always be some percentage of the working population that is unemployed at any given time.

The job creation numbers required to get us from the current 9.8% unemployment to 5% unemployment, at this point, are simply staggering. And they are likely to get even worse, since we are likely headed for at least 10% unemployment in the months ahead.

As noted above, well over seven million jobs have been eliminated since late 2007. Most economists agree that most of these jobs have been eliminated permanently. Also as noted above, there are now 15.1 million Americans (17%) who were out of work, or forced to work part-time, as of the end of September.

In addition to the 15.1 million Americans who are out of work, most economists agree that apprx. 1 million new people enter the US job market every year (high school and college grads, legal immigrants, etc.). So not only does the economy need to grow by enough to re-employ 15 million unemployed, it also must create another 1 million jobs each year to provide for new entrants to the labor force.

With 15 million out of work already, and with the labor force expanding by more than 1 million new workers annually, economists Joseph Seneca and James Hughes of Rutgers estimate that even the robust job growth of the 1990s (2.4 million new jobs a year) wouldn't reduce today's 9.8% unemployment to 5% until 2017.

We increasingly hear about the so-called "jobless recovery" that we are likely facing. With the economy still losing over 250,000 jobs per month, it is a real stretch to assume that we will get anywhere near the 1990s pace of adding an average of 200,000 jobs per month (2.4 million annually). For example, the Business Roundtable, a group of CEOs from large corporations, said earlier this month that only 13% of its members expect to increase hiring over the next six months.

As these numbers continue to sink in, we are hearing new calls for more federal aid to state governments, a further extension of unemployment insurance (now up to 79 weeks) and a tax credit for companies that create new jobs. One such proposal would give employers a $7,000 tax credit for each additional worker hired (over some base period).

The W.E. Upjohn Institute for Employment Research thinks such a credit might create two million jobs. Sounds good on paper, perhaps, but the budgetary cost to the government would likely be $40 billion annually or higher.

As you will likely recall, President Obama rammed through his massive $787 billion "stimulus package" back in February, largely on the promise that it would create jobs. What he didn't tell us was that most of the money would not be spent this year, and that much of the money would go for pork-barrel spending programs over the next few years that won't create large numbers of jobs in the first place.

Supporters of the stimulus argue that without it, unemployment would be even worse than it is now and suggest that the stimulus spending in 2010 and 2011 will boost the economic recovery significantly. That remains to be seen, of course. I tend to doubt it.

Conclusions - Storm Clouds on the Horizon

Economic and financial reports continue to support the idea that we have seen the worst of the economic recession and the credit crisis, as I have suggested in recent weeks. Most estimates suggest that the economy, as measured by GDP, will show a positive number for the first time in over a year with this Thursday's advance 3Q GDP report.

Pre-report estimates are all over the board, and some analysts believe the report could show 3Q growth of 3% or more. Of course, we must all keep in mind that year-over-year comparisons of 3Q 2009 to last year's 3Q should make this year look pretty darned good in any event.

But the bigger problem is that unemployment continues to rise and is likely to do so until at least sometime in the first half of 2010, reaching well over 10% in the official number. As I have explained in detail above, the official unemployment rate significantly understates the real unemployment rate, which is now at 17%, as admitted by the Labor Department.

Despite the continuing unemployment trend, most forecasters believe that the US economy came out of the recession in the 3Q. Likewise, most mainstream forecasters believe that 2010 will be a year with at least modestly higher growth rates. Most estimates I read suggest the US economy will grow by 1.5%-3% in GDP next year. That remains to be seen, however.

Yet the most interesting thing for me is that we are seeing very few forecasts for 2011 and beyond. Usually, forecasters are more than happy to provide multi-year economic projections, so why not now? The reason is, in my opinion, that no one has a clue what the long-term effects will be as a result of President Obama's plans to run trillion-dollar deficits for the next several years at least and double the national debt in possibly the next five years.

The US dollar continues to fall as I discussed in detail last week. While I don't believe the dollar will be replaced as the world's "reserve currency" in the near-term, the long-term prospects for the dollar are questionable at best, especially if Obama doubles the national debt over the next 5-plus years. At some point, foreigners who buy our massive debt may decide to stop buying dollars, or worst case, begin to unload dollars.

If that were to happen, the implications for the US financial markets would be enormous. That could cause a financial crisis that dwarfs the one we've just been through. Maybe we do see an economic recovery in 2010 as most economists predict. But I want to go on record in predicting a "double-dip recession" in 2011 and perhaps beyond, especially if the dollar accelerates its decline. Space does not allow me to go into my reasons for this prediction this week, but I will be writing more about it in the weeks and months ahead.

Gary D. Halbert, ProFutures, Inc. and Halbert Wealth Management, Inc.
are not affiliated with nor do they endorse, sponsor or recommend the following product or service.

Stocks Up 60% - Now What?

If the current troubling economic forecast doesn't call for a defensive investment approach, I don't know what does. Stocks have exploded since the March lows, with the S&P 500 Index up almost 60%. Now, more than ever, you may want to consider active management strategies that can move to cash or hedge long positions should stocks switch direction just ahead.

We recently sponsored live webinars featuring two of our recommended Investment Advisors. The overwhelming response we received shows us that investors are beginning to realize that the market can't continue to go up forever, and that market euphoria will run into economic reality at some point.

Increasingly, sophisticated investors are increasingly turning to professional money managers that can take advantage of whatever remains of the stock market upside, but that also have the ability to move to cash, or hedge long positions, when the current bull market rally plays out.

Fortunately, we recorded both of these webinars and have placed them on our website. I urge you to check out both the Potomac Fund Management and Niemann Capital Management webinars. Both of these Advisors have actual track records going back well over a decade, so they are not recent entrants in the field of active money management. Click on the following links to learn more about how these professional money managers add value to their clients' investments.

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SPECIAL ARTICLES

Why Government Health Care Keeps Falling in the Polls
http://online.wsj.com/article/SB10001424052748704335904574495131591949574.html

Is the healthcare "public option" really back?
http://www.realclearpolitics.com/articles/2009/10/27/if_public_option_is_really_back_why_such_a_heavy_lift_98890.html

The Dethroning of King Dollar (an interesting read)
http://www.weeklystandard.com/Content/Public/Articles/000/000/017/124jwyuq.asp?pg=1

RBA's Stevens Turns On The Green Light!

ChuckButler — Fri, 16 Oct 2009 15:21:59 GMT

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In This Issue..

* The dollar bounces back a bit...
* Euro retreats from highs...
* Is the economic recovery for real?
* Ignored data...

And Now... Today's Pfennig!

RBA's Stevens Turns On The Green Light!

Good day... And a Happy Friday to one and all! I believe it will be a Fantastico Friday as well, because when I go in my car this morning to come to work, the radio was playing, "It's a Beautiful Morning"... It had to be a sign, right? I certainly hope so any way!

Well, I'm back! I have to say that I've never been to the mountains of North Georgia before, and they are beautiful... Well, most of the parts of this great country are, when I come to think of it! Well, it was nice to walk in the door yesterday and sit down, close my eyes, and get work off my brain!

So... That lasted about 2 hours, and then it was back to the news wires to see what was going on with the currencies. So, now that we've got the housekeeping out of the way, we had better go Front and Center with the story o' the day... (Well, in my mind any way!)

So, Front and Center this morning, we've got the Aussie dollar (A$) rallying strongly, and a lot of that move is coming to us by way of an interview with Reserve Bank of Australia (RBA) Gov. Stevens...

Gov. Stevens when asked at a breakfast function in Perth whether the RBA had any tools to prevent speculators driving the A$ to US$ 1.10

Mr Stevens replied that, rather than speculators, there usually was a rational reason for big exchange rate movements... (Ok Mr Stevens I guess you are going to tell us what that rational reason is for the A$'s big move?)

"We've got one of the better-performing economies in the world. Even at very low interest rates, we still have a positive differential and we're a country where the people here are, I think, reasonably confident about the future and foreigners are fairly confident about our future, and it's not entirely surprising that they're a bit keen on the currency."

WOW! The RBA Gov. said that? That's amazing! Of course it's true, it's true, and I've told you that for months now, but to hear the RBA Gov. say it, now that's a horse of a different color, indeed!

OK... So... The RBA Gov. gave the green light to currency traders, investors, and whomever else to take the A$ to $1.10... Now, will it ever get there? Well, that's a different thing altogether! I remember last year, before the HUGE deleveraging that went on, and then the collapse of Lehman Brothers, that the A$ was marching toward parity to the U.S. dollar, and when the you know what hit the fan, the risk assets got the snot knocked out of them, including the A$... I had said that I thought the A$ could make it to parity, and when it got stopped at the border, and had only reached 98-cents, you should have seen the emails, accusing me of mis-leading people... Come on! 98-cents is so close to parity, it can taste it!

So, it is with a weariness in even reporting this story, that I will make this point... I DIDN'T SAY THE A$ WOULD GO TO $1.10!!!!! I JUST TOLD YOU WHAT THE RBA GOV. SAID WHEN ASKED ABOUT THE A$ GOING TO $1.10!

Well... The Big Dog, euro was really taking a shot at the dollar overnight, but has backed off in a bout of profit taking, I'm sure... The single unit went as high as 1.4970 overnight, but has backed off to 1.49 as I write... I got a kick out of a quote that I saw the other day by European Central Bank (ECB) President, Trichet, that..."The euro was not created as a reserve currency"... Oh! Come on Jean Claude! You know darn good and well that the euro was created to compete with the dollar! You guys in Euroland, were determined that a single unit covering several countries, could work... It was a precursor, if you will, to what we're hearing about more and more these days... A global currency... So... Call it what you want Jean Claude... I know, and now all of my readers know that the euro was created to be a reserve currency in waiting...

OK, maybe that wasn't really clear... I know, I hear you saying, yeah, Chuck, clear as mud! But, the point is simply that Trichet once again was trying to defend the dollar in a kind of back-handed way... By downplaying the euro's ability to be a reserve currency... The other stuff is just Chuck talking about his greatest fears... And we don't need to have him go any further there!

OK... I'm back, I was away for a minute, and I came back to consciousness and saw that two paragraphs had been typed... I had better go back to see what my alter-ego wrote, but, nah... We'll throw it out there anyway!

The news wires are filled with stories today about how the dollar is going to bounce here, because the selling has been too hot and heavy in recent days, and that the economic recovery is too strong to warrant a currency sell off like we've seen... Well, that's all good, as long as one truly believes that the economic recovery here in the U.S. is on the up and up...

Do you believe it to be? I don't! I wish I could... But I don't! Not when the unemployment is so bad, and the little pulse that we see in the economy is from the Gov't's efforts to pump life into the economy... But this unemployment thing is absolutely awful folks...

Alrighty then, let's go on to something else... The Canadian dollar / loonie has really been on a roll VS the green/peachback dollar... Canada will print their latest CPI (consumer inflation) this morning, and I think it will tell us a lot about loonie's ability to continue to move toward parity once again... The Bank of Canada (BOC) meets next week, and long time readers will recall that I've been pretty hard on the beaver (BOC) in recent months, as they kept saying that they would leave rates at current levels until the 2nd half of 2010... And they well should have been taken to the woodshed for those comments... Well, if Canadian CPI shows some inflation pressures, it will be down to the BOC's meeting next week, to see if they change their previous stance... I think they will, and thus the loonie will continue to move higher VS the dollar... But that's just my opinion, folks, I don't have a crystal ball, and I could very well be wrong! (That's for the legal beagles!)

Today's data cupboard here in the U.S. will be interesting in that the TIC's data will print, but for the most part, this VERY IMPORTANT PIECE OF DATA has been largely ignored by the markets... Why is that? Well, I don't really know, but if I were to put my conspiracy hat on, I would say something like that the markets have been directed by the Gov't NOT to make a big deal out of, to downplay the Gov't's inability to finance the deficit, for if that were to be the case, it would be curtains for the dollar!

We'll also see two of my faves... Industrial Production, and Capacity Utilization... For all the new readers to the Pfennig, I particularly like Capacity Utilization, and always have for that matter, because it's about the only "forward looking" piece of data (along with Leading Indicators)... So... Capacity Utilization is running around 69%... What does that tell us? It tells us the economy sucks! And don't believe those that keep telling you the coast is all clear!

And then since no one pays attention to those three pieces of data, the U of Michigan Consumer Confidence will print and THAT WILL catch everyone's attention! UGH! Even with a soaring stock market, I would have to think that Consumer Confidence would be taking a hit of sorts... It would be difficult at best to do a survey these days about Confidence and not run into quite a few negative thoughts from all the unemployed Americans!

And then there was this from the Wall Street Journal... "High unemployment in the U.S. has led to rising charge-offs and delinquencies at credit card companies. The firms are reacting by limiting credit, raising the bar on lending standards and cutting back on loan portfolios."

So... Again, this is just another reason why I don't believe the economic recovery campers!

And to add to that thought... Have you noticed the huge jump in the oil price? And have you been charting the rise in Treasury yields? Well... Either of these look good for the U.S. consumer... Oil has jumped to $77 a barrel, and the 10-year Treasury yield has really pushed higher to 3.47%! ( I guess it's time for the Fed to buy some more auctioned Treasuries to bring the yield back down, eh?) But... These two things are very good, when not manipulated by the Gov't at telling us about the future...

OK, to recap... The A$ is pushing higher toward parity with the dollar once again, and when asked about what the RBA can do to stop the A$ from going to $1.10, RBA Gov Stevens basically gave the all clear to traders to take it there! The euro had moved to 1.4970 overnight, but is seeing some profit taking this morning, and the data cupboard has some important data this morning, but for the most part the markets will ignore it...

Currencies today 10/16/09: A$ .9220, kiwi .7440, C$ .9685, euro 1.4915, sterling 1.63, Swiss .9830, rand 7.3420, krone 5.5915, SEK 6.95, forint 179.40, zloty 2.8220, koruna 17.2550, RUB 29.63, yen 91.10, sing 1.3940, HKD 7.75, INR 46.24, China 6.8267, pesos 13.05, BRL 1.70, dollar index 75.56, Oil $77.35, 10-year 3.47%, Silver $17.39, and Gold... $1,049.88

That's it for today... Well, I'm sure this come as a shock to the boys and girls here, but today is Boss's Day! I hear that it's been quite wild here since I left, that's a good thing! Hey! Our Ty Keough was named to the St. Louis University Billiken 50th year soccer team! Congrats Ty! The picture of you in college that the University posted is AWESOME! And then, I wanted to give my own congrats to our little Christine, for her performance in the Chicago marathon last weekend... Good show! Little Delaney Grace came over to try on her Dorothy dress for Halloween, and my beautiful bride made... She performed for us on the fireplace hearth, singing somewhere over the rainbow! What a CUTIE! And she's only 2! My little buddy, Alex, has two football games this weekend... So, I'll be doing a lot of sitting on bleachers this weekend! OK, I had better stop there, and get this out the door! I hope your Friday is Fantastico!

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

Are sales data the key to this quarter's earnings reports?

steven j cook — Wed, 30 Sep 2009 13:27:00 GMT

Economics

   This Week’s Data

    The International Council of Shopping Centers reported weekly sales of major retailers rose 0.1% versus the prior week and 0.9% on a year over year basis; Redbook Research reported month to date retail chain store sales fell 2.2% versus the comparable period in 2008.

    The July Case Shiller home price index rose 1.7%; it was the third increase in a row and prices rose across the country.
    http://mjperry.blogspot.com/2009/09/us-home-prices-increase-for-third-month.html

    The Conference Board reported its September index of consumer confidence at 53.1 versus expectations of 57.0 and 54.1 recorded in August.

    The August Chicago purchasing managers index came in at 50.0, unchanged from July and below estimates of 52.0

    Weekly mortgage applications fell 6.2%.

   Other

    The president of the World Bank sees the role of the dollar as a reserve currency diminishing (medium):
    http://www.nytimes.com/2009/09/29/business/economy/29dollar.html?_r=1

    The International Monetary Fund raises its estimate of world growth (short):
    http://www.reuters.com/article/ousivMolt/idUSTRE58T0XQ20090930

    A look at oil production/demand/reserves (long):
    http://www.aspousa.org/index.php/2009/09/interview-with-sadad-al-husseini/

    Good news from Japan (short):
    http://econompicdata.blogspot.com/2009/09/japanese-industrial-production.html

Politics

Domestic

Late Tuesday two votes were defeated in the Senate Finance Committee on the public option. Numerous democrats voted against it..

Curbing free trade to save it (short):
http://www.cato-at-liberty.org/2009/09/28/curbing-free-trade-to-save-it/

International War Against Radical Islam

The Market

    Technical

    The Averages (DJIA 9742, S&P 1060) remain within their up trends off the March low (9343-11184, 1038-1268). Volume continues at a very low level, the VIX barely moved. Breadth was much better than prices indicated.

    I expressed some concern about the Market’s technical strength because of last Wednesday’s ‘outside reversal’ but clearly nothing has come of it. Nothing to date has been sufficient cause to push prices down beyond a mild couple of day correction.

    Along those lines, there is a graph in this link of past recoveries (click on it to enlarge it). Note that the first serious correction (slowdown), excluding the Great Depression, in the other recoveries didn’t occur till 170-200 days off the bottom. Currently we are circa 145 days depending on how you mark the March bottom.
    http://www.calculatedriskblog.com/2009/09/market-update.html

    Here is a history of the largest single day declines and advances in stock prices. Note that four of the five largest declines occurred in October (short):
    http://bespokeinvest.typepad.com/bespoke/2009/09/92908-the-day-sevens-werent-lucky.html

    Gauging Market strength from the advance/decline data (short):
    http://traderfeed.blogspot.com/2009/09/gauging-trend-status-with-intraday.html

    Thoughts from Trader Mike (short):
    http://tradermike.net/2009/09/september_29_2009_stock_market_recap

   Fundamental

    Five things that could spook the Market in October (long):
    http://www.cnbc.com/id/33072415//

       Headlines

    The economic data dominated early trading. The Case Shiller home price index lifted investor optimism; but that was quickly squelched by the poor consumer confidence index (see above). As an aside, notwithstanding yesterday morning’s sell off following the release of the confidence index, historically the sentiment indices tend to have very little impact on stock price direction.

    There were three earnings reports of large companies yesterday. I stated in last week’s Closing Bell:

‘The first sign that ‘earnings are returning to a more normal........growth’ will most probably be looked for in the upcoming third quarter financial reports, which are not that far away; and the key stat will be revenue growth. Recall that the big knock from the bears during the surprise second quarter earnings season was that business had done a great job cost cutting but the real test of a sustained recovery was revenue growth of which there was little. I suspect if we see sales growth in these coming reports, stocks can continue their up trend; if not, then we may get that larger pull back in stock prices for which the bears have been panting.’

So naturally I was focused as much on their revenue comparisons as I was with the earnings. Walgreen’s revenues were up and in line with expectations; profits were better than estimates--the stock was up big. Nike’s revenues were down; but it was against comparisons with the quarter that the Olympics occurred. Earnings were much better than forecast, the stock was up big. Darden Restaurants sales were less than expected even though earnings were much better than anticipated--the stock was down big,

If we only had to deal with the Walgreen and Darden reports, it would be easy to conclude that the hypothesis regarding revenue was right on. Nike’s release makes it messier. Is the thesis correct and investors are just forgiving of Nike because the comparable period was an unrealistic comparison? Or was the Walgreen/Darden juxtaposition a coincidence? We need more data--actually even if NKE had fit the hypothesis to a T, we would need more data. Nevertheless, my point is that there is a hint that revenues in this quarter’s reports will be a major factor and a determinant of whether the next move up in stocks is up or down. Keep your eyes on the revenue numbers at least until we see if a pattern develops.

Oops, Did I Say That Out Loud?

ChuckButler — Thu, 24 Sep 2009 14:36:53 GMT

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In This Issue..

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

And Now... Today's Pfennig!

Oops, Did I Say That Out Loud?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Protectionism Wars, Here We Come!

ChuckButler — Mon, 14 Sep 2009 14:30:32 GMT

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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...

ChuckButler — Fri, 11 Sep 2009 15:28:01 GMT

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

An Uncomfortable Choice

JohnMauldin — Sat, 29 Aug 2009 17:59:00 GMT

An Uncomfortable Choice
What Were We Thinking?
Frugality is the New Normal
And Then We Face the Real Problem
The Teenagers Are in Control
Choose Wisely
Argentina, Brazil, Uruguay, New Orleans, Detroit, and More

We have arrived at this particular economic moment in time by the choices we have made, which now leave us with choices in our future that will be neither easy, convenient, nor comfortable. Sometimes there are just no good choices, only less-bad ones. In this week's letter we look at what some of those choices might be, and ponder their possible consequences. Are we headed for a double-dip recession? Read on.

An Important Announcement

But first, I want to make a very important announcement. There are not many times in a career when you can say that something new has been created in the financial services industry and that you have been a part of it. But now I can say that and, I must admit, with a little pride in helping to bring a new creation into the world.

For years, Steve Blumenthal and I have shared a passion for bringing Absolute Return Strategies to all investors, not just the wealthy and institutional investors.

I want to introduce you to a new mutual fund, one that is different than the typical long-only equity mutual fund. My friends and partners at CMG have created a mutual fund that is comprised of 9 different trading strategies, a "fund of trading strategies," so to speak; and it's one that I believe will be strategically suitable for the economic environment that I think we face. And, as a mutual fund, it is open to all investors.

You can learn more about it by reading a report I have prepared, entitled "How to Deal with Volatility in Extraordinary Markets - Introducing the CMG Absolute Return Strategies Fund." Simply click here.

If you are an investment advisor or broker, you especially should read about this new fund and contact CMG directly for more information and reports. Full disclosure: as a consultant to the Advisor to the fund, my investment advisory firm does participate in the fees. And be sure and read all the disclosures and risk factors in the document.

And now, let's look at the choices we face.

An Uncomfortable Choice

As our family grew, we limited the choices our seven kids could make; but as they grew into teenagers, they were given more leeway. Not all of their choices were good. How many times did Dad say, "What were you thinking?" and get a mute reply or a mumbled "I don't know."

Yet how else do you teach them that bad choices have bad consequences? You can lecture, you can be a role model; but in the end you have to let them make their own choices. And a lot of them make a lot of bad choices. After having raised six, with one more teenage son at home, I have come to the conclusion that you just breathe a sigh of relief if they grow up and have avoided fatal, life-altering choices. I am lucky. So far. Knock on a lot of wood.

I have watched good kids from good families make bad choices, and kids with no seeming chance make good choices. But one thing I have observed. Very few teenagers make the hard choice without some outside encouragement or help in understanding the known consequences, from some source. They nearly always opt for the choice that involves the most fun and/or the least immediate pain, and then learn later that they now have to make yet another choice as a consequence of the original one. And thus they grow up. So quickly.

But it's not just teenagers. I am completely capable of making very bad choices as I approach the end of my sixth decade of human experiences and observations. In fact, I have made some rather distressing choices over time. Even in areas where I think I have some expertise I can make appallingly bad choices. Or maybe particularly in those areas, because I have delusions of actually knowing something. In my experience, it takes an expert with a powerful computer to truly foul things up.

Of course, sometimes I get it right. Even I learn, with enough pain. And sometimes I just get lucky. (Although, as my less-than-sainted Dad repeatedly intoned, "The harder I work the luckier I get.")

Each morning is a new day, but it is a new day impacted by all the choices of the previous days and years. Tiffani and I have literally interviewed in depth well over a hundred millionaires, and talked anecdotally with hundreds over the years. I am struck by how their lives, and those of their families, come down to a few choices. Sometimes good choices and sometimes lucky choices. Often, difficult ones. But very few were the easy choice.

What Were We Thinking?

As a culture, the current mix of generations, especially in the US, has made some choices. Choices which, in hindsight, leave the adult in us asking, "What were we thinking?"

In a way, we were like teenagers. We made the easy choice, not thinking of the consequences. We never absorbed the lessons of the Depression from our grandparents. We quickly forgot the sobering malaise of the '70s as the bull market of the '80s and '90s gave us the illusion of wealth and an easy future. Even the crash of Black Friday seemed a mere bump on the path to success, passing so quickly. And as interest rates came down and money became easier, our propensity to acquire things took over.

And then something really bad happened. Our homes started to rise in value and we learned through new methods of financial engineering that we could borrow against what seemed like their ever-rising value, to finance consumption today.

We became Blimpie from the Popeye cartoons of our youth: "I will gladly repay you Tuesday for a hamburger today."

Not for us the lay-away programs of our parents, patiently paying something each week or month until the desired object could be taken home. Come to think of it, I am not sure if my kids (15 through 32) have ever even heard of a lay-away program, not with credit cards so easy to obtain. Next family brunch, I will explain this quaint concept. (Interestingly, I heard about a revival of the concept on CNBC radio, coming back from dropping Trey off at school this morning. Everything old is new again.)

As a banking system, we made choices. We created all sorts of readily available credit, and packaged it in convenient, irresistible AAA-rated securities and sold them to a gullible world. We created liar loans, no-money-down loans, and no-documentation loans and expected them to act the same way that mortgages had in the past. What were the rating agencies thinking? Where were the adults supervising the sand box?

(Oh, wait a minute. DThat's the same group of regulators who now want more power and money.)

It is not as if all this was done in some back alley by seedy-looking characters. This was done on TV and in books and advertisements. I remember the first time I saw an ad telling me to call this number to borrow up to 125% of the value of my home, and wondering how this could be a good idea.

Turns out it can be a great idea for the salesmen, if they can package those loans into securities and sell them to foreigners, with everyone making large commissions on the way. The choice was to make a lot of money with no downside consequences to yourself. What teenager could say no?

Greenspan keeping rates low aided and abetted that process. Starting two wars and pushing through a massive health-care package, along with no spending control from the Republican Party, ran up the fiscal deficits.

Allowing credit default swaps to trade without an exchange or regulations. A culture that viscerally believed that the McMansions they were buying were an investment and not really debt. Yes, we were adolescents at the party to end all parties.

Not to mention an investment industry that tells their clients that stocks earn 8% a year real returns (the report I mentioned at the beginning goes into detail about this). Even as stocks have gone nowhere for ten years, we largely believe (or at least hope) that the latest trend is just the beginning of the next bull market.

It was not that there were no warnings. There were many, including from your humble analyst, who wrote about the coming train wreck that we are now trying to clean up. But those warnings were ignored.

Actually, ignored is a nice way to put it. Derision. Scorn. Laughter. And worse, dismissal as a non-serious perpetual perma-bear. My corner of the investment-writing world takes a very thick skin.

The good times had lasted so long, how could the trend not be correct? It is human nature to believe the current trend, especially a favorable one that helps us, will continue forever.

And just like a teenager who doesn't think about the consequences of the current fun, we paid no attention. We hadn't experienced the hard lessons of our elders, who learned them in the depths of the Depression. This time it was different. We were smarter and wouldn't make those mistakes. Didn't we have the research of Bernanke and others, telling us what to avoid?

In millions of different ways, we all partied on. It wasn't exclusively a liberal or a conservative, a rich or apoor, a male or a female addiction. We all borrowed and spent. We did it as individuals, and we did it as cities and states and countries.

We ran up unfunded pension deficits at many local and state funds, to the tune of several trillion dollars and rising. We have a massive, tens of trillions of dollars, bill coming due for Social Security and Medicare, starting in the next 5-7 years, that makes the current crisis pale in comparison. We now seemingly want to add to this by passing even more spending programs that will only make the hole deeper.

Frugality is the New Normal

I could go on and on, but I think you get the point. The time for good choices was a decade ago. It would have been more difficult at the time, so that is not what we did. And now we wake up and are faced with a set of choices, none of them good.

Reality is staring back in the mirror at the American consumer, and especially the Boomer generation. The psyche of the American consumer has been permanently seared. We are watching savings beginning to rise and consumer spending patterns change for the first time in generations. Even as the authorities try to prod consumers back into old habits, they are not responding. Borrowing and credit are actually falling. Banks, for whatever reason, now want borrowers to actually be able to pay them back. Go figure.

Frugality is the new normal. We are resetting the underpinnings of a consumer-driven society to a new level. It will require a major overhaul of our economy. The normal drivers of growth - consumer spending, business investment, and exports - are all weak, and it is only because of massive government spending that the second quarter was not as bad as the two previous quarters and that the coming quarter will be positive.

But what then? How long can we continue with 10%-plus GDP deficits? We have an economy that is in a Statistical Recovery, fueled by government largesse. In the real world, we are watching unemployment rise, and it is likely to do so through the middle of next year. Deflation is in the air. Capacity utilization is near all-time lows. Housing numbers are only bouncing because of the government program of large tax credits for first-time home buyers and lower home prices. It will be years before construction is significant.

We will be faced with a choice this fall and early next year. If you take away the government spending, the potential for falling back into a recession is quite high, given the underlying weakness in the economy. A few hundred billion for increased and extended unemployment benefits will not be enough to stem the tide. There will be a groundswell for yet another stimulus package. Another 10% of GDP deficit is quite likely for next year.

As I (and Woody Brock) have made very clear in these e-letters, deficits that are higher than nominal GDP cannot continue without dire consequences. Good friend Richard Russell writes today:

"The US national debt is now over $11 trillion dollars. The interest on our national debt is now $340 billion. This is about at 3.04% rate of interest. In ten years the Obama administration admits that they will add $9 trillion to the national debt. That would take it to $20 trillion. Let's say that by some miracle the interest on the national debt in 10 years will still be 3.09%. That would mean that the interest on the national debt would be $618 billion a year or over one billion a day. No nation can hold up in the face of those kinds of expenses. Either the dollar would collapse or interest rates would go through the roof."

That would be at least 30% of the national budget. How would your household do, paying that much as interest? How can you operate when interest payments are 30% or more of the budget? Do you borrow to pay the interest? And the Obama administration openly admits to deficits of over a trillion a year for the next ten years, under very rosy growth assumptions. Anyone outside of Washington and rosy-eyed economists think we will grow 4% next year? I am not seeing many hands go up.

And Then We Face the Real Problem

If we do not maintain high deficits, it is likely we fall back into recession. Yet if we do not control spending, we risk running up a debt that becomes very difficult to finance by conventional means. Monetizing the debt can only work for a few trillion here or there. At some point, the bond market will simply fall apart. And it could happen quickly. Think back to how fast things fell apart in the summer of 2007. When perception of the potential for inflation changes, it changes things fast.

The problem is that we are now in a very deflationary world. Deleveraging, too much capacity, high and rising unemployment, falling real incomes, and more are all the classic pieces of the formula for deflation.

Let's look at what my friend Nouriel Roubini recently wrote. I think he hit the nail on the head:

"A combination of higher official indebtedness and monetization has the potential to yield the worst of all worlds, pushing up long-term rates and generating increased inflation expectations before a convincing return to growth takes hold. An early return to higher long-term rates will crowd out private demand, as lending rates on mortgages and personal and corporate loans rise too. It is unlikely that actual inflation will emerge this year or even next, but inflation expectations as reflected in long-term interest rates could well be rising later in 2010. This would represent a serious threat to economic recovery, which is predicated on the idea that the actual borrowing rates that individuals and businesses pay will remain low for an extended period.

"Yet the alternative - the early withdrawal of the stimulus drug that governments have been dispensing so freely - is even more serious. The present administration believes that deflation is a worse threat than inflation. They are right to think that. Trying to rebuild public finances at a deflationary moment - a time when unemployment is rising, and private demand is still contracting - could be catastrophic, turning recovery into renewed recession."

There are no good choices. Nouriel, optimist that he is (note sarcasm), suggests that there is a possibility that the government can manage expectations by showing a clear path to fiscal responsibility that can be believed. And thus the bond markets do not force rates higher, thereby thwarting recovery.

And technically he is right. If there were adults supervising the party, it might be possible. But there are not. The teenagers are in control. Instead of fiscal discipline, we are hearing increased demands for more spending. Please note that the very rosy future-deficit assumptions assume the end of the Bush tax cuts at the close of 2010. But raising taxes back to the level of 2000 does not make the projected future budget deficits go away.

I mean, seriously, does anyone think Pelosi or Reid are going to lead us to fiscal constraint? Obama talks a good game, but he has not offered a serious deficit-reduction proposal, other than further tax increases. And by serious, I mean we need cuts on the order of several hundred billion dollars. The Republicans lost their way and their power (deservedly, in my opinion). Just as at the high school prom, the very few adults are being ignored.

It is the proverbial rock and the hard place. Cut the stimulus too soon and we slide back into a deeper recession. Let the budget spin out of control for a few years and we will see inflation return, with higher rates and a recession. Raise taxes by 1.5-2% of GDP in 2010 and we are shoved back into recession.

There are no good choices. If we do the right thing and cut the deficit, it means very hard choices. Can we keep our commitments to two wars and our massive defense budget? Medicare and Social Security reform are not painless. Education? Research? The "stimulus"? But cutting the deficit by hundreds of billions while raising taxes by even more than is already in the works, is not the formula for sustainable recovery.

Have we grown up? Are there adults in the room? Sadly, I don't think there are enough. We are still a nation of teenagers. We will do whatever we can to avoid the pain today. We will kick the can down the road, hoping for a miracle. Will we grow up? Yes, but the lessons learned will be hard.

There are no statistical signs of an impending recession. We are not going to get an inverted yield curve this time, which made it relatively easy for me to predict recessions in 2000 and 2006. We are in a deflationary, deleveraging world. A far different world than in the past.

I see little room for us to avoid a double-dip recession. It would take the skill and speed of former Cowboys running back Tony Dorsett hitting a very small hole in the line to break us into the open. I see no running back in our national leadership with such ability. As I have outlined above, recession could be triggered again in any number of very different economic environments. It all depends on the choices we make. But the choices lead to the same consequences, at least in my opinion.

As I wrote in August 2000 and August 2006, I write again in August 2009: there is a recession in our future. I was early both of those times and I am early now, maybe two years early, though I doubt it. And as I pointed out both of those last times, the stock market drops an average of over 40% during a recession. When I was on Kudlow in October of 2006, I was given a hard time about my recession call and prediction of a bear market. I think it was John Rutherford who dismissed my bearish vision. And he was right for the next three quarters, as the market proceeded to rise another 20%. I looked foolish to many, but I maintained my views.

You have choices. You can buy and hold (buy and hope?) or you can develop a strategic alternative. The next bear market, as I wrote in 2003 and in Bull's Eye Investing, will likely be the bottom. (It takes at least three of them to really take us to the bottom.) But the next one will change perceptions for a long time. Valuations will drop. Savings will rise even more. And a generation will grow up. The adults will return. Chastened. Scarred. Shaken. But we will Muddle Through. That is what we do. Even my teenagers.

Choose wisely.

Argentina, Brazil, Uruguay, New Orleans, Detroit, and More

Only a month ago my fall schedule looked surprisingly light. And then reality hit. I will be at the Schwab conference in San Diego on September 15. If you are going to be there, drop me a note. That is my only trip in September. But then it gets interesting. I celebrate my 60th birthday the first weekend of October, then fly to New Orleans to be at the annual New Orleans Conference, October 8-11. The speaker line-up is better than ever. I find this to be one of the best conferences I go to very year. I have been attending on and off for over 25 years. You should think about this one. http://www.neworleansconference.com/speaker-eblast-JohnMauldin/

Then I will spend the next weekend in Detroit, then probably go to New York, then Philadelphia for a CMG conference October 20, then down to Houston, over to Orlando, stop to change clothes and pack at home, and then fly off on a whirlwind trip to Argentina, Brazil, and Uruguay, speaking at a series of CFA conferences. Orlando in mid-November ... and nothing else so far. Switzerland and London in January.

I recently did an interview with King World News that was quite frankly one of the best interviews I have ever done. Eric King really got me going. It is in two parts. I give you the link to the first part, and the second is in their archives. There are also interviews with a very serious group of names. I am flattered to be included. Click here.

It is time to hit the send button. I am resisting the temptation to launch into politics, so I need to quit before I do. Suffice it to say, we could see some big changes as we work through our teenage years, back to adulthood.

Speaking of good choices, the wedding last weekend was fabulous. I am delighted with my new son-in-law. Life goes on, even as my kids struggle to get enough hours of work and money. Henry is at UPS, and work hours are way down and they have a new son. Chad finally got a new job, which may give him enough hours to survive, but not a lot of money. For those of you who think I live in an ivory tower, I do have a view into the lives of seven kids who are very real people, as well as those of lots of friends. I am very well aware of how tough it is out there, and realize how blessed I am.

You have a great week. Tomorrow I get to go the Dallas Cowboys game in the new stadium in a suite, courtesy of a friend who got the seats from Jerry Jones himself. Not sure where, but it sounds cool. Sometimes life gives you lucky breaks.

Your amazed to still be writing after all these years analyst,

John Mauldin