Search results matching tag 'Euro'

Two Steps Forward and Three Steps Backward

JohnMcClure — Fri, 20 Nov 2009 14:19:00 GMT

Our Monthly Performance Update
Dollar Reality Check
Are Valuations Justified?
The Mother of All Carry Trades
Market Summary
Portfolio Performance Analysis
Can I Do It This Year?

Timing is everything and being early with your investment decisions can be almost as painful as being late. Since most investors lost significant sums of money in 2008, they feel a deep-seated fear of getting left behind. It is called the herd instinct. This important emotion kept us alive when we hunted with knives and spears, but today it runs investors off a cliff. In dealing directly with retail clients, the herd instinct is the most prevalent emotion I see.

Over the past several months, the markets powerful advance has made me feel like I have been standing in front of a train. I had this same feeling back in May 2006, when I sold my house to move into a rental home because I felt the real estate market no longer made any sense. I feel the say way today about the stock market. The Fed and the Treasury have many tricks up their sleeves to buy short term relief. But, what long-term price will future generations have to pay?

The dollar has been bouncing off its all time low for the past couple of weeks and the market continues to rally. As you will learn from reading this letter, a weak dollar is feeding leverage and liquidity into the market. Over the past 90 days, there has been an inverse correlation between the dollar and the S&P 500 of approximately 75%. So when the dollar goes up, the market goes down, and vice versa. It feels good when asset prices go up, but when these assets are compared in dollars or gold, there has been no gain at all. As a matter of fact, there have been further declines in the United States global buying power.

In this newsletter, I have decided that a picture is worth a thousand words, so we have provided lots of charts and graphs. The picture these charts paint about our economy is not pretty, yet the market continues its advance. Hopefully, our research at least makes you pause and ask why?

"Whether you are investing in real estate in China, equities in Peru, or indexing the S&P 500, you are putting your faith in the ability of the U.S. Government to pull off a miracle. Expectations will be tough to meet, and the risk of the Administration losing a handle on the situation is a constant threat. Over the next five years, investors should focus on capital preservation and avoid getting swept up in the inevitable credit-fueled bubbles."
Boeckh Investment Letter, October 30, 2009

An Update on Our Performance

Interest-rate sensitive strategies continue to lead in 2009. Shorting the U.S. dollar and being long high-yield bonds has been the easiest trade of the century. Actively trading government bonds has also rewarded our investors handsomely. In 2008, fixed-income investments were grossly manipulated by the Fed and Treasury, and in 2009, equities seemed to make no sense. No one ever said it would be easy, but they sure didn't say it would be this hard either.

Below are recent performance returns on the four portfolios we currently offer:

	Past 12	YTD	October	Sharpe
Name	Months	2009	2009	Ratio
Income Builder (IB)	9.50%	13.06%	0.73%	1.47
The Guardian (GRD)	4.33%	9.33%	0.43%	1.73
Harmony Plus (HMY)	0.54%	7.05%	-0.12%	1.46
The Expedition (EXP)	-2.53%	3.67%	-0.60%	1.14
S&P 500 (SP500)	9.80%	17.05%	-1.86%	0.66
Important Performance Disclosure

ProfitScore provides its separately-managed accounts to individuals, advisors and institutional investors. If you would like to hire us to help you navigate this difficult bear market, below are three ways to contact us:

Complete our Private Client Group request form by clicking here: http://profitscore.com/insight.aspx and submitting your contact information. (This is the most preferred method.)
Call us directly at (800) 731-5690.
Simply send us an email to info @ profitscore.com.

Someone will contact you within 24 hours of receiving your information.

Dollar Reality Check

Much has been written about the value of the dollar since the stimulus bonanza began in 2007 and before. Pundits have worried that our cheap dollar policy ("Quantitative Easing") has had a clear impact on the dollar, and not in a positive way. As we see from the next chart, they have a point showing the dollar value erosion began in 2000, as the tech bubble began to break in a trend that continues to this day.

Figure 1 - Weekly chart of the US Dollar Index priced in gold. Chart GenesisFT.com

Stocks Priced in Gold
Economic growth that occurred during the 1990s was accompanied by a confidence in the dollar, which led to some very real gains in asset prices, stocks and commodities (that are priced in US dollars). But in real terms using the gold standard, stocks have been significantly hurt by the falling greenback, thanks to a nearly 85% drop in the value of the buck compared to gold. Next let's look at how stocks fared in gold terms.

Figure 2 shows that the Dow, priced in gold, peaked in mid-1999-almost a year before the index peaked in nominal terms and a big part of the more than 80% drop in real stock prices due to dollar weakness. Stocks have been doing well lately in the face of a weakening dollar, but this has had an overall net negative effect in real terms.

Figure 2 - Weekly chart of the Dow Jones Industrial Average priced in gold. Chart GenesisFT.com.

Stocks in a Euro and Canadian Dollar Perspective
The next two charts show the Dow priced in Euros and Canadian dollars to provide a different value perspective. As we see, the Dow peak in 2007. It was well below its 2000 peak and remains more than 50% depressed from a European investor's point of reference. This may explain why dollar denominated assets held by foreigners (as well as the interest in Treasuries) has fallen in the past few years.

Figure 3 - Weekly chart of the Dow Jones Industrial Average priced in Euros. Chart GenesisFT.com.

Figure 4 - Weekly chart of the Dow Jones Industrial Average priced in Canadian dollars. Chart GenesisFT.com.

Stocks and Commodities
Do you think gold has rallied based on hype and speculation, not real demand? To test this idea, let's examine how stocks have fared compared to commodity prices. As we see, compared to a basket of 17 commodities, the Dow Jones Industrial Average is down nearly 65% from its commodity-adjusted price peak in 1999.

Figure 5 - Weekly chart showing the Dow priced in commodities as represented by the CRB Index. Chart GenesisFT.com.

Are Valuations Justified?

Now that we have a more global perspective on how stocks have fared in the new millennium, where are stock valuations in nominal US dollar terms? If they are historically cheap, they will become more attractive to investors looking for long-term value who believe that stocks have the potential to appreciate in real terms, even if the dollar continues to weaken. This of course assumes that economic growth from here will be sustained and that the dollar does not collapse in value compared to other major currencies.

In late October, ContraryInvestor.com performed an interesting comparison between stock values (S&P500), after stocks rallied 60% between the March lows and October highs, with the 60% rallies that occurred in 1972, 1976, 1983, 1994, 2006. As the following table shows, the numbers were interesting. Based on these metrics, stocks are anything but cheap!

Here is a summary of the 10 indicators following past 60% rallies compared to this one.

Year-over-year retail sales: 9.3% average in prior 60% rallies versus -5.3% currently
Consumer Confidence Index: 95.5 average; 53.1 now
Capacity utilization: 79.9% average; 66.6% now
Year-over-year industrial production: 4.1% average; -10.7% now
Institute of Supply Management (manufacturing) : 53.9 average; 52.6 now
Payroll employment gains over period: 2.2% average; -2.0% now
Decline in continued unemployment claims from cycle peak: -26.3 average; -11.6% now
Year-over-year growth in total credit market debt: 9.3% average; 3.0% now
Year-over-year growth in household debt: 8.8% average; -0.1% now
P/E multiple (trailing 10-year earnings): 16.8x average; 20.0x now

Figure 6 - Weekly chart showing prices, average P/E (blue line) and earnings growth (GRT) for 7,995 U.S. stocks tracked by VectorVest. As the chart shows, the average P/E for the broad range of publicly trading companies entered uncharted territory in 2009 and is still well above any previous year's high. Chart VectorVest.com.

But what happens when we examine valuations for a much broader basket of US stocks, like 8000 (see Figure 6) instead of the cherry-picked, and constantly modified, S&P500 or Dow Jones Industrial Average? The results of this exercise were equally interesting.

On June 5, 2009 the average price-to-earnings ratio for the 8,011 US stocks of the VectorVest Composite Index (VVC) hit an all-time high of 155.58, thanks to rising prices, but no increase in average earnings. Earnings had fallen to their lowest level since the VVC was initiated in 1995 of $0.13/share. But then earnings for a broad range of companies began to show their first real signs of improvement since March 2007, rising from $0.13 to $0.15 per share. P/Es have continued to fall, albeit slowly, to just over 100 on October 30, 2009 as earnings rose.

The same can't be said about earnings growth (GRT). After peaking in May 2005 at 11%, earnings growth (GRT) continued to deteriorate falling to 10% in 2006. By the second week in October, earnings growth had fallen to 0% and the average EPS for the roughly 8000 companies had grown to just $0.22/share, still well below their new millennium peak of $1.04/share in January 2007.

How do these numbers compare to the last recovery? As the rally was getting underway in March and April 2003, earning growth (GRT in red) was a much healthier 8%, and earnings growth had begun improving nearly a year before hitting a low of 3%. Within two months of the bottom in stock prices and the beginning of a 56-month bull market, VVC P/Es peaked at 60.51 (May 2003). Looking even further back to the lofty prices in March 2000, we see the P/E, although high, was a much more benign-32 times and earnings growth was running at 11%.

The Mother of All Carry Trades

Since late 2006, the financial world has become all-too-familiar with the carry trade (selling a low-yield currency to buy assets in high-yield currencies). Then, the Japanese yen was the fuel of choice, thanks to basement costs of borrowing. But with the credit crisis and rapid collapse in the values of high-yield currencies, like the Icelandic krona with commensurate losses, the carry trade appeared to go the way of the dodo bird-extinct.

However, the very factors discussed above have given global investors with a penchant for risk a new carry trade target - that's right, the USD. As Figure 3 shows, one popular currency pair, the New Zealand dollar and US dollar (NZD-USD) has helped fuel the recent stock rally. It means that global investors can borrow dollars at record-low rates, sell them to buy New Zealand dollar denominated bonds and other assets, and reap the interest rate difference as profit. A further weakening dollar/strengthening NZD is a bonus. Their major risk is the possibility of a rapid USD appreciation/NZD depreciation.

As Figure 3 shows, this carry trade was somewhat popular before the credit crisis began in late 2007, but has recently surpassed its 2007 peak popularity, as investors sell USD to buy NZD. Currently, the correlation between the two is nearly 0.94 (a correlation of 1 is perfect correlation).

Figure 7 - Weekly chart of the New Zealand dollar - US dollar currency pair in the upper sub-graph, the S&P500 in the mid-subgraph and the 20-week correlation between the two (red).

As the economist known as Dr. Doom, Nouriel Roubini, pointed out in an article last week, the conditions that have driven the USD carry trade have created what he believes is the "mother of all carry trades."

Here is how he outlined the power behind the key risks that this trade presents in his Financial Times article, "Mother of All Carry Trades Faces an Inevitable Bust."

"So what is behind this massive [stock/commodity] rally? Certainly it has been helped by a wave of liquidity from near-zero interest rates and quantitative easing. But a more important factor fuelling this asset bubble is the weakness of the US dollar, driven by the mother of all carry trades. The US dollar has become the major funding currency of carry trades as the Fed has kept interest rates on hold and is expected to do so for a long time. Investors who are shorting the US dollar to buy on a highly leveraged basis higher-yielding assets and other global assets are not just borrowing at zero interest rates in dollar terms; they are borrowing at very negative interest rates - as low as negative 10 or 20 per cent annualized - as the fall in the US dollar leads to massive capital gains on short dollar positions."

These conditions, "a zero Fed funds rate, quantitative easing and massive purchase [monetizing] of long-term debt instruments is seemingly making the world safe - for now - for the mother of all carry trades and mother of all highly leveraged global assets."

If Roubini is right (and let's face it, his track record in calling the market leading up to and through this crisis so far is impressive), investors are surfing a global cash tsunami which could still be some time from reaching its zenith. However, any potential for gain is offset by the reality that the bigger this bubble gets, the more destructive its ultimate collapse will be, so caution is a requisite.

But even Dr. Doom is careful about calling the end of the financial world as we know it in his final paragraph.

"This unraveling may not occur for a while, as easy money and excessive global liquidity can push asset prices higher for a while. But the longer and bigger the carry trades and the larger the asset bubble, the bigger will be the ensuing asset bubble crash. The Fed and other policymakers seem unaware of the monster bubble they are creating. The longer they remain blind, the harder the markets will fall."

Market Summary

I will be the first to admit that one of the biggest challenges in the current credit crisis and apparent recovery has been estimating the impact of various policy decisions by the Fed and other central bankers around the globe. Few, including yours truly, appreciated just how powerful this stimulus could be in the face of massive debt. In my defense, job one is to protect principle, and debt creates serious risk, especially when it gets as big as it is today.

As history has taught us, bubbles generally build longer than expected, with the biggest gains coming nearer the end than the beginning. Enter too late or exit too early and you underperform your less risk-averse peers.

We at ProfitScore will continue to take a cautious approach to this market and trade it with great care, with both eyes on money management. We will continue to take profits out of the markets without putting serious capital at risk. This is certainly not a market for the weak of heart!

Based on current economic reality, the U.S. still has some time to go before it can follow nations like Australia and be weaned from the punch bowl. And as long as the punch bowl offers libation, there will be money to be made, as long as one doesn't imbibe to the point of losing an appreciation for what happens when the punch is gone.

Interesting Reading:

International Monetary Fund - Principles for Stimulus Exit
http://www.imf.org/external/np/g20/110709.htm

Detail IMF document - Global Economic Prospects and Principles for Policy Exit
http://www.imf.org/external/np/g20/pdf/110709.pdf

Why Some Countries Are Stopping Their Stimulus
http://www.time.com/time/business/article/0,8599,1936585,00.html

The American Economy in One Chart
http://www.safehaven.com/article-14999.htm

Mother of All Carry Trades Faces Inevitable Bust - Roubini
http://www.ft.com/cms/s/0/9a5b3216-c70b-11de-bb6f-00144feab49a.html?nclick_check=1

Portfolio Performance Analysis

Risk & Reward

Each of our portfolios is strategically allocated across one or more of the Investment Pillars of Strength discussed below. Each Pillar is managed by multiple, uncorrelated, absolute-return investment managers to produce a return stream that is consistent, negatively correlated with the major market averages in down markets and non-correlated with each of our core Pillars of Strength. Commentary found in this newsletter is for informational purposes only and does not effect how our portfolios are traded.

Managing risk is our most important consideration and it is reflected in the way our portfolios are built and managed each and every day.

Based on our internal valuation estimates, fair value on the S&P 500 is approximately 850. Our long-term dismal GDP growth calculations over the next five years, combined with the fact that equities are currently 30% overvalued, have our five year forecast on the S&P 500 as a negative return. I have had only limited success forecasting equity markets based on fundamentals because investors simply don't care. Fear and greed drive the markets and they always will. Due to volatility contraction and P/E expansion into nose bleed territory, we remain vigilant in our efforts to carefully manage risk.

Our equity trading accuracy remains above 50%, but our average losing positions during October were larger than our average winning trades, producing small negative returns for equities in October. MTD November, we are currently showing small gains for equities across the board. Interest rate sensitive allocations continue their upward march higher.

Index Advantage:

Trading accuracy has stabilized north of 50%, after our low in July. Large monthly moves seem to find us on the wrong side of trades, which causes us to fight back to pull our returns back into positive territory. November is showing small gains for the month. Managing risk in a hard-charging market can be a difficult job.

For the month, this pillar gained -1.28.

Strategic Balance:

We continue to tread water in this allocation, as our risk-adverse traders patiently wait for higher probability trades to materialize.

For the month, this pillar earned -0.67.

Dynamic Income:

Our interest rate sensitive strategies combined to once again produce positive returns for what is now the 7^th-winning month in a row. Given the over-extended positions in asset classes traded in this allocation, we are growing more cautious about changing dynamics and increasing volatility. If the economy once again falters, I fully expect the government to once again manipulate the long and short end of the yield curve, making our job managing these positions almost impossible. Until then, we plan to make hay while the sun is still shining!

For the month, this pillar earned .98.

Our portfolios are built using varying distributions to the strategic allocations discussed above. To view detailed performance and risk statistics information about our investment portfolios for the month, please click on the links below:

If You Are a Client, Don't Be Confused.
Actual management and performance fees are incurred monthly but are deducted from client accounts in the first month of every quarter (January, April, July, and October). For performance reporting purposes, we deduct fees monthly as they incur and not quarterly, as they are reflected in client statements. It all washes out in the end, but this may cause your account performance to deviate from our published performance reports on a month-to-month basis. To be conservative, we also deduct the maximum fees we charge from our performance reports and your actual overall fees paid may be less than our maximum.

Can I Do It This Year?

As I mentioned this spring, I entered a 12-month weight-loss competition with three of my friends. Once every four months, we go the Boise State University and jump in a hydrostatic tank to officially weigh in and measure fat loss. Money and pride are on the line, so my competition has been tough. My fellow fat friend, Rich Davila, beat me by a smidgen in the last weigh-in, but it appears I may take home the gold in our upcoming December weigh-in. That is, if I can make it through the toughest 60-day stretch of the year.

Every year I tell myself that I am not going to gain weight over the holidays. I have never once achieved my goal. Not one time! I can attest that surrounding yourself by great southern cooking (my wife is a wonderful cook) during the holidays is not good for your waistline. This year is going to be different - I hope.

I seem to do okay fighting back the temptations here in Idaho, but every year we travel back to Tennessee for Christmas. Not gaining weight during a Tennessee Christmas holiday vacation is practically impossible. The temptations are about the same as a teenage boy faces during a spring break in Florida.

Like war, I have a battle plan, but once the first deserts are served, my knees get weak and I gorge myself like a pig going to slaughter. If anyone has any suggestions for me to fend off the upcoming food attack, I would love to know your secrets.

Working to grow your wealth,

John M. McClure
President & CEO
ProfitScore Capital Management, Inc.

P.S. ProfitScore provides its separately-managed accounts to individuals, advisors and institutional investors. If you would like to hire us to help you navigate this difficult bear market, below are three ways to contact us:

Complete our Private Client Group request form by clicking here: http://profitscore.com/insight.aspx and submitting your contact information. (This is the most preferred method.)
Call us directly at (800) 731-5690.
Simply send us an email to info @ profitscore.com.

Someone will contact you within 24 hours of receiving your information.

Silence Is Always Golden...

ChuckButler — Wed, 18 Nov 2009 20:17:38 GMT

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In This Issue..

* It's a Risk On day!
* Commodity Currencies have the "stuff"!
* Gold's one-day window slams shut!
* RBA to not wait 2 months to hike rates!

And Now... Today's Pfennig!

Silence Is Golden...

Good day... And a Wonderful Wednesday to you! We're stuck in the mud with the rain again, but according to the weather people it should end tomorrow... Geez Louise, I guess it could be snow, which would have crippled this city by now!

Well... The currencies gave back all that ground they gained the day before on Mr. Toad's Wild Ride, yesterday... But, have turned around this morning in the European session as Eurozone stocks are up, and whenever equities trade with some zip in their step, it has been good for the Big Dog, euro...

Someone asked me yesterday a question about the euro... He said, "Chuck, I know you like the euro, but couldn't the Aussie dollar be a better choice going forward?" And I answered like this... The euro is the offset currency to the dollar... But that doesn't mean it is the best performer when the dollar moves down. The Aussie dollar (A$) has outperformed the euro since 2002, and will probably continue outperform the euro... But so has the Norwegian krone, and the New Zealand dollar, and the South African rand, and the Canadian dollar... Hmmm... Does that list ring a bell?

Why, yes, Chuck, it does! For these are all "Commodity Currencies"... You've Gotta Love 'Em!

Countries that have "stuff" to sell to other countries, that either don't have the "stuff" or are too lazy to deal with it!

Hey! Did you see my bit on Bernanke that I wrote yesterday made the "5-Minute Forecast"? WOW! My friend Ian Mathias, does such a great job on the "5", and I get a HUGE kick out of him putting stuff I write in his great letter! You should see the two of us standing side by side in Vancouver, where we meet up each year... The old kids song about fat and skinny went to bed, fat rolled over and skinny was dead... HAHAHAHAHAHAHA!

OK... Chuck, quit the back slapping of yourself, and get back to the task at hand!

Yesterday, my fat fingers made an appearance in the Pfennig, as I mis-typed the price of Gold, in the currency round-up... I had just talked about how those people waiting for a pull-back of Gold's price, might still be waiting when the cows come home... And then I type the price of Gold $100 cheaper than it was selling for! What a fat fingered dolt! Oh well, not many people pointed it out to me, as always letting me know that "Chuck made a mistake"...

Speaking of Gold... Well, you had a 1-day window to buy it cheaper, for the overnight sessions has the shiny metal hitting on all 8, and soaring once again to $1,148!!!!! Don't you just hate those 1-day windows? I mean, you wanted to pull the trigger and buy, but thought, what if Gold drops more today, that would mean I could buy it cheaper tomorrow... Don't be fooled! It's like this folks... If you want to buy something, buy it! Trying to time a purchase will leave you sitting the sidelines with a baseball cap turned backward on your head and holding a clipboard!

I used to tell people that if you're standing at the bus stop waiting for the bust to take you downtown, and the bus pulls up, but it's an old bus, and the rumor is going around that a brand spankin' new bus is on the way, you decide to not get on the old bus, but wait for the new bus... Then the new bus arrives, and there's a rumor that an even newer, updated bus is on the way, and you decide to wait for that one... If you never get on the freakin' bus, you'll never get downtown!

OK... So... Remember when I questioned the current administration's claims that instead of "creating jobs" they were "saving jobs"? I pointed out that claiming that jobs were saved, would be difficult to prove... Well, guess what? Proving that the jobs saved don't exist, has been pretty easy... And the people claiming that the stimulus "saved jobs" have egg all over their collective faces...

Speaking of Jobs... One of my fave economists, Nouriel Roubini, had this to say about jobs...

"Think the worst is over? Wrong. Conditions in the U.S. labor markets are awful and worsening. While the official unemployment rate is already 10.2% and another 200,000 jobs were lost in October, when you include discouraged workers and partially employed workers the figure is a whopping 17.5%.

While losing 200,000 jobs per month is better than the 700,000 jobs lost in January, current job losses still average more than the per month rate of 150,000 during the last recession.

Also, remember: The last recession ended in November 2001, but job losses continued for more than a year and half until June of 2003; ditto for the 1990-91 recession.

So we can expect that job losses will continue until the end of 2010 at the earliest. In other words, if you are unemployed and looking for work and just waiting for the economy to turn the corner, you had better hunker down. All the economic numbers suggest this will take a while. The jobs just are not coming back."

Chuck again... And you think the recession / depression is going to end with the unemployment problem in this country? Not when the consumer is needed to generate nearly 70% of the GDP...

And all that tells me that the cartel / Fed (Fartel!) is going to believe that they need to keep rates near zero for some time to come...

So... It's Risk On today! It was Risk Off yesterday! Don't ask me why... Tell me why, you cry, and no wait! Don't go singing songs, Chuck! This is serious stuff!

Yesterday's data cupboard was a mixed bag of economic data for the U.S. PPI wasn't as strong as forecast, Industrial Production slowed in October, but Capacity Utilization bumped higher, and the TIC Flows for September were $40.7 Billion, which was more than the $34.2 Billion in August. The report showed that Japan, China and the U.K. all increased their holdings of Treasuries. September's TIC Flows were probably the best report of the day, and the best report that this series has printed in a long, long time... Does this mean that the all-clear horn is blaring, telling us not to worry any more about whether we finance our deficit or not? Well... It might be, but I'm not listening to it!

Well... The President ended his visit to China, with a call for a more flexible Chinese currency (renminbi)... And... The Chinese said... Nothing! They met the President's words with silence... I used to date a girl that would say to me when I wasn't talking... "Silence is Golden, Chuck" and I would say... "Then shut up and we'll make a million!" HA!

Now, while it would nice if the Chinese played ball with us... I understand their dilemma... The IMF still believes that China's currency is about 25-40% undervalued... China could not deal with a floating currency that went up 40% overnight!

Did you know that America's trade deficit with China widened to a 10-month high in September? Well... It did, thus raising concern that the combination of a recovering U.S. economy and a fixed renminbi exchange rate against the dollar will worsen global imbalances. But... As I've said at least 100 times before this... The Chinese will do what they believe is best for their country, and that's not floating the renminbi at this time, no matter who the U.S. sends to visit them to persuade them to do so!

Moving further south in the Pacific, we land in Australia... I thought about this next Reserve Bank of Australia (RBA) quite a bit the past couple of days... And have come to the conclusion that the Dec 1st meeting of the RBA will net another 25 BPS rate hike... The reason I think this, is the fact that there will be no meeting in January, thus leaving a 2-month gap, which in these economic times could be devastating... So... Look for another rate hike in Australia on December 1st... Which would be their 3rd consecutive meeting rate hike, and could be the harbinger to parity for the A$... Could be... I didn't say it "would be"!

I know that yesterday morning, I talked about how the RBA meeting minutes had been perceived as "dovish", and that spooked the markets into thinking that the RBA would NOT hike rates in December... But upon further review, the meeting minutes were really pretty vague, and while they didn't sound outright hawkish, they also didn't sound "dovish" either... After reading the minutes, I got the feeling that overall, the minutes support the idea of "steady rate hikes"... I don't think the RBA will stop until they reach an internal rate of 4.25% early next year...

I was giving an interview last week with a writer from Business Week... And he asked me when this dollar weakness all started... I told him that, "Over the past nine years congress and two administrations have instituted fiscal policies that have undermined the value of the U.S. dollar, and the deficit spending has gone from $350 Billion Budget Deficits to $2 Trillion (annualized) Budget Deficits in a wink of an eye... So... The dollar made brief comebacks in 2005 and in the financial meltdown of August 2008 through Feb 2009, but other than that, the dollar continues to decline, and I just don't see anything on the horizon that will stop this decline."

Well... As I look across the desk, where the light only comes from the computer screens, yes, I like it dark here while I'm writing, it keeps me focused! HA! Any way, as I look across the desk at the currency screens, I notice that every currency that supposed to lighting up green (going up) is doing so, and every currency that supposed to be lighting up red (going down, but that's what you want in a European style currency) is doing so... We've got it all going on today... One of these days, we'll quit this stupid game of street hockey, you know, Risk On, Risk Off... Or the Mr. Myagi, with the wax on, wax off, bit! But until then we have to deal with this stupid game of street hockey, or karate training!

OK... To recap... The currencies have gained back the ground they lost in yesterday's Risk Off trading sessions. Gold is back to soaring after a 1-day stall... Data yesterday in the U.S. was a mixed bag. Chuck expects the RBA to hike rates in December, and China responds to the U.S. President's request to allow greater flexibility in the renminbi, with... Silence...

Currencies today 11/18/09: American Style: A$ .9325, kiwi .7490, C$ .9550, euro 1.4960, sterling 1.6810, Swiss .99, European Style: rand 7.4290, krone 5.58, SEK 6.8275, forint 177.50, zloty 2.7370, koruna 17.0130, RUB 28.67, yen 89.10, sing 1.3830, HKD 7.75, INR 46.22, China 6.8270, pesos 12.99, BRL 1.7080, dollar index 74.97, Oil $80.03, 10-year 3.34%, Silver $18.75, and Gold... $1,148.30

That's it for today... Chris will have the conn on the Pfennig tomorrow morning, as I report to the retina institute at the Center for Advanced Medicine. God willing, I'll be back on Friday morning! My younger sister, Terri, was just diagnosed with breast cancer. I'm waiting to hear what the game plan is for her... I picked up my son Alex's electric guitar last night, and played it a little... I've played acoustic guitars for so long, that his electric guitar felt very strange.. I played a song, and little Delaney Grace, who had sat still listening to me play, cheered, and then got up and left... Cracked me up! Every day it's something with her! Time to get this out the door, folks... I hope you have a Wonderful Wednesday!

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

We Won't Get Fooled Again!

ChuckButler — Tue, 17 Nov 2009 16:26:36 GMT

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

* Bernanke digs out some old words...
* Risk on, Risk off...
* Brazil to have a different meeting outcome?
* Winter Olympics are in Canada...

And Now... Today's Pfennig!

We Won't Get Fooled Again!

Good day... And a Terrific Tuesday to you! What a ride on Mr. Toad (Bernanke's) Wild Ride yesterday for the currencies! Gold? Well, at one point in the day, Gold had shot up $24 on the day! It topped out at $1,142... The shiny metal then gave some back on profit taking, but Whew! Gold holders have got to love it! Those that keep waiting for a pull-back... Well, they might be still waiting when the cows come home...

Yesterday, we had a couple of Fed Heads talking, but the Big Kahuna, stood out, and moved the markets with his statements... Here's the skinny...

Big Ben was giving a speech, and said that "The Fed will monitor closely the currencies, and that the Fed's policies will ensure that the dollar is strong." Now, when he first uttered those words, the dollar got bought and the non-dollar currencies were sold... But then, a few of us had this feeling... It was a feeling that we had heard all this before... And there... In the archives, circa June 2008... Bernanke said, "In collaboration with our colleagues at the Treasury, we continue to carefully monitor developments in foreign exchange markets." Wait! We won't get fooled again!

In June 2008, his statements spooked the markets into believing the Fed was really going to do something to bolster the dollar... But when nothing came along, the dollar REALLY got sold until the financial meltdown of August 2008... I mean... What has the Fed done in the past 1 1/2 years to "bolster the dollar"? Near zero interest rates that will remain in place for longer than they should... Quantitative easing... A Bloated balance sheet of toxic bonds...

You could see the V-8 moments on traders' faces when they realized, yesterday, that all this had been said before, and nothing came of it, so... Meet the new boss... Same as the old boss... We Won't Get Fooled Again! No No!

So, then traders reversed their buying of the dollar and sent the dollar to the woodshed... You should have seen the reversal... It was amazing... The Big Dog, euro, went from 1.4970 to 1.4860, and then turned around to rise to 1.50! ... Now, overnight, there has been some renewed selling of the non-dollar currencies, and the euro is back to 1.4910... Crazy... But not as crazy as Big Ben spouting off about "monitoring the currencies"... Yeah, right... And what are you going to do about them when they get out of line, Big Ben? Get the ruler out? I'll tell you what he'll do... Nothing... Absolutely nothing!

Memo to Big Ben... Ahem... Am I on? Ok, long time listener, first time caller... Big Ben... Just what policies are you talking about that will keep the dollar strong? In the future, you might want to list them, so that people like that Chuck Butler, doesn't rip your comments to shreds for their lack of truth, and facts...

Non-voting Fed Head, Fisher, had this to say yesterday... "Our job is to maintain the purchasing power of the dollar, while fostering the conditions that enable the economy to grow without fanning inflation." Hmmm I would say that he's got that right... But, apparently, somewhere along the way, the part about "maintaining the purchasing power of the dollar" got lost, eh? I mean, since the Fed / cartel was formed in 1913, the dollar has lost 95% of its purchasing power... YIKES! Most people that did their jobs that badly would be fired/ let go... These guys have had almost 100 years to figure this out, and have failed miserably... And hey! Before I get accused of something (I'm always accused of something, with everything I say), Fed Head Fisher was the one that described the Fed Heads' job, not me!

OK... While I'm on this subject of being accused... I have been beating on the U.S. administration for 9 years, folks... I know I've really stepped it up with the step up of deficit spending by this administration, but, I chastised the previous administration beginning with their protectionism measures in 2000, and never let up, with their deficit spending... Someone even said I never talked about Cheney and his "Deficits Don't Matter"... WHAT? I've even repeated the same joke several times about the Deficits don't Matter crowd, and that they remind me of a guy standing on the Empire State Building, he decides to jump off, and as he passes the 56th floor, he says... "So far, so good!"

Yes, so far, so good, because he hadn't hit the concrete to go splat yet... And neither had the deficits crowd... But they will, and in fact, they are getting awfully close to the concrete right now!

Well... Enough of that... I just get so ticked off sometimes... I write, and write, and people say I didn't say this or that... Don't know what else to say... So, I'll go on...

The U.S. economy got a boost yesterday when Retail Sales grew at a faster rate than forecast, growing 1.4% in October, above the 0.9% rise projected by Wall Street. The jump came on rebounding demand for cars, a sign the economy kept recovering despite climbing unemployment. Aside from automobiles in October, other sales rose just 0.2%.

But... Are these numbers suspicious? Well, when you look at the previous month's revision, you have to question these numbers as well... September Retail Sales, which were reported as -1.5%, actually fell -2.3%... I wonder what this number's revision next month has in store...

Today, the data cupboard is stocked to the brim with data prints... Producer Price Index (PPI) prints along with two of my faves, Industrial Production and Capacity Utilization... And then the Big Kahuna of the day... The TIC's data... For those of you new to class, The TIC's data stands for Treasury International Capital... Or... Easier to understand... It's the fancy, schmancy name for Net Security Purchases by Foreigners... This is how we track, how well we're doing as a county at financing our ever expanding deficit...

I made a mistake yesterday when talking about the Reserve Bank of Australia (RBA) and saying that if they didn't hike rates in December, that they would most likely come back in January at hike them... A reader pointed out to me that the RBA doesn't meet in January... OK... So, I guess I should have said that the RBA would hike at their next scheduled meeting!

Speaking of the RBA... They issued their latest meeting minutes, in which they sounded less hawkish than one would expect, since they raised rates at the same meeting... But this less hawkish tone, set off a round of Risk Aversion once again in the currency markets overnight... Risk on, Risk off, is reminding me of a Wayne and Garth street hockey game...

For, it's Risk on, one day, and Risk off the next day... So, while I find that the RBA minutes did set off this round of Risk off for the currencies, I don't see it having lasting power... Look for this all to fade, especially if we get a rogue data print in the U.S. today...

Late last week, I came across a story on the dollar that I totally forgot to talk about yesterday... So, here you go... Oh, by the way, strap yourself in for this one, and keep your arms and legs inside during the ride...

The German government's 5-person council of economic advisers issued a report that said, "After the massive global increase in U.S. dollar reserves in the past years, an "uncontrolled exit", especially in emerging economies from the U.S. dollar as a reserve currency is a possible trigger of instability in currency markets." The went on to say...

"Countries holding "high" dollar reserves should consider committing to selling their dollar holdings in a coordinated way over a longer period of time."

The folks over at the Royal Bank of Scotland (RBS) think that Bernanke's speech yesterday, basically gave the green light for a further, slow, gradual decline of the dollar... And, quite frankly, that's what traders would prefer to see too, given that they don't like getting whipsawed day in and day out by the Risk on, Risk off game... When assets go to fast one way or the other, it just causes strong corrections, and people get hurt by the movements... But a slow, gradual decline I would think would be the preference of the U.S. Gov't... That way, no one notices... It's not like a bubble that grows and everyone notices it...

Speaking of bubbles... And if you're like me, when I type, or say bubbles, I immediately think of Big Al Greenspan... Well, you'll love this Fed Head statement about bubbles... Here's Fed Head Kohn... "Asset price bubbles can be spotted when they become extreme, efforts to spot bubbles may result in seeing more than there is."

Now that statement plays well with Big Al Greenspan, who always claimed that bubbles could not be spotted before they got out of hand... Basically, what these two are saying in different ways is that the Fed could spot them, but probably wouldn't like it, and wouldn't have much at their disposal to do about it, so they just turn away...

And speaking of such... Fed Head Yellen said last night that the "U.S. stock market is not overvalued"... That's all I'll say about that!

OK... Hopefully, you are still with me here, and reading... And you will recall me going on and on about China and their FX currency swap agreements and how that was a baby step toward gaining a wider use of the renminbi... Well... Yesterday, there was a story, that I think Ty told me about, that talks about China preparing to float the renminbi, testing it in Hong Kong... The Chinese government has been moving to allow banks in Hong Kong to issue bonds, hold deposits, and settle trade with the mainland -- all in renminbi.

However, don't look for this conversion to a floating currency to happen soon... Financial analysts believe it will not happen before 2020... It may come sooner... But I wouldn't get all lathered up that it happens in the next year!

One of the best performing currencies VS the dollar this year, has been the Brazilian real, with a greater than 30% gain, so far... There's been a shakeup at the Brazilian Central Bank, and there will be a few new members, with voting power at the next meeting on December 9th... I still don't think the Brazilian real interest rate will be moved at this meeting, but with the new members, they might want to make a "statement" about how hawkish they are... And on December 10th, Brazil will print their 3rd QTR GDP, which I would think would be quite strong... You would have to think that the Central Bank will have privy to this report before they meet on the 9th... And with the new members possibly wanting to make a statement, there's a whole new outlook for the Central Bank meeting...

You know... As we draw closer to the end of the year, the closer we get to the winter Olympics which will be held in Vancouver, B.C. (and Whistler!) Going back to the early days of the World Markets Division at the old Mark Twain Bank, here in St. Louis, we tracked currencies from countries that were holding the Olympics, noticing that there was always a rise in the host country's currency... If that were to hold it would benefit the Canadian dollar / loonie... Will it hold true for the Vancouver Olympics? We'll have to wait-n-see, eh? But really... Wouldn't it be worth a flyer, a shekel or two to see if it did hold true?

And then there was this... Were you confused by the GM announcements yesterday? I was... First there was an announcement that GM would be paying back some of the bailout money to the Government... But then later it was announced that GM posted a $1.5 Billion loss... Kind of difficult to pay someone back, when you're booking losses, eh? Strange announcements for sure...

OK, to recap, which I forgot to do yesterday! UGH! The currencies were whipsawed yesterday by comments by Big Ben Bernanke, that we've heard before! The RBA issued a not-so-hawkish minutes report that spooked the markets and it's Risk off today... Brazil might have a different outlook for their next meeting in December, and the winter Olympics are ready for Vancouver, will that mean a boost for the loonie?

Currencies today 11/17/09: American style: A$ .9270, kiwi .7440, C$ .9450, euro 1.49, sterling 1.6775, Swiss .9840, European style: rand 7.4660, krone 5.62, SEK 6.8775, forint 179, zloty 2.76, koruna 17.1450, RUB 28.77, yen 89.30, sing 1.3870, HKD 7.75, INR 46.30, China 6.8266, pesos 13.01, BRL 1.7160, dollar index 75.38, Oil $78.24, 10-year 3.35%, Silver $18.16, and Gold... $1,030

That's it for today... Well, the college basketball season began last night... My beloved Missouri Tigers start tonight. The Tigers basketball team surprised quite a few people with their run last spring, hopefully they can repeat that! Our little Christine's husband is a high school basketball coach. Christine says that once the season starts, she rarely sees husband, Matt... She loves basketball season! HA! My little, adorable granddaughter, Delaney Grace, was at the house when I came home yesterday, and she ran out of the house to jump in my arms to hug me! WOW! Sure is great to have a little one around! OK... Late again today, UGH! Better get going... I hope your Tuesday is Terrific!

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

Japan Posts a 4.8% GDP!

ChuckButler — Mon, 16 Nov 2009 15:19:00 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..

* Risk Aversion goes away mad...
* China just says "no" to currency flexibility...
* Maybe a return to fundamentals?
* Gold continues to soar!

And Now... Today's Pfennig!

Japan Posts a 4.8% GDP!

Good day... And a Marvelous Monday to you! It's raining here, so it's one of those Rainy Days and Mondays... But I won't let it get me down, as opposed to the song! I got a chance to check out our new digs in the building next door to us here... Very nice! And... A long way from that small office I sat in on Olive St. a decade ago, when we started EverBank... To think back 10 years ago, and where we are today... Simply amazing!

OK... As I told you Friday, the President was in China this past weekend, trying his best to get the Chinese to agree to a greater flexibility for the renminbi... Well... There were a few stories this past weekend that hinted about the Chinese agreeing to do such... But I prefer to go with this story that appeared on Reuters last night... "The Chinese government has sought to distance itself from speculation surrounding a central bank statement earlier this week that was interpreted as a shift in currency policy towards a stronger yuan. However, a report on Saturday by Xinhua, the state-controlled Chinese news agency said that the government would not allow the currency to gain against the dollar in the short term."

Wang Qing, chief Asia economist for Morgan Stanley in Hong Kong, said in a report to clients: "I consider this article an official effort by Chinese authorities to dismiss the renewed speculation of yuan appreciation in the near term."

So much for that visit to China, eh? Put that one down next to the visit to Copenhagen earlier this year... Ahem... 3 strikes and you're out in baseball... But, getting back to the trip to China... The Asia-Pacific members were pretty tough with their questions for the U.S. President, questioning his commitment to free trade... And then let him know that China is going to fight protectionism, and keep the renminbi on a leash...

On Friday, we had the currencies add a bit to their rally on Thursday, as the Risk Aversion campers were sent home without a ball... No need to go away mad... Just go away! There was a bit of interesting data reaction that happened on Friday, which only gave me some hope of returning to fundamentals... The U. of Michigan Consumer Confidence Index fell in October, which wasn't expected one iota... And... The dollar sold off! That's exactly what should happen when a country's economic data prints badly! So Hur-ray! YAHOO! But... Just like I always say... On swallow doesn't make a summer, and one reaction to a data print doesn't make for a shift in fundamentals... But could it be a start? Yes, it could... But we'll need to see more of this type of trading after data prints to indicate that the old "trading theme" has been put in our rear view mirrors, and that fundamentals have returned... But wouldn't that be a happy day? Oh happy day... Oh happy day...

I'm going to tell you this next bit, and you're not going to believe it at first... But stay with it... There was good news in Asia overnight, as the Japanese printed a 3rd QTR GDP report that showed an annualized rate of +4.8%! That was 2.9% higher than the "experts" forecast for Japan! So... Even Japan is joining the other Asian and pan-Asian countries (Australia) in posting strong economic growth!

The Asia-Pacific leaders pledged to keep stimulus measures in place until there's a "durable growth"... Hmmm... Here's hoping that the Asia-Pacific leaders let us know when that happens, for 4.8% annualized growth for Japan, sure seems like "durable growth" to me!

And... In keeping with our hopes that fundamentals return to currencies and commodities... The strong economic data for Japan, did not quash the yen! In fact, the yen has traded stronger VS the dollar overnight!

Speaking of trading stronger VS the dollar overnight... Have you seen the price of Gold? WOW! Gold has set, yet another, all-time record high overnight of $1,133! It has since given back some of that to trade at $1,127... But still... WOW!

You know... Just about 10 days ago, the dollar was looking as if it was going to make a comeback / correction... I even saw a cute little poem a trader wrote about it being the end of euro strength... But here we are 10 days later, and the dollar is looking quite weak again... The euro is back to pushing the envelope to 1.50 VS the dollar, and I just told you about Gold's run VS the dollar...

Of course this doesn't mean that a correction couldn't take place today, tomorrow, or the next day... I'm just pointing out something that I've told you all about for years now... And that is: short term forecasting for currencies is usually wrong! So, then, people ask me... Why then do you write a daily letter about currencies, Chuck? Ahhh, grasshopper, because, someone has to make sense of this daily noise, and... You never know when a "turn" might happen in the currencies...

The Aussie dollar (A$) spent the overnight sessions trying to get past .9350, but failed to do so, especially on the back of a note from a local bank analyst who went out on a limb and said the Reserve Bank of Australia (RBA) would be on hold at their next meeting on Dec. 1st... Well, that may be... But I still believe the RBA will hike rates in December! But if they don't, then we could look for an even larger hike when they come back in January! So, this keeping the A$ below .9350 won't last long, in my humble opinion!

We could get some traction from the euro and other Euro-type currencies this week, as the Euro Finance Week in Frankfurt will take place with top leaders speaking on the financial crisis and lessons to be learned from it... German Chancellor Angela Merkel, who's always good for some interesting quotes, will speak, as will European Central Bank (ECB) President, Jean-Claude Trichet...

Speaking of Euro-type currencies... The Norwegian krone, continues to follow the Big Dog, euro... But when the Big Dog, euro gets going, the krone normally out performs the euro... So... The Big Dog, euro is the key here...

OK... For some time now, I've been trying to point out to you that monetary inflation is going to sneak up on us and rip apart our investments... My good friend, David Galland, had this to say in his Friday letter... Here's David!

"Just because it's not readily apparent doesn't mean it's not there. Of course, I'm referring to the government's monetary inflation, which, thanks to a combination of factors, still hasn't jumped out of the closet to scare bond markets into cardiac arrest."

David then goes on to show his readers a table that had useful details on the progression from normal to very much not normal, leading up to the German Hyperinflation of the early 1900's... David then says, "As you can see, the situation in Germany was not so bad - until it was."

If you would like to see the "table" David refers to... Or read his excellent letter... Click here... http://www.caseyresearch.com/quick-guide/free-publications/

OK... You know, the soaring Gold price has been mostly tied to the weak dollar... But, you would have to think that "smart investors" with an eye on this monetary inflation is having some push to the price of Gold too... I know that's why I own Gold... The weak dollar thing is just icing on Gold's value in my opinion... The inflation hedge... The Deflation hedge... Or... As I call it... The "uncertainty hedge"...

And then there was this... The other night I was discussing the Health Care stuff, and told the person I was talking to that the stimulus bill, you know the one that was pushed through so fast last winter because we as a country were "near total collapse"? Well, the stimulus bill had hidden in it, part one of the Obama Health Care Plan... Hmmm didn't know that? Well, yes, grasshopper... It's the "death panels" that Sarah Palin coined them... They are called the rationing and enforcement board. And... The President has already funded them with $20.6 Billion of our taxpayer dollars!

Now... I'm not going to get into a discussion of the Health Care here... My point was simply to show that when bills are passed, it is important that they are read aloud to the people, to keep from "hiding" things in the bills... $20.6 Billion of money that the Gov't did not have!

Ok... Enough of that... My good friend, Dr. Dave Janda, was the first to expose this "hidden gem" And he's been on the speaking circuit trying to get anyone that will listen to him, and they should, to understand what's going on...

Currencies today 11/16/09: American Style: A$ .9340, kiwi .7445, C$ .9555, euro 1.4970, Sterling 1.6720, Swiss .9920, European Style: rand 7.3910, krone 5.5730, SEK 6.8060, forint 178.90, zloty 2.7375, koruna 17.0530, RUB 28.68, yen 89.50, sing 1.3850, HKD 7.75, INR 46.22, China 6.8269, pesos 13.01, BRL 1.7125, dollar index 75.03, Oil $77.19, 10-year 3.40%, Silver $17.85, and Gold... $1,130.30

That's it for today... Our resident TV personality, Ty Keough, was announcing the Missouri Valley Conference Soccer match yesterday on Fox Sports Midwest... Ty had a great line during the match, referring to one shot by a player as being a "venomous shot!" I made a drive to the country yesterday to visit my graves of my parents and oldest sister... It had been a couple of years since I made that drive, my bad... The little country town that our family farm sat outside of, hasn't changed... It's still the same quiet little country town in mid-Missouri... Went to dinner with good friends, Lisa and Kevin on Saturday night, they used to be our neighbors, and now we rarely see them... UGH! OK... Mike's here, so that means it's time to hit "send"! I hope you have a Marvelous Monday!

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

Germany & France Post 3rd QTR Growth...

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

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

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

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

In This Issue..

* 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

German Business Confidence Slides...

ChuckButler — Tue, 10 Nov 2009 15:18:01 GMT

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

* Currencies trade in a tight range...
* $81 Billion in Treasury auctions this week!
* Fitch fans the flames of a fire in the U.K....
* Aussie Business Confidence rises...

And Now... Today's Pfennig!

German Business Confidence Slides...

Good day... And a Terrific Tuesday to you! I didn't start out this Tuesday on the right foot, and now I'm really running late! Oh well...

The non-dollar currencies didn't move much yesterday, the euro bumped up and down against the 1.50 figure, while the A$ did the same against 93-cents, and Swiss against parity... So the currencies are trading in the same clothes they went to bed in last night!

The Big Dog, euro, did attempt to move stronger into the 1.50 level, but that move was thwarted by a poor reading of German Investor Confidence this morning. German Investor Confidence as measured by the think tank ZEW, reported that their index had fallen to 51.1 this month VS the 56 in October. Most of those Germans surveyed said that they expect the economic recovery to be slow once the Gov't removes the stimulus in the economy. So... Previous euphoria is being replaced by realism... But that's OK... Better to have a reality grip on things than to go around thinking that everything is seashells and balloons...

But, the ZEW report hasn't dampened the euro's spirit too much, as the single unit has remained above 1.50 even after digesting the ZEW... But looks vulnerable...

The ZEW report gets all the ink... But on the back page we can find that German industrial production increased 2.7% in September compared with August, which saw a 1.8% rise.

Hey did you know that the U.S. is auctioning off another $81 Billion in Treasuries this week? Yes, this total is lower than the recent auctions the U.S. has held... But still... $81 Billion isn't anything to ignore! However, with the nutcases in the world, shooting off missiles, and ramping up nuclear capabilities, there's still some people that believe U.S. Treasuries are a "safe haven"... Of course I've proven that those that believed that and bought during the financial meltdown, lost tons of money... But don't let that get in they way of a "good story"... And so it will be, that this auction will not be the "one that fails"... But, in my opinion, we will experience that at some time in the next year, especially given the Gov't deficit spending!

And... If an auction of U.S. Treasuries fails... Well... Being long Treasuries isn't going to look too much like a "safe haven" position!

I was supposed to give a presentation last week in Los Cabos on the Treasury Bubble... Of course, we all know that I was not there, so I didn't give the presentation... UGH!

OK... There was all kinds of rumbling, stumbling, bumbling going on in the U.K. overnight, as the rumors were flying that the ratings agency, Fitch, said it would lower the U.K.'s AAA rating... Finally it was confirmed that this was stated in an interview with Reuters, and not an official communiqué' by Fitch... But, dear reader, when there's smoke like this, you can bet there's fire! The pound sterling has taken this news like a blow to the mid-section...

In Australia overnight... Australian Business Confidence rose to near 6 year highs for the index... October's index reading was 16, which was plus 2 from September's index reading. The businesses surveyed strongly believe that the Reserve Bank of Australia will once again raise rates in December... I loved this quote from the Australian Trade Minister, who said, "Despite the A$ going up, manufacturing has improved, and manufacturers just have to learn to accommodate this sort of thing going forward using hedging."

That's right! Tell 'em! Deal with this A$ strength and quite your whining! I love it!

The Canadian dollar / loonie continues to push higher VS the green/peachback dollar... This is all commodity related, as the data in Canada continues to be mixed, with the Bank of Canada (BOC) keeping rates in line with the U.S. thus, keeping the loonie from looking attractive... But, that's OK... With Gold inching higher and higher, Oil hovering around $80, and other commodities moving higher in price, the Loonie can get its lipstick from commodities to look attractive!

Speaking of Gold... I saw this quote and thought it hit the nail on the head... "It's not that gold has changed, but gold buyers have changed," said Suki Cooper, a precious-metals strategist for Barclays Capital. "It's a structural shift we're seeing on the investing side, from Asian central banks right down to individual investors buying ingots and coins."

That's right! Gold hasn't changed... It's still has to be mined out of the ground, it can't be made by any alchemist, it has to be mined... And the demand in Gold has skyrocketed in the past couple of years, thus pushing people to send in their gold bracelets, necklaces, and rings to cash in the Gold price surge... So... This group of people over here are selling any and all Gold they can get their hands on, and this group over there are buying it, for a rainy day...

Gold's recent rise has been spectacular to say the least, moving through the $1,000's to $1,100 very quickly... I think there are two things in play here... 1. the demand for Gold driving the price higher, and 2. the dollar's weakness. I heard a guy say the other day that "Gold hasn't gained... The dollar has gotten weaker"... What? Nothing about the demand?

We don't have any "real data" today to speak of in the U.S. but we've got a truckload of Fed Heads out on the speaking circuit... Lockhart, Yellen, Rosengren, Tarullo, and Fisher all will be speaking about something today... Shoot Rudy, even former Fed Chairman, Big Al Greenspan is going to speak today... No telling what he might say! Of course, if the subject comes up regarding the financial meltdown, he'll say that he had nothing to do with it! HOGWASH! And we all know it! So, it doesn't matter how many times he tries to absolve himself from any responsibility for the financial meltdown, we all know that at the root of it all... Sits Big Al Greenspan...

And then there was this... The folks over at Barclays say that they have recalculated the dollar's share of global currency reserves... The dollar, which once stood at 80% of global reserves, and right before the current weak dollar trend began in 2002, it stood at 73% of global reserves, has fallen to 62.8%... But... Says Barclays... This is almost entirely a result of weaker valuation rather than attempts by central banks to diversify holdings away from the dollar... Hmmmm... Now... I do agree that the euro's gains VS the dollar in the past 7 years would cause quite a bit of slippage in the dollar's value in terms of reserves held by central banks... But "almost entirely"? I doubt it... One could point at the Reserve Bank of India's purchase of Gold last week... They bought $6.7 Billion "worth" of Gold... You can't tell me that wasn't to diversify their reserves!

OK, to recap... Chuck's running late today... The non-dollar currencies are trading in the same clothes as yesterday. The ZEW German Business Confidence slipped this month, although Industrial Output rose. The U.S. is auctioning $81 Billion worth of Treasuries this week, and the demand for Gold is really pushing the envelope in terms of Gold's price!

Currencies today 11/10/09: American Style: A$ .9280, kiwi .7415, C$ .9455, euro 1.4990, sterling 1.6670, Swiss .9915, European Style: rand 7.44, krone 5.5960, SEK 6.8580, forint 181.50, zloty 2.81, koruna 17.0420, RUB 28.71, yen 90.10, sing 1.3880, HKD 7.75, INR 46.48, China 6.8267, pesos 13.30, BRL 1.71, dollar index 75.10, Oil $79.54, 10-year 3.36% (notice how, whenever the 10-year yield gets to 3.60%, it comes back down?) Silver $17.25, and Gold... $1,100

That' it for today... HEY! Tomorrow is a holiday! So, no Pfennig tomorrow! It's Veteran's Day tomorrow... My dad was a Veteran... And each year, I go back to a story that my darling daughter, Dawn told me... A few years ago, at Dawn's school, they had a Veteran's Day celebration, and had everyone bring in pictures of relatives in their military uniforms... When the picture of my dad, (Dawn's grandpa) came up on the screen, she was amazed, and sent me a note saying she had never seen how much I look like her grandpa (my dad)... So... Let's not just take the day off tomorrow... Let's stop to think about why the day is a holiday! And thank a Veteran... That's all... I hope you have a Terrific Tuesday, and I'll talk to you on Thursday!

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

3rd QTR GDP Is Strong!

ChuckButler — Fri, 30 Oct 2009 14:40:04 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
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Don't miss this unique opportunity. Deadline to buy the BRIC MarketSafe CD is Dec. 3rd, 2009. Apply today or learn more at http://www.everbank.com/001CertificatesMSBRIC.aspx?referId=11808
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In This Issue..

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

And Now... Today's Pfennig!

3rd QTR GDP Is Strong!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A Loss Of Confidence In the U.S.?

ChuckButler — Mon, 19 Oct 2009 14:53:00 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

In This Issue..

* Non-dollar currencies rally...
* Euros and Aussie dollars lead the pack...
* $1.42 Trillion Deficit for 2009!
* TIC's data gets ignored again!

And Now... Today's Pfennig!

A Loss Of Confidence In the U.S.?

Good day... And a Marvelous Monday to you! Another "lost" weekend for our college and professional football teams! UGH! The sun finally came out this weekend. YAHOO! It felt so good to be in the sun again... The TICs data was something that needed to be dealt with on Friday, but once again the markets ignored it... I'm telling you, this smells like, walks like, and talks like a gag order... OK... Let's get going this Marvelous Monday!

The non-dollar currencies all drifted on Friday, with the dollar seeing a bit of buying... But that's all been thrown to the curb this morning, as the non-dollar currencies, for the most part, are in rally mode VS the dollar.

The Big Dog, euro, has really pushed the envelope this morning, rising from 1.4860 to 1.4945 as I write... The Aussie dollar (A$) is also working alongside the euro pushing the dollar down. I just put the finishing touches on both the Review & Focus monthly letter, and my "other letter", the Currency Capitalist, yesterday... I had some strong words for the Gov't now and in the past that has allowed this weakness in the dollar. And trust me, if the U.S. Gov't wanted a strong dollar, all they would have to do is say so with conviction, and not this wamby pamby stuff they try to get away with just to put a governor on the dollar's decline... Think about this for a minute... It's true, it's really true... Your Gov't doesn't care about the currency... The currency that we all use, and think it will always be there for us to spend...

WOW! I really got carried away there, eh? I don't need to get up on the soapbox already on a Monday morning! But... These are the things that need to be said, and I'll say them! Not like our wamby pamby media, that will talk about the weak dollar, but never what causes it!

The Gov't finally got around to printing their final Monthly Budget Statement that would end their fiscal year (Sept 30th)... The final total was $1.42 Trillion in the red... That's 10% of GDP! That's the highest level since World War II! And remember when I kept telling you that the expenditures for this administration in 2009 would come in at $3.5 Trillion dollars? Well, that's just about where they came in... And with revenues dropping 16.6% from 2008, we are left with this atrocious Deficit of $1.42 Trillion! And don't forget (here I go sounding like an infomercial again) that the next 10 years is forecast to add an additional $9 trillion to our national debt!

OK, so what's up with the TIC's data from Friday? Remember now... The TIC's data is an accounting of the net foreign purchases which are needed to finance that atrocious deficit... So how'd we do? Well... The big picture of all flows in and out for the last 12 months turned negative and is just shy of the worst level recorded, which was in 1982. OUCH! Central Banks seem to be buying about the same amount, which isn't a good thing when you consider the increase in Treasury issuance... But the real fall off has come from the Moms and pops... The private investors if you will... So... Is this just an aberration, or... It could very well be a loss of confidence of global investors in the U.S....

There was a hint of this loss of confidence on Friday in the China Daily newspaper... And it wasn't the fact that the story was in the paper, it was the fact that the story was front and center for everyone to read... It was a quote by Big Al Greenspan, our former Fed Chairman who said that he "fears the budget deficit of the U.S. more than the collapse of the dollar." Hmmm...

What the heck is Big Al talking about? He knows well and good that the Deficit is the cause of the dollar depreciation! And just the fact that the Chinese put it front and center on their daily newspaper tells me that they are making fun of Big Al, and at the same time telling their readers that they should avoid dollars... I don't know what it tells anyone else, but that's what it tells me!

Recently, I've talked about seeing signs of a return to fundamentals... I really do believe that we're headed in that direction once again, which would be like manna from heaven to your Pfennig writer! Fundamentals are much easier to understand that these crazy trading themes that go against normal logical thinking!

Well... The boys over at PIMCO, the world's largest bond fund, seem to believe that "Fundamental forces are set to put downward pressure on the dollar as the recovery gathers momentum. Those forces include massive budget deficits, bets the Federal Reserve will keep borrowing costs near zero for an extended period, and prospects for a double-dip recession in the U.S."

Sound about right to me! Given those fundamentals for the dollar, and take away the "flight to safety" trading theme, you've got a Betty Crocker award winning recipe for a dollar decline!

The Bank of Canada (BOC) meets tomorrow... I'm going out on a limb here, to say that I think the BOC will remove that statement they've repeated for a few months now that interest rates would remain at current levels near zero until the 2nd half of 2010... Why do I think that, when the BOC has been so adamant about this statement in previous meetings? Ahhh grasshopper... First of all Australia has already raised interest rates, and their central banker has already talked very hawkish about future rate hikes... The other "Commodity Countries" of Norway, New Zealand and Brazil, are also beginning to talk up rate hikes... So, in my mind, the BOC will begin to "feel the heat" of their Commodity Brothers raising rates, and the only way they'll be able to move then is to remove the statement about leaving rates unchanged... NOW!

Getting back to the euro for a minute... I find this move higher by the euro VS the dollar this morning to be quite impressive, given that the Financial Times (FT) had an article saying, "It was time for the ECB (European Central Bank) to get serious about an overvalued euro"... Funny, the timing of this article... The Eurozone Finance Ministers are meeting today... And in the face of all this... The euro rallies!

And as I mentioned earlier in the letter, the A$ is stronger this morning... It's my feeling right now that the negativity toward the U.S. dollar is really seen and magnified in the performance of the A$... And why not? You've got the country that was not affected by the financial meltdown, a country that was the first to raise interest rates, a country that is rich in the commodities that China demands, and on a sidebar, China is forecast to grow 9% in the 3rd QTR, and a country that has a Central Banker that has given the green light for appreciation of the A$ VS the U.S. dollar!

The data cupboard is full of 2nd tier data prints this week, so I really don't think the markets will get any direction from the likes of PPI, Housing Starts, etc. But maybe they will! You never know with these fickle dudes!

So... To recap... The TICs data last Friday indicated a loss of confidence in the U.S., the Budget Deficit for the U.S. was $1.42 Trillion for the fiscal year ending Sept 30th. The currencies, for the most part, are rallying this morning VS the dollar, and the data cupboard will fail to give the markets direction this week. Some Chuck speak on the soapbox on a Marvelous Monday too!

Currencies today 10/19/09: A$ .9225, kiwi .7475, C$ .9670, euro 1.4935, sterling 1.63, Swiss .9865, rand 7.35, krone 5.5910, SEK 6.9580, forint 178.50, zloty 2.8130, koruna 17.29, RUB 29.33, yen 90.80, sing 1.3915, HKD 7.75, INR 46.30, China 6.8268, pesos 13.07, BRL 1.7130, dollar index 75.50, Oil $78.13, 10-year 3.45%, Silver $17.52, and Gold... $1,055.40

That's it for today... Hey! I forgot to mention last week that I had the featured guest essay on the Daily Reckoning (www.dailyreckoning.com) last Wednesday! If you aren't a Daily Reckoning reader, you missed it... But, because of the technology available to us, you can click here to read it: http://dailyreckoning.com/bric-nations-the-fundamentals/ Congrats to my little buddy Alex and his 8th grade Flyers teammates for completing a weekend sweep! Two football games, two smashing victories! Well, it's that time of the year again... On Friday of this week, I'll be going through a ton of tests, scans, needles and other stuff to make sure I'm still on top of the cancer that took over my body 2 years ago. So, I'll be out on Friday... But you still have me for the next 3 days! We closed out our latest BRIC MarketSafe CD last week, and opened the door to another one! This issue has been so popular that we decided to extend the funding period! OK... Time to hit send... I hope your Monday is Marvelous indeed!

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

RBA's Stevens Turns On The Green Light!

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

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

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

Don't miss this unique opportunity. Deadline to buy the BRIC MarketSafe CD is Nov. 5, 2009. Apply today or learn more at http://www.everbank.com/001CertificatesMSBRIC.aspx?referId=11808

In This Issue..

* 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

The dollar drifts lower in thin trading..

ChuckButler — Tue, 13 Oct 2009 14:39:00 GMT

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In This Issue..

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


And Now... Today's Pfennig!

The dollar drifts lower in thin trading...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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