Search results matching tags 'Euro' and 'Asia'

Chuck asks 'Where's the money??'

ChuckButler — Mon, 02 Aug 2010 14:10:14 GMT

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In This Issue..

* Chuck's parting shots...
* Greenspan still demands the spotlight...
* Asian rally helps the kiwi and Aussie dollar...
* Gold pauses its recent rally.

And Now... Today's Pfennig!

Chuck asks 'Where's the money??'.

Good day. Chuck is headed down to Springfield with his family for their annual summer camping adventure, so he handed off the responsibilities of the Pfennig to me. But as usual Chuck left me a good bit of information before heading out the door; and here it is:

Well, folks... Just some parting shots for you before I headed out the door on Friday...

Right after I hit "send" on Friday, and had told you the euro has sold off 1-cent, and drug the other currencies (except yen and francs) with it... The euro turned around, and headed north! I felt as though I had sent out some bad information! But, there's always a time to cut off, and when I did, the selling was going on...

And I was Bang On with my call for a weaker 2nd QTR GDP than what was forecast, which was 2.5%, with GDP printing at 2.4%. So you can be assured that the proper amount of self back-slapping was done by me! HA!

But on the back of the page, it was reported that revisions to GDP going back to 2007, were done, and they had this data, that I'm sure you didn't see any where else! The revisions showed a generally softer economic performance with 2007 growth at 1.9% (vs. 2.1%), 2008 flat compared to previously reported gain of 0.4% and a 2.6% drop in 2009 from -2.4%.

Now... The Gov't tells us that 1st QTR GDP this year was "revised up" to 3.7% from 2.7%... Who among us believes that, now knowing the downward revisions to previous reports? Yes, that's what I thought!

In a much lower priority news item, Canadian 2nd QTR GDP printed at +.1%, pretty anemic... But... The good news of the report came in the "good-producing industries" which showed a 3.4% surge in the mining and oil and gas extraction... That's good news for commodities...

And then I left this on the desk for whomever wanted to take the reins on my previous research... Basically, I'm charting something that looks very fishy to me, and would like for someone at the Cartel, or Treasury to explain to me... Basically, it's like this... For nearly 4 years, the U.S. has accumulated a Federal Deficit of $3.2 Trillion (the total added to the deficit prior to 4 years ago is now $13,258,239,000)...

However, our Treasury issuance, which is supposed to equal the deficit that we need to finance, was $1.5 Billion more than the Federal Deficit for the same period! The U.S. has issued $4.7 Trillion in Treasuries... Inquiring Minds need to know, just where are these funds?

And... If the audit the Fed Bill that Ron Paul introduced had been approved, and not watered down, we would know things like this!

Any way... Don't get mad at Chris regarding this... It's me. And I'm on vacation... Starting.... NOW!

See you August 9th...

As I said earlier, Chuck is headed down south to spend the week with his family on the shores of Table Rock Lake. They spend the week enjoying each other's company sans the constant interruptions of phones and the noise of televisions / video games. I just hope the AC on his camper works, as the weather is supposed to be pretty hot this week. I guess they always have the lake to cool them off!

The US$ continued to cool off over the weekend as reports indicated the recovery in Asia is gaining steam. Former Federal Reserve Chairman Alan Greenspan threw cold water on the dollar appearing Sunday on 'Meet the Press'. Greenspan said the economic recovery is on 'pause' here in the US, and worried that falling home prices could send us into the second half of a double dip.

"We're in a pause in a modest recovery, but a pause in the modest recovery feels like a quasi-recession," he told NBC. Greenspan tried to stay positive when pressed about the risks the US economy faces in the coming months. "Home prices, as best we can judge, have really flattened out in the last year," Greenspan said. "And while it is true that most economists expect a small dip from here, largely as a consequence of the ending of the tax credit, the data don't show that at this particular stage. If home prices stay stable, then I think we will skirt the worst of the housing problem."

That is a pretty big IF, and our former Fed Chairman doesn't have a good history predicting the direction of home prices (remember when he refused to see the housing bubble!). I think rising foreclosures and a stubbornly high unemployment rate will challenge Greenspan's overly optimistic outlook on the US housing market, but hopefully Big Al is right and I am wrong.

We do agree on what should be done with the Bush-era tax cuts which are set to expire at the end of the year. Greenspan said he disagrees with the notion that they should be extended. "I'm very much in favor of tax cuts, but not with borrowed money," he said. "And the problem that we've gotten into in recent years is spending programs with borrowed money, tax cuts with borrowed money, and at the end of the day, that proves disastrous. And my view is I don't think we can play subtle policy here on it."

So the combination of better growth prospects in Asia, and the cautious tone of Alan Greenspan kept the dollar lower in early European trading. The Euro held up above $1.30 for a 5th day in a row and is close to moving up over $1.31 today. A gauge of manufacturing in the 16-nation eurozone increased to 56.7 from 55.6 in the previous month. That puts this indicator of manufacturing health at a three month high. This data is in direct contradiction to what is occurring here in the US. Today will bring the release of the ISM Manufacturing index here in the US. This is expected to have fallen to 54.4 during the month of July from a figure of 56.2 in June. Recent data shows the recovery in Europe may have more staying power than that of the US. While the early numbers showed the US recovery came out of the blocks faster, the 'slow and steady' pace of the Euro region recovery may win out in the long run.

But some currency traders don't agree. The Royal Bank of Scotland suggested investors should be selling euros against the dollar amid risks that the euro-region growth will start to moderate. An RBS analyst wrote in a report this morning that it is 'tactically the right time to sell the euro'. And the folks over at RBS aren't the only ones indicating that the Euro could be at a short term peak. I read a couple other stories on Bloomberg this morning which reported that many hedge funds are betting the recent run-up in the Euro has been overdone, and many expect the euro to fall back to test the $1.25 levels of early July.

The best performing currencies over the weekend have been the New Zealand dollar, Australian dollar, and the Norwegian Krone. These commodity based currencies are some of our favorites here on the WorldMarkets desk, but have suffered a bit recently as currency investors have moved money back into the US$ as a 'safe haven' move. Signs that the Asian economy is remaining on a good recovery path helped boost demand for the New Zealand kiwi and Aussie dollar.

The Australian central bank will probably keep interest rates unchanged for a third month during their meeting tomorrow. Consumer prices had the smallest increase in three years during the last quarter, allowing RBA Governor Glenn Stevens a bit of room to pause in his fight against inflation. This is also an election cycle in Australia, so the RBA will not want to risk damaging Prime Minister Julia Gillard's election campaign with an increase in rates.

Positive economic news out of both Europe and Aisa have sapped 'safe haven' demand for the precious metals, sending Gold down nearly $8 in early European trading. Gold had nearly recovered from the dramatic $26 selloff early last week and closed at $1182.95 on Friday, but started off this morning on a negative note. But as New York is starting to come into the market I see the gold price heading back up. I guess the folks on Wall Street think these prices below $1180 are attractive, and I agree.

To recap: Chuck headed down to southeast Missouri for his annual summer vacation, but not before sharing a bit of a riddle regarding the recent US debt issuance, Greenspan still thinks the housing markets have stabilized, but warns what could happen if he is wrong, Eurozone manufacturing surprised on the upside pushing the euro higher, but many believe it is now time to sell, and the RBA will probably pause rates.

Currencies today 8/2/10: American Style: A$ .9113, kiwi .7327, C$ .9771, euro 1.3068, sterling 1.5826, Swiss .9569, ... European Style: rand 7.263, krone 6.0183, SEK 7.1622, forint 215.67, zloty 3.0525, koruna 18.8978, RUB 30.1765, yen 86.67, sing 1.3538, HKD 7.7637, INR 46.25, China 6.7745, pesos 12.583, BRL 1.7549, dollar index 81.407, Oil $79.75, 10-year 2.93%, Silver $18.10, and Gold... $1,177.10

That's it for today... I had a great weekend, enjoying a happy hour with all of the gang on Friday night to celebrate Ann Hopkin's 50th birthday. I got to take my two favorite girls out to dinner Saturday night, as my daughter Lauren accompanied my wife to a sidewalk café in the Central West End. And yesterday I was honored to be named the godparent of beautiful little Izabelle; the first child of my wife's sister Lisa. It really was a great weekend! I hope everyone has a Marvelous Monday and great start to your week!!

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

Flexibility Is The Word Of The Day!

ChuckButler — Mon, 21 Jun 2010 16:43:03 GMT

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

In This Issue..

* A Big Currency rally!
* Renminbi to become flexible...
* Unintended consequences...
* Gold flies past line of resistance!

And Now... Today's Pfennig!

Flexibility Is The Word Of The Day!

Good day... And a Marvelous Monday to you! It was Father's Day yesterday, I had a grand time, I hope you did too! It was extremely hot here, but shoot Rudy, it's summer... It's supposed to be hot!

Well things heated up in the currencies this weekend... Yes, while everyone was wiping the milk from their mouths from their cereal they ate for breakfast on Saturday morning, the Chinese made a BIG announcement... Rather than tell you in my own words... Here is the official statement from the People's Bank of China (PBOC)...

"In view of the recent economic situation and financial market developments at home and abroad, and the balance of payments (BOP) situation in China, the People's Bank of China has decided to proceed further with reform of the RMB exchange rate regime and to enhance the RMB exchange rate flexibility." (they say RMB for renminbi)

So... After many months of having the renminbi pegged to the dollar, although it was not an official peg, it was a de-facto hedge, the PBOC will resume the ascent of the renminbi VS the dollar that took place for 3 years after the "official peg" was dropped in July of 2005... But, the financial meltdown of August 2008, put a governor on the renminbi that has now been removed, per the statement from the PBOC.

The PBOC also said that the "new currency regime" would be to value the renminbi VS a basket of currencies (that's how they did it 2005-2008), but this time they mentioned that they would allow the markets some say in the movement of the currency. Now... Please pay attention to what I'm about to say... There are a lot of people that believe that this will mean a HUGE ONE-WAY Street for renminbi VS the dollar... I'm not one of those! While I think at the moment renminbi should move higher VS the dollar, there's not "guarantee" that it will always move higher VS the dollar! The renminbi is now "Flexible"!

So... How did the Asian and European markets react to the news when they opened overnight and this morning? Well... They like it! Especially the Aussie & New Zealand dollars...

OK... So... Remember when I said that I just didn't believe that China's economy was going to collapse like many so-called "experts" were saying? Listen... China would not have done this if their economy was on the edge of collapse! So... That sent a signal that it was "back to business" for these two South Pacific currencies...

The euro traded all the way up to 1.2490 when the markets opened in Asia last night. But that euphoria faded and the euro is back to attempting to move past 1.24! The single unit tried 3 times last week, and was "shot down" April Wine style... But with this newly acquired appetite for risk that the markets now have, we just might see the single unit move past 1.24 and remain there for more than a couple of hours!

The Swiss franc has returned to the 90-cent club, and the Canadian dollar / loonie is pushing the envelope of parity once again!

There is a lot of "event risk" in the markets this week... By that I mean, we've got a Fed FOMC meeting, a Norges Bank (Norway) meeting, the U.K. will announce an emergency budget, and a G-20 meeting at the end of the week... Speaking of G-20... They won't be able to point fingers at China this time!

There is some data to print this week... Home Sales data dominates here in the U.S. In Germany, there will be an IFO confidence printing, and in Canada, we'll see CPI (consumer inflation)... This Canadian CPI report, I think, has the potential to be the straw that stirs the drink for the loonie... The Bank of Canada (BOC) next meets on July 20, and there won't be any inflation data between this week and that meeting. So... A higher than expected CPI could lead the markets to believe the BOC would hike rates on July 20... And vice versa should the CPI be lower than expected...

Even if Canadian CPI is strong, I don't believe it will be enough to move the BOC to hike rates. The BOC made it quite clear after becoming the first G-7 country to raise rates, that it was not going to be an aggressive rate hike cycle... But... Just because I believe that, doesn't mean the markets will follow... I still think they will get all juiced up on a strong CPI...

Well... China's announcement HAS to be a shot across the bows of U.S. Treasuries... A stronger renminbi, means less currency reserves, which means less money that the Chinese will have to buy Treasuries... And the rot on the Treasuries' vine is being exposed already, with the long bond down over 1 point overnight... And the 10-year? Well, last Friday it traded with a yield of 3.17%, today... It's 3.28%...

Remember when I told every U.S. Treasury Sec. and lawmaker that went to China and demanded that they allow more flexibility in their currency, that they should be careful what they wished for? Unintended consequences... And U.S. Treasuries are going to see those unintended consequences up close and personal...

And Gold... The price of Gold is $1,260 this morning... WOW! I was told last week that there were quite a few trades at $1,255 to sell, a line of resistance, if you will... Looks like Gold didn't care too much about that line of resistance... There are some funny thoughts I had go through my mind about historic weak resistance lines, but those are better kept in my head!

With the renewed appetite for risk... The Japanese yen doesn't look so perky any longer. And in my mind, that's exactly how it should be! Japan and the U.S. the two largest debtor nations on the planet...

And... With the renewed appetite for risk... The Brazilian real is back in the driver's seat... Sniff-N-The Tears style! The real has gained over 2% in the past 5 days, which nearly brings the real back to the same level it began as we turned the calendar on the year! And with the HUGE interest rate differential real enjoys, that's manna from heaven for some investors!

Then there was this... (from the NY Times of which I despise, but that's where the story was)
"Many states are acknowledging this year that they have promised pensions they cannot afford and are cutting once-sacrosanct benefits, to appease taxpayers and attack budget deficits.

Illinois raised its retirement age to 67, the highest of any state, and capped public pensions at $106,800 a year. Arizona, New York, Missouri and Mississippi will make people work more years to earn pensions. Virginia is requiring employees to pay into the state pension fund for the first time. New Jersey will not give anyone pension credit unless they work at least 32 hours a week."

But get this... "Nearly all of the cuts so far apply only to workers not yet hired. Though heralded as breakthrough reforms by state officials, the cuts phase in so slowly they are unlikely to save the weakest funds and keep them from running out of money."

Hey! I don't make this stuff up!

To recap... China made a HUGE announcement on Saturday, saying they would return to allowing the renminbi to be moved by the markets (to a degree) using a basket of currencies as their guide. This announcement has fired up the Risk takers, and almost all currencies, save dollar and yen, are gaining ground this morning.

Currencies today 6/21/10: American Style: A$ .8840, kiwi .7150, C$ .9850, euro 1.2410, sterling 1.4850, Swiss .9025, ... European Style: rand 7.4560, krone 6.3370, SEK 7.6685, forint 224.10, zloty 3.25, koruna 20.7130, RUB 30.73, yen 91.30, sing 1.3750, HKD 7.7725, INR 45.75, China 6.7965, pesos 12.43, BRL 1.7715, dollar index 85.47, Oil $78.31, 10-year 3.28%, Silver $19.45, and Gold... $1,261.40

That's it for today... Well... Some very exciting news from China, eh? Oh! Guess what? Things at Wal-Mart and Costco are going to get more expensive... My beautiful bride returned home from her extravaganza San Francisco trip Friday night. I'm having a difficult time getting my motor started this morning... Just plum tired! Cardinals had a good home stand, but should have swept both series. UGH! So... Did the U.S. men's team get a win taken away from them on Friday or what? That was horrible! And... One of the reasons, soccer has had a difficult time gaining on baseball, football, and hockey... Still a great game though, being down 2-nil, and coming back to score 3 goals in the second half (the third goal was taken away for some mysterious reason)... If they beat Algeria on Wednesday, they'll go through to the next round. OK... Gotta go! I hope you have a Marvelous Monday!

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

Counting Flowers On The Wall...

ChuckButler — Thu, 22 Apr 2010 14:42:26 GMT

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In This Issue..

* A non-movement day in currencies...
* Euro gets hit again by Greek debt levels...
* Asia is bellwether for global growth...
* Gold rallies!

And Now... Today's Pfennig!

Counting Flowers On The Wall...

Good day... And a Thunderin' Thursday to you! I hear that the "rains" are coming today, and will be around until next Tuesday! We'll be water logged, eh? I want to thank everyone who sent along the "welcome back" notes yesterday. I need to make something clear... I'm not at the office... Not yet, they won't let me... So, I'm writing from home, and I have to pat myself on the back because I didn't complain one iota about writing from home yesterday! HA!

Talk about counting flowers on the wall, playing solitaire till dawn with a deck of 51, and all those other things that fall under the category of being bored, and dull... That was the day in currencies yesterday...

The euro continued to have pressure applied from Greece, and the Canadian dollar / loonie remained above parity all day long! And other than that... I was smoking cigarettes and watching Captain Kangaroo, now don't tell me... I've got nothing to do!

In the overnight markets, risk assets were sold off in Asia, and then bought in Europe, leaving them trading in the same clothes as yesterday.. The Canadian loonie did slip back below parity overnight, but really the move is miniscule.

Gold really mounted a charge during the day. And I know that we really only care about how Gold does VS the dollar, since the majority of us are dollar based investors... But the real move by Gold yesterday came VS the euro... Which makes sense given the decline of the euro in recent months.

A rise in commodities and risk taking is going on folks... Are you a part of it?

The boys and girls over at Morgan Stanley reported that their risk taking in commodities increased by 17% in the 1st QTR... And the boys and girls over at Goldman Sachs reported that their risking in commodities increased by 29%...

Many times over the past 10 years, I've talked to you about the Commodities Bull Market, and how in Jim Rogers' book he explained how in the recorded history of Commodity Bull Markets, the average length of them were 17-22 years... We've only been on this road of a bull market in Commodities for 10 years folks... Sure, they back off at times... But doesn't that mean it's a great time to buy more, because when they are cheaper you can buy more!

The news this morning regarding Greece just continues to get worse... Greek debt levels for last year are now forecast to exceed 14% of GDP... The last forecast was 12.7%...

Of course, if we counted the beans correctly here in the U.S. our debt level to GDP would be something to behold, and not in a good way! And that's just the Budget Deficit... Which leads to a higher national debt, but shoot Rudy, why would we need to be concerned about that now? We're just passing the 56th floor, and so far... So good...

In case you're new to the Pfennig, that last line is a funny story I tell about how the people that say deficits don't matter, remind me a guy that decides to jump off the Empire State Building, as he passes the 56th floor, he says... So far... So good!

OK... Yesterday, there was news from 1/2 of the BRIC's... Brazil and India issued a statement that said they agreed with the U.S. in regards to the need for an upward revaluation of the Chinese renminbi... Hmmm... I found that to be quite interesting in that, these two have been all snuggly with China, but then say something that might rattle China's cage...

Meanwhile back at the ranch, grandma is holding off the Indians! What I mean here is that all the while, these two currencies from India and Brazil, continue to gain VS the dollar... So, you could see why these two countries, that have a ton of trade with China, would like to see the renminbi keep in step with their own appreciation...

Speaking of India... Yesterday, I mentioned that the rupee had been Asia's best performer... The currency has been stealth like in its move higher in recent months... I mean the daily move is so small that no one seems to notice, and then before you know it... Wham! You have a nice gain... The thing that I have in the back of my mind now, is simply that in the past 5 years, whenever the rupee got to this kind of appreciation VS the dollar, the Reserve Bank of India (RBI) would step in and intervene, taking the rupee lower...

Asia continues to be the bellwether for global growth... We've seen strong economic expansion, fueled by consumer spending and investment in China and India. And then, we had the upward revaluation in Singapore... So, it's natural that the thoughts should be centered on a Chinese revaluation...

But... The Chinese are the Chinese, and they will NOT be told, coerced, or even "nudged" toward a revaluation, especially if it looks like they did it because of outside influence! So, in my opinion, you should resign to looking for a return to slow, daily, appreciation of the renminbi, like we used to see before the financial meltdown...

As I get ready to head to the Big Finish, I notice that the euro is in somewhat of a tailspin from the Greek news this morning...

Today, we get some data on PPI (wholesale inflation), and Existing Home Sales, along with the Weekly Initial Jobless Claims... Now somewhere in the black mountain hills of Dakota... Behind the curtain, in hopes that no one notices... The Treasury will announce their next funding amounts for 2, 5, and 7 year T-Notes... This should be interesting folks, and the beat goes on...

To recap... The currencies didn't move much yesterday, while Gold did, especially VS the euro. The overnight markets sold risk assets, and the European markets bought risk assets, but, the euro is getting smacked around because Greek debt levels are being revised higher, and we get the funding announcement today by the Treasury...

Currencies today 4/22/10: American Style: A$.9265, kiwi .7115, C$ .9995, euro 1.3350, sterling 1.54, Swiss .9320, European Style: rand 7.4750, krone 5.9210, SEK 7.2050, forint 198.10, zloty 2.9060, koruna 19, RUB 29.16, yen 92.90, sing 1.3725, HKD 7.7615, INR 44.54, China 6.8264, pesos 12.22, BRL 1.75, dollar index 81.37, Oil $82.92, 10-year 3.73%, Silver $17.93, and Gold... $1,143

That's it for today... Happy Earth Day! I remember when I was a young man, going to Forest Park here in St. Louis for these HUGE Earth Day celebrations, but then it was a "hippie thing"... Everyone had on their "earth shoes", their tie dye shirts, and cut off jean shorts, or jorts, as we used to call them... Day two of this experiment of me getting up early to write from home is in the books. My eye socket is healing, I can tell, the itching is driving me nuts! But now that I no longer have that piercing pain I can keep my right eye open, and hopefully I'll get to drive again... For, I can see clearly now, the pain is gone... It's a Great Day! So... I hope your Thursday is Thunderin' and you stay out of the rain!

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

High Yielders Rally...

ChuckButler — Tue, 29 Dec 2009 15:42:00 GMT

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In This Issue..

* Is it Game On for Carry Trades again?
* A Trade-Free Zone for Southeast Asia!
* 10-year yield rise will shut down the mortgage rally...
* A min-rally for the euro this morning...

And Now... Today's Pfennig!

High Yielders Rally...

Good day... And a Terrific Tuesday to you! I'm already draggin' the line today on the 2nd day back from vacation! UGH! The High Yielders are back to work this week, as the currencies of Australia, South Africa, and Brazil are attempting a come-back VS the dollar. This and more, as we head into the last Tuesday of 2009...

Well... The last Monday of 2009, was uneventful with the currencies remaining in Tupperware ranges (tight that is!), and with little to show in the way of any measurable appreciation VS the dollar. There was no sign of the U.S. Corporations repatriating their profits yesterday as was rumored... Of course they still have today, tomorrow and Thursday to do so...

The exception to that rule are the 3 high yielders I talked about in the intro to today's letter. Yesterday, I reported that the Aussie dollar (A$) was the best performing currency overnight, with Brazilian reals right behind... This morning, we have South Africa joining the party...

This, to me, is a sign... A sign that some risk taking is going on, and most likely in the form of Carry Trades... Just look at how the high yielders have gained ground VS the dollar... The other side is to look at how the Japanese yen has softened VS the dollar...

This is where the "crosses" that I've talked about endlessly in the past about, come into play... Currency crosses that feed back to dollars, and so on... For instance, if you are a German in Frankfurt, and want to sell your euros, and buy Swiss francs, that's a "currency cross"...

OK... Enough of that! I read a story last night, that was quoting an interview with a currency trader in London, who believed this dollar rally to be a "head fake", that was fueled by year-end position squaring, and profit taking... I would have to say that I truly believe that to be the case too... But... How long the "head fake" lasts, is the question... And that, I don't have an answer for... But... In my heart of hearts, I can't believe that it would take too much longer to get through it!

About 6 or 7 years ago, the Big Boss, Frank Trotter and I sat down to discuss Asia joining together, Eurozone like, to form a Union, and create their own single unit currency, we called "the Pan"... These thoughts were published by the good folks at the Daily Reckoning (www.dailyreckoning.com) and while they were good thoughts, most thought it was something that would never happen, given the animosities between Asian countries... But, looky, looky, what I see this morning!

The ASEAN (Association of Southeastern Asian Nations) has announced that they have created a free-trade zone for Asian... For now, the Asian free-trade zone will be behind those in the Eurozone, and the North American Trade (NAFTA). On a sidebar... Remember when Ross Perrault tried to tell us to listen to the "sucking sound" of jobs going to Mexico, if we signed NAFTA? Everyone thought he was a little whacky, and he was sent to the sidelines...

OK... So... This could be a BIG DEAL for Asia, eh? I think so...

Yesterday, I talked to you about the 10-year Treasury's yield rise, and the overall losses in Treasuries / safe haven trades... The thing I totally forgot to mention about all this is that the next shoe to drop here is with rising yields, mortgage rates are going to have to rise, and that will pull the rug out from under the housing rally that has never really been on terra firma any way...

We wouldn't see that for a couple of months though, because in mortgages, there's a pipeline of mortgages that have not closed yet, and have already had their interest rates locked in... So... Today's S&P/CaseShiller Home Price Index for October, isn't going to be close to recognizing the yield increases... But, I'll a bet a dollar to a Krispy Kreme, that the media will have not done their homework on this, and will tout the recovery of Housing should the data today indicate rising home prices... This is one where we'll have to wait-n-see... But, with 10-year yields on the rise, mortgage yields will follow, you can take that to the bank!

And... When all that begins to hit the fan once again, what's the Fed going to do then? Their balance sheet of mortgage backed toxic debt has grown to monster size... Something's got to give...

I've been watching the euro push higher VS the dollar this morning... And again the range is tight, but still the single unit has pushed up 1/4-cent while I was writing this morning. I'm sure that this will fade out as we go along today, as there just aren't enough 1st chair traders around to feed this rise... I thought I would use a music term to describe traders...

I've received a ton of requests over the years to add S. Korean won to the list of currencies that are offered by EverBank. The problem being is quite simple... The S. Korean won is illiquid, in that it is not traded freely and convertible... It's traded on what's called a "non-deliverable forward", which is exactly what it says... You can't deliver won! And yes, I know that we currently offer a handful of currencies that are "non-deliverable", but... The difference is the number of dealers that will take positions and make bids and offers...

One day the S. Korean won will be "mature" enough to offer... Until then we can only marvel at their Current Account Surplus...

The price of Oil is higher again this morning. I was reminded of the recent gains in the price of oil, as I filled up my car's gas tank this morning on the way to work. But, the price of Gold is off from yesterday's levels this morning... So the give-and-take for the Canadian dollar / loonie remains... But with the U.S. dollar under some pressure this morning, the loonie is getting brought along for the rally...

And don't look now, but the A$ is climbing ever-so-close to that 90-cent mark once again...

This could be one of those days, when with little volume, and no 1st chair traders (except me!) around, that we could see some wild swings... You could see one or two major players come in and try to move the currencies... The euro, has gained another 1/8-cent since just minutes ago, when I said it had gained 1/4-cent!

So... Almost to the Big Finish, and not one mention of deficit spending in the U.S.... But that's going to stop right here! Did you see where the U.S. is scheduled to post a $2.5 Trillion deficit in 2010? If that doesn't make you ill, or cough up your coffee, juice or milk, then you've become comfortably numb with these deficits, and I'm afraid there's no cure... I'd call the doctor if I were you... Oh! The doctor said he's coming but you gotta pay him cash!

I don't think the U.S. has that much in reserves! In fact, I know that they don't! So, not only will the Gov't be spending more than the revenues they take in, they will be spending more than the reserves of the U.S.

Now again, you've got to demand that this deficit spending stop!

You know the founding fathers of this country were pretty smart dudes... They put the spending power in the House of Representatives, and made the Representatives come up for election every 2 years. That way, if they were spending money against the wishes of their constituents, the constituents would not have to wait long to throw them out of office! And... With that thought, and see placed... I'll head to the Big Finish!

And then there was this... Jean-Claude Trichet, president of the European Central Bank (ECB), said the 16 nations that use the euro need to cut their budget deficit within the next couple of years. "In the Eurozone, budget deficits should be reduced in 2011 at the latest, in some countries already in 2010, to preserve faith in state finances," Trichet said. "In Europe and around the world, there are lessons to be learned from the financial crisis to make the financial system more resilient."

Once again, the ECB being more credible than the Fed...

To recap... The High yielders are pushing higher this morning VS the dollar. Aussie, Brazil, and South Africa lead the high yielders push. The Southeastern Asian nations are coming together to form a free-trade union, and could this be one of those "wild swings" days in currencies? Stay tuned, same bat time, same bat channel!

Currencies today 12/29/09: American Style: A$ .8975, kiwi .7175, C$ .9625, euro 1.4445, sterling 1.60, Swiss .9720, European Style: rand 7.4060, krone 5.7650, SEK 7.1580, forint 188.50, zloty 2.8735, koruna 18.2590, RUB 29.95, yen 91.60, sing 1.4025, HKD 7.7555, INR 46.66, China 6.8290, pesos 12.96, BRL 1.7280, dollar index 77.41, Oil $78.92, 10-year 3.85%, Silver $17.47, and Gold... $1,106.15

That's it for today... I totally forgot to mention yesterday, that it was really exciting watching former Mizzou Tigers Quarterback, Brad Smith, (who now plays for the NY Jets) run back a kickoff 106 yards for a touchdown the other day! Tre' cool! And... I know that I mentioned it before I left, but the day after Christmas is my beautiful bride's birthday... I think she enjoyed her day... Pretty tough having your birthday so close to Christmas! Do you have plans for New Year's Eve? Please be careful if you plan on going out. I want you back here for 2010 and beyond! My other project that I work on, The Currency Capitalist, is really taking off with regards to subscribers... That puts a smile on my face, and that of my publisher... Right Erika? The "editor" of the Currency Capitalist, Kat, does a fabulous job of taking my thoughts, and putting them into something people might want to pay to read! Did everyone like my offering of a Christmas Pfennig? I know the formatting of the poem didn't come out right in the Pfennig, and the meter, and rhyme wasn't exactly great, but when you have to work with so many names it's not easily done! OK.. Enough of this... Time to get this day going toward a Terrific Tuesday!

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

US$ saved by oil...

ChuckButler — Fri, 01 Aug 2008 14:01:49 GMT

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In This Issue..

* US$ saved by oil...

* US Recession? (not according to Paulson)...

* New Zealand worst performer in July...

* Big Mac Index says buy Asia...

And Now... Today's Pfennig!

US$ saved by oil...

Good day...And welcome to August. The markets had a little more movement yesterday as the US GDP report came in lower than expected, and had a hidden surprise for dollar bears (more on that later). In addition to the poor GDP numbers, Personal consumption dropped and the GDP Price Index also showed a decrease. The employment cost index was flat, and the weekly jobless claims were slightly higher than expected at 448k. More Americans filed initial unemployment claims last week than at any time in more than five years. The only positive piece of data released in the US yesterday was the volatile (and somewhat unreliable) Chicago Purchasing Managers number which showed an increase back above 50.

With all the bad data, the dollar sold off rather sharply and the Euro jumped a full cent to trade over 1.57 for a short while. But the dollar bears didn't celebrate for long, as the dollar sharply reversed course as crude oil prices rode to its rescue. As I explained earlier in the week, the price of crude oil and the US$ have had a very tight relationship lately, with a correlation of .9. Just after the dollar fell due to the GDP releases, crude oil began a sharp $3 drop and saved the US$ from further losses. The price of oil has continued to slide, and is now down over 11% in the past month. This has helped prop the dollar up in spite of a number of poor economic reports here in the US.

But I promised some explanation of the US GDP report in the opening paragraph, so here it is. While the 2nd quarter numbers came in slightly lower than economists had expected (1.9% vs. expectations of 2.3%), a revision to the 4th quarter '07 GDP report is what caught everyone's attention. You see the report revealed that the US economy actually shrank in the 4th quarter of 2007. Previously, the Commerce Department had reported the US GDP for 4th qtr 07 at a .6% gain. Back when the number came out, the news media was using the figure as proof that we weren't in a recession. Well now the Commerce Department has come clean and admitted the true number. The worlds largest economy contracted at a .2% annual pace in the fourth quarter of last year.

This number now confirms the general picture of weakness which Chuck and I have been painting. And in spite of the temporary boost from tax rebates, I think the recession which the US is now in will only deepen. Revised government figures have also shown consumer spending slowed more than previously estimated and the housing slump worsened during the end of 2007. Harvard University Professor Martin Feldstein agrees with the Pfennig. "The US may now be in a 'very long' recession with little that the Federal Reserve can do to help", said Professor Feldstein during a Bloomberg radio interview. "I don't see recovery on the horizon." Feldstein was a former advisor to President Reagan, and headed the National Bureau of Economic Research until June of this year, so he knows what he is talking about.

Former Fed Chief Alan Greenspan also chimed in yesterday in a CNBC interview. The Former Fed head said falling home prices are "nowhere near the bottom" and the resulting market turmoil isn't showing signs of abating. Greenspan sure should be an expert on the housing crisis, he helped to create it! I just wonder what the current FOMC members think when Greenspan sits back and comments on the mess he left them with. You know Bernanke would love to just give it all back to him to deal with!

With all the experts commenting on how bad the US economy is, and not giving a rosy picture for the future; Treasury Secretary Hank Paulson decided it was time to try and ride to the rescue. Paulson said he expects the government's fiscal stimulus plan will boost economic growth in the second half of the year, offsetting a housing downturn and high energy prices. What planet is this guy on?? How many times has he come out and said 'the worst is almost over, it will be better next quarter, ... Here is a quote from Paulson which I just have to share with you: "While our economy faces substantial difficulties that will continue to drag on growth in the short term, it is important to remember our long-term fundamentals are strong". I guess Paulson wasn't included on the memo about the record $490 billion budget shortfall, and he probably just forgot all about having to come to the rescue of Fannie and Freddie. 'Strong Fundamentals'??? Paulson has ingested too much of the kool-aid the administration has been pushing.

Today we will get some more data in the US reflecting the so-called 'strong economic fundamentals'. Payrolls in the US are predicted to show a seventh monthly decrease in July. With the predicted 75k loss in jobs for July, the unemployment rate is expected to rise to 5.6%. Manufacturing payrolls will again be hardest hit as they are predicted to have fallen by 40k during July. But cutbacks at UAL Corp and Starbucks Corp signal firings are spreading beyond builders and manufacturers as the cost of raw materials soars. Many are expecting an acceleration in declines in payrolls through the end of the year which would put additional pressure on an already overburdened US consumer. These employment figures will reinforce concern that the economy is in a recession as the July cuts will bring the total drop in payrolls so far this year to more than half a million. But don't worry, Secretary Paulson says the long-term fundamentals are strong!!

The negative data may force the US dollar to give back some of the gains it took during the strange month of July. Now that we are in August, a step back to review July is appropriate. The greenback strengthened 1 percent against the euro and 1.6% vs. the yen in July on speculation the US growth slowdown is spreading to other nations. Crude oil also helped the dollar as a slowing US economy caused fuel consumption to weaken to the lowest in three years. Oil had the biggest one month decline since December 2004. While I agree that the world's economy will slow in the coming months, growth will continue at a pretty good pace in Asia and the developing world, keeping demand for oil and other commodities up. While the fall in oil during July propped up the US$, I don't think we can count on further dramatic declines.

The worst performing currency for the month of July was the New Zealand dollar, which fell by 3.88% vs. the greenback. New Zealand fell after the Reserve Bank of New Zealand lowered cut interest rates on July 24 and signaled they will continue cutting rates. This was the first reduction in interest rates in 5 years, and with a bias for more cuts, the currency has sold off. Many investors had moved into the kiwi chasing high yields, so the expected cuts in interest caused this 'hot money' to move back out. Investors in the New Zealand dollar would be advised to exit these positions as they come due.

So where should investors turn? According to the Economist's 'Big Mac Index' the best values are in Asia. The Economist magazine compares prices for McDonalds Corp.'s burger globally and is a light hearted barometer of whether currencies are properly valued against the dollar. As of July 26, when the Economist published its 2008 index, 10 Asia-Pacific region currencies were undervalued against the US dollar, many significantly so. Currencies which were below their true worth, according to the Economist, included 52.1% in Hong Kong, 48.7% in China, 26.6% in Japan, and 18.2% in Singapore. It is nice to see that the 'Big Mac Index' agrees with our thoughts that the Asian currencies are undervalued.

Our metals trader, Kristin Kuchem just came in. She has been on the road in Las Vegas this week, and will be out again in San Francisco next week. It is great to have her back on the desk, should help with the phone volume today. Now on to the big finish:

Currencies today 8/1/08... A$ .9355, kiwi .7281, C$.9756, euro 1.5566, sterling 1.9754, Swiss .9537, ISK 79.47, rand 7.3230, krone 5.1409, SEK 6.0646, forint 149.92, zloty 2.0673, koruna 15.44, yen 107.63, baht 33.55, sing 1.3696, HKD 7.8038, INR 42.41, China 6.8432, pesos 10.01, BRL 1.5654, dollar index 73.34, Oil $122.89, Silver $17.59, and Gold... $911.52

That's it for today... I can't believe summer is already starting to wind down. I got home last night and my daughter was decorating her new book bag, already getting excited about going back to school. My son, who is facing his first year at a pretty tough high school, is much less excited. August is probably my least favorite month here in St. Louis, as the temperatures reach well into the 90s and humidity is always high. Makes my training for the upcoming LSL triathlon and Chicago marathon a little harder, as I've been having to run in the evenings instead of first thing in the morning. I guess I really shouldn't complain though, the beauty of living here in St. Louis is that the weather is never the same for very long. Before you know it we will be complaining about the cold! Hope everyone has a Fantastic Friday, and a great weekend.

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837