Search results matching tags 'European Central Bank' and 'Treasuries'

Stepping Up On The Soap Box...

ChuckButler — Thu, 06 May 2010 13:15:41 GMT

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In This Issue..

* Euro continues to get sold...
* Freddie Mac needs $10 Billion more!
* Auctioning another $80 Billion in Treasuries...
* Norges Bank does the right thing!

And Now... Today's Pfennig!

Stepping Up On The Soap Box...

Good day... And a Tub Thumpin' Thursday to you! I don't really have a reason for it to a Tub Thumpin' Thursday, just thought it would be good to get going into the weekend early! I'm slowly getting back into the swing of things here. There's a parking issue that's got me so ticked off right now, but that's not what you came to read about, so... Let's get going!

Well... The rout that was on with the euro continued for most of the morning yesterday, but then suddenly, it stopped, and we saw the currencies & Gold turn around... It was just like I had said the day before, that the euro would probably reach oversold levels, and we could see a mini-rally... And we did!

Unfortunately, that didn't last too long, and the rout is back on the single unit this morning, with the currency falling below the 1.28 figure. Today, however, it's back to the trading pattern that we saw for most of the last couple of weeks, save this week. And that is the euro gets sold, drags down the European currencies, but the Commodity Currencies and Gold find a way to carve out a profit, albeit a small profit! HEY! At least they're not falling victim to the euro's selling... Well, that's how it looks right now, who knows what happens later today!

Speaking of Gold... You know earlier this week, I told you how Gold was moving close to $1,190... But then the trap door sprung, and the shiny metal fell hard... Was there any reason for this fall? NO! And if you're like me, you see this and think... "The price manipulators are back in the market"... I mean, to me, that price action smelled of price manipulation by the BIG BOYS in an attempt to make Gold look bad, while stocks were getting deep sixed... For... If investors are fleeing stocks, they need someplace to put their cash to work... And if Commodities, led by Gold, are getting deep sixed too, along with currencies, then the only place to go would be bonds... Oh, boy, give me some more of those "safe haven" bonds! NOT! But... That's what's happening folks... I told you yesterday that the 10-year Treasury saw a 10 BPS move in one day! That required a TON of purchasing to do that... And the Gold Manipulators just happen to be BIG BOND DEALERS... Hmmm, you don't think that they figured this all out ahead of time, and moved investors on purpose do you? OF COURSE I DO! And you should too!

WOW! I really got wound up in that last paragraph! You know what? As long as I'm on a roll I might as well keep going, and stand up here on the soapbox all morning long!

You know... Something that really bugs the... Well it bugs me... Is... How the ratings agencies have skated right past any blame for the financial meltdown... How is this happening? I mean, Bankers are being publicly flogged, the Gov't has taken some blame, and the borrowers that lied about their ability to repay the loans have had the blame finger pointed at them... But what about the ratings agencies that placed AAA ratings on all that debt that is either circling the bowl now, or has already been flushed?

Why aren't they being dragged in front of a Congressional hearing and asked the questions like... "What criteria did you use to come to that rating on that bond issue" And... What was the total fees you collected in doing so? This just makes me sick... They put AAA ratings on things that went bad, collected fees that would make a banker blush, and when it went belly up, no one pointed a finger at them...

Oh... And here's another story that should make you madder than a wet hen... Freddie Mac has requested another $10.6 Billion! I guess the $50.7 Billion Freddie Mac has already received just isn't doing the trick! Add to that the $76.2 Billion Fannie Mae has already received from the Gov't... No wait! What am I saying? The Gov't doesn't have any money, unless they take it from someone... So... Us taxpayers are funding this fiasco!

Hey folks, Fannie and Freddie are simply propping up the mortgage market... You know, the one that media and Gov't keep telling us is on the mend? Well, it's not on the mend if you take away $125 Billion!

I'm on a roll this morning, folks... I had better not stop!

The "good times" continue at the U.S. Treasury, as they announced that they will be auctioning $39 Billion of three-year notes on May 11. Next week's sales will also include $25 Billion of 10-year debt on May 12 and $16 Billion in 30-year bonds the following day.

In doing my best Ace... How long has this been going on? Well... The answer to that is it has been going on a too long! And how long will it continue? Given the Gov't's budget for this year, this need to auction $80 Billion in Treasuries will continue for far too long!

And what will it eventually do to Treasuries? How about this... Have you ever heard of dilution? The Treasuries that already exist continue to be diluted by more Treasuries, making them worth less all the time... I've said this before on many occasions, but basically, if this continues, foreigners needed to buy the Treasuries, will begin to demand higher yields, to take on such risk... Higher yields means lower prices... Now, Treasuries don't look so inviting or like a safe haven do they?....

And... Just look over to Greece and Spain... Sure they are small potatoes when compared to the U.S. but, you can get an idea of what happens when your debt gets so big, and bond buyers no longer want your debt at current levels... Yields on Greek and Spanish Bonds are going through the roof in an attempt to attract buyers... If you don't think that can happen here in the U.S. then, well... Maybe you should go buy some "safe haven Treasuries" today...

The European Central Bank (ECB) are meeting today, and it looks like the ECB will leave rates unchanged and the door open regarding resorting to Quantitative Easing, should... The markets continue acting like JERKS!

The euro's decline has gone on long enough to catch the collective attentions of the boys at the ECB... So... One has to wonder, if the ECB is going to defend their currency at some level? Germany's Central Bank the Bundesbank President Axel Weber said overnight, that he didn't believe that the euro's decline requires "using every means"... Which is Central Bank parlance for The ECB to buy bonds, which would be a way of defending the currency...

So... Today's ECB meeting is a BIG ONE! The markets will be looking to ECB President, Trichet, to calm the markets... You might recall me telling you months ago, that the ECB had already removed their emergency lending measures that were in place during the financial meltdown. The ECB could easily put those measures back on the table...

I've always admired the ability of the ECB to provide price stability, and maintain credibility... However, if they don't begin to do something soon, that admiration will have been shaken... Not stirred!

The data cupboard here in the U.S. today really only contains the Weekly Initial Jobless Claims, which print every Thursday, and the stupid Productivity... Tomorrow is the BIG Jobs Jamboree, but for now, the markets will have to settle on the Weekly Jobless Claims, which have remained above 400K for some time now... Think about that for a minute folks... That's 400,000 PLUS, EACH WEEK, or 1.8 Million per month... (440,000 actual each week) in new jobless claims... Shoot Rudy, even the census hirings can't make up for those kinds of job losses each month!

And now that you've got that figure in your head, think about the claims that "things are getting better"... For who? Not for the 1.8 Million people that lost jobs every month!

The Reserve Bank of New Zealand (RBNZ) Gov. Bollard, was speaking last night, and had this to say... "New Zealand's economy is in a "less fragile stage" that will allow monetary stimulus to be removed in coming months." Hmmm... I know that I've said that I believe the RBNZ will raise rates sooner than the forecast period of mid-year... Well, the next RBNZ meeting and interest rate review is June... So that's mid-year, if you ask me!

This statement by Bollard has underpinned kiwi overnight... And, for that, you've got to like what Bollard had to say for once!

And, finally... Norway's Central Bank, the Norges Bank, did stand on their own two feet yesterday, and hiked rates, as I thought they should! The hike was 25 BPS (1/4%), but marked the third rate hike for the Norges Bank since coming out of recession! WAY TO GO NORGES BANK! You did have the intestinal fortitude to do what was right for your country, and not get caught up in the Eurozone goings on! This is just another feather in the cap of the country that has, what Time Magazine called, "the world's safest currency"...

Then there was this... There still an argument going on regarding whether the U.S. will experience run-away inflation in the future (within 1-year) or will they still be fighting deflation in that same time period... One of my fave people to read, David Rosenberg, had this to say about deflation... "The Federal Reserve should be worried about deflation and has few weapons left in its arsenal to combat it. The central bank will likely reintroduce quantitative easing measures because the other stops are already pulled. The Fed will be expanding its balance sheet even further." I've read some of David Rosenberg's books... He's the chief economist of Gluskin Sheff & Associates Inc. in Toronto.

To recap... Well... Chuck went ballistic on things this morning... But... Before he did, the euro continues to get sold this morning. Yesterday afternoon, a mini-rally occurred, but that has been erased overnight. The ECB meets today, and there are hopes that ECB President, Trichet, will calm the markets. And Freddie Mac needs another $10 Billion from us... Who's ready to "buck up" and give them that dough? NOT ME! UGH!

Currencies today 5/6/10: American Style: A$ .9060, kiwi .7265, C$ .9675, euro 1.2765, sterling 1.5065, Swiss .9005... European Style: rand 7.6040, krone 6.1050, SEK 7.60, forint 218.25, zloty 3.20, koruna 20.43, RUB 30.31, yen 93.70, sing 1.39, HKD 7.7715, INR 45.31, China 6.8266, pesos 12.73, BRL 1.7955, dollar index 84.40, Oil $80.09, 10-year 3.57%, Silver $17.65, and Gold... $1,183.20

That's it for today... Well... All week long I wanted to remind you that this Sunday is Mother's Day, and brain drains have kept me from doing so! So... Here's your reminder! If your mother is still alive, show her how much you care... I know I'll be thinking of my mom, that I lost in 1997, and how she was always my biggest fan, how she always stood behind me, and encouraged me. She was special... OK... Before I get all teary eyed, I'm kicking myself for mentioning the Cardinals' nice win on Monday night, I jinxed them, as they've lost the last two, and face the National League's best pitcher today... UGH! Did you celebrate Cinco de Mayo? I mentioned to my beautiful bride last night, that we used to go out and celebrate, but now we just go about the usual week night routine... We must be getting old, I said... She said, "I wanted to go out!" Of course she didn't tell me that until 9 o'clock! UGH! OK... I've carried on long enough today... I hope you have a Tub Thumpin' Thursday!

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

The Euro Gets Bogged Down...

ChuckButler — Fri, 17 Apr 2009 13:28:23 GMT

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In This Issue..

* A split among ECB ministers...
* Trichet walks a fine line...
* China and gold and copper...
* Canada's economy has a pulse...

And Now... Today's Pfennig!

The Euro Gets Bogged Down...

Good day... And a Happy Friday to one and all! A Fantastico Friday as well, as all our prayers were answered once again, and my scans were clean! YAHOO! They did see something in my lung... It's called pneumonia! I knew this "thing" I had was more potent than anything I had ever had before... So... The proper medicine was dispatched, and hopefully in about 4 days I'll have this whipped! I've got the whole weekend to rest, and drink plenty of fluids! Now if I wasn't sick, that last sentence would take on a whole new meaning, if you get my drift!

OK... Now that we have that housecleaning out of the way, it's time to go to work! Well, the currencies traded in a very tight range yesterday, only to see the euro lose ground in the European session, this morning, as ECB President Trichet, deep sixed the currency this time!

Recall, yesterday I told you how European Central Bank (ECB) minister Axel Weber, confused the markets with a statement that left the markets scratching their collective heads. Well, this morning, ECB President Trichet, failed to calm the markets, and their fears of a split in the governing body of the ECB is weighing heavily on the euro. Trichet has got to get these split factions of the ECB together...

In one corner, we have Weber, who does NOT want to see interest rates fall below 1%, and does NOT want Quantitative Easing.

In another corner, we have the Greek contingent, that DO want to see deeper rate cuts, and Quantitative Easing if needed.

And then finally we have Austria's Nowotny, who agrees with Weber on the rate cuts, but believes that Quantitative Easing makes sense.

If Trichet can't get these factions to come together, then the euro is going to get bogged down in all this mess, for nothing will get done... Trichet tried to put on the "company face" and tell reporters in Tokyo this morning, that "we have a very united Governing Council"... But he must not have been convincing enough...

So, with the Big Dog, getting weighed down, the rest of the little dogs have to remain on the porch, and that means dollar strength folks... Shoot Rudy, even the Japanese yen lost ground last night, reversing what had been the trend for the week, with the high yielders backing down, and yen ratcheting up... But not last night and this morning! The dollar has walked into the saloon, and told the bartender to "spray the infield" with dollar strength! I say this because, this is what he told reporters in Tokyo... "to say the euro was weak would not reflect the current situation" and that he "agrees with the US' Strong Dollar policy" Hmmm... First time I've ever heard an ECB President talk about a strong dollar policy... He must have something up his sleeve, ala Bullwinkle, or... He's drank the kool-aid that the U.S. is serving...

If you want to know what I think about Trichet's venture into the strong dollar policy land, read on... If not... Skip to the next paragraph! I think Trichet is just trying to keep the euro from exploding higher here... All the talk on the street these days is that the U.S. will have no other choice but to continue to debase the dollar in order to finance debts... Now, Trichet can't have the euro, which is the offset currency to the dollar, going off on a rampage from people selling dollars right now! If Trichet were to say what he really feels, he say, "The euro is strong, and will remain strong as the dollar retreats"... But a politically inspired euro surge against the dollar would deepen the Eurozone recession, and most likely really spike the already sensitive feelings among some members about the strong euro... So... I think Trichet is playing his card here... So far, the markets are "all-in" with that card... Now, if I were some BIG TIME market mover, the markets would read this and call Trichet's bluff... But, I'm not... So... We have to deal with euro weakness for now... I think Trichet should be listening to the old song by Max Frost and the Troopers... Nothing Can Change The Shape Of Things To Come!

OK... For those of you who skipped the previous paragraph, you missed some of my best stuff in years! HA! Well, let's get jiggy with the rest of the currencies! Since the dollar is stronger this morning, let's take a look at just why that is...

Well, it couldn't be the data that's printed this week, that's not the stuff that a strong currency is made of, for sure! Yesterday, for instance... Realty Trac issued a report that painted a really sad picture, folks... Let's take a look... In the month of March we saw a record level of foreclosure activity - the number of households that received a foreclosure filing was more than 12% higher than the next highest month on record - Realty Trac. Aye-Yi-Yi!

San Fran Fed Head, Janet Yellen, was in the news last night... She came out and said that "allowing Lehman Bros to fail was a mistake." She went on to say, "Lehman Bros was too big to fail and its bankruptcy caused a quantum jump in the magnitude of the financial crisis."

Hmmm... I wonder what her boss, Big Ben Bernanke will have to say about this statement... Now, that would be really something to see the Fed Heads air their dirty laundry with Big Ben... Talk about causing problems! YIKES! It will be interesting to see how this "coming clean for Yellen, plays out"...

Gold sure got whacked yesterday... I looked up at one point in the day and saw it down $15, and it's down another $5 at the London Morning Fixing... UGH! Silver is barely hanging on to the $12 handle too... It's been an ugly week for the precious metals.

OK... There was a great story on the UK Telegraph the yesterday www.telegraph.co.uk by Ambrose Evans-Pritchard, regarding China and Gold... Here's a snippet of the story...

"Hard money enthusiasts have long watched for signs that China is switching its foreign reserves from US Treasury bonds into gold bullion. They may have been eyeing the wrong metal.

China's State Reserves Bureau (SRB) has instead been buying copper and other industrial metals over recent months on a scale that appears to go beyond the usual rebuilding of stocks for commercial reasons.

Nobu Su, head of Taiwan's TMT group, which ships commodities to China, said Beijing is trying to extricate itself from dollar dependency as fast as it can.

"China has woken up. The West is a black hole with all this money being printed. The Chinese are buying raw materials because it is a much better way to use their $1.9 trillion of reserves. They get ten times the impact, and can cover their infrastructure for 50 years."

Now, that's interesting! The article goes on to suggest that the Chinese are also doing this with their reserves so that they don't have to continue to push their currency higher VS the dollar.

I've said for some time now that Treasuries are a bubble. And that bubble was probably about ready to pop, when the Fed announced that they would be buying Treasuries... But, that just prolongs the inevitable in my opinion... And now, if this story has any legs, the Chinese could be backing away from the Treasury auctions... I'm back on the Treasury bubble popping wagon... The Fed may have kept the bubble floating for 6 months to a year, but haven't' we learned with past bubbles, the longer you keep them floating, the bigger they get, and the nastier the mess is when they pop!

I noticed the other day, that the Canadian dollar / loonie, had rebounded to 82-cents and change, and yesterday with all the dollar strength, the loonie held its ground at 82-cents... Yesterday we saw Canadian manufacturing sales in February rise for the first time since July 2008 increasing a strong 2.2%! So... There's a pulse here, at least!

The negativity in the overnight markets toward the currencies has lifted a bit since I came in and turned on the screens. The High Yielders like rand, real, Aussie are all coming back strong right now... I'll do a quick look around the playing field to see if there's anything behind this move by the High Yielders.... OK, I'm back now, didn't see anything right now.

OK, before I head to the Big Finish I wanted to share with you something Tim Smith thought of yesterday... Capacity Utilization was so bad, that maybe we could shorten it to CAPUT!

Currencies today 4/17/09: A$ .7210, kiwi .5725, C$ .8270, euro 1.3070, sterling 1.48, Swiss .8585, rand 8.9275, krone 6.7250, SEK 8.4525, forint 225, zloty 3.29, koruna 20.49, yen 99.20, sing 1.5010, HKD 7.75, INR 49.84, China 6.8325, pesos 13.10, BRL 2.17, dollar index 85.79, Oil $49.75, Silver $12.01, and Gold... $868.15

That's it for today... My beautiful bride told me yesterday morning that she thought I had pneumonia... I said, "no way"! But as Wayne says to Garth... "Way"! Nice win in Chicago yesterday for my beloved Cardinals. A long 4-game series in the Windy City should make for some good baseball watching this weekend. We've had some miserable weather here in St. Louis, but today, it's supposed to be 70 degrees and sunny! YAHOO! I received a note from our travel person extraordinaire, Gena, yesterday, reminding me that it's time to plan for the Las Vegas Money Show! Yes, the Las Vegas Money Show scheduled for May 11-14, at the Mandalay Bay Conference Center. Time to eat my apple, and get ready for the trading day... I hope your Friday is Fantastico, and your weekend is wonderful!

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

ECB rate decision looms...

ChuckButler — Tue, 31 Mar 2009 14:46:52 GMT

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In This Issue..

* ECB rate decision looms...
* China pushes for a bigger seat at G20...
* Declining global reserves hurt US Treasuries...
* Commodity currencies come back...

And Now... Today's Pfennig!

ECB rate decision looms...

Good day... The dollar held on to its gains through out most of the day yesterday, as investors continued to look for a parking place in the volatile markets. But late in the day, the sentiment changed and the dollar started getting sold vs. most of the currencies. This dollar weakness continued overnight with the Euro gaining back 1 cent to trade back above 1.33 and the commodity based currencies of Norway, New Zealand, Australia, and South Africa all gaining over 1 percent vs. the greenback.

What caused this sharp turn around? I had to look hard to find anything which set this reversal in motion, and could only find references to the upcoming ECB rate decision due on Thursday. The euro had come under selling pressure the past few days as currency traders bet the ECB would be cutting rates by 50 basis points on Thursday. This cut would, of course, narrow the yield advantage the Euro holds over the US$ and therefore make it less attractive to investors. There were also many who believed the ECB should follow the path of the US, UK, and Japan and begin using quantitative easing to further force down rates.

But rhetoric out of the ECB late yesterday seemed to indicate the ECB would be reluctant to cut rates or follow up with untested 'quantitative easing'. The ECB will stay focused on maintaining price stability in the Euro region, and not get pushed toward using new and untested efforts to flood the markets with liquidity. The markets have now priced in a rate cut by the ECB later this week, and will be analyzing the accompanying statements to try and determine if additional rate cuts are planned.

Last week I touched on China's call to replace the US$ as the international reserve currency. Indonesia, Malaysia, and Thailand quickly came out in support of China's call for a new global currency in order to insulate the world from a deep recession in the US. Russia soon followed with a proposal of its own calling for a conference to draft new international agreements on global monetary and financial policies, including a new global accounting unit or a new global currency. Even the new US Treasury Secretary said it sounded like a good idea, but quickly corrected himself to assure the markets the US$ is still the one and only reserve currency.

Several Pfennig readers have written me asking more details about this new currency. Is it the Amero? Not hardly. What China is suggesting is an expansion of the use of something called special drawing rights (SDRs), which were introduced by the International Monetary Fund back in 1969. These drawing rights were issued to support the Bretton Woods fixed exchange rate regime which collapsed in the 1970s. The value of these SDRs are based on a basket of four currencies, the US$, yen, Euro, and Sterling. China has proposed expanding this basket to include the currencies of all major economies. Countries would entrust a portion of their SDR reserves to the IMF. The value of these SDRs would float with the broad basket of these currencies, and the SDRs would eventually replace existing reserve currencies.

Obviously, the introduction of this new global currency would be devastating for the value of the US$. Countries, who are now obliged to invest a majority of their currency reserves into the US$ would no longer have to buy them. And the US treasury market, where much of these reserves are parked, would also suffer. As I said when the story first broke, I don't think this poses an immediate danger to the US$, as the proposal would require unprecedented cooperation among global trading partners; and the US is going rally support to fight it. But it is something to keep an eye on, as it was met with a surprising amount of support.

I don't think it is any coincidence that the timing of this proposal by China coincides with the upcoming G20 meeting. China has been happy to grow their economy while mostly maintaining a lower profile at most of these economic summits. It now looks like China will be demanding a more prominent seat at the table. And justifiably so, as they recently overtook Germany to become the world's third largest economy. They also hold more than a few US Treasuries, giving them even more power at the table. The suggestion of replacing the US$ as a reserve currency was definitely a shot aimed at the big dog on the porch, and the US isn't in the best shape to defend itself right now.

While this proposal for a new 'global reserve currency' has received a lot of press not much has been written about the impact of the global economic slowdown on overall currency reserves and the resulting impact on the US treasury market. China and Japan stockpiled huge reserves on the back of the US consumers, who eagerly bought goods produced in Asia. But US consumers are cutting back, and global trade has slowed dramatically as a result. Both Japan and China will therefore have smaller trade surpluses in 2009, and less money to invest back into the US treasury market.

Unfortunately, this fall in global reserves coincides with a big increase in funding requirements by the US Treasury. Funding requirements of all of the stimulus packages will dictate trillions of dollars worth of new supply. The US government and Federal Reserve have now spent, lent or guaranteed $12.8 trillion in their attempt to get the US economy back on its feet. Even the planned $300 billion of purchases by the Fed won't put much of a dent in that supply. With less buyers chasing more supply, the price of these Treasuries will fall, and rates will rise. Foreign investors will need to be enticed into purchasing this new debt, and the sweetener will be a fall of the value of the US$.

This decrease in overall reserves available for investment into the US treasury markets is probably a bigger threat to the US$ than the institution of a new global reserve currency. While the new reserve currency is still a possibility, the reduction in global reserves, and the subsequent drop in US treasury purchases is a reality.

As I mentioned in the first paragraph, the commodity currencies were the big gainers overnight, with the Aussie and New Zealand dollars jumping over a cent vs. the US$. The precious metals and oil all traded higher, providing additional support to these currencies. With oil moving higher, the Norwegian Krone move up over 1% vs. the US$.

The markets are mainly concentrating on the ECB rate decision and talk of what will come out of the G20 meetings later this week. Data released this morning in the US will confirm house prices in the US continue to drop. The CaseShiller Home Price index is expected to show a drop of over 18%, but this number reflects January sales, and won't confirm or reject the better numbers released for February. We will also get two separate measures of Consumer Confidence in the US, both of which are expected to show further deterioration of consumer attitudes. Tomorrow will bring additional data on the housing and automobile industries in the US, neither of which are expected to show signs of a turnaround.

I wanted to write a bit about the expected outcomes of G20, but my workout ran a bit over this morning, so I'll keep that for tomorrow. Now on to the currency wrap-up:

Currencies today 3/31/2009: A$ .6908, kiwi .5701, C$ .7991, euro 1.3294, sterling 1.4282, Swiss .8765, rand 9.5533, krone 6.7387, SEK 8.2517, forint 232.54, zloty 3.5326, koruna 20.64, yen 98.30, sing 1.5206, HKD 7.7502, INR 50.825, China 6.8339, pesos 14.2218, BRL 2.331, dollar index 85.35, Oil $49.23, Silver $13.125, and Gold... 918.60

That's it for today... I have two of the four remaining teams in our office NCAA bracket, with UCONN and MICH STATE. I have to thank Mike Meyer for the picks, as I was in Florida when they drew teams. The great thing is I am guaranteed to be in the finals, as these two teams play each other on Saturday. Busy day on the desk yesterday, the metals calls continue to dominate our phones. Looks like another rainy spring day here in St. Louis, I guess that is better than the snow we got this weekend! Less than a week until opening day here in St. Louis! Hope everyone has a terrific Tuesday!!!
Chris Gaffney, CFA
Vice President
EverBank World Markets
1-800-926-4922
1-314-647-3837

China Announces A Stimulus Plan...

ChuckButler — Thu, 05 Mar 2009 13:53:28 GMT

In This Issue..

* China to grow 8%?
* An end for Mark-to-markets?
* What will the ECB do today?
* Gold at a discount....

And Now... Today's Pfennig!

China Announces A Stimulus Plan...

Good day... And a Tub Thumpin' Thursday to you! It's a Tub Thumpin' Thursday, because I woke up to see that my beloved Missouri Tigers had beaten #3 ranked Oklahoma last night! YAHOO! I had to hit the sack at half-time, so the outcome was in question when I went to bed. Great stuff! This was HUGE after being not ready for prime-time last Sunday against Kansas... Be gone you demons! You monkeys on our backs too! We just beat OU!

Whew! A poet and I didn't know it! Well... We have the Bank of England (BOE) and the European Central Bank (ECB) meeting today. Look for rate cuts from both of them, as recessions are deepening in both camps. The BOE doesn't have many arrows in their quiver, while the ECB has held some in reserve. I doubt the ECB would go for a "huge honkin'" rate cut today, as they are normally more stick in the mud thinking... The BOE will probably move rates nearer to zero...

The currencies all had a day to bounce yesterday, more on that in a minute... But the day on the trampoline had to end, and as the day turned to night, the overnight market participants took a look at the rate cut meetings and decided to sell... So, last night when I went to bed, the euro was 1.2645... And right now it's 1.2585... Not a huge change, but one that's going the wrong way for euro holders.

OK, back to yesterday... All my troubles seemed so far away... Now it looks as though they're here to stay, oh I believe in yesterday... Suddenly... NO WAIT! My fingers were going to continue that tangent! UGH! Any way... Yesterday, the currencies all rallied on the news that China was going to introduce a new stimulus package and their leader Wen Jaibao said he believed there would be a return to 8% growth for the Chinese economy. This news got commodities rolling, and risk takers dipping their toes back into the water. But then... Stephen Green, head of China research at Standard Chartered Bank in Shanghai has this to say in rebuttal of Wen... "Every day the world economy gets worse and they've probably got two years of very slow global growth to get through."

So... Either Wen was saying what he truly believed was going to happen... OR... He has taken a page out of the Bernanke / Paulson, un-dynamic duo's book on how to deceive the public as to how bad things are... Oh, I know the un-dynamic duo eventually came around to say things were bad... But, all you have to do is go back to the last part of 2007, and the first part of 2008, to find all the quotes you need to fill your bag, from these two regarding how things weren't that bad... It wasn't a recession... And subprime won't filter out into the economy...

What I believe is taking place in China is a move away from a dependence of U.S. consumers... Which won't happen overnight... But, if I'm correct in this thinking, it would eventually lead to a HUGE problem for the U.S. For, if China can make this move, they won't need to keep buying U.S. Treasuries... Uh-Oh!

There was other news that goosed the risk takers yesterday, and that came from the U.S. as reported by Reuters... "A U.S. House Financial Services subcommittee is expected to hold a hearing on mark- to-market accounting rules, which have been blamed for forcing banks to record billions of dollars in write downs, a source briefed on the matter told Reuters.
The congressional subcommittee on capital markets has tentatively scheduled the hearing for March 12, the source said.
The U.S. Securities and Exchange Commission's chief accountant and the chairman of accounting rule maker, the Financial Accounting Standards Board, will be asked to testify, the source said."

So, recall about 10 days or so ago, I told you there was a rumor going around, that someone's underground, and she will rock you in the, NO WAIT! Darn it! I'm really going off on song lyrics today, because it's a Tub Thumpin' Thursday! Any way, I told you about the rumor that was going around about how the dropping of the mark-to-market was being considered... Well, I said then, that I smelled smoke... And when there's smoke there's a fire... And here's the proof in the pudding folks... They congressional subcommittee will talk about this next week!

I can't believe that they will go through the effort of talking about his, dragging everyone up to Capitol Hill to testify, without suspending the mark-to-market... Now... Talk about unlocking the credit crisis! All those reserves being held to cover the mark-to-markets, could be released on the economy!

But wait! With over 500K being placed on the unemployment rosters every month these days, and most likely a number of 600K being placed on the roster last month, who in their right mind would make loans to consumers in an economy like that? Well, that will be the next hurdle, but don't tell the markets now, as stocks really liked this news about the mark-to-market, and rallied on the day!

So... Commodities had a day in the sun, much like I will be doing in about a week from now! Or, should I say "hope there's sun?" Doesn't matter much to me, as I'll be in the ball-park next Saturday watching my beloved St. Louis Cardinals with my family at my side... It doesn't get any better than that my friends! Oh! I was talking about commodities... Well, the commodities that rallied didn't include Gold, as the shiny metal has seen better days this past week after hitting $1,002... I would have to think that $900 or $890 is a level it will hold. Consider, if you will, the fact that there's so much uncertainty in the world today... And... Surrounding that uncertainty is the fact that so many Central Banks are near zero with their rates, and have announced quantitative easing as their next move... Recall, I told you a day or two ago that the Bank of Canada has joined the ranks of those employing the quantitative easing measures... The list is getting longer all the time, and now includes the Fed, the BOE, the Bank of Japan, and Bank of Canada... There'll be more, as we go along... What else can a Central Bank do, after they've cut rates to the bone?

So... As I said the other day... I truly believe that Gold is trading at a discount right now... But, that's just my opinion, not that of EverBank's, and I could be wrong... I certainly was wrong about the Obama bounce, eh? I wasn't wrong about calling the end of the Great Unwinding of the Carry Trade, though! Nailed that one to the wall!

Speaking of the end of the unwinding of the Carry Trade (let's see how would my friend, the Mogambo shorten that... EOTUOTCT!) Japanese yen continues to weaken, after being the best performing currency of 2008, it is now the worst performing currency of 2009! And there doesn't seem to be any change in that selling patter for yen... In fact, there was a story yesterday on Bloomberg that caught my eye... "Scottish Widows Investment Partnership, which oversees 42 billion pounds ($59 billion) in bonds and currencies, cut its yen-denominated holdings by a fifth because of Japan's worsening economic situation."

Before I head to the Big Finish, I wanted to mention the Richard Russell Tribute Dinner that is going to take place in one of my fave cities, San Diego, on April 4... My friend, John Mauldin, is putting this all together, so if your interested in attending, here's a link to click for more information.... https://www.johnmauldin.com/russell-tribute.html

Currencies today 3/5/09: A$.6425, kiwi .5010, C$ .78, euro 1.2565, sterling 1.4245, Swiss .8510, rand 10.5250, krone 7.1150, SEK 9.1325, forint 247.55, zloty 3.7675, koruna 21.9925, yen 99.40, sing 1.5540, HKD 7.7580, INR 51.70, China 6.8405, pesos 15.30, BRL 2.3680, dollar index 88.98, Oil $44.41, Silver $13.09, and Gold... $916.60

That's it for today... Day one for the Butler Boys being bachelors went well... Day two is about to begin with Alex waking up, so I had better put a bow on all this and get it sent, so I can get his breakfast going! Recall, about a month ago, I told you about a new project I was working on with Kristin Kuchem. We're doing a short 5-8 minute video, where Kristin does a recap of the Pfennig, and then asks me questions about stuff I wrote. We've been "practicing" and I think the Bank is about ready to let us go to the website with the video... Not there yet, but almost... Just thought I would give everyone an update on that project. You know, I thought about something the other day... I talk a lot about the people that send me nasty emails... But, those are very small compared to the people who send me some of the nicest, thoughtful, some even tear jerking emails... You know... I once heard this: people will forget what you said, people will forget what you did, but people will never forget how you made them feel. I think that about sums it up... OK, I hope your Thursday is Tub Thumpin' as mine is already!

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