Search results matching tag 'Oil'

Why $80 May Be the New Support Level for Oil

IanWyatt — Thu, 22 Oct 2009 20:30:00 GMT

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October 22, 2009

· $80 oil

· Herman E. Daly on the economics of limited resources

· Profiting from oil and gas small-caps

Fellow Investor,

Yesterday, oil rallied to close above $81 a barrel, the first time the precious commodity has hit that level in 2009. Oil prices gained momentum after the U.S. government released a report showing that crude inventories rose by half a million barrels fewer than expected.

The rise in oil prices, and many other commodities prices for that matter, has many wondering if the market is too bullish given that economic growth is uncertain. Plus, much of the rise in oil has come on the back of a falling dollar.

You’ve probably heard that renewably energy sources like wind and solar will reduce the demand for oil. Government programs that incentivize their use have worked in places like Brazil. But overall, they haven’t slowed the relentless rise of oil prices.

While these factors might make the rise in oil prices seem unsustainable, it’s more likely that normal supply and demand relationships will resume when the economy gets back on track. In other words, higher prices are coming. Peak oil (the point when the world reaches a maximum rate of petroleum extraction, after which production will always be declining) adds an interesting dimension as well. Some experts think we’re past this point, some think it won’t arrive until 2020.

The bottom line is this: Oil is going higher. It might not be tomorrow, it might not be next week, but its upward trend is unmistakable.

One of my favorite authors on the economics of limited resources is Herman Daly.

Herman E. Daly was a Senior Economist in the Environment Department of the World Bank before he became a professor at the Maryland School of Public Affairs. You may be familiar with him from the journal, Ecological Economics. He is co-founder and associate editor.

Daly eloquently lays out a bullish case for scarce resources, such as oil, that is difficult to deny. He points out that there’s absolutely no way we can generate more fossil fuels. We’d have to be immortal and extremely patient, because it takes several million years for geological forces to “make” new oil supplies.

One of the beautiful things about properly functioning markets is that they efficiently allocate resources. However, markets don’t determine sustainable scale. In the U.S., for example, individuals use more oil than we need to. In China, on the other hand, smaller vehicles and less driving time mean each individual is essentially rationing his or her use. Oil use in the U.S. is practically a cultural truth. And it would take government action to change it. Governments the world over are not rationing use of fossil fuels.

Daly notes that we can’t control the supply of oil, but we could control our rate of use. Unfortunately, the government isn’t taking the lead in either case.

Whether you think we are near, at, or past peak oil is irrelevant. Oil is becoming increasingly scarce and the rate of adoption of alternatives is nowhere near strong enough to replace the increasing oil demand. The discrepancy is more exaggerated in emerging markets then it is here in the U.S. Investors will continue to put a premium on oil.

I’m bullish on oil. And small-cap oil stocks can be expected to outperform the big integrated oil companies. As the price of oil goes higher, oil that’s not economical at lower prices suddenly becomes attractive. Valuations for small companies can change quickly.

Today, there are a number of oil and gas companies that we’ve discussed in recent issues of SmallCapInvestor Daily that are trading lower. I’m talking about stocks like American Oil and Gas (AMEX:AEZ), Pioneer Drilling (AMEX:PDC), Abraxas Petroleum Corp (Nasdaq: AXAS), RAM Energy (Nasdaq:RAME), Rex Energy (Nasdaq:REXX) and Tri-Valley (AMEX:TIV). They’ve had a nice run in the last 3 months. And they will likely move higher in the future.

We’ve discussed the oil and gas sector regularly, and I will continue to watch it in the future.

Until tomorrow,

Ian Wyatt

Editor

Daily Profit

PS: Subscribers to SmallCapInvestor PRO have access to all of my Special Reports, the top picks from the universe of small-cap stocks that are in my portfolio, and weekly updates keeping subscribers in touch with what I’m buying and selling. You can start a trial subscription to the service and have immediate access to all this information by clicking HERE.

China Grows at +8.9%!

ChuckButler — Thu, 22 Oct 2009 18:08:51 GMT

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In This Issue..

* Currency rally is reversed overnight!
* Pay Czar dreams...
* Brazil may reverse capital inflow tax...
* An Asian Union?

And Now... Today's Pfennig!

China Grows at +8.9%!

Good day... And a Thunderin' Thursday to you! It's raining outside, so... It must be a Thursday! Amazing how many Thursdays have seen rain this fall! The ground isn't the only thing that's getting watered down this morning...

Front and Center this morning, the euro traded well past 1.50 yesterday afternoon, and drug all the other non-dollar currencies higher as the day went on. But overnight, all that giddiness with seeing the euro over 1.50 for the first time since August of 2008 (and then it was on the way down, instead of this time on the way up!), has been watered down...

Here's the skinny... China printed a very strong 3rd QTR GDP number overnight of +8.9%, and instead of basking in the glow of that report, currency traders took a different route, and decided that if: China is growing that strongly, then stimulus in China will be removed soon, and other countries will follow suit... No one in the markets believes that the U.S. economy can withstand a removal of stimulus... Big Ben Bernanke might believe so, but the markets say "ain't no way!"

So, here we are once again with this stupid trading theme of "what's bad for the U.S. is bad for the world, and thus a flight to the dollar and Treasuries is required"... I just love how these guys "decide this is what's going to happen and the rest of the trading world follows them"... The non-dollar currencies got all caught up in this, and thus were sold off almost throughout the Asian and European sessions... I have seen the euro pop back up since I came in though, so maybe this will be short-lived...

There was news out of Brazil yesterday that was interesting... Yesterday I told you about the "tax" on capital inflows to slow down the stock market, and the real... Well, there were rumors yesterday that the Brazilian Gov't would change this from "Capital inflows" to "Capital outflows"... This would apply to balances that were in the country for less than 2 months... So... This removes the albatross from the real's neck, in my opinion that is...

I came across some news yesterday that just kind of hit me right between the eyes, and the light bulb went on, and so on... The news about the "Pay Czar", just got me thinking. ( I know that's a dangerous thing!)

Well... Too bad the new "Pay Czar" (man I hate that term "Czar"! I mean really, when did we become the Soviet Union?) any way... Too bad the new "pay czar" doesn't work for us in Congress! The new "pay czar" slashed compensation at 25 of the financial institutions that took Gov't. funds, lowering compensation by 50%!

But, he doesn't, and nor would his colleagues on "the Hill" like it very much if he started slashing their compensation! But wait! That's a great idea! When he's finished with the financial institutions, he can go to "the Hill" and start slashing compensation there Freddie Krueger style!

Because... Today, every dollar of growth comes with about 4 dollars of debt.

Again, the same dude sent me another email yesterday, telling me that I need to stop banging on the current administration, for deficit spending, it wasn't their fault the annual deficit went from $450 Billion in 2008, to $1.42 Trillion in 2009! AGAIN! I DON'T CARE WHO SPENT IT, WE DIDN'T HAVE IT TO SPEND! And once again, let me be perfectly clear about this... When the first $150 Billion of checks were sent to kick start the economy, I ranted and kicked and screamed... When the first TARP was introduced, I screamed to the heavens! I stated then, that I would NOT have bailed out anyone! I would not have spent the money we didn't have! I would have let those that could not stand on their own, fail... Think about that... The Big Ben's and Summers' of the world are telling you that "they saved the world"... Saved us from what? Financial ruin? We're freakin' broke now, what difference would it have made on that front? Job losses? Oh! And 10% (really 16%) unemployment is "saving us"? Or how about collapsing the markets? Well, I personally doubt that would have happened, folks... That's just a scare tactic they use...

Think about this for a minute... If we had done nothing... Like Ronald Reagan did after the stock market collapse of 1987, we would have suffered some great losses... But we would be past it by now... Instead, the same firms that took Billions from the Gov't, are still hurting... Did you see that Bank of America (BOA) booked a $2.2 Billion loss for the 3rd QTR! Even the Fed's Beige Book revealed that the Fed's regular report found that the overall economy is still plagued by weakness in banking and increasing unemployment.

Ok, I'm sorry... But once I get on a roll about this stuff, I can't stop! Just ask my kids... Their eyes begin to glaze over, they stare at the ceiling, and you can almost hear them thinking..."here he goes again with that deficit speech, when will he ever figure out that we heard it and understood it the first 50 times he's gone through this with us"! HA!

OK, back to the currencies... One currency you would have thought would have gone through the roof on the news that China's 3rd QTR economic growth was +8.9%, is the Aussie dollar (A$)... But NOOOOOOOOO! That didn't happen... Once again the thought here is that economies around the world can not withstand the removal of stimulus.... Starting right here in the U.S., but traveling around the world to China too... The thought process (strange as it might seem, and I do believe it's strange) is that if China grew this fast with stimulus the Chinese Gov't might see this as an opportunity to remove the stimulus, and when they do... All hell breaks loose!

While I don't disagree that stimulus removal in the U.S. would send our economy spiraling down the slippery slope of a double dip, I don't agree that it would be the same in China...

So... The A$ is about 1-cent cheaper than it was yesterday afternoon... Looks like, smells like, walks like, and talks like a cheaper buying level opportunity!

Remember when I thought that Sweden's Central Bank, the Riksbank, was prudent? Well, that all changed a few months ago, when the Riksbank joined the Bank of Canada in saying that they would not raise rates until the 2nd half of 2010... Well, the Riksbank repeated that line this morning after they left rates unchanged... I just don't get it... What the heck are these Central Banks thinking? I guess they just don't have a brain... The need to go visit the Wizard of Oz, I heard he's giving out brains! In fact, they're probably singing this right now!
I could wile away the hours
Conferrin' with the flowers
Consultin' with the rain
And my head I'd be scratchin'
While my thoughts were busy hatchin'
If I only had a brain

Oil is back to $80 this morning... Gold is $1,055... And that means the Canadian dollar / loonie is back on the rally tracks heading toward parity against the dollar once more!

And for those of you that like to take a walk on the wild side... The South African rand has really taken a blow to the mid-section in the past couple of days... You see, there was a rumor floating around that the South African Reserve Bank (SARB) was going "freeze" the rand, to keep it from getting too strong VS the dollar. It was rumored that the Economic Development minister, Patel, was going to propose that the rand be "frozen"... Both the ministry and the Central Bank have denied ever discussing this proposal...

Let's hope that they haven't! That would be awful! Just look at the damage the rand has suffered on the rumor! So... If the leaders in South Africa can calm down the markets, we'll see a rebound in the rand, and it will have been a case of "sell the rumor, buy the fact"...

Our office coordinator extraordinaire, Danielle Goodman, gave me one of those fake $1,000,000 bills yesterday and wanted to know if that was enough to buy a BRIC MarketSafe CD! She just wanted to hear me do Dr. Evil from Austin Power, and say with my little finger aside the corner of my mouth... One Mill-ion dollars... HA!

But that got me thinking about the hyper-inflation story I told you about the other day... Let's hope that we never have inflation that bad that $1,000,000 bills are floating around like $100 bills, c-notes, Benjamins...

The new Japanese PM is beginning to take some direction for his new Japan... For instance, this caught my eye... Prime Minister Yukio Hatoyama has advocated creation of an East Asian Community, modeled after the European Union, with China at its heart and the U.S. left outside. Hmmmm... The Big Boss, Frank Trotter and I did a report about 6 years ago for the Daily Reckoning, where we outlined this Asian Union, and called the new currency there the "Pan"... That would be truly amazing if that Asian Union came to reality!

But like we said then... The wounds run pretty deep between China and Japan, and it will take quite a lot of love and tenderness to get past that! Which country has the love and which one has the tenderness? HA!

Well... The euro has continued to push back against the dollar since I came in this morning... So, maybe it can get back to 1.50, which sure looks like a nice crooked number to me!

As I said above, Gold is $1,055 this morning having lost $5 this morning. Don't you just "love" all those commercials on TV these days with guys telling you to buy Gold? Where were they when Gold was $250, or $500, or $750? They were afraid that Gold's rise was not on terra firma, and they rolled up in a ball in the basement of their buildings, shaking with fear! HAHAHAHAHAHAHAHA! Nah... Just kidding... But I do find it weird that these guys are coming out of the woodwork like bugs now... Guys like Casey, Bonner, me, and the Mogambo Guru, have been here all along with the same message about buying Gold...

Speaking of the Mogambo Guru... I had the honor of exchanging emails with him the other day... He absolutely cracks me up!

The Data Cupboard finally yields some data worth looking at this morning, as the Weekly Initial Jobless Claims prints along with Leading Indicators... We're still seeing +500K new jobless claims every week folks... When will this stop? I contend that the U.S. economy can not sufficiently recover until the unemployment situation is addressed... Why is our Gov't trying to shove this, that and the other thing down our throats these days, and not addressing the unemployment situation? I mean, a tax cut for businesses would be a great move there don't you think? The other thing the Gov't is ignoring is the deficit... Instead they're thinking of new expenditures! I've written my congress people until my fingers won't write any longer about this... What have you done? Come on people! This is immoral what they're doing to our grandkids, and we just let them?

OK, I've got to get off that subject!

Let's go the recap and Big Finish now, as I feel myself getting all lathered up to scream at the walls about this stuff!

To recap... The euro traded past 1.50 yesterday for the first time since August 2008, then, however, it was going down, this time it was going up! The non-dollar currencies have given back yesterday's gains after China announced a +8.9% GDP for the 3rd QTR, thus making the traders think that stimulus worldwide will be removed and that would be bad for the U.S. and thus, we return to the stupid trading theme of rewarding the dollar when things are bad! UGH!

Currencies today 10/22/09: A$ .9235, kiwi .7545, C$ .9525, euro 1.4975, sterling 1.6550, Swiss .9915, rand 7.47, krone 5.5650, SEK 6.90, forint 177.30, zloty 2.2770, koruna 17.3250, RUB 29.0845, yen 91.30, sing 1.3970, INR 7.7497, China 6.8290, pesos 12.96, BRL 1.7320, dollar index 75.34, Oil $80.17, 10-year 3.39%, Silver $17.55, and Gold... $1,056.20

That's it for today, and this week for yours truly. I will be at the hospital most of tomorrow, for annual tests, scans, needles, etc. Let's keep our fingers crossed that all's well, eh? I don't get the results until Monday afternoon, so I'll have to find something to keep my mind off what's in the results this weekend! It's Homecoming at the University of Missouri this weekend. When our older kids were there, we used to go down to look at the house decorations on Friday night, and then stay for the football game on Saturday. I won't make it there this weekend, but I hear that the game has been picked as the location for the Tailgate Tour 2009! So, if you're going, stop by and check that out! My poor beloved Missouri Tigers are having a rough go of it this year... And they picked #3 Texas as their homecoming opponent! UGH! My little buddy, Alex has a football game Saturday too! OK... Let's say our goodbyes for the week... Goodbye... And get this out the door! I hope your Thursday is Thunderin' (good that is!) Thanks for reading the Pfennig...

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

Will the US Dollar Lose "Reserve Currency" Status?

GaryHalbert — Tue, 20 Oct 2009 20:33:00 GMT

IN THIS ISSUE:

Most Americans Are Dollar Indifferent/Oblivious
How the Dollar Became the Reserve Currency
Long-term Swings in the US Dollar's Value
Global Calls for Reserve Currency Replacement
Editorial: The "Dump-the-Dollar" Conspiracy
Conclusions – No Change Likely Anytime Soon

Introduction

The US dollar became the global "reserve currency" in 1944 near the end of World War II and continues as such. There have been numerous reserve currencies over the centuries, but none more widely accepted than the US dollar since 1944. While the US dollar has fluctuated widely in value over the 65 years since its designation as the reserve currency, its credibility has come under the most intense scrutiny ever in the last few years.

The US dollar peaked in value in 2000-2001 and has been in a significant decline ever since. There was a relatively brief period in 2008 when the dollar rebounded quite sharply due to the worldwide financial crisis and economic meltdown, when there was a global rush to the safety of US Treasury securities. But since then, the dollar has resumed its long-term downtrend.

With President Obama's most unprecedented spending plans in history, with trillion-dollar budget deficits as far as the eye can see, and the potential to more than double the US national debt in the next 5-10 years, there is now widespread speculation that the dollar is headed for new all-time lows and a possible collapse.

As a result, we are seeing and hearing calls around the world to end the dollar's status as the world's reserve currency and replace it with something else. The question is, replace it with what? The US dollar is by far the largest currency in the world; many commodities around the world are priced in dollars; and most international transactions are settled in dollars.

This week, we will look at the debate regarding what to do about the US dollar as the world's reserve currency. I will start by explaining how the US dollar became the global reserve currency. Next, we will look at some of the difficulties the global community will face if the dollar is to be replaced as the reserve currency. And finally, we will explore what may happen if the US doubles the national debt over the next 5-10 years. It should make for an interesting letter.

Most Americans Are Dollar Indifferent/Oblivious

The financial media keeps us constantly aware of what's happening with the US dollar, as it should. But let's face it, most Americans pay little attention to the financial media, much less the value of the US dollar. And why should they? The dollar goes up in value and goes down in value, most often with few obvious effects on the lives of everyday Americans.

In extreme cases, a sharply falling dollar can result in significantly higher inflation and higher prices for the goods and services we consume. The late 1970s, when we had what some called 'hyperinflation,' is one such example. But Americans have come to accept that inflation rises every year, and few correlate rising consumer prices to fluctuations in the US dollar.

Likewise, a falling dollar can make US exports more competitively priced in foreign countries, and this can be a positive factor for the economy and job creation here at home. Yet a falling dollar can also make foreign imports more expensive to US consumers. But the point is, when it comes to a rising or falling dollar, most Americans are indifferent if not oblivious.

Most Americans, as far as I can tell, are likewise indifferent or oblivious as to the significance of the US dollar being the world's reserve currency. I would similarly suggest that most Americans don't even know what it means to be the world's reserve currency. Yet that may be about to change in a big way, what with increasing calls for the replacement of the US dollar as the world's reserve currency.

Sophisticated investors need to understand the importance of these issues as the future of the US dollar can significantly affect the value of our investments, as well as the prices we pay for the goods and services we all consume. In that regard, let's start with a brief discussion of how the US dollar came to be the world's reserve currency and what that means.

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

How the Dollar Became the Reserve Currency

In July 1944, with World War II still raging and the international economic and financial systems in near shambles, delegates from all 44 Allied nations gathered in Bretton Woods, New Hampshire for the 'United Nations Monetary and Financial Conference.' The goal was to set up a system of rules, procedures and institutions to regulate the international monetary system. After three weeks of deliberating, the delegates agreed upon and signed the Bretton Woods Agreements.

The planners at Bretton Woods established the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which today is part of the World Bank Group. These organizations became operational in 1945 after a sufficient number of countries had ratified the Bretton Woods Agreements.

One of the chief features of the Bretton Woods system was an obligation for each country to adopt monetary policies that maintained the exchange rate of its currency within a fixed value (plus or minus 1%). The US dollar was established as the world's "reserve currency," which is typically defined as theforeign currency held by central banks and other major financial institutions as a means to pay off international debt obligations, and/or to influence their domestic currency exchange rates.

At the same time, the US agreed separately to link the dollar to gold at the price of $35 per ounce, with the added promise that Allied nations could convert their dollar holdings to gold if they so preferred. This was collectively known as the new "gold standard."

Ultimately, the other Allied nations agreed to "peg" their currencies to the US dollar, and agreed to buy and sell dollars to keep market exchange rates within plus or minus 1% of parity. Thus, the US dollar took over the role that gold had played in the previous international financial system. As the world's reserve currency, most international transactions came to be denominated in US dollars. The US dollar was the currency with the most purchasing power, partly because it was the only currency that was backed by gold. This led to the phrase that "the US dollar is as good as gold."

The gold standard for the US dollar, as the global reserve currency, continued until August 15, 1971 when President Richard Nixon unilaterally closed the so-called "gold window" and ended the option of converting US dollars into gold. Despite that, the US dollar has continued to be the global reserve currency to this day. But that may be changing… or maybe not.

Long-term Swings in US Dollar Value

The decoupling of the US dollar from gold in 1971 meant that the greenback became a "fiat" currency that was supported by nothing more than the full faith and credit of the US government, and thus subject to the whims of the market. The US Dollar Index (as measured in relation to six major foreign currencies) actually fell for several years after Nixon closed the gold window.

Then from 1980 to 1985, the US dollar skyrocketed on the upside, nearly doubling in value by 1985. But then in late 1985, the dollar began a virtual collapse which saw its value cut almost in half by late 1987. From late 1987 to 1995, the dollar moved in a broad sideways trading range.

From 1996 to 2001, the dollar staged another strong rally which moved the Index up to 120 as you can see in the chart below. From 2001 to the present, the Dollar Index fell sharply, reaching a new low in early 2008. Yet as the recession and the credit crisis unfolded in earnest in 2008, the dollar saw a fairly significant bounce, which was driven almost entirely by the global rush to safety in US Treasuries.

As you can clearly see, the credit crisis rally in the dollar ended early this year, and the long-term downtrend has resumed. The question now is whether or not the US dollar is headed for new all-time lows. With Obama's plans to run trillion-dollar annual budget deficits as far as the eye can see, and double the national debt in the next 5-10 years, it would seem almost certain that the dollar is headed for new lows.

This is precisely why we are hearing calls from around the world to replace the US dollar as the global reserve currency. But again, the question is with what?

Global Calls for Reserve Currency Replacement

As the US dollar has resumed its long-term downtrend this year, a growing international chorus is suggesting that the dollar be replaced as the world's reserve currency, a move that could theoretically end the greenback's six decades of global dominance.

China was the first major power to call in March for the dollar to be replaced as the world's reserve currency. China holds more US debt than any other country - about $800 billion - and the further the dollar drops, the less the value of the US debt owed to China. Never mind that China has been roundly criticized for its handling of its own currency, the yuan, which I might add is pegged to the US dollar.

Reportedly, there were informal talks on the dollar continuing as the reserve currency at the G-20 summit in London in early April. Since then other nations such as Russia, France and Brazil have suggested that the US dollar should be "supplemented" by other major currencies as a shared reserve currency.

The US was again criticized at the latest G-20 summit in Pittsburgh at the end of September, to the point that Treasury Secretary Geithner felt obligated to say the following at the opening of the conference: "A strong dollar is very important to the United States." Given the massive spending by the Obama administration, and plans to double the national debt in 5-10 years, it is no wonder that no one believed Geithner's remarks.

Regardless of whether the dollar would be replaced or supplemented, it would be a very complicated matter. The technical and political hurdles are enormous. For one thing, central banks around the world hold far more US dollars and dollar-denominated securities than they do assets denominated in any other individual foreign currency. Such reserves are frequently used to stabilize the value of the central banks' domestic currencies.

Most finance ministers around the world, including China's, know this and their comments in regard to replacing or supplementing the dollar as the world's reserve currency are just so much lip-service, which is really aimed at threatening the Obama administration over its out-of-control spending.

China says, for example, that it would prefer to hold its apprx. $2 trillion in reserves in something other than US dollars, but the fact is that Beijing has few alternatives. With more US dollars continuing to pour into China from trade and investment, Beijing has no realistic option other than storing them in US debt.

Some Argue "SDRs" are the Solution

So-called "Special Drawing Rights" (SDRs) are a synthetic currency created by the International Monetary Fund (IMF) in 1969 in an effort to stabilize the international foreign exchange system. The IMF defines SDRs as follows: The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries' official reserves. Its value is based on a basket of four key international currencies..."

Basically, SDRs are a combination of four currencies - US dollar, the Euro, the Yen and the British Pound. The US dollar alone makes up almost half of the value of a SDR. The amounts of each currency making up SDRs are determined by the IMF Executive Board in accordance with the relative importance of the currency in international trade and finance every five years.

SDRs were originally created to replace gold and silver in large international transactions. Since the quantity of gold and silver worldwide is finite, and the economies of all participating IMF members as an aggregate are growing, a purported need arose to increase the supply of international reserves. Thus, SDRs (also called "paper gold") are credits that nations with balance of trade surpluses can 'draw' upon from nations with balance of trade deficits.

In short, SDRs are little more than an accounting transaction within a ledger of accounts, which eliminates the logistical and security problems of shipping gold back and forth across borders to settle national accounts.

When SDRs were created, the IMF also suggested that member nations could convert their US dollar holdings into SDRs to diversify away from the dollar without driving the value of the dollar down. However, since US dollars account for almost half the value of SDRs, this diversification argument never made very much sense.

Despite the IMF's initial desires, SDRs never became the currency of choice for any countries. Even today, SDRs are primarily used only to settle accounts between the IMF and its members' treasury departments/foreign exchange ministries. Frankly, this is a good thing, in my opinion.

Still, there are continued calls for the SDR to replace the US dollar as the world's reserve currency. There are even a few voices out there that seem to believe we should adopt the SDR as a single global currency. In either case, the logic is flawed because of the limited size of the SDR market. Plus, if SDRs were instated as the global currency, every country with its own currency would lose a significant measure of national sovereignty.

Other arguments against making SDRs the world's reserve currency include the fact that the US dollar, the Euro and the Pound – which make up the large majority of SDRs – have all lost value since late 2007 when the recession began. Why replace a falling dollar by an index which so heavily includes the dollar? Also, SDRs do not contain the Chinese Yuan, Indian Rupee, Australian Dollar or Canadian Dollar, all of which are important benchmark or secondary global reserve currencies.

These are just some of the reasons that the SDR is not likely to become the global reserve currency.

EDITORIAL REPRINT

What follows is one of the more interesting analyses on the US dollar that I have read in some time about the so-called "Dump the Dollar" conspiracy. The piece is written by Dean Baker, a senior correspondent for Foreign Policy magazine (www.foreignpolicy.com), a leading non-partisan foreign policy think-tank in Washington.

QUOTE:

Debunking the "Dumping-the-Dollar" Conspiracy

For at least the last decade, a persistent, recurring conspiracy theory has held that major oil exporters will stop pricing oil in dollars, which will then lead to a collapse in the U.S. economy as the dollar becomes worthless. According to some accounts, Iraq's decision to price its oil in euros rather than dollars precipitated the U.S. overthrow of Saddam Hussein, and Iran's threats to move away from the dollar is the real reason the U.S. government is raising the alarm over the country's nuclear program.

The latest item in this tradition was an article by Robert Fisk, a longtime Middle East correspondent, in the London-based Independent. The article warns of a grand conspiracy between the Arab oil states, China, Japan, Russia, and France to stop pricing oil in dollars by 2018. When this happens, Fisk says, the dollar will suffer a severe blow to its international standing and the United States might struggle to pay for its oil. The article apparently caused a shudder in the currency markets yesterday [October 6], as panicked investors unloaded dollars in reaction to the terrifying prospect of this alleged international oil conspiracy.

But they really shouldn't be concerned. Fisk's theory would make a good plot for a Hollywood movie, but it doesn't make much sense as economics. It is true that oil is priced in dollars and that most oil is traded in dollars, but these facts make relatively little difference for the status of the dollar as an international currency or the economic well-being of the United States.

With the United States' ascendancy as the pre-eminent economic power after World War II, the dollar became the world's reserve currency: Most countries held dollars in reserve in the event that they suddenly needed an asset other than their own currency to pay for imports, or to support their own currency. Much international trade, including trade not involving the United States, was carried through in dollars. In addition, most internationally traded commodities became priced in dollars on exchanges. However, the dollar was never universally used to carry through trade (even trade in oil), and the pricing of commodities in dollars is primarily just a convention.

Any market -- a stock market, a wheat market, or the oil market -- requires a unit of measure. The importance of the U.S. economy made the dollar the obvious choice for most markets. But there would be no real difference if the euro, the yen, or even bushels of wheat were selected as the unit of account for the oil market. It's simply an accounting issue.

Suppose that prices in the oil market were quoted in yen or bushels of wheat. Currently, oil is priced at about $70 a barrel. A dollar today is worth about 90 yen. A bushel of wheat sells for about $3.50. If oil were priced in yen, then the current price of a barrel of oil in yen would [be] 6,300 yen. If oil were priced in wheat, then the price of a barrel of oil would be 20 bushels. If oil were priced in either yen or wheat it would have no direct consequence for the dollar. If the dollar were still the preferred asset among oil sellers, then they would ask for the dollar equivalents of the yen or wheat price of oil. The calculation would take a billionth of a second on modern computers, and business would proceed exactly as it does today.

It does matter slightly that the trade typically takes place in dollars. This means that those wishing to buy oil must acquire dollars to buy the oil, which increases the demand for dollars in world financial markets. However, the impact of the oil trade is likely to be a very small factor affecting the value of the dollar. Even today, not all oil is sold for dollars. Oil producers are free to construct whatever terms they wish for selling their oil, and many often agree to payment in other currencies. There is absolutely nothing to prevent Saudi Arabia, Venezuela, or any other oil producer -- whether a member of OPEC or not -- from signing contracts selling their oil for whatever currency is convenient for them to acquire.

Even if all oil were sold for dollars, it would be a very small factor in the international demand for dollars, as can be seen with a bit of simple arithmetic. World oil production is a bit under 90 million barrels a day. If two-thirds of this oil is sold across national borders, then it implies a daily oil trade of 60 million barrels. If all of this oil is sold in dollars, then it means that oil consumers would have to collectively hold $4.2 billion to cover their daily oil tab.

By comparison, China alone holds more than $1 trillion in currency reserves, more than 200 times the transaction demand for oil. In other words, if China reduced its holdings of dollars by just 0.5 percent, it would have more impact on the demand for dollars than if all oil exporters suddenly stopped accepting dollars for their oil.

This raises a more serious issue affecting the demand for dollars, which is the dollar's status as an international reserve currency. Currently the dollar is by far the preferred currency, but others, notably the euro, are gaining ground. A switch away from the dollar will lower its value, but this is hardly anything to fear: In actuality, it was and is an official policy goal of both the George W. Bush and Barack Obama administrations [to have a weaker dollar].

Both administrations are on record complaining about China's 'manipulation' of its currency. China does this by buying up vast amounts of dollars to hold as foreign reserves, suppressing the value of the yuan against the dollar. This, in turn, makes Chinese goods cheaper in the United States and bolsters China's exports.

If China stopped buying up huge amounts of dollars, as the United States wishes, then the dollar would fall in value against the yuan, thereby making Chinese imports more expensive. The result would be that the United States would buy fewer imports from China, improving its trade balance. Not too many people would be frightened by this prospect.

To summarize, the dollars needed to finance the international oil trade are trivial compared with other sources of demand for dollars. The currency chosen for foreign reserve holdings can have an impact on demand for dollars, but this has nothing to do with the currency chosen to conduct the oil trade. If Saudi Arabia wanted to hold euros rather than dollars, it could almost instantly offload as many dollars as it desired. Plus, the White House wants the dollar to decline anyway because it would improve the United States' trade balance.

Thus, the conspiracy theory Fisk resurrected might have spooked the markets, but the reality is that there is nothing to fear. The dollar's value will likely fall over time (as it has been doing against the euro for the last nine years). But there is nothing in the cards to suggest a collapse, even if Saudi Arabia starts selling its oil for euros or yuan.
END QUOTE

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

Conclusions

The US dollar is not likely to lose it reserve currency status anytime soon, unless it were to collapse for some unexpected reason. As illustrated in the chart above, the dollar has been losing value for almost a decade, yet no major countries have switched to some other currency to settle international transactions. As discussed earlier, there is no other currency that is large enough to replace the dollar as the world currency.

Longer-term, however, the prospects don't look very bright. With President Obama's plans to run trillion-dollar annual budget deficits for at least the next five years (and possibly longer) and double the national debt in 5-10 years, the dollar could find itself in real trouble as the reserve currency. The dollar could fall so low that foreign nations decide to dump their dollars in favor of euros, yen or whatever. If that day comes, I (and many others) believe we will see an even greater financial crisis and another depression.

Very best regards,

Gary D. Halbert

SPECIAL ARTICLES

Why the euro is not the next global currency
http://www.ft.com/cms/s/0/1e661b42-bcdb-11de-a7ec-00144feab49a.html?nclick_check=1

Deficit Dilemma: How to Dig Out
http://online.wsj.com/article/SB125554787267585505.html

Excuses wearing thin for Obama
http://www.suntimes.com/news/huntley/1834209,CST-EDT-HUNT20.article

Warren Buffett’s “Desert-Island Indicator”

MattBlackman — Tue, 20 Oct 2009 19:31:00 GMT

In This Issue:

Warren Buffett's "Desert-Island Indicator"
So what's the WBDII saying?
Doing the stock-crude-trade polka
Of bonds, stocks, commodities and the buck
What does it all mean for markets ahead?
Want more? Daily commentaries here...

Last month, we examined the four major global stock indexes with specific focus on the Chinese Shanghai Composite Index (SSE) to see what they might tell us about where U.S. stocks were headed. The SSE has just come off a 20+% correction and is again moving higher. We also explored the relationship between the carry trade and stocks with specific focus on the New Zealand dollar/Japanese yen cross (NZD-JPY) which led the SPX at the 2007 peak and off the March 2009 lows.

Updated charts for these and other intermarket relationship we are watching may be found at

http://tradesystemguru.com/content/blogcategory/54/88/

This month we begin our leading indicator discussion with a close look at an indicator that Warren Buffett would choose if he were on a desert island and only had access to one indicator to make his investment decisions.

The Buffett Island Indicator

The data that powers Warren Buffett's desert-island indicator or more appropriately, set of indicators, are produced by the Association of American Railroads (AAR) which publishes weekly data every Thursday morning. These indicators are useful because they show real demand for the raw materials and finished products for a broad spectrum of commodities and merchandise shipped by rail, which is still the most cost-effective way of shipping in the U.S.

For the month of September, the AAR reports that total U.S. freight rail traffic was down 14.2% from September 2008 (versus -16.4% in August from August 2008), intermodal (truck Trailers On Freight Cars) was down 14.6% (versus -16.7%) and Canadian rail traffic was down 13.9% (versus -20.5%) reflecting a recent resurgence in commodity demand. As the next chart shows, cyclical traffic (autos, steel, lumber, chemicals etc.) was down the most on a year-over-year basis at 44.6% in Q3-2009 versus Q3-08. We examined various data sets provided by the AAR and on a quarterly basis, all figures are down from the same quarter the year before.

The next chart of cyclical rail traffic versus the S&P500 (Figure 2) shows a weak historical relationship at best. But it is interesting to note the difference between the 2001-2 recession when cyclical traffic hardly suffered versus the current recession in which it fell off a cliff. There is little doubt that this time is different but it will take some time before we know if this is just a serious wound or something more long-lasting to our economy.

Figure 1 – Graph showing traffic (load numbers) of different types of rail traffic from baseline (coal and grain), and intermodal (truck trailers on flat car or TOFC) to cyclical (autos, steel, lumber and chemicals). The large drop in cyclical traffic is the lowest level on record dating back to 1989. Data – railfax.transmatch.com

Figure 2 – Comparison of the S&P500 Index versus railshare cyclical traffic (in Figure 1). The two are not highly correlated but the big drop in cyclical traffic is a concern longer-term.

So what's the WBDII saying now?

Few know exactly how Mr. Buffett uses the information to make investment decisions and those who know aren't talking. But it's a fairly safe bet that like the smart economists who use the rate of change, Warren is focused on the latest rates at which his key indicators are changing.

As we see from the next series of charts showing year-over-year (removes seasonal variations) change of 13-week rolling averages, total rail traffic bottomed in late June with a maximum drop y-o-y below minus 20% and traffic has improved since then. There are similar results for intermodal and cyclical traffic and although baseline traffic also hit a bottom, it appears to have rolled over again of late.

Figure 3 – Four weekly charts showing year-over-year changes to four different measures of rail traffic.

This is good news for stocks and the economy!

Doing the stock-crude-trade polka...

As those who have been following our analysis know, the Baltic Dry Index (BDI) is an indicator we follow and for good reason – it tracks shipping rates for dry goods transported by sea and since it is not traded on an exchange is less subject to speculation and manipulation. It is therefore a good indicator of real demand for goods and commodities used in manufacturing a wide variety of products around the world, as well as an economic bellwether.

After peaking June 3, 2009, the BDI had dropped nearly 50% by late September which was seen as a bearish omen for global recovery. Since then however, the BDI has resurged 20% which is somewhat bullish and indicates an increase in goods moving around the globe.

But the question for traders and investors is what does the BDI mean for markets since stocks lead the economy? As we see from Figure 3, the stock market and BDI peaked around the same time in late October 2007 while oil continued to surge higher. Notice the fact that from 2002 through 2007, oil and the SPX moved together and appeared to have positive correlation. That ended in October 2007 when oil continued to move up as the stock market dropped.

Initially the BDI dropped into late 2007 but then resurged to hit a new high in mid-2008 showing that global trade was ignoring the stock markets.

But then a very interesting thing happened. When the BDI peaked (June 6, 2008), oil peaked shortly thereafter (on July 3) and then like the BDI, oil prices dropped off a cliff. Energy traders appeared to be watching the BDI.

Figure 4 – Weekly chart comparing the S&P500, the cost of a barrel of light sweet crude oil and the Baltic Dry Index. Chart by Metastock.com

The BDI then bottomed December 5 and the price of oil (weekly) bottomed December 19, 2008. However, when the BDI last peaked in June 2009, oil did a stutter step and continued to move higher suggesting that oil demand was not being driven as much by shipping demand. It might have been speculation but could also been attributed to increasing passenger (automobile and airline) demand.

However, one fact is clear. Although the link between global trade and U.S. stock prices is weak, trade and oil prices are more highly correlated. A recovery in the BDI bodes well for increasing energy demand and an economic recovery (which has at least partially been already priced into stocks).

This brings us to our next chart...

Of bonds, stocks, commodities and the greenback

Traditional technical analysis textbooks (Pring or Murphy) will tell you that in a rally, bonds move first, followed by stocks then commodities. At market tops, they head down in the same order. This leads to the conclusion that the stock trader/investor has one warning at bottoms and tops while the commodity trader has two.

Why this order? Normally (if there is such a thing in markets these days), recessions are accompanied by falling rates as central banks attempt to get the economy going again through 'quantitative easing' and this causes bonds to start rising. This is followed by rising expectations for a recovery by stock investors who buy assuming earnings will rise (usually before they actually do). Then as industrial, commercial and retail product demand picks up, so does the need for resources (commodities).

In the next two charts, we see how this relationship has played out. In the early 1990s, bonds and stocks were moving up as commodities languished but by 1993, all were moving higher together. However, the traditional relationship was a little out of whack – commodities peaked first in 1996 (the tech bubble?), followed by bonds in 1998 then stocks followed in 2000.

Even before stocks peaked, commodities bottomed in 1999 and started heading higher, which turned out to be the beginning of a multi-year bull market. Around the same time that stocks peaked in 2000, 10-year Treasury bonds bottomed and began a bull market propelled by falling interest rates. Stocks didn't bottom until 2003, four years after commodities and three years after bonds. The traditional bonds, stocks, commodities relationship had changed.

Bonds then put in an interim peak in 2005 and commodities in 2006 before stocks peaked in 2007. Commodities and bonds bottomed (red and green up arrows in 2007) before stocks peaked (blue down arrow 2007), commodities (red down arrow 2008) then bonds peaked (green arrow 2009) before commodities quickly hit a bottom in 2009 around the same time as stocks and both then began to rally higher. Only this time, bonds peaked when stocks and commodities were bottoming. The whole business cycle (bonds, stocks, commodities) was completely turned on its head!

Figure 5 – Weekly chart of the S&P500 (stocks), 10-year Treasuries (bonds) and the CRB Index (commodities) showing bottoms and tops over the last 18-years. Chart by Metastock.com

Figure 6 – The same chart as the one above except with the US Dollar Index showing how the dollar has impacted stocks and bonds. From 1991 to 1998, all moved higher together. Two years after bonds peaked (1998), stocks did the same and as we see, the falling dollar (which fell as interest rates rose) helped propel bonds higher. Also notice that commodities (in Figure 5) peaked around the same time the dollar hit its most recent bottom in 2008. Chart by Metastock.com

It is clear that the traditional relationship between these three asset classes has changed. We can thank the credit crisis for that. Record low interest rates (read: extensive periods of central bank "quantitative easing") have helped, or as some argue, was the underlying cause of crisis.

So what's it all mean?

Both stocks and commodities fell in late 2007 and early 2008 but bonds just kept going higher. And now they too have peaked and have been falling since March. Fifty-year low interest rates have had a downright buoyant effect on bond prices (which move inversely to interest rates). But now given the value of the dollar, commodities must be considered cheaper in real terms than they've been in a long time (even with gold having hit a new high in nominal dollar terms).

For the most part, a weakening dollar is bullish for commodities (as well as bonds and stocks) as investors sell dollars to buy assets to 'hedge' value. But as we saw in the 1990s, a rising dollar was accompanied by rising stocks and bonds while commodities fell over the decade (probably due to foreigners purchasing US stocks in part due to the rising dollar).

It is interesting to note that at the beginning of the last recovery (2003) stocks, bonds and commodities were at or near their lows and all three rallied together (see Figure 5). This time around however, momentum indicates that commodity and stock investors are bullish and bond investors bearish about the economy. It is interesting to note that generally bond investors are considered "smarter" than stock investors since they tend to be right more often about market direction. Bonds also rally and peak first. (We shall see whether this is true now since there are a number of factors including current momentum pointing to higher short-term stock prices.)

In the 1990s, a rising dollar was bullish for stocks (international buyers) but in the 2003-7 recovery, a falling dollar was bullish (value hedge). If the dollar starts to rise in the near future, it will be bearish for U.S. multinationals with overseas income but bullish for domestic companies. But it will also make dollar assets (bonds, debt, and stocks) more attractive for foreigners. The obvious offset is that it will make our debt more expensive longer-term since a rising dollar reduces inflation. (In real terms inflation makes debt less expensive.) And our debt will also have to compete with stocks for investment dollars which means interest rates will have to rise (generally negative for stocks, bonds and commodities).

(Whew...sorry about this long-winded explanation, but there are a lot of moving parts here...)

As we have discussed in past issues, debt has become a much bigger force in our markets. Based on an estimate by Sprott Management, total U.S. debt (personal, corporate and government) plus unfunded liabilities (Medicare, Social Security etc) now totals $118 trillion, which means each U.S. household owes approximately $1 million! That, in our opinion, is the 800-pound gorilla in the room. Increasing resources will need to be diverted at all levels of the economy to make these debt payments – resources that will be taken away from growing revenues, earnings and the real economy.

Let's look at the basic demand-supply relationship. If printing presses did not exist, rising demand for dollars to pay our debt would drive up the greenback up as investors sold other currencies to buy Treasuries and other debt instruments. But since printing presses do exist, the supply-demand relationship is upset. There is some convincing evidence that US debt is being monetized by the Fed (printing dollars to buy Treasuries as other foreign central banks sell them). One simply has to look at the adjusted monetary base (Figure 5) to see this in action.

Although the politicians and bureaucrats are talking a strong dollar, they are acting to reduce the value of the dollar with rapidly rising deficits, debt levels and spending initiatives. (We just learned as I write this that the U.S. budget deficit for fiscal 2009 was a record $1.42 trillion, which was triple the 2008 deficit!

But no action reduces the value of a commodity than producing more of it for virtually nothing (paper dollars). And as the debt gets larger and interest from investors to buy debt instruments wanes (see Treasury International Capital flow chart), the need to print dollars will increase.

Here are the two possible scenarios we see going forward.

First, since every other central bank is racing to debase their nation's currency (to stimulate exports and their economies), there is a chance that the dollar could rise since it is measured by a basket of other currencies. A rising dollar at this point and given the current asset class relationships, would be bearish for stocks, commodities and bonds if it is accompanied by rising interest rates. We may get a technical dollar bounce since we are near lows but this will only last as long as our trading partners continue to debase their currencies faster than we do. However, this is the less likely scenario long-term given the size of our debt relative to our trading partners.

The more likely scenario includes a continued weak dollar policy due to the size of debt and rate at which it is rising compared to real economic growth (total debt has doubled in nominal dollar terms and grown 35% faster than GDP since 2000). But it all comes down the continued campaign to convince investors that Treasuries are a good investment by government and the Federal Reserve. We believe that fiscal realities will eventually come home to roost and investors will demand higher returns to buy Treasuries (= higher interest rates).

Until this happens, and that could be months ahead, we expect investors to continue to seek value in stocks (if earnings continue improving) and commodities for the foreseeable future. The weaker the dollar is, the greater will be the motivation to seek value in other asset classes.

A rising stock market from here is also technically supported by the carry trade (see http://tradesystemguru.com/content/blogcategory/54/88/#Update ) short-term at least.

From a long-term S&P500 earnings prospective, valuations aren't cheap, but they aren't expensive either based on this chart. For more charts and discussion on earnings go to http://tradesystemguru.com/content/blogcategory/54/88/#Stocks

Do you want more?

Would you like to get regular market updates from Matt Blackman? You can follow him on Twitter at http://twitter.com/Matt__Blackman (double underscore between first and last name). You don't have to be a Twitter user to get his insights. Just click on the link.

Questions or comments?

Email your questions or comments to tradesysmailbag@gmail.com and we'll do our best to answer them as quickly as possible.

Will History Repeat Itself?

ChuckButler — Tue, 20 Oct 2009 15:07:39 GMT

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In This Issue..

* Non-dollar currencies rally...
* A$'s and C$'s to parity?
* Reaching 40% of expenditures...
* Gold & Oil on the rise once again...

And Now... Today's Pfennig!

Will History Repeat Itself?

Good day... And a Terrific Tuesday to you! A long day on the desk for me yesterday, left me draggin' the line... But I'm rested and refreshed again this morning, so let's get to the Pfennig for today! The Finance Ministers of the Eurozone met yesterday, as I told you, and they've tried to stem the euro's rise... But, they'll need more than words to get the job done! And so, we begin a new day...

Front and Center this morning, the currencies, which had given back ground overnight to the dollar, are back in rally mode, and are taking liberties with the dollar once more. For most of the night that was not the case, though. The dollar had rallied back and sent the euro, for instance, to the 1.48 handle, after the single unit spent yesterday at 1.49 and change... There seemed to be a move to the dollar, but that didn't last long, and the currencies are once again rallying VS the dollar this morning, and the euro has pushed to 1.4970 as I write...

Daily noise, eh? Yes, you have to wade through this daily noise most days, and keep your eyes fixed on the horizon...

OK, I mentioned above that the Finance Ministers of the Eurozone met yesterday, and tried to stem the dollar's decline by backing the U.S. administration's stated preference for a strong dollar... Of course we all know that the U.S. administration's stated preference for a strong dollar is a bunch of horse dookie! So... What was it that the Eurozone F.M.'s were backing? A false statement by the U.S.? Now, that's something to hang your hat on, eh? The dolts just continue to mount daily don't they?

But, you can't be too hard on the beaver (Eurozone F.M.'s) for they have to sound like they don't want their euro to get too strong, for if they really said what they wanted to say, the euro would be back to 1.60 with a bullet in a heartbeat! So... In the end, I don't think currency traders were swayed by the Eurozone F.M.'s, at least not for too long!

Yesterday, I talked about Canada and the Bank of Canada (BOC) and how I thought that the BOC would remove their statement about interest rates remaining on hold until the 2nd half of 2010... I had a few readers question me on this, saying that Canada's economy is in no shape to withstand a rate hike... OK... Hear me out on this... I'm not saying that the BOC will hike rates now, or even in 2009... But, if Canadian energy prices of Oil, natural gas, and coal continue to get stronger, I'm afraid the BOC will have to entertain thoughts of raising rates to fight inflation... But not now... So... I hope you get what I'm saying here...

So... The U.S. fiscal deficit for 2009 was $1.42 Trillion... Remember how I used to take the previous administration to the woodshed for posting $450 Billion fiscal deficits? How did we go from $450 Billion to $1.42 Trillion, that is if that's really the number??? Well... That's not a question to really answer, folks, we all know how we got here... But now that we're here, what happens next?

I came across this when putting the two monthly newsletter together on Sunday, I think it would be appropriate to share it with you here...

Peter Bernholz (Professor Economics in Basel) studied the world's 12 most important periods of hyperinflation and discovered that the tipping point occurs when deficits amounted to 40% of the expenditures.

For the United States we have arrived at exactly that point. The deficit of $1.5 trillion amounts to 41.7% of the $3.6 trillion in expenses.

You see, that Peter Bernholz, rounds some numbers, but for those of you keeping score at home, the real point is that the U.S. deficits are greater than 40% of expenditures... And you know me, I truly believe in this history repeating itself, or as Mark Twain put it, it may not repeat itself but it rhymes... Mark Twain also wrote: "It's not worthwhile to try to keep history from repeating itself"...

So, the point I'm trying to make here is that according to Mr. Bernholz, we can soon expect a bout of hyperinflation! OH BOY! Where do I sign up for that? Not only do we have a falling dollar causing us to lose purchasing power, but what purchasing power we have left is going to be eaten away with inflation! Like I said, OH BOY! Gee Willikers, that sounds like the cat's meow! NOT!

So... Here we go again, with me getting on the soapbox and telling you the only way to protect yourself from a falling dollar and hyperinflation is to diversify with non-dollar currencies and precious metals...

OK... I get emails all the time from readers that say, "OK Chuck, you tell us to diversify, but you don't tell us what to buy"... Well... To the untrained eye, that would be true... But to long time readers they know better... So, keep reading, and it will hit you right between the eyes one day, and you'll slap your forehead and say, "I could have had a V-8"!

The boys and girls over at Citigroup have written a letter to their clients telling them that "the dollar is weakening because foreign central banks are diversifying their reserves and U.S. investors are buying high-yielding emerging market assets." The went on to say that, "The Australian and Canadian dollars are likely to rise to parity against the U.S. currency."

So, there's one more on the roster that believe Aussie dollars (A$) and loonies will go to parity against the dollar... The loonie isn't exactly the same stretch of a forecast as the A$, as loonies are almost 97-cents right now, with A$'s trading near 93-cents...

Doesn't that make sense given the talk we just had about hyperinflation? What currencies are going to help protect you against hyperinflation? The Commodity Currencies! Aussie, kiwi, Canada, Norway, Brazil and you can even throw in the S. African rand, for those that like rides on Mr. Toad's wild ride!

The folks at Citigroup also had this to say about the euro, which I found to be quite interesting... "The euro will extend gains against the U.S. dollar and the British pound, and may reach parity against the U.K. currency in 6 to 12 months."

I would think that for the euro to reach parity with the pound, it would involve the pound falling quite a bit from current levels... And that makes sense to me... Did you see the report the other day from the U.K. where they reported bank bad debt to be twice the forecast amount? YIKES!

You know... The Asian currencies which never really participated in the first bout of dollar weakness, are still stuck in the mud... Well, they are being manipulated to be stuck in the mud, for the most part... But, something's got to give here sooner or later. Why do I say that? Well, as I've told you for months now, the Chinese economy was the first to exit their slowdown / recession... Shoot Rudy, even Japan is showing signs of economic growth! And then we have India going strong too... And of course you have the "kind of Asian countries" of Australia and New Zealand... Where we already know that Australia has raise rates and New Zealand would love to raise rates... So, this region is leading the world out of the recession... Hmmm... I thought only the U.S. economy was allowed to do that! Uh-Oh, looks like we have a shift in how the world works!

Hey! Even Big Ben Bernanke sees the Asian countries as leading the world out of the global recession! Big Ben said... "Asia appears to be leading the global economic recovery." Hmmm... See, even a blind squirrel can find an acorn! HA!

I had to laugh when I read this headline this morning... "yen rises as Fujii repeats reluctance to stem currency's rise"... I laugh because the last time Japan's new Finance Minister talked about not intervening to stop the yen's rise, he back-pedaled and said that traders mis-took him to say that he was not going to intervene... So, this on again, off again love affair with Fujii and intervention, just makes me laugh! I would think that after getting burned on Fujii comments a couple of weeks ago, that Traders would not get too lathered up when he talks about not intervening...

Ok... Here in the U.S. while we are still a sovereign nation, the cartel, I mean the Fed Reserve, is doing some testing of reverse repos as a means of drawing the excess liquidity / stimulus out of the markets... I don't think we have to put too much into these tests right now... But it will be a method that the cartel uses at some point in the future... The IMF is against removing any stimulus now... So, that may carry some weight with the cartel, I don't know...

Gold prices rose yesterday for the first time in a couple of days, pushing back above $1,060... I would think that until we know for sure that the cartel is removing stimulus, that Gold would remain well bid... When we do know that stimulus is being removed... Gold might take a step or two back... But then we'll have to wait-n-see what happens with inflation...

I read where ETF holdings of Gold are sluggish... Well, that certainly makes sense to me! With what we're seeing these days from our Gov't pushing us toward who knows what (I know, but I get blasted by people whenever I say it out loud), physical Gold is the thing people want right now... And you can't get physical Gold out of an ETF! So... All those people that have long said that the ETF was just as good as holding Gold either in your buried coffee cans in the back yard, or in pooled accounts, are wrong, when it comes to physical Gold demands...

And, don't know about you, but I filled my gas tank the other day, and the price of gas has really shot up recently, eh? And a quick look at Oil prices and that tells it all... Oil prices have risen to $79, while trading at $69 just a month ago! Is Oil the proxy for rising inflation?

OK... To recap... The dollar rebounded a bit overnight, but has given back to a currency rally this morning. Citigroup believes Aussie and Canadian dollars will reach parity to the U.S. dollar. The Bank of Canada meets today. Our fiscal deficit reached 40% of our expenditures, which historically is a harbinger to hyperinflation, and Gold is back above $1,060 this morning...

Currencies today 10/20/09: A$ .9280, kiwi .7545, C$ .9690, euro 1.4975, sterling 1.6435, Swiss .99, rand 7.32, krone 5.56, SEK 6.9350, forint 176.50, zloty 2.7735, koruna 17.1470, RUB 29.15, yen 90.40, sing 1.3890, HKD 7.75, INR 46.11, China 6.8266, pesos 12.85, BRL 1.7360, dollar index 75.27, Oil $79.31, 10-year 3.37%, Silver $17.80, and Gold... $1,065.50

That's it for today... My good, dear friend, Mary Anne Aden, sent me a note last night, that really lit up my day... Mary Anne told me that Richard Russell recently mentioned me and the Pfennig... WOW! When a man as well respected as Richard Russell mentions me and my humble little Pfennig newsletter, then that's a great day! Mike Meyer just came in, returning from a trip to Jacksonville to watch the Rams / Jaguars game on Sunday... He travels once a year to watch the Rams... It actually was a nice day here yesterday with the sun out, and a hint of warmth in the air! The weather forecasters say El Nino is going to keep our winter warmer than usual and dryer than usual... That's fine with me! Well, I've got to go... I hope your Tuesday is Terrific!

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

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In This Issue..

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

And Now... Today's Pfennig!

RBA's Stevens Turns On The Green Light!

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Gold and the New World Currency for Oil

IanWyatt — Wed, 07 Oct 2009 15:12:00 GMT

Normal 0 MicrosoftInternetExplorer4

Your Daily Profit

October 7, 2009

*****Australia’s Confidence

*****What’s France Thinking?

*****Newsletter Advisor Wednesday

Fellow investor,

Australia’s central bank raised interest rates by a quarter-point yesterday. Australia is the first G-20 country to act on its belief that global economic recovery has taken hold and that stimulus programs can start to be reversed.

Yesterday’s rally can be considered a response to Australia’s confidence. It can also be considered a response the sharp sell-off on Friday and a weaker dollar this week.

Gold rallied strongly yesterday as the US dollar dropped. That was significant. The Fed has essentially promised that interest rates will remain low into next year. If central banks around the world start hiking rates, and the US Fed stands pat, then US GDP has the potential to outperform. This potential is good for stocks, and possibly even unemployment. So stocks rally.

But keeping rates low as growth picks up invites inflation, so gold rallies.

Traders did a pretty good job of expressing these two somewhat contradictory themes yesterday.

Of course, inflation and growth can only co-exist for so long. Eventually, interest rates will have to rise to keep inflation in check.

*****Gold prices responded to another catalyst yesterday, though this one is much more in the “tin-foil hat” realm.

According to a story from the UK newspaper, The Independent, the six Arab states of the Persian Gulf, Japan, Russia, China and France have been holding secret meetings to work toward a world in which oil is no longer denominated in US dollars. In its place, they hope for a currency basket that would include gold as well as a proposed shared currency that would be used by the Arab States Gulf Cooperation Council (GCC).

Obviously the first question we must ask is…what is France thinking?

But seriously. A shared Arab currency, and oil priced according to a basket of both currency and gold are both pretty outrageous ideas. And who in the world would want to partially peg their currency with Russia’s ruble? However, gold bugs and conspiracy theorists alike love the idea of gold becoming a medium of exchange again. This report (rumor?) is right up their alley.

*****It’s important to remember that gold prices move higher on the fear of inflation. And this fear is now on the rise.

The gold stocks in my Global Commodity Investor advisory service are benefiting with gains of 18%, 24%, and 68%. Also remember that gold mining companies typically enjoy an increase in their net asset value (NAV) equal to double the advance in gold prices. In other words, a 10% rise in gold prices should equal a 20% rise in a miner’s stock price. And when investors start buying gold stocks, the rise in stock price can be further amplified.

That’s exactly what we’re seeing in the Global Commodity Investor portfolio. For more on how you can leverage the rise in gold prices with mining stocks and tap into the commodities boom, CLICK HERE.

*****Today is NewsletterAdvisors.com Wednesday. Please enjoy the following interview with Louis Navellier from Blue Chip Growth.

Until tomorrow,

Ian Wyatt

Editor

Daily Profit

RBA Raises Rates!

ChuckButler — Tue, 06 Oct 2009 14:22:32 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 Oct. 13, 2009. Apply today or learn more at http://www.everbank.com/001CertificatesMSBRIC.aspx?referId=11808

In This Issue..

* Pandora's Box of rate hikes is opened!
* Is the dollar being removed from oil trades?
* Deficits do matter, eh?
* Gold heads toward its all-time high...

And Now... Today's Pfennig!

RBA Raises Rates!

Good day... And a Terrific Tuesday to you! A Tuesday morning that is seeing a HUGE currency rally VS the dollar on the news that the Reserve Bank of Australia (RBA) opted to go ahead and hike rates now, and not wait for November's meeting, as I had thought they would do! WOW!

The first hike... It has opened Pandora's Box of interest rate hikes around the world... For, if the RBA went this soon, then we can expect Norway's Norges Bank to push their rate hike earlier on the calendar, maybe even later this month! And they won't be the only ones! Look for New Zealand to hike rates this year, and who knows what other country (Brazil?) will follow after that... But I see them coming, and they're marching the death march of the dollar!

OK, that was a little dramatic, while I don't believe, although I have more doubts every day, that the dollar would collapse to nothing, I do believe it has a long way to go when it comes to weakening. How else will the U.S. pay pack their debts in the future? It sure won't be because of a cut in Gov't Spending! That is... Unless all this deficit spending can be reversed and Gov't is cut (in size) to resemble something from 50 years ago! But, that's like asking for the moon and sky, eh?

Let's get back to the Aussie rate hike, that's more exciting and upbeat than talking about what's going to be needed in the future here in the U.S! The statement that followed the RBA rate hike, was very upbeat... So... I totally expect another rate hike next month from the RBA!

OK... The dollar's weakness this morning isn't all due to the Aussie rate hike, and prospects for other rate hikes around the world... In 2001 I wrote a white paper called, "The Demise of the Dollar"... This was the thesis for all the things I talk about almost daily regarding the reasons the dollar would got into a secular bear market... And this was one year, let me repeat that, one year, BEFORE the dollar entered into a weak dollar trend in Feb of 2002!

The reason I bring this up here in 2009, is that there is an article in the U.K. Independent that's making the rounds, that's called... "The Demise of the dollar"! This report though is about secret meetings with the Gulf Arabs along with China, Russia, Japan and France, and they are planning to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.

Uh-Oh... That's serious stuff folks... And that death march I talked about above? Well, if this story is true, that death march just became much louder!

Right now, however, the markets are not taking the story hook, line and sinker, just yet... Yes, the dollar has been sold, but not like you would think, if traders had taken the story to heart... I think some digestion time needs to be had first... I mean the currency traders had the first rate hike and then this story on their plates all at one meal... That's a lot to digest! And Besides.. The Saudi Bank Gov. is denying that any of these meetings took place... Of course to conspiracy buffs like me, that's akin to saying, "These meetings DID take place, and we're just covering up the evidence" HA!

Now... Some might be cursing these countries right now, for dealing this rumored blow to the dollar... But, it's not like the dollar didn't have it coming! The Deficit Spending... For instance, is one thing that people that "know better" realize that the U.S. will not be able to climb out from under the deficit rock... And those knuckleheads who said "Deficits don't matter"? Well... I've said this many times before, but I can't talk about the Deficits don't matter crowd without talking about how these people remind me of a guy... He's standing on top of the Empire State Building, and decides to jump off... As he passes the 56th floor, he says... "So far... So good!"

Well, unfortunately for our "Deficits don't matter" guy falling to the ground, the sidewalk is coming at him very quickly now...

And here's another thing that should just tick you off to no end, but you have to think that the people that have loaned us money, are wondering if they'll ever get paid back... What I'm talking about here is the story from yesterday, regarding the TARP funds... You might want to sit down for this one folks...

Neil Barofsky, the special inspector general for the Troubled Asset Relief Program (TARP), says that despite multiple statements on Oct. 14 of last year that these nine banks were healthy and only receiving government funds for the good of the country's economy, federal officials knew otherwise. He went on to say that "the Treasury Dept. and the Federal Reserve lied to the American public last fall when they said the first nine banks to receive government bailout funds were healthy."

That's right... They LIED TO US! Now, doesn't that just tick you off? It sure ticks me off!

So... You can see some of the reasons the countries mentioned above might be thinking about removing the dollar as the pricing mechanism when it comes to oil...

OK... We started up beat, then got brought down, let's get back to upbeat! Hey! How about Gold? When I turned on the screen this morning, Gold was $1,020! You would think that even if the U.K. Independent story is just a rumor, that Gold would gain on the rumors...

I read a story last night, while waiting for the so-called "Epic Battle" between the Vikings and Packers on Monday Night Football, that one analyst was of the belief that Gold was about to return to its link to the price of Oil... Hmmm... Well, I personally hope that's not the case, as I certainly don't want to see the price of Oil rise to the levels I think Gold is going to rise to!

Yesterday, I did a presentation on the DTI network... (I had given you all the link to it last week) My power point presentation didn't work, so I had to just "wing it" (yeah, like talking for 30 minutes on how we got here, what's going on, and why one needs the power of portfolio diversification was difficult for me! HA!) I think they want me to come back next week... DTI educates investors / traders/ and people that just want to know how the markets work, so it's all for a good cause, because... An educated investor, is a good investor!

OK... Let's see... OH! I wanted to talk about this yesterday and totally forgot, but it's not too late today to talk about it...

One thing that we'll begin to see this month is the earnings season...
You might recall that in previous quarter ends I thought that stocks would get taken to the woodshed, because of lousy earnings, only to be surprised at the earnings that were posted... But trying not to be the boy who cried wolf, I'll once again say that I just don't see the earnings to support stock prices. This time I think we'll see that the method used in previous quarters by Corporations to produce the earnings was cost cutting... One would have to think that the Corporations have cut to the bone... And now, we'll get to the cheese that binds for earnings... A lack of revenue...

I really liked the reaction of the non-dollar currencies, led by the Aussie dollar, after the RBA rate hike... It was like "old days"... Uh-Oh, I have a song in my head... "Old days
Good times I remember, Fun days, Filled with simple pleasures, Drive-in movies, Comic books and blue jeans, Howdy doody, Baseball cards and birthdays, Take me back, To a world gone away,
Memories, Seem like yesterday....

Yes, the "old days"... Well, in this case I was talking about currencies trading on "Fundamentals" not stupid trading themes, not flights to safety, not deleveraging, but plain and simple fundamentals, things that ordinary people, like me, can understand, and place a value on a currency based on the fundamentals!

But... We've not really seen a fundamental trend since July of 2008... However, if we begin to see the rate hikes that I think we'll begin to see, it could be the harbinger of a return to fundamentals... And that, my friends, and dear readers would be like manna from heaven for your Pfennig writer!

Well... Since I came in this morning, Gold has gained $5 more, to $1,025! Looks like the all-time high of $1,033.90 that came in March of 2008, could be in jeopardy... My love's in jeopardy, baby... Oooh, ooh, ooh, ooh...

Maybe Gold moving higher can get Silver going too! My friend, the Mogambo Guru, reported yesterday that silver analyst, Ted Butler, reports that in the last 10 months, "some 150 million ounces of silver can easily be documented to have been bought by investors.
Undocumented purchases would add tens of millions more ounces."

In fact, when you add it all up, "Investment demand for silver this year is running at a full 25% of world mine production and over 20% of total production (including recycling). This is a remarkable historical turnabout."

Chuck here... Back from a trip to the Mogambo's letter... I just love the way the Mogambo ends his letter each week... He talks about how people should be buying Gold, Silver, and Oil, and then says... "Hey! This investing stuff is easy! Whee!"

OK... To recap... The RBA did raise rates 25 BPS last night, and sounded quite upbeat in their after rate hike statement. Look for other countries to follow now that Pandora's Box of rate hikes has been opened. There's a story going around about countries banding together to remove the dollar as the pricing mechanism for Oil trades... It's being denied, but there's smoke... And you know what I say when there's smoke... And Gold is pushing the envelope on its all-time high of $1,033.90...

Currencies today 10/6/09: A$ .8875, kiwi .7355, C$ .9395, euro 1.4730, sterling 1.59, Swiss .9745, rand 7.4230, krone 5.6920, SEK 6.97, forint 181.15, zloty 2.8370, koruna 17.3360, RUB 29.81, yen 89, sing 1.4025, HKD 7.75, INR 46.99, China 6.8263, pesos 13.56, BRL 1.7593, dollar index 76.35, Oil $71.13, 10-year 3.22%, Silver $16.99, and Gold... $1,025.45

That's it for today... I did get to watch the 1st QTR of the "Epic Battle" last night before going to bed! I don't understand why they start those Monday Night Games so darn late, I mean on the east coast, it would be past my bed time! The New Orleans Investment Conference, also known as the "Granddaddy of Investment Conferences" takes place later this week... The Big Boss, Frank Trotter, will be there to talk on Thursday and Friday night. I'm not going this year... Last year, I had to cancel at the last minute, after finding out my left eye was being taken over by cancer. The cancer in the eye is all gone, but it left me very little vision with the eye... So, if it looks like I'm winking at you, I'm not... Just closing it to keep light refraction from giving me a headache! WOW! The sky just lit up followed immediately by one of the loudest thunder-boomers I've ever heard! Ok... Kristin returns today after speaking last week in Las Vegas, so we've got that going for us! Yay! Time to go... Hope your Tuesday is Terrific!

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

The Grind to Dow 10,500

IanWyatt — Tue, 29 Sep 2009 17:07:00 GMT

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Your Daily Profit

September 29, 2009

*****The Dow 10,500 Grind

*****Poor Getting Poorer

*****Oil and the U.S. Dollar

Fellow Investor,

Yesterday’s nice rally is backing off a bit today. That shouldn’t be much of a surprise. Traders will take profits, and I expect the move to Dow 10,500 will be much more of a grind than what we’ve seen lately.

Third Quarter earnings is right around the corner. Even though many commentators are nervous about 3Q earnings, I think there’s an upside surprise in store for investors.

*****The rich are getting richer, and the poor are getting poorer at least that’s how the say goes. Truth is, the rich are not getting richer, but the ranks of the poor are climbing. Median income in the U.S. fell from $52,163 to $50,303, the lowest since 1997. Not only did we lose a decade worth of stock market gains in the financial crisis, we also lost a decade worth of wage gains.

Income fell across all demographics, but the poor were hit hardest. The poverty rate has jumped to 13.2%. In Flint Michigan, 35% of the population uses food stamps. In Pharr, Texas, it’s 38%. Across the nation, 9.8 million households used food stamps. And the rise was concentrated in households with 2 or more workers.

This is serious. The data suggests that the financial crisis has hit the working class harder than any other income group. And with economic growth expected to be weak for a couple years while we work off the imbalances like housing inventory and manufacturing capacity, it’s hard to imagine what will help the working class get back on their feet.

*****But one has to wonder just how much the working class and two-worker households contribute to GDP. We might assume that this segment of the population that can slip so easily into the poverty range didn’t have much disposable income to begin with, and so wasn’t a significant driver of GDP growth.

Anecdotal evidence suggests that Americans are getting more comfortable with the apparent stability of the economy. And we know that once we feel good, we’ll start spending again.

*****Oil prices have been dropping. There is much debate as to whether oil prices respond more to the U.S. dollar or supply and demand issues. The U.S. Dollar Index has found support at 76, as you can see on the chart below…

You can also clearly see that the 76 level is not the ultimate support level for the dollar. Ultimate support may well be the 72 area on this chart. If so, we will see the dollar fall and another move higher for oil, gold and other commodities.

In fact, I’m getting ready to recommend a gold stock that operates in Brazil to my Top Stock Insights readers. I’ve been waiting for a bounce in the U.S. dollar to take gold prices down for $1,000 an ounce to recommend a gold stock. And now that move is happening; keep your eyes open for the imminent release of my new report.

***** My book The Small-Cap Investor: Secrets to Winning Big with Small-Cap Stocks is still holding strong in the Top 10 in the “Stocks” category with Amazon.com. Daily Profit readers have been a big part of that success, thank you very much.

Don’t forget – when you get your copy, you’ll also get a coupon good for $50 off an annual subscription to SmallCapInvestor PRO or any of my other advisory services.

With this $50 coupon, it’s like getting 3 months of the top-performing SmallCapInvestor PRO for free. Helping you make money is the best “thank you” I can think of.

You can get your copy of my book at Amazon.com by clicking here now . And you can get your $50 coupon HERE.

Until tomorrow,

Ian Wyatt

Editor

Daily Profit

G-20 Heats Up...

ChuckButler — Fri, 25 Sep 2009 14:28:46 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 Oct. 13, 2009. Apply today or learn more at http://www.everbank.com/001CertificatesMSBRIC.aspx?referId=11808

In This Issue..

* Dollar's rally is cut short...
* Major problems for loans still exist...
* Yen rallies on exporter repatriation...
* Kiwi gets whacked!

And Now... Today's Pfennig!

G-20 Heats Up...

Good day... And a Happy Friday to one and all! It's still raining here in St. Louis this morning, but I won't that get me down, as it is a Friday! G-20 has gotten a bit ugly, folks... Seems everyone just can't seem to get along! Imagine that! 20 different countries, and now they want to be able to watch another country's finances and comment on them! Oh, I can see that working out real well! NOT!

So... Yesterday, we had the dollar gaining back the ground that it had lost the previous day, but at the end of the day, we're looking very much like the currencies hadn't moved from morning to morning... And overnight, didn't bring about much movement... So... When you get to the currency round-up below, you'll see the dollar's gains were small, and short-lived.

The U.K. and France are a bit upset with the U.S. and the President's plan to reduce the number of board members to the IMF, and guess who is on the chopping block? That's right... The U.K. and France! I really don't care about all this stuff, except to watch the saber rattling, and jockeying for "supreme leader"... I won't say any more about that here...

I did notice thought that, just as I said months ago, regarding the BRIC countries, that they would have to be reckoned with, due to their HUGE Treasury Chests of reserves, and the fact that they have a good portion of the World's population... Ok, where was I? Oh!, I noticed that it was going to be announced today that G-20 was going to take over as the main forum for global economic coordination. They will take that over from the G-8...

Well, guess who's a part of G-20 that wasn't a part of G-8? The BRIC countries! They will have more say in what goes on economically! Just like I said they would! This is a big deal, in that this shifts the power from the rich countries to the emerging markets... Yes, the rich countries are still in the Group of 20... But, the emerging markets outweigh them now!

And already, we can hear China taking shots at the U.S.... And, now that everyone can comment on other countries' economies, the U.S. took a shot at Germany, saying that they haven't done enough to spur Domestic Demand... Germany's chancellor, Angela Merkel, who is up for election on Sunday, shot back at the U.S., and said... "We should also look at imbalances between currency regions and not pick on specific countries within the Eurozone."

OK... Let's talk about something else... I was reading the Financial Times last night, and came across a story that really said something... Here it is... The FT...

"Losses on loans at U.S. banks and other lenders rose to $53 Billion in the first quarter, almost triple the previous high, reached in 2002, said a group of regulators, including the Federal Reserve and the Federal Deposit Insurance Corp. Nonbank lenders, particularly hedge funds, hold $1 of every $3 in troubled loans and 47% of all distressed loans. Loans made to media and telecommunications companies were in the worst state. Lending to the financial-services sector was the next worst, followed by loans to property companies."

But Hey! According to people in power that should know better, it's time to sound the all-clear horn!

And that brings me to something I wrote about the other day, regarding the delayed foreclosures... A reader was kind enough to send me this that maybe explains the delays...

A landmark ruling in a recent Kansas Supreme Court case may have given millions of distressed homeowners the legal wedge they need to avoid foreclosure. In Landmark National Bank v. Kesler, 2009 Kan. LEXIS 834, the Kansas Supreme Court held that a nominee company called MERS has no right or standing to bring an action for foreclosure. MERS is an acronym for Mortgage Electronic Registration Systems, a private company that registers mortgages electronically and tracks changes in ownership. The significance of the holding is that if MERS has no standing to foreclose, then nobody has standing to foreclose on 60 million mortgages. That is the number of American mortgages currently reported to be held by MERS. Over half of all new U.S. residential mortgage loans are registered with MERS and recorded in its name. Holdings of the Kansas Supreme Court are not binding on the rest of the country, but they are dicta of which other courts take note; and the reasoning behind the decision is sound.

And... As another reader pointed out to me... It sure doesn't make the holder of the loan any richer to foreclose on it, given the state of the housing market today...

Ok... Enough of that! Yesterday, I talked about how Japanese yen was living right these days, rallying when the dollar is weak, and rallying alongside the dollar when it's not! Well... One of the reasons this could be happening with regularity, is that it is believed that Japanese exporters are repatriating their profits, as their fiscal first half ends this month...

So, does that mean the rug gets pulled out from beneath yen next week? Hmmm... I don't think so... I think that the one thing that's really underpinning yen right now is this new found appreciation by the Bank of Japan for yen strength! Just last night, Japan's Finance Minister Hirohisa Fujii reiterated his opposition to intervention in foreign- exchange markets.

Now, I don't know how long the exporters in Japan are going to go along with this new found appreciation for yen strength... But for now... Yen is on the verge of gaining even more ground...

In New Zealand overnight... The string of good data prints ended with a thud! New Zealand's Trade Deficit widened almost double what was expected! UGH! Remember, New Zealand has to import lots of things, and when the exports of wool, dairy, and lumber aren't strong, their deficit gets whacked! So, New Zealand would always have a Trade Deficit... But, at times it gets completely out of hand, and this is one of those times... Kiwi, got taken to the woodshed after the report printed, as well it should!

The Swiss National Bank (SNB) had a board member giving an interview last night, and when asked about the SNB's repeated jawboning to get the franc weaker, he had this to say... "with regards to the Swiss franc this means that we counter an appreciation of the franc against the euro decisively."

Now, that's a horse of a different color! All this time we were led to believe that the SNB would intervene to get the franc weaker VS the dollar! No wonder the franc has kicked some dollar tail lately, without a peep from the SNB... The franc was allowed to get stronger VS the dollar, as long as the euro was moving in the same direction, same general percentage move VS the dollar!

Our mortgage production guru, Stacy Blair, was talking the other day in a meeting, and mentioned that mortgage rates had edged down again, and production was picking up once more... Well, that plays well with a story I read last night... The average interest rate for U.S. home mortgages fell to less than 5%, and loan applications surged 13%, the Mortgage Bankers Association said. The nationwide average rate on a 30-year fixed-rate mortgage declined to 4.97%. The application surge amounted to a 50% increase compared with the end of June.

OK... So... I would guess that most of that stuff is re-financing loans, but hey! Like I told everyone on our desk 6 months ago, when the rates were in the 4% region... Go refinance your home loan! And then put the money you save each month in savings!

We get back to some data in the U.S. today, and I think that it could have a lot to do on whether the currencies rally or not VS the dollar. Durable Goods Orders for August prints first, and is expected to really fall back from July's strong 4.9% print... August is expected to print just a .4% gain for Durable Goods... That won't get the "strong recovery flag wavers" out, and that won't be good for the non-dollar currencies...

Then later we get the U. of Michigan Consumer Confidence report, which could turns things around for the non-dollar currencies... As the Consumer Confidence report is expected to be strong... ????? Why? I have no idea... (besides the obvious, stock strength)

We'll also see New Home Sales data for August...

Have you noticed the collapse of the Oil price? Pretty steep drop in just a couple of days! I told you the other day that the G-20 might put pressure on commodities... Oil is off, and Gold has fallen back below $1,000 wink, wink...

So... To recap, the dollar's rally was stopped short. The G-20 is the new global economic monitor, and the U.S. is ticking the U.K. and France off, regarding seats on the IMF board. G-20 is getting hot and heavy... Japanese exporters are repatriating their profits thus propping up Yen... And, New Zealand's Trade Deficit widens again...

Currencies today 9/25/09: A$ .8650, kiwi .7185, C$ .9175, euro 1.4685, sterling 1.6010, Swiss .9720, rand 7.4280, krone 5.7850, SEK 6.9170, forint 184.25, zloty 2.8550, koruna 17.15, RUB 30.09, yen 90.20, sing 1.4160, HKD 7.75, INR 47.98, China 6.8286, pesos 13.48, BRL 1.7995, dollar index 76.73, Oil $66.28, 10-year 3.36%, Silver 16.31, and Gold $997.32

That's it for today... Well... The Cubs lost last night, which means the Cardinals' magic number remains at 1... They could clinch tonight in Colorado... My beloved Missouri Tigers play on ESPN tonight as they take on Nevada, in Reno... And my little buddy Alex, plays football tomorrow as his 8th grade team takes on their big rival! Tomorrow night is our subdivision's big block party, so it will be a grand weekend for yours truly, especially if, the Cards clinch, Mizzou and Lindberg 8th graders win, and the rain stops! I think I'm going to go to the Mizzou game VS Nebraska next Thursday night, now that will be exciting! OK... Suzy Q is here, so I must be running late... Time to go.. I hope you have a Fantastico Friday, and Wild and Wacky Weekend!

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

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