Search results matching tag 'Treasuries'

German Business Confidence Slides...

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

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In This Issue..

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

And Now... Today's Pfennig!

German Business Confidence Slides...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Muddle Through, R.I.P?

JohnMauldin — Sat, 17 Oct 2009 19:50:00 GMT

Muddle Through, R.I.P?
Savings Equal Investments
Japanese Disease
Who Will Buy the Debt?
The New Muddle Through Economy
On the Road Again

I first wrote about the Muddle Through Economy in 2002, and the term has more or less become a theme we have returned to from time to time. In 2007 I wrote that we would indeed get back to a Muddle Through Economy after the end of the coming recession. If you Google the term, at least for the first four pages more than half the references are to this e-letter. I get a lot of flak from both bulls and bears about being either too optimistic or too pessimistic. Being in the muddle through middle is comfortable to me.

Last week I expressed my concern that we as a country are taking actions that could indeed "Kill the Goose" of our free-market economy. I rightly got letters asking me how I could maintain Muddle Through in the face of that letter. I have given it a lot of thought and research. How likely are we to muddle through in the face of $1.5 trillion and larger deficits? Today we take another look at Muddle Through. It should be interesting.

But first, two housekeeping items. I want to welcome the 150,000 members of the National Association of the Self-Employed to this letter. They have asked me to be a special consulting economist to their group, and they will send this letter each week to their members. Since its beginning in 1981, the National Association for the Self-Employed has pioneered support for micro-businesses and the self-employed, and been a forceful advocate for small business in this country. (www.nase.org) I am honored. I am pleased to add you to my 1 million closest friends. I hope you find it useful.

Second, I will be going to South America at the end of next week, to Buenos Aires, Montevideo, Sao Paulo and Rio. I will be speaking in those cities and traveling with my new Latin American partner, Enrique Fynn of Fynn Capital (based in Uruguay). If you would like to find out about this tour or what services he can help you with, you can go to www.accreditedinvestor.ws and sign up and Enrique will get in touch with you. And as always, if you are an accredited investor, you can go to that website and one of my partners in the world will get back to you. (In this regard, I am president of and a registered representative of Millennium Wave Securities, LLC, member FINRA.) And now to the letter.

Muddle Through, R.I.P.?

I defined a Muddle Through Economy in the past as one of slow growth (in the area of 1-2%) and a slack employment environment, such as we had in 2002 and the early part of 2003. In early 2007, I suggested we would return at some point to such an environment at the end of the recession I was predicting.

I am not surprised about the response of the Fed to the current recession and credit crisis, whether it's the large monetization of debt or the low interest rates. Assuming they more or less remove the monetary easing in a reasonable manner, there is nothing that would make me think we do not eventually recover, albeit at a very slow Muddle Through pace, with a jobless recovery that lasts for several years. It will not be pleasant, but we'll survive.

However, gentle reader, never in my wildest dreams did I think we could be looking at government deficits of $1.5 trillion dollars and actually budgeting future deficits of over $1 trillion as far as the eye can see. And there is real reason to think that under current plans, $1 trillion deficits are optimistic. Look at the graph above from the Heritage Foundation. They suggest that current policy would bring us closer to a $2 trillion deficit by 2019.

And that assumes nominal growth that is north of 3% and unemployment dropping back below 5% in reasonably short order. If you make less optimistic assumptions, the number can become much larger rather quickly. Where do we find that much money to finance that large a deficit? We will look at what might be the answer, but first we need to look at a basic concept in economics.

Savings Equal Investments

GDP (Gross Domestic Product) is defined as Consumption (C) plus Investment (I) plus Government Spending (G) plus [Exports (E) minus Imports (I)] or:

GDP = C + I + G + (E-I)

(For the wonks out there, GDP is usually termed "Y".)

You can calculate national savings as GDP minus consumption and government spending. That means that investment equals savings plus net exports. If there are no net exports, then money must come back into the US from outside the country to finance investments, along with savings.

This equation is known as an identity. An identity is an equality that remains true regardless of the values of any variables that appear within it. That means it is not a guess or an approximation. It is simple reality.

Thus, if there is a government deficit, there must be savings by both consumers and businesses, plus capital flows from outside the country, to offset that deficit in order for there to be any money left over for investments.

In the short run, an increase in government spending can offset a decline in consumption (a recession), but absent savings a government deficit crowds out investment in the long run. There must be savings in order for there to be investment. And without investment, you do not get job growth or economic growth.

Japanese Disease

Some readers wrote this week telling me I am far too worried about a rising government deficit. Right now we are at roughly 42% of debt to GDP. In 1989, at the start of the lost decades, Japan had a debt-to-GDP ratio of 51%. Now it is at 178%, and the world has not come to an end for them. In fact, they are running massive government deficits today and plan to do so for a long time. Why, I am asked, can't we be like Japan? And my answer is that it is possible, but the cost that Japan has paid has been high.

In 1989, private Japanese debt (businesses and consumers) was at a debt-to-GDP ratio of 212%. Now it is at 110%. And the total of both government and private debt is roughly the same (within 5%) of where it was 20 years ago. Along with running large trade surpluses, private debt has been exchanged for government debt. Savings have fallen from the mid-teens to about 2% today, as the country is rapidly aging and now using its savings to live on. And how much has all that government spending helped the country? Before I answer that, read these paragraphs from Hoisington Asset Management's latest letter (last week's Outside the Box):

"The federal government's promise to extricate the U.S. economy from this recession involves more spending (increasing public debt) and more subsidies for consumers, such as car rebates and home buying incentives (more private debt). In other words, more debt is supposed to solve the problem of over-indebtedness. The truth is that this policy merely indentures its citizens further without providing any income for repayment of debt. In previous letters we have discussed the fact that the government spending multiplier is zero (read Professor Robert Barro's book, Macroeconomics - a Modern Approach, p. 370).

"This means there is no long term income benefit from stimulus programs. According to the latest academic research, the most recent $800 billion stimulus plan will boost economic activity in the short run, but will surely depress economic activity over time. The government problem is complicated by the fact that the tax multiplier is 3, meaning that a 1% change in taxes will change GDP by about 3% over time. More recent research (Barro & Redlick, September 2009, "NBER Working Paper 15369") suggests that a 1% cut in the marginal tax rate would raise GDP in the ensuing year by 0.6%. With the deficit rising due to a zero spending multiplier, the tendency will be to try to raise taxes to pay for this higher level of expenditures, which will further depress aggregate spending and output."

For all intents and purposes, Japan has had no growth for almost two decades. Their nominal GDP is where it was 17 years ago, and the number of employed people is at 20-years-ago levels. An aging population has masked their unemployment problems, as older citizens retire. Their savings went to government debt. Taxes were raised numerous times. Since government deficit spending has no long-term multiplier effect, growth has been nonexistent. (By the way, that research about multiplier effects has also been done by Christina Romer, the chairman of the current President's Council of Economic Advisors, and further explored by European economists. There is general agreement on these facts.)

In 1998, the US had a total debt- (government plus private) to-GDP ratio of 260%. Today it is 373%. We have added over $15 trillion in debt, yet total employment today is roughly where it was 9 years ago. But the current economic leadership wants to solve the problem of too much debt with even more debt. I am sympathetic with the idea that in the short run the government should step in and the Fed should print (within limits) money to keep us from deflation. But the equation we spent time on earlier suggests that if we continue to run massive deficits, we run the risk of catching Japanese disease - a decade-long (or longer) period of slow growth and high unemployment, especially since our population is growing and our Boomers are going back to work (and surveys suggest they intend to work longer).

Large government deficits choke off the very investment that we need to create jobs. In the name of doing good, the unintended consequence is to make it more difficult for small businesses to start up and create jobs. And we all know that small business is the engine for job creation.

The way out of the current morass is to create jobs and increase productivity. But if the government runs deficits of $1.5 trillion, that means whatever savings (corporate and consumer) we have will not go into the investments we need, but into government debt.

Who Will Buy the Debt?

Now, let's go back to the problem of who will buy the debt. How can we find $1.5 trillion each and every year? Some of it will come from foreign central banks, as we continue to run a trade deficit. Once those dollars leave our shores, they do not disappear. They can only go back into a dollar-denominated investment. Up to now, that has typically been US government debt. If China decides to use its dollars to buy commodities or other assets, whoever sells them the assets now has the dollars and must decide what to do with them. So give or take a few billion, about $400 billion will come back to the US from our trade deficit next year. That still leaves $1.1 trillion.

Upon reflection, and cutting to the chase, I think that the buyers of the debt could be US banks for quite some time. The next graph shows commercial and industrial loans at US banks falling precipitously. Banks have (correctly) tightened lending standards, but that means that small and medium-sized businesses, which account for over 85% of all jobs, have been cut off from the life blood of growth. Is it any wonder they are cutting jobs at a prodigious rate?

The next graph shows bank credit (of all types), going back to 1974. Notice that even during recessions (gray shaded areas) bank lending either grows or at the most goes flat. But now we are experiencing something new: bank lending is falling. Notice the sharp increase in lending in 2008 as corporations decided to draw down their banks' lines of credit, afraid that the banks might cut back. And with good reason, as banks did exactly that.

So where do banks put their cash and reserves they are not lending? At the Fed and in Treasury debt. If you can leverage capital at ten to one (as banks can) and if you get 2% (for longer-term debt) and if you only have costs of, say, 50 basis points (or 0.5%), you can make a return on equity of 15% with no risk.

And that is what we are seeing. Banks are taking the money the Fed is printing and the government is giving them and putting it back at the Fed. Bank reserves at the Fed are exploding. And they are likely to continue to do so, since bank balance sheets are still deteriorating, especially at smaller and regional banks exposed to commercial real estate loans. Banks own 45% of commercial real estate loans, compared to only 21% of single-family loans. Banks (in general) are going to have to raise capital and reduce their loan portfolios in order to keep within the guidelines for adequate reserve capital. Small wonder that my friend Chris Whalen (one of the real experts on banks) thinks we will see over 400 banks fail in this cycle.

One quick chart to further highlight the problem that banks are facing. I have been writing for several years that commercial real estate loans will be the next shoe to drop. Moody's calculates that commercial real estate prices have dropped 30%. Over a trillion dollars in commercial real estate loans are coming due in the next few years. Banks are going to continue to reduce their loan portfolios in order to deal with the massive write-offs they are going to have to make. And my bet is they put those reserves they are not lending into government debt.

Given that the current Congress is hell bent on massively raising taxes in 2011, we are likely to dip back into recession by then, if not before. Remember, taxes have a multiplier effect of three. That means tax cuts increase GDP (over time) by three times their amount. But tax increases reduce GDP by three times the increase. That will make deficits worse, and unemployment will again start to rise from already high levels. Twenty states have already raised sales taxes, and more are raising other taxes. It is a vicious spiral.

The New Muddle Through Economy

This is not a prescription for a return to normal growth. We are headed for a New Normal that is less than what the market currently believes. Unless the deficit comes under control at some point, we face the real prospect of catching Japanese Disease and suffering yet another lost decade. Can we Muddle Through? We have no choice but to do so. But it will not be fun. It will not be long-term 2% growth and employment going back to 6% any time soon. Can we reverse the course? With a different attitude and leadership in Congress, maybe we can. But it won't happen next year, and it's unlikely in 2011.

I am afraid we will have to put my old friend Muddle Through, as I previously defined him, back in his box for a while. But wait, if my friend at PIMCO, Mohammed El-Erian, can tell us we are going to a "New Normal," then I can decide that we are going to a "New Muddle Through Economy." Just not one as benign as I used to think.

In the end, that is what we will do. We will figure out how to deal with the environment in which we find ourselves. That is what free markets and entrepreneurs do. Things will sort out, but not before we have what could be an even more difficult crisis, which will force us to make hard choices.

As an aside, I am not expecting that we will see the crisis I am thinking of any time soon. We can move along with positive GDP for some time. I am thinking of the longer term, 1-3 years out. We will become complacent. I will get letters telling me I am too pessimistic. Just as I did in late 2006 when I said we would be in a recession by late 2007. But I firmly believe we will see a double-dip recession within another 18 months (at the most). Stock markets drop on average about 40% in a recession. Adjust your portfolios accordingly.

On the Road Again

I am writing tonight from Detroit. Tomorrow I will be in New York watching the Yankees/LA game. I will be the guy in the second row behind home plate in the Dallas Cowboys jacket. I will be on Yahoo Tech Ticker on Monday morning, so you should be able to go to Yahoo and see me later that afternoon. Then Philadelphia on Tuesday, speaking at my partner Steve Blumenthal's CMG conference for investment advisors. They have a very interesting platform of trading advisors. You can see them at http://cmgfunds.net/public/mauldin_questionnaire.asp

I had a great deal of fun at the New Orleans conference, being with old friends and meeting new ones. David Tice (of the Prudent Bear Fund) was an exceptional host for dinner at Emeril's. I was surprised that Karl Rove actually remembered me after nine years. I thoroughly enjoyed spending some quality time with my friend Ron Paul. We share a lot of concerns about the future of the Republic. I was pleasantly surprised by how thoughtful Howard Dean was. And very personable.

I go to Houston on Wednesday, Orlando on Thursday, and then South America on Saturday. I will be doing a lot of writing from hotel rooms, but all in all it will be fun. You have a great week, and remember that in 10 years none of us will look back and want to return to 2009. 2019 will be better than we can possibly imagine. We just have to make sure we all get there!

Time to hit the send button and find an adult beverage. All the best,

Your going to miss the Old Muddle Through analyst,

John Mauldin

A Jobs Jamboree for Friday 10/02/2009!

ChuckButler — Fri, 02 Oct 2009 14:14:00 GMT

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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..

* The dollar remains well bid...
* G-7 to hand currencies off to G-20?
* Car Sales collapse...
* Auditing the Lehman cash movements...

And Now... Today's Pfennig!

A Jobs Jamboree Friday!

Good day... And a Happy Friday to one and all! Yesterday, I welcomed you to October. I had been prepared to tell you about a famous radio station here in St. Louis, that has long called October... Rocktober... But forgot, as usual! But anyway... It's the first Fantastico Friday of Rocktober!

Today is a Jobs Jamboree Friday too! And... I'm not getting a good feeling about today's labor report at the Jobs Jamboree. The forecast is for jobs losses to fall from -216,000 to -175,000, but the unemployment rate to tick up to 9.8% from 9.7%... I got the feeling, baby, baby, I got the feeling... Oops, a little James Brown on Fantastico Friday never hurts! But what I was saying was I'm getting the feeling that there are risks to this forecast... And that the job losses could come in higher, which would really be a BAD thing for the recovery flag wavers and risk takers, I'm sorry to say...

You see, the recovery flag wavers and risk takers are wishing, and hoping, and thinking and praying that the data in the U.S. continues to show some sign of life. Any signs that the U.S. economy could be slipping backwards, would deep six stocks for sure, and if last year's trading tells us anything, it would have an adverse affect on Commodities and Currencies too!

So... This is a BIGGIE, today, folks... So strap yourself in, and make sure you keep your arms and legs inside at all times during the ride!

Yesterday's currency trading left a lot to be desired... There was little movement from the overnight sessions which tomahawked the non-dollar currencies. That's a good thing... But the downside risk today is just too much for me right now... Maybe after 7:30 CT I'll be able to breathe again, for that's when the Jobs Jamboree prints... Again, Japanese yen enjoys the sun from both sides of their house... When the dollar is weak, yen rallies with the other non-dollar currencies... When the dollar is strong, yen rallies alongside the dollar! It's good to be the yen! (that is before the Ministry of Finance in Japan begins to intervene!)

Hey! Remember when I bashed the Cars for Clunkers scheme, I mean program, and exposed it for what it was, and what it would do to future sales of automobiles? Well, as they say... The proof is in the pudding!

Yesterday, it was reported that General Motors had posted a 45% drop in September U.S. light-vehicle sales, while Chrysler's sales fell 42%. Ford saw a much more modest drop of 5.1%. Among Japanese auto makers, Toyota said its September U.S. sales declined 16% from a year earlier, while Nissan saw its results fall 7% and Honda said its sales slid 23%. The auto industry was hurt by the expiration of the U.S. government's "cash-for-clunkers" rebate program.

Yes... I told you this would happen... I also think that any Gov't program to prop up the economy is just falling into the ghost of Japan's hands... I've explained this before, about how when Japan experienced a HUGE market correction after their go-go 80's, they panicked and began throwing money at the problem, instead of just letting the markets run their course... The Japanese introduced stimulus package after stimulus package, and Gov't program after Gov't program, like Quantitative Easing... And look how well that's worked out for them!

So the ghost of Japanese recoveries that never panned out, is haunting the U.S. Gov't now!

Today is also the start of a G-7 meeting in Istanbul... Istanbul was once Constantinople! Or so the song goes... Any way... The rumors coming out of the pre-meeting stuff is that G-7 will no longer make a statement or issue a communiqué' regarding currencies, as they now feel that the only group that should have that responsibility is the G-20, which last week took the world economies watchdog title from G-8...

Currency traders have long used these G-7 communiqué statements as a tool that indicates direction for currencies... And while that has actually come to fruition a handful of times over the years, for the most part, G-7 was nothing but a boondoggle!

One thing that's out there that you won't see a lot of people talking about is the vote going on in Ireland today, on the Lisbon Treaty, which the Irish people voted down last year... This Lisbon Treaty changes the way the European Union works, and would amend the Maastricht Treaty... It was intended that all member European Union states would ratify this before now... So, this vote is like the Sword of Damocles hanging over the euro for Monday morning...

You see, the vote will be taken today, counted tomorrow, and announced Sunday, which will cause a knee-jerk reaction to the euro trading on Monday... Right now, the polls show the Treaty will be accepted this time by the Irish. If passed, it goes to Poland and the Czech Republic, and if they vote yes then it would lead to ratification, which would be a good thing for the euro... A no vote would be bad thing, just like it was in June of 2008, when Ireland voted no the first time around.

Yesterday, the IMF issued a report on Currency Composition of Global FX Reserves... And this is quite telling I believe, for the report showed a continued diversification away from the dollar, in the 2nd QTR of this year... I had to laugh last year, when I was on the FXU Currency Tours, and one of the guys there said that the fall of currency reserves allocation of dollars from over 80% to 64%, was nothing but currency appreciation by the euro... I would point to the these IMF reports, when I talked so that I didn't make a big thing out of it...

Did you see the story in the Wall Street Journal (WSJ) regarding Lehman Brothers? This story has conspiracy stamped all over it, so you know me, I was all over this story like a cheap suit! Here's the gist of the story from the WSJ... "An examiner is looking into how the Federal Reserve was promptly repaid billions of dollars in cash and securities it lent to Lehman Brothers before the bank filed for bankruptcy, while other creditors are still owed money. The court appointed Anton Valukas, chairman of Jenner & Block and a former U.S. attorney, to explore whether the Fed received improper preferential treatment."

Chuck again... Now, you, me and the lamppost all know what went on here, just by that description in the WSJ... But, we'll wait for the report, I guess...

The U.S. stocks really got taken to the woodshed at the close yesterday, and the futures in the overnight markets are weak... So... Guess where the money goes when they sell stocks? That's right, U.S. Treasuries... So, just about the time you think that the mom and pop's of the world that went to Treasuries last year in the so-called Flight to Safety, had taken on enough losses, and were going to get out... Here comes the stock correction that I've been talking about... Or maybe not... Maybe this is just a couple of days of selling... Or maybe it is the correction...

So, if dollars are flowing into Treasuries, the yields of those Treasuries are going down once again... UGH! This just doesn't make any sense to me! Didn't these people that went to the so-called Safety of Treasuries last year, but lost money, learn anything? Or did enough time pass and they've "forgotten the pain"?

Oh Heck! This just feeds more air into the Treasury Bubble... Which means that it grows larger and larger, and also means that when it does POP, the losses will be severe and all across the board... I mean, isn't that what we've learned about what happens when a bubble POPS in the past?

Yesterday, the data cupboard was busy... We had the Weekly Initial Jobless Claims post a higher number than was expected, coming at 551,000, VS last week's 534,000... I always love it when the Jobs Jamboree follows a Weekly Initial Jobless Claims repot... Because... The Weekly report shows that, in this case, that 551,000 jobs were potentially lost last week, and today's monthly report by the BLS will show something far less...

We also saw that the U.S. Consumer continues to spend more than they make, as Personal Spending was up 1.3%, while Personal Income was only up .2%...

And then finally we saw the U.S. ISM Index (manufacturing) come in weaker than expected, but remain above 50, at 52.6... That's a weaker number than the August figure which was 52.9... And I would think that someone would have noticed this... But we had the TV on all day, and I had it one when I got home, and never saw mention of this anywhere!

And then there was this... Colleague, Aaron Stevenson, called me yesterday morning, trying to beat the deadline for stuff to add to the Pfennig... He missed... So I have it for today... Remember yesterday morning, when I announced that BOA CEO Ken Lewis was retiring, and that I thought that to be strange?

Well, Aaron was all over this, telling me that he worked for BOA for a number of years, and sat in on meetings with Ken Lewis, and that Ken Lewis was not the kind of person to take "early retirement"... In fact, Aaron says, "that 4 months ago, I heard an interview with Ken Lewis, and he said I'm 62, I'm not ready to retire." Aaron said that he was a "no surrender, no quit, kind of guy." Hmmm... I wonder what changed in 4 months? Well, Aaron thinks, and I agree, that he was forced out by the Feds, for speaking his mind on the BOA / Merrill Lynch deal that was brokered by the Fed and Treasury...

OK... To recap... Today is a Jobs Jamboree Friday, and I'm getting the feeling that it will be disappointing VS the forecast of 175,000 job losses. G-7 meets this weekend, and there might be a change in the what they say after each meeting. The ghost of Japanese recoveries, is at work in the U.S. Ireland votes on the Lisbon Treaty today, and the dollar remains well bid VS the non-dollar currencies... Except yen!

And this... On Monday next week, I will be doing an educational presentation for the folks at DTI... You can find out more here: http://www.dtitrader.com/trading_education_MMM_everbank.htm

Currencies today 10/2/09: .8630, kiwi .7130, C$ .9175, euro 1.4550, sterling 1.5850, Swiss .9620, rand 7.72, krone 5.8250, SEK 7.0420, forint 186.20, zloty 2.9185, koruna 17.4750, RUB 30.20, yen 89.30, sing 1.4170, HKD 7.75, INR 47.75, China 6.8265, pesos 13.77, BRL 1.7860, dollar index 77.20, Oil $69.69, 10-year 3.15%, Silver $16.25, and Gold... $996.75

That's it for today... A Big Day for investments, so hang on to your hat! That was a much better display of baseball yesterday by the Cardinals. They have 3 games left in the season, to get on a roll before the playoffs! I had a brain drain the other day, when I gave you the link to the Sovereign Society for the Offshore Academy Conference... I'm sure once you all figured that out, you just went to Google and got to the site! UGH! OK, my little buddy, Alex, plays football tomorrow morning against another top rival... He told me it's payback time, as his team lost to the rival last year... I told him, talk is cheap... You have to back it up on the field. OK... Enough! It's a Fantastico Friday, and we're in Rocktober! Time to get working on making this Friday, Fantastico!

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

The Dollar Gets Ambushed!

ChuckButler — Tue, 22 Sep 2009 14:43:15 GMT

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In This Issue..

* Non-dollar currencies soar!
* Weber gives the green light...
* Is the Fed buying more Treasuries?
* China considering IMF's Gold!

And Now... Today's Pfennig!

The Dollar Gets Ambushed!

Good day... And a Terrific Tuesday to you! A Tuesday that needs no "turn-around", as the currency actions VS the dollar overnight are amazing! The dollar got ambushed overnight, as the euro shot right straight through the 1.47 handle, and has just traded 1.48! Hmmm... Didn't I say yesterday that the I didn't think the dollar strength we were seeing was any change in the recent trend? ... I love it when a plan comes together!

Traders have found a "soft spot" in the dollar, and are really going after it! I don't recall the last time I saw this kind of a move overnight. It must have been back when the dollar was getting sold like funnel cakes at a state fair, almost every day in the spring of 2008... But, I really don't recall... But, that doesn't put a damper on this morning's move! No way!

The only thing I can think of, or find in the news, that brought about this HUGE move in the currencies VS the dollar, is the fact that European Central Bank (ECB) Council Member, Axel Weber pretty much gave the "green light" to traders, when he said in an interview that the euro's strength is not out of line with fundamentals... That's right! The way I read that is this... It's Central Bank parlance for... "go ahead and drive the euro higher!"

Weber also said, "There were some stronger data coming from the Eurozone compared to some other regions. So, I think that the behavior of the foreign exchange markets is not out of line with these developments over the recent months."

Now... These comments carry even extra weight due to the position Axel Weber holds as President of the Bundesbank... Buba, as I used to call them, is Germany's Central Bank, and has always held a position of influence on the ECB...

So, Axel Weber says the euro's rally is OK with him... That's Big Folks... For, currency traders like to know that they can run up or down a currency and not fear that the Central Bank is going to step in with currency intervention to stop the run. And, for all intent gives them the Green Light...

OK... Now that the euro has pushed the envelope to 1.48, I expect to see some strong profit taking when the U.S. traders arrive... But, keep this in mind... The euro hit 1.48, and therefore, we now know that traders will take it there a few times before they give up... So, if the euro falls back into the 1.47 handle, look for it to bounce, at least a couple of times. I've explained this trading before... It really comes down to how badly the euro bulls want to push the envelope... Or the dollar bears want to push too!

The euro isn't the only currency gaining VS the dollar... Euro, Swiss francs, kiwi, and Swedish krona have all hit 2009 highs overnight, with kiwi gaining to .7215... A quick look at yesterday's currency round-up shows that kiwi was trading at .7040... Using my "new math" talents... That's a 175 pips move! WOW! New Zealand received some very good news on their deficit problem, as their annual deficit fell from 8.1% of GDP to 5.9% of GDP... Still too high, but moving in the right direction!

For once, it seems, the Aussie dollar (A$) followed its kissin' cousin from across the Tasman, kiwi, higher... It's normally the other way around!

You know what I think? I think that the markets are beginning to look at the man behind the curtain at the Fed, and realize he's just pulling levers, and creating special effects...

OK, I'll explain... Yesterday, I talked to you about the "new record" in size of Treasury Auctions will be shoved down the throats of the markets this week, to the tune of $112 Billion worth of 2, 5, and 7 year notes...

Well... I came across this yesterday, from Morgan Stanley...

"Households reduced Q2 Treasury purchases from their blistering pace in Q1 Foreign accounts reduced Q2 UST purchases as the Fed ramped up Q/E ops. Bank Q2 purchases remained anemic."

In normal speak, what that's saying is that Mom and Pop buying of Treasuries has backed off... You may recall me telling you many months ago that Mom and Pop buying of Treasuries had taken up the slack from declining foreign purchases... The Mom and Pop buying was credited to the "flight to safety", when the walls came crashing down last fall...

So... If Mom and Pop buying is backing off, and it was used to offset declining foreign purchases, who's left at the table to buy the Treasury's issuance this week and in a couple of weeks, and a couple of weeks after that?

Well... It's the Fed... I read this, and just couldn't believe my eyes! The Fed is taking on more and more.. I read where it is believed that about 50% of U.S. Treasury issuance in the 2nd QTR saw Fed intermediation... $164 Billion in the 2nd QTR ended up on the Fed's books, while foreigners bought $101 Billion and Mom and Pops bought $29 Billion... When you add in the Primary Dealers, the total of Non-Fed buying was $158 Billion...

Let me be perfectly clear on this... This is only speculation at this point... But it certainly makes sense doesn't it?

Now... Why isn't the main media all over this? Where are the questions about how the upcoming record amounts of Treasury issuance will be taken, and by whom? Why am I the only one asking these questions? It's just little old me (yeah, right! HA!), and my laptop... Oh, and let's not forget that the Administration has already given us the bad news that $9 Trillion in Budget Deficits will need financing in the next 10-years...

This all makes me sick to my stomach... I mean come on! This Deficit Spending has got to stop! And We've got to say NO to any additional new Deficit Spending! Stop it, right here, right now! Cut government in half... Get rid of non-Constitutional agencies... Audit the Fed, and turn this around!

OK... I've got to talk about something else before I throw my keyboard! I used to throw my keyboard, slamming it down on the desk all the time, and break them... The IT people would laugh, and just bring down a new one for me... But, since I got sick two years ago, I don't throw my keyboard any more... But, I was tempted... I could have gone into a song by The Squeeze there, but I didn't...

Remember last week, when I told you about the IMF wanting to get permission to sell quite a bit of their Gold? And at that time, I said... "China, are you ready to buy?" ... Thinking, of course, that China would be the only country that could / would buy up the 403 tons of Gold that the IMF is putting up for sale...

Well... Guess who answered my call? That's right, China! It is reported this morning, that China is considering buying the Gold that the IMF is offering. It's not clear whether they want just "some of the offering" or "all of the offering"... My guess would be the latter... As this would just add to China's goal of diversifying their U.S. dollar reserves...

And... If China does take down 403 Tons of Gold, that will take away from their Treasury purchases, don't you think?

But, I'm not going down that Treasury road again... I'm staying on the high road with Gold! Which at one point yesterday morning, looked weak... I even mentioned on the desk that it looked like Gold was getting spanked, as it was down over $10... But, later in the day, the shiny metal had come back and was on the positive side of the ledger for the day! And now, this news that China is considering buying the IMF's offering of Gold, has Gold on the high road too... Gold is up $12 this morning, back to $1,016!

So... Throwing stones at the dollar this morning on two fronts... The currency and Precious Metals fronts... Hey! I'm not throwing the stones! The markets, traders, investors, etc. are doing the throwing!

You know, each day, when I'm writing the Pfennig, the currencies are all trading, except... The Brazilian real... The real is still not a floating currency, as it goes through a "fixing" each day, but then the markets take it over, and trade it the rest of the day. So... When you have an overnight market like we've just had, when the non-dollar currencies have all spring-boarded higher, I sit with anticipation for the "fixing" for real, and then watch as the markets play catch-up... The move will be stunning, I'm sure... As real is much like South African rand, when it come to the wild swings...

There's not really any data in the U.S. cupboard this morning... In fact, the only thing I see globally is July's print of Canadian Retail Sales... And with it being so delayed, I doubt it will mean much when it does print!

I thought I would play a game of "Remember when?" Here's how it goes... Remember when the Swiss National Bank said they would intervene to keep the franc weak? Or... Remember when the Brazilian Central Bank Gov. said that he would do everything in his power to keep the real above 2? OK, I'll stop there... Oh... Swiss francs? They have gained almost 15%, and Brazilian real? Well, it's trading at 1.82... So let's just say that the "2" thing wasn't in the cards!

So, what am I getting at here? Well... I've told you for years now that Central Bank intervention can stop currency runs for short periods of time only... And that Central Bank jawboning will only last as long as traders want it too, for if the Central Bank doesn't back up the jawboning, then just like a child, Traders will then push the envelope...

OK... Maybe some day we'll play again, only with Big Ben Bernanke!

So... Traders have ambushed the dollar overnight, and Axel Weber has given them the green light to do so. Could the Fed be the major buyer of Treasuries? China may be the buyer for the IMF's Gold sales, and no data today to speak of...

Currencies today 9/22/09: A$ .8740, kiwi .7215, C$ .9375, euro 1.48, sterling 1.6340, Swiss .9775, rand 6.8250, krone 5.8350, SEK 6.8275, forint 183.30, zloty 2.80, koruna 17, RUB 30.12, yen 91.40, sing 1.4110, HKD 7.75, INR 47.96, China 6.8269, pesos 13.30, BRL 1.8240, dollar index 76.13, Oil $70.80, 10-year 3.49%, Silver $17.26, and Gold... $1,017.10

That's it for today... Cardinals' magic number to win their division is 3... Pretty amazing, eh? With two weeks left in the season! Hey, Californians... Did you see the little blurb in the L.A. Times quoting yours truly? Yes, there was a story in the L.A. Times this past weekend regarding "Foreign Currency Investing"... I spend a good amount of time on the phone with the writer, Kathy Kristof, who seemed quite interested in what I was saying! Today, is the first full day of Autumn... YIKES, you and I know all too well what follows Autumn! Oh well, maybe we can make Autumn last longer than usual! HA! So... Welcome to Autumn! And with that... I'll hit send, and get this on the delivery truck to your computer! I hope you can make this Tuesday totally Terrific!

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

German Business Confidence Continues to Surprise!

ChuckButler — Wed, 26 Aug 2009 14:38:00 GMT

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In This Issue..

* Currencies rally in early morning Tuesday
* But see profit taking later in the day...
* Looking for yield?
* China expected to get back to 10% growth!

And Now... Today's Pfennig!

German Business Confidence Continues to Surprise!

Good day... And a Wonderful Wednesday to you! When I signed off yesterday morning, I told you that I was watching a mini-rally in the currencies. Well, that mini-rally turned into a real rally as the morning went along. Especially, after the risk assets got a boost from the Consumer Confidence revival. Yes, Brother Love's traveling salvation show revival, a.k.a. Consumer Confidence was much stronger than forecast, and the risk assets took off!

By mid-afternoon, the euro was pushing 1.4350, and all the "little dogs" were following along with their own version of a rally VS the dollar. But a funny thing happened on the way to the forum, and profit taking set in... Oh brother! Can't these guys wait until there is really a BIG move before they take profits? Oh well, I know, you're saying, "But Chuck, don't you always say that it's not a profit until you take it?" Yes, that's correct... But the rest of us just want to have a diversifying asset in our investment portfolio, and are not interested in 1/2 euro moves to take a "profit"!

This morning, German Business Confidence, as measured by the think tank, IFO, printed an increase in the index number for the 5th consecutive month! The index number rose from 87.4 in July to 90.5 this month. I would say that it was quite the move, eh? Given the exports data I gave you yesterday, you can see why German Business Confidence is strong... And I'll tell you something... Perception or Sentiment toward an economy, is half the battle folks...

Now, I had a few emails from readers yesterday responding to the note I made about Germany's economy rebounding, and putting the recession in the rear view mirror... The readers all said that the economy is not as strong as it appears, and that after the upcoming elections, things will be different. Hmmm... Well, I guess you can decide for yourself, which camp you want to be in... Me? I'm going to remain in the "recession is over for Germany camp"...

I know, I know, the recovery is nascent at best, but come on! It's better than a sharp stick in the eye! OUCH! BTW... I noticed that Chris used one of my fave words, "nascent", last week... He's probably read the word in the Pfennig so many times over the years, that it is burned into his brain!

OK... Back to currencies... There was a radio interview on Bloomberg yesterday with a panel of investment strategists, and some were of the opinion that, and tell me if this at all sounds familiar, the dollar will continue to weaken this year as the global economy recovers from recession and investors seek currencies linked to growth...

The idea was simply that too many investors had cash tied up in T-Bills, and T-Notes, and that as the global economies recover ahead of the U.S. there will be higher yields to be gotten in those global economies. So, when the investors sell their T-Bill and T-Notes to buy overseas, the dollar will get sold, and thus lead it to weaken more and more...

OK... So... How many times have you heard that from me in the past year? Geez Louise, but these strategists will all claim that they came up with this idea first! FAT CHANCE!

Speaking of Treasuries... I sent along a note to Chris the other day, but I think he ran out of room, and then I completely forgot about it yesterday... But once again the U.S. Treasury is going to the well... And they will auction $197 Billion in new Treasuries this week... Is it just me, or does any one else wonder just how much more debt foreigners can choke down? I guess the thing to do this week and next is to check the cartel's, I mean the Fed Reserve's balance sheet to see if they take back any of these auctioned Treasuries like they did last month with the 7-year T-Note auction. Monetizing the debt, printing more paper dollars like it's Monopoly money...

And in a follow up from yesterday's report on the Budget Deficit being forecast for the next 10 years... The total of the deficit for those 10 years is now forecast to be $9 Trillion dollars... And in a follow up from yesterday's rant about forecasts... The $9 Trillion is more than $2 Trillion more than was forecast just 6 months ago! Hmmm... Another $9 Trillion!

Hey! A month ago, when I prepared for the Agora Financial Reserve Wealth Symposium in Vancouver, the National Debt stood at a level that put each citizen's piece of the debt at $37,000... Today, just one month after I pulled that data, each citizen's piece of the debt now stands at $38,191! That's absolutely shameful, folks...

In a seldom talked about country, Sweden... They too saw a bump in their Consumer Confidence report for this month. Like their neighbor, Norway, Sweden is beginning to see some real traction in their economy. And it shows when Consumer Confidence bumps higher, when it was forecast to be negative! Sweden's Riksbank, meets next Thursday, and while I don't expect any move, I would look for the Riksbank to confirm a positive outlook for the economy...

In Japan... their exports fell for a tenth straight month in July as demand from all of the nation's major markets deteriorated. Shipments tumbled 36.5 percent from a year earlier, thus once again making my point for me... This is no "safe haven"!

Reserve Bank of Australia (RBA) member, Roger Corbett, gave a speech last night, and for my money sounded quite upbeat about the economy! He hedged his upbeat tone a bit by saying that "how consumer demand holds up in light of no consumer stimulus will be one of the determining factors in how quickly our economy in Australia recovers."

Hmmm... That sounds reasonable to me... In fact it sounds quite OBVIOUS! So... Today, we have a new "Mr. Obvious"... HA!

A research center in China, the Development Research Center, issued a report saying that Chinese economic growth may exceed 10% in the first quarter of next year... The research center believes that China has already passed its worst period for the economy, and will meet the center's goal of 8% growth this year!

OK... I know there are a lot of skeptics out there regarding the data that China prints... But, it's what we have to work with! And... I also recall many times over the years, the so-called Chinese experts, would say that that growth was going to stall, only to see stronger growth print... So, for now, I'll stick with what I see reported, until I see other wise!

Chinese growth is good for commodities... And what's good for commodities is good for Australia, New Zealand, Brazil, Canada, Norway, and South Africa... There's your lineup for the "resource countries" and what a lineup it is! Wink, wink...

And on that note... I'll head to the Big Finish!

Currencies today 8/26/09: A$ .8335, kiwi .6840, C$ .9155, euro 1.43, sterling 1.6280, Swiss .9420, rand 7.8340, krone 6.0340, SEK 7.0890, forint 187.25, zloty 2.8675, koruna 17.80, yen 94, sing 1.4425, HKD 7.7505, INR 48.89, China 6.8310, pesos 13.02, BRL 1.8615, dollar index 78.38, Oil $72.20, 10-year 3.62%, Silver $14.35, and Gold... $949.60

That's it for today... We must have had a power outage here in the building overnight, as everything was black when I came in... So I had no currency trading / news screens to use this morning... Good thing my laptop was good to go! It was just like doing the Pfennig from the road, or home, but only here at the office! I can't get down on my hands and knees to turn everything back on, so... I carried on... What a great game last night from the Cardinals' pitcher, Adam Wainwright... 1-0 8 innings shutout ball! WOW! Now that's pitching! Of course I only saw 6 innings of it! UGH! Cards are now 19 games over .500, and 9 games in front... No time to rest though! Just need to get through today, as I have two 1/2 days the rest of the week! And then next week, will be September! WOW! Time to go... I hope you make your Wednesday, Wonderful!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-984-0892
www.everbank.com
* Early withdrawal penalties apply. Fees may reduce earnings.

$75 Billion In New Treasuries This week...

ChuckButler — Tue, 11 Aug 2009 14:43:47 GMT

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In This Issue..

* Currencies adrift all day yesterday...
* Data prints begin today with Productivity...
* Stop to think!
* Chinese data is impressive...

And Now... Today's Pfennig!

$75 Billion In New Treasuries This week...

Good day... And a Terrific Tuesday to you! Well, no data yesterday left the markets drifting about the open waters. Stocks rebounded, which gave the risk assets a bias to be bought, but for the most part, the day was much like being a drift in the ocean, with no direction or cares!

That will all change beginning today with the Nonfarm Productivity report for the 2nd QTR... Long time readers know my dislike for this data, as I believe it simply shows that one person works longer hours! The Fed Heads used to be all over this data like a cheap suit, and probably still trip over themselves to see the data when it prints... But to me, it's not what Big Al Greenspan made it out to be...

Tomorrow is the big data day this week with both the Trade & Monthly Budget Balances printing for July... The Trade Deficit should tick up some, as Oil prices have gained in recent weeks, and the Monthly Budget Deficit? Oh my! It is forecast to be $180 Billion in the red! Which annualized would be more than $2.1 Trillion! But don't worry about it folks, no biggie according to the folks in Washington D.C. The Treasury will just issue more bonds, and the Fed will buy up any that don't get bought, and pay for them with money they printed up fresh that day!

You know that I'm be facetious with the "don't worry" talk... I've been talking about this deficit spending for quite a few years now... I like the fact that others have joined in now that the numbers have gotten so large they are as obvious as a man with a hatchet in his forehead, but at least they've joined the "stop the deficit spending movement"...

Speaking of The Treasury issuing Bonds... This week alone the Treasury will auction $37 Billion of 3-year Notes, $23 Billion of 10-year notes, and $15 Billion of 30-year bonds... Even using "new math" that brings this week's issuance to $75 Billion! That sound? That sound you hear is foreigners choking on all this issuance! Does anyone know how to apply the Heimlich maneuver?

The "got yield" scenario I talked about yesterday, didn't play out yesterday, as stocks came back... The A$ saw some selling along with kiwi, reals, and any other "high yielder"... The selling wasn't bad, so we can probably put it down to profit taking.

I'm doing some research on the years around the depression, looking at market movements, and confidence levels... It's amazing the things that were being said right up and to the stock market crash about how everything was fine... Then skip ahead to the 80's and you had the same things going on with lofty praises for the S&L industry, especially one by Big Al Greenspan, and then the S&L industry circled the bowl... Makes you wonder, and I'm not talking about wondering who wrote the book of love... No, I'm talking about how this should make you wonder, or question, what's being said about how great stocks are right now... When the President makes comments about "a good time to buy stocks", you've got to stop and think folks... Just stop!

OK... I wanted to give everyone an update on the popularity of the BRIC MarketSafe CD we introduced last month... With over a week to go until we reach the funding deadline, this CD has received a ton of newsletter writer coverage, and interest... The funding has gone quite well, and we expect to open this CD with a very large amount of cash... That's exciting for me, as I saw this as an opportunity to deal in "speculative" investments, without market risk, and jumped on getting this available to our customers...

I also wanted to follow up on the Jobs Jamboree data we talked about yesterday morning... I had a very nice reader tell me that I "hadn't fallen off turnip truck" as the participation rate fell! That's right! As she said to me... "So, all those poor men and women that were hit at the beginning of the recession have the great pleasure of no longer being counted as either employed or unemployed."

I also wanted to follow up on last week's talk on the Weekly Initial Jobless Claims that fell for the previous week... I had a reader who recently became unemployed in California tell me the problems with trying to file as unemployed! Let's listen in to him explain his attempt to file as unemployed...

"Filled out the unemployment application on-line the day I was laid off.
About four days latter they send you another form to fill out and return. If not returned immediately, you lose your benefits.

Received a letter indicating they would call me 7 weeks after applying, to determine eligibility. It is scheduled for September 27th at 1 PM to
3 PM.

About two weeks afterwards, found there is no way to reach a human. The only way to reach them is EMAIL, which takes a couple of days to respond. EMAIL has a canned response, we will contact you on Sept 27th."

OK... Enough of that! China came out with some data today... While exports continue to suffer the stimulus that the Gov't put into the economy, which made sense due to the fact that the Gov't had a war chest of cash to put into the economy, which is the exact opposite of the situation in most countries including the U.S. Chinese Industrial Production growth was strong, marking three consecutive months of improvement in Industrial Production. The ongoing recovery of domestic demand is good, while consumer demand keeps holding up well with July retail sales growth up 15.2% year-on-year...

Now, I fully understand how there can be questions about the validity of Chinese data... But come on! We don't live there, we have no idea! And they don't have a John Williams (Shadow Stats) to show everyone that the Gov't's official data prints are misleading and most times inaccurate!

I saw this report on the Bloomie this morning from Zillow... "Almost one-quarter of U.S. mortgage holders owed more than their homes were worth in the second quarter and that figure may rise to as much as 30 percent by mid-2010 as job losses and foreclosures climb."

That's depressing stuff... Very depressing... So! Before I go to the Big Finish, I've got to find a "feel good" story... Of course if I were the Gov't I would have a pocket full of those, to pull out whenever the consumers needed one! HA! But, I'm not the Gov't! thank goodness! Whenever I think of the Gov't, I think of those words that Ronald Reagan spoke regarding the scariest words a person can hear... "I'm from the Gov't and I'm here to help"

OK... The euro looks to be catching some wind in its sails this morning, as it has gained 1/4 euro since I came in... I know that's chicken feed, but Hey! You've got to start somewhere, and after Friday's bloodletting, the tourniquet was applied on Monday, and today maybe we'll see it gain back lost ground... For... It is "Turn-around Tuesday!" (well hopefully it will be!)

And if the risk assets (like stocks) are rebounding, Gold and Silver should be on the docket to rally too... And a quick look at the Bloomie tells me they are indeed, rebounding... So, now, let's go to the Big Finish!

Currencies today 8/11/09: A$ .8365, kiwi .6715, C$ .9125, euro 1.4170, sterling 1.6475, Swiss .9250, rand 8.13, krone 6.2125, SEK 7.28, forint 191.80, zloty 2.9370, koruna 18.19, yen 96.50, sing 1.4460, HKD 7.7505, INR 48.02, China 6.8350, pesos 12.96, BRL 1.84, dollar index 79.12, Oil $70.73, 10-yr 3.78%, Silver $14.43, and Gold... $947.60

That's it for today... I barely mentioned it yesterday, and have been remiss in not mentioning it before, but next week I head to San Francisco Money Show. San Francisco has always been one of my fave cities to visit, and last year I had a blast there, except for that red-eye I had to take home so I could be on the desk Monday morning! I played in San Francisco when I was a young man playing my guitar... Right there in the Cannery... Last year, we went across the peninsula to an awesome restaurant named the Cliff House... I hope to make it back there this year! But, the real reason I go there is to talk to audiences about diversifying, and what I see going on, and or happening in the future... It's just my thoughts, but I seem to fill the rooms, so that's a good thing! Nice win by my beloved Cardinals last night. I was in bed by the 6th inning when they scored all their runs! UGH! Time to go... Try to make your Tuesday Terrific!

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

Risk Returns... Slowly...

ChuckButler — Thu, 09 Jul 2009 14:24:08 GMT

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In This Issue..

* Currencies rebound...
* G-8 has no fireworks...
* Aussie / China and coal...
* Entitlements...

And Now... Today's Pfennig!

Risk Returns... Slowly...

Good day... And a Tub Thumpin' Thursday to you! I'm late, I'm late! I don't believe I ever heard the alarm go off this morning! I overslept by more than an hour, and will still be here more than an hour before any sign of someone else! But! That puts me behind by more than an hour today... I've got to play catch-up! So, let's get this Tub Thumpin' Thursday going!

Well... Let's see... G-8 never had the opportunity to shoot fireworks because China's leader had to return home to deal with the street riots going on in his country. So... The call for a replacement for the dollar as the reserve currency will have to wait for another day! And, with that news, the dollar got to remain in the sunlight, and bask in the glory of being the reserve currency and so-called "safe haven" another day...

There was added Risk Aversion yesterday when it was reported that an Australian shipment of coal to China was cancelled... This sent bad vibes through the markets for the currencies and commodities with the thought that China was putting the brakes on their buying of raw materials, and that their recovery had not taken hold like many had believed...

But... Overnight, calmer heads have prevailed. You see, it was my opinion when I heard that news yesterday, that it was simply one bad shipment to a customer that was having difficulties... Not ALL OF CHINA! And then overnight the data came out... This was one shipment, maybe 150,000 tons of coal... Australian coal shipments to China on a monthly basis run about 3 million tons! I truly believe that Australia's trade with China is on terra firma, and this was a one-off deal that went bad... I also believe that the sell-off of the Aussie dollar (A$) was completely overdone... Completely!

I don't know this to be a fact... But, given the relationship of the Asian investors and the A$, I would think the Asian investors to be licking their chops to have the opportunity to buy the A$ at these lower levels! Buy on the dips, right? Don't I always say that to be a prudent investment strategy?

Of course it didn't hurt that U.S. stocks rebounded yesterday a bit on the news that Alcoa's losses weren't "as bad as expected"... Talk about setting the bar low! It's not like ALCOA didn't still have a LOSS! But, don't get me started on this mental giant thought process that has a grip on stocks these days... "oh, don't worry, you only burned down 1/2 of the house, I would have expected it to all burn down!"

I've got to leave that alone before I really burst! Let's see, what can get my mind off of that subject... OH! The Bank of England (BOE) just announced that they would keep rates unchanged. Well, my goodness, what else would we expect them to do? Their base rate is .50!

Here in the U.S... The Obama administration is trying desperately to nip in the bud, the whispering campaign for another stimulus package... "No one in the administration is talking about a second stimulus at this point," said Robert Nabors, deputy director of the Office of Management and Budget. However he also mumbled something about how the President is not "ruling anything out"...

I don't care what they say... I'll believe it when I see it... And I still believe that the Gov't will believe that another stimulus is needed...

One of the discussions that I had with my fave economist the other day was about "delaying the inevitable"... I've talked about this before, but for new readers, I thought I would give them a dose of "Chuck's Thoughts" this morning... (HA! As if they don't get that every day!)

This "delaying the inevitable" is all about the TARP (troubled asset relief program) and how it all did was allow bad banks to continue to be bad banks longer, with toxic waste in their portfolio... This, even in the face of a suspension of the mark to market rules! Bad Banks should have been sent packing, then... And now, all we've done is let them hang on to cause even more collateral damage!

OK... I'll get back to the daily discussion now...

It looks as though the auction of $35 Billion in 3-year Treasuries went smoothly, which is another reason the dollar was strong yesterday... Every time one of these auctions go smoothly, the "deficits don't matter" crowd all point and say... "see, we told you, that foreigners will always come to the auction to buy Treasuries, so it doesn't matter what we run the deficit up to"...

Right! You just keep thinking that, and see where it eventually gets you! Ty sent me a note yesterday from an article he was reading, that plays nicely with this discussion... So... Let's play Marvin Gaye, and see what's going on!

"For now, the Treasury continues to find takers for government savings bonds at low interest rates. But somewhere between here and infinity lies a point at which American debt reaches unsustainable proportions, at which investors will balk at continuing to finance the American expenditures absent a higher return on their investments. Then, everything could change quickly, with interest rates soaring and the value of the dollar plummeting, as foreign investors lose faith in its fundamental value.

"We're running this $10 trillion gamble that interest rates aren't going to rise," said Kenneth S. Rogoff, a former chief economist at the International Monetary Fund and now a professor at Harvard. "If they do, we could end up in a very difficult situation."

Hey, you think so, Kenneth? My goodness, we have a new "Mr. Obvious!" I would think that we are already in a very difficult situation, given the fact that when the you know what hit the fan the U.S. had no war chest to use, like China did... Why? Because we didn't think "deficits mattered"... Dealing with problems from a position of strength, it would have made a HUGE difference from the get-go!

However, having said that... I believe that a larger problem is still on the horizon for the U.S. and the "deficits don't matter" flag wavers... And Hey! It's not going to happen overnight... It's going to be a slow, dragged out, problem that goes on for years, and then finally snaps! I'm talking about the entitlements and the retiring baby boomers... And more specifically when I'm talking about entitlements, I'm talking about Medicare!

The Big Boss, Frank Trotter, showed me a graph that he came across from the Concord Coalition the other day that illustrated this... While I wasn't shocked, having seen this all in the movie I.O.U.S.A. and in the book of the same name, there it was again staring me in the face...

The reason I tell you all this, is that the Current Administration has no other choice but to allow the dollar to weaken considerably over the years so that these deficits that "didn't matter" can be paid off with cheaper dollars... And it won't be this administration that has to deal with it... That's why this one and the previous one aren't concerned about the size of the National Debt...

Ok, enough of all that... I didn't mean for this to be gloom and doom! Let's move on...

The data cupboard has the Initial Weekly Jobless Claims for us to view today... I expect for the weekly number to remain above 600,000, and the Continuing Claims to have risen... Though this all sounds bad, the markets have become comfortably numb with this unemployment data... It will take something really BIG to slap the markets in the face and say WAKE UP!

And then, finally... The Japanese yen has really been on a tear this week as the Risk Aversion crowd dominated the markets... I find it very strange that Japan is considered a "safe haven" currency, given their national debt problems... And their once "Ace in the hole" the Trade Surplus, is taking on water... But... This is what the markets do, and they are never wrong! However, there's a road block ahead for the yen, as it trades with a 92 handle this morning... And the road block is in the form of the Bank of Japan. (BOJ).. It was reported that last night the Bank of Japan issued a statement to the markets that "they were checking FX levels"

That's Central Bank parlance especially coming from the BOJ, for... We don't want the currency to get any stronger, and we're just letting you know that we're ready to intervene if you don't settle down. Sort of like when grandma would tell you that if you didn't settle down she would send you to the woods to find your switch... Believe me you only didn't settle down once!

And when the Risk Traders come back and push the Risk Aversion crowd to the back of the room... Again, we'll see yen sell off again... So be careful here!

Currencies today 7/9/09: A$ .7845, kiwi .6305, C$ .8650, euro 1.3980, sterling 1.6260, Swiss .9250, rand 8.11, krone 6.4925, SEK 7.8590, forint 196.70, zloty 3.1150, koruna 18.55, yen 92.90, sing 1.4580, HKD 7.75, INR 48.71, China 6.8317, pesos 13.47, BRL 2.00, dollar index 80.21, Oil $61.29, 10-year 3.39%, Silver $12.95, and Gold... $915

That's it for today... Well... I got the news from the eye specialist yesterday regarding my left eye... The tumor and the fluid on the eye is gone, they successfully shrunk it and removed it... Unfortunately it left a ring of "stuff" on my eye, and my eyesight from that eye will never get any better. Of course, I still have my right eye, so I'm not completely bummed... My cutie little granddaughter, Delaney Grace came by to see me yesterday, she wanted me to come "sit by her" She's almost 2 now, and saying her ABC's, and singing songs, and she showed me how she knew her right from left now... Such a little joy to be around... I'll get to spend a whole week with her in about 10 days when we all go on vacation together... Can't wait! Well, my lateness has put me way behind this morning, I had better get going... Don't forget... Today is going to be a Tub Thumpin' Thursday no matter what!

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

The U.S. Treasury Moves The Goal Posts...

ChuckButler — Wed, 01 Jul 2009 14:33:01 GMT

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In This Issue..

* A 4-day rally gets stopped at the border...
* Home Prices fall at a -18.12% pace...
* Alice Rivlin gives her 2-cents...
* Kiwi bond maturities galore next month...

And Now... Today's Pfennig!

The U.S. Treasury Moves The Goal Posts...

Good day... And a Wonderful Wednesday to you! As tradition with the Pfennig would have it, here's my introduction to July... There I was... On a July morning... Looking for love... With the strength of a new day dawning, and... The beautiful sun...

Yes, for those "old rockers" from the 70's like me... That's Uriah Heep, at their best!

OK... So, welcome to July! The last day of June was quite the volatile one to say the least! There we were waiting for the S&P/CaseShiller Home Price Index to print, and show that home prices were still down by quite a bit, when it did, it did, it printed at -18.12%... But! The media was all over that like a cheap suit, clamoring that the spiral down in Home Prices had come to and end! Which, may be true... But wouldn't you want to wait to see if next month's report confirms it? And... By the way... Since when does -18.12% fall in home prices beckon a rally? Yesterday, would be that answer!

So... The currency rally that was going on for a 4th day, was quickly wiped out, Ventures style... What? Don't know who the Ventures are? Boy, you really missed a lot of great instrumentals! Any way, the euro sunk like the Titanic from a level of 1.4130 to 1.40... The iceberg that caused this mess was simply the fact that traders, etc. believe the U.S. is on its way out of this mess... Of course, they must not be Pfennig readers, because... They would have read yesterday how I detailed the monthly numbers and showed how even with the spiral down in Home Prices ending, it would take until 2011 before the Home Prices got back to zero!

But NOOOOOOO!!!! They couldn't read it until late yesterday afternoon, because... Houston, we had a problem, with the Pfennig's delivery yesterday... See, how I've mellowed? I'm not even going to rant about this... Instead, I'll just remind everyone that whenever the Pfennig doesn't show up in your email box, you can most likely find it to read on the Pfennig's website, where you can view that "glamour shot" of me, and archives of the Pfennig! You can find it here: www.dailypfennig.com ---- Hope that helps!

OK... Well... After the thrill is gone, and the dust settled on all that yesterday, the euro is leading the other currencies higher once again... Here are a few things that have caused a sell-off of the dollar overnight once again...

Not that I'm a fan of his... In fact, I don't really care at all... But George Soros, normally has some interesting things to say, that end up being bang on... So here are a few one liners from a speech by George Soros yesterday... I believe this sounds very much like the things I tell you, have told you, and will continue to tell you...

SOROS SAYS SEES A "STOP-GO" ECONOMY GOING FORWARD
SOROS SAYS SELF-CORRECTING MARKETS IS A MISCONCEPTION
SOROS SAYS INFLATION FEARS WILL DRIVE UP RATES AS MARKETS REVIVE, CHOKING OFF GROWTH
SOROS SAYS CURRENT SUPER BUBBLE MADE POSSIBLE BY PAST INTERVENTION, EFFORT TO RESOLVE PREVIOUS BUBBLES
SOROS SAYS FORMER FED CHAIRMAN GREENSPAN REFUSED TO ACCEPT RESPONSIBILITY FOR STOPPING BUBBLES

And then there was Alice Rivlin, she of former Budget Director, and former Fed Reserve member, fame, had a few things to say to the House Budget Committee... Good stuff, but you have to wonder if anyone was paying attention! Here's Alice!

"The long term budget outlook: impending catastrophe"

"No one needs to remind this Committee that the outlook for the federal budget is worrisome indeed, scary. Long before the financial crisis and the current deep recession, this Committee was anxiously pointing out that current federal spending and revenue policies are on a risky, unsustainable course. Promises made under the major entitlement programs (especially Medicare and Medicaid) will increase federal spending rapidly over the next couple of decades, as the population ages and medical spending continues to rise faster than other spending. Federal expenditures are projected to grow substantially faster than revenues, opening widening deficit gaps that cannot not be financed."

Hmmm... Sounds like me too! Is this "sound like Chuck day?" HA!

OK... Enough of all that, I don't want anyone to get hurt, and I should have told everyone to put away the sharp objects before reading!

In other data yesterday, Consumer Confidence took a step backward, and fell in June to 49.3 from May's figure of 54.8... Maybe those that were surveyed has just read Alive Rivlin's talk to the House Budget Committee! Seriously though, this was a surprise, given the fat that the DOW gained 838 points in the 2nd QTR! At least, that's what the Wall Street Journal said!

Today, we get a truckload of data starting with Challenger Job Cuts, and the ADP Employment Change. Those are followed by the ISM Manufacturing Index, Construction Spending, Pending Home Sales and Vehicle Sales... Not a lot of "major" data prints, but still stuff to check the pulse of the economy.

I was talking to my good friend, and an economics professor at a prestigious University, yesterday, and she mentioned that "this piece of data is questionable as to the inputs"... I said to her... "What piece of data isn't questionable these days?"

OK... The "demand for high yield" was put on hold yesterday... But it will return, or at least I should say I think it will return... I don't know for sure to say "it will", so had better make the legal beagles happy... That's funny! To say that they would be "happy" with me... They cringe, and get very uncomfortable every day when they read the Pfennig! HA!

But you know me... I'm just trying to provide Market Commentary, and other things that I think are important, well, important to me that is!

Like... A long time reader sent me a note yesterday, and said, "hey Chuck, did you see the story in the Wall Street Journal (WSJ) on Foreign Demand for Treasuries?" Well, I hadn't and went immediately to the WSJ, and there it was... Tucked away in a corner so that no one would see it, if they weren't looking for it... A story, by Min Zeng, titled, "Is Foreign Demand As Solid As It Looks?

These are the things that really TICK ME OFF folks, so stay with me on this... Basically, as we all know the U.S. Treasury Auctions have been getting "covered" easily recently... And foreign demand was listed as the reason... Which would have been the exact opposite of what I was saying about foreigners shying away from Treasuries...

Here's the skinny... But I'll let Min Zeng tell it, since he did the research and brought this to the public, even though it was tucked away so no one would notice!

"But in a little-noticed switch on June 1, the Treasury changed the way it accounts for indirect bids, putting more buyers under that umbrella and boosting the portion of recent Treasury sales that the market perceived were being bought by foreigners.

The new definitions are deep in the arcane world of Treasury auctions. The change involves buyers who place orders through primary dealers. Those had been counted as direct buyers, but as of June 1 they were classified as indirect buyers, making that group larger than before. Because investors view that group as being dominated by foreign buyers, they assumed foreign demand was higher."

>>>> OK, back to me... Ahhh, so that's what's going on... The Treasury "moved the goal posts on us"... As Sylvester would say... That's despicable! Why isn't someone in Washington D.C. shouting from the roof tops about this? Oh, that's right, they're all in cahoots!

This is HUGE folks... So... When the markets were thinking that foreign demand was increasing, it was actually, as I had said, shying away from Treasuries! Which, if the market participants are thinking that as long as foreigners are "buying into our deficit spending" then the dollar will be on terra firma, but instead are getting "duped" by the U.S. Treasury, you would think that someone would have some xplainin to do... Right Lucy?

And here's another thing that just ticked me off when I read it this morning... Recall, last week I told you about how someone in China was dissing the talk that China's stimulus was working, and that China would not be recovering, which sent the Aussie dollar to the woodshed until this news had passed? Well... Talk about egg on their face! Here's the skinny...

China's manufacturing expanded for a fourth month in June... The official Purchasing Managers' Index rose to a seasonally adjusted 53.2 in June from 53.1 in May... And just like here in the U.S. any reading above 50 is thought to show manufacturing is expanding... The manufacturing index in the U.S. is around 44, so... We DO have the tale of two economies...

In one corner, we have the Chinese who have spent about $585 Billion worth of renminbi in stimulus, and are seeing the results... Whereas in the other corner we have the U.S. who have spent... More money than you can shake a stick at, and are not seeing green shoots like they "think they are", instead they see dandelions, and weeds!

And the currencies of Australia and New Zealand have responded positively to this news from China...

And since I'm talking about China, might as well check on the other members of the BRIC's (Brazil, Russia, India and China) Brazil's real just posted its best quarterly performance on record, and India was Asia's 3rd best performing currency, and if you throw out the two currencies above India that are illiquid, South Korea, and Indonesia, India was the best performing currency in Asia in the second QTR...

And the people over at the Royal Bank of Scotland (RBS) believe that the rupee won't stop here... RBS issued a research report calling for a record 11% gain by the rupee in the 3rd QTR... I bet this news is music to the ears of my colleague on the "other" newsletter that I write... The Currency Capitalist... (to find out more: https://www.web-purchases.com/CUC/WCUCJ900/landing) My colleague, Ashish Advani, at the Sovereign Society, has been saying the rupee would be a strong performer for months now!

Here's something you might want to be aware of, regarding the New Zealand dollar / kiwi... About $4.5 Billion in kiwi Uridashi and euro kiwi bonds denominated in kiwi will expire next month... I'm told that this is more than 4 times the size of a usual monthly expiration of bonds. This could very well be the hoola hoop the Reserve Bank of New Zealand (RBNZ) is looking for, given their wish that kiwi would weaken...

Royal Bank of Canada's Currency guru, Sue Trinh, says that kiwi weakness could be beneficial to Aussie dollars, as the Japanese are leaning toward Aussie over kiwi these days...

Sounds about right to me!

And then there was this... OK, you all saw that Bernie Madoff was given 150 years in prison... Did you see that his wife, Ruth, reached an agreement with the authorities to return all of her wealth except $2.5 million that she got to keep? The thing that I still don't get is how there aren't more people going down with the ship on this one... I've been in the back office of brokerage firms, ran a margin dept, etc. and know this wasn't just Bernie and his accountant... There was a lot of wool pulled over many eyes... And this will be the next step in the investigation by the U.S. officials... To see, who else knew what... If a whole stable full of people aren't found to have known, then I'll be surprised...

Currencies today 7/1/09: A$ .8045, kiwi .6410, C$ .8640, euro 1.4050, sterling 1.6430, Swiss .9220, rand 7.7675, krone 6.39, SEK 7.6337, forint 192.50, zloty 3.1390, koruna 18.3315, yen 96.90, sing 1.4475, HKD 7.75, INR 47.90, China 6.8330, pesos 13.18, BRL 1.9515, dollar index 80.11, Oil $71.27, 10-year 3.54%, Silver $13.67, and Gold... $931.20

That's it for today... So sorry about the tardiness of the Pfennig yesterday, but I can't do anything about it when we have technical difficulties... You know that I get up before the milkman, and the paper man, to get here to write it... It wasn't like I was dilly-dallying around and didn't get it done until 5 in the evening! HA! I see that my little buddy, Alex, got a 2nd and 3rd in backstroke and freestyle respectively at his latest swim meet. Really long time readers might recall when Alex's older brother, Andrew was a highly decorated swimmer, and I would write about his swimming records... And their sister Dawn, also was a medal winner as a young girl! So... It's now up to granddaughter, Delaney Grace to carry on the swimming tradition! HA! Cards lose again... UGH! OK... Time to try to get this out the door, hopefully it will go without a hitch... But whether it does or doesn't it won't stop me from having a Wonderful Wednesday... How about you?

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

Rally on hold...

JohnMcClure — Mon, 22 Jun 2009 16:56:54 GMT

Live Easy With EquiTrend

Rally on hold...

Week Ending June 19, 2009
EquiTrend.com

Rally on hold...
Leaders not heading higher
'Earnings-less' recovery continues
Builder optimism stutters, starts surge and Treasury sales fall
Wall of Worry climb takes a break or...?
Elliott Wave SPX Perspective

INDEX	June19-09	June12-09	Change	Change%
INDU	8,539.73	8,799.26	-259.53	-2.95%
DJT	3,219.77	3,361.42	-141.65	-4.21%
SPX	921.23	946.21	-24.98	-2.64%
COMPX	1,827.47	1,858.80	-31.33	-1.69%
RUT	512.72	526.83	-14.11	-2.68%
EEM	31.75	33.74	-1.99	-5.90%

Last Time

INDEX	May29-09	May22-09	Change	Change%
INDU	8,500.33	8,277.32	223.01	2.69%
DJT	3,202.45	3,005.79	196.66	6.54%
SPX	919.14	887.00	32.14	3.62%
COMPX	1,774.33	1,692.01	82.32	4.87%
RUT	501.58	477.62	23.96	5.02%
EEM	33.24	31.75	1.49	4.69%

Quote of the week
"The government played chicken with the bond market and it lost. If they were able to keep it up long enough, the housing market would heal and the rest on the economy could start its recovery. What has happened, however, is that the bond market called their bluff." - Randy Johnson, president Independence Mortgage Co., California.

Rally on hold...
Stocks took a break this week and volumes were noticeably lower as many traders began their summer vacations. But investors remain bullish and continue to ignore or at least discount bad news for the most part and that alone speaks volumes about this market.

But are investors being overly optimistic? After all the fundamentals are certainly nothing to write home about and earnings, as we will see, remain moribund.

Technically Speaking
Leaders not leading higher...
In his Sunday June 14 newsletter, Dan Zanger opined that a break below 920 for the S&P500 would suggest that the market was going to retrace some of this massive run up. That is exactly what happened this week. None of the stocks on his 11 stock watchlist were breaking to new highs, even over the short-term which is bearish.

Although weekly volumes for the major indexes were below average again this week, they were higher than last week and since this occurred on a drop in prices, is mildly bearish. A rally needs a steady supply of new bulls buying stocks to give it strength. Any increase in volume on falling prices shows bears coming to the party in growing numbers and the higher the volume, the more bearish it is. It is important to point out that summer has begun for traders and volumes are generally lower. Momentum has been falling and now the prices are down week-over-week for the first time in five weeks (SPX). But even with the drops this week, the S&P500 Index remains above both its 50 and 200 day moving averages so technically speaking, the up-trend is still in play.

Meanwhile, the Market Volatility Index (VIX) has continued to fall and this week it closed at 27.99 down slightly from 28.92 May 29. Fear continues to leak out of markets and while still higher than average, the fact that the VIX is falling is bullish.

Since rebounding off its December 5 bottom, the 19 commodity NYFE CRB Index has almost steadily gained ground that is until this week when the index fell to 401.70 from 417.04 May 29. However, the ongoing stimulation in the form of cash from governments should continue to have a positive effect on commodities but when it doesn't any longer, look out below. Even with the drops this week and last, the CRB index is still up nearly 25% from its December 5 low.

After the surge in gold to a high of $1001.10/oz February 20, the precious metal slipped for the third week to close at $934.9/oz from $959.30 May 29 after which it peaked at $992 during the first week of June. A chart of gold reveals that each time the metal has approached $1000 in the last 18 months, it has been rebuffed. Volume and open interest continue to look anemic and that is bearish. Gold normally has a seasonal low in July and then rallies into year-end but there are factors at work, namely government generated inflation, that are more powerful this time around.

Meanwhile, the US Dollar Index has struggled since March, closing at 80.35 this week, which is no surprise given the fiscal irresponsibility world-wide with nearly $20 trillion being pumped into economies and more than $12 trillion in the US when all stimulus programs are added up. A steadily weakening dollar is bullish for commodities, interest rates and U.S. multinational corporations with a larger share of their revenues derived from overseas sales.

But oil has continued to buck the commodity weakening trend as crude oil futures held relatively firm at $70.02/bbl this week amid hopes for a stronger economy and a rallying Baltic Dry Index (see below). This is up from $66.31/bbl May 29. Oil is still down more than 50% from its mid-summer 2008 high of $147.20 and the rapid drop has had a negative impact on supply which is bullish for prices.

And speaking of the Baltic Dry Index, an indicator that tracks the cost of shipping dry goods by sea, it continued to surge since the end of May as the index jumped another 13.6% this week to close at 4070, up from 3494 May 29. This is bullish for both the economy and the price of oil and is further confirmation of growing inflationary pressure trickling into the economy.

The U.S. bank prime rate and the Fed funds target rate held steady at 3.25% and 0.00% - 0.25% respectively while the effective Fed funds rate firmed to 0.25% (from 0.19% May 29).
Meanwhile, the 3-month London Interbank Offered Rate (LIBOR*) continued to fall closing at 0.61188% another new 52-week low and down from 0.65625% May 29. This compares to LIBOR 52-week high of 4.81875% last October.

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On the mortgage front, Freddie Mac mortgage rates firmed again this week to 5.38% (up from 4.91% May 29) for the 30-year fixed mortgage while the one-year adjustable rate mortgage (ARM) firmed to 4.95% (up from 4.69% May 29).

*LIBOR is the benchmark for $900 billion in subprime mortgage loans which typically adjust to it every six months. Corporations around the world have the interest rates on roughly $9 trillion in debt pegged to LIBOR and rates on more than $380 trillion in derivative interest rate swaps also are based on LIBOR. About 6 million U.S. mortgages, including the vast majority of subprime home loans as well as 41% of prime ARMs are linked to LIBOR.

‘Earnings-less' recovery continues
On May 29 the average Price/Earnings ratio for the 8,011 US stocks of the VectorVest Composite Index (VVC) hit another new all-time high of 151.45 thanks to rising prices but no increase in average earnings. That trend continued June 5 as PEs rose to another new high of 155.58 on rising prices but then prices began to drop and earnings for the broad range of companies showed their first signs of improvement rising from $0.13 to $0.15 per share. This pushed PEs down to an average 131.21. However, the rate of earnings growth (GRT in red) was cut in half from 2% to 1% this week as the ‘earnings-less' recovery continued.

At the beginning of the last recovery, April 11, 2003 marked the "golden cross" of the price of the VVC moving above its 40-week moving average and the beginning of a 56-month bull market. VVC PEs peaked at 60.51 in mid-May 2003. As the rally was getting underway in March and April 2003, earning growth (GRT in red) was a much healthier 8% and earnings growth had begun improving nearly a year before after hitting a low of 3%.

Looking even further back to the lofty prices in March 2000, we see the PE although high, was a much more benign 32 times and earnings growth was running at 11%.

Figure 1 - Chart showing prices, average PE and earnings growth (GRT) for 8011 US stocks tracked by VectorVest. As the chart shows, the average PE for the broad range of publicly trading companies is in uncharted territory and well above any previous rally or recovery high.

This week we also took a look at earnings for stocks of the Canadian Toronto Stock Exchange (TSX). VectorVest currently tracks 2,969 stocks on the TSX exchange which rose more than 40% from March 6 to June 12, 2009 thanks in large part to the commodity rally. Earnings peaked at an average $0.73 per share in September 2005 and have steadily fallen since. By the week of March 6, 2009 they had fallen to $0.16/share and on June 12 they were negative $0.02. In other words, Canadian stocks rallied 40% during a period in which earnings dropped more than 100%! When earnings get this bad, there is no point in looking at PEs - recently they went from +1000 to -1000 in the space of a week!

So are US and Canadian stocks overprices now? You can judge for yourselves but either we have entered a new paradigm in which earnings don't matter or the market is betting that earnings are about to take off like a thoroughbred on steroids. Clearly prices have gotten way ahead of themselves!

Economic Reports
Builder sentiment drops, permits and starts rise, sales of US Treasuries fall
The National Association of Home Builder's Index of builder sentiment fell 1 point in June to 15. The survey made up of three components scored as follows in June - present buying was unchanged at 14, traffic through show homes/projects was unchanged at 13 and the outlook for buying six months out fell from 27 to 26.

The financial media buzzed this week with news that housing starts jumped 17% to 518,000 in May. However, not widely reported was the fact that permits which generally lead starts were up only 4%. Year-over-year, permits are down 47% while starts are down 46%. Since peaking in January 2006 both permits and starts have fallen 77%. Has the housing market bottomed? At this point, it is far too early to know.

Monthly net Treasury international capital flows registered the third drop in four months as foreigners sold net $53.2 billion in April versus a net purchase (revised) of $25 billion in March. A further breakdown of the April number showed that net foreign private flows were negative $58.4 billion, and net foreign official flows were $5.2 billion. Monthly net TIC flows is the most comprehensive category contained in the monthly Treasury report and includes non-market flows, short-term securities and changes in banks' dollar holdings. Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $39.4 billion and foreigners sold $44.5 billion of Treasury bills in April.

Why is this important? With a looming deficit north of $2 trillion, the US Treasury will have to sell approximately $200 billion in government bonds per month just to pay the bills, a level that is far higher than currently levels of investment in US capital assets. Unless the Treasury is able to attract new levels of foreign investment, there will be growing upward pressure on interest rates and rising rates are bad for housing and nearly every aspect of economic growth.

We got some good news from the current account deficit as it dropped in Q1-09 to $101.5 billion versus $154.9 billion in Q4-08. But the improvement reflected a drop in domestic demand for imported products thanks to the recession. According to Bloomberg, the gap has narrowed to 2.9% of GDP, the lowest rate in 10 years.

Synopsis
The Wall of Worry climb has clearly taken a break but from a technical perspective, is too early to tell if it has come to an end or just taking a break. From a fundamental perspective, especially in relation to earnings, prices seem to have gotten way ahead of themselves but lofty PEs could also indicate the beginning of a longer-term rally. But without the anticipated growth in earnings, would indicate an overblown rally.

On the lighter side...
Trouble strikes in series of threes, but when working around the house the next job after a series of three is not the fourth job -- it's the start of a brand new series of three. Avery's Rule of Three

Stories of interest this week...

Obama Aid Signals Deal With ‘Devil' as Bankers Get New Rules
http://www.bloomberg.com/apps/news?pid=20601109&sid=a0yXeqHPvAIs

Obama Plan Gets Wary Reception From Banks, Lawmakers
http://www.bloomberg.com/apps/news?pid=20601070&sid=aatqQt9XStqc

Obama Mortgage Refinancing Program May Expand, Lockhart Says
http://www.bloomberg.com/apps/news?pid=20601087&sid=al5p85mlike0

Obama Seeks to Show Health-Care Revamp Is Affordable
http://www.bloomberg.com/apps/news?pid=20601070&sid=aUs84Y6nxdWw

Fed Unveils Lending Details After Lawmaker Pressure
http://www.bloomberg.com/apps/news?pid=20601087&sid=alOHWenWF5.o

‘Swine' Bankers Shun Jet Loans, Leave $36 Billion Gap
http://www.bloomberg.com/apps/news?pid=20601109&sid=a.cKKsHJnpOA

Rosy thoughts on U.S. economy clash with reality
http://www.reuters.com/article/ousiv/idUSTRE55I4AV20090619?sp=true

U.S. Home Prices May Fall for Years, Shiller Says
http://www.bloomberg.com/apps/news?pid=20601109&sid=a_YnClfaKdqs

U.S. homes recovery distressingly slow: Reuters/UMich
http://www.reuters.com/article/ousiv/idUSTRE55I3CJ20090619

Bank Rescue Costs EU States $5.3 Trillion, More Than German GDP
http://www.bloomberg.com/apps/news?pid=20601109&sid=aI.TvvSBYXBM

Dollar's Reserve Status May Deteriorate, Roubini Says
http://www.bloomberg.com/apps/news?pid=20601109&sid=aRMZbES7DNFc

Working for your wealth,

John M. McClure, President & CEO
EquiTrend, Inc.

Stuck In A Range...

ChuckButler — Wed, 17 Jun 2009 15:59:22 GMT

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In This Issue..

* A Turn Around Tuesday?
* BRIC meeting doesn't get covered by the media?
* Are the Bearer Bonds real or fakes?
* QTC's get Gov. backing!

And Now... Today's Pfennig!

Stuck In A Range...

Good day... And a Wonderful Wednesday to you! Remember last week, when I said that we had a "Turn Around Tuesday?" I came in this morning to find a story that Chris Gaffney had printed off the Bloomie for me... The writer refers to the price action yesterday as "Turn Around Tuesday!" OK... I for one, don't even begin to believe that I was the originator of a saying like that for the currencies... I just find it interesting, that a week after I make a big deal out Turn Around Tuesday that it is used in a story with much wider distribution than my little old Pfennig!

Cool Beans, eh? OK... Well... If yesterday was Turn Around Tuesday as the writer said, I sure didn't see it! We had a "stop the dollar at the 1.38 border" Tuesday... But a complete turn around from Monday's sell off, after Russian Finance Minister, Kudrin, threw a cat among the pigeons? Not that I saw!

We do seem to be stuck in a trading range of 1.37 to 1.40... With probes below 1.37 and above 1.40 short-lived. That's OK with me, at this point, but it had better not last too long, or traders will grow tired of the boring range... And, I will be yelling at the walls for some price action!

Well... The BRIC (Brazil, Russia, India and China) meeting didn't really bring about the Thunder and lightening as I thought it would... The leaders of these countries did discuss the need for a "more diversified monetary system to reduce dependency on the world's reserve currency." (read the dollar!) They also discussed selling bonds and swapping currency among the group. Now if we rewind back to Monday, I said that I thought this could be what they would do... The crystal ball was bang on that day! HA!

I can't believe the markets have allowed this to be swept under the rug... This could be colossal if it's carried through... And this way, all of them can smile and say they believe in the dollar and U.S. Treasuries while not dealing with them! Personally, I think the reason the markets aren't paying attention to these goings on, is that the media isn't covering it... The grip that the administration has on the media is really beginning to show just how tight it is...

One other thing from the meeting... The BRIC nations announced that they wanted to take a more active role in the world's financing system... And with $2.8 Trillion in currency reserves among the 4 of them... That would be more than a "kind gesture"...

Speaking of the media... I have to wonder what the media is thinking on this one... Here's the skinny... First of all, this story came to me a week ago... But at first, I thought, I had better make certain this is not a hoax before talking about it... What am I talking about? I'm talking about the report that two Japanese men were caught at the Swiss-Italian border with $130 Billion in U.S. Treasuries!!!!!!! Now, Chris and I were talking about this yesterday, and Chris said, "But I thought all Treasuries were book entry for some time now"... Yes, since 1982 (a great year, with the Cardinals winning the World Series!) Treasuries have been book entry only... So... The question I had from the beginning is "are they real or fake?" Because I didn't want to waste your time and mine if they were fake bonds... But apparently the someone believes them to be real...

Hmmm... $130 Billion in bearer bonds... Does this intrigue anyone? It sure does for yours truly. Does this mean that the U.S. Treasury has been printing bearer bonds and selling them under the cover of a dark night? That's the only explanation I can come up, IF THEY ARE FOR SURE REAL!

I don't know what to make of this except it has my attention, and I can't believe I don't see one story on cable news... But it's all over the news in Europe and Asia... More later, as additional news comes to light on this...

OK... Yesterday, I talked about the Current Account Deficit, which is expected to be $85 Billion for the 1st QTR... What I didn't talk about is that this would be the lowest level for the Current Account in a decade! And would represent just 1.5% of GDP. Now... I used to go out and talk about how the dollar entered the weak dollar trend in Feb. of 2002, after the Current Account Deficit reached 4% of GDP, which historically had been the line in the sand for currency issues...

But let's put this in perspective, eh? Back in 2001 and 2002, our GDP was running at 4-5%... It's now negative... So, maybe this won't be the harbinger to reversing the weak dollar trend, that it looks like on the outside... Besides, as I've said over and over again lately, the whole deficit talk used to center on the Trade Deficit (which account for the majority of the Current Account), and with the global recession going on, the Trade Deficit, while still having issues, is no longer the focal point... Instead, the Budget Deficit (the 2nd of the Twin Deficits) has taken the reins of the focal point... If it's not one thing it's another, my mother used to tell me! (the you-know-what disturber in me just has to make this comment... "no wonder the Current Account is lower, we don't report debts or the bonds that represent the debts!"... That's in reaction to the $130 Billion in bearer bonds!)

I came across a news story yesterday morning that caught my attention... It seems that the Gov't of Australia, has decided to put Government backing on state issued bonds like the QTC's (Queensland Treasury). This is HUGE for these issues, especially since the states in Australia were seeing downgrades in ratings! Now, the country of Australia has a higher rating, and these bonds will carry that rating, since they are now backed by the Gov.! The one thing it will do though, is tighten up the yield on these bonds... Probably by about 10-15 Basis points...

Why am I talking about this? Because... If the QTC bonds now have a higher rating, more institutions will be able to buy them, and the more investment in Australia, the more flows into Aussie dollars! The news brought the A$ back to 80-cents yesterday briefly... But this is going to take some time to work through. The thing here is that in the long run, this is good for the A$!

In China overnight, we had an announcement that could really become a problem with protectionism... China has introduced an explicit "Buy Chinese" policy as part of its economic stimulus program in a move that will amplify tensions with trade partners and increase the likelihood of protectionism around the world.

Now, long time readers know that I've always banged on 1. the Bush administration when they placed tariffs on Japanese Steel about 8 years ago, 2. Schumer and Graham for introducing a bill to place tariffs on Chinese exports to the U.S. Because... Both represent protectionism... And a currency will normally get taken to the woodshed for being associated with a country that takes protectionism measures...

So... Will this hurt the Chinese renminbi? Ahhh grasshopper, remember, the Chinese renminbi is a "manipulated currency". The Chinese Gov. decides what value the renminbi will be... So... In a regular floating currency scenario, yes, this would hurt the currency... But in China's situation, it's all different.

However, the reason I make a big deal out of this is that this announcement could lead to other countries placing their own protectionism measures to offset China... One protectionism measure, begets another, and another, and another... Oh boy! NOT!

Talk about smashing a bug! This would be just like doing that to the promises of a global recovery... Somebody stop them for they know not what they are doing! Or maybe the Chinese do...

Yesterday, Housing Starts in the U.S. surprised on the upside, and so did Building Permits... I don't like this for the simple reason that we already have an "inventory" issue with houses that have been built and not bought or occupied. But, the media was all over this new, because... It's the opposite from what I told you the day before that economists, Shiller, Roubini and Whitney had to say about housing! And the Housing Starts and Building Permits data flies opposite of the report this morning that mortgage applications fell 15.8% this month!

We also saw that Industrial Production fell -1.1% in May... So output was off sharply at factories, utilities and mines, in May, which is completely opposite of those that are saying the recession is over...

Today, in addition to the Current Account data, we'll also see the stupid CPI data for May... You never know what that data has in store for us, because the Gov't doesn't know what they want it to show for us yet! HAHAHAHAHAHAHA! Of course that's my feeling toward CPI, and I've explained it all many times over the years... But, in a nutshell, CPI is kept artificially low by the Gov't by re-weighting things that get too expensive, or substituting things that get too expensive... We all know why CPI is kept artificially low too, don't we? Yes... We do...

Now... I spent more time on CPI this month than I care to! It's just a dumb report that the media will be all over like a cheap suit!

I heard a great old song on the radio this morning that pretty much puts my feelings toward the direction of the country into words... "but you tell me over and over and over again my friend, ah, you don't believe we're on the eve of destruction." - Barry McGuire

And then, I see where the President is going to announce his sweeping regulatory changes today... Hmmm... Do you see what I see? This is a shift from markets driven regulation to Political regulation... Markets to politics... Somebody stop the madness! Serenity now!

Currencies today 6/17/09: A$ .7925, kiwi .6295, C$ .8805, euro 1.3865, sterling 1.6260, Swiss .9190, rand 8.0530, krone 6.4115, SEK 7.8350, forint 204, zloty 3.2580, koruna 19.2570, yen 96.40, sing 1.4580, HKD 7.7505, INR 48.08, China 6.8370, pesos 13.45, BRL 1.9735, dollar index 80.72, Oil $69.69, 10-year 3.67%, Silver $14.10, and Gold... $932

That's it for today... A pretty busy day for yours truly yesterday, with the monthly Review & Focus due, and the regular daily stuff all rolled into one day... Thank goodness, Chris and Mike help me with the Review & Focus these days! Speaking of the Review & Focus, I did a story on whether inflation or deflation is worse for an economy... You'll want to check that out, when it shows up in your mailbox! Hey! My beloved Cardinals scored more than 2 runs in a game last night... YAHOO! It's been a tough month for the redbirds, a June Swoon, if you will. Last night's game VS the Tigers reminded me of the 2006 World Series match-up, and we all know the outcome of that series! 10th World Championship for the Cardinals! OK, enough of that, time is a wastin'! I hope your Wednesday is Wonderful!

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