Search results matching tag 'Gold'

2nd QTR GDP Today...

ChuckButler — Fri, 27 Aug 2010 15:14:19 GMT

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In This Issue..

* A flat trading day in currencies...

* 473,000 newly unemployed last week...

* Kan ready to take "bold action"...

* Ludwig von Mises on a Friday!

And Now... Today's Pfennig!

2nd QTR GDP Today...

Good day... And a Happy Friday to one and all! The last weekend of August! Ty Keough receives the Silver Boot award in my little river town tonight, and other than that I plan on just relaxing, having ruined my last weekend with travel! It's absolutely a beautiful morning... Ahhh, I think I'll go outside for a while, and just smile... Ahhh, it's going to be a Fantastico Friday, I can feel it already!

OK... The currencies are trading in the same clothes as yesterday, it's almost like the movie Groundhog Day... For, the euro has performed the say way as the previous sessions... For instance, the euro rose up to 1.2765 yesterday, only to fall back to just above 1.27, and then overnight, like the previous night, the euro rose to 1.2740, only to see it fall back again...

Looks like the offset currency to the dollar (euro) is having a tough row to hoe getting past 1.27... And to tell you what I think, no wait, I'm doing that any way! But basically, this type of bumping up and down is fine with me, for to have the euro rise to 1.31 as fast as it did in July, is not good, as we've now seen... Too far, too fast, is not good for an asset... That is unless you are a trader, and bought at the low and sold at the high... But that's not what I'm all about, nor EverBank...

OK! I'm sure glad I didn't send anyone down the wrong road yesterday!

I have to say that I got a kick out of you!

I could go into that great song sung by Frank Sinatra, but...

I'll just say that a ton of readers sent me a note in regards to my "amended statement" Pfennig yesterday, and told me that, "We liked the first one better, it was more like reality!" or "Chuck, that was just a Freudian slip!"

So... It's all good... And I carry on, my wayward son!

The Initial Jobless Claims yesterday were being ballyhooed by the media for "falling to 473,000"... Again, get a grip media! Do you really believe that having 473,000 NEW people file for unemployment last week was a good thing? Sure it wasn't 504,000 like the previous week, but still 473,000 isn't anything to be happy about! Especially if you are one of those 473,000! Or one of the 1,465,000 that have filed in the first 3 weeks of August! UGH! That's nearly 4,700,000 this summer alone!

So... I guess, when the number falls by 31,000 it's something to feel good about, eh? But, I can't help wondering if this number won't keep falling, and not because things are getting better... There comes a time when a company can't cut any more employees or else fold... We could very well be at that time...

I totally dislike talking about unemployment... I was "retired" once (read unemployed) and I sure didn't like the feeling... But... It's a part of our economy, and thus part of the dollar's value...

A light bulb went on over my head yesterday, folks...

Now, recall, how I've said for over 1/2 year now that the FOMC would not be able to hike interest rates because of a number of things, including the fact that they owned Trillions of toxic waste mortgage bonds with adjustable rate mortgages... The FOMC told us when they took these into their books, that they would sell them in the market place when things calmed down... But... If the FOMC raised rates, those bonds would have more losses piled on them.

But, yesterday, the light bulb went on, and now I can see clearly now, the rain is gone! If the FOMC could keep rates at historic lows, then people would re-finance their homes at the lower rates... If the people re-financed, it would pay off the old loan and create a new one, thus paying off the old note that is a part of the bond!

Now, there are several reasons for rates being this low, for this long, eh? And... I have to think that the Fed Heads stumbled onto this scenario... I can't for the life of me think this was their intention... It's just one of those unintended consequences... And it's a good one, as far as removing the toxic waste from the FOMC's balance sheet... But what will the unintended consequences of keeping interest rates this low for this long be in future? I have a good guess... And I'm sure you do too, and... I'm sure it's the same guess!

So... FOMC Chairman, Big Ben Bernanke will kick off the Jackson Hole boondoggle for Central Bankers and economists, today... This should be interesting, because I'm sure Big Ben is going to be doing his best to tell the attendees that "his way" of guiding the economy is the best potion, and when ECB President, Trichet, gets up to talk, he'll be doing his best to tell the attendees that "his way" of guiding the economy is the best potion...

We could take a current report card and compare, right? The U.S. economy is heading downward, while the Eurozone economy is rising... The Fed is adding to its stimulus, while the ECB is looking to exit their stimulus. The U.S. is all about Government spending, while the Eurozone is adopting spending cut measures...

So... Which central bank would you pin your colors to the mast of?

And, right on time is the printing of U.S. 2nd QTR GDP today... I'm sure Big Ben will want to try to find a place to hide when that print happens, for like I said yesterday, I don't see U.S. 2nd QTR GDP anywhere near the preliminary print of 2.4%... I've said it would be below 2% and most likely around 1.5%... The summer months have been quite cruel on the U.S. economic data, and if the data hasn't sounded alarms for you yet, this GDP print will...

The question is... What will the markets take from the report? I mean, will they run and hide in the shadows of U.S. Treasuries? Or... Will they take the dollar to the woodshed? In the Old Days, good times I remember, fun days, filled with simple pleasures... The dollar would be taken to the woodshed... But these days, are different... And not fundamentally driven any longer... One day, we'll get back to fundamentals, but until then...

Ok... I'm looking for some slippage in Japanese yen, but just not seeing it... Last night, Japanese Prime Minister, Kan, said that he is, "willing to take BOLD action on currencies." Now, I know that the Japanese PM is not the Finance Ministry that makes the decisions on currency intervention, but this type of talk has got to go a long way toward fanning the flames of intervention, don't you think? But so far, no slippage in yen... Hmmm... I guess the markets are playing a game of currency chicken with Japanese officials...

Whenever the intervention flames get fanned in Japan, the Aussie dollar (A$) gets a little love... So, please, somebody in Japan, keep fanning! The A$ has seen its share of getting taken to the woodshed because of the "hung" election... Traders need something else to focus on besides the election thing.

And the price of Oil, which sunk like a rock in the past couple of weeks, looks to have found a bottom of $71, which it hit yesterday, and is back to $73 this morning... Wouldn't you know it? I haven't needed to get gas during the falling Oil price, but now that it's going back up, I'm about due for a fill-up! UGH! But, the real point here is that a rising Oil price, always helps boost the Canadian dollar / loonie, and the Norwegian krone.

And the price of Gold couldn't hold on to its 8-week highs yesterday, and Gold slipped about $5 on the day, and it's down another $5 this morning... I'm going to put this slippage in price down to profit taking... Yeah, that's it, that's the ticket! Seriously though, that's exactly what I believe went on with Gold the past two days... Profit taking...

So, apparently, these dudes and dudettes taking profits did not buy Gold as a hedge for their investment portfolio... Like you and your Pfennig writer did!

Speaking of taking profits... I sure hope all those people that rushed to Treasuries, are ready to get out and take profits, before the profits are wiped out! I just can't imagine the 10-year Treasury below 2.50%, or the 2-year below .50%... But that's where they are trading this morning, and any new rush to Treasuries because of the disappointing 2nd QTR GDP print will push these yields below those figures... (remember with bonds, yield and price move in opposite directions, so when the yield goes down, the price goes up, and vice versa)

Then there was this... I can't stop thinking about Big Ben and his speech today... I would have to think that the great Ludwig von Mises would be turning over in his grave at what Big Ben and his predecessor, Big Al Greenspan, have done... It was von Mises that observed that massive Central Bank Easing was invariably a form of cowardice that attempts to avoid the need to restructure debt or correct fiscal deficits, avoiding wiser but more difficult choices by destroying the value of the currency.

Think about that, noodle it, and then think about what's going on here...

To recap... The currencies duplicated the previous day and night's trading sessions, just like the movie Groundhog Day! 2nd QTR GDP prints today, and it will most likely show a huge downward revision to the preliminary estimate of 2.4%. How will the markets react to this is the question. And the Japanese PM, Kan, said he was ready to take "bold action" in the currencies, thus fanning the currency intervention flames... But nothing to report yet...

Currencies today 8/26/10: American Style: A$ .8890, kiwi .7060, C$ .9440, euro 1.2720, sterling 1.5520, Swiss .9760, ... European Style: rand 7.3830, krone 6.2735, SEK 7.3750, forint 224, zloty 3.1375, koruna 19.4560, RUB 30.69, yen 84.70, sing 1.3570, HKD 7.7795, INR 46.92, China 6.7977, pesos 13.10, BRL 1.7615, dollar index 82.89, Oil $73.29, 10-year 2.50%, Silver $19.03, and Gold... $1,238.20

That's it for today... Congratulations to Albert Pujols of the Cardinals, as he became a member of the 400 home runs club last night in Washington D.C. Unfortunately, the Cardinals lost again though! UGH! And Congratulations to Stan Kroenke, the new majority owner of the Rams! Only 1 week to go before College Football begins, with my beloved Missouri Tigers taking on Illinois here in St. Louis... And Good luck to Katherine Kuchem, the darling daughter of our Kristin Kuchem, who will see an orthopedic specialist about her broken hand / wrist today... And with that, I'll get out of your hair for today... I hope your Friday is Fantastico, because I truly intend to make mine Fantastico! Bye!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

New Home Sales Plunge!

ChuckButler — Thu, 26 Aug 2010 15:46:09 GMT

........But first a word from our sponsor.......

Hello currency trading. So long market risk.

The new CD has a funding deadline of September 16, 2010, so you must act soon.

More key details about the CD:

*Earnings tied to the performance of a specific currency index *100% protection of deposited principal when held to maturity *$1,500 minimum deposit *4-year term *No account maintenance fees

Don't miss the September 16 funding deadline. Apply online now at: http://www.everbank.com/001CertificatesMSCurrencyReturns.aspx?referid=11808

EverBank is an Equal Housing Lender and Member FDIC.

...........

In This Issue..

* More bad data in the U.S. weighs on dollar...

* Who are you going to believe?

* Gold & Silver rebound nicely on bad U.S. data...

* No follow through on Japanese jawboning...

And Now... Today's Pfennig!

New Home Sales Plunge!

Good day... And a Tub Thumpin' Thursday to you! WOW! It was 64 degrees this morning, and I drove to work with the windows down! OK... I know, you don't care... The chill that's in the air though is something to begin our talk today...

Yes, that's right, the chill in the air isn't confined to the cold front that moved through the Midwest this week... The cold front's chilly air has moved over the Economic Data here in the U.S. and to a lesser extent, the dollar.

The dollar is weaker this morning VS the usual suspects, led by the euro, which has climbed, and clawed its way back to above 1.27, and the Commodity Currencies look a bit more healthy this morning. It's all about the awful Housing Data that had printed two consecutive days this week. I'll get to that in a minute, but first some observations from the Chuck flight deck...

I saw Fed Head, Richard Fisher, of the Dallas Fed on TV Tuesday, and he said, "We should thank Ben Bernanke for bringing us back."

My thought as I walked out the door, past the TV was "bringing us where?" I mean, so we should kick up our heals that:

1. The Cartel got involved in the markets and now is the owner of over $2 Trillion worth of toxic waste bonds? And $2 Trillion is their FLOOR!

2. the Cartel did over $300 Billion of Quantitative Easing (QE) in March of 2009, and announced a week ago that they will continue to "support" Treasuries, which is Central Bank parlance for, more Quantitative Easing?

3. the Cartel has kept interest rates at zero for so long, and will continue to do so?

4. That Housing is circling the bowl once again?

5. That unemployment is 22%?

6. and now the Cartel is arguing among themselves as to how to stimulate the economy?

Oh trust me, folks, I could carry on, my wayward son, for a long time here... But won't... I'm being watched these days, and don't want to get my wrists slapped!

I can't begin to tell you though, that I can't believe the markets haven't punished the Fed and the dollar for this second round of QE... The damage that this Cartel chairman has inflicted on the dollar will end up being the mother of all damage in the end...

Speaking of Housing... Did you strap yourself in for the New Home Sales for July report yesterday like I warned you to do? Good thing, because, following up on Tuesday's print of July Existing Home Sales falling -27%!!!!! Yesterday we had New Home Sales "fall" -12.4% OUCH! That's two consecutive days on Mr. Toad's Wild Ride with housing...

So... I have to ask you this... Remember a couple of weeks ago, when U.S. Treasury Sec. Geithner wrote an Op-Ed in the WSJ, that was titled, "Welcome to the recovery"?

Did that remind you of back in 2008 when then U.S. Treasury Sec. Hank Paulson, and Ben Bernanke swore before Congress that Fannie Mae and Freddie Mac were "sound" and "well capitalized"... And a couple of months later they collapsed?

I just shake my head in disgust, but... Have to come back to today, and the fact is this... Housing is circling the bowl, and the recovery is no where in sight, period!

Whew! I'm full of you know what and vinegar this morning!

I heard on the radio on the way to work today, that a local mortgage lender was offering 30 year Conventional or FHA loans at 3.75%!!! WOW! Now, think about this for a minute, mortgage rates are at 1960 levels, and Home prices have sunk by large chunks in the past few years. Sounds like a good time to buy a house, right? Well... Yes, if you're qualified... Ahhh, that's the cheese that binds right there, isn't it? No longer are you able to get a home loan if you are not qualified, and with unemployment at 22%, and the number of people battening down the hatches right now, doesn't leave many "qualified" people... It's a vicious cycle, folks... But until people go back to work, Housing is a victim...

And the Housing problems are what I believe pushes the U.S. back to negative growth... One of my fave economists, Nouriel Roubini, believes that U.S. growth will go below 1%, and the chances of a double-dip recession are at 40%... I guess for once, I'm even more gloom and doom than Mr. Gloom and Doom, here... But he'll come around...

Well, the two days of rides on Mr. Toad's Wild ride for Housing, really got Gold going again... Yesterday, Gold advanced to the highest price in almost 8 weeks, and the shiny metal is up a couple of bucks this morning, with Silver really kicking some sand in the dollar's face, moving back above $19 this morning!

The fear factor, and I'm not talking about that old TV Show... I'm talking about the fear that the economy is really faltering, is the key here... Gold and Silver are seen as stores of value, and wealth... So... When the economy of the U.S. is circling the bowl, which will take the dollar, and stocks with it, and bonds are at miniscule yields, where does the intelligent investor go? They go to Gold and Silver!

Remember a few years ago, when I told you that Gold was becoming an investment choice by many investors because Gold no longer had to compete with deposit rates at banks? (except EverBank!) Well, the bond bubble just keeps inflating, and as it does, yields on bonds continue to fall, thus allowing Gold and Silver to compete with bonds now too!

Well... Another reason for dollar weakness this morning, I'm told, is that the markets are convinced that Cartel Chairman, Big Ben Bernanke, will use his Jackson Hole speech tomorrow to lay the groundwork for further easing here in the U.S... Yes, it's boondoggle time in Jackson Hole, WY this weekend, with Central Bankers, economists, and other guests getting together to talk about economies... OOOOOHHHHH sends shivers up my spine! Where do I sign up to get invited to that boondoggle? NOT!

OK... Something after all I wrote this morning, now, as I get ready to head to the Big Finish, I see that the dollar is rallying back, moving the euro from 1.2745 to 1.2710, and the trading looks to be one-way right now... So, maybe traders thought the move against the dollar was too much...

No matter what the euro and other currencies do today, it doesn't change the overall picture for them VS the dollar... I had a few guys come up to me at the San Francisco Money Show last week, and tell me that they believed that all currencies were going to devalue along with the dollar... First, I wondered if they had all read the same story... But then I would say to them... "that may be true... But a race to the bottom, is being won by the dollar, so why not take advantage of that?"

I really don't believe in all currencies devaluing together... You can't get these guys to agree on anything when G-7 or G-10, or G-20 meet, how would you get everyone together to agree to something like that? Sounds far-fetched to me!

There was no follow up to the news I brought you yesterday that the Japanese Finance Minister, Noda, had greased the trap that I believe is being set for investors flocking to Japanese yen with the belief that Japanese officials won't do anything about the strength of the yen... And yen is basically flat on the day.

Yesterday, S&P downgraded Ireland's credit rating... This was a blow to Ireland and the Eurozone, and now is being called "not realistic" by the Irish Government. Apparently there are some economists and analysts that agree with the Government on this... But nonetheless, S&P downgraded Ireland's credit rating... And that put a dagger in the heart of those that believed bond yields spreads between Ireland and Germany would narrow...

Again with the ratings agencies! I'm not even going to rail on them this morning, I think my dear readers know where I stand with these ratings agencies!

And for those that continue to believe that China's economy is about to collapse... China's biggest automaker posted a 35% increase in profits for the 1st half of 2010! That's $118 million in profits... Sure doesn't sound like things are bad enough to stop people from buying new cars in China!

The data cupboard will yield the Weekly Initial Jobless Claims this morning, which are expected to remain near 500,000... Tomorrow is the 2nd print of 2nd QTR GDP. Just a refresher... The first print was 2.4%... I told you when it printed that it would be revised down, and tomorrow, I expect the revision to come in with a number less than 2%, but could very well plunge to 1.4%... OUCH! Of course, this is all water under the bridge, as it happened so long ago... In the second quarter, I had eye surgery, and that seems like a year ago to me!

Speaking of data... I forgot to mention to you that the New Home Sales report represented the slowest month of New Home Sales since 1963! OUCH! Now that's going to leave a mark!

Another economic report that points to a double dip, printed yesterday... U.S. Durable Goods Orders for July printed weaker than expected, in spite of a surge in aircraft orders... The data was up .3%, but given the aircraft orders, should have been much stronger... So... When you take out the "one-time" aircraft orders, Durable Goods were down big!

Then there was this... Demand for physical Gold in the second quarter rose by 36%! And when you take into account the dollar value of the ounces purchased it equates to a 77% increase! WOW! My friend, David Galland, reported yesterday that the amount of Gold held by ETF's grew by 414% in the past year! DOUBLE WOW! Here's some more from my friend and one of my fave writers, David Galland... "for all the reasons that Aristotle enunciated, gold is viewed in a class of its own, and so has an unblemished history as a universally accepted store of value. And, thanks to its portability, divisibility, durability, and consistency, it has also always been looked upon as a convenient form of money."

Nicely said David...

To recap... New Home Sales plunged 12.4% in July, following up on the plunge of 27% in Existing Homes. The fear factor for the U.S. economy has put some pressure on the dollar, albeit soft pressure, not deep tissue! Gold has gained quite a bit the past two days on these awful Housing reports, and the physical demand for Gold continues to be quite strong.

Currencies today 8/26/10: American Style: A$ .8875, kiwi .7035, C$ .9470, euro 1.27, sterling 1.5515, Swiss .9750, ... European Style: rand 7.32, krone 6.3020, SEK 7.4115, forint 223.25, zloty 3.1415, koruna 19.5870, RUB 30.79, yen 85, sing 1.3550, HKD 7.7770, INR 46.86, China 6.7995, pesos 12.96, BRL 1.7630, dollar index 82.97, Oil $73.18, 10-year 2.51%, Silver $19.15, and Gold... $1,243.50

That's it for today... It's been pretty cool watching the sunrise each morning move further south every day... It's a sign that summer is coming to an end... Autumn weather here in the Midwest is good, but we all know what happens at the end of Autumn... Winter! UGH! I've not talked about our newest MarketSafe CD, but it's pretty cool... The Deutsche Bank Currency Returns (DBCR) Index, gets its value from the trading that Deustche currency traders do using three platforms: Carry trade, Momentum, and Value. So, they do the trading, you sit back, and watch their results in the DBCR Index... And, you have 100% principal protection! I've been running the advertisement for this CD for a couple of weeks now at the top... For more information go to our website or call 1-800-926-4922... And on that note, I'll get out of your hair, and get working on a Tub Thumpin' Thursday... I hope you do too!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

You'll Buy Gold Now and Like It!

DougCasey — Thu, 26 Aug 2010 14:40:00 GMT

By Jeff Clark, Casey's Gold & Resource Report

I get this question a lot: "Should I buy gold now, or wait for a pullback?"

It’s a valid question. For nearly two years, gold hasn't had a serious decline. There have been pullbacks, of course, but nothing assumption-challenging. In fact, since October 2008, gold’s largest price drop is 10.6% (based on London PM fix prices), and yet the average of all declines since 2001 is 13% (of those greater than 5%). The biggest pullback we've seen this summer is 8.2%. Technically the summer's not over, but I'll admit I'm surprised we haven't had a better buying opportunity.

So, is now the time to buy? It depends on your honest answer to another question: “Do you own enough gold?” By “enough” I mean an amount that lends meaningful protection on your assets. By ”meaningful” I mean that no matter what happens next – another financial blow-up, accelerating inflation, crushing deflation, war, a plummeting dollar, more reckless government spending – you won't worry about your investments.

Whether you should buy now is almost irrelevant if you don't already own a meaningful amount of gold. If you earn $50,000 a year, how is one gold Eagle coin going to protect you if the dollar plummets and sends inflation soaring? If your investable assets total $100,000, is your nest egg sufficiently protected owning two gold Maple Leafs? This is all akin to buying a $50,000 insurance policy for a $500,000 home.

Today we face the prospect of prolonged economic stagnation, and most governments are administering grossly abusive monetary policy as a remedy. While some of the consequences are already being felt, the full ramifications have not hit your wallet yet. But they will.

If you don't have at least 10% of your investable assets in physical gold, or at least two months of living expenses, you have your answer: Buy. Don't use leverage, don't borrow money, and don't buy with reckless abandon, but yes, get your asset insurance policy and tuck it away. And then start working toward 20% (we recommend a third of assets be in various forms of gold in Casey's Gold & Resource Report).

Back to the original question: should we buy now, or wait for a pullback?

The answer comes when you look at the big picture. If you pull up a 9-year chart of gold, what sticks out is that the price is near its all-time nominal high. One could be forgiven for thinking it looks toppy or at least ripe for a pullback. But I assert that the highs for gold have yet to be charted.

What will a gold chart look like after adding five years to it?

When projecting gold's potential price peak, there are many ways to measure it. Conservatively, gold reaching its inflation-adjusted 1980 high would have it topping around $2,400 an ounce. More radically, if the U.S. tried to cover its cumulative foreign trade deficit with its current gold holdings, gold would need to hit about $32,000/oz.

Let's take something more middle of the road, and apply the same trough-to-peak percentage advance gold underwent in the 1970s. (I think there's a greater than 50/50 chance it does more than that, given the precarious nature of the U.S. dollar.) Gold rose from $35 in 1970 to $850 in 1980, a factor of 24.28. Our price bottomed in 2001 at $255.95; multiply that by 24.28 and you get a gold price of $6,214 per ounce.

Sound too high? Well, would it feel high if you had to pay $12.50 for a Big Mac? At $3.39 today at my local McDonald's, that's about what it would cost ten years from now if we get the same rate of inflation we had in the late 1970s.

So if gold hits $6,214, what might it look like on a chart if you bought today around $1,200?

$1,200 doesn't seem so pricey, does it?

I'm not saying there won't be pullbacks or that you shouldn't try to buy at lower prices. Just keep a big-picture perspective. Let's say gold falls to $1,100 and you're kicking yourself for having bought at $1,200… if gold reaches $6,200 an ounce, the profit difference between buying at $1,200 and buying at $1,100 is only 1.6%. If gold gets whacked to $1,000 (at which point I’ll be buying with both hands) the difference is still only 3.2%.

Heck, even if gold peaks at $2,400, you still get a double from current levels. (But unless government monetary policies immediately reverse course, gold isn't stopping at $2,400.)

So there's my answer. Yes, you have to accept my projection of gold's ultimate price plateau. And you have to sell at some point to realize the profit. But if the final chapter of this bull market looks anything like the chart above, I don't think you'll be too upset having bought at $1,200.

Carpe gold.

----

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Inflation, Deflation or Stagflation?

GaryHalbert — Tue, 24 Aug 2010 21:15:00 GMT

IN THIS ISSUE:

1. The Inflation/Deflation Debate

2. Why Governments Love Inflation

3. Deflation – Beyond Lower Prices

4. The Shock Doctrine

5. What You Should Be Doing

Introduction

Much has been written about the inflation/deflation debate, mostly by people who want to sell investors their particular investment solution. Fortunately, there have been a number of other, more scholarly articles as well that avoid the hyperbole and just get down to a basic analysis. However, there seems to be no general agreement on which of these scenarios may lie in our future, if not both.

Since I own an investment management firm, my staff and I often hear from clients about their concerns for the future. Right now, many are concerned about whether we’re going to experience inflation, deflation or a combination of the two in the years ahead. Thoughts of our economy becoming mired in a Japanese-like deflationary spiral fuel some concerns, while others fear that Ben Bernanke will fulfill his caricature of printing dollar bills and tossing them out of helicopters.

I have not written much on the subjects of inflation and deflation due to the glut of information already in publications and on the Internet. However, considering the feedback I’m getting from clients, I think it might be time for me to weigh in on the debate. You might be surprised at where I believe we’re headed.

In this week’s E-Letter, I’m going to discuss my own thoughts about the inflation/deflation debate. However, rather than put things on a global scale as some noted analysts have done, I think it’s more important to get down to a personal level. What does inflation or deflation mean to you, as an investor and a consumer?

The Inflation/Deflation Debate

Most of the time, debate among economists centers around Keynesian vs. Austrian, or more stimulus vs. less stimulus. Today, however, the discussion seems to be boiling down to inflation vs. deflation. Unlike some other more esoteric economic issues, the answer to the inflation/deflation question may have a more profound effect on your financial destiny than any other issue, so it’s important to be paying attention to the discussion going on in economic circles.

I think that we can all agree that, in a nutshell, inflation is the state of too few goods being chased by too much money. Deflation, on the other hand is just the opposite where there is less money chasing an abundance of goods. Inflation makes prices go higher while deflation lowers them. Back in the 70’s and 80’s when we were introduced to double-digit inflation, most of us learned to be wary of it. However, we don’t know how to react to deflation, since most of us have never seen it in action.

Actually, that’s not quite correct. Most of us have experienced deflation caused through productivity gains and lower manufacturing costs. For example, you very likely paid a lot less for your newest computer than you did for its predecessors. The same goes for most other high-tech goods such as DVD players, cell phones, big-screen televisions, etc., etc. Increased productivity and technological advances pushed prices lower even though the newer products have more features.

Likewise, moving manufacturing facilities to countries with lower labor and other costs allows for lower prices than available from domestic production, in some cases. Forgetting for a moment the political and social implications of moving jobs offshore, lowering manufacturing costs leads to a form of price deflation (think WalMart). This, along with productivity gains are the good kinds of deflation.

Considering our limited exposure to these phenomena, when the subjects of inflation and deflation come around we tend to fixate on the price of goods rather than the broader economic issues. In inflation, prices go up while in deflation, they go down, so what’s not to like about deflation? Being savvy consumers, we’d obviously like prices to go down rather than go up.

However, as we continue the analysis of inflation and deflation, it’s important to remember that we’re talking about the structural kind that affects the entire economy. For example, structural inflation and deflation affect not only prices, but also wages, production and the overall money supply. In a deflationary environment, the cost of goods would be lower, but so would your wages, most likely. Not so attractive any more, right?

Deflation also usually involves lower demand for goods and services. One reason is because of lower wages as mentioned above, but another is a tendency of consumers to wait on making purchases because there’s an expectation that the prices will be lower in the future. Thus, true deflation is typically associated with a depressed economy. In fact, the last time we experienced true deflation was during the Great Depression of the 1930s. Will history repeat itself? Only time will tell.

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

Why Governments Really Love Inflation

One of the biggest arguments in relation to the possibility of future inflation is that governments, it is said, love inflation. The reason for this belief is that inflation helps governments pay off current debt by increasing prices, income levels and eventually, tax revenues. As inflation pushes the GDP level higher, debt levels become a smaller percentage of GDP, making them appear to be more sustainable.

Long ago, John Maynard Keynes said the following about governments and inflation:

“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.... The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

It works like this: If the government borrows $1,000 today and pays it back a year from now (assuming no interest), but the economy experienced 10% inflation over that time, the purchasing power of the money paid back would be 10% less than the amount owed, or $900. Thus, while the nominal value of debt is the same or higher due to interest, the purchasing power of the debt can be reduced by a government engineering inflation.

Of course, Mr. Keynes and our example assume a rather static level of debt but that’s not what’s going on now. Our GDP is growing at an anemic pace while our national debt is on steroids. Though government spending through various stimulus programs has attempted to kick-start the economy, it hasn’t worked yet. The result is a massive amount of debt and a weak GDP, not a good combination. If inflation makes existing debt easier to repay, then a deflationary scenario while still increasing debt is a recipe for disaster. Is anyone in DC listening?

Because of the disastrous effects of the current combination of potential deflation and ever-increasing government debt, some analysts have floated the idea that the federal government will attempt to engineer some inflation in order to reduce the effect of the higher debt. However, monetary policy by itself, without accompanying economic growth, is unlikely to produce the desired result.

The more realistic course of action is that the Fed will continue to have an accommodative monetary policy primarily to escape deflation rather than trying to engineer inflation. Yet, a recent research paper by James Bullard, president of the St. Louis Fed, said that Fed chairman Bernanke’s expectation for interest rates to stay low for “an extended period of time” might actually increase the chances of deflation.

The bottom line is that while inflation may help ease the government debt burden, it has to be accompanied by economic growth. Looking at the US economy, we’re likely to have a hard time producing strong economic growth, much less growth sufficient to inflate our debt away. There are simply too many headwinds to have robust economic growth. Consumer demand is down, unemployment is high and wages are flat. Does that sound like a good combination in which to introduce inflation? Hardly.

Having said all of the above, we can’t rule out inflation entirely. However, it’s not likely to be the kind that would be very helpful to the government in repaying its debt. One possible source of inflation could be the current easy money policy. The Fed has committed to printing money for however long it takes to come out of the present mess. Another might be creditor nations requiring higher interest rates on Treasury securities as the federal government debt burden grows.

Legendary investor, Warren Buffett, has gone on record that he is definitely in the future inflation camp. In a New York Times op-ed piece a year ago, he warned of massive government stimulus combined with “greenback emissions,” which he defined as the various forms of fiscal and monetary stimulus. The result, according to Mr. Buffett, will be a falling dollar and severe inflation.

While Buffett’s prediction for inflation is unwavering, it’s not something he sees for the immediate future. Other analysts agree that fiscal stimulus won’t lead to short-term inflation because much of this money is finding its way into banks, but they aren’t lending. Eventually, however, this mountain of cash will have to make its way from bank reserves into the economy, which is likely to be inflationary. The question is when this might happen.

The Case for Deflation

Those who see a deflationary future point to the fact that US households are in a deleveraging process that will continue to sap money away from consumption. That, plus a greater propensity to actually save money could result in the situation where too many goods are chasing too little money – the official formula for deflation.

The dearth of bank lending for households and businesses is another factor in favor of deflation, according to some. Businesses need capital to grow and individuals need credit for major purchases. With banks holding to tight lending standards, when they lend at all, significant growth cannot occur, as I have pointed out often over the last several months.

One of the biggest factors I see in favor of deflation is that there is no other “piggy bank” from which to fund consumer spending. Think about it, we enjoyed economic growth in the late 1990s due to the wealth effect from a buoyant stock market. Once that bubble burst, the Fed kept monetary policy free and easy so that a housing bubble could be built.

In both situations, consumers had a ready source of cash for consumption. Today, I don’t see the source of another pot of cash for consumers to spend. While some might argue that the stock market could again be inflated to produce another wealth effect, I don’t know that the public will be buying stocks en-masse after two major bear markets in less than a decade.

As I have mentioned in previous E–Letters, Investment Company Institute (ICI) statistics show that retail investors (individuals and households) are still net sellers of equity mutual funds, not buyers. It’s going to be hard to inflate the stock market without individual investors. Thus, with wage growth essentially flat and credit hard to get, I don’t see where consumers are going to get the money to increase consumption, and this helps make the case for deflation.

Going back to our discussion of how governments love inflation, we have to also conclude that they hate deflation. That’s because in deflation, the debt is paid back with more valuable dollars in the future. While inflation benefits the debtor at the expense of the creditor, the opposite is true in deflation. Thus, with foreign governments owning so much of our outstanding debt, a deflationary scenario would actually benefit foreign holders of our debt.

That’s why Ben Bernanke and his cohorts at the Fed will do anything in their power to prevent deflation, including cranking up the printing press. Even so, I’m not sure Bernanke can stave off the deflationary dragon even with his mighty printing press. The US economy is fragile, and the stock market is susceptible to any major shock to the system.

Based on the most recent economic reports, the Fed’s easy money policy isn’t working. While it is flooding the market with liquidity, banks are not lending and most of this money is just piling up on banks’ balance sheets. Some say this is actually decreasing the money supply, which would be deflationary in itself. Thus, look for the Fed to be preoccupied with preventing a Depression-type deflationary spiral, with little regard to the inflationary pressures its policies may cause in the future.

A final note about deflation is in relation to predictions that the US will become like Japan. There are some writers and analysts who believe that the US will fall into the same deflationary trap that has had Japan in a quagmire for more than a decade. There are actually many similarities between the US situation now and Japan’s economic malaise of the 1990s, but there are also some very important differences.

Considering the various factors related to the Japanese and US economies, I don’t believe a Japan-like scenario is in store for us. The monetary policy and regulatory response to the subprime crisis was much swifter in the US than in Japan. Deterioration of asset prices, especially housing, was far more pronounced in Japan, falling by around 80% in urban areas.

There are also cultural and demographic differences. Japan has a much older population, on average, and Japanese households are also far more inclined to save than US households. While the jury is still out as to whether the US propensity to consume will continue in all demographic subgroups, I think that we can at least say that consumption will rebound at some point in time.

So, while it makes for good headlines in newspapers and online blogs, I don’t expect the US to fall into a deflationary spiral similar to Japan’s. However, that’s not to say that the US won’t experience deflation. In fact, I think it’s highly likely that deflation will occur in the near future, if we’re not already there.

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

The Shock Doctrine

The bottom line is that the US economy is probably more susceptible to a negative event than ever before. Just looking at the Greek debt issue should prove the point. I doubt that very many economists think that, in a “normal” economic scenario, the Greek debt crisis would have caused even as much as a ripple in the US stock market. However, we now know that it did, and the primary reason was that the global economy is fragile and investors are nervous.

The situation has become such that the answer to whether we have inflation or deflation could come down to just what kind of an event might occur to trigger a movement one way or the other. There is no shortage of potential shocks to the economy and the stock market, which include:

Foreign buyers of US debt demanding higher interest rates;
Downgrade of US debt by rating agencies;
The US dollar goes into free fall, pushing up prices of commodities;
Falling back into a double-dip recession;
A spike in unemployment;
Unwinding government stimulus too slowly; and
Global food shortage due to the Russian drought.

The list could go on and on, but the important thing to remember is that the stock and bond markets are likely to behave unpredictably in the months ahead. Any news could move the stock market in one way or the other, as well as set the stage for future inflation, deflation or both.

I personally believe that we’re going to encounter a bout of deflation before any inflationary pressures take hold. I’m not talking about an extended deflationary spiral like Japan has endured, but probably enough to push the economy back down into at least a mild double-dip recession. While Bernanke and company will try their best to avoid this outcome, I just don’t think they have enough bullets in their gun to avoid the inevitable.

However, the long-term outlook is definitely inflationary as the US government tries its best to spend us into oblivion. Whether through printing money, quantitative easing or even new, unproven policies discussed by some economists, I firmly believe that we have an inflationary future ahead of us in the long term.

Even if we do eke out modest economic growth, I expect it to be paltry in comparison with past recoveries, and especially in comparison with some of the rosy scenarios predicted in some of the CBO budget projections.

And here’s where my opinion deviates from the crowd. I personally believe that we will see good, old-fashioned 1970s vintage “stagflation” before we’re done. Think about it. In the 1970s, inflation was stoked not by an overheated economy, but by the Fed’s loose money policy and skyrocketing oil prices. Inflation was high and so was unemployment, the classic definition of stagflation.

Fast forward to a year or two from now. Most economists are saying that we’ll continue to have slow growth, if any at all, so unemployment is likely to remain high. When the Fed’s easy money policy again begins to stoke inflation, I’m afraid we’re going to relive Jimmy Carter’s worst nightmare.

Worse than remembering the specter of deflation is the thought of the eventual cure. Remember that Paul Volker, now a trusted advisor to President Obama, orchestrated a tight money policy that drove interest rates through the roof in the early 1980s. Do you remember the Prime Rate hitting 21.5%? I do, and it wasn’t pleasant. Of course, CD and fixed annuity investors loved it – for a while.

What You Should Be Doing

As I noted early on, knowing about inflation, deflation or even stagflation doesn’t do you much good unless you also know how to invest your money during these economic conditions. The problem is that no one is going to ring a bell when deflation begins (some economists think it’s already here). As a result, the markets are going to be moving on any hints of inflationary or deflationary pressures.

Since I have gone on record saying that I expect deflation to be our first challenge, you need to know that deflation is generally bad for tangible assets, commodities and stocks in general. Bonds, however, tend to do well in deflationary times as they represent debt, and debt becomes more valuable in deflationary times.

Over the past year or so, I have discussed various bond programs that my firm offers, so I won’t repeat that information. If you’re interested in reviewing these programs, just refer back to my September 15, 2009, April 13, 2010 and August 3, 2010 E-Letters. If you decide to seek out individual corporate bonds or Treasury bonds, or even bond mutual funds, you need to remember that bond prices can be just as volatile as stocks in the short-term, if not more so.

If inflation does come calling, tangible assets and commodities will likely gain new respectability, as will equities. Bonds, however, begin to suffer as higher interest rates push bond yields up and prices down. We continue to believe that the actively managed equity programs we offer provide a good long-term exposure to stocks, but with the ability to move to the sidelines should we encounter a resumption of the bear market.

Gold, of course, has always been known as an inflation hedge, so it could do quite well in an inflationary environment. However, some of the calls for gold to be thousands of dollars per ounce are a bit out of line, in my opinion. Even in an inflationary environment, I advise you to keep gold to a small percentage of your portfolio.

Conclusions

If there was ever a market environment that called for the ability to go to cash and keep your powder dry while waiting for opportunities, it’s the one we’re likely facing now. During deflationary times, stocks are likely to suffer while bonds should do well. During inflation, stocks and tangible assets should do well while bonds hit the skids. However, we could find ourselves going back and forth between fear of inflation and fear of deflation in the months ahead.

I also think that you should manage your expectations for the stock market even if we experience significant inflation. Recall that this inflation may be 1970s style, produced by monetary policy and outside forces rather than an overheated economy. If the economy continues to grow slowly, if at all, stocks may be lucky to produce single-digit returns.

That’s why I continue to recommend that you check out the actively managed portfolios offered by Halbert Wealth Management (HWM). To learn more about these investment programs, give one of our experienced Investment Consultants a call at 800-348-3601 or send an e-mail to info@halbertwealth.com. You can also learn more about these programs on our website at http://www.halbertwealth.com/.

Wishing you profits,

Gary D. Halbert

SPECIAL ARTICLES:

The Road to Stagflation
http://www.minyanville.com/businessmarkets/articles/stagflation-inflation-deflation-hyperinflation-money-printing/8/23/2010/id/29730?page=full

World divides into ice-cold and red-hot economies
http://www.marketwatch.com/story/inflation-not-deflation-mr-bernanke-2010-08-22

The US is not Japan
http://money.cnn.com/2010/08/18/markets/thebuzz/index.htm

Shifting Focus...

ChuckButler — Tue, 24 Aug 2010 15:26:19 GMT

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In This Issue..

* The dollar rallies again...

* German economic data is strong!

* Canadian Retail Sales this morning...

* Chuck's thoughts on the shift...

And Now... Today's Pfennig!

Shifting Focus...

Good day... And a Terrific Tuesday to you! Well, as I pulled out of my driveway this morning, I noticed how the light from the full moon had illuminated the neighborhood... I love it when the moon is full, and so big in the sky!

Well... Things didn't get any better for the currencies yesterday (save yen & francs), as the focus, whether it belongs there or not, remains fixated on the GIIPS once again, and their ability to function under the weight of debt they've created for themselves. For those of you new to class, the GIIPS is short for the countries of the Eurozone that consist of: Greece, Italy, Ireland, Portugal, and Spain...

As I've tried to do from the beginning... I'll give equal time to the likes of: California, Michigan, Illinois, and a host of others with debt problems that should demand equal time in the woodshed... But that's not what's on traders' minds right now.

The euro has given up almost 1-cent since yesterday morning, even in the face of news this morning that German Industrial Orders for June had increased 4.1% VS 3.8% in May...

And to top that data... Germany's 2nd QTR GDP blasted a new path to a 2.2% gain! This represents the fastest quarter of growth in Germany in 2 decades! And when you compare what this 2nd QTR did to 2009's 2nd QTR, the increase is 3.7%!!!!

You know, I've highlighted several times in the past, how the weaker euro was helping German manufacturing, and exports... Well, the German Economy Minister, Rainer Bruederle gets upset when people say that exports are responsible for German economic growth. Bruederle said, "German economic growth is in no way driven by exports alone." Apparently, Mr Bruederle was able to point out that domestic demand is contributing about 60% to the economic expansion. He went on to say that, "The recovery in Germany's economy is underway with full force."

Well, that may be, but it's not enough to take the focus off the deficit problems of the GIIPS right now... And the euro is barely hanging on to 1.26 this morning... And, while I admit, I'm not in Germany, so I don't really know, I still believe that exports drive the German economy... I'm from Missouri, I'll have to be shown that I'm wrong here...

Over in Japan, the yen is going hog wild VS the dollar and euro once again this morning... Here's the skinny on this latest move: The Japanese Finance Minister held a press conference last night, and did not make one mention of the yen... He didn't mention its strength, or the risks associated with his currency getting out of whack with the other Asian Currencies... Nothing, nada, zero, zilch, a great big goose egg, regarding the yen...

So... Folks, traders are taking this non-mention of yen, as a signal that the Japanese Finance Ministry has turned on the green lights... But this is where I think these guys and girls that believe that yen can continue to move higher without interference from the Japanese Finance Ministry, have another thing coming... The Fin Min could be setting a trap... I would be very careful here...

And further down in the South Pacific, the Aussie dollar (A$) continues to be held hostage by the "uncertainty" of the election outcome, and of course the risk aversion going on right now...

Yesterday, I went out on the limb and said that the Bank of Canada (BOC) would carry on with a rate hike on 9/8... Well, one piece of data that might give us a better idea if that will hold true or not will print today... Canadian Retail Sales for June prints first thing this morning... I don't have a BHI (Butler Household Index) for Canada, but the "experts" have forecast a nice .4% increase for June... Let's see if that's bang on or not...

Well... South of Canada, the U.S. will print July's Existing Home Sales this morning. I think those campers that believed that housing was "out of the woods" are going to receive a huge awakening this morning... The July report will be the first one that is completely void of the tax credits and other Gov't stimulation (except for the Gov't keeping interest rates at zero!). I think that this report is going to open some eyes, and will begin to play well with my call that home prices will drop another 10% before we turn this ship around...

And... If we remain in this current pattern of risk aversion because the U.S. economy is circling the bowl, the dollar will rally on a bad print of Existing Home Sales this morning. Should it? NO! But... That's the games people play now, every night and every day!

It's all a matter of keeping the dollar from going for a ride on the slippery slope once and for all! Like circuit breakers... We were beginning to see the dollar selling big time once again, and mysteriously the focus shifted from the selling the dollar, to the Eurozone deficit nations... Just like that!

Think about that for a minute, and let this sink in... Remember? We were dealing with a fight if you will between two different ideas... In Europe, austerity measures were being used to get out of deficit problems... And in the U.S., spending to promote growth measures were being used, to get the country's economy rolling. (they didn't care about deficits!)

And from the time Europe began their austerity measures the euro began to gain back lost ground VS the dollar, moving from 1.18 to 1.31... So, guess which plan was winning the markets' favor?

But then it all stopped... Just like that! You can't tell me that it wasn't the U.S. directing the media to focus on the Eurozone to take the heat off the dollar...

I know, I know, that's all a little too much conspiracy... But it's exactly what I believe I see going on, folks... That's what's still great about this country, you can think what you want... At least for now, that is! UGH!

OK... Let's get back to the facts, Jack! And... Gold is down $8 this morning and about $10 since yesterday morning. So... It's not just a "flight to safety" going on... Because if that were true, Gold would be soaring right now. And... It isn't! UGH!

There's something else going on right now, and I can't put my finger on it... I mean, the FOMC announced Quantitative Easing (QE) again a couple of weeks ago, and the damage to the dollar that should be going on, isn't happening... Have the markets become Comfortably Numb, with all the goings on in the U.S.? It sure looks that way... And I'm here shaking my head in disgust, folks... For this is not how "free markets" work...

Then there was this... I saw this on the Bloomie... The U.S. Court of Appeals for the 2nd Circuit denied a request from the Federal Reserve / Cartel to reconsider a ruling that requires the central bank to identify banks that received loans after the collapse of Bear Stearns. The Fed has seven days to disclose the information, unless the court stays its ruling. The Fed has argued that disclosure of the information would stigmatize the borrowers, causing them "severe and irreparable competitive injury.

Chuck again... I can't express enough the need for this information from the Cartel... And I would think that the public is with me on this. Of course if we ever passed the "audit the Fed" bill, we wouldn't have to go to court to get information from these guys!

To recap... The risk aversion that settled into the markets last week, continues, with the euro losing about 1-cent from yesterday morning. This in spite of some very good economic news from Germany. The markets' focus is now fixated on the GIIPS deficit problems once again, and one (me of course!) has to wonder how that focus was shifted from the dollar's problems to the Eurozone... Canadian Retail Sales this morning could be a good indicator for the BOC meeting 9/8, and... U.S. Existing Home Sales for July print this morning... Strap yourself in for this report!

Currencies today 8/24/10: American Style: A$ .8845, kiwi .7035, C$ .9440, euro 1.2620, sterling 1.5415, Swiss .9590,... European Style: rand 7.3870, krone 6.2835, SEK 7.45, forint 226.10, zloty 3.1830, koruna 19.7070, RUB 30.84, yen 84.25, sing 1.3615, HKD 7.7755, INR 46.94, China 6.7966, pesos 12.95, BRL 1.77, dollar index 83.41, Oil $72.35, 10-year 2.55%, Silver $17.94, and Gold... $1,219.00

That's it for today... Man, my IPOD is playing some great music this morning! Nice to see the Cardinals' bats come alive the past few days. They've got about 38 games to go, and they've got to keep the bats alive for all of them! I'll be doing an interview with a reporter from the Street.com this afternoon, should be interesting! Our soccer legend, Ty Keough, and his dad, (the great Harry Keough) are going to be honored by my little river town's parish this weekend... How about that? Well... It's been a struggle this morning, so the letter is later than usual, so I had better get this out the door! I hope your Tuesday is Terrific!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Catching A Cold...

ChuckButler — Mon, 23 Aug 2010 15:40:07 GMT

........But first a word from our sponsor.......

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In This Issue..

* Eurozone deficits again...

* Eurozone Manufacturing dips...

* Aussie election is up in the air...

* Bailing on a C$ rate hike?

And Now... Today's Pfennig!

Catching A Cold...

Good day... And a Marvelous Monday to you! Yes, I made it back from San Francisco, no problems, unless you call getting home at 9:30 pm on Saturday night a problem... The Money Show was very different this year, with attendance by both attendees and vendors down from previous years... Just goes to show you that what I keep saying over and over again, and that is: There's just no real clear direction: is keeping the attendees away, but what's up with the lack of vendors? Hmmm...

OK... So, it looks to me that all my warning you that the euro wasn't out of the woods just yet, were bang on... You see the "heat" is back on the Eurozone's debt problems, which is strange in that there were two successful bond auctions by member countries last week... You see, to me this is nothing more than the old saying about when the U.S. sneezes the rest of the world gets a cold, is coming into play right now...

Everyone was just fine with forgetting about the Eurozone debt problems, and focusing on the U.S. economic problems... But then a funny thing happened on the way to the forum, and suddenly, the U.S.'s economic problems got too big, and nasty... So the mental giants of the markets decided that if the U.S. is going back to a recession (I say they never left it!) the rest of the world is going to have problems too, and... "What about those deficit problems in the Eurozone?" See, how their minds work?

So... It's back to the same old grind... Buying dollars, Treasuries, Japanese yen, and Swiss francs... In the last go-around Gold was also bought with this "safe havens" (I call them the "NOT-SO SAFE HAVENS")... But not this time, so far that is... As Gold is down a buck this morning, so biggie... But still... Japanese yen is booking some good gains not only against the dollar, but the euro this morning, and Swiss francs have passed Canadian dollars / loonies once again, in this back and forth game of: it's your turn to be the better performer now...

Speaking of Canada... My fickle friend, the summer wind... No wait! Not that fickle friend, I'm talking about traders... Traders that just a couple of weeks ago, were betting on another rate hike from the Bank of Canada (BOC) are now of the opinion that the markets will have to wait for that next rate hike from the BOC. You see, Canadian consumer inflation printed softer than expected in July, and that has most people throwing in the towel for a rate hike at the BOC's next meeting on Sept. 8th... But... And you knew you could count on me to go against the grain here... I'm still keeping a light on a rate hike on Sept. 8th... If the BOC hikes rates on 9/8, expect them to sound like they didn't want to, and that things are worse than before... In other words, jawbone down the affects of the rate hike on the loonie...

One thing keeping the loonie in play and not allowing it to be drug through the mud like the other Commodity Currencies this morning, is the goings on with Potash Corp, a Saskatoon based fertilizer giant... The world's largest fertilizer producer, I must add! Well, it received a $30 Billion offer last week, and the thought that someone might need to buy that much in loonies to close the deal, has put a floor under the loonie for now...

In Australia this past weekend, an election was held... A bad political move in retrospect... You see, Australia had a PM, Gillard, but she was so convinced that she would win an outright election, so she called for one... Unfortunately, she didn't prove to be as popular as she thought... I had sent a note to Chris on Friday, too late for the Pfennig, so I'll use it here... "Chris, one of the reasons the A$ is getting hammered is that there is so much uncertainty about the election"...

You see, investors, traders, etc. do not like uncertainty... And that's what we had on Friday... And guess what? We still have it this morning, as there was no clear winner of the election! The outcome might not be known for 2-weeks, folks...

Reminds you of our election in 2000, eh? I would have to say on scale of 1-10 for election uncertainty hurting a currency... The U.S. election in 2000 was a 10, and the Aussie election this past weekend was a 5...

Back to the Eurozone for a minute... Eurozone manufacturing dipped a bit in July... The Euro-are purchasing managers index (manufacturing) dipped from 56.7 to 56.1 in July... I don't think that to be a biggie... Nor do I think it's a reason to sell euros this morning...

Not that I want to jump ahead in the week, but for the most part the data cupboard will be producing some very minor economic data this week... That is until we get to the end of the week (see where I was going with that intro?) First, on Thursday, we get Home Price data for the 2nd QTR... And the Initial Jobless Claims, which really threw a spanner in the administration's claim that the economy is recovering, last week... Then on Friday, the 2nd reading of 2nd QTR GDP, which previously was "supposedly" at 2.4%... I told you at the first print that it would be revised down, and that's exactly what I expect for this Friday... So, let me crawl out on that limb right now, and say that I think the revision will be less than 2% growth...

Since I brought this back to the U.S., we might as well talk about a couple of things on my mind this morning... I was reading a story online last night that really got my blood boiling... The writer acted as if he had uncovered the mysteries of the world, in talking about how the buying appetite for 10-year Treasuries had grown so much that "experts" are "starting" to worry about a Treasury Bond Bubble...

Hey dude! I've been calling for that one some time now, you probably should sign up for the Pfennig!

The other thing I was reading about last week, is the fact that individuals are pulling out of their IRA's taking "hardship" withdrawals... And this is not so that they can invest the money in bonds! It's so they can pay bills, and keep a roof over their heads!

If this isn't a sure sign of problems for consumers going forward, I don't know what is!

OK... Let's go elsewhere, I really don't want to begin the week by putting away the sharp objects...

There are rumors in Japan that the Finance Ministry and the Bank of Japan (BOJ) talked last night, and it is being speculated that they talked about currency intervention. I've told you that Japanese leaders are very upset with the strength of the yen, and with this renewed flight to safety going on, yen is set to strengthen even more... I would just say this to those thinking that yen is a ONE-WAY Street... Japanese intervention to weaken the yen is hanging over you like the Sword of Damocles...

Then there was this... I was asked a dozen or so times last week, what I thought about the GM IPO... Now, this isn't a letter on stocks, so I don't want to spend time talking about stocks, but this is a biggie, and since I was asked so much about it, I'll tell you that I think GM's IPO is being rushed to the markets due to politics... The administration wants it done before the November elections... That what I think... Why else would they want to do an IPO when the CEO was just changed, and the company doesn't even have 1 year's worth of earnings data?

To recap, the focus has been shifted back to the Eurozone's deficit problems, as the U.S. economic data had become to frightening! The Aussie election is too close to call, and could take 2 weeks to know the complete outcome. Canada printed a softer than expected inflation report, and most traders have ditched their thoughts of a rate hike at the BOC's next meeting on 9/8... Of course, I took a different view of that, and still believe the BOC will hike rates on 9/8.

Currencies today 8/23/10: American Style: A$ .8960, kiwi .7090, C$ .9565, euro 1.27, sterling 1.5560, Swiss .9665, ... European Style: rand 7.3230, krone 6.2285, SEK 7.40, forint 221, zloty 3.1425, koruna 19.5340, RUB 30.62, yen 85.25, sing 1.3560, HKD 7.7750, INR 46.66, China 6.80, pesos 12.74, BRL 1.7560, dollar index 82.98, Oil $74.05, 10-year 2.61%, Silver $18.04, and Gold... $1,227.10

That's it for today... An absolutely beautiful day here yesterday. It took me getting back into town for the Cardinals to get off their duffs and play some baseball! Little Delaney Grace was over to see me yesterday (really to go swimming, but I say to see me!) She sang for us, and kept me laughing all day! Friday was my darling daughter Dawn's birthday, along with our little Christine's oldest son, Jamieson's birthday... It was good to see Kathy Merritt from Jacksonville. Kathy, Kristin and little old me, had the conn at the San Francisco Money Show. Our customer event was good... As it becomes a 2+ hours of "ask Chuck"... But that's great! If they want to hear what I have to say, so be it! The event was held at a "trendy" restaurant... That's all I'll say about that! But those that know me well, know what I'm saying... And with that, I hope you have a Marvelous Monday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

Mixed data in the US keeps the $ in a tight range ...

ChuckButler — Wed, 18 Aug 2010 16:04:35 GMT

........But first a word from our sponsor.......

Hello currency trading. So long market risk.

The new CD has a funding deadline of September 16, 2010, so you must act soon.

More key details about the CD:

*Earnings tied to the performance of a specific currency index *100% protection of deposited principal when held to maturity *$1,500 minimum deposit *4-year term *No account maintenance fees

Don't miss the September 16 funding deadline. Apply online now at: http://www.everbank.com/001CertificatesMSCurrencyReturns.aspx?referid=11808

EverBank is an Equal Housing Lender and Member FDIC.

...........

In This Issue..

* Mixed US data keeps the $ in a tight range...

* Sovereign debt worries ease a bit...

* Will Japan intervene?...

* Gold attracts some big buyers...

And Now... Today's Pfennig!

Mixed data in the US keeps the $ in a tight range ...

Good day... Chuck headed on a multi stop cross country trek to get out to San Francisco today, so he left the Pfennig to me. I think he said he had to fly through Dallas to get over to San Francisco; just one of the joys of no longer being a 'hub' airport.

There was a plethora of data releases here in the US yesterday, but the numbers offset each other keeping the markets fairly stable. Surprisingly strong Industrial production data was offset by weak housing starts. Other data showed wholesale costs in the US increased in July for the first time in four months, throwing cold water on those warning of deflation. Commodity prices were the main driver of the increases of 4.2% vs. last year. The core price index (ex food and energy) was still up 1.5%, slightly higher than economists projections. The data will quiet those who are warning about falling prices and will likely keep the boys and girls over at the FOMC on a 'steady as she goes' course.

Output from US factories jumped 1 percent in July and the important capacity utilization number ticked up a bit to 74.8%. Chuck has always told us to keep a keen eye on the capacity numbers, as they are a good predictor of economic expansion. The number illustrates what percentage of available output is being used. When the economy is humming, this number tops out around 85%; and any number above 80% is encouraging.

A year ago the capacity utilization fell to a low of 68.3 and has been steadily climbing since, a good sign for the US economy. But after digging a bit deeper into the industrial production numbers I found most of the increases have been due to higher spending by businesses and the US government. The US consumer really hasn't been participating in this expansion yet, so there will be less of a need to restock inventories and this manufacturing data will probably see a drop in the coming quarter.

Offsetting the positive production and PPI numbers were the housing data which showed a further reduction in new home starts. Building permits fell to the lowest level in a year and housing starts showed a smaller increase than what economists had predicted. The housing market is in need of another government stimulus, as mounting foreclosures increase inventory and continue to keep a lid on prices.

A final piece of data released yesterday showed American households continue to have a better grip on reality than the folks in Washington. US household debt shrank by 1.5% in the second quarter and is now down 6.5% from the peak at the end of 2008. Consumers continue to build up savings and hold down spending as a record level of unemployment has them worried about the future. While this is great for the long term health of the economy, Congress is more worried about the upcoming elections, and our administration desperately needs our consumers to start spending.

The euro climbed back toward $1.30 after successful auctions of government debt by Spain and Ireland. I was reading through the Financial Times yesterday, and was shocked by the number of stories and editorials warning of another sovereign debt crisis. It seems many in Europe believe the debt crisis is far from over, but both Spain and Ireland were able to sell bonds at lower yields than the previous sales in July.

We continue to see a 'risk on / risk off' pattern for the currency markets, with worries over the global economic recovery forcing investors into safe haven currencies of Japan, Switzerland, and the US. But recent data confirm that the global economic recovery isn't really global. We continue to see a split recovery, with Asia and the emerging markets climbing out of the downturn much more quickly than either Europe or America. A strong Asian economy will support the commodity countries and will also help some of the big industrial exporting countries like Germany and Sweden.

This split has begun to re-focus currency traders on interest rate differentials instead of 'safe havens'. Higher inflation rates in the emerging markets will force rates higher, encouraging investments into these countries. Safe haven flows into the US and Japan will decrease, causing a drop in these currencies.

But for now the yen continues to attract investors and has approached a 15 year high. There has been a lot of speculation that Japan's policy makers will be intervening to slow the currency's appreciation. The yen has appreciated nearly 9 percent against the dollar this year, and Japan's government will start debating on steps to curb the appreciation next week. Lawmakers from the ruling part urged Prime Minister Naoto Kan last week to consider intervening in the currency market for the first time since 2004. Japan has had a history of intervention, and certainly has the deep pockets to try and combat the currency markets. But intervention only has a short term impact, Chuck has always told us that you can't successfully fight the currency markets over the longer term. I question if the BOJ will want to try and take the markets on alone, and I don't think they will find the US has any interest in helping to strengthen the dollar vs. the yen. Europe will not be too keen on increasing the value of the euro either, leaving the BOJ to intervene on their own.

Gold held fairly steady yesterday as safe have flows were offset by those looking to lock in some gains. An article which appeared in the Investment News yesterday detailed some pretty big bets being waged on the shiny metals appreciation. Hedge funds have become very bullish on precious metals and have made some huge bets on gold funds and mining shares. "Hedge fund managers have been investing in bullion and gold miners after the worst financial crisis since the Great Depression shook confidence in equities and currencies, and as increased government spending fanned speculation inflation may accelerate."

We think precious metals investments should be a part of everyone's portfolios. Gold provides an excellent 'uncertainty hedge' and also protects against future inflation. Gold has had a good run, but with all of the uncertainty in the markets I wouldn't be surprised to see further gains in the precious metals.

Currencies today 8/18/10: American Style: A$ .9015, kiwi .7174, C$ .9713, euro 1.2875, sterling 1.5639, Swiss .9595, ... European Style: rand 7.2543, krone 6.152, SEK 7.338, forint 216.45, zloty 3.0661, koruna 19.273, RUB 30.4113, yen 85.30, sing 1.3503, HKD 7.7714, INR 46.575, China 6.7919, pesos 12.5918, BRL 1.7544, dollar index 82.17, Oil $74.93, 10-year 2.60%, Silver $18.4175, and Gold... $1,223.52

That's it for today... I spent a beautiful night at the ballpark with my wife and some friends last night. Unfortunately the Cardinals gave the game away on a couple of errors, but the evening was still enjoyable. The fifteen degree drop in temperatures and a major drop in the humidity sure makes the evenings a bit more enjoyable. I want to give a Pfennig shout out to Katherine Kuchem this morning, the beautiful daughter of Kristin. Kristin had to rush out yesterday afternoon after receiving a call that Katherine broke her arm in three places after falling out of a tree. Katherine is a real sweetheart, and apparently is also pretty tough! I'm told she was a real trooper, and didn't even cry until after they went to set the bones. Good luck with your recovery Katherine!! Hope everyone has a wonderful Wednesday.

Chris Gaffney, CFA

Vice President

EverBank World Markets

1-800-926-4922

1-314-647-3837

China Reduces Treasury Holdings...

ChuckButler — Tue, 17 Aug 2010 15:49:00 GMT

........But first a word from our sponsor.......

Hello currency trading. So long market risk.

The new CD has a funding deadline of September 16, 2010, so you must act soon.

More key details about the CD:

*Earnings tied to the performance of a specific currency index *100% protection of deposited principal when held to maturity *$1,500 minimum deposit *4-year term *No account maintenance fees

Don't miss the September 16 funding deadline. Apply online now at: http://www.everbank.com/001CertificatesMSCurrencyReturns.aspx?referid=11808

EverBank is an Equal Housing Lender and Member FDIC.

...........

In This Issue..

* TIC data shows negative flows...

* Risk is On today...

* A$ recovers again!

* German ZEW is disappointing...

And Now... Today's Pfennig!

China Reduces Treasury Holdings...

Good day... And a Terrific Tuesday to you! What a morning! It's normal temps, which means the morning air is cool, and every traffic light was green for me this morning! Talk about Smooth Sailing! See, how even little things like that can get me all lathered up? Well... We've got a ton of stuff to get through this morning, so let's get going, eh?

Front and Center this morning, the TIC Flows data from June was very interesting yesterday... Before we get into this, let me explain what I'm talking about for the new "kids" in class... TIC stands for Treasury International Capital, and it's just a fancy way of saying that someone is tracking the Net Security Purchases... Why is this important? Well... Security Purchases by foreigners is how the U.S. finances its ever growing deficit. For, example... The Trade Deficit and foreign direct investment makes up the Current Account... But just to keep this simple, the Trade Deficit in June was $49.9 Billion... The net security purchases to finance that deficit in June was... $44.4 Billion...

So, we were net negative in financing in June... What happens now? Well, we kick the can down the road even further... The U.S. rolls this negative forward... How long can they do that? Well, they can do it as long as foreigners keep lining up to buy... Not until foreigners say "no mas" does it all come crashing down...

So, what's the Big News from the TIC data yesterday besides the fact that we were negative in June? Well... And this is for the guy that keeps writing me telling me I'm wrong about China... According to Bloomberg... China cut its holdings of Treasuries by the MOST EVER in June! Total Chinese investment in U.S. debt declined 2.8% in June, following a 3.6% slide in May...

You might recall that it was June that China made the announcement that they would once again allow more flexibility in the renminbi... Hmmm... You don't think, nah... That couldn't happen, could it? Well, yes it could! China could have very well decided to allow more flexibility, and reduce their reasons for buying Treasuries... Turning instead to Europe and Japan... It's all there in the TIC report...

I haven't always agreed with economist Art Laffer...

But when responding to a question posed to him about China taking over #2 in the World's economies, he said, "China is not our enemy"...

We need to remember this... China has to do what's best for China, just as the U.S. does what's best for the U.S....

So, let me go through this exercise on what happens when the deficit financing comes crashing down... The Gov't has two choices... It can aggressively raise interest rates to make the Treasuries attractive again, or... It can allow a depreciation of its currency, which acts as the "clearing mechanism" for trades... In this case, if the dollar is much weaker, then when foreigners buy Treasuries and convert their base currency for dollars to purchase the Treasuries, they get to buy the Treasury at a "discount" because of the weakness of the dollar.

Now... Which one do you believe the Gov't will choose? What's behind door number 1? Or door number 2? One, brings your economy to its knees, and 2 deep sixes the purchasing power of the currency...

Which one do you believe the U.S. will opt for, given the current state of the economy?

OK... Now that we've gone through all that... The dollar is weaker this morning, along with Japanese yen, and Swiss francs, which tells me that so far, in the Asian and European sessions, it's been a "Risk On" Day... Stocks in Asia and Europe did well overnight, and U.S. stock futures are up, so one would have to think that this dollar weakness would continue once the boys and girls in NY arrive with their Starbucks, and begin their trading days.

The euro briefly traded above 1.29 overnight, as the results of an Irish bond auction were not as bad as some feared, but then was smacked back below 1.29 when German Investor Confidence, as reported by the think tank ZEW, dropped more than forecast to a 16-month low this month... I would have to think that this drop in Confidence stems from the recovery of the euro during June and July... For those of you keeping score at home, check your scorecards, they will show that the euro recovered from a low of 1.1877 on June 7th, and ended July at 1.3179...

Why would Germans get all jiggy with a strong euro? Well, you see, Germany is a manufacturing country, and depends on exports, and those exports suffer when the euro begins to gain against not only the dollar but other currencies as well...

The Aussie dollar (A$) is back above 90-cents this morning... I truly believe the "light" went on for traders yesterday who realized that the A$ was below 90-cents, but had one of the highest interest rates / yields in the world... And while interest rate differentials are not the "end all" of currency valuations, they do go a long way toward attracting investors, and after all, isn't that important? You bet your sweet bippie it is!

Unfortunately for the A$, the Resave Bank of Australia's (RBA) meeting minutes leads me to believe that the RBA is finished raising rates this year, unless, data demands they do so... Given the softer nature of recent economic data from Australia, I would have to say, chances are slim and none, and Slim left town, that the RBA will hike rates again this year... But... They've already done quite a bit a hiking rates this year, so I don't think the A$ will suffer from this revelation...

So... The Swiss franc spend 1-day trading with a better figure than the Canadian dollar / loonie VS the U.S. dollar... But, Oil is trending back up again, after dropping Big Time last week, and once again the loonie is in favor with traders.

In recent days, Gold has traded alongside the likes of dollars, yen and francs... So, one would think Gold to be getting sold this morning, alongside those currencies, as Risk Aversion takes a back seat today... But... As I look at the screens, Gold is up $1 this morning... Hmmm... Gold is at a 6-week high this morning, and I think this is where Gold takes the high road, while dollars, yen and francs, take the low road. And as I've always said I thought a rising Gold price would occur when investors realized the economy in the U.S. was a house of cards, and investors would need to protect their wealth...

I don't want to slight Silver... So... Don't forget about Silver as a protection of wealth too!

And then finally... I love it when I see the likes of Norway rally, for Norway is so fiscally sound, and their fundamentals are above and beyond most countries. Conversely, I also cringe the most when I see Norwegian krone weaken... Norway is too caught up in what the other European currencies are doing and shouldn't be... I think of Norway like I always told my kids when they would say, "but dad, the other kids are doing it" I would tell them, "but, don't you want to be better than the other kids?" "I sure expect you to be!"

Then there was this... One thing I want to bring to everyone's attention...

I get emails throughout the day, with questions as to what's gone on to move the market in a direction that day.

There's a way you may have instant access to currency news throughout the day, by simply going to our website: www.everbank.com then click on the Research & Planning tab, and then click the "Currency News" in the drop down box... Try it... I think you'll like it!

Currencies today 8/17/10: American Style: A$ .9020, kiwi .7090, C$ .9625, euro 1.2880, sterling 1.5630, Swiss .9590, European Style: rand 7.2510, krone 6.15, SEK 7.3355, forint 217.10, zloty 3.0870, koruna 19.2790, RUB 30.42, yen 85.40, sing 1.3545, HKD 7.7690, INR 46.63, China 6.7918, pesos 12.60, BRL 1.7540, dollar index 82.24, Oil $76.11, 10-year 2.61%, Silver $18.56, and Gold... $1,2227.20

That's it for today... And this week for me! I head out the door to San Francisco tomorrow, and Chris will have the conn, once again for the rest of the week. School starts today, and my buddy Alex was heard saying that he can't wait for Christmas Break! I don't think he's going to follow his siblings into teaching! I'll be spending the day today, putting together the Review & Focus, the Currency Capitalist, and my two presentations in San Francisco... Thank goodness Jen is back to take over risk management! I've got some great stuff for my presentations, hopefully it all comes together for me today... And good luck to Alex, as he begins his High School time in life... As I recall, it was a fun 4 years for me! And with that, I'll say bye, and have a Terrific Tuesday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

China Is Number 2!

ChuckButler — Mon, 16 Aug 2010 15:50:38 GMT

........But first a word from our sponsor.......

Hello currency trading. So long market risk.

The new CD has a funding deadline of September 16, 2010, so you must act soon.

More key details about the CD:

*Earnings tied to the performance of a specific currency index *100% protection of deposited principal when held to maturity *$1,500 minimum deposit *4-year term *No account maintenance fees

Don't miss the September 16 funding deadline. Apply online now at: http://www.everbank.com/001CertificatesMSCurrencyReturns.aspx?referid=11808

EverBank is an Equal Housing Lender and Member FDIC.

...........

In This Issue..

* Retail Sales Are Soft...

* TIC data today...

* A$ hangs on to 89...

* Gold adds another $6...

And Now... Today's Pfennig!

China Is Number 2!

Good day... And a Marvelous Monday to you! The Extreme Heat finally broke this weekend, and we're back to normal heat for an August... The heat on the euro and other currencies is still on from last week's FOMC meeting. And we have a new #2 in the world, in terms of size of economy... I head to San Francisco on Wednesday, it'll be a long trek, as finding direct flights out of St. Louis is getting more difficult all the time! UGH!

Well... Friday, we were waiting for the Retail Sales to print... Recall that the BHI (Butler Household Index) had indicated that it would be a bit stronger, and not so disappointing... And voila! That's exactly what happened! July Retail Sales printed at a +.4%, and the previous month's -.5% previous print was revised upward to -.3%... So... Not "as" disappointing!

The July Retail Sales was an opportunity for the economy to shine, and put all that negative stuff to the side of the road for the day and weekend. But, it failed to do so, and thus we're left with no direction for the markets, once again, and the feeling that the only place to be was Treasuries, yen, francs and some Gold, would not leave the markets...

The U. of Michigan Consumer Confidence for this month bumped upward... Why? I mean, did they survey a bunch of people that just came out from under rocks? Stocks are circling the bowl, more and more economists are joining my band, playing the double dip doe-se-doe... But, their survey showed increased confidence? Give me a break!

Apparently, those surveyed were unaware that:

The number of Americans who are receiving food stamps rose to a new all-time record of 40.8 million in May. The number of Americans receiving food stamps has set a new all-time record for 18 months in a row.

Or that:

The U.S. economy lost 131,000 more jobs during the month of July. But the truth is that the U.S. economy has been bleeding jobs for a long time. According to one analysis, the United States has lost 10.5 million jobs since 2007.

Or that:

According to a poll taken in 2009, 61 percent of Americans "always or usually" live paycheck to paycheck. That was up significantly from 49 percent in 2008 and 43 percent in 2007.

OK... I'll stop there, but I could go on... So don't challenge me!

So... As I said near the top, the euro and other currencies still are feeling the heat of a flight to safety that began last week with the FOMC, announcing QE-Light, and that their forecast for the economy was downgraded. However, traders and other participants aren't willing to take the single unit lower right now... I mean with 10-year U.S. Treasuries at 2.63%, and a 2-year at .75%, investors are left to search for yield, and balancing that with safety... Good Luck! So... The whole "shootin' match" is just wandering around in the fog right now.

Last week there were a ton of stories going around about China buying Japanese bonds for safety... At first, a lot of people took this as slap to European bonds... But upon further review (now that football has started again!) According to a "top-level Chinese Central Bank" who said, "we didn't sell any European Bonds or assets, instead we bought quite a lot."

So... The slap is to U.S. Treasuries! But, you'll have people point to the TIC data that prints today, and show you that China is still buying Treasuries... Ahhh, troubadours of Treasuries... Is China still buying the same amount as in years past?

Speaking of China... There had been rumors of this, but now it's official... China is the number 2 economy, size wise, in the world... Now, that China has reached this #2 position, I can't see them being satisfied with being number 2! And don't think for a moment that the Chinese don't realize their increasingly dominant role in the global economy... Besides, every time I type #2 or say number 2, I think of Austin Powers! HA!

So... Let's check the scorecard of milestones that China has reached this past year...

China overtook the U.S. last year, as the biggest automobile market, and they overtook Germany as the largest exporter. And they are the world's number one buyer of iron ore, and copper.... The moved into the #2 position of biggest oil importers too!

So... Does dropping down to #3 lesson the grip Japanese yen has on the "flight to safety" investors? I would hope so... But, with guys like "Mr. Yen" former top currency official in Japan (Sakakibara), saying, "What we are seeing is not appreciation of the yen, but weakness of the dollar, reflecting concerns that the U.S. economy may falter. There is still a chance the yen will reach an all-time high and stay at that level for the time being." then you have to deal with more yen buying... It's that simple...

Of course there's no yield in Japan, there's no yield in Swiss francs either, and I've already told you what you have to accept in the U.S. while taking on risk... So, where does one go? Well... Each investor has his own criteria, so this can't be a blanket statement, but as far as I'm concerned, I would rather be in places like Canada, Australia, and Norway than the U.S., Japan, or Switzerland!

But you can't always fight the "machine"... I always wanted a shirt that said, "I fought the lawn, and the lawn won"... (That's my saying, so if you go and make a million dollars from it, please remember me!) And that feeling creeps into my mantra every now and then when the flight to safety is on... A feeling that I'm fighting a losing battle, but then, I realize...

Hey you ding-dong! Like "Mr. Yen" said above... "it's not appreciation of the yen, but depreciation of the dollar." So, the dollar continues its weakness... But you won't find that in the dollar index, folks... That's because the dollar index is heavily weighted in euros... So, to get any real movement in the dollar index, the euro has to move one way or the other.

Speaking of Japan... Japanese GDP softened in the 2nd QTR, rising only .1% (+.6% was forecast)...

I see where the Aussie dollar (A$) is fighting to hold on to the 89-cent handle this morning... That's a 3-week low for the A$. The heat is on the A$ because the Reserve Bank of Australia's (RBA) meeting minutes will print tomorrow, and there are fears that the RBA talked about pausing rate hikes for the rest of the year... UGH!

And Canada's dollar / loonie is trading lower this Monday morning, falling below 96-cents, but as far as I can tell, the loonie is outperforming its "Commodity Currency Cousins" of Aussie, kiwi, South Africa, and Norway...

The price of Oil certainly hasn't helped the loonie, as the Oil price slid last week from $81 to today's price of $75.75... We've seen these drops before, only to watch the price recover... But for now, Oil is cheaper, and that sure helps at the gas pump, it just doesn't aid the loonie's drive VS the dollar.

So... Like I said above, the TIC-data (net security purchases for the U.S.) will print today... And tomorrow, Housing Starts will print... Get this... Housing Starts are expected to have gained again in July! I thought that inventory was the problem here, but we keep hammering nails...

And Gold... Has added $6 to its figure this morning, moving the shiny metal over $1,220... Just a couple of weeks ago, Gold was $1,161...

Then there was this... I hear that the U.S. mint has already begun to ration Silver Eagle Coins... Do you see what I see? I see huge demand for Silver, and have to wonder just what is keeping Silver from soaring in price? Obviously, the games are still being played, and the CFTC (Commodities exchange) continues to have the wool pulled over their eyes... No wait, not the CFTC, but lawmakers... Yeah, that's the ticket! They claim to have completed a HUGE Financial Overhaul, but none of it touched the manipulation of Silver's price... I don't know all the lawmakers that worked on the financial overhaul bill, but I know one... And you would think that he would have used the tools at his disposal to bring this Silver manipulation to light... Tools... All of them!

Currencies today 8/16/10: American Style: .8910, kiwi .7025, C$ .9590, euro 1.2815, sterling 1.5610, Swiss .9615, ... European Style: rand 7.31, krone 6.2150, SEK 7.42, forint 218.75, zloty 3.12, koruna 19.3850, RUB 30.53, yen 85.55, sing 1.3625, HKD 7.7720, INR 46.78, China 6.8065, pesos 12.71, BRL 1.7710, dollar index 82.56, Oil $75.75, 10-year 2.63%, Silver $18.23, and Gold... $1,222.60

That's it for today... A tough weekend for my beloved Cardinals, as they fell out of 1st place again! Back and forth... UGH! The Rams began their pre-season schedule Saturday night, looking very much like nothing has changed... UGH! A nice sunrise this morning, and it was 71 degrees when I came in today. It hasn't been 71 since Christmas! OK, I got carried away there... It's the last day of summer vacation for my buddy, Alex, as he begins High School tomorrow. I remember when he used to sit on my lap and help me write the Pfennig when he was 3... WOW! Where did the time go? And my darling daughter, Dawn, turns 31- this week! YIKES! I must be getting old! Eh? Well... I guess I had better hit send, as it's late it's late! I sure hope you have a Marvelous Monday, and the start to a Wonderful Week!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837

German GDP Surges Higher!

ChuckButler — Fri, 13 Aug 2010 16:00:01 GMT

........But first a word from our sponsor.......

Hello currency trading. So long market risk.

The new CD has a funding deadline of September 16, 2010, so you must act soon.

More key details about the CD:

*Earnings tied to the performance of a specific currency index *100% protection of deposited principal when held to maturity *$1,500 minimum deposit *4-year term *No account maintenance fees

Don't miss the September 16 funding deadline. Apply online now at: http://www.everbank.com/001CertificatesMSCurrencyReturns.aspx?referid=11808

EverBank is an Equal Housing Lender and Member FDIC.

...........

In This Issue..

* Germany powers Eurozone growth...

* Retail Sales today...

* NZ Retail Sales surge!

* Gold rallies $16!

And Now... Today's Pfennig!

German GDP Surges Higher!

Good day... And a Happy Friday to one and all! It's a Friday the 13th... Now, I don't normally get into all that stuff, but it's fun to talk about! So be careful out there today! Now, with all the depressing stuff in the economy, jobs, investments, etc. I thought that if we decided right out of the starters blocks this morning that we would do our very best to make it a Fantastico Friday, that we could forget about all that stuff... In fact, I'm going to make this a no-bad economy, spin zone today... HA!

Front and Center this morning, there's good news from Germany, the Eurozone's largest economy... Germany's economy grew in the 2nd QTR at the fastest pace since the country's reunification! Ahem... That was 2 decades ago folks! Now... I've seen two different accounts of this report... Bloomberg says it's the fastest pace since the country's reunification, and the Wall Street Journal says it's the fastest pace in 4 years... Come on, can't you dudes get this straightened out?

So... Let's just say, that Germany's economy grew at a fast pace! What was it? Oh, I guess it would help if I told you what the number was, duh... German GDP surged ( I like that word, surged) 2.2% from the 1st QTR, and because Germany is the Eurozone's largest economy, this means the Eurozone economy as a whole grew .7%...

Now... Let me explain what's going on here... Germany is a manufacturing giant of a country, and in the 2nd QTR saw continued euro weakness, thus fueling exports of manufactured items... Now, some of you astute students (HA!) might say, but isn't this the same thing the U.S. has tried to do with the weak dollar? And you would be correct! However, as I've told you over and over again for years now... The U.S. doesn't make things any longer, we became a "servicing" country...

OK, Chuck, that bordered on bad economic news from the U.S., you've got to steer clear of that today...

So... We're half way through the Pfennig this morning, and I haven't mentioned the currencies... I know, I know, this is what you pay for... The currency news! Oh wait, the letter is free! I guess you get what you pay for, eh? HAHAHAHAHA HAHAHAHA!

Any way... The euro, which should have taken that GDP news and run off a nice currency rally VS the dollar, is backing down against the dollar again this morning... When I came in, the euro was 1.2840 VS the dollar, but, 1-hour later, the single unit is hanging on to the 1.28 handle by the skin of its teeth...

Just shows to go you that when the flight to safety is in full force, there's no ability for the risk assets, like currencies to rally even with good economic data!

Shoot Rudy, even France's economy showed some good growth (+.6%)... Remember, this is a no bad economic news spin day!

In New Zealand overnight, Retail Sales printed stronger than expected in June... N.Z. Retail Sales rose .9% in June, which erased the -.2% print in May... The N.Z. dollar / kiwi rallied on this data print, but is beginning to show signs of running out of steam...

Speaking of Retail Sales... That's the Big Kahuna data print from the data cupboard here in the U.S. today. I told you earlier in the week that the BHI suggested a somewhat better print than the recent disappointing monthly reports... But that's not to say that Retail Sales here in the U.S. are rebounding... I couldn't say that, for two reasons... 1. it wouldn't be the truth, and 2. it would be a bad economic story...

Actually, I'm hoping for a very strong Retail Sales figure this morning, so that the dark clouds hanging over the economy like the Sword of Damocles will lighten up...

In Japan, the strong yen, recall I told you yesterday that the yen had traded at a 15-year high VS the dollar on Wednesday, is really beginning to give Japanese officials a rash... You see, Japan needs a cheap yen (again here we are with the manufacturing countries wanting their currency weak to have cheap exports) and they sure aren't seeing a cheap yen these days... The Economist magazine, one of my fave reads, says that the in the race to a cheap currency, the winner is.... The dollar!

You see, the dollar just doesn't get any breaks... When the euro was 1.50, the dollar was getting hammered by the Eurozone exports, and now that the euro has backed off, the yen takes the euro's place as the chief hammer banging on the dollar...

Remember when the Swiss National Bank (SNB) was trying to keep the franc weak VS the euro, as the euro fell against most currencies, including the franc? I would tell you about the SNB intervention, and shake my head wondering just what the SNB was thinking... Well, the final results are in on the SNB intervention, and I'm sure the SNB would rather that people didn't know these results... The SNB lost $4 Billion in their effort to keep the franc weak VS the euro... And in the end... The franc is still strong VS the euro! When will they ever learn? When, will, they, ever... Learn?

Ok... I'm going to have to spin this the right way to keep with the spirit of today's challenge... The Weekly Initial Jobless Claims yesterday printed at 484,000... But that was only 2,000 more than the previous week, so in the way the news media would report it would be something like this... "Initial Jobless Claims Inch Higher" and they would forget about the fact that this number keeps "inching" toward 500,000... The Continuing Claims number was just as bad... But, in keeping with our challenge today, think about it differently than as "bad"... Think about it as pretty soon these people on Continuing Claims will have their benefits run out, and that number will come down...

And here's some good news for the U.S... (right, and I've got some swamp land for sale!) The Average rate on a 30-year mortgage has dropped to the lowest level since Freddie Mac began collecting data in 1971... Oh! 4.44% is the rate... Yes, for people that are home buyers with the ability to repay their loan, that's a GREAT RATE! But I'm afraid that these low rates are going to spur another round of the great housing bubble... The only thing keeping that from happening is the 22% unemployment rate in the U.S.... So, in a way, that's good news, in that the awful labor picture is keeping us from another housing bubble!

This no bad economic news spin zone day is very difficult, folks... And from this point on, I'm not sure I can keep up with this, for, I really want to rip into something or someone right now, but that will have to wait for another day!

Then there was this... OK... I saw a blurb on one of our TV's here yesterday, that said the U.S. would experience the largest tax increase in the history of our nation when the Bush tax cuts expired in January. This did not surprise me, for both the Big Boss Frank Trotter and your Pfennig writer, have been telling people in presentations for 10 years now, that taxes or revenue for the Gov't if you will, was going to have to rise to help finance the deficit... That's one of the reasons I've banged on the rising deficit drum for a decade now... For who wants higher taxes? Not me! And wait until you see what tax increase was in the Health Care Bill... I won't go into that now, but, as the speaker said, "we'll just have to pass it to see what's in it", oh, those words are coming so true... But... No one, can say I didn't warn them... And they said, "deficits don't matter"... Well... When we go to figure out our taxes in the future, we'll become enraged at those words...

But that's not all folks! Rising Taxes are not going to finance the deficit alone, no matter what rate the Gov't decides to charge us... It will take spending cuts, tax increases, and... A cheaper dollar... All those things together might... Just might finance or at least pay the servicing (interest) on the debt we've issued!

Sorry to be a Donald Downer on that last piece, but, when I hear people say "I didn't know taxes were going higher" I just cringe...

OH! And to lift our spirits higher! Gold gained $16 yesterday and hasn't given any of it back (right now) overnight! For once, if there's a flight to safety, I would think that Gold would be the destination, and certainly not dollars, Treasuries, or yen!

To recap... Germany's 2nd QTR GDP grew at the fastest pace in some time (2.2%) and brought the Eurozone GDP to .7%... The euro rallied briefly after the news, but is back to getting sold now, as the "flight to safety" continues. U.S. Retail Sales is the Big Kahuna of data prints today, and I expect the data to be better than the most recent disappointing months... New Zealand Retail Sales were stronger than expected, allowing kiwi to run a bit VS the dollar.

Currencies today 8/13/10: American Style: A$.8965, kiwi .71, C$ .9605, euro 1.2810, sterling 1.56, Swiss .95, ... European Style: rand 7.2945, krone 6.19, SEK 7.4150, forint 219.20, zloty 3.1290, koruna 19.44, RUB 30.54, yen 85.75, sing 1.3625, HKD 7.7715, INR 46.76, China 6.7958, pesos 12.75, BRL 1.7690, dollar index 82.65, Oil $75.90, 10-year 2.71%, Silver $18.10, and Gold... $1,215.00

That's it for today... The end of a very long and hot week... Had my monthly blood check yesterday... All's good... Our Rams begin their preseason tomorrow night... They've been a sorry excuse for a pro team the past few years, but the season begins anew, so good luck to the Rams! It's a Cards-Cubs weekend here in St. Louis, those are special games... But I won't be anywhere near the ball park, as it is too darn hot! I'll watch or listen to the games from the comfort of my recliner, in the A/C! talk about going "soft"! My old football coach always said we would end up on the couch eating chocolate bon-bons! HA! OK... Try to keep cool out there this weekend... And have a Fantastico Friday!

Chuck Butler

President

EverBank World Markets

1-800-926-4922

1-314-647-3837