A Pfennig For Your Thoughts

In This Issue..

  • Dollar resumes jackhammering…
  • “New Economy” part 2…
  • BHI says Retail Sales will disappoint!
  • Japanese stocks soar!

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And Now… Today’s Pfennig!

Repatriation Is The Key…

Good day… I’m back… I’m back in the saddle again! A little worn out… That travel stuff really tires me out, and what I thought was my “allergies” acting up, has turned to a head cold, so a double whammy on the old Pfennig writer! I had a good time telling the story of World Markets to the Jacksonville crowd yesterday…

Well… We saw more jackhammering by the dollar yesterday, on my way to the airport, I checked the currency prices and saw that the euro had fallen below the 1.17 handle… And the 1.16 handle isn’t looking as though it’s going to put up much resistance… The euro selling has, as always, spilled over to all the other currencies, with yen posting the largest move down as it has fallen to 119 and change…

The repatriation of dollar profits by U.S. corporations is really playing heck with the currencies as we head into the last 6-7 weeks of the year, when the window closes on this piece of legislature that allowed U.S. Corporations doing business overseas an amnesty… Yes, they could repatriate their profits that have been held abroad back to the U.S. at a much reduced tax rate, as long as they used it to promote job creation… (of course there is no “tax police” to make certain that’s what they do…) This repatriation is much bigger than the bread box I thought it would be, and now with the year winding down, the activity is furious… This is a huge reason the dollar owns a jackhammer right now!

I hope you all read the part in the Pfennig yesterday that dealt with this “deficits don’t matter” idea that’s sweeping the markets right now… I really do think that this is very similar to the B.S. of the dot com era… “The new economy”…. Recall that when the “new economy” was being questioned, stocks kept rising… Much like the dollar is now, when we all know that deficits do matter, and they will come back to haunt the dollar at some time in the future… As Warren Buffett said, “This is not a forecast for today, tomorrow, next week, next month or even next year.”

What he’s saying there is that he doesn’t know, just like the rest of us, when this dollar selling might occur, so he’s not betting any timeframe… But he believes it will happen…

OK… The data cupboard begins to get emptied again today with October readings of Retail Sales and PPI… The Empire Manufacturing Index will also print, but that report is prone to such wild swings, I normally try to ignore it… Retail Sales, according to the BHI, will disappoint, and PPI is forecast to back off last month’s 6.9% rise… I don’t believe any of the Government’s figures when it comes to wholesale of consumer inflation, so I’ll just leave that one right there… A bad Retail Sales number however, could be a harbinger to the Christmas sales season… Hard to tell…

German investor Confidence unexpectedly fell this month, even in the face of the government report that showed economic growth accelerating last quarter. Hard to say what it was that caused this unexpected move down…. I would have to think that it comes back to the all the tough talk ECB members have been barking about… Unless they have been living in a cave, Germans know that interest rates are going to move up soon, and that could be the reason for this move… Anyway, the report didn’t do the euro any favors this morning…

OK… Please don’t read this carefully…. A former George Soros advisor, Takeshi Fujimaki, believes the yen may decline to 150 VS the dollar by the end of next year… Now… I have to stop this in its tracks! Why would the yen go to 150 now, when the economy is growing, foreign investment is at all time highs, and the Bank of Japan most likely will get off its zero rate interest policy next year? Shoot, yen never got to 150, when deflation had a strong grip on the economy for over a decade, foreigners wouldn’t touch Japanese assets with someone else’s 10-foot pole, and interest rates were falling to zero… So why would it now?

Waiter…. I’ll have what Mr. Fujimaki is having please…

Oh… And one more thing to think about is the fact that Japanese stocks are soaring, and most of it is driven by foreign investors… The NIKKEI is up 22.66% this year… The S&P 500 here in the U.S.? +1.80%… And if you go back 3 years to 2002, you’ll find that the S&P 500 here in the U.S. is basically flat! Japanese stocks are kicking some major tail right now, and have been for over a year now…

Of course that’s no consolation for yen investor with the yen trading above 119! And here, I just don’t know what to say… I’ve said it all before, and screamed at the walls, and pounded my head on the desk…

The fixation that the markets have with interest rates right now, is what it is… Recall, back in 2001, when the markets rewarded currencies of countries that were doing whatever it took to spur economic growth, which meant rate cuts? The markets are fickle, and change whatever they want to use as an indicator… But just like in 2001, and any time in the past, eventually the get back to the package of fundamentals…

Currencies today: A$ .7295, kiwi .6830, C$ .8370, euro 1.1660, sterling 1.7325, Swiss .7570, rand 6.80, krone 6.6850, forint 214.80, zloty 3.4320, koruna 24.12, yen 119.30, baht 41.21, sing 1.7050, China 8.0845, pesos 10.67, and gold… $467.33

That’s it for today… Today is the 15th of November, can you believe it is half over? Next week is Thanksgiving! Then I’m on the road again to Ft. Lauderdale, for an International Living Investment Conference… Good luck to our own Albert Pujols today… Yes the vote for National League MVP is revealed today, and I sure don’t want them to say… “we’re so sorry, uncle Albert”… (Paul McCartney fans will recognize that one!) Have a great Tuesday!

Chuck Butler
President
EverBank World Markets
1-800-926-4922
1-314-647-3837
www.everbank.com

PFENNIG DISCLOSURE