A Pfennig For Your Thoughts

In This Issue…

  • PPI falls through the floor!
  • Retail Sales disappoint again!
  • An earthquake in Japan…
  • Goldilocks and the Three Bears!

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And Now… Today’s Pfennig!

Retail Sales Revised Down Big Time!

Good day… And a big hello from the Big Easy! Haven’t seen much since my arrival last night, and today I’m a busy bee… (OK, doesn’t that take you back to the bee suit that John Belushi wore as a killer bee?) That’s funny!

Yesterday saw some wild swings in the currencies, with the dollar first losing ground and then gaining it back. The overnight session has seen the dollar continue to gain… Doesn’t make any sense to me, so let’s go to the tape to see if it makes sense to you!

First of all, the Gov’t reported PPI (wholesale inflation) had fallen by 1.6%! Wow! How did that happen? Doesn’t that indicate to you that corporations have not been able to pass along price increases to consumers? And if that’s what has happened, then their profit margin won’t be great shakes, which should hurt their stock price… But these days, it has all gone back to the go-go days of the late ’90s. Investors are taking on more risk than ever… I’m just standing back watching all this unfold…

Then… Retail Sales for October did disappoint as I thought they would, as indicated by the BHI… However, the real kicker here was the revision to last month’s number, which originally printed at a negative .8%… Well, the revision doubled that number to -1.6%! How did that happen? OK… I’ll give them a .1% revision… But a doubling of the number? Geez Louise, I can hardly wait for next month’s revision to the negative .2%!

So… The dollar was sent to the woodshed immediately… But at just about the time the euro and other currencies were ready to make some considerable moves vs. the dollar, things turned on a dime… Couldn’t find a reason on the screens… Couldn’t find a trader friend to tell me what was going on… And then I had to run to catch a plane that ended up delayed! UGH!

There’s breaking news right now coming across my laptop… There has been an earthquake in Japan, and a tsunami warning has been issued…. Northern Japan and parts of Russia would be in the path of a tsunami, and residents have been told to evacuate. I’m sure you’re seeing all of this on your TV…

Yesterday, I talked about the Asian Central Bankers sitting in a room waiting for a sign from one of the bankers that they are going to sell dollars… I know that some of you were thinking… Why would they do that? It would only make their other dollar assets worth less… But here’s how I look at it…

First of all, I believe in trends… Trends begin because of a fundamental reason and don’t end until that fundamental reason has been corrected… These trends last multiple of years… So… If the dollar was to get sold and allow the fundamental reason it has been in a weak trend for 5 years (a runaway Current Account Deficit) to correct, that would be a good thing! And who knows how long that would take?

So… If the Chinese and Japanese own Treasury Bonds that mature in what? 5-7 years? Maybe even longer, why would they care if the dollar weakens during that tenure? As long as the weak dollar trend has ended when their bonds come due?

OK… That’s just me… But it makes sense, doesn’t it? I have to believe the Chinese and Japanese know this… If not… Maybe there’s a Pfennig reader there to point this out to their leaders! HAHAHAHAHA!

Well… What do we have here? Goldilocks and the Three Bears? Here’s the skinny… Fed Head Lacker thinks rates are too low and wants higher rates… Fed Head Yellen wants to wait for the full effect of the 17 rate hikes… And now Fed Head Poole thinks they are “just right”…. Who’s Goldilocks, you might ask? Oh, it could be Big Ben Bernanke… Or it could be Dick Cheney who keeps telling us that Deficits Don’t Matter… Who do you think Goldilocks should be?

Today… We’ll see the notes/minutes of the FOMC meeting held last month… Don’t expect too much… If anything, it would be dollar friendly because I’m sure they are still scared of the inflation shadow….

Oil is on the rise today… So is gold… I’m not saying they are connected, I’m just saying that commodities are all looking a little stronger this morning…

Looks like Wal-Mart and Target are going to go to war over discounting prices for the Christmas shopping season… Oh, that will look good on the profit ledger come January, eh?

Currencies today: A$ .7640, kiwi .6595, C$ .8775, euro 1.2790, sterling 1.8865, Swiss .80, ISK 69.90, rand 7.34, krone 6.4450, SEK 7.11, forint 201.75, zloty 2.9850, koruna 21.97, yen 118.10, baht 36.50, sing 1.56, HKD 7.7870, INR 45.34, China 7.8687, no dollar index today, silver $12.72, and gold… $618.50

That’s it for today… Now begins the longest process when writing the Pfennig on the road… Getting it out! I’m looking forward to the Conference here in New Orleans… Lots of serious investors and great speakers! I host a luncheon today and then speak later this afternoon, should be a fun filled day! Have a great Wednesday…

Chuck Butler
EverBank World Markets