A Pfennig For Your Thoughts

In This Issue..

  • Retail Sales disappoint…
  • The top auditor tells it like it is…
  • NFPS data day…
  • We’ve got a MVP in St. Louis!

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And Now… Today’s Pfennig!

Big Ben Speaks, and So Does Our Top Auditor

Good day… A mostly range bound day for the currencies yesterday that carried over to the Asian session. The data yesterday was more “muddle through” which didn’t give the dollar reason to rally or get sold… Retail Sales did disappoint, only up .7%, but not as bad as forecast, so… No change…

The dollar did see just a bit, not much, just a bit, of selling, pushing the euro to 1.1725, after the Big Ben confirmation hearing with the Senate Banking Committee… You see, Big Ben has decided to not dabble in things not of the Fed Reserve’s “realm of authority”… That’s fine with me, because I never thought Big Al, should have been sticking his hands in things “not of the Fed” and acting like he knew what he was doing…

However, the dollar did cross a speed bump when Big Ben mentioned that he favored an inflation target… Recall, when he was first announced by President Bush as the replacement for Big Al, the dollar got sold… You see, the problem with inflation targets is what happens if you reach one and you don’t deal with the problem, the central bank loses credibility, and when a central bank loses credibility, the currency usually falls through the trap door…

But, it’s too early to worry about inflation targets, for Big Ben won’t take over the Fed until after the January meeting is concluded… One thing for sure about Big Ben… He’s going to break with Big Al, and in my opinion that can’t be a bad thing, given Big Al’s track record… Please don’t make me go into Big Al’s track record, I really want to be in a better mood today! HA!

Did you see the story on the deficit on the front page of the USA TODAY yesterday? It was titled: “A Fiscal Hurricane On The Horizon”… You see… the Comptroller General of the U.S., David Walker, was speaking to a group in Washington and talking about the nation’s finances going to hell… Or doing an Aaron Neville and telling like it is… Here’s an excerpt from the story… “To hear Walker, the nation’s top auditor, tell it, the United States can be likened to Rome before the fall of the empire. Its financial condition is “worse than advertised,” he says. It has a “broken business model.” It faces deficits in its budget, its balance of payments, its savings – and its leadership.”

Then some stats were thrown out there for all those that love that kind of stuff… “Without major spending cuts, tax increases or both, the national debt will grow more than $3 trillion through 2010, to $11.2 trillion – nearly $38,000 for every man, woman and child. The interest alone would cost $561 billion in 2010, the same as the Pentagon.”

OK… So, I tell you about this stuff all the time, and here’s the country’s top auditor telling us that we’re facing some major doo-doo, unless something is done…

Today, we’ll see two BIG PIECES OF DATA! First, it will be October’s CPI, which I’ve already seen stories claiming that it will be “under wraps”… I say… HARDLY, As If! Anyway, the markets like to use this report to gauge the Fed’s future rate hikes… Ahhh for-get-about-it!

The other piece is one that used to get some major headlines, and that is the Net Foreign Security Purchases (NFSP) for September, which is expected to be around $70 Billion. At $70 Billion, the Current Account Deficit and net investment flows are just barely covered… So, any move below $70 Billion could bring about some angst in the markets, and push the dollar lower… You know me though, I like to look at the what makes up these NFPS, which for the last year, tells us that foreigners have stopped buying equities, and the last report told us they had moved their risk aversion higher, buying mostly Corporate Bond issues that have higher yields than Treasuries…

There’s all kinds of things you can read into that, but let’s focus on this month’s report to see if there is a new trend developing…

One more example of how this administration wants a weaker dollar was front and center yesterday with President Bush calling for China to make their currency more flexible. If you don’t believe the administration wants a weaker dollar, then how do you explain the President, Treasury Sec. and countless lawmakers urging China to revalue their currency VS the dollar, when they know all too well that the renminbi is grossly undervalued VS the dollar… If China revalues, the only way it goes at this time is UP VS the dollar…

Back in the Americas… I’ve been watching that Mexican peso for weeks now, and it sure looks to be a pure oil play… A reader asked me yesterday why the peso had remained so firm, and I said… Oil that is, Black gold, Texas Tea. So, if you believe oil prices will remain high, this might be a destination for your currency investment. However, having said that, I still shy away from currencies that have skeletons in their closet like pesos… But who knows? That could all be in the past for the peso now…

While we’re in North America, might as well take a quick look at loonies, to see how they are performing these days… (I really look at it all day long!) As suspected, the loonie seems to be avoiding any run in with the possibility of early elections, and continues to perform well VS the greenback. Commodity prices go a long way toward loonie strength, and those commodity prices, led by oil, have all been retracing a bit lately… But as I’ve explained many times in the past, I don’t expect the commodity bull-market run to end for some time to come…

Currencies today: A$ .7560, kiwi .6843, C$ .8375, euro 1.1690, Sterling 1.7270, Swiss .7560, rand 6.7680, krone 6.68, forint 214.50, zloty 3.41, koruna 25.07, yen 119.30, baht 41.18, sing 1.7030, China 8.0835, pesos 10.6370, dollar index 92.40, and gold… $471.70

That’s it for today… Better hang onto your hat this morning with CPI and NFPS data due… Congratulations to Albert Pujols for winning the National League Most Valuable Player! I stood up and cheered when I heard that news yesterday! Our first MVP since the lovable Willie McGee in 1985! Whoa, that was 20 years ago, where did that time go? Oh well… Have a great Wednesday!

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

PFENNIG DISCLOSURE