A Pfennig For Your Thoughts

In This Issue…

  • Chuck’s Soap Box…
  • Currencies back off lofty figures…
  • Canada’s Trade SURPLUS!
  • European spending grows…

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And Now… Today’s Pfennig!

Everyone… Just Calm Down!

Good day… And a Happy Friday to one and all! A Friday the “13th”… Oooh, are you spooked out? And it’s a 3-day weekend to boot! This holiday tells me that my annual trip to Orlando Florida for the Money Show is just two weeks away! If you’ve never attended a Money Show, I believe the Orlando Show is the best… If you’re looking for information on the Show, just click here: http://www.intershow.com You know, it’s free admission, and that’s always high on my hit parade!

OK… I think a memo needs to be sent out to the traders and investors that freaked out yesterday, to just calm down! The Trade Deficit came in with an even narrower outcome for November… And it showed imports had fallen… OH, no! Where’s Chicken Little when you need him? Look… Sit down, grab a glass of water, and relax… The Trade Deficit was still $64 Billion in ONE MONTH! And, if you recall, in November, oil prices were way below where they are now…

So… No… The dollar isn’t going to begin to gain favor because the Trade Deficit is coming under “control”… What a bunch of dolts! The “narrowing” isn’t going to make a dent in the Current Account Deficit, which now requires over $3 Billion of foreign investment flowing into the U.S. on a DAILY basis to fund the “unsustainable” deficit that is reaching 6.8% of GDP… The reason I put the word “unsustainable” in quotes, is because I didn’t coin the term when talking about the Current Account Deficit… No… Big Al Greenspan did! But you sure haven’t seen him or his Fed Heads coming up with any plan to deal with it have you?

That’s because they know all too well, what it’s going to take… A recession, high interest rates, and a dollar that is at least 30% below its current value! And when I say recession, I’m not talking about that garden variety recession that we were supposed to have experienced 3 years ago… I’m talking about a down and dirty one, where all the excesses of the last 10 years can be cleansed…

Hey! I’m not a gloom and doom guy… I didn’t say that this what was going to happen… I’m just telling you what needed to happen to get a correction in the Current Account Deficit! I’m also not calling for a complete collapse of the dollar… I’m talking about a straight forward, orderly decline, to bring about the correction…

I have this slide that I show when I do presentations, that shows the dollar’s value VS a basket of currencies (the dollar index if you will), since it was removed from the Bretton Woods Agreement in 1971… It looks like a silhouette of an Olympic downhill run for skiing! Oh, there are moguls, which represent the periods of time that the dollar was strong… But, those times don’t come close to making up the losses taken on by the dollar when it wasn’t strong! Now… This is an orderly decline that has been going on for 35 years, and if we’re all willing to wait another 35 years for a correction to the Current Account Deficit, then OK… Me? I’d rather see it corrected in the near future, so I don’t have to worry about my children and grandchildren (when they arrive)…

Whoa Nellie! Chuck! Get off the soap box!

OK… I’m back now… Well… Did you get the drift from my tirade above that the so-called narrowing of the Trade Deficit, pushed the dollar higher across the board yesterday, and all the lofty currency figures we saw yesterday morning are gone? Well… That’s what that tirade was all about!

Hidden in yesterday’s Trade Deficit hoopla was the fact that the Monthly Budget Deficit came in larger than expected at $11 Billion (VS $7 Billion forecast) and that last week’s foray below 300K for the Weekly Jobless Claims didn’t last long… The Weekly Jobless Claims rose to 315K… So much for an acceleration in employment momentum…

Today, we’ll see the color of the December PPI, and Retail Sales… Since the PPI data is a moving target, I really try to ignore as much as I can… However, the Butler Household Index (BHI) tells me that the Christmas shopping will push Retail Sales higher… We’ll see…

In Canada… Their December Trade SURPLUS came in a bit below the previous month’s figure but still a very nice $6.9 Billion positive to the 4th Quarter’s GDP, which when posted should be quite impressive! Imports held steady near record levels of around $33 Billion. This tells me that domestic spending is robust, and will require future rate hikes from the Bank of Canada!

Speaking of Consumer Spending… The Eurozone’s Consumer Spending for the 3rd QTR rose .3% VS the previous QTR, and this was right at the beginning of the strong economic recovery going on… So… One would think this number to be much stronger now… Which should be good for the euro…

And speaking of the euro… The ECB did leave rates unchanged yesterday, but not only in the Press Conference after the meeting, but also in a TV interview later, ECB President Trichet was very hawkish… Higher interest rates are now in the pipeline for the Eurozone… I will now say that the next move higher will come in March… As long as the ECB remains hawkish, the euro should remain in demand…

Currencies today: A$ .7530, kiwi .6965, C$ .8620, euro 1.2065, sterling 1.7680, Swiss .7790, ISK 61.25, rand 6.0675, krone 6.6750, forint 207.66, zloty 3.16, koruna 23.91, yen 114.61, baht 39.55, sing 1.6315, China 8.0683, pesos 10.59, dollar index 89.32, and Gold… $548.07

That’s it for today… Big weekend for NFL football playoffs, I hope to catch that Pittsburgh / Indianapolis game, that one looks to be a good one! Next week the data cupboard is stocked… So come ready to digest all those numbers! Hope you get a 3-day weekend… I’m looking forward to mine! Have a great Friday (latte’ Friday!) and weekend… Hope your team wins!

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

PFENNIG DISCLOSURE