A Pfennig For Your Thoughts

In This Issue…

  • A range bound recovery in currencies…
  • CPI and NFPS today…
  • Thoughts on Gold…
  • A rate increase in Thailand…

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And Now… Today’s Pfennig!

Thailand Raises Rates!

Good day… Well, while range bound, the currencies did manage to eek out a gain VS the dollar yesterday… No biggies… But a positive move just the same. I expect to see these kinds of moves throughout 2006… Not wide market shaking daily moves, just positive moves that keep adding up and by the end of the year…. We’re smack dab in the middle of the underlying weak dollar trend once again.

Overnight, the Japanese yen has seen a revival of sorts VS the dollar as traders and market observers are beginning to think that the Bank of Japan will indeed move Japan’s interest rates off the zero rate policy soon… They were given that thought by Bank of Japan (BOJ) Gov. Fukui, who told reporters that the Japanese economy is “firm”. I hope this enthusiasm is carried through after the Cabinet report today on the economy… Most observers feel that this report too will confirm Japan’s economic strength will remain throughout 2006…

The euro has seen a nice recovery since the beginning of the year, and really since mid-November when it hit a low of 1.1640… Today, the euro is trading at 1.2130… I mentioned on the desk last week, that I would love to see the euro finally put 1.2150 in its rear view mirror, and head to 1.22… The euro has attempted a run at 1.2150 twice in the last week, with the most recent move last night, only to fall back… In my years of observing currencies I have to say that this is a two edged sword… Dollar bears and speculators might try to continue to push it higher… Or, they may just give up and take their focus someplace else.

I’m pinning my colors to the mast of the first edge… I believe that as we go along in 2006, the financial stresses on the U.S. and the global imbalances will come front and center, and the dollar will be much weaker…

Today, we’ll see what CPI brings us… As long time readers will attest I truly dislike this piece of data… It does not show the entire picture of inflation in this country… But nonetheless the markets are “taken” by the data, which is expected to show December’s consumer inflation to have risen .2% to end the year at 3.6%… That’s the core, and the only number I even care about… But for those you keeping score at home, the “Ex Food and Energy” number is expected to be 2.2%…

We’ll also see the Net Foreign Security Purchases (NFSP) for November… This data is supposed to track the net of inflows and outflows of security purchases… For over a year now, equities have taken a back seat to Treasuries and Corporate Bonds when it comes to foreign investment in U.S. assets… I’ve said for months now that this scares the bejeebers out of me, for we all know that it’s really Asian Central Banks that are doing the buying… And I’ll continue to question their ability to continue to add to the books, as the U.S. Current Account Deficit continues to spiral out of control…

The November tally is expected at $85 Billion, which the people that see the glass half full will be doing cartwheels over, and shouting how deficits don’t matter… And then there’s the people like me that in this case see the glass half empty, and see that the November tally is $21 Billion below October’s tally, and wonder if this is a trend…

Overnight in Thailand, the Bank of Thailand moved interest rates higher again by 25 BPS to 4.25%… That’s their 14-day repo rate, but it’s also the highest Thailand’s rates have been since 2000, so… Talk about a disappearing interest rate / yield differential! Thailand’s rates are keeping pace with those in the U.S., and since Thailand’s balance of payments are on a different end of the spectrum than the U.S. the baht is gaining favor with investors once again…

The Central Bank Gov. also mentioned after the rate announcement that inflationary pressures still exist, and that interest rates are still on an upward trend… So, baht has that going for it, eh?

Regarding Canada’s upcoming election… It now appears that the conservatives have an 18 point lead in the most recent polls… It will really help the loonie to not have uncertainty around this election, which it now appears to be the case…

I want to share a thought with you regarding Iran… Recall, last week that I expressed my concern with all the rhetoric regarding Iran? Well, I’m even more concerned now… You have to believe that there will be forth coming sanctions that they U.N. will probably throw at Iran… To that end… I have to wonder if Swiss Francs don’t get an extra boost during this time of heightened tensions…

For the first time in awhile, Gold has not risen when the dollar has weakened… The trading recent trading pattern had Gold going higher no matter what was going on with the dollar… Up, down, sideways, it didn’t matter, Gold was going higher… But not last night… Gold has fallen from the near $558 level of yesterday to $544, and now has recovered a bit to $546… I think you can look at the move in the Nikkei (Japan’s stock market) last night as a reason for Gold’s sell off… The Japanese have recently been locking in gains in stocks and putting the cash into Gold… But, the Nikkei sold off by 2.94% last night and from what I see… spooked some investors… No worries from my end… As I’ve said before, Gold is more than welcome to back off and form new bases before heading higher, which gives new buyers better levels to purchase the shiny metal!

The Commodity Currencies of Aussie, Canada, and New Zealand, have all taken a step backward this week… We’ve seen this trading pattern before… Commodity prices take a breather and these currencies get whacked, only to rebound, once Commodity prices get back on the rally train… I expect this to be the case once more…

Currencies today: A$ .75, kiwi .6890, C$ .8580, euro 1.2120, sterling 1.7670, Swiss .7835, ISK 61.55, rand 6.075, krone 6.70, forint 207.90, zloty 3.18, koruna 23.83, yen 115.15, baht 39.40, sing 1.6290, China 8.0685, pesos 10.6080, dollar index 89.06, and Gold… $546.33

That’s it for today… Picture day was interesting… The photographer kept wanting me to smile… I said, “Give me something to smile about, I can’t fake a smile!” Hey! Did you see the nice article in the Monday CBS MarketWatch on our Gold CD? I forgot to mention it yesterday, but it was Marshall Loeb’s column, and yours truly was interviewed for the article… I’m really surprised that I haven’t received more requests for interviews regarding our Gold CD, since it was named one of the TOP 10 FINANCIAL INNOVATIONS for 2005! Oh well… They don’t know what they are missing! Have a great Wired Wednesday!

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

PFENNIG DISCLOSURE