A Pfennig For Your Thoughts

In This Issue…

  • Trade Deficit “narrows”
  • Budget Deficit widens…
  • Gold to $850?
  • Retail Sales report today…

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And Now… Today’s Pfennig!

A One-Off Narrowing For The Trade Deficit…

Good day… Well… The liquidity in the currency markets gets taken down a few levels as London comes to a close this morning… Tomorrow and Monday are holidays in Europe and many other places in the world. (Must be nice, eh?) Anyway… Be prepared for some potential swings on the lack of volume and liquidity from now until Tuesday…

Well… As Don Meredith used to sing on Monday Night Football, when a game looked over… “Turn out the lights, the party is over”… So… Was the reaction by the media regarding yesterday’s U.S. Trade Deficit, which “narrowed” to $65.7 billion… I told you it would probably “narrow” since oil prices had backed off in January and February… I did see someone that had the right idea being quoted… This person told the MarketWatch people that this was a one-off blip in the deficit, and given what oil prices have done recently, the deficit next month should be bad… I agree…

So… The dollar gained a bit vs. the euro and yen… But that move was capped quickly… Today, we’ll see the color of the March Retail Sales, which have already had a downward revision to February’s awful showing of -1.3% to -1.4%… The BHI tells me that Retail Sales rebounded in March, as I saw plenty of shopping bags entering the house… For new readers, and according to the list server’s record, there are lots of them every week… The BHI is short for the “Butler Household Index”… I have long used this as my indication of what the national Retail Sales number would look like… And believe it or not… It has been quite uncanny with its accuracy…

So… The BHI says Retail Sales will have rebounded in March… But will it be enough to bring the dollar bulls out to play? We’ll also see the Weekly Jobless Claims, and the U. of Michigan Consumer Confidence… If you’ve filled up with gas, like I did this morning on my way to work, I don’t see how you can be very confident with what’s going on around you… House prices are heading down… Interest rates are heading up… And oil prices are going to put a damper on your discretionary spending… That’s not even taking into consideration a war going on, mounting deficits and bankruptcies… Confident? Hardly!

Brown Brothers and Harriman & Co is not going to let the deficits in the U.S. get them down… A report issued yesterday says that investors should ignore the U.S. Deficits…

OK… They’re right… You and I should ignore them, let our children and grandchildren worry about them! I shake my head in wonderment…

Oh… And the Budget Deficit was larger than expected coming in at $85.5 billion! But don’t worry about those things… Yeah, right!

Well… There was a cool story on MarketWatch yesterday regarding gold… Here is some of it…

“Gold may post further strong gains in the next two years — and even surpass the 1980 high of $850 an ounce — as the U.S. economy slows and the dollar loses ground.

That’s the key finding of the GFMS Gold Survey 2006 published Wednesday.

“Levels safely over $600 are now in our sights and further hefty gains over the next year or two are quite possible — in the right circumstances, the 1980 high of $850 could even be taken out,” said Philip Klapwijk, chairman of the independent precious metals research consultancy.

Gold will continue to find support from inflationary pressures and political tensions in the Middle East, retaining its role as a safe-haven investment. “You’re playing with fire if you ignore the weight of money argument, looking ahead into 2006,” said Klapwijk.”

Down in the South Pacific, New Zealand posted a very strong Retail Sales figure in February of +1.9%! This is the first positive number in Retail Sales here in 3 months… The kiwi had a very strong day of recovery and drove the currency back over the 62-cent figure… Nice… Very Nice! But be careful here… New Zealand is still sporting a Current Account Deficit of almost 8% of GDP… The currency is down 9% vs. the greenback this year, and while this was a nice move upward, I look at it simply as a better level for those looking to sell when their CD’s come due!

The Asian currencies have all taken a breather this week, including the Chinese renminbi, which has declined vs. the dollar the last two days… I think this is simply the Chinese gov’t making certain that speculators don’t think the renminbi is a “one-way ticket”… It won’t win them any friends and influence enemies in the U.S. or among speculators… But I really don’t think the Chinese give a hoot!

I was just checking the trading screen for bonds and noticed the U.S. Treasury 10-year Note has finally climbed back to 5%… That’s the first time the yield on the 10-year has seen 5% in 4 years! It’s going to take higher yields to attract foreign investment to finance the Current Account Deficit….

Speaking of financing the Current Account Deficit… Tomorrow, when the stock market is closed, and Europe is closed, and the only thing open are U.S. Banks… We’ll see the February Net Foreign Security Purchases (NFSP)… The total NFSP has fallen since posting a high of 106.45 in October 2005… This report is forecast to come in around $58 billion, which is nowhere near the amount that’s needed to finance the Current Account Deficit…

Gas up, ATM, and Krispy Kremes for the boys and girls on the desk has me running late today… So I’ll head to the Big Finish, and talk to you tomorrow… Good Friday!

Currencies today: A$ .7280, kiwi .62, C$ .8720, euro 1.2110, sterling 1.7535, Swiss .7710, ISK 76.20, rand 6.13, krone 6.49, forint 221.23, zloty 3.26, koruna 23.70, yen 118.50, baht 38.12, sing 1.6075, China 8.0186, pesos 11.08, dollar index 89.63, silver $ 12.67, and gold $596.70

That’s it for today… Long day yesterday… At least the sunlight lasts longer into the evening now that it’s spring… EverBank has something new that will appear on the website tonight… We’ll see how many people check it out! Gotta get to the trading, as I’m skipping out early today… My little buddy has early dismissal from military school! Just kidding… Have a great Thursday!

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

PFENNIG DISCLOSURE