In This Issue.

*  Euro data disappoints.
*  A$ gets push back.
*  Gold holds strong at $1,250.
*  James Rickards on inflation.

And, Now, Today's Pfennig For Your Thoughts!

Another Recession For The U.S. In 2014?.

Good Day!  And a Wonderful Wednesday to you! Well, the weather-guessers were wrong about the blizzard yesterday, but. this morning, there's still a chance they may be right, late, but right.  I slipped and skidded in this morning, the roads hadn't been touched, but I guess I need new tires, for I wasn't getting much traction! Tires are important I get that! But I hadn't experienced any problems up until this morning. So. warning well received!

I guess what hit us yesterday and still this morning is on its way east, so you've got that going for you, if you live east of St. Louis!  I heard that term I used above while I was gone, and thought it to be so apropos. “weather-guessers”.

Well, the “economy-guessers” are really taking a blow to the gut these days, I mean this scenario of starting the year, with thoughts that “this was going to be year the economy soars” that has played for 5 consecutive years, is beginning to show its true colors once again, and one day, instead of asking the Goldman's, Merrill's, Deutsche's, or even Paul Krugman, they'll call up Chuck, and say, “What are you thinking about the economy this year?”  HA!

The currencies are searching for a bid these days, trading in the same clothes day after day.  Stuck in the mud is what they are, but I guess that's better than getting sold for no reason!  This morning, the euro has backed off a bit on news that Eurozone Retail Sales dropped -1.6% from December, and -1.0% annually. The final aggregate PMI reading for the Eurozone, was 52.9 which was a bit softer than the November print of 53.2.  So, all-in-all, not good data for the Eurozone this morning, and thus the weaker euro as I write.

The Aussie dollar (A$), which has enjoyed the first two days of this week's trading, saw some push back overnight when it was learned that even though the Reserve Bank of Australia (RBA) had dropped their language about the currency being too strong, and that they were satisfied with the current rate structure, some Aussie banks are still saying they believe another rate cut is coming. This is the type of stuff that usually has a knee-jerk reaction for a currency and then its swept under the rug, as I suspect this will be the case here.

You know, the IMM futures positions showed that going into last week there were a record number of short positions in the A$… But when the RBA made their comments earlier this week, that caused the majority of those short positions to be closed out, and thus we had the A$ rally going on.  The A$ will need a new reason to buy the currency after the short position close out, so be careful reading a long term rally into this move by the A$ this week.

I continue to prefer the New Zealand dollar / kiwi right now given the rate hike prospects for the currency. As I told you yesterday, I see the Reserve Bank of New Zealand (RBNZ) getting around to that long awaited rate hike at the March meeting. I know,  a lot can happen between now and the March meeting, that could change that outlook. But, I'm pretty solid in my boots on this one folks.

But overall, we're seeing the tight ranges that I talked about above hold true to form this morning.  Gold, on the other hand, found a bid late yesterday afternoon, and was able to carve out a small gain, but that was significant because it kept the shiny metal above the $1,250 level that I told you I believe is psychological, and this morning Gold has added a shekel or two to its value. I told you the past couple of days how I was seeing more bullish talk about Gold once again, and it continued yesterday as I read an article by the Casey Research team written by an acquaintance, Bud Conrad, on why he felt Gold should be bought right now!

And then I also spent a long time reading James Rickards' latest article, that I found on Google+. I'm going to highlight this article in the FWIW section today, but just to whet your whistle, here's James Rickards talking about inflation here in the U.S.  I took this from the 5 Minute Forecast. These guys do such a great job each day.

“The Fed is trying to tip the psychology of the consumer toward spending,” explains Currency Wars author Jim Rickards in a recent Op-Ed. “This is extremely difficult to do in the short run.

“But once you change the psychology,” he adds, “it is extremely difficult to change it back again. If the Fed succeeds in raising inflationary expectations, those expectations may quickly get out of control, as they did in the 1970s. This means that instead of inflation leveling off at 3%, inflation may quickly jump to 7% or higher. The Fed believes they can dial down the thermostat if this happens, but they will discover that the psychology is not easy to reverse and inflation will run out of control.”

Boy the Richard Russell article snippet I gave you yesterday was well received by quite a few readers who wrote to tell me so.  That was great! If you missed it, you can certainly read yesterday's Pfennig on the Pfennig blog site at:

My friend, Jim Powell, a great writer, I must add, had a great line in his latest newsletter. “in the land of the blind the one-eyed man is king”. he believes that the remark describes the U.S.  quite well!  My question would be, but for how much longer?  I also heard a strange comment last week in Orlando from someone that attended my talk on China. She told me that she attended a presentation by a well known writer, and he said that China won't ever have the reserve currency of the world, because, the reserve currency has always belonged to the country that had the best navy.  Well. that may be. now.   But what about the future? As I always say, I'm not saying that the Chinese renminbi / yuan is going to replace the dollar as the reserve currency today, tomorrow, next week, month or even year, but it's going to happen, just watch.

The U.S. Data Cupboard, which hasn't been a place of refuge for the dollar lately, is taking another breather today with only the ADP Employment Change report  and Mortgage Applications printing today. There some other stuff, but it's all minor league stuff. Yesterday, December Factory Orders fell -1.5%, wiping out the November gain of 1.5%… So, two months running, Factory Orders were nil. And that pretty much describes the U.S. economy. But, not according the Fed Heads, who see through their rose colored glasses an economy strong enough to taper stimulus, but not strong enough to hike interest rates.. Hmmm. strange, I know, but it is what it is.

The price of Oil has been rising steadily this past week, and this morning is trading with a $98 handle. The usually strong pull that the price of Oil has on the petrol currencies that include: Canada, Norway, Brazil, Russia, U.K., and Mexico, has failed to materialize this time around. I would think that eventually these petrol currencies will play catch up, should the price of Oil continue to be strong. But for now, they are ignoring the rise in the price of Oil.

The Emerging Markets have really been on the skids since the Fed's first Taper announcement. But the past couple of days have seen these markets gain some relative calm, and even gain a shekel or two. I'm writing an article for the World Money Analyst on the Emerging Markets this month (due next week! ) And while I'm thinking that short term (this year) these markets could see weakness, I also think that long term, this is where the majority of the global growth will come from.

For What It's Worth.  OK. this might be a little long, but well worth the read, as James Rickards, author of Currency Wars, talks about how the U.S. will most likely experience a recession this year. Let's listen in.

“The end of any recession marks the start of a new recovery. Since mid-2009 economic cheerleaders have consistently suggested that the recovery was gaining strength and that growth was moving back to its long-term trend of about 3.5% per year. In the summer of 2009, talking heads spoke of “green shoots.” In early 2010, Treasury secretary Timothy Geithner predicted a “recovery summer.”

Every year since, economists have predicted strong growth in the second half of the year and every year those expectations have been disappointed. In fact, the current recovery has been one of the weakest on record with total jobs, labor force participation and real incomes all below the peaks they reached in 2007, and growth has been well below its potential. There has been a recovery in the stock market, and housing prices have recovered some of their losses, but these trends should be viewed as asset bubbles resulting from Fed easy money policies and not solid indicators of real growth.

In fact, there is good reason to believe that the economy is heading for another recession soon, rather than the more robust growth economists keep predicting. Throughout this recovery, the economic fundamentals have never been strong. More than 50 million Americans are on food stamps, 26 million Americans are either unemployed, underemployed or have given up looking for work, 11 million Americans are claiming disability payments – effectively a new form of unemployment insurance, and labor force participation is at the lowest level since 1978 when women began to enter the workforce in great numbers. These data are consistent with a depression. By themselves, these fundamentals do not mean the economy is technically in recession, but when combined with other developments, it appears that a new recession may be looming.

The first issue is longevity. The average postwar recovery lasted 57 months and this recovery is now 54 months old. This does not mean that a new recession must begin soon, but it is certainly a sober backdrop against which to consider other data. It means that a recession in 2014 is a likely possibility.

Other factors are equally downbeat. The Gallup organization reports that 2013 holiday spending plans are down 10% from 2012 levels and 19% from the levels of 2007. The last two times Gallup showed a year-over-year slump in holiday spending plans, the economy did enter a recession soon after. Other recent data show declining home sales and declining home prices. These data are all consistent with a new recession despite booming stock markets.”

Chuck again, Mr. Rickards goes on with thoughts on why he thinks a recession is in the cards for the U.S. this year, and you can read it all here if you like by clicking here:

To recap. The currencies are trading in very tight ranges, as if they are waiting for something Big to happen. The euro saw some weakness this morning after Eurozone Retail Sales dropped in December (same as they did here in the U.S)  And the A$ has seen some of its recent gains pushed back by some Aussie banks still holding out their call for another rate cut, even though the RBA basically has called rate cuts off for now.  Gold held strong to $1,250, and has added a few dollars in gains. U.S. data was ugly yesterday, which plays well with the other ugly data previously printed so far this year.

Currencies today 2/5/14. American Style: A$ .8930, kiwi .8230, C$ .9050, euro 1.3515, sterling 1.6280, Swiss $1.1055, . European Style: rand 11.0730, krone 6.2590, SEK 6.5325, forint 227.35, zloty 3.10, koruna 20.3590, RUB 34.76, yen 101.20, sing 1.2685, HKD 7.7620, INR 62.57, China 6.1050 (still on holiday), pesos 13.32, BRL 2.4030, Dollar Index 81.08, Oil $98.07, 10-year 2.62%, Silver $19.65, Platinum $1,384.38, Palladium $710.00, and Gold. $1,258.81

That's it for today. OK. a bad night for my sports teams. Our Blues were winning by two goals when I went to bed last night, but I see they lost in a shoot-out, which I will come right out and say is the dumbest way to decide a game, hockey and soccer do this. At least hockey drops it for the playoffs. And my beloved Missouri Tigers lost their basketball game at Florida.  Well, it's still too early to tell if we'll have a lot of no-shows today because of the roads. I actually finished the letter this morning very early, because I got here earlier than usual. I just heard from Jen that she won't make it in, so, there's one down.  I think today is the national letter of intent signing day for high school football players. I sure hope my Tigers find some great recruits out there!  And with that, I'll say that I hope you have a Wonderful Wednesday. Stay warm and dry!

Chuck Butler
EverBank World Markets